As filed with the Securities and Exchange
Commission on November 10, 2010
Registration
No. 333-168852
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Amendment No. 3
to
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
REVA Medical, Inc.
(Exact name of Registrant as specified in its charter)
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Delaware
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3842
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33-0810505
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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5751 Copley Drive, Suite B
San Diego, CA 92111
(858) 966-3000
(Address, including zip code, and telephone number, including
area code, of Registrants principal executive offices)
Robert B. Stockman
Chief Executive Officer
5751 Copley Drive, Suite B
San Diego, CA 92111
(858) 966-3000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Michael S. Kagnoff, Esq.
Jeffrey C. Thacker, Esq.
DLA Piper LLP (US)
4365 Executive Drive, Suite 1100
San Diego, California 92121
Tel:
(858) 677-1400
Fax:
(858) 677-1401
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the
effective date of this registration statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) 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. o
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. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) 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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
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CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Title of Each Class of
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Aggregate Offering
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Amount of
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Securities to be Registered
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Price(1)
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Registration Fee
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CHESS Depositary Interests
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$ 95,000,000
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$
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6,774
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(2)
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Common Stock, $0.0001 par value per share
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(3)
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(1) |
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Estimated solely for the purpose of calculating the registration
fee in accordance with Rule 457(o) under the Securities Act. |
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(2) |
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$6,275 previously paid. |
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(3) |
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Pursuant to Rule 457(i), no additional filing fee is payable
with respect to the shares of common stock issuable upon
conversion of the CHESS Depositary Interests because no
additional consideration will be received in connection with the
conversion. |
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.
EXPLANATORY
NOTE
This registration statement relates to the initial public
offering of CHESS Depositary Interests, or CDIs. We will apply
for the CDIs to be listed and admitted to trading on the
Australian Securities Exchange, or ASX, which is expected to be
the principal trading market for our CDIs following our initial
public offering, within seven days of a prospectus being lodged
with the Australian Securities and Investments Commission, or
ASIC. We are offering CDIs on a minimum/maximum basis, and any
offering outside of the United States to non-U.S. residents will
be conducted by the placement agent. The placement agent has no
obligation to purchase any securities and will act to place the
securities on a reasonable endeavors basis, which
means that the placement agent must act reasonably under the
circumstances to place the securities. CDIs are units of
beneficial ownership in our shares of common stock held by CHESS
Depositary Nominees Pty Limited, or CDN, a wholly owned
subsidiary of ASX Limited. The CDIs entitle holders to
dividends, if any, and other rights economically equivalent to
our shares of common stock on a
10-for-1
basis, including the right to attend stockholders
meetings. The CDIs are also convertible at the option of the
holders into our shares of our common stock on a
10-for-1
basis, such that for every ten CDIs converted, a holder will
receive one share of common stock. CDN, as the stockholder of
record, will vote the underlying shares in accordance with the
directions of the CDI holders. Appendix A to the prospectus
sets forth additional information required to be included for
investors in Australia and for admission to the official list of
ASX.
Inteq Limited has agreed to act as our placement agent in
connection with the offering of our CDIs outside of the United
States to non-U.S. residents. Inteq Limited is not a registered
broker-dealer in the United States nor a member of the National
Association of Securities Dealers and is participating as a
placement agent only with regard to securities sold outside of
the United States, to non-U.S. investors. Inteq Limited is not
soliciting offers to buy CDIs in the United States. The
placement agent is not purchasing the CDIs offered by us, and is
not required to sell any specific number of dollar amount of
CDIs, but will assist us in this offering on a reasonable
endeavors basis with sales outside of the United States to
non-U.S. residents.
The information in
this preliminary prospectus is not complete and may be changed.
We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these
securities in any state or jurisdiction where the offer or sale
is not permitted.
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Subject to
Completion, dated November 10, 2010
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REVA MEDICAL, INC. Minimum Offering: 63,636,370 CDIs Representing 6,363,637 Common Shares Maximum Offering: 77,272,730 CDIs Representing 7,727,273 Common Shares
A$1.10 per CDI, or A$11.00 per Share
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This is the initial public offering of REVA Medical, Inc., and
no public market currently exists for our securities. We are
offering a minimum of 63,636,370 and a maximum of 77,272,730
CHESS Depositary Interests, or CDIs. Each CDI represents
one-tenth of a share of our common stock. We will apply for the
CDIs to be listed on the Australian Securities Exchange, which
is expected to be the principal trading market for our CDIs
following our initial public offering within seven days of a
prospectus being lodged with the Australian Securities and
Investments Commission, or ASIC.
We anticipate that the initial offering price will be A$1.10 per
CDI. The proposed trading symbol for our CDIs on the Australian
Securities Exchange is RVA. Our shares of common
stock will not be traded on any securities exchange following
this offering.
This investment involves risk. See Risk
Factors beginning on page 10.
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Minimum
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Maximum
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Per CDI
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Offering
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Offering
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Public offering price
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A$
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1.10
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A$
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70,000,007
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A$
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85,000,003
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Placement agent fees
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A$
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0.06
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A$
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3,550,000
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A$
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4,300,000
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*
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Proceeds, before expenses, to REVA Medical, Inc.
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A$
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1.04
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A$
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66,450,007
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A$
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80,700,003
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*Assumes all CDIs sold in excess of the minimum offering amount
are sold outside of the United States to non-U.S. residents.
Inteq Limited has agreed to act as our placement agent in
connection with the offering of our CDIs outside of the
United States to
non-U.S. residents.
The placement agent is not purchasing the CDIs offered by us,
and is not required to sell any specific number or dollar amount
of CDIs, but will assist us in this offering on a
reasonable endeavors basis, which means the
placement agent has no obligation to purchase any securities but
must act reasonably under the circumstances to place the
securities. We have agreed to pay the placement agent a cash fee
equal to $3,550,000, plus a cash fee equal to five percent of
the aggregate amount of offering proceeds received from
non-U.S. residents
outside of the United States in excess of the minimum offering
amount. We estimate the total expenses of the offering,
excluding placement agent fees will be approximately
A$3.2 million. The minimum offering amount to be raised is
A$70,000,007. We expect the offering to commence on
November 22, 2010, or approximately 10 days after
lodging a prospectus prepared in accordance with Part D of
the Australian Corporation Act 2001 (Cth) with ASIC. We
anticipate the offering period will be open for two weeks and
will end on December 6, 2010. However, we reserve the right
to extend the offering period, provided the allocation of CDIs
and the closing of the offering take place no later than the
expiration date, or January 11, 2011. The offering will
close on a date mutually acceptable to us and our placement
agent assuming we raise at least the minimum offering amount and
our CDIs are approved for quotation on the ASX prior to the
expiration date. Until we sell at least 63,636,370 CDIs, we are
required to hold all funds received from purchasers in trust in
a separate bank account. If we do not sell at least 63,636,370
CDIs and obtain approval for the quotation of our CDIs on ASX by
the expiration date, all funds will be promptly returned from
the trust account to purchasers without interest or deduction.
If we complete this offering, net proceeds will be delivered to
our company in U.S. dollars on the closing date, and CDIs
will be issued to investors in the offering. See Plan of
Distribution beginning on page 112 of this prospectus
for more information on this offering and our arrangements with
the placement agent.
Neither the Securities and Exchange Commission nor any state
securities commission has approved of anyones investment
in 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 ,
2010
NOTICE TO
UNITED STATES RESIDENTS
WE HAVE NOT APPLIED TO REGISTER OUR CDIs OR COMMON STOCK
UNDER THE LAW OF ANY STATE OR OTHER JURISDICTION OF THE UNITED
STATES OTHER THAN UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED, NOR DO WE INTEND TO MAKE SUCH AN APPLICATION. THIS
PROSPECTUS IS NOT AN OFFER TO SELL, NOR ARE WE OR THE PLACEMENT
AGENT SEEKING AN OFFER TO BUY, THESE SECURITIES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
UNTIL OUR CDIs OR COMMON STOCK ARE LISTED FOR TRADING ON A
U.S. NATIONAL SECURITIES EXCHANGE, TRADING IN, OR THE OFFER
AND RESALE OF, OUR CDIs AND/OR COMMON STOCK WILL BE SUBJECT TO
THE SECURITIES LAWS OF THE VARIOUS STATES OF THE UNITED STATES
IN ADDITION TO THE FEDERAL SECURITIES LAWS. THESE STATE
SECURITIES LAWS COVER ALL SECONDARY TRADING OF OUR CDIs AND
COMMON STOCK THAT COULD ENTER A U.S. PURCHASERS HOME
STATE. AS A RESULT, INVESTORS IN OUR CDIs MAY NOT RESELL THEIR
CDIs OR COMMON STOCK IN THE UNITED STATES WITHOUT SATISFYING THE
APPLICABLE STATE SECURITIES LAW OR QUALIFYING FOR AN
EXEMPTION THEREFROM, INCLUDING THE EXEMPTIONS MADE
AVAILABLE UNDER THE U.S. NATIONAL SECURITIES MARKETS
IMPROVEMENT ACT OF 1996.
NOTICE TO
AUSTRALIAN RESIDENTS
A PERSON WHOSE ADDRESS IS IN AUSTRALIA CAN ONLY APPLY FOR
SECURITIES IN REVA MEDICAL, INC. PURSUANT TO AN APPLICATION FORM
CONTAINED IN A DISCLOSURE DOCUMENT THAT COMPLIES WITH THE
REQUIREMENTS OF THE AUSTRALIAN CORPORATIONS ACT 2001 (Cth) AND
THAT HAS BEEN LODGED WITH THE AUSTRALIAN SECURITIES AND
INVESTMENTS COMMISSION.
TABLE OF
CONTENTS
You should rely only on the information contained in this
prospectus. We have not, and the placement agent has not,
authorized any other person to provide you with different
information. If anyone provides you with different or
inconsistent information, you should not rely on it. This
prospectus is not an offer to sell, nor are we or the placement
agent seeking an offer to buy, these securities in any state
where the offer or sale is not permitted. The information in
this prospectus is complete and accurate as of the date on the
front cover of this prospectus. Our business, financial
condition, results of operations and prospects may have changed
since that date.
Persons who come into possession of this prospectus in any
jurisdiction outside of the United States or Australia are
required to inform themselves about and to observe any
restrictions as to this offering and the distribution of this
prospectus applicable to that jurisdiction.
This prospectus contains market data and industry forecasts that
were obtained from industry publications, third-party market
research and publicly available information. These publications
generally state that the information contained therein has been
obtained from sources believed to be reliable, but we have not
independently verified the accuracy and completeness of such
information.
Some numerical figures included in this prospectus have been
subject to rounding adjustments. Accordingly, numerical figures
shown as totals in certain tables may not be an arithmetic
aggregation of the figures that preceded them.
ReZolvetm
is our trademark. This prospectus also includes trademarks,
trade names and service marks that are the property of other
organizations.
PROSPECTUS
SUMMARY
The items in the following summary are described in more
detail later in this prospectus. This summary provides an
overview of selected information and does not contain all the
information you should consider. Therefore, you should also read
the more detailed information set out in this prospectus and the
financial statements included elsewhere in this prospectus.
In this prospectus, unless the context otherwise requires,
the terms we, us, our, and
REVA Medical refer to REVA Medical, Inc. on a
consolidated basis.
Our
Company
We are a development stage medical device company focused on the
development and eventual commercialization of our proprietary,
bioresorbable stent products. Stents are minimally invasive,
implantable medical devices used by interventional cardiologists
for the treatment of coronary artery disease. Stents help
stabilize diseased arteries by propping them open and restoring
blood flow. Our stent products have not yet been approved by
regulatory authorities and will require extensive clinical
testing and regulatory approval before they can be sold and
generate any revenue. As a result, our efforts to generate
revenue from our stent products will take several years even if
our clinical results are favorable. Our stent products are
designed to provide the same benefits as traditional metal
stents, including inhibiting restenosis, or the renarrowing of
the previously treated artery, with the additional benefit of
being dissolved by the body over time after treatment of the
artery. Our lead product, the
ReZolveTM
stent, combines our proprietary stent design with a
proprietary polymer that is metabolized and cleared from the
body over time. We believe that, due to a number of risks
associated with commercially available metal stents,
bioresorbable stents will be the next major advance in coronary
stent technology, and if approved for commercialization by the
relevant regulatory authorities, we believe the
ReZolvetm
stent will enable us to compete effectively in the stent market
which was approximately $5.3 billion worldwide in 2009.
Over the last ten years, we have continued to advance our
technology in both its design and polymer composition and have
undertaken significant laboratory and preclinical testing which
have shown that our technology and the
ReZolvetm
stent are safe and effective across various animal models. We
have funded much of our research and development to date with
investments from health care venture capital funds, along with
investments from global medical device manufacturers, Medtronic,
Inc. and Boston Scientific Corporation, or BSC. We are in the
process of finalizing the design of our
ReZolvetm
stent, and we intend to initiate a pilot human clinical trial in
the second quarter of 2011.
We believe that if the
ReZolveTM
stent is approved by regulatory authorities, the
technology has the potential to provide patients with better
therapeutic outcomes and physicians with more effective clinical
tools. The
ReZolveTM
stent is designed to offer full x-ray visibility,
clinically relevant sizing, and a controlled and safe resorption
rate. In addition, by early encapsulation of the stent in the
artery tissue coupled with the loss of stent structure over
time, the
ReZolveTM
stent may reduce the incidence of late forming blood
clots, or thrombosis, a rare but serious problem associated with
drug-eluting metal stents currently on the market.
Market
Opportunity
Cardiovascular disease, or CVD, is a term used to describe all
diseases and conditions that relate to the heart and blood
vessels. Coronary arteries, which supply blood to heart muscle,
are susceptible to the build up of plaque, which can block or
inhibit blood flow, a condition known as coronary artery
disease. If the coronary arteries become too narrow as a result
of this plaque build up, cardiac tissue may become starved of
nutrients and oxygen, and the result is severe chest pain, known
as angina. As artery narrowing becomes more severe, death of
cardiac muscle downstream from the blockage can occur due to a
lack of oxygen. The sudden death of cardiac muscle can result in
a life threatening condition that is commonly known as a heart
attack, or myocardial infarction. In developed countries,
coronary artery disease is the leading cause of death in both
males and females. The World Health Organization, or WHO, has
reported that since 1990, more people have died from coronary
artery disease than from any other cause. Risk factors for
coronary artery disease include family history, old age, male
gender, smoking, hypertension, high cholesterol, diabetes and
obesity.
When lifestyle changes and medications fail to prevent the
development of coronary artery disease, open heart surgery or
less invasive interventional therapies are usually required to
restore blood flow to heart muscle to maintain adequate
functioning of the heart. The treatment options have evolved
from coronary artery bypass surgery to less invasive treatments,
such as balloon angioplasty and coronary stenting which prop
open diseased arteries. Coronary stents were developed to
address the issues of abrupt vessel closure and high rates of
restenosis following angioplasty. Coronary stenting options
currently include bare-metal
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stents, composed of flexible metal wire mesh tubes, and
drug-eluting stents, which are metal stents that combine a thin
polymer coating and therapeutic drug to minimize the build up of
scar tissue during the wound healing process. While drug-eluting
stents have succeeded in lowering the rates of restenosis, they
do not address the potential for late-stent thrombosis, or blood
clots that can develop in the artery, often years later. To
address this issue, researchers have been developing
bioresorbable stents that support the artery during the healing
process, and dissolve or resorb over time in the body, restoring
the natural movement of the artery without a permanent implant
in place. To date, no coronary bioresorbable stents have been
approved for sale in Europe or the United States. In 2009, total
annual revenues from coronary stent sales were approximately
$5.3 billion, of which drug-eluting stents accounted for
approximately $4.4 billion of this market.
Limitations
of Current Technology
Limitations
of Currently Marketed Stents
The use of coronary stenting with balloon angioplasty for the
treatment of coronary artery disease has become common practice
as an effective method of treating coronary blockages. In spite
of recent improvements in patient outcomes, however, the use of
bare metal and drug-eluting stents, which remain permanently
embedded within the coronary artery wall, potentially put the
patient at risk for a number of clinical complications. These
complications may include:
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Adverse long-term reactions, including the potential for
restenosis;
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Risk of thrombosis and the use of long-term antiplatelet drug
therapy designed to prevent thrombosis; and
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Complications to future medical interventions, including
retreatment of coronary artery lesions with a subsequent stent,
or restenting, treatment of lesions that are located downstream
to the original stent, and future surgical interventions,
including bypass.
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Limitations
Associated with the Development of Bioresorbable
Stents
Bioresorbable stents have been in development for many years.
Companies engaged in the development of bioresorbable stents
have encountered a number of technical challenges that have
caused their product candidates to fail to satisfy regulatory
and market requirements, including:
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Poor stent design and polymer selection;
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Need for required changes to clinical practice;
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Accelerated resorption rate creating the potential for early
degradation without allowing sufficient time for the artery to
heal;
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Lack of biocompatibility; and
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Lack of visibility using standard imaging techniques.
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Although a number of other companies have and are currently
working to develop bioresorbable stents, no coronary
bioresorbable stents have been approved for sale in the United
States or Europe to date. Abbott Laboratories is developing its
Bioresorbable Vascular Scaffold, or BVS. Abbott
Laboratories has released information about two clinical trials
with its BVS stent. Biotronik, a private, European
company, is developing their second generation Dreams
magnesium-based resorbable stent. Biotronik has announced
clinical trials of this device commenced in July 2010. We do not
have sufficient information to determine whether Abbott
Laboratories or Biotronik will receive regulatory approval for
their products, or whether their products will address the
technical and marketing requirements listed above.
Our
Solution
We have designed our
ReZolvetm
stent to overcome many of the limitations associated with
currently marketed bare-metal and drug-eluting stents. We are
currently working to prove out our design features, and although
we do not have human clinical data to support our assertions, we
have performed extensive bench and preclinical animal testing
that provides data and results that indicate our stent will
include the following benefits:
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Restoration of Natural Vessel Movement and Decreased Risk
of Adverse Effect. The possibility of adverse
long-term reactions is reduced due to the ability of our stent
to be resorbed into the body over time. As our
ReZolvetm
stent
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dissolves, and the lesion has healed, the expansion and
contraction of the vessel is restored without the restrictions
of a metal structure.
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Minimization of Thrombosis Risk and Reduction of Long-Term
Drug Therapy. The potential for late-stent
thrombosis is reduced because the stent becomes fully
encapsulated into the artery where it safely dissolves over
time. We believe this will reduce the incidence of blood clots,
potentially decreasing the need for prolonged anti-platelet drug
therapy.
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Enhanced Applications for Future Medical
Treatment. We believe as our
ReZolvetm
stent dissolves, potential complications to subsequent medical
treatments are reduced. A patient can likely undergo restenting,
receive treatment more easily for lesions which are located
downstream in the artery and undergo surgical procedures that
would not be possible with existing stents currently in place.
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We believe that due to risks associated with the commercially
available bare metal and drug-eluting stents, bioresorbable
stents will be the next major advance in coronary stent
development. Our
ReZolvetm
stent is designed with the following features:
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Proprietary Stent Design and Strong and Resilient
Polymer. Our proprietary slide &
lock design enables the stent to be expanded with minimal
deformation of the base polymer; therefore maintaining the
strength of the material. In addition, the polymer we use is
less prone to breaking, and we believe the strength of the stent
is comparable to a metal stent during the critical
90-day
healing period following stent placement.
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No Change to Clinical Practice. Our stent
with its sheath can be deployed using a standard balloon
catheter and does not require any change to current clinical
practices regarding the storage, handling or delivery of the
stent.
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Controlled Resorption Rate. The polymer we
use is designed to degrade into the body in a predictable and
safe manner.
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Biocompatible and Safe. While we do not have
any human clinical data with respect to the current version of
our polymer, we previously performed human clinical trials with
an earlier version of our polymer and this version did not show
any adverse biological reactions at 34 months post-stenting. In
developing our current polymer, we modified our original polymer
to enhance mechanical properties and address structural issues
identified in our human clinical trials. The current polymer is
similar in composition and contains approximately 85% of the
same material as the original version of our polymer. The
previous and the current polymers have demonstrated equal
biocompatibility in preclinical testing. Our animal studies to
date have shown that at 12 months post-stenting in pigs and
12 months post-implant in rabbits, the current version of
our polymer has not shown any indications of adverse biological
reactions while the stent material is degrading, consistent with
the original version of our polymer. We believe the current
version of our polymer addresses the structural issues
identified in our human clinical trials without adversely
affecting biocompatibility or safety.
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Visible Using Standard Imaging
Techniques. Our product is visible under x-ray,
allowing physicians the ability to see the stent during
placement and at early patient evaluations. It is also
compatible with magnetic resonance imaging, or MRIs, which may
become more widely used in the diagnosis and treatment of
coronary artery disease.
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A disadvantage of our
ReZolvetm
stent is that, initially, our
ReZolvetm
stent is not designed to address smaller diameter vessel
applications or highly calcified, or hard and complex, lesions.
As a result, the
ReZolvetm
stent will not initially be able to address the needs of all
patients requiring a coronary stent.
Our
Strategy
Our goal is to become a world leader in the development and
commercialization of bioresorbable stent products used in the
coronary and peripheral arteries of the human body. To achieve
this goal, we are pursuing the following business strategies:
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demonstrate clinical safety and efficacy and gain regulatory
approval of our
ReZolveTM
stent;
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commercialize and drive adoption of our
ReZolveTM
stent following receipt of required regulatory
approvals;
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build awareness and support among leading physicians;
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leverage our core technology platform into other medical uses;
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explore out-licensing opportunities for our polymer technology;
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expand and strengthen our intellectual property
position; and
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provide the highest quality products for our customers and
patients.
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Selected
Risk Factors
Investing in our CDIs or common stock involves substantial risk.
Before participating in this offering, you should carefully
consider all of the information in this prospectus, including
risks discussed in Risk Factors beginning on
page 10. Some of our most significant risks include:
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We have a history of net losses and we may never achieve or
maintain profitability.
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We currently do not have, and may never have, any products
available for sale and our efforts to obtain product approvals
and commercialize our products may not succeed or may result in
delays for many reasons.
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We will depend heavily on the success of our lead product
candidate, our
ReZolvetm
stent, which is still in development and may never achieve
market acceptance. Any factors that negatively impact sales of
this product will adversely affect our business, financial
condition and results of operations.
|
|
|
|
In order to commence human clinical trials we will need to
obtain regulatory and other approvals. If we are unable to
achieve or are delayed in achieving such approvals, this could
have a significant effect on our timeline and ability to
commercialize our technology.
|
|
|
|
We cannot predict the outcome of the human clinical trials. If
the
ReZolvetm
stent does not meet our required clinical specifications or
causes adverse or unexpected events, then we may need to further
modify the technology. There is no guarantee that we will be
able to address any issues arising from the clinical trials
which could seriously impair our future prospects.
|
|
|
|
If we are unable to obtain, maintain and enforce intellectual
property protection covering our products, others may be able to
make, use, or sell products substantially the same as ours,
which could adversely affect our ability to compete in the
market.
|
|
|
|
Claims that our current or future products infringe or
misappropriate the proprietary rights of others could adversely
affect our ability to sell those products and cause us to incur
additional costs.
|
Office
Location
The address of our principal place of business is 5751 Copley
Drive, Suite B, San Diego, CA 92111. Our office phone
number is
(858) 966-3000.
4
The
Offering
|
|
|
Securities we are offering |
|
Minimum: 63,636,370 CDIs, representing 6,363,637 shares of
common stock
Maximum: 77,272,730 CDIs, representing 7,727,273 shares of
common stock |
|
Common stock outstanding immediately after the offering |
|
Minimum: 31,194,273 shares of common stock (including shares of
common stock represented by CDIs)
Maximum: 32,557,909 shares of common stock (including
shares represented by CDIs) |
|
Offering price |
|
The initial public offering price is A$1.10 per CDI, or the
equivalent of A$11.00 per share of common stock |
|
Use of proceeds |
|
We intend to use the net proceeds from this offering for
research and development activities, clinical trials, building
our commercialization infrastructure, and working capital and
general corporate purposes. See Use of Proceeds. |
|
Proposed Australian Securities Exchange Symbol for the
CDIs |
|
RVA |
|
The CDIs |
|
Each CDI represents one-tenth of a share of common stock. Legal
title to the shares of common stock is held by CHESS Depositary
Nominees Pty Limited, or CDN, a wholly owned subsidiary of ASX
Limited. The CDIs entitle holders to dividends, if any, and
other rights economically equivalent to our shares of common
stock on a
10-for-1
basis, including the right to attend stockholders meetings. |
|
|
|
The CDIs are also convertible at the option of the holders into
shares of our common stock on a
10-for-1
basis, such that for every ten CDIs converted, a holder will
receive one share of common stock. CDN, as the stockholder of
record, will vote the underlying shares in accordance with the
directions of the CDI holders. |
|
|
|
You may convert your CDIs to shares of common stock and your
shares of common stock to CDIs as set forth under
Description of Capital Stock CHESS Depositary
Interests or CDIs. |
|
Lodging the Prospectus |
|
We intend to lodge a prospectus prepared in accordance with
Part 6D of the Australian Corporations Act 2001 (Cth), or
the Corporations Act, with the Australian Securities and
Investment Commission, or ASIC, on or immediately prior to the
date the Securities and Exchange Commission, or the SEC,
declares the registration statement related to this offering
effective. |
|
ASX Listing Application |
|
We intend to file an application for the CDIs to be quoted on
the Australian Securities Exchange, or ASX, within seven days of
lodging a prospectus with the ASIC. |
|
Offering Period |
|
We intend to commence accepting applications to purchase CDIs on
November 22, 2010, or approximately 10 days after
lodging a prospectus with the ASIC. We anticipate that the
offering period will be open for two weeks and will close on
December 6, 2010. However, we reserve the right to extend
the offering period, provided the allocation of the CDIs and the
closing of the offering take place no later than
January 11, 2011. |
|
Allocation of CDIs and Closing of Offering |
|
The CDIs are expected to be allocated and the offering is
expected to close on December 10, 2010, assuming we raise
at least the minimum offering amount and our CDIs are approved
for quotation on the ASX; however, we reserve the right to close
on a later date mutually acceptable to us and our placement |
5
|
|
|
|
|
agent. Upon the closing of the offering, net offering proceeds
will be delivered to us in U.S. dollars. |
|
Escrow Account |
|
Until the allotment of the CDIs and the closing of the offering,
we will hold all funds received from potential investors in a
separate account at the Australia and New Zealand Banking Group
Limited. If we do not sell the minimum offering amount or if our
CDIs are not approved for quotation on the ASX within two months
following the date we lodge a prospectus with the ASIC, we will
promptly return all funds to potential investors without
interest or deduction as soon as reasonably practicable. |
|
|
|
Trading Date |
|
We expect CDIs to commence trading on the ASX on
December 15, 2010, or three trading days after the closing
of the offering. |
|
|
|
Holding Statements |
|
We anticipate that holding statements will be issued by our
transfer agent, Computershare, to investors purchasing CDIs in
the offering on December 14, 2010, or four calendar days
after the closing of the offering. |
The number of shares of our common stock to be outstanding
immediately after this offering is based on
24,830,636 shares of common stock outstanding on
September 30, 2010, plus the 6,363,637 shares to be sold by
us in the form of CDIs in the case of a minimum offering, or
7,727,273 shares in the case of a maximum offering, and includes:
|
|
|
|
|
2,613,459 shares of common stock outstanding as of
September 30, 2010;
|
|
|
|
the conversion of all outstanding shares of our non-voting
common stock into 128,484 shares of common stock, which
will become effective immediately prior to and contingent upon
the closing of this offering;
|
|
|
|
the issuance of 868,972 shares of our preferred stock as
accrued but undeclared cumulative dividends to our preferred
stockholders, which will become effective immediately prior to
and contingent upon the closing of this offering;
|
|
|
|
the conversion of all outstanding shares of our preferred stock
into 15,798,685 shares of common stock (including the
conversion of the preferred stock which will be issued as
cumulative dividends and accounting for anti-dilution
adjustments), which will become effective immediately prior to
and contingent upon the closing of this offering;
|
|
|
|
49,535 shares of our common stock issuable upon exercise of
preferred stock and common stock warrants outstanding as of
September 30, 2010, which warrant holders have elected to
exercise in cash at a weighted average exercise price of
$5.32 per share, contingent and effective upon the closing
of the offering.
|
|
|
|
|
|
652,286 shares of our common stock issuable upon the
exercise of preferred stock and common stock warrants
outstanding as of September 30, 2010, which we expect the
warrant holders to elect to exercise through a cashless
exercise provision of the warrants, contingent and
effective upon the closing of this offering, based on the
initial public offering price of A$11.00 per share. If not
exercised through a cashless exercise, these
warrants would have been exercisable for 1,690,041 shares
of common stock, at a weighted average exercise price of
$6.42 per share; and
|
|
|
|
|
|
5,588,187 shares of our common stock issuable upon the
conversion of convertible and non-convertible promissory notes
outstanding as of September 30, 2010, at a weighted average
conversion price of $5.08 per share, which we expect the
noteholders to elect to convert, contingent and effective upon
the closing of this offering.
|
6
The number of shares of our common stock outstanding immediately
after this offering is based on 24,830,636 shares
outstanding on September 30, 2010, plus the
6,363,637 shares to be sold by us in the form of CDIs in
the case of a minimum offering, or 7,727,273 shares in the case
of a maximum offering, and excludes:
|
|
|
|
|
1,560,500 shares of common stock issuable upon exercise of
options outstanding as of September 30, 2010, at a weighted
average exercise price of $1.18 per common share; and
|
|
|
|
|
|
2,628,838 shares of common stock which will be available
for future grant or issuance as of September 30, 2010 under
our 2010 Equity Incentive Plan, or our 2010 Plan, and the annual
increases in the number of shares authorized under this plan
beginning January 1, 2011.
|
Unless otherwise indicated, all information in this prospectus
assumes:
|
|
|
|
|
no options, warrants or shares of common stock were issued after
September 30, 2010, and no outstanding options or warrants
were exercised after September 30, 2010;
|
|
|
|
the conversion, upon the closing of this offering, of all of the
outstanding shares of preferred stock and non-voting common
stock into shares of common stock;
|
|
|
|
|
|
the conversion of all outstanding notes based on outstanding
principal and accrued interest as of September 30,
2010; and
|
|
|
|
|
|
the amendment and restatement of our certificate of
incorporation and bylaws, which will become effective at the
closing of this offering.
|
|
|
|
|
|
an assumed foreign exchange rate of A$1.00 = $0.95.
|
Unless otherwise indicated, all references in this prospectus to
dollars and $ are to United States
dollars and to A$ are to Australian dollars.
7
SUMMARY
CONSOLIDATED FINANCIAL DATA
The following table presents our summary financial data. We have
derived our statements of operations data for the years ended
December 31, 2007, 2008, and 2009 from our audited
financial statements appearing elsewhere in this prospectus. Our
financial information as of September 30, 2010, and for the
nine months ended September 30, 2009 and 2010, is derived
from our unaudited financial statements appearing elsewhere in
this prospectus. Our audited financial information is prepared
and presented in accordance with generally accepted accounting
principles in the United States, or U.S. GAAP. Our
unaudited financial statements have been prepared on the same
basis as our audited financial statements and include
adjustments, consisting of normal recurring adjustments
necessary for the fair presentation of our financial position
and results of operations for these periods. Results for the
nine months ended September 30, 2010 are not necessarily
indicative of the results of operations that may be expected for
the full year. Our summary consolidated financial data should be
read together with Managements Discussion and
Analysis of Financial Condition and Results of Operations
and our consolidated financial statements and related notes
included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
8,536
|
|
|
$
|
11,378
|
|
|
$
|
10,272
|
|
|
$
|
7,701
|
|
|
$
|
5,668
|
|
General and administrative
|
|
|
2,247
|
|
|
|
2,205
|
|
|
|
2,241
|
|
|
|
1,727
|
|
|
|
1,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(10,783
|
)
|
|
|
(13,583
|
)
|
|
|
(12,513
|
)
|
|
|
(9,428
|
)
|
|
|
(7,340
|
)
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
94
|
|
|
|
124
|
|
|
|
26
|
|
|
|
24
|
|
|
|
9
|
|
Interest
expense(1)
|
|
|
(2,745
|
)
|
|
|
(1,874
|
)
|
|
|
(1,579
|
)
|
|
|
(1,175
|
)
|
|
|
(1,273
|
)
|
Gain (loss) on change in fair value of preferred stock rights
and warrant liabilities
|
|
|
(47
|
)
|
|
|
2,617
|
|
|
|
215
|
|
|
|
175
|
|
|
|
(830
|
)
|
Other income (expense)
|
|
|
2
|
|
|
|
2
|
|
|
|
7
|
|
|
|
(15
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss:
|
|
|
(13,479
|
)
|
|
|
(12,714
|
)
|
|
|
(13,844
|
)
|
|
|
(10,419
|
)
|
|
|
(9,436
|
)
|
Cumulative dividends and deemed dividends on Series H
convertible preferred stock
|
|
|
(63
|
)
|
|
|
(1,074
|
)
|
|
|
(2,358
|
)
|
|
|
(1,699
|
)
|
|
|
(6,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Common Stockholders
|
|
$
|
(13,542
|
)
|
|
$
|
(13,788
|
)
|
|
$
|
(16,202
|
)
|
|
$
|
(12,118
|
)
|
|
$
|
(15,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per
Share(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(5.02
|
)
|
|
$
|
(5.06
|
)
|
|
$
|
(5.91
|
)
|
|
$
|
(4.42
|
)
|
|
$
|
(5.82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute net loss per share, basic and diluted
|
|
|
2,695,245
|
|
|
|
2,727,191
|
|
|
|
2,739,229
|
|
|
|
2,739,229
|
|
|
|
2,741,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Net Loss Per Share
(unaudited)(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
|
|
|
|
|
|
|
|
$
|
(0.56
|
)
|
|
|
|
|
|
$
|
(0.49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute net loss per share, basic and diluted
|
|
|
|
|
|
|
|
|
|
|
22,371,951
|
|
|
|
|
|
|
|
23,953,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes amounts pertaining to related parties of $2,619,
$1,794, $1,532, $1,140, and $1,241 for the years ended
December 31, 2007, 2008, and 2009 and the nine months ended
September 30, 2009 and 2010, respectively. |
|
(2) |
|
See Note 3 to our consolidated financial statements for an
explanation of the method used to compute the historical and pro
forma net loss per share and the number of shares used in the
computation of the per share amounts. |
The following table presents a summary of our consolidated
balance sheet as of September 30, 2010:
|
|
|
|
|
On an actual basis;
|
|
|
|
On a pro forma basis to give effect to: (1) the issuance of
868,972 shares of our preferred stock as accrued but
undeclared cumulative dividends; (2) the conversion of all
outstanding shares of our preferred stock (including conversion
of
|
8
|
|
|
|
|
preferred shares which will be issued as accrued but undeclared
cumulative dividends and accounting for anti-dilution
adjustments) into 15,798,685 shares of common stock and the
conversion of all outstanding shares of non-voting common stock
into an aggregate of 128,484 shares of our common stock,
which will occur immediately prior to, but contingent upon, the
closing of this offering; (3) the issuance of
652,286 shares of common stock upon the exercise of
preferred stock and common stock warrants outstanding at
September 30, 2010, which we expect the warrant holders to
elect to exercise through a cashless exercise
provision of the warrants and the issuance of 49,535 shares
of our common stock issuable upon exercise of preferred stock
and common stock warrants which warrant holders have elected to
exercise in cash at a weighted average exercise price of $5.32
per share, contingent and effective upon the closing of this
offering; (4) the issuance of 5,588,187 shares of our
common stock upon the conversion of all outstanding principal
and accrued interest on notes payable, which we expect the
noteholders to elect to convert, contingent and effective upon
the closing of this offering; (5) the reclassification of
the preferred stock warrant liability to additional paid-in
capital upon the exercise of all outstanding preferred stock
warrants; (6) the reclassification of the repayment premium
on long-term notes payable to additional paid-in capital upon
conversion of the related notes payable which eliminates the
repayment premium obligation; and (7) the filing of an
amended and restated certificate of incorporation to authorize
100,000,000 shares of common stock, 25,000,000 shares of
Class B common stock and 5,000,000 shares of undesignated
preferred stock; and
|
|
|
|
|
|
On a pro forma as adjusted basis to additionally give effect to
the sale of the shares of our common stock we are offering in
this offering at an assumed initial public offering price of
A$11.00 per share, after deducting estimated placement agent
fees and estimated offering costs to be paid by us, and based on
an assumed foreign exchange rate of A$1.00 = $0.95.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
As Adjusted
|
|
|
|
|
Pro
|
|
Pro Forma
|
|
Assuming Maximum
|
|
|
Actual
|
|
Forma
|
|
As Adjusted Assuming Minimum
Offering
|
|
Offering
|
|
|
(In thousands)
|
|
|
(Unaudited)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,147
|
|
|
$
|
6,147
|
|
|
$
|
68,931
|
|
|
$
|
82,469
|
|
Working capital
|
|
|
4,328
|
|
|
|
4,328
|
|
|
|
67,112
|
|
|
|
80,650
|
|
Total assets
|
|
|
9,490
|
|
|
|
9,490
|
|
|
|
69,888
|
|
|
|
83,426
|
|
Long-term notes payable
|
|
|
19,629
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Accrued interest on long-term notes payable
|
|
|
7,859
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Repayment premium on long-term notes payable
|
|
|
11,100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Preferred stock warrant liability
|
|
|
1,610
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total liabilities
|
|
|
42,091
|
|
|
|
1,893
|
|
|
|
1,893
|
|
|
|
1,893
|
|
Convertible preferred stock
|
|
|
77,874
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Deficit accumulated during the development stage
|
|
|
(114,831
|
)
|
|
|
(114,831
|
)
|
|
|
(114,831
|
)
|
|
|
(114,831
|
)
|
Total stockholders equity (deficit)
|
|
|
(110,475
|
)
|
|
|
7,597
|
|
|
|
67,995
|
|
|
|
81,533
|
|
9
RISK
FACTORS
Investing in our CDIs or common stock involves a high degree
of risk. You should carefully consider the risks described below
and all of the other information set forth in this prospectus,
including our consolidated financial statements and the related
notes and Managements Discussion and Analysis of
Financial Condition and Results of Operations, before
deciding to invest in our common stock. If any of the events or
developments described below occurs, our business, financial
condition or results of operations could be negatively affected.
In that case, the market price of our common stock could
decline, and you could lose all or part of your investment.
Risks
Related to Our Business
We
have a history of net losses and we may never achieve or
maintain profitability.
We are a development stage medical device company with a limited
history of operations. We have incurred net losses since our
inception, including net losses of approximately
$12.7 million and $13.8 million for the fiscal years
ended December 31, 2008 and 2009, respectively. As of
September 30, 2010, our accumulated deficit was
approximately $114.8 million. Currently, we have no
products approved for sale in any jurisdiction. We expect to
continue to incur significant operating losses for the
foreseeable future as we incur costs associated with:
|
|
|
|
|
designing and conducting the human pilot studies and human
clinical trials required to obtain regulatory approval for our
ReZolvetm
stent;
|
|
|
|
seeking regulatory approvals in the European Union, or EU,
Australia and the United States for our
ReZolvetm
stent;
|
|
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further product research and development efforts;
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growing, maintaining and protecting our intellectual property;
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expanding our manufacturing, sales and marketing capabilities;
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broadening our infrastructure and systems in order to meet the
needs of our operations; and
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complying with the requirements related to being a public
company in the United States and a company listed on ASX.
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We cannot predict the extent of our future operating losses and
accumulated deficit, and we may never generate sufficient
revenues to achieve or sustain profitability. To become and
remain profitable, we must succeed in developing, obtaining
required regulatory approvals and commercializing products with
significant market potential. This will require us to succeed in
a range of challenging activities, including all of the
activities listed above. We may never succeed in these
activities, and we may never obtain regulatory approvals in the
markets in which we expect to operate or otherwise generate
revenues sufficient to achieve profitability. If we do achieve
profitability, we may not be able to sustain it.
Our
ability to generate revenue depends upon the successful clinical
development, regulatory approval and commercialization of our
ReZolvetm
stent.
Our
ReZolvetm
stent and any other products that we develop in the future will
require extensive clinical testing, regulatory approval and
significant marketing efforts before they can be sold and
generate any revenue. Our efforts to generate revenue may not
succeed for a number of reasons including:
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we may experience delays in the development program for our
ReZolvetm
stent, including the initiation and successful completion of our
planned human pilot and clinical trials;
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our
ReZolvetm
stent may not demonstrate safety and efficacy in our clinical
trials;
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we may not be able to obtain regulatory approvals for our
ReZolvetm
stent in the markets in which we expect to operate, or the
approved indications for our
ReZolvetm
stent may be narrower than we currently anticipate;
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our
ReZolvetm
stent may not be accepted in the marketplace by physicians and
patients;
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physicians may not receive adequate coverage and reimbursement
for procedures using our
ReZolvetm
stent;
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new product introductions by our competitors or any rapid
technological change may make our technology and product
candidates, including the
ReZolvetm
stent, obsolete;
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we may not be able to manufacture our
ReZolvetm
stent in commercial quantities or at an acceptable cost;
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we are wholly dependent on the efforts undertaken by suppliers
of critical components for our
ReZolvetm
stent, including the stent polymer and the process of lasing the
stent components, and we may be significantly impacted by any
regulatory delays or barriers that our suppliers may
encounter; and
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we may be sued for infringement of intellectual property rights
and could be prevented from manufacturing or selling the
ReZolvetm
stent or our future product candidates.
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We cannot market the
ReZolvetm
stent in the EU until we receive a CE Mark or in the United
States until we receive a Premarket Approval, or PMA. We cannot
guarantee that we will receive regulatory approval for our
ReZolvetm
stent on a timely basis, or at all. Our operating plan is based
in part on our expectations regarding the timing for receipt of
the required regulatory approvals for our
ReZolvetm
stent. If we experience significant delays in the regulatory
approval process, we may be unable to reduce our expenditures in
a timely manner to compensate for such delays and we may not
have adequate financial or other resources to complete the
regulatory approval process. Accordingly, a significant delay in
the regulatory approval process for our
ReZolvetm
stent would have a material adverse effect on our business and
financial condition. In addition, we may be required to raise
additional financing to fund our operations through various
means, including equity or debt financing, which could be
dilutive to existing stockholders or require us to relinquish
important rights to our technology or products.
We
will depend heavily on the success of our lead product
candidate, our
ReZolvetm
stent. Any factors that negatively impact sales of this product
will adversely affect our business, financial condition and
results of operations.
Assuming we can obtain the required regulatory approvals, we
expect to derive substantially all of our revenues from sales of
our first product candidate, the
ReZolvetm
stent. Accordingly, our ability to generate revenues in the
future is reliant on our ability to market and sell this device.
The degree of market acceptance for our
ReZolvetm
stent will depend on a number of factors, including:
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the perceived advantages and disadvantages of the
ReZolvetm
stent over existing products and competitive treatments and
technologies;
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the safety and efficacy of the
ReZolvetm
stent and prevalence and severity of any adverse events or side
effects especially as it relates to survival, quality of life
and bleeding;
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the ease of use of the
ReZolvetm
stent compared to existing products and competitive treatments
and technologies;
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our ability to provide additional clinical data regarding the
potential long-term benefits provided by the
ReZolvetm
stent;
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the strength of our sales and marketing initiatives; and
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the price of the
ReZolvetm
stent and the third-party coverage and reimbursement for
procedures using our
ReZolvetm
stent.
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If the
ReZolvetm
stent does not achieve an adequate level of acceptance by
physicians, patients and health care payors, we may not generate
or maintain positive gross margins and we may not become
profitable or be able to sustain profitability. Even if the
ReZolvetm
stent does achieve market acceptance, we may not be able to
sustain it or otherwise achieve it to a degree which would
support the ongoing viability of our operations.
Physicians
may not widely adopt our
ReZolvetm
stent unless they determine, based on experience, long-term
clinical data and published peer reviewed journal articles, that
the use of our
ReZolvetm
stent provides a safe and effective alternative to other
existing treatments for coronary artery disease.
We believe that physicians will not widely adopt our
ReZolvetm
stent unless they determine, based on experience, long-term
clinical data and published peer reviewed journal articles, that
the use of our
ReZolvetm
stent provides a safe and effective alternative to other
existing treatments for coronary artery disease. We cannot
provide any assurance that the data collected from our current
and planned clinical trials will be sufficient to demonstrate
that the
ReZolvetm
stent is an attractive alternative to other stent procedures. If
we fail to demonstrate safety and efficacy that is at least
comparable to other stents that have received regulatory
approval and that are available on the market, our ability to
successfully market the
ReZolvetm
stent will be significantly limited. Even if the data collected
from clinical studies or clinical experience indicate positive
results, each physicians actual experience with the
ReZolvetm
stent will vary. We also believe that published peer-reviewed
journal articles
11
and recommendations and support by influential physicians
regarding the
ReZolvetm
stent will be important for market acceptance and adoption, and
we cannot assure you that we will receive these recommendations
and support, or that supportive articles will be published.
We
compete against companies that have longer operating histories,
more established or approved products and greater resources than
we do, which may prevent us from achieving further market
penetration or improving operating results.
Competition in the medical device industry is intense. Our
products will compete against products offered by substantial,
global, public companies, such as Johnson & Johnson,
Medtronic, Inc., Abbott Laboratories and Boston Scientific
Corporation, as well as several private companies, such as
Biotronik SE & Co. KG. The four global medical device
competitors have significantly greater technical, regulatory,
financial, manufacturing and human resources than we do and have
established reputations and approved metal stent products
and/or
significantly greater name recognition, as well as distribution
channels and sales and marketing capabilities that are
significantly larger and more established than ours. For
example, Johnson & Johnson, Medtronic, Abbott
Laboratories and Boston Scientific Corporation constituted over
95% of the global $5.3 billion of stent sales in 2009.
Additional competitors, including those with a bioresorbable
stent technology, may enter the market, and we are likely to
compete with companies offering new technologies in the future.
We also face competition from other medical therapies which may
focus on our target market as well as competition from
manufacturers of pharmaceutical and other devices that have not
yet been developed. Competition from these companies could
adversely affect our business.
Our ability to compete effectively depends upon our ability to
distinguish our company and our products from our competitors
and their products. Factors affecting our competitive position
include:
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name and brand recognition;
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relationships with physicians and patients;
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the availability of other products and procedures, including
bundled product offerings;
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product performance and design;
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product safety and the availability of supporting clinical data;
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sales, marketing and distribution capabilities;
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success and timing of new product development and
introductions; and
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intellectual property protection.
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The industry in which we operate has also undergone, and is
expected to continue to undergo, rapid and significant
technological change, and we expect competition to intensify as
technical advances are made. Our competitors may develop and
commercialize stents or other medical device or pharmaceutical
products that are safer or more effective, have fewer side
effects or are less expensive than any products that we may
develop. For example, we are aware of companies that are
developing various other less-invasive technologies for treating
cardiovascular disease, which could limit the market potential
for our stents. We also compete with our competitors in
recruiting and retaining qualified scientific and management
personnel, establishing clinical trial sites and patient
registration for clinical trials, as well as in acquiring
technologies and technology licenses complementary to our
programs or advantageous to our business. For all the foregoing
reasons, we may not be able to compete successfully against our
current and future competitors.
Product
liability claims could damage our reputation or adversely affect
our business.
The design, manufacture and sale of human medical devices,
particularly implantable life-sustaining medical devices,
carries an inherent risk of product liability claims and other
damage claims. Such liability claims may be expensive to defend
and may result in large judgments against us. A product
liability or other damages claim, product recall or product
misuse, regardless of the ultimate outcome, could require us to
spend significant time and money in litigation or to pay
significant damages and could seriously harm our business. We
maintain clinical trial insurance and limited product liability
insurance. We cannot be certain that such insurance will be
sufficient to cover all claims that may be made against us. Our
insurance policies generally must be renewed on an annual basis.
We may not be able to maintain or increase such insurance on
acceptable terms or at reasonable costs. A successful claim
brought against us in excess, or outside, of our insurance
coverage could seriously harm our
12
financial condition and results of operations. Such claims
against us, regardless of their merit, could result in
significant awards against us that could materially adversely
harm our business, financial condition, results of operations
and prospects. A product liability or other damages claim,
product recall or product misuse involving any type of coronary
stent, but especially involving one of ours, could also
materially and adversely damage our reputation and affect our
ability to attract and retain customers, irrespective of whether
or not the claim or recall was meritorious.
We
have limited capabilities and manufacturing personnel, and if
our manufacturing facilities are unable to provide an adequate
supply of our
ReZolvetm
stent to support our clinical trials, our regulatory approval
timeline may be delayed.
We currently manufacture our
ReZolvetm
stent at our facilities in San Diego, California. If there
was a disruption to our existing manufacturing facility or the
surrounding area, for example, due to a natural disaster, we
would have no other means of manufacturing our
ReZolvetm
stent until we were able to restore the manufacturing capability
at our facility or develop alternative manufacturing facilities.
If we are unable to produce sufficient quantities of our
ReZolvetm
stent for use in our current and planned clinical trials, or if
our manufacturing process yields substandard product, our
regulatory approval process may be delayed.
Further, assuming we get approval for our
ReZolvetm
stent, we currently have limited resources and facilities and no
prior history of commercially manufacturing products. In
addition, we will need to obtain the necessary regulatory
approvals to manufacture our
ReZolvetm
stent for commercialization. In order to produce commercial
quantities of the
ReZolvetm
stent, we will need to increase substantially the production
processes and efficiency of our manufacturing operations. There
are significant technical and regulatory challenges to
increasing manufacturing capacity and efficiency, and developing
commercial-scale manufacturing facilities will require the
investment of additional funds and hiring and retaining
additional management and technical personnel who have the
necessary manufacturing experience. We may not successfully
complete any required increase in a timely or economically
viable manner or at all. In addition, we may not be able to
receive the necessary regulatory approvals for our manufacturing
facilities on a timely basis or at all. If we are unable to
manufacture a sufficient or consistent supply of the
ReZolvetm
stent or any other product we are developing, or if we cannot do
so efficiently, our revenues, business and financial prospects
would be adversely affected.
We
rely on specialized suppliers for certain components and
processes in the manufacture of our
ReZolvetm
stent.
We rely on suppliers for several critical components used in our
ReZolvetm
stent, including the stent polymer and the process of lasing our
stent components. We also outsource the sterilization of the
finished product. Our reliance on third-party suppliers subjects
us to risks that could harm our business, including:
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we are not a major customer of many of our suppliers, and these
suppliers may therefore give other customers needs higher
priority than ours;
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our suppliers have no contractual obligation to supply, and we
are not obligated to purchase from them, any components used in
our
ReZolvetm
stent which may result in supply interruptions;
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our polymer is complex and must be manufactured to extremely
tight tolerances and specifications with the result that our
suppliers, especially new suppliers, may make errors in
manufacturing that could negatively affect the efficacy or
safety of the
ReZolvetm
stent or cause our components not to be delivered on time or at
all or to be delivered outside of specifications;
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the availability of second-source suppliers may be extremely
limited or their implementation as a supplier may be lengthy due
to the tight tolerances and specifications which we require for
the
ReZolvetm
stent; and
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switching suppliers or changes to our service providers may
require product redesign and submission to the regulatory
authorities to whom we are seeking approval for our
ReZolvetm
stent.
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Additionally, we may experience problems or delays in our own
manufacturing and assembly process. Our current product
development plan is predicated on maintaining strong
relationships and supply with several external parties to
manufacture components of our
ReZolvetm
stent. If we are unsuccessful in this regard or are unable to
secure or maintain agreements with these manufacturers on
favorable terms or at all, our ability to obtain regulatory
approval for our products will be harmed.
13
If we
are unable to retain or hire key personnel, we may not be able
to sustain or grow our business.
Our ability to operate successfully and manage our potential
future growth depends significantly upon our ability to attract,
retain and motivate highly skilled and qualified research,
technical, clinical, regulatory, sales, marketing, managerial
and financial personnel. We compete for talent with numerous
companies, as well as universities and non-profit research
organizations. Our future success also depends on the personal
efforts and abilities of the principal members of our senior
management and scientific staff to provide strategic direction,
manage our operations and maintain a cohesive and stable
environment. Except with respect to our agreements with Robert
B. Stockman, our Chief Executive Officer, Robert Schultz, our
President and Chief Operating Officer, and Katrina Thompson, our
Chief Financial Officer, we have not entered into any employment
agreements with our executive officers, nor do we maintain key
man life insurance on the lives of any of the members of our
senior management. Although we have a stock option plan pursuant
to which we provide our executive officers with various economic
incentives to remain employed with us, these incentives may not
be sufficient to retain them. The loss of key personnel for any
reason or our inability to hire, retain and motivate additional
qualified personnel in the future could prevent us from
sustaining or growing our business.
Boston
Scientific Corporation has an option to distribute our
ReZolvetm
stent, which may limit our ability to negotiate more favorable
terms with other potential distributors.
In December 2007, we entered into a Distribution Option
Agreement with Boston Scientific Corporation, or BSC, under
which we granted BSC an option to negotiate the right to be the
worldwide, exclusive distributor of our
ReZolvetm
stent. If BSC exercises its option, we are required to negotiate
in good faith with BSC to enter into a mutually acceptable
definitive distribution agreement. If we are unable to agree on
the terms of a definitive distribution agreement with BSC, the
restrictions in the Distribution Option Agreement may limit our
ability to negotiate more favorable terms with other potential
distribution partners.
If we
do not enter into a distribution arrangement with BSC, we will
need to identify another distribution partner for the sale of
our product or develop our own sales network. Any delay or
problems associated with a distribution partner or our own sales
network could have a serious impact on our sales and our
financial performance.
We do not have any experience in marketing, selling or
distributing products. Our current strategy is to select a
distribution partner to assist in the marketing and sale of our
product in jurisdictions where it is approved for commercial
sale. There is no guarantee that BSC will exercise its option to
distribute our products under the Distribution Option Agreement,
or that we will be able to reach a definitive distribution
agreement with BSC. If we do not enter into a distribution
arrangement with BSC, we will need to identify another
distribution partner for the sale of our product or develop our
own sales and marketing network. There can be no assurance that
we will be able to identify and enter into a distribution
arrangement with a third party distributor on acceptable terms
or at all. In the event that we decide to develop our own sales,
distribution and marketing capabilities, we will have to invest
significant amounts of financial and management resources. In
developing these sales, marketing and distribution functions
ourselves, we will face a number of risks, including:
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the inability to attract and build a significant, successful or
qualified marketing or sales force;
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the cost of establishing, training and providing regulatory
oversight for a marketing or sales force may be
substantial; and
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the significant legal and regulatory risks in medical device
marketing and sales, and any failure to comply with all legal
and regulatory requirements for sales, marketing and
distribution which could result in enforcement action by the
U.S. Food and Drug Administration, or the FDA, or other
authorities and could jeopardize our ability to market the
product or could subject us to substantial liability.
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Any delay or problems associated with a distribution partner or
our own sales network could have a serious impact on our sales
and our financial performance.
If we
do not consummate an initial public offering prior to
January 31, 2011, or we consummate an initial public
offering prior to January 31, 2011 but do not receive net
proceeds of at least $50,000,000, we could be subject to a
potential acquisition by Boston Scientific
Corporation.
In connection with a financing of our company, we entered into
an Agreement and Plan of Merger, or the Merger Agreement, with
Boston Scientific Corporation, or BSC, and a wholly owned
subsidiary of BSC, on October 13, 2004, pursuant to which
we granted BSC an exclusive option to purchase all of our
outstanding capital stock. The Merger Agreement contained
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customary covenants, including among other things, covenants
regarding the conduct of our business during the option period.
On December 7, 2007 and September 28, 2010, the
parties amended the Merger Agreement to suspend these covenants,
subject to certain limited exceptions. The suspension period
terminates on January 31, 2011. The amendments also provide
that the Merger Agreement terminates automatically, if prior to
January 31, 2011, we close an initial public offering under
a registration statement filed with the SEC covering the sale of
securities resulting in aggregate net cash proceeds to the
company equal to at least $50,000,000. If we do not consummate
an initial public offering prior to January 31, 2011, or we
consummate an initial public offering prior to January 31,
2011 but do not receive net proceeds of at least $50,000,000, we
could be subject to a potential acquisition by BSC pursuant to
the terms of the Merger Agreement.
Based
on our current operating plan, we may be subject to the risks
associated with operating in multiple foreign
markets.
Our operations are primarily located in the United States. In
addition to seeking a PMA in the United States, we currently
intend to seek regulatory approvals for our
ReZolvetm
stent in the EU and Australia. If we expand into these and
additional foreign markets outside the United States, we will be
subject to new business risks, including:
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failure to fulfill foreign regulatory requirements on a timely
basis or at all to market the
ReZolvetm
stent or other future products;
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availability of, and changes in, reimbursement within prevailing
foreign health care payment systems;
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adapting to the differing laws and regulations, business and
clinical practices, and patient preferences in foreign countries;
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difficulties in managing foreign relationships and operations,
including any relationships that we establish with foreign
partners, distributors or sales or marketing agents;
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limited protection for intellectual property rights in some
countries;
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difficulty in collecting accounts receivable and longer
collection periods;
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costs of enforcing contractual obligations in foreign
jurisdictions;
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recessions in relevant foreign countries;
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political instability and unexpected changes in diplomatic and
trade relationships;
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currency exchange rate fluctuations; and
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potentially adverse tax consequences.
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If we are successful in introducing our
ReZolvetm
stent or future products into foreign markets, we will be
affected by these additional business risks, which may adversely
impact our business, financial condition and results of
operations. In addition, expansion into additional foreign
markets imposes additional burdens on our executive and
administrative personnel, research and sales departments and
general managerial resources. Our efforts to introduce our
current or future products into foreign markets may not be
successful, in which case we may have expended significant
resources without realizing the expected benefit. Ultimately,
the investment required for expansion into foreign markets could
exceed the results of operations generated from this expansion.
Risk
Factors Related to Regulation
In
order to commence human clinical trials we will need to obtain
regulatory and other approvals. If we are unable to achieve or
are delayed in achieving such approvals, this could have a
significant effect on our timeline and ability to commercialize
our technology.
To date, we have performed a series of preclinical trials in
animals which will be used to support an application to commence
the pilot human clinical trial and the pivotal CE Mark human
clinical trial. There is no guarantee that we will obtain the
necessary regulatory approvals to commence human clinical
trials, and there is no guarantee that additional work and
15
preclinical testing will not be required by the regulatory
bodies before they allow us to commence human clinical trials.
Before we can commence our human clinical trials, we require
approvals from:
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the relevant Investigational Review Boards in each of our chosen
clinical trial centers; and
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the relevant regulatory bodies, including the Therapeutic Goods
Administration, or TGA, in Australia, the EU Notified Body in
the EU and the FDA in the United States.
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In the United States, prior to conducting human clinical trials,
we will need to obtain approval of an Investigational Device
Exemption application from the FDA. Before we can sell our
products in the United States, premarket approval, or PMA, is
required from the FDA, which is a lengthy and uncertain process.
The procedure for submitting an application for PMA is lengthy,
expensive and typically requires extensive preclinical and
clinical trial data as well as considerable technical data.
Submitted data will need to be obtained in accordance with FDA
Quality Systems Regulations.
We are planning to use the clinical trial data obtained in
Australia and the European Union in order to facilitate a more
expedient U.S. approval process. There is a risk that the
FDA may not allow those results to be used in the PMA
application which would result in a delay and increase in costs
of U.S. approvals.
We
cannot predict the outcome of the human clinical trials. If the
ReZolvetm
stent does not meet our required clinical specifications or
causes adverse or unexpected events, then we may need to further
modify the design or technology used in the
ReZolvetm
stent. There is no guarantee that we will be able to address any
issues arising from the clinical trials which could be
catastrophic for our future prospects.
The outcome of human clinical trials cannot be predicted, even
when preclinical results are favorable. If our
ReZolvetm
stent causes adverse issues in human clinical trials, such as
restenosis, stroke, thrombosis, and/or death, then it is likely
the human clinical trial will need to be halted. In such case,
we may need to modify our technology to address these issues
while also meeting the market requirements for stent products.
Our clinical trials may also be suspended or terminated at any
time by EU regulatory authorities, the U.S. Data Safety and
Monitoring Board or by us including during the closing stages of
enrollment of the trial and the subsequent patient
follow-up
period lasting up to 12 months in the event that, for
example, there should be a series of adverse clinical events
such as heart attack or stroke. There is no guarantee that if
there are adverse results arising in the human clinical trials
that the issues will be able to be successfully addressed and
overcome. If we are unable to address these issues, we will not
be able to commercialize our technology, and it will likely have
a nominal value.
We performed a small first human clinical trial in 2007 with
25 patients in Brazil and Germany on an early version of
our stent. We achieved deployment success, demonstrating the
stents ability to dialate and hold the lesion as
anticipated and consistent with the results of our preclinical
data. However, at approximately four months, we saw adverse
device performance resulting in a higher than anticipated number
of patients requiring retreatment with another stent. These
issues were primarily associated with the brittle nature of the
polymer that resulted in fractured supporting elements of the
stent. We addressed these issues by modifying the design and the
composition of the polymer used in our
ReZolvetm
stent. These modification activities have been our primary focus
for the past two and one-half years, during which time we used
cash for operating activities of nearly $30 million, to the
exclusion of other development activities and opportunities.
The completion of our clinical trial program could also be
substantially delayed or prevented by several factors, including:
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delays in receiving the necessary regulatory approvals to
commence the CE Mark Trial;
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slower than expected rates of patient recruitment and
enrollment, including as a result of our competitors undertaking
similar clinical trials or having functionally comparable
products that have received approval for sale;
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failure of patients to complete the clinical trial;
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patients preferring to use approved devices or other
experimental treatments or devices rather than our
ReZolvetm
stent;
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unforeseen safety issues;
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perceived lack of product efficacy during clinical trials;
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inability or unwillingness of patients or medical investigators
to follow our clinical trial protocols;
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inability to monitor patients adequately during or after
treatment;
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risks associated with trial design, which may result in a
failure of the trial to show statistically significant results
even if the product is effective;
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governmental and regulatory delays or changes in regulatory
requirements, policies or guidelines;
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varying interpretation of data by regulatory agencies; and
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perceived lack of product efficacy during clinical trials.
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The process of obtaining marketing approval or clearance from
regulatory authorities for our
ReZolvetm
stent, or any future products or enhancements or modifications
to any products, could:
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take a significant period of time;
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require the expenditure of substantial resources;
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involve rigorous preclinical and clinical testing;
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require changes to our products; and
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result in limitations on the indicated uses of the products.
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There can be no assurance that we will receive the required
approvals from the regulatory authorities or, if we do receive
the required approvals, that we will receive them on a timely
basis or that we will otherwise be able to satisfy the
conditions of such approval, if any. The failure to receive
product approval clearance by the regulatory authorities will
have a material adverse effect on our business, financial
condition or results of operations.
We do
not have long-term data regarding the safety and efficacy of our
ReZolvetm
stent. Any long-term data that is generated may not be
consistent with our limited short-term data, which could affect
the regulatory approval of our products or the rate at which our
products are adopted.
An important factor in our clinical trials, upon which the
safety and efficacy of our
ReZolvetm
stent may be measured, is the rate of restenosis, or the
renarrowing of the treated artery over time, and the rate of
reintervention, or retreatment following the procedures using
our
ReZolvetm
stent. We believe that physicians and regulators will compare
the rates of long-term restenosis and reintervention for our
ReZolvetm
stent against other bioresorbable, drug-eluting or bare-metal
stent procedures and other alternative procedures.
If, in our planned pivotal clinical trial, we fail to
demonstrate restenosis and reintervention rates, as well as
other clinical trial end-points and performance, comparable to
other stents that have been approved by the FDA and other
regulatory authorities, our ability to successfully market our
ReZolvetm
stent may be significantly limited. If the long-term rates of
restenosis and reintervention do not meet regulators or
physicians expectations, our
ReZolvetm
stent may not receive regulatory approval or, if approved, may
not become widely adopted and physicians may recommend that
patients receive alternative treatments. Another important
factor upon which the safety and efficacy of our
ReZolvetm
stent will be measured is the incidence of late-stent thrombosis
following procedures using our
ReZolvetm
stent. We cannot assure you that our long-term data, once
obtained, will prove a lower incidence of late-stent thrombosis
as compared to drug-eluting metal stents. If the results
obtained from our clinical trials indicate that our products are
not as safe or effective as other treatment options or as
effective as current short-term data would suggest, our products
may not be approved, adoption of our products may suffer and our
business would be harmed.
We
plan to operate in multiple regulatory environments that require
costly and time consuming approvals.
We will need to obtain regulatory approval in each jurisdiction
in which we intend to commercialize our
ReZolvetm
stent. The required regulatory requirements will vary from
country to country. In addition, the laws and regulations
regarding the manufacture and sale of our products will be
subject to future changes, as are administrative interpretations
and policies of regulatory agencies. If we fail to comply with
applicable laws or regulations, we could be subject to
enforcement actions. Enforcement actions could include product
seizures, recalls, withdrawal of clearances or approvals, and
civil and criminal penalties, which in each case would harm our
business.
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Our
planned manufacturing facilities and the manufacturing
facilities of our suppliers must comply with applicable
regulatory requirements. If we fail to achieve regulatory
approval for these manufacturing facilities, our business and
our results of operations would be harmed.
Completion of our clinical trials and commercialization of our
products require access to, or the development of, manufacturing
facilities that meet applicable regulatory standards to
manufacture a sufficient supply of our products. Approvals are
required to achieve CE Marking in Europe, and similar approvals
must be obtained from the FDA for facilities that manufacture
our products for U.S. commercial purposes. Suppliers of
components, and products used to manufacture, our products must
also comply with applicable regulatory requirements, which often
require significant time, money, resources and record-keeping
and quality assurance efforts and subject us and our suppliers
to potential regulatory inspections and stoppages. If we or our
suppliers fail to comply with the regulatory requirements for
our manufacturing operations, our commercialization efforts
could be delayed, which would harm our business and our results
of operations.
We may
not meet regulatory quality standards applicable to our
manufacturing and quality processes, which could have an adverse
effect on our business, financial condition or results of
operations.
Even after products have received marketing approval or
clearance, product approvals and clearances by the regulatory
bodies can be withdrawn due to failure to comply with regulatory
standards or the occurrence of problems following initial
approval. As a device manufacturer, we will be required to
demonstrate and maintain compliance with a variety of regulatory
requirements, including the FDAs Quality System
Regulation, or QSR. The QSR is a complex regulatory scheme that
covers the methods and documentation of the design, testing,
control, manufacturing, labeling, quality assurance, packaging,
storage and shipping of our products. The FDA enforces the QSR
through periodic unannounced site inspections.
In addition, the U.S. federal medical device reporting
regulations require us to provide information to the FDA
whenever there is evidence that reasonably suggests that a
device may have caused or contributed to a death or serious
injury or, if a malfunction were to occur, could cause or
contribute to a death or serious injury. Compliance with
applicable regulatory requirements is subject to continual
review and is rigorously monitored through periodic inspections
by the FDA. If we fail to comply with the QSR or to take
satisfactory corrective action in response to an adverse QSR
inspection, this could result in enforcement actions, including
a public warning letter, a shutdown of or restrictions on our
manufacturing operations, delays in approving or clearing a
product, refusal to permit the import or export of our products,
a recall or seizure of our products, fines, injunctions, civil
or criminal penalties, or other sanctions, any of which could
cause our business and operating results to materially suffer.
In the European Union, we are required to maintain certain ISO
certifications in order to sell our products and must undergo
periodic inspections by notified bodies to obtain and maintain
these certifications. We have received a Certificate of
Registration certifying that our Quality Management System
complies with the requirements of ISO 13485:2003. If in the
future we fail to continue to comply with ISO regulations, the
FDA or European Union regulatory authorities may withdraw
clearance to market, require a product recall or take other
enforcement action.
Our
operations involve hazardous materials, and we must comply with
environmental laws and regulations, which can be
expensive.
Our research and development activities involve the controlled
use of hazardous chemicals. Our operations also produce
hazardous waste products. We are subject to a variety of
federal, state and local regulations relating to the use,
handling, storage and disposal of these materials. We generally
contract with third parties for the disposal of such substances.
We cannot eliminate the risk of accidental contamination or
injury from these materials. We may be required to incur
substantial costs to comply with current or future environmental
and safety regulations. If an accident or contamination
occurred, we would likely incur significant costs associated
with civil penalties or criminal fines. Current or future
environmental regulation may impair our research, development or
production efforts.
If we
fail to obtain and maintain adequate level of reimbursement for
our products by third-party payors, there may be no commercially
viable markets for our products or the markets may be much
smaller than expected.
The availability and levels of reimbursement by governmental and
other third-party payors affect the market for our products.
Reimbursement and health care payment systems vary significantly
by country, and include both government sponsored health care
and private insurance. Payors may attempt to limit coverage and
the level of reimbursement of new
18
therapeutic products. Government and other third-party payors
also continually attempt to contain or reduce the costs of
health care by challenging prices charged for health care
products and services.
To obtain reimbursement or pricing approval in some countries,
we may be required to produce clinical data, which may involve
one or more clinical trials, that compares the
cost-effectiveness of our products to other available therapies.
In addition, the efficacy, safety, performance and
cost-effectiveness of our products in comparison to any
competing products may determine the availability and level of
reimbursement for our products.
We believe that future reimbursement may be subject to increased
restrictions both in the United States and in international
markets. Future legislation, regulation or reimbursement
policies of third-party payors may adversely affect the demand
for our products currently under development and limit our
ability to sell our products on a profitable basis. We cannot
predict how pending or future legislative and regulatory
proposals would influence the manner in which medical devices,
including ours, are purchased or covered and reimbursed. For
example, the American Recovery and Reinvestment Act of 2009
includes funding to study the comparative effectiveness of
health care treatments and strategies. This funding will be
used, among other things, to conduct, support or synthesize
research that compares and evaluates the risks and benefits,
clinical outcomes, effectiveness and appropriateness of medical
products. Although Congress has indicated that this funding is
intended to improve the quality of health care, it remains
unclear how the research will impact coverage, reimbursement or
other third-party payor policies.
If reimbursement for our products is unavailable or limited in
scope or amount or if pricing is set at unsatisfactory levels,
market acceptance of our products would be impaired and our
future revenues would be materially adversely affected.
Health
care reform legislation could adversely affect our future
revenue and financial condition.
In recent years, there have been numerous initiatives on the
federal and state levels for comprehensive reforms affecting the
payment for, the availability of and reimbursement for health
care services in the United States. These initiatives have
ranged from proposals to fundamentally change federal and state
health care reimbursement programs, including providing
comprehensive health care coverage to the public under
governmental funded programs, to minor modifications to existing
programs. Recently, President Obama and members of Congress have
passed and continue to propose significant reforms to the
U.S. health care system. Both the U.S. Senate and
House of Representatives have conducted hearings about
U.S. health care reform and a number of bills have been
proposed in Congress.
In addition, recent legislation and many of these proposed bills
include funding to assess the comparative effectiveness of
medical devices. It is unclear what impact the comparative
effectiveness analysis would have on our products or our
financial results. The ultimate content or timing of any future
health care reform legislation, and its impact on medical device
companies such as us, is impossible to predict. If significant
reforms are made to the health care system in the United States,
or in other jurisdictions, those reforms may have a material
adverse effect on our financial condition and results of
operations.
In March 2010, Congress enacted comprehensive health care reform
legislation known as the Patient Protection and Affordable Care
Act of 2010, or the PPACA. While the PPACA involves expanding
coverage to more individuals, it includes new regulatory
mandates and other measures designed to constrain medical costs.
The PPACA also imposes significant new taxes on medical device
manufacturers that are expected to cost the medical device
industry up to $20 billion over the next decade. There are
also stringent new reporting requirements of financial
relationships between device manufacturers and physicians and
teaching hospitals. Complying with PPACA could significantly
increase our costs and adversely affect our business and
financial condition.
Our operations will also be impacted by the federal Patient
Protection and Affordable Care Act of 2010, as modified by the
Health Care and Education Reconciliation Act of 2010, which we
refer to as the Health Care Act. The Health Care Act imposes a
2.3 percent excise tax on sales of medical devices by
manufacturers. We expect our stent products to fall within the
scope of this tax. There is no exemption for small companies,
and we expect to begin paying the tax in 2013. The Health Care
Act also requires manufacturers to report to the Department of
Health and Human Services detailed information about financial
arrangements with physicians and teaching hospitals. These
reporting provisions preempt state laws that require reporting
of the same information, but not those that require reports of
different or additional information. Failure to comply subjects
the manufacturer to significant civil monetary penalties. We
expect compliance with the Health Care Act to impose significant
administrative and financial burdens on us.
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We are
subject to various federal and state laws pertaining to health
care fraud and abuse, including anti-kickback, self-referral,
false claims and fraud laws, and any violations by us of such
laws could result in fines or other penalties.
Our commercial, research, and other financial relationships with
health care providers and institutions are subject to various
federal and state laws intended to prevent health care fraud and
abuse. The federal anti-kickback statute prohibits the knowing
offer, receipt or payment of remuneration in exchange for or to
induce the referral of patients or the use of products or
services that would be paid for in whole or part by Medicare,
Medicaid or other federal health care programs. Remuneration has
been broadly defined to include anything of value, including
cash, improper discounts, and free or reduced price items and
services. Many states have similar laws that apply to their
state health care programs as well as private payors. Violations
of the anti-kickback laws can result in exclusion from federal
health care programs and substantial civil and criminal
penalties.
The federal False Claims Act, or FCA, imposes liability on
persons who, among other things, present or cause to be
presented false or fraudulent claims for payment by a federal
health care program. The FCA has been used to prosecute persons
submitting claims for payment that are inaccurate or fraudulent,
that are for services not provided as claimed, or for services
that are not medically necessary. The FCA includes a
whistleblower provision that allows individuals to bring actions
on behalf of the federal government and share a portion of the
recovery of successful claims. If our marketing or other
arrangements were determined to violate anti-kickback or related
laws, including the FCA, then our revenues could be adversely
affected, which would likely have a material adverse effect on
our business, financial conditions and results of operations.
State and federal authorities have aggressively targeted medical
device companies for alleged violations of these anti-fraud
statutes, based on improper research or consulting contracts
with doctors, certain marketing arrangements that rely on
volume-based pricing, off-label marketing schemes and other
improper promotional practices. Companies targeted in such
prosecutions have paid substantial fines in the hundreds of
millions of dollars or more, have been forced to implement
extensive corrective action plans, and have often become subject
to consent decrees severely restricting the manner in which they
conduct their business. If we become the target of such an
investigation or prosecution based on our contractual
relationships with providers or institutions, or our marketing
and promotional practices, we could face similar sanctions which
would materially negatively affect our business.
If we
are found to have violated laws protecting the confidentiality
of patient health information, we could be subject to civil or
criminal penalties, which could increase our liabilities and
harm our reputation or our business.
There are a number of federal and state laws in the United
States protecting the confidentiality of certain patient health
information, including patient records, and restricting the use
and disclosure of that protected information. In particular, the
U.S. Department of Health and Human Services promulgated
patient privacy rules under the Health Insurance Portability and
Accountability Act of 1996, or HIPAA. These privacy rules
protect medical records and other personal health information by
limiting their use and disclosure, giving individuals the right
to access, amend and seek accounting of their own health
information and limiting most use and disclosures of health
information to the minimum amount reasonably necessary to
accomplish the intended purpose. If we are found to be in
violation of the privacy rules under HIPAA, we could be subject
to civil or criminal penalties, which could increase our
liabilities, harm our reputation and have a material adverse
effect on our business, financial condition and results of
operations.
Risk
Factors Related to Intellectual Property
We
rely on certain licenses for patents and other technology
related to our products. The termination of these agreements
could delay or prevent us from being able to commercialize our
products.
We depend on licenses to certain patents and other technology
used in our
ReZolvetm
stent and stent components. For example, we rely on certain
licensed patents from Rutgers University for the polymer we use
in our
ReZolvetm
stent. In order to maintain our rights under the Rutgers License
Agreement, we must satisfy certain development and
commercialization obligations. If we fail to satisfy these
obligations, and licenses to these patents were provided to one
or more of our competitors, our ability to compete may be
diminished. Furthermore, if we fail to comply with our material
obligations under this license agreement, the license may be
terminated and we could lose license rights that are important
to our business. In addition, the license agreement expires on
the expiration of last to expire patents under this agreement
which is approximately 2030, and there is no guarantee we will
be able to renew the license agreement on commercially
reasonable terms.
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In addition, we expect that we will need to license other
technology or patents to commercialize future products. These
licenses may not be available to us on commercially reasonable
terms, or at all, which could adversely affect our results of
operations and growth prospects.
If we
are unable to obtain, maintain and enforce intellectual property
protection covering our products, others may be able to make,
use, or sell products substantially the same as ours, which
could adversely affect our ability to compete in the
market.
Our commercial success is dependent in part on obtaining,
maintaining and enforcing intellectual property rights,
including patents, covering our
ReZolvetm
stent and future product candidates. If we are unable to obtain,
maintain and enforce intellectual property protection covering
our products, others may be able to make, use or sell products
that are substantially the same as ours without incurring the
sizeable development and licensing costs that we have incurred,
which would adversely affect our ability to compete in the
market. Currently, our patent portfolio is comprised, on a
worldwide basis, of close to 250 issued U.S. and foreign
patents which we own directly or for which we are the exclusive
licensee and that expire as late as 2030. Pending patent
applications could further extend our patent portfolio life.
However, patents may not be issued based on any pending or
future patent applications owned by or licensed to us and,
moreover, issued patents owned or licensed to us now or in the
future may be found by a court to be invalid or otherwise
unenforceable. Also, even if our patents are determined by a
court to be valid and enforceable, they may not be sufficiently
broad to prevent others from marketing products similar to ours
or designing around our patents, despite our patent rights, nor
do they provide us with freedom to operate unimpeded by the
patent rights of others.
We have also licensed certain intellectual property from third
parties related to our products, and we rely on them to file and
prosecute patent applications and maintain patents and otherwise
protect the licensed intellectual property. We cannot be certain
that such activities by third parties have been or will be
conducted in compliance with applicable laws and regulations or
will result in valid and enforceable patents and other
intellectual property rights. In addition, we cannot be certain
that our licensors will allocate sufficient resources or
prioritize their or our enforcement of such patents or defense
of such claims to protect our interests in the licensed patents.
The patent positions of medical device companies can be highly
uncertain and involve complex legal and factual questions for
which important legal principles remain unresolved. No
consistent policy regarding the breadth of claims allowed in
patents in these fields has emerged to date in the United States
or in many foreign jurisdictions. Both the U.S. Supreme
Court and the Court of Appeals for the Federal Circuit have
made, and will likely continue to make, changes in how the
patent laws of the U.S. are interpreted. In addition,
Congress is currently considering legislation that would change
provisions of the patent law. We cannot predict future changes
in the interpretation of patent laws or changes to patent laws
which might be enacted into law. Those changes may materially
affect our patents, our ability to obtain patents or the patents
and applications of our collaborators and licensors. The patent
situation in the medical device and disease diagnostic fields
outside the United States is even more uncertain.
We have a number of foreign patents and applications. However,
the laws of some foreign jurisdictions do not protect
intellectual property rights to the same extent as laws in the
United States, and many companies have encountered significant
difficulties in obtaining, protecting and defending such rights
in foreign jurisdictions. If we encounter such difficulties or
we are otherwise precluded from effectively protecting our
intellectual property rights in foreign jurisdictions, our
business prospects could be substantially harmed.
We also rely on trade-secret protection to protect our interests
in proprietary know-how and for processes for which patents are
difficult to obtain or enforce. We may not be able to protect
our trade secrets adequately. We have limited control over the
protection of trade secrets used by our licensors, collaborators
and suppliers. Although we use reasonable efforts to protect our
trade secrets, our employees, consultants, contractors, outside
scientific collaborators and other advisors may unintentionally
or willfully disclose our information to competitors. Enforcing
a claim that a third party illegally obtained and is using any
of our trade secrets is expensive and time consuming, and the
outcome is unpredictable. In addition, courts outside the United
States are sometimes less willing to protect trade secrets. We
rely, in part, on non-disclosure and confidentiality agreements
with our employees, consultants and other parties to protect our
trade secrets and other proprietary technology. These agreements
may be breached and we may not have adequate remedies for any
breach. Moreover, others may independently develop equivalent
proprietary information, and third parties may otherwise gain
access to our trade secrets and proprietary knowledge. Any
disclosure of confidential data into the public domain or to
third parties could allow our competitors to learn our trade
secrets and use the information in competition against us.
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Claims
that our current or future products infringe or misappropriate
the proprietary rights of others could adversely affect our
ability to sell those products and cause us to incur additional
costs.
Intellectual property rights, including in particular patent
rights, play a critical role in the stent and stent delivery
systems in the medical device industry, and therefore in our
business. We face significant risks relating to patents, both as
to our own patent position as well as to patents held by third
parties. If any third-party intellectual property claim against
us is successful, we could be prevented from commercializing our
ReZolvetm
stent or other products.
There are numerous U.S. and foreign issued patents and
pending patent applications owned by third parties with patent
claims in areas that are the focus of our product development
efforts. We are aware of patents owned by third parties, to
which we do not have licenses, that relate to, among other
things:
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stent structures and materials;
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catheters used to deliver stents; and
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stent manufacturing and coating processes.
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Moreover, because patent applications can take many years to
issue, there may be currently pending applications, unknown to
us, which may later result in issued patents that pose a
material risk to us.
We expect that we could be increasingly subject to third-party
infringement claims as our revenues increase, the number of
competitors grows and the functionality of products and
technology in different industry segments overlaps. Third
parties may currently have, or may eventually be issued, patents
on which our current or future products or technologies may
infringe. For example, we are aware of certain patents and
patent applications owned by third parties that cover different
aspects of stent designs, polymer composition and related
technologies. Any of these third parties might make a claim of
infringement against us.
All of the major companies in the stent and related markets,
including Boston Scientific Corporation, Abbott Laboratories,
Johnson & Johnson and Medtronic, Inc., have been
involved in patent litigation relating to stents since at least
1997. The stent and related markets have experienced rapid
technological change and obsolescence in the past, and our
competitors have strong incentives to stop or delay the
introduction of new products and technologies. We may pose a
competitive threat to many of the companies in the stent and
related markets. Accordingly, many of these companies will have
a strong incentive to take steps, through patent litigation or
otherwise, to prevent us from commercializing our products.
Any litigation, regardless of its outcome, would likely result
in the expenditure of significant financial resources and the
diversion of managements time and resources. In addition,
litigation in which we are accused of infringement may cause
negative publicity, adversely impact prospective customers,
cause product shipment delays, prohibit us from manufacturing,
marketing or selling our current or future products, require us
to develop non-infringing technology, make substantial payments
to third parties or enter into royalty or license agreements,
which may not be available on acceptable terms or at all. If a
successful claim of infringement were made against us and we
could not develop non-infringing technology or license the
infringed or similar technology on a timely and cost-effective
basis, our revenues may decrease substantially and we could be
exposed to significant liability. A court could enter orders
that temporarily, preliminarily or permanently prevent us or our
customers from making, using, selling, offering to sell or
importing our current or future products, or could enter an
order mandating that we undertake certain remedial activities.
Claims that we have misappropriated the confidential information
or trade secrets of third parties can have a similar negative
impact on our reputation, business, financial condition or
results of operations.
We may
need to initiate lawsuits to protect or enforce our patents and
other intellectual property rights, which could be expensive
and, if we lose, could cause us to lose some of our intellectual
property rights, which would harm our ability to compete in the
market.
We rely on patents to protect a portion of our intellectual
property and our competitive position. Patent law relating to
the scope of claims in the technology fields in which we operate
is still evolving and, consequently, patent positions in the
medical device industry are generally uncertain. In order to
protect or enforce our patent rights, we may initiate patent
litigation against third parties, such as infringement suits or
interference proceedings. Litigation may be necessary to:
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assert claims of infringement;
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enforce our patents;
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protect our trade secrets or know-how; or
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determine the enforceability, scope and validity of the
proprietary rights of others.
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Any lawsuits that we initiate could be expensive, take
significant time and divert managements attention from
other business concerns. Litigation also puts our patents at
risk of being invalidated or interpreted narrowly and our patent
applications at risk of not issuing. Additionally, we may
provoke third parties to assert claims against us. We may not
prevail in any lawsuits that we initiate and the damages or
other remedies awarded, if any, may not be commercially
valuable. The occurrence of any of these events may have a
material adverse effect on our business, financial condition and
results of operations.
Risks
Related to Our CDIs and Common Stock
The market price of our CDIs and common stock may be
volatile and fluctuate significantly, which could result in
substantial losses for investors purchasing CDIs in this
offering.
Prior to this offering, there has been no public market for our
CDIs or our common stock. The offering price for the CDIs sold
in this offering will be determined based upon discussions with
the placement agent and current market conditions. In addition,
our CDIs will only be listed on the Australian Securities
Exchange, and our common stock will not be listed for trading on
any securities exchanges in Australia or the United States. An
active and liquid trading market for our CDIs (or our common
stock) may not develop. As a result, the market price of our
CDIs may be volatile and fluctuate significantly from the
initial public offering price, and you may not be able to sell
your CDIs at or above the initial public offering price. Among
the factors that may cause the market price of our CDIs to
fluctuate are the risks described in this Risk
Factors section and other factors, including:
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announcements regarding the regulatory status of our
ReZolvetm
stent and future product candidates;
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any reported adverse effects in our human clinical trials for
our
ReZolvetm
stent;
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announcements of technological innovations or new products by us
or our competitors;
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announcements of contracts, acquisitions or strategic alliances
by us or our competitors;
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changes in the estimates of the future size and growth rate of
our markets;
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changes in market valuations or earnings of our competitors;
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changes in legislation or regulatory policies, practices or
actions;
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the commencement or outcome of litigation involving our company,
our general industry or both;
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recruitment or departure of one or more members our executive
management team;
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changes in our capital structure, such as future issuances of
securities or the incurrence of additional debt;
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actual or expected sales of our CDIs or common stock by existing
holders;
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the trading volume of our CDIs; and
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changes in general economic, industry and market conditions.
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The stock markets in general, and the markets for medical
technology companies in particular, have experienced extreme
volatility that has often been unrelated to the operating
performance of particular companies. These broad market and
industry factors may materially harm the market price of our
CDIs. Litigation has often been brought against companies whose
securities have experienced volatility in market price.
Class-action
litigation, even if unsuccessful, could be costly to defend and
divert managements attention and resources, which could
further materially harm our financial condition and results of
operations.
Investors
may experience difficulties in selling our CDIs due to the
relatively limited liquidity of shares traded on the Australian
Securities Exchange.
Admission to the Australian Securities Exchange should not be
taken as implying that there will be a liquid market for our
CDIs, particularly as, on admission, we will have a limited
number of stockholders. Some ASX listed companies do not develop
active trading markets and therefore an active trading market
for our CDIs may not develop or be sustained after this
offering. It will likely be more difficult for an investor to
realize his or her investment on the Australian Securities
Exchange than it would be to realize an investment in a company
whose shares or other securities are quoted on the New York
Stock Exchange or the NASDAQ Stock Market.
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There
is no guarantee that we will maintain our listing on the
Australian Securities Exchange, or qualify for listing on a
securities exchange in the United States.
We cannot assure investors that we will always retain a listing
on the Australian Securities Exchange. If we fail to retain such
a listing, certain investors may decide to sell their
securities, which could have an adverse impact on the share
price. In addition, our common stock will not be listed for
trading on any U.S. national securities exchanges at the
time of the initial public offering. There is no assurance that
we can qualify in the future for listing any of our securities
on the New York Stock Exchange or the NASDAQ Stock Market.
We do
not presently intend to facilitate secondary trading of our CDIs
or common stock in the United States because we are not taking
any of the steps necessary to register our CDIs or common stock
with the securities division of any state within the United
States or seek an exemption for such secondary
trading.
We have not applied to register our CDIs or common stock under
the laws of any state or other jurisdiction of the United States
other than under the U.S. Securities Act of 1933, as
amended, nor do we intend to make such an application. Until our
CDIs and/or
common stock are listed for trading on a U.S. national
securities exchange, trading in, or the offer and sale of, our
CDIs or common stock will be subject to the securities laws of
the various states and jurisdictions of the United States in
addition to U.S. federal securities law. These state
securities laws cover both the primary offering of our CDIs in
this offering and all secondary trading that could enter a
U.S. purchasers home state. As a result, investors
may not resell their CDIs or common stock in the United States
without satisfying the applicable state securities law or
qualifying for an exemption therefrom, including the exemptions
provided under the U.S. National Securities Markets
Improvement Act of 1996. These restrictions and potential costs
could be significant burdens to our stockholders seeking to
effect resales of our CDIs or common stock within the United
States.
Some
of our existing stockholders can exert control over us and may
not make decisions that are in the best interests of all
stockholders.
As of September 30, 2010, officers, directors, and
stockholders holding more than five percent of our outstanding
shares collectively controlled approximately 85.2% of our
outstanding common stock based on their respective beneficial
ownership on a pro forma basis taking into account the
conversion of all of our preferred stock, non-voting common
stock and notes into shares of common stock and the exercise of
our outstanding warrants. Immediately after this offering,
assuming our officers and directors and these existing
stockholders do not purchase any shares of common stock in this
offering, these stockholders will beneficially own approximately
68.1% of our common stock assuming a minimum offering and 65.3%
assuming a maximum offering. As a result, these stockholders, if
they act together, would be able to exert a significant degree
of influence over our management and affairs and over matters
requiring stockholder approval, including the election of
directors and approval of significant corporate transactions.
Accordingly, this concentration of ownership may harm the market
price of our shares by delaying or preventing a change in
control, even if a change is in the best interests of our other
stockholders. In addition, the interests of this concentration
of ownership may not always coincide with the interests of other
stockholders, and accordingly, they could cause us to enter into
transactions or agreements that we would not otherwise consider.
Future
sales of our common stock may depress our share
price.
Sales of a substantial number of shares of common stock in the
public market following this offering, or the perception that
these sales may occur, could cause the market price of our CDIs
to decline. All of the CDIs offered under this prospectus will
be tradable without restriction or further registration under
the federal securities laws, unless purchased by our
affiliates as that term is defined in Rule 144
under the Securities Act of 1933, and may be resold in the
United States if the holder satisfies the applicable state
securities laws or qualifies for an exemption therefrom. The
remaining shares of common stock outstanding upon the closing of
this offering may be sold under the federal securities laws in
reliance upon Rule 144 or 701 of the Securities Act and
under state securities laws upon the holders satisfaction
of state securities laws or an exemption therefrom, unless the
holder of these shares is subject to a
lock-up
agreement, or other contractual arrangements. The holders of an
aggregate of 21,446,971 shares of our outstanding common
stock, including shares of common stock issuable upon exercise
of outstanding warrants and conversion of outstanding notes,
will have certain rights to cause us to file a registration
statement on their behalf and to include their shares in
registration statements that we may file on behalf of other
stockholders. Sales by our current stockholders of a substantial
number of shares after this offering, or the expectation that
such sales may occur, could significantly reduce the market
price of our common stock. Certain of our officers, directors
and stockholders have agreed, subject to certain limited
exceptions, not to transfer, agree to transfer, encumber or
agree to encumber a certain number of specified shares for
periods ranging from 180 days after the date of this
24
prospectus to one year after the date of this prospectus. Upon
consummation of the offering, an aggregate of
23,449,600 shares of our common stock will be subject to
lock-up
agreements.
As soon as practicable following completion of this offering, we
also intend to file a registration statement covering common
stock issued or reserved for such issuance under our stock
incentive plans. In addition, our 2010 Plan provides for annual
increases in the number of shares available for issuance under
the plan. Once we register these shares, they can be freely sold
under the federal securities laws and may be tradeable under
state securities laws upon the holders satisfaction of
such laws or an exemption therefrom, subject to vesting
provisions, restrictions under the
lock-up
agreements, or other contractual arrangements, described above.
We may also sell additional common stock in subsequent public
offerings, which may adversely affect the market price for our
CDIs and common stock. See Shares Eligible for Future
Sale for more information.
We
have broad discretion in the use of the net proceeds from this
offering, and our investment of these proceeds may not yield a
favorable
return.
Our management will have broad discretion in the application of
the net proceeds from this offering, including for any of the
purposes described in Use of Proceeds. Accordingly,
you will have to rely upon the judgment of our management with
respect to the use of the proceeds. Our management may spend a
portion or all of the net proceeds from this offering in ways
that holders of our securities may not desire or that may not
yield a significant return or any return at all. The failure by
our management to apply these funds effectively could harm our
business. Pending their use, we may also invest the net proceeds
from this offering in a manner that does not produce income or
that loses value.
We may
need substantial additional funding and may be unable to raise
capital when needed, which would force us to delay, reduce or
eliminate our product development programs or commercialization
efforts.
Our capital requirements will depend on many factors, including
achievement of regulatory approval of our products and the
growth of revenue, the amount of expenditures on intellectual
property and technologies, the number of clinical trials which
we conduct and the extent of new product development. To the
extent that our existing capital is insufficient to meet these
requirements and cover any losses, we will need to raise
additional funds through financings or borrowings and our
commercialization efforts would be delayed or reduced or may
cease entirely. Any equity or debt financing, if available at
all, may be on terms that are not favorable to us. Equity
financings could result in dilution to our existing security
holders, and the securities issued in future financings may have
rights, preferences and privileges that are senior to those of
our existing security holders. If our need for capital arises
because of significant losses, the occurrence of these losses
may make it more difficult for us to raise the necessary capital.
We do
not currently intend to pay dividends on our CDIs or common
stock and, consequently, your ability to achieve a return on
your investment will depend on appreciation in the price of our
CDIs.
We currently intend to invest our future earnings, if any, to
fund the development and growth of our business. The payment of
dividends will be at the discretion of our board of directors
and will depend on our results of operations, capital
requirements, financial condition, future prospects, contractual
arrangements, restrictions imposed by applicable law, any
limitations on payments of dividends present in any debt
agreements we may enter into and other factors our board of
directors may deem relevant. If we do not pay dividends, your
ability to achieve a return on your investment in our company
will depend on any future appreciation in the market price of
our CDIs. There is no guarantee that our CDIs will appreciate in
value or even maintain the price at which our holders have
purchased their CDIs.
If you
purchase CDIs in this offering, you will incur immediate and
substantial dilution in the book value of the common stock
underlying the CDIs.
If you purchase CDIs in this offering, the value of the common
stock underlying your CDIs based on our actual book value will
immediately be less than the offering price you paid. This
reduction in the value of your equity is known as dilution. This
dilution occurs in large part because our earlier investors paid
substantially less than the initial public offering price when
they purchased their shares. Investors purchasing CDIs in this
offering will, therefore, incur immediate dilution of $0.83 in
net tangible book value per CDI in the case of a minimum
offering, and immediate dilution of $0.80 in net tangible book
value per CDI in the case of a maximum offering, based on an
assumed initial public offering price of A$1.10 per CDI and
based upon an assumed foreign exchange rate of A$1.00 = $0.95.
Investors will incur additional dilution upon the exercise of
outstanding stock options and outstanding warrants. In addition,
if we raise funds by issuing additional securities, the newly
issued shares will further dilute your percentage ownership of
our company.
25
There
is no firm commitment to purchase CDIs, and there can be no
assurance we will sell the minimum amount of CDIs.
We are offering the CDIs on a minimum/maximum basis. Neither we,
nor the placement agent, has made any commitment to purchase any
CDIs offered hereby. Consequently, there can be no assurance
that the CDIs offered pursuant to this prospectus will be sold.
In the event that the minimum number of CDIs offered hereby is
not sold within two months of the date a prospectus is lodged
with the ASIC, all proceeds received will be refunded in full to
investors without interest or deduction. Therefore, investors
subscribing to purchase the CDIs offered hereby may lose the use
of their funds for the escrow period of up to two months.
We
will incur exchange rate risks relating to the offering and
listing on the Australian Securities
Exchange.
All investors will pay for the CDIs in Australian Dollars;
however, the proceeds of the offering will be converted into
U.S. Dollars prior to being released to us. Due to recent
volatility in the A$:US$ exchange rate, our expected net
proceeds may change as a result of fluctuations in the exchange
rate. We are not headging against exchange rate fluctuations,
and consequently we will be at the risk of any adverse movement
in the U.S. Dollar-Australian Dollar exchange rate between the
pricing of this offering and the closing of this offering.
Our shares of common stock in the form of CDIs will be listed on
the Australian Securities Exchange and priced in Australian
Dollars. However, our reporting currency is U.S. Dollars.
As a result, movements in foreign exchange rates may cause the
price of our securities to fluctuate for reasons unrelated to
our financial condition or performance and may result in a
discrepancy between our actual results of operations and
investors expectations of returns on our securities
expressed in Australian Dollars.
We
will incur costs and demands upon management as a result of
complying with the laws and regulations affecting public
companies in the United States as well as listing requirements
on the Australian Securities Exchange, which may adversely
affect our operating results, and failure to achieve and
maintain effective internal control over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act could
cause investors to lose confidence in our operating results and
in the accuracy of our financial reports and could have a
material adverse effect on our business and on the price of our
common
stock.
As a public company in the United States with equity securities
listed on the Australian Securities Exchange, we will be
required, pursuant to Section 404 of the Sarbanes-Oxley Act
of 2002, or Section 404, to furnish a report by management
on, among other things, the effectiveness of our internal
control over financial reporting. Our first report on compliance
with Section 404 is expected to be in connection with our
financial statements for the year ending December 31, 2011.
The controls and other procedures are designed to ensure that
information required to be disclosed by us in the reports that
we file with the Securities and Exchange Commission, or SEC, is
disclosed accurately and is recorded, processed, summarized and
reported within the time periods specified in SEC rules and
forms. We are in the early stages of conforming our internal
control procedures to the requirements of Section 404 and
we may not be able to complete our evaluation, testing and any
required remediation needed to comply with Section 404 in a
timely fashion. Our independent registered public accounting
firm was not engaged to perform an audit of our internal control
over financial reporting. Our independent registered public
accounting firms audit included consideration of internal
control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
our internal control over financial reporting. Accordingly, no
such opinion was expressed. Even if we develop effective
controls, these new controls may become inadequate because of
changes in conditions or the degree of compliance with these
policies or procedures may deteriorate. Even after we develop
these new procedures, additional weaknesses in our internal
control over financial reporting may be discovered. In order to
fully comply with Section 404, we will need to retain
additional employees to supplement our current finance staff,
and we may not be able to do so in a timely manner, or at all.
In addition, in the process of evaluating our internal control
over financial reporting we expect that certain of our internal
control practices will need to be updated to comply with the
requirements of Section 404 and the regulations promulgated
thereunder, and we may not be able to do so on a timely basis,
or at all. In the event that we are not able to demonstrate
compliance with Section 404 in a timely manner, or are
unable to produce timely or accurate financial statements, we
may be subject to sanctions or investigations by regulatory
authorities such as the SEC and investors may lose confidence in
our operating results and the price of our CDIs could decline.
Furthermore, if we or our auditors are unable to certify that
our internal control over financial reporting is effective and
in compliance with Section 404, we may be subject to
sanctions or investigations by regulatory authorities such as
the SEC and we could lose investor confidence in the accuracy
and completeness of our financial reports, which would have a
material adverse effect on our business and on the price of our
CDIs and our ability to access the capital markets.
26
Furthermore, as a U.S. public company with equity
securities listed on the Australian Securities Exchange, we will
incur significant additional legal, accounting and other
expenses. In addition, changing laws, regulations and standards
relating to corporate governance and public disclosure,
including regulations implemented by the SEC, may increase legal
and financial compliance costs and make some activities more
time consuming. Our shares of our common stock will be publicly
traded on the Australian Securities Exchange, or the ASX, in the
form of CDIs. As a result, we must comply with the ASX Listing
Rules. We have policies and procedures that we believe are
designed to provide reasonable assurance of our compliance with
the ASX Listing Rules. If, however, we do not follow those
procedures and policies, or they are not sufficient to prevent
non-compliance, we could be subject to liability, fines and
lawsuits. These laws, regulations and standards are subject to
varying interpretations and, as a result, their application in
practice may evolve over time as new guidance is provided by
regulatory and governing bodies. We intend to invest resources
to comply with evolving laws, regulations and standards, and
this investment may result in increased general and
administrative expenses and a diversion of managements
time and attention from revenue-generating activities to
compliance activities. If, notwithstanding our efforts to comply
with new laws, regulations and standards, we fail to comply,
regulatory authorities may initiate legal proceedings against us
and our business may be harmed.
Failure to comply with these rules might also make it more
difficult for us to obtain certain types of insurance, including
director and officer liability insurance, and we might be forced
to accept reduced policy limits and coverage or incur
substantially higher costs to obtain the same or similar
coverage. The impact of these events could also make it more
difficult for us to attract and retain qualified persons to
serve on our board of directors, on committees of our board of
directors or as members of senior management.
Provisions of our amended and restated certificate of
incorporation, our amended and restated bylaws and Delaware law
could make an acquisition of us, which may be beneficial to our
stockholders, more difficult and may prevent attempts by our
stockholders to replace or remove the current members of our
board and management.
Certain provisions of our amended and restated certificate of
incorporation and our amended and restated bylaws that will be
in effect upon the completion of this offering could discourage,
delay or prevent a merger, acquisition or other change of
control that stockholders may consider favorable, including
transactions in which you might otherwise receive a premium for
your CDIs. Furthermore, these provisions could prevent or
frustrate attempts by our stockholders to replace or remove
members of our board of directors. These provisions also could
limit the price that investors might be willing to pay in the
future for our CDIs, thereby depressing the market price of our
CDIs. Stockholders who wish to participate in these transactions
may not have the opportunity to do so. These provisions:
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allow the authorized number of directors to be changed only by
resolution of our board of directors;
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provide that our stockholders may only remove our directors for
cause;
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establish a classified board of directors, such that not all
members of the board of directors may be elected at one time;
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authorize our board of directors to issue without stockholder
approval up to 100,000,000 shares of common stock, that, if
issued, would dilute our ownership and could operate as a
poison pill to dilute the ownership of a potential
hostile acquirer to prevent an acquisition that is not approved
by our board of directors;
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authorize our board of directors to issue without stockholder
approval up to 5,000,000 shares of preferred stock, the
rights of which will be determined at the discretion of the
board of directors that, if issued, could operate as a
poison pill to dilute the stock ownership of a
potential hostile acquirer to prevent an acquisition that is not
approved by our board of directors;
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require that stockholder actions must be effected at a duly
called stockholder meeting or by unanimous written consent;
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establish advance notice requirements for stockholder
nominations to our board of directors or for stockholder
proposals that can be acted on at stockholder meetings;
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limit who may call stockholder meetings; and
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require the approval of the holders of 80% of the outstanding
shares of our capital stock entitled to vote in order to amend
certain provisions of our amended and restated certificate of
incorporation and amended and restated bylaws.
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In addition, we are governed by the provisions of
Section 203 of the Delaware General Corporation Law, which
may, unless certain criteria are met, prohibit large
stockholders, in particular those owning 15% or more of the
voting rights on our common stock, from merging or combining
with us for a prescribed period of time.
27
SPECIAL
NOTE REGARDING FORWARD LOOKING STATEMENTS
This prospectus contains forward looking statements concerning
our business, operations and financial performance and condition
as well as our plans, objectives and expectations for our
business operations and financial performance and condition. Any
statements contained herein that are not of historical facts may
be deemed to be forward looking statements. You can identify
these statements by words such as aim,
anticipate, assume, believe,
could, due, estimate,
expect, goal, intend,
may, objective, plan,
predict, potential,
positioned, should, target,
will, would and other similar
expressions that are predictions of or indicate future events
and future trends. These forward looking statements are based on
current expectations, estimates, forecasts and projections about
our business and the industry in which we operate and
managements beliefs and assumptions and are not guarantees
of future performance or development and involve known and
unknown risks, uncertainties and other factors that are in some
cases beyond our control. As a result, any or all of our
forward-looking statements in this prospectus may turn out to be
inaccurate. Factors that may cause such differences include, but
are not limited to, the risks described under Risk
Factors, including:
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our history of net losses and our expectation of significant
operating losses for the foreseeable future;
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inability to obtain regulatory clearance or approval for any of
our products;
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increases in our projected expenditures on research and
development and administrative activities;
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failure of our
ReZolvetm
stent to meet our required clinical specifications;
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failure of our products to gain market acceptance domestically
or internationally;
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less than anticipated growth in the market for bioresorbable
stents generally;
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changes in the regulatory environment which may adversely impact
the commercialization of our products and result in significant
additional capital expenditures;
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inability to attract or retain skilled personnel for our product
development and commercialization efforts;
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inability to protect our intellectual property and operate our
business without infringing upon the intellectual rights of
others, which could result in litigation and significant
expenditures; and
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refusal of third-party payors to reimburse our customers for use
of products.
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Potential investors and other readers are urged to consider
these factors carefully in evaluating the forward looking
statements and are cautioned not to place undue reliance on the
forward looking statements. These forward looking statements
speak only as of the date of this prospectus. Unless required by
law, we do not intend to publicly update or revise any forward
looking statements to reflect new information or future events
or otherwise. You should, however, review the factors and risks
we describe in the reports we will file from time to time with
the SEC after the date of this prospectus. See Where You
Can Find More Information About Us.
28
USE OF
PROCEEDS
We expect to receive approximately A$63.3 million of net
proceeds if the minimum offering is sold and A$77.5 million if
the maximum offering is sold at an assumed initial public
offering price of A$1.10 per CDI, after deducting the placement
agents fees and estimated offering expenses payable by us.
An increase or decrease of A$0.10 per CDI in the assumed public
offering price of A$1.10 per CDI would increase or decrease
the minimum net proceeds of this offering by approximately
A$6.0 million and the maximum net proceeds of this offering
by approximately A$7.3 million, assuming the number of CDIs we
offer, as set forth on the cover page of this prospectus,
remains the same.
If the minimum offering is sold, of the net proceeds from this
offering, we expect to use approximately:
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A$32.0 million for research and development activities,
including the continuing development of our
ReZolvetm
stent;
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A$10.0 million for clinical trials;
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A$3.0 million for building commercial infrastructure,
including manufacturing capacity expansion; and
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the balance for working capital and other general corporate
purposes.
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If the maximum offering is sold, of the net proceeds from this
offering, we expect to use approximately:
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A$39.0 million for research and development activities,
including the continuing development of our
ReZolvetm
stent;
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A$10.0 million for clinical trials;
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A$4.0 million for building commercial infrastructure,
including manufacturing capacity expansion; and
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the balance for working capital and other general corporate
purposes.
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Due to recent volatility in the A$:US$ exchange rate, an
indicative foreign exchange rate of A$1.00 = US$0.95 has been
used in the net proceeds calculations above. Accordingly, the
expected net proceeds may change as a result of fluctuations in
the exchange rate.
The foregoing expected use of the net proceeds of this offering
represents our current intentions based upon our present plans
and business condition. The amounts and timing of our actual
expenditures may vary significantly and will depend upon
numerous factors, including the timing and success of our
development efforts and clinical trials. We plan to commence
clinical trials in the United States after we receive acceptable
data from the European clinical trials. Due to the regulatory
requirements in the United States that require a study with a
large number of patients, we anticipate needing additional
funding in order to carry out the U.S. clinical trials.
Pending the use of net proceeds, we intend to invest the
offering proceeds in short-term, interest-bearing obligations,
investment grade instruments, certificates of deposit, or
guaranteed obligations of the U.S. government.
DIVIDEND
POLICY
We have never declared or paid any cash dividends on our capital
stock and we do not currently anticipate declaring or paying
cash dividends on our capital stock in the foreseeable future.
We currently intend to retain all of our future earnings, if
any, to finance the operation and expansion of our business. Any
future determination relating to our dividend policy will be
made at the discretion of our board of directors and will depend
on a number of factors, including future earnings, capital
requirements, financial conditions, future prospects,
contractual restrictions and covenants and other factors that
our board of directors may deem relevant.
29
CAPITALIZATION
The following table sets forth our capitalization as of
September 30, 2010:
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On an actual basis;
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On a pro forma basis to give effect to: (1) the issuance of
868,972 shares of our preferred stock as accrued but
undeclared cumulative dividends; (2) the conversion of all
outstanding shares of our preferred stock (including conversion
of preferred shares which will be issued as accrued but
undeclared cumulative dividends and accounting for anti-dilution
adjustments) into 15,798,685 shares of common stock and the
conversion of all outstanding shares of non-voting common stock
into an aggregate of 128,484 shares of our common stock,
which will occur immediately prior to, but contingent upon, the
closing of this offering; (3) the issuance of
652,286 shares of common stock upon the exercise of
preferred stock and common stock warrants outstanding at
September 30, 2010, which we expect the warrant holders to
elect to exercise through a cashless exercise
provision of the warrants and the issuance of 49,535 shares
of our common stock issuable upon exercise of preferred stock
and common stock warrants which warrant holders have elected to
exercise in cash at a weighted average exercise price of $5.32
per share, contingent and effective upon the closing of this
offering; (4) the issuance of 5,588,187 shares of our
common stock upon the conversion of all outstanding principal
and accrued interest on notes payable, which we expect the
noteholders to elect to convert, contingent and effective upon
the closing of this offering; (5) the reclassification of
the preferred stock warrant liability to additional paid-in
capital upon the exercise of all outstanding preferred stock
warrants; (6) the reclassification of the repayment premium
on long-term notes payable to additional paid-in capital upon
conversion of the related notes payable which eliminates the
repayment premium obligation; and (7) the filing of an
amended and restated certificate of incorporation to authorize
100,000,000 shares of common stock, 25,000,000 shares of
Class B common stock and 5,000,000 shares of undesignated
preferred stock; and
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On a pro forma as adjusted basis to additionally give effect to
the sale of the minimum and maximum offering at an assumed
initial public offering price of A$11.00 per share and an
assumed exchange rate of A$1.00 = $0.95, after deducting
estimated placement agent fees and estimated offering costs to
be paid by us.
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You should read the information in this table together with our
financial statements and accompanying notes and
Managements Discussion and Analysis of Financial
Condition and Results of Operations appearing elsewhere in
this prospectus.
30
Minimum
Offering
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September 30, 2010
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Pro
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Pro Forma
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Actual
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Forma
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as Adjusted
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(In thousands, except share and per share data)
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(Unaudited)
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Long-term notes payable
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$
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19,629
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$
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$
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Accrued interest on long-term notes payable
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7,859
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Repayment premium on long-term notes payable
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11,100
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Preferred stock warrant liability
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1,610
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Convertible preferred stock, $0.0001 par value:
20,676,918 shares authorized, 14,739,732 shares issued
and outstanding, actual; no shares authorized, issued and
outstanding, pro forma and pro forma as adjusted
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77,874
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Stockholders Equity (Deficit):
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Preferred stock, $0.0001 par value: no shares authorized,
issued or outstanding, actual; 5,000,000 shares authorized,
no shares issued and outstanding, pro forma and pro forma as
adjusted
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-
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Common stock, $0.0001 par value: 30,000,000 shares
authorized, 2,613,459 shares issued and outstanding,
actual; 100,000,000 shares authorized,
24,830,636 shares issued and outstanding, pro forma;
100,000,000 shares authorized, 31,194,273 shares
issued and outstanding, pro forma as adjusted
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-
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2
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3
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Class B common stock, $0.0001 par value: no shares authorized
and no shares issued and outstanding, actual; 25,000,000 shares
authorized, and no shares issued and outstanding, pro forma and
pro forma as adjusted
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-
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Non-voting common stock, $0.0001 par value:
130,000 shares authorized, 128,484 shares issued and
outstanding, actual; no shares authorized, issued or
outstanding, pro forma and pro forma as adjusted
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-
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|
|
|
-
|
|
Additional paid-in capital
|
|
|
4,355
|
|
|
|
122,425
|
|
|
|
182,822
|
|
Accumulated other comprehensive loss
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Deficit accumulated during the development stage
|
|
|
(114,831
|
)
|
|
|
(114,831
|
)
|
|
|
(114,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity (Deficit)
|
|
|
(110,475
|
)
|
|
|
7,597
|
|
|
|
67,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capitalization
|
|
$
|
7,597
|
|
|
$
|
7,597
|
|
|
$
|
67,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
Maximum
Offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
|
|
|
|
Pro
|
|
|
Pro Forma
|
|
|
|
Actual
|
|
|
Forma
|
|
|
as Adjusted
|
|
|
|
(In thousands, except share and per share data)
|
|
|
|
(Unaudited)
|
|
|
Long-term notes payable
|
|
$
|
19,629
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Accrued interest on long-term notes payable
|
|
|
7,859
|
|
|
|
-
|
|
|
|
-
|
|
Repayment premium on long-term notes payable
|
|
|
11,100
|
|
|
|
-
|
|
|
|
-
|
|
Preferred stock warrant liability
|
|
|
1,610
|
|
|
|
-
|
|
|
|
-
|
|
Convertible preferred stock, $0.0001 par value:
20,676,918 shares authorized, 14,739,732 shares issued
and outstanding, actual; no shares authorized, issued and
outstanding, pro forma and pro forma as adjusted
|
|
|
77,874
|
|
|
|
-
|
|
|
|
-
|
|
Stockholders Equity (Deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value: no shares authorized,
issued or outstanding, actual; 5,000,000 shares authorized,
no shares issued and outstanding, pro forma and pro forma as
adjusted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.0001 par value: 30,000,000 shares
authorized, 2,613,459 shares issued and outstanding,
actual; 100,000,000 shares authorized,
24,830,636 shares issued and outstanding, pro forma;
100,000,000 shares authorized, 32,557,909 shares
issued and outstanding, pro forma as adjusted
|
|
|
-
|
|
|
|
2
|
|
|
|
3
|
|
Class B common stock, $0.0001 par value: no shares authorized
and no shares issued and outstanding, actual; 25,000,000 shares
authorized, and no shares issued and outstanding, pro forma and
pro forma as adjusted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Non-voting common stock, $0.0001 par value:
130,000 shares authorized, 128,484 shares issued and
outstanding, actual; no shares authorized, issued or
outstanding, pro forma and pro forma as adjusted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Additional paid-in capital
|
|
|
4,355
|
|
|
|
122,425
|
|
|
|
196,360
|
|
Accumulated other comprehensive loss
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Deficit accumulated during the development stage
|
|
|
(114,831
|
)
|
|
|
(114,831
|
)
|
|
|
(114,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity (Deficit)
|
|
|
(110,475
|
)
|
|
|
7,597
|
|
|
|
81,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capitalization
|
|
$
|
7,597
|
|
|
$
|
7,597
|
|
|
$
|
81,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The number of shares of our common stock to be outstanding after
this offering is based on 24,830,636 shares of common stock
outstanding as of September 30, 2010, and excludes:
|
|
|
|
|
1,560,500 shares of common stock issuable upon the exercise
of outstanding options under our 2001 Stock Option/Stock
Issuance Plan as of September 30, 2010 having a weighted
average exercise price of $1.18 per share; and
|
|
|
|
|
|
2,628,838 shares of common stock which will be available
for future grant or issuance as of September 30, 2010 under
our 2010 Equity Incentive Plan, or our 2010 Plan, and the annual
increases in the number of shares authorized under this plan
beginning January 1, 2011.
|
32
DILUTION
If you invest in our CDIs, your interest in our net tangible
book value will be diluted to the extent of the difference
between the initial public offering price and the net tangible
book value per CDI immediately after the completion of this
offering. Dilution results from the fact that the initial public
offering price is substantially in excess of the book value per
CDI attributable to the existing stockholders for the presently
outstanding stock. Each CDI is equivalent to one-tenth of a
share of our common stock.
Our pro forma net tangible book value as of September 30,
2010 was approximately $7.6 million or $0.31 per share, or
approximately $0.03 per CDI. Based on an assumed foreign
exchange rate of A$1.00 = $0.95, our pro forma net tangible book
value as of September 30, 2010 was approximately
A$8.0 million or A$0.32 per share, or approximately A$0.03
per CDI. Pro forma net tangible book value per share is
determined by dividing the amount of our total tangible assets
less our total liabilities by the pro forma number of shares of
common stock totaling 24,830,636 shares, after giving
effect to: (1) the issuance of 868,972 shares of our
preferred stock as accrued but undeclared cumulative dividends;
(2) the conversion of all outstanding shares of our
preferred stock (including conversion of preferred shares which
will be issued as accrued but undeclared cumulative dividends
and accounting for anti-dilution adjustments) into
15,798,685 shares of common stock and the conversion of all
outstanding shares of non-voting common stock into an aggregate
of 128,484 shares of our common stock, which will occur
immediately prior to, but contingent upon, the closing of this
offering; (3) the issuance of 652,286 shares of common
stock upon the exercise of preferred stock and common stock
warrants outstanding at September 30, 2010, which we expect
the warrant holders to elect to exercise through a
cashless exercise provision of the warrants, and the
issuance of 49,535 shares of our common stock issuable upon
exercise of preferred stock and common stock warrants which
warrant holders have elected to exercise in cash at a weighted
average exercise price of $5.32 per share, contingent and
effective upon the closing of this offering; (4) the
issuance of 5,588,187 shares of our common stock upon the
conversion of all outstanding principal and accrued interest on
notes payable, contingent and effective upon the closing of this
offering; (5) the reclassification of the preferred stock
warrant liability to additional paid-in capital upon the
exercise of all outstanding preferred stock warrants; and
(6) the reclassification of the repayment premium on
long-term notes payable to additional paid-in capital upon
conversion of the related notes payable which eliminates the
repayment premium obligation. Pro forma net tangible book value
per CDI is computed by dividing the pro forma net tangible book
value per share by ten.
After giving effect to the sale of 6,363,637 shares, or
63,636,370 CDIs, if the minimum offering is sold at an assumed
initial public offering price of A$1.10 per CDI, and after
deducting the placement agents fees and our estimated
offering expenses totaling approximately A$6.4 million
payable by us, or approximately A$6.7 million, our pro
forma as adjusted net tangible book value as of
September 30, 2010 would have been approximately
A$71.3 million, or A$0.23 per CDI. This amount represents
an immediate increase in pro forma net tangible book value of
A$0.20 per CDI and an immediate dilution of A$0.87 per CDI to
new investors.
After giving effect to the sale of 7,727,273 shares, or
77,272,730 CDIs, if the maximum offering is sold at an assumed
initial public offering price of A$1.10 per CDI, and after
deducting the placement agents fees and our estimated
offering expenses totaling approximately $7.1 million
payable by us, or approximately A$7.5 million, our pro
forma as adjusted net tangible book value as of
September 30, 2010 would have been approximately
A$85.5 million, or A$0.26 per CDI. This amount represents
an immediate increase in pro forma net tangible book value of
A$0.23 per CDI and an immediate dilution of A$0.84 per CDI to
new investors.
The following table illustrates this calculation on a per CDI
basis:
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
Maximum
|
|
|
|
Offering
|
|
|
Offering
|
|
|
Assumed initial public offering price per CDI
|
|
A$
|
1.10
|
|
|
A$
|
1.10
|
|
Pro forma net tangible book value per CDI as of
September 30, 2010
|
|
A$
|
0.03
|
|
|
A$
|
0.03
|
|
Pro forma increase per CDI attributable to the offering
|
|
A$
|
0.20
|
|
|
A$
|
0.23
|
|
Pro forma as adjusted net tangible book value per CDI after this
offering
|
|
A$
|
0.23
|
|
|
A$
|
0.26
|
|
Dilution per CDI to new investors
|
|
A$
|
0.87
|
|
|
A$
|
0.84
|
|
Assuming a foreign exchange rate of A$1.00 = $0.95, new
investing will incur an immediate dilution of $0.83 per CDI if
the minimum offering is sold and an immediate dilution of $0.80
per CDI of the maximum offering is sold.
33
The following table summarizes, on a pro forma as adjusted
basis, as of September 30, 2010, after giving effect to the
sale of the minimum and maximum offering and the pro forma
adjustments referred to above, the total number of shares of our
common stock (in the form of common stock or CDIs) purchased
from us and the total consideration and average price per share
and per CDI paid by existing stockholders and by new investors
at the assumed initial offering price of A$1.10 per CDI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Price
|
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Per
|
|
|
Per
|
|
Minimum Offering
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Share
|
|
|
CDI
|
|
|
Existing stockholders
|
|
|
24,830,636
|
|
|
|
79.6
|
%
|
|
A$
|
103,787,000
|
|
|
|
59.7
|
%
|
|
A$
|
4.18
|
|
|
A$
|
0.42
|
|
New investors
|
|
|
6,363,637
|
|
|
|
20.4
|
%
|
|
|
70,000,007
|
|
|
|
40.3
|
%
|
|
|
11.00
|
|
|
|
1.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
31,194,273
|
|
|
|
100.0
|
%
|
|
A$
|
173,787,007
|
|
|
|
100.0
|
%
|
|
A$
|
5.57
|
|
|
A$
|
0.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Price
|
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Per
|
|
|
Per
|
|
Maximum Offering
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Share
|
|
|
CDI
|
|
|
Existing stockholders
|
|
|
24,830,636
|
|
|
|
76.3
|
%
|
|
A$
|
103,787,000
|
|
|
|
55.0
|
%
|
|
A$
|
4.18
|
|
|
A$
|
0.42
|
|
New investors
|
|
|
7,727,273
|
|
|
|
23.7
|
%
|
|
|
85,000,003
|
|
|
|
45.0
|
%
|
|
|
11.00
|
|
|
|
1.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
32,557,909
|
|
|
|
100.0
|
%
|
|
A$
|
188,787,003
|
|
|
|
100.0
|
%
|
|
A$
|
5.80
|
|
|
A$
|
0.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tables and calculations above are based upon an assumed
foreign exchange rate of A$1.00 = $0.95 and assume:
|
|
|
|
|
1,560,500 shares of common stock issuable upon exercise of
options outstanding as of September 30, 2010, at a weighted
average exercise price of $1.18 per common share; and
|
|
|
|
|
|
2,628,838 shares of common stock which will be available
for future grant or issuance as of September 30, 2010 under
our 2010 Plan, and the annual increases in the number of shares
authorized under this plan beginning January 1, 2011.
|
If all of our outstanding options as of September 30, 2010
were exercised, the pro forma as adjusted net tangible book
value per CDI if the minimum offering is sold would be A$0.23
per CDI, representing an increase to existing holders of A$0.20
per CDI, and there will be an immediate dilution of A$0.87 per
CDI to new investors.
If all of our outstanding options as of September 30, 2010
were exercised, the pro forma as adjusted net tangible book
value per CDI if the maximum offering is sold would be A$0.22
per CDI, representing an increase to existing holders of A$0.19
per CDI, and there will be an immediate dilution of A$0.88 per
CDI to new investors.
An increase or decrease of A$0.10 in the assumed initial public
offering price of A$1.10 per CDI would increase or decrease
total consideration paid by new investors, total consideration
paid by all stockholders and the average price per share paid by
all stockholders by A$6.4 million, A$6.4 million and A$0.02,
respectively, assuming the minimum number of CDIs offered by us,
after deducting estimated placement agent fees and estimated
offering expenses payable by us.
An increase or decrease of A$0.10 in the assumed initial public
offering price of A$1.10 per CDI would increase or decrease
total consideration paid by new investors, total consideration
paid by all stockholders and the average price per share paid by
all stockholders by A$7.7 million, A$7.7 million and
A$0.02, respectively, assuming the maximum number of CDIs
offered by us, after deducting estimated placement agent fees
and estimated offering expenses payable by us.
34
SELECTED
CONSOLIDATED FINANCIAL DATA
The following table summarizes our selected consolidated
financial data. We have derived our statements of operations
data for the years ended December 31, 2005 and 2006 and our
balance sheet data as of December 31, 2005, 2006 and 2007
from our audited financial statements which are not included in
this prospectus. We have derived our statements of operations
data for the years ended December 31, 2007, 2008 and 2009
and our balance sheet data as of December 31, 2008 and 2009
from our audited financial statements appearing elsewhere in
this prospectus. Our financial information as of
September 30, 2010, and for the nine months ended
September 30, 2009 and 2010, is derived from our unaudited
financial statements appearing elsewhere in this prospectus. Our
audited financial information is prepared and presented in
accordance with generally accepted accounting principles in the
United States, or U.S. GAAP. Our unaudited financial
statements have been prepared on the same basis as our audited
financial statements and include adjustments, consisting of
normal recurring adjustments necessary for the fair presentation
of our financial position and results of operations for these
periods. Results for the nine months ended September 30,
2010 are not necessarily indicative of the results of operations
that may be expected for the full year. Our selected
consolidated financial data should be read together with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements and related notes included elsewhere in
this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands, except per share data)
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
7,127
|
|
|
$
|
6,605
|
|
|
$
|
8,536
|
|
|
$
|
11,378
|
|
|
$
|
10,272
|
|
|
$
|
7,701
|
|
|
$
|
5,668
|
|
General and administrative
|
|
|
1,367
|
|
|
|
1,520
|
|
|
|
2,247
|
|
|
|
2,205
|
|
|
|
2,241
|
|
|
|
1,727
|
|
|
|
1,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(8,494
|
)
|
|
|
(8,125
|
)
|
|
|
(10,783
|
)
|
|
|
(13,583
|
)
|
|
|
(12,513
|
)
|
|
|
(9,428
|
)
|
|
|
(7,340
|
)
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
106
|
|
|
|
194
|
|
|
|
94
|
|
|
|
124
|
|
|
|
26
|
|
|
|
24
|
|
|
|
9
|
|
Interest
expense(1)
|
|
|
(601
|
)
|
|
|
(1,474
|
)
|
|
|
(2,745
|
)
|
|
|
(1,874
|
)
|
|
|
(1,579
|
)
|
|
|
(1,175
|
)
|
|
|
(1,273
|
)
|
Gain (loss) on change in fair value of preferred stock rights
and warrant liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
(47
|
)
|
|
|
2,617
|
|
|
|
215
|
|
|
|
175
|
|
|
|
(830
|
)
|
Other income (expense)
|
|
|
(21
|
)
|
|
|
23
|
|
|
|
2
|
|
|
|
2
|
|
|
|
7
|
|
|
|
(15
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(9,010
|
)
|
|
|
(9,382
|
)
|
|
|
(13,479
|
)
|
|
|
(12,714
|
)
|
|
|
(13,844
|
)
|
|
|
(10,419
|
)
|
|
|
(9,436
|
)
|
Cumulative dividends and deemed dividends on Series H
convertible preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
(63
|
)
|
|
|
(1,074
|
)
|
|
|
(2,358
|
)
|
|
|
(1,699
|
)
|
|
|
(6,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Common Stockholders
|
|
$
|
(9,010
|
)
|
|
$
|
(9,382
|
)
|
|
$
|
(13,542
|
)
|
|
$
|
(13,788
|
)
|
|
$
|
(16,202
|
)
|
|
$
|
(12,118
|
)
|
|
$
|
(15,957
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per
Share(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(3.51
|
)
|
|
$
|
(3.56
|
)
|
|
$
|
(5.02
|
)
|
|
$
|
(5.06
|
)
|
|
$
|
(5.91
|
)
|
|
$
|
(4.42
|
)
|
|
$
|
(5.82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute net loss per share, basic and diluted
|
|
|
2,569,893
|
|
|
|
2,637,843
|
|
|
|
2,695,245
|
|
|
|
2,727,191
|
|
|
|
2,739,229
|
|
|
|
2,739,229
|
|
|
|
2,741,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Net Loss Per Share
(unaudited)(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.56
|
)
|
|
|
|
|
|
$
|
(0.49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute net loss per share, basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,371,951
|
|
|
|
|
|
|
|
23,953,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes amounts pertaining to related parties of $580, $1,456,
$2,619, $1,794, $1,532, $1,140, and $1,241 for the years ended
December 31, 2005, 2006, 2007, 2008, and 2009 and the nine
months ended September 30, 2009 and 2010, respectively. |
|
(2) |
|
See Note 3 to our consolidated financial statements for an
explanation of the method used to compute the historical and pro
forma net loss per share and the number of shares used in the
computation of the per share amounts. |
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
As of September 30,
|
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
|
(In thousands)
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,169
|
|
|
$
|
2,585
|
|
|
$
|
8,648
|
|
|
$
|
8,036
|
|
|
$
|
7,233
|
|
|
$
|
6,147
|
|
Working capital
|
|
|
5,357
|
|
|
|
2,708
|
|
|
|
7,244
|
|
|
|
13,621
|
|
|
|
6,085
|
|
|
|
4,328
|
|
Total assets
|
|
|
7,159
|
|
|
|
4,310
|
|
|
|
9,436
|
|
|
|
16,524
|
|
|
|
8,442
|
|
|
|
9,490
|
|
Notes
payable(1)
|
|
|
15,550
|
|
|
|
20,550
|
|
|
|
19,822
|
|
|
|
19,883
|
|
|
|
20,304
|
|
|
|
19,629
|
|
Accrued interest on notes
payable(2)
|
|
|
1,065
|
|
|
|
2,539
|
|
|
|
4,375
|
|
|
|
5,813
|
|
|
|
6,971
|
|
|
|
7,859
|
|
Repayment premium on notes
payable(3)
|
|
|
11,100
|
|
|
|
11,100
|
|
|
|
11,100
|
|
|
|
11,100
|
|
|
|
11,100
|
|
|
|
11,100
|
|
Preferred stock warrant liability
|
|
|
-
|
|
|
|
-
|
|
|
|
800
|
|
|
|
995
|
|
|
|
780
|
|
|
|
1,610
|
|
Total liabilities
|
|
|
28,585
|
|
|
|
34,987
|
|
|
|
41,654
|
|
|
|
39,867
|
|
|
|
40,402
|
|
|
|
42,091
|
|
Convertible preferred stock
|
|
|
28,982
|
|
|
|
28,982
|
|
|
|
39,994
|
|
|
|
61,913
|
|
|
|
69,071
|
|
|
|
77,874
|
|
Deficit accumulated during the development stage
|
|
|
(51,312
|
)
|
|
|
(60,694
|
)
|
|
|
(74,172
|
)
|
|
|
(86,887
|
)
|
|
|
(101,033
|
)
|
|
|
(114,831
|
)
|
Total stockholders deficit
|
|
|
(50,408
|
)
|
|
|
(59,659
|
)
|
|
|
(72,212
|
)
|
|
|
(85,256
|
)
|
|
|
(101,031
|
)
|
|
|
(110,475
|
)
|
|
|
|
(1) |
|
Includes $15,275, $20,275, $19,547, $19,636, $20,029 and
$19,387, as of December 31, 2005, 2006, 2007, 2008, 2009
and September 30, 2010, respectively, held by related
parties. |
|
(2) |
|
Includes $1,026, $2,482, $4,298, $5,718, $6,857, and $7,732 due
to related parties as of December 31, 2005, 2006, 2007,
2008, 2009, and September 30, 2010, respectively. |
|
(3) |
|
Includes $10,550 due to related parties as of each date
presented. |
36
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our
financial condition and results of operations in conjunction
with the Selected Consolidated Financial Data and
our consolidated financial statements and the related notes
thereto that appear elsewhere in this prospectus. In addition to
historical information, the following discussion and analysis
includes forward looking information that involves risks,
uncertainties, and assumptions. Actual results and the timing of
events could differ materially from those anticipated by these
forward looking statements as a result of many factors,
including those discussed under Risk Factors
elsewhere in this prospectus. See also Special Note
Regarding Forward Looking Statements included elsewhere in
this prospectus.
Overview
We are a development stage medical device company working toward
commercialization of our proprietary technologies to provide
minimally invasive medical devices for treatment of conditions
in the human body. Since the inception of our company in 1998,
our efforts have been concentrated on the development of a stent
for use in coronary applications. We currently are in the later
stages of developing a bioresorbable drug-eluting coronary stent
that we have named the
ReZolvetm
stent. In a clinical use, this stent is implanted by an
interventional cardiologist during a minimally invasive surgery
to a coronary artery location with a delivery catheter system.
The stent combines our proprietary stent design with a
proprietary polymer that is metabolized and cleared from the
body over time, leaving the body free of a permanently implanted
device. We have invested significant time and funds in the
development of the
ReZolvetm
stent and have performed significant scientific research,
engineering development, and testing of the stent in laboratory
and preclinical studies. We believe the results of this testing
have shown the technology to be safe and effective and that it
is suitable for final development and human clinical studies.
We believe that due to the risks and limitations associated with
commercially available metal stents, bioresorbable stents will
be the next major advance in coronary stent technology. Because
we have designed our stent to provide the same benefits as
traditional metal stents, but with the additional benefit of
eliminating the need for a permanently implanted device, we
believe that if we are able to complete development and clinical
testing of the stent, if we are able to successfully implement
manufacturing processes and procedures, and if it is approved
for sale by the relevant regulatory authorities, our stent will
enable us to compete effectively in the worldwide stent market.
Worldwide revenues from coronary stent sales approximated
$5.3 billion in 2009.
Our development of the
ReZolvetm
stent has progressed to the point where we have tested and
selected the polymer formulation, tested and selected the
anti-restenotic drug and coating process, iterated and are in
the process of finalizing the design, and identified and
implemented preliminary methods to produce the stent. As part of
this process, in 2007 we enrolled patients in a small clinical
study that proved the viability of our technology while
confirming the areas needing further development and we have
been advancing the product design and features since. We intend
to initiate a pilot human clinical trial of the stent to
commence in the second quarter of 2011. Assuming acceptable
results from this pilot clinical trial, we will initiate a
larger scale human clinical trial that will provide the data
needed to apply for CE Mark approval in Europe. If and when we
receive CE Mark approval, we plan to sell our stent in Europe.
In order to produce quantities of the stent large enough to
accommodate the clinical trials and commercial needs, when that
time arrives, we will need to
scale-up our
manufacturing processes and expand our capabilities to allow for
such things as additional stent dimensions. We have begun
preliminary development of the methods and processes for the
manufacturing
scale-up and
we plan to work on the dimensional and other aspects in 2011.
During our development of the
ReZolvetm
stent, we have invented, co-invented, and licensed a portfolio
of proprietary technologies. Our design-related technologies
have been invented by our employees and consultants and our
materials-related technologies have been either invented by our
employees or licensed from, or co-invented with, Rutgers, The
State University of New Jersey. We consider our patent portfolio
to be significant and have invested considerable time and funds
to develop and maintain it. Our goal is to perform feasibility
tests on additional technologies in our patent portfolio at the
same time we are finalizing our
ReZolvetm
stent and, if feasibility is proven, determine a course of
development for potential products and, thus, provide a
follow-on product pipeline.
During our development efforts, we have also pursued, tested,
and abandoned development programs that we determined would not
lead to feasible products or for which a product could not be
developed in a timeframe that would allow for reasonable
commercialization. The largest of these abandoned programs
centered on development of a thin metal stent technology for use
in small blood vessels. Although abandoned in 2002 after
approximately $13 million had been invested and used, this
technology
37
became the basis for the slide & lock
mechanism we are currently using. Additionally, the company
licensed a potential anti-restenotic drug in 2001 with the
intent to develop it for use as a stand-alone drug or as a
complement to our stent product. Although the drugs
development was abandoned in 2004 after we had invested
approximately $6 million, the knowledge we gained from that
program was used in our development of the drug coating for the
ReZolvetm
stent. We also formed a wholly owned subsidiary in Germany in
2007 to facilitate our clinical trials and our planned
commercialization of products; we have not used this subsidiary
yet for any operating activities.
We have performed all of our research and development activities
from one location in San Diego, California. As of
September 30, 2010, we had 40 employees, a majority of
which are degreed professionals and four of whom are PhDs. We
leverage our internal expertise with contract research and
preclinical laboratories, outside polymer and catheter
manufacturing, and other outside services as needed. We have two
clean rooms and multiple engineering and chemistry labs at our
facility, in addition to our corporate and administrative
office. We are ISO certified to the medical device standard
13485:2003 and intend to maintain the certification to support
our commercialization plans.
We have not yet developed a product to a saleable stage and we
have not, therefore, generated any product or other revenues.
Our development efforts have been funded with a variety of
capital received from angel investors, venture capitalists,
strategic partners, hedge funds and individuals. We have
received approximately $69 million in equity and
$29 million in debt proceeds since our inception, all of
which are currently outstanding. As of September 30, 2010,
we had approximately $6 million in cash available for
operations. We have incurred substantial losses since our
inception. As of September 30, 2010, we had accumulated a
deficit of approximately $115 million. We expect our losses
to continue for the next several years as we continue our
development work and, if these efforts are successful and we are
able to obtain approval to sell our products, we expect to
commence commercial sales thereafter.
Our company was founded in California in June 1998 and named
MD3, Inc. We changed our name to REVA Medical, Inc. in March
2002. In October 2010, we reincorporated from the State of
California to the State of Delaware. As a result, the rights of
our stockholders are now governed by the Delaware General
Corporation Law.
Key
Components of our Results of Operations
Since we are still in a pre-revenue stage and our activities are
focused on further developing and testing our bioresorbable
coronary stent with the goal of commercially selling it, as well
as performing minimal research and tests to determine the
feasibility of other product possibilities, our operating
results primarily consist of research and development expenses,
general and administrative expenses, and other expenses that are
primarily the carrying costs of the debt and equity securities
we have issued to fund our development efforts.
Research and Development Expenses: Our
research and development expenses arise from a combination of
internal and external costs. Our internal costs primarily
consist of employee salaries and benefits, facility and other
overhead expenses, and engineering and other supplies that we
use in our labs for prototyping, testing, and producing our
stents and other product possibilities. Our external costs
primarily consist of contract research, engineering consulting,
polymer production costs, catheter system and restenotic drug
purchases, preclinical and clinical study expenses, and license
fees paid for the technology underlying our polymer materials.
All research and development costs are expensed when incurred.
Through September 30, 2010, we have incurred approximately
$73.2 million in research and development expenses since
our inception, which represents approximately 80% of our
operating expenses. We anticipate that we will continue our
research and development activities at their current levels, but
that we will have a significant increase in our clinical trial
costs once we begin our pilot clinical trial in the second
quarter of 2011 and, if successful, our larger follow-on
clinical trial that will provide the data for our CE Mark
application.
General and Administrative Expenses: Our
general and administrative expenses consist primarily of
salaries and benefits for our executive officers and
administrative staff, corporate office and other overhead
expenses, legal expenses including patent filing and maintenance
costs, audit and tax fees, and travel expenses. Although our
patent portfolio is one of our most valuable assets, we record
legal costs related to patent development, filing, and
maintenance as expenses when the costs are incurred since the
underlying technology associated with these assets is purchased
or incurred in connection with our research and development
efforts and the future realizable value cannot be determined.
Through September 30, 2010, we have incurred approximately
$18.6 million in general and administrative expenses since
our inception, which represents approximately 20% of our
operating expenses. We anticipate that we will continue to
invest in patents at similar levels as we have in the past. We
also anticipate that we will need to expand our corporate
infrastructure, including the addition of personnel and
reporting systems, to support the
38
needs of being a public company and to prepare for commercial
sales of our products, which will increase our general and
administrative expenses significantly.
Other Expense and Income: A majority of our
non-operating expenses consist of interest expense arising from
notes payable. The notes have been issued to, and are currently
held by, individuals and investment funds that have also
provided equity capital to us. Although the notes were issued
between 2003 and 2006, the terms of the notes and the amendments
we have executed to extend their maturities have allowed us to
accrue and record the interest due on them, but defer payment of
both the principal balance and the interest. Currently, interest
is accruing at rates between 4.25 percent and
6.75 percent annually and the notes mature
December 31, 2011 or later. A portion of the notes payable,
in the amount of $5.5 million, are required to be repaid at
three times their principal balance, if they are repaid. Through
September 30, 2010, we have recorded approximately
$9.4 million of interest and $11.1 million in
repayment premiums on our notes payable. We expect all the
notes, and the accumulated accrued interest, to be converted
into common stock upon the initial public offering set forth in
this prospectus and do not expect that we will make any cash
payments of principal or interest, nor will we pay any portion
of the repayment premium. In conjunction with issuing our notes
payable, we issued warrants to purchase preferred stock. These
warrants have not been exercised through September 30,
2010. We recorded non-cash interest expenses for the initial
value of the warrants and have recorded gains and losses for
subsequent changes in fair value. Through September 30,
2010, a total of $1.6 million in net expense has been
recorded for these warrants. We expect the warrants will be
exercised upon this initial public offering and we will not,
therefore, have further expense or income related to them.
Since our inception, when we have had excess cash on hand we
have invested in short-term high-quality marketable securities
such as certificates of deposit and U.S. Treasury Bills.
Earnings from these investments are recorded as interest income;
through September 30, 2010, we have recorded a total of
approximately $0.9 million in such interest income.
Holders of our Series H convertible preferred stock are
entitled to receive cumulative dividends at the rate of six
percent per year, compounded quarterly when and if declared by
our board of directors or upon conversion of the Series H
stock into common stock. Although no dividends have been
declared, we have recorded the cumulative value of
$5.7 million for these dividends through September 30,
2010 by increasing the carrying value of the Series H
convertible preferred stock and reducing additional paid-in
capital, or in the instances where we have no remaining
additional paid-in capital, by increasing our deficit
accumulated during the development stage. We reflect the
cumulative dividends in our statement of operations when
presenting the net loss attributable to common stockholders. We
expect the Series H preferred stock to be converted into
common stock upon this initial public offering and, therefore,
we do not expect to have further cumulative dividends afterwards.
Critical
Accounting Policies and Significant Estimates
Our consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United
States. The preparation of our financial statements and related
disclosures requires us to make estimates, assumptions, and
judgments that affect the reported amounts of assets,
liabilities, preferred stock, stockholders equity,
expenses, and the presentation and disclosures related to those
items. We base our estimates and assumptions on historical
experience and other factors that we believe to be reasonable
under the circumstances. We evaluate our estimates and
assumptions on an ongoing basis; changes in our estimates and
assumptions are reasonably likely to occur from period to
period. Additionally, actual results could differ significantly
from the estimates we make. To the extent there are material
changes in our estimates or material differences between our
estimates and our actual results, our future financial statement
presentation, financial condition, results of operations, and
cash flows will be affected.
While our significant accounting policies are described in more
detail in Note 3 to our consolidated financial statements
included elsewhere in this prospectus, we believe the following
accounting policies involve a greater degree of judgment and
complexity than our other accounting policies and, therefore,
are the most critical to understanding and evaluating our
consolidated financial condition and results of operations.
Research and Development Costs: We expense
research and development costs as incurred. These costs
primarily consist of employee salaries and benefits, facility
and overhead expenses, engineering and lab supplies, contract
research, engineering consulting, polymer production costs,
catheter system and restenotic drug purchases, preclinical and
clinical study expenses, and technology license fees. Our
preclinical and clinical expenses are incurred on a contract
basis and generally span a period from a few months to longer
than a year. We record costs incurred under these contracts as
the work occurs and make payments according to contractual
terms. Until a contract is completed, we estimate the amount of
work performed and accrue for estimated costs that have been
incurred but not paid. As actual costs become known, we adjust
our accruals. We expect our
39
clinical expense accruals to increase as we enroll patients in
our pilot trial, which we expect to initiate during the second
quarter of 2011, and, if successful, our follow-on larger
clinical trial. We expect to make estimates as to the work
performed throughout the term of these trials, which is expected
to be five years. As a public company, we will be required to
make these estimates in shorter time frames and with less actual
data than we have in the past, which may cause our estimates to
be less accurate and may result in material changes in our
accruals, which could also materially affect our results of
operations within any fiscal period. To date, there have been no
material changes in our research and development expense
estimates.
Notes Payable: We record our notes payable at
their face values, accrue interest on the notes at their stated
interest rates, and amortize or accrete any related discounts or
premiums over the original term of a note using the effective
interest method. When we amend a note, such as extending its
maturity date, we perform an analysis based on applicable
accounting guidelines to determine if the amendment results in
an accounting impact. We first consider whether the amendment
would qualify as a troubled debt restructuring. If the amendment
is not considered a troubled debt restructuring, we consider
whether the amendment should be accounted for as an
extinguishment or a modification of debt. If the amendment is
determined to be an extinguishment of a note, we remove the
carrying value of the note, recording a gain or loss to
non-operating expense in our statement of operations, and record
the note at its fair value as determined using the amended
terms. We then amortize or accrete the difference between the
fair value and the face value of the note over the amended term
of the note using the effective interest method. If the note has
an embedded conversion feature and the amendment is determined
to be a modification of the note, as defined by accounting
standards, then any increase in the fair value of the conversion
feature resulting from the amendment is accounted for as a
reduction in the carrying amount of the note (as an additional
discount or reduction in premium) with a corresponding increase
in additional paid-in capital. All amounts amortized or accreted
over the term of a note are recorded as interest expense or
interest income in our statement of operations. We expect all of
our notes, along with their accrued interest, to be converted
into common stock upon completion of the offering set forth in
this prospectus and do not expect that we will make any cash
payments related to the notes prior to their conversions.
Preferred Stock Warrant
Liability: Periodically, we issue warrants to
purchase preferred stock in conjunction with issuing notes
payable. When we issue a warrant to purchase preferred stock, we
record the fair value of the warrant as a liability, as required
by accounting standards, with the related expense amortized to
interest in our statement of operations over the term of the
note payable. The warrant liability is adjusted to its current
fair value at each reporting date until the earlier of its
exercise or the end of its contractual life. Our warrants have
lives ranging from five to ten years. To determine the fair
value of the warrant liability, we utilize the Black-Scholes
option-pricing model, which requires use of subjective
assumptions. The assumptions used represent our best estimates,
but these estimates involve inherent uncertainties. We use an
estimate of the value of the underlying preferred stock, a life
equal to the warrants contractual life, risk-free interest
rates that correspond to the warrants remaining life, and
an estimate of volatility based on the market trading prices of
comparative peer companies. As a result of our use of estimates,
if factors change and we use different assumptions, the amount
of our warrant liability could be materially different in the
future. We expect all of our warrants to be exercised upon
completion of the offering set forth in this prospectus, at
which time the warrant liability will be reclassified to
stockholders equity and there will be no continuing
liabilities related to warrants.
Common Stock Warrants: We have issued
warrants to purchase common stock only in conjunction with
issuances of convertible preferred stock; these warrants have
five-year lives. When we issue a warrant to purchase common
stock, we record the fair value of the warrant on the date of
issuance as a component of stockholders equity and reduce
the recorded proceeds of the related preferred stock by an equal
amount. To determine the fair value of a common warrant, we
utilize the same approach as we use to value warrants issued to
purchase preferred stock. We expect all of our warrants to
purchase common stock to be exercised upon completion of the
offering set forth in this prospectus.
Income Taxes: We are currently subject to
taxation in U.S. and California jurisdictions, but because
we have not yet reached the stage of generating revenue and we
have accumulated significant tax losses, we have not been
required to pay income taxes. To account for the tax effects of
our accumulated losses and other tax-related items, we use the
asset and liability method, as defined by accounting standards,
and we adopted the guidance related to accounting for
uncertainties in income taxes as of January 1, 2009. Under
this guidance, we determine our deferred tax assets and
liabilities based on the estimated future tax consequences of
current temporary differences between the financial statement
carrying amounts of the assets and liabilities and their
respective tax bases, using tax rates that we expect to be in
effect when the temporary difference will be realized. After we
have quantified our deferred tax assets and liabilities, we
evaluate their ability to be realized. If a deferred tax asset
or liability is determined to have less than a 50% likelihood of
being upheld upon an examination by taxing authorities, or if we
are unable to make such a determination, we do not recognize the
tax asset or liability. We also establish a valuation allowance
for a deferred tax asset or liability when we determine that it
is likely to not be realized. In determining our tax accounting,
we use estimates and
40
make assumptions that we believe are reasonable; however, the
ultimate tax determination involves significant judgment that is
subject to audit by tax authorities and actual tax outcomes
could vary significantly from our estimates. Additionally, as a
result of our using estimates, if factors change and we use
different estimates, the amounts we have determined related to
our tax positions could be materially different in the future.
As of December 31, 2009, we had aggregate federal and
California state net operating loss carryforwards of
approximately $80.3 million and $78.5 million,
respectively, which may be available to offset future taxable
income for income tax purposes; the federal carryforwards begin
to expire in 2018 and the California carryforwards begin to
expire in 2010. At December 31, 2009, we also had federal
and California research tax credit carryforwards of
approximately $3.1 million and $2.7 million,
respectively; the federal carryforwards begin to expire in 2019
and the California carryforwards have no expiration. In
accordance with provisions of Internal Revenue Code
Sections 382 and 383, our net operating loss and research
tax credit carryforwards may not be fully usable to offset
future taxable income because of cumulative changes in the
ownership of our company. We have not completed an analysis to
see if our carryforwards would be limited; until we complete
this analysis we have removed the deferred tax assets for net
operating losses and the research credits from our deferred tax
asset schedule. Additionally, the deferred tax asset related to
our notes payable repayment premium of $11.1 million has
been removed from the deferred tax asset schedule because of the
uncertainty related to its realizability. We do not expect these
tax estimates and positions to change by December 31, 2010.
In each period since our inception, we have recorded a
valuations allowance for the full amount of our scheduled net
deferred tax asset, as the realization of the deferred tax asset
is uncertain and, as a result, we have not recorded any federal
or California income tax benefit in our statement of operations.
Upon the successful completion of the offering set forth in this
prospectus, we anticipate we will be subject to certain
Australian tax regulations in addition to those in
U.S. jurisdictions.
Stock-Based Compensation: We have granted
stock options to employees and consultants for the purchase of
common stock. These options generally have a ten-year life
during which the option holder can exercise at any time, they
generally vest over a five-year service period at the rate of
20% per year, and their exercise price equals the fair market
value of our common stock on the date they are granted. Prior to
2006, we accounted for the options granted to employees in
accordance with accounting standards that required us to record
compensation expense only if an options exercise price was
lower than the fair market price of our common stock on the date
of grant or if we changed any terms to the option after it was
granted. Since January 1, 2006, when we adopted the
required accounting standard on a modified prospective basis, we
have been recording compensation expense for options granted to
employees. Since inception, we have accounted for options
granted to consultants in accordance with accounting guidance
that requires us to record compensation expense.
For options granted to employees, we determine the amount of
compensation expense by estimating the fair value of each option
on its date of grant and then we amortize that fair value on a
straight-line basis over the period the employee provides
service, which generally is the five-year expected life, and
record the expense in our statement of operations as either
research and development expense or general and administrative
expense based on the employees work classification. We
estimate the fair value by using the Black-Scholes option
pricing model, which is more fully described above. For the
model inputs, we use the estimated value of the underlying
common stock, a risk-free interest rate that corresponds to the
vesting period of the option, an expected life of the option
equal to 6.5 years, and an estimate of volatility based on
the market trading prices of comparative peer companies.
Additionally, we reduce the amount of recorded compensation
expense to allow for potential forfeitures of the options; the
forfeiture rate is based on our actual historical forfeitures
and has ranged from approximately 2.5 percent to
5.3 percent. For options granted to consultants, we
estimate the fair value at the date of grant and at each
subsequent accounting date and record compensation expense in
our statement of operations based on the fair value during the
service period of the consultant, which is generally the
five-year vesting period. We estimate the fair value by using
the Black-Scholes option pricing model with the same approach to
inputs and assumptions as we use to estimate the fair value of
options granted to employees. As a result of our use of
estimates, if factors change and we use different assumptions,
the amount of our stock-based compensation expense could be
materially different in the future.
During the past five years, we have made very few grants of
options. We made no grants during the nine months ended
September 30, 2010. We made one grant of options to
purchase a total of 50,000 shares to three consultants in
2009. We made one grant of options to purchase a total of
643,500 shares to 40 employees in 2008. We made no
grants in 2007 and in 2006 we made one grant of options to
purchase 5,500 shares to two employees. We expect to
increase our frequency of granting options in the future and,
therefore, expect our stock-based compensation to increase.
41
Fair Value of Stock: Because our stock has
not been publicly traded, its fair value has been determined by
our board of directors on various dates, including the dates we
have granted options to purchase common stock. Our board, which
includes members who are experienced in valuing the securities
of early-stage companies, considered a number of subjective and
objective factors in their determination, including:
|
|
|
|
|
The prices of our convertible preferred stock sold to outside
investors in arms-length transactions, and the rights,
preferences, and privileges of each series of stock;
|
|
|
|
Our results of operations, our financial position, the status of
our research and development efforts, including preclinical
trial results, and the length of time until occurrence of
clinical trials and a commercial product;
|
|
|
|
The market values of medical device companies that are in a
stage of development or industry similar to us;
|
|
|
|
The lack of liquidity of both our preferred and common stock as
a private company;
|
|
|
|
Contemporaneous valuations performed by an unrelated valuation
specialist in accordance with methodologies outlined in the
AICPA Practice Aid Valuation of Privately-Held-Company Equity
Securities Issued as Compensation;
|
|
|
|
The likelihood and timing of achieving a liquidity event, such
as an initial public offering, given prevailing market
conditions; and
|
|
|
|
The material risks related to our business.
|
We believe our historical fair value estimates of our common and
preferred stock were reasonable and consistent with the AICPA
valuation guidance for private companies. In connection with
preparing our financial statements for inclusion in the
registration statement related to the offering proposed in this
prospectus, we reassessed the estimated fair values of our stock
for financial reporting purposes for the period from
January 1, 2009 through September 30, 2010 and
incorporated our conclusions into our contemporaneous valuation
through September 30, 2010. We reviewed the valuation
models and the related inputs we were using and, due to the
proximity of our initial public offering, determined that a
probability weighted expected return model (PWERM)
was more appropriate and would provide a better estimate of the
value of our stock than the option pricing method we had used
previously. Accordingly, we have applied the PWERM model to
reassess our common stock fair values for 2009 and to calculate
the values for 2010. The type and timing of each potential
liquidity event used for the 2010 valuations were heavily
influenced by the commencement of our initial public offering
process while the December 31, 2009 valuation was based on
our best estimate at the time of the type and timing of a
liquidity event for the Company. Since we had no corporate
milestones during 2009 or 2010 that would significantly affect
the valuation of our stock, we ratably increased the values
during 2009 and 2010. These valuations and this approach
resulted in the following estimated fair values of our common
and preferred stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
September 30,
|
|
December 31,
|
|
September 30,
|
|
|
2009
|
|
2009
|
|
2009
|
|
2010
|
|
Common Stock
|
|
$
|
1.37
|
|
|
$
|
3.40
|
|
|
$
|
4.07
|
|
|
$
|
9.04
|
|
Series E Convertible Preferred Stock
|
|
$
|
5.36
|
|
|
$
|
5.46
|
|
|
$
|
5.49
|
|
|
$
|
9.63
|
|
Series F Convertible Preferred Stock
|
|
$
|
3.28
|
|
|
$
|
4.74
|
|
|
$
|
5.22
|
|
|
$
|
9.71
|
|
Series H Convertible Preferred Stock
|
|
$
|
7.43
|
|
|
$
|
6.35
|
|
|
$
|
5.99
|
|
|
$
|
9.70
|
|
We used these reassessed fair values as inputs in our valuations
of options to purchase common stock and warrants to purchase
common and preferred stock for the year ended December 31,
2009 and the nine months ended September 30, 2009 and 2010
and in our deemed dividend calculations through
September 30, 2010.
42
Results
of Operations
Comparison
of the Nine Months Ended September 30, 2009 and
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
%
|
|
|
2009
|
|
2010
|
|
Change
|
|
|
(In thousands)
|
|
|
|
Research and development expense
|
|
$
|
7,701
|
|
|
$
|
5,668
|
|
|
|
(26
|
%)
|
General and administrative expense
|
|
$
|
1,727
|
|
|
$
|
1,672
|
|
|
|
(3
|
%)
|
Interest income
|
|
$
|
24
|
|
|
$
|
9
|
|
|
|
(63
|
%)
|
Interest expense
|
|
$
|
1,175
|
|
|
$
|
1,273
|
|
|
|
8
|
%
|
Gain (loss) on change in fair value of preferred stock warrant
liability
|
|
$
|
175
|
|
|
$
|
(830
|
)
|
|
|
>(100
|
%)
|
Other expense
|
|
$
|
15
|
|
|
$
|
2
|
|
|
|
(87
|
%)
|
Cumulative and deemed dividends on Series H convertible
preferred stock
|
|
$
|
1,699
|
|
|
$
|
6,521
|
|
|
|
>100
|
%
|
Research and development expense decreased $2.0 million for
the nine months ended September 30, 2010 compared to the
nine months ended September 30, 2009. The decrease was
primarily due to development progress on our
ReZolvetm
stent program. During 2009, we produced and tested polymer
formulations. After selecting a formulation in mid-2009, we
reduced the number of batches we were producing, which resulted
in a $1.2 million decrease in polymer costs. Additionally,
work performed in 2009 on our delivery system was not repeated
in 2010, which resulted in a decrease of $0.3 million. Due
to the stage of development, our need for contracted research
and engineering services decreased, resulting in a $0.2 million
decrease in related expense. The remainder of the change is due
to decreases in expenses related to compensation, engineering
tools, lab supplies, and preclinical and clinical study costs.
General and administrative expense decreased $55,000 for the
nine months ended September 30, 2010 compared to the nine
months ended September 30, 2009, primarily due to lower
compensation expense as a result of changes in the amount of
time employees worked on research and development programs
instead of general and administrative tasks.
Interest income decreased $15,000 for the nine months ended
September 30, 2010 compared to the nine months ended
September 30, 2009. The decrease was a result of lower
rates at which we earned interest due to general economic
conditions.
Interest expense increased $98,000 for the nine months ended
September 30, 2010 compared to the nine months ended September
30, 2009. This increase was a result of additional amortization
of debt discounts; the balances of our notes payable and the
rates of interest on those notes remained consistent between
periods.
The fair value change in our preferred stock warrant liability
was $1.0 million for the nine months ended
September 30, 2010 compared to the nine months ended
September 30, 2009 as a result of increases in the
estimated value of the underlying preferred stock. These
increases in estimated values resulted from a change in our
valuation assumptions due to the proximity of our initial public
offering as set forth in this prospectus.
Other expense decreased $13,000 for the nine months ended
September 30, 2010 compared to the same period in 2009 as a
result of differences in gains and losses on foreign exchange
rates that we incurred when purchasing from foreign suppliers.
The $4.8 million increase in cumulative and deemed
dividends recorded for the nine months ended September 30,
2010 compared to the same period in 2009 relates to the issuance
of Series H convertible preferred stock in September 2009
and May and June 2010. Terms of the Series H stock provide
for a six percent cumulative dividend that compounds quarterly.
43
Comparison
of the Years Ended December 31, 2008 and 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
%
|
|
|
2008
|
|
2009
|
|
Change
|
|
|
(In thousands)
|
|
|
|
Research and development expense
|
|
$
|
11,378
|
|
|
$
|
10,272
|
|
|
|
(10
|
%)
|
General and administrative expense
|
|
$
|
2,205
|
|
|
$
|
2,241
|
|
|
|
2
|
%
|
Interest income
|
|
$
|
124
|
|
|
$
|
26
|
|
|
|
(79
|
%)
|
Interest expense
|
|
$
|
1,874
|
|
|
$
|
1,579
|
|
|
|
(16
|
%)
|
Gain (loss) on change in fair value of preferred stock rights
and warrant liabilities
|
|
$
|
2,617
|
|
|
$
|
215
|
|
|
|
(92
|
%)
|
Other income
|
|
$
|
2
|
|
|
$
|
7
|
|
|
|
>100
|
%
|
Cumulative dividends on Series H convertible preferred stock
|
|
$
|
1,074
|
|
|
$
|
2,358
|
|
|
|
>100
|
%
|
Research and development expense decreased $1.1 million for
the year ended December 31, 2009 compared to the year ended
December 31, 2008. The decrease was primarily due to
$1.4 million in preclinical testing; the timing and
magnitude of testing is variable depending upon the types of
tests and data needed to support development. Additional
decreases included $273,000 of non-recurring engineering
consulting services, $195,000 in polymer costs due to timing of
production runs, and other numerous individually insignificant
items. The decreases were offset by increases of $353,000 in
payroll and benefits due to added personnel, $135,000 in
engineering and lab supplies, and $147,000 in depreciation from
new equipment and cleanroom.
General and administrative expense increased $36,000 for the
year ended December 31, 2009 compared to the year ended
December 31, 2008. This increase primarily resulted from
branding and website update expenses of $77,000 in 2009. The
lack of change in general and administrative expense reflects
stability in our headcount and related compensation and stable
spending as our administrative infrastructure and legal and
consulting activities have remained consistent.
Interest income decreased $98,000 for the year ended
December 31, 2009 compared to the year ended
December 31, 2008. Although our average cash balances were
higher in 2009 than 2008 the rate at which we earned interest
was significantly lower due to general economic conditions.
Interest expense decreased $295,000 for the year ended
December 31, 2009 compared to the year ended
December 31, 2008. This decrease was due primarily to
decreases in interest rates for our debt that is indexed to the
prime rate of interest and a decrease in the amount of debt
discount amortization from notes payable.
The fair value change in our preferred stock rights and warrant
liabilities was $2.4 million for the year ended
December 31, 2009 compared to the year ended
December 31, 2008. The change is a combination of a
decrease of $2.8 million from our preferred stock rights
due to remeasuring the rights and an increase of $410,000 from
our preferred stock warrant liability due to an increase in the
value of the underlying preferred stock values.
Other income for the years ended December 31, 2008 and 2009
consisted of only individually insignificant non-operating
transactions.
The $1.3 million increase in dividends recorded in 2009
compared to 2008 relates to the issuance of new Series H
convertible preferred stock in September 2009 and a full year
accrual of dividends on Series H convertible preferred
stock issued in September and December 2008.
44
Comparison
of the Years Ended December 31, 2007 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
%
|
|
|
2007
|
|
2008
|
|
Change
|
|
|
(In thousands)
|
|
|
|
Research and development expense
|
|
$
|
8,536
|
|
|
$
|
11,378
|
|
|
|
33
|
%
|
General and administrative expense
|
|
$
|
2,247
|
|
|
$
|
2,205
|
|
|
|
(2
|
%)
|
Interest income
|
|
$
|
94
|
|
|
$
|
124
|
|
|
|
32
|
%
|
Interest expense
|
|
$
|
2,745
|
|
|
$
|
1,874
|
|
|
|
(32
|
%)
|
Gain (loss) on change in fair value of preferred stock rights
and warrant liabilities
|
|
$
|
(47
|
)
|
|
$
|
2,617
|
|
|
|
>100
|
%
|
Other income
|
|
$
|
2
|
|
|
$
|
2
|
|
|
|
0
|
%
|
Cumulative dividends on Series H convertible preferred stock
|
|
$
|
63
|
|
|
$
|
1,074
|
|
|
|
>100
|
%
|
Research and development expense increased $2.8 million for
the year ended December 31, 2008 compared to the year ended
December 31, 2007. This increase was primarily due to
$1.2 million in preclinical testing and $634,000 in polymer
and catheters for our continuing development that was primarily
focused on material and design modifications in 2008. Additional
increases included $686,000 in payroll and benefits resulting
from added personnel, $433,000 in non-recurring outside research
and engineering costs for support of design modifications, and
$207,000 in engineering and lab supplies. The increases were
offset by decreases of $300,000 in clinical costs after
enrollment concluded in 2007 and $40,000 in license fees paid in
2007 for technology not renewed in 2008.
General and administrative expense decreased $42,000 for the
year ended December 31, 2008 compared to the year ended
December 31, 2007. This decrease primarily resulted from a
$218,000 decrease in legal fees from combined patent and
corporate advice, offset by increases of $94,000 in salaries and
benefits and numerous other individually insignificant items.
Interest income increased $30,000 for the year ended
December 31, 2008 compared the year ended December 31,
2007 primarily as a result of higher average cash balances in
2008, which were partially offset by marginally lower interest
rates.
Interest expense decreased $871,000 for the year ended
December 31, 2008 compared to the year ended
December 31, 2007. This decrease primarily resulted from
non-recurring preferred stock warrant interest of $730,000
recorded during 2007 in connection with bridge loan issuances,
combined with a decrease of $524,000 in interest on our notes
payable indexed to the prime rate of interest. Additionally,
amortization of the discount related to the value of embedded
conversion features on our notes payable increased $383,000 due
to the timing of amendments we made to the notes payable.
The fair value change in our preferred stock rights and warrant
liabilities was $2.7 million for the year ended
December 31, 2008 compared to the year ended
December 31, 2007. The change is a combination of a
$2.8 million decrease in the fair value of the preferred
stock rights liability due to reassessing its probability of
being realized, offset by a $195,000 increase in the fair value
of the preferred stock warrant liability.
Other income for the years ended December 31, 2007 and 2008
consisted of only insignificant non-operating transactions.
The $1.0 million increase in dividends recorded in 2008
compared to 2007 relates to the issuances of new Series H
convertible preferred stock in September and December 2008 and a
full year accrual of dividends on Series H convertible
preferred stock issued in December 2007.
Liquidity
and Capital Resources
Sources
of Liquidity
We are in the development stage and have incurred losses since
our inception in June 1998. As of September 30, 2010 we had
an accumulated deficit of $115 million. We have funded our
operations from a combination of private placements of our
equity securities, for which we received aggregate net proceeds
of $69 million, and issuances of notes payable, for which
we received $29 million in net proceeds, through
September 30, 2010. All of our notes payable allow for
accrual of interest with no cash payments due until the notes
mature, which currently is December 31, 2011 or later. We
expect all of our notes payable, together with their accrued
interest balances, to be converted into common stock upon
completion of the offering set forth in this prospectus and do
not expect that we will make any cash payments related to the
notes prior to their conversions.
45
As of September 30, 2010, our primary source of liquidity
was our cash on hand of $6.1 million. Additionally, we
expect to receive approximately $0.7 million cash in the
form of a U.S. Therapeutic Discovery Grant prior to
February 2011; a majority of the grant funds represent
reimbursement of expenses previously incurred. We believe our
current cash balances, together with the grant funds and the net
proceeds of this offering, will be sufficient to satisfy our
liquidity requirements for at least the next 24 months and
we will have sufficient working capital to carry out our
business objectives.
Cash
Flows
Below is a summary of our cash flows from operating activities,
investing activities, and financing activities for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Net cash used for operating activities
|
|
$
|
(9,622
|
)
|
|
$
|
(12,598
|
)
|
|
$
|
(12,569
|
)
|
|
$
|
(9,536
|
)
|
|
$
|
(6,930
|
)
|
Net cash provided by (used for) investing activities
|
|
|
782
|
|
|
|
(8,013
|
)
|
|
|
6,766
|
|
|
|
6,871
|
|
|
|
(107
|
)
|
Net cash provided by financing activities
|
|
|
14,900
|
|
|
|
20,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,952
|
|
Effect of foreign exchange rates
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
6,063
|
|
|
$
|
(612
|
)
|
|
$
|
(803
|
)
|
|
$
|
2,336
|
|
|
$
|
(1,086
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Flow from Operating Activities
Net cash used for operating activities during 2007 primarily
reflects the net loss of $13.5 million, offset by $668,000
of net cash provided by changes in operating assets and
liabilities, $2.7 million of non-cash interest related to
our notes payable and warrants to purchase preferred stock,
$263,000 of depreciation and amortization, and $181,000 of
stock-based compensation and other expense.
Net cash used for operating activities during 2008 primarily
reflects the net loss of $12.7 million and
$2.8 million related to the change in fair value of the
preferred stock right. These items were offset by $501,000 of
net cash provided by changes in operating assets and
liabilities, $1.8 million of non-cash interest in our notes
payable, $257,000 of depreciation and amortization, $195,000
related to the change in the fair value of the preferred stock
warrant liability and $138,000 of stock-based compensation and
other expense.
Net cash used for operating activities during 2009 primarily
reflects the net loss of $13.8 million. We also used cash
of $790,000 for the net changes in operating assets and
liabilities, including payments of certain long-term preclinical
study costs, and $215,000 related to the change in the fair
value of the preferred stock warrant liability. These items were
offset by $1.6 million of non-cash interest on notes
payable, $466,000 of depreciation and amortization, including
additional amortization related to the clean room and lab space
we added in the beginning of 2009, and $235,000 of stock-based
compensation and other expense.
Net cash used for operating activities during the nine months
ended September 30, 2009 primarily reflects the net loss of
$10.4 million and cash used by $609,000 of net changes in
operating assets and liabilities, and $175,000 related to the
change in the fair value of the preferred stock warrant
liability. These items were offset by $1,175,000 of non-cash
interest on our notes payable, $334,000 of depreciation and
amortization, and $158,000 of stock-based compensation and other
expense.
Net cash used for operating activities during the nine months
ended September 30, 2010 primarily reflects the net loss of
$9.4 million and cash used of $181,000 in net changes of
operating assets and liabilities. These items were offset by
$830,000 related to the change in the fair value of the
preferred stock warrant liability, $1,273,000 of non-cash
interest on our notes payable, $358,000 of depreciation and
amortization, and $226,000 of stock-based compensation and other
expense.
Net
Cash Flow from Investing Activities
Net cash used in investing activities during the years ended
December 31, 2007, 2008, and 2009 consisted of a $797,000
maturity of investment purchased in 2006 and the net purchases
of short-term investment securities of $7.5 million in 2008
that
46
matured during the first six months of 2009. Additionally,
purchases of property and equipment accounted for $140,000 in
2007, $516,000 in 2008, and $733,000 in 2009, with the majority
of the 2008 and 2009 purchases relating to the additions of a
cleanroom and lab space and equipment for those additions and
furniture and equipment for our administrative offices. Net cash
used in investing activities during the nine months ended
September 30, 2009 and 2010 consisted of the $7.5 million
short-term investment maturity in 2009 plus $628,000 and
$107,000, respectively, of purchases of property and equipment.
Net
Cash Flow from Financing Activities
Net cash provided by financing activities during the years ended
December 31, 2007, 2008, and 2009 consisted of net proceeds
of $9.9 million, $20.0 million, and $5.0 million,
respectively, from the sale of our Series H convertible
preferred stock. We additionally received $5 million in
proceeds from issuances of bridge notes in 2007 that were
converted into Series H preferred stock in 2007. During the
nine months ended September 30, 2009 and 2010, we received
$5.0 million and $7.5 million, respectively, in proceeds from
the issuance of our Series H preferred stock, net of
repurchases. During the nine months ended September 30,
2010, we have paid $1,532,000 related to the costs of this
initial public offering.
Operating
Capital and Capital Expenditure Requirements
To date, we have not commercialized any products. We do not
anticipate generating any revenue unless and until we
successfully obtain CE Mark or FDA marketing approval for, and
begin selling, the
ReZolvetm
stent or one of our other product possibilities. We anticipate
that we will continue to incur substantial net losses for the
next several years as we continue our development work, conduct
and complete preclinical and clinical trials, expand our
corporate infrastructure, and prepare for the potential
commercial launch of our products.
We believe that the net proceeds from this offering, together
with our existing cash and cash equivalents will be sufficient
to meet our anticipated cash requirements for at least the next
24 months. If our available cash and cash equivalents and
net proceeds from this offering are insufficient to satisfy our
liquidity requirements, or if we develop additional products or
pursue additional applications for our products, we may seek to
sell additional equity or debt securities or obtain a credit
facility. The sale of additional equity and debt securities may
result in additional dilution to our stockholders. If we raise
additional funds through the issuance of debt securities, these
securities could have rights senior to those of our common stock
and could contain covenants that would restrict our operations.
We may require additional capital beyond our currently
forecasted amounts. For example, we will need to raise
additional funds in order to build our sales force and
commercialize our products. Any such required additional capital
may not be available on reasonable terms, if at all. If we are
unable to obtain additional financing, we may be required to
reduce the scope of, delay, or eliminate some or all of our
planned clinical trials, research, development, and
commercialization activities, which could materially harm our
business.
Our forecasts for the period of time through which our financial
resources will be adequate to support our operations and the
costs to complete development of products are forward looking
statements and involve risks and uncertainties, and actual
results could vary materially and negatively as a result of a
number of factors, including the factors discussed in the
Risk Factors section of this prospectus. We have
based these estimates on assumptions that may prove to be wrong,
and we could utilize our available capital resources sooner than
we currently expect.
Because of the numerous risks and uncertainties associated with
the development of medical devices, such as our
ReZolvetm
stent, we are unable to estimate the exact amounts of capital
outlays and operating expenditures necessary to complete
development, continue ongoing preclinical studies, conduct human
clinical trials, and successfully deliver a commercial product
to market. Our future funding requirements will depend on many
factors, including but not limited to:
|
|
|
|
|
the time and effort it will take to successfully complete the
development and testing of the
ReZolvetm
stent;
|
|
|
|
the time and effort it will take to identify, develop, and
scale-up
manufacturing processes;
|
|
|
|
the scope, enrollment rate, and costs of our human clinical
trials;
|
|
|
|
the scope of research and development for any of our other
product opportunities;
|
|
|
|
the cost of filing and prosecuting patentable technologies and
defending and enforcing our patent and other intellectual
property rights;
|
47
|
|
|
|
|
the terms and timing of any collaborative, licensing, and other
arrangements that we may establish;
|
|
|
|
the requirements, cost, and timing of regulatory approvals;
|
|
|
|
the cost and timing of establishing sales, marketing, and
distribution capabilities;
|
|
|
|
the cost of establishing clinical and commercial supplies of our
products and any products that we may develop;
|
|
|
|
|
|
the effect of competing technological and market developments;
and
|
|
|
|
|
|
the cost and ability to license technologies for future
development.
|
Future capital requirements will also depend on the extent to
which we acquire or invest in businesses, products and
technologies, although we currently have no commitments or
agreements relating to any of these types of transactions.
Contractual
Obligations, Commitments, and Contingencies
The following table summarizes our outstanding contractual
obligations as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
Less Than 1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
More Than 5 Years
|
|
|
|
(In thousands)
|
|
|
Unsecured notes payable
|
|
$
|
20,550
|
|
|
$
|
-
|
|
|
$
|
13,362
|
|
|
$
|
7,188
|
|
|
$
|
-
|
|
Interest on notes payable
|
|
|
6,971
|
|
|
|
-
|
|
|
|
4,707
|
|
|
|
2,264
|
|
|
|
-
|
|
Repayment premium
|
|
|
11,100
|
|
|
|
-
|
|
|
|
11,100
|
|
|
|
-
|
|
|
|
-
|
|
Operating lease obligations
|
|
|
562
|
|
|
|
333
|
|
|
|
229
|
|
|
|
-
|
|
|
|
-
|
|
Purchase obligations
|
|
|
132
|
|
|
|
132
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
39,315
|
|
|
$
|
465
|
|
|
$
|
29,398
|
|
|
$
|
9,452
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet arrangements.
Recent
Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board, or
FASB, issued guidance that expands the interim and annual
disclosure requirements of fair value measurements, including
the information about movement of assets between Level 1
and 2 of the three-tier fair value hierarchy established under
its fair value measurement guidance. This guidance also requires
separate disclosure for purchases, sales, issuances, and
settlements in the reconciliation for fair value measurements
using Level 3 methodologies. Except for the detailed
disclosure in the Level 3 reconciliation, which is
effective for the fiscal years beginning after December 15,
2010, all the other disclosures under this guidance became
effective during the nine months ended September 30, 2010.
We have adopted the relevant provisions of this guidance
effective January 1, 2010, which had no financial impact on
our financial statements.
In February 2010, the FASB issued an update to the accounting
standard regarding subsequent events. The update requires
evaluation of subsequent events through the date financial
statements are issued for SEC filers, amends the definition of
SEC filer, and changes required disclosures. The new accounting
guidance was effective on February 24, 2010 and did not
have a material financial impact on our financial statements
upon adoption.
Other accounting standards that have been issued or proposed by
the FASB or other standards-setting bodies that do not require
adoption until a future date are not expected to have a material
impact on our financial statements upon adoption.
Quantitative
and Qualitative Disclosures about Market Risk
Interest
Rate Sensitivity
Our cash and cash equivalents of $6.1 million at
September 30, 2010 consisted of cash and money market funds
that will be used for working capital purposes. We do not enter
into investments for trading or speculative purposes. Our notes
payable at
48
September 30, 2010 included $15 million indexed to the
prime rate of interest. Our primary exposure to market risk is
interest income sensitivity, which is affected by changes in the
general level of interest rates in the United States. Because of
the short-term nature of our cash and cash equivalents, we do
not believe that we have any material exposure to changes in
their fair values as a result of changes in interest rates.
Because we expect our outstanding notes payable to convert upon
the offering proposed in this prospectus, we do not believe we
have any material exposure to changes in interest rates. The
continuation of historically low interest rates will limit our
earnings on investments, but will also limit our interest
expense on notes payable.
Foreign
Currency Risk
To date, our purchases from foreign suppliers and consultants
have been minimal and have been denominated primarily in the
currencies of Australia and the European Union. All investors
will pay for CDIs purchased in the initial public offering in
Australian Dollars; however, upon the closing of the offering,
net offering proceeds will be delivered to us in U.S. dollars.
Accordingly, we have had and will continue to have exposure to
foreign currency exchange rate fluctuations. We do not enter
into foreign currency hedging transactions. Although our foreign
subsidiary is non-operational, its functional currency is the
Euro; accordingly, the effects of exchange rate fluctuations on
the net assets of the subsidiary are accounted for as
translation gains or losses in accumulated other comprehensive
income within stockholders equity. A change of 10% or more
in foreign currency exchange rates of the Australian dollar or
the Euro would have a material impact on our financial position
and results of operations if we continue or increase our
purchases denominated in currencies other than the United States
dollar or if we convert a substantial part of the proceeds from
this offering back into Australian dollars.
Related
Party Transactions
Our related party transactions consist of notes payable issued
to members of our board of directors, or firms they represent,
or to investors that hold in excess of five percent of our
securities. Our notes payable outstanding at September 30,
2010, including related accrued interest and repayment premium,
totaled $38.6 million, of which approximately 98% pertains
to related parties. We expect all of these notes, along with the
accrued interest, to be converted into common stock upon
completion of the offering set forth in this prospectus and do
not expect that we will make any cash payments related to the
notes prior to their conversions.
49
BUSINESS
Overview
We are a development stage medical device company focused on the
development and eventual commercialization of our proprietary,
bioresorbable stent products. Stents are minimally invasive,
implantable medical devices which are used by interventional
cardiologists for the treatment of coronary artery disease.
Stents help stabilize diseased arteries by propping them open
and restoring blood flow. Our stent products have not yet been
approved by regulatory authorities and will require extensive
clinical testing and regulatory approval before they can be sold
and generate any revenue. As a result, our efforts to generate
revenue from our stent products will take several years even if
our clinical results are favorable. Our stent products are
designed to provide the same benefits as traditional metal
stents, including inhibiting restenosis, or the renarrowing of
the previously treated artery, with the additional benefit of
being dissolved by the body over time. Our lead product, the
ReZolveTM
stent, combines our proprietary stent design with a
proprietary polymer that is metabolized and cleared from the
body over time. We believe that, due to a number of risks
associated with commercially available metal stents,
bioresorbable stents will be the next major advance in coronary
stent technology, and if approved for commercialization by the
relevant regulatory authorities, we believe the
ReZolvetm
stent will enable us to compete effectively in the stent market
which was approximately $5.3 billion worldwide in 2009.
Over the last ten years, we have continued to advance our
technology in both its design and polymer composition and have
undertaken significant laboratory and preclinical testing which
has shown that our technology and the
ReZolvetm
stent are safe and effective across various animal models. We
have funded much of our research and development to date with
investments from health care venture capital funds, along with
investments from global medical device manufacturers, Medtronic,
Inc. and Boston Scientific Corporation, or BSC. We are in the
process of finalizing the design of our
ReZolvetm
stent, and we intend to initiate a pilot human clinical trial in
the second quarter of 2011.
We believe that if the
ReZolveTM
stent is approved by regulatory authorities, the
technology has the potential to provide patients with better
therapeutic outcomes and physicians with more effective clinical
tools. The
ReZolveTM
stent is designed to offer full x-ray visibility,
clinically relevant sizing, and a controlled and safe resorption
rate. In addition, by early encapsulation of the stent in the
artery tissue coupled with the loss of stent structure over
time, the
ReZolveTM
stent may reduce the incidence of late forming blood
clots, or thrombosis, a rare but serious problem associated with
drug-eluting metal stents currently on the market.
Market
Opportunity
Coronary
Artery Disease
Cardiovascular disease, or CVD, is a term used to describe all
diseases and conditions that relate to the heart and blood
vessels. Coronary arteries, which supply blood to heart muscle,
are susceptible to the build up of plaque, which can block or
inhibit blood flow, a condition known as coronary artery
disease. If the coronary arteries become too narrow as a result
of this plaque build up, cardiac tissue may become starved of
nutrients and oxygen, and the result is severe chest pain, known
as angina. As artery narrowing becomes more severe, death of
cardiac muscle downstream from the blockage can occur due to a
lack of oxygen. The sudden death of cardiac muscle can result in
a life threatening condition that is commonly known as a heart
attack, or myocardial infarction.
In many developed countries, coronary artery disease is the
leading cause of death in both males and females. The World
Health Organization, or WHO, has reported that since 1990, more
people have died from coronary artery disease than from any
other cause. In a September 2009 report published by the WHO,
CVDs were the number one cause of death globally, with an
estimated 17.1 million people dying from CVDs in 2004,
representing 29% of all global deaths. Of these deaths, an
estimated 7.2 million deaths were due to coronary artery
disease, the largest single contributor to CVD deaths.
The American Heart Association reported that in 2006, CVD was
the leading cause of death in the United States, claiming
831,272 lives, or 34.3% of all deaths. Of this amount, coronary
artery disease is the greatest contributor and accounted for
425,425 deaths in the United States in 2006, or approximately
one in every six deaths, and is estimated to cost the
U.S. government, directly and indirectly, an estimated
$177.1 billion in 2010. According to the American Heart
Association, over 17 million people in the United States
have a history of heart attack or angina pectoris (chest pain
due to coronary disease) or both, and approximately
1.2 million Americans will have a new or recurrent coronary
attack this year.
50
The European Heart Network has reported that each year, CVD
accounts for approximately 4.3 million deaths, or 48% of
all deaths, in Europe and over two million deaths, or 42% of all
deaths, in the EU. Of this amount, the European Heart Network
estimated that coronary artery disease is the most common single
cause of death in Europe and the EU, accounting for
approximately 1.92 million deaths per year in Europe, or
approximately 21% of all male deaths and 22% of all female
deaths in Europe, and accounting for approximately 741,000
deaths per year in the EU, or approximately 15% of all female
deaths and 16% of all male deaths in the EU. In addition, the
Australia Institute of Health and Welfare has also reported that
CVD was the primary cause of death in 2007 in Australia,
accounting for 46,623 deaths, or around one-third of all deaths
in 2007, and coronary artery disease kills more Australians that
any other disease, accounting for 22,727 deaths in 2007, or
16.5% of all deaths in Australia.
There have been a number of studies undertaken to determine the
major risk factors that predispose individuals to an increased
risk of coronary artery disease which include those set out
below:
The WHO has reported that 80% to 90% of people dying from
coronary artery disease have one or more of the major risk
factors that are influenced by lifestyle. One of the primary
lifestyle based risk factors for coronary artery disease is
obesity which has been increasing in developed nations.
According to the American Heart Association, over
144 million adults in the United States, or 66% of adults
age 20 and older, are overweight or obese. Australia and
other developed nations are following similar trends. The WHO
has also reported that cardiovascular disease is shifting to
developing nations. An increase in obesity in developing nations
could increase the prevalence of coronary artery disease in the
future.
Current
Interventional Treatments for Coronary Artery
Disease
The treatment options available to patients with coronary artery
disease vary between invasive and non-invasive techniques and
within these groups there are a variety of interventions that
have varying degrees of benefits and side effects. Due to the
lifestyle risk factors associated with coronary artery disease,
interventions that can reverse these factors, such as living a
healthy and active lifestyle, are used for the prevention and
treatment of coronary artery disease. Lifestyle changes include
regular exercise, smoking cessation, and healthy diet and
nutrition. The evidence to date shows that the healthy lifestyle
alternative is not being well adopted in developed or developing
societies, likely due to technological advancements which are
leading to more inactive lifestyles.
Medication therapy using cholesterol lowering medications, beta
blockers, diuretics, aspirin, nitroglycerin, calcium channel
blockers and angiotensin-converting enzyme inhibitors aim to
reduce blood pressure and blood cholesterol levels, and
therefore, aid in the treatment of coronary artery disease.
Although drug therapy for coronary artery disease can improve
quality of life and also prolong survival, many of these current
therapies must be combined with stenting to achieve satisfactory
long-term solutions for a large number of patients.
When lifestyle changes and medications fail to prevent the
development of coronary artery disease, open heart surgery and
less invasive interventional therapies are usually required to
restore blood flow to heart muscle to maintain adequate
functioning of the heart. A number of surgical procedures and
interventional therapies have been developed over the past four
decades to treat coronary artery disease, each with the goal of
quickly and safely restoring blood flow. This goal is
accomplished by surgically rerouting the flow of blood around
the lesion or using interventional techniques to reopen the
artery. The treatment of coronary artery disease has experienced
significant innovation and has evolved from invasive surgical
approaches to minimally-invasive catheter-based therapies. This
innovation has generally resulted in less severe
procedure-related complications, as well as
51
reduced costs due to shorter procedure and recovery times.
Physicians have rapidly adopted these new therapies because of
these benefits. The main treatment options available to patients
which are typically prescribed by treating physicians are:
Coronary Artery Bypass Surgery. Bypass
surgery, also called coronary artery bypass grafting, or CABG,
creates a detour around a blocked coronary artery with a new
blood vessel, or graft. This is an extremely invasive surgical
technique whereby open heart surgery is required to route blood
flow around a blockage or narrowing of a coronary artery. During
CABG, a surgeon takes a vein or an artery from the
patients chest, leg, or another part of the patients
body and connects, or grafts, it to the blocked artery. The
grafted artery bypasses the blockage. This allows oxygen-rich
blood to reach the heart muscle. Surgeons can bypass multiple
blocked coronary arteries during one surgery.
Balloon Angioplasty. In the late 1970s, a
significant advancement in the treatment of coronary artery
disease was developed that provided physicians with a
minimally-invasive therapy called percutaneous coronary
intervention, or PCI. The initial innovation was balloon
angioplasty, in which a physician inserts a slender
balloon-tipped catheter into the femoral artery in the
patients groin to a trouble spot in an artery of the
heart. At the site of the blockage, the balloon is inflated,
compressing the plaque or widening the narrow coronary artery so
that blood can flow more easily. This therapy was rapidly
adopted by physicians because it was minimally invasive and
resulted in shorter hospital and recovery times when compared to
bypass surgery. However, while providing advantages over bypass
surgery, the long-term effectiveness of balloon angioplasty is
limited by restenosis. Restenosis following balloon angioplasty
includes the components of elastic recoil of the artery wall and
the formation of scar tissue within the artery, and typically
requires a repeat of the balloon angioplasty procedure or bypass
surgery to overcome the artery renarrowing. While angioplasty in
isolation was successful in initially restoring blood flow,
according to a study published in 1994 by The New England
Journal of Medicine, restenosis occurred within six months
in about 40% of cases. In addition, some patients experienced
abrupt vessel closure after angioplasty, which led to major
complications including death, heart attack and emergency bypass
surgery.
Bare-Metal Stents. To address the issues of
abrupt vessel closure and high rates of restenosis following
angioplasty, coronary stents were developed to improve clinical
outcomes after angioplasty. Stents are small tube-like devices
used by interventional cardiologists to stabilize an artery by
propping it open and restoring blood flow after balloon
angioplasty. The introduction of stents in the early 1990s led
to the reduction of restenosis and minimized abrupt closure of
blood vessels. The stents currently being used in clinical
practice are flexible metal wire mesh tubes that are permanently
placed in the coronary artery. Coronary stents are typically
mounted on a balloon and expanded through stretching the open
stent to the desired diameter during implantation. In coronary
stenting, we believe the key clinical measures of success or
failure of the therapy are:
|
|
|
|
|
Target Lesion Revascularization, or TLR, which
measures the incidence of restenting or bypass surgery required,
due to failure of the initial coronary angioplasty and
stenting; and
|
|
|
|
Material Adverse Coronary Events, or MACE, being
events of death, ischemia or heart attack, where the target is
to have as low a rate of MACE as possible.
|
While the development of the bare-metal stent minimized the
issues and complications of the acute collapse of the artery
wall, restenosis continued to be a significant problem following
the introduction of bare-metal stents, with as many as 30% of
patients continuing to have restenosis following the coronary
stent placement, according to a study published in 1994 by
The New England Journal of Medicine.
Drug-Eluting Metal Stents. After coronary
stents were introduced, physicians determined that the cause of
restenosis was not necessarily the recurrence of coronary artery
disease but the bodys inflammatory response to the trauma
caused by the angioplasty procedure and the coronary stent. This
led to a number of methods designed to overcome restenosis, the
most common being the use of pharmacological agents to treat
restenosis at the site. The desire to introduce drug therapy at
the site of the lesion resulted in the development of a
combination device known as a drug-eluting stent. These metal
stents combine a thin polymer coating and therapeutic drug that
minimizes the build up of scar tissue during the wound healing
process after angioplasty and stent delivery. The drug-eluting
metal stents currently on the market contain a variety of drugs
that are intended to prevent restenosis which range from
cytotoxic drugs (paclitaxel) to immunosuppressants (sirolimus,
zotarolimus and everolimus). Delivery of drugs locally to the
artery wall, using lower dosages than would be required for
systemic applications, has been shown to inhibit the events
which might lead to restenosis. Patients usually also undergo
treatment with aspirin and anti-clotting or antiplatelet drugs,
such as clopidogrel (Plavix) or ticlopidine
(Ticlid) after stenting, to reduce the incidence of blood
clots, or thrombosis. Early indications were that drug-eluting
metal stents succeeded in reducing the issue of restenosis with
some clinical
52
trials with drug-eluting metal stents demonstrating a restenosis
rate of under 10%, according to a study published in 2006 by
The New England Journal of Medicine.
Bioresorbable Stents. While studies showed
drug-eluting metal stents have succeeded in lowering the rates
of restenosis, safety concerns were raised when studies
suggested risks associated with late-stent thrombosis and
failure to restore natural movement of the artery. When coronary
stents were originally conceived, work was undertaken to develop
them from biodegradable polymers so they would dissolve or
resorb over time, unlike metal stents which remain permanently
in place. This work was directed towards the use of stents as a
temporary device to treat the temporary issue of the coronary
artery healing after the balloon angioplasty in order to prevent
renarrowing of arteries. More recently, the focus has been on
producing a coronary stent that is safe and overcomes the
potential for late-stent thrombosis. The first bioresorbable
stent was developed by researchers at Duke University in the
early 1980s. While there have been a number of researchers
developing bioresorbable stents intended to be resorbed by the
body over time, there are many technical challenges, and to
date, no coronary bioresorbable stents have been approved yet
for sale in Europe or the United States.
Coronary
Stent Market
The global market for coronary stents can be broken down into
three main
sub-markets:
the United States, Europe and Asia, which is principally
comprised of Japan and includes Australia. Europe represents a
large market and will be the first market targeted by us,
assuming we achieve the CE Mark approval required to authorize
the sale of our
ReZolvetm
stent in the European Union.
In 2009, total annual revenues from coronary stent sales were
approximately $5.3 billion, of which drug-eluting stents
accounted for approximately $4.4 billion of this market. In
2009, annual revenues for coronary stent sales were:
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approximately $2.2 billion in the United States with sales
of approximately 1.4 million stent implants, with these
stents constituting approximately 90% of all interventional
procedures in the United States;
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approximately $2.3 billion in Europe with sales of
approximately 1.8 million stent implants, with these stents
constituting approximately 90% of all interventional procedures
in Europe; and
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approximately $0.7 billion in Japan with sales of
approximately 0.3 million stent implants, with these stents
constituting approximately 88% of all interventional procedures
in Japan.
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Drug-eluting stents account for approximately 70% of stent usage
worldwide. From 2006 to 2007, there was a reduction in market
size and sales of drug-eluting stents by over $1 billion
which we believe was due in part to the concerns regarding
increased risk of late-stent thrombosis. We believe there are
four companies with significant market share which have received
both FDA and CE Mark approval for five drug-eluting stents.
Limitations
of Current Interventional Treatments
Limitations
of Currently Marketed Stents
The use of coronary stenting with balloon angioplasty for the
treatment of coronary artery disease has become common practice
as an effective method of treating coronary blockages. However,
in spite of recent improvements in patient outcomes, the use of
bare-metal and drug-eluting stents, which remain permanently
embedded within the coronary artery wall, potentially put the
patient at risk for a number of clinical complications. These
complications may include:
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Adverse Long-Term Reactions. Currently
available stents are permanent implants and it is widely
believed they can create the potential for long-term tissue
reaction due to continued mechanical stress during the
hearts millions of pumping cycles. In addition, these
stents, and particularly bare-metal stents, create the potential
for restenosis by triggering the bodys inflammatory
response by inhibiting positive vessel remodeling. This
potentially prevents a more natural healing result over time.
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Risk of Thrombosis and Long-Term Drug
Therapy. There is currently concern within the
cardiovascular industry about the incidence of late-stent
thrombosis as a result of the use of drug-eluting metal stents.
Late-stent thrombosis is diagnosed as a blood clot, or
thrombosis occurring in the coronary artery, which then moves
downstream to create a coronary event or stroke, often leading
to death. According to a study published by the American
Medical Association,
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drug-eluting stents may potentially exacerbate the incidence of
late-stent thrombosis after treatment with the stent. We believe
this could be a significant issue for the industry and in late
2006 the use of drug-eluting stents began to decrease relative
to bare-metal stents. In order to reduce the risk of thrombosis,
patients are treated with drugs for potentially the rest of the
patients life. The long-term use of anti-platelet
medication has negative lifestyle effects on patients and is
also very costly.
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Complications to Future Medical
Interventions. Currently available stents may cause
numerous complications to medical treatment in the future due to
the permanent nature of the stent, including restricting
retreatment of coronary artery lesions with a subsequent stent,
or restenting, treatment of lesions that are located downstream
to the original stent and future surgical interventions,
including bypass surgery. In addition, the use of advanced
coronary imaging, including CAT Scans, or CTs, and magnetic
resonance imaging, or MRIs, to study coronary flow
non-invasively, can be inhibited due to the presence of a metal
stent.
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Limitations
associated with the Development of Bioresorbable
Stents
Bioresorbable stents have been in development for many years.
Companies engaged in the development of bioresorbable stents
have encountered a number of technical challenges that have
caused their product candidates to fail to satisfy regulatory or
market requirements, which we believe includes:
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Poor Stent Design and Polymer
Selection. Polymers are inherently weaker than
metal and are prone to becoming brittle and sometimes break. All
commercially available metal stents use deforming technology
where the stent is crimped down onto the catheter mounted
balloon. As the balloon expands, so does the stent, to reach its
intended size. As polymers do not stretch or deform without
affecting mechanical properties, the process of deployment can
further weaken the stent making it prone to breakage and
limiting its ability to support the artery. In addition, when
polymers are used in conjunction with traditional deforming
metal stent designs, the retention, or the ability to retain the
stent on the balloon, can be compromised since it is difficult
to adequately secure the stent on the balloon without damaging
or breaking the stent upon expansion.
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Change to Clinical Practice. Depending on the
specific polymer used in the stent, clinicians may need to heat
the balloon prior to use for an extended time to allow smooth
expansion of the stent, without cracking or breaking, and to
maintain strength after expansion. Additionally, to maintain
physical properties of the stent, clinicians may need to store
the polymer stent at refrigerated temperatures prior to use.
This additional preparation is inconvenient for clinicians and
increases the amount of time clinicians spend on treatment of
patients.
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Accelerated Resorption Rate. There is the
potential for early degradation of a polymer stent before
allowing sufficient time for the artery to heal. Therefore,
polymers must be designed to maintain mechanical strength
through the critical healing period post-stenting and then
initiate the process of resorption without creating adverse
biological reactions.
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Lack of Biocompatibility. Depending on the
polymer used, bioresorbable stents may create an inflammatory
response in the artery. In addition, they require the ability to
be resorbed by the body without indications of toxicity.
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Lack of Visibility Using Standard Imaging
Techniques. Polymer stents are generally invisible
under x-ray. The inability to view the stent using standard
imaging technology is a particular issue for physicians
evaluating patients during and after implantation of the stent.
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Although a number of other companies have and are currently
working to develop bioresorbable or polymer stents, no coronary
bioresorbable stents have been approved for sale in the United
States or Europe. Abbott Laboratories is developing its
Bioresorbable Vascular Scaffold, or BVS stent.
Abbott Laboratories has released information about two clinical
trials with its BVS stent. Biotronik, a private, European
company, is developing their second generation Dreams
magnesium-based resorbable stent. Biotronik has announced that
clinical trials of this device commenced in July 2010. We do not
have sufficient information to determine whether Abbott
Laboratories or Biotronik will receive regulatory approval for
their products, or whether their products will address the
technical limitations listed above.
As described below, we believe that our
ReZolvetm
stent potentially will be able to overcome these limitations by
combining the benefits of our exclusively licensed polymer with
our proprietary slide and lock design.
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Our
Solution
We have designed our
ReZolvetm
stent to overcome many of the limitations associated with
currently marketed bare-metal and drug-eluting stents. We are
currently working to prove out our design features, and although
we do not have human clinical data to support our assertions, we
have performed extensive bench and preclinical testing,
including animal models, that provides data and results that
indicate our stent will include the following benefits:
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Restoration of the Vessel Movement and Decreased Risk of
Adverse Effect. We believe adverse long-term
reactions will be reduced due to the ability of our stent to be
resorbed into the body over time. As our
Resolvetm
stent dissolves, and the lesion has healed, the expansion and
contraction of the vessel is restored without the restrictions
of a permanent metal structure. We believe our stent has the
potential to minimize disease progression downstream as the
artery and blood flow are restored.
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Minimization of Thrombosis Risk and Reduction of Long-Term
Drug Therapy. We believe the potential for
late-stent thrombosis is reduced because the stent becomes fully
encapsulated into the artery where it safely dissolves over
time. We believe these characteristics will help in reducing the
incidence of blood clots, potentially decreasing the need for
prolonged anti-platelet drug therapy.
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Enhanced Applications for Future Medical
Treatment. We believe as our
ReZolvetm
stent dissolves, the potential complications to subsequent
medical treatments are reduced. A patient can likely undergo
restenting, receive treatment more easily for lesions which are
located downstream from the original stent and undergo surgical
procedures to the arteries without metal obstruction. In
addition, we believe a significant potential application of our
products is for their use as delivery vehicles for agents such
as drugs and genes in coronary arteries for the treatment of a
number of different lesions, including the treatment and
reduction of vulnerable plaque. As a result, we believe our
ReZolvetm
stent will be able to treat a broader range of lesions more
safely than todays stent alternatives. The
ReZolvetm
stent also will not inhibit the use of MRI, thereby allowing
physicians to non-invasively study coronary flow. As the stent
loses radiocapacity following implant, we believe it will also
be compatible with CT imaging.
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We believe that due to risks associated with the commercially
available bare-metal and drug-eluting stents, bioresorbable
stents will be the next major advance in coronary stent
development. Bioresorbable stents can potentially provide
interventional cardiologists with more treatment options to
better address a broader range of coronary lesions which is not
possible with metal stents today. Our
ReZolvetm
stent is designed with the following features to overcome a
number of the limitations of other bioresorbable stents which
are currently under development:
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Proprietary Stent Design and Strong and Resilient
Polymer. Our proprietary slide &
lock design enables the
ReZolvetm
stent to be expanded with minimal deformation of the polymer;
therefore, maintaining the strength of the material. Our
proprietary polymer is also less prone to breaking than other
polymers that have been tested for this application, and we
believe the strength is comparable to that of metal stents
during the critical
90-day
healing period following stent placement. We believe our ability
to customize our polymer formulation will allow us to create
products for additional applications. For example, we believe
our polymer and stent technology could eventually be used to
develop stents for use in peripheral arteries of the leg where
stents are prone to crushing and fractures, such as in femoral
arteries. As part of our manufacturing process, we secure the
stent onto the balloon catheter without relying solely on
traditional crimping of the final stent assembly.
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No Change to Clinical Practice. Our stent
with its sheath can be deployed using a standard balloon
catheter and does not require any change to storage, handling or
delivery of the stent. The stent can be stored at controlled
room temperature conditions without the necessity of heating or
refrigeration prior to use. As a result, we believe that our
stent will be able to be implanted more efficiently than
comparable bioresorbable stents given the reduced preparation
required.
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Controlled Resorption Rate. The polymer we
use is designed to degrade into the body in a predictable and
safe manner. The polymer degrades and can then be cleared from
the body. The polymer formulation also enables us to adjust the
degradation profile to maximize the benefit for patient outcomes.
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Biocompatible and Safe. While we do not have
any human clinical data with respect to the current version of
our polymer, we previously performed human clinical trials with
an earlier version of our polymer and this version did not show
any adverse biological reactions at 34 months post-stenting. In
developing our current polymer, we modified our original polymer
to enhance mechanical properties and address structural issues
identified in our human
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clinical trials. The current polymer is similar in composition
and contains approximately 85% of the same material as the
original version of our polymer. The previous and the current
polymers have demonstrated equal biocompatibility in preclinical
testing. Our animal studies to date have shown that at
12 months post-stenting in pigs and rabbits, the current
version of our polymer has not shown any indications of adverse
biological reactions while the stent material is degrading,
consistent with the original version of our polymer. We believe
the current version of our polymer addresses the structural
issues identified in our human clinical trials without adversely
affecting biocompatibility.
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Visible Using Standard Imaging
Techniques. Our
ReZolvetm
stent is visible under x-ray, thereby allowing physicians the
ability to see the stent during placement and at early patient
evaluations. It is also compatible with MRIs, and after a
certain amount of stent resorption occurs, we believe our
ReZolvetm
stent will be compatible with CT imaging, both of which imaging
technologies may become more widely used in the diagnosis and
treatment of coronary artery disease.
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The disadvantage of our
ReZolvetm
stent is that, initially, our
ReZolvetm
stent is not designed to address smaller diameter vessel
applications or highly calcified, or hard and complex, lesions.
As a result, the
ReZolvetm
stent will not initially be able to address the needs of all
patients requiring a coronary stent.
Our
Strategy
Our goal is to become a world leader in the development and
commercialization of bioresorbable stent products used in the
coronary and peripheral arteries of the human body. To achieve
this goal, we are pursuing the following business strategies:
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Demonstrate the Clinical Safety and Efficacy and Gain
Regulatory Approval of our
ReZolveTM
Stent. We intend to demonstrate the clinical
safety and efficacy of our
ReZolvetm
stent through carefully structured clinical studies with pilot
human clinical trials of our
ReZolvetm
stent expected to begin in the second quarter of 2011. We plan
to use these pilot studies to support our application to start
the pivotal human clinical trial required to obtain CE Mark
approval in the EU which will allow for commercial sales of the
ReZolvetm
stent in the EU. We have developed a clinical and regulatory
plan designed to achieve CE Mark approval and are targeting
first commercial product sales in the EU by the end of 2013. We
intend to use the data from the CE Mark human trials to support
applications for an Investigational Device Exemption, or IDE,
for U.S. clinical trials which we expect to commence
following the CE Mark human trials.
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Commercialize and Drive Adoption of our
ReZolveTM
Stent. Following regulatory approvals, we
plan to commercialize our products. Once the clinical trials
designed to achieve CE Marking are underway, our strategy will
be to advance our commercialization plan in anticipation of the
approval to allow for commercial sales of our products in the EU
and related markets such as Australia. In order to meet
commercial demand for our products, we intend to invest in the
expansion of our manufacturing capabilities to required levels.
Based on the early clinical data from our human clinical trials
in the EU, we will then plan the commencement of our larger and
more costly U.S. FDA clinical trial in order to seek to
achieve PMA approval for commercial sales of our products in the
United States. We have granted BSC an option for a worldwide,
exclusive right to sell, market and distribute our products,
subject to certain requirements. See Material
Agreements Boston Scientific Agreements for
additional information.
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Build Awareness and Support Among Leading
Physicians. Our clinical development strategy is to
closely collaborate with key opinion leaders in the field of
interventional cardiology. We believe these key opinion leaders
can be valuable advocates of our technology and be important in
the market adoption of our products once our products are
approved and commercialized. In addition, we intend to look to
these physicians to generate and publish scientific data that
further supports the benefits of our stent technology.
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Leverage Our Technology Platform into Other Therapeutic
Areas. We believe that our technology is applicable
in other therapeutic areas outside of coronary artery disease.
For example, we intend to pursue the use of our technology for
the treatment of peripheral artery disease. Currently, we
believe treatments of peripheral artery disease, particularly in
the femoral artery, have demonstrated only marginal benefit. We
believe, however, the application of our technology to the
development of a bioresorbable peripheral stent could be
significant in this expanding market.
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Explore Licensing Opportunities. We intend to
explore opportunities to leverage our intellectual property
portfolio through licensing our technology to third parties or
through the establishment of partnerships. For example, we are
currently seeking a partner interested in licensing our
side-chain crystalizable polymer for use as a flowable cement in
spinal trauma surgery.
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Expand and Strengthen Our Intellectual Property
Portfolio. We plan to continue to expand our
current intellectual property portfolio. While we believe that
our current portfolio will allow us to effectively market our
products for the treatment of coronary artery disease, we plan
to originate, license and acquire additional intellectual
property to enhance our existing position and enable us to more
effectively protect our technology.
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Provide the Highest Quality Products for Our Customers and
Patients. We have assembled a team of experienced
professionals in the medical device industry who are focused on
patient safety and product quality. We incorporate these
principles in every aspect of our business including product
development, manufacturing, quality assurance and clinical
research. We intend to build on this foundation by offering only
the highest quality products to patients and physician customers.
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Our
Products
ReZolvetm
Stent
The
ReZolvetm
stent is a fully bioresorbable polymer stent. After
implantation, the stent is fully captured within the artery
wall. As the vessel remodels and heals, the stent gradually
degrades and is benignly cleared from the body to overcome a
number of the issues caused by permanent metal stents. As the
stent degrades and is resorbed, there is an integration of
artery tissue into the space previously occupied by the stent.
We developed an early version of the stent that was not
drug-coated. After extensive preclinical testing of the early
version stent, we performed a small human clinical trial in 2007
with 25 patients in Brazil and Germany. We were successful
in deploying the stent and demonstrated the stents ability
to dilate and hold open the artery as anticipated and consistent
with the results of our preclinical data. However, at
approximately four months, we saw adverse device performance
resulting in a higher than anticipated number of patients
requiring retreatment with another stent. At approximately the
three-year time point, we performed
follow-up
imaging on a subset of patients that were both retreated and not
retreated. This imaging shows stability of the artery, which we
believe supports our claims as to the safety of the polymer as
it degrades.
After extensive investigative analysis, we concluded that
embrittlement of the polymer was one of the primary underlying
causes for the retreatments in the first study. In addition to
planned changes to the stents design, we modified the
polymer formulation, developed more predictive bench testing,
and are working on final design aspects of the revised
ReZolveTM
stent.
We plan to implant the
ReZolvetm
stent using a balloon mounted angioplasty catheter. We currently
pre-mount the
ReZolvetm
stent onto the balloon as part of the manufacturing process and
prior to the final sterilization. While the handling and storage
requirements of the
ReZolvetm
stent are not expected to vary from those commonly used in
clinical practice with metal stents, we currently plan to
include a sheath over the
ReZolvetm
stent to protect the device until it is finally positioned in
the coronary artery. Other than the use of the sheath, we
believe that the
ReZolveTM
stent will be able to be implanted in humans using
standard clinical procedures, which we believe will be important
to rapid adoption of the product by physicians following receipt
of
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regulatory approval required for commercialization. It is
possible that future device iterations will not utilize a
sheathed delivery system. The intended key features of our
ReZolvetm
stent include:
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Intended Key Features
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Details
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Deliverable for intended use
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Able to be implanted with minimally invasive techniques. Resorbs
leaving no device.
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Efficacy
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Restores natural movement to artery following resorption.
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Minimal recoil
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Limits the stents recoil which we believe decreases the
risk of restenosis.
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Expansion range
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Clinically-relevant expansion range due to ratchet mechanism
which allows our stents to be ratcheted open to achieve various
sizes during the implant procedure. Minimizes complications from
over-expansion.
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Treats 2.75 mm diameter arteries and above
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Meets standard size requirements and is able to treat a variety
of patients.
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Standard deployment
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Catheter mounted with handling and storage the same as current
clinical practice.
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Radiopaque
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Visible by the cardiologist seeking to check the placement in
the artery post-implant.
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To address clinical requirements, we will develop several sizes
of the
ReZolvetm
stent and also several lengths, to address the most common
lesions being treated in coronary arteries.
Our
ReZolvetm
stent, which consists of our slide & lock
design and licensed polymer technology, has passed the following
preclinical tests:
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Comparative Testing. Animal implants have
been undertaken to assess our stent technology functionality as
compared to commercially available metal stents. We have
undertaken significant laboratory and preclinical testing on the
development of our stent technology over the last ten years
which has shown that our technology and the
ReZolvetm
stent is safe and effective in animals, with nearly 1,000 stents
tested across various animal models. In the 90 days
following implant, our preclinical tests have shown that the
ReZolvetm
stent maintains the opening of the artery. Studies of our
technology show that as the polymer degrades, the artery heals
and becomes more like an unstented artery. Following stent
implant, the lumen size, or the inside area of the artery,
increased after our stent started to and continued to resorb
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over time, leaving a more normal lumen area. The lumen size of
arteries supported by metal stents implanted as a control in
these animal studies was almost unchanged. The chart below
summarizes some of our animal studies:
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Below: Animal testing of change in lumen size from time of
implant
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Strength, Embrittlement and Fatigue
Testing. We have conducted engineering and life
cycle testing with machines that are designed to replicate both
the physiological conditions in the coronary artery as well as
measure the maximum stress levels that our technology can
withstand. To date, these preclinical tests have demonstrated
satisfactory design and polymer strength, low levels of
embrittlement of the polymer and resistance to fatigue prior to
significant degradation of the stent.
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Biocompatibility Testing. The biological
response to our stent technology has been evaluated by assessing
healing in the animal coronary arteries using standard
microscopy for stented arteries. To date, these studies have
demonstrated the polymer is safe and no adverse response occurs
in the artery even while the polymer degrades.
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Rate of Degradation Testing. We have tested
degradation of the polymer, as the stent needs to maintain its
structural integrity for approximately a
90-day
period following stenting to allow sufficient time for the
artery to heal. To date, these studies have demonstrated that
our technology maintains its structural integrity and strength
for up to six months in animals. By design, at 12 months,
the stent no longer has significant mechanical strength, and the
polymer begins to resorb and be eliminated from the
animals body which continues for approximately four years,
after which only tiny particles of the original polymer remain.
A study of the byproducts resulting from the resorption of our
stent showed no accumulation in key organs or tissues of the
animals body and a substantial portion of the byproducts
were cleared from the body.
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Toxicity Testing. Our polymer material has
been tested for toxicity and has been shown to date to be safe.
As required by ISO-10993-1 regulations, our technology has
undergone laboratory testing for genotoxicity. To date, our
studies have shown that there is no change to the DNA or
chromosomes of cells tested and no other genetic effect showing
our polymer is genotoxic. In addition, we have also conducted
tests for several other types of toxicity which have
demonstrated to date that the polymer is safe. In addition to
these laboratory tests, we have also conducted
follow-up
tests on the patients who were implanted with an early
generation of our stents in 2007, and after three years of
exposure to the polymer and breakdown of products in these
patients, the vessels remain open and no long-term adverse
clinical events have been reported.
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Testing of Drug Coating. The act of placement
of the stent in the artery can injure the diseased vessel and
the bodys wound-healing process can cause excessive scar
tissue to form inside the stent, or in-stent restenosis. The
drug sirolimus has been shown to minimize the overgrowth of
tissue thereby minimizing the incidence of in-stent restenosis.
In animal studies, we have tested the effects of the drug,
sirolimus, which is applied to the stent surface of the
ReZolvetm
stent as a coating. This drug is already used for other
drug-eluting stents due to a recognized safety profile and
efficacy at reducing restenosis. Our studies demonstrated no
major drug toxicity.
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Our
Technology
Slide
and Lock Stent Design
Our patent protected slide & lock
mechanism is based on a ratchet system where as the stent
expands on a catheter mounted balloon, the teeth on
the sliding parts pass through brackets in the stent, preventing
them from passing back, and locks in the stent diameter. The
current version of the slide and lock design is
designed to be uniform throughout. The design is implemented
with two sets of components: backbones and U-shaped
struts.
We believe our slide & lock design offers
the following advantages as compared to commercially available
metal stents and drug-eluting stents, and bioresorbable stents
in development:
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Non-Deformable Design. All metal stents
currently commercially available use deforming technology where
the stent is crimped down onto the catheter mounted balloon and
as the balloon expands, so does the device, until it reaches the
desired size. Stents that bend open in this manner are called
deformable stents. When polymers are stretched, they
can lose strength and become prone to breakage. We believe our
non-deformable ratcheting design is a key component to
developing a strong bioresorbable stent.
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Spiral Design which Maximizes Strength while Minimizing
Bulk. In metal stents, the ultimate strength of the
material prevents excessive recoil of the device post expansion.
Polymer stents do not have the strength of metal, and therefore
often break, recoil to a smaller diameter, or collapse entirely.
We believe our spiral design offers an appropriate level of
radial strength to overcome these issues while minimizing bulk.
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Large Expansion Range with the Ability to Minimize
Over-Extension. One potential drawback of utilizing
existing polymer stent technology is the lack of expansion range
which can be achieved during implantation. The
slide & lock mechanism allows our stents
to be ratcheted open to achieve various sizes, similar to
commercially available metal stents, and overcomes this
drawback. Existing technology generally requires that treating
physicians more accurately assess the correct size of the
coronary artery based on angiography, since further expansion of
the device post implant, a common technique to improve the
position of the stent in relation to the artery wall, is limited
due to potential fracture and recoil. With a limited expansion
range, additional stent sizes may be required to accommodate
existing clinical practice. We believe that with our
slide & lock technology, the physician
will be able to further expand the stent, as currently done in
clinical practice, without the concern of over-expansion and
without the need for excessive stent sizes.
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Polymer
Composition
Our patent protected polymer is an iodinated, tyrosine-derived
polycarbonate.
In January 2004, we entered into an exclusive license for a
polymer material invented at Rutgers University in New Jersey
for use in stents, stent coating and embolics. We have continued
to develop and enhance the polymer in collaboration with Rutgers
University. In July 2010, we entered into a new license
agreement with Rutgers University which broadens our exclusive
rights to the original polymer family and all new polymer
compositions developed from this family to cover all vascular
applications. See Material Agreements
Rutgers License Agreement for additional information.
We believe the polymer we use offers the following advantages as
compared to other polymer-based stents:
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Strength. Strength and structural integrity
comparable to metal stents is important during the critical
90 day healing period following stenting. We have developed
our polymer such that, in conjunction with our design, it
maintains the strength and structural integrity necessary to
support an artery during the critical 90 day healing
period. We believe our specific polymer formulation is less
prone to cracking and breakage than other polymers.
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Biocompatibility. While we do not have any
human clinical data with respect to the current version of our
polymer, we previously performed human clinical trials with an
earlier version of our polymer and this version did not show any
adverse biological reactions at 34 months post-stenting. In
developing our current polymer, we modified our original polymer
to enhance mechanical properties and address structural issues
identified in our human clinical trials. The current polymer is
similar in composition and contains approximately 85% of the
same material as the original version of our polymer. The
previous and the current polymers have demonstrated equal
biocompatibility in preclinical testing. Our animal studies to
date have shown that at 12 months post-stenting in pigs and
rabbits, the current version of our
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polymer has not shown any indications of adverse biological
reactions while the stent material is degrading, consistent with
the original version of our polymer. We believe the current
version of our polymer addresses the structural issues
identified in our human clinical trials without adversely
affecting biocompatibility or safety.
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Predictable Degradation and Resorption. Our
polymer degrades into metabolites (being three monomers and
carbon dioxide) and can then be cleared from the body. Our
polymer formulation also enables us to adjust the degradation
profile to fit with the patients desired outcomes. We
believe future generations of our bioresorbable stent may employ
formulations that will allow a more rapid degradation process to
occur which will facilitate, for example, the short-term
treatment of vulnerable plaque with drugs.
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Visibility. The use of iodine in the polymer
enables our stent to be visible under x-ray as well as standard
fluoroscopy. This visibility is similar to commercially
available metal stents, made of stainless steel, and we believe
this differs from other products currently in development where
only the end markers on the device are visible. Improved
visibility allows interventional cardiologists to more
accurately assess the implant quality and position.
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Drug
Coating
Our
ReZolveTM
stent can be configured as a drug-eluting stent coated
with a therapeutic agent that is designed to inhibit restenosis
of the artery in the same location. We intend to use the drug,
sirolimus, an anti-restenotic drug used in other drug-eluting
stents. This drug is commercially available from a number of
different sources and is FDA approved.
A target dose of 80 ug of sirolimus is coated onto the outside
surface of the
ReZolvetm
stent using a polymer solution containing the drug. The polymer
used in the coating solution is the same as our base polymer. In
laboratory and animal studies to date, we have demonstrated that
there is a controlled release of the drug over 30 days,
with most of the drug released from the polymer within
90 days. We believe this early and slow release
characteristic optimizes the efficacy of the drug, while more
complete delivery at 90 days may decrease the impact of the
drug on the healing process.
Preclinical
Testing
We have undertaken significant laboratory and preclinical
testing on the development of our stent technology over the last
ten years which has shown that our technology and the
ReZolvetm
stent is safe and effective in animals, with nearly 1,000 stents
tested across various animal models.
We are also completing our preparatory work including formal
animal trials with the
ReZolvetm
stent for submission to the Brazilian and European regulatory
bodies. Upon completion of these preparatory steps and the
receipt of regulatory approvals, we plan to initiate our next
series of human trials, commencing with a pilot study and then a
randomized clinical trial to support our CE Mark application.
Clinical
Development Program
We have developed a clinical and regulatory plan which is
designed to achieve CE Mark approval by the end of 2013. We
intend to use the data from the CE Mark human trials in order to
support future applications for an Investigational Device
Exemption, or IDE, for U.S. clinical trials.
Assuming we obtain CE Mark approval for our
ReZolvetm
stent, we believe we will be in a position to generate
commercial sales in the EU. If we are successful in generating
such sales, we anticipate using the revenue to fund the
U.S. human clinical trials, as well as our other
development activities. Commercial sales in the United States
can only occur after completion of a U.S. FDA human
clinical trial and Premarket Approval, or PMA, from the FDA.
Besides the experience of our management team, we are also
engaging consultants who specialize in interventional cardiology
to support our regulatory submissions and clinical trial
efforts. We intend to hire a Vice President of
Clinical/Regulatory
Affairs to oversee strategy and execution of our clinical
program. We also plan to engage clinical research organizations
to provide additional expertise in managing our clinical trials.
Human
Clinical Trial Pilot Study
Our immediate clinical focus is to commence a 50 patient
pilot clinical trial of the
ReZolvetm
stent in Brazil and Germany. We have not yet applied for
approval from the relevant regulatory authorities, as we are
currently in the process of compiling data
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and awaiting final pre-clinical results to include in our
regulatory applications. We expect this pilot study will be a
non-randomized trial that will utilize industry standard
measures of safety and efficacy in evaluating the performance of
the device. Enrolled patients will be monitored on a regular
basis including at one, four, and 12 month intervals after
implant of the device, and annually thereafter, for a period of
up to five years. Based on the results of the pilot study, we,
in consultation with our Scientific Advisory Board, will make a
decision on the commencement of our CE Mark trials.
Upon receiving the necessary approvals, we plan to commence the
pilot study in the second quarter of 2011 and expect that the
six month clinical follow-up data from the patients in the pilot
study will provide further indication as to whether the device
will be ready to commence the pivotal human clinical trial. If
the results are successful, we may initiate broader enrollment
in other countries to support CE Mark Application. This pilot
study is not designed to enable scientific conclusions to be
drawn or regulatory approvals to be received.
Pivotal
Human Clinical Trial CE Mark
European
Union Regulations
In the EU, the European Medical Devices Directive, or MDD,
93/42/EEC sets out the general requirements for clinical trials
and other essential requirements to support CE Marking and there
are numerous directives and standards regulating the design,
manufacture, clinical trials and labeling for medical devices.
For the
ReZolvetm
stent to bear the CE Mark and be sold commercially throughout
the EU, we will need to complete a human clinical trial of the
ReZolvetm
stent, as well as complete supporting work to comply with the
requirements of MDD.
Australian
Regulations
In Australia, the Therapeutic Goods Administration, or TGA, is
responsible for administering the Therapeutic Goods Act with the
ReZolvetm
stent falling under the category of an Implantable Medical
Device. The TGA maintains the Australian Register of Therapeutic
Goods. Unless exempt, all therapeutic goods for human use,
including medical devices, must be included on the register
before they may be imported, supplied in, or exported from
Australia. Any use of an unapproved medical device in humans in
Australia, even in pilot trials, requires an exemption from the
requirement for inclusion on the register. We plan to conduct
part of the CE Mark human clinical trial in two or three
well-recognized Australian centers. In addition to agreeing to
trial protocols and obtaining ethical approvals at these
centers, we will seek an exemption from the Australian Register
of Therapeutic Goods for the CE Mark human clinical trial in
Australia.
CE Mark
Trial Structure
We currently plan to conduct our pivotal human clinical trial
for CE Mark approval based on:
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350 patients;
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Non-inferiority trial of the
ReZolvetm
stent against a commercially available drug-eluting metal stent
with implants being on a randomized 2:1 basis with two of our
stents implanted for every control stent;
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20 to 25 centers in the trial across the EU, Brazil, Australia
and New Zealand;
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Primary endpoint will be late loss (reduction of internal artery
diameter) and comparable major adverse coronary events or MACE
(death, ischemia, heart attack);
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Clinical follow-up on all patients on a regular basis including
at one, six, 12 months and annually thereafter for a period
of up to five years, after implant of the device; and
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Interventional follow-up at 9 months or 12 months on a
subset of patients in order to visualize the healing process.
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We plan to commence enrollment of patients for the CE Mark trial
following successful results from our pilot study. We plan to
complete enrollment of all patients in the CE Mark trial in the
third quarter of 2012 and be in a position to obtain the CE Mark
by the end of 2013. However, no guarantee can be given that we
will achieve our expected results at the clinical trials or that
CE Mark will be attained in a timely fashion or at all.
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Follow-on
Human Clinical Trial U.S. FDA Clinical
Trial
U.S.
Regulations
In the United States, medical devices are subject to review and
approval by the FDA, which regulates the clinical testing,
manufacture, labeling, storage, record keeping, distribution and
promotion of medical devices, primarily pursuant to the
requirements of the Food, Drug and Cosmetic Act and other
regulatory requirements. Medical devices are classified as
Class I, II or III according to risk. Devices
classified as Class III, such as the
ReZolveTM
stent, require FDA approval of a PMA application prior
to commercialization.
To obtain FDA approval to market our products, the FDA requires
proof of safety and efficacy in human clinical trials performed
under an IDE. An IDE application must contain preclinical test
data supporting the safety of the product for human
investigational use, information on manufacturing processes and
procedures, proposed clinical protocols and other information.
If the IDE application is accepted, human clinical trials may
begin.
The IDE application is generally approved by the FDA for a
specified number of patients and investigational sites. Clinical
trials may begin once the FDA approves the IDE and the
Institutional Review Board at each participating clinical site
approves the trial protocol.
U.S.
Human Trials and FDA Approval
Based on the outcome of the pivotal CE Mark human trial, we plan
to conduct human clinical trials in the United States. The trial
is expected to be a randomized trial of at least
2,000 patients.
Pursuant to our clinical and regulatory strategy, the timing of
the commencement of the U.S. FDA clinical trial will be
determined after consideration of the CE Mark results, our
capacity to manage multiple trials concurrently and the
availability of future funding.
Manufacturing
Our operations are based at our ISO
13485-2003
certified facility in San Diego, an approximately
17,000 square foot facility dedicated to the development
and manufacture of our products. The facility includes
laboratories for chemistry and engineering, product assembly,
including clean rooms and quality assurance laboratories. We
believe that the San Diego facility will have the capacity
to produce the quantities of stents required for our planned
clinical trials. In the future, assuming we receive the
necessary regulatory approvals for our products, we expect to
expand our manufacturing capacity in line with demand for our
products. Our lease expires in August 2011.
Certain portions of the stent manufacturing process currently
are completed by external parties in FDA registered facilities.
We have not entered into any material agreements with any third
parties regarding our manufacturing process. Our suppliers have
no contractual obligation to supply, and we are not obligated to
purchase from them, any components used in our
ReZolvetm
stent which may result in supply interruptions. The strategy of
outsourcing selected manufacturing processes is intended to
minimize capital and operating costs while at the same time
maintaining required quality standards.
Our process of manufacture for our stent technology, including
the
ReZolvetm
stent, involves six main steps, some of which currently involve
a degree of manual intervention. We plan to make this process
semi-automated during 2011 as we anticipate ramping up our
manufacturing capabilities to further improve capacity and
yields. These six steps are as follows:
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Polymer Manufacture. Currently outsourced to
SurModics Biomaterials.
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Sheet Preparation (Film Pressing). Performed
at our facility.
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Lasing (Cutting the Stent Pieces from the Polymer
Sheet). Currently outsourced to Resonetics.
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Drug Coating. Performed at our facility.
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Final Assembly, Mounting on the Catheter, Quality
Assurance and Packaging. Performed at our facility.
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Sterilization. Currently outsourced to
Sterigenics.
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Currently, our polymer manufacturer, SurModics; our catheter
supplier, Bavaria Medizin Technologies GMBH; and our lasing
process carried out by Resonetics are single sourced. While
certain other products and components come from single source
suppliers, we believe alternative suppliers are readily
available, though in many cases we have not qualified these
suppliers. If necessary, we could locate second source
suppliers; however, any interruption or delay in obtaining
products from third-party suppliers, or our inability to obtain
products from alternate sources at acceptable prices in a timely
manner, could impair our ability to meet the demand for our
planned clinical trials. Most of our suppliers have no
contractual obligation to supply us with, and we are not
contractually obligated to purchase from them, any of the
components used in our products. Any supply interruption would
limit our ability to manufacture our products, which could delay
completion of clinical trials or commercialization of our
products.
We have implemented a quality management system which is
designed to comply with FDA regulations and ISO standards
governing our medical device products. These regulations
carefully control the design, manufacture, testing and release
of our products and product components as well as raw material
receipt and control. We also have controlled methods for the
consistent manufacturing of our products and product components
at our facilities. All key outsourcing partners are generally
ISO-certified to help assure a continual supply of high quality
components.
Competition
The coronary stent industry is highly competitive. Many of our
competitors have significantly greater financial resources,
human resources and expertise in research and development,
manufacturing, preclinical testing, conducting clinical trials,
obtaining regulatory approvals and marketing approved products
than we do. Many of these competitors also have more established
reputations with our target customers and developed worldwide
distribution channels. These competitors include Abbott
Laboratories, Boston Scientific Corporation, Johnson &
Johnson and Medtronic, Inc. Smaller or early-stage companies may
also prove to be significant competitors, particularly if they
enter into collaborative arrangements with large and established
companies. These third parties compete with us in recruiting and
retaining qualified scientific and management personnel,
establishing clinical trial sites and patient registration for
clinical trials, as well as in acquiring technologies and
technology licenses complementary to our programs or
advantageous to our business. As a result, we cannot provide
assurances that we will be able to compete effectively against
these competitors or their products.
Although the field of interventional cardiology is extremely
competitive with high performance requirements for products, we
believe interventional cardiologists have historically been
rapid adopters of new technology. While physicians may recommend
alternative treatments such as drug therapy, bypass surgery,
angioplasty or bare-metal stenting, we expect the primary
competition for our products will be drug-eluting stents and
other bioresorbable stents. There have been a number of
companies working to develop bioresorbable or polymer stents.
Abbott Laboratories is developing its Bioresorbable Vascular
Scaffold, or BVS. Abbott Laboratories has released
information about two clinical trials with its BVS stent. If
Abbott Laboratories clinical trials are successful, we
expect it to receive its CE Mark prior to us. Biotronik, a
private, European company, is developing its second generation
Dreams magnesium-based resorbable stent. Biotronik has
announced that clinical trials of this device commenced in July
2010.
Because of the size of the market opportunity for coronary
artery disease, competitors have historically dedicated and, we
expect, will continue to dedicate significant resources to
aggressively promote their products. New product developments
that could compete with us more effectively are likely because
the coronary artery disease treatment market is characterized by
extensive research efforts and technological progress.
Accordingly, competitors may develop technologies and products
that are safer, more effective, easier to use or less expensive
than our
ReZolvetm
stent.
We believe our success is likely to be driven by, and depends
on, our ability to innovate, manufacture in commercial
quantities, obtain regulatory approvals and reimbursement and
successfully market and sell our
ReZolvetm
stent. We expect to encounter potential customers who, due to
existing relationships with our competitors, are committed to or
prefer the products offered by these competitors. To compete
effectively, we must demonstrate that our products are
attractive alternatives to other devices and treatments by
differentiating our products on the basis of safety, efficacy,
performance, ease of use, brand and name recognition,
reputation, service and cost-effectiveness.
Research
and Development
Since inception, we have devoted a significant amount of
resources to develop our
ReZolvetm
stent. Our research and development expenses were
$8.5 million in 2007, $11.4 million in 2008,
$10.3 million in 2009 and $5.7 million in the nine
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months ended September 30, 2010. We expect our research and
development expenditures to increase as we continue to devote
significant resources to developing our products, in particular,
completing the clinical trials necessary to support regulatory
approval.
Sales and
Marketing
As a development stage company, we do not have a sales and
marketing organization and have no experience in the sale,
marketing and distribution of stents. To achieve commercial
success for any approved product we must further develop a sales
and marketing organization or enter into arrangements with
others to market and sell our products.
In most countries throughout the world, a significant portion of
a patients medical expenses is covered by third-party
payors. In the United States, hospitals and physicians generally
rely on third-party payors, such as Medicare, private health
insurance plans and health maintenance organizations to
reimburse all or part of the cost of medical devices and the
related surgical procedures. Reimbursement in the EU varies from
country-to-country
and often
hospital-to-hospital.
We believe that numerous hospitals have established budgets to
purchase coronary stents and the purchase decision is often
driven by the interventional cardiologists.
Currently, coronary stents are sold through distribution
channels in the United States and around the developed world,
primarily targeting interventional cardiologists who treat
patients likely to require stenting. We believe the costs and
barriers to develop a distribution channel focused around one
group of products is large. We may therefore consider partnering
with a distribution or sales channel. In addition, we have
entered into a Distribution Option agreement with Boston
Scientific Corporation relating to the sale and distribution of
our stent technology in markets in which the technology is
approved for sale. The terms of this agreement are described
under Material Agreements Boston
Scientific Agreements.
Our sales strategy will depend on our product roll-out which is
dependent upon our products receiving the necessary regulatory
approvals and clearances:
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The EU will be the initial target commercial market because CE
Marking is our first clinical objective;
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Australia will be the second target commercial market because we
believe regulatory approvals in Australia will closely follow CE
Marking and Australia can serve as a base for the Asian
market; and
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The United States will be the third target commercial market
upon completion of U.S. FDA trials and our product
receiving PMA approval.
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Intellectual
Property
We rely on a combination of patents, trade secrets and
copyright, together with non-disclosure and confidentiality
agreements, to establish and protect our proprietary rights in
our technologies. Our patents and patent applications covering
the fundamental technology underlying our
slide & lock design have been developed
internally, while the polymer has been either licensed or
developed by us.
Currently, our patent portfolio is comprised, on a worldwide
basis, of approximately 256 issued U.S. and foreign patents
which we own directly or for which we are the exclusive
licensee. We have been issued 28 U.S. patents and have 25
U.S. patent applications which are pending in the United
States Patent and Trademark Office. The last to expire of our
issued patents expires in 2030. For these 52 technology patents,
we have sought intellectual property protection outside of the
United States and have been issued 111 foreign patents and have
92 pending foreign applications. We do not know if any of our
patent applications will be issued, nor do we know whether our
patents, if issued, will cover our technology or will be able to
be successfully enforced. Even if valid and enforceable, our
patents may not be sufficiently broad to prevent others from
inventing a stent like ours, despite our patent rights. We have
received no communications from third parties concerning the
patentability, validity or enforceability of our patents or
patent applications. We believe that the remaining time on our
patents provides adequate time to generate revenues from
commercialization, subject to timing of the regulatory and
clinical pathway.
We actively monitor our intellectual property position, with new
developments periodically reviewed to identify prudent
extensions to our patent portfolio to ensure we
lock-up key
technology as well as to maximize our defensive strategy through
the coverage of similar technology developments. We have an
in-house patent counsel and also employ external patent
attorneys to assist us in managing our intellectual property
portfolio.
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The industry we operate in has been subject to a large number of
patent filings and patent infringement litigation. Whether we
would, upon commercialization, infringe any patent claim will
not be known with certainty unless and until a court interprets
the patent claim in the context of litigation. If an
infringement allegation is made against us, we may seek to
invalidate the asserted patent claim and may allege
non-infringement of the asserted patent claim. In order for us
to invalidate a U.S. patent claim, we would need to rebut
the presumption of validity afforded to issued patents in the
United States with clear and convincing evidence of invalidity,
which is a high burden of proof. To date, none of our patents or
patent applications have been subject to reexamination,
interference, or other legal challenge.
We require all employees to sign confidentiality and invention
assignment agreements under which they are bound to assign to us
inventions made during the term of their employment. These
agreements prohibit our employees from using, disclosing, or
bringing onto the premises any proprietary information belonging
to a third party. In addition, our consultants are required to
sign agreements under which they must assign to us any
inventions that relate to our business. These agreements also
prohibit our consultants from incorporating into any inventions
the proprietary rights of third parties without informing us. It
is our policy to require all employees to document potential
inventions and other intellectual property in laboratory
notebooks and to disclose inventions to patent counsel in
written form.
We also rely on confidentiality restrictions and trade secret
protection to protect our technology. We generally require our
consultants and other parties who may be exposed to our
proprietary technology to sign non-disclosure agreements which
prohibit such parties from disclosing or using our proprietary
information except as may be authorized by us.
Material
Agreements
Boston
Scientific Agreements
On October 13, 2004, we entered into an Agreement and Plan
of Merger, or the Merger Agreement, with Boston Scientific
Corporation, or BSC, and a wholly owned subsidiary of BSC,
pursuant to which we granted BSC an exclusive option to purchase
all of our outstanding capital stock. The Merger Agreement
contained customary covenants, including among other things,
covenants regarding the conduct of our business during the
option period. On December 7, 2007 and September 28,
2010, the parties amended the Merger Agreement to suspend these
covenants, subject to certain limited exceptions including,
without limitation, certain covenants related to the conduct of
our business and BSCs board observation rights. The
suspension period terminates on January 31, 2011. The
amendment also provides that the Merger Agreement terminates
automatically, if prior to January 31, 2011, we close an
initial public offering under a registration statement filed
with the SEC covering the sale of securities resulting in
aggregate net cash proceeds to the company of at least
$50,000,000. If we do not consummate an initial public offering
prior to January 31, 2011, or we consummate an initial
public offering prior to January 31, 2011 but do not
receive net proceeds of at least $50,000,000, we could be
subject to a potential acquisition by BSC at the option of BSC,
with such option period expiring, among other ways, on the
earliest of: (a) the first anniversary of the 120th day
following the date of our achievement of the following clinical
milestones, or the Milestone Date, if BSC has delivered a
deposit in an amount equal to $40,000,000 to us and loaned us
$10,000,000 in accordance with the terms of the Merger
Agreement: (i) our delivery of clinical data to BSC
concerning imaging, death, acute myocardial infarction, stent
thrombosis and target lesion revascularization relating to the
one year
follow-up of
at least 200 of our implanted resorbable drug coated stents from
human clinical trials, or Implanted Stents, (ii) our
delivery of clinical data to BSC concerning core lab acute gain,
late loss, and binary angiographic restenosis relating to the
eight to nine month angiographic
follow-up of
at least 100 Implanted Stents, and (iii) our delivery of
clinical data to BSC relating to the eight to nine month
intravascular ultrasounds of at least 40 Implanted Stents,
(b) at the election of BSC, upon delivery of a written
termination notice to us, at any time prior to the scheduled
expiration or other termination of the option period,
(c) at our election, if BSC does not deliver a loan
election notice within the applicable time period, and
(d) at our election, if BSC has not delivered a deposit in
an amount equal to $40,000,000 to us and loaned us $10,000,000,
in each case on or prior to the Milestone Date, subject to
certain extensions.
On December 7, 2007, we also entered into a Distribution
Option Agreement with BSC, pursuant to which we granted BSC an
option for a worldwide, exclusive right to sell, market and
distribute our products, provided BSCs exclusive rights
shall become non-exclusive with respect to any product that BSC
directly competes with in any country or territory where such
competitive activity occurred. The Distribution Option Agreement
requires us to negotiate the terms of a distribution agreement
with BSC upon BSCs exercise of the option, however, there
is no guarantee that we will be able to agree on terms for the
distribution agreement. If BSC exercises its option, we shall
negotiate in good faith with BSC to enter into a mutually
acceptable definitive distribution agreement, which definitive
distribution agreement shall include the following provisions:
(i) the term of such distribution
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agreement shall not be less than five (5) years;
(ii) the transfer price for our products shall be equal to
fifty-percent of BSCs average selling price for such
products; (iii) BSC shall not be required to make any
payments, other than the transfer price for products, with
respect to the sale, marketing or distribution of such products,
(iv) we shall meet all legal and regulatory requirements as
well as BSC quality standards, with respect to the design,
development and manufacturing of all products; (v) BSC
shall have sole discretion over all marketing and sales
decisions relating to the products; and (vi) BSC shall be
the exclusive distributor of such products during the term of
such distribution agreement so long as BSC does not commence the
selling, marketing or distribution of a directly competitive
stent product, with any distribution agreement becoming
non-exclusive with respect to jurisdiction and the product at
such time as BSC first sells, markets or distributes a directly
competitive stent products in the same jurisdiction. If we are
unable to agree on the terms of a definitive distribution
agreement with BSC through good faith negotiations within ninety
(90) days of BSCs exercise of its option, or if BSC
delivers at any time written notice to us that it is electing
not to exercise its option, then we shall be permitted to sell,
market and distribute our products pertaining to such option to
a third party; provided, however, the terms of an offer to any
third party and the definitive agreement establishing such third
partys right to sell, market and distribute such products,
shall not be on terms more favorable than the terms offered by
us to BSC.
BSCs distribution option, to the extent not previously
exercised, terminates 90 days following our achievement of
all of the following clinical milestones: (i) our delivery
of clinical data to BSC concerning imaging, death, acute
myocardial infarction, stent thrombosis and target lesion
revascularization relating to the one year
follow-up of
at least 200 of our implanted resorbable drug coated stents from
human clinical trials, or Implanted Stents, (ii) our
delivery of clinical data to BSC concerning core lab acute gain,
late loss, and binary angiographic restenosis relating to the
eight to nine month angiographic
follow-up of
at least 100 Implanted Stents, and (iii) our delivery of
clinical data to BSC relating to the eight to nine month
intravascular ultrasounds of at least 40 Implanted Stents.
Under the Distribution Option Agreement, we have also agreed not
to take certain actions which would prevent BSC from exercising
its distribution option, provided that we may market, sell or
distribute any product on a non-exclusive basis in any country
or territory where BSC directly competes with such product. In
addition, if we receive regulatory approval for any product in
any country or territory outside of the United States prior to
submission to the FDA, and (i) BSC does not exercise its
distribution option within 90 days following written notice
from us of the approval, or (ii) if BSC exercises it
distribution option but is unable to agree with us on the terms
of the distribution arrangement within 90 days of
BSCs exercise of its option, then we may sell, market and
distribute such product in any foreign country or territory
where the product has received approval, directly or through any
third party that is not a direct competitor of BSC, provided
however, that any such arrangement must be terminable without
cost to BSC on no more than 90 days written notice.
License
Agreements
Effective July 1, 2010, we entered into an Exclusive
License Agreement, or the Rutgers License, with Rutgers, the
State University of New Jersey, or Rutgers, which superseded our
existing Exclusive License Agreement with Rutgers, dated
January 21, 2004. Under the new Rutgers License, Rutgers
granted us an exclusive, worldwide, license, with the right to
sublicense, under certain patent and other intellectual property
rights to develop and commercialize products that utilize
certain polymers in the vascular field. In the event that
Rutgers sublicenses its patent rights to intellectual property
that is owned by Rutgers or was jointly invented by us and
Rutgers, to a third party, such patent-related costs shall be
shared pro rata with either Rutgers or the applicable
sublicensee. If Rutgers sublicenses inventions and improvements
solely owned by us, Rutgers shall pay us a significant
percentage of all income and consideration Rutgers receives from
such sublicenses. Under the Rutgers License, we will be required
to pay annual license maintenance fees until a product is
commercially sold in a major market. We will also be required to
pay royalties on the sale of the products, with annual minimum
royalties owing for different classes of products. We will also
be required to make milestone payments upon the achievement of
certain development, regulatory, commercialization and change of
control milestones. In order to maintain our rights under the
Rutgers License, we have to satisfy certain development and
commercialization obligations specified in the agreement. The
term of the Rutgers License continues until the expiration of
the last to expire of the patents licensed to us under the
agreement, or 2030.
67
We entered into a Royalty and License Agreement with Integra
LifeSciences Corporation, or Integra, dated January 30,
2004, pursuant to which Integra granted us an exclusive license,
with the right to sublicense, under certain patent and other
intellectual property rights to develop and commercialize
products that are covered by such patent rights in the field of
blood vessels. Under the Integra License, we are required to pay
to Integra a
per-unit
royalty on stent products that incorporate certain
polycarbonates. The term of the Integra License continues until
the later of (i) expiration of the last to expire of the
patents licensed to us under the Integra License, or 2023,
(ii) the expiration of certain patent rights licensed by
Rutgers to us, or (iii) 15 years after the effective
date of the Integra License.
Terms of the Rutgers License and Integra License include
provisions for royalty payments on any future sales of products,
if any, utilizing this technology. The amount of royalties
varies depending upon type of product, use of product, stage of
product, location of sale, and ultimate sales volume and price,
and ranges from a minimum of approximately $70 per product sale
to a maximum of approximately $100 per product sale.
Additionally, in the event we receive certain milestone payments
related to this technology, the licenses require that 20% of the
milestone amount be paid to the licensors.
Additional terms of the Rutgers License and Integra License
include annual licensing payments of $150,000 in 2008 and
$175,000 in 2009 and annually thereafter until the underlying
technology has been commercialized. Terms of the licenses also
include other payments to occur during commercialization that
could total $2,550,000; payment of $350,000 upon a change in
control of ownership; and payment of patent filing, maintenance,
and defense fees. The license terms remain in effect until the
last patent expires or ten years after commercialization.
In addition, the Rutgers License and Integra License contain
minimum royalties that escalate over the first seven years
subsequent to first product sale and continue through the term
of the Rutgers License and Integra License.
Third-Party
Reimbursement
In most countries throughout the world, a significant portion of
a patients medical expenses is covered by third-party
reimbursement. In many countries including the United States,
third-party payors consist of both government funded insurance
programs and private insurance programs. While each payor
develops and maintains its own coverage and reimbursement
policies, the vast majority of payors have established policies
for stents. We believe that our products generally will fall
within the existing reimbursement guidelines, although some
refinement in policies may be needed for our products. Before we
can obtain reimbursement for our
ReZolvetm
stent in the United States, FDA approval will be required.
In the United States, the Center for Medicare and Medicaid
Services, or CMS, is the government entity responsible for
administering the Medicare program. CMS establishes Medicare
coverage and reimbursement policies for medical products and
procedures and such policies are periodically reviewed and
updated. While private payors vary in their coverage and payment
policies, the Medicare program is viewed as a benchmark. Both
CMS and commercial payors have established coverage and
reimbursement policies for the stents that are currently on the
market. There are also established reimbursement codes
describing current products and procedures using those existing
products. However, there are no assurances that existing
policies or reimbursement codes would be used for the resorbable
stents that we are currently developing. There are also no
assurances that existing payment rates for such reimbursement
codes will continue to be at the same levels.
Outside of the United States, there are many reimbursement
programs through private payors as well as government programs.
In some countries, government reimbursement is the predominant
program available to patients and hospitals. While the vast
majority of countries have existing reimbursement for stents, a
small number of countries may require us to gather additional
clinical data before recognizing coverage and reimbursement for
our products. We intend to complete the requisite clinical
studies and obtain coverage and reimbursement approval in
countries where it makes economic sense to do so.
In certain regions, such as Europe, innovative pricing and
reimbursement agreements are being used to balance the interests
and objectives of medical technology manufacturers, payers,
parties assessing health technology, clinicians and patients.
Manufacturers and health technology assessors/assessments, or
HTAs, are increasingly using risk sharing and value based
schemes as way to obtain HTA approval to finance the technology
or device from a limited public health budget. HTAs typically
have two elements, clinical effectiveness and cost
effectiveness. Some countries in Europe have national HTA, for
example, France, Germany and Sweden, and others have regional
ones, such as, Italy, Spain and the United Kingdom. Some
manufacturers who proactively propose such schemes to HTAs may
gain competitive advantage. Each country within Europe has its
own system of pricing and reimbursement for medical devices and
products.
68
In Australia, the Department of Health and Ageing is the
government department and Medicare is the government entity
responsible for administering the Medicare Benefits Scheme and
the Medicare Benefits Schedule, or MBS. Medicare establishes
coverage and reimbursement policies for medical products and
procedures and such policies are periodically reviewed and
updated. Medicare and MBS have established coverage and
reimbursement policies for the stents that are currently on the
market. There are also established reimbursement codes
describing current products and procedures using those products.
However, similar to the United States, there are no assurances
that existing policies or reimbursement codes will be used for
the resorbable stents that we are currently developing. There
are also no assurances that existing payment rates for such
reimbursement codes will continue to be at the same level.
In addition, in the United States, governmental and private
sector payors have instituted initiatives to limit the growth of
health care costs, using, for example, price regulation or
controls and competitive pricing programs. Some third-party
payors also require pre-approval of coverage for new or
innovative devices or therapies before they will reimburse
health care providers who use such devices or therapies.
Providers also have sought ways to manage costs, such as through
the use of group purchasing organizations. We believe that the
economic benefits provided by the
ReZolvetm
stent to physicians and hospitals through shorter procedure
times and lower overall procedure costs will be viewed by
providers and third-party payors as cost-effective. However,
there remains uncertainty as to whether our products will be
viewed as sufficiently cost-effective to warrant adequate
coverage and reimbursement levels.
Government
Regulation
United
States
Our products are combination products because they are comprised
of two or more regulated components, a drug and a device, that
are physically combined and produced as a single product. In the
United States, a combination product is assigned by the FDA to
one of the Agencys centers, such as the Center for Drug
Evaluation and Research, or CDER, or the Center for Devices and
Radiological Health, or CDRH. The center to which the product is
assigned will have primary jurisdiction over the PMA approval of
the combination product. The FDA identifies the center with
primary authority over a combination product based on an
assessment of the combination products primary mode
of action. Because the primary mode of action for our
products is that of a medical device, we anticipate that our
products will be regulated as devices by the FDA under the
Federal Food, Drug, and Cosmetic Act, and CDRH will have primary
jurisdiction over our PMA application. However, it is possible
the FDA may assign our products to be regulated by CDER. We
believe that the drug component of our products will be reviewed
by CDER, which will consult with and assist CDRH in its review
of our PMA application. The drug will not require separate FDA
approval. If the FDA does assign our products to be regulated by
CDER, the drug component of the product will in all likelihood
not require separate CDER approval.
FDA regulations govern the following activities that we and our
suppliers, licensors and partners perform and will continue to
perform to ensure that the products we distribute domestically
or export internationally are safe and effective for their
intended uses:
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product design and development;
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product testing;
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product manufacturing;
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product safety;
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product labeling;
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product storage;
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record keeping;
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premarket approval;
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advertising and promotion;
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production; and
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product sales and distribution.
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69
FDAs Premarket Clearance and Approval
Requirements. The FDA classifies medical devices
into one of three classes. Devices deemed by the FDA to pose the
greatest risk, such as life-sustaining, life-supporting or
implantable devices, or devices deemed not substantially
equivalent to a previously cleared 510(k) device, are placed in
Class III, requiring PMA approval. All of our current
products in development are Class III devices and will
require FDA approval after submission and review of our PMA
application. A PMA must be supported by extensive data,
including but not limited to, technical, preclinical, clinical
trials, manufacturing and labeling to demonstrate to the
FDAs satisfaction the safety and efficacy of the device. A
PMA must also contain a full description of the device and its
components and a full description of the methods, facilities and
controls used for manufacturing of the device.
Product Modifications. New PMAs or PMA
supplements are required for all significant modifications to
the manufacturing process, labeling, use and design of a device
that is approved through the PMA process. PMA supplements often
require submission of the same type of information as an initial
application for PMA, except that the supplement is limited to
information needed to support any changes from the device
covered by the original PMA application. Certain modifications
may not require as extensive clinical data or the convening of
an advisory panel.
Clinical Trials. A clinical trial is almost
always required to support a PMA application. Clinical trials
for our product candidates require the submission of an
application for an Investigational Device Exemption, or IDE, to
the FDA, which is supported by appropriate data. The IDE
application must be supported by appropriate data, such as
animal and laboratory testing results, showing that it is safe
to test the device in humans and that the testing protocol is
scientifically sound. The IDE must be approved in advance by the
FDA for a specified number of patients. Clinical trials may
begin once the application is reviewed and cleared by the FDA,
as well as the appropriate institutional review boards at the
clinical trial sites. Clinical trials must be conducted in
accordance with applicable regulations and policies and are
subject to extensive record keeping and reporting requirements.
Our clinical trials must be conducted under the oversight of an
institutional review board at the relevant clinical trial site
and in accordance with applicable regulations and policies
including, but not limited to, the FDAs good clinical
practice, or GCP, regulations. We, the FDA or the institutional
review board at each site at which a clinical trial is being
performed may suspend a clinical trial at any time for various
reasons, including a belief that the risks to the subjects of
the clinical trial outweighs the anticipated benefits.
Pervasive and Continuing Regulation. After a
device is placed on the market, numerous regulatory requirements
apply. These include:
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Good Manufacturing Practices, or GMP, and the Quality System
Regulation, or QSR, which require manufacturers, including
third-party manufacturers, to follow stringent design, testing,
control, documentation and other quality assurance procedures
during all aspects of the manufacturing process;
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labeling regulations and FDA prohibitions against the promotion
of products for unapproved or off-label uses;
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medical device reporting regulations, which require that
manufacturers report to the FDA if their device may have caused
or contributed to a death or serious injury or malfunctioned in
a way that would likely cause or contribute to a death or
serious injury if the malfunction were to recur; and
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post-market surveillance regulations, which will apply when
necessary to protect the public health or to provide additional
safety and efficacy data for the device.
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The FDA has broad post-market and regulatory enforcement powers.
We will be subject to unannounced inspections by the FDA and the
Food and Drug Branch of the California Department of Health
Services, or CDHS, to determine our compliance with the QSR and
other regulations. These inspections may also include an
inspection of the manufacturing facilities of our
subcontractors. In addition, the supplier and manufacturers of
the drug and drug coating used by us will be subject to
inspections by the FDA and other regulatory authorities to
determine their compliance with the strictly enforced GMP
regulations.
In addition, discovery of previously unknown problems with a
medical device, manufacturer, or facility may result in
restrictions on the marketing or manufacturing of an approved
device, including costly recalls or withdrawal of the device
from the market. For instance, BSC and Johnson &
Johnson have experienced safety and manufacturing problems with
their drug eluting stent products, and have conducted
significant and costly recalls in response to these issues.
Failure to comply with
70
applicable regulatory requirements may result in enforcement
action being taken by the FDA, which may include any of the
following sanctions:
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fines, injunctions, consent decrees and civil penalties;
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recall or seizure of our products;
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operating restrictions, partial suspension or total shutdown of
production;
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refusing our requests for PMA approval or new intended uses;
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withdrawing PMA approvals that are already granted; and
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criminal prosecution.
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The FDA also has the authority to require us to repair, replace
or refund the cost of any medical device that we have
manufactured or distributed. If any of these events were to
occur, they could have a material adverse effect on our business.
We are also subject to a wide range of federal, state and local
laws and regulations, including those related to the
environment, health and safety, and land use.
Fraud and Abuse. Our operations will be
directly, or indirectly through our customers, subject to
various state and federal fraud and abuse laws, including,
without limitation, the federal Anti-Kickback Statute and False
Claims Act. These laws may impact, among other things, our
proposed sales and marketing programs.
The federal Anti-Kickback Statute prohibits persons from
knowingly and willfully soliciting, offering, receiving or
providing remuneration, directly or indirectly, in exchange for
or to induce either the referral of an individual, or the
furnishing or arranging for a good or service, for which payment
may be made under a federal health care program such as the
Medicare and Medicaid programs.
Several courts have interpreted the statutes intent
requirement to mean that if any one purpose of an arrangement
involving remuneration is to induce referrals of federal health
care covered business, the statute has been violated. The
Anti-Kickback Statute is broad and prohibits many arrangements
and practices that are lawful in businesses outside of the
health care industry. Recognizing that the Anti-Kickback Statute
is broad and may technically prohibit many innocuous or
beneficial arrangements, Congress authorized the Department of
Health and Human Services, Office of Inspector General, or OIG,
to issue a series of regulations, known as the safe
harbors. These safe harbors set forth provisions that, if
all their applicable requirements are met, will assure health
care providers and other parties that they will not be
prosecuted under the Anti-Kickback Statute. The failure of a
transaction or arrangement to fit precisely within one or more
safe harbors does not necessarily mean that it is illegal or
that prosecution will be pursued. However, conduct and business
arrangements that do not fully satisfy each applicable safe
harbor may result in increased scrutiny by government
enforcement authorities such as the OIG. Penalties for
violations of the federal Anti-Kickback Statute include criminal
penalties and civil sanctions such as fines, imprisonment and
possible exclusion from Medicare, Medicaid and other federal
health care programs. Many states have also adopted laws similar
to the federal Anti-Kickback Statute, some of which apply to the
referral of patients for health care items or services
reimbursed by any source, not only the Medicare and Medicaid
programs.
The federal False Claims Act prohibits persons from knowingly
filing or causing to be filed a false claim to, or the knowing
use of false statements to obtain payment from, the federal
government. Suits filed under the False Claims Act, known as
qui tam actions, can be brought by any individual on
behalf of the government and such individuals, sometimes known
as relators or, more commonly, as
whistleblowers, may share in any amounts paid by the
entity to the government in fines or settlement. The frequency
of filing of qui tam actions has increased significantly in
recent years, causing greater numbers of health care companies
to have to defend a False Claim action. When an entity is
determined to have violated the federal False Claims Act, it may
be required to pay up to three times the actual damages
sustained by the government, plus civil penalties of between
$5,500 to $11,000 for each separate false claim. Various states
have also enacted laws modeled after the federal False Claims
Act.
In addition to the laws described above, the Health Insurance
Portability and Accountability Act of 1996 created two new
federal crimes: health care fraud and false statements relating
to health care matters. The health care fraud statute prohibits
knowingly and willfully executing a scheme to defraud any health
care benefit program, including private payors. A violation of
71
this statute is a felony and may result in fines, imprisonment
or exclusion from government sponsored programs. The false
statements statute prohibits knowingly and willfully falsifying,
concealing or covering up a material fact or making any
materially false, fictitious or fraudulent statement in
connection with the delivery of or payment for health care
benefits, items or services. A violation of this statute is a
felony and may result in fines or imprisonment.
If our operations are found to be in violation of any of the
laws described above and other applicable state and federal
fraud and abuse laws, we may be subject to penalties, including
civil and criminal penalties, damages, fines, exclusion from
government health care programs, and the curtailment or
restructuring of our operations.
Patient Protection and Affordable Care
Act. Our operations will also be impacted by the
federal Patient Protection and Affordable Care Act of 2010, as
modified by the Health Care and Education Reconciliation Act of
2010, which we refer to as the Health Care Act. The Health Care
Act imposes a 2.3 percent excise tax on sales of medical devices
by manufacturers. Taxable devices include any medical device
defined in section 201(h) of the FDCA and intended for use
by humans, with limited exclusions for devices purchased by the
general public at retail for individual use. There is no
exemption for small companies, and we expect to begin paying the
tax in 2013. The Health Care Act also requires manufacturers to
report to the Department of Health and Human Services detailed
information about financial arrangements with physicians and
teaching hospitals. These reporting provisions preempt state
laws that require reporting of the same information, but not
those that require reports of different or additional
information. Failure to comply subjects the manufacturer to
significant civil monetary penalties. We expect compliance with
the Health Care Act to impose significant administrative and
financial burdens on us.
International
International sales of medical devices are subject to relevant
foreign governmental regulations, which vary substantially from
country to country. The time required to obtain clearance or
approval by a particular country may be longer or shorter than
that required for FDA clearance or approval, and the
requirements may be different.
The primary regulatory environment in Europe is that of the
European Union, which consists of twenty five countries
encompassing most of the major countries in Europe. Three member
states of the European Free Trade Association, Iceland, Norway
and Liechtenstein, have voluntarily adopted laws and regulations
that mirror those of the European Union with respect to medical
devices. Other countries, such as Switzerland, have entered into
Mutual Recognition Agreements and allow the marketing of medical
devices that meet European Union requirements. The European
Union has adopted three core directives concerning medical
devices: Medical Devices Directive, In-Vitro Diagnostic Medical
Devices Directive and Active Implantable Medical Devices
Directive and the European Committees for Standardization, or
CEN, have promulgated voluntary standards regulating the design,
manufacture, clinical trials, labeling and adverse event
reporting for medical devices. A manufacturer may only place a
medical device on the market or put into service a device in the
European Union and European Free Trade Association when the
device has undergone the relevant conformity assessment process
set out in the relevant medical devices directives. This
conformity assessment process is a process which verifies the
device conforms to the essential requirements of the directives.
Devices that comply with the requirements of relevant directives
will be entitled to bear CE Marking, indicating that the device
conforms with the essential requirements of the applicable
directives and, accordingly, can be commercially distributed
throughout the member states of the European Union, the member
states of the European Free Trade Association and countries
which have entered into a Mutual Recognition Agreement. The
method of assessing conformity varies depending on the type and
class of the product, but normally involves a combination of
self-assessment by the manufacturer and a third-party assessment
by a designated Notified Body, an independent and neutral
institution appointed in one of the countries in the European
Union to conduct the conformity assessment. This assessment is
conducted by the designated Notified Body in one member state of
the European Union, the European Free Trade Association or one
country which has entered into a Mutual Recognition Agreement
and is required for most of the medical devices in order for a
manufacturer to obtain CE Marking and to commercially distribute
the product throughout these countries. This assessment may also
consist of an audit of the manufacturers quality system
and specific testing of the manufacturers device so as to
ensure compliance with ISO 13485 certification, which are
voluntary harmonized standards. Compliance with these ISO
certifications establishes that some of the general requirements
of the directives are presumed to be fulfilled. Each member
state country of the European Union has implemented the Medical
Device Directives into national laws and these laws are enforced
by competent authorities in each member state, for example in
the United Kingdom the authority is the Medicines and Healthcare
Products Regulatory Agency.
72
Before any medical device can be supplied within Australia, it
must be included on the Australian Register of Therapeutic
Goods, or ARTG, and comply with the provisions of the Australian
Therapeutic Goods Act. Compliance generally requires, among
other things:
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Full technical documentation demonstrating compliance to all
relevant standards and regulations.
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Full quality assurance certification to the key international
standard.
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The ability of the manufacturer to undertake post market
surveillance processes.
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However, much of the documentation produced for obtaining the CE
Marking in Europe can be used to obtain registration in
Australia and the regulatory requirements with respect to the
approval of medical devices are similar to European regulations.
Facilities
We have one facility located in San Diego, California,
where we occupy approximately 17,000 square feet of
research and office space. The lease on our facility expires in
August 2011.
Employees
As of September 30, 2010, we had 40 full-time
employees and one part time employee. Of the full time
employees, 33 were in research and development and 7 were in
general and administrative functions. We have never had a work
stoppage, and none of our employees are covered by collective
bargaining agreements or represented by a labor union. We
believe our employee relations are good.
Legal
Proceedings
We are from time to time subject to various claims and legal
actions during the ordinary course of our business. We believe
that there are currently no claims or legal actions that would
reasonably be expected to have a material adverse effect on our
results of operations or financial condition.
General
Information
The address of our principal place of business is 5751 Copley
Drive, Suite B, San Diego, CA 92111. We also maintain
a website at www.teamreva.com. The information contained in or
that can be accessed through our website is not a part of this
prospectus.
73
SCIENTIFIC
ADVISORY BOARD
Overview
and Function
The members of our Scientific Advisory Board, none of whom are
our officers or employees, provide us with advice and assistance
on various matters regarding the treatment of coronary artery
disease. We consider our advisory board members to be opinion
leaders in their respective fields. The members of our
Scientific Advisory Board provide advice and feedback regarding
the following:
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needs and opportunities of the business;
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clinical feedback on existing products;
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assessment of new technologies and their applications; and
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assessment of new clinical applications.
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Our Scientific Advisory Board currently consists of the
following members:
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Name
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Position and Affiliation
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Gregg W. Stone, M.D.
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Professor of Medicine at Columbia University and Director of
Cardiovascular Research and Education for the Center for
Interventional Vascular Therapy at the Columbia Medical Center
and the Cardiovascular Research Foundation in New York, New York.
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Alexandre A. Abizaid, M.D.
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Chief of Coronary Interventions at Institute Dante Pazzanese of
Cardiology in São Paulo, Brazil, a Visiting Professor of
Medicine at Columbia University and a practicing interventional
cardiologist at Albert Einstein Hospital in São Paulo.
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Dean J. Kereiakes, M.D.
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Medical Director of the Heart and Vascular Center and Carl and
Edyth Lindner Center for Research and Education at The Christ
Hospital in Cincinnati, Ohio, and Professor of Clinical Medicine
at Ohio State University.
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Alan C. Yeung, M.D.
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Director of Interventional Cardiology for the Stanford
University School of Medicine.
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Our Scientific Advisory Board is comprised of four members and
generally meets annually in person once per year and
telephonically approximately two times per year on approximately
a semi-annual basis. Robert B. Stockman, our Chairman of the
Board and Chief Executive Officer, will attend the Scientific
Advisory Board meetings by invitation. Each of the members of
our Scientific Advisory Board has an agreement with us pursuant
to which he or she receives an annual retainer fee ranging from
$25,000 per year to $30,000 per year as compensation for service
on the Scientific Advisory Board. In addition, we have also
entered into a consulting agreement with Dr. Stone pursuant to
which he receives an additional $30,000 annually for providing
consulting on all clinical readiness matters. The consulting
agreement is considered for renewal annually and can be
terminated at any time by the company. We have renewed the
agreement each year upon expiration. Dr. Stone has served as a
consultant since January 1, 2006. As part of
monitoring our technology and clinical risks, our board of
directors may review copies of the minutes of the Scientific
Advisory Board meetings, as well as any reports generated by the
Scientific Advisory Board.
All appointments to our Scientific Advisory Board are for one
year terms and our members are considered for renewal on an
annual basis. Each of our current members has served since the
inception of the Scientific Advisory Board in the first quarter
of 2008.
74
MANAGEMENT
Directors
and Officers
The following table provides information regarding the directors
and officers of REVA Medical, Inc., including their ages and
positions:
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Name
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Age
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Position
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Robert B. Stockman
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57
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Chairman of the Board and Chief Executive Officer
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Robert K. Schultz, Ph.D.
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54
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President and Chief Operating Officer
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Katrina Thompson
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52
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Chief Financial Officer and Secretary
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Donald Brandom, Ph.D.
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51
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Vice President, Biomaterials Product Development
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Eric Schmid
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38
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Vice President, Engineering and Stent Development
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Joan Zeltinger, Ph.D.
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48
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Vice President, Scientific Affairs
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Brian Dovey
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68
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Director
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Anne Keating
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57
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Director
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Gordon E. Nye
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55
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Director
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James Schiro
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64
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Director
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Robert Thomas
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65
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Director
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The business address for our directors and senior management is
c/o REVA
Medical, Inc., 5751 Copley Drive, Suite B, San Diego,
CA 92111.
Robert B. Stockman, our co-founder, has served as our
Chairman of the Board and director since 1999 and our Chief
Executive Officer since August 2010. He has also served as a
director of HeartWare Limited, and subsequently HeartWare
International, Inc., an ASX and NASDAQ listed medical device
company, since December 2006. Since 1999, Mr. Stockman has
been the President and Chief Executive Officer of Group Outcome
LLC, a
U.S.-based
merchant banking firm which deploys its capital and that of its
financial partners in private equity and venture capital
investments in medical technology companies. Mr. Stockman
also co-founded Centrimed, Inc., an internet-based software
company, that was acquired by the Global Healthcare Exchange,
LLC, and led the buyouts of Iopter, an intraocular lens
manufacturer, and two Johnson & Johnson divestitures,
A Company Orthodontics, Inc. and Critikon Company,
LLC, each of which was subsequently acquired. Prior to
establishing Group Outcome LLC, Mr. Stockman spent 18 years
with Johnston Associates, Inc. and Narragansett Capital
Corporation, where he focused on venture capital investments and
merger advisory work in health care. Mr. Stockman holds a
Bachelors Degree from Harvard College and a Master in Business
Administration from The Tuck School at Dartmouth College. We
believe Mr. Stockman is qualified to sit on our board of
directors due to his extensive experience as an entrepreneur
driving the growth of five medical products companies, his
experience as an executive of several medical device companies
and his experience as an executive in the investment banking
industry, particularly in private equity and venture capital
investments in medical technology. Mr. Stockmans
qualifications also include his strong financial background,
including his work early in his career at PriceWaterhouse, a
provider of tax, audit and advisory services, and his ability to
provide financial expertise to the board, including an
understanding of financial statements, corporate finance,
accounting and capital markets.
Robert K. Schultz, Ph.D. has served as our President
and Chief Operating Officer since 2003. His background comprises
more than 25 years in pharmaceutical, medical device and
combination products. Prior to joining REVA Medical,
Dr. Schultz held positions of Vice President of Research
and Development and Vice President of Technology Strategy and
Licensing for Dura Pharmaceuticals, a specialty respiratory
pharmaceutical and pulmonary drug delivery company, and Research
Specialist for 3M Pharmaceuticals, a diversified international
technology company. He obtained his Ph.D. in Pharmaceutics and
his B.S. degree in Pharmacy from the University of Minnesota.
Katrina Thompson has served our Chief Financial Officer
since 2003. Prior to joining REVA Medical in 2003,
Ms. Thompson held senior positions in the telecom, real
estate development, commercial nursery and high tech industries
and spent the early part of her career with PriceWaterhouse, a
provider of tax, audit and advisory services. Ms. Thompson
received her B.S. in Business Administration from San Diego
State University.
Donald Brandom, Ph.D. has served as our Vice
President of Biomaterials Product Development and has directed
our biomaterials activities since 2003. During his 18 years
of industry experience, he has held management and product
development
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positions in the aerospace materials, microelectronics materials
and medical device industries. Dr. Brandom earned his Ph.D.
in Materials Engineering Science at Virginia Tech and has a B.S.
in Chemistry from the University of California, Davis.
Eric Schmid has served as our Vice President of
Engineering and Stent Development since September 2007. From
November 2005 through September 2007, Mr. Schmid served as
our Program Director and Principal Engineer, and from January
2003 through November 2005, he served as our Principal Engineer
and Manager of Stent Development and Design. Mr. Schmid has
more than 15 years of experience in medical device design
and development. Before joining REVA Medical, he developed novel
products and technologies for health care and medical device
companies including Abbott Laboratories, Guidant Corporation,
Medtronic, Inc. and Boston Scientific. Mr. Schmid completed
graduate studies in Chemical Engineering at the University of
California, San Diego, has a B.S. in Engineering from
Harvey Mudd College and holds multiple patents relating to
medical devices and technologies.
Joan Zeltinger, Ph.D. has served as our Vice
President of Scientific Affairs since June 2004 and has directed
our biological and preclinical activities since 2000. Dr.
Zeltinger has 18 years of industry research and business
experience that includes numerous publications and patents.
Dr. Zeltinger previously directed the bioresorbable
coronary graft and tissue engineered heart valve programs at
Advanced Tissue Sciences, a tissue engineering company, and
chaired the American Society for Testing and Materials, or ASTM,
standard development for combination medical products. She
received a Ph.D. in Biology from the University of South
Carolina with post-doctoral work conducted at the University of
Washington, School of Medicine, and has a B.S. in Biology from
the University of North Dakota.
Brian Dovey has served as our director since June 2001.
Mr. Dovey has been a Partner of Domain Associates, L.L.C.,
a private venture capital management firm focused on life
sciences, since 1988. Since joining Domain, he has served on the
board of directors of over 30 private and public companies and
has been Chairman of five. Prior to joining Domain,
Mr. Dovey spent six years at Rorer Group, Inc., a New York
Stock Exchange listed pharmaceutical and medical device company
(now part of Sanofi-Aventis), including as president from 1986
to 1988. Previously, Mr. Dovey was president of Survival
Technology, Inc., a
start-up
medical products company. He also held management positions with
Howmedica, Inc., Howmet Corporation, and New York Telephone
Company. Mr. Dovey has served as both president and
chairman of the National Venture Capital Association. He is
Chair of the Wistar Institute, a non-profit preclinical
biomedical research company. Mr. Dovey serves on the board
of directors and is also Co-Dean at the Center for Venture
Education (Kauffman Fellows Program). He was also a former board
member of the industry association representing the medical
device industry, as well as the association representing
consumer pharmaceuticals. Mr. Dovey currently sits on the
board of directors of Orexigen Therapeutics, Inc, a
biopharmaceutical company focused on the development of
pharmaceutical product candidates for the treatment of obesity.
Mr. Dovey has also served as a member of the board of
directors for the following publicly traded companies over the
past five years: Align Technology, Inc., Cardiac Science, Inc.
and Neose Technologies, Inc. Mr. Dovey received his B.A.
from Colgate University and an M.B.A. from the Harvard Business
School. We believe Mr. Dovey is qualified to sit on our
board of directors due to his strong financial expertise, his
previous service as a director on over 30 private and public
companies, his executive experience at a medical device company
and his extensive experience at a health care venture capital
firm.
Anne Keating has served as a director of the Company
since October 2010. Ms. Keating is currently a director of
a number of ASX listed companies in a range of different
industries, including STW Communications Group Limited, a
provider of advertising and diversified communications services,
Ardent Leisure Management Limited (formerly Macquarie Leisure
Management Limited), a general management service provider, and
Goodman Group Limited (formerly Macquarie Goodman), a property
development and management company. She is also a member of the
Advisory Council of RBS Australia. Ms. Keating is also a
Director for the Garvan Institute of Medical Research and an
Inaugural Governor for the Cerebral Palsy Foundation. From 1993
to 2001, Ms. Keating held the position of General Manager,
Australia for United Airlines, and from 1994 to 1998, she was a
Governor for the American Chamber of Commerce. She was also a
Delegate to the Australian/American Leadership Dialogue for
fourteen years. Ms. Keating was an inaugural board member
of the Victor Chang Cardiac Research Institute for ten years and
also served on the board of NRMA/Insurance/IAG for nine years.
She has also held former directorships with Spencer Street
Station Redevelopment Holdings Limited, Easy FM China Pty Ltd,
Radio 2CH Pty Ltd and Workcover Authority of New South Wales. We
believe Ms. Keating is qualified to sit on our board of
directors due to her extensive business and governance
experience, including her positions on a number of biards ASX
listed companies. Ms. Keating also brings Australian
medical research experience from her years of service with the
Garvan Institute of Medical Research and the Victor Chang
Cardiac Research Institute.
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Gordon E. Nye has served as our director since 1999. He
is a Managing Director of Group Outcome LLC, a
U.S.-based
merchant banking firm which deploys its capital and that of its
financial partners in private equity and venture capital
investments in medical technology companies. He is currently the
Chief Executive Officer of Zeltiq Aesthetics, Inc., a medical
device company, a position he has held since September 2009.
From August 2003 to July 2009, Mr. Nye served as general
partner of Prism Venture Partners, a venture capital firm, where
he was a member of the life sciences investment team. Prior to
that time, he served as our Chief Executive Officer from 2001 to
2003 and President and Chief Executive Officer of two former
Johnson & Johnson divisions A
Company Orthodontics, Inc. and Critikon Company, LLC
after they were acquired in management buyouts. He has also held
a variety of marketing, sales and general management roles for
L.A. Gear, Inc., Olin Ski Company, Inc., Reebok, Ltd. and The
Gillette Company. Mr. Nye has also served on the board of
directors of Insulet, Inc., a medical device company, from 2004
to 2008. Mr. Nye received his MBA from the Amos Tuck School
of Business at Dartmouth College where he also received his
undergraduate degree. We believe Mr. Nyes
qualifications to sit on our Board of Directors include his
knowledge of the medical device business, his in-depth operating
experience as a senior executive of Zeltiq Aesthetics, Inc. and
two former Johnson & Johnson divisions, and his
service on other company boards.
James J. Schiro has served as our director since November
2010. Mr. Schiro was Chief Executive Officer of Zurich
Financial Services from May 2002 to December 2009, after serving
as Chief Operating Officer Group Finance since March
2002. He joined PriceWaterhouse in 1967, where he held various
management positions. In 1994, he was elected Chairman and
senior partner of PriceWaterhouse, and in 1998 became Chief
Executive Officer of PricewaterhouseCoopers, after the merger of
Price Waterhouse and Coopers & Lybrand.
Mr. Schiro is also a Director of PepsiCo, Royal Philips
Electronics and Goldman Sachs. We believe Mr. Schiro is
qualified to sit on our board of directors due to his extensive
executive experience and his service on other public company
boards.
Robert Thomas has served as our director since July 2010.
He has also been a director and non-executive Chairman of the
Board of HeartWare Limited, and subsequently HeartWare
International, Inc., a U.S. medical device company listed
on ASX and NASDAQ, since November 2004. He is currently a
director of a number of Australian public companies, including
Virgin Blue Holdings Limited and Tower Australia Limited.
Between October 2004 and September 2008, Mr. Thomas was a
consultant to Citigroup Corporate and Investment Bank and was
Chairman of Global Corporate and Investment Bank, Australia and
New Zealand of Citigroup Global Markets Australia Pty Limited
between March 2003 and September 2004. Prior to that time,
Mr. Thomas was Chief Executive Officer of Citigroups
(formerly known as Salomon Smith Barney) Corporate and
Investment Bank, Australia and New Zealand from October 1999
until February 2003. Mr. Thomas is a director of
OConnell Street Associates and Grahger Capital Securities
as well as being President of the State Library Council of New
South Wales in Australia. Mr. Thomas holds a Bachelor of
Economics from Monash University, Australia. He is currently
Chairman of the Stockbrokers Association of Australia and is a
Master Stockbroker. Mr. Thomas is also a Fellow of the
Financial Services Institute of Australia and the Australian
Securities Institute of Company Directors. We believe
Mr. Thomas is qualified to sit on our board of directors
due to his extensive investment banking experience, including
his leadership of finance and strategic transactions, and his
experience in governance and risk management across a wide range
of industries. Mr. Thomas also brings capital market and
economics expertise to the board from his years of service as a
securities analyst and significant experience as a director of
ASX listed companies.
Board
Composition
Our amended and restated certificate of incorporation and our
amended and restated bylaws provide that the authorized number
of directors may be changed only by resolution of the board of
directors. We currently have six members serving on our board of
directors. In accordance with our amended and restated
certificate of incorporation and our amended and restated
bylaws, our board of directors is divided into three classes
with staggered three-year terms. At each annual meeting of
stockholders commencing with the meeting in 2011, the successors
to the directors whose terms then expire will be elected to
serve until the third annual meeting following the election. Our
directors are expected to be divided among the three classes as
follows:
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Director(s)
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Class
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Expiration of Term
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Brian Dovey and Anne Keating
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Class I Directors
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2011 Annual Meeting
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Gordon E. Nye and Robert Thomas
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Class II Directors
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2012 Annual Meeting
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Robert B. Stockman and James Schiro
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Class III Directors
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2013 Annual Meeting
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Each director must bring an independent view and judgment to the
board of directors and must declare actual or potential
conflicts of interest. Any issue concerning a director must be
provided to the board of directors at a board meeting as soon as
77
practicable, and directors may not participate in discussions or
resolutions pertaining to any matter in which the director has a
material personal interest. The board of directors has
responsibility to the stockholders to guide and monitor our
business affairs. The board of directors delegates our
management, under the leadership of our Chief Executive Officer,
to deliver the strategic plans and goals set by the board.
The responsibilities of the board of directors and the roles and
division of authority between the Chief Executive Officer and
Chief Operating Officer are set forth in our corporate
governance principles. In discharging their duties, directors
are provided with direct access to senior management and
external advisors and auditors. Board committees and individual
directors may retain outside financial, legal or other advisers
as they consider appropriate at our expense. The board of
directors will review its performance and its corporate
governance principles annually.
Board of
Directors Leadership Structure
The board of directors believes that Robert B. Stockmans
service as both Chairman of the Board and Chief Executive
Officer is in the best interest of our company and stockholders,
although the combined role does not comply with ASX Corporate
Governance Principles and Recommendations. The ASX Corporate
Governance Principles and Recommendations provide guidance on
corporate governance practices but are not binding rules or
regulations. Mr. Stockman possesses detailed and in-depth
knowledge of the issues, opportunities, and challenges facing
the company, and we believe he is the person best positioned to
develop agendas that ensure that the boards time and
attention is focused on the most critical matters. Our board
believes that his combined role enables decisive leadership,
ensures clear accountability, and enhances our ability to
communicate our message and strategy clearly and consistently to
stockholders, employees, customers and suppliers. Each of the
directors other than Robert B. Stockman is independent under the
rules of NASDAQ and the SEC, and the board of directors
believes that the independent directors provide effective
oversight of management. Although the board currently believes
that the combination of the Chairman and Chief Executive Officer
roles is appropriate in the current circumstances, our amended
and restated bylaws and corporate governance principles provide
the board of directors with the flexibility to combine or
separate the positions of Chairman and Chief Executive Officer.
While we do not currently intend to separate these positions, a
change in leadership structure could be made if the board of
directors determined it was in the best long-term interests of
stockholders.
The
Boards Role in Risk Oversight
Our boards role in risk oversight includes receiving
reports from members of management on a regular basis regarding
material risks faced by the company and applicable mitigation
strategies and activities, at least on a quarterly basis. The
reports cover the critical areas of operations, sales and
marketing, development, regulatory and quality affairs,
intellectual property, clinical development, and legal and
financial affairs. The board of directors and its committees
consider these reports; discuss matters with management and
identify and evaluate any potential strategic or operational
risks, and appropriate activity to address those risks.
We have adopted a Risk Management Policy which sets out how we
identify, assess and manage risk in business operations, a copy
of which is available on our website at www.teamreva.com.
Director
Independence
In accordance with our corporate governance principles, the
majority of our board members will be independent directors. Our
board of directors considers that a director is independent when
the director is not an officer or employee of the Company or its
subsidiaries, does not have any relationship which would, or
could reasonably appear to, materially interfere with
independent judgment, and otherwise meets the independence
requirements under the rules of NASDAQ, ASX and the SEC. Our
board of directors has reviewed the materiality of any
relationship that each of our directors has with us, either
directly or indirectly. Based on this review, our board of
directors has determined that:
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Robert B. Stockman is not considered to be an independent
director under the rules of NASDAQ, ASX and the SEC;
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Anne Keating, Gordie E. Nye, James Schiro and Robert Thomas are
considered to be independent directors under the rules of
NASDAQ, ASX and the SEC; and
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Brian Dovey is considered to be an independent director under
the rules of NASDAQ and the SEC, but is not considered to be
independent under ASX standards.
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There are no family relationships among our officers and
directors, nor are there any arrangements or understandings
between any of our directors or officers or any other person
pursuant to which any officer or director was, or is, to be
selected as an officer or director.
Committees
of the Board of Directors/Corporate Governance
Our board of directors has three standing committees to
facilitate and assist them in fulfilling their responsibilities,
consisting of an audit committee, a compensation committee, and
a nominating and corporate governance committee. Each of these
committees has the responsibilities described in the committee
charters. Our board of directors may also establish other
committees from time to time to assist in the discharge of its
responsibilities.
Audit
Committee
Our audit committee oversees our corporate accounting and
financial reporting, including auditing of our financial
statements. Among other things, our audit committee determines
the engagement of and approves fees paid to our independent
registered public accounting firm; monitors the qualifications,
independence activities and performance of our independent
registered public accounting firm; approves the retention of our
independent registered public accounting firm to perform any
proposed and permissible non-audit services; reviews our
financial statements and critical accounting estimates; and
discusses with management and our independent registered public
accounting firm the results of the annual audit. Our audit
committee also reviews the effectiveness of internal controls
and the adequacy of our disclosure controls and procedures. In
addition, our audit committee is responsible for the performance
of our internal audit function, as well as preparing any reports
required under SEC rules. The audit committee will also provide
advice to the board of directors and report on the status of
business risks pursuant to our Risk Management Policy. The
members of our audit committee are currently Brian Dovey, James
Schiro and Robert Thomas. Each member currently meets the audit
committee qualification and independence standards under current
SEC and NASDAQ requirements; however, Mr. Dovey is not
considered independent under ASX standards. Mr. Thomas
serves as Chairman of the audit committee. The meeting schedule
for the audit committee has not yet been established, but we
expect that the committee will meet no less frequently than
quarterly. We did not have an audit committee in 2009.
We have adopted an audit committee charter, a copy of which is
available on our website www.teamreva.com.
Compensation
Committee
Our compensation committee establishes, amends, reviews and
approves the compensation and benefit plans with respect to
senior management and employees, including determining
individual elements of total compensation of the Chief Executive
Officer and other members of senior management, and reviews our
performance and the performance of our executive officers with
respect to these elements of compensation. In carrying out its
responsibilities, the compensation committee will review all
components of compensation for consistency with our compensation
philosophy and with the interests of stockholders. Our
compensation committee will review compensation practices and
trends, identify performance goals of our company and our
executive officers and set compensation in light of these
objectives. Our compensation committee also determines annual
retainer, meeting fees, equity awards and other compensation for
members of the board of directors and administers the issuance
of stock options and other awards under our stock incentive
plans. The members of the compensation committee are Brian
Dovey, Gordon E. Nye and Robert Thomas. Each member of our
compensation committee currently meets the standards for
independence under the applicable NASDAQ requirements; however,
Mr. Dovey is not considered independent under ASX standards.
Mr. Nye serves as Chairman of the compensation committee.
The meeting schedule for the compensation committee has not yet
been established, but we expect that the committee will meet at
least once a year. We did not have a compensation committee in
2009.
Our compensation committee reviews and evaluates potential risks
related to our compensation policies and practices for employees
and has determined that we have no compensation risks that are
reasonably likely to have a material adverse effect on our
company. We structure our compensation to address company-wide
risk. We believe the combination of base salary and stock-based
incentive awards with four-year vesting periods is balanced and
serves to motivate our employees to accomplish our business plan
without creating risks that are reasonably likely to have a
material adverse effect on our company.
We have adopted a compensation committee charter, a copy of
which is available on our website www.teamreva.com.
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Nominating
and Corporate Governance Committee
Our nominating and corporate governance committee recommends the
director nominees for each annual general meeting and ensures
that the audit, compensation and nominating and corporate
governance committees of our board of directors have the benefit
of qualified and experienced independent directors. The
committees primary responsibilities are to:
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review the size and composition of our board of directors;
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select, or recommend to our board of directors, nominees for
each election of directors;
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develop and recommend to our board of directors criteria for
selecting qualified director candidates;
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consider committee member qualifications, appointment and
removal;
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recommend corporate governance principles, codes of conduct and
applicable compliance mechanisms; and
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provide oversight in the evaluation of our board of directors
and each committee.
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The members of our nominating and corporate governance committee
are Anne Keating, Gordon E. Nye and James Schiro. Each
member of our nominating and corporate governance committee
currently meets the standards for independence under the
applicable NASDAQ requirement. Ms. Keating serves as
Chairman of the nominating and corporate governance committee.
The meeting schedule for the nominating and corporate governance
committee has not yet been established, but we expect that the
committee will meet at least once a year. We did not have a
nominating and corporate governance committee in 2009.
We have adopted a nominating and corporate governance committee
charter, a copy of which is available on our website
www.teamreva.com.
Code
of Business Conduct and Ethics
We have adopted a code of business conduct and ethics that
applies to all of our officers, directors and employees. We have
posted a copy of our code of business conduct and ethics, and
intend to post amendments to this code, or any waivers of its
requirements, on our website at www.teamreva.com.
Compensation
Committee Interlocks and Insider Participation
No member of our compensation committee has at any time been our
employee with the exception of Gordon E. Nye who served as
our Chief Executive Officer from 2001 to 2003. Robert B.
Stockman, our Chairman of the Board and Chief Executive Officer,
currently serves on the board of directors of Zeltiq Aesthetics,
Inc. Gordon E. Nye, a member of our board of directors and
compensation committee, is the Chief Executive Officer of Zeltiq
Aesthetics, Inc. Except as set forth herein, none of our
executive officers serves, or has served during the last fiscal
year, as a member of the board of directors or compensation
committee of any other entity that has one or more executive
officers serving as a member of our board of directors or our
compensation committee.
Continuous
Disclosure
Once listed on ASX, we will need to comply with the continuous
disclosure requirements of the ASX Listing Rules and
section 674 of the Australia Corporations Act. Subject to
the exceptions contained in the ASX Listing Rules, we will be
required to disclose to ASX any of our information which is not
generally available and which a reasonable person would expect
to have a material effect on the price or value of our CDIs.
We have adopted a written Continuous Disclosure Policy relating
to information disclosures and relevant procedures. The Chief
Financial Officer is responsible for the administration of the
policy and coordinating education within the company about our
disclosure obligations. A copy of the Continuous Disclosure
Policy is available on our website at www.teamreva.com.
The policy sets out principles relating to disclosure of
material information, including that we:
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will not provide analysts or other select groups of market
participants any material price sensitive non-public information
at any time before it is disclosed to ASX and filed with the SEC;
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will not generally respond to market rumors and speculation,
except when ASX formally requests disclosure on the matter or
our board of directors considers it appropriate to make a
disclosure under the circumstances; and
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will only allow the Chairman of the board of directors and Chief
Executive Officer or another person expressly authorized in
writing by our board of directors, Chairman or Chief Executive
Officer to make public statements on behalf of the company.
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This policy emphasizes a proactive approach to continuous
disclosure. The objective is to create a culture of openness,
which is conducive to the fulfillment of our disclosure
obligations.
Insider
Trading Policy
We have adopted an Insider Trading Policy in order to ensure
that we meet best practice recommendations established by the
ASX Corporate Governance Council as well as the requirements
imposed under U.S. and Australian securities laws including
the measures set out in the Insider Trading and Securities Fraud
Enforcement Act of 1988. The Insider Trading Policy is designed
to maintain investor confidence in the integrity of our internal
controls and procedures and to provide guidance on avoiding any
breach of the insider trading laws in both Australia and the
United States. A copy of the Insider Trading Policy is available
on our website at www.teamreva.com.
Under the Insider Trading Policy, directors, officers and other
persons designated by the Chief Financial Officer, may only
trade in our CDIs or shares of common stock during a trading
window following our public release of quarterly and annual
financial results. Directors, officers, employees and
consultants who are in possession of price sensitive
information, which is not generally available to the market,
must not buy, sell or otherwise trade in our CDIs or shares of
common stock at any time, even if a trading window is open.
The Insider Trading Policy requires all directors, officers and
certain other individuals to obtain prior clearance for certain
transactions in our CDIs or shares of common stock that they are
a party to from the Chief Financial Officer. In addition, any
changes in a directors direct or indirect interest in our
CDIs or shares of common stock must be immediately reported to
the Chief Financial Officer so that appropriate disclosure can
be made.
ASX
Corporate Governance Principles
Our board of directors has evaluated our current corporate
governance policies and practices in light of the ASX Corporate
Governance Principles. A brief summary of our approach currently
is set out below.
Principle
1 Lay solid foundations for management and
oversight
Our board of directors responsibilities are defined under
our corporate governance principles. In addition, there is a
clear delineation between the Executive Chairmans
responsibility for our strategy and activities, and the
day-to-day
management of operations conferred upon our officers. As
discussed under Executive Compensation, our
compensation committee evaluates the performance of senior
executives.
Principle
2 Structure the Board to add value
We are largely compliant with the recommendations under this
principle. While the majority of our board of directors is
comprised of independent directors for ASX purposes, the
Chairman is not an independent director and also serves as our
Chief Executive Officer, contrary to ASX recommendation. We
believe that Mr. Stockman is not able to exert undue
influence on the decision-making process or the governance
functions of our board of directors, despite Mr. Stockman
not being independent. In addition, while the Chairman and Chief
Executive Officer roles have not been separated, we have also
appointed Dr. Schultz as President and Chief Operating
Officer with responsibility for our
day-to-day
operations. Dr. Schultz attends board meetings by
invitation but not as a director. Our board of directors
believes that this creates a collaborative management style
approach between the Chairman and President with appropriate
checks and balances.
As we are still in an early stage of development, we have not
yet undertaken a formal review of our board of directors
performance. However, our Corporate Governance Guidelines
provide for an annual self-assessment of our board of
directors performance to be provided to the nominating and
corporate governance committee.
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Principle
3 Promote ethical and responsible
decision-making
We have adopted a Code of Business Conduct and Ethics, as well
as an Insider Trading Policy and a policy and procedure for
related party transactions. A copy of each policy is available
on our website at www.teamreva.com.
Principle
4 Safeguard integrity in financial
reporting
As discussed above, we have established an audit committee which
complies with the ASX Corporate Governance Principles to oversee
the management of financial and internal risks.
Principle
5 Make timely and balanced disclosure
We are committed to providing timely and balanced disclosure to
the market in accordance with our continuous disclosure
obligations. A copy of our Continuous Disclosure Policy is
available on our website at www.teamreva.com.
Principle
6 Respect the rights of stockholders
We have adopted a Stockholder Communication Policy for
stockholders wishing to communicate with the Board, a copy of
which is available on our website at www.teamreva.com. We seek
to utilize numerous modes of communication, including electronic
communication to ensure that our communication with stockholders
is frequent, clear and accessible.
All stockholders are invited to attend our annual general
meeting, either in person or by proxy. Our board of directors
regards the annual general meeting as an excellent forum in
which to discuss issues relevant to the company and accordingly
encourages full participation by stockholders. Stockholders have
an opportunity to submit questions to our board of directors and
auditors. The meeting will also be webcast to provide access to
those stockholders who are unable to attend the annual general
meeting.
Principle
7 Recognize and manage risk
In conjunction with our other corporate governance policies, we
have adopted a Risk Management Policy which is designed to
assist us in identifying, evaluating and mitigating
technological, financial, economic, operational and other risks.
In addition, our board of directors has established three
standing committees to provide focused support in key areas.
Regular internal communication between our management and our
board of directors supplements our quality system, complaint
handling processes, employee policies and standard operating
procedures which are all designed to address various forms risks.
Principle
8 Remunerate fairly and responsibly
We have established a compensation committee as discussed above.
A copy of the compensation committee charter is available on our
website at www.teamreva.com. We will provide full disclosure of
our directors and officers compensation in our
annual proxy statement.
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EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Our compensation approach is tied to our stage of development.
Prior to this offering, we were a privately-held company. As a
result, we have not been subject to any stock exchange listing
or SEC rules requiring a majority of our board of directors to
be independent or relating to the formation and functioning of
our board committees, including audit, compensation, and
nominating and governance committees. We informally considered
the competitive market for corresponding positions within
comparable geographic areas and companies of similar size and
stage of development operating in the medical device industry.
This consideration was based on the general knowledge possessed
by members of our board of directors. The board of directors
utilized research and informal benchmarking based on its
personal knowledge of the competitive market. In July 2010, we
formed a compensation committee to oversee our executive
compensation program. In this role, the compensation committee
reviews and approves annually all compensation decisions
relating to our executives, including our named executive
officers. Our compensation program is designed to attract and
retain talented employees, to motivate them to achieve our key
financial, operational and strategic goals and to reward them
for superior performance.
Overview
of Compensation Program
Our compensation committee will review and approve the
compensation of our named executive officers and oversee and
administer our executive compensation programs and initiatives.
As we gain experience as a public company, we expect that the
specific direction, emphasis and components of our executive
compensation program will continue to evolve. We will favor a
more empirically-based approach that involves formal
benchmarking as well as best practices with respect to
compensation and benefits. We expect to engage an independent
compensation consultant to develop an executive compensation
peer group to benchmark against. Accordingly, the compensation
paid to our named executive officers for fiscal year 2009 is not
necessarily indicative of how we will compensate our named
executive officers after this offering.
In 2009, our current compensation programs reflected our startup
origins in that they consisted primarily of base salary and
stock options for senior executive officers. Consistent with our
historical compensation philosophy, in 2009, we did not provide
our senior executive officers or other employees with any form
of a cash bonus program, or any severance provisions providing
for continued salary or other benefits upon termination of an
executive officers employment with us or other
equity-based compensation, other than option grants.
Our compensation committee has begun to develop an overall set
of compensation recommendations for our executive officers.
However, the process is ongoing and is expected to be completed
during calendar year 2010. Goals of the review include:
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establishing a compensation program structure to attract and
retain the most highly qualified executive officers.
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developing compensation guiding principles, including a
comparative peer group and targeted market positioning for
different compensation elements.
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harmonizing salary, equity awards, and other compensation
benefits for executive officers hired under significantly
different circumstances.
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continuing to align executive officer compensation, both in
individual cases and as a team, to the long-term interests of
stockholders.
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developing a flexibility that permits the accommodation of
appropriate individual circumstances.
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emphasizing clear, easily-measured performance goals to help
align executive officer compensation with the long-term
interests of stockholders.
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Our historic practice with regard to issuing long-term
incentives has been to grant stock options at the time of hire
or promotion, although we occasionally, based upon individual
circumstances, issue incentive stock options on an ad-hoc basis,
in each case with approval from our board of directors. In 2009,
we did not grant any long-term incentives to our named executive
officers. As our needs evolve, we intend to continue to evaluate
our philosophy and compensation programs as circumstances
require, and at a minimum, we will review executive compensation
annually. We anticipate making new equity awards and adjustments
to the components of our executive compensation program in
connection with our yearly compensation review,
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which will be based, in part, upon the market analysis performed
by our independent compensation consultant that may include
benchmarking against a peer group of companies to be determined
in the future and the recommendations to the compensation
committee by our Chief Executive Officer. This combination of
incentives is designed to balance annual operating objectives
and our earnings performance with longer-term stockholder value
creation.
Compensation
Process
Our board of directors has historically been responsible for
establishing our compensation philosophy and setting the
compensation levels for our executives, including base salaries
and stock-based incentive awards. To assist our board of
directors, our Chief Executive Officer prepares a report at the
beginning of each fiscal year recommending base salaries and
stock-based incentive awards for each executive officer. In
addition to this report, our board of directors considers
relevant market compensation data. The board of directors in its
sole discretion may accept or adjust the compensation
recommendations it is provided. No executive officer is allowed
to be present at the time his or her compensation is being
discussed or determined by the compensation committee. In 2010,
our board of directors established a compensation committee to
review our compensation process going forward.
Determination
of Executive Compensation
In setting the compensation for our executive officers, our
board of directors places significant emphasis on the
recommendation of our Chief Executive Officer (other than with
respect to determining his own compensation), considering our
overall performance during the prior fiscal year and the
executives individual contributions during the prior
fiscal year, as well as considering relevant market data. With
respect to new hires, the board of directors considers an
executives background and historical compensation in lieu
of prior year performance. For 2009 and 2010, our board of
directors utilized research and informal benchmarking based on
its personal knowledge of companies in the medical device
industry. Our board of directors used this market data as one
component of determining executive compensation. We expect to
retain an independent compensation consultant to assist us with
our benchmarking process going forward.
Components
of Executive Compensation
Our current executive compensation program, consists of the
following components:
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base salary;
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equity-based incentives; and
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other benefits.
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We combine these elements in order to formulate compensation
packages that provide competitive pay; reward achievement of
financial, operational and strategic objectives; and align the
interests of our named executive officers and other senior
personnel with those of our stockholders.
Base Salary. We have provided, and will
continue to provide, our executive officers with a base salary
to compensate them for services provided to us during the fiscal
year. In setting base salaries for our executive officers, our
board of directors considered, and our compensation committee
will continue to consider, the executives position, our
success in achieving our prior year corporate goals, the
individuals contribution and performance during the prior
fiscal year and relevant market data. The board of directors
also considered the evaluations and recommendations proposed by
our Chief Executive Officer. With respect to new hires, the
board of directors considered an executives background and
historical compensation in lieu of prior year performance. The
board of directors evaluated and set the base salaries for our
executives following annual performance reviews, as well as upon
a promotion or other change in responsibility. We expect our
compensation committee to continue these policies going forward.
In setting the base salaries for our executives for 2009 and
2010, our board of directors utilized research and informal
benchmarking based on its personal knowledge of companies in the
medical device industry.
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Our executive officers have been paid the following base
salaries for the year ending December 31, 2009 and are
currently being paid the following annualized salaries for the
year ended December 31, 2010:
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2009
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2010
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Name and Title
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Base Salary
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Base Salary
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Robert B. Stockman, Chief Executive Officer
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$
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$
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325,000
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Robert K. Schultz, Ph.D., President and Chief Operating
Officer
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275,000
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290,000
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Katrina Thompson, Chief Financial Officer and Secretary
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190,000
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230,000
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Donald Brandom, Ph.D., Vice President, Biomaterials
Product Development
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200,000
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200,000
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Eric Schmid, Vice President, Engineering and Stent
Development
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210,000
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210,000
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Joan Zeltinger, Ph.D., Vice President, Scientific
Affairs
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172,500
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172,500
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Stock-Based Incentive Awards. In addition to
base salary, we provide long-term stock-based incentive awards
to our executive officers. These stock-based incentive awards
generally consist of options to purchase shares of our common
stock. We believe that stock option awards help further our
compensation objectives by encouraging our executives to remain
with us through at least the vesting period for these awards and
providing them with an incentive to continue to focus on our
long-term financial performance and increasing stockholder value.
Historically, our executive officers have received grants of
stock options at the time of hire or promotion, and occasionally
on an ad-hoc basis. In 2009, we did not grant any stock-based
incentive awards to our named executive officers. Going forward,
our executive officers will receive stock option awards in
connection with their initial hire, following promotions and on
an annual basis. To assist the compensation committee, we have
developed new guidelines for initial and annual stock option
awards. The guidelines for initial grants are based on the
executives position and the guidelines for annual grants
are generally designed to in part replace the number of options
initially granted to the executive at hiring that vest after one
year. With respect to new hires, we also considered, and will
continue to consider, the executives background and
historical compensation when determining the number of options
to grant to the executive. The actual number of options for an
executive may be higher or lower than these guidelines, based on
their individual performance or extraordinary achievements.
Stock and Option Grant Practices. In the
absence of a public trading market for our common stock, our
board of directors has historically determined the fair market
value of our common stock in good faith based upon consideration
of a number of relevant factors including our financial
condition, the likelihood of a liquidity event, the liquidation
preference of our participating preferred stock, the price at
which our preferred stock was sold, the enterprise values of
comparable companies, our cash needs, operating losses, market
conditions, material risks to our business and valuations
obtained from independent valuation firms.
All equity awards to our employees, consultants and directors
were granted at no less than the fair market value of our common
stock as determined in good faith by our board of directors on
the date of grant of each award.
The majority of the option grants we have historically made vest
over five years, with one-fifth of the shares subject to the
stock option vesting on each annual anniversary of the vesting
commencement date. All of our stock options are exercisable at
any time but, if exercised, are subject to a lapsing right of
repurchase until fully vested. All options have a
10-year
term. Additional information regarding accelerated vesting prior
to, upon or following a change in control is discussed below
under Potential Payments upon Termination or
Change in Control.
Going forward, our compensation committee has adopted a policy
by which all stock and option awards to new and current
employees, including our executive officers, will be granted at
pre-determined meeting dates of the compensation committee. Our
compensation committee will grant the equity awards in
accordance with the dates fixed by this policy whether or not we
are aware of any material non-public information (whether
positive or negative) at the time of grant. Because the equity
awards typically do not vest or have any realizable value for at
least 12 months, we do not believe it is important whether
we are aware of any material non-public information on the date
of grant. The amount of realizable value related to such awards
will be determined by our stock price on the date the awards
vest and therefore will be determined by our financial
performance in the time prior to vesting. Whether the stock
price moves up or down shortly after the grant date is largely
irrelevant for purposes of the equity awards.
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The exercise price of any option grant will be determined by
reference to the fair market value of such shares, which the
2010 Plan defines as the closing price of our common stock which
will be imputed from the price of our CDIs traded on the
Australian Securities Exchange on the date of grant. However,
because options granted both before and after the completion of
our initial public offering have been granted at fair market
value, such options only have cash value to the holder to the
extent that the stock price of our common stock increases during
the term of the option. Going forward, our option grants will
generally vest 25% one year from the date of the grant, with the
remaining 75% of the options vesting in equal monthly
installments over the subsequent thirty-six month period.
Severance
and Change of Control Benefits
In July 2010, we have entered into an employment agreement that
requires specific payments and benefits to be provided to Robert
B. Stockman, our Chief Executive Officer, in the event his
employment is terminated following a change of control or in the
event his employment is terminated without cause. See
Employment Agreements below. Prior to
such time, none of our executive officers had any rights to
severance payments.
Other
Benefits
In order to attract, retain and pay market levels of
compensation, we have historically provided, and will continue
to provide, our executives with the following benefits:
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Health Insurance. We provide each of our
executives and their spouses and children the same health and
dental insurance coverage we make available to our other
eligible employees.
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Life and Disability Insurance. We provide
each of our executives with the same disability and life
insurance as we make available to our other eligible employees.
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Pension Benefits. We do not provide pension
arrangements or post-retirement health coverage for our
executives or employees. Our executives and other eligible
employees are eligible to participate in our 401(k) defined
contribution plan. We currently make matching contributions to
participants in the 401(k) plan in an amount equal to 25% of the
employees deferral up to a maximum of four percent of an
employees salary.
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Nonqualified Deferred Compensation. We do not
provide any nonqualified defined contribution or other deferred
compensation plans to any of our employees.
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Perquisites. We limit the perquisites that we
make available to our executive officers. Our executives are
entitled to relocation expenses on their initial hire and other
benefits with de minimis value that are not otherwise available
to all of our employees.
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Employment
Agreements
Robert
B. Stockman
In July 2010, we entered into an employment offer letter with
Robert B. Stockman to serve as our Chief Executive Officer.
Mr. Stockmans offer letter, provides for, among other
things: (i) an annual base salary of $325,000, subject to
annual review, (ii) eligibility to participate in the Bonus
Plan of up to 30% of his current salary for the relevant year
(which will be pro-rated for 2010), (iii) an initial award
of 750,000 options to purchase shares of our common stock
granted by our board of directors on October 21, 2010 at an
exercise price equal to the fair market value on the grant date,
and (iv) reimbursement for certain living and relocation
expenses. The options are immediately exercisable at an exercise
price equal to fair market value on the date of the grant and
vest 25% on July 1, 2011 and in equal monthly installments
for a period of 36 months thereafter. In the event
Mr. Stockmans employment terminates, any options
exercised prior to vesting will be subject to a repurchase right
by the company at the lesser of cost or fair market value. In
addition, in the event Mr. Stockmans employment is
terminated without cause, we will pay Mr. Stockman
severance equal to (i) six months of base salary, and
(ii) continuation in our medical and dental insurance plans
for six months. The offer letter also provides that if
Mr. Stockman resigns for good reason or his employment is
terminated without cause within one year following a change of
control transaction, Mr. Stockman will receive immediate
vesting of all of his outstanding stock options.
Robert
Schultz
In October 2010, we entered into an employment offer letter with
Robert Schultz to serve as our President and Chief Operating
Officer. Mr. Schultzs offer letter, provides for,
among other things: (i) an annual base salary of $290,000,
subject to annual review, (ii) eligibility to participate
in the Bonus Plan of up to 30% of his current salary for the
relevant year beginning in 2011 and (iii) an award of
215,000 options to purchase shares of our common stock granted
by our board of directors on
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October 21, 2010 at an exercise price equal to the fair
market value on the grant date. The options will be immediately
exercisable at an exercise price equal to fair market value on
the date of the grant and vest 25% on October 21, 2011 and
in equal monthly installments for a period of 36 months
thereafter. In the event Mr. Schultzs employment
terminates, any options exercised prior to vesting will be
subject to a repurchase right by the company at the lesser of
cost or fair market value. In addition, in the event
Mr. Schultzs employment is terminated without cause,
we will pay Mr. Schultz severance equal to (i) six
months of base salary, and (ii) continuation in our medical
and dental insurance plans for six months.
Katrina
Thompson
In October 2010, we entered into an employment offer letter with
Katrina Thompson to serve as our Chief Financial Officer.
Ms. Thompsons offer letter, provides for, among other
things: (i) an annual base salary of $230,000, subject to
annual review, (ii) eligibility to participate in the Bonus
Plan of up to 30% of her current salary for the relevant year
beginning in 2011 and (iii) an award of 190,000 options to
purchase shares of our common stock granted by our board of
directors on October 21, 2010 at an exercise price equal to
the fair market value on the grant date. The options will be
immediately exercisable at an exercise price equal to fair
market value on the date of the grant and vest 25% on
October 21, 2011 and in equal monthly installments for a
period of 36 months thereafter. In the event
Ms. Thompsons employment terminates, any options
exercised prior to vesting will be subject to a repurchase right
by the company at the lesser of cost or fair market value. In
addition, in the event Ms. Thompsons employment is
terminated without cause, we will pay Ms. Thompson
severance equal to (i) six months of base salary, and
(ii) continuation in our medical and dental insurance plans
for six months.
2010
Equity Incentive Award Plan
Our 2010 Equity Incentive Plan, which we refer to as the 2010
Plan, is intended to serve as the successor equity incentive
program to our 2001 Stock Option Plan, or the 2001 Plan. Our
2010 Plan became effective in October 2010. All shares of stock
remaining available for issuance and not subject to outstanding
options under the 2001 Plan are now part of the available pool
of shares under our 2010 Plan, and no further option grants will
be made under the 2001 Plan. The options granted under the 2001
Plan will continue to be governed by their existing terms,
unless our compensation committee elects to extend one or more
features of our 2010 Plan to those options.
Our 2010 Plan reserves 2,628,838 shares of our common stock
for issuance. The 2010 Plan also contains an evergreen
provision that allows for an annual increase in the number
of shares available for issuance under the 2010 Plan commencing
on the first January 1 after the completion of this offering and
on each January 1 thereafter during the ten-year term of the
2010 Plan. The annual increase in the number of shares shall be
equal to the lesser of:
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three percent of our outstanding common stock on the applicable
January 1; and
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a lesser number of shares as determined by our board of
directors.
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The material terms of the 2010 Plan are summarized below.
Administration
The compensation committee of our board of directors administers
the 2010 Plan. Our compensation committee consists solely of
non-employee directors for purposes of
Rule 16b-3
under the Securities Exchange Act of 1934, as amended, or the
Exchange Act, and, with respect to awards that are intended to
constitute performance-based compensation under
Section 162(m) of the Internal Revenue Code of 1986, as
amended, outside directors for purposes of
Section 162(m). Subject to the terms and conditions of the
2010 Plan, our compensation committee has the authority to
select the persons to whom awards are to be made, to determine
the type or types of awards to be granted to each person, the
number of awards to grant, the number of shares to be subject to
such awards, and the terms and conditions of such awards, and
has authority to make all other determinations and decisions and
to take all other actions necessary or advisable for the
administration of the 2010 Plan. Our compensation committee is
also authorized to establish, adopt, amend or revise rules
relating to administration of the 2010 Plan. Our board of
directors may at any time revest in itself the authority to
administer the 2010 Plan.
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Eligibility
Options, stock appreciation rights, or SARs, restricted stock
and other awards under the 2010 Plan may be granted to
individuals who are then our officers or employees or are the
officers or employees of any of our subsidiaries. Such awards
may also be granted to our non-employee directors and
consultants but only employees may be granted incentive stock
options, or ISOs.
Awards
The 2010 Plan provides that our compensation committee may grant
or issue stock options, SARs, restricted stock, restricted stock
units, dividend equivalents, performance share awards,
performance stock units, stock payments, deferred stock,
performance bonus awards, performance-based awards, and other
stock-based awards, or any combination thereof. Our compensation
committee considers each award grant subjectively, considering
factors such as the individual performance of the recipient and
the anticipated contribution of the recipient to the attainment
of our long-term goals. Each award will be set forth in a
separate agreement with the person receiving the award and will
indicate the type, terms and conditions of the award.
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Nonqualified stock options, or NQSOs, will provide for the right
to purchase shares of our common stock at a specified price
which may not be less than the fair market value of a share of
common stock on the date of grant, and usually will become
exercisable (at the discretion of our compensation committee) in
one or more installments after the grant date, subject to the
participants continued employment or service with us
and/or
subject to the satisfaction of performance targets established
by our compensation committee. NQSOs may be granted for any term
specified by our compensation committee.
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Incentive stock options, or ISOs, will be designed to comply
with the provisions of the Internal Revenue Code and will be
subject to specified restrictions contained in the Internal
Revenue Code. Among such restrictions, ISOs must have an
exercise price of not less than the fair market value of a share
of common stock on the date of grant imputed from the price of
our CDIs traded on ASX, may only be granted to employees, must
expire within a specified period of time following the
optionees termination of employment, and must be exercised
within the ten years after the date of grant. In the case of an
ISO granted to an individual who owns (or is deemed to own) more
than 10% of the total combined voting power of all classes of
our capital stock, the 2010 Plan provides that the exercise
price must be at least 110% of the fair market value of a share
of common stock on the date of grant and the ISO must expire
upon the fifth anniversary of the date of its grant.
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Restricted stock may be granted to participants and made subject
to such restrictions as may be determined by our compensation
committee. Typically, restricted stock may be forfeited for no
consideration if the conditions or restrictions are not met, and
they may not be sold or otherwise transferred to third parties
until restrictions are removed or expire. Recipients of
restricted stock, unlike recipients of options, may have voting
rights and may receive dividends, if any, prior to the time when
the restrictions lapse.
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Restricted stock units may be awarded to participants, typically
without payment of consideration or for a nominal purchase
price, but subject to vesting conditions including continued
employment or on performance criteria established by our
compensation committee. Like restricted stock, restricted stock
units may not be sold or otherwise transferred or hypothecated
until vesting conditions are removed or expire. Unlike
restricted stock, stock underlying restricted stock units will
not be issued until the restricted stock units have vested, and
recipients of restricted stock units generally will have no
voting or dividend rights prior to the time when vesting
conditions are satisfied.
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SARs granted under the 2010 Plan typically will provide for
payments to the holder based upon increases in the price of our
common stock over the exercise price of the SAR. Our
compensation committee may elect to pay SARs in cash or in
common stock or in a combination of both.
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Dividend equivalents represent the value of the dividends, if
any, per share paid by us, calculated with reference to the
number of shares covered by the stock options, SARs or other
awards held by the participant.
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Performance bonus awards may be granted by our compensation
committee on an individual or group basis. Generally, these
awards will be based upon the attainment of specific performance
goals that are established by our compensation committee and
relate to one or more performance criteria on a specified date
or dates determined by our compensation committee. Any such cash
bonus paid to a covered employee within the meaning
of Section 162(m) of the Internal Revenue Code may be, but need
not be, qualified performance-based compensation as described
below and will be paid in cash.
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Stock payments may be authorized by our compensation committee
in the form of common stock or an option or other right to
purchase common stock as part of a deferred compensation
arrangement, made in lieu of all or any part of compensation,
including bonuses, that would otherwise be payable to employees,
consultants or members of our board of directors.
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Qualified
Performance-Based Compensation
Our compensation committee may grant awards to employees who are
or may be covered employees, as defined in
Section 162(m) of the Internal Revenue Code, that are
intended to be qualified performance-based
compensation within the meaning of Section 162(m) of
the Internal Revenue Code in order to preserve the deductibility
of these awards for federal income tax purposes. Participants
are only entitled to receive payment for qualified
performance-based compensation for any given performance
period to the extent that pre-established performance goals set
by the plan administrator for the period are satisfied. These
pre-established performance goals must be based on one or more
of the following performance criteria: revenue; sales; expenses;
operating income; gross margin; operating margin; earnings
before any one or more of: stock-based compensation expense,
interest, taxes, depreciation and amortization; pre-tax profit;
net operating income; net income; economic value added; free
cash flow; operating cash flow; balance of cash, cash
equivalents and marketable securities; stock price; earnings per
share; return on stockholder equity; return on capital; return
on assets; return on investment; total stockholder return;
employee satisfaction; employee retention; market share;
customer satisfaction; product development; research and
development expenses; completion of an identified special
project; and completion of a joint venture or other corporate
transaction. These performance criteria may be measured in
absolute terms or as an increase or decrease in a value or a
value determined relative to an index, budget or other standard
selected by our compensation committee. With regard to a
particular performance period, our compensation committee will
have the discretion to select the length of the performance
period, the type of performance-based awards to be granted, and
the goals that will be used to measure the performance for the
period. In determining the actual size of an individual
performance-based award for a performance period, the plan
administrator may reduce or eliminate (but not increase) the
award. Generally, a participant will have to be employed by us
throughout the performance period to be eligible for a
performance-based award for any period.
Corporate
Transactions
In the event of a change in control, as defined in the 2010
Plan, the compensation committee may provide for the following:
accelerated vesting, assumption, continuation, substitution or
the cash-out of awards.
Amendment
and Termination of the 2010 Plan
Our board of directors or our compensation committee may
terminate, amend or modify the 2010 Plan. However, stockholder
approval of any amendment to the 2010 Plan will be obtained to
the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, or for any amendment to
the 2010 Plan that increases the number of shares available
under the 2010 Plan. If not terminated earlier by our
compensation committee or our board of directors, the 2010 Plan
will terminate on the tenth anniversary of the date of its
initial approval by our board of directors.
2001
Stock Option/Stock Issuance Plan
Our 2001 Stock Option/Stock Issuance Plan, or the 2001 Plan, was
adopted by our board of directors and approved by our
stockholders in May 2001. The 2001 Plan provides for the grant
of incentive stock options, as defined under Section 422 of
the Internal Revenue Code, to employees and for the grant of
non-statutory stock options and restricted stock to employees,
consultants, and non-employee directors. A total of
3,185,267 shares of our common stock have been authorized
and reserved for issuance under the 2001 Plan. As of
September 30, 2010, options to purchase a total of
1,550,500 shares of common stock, with a weighted exercise
price of $1.19 per share, were outstanding under the 2001 Plan.
Upon the effectiveness of our initial public offering, we will
no longer issue any additional options under the 2001 Plan.
Administration;
Awards
Upon the effectiveness of our initial public offering, we will
no longer issue any additional options under the 2001 Plan.
Although no future options will be granted under this plan, all
options previously granted under the 2001 Plan will continue to
be outstanding and will be administered under the terms and
conditions of the 2001 Plan.
Our board of directors, or our compensation committee, will
continue to administer the 2001 Plan. The exercise price of all
incentive stock options granted under the 2001 Plan must be at
least equal to the fair market value of the common stock on the
date of grant. The exercise price of all non-statutory stock
options granted under the 2001 Plan shall be determined by our
board of
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directors, but in no event may be less than 85% of the fair
market value on the date of grant. With respect to any optionee
who owns stock possessing more than 10% of the voting power of
all our classes of stock (including stock of any parent or
subsidiary or ours), the exercise price of any incentive stock
option or non-statutory stock option granted must equal at least
110% of the fair market value on the grant date. The 2001 Plan
provides for an option term of up to 10 years, but not to
exceed five years for incentive stock options granted to 10%
stockholders. The purchase price of restricted stock issued
under the 2001 Plan shall be determined by the board, but in no
event may be less than 85% of the fair market value on the date
of issuance. With respect to 10% stockholders, the purchase
price of restricted stock must equal at least 110% of the fair
market value on the date of issuance. Generally, options granted
under the 2001 Plan vest annually in equal installments for a
period of five years following the grant date.
If an optionees service terminates for any reason other
than death, disability or misconduct, the optionee may exercise
his or her vested options prior to the earlier of their
expiration date or three months following the date of
termination. In the event the optionees service terminates
as a result of the optionees death or disability, the
options vested as of the date of death or disability, as
applicable, may be exercised prior to the earlier of their
expiration date or 12 months from the date of the
optionees death or disability, as applicable. If an
optionees service is terminated by the company for
misconduct, all outstanding options shall terminate concurrently
with the optionees termination of service.
Incentive stock options are non-transferable other than by will
or the laws of descent and distribution following the
optionees death. Non-statutory stock options may be
transferred by will or the laws of descent and distribution and,
during the lifetime of the optionee, to one or more members of
the optionees immediate family to the extent permitted by
the plan administrator.
Corporate
Transactions
In the event of a corporate transaction where the acquiror
assumes or replaces options granted under the 2001 Plan, options
issued under the 2001 Plan will not be subject to accelerated
vesting unless provided otherwise by agreement with the
optionee. In the event of a corporate transaction where the
acquiror does not assume or replace options granted under the
2001 Plan, such outstanding options will become fully vested and
exercisable immediately prior to the consummation of the
corporate transaction. In the event of a corporate transaction
where the acquiror does not assume options granted under the
2001 Plan, such outstanding options will terminate upon the
consummation of the corporate transaction.
Amendment
and Termination of the 2001 Plan
The 2001 Plan will terminate automatically in 2011 unless
terminated earlier by our board of directors. The board of
directors has the authority to amend or terminate the 2001 Plan.
To the extent necessary to comply with applicable law, the
company will obtain stockholder approval of any amendment to the
2001 Plan in such a manner and to such a degree as required.
Limitation
of Directors and Officers Liability and
Indemnification
The Delaware General Corporation Law authorizes corporations to
limit or eliminate, subject to specified conditions, the
personal liability of directors to corporations and their
stockholders for monetary damages for breach of their fiduciary
duties. Our amended and restated certificate of incorporation
limits the liability of our directors to the fullest extent
permitted by Delaware law.
We have obtained director and officer liability insurance to
cover liabilities our directors and officers may incur in
connection with their services to us. Our amended and restated
certificate of incorporation and our amended and restated bylaws
also provide that we will indemnify and advance expenses to any
of our directors and officers who, by reason of the fact that he
or she is one of our officers or directors, is involved in a
legal proceeding of any nature. We will repay certain expenses
incurred by a director or officer in connection with any civil,
criminal, administrative or investigative action or proceeding,
including actions by us or in our name. Such indemnifiable
expenses include, to the maximum extent permitted by law,
attorneys fees, judgments, fines, settlement amounts and
other expenses reasonably incurred in connection with legal
proceedings. A director or officer will not receive
indemnification if he or she is found not to have acted in good
faith and in a manner he or she reasonably believed to be in, or
not opposed to, our best interest.
We have entered into agreements to indemnify our directors and
officers. These agreements provide that we will, among other
things, indemnify and advance expenses to our directors and
officers for certain expenses, including attorneys fees,
judgments, fines and settlement amounts incurred by any such
person in any action or proceeding, including any action by us
arising out of such persons services as our director or
officer, or any other company or enterprise to which the person
provides services at our request. We believe that these
provisions and agreements are necessary to attract and retain
qualified persons as directors and officers.
90
Such limitation of liability and indemnification does not affect
the availability of equitable remedies. In addition, we have
been advised that in the opinion of the Securities and Exchange
Commission, indemnification for liabilities arising under the
Securities Act is against public policy as expressed in the
Securities Act and is therefore unenforceable.
There is no pending litigation or proceeding involving any of
our directors, officers, employees or agents in which
indemnification will be required or permitted. We are not aware
of any threatened litigation or proceeding that may result in a
claim for such indemnification.
Summary
Compensation Table
The following table presents compensation information for 2009
provided to our principal executive officer, our principal
financial officer and our three other most highly compensated
persons serving as our executive officers as of
December 31, 2009. We refer to these executive officers as
our named executive officers.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
All Other
|
|
|
Name & Principal
Position(1)
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Awards(2)
|
|
Compensation
|
|
Total
|
|
Robert K. Schultz, Ph.D.
|
|
|
2009
|
|
|
$
|
275,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,450
|
(3)
|
|
$
|
277,450
|
|
President and Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Katrina Thompson
|
|
|
2009
|
|
|
|
190,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,900
|
(3)
|
|
|
191,900
|
|
Chief Financial Officer and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald Brandom, Ph.D.
|
|
|
2009
|
|
|
|
200,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
Vice President, Biomaterials Product Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric Schmid
|
|
|
2009
|
|
|
|
210,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,340
|
(4)
|
|
|
212,340
|
|
Vice President, Engineering and Stent Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joan Zeltinger, Ph.D.
|
|
|
2009
|
|
|
|
172,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,725
|
(3)
|
|
|
174,225
|
|
Vice President, Scientific Affairs
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Robert B. Stockman was appointed our Chief Executive Officer on
August 2, 2010. |
|
(2) |
|
Figures reflected are based on the grant date fair value of all
awards made during the year. |
|
(3) |
|
Consists of 401(k) matching contributions. |
|
(4) |
|
Consists of 401(k) matching contributions of $2,100 and a phone
allowance of $240. |
Grants of
Plan-Based Awards in 2009
We did not make any grants of plan-based awards to our named
executive officers during the fiscal year ended
December 31, 2009.
91
Outstanding
Option Awards at Year End
The following table sets forth information regarding outstanding
option awards held by our named executive officers at
December 31, 2009.
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|
|
|
|
|
|
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
Underlying
|
|
Underlying
|
|
Option
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Exercise
|
|
Option
|
|
|
Options
|
|
Options
|
|
Price
|
|
Expiration
|
Name
|
|
Exercisable(1)
|
|
Unexercisable
|
|
($/Share)
|
|
Date
|
|
Robert K. Schultz, Ph.D.
|
|
|
85,000
|
|
|
|
-
|
|
|
$
|
1.00
|
|
|
|
10/22/14
|
|
President and Chief Operating
|
|
|
175,000
|
|
|
|
-
|
|
|
$
|
1.25
|
|
|
|
7/13/15
|
|
Officer
|
|
|
130,000
|
|
|
|
-
|
|
|
$
|
1.40
|
|
|
|
11/20/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Katrina Thompson
|
|
|
20,000
|
|
|
|
-
|
|
|
$
|
1.00
|
|
|
|
10/22/14
|
|
Chief Financial Officer and
|
|
|
20,000
|
|
|
|
-
|
|
|
$
|
1.25
|
|
|
|
7/13/15
|
|
Secretary
|
|
|
75,000
|
|
|
|
-
|
|
|
$
|
1.40
|
|
|
|
11/20/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald Brandom, Ph.D.
|
|
|
50,000
|
|
|
|
-
|
|
|
$
|
0.61
|
|
|
|
1/13/14
|
|
Vice President, Biomaterials
|
|
|
25,000
|
|
|
|
-
|
|
|
$
|
1.00
|
|
|
|
10/22/14
|
|
Product Development
|
|
|
50,000
|
|
|
|
-
|
|
|
$
|
1.25
|
|
|
|
7/13/15
|
|
|
|
|
50,000
|
|
|
|
-
|
|
|
$
|
1.40
|
|
|
|
11/20/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric Schmid
|
|
|
5,000
|
|
|
|
-
|
|
|
$
|
0.25
|
|
|
|
3/12/11
|
|
Vice President, Engineering and
|
|
|
5,000
|
|
|
|
-
|
|
|
$
|
0.61
|
|
|
|
12/6/11
|
|
Stent Development
|
|
|
20,000
|
|
|
|
-
|
|
|
$
|
0.61
|
|
|
|
10/1/12
|
|
|
|
|
50,000
|
|
|
|
-
|
|
|
$
|
0.61
|
|
|
|
1/13/14
|
|
|
|
|
25,000
|
|
|
|
-
|
|
|
$
|
1.00
|
|
|
|
10/22/14
|
|
|
|
|
80,000
|
|
|
|
-
|
|
|
$
|
1.25
|
|
|
|
7/13/15
|
|
|
|
|
100,000
|
|
|
|
-
|
|
|
$
|
1.40
|
|
|
|
11/20/18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joan Zeltinger, Ph.D.
|
|
|
20,000
|
|
|
|
-
|
|
|
$
|
0.61
|
|
|
|
1/13/14
|
|
Vice President, Scientific Affairs
|
|
|
20,000
|
|
|
|
-
|
|
|
$
|
1.00
|
|
|
|
10/22/14
|
|
|
|
|
10,000
|
|
|
|
-
|
|
|
$
|
1.25
|
|
|
|
7/13/15
|
|
|
|
|
50,000
|
|
|
|
-
|
|
|
$
|
1.40
|
|
|
|
11/20/18
|
|
|
|
|
(1) |
|
All options are immediately exercisable upon grant and are
subject to repurchase by us at the exercise price in the event
an employee terminates service prior to vesting. |
Option
Exercises and Stock Vested
None of our named executive officers exercised options during
the fiscal year ended December 31, 2009 and we have never
granted any restricted stock awards.
92
Potential
Payments upon Termination or Change in Control
The table below describes the potential payments or benefits to
our named executive officers upon a change of control and upon
termination of employment without cause, as if each
executives employment terminated as of December 31,
2009, pursuant to the agreements described above in the section
entitled Executive Compensation Employment
Agreements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
|
|
|
Name
|
|
Base Salary
|
|
|
Pension
|
|
|
Health
|
|
|
Vesting(1)
|
|
|
Other
|
|
|
Total
|
|
|
Robert K. Schultz, Ph.D.
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,287,000
|
|
|
$
|
-
|
|
|
$
|
|
|
President and Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Katrina Thompson
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
583,800
|
|
|
|
-
|
|
|
|
|
|
Chief Financial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald Brandom, Ph.D.
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
454,100
|
|
|
|
-
|
|
|
|
|
|
Vice President, Biomaterials Product Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric Schmid
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
871,200
|
|
|
|
-
|
|
|
|
|
|
Vice President, Engineering and Stent Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joan Zeltinger, Ph.D.
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
380,400
|
|
|
|
-
|
|
|
|
|
|
Vice President, Scientific Affairs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents the value of shares of common stock subject to
options which would accelerate upon a termination without cause
in connection with a change of control transaction. The amount
indicated in the table is calculated as the spread value of the
options subject to accelerated vesting on December 31,
2009, but assuming a price per share of A$11.00, which is the
initial public offering price. |
Non-Employee
Director Compensation Table
During 2009, none of our non-employee directors received
compensation.
In October 2010, the board of directors adopted our
non-employee
director compensation policy, pursuant to which
non-employee
directors will be compensated for their services on our board of
directors. Pursuant to the policy:
|
|
|
|
|
each
non-employee
director will receive an annual fee of $35,000 payable for the
directors service during the year; and
|
|
|
|
the Chairman of each committee will receive an additional annual
fee of $5,000 for the Chairmans service during the year.
|
The fees payable pursuant to the
non-employee
director compensation policy will be payable quarterly within
thirty days of the beginning of each quarter. In addition, each
director may receive an annual grant of options to purchase
shares of our common stock at the discretion of the board of
directors. Any such grant will be subject to shareholder
approval being obtained in accordance with ASX Listing Rules.
Any option grants to directors will be immediately exercisable,
will have an exercise price per share determined at the fair
market value on the date of grant and will vest over four years,
with 25% of options vesting one year from the date of the grant,
and 75% of options vesting in equal monthly installments over
the subsequent
36-month
period. Any options exercised prior to vesting will be subject
to a repurchase right by the company at the lesser of cost or
fair market value. Each director is also entitled to be
reimbursed for reasonable travel and other expenses incurred in
connection with attending meetings of the board of directors and
any committee on which he or she serves.
Upon appointment, each of our non-employee directors has
received an initial grant of options to purchase 62,500 shares
of our common stock at the initial public offering price prior
to the consummation of the initial public offering.
93
PRINCIPAL
STOCKHOLDERS
The following table presents information about the beneficial
ownership of our common stock as of September 30, 2010, as
adjusted to reflect the shares offered by this prospectus, by:
|
|
|
|
|
each existing stockholder we know to beneficially own five
percent or more of our common stock, which we call our principal
stockholders;
|
|
|
|
each of our directors;
|
|
|
|
each of our executive officers; and
|
|
|
|
all of our current directors and executive officers as a group.
|
Beneficial ownership is determined in accordance with the rules
of the SEC. In computing the number of shares beneficially owned
by a person and the percentage ownership of that person, shares
of common stock subject to options and warrants held by that
person that are currently exercisable or exercisable within
60 days of September 30, 2010 are deemed outstanding,
but are not deemed outstanding for computing the percentage
ownership of any other person. Percentage of beneficial
ownership before the offering is based on a total of
24,830,636 shares of common stock outstanding as of
September 30, 2010, after giving effect to, among other
things, the conversion of all shares of our preferred stock and
non-voting common stock outstanding as of September 30,
2010 into shares of our common stock that will become effective
at the closing of this offering. To our knowledge, except as set
forth in the footnotes to this table and subject to applicable
community property laws, each person named in the table has sole
voting and investment power with respect to the shares set forth
opposite such persons name. Except as otherwise indicated,
the address of each stockholder is
c/o REVA
Medical, Inc., 5751 Copley Drive, Suite B, San Diego,
CA 92111.
Except as indicated in footnotes to this table, we believe that
the stockholders named in this table have sole voting and
investment power with respect to all shares of common stock
shown to be beneficially owned by them, based on information
provided to us by such stockholders.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Shares
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
|
After
|
|
|
After
|
|
|
|
Number of
|
|
|
|
|
|
Offering
|
|
|
Offering
|
|
|
|
Common Shares
|
|
|
|
|
|
Assuming
|
|
|
Assuming
|
|
|
|
Owned Before
|
|
|
Before
|
|
|
Minimum
|
|
|
Maximum
|
|
Name of Beneficial
Owner
|
|
the
Offering(1)
|
|
|
Offering(1)
|
|
|
Offering(1)
|
|
|
Offering(1)
|
|
|
Principal Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domain
Partners(2)
|
|
|
5,349,134
|
|
|
|
21.5%
|
|
|
|
17.1
|
%
|
|
|
16.4
|
%
|
Saints Capital Everest,
L.P.(3)
|
|
|
4,456,779
|
|
|
|
17.9%
|
|
|
|
14.3
|
%
|
|
|
13.7
|
%
|
Stephen
Feinberg(4)
|
|
|
2,836,618
|
|
|
|
11.4%
|
|
|
|
9.1
|
%
|
|
|
8.7
|
%
|
Brookside Capital Partners Fund,
LP(5)
|
|
|
2,737,100
|
|
|
|
11.0%
|
|
|
|
8.8
|
%
|
|
|
8.4
|
%
|
Steinke Family,
LLC(6)
|
|
|
1,476,775
|
|
|
|
5.9%
|
|
|
|
4.7
|
%
|
|
|
4.5
|
%
|
Group Outcome Investors I,
LLC(7)
|
|
|
1,354,248
|
|
|
|
5.5%
|
|
|
|
4.3
|
%
|
|
|
4.2
|
%
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert B.
Stockman(8)
|
|
|
2,063,516
|
|
|
|
8.3%
|
|
|
|
6.6
|
%
|
|
|
6.3
|
%
|
Robert K.
Schultz, Ph.D.(9)
|
|
|
500,000
|
|
|
|
2.0%
|
|
|
|
1.6
|
%
|
|
|
1.5
|
%
|
Katrina
Thompson(10)
|
|
|
165,000
|
|
|
|
*
|
|
|
|
|
*
|
|
|
|
*
|
Donald
Brandom, Ph.D.(11)
|
|
|
175,000
|
|
|
|
*
|
|
|
|
|
*
|
|
|
|
*
|
Eric
Schmid(12)
|
|
|
285,000
|
|
|
|
1.1%
|
|
|
|
|
*
|
|
|
|
*
|
Joan
Zeltinger, Ph.D.(13)
|
|
|
120,000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Brian
Dovey(14)
|
|
|
5,349,134
|
|
|
|
21.5%
|
|
|
|
17.1
|
%
|
|
|
16.4
|
%
|
Anne Keating
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Gordon E. Nye
|
|
|
822,839
|
|
|
|
3.3%
|
|
|
|
2.6
|
%
|
|
|
2.5
|
%
|
James Schiro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Thomas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All directors and senior management as a group (11 persons)
|
|
|
9,480,489
|
|
|
|
36.6%
|
|
|
|
30.4
|
%
|
|
|
29.1
|
%
|
|
|
|
* |
|
Indicates beneficial ownership of less than one percent of our
shares of common stock. |
|
(1) |
|
Number of shares owned as shown both in this table and the
accompanying footnotes and percentage ownership before and after
the offering is based on 24,830,636 shares of common stock
outstanding on September 30, 2010 and assuming none of |
94
|
|
|
|
|
the stockholders purchase shares in the offering. Assuming a
minimum offering, the percentage ownership after the offering is
based upon the 6,363,637 shares represented by CDIs to be
issued in this offering. Assuming a maximum offering, the
percentage ownership after the offering is based upon the
7,727,273 shares represented by CDIs to be issued in this
offering, |
|
(2) |
|
The address of Domain Partners is One Palmer Square,
Suite 515, Princeton, NJ 08542. 5,225,687 of the shares of
common stock are held directly by Domain Partners V, L.P.
and 123,447 of the shares of common stock are held directly by
DP V Associates, L.P. One Palmer Square Associates V,
L.L.C. is the general partner of Domain Partners V, L.P.
and DP V Associates L.P. and has voting and dispositive power
with respect to the shares. The managing members of One Palmer
Square Associates V, L.L.C. consist of James C. Blair,
Brian H. Dovey, Jesse I. Treu and Kathleen K. Schoemaker. Each
of these individuals disclaims beneficial ownership except to
the extent of their respective pecuniary interest therein. |
|
(3) |
|
The address of Saints Capital Everest, L.P. is 475 Sansome
Street, Suite 1850, San Francisco, CA 94111. Saints
Capital Everest, LLC is the general partner of Saints Capital
Everest, L.P. and has voting and dispositive power with respect
to the shares. The Managing Members of Saints Capital Everest,
LLC consist of Scott Halsted, Ken Sawyer, David Quinlivan and
Ghia Griarte. Each of these individuals disclaims beneficial
ownership except to the extent of their respective pecuniary
interest therein. |
|
(4) |
|
Cerberus America Series Two Holdings, LLC holds
25,727 shares of common stock, Cerberus International, Ltd.
holds 979,058 shares of common stock, Cerberus Partners,
L.P. holds 512,008 shares of common stock, Cerberus
Series Four Holdings, LLC holds 1,029,149 shares of
common stock and Gabriel Assets, LLC (collectively with Cerberus
America Series Two Holdings, LLC, Cerberus International,
Ltd., Cerberus Partners, L.P. and Cerberus Series Four
Holdings, LLC, the Cerberus Entities) holds
290,676 shares of common stock. Stephen Feinberg, through
one or more entities, possesses the sole power to vote and the
sole power to direct the disposition of all securities of REVA
Medical held by the Cerberus Entities. The address for Stephen
Feinberg is
c/o Cerberus
Capital Management, L.P., 299 Park Avenue, New York, NY 10171. |
|
(5) |
|
The address of Brookside Capital Partners Fund, LP is 111
Huntington Avenue, Boston, MA 02199. Matt McPherron, the
Managing Director of Brookside Capital Partners Fund, LP, has
voting and dispositive power with respect to the shares.
Mr. McPherron disclaims beneficial ownership except to the
extent of his pecuniary interests therein. |
|
(6) |
|
The address of Steinke Family, LLC is 10911 Technology Place,
San Diego, CA 92127. Thomas A. Steinke, the managing member
of Steinke Family, LLC, has voting and dispositive power with
respect to the shares. Mr. Steinke disclaims beneficial
ownership except to the extent of his pecuniary interests
therein. |
|
(7) |
|
The address of Group Outcome Investors I, LLC is 17 Hulfish
Street, Suite 240, Princeton, NJ 08542. The members of
Group Outcome Investors I, LLC are Isabel Stockman Trust,
Martha Davis, Trustee; Hope Stockman Trust, Martha Davis,
Trustee; Phoebe Stockman Trust, Martha Davis, Trustee; and
Elizabeth Stockman Trust, Martha Davis, Trustee. Each of the
members shares voting and dispositive power with respect to the
shares. The shares held by Group Outcome Investors I, LLC
include 650,640 shares of common stock held by dependents
of Robert B. Stockman, our Chairman of the Board and Chief
Executive Officer. Mr. Stockman disclaims beneficial ownership
of these securities, except to the extent of his pecuniary
interest therein. |
|
(8) |
|
Includes 677,124 shares of common stock held by Group
Outcome Investors I, LLC. Two trusts established for the
benefit of Mr. Stockmans children who reside in
Mr. Stockmans household beneficially own the
677,124 shares. Also includes 1,099,787 shares of
common stock held by Kenneth Rainin Trust U/D/T Dated
3/26/1990 and 223,941 shares held by his spouse Lisa
Stockman. Mr. Stockman, along with Jennifer Rainin, is the
trustee of the Kenneth Rainin Administrative Trust U/D/T
Dated 3/26/1990 and has voting and dispositive power with
respect to these shares. Mr. Stockman disclaims beneficial
ownership except to the extent of his pecuniary interest therein. |
|
(9) |
|
Includes options to purchase 390,000 shares which are
immediately exercisable. |
|
(10) |
|
Includes options to purchase 115,000 shares which are
immediately exercisable. |
|
(11) |
|
Includes options to purchase 175,000 shares which are
immediately exercisable. |
|
(12) |
|
Includes options to purchase 285,000 shares which are
immediately exercisable. |
|
(13) |
|
Includes options to purchase 100,000 shares which are
immediately exercisable. |
|
(14) |
|
Includes 5,225,687 shares of common stock held by Domain
Partners V, L.P. and 123,447 shares of common stock
held by DP V Associates, L.P. One Palmer Square
Associates V, L.L.C. is the general partner of Domain
Partners V, L.P. and DP V. Associates L.P. and has voting
and dispositive power with respect to the shares. The managing
members of One Palmer Square Associates V, L.L.C. consist
of James C. Blair, Brian H. Dovey, Jesse I. Treu and Kathleen K.
Schoemaker. Mr. Dovey disclaims beneficial ownership except
to the extent of his pecuniary interest therein. |
95
RELATED
PARTY TRANSACTIONS
Since January 1, 2007, there have been no transactions, or
currently proposed transactions, in which we were or are to be a
participant involving an amount exceeding $120,000, and in which
any related person had or will have a direct or indirect
material interest, other than as set forth below and the
compensation arrangements with directors and executive officers,
which are described under the Executive Compensation
section of this prospectus.
Securities
Issuances
Amendments
to Promissory Notes
We anticipate amending the terms of the promissory notes
previously issued to certain of our significant stockholders to
provide for the automatic conversion of the principal and
accrued interest outstanding under the notes into shares of our
common stock in the event we consummate a qualified initial
public offering, or an initial public offering in which we
receive at least $50,000,000 in net cash proceeds. The
significant stockholders who would enter into amendments include:
|
|
|
|
|
Domain Partners and its affiliates which would convert an
aggregate of approximately $6,563,000 of principal and accrued
interest owed under existing promissory notes into
2,000,983 shares of our common stock upon the consummation
of a qualified initial public offering. We amended these notes
in December 2007 to subordinate our indebtedness under these
notes to certain obligations owed to Boston Scientific
Corporation and purchasers of our Series H preferred stock.
In addition, we also amended the terms of these notes in January
2008 and January 2010 to extend their maturity dates.
|
|
|
|
Group Outcome Investors I, LLC which would convert an
aggregate of approximately $729,000 of principal and accrued
interest owed under existing promissory notes into
222,337 shares of our common stock upon the consummation of
a qualified initial public offering. We amended these notes in
December 2007 to subordinate our indebtedness under these notes
to certain obligations owed to Boston Scientific Corporation and
purchasers of our Series H preferred stock. In addition, we
also amended the terms of these notes in January 2008 and
January 2010 to extend their maturity dates.
|
|
|
|
Saints Capital Everest, L.P. which would convert that certain
(i) Convertible Promissory Note dated as of March 4,
2009 in an original principal amount of $6,000,000,
(ii) Convertible Promissory Note dated as of March 4,
2009, in an original principal amount of $5,000,000 and
(iii) Convertible Promissory Note dated as of March 4,
2009, in an original principal amount of $4,000,000, or
collectively, the Saints Notes, and aggregate accrued interest
of approximately $5,348,000 on the Saints Notes, into an
aggregate of 3,130,451 shares of our common stock upon the
consummation of a qualified initial public offering prior to
December 31, 2010. The Saints Notes were originally
acquired by Boston Scientific Corporation and transferred to
Saints Capital Everest, L.P. in March 2009.
|
We expect that all outstanding principal and interest under the
promissory notes issued to our significant stockholders,
representing an aggregate amount of approximately $28,409,000
will be converted into an aggregate of 5,588,187 shares of
our common stock prior to the consummation of the public
offering.
Convertible
Note Financing
In May 2007, we issued and sold convertible promissory notes in
the aggregate principal amount of $5,000,000 and warrants to
purchase an aggregate of 153,692 shares of Series H
preferred stock at an exercise price of $6.51 per share to
investors in a bridge loan financing transaction completed in a
series of closings. In December 2007, these notes, including the
approximate $164,000 in accrued interest, were converted into
793,629 shares of Series H preferred stock. In
addition, at the time of the note conversion, we issued warrants
to these noteholders to purchase an aggregate of
158,726 shares of our common stock at an exercise price of
$6.51 per share. The securities purchased and converted by
investors in this bridge financing transaction included:
|
|
|
|
|
convertible promissory notes in the aggregate principal amount
of $4,000,000 and warrants to purchase an aggregate of
122,952 shares of our Series H preferred stock issued
to one of our significant stockholders, Domain Partners and its
affiliates. In December 2007, Domain Partners and its affiliates
converted all of the outstanding principal and accrued interest
in the aggregate amount of $4,131,000 into 634,908 shares
of our Series H preferred stock and were issued 126,981
warrants to purchase shares of our common stock; and
|
|
|
|
convertible promissory notes in the aggregate principal amount
of $250,000 and warrants to purchase an aggregate of
7,685 shares of our Series H preferred stock to one of
our officers, directors and the beneficial owner of one of our
|
96
|
|
|
|
|
significant stockholders, Robert B. Stockman. In December 2007,
Mr. Stockman converted all of the outstanding principal and
accrued interest in the aggregate amount of $258,000 into
39,680 shares of our Series H preferred stock and was
issued 7,936 warrants to purchase shares of our common stock.
|
Series H
Preferred Stock Financing
From December 2007 to September 2010, we issued an aggregate of
6,454,986 shares of Series H preferred stock for a
purchase price of approximately $6.51 per share and warrants to
purchase an aggregate of 1,290,999 shares of our common
stock at an exercise price of approximately $6.51 per share to
investors in a private placement transaction completed in a
series of closings, for aggregate gross proceeds of
approximately $42.0 million. The securities purchased by
investors in this private placement transaction included:
|
|
|
|
|
an aggregate of 2,389,184 shares of Series H preferred
stock and warrants to acquire an aggregate of
477,837 shares of our common stock purchased by one of our
significant stockholders, Cerberus Partners L.P. and its
affiliates; and
|
|
|
|
an aggregate of 2,305,352 shares of Series H preferred
stock and warrants to acquire an aggregate of
461,071 shares of our common stock purchased by one of our
significant stockholders, Brookside Capital Partners Fund, LP.
|
We expect that all of our shares of preferred stock will be
converted into an aggregate of 14,739,732 shares of common
stock prior to the consummation of the public offering
(excluding accounting for cumulative dividends and anti-dilution
adjustments). In addition, we expect that the investors will
exercise all of their outstanding warrants prior to the
consummation of the public offering.
In connection with the Series H preferred stock financing,
we entered into an amended and restated investor rights
agreement with our preferred stockholders which, among other
things, provides for certain registration rights to our
preferred stockholders. See Description of Capital
Stock Registration Rights for further
information.
Pequot
Transaction
In March 2010, we exercised a right of first refusal to acquire
an aggregate of 461,071 shares of Series H preferred
stock and warrants to purchase an aggregate of
92,214 shares of our common stock for a total purchase
price of $550,000 from certain affiliates of Pequot Capital
Management. We purchased these shares solely to facilitate their
sale to certain of our existing stockholders because we did not
have sufficient time to assign our right of first refusal to
them and subsequently administered the sale of these securities
before expiration of the right of first refusal. Following our
purchase, we sold these shares at the same purchase price to
certain of our existing stockholders, including:
|
|
|
|
|
an aggregate of 188,619 shares of Series H preferred
stock and warrants to acquire an aggregate of 37,724 shares
of Series H preferred stock purchased by the spouse of
Robert B. Stockman, one of our officers, directors and
significant stockholders;
|
|
|
|
an aggregate of 34,295 shares of Series H preferred
stock and warrants to acquire an aggregate of 6,859 shares
of Series H preferred stock purchased by one of our
directors, Gordon E. Nye;
|
|
|
|
an aggregate of 102,883 shares of Series H preferred
stock and warrants to acquire an aggregate of 20,577 shares
of Series H preferred stock purchased by one of our
significant stockholders, Saints Capital Everest, L.P.; and
|
|
|
|
an aggregate of 83,832 shares of Series H preferred
stock and warrants to acquire an aggregate of 16,766 shares
of Series H preferred stock purchased by one of our
significant stockholders, Cerberus Partners, L.P.
|
Indemnification
Agreements
We have entered into indemnification agreements with our
directors and executive officers for the indemnification of and
advancement of expenses to these persons. We also intend to
enter into these agreements with our future directors and
executive officers. The indemnification agreements will provide,
among other things, that subject to certain procedures and
conditions, we will, to the fullest extent permitted by Delaware
law, indemnify the directors and officers against all
liabilities and expenses, actually or reasonably incurred by a
director or officer in connection with the investigation,
defense, settlement or appeal of a proceeding if, by reason of
the indemnitees status as a director or officer, the
indemnitee was or is a party or is threatened to be made a party
to the proceeding. In addition, the indemnification agreements
provide for the advancement of expenses incurred by the
indemnitee, subject to certain conditions and exceptions, in
connection with any proceeding covered by the
97
indemnification agreements. The indemnification agreements also
require us to maintain directors and officers
liability insurance in a reasonable amount from established and
reputable insurers.
Policy
for Approval of Related Party Transactions
Pursuant to the written charter of our audit committee, the
audit committee is responsible for reviewing and approving all
transactions in which we are a participant and in which any
parties related to us, including our executive officers, our
directors, beneficial owners of more than five percent of our
securities, immediate family members of the foregoing persons
and any other persons whom our board of directors determines may
be considered related parties, has or will have a direct or
indirect material interest. If advanced approval is not
feasible, the audit committee has the authority to ratify a
related party transaction at the next audit committee meeting.
For purposes of our audit committee charter, a material interest
is deemed to be any consideration received by such a party in
excess of $120,000 per year.
In reviewing and approving such transactions, the audit
committee shall obtain, or shall direct our management to obtain
on its behalf, all information that the committee believes to be
relevant and important to a review of the transaction prior to
its approval. Following receipt of the necessary information, a
discussion shall be held of the relevant factors if deemed to be
necessary by the committee prior to approval. If a discussion is
not deemed to be necessary, approval may be given by written
consent of the committee. This approval authority may also be
delegated to the Chairman of the audit committee in respect of
any transaction in which the expected amount is less than
$250,000. No related party transaction may be entered into prior
to the completion of these procedures.
The audit committee or its Chairman, as the case may be, shall
approve only those related party transactions that are
determined to be in, or not inconsistent with, the best
interests of us and our stockholders, taking into account all
available facts and circumstances as the committee or the
Chairman determines in good faith to be necessary. These facts
and circumstances will typically include, but not be limited to,
the material terms of the transaction, the nature of the related
partys interest in the transaction, the significance of
the transaction to the related party and the nature of our
relationship with the related party, the significance of the
transaction to us, and whether the transaction would be likely
to impair (or create an appearance of impairing) the judgment of
a director or executive officer to act in our best interest. No
member of the audit committee may participate in any review,
consideration or approval of any related party transaction with
respect to which the member or any of his or her immediate
family members is the related party, except that such member of
the audit committee will be required to provide all material
information concerning the related party transaction to the
audit committee.
Certain transactions with related parties will be subject to
stockholder approval in accordance with ASX Listing Rules,
including but not limited to, any issuances of securities to
related parties.
98
DESCRIPTION
OF CAPITAL STOCK
The following description of our capital stock and provisions of
our amended and restated certificate of incorporation and our
amended and restated bylaws are summaries and are qualified by
reference to the amended and restated certificate of
incorporation and the amended and restated bylaws that will
become effective upon closing of this offering. Copies of these
documents have been filed with the Securities and Exchange
Commission as exhibits to the registration statement of which
this prospectus forms a part. The descriptions of common stock
and preferred stock reflect changes to the capital structure
that will occur upon completion of the offering.
General
Pursuant to our amended and restated certificate of
incorporation, we are authorized to issue
100,000,000 shares of common stock, $0.0001 par value
per share, 25,000,000 shares of Class B common stock,
$0.0001 par value per share, and 5,000,000 shares of
preferred stock, $0.0001 par value per share, none of which
will be designated or issued upon completion of this offering.
Our board of directors may establish the rights and preferences
of the preferred stock from time to time.
We were formed in California in June 1998 as MD3, Inc. and were
renamed REVA Medical, Inc. on March 7, 2002. In October
2010, we reincorporated from the State of California to the
State of Delaware. As a result of the reincorporation, the
rights of our stockholders are governed by the Delaware General
Corporation Law.
As of September 30, 2010, we had 2,613,459 shares of
voting common stock issued and outstanding, 128,484 shares
of non-voting common stock issued and outstanding and
14,739,732 shares of preferred stock issued and
outstanding, in each case without giving effect to the pro-forma
transactions described below. As of September 30, 2010, we
had 55 common stockholders of record and 43 preferred
stockholders of record.
We will have a total of 31,194,273 shares of common stock
outstanding immediately following this offering assuming a
minimum offering, or 32,557,909 shares outstanding,
assuming a maximum offering, in each case, assuming:
|
|
|
|
|
shares of common stock represented by CDIs offered by us in this
offering;
|
|
|
|
the conversion of all outstanding shares of our non-voting
common stock into 128,484 shares of common stock, which
will become effective immediately prior to and contingent upon
the closing of this offering;
|
|
|
|
the issuance of 868,972 shares of our preferred stock as
accrued but undeclared cumulative dividends to our preferred
stockholders, which will become effective immediately prior to
and contingent upon the closing of this offering;
|
|
|
|
the conversion of all outstanding shares of our preferred stock
into 15,798,685 shares of common stock (including the
conversion of the preferred stock which will be issued as
cumulative dividends and accounting for anti-dilution
adjustments), which will become effective immediately prior to
and contingent upon the closing of this offering;
|
|
|
|
|
|
652,286 shares of our common stock issuable upon the
exercise of preferred stock and common stock warrants
outstanding as of September 30, 2010, which we expect the
warrant holders to elect to exercise through a cashless
exercise provision of the warrants and the issuance of
49,535 shares of our common stock issuable upon exercise of
preferred stock and common stock warrants which warrant holders
have elected to exercise in cash at a weighted average exercise
price of $5.32 per share, contingent and effective upon the
closing of this offering, based on the initial public offering
price of A$11.00 per share; and
|
|
|
|
|
|
the issuance of 5,588,187 shares of our common stock upon
the conversion of convertible and non-convertible promissory
notes outstanding as of September 30, 2010, at a weighted
average conversion price of $5.08 per share, which we expect the
noteholders to elect to convert, contingent and effective upon
the closing of this offering.
|
Common
Stock
Holders of common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the
stockholders, and do not have cumulative voting rights. Subject
to preferences that may be applicable to any outstanding shares
of preferred stock, holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared from
time to time by our board of directors out of funds legally
available for dividend payments. The holders of common stock
have no preferences or rights of conversion, exchange,
pre-emption or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common
stock. In the event of any liquidation, dissolution or winding
up of our affairs, holders of
99
common stock will be entitled to share ratably in our assets
that are remaining after payment or provision for payment of all
of our debts and obligations and after liquidation payments to
holders of outstanding shares of preferred stock, if any.
Upon consummation of our offering, we are authorizing an
additional class of common stock designated as Class B
common stock in order to comply with the listing rules of the
ASX. In the event that holders of our CDIs or shares of common
stock (including those shares of common stock underlying CDIs)
who are subject to
lock-up
agreements, breach the terms of their
lock-up
agreement or the Official Listing Rules of the ASX relating to
these restricted securities, the shares of common stock
(including those shares of common stock underlying CDIs) will be
automatically converted into Class B shares of common stock
until the earlier to occur of the expiration of the
lock-up
period or a cure of a breach. All rights, preferences and
privileges of the Class B shares of common stock are
identical to and rank equally with our shares of common stock
except that they do not have any voting rights (other than as
expressly required by Delaware law) or any rights to dividends.
Preferred
Stock
Upon completion of this offering, all outstanding shares of
preferred stock will be converted into an aggregate of
14,739,732 shares of common stock (excluding accounting for
cumulative dividends and anti-dilution adjustments). Under our
amended and restated certificate of incorporation, our board of
directors will have the authority, subject to the ASX Listing
Rules, without further stockholder authorization, to issue from
time to time up to 5,000,000 shares of preferred stock in
one or more series and to fix the terms, limitations, voting
rights, relative rights and preferences and variations of each
series. The rights of the holders of common stock will be
subject to, and may be adversely affected by, the rights of
holders of any preferred stock that may be issued in the future.
Although we have no present plans to issue any other shares of
preferred stock, the issuance of shares of preferred stock, or
the issuance of rights to purchase such shares, could decrease
the amount of earnings and assets available for distribution to
the holders of common stock, could adversely affect the rights
and powers, including voting rights, of the common stock, and
could have the effect of delaying, deterring or preventing a
change of control of us or an unsolicited acquisition proposal.
Stock
Options
We reserved an aggregate of 2,628,838 shares of common
stock for issuance under our 2010 Plan, which is subject to
increase on an annual basis pursuant to the terms of the plan.
As of September 30, 2010, we had outstanding options to
purchase an aggregate of 1,560,500 shares of common stock,
at a weighted-average exercise price of $1.18 per share,
including 1,550,500 options issued under our 2001 Stock Plan.
Warrants
Contingent and effective upon the closing of this offering, we
expect our warrant holders to exercise 652,286 of our
outstanding warrants to purchase shares of our preferred stock
and shares of our common stock through a cashless
exercise provision of the warrants and 49,535 of our
outstanding warrants to be exercised in cash, based on the
initial public offering price of A$1.10 per share. No shares of
common stock will be issued to warrant holders who have elected
to exercise their warrants through cashless exercise
provisions if the exercise price of their warrants exceeds the
initial public offering price of A$11.00 per share. If not
exercised through a cashless exercise, these
warrants would have been exercisable for 1,690,041 shares
of common stock, at a weighted average exercise price of $6.42
per share.
Registration
Rights
We have entered into an amended and restated investor rights
agreement with the holders of our preferred stock. The amended
and restated investor rights agreement provide these
stockholders with customary demand, piggyback and
Form S-3
registration rights with respect to the shares of our common
stock that will be issued to them upon conversion of our
preferred stock upon the closing of this offering.
Demand
registration
Under the terms of the amended and restated investor rights
agreement, certain holders of (i) the shares of common
stock issued upon conversion of our preferred stock, including
shares of preferred stock issuable upon the exercise of warrants
to purchase preferred stock issued in our prior financing
transactions and (ii) shares of common stock issuable upon
the exercise of warrants to purchase common stock issued in our
prior financing transactions, which we refer to as registrable
securities, will have the right to require us to register their
shares with the SEC for resale to the public. The holders making
the demand
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registration must include (i) Cerberus Partners L.P. and
its affiliates who purchased shares of our Series H
Preferred Stock, or the Series H Lead Investors; provided
the Series H Lead Investors hold, in the aggregate, at
least 50% of the shares of common stock issuable upon conversion
of our shares of Series H Preferred Stock; and (ii) a
majority of holders of registrable securities (excluding the
Series H Lead Investors). These holders will be entitled to
exercise this right at any time beginning on the earlier of
December 7, 2014 or 180 days after the effective date
of this registration statement. In both cases, however, the
registered offering must be fully underwritten and the aggregate
gross proceeds, prior to deduction for underwriters
discounts and expenses, must exceed $10,000,000. Under the
amended and restated investor rights agreement, we will not be
required to effect more than two demand registrations. We
currently have not effected, or received a request to effect,
any demand registrations under our existing investor rights
agreements.
Piggyback
registration
Under the terms of the amended and restated investor rights
agreement, if we file a registration statement for a public
offering of any of our securities for our own account or for the
account of other stockholders (other than pursuant to a demand
registration described above or a
Form S-3
registration described below) on a form that would be suitable
for a registration involving registrable common stock, holders
of a majority of the registrable securities, which must include
the Series H Lead Investors (provided the Series H
Lead Investors hold, in the aggregate, at least 50% of the
shares of common stock issuable upon conversion of our shares of
Series H Preferred Stock), will have the right to include
their shares in this registration statement, subject to certain
limitations.
Form S-3
registration
Under the terms of the amended and restated investor rights
agreement, at any time after we become eligible to file a
registration statement on
Form S-3,
holders of at least 30% of the registrable securities will be
entitled to require us to file a registration statement on
Form S-3;
provided that the aggregate gross proceeds of an offering
pursuant to a
Form S-3
registration must be at least $2,500,000. We may also delay such
registrations for one period not to exceed 60 days in any
12-month
period if our board of directors believes it would be materially
detrimental to us and our stockholders to file a registration
statement. In addition, we are not required to file more than
two
Form S-3
registration statements in any
12-month
period.
Conditions
and limitations; delay
The registration rights described above will be subject to
certain conditions and limitations, including the right of the
underwriters of an offering to limit the number of shares to be
included in the registration. In the event any registered
offering involves an underwriting, we are not required to
include any registrable securities in such underwriting unless
the holder accepts the terms of the underwriting.
Expenses;
indemnification
We are generally required to bear the expenses of all
registrations, including reasonable fees and expenses of a
single counsel acting on behalf of all selling stockholders,
except underwriting discounts and selling commissions. The
investor rights agreement also will contain our commitment to
indemnify the holders of registration rights for losses
attributable to statements or omissions by us incurred with
registrations under the agreement.
Anti-Takeover
Provisions of Delaware Law, Our Certificate of Incorporation and
Our Bylaws
Provisions of the DGCL and our amended and restated certificate
of incorporation and amended and restated bylaws could make it
more difficult to acquire us by means of a tender offer, a proxy
contest or otherwise, or to remove incumbent officers and
directors. These provisions, summarized below, are expected to
discourage certain types of coercive takeover practices and
takeover bids that our board of directors may consider
inadequate and to encourage persons seeking to acquire control
of us to first negotiate with our board of directors. We believe
that the benefits of increased protection of our ability to
negotiate with the proponent of an unfriendly or unsolicited
proposal to acquire or restructure us outweigh the disadvantages
of discouraging takeover or acquisition proposals because, among
other things, negotiation of these proposals could result in an
improvement of their terms.
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Delaware
Anti-Takeover Statute
We are subject to Section 203 of the DGCL, an anti-takeover
statute. In general, Section 203 of the DGCL prohibits a
publicly held Delaware corporation from engaging in a
business combination with an interested
stockholder for a period of three years following the time
the person became an interested stockholder, unless the business
combination or the acquisition of shares that resulted in a
stockholder becoming an interested stockholder is approved in a
prescribed manner. Generally, a business combination
includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder.
Generally, an interested stockholder is a person
who, together with affiliates and associates, owns (or within
three years prior to the determination of interested stockholder
status did own) 15% or more of a corporations voting
stock. The existence of this provision would be expected to have
an anti-takeover effect with respect to transactions not
approved in advance by our board of directors, including
discouraging attempts that might result in a premium over the
market price for the shares of common stock held by our
stockholders.
Classified
Board
Our amended and restated certificate of incorporation and our
amended and restated bylaws provide that our board of directors
is divided into three classes, each comprised of three
directors. The directors designated as Class I directors
will have terms expiring at the first annual meeting of
stockholders following this offering, which we expect to hold in
2011. The directors designated as Class II directors will
have terms expiring at the following years annual meeting
of stockholders, which we expect to hold in 2012, and the
directors designated as Class III directors will have terms
expiring at the following years annual meeting of
stockholders, which we expect to hold in 2013. Directors for
each class will be elected at the annual meeting of stockholders
held in the year in which the term for that class expires and
thereafter will serve for a term of three years. At any meeting
of stockholders for the election of directors at which a quorum
is present, the election will be determined by a plurality of
the votes cast by the stockholders entitled to vote at the
election. Under the classified board provisions, it would take
at least two elections of directors for any individual or group
to gain control of our board. Accordingly, these provisions
could discourage a third party from initiating a proxy contest,
making a tender offer or otherwise attempting to gain control of
us.
Removal
of Directors
Our amended and restated bylaws provide that our stockholders
may only remove our directors with cause.
Amendment
Our amended and restated certificate of incorporation and our
amended and restated bylaws provide that the affirmative vote of
the holders of at least 80% of our voting stock then outstanding
is required to amend certain provisions relating to the number,
term, election and removal of our directors, the filling of our
board vacancies, stockholder notice procedures, the calling of
special meetings of stockholders and the indemnification of
directors.
Size
of Board and Vacancies
Our amended and restated bylaws provide that the number of
directors on our board of directors is fixed exclusively by our
board of directors. Newly created directorships resulting from
any increase in our authorized number of directors will be
filled by a majority of our board of directors then in office,
provided that a majority of the entire board of directors, or a
quorum, is present and any vacancies in our board of directors
resulting from death, resignation, retirement, disqualification,
removal from office or other cause will be filled generally by
the majority vote of our remaining directors in office, even if
less than a quorum is present.
Special
Stockholder Meetings
Our amended and restated certificate of incorporation provides
that only the Chairman of our board of directors, our Chief
Executive Officer or our board of directors pursuant to a
resolution adopted by a majority of the entire board of
directors may call special meetings of our stockholders.
Stockholder
Action by Unanimous Written Consent
Our amended and restated certificate of incorporation expressly
eliminates the right of our stockholders to act by written
consent other than by unanimous written consent. Stockholder
action must take place at the annual or a special meeting of our
stockholders or be effected by unanimous written consent.
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Requirements
for Advance Notification of Stockholder Nominations and
Proposals
Our amended and restated bylaws establish advance notice
procedures with respect to stockholder proposals and nomination
of candidates for election as directors other than nominations
made by or at the direction of our board of directors or a
committee of our board of directors.
No
Cumulative Voting
The DGCL provides that stockholders are denied the right to
cumulate votes in the election of directors unless our amended
and restated certificate of incorporation provides otherwise.
Our amended and restated certificate of incorporation does not
provide for cumulative voting.
Undesignated
Preferred Stock
The authority that will be possessed by our board of directors
to issue preferred stock could potentially be used to discourage
attempts by third parties to obtain control of our company
through a merger, tender offer, proxy contest or otherwise by
making such attempts more difficult or more costly. Subject to
ASX Listing Rules, our board of directors may issue preferred
stock with voting rights or conversion rights that, if
exercised, could adversely affect the voting power of the
holders of common stock.
Authorized
but Unissued Shares
Subject to the limitations on the issuance of securities under
ASX Listing Rules, our authorized but unissued shares of common
stock and preferred stock will be available for future issuance
without stockholder approval. We may use additional shares for a
variety of purposes, including future public offerings to raise
additional capital, to fund acquisitions and as employee
compensation. The existence of authorized but unissued shares of
common stock and preferred stock could render more difficult or
discourage an attempt to obtain control of us by means of a
proxy contest, tender offer, merger or otherwise.
CHESS
Depositary Interests or CDIs
In order for our shares of common stock in the form of CDIs to
trade electronically on the Australian Securities Exchange, or
ASX, we intend to participate in the electronic transfer system
known as the Clearing House Electronic Subregister System, or
CHESS, operated by ASX Settlement and Transfer Corporation Pty
Limited, or ASTC. ASTC provides settlement services for ASX
markets to assist participants and issuers to understand the
operation of the rules and procedures governing settlement
facilities. The ASX Settlement Operating Rules form part of the
overall listing and market rules which we will be required to
comply with as an entity listed on ASX. Section 13 of the
ASX Settlement Operating Rules sets forth the rules regarding
Depositary Interests in CHESS and is filed as Exhibit 99.1
to this registration statement.
CHESS, is an electronic system which manages the settlement of
transactions executed on ASX and facilitates the paperless
transfer of legal title to ASX quoted securities. CHESS cannot
be used directly for the transfer of securities of companies
domiciled in certain jurisdictions outside of Australia, such as
the United States. Accordingly, to enable our shares of common
stock to be cleared and settled electronically through CHESS, we
intend to issue depositary interests called CDIs.
CDIs confer the beneficial ownership in the shares of common
stock on the CDI holder, with the legal title to such shares
held by an Australian depositary entity. We will appoint CHESS
Depositary Nominees Pty Ltd., or CDN, a subsidiary of ASX, to
act as our Australian depositary and issue the CDIs.
Accordingly, by completing an application form, a purchaser of
CDIs will apply for shares of common stock to be issued to CDN,
which will in turn issue CDIs to the purchaser.
A holder of CDIs who does not wish to have their trades settled
in CDIs may request that their CDIs be converted into shares of
common stock, in which case legal title to the shares of common
stock will be transferred to the holder of CDIs and stock
certificates representing the shares of common stock will be
issued. ASX does not provide any settlement system for
certificated shares which will make it more difficult and can
lead to delay and expense for stockholders wishing to trade
their shares of common stock.
Stockholders who wish to be able to trade their shares of common
stock on ASX can do so by requesting that their shares be
converted into CDIs and by delivering their stock certificate to
the transfer agent and signing a stock transfer form. The
transfer agent will then transfer the shares of common stock
from the stockholder to CDN and establish a CDI holding in the
name of the stockholder.
Purchasers may choose either to leave their holdings in the form
of CDIs or convert their CDIs into shares of common stock.
103
Each CDI holder will receive a holding statement which sets out
the number of CDIs held by the CDI holder and the reference
number of the holding. These holding statements will be provided
to a holder when a holding is first established and where there
is a change in the holdings of CDIs.
We will operate a certificated U.S. register of shares of
common stock, an uncertificated issuer sponsored
sub-register
of CDIs and an uncertificated CHESS
sub-register
of CDIs in Australia. Our issuer sponsored
sub-register
will be maintained by Computershare Investor Services Pty
Limited. The certificated register is the register of legal
title (and will reflect legal ownership by CDN of the shares of
common stock underlying the CDIs) and the two uncertificated
sub-registers
combined will make up the register of beneficial title of the
shares of common stock underlying the CDIs.
Rights
Attaching to CDIs
A summary of the rights of CDI holders is set out below. Further
information about CDIs is available from ASX, any Australian
licensed stockbroker or our transfer agent.
Ratio Each CDI will represent an interest in
one-tenth of a share of common stock.
Voting If holders of CDIs wish to attend and
vote at our general meetings, they will be able to do so. Under
the ASX Listing Rules, as an issuer of CDIs, we must allow CDI
holders to attend any meeting of the holders of shares of common
stock unless relevant U.S. law at the time of the meeting
prevents CDI holders from attending those meetings.
In order to vote at such meetings, CDI holders have the
following options:
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instructing CDN, as the legal owner, to vote the shares of
common stock underlying their CDIs in a particular manner. A
voting instruction form will be sent to CDI holders with the
Notice of Meeting or proxy statement for the meeting and this
must be completed and returned to the our transfer agent prior
to the meeting. CDN will be bound by these voting instructions,
however if no voting instructions are provided, CDN will be
unable to vote those shares of common stock;
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informing us that they wish to nominate themselves or another
person to be appointed as CDNs proxy for the purposes of
attending and voting at the general meeting; or
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converting their CDIs into a holding of shares of common stock
and voting these at the meeting; however, if thereafter, the
former CDI holder wishes to sell their investment on ASX it
would be necessary to convert the shares of common stock back to
CDIs. In order to vote in person, the conversion must be
completed prior to the record date for the meeting.
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As holders of CDIs will not appear on our stock register as the
legal holders of the shares of common stock, they will not be
entitled to vote at our stockholder meetings unless one of the
above steps is undertaken.
Proxy forms, CDI voting instruction forms and details of these
alternatives will be included in each notice of meeting we send
to CDI holders.
Conversion CDI holders who wish to convert
their ASX listed CDIs to shares of common stock can do so by
instructing our transfer agent either:
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directly in the case of CDIs on the issuer sponsored
sub-register
operated by us. CDI holders will be provided with a form
entitled Removal Form for completion and return to
our transfer agent; or
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through their sponsoring participant
(usually their broker) in the case of CDIs which are sponsored
on the CHESS
sub-register.
In this case, the sponsoring broker will arrange for completion
of the relevant form and its return to our transfer agent.
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Our transfer agent will then arrange for the shares of common
stock to be transferred from CDN into the name of that holder
and a new share certificate will be issued. This will cause the
shares of common stock to be registered in the name of the
holder on our stock register and trading on ASX will no longer
be possible. The shares of common stock are not and will not in
the near future be quoted on any market in the United States.
Our transfer agent will not charge an individual security holder
or us a fee for transferring CDI holdings into shares of common
stock (although a fee may be payable by brokers). It is expected
that this process will be completed within 24 hours,
provided that the transfer agent is in receipt of a duly
completed and valid removal request form. However, no guarantee
can be given about the time for this conversion to take place.
If the shares of common stock are listed on a
U.S. securities exchange in the future, a fee may be
payable for entering the shares of common stock into the DTC or
DRS system.
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If holders of the shares of common stock wish to convert their
holdings to CDIs, they can do so by contacting our transfer
agent. The transfer agent will not charge a fee to a holder of
shares of common stock seeking to convert their shares of common
stock to CDIs (although a fee may be payable by brokers).
Communication with CDI Holders CDI holders
will receive all notices and company announcements (such as
annual reports) that stockholders are entitled to receive from
us.
Dividends Any dividend declared in respect of
shares of common stock underlying CDIs will be distributed to
the holders of CDIs. Any obligation to transfer a quantity of
shares of common stock shall be made by initiating a transfer of
the corresponding quantity of CDIs in respect of the shares of
common stock.
Despite legal title to the shares of common stock being vested
in CDN, the ASX Settlement Rules provide that CDI holders are to
receive all direct economic benefits and other rights in
relation to the underlying shares of common stock (such as the
right to receive the same dividends and other rights which
holders of shares of common stock may participate in).
Takeovers If a takeover bid is made for the
shares of common stock of which CDN is the registered holder,
under the ASX Settlement Rules CDN must not accept the
offer made under the takeover bid except to the extent that
acceptance is authorized by the relevant CDI holder.
Rights on Liquidation or Winding Up In the
event of our liquidation, dissolution or winding up, a CDI
holder will be entitled to the same economic benefit on their
CDIs as stockholders.
Fees A CDI holder will not incur any
additional fees or charges as a result of holding CDIs rather
than shares of common stock; however, your broker may charge you
fees to convert shares of our common stock to CDIs and to
convert CDIs to shares of our common stock.
Registers We must ensure that at all times
the total number of CDIs on the issuer sponsored
sub-register
of CDIs and CHESS
sub-register
of CDIs reconciles with the number of shares of common stock
registered in the name of CDN on the stock register. We must
make available for inspection the stock register and the CDI
register as if that register were a register of securities of an
Australian listed public company. We will operate three
registers: (i) a certificated register of shares of common
stock, (ii) an uncertificated issuer sponsored
sub-register
of CDIs, and (iii) an uncertificated CHESS
sub-register
of CDIs. The certificated register will be the register of legal
title.
Transfer Unless permitted by law, the ASX
Listing Rules or the ASX Settlement Rules, we must not and CDN
must not refuse nor fail to register, nor give effect to, nor
otherwise interfere with the processing and registration of a
transfer of CDIs. Any obligation to transfer a quantity of
shares of common stock shall be made by initiating a transfer of
the corresponding quantity of CDIs in respect of the shares of
common stock.
Further Information For further information
in relation to CDIs and the matters referred to above, please
refer to Section 13 of the ASX Settlement Operating Rules
filed as Exhibit 99.1 to this registration statement or
contact our transfer agent as follows:
Computershare Investor Services Pty Limited
GP O Box 7115
Sydney NSW 2001
Australia
Australian
Securities Exchange
We intend to apply for admission of the company to the official
list of the Australian Securities Exchange, or ASX, and for
quotation of our CDIs on the ASX under the trading code
RVA no later than seven days after the date of
lodging a prospectus with ASX. Upon admission, we will be
subject to the ASX Listing Rules and to certain Australian
securities regulations in addition to the rules and regulations
of the U.S. Securities and Exchange Commission.
Transfer
Agent and Registrar
Upon the closing of this offering, the transfer agent and
registrar for our shares of common stock will be Computershare
Investor Services Inc. and the transfer agent and registrar for
our CDIs will be Computershare Investor Services Pty Limited.
105
SHARES ELIGIBLE
FOR FUTURE SALES
Prior to this offering, there has been no public market for our
CDIs or common stock, and we cannot assure you that a
significant public market for our CDIs or common stock will
develop or be sustained after this offering. It is particularly
important to note that while the CDIs will be listed and
available for trading on the ASX, our common stock will not be
listed for trading on the ASX or on any securities exchange in
the United States following this offering or registered for
resale under the law of any state in the United States. Future
sales of substantial amounts of our common stock, including the
sale of shares of our common stock issuable upon exercise of
outstanding options, in the public market after this offering,
or the perception that these sales could occur, could adversely
affect the prevailing market price of our CDIs and could impair
our future ability to raise capital through the sale of equity
securities.
Sale of
Outstanding Shares
Based on the number of shares outstanding as of
September 30, 2010, (i) if the minimum offering is sold, we
will have approximately 31,194,273 shares of common stock
outstanding after the completion of this offering (including
shares of common stock represented by CDIs), and (ii) if
the maximum offering is sold, we will have approximately
32,557,909 shares of common stock outstanding after the
completion of this offering (including shares of common stock
represented by CDIs). Of these shares, the 6,363,637 shares
of common stock in the case of a minimum offering, or the
7,727,273 shares of common stock in the case of a maximum
offering, each represented by CDIs sold in this offering, will
be freely transferable without restriction under the federal
securities laws, unless purchased by our affiliates, as that
term is defined under Rule 144 or 701 of the Securities
Act. Notwithstanding the fact that the CDIs may be freely
transferable under the federal securities laws, we are not
taking any steps necessary to register our CDIs or common stock
under the securities laws of any state in the United States. As
a result, a holder of CDIs or common stock may not resell such
securities to a purchaser in any state in the United States
without satisfying the applicable state securities laws or
qualifying for an exemption therefrom.
The remaining 24,830,636 shares of common stock to be
outstanding immediately following the completion of this
offering (and any CDIs representing those shares), which are
restricted securities, as well as any other shares
held by our affiliates, may not be resold except pursuant to an
effective registration statement or an applicable exemption from
registration under the federal securities laws, including an
exemption under Rule 144 or Rule 701 of the Securities
Act, and upon satisfying applicable state securities laws or
qualifying for an applicable state securities laws exemption.
Subject to the
lock-up
agreements described below and the requirements of
Rules 144 and 701 under the Securities Act and applicable
state securities laws, these restricted securities will be
available for sale in the public market as follows:
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Date
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Number of Shares
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On the date of this prospectus
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1,381,036
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180 days after the date of this prospectus
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20,985,908
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Two years after the date of this prospectus
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2,463,692
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In addition, of the 1,560,500 shares of our common stock
that were subject to stock options outstanding as of
September 30, 2010, options to purchase
1,057,000 shares of common stock were vested as of
September 30, 2010. Shares received upon exercise of these
stock options will be eligible for sale subject to the lock-up
agreements described below and satisfaction of the requirements
of Rules 144 and 701 under the Securities Act and
applicable state securities laws.
Lock-Up
Agreements
Pursuant to certain
lock-up
or escrow agreements, or other contractual
arrangements, certain of our officers, directors and
stockholders have agreed, subject to certain limited exceptions,
not to transfer, agree to transfer, encumber or agree to
encumber a certain number of specified shares (including shares
represented by CDIs) for periods ranging from ending
180 days after the date of this prospectus to one year
after the date of this prospectus. Upon consummation of the
offering, an aggregate of 23,449,600 shares of our common
stock will be subject to
lock-up
agreements.
If we determine, in our sole discretion, that the stockholder
breached or violated any term of such stockholders
lock-up or
escrow agreement or breached the Official Listing Rules of the
ASX relating to these restricted securities, these restricted
securities will automatically and without further action by us
be converted into shares of Class B common stock, on a
one-for-one
basis. Holders of Class B common stock are not entitled to
dividends and do not have any voting rights other than those
expressly required by Delaware law. Any shares of common stock
converted to Class B common stock will automatically and
without
106
further action be converted back into shares of common stock, on
a
one-for-one
basis, upon the expiration of the applicable
lock-up
period in the lock-up agreement pursuant to which the shares of
common stock were originally converted to Class B common
stock.
The lock-up
arrangements do not preclude a stockholder subject to the
agreement from transferring any shares of common stock
securities in certain circumstances including:
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pursuant to a transaction which results in an individual or
entity acquiring more than 50% of the total fair market value or
voting power of our shares of common stock provided that the
holders of at least 50% of our shares of common stock that are
not subject to lockup arrangements have accepted the
offer; or
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for certain
lock-ups,
for certain other transactions including transfers as a gift,
pursuant to a will, to a trust, as a distribution to partners or
stockholders (if the stockholder is a company or partnership) or
pursuant to a court order; or
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for certain
lock-ups,
with our written consent in certain prescribed circumstances.
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Rule 144 described below does not supersede the contractual
obligations of our security holders set forth in the
lock-up
agreements.
Stock
Options
Based on options to purchase outstanding shares of our common
stock as of September 30, 2010, and assuming no options to
purchase our shares are issued after that date, we will have
outstanding options to purchase an aggregate of
1,560,500 shares of common stock immediately following this
offering with a weighted-average exercise price of $1.18 per
share. We intend to register all of the common shares issued or
reserved for future issuance under the 2001 Stock Plan and the
2010 Plan by filing a
Form S-8
registration statement under the Securities Act following the
effectiveness of this registration statement. After the
effective date of the
Form S-8,
all common shares purchased upon exercise of our outstanding
options generally will be available for resale under the federal
securities laws, subject to the terms of the
lock-up
agreements discussed above and upon satisfying of applicable
state securities laws.
Warrants
As of September 30, 2010, after giving effect to the
assumed issuance of 701,821 shares of our common stock upon
the exercise of our outstanding preferred and common warrants,
and assuming no warrants to purchase shares of our capital stock
are issued after that date, we will not have any outstanding
warrants to purchase shares of our common stock or shares of our
preferred stock following this offering.
Registration
Rights
After the offering, the holders of 21,446,971 shares of our
common stock, including shares of common stock issuable upon
exercise of outstanding warrants and conversion of outstanding
notes, will be entitled to certain registration rights. By
exercising their registration rights and causing a large number
of shares to be registered and sold in the public market, these
holders could cause the price of our common stock to fall. In
addition, any demand to include their shares in our registration
statements could harm our ability to raise needed capital. For
more information on these registration rights, see
Description of Capital Stock Registration
Rights.
Rule 144
In general, under Rule 144 of the Securities Act, as in
effect on the date of this prospectus, beginning 90 days
after the date of this prospectus, a person who holds restricted
shares of our common stock and is not one of our affiliates at
any time during the three months preceding a sale, and who has
beneficially owned these restricted shares for at least six
months, would be entitled to sell an unlimited number of shares
of our common stock under the federal securities laws, provided
current public information about us is available. In addition,
under Rule 144, a person who holds restricted shares of our
common stock and is not one of our affiliates at any time during
the three months preceding a sale, and who has beneficially
owned these restricted shares for at least one year, would be
entitled to sell an unlimited number of shares under the federal
securities laws immediately upon the closing of this offering
without regard to whether current public information about us is
available. Beginning 90 days after the date of this
107
prospectus, our affiliates who have beneficially owned shares of
our common stock for at least six months are entitled to sell
under the federal securities laws within any three-month period
a number of shares that does not exceed the greater of:
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one percent of the number of shares of our common stock then
outstanding, which will equal approximately 311,942 shares
assuming a minimum offering and 325,579 shares assuming a
maximum offering; and
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the average weekly trading volume of our common stock during the
four calendar weeks preceding the filing of a notice on
Form 144 with respect to the sale, or if no such notice is
required, the date of receipt of the order to execute the sale.
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Sales of restricted shares under Rule 144 by our affiliates
are also subject to requirements regarding the manner of sale,
notice and the availability of current public information about
us. Rule 144 also provides that affiliates relying on
Rule 144 to sell shares of our common stock that are not
restricted shares must nonetheless comply with the same
restrictions applicable to restricted shares, other than the
holding period requirement.
Notwithstanding the availability of Rule 144, holders of
23,449,600 of our restricted shares have entered into
lock-up
agreements as described above and their restricted shares will
become eligible for sale at the expiration of the restrictions
set forth in those agreements, subject to any exceptions set
forth therein or waivers by the underwriters. In addition, any
resales in the United States must satisfy applicable state
securities laws or qualify for an exemption therefrom.
Rule 701
Rule 701 under the Securities Act, as in effect on the date
of this prospectus, permits resales of shares under the federal
securities laws in reliance upon Rule 144 but without
compliance with some of the restrictions of Rule 144,
including the holding period requirement. Most of our employees,
executive officers, directors or consultants who purchased
shares under a written compensatory plan or contract, such as
the shares issued under our 2001 Stock Plan, may be entitled to
rely on the resale provisions of Rule 701, but all holders
of Rule 701 shares are required to wait until
90 days after the date of this prospectus before selling
their shares under Rule 701. However, some of the
Rule 701 shares are subject to
lock-up
agreements as described above and will become eligible for sale
at the expiration of the restrictions set forth in those
agreements. In addition, any resales in the United States must
satisfy applicable state securities laws or qualify for an
exemption therefrom.
108
CERTAIN
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS TO
NON-U.S.
HOLDERS
The following is a discussion of the material U.S. federal
income tax considerations with respect to the ownership and
disposition of our CDIs or shares of common stock that may be
relevant to a
non-U.S. holder
that acquires CDIs pursuant to this offering. The discussion is
based on provisions of the Internal Revenue Code of 1986, as
amended, or the Code, applicable U.S. Treasury regulations
promulgated thereunder and U.S. Internal Revenue Service,
or IRS, rulings and pronouncements and judicial decisions, all
as in effect on the date of this prospectus and all of which are
subject to change (possibly on a retroactive basis) or to
differing interpretations so as to result in tax considerations
different from those summarized below. We cannot assure you that
a change in law will not alter significantly the tax
considerations that we describe in this summary.
The discussion is limited to
non-U.S. holders
that hold our CDIs or shares of common stock as a capital
asset within the meaning of Section 1221 of the Code
(generally, property held for investment). As used in this
discussion, the term
non-U.S. holder
means a beneficial owner of our CDIs or shares of common stock
that is not, for U.S. federal income tax purposes:
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an individual who is a citizen or resident of the United States;
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a corporation including any entity treated as a corporation for
U.S. federal income tax purposes created or organized in or
under the laws of the United States or any political subdivision
thereof;
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a partnership including any entity treated as a partnership for
U.S. federal income tax purposes;
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an estate, the income of which includes gross income for
U.S. federal income tax purposes regardless of its
source; or
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a trust (1) if a U.S. court is able to exercise
primary supervision over the administration of the trust and one
or more U.S. persons have authority to control all
substantial decisions of the trust or (2) that has made a
valid election to be treated as a U.S. person for such
purposes.
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This discussion does not address the U.S. federal income
tax rules applicable to any person who holds CDIs or shares of
common stock through entities treated as partnerships for
U.S. federal income tax purposes or to such entities
themselves. If a partnership (including any entity or
arrangement treated as a partnership for U.S. federal
income tax purposes) owns our CDIs or shares of common stock,
the tax treatment of a partner in that partnership will depend
upon the status of the partner and the activities of the
partnership. A holder that is a partnership or a holder of
interests in a partnership should consult such holders tax
advisor regarding the tax consequences of the purchase,
ownership and disposition of our CDIs or shares of common stock.
This discussion does not consider:
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any state, local or foreign tax consequences;
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any tax consequences or computation of the alternative minimum
tax;
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any U.S. federal gift tax consequences; or
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any U.S. federal tax considerations that may be relevant to
a
non-U.S. holder
in light of its particular circumstances or to
non-U.S. holders
that may be subject to special treatment under U.S. federal
tax laws, including without limitation, banks or other financial
institutions, insurance companies, tax-exempt organizations,
certain trusts, hybrid entities, controlled foreign
corporations, passive foreign investment
companies, certain former citizens or residents of the
U.S., holders subject to U.S. federal alternative minimum
tax, broker-dealers, dealers or traders in securities or
currencies and holders that hold our CDIs or shares of common
stock as part of a straddle, hedge,
conversion transaction, synthetic
security or other integrated investment.
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Prospective
investors are urged to consult their tax advisors regarding the
application of the U.S. federal income and estate tax laws to
their particular situations and the consequences under U.S.
federal gift tax laws, as well as foreign, state and local laws
and tax treaties.
Dividends
As previously discussed, we do not anticipate paying dividends
in respect of CDIs or shares of common stock in the foreseeable
future. If we pay dividends on in respect of CDIs or shares of
common stock, however, those payments will constitute dividends
for U.S. federal income tax purposes to the extent paid
from our current or accumulated earnings and profits, as
determined under U.S. federal income tax principles. To the
extent those distributions exceed our current and accumulated
109
earnings and profits, the distributions will constitute a return
of capital and first reduce the
non-U.S. holders
adjusted tax basis, but not below zero, and then will be treated
as gain from the sale of stock, as described in the section of
this prospectus entitled Gain on Disposition of CDIs or
Shares of Common Stock.
A dividend paid to a
non-U.S. holder
generally will be subject to withholding of U.S. federal
income tax at a 30% rate, or a lower rate under an applicable
income tax treaty, unless the dividend is effectively connected
with the conduct of a trade or business of the
non-U.S. holder
within the U.S. (and, if an applicable income tax treaty so
requires, is attributable to a permanent establishment of the
non-U.S. holder
within the U.S.).
Non-U.S. holders
(generally on a properly executed IRS
Form W-8
BEN) will be required to satisfy certain certification and
disclosure requirements in order to claim a reduced rate of
withholding pursuant to an applicable income tax treaty. These
forms must be periodically updated.
Non-U.S. holders
should consult their tax advisors regarding their entitlement to
benefits under a relevant income tax treaty. Special rules apply
in the case of CDIs or shares of common stock held by certain
non-U.S. holders
that are entities rather than individuals.
Dividends that are effectively connected with a
non-U.S. holders
conduct of a trade or business in the United States and, if an
applicable income tax treaty so requires, attributable to a
permanent establishment in the United States will be taxed on a
net income basis at the regular graduated U.S. federal
income tax rates in the same manner as if the
non-U.S. holder
were a resident of the United States. In such cases, we will not
have to withhold U.S. federal income tax if the
non-U.S. holder
complies with applicable certification and disclosure
requirements. In addition, a branch profits tax may
be imposed at a 30% rate, or a lower rate under an applicable
income tax treaty, on dividends received by a foreign
corporation that are effectively connected with the conduct of a
trade or business in the United States.
A
non-U.S. holder
may obtain a refund or credit of any excess amounts withheld by
filing an appropriate claim for a refund together with the
required information with the IRS.
Gain on
Disposition of CDIs or Shares of Common Stock
A
non-U.S. holder
generally will not be subject to U.S. federal income tax
with respect to gain realized on a sale or other disposition of
our CDIs or shares of common stock unless one of the following
applies:
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the gain is effectively connected with the
non-U.S. holders
conduct of a trade or business in the U.S. and, if an
applicable income tax treaty so requires, is attributable to a
permanent establishment maintained by the
non-U.S. holder
in the United States; in these cases, the
non-U.S. holder
generally will be taxed on its net gain derived from the
disposition at the regular graduated rates and in the manner
applicable to United States persons and, if the
non-U.S. holder
is a foreign corporation, the branch profits tax
described above may also apply;
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the
non-U.S. holder
is an individual present in the United States for 183 days
or more in the taxable year of the disposition and certain other
conditions are met; in this case, the
non-U.S. holder
will be subject to a 30% tax on the amount by which the gain
derived from the sale or other disposition of our CDIs or shares
of common stock and any other
U.S.-source
capital gains realized by the
non-U.S. holder
in the same taxable year exceed the
U.S.-source
capital losses realized by the
non-U.S. holder
in that taxable year unless an applicable income tax treaty
provides an exemption or a lower rate; or
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we are or have been a U.S. real property holding
corporation for U.S. federal income tax purposes at
any time within the shorter of the five year period ending on
the date of disposition or the period that the
non-U.S. holder
held our CDIs or shares of common stock. We do not believe that
we have been, are, or will become, a U.S. real property
holding corporation, although there can be no assurance in this
regard. If we are, or were to become, a U.S. real property
holding corporation at any time during the applicable period,
however, any gain recognized on a disposition of our CDIs or
shares of common stock by a
non-U.S. holder
that did not own (directly, indirectly or constructively) more
than five percent of our CDIs or shares of common stock during
the applicable period generally would not be subject to
U.S. federal income tax, provided that our CDIs or shares
of common stock are regularly traded on an established
securities market (within the meaning of
Section 897(c)(3) of the Code).
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Federal
Estate Tax
CDIs or shares of common stock owned or treated as owned by an
individual who is not a citizen or resident of the United States
(as specifically defined for U.S. federal estate tax
purposes) at the time of death are considered U.S. situs
assets includible in the individuals gross estate for
U.S. federal estate tax purposes and therefore may be
subject to U.S. federal estate tax, unless
110
an applicable estate tax treaty provides otherwise. The United
States federal estate tax was automatically repealed effective
January 1, 2010, for the estates of decedents dying in the
year 2010. Accordingly, at present, there is no United States
federal estate tax. However, Congress could pass a law
reinstating the estate tax that has retroactive effect. In
addition, unless Congress acts to make the current repeal
permanent, the estate tax will be reinstated with respect to
decedents who die after December 31, 2010. In view of the
continuing uncertainty regarding the federal estate tax law,
prospective investors are urged to consult their tax advisors
regarding the U.S. federal estate tax considerations of
acquiring, holding, and disposing of CDIs or shares of common
stock.
Information
Reporting and Backup Withholding Tax
Dividends in respect of CDIs or shares of common stock and
proceeds from the sale or other taxable disposition of our CDIs
or shares of common stock are potentially subject to backup
withholding. In general, backup withholding will not apply to
dividends in respect of CDIs or shares of common stock paid by
us or our paying agents, in their capacities as such, to a
non-U.S. holder
if the holder has provided the required certification that it is
a
non-U.S. holder.
Generally, we must report to the IRS the amount of dividends
paid, the name and address of the recipient, and the amount, if
any, of tax withheld. Pursuant to income tax treaties or some
other agreements, the IRS may make its reports available to tax
authorities in the recipients country of residence.
In general, backup withholding and information reporting will
not apply to proceeds from the disposition of our CDIs or shares
of common stock paid to a
non-U.S. holder
within the United States or conducted through certain
U.S.-related
financial intermediaries the holder has provided the required
certification that it is a
non-U.S. holder.
Backup withholding is not an additional tax. Any amount withheld
may be refunded or credited against the holders
U.S. federal income tax liability, if any, provided that
the required information is furnished to the IRS in a timely
manner.
Non-U.S. holders
should consult their tax advisors regarding the application of
the information reporting and backup withholding rules to them.
Prospective
non-U.S. holders
of our CDIs or shares of common stock should consult their tax
advisors with respect to the particular tax consequences to them
of owning and disposing of our CDIs or shares of common stock,
including the consequences under the laws of any state, local or
foreign jurisdiction or under any applicable tax treaty.
New
Legislation Relating to Foreign Accounts
Newly enacted legislation may impose withholding taxes on
certain types of payments made to foreign financial
institutions and certain other
non-U.S. entities.
Under this legislation, the failure to comply with additional
certification, information reporting and other specified
requirements could result in withholding tax being imposed on
payments of dividends and sales proceeds to U.S. holders
who own the CDIs or shares of common stock through foreign
accounts or foreign intermediaries and certain
non-U.S. holders.
The legislation imposes a 30% withholding tax on dividends in
respect of CDIs or shares of common stock, or gross proceeds
from the sale or other disposition of, our CDIs or shares of
common stock paid to a foreign financial institution or to a
foreign non-financial entity, unless (i) the foreign
financial institution undertakes certain diligence and reporting
obligations or (ii) the foreign non-financial entity either
certifies it does not have any substantial U.S. owners or
furnishes identifying information regarding each substantial
U.S. owner. In addition, if the payee is a foreign
financial institution, it must enter into an agreement with the
U.S. Treasury requiring, among other things, that it
undertake to identify accounts held by certain U.S. persons
or
U.S.-owned
foreign entities, annually report certain information about such
accounts and withhold 30% on payments to account holders whose
actions prevent it from complying with these reporting and other
requirements. The legislation applies to payments made after
December 31, 2012. Prospective investors should consult
their tax advisors regarding this legislation.
Surtax on
Certain Net Investment Income
Under recent legislation, certain U.S. holders who are
individuals, estates or trusts will be required to pay an
additional 3.8 percent tax on, among other things,
dividends and capital gains from the sale or other disposition
of stock for taxable years beginning after December 31,
2012.
111
PLAN OF
DISTRIBUTION
We have entered into an offer management agreement with Inteq
Limited, or Inteq, pursuant to which Inteq agreed to act as our
placement agent on a minimum/maximum basis in connection with
the offering outside of the United States to
non-U.S. residents.
Inteq will conduct the offering to non-U.S. investors on
reasonable endeavors basis, which means the
placement agent has no obligation to purchase any securities but
must act reasonably under the circumstances to place the
securities. Specifically, under Australian law, the
reasonable endeavors standard generally requires the
party who undertakes to use reasonable endeavors to:
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act reasonably under the circumstances to procure subscriptions
for the securities;
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not hinder or prevent the achievement of the subscriptions;
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continue using such endeavors until that party reasonably judges
in the circumstances that further efforts would have such remote
prospects of success that they are simply likely to be wasted;
and
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allow for events, including extraordinary events, as they unfold.
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Inteq is not a member of the National Association of Securities
Dealers and is participating as a placement agent only with
regard to securities sold outside of the United States, to
non-U.S. investors.
No placement agent is being used with respect to the sale of any
securities in the United States or to U.S. residents. Inteq is
not purchasing or selling any securities being offered by this
prospectus, nor is it required to arrange for the purchase or
sale of any specific number or dollar amount of our securities.
We will enter into an agreement directly with purchasers in this
offering. The minimum offering amount to be raised is
A$70,000,007.
We expect the offering to commence on November 22, 2010, or
approximately 10 days after we lodge a prospectus with
ASIC. We anticipate the offering will be open for two weeks and
will close on December 6, 2010. However, we reserve the
right to extend the offering period, provided the allocation of
CDIs and the closing of the offering must take place no later
than the expiration date, or no later than January 11,
2011. The offering will close on a date mutually acceptable to
us and our placement agent assuming we raise at least the
minimum offering amount and our CDIs are approved for quotation
on the ASX prior to the expiration date. Until we sell at least
63,636,370 CDIs, we will hold all funds received from purchasers
in trust in a separate bank account at the Australia and New
Zealand Banking Group Limited. If we do not sell at least
63,636,370 CDIs and the CDIs are not approved for quotation on
the ASX by the expiration date, all funds will be promptly
returned from the trust account to investors without interest or
deduction.
On the closing date, the following will occur:
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the offering proceeds will be released to us in U.S. dollars
from the trust account, less the amount of the fees we are
paying to the placement agent;
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the placement agent will receive the placement agent fees in
accordance with the terms of the offering management agreement
letter agreement;
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we will issue, or cause to be issued the CDIs; and
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holding statements will be issued by Computershare four calendar
days after closing.
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We have agreed to pay Inteq a cash fee equal to $3,550,000, plus
a cash fee equal to five percent of the aggregate amount of
offering proceeds received from
non-U.S. residents
outside of the United States in excess of the minimum offering
amount. We estimate the total expenses of the offering,
excluding placement agent fees will be approximately A$3,200,000.
The following table shows the public offering price, placement
agent fees to be paid by us to the placement agent and the
proceeds, before expenses, to us.
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Minimum
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Maximum
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Per CDI
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Offering
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Offering
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Public offering price
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A$
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1.10
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A$
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70,000,007
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A$
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85,000,003
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Placement discount
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A$
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0.06
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A$
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3,550,000
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A$
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4,300,000
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Proceeds to us, before expenses
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A$
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1.04
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A$
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66,450,007
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A$
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80,700,003
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*
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Assumes all CDIs sold in excess of the minimum offering amount
are sold outside of the United States to non-U.S. residents. |
112
We have agreed to indemnify the placement agent and its
affiliates against certain liabilities, including liabilities
relating to and arising out of its activities under our offering
management agreement with Inteq.
Southern Cross Equities Limited and Taylor Collison Limited have
agreed with Inteq Limited to be appointed as joint lead brokers
in respect of the offering outside of the United States to
non-U.S. investors.
Inteq Limited has agreed to pay the joint lead brokers for their
services fees based on the amount raised under the offering
conducted under the prospectus outside of the United States to
non-US investors as follows:
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Southern Cross Equities Limited a fee equal to 1.5%
of the amount raised under the offering conducted under the
prospectus outside of the United States to non-US
investors; and
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Taylor Collison Limited a fee equal to 1.0% of the
amount raised under the offering conducted under the prospectus
outside of the United States to non-US investors.
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These fees will be payable by Inteq Limited out of the fees
received by Inteq Limited from the Company under the offering
management agreement. The allocation of fees paid to the lead
brokers may be adjusted by Inteq Limited in its reasonable
discretion.
The offering will also be made to a small number of
U.S. investors directly by the company through its Chief
Executive Officer. The Chief Executive Officer will not receive
any additional compensation in connection with the offering. The
investors will comprise either existing stockholders or parties
who are known by the Company or members of its board of
directors. We expect to offer our securities to no more than
20 U.S. investors. No fees will be payable to the
placement agent with respect to the offering to
U.S. investors and the placement agent will not provide us
with any assistance with respect to the offering of securities
in the United States.
Pursuant to certain
lock-up
agreements, or other contractual arrangements, certain of our
officers, directors and stockholders have agreed, subject to
certain limited exceptions, not to transfer, agree to transfer,
encumber or agree to encumber a certain number of specified
shares for periods ranging from ending 180 days after the
date of this prospectus to one year after the date of this
prospectus. Upon consummation of the offering, an aggregate of
23,449,600 shares of our common stock will be subject to
lock-up
agreements.
Upon consummation of this offering, our CDIs sold in this
offering will be listed on the Australian Securities Exchange.
Prior to this offering, there has been no established trading
market for our securities. The initial public offering price for
the CDIs offered by this prospectus was negotiated by us and the
placement agent. The factors considered in determining the
initial public offering price include the history of and the
prospects for the industry in which we compete, our past and
present operations, our historical results of operations, our
prospects for future earnings, the recent market prices of
shares of securities of companies generally comparable to us,
the general condition of the securities markets at the time of
the offering, and other relevant factors. There can be no
assurance that the initial public offering price of our CDIs
will correspond to the price at which the CDIs will trade in the
public market subsequent to this offering or that an active
public market for our CDIs will develop and continue after this
offering.
A copy of the offering management agreement with the placement
agent and the application form to be entered into with the
purchasers in this offering are filed as exhibits to this
registration statement of which this prospectus is a part.
The placement agent has informed us that it will not engage in
over-allotment, stabilizing transactions or syndicate covering
transactions in connection with this offering.
Medtronic, Inc., one of our existing stockholders, has advised
us that it anticipates subscribing for an aggregate of
9,570,000 CDIs at the assumed initial public offering
price, however, they are not under any binding commitment to us
to subscribe for such securities. In addition, several of our
other existing stockholders, directors or officers have advised
us that they intend to subscribe for CDIs at the assumed initial
public offering price. Any sales to our existing stockholders,
officers and directors in this offering will be included in
determining whether we have raised the minimum offering amount.
Upon consummation of the offering, our CDIs will be listed on
the Australian Securities Exchange under the symbol
RVA.
113
LEGAL
MATTERS
The validity of the shares of common stock represented by the
CDIs will be passed upon for us by DLA Piper LLP (US),
San Diego.
EXPERTS
Ernst & Young LLP, independent registered public
accounting firm, has audited our consolidated financial
statements at December 31, 2008 and 2009, and for each of
the three years in the period ended December 31, 2009, as
set forth in their report. We have included our consolidated
financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young
LLPs report, given on their authority as experts in
accounting and auditing.
WHERE YOU
CAN FIND MORE INFORMATION ABOUT US
We have filed with the Securities and Exchange Commission a
registration statement on
Form S-1
under the Securities Act with respect to the common stock in
respect of the CDIs offered by this prospectus. This prospectus,
which is part of the registration statement, omits certain
information, exhibits, schedules, and undertakings set forth in
the registration statement. For further information pertaining
to us and our common stock, reference is made to the
registration statement and the exhibits and schedules to the
registration statement. Statements contained in this prospectus
as to the contents or provisions of any documents referred to in
this prospectus are not necessarily complete, and in each
instance where a copy of the document has been filed as an
exhibit to the registration statement on
Form S-1
of which this prospectus forms a part, reference is made to the
exhibit for a more complete description of the matters involved.
When we complete this offering, we will also be required to file
annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission.
We anticipate making these documents publicly available, free of
charge, on our website at www.teamreva.com as soon as
practicable after filing such documents with the Securities and
Exchange Commission.
You may read and copy any document that we file at the public
reference room of the Securities and Exchange Commission at
100 F Street, N.E., Washington, D.C. 20549.
Copies of the registration statement may be obtained from the
Securities and Exchange Commission at prescribed rates from the
public reference room at such address. You may obtain
information regarding the operation of the public reference room
by calling
1-800-SEC-0330.
In addition, this registration statement and our future filings
filed electronically with the Securities and Exchange Commission
are publicly available through its website at www.sec.gov.
We will also be subject to the informational requirements of the
Australian Securities Exchange and the Australian Securities and
Investments Commission. You are invited to read and copy
reports, statements or other information, other than
confidential filings, that we will file with the Australian
Securities Exchange and the Australian Securities and
Investments Commission. Our public filings with the Australian
Securities Exchange will be electronically available from the
Australian Securities Exchanges website
(http://www.asx.com.au),
and you may call the Australian Securities and Investments
Commission at +61 3 5177 3988 for information about how to
obtain copies of the materials that we file with it.
114
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and
Stockholders of
REVA Medical, Inc.
We have audited the accompanying consolidated balance sheets of
REVA Medical, Inc. (a development stage company) (the Company)
as of December 31, 2008 and 2009, and the related
consolidated statements of operations, convertible preferred
stock and stockholders deficit, and cashflows for each of
the three years in the period ended December 31, 2009.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of REVA Medical, Inc. at December 31,
2008 and 2009, and the consolidated results of its operations
and its cash flows for each of the three years in the period
ended December 31, 2009 in conformity with
U.S. generally accepted accounting principles.
San Diego, California
August 13, 2010,
except as to Note 12, as to which the date is
October 22, 2010
F-2
REVA
Medical, Inc.
(a development stage company)
Consolidated
Balance Sheets
(in
thousands)
(page 1 of 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity at
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Assets
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
8,036
|
|
|
$
|
7,233
|
|
|
$
|
6,147
|
|
|
|
|
|
Short-term investments
|
|
|
7,499
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
115
|
|
|
|
68
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
15,650
|
|
|
|
7,301
|
|
|
|
6,221
|
|
|
|
|
|
Property and equipment, net
|
|
|
867
|
|
|
|
1,134
|
|
|
|
883
|
|
|
|
|
|
Other non-current assets
|
|
|
7
|
|
|
|
7
|
|
|
|
2,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
16,524
|
|
|
$
|
8,442
|
|
|
$
|
9,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities, Convertible Preferred Stock, and
Stockholders Deficit
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,243
|
|
|
$
|
817
|
|
|
$
|
511
|
|
|
|
|
|
Accrued expenses and other current liabilities
|
|
|
786
|
|
|
|
399
|
|
|
|
1,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,029
|
|
|
|
1,216
|
|
|
|
1,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term notes payable, net ($19,636, $20,029 and $19,387 held
by related parties at December 31, 2008 and 2009 and
September 30, 2010, respectively)
|
|
|
19,883
|
|
|
|
20,304
|
|
|
|
19,629
|
|
|
$
|
-
|
|
Accrued interest on long-term notes payable ($5,718, $6,857, and
$7,732 to related parties at December 31, 2008 and 2009 and
September 30, 2010, respectively)
|
|
|
5,813
|
|
|
|
6,971
|
|
|
|
7,859
|
|
|
|
-
|
|
Repayment premium on long-term notes payable ($10,550 to related
parties)
|
|
|
11,100
|
|
|
|
11,100
|
|
|
|
11,100
|
|
|
|
-
|
|
Preferred stock warrant liability
|
|
|
995
|
|
|
|
780
|
|
|
|
1,610
|
|
|
|
-
|
|
Other long-term liabilities
|
|
|
47
|
|
|
|
31
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
37,838
|
|
|
|
39,186
|
|
|
|
40,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
39,867
|
|
|
|
40,402
|
|
|
|
42,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Convertible Preferred Stock and
Stockholders Deficit on next page
The accompanying notes are an
integral part of these financial statements.
F-3
REVA
Medical, Inc.
(a
development stage company)
Consolidated
Balance Sheets
(in
thousands, except share and per share amounts)
(page 2 of 2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity at
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Liabilities, Convertible Preferred Stock, and
Stockholders Deficit continued
|
Convertible Preferred Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock, $0.0001 par value;
20,676,918 shares authorized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A 1,814,558 shares authorized,
issued, and outstanding at December 31, 2008 and 2009 and
September 30, 2010 (unaudited) and none pro forma
(unaudited); liquidation preference of $1,803
|
|
|
382
|
|
|
|
382
|
|
|
|
382
|
|
|
|
-
|
|
Series B 833,333 shares authorized,
issued, and outstanding at December 31, 2008 and 2009 and
September 30, 2010 (unaudited) and none pro forma
(unaudited); liquidation preference of $987
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
-
|
|
Series C 558,374 shares authorized,
issued, and outstanding at December 31, 2008 and 2009 and
September 30, 2010 (unaudited) and none pro forma
(unaudited); liquidation preference of $1,085
|
|
|
1,100
|
|
|
|
1,100
|
|
|
|
1,100
|
|
|
|
-
|
|
Series D 819,673 shares authorized,
issued, and outstanding at December 31, 2008 and 2009 and
September 30, 2010 (unaudited) and none pro forma
(unaudited); liquidation preference of $1,973
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
2,000
|
|
|
|
-
|
|
Series E 2,550,980 shares authorized and
2,450,980 shares issued and outstanding at
December 31, 2008 and 2009 and September 30, 2010
(unaudited) and none pro forma (unaudited); liquidation
preference of $29,600
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
-
|
|
Series F 1,000,000 shares authorized and
none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Series G-1
3,500,000 shares authorized and 1,014,199 shares
issued and outstanding at December 31, 2008 and 2009 and
September 30, 2010 (unaudited) and none pro forma
(unaudited); liquidation preference of $10,000
|
|
|
9,500
|
|
|
|
9,500
|
|
|
|
9,500
|
|
|
|
-
|
|
Series G-2
600,000 shares authorized and none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Series H 9,000,000 shares authorized and
5,404,330, 6,172,784, and 7,248,615 shares issued and
outstanding at December 31, 2008 and 2009 and
September 30, 2010 (unaudited), respectively, and none pro
forma (unaudited); liquidation preference of $47,164
|
|
|
32,931
|
|
|
|
40,089
|
|
|
|
48,892
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Convertible Preferred Stock
|
|
|
61,913
|
|
|
|
69,071
|
|
|
|
77,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity (Deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 30,000,000 shares
authorized; 2,610,745, 2,610,745, and 2,613,459 shares
issued and outstanding at December 31, 2008 and 2009 and
September 30, 2010 (unaudited), respectively, and
24,830,636 shares issued and outstanding pro forma
(unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
Non-voting common stock, $0.0001 par value;
130,000 shares authorized; 128,484 shares issued and
outstanding at December 31, 2008 and 2009 and
September 30, 2010 (unaudited) and none pro forma
(unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Additional paid-in capital
|
|
|
1,629
|
|
|
|
-
|
|
|
|
4,355
|
|
|
|
122,425
|
|
Accumulated other comprehensive income
|
|
|
2
|
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
Deficit accumulated during the development stage
|
|
|
(86,887
|
)
|
|
|
(101,033
|
)
|
|
|
(114,831
|
)
|
|
|
(114,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders Deficit
|
|
|
(85,256
|
)
|
|
|
(101,031
|
)
|
|
|
(110,475
|
)
|
|
|
7,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities, Convertible Preferred Stock, and
Stockholders Deficit
|
|
$
|
16,524
|
|
|
$
|
8,442
|
|
|
$
|
9,490
|
|
|
$
|
9,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of these financial statements.
F-4
REVA
Medical, Inc.
(a
development stage company)
Consolidated
Statements of Operations
(in
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 3, 1998
|
|
|
|
Year Ended
|
|
|
Nine Months Ended
|
|
|
(inception) to
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Operating Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
8,536
|
|
|
$
|
11,378
|
|
|
$
|
10,272
|
|
|
$
|
7,701
|
|
|
$
|
5,668
|
|
|
$
|
73,163
|
|
General and administrative
|
|
|
2,247
|
|
|
|
2,205
|
|
|
|
2,241
|
|
|
|
1,727
|
|
|
|
1,672
|
|
|
|
18,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(10,783
|
)
|
|
|
(13,583
|
)
|
|
|
(12,513
|
)
|
|
|
(9,428
|
)
|
|
|
(7,340
|
)
|
|
|
(91,735
|
)
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
94
|
|
|
|
124
|
|
|
|
26
|
|
|
|
24
|
|
|
|
9
|
|
|
|
988
|
|
Related party interest expense
|
|
|
(2,619
|
)
|
|
|
(1,794
|
)
|
|
|
(1,532
|
)
|
|
|
(1,140
|
)
|
|
|
(1,241
|
)
|
|
|
(20,845
|
)
|
Interest expense
|
|
|
(126
|
)
|
|
|
(80
|
)
|
|
|
(47
|
)
|
|
|
(35
|
)
|
|
|
(32
|
)
|
|
|
(945
|
)
|
Gain (loss) on change in fair value of preferred stock rights
and warrant liabilities
|
|
|
(47
|
)
|
|
|
2,617
|
|
|
|
215
|
|
|
|
175
|
|
|
|
(830
|
)
|
|
|
1,955
|
|
Other income (expense)
|
|
|
2
|
|
|
|
2
|
|
|
|
7
|
|
|
|
(15
|
)
|
|
|
(2
|
)
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(13,479
|
)
|
|
|
(12,714
|
)
|
|
|
(13,844
|
)
|
|
|
(10,419
|
)
|
|
|
(9,436
|
)
|
|
|
(110,660
|
)
|
Cumulative dividends and deemed dividend on Series H
convertible preferred stock
|
|
|
(63
|
)
|
|
|
(1,074
|
)
|
|
|
(2,358
|
)
|
|
|
(1,699
|
)
|
|
|
(6,521
|
)
|
|
|
(10,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Attributable to Common Stockholders
|
|
$
|
(13,542
|
)
|
|
$
|
(13,788
|
)
|
|
$
|
(16,202
|
)
|
|
$
|
(12,118
|
)
|
|
$
|
(15,957
|
)
|
|
$
|
(120,676
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(5.02
|
)
|
|
$
|
(5.06
|
)
|
|
$
|
(5.91
|
)
|
|
$
|
(4.42
|
)
|
|
$
|
(5.82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute net loss per share, basic and diluted
|
|
|
2,695,245
|
|
|
|
2,727,191
|
|
|
|
2,739,229
|
|
|
|
2,739,229
|
|
|
|
2,741,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Net Loss Per Common Share (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
|
|
|
|
|
|
|
|
$
|
(0.56
|
)
|
|
|
|
|
|
$
|
(0.49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute net loss per share, basic and diluted
|
|
|
|
|
|
|
|
|
|
|
22,371,951
|
|
|
|
|
|
|
|
23,953,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of these financial statements.
F-5
REVA
Medical, Inc.
(a development stage company)
Consolidated
Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 3, 1998
|
|
|
|
Year Ended
|
|
|
Nine Months Ended
|
|
|
(inception) to
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(13,479
|
)
|
|
$
|
(12,714
|
)
|
|
$
|
(13,844
|
)
|
|
$
|
(10,419
|
)
|
|
$
|
(9,436
|
)
|
|
$
|
(110,660
|
)
|
Non-cash adjustments to reconcile net loss to net cash used for
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
263
|
|
|
|
257
|
|
|
|
466
|
|
|
|
334
|
|
|
|
358
|
|
|
|
2,728
|
|
Loss (gain) on disposal and impairment of property and equipment
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
585
|
|
Stock-based compensation
|
|
|
102
|
|
|
|
112
|
|
|
|
227
|
|
|
|
167
|
|
|
|
253
|
|
|
|
1,095
|
|
Interest on notes payable
|
|
|
2,745
|
|
|
|
1,837
|
|
|
|
1,579
|
|
|
|
1,175
|
|
|
|
1,273
|
|
|
|
10,569
|
|
Repayment premium on notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,100
|
|
Gain (loss) on change in fair value of preferred stock warrant
liability
|
|
|
-
|
|
|
|
195
|
|
|
|
(215
|
)
|
|
|
(175
|
)
|
|
|
830
|
|
|
|
810
|
|
Gain (loss) on change in fair value of preferred stock rights
liability
|
|
|
47
|
|
|
|
(2,812
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,765
|
)
|
Other non-cash expenses
|
|
|
33
|
|
|
|
28
|
|
|
|
8
|
|
|
|
(9
|
)
|
|
|
(27
|
)
|
|
|
54
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(107
|
)
|
|
|
65
|
|
|
|
47
|
|
|
|
(22
|
)
|
|
|
(6
|
)
|
|
|
(74
|
)
|
Other non-current assets
|
|
|
-
|
|
|
|
(7
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
Accounts payable
|
|
|
481
|
|
|
|
396
|
|
|
|
(426
|
)
|
|
|
(485
|
)
|
|
|
(602
|
)
|
|
|
215
|
|
Accrued expenses and other current liabilities
|
|
|
294
|
|
|
|
47
|
|
|
|
(411
|
)
|
|
|
(102
|
)
|
|
|
420
|
|
|
|
783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for operating activities
|
|
|
(9,622
|
)
|
|
|
(12,598
|
)
|
|
|
(12,569
|
)
|
|
|
(9,536
|
)
|
|
|
(6,930
|
)
|
|
|
(85,560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(140
|
)
|
|
|
(516
|
)
|
|
|
(733
|
)
|
|
|
(628
|
)
|
|
|
(107
|
)
|
|
|
(4,357
|
)
|
Sales of property and equipment
|
|
|
75
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
161
|
|
Purchases of short-term investments
|
|
|
50
|
|
|
|
(8,789
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(17,886
|
)
|
Maturities of short-term investments
|
|
|
797
|
|
|
|
1,290
|
|
|
|
7,499
|
|
|
|
7,499
|
|
|
|
-
|
|
|
|
17,886
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities
|
|
|
782
|
|
|
|
(8,013
|
)
|
|
|
6,766
|
|
|
|
6,871
|
|
|
|
(107
|
)
|
|
|
(4,196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuances of convertible preferred stock, net of
offering costs
|
|
|
9,900
|
|
|
|
20,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
8,034
|
|
|
|
68,917
|
|
Proceeds from issuances of common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
655
|
|
Deferred initial public offering costs
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,532
|
)
|
|
|
(1,532
|
)
|
Repurchases of stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(550
|
)
|
|
|
(638
|
)
|
Proceeds from issuances of notes payable
|
|
|
5,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
28,600
|
|
Repayments of notes payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
14,900
|
|
|
|
20,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,952
|
|
|
|
95,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
6,060
|
|
|
|
(611
|
)
|
|
|
(803
|
)
|
|
|
2,335
|
|
|
|
(1,085
|
)
|
|
|
6,146
|
|
Effect of foreign exchange rates
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
1
|
|
Cash and cash equivalents at beginning of period
|
|
|
2,585
|
|
|
|
8,648
|
|
|
|
8,036
|
|
|
|
8,036
|
|
|
|
7,233
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
8,648
|
|
|
$
|
8,036
|
|
|
$
|
7,233
|
|
|
$
|
10,372
|
|
|
$
|
6,147
|
|
|
$
|
6,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash and Non-Cash Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
37
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock issued upon conversion of notes payable
|
|
$
|
5,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
7,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of these financial statements.
F-6
REVA
Medical, Inc.
(a
development stage company)
Consolidated
Statements of Convertible Preferred Stock and Stockholders
Deficit
Period from June 3, 1998 (inception)
to September 30, 2010
(in
thousands, except share and per share amounts)
(page 1
of 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Accumulated
|
|
|
|
|
|
|
Convertible
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Other
|
|
|
During the
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
|
Voting
|
|
|
Non-Voting
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Development
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Stage
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued June 1998 to July 1999 for cash at $0.0001
to $0.67 per share
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
2,452,088
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
278
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss June 3, 1998 (inception) to November 30, 1999
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(492
|
)
|
|
|
(492
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization of Company December 1999
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(492
|
)
|
|
|
-
|
|
|
|
492
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred stock issued December 1999 in exchange
for common stock on a
1-for-1
basis upon recapitalization of Company
|
|
|
1,618,058
|
|
|
|
185
|
|
|
|
|
(1,618,058
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(185
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A and Series B preferred stock issued December
1999 for cash at $1.007 and $1.20 per share, respectively
|
|
|
1,029,833
|
|
|
|
1,197
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C preferred stock issued July 2000 for cash at $1.97
per share
|
|
|
558,374
|
|
|
|
1,100
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series D preferred stock issued February 2001 for cash at
$2.44 per share
|
|
|
819,673
|
|
|
|
2,000
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series E preferred stock issued June 2001 to February 2002
for cash at $6.12 per share
|
|
|
2,450,980
|
|
|
|
15,000
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series G-1
preferred stock issued October 2004 for cash at $9.86 per share
|
|
|
709,939
|
|
|
|
7,000
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance costs on
Series G-1
preferred stock
|
|
|
-
|
|
|
|
(500
|
)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series G-1
preferred stock issued October 2004 upon conversion of notes
payable and accrued interest at $9.86 per share
|
|
|
304,260
|
|
|
|
3,000
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of warrants issued September 2003, in connection with
notes payable, to purchase 82,805 shares of Series E
preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
315
|
|
|
|
-
|
|
|
|
-
|
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of warrants issued April 2004, in connection with
notes payable, to purchase 53,354 shares of Series F
preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
230
|
|
|
|
-
|
|
|
|
-
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued December 1999 to October 2000 for cash at
$0.10 to $0.20 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
|
910,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
106
|
|
|
|
-
|
|
|
|
-
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued February 2001 to October 2006 upon exercise
of stock options for cash at $0.10 to $1.00 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
|
1,055,715
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
456
|
|
|
|
-
|
|
|
|
-
|
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchased August 2000 for cash at $0.0001 per
share
|
|
|
-
|
|
|
|
-
|
|
|
|
|
(189,500
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-voting common stock issued May 2001 for technology license
valued at $0.25 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
481,813
|
|
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-voting common stock repurchased August 2004 for cash at
$0.25 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(353,329
|
)
|
|
|
-
|
|
|
|
(88
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-voting common stock vesting July 2005
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
60
|
|
|
|
-
|
|
|
|
-
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash distribution of assets to stockholders July 2002
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(60
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
402
|
|
|
|
-
|
|
|
|
-
|
|
|
|
402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss December 1, 1999 (recapitalization) to
December 31, 2006
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(60,694
|
)
|
|
|
(60,694
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
7,491,117
|
|
|
$
|
28,982
|
|
|
|
|
2,610,745
|
|
|
$
|
-
|
|
|
|
128,484
|
|
|
$
|
-
|
|
|
$
|
1,035
|
|
|
$
|
-
|
|
|
$
|
(60,694
|
)
|
|
$
|
(59,659
|
)
|
The accompanying notes are an
integral part of these financial statements.
F-7
REVA
Medical, Inc.
(a
development stage company)
Consolidated
Statements of Convertible Preferred Stock and Stockholders
Deficit
Period from June 3, 1998 (inception) to September 30,
2010
(in
thousands, except share and per share amounts)
(page 2 of 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Accumulated
|
|
|
|
|
|
|
Convertible
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Other
|
|
|
During the
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
|
Voting
|
|
|
Non-Voting
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Development
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Stage
|
|
|
Deficit
|
|
Balance at December 31, 2006
|
|
|
7,491,117
|
|
|
$
|
28,982
|
|
|
|
|
2,610,745
|
|
|
$
|
-
|
|
|
|
128,484
|
|
|
$
|
-
|
|
|
$
|
1,035
|
|
|
$
|
-
|
|
|
$
|
(60,694
|
)
|
|
$
|
(59,659
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13,479
|
)
|
|
|
(13,479
|
)
|
Translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
-
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,476
|
)
|
Series H preferred stock issued December for cash at
$6.5066 per share
|
|
|
1,536,901
|
|
|
|
10,000
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issuance costs on Series H preferred stock
|
|
|
-
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series H preferred stock issued December upon conversion of
notes payable and accrued interest at $6.5066 per share
|
|
|
793,629
|
|
|
|
5,164
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Value of rights to possible future issuances of Series H
preferred stock
|
|
|
-
|
|
|
|
(3,905
|
)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Fair value of warrants to purchase 466,108 shares of common
stock, issued in connection with Series H preferred stock
issuance
|
|
|
-
|
|
|
|
(210
|
)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
210
|
|
|
|
-
|
|
|
|
-
|
|
|
|
210
|
|
Cumulative dividends on Series H preferred stock at $0.3995
per share per year
|
|
|
-
|
|
|
|
63
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(63
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(63
|
)
|
Value of beneficial conversion feature on convertible notes
payable
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
365
|
|
|
|
-
|
|
|
|
-
|
|
|
|
365
|
|
Fair value of warrants to purchase Series E and
Series F preferred stock, reclassified to long-term
liability, upon adoption of new accounting pronouncement
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(435
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(435
|
)
|
Change in fair value of embedded conversion feature
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
744
|
|
|
|
-
|
|
|
|
-
|
|
|
|
744
|
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
102
|
|
|
|
-
|
|
|
|
-
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
9,821,647
|
|
|
$
|
39,994
|
|
|
|
|
2,610,745
|
|
|
$
|
-
|
|
|
|
128,484
|
|
|
$
|
-
|
|
|
$
|
1,958
|
|
|
$
|
3
|
|
|
$
|
(74,173
|
)
|
|
$
|
(72,212
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,714
|
)
|
|
|
(12,714
|
)
|
Translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,715
|
)
|
Series H preferred stock issued September and December for
cash at $6.5066 per share
|
|
|
3,073,800
|
|
|
|
20,000
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Realized value of rights to possible future issuances of
Series H preferred stock
|
|
|
-
|
|
|
|
1,140
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Fair value of warrants to purchase 614,760 shares of common
stock, issued in connection with Series H preferred stock
issuance
|
|
|
-
|
|
|
|
(295
|
)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
295
|
|
|
|
-
|
|
|
|
-
|
|
|
|
295
|
|
Cumulative dividends on Series H preferred stock at $0.3995
per share per year
|
|
|
-
|
|
|
|
1,074
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,074
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,074
|
)
|
Change in fair value of embedded conversion feature
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
338
|
|
|
|
-
|
|
|
|
-
|
|
|
|
338
|
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
112
|
|
|
|
-
|
|
|
|
-
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
12,895,447
|
|
|
$
|
61,913
|
|
|
|
|
2,610,745
|
|
|
$
|
-
|
|
|
|
128,484
|
|
|
$
|
-
|
|
|
$
|
1,629
|
|
|
$
|
2
|
|
|
$
|
(86,887
|
)
|
|
$
|
(85,256
|
)
|
Net loss and comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(13,844
|
)
|
|
|
(13,844
|
)
|
Series H preferred stock issued September for cash at
$6.5066 per share
|
|
|
768,454
|
|
|
|
5,000
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Fair value of warrants to purchase 153,692 shares of common
stock, issued in connection with Series H preferred stock
issuance
|
|
|
-
|
|
|
|
(200
|
)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
200
|
|
|
|
-
|
|
|
|
-
|
|
|
|
200
|
|
Cumulative dividends on Series H preferred stock at $0.3995
per share per year
|
|
|
-
|
|
|
|
2,358
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,056
|
)
|
|
|
-
|
|
|
|
(302
|
)
|
|
|
(2,358
|
)
|
Stock-based compensation expense
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
227
|
|
|
|
-
|
|
|
|
-
|
|
|
|
227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
13,663,901
|
|
|
$
|
69,071
|
|
|
|
|
2,610,745
|
|
|
$
|
-
|
|
|
|
128,484
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2
|
|
|
$
|
(101,033
|
)
|
|
$
|
(101,031
|
)
|
The accompanying notes are an
integral part of these financial statements.
F-8
REVA
Medical, Inc.
(a
development stage company)
Consolidated
Statements of Convertible Preferred Stock and Stockholders
Deficit
Period from June 3, 1998 (inception) to September 30,
2010
(in
thousands, except share and per share amounts)
(page 3 of 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Accumulated
|
|
|
|
|
|
|
Convertible
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Other
|
|
|
During the
|
|
|
Total
|
|
|
|
Preferred Stock
|
|
|
|
Voting
|
|
|
Non-Voting
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Development
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Stage
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
13,663,901
|
|
|
$
|
69,071
|
|
|
|
|
2,610,745
|
|
|
$
|
-
|
|
|
|
128,484
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2
|
|
|
$
|
(101,033
|
)
|
|
$
|
(101,031
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,436
|
)
|
|
|
(9,436
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,437
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series H preferred stock issued June for cash at $6.5066
per share (unaudited)
|
|
|
1,075,831
|
|
|
|
7,000
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Series H preferred stock escrow fund in June
(unaudited)
|
|
|
-
|
|
|
|
484
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of warrants to purchase 215,165 shares of common
stock issued June, in connection with Series H preferred
stock issuance (unaudited)
|
|
|
-
|
|
|
|
(840
|
)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
840
|
|
|
|
-
|
|
|
|
-
|
|
|
|
840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase for reissuance in March of Series H preferred stock and
warrants to purchase 92,214 shares of common stock for cash at
$0.99 per share (unaudited)
|
|
|
(461,071
|
)
|
|
|
(550
|
)
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reissuance in May of Series H preferred stock and warrants to
purchase 92,214 shares common stock for cash at $0.99 per share
(unaudited)
|
|
|
461,071
|
|
|
|
550
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed dividends on Series H preferred stock (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,362
|
|
|
|
-
|
|
|
|
(4,362
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative dividends on Series H preferred stock at $0.3995
per share per year (unaudited)
|
|
|
-
|
|
|
|
2,159
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,159
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of embedded conversion feature (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,059
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued February upon exercise of stock options for
cash at $0.10 to $1.40 per share (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
2,714
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense (unaudited)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
253
|
|
|
|
-
|
|
|
|
-
|
|
|
|
253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010 (unaudited)
|
|
|
14,739,732
|
|
|
$
|
77,874
|
|
|
|
|
2,613,459
|
|
|
$
|
-
|
|
|
|
128,484
|
|
|
$
|
-
|
|
|
$
|
4,355
|
|
|
$
|
1
|
|
|
$
|
(114,831
|
)
|
|
$
|
(110,475
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of these financial statements.
F-9
REVA
Medical, Inc.
(a
development stage company)
Notes
to Consolidated Financial Statements
(in
thousands, except share and per share data)
Information as of
September 30, 2010 and thereafter and for the nine months
ended September 30, 2009 and 2010 and the
period from June 3, 1998 (inception) to September 30,
2010 is unaudited
|
|
1.
|
Description
of Business
|
REVA Medical, Inc. (REVA) was incorporated in
California in 1998 under the name MD3, Inc. In March 2002, we
changed our name to REVA Medical, Inc. We established a
non-operating wholly owned subsidiary, REVA Germany GmbH, in
2007. In these notes the terms us, we,
or our refer to REVA and our consolidated subsidiary
unless context dictates otherwise.
We are currently developing proprietary designs and biomaterial
technologies that will be used primarily for a bioresorbable
stent to treat vascular disease in humans. We initiated the
first human clinical trial of our bioresorbable stent during
2007 and plan to initiate a pilot clinical trial in 2011.
|
|
2.
|
Stage of
Company, Liquidity and Capital Resources, and Basis of
Presentation
|
Development Stage: We are considered a
development stage enterprise, as we have not yet
generated revenues from the sale of products. Although we have
been researching and developing new technologies and product
applications and have initiated the first human clinical trial
of our bioresorbable stent, we do not anticipate having a
product available for sale for at least the next several years.
Until revenue is generated from a saleable product, we expect to
continue to incur substantial operating losses and experience
significant net cash outflows, and will need to raise additional
debt or equity financing to fund our development efforts.
Liquidity and Capital Resources: From
inception through September 30, 2010, our primary sources
of operating capital have been from issuances of equity and
notes payable. We have received net cash proceeds of $68,934
from the sale of equity securities and $28,500 from the issuance
of notes payable. Our financial position at September 30,
2010 included cash of $6,147 available for operations.
We have incurred net losses from operations since our inception
and had a deficit accumulated of $114,831 as of
September 30, 2010. To date, we have no products that have
been approved for marketing and sale, and we expect operating
losses to continue through the foreseeable future until any of
our products are approved and commercialized. In order to
continue our operations, we must raise additional funds through
equity or debt financings or generate cash flows from
operations. There can be no assurance that we will be able to
obtain additional equity or debt financing on terms acceptable
to us or at all. Our failure to obtain sufficient funds on
acceptable terms when needed could have a material adverse
effect on our business, results of operations and financial
condition. We believe that we have sufficient capital to fund
our operations at least through December 31, 2010.
Consolidation: Our consolidated financial
statements, including these notes, include the accounts of REVA
and of our subsidiary, REVA Germany GmbH. All intercompany
transactions and balances, if any, have been eliminated in
consolidation.
Unaudited Interim Financial Statements: The
interim consolidated balance sheet as of September 30,
2010, the consolidated statements of convertible preferred stock
and stockholders deficit for the nine months ended
September 30, 2010, and the consolidated statements of
operations and cash flows for the nine months ended
September 30, 2009 and 2010 and the period from
June 3, 1998 (inception) through September 30, 2010
are unaudited. The unaudited interim financial statements have
been prepared on the same basis as the annual financial
statements and, in our opinion, all adjustments, consisting only
of normal recurring accruals, considered necessary for a fair
statement of the results of these interim periods have been
included. The results of operations for the nine months ended
September 30, 2010 are not necessarily indicative of the
results to be expected for the year ending December 31,
2010 or for any other interim period.
Unaudited Pro Forma Stockholders
Equity: The unaudited pro forma liabilities and
stockholders equity as of September 30, 2010 and the
pro forma net loss per share attributable to common stockholders
reflect the
agreed-upon
conversion of all outstanding shares of convertible preferred
stock and non-voting common stock, as well as conversion of all
notes payable and related accrued interest and exercise of all
outstanding warrants to purchase convertible preferred stock and
common stock into 701,821 shares of common stock and
related reclassification of preferred stock warrant liability to
additional
F-10
REVA
Medical, Inc.
(a
development stage company)
Notes
to Consolidated Financial Statements
(in
thousands, except share and per share data)
Information as of
September 30, 2010 and thereafter and for the nine months
ended September 30, 2009 and 2010 and the
period from June 3, 1998 (inception) to September 30,
2010 is unaudited
|
|
2.
|
Stage of
Company, Liquidity and Capital Resources, and Basis of
Presentation (continued)
|
paid-in capital upon the closing of our initial public offering.
Common shares initially sold in the initial public offering
along with any estimated net proceeds are excluded from the pro
forma information. No pro forma adjustments have been made to
the deficit accumulated during our development stage or to the
statement of operations for the initial public offering.
Use of Estimates: In order to prepare our
financial statements in conformity with accounting principles
generally accepted in the United States, we are required to make
estimates and assumptions that affect the reported amounts in
the financial statements and accompanying notes. Our most
significant estimates relate to expense accruals and fair market
value determinations of notes payable and embedded conversion
features, common and preferred stock warrants, preferred stock
rights liability, and stock-based compensation. Actual results
could differ from our estimates.
|
|
3.
|
Significant
Accounting Policies
|
Cash and Cash Equivalents: All highly liquid
investments with original maturities of three months or less are
classified as cash equivalents.
Short-Term Investments: Excess cash is
invested in high-quality marketable securities, primarily
issuances of agencies of the United States government, with
maturities of less than one year. These short-term investments
are stated at cost, adjusted for accretion of issuance
discounts, which approximates fair value due to their short-term
nature and are classified as
held-to-maturity.
Property and Equipment: Property and
equipment is stated at cost, less accumulated depreciation and
amortization. Depreciation is determined using the straight-line
method over the estimated useful lives of the related assets,
generally five years. Amortization of leasehold improvements is
determined using the straight-line method over the lesser of the
useful life of the asset or the term of the underlying lease.
Upon disposition or retirement of an asset, its cost and related
accumulated depreciation or amortization is removed from the
accounts and any gain or loss is recognized in the consolidated
statements of operations.
Other Non-current Assets: As of
September 30, 2010, we have recorded $2,386 in deferred
offering costs related to our proposed initial public offering
and have classified these costs as other non-current assets.
These costs will be accumulated and either transferred to
additional paid-in capital upon a successful completion of our
initial public offering or written-off to general and
administrative expense in the event of an unsuccessful offering.
Patents: Costs related to patent development,
filing, and maintenance are expensed as incurred since the
underlying technology associated with these assets is purchased
or incurred in connection with our research and development
efforts and the future realizable value cannot be determined.
Impairment of Long-Lived Assets: We review
our long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset
may not be recoverable and exceeds its undiscounted future cash
flows. The amount of impairment, if any, is determined by
comparing an assets estimated fair value to the
assets respective carrying amount. During the years ended
December 31, 2007, 2008, and 2009 and the nine months ended
September 30, 2009 and 2010 we determined there were no
indications of asset impairment. During the period of
June 3, 1998 (inception) through September 30, 2010 we
recorded $502 in losses from impairment of long-lived assets.
Concentrations of Credit Risk: Our cash, cash
equivalents, and short-term investments are subject to
concentrations of credit risk to the extent the balances exceed
limits that are insured by the Federal Deposit Insurance
Corporation. Cash and cash equivalents are maintained in a bank
account, the balance of which generally exceeds the insured
limits.
Short-term investments are held in custody by a large financial
asset manager. We maintain our cash balances and investments in
accordance with our investment policy to limit exposure to
concentrations of credit risk and changes in market
F-11
REVA
Medical, Inc.
(a
development stage company)
Notes
to Consolidated Financial Statements
(in
thousands, except share and per share data)
Information as of
September 30, 2010 and thereafter and for the nine months
ended September 30, 2009 and 2010 and the
period from June 3, 1998 (inception) to September 30,
2010 is unaudited
|
|
3.
|
Significant
Accounting Policies (continued)
|
conditions. We have not experienced any losses in our
investments and believe we are not exposed to significant credit
risk related to our cash and cash equivalents.
Preferred Stock Warrant Liability: We record
the value of warrants issued for the purchase of preferred stock
as a liability since the warrants provide for the issuance of
shares that would be contingently redeemable and, therefore, may
require a future transfer of assets. Until the time the warrants
are exercised or expire, the fair value is assessed at each
reporting date utilizing the Black-Scholes model and any change
in value is recorded as a component of other income (expense).
The fair value of the preferred stock warrants was estimated to
be $995, $780, and $1,610 as of December 31, 2008 and 2009
and September 30, 2010, respectively. The increase and
decrease in the fair value was $130, $195 and $(215) for the
years ended December 31, 2007, 2008, and 2009,
respectively, $(175) and $830 for the nine months ended
September 30, 2009 and 2010, respectively and $1,065 for
the period from June 3, 1998 (inception) to
September 30, 2010. The following valuation assumptions
were used for these reporting dates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Nine Months Ended September 30,
|
|
|
2007
|
|
2008
|
|
2009
|
|
2009
|
|
2010
|
|
Assumed risk-free interest rate
|
|
|
3.5
|
%
|
|
|
2.3
|
%
|
|
|
1.7 to 2.7
|
%
|
|
|
1.5 to 1.9
|
%
|
|
|
0.4 to 0.6
|
%
|
Assumed volatility
|
|
|
64.2
|
%
|
|
|
88.8
|
%
|
|
|
78.4
|
%
|
|
|
80.0
|
%
|
|
|
78.4
|
%
|
Expected life (in years)
|
|
|
5.0 to 6.3
|
|
|
|
4.0 to 5.3
|
|
|
|
3.0 to 4.3
|
|
|
|
3.4 to 4.6
|
|
|
|
2.3 to 3.6
|
|
Expected dividend yield
|
|
|
0.0 to 6.1
|
%
|
|
|
0.0 to 6.1
|
%
|
|
|
0.0 to 6.1
|
%
|
|
|
0.0 to 6.1
|
%
|
|
|
0.0 to 6.1
|
%
|
The preferred stock warrant liability fair value of $435 along
with a corresponding reduction in additional paid-in capital was
first recorded in 2007 upon the adoption of new accounting
guidance.
Convertible Preferred Stock: Preferred stock
is presented outside of permanent equity at its carrying value
as a result of certain liquidation features contained in the
underlying stock agreements. These features could allow for the
occurrence of events outside of our control including
liquidation, sale, or transfer of control; accordingly, the
preferred stock is considered contingently redeemable.
Research and Development: Research and
development costs are expensed as incurred. These costs include
salaries, employee benefits, laboratory supplies, consulting
services, manufacturing products and services, preclinical and
clinical costs, technology license fees, laboratory equipment
depreciation, facility costs, and certain indirect costs.
Segment Information: We operate in one
business segment, which is the development and commercialization
of medical devices.
Income Taxes: Income taxes are accounted for
using the asset and liability method, under which the current
income tax expense or benefit is the amount of income tax
expected to be payable or refundable in the current year.
Deferred tax assets and liabilities are recorded for the
estimated future tax consequences of temporary differences
between the financial statement carrying amounts of assets and
liabilities and their respective tax bases, and for operating
loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the year in which the temporary
differences are expected to be recovered or settled. We evaluate
the realizability of our deferred tax assets and establish a
valuation allowance when it is more likely than not that all or
a portion of our deferred tax assets will not be realized.
On January 1, 2009, we adopted new accounting guidance to
account for uncertainty in income taxes. The guidance prescribes
a recognition threshold and measurement attribute criteria for
financial statement recognition and measurement of tax positions
taken or expected to be taken in a tax return. To recognize a
benefit, a tax position must be more-likely-than-not to be
sustained upon examination by taxing authorities. We do not
recognize tax benefits that have a less than 50% likelihood of
being sustained. We are subject to taxation in U.S. and
California jurisdictions. Our policy is to recognize interest
and tax penalties in
F-12
REVA
Medical, Inc.
(a
development stage company)
Notes
to Consolidated Financial Statements
(in
thousands, except share and per share data)
Information as of
September 30, 2010 and thereafter and for the nine months
ended September 30, 2009 and 2010 and the
period from June 3, 1998 (inception) to September 30,
2010 is unaudited
|
|
3.
|
Significant
Accounting Policies (continued)
|
income tax expense; no interest or tax penalties have been
recorded through September 30, 2010. As of
December 31, 2009, our tax years beginning January 1,
2000 remain subject to examination by taxing authorities.
Stock-Based Compensation: We account for
stock-based compensation by measuring and recognizing expense
for all share-based payments made to employees and directors
based on estimated grant date fair values. We use the
straight-line method to allocate compensation expense to
reporting periods over each optionees requisite service
period, which is generally the vesting period, and estimate the
fair value of share-based awards to employees and directors
using the Black-Scholes option valuation model. The
Black-Scholes model requires the input of subjective
assumptions, including volatility, the expected term, and the
fair value of the underlying common stock on the date of grant,
among other inputs. We record the option value to compensation
expense based on the department an employees cash
compensation is recorded. We adjust stock-based compensation
expense for estimated option forfeitures based on our five-year
historical average of actual forfeitures.
We account for stock options issued to consultants as expense at
their fair value over the related service period as determined
in accordance with the authoritative guidance and periodically
revalue the stock options as they vest.
Foreign Currency: The functional currency of
our subsidiary REVA Germany GmbH is the Euro. Balance sheet
accounts of our subsidiary are translated into United States
dollars using the exchange rate in effect at the balance sheet
date while expenses are translated using the average exchange
rate in effect during the period. Gains and losses arising from
translation of our subsidiarys financial statements are
recorded to accumulated other comprehensive income (loss). These
gains and losses, in the aggregate, were insignificant through
September 30, 2010.
Comprehensive Loss: Comprehensive loss is the
change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net loss and
other comprehensive loss, including unrealized gains and losses
from foreign currency translations, are reported net of their
related tax effect to arrive at comprehensive loss.
Net Loss Per Common Share: Basic net loss per
common share is calculated by dividing the net loss attributable
to common stockholders by the weighted average number of common
shares outstanding for the period, without consideration for
common stock equivalents. Diluted net loss per share is computed
by dividing the net loss attributable to common stockholders by
the weighted average number of common share equivalents
outstanding for the period determined using the treasury-stock
method and the if-converted method, as applicable. For purposes
of this calculation, convertible preferred stock, common stock
options, preferred and common stock warrants, and convertible
notes payable are considered to be common stock equivalents and
are only included in the calculation of diluted net loss per
share when their effect is dilutive. In addition, this
calculation excludes any impact related to accrued but
undeclared dividends.
The following table presents the potential common shares
outstanding or common share equivalents that were excluded from
the computation of diluted net loss per share because including
them would have been antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
Convertible preferred stock
|
|
|
10,011,628
|
|
|
|
13,085,428
|
|
|
|
13,853,882
|
|
|
|
13,853,882
|
|
|
|
14,929,713
|
|
Common stock options
|
|
|
1,000,500
|
|
|
|
1,623,000
|
|
|
|
1,563,214
|
|
|
|
1,528,000
|
|
|
|
1,560,500
|
|
Convertible notes payable and accrued interest
|
|
|
2,825,071
|
|
|
|
2,991,461
|
|
|
|
3,124,041
|
|
|
|
3,090,073
|
|
|
|
3,225,975
|
|
Convertible preferred stock warrants
|
|
|
289,851
|
|
|
|
289,851
|
|
|
|
289,851
|
|
|
|
289,851
|
|
|
|
289,851
|
|
Common stock warrants
|
|
|
446,108
|
|
|
|
1,080,868
|
|
|
|
1,234,560
|
|
|
|
1,234,560
|
|
|
|
1,449,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,573,158
|
|
|
|
19,070,608
|
|
|
|
20,065,548
|
|
|
|
19,996,366
|
|
|
|
21,455,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-13
REVA
Medical, Inc.
(a
development stage company)
Notes
to Consolidated Financial Statements
(in
thousands, except share and per share data)
Information as of
September 30, 2010 and thereafter and for the nine months
ended September 30, 2009 and 2010 and the
period from June 3, 1998 (inception) to September 30,
2010 is unaudited
|
|
3.
|
Significant
Accounting Policies (continued)
|
Pro Forma Net Loss Per Common Share
(unaudited): Pro forma basic and diluted net loss
per share has been computed to give effect to the following
transactions which will occur upon the closing of our initial
public offering: i) assumed conversion of all outstanding
convertible preferred stock into shares of common stock,
ii) assumed conversion of all notes payable outstanding and
related accrued interest, at a weighted average exercise price
of $5.08 per share, iii) assumed cashless exercise of
1,690,041 outstanding common and preferred stock warrants, and
iv) assumed cash exercise of 49,535 outstanding common and
preferred stock warrants, in each case immediately prior to but
contingent upon the closing of our initial public offering.
The following table presents the computation of pro forma basic
and diluted net loss per share attributable to common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Nine Months
|
|
|
|
December 31,
|
|
|
Ended September 30,
|
|
|
|
2009
|
|
|
2010
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(16,202
|
)
|
|
$
|
(15,957
|
)
|
Pro forma adjustment to eliminate changes in fair value of
preferred stock warrant liability
|
|
|
(215
|
)
|
|
|
830
|
|
Pro forma adjustment to eliminate cumulative dividends on
preferred stock
|
|
|
2,358
|
|
|
|
2,159
|
|
Pro forma adjustment to eliminate interest expense on notes
payable
|
|
|
1,579
|
|
|
|
1,273
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss attributable to common stockholders
|
|
$
|
(12,480
|
)
|
|
$
|
(11,695
|
)
|
|
|
|
|
|
|
|
|
|
Denominator (share amounts in thousands)
|
|
|
|
|
|
|
|
|
Shares used to compute basic and diluted net loss per share
|
|
|
2,739
|
|
|
|
2,741
|
|
Pro forma adjustments to reflect the assumed conversion of
convertible preferred stock including cumulative dividends
|
|
|
13,640
|
|
|
|
14,968
|
|
Pro forma adjustments to reflect the assumed conversion of
convertible and non-convertible notes payable and related
repayment premium and accrued interest
|
|
|
5,411
|
|
|
|
5,588
|
|
Pro forma adjustments to reflect common stock issuable upon the
net settlement of preferred and common stock warrants
|
|
|
582
|
|
|
|
657
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute pro forma basic and diluted net loss per
share
|
|
|
22,372
|
|
|
|
23,954
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic and diluted net loss per share
|
|
$
|
(0.56
|
)
|
|
$
|
(0.49
|
)
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements: On January 1,
2008, we adopted new accounting guidance which defines fair
value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. Fair value is
defined as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the
measurement date. Valuation techniques used to measure fair
value must maximize the use of observable inputs and minimize
the use of unobservable inputs. We use a fair value hierarchy
that is based on three levels of inputs, of which the first two
are considered observable and the last unobservable. Our assets
and liabilities are classified as Level 1, 2, or 3 within
the following fair value hierarchy:
Level 1 Quoted prices (unadjusted) in active
markets for identical assets or liabilities that we have the
ability to access;
F-14
REVA
Medical, Inc.
(a
development stage company)
Notes
to Consolidated Financial Statements
(in
thousands, except share and per share data)
Information as of
September 30, 2010 and thereafter and for the nine months
ended September 30, 2009 and 2010 and the
period from June 3, 1998 (inception) to September 30,
2010 is unaudited
|
|
3.
|
Significant
Accounting Policies (continued)
|
Level 2 Inputs other than Level 1 that are
directly or indirectly observable, such as quoted prices for
identical or similar assets and liabilities; quoted prices in
markets that are not active; or other inputs that are observable
or can be corroborated by observable market data for
substantially the full term of the assets or liabilities such as
interest rates, yield curves, and foreign currency spot
rates; and
Level 3 Unobservable inputs that are supported
by little or no market activity and that are significant to the
fair value of the assets and liabilities
On January 1, 2009, we implemented the new accounting
guidance for nonfinancial assets and liabilities that are
remeasured at fair value on a non-recurring basis. We have not
elected to measure any nonfinancial assets or liabilities at
fair value that were not previously required to be remeasured at
fair value.
In January 2010, the Financial Accounting Standards Board
(FASB) issued guidance that expands the interim and
annual disclosure requirements of fair value measurements,
including the information about movement of assets between
Level 1 and 2 of the three-tier fair value hierarchy
established under its fair value measurement guidance. This
guidance also requires separate disclosure for purchases, sales,
issuances, and settlements in the reconciliation for fair value
measurements using Level 3 methodologies. Except for the
detailed disclosure in the Level 3 reconciliation, which is
effective for the fiscal years beginning after December 15,
2010, all the other disclosures under this guidance became
effective during the nine months ended September 30, 2010.
We have adopted the relevant provisions of this guidance
effective January 1, 2010.
The adoption of the various elements of the fair value guidance
in 2008, 2009, and 2010 did not result in a material impact to
our financial statements in any period.
Assets and Liabilities Measured at Fair Value on a
Recurring Basis: The following table presents the
fair value hierarchy for those assets and liabilities measured
at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Balances at December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury bills
|
|
$
|
7,499
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock warrant liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock warrant liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock warrant liability
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
REVA
Medical, Inc.
(a
development stage company)
Notes
to Consolidated Financial Statements
(in
thousands, except share and per share data)
Information as of
September 30, 2010 and thereafter and for the nine months
ended September 30, 2009 and 2010 and the
period from June 3, 1998 (inception) to September 30,
2010 is unaudited
|
|
3.
|
Significant
Accounting Policies (continued)
|
Our Level 3 financial liabilities consist of long-term
liabilities related to warrants issued for the purchase of
preferred stock. Measurement of fair value for the warrants is
made utilizing the Black-Scholes model. Changes in the fair
values of the preferred stock warrant liability is recorded as a
component of other income (expense). Level 3 activities for
the periods noted are as follows:
|
|
|
|
|
|
|
Level 3
|
|
|
Balance at December 31, 2007
|
|
$
|
-
|
|
Transfer in upon adoption of fair value guidance:
|
|
|
|
|
Preferred stock rights liability (Note 7)
|
|
|
3,952
|
|
Preferred stock warrant liability
|
|
|
800
|
|
Transfer to preferred stock upon settlement
|
|
|
(1,140
|
)
|
Change in fair value of preferred stock rights liability
|
|
|
(2,812
|
)
|
Change in fair value of preferred stock warrant liability
|
|
|
195
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
995
|
|
Change in fair value of preferred stock warrant liability
|
|
|
(215
|
)
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
780
|
|
Change in fair value of preferred stock warrant liability
|
|
|
830
|
|
|
|
|
|
|
Balance at September 30, 2010
|
|
$
|
1,610
|
|
|
|
|
|
|
Fair Value of Financial Instruments not Measured at Fair
Value on a Recurring Basis: The carrying value of
certain of our financial instruments are not adjusted to fair
value on a recurring basis. These items, including cash; cash
equivalents; accounts payable; accrued expenses, notes payable,
repayment premiums and accrued interest, are considered to be
reasonable estimates of their respective fair values due to
their short-term nature.
Recent Accounting Pronouncements: In June
2009, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles, a replacement of FASB Statement
No. 162. This statement establishes the
FASB Accounting Standards Codification as the source of
authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of
financial statements in conformity with Generally Accepted
Accounting Principles (GAAP) except for rules and
interpretive releases of the U.S. Securities and Exchange
Commission. This statement was adopted for our financial
statements as of and for the year ended December 31, 2009.
This statement does not change GAAP and did not impact our
consolidated financial position, results of operations, or
liquidity.
In June 2009, the FASB issued an update to the accounting
standard regarding subsequent events. The update sets forth
principles and requirements for subsequent events, specifically
(i) the period during which management should evaluate
events or transactions that may occur for potential recognition
and disclosure, (ii) the circumstances under which an
entity should recognize events or transactions occurring after
the balance sheet date, and (iii) the disclosures that an
entity should make about events and transactions occurring after
the balance sheet date. This update was adopted for our
financial statements as of and for the year ended
December 31, 2009. This statement does not change GAAP and
did not impact our consolidated financial position, results of
operations, or liquidity.
In February 2010, the FASB issued an update to the accounting
standard regarding subsequent events. This update amends the
authoritative guidance for subsequent events that was previously
issued and exempts Securities and Exchange Commission
registrants from the requirement to disclose the date through
which it has evaluated subsequent events for either original or
restated financial statements. This standard does not apply to
subsequent events or transactions that are within the scope of
other
F-16
REVA
Medical, Inc.
(a
development stage company)
Notes
to Consolidated Financial Statements
(in
thousands, except share and per share data)
Information as of
September 30, 2010 and thereafter and for the nine months
ended September 30, 2009 and 2010 and the
period from June 3, 1998 (inception) to September 30,
2010 is unaudited
|
|
3.
|
Significant
Accounting Policies (continued)
|
applicable GAAP that provides different guidance on the
accounting treatment for subsequent events or transactions. The
adoption of this standard did not have a material impact on our
financial statements.
Other accounting standards that have been issued or proposed by
the FASB or other standards-setting bodies that do not require
adoption until a future date are not expected to have a material
impact on our financial statements upon adoption.
We have issued a combination of convertible and non-convertible
notes payable as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Long-Term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.25% Unsecured notes
|
|
$
|
3,800
|
|
|
$
|
3,800
|
|
|
$
|
3,800
|
|
Repayment premium on 6.25% notes
|
|
|
7,600
|
|
|
|
7,600
|
|
|
|
7,600
|
|
6.75% Unsecured convertible notes
|
|
|
1,750
|
|
|
|
1,750
|
|
|
|
1,750
|
|
Repayment premium on 6.75% notes
|
|
|
3,500
|
|
|
|
3,500
|
|
|
|
3,500
|
|
2005 Unsecured convertible notes
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
10,000
|
|
2006 Unsecured convertible note
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
5,000
|
|
Unamortized debt discount
|
|
|
(667
|
)
|
|
|
(246
|
)
|
|
|
(921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
30,983
|
|
|
$
|
31,404
|
|
|
$
|
30,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 6.25 percent unsecured notes were issued between June
2003 and September 2003. The notes contain provisions for a
repayment premium of two times face value. We have determined
that this repayment premium applies in any situation in which
the notes are repaid. The repayment premium was recorded as
interest expense in 2003 with a corresponding increase in the
carrying value of the debt during the initial term of the notes.
Interest on the notes is due at maturity and is not subject to
the repayment premium. For the years ended December 31,
2007, 2008, and 2009, interest expense of $238 was recorded each
year. For the nine months ended September 30, 2009 and 2010
and the period from June 3, 1998 (inception) to
September 30, 2010, respectively, interest expense of $178,
$178, and $1,717 was recorded. All interest amounts previously
accrued remain outstanding as of September 30, 2010. The
notes originally matured in 2003; their maturities have been
extended to December 31, 2011 through a series of
amendments in 2003, 2004, 2008 and 2010. In connection with
issuing these notes, we issued warrants to the note holders to
purchase up to 82,805 shares of Series E preferred
stock at $6.0383 per share. The warrants were exercisable
immediately and expire in 2013. The value of the warrants was
calculated to be $315, which was recorded as interest expense in
2003.
The 6.75 percent unsecured convertible notes were issued
between November 2003 and April 2004 and are convertible into
Series F preferred stock at the option of the note holders
at a $3.28 per share conversion rate. These notes also contain
provisions for repayment premiums of two times face value, which
we have determined applies in any situation of repayment but not
if the holder elects to convert the debt. Repayment of the notes
would occur if the note holders elect to not convert; since we
do not control whether a repayment or a conversion would occur,
we recognized the repayment premium in full over the original
term of the notes. The repayment premium was recorded as
interest expense during 2003 and 2004 with a corresponding
increase in the carrying value of the debt. Interest on the
notes is due at maturity, is subject to conversion at the option
of the note holders, and is not subject to the repayment
premium. For the years ended December 31, 2007, 2008, and
2009, interest expense of $118 was recorded each year. For the
nine months ended September 30, 2009 and 2010 and the
period from June 3, 1998 (inception) to September 30,
2010, respectively, interest expense of $88, $88, and $794 was
recorded. All amounts previously accrued remain outstanding as
of September 30, 2010. The notes original maturity
date of May 2004 has been extended to December 31, 2011
through a series of amendments in 2004, 2008 and 2010. In
connection with issuing these notes, we issued warrants to the
note
F-17
REVA
Medical, Inc.
(a
development stage company)
Notes
to Consolidated Financial Statements
(in
thousands, except share and per share data)
Information as of
September 30, 2010 and thereafter and for the nine months
ended September 30, 2009 and 2010 and the
period from June 3, 1998 (inception) to September 30,
2010 is unaudited
|
|
4.
|
Notes
Payable (continued)
|
holders to purchase up to 53,354 shares of Series F
preferred stock at $3.28 per share. The warrants are exercisable
and expire in 2014. The value of the warrants was calculated to
be $230, which was recorded as interest expense in 2004.
We issued $4,000 and $6,000 in unsecured convertible notes
payable to a single holder in June 2005 and November 2005,
respectively. In July 2006, we issued a $5,000 unsecured
convertible note payable to the same holder. All three notes
bear interest at the prime rate plus one percent, compounded
annually. The notes, as amended, provide for accrual of interest
until the earlier to occur of (i) December 31, 2011,
at which time the interest is converted to loan principal and a
48-month
repayment period begins, or (ii) we secure an additional
$50,000 in new underwritten financing. The notes are convertible
in certain circumstances at any time at the holders option
into our
Series G-1
preferred stock at $9.86 per share. For the years ended
December 31, 2007, 2008, and 2009 and the nine months ended
September 30, 2009 and 2010 and the period from
June 3, 1998 (inception) to September 30, 2010,
respectively, interest expense of $1,479, $1,082, $802, $595,
$623, and $5,348 was recorded. All amounts previously accrued
remain outstanding as of September 30, 2010.
Since the origination dates of the various convertible and
non-convertible notes payable which are discussed above, there
have been a number of amendments to the underlying terms of the
notes, primarily to extend the notes maturity dates. At
each amendment date, we performed an analysis based on the
applicable accounting guidelines to determine if the amendment
resulted in an accounting impact. We first considered whether
the amendment would qualify as a troubled debt restructuring. If
the amendment was not considered a troubled debt restructuring,
we considered whether the amendment should be accounted for as
an extinguishment or a modification of debt. If the note has an
embedded conversion feature and the amendment is considered a
modification, rather than an extinguishment, then any increase
in the fair value of the conversion feature as a result of the
amendment has been accounted for as a reduction in the carrying
amount of the note, as an additional discount, with a
corresponding increase in additional paid-in capital. Any
resulting premium or discount is amortized or accreted over the
term of the note using the effective interest method and is
recorded as interest expense in our statement of operations. The
impact of the accounting for the various amendments to the notes
payable was an increase in interest expense for the years ended
December 31, 2007, 2008 and 2009 , the nine month periods
ended September 30, 2009 and 2010 and the period from
June 3, 1998 (inception) to September 30, 2010 of $16,
$399, $421 , $313, $384 , and $1,220, respectively. The balance
of the unamortized debt discount related to the notes payable
was $246 and $921 as of December 31, 2009 and
September 30, 2010, respectively.
The conversion options embedded in each of the above convertible
notes payable were evaluated to determine whether they met the
definition of a derivative instrument. The conversion options
only provide for gross physical settlement in shares that are
currently not readily convertible into cash. Due to the
conversion options lacking net settlement features, the
conversion options are not currently considered derivatives;
therefore, we have not bifurcated the conversion options and
accounted for them separately at fair value.
Our aggregate notes payable outstanding at December 31,
2009 mature as follows (after reflecting 2010 maturity date
extensions):
|
|
|
|
|
Years Ending December
31,
|
|
|
|
|
2010
|
|
$
|
-
|
|
2011
|
|
|
16,962
|
|
2012
|
|
|
3,750
|
|
2013
|
|
|
3,750
|
|
2014
|
|
|
3,750
|
|
Thereafter
|
|
|
3,438
|
|
|
|
|
|
|
|
|
$
|
31,650
|
|
|
|
|
|
|
The schedule above contains the $3,500 repayment premium on the
6.75 percent convertible notes which will not be paid if
the notes are converted.
F-18
REVA
Medical, Inc.
(a
development stage company)
Notes
to Consolidated Financial Statements
(in
thousands, except share and per share data)
Information as of
September 30, 2010 and thereafter and for the nine months
ended September 30, 2009 and 2010 and the
period from June 3, 1998 (inception) to September 30,
2010 is unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture and office equipment
|
|
$
|
286
|
|
|
$
|
332
|
|
|
$
|
327
|
|
Laboratory equipment
|
|
|
1,723
|
|
|
|
2,131
|
|
|
|
2,231
|
|
Leasehold improvements
|
|
|
299
|
|
|
|
559
|
|
|
|
559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,308
|
|
|
|
3,022
|
|
|
|
3,117
|
|
Accumulated depreciation and amortization
|
|
|
(1,441
|
)
|
|
|
(1,888
|
)
|
|
|
(2,234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
867
|
|
|
$
|
1,134
|
|
|
$
|
883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued salaries and other employee costs
|
|
$
|
228
|
|
|
$
|
199
|
|
|
$
|
290
|
|
Accrued operating expenses
|
|
|
519
|
|
|
|
112
|
|
|
|
481
|
|
Accrued offering costs
|
|
|
|
|
|
|
|
|
|
|
557
|
|
Accrued use taxes
|
|
|
26
|
|
|
|
51
|
|
|
|
13
|
|
Deferred rent
|
|
|
13
|
|
|
|
37
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
786
|
|
|
$
|
399
|
|
|
$
|
1,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have reported net losses for all periods through
December 31, 2009; therefore, no provision for income taxes
was recorded.
The reported amount of income tax expense or benefit for all
years differs from the amount resulting from applying domestic
federal statutory rates to pretax losses primarily because of
the changes in the valuation allowance. Significant components
of our deferred tax assets and liabilities at December 31,
2008 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
Interest on notes payable
|
|
$
|
2,315
|
|
|
$
|
2,776
|
|
Investment write-off loss carryforward
|
|
|
1,034
|
|
|
|
1,034
|
|
Depreciation
|
|
|
-
|
|
|
|
46
|
|
Accrued operating expenses
|
|
|
-
|
|
|
|
39
|
|
Other
|
|
|
45
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,394
|
|
|
|
3,957
|
|
Less: valuation allowance
|
|
|
(3,394
|
)
|
|
|
(3,957
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes.
At December 31, 2009, we had aggregate federal and
California state net operating loss carryforwards of
approximately $80,312 and $78,518, respectively, which may be
available to offset future taxable income for income tax
purposes. The federal net operating loss carryforwards begin to
expire in 2018 and the California carryforwards began to expire
in 2010. At December 31, 2009, we also had federal and
California state research tax credit carryforwards of
approximately $3,094 and $2,692, respectively. The federal
carryforwards begin to expire in 2019 and the California
carryforwards have no expiration.
F-19
REVA
Medical, Inc.
(a
development stage company)
Notes
to Consolidated Financial Statements
(in
thousands, except share and per share data)
Information as of
September 30, 2010 and thereafter and for the nine months
ended September 30, 2009 and 2010 and the
period from June 3, 1998 (inception) to September 30,
2010 is unaudited
|
|
6.
|
Income
Taxes (continued)
|
Additionally, at December 31, 2009, we had California
manufacturers investment tax credit carryforwards of
approximately $58 that begin to expire in 2010.
Under the Internal Revenue Code (IRC)
Sections 382 and 383, annual use of our net operating loss
and research tax credit carryforwards to offset taxable income
may be limited based on cumulative changes in ownership. We have
not completed an IRC Section 382/383 analysis regarding the
limitations on carryforwards. Until this analysis is completed,
we have removed the deferred tax assets for net operating losses
and research credits from our deferred tax asset schedule and
recorded a corresponding decrease in the valuation allowance.
Additionally, the deferred tax asset related to the loan
repayment premium of $11,100 has been removed from the deferred
tax assets, with a corresponding decrease in the valuation
allowance, as it is considered by us to be an uncertain tax
position. We do not expect these tax positions to change within
12 months after December 31, 2009 and, as a result, do
not expect that the unrecognized tax benefits will change by
December 31, 2010.
We have established a valuation allowance against our net
deferred tax assets due to the uncertainty surrounding the
realization of those assets. We periodically evaluate the
recoverability of the deferred tax assets and, when it is
determined that it is more likely than not that the deferred tax
assets are realizable, the valuation allowance will be reduced.
Due to the existence of the valuation allowance, future changes
in our unrecognized tax benefits will not impact our effective
tax rate.
|
|
7.
|
Convertible
Preferred Stock and Stockholders Deficit
|
The following table summarizes certain per share information
related to our convertible preferred stock :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original
|
|
|
Liquidation
|
|
|
Dividend Rate
|
|
|
|
Issuance Price
|
|
|
Preference
|
|
|
(per annum)
|
|
|
Series A
|
|
$
|
1.007
|
|
|
$
|
0.9936
|
|
|
$
|
0.07
|
|
Series B
|
|
$
|
1.20
|
|
|
$
|
1.184
|
|
|
$
|
0.084
|
|
Series C
|
|
$
|
1.97
|
|
|
$
|
1.9437
|
|
|
$
|
0.1379
|
|
Series D
|
|
$
|
2.44
|
|
|
$
|
2.4074
|
|
|
$
|
0.1708
|
|
Series E
|
|
$
|
6.12
|
|
|
$
|
12.0766
|
|
|
$
|
0.4896
|
|
Series F
|
|
|
-
|
|
|
$
|
3.28
|
|
|
$
|
0.23
|
|
Series G-1
|
|
$
|
9.86
|
|
|
$
|
9.86
|
|
|
$
|
0.69
|
|
Series G-2
|
|
|
-
|
|
|
$
|
9.86
|
|
|
$
|
0.6875
|
|
Series H
|
|
$
|
6.5066
|
|
|
$
|
6.5066
|
|
|
$
|
0.3995
|
|
Conversion of Preferred Stock: All series of
preferred stock automatically convert into common stock
utilizing the then effective conversion price for each such
share upon i) the closing of a sale of our common stock in
an underwritten public offering of at least $50,000 at a price
per share of not less than $8.00, subject to adjustments, or
ii) the date upon which a majority of the holders of the
Series A through
Series G-2
and the Series H preferred stock consent to a conversion.
As of December 31, 2009 and September 30, 2010, all
series of preferred stock, except
Series G-1,
were convertible at the rate of one share of common stock for
each share of preferred stock; the
Series G-1
convertible preferred stock conversion rate was approximately
1.19 per share of common stock for each share of preferred stock.
Dividends: The holders of each series of
convertible preferred stock, with the exception of
Series H, are entitled to receive non-cumulative dividends
in preference to any declaration or payment of dividends on
common stock, payable when, as, and if declared by the Board of
Directors. Holders of Series H convertible preferred stock
are entitled to receive cumulative dividends in preference to
any declaration or payment of dividends on common stock at the
rate of six percent per annum, compounded quarterly, which
equates to $0.3995 per share, payable when, as, and if declared
by the Board of Directors, upon conversion into common stock, or
upon certain liquidation events. Although no dividends have been
declared, we have recorded the liquidation value of $5,654 for
these dividends through September 30, 2010 by increasing
the carrying value of the Series H convertible
F-20
REVA
Medical, Inc.
(a
development stage company)
Notes
to Consolidated Financial Statements
(in
thousands, except share and per share data)
Information as of
September 30, 2010 and thereafter and for the nine months
ended September 30, 2009 and 2010 and the
period from June 3, 1998 (inception) to September 30,
2010 is unaudited
|
|
7.
|
Convertible
Preferred Stock and Stockholders Deficit
(continued)
|
preferred stock and reducing additional paid-in capital, or in
the case where we have no remaining additional paid-in capital,
we have increased our deficit accumulated in the development
stage.
Liquidation Preference: Upon our liquidation,
dissolution, or winding up, either voluntarily or involuntarily,
each series of convertible preferred stock, except
Series E, are entitled to a liquidation preference plus
declared but unpaid dividends. The Series H preferred stock
has a liquidation preference senior to Series A through
Series G-2
preferred stock. The
Series G-1
and G-2 preferred stock have a liquidation preference on parity
with the Series F preferred stock and both have a
liquidation preference senior to Series A through
Series E preferred stock. The Series E preferred stock
has preference over all series other than Series F,
Series G-1
and G-2, and Series H. Series A through Series D
have equal preference after distribution to
Series G-1
and G-2, Series F, Series E, and Series H. The
preferred stock is not participating.
Voting: The holders of each series of
convertible preferred stock has the right to one vote for each
share of common stock into which such preferred stock could then
be converted, exclusive of dividends.
Redemption: The convertible preferred stock
is not redeemable by us or at the option of the preferred
stockholders.
Series H Convertible Preferred
Stock: During 2007, we issued certain rights to
purchase Series H preferred stock for $6.5066 per share,
with such purchases to occur when technology milestones were
achieved in 2008 and 2009. The fair value of the purchase rights
was estimated to be $3,905 upon their issuance in 2007 and was
recorded as a reduction to the carrying value of Series H
preferred stock and as a long-term liability that would convert
to preferred stock as purchases occurred under the purchase
rights. At each subsequent reporting date, the fair value of any
remaining purchase rights was recalculated and any change in
fair value was recorded as a component of other income
(expense). As of December 31, 2008, the fair value of the
remaining purchase rights was determined to be nil, as future
milestones were deemed to be unachievable within scheduled
timeframes. As such, we reclassified the remaining fair value of
$1,140 to increase the carrying value of the Series H
preferred stock. For the years ended December 31, 2007 and
2008, the change in fair value of the purchase rights liability
resulted in $47 of expense and $2,812 of income, respectively.
The fair value of the remaining purchase rights liability as of
December 31, 2009 was also determined to be nil. All
purchases under the purchase rights were completed as of
June 2, 2010.
During June 2010, we completed the sale of 1,075,831 shares
of Series H convertible preferred stock for net proceeds of
approximately $7,484, including $484 in proceeds from the
Series H convertible preferred stock escrow fund. The
Series H convertible preferred stock was sold at a price
per share below the estimated fair value of our common stock.
Accordingly, we recorded a deemed dividend on the Series H
convertible preferred stock of $692, which is equal to the
number of shares of Series H convertible preferred stock
sold multiplied by the difference between the estimated fair
value of the underlying common stock and the Series H
conversion price per share. The deemed dividend has been
recognized as an adjustment to the net loss attributable to
common stockholders since the preferred stock is convertible,
but is not mandatorily redeemable.
Limitations on Ability to Declare Dividends and Certain
other Transactions: Under the terms of our various
debt, facility lease, and other agreements, we are subject to
certain limitations on our ability to incur liens or additional
debt, pay dividends, redeem our stock, make specified
investments, and engage in merger, consolidation, or asset sale
transactions, among other restrictions.
Preferred Stock Warrants: In conjunction with
the issuance of certain of our notes payable, we issued warrants
to purchase shares of Series E and Series F
convertible preferred stock; see Note 4 Notes
Payable regarding terms of those warrants.
In conjunction with the issuance of certain notes payable that
were converted into Series H preferred stock during 2007,
we issued warrants to purchase 153,692 shares of
Series H convertible preferred stock with an exercise price
of $6.5066 per share. These warrants are exercisable and expire
December 7, 2012, if not exercised. The value of these
warrants was calculated to be $365, which was recorded as
interest expense when issued in 2007. Additionally, after
allocating the proceeds, we determined the notes payable
contained a beneficial conversion feature of $365 which was also
included in interest expense in 2007.
F-21
REVA
Medical, Inc.
(a
development stage company)
Notes
to Consolidated Financial Statements
(in
thousands, except share and per share data)
Information as of
September 30, 2010 and thereafter and for the nine months
ended September 30, 2009 and 2010 and the
period from June 3, 1998 (inception) to September 30,
2010 is unaudited
|
|
7.
|
Convertible
Preferred Stock and Stockholders Deficit
(continued)
|
Common Stock Warrants: Holders of
Series H convertible preferred stock received warrants to
purchase our common stock at the rate of one common warrant for
every five Series H shares purchased. The warrants are
exercisable at $6.5066 per share, contain a cashless exercise
feature, and expire December 7, 2012, if not exercised. In
conjunction with the issuance of Series H convertible
preferred stock, we issued warrants to purchase up to 466,108,
614,760, 153,692, and 215,165 shares of common stock during
2007, 2008, and 2009 and the nine months ended
September 30, 2010, respectively. The values of these
warrants were calculated to be $210, $295, $200, and $840 at
their respective issuance dates and were recorded as additional
paid-in capital and a reduction to the carrying value of the
Series H convertible preferred stock. As of
September 30, 2010, we had outstanding warrants to purchase
1,449,725 shares of our common stock, all of which are
exercisable and expire in December 2012 unless exercised earlier.
Non-Voting Common Stock: Holders of
non-voting common stock are entitled to the same rights as
holders of common stock, except they are not entitled to any
voting rights.
Common Stock Reserved for Issuance: The
following number of common shares were reserved for future
issuance:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2010
|
|
|
Conversion of preferred stock
|
|
|
14,929,713
|
|
|
|
14,929,713
|
|
Warrants for preferred stock
|
|
|
289,851
|
|
|
|
289,851
|
|
Warrants for common stock
|
|
|
1,449,726
|
|
|
|
1,449,725
|
|
Exercise of issued stock options
|
|
|
1,563,214
|
|
|
|
1,560,500
|
|
Exercise of stock options available for grant
|
|
|
778,838
|
|
|
|
778,838
|
|
Conversion of long-term notes payable and accrued interest
|
|
|
3,124,041
|
|
|
|
3,225,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,135,383
|
|
|
|
22,234,602
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
Stock-Based
Compensation
|
Our 2001 Stock Option/Stock Issuance Plan (the Plan)
was adopted effective May 16, 2001. The Plan provides for
awards of incentive and non-qualified stock options to purchase
up to 3,185,267 shares of our common stock. The option
price per share must be at least 85% of the fair market value of
our common stock on the date of grant and the term of the option
may not exceed ten years. Option vesting is determined by the
Board of Directors upon each grant and is generally over a
five-year period. All options are immediately exercisable upon
grant and are subject to repurchase by us at the exercise price
in the event an employee terminates service prior to being
vested.
F-22
REVA
Medical, Inc.
(a
development stage company)
Notes
to Consolidated Financial Statements
(in
thousands, except share and per share data)
Information as of
September 30, 2010 and thereafter and for the nine months
ended September 30, 2009 and 2010 and the
period from June 3, 1998 (inception) to September 30,
2010 is unaudited
|
|
8.
|
Stock-Based
Compensation (continued)
|
Activity under the Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Options
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Outstanding
|
|
|
Price
|
|
|
Term (years)
|
|
|
Value
|
|
|
Balance at December 31, 2007
|
|
|
988,000
|
|
|
|
$ 1.03
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
643,500
|
|
|
|
$ 1.40
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(21,000
|
)
|
|
|
$ 1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
1,610,500
|
|
|
|
$ 1.17
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
50,000
|
|
|
|
$ 1.80
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(109,786
|
)
|
|
|
$ 1.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
1,550,714
|
|
|
|
$ 1.19
|
|
|
|
6.54
|
|
|
$
|
4,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(214
|
)
|
|
|
$ 1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010
|
|
|
1,550,500
|
|
|
|
$ 1.19
|
|
|
|
5.79
|
|
|
$
|
12,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested at September 30, 2010
|
|
|
1,047,000
|
|
|
|
$ 1.08
|
|
|
|
4.64
|
|
|
$
|
8,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All options outstanding under the Plan as of December 31,
2009 and September 30, 2010 were exercisable and no options
have expired since inception of the Plan.
At December 31, 2009 and September 30, 2010, we had
approximately $521 and $407, respectively, of total unrecognized
compensation costs related to unvested employee options that is
expected to be recognized over a weighted average period of 3.71
and 2.96 years, respectively.
No tax benefits arising from stock-based compensation have been
recognized in the consolidated statements of operations through
September 30, 2010.
The fair value of options vested during the years ended
December 31, 2007, 2008, and 2009 was $99, $111, and $198,
respectively.
No grants to employees were made in 2007, 2009, or during the
nine months ended September 30, 2010. For the year ended
December 31, 2008, we made one grant of options for which
the fair value was estimated to be $1.07 per share based on the
following valuation assumptions: Assumed risk-free interest rate
of 2.82 percent; Assumed volatility of 88.8%; Expected option
life of 6.5 years; and Expected dividend yield of zero
percent.
The assumed risk-free interest rate was based on the implied
yield on a U.S. Treasury zero-coupon issue with a remaining
term equal to the expected life of the option. The assumed
volatility was calculated from the historical market prices of a
selected group of publicly traded companies considered to be our
peers. We used peer group data due to the fact that we have no
historical trading data. The expected option life was calculated
using the simplified method under the accounting standard for
stock compensation and a ten-year option expiration. The
simplified method is used since we believe our option activity
as a public company will differ from that of our own historical
experience. The expected dividend yield of zero reflects that we
have not paid cash dividends since inception and do not intend
to pay cash dividends in the foreseeable future.
During 2009, consultants were granted options to purchase
50,000 shares of common stock. During 2008 and the nine
months ended September 30, 2010 we did not grant options to
consultants. Awards to consultants resulted in stock
compensation expense of $2, $2, $30, $17, $137, and $280 during
the years ended December 31, 2007, 2008, and 2009 and the
nine months ended September 30, 2009 and 2010 and the
period from June 3, 1998 (inception) to September 30,
2010, respectively. The fair value of these awards was
determined using the Black-Scholes model with the following
assumptions: Assumed risk-free interest
F-23
REVA
Medical, Inc.
(a
development stage company)
Notes
to Consolidated Financial Statements
(in
thousands, except share and per share data)
Information as of
September 30, 2010 and thereafter and for the nine months
ended September 30, 2009 and 2010 and the
period from June 3, 1998 (inception) to September 30,
2010 is unaudited
|
|
8.
|
Stock-Based
Compensation (continued)
|
rate of 1.3% to 3.4%; assumed volatility of 78% to 80%; expected
option life of 5.5 to 6.3 years; and expected dividend
yield of 0%.
Prior to establishment of the Plan, we had issued non-qualified
options to purchase common stock to certain employees and
consultants under similar terms to those issued under the Plan.
Options to purchase a total of 577,500 shares were issued.
Through September 30, 2010, a total of 492,000 shares
have been purchased at a weighted average purchase price of
$0.15 per share, a total of 75,500 shares have been
forfeited, and a total of 10,000 shares with a weighted
average exercise price of $0.25 per share and a weighted average
remaining life of 0.45 years remain outstanding.
Historically, the fair value of our common stock has been
determined contemporaneously by our Board of Directors on the
date of grant. At the time of the issuances of stock options, we
believed our estimates of the fair value of our common stock
were reasonable and consistent with methods outlined in the
American Institute of Certified Public Accountants Practice Aid,
Valuation of Privately-Held Company Equity Securities Issued
as Compensation and our understanding of how similarly
situated companies in our industry were valued. In connection
with the preparation of the financial statements necessary for
inclusion in the registration statement related to this
offering, we reassessed the estimated fair value of our common
stock for financial reporting purposes for all of 2009 and
incorporated our conclusions into our contemporaneous valuation
through September 30, 2010. The reassessment included both
the determination of the appropriate valuation models and
related inputs. As a result of the greater clarity available to
us to define likely outcomes and the proximity to a liquidity
event (i.e., an initial public offering), we concluded that the
probability weighted expected return, or PWERM, model was more
appropriate than our previously used option pricing method and
provided a more refined estimate of the likely value of our
common stock. As such, we have applied the PWERM model to
reassess our common stock valuations for 2009 and to calculate
our common stock valuations for 2010. The type and timing of
each potential liquidity event for the 2010 valuations were
heavily influenced by the commencement of the initial public
offering process while the December 31, 2009 valuation was
based on our best estimate of type and timing of liquidity
events at that time. Since we had no significant corporate
milestones during 2009, we have ratably increased our common
stock valuation from January 1, 2009 to December 31,
2009 to recognize our steadily increasing value as we approach
our initial public offering. During 2010, since we again had no
significant corporate milestones, we ratably increased our
common stock valuation from January 1, 2010 to
September 30, 2010 to allocate the change in valuation
between December 31, 2009 and September 30, 2010.
During 2003 we adopted a qualified 401(k) profit sharing plan
(the 401(k) Plan) for the benefit of our employees.
Employees are eligible to participate in the 401(k) Plan the
month following hire and may defer up to 25% of their total
compensation, up to the maximum allowed under IRS regulations,
on an annual basis. We are required to match 25% of an
employees deferral amount, up to a maximum of four percent
of the employees compensation. We may, at our discretion,
make additional contributions. Employees are immediately vested
in the employer matching contributions. Our contributions to the
401(k) Plan were $22, $27, $28, $22, $16, and $163 for the years
ended December 31, 2007, 2008 and 2009 and the nine months
ended September 30, 2009 and 2010 and the period from
June 3, 1998 through September 30, 2010, respectively.
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10.
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Commitments
and Contingencies
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We have licensed certain patents and other intellectual property
rights related to the composition and coating of our
bioresorbable stent and our other biomaterial products. Terms of
these licenses include provisions for royalty payments on any
future sales of products, if any, utilizing this technology. The
amount of royalties varies depending upon type of product, use
of product, stage of product, location of sale, and ultimate
sales volume, and ranges from a minimum of approximately $70.00
per unit to a maximum of approximately $100.00 per unit sold.
Additionally, in the event we receive certain milestone payments
related to this technology, the licenses require that 20% of the
milestone amount be paid to the licensors.
F-24
REVA
Medical, Inc.
(a
development stage company)
Notes
to Consolidated Financial Statements
(in
thousands, except share and per share data)
Information as of
September 30, 2010 and thereafter and for the nine months
ended September 30, 2009 and 2010 and the
period from June 3, 1998 (inception) to September 30,
2010 is unaudited
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10.
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Commitments
and Contingencies (continued)
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Additional terms of the technology licenses include annual
licensing payments of $150 in 2008 and $175 in 2009 and annually
thereafter until the underlying technology has been
commercialized. Terms of the licenses also include other
payments to occur during commercialization that could total
$2,550; payment of $350 upon a change in control of ownership;
and payment of patent filing, maintenance, and defense fees. The
license terms remain in effect until the last patent expires or
ten years after commercialization.
In July 2010, we amended the technology licenses so that they
remain in effect until the last patent expires. In addition, the
amended agreements contain minimum royalties that escalate over
the first seven years subsequent to first product sale and
continue through the term of the agreement.
In connection with our development activities, we periodically
enter into contracts with consultants and vendors. These
contracts are generally cancelable with 30 days
written notice. As of December 31, 2009, the minimum future
payments on these contracts totaled $132.
We currently lease our office facilities under a non-cancelable
operating lease that expires in August 2011. We recorded rent
expense of $273, $320, $394, $295, $311, and $2,817 for the
years ended December 31, 2007, 2008, and 2009 and the nine
months ended September 30, 2009 and 2010 and the period
from June 3, 1998 (inception) through September 30,
2010. Future minimum payments under the lease as of
December 31, 2009 total $333 in 2010 and $229 in 2011.
Our related parties include the members of our Board of
Directors and investors with 5% or more of our outstanding
securities. As of December 31, 2009, our related parties
collectively represent 64% of our outstanding voting stock.
In October 2004, we entered into several agreements with a
strategic partner that arranged for, among other things, equity
and debt financings to us. The terms of the agreements had also
provided the strategic partner an option to acquire us if and
when we completed certain technical milestones; the acquisition
option was suspended in December 2007 with the possibility to
reinstate the option on December 7, 2010 if we do not
complete an initial public offering under a registration
statement filed with the U.S. Securities and Exchange Commission
covering the sale of such securities, pursuant to which we will
receive a minimum of $50,000 net cash proceeds. (See
Note 12 Subsequent Events). The strategic
partner divested its debt and equity interests in REVA during
2008 to an independent investor; all terms, rights, and
provisions of those securities remain and were transferred to
the independent investor. The acquisition option, however,
remains with the strategic partner.
Exclusive of the above transactions with the strategic partner,
our only related party transactions relate to our long-term debt
and associated accrued interest. These amounts are disclosed in
our consolidated balance sheets and statements of operations.
We have evaluated all subsequent events through the filing date
of this registration statement on
Form S-1
with the SEC, to ensure that this filing includes appropriate
disclosure of events both recognized in the financial statements
as of September 30, 2010, and events which occurred
subsequently but were not recognized in the financial
statements. Except as described below, there were no other
subsequent events that required recognition or disclosure in the
financial statements.
Reincorporation: In July 2010, our Board
of Directors approved, subject to stockholder approval, our
reincorporation in Delaware. Our reincorporation became
effective in October 2010 upon the approval of our shareholders.
All historical financial statements and accompanying notes have
been retroactively restated to reflect the effect of the
reincorporation.
Board of Directors: In July 2010, two
directors resigned, one new director was appointed, and the
chairman of our Board of Directors was appointed to also serve
as our full-time chief executive officer. In October, one
additional new director was appointed.
F-25
REVA
Medical, Inc.
(a
development stage company)
Notes
to Consolidated Financial Statements
(in
thousands, except share and per share data)
Information as of
September 30, 2010 and thereafter and for the nine months
ended September 30, 2009 and 2010 and the
period from June 3, 1998 (inception) to September 30,
2010 is unaudited
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12.
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Subsequent
Events (continued)
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Changes in Capitalization: In July 2010, our
Board of Directors approved the following actions, in each case
immediately prior to but contingent upon the closing of our
initial public offering:
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amendment of $3,800 of non-convertible 6.25 percent notes
payable to require conversion of the notes into Series F
convertible preferred stock at a rate of $3.28 per share upon
the completion of an initial public offering resulting in at
least $50,000 of net proceeds to us;
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amendment of $1,750 of convertible 6.75 percent notes
payable to require conversion of the notes into Series F
convertible preferred stock at a rate of $3.28 per share upon
the completion of an initial public offering resulting in at
least $50,000 of net proceeds to us; and
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amendment of $10,000 of 2005 unsecured convertible notes and
$5,000 of 2006 unsecured convertible notes to require their
conversion into common stock at $6.50 per share upon the
completion of an initial public offering resulting in at least
$50,000 of net proceeds to us prior to December 31, 2010.
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In October 2010, our board of directors approved the
following actions, in each case immediately prior to but
contingent upon the closing of our initial public offering,
subject to stockholder approval:
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the filing of a restated certificate of incorporation in
Delaware to provide for authorized capital stock of
100,000,000 shares of common stock, 25,000,000 shares of
Class B common stock and 5,000,000 shares of
undesignated preferred stock; and
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adoption of the 2010 Equity Incentive Award Plan with
2,628,838 shares of common stock reserved for issuance.
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Extension to Strategic Partner Agreement: In
September 2010, the reinstatement date of the option held by our
strategic partner (see Note 11 Related Parties)
was extended from December 7, 2010 to January 31,
2011.
F-26
Appendix A
APPENDIX A
We are offering CHESS Depositary Interests, or CDIs, and we will
apply for the CDIs to be listed and admitted to trading on the
Australian Securities Exchange, or ASX, which is expected to be
the principal trading market for our CDIs following our initial
public offering. CDIs are units of beneficial ownership in our
shares of common stock held by the CHESS Depositary Nominees Pty
Limited, or CDN, a wholly owned subsidiary of ASX. The CDIs
entitle holders to dividends, if any, and other rights
economically equivalent to our shares of common stock on a
10-for-1
basis, including the right to attend stockholder meetings. The
CDIs are also convertible at any time at the option of the
holders into shares of our common stock on a
10-for-1
basis. CDN, as the stockholder of record, will vote the
underlying shares in accordance with the directions of the CDI
holders. This Appendix A sets forth additional information
required by the Australian Securities and Investments
Commission, or ASIC, for listing of our CDIs on the ASX.
Capitalized terms used in this Appendix A shall have the
meaning ascribed to such term in the Glossary on
page A-20
below.
Inteq Limited has agreed to act as our placement agent in
connection with the offering of our CDIs outside of the United
States to non-U.S. residents. Inteq Limited is not a registered
broker-dealer in the United States nor a member of the National
Association of Securities Dealers and is participating as a
placement agent only with regard to securities sold outside of
the United States to non-U.S. investors. Inteq Limited is not
soliciting offers to buy CDIs in the United States. Inteq
Limited is not purchasing the CDIs offered by us, and is not
required to sell any specific dollar amount of CDIs, but will
assist us in this offering on a reasonable endeavors
basis with respect to sales outside of the United States to
non-U.S. residents.
ANSWERS
TO KEY QUESTIONS
Who is
offering CDIs under this prospectus?
REVA Medical, Inc.
What does
the Company do?
The Companys primary business is the development,
manufacture and eventual commercialization of a bioresorbable
stent for the treatment of coronary artery disease.
What is
the offer?
The offer is the initial public offering for subscription of a
minimum of 63,636,370 CDIs (each representing an interest in one
tenth of a share of common stock) and a maximum of 77,272,730
CDIs (each representing an interest in one tenth of a share of
common stock). The Company will apply for its CDIs to be quoted
on ASX within seven days after it lodges a prospectus with ASIC.
The Companys securities will not trade on any other
securities exchange upon completion of the offering.
What is
the purpose of the offer?
The purpose of the offer is to:
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assist the Company in funding its human clinical trials,
research and development activities and building of its
commercialization infrastructure; and
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achieve a listing on ASX, broaden the stockholder base and
provide a liquid market for CDIs in the Company.
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What is
the offer price?
The offer price is A$1.10 per CDI (equivalent of A$11.00 per
share of common stock).
What is
the minimum/maximum application under the offer?
Applications must be for a minimum of 2,000 CDIs (A$2,200)
(equivalent to 200 shares). Applications in excess of the
minimum number of CDIs must be in multiples of 1,000 CDIs
(A$1,100) (equivalent to 100 shares). There is no maximum
amount that may be applied for under the offer. However, the
Company, in consultation with the placement agent, reserves the
A-1
right to treat Applications in excess of A$100,000 as part of
the Institutional Offer. The Company, in consultation with the
placement agent, reserves the right to reject any Application or
to allocate a lesser number of CDIs than that which is applied
for.
Who is
eligible to participate in the offering?
Retail investors who are resident in Australia and New Zealand
as well as institutional investors in Australia and certain
other jurisdictions as determined by the Company, in
consultation with the placement agent. In addition, investors
who are resident in the United States are eligible to
participate in the offering. All retail Applicants must have an
eligible residential address in Australia or New Zealand.
How do
the shares compare to shares in an Australian company?
The shares represented by the CDIs are shares of common stock in
REVA Medical, Inc. which is a U.S. company. As a result,
there are certain differences between the Companys shares
and ordinary shares which are typically issued by Australian
incorporated public companies. A summary of the key differences
is set out in the Prospectus under Description of Capital
Stock.
What are
CDIs?
The electronic transfer system used on ASX, known as CHESS,
cannot be used directly for the transfer of securities of
foreign companies. To enable companies such as the Company to
have their securities cleared and settled electronically through
CHESS, depositary instruments called CHESS Depositary Interests,
or CDIs, are issued. CDIs confer beneficial interests in
securities traded on ASX. CDI holders receive all of the
economic benefits of actual ownership of the underlying shares.
Each CDI subscribed for under the offer will represent an
interest in one tenth of a share.
Will I
receive shares of common stock or CDIs?
If you are a
non-U.S. investor
and apply for shares, you will receive your shares in the form
of CDIs (which will trade on ASX). If you are a
U.S. investor, you have the option to receive shares of
common stock or CDIs (shares of common stock will not trade on
ASX).
When can
I trade the CDIs?
The Company will apply for its CDIs to be quoted on ASX within
seven days after it lodges a prospectus with ASIC. Trading of
CDIs on ASX is expected to commence on December 15, 2010.
What are
the expected proceeds of the offer?
The minimum amount to be raised under the offer is A$70,000,007
(prior to deduction for fees and costs associated with the
offer). However, the Company in consultation with the placement
agent, reserves the right to accept Applications for up to a
further A$14,999,996 by way of oversubscriptions.
Is the
offer underwritten?
The offer is not underwritten.
What are
the key dates of the offer?
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The offer opens on November 22, 2010;
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The offer closes at 5:00 p.m. (Australian Eastern Daylight
Time, or AEDT) on December 6, 2010;
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Holding statements are expected to be sent on or about
December 14, 2010; and
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The CDIs are expected to commence trading on ASX on
December 15, 2010.
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These dates are indicative only. The Company and placement agent
reserve the right to vary the dates and times of the offer,
which includes closing the offer early or extending the close of
the offer, without notifying any recipients of a prospectus or
any Applicants.
A-2
What
makes the Company an attractive investment?
The Directors believe the investment in the Company is
attractive because it offers investors an opportunity to become
a stockholder in a company that:
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is developing a bioresorbable stent which the Company believes
will be the next major advance in the treatment of coronary
artery disease;
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is developing products for a significant market;
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has patent protected core technology; and
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has a highly experienced Board and management team.
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What are
the key risks of investing in the Company?
The following are some of the potential risks associated with an
investment in the Company:
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the Company has not yet received the required regulatory
approvals to conduct human clinical trials or to market any
products;
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the Companys human trials may not be successful or may
uncover issues with the Companys technology which it may
not be able to address or which may delay commercialisation of
the products;
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the Company is heavily dependent on its lead product candidate,
the
ReZolveTM
stent;
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if approved, the
ReZolveTM
stent may not achieve market acceptance;
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the Company has a history of net losses and may never achieve
profitability;
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the Company may be unable to maintain and protect its
intellectual property; and
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the Company may be impacted by claims that its current or future
products infringe or misappropriate the intellectual property
rights of others.
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What are
the costs of the offer and who is paying them?
The offer costs include the placement agent fees and the legal,
accounting, advisory and other costs associated with the
pre-offer structuring and the production of the offer
documentation. As of the date of this prospectus, these costs
were estimated to be A$6.7 million (or
US$6.4 million). The Company is paying these costs from the
proceeds of the offer.
Is there
any brokerage, commission or stamp duties payable by
Applicants?
No. Brokerage, commission or stamp duties are not payable by
Applicants on acquisition of CDIs under the offer.
What are
the taxation implications of investing in the Company?
The taxation implications of investing in the Company will
depend on the investors individual circumstances.
Applicants should obtain their own tax advice prior to applying
for CDIs.
A-3
Will I
receive dividends?
The Company is a pre-revenue company working towards obtaining
the necessary regulatory approvals to commercialize its
technology. The Company has not declared or paid any cash
dividends and does not currently anticipate paying any dividends
in the foreseeable future. However, the Company has previously
declared stock dividends on preferred stock which will convert
to shares of common stock prior to the listing on ASX.
How do I
apply for CDIs?
You may apply for CDIs as set forth in the section entitled
Details of the Offering below by submitting the
Application Form accompanying the prospectus (including, for
Australian and New Zealand residents only, the electronic
version of the prospectus). U.S. investors must apply using
the application form provided by the Company.
What is
the allocation policy?
The Company, in consultation with the placement agent, will
determine the allocation of CDIs among Applicants, under the
Broker Firm Offer, the General Public Offer and the
Institutional Offer. The placement agent and the Company have
absolute discretion regarding the basis of allocation of CDIs,
and there is no assurance that any Applicant will be allocated
any CDIs, or the number of CDIs for which the Applicant has
applied.
When will
I receive confirmation whether my Application has been
successful?
Holding statements confirming allocations under the offer are
expected to be sent to Applicants on or around December 14,
2010, with the CDIs expected to commence trading on ASX on
December 15, 2010.
Why have
I received a Prospectus?
The Company is registering the CDIs which will be issued under
the offer (and the underlying shares of common stock) in
accordance with the rules and regulations of the
U.S. Securities and Exchange Commission.
Once registered with the U.S. Securities and Exchange
Commission, the CDIs issued under the offering (and the
underlying shares) will be freely transferable without
restriction under U.S. federal securities laws, unless
purchased by our affiliates or are subject to a lock-up
agreement. The Company is not taking any steps to register the
CDIs and shares of common stock under U.S. state securities
laws. As a result, a holder of CDIs or shares of common stock
issued under the offer may not resell such securities to a
purchaser in any state in the United States without satisfying
the applicable U.S. state securities laws or qualifying for
an exemption from them.
How can I
obtain further information?
By reading the Prospectus in its entirety (no other source of
information is endorsed by the Company or the placement agent).
For advice on the offering, you should contact your accountant,
stockbroker or other professional advisor. If you require
assistance or additional copies of this Prospectus, you should
contact the REVA Offer Information Line at
1800 197 827 (from within Australia) or
+61 3 9938 4372 (from outside Australia).
A-4
DETAILS
OF THE OFFERING
Offering
description
This is the Companys initial public offering. The Company
is offering for subscription 63,636,370 CDIs (and the shares
underlying the CDIs) under the Prospectus to raise A$70,000,007.
However, the Company in consultation with the placement agent
reserves the right to accept Applications for up to further
13,636,360 CDIs (representing up to A$14,999,996) by way of
oversubscriptions.
Investors should note that, as the Company is incorporated in
the United States, the Company is seeking quotation of its
shares of common stock in the form of CDIs on ASX, with each CDI
representing a beneficial interest in one-tenth of a share of
common stock. The shares of common stock underlying the CDIs
will rank equally with the shares of common stock currently on
issue in the Company. The company is not currently seeking a
listing of its shares of common stock on any exchange in the
United States. Further information about CDIs is set out in the
Prospectus under Description of Capital Stock.
The CDIs are being offered at an issue price of A$1.10 per CDI,
which equates to A$11.00 per share.
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Timetable
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Anticipated Date
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Prospectus lodged with ASIC
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November 12, 2010
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Offering Opening Date
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November 22, 2010
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Offering Closing Date
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December 6, 2010
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Allotment and issue of CDIs under the offering
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December 10, 2010
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Expected date for mailing of holding statements
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December 14, 2010
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Expected date for CDIs to commence trading on ASX on a normal
T+3 basis
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December 15, 2010
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The above timetable is indicative only. All times are AEDT. The
Company, in consultation with the placement agent, reserves the
right to vary the dates and times set out above subject to the
Corporations Act and other applicable laws. In particular, the
Company reserves the right to extend the closing date of the
offering or accept late Applications without notifying any
Applicants. Investors who wish to submit an Application are
encouraged to do so as soon as practicable after the offering
opens.
Oversubscriptions
The Company may accept oversubscriptions under the offering of
up to a further A$14,999,996 through the issuance of up to an
additional 13,636,360 CDIs at an issue price of A$1.10 per CDI.
The maximum amount which may be raised in the offering is
therefore A$85,000,003.
Minimum
subscription
The minimum subscription which is being sought under the
offering is A$70,000,007 (or approximately US$66,500,007)
representing 63,636,370 CDIs at A$1.10 per CDI (equivalent
to 6,363,637 shares at A$11.00 per share). At an exchange rate
of A$1.00 = US$0.95, the minimum subscription is equivalent to
in excess of US$50,000,000 net of the costs of the offer.
If the minimum subscription is not obtained within two months
after the date of this prospectus, the Company will repay all
Application Monies in full without interest as soon as
practicable.
The offering is not underwritten.
The Company and the placement agent have entered into an Offer
Management Agreement in respect of the management of the
offering (excluding the offering to institutional investors in
the United States). Under the agreement, the placement agent has
agreed to use its reasonable endeavours to procure Applications
for the minimum subscription under the offering (excluding the
offering to investors in the United States) at the offering
price. The Offer Management Agreement sets out a number of
circumstances under which the placement agent may terminate the
agreement. A summary of the key terms of the agreement
including the termination provisions is set forth below.
Indication
of support for the offer
Medtronic, Inc. has advised the Company that it expects to
subscribe for an aggregate of 9,570,000 CDIs representing
approximately A$10.5 million under the offer, however, it
is not under any binding commitment to the Company to do so.
Several
A-5
of the other existing holders in the Company have also advised
the Company that they expect to subscribe for CDIs under the
offering.
Offering
structure
The offering comprises the Retail Offer which includes:
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the Broker Firm Offer, which is open to Australian resident
retail investors who have received a firm allocation from their
broker;
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the General Public Offer which is open to retail investors
resident in Australia and New Zealand; and
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the Institutional Offer, which consists of an invitation to
certain institutional investors in Australia, New Zealand,
Hong Kong, Singapore and certain other overseas
jurisdictions.
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In addition, the Company will be offering CDIs to residents of
the United States. The Company, in consultation with the
placement agent, reserve the right to aggregate any Applications
which it believes may be multiple Applications from the same
person.
Retail
Offer
Minimum
Application
Applicants under the Retail Offer must apply for a minimum of
2,000 CDIs (equivalent to 200 shares) (A$2,200) and in
multiples of 1,000 CDIs (equivalent to 100 shares)
(A$1,100) thereafter. There is no maximum value of shares which
may be applied for under the Retail Offer. However, the Company,
in consultation with the placement agent, reserves the right to
treat Applications in excess of A$100,000 as part of the
Institutional Offer.
Broker
Firm Offer
The Broker Firm Offer is only open to Australian resident retail
investors who have received a firm allocation from their broker.
Broker Firm Applicants must lodge their Application Forms and
Application Monies in accordance with their brokers
directions in order to receive their firm allocation.
General
Public Offer
The General Public Offer is only open to retail investors
resident in Australia and New Zealand and does not include the
Broker Firm Offer. The Company, in consultation with the
placement agent, reserves the right in its absolute discretion
to refuse to issue CDIs to Applicants under the General Public
Offer.
How do
I apply under the Retail Offer?
This section describes how to apply for CDIs under the Retail
Offer. Bidders in the Institutional Offer (excluding the offer
to investors in the United States) should refer to the placement
agent to determine how they can bid for CDIs in the
Institutional Offer.
A-6
Have
you used the right Application Form?
The table below sets out which Application Form an Applicant
should use. When you apply for CDIs, make sure you use the
correct Application Form. The Application Form for
non-U.S. investors forms part of, and is attached to or
accompanies the prospectus lodged with ASIC or can be a paper
copy of the relevant electronic Application Form attached to the
electronic version of the prospectus lodged with ASIC.
Application Forms must be completed in accordance with the
accompanying instructions.
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Type of
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Amount of Allocation
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Applicant
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Application Form
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Instructions
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or Allotment
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Broker Firm Offer Applicants
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Please contact your broker
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Lodge your Application Form and Application Monies with the
broker from whom you received a firm allocation, in accordance
with that brokers directions. You must apply for a
minimum value of 2,000 CDIs (equivalent to 200 shares)
(A$2,200) and in multiples of 1,000 CDIs (equivalent to
100 shares) (A$1,100) thereafter.
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Broker Firm Offer firm allocation.
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All other non-US Applicants
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Application Form at the back of the prospectus lodged with ASIC
or for Australian and New Zealand investors, the online
Application From available at www.inteqrevaoffer.com.au
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Lodge your Application Form and Application Monies at the
address set out below. You must apply for a minimum value of
2,000 CDIs (equivalent to 200 shares) (A$2,200) and in
multiples of 1,000 CDIs (equivalent to 100 shares)
(A$1,100) thereafter.
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The allotment of any CDIs is subject to the discretion of
the Company in consultation with the placement agent.
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Note: US Applicants must apply for CDIs on the
U.S. Application Form provided by the Company and will be
required to complete and return their Application and
Application Monies in accordance with the instructions on that
form.
Have
you attached your check(s) or bank draft(s) for the right
Application Monies?
Check(s) or bank draft(s) must be:
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in Australian currency;
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drawn on an Australian branch of a financial institution;
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crossed Not Negotiable; and
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made payable:
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for Applicants in the General Public Offer to
REVA Medical Offer; or
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for Applicants in the Broker Firm Offer in
accordance with the directions of the broker from whom you
received a firm allocation.
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Applicants should ensure that sufficient funds are held in the
relevant account(s) to cover your check(s). If the amount of
your check(s) for Application Monies (or the amount for which
those checks clear in time for the allocation) is insufficient
to pay for the amount you have applied for in your Application
Form, you may be taken to have applied for such lower amount as
your cleared Application Monies will pay for (and to have
specified that amount in your Application Form), or your
Application may be rejected.
Australian and New Zealand investors may apply for CDIs
online and pay their Application monies by
Bpay®.
Australian and New Zealand Investors wishing to pay by
Bpay®
should complete the online Application Form accompanying the
electronic version of the prospectus lodged with ASIC which is
available at www.inteqrevaoffer.com.au and follow the
instructions on the online Application Form.
It is the responsibility of the Applicant to ensure payments are
received by 5:00 pm (AEDT) on the closing date. Your bank,
credit union or building society may impose a limit on the
amount which you can transact on
Bpay®
and policies with respect to timing for processing Bpay
transactions, which may vary between bank, credit union or
building society.
®
Registered to Bpay Pty Ltd (ABN 69 079 137 518)
A-7
Address
to lodge your Application Form and check(s):
For Applicants in the General Public Offer, return your
Application Form and check(s):
By mail to:
REVA Medical,
Inc. CDI Offer
Computershare Investor Services
Pty Limited
GPO Box 7115
Sydney NSW 2001
AUSTRALIA
By hand delivery at:
REVA Medical,
Inc. CDI Offer
Computershare Investor Services
Pty Limited
Level 3, 60 Carrington Street
Sydney NSW 2000
AUSTRALIA
For Applicants under the Broker Firm Offer, contact your broker
for information about how to submit your Application Form and
for payment instructions. It is your brokers
responsibility to ensure that your Application Form and
Application Monies are submitted before 5:00 p.m. (AEDT) on
the closing date for the Retail Offer. The Company, the
placement agent and the Share Registry take no responsibility
for any acts or omissions committed by your broker in connection
with your Application. The Company, in consultation with the
placement agent, reserves the right to reject any Application
which is submitted by a person whom it believes is ineligible to
participate in the Broker Firm Offer.
Institutional
Offer
The Institutional Offer is only open to certain institutional
investors and is being managed by the placement agent (excluding
the offer to investors in the United States). Further details of
how to participate in the Institutional Offer outside the United
States, will be provided to participants by the placement agent.
Discretion
regarding the offering
The Company reserves the right not to proceed with the offering
at any time before the allocation of CDIs under the offering. If
the offering does not proceed, Application Monies received by
the Company will be refunded in full (without interest). The
Company takes no responsibility for Application Monies paid to
the placement agent or to brokers until these are received by
the Company.
The Company, in consultation with the placement agent, also
reserves the right to close the offering early, to accept late
Applications, or extend the offering without notifying any
recipient of this prospectus or any Applicant.
Allocation
policy
The Company expects to announce the basis of allocation of CDIs
under the Retail Offer on or about November 10, 2010.
Applicants under the Retail Offer will be able to call the
Companys Offering Information Line on 1 800 197 827 (from
within Australia) or +61 3 9938 4372 (from outside Australia) to
confirm their allocation after December 10, 2010.
Applicants who sell CDIs before receiving an initial holding
statement do so at their own risk, even if they have obtained
details of their holding from their broker or the Companys
Offering Information Line. Other than in relation to the offer
to investors in the United States, the basis of allocation of
CDIs under the offering will be determined by the Company, in
consultation with the placement agent, subject to any firm
allocations under the Broker Firm Offer. Certain Applicants
nominated by the Company and the placement agent may be given
preference in allotment of CDIs. The Company, in consultation
with the placement agent, may reject an Application or allocate
a lesser amount of CDIs than those applied for at its absolute
discretion. The Company will determine at its absolute
discretion the allocation of CDIs under the offering to
investors in the United States.
Application
Monies
All Application Monies will be held by Computershare Investor
Services Pty Limited on trust in a separate escrow account until
CDIs are issued to successful Applicants.
A-8
Application Monies will be refunded in Australian dollars to the
extent that an Application is rejected or scaled back, or the
offering is withdrawn. No interest will be paid on refunded
amounts. Under the Escrow Deed between the Company and
Computershare Investor Services Pty Limited, the Company must
pay Computershare Investor Services Pty Limited an amount equal
to 80 basis points of interest accruing on the Application
funds until the interest is paid out to the Company under the
Escrow Deed.
Allotment
Subject to ASX granting approval for the Company to be admitted
to the Official List, the Company will procure the issuance of
CDIs by CHESS Depositary Nominees Pty Ltd. to successful
Applicants as soon as practicable after the closing date.
Allotment is expected to occur on December 10, 2010.
Rights
attaching to CDIs
The Company is incorporated in the state of Delaware in the
United States, which does not recognize the CHESS system of
holding securities or electronic transfer of legal title to
shares. Therefore, the Companys shares will trade as CDIs
on ASX. CDIs are traded in a manner similar to shares.
CDIs will be held in uncertificated form and settled/transferred
through CHESS. No share certificates will be issued to CDI
holders. Stockholders cannot trade their shares on ASX without
first converting their shares into CDIs.
Each CDI represents one-tenth of an underlying share. The main
difference between holding CDIs and shares is that CDI holders
hold the beneficial ownership in the shares instead of legal
title. CHESS Depositary Nominees Pty Ltd., or CDN, holds the
legal title to the underlying shares. The shares underlying the
CDIs will be registered in the name of CDN and will be held on
behalf of and for the benefit of the CDI holder. CDIs will be
CHESS-approved from the date of official quotation in accordance
with the ASX Listing Rules and the ASTC Settlement Rules.
The rights attaching to shares and CDIs are summarized in the
Prospectus under Description of Capital Stock.
Holders of CDIs can choose to have their CDIs converted to a
direct holding of shares. However, if they do so they will no
longer be able to trade their CDIs on ASX. Similarly, subject to
any restrictions under applicable law, holders of shares may
choose to convert their shares to CDIs to enable them to trade
on ASX. CDI holders wishing to convert their CDIs to shares or
vice versa may do so as described in the Prospectus under
Description of capital stock.
ASX
listing
No later than seven days after the date it lodges a prospectus
with the ASIC, the Company will apply to ASX for admission to
the Official List and for the CDIs to be granted official
quotation by ASX.
The fact that ASX may admit the Company to the Official List and
grant official quotation of the CDIs is not to be taken in any
way as an indication of the merits of the Company or the CDIs
offered for subscription under this Prospectus. ASX takes no
responsibility for the contents of this Prospectus or the
prospectus lodged with the ASIC. Normal settlement trading in
CDIs, if quotation is granted, will commence as soon as
practicable after the issue of holding statements to successful
Applicants.
It is the responsibility of Applicants to determine their
allocation prior to trading in the CDIs. Applicants who sell
CDIs before they receive confirmation of their allotment will do
so at their own risk.
If permission for quotation of the CDIs is not granted within
two months after the date of this prospectus, all Application
Monies will be refunded without interest as soon as practicable.
Brokerage,
commission and handling fees
No brokerage, commission or stamp duty is payable by Applicants
on the acquisition of CDIs under the offering.
Brokerage
and/or
handling fees on Application for CDIs will be payable to member
firms of the ASX or licensed investment advisers on such
Application Forms bearing their codes and accepted by the
Company. Any such brokerage or handling fees will be paid by the
placement agent out of its placement agent fee. Please see
Plan of Distribution in the Prospectus for details
of the fees and commission payable to the placement agent.
A-9
Overseas
distribution
The offering will be made under the Prospectus and the Company
will register the CDIs (and underlying shares) to be issued
under the offering with the SEC.
No action has been taken to register or qualify the offering of
CDIs under a prospectus, or otherwise to permit a public
offering of CDIs, in any jurisdiction outside Australia, New
Zealand and the United States.
Offering
only made where lawful to do so
The distribution of a prospectus in jurisdictions outside
Australia, New Zealand and the United States may be restricted
by law. The Prospectus does not constitute an offer in any place
in which, or to whom, it would not be lawful to make such an
offer. Persons into whose possession this document comes should
inform themselves about and observe any restrictions on
acquisition or distribution of the Prospectus. Any failure to
comply with these restrictions may constitute a violation of
securities laws.
United
Kingdom residents
The information contained in this Prospectus is only being made,
supplied or directed at persons in the United Kingdom who are
qualified investors within the meaning of section 86(7) of
the Financial Services and Markets Act (as amended) (FSMA), and
the CDIs are not being offered or sold and will not be offered
or sold to the public in the United Kingdom (within the meaning
of section 102B of the FSMA), save in circumstances where
it is lawful to do so without an approved prospectus (within the
meaning of section 85 of FSMA) being made available to the
public before the offering is made. In addition, in the United
Kingdom no person may communicate or cause to be communicated
any invitation or inducement to engage in investment activity
(within the meaning of section 21 of FSMA) received by it
in connection with the issue or sale of any CDIs except in
circumstances in which section 21(1) of FSMA does not apply
to the Company and this Prospectus is made, supplied or directed
at qualified investors in the United Kingdom who are
(i) persons having professional experience in matters
relating to investments who fall within the definition of
investment professionals in article 19(5) of
the Financial Services and Markets Act 2000 (Financial
Promotions) order 2005 (as amended) (FPO); or (ii) high net
worth bodies corporate, unincorporated associations and
partnerships and trustees of high value trusts as described in
article 49 of the FPO or (iii) persons who fall within
another exemption to the FPO (all such persons being Relevant
Persons). Any investment or investment activity to which this
Prospectus relates is available only to Relevant Persons and
will be engaged only with Relevant Persons. Each recipient of
this Prospectus in the United Kingdom is deemed to confirm,
represent and warrant to the Company that they are a Relevant
Person.
Any investor who has received CDIs under this offering that
subsequently seeks to sell those CDIs to other persons in the
United Kingdom will need to consider its own position under the
Prospectus regime and financial promotion regime as well as the
documentation necessary to effect a transfer of CDIs if the sale
is to be made outside the market of the ASX.
By completing, signing and returning the Application Form, you,
on your behalf and on behalf of any person on whose behalf you
are acting, make the following confirmations, agreements,
acknowledgements, representations, warranties and undertakings
and irrevocably:
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represent and warrant that you are a person of a kind described
in (i) Article 19(5) (Investment Professionals)
and/or 49(2)
(high net worth companies etc.) of the FPO and/or (ii) in
section 86(7) of the FSMA (Qualified Investor),
being a person falling within Articles 2.1(e)(i),
(ii) or (iii) of Directive 2003/71/EC. For such
purposes, you undertake that you will acquire, hold, manage and
(if applicable) dispose of any CDIs that are allocated to it for
the purposes of your business only;
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represent and warrant that you have not offered or sold will not
offer or sell any CDIs to persons in the United Kingdom, except
to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or
agent) for the purposes of their business or otherwise in
circumstances which have not resulted and which will not result
in an offer to the public in the United Kingdom within the
meaning of section 85(1) of FSMA;
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represent and warrant that you have only communicated or caused
to be communicated and will only communicate or cause to be
communicated any invitation or inducement to engage in
investment activity (within the meaning of section 21 of
FSMA) relating to the CDIs in circumstances in which
section 21(1) of FSMA does not require approval of the
communication by an authorised person; and
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represent and warrant that you have complied and will comply
with all applicable provisions of the FSMA with respect to
anything done by you in relation to the CDIs in, from or
otherwise involving, the United Kingdom.
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New
Zealand residents
This offering to New Zealand investors is a regulated offer made
under Australian and New Zealand law. In Australia, this is
Chapter 8 of the Corporations Act 2001 and Corporation
Regulations 2001 (Cth). In New Zealand, this is Part 5 of
the Securities Act 1978 and the Securities (Mutual Recognition
of Securities Offerings Australia) Regulations 2008.
This offering and the content of the Prospectus are principally
governed by Australian rather than New Zealand law. In the main,
the Corporations Act 2001 and Corporation Regulations 2001 (Cth)
(Australia) set out how the offering must be made. There are
differences in how securities are regulated under Australian
law. For example, the disclosure of fees for collective
investment schemes is different under the Australian regime. The
rights, remedies, and compensation arrangements available to New
Zealand investors in Australian securities may differ from the
rights, remedies, and compensation arrangements for New Zealand
securities. Both the Australian and New Zealand securities
regulators have enforcement responsibilities in relation to this
offering. If you need to make a complaint about this offering,
please contact the Securities Commission, Wellington, New
Zealand. The Australian and New Zealand regulators will work
together to settle your complaint. The taxation treatment of
Australian securities is not the same as for New Zealand
securities. If you are uncertain about whether this investment
is appropriate for you, you should seek the advice of an
appropriately qualified financial adviser. The offering may
involve a currency exchange risk. The currency for the CDIs is
not New Zealand dollars. The value of the CDIs will go up or
down according to changes in the exchange rate between that
currency and New Zealand dollars. These changes may be
significant. If you expect the CDIs to pay any amounts in a
currency that is not New Zealand dollars, you may incur
significant fees in having the funds credited to a bank account
in New Zealand in New Zealand dollars. If the CDIs are able
to be traded on a securities market and you wish to trade the
CDIs through that market, you will have to make arrangements for
a participant in that market to sell the CDIs on your behalf. If
the securities market does not operate in New Zealand, the way
in which the market operates, the regulation of participants in
that market, and the information available to you about the CDIs
and trading may differ from securities markets that operate in
New Zealand.
Singapore
residents
THE OFFER OR INVITATION WHICH IS THE SUBJECT OF THIS PROSPECTUS
IS ONLY ALLOWED TO BE MADE TO CERTAIN CATEGORIES OF INVESTORS
AND NOT THE RETAIL PUBLIC IN SINGAPORE. THIS IS NOT HOWEVER A
PROSPECTUS AS DEFINED IN THE SECURITIES AND FUTURES ACT
(CHAPTER 289) OF SINGAPORE (SFA). ACCORDINGLY,
STATUTORY LIABILITY UNDER THE SFA IN RELATION TO THE CONTENT OF
THE PROSPECTUS WOULD NOT APPLY. YOU SHOULD CONSIDER CAREFULLY
WHETHER THE INVESTMENT IS SUITABLE FOR YOU.
Accordingly, the CDIs may not be offered or sold or made the
subject of an invitation for investment or purchase to the
retail public in Singapore nor may this Prospectus or any other
document or material in connection with the offering or sale, or
invitation for investment or purchase, of such CDIs be
circulated or distributed, whether directly or indirectly, to
the public or members of the public in Singapore other than:
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to an institutional investor or other person falling within
Section 274 of the SFA;
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to a relevant person as defined in section 275(2) of the
SFA, or any person who acquires CDIs pursuant to
section 275(1A) of the SFA, and in accordance with the
conditions specified in section 275 of the SFA; or
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pursuant to, and in accordance with the conditions of, any
applicable provision of the SFA.
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In particular, it should be noted that there may be
transferability restrictions under the SFA where the CDIs are
initially acquired pursuant to an exemption under the SFA.
It is a condition of the offering that each person who agrees to
invest in CDIs is acquiring such CDIs for investment purposes
only and not with a view to distribute or resell the CDIs.
Where the CDIs are subscribed or purchased under
section 275 of the SFA by a relevant person who is a
corporation (which is not an accredited investor) the sole
business of which is to hold investments and the entire share
capital of which is owned by
A-11
one or more individuals, each of whom is an accredited investor,
such CDIs of that corporation shall not be transferable for six
(6) months after that corporation has acquired the CDIs
pursuant to section 275 of the SFA except:
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to an institutional investor under section 274 of the SFA
or to a relevant person as defined in section 275(2) of the
SFA, or where the transfer arises from an offer referred to in
section 275(1A) of the Act;
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where no consideration is given for the transfer; or
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the transfer is by operation of law.
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Where the CDIs are subscribed or purchased under
section 275 of the SFA by a relevant person who is a
trustee of a trust (who is not an accredited investor) the sole
purpose of which is to hold investments and each beneficiary of
which is an individual who is an accredited investor, such
beneficiaries rights and interests in that trust shall not
be transferable for six (6) months after that trust has
acquired the CDIs pursuant to section 275 of the SFA except:
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to an institutional investor under section 274 of the SFA
or to a relevant person as defined in section 275(2) of the
SFA, or where the transfer arises from an offer that is made on
terms that such rights or interests are acquired at a
consideration of not less than S$200,000 (or its equivalent in a
foreign currency) for each transaction, whether such amount is
to be paid in cash or by exchange of securities or other assets;
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where no consideration is given for the transfer; or
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the transfer is by operation of law.
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The offering which is the subject of this Prospectus is not
accompanied by any advertisement making an offering or calling
attention to the offering or intended offering; and no selling
or promotional expenses shall be paid or incurred in connection
with the offering other than those incurred for administrative
or professional services, or by way of commission or fee for
services rendered by any of the service providers of the Company.
Hong
Kong residents resale restrictions
Resale of the CDIs in Hong Kong will be required to comply with
the Companies Ordinance as it relates to an offer of securities
into Hong Kong unless it falls within an exemption to these
requirements (e.g. offer to a professional investor).
A holder of CDIs will also be required to ensure that any
activities conducted in Hong Kong during the re-sale process
would not amount to conducting business in regulated activities
under Part V of the Securities and Futures Ordinance.
Overseas
ownership and resale representation
It is the responsibility of all Applicants to ensure compliance
with all laws of any country relevant to their Application. The
return of a duly completed Application Form will be taken by the
Company to constitute a representation and warranty made by the
Applicant to the Company that there has been no breach of such
laws and that all necessary consents and approvals have been
obtained.
Investor
inquiries
This Prospectus and the prospectus lodged with ASIC provide
information for potential investors in the Company, and should
be read in their entirety. If, after reading this Prospectus and
the prospectus lodged with ASIC, you have any questions as to
whether the CDIs are a suitable investment for you or how to
subscribe for CDIs under this offering, please consult your
broker or other professional adviser.
The electronic version of this Prospectus and the prospectus
lodged with ASIC are available to Australian and
New Zealand investors at the following
website: www.inteqrevaoffer.com.au
A-12
Additional copies of this Prospectus and the prospectus lodged
with ASIC or further advice on how to complete the Application
Form can be obtained by telephoning or visiting:
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REVA Offer Information Line:
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Placement Agent
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1800 197 827 (within Australia)
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Inteq Limited
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+61 2 9938 4372
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Level 6, 175 Macquarie Street
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(outside Australia)
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Sydney, NSW 2000
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Tel: +61 2 9231 3322
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Offer
Management Agreement
The Company will enter into an Offer Management Agreement with
Inteq Limited with respect to the placement of the offering.
Under the Offer Management Agreement, Inteq Limited, or Inteq,
has agreed to use its reasonable endeavours, to procure
Applications for the minimum subscription under the offering
(other than with respect to the offering in the United States).
A summary of the key terms of the Offer Management Agreement is
set out below.
Commission,
fees and expenses
The Company must pay Inteq a management and placing fee equal to:
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A$3.5 million; plus
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5% of the offering proceeds in excess of A$70 million
(excluding any amount raised from U.S. investors or inside
the United States); plus
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A$50,000 for out of scope work.
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The above fees will become payable by the Company on the
Allotment Date.
The Company has also agreed to reimburse Inteq for certain
agreed costs and expenses incurred by Inteq in relation to the
offering. Inteq is responsible for all fees and costs payable to
any co-managers
and/or
brokers appointed by Inteq with respect to the offering.
Warranties
The Offer Management Agreement contains certain standard
representations, warranties and undertakings provided by the
Company to Inteq. The warranties relate to matters such as the
conduct of the parties and information provided by the parties
in relation to the prospectus lodged with ASIC and the offering.
The Companys undertakings include that it will not, during
the period following the date of the Offer Management Agreement
until 180 days after the issue and transfer of CDIs under
the offering, issue or agree to issue any shares or securities
without the consent of Inteq (subject to certain exemptions such
as pursuant to the Companys 2010 Equity Incentive Plan and
issues described in the prospectus lodged with ASIC).
Indemnity
Subject to certain exclusions relating to, among other things
fraud, recklessness, wilful misconduct, negligence or a material
breach of the Offer Management Agreement by an indemnified
party, the Company agrees to keep Inteq and certain affiliated
parties indemnified from losses suffered in connection with the
offering.
Termination
events
If any of the following events occur at any time before the
Allotment Date or such other time as specified below, then Inteq
may at any time by notice to the Company, immediately without
any cost or liability to Inteq, terminate the Offer Management
Agreement:
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(ASX Indices fall) The S&P/ASX 200 Index at any time
falls to a level which is 90% or less than the level at the
close of trading on the date of the Offer Management Agreement
and remains below that level for a period of three consecutive
business days.
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A-13
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(NASDAQ fall) The NASDAQ Composite Index at any time
falls to a level which is 90% or less than the level at the
close of trading on the date of the Offer Management Agreement
and remains below that level for a period of three consecutive
business days.
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(Change of material terms) The Company changes the
material terms of the offering as set out in the prospectus
lodged with ASIC (or any supplementary prospectus).
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(Withdrawal) The Company withdraws the prospectus lodged
with ASIC, any supplementary or replacement prospectus required
to be lodged with ASIC under Chapter 6D of the Corporations
Act in connection with the offering.
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(Minimum subscription condition not satisfied) The
minimum subscription condition stated in the prospectus lodged
with ASIC is not satisfied by 5:00 p.m. on the Closing Date.
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(Net proceeds less than US$50 million) Based on the
Applications received by 5:00 p.m. on the Closing Date, in
the reasonable opinion of Inteq, the net proceeds of the
offering (being the offering proceeds less all costs and
expenses of the offering) will not be less than
US$50 million.
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(Listing and quotation):
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ASX makes an official statement to any person, or indicates to
the Company or Inteq that:
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the Company will not be admitted to the official list of ASX;
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ASX will not admit the Company to the official list of ASX and
grant quotation of the Companys CDIs on ASX (ASX
Approval); or
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ASX Approval will be given but that the Company will not be
admitted to the official list of ASX or the CDIs will not be
quoted by ASX before January 31, 2011.
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ASX Approval (subject only to customary listing and quotation
conditions imposed by ASX) has not been given before the
Allotment Date.
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(Prospectus/Disclosure Documents):
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there is a material omission from the prospectus lodged with
ASIC or any other disclosure document relating to the offering
(including but not limited to this registration statement)
(Disclosure Document) of information required by the
Corporations Act or any other applicable law or requirement;
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the prospectus lodged with ASIC or any other Disclosure Document
contains a misleading or deceptive statement;
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a statement in the prospectus lodged with ASIC or any other
Disclosure Document becomes misleading or deceptive;
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a matter referred to in section 719 of the Corporations Act
occurs in respect of the prospectus lodged with ASIC.
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(Certificate) A statement in the confirmation certificate
which the Company is required to provide to Inteq under the
Offer Management Agreement is untrue or incorrect in any
material respect.
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(Due Diligence Report) The due diligence report prepared
by the due diligence committee established in connection with
the offering or any other information supplied by or on behalf
of the Company to Inteq in relation to shares of common stock,
CDIs, the Company, or the offering, is untrue, incorrect,
misleading or deceptive in a material respect.
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(Corporations Act):
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ASIC applies for an order under section 1324B of the
Corporations Act in relation to the prospectus lodged with ASIC
and the application is not dismissed or withdrawn before the
Closing Date;
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a person (other than Inteq) gives a notice under
section 730 of the Corporations Act in relation to the
Prospectus lodged with ASIC;
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ASIC gives notice of intention to hold a hearing in relation to
the prospectus lodged with ASIC, or makes an interim order,
under section 739 of the Corporations Act;
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any person (other than Inteq) gives a notice under
section 733(3) of the Corporations Act;
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A-14
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any person (other than Inteq) who consented to the inclusion of
a statement in, or to being named in, the prospectus lodged with
ASIC (or any supplementary or replacement prospectus) withdraws
that consent;
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an application is made by ASIC for an order under Part 9.5
in relation to the prospectus lodged with ASIC or ASIC commences
any investigation or hearing under Part 3 of the
Australian Securities and Investments Commission Act 2001
(Cth) in relation to the prospectus lodged with ASIC.
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(Supplementary Prospectus) The placement agent reasonably
forms the view that a supplementary prospectus must be lodged
with ASIC under section 719 of the Corporations Act and the
Company does not lodge a supplementary prospectus with ASIC in
the form with the content and within the time reasonably
required by the placement agent.
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(Insolvency Event) the Company or its subsidiary is
insolvent, or there is an act or omission made which is likely
to result in the Company or its subsidiary becoming insolvent.
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(Change in management) A change to the board or senior
management of the Company occurs from those identified in the
prospectus lodged with ASIC.
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Termination
events subject to materiality
If any of the following events occur at any time before the
Allotment Date or such other time as specified below, and such
event (a) would have a material adverse effect on the
offering, the price at which CDIs may trade on ASX after their
quotation or the willingness of investors to pay the offering
price for the CDIs or (b) could create a material liability
for Inteq under the Corporations Act or any other law or
regulation, then Inteq may at any time, by notice to the
Company, immediately without any cost or liability to Inteq
terminate the Offering Management Agreement:
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(Change in Law) There is introduced, or there is a public
announcement of a proposal to introduce into any legislature of
Australia or the United States, a law or regulation, or a new
government policy is adopted by a government in any of those
jurisdictions or there is a public announcement of a proposal to
adopt a new government policy by such a government (other than a
law or government policy announced before the date of this
agreement) any of which does or is likely to prohibit or
regulate the offering, capital issues or the taxation treatment
of the CDIs.
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(Breach of significant contracts) A material contract or
an agreement referred to in Section 11 of the prospectus
lodged with ASIC is, without the prior written consent of Inteq:
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breached by the Company or a related body corporate (as that
term is defined in the Corporations Act; or
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terminated (whether by breach or otherwise).
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(Fails to Comply) The Company or any related body
corporate (as that term is defined in the Corporations Act)
fails to comply in any material way with any of the following:
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a provision of the Constitution or a related body
corporates (as that term is defined in the Corporations
Act) constitution or constituent or governing documents;
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the Corporations Act or any other law or regulation;
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the ASX Listing Rules; or
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any binding policy of ASIC or any other governmental agency or
any other requirement, order or request made by or on behalf of
ASIC, ASX or any other governmental agency.
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(Default) A default by the Company in the performance of
any of its obligations under the Offer Management Agreement
occurs.
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(Warranties) A warranty or representation contained in
the Offer Management Agreement on the part of the Company is not
true or correct.
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(Prosecution) Any of the following occur:
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a Director or member of senior management of the Company (as
listed in the prospectus lodged with ASIC) is charged with an
indictable offence;
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A-15
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any governmental agency commences any public action against the
Company or any of its Directors or senior managers in their
capacity as a Director or senior manager of the Company;
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any Director or senior manager of the Company is disqualified
from managing a corporation under any law of any
jurisdiction; or
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the Company or a Director or senior manager of the Company
engages in any fraudulent conduct or activity.
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(Hostilities) There is an outbreak of hostilities
(whether or not war or a national emergency has been declared)
not presently existing, or a major escalation in existing
hostilities occurs, or a major act of terrorism occurs in or
involving any one or more of the following:
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Australia;
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New Zealand;
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the United Kingdom;
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the United States;
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any member country of the European Union;
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or involving any diplomatic, military, commercial or political
establishment of any of those countries elsewhere in the world.
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(Adverse change) Any adverse change occurs in the assets,
liabilities, financial position or performance, profits, losses
or prospects of the Company (or its subsidiary), including any
adverse change in the assets, liabilities, financial position or
performance, profits, losses or prospects of the Company (or its
subsidiary) from those disclosed in the prospectus lodged with
ASIC.
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(Other Events) There is:
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a suspension or limitation in trading in all securities quoted
or listed on ASX, the New York Stock Exchange or the NASDAQ, for
one day on which that exchange is open for trading;
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a general moratorium on commercial banking activities in
Australia, the United States, the United Kingdom or the European
Union, is declared by the relevant authorities, or there is a
disruption in commercial banking or securities settlement or
clearance services in those places; and
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any adverse change or disruption to the existing financial
markets, political or economic conditions of, or currency
exchange rates or controls in Australia, the United States, the
United Kingdom or the European Union, or the international
financial markets or any adverse change in national or
international political, financial or economic conditions.
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A-16
AUSTRALIAN
TAXATION IMPLICATIONS
Set out below is a summary of the potential Australian tax
implications for investors who acquire CDIs under the Offer.
Under the offering, shareholders will receive CDIs (which can
subsequently be converted to shares of our common stock). The
tax consequences for CDI holders in respect of CDIs are
generally the same as for shares of common stock. Accordingly,
references to shares of common stock in the Company should also
be read as a reference to CDIs in respect of the Companys
shares of common stock.
This advice is a general guide to the Australian tax
implications only based on the law in force in Australia as at
the date of this Prospectus. These laws and practices are
subject to change periodically as is their interpretation by the
courts. Shareholders should obtain their own independent
professional advice on the tax implications of acquiring and
disposing of CDIs based on their own specific circumstances.
This summary generally outlines the Australian taxation position
of the following types of shareholders of the Company who hold
their shares of common stock on capital account and are
Australian residents:
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If you are an:
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Go to section:
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Australian resident individual
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(a)
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Australian resident company
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(b)
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Australian resident complying superannuation fund
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(c)
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Australian resident trust (not taxed as a company)
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(d)
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(a) Australian
resident individuals
Disposal/transfer
of Shares
The transfer/disposal of shares of common stock by a shareholder
will be a capital gains tax event in respect of the shares of
common stock.
A capital gain will arise where the capital proceeds (generally,
the market value of the consideration) received pursuant to the
transfer of shares of common stock exceeds the cost base of the
shares of common stock in the Company. The cost base of the
shares of common stock in an arms length transaction is
generally the value of the consideration paid to acquire the
shares of common stock (plus transaction costs).
In preparing their Australian income tax return, shareholders
will need to total their individual capital gains and capital
losses in a year of income to ascertain whether they have a net
capital gain or loss for the year of income.
Any net capital gain is included in their assessable income and
is subject to income tax at their personal marginal tax rate. In
this case, shareholders may be eligible for the capital gains
discount concession where they have held their shares of common
stock for at least 12 months prior to disposal. If the
capital gains discount concession applies, only half of any
capital gain arising from the transfer of the shares of common
stock is included in the shareholders assessable income.
A net capital loss may be carried forward to offset against
capital gains derived in future income years. However, a capital
loss may not be offset against other income for income tax
purposes.
Receipt
of future dividends
The Company has not paid dividends in respect of its shares of
common stock and does not intend to do so in the foreseeable
future.
If any dividend is paid in the future, the Company may be
required to withhold and remit a percentage of the gross
dividend to the US taxation authorities (referred to as
withholding tax). Generally the U.S./Australia tax treaty should
reduce the withholding tax rate to 15% of the gross amount of
the dividends where the Shareholder holds less than 10% of the
voting interests of the Company. This rate may be further
reduced if other requirements of the treaty are met.
Shareholders will receive the dividend net of the withholding
tax (if applicable). However, shareholders will need to include
the gross amount of the dividend in their Australian assessable
income (that is, the dividend plus any withholding tax that has
been deducted) as foreign sourced dividend income. The
Australian tax payable on the dividend can generally be reduced
by the amount of the withholding tax deducted and remitted in
the United States. This is referred to as the foreign
income tax offset which is calculated as the greater of:
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A$1,000; or
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the Australian tax payable on the net income on which foreign
tax is paid.
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A-17
To the extent that the amount of withholding tax deducted from
the foreign income (for example, dividends) exceeds the foreign
income tax offset that the shareholder can claim in an income
year applying the above principles, the excess is lost and
cannot be carried forward.
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(b)
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Australian
resident companies
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Disposal/transfer
of Shares
The Australian tax implications of the transfer of shares of
common stock are largely the same as for an Australian resident
individual (outlined in the section (a) above), except that:
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a companys assessable income is subject to income tax at
the company tax rate;
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if the shareholder holds a direct voting interest of 10% or more
in the Company throughout a 12 month period within the
24 months prior to the disposal of the shares of common
stock, the capital gain or capital loss may be reduced to the
extent that the Company has active foreign business
assets. This will depend on the mix of assets held by the
Company at that time and Shareholders should seek independent
professional advice in this respect; and
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the capital gains discount concession is not available to a
company.
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Receipt
of future dividends
The Australian tax implications will depend on the percentage of
voting interests held by the Australian company (together with
its associates) in the Company after the offering. That is, if
the Australian company (together with its associates) holds:
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less than 10% of voting interests in the Company: The Australian
tax implications of receiving dividends will be the same as same
as for an Australian resident individual (outlined in the
section (a) above), except that the companys
assessable income is subject to income tax at the company tax
rate.
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10% or more of voting interests in the Company: The dividend
will be exempt income and no tax will be payable. No foreign
income tax offset for U.S. dividend withholding tax will be
available.
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(c)
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Australian
resident complying superannuation fund
|
The Australian tax implications are generally the same as for an
Australian resident individual outlined in section (a)
above. However, the capital gains discount concession will be
331/3%
(not 50%).
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(d)
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Australian
resident trust (not taxed as a company)
|
The tax consequences that arise where a trust holds shares of
common stock in the Company will vary depending upon the nature
of the trust, and shareholders in these circumstances should
seek their own independent professional advice.
The tax consequences that arise for an Australian resident trust
in respect of gains on transfer/disposal of the shares of common
stock and dividends received in respect of shares of common
stock held in the Company are largely the same as described for
Australian resident individuals outlined in the section (a)
above.
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(e)
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Stamp
duty/GST consequences
|
Shareholders will not be required to pay any stamp duty on the
issue of CDIs received under the offering or on the future
transfer of their CDIs or shares of common stock to prospective
shareholders.
The transfer, cancellation or issue of CDIs or shares of common
stock should not be subject to GST. However, shareholders may
incur GST on their costs associated with these events (e.g.
brokerage). Shareholders that are registered for GST may be
entitled to claim GST credits on these costs. Shareholders
should seek independent tax advice in these circumstances.
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(f)
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Application
of the Foreign Investment Fund rules and Foreign Accumulation
Funds rules to investment in Shares in the Company
|
The Foreign Investment Fund (FIF) provisions have been repealed,
effective from July 1, 2010, and replaced with a specific,
narrowly-defined anti avoidance rule. Shareholders should be
aware that these rules are proposed to be replaced by the
Foreign
A-18
Accumulated Funds (FAF) regime or the Company has applied for
which relates to investments in certain foreign resident
companies (currently in Exposure Draft form). The taxation
treatment under the draft FAF rules of shareholders
interest in the Company is therefore unclear at this time and
shareholders should seek specific taxation advice in light of
their particular circumstances.
ASX
WAIVERS AND CONFIRMATIONS
ASX has granted the Company or the Company has applied for the
following confirmations and waivers described below in
connection with the Companys admission to the official
list of ASX:
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a waiver from Listing Rule 10.18 to the extent necessary to
permit the Company to, upon a change in its shareholding or
control, pay termination benefits to its chief executive officer
pursuant to the terms of his existing employment contract;
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a waiver from Listing Rule 14.2.1 to the extent necessary
to permit the Company not to provide in its proxy form an option
for shareholders to vote against a resolution to re-elect a
director;
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confirmation that the Company may accept nominations for the
election of directors in accordance with the timetable set out
in the Companys Bylaws for the purposes of Listing
Rule 14.3;
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a waiver from Listing Rule 14.4 to the extent necessary to
permit the Company to comply with the statutory requirements
imposed under Delaware law and its Bylaws with respect to the
appointment of directors to fill casual vacancies on the
Companys board;
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confirmation that the Company may prepare its accounts and
financial disclosures in accordance with U.S. GAAP and only in
US$ and will not be required to provide a statement reconciling
its accounts to Australian accounting standards or international
accounting standards; and
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waivers and confirmations with respect to the mandatory ASX
escrow requirements for certain existing stockholders.
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ASIC
RELIEF
ASIC has granted the Company exemptions from, modifications to
and consents in respect of the pre-prospectus advertising
restrictions contained in the Corporations Act in relation to
the filing of the registration statement with the SEC and
delivery of the registration statement to certain potential
investors prior to the Company lodging a prospectus with ASIC.
A-19
GLOSSARY
In this Appendix, the following terms and abbreviations have the
following meanings:
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AEDT
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Australian Eastern Daylight Time
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Allotment Date
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The date which is three business days after the Closing Date
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Applicant
|
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A person who submits a valid Application Form
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Application
|
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A valid application to subscribe for shares under the offering,
which will be issued to investors outside the United States in
the form of CDIs
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Application Form
|
|
The application form for investors to apply for CDIs or shares
of common stock under the offering, which will be issued to
investors outside the United States in the form of CDIs
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Application Money
|
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The money submitted by Applicants in respect of their
Applications
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Application Period
|
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The period between the opening and closing date of the offering
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ASIC
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The Australian Securities and Investments Commission
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ASTC
|
|
ASX Settlement and Transfer Corporation Pty Limited (ABN 49 008
504 532)
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ASTC Settlement Rules
|
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The settlement rules of the operating facility provided by ASTC
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ASX
|
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The Australian Securities Exchange, ASX Limited (ABN 98 008 624
691) or the securities market it operates, as the context
requires
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Broker Firm Offer
|
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An offer open to Australian resident retail investors who have
received a firm allocation from their broker
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CDI
|
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A CHESS Depository Interest in one-tenth of a share of common
stock
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CDN
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CHESS Depositary Nominees Pty Ltd (ABN 75 071 345 506)
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CHESS
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The Clearing House Electronic Sub-Register System of share
transfers operated by ASTC
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CHESS Depositary Interest
|
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A security interest as defined in the ASTC Settlement Rules
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Closing Date
|
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December 6, 2010, the date that the offer period closes
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Company
|
|
REVA Medical, Inc.
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Corporations Act
|
|
The Australian Corporations Act 2001 (Cth)
|
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General Public Offer
|
|
An offer open to retail investors resident in Australia and New
Zealand that does not satisfy the requirements for a Broker Firm
Offer
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Institutional Offer
|
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An offer to certain qualifying institutional investors in
Australia, New Zealand, the United States and certain other
overseas jurisdictions
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Listing Rules
|
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The Official Listing Rules of the ASX
|
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Official List
|
|
A list of companies approved for listing by the ASX
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Prospectus
|
|
The prospectus to be used with respect to the offering of our
CDIs or shares inside the United States or to U.S. residents of
which this Appendix is a part
|
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Retail Offer
|
|
Includes the Broker Firm Offer, the General Public Offer and the
Institutional Offer
|
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Share Registry
|
|
Computershare Investor Services Pty Limited
(ABN 48 078 279 277)
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A-20
CDIs
63,636,370 CDI
Minimum
77,272,730 CDI
Maximum
Representing Common
Shares
6,363,637 Shares
Minimum
7,727,273 Shares
Maximum
PROSPECTUS
Until ,
2010, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required
to deliver a prospectus. This is in addition to the
dealers obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
,
2010
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other
Expenses of Issuance and Distribution.
|
The following table indicates the expenses to be incurred in
connection with the offering described in this registration
statement, other than placement agent fees, all of which will be
paid by us. All of the amounts are estimated except the SEC
registration fee.
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Amount to be paid
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SEC registration fee
|
|
$
|
6,774
|
|
Printing and mailing
|
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176,000
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Legal fees and expenses
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1,768,000
|
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Accounting fees and expenses
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|
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850,000
|
|
Transfer agent and registrar
|
|
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17,000
|
|
Miscellaneous
|
|
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222,226
|
|
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Total
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$
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3,040,000
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Item 14.
|
Indemnification
of Directors and Officers.
|
Our amended and restated certificate of incorporation and
amended and restated bylaws that will be effective upon
completion of the offering provide that each person who was or
is made a party or is threatened to be made a party to or is
otherwise involved (including, without limitation, as a witness)
in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he
or she is or was one of our directors or officers or is or was
serving at our request as a director, officer, or trustee of
another corporation, or of a partnership, joint venture, trust
or other enterprise, including service with respect to an
employee benefit plan, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer or
trustee or in any other capacity while serving as a director,
officer or trustee, shall be indemnified and held harmless by us
to the fullest extent authorized by the Delaware General
Corporation Law against all expense, liability and loss
(including attorneys fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid in settlement) reasonably
incurred or suffered by such.
Section 145 of the Delaware General Corporation Law permits
a corporation to indemnify any director or officer of the
corporation against expenses (including attorneys 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, or an action
brought by or on behalf of the corporation, indemnification may
be provided 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 or she reasonably believed to
be in, or not opposed to, the best interests of the corporation,
except that no indemnification shall be provided 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 Delaware General
Corporation Law, Article 12 of our amended and restated
certificate of incorporation eliminates the liability of a
director to us or our stockholders for monetary damages for such
a breach of fiduciary duty as a director, except for liabilities
arising:
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from any breach of the directors duty of loyalty to us or
our stockholders;
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from acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
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under Section 174 of the Delaware General Corporation
Law; and
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from any transaction from which the director derived an improper
personal benefit.
|
II-1
The foregoing discussion of our amended and restated certificate
of incorporation, amended and restated bylaws, indemnification
agreements, and Delaware law is not intended to be exhaustive
and is qualified in its entirety by such amended and restated
certificate of incorporation, amended and restated bylaws,
indemnification agreements, or law.
Reference is made to Item 17 of our undertakings with
respect to liabilities arising under the Securities Act.
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Item 15.
|
Recent
Sales of Unregistered Securities
|
We have issued the following securities that were not registered
under the Securities Act of 1933, as amended, or the Securities
Act. The offers, sales and issuances of these securities were
deemed to be exempt from registration under the Securities Act
in reliance on Section 4(2) of the Securities Act,
and/or
Regulation D and the other rules and regulations
promulgated thereunder, or Rule 701 promulgated under
Section 3(b) of the Securities Act as transactions not
involving a public offering or transactions under compensatory
benefit plans and contracts relating to compensation as provided
under such Rule 701. The recipients of securities in each
such transaction represented their intention to acquire the
securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates and warrants
issued in such transactions.
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In May 2007, we issued and sold convertible promissory notes in
the aggregate principal amount of $5,000,000 and warrants to
purchase an aggregate of 153,692 shares of Series H
preferred stock at an exercise price of $6.50 per share to
investors in a bridge loan financing transaction completed in a
series of closings. In December 2007, these notes, including the
approximate $163,830 in accrued interest, were converted into an
aggregate of 793,629 shares of our Series H preferred
stock. In addition, at the time of the note conversion, we
issued warrants to these noteholders to purchase an aggregate of
158,726 shares of our common stock at an exercise price of
$6.50 per share.
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From December 2007 to June 2010, we issued an aggregate of
6,454,986 shares of Series H preferred stock for a
purchase price of approximately $6.50 per share and warrants to
purchase an aggregate of 1,290,999 shares of our common
stock at an exercise price of approximately $6.50 per share to
investors in a private placement transaction completed in a
series of closings, for aggregate gross proceeds of
approximately $42.0 million.
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In April 2010, we exercised a right of first refusal to acquire
an aggregate of 461,071 shares of Series H preferred
stock and warrants to purchase an aggregate of
92,214 shares of our common stock for a total purchase
price of $550,000 from certain affiliates of Pequot Capital
Management. We purchased these shares solely to facilitate their
sale to certain of our existing stockholders because we did not
have sufficient time to assign our right of first refusal to
them and subsequently administered the sale of these securities
before expiration of the right of first refusal. Following our
purchase, we sold these shares at the same purchase price to
certain of our existing stockholders.
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Prior to and contingent upon the consummation of our offering,
we anticipate that (i) our preferred stockholders will
convert an aggregate of 14,739,732 shares of our preferred
stock into 14,739,732 shares of our common stock;
(ii) our warrant holders will exercise preferred and common
stock warrants to purchase an aggregate of 701,821 shares
of our common stock; (iii) our noteholders will convert
notes, with an aggregate of approximately $28,409,000 of
principal and accrued interest outstanding as of
September 30, 2010, into 5,588,187 shares of our
common stock; and (iv) we will issue an aggregate of
868,972 shares of our common stock as cumulative dividends
and an aggregate of 189,981 shares of our common stock as
an anti-dilution adjustment, to certain of our stockholders.
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From January 2007 through September 2010, we granted stock
options to employees and directors under our 2001 Stock Option
Plan pursuant to which the optionees may purchase up to an
aggregate of 643,500 shares of common stock (net of
cancellations) at a weighted average exercise price of $1.40 per
share of our common stock. Each of these options is immediately
exercisable.
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Item 16.
|
Exhibits
and Financial Statement Schedules.
|
(a) See the Exhibit Index on the page immediately
preceding the exhibits for a list of exhibits filed as part of
this registration statement on
Form S-1,
which Exhibit Index is incorporated herein by reference.
(b) Financial Statement Schedules
All other schedules have been omitted because they are not
applicable.
II-2
Financial
Statement Schedules
All schedules have been omitted because they are not required or
are not applicable or the required information is shown in the
financial statements or notes thereto.
(a) Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
provisions described under Item 14 above, or otherwise, the
registrant has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is
therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act, the
Registrant has duly caused this Amendment No. 3 to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in San Diego,
California, on November 10, 2010.
REVA Medical, Inc.
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By:
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/s/ Robert
B. Stockman
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Name: Robert B. Stockman
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Title:
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Chairman and Chief Executive Officer
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We, the undersigned officers and directors of REVA Medical,
Inc., hereby severally constitute and appoint Robert B. Stockman
and Katrina Thompson, and both or any one of them, our true and
lawful attorneys-in-fact and agents, with full power of
substitution and re-substitution in each of them for him and in
his name, place and stead, and in any and all capacities, to
sign any and all amendments (including post-effective
amendments) to this registration statement, and any registration
statement for the same offering that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of
1933, as amended, and to file the same, with all exhibits
thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing
necessary or desirable 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 each of said
attorneys-in-fact or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following
persons in the capacities and on the dates indicated below.
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Signature
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Title
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Date
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/s/ Robert
B. Stockman
Robert
B. Stockman
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Chairman of the Board and Chief
Executive Officer (Principal Executive
Officer)
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November 10, 2010
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/s/ Katrina
Thompson
Katrina
Thompson
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Chief Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
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November 10, 2010
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*
Robert
K. Schultz, Ph.D.
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President and Chief Operating Officer
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November 10, 2010
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*
Brian
Dovey
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Director
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November 10, 2010
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*
Anne
Keating
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Director
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November 10, 2010
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*
Gordon
E. Nye
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Director
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November 10, 2010
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James
J. Schiro
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Director
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November 10, 2010
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*
Robert
Thomas
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Director
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November 10, 2010
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*By:
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/s/ Robert
Stockman
Robert
Stockman
Attorney-in-fact
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II-4
INDEX TO
EXHIBITS
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Exhibit
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Number
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Description of Exhibits
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3
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.1
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Certificate of Incorporation.*
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3
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.2
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Amendment to Certificate of Incorporation to be effective upon
completion of the offering.*
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3
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.3
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Amended and Restated Certificate of Incorporation to be
effective upon completion of this offering.*
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3
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.4
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Bylaws.*
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3
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.5
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Amended and Restated Bylaws to be effective upon completion of
this offering.*
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4
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.1
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Form of Stock Certificate.
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4
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.2
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Form of Amended and Restated Investors Rights Agreement,
by and among REVA Medical, Inc. and the holders of our preferred
stock set forth therein.
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5
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.1
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Opinion of DLA Piper LLP (US) regarding the legality of the
securities being registered.
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10
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.1
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Telecom Business Center Business Lease between FSP Telecom
Business Center Limited Partnership and REVA Medical, Inc. dated
December 18, 2001.*
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10
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.2
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First Amendment to Telecom Business Center Business Lease
between FSP Telecom Business Center Limited Partnership and REVA
Medical, Inc. dated January 3, 2005.*
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10
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.3
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Second Amendment to Telecom Business Center Business Lease
between ARI Commercial Properties, Inc. and REVA Medical, Inc.
dated February 18, 2006.*
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10
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.4
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Third Amendment to Telecom Business Center Business Lease
between ARI Commercial Properties, Inc. and REVA Medical, Inc.
dated December 14, 2006.*
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10
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.5
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Fourth Amendment to Telecom Business Center Business Lease
between ARI Commercial Properties, Inc. and REVA Medical, Inc.
dated May 7, 2008.*
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10
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.6
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Agreement and Plan of Merger, dated October 13, 2004, by
and among REVA Medical, Inc., Boston Scientific Corporation, RMI
Acquisition Corp. and certain stockholder representatives set
forth therein.*
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10
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.7
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Amendment No. 1 to the Agreement and Plan of Merger, dated
December 7, 2007, by and among REVA Medical, Inc., Boston
Scientific Corporation, RMI Acquisition Corp. and certain
stockholder representatives set forth therein.*
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10
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.8
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Securities Purchase Agreement between Boston Scientific
Corporation and REVA Medical, Inc. dated October 13, 2004.*
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10
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.9
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Amendment No. 1 to Securities Purchase Agreement between
Boston Scientific Corporation and REVA Medical, Inc. dated
December 7, 2007.*
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10
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.10
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Distribution Option Agreement, dated December 7, 2007, by
and between REVA Medical, Inc. and Boston Scientific
Corporation.*
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10
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.11
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Exclusive License Agreement Number between Rutgers, The State
University of New Jersey and REVA Medical, Inc. dated
July 1,
2010.++*
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10
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.12
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Royalty and License Agreement between Integra/LifeSciences
Corporation and REVA Medical, Inc. dated February 2,
2004.++*
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10
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.13
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2001 Stock Option/Stock Issuance
Plan.+*
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10
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.14
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Form of Stock Option
Agreement.+*
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10
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.15
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Form of Addendum to Stock Option
Agreement.+*
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10
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.16
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2010 Equity Incentive
Plan.+*
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10
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.17
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Form of Stock Option
Agreement.+
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10
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.18
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Form of Stock Option Agreement entered into with Robert Thomas
and Anne
Keating.+
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10
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.19
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Form of Director and Officer Indemnification
Agreement.+*
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10
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.20
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Employment Agreement, dated July 1, 2010, by and between
REVA Medical, Inc. and Robert B.
Stockman.+*
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10
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.21
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Employment Agreement, dated October 21, 2010, by and
between REVA Medical, Inc. and Robert
Schultz.+
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10
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.22
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Employment Agreement, dated October 21, 2010, by and
between REVA Medical, Inc. and Katrina
Thompson.+
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10
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.23
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Form of Offer Management Agreement between REVA Medical, Inc.
and Inteq Limited.*
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10
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.24
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Form of CDI Subscription Application for non U.S. investors.
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10
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.25
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Form of CDI Subscription Application for U.S. investors.
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10
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.26
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Form of Escrow Deed between REVA Medical, Inc. and Computershare
Investor Services Pty Limited.*
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21
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.1
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List of Subsidiaries.*
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23
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.1
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Consent of Ernst & Young LLP, Independent Registered
Public Accounting Firm.
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23
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.2
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Consent of DLA Piper LLP (US) (included in Exhibit 5.1).
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24
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.1
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Powers of Attorney (included in the signature page).
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99
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.1
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Section 13 of the ASX Settlement Rules.*
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+ |
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Management Compensation Plan |
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++ |
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Confidential Treatment Request |
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* |
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Previously filed |
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** |
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To be filed by Amendment |
II-5