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PROSPECTUS
Rule 424(b)(3) Prospectus
Registration Number 333-91461
DIGENE CORPORATION
1,500,000 SHARES
COMMON STOCK
The selling stockholders are offering to sell 1,500,000 shares of our
common stock with this prospectus. We will not receive any of the proceeds from
sales of these shares by the selling stockholders.
The selling stockholders acquired the offered shares directly from us and
certain of our stockholders in a private placement that was exempt from the
registration requirements of the federal securities laws. We are required to
register these shares under the terms of the Purchase Agreements, each dated as
of November 18, 1999, among us, certain of our stockholders and the selling
stockholders named in this prospectus.
Our common stock is traded on the Nasdaq National Market under the symbol
"DIGE." On December 22, 1999, the last sale price of the common stock, as
reported on the Nasdaq National Market, was $18.00 per share.
The selling stockholders may sell their shares from time to time on the
Nasdaq National Market or otherwise. They may sell the shares at prevailing
market prices or at prices negotiated with purchasers. The selling stockholders
will be responsible for any commissions or discounts due to brokers or dealers.
The amount of those commissions or discounts cannot be known now because they
will be negotiated at the time of the sales. We will pay all other offering
expenses.
BEFORE BUYING ANY SHARES YOU SHOULD READ THE DISCUSSION OF MATERIAL RISKS OF
INVESTING IN COMMON STOCK IN "RISK FACTORS" BEGINNING ON PAGE 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is December 23, 1999
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information that is different
from that contained in this prospectus. The selling stockholders are offering to
sell, and seeking offers to buy, the shares of common stock only in
jurisdictions where offers and sales are permitted. The information contained in
this prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or any sale of the common stock. In
this prospectus, references to "we," "us" and "our" refer to Digene Corporation
and its subsidiaries.
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TABLE OF CONTENTS
WHERE YOU CAN FIND MORE INFORMATION...........................................2
INCORPORATION OF INFORMATION WE FILE WITH THE SEC.............................3
PROSPECTUS SUMMARY............................................................4
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS..........................7
RISK FACTORS..................................................................8
USE OF PROCEEDS..............................................................21
DIVIDEND POLICY..............................................................21
SELLING STOCKHOLDERS.........................................................21
PLAN OF DISTRIBUTION.........................................................24
LEGAL MATTERS................................................................25
EXPERTS......................................................................26
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference room at 450 Fifth Street, N.W., Washington, DC 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. The SEC maintains an internet site at http://www.sec.gov that
contains reports, proxy and information statements, and other information,
regarding issuers, including us, that file documents with the SEC
electronically. You can also inspect our SEC filings at the offices of The
Nasdaq Stock Market, 1735 K Street, N.W., Washington DC 20006.
This prospectus is a part of a registration statement on Form S-3 that we
filed with the SEC with respect to the common stock offered by this prospectus.
This prospectus does not contain all the information that is in the registration
statement. We omitted certain parts of the
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registration statement as allowed by the SEC. We refer you to the registration
statement and its exhibits for further information about us and the common stock
offered by the selling stockholders.
INCORPORATION OF INFORMATION WE FILE WITH THE SEC
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is an
important part of this prospectus, and the information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings made with the SEC
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
until this offering is completed:
- Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 1999;
- Annual Report on Form 10-K/A for the fiscal year ended June 30, 1999;
- Proxy Statement for the 1999 Annual Meeting of Stockholders; and
- Registration Statement on Form 8-A dated April 3, 1996.
You may request a copy of these filings, at no cost, by writing to or
telephoning us at the address below. However, we will not provide copies of the
exhibits to these filings unless we specifically incorporated by reference the
exhibits in this prospectus.
Digene Corporation
Attention: Charles M. Fleischman
1201 Clopper Road
Gaithersburg, Maryland 20878
800 - DIGENE - 1
www.digene.com
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PROSPECTUS SUMMARY
OUR BUSINESS
This summary highlights information contained or incorporated by reference
elsewhere in this prospectus. It is not complete and does not contain all of the
information that you should consider before investing in the shares. You should
read the entire prospectus carefully including the documents incorporated by
reference, and you should consider the information set forth under "Risk
Factors."
We develop, manufacture and market our proprietary DNA and RNA testing
systems for the screening, monitoring and diagnosis of human diseases. We have
developed and are commercializing our patented Hybrid Capture(R) Gene Analysis
System and tests in three areas: women's cancers and infectious diseases, blood
viruses, and pharmaceutical clinical research. Our primary focus is in women's
cancers and infectious diseases where our lead product is the only FDA approved
test for human papillomavirus, or HPV, which is the cause of greater than 99% of
cervical cancer cases. Our product portfolio also includes DNA tests for the
detection of chlamydia, gonorrhea and other sexually transmitted infections. We
believe our Hybrid Capture technology platform represents a significant
improvement over existing technologies because of its accuracy, speed, ease of
use and ability to quantitate DNA and RNA. In the United States, we market our
products through a direct sales force and in other countries through
distributors. Abbott Laboratories, one of the world's leading medical diagnostic
companies, markets and distributes all of our women's cancers and infectious
diseases products and certain of our blood virus products in Europe, Africa and
the Middle East.
Our commercial objective is to become the world leader in gene-based
testing for women's cancers and infectious diseases. We are working to establish
our HPV test as the standard for cervical cancer screening, the world's largest
cancer screening market. Virtually all cases of cervical cancer are preventable
if detected in the precancerous stage. Currently, the Pap smear is a test used
to screen for cervical cancer. The Pap smear is a subjective, labor intensive
test that has limited sensitivity and diagnostic accuracy leading to equivocal
test results and false negative diagnoses, which result in significant costs to
the healthcare system due to over-treatment or under-diagnosis.
Our HPV test allows physicians to identify women who are most at risk of
having or developing cervical disease and cervical cancer. We intend to
capitalize on our leadership position in HPV testing to obtain a significant
share of the global cervical cancer screening market, both as a primary
screening test and as a follow-up to the Pap smear. We are targeting this global
opportunity primarily by marketing our disease management strategy for cervical
cancer screening to managed care providers in the United States and
government-funded national screening programs outside the United States. In
addition, we have developed a network of women's health advocates, public health
providers and physician organizations to communicate the diagnostic and
cost-effective benefits of HPV testing to physicians, reimbursement providers,
testing laboratories and the public.
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We have applied our Hybrid Capture technology to provide for the
simultaneous detection of chlamydia ("CT"), gonorrhea and other sexually
transmitted infections, in addition to HPV, from a single patient sample. We
also can use a liquid-based Pap smear sample for our DNA tests and have FDA
approval to use the specimen provided by Cytyc Corporation's ThinPrep(R) Pap
Test(TM) for our HPV tests. We believe the ability to perform multiple tests
from a single patient specimen provides greater convenience to patients and
their physicians and reduces healthcare costs by decreasing the frequency of
patient visits and testing.
Our second major focus is in blood viruses where we have developed unique
testing products using our Hybrid Capture System to detect the presence of
hepatitis B virus (HBV) and cytomegalovirus (CMV). These blood viruses are
leading causes of morbidity and death. Our tests detect and measure the amount
of virus in a patient sample, helping physicians determine disease prognosis and
optimize the efficacy of the antiviral therapy. The sensitivity of our blood
virus tests, along with their ability to quantitate viral load, provide a
competitive advantage over other methods. Our CMV test is the only DNA test
cleared for the detection of CMV by the FDA. Abbott, one of the world's leading
providers of HBV tests, is selling our HBV and CMV products in Europe, Africa
and the Middle East where we believe that our HBV test is the leading HBV DNA
test.
Our Hybrid Capture System utilizes signal amplification and combines the
accuracy of nucleic acid probe diagnostics with the ease of use and mass-market
capabilities of the antibody-based immunodiagnostic systems that are used
routinely by clinical labs today. Our Hybrid Capture technology uses RNA probes
to bind specific DNA sequences to create hybrid DNA:RNA molecules. The captured
hybrids are then reacted with our proprietary signal amplification system which
uses antibodies to detect DNA:RNA hybrids. The Hybrid Capture System and tests
are sensitive, rapid, accurate, objective, non-invasive and easy to use, and can
be performed by laboratory staff using standardized testing equipment. Recently,
we have developed an automated, microplate-based Hybrid Capture testing system.
In the pharmaceutical clinical research area, we are utilizing the capabilities
of our Hybrid Capture System to identify, develop and validate new gene-based
testing opportunities. As a result of the high throughput capability of the
Hybrid Capture System, PE Biosystems entered into an exclusive technology and
marketing partnership with us to address opportunities in high throughput gene
expression screening for pharmaceutical drug discovery.
We have established a strong proprietary position in our Hybrid Capture
technology. We have an exclusive license to a patent covering the use of the
monoclonal antibodies, which are central to the Hybrid Capture detection system.
Additionally, in July 1999, the European Patent Office allowed a broad patent
covering the entire Hybrid Capture System. We have exclusive licenses and
co-exclusive cross licenses with the Institut Pasteur to issued and pending
patents covering the use of HPV genetic sequences from six of the thirteen key
cancer causing HPV types. We believe that these patents create a unique
proprietary position for Digene in the HPV testing field.
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We have achieved a number of important regulatory milestones over the last
year. Our next generation Hybrid Capture II HPV Test received premarket (PMA)
approval from the FDA in March 1999, our Hybrid Capture II CT Test received
510(k) clearance from the FDA in October 1999 and our Hybrid Capture II
Gonorrhea Test received 510(k) clearance from the FDA in December 1999. In
1999, our portfolio of women's cancers and infectious disease tests was cleared
for sale in almost every major European country and in Brazil and Argentina. In
the blood virus area, our Hybrid Capture CMV Test received 510(k) clearance
from the FDA in October 1998. In addition, we received ISO 9001 certification
in June 1999.
We also have achieved a number of important commercial milestones over the
past year. We entered into a partnering arrangement with PE Biosystems in
October 1998 and into a marketing and distribution alliance with Abbott in May
1999. Our Hybrid Capture HPV Test was used in numerous clinical trials, and the
results of such trials were published in peer reviewed publications. We
developed a program to expand reimbursement coverage for our products, resulting
in coverage in the United States for our Hybrid Capture HPV Tests from
significant managed care providers.
CORPORATE INFORMATION
We were incorporated in Delaware in 1987. Our principal executive offices
are located at 9000 Virginia Manor Road, Beltsville, Maryland 20705. Our
telephone number is (301) 470-6500. After January 1, 2000, our principal
executive offices will be located at 1201 Clopper Road, Gaithersburg, Maryland
20878 and our telephone number will be 800-DIGENE-1.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains certain "forward-looking statements" based on our
current expectations, assumptions, estimates and projections about our business
and our industry. These forward-looking statements involve risks and
uncertainties. Words such as "believe," "anticipate," "expect," "intend,"
"plan," "will," "may" and other similar expressions identify forward-looking
statements. In addition, any statements that refer to expectations, projections
or other characterizations of future events or circumstances are forward-looking
statements. Our actual results could differ materially from those anticipated in
such forward-looking statements as a result of several factors more fully
described in "Risk Factors" and elsewhere in this prospectus. The
forward-looking statements made in this prospectus relate only to events as of
the date on which the statements are made. We undertake no obligation to update
publicly any forward-looking statements for any reason, even if new information
becomes available or other events occur in the future.
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RISK FACTORS
An investment in our common stock offering is very risky. You should
carefully consider the following risk factors in addition to the remainder of
this prospectus before purchasing our common stock. If any of the following
risks occur, our business, financial condition or operating results could be
adversely affected. In that case, the trading price of our common stock could
decline, and you may lose all or part of your investment.
WE HAVE A HISTORY OF OPERATING LOSSES AND ANTICIPATE WE WILL INCUR CONTINUED
LOSSES FOR THE FORESEEABLE FUTURE.
We have had substantial operating losses since incorporation in 1987, and
we have never earned a profit. At September 30, 1999, our accumulated deficit
was approximately $49.8 million. These losses have resulted principally from:
(1) expenses associated with our research and development programs; (2) the
expansion of our manufacturing facilities; and (3) the expansion of our sales
and marketing activities in the United States and abroad.
We expect that these operating losses will continue for the foreseeable
future. Our future profitability depends, in part, on:
- the success of our product development efforts;
- obtaining regulatory approvals for our product candidates from the FDA
and foreign regulatory authorities;
- our ability to expand our manufacturing capabilities to meet any
increase in demand for our products; and
- our sales and marketing activities.
OUR OPERATING RESULTS HAVE, AND MAY CONTINUE TO, FLUCTUATE SIGNIFICANTLY.
Our quarterly operating results have fluctuated significantly in the past.
We believe that they may continue to fluctuate significantly in the future with
lower product revenues in our first and second fiscal quarters (July 1 through
December 31) as compared with our third and fourth fiscal quarters of each year.
The lower demand for certain women's health-related medical procedures during
the summer months and the December holiday season in the United States and
Europe primarily causes this fluctuation.
In addition, our quarterly operating results, as well as our annual
results, may fluctuate from period to period due to:
- the degree of market acceptance of our products;
- the timing of regulatory approvals and other regulatory announcements;
- variations in our distribution channels;
- the timing of new product announcements and introductions of new
products by us and our competitors; and
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- product obsolescence resulting from new product introductions.
Due to any one or more of these or other factors, in one or more future
quarters our results of operations may fall below the expectations of securities
analysts and investors.
WE HAVE LIMITED MANUFACTURING EXPERIENCE, AND OUR MANUFACTURING OPERATIONS MAY
BE INTERRUPTED AS A RESULT OF OUR PLANNED MOVE.
We have limited commercial-scale manufacturing experience and capabilities,
and we anticipate that we will be required to expand our manufacturing
capabilities.
To address this anticipated expansion, we have entered into a lease for a
new facility in Gaithersburg, Maryland. We intend to relocate our corporate,
research and development and manufacturing operations to this new facility at
the end of December 1999. We cannot begin manufacturing activities at the new
facility until our manufacturing process there has been validated by the FDA.
The FDA may not provide such validation in a timely manner which could delay
our ability to meet the demand for our products. To minimize this potential
problem, we will continue manufacturing certain components in our Beltsville,
Maryland facility until our new facility is validated appropriately and will
stockpile product inventory during this second quarter of fiscal 2000. This
stockpiling will cause an increase in our expenses for this period.
Once the new facility is validated by the FDA, it will still be subject, on
an ongoing basis, to a variety of quality systems regulations, international
quality standards and other regulatory requirements, including requirements for
good manufacturing practices, which are commonly referred to as "cGMP." The
integration of our manufacturing operations into this new facility may result in
problems involving production yield and quality control and assurance. We may
encounter difficulties expanding our manufacturing operations in accordance with
these regulations and standards, which could result in a delay or termination of
manufacturing.
WE MANUFACTURE ALL OF OUR PRODUCTS IN A SINGLE FACILITY.
We face risks inherent in the operation of a single facility for
manufacture of our products. These risks include unforeseen plant shutdowns due
to personnel, equipment or other factors, and the possible inability of our
facility to produce products in quantities sufficient to meet customer demand.
Any delay in the manufacture of our products could result in delays in product
shipment.
OUR PRODUCTS MAY NOT BE FULLY ACCEPTED BY THE MARKET.
We cannot predict whether the worldwide medical community will accept our
technology to the extent we believe is appropriate or to the extent which is
required for us to operate profitably. Our success depends, in part, upon the
acceptance by third-party payors, clinical laboratories and healthcare providers
of our Hybrid Capture technology as a clinically useful and
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cost-effective detection, screening and monitoring method in the areas of
women's cancers and infectious diseases and blood viruses.
In addition, our growth and success will depend upon market acceptance by
the medical community of our HPV tests as a primary cervical cancer screening
method and as a follow-up screening method for women with equivocal Pap smears.
This entails acceptance of our HPV tests as a clinically useful and
cost-effective alternative to well-established follow-up procedures, such as Pap
smear re-testing, colposcopy and biopsy. HPV testing, in general, or our HPV
tests, in particular, may not achieve market acceptance on a timely basis and,
in fact, may never achieve market acceptance.
Furthermore, technological advancements designed to improve quality control
over sample collection and preservation, and to reduce the Pap smear test's
susceptibility to human error, may serve to increase physician reliance on the
Pap smear and solidify its market acceptance. If marketed as an adjunct to the
Pap smear test for primary screening in the United States, our HPV tests may be
seen as adding unnecessary expense to the accepted cervical cancer screening
methodology. Consequently, we can provide no assurance that our HPV tests will
be able to achieve market acceptance as a primary screening test on a timely
basis, or at all.
OUR SALES TO INTERNATIONAL MARKETS ARE SUBJECT TO ADDITIONAL RISKS THAT ARE
BEYOND OUR CONTROL.
Our international sales and operations may be limited or disrupted by:
- the imposition of government controls;
- export license requirements;
- economic and political instability;
- price controls;
- trade restrictions;
- changes in tariffs; and
- difficulties with foreign distributors.
Generally, the extent and complexity of regulation of medical products are
increasing worldwide, with regulation in some countries already nearly as
exhaustive as that in the United States. We anticipate that this trend will
continue and that the cost and time required to obtain approval to market in any
given country will increase with no assurance that such approval will be
obtained. Additionally, our business, financial condition and results of
operations may be materially and adversely affected by fluctuations in currency
exchange rates as well as increases in duty rates and difficulties in obtaining
required licenses and permits.
We may not be able to successfully commercialize any of our products in any
foreign market beyond the level of commercialization we have already achieved.
In addition, the laws of some countries do not protect our proprietary rights to
the same extent as those of the United States.
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WE HAVE LIMITED SALES AND MARKETING EXPERIENCE.
We have limited sales and marketing experience and may be unable to
successfully establish and maintain a significant sales and marketing
organization. Due to the relatively limited market awareness of our products, we
believe that the marketing effort may be a lengthy process.
We intend to continue using a direct sales force as well as a network of
distributors to market and sell our HPV tests, chlamydia and gonorrhea tests and
blood virus tests. Our direct sales force may not succeed in promoting our
products to third-party payors, clinical laboratories, healthcare providers and
government entities. The risks of pursuing this strategy include:
- we may be unable to recruit and retain skilled sales, marketing,
service or support personnel;
- agreements with distributors for U.S. and foreign sales may not be
available on terms commercially reasonable to us, or at all; and
- our sales and marketing efforts may be unsuccessful.
OUR SALES ARE HIGHLY DEPENDENT ON A SINGLE INTERNATIONAL DISTRIBUTOR.
In May 1999 we entered into a marketing and distribution agreement with
Abbott Laboratories. Under this agreement, Abbott is exclusively responsible for
sales and marketing of certain of our Hybrid Capture products in Europe, Africa
and the Middle East and our Hybrid Capture II Chlamydia and Gonorrhea Tests in
the United States. We expect that sales to Abbott will constitute a significant
portion of our total revenues for the foreseeable future. We could be
materially adversely affected by:
- the loss of Abbott's sales and marketing infrastructure;
- a significant decrease in product shipments to or an inability to
collect receivables from Abbott; or
- any other adverse change in our relationship with Abbott.
OUR SALES ARE HIGHLY DEPENDENT ON REIMBURSEMENTS FROM THIRD-PARTY PAYORS.
Sales of our products in the United States and other markets will depend,
in part, on the availability of adequate reimbursement from third-party payors,
such as government insurance plans, including Medicare and Medicaid in the
United States, managed care organizations and private insurance plans.
Third-party payors often express reluctance to reimburse healthcare providers
for the use of any medical test incorporating new technology, such as ours.
Reimbursement by a third-party payor may depend on a number of factors,
including the payor's determination that our products are clinically useful,
cost-effective, not experimental or investigational, and medically necessary and
appropriate for the specific patient.
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Because each payor individually approves reimbursement, seeking such
approvals is a time consuming and costly process which requires us to provide
scientific and clinical support for the use of each of our products to each
payor separately. In addition, third-party payors are increasingly limiting
reimbursement coverage for medical diagnostic products and in many instances are
exerting pressure on medical suppliers to lower their prices. Thus, third-party
reimbursement may not be consistently available for our products or financially
adequate to cover our costs and achieve profitability.
Outside the United States, the responsibility for obtaining reimbursement
approval from third-party payors is handled by our distributors and, therefore,
is out of our direct control. Healthcare reimbursement systems vary from country
to country and, accordingly, we cannot guarantee that third-party reimbursement
will be available for our products under any other reimbursement system.
FUTURE LEGISLATION COULD AFFECT OUR ABILITY TO ACHIEVE PROFITABILITY.
One of our ongoing concerns is that from time to time, Congress has
considered restructuring the delivery and financing of healthcare services in
the United States. We cannot predict what form of legislation, if any, may be
implemented or the effect of this legislation on our business. It is possible
that future legislation will contain provisions which may adversely affect our
business, financial condition and results of operations. It is also possible
that future legislation could result in modifications to the nation's public and
private healthcare insurance systems, which could negatively affect
reimbursement policies or encourage integration or reorganization of the
healthcare industry in a manner that could negatively affect us. We cannot
predict what legislation, if any, relating to our business or to the healthcare
industry may be enacted.
OUR STRATEGY FOR THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS AND
PRODUCT CANDIDATES IS DEPENDENT IN PART ON COLLABORATIONS WITH THIRD PARTIES.
We have entered into and intend to continue to enter into corporate
collaborations for the development of new products, clinical collaborations with
respect to trials using our products and product candidates and strategic
alliances for the distribution of our Hybrid Capture System and tests. Our
success depends in large part on the efforts of these third parties in
performing their responsibilities. We cannot assure you that we will be able to
enter into arrangements that may be necessary in order to develop and
commercialize our products or that we will realize any of the contemplated
benefits from these arrangements. Furthermore, we cannot assure you that any
revenues or profits will be derived from our collaborative and other
arrangements.
WE FACE INTENSE COMPETITION IN THE BIOTECHNOLOGY INDUSTRY.
The medical diagnostics and biotechnology industries are subject to intense
competition. We can provide no assurance that we will be able to compete
successfully against existing or future competitors. For certain of our tests,
we also compete against existing detection, screening
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and monitoring technologies, including the Pap smear, tissue culture and
antigen-based diagnostic methodologies.
Our existing and potential competitors may be able to develop technologies
that are as effective as, or more effective or easier to interpret than those
offered by us, which would render our products noncompetitive or obsolete.
Moreover, many of our existing and potential competitors have substantially
greater financial, research and development, marketing, sales, manufacturing,
distribution and technological resources than us.
In addition, many of these companies may have established third-party
reimbursement for their products. In marketing our HPV tests for primary
cervical cancer screening either in conjunction with or separate from the Pap
smear, our tests will compete against the Pap smear, which is widely accepted as
an inexpensive and, with regular use, adequate screening test for cervical
cancer. Additionally, in marketing our HPV tests for the follow-up screening of
women with equivocal Pap smears in the United States, we compete with
well-established follow-up procedures, such as Pap smear re-testing, colposcopy
and biopsy, which are also widely accepted and have a long history of use.
We face competition from a variety of technologies in the blood virus area.
There are several advanced technologies commercially available for the detection
and viral load measurement of HIV and hepatitis B virus. Additionally, there are
several emerging DNA probe amplification technologies to detect CMV being
developed by competitors.
WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS, PERMITTING COMPETITORS TO
DUPLICATE OUR PRODUCTS AND SERVICES.
Patent protection for our technologies and products will be a crucial
factor in our ability to develop and commercialize our products. Because of the
substantial length of time and expense associated with bringing new products
through development to the marketplace, the medical diagnostics and
biotechnology industries place considerable importance on obtaining and
maintaining patent and trade secret protection for new technologies, products
and processes. Large pharmaceutical companies consider a strong patent estate
critical when they evaluate whether to enter into a collaborative arrangement to
support the research, development and commercialization of a technology. Without
the prospect of reasonable patent protection, it would be difficult for us or
any corporate partner to justify the time and money that is necessary to
complete the development of a product.
We have obtained rights to certain patents and patent applications and may,
in the future, obtain, or seek rights from third parties to additional patents
and patent applications. We can provide no assurance that patent applications
relating to our products or technologies will result in patents being issued,
that any issued patents will afford adequate protection to us, or that such
patents will not be challenged, invalidated, infringed or circumvented.
Furthermore, we can provide no assurance that others have not developed, or will
not develop, similar products or
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technologies that will compete with our products or technologies without
infringing upon our intellectual property rights.
Any success in protecting our proprietary rights will depend in large part
on our ability to:
- obtain, maintain and enforce patent protection for our products and
technologies both in the United States and internationally;
- license rights to patents from third parties;
- maintain trade secret protection;
- operate without infringing upon the proprietary rights of others; and
- prevent others from infringing our proprietary rights.
Any licenses we may be required to secure under any patents or proprietary
rights of third parties may not be made available on terms acceptable to us, if
at all. Moreover, the laws of certain countries may not protect our proprietary
rights to the same extent as United States law.
In addition to the risk that we could be a party to patent infringement
litigation, the U.S. Patent and Trademark Office, or its foreign counterparts,
could require us to participate in patent interference proceedings that it
declares. These proceedings are often expensive and time-consuming, even if we
were to prevail in such a proceeding. We may also be forced to initiate legal
proceedings to protect our patent position or other proprietary rights. These
proceedings typically are costly, protracted and offer no assurance of success.
We have received inquiries regarding possible patent infringements relating
to, among other things, certain aspects of our Hybrid Capture technology. We
believe that the patents of others to which these inquiries relate are either
not infringed by our Hybrid Capture technology or are invalid. Nevertheless, we
cannot be sure that our patents and patent applications will adequately protect
our Hybrid Capture technology. With respect to our products for the detection of
HPV, we continue to negotiate with a third party regarding a license to a
pending United States patent application which might cover one of the HPV types
utilized in our Hybrid Capture II HPV Test. If the patent issues and if a
license is necessary, our failure to successfully negotiate a license on
commercially reasonable terms, or at all, may require us to redesign our Hybrid
Capture II HPV Test to exclude this HPV type. Such exclusion could result in
delays in approval or marketing of the redesigned Hybrid Capture II HPV Test in
the United States.
In June 1999, Enzo Biochem, Inc. filed an action in the U.S. District Court
for the State of New York against Chugui Pharmaceutical Co., Ltd and its
subsidiaries Chugui Pharma U.S.A., Inc. and Gen-probe Incorporated, bioMerieux,
Inc. and Becton Dickinson and Company for infringement of Enzo Biochem's United
States patent covering genetic probes for detecting Neisseria gonorrhoeae. In
October 1999, Enzo Biochem contacted us to determine whether our Hybrid Capture
II Gonorrhea Test might infringe such patent. We have evaluated this matter and
its potential impact on our gonorrhea test. After consultation with our patent
counsel, we believe that the Enzo Biochem United States patent is invalid. We
cannot assure you that we
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will not become involved in litigation with Enzo Biochem. In addition, we can
provide no assurance that we will not be subject to further claims that our
technology, including our Hybrid Capture technology, or our products, infringe
the patents or proprietary rights of third parties.
Our success also is dependent upon the skill, knowledge and experience of
our scientific and technical personnel. To help protect our rights, we require
all employees, consultants, advisors and collaborators to enter into
confidentiality agreements that prohibit the disclosure of confidential
information to anyone outside our company and require disclosure, and in most
cases, assignment to us of their ideas, developments, discoveries and
inventions. We can provide no assurance, however, that these agreements will
provide adequate protection for our trade secrets, know-how or other proprietary
information in the event of any unauthorized use or disclosure.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION AND MAY NOT BE ABLE TO OBTAIN
REGULATORY APPROVALS.
The FDA product clearance process is unpredictable and uncertain. We can
provide no assurance that the necessary approvals or clearances for our product
candidates will be granted on a timely basis, or at all. In particular:
- we may be unable to collect adequate data to support a premarket
approval for either our HIV test or hepatitis B virus test or to
receive approval for those tests in a timely manner;
- the FDA may determine that our combined chlamydia and gonorrhea tests
are not substantially equivalent to legally marketed devices or that
additional information or data is needed to make such a determination;
- we may be unable to obtain or keep valid marketing authorization from
one or more of the countries to which we export our products;
- we, or recipients of our products that are limited to research use
only may fail to comply with the user certification requirements and
other regulatory limitations placed on the distribution and use of
these devices, which could result in an enforcement action by the FDA
against us; or
- we may lose previously received approvals, particularly the approvals
for our HPV tests using our Hybrid Capture I and II technologies.
Further, we must comply with similar requirements of foreign governments
and with import and export regulations when distributing our products to foreign
nations. Each foreign country's regulatory requirements for product approval and
distribution are unique and may require the expenditure of substantial time,
money and effort. The regulation of medical devices in a number of
jurisdictions, particularly in the European Union, continues to develop.
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<PAGE> 16
CLINICAL TRIALS FOR OUR PRODUCT CANDIDATES ARE EXPENSIVE AND THEIR OUTCOME IS
UNCERTAIN.
Conducting clinical trials is a lengthy, time-consuming and expensive
process. Before obtaining regulatory approvals for the commercial sale of any
products, we or our corporate partners must demonstrate through preclinical
testing and clinical trials that our product candidates are safe and effective
for use in humans. We have incurred and will continue to incur substantial
expense for, and devote a significant amount of time to, preclinical testing and
clinical trials.
Historically, the results from preclinical testing and early clinical
trials have often not predicted results of later clinical trials. A number of
new medical devices have shown promising results in clinical trials, but
subsequently failed to establish sufficient safety and efficacy data to obtain
necessary regulatory approvals. Data obtained from preclinical and clinical
activities is susceptible to varying interpretations, which may delay, limit or
prevent regulatory approval. In addition, regulatory delays or rejections may be
encountered as a result of many factors, including changes in regulatory policy
during the period of product development.
Clinical trials conducted by us, by our collaborators or by third parties
on our behalf may not demonstrate sufficient safety and efficacy to obtain the
requisite regulatory approvals for our product candidates. Regulatory
authorities may not permit us to undertake any additional clinical trials for
our product candidates.
Completion of clinical trials may take several years or more. The length of
time can vary substantially with the type, complexity, novelty and intended use
of the product candidate. Our commencement and rate of completion of clinical
trials may be delayed by many factors, including:
- our inability to manufacture sufficient quantities of materials used
for clinical trials;
- our inability to recruit patients at the expected rate;
- the failure of clinical trials to demonstrate a product candidate's
efficacy;
- our inability to follow patients adequately after treatment;
- our inability to predict unforeseen safety issues; and
- the potential for unforeseen governmental or regulatory delays.
If a product candidate fails to demonstrate safety and efficacy in clinical
trials, this failure may delay development of other product candidates and
hinder our ability to conduct related preclinical testing and clinical trials.
As a result of these failures, we may also be unable to find additional
collaborators or to obtain additional financing.
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<PAGE> 17
CERTAIN KEY COMPONENTS OF OUR PRODUCTS ARE PROVIDED BY A SINGLE SUPPLIER.
Several key components of our products come from single source suppliers.
These suppliers are subject to many strict regulatory requirements regarding the
supply of these components. We cannot be sure that these suppliers will comply,
or have complied, with applicable regulatory requirements or that they will
otherwise continue to supply us with the key components we require. If suppliers
are unable or refuse to supply us, or will supply us only at a prohibitive cost,
we may not be able to access additional sources at acceptable prices, on a
timely basis, if ever.
We acquire these components on a purchase-order basis, meaning that the
supplier is not required to supply us with a specified quantity of product
within a given time period or set-aside part of its inventory for our orders. We
have not arranged for alternative supply sources.
In the event that we cannot obtain sufficient quantities of these
components on commercially reasonable terms, or in a timely manner, we would not
be able to manufacture our products on a timely and cost-competitive basis.
In addition, if any of the components of our products are no longer
available in the marketplace, we may be forced to further develop our technology
to incorporate alternate components. The incorporation of new components into
our products may require us to seek necessary approvals from the FDA or
appropriate foreign regulatory agencies prior to commercialization. We can
provide no assurance that this development would be successful or that, if
developed by us or licensed from third parties, any alternative components would
receive requisite regulatory approval on a timely basis, or at all.
The success of our products based on our Hybrid Capture technology will
depend, in part, on our ability to arrange for the distribution to our customers
of luminometers and related software and equipment with the capability to
analyze the results of our tests. Two suppliers currently provide us with all of
our luminometers. We may be unable to locate other suppliers if our current
suppliers fail to produce luminometers for us in accordance with specifications,
in accordance with applicable regulations and on a timely basis. Even if we
could locate an alternate supplier, that supplier may be more expensive than our
current suppliers and may require substantial lead time. Any of these events
could significantly inhibit our ability to market our Hybrid Capture products.
RAPID GROWTH MAY PLACE SIGNIFICANT DEMANDS ON OUR PERSONNEL.
We currently have limited management and administrative resources. If we
are successful in implementing our business strategy, we may experience a period
of rapid growth and expansion which could place significant additional demands
on our management and administrative resources.
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<PAGE> 18
OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT.
We have completed an assessment of our manufacturing and research
equipment, computer programs and telephone systems and have identified the
mission-critical equipment, computer programs and systems that were not year
2000 compliant, more than 90% of which have been upgraded and/or
vendor-certified for year 2000 compliance. We have also tested a majority of
such mission-critical equipment, computer programs and systems for year 2000
compliance. We have substantially completed our upgrade and replacement
activities and expect to complete the remainder of our testing activities by
the end of December 1999. During the remainder of calendar 1999, we intend to
communicate with our significant raw material and product vendors to determine
their respective states of year 2000 readiness.
If we, or any third parties upon which we rely, are unable to address the
year 2000 issue in a timely and successful manner, our business could be
materially adversely affected.
WE ARE EXPOSED TO PRODUCT LIABILITY CLAIMS FOR WHICH OUR INSURANCE MAY BE
INADEQUATE.
We may be exposed to liability claims arising from the use of our products
and the commercial sale of our products as well as from use of our products or
product candidates in clinical trials. These claims may be brought by consumers,
our collaborators or licensees or parties selling our products. We currently
carry product liability insurance coverage but we can provide no assurance that
this coverage will be adequate to protect us against future product liability
claims or that product liability insurance will be available to us in the future
on commercially reasonable terms, if at all. Furthermore, we can provide no
assurance that we will be able to avoid significant product liability claims and
the attendant adverse publicity.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION CONCERNING ENVIRONMENTAL
MATTERS.
We are subject to a variety of local, state and federal government
regulations relating to the storage, discharge, handling, emission, generation,
manufacture and disposal of toxic, infectious or other hazardous substances used
to manufacture our products. We cannot completely eliminate the risk of
accidental contamination or injury from these materials. Moreover, we cannot be
sure that our collaborative partners are currently complying with the governing
standards. We also cannot be sure that we and our collaborative partners will be
in compliance with such standards in the future or that we will not incur
significant costs to comply with environmental laws and regulations in the
future. If we were to fail to comply with any of these regulations, this failure
could subject us to significant liabilities.
WE NEED TO SPEND SUBSTANTIAL FUNDS TO BECOME PROFITABLE.
We have spent, and expect to continue to spend in the future, substantial
funds to complete our planned product development efforts, expand our sales and
marketing activities and expand our manufacturing operations. We expect that our
existing capital resources will be
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<PAGE> 19
adequate to fund our operations through calendar year 2000, but we cannot
guarantee that this will be the case.
Our future capital requirements and the adequacy of available funds will
depend on numerous factors, including:
- the successful commercialization of our existing products;
- progress in our product development efforts;
- progress with regulatory affairs activities;
- the cost and timing of expansion of manufacturing operations;
- the expansion of our European, African and Middle Eastern sales
operations with Abbott;
- the growth and success of effective sales and marketing activities;
- successful relocation to our new facility;
- the cost of filing, prosecuting, defending and enforcing patent claims
and other intellectual property rights; and
- the development of strategic alliances for the marketing of our
products.
If funds generated from our operations, together with our existing capital
resources, are insufficient to meet current or planned operating requirements,
we will have to obtain additional funds through equity or debt financing,
strategic alliances with corporate partners and others, or through other
sources. We do not have any committed sources of additional financing, and we
cannot provide assurance that additional funding, if necessary, will be
available on acceptable terms, if at all. If adequate funds are not available,
we may have to delay, scale-back or eliminate certain aspects of our operations
or attempt to obtain funds through arrangements with collaborative partners or
others. This may result in the relinquishment of our rights to certain of our
technologies, product candidates, products or potential markets. Therefore, the
inability to obtain adequate funds could have a material adverse impact on our
business, financial condition and results of operations.
THE MARKET PRICE OF OUR COMMON STOCK MAY BE ADVERSELY AFFECTED BY THE ABILITY OF
SUBSTANTIAL STOCKHOLDERS TO SELL.
As discussed above under "We need to spend substantial funds to become
profitable," we may issue additional equity securities to raise funds. In
addition, at December 22, 1999, we were obligated to issue 3,598,665 shares of
our common stock upon the exercise of stock options. Either event could reduce
the ownership percentage of the current holders of our common stock and
adversely affect the market price of our common stock.
Further, a majority of our common stock currently outstanding is freely
tradable without restriction, except as follows:
19
<PAGE> 20
- 4,785,751 shares are subject to lock-up agreements under which the
holders of those shares have agreed not to sell or otherwise dispose
of any of their shares for a period of ninety (90) days after the
effective date of the resale registration statement; and
- 4,785,751 shares currently owned by our affiliates and 86,493
additional shares may be sold only in compliance with the volume
limitations and other provisions of Rule 144 under the Securities Act.
Any stockholders that are not subject to these restrictions could freely
sell all or a large number of their shares, which could adversely affect the
market price of our common stock. Even if none of these sales happen, the
perception by investors that sales might occur could adversely affect the market
price of our common stock.
TWO OF OUR OFFICERS EFFECTIVELY CONTROL DIGENE, WHICH COULD ADVERSELY AFFECT THE
INTERESTS OF OTHER STOCKHOLDERS.
As of December 22, 1999, our Chairman and Chief Executive Officer and our
President, Chief Operating Officer and Chief Financial Officer beneficially
owned an aggregate of approximately 37.7% of our outstanding shares of common
stock. As a result, these officers, acting together, effectively control the
election of directors and matters requiring approval by our stockholders. Thus,
they may be able to prevent corporate transactions such as mergers which might
be favorable from our standpoint or the standpoint of the other stockholders.
ANTI-TAKEOVER CONSIDERATIONS.
Our board of directors has the authority, without further action by the
stockholders, to issue from time to time, up to 1,000,000 shares of preferred
stock in one or more classes or series, and to fix the rights and preferences of
such preferred stock. Our Certificate of Incorporation also provides for
staggered terms for members of the board of directors. We are subject to
provisions of Delaware corporate law which, subject to certain exceptions, will
prohibit us from engaging in any "business combination" with a person who,
together with affiliates and associates, owns 15% or more of our common stock
(referred to as an interested stockholder) for a period of three years following
the date that such person became an interested stockholder, unless the business
combination is approved in a prescribed manner. Additionally, our Bylaws
establish an advance notice procedure for stockholder proposals and for
nominating candidates for election as directors. These provisions of Delaware
law and of our Certificate of Incorporation and Bylaws may have the effect of
delaying, deterring or preventing a change in our control, may discourage bids
for our common stock at a premium over market price and may adversely affect the
market price, and the voting and other rights of the holders, of our common
stock.
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<PAGE> 21
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of our common stock
offered in this prospectus.
DIVIDEND POLICY
We have not paid any dividends on our common stock since our inception and
do not anticipate paying any dividends on our common stock in the foreseeable
future.
SELLING STOCKHOLDERS
We are registering all 1,500,000 shares covered by this prospectus on
behalf of the selling stockholders named in the table below. We issued all of
the shares to the selling stockholders in a private placement transaction. We
have registered the shares to permit the selling stockholders and their
pledgees, donees, transferees or other successors-in-interest that receive their
shares from the selling stockholders as a gift, partnership distribution or
another non-sale related transfer after the date of this prospectus to resell
the shares when they deem appropriate.
In the purchase agreements, each selling stockholder has represented that
he, she or it acquired the shares of our common stock for investment and with no
present intention of distributing those shares. In addition, each selling
stockholder has represented that he, she or it qualifies as an "accredited
investor" as such term is defined in Rule 501 under the Securities Act of 1933.
We agreed in the purchase agreements to prepare and file a registration
statement as soon as practicable and to bear all expenses other than fees and
expenses of counsel or other advisors for the selling stockholders and
underwriting discounts and commissions and brokerage commissions and fees.
Accordingly, in recognition of the fact that the selling stockholders, even
though they purchased the shares without a view to distribution, may wish to be
legally permitted to sell the shares when each deems appropriate, we filed with
the SEC a registration statement on Form S-3, of which this prospectus forms a
part. We have also agreed to prepare and file any amendments and supplements to
the registration statement as may be necessary to keep the registration
statement effective until the earlier of:
- two years after the effective date of the registration statement; or
- the date on which the shares offered in this prospectus may be resold
by the selling stockholders without registration in accordance with
Rule 144(k) under the Securities Act of 1933 or any other rule of
similar effect.
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<PAGE> 22
None of the selling stockholders has had a material relationship with us
within the past three years except as a result of the ownership of the shares
offered in this prospectus or other of our securities.
The following table sets forth the name of each selling stockholder, the
number of shares of common stock owned beneficially by each selling stockholder
before and after this offering and the number of shares which may be offered
pursuant to this prospectus. This information is based upon information provided
by the selling stockholders. There are currently no agreements, arrangements or
understandings with respect to the sale of any of the shares. The shares are
being registered to permit public secondary trading of the shares, and the
selling stockholders may offer the shares for resale from time to time.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF SHARES SHARES BENEFICIALLY
NAME OWNED PRIOR TO OFFERING BEING OFFERED OWNED AFTER OFFERING(3)
---- ----------------------- ------------- -----------------------
NUMBER(1) PERCENT(2) NUMBER(1) PERCENT(2)
<S> <C> <C> <C> <C> <C>
Argonaut Investment Fund 1,200 * 1,200 0 *
Ltd.
Argonaut Partnership L.P. 8,400 * 8,400 0 *
Aries Domestic Fund, L.P. 21,165 * 21,165 0 *
Aries Domestic Fund II, L.P. 1,650 * 1,650 0 *
The Aries Master Fund 52,185 * 52,185 0 *
Ashton Partners, L.L.C. 10,000 * 10,000 0 *
BayStar Capital, L.P. 200,000 1.4% 200,000 0 *
BayStar International, Ltd. 100,000 * 100,000 0 *
Biotechnology Development 10,000 * 10,000 0 *
Fund, LP
Dompe Farmaceutici S.P.A. 40,000 * 40,000 0 *
Framlington Investment 100,000 * 100,000 0 *
Management (4)
David Gerstenhaber 10,000 * 10,000 0 *
Goldman Sachs Strategic Technology 15,000 * 15,000 0 *
Portfolio, L.P.
Hardy Capital, LTD. 25,000 * 25,000 0 *
H&Q Healthcare Investors 140,000 * 140,000 0 *
H&Q Life Sciences Investors 90,000 * 90,000 0 *
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF SHARES SHARES BENEFICIALLY
NAME OWNED PRIOR TO OFFERING BEING OFFERED OWNED AFTER OFFERING(3)
---- ----------------------- ------------- -----------------------
NUMBER(1) PERCENT(2) NUMBER(1) PERCENT(2)
<S> <C> <C> <C> <C> <C>
Michael Hyman 10,000 * 10,000 0 *
Merlin BioMed, L.P. 40,000 * 40,000 0 *
Merlin BioMed International 45,000 * 45,000 0 *
Oakpoint Asset Management 20,000 * 20,000 0 *
Pogue Capital International 50,000 * 50,000 0 *
Ltd.
Quota - Rabbico II 30,400 * 30,400 0 *
Deborah Salerno 10,000 * 10,000 0 *
Special Situations Fund III, 60,000 * 60,000 0 *
L.P.
Special Situations Cayman 20,000 * 20,000 0 *
Fund, L.P.
Special Situations Private
Equity Fund, L.P. 100,000 * 100,000 0 *
Veredus Partners, L.P. 90,000 * 90,000 0 *
Alan J. Weber 75,000 * 75,000 0 *
Zeke L.P. 125,000 * 125,000 0 *
----------- --------- ----
TOTAL 1,500,000 1,500,000 0
</TABLE>
- ----------
* Represents beneficial ownership of less than 1%.
(1) Unless otherwise indicated, each person has sole investment and voting power
with respect to the shares listed in the table, subject to community property
laws, where applicable. For purposes of this table, a person or group of persons
is deemed to have "beneficial ownership" of any shares which such person has the
right to acquire within 60 days.
(2) Percentage ownership is based on 14,610,165 shares of common stock
outstanding on December 22, 1999. For purposes of computing the percentage of
outstanding shares held by each person or group of persons named above, any
security which such person or group of persons has the right to acquire within
60 days is deemed to be outstanding for the purpose of computing the percentage
ownership for such person or persons, but is not deemed to be outstanding for
the purpose of computing the percentage ownership of any other person.
(3) Assumes the sale of all shares offered in this prospectus and no other
purchases or sales of our common stock.
(4) These shares are beneficially owned as follows: 85,000 shares beneficially
owned by Framlington A/C Health Fund and 15,000 shares beneficially owned by
Framlington A/C Munder Healthcare. Framlington Investment Management serves as
investment advisor to these entities and, accordingly, has sole voting and
investment power with respect to these shares.
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<PAGE> 24
PLAN OF DISTRIBUTION
The common stock offered by this prospectus may be sold from time to time
by selling stockholders, who consist of the persons named under "Selling
Stockholders" above and those persons' pledgees, donees, transferees or other
successors-in-interest. We will pay all costs, expenses and fees in connection
with the registration of the common stock offered by this prospectus. The
selling stockholders must pay all brokerage commissions and similar selling
expenses relating to the sale of their shares. The selling stockholders may sell
their shares on the Nasdaq National Market or otherwise, at market prices or at
negotiated prices. They may sell shares by one or a combination of the
following:
- a block trade in which a broker or dealer so engaged will attempt to
sell the shares as agent, but may position and resell a portion of the
block as principal to facilitate the transaction;
- purchases by a broker or dealer as principal and resale by the broker
or dealer for its account pursuant to this prospectus;
- an exchange distribution in accordance with the rules of an exchange;
- ordinary brokerage transactions and transactions in which a broker
solicits purchasers; and
- in open-market transactions in reliance on Rule 144 under the
Securities Act of 1933, provided they meet the requirements of that
rule.
The selling stockholders may enter into hedging transactions with
broker-dealers in connection with distributions of the shares or otherwise. In
these transactions, broker-dealers may engage in short sales of the shares in
the course of hedging the positions they assume with selling stockholders. The
selling stockholders also may sell shares short and redeliver the shares to
close out short positions. The selling stockholders may enter into option or
other transactions with broker-dealers which require the delivery to the
broker-dealer of the shares. The broker-dealer may then resell or otherwise
transfer the shares under this prospectus. The selling stockholders also may
loan or pledge the shares to a broker-dealer. The broker-dealer may sell the
loaned shares, or upon a default the broker-dealer may sell the pledged shares
under this prospectus.
In effecting sales, brokers or dealers engaged by the selling stockholders
may arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from selling stockholders in amounts to be
negotiated prior to the sale. The selling stockholders and any broker-dealers
that participate in the distribution may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act of 1933, and any proceeds or
commissions received by them, and any profits on the resale of shares sold by
broker-dealers, may be deemed to be underwriting discounts and commissions.
Because the selling stockholders may be deemed to be underwriters, they will be
subject to the prospectus delivery requirements of the
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<PAGE> 25
Securities Act of 1933.
We have agreed to indemnify each selling stockholder against certain
liabilities, including liabilities arising under the Securities Act of 1933. The
selling stockholders may agree to indemnify any agent, dealer or broker-dealer
that participates in transactions involving shares of the common stock against
certain liabilities, including liabilities arising under the Securities Act of
1933.
If any selling stockholder notifies us that a material arrangement has been
entered into with a broker-dealer for the sale of shares through a block trade,
special offering, exchange, distribution or secondary distribution or a purchase
by a broker or dealer, we will file a prospectus supplement, if required by Rule
424 under the Securities Act of 1933, setting forth:
- the name of each of the selling stockholders and the participating
broker-dealers;
- the number of shares involved;
- the price at which the shares were sold;
- the commissions paid or discounts or concessions allowed to the
broker-dealers, where applicable;
- a statement to the effect that the broker-dealers did not conduct any
investigation to verify the information set out or incorporated by
reference in this prospectus; and
- any other facts material to the transaction.
In addition, we will file a supplement to this prospectus if a selling
stockholder notifies us that a donee or pledgee intends to sell more than 500
shares of the common stock.
LEGAL MATTERS
Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia, Pennsylvania will
pass on the validity of the common stock offered with this prospectus.
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<PAGE> 26
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K/A
for the year ended June 30, 1999, as set forth in their reports, which are
incorporated by reference in this prospectus and elsewhere in this registration
statement. Our financial statements and schedule are incorporated by reference
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
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