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As filed pursuant to Rule 424(b)(3)
Registration No. 333-46976
NEXMED, INC.
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5,596,573 Shares of Common Stock
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This amended prospectus ("Amended Prospectus") replaces and supercedes
in its entirety our prospectus dated October 13, 2000 (the "Prospectus")
relating to the public offering of up to 5,596,573 shares of Common Stock of
NexMed, Inc., a Nevada corporation, all of which are being offered by the
selling shareholders named in the Prospectus. The shares include up to 3,938,256
shares of Common Stock, and up to 1,658,317 shares of Common Stock issuable upon
the exercise of warrants and options.
Twenty-five of the selling shareholders acquired their shares in a
private placement offering of our Common Stock at a total offering price of
$26,851,277, as part of a three unit offering comprised of: (i) an $18.00 unit
consisting of two shares of Common Stock at $9.00 a share and one warrant to
purchase one share of Common Stock at $13.50 per share ("Unit One"); (ii) a
$16.54 unit consisting of two shares of Common Stock at $8.27 a share and one
warrant to purchase seven-tenths of a share of Common Stock at $13.50 per share
("Unit Two"); (iii) an $18.00 unit consisting of two shares of Common Stock at
$9.00 a share and one warrant to purchase one share of Common Stock at $16.20
per share ("Unit Three"). The warrants sold in the private placement offering
may be redeemed by us at a price of $.001 per warrant, if the closing bid price
per share of our Common Stock has been at least $20.675 (for Units One and Two)
or $22.50 (for Unit Three) for twenty consecutive trading days as reported by
the Nasdaq SmallCap Market. The following table shows the number of each of the
three units sold in the private placement to an aggregate of twenty-five
accredited individuals and financial institutions pursuant to an exemption from
registration under the Securities Act of 1933, provided by rule 506 of
Regulation D.
UNIT NUMBER OF UNITS SOLD
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Unit One 50,000
Unit Two 954,128
Unit Three 565,000
292,826 of the shares consist of shares of Common Stock issuable upon
the exercise of warrants received by a placement agent as part of a commission
paid by us in connection with the private placement. Of these 292,826 shares of
Common Stock which were assigned to seven of the selling shareholders named
herein: (i) 190,826 shares are issuable upon the exercise of warrants with an
exercise price of $13.65 a share; and (ii) 102,000 shares are issuable upon the
exercise of warrants with an exercise price of $14.85 a share.
12,600 of the shares consist of shares of Common Stock issuable upon
exercise of warrants with an exercise price of $16.20 that were received by a
second placement agent as part of a commission paid by us in connection with the
private placement.
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220,000 of the shares consist of shares of Common Stock previously
issued to a selling shareholder in connection with an off-shore private
placement conducted by us in April 2000 pursuant to Regulation S.
650,000 of the shares consist of shares of Common Stock being offered
for resale by seven of our officers and directors. Of these 650,000 shares: (i)
480,000 shares were granted by us for services previously rendered; (ii) 100,000
shares were previously purchased in open market transactions; (iii) 70,000
shares are issuable upon the exercise of currently exercisable stock options
with an exercise price of $2.00 a share.
Although we will receive the exercise price of any warrants and/or
options exercised by the selling shareholders, all net proceeds from the sale of
the shares of Common Stock offered by this prospectus will go to the selling
shareholders; we will not receive any proceeds from such sales. Assuming all of
the warrants and options not yet exercised are exercised, we would receive gross
proceeds of $23,308,176.90.
The selling shareholders may offer their shares of Common Stock through
public or private transactions, in the over-the-counter markets, on any
exchanges on which our Common Stock is traded at the time of sale, at prevailing
market prices or at privately negotiated prices. The selling shareholders may
engage brokers or dealers who may receive commissions or discounts from the
selling shareholders. We will pay substantially all of the expenses incident to
the registration of such shares, except for the selling commissions.
Our Common Stock is listed on the Nasdaq Smallcap Market under
the ticker symbol "NEXM." On September 25, 2000, the last reported sale price of
our common stock was $19.25 per share.
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THE SHARES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 8, IN DETERMINING
WHETHER TO PURCHASE SHARES OF OUR COMMON STOCK.
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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 November 2, 2000
No person has been authorized to give any information or to make any
representations other than those contained in this prospectus in connection with
the offering made hereby, and if given or made, such information or
representations must not be relied upon as having been authorized by NexMed,
Inc. any selling stockholder or by any other person. Neither the delivery of
this prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that information herein is correct as of any time
subsequent to the date hereof. This prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any security other than the securities
covered by this prospectus, nor does it constitute an offer to or solicitation
of any person in any jurisdiction in which such offer or solicitation may not
lawfully be made.
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TABLE OF CONTENTS
Page
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AVAILABLE INFORMATION .................................................. 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ........................ 4
INFORMATION ABOUT US ................................................... 5
RISK FACTORS ........................................................... 8
USE OF PROCEEDS ........................................................ 15
SELLING SHAREHOLDERS ................................................... 15
PLAN OF DISTRIBUTION ................................................... 19
DESCRIPTION OF SECURITIES TO BE REGISTERED ............................. 21
LEGAL MATTERS .......................................................... 23
EXPERTS ................................................................ 23
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. We have an internet
website address at http:/www.nexmed.com. You may read and copy any document we
file at the Securities and Exchange Commission's public reference room located
at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Securities
and Exchange Commission at 1-800-732-0330 for further information on the
operation of such public reference room. You also can request copies of such
documents, upon payment of a duplicating fee, by writing to the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or obtain
copies of such documents from the Securities and Exchange Commission's web site
at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information we incorporate by reference is considered to be part of this
prospectus and information that we file later with the Securities and Exchange
Commission automatically will update and supersede such information. We
incorporate by reference the documents listed below and any future filings we
make with the Securities and Exchange Commission under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended:
(1) Our Annual Report on Form 10-KSB (File No. 0-22245) for the fiscal
year ended December 31, 1999;
(2) Our Quarterly Report on Form 10-QSB (File No. 0-22245) for the
fiscal quarter ended March 31, 2000;
(3) Our Quarterly Report on Form 10-QSB (File No. 0-22245) for the
fiscal quarter ended June 30, 2000;
(4) Our Current Report on Form 8-K (File No. 0-22245), dated April 10,
2000;
(6) The description of our common stock and our articles of
incorporation and bylaws, both contained in our Registration
Statement on Form 10-SB (File No. 0-22245), dated March 14, 1997,
including any amendment or report filed for the purpose of updating
such information.
You may request a copy of these filings (including exhibits to such
filings that we have specifically incorporated by reference in such filings), at
no cost, by writing or telephoning our executive offices at the following
address:
NexMed, Inc.
350 Corporate Boulevard
Robbinsville, New Jersey 08691
Attention: Ms. Vivian H. Liu
(609) 208-9688
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You should rely only on the information provided or incorporated by
reference in this prospectus or any related supplement. We have not authorized
anyone else to provide you with different information. The selling shareholders
will not make an offer of these shares in any state that prohibits such an
offer. You should not assume that the information in this prospectus or any
supplement is accurate as of any date other than the date on the cover page of
such documents.
All references in this prospectus to "NexMed," the "Company," "us," "our,"
"Registrant," or "we" include NexMed,Inc., a Nevada corporation, and any
subsidiaries or other entities that we own or control. All references in this
prospectus to "Common Stock" refer to our Common Stock, par value $.001 per
share. All references in this prospectus to "warrants," refer to the series of
warrants to purchase shares of our Common Stock held by the selling
shareholders. All references in this prospectus to "options," refer to the
options to purchase shares of our Common Stock held by the selling shareholders.
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this prospectus or
incorporated by reference in this prospectus.
INFORMATION ABOUT US
We have been in existence since 1987. Since 1994, we have positioned
ourselves as a pharmaceutical and medical technology company with a focus on
developing and commercializing therapeutic products based on proprietary
delivery systems. We are currently focusing our efforts on:
(i) new and patented pharmaceutical products based on a penetration
enhancement topical delivery technology known as NexACT(R), which may enable the
active drug to be better absorbed through the skin. Currently, we are focusing
on Alprox-TD(R), an alprostadil cream for the treatment of male erectile
dysfunction ("ED") and Femprox(TM), also an alprostadil-based cream, for the
treatment of female sexual arousal disorder ("FSAD").
We have completed the testing of 190 patients under our Phase II clinical
program on the Alprox-TD(R) cream which was conducted at 12 clinical research
sites throughout the U.S. This Phase II testing program on the Alprox-TD(R)
cream consisted of double-blind, placebo-controlled studies designed to evaluate
the safety and efficacy of the product. We have submitted the Phase II trial
data to the FDA for review. Subject to FDA concurrence, we intend to initiate
our planned Phase III clinical development program for the Alprox-TD(R) cream in
late 2000. With respect to the Femprox(TM) cream, we have completed a Phase I
clinical program on 8 patients and pending FDA concurrence, we intend to begin
our proposed Phase II program in late 2000.
We have engaged in discussions with several large pharmaceutical companies
regarding a strategic partnership for the Alprox-TD(R) cream but we cannot
assure you that we will be able to conclude an arrangement on a timely basis, if
at all, or on terms acceptable to us. With our current cash reserves, we may
elect to proceed with our Phase III program on the Alprox-TD(R) cream, assuming
we receive FDA concurrence, while concurrently pursuing these discussions; and
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(ii) the Viratrol(R) device, a therapeutic medical device for the
treatment of herpes simplex diseases without the use of drugs. We believe that
the minute electrical current, which is topically delivered by the device to an
infected site, may block lesions from forming or may significantly shorten
healing time once lesions develop. We are in the process of completing the
commercial product design of the Viratrol(R) herpes treatment device for the
U.S. market, and we intend to initiate its proposed Phase II/III study in late
2000.
DEVELOPMENT OF TOPICAL TREATMENT PRODUCTS
The NexACT(R) transdermal drug delivery technology is designed to
enhance absorption of an active drug through the skin, overcoming the skin's
natural barrier properties and enabling high concentrations of the active drug
to rapidly penetrate the desired site of the skin or extremity. Successful
application of the NexACT(R) technology would improve therapeutic outcomes and
reduce gastrointestinal or other systemic side effects that often accompany oral
medications. We intend to continue our efforts developing topical treatments
based on the application of NexACT(R) technology to drugs: (1) previously
approved by the FDA, (2) with proven efficacy and safety profiles, (3) with
patents expiring or expired and (4) with proven market track records and
potential. In furtherance of these efforts and through at least August 31, 2001,
we will continue to use laboratory space at the Higuchi Biosciences Center of
the University of Kansas pursuant to a research agreement with the University.
We have retained advisors, consultants and employees at the Higuchi Biosciences
Center to assist with our development efforts.
NEXACT(R) PRODUCTS UNDER DEVELOPMENT
We are currently focusing research and development efforts on the
following leading candidates for topical treatment products:
(1) Alprox-TD(R) is an alprostadil-based topical treatment cream
intended to treat mild to moderate ED. Our clinical studies have demonstrated
that NexACT(R) enhancers may promote the absorption of alprostadil and improve
clinical responses. In February 1998, we completed a sixty-patient (30 male and
30 female) Phase I study on the Alprox-TD(R) cream in the United States. In
October 1999, we completed the pre-Phase II toxicology studies in the United
States. In December 1999, we initiated the U.S. Phase II clinical program to
determine the efficacy of the Alprox-TD(R) cream and to expand the safety and
efficacy data in humans and in September 2000 we submitted the Phase II test
results to the FDA. In China, NexMed Pharmaceuticals (Zhongshan) Ltd., a
subsidiary of our Asian licensee, completed four Phase III double blind and open
label clinical studies that evaluated a total of 356 men, and has submitted, a
"New Drug Application" to the China State Drug Administration for approval to
distribute the product in China.
(2) Femprox(TM) is an alprostadil-based cream product intended for
the treatment of FSAD. We completed in 1998, an eight-patient Phase I
clinical study for safety and efficacy. Results from our clinical study
demonstrated a positive effect on increasing blood flow to the clitoris and
labia in the subjects tested. No systemic side effects were evidenced and local
side effects were minimal. Subject to FDA concurrence, we intend to initiate the
proposed U.S. Phase II program for Femprox(TM) in late 2000.
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We have five U.S. patents either acquired or received out of a series
of patent applications that we have filed in connection with our continuing
development of a new generation of skin absorption technology based on the
NexACT(R) technology and our NexACT-based products under development, such as
Alprox-TD(R) and Femprox(TM). To further strengthen our global patent position
on Alprox-TD(R) and Femprox(TM) and to expand the patent protection to other
markets, we have filed under the Patent Cooperation Treaty, corresponding
international applications for our issued and pending U.S. patents.
ADVISORS, CONSULTANTS, RESEARCHERS AND EMPLOYEES IN THE ABSORPTION
ENHANCEMENT FIELD
We currently employ Dr. Servet Buyuktimkin as Director of Drug Delivery
Research and Dr. Nadir Buyuktimkin as Director of Formulation Research to
conduct research at our laboratories at the Higuchi Biosciences Center of the
University of Kansas. Dr. Servet Buyuktimkin and Dr. Nadir Buyuktimkin are
co-developers and authors of several publications and presentations relating to
our NexACT(R) enhancers. Dr. J. Howard Rytting, a co-developer of the NexACT(R)
enhancers and professor in the Department of Pharmaceutical Chemistry of the
School of Pharmacy of the University of Kansas, is a member of our Scientific
Advisory Board. Pursuant to a research agreement with the University of Kansas,
we are funding Dr. Rytting's research efforts to develop new methodologies
involving penetration enhancement research. Although the university would own
any patents resulting from such efforts, we have the right to exclusively
license any technology resulting from such efforts.
VIRATROL(R) HERPES TREATMENT DEVICE
The Viratrol(R) device is a hand-held non-invasive therapeutic device
designed to treat herpes simplex diseases. The device topically delivers a
minute electrical current to an infected site and may block lesions from forming
and/or shorten healing time once lesions develop. We have allocated sufficient
funds for finalizing the product design for marketing in the United States, and
for initiating the proposed Phase II/III clinical study in late 2000.
We have three U.S. patents issued on the Viratrol(R) device, and one
patent application pending with respect to the technology, inventions and
improvements that are significant to the Viratrol(R) device and intend to file
additional patent applications to continue expanding the coverage on the device.
Internationally, we have filed under the Patent Cooperation Treaty,
corresponding international applications for our issued patents and pending U.S.
patent application.
POTENTIAL CORPORATE ALLIANCES
We are currently considering potential strategic partnerships relating
to our proprietary products under development with various United States and
international pharmaceutical and medical companies. Such a partnership may be
for co-development or co-marketing, or both. In any event it is our present
intention to maintain manufacturing rights for our products based on the
NexACT(R) Technology. We are hopeful, but cannot assure you, that we will
consummate one or more definitive agreements establishing a strategic corporate
alliance.
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In Asia, our subsidiary NexMed International Limited and Vergemont
International Limited entered into a license agreement in 1999 pursuant to which
(1) Vergemont International Limited has an exclusive right to manufacture and to
market in China and Asian Pacific countries, our Alprox-TD(R), Femprox(TM) and
three other of our proprietary products under development, and (2) we will
receive a royalty on sales and supply, on a cost plus basis, the NexACT(R)
enhancers that are essential in the formulation and production of our
proprietary topical products. Under the term of our subsidiary's agreement with
Vergemont International Limited, Dr. Joseph Mo, our President and Chief
Executive Officer, has actively assisted in the anticipated launch of our
proprietary ED treatment in China which will be marketed under the name "Befar."
MANUFACTURING.
In August 2000, we entered into an agreement for the purchase of a
31,500 square foot manufacturing facility, located in East Windsor, New Jersey.
The facility, currently under construction, has been designed to meet our
specific manufacturing needs and will be utilized initially to manufacture
Alprox-TD(R) and Femprox(TM) for continuing clinical testing purposes. We expect
to complete the purchase of the facility in the fourth quarter of 2000.
COMPANY HISTORY.
We were organized under the laws of the state of Nevada in October 1987
under the name Target Capital, Inc. We raised initial funds as a blind pool.
Because our early business plans were not productive, we became inactive until
early 1994 and our records prior to 1994 are not complete. In 1994, we changed
our name to BioElectric, Inc and in 1995, we changed our name to NexMed, Inc. to
reflect our broader-based business objectives.
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk. Only those persons who are able to lose their entire investment should
purchase these securities. You should carefully consider the following risk
factors and other information in this prospectus before deciding to invest in
our Common Stock.
WE HAVE INCURRED AND WILL CONTINUE TO INCUR OPERATING LOSSES. Our current
business operations began in 1994 and we have a limited operating history. We
may encounter delays, uncertainties and complications typically encountered by
development stage businesses. We have not marketed or generated revenues from
our products under development. We are not profitable and have incurred
significant operating losses since our inception, and we have an accumulated
deficit of $19,158,474 though June, 30, 2000. Even if we eventually generate
revenues from sales of our products currently under development, we expect to
incur significant operating losses over the next several years. Our ability to
become profitable will depend, among other things, on our (1) development of our
proposed products, (2) obtaining of regulatory approvals of our proposed
products on a timely basis and (3) success in manufacturing, distributing and
marketing our proposed products.
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OUR PROPOSED PRODUCTS ARE IN THE DEVELOPMENT STAGE AND MAY FAIL. We intend
to focus our current development efforts on the Alprox-TD(R) and Femprox(TM)
creams utilizing the NexACT(R) technology as well as on the Viratrol(R) device.
We have not begun to generate revenues from any of our proposed products and
there can be no assurance that we ever will. We have completed the testing of
190 patients under our Phase II clinical program on the Alprox-TD(R) cream and
have submitted the Phase II trial data to the FDA for review. Subject to FDA
concurrence, we intend to initiate Phase III clinical trials for Alprox-TD(R) in
late 2000. However, there can be no assurance that the data collected from the
Phase II clinical studies of the Alprox-TD(R) cream will be sufficient to enable
us to initiate Phase III clinical trials or that the FDA will agree with our
interpretation of our future clinical trial results. In late 2000, we anticipate
the commencement of Phase II clinical trials in the United States of both the
Femprox(TM) cream and the Viratrol(R) device.
We cannot assure you that the clinical trials will be completed on
schedule, or that the FDA will ultimately approve our product under development
for commercial sale. Furthermore, even if the results of our clinical trials are
initially positive, it is possible that we will obtain different results in the
later stages of drug development. Drugs in late stages of clinical development
may fail to show the desired safety and efficacy traits despite having
progressed through initial clinical testing. For example, positive results in
early Phase I or Phase II clinical trials may not be repeated in larger Phase II
or Phase III clinical trials.
Our proposed products are subject to the risks of failure associated
with the establishment and development of products based upon innovative or
novel technologies. Among these risks are the following:
o research and development activities we fund may not be successful;
o our products under development may not prove to be safe and
effective;
o we may not complete our clinical development work;
o we may not obtain FDA or foreign regulatory approvals of our
products;
o our products may not be commercially viable or successfully
marketed;
o third parties may hold proprietary rights that could preclude us
from marketing our products; and
o we may never achieve significant revenues from our products under
development even if the FDA or foreign authorities approve them.
OUR FAILURE TO RECEIVE GOVERNMENTAL APPROVALS FOR OUR PROPOSED PRODUCTS ON
A TIMELY BASIS, OR EVER, COULD DAMAGE OUR BUSINESS, FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. Governmental authorities in the United States and other
countries heavily regulate the testing, manufacture, labeling, distribution,
advertising and marketing of our proposed products. The Alprox-TD(R) and
Femprox(TM) creams utilizing the NexACT(R) technology as well as the
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Viratrol(R) device have not been approved for marketing in the United States.
Before we market any products we develop, we must obtain FDA and comparable
foreign agency approval through an extensive clinical study and approval
process.
The studies involved in the approval process are conducted in three
phases. In Phase I studies, researchers assess safety or the most common acute
adverse effects of a drug and examine the size of doses that patients can take
safely without a high incidence of side effects. Generally, 20 to 100 healthy
volunteers or patients are studied in the Phase I study for a period of several
months. In Phase II studies, researchers determine the drug's efficacy with
short-term safety by administering the drug to subjects who have the condition
the drug is intended to treat, assess whether the drug favorably effects the
condition, and begin to identify the correct dosage level. Up to several hundred
subjects may be studied in the Phase II study for approximately 6 to 12 months,
depending on the type of product tested. In Phase III studies, researchers
further assess efficacy and safety of the drug. Several hundreds to thousands of
patients may be studied during the Phase III studies for a period of from 12
months to several years. Upon completion of Phase III studies, a New Drug
Application is submitted to the FDA or foreign governmental regulatory authority
for review and approval.
Our failure to obtain requisite governmental approvals timely or at all
will delay or preclude us from licensing or marketing our products or limit the
commercial use of our products, which could adversely affect our business,
financial condition and results of operations.
VARIATIONS IN THE REGULATORY REQUIREMENTS OF FOREIGN AUTHORITIES COULD
DELAY OUR INTRODUCTION OF PRODUCTS INTO COUNTRIES OUTSIDE THE UNITED STATES AND
LIMIT OUR MARKETING SCOPE. Because we intend to sell and market our products
outside the United States, we will be subject to foreign regulatory requirements
governing the conduct of clinical trials, product licensing, pricing and
reimbursements. These requirements vary widely from country to country. Our
failure to meet each foreign country's requirements could delay our introduction
of our proposed products in the respective foreign country and limit our
revenues from sales of our proposed products in foreign markets.
OUR FAILURE TO COMPLY WITH REGULATORY REQUIREMENTS COULD SUBJECT US TO
REGULATORY OR ENFORCEMENT ACTIONS. Even if we obtain regulatory approvals, the
FDA and comparable foreign agencies continually review and regulate marketed
products. A later discovery of previously unknown problems or our failure to
comply with the applicable regulatory requirements could subject us to
regulatory or judicial enforcement actions. These actions could result in the
following:
o recalls or seizures of our proposed products,
o restrictions on marketing of our proposed products,
o regulatory authorities' refusal to approve new products or
withdrawal of existing approvals,
o enhanced product liability exposure,
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o injunctions,
o civil penalties, or
o criminal prosecution.
WE NEED, BUT MAY BE UNABLE TO RAISE, ADDITIONAL FUNDS TO CONTINUE OUR
OPERATIONS. We believe that our current cash and cash equivalents are sufficient
to (i) complete our proposed Alprox-TD(R) Phase III clinical study, the Phase II
clinical studies on our Femprox(TM) cream and our proposed Phase II/III clinical
study on the Viratrol(R) device, and (ii) support during the next twelve months
our continuing operational requirements and the purchase and retrofitting of our
New Jersey manufacturing facility. However, absent our entering into a strategic
partnership or similar arrangement, we do not anticipate that we will have
sufficient funds to commence the sale or launch of our products currently under
development or to market them adequately. Consequently, we will require
additional funding, which may include entering into strategic partnerships, to
complete the clinical development of our products and/or to market them. Our
cash requirements may vary depending upon:
o the progress of our clinical development programs, and
o the timing of and response to our regulatory submissions.
Although we expect to raise more funds from the exercise of the
warrants and outstanding options as well as through potential strategic
partnerships and/or additional debt or equity financing, we have not made
arrangements for, and may not be able to obtain, additional external financing
on acceptable terms, or at all. If we cannot obtain such additional financing,
we may need to modify our business objectives or reduce or cease certain or all
of our product development programs and other operations.
WE MAY NEED BUT BE UNABLE TO ATTRACT AND RETAIN ONE OR MORE STRATEGIC
PARTNERS TO DEVELOP OUR POTENTIAL PRODUCTS. With the exception of the completion
of our clinical development for the Alprox-TD(R) cream, which we expect to
self-fund, successful development and commercialization of our technologies and
products may depend largely on our ability to establish relationships with
multinational strategic partners, given the high cost of funding clinical trials
and of bringing proposed products through the governmental approval process to
the commercial market. We do not currently have a strategic partner relationship
with respect to any of our technologies or potential products. We may not be
able to establish these relationships on favorable terms, if at all.
WE LACK MARKETING AND DISTRIBUTION EXPERTISE AND WILL DEPEND ON THIRD
PARTIES TO MARKET AND DISTRIBUTE OUR PRODUCTS. Our products will require
substantial marketing efforts to achieve market acceptance. Our operating
results and long term success will depend on our ability to establish successful
strategic partnerships with domestic and international partners to distribute
and market our products.
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WE DEPEND ON PATENTS, TRADEMARKS, LICENSES AND PROPRIETARY RIGHTS TO
PROTECT US AGAINST COMPETITORS. We have and will continue to seek proprietary
protection for our products to attempt to prevent others from commercializing
equivalent products in substantially less time and at substantially lower
expense. Our success may depend on our ability to (1) obtain effective patent
protection within the United States and internationally for our proprietary
technologies and products, (2) defend patents we own, (3) preserve our trade
secrets, and (4) operate without infringing upon the proprietary rights of
others.
Patents, trademarks, licenses and other proprietary rights may not fully
protect us. While we have obtained patents and have several patent applications
pending, the extent of effective patent protection in the United States and
other countries is highly uncertain and involves complex legal and factual
questions. No consistent policy addresses the breadth of claims allowed in or
the degree of protection afforded under patents of medical and pharmaceutical
companies. Patents we currently own or may obtain might not be sufficiently
broad to protect us against competitors with similar technology. Any of our
patents could be invalidated or circumvented.
Our patent applications may not be approved on a timely basis or ever. The
patent application and issuance process takes years, and may be expensive. We
might not obtain all of the United States patents we have applied for related to
the Viratrol(R) device, the Alprox-TD(R) and Femprox(TM) creams, NexACT(R) or
other technology or products that we may develop. In addition, we do not have
and may never obtain foreign patents equivalent to the claims in our U.S.
patents.
Our commercial success may depend upon our avoidance of infringement of
patents issued to competitors. Because a United States pending patent
application is confidential, we cannot know the inventions claimed in pending
patent applications filed by third parties. We may need to defend or enforce our
patent and license rights or determine the scope and validity of the proprietary
rights of others through litigation. Defense and enforcement of patent claims
may be expensive and time-consuming, even when the outcome is in our favor.
Defense and enforcement actions may use substantial resources originally
allocated to other activities such as studies and continuing development of our
products and technologies. There have been patents issued to others on the use
of prostaglandin for the treatment of male or female sexual dysfunction. While
we believe that our patents will prevail in any potential litigation, we can
provide no assurance that the holders of these competing patents will not
commence a lawsuit against us or that we will prevail in any such lawsuit. In
the event of an unfavorable outcome in such a suit or any other patent
infringement suit, we may be required to:
o assume significant liabilities to third parties,
o obtain licenses from third parties,
o alter our products or processes, or
o cease altogether any of our related research and development
activities or product sales.
12
<PAGE>
We rely on agreements with third parties to protect our rights to certain
technology. We may encounter disputes regarding the proprietary rights to
technological information that employees, consultants, advisors or other third
parties independently develop and apply to any of our proposed products. These
disputes might not be resolved in our favor. We may also rely on trade secrets
and proprietary know-how that may become known to others despite our efforts to
keep them confidential. Although we seek to protect our trade secrets and
proprietary know-how in part by our confidentiality agreements with employees,
consultants, advisors or others, these parties may breach their agreements, and
we might not obtain adequate remedies. Similarly, competitors may discover or
independently develop our trade secrets or proprietary know-how in such a manner
that we have no legal recourse.
OUR ABILITY TO MANUFACTURE OUR PRODUCTS MAY INCLUDE DEPENDENCE ON
THIRD-PARTY MANUFACTURERS AS WELL AS SUPPLIERS. In the event our production
requirements exceed the capacity of our new manufacturing facility currently
under construction in East Windsor, New Jersey, we will need to rely on
third-party manufacturers to fulfill our production needs. To be successful, we
and/or the manufacturers to whom we outsource must produce our products in
commercial quantities at acceptable costs and in compliance with regulatory
requirements of the FDA or comparable foreign agencies. The FDA periodically
inspects manufacturing facilities within the United States and manufacturing
facilities outside the United States whose drugs are marketed in the United
States. Our failure or the failure of third-party suppliers or manufacturers of
our proposed products to meet good manufacturing practice standards and comply
with FDA or foreign regulatory requirements would adversely affect our financial
condition and operating results.
HEALTHCARE REIMBURSEMENT POLICIES AND REFORM MAY CAUSE UNCERTAINTY OF
PRODUCT PRICING AND REIMBURSEMENT. Successful commercialization of our products
may depend on the availability of reimbursement to the consumer from third-party
healthcare payers, such as government and private insurance plans. Even if we
succeed in bringing one or more products to market, reimbursement to consumers
may not be available or sufficient to allow us to realize an appropriate return
on our investment in product development or to sell our products on a
competitive basis. In addition, in certain foreign markets, pricing or
profitability of prescription pharmaceuticals is subject to governmental
controls. In the United States, federal and state agencies have proposed similar
governmental control and the United States Congress has recently considered
legislative and regulatory reforms that may affect companies engaged in the
healthcare industry. Pricing constraints on our products in foreign markets and
possibly the United States, could adversely effect our business.
WE DEPEND ON KEY PERSONNEL AND CONSULTANTS WHOSE CONTINUED SERVICE IS NOT
GUARANTEED. We depend on our officers and directors, Scientific Advisory Board
members, consultants and collaborating scientists, including Y. Joseph Mo,
Ph.D., Chairman of our Board of Directors, President and Chief Executive
Officer; James L. Yeager, Ph.D., Vice President, Research and Development and
Business Development, and director; and Vivian H. Liu, Chief Financial Officer,
Vice President, Corporate Affairs and Secretary. Loss of their services could
adversely affect our business. We may not be able to attract and retain
additional management or other key personnel capable of developing our proposed
products.
13
<PAGE>
THE MEDICAL AND PHARMACEUTICAL INDUSTRY IS HIGHLY COMPETITIVE AND MANY OF
OUR POTENTIAL COMPETITORS HAVE GREATER FINANCIAL AND TECHNOLOGICAL RESOURCES. We
are engaged in a highly competitive industry. We expect increased competition
from numerous existing companies, including large international enterprises, and
others entering the industry. Most of these companies have greater research and
development, manufacturing, marketing, financial, technological, personnel and
managerial resources. Acquisitions of competing companies by large
pharmaceutical or healthcare companies could further enhance such competitors'
financial, marketing and other resources. Competitors may complete clinical
trials, obtain regulatory approvals and commence commercial sales of their
products before we could enjoy a significant competitive advantage. Products
developed by our competitors may be more effective than our products.
Certain treatments for ED, such as needle injection therapy, vacuum
constriction devices, penile implants, transurethral absorption and oral
medications, currently exist, have been approved for sale in certain markets and
are being improved. Currently known products for the treatment of ED developed
or under development by our competitors include the following: (1) Caverject(R),
Pharmacia & Upjohn Company's needle injection therapy; (2) Viagra(R), Pfizer,
Inc.'s product to treat ED that was approved by the FDA in March 1998 and
currently has annual sales exceeding one billion dollars; and (3) MUSE(R),
Vivus, Inc.'s device for intra-urethral delivery of a suppository containing
alprostadil have each been approved for sale in the U.S. and several
international markets. In addition, the following products are currently under
development: (1) Topiglan(R), a topical treatment containing alprostadil based
on a proprietary drug delivery system under development by MacroChem
Corporation; (2) Vasomax(R), an oral medication to be marketed through a
collaborative effort of Zonagen, Inc. and Schering Plough Pharmaceuticals; (3)
IC351, an oral formulation under development by the joint venture between ICOS
and Eli Lilly & Co; (4) Uprima(R), an oral medication to be marketed by TAP
Pharmaceuticals, a joint venture between Takeda Pharmaceuticals Japan and Abbott
Laboratories; (5) Max-K(R), an oral medication by Bristol-Meyers Squibb; and (6)
Vardenafil, an oral medication by Bayer AG.
Improvements may also be made to the existing alternatives to our
products as well as the emergence of newer technologies and products, which
could render our products less desirable or obsolete. If the market fails to
develop or develops more slowly than we anticipate, we may be unable to recover
the losses we will have incurred to develop our products and may never be able
to achieve profitability.
WE DO NOT EXPECT TO PAY DIVIDENDS ON OUR COMMON STOCK IN THE
FORESEEABLE FUTURE. Although our shareholders may receive dividends if, as and
when declared by our board of directors, we do not intend to pay dividends on
our Common Stock in the foreseeable future. Therefore, you should not purchase
our Common Stock if you need immediate or future income by way of dividends from
your investment.
WE MAY ISSUE ADDITIONAL SHARES OF OUR CAPITAL STOCK THAT COULD DILUTE
THE VALUE OF YOUR SHARES OF COMMON STOCK. We are authorized to issue 90,000,000
shares of our capital stock, consisting of 80,000,000 shares of our Common Stock
and 10,000,000 shares of our preferred stock of which 1,000,000 is designated as
14
<PAGE>
Series A Junior Participating Preferred Stock. At September 18, 2000, 24,897,304
shares of our Common Stock and no shares of our preferred stock were issued and
outstanding, and 4,306,749 shares of our Common Stock were issuable upon the
exercise of options and/or warrants (including the warrants and options held by
the selling shareholders).
We may also issue authorized and unissued shares of Common Stock or preferred
stock that could dilute the earnings per share and book value of your shares of
our Common Stock.
THE PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE. For example, from
January 1, 2000 to September 18, 2000 our Common Stock has traded as high as
$22.25 per share and as low as $3.68 per share. The price of our Common Stock is
likely to continue to be volatile due to a number of factors, including:
o the results of clinical testing of our products;
o the introduction of new products by us or by our competitors;
o market conditions in the industry generally;
o additions or departures of key personnel; and
o general economic conditions
OUR COMMON STOCK IS CURRENTLY QUOTED ON THE NASDAQ SMALLCAP MARKET. To
continue to be listed on the Nasdaq SmallCap Market, we must maintain certain
requirements. If we fail to satisfy one or more of the requirements, our common
stock may be delisted. If our stock is delisted, and does not become listed on
another stock exchange, then it will be traded, if at all, in the
over-the-counter market commonly referred to as the NASD OTC Bulletin Board
and/or the "pink sheets." If this occurs, it may be more difficult for you to
sell our common stock.
15
<PAGE>
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of Common
Stock offered by this prospectus. All proceeds from the sale of the shares
covered by this prospectus will be for the account of holders of Common Stock
and of warrant or option holders that exercise their warrants or options and
become selling stockholders, as described below. See "Selling Stockholders" and
"Plan of Distribution." However, assuming all of the warrants and options are
exercised, we would receive $23,308,176.90 in gross proceeds from those
exercises.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our articles of incorporation and bylaws contain certain provisions to
indemnify our directors and officers against liability incurred by them as a
result of their services as directors and/or officers. We have been informed
that in the opinion of the Securities and Exchange Commission, our
indemnification of our directors, officers or controlling persons for
liabilities arising under the Securities Act of 1933, is against public policy
as expressed in the Securities Act, and therefore is unenforceable.
SELLING SHAREHOLDERS
The shares covered by this prospectus have been issued or will be issued
upon the exercise of the warrants or options to purchase Common Stock which were
issued either in connection with our recent private placement, or our incentive
stock option plan. The number of shares of Common Stock that may be actually
sold by the selling shareholders will be determined by such selling
shareholders.
The selling shareholders are the persons and/or entities listed in the
table below who own our Common Stock, or options and/or warrants to purchase
shares of our Common Stock. We are registering for the selling shareholders an
aggregate of 5,596,573 shares of Common Stock. None of the selling shareholders
has, or within the past three years has had, any position, or office with us or
our affiliates, with the exception of the following: (i) Y. Joseph Mo, Ph.D,
Chairman of the board of directors, President and Chief Executive Officer; (ii)
James L. Yeager, Ph.D, Director and Vice President-R&D and Business Development;
(iii) Vivian H. Liu, Vice President, Chief Financial Officer and Secretary; (iv)
Gilbert S. Banker, Ph.D, Director; (v) Robert W. Gracy, Ph.D, Director; (vi)
Yu-Chung Wei, Director; and (vii) Robert C. Ciricillo, Vice President-Legal and
Business Affairs. Shannon Limited, one of the selling shareholders, was one of
the placement agents for our recent private placement. It received (i) a cash
commission equal to 6% of the gross proceeds from the private placement received
by us (including proceeds received upon exercise of warrants) through sales to
clients of Shannon Limited; and (ii) 12,600 warrants to purchase shares of our
Common Stock. Americal Securities, Inc., was the other placement agent for our
recent private placement. It received (i) a cash commission equal to 7.5% of the
gross proceeds from the private placement received by us (including proceeds
received upon exercise of warrants) through sales to clients of
16
<PAGE>
Americal Securities, Inc.; and (ii) 292,826 warrants to purchase shares of our
Common Stock. Americal Securities, Inc. assigned the warrants it received as a
commission to seven of the selling shareholders.
The following table sets forth, as of September 25, 2000: (1) the name
of each selling shareholder, (2) the number of shares of our Common Stock
beneficially owned by each selling shareholder, including the number of shares
purchasable upon exercise of warrants and currently exercisable options, (3) the
maximum number of shares of Common Stock which the selling shareholders can sell
pursuant to this prospectus and (4) the number of shares of Common Stock that
the selling shareholders would own if they sold all their shares registered by
this prospectus. Each selling shareholder will receive all of the net proceeds
from the sale of his or her shares of Common Stock offered by this prospectus.
Because the selling shareholders may sell all or part of their shares
of Common Stock pursuant to this prospectus and this offering is not being
underwritten on a firm commitment basis, we cannot estimate the number and
percentage of shares of Common Stock that the selling shareholders will hold as
a group at the end of the offering covered by this prospectus.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
NAME OF SELLING SHAREHOLDER NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES OF
OF COMMON STOCK OF COMMON STOCK COMMON STOCK TO BE
OWNED BEFORE BEING REGISTERED OWNED AFTER THIS
OFFERING (1) BY THIS PROSPECTUS (2) OFFERING (3)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Winston T. Van 0 30,000 0
----------------------------------------------------------------------------------------------------------------------
Permal U.S. Opportunities Fund 0 90,000 0
----------------------------------------------------------------------------------------------------------------------
Wellchamp Investments Limited 590,000 180,000 410,000
----------------------------------------------------------------------------------------------------------------------
Veron International Limited 0 330,000 0
----------------------------------------------------------------------------------------------------------------------
Clarion Partners, L.P. 0 85,500 0
----------------------------------------------------------------------------------------------------------------------
Clarion Capital Corporation 186,699 30,000 156,699
----------------------------------------------------------------------------------------------------------------------
Hollis Capital 75,000 45,000 30,000
----------------------------------------------------------------------------------------------------------------------
SAC Capital Associates, LLC 0 300,000 0
----------------------------------------------------------------------------------------------------------------------
Peqout Scout Fund, LP 0 270,000 0
----------------------------------------------------------------------------------------------------------------------
Pequot Navigator Offshore Fund Inc. 0 30,000 0
----------------------------------------------------------------------------------------------------------------------
Victor Breeze Limited 0 296,916 0
----------------------------------------------------------------------------------------------------------------------
Daniel Lee 94,500 40,500 54,000
----------------------------------------------------------------------------------------------------------------------
Hong-Ming Chang 0 120,000 0
----------------------------------------------------------------------------------------------------------------------
Lan Huei Lee 253,334 30,000 223,334
----------------------------------------------------------------------------------------------------------------------
Joseph Pang 0 34,500 0
----------------------------------------------------------------------------------------------------------------------
Morton Cohen 55,000 30,000 25,000
----------------------------------------------------------------------------------------------------------------------
Windows International Limited 0 90,000 0
----------------------------------------------------------------------------------------------------------------------
Richard Bordow 37,000 27,000 10,000
----------------------------------------------------------------------------------------------------------------------
James S. Baum 0 8,100 0
----------------------------------------------------------------------------------------------------------------------
Michael N. Alper and Pamela J. Alper JTWROS 0 40,500 0
----------------------------------------------------------------------------------------------------------------------
Bernard J. McDermott, Roth IRA 210,675 44,075 166,600
----------------------------------------------------------------------------------------------------------------------
Joyce McDermott, Roth IRA 165,075 44,075 121,000
----------------------------------------------------------------------------------------------------------------------
Clipperbay & Co 0 1,485,000 0
----------------------------------------------------------------------------------------------------------------------
Charles & Becky Engleberg 788,000 195,000 593,000
----------------------------------------------------------------------------------------------------------------------
17
<PAGE>
----------------------------------------------------------------------------------------------------------------------
Leonard Cohen 26,326 24,826 1,500
----------------------------------------------------------------------------------------------------------------------
Richard Gaston 120,000 20,000 100,000
----------------------------------------------------------------------------------------------------------------------
Michael Yap 0 25,000 0
----------------------------------------------------------------------------------------------------------------------
Rose Krans 0 9,000 0
----------------------------------------------------------------------------------------------------------------------
William Tan 0 10,000 0
----------------------------------------------------------------------------------------------------------------------
Shannon Limited 223,334 12,600 212,600
----------------------------------------------------------------------------------------------------------------------
Kwong Tai Holdings Ltd. 0 220,000 0
----------------------------------------------------------------------------------------------------------------------
Richard Stern 0 5,400 0
----------------------------------------------------------------------------------------------------------------------
Ellen Mei 0 9,000 0
----------------------------------------------------------------------------------------------------------------------
Barnett & Co (Smith Barney Fundamental Value 0 734,581 0
Fund)
----------------------------------------------------------------------------------------------------------------------
Y. Joseph Mo, Ph.D 2,360,000(4) 200,000 2,160,000
----------------------------------------------------------------------------------------------------------------------
James L. Yeager, Ph.D 365,000 (5) 100,000 265,000
----------------------------------------------------------------------------------------------------------------------
Vivian H. Liu 400,000 (6) 100,000 300,000
----------------------------------------------------------------------------------------------------------------------
Gilbert S. Banker, Ph.D 155,000 (7) 50,000 105,000
----------------------------------------------------------------------------------------------------------------------
Robert W. Gracy, Ph.D 110,000 (8) 50,000 60,000
----------------------------------------------------------------------------------------------------------------------
Yu-Chung Wei 75,000 (9) 50,000 25,000
----------------------------------------------------------------------------------------------------------------------
Robert C. Ciricillo 125,000 (10) 100,000 25,000
----------------------------------------------------------------------------------------------------------------------
</TABLE>
----------
(1) Includes shares of Common Stock and shares issuable upon the exercise of
warrants or currently exercisable options to purchase Common Stock.
(2) Pursuant to the terms of the Unit Purchase Agreement entered into by and
between the Company and the selling shareholders participating in the
private placement (the "Unit Purchase Agreement"), the number of shares of
Common Stock that may be purchased upon exercise of the warrants received
in the private placement will be reduced on a one-for-one basis by the
number of shares of Common Stock sold by such selling shareholder for a
period of six months from the date of the Unit Purchase Agreement.
Accordingly, the number of shares listed in this column assumes that the
shares of Common Stock that may be purchased upon exercise of the warrants
issued in the private placement will not be reduced. It also does not take
into account any additional adjustments, rights and preferences as set
forth in the terms of the Unit Purchase Agreement and the warrants.
Further, the warrants sold in the private placement offering may be
redeemed by us at a price of $.001 per warrant, if the closing bid price
per share of our Common Stock has been at least $20.675 (for Units One and
Two) or $22.50 (for Unit Three) for twenty consecutive trading days as
reported by the Nasdaq SmallCap Market.
(3) Assumes all shares of Common Stock registered by this prospectus are sold.
(4) Includes 860,000 shares issuable upon exercise of currently exercisable
stock options.
(5) Includes 210,000 shares issuable upon exercise of currently exercisable
stock options.
(6) Includes 195,000 shares issuable upon exercise of currently exercisable
stock options.
18
<PAGE>
(7) Includes 70,000 shares issuable upon exercise of currently exercisable
stock options.
(8) Includes 80,000 shares issuable upon exercise of currently exercisable
stock options.
(9) Includes 75,000 shares issuable upon exercise of currently exercisable
stock options.
(10) Includes 20,000 shares issuable upon exercise of currently exercisable
stock options.
Assuming all shares of Common Stock registered by this prospectus are
sold, the following selling shareholders will own greater than one percent of
our common stock:
-----------------------------------------------------------------------------
NAME PERCENTAGE OF OWNERSHIP (*)
-----------------------------------------------------------------------------
Y. Joseph Mo, Ph.D 8.13%
-----------------------------------------------------------------------------
Charles & Becky Engleberg 2.23%
-----------------------------------------------------------------------------
Wellchamp Investments Limited 1.54%
-----------------------------------------------------------------------------
Vivian H. Liu 1.13%
-----------------------------------------------------------------------------
James L. Yeager 1.00%
-----------------------------------------------------------------------------
----------
* Percentage of shares owned is based on 24,897,304 shares of our Common Stock
issued and outstanding as of September 18, 2000, and 1,658,317 shares of our
Common Stock issuable upon the exercise of warrants and options held by selling
shareholders named in this prospectus. Additionally, all percentages are rounded
up to the nearest 100th.
PLAN OF DISTRIBUTION
The selling shareholders may from time to time offer and sell their
shares of Common Stock offered by this prospectus. We have registered their
shares for resale to provide them with freely tradable securities. However,
registration does not necessarily mean that they will offer and sell any of
their shares.
OFFER AND SALE OF SHARES
The selling shareholders, or their pledgees, donees, transferees or other
successors in interest, may offer and sell their shares of Common Stock in the
following manner:
o in the over-the-counter market or otherwise at prices and at terms
then prevailing or at prices related to the then current market price;
or
o in privately negotiated transactions.
19
<PAGE>
The selling shareholders, or their pledgees, donees, transferees or other
successors in interest, may sell their shares of Common Stock in one or more of
the following transactions:
o a block trade in which the 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;
o a broker or dealer may purchase as principal and resell such shares
for its own account pursuant to this prospectus;
o an exchange distribution in accordance with the rules of the exchange;
and
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers.
The selling shareholders may accept and, together with any agent of the
selling shareholders, reject in whole or in part any proposed purchase of the
shares of Common Stock offered by this prospectus.
SELLING THROUGH BROKERS AND DEALERS
The selling shareholders may select brokers or dealers to sell their
shares of Common Stock. Brokers or dealers that the selling shareholders engage
may arrange for other brokers or dealers to participate in selling such shares.
The selling shareholders may give such brokers or dealers commissions or
discounts in amounts to be negotiated immediately before any sale. In connection
with such sales, these brokers or dealers, any other participating brokers or
dealers, and certain pledgees, donees, transferees and other successors in
interest, may be deemed to be "underwriters" within the meaning of Section 2(11)
of the Securities Act of 1933. In addition, any securities covered by this
prospectus that qualify for sale pursuant to Rule 144 of the Securities Act of
1933 may be sold under such rule rather than pursuant to this prospectus.
SUPPLEMENTAL PROSPECTUS REGARDING MATERIAL ARRANGEMENTS
If and when a selling shareholder notifies us that he, she or it has
entered into a material arrangement with a broker or dealer for the sale of his,
her or its shares of Common Stock offered by this prospectus through a block
trade, special offering, exchange or secondary distribution or a purchase by a
broker or dealer, we will file a supplemental prospectus, if required, pursuant
to Rule 424(c) under the Securities Act of 1933.
EXPENSES OF SELLING SHAREHOLDERS
The selling shareholders may engage brokers or dealers who may receive
commissions or discounts from the selling shareholders. While we will pay
substantially all of the expenses incident to the registration of the selling
shareholders' shares, we will not be responsible for discounts or commissions
paid to such brokers or dealers.
20
<PAGE>
COMPLIANCE WITH STATE SECURITIES LAWS
We have not registered or qualified the shares of Common Stock offered by
this prospectus under the laws of any country, other than the United States. In
certain states, the selling shareholders may not offer or sell their shares of
Common Stock unless (1) we have registered or qualified such shares for sale in
such states; or (2) we have complied with an available exemption from
registration or qualification. Also, in certain states, to comply with such
states' securities laws, the selling shareholders can offer and sell their
shares of Common Stock only through registered or licensed brokers or dealers.
LIMITATIONS IMPOSED BY EXCHANGE ACT OF 1934 RULES AND REGULATIONS
Certain provisions of the Securities Exchange Act of 1934, as amended, and
the related rules and regulations will apply to the selling shareholders and any
other person engaged in a distribution of shares of the Common Stock. Such
provisions may (1) limit the timing of purchases and sales of any of the shares
of Common Stock by the selling shareholders or such other person; (2) affect the
marketability of such stock; and (3) affect the brokers' and dealers'
market-making activities with respect to such stock.
DESCRIPTION OF SECURITIES TO BE REGISTERED
AUTHORIZED CAPITAL STOCK
Pursuant to our articles of incorporation, we have the authority to issue
80,000,000 shares of Common Stock, par value $0.001 per share, and 10,000,000
shares of preferred stock, par value $0.001 per share, of which 1,000,000 is
designated as Series A Junior Participating Preferred Stock. At September 18,
2000, 24,897,304 shares of Common Stock were issued and outstanding, and no
shares of preferred stock were issued and outstanding.
COMMON STOCK
Voting, Dividend and Other Rights. Each outstanding share of Common Stock
entitles the holder to one vote on all matters presented to stockholders for a
vote. Holders of shares of Common Stock do not have any cumulative voting
rights. This means that the holders of a majority of the outstanding shares of
Common Stock can elect all of the directors then standing for election and the
holders of the remaining shares will not be able to elect any directors. Holders
of shares of Common Stock do not have preemptive rights to subscribe for any of
our securities. All shares of Common Stock will, when issued, be duly
authorized, fully paid, and nonassessable. We are permitted to pay dividends to
the holders of shares of Common Stock if and when our board of directors
declares such dividends out of legally available funds.
Rights Upon Liquidation. Under Nevada law, our stockholders generally are
not liable for our debts or obligations. Upon our liquidation, subject to the
right of any holders of preferred stock to receive preferential distributions,
each holder of Common Stock may participate pro rata in the assets remaining
after payment of, or adequate provision for, all of our known debts and
liabilities.
21
<PAGE>
SHAREHOLDER RIGHTS PLAN
On April 3, 2000, our board of directors declared a dividend of one
preferred share purchase right (each, a "Right" and, collectively, the "Rights")
for each of our shares of Common Stock outstanding at the close of business on
April 21, 2000 (the "Record Date"). Each Right represents the right to purchase
one one-hundredth (1/100) of a share of our Series A Junior Participating
Preferred Stock pursuant to the terms of our Shareholder Rights Plan (the
"Rights Agreement"). Our board of directors further authorized and directed the
issuance of one Right with respect to each share of Common Stock that shall
become outstanding after April 21, 2000 until the earlier of the Distribution
Date (defined below) or the expiration of the Rights on April 3, 2010.
Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate Rights certificates will
be distributed. New Common Stock certificates issued after April 21, 2000, will
contain a notation incorporating the Rights Agreement by reference. The
surrender for transfer of any certificates for Common Stock outstanding, even
without such notation, will also constitute the transfer of the Rights
associated with the Common Stock represented by such certificate.
The Rights will become exercisable and a "Distribution Date" will
occur: (i) on the 10th business day after the date that any person or group
first announces that such person or group (other than certain existing equity
holders) has acquired 15% or more of the then outstanding shares of our Common
Stock or (ii) first announces a tender or exchange offer for 15% or more of the
then outstanding shares of our Common Stock (collectively the "Acquiring
Person"). The effect will be to discourage acquisitions of 15% or more of the
outstanding shares of our Common Stock without negotiations with our board of
directors.
At any time after any person or group becomes an Acquiring Person, we
may exchange all or part of the Rights for shares of Common Stock at an exchange
ratio of one share of our Common Stock (or one one-hundredth (1/100) of a share
of junior participating preferred stock) per Right, subject to adjustment. The
Acquiring Person who triggered the Rights would be excluded from our exchange of
all or part of the Rights for shares of Common Stock because its Rights become
null and void upon the triggering acquisition. Our board of directors may redeem
the Rights at any time prior to their becoming exercisable.
Until a Right is exercised, the holder thereof will have no rights as a
shareholder of the Company, including, without limitation, the right to vote or
to receive dividends or be deemed for any purpose the holder of shares of our
preferred stock or of any other of our securities.
PREFERRED STOCK
Designation and Amount. Our Preferred stock is designated as the Series
A Junior Participating Preferred Stock having a par value per share equal to
$.001. The number of shares constituting such series is 1,000,000.
Voting Rights. Each share of Series A Junior Participating Preferred
Stock shall entitle the holder thereof to 100 votes on all matters submitted to
a vote of our shareholders.
22
<PAGE>
Liquidation, Dissolution or Winding Up. Upon any liquidation (voluntary
or otherwise), dissolution or winding up of the Company, no distribution shall
be made to the holders of shares of stock ranking junior to the Series A Junior
Participating Preferred Stock unless, prior thereto, the holders of shares of
Series A Junior Participating Preferred Stock shall have received $100 per
share, plus an amount equal to all accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment.
Dividends. Each share of Series A Junior Participating Preferred Stock
would be entitled to receive, in the aggregate, a dividend of 100 times the
dividend declared on the Common Stock.
Merger or Consolidation. In the event of any merger, consolidation or
other transaction in which shares of Common Stock are exchanged for or changed
into other stock or securities, cash and/or other property, each share of Series
A Junior Participating Preferred Stock would be entitled to receive 100 times
the amount received per share of Common Stock.
No Redemption. The shares of Series A Junior Participating Preferred
Stock shall not be redeemable.
Ranking. The Series A Junior Participating Preferred Stock shall rank
junior to all other series of preferred stock as to the payment of dividends and
other distributions and the distribution of assets, unless the terms of any such
series shall provide otherwise.
TRANSFER AGENT
Wells Fargo Shareholder Services-Wells Fargo Bank, Minnesota N.A. is
the registrar and transfer agent for our Common Stock.
LEGAL MATTERS
Schreck Morris, Las Vegas, Nevada, will issue an opinion to us regarding
certain legal matters in connection with this offering, including the validity
of the issuance of the shares of Common Stock offered by this prospectus.
EXPERTS
The financial statements incorporated in this prospectus by reference to
our Annual Report on Form 10-KSB for the year ended December 31, 1999, have been
so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
23
