As filed with the Securities and Exchange Commission on August 25, 1999
REGISTRATION NO. 333-83631
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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INTERLEUKIN GENETICS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 94-3123681
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 N.E. LOOP 410, SUITE 820
SAN ANTONIO, TEXAS 78216
(210) 349-6400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------
U. SPENCER ALLEN
CHIEF FINANCIAL OFFICER, SECRETARY AND TREASURER
INTERLEUKIN GENETICS, INC.
100 N.E. LOOP 410, SUITE 820
SAN ANTONIO, TEXAS 78216
(210) 349-6400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO THE AGENT FOR
SERVICE, SHOULD BE SENT TO:
PHILLIP M. RENFRO, ESQ.
FULBRIGHT & JAWORSKI L.L.P.
300 CONVENT STREET, SUITE 2200
SAN ANTONIO, TEXAS 78205
(210) 270-7172
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
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If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, check the following box: [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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TITLE OF EACH CLASS OF AMOUNT OF SHARES PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED PRICE PER SHARE(1) AGGREGATE OFFERING PRICE REGISTRATION FEE
- ------------------------------ ---------------- -------------------------- --------------------------- ----------------
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COMMON STOCK, NO PAR VALUE PER
SHARE ........................ 12,050,000(2)(3) $ 1.9375 $ 23,346,875 $ 6,490.43
TOTAL ........................ 12,050,000(2)(3) $ 1.9375 $ 23,346,875 $ 6,490.43(4)
---------------- -------------------------- --------------------------- ----------------
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(1) Pursuant to Rule 457(c), the proposed maximum offering price per share and
proposed maximum aggregate offering price have been calculated on the basis
of the average of the bid and ask prices of the Common Stock as reported on
the Nasdaq National Market on August 19, 1999.
(2) Includes 1,000,000 shares of Common Stock issuable pursuant to warrants and
50,000 shares of Common Stock issuable pursuant to an option.
(3) Pursuant to Rule 416(a), this Registration Statement shall also cover any
additional shares of Common Stock which become issuable by reason of any
stock dividend, stock split, recapitalization or other similar transactions
effected without the receipt of consideration which results in an increase
in the number of the outstanding shares of Common Stock.
(4) Registration fee of $8,027.25 paid July 23, 1999.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
P R O S P E C T U S
12,050,000 SHARES
INTERLEUKIN GENETICS, INC.
COMMON STOCK
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This prospectus relates to the public offering, which is not being
underwritten, of up to 12,050,000 shares (the "Shares") of our common stock, no
par value per share ("Common Stock"), of which 1,050,000 are issuable to the
holders of warrants and an option to purchase Common Stock (collectively, the
"Warrants").
The prices at which our shareholders may sell the Shares will be determined by
the prevailing market price for the Shares or in negotiated transactions. While
we will not receive any of the proceeds from the sale of the Shares, we may
receive up to $562,500 upon exercise of the Warrants.
Our Common Stock is traded on The NASDAQ SmallCap Market (the "Nasdaq Market")
and The Boston Stock Exchange under the symbol "ILGN." On August 23, 1999, the
last reported sale price for our Common Stock on the Nasdaq Market was $1.875
per share.
The Company completed a private placement of 2,200,000 shares of Series A
Preferred Stock in June 1999. The selling shareholders acquired 11,000,000 of
the Shares on August 20, 1999 upon conversion of the Series A Preferred Stock.
The remainder of the Shares are issuable upon exercise of warrants and an option
to purchase Common Stock.
This Prospectus is not an offer to sell these securities and is not soliciting
an offer to buy these securities in any state where the offer or sale is not
permitted.
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INVESTING IN THE COMMON STOCK INVOLVES RISKS. YOU SHOULD READ THE "RISK FACTORS"
BEGINNING ON PAGE 3.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is August 24, 1999.
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AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission (the "Commission") a
Registration Statement on Form S-3 under the Securities Act of 1933, as amended
(the "Securities Act"), related to the Shares. This Prospectus is part of that
Registration Statement and does not contain all of the information set forth in
the Registration Statement and its exhibits. You may obtain further information
with respect to the Company and the Shares by reviewing the Registration
Statement and the attached exhibits, which you may read and copy at the
following locations of the Commission:
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Public Reference Room New York Regional Office Chicago Regional Office
Judiciary Plaza Seven World Trade Center Citicorp Center
450 Fifth Street, N.W., Rm. 1024 13th Floor 500 West Madison Street, Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661-2511
</TABLE>
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Accordingly, we file reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the locations
described above. Copies of such materials can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. You may obtain information on the Public Reference
Room of the Commission by calling the Commission at 1-800-SEC-0330. The
Commission maintains a Web site that contains the Registration Statement,
reports, proxy statements and other information regarding the Company at
http://www.sec.gov.
We furnish our shareholders with annual reports containing audited
financial statements with a report thereon by our independent public
accountants.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" certain information
into this Prospectus. This means that we can disclose important information to
you by referring you to another document we have filed separately with the
Commission. The information incorporated by reference is considered to be a part
of this Prospectus, except for any information that is superseded by other
information that is set forth directly in this document.
The following documents that we have previously filed with the Commission
pursuant to the Exchange Act are hereby incorporated by reference into the
Prospectus:
(1) Our Annual Report on Form 10-KSB/A for the fiscal year ended December
31, 1998.
(2) Our Quarterly Reports on Form 10-QSB for the quarters ended March 31
and June 30, 1999.
(3) Our Current Report on Form 8-K dated and filed August 20, 1999.
(4) Our Current Report on Form 8-K dated June 16, 1999 and filed June 25,
1999 reporting our private placement of Series A Preferred Stock.
(5) The description of our Common Stock contained in Item 1 of our
Registration Statement on Form 8-A dated December 15, 1997.
Interleukin Genetics also incorporates by reference additional documents
that may be filed with the Commission between the date of this Prospectus and
the date of completion of the offering of the shares of Common Stock by the
selling shareholders. These include periodic reports, such as Annual Reports on
Form 10-KSB, Quarterly Reports on Form 10-QSB and Current Reports on Form 8-K,
as well as proxy statements.
Documents incorporated by reference are available from us without charge,
excluding all exhibits, except that if we have specifically incorporated by
reference an exhibit in this Prospectus, the exhibit also will be available
without charge. Shareholders may obtain documents incorporated by reference in
this Prospectus by requesting them in writing or by telephone from Interleukin
Genetics at the following address:
Interleukin Genetics, Inc.
100 N.E. Loop 410, Suite 820
San Antonio, Texas 78216
Attention: Investor Relations
Telephone: 210 349-6400
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You should rely only on the information contained or incorporated by reference
in this Prospectus. We have not authorized anyone to provide you with
information that is different from what is contained in this Prospectus. This
Prospectus is dated August 24, 1999. You should not assume that the information
contained in this Prospectus is accurate as of any date other than that date. In
this Prospectus, the "Company," "Interleukin Genetics," "ILGN," "we" and "our"
refer to Interleukin Genetics, Inc.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus and the documents incorporated by reference contain
certain forward-looking statements including, without limitation, statements
concerning our expectations of future sales, gross profits, research and
development expenses, selling, general and administrative expenses, product
introductions and cash requirements. Forward-looking statements often, although
not always, include words or phrases such as "will likely result," "expect,"
"will continue," "anticipate," "estimate," "intend," "plan," "project,"
"outlook" or similar expressions. Actual results may vary materially from those
expressed in such forward-looking statements. Factors which could cause actual
results to differ from expectations include those set forth under "Risk
Factors." We cannot be certain that our results of operations will not be
adversely affected by one or more of these factors.
RISK FACTORS
You should carefully examine this entire Prospectus and should give
particular attention to the risk factors set forth below in conjunction with the
other information contained or incorporated by reference in this Prospectus in
evaluating an investment in the Shares.
RECENT DEVELOPMENTS
We held our Annual Meeting of Shareholders on August 20, 1999. At the
Annual Meeting, the shareholders ratified the private placement of Series A
Preferred Stock ("Series A Preferred") completed by the Company in June 1999 and
approved amendments to our Articles of Incorporation changing the name of the
Company to Interleukin Genetics, Inc. and increasing the number of authorized
shares of Common Stock from 10,000,000 to 50,000,000. Pursuant to the Statement
Establishing the Relative Rights and Preferences of Preferred Stock for the
Series A Preferred, all of the 2,200,000 outstanding shares of Series A
Preferred Stock were automatically converted into 11,000,000 shares of Common
Stock following shareholder approval of the private placement. Concurrent with
changing our name to Interleukin Genetics, Inc., we also changed our ticker
symbol to "ILGN." Our Common Stock previously traded under the ticker symbol
"MSSI." The Company currently has 16,558,835 shares of Common Stock issued and
outstanding, and no shares of preferred stock issued and outstanding.
At the Annual Meeting, our shareholders elected Dr. Philip R. Reilly, Gary
L. Crocker, Kenneth S. Kornman, Thomas A. Moore and Edward M. Blair, Jr., as
directors of the Company. Dr. Reilly serves as Chairman of the Board of
Directors. Michael G. Newman, Ronald A. LaRosa and Paul J. White each resigned
as directors of the Company upon completion of the Private Placement. Paul J.
White formerly served as President and Chief Executive Officer of the Company,
and now serves as Senior Vice President and General Counsel. A search is being
conducted by the Board of Directors for an individual(s) to serve as President
and Chief Executive Officer of the Company. Until such positions are filled,
Philip R. Reilly will serve as Interim Chief Executive Officer of the Company
and Kenneth S. Kornman will serve as Interim President of the Company.
NO ASSURANCE OF ADDITIONAL NECESSARY CAPITAL
The Company anticipates that its current financial resources will be
adequate to maintain its current and planned operations through January 2001.
Arthur Andersen LLP, the Company's independent auditors, have included in their
report on the financial statements for the year ended December 31, 1998, an
explanatory paragraph with respect to the Company's need for future funding and
have expressed concern with respect to the Company's ability to continue as a
going concern. There can be no assurances that the Company will be able to raise
any additional capital. If additional amounts cannot be raised prior to January
2001, the Company would suffer material adverse consequences to its business,
financial condition and results of operations and would likely be required to
seek protection under the United States Bankruptcy laws.
The Company's future capital requirements will depend on many factors,
including successful expansion of sales of PST(R), the Company's genetic test
for periodontal disease, and continued scientific progress with its research and
development programs. The continuation of the Company's research and development
activities beyond January 2001 may require substantial additional capital from
private or public sources. There is no assurance that such capital will be
available to the Company on acceptable terms. Furthermore, the market for
publicly-traded stocks of biotechnology companies has been depressed since 1993,
and the competition for equity capital from public and private
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sources has intensified among the over 1,000 biotechnology companies in the
United States that are dependent on infusions of capital to fund their
operations. The Company is also engaged from time to time in discussions with
several companies concerning the licensing of certain of the Company's
proprietary technologies or forming strategic alliances, which could provide
additional sources of funding to the Company as well as a possible source of
equity capital. The Company is unable to predict the likelihood of completing
any such arrangements. There can be no assurance that the Company will be
successful in obtaining additional capital in amounts sufficient to continue to
fund its operations and product development.
INABILITY TO FULLY USE NET OPERATING LOSS CARRYFORWARDS
As a result of the losses incurred in 1997 and 1998, the Company has not
recorded a Federal income tax provision for those years and has recorded a
valuation allowance against all future tax benefits. As of March 31, 1999, the
Company had net operating loss carryforwards of approximately $14,200,000 for
Federal income tax purposes, expiring in varying amounts through the year 2019.
The Company also had a research tax credit of approximately $170,129 at December
31, 1998, that expires in varying amounts through the year 2018. The Company's
ability to use its NOL and credit carryforwards is subject to Section 382 of the
Internal Revenue Code of 1986 (the "Code"). These restrictions provide for
limitations on the Company's utilization of its NOL and credit carryforwards
following a greater than 50% ownership change during the prescribed testing
period. The Company experienced a change in ownership interest in June 1999. The
Company does not believe that this change in ownership significantly impacts the
Company's ability to utilize its net operating loss and tax credit carryforwards
as of March 31, 1999, because the amount of the cumulative annual limitation
during the carryforward period approximates the total amount of net operating
loss and tax credit carryforwards.
UNCERTAINTY OF MARKET ACCEPTANCE FOR GENETIC SUSCEPTIBILITY TESTS
The commercial success of our genetic susceptibility tests and those that
we may develop will depend upon their acceptance as medically useful and
cost-effective by patients, physicians, dentists, other members of the medical
and dental community and insurers. Broad market acceptance can be achieved only
with substantial education about the benefits and limitations of such tests. It
is uncertain whether current genetic susceptibility tests or others that we may
develop will gain market acceptance on a timely basis. If patients, dentists and
physicians do not accept our tests, or take a longer time to accept than we
anticipate, then our revenues and profit margins may be reduced and may result
in additional losses.
NEW BUSINESS VENTURE
The securities being offered hereby are subject to the risks inherent in
any new business venture. Although we have operated as a contract research firm
since 1986, we have limited experience and a short history of operations with
respect to marketing and selling susceptibility tests or therapeutics. We have
had only minimal revenues related to the sale of our genetic susceptibility
testing services. With the exception of our periodontal susceptibility test, the
genetic susceptibility tests anticipated to be sold by us have not yet been
finally designed, developed, tested or marketed. Therefore, there can be no
assurance that we will be able to complete development of these genetic
susceptibility tests, that those tests will be accepted in the marketplace, or
that the tests can be sold at a profit. Our business may also be affected
significantly by economic and market conditions over which we have no control.
Consequently, an investment in the Shares is highly speculative. We do not
guarantee any return on an investment in the Shares.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY
We incurred net operating losses of $788,546 in fiscal year 1996,
$4,494,062 in 1997 and $9,508,275 in 1998. As of June 30, 1999, our accumulated
deficit was $17,220,397. Our losses have resulted principally from expenses
incurred in research and development and from selling, general and
administrative expenses. These expenses have exceeded our revenues. We have yet
to generate any significant revenues from the sale of our genetic susceptibility
testing services and there can be no assurance that we will be able to generate
significant revenues in the future. We expect our operating losses to continue
for the near future as our research and development, sales and marketing
activities and operations continue. Our ability to achieve profitability depends
on our ability to develop our sales and marketing capacity and our ability to
successfully market and sell our products and services. It is uncertain when, or
if, we will become profitable.
POSSIBLE NASDAQ DELISTING; LIMITED PUBLIC MARKET FOR COMMON STOCK; POSSIBLE
VOLATILITY OF SECURITIES PRICES
Our Common Stock is currently listed on The NASDAQ SmallCap Market and the
Boston Stock Exchange. If the Company fails to maintain the qualification for
its Common Stock to trade on the NASDAQ SmallCap Market or the Boston Stock
Exchange, its Common Stock could be subject to delisting. The NASDAQ Stock
Market announced increases in the quantitative standards, which became effective
in February 1998, for maintenance of any of (x) $2,000,000 of net tangible
assets, (y) $35,000,000 of market capitalization or (z) $500,000 of net income
for two
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of the last three years and a minimum bid price per share of $1.00. On
February 3, 1999, we received notice from NASDAQ that we are in violation of
NASDAQ's minimum bid price requirement and that if our Common Stock did
not have a closing bid price of at least $1.00 for ten consecutive trading days
during the 90-day period ending May 3, 1999, our Common Stock was subject to
delisting on May 3, 1999. The Company believes it satisfied this requirement by
having a closing bid price of at least $1.00 for the ten consecutive trading
days ending March 29, 1999; however the Company has not yet received notice from
NASDAQ that such requirement was satisfied. Furthermore, there can be no
assurance that our stock price will maintain such $1.00 minimum bid price. If
the market price for our Common Stock does fall below the $1.00 bid price, our
Common Stock could be subject to delisting from The NASDAQ SmallCap Market.
On April 19, 1999, the Company received an additional notice from the
NASDAQ SmallCap Market indicating that the Company was in violation of NASDAQ's
$2,000,000 minimum net tangible asset requirement. As a result of the Private
Placement, management believes that the Company is in compliance with NASDAQ's
minimum net tangible asset requirement. The Company filed a Current Report on
Form 8-K dated June 25, 1999, containing the Company's pro forma balance sheet
at May 31, 1999, adjusted to reflect the results of the Private Placement. Such
balance sheet reflects net tangible assets in excess of $2,000,000. If the
Company is unable to maintain compliance with NASDAQ's minimum net tangible
asset requirement, the Company would likely be delisted from The NASDAQ SmallCap
Market and may also suffer material adverse consequences to its business,
financial condition and results of operations.
On April 26, 1999, the Company received a letter from NASDAQ expressing
concern regarding the "going concern" opinion of Arthur Andersen LLP, the
Company's independent public accountant, given in Arthur Andersen's report
contained in the Company's Annual Report on Form 10-KSB. While NASDAQ did not
notify the Company that its Common Stock was subject to delisting due to such
opinion, NASDAQ does have the discretion to so delist the Company's Common Stock
for any number of reasons, including the "going concern" opinion of Arthur
Andersen. Their can be no assurance that the Company will be able to address
this issue in a manner satisfactory to NASDAQ, or that the Company's Common
Stock will not be delisted from The NASDAQ SmallCap Market.
On August 3, 1999, the Company received a notice from NASDAQ questioning
whether the Company had violated the shareholder approval provisions of The
NASDAQ Marketplace Rules due to an alleged change-in-control resulting from the
private placement of Series A Preferred Stock completed by the Company in June
1999. As a result, NASDAQ is reviewing the Company's eligibility for continued
listing on The NASDAQ SmallCap Market. The Company does not believe that a
change-of-control occurred and is engaged in discussions with NASDAQ to resolve
this matter. At the Annual Meeting held August 20, 1999, our shareholders
ratified the private placement of Series A Preferred Stock. There can be no
assurance that the Company will be able to address this issue in a manner
satisfactory to NASDAQ, or that the Company's Common Stock will not be delisted
from The NASDAQ SmallCap Market.
If our shares are not listed as intended, trading, if any, would be
conducted in the over-the-counter market in the so-called "pink sheets" or the
OTC Bulletin Board, which was established for securities that do not meet The
NASDAQ SmallCap Market's listing requirements. Consequently, selling our shares
would be more difficult because smaller quantities of shares could be bought and
sold, transactions could be delayed, and security analysts' and news media's
coverage of our company may be reduced. These factors could result in lower
prices and larger spreads in the bid and ask prices for our shares. Such NASDAQ
delisting would also greatly impair the Company's ability to raise additional
necessary capital through equity or debt financing.
If our shares are not listed on The NASDAQ SmallCap Markets and/or the
Boston Stock Exchange, they may become subject to Rule 15g-9 under the Exchange
Act. That rule imposes additional sales practice requirements on broker-dealers
that sell low-priced securities to persons other than established customers and
institutional accredited investors. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. Consequently, the rule may affect the ability of broker-dealers to sell
our shares and affect the ability of holders to sell our shares in the secondary
market.
The SEC's regulations define a "penny stock" to be any equity security
that has a market price less than $5.00 per share or with an exercise price of
less than $5.00 per share, subject to certain exceptions. The penny stock
restrictions will not apply to our shares if they are listed on The NASDAQ
SmallCap Market or the Boston Stock Exchange and we provide certain price and
volume information on a current and continuing basis, or meet required minimum
net tangible assets or average revenue criteria. We cannot assure you that our
shares will qualify for exemption from these restrictions. If our shares were
subject to the penny stock rules, the market liquidity for the shares could be
adversely affected.
Historically, our Common Stock has experienced low trading volumes. The
market price of the Common Stock also has been highly volatile and it may
continue to be highly volatile as has been the case with the securities
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of other public biotechnology companies. Factors such as announcements by the
Company or its competitors concerning technological innovations, new commercial
products or procedures, proposed government regulations and developments or
disputes relating to patents or proprietary rights may substantially affect the
market price of the Company's securities. Changes in the market price of the
Common Stock may bear no relation to the Company's actual operational or
financial results.
COMPETITION
Research in the field of disease predisposing genes and genetic markers is
intense and highly competitive. Genetic research is characterized by rapid
technological change. Our competitors in the United States and abroad are
numerous and include, among others, major pharmaceutical and diagnostic
companies, specialized biotechnology firms, universities and other research
institutions (including those receiving funding from the Human Genome Project).
Many of our potential competitors have considerably greater financial,
technical, marketing and other resources than us. These greater resources may
allow our competitors to discover important genes or genetic markers before us.
If we, in conjunction with the Department of Molecular and Genetic Medicine at
the University of Sheffield, U.K., do not discover disease predisposing genes or
genetic markers associated with increased disease severity, characterize their
function, develop susceptibility tests and related information services based on
such discoveries, obtain regulatory and other approvals, if needed, and launch
such services or products before competitors, then our revenues and earnings
will be reduced or eliminated. In addition, any of the susceptibility tests that
we may develop, including our periodontal susceptibility test, could be made
obsolete by less expensive or more effective tests or methods which may be
developed in the future. We expect competition to intensify in our industry as
technical advances are made and become more widely known.
DIFFICULTY OF DEVELOPING GENETIC SUSCEPTIBILITY TESTS
It is uncertain whether we will be successful in developing and bringing
to market our current portfolio or future tests based on the genetic discoveries
made by us and our collaborators. Even when we discover a genetic marker (i.e.,
a genetic variation or polymorphism associated with increased disease incidence
or severity), additional clinical trials need to be conducted to confirm the
initial scientific discovery and to support the scientific discovery's clinical
utility in the marketplace. The results of a clinical trial could delay, reduce
the test's acceptance or cause our company to cancel a program. Such delays,
reduced acceptance or cancellations would reduce revenues and may result in
losses.
UNCERTAINTY OF INSURANCE REIMBURSEMENT
Our ability to successfully commercialize existing genetic susceptibility
tests and others that we may develop depends in part on obtaining adequate
reimbursement for such testing services and related treatments from government
and private health care insurers (including health maintenance organizations)
and other third-party payors. Physicians' and dentists' decisions to recommend
genetic susceptibility tests, as well as patients' elections to pursue testing,
are likely to be heavily influenced by the scope and extent of reimbursement for
such tests by third-party payors. Government and private third-party payors are
increasingly attempting to contain health care costs by limiting both the extent
of coverage and the reimbursement rate for new testing and treatment products
and services. In particular, services which are determined to be investigational
in nature or which are not considered "reasonable and necessary" for diagnosis
or treatment may be denied reimbursement coverage. To date, few insurers or
third-party payors have agreed to reimburse patients for genetic susceptibility
tests.
It remains uncertain whether insurers or third-party payors will elect to
provide full reimbursement coverage for the genetic susceptibility tests in the
near future. If adequate reimbursement coverage is not available from insurers
or third-party payors, it is uncertain whether individuals will elect to
directly pay for the test. If both insurers or third-party payors and
individuals are unwilling to pay for the test, then the number of tests
performed will be significantly decreased. Such a scenario would result in
reduced revenues and possible losses.
RELIANCE ON COLLABORATIVE PARTNERS
In 1994 we entered into a strategic alliance with the Section of Molecular
Medicine at Sheffield University, a world leader in the genetic aspects of
common diseases with an inflammatory component. In 1996 we formalized our
relationship by entering into a master agreement (the "Master Agreement"). Under
the terms of the Master Agreement, we will undertake the development and
commercialization of discoveries resulting from the research of the Section of
Molecular Medicine at Sheffield University. In exchange, Sheffield University
will receive a share of the resultant net profits, with the percentage of net
profits for us and Sheffield University agreed upon separately under project
agreements related to each test (each a "Project Agreement"). Our share of the
net profits under such Project Agreements ranges from 60% to 67%. The Master
Agreement may be terminated with or without cause by either party upon
six-months' notice. Although termination does not affect any existing Project
Agreements, any termination would limit or eliminate our access to future
Sheffield University genetic discoveries that fall outside of the scope of our
existing Project Agreements.
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The Project Agreements (excluding the agreement covering the periodontal
test which has no fixed termination date) each have a 10-year term, which is
automatically renewed for one-year periods unless terminated by either party
upon a six months' prior notice. The Project Agreements may be terminated: (i)
by mutual agreement, (ii) by either party 30 days after an uncured breach or
default by the other party; (iii) by either party upon certain events of
bankruptcy; and (iv) by our company if Professor Gordon Duff ceases to be an
employee of, or head of the Section of Molecular Medicine at Sheffield
University. In the case of mutual agreement to terminate, or in the case of our
terminating a Project Agreement prior to the end of the 10-year term, net
profits would be reallocated by mutual agreement in light of the continued
responsibilities between the parties. However, Sheffield University's share of
the net profits would not be allowed to fall below ten percent (10%) in such an
instance. If the Master Agreement or any of the Project Agreements were
terminated, we would need to enter into additional collaborative arrangements in
order to continue to build a future pipeline of products.
In the future we may, in order to facilitate the sale of our testing
services and/or products, enter into collaborative selling arrangements with one
or more other persons. It is uncertain whether we will be able to negotiate
acceptable collaborative arrangements in the future or that such collaborative
arrangements will be successful. If we are unable to identify collaborative
partners to sell certain of our services and/or products, we may be forced to
develop an internal sales force to market and sell our services and/or products
in markets where we are not intending on developing a direct selling presence.
Such a process would take more time and potentially cost more. As a result, our
revenues and earnings would be reduced. If we do enter into collaborative
selling arrangements, our success will depend upon the efforts of others and may
be beyond our control. Failure of any collaborative selling arrangement could
result in reduced revenues and possible losses.
UNCERTAIN ABILITY TO PROTECT PROPRIETARY TECHNOLOGY
Our success will partly depend on our ability to obtain patent protection,
both in the United States and in other countries, for our products and services.
In addition, our success will also depend upon our ability to preserve our trade
secrets and to operate without infringing the proprietary rights of third
parties.
We have sixteen (16) patent applications pending, including applications
covering certain of our anticipated genetic susceptibility tests. There can be
no assurance that our patent applications will ever be issued as patents or that
the claims of any issued patents will afford meaningful protection for our
technology or products. Further, others may develop similar products which test
for susceptibility related to some diseases yet avoid infringing upon, or
conflicting with, our anticipated patents. In addition, there can be no
assurance that any patents issued to us will not be challenged, and subsequently
narrowed, invalidated or circumvented.
Our testing services and/or products may also conflict with patents which
have been or may be granted to others. As the biotechnology industry expands and
more patents are filed and issued, the risk increases that our products may give
rise to a declaration of interference by the Patent and Trademark Office, or to
claims of patent infringement by other companies, institutions or individuals.
Such entities or persons could bring legal proceedings against us seeking
damages or seeking to enjoin us from testing, manufacturing or marketing our
products. Patent litigation is costly, and even if we prevail, the cost of such
litigation could have an adverse effect on us. If the other parties in any such
actions are successful, in addition to any liability for damages, we could be
required to cease the infringing activity or obtain a license. It is uncertain
whether any license required would be available to us on acceptable terms, if at
all. Failure by us to obtain a license to any technology that we may require to
commercialize our products could have a material adverse effect on our business,
financial condition, results of operations and cash flows. In addition, there is
considerable pressure on academic institutions and other entities to publish
discoveries in the genetic field. Such a publication by an academic institution
or other entity, prior to our filing of a patent application on such discovery,
may compromise our ability to obtain U.S. and foreign patent protection for the
discovery.
We also rely upon unpatented proprietary technologies. We rely on
confidentiality agreements with our employees, consultants and collaborative
partners to protect such proprietary technology. There can be no assurance that
we can adequately protect our rights in such unpatented proprietary
technologies, that others will not independently develop substantially
equivalent proprietary information or techniques, or otherwise gain access to
our proprietary technologies or disclose such technologies.
The United States Patent and Trademark Office issued new Utility
Guidelines in July 1995 that address the requirements for demonstrating utility,
particularly in inventions relating to human therapeutics. While the guidelines
do not require clinical efficacy data for issuance of patents for human
therapeutics, there can be no assurance that the Patent and Trademark Office's
interpretations of such guidelines, and any changes to such interpretations will
not delay or adversely affect our or our collaborators' ability to obtain patent
protection. The biotechnology patent situation outside the United States is even
more uncertain and is currently undergoing review and revision in many
countries.
7
<PAGE>
TECHNOLOGICAL CHANGES RESULTING IN PRODUCT OBSOLESCENCE
Market acceptance and sales of our testing services could also be
adversely affected by technological change. It is uncertain whether our
competitors will succeed in developing genetic susceptibility tests that
circumvent or are more effective than our technologies or services. Further, it
is uncertain whether such developments would render our or our collaborators'
technology or services less competitive or obsolete. Further, our testing
services could be rendered obsolete as a result of future innovations in the
treatment of gum disease, osteoporosis, coronary artery disease, pulmonary
fibrosis, asthma, diabetic retinopathy or other disease areas in which we have
developments. Such innovations could have a significant negative impact on our
company's ability to market our services effectively.
LIMITED MARKETING OR SALES EXPERIENCE
Our business strategy is to provide genetic susceptibility testing
services aimed at common diseases that are treatable and preventable. The
commercial introduction of the periodontal susceptibility test at the beginning
of October 1997 represented our first such effort. In preparation for the launch
of the periodontal susceptibility test, we have devoted substantial human and
financial resources to the establishment and staffing of a customer service
support facility and the building of a sales and marketing infrastructure.
However, we have limited experience in developing and commercially marketing
susceptibility testing services. It is uncertain whether our customer service
support facilities and sales and marketing program will achieve efficient,
effective or successful operations. Failure to successfully market such tests
could reduce our revenues and may result in losses.
GOVERNMENT REGULATION
The sampling of blood, saliva or cheek scrapings from patients and
subsequent analysis in a clinical laboratory does not, at the present time,
require FDA or regulatory authority approval outside the U.S. for either the
sampling procedure or the analysis itself. The samples are taken in the
healthcare provider's office, using standard materials previously approved as
medical devices, such as sterile lancets and swabs. The testing procedure itself
is performed in one or more registered, certified clinical laboratories under
the auspices of the Clinical Laboratory Improvement Amendments of 1988 ("CLIA"),
administered by the Health Care Financing Administration. In general, the
federal regulations promulgated pursuant to CLIA governing the approval of
laboratory facilities and applicable state and local regulations governing the
operation of clinical laboratories apply to our subsidiary which operates a
laboratory but not to Interleukin Genetics, Inc. Currently our subsidiary
operates an approved CLIA laboratory. Additionally, changes in existing
regulations could require advance regulatory approval of genetic susceptibility
tests which may result in a substantial curtailment or even prohibition of our
activities without regulatory approval. If our tests ever require regulatory
approval, the costs of introduction will increase and marketing and sales may be
significantly delayed.
Although our primary business is to develop genetic susceptibility testing
services, we may also develop or assist others to develop, drugs or other
treatments for the diseases related to our tests. The FDA and comparable
agencies in state and local jurisdictions and in foreign countries impose
substantial requirements upon the manufacturing and marketing of drug products
such as those potentially to be developed by our company or any partner. The
process of obtaining FDA and other required regulatory approvals is lengthy and
expensive. The time required for FDA approvals is uncertain and typically takes
a number of years, depending on the type, complexity and novelty of the product.
We may encounter significant delays or excessive costs in our efforts to secure
necessary approvals or licenses. Because certain of the products likely to
result from our research and development programs involve the application of new
technologies and will be based on new approaches, such products may be subject
to substantial additional review by various governmental regulatory authorities
and as a result, regulatory approvals may be obtained more slowly than for
products using more conventional technologies. There can be no assurance that
FDA approvals will be obtained in a timely manner, if at all. Any delay in
obtaining, or the failure to obtain, such approvals would adversely affect our
ability to generate product or product sales. Even if FDA approvals are
obtained, the marketing and manufacturing of drug products are subject to
continuing FDA and other regulatory review, and later discovery of previously
unknown problems with a product, manufacturer or facility may result in
restrictions on the product or manufacturer, including withdrawal of the product
from the market. Additional governmental regulations may be promulgated which
could delay regulatory approval of our potential products. We cannot predict the
impact of adverse governmental regulation which might arise from future
legislative or administrative action.
We intend to generate product revenues from sales outside of the United
States. Distribution of our testing services or products outside the United
States may be subject to extensive government regulation. These regulations,
including the requirements for approvals or clearance to market, the time
required for regulatory review and the sanctions imposed for violations, vary by
country. It is uncertain whether we will obtain regulatory approvals in such
countries or that we will be required to incur significant costs in obtaining or
maintaining our foreign regulatory approvals. Failure to obtain necessary
regulatory approvals or any other failure to comply with regulatory requirements
could result in reduced revenues and increased losses.
8
<PAGE>
PRODUCT LIABILITY EXPOSURE
Our business exposes us to potential liability risks inherent in the
testing and marketing of medical and dental related services or products. It is
uncertain whether liability claims will be asserted against us. We have product
and professional liability insurance which we believe provides coverage for the
testing and commercial introduction of our genetic susceptibility tests. It is
uncertain whether we will be able to maintain such insurance on acceptable
terms. Any insurance obtained may not provide adequate coverage against
potential liabilities. A liability claim, even one without merit, could result
in significant legal defense costs thereby increasing our expenses, lowering our
earnings and even resulting in losses.
ETHICAL, LEGAL AND SOCIAL IMPLICATIONS OF GENETIC TESTING
The prospect of broadly available genetic testing has raised issues which
are currently being widely discussed by the medical and scientific communities,
as well as other interested groups and organizations, regarding the appropriate
utilization and the confidentiality of information provided by such testing. The
recent movement towards discovery and commercialization of susceptibility tests
for assessing a person's likelihood of developing a chronic disease has also
focused public and legislative attention on the need to protect the privacy of
genetic assessment medical information. With the progression towards more
comprehensive record keeping by health insurers and managed care firms, this
need has led to a number of legal initiatives. The recently enacted federal
health insurance reform law (Health Insurance Portability Act of 1996)
recognizes the comparability of information obtained by genetic means to other
types of personal medical information. The law prohibits insurance companies
from refusing health insurance coverage to individuals on the basis of their
medical history, including "genetic information." This legislation also
prohibits employees from discrimination in hiring practices on the same basis.
This legislation indicates a trend to protect the privacy of patients while
allowing them to be screened for conditions which, can be prevented, reduced in
severity or cured. In the most extreme scenario, governmental authorities could,
for social or other purposes, limit the use of genetic testing or prohibit
testing for genetic susceptibility to certain conditions. For these reasons, we
could experience a delay or reduction in test acceptance. Such a delay or
reduction could reduce our revenues or result in losses.
We are taking a proactive stance in the ethical arena. We have engaged Dr.
Philip Reilly, who is both an M.D. (certified specialist in clinical genetics)
and an attorney, to advise us in the area of genetic testing and its ethical,
legal and clinical utility ramifications. Additionally, we are currently
advising doctors who administer our genetic susceptibility tests to take special
efforts to maintain the confidentiality of the test results. Our intent is to
avoid information about test results being disclosed to insurers until issues
regarding insurability have been fully analyzed and acted upon by the
appropriate legislative bodies.
DEPENDENCE ON KEY PERSONNEL AND CONSULTANTS
Because of the specialized scientific nature of our business, we are
highly dependent upon our ability to attract and retain qualified management,
scientific and technical personnel. Our company will also be dependent upon the
ability to hire qualified marketing and sales personnel. Competition for
scientific, marketing and sales personnel is intense. Loss of the services of
Dr. Reilly or Dr. Kornman could adversely affect our research and development
programs and susceptibility testing service business and could impede the
achievement of our business objectives. We do not maintain key man life
insurance on any of our personnel.
CONTROL BY EXISTING SHAREHOLDERS
As of August 20, 1999, our directors, executive officers and certain of
their affiliates beneficially owned approximately 23.8% of our outstanding
Common Stock. Accordingly, these shareholders, individually and as a group, may
be able to influence the outcome of shareholder votes, including votes
concerning the election of directors, the adoption or amendment of provisions in
our Amended and Restated Articles of Incorporation or Amended and Restated
By-Laws and the approval of certain mergers and other significant corporate
transactions, including a sale of substantially all of our assets. Such control
by existing shareholders could have the effect of delaying, deferring or
preventing a change in control.
ABSENCE OF DIVIDENDS
We have never paid dividends and do not intend to pay any dividends in the
foreseeable future.
SHARES ELIGIBLE FOR FUTURE SALE
As of August 19, 1999, there were outstanding stock options and warrants
to purchase an aggregate of 2,839,389 shares of Common Stock at various exercise
prices per share. No prediction can be made as to the effect,
9
<PAGE>
if any, that sales of shares of Common Stock or the availability of such shares
for sale will have on the market prices prevailing from time to time. The
possibility that substantial amounts of Common Stock may be sold in the public
market may adversely affect prevailing market prices for the Common Stock, and
could impair the Company's ability to raise capital through the sale of its
equity securities.
EFFECT OF PREFERRED STOCK AND DIRECTOR REMOVAL PROVISIONS
Our Board of Directors is authorized to issue up to 5,000,000 shares of
Preferred Stock and to determine the price, rights, preferences and privileges
of those shares without any further vote or action by our shareholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any shares of Preferred Stock that may
be issued in the future. While we have no present intention to issue shares of
Preferred Stock, such issuance, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire a majority
of our outstanding voting stock. In addition, such Preferred Stock may have
other rights, including economic rights, senior to the Common Stock. As a
result, the issuance of Preferred Stock could decrease the market value of the
Common Stock.
Our Articles of Incorporation provide that members of the Board of
Directors may be removed only for cause upon the affirmative vote of holders of
at least a majority of the shares of our outstanding capital stock entitled to
vote. Certain other provisions of our Amended and Restated Articles of
Incorporation could also have the effect of delaying or preventing changes of
control or in management. Such a delay or preventive effect could adversely
affect the price of our Common Stock.
THE COMPANY
Interleukin Genetics develops and commercializes genetic diagnostic tests
and medical research tools. The Company's efforts are focused on genetic factors
that affect the rate of progression of clinical disease through their influence
on common host systems. The Company's first genetic test, PST(R), a test
predictive of risk for periodontal disease, is currently marketed in the United
States, Europe and Israel. Products under development include tests predictive
of risk for osteoporosis, coronary artery disease, diabetic retinopathy, asthma,
pulmonary fibrosis and meningitis/sepsis. The Company believes by combining
genetic risk assessment with specific therapeutic strategies, improved clinical
outcomes and more cost-effective management of these common diseases are
achieved. ILGN also develops and licenses its medical research tools, including
BioFusion(R), to pharmaceutical companies. BioFusion, a proprietary enabling
system for diagnostic and drug discovery and development, is a computer modeling
system that integrates genetic and other sub-cellular behavior, system
functions, and clinical symptoms to simulate complex diseases. This system
allows useful information to be derived from rapidly increasing databases of
gene expression being generated in companies and academic centers worldwide.
The Company has followed a strategy of working with strategic partners at
the fundamental discovery stage. This strategy has given the Company access to
discoveries while reducing up-front research expenses. Since 1994, the Company
has had a strategic alliance with the Department of Molecular and Genetic
Medicine at Sheffield University in the United Kingdom ("Sheffield"). Under this
alliance, Sheffield has provided to the Company the fundamental discovery and
genetic analysis from Sheffield's research laboratories and the Company has
focused on product development, including clinical trials, and the
commercialization of these discoveries. The Company has entered into multiple
joint development and commercialization project agreements with Sheffield, and
anticipates entering into additional collaborative arrangements with Sheffield
and other parties in the future.
In December 1997, the Company entered into an agreement with Medicadent, a
French corporation ("Medicadent"), to market and sell PST in France. In August
1998, the Company entered into an agreement with H.A. Systems, Ltd. to market
and sell PST in Israel. In March 1999, the Company entered into an agreement
with the Straumann Company to market and sell PST in the United States and
Puerto Rico. In April 1999, the Company entered into an agreement with AlPharma
Inc. to market and sell PST in ten countries in Europe.
The Company has been awarded four U.S. patents, and has sixteen U.S.
patent applications pending. The U.S. Patent & Trademark Office awarded patents
to the Company for its osteoporosis and periodontal disease susceptibility tests
and two patent awards for its biologic modeling technology called BioFusion(R),
which is used by the Company in the discovery, development and commercialization
process.
In November 1997, the Company completed its initial public offering of
Common Stock raising gross proceeds of $16.2 million. The Company utilized the
proceeds of the offering for sales, marketing and commercial operations for its
genetic susceptibility testing business and continued research and development
of new genetic susceptibility tests.
10
<PAGE>
In June 1999, the Company completed a private placement (the "Private
Placement") pursuant to which an aggregate 2,200,000 shares of Series A
Preferred Stock were issued to some of the Selling Shareholders. In connection
with the Private Placement, the Company issued warrants to purchase up to
1,000,000 shares of Common Stock to some of the Selling Shareholders. On August
20, 1999, each share of Series A Preferred Stock outstanding automatically
converted into five shares of Common Stock.
The Company's executive offices are located at 100 N.E. Loop 410, Suite
820, San Antonio, Texas 78216, and its telephone number is 210/349-6400. The
Company was incorporated in Texas in 1986. We maintain a website at
www.ilgenetics.com. On August 19, 1999, the closing bid price of the Common
Stock on The Nasdaq SmallCap Market was $2.00 per share.
USE OF PROCEEDS
The Shares to be sold pursuant to the Prospectus are owned by shareholders
of the Company. The Company will not receive any of the proceeds from the sale
of the Shares. See "Selling Shareholders" and "Plan of Distribution."
11
<PAGE>
SELLING SHAREHOLDERS
The table below presents the following information about the number of
shares of the Common Stock of the Company which are owned by the Selling
Shareholders: (i) the number of shares the Selling Shareholders beneficially own
as of August 20, 1999, (ii) the percentage of the Company's outstanding shares
of Common Stock that the Selling Shareholders beneficially own prior to the
offering, (iii) the number of shares that the Selling Shareholders are offering
under this prospectus, (iv) the number of shares that the Selling Shareholders
will beneficially own after the completion of this offering and (v) the
percentage of the Company's outstanding shares of Common Stock that the Selling
Shareholders will beneficially own after the completion of the offering.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
BEFORE THE OFFERING AFTER THE OFFERING(1)
------------------------------ ------------------------
NUMBER PERCENTAGE SHARES TO NUMBER PERCENTAGE
NAME OF SHARES OF CLASS(2) BE SOLD OF SHARES OF CLASS
---- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
MSSI LLC .......................... 2,300,000 13.89% 2,300,000 -0- -0-
Cathy M. Fine ..................... 1,606,000(3) 9.70% 1,606,000 -0- -0-
Crocker Enterprises, L.L.C.(4) .... 1,100,000 6.64% 1,100,000 -0- -0-
Titan Life & Annuity (Bermuda) Ltd. 1,000,000 6.04% 1,000,000 -0- -0-
SMR Partners ...................... 650,000 3.93% 650,000 -0- -0-
William A. & Susan S. Jolly ....... 530,000 3.20% 530,000 -0- -0-
Europa International, Inc. ........ 400,000 2.42% 400,000 -0- -0-
Hathaway Partners Investment L.P. . 400,000 2.42% 400,000 -0- -0-
Valor Capital Management L.P. ..... 400,000 2.42% 400,000 -0- -0-
U. Spencer & Linda K. Allen(5) .... 326,709(6) 1.97% 200,000 126,709 *
Edward M. Blair, Jr.(7) ........... 302,083(7) 1.81% 300,000 2,083 *
Delta Associates Ltd. ............. 270,000 1.63% 270,000 -0- -0-
Ivan C. Fredrickson ............... 200,000 1.21% 200,000 -0- -0-
Jeffrey Tindell ................... 200,000 1.21% 200,000 -0- -0-
Steuart Evans ..................... 200,000 1.21% 200,000 -0- -0-
Ralph Balzano ..................... 200,000 1.21% 200,000 -0- -0-
Jeffrey Peterson .................. 200,000 1.21% 200,000 -0- -0-
Margherita Karo ................... 200,000(8) 1.21% 200,000 -0- -0-
IEA Private Investments Ltd. ...... 190,000 1.15% 190,000 -0- -0-
Jerry Bergson ..................... 157,000(9) * 110,000 47,000(9) *
LuAnne Balzano .................... 150,000 * 150,000 -0- -0-
William A. Jolly .................. 144,000(10) * 144,000 -0- -0-
Edward T. & Julie M. Kennedy ...... 100,000 * 100,000 -0- -0-
Peter & Kathleen Rozsa ............ 100,000 * 100,000 -0- -0-
Sally Siano ....................... 100,000 * 100,000 -0- -0-
Howard Cooper ..................... 100,000 * 100,000 -0- -0-
Jack Haeflich ..................... 100,000 * 100,000 -0- -0-
Craig B. & Laura S. Costigan ...... 100,000 * 100,000 -0- -0-
Marcuard Cook & Cie. S.A .......... 100,000 * 100,000 -0- -0-
Joseph E. Sheehan ................. 100,000 * 100,000 -0- -0-
Joseph E. Sheehan III Trust ....... 100,000 * 100,000 -0- -0-
Zita M. Sheehan Trust ............. 100,000 * 100,000 -0- -0-
Samuel Zimetbaum .................. 50,000(11) * 50,000 -0- -0-
Dian Griesel ...................... 50,000(12) * 50,000 -0- -0-
---------- ------------ ---------- ---------- ----------
Total ............................. 12,223,709 72.82% 12,050,000 175,792 *
</TABLE>
- -------------------------
* represents less than 1%
(1) Assumes all shares of Common Stock offered hereby are sold.
(2) Based on 16,558,835 shares of Common Stock of the Company outstanding
as of August 20, 1999.
(3) Includes 803,000 shares of Common Stock issuable upon exercise of a
warrant issued pursuant to the private placement.
(FOOTNOTES CONTINUE ON NEXT PAGE)
12
<PAGE>
(4) Gary L. Crocker, an executive officer of Crocker Enterprises, L.L.C.,
became a director of the Company in June 1999. Does not include 2,083
shares of Common Stock issuable pursuant to an option held by Mr. Crocker.
(5) Mr. Allen serves as Chief Financial Officer, Secretary and Treasurer of
the Company.
(6) Includes 3,000 shares of Common Stock held by Linda K. Allen, of which Mr.
Allen disclaims beneficial ownership. Includes 106,747 shares of Common
Stock issuable pursuant to options held by Mr. Allen and 10,000 shares of
Common Stock issuable pursuant to a warrant held by Mr. Allen.
(7) Mr. Blair became a director of the Company in June 1999. Share amount
includes 2,083 shares of Common Stock issuable pursuant to an option.
(8) Includes 100,000 shares of Common Stock issuable pursuant to a warrant
issued pursuant to the private placement.
(9) Includes 20,000 shares of Common Stock issuable pursuant to a warrant
issued pursuant to the private placement.
(10) Includes 72,000 shares of Common Stock issuable pursuant to a warrant
issued pursuant to the private placement.
(11) Includes 25,000 shares of Common Stock issuable pursuant to a warrant
issued pursuant to the private placement.
(12) Represents 50,000 shares of Common Stock issuable pursuant to an option.
In June 1999 the Company completed a private placement (the "Private
Placement") pursuant to which an aggregate 2,200,000 shares of Series A
Preferred Stock were issued to certain of the Selling Shareholders. In
connection with the Private Placement, the Company issued warrants to purchase
up to 1,000,000 shares of Common Stock to certain of the Selling Shareholders.
On August 20, 1999, pursuant to shareholder ratification of the Private
Placement, each share of Series A Preferred Stock automatically converted into
five shares of Common Stock. Including the shares of Common Stock issuable upon
exercise of warrants and an option, the Selling Shareholders hold an aggregate
12,050,000 shares of Common Stock, which are being offered hereby.
PLAN OF DISTRIBUTION
We have issued 11,000,000 shares of Common Stock in the conversion of the
shares of Series A Preferred Stock and may issue an additional 1,050,000 shares
of Common Stock upon the exercise of the Warrants. ILGN may receive proceeds
from the exercise of Warrants of up to $562,500. As used herein, the term
"Selling Shareholders" includes donees and pledgees selling Shares received from
the Selling Shareholders after the date of this Prospectus.
The Selling Shareholders will act independently of ILGN in making
decisions with respect to the timing, manner and size of each sale. The Selling
Shareholders may choose to sell the Shares from time to time at market prices
prevailing at the time of the sale, at prices related to the then prevailing
market prices or in negotiated transactions, including pursuant to an
underwritten offering or pursuant to one or more of the following methods:
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 in order to facilitate the transaction,
o purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this prospectus, and
o ordinary brokerage transactions and transactions in which the
broker solicits purchasers.
In connection with the sale of the Shares, the Selling Shareholders may
engage broker-dealers who in turn may arrange for other broker-dealers to
participate. Broker-dealers may receive commissions or discounts from the
Selling Shareholders in amounts to be negotiated immediately prior to the sale.
In addition, underwriters or agents may receive compensation from the Selling
Shareholders or from purchasers of the Shares for whom they may act as agents,
in the form of discounts, concessions or commissions. Underwriters may sell
shares to or through dealers, and such dealers may receive compensation in the
form of discounts, concessions or commissions from the underwriters or
commissions from the purchasers for whom they act as agents. The Selling
Shareholders, underwriters, brokers, dealers and agents that participate in the
distribution of the Shares may be deemed to be underwriters, and any discounts
or commissions received by them from the Selling Shareholders and any profit on
the resale of the Shares by them may be deemed to be underwriting discounts and
commissions under the Securities Act.
At the time a particular offer of Shares is made, to the extent required,
a supplement to this Prospectus will be distributed which will identify and set
forth the aggregate amount of Shares being offered and the terms of the
offering. Such supplement will also disclose the following information:
o the name or names of any underwriters, dealers or agents,
o the purchase price paid by any underwriter for Shares purchased
from the Selling Shareholders,
o any discounts, commissions and other items constituting
compensation from the Selling Shareholders and/or ILGN, and
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<PAGE>
o any discounts, commissions or concessions allowed or reallowed or
paid to dealers, including the proposed selling price to the public.
We have agreed to indemnify the Selling Shareholders in certain
circumstances against certain liabilities, including liabilities under the
Securities Act. The Selling Shareholders have agreed to indemnify ILGN in
certain circumstances against certain liabilities, including liabilities under
the Securities Act.
Each Selling Shareholder also may resell all or a portion of the Shares in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided he she or it meets the criteria and conforms to the requirements of
such Rule.
The Selling Shareholders and any other persons participating in the sale
or distribution of the Shares being registered hereby will be subject to the
provisions of the Exchange Act and the rules and regulations thereunder,
including Regulation M, to the extent applicable. The foregoing provisions may
limit the timing of purchases and sales of any of the Shares by the Selling
Shareholders or any other such person. This may affect the marketability of the
Shares. The Selling Shareholders also will comply with the applicable prospectus
delivery requirements under the Securities Act in connection with the sale or
distribution of the Shares hereunder.
In order to comply with certain states' securities laws, if applicable,
the Shares will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In certain states, the Shares may not be sold
unless the Shares have been registered or qualified for sale in such state,
unless an exemption from registration or qualification is available and is
obtained.
We will bear all out-of-pocket expenses incurred in connection with the
registration of the Shares, including, without limitation, all registration and
filing fees imposed by the Commission, The Nasdaq Stock Market, Inc. and blue
sky laws, printing expenses, transfer agents' and registrars' fees, and the fees
and disbursements of our outside counsel and independent public accountants. The
Selling Shareholders will bear all underwriting discounts and commissions and
transfer or other taxes.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Article Eight of the Company's Amended and Restated Articles of
Incorporation ("Article Eight") eliminates the personal liability of a director
to the Company or its shareholders for monetary damages for an act or omission
in a director's capacity as a director, except under certain circumstances.
Directors remain liable for (i) a breach of a director's duty of loyalty to the
Company or its shareholders; (ii) an act or omission not in good faith that
constitutes a breach of duty of that director to the Company or an act or
omission that involves intentional misconduct or a knowing violation of the law;
(iii) a transaction from which a director received an improper benefit, whether
or not the benefit resulted from an action taken within the scope of the
director's office; or (iv) an act or omission for which the liability of a
director is expressly provided for by an applicable statute.
Article Eight further provides that future repeal or amendment of its
terms will not adversely affect any rights of directors existing thereunder with
respect to acts or omissions occurring prior to such repeal or amendment.
Article Eight also incorporates any future amendments to Texas law which further
eliminate or limit the liability of directors.
Article V of the Company's Amended and Restated Bylaws provides that the
Company shall indemnify any person to whom, and to the extent, indemnification
may be granted pursuant to Article 2.02-1 of the Texas Business Corporation Act.
The Company maintains directors' and officers' liability insurance that
covers the directors and officers of the Company.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors and officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon by
Fulbright & Jaworski L.L.P., counsel to the Company.
14
<PAGE>
EXPERTS
The consolidated financial statements included in the Company's Annual
Report on Form 10-KSB/A for the fiscal years ended December 31, 1998, and
December 31, 1997, incorporated by reference in this prospectus and elsewhere in
the registration statement have been audited by Arthur Andersen LLP, independent
public accountants, and Singer Lewak Greenbaum & Goldstein LLP, independent
public accountants, respectively, to the extent and for the periods set forth in
their respective reports incorporated herein by reference as indicated in their
reports with respect thereto, and are incorporated herein in reliance upon the
authority of such firms as experts in giving said reports. Reference is made to
Arthur Andersen LLP's report dated February 19, 1999, which includes an
explanatory paragraph with respect to the uncertainty regarding the Company's
ability to continue as a going concern as discussed in Note 1 to the
consolidated financial statements for the year ended December 31, 1998.
15
<PAGE>
================================================== ==========================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS NOT CONTAINED IN THIS 12,050,000 SHARES
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO INTERLEUKIN GENETICS, INC.
BUY, THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, COMMON STOCK
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------------------------
--------
TABLE OF CONTENTS
PAGE P R O S P E C T U S
Available Information.................... 2
Incorporation of Certain Documents
by Reference........................... 2 AUGUST 24, 1999
Special Note Regarding Forward-Looking
Statements............................. 3
Risk Factors............................. 3
The Company.............................. 10
Use of Proceeds.......................... 11
Selling Shareholders..................... 12
Plan of Distribution..................... 13
Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................ 14
Legal Matters............................ 14
Experts.................................. 15
================================================== ==========================
<PAGE>
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this offering are:
Commission registration fee(1)................... $6,490.43
Legal fees and expenses*......................... 5,000.00
Miscellaneous*................................... 500.00
Total............................................ $11,990.43
==========
--------------------
* Estimated
(1) Fee of $8,027.25 paid July 23, 1999.
========================================
The Company has agreed to pay all the costs and expenses of this
offering.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 2.02-1 of the Texas Business Corporation Act provides that any
director or officer of a Texas corporation may be indemnified against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by him
in connection with or in defending any action, suit or proceeding in which he is
a party by reason of his position. With respect to any proceeding arising from
actions taken in his official capacity, as a director or officer, he may be
indemnified so long as it shall be determined that he conducted himself in good
faith and that he reasonably believed that such conduct was in the corporation's
best interests. In cases not concerning conduct in his official capacity as a
director or officer, a director may be indemnified as long as he reasonably
believed that his conduct was not opposed to the corporation's best interests.
In the case of any criminal proceeding, a director or officer may be indemnified
if he had no reasonable cause to believe his conduct was unlawful. If a director
or officer is wholly successful, on the merits or otherwise, in connection with
such a proceeding, such indemnification is mandatory.
The Company's Amended and Restated Articles of Incorporation and Bylaws
provide for indemnification of its present and former directors and officers.
The Company's Bylaws further provide for indemnification of officers and
directors against reasonable expenses actually incurred in connection with the
defense of any such action, suit or proceeding in advance of the final
disposition of the proceeding.
The Amended and Restated Articles of Incorporation of the Company contain
a provision that limits the liability of the Company's directors as permitted
under Texas law. The provision eliminates the liability of a director to the
Company or its shareholders for monetary damages for an act or omission in the
director's capacity as a director. The provision does not affect the liability
of a director for (i) a breach of a director's duty of loyalty to the Company or
its shareholders; (ii) an act or omission not in good faith that constitutes a
breach of duty of that director to the Company or an act or omission that
involves intentional misconduct or a knowing violation of the law; (iii) a
transaction from which a director received an improper benefit, whether or not
the benefit resulted from an action taken within the scope of the director's
office; or (iv) an act or omission for which the liability of a director is
expressly provided by an applicable statute.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
The Registrant maintains directors' and officers' liability insurance that
covers the directors and officers of the Registrant.
ITEM 16. EXHIBITS.
EXHIBIT NO. EXHIBIT
- ----------- -------
5.1 Opinion of Fulbright & Jaworski L.L.P. regarding legality
(previously filed)
23.1 Consent of Fulbright & Jaworski L.L.P. (contained in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP (filed herewith)
II-1
<PAGE>
23.3 Consent of Singer Lewak Greenbaum & Goldstein LLP (filed herewith)
24.1 Power of Attorney (included on signature page).
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(c) The undersigned Registrant hereby undertakes that, insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Commission, such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Antonio and State of Texas the 24th day of
August, 1999.
INTERLEUKIN GENETICS, INC.
By: /s/ U. SPENCER ALLEN
U. Spencer Allen
Chief Financial Officer, Secretary and
Treasurer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Philip R. Reilly and U. Spencer Allen, or
either of them, his true and lawful attorney-in-fact and agent, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same and all
exhibits thereto, and all documents in connection therewith, with the Securities
and Exchange Commission, granting said attorney-in-fact and agent, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or either of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
** Chairman of the Board and August 24, 1999
- ------------------------- Interim Chief Executive Officer
Philip R. Reilly (Principal Executive Officer)
** Interim President, Chief August 24, 1999
- ------------------------- Scientific Officer
Kenneth S. Kornman and a Director
/s/ U. SPENCER ALLEN Chief Financial Officer, August 24, 1999
- ------------------------ Secretary and Treasurer
U. Spencer Allen (Principal Financial and
Accounting Officer)
** Director August 24, 1999
- -------------------------
Thomas A. Moore
** Director August 24, 1999
- -------------------------
Edward M. Blair, Jr.
** Director August 24, 1999
- -------------------------
Gary L. Crocker
** /s/ U. SPENCER ALLEN
- --------------------------------------
U. Spencer Allen, Attorney-in-Fact
II-3
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO. EXHIBIT PAGE
- ----------- ------- ----
5.1 Opinion of Fulbright & Jaworski L.L.P. (previously
filed)........................................................
23.1 Consent of Fulbright & Jaworski L.L.P. (contained in
Exhibit 5.1)..................................................
23.2 Consent of Arthur Andersen LLP (filed herewith)...........II-6
23.3 Consent of Singer Lewak Greenbaum & Goldstein LLP (filed
herewith).................................................II-7
24.1 Power of Attorney (included on signature page)............II-3
II-4
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated February 19, 1999,
included in Interleukin Genetics, Inc.'s [formerly known as Medical Science
Systems, Inc.] Annual Report on Form 10-KSB/A for the fiscal year ended December
31, 1998, and to all references to our firm included in this Registration
Statement.
/s/ ARTHUR ANDERSEN LLP
San Antonio, Texas
August 24, 1999
II-6
EXHIBIT 23.3
[SINGER LEWAK GREENBAUM & GOLDSTEIN LLP LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3/A of our report, dated March 13, 1998, which appears in
the Annual Report on Form 10-KSB/A of Interleukin Genetics, Inc. and subsidiary
(formerly known as Medical Science Systems, Inc.) for the year ended December
31, 1997. We also consent to the reference to our Firm under the caption
"Experts" in the aforementioned Registration Statement.
/s/ SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
August 24, 1999
II-7
