<PAGE>
As filed with the Securities and Exchange Commission on December 18, 1996
Registration No. 333-15165
- ------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
------------------------
PHARMOS CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 36-3207413
------ ----------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
2 Innovation Drive
Alachua, Florida 32615
(904) 462-1210
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
------------------------
GAD RIESENFELD
2 Innovation Drive
Alachua, Florida 32615
(904) 462-1210
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------
Copies to:
ADAM D. EILENBERG, ESQ.
Eilenberg & Zivian
666 Third Avenue, 30th Floor
New York, New York 10017
------------------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of the registration statement
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box. |X|
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Unit Price Fee
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common stock to be 3,166,667(2) $1.37(4) $4,338,334 1,315
sold by Selling Security (3)
holders(1)
Shares of Common Stock 50,000(3) $1.75 $ 87,500 $ 27
issuable upon exercise of
Warrants to purchase 50,000
Shares at $1.75 per share
Shares of Common Stock 65,000(3) $1.34 $ 87,100 $ 27
issuable upon exercise of
Warrants to purchase 65,000
Shares at $1.34 per share
Shares of Common Stock 15,000(3) $2.31 $ 34,650 $ 11
issuable upon exercise of
Warrants to purchase 15,000
Shares at $2.31 per share
- ----------------------------------------------------------------------------------------
Total Registration Fee $4,547,584 $1,380
</TABLE>
(1) To be offered by selling security holders, after conversion of preferred
shares, which can be converted in 25% increments over a period of 1 year.
(2) Assumes conversion price for all the preferred stock at $0.60 which is
estimated for the purpose of determining the maximum number of shares of
Common Stock obtained upon conversion.
(3) Pursuant to Rule 416 under the Securities Act of 1933, any additional
shares of Common Stock issued as a result of the anti-dilution provisions
of the Certificate of Designation relating to the Preferred Stock or of
the Common Stock Purchase Warrants pursuant to which the Common Stock
will be issued are deemed to be registered herewith.
(4) Estimated solely for the purpose of calculating the registration fee.
Proposed maximum offering price per share is estimated based upon the
average of the high and low prices of the Company's Common Stock listed
on the Nasdaq SmallCap Market on December 12, 1996.
Also registered hereunder pursuant to Rule 416 are an indeterminate
number of shares of Common Stock which may be issued pursuant to the
anti-dilution provisions applicable to the Warrants.
The registrant hereby amends the registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PHARMOS CORPORATION
Cross Reference Sheet Showing Location in Prospectus of Information Required
Therein by Item 1 through 13 of Form S-3
Registration Statement Prospectus Caption
Item and Heading of Location
---------------------- ------------------
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus ................ Outside Front Cover
2. Inside Front and Outside Back
Cover Pages and Prospectus............... Inside Front Cover Page
3. Summary Information,
Prospectus Summary
and Ratio of Earnings to Outside Front Cover,
Fixed Charges............................ Risk Factors
4. Use of Proceeds.......................... Use of Proceeds
5. Determination of Offering Price.......... Cover Page
6. Dilution................................. Dilution
7. Selling Security Holders................. Selling Security Holders
8. Plan of Distribution..................... Cover Page, Plan of Distribution
9. Description of the Securities to
be Registered............................ Description of Securities
10. Interest of Named Experts and Counsel.... Experts
11. Material Changes......................... Recent Developments
12. Incorporation of Certain
Information by Reference................. Incorporation of Certain
Documents by Reference
13. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities.......................... Commission's Policy on
Indemnification for Securities Act
Liabilities
<PAGE>
PHARMOS CORPORATION
------------------------
3,166,667 SHARES OF COMMON STOCK,
$.03 PAR VALUE, TO BE SOLD BY
SELLING SECURITY HOLDERS
50,000 SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE OF WARRANTS TO PURCHASE SHARES
AT AN EXERCISE PRICE OF $1.75 PER SHARE
65,000 SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE OF WARRANTS TO PURCHASE SHARES
AT AN EXERCISE PRICE OF $1.34 PER SHARE
15,000 SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE OF WARRANTS TO PURCHASE SHARES
AT AN EXERCISE PRICE OF $2.31 PER SHARE
This Prospectus covers the proposed offer and resale of up to 3,166,667
shares (the "Shares"), the amount of which is calculated based on a $0.60
conversion price, of common stock, par value $.03 ("Common Stock") of Pharmos
Corporation (the "Company") held by stockholders (the "Selling Stockholders")
who purchased 1,900 shares ($1,900,000 principal amount) of 5% Preferred Stock
(the "Series A Preferred Stock") convertible into such shares in a private
placement transaction in September 1996 (the "Private Placement Transaction").
The Private Placement Transaction, in which the Company issued 1,900 shares of
Series A Preferred Stock to the Selling Stockholders for the principal amount of
$1,900,000, was completed on September 30, 1996 (the "Closing Date"). The
preferred shares can be converted by the Selling Stockholders as follows: up to
25% of their initial investment after 80 days from the Closing Date, up to a
cumulative of 50% of their initial investment after 180 days from the Closing
Date, up to a cumulative of 75% of their initial investment after 270 days from
the Closing Date, and up to a cumulative of 100% of their initial investment
after 360 days from the Closing Date, at prevailing market prices at time of
sale.
This Prospectus also covers the offer and proposed sale by the Company of
up to (i) 50,000 shares of Common Stock issuable upon the exercise by the
holders thereof of warrants to purchase 50,000 shares (which amount may increase
solely to account for applicable anti-dilution adjustments, if any) at an
exercise price of $1.75 per share issued to the Selling Stockholders in
connection with the Private Placement Transaction; (ii) 65,000 shares of Common
Stock issuable upon the exercise by the holder thereof of warrants to purchase
65,000 shares (which amount may increase solely to account for applicable
anti-dilution adjustments, if any) at an exercise price of $1.34 per share
issued to a finder in connection with his efforts on behalf of the Company in
the Private Placement Transaction; (iii) 15,000 shares of Common Stock issuable
upon the exercise by the holder thereof of warrants to purchase 15,000 shares
(which amount may increase solely to account for applicable anti-dilution
adjustments, if any) at an exercise price of $2.31 per share issued to an
advisor of the Company in connection with his efforts on behalf of the Company.
(All of the warrants set forth above are hereinafter separately and collectively
referred to as the
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<PAGE>
"Warrants" and the shares of Common Stock issuable upon the exercise of the
Warrants are hereinafter separately and collectively referred to as the "Warrant
Shares.")
In connection with this offering, the Selling Stockholders and certain
holders of the Warrants who may be deemed to be "affiliates" of the Company, as
that term is defined under the Securities Act of 1933, as amended (the "Act"),
may be deemed to be an "underwriter," as that term is defined under the Act, of
the Shares or Warrant Shares offered hereby. It is anticipated that the Selling
Stockholders and such affiliates intend to sell the Shares or Warrant Shares
offered hereby from time to time for their own respective accounts in the open
market at the prices prevailing therein or in individually negotiated
transactions at such prices as may be agreed upon. Each Selling Stockholder and
such affiliate will bear all expenses with respect to the offering of the Shares
or Warrant Shares offered hereby by him except the costs of legal counsel and
costs associated with registering such shares under the Act and preparing and
printing this Prospectus.
The net proceeds from Shares to be sold by the Selling Stockholders (and
by holders of Warrant Shares who exercise their Warrants) will inure entirely to
their benefit and not that of the Company; however the Company will receive
proceeds from the exercise of the Warrants.
The Company's Common Stock is traded on the over-the-counter market and is
quoted on the Nasdaq SmallCap Market under the symbol "PARS" The closing price
of the Company's Common Stock on December 12, 1996 was 1.66.
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<PAGE>
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION AS
DESCRIBED HEREIN (SEE "RISK FACTORS" AND "DILUTION").
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is December 18, 1996.
6
<PAGE>
The laws of many states provide exemptions from registration, particularly
for sales of securities by persons other than issuers, such as the certain of
the Selling Stockholders and holders of the Warrants, who do not have a control
relationship with the issuer, and for the subsequent resale of such securities
by purchasers thereof. Purchasers hereunder should consult with their broker
and/or attorney to determine whether applicable state laws permit such purchases
and resales by them.
With respect to the proposed sale of the Shares offered hereby by the
Selling Stockholders and the sale of the Warrant Shares by the Company upon
exercise of the Warrants, the Company is taking steps to register these
securities or permit such sales pursuant to exemption from registration only
under the laws of New Jersey, New York and Pennsylvania. However, if holders of
the Shares are not residents of the aforementioned states, such holders will not
be able to resell their Shares in any other states, including the states in
which they reside. In such event, such holders must arrange either (i) to sell
their Shares (through a broker/dealer or otherwise) only to a resident of one of
the aforementioned states or to an entity, such as a broker/dealer registered in
such state, which may be exempt under applicable state laws, or (ii) pursuant to
another applicable exemption. In such event, the Company will only permit the
transfer of the Shares if its transfer agent receives a certification from the
holder that the sale was made to a resident of one of the aforementioned states
or to a state registered broker/dealer or the Company receives an opinion of
counsel, satisfactory to the Company's counsel, that the resale of the Shares is
otherwise exempt from registration under applicable state law.
With respect to the proposed sale of the Warrant Shares, if holders of the
Warrants are not residents of the aforementioned states, the Company will not be
able to permit them to exercise Warrants held by them, unless such holders
obtain an opinion of counsel, satisfactory to the Company's counsel, that such
transaction is exempt from registration. Under such circumstances, their only
alternatives may be to sell their Warrants and/or Common Stock to a resident of
the aforementioned states or to sell their Warrants and/or Warrant Shares to an
entity, such as a registered broker-dealer in such state, which may be exempt
under applicable state laws.
Holders of the Warrants and/or Warrant Shares should consult with their
broker and/or attorney to determine what actions should be taken to comply with
the laws of their state with respect to any Warrants and/or Warrant Shares held
by them and, specifically with respect to the Warrants, ensure that such action
is taken well prior to the respective expiration dates of the Warrants, if
necessary.
The Company will furnish to each person to whom this Prospectus is
delivered, upon written request, a copy of any or all of the documents referred
to by reference, other than exhibits to such documents unless such exhibits are
specifically incorporated herein by reference. Requests should be addressed to:
Mr. Gad Riesenfeld, Executive Vice President, Pharmos Corporation, 2 Innovation
Drive, Alachua, Florida 32615, (904) 462-1210.
7
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. ANY INFORMATION OR REPRESENTATION NOT HEREIN CONTAINED, IF GIVEN OR
MADE, MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN RESPECT OF THE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. DELIVERY OF THIS PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE OF THIS PROSPECTUS.
8
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, 450
Fifth Street, Washington, D.C. 20549, a Registration Statement on Form S-3 under
the Securities Act of 1933 with respect to the securities offered hereby. This
Prospectus filed as part of such Registration Statement does not contain all the
information set forth in, or annexed as exhibits to, the Registration Statement.
For further information pertaining to the securities offered hereby and the
Company, reference is made to the Registration Statement and the exhibits
thereto. The Registration Statement and exhibits thereto may be inspected at the
Headquarters Office of the Securities and Exchange Commission located at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at certain of the
Commission's regional offices at the following addresses: 7 World Trade Center,
Suite 1300, New York, New York 10048; Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, IL 60661. Copies of this material also may be
obtained from the Public Reference Section of the SEC, at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. at prescribed rates. Electronic registration
statements made through the Electronic Data Gathering, Analysis and Retrieval
System are publicly available through the Commission's World Wide Web site at
http:\www.sec.gov. The statements contained in this Prospectus concerning the
contents of any contract or document referred to are not necessarily complete,
and in each instance, reference is made to such contract or document filed as an
exhibit to the Registration Statement, each statement being qualified in all
respects by provisions of such exhibit to which reference is hereby made for a
full statement of the provisions thereof.
9
<PAGE>
THE COMPANY
The Company is engaged in the development of novel pharmaceuticals based
on innovative drug design technologies targeting diseases of the eye,
principally ocular inflammation, and the brain, principally stroke and head
trauma.
Its leading product, Lotemax(TM), is a proprietary ophthalmic
anti-inflammatory drug designed with the Company's proprietary "site active"
concept system and has demonstrated significant efficacy in a series of
completed Phase III clinical trials and a uniquely superior safety profile
compared to currently available ophthalmic steroids. The Company has submitted
its New Drug Application ("NDA") for Lotemax(TM) to the U.S. Food and Drug
Administration ("FDA").
The Company's principal executive offices are located at 2 Innovation
Drive, Alachua, Florida 32615, telephone (904) 462-1210.
RISK FACTORS
The Common Stock being offered hereby involves a high degree of risk.
Prospective investors should carefully consider the following risk factors in
addition to other information contained in this Prospectus, in evaluating an
investment in the shares of Common Stock offered hereby.
Early Stage of Development; Technological Uncertainty
The Company is at an early stage of development. Apart from Lotemax(TM),
most of the Company's other potential products are early in the research and
development phase, and product revenues may not be realized from the sale of any
such products for at least the next several years, if at all. Many of the
Company's proposed products will require significant additional research and
development efforts prior to any commercial use, including extensive preclinical
and clinical testing as well as lengthy regulatory approval. There can be no
assurance that the Company's research and development efforts will be
successful, that the Company's potential products will prove to be safe and
effective in clinical trials or that any commercially successful products will
ultimately be developed by the Company.
History of Operating Losses; Accumulated Deficit
The Company has experienced significant operating losses since its
inception. As of September 30, 1996, the Company had an accumulated deficit of
approximately $60 million. The Company expects to incur operating losses over at
least the next several years as the Company's research and development efforts
and preclinical and clinical testing activities continue. The Company's ability
to achieve profitability depends in part upon its ability, alone or with others,
to successfully commercialize and receive approval on its first proposed
product, to complete development of its other proposed products, to obtain
required regulatory approvals and to manufacture and market such products.
<PAGE>
Future Capital Needs; Uncertainty of Additional Financing
The Company's operations to date have consumed substantial amounts of
cash. The development of the Company's technology and potential products will
require a commitment of substantial funds to conduct the costly and
time-consuming research necessary to develop and optimize such technology, and
ultimately, to establish manufacturing and marketing capabilities. The Company's
future capital requirements will depend on many factors, including continued
scientific progress in the research and development of the Company's technology
and drug programs, the ability of the Company to establish and maintain
collaborative arrangements with others for drug development, progress with
preclinical and clinical trials, the time and costs involved in obtaining
regulatory approvals, the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims, competing technological and market
developments, changes in its existing research relationships and effective
product commercialization activities and arrangements.
The Company believes that its current cash resources and interest income
thereon, including approximately $1.8 million in net cash and cash equivalents
received by the Company from the Private Placement Transaction should be
sufficient to fund its operating expenses and capital requirements as currently
planned through the first quarter of 1997. The Company will seek additional
funding through collaborative arrangements or through future public or private
equity or debt financing. There can be no assurance that additional financing
will be available on acceptable terms, or at all. In addition, pursuant to the
Private Placement Transaction, the Selling Stockholders are granted limited
rights to approve of the Company's efforts to obtain convertible debt or equity
for a period of one hundred eighty (180) days following the Closing Date. If
additional funds are raised by issuing equity securities, further dilution to
stockholders may result. If adequate funds are not available, the Company may be
required to delay, reduce the scope of or eliminate one or more of its research
or development programs or to obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates or products that the
Company would otherwise seek to develop or commercialize itself.
Dependence on Potential Collaborative Partners
The Company's strategy for the development, clinical testing,
manufacturing, marketing and commercialization of certain of its products
includes entering into various collaborations with corporate partners,
licensors, licensees and others. To date, the Company has entered into an
agreement with Bausch & Lomb to manufacture and market its lead product,
Lotemax(TM), in the United States. The agreement also covers the co-development
of Lotemax(TM) line extension products currently being developed by the Company.
Pharmos Corporation has signed a letter of intent with Bausch & Lomb to market
Lotemax(TM) and line extension products currently being developed, throughout
Europe, Canada and selected other countries. There can be no assurance that the
Company will be able to negotiate any future collaborative agreement with Bausch
& Lomb or other companies on acceptable terms, or that any present or future
collaborative agreements will be successful. To the extent that the Company
chooses not to or is not able to
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establish such arrangements, the Company would experience increased capital
requirements to undertake such activities at its own expense. In addition, the
Company may encounter significant delays in introducing its proposed products
currently under development into certain markets or find that the development,
manufacture, or sale of its proposed products in such markets is adversely
affected by the absence of such collaborative agreements.
Technological Change and Competition
The pharmaceutical industry is subject to rapid, unpredictable and
significant technological change. Competition from universities, research
institutions and other pharmaceutical, chemical and biotechnology companies is
intense. Many competitors or potential competitors have greater financial
resources, research and development capabilities, and manufacturing and
marketing experience than the Company. To this end, the Company has entered into
an agreement with Bausch & Lomb for the manufacture and marketing of
Lotemax(TM). There can be no assurance that developments by the Company's
competitors or potential competitors will not render the Company's technology or
proposed applications of its technology obsolete.
Technologies Subject to Licenses
As a licensee of certain research technologies, the Company has various
license agreements with certain U.S. federal agencies and the State of Israel,
certain universities and Dr. Nicholas Bodor, a former vice president and
director of the Company, wherein the Company has acquired exclusive and
coexclusive rights to develop and commercialize certain research technologies.
The agreements generally require the Company to pay royalties on sale of
products developed from the licensed technologies and fees on revenues from
sublicensees, where applicable, and the Company is responsible for the costs of
filing and prosecuting patent applications. In addition, some of the Company's
license agreements require that the Company commit certain sums annually for
research and development of the licensed products. The Company's license
agreements with the University of Florida and with Dr. Bodor require the Company
to pay annual license maintenance fees as well as make payments upon completion
of certain milestones occurring in the clinical trials of certain licensed
products.
The exclusivity of license agreements generally expires fifteen years
after the later of commercialization or the effectiveness of the patents. Each
agreement is terminable by either party, upon notice, if the other party
defaults in its obligations.
Uncertainty of Protection of Patents and Proprietary Rights
The Company's success will depend in large part on its ability to obtain
patents, maintain trade secrets and operate without infringing on the
proprietary rights of others, both in the U.S. and in other countries. The
patent positions of pharmaceutical companies can be highly uncertain and involve
complex legal and factual questions, and therefore the breadth and
enforceability of claims allowed in pharmaceutical patents cannot be predicted.
There can be
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<PAGE>
no assurance that any issued or pending patents will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
proprietary protection or competitive advantages to the Company.
The commercial success of the Company also will depend, in part, on
Pharmos not infringing patents issued to others and not breaching the technology
licenses upon which any Company products are based. It is uncertain whether any
third-party patents will require the Company to alter its products or processes,
obtain licenses or cease certain activities. In addition, if patents are issued
to others which contain competitive or conflicting claims, and such claims are
ultimately determined to be valid, the Company may be required to obtain
licenses to these patents or to develop or obtain alternative technology. If any
licenses are required, there can be no assurance that the Company will be able
to obtain any such licenses on commercially favorable terms, if at all. The
Company's breach of an existing license or failure to obtain a license to any
technology that it may require to commercialize its products may have a material
adverse impact on the Company. Litigation, which could result in substantial
costs to the Company, may also be necessary to enforce any patents licensed or
issued to the Company or to determine the scope and validity of third-party
proprietary rights. If competitors of the Company prepare and file patent
applications in the U.S. that claim technology also claimed by the Company, the
Company may have to participate in interference proceedings declared by the U.S.
Patent and Trademark Office to determine priority of invention, which could
result in substantial costs to the Company, even if the eventual outcome is
favorable to the Company. An adverse outcome could subject the Company to
significant liabilities to third parties, require disputed rights to be licensed
from third parties or require the Company to cease using such technology.
The Company also relies on secrecy to protect its technology, especially
where patent protection is not believed to be appropriate or obtainable. Thus,
Pharmos protects its proprietary technology and processes, in part, by
confidentiality agreements with its employees, consultants and certain
contractors. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors.
Legal Proceedings and Disputes
The Company is involved in separate disputes with two of its licensors
regarding the applicability of the Company's license to a new technology being
developed by the licensor and the priority of a licensed patent. The Company
believes that its position is correct in both of these disputes and that it will
prevail. Although the ultimate outcome of such actions and proceedings cannot be
predicted with certainty at this time, the Company believes that losses, if any,
in excess of amount accrued resulting from those actions will not have a
significant impact on the Company's financial position or results of the
operations.
4
<PAGE>
Extensive Government Regulation
The Company's products require the approval of the FDA before they can be
marketed in the U.S. In addition, approvals are also required from health
authorities in most foreign countries before the Company's products can be
marketed in such countries. Before an NDA, a type of submission used to obtain
FDA approval to market a new drug, can be filed with the FDA, a product must
undergo, among other things, extensive animal testing and human clinical trials,
which can take up to seven years to complete. Except for Lotemax(TM), the
Company has not yet filed NDAs on its products. The time required for regulatory
approval of the Company's products after acceptance for filing an NDA can vary
and is usually one to three years or more, and the FDA may require additional
animal studies and/or clinical trials before granting approval. There can be no
assurance that the FDA and foreign regulatory agencies will be satisfied with
the information, including that emanating from clinical trials, submitted to
them in applications (like NDAs) seeking approval and will approve the marketing
of any of the Company's potential products, or that problems will not arise that
could delay or prevent the commercialization of the Company's future products.
There can be no assurance that any potential products developed by the
Company alone or in conjunction with others will be proven to be safe and
effective in clinical trials and will meet all of the applicable regulatory
requirements needed to receive marketing approval. Data obtained from
preclinical testing and clinical trials can be susceptible to varying
interpretations which could delay, limit or prevent regulatory approvals. In
addition, delays or disapprovals may be encountered based upon additional
government regulation resulting from future legislation or administrative action
or changes in FDA policy made during the period of product development and FDA
regulatory review. Similar delays may also be encountered in foreign countries.
There can be no assurance that even after such time and expenditures, regulatory
approval will be obtained for any potential products developed by the Company.
If regulatory approval of a product is granted, such approval will be limited to
those therapeutic uses for which the product has been demonstrated through
clinical studies and other means to be safe and effective. Furthermore, approval
may entail ongoing requirements for post-marketing studies. Even if regulatory
approval is obtained, a marketed product, its manufacturer and its manufacturing
facilities are subject to continual review and periodic inspections. The
regulatory standards for manufacturing are currently being applied stringently
by the FDA. Discovery of previously unknown problems with a product,
manufacturer or facility may result in FDA restrictions being placed on such
product or manufacturer or facility, including an order to withdraw a specific
product from the market, and may also result in court enforced sanctions against
the product, manufacturer or facility.
The Company may establish collaborative relationships to conduct clinical
testing and seek regulatory approvals to market its products in major markets
outside the U.S. There can be no assurance that the Company will be successful
in establishing such relationships or that such approvals will be received in a
timely manner, if at all. To market its products abroad, the Company is also
subject to numerous and varying foreign regulatory requirements, implemented by
foreign health authorities, governing the design and conduct of human clinical
trials, pricing
5
<PAGE>
and marketing. The approval procedure varies among countries and can involve
additional testing, and the time required to obtain approval may differ from
that required to obtain FDA approval. At present, foreign marketing
authorizations are applied for at a national level, although within the European
Union ("EU") certain registration procedures are available to companies wishing
to market a product in more than one EU member country. If a regulatory
authority is satisfied that adequate evidence of safety, quality and efficacy
has been presented, marketing authorization is almost always granted. The
foreign regulatory approval process includes all of the risks associated with
obtaining FDA approval set forth above. Approval by the FDA does not ensure
approval by other countries.
Lack of Sales and Marketing Capability
The Company has no experience in sales, marketing or distribution. To
market any of its products directly, the Company must develop a marketing force
and sales force with technical expertise and with supporting distribution
capability. Alternatively, the Company may obtain the assistance of a
pharmaceutical company with an established distribution system and sales force.
The Company has entered into an agreement with Bausch & Lomb to market
Lotemax(TM). There can be no assurance, however, that the Company will be able
to establish sales and distribution capabilities or be successful in gaining
market acceptance for its products.
Lack of Manufacturing Capability
The Company currently has limited manufacturing capacity to produce its
products for clinical trials. The Company's agreement with Bausch & Lomb
addresses the manufacturing of Lotemax(TM). The proposed products under
development by the Company have never been manufactured on a commercial scale
and there can be no assurances that such products can be manufactured at a cost
or in quantities necessary to make them commercially viable. Any delay in
availability of products may result in delay in the submission of products for
regulatory approval or the market introduction and subsequent sales of such
products, which would have a material adverse effect on the Company.
Need to Attract and Retain Key Employees and Consultants
The Company is highly dependent on the principal members of its scientific
and management staff. In addition, the Company relies on consultants and
advisors to assist the Company in formulating its research and development
strategy. Retaining and attracting qualified personnel, consultants and advisors
will be critical to the Company's success. In order to pursue its product
development and marketing plans, the Company will be required to hire additional
qualified scientific personnel to perform research and development, as well as
personnel with expertise in clinical testing, government regulation,
manufacturing and marketing. The Company faces competition for qualified
individuals from numerous pharmaceutical and biotechnology companies,
universities and other research institutions. There can be no assurance that the
Company will be able to attract and retain such individuals on acceptable terms
or at all.
6
<PAGE>
The Company's clinical development is conducted under agreements with
universities and medical institutions. The Company depends on the availability
of a principal investigator for each such program, and the Company cannot assure
that these individuals or their research staffs will be available to conduct
clinical development. The Company's academic collaborators are not employees of
the Company. As a result, the Company has limited control over their activities
and can expect that only limited amounts of their time will be dedicated to
Company activities. The Company's academic collaborators may have relationships
with other commercial entities, some of which compete with the Company.
Uncertainty of Health Care Reform Measures and Third-Party Reimbursement
The levels of revenues and profitability of biotechnology and
pharmaceutical companies may be affected by the continuing efforts of
governmental and third-party payors to contain or reduce the costs of health
care through various means. For example, in certain foreign markets, pricing or
profitability of prescription pharmaceuticals is subject to government control.
In the U.S., there have been, and the Company expects that there will continue
to be, a number of federal and state proposals to control health care costs.
While the Company cannot predict whether any such legislative or regulatory
proposals will be adopted or the effect such proposals may have on its business,
the uncertainty surrounding such proposals could have a material adverse effect
on the Company. Furthermore, the Company's ability to commercialize its
potential product portfolio may be adversely affected to the extent that such
proposals have a material adverse effect on the business, financial condition
and profitability of other companies that are prospective collaborators for
certain of the Company's proposed products.
Dependence on Reimbursement
Pharmos' ability to commercialize its products successfully may depend in
part on the extent to which reimbursement for the cost of such products and
related treatments will be available from government health administration
authorities, private health insurers and other organizations. Third-party payors
are increasingly challenging the price of medical products and services.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products, and there can be no assurance that adequate third-party
coverage will be available to enable Pharmos to maintain price levels sufficient
to realize an appropriate return on its investment in product development.
Risk of Product Liability; Availability of Insurance
The design, development and manufacture of the Company's products involve
an inherent risk of product liability claims and associated adverse publicity.
Although the Company currently maintains general liability insurance, there can
be no assurance that the coverage limits of the Company's insurance policies
will be adequate. Similarly, the Company currently maintains clinical trial
liability insurance, but there can be no assurance that the coverage limit of
the Company's insurance policies will be adequate. The Company currently has no
product liability insurance, and there can be no assurance that the Company will
be able to obtain or
7
<PAGE>
maintain product liability insurance on acceptable terms or with adequate
coverage against potential liabilities. Such insurance is expensive, difficult
to obtain and may not be available in the future on acceptable terms or at all.
A successful claim brought against the Company in excess of the Company's
insurance coverage could have a material adverse effect upon the Company and its
financial condition.
Use of Hazardous Materials; Potential Liability to Comply with Environmental
Problems
The Company's research and development involves the controlled use of
hazardous materials. Although the Company believes that its safety procedures
for handling and disposing of such materials comply in all material respects
with the standard prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result, and any such liability could exceed the resources
of the Company. The Company may incur substantial costs to comply with
environmental regulations if the Company develops manufacturing capacity.
Market for the Company's Securities; Shares Eligible for Future Sale; Possible
Volatility of Share Prices
The market price of the Company's Common Stock, like that of other
emerging pharmaceutical companies, has fluctuated significantly in recent years
and is likely to fluctuate in the future. Announcements by the Company or others
regarding scientific discoveries, technological innovations, litigation,
products, patents or proprietary rights, the progress of clinical trials,
government regulation, public concern as to the safety of drugs and the
reliability of the Company's testing processes and general market conditions may
have a significant impact on the market price of the Common Stock. The addition
of the shares being offered hereby and the shares issuable upon exercise of the
Company's currently outstanding warrants and options to the number of
publicly-traded shares of the Company's Common Stock may affect the volatility
of share prices of the Company's Common Stock.
Outstanding Stock Options and Warrants
As of September 30, 1996, the Company had outstanding incentive stock
options to purchase an aggregate of 552,186 shares of Common Stock at an average
exercise price of $2.19 per share and non-qualified stock options to purchase an
aggregate of 442,192 at an average exercise price of $3.10 per share issued to
employees, directors and consultants pursuant to stock option plans and
individual agreements with management and directors of the Company and warrants
to purchase 3,302,674 shares of the Company's Common Stock at an average price
of $2.33 per share, excluding the Warrants.
The Company may issue additional capital stock, warrants and/or options to
raise capital in the future. The Company regularly examines opportunities to
expand its technology base and product line through means such as licenses,
joint ventures and acquisition of assets or ongoing
8
<PAGE>
businesses and may issue securities in connection with such transactions.
However, no commitments to enter into or pursue any such transaction have been
made and there can be no assurance that any such discussions will result in any
such transaction being concluded. In order to attract and retain key personnel,
the Company may also issue additional securities, including stock options, in
connection with its employee benefit plans. During the terms of such options and
warrants, the holders thereof are given the opportunity to profit from a rise in
the market price of the Company's Common Stock. The exercise of such options and
warrants may have an adverse effect on the market value of the Company's Common
Stock. Also, the existence of such options and warrants may adversely affect the
terms on which the Company can obtain additional equity financing.
Anti-Takeover Provisions
The Company is subject to Sections 78.411-.444 of the Nevada General
Corporation Law ("Nevada Law"), an anti-takeover law, which may discourage
certain types of transactions involving an actual or potential change in control
of the Company, including transactions in which the stockholders might otherwise
receive a premium for their shares over the current prices, and may limit the
ability of the stockholders to approve a transaction that they may deem to be in
their best interests. In addition, the Board of Directors has the authority
without action by the stockholders to fix the rights and preferences of and
issue shares of Preferred Stock, which may have the effect of delaying or
preventing a change in control of the Company.
Potential Future Acquisitions
Due to the current uncertainties of the capital markets for emerging
pharmaceutical companies, the Company has had preliminary discussions with
several emerging pharmaceutical and biotechnology companies about potential
business and/or product consolidations, joint ventures, acquisitions, mergers or
other business combinations (collectively "acquisitions"). In the event the
Company undertakes any such acquisitions it may use some of its cash, including
part of the cash received in connection with the Private Placement Transaction,
or may issue its stock in connection therewith. Although management would
attempt to structure such acquisitions in a manner that will minimize dilution
of the equity owned by current stockholders, no assurance can be given that
acquisitions will not result in such dilution or that control of the Company
will not be changed as a result of such acquisitions. Such acquisitions may be
negotiated or may be sought on an unsolicited basis and may involve speculative
and risky undertakings by the Company with increased risks to its stockholders.
Under Nevada law, acquisitions do not require shareholders' approval except when
accomplished by merger or consolidation. The Company does not, in general,
intend to submit acquisitions to shareholder vote except where required by
Nevada law. The Company has not entered into any preliminary undertaking with
any third parties involving any acquisitions or other business combination
transactions.
9
<PAGE>
Special Considerations of Doing Business in Israel
A significant part of the operations of the Company is conducted in Israel
through its wholly-owned subsidiary, Pharmos Limited ("Pharmos Ltd."), and is
directly affected by economic, political and military conditions there. In
addition, Pharmos Ltd. has received certain funding from the Office of the Chief
Scientist of the Israel Ministry of Industry and Trade (the "Chief Scientist")
relating to its proprietary SubMicron Emulsion Technology and expects to file an
application to receive funding with respect to Dexanabinol, a new chemical
entity. Such funding prohibits the transfer or license of know-how and the
manufacture of resulting products outside of Israel without the permission of
the Chief Scientist. Although it is the Company's belief that the Chief
Scientist does not unreasonably withhold this permission if the request is based
upon commercially justified circumstances and any royalty obligations to the
Chief Scientist are sufficiently assured, there can be no assurance that such
consent, if requested, would be granted upon terms satisfactory to the Company
or granted at all.
Absence of Dividends
No dividends have been paid on the Common Stock to date, and the Company
does not expect to pay cash dividends in the foreseeable future.
DILUTION
As of September 30, 1996, the net tangible book value of the Company was
$1,352,905 or $0.05 per share. Net tangible book value per share is determined
by dividing the net tangible book value (tangible assets less liabilities) of
the Company by the number of shares of Common Stock outstanding at that date.
If all 50,000 of the Warrants exercisable at an exercise price of $1.75
per share are exercised (each of the Warrants purchasing one share of Common
Stock), there would be 29,269,969 shares of Common Stock outstanding with a net
tangible book value of $0.05 and the purchasers of shares through the exercise
of such Warrants at a price of $1.75 per share would suffer immediate dilution
of $1.70 per share.
If all 65,000 of the Warrants exercisable at an exercise price of $1.34
per share are exercised (each of the Warrants purchasing one share of Common
Stock), there would be 29,284,969 shares of Common Stock outstanding with a net
tangible book value of $0.05 and the purchasers of shares through the exercise
of such Warrants at a price of $1.34 per share would suffer immediate dilution
of $1.29 per share.
If all 15,000 of the Warrants exercisable at an exercise price of $2.31
per share are exercised (each of the Warrants purchasing one share of Common
Stock), there would be 29,234,969 shares of Common Stock outstanding with a net
tangible book value of $0.05 and
10
<PAGE>
the purchasers of shares through the exercise of such Warrants at a price of
$2.31 per share would suffer immediate dilution of $2.26 per share.
If all of the Warrants are exercised (each of the Warrants purchasing one
share of Common Stock), there would be 29,349,969 shares of Common Stock
outstanding with a net tangible book value of $0.06. The purchasers of shares
through the exercise of such Warrants at a price of $1.75 per share would suffer
immediate dilution of $1.69 per share; the purchasers of shares through the
exercise of such Warrants at a price of $1.34 per share would suffer immediate
dilution of $1.28 per share; and the purchasers of shares through the exercise
of such Warrants at a price of $2.31 per share would suffer immediate dilution
of $2.25 per share.
USE OF PROCEEDS
The Company will receive no proceeds from the 3,166,667 shares of Common
Stock to be offered and resold by the Selling Stockholders.
Assuming that all of the 130,000 Warrants whose underlying Common Stock is
being offered hereby are exercised, the gross proceeds to be received by the
Company will be $209,250. Such proceeds will be added to working capital and
used for general corporate purposes. The amount of proceeds to be received by
the Company, however, depends on the number of Warrants exercised.
The Company believes that its current cash resources and interest income
thereon, including the funds obtained from the Private Placement Transaction,
combined with the proceeds from the exercise of the Warrants, assuming all of
the Warrants are exercised (as to which there can be no assurances), should be
sufficient to fund its operating expenses and capital requirements as currently
planned through the first quarter of 1997. The amounts and timing of
expenditures for each purpose will depend on the progress of the Company's
research and development programs, technological advances, determinations as to
commercial potential, the terms of any collaborative arrangements entered into
by the Company for development and licensing, regulatory approvals, and other
factors, many of which are beyond the Company's control.
Pending such uses, the cash received in connection with the Private
Placement Transaction and the net proceeds from the exercise of the Warrants (if
exercised) will be invested in short-term, interest-bearing investment grade
securities. Due to the current uncertainties of the capital markets for emerging
pharmaceutical companies the Company has had preliminary discussions with
several emerging pharmaceutical and biotechnology companies about potential
acquisitions. Any such transaction might involve the use of the Company's cash
resources as consideration, including part of the proceeds of this Offering. The
Company has not entered into any preliminary understanding with any third
parties involving any acquisitions and is not currently in any negotiations. See
"Risk Factors -- Potential Acquisitions."
11
<PAGE>
DESCRIPTION OF SECURITIES
Common Stock
The Common Stock being offered hereby (i) by the Selling Stockholders,
(ii) by the Company upon the exercise of the Warrants, and (iii) by any
"affiliate" of the Company upon the resale of such Common Stock obtained from
exercising the Warrants is fully described in the Company's Registration
Statement on Form 8-A dated January 30, 1984, filed pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). See
"Incorporation of Certain Documents by Reference".
The Company's Restated Articles of Incorporation currently authorize the
issuance of up to 50,000,000 shares of Common Stock. As of December 18, 1996,
there are currently 30,699,169 shares outstanding, or 34,996,221 shares taking
into account exercise of all outstanding stock options (and stock options which
the Company is contractually obligated to issue) and warrants (including the
Warrants).
Series A Preferred Stock
The Company's Restated Articles of Incorporation currently authorize the
issuance of up to 1,250,000 shares of Preferred Stock. Of the authorized
Preferred Stock, 1,900 shares, designated as 5% Series A Preferred Stock, are
currently issued and outstanding and held by 3 stockholders. The Series A
Preferred Stock was issued in connection with the Private Placement Transaction.
Holders of Series A Preferred Stock have the right to convert their shares as
follows: up to 25% of their initial investment after 80 days from September 30,
1996 (the "Closing Date"), up to a cumulative of 50% of their initial investment
after 180 days from the Closing Date, up to a cumulative of 75% of their initial
investment after 270 days from the Closing Date, and up to a cumulative of 100%
of their initial investment after 360 days from the Closing Date, at prevailing
market prices at time of sale.
Warrants
The 50,000 Warrants exercisable at an exercise price of $1.75 are
exercisable commencing September 30, 1997, and expire on September 30, 2000. The
65,000 Warrants exercisable at an exercise price of $1.34 are exercisable from
September 30, 1997 until September 30, 2007. The 15,000 Warrants exercisable at
an exercise price of $2.31 are exercisable from March 15, 1997 until March 14,
2002. All of the Warrants contain anti-dilution provisions providing for an
adjustment to their respective exercise prices in the event that the Company
effects a stock split or stock dividend. In addition, the number and kind of
shares of Common Stock underlying the Warrants are subject to adjustments in the
event of any capital reorganization, or reclassification of the capital stock of
the Company, or consolidation or merger of the Company with another corporation
or entity (other than a subsidiary of the Company in which the Company is the
surviving or continuing corporation and no change occurs in the Company's Common
Stock). In addition, the 50,000 warrants exercisable at $1.75 and the 65,000
warrants exercisable at $1.34 contain additional anti-dilution provisions
providing for an adjustment to their respective exercise prices in the event of
the issuance of securities below market prices.
12
<PAGE>
Other Securities--Preferred Stock
The Company's Restated Articles of Incorporation currently authorize the
issuance of up to 1,250,000 shares of Preferred Stock, of which 1,900 shares of
Series A Preferred Stock, issued in connection the Private Placement
Transaction, is currently issued and outstanding, and empower the Board of
Directors, without the necessity of further action or authorization by the
stockholders, to authorize the issuance of Preferred Stock from time to time in
one or more series and to fix the relative rights, preferences and limitations
of each such series. The issuance of Preferred Stock could adversely affect the
voting power of holders of Common Stock and the likelihood that such holders
will receive dividend payments and payments upon liquidation and could have the
effect of delaying, deferring or preventing a change in control of the Company.
The Company has no present plan to issue any additional shares of Preferred
Stock.
Other Securities--Options and Warrants
As of September 30, 1996, the Company had outstanding incentive stock
options to purchase an aggregate of 552,186 shares of Common Stock at an average
exercise price of $2.19 per share and non-qualified stock options to purchase an
aggregate of 442,192 at an average exercise price of $3.10 per share issued to
employees, directors and consultants pursuant to stock option plans and
individual agreements with management and directors of the Company and warrants
(excluding the Warrants) to purchase 3,302,674 shares of the Company's Common
Stock at an average price of $2.33 per share, consisting of: 396,243 warrants
which can be exercised until November 1998 each to purchase a single share of
Common Stock for $3.06; 223,342 warrants which can be exercised until November
1996 to each purchase a single share of Common Stock for $5.23; 36,393 Class A
warrants which can be exercised until March 1998 to purchase 36,393 shares of
Common Stock for $2.29 per share and 41,083 Class B warrants, which Class B
warrants expire in March 1999 and allow the holder to purchase one share of
Common Stock for $2.84; unit purchase options expiring in March 1998 which allow
the holder to purchase 331,328 shares of Common Stock for $1.66 per share and
200,146 Class A Warrants which can be exercised to purchase 200,146 shares of
Common Stock for $2.29 per share and 225,940 Class B Warrants, which warrants
can be exercised to purchase one share of Common Stock per warrant for $2.84 per
share; 63,913 warrants which can be exercised until September 1999 each to
purchase a single share of Common Stock for $2.30; 214,286 warrants which can be
exercised until October 1999 each to purchase a single share of Common Stock for
$0.84; 75,000 warrants which can be exercised until February 2000 each to
purchase a single share of Common Stock for $0.52; 500,000 warrants which can be
exercised from April 1996 until April 2005 to purchase one share of Common Stock
per warrant for $2.75 per share; 10,000 Warrants which can be exercised from
April 1996 until April 2005 to purchase one share of Common Stock per warrant
for $0.78 per share; 25,000 Warrants which can be exercised from May 1996 until
April 2000 to purchase one share of Common Stock per warrant for $.75 per share;
25,000 Warrants which can be exercised from May 1996 until April 2000 to
purchase one share of Common Stock per warrant for $1.00 per share; 25,000
Warrants which can be exercised from May 1996 until April 2000 to purchase one
share of Common Stock per warrant for $1.50 per share; 900,000 Warrants which
can be exercised from September 14, 1996 until September 14, 2000 to purchase
one share of Common Stock per warrant for $1.80 per share; and 10,000 Warrants
which can be exercised from October 31, 1996 until October 31, 2001 to purchase
one share of Common Stock per warrant for $1.88 per share.
13
<PAGE>
Nevada Anti-Takeover Laws
The Company is subject to the provisions of Sections 78.411 through 78.444
of the Nevada Law, an anti-takeover statute (the "Business Combination
Statute"). In general, the Business Combination Statute prohibits a
publicly-held Nevada corporation from engaging in a "combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless such
combination is approved in a prescribed manner or satisfies certain fair value
requirements. For the purposes of the Business Combination Statute,
"combination" includes a merger, an asset sale, the issuance or transfer by the
corporation of its shares in one transaction or a series of transactions, having
an aggregate fair market value equal to five percent or more of the aggregate
market value of the corporation's outstanding shares, to the interested
stockholder or to an associate of the interested stockholder, and certain other
types of transactions resulting in a financial benefit the interested
stockholder. An "interested stockholder" is a person who is the beneficial
owner, directly or indirectly, of ten percent or more of the corporation's
voting stock or an affiliate or associate of the corporation that at any time
within the three years immediately preceding the date in question was the
beneficial owner, directly or indirectly, of ten percent or more of the
corporation's voting stock.
By an amendment to its By-laws, the Company has exempted itself from the
provisions of Sections 78.378 through 78.3793 of the Nevada Law, a "control
share" statute which otherwise prohibits an acquiring person, under certain
circumstances, from voting certain shares of a target corporation's stock after
such acquiring person's percentage of ownership of such corporation's stock
crosses certain thresholds, unless the target corporation's disinterested
stockholders approve the granting of voting rights to such shares.
Transfer Agent and Registrar
The transfer agent and registrar for the Company's Common Stock is
American Stock Transfer and Trust Company, New York, New York.
PLAN OF DISTRIBUTION
The Shares offered hereby by the Selling Stockholders are 3,166,667 shares
of Common Stock issuable upon conversion of 1,900 shares ($1,900,000 principal
amount) Series A Preferred Stock issued to the holders thereof by the Company in
connection with the Private Placement Transaction. This prospectus also covers
the issuance by the Company of up to 209,250 shares of Common Stock upon the
exercise of the Warrants, 50,000 of which were issued in connection with the
Private Placement Transaction, 65,000 of which were issued to a finder in
connection with the Private Placement Transaction, and 15,000 of which were
issued to an advisor of the Company in connection his efforts on behalf of the
Company.
The sale of all or a portion of the Shares and Warrant Shares offered
hereby by the Selling Stockholders may be effected from time to time on the
over-the-counter market at prevailing prices at the time of such sales, at
prices related to such prevailing prices or at negotiated prices. The Selling
Stockholders may effect such transactions by selling to or though
14
<PAGE>
one or more broker-dealers, and such broker-dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the Selling
Stockholders. The Selling Stockholders and any broker-dealers that participate
in the distribution may under certain circumstances be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
received by such broker-dealers and any profits realized on the resale of shares
by them may be deemed to be underwriting discounts and commissions under the
Securities Act. The Company and the Selling Stockholders may agree to indemnify
such broker-dealers against certain liabilities, including, without limitation,
certain liabilities under the Securities Act, or, if such indemnity is
unavailable, to contribute toward amounts required to be paid in respect of such
liabilities.
To the extent required under the Securities Act, a supplemental prospectus
will be filed, disclosing (a) the name of any such broker-dealers, (b) the
number of shares involved, (c) the price at which such shares are to be sold,
(d) the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable, (e) that such broker-dealers did not conduct
any investigation to verify the information set out or incorporated by reference
in this prospectus, as supplemented, and (f) other facts material to the
transaction.
There is no assurance that any of the Selling Stockholders will sell any
or all of the shares of Common Stock hereby.
The Company has agreed to pay certain costs and expenses incurred in
connection with the registration of the shares of Common Stock offered hereby,
except that the Selling Stockholders shall be responsible for all selling
commissions, transfer taxes and related charges in connection with the offer and
sale of such shares.
The Company has agreed to keep the Registration Statement of which this
Prospectus forms a part continuously effective until the earlier of the date
that all of such Shares have been sold or three years from the date of this
Prospectus.
SELLING SECURITY HOLDERS
The table below sets forth the name of each Selling Stockholder; the total
amount of (i) shares of Common Stock and (ii) shares of Warrant Shares issuable
upon the exercise of the Warrants beneficially owned by such security holder;
the aggregate amount of Common Stock and/or Warrant Shares which may be offered
for sale for the account of such security holder, in his/her discretion from
time to time pursuant to this Prospectus; and the amount of Common Stock which
would be beneficially owned by such security holder after sale of all securities
offered by the Selling Stockholder pursuant to this Prospectus, if they are
offered and sold, and assuming that any other shares held by such security
holders are not sold. None of the Selling Stockholders referred to herein has
held any position or office, or had any material relationship, with the Company
or any of its predecessors or affiliates within the last three years, except as
noted below, and none of the Selling Stockholders will own 1% or more of the
outstanding stock of the Company after completion of the offering, except as
noted below.
Because the initial issuance by the Company of the Warrant Shares to
non-affiliated holders is covered by the Registration Statement of which this
Prospectus forms a part and the resale thereof by such non-affiliated holders
need not be registered under the Securities Act, the table below does not
include the non-affiliated holders of the Warrants.
15
<PAGE>
<TABLE>
<CAPTION>
============================================================================================
Amount of
Warrant Shares Shares of
Shares of Issuable upon Common Stock
Common Stock Exercise of and/or Warrant Shares Owned
Names Held(1) Warrants Held Shares Offered(2) After Sale
============================================================================================
<S> <C> <C> <C> <C>
Paresco, Inc. 2,500,000 39,473 2,500,000 0
- --------------------------------------------------------------------------------------------
Libertyview Plus Fund 500,000 7,895 500,000 0
- --------------------------------------------------------------------------------------------
Libertyview Fund, LLC 166,667 2,632 166,667 0
- --------------------------------------------------------------------------------------------
Alan M. Mark 0 65,000 65,000(3) 0
============================================================================================
</TABLE>
- ----------
(1) Includes number of shares of Common Stock received upon conversion of
Preferred Stock, assuming conversion price of $0.60. Does not include
Common Stock issuable upon exercise of Warrants held by Selling
Stockholders.
(2) Does not include the Warrant Shares because the initial issuance by the
Company of the Warrant Shares to non-affiliated holders is covered by the
Registration Statement of which this Prospectus forms a part and the
resale thereof by such non-affiliated holders need not be registered under
the Securities Act.
(3) Includes Mr. Mark's Warrant Shares since Mr. Mark is currently an
affiliate of the Company, and, therefore, the Registration of which this
Prospectus forms a part covers the issuance of his Warrant Shares by the
Company upon the exercise of his Warrants and his resale of his Warrant
Shares.
RECENT DEVELOPMENTS
On December 13, 1996, the Company announced that it has signed an
international marketing agreement with Bausch & Lomb Pharmaceuticals, a Tampa,
Florida based subsidiary of Bausch & Lomb. The international agreement grants
Bausch & Lomb Pharmaceuticals the rights to market the Lotemax(TM) product line
upon receipt of regulatory clearances. The agreement specifies a total of $1.6
million in milestone payments tied to receipt of regulatory clearances and is in
addition to the existing June 1995 arrangement with Bausch & Lomb for marketing
the Lotemax(TM) product line in the U.S. In a separate agreement, Bausch & Lomb
made a $2 million investment in the common stock of Pharmos and received
1,479,200 shares of common stock.
On October 2, 1996, the Company announced that it received approval from
the Israeli Minister of Health to immediately commence a phase II study with its
lead neuroprotective agent, Dexanabinol (HU-211). The double-blinded
placebo-controlled study will be conducted in six medical centers in Israel in
patients with moderate to severe head injury.
John Howes, Ph.D., Vice President of Clinical Affairs departed from the
Company effective August 31, 1996. Dr. Howes' primary responsibility had been
the clinical trial programs of Lotemax(TM) and the allergy line extension. The
Company's Uveitis study is in the final stage of patient recruitment and the
Company has concluded its allergy studies. As a result, the Company does not
expect to appoint a replacement in the near term.
16
<PAGE>
On August 26, 1996, the Company announced that Fredric D. Price was
appointed to its Board of Directors. Price replaced former board member William
C. Hulley, who resigned from the board to devote more time to other business
interests.
On July 10, 1996, the Company announced the award of $1 million from U.S.
Binational Industrial Research Development Foundation ("BIRD-F") to support the
development of a product containing its site-active steroid, Lotemax(TM), and
the antibiotic tobramycin. The Foundation provides funding to stimulate
collaboration between Israeli and U.S. companies. The grant is based on a budget
allocated to the development of Lotemax(TM), which is shared equally by the
Company and Bausch & Lomb Pharmaceuticals.
Effective July 1, 1996, Alan M. Mark was appointed to the position of
Acting Chief Financial Officer. Mark replaced Colin Neill, who assisted the
Company during a transition period.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K, for the fiscal year ended
December 31, 1995, filed pursuant to Section 13 of the Exchange Act.
(b) The Company's Quarterly Reports on Form 10-Q, for the quarters ending
March 31, June 30, and September 30, 1996, filed pursuant to Section 13 of the
Exchange Act.
(c) The Company's Current Report on Form 8-K, dated April 18, 1996, filed
pursuant to Section 13 of the Exchange Act, describing the settlement of the
Company's dispute with Dr. Nicholas Bodor regarding the License Agreement
between the Company and Dr. Bodor relating to Lotemax(TM).
(d) The Company's Current Report on Form 8-K, dated February 15, 1996,
filed pursuant to Section 13 of the Exchange Act, describing a favorable ruling
the Company received in its dispute with Dr. Bodor.
(e) The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A dated January 30, 1984, filed pursuant to
Section 12 of the Exchange Act.
In addition, all reports and other documents to be filed by the Company
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to
the filing of a post-effective amendment which indicates that all securities
offered hereby have been sold or which deregisters all securities offered hereby
then remaining unsold, as well as all such reports filed after the date hereof
and prior to the termination of this offering, shall be deemed to be
incorporated by
17
<PAGE>
reference herein and shall be deemed to be a part hereof from the date of the
filing of each such report or document.
COMMISSION'S POLICY ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Article 12 of the Company's Restated Articles of Incorporation directs the
Company to provide in its bylaws for provisions relating to the indemnification
of directors and officers to the full extent permitted by law, including the
federal securities law. Section 78.751 of the Nevada Revised Statutes, as
amended, authorizes the Company to indemnify any director or officer under
certain prescribed circumstances and subject to certain limitations against
certain costs and expenses, including attorneys' fees actually and reasonably
incurred in connection with any action, suit or proceeding, whether civil,
criminal, administrative or investigative, to which such person is a party by
reason of being a director or officer of the Company if it is determined that
such person acted in accordance with the applicable standard of conduct set
forth in such statutory provisions. The Company may also purchase and maintain
insurance for the benefit of any director or officer which may cover claims for
which the Company could not indemnify such person.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers, and controlling persons of the Company, or to
underwriters (or controlling persons thereof) of which an officer, partner, or
controlling person thereof is one of the foregoing pursuant to the foregoing
provisions or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Company of expenses incurred or paid by any such persons, in the successful
defense of any action, suit or proceeding) is asserted by any such persons in
connection with the securities being registered, the Company 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 of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
LEGAL OPINIONS
Legal matters in connection with the securities being offered hereby will
be passed upon for the Company by Eilenberg & Zivian, 666 Third Avenue, New
York, New York 10017.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K for the year ended December 31, 1995, have been
so incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
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<PAGE>
PHARMOS CORPORATION
December 18, 1996
INDEX
Page No.
THE COMPANY................................................................. 1
RISK FACTORS................................................................ 1
DILUTION.................................................................... 10
USE OF PROCEEDS............................................................. 11
DESCRIPTION OF SECURITIES................................................... 12
PLAN OF DISTRIBUTION........................................................ 14
SELLING SECURITY HOLDERS.................................................... 15
RECENT DEVELOPMENTS......................................................... 16
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. 17
COMMISSION'S POLICY ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES.............................................. 18
LEGAL OPINIONS.............................................................. 18
EXPERTS..................................................................... 18
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following statement sets forth the estimated expenses in connection
with the offering described in the Registration Statement, assuming all of the
Warrants are exercised at their respective exercise price (all of which will be
borne by the Registrant).
Securities and Exchange Commission Fee...... $1,380
Printing and Engraving Expenses............. 100
Accountants' Fees and Expenses.............. 3,000
Legal Fees and Expenses..................... 15,000
Blue Sky Filing Fees........................ 1,500
Miscellaneous............................... 120
TOTAL $21,100
Item 15. Indemnification of Directors and Officers.
Article 12 of the Registrant's Certificate of Incorporation directs the
Registrant to provide in its bylaws for provisions relating to the
indemnification of directors and officers to the full extent permitted by law.
Section 78.751 of the Nevada Revised Statutes, as amended, authorizes the
Registrant to indemnify any director or officer under certain prescribed
circumstances and subject to certain limitations against certain costs and
expenses, including attorneys' fees actually and reasonably incurred in
connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which such person is a party by reason of
being a director or officer of the Registrant if it is determined that such
person acted in accordance with the applicable standard of conduct set forth in
such statutory provisions.
The Registrant may also purchase and maintain insurance for the benefit of
any director or officer which may cover claims for which the Registrant could
not indemnify such person.
Item 16. Exhibits
4(a) Specimen of Common Stock Certificate (incorporated by
reference to Form S-3 Registration Statement of the Company
dated November 25, 1994 [No. 33-86720])
4(b) Restated Articles of Incorporation (incorporated by reference
to Appendix E to the Joint Proxy Statement/ Prospectus
included in the Form S-4 Registration Statement of the
Registrant dated September 28, 1992 [No. 33-52398])
II-1
<PAGE>
4(c) Certificate of Amendment of Restated Articles of Incorporation
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994 [No. 0-11550])
*4(d) Certificate of Designation, Rights, Preferences and Privileges
of Series A Preferred Stock of the Company
4(e) Amended and Restated By-Laws (incorporated by reference to
Form S-1 Registration Statement of the Company dated June 30,
1994 [No. 33-80916])
*4(f) Form of 5% Preferred Stock Securities Purchase Agreement dated
as of September 30, 1996 between the Company and the Investors
*4(g) Form of Stock Purchase Warrant dated as of September 30, 1996
between the Company and the Investors
*4(h) Form of Stock Purchase Warrant dated as of September 30, 1996
between the Company and Alan M. Mark
*4(i) Form of Warrant Agreement dated as of March 15, 1996 between
the Company and Michael E. Lewis, Ph.D.
*5 Opinion re: legality
23(a) Consent of Eilenberg & Zivian (included in the Opinion filed
as Exhibit 5)
**23(b) Consent of Price Waterhouse LLP
- ----------
* Filed with original S-3 Registration Statement filed on October 31, 1996.
** Filed herewith.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes;
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which,
II-2
<PAGE>
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
Provided, however, that Paragraphs (i) and (ii) above do not apply if the
Registration Statement is on Form S-3 and the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for the purpose of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Alachua and State of Florida on the 18th day of
December, 1996.
PHARMOS CORPORATION
By: /s/ HAIM AVIV
----------------------------------------
Dr. Haim Aviv, Chairman, Chief
Scientist, Chief Executive Officer
and Director (Principal Executive
Officer)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed below by the following
persons in the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ ALAN M. MARK Acting Chief December 18, 1996
- ---------------------------- Financial Officer
Alan M. Mark (Principal Financial and
Accounting Officer)
/s/ MARVIN P. LOEB Director December 18, 1996
- ----------------------------
Marvin P. Loeb
/s/ E. ANDREWS GRINSTEAD III Director December 18, 1996
- ----------------------------
E. Andrews Grinstead III
/s/ STEPHEN C. KNIGHT Director December 18, 1996
- ----------------------------
Stephen C. Knight
/s/ DAVID SCHLACHET Director December 18, 1996
- ----------------------------
David Schlachet
/s/ FREDRIC D. PRICE Director December 18, 1996
- ----------------------------
Fredric D. Price
II-4
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Pharmos Corporation
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
March 29, 1996 appearing in Pharmos Corporation's Annual Report on Form 10-K for
the year ended December 31, 1995. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
/s/PRICE WATERHOUSE LLP
- ----------------------------------
PRICE WATERHOUSE LLP
New York, New York
December 18, 1996
