PHARMOS CORPORATION
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10,000,000 SHARES OF COMMON STOCK,
$.03 PAR VALUE, TO BE SOLD BY
SELLING SECURITY HOLDERS
159,000 SHARES OF COMMON STOCK ISSUABLE
UPON EXERCISE OF WARRANTS TO PURCHASE SHARES
AT AN EXERCISE PRICE OF $1.75 PER SHARE
This Prospectus covers the proposed offer and resale of up to 10,000,000
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 6,000 shares ($6,000,000 principal amount) of 5% Preferred Stock
(the "Series B Preferred Stock") convertible into such shares in a private
placement transaction in March 1997 (the "Private Placement Transaction"). The
Private Placement Transaction, in which the Company issued 6,000 shares of
Series B Preferred Stock to the Selling Stockholders for the principal amount of
$6,000,000, was completed on March 31, 1997 (the "Closing Date"). The preferred
shares can be converted by the Selling Stockholders as follows: up to 40% of
their initial investment after 90 days from the Closing Date, up to a cumulative
of 80% of their initial investment after 180 days from the Closing Date, and up
to a cumulative of 100% of their initial investment after 270 days from the
Closing Date, at between 80% to 83% of prevailing market prices at time of
conversion.
This Prospectus also covers the offer and proposed sale by the Company of
up to (i) 159,000 shares of Common Stock issuable upon the exercise by the
holders thereof of warrants to purchase 159,000 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. (All of the warrants set
forth above are hereinafter separately and collectively referred to as the
"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 to
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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 June 16, 1997 was $1.97.
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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 June 20, 1997
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The laws of many states provide exemptions from registration, particularly
for sales of securities by persons other than issuers, such as 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 California, Connecticut, Florida, Massachusetts, Michigan, New
Jersey, New York, Pennsylvania and Texas. Holders of Shares, therefore, must
sell their Shares (through a broker/dealer or otherwise), either: (i) 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, reasonably 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, President and Chief Operating Officer, Pharmos Corporation,
2 Innovation Drive, Alachua, Florida 32615, (904) 462-1210.
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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.
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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.
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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 December 31, 1996, the Company had an accumulated deficit of
approximately $62 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.
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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 $5.8 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 1998. 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
agreements with Bausch & Lomb to manufacture and market the Company's lead
product, Lotemax(TM), in the United States and throughout Europe, Canada and
selected other countries. The agreements also cover the co-development of
Lotemax(TM) line extension products currently being developed by the Company.
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
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,
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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
agreements 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 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.
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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
There are currently no material legal proceedings pending against or
involving the Company.
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
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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 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
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the assistance of a pharmaceutical company with an established distribution
system and sales force. The Company has entered into agreements 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 agreements with Bausch & Lomb
address 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.
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
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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 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
Laws
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.
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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 December 31, 1996 the Company had outstanding incentive stock options
to purchase an aggregate of 513,253 shares of Common Stock at an average
exercise price of $2.13 per share and non-qualified stock options to purchase an
aggregate of 432,182 at an average exercise price of $3.12 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 3,138,789 shares of the Company's Common Stock at an average price
of $2.13 per share.
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 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.
Convertible Securities; Potential Dilution and Adverse Impact on Additional
Financing
As of December 31, 1996, the Company had outstanding options and warrants
to purchase an aggregate of 4,084,224 shares of Common Stock, at a weighted
average exercise price of $2.2347591 per share. The Company is obligated to
issue up to 7,400,000 shares of Common Stock upon conversion of 1,400 shares of
the Series A Preferred Stock and 6,000 shares of the Series B Preferred Stock
(collectively, the "Preferred Stock") outstanding as of April 4, 1997, based on
a conversion price of $1.00, which is derived from 80% of the closing
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price of the Common Stock as of April 4, 1997. The exact number of shares of
Common Stock issuable upon conversion cannot be estimated with certainty
because, generally, such issuances of Common Stock will vary inversely with the
market price of the Common Stock at the time of such conversion, and there is no
limit on the number of shares of Common Stock that may be issuable. The number
of shares of Common Stock issuable upon conversion of the Preferred Stock is
also subject to various adjustments to prevent dilution resulting from stock
splits, stock dividends or similar transactions. Further, the Company may, at
its election, choose to issue additional shares of Common Stock in lieu of cash
dividends due to the holders of the Preferred Stock.
To the extent shares of Common Stock are issued in lieu of cash dividends
or due to conversions of the Preferred Stock, substantial dilution of the
interests of the Company's stockholders is likely to result and the market price
of the Common Stock may be materially adversely affected. Such dilution will be
greater if the future market price of the Common Stock decreases. For the life
of the Preferred Stock, the holders will have the opportunity to profit from a
rise in the price of the underlying securities. The existence of the Preferred
Stock is likely to affect materially and adversely the terms on which the
Company can obtain additional financing, and the holders of the Preferred Stock
can be expected to convert shares of the Preferred Stock at a time when the
Company would otherwise, in all likelihood, be able to obtain additional capital
by an offering of its unissued capital stock on terms more favorable to the
Company then those provided by the Preferred Stock.
The Company has registered the Common Stock issuable upon conversion of the
Preferred Stock, certain of which are being offered pursuant to this Prospectus.
Shares of Common Stock issuable upon conversion of the Series A Preferred Stock
are being offered pursuant to a prospectus included in Registration Statement
No. 333-15165. Following conversion, such registered shares of Common Stock can
be sold without any holding period or sales volume limitations.
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
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<PAGE>
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.
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 has filed 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 December 31, 1996, the net tangible book value of the Company was
$1,150,479 or $0.04 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 of the 159,000 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 30,868,169 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.
10
<PAGE>
USE OF PROCEEDS
The Company will receive no proceeds from the 10,000,000 shares of Common
Stock to be offered and resold by the Selling Stockholders.
Assuming that all of the 159,000 Warrants whose underlying Common Stock is
being offered hereby are exercised, the gross proceeds to be received by the
Company will be $278,250. 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,
should be sufficient to fund its operating expenses and capital requirements as
currently planned through the first quarter of 1998 (if 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), the Company should have
sufficient resources to fund its operating expenses and capital requirements as
currently planned through the first quarter of 1998). 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. 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."
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 April 4, 1997, there
are currently 31,166,115
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<PAGE>
shares outstanding, or 36,744,602 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. As of April 4, 1997,
1,400 shares, designated as Series A Preferred Stock, are currently issued and
outstanding and held by 3 stockholders. The Series A Preferred Stock was issued
in connection with a private placement completed on September 30, 1996. 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
"Series A Preferred Stock Closing Date"), up to a cumulative of 75% of their
initial investment after 180 days from the Series A Preferred Stock Closing
Date, and up to a cumulative of 100% of their initial investment after 360 days
from the Series A Preferred Stock Closing Date, at 80% to 83% of prevailing
market prices at time of conversion.
Of the authorized Preferred Stock, 6,000 shares, designated as Series B
Preferred Stock, are currently issued and outstanding and held by 4
stockholders. The Series B Preferred Stock was issued in connection with the
Private Placement Transaction. Holders of Series B Preferred Stock have the
right to convert their shares as follows: up to 40% of their initial investment
after 90 days from March 31, 1997 (the "Series B Preferred Stock Closing Date"),
up to a cumulative of 80% of their initial investment after 180 days from the
Series B Preferred Stock Closing Date, and up to a cumulative of 100% of their
initial investment after 270 days from the Series B Preferred Stock Closing
Date, at prevailing market prices at time of sale.
Warrants
The 159,000 Warrants exercisable at an exercise price of $1.75 are
exercisable commencing March 31, 1998 and expire on March 31, 2001. 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).
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 1,400 shares of
Series A Preferred Stock, issued in connection with a private placement
completed in September 1996 and 6,000 shares of Series B Preferred Stock issued
in connection with the Private Placement Transaction, are currently issued and
outstanding as of April 4, 1997, and empower the Board of Directors, without the
necessity of further action or authorization by the stockholders, to authorize
the
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<PAGE>
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 December 31, 1996, the Company had outstanding incentive stock
options to purchase an aggregate of 513,253 shares of Common Stock at an average
exercise price of $2.13 per share and non-qualified stock options to purchase an
aggregate of 432,182 at an average exercise price of $3.12 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 3,138,789 shares of the Company's Common
Stock at an average price of $2.13 per share, consisting of: 240,744 warrants
which can be exercised until March 1998 each to purchase a single share of
Common Stock for $2.25; 268,917 warrants which can be exercised until March 1998
each to purchase a single share of Common Stock for $2.82; 333,335 warrants
which can be exercised until March 1998 each to purchase a single share of
Common Stock for $1.65; 406,880 warrants which can be exercised until August
1998 each to purchase a single share of Common Stock for $2.98; 63,913 warrants
which can be exercised until September 1999 each to purchase a single share of
Common Stock for $2.30; 200,000 warrants which can be exercised until October
1999 each to purchase a single share of Common Stock for $0.84; 500,000 warrants
which can be exercised until April 2005 each to purchase a single share of
Common Stock for $2.75; 10,000 Warrants which can be exercised until April 2005
each to purchase a single share of Common Stock for $0.78; 15,000 warrants which
can be exercised until April 2000 each to purchase a single share of Common
Stock for $.75; 25,000 Warrants which can be exercised until April 2000 each to
purchase a single share of Common Stock for $1.00; 25,000 warrants which can be
exercised until April 2000 each to purchase a single share of Common Stock for
$1.50; 900,000 warrants which can be exercised until September 14, 2000 each to
purchase a single share of Common Stock for $1.80; 10,000 warrants which can be
exercised until October 2001 each to purchase a single share of Common Stock for
$1.88; 15,000 warrants which can be exercised until March 2002 each to purchase
a single share of Common Stock for $2.31; 50,000 warrants which can be exercised
from September 1997 until September 2000 each to purchase a single share of
Common Stock for $1.75; 65,000 warrants which can be exercised from September
1997 until September 2007 each to purchase a single share of Common Stock for
$1.34; and 10,000 warrants which can be exercised from November 1997 until
November 2002 each to purchase a single share of Common Stock for $1.39.
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
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<PAGE>
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 10,000,000 shares
of Common Stock issuable upon conversion of 6,000 shares ($6,000,000 principal
amount) Series B 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 159,000 shares of Common Stock upon the
exercise of the Warrants, which were issued in connection with the Private
Placement Transaction.
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, or by any
other means permitted under the Securities Act. The Selling Stockholders may
effect such transactions by selling to or though 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
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<PAGE>
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 beneficially owned by such security
holder as of April 4, 1997; (ii) Warrant Shares issuable upon the exercise of
the Warrants beneficially owned by such security holder; (iii) 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 (iv) the amount and percentage 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. The information included below is based upon
information provided by the Selling Stockholders. 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.
For the purposes of calculating the number of shares of Common Stock
beneficially owned by the Selling Stockholders, the number of shares of Common
Stock calculated to be issuable in connection with the conversion of the Series
A Preferred Stock and the Series B Preferred Stock is based on a conversion
price of $1.00, which is derived from 80% of the closing price of the Common
Stock as of April 4, 1997. The calculation of the total number of shares of
Common Stock to be offered hereby, however, is based on a hypothetical market
price of the Common Stock at the time of such conversion of $0.72 per share
(approximate conversion price of $0.60), which price is below the market price
of the Common Stock as of April 4, 1997
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<PAGE>
(which was $1.25). The use of such hypothetical price is not intended, and
should in no way be construed, to constitute a prediction as to the future
market price of the Common Stock.
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 list
the warrants held by the non-affiliated Selling Stockholders.
<TABLE>
<CAPTION>
===================================================================================================================================
Shares of Amount of Shares of
Common Stock Warrant Shares Common Stock
Names Beneficially Issuable upon and/or Warrant Shares and Percentage of
(and position or office held in Owned Prior Exercise of Shares Shares Owned After
the Company) to Offering(1) Warrants Held Offered(2) Completion of Offering
====================================
Shares Percentage(3)
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Elliott Associates, L.P. 2,400,000(4) 63,600 4,000,000 0 0
- -----------------------------------------------------------------------------------------------------------------------------------
Paresco, Inc. 2,740,000(5) 42,400 2,666,667 1,140,000 3.5%
- -----------------------------------------------------------------------------------------------------------------------------------
Libertyview Fund, LLC 155,009(6) 2,650 166,667 55,009 *
- -----------------------------------------------------------------------------------------------------------------------------------
Libertyview Plus Fund 505,000(7) 7,950 500,000 205,000 *
- -----------------------------------------------------------------------------------------------------------------------------------
Westgate International, 1,600,000(8) 42,400 2,666,667 0 0
L.P.
===================================================================================================================================
</TABLE>
- --------------------
* Indicates ownership of less than 1%
(1) Does not include warrants/and or options which are not currently
exercisable, including the Warrants.
(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) Based on 31,166,115 shares of Common Stock outstanding as of April 4, 1997,
plus each individual's shares of Common Stock issuable upon conversion of
Series A Preferred Stock, and/or currently exercisable warrants and/or
options.
(4) Based on 2,400 shares of Series B Preferred Stock held by the Selling
Stockholder as of June 16, 1997.
(5) Based on 1,140 shares of Series A Preferred Stock and 1,600 shares of
Series B Preferred Stock held by the Selling Stockholder as of April 4,
1997.
(6) Based on 9 shares of Common Stock, 55 shares of Series A Preferred Stock
and 100 shares of Series B Preferred Stock held by the Selling Stockholder
as of April 4, 1997.
(7) Based on 205 shares of Series A Preferred Stock and 300 shares of Series B
Preferred Stock held by the Selling Stockholder as of April 4, 1997.
(8) Based on 1,600 shares of Series B Preferred Stock held by the Selling
Stockholder as of June 16, 1997.
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RECENT DEVELOPMENTS
None.
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, 1996, filed pursuant to Section 13 of the Exchange Act.
(b) 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 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
17
<PAGE>
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, 1996, 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.
18
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PHARMOS CORPORATION
-------------------
June 20, 1997
INDEX
-----
Page No.
THE COMPANY ........................................................... 1
RISK FACTORS .......................................................... 1
DILUTION .............................................................. 10
USE OF PROCEEDS ....................................................... 11
DESCRIPTION OF SECURITIES ............................................. 11
PLAN OF DISTRIBUTION .................................................. 14
SELLING SECURITY HOLDERS .............................................. 15
RECENT DEVELOPMENTS ................................................... 17
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ....................... 17
COMMISSION'S POLICY ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES ........................................ 17
LEGAL OPINIONS ........................................................ 18
EXPERTS ............................................................... 18
