<PAGE> 1
Filed pursuant to Rule 424(b)(3)
File No. 333-66269
PROSPECTUS
3,063,561 SHARES
CYPRESS BIOSCIENCE, INC.
COMMON STOCK
In September 1998, we sold shares of our Series A Convertible Preferred
Stock to certain individuals and entities. These shares of preferred stock are
convertible into 3,063,561 shares of our common stock. We have filed this
prospectus to register the shares of common stock underlying the Series A
Convertible Preferred Stock so that the stockholders may offer and sell shares
in the public market and otherwise. The selling stockholders and the number of
shares of our common stock each selling stockholder may sell under this
prospectus are listed on pages 6-7 of this prospectus.
The selling stockholders may offer their Cypress common stock through
public or private transactions, on or off the Nasdaq SmallCap Market, at
prevailing market prices, or at privately negotiated prices.
Our common stock is listed on the Nasdaq SmallCap Market under the
ticker symbol "CYPB." On October 27, 1998, the closing price of one share of
Cypress common stock on the Nasdaq SmallCap Market was $2.69.
----------------
THE SHARES OF CYPRESS COMMON STOCK OFFERED OR SOLD UNDER THIS
PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE
3.
----------------
THE SHARES OF CYPRESS COMMON STOCK OFFERED OR SOLD UNDER THIS
PROSPECTUS HAVE NOT BEEN APPROVED BY THE SEC OR ANY STATE SECURITIES COMMISSION,
NOR HAVE THESE ORGANIZATIONS DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTUS DATED NOVEMBER 6, 1998.
1.
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THIS PROSPECTUS IS PART OF A REGISTRATION STATEMENT THAT WE FILED WITH
THE SEC. THE REGISTRATION STATEMENT INCLUDES EXHIBITS AND ADDITIONAL INFORMATION
NOT INCLUDED IN THE PROSPECTUS.
WE HAVE NOT AUTHORIZED ANY PERSON TO GIVE YOU ANY SUPPLEMENTAL
INFORMATION OR MAKE ANY REPRESENTATIONS FOR US. YOU SHOULD NOT RELY UPON ANY
INFORMATION ABOUT CYPRESS THAT IS NOT CONTAINED IN THIS PROSPECTUS OR IN ONE OF
CYPRESS'S PUBLIC REPORTS FILED WITH THE SEC AND INCORPORATED INTO THIS
PROSPECTUS. INFORMATION CONTAINED IN THIS PROSPECTUS OR IN CYPRESS'S PUBLIC
REPORTS MAY BECOME OUTDATED. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS
PROSPECTUS IS ACCURATE OR COMPLETE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT OF THIS PROSPECTUS OR OTHER DATE TO WHICH SPECIFIC INFORMATION CONTAINED
HEREIN IS QUALIFIED. WE ARE NOT MAKING AN OFFER OF SECURITIES IN ANY STATE WHERE
THE OFFER IS NOT PERMITTED.
THE COMPANY
At Cypress, we research, develop, manufacture and market medical
devices and therapeutics for the treatment of human immune system disorders, and
we develop novel therapeutic agents for the treatment of blood platelet
disorders. We currently market one product, the Prosorba(R) column, for only one
indication, the treatment of idiopathic thromboxylopene purpura ("ITP"). Our
goal is to continue to market the Prosorba column for the treatment of ITP and
to obtain regulatory approval to market the Prosorba column for the treatment of
rheumatoid arthritis. We also plan to attempt to discover other disease
indications for which the Prosorba column may be used as a treatment and to
market the Prosorba column in those areas. In addition, we intend to continue to
develop Cyplex(R) (Infusible Platelet Membranes), a platelet alternative, as an
alternative to traditional platelet transfusions.
Our principal executive offices are located at 4350 Executive Drive,
Suite 325, San Diego, California 92121, and our telephone number is (619)
452-2323. We were incorporated in Delaware in 1981.
Prosorba column and Cyplex, platelet alternative, are registered
trademarks of the Company. All other brand names or trademarks appearing in this
Prospectus are the property of their respective holders.
2.
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RISK FACTORS
Investment in Cypress shares involves a high degree of risk. You should
consider the following discussion of risks as well as other information in this
prospectus before purchasing any Cypress shares.
Except for historical information, the information contained in this
prospectus and in our SEC reports are "forward looking" statements about our
expected future business and performance. Our actual operating results and
financial performance may prove to be very different from what we might have
predicted as of the date of this prospectus. The risks described below address
some of the factors that may affect our future operating results and financial
performance.
OUR NEED FOR ADDITIONAL CAPITAL
We are actively seeking opportunities to raise additional capital to be
used primarily to fund the proposed commercial launch of the Prosorba column for
the rheumatoid arthritis indication, to develop new and complete existing
research, and to further the development and marketing of Cyplex, platelet
alternative. We may need to raise additional capital to complete the launch of
the Prosorba column for the rheumatoid arthritis indication, if approved. In
addition, if we decide to continue the development of products other than the
Prosorba column and Cyplex, platelet alternative, we will be required to raise
additional capital. The amount of capital we will require is difficult to
predict, and we cannot assure you that we will be able to raise any additional
capital from any source. If we are unable to obtain additional financing, we may
have to delay or scale back the launch of the Prosorba column for the rheumatoid
arthritis indication, if approved, and delay, scale back or eliminate some or
all of our research and development activities. In addition, we may be required
to license to third parties technologies that we would otherwise seek to develop
ourselves, to seek financing at potentially higher costs to us or to seek
additional methods of financing. These results may have a detrimental effect on
our financial condition and could prevent us from realizing our long-term goals.
OUR HISTORY OF OPERATING LOSSES
We are operating at a loss and have been operating at a loss since our
formation in October 1981. As of June 30, 1998, we had an accumulated deficit of
approximately $73.5 million. Our ability to become profitable is dependent upon
our obtaining U.S. Food and Drug Administration (the "FDA") marketing approval
of the Prosorba column in rheumatoid arthritis and disease indications other
than ITP in a timely manner, and successfully increasing the sales of the
Prosorba column. If we do not receive marketing approval from the FDA for the
Prosorba column for the treatment of rheumatoid arthritis, or for Cyplex,
platelet alternative, for the treatment of platelet disorders, we will have to
significantly scale back our plans, curtail clinical trials, and limit our
present operations in order to become profitable or operate on a break-even
basis.
PENDING FDA DECISION ON OUR PRE-MARKET APPROVAL APPLICATION
Our only FDA-approved product is the Prosorba column, which the FDA
approved in 1987 for use by patients with ITP. However, sales of the Prosorba
column for use by patients with ITP have declined over the last two years.
3.
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We are currently focused on obtaining FDA approval to market the Prosorba column
for the treatment of rheumatoid arthritis. We filed a Pre-Market Approval
application with the FDA in July 1998 to allow us to market the Prosorba column
for use in the treatment of rheumatoid arthritis (the "PMA Application"). The
Company appeared at a hearing before the FDA's Gastroenterology and Urology
Device Advisory Panel (the "FDA Panel") on October 29, 1998. The FDA Panel
recommended on that day to the FDA that the Prosorba column be approved for the
treatment of moderate to severe rheumatoid arthritis, subject to the
requirements that (i) we conduct a post-marketing trial to determine the safety
and efficacy of combination treatment with disease-modifying anti-rheumatic
drugs and to evaluate the safety and efficacy of treatment of rheumatoid
arthritis patients with the Prosorba column and (ii) final labeling of the
Prosorba column for the treatment of rheumatoid arthritis be negotiated by the
end of 1998. However, we cannot assure you that the FDA will follow the FDA
Panel's recommendation and if the PMA Application is not approved and the
Prosorba column is restricted to the treatment of ITP, the Company will be
required to significantly scale back its plans and limit its present operations
and may not otherwise be viable as an independent entity.
OUR SALES FORCE
We have a small domestic sales force that sells the Prosorba column
directly to customers for use in the treatment of ITP. To date, our sales force
has made commercial sales of the Prosorba column only for use in the treatment
of ITP. Our sales force has had no experience in marketing the Prosorba column
for use in the treatment of disease indications other than ITP. Accordingly, if
we receive FDA approval to use the Prosorba column for the treatment of
rheumatoid arthritis or any other disease indications other than ITP, our sales
force may not be able to successfully market the Prosorba column for such uses.
Any failure by our sales force to successfully market the Prosorba column for
rheumatoid arthritis, if approved, would have a material adverse effect on our
overall financial performance.
COMPETITIVE ENVIRONMENT
The healthcare field in general and the particular areas in which we
market our products are extremely competitive. In developing and marketing
medical devices to treat immune-mediated diseases, we compete with other
products, therapeutic techniques and treatments offered by national and
international healthcare and pharmaceutical companies, many of which have
greater marketing, human and financial resources than we do. In addition, we
expect to compete with new products and therapeutic techniques and treatments
that are in various stages of clinical development, some of which are expected
to ultimately receive FDA approval.
The immunological therapy market is characterized by rapid
technological change and potential introductions of new products or therapies.
To respond to these changes, we may be required to develop or purchase new
products to protect our technology from obsolescence. We may not be able to
develop or obtain such products. Even if we develop or obtain new products, such
products may not be commercially viable. In addition, we cannot assure you that
our Prosorba column will prove effective in the treatment of rheumatoid
arthritis or that Cyplex, platelet alternative, if approved for sale by the FDA,
will be an effective alternative to traditional platelet therapy. If the
Prosorba column fails to be effective in the treatment of rheumatoid arthritis
or if Cyplex, platelet alternative, fails to be an effective alternative to
traditional platelet therapy, our entire business will be materially adversely
affected.
UNCERTAINTY OF OUR PATENT PROTECTION
As a policy, we seek to protect our proprietary technology and inventions
which are used in the Prosorba column and Cyplex, platelet alternative, through
patents, trade secret law and other legal protections. We may, however, incur
significant expense in protecting our intellectual property and defending or
assessing claims with respect to intellectual property owned by others.
4.
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Any patent or other infringement litigation by or against us could result in
significant expense to us and diversion of our management resources, which in
turn could have an adverse effect on our financial performance. The process used
in manufacturing the Prosorba column is covered by one of various patents that
we hold; however, we cannot assure you that this patent will afford significant
protection of our proprietary technology. We also could be forced to modify or
abandon the Prosorba column or Cyplex, platelet alternative, based upon our
assessment of intellectual property risks or actual or threatened claims by
others. Since the Prosorba column is our only FDA-approved product, our entire
business will be materially adversely affected if we are unable to sell that
product.
Others have filed applications for, or have been issued, patents and may obtain
additional patents and other proprietary rights competing with our products or
process. Although we do not presently know the scope and validity of these
patents, if existing or future patents are upheld as valid by courts, we may
be required to obtain licenses to use technology covered by these patents.
CONCENTRATION OF OUR OWNERSHIP
As of October 16, 1998, Paramount Capital, Inc., through its
affiliates, beneficially owns 19.2% of our outstanding common stock and Allen &
Company Incorporated beneficially owned approximately 13.6% of our outstanding
common stock. Individually or collectively, Paramount Capital, Inc. and Allen &
Company Incorporated may be able to exert substantial influence over the outcome
of matters requiring stockholder approval.
INSURANCE REIMBURSEMENT
Successful commercialization of a new medical product, such as the
Prosorba column or Cyplex, platelet alternative, depends on reimbursement by
public and private health insurers to health care providers for use of such
products. Such reimbursement may not be available due to a variety of factors,
many of which could affect us as we commercialize use of the Prosorba column for
rheumatoid arthritis and continue the development and commercialization of
Cyplex, platelet alternative. We have generally been successful in assisting
health care providers in arranging reimbursement for the use of the Prosorba
column in the treatment of ITP. We cannot assure you, however, that public and
private insurers will continue to reimburse us for the use of the Prosorba
column in the treatment of ITP or in the treatment of any other disease
indications approved by the FDA. In addition, we do not know whether health care
providers will reimburse us for the use of Cyplex, platelet alternative.
PRODUCT LIABILITY FOR OUR PRODUCTS
The use of the Prosorba column and, if approved for use by the FDA,
Cyplex, platelet alternative, may result in adverse side effects to the
end-users that could expose us to product liability claims. We currently hold
product liability insurance of $15 million, which we believe is adequate in
light of our business. However, we cannot predict all the possible harms or side
effects that may result from treatment of patients with our products and
therefore, we cannot assure you that the amount of coverage we currently hold
will be adequate to protect us. We also cannot assure you that we will have
sufficient resources to pay any liability resulting from such a claim beyond our
insurance coverage.
POSSIBLE VOLATILITY OF OUR STOCK PRICE
Like other smaller-capitalization technology companies, our stock price has
fluctuated significantly at times and is subject to a risk of ongoing
volatility. The price of our shares may be adversely affected by our financial
performance or the performance of our competitors, the market for technology
company stocks, the market for small cap company stocks, general economic trends
or other factors that we cannot predict or control.
5.
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In addition, in connection with our acquisition of PRP, Inc. in November
1996, we must make a $5 million milestone payment to the former holders of
equity securities of PRP, Inc. when there is a public announcement of an FDA
approval letter relating to the use of Cyplex, platelet alternative, for the
treatment of thrombocytopenia. We have the option to make that payment in cash
or shares of our common stock. If we decide to make that payment in cash, a cash
payment of $5 million might have a material adverse effect on our financial
condition. If we decide to make that payment in common stock, the issuance of
additional shares of common stock with a value of $5 million might have a
significant impact on the market price of our common stock.
USE OF PROCEEDS
All net proceeds from the sale of the Cypress shares which are covered
by this prospectus will go to the selling stockholders who offer and sell their
shares. Cypress will not receive any proceeds from sales of Cypress shares by
the selling stockholders.
SELLING STOCKHOLDERS
Under a Stockholder Rights Agreement dated as of September 15, 1998
among Cypress and certain selling stockholders, we agreed to register the shares
of common stock issued on conversion of the Series A Convertible Preferred Stock
and to use our best efforts to keep the registration statement effective until
the earlier of:
- all securities have been sold under the registration
statement; or
- all securities have been sold under Rule 144.
Our registration of these Cypress shares does not necessarily mean that
the selling stockholders will sell all or any such shares.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned Prior to Shares Being Owned After
Offering(1) Percent(2) Offered Offering(1)(3)
----------- ------- ------- --------------
Name of Selling Stockholders Number Number Number
- ---------------------------- ------ ------ ------
<S> <C> <C> <C> <C>
Abbnuzzese, Anthony 95,666 * 66,666 29,000
Adler, Larry D. 30,000 * 30,000 0
Angell, Richard A. 66,667 * 66,667 0
Aries Domestic Fund, L.P. (4) 3,018,700(5) 7.6 173,333 2,845,367
Braziel, Ronald W. 210,000 * 100,000 110,000
Century Publishing Company 133,333 * 133,333 0
Clearwater Fund I, L.P. 200,000 * 200,000 0
Clearwater Offshore Fund Ltd. 973,900 2.5 400,000 573,900
Drobny, Irving 2,000 * 2,000 0
</TABLE>
6.
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<TABLE>
<CAPTION>
Shares
Beneficially Shares
Owned Beneficially
Prior to Shares Being Owned After
Offering(1) Percent(2) Offered Offering(1)(3)
----------- ------- ------- --------------
Name of Selling Stockholders Number Number Number
- ---------------------------- ------ ------ ------
<S> <C> <C> <C> <C>
Drueke, Paul Charles 61,000 * 33,000 28,000
Finkelstein, Jerry 13,333 * 13,333 0
Freedman, Rick M. 26,800 * 13,400 13,400
Goulding, Dr. Richard E. 60,291(6) * 26,666 33,625
Goulding, Randall S. 54,000(7) * 24,000 30,000
Hennessy, Paul E. 16,666 * 16,666 0
Higgins, James R., M.D. 91,666 * 66,666 25,000
Holland, James A. 20,000(8) * 15,000 5,000
Hyman Lezell Revocable Trust 39,000 * 34,000 5,000
Jerome P. Seiden, Trustee
of the Jerome P. Seiden
Revocable Trust Agreement
dated 4/22/83 33,333 * 33,333 0
Katzman, Marshall 31,750(9) * 13,000 18,750
Levine, Fred 10,000 * 10,000 0
Levitas, Doron 100,000 * 100,000 0
Lisenby, Sr., S. Alan 33,333 * 33,333 0
Michael T. Jackson Trust- New
Technologies Fund, Michael T.
Jackson TTEE 150,000 * 150,000 0
Morrongiello, John 82,666(10) * 66,666 16,000
Nagler, Steven B. 15,500(11) * 2,000 13,500
Nordruk Partners Investment
Co. Limited Partners 100,000 * 51,500 48,500
Paradigm Group, LLC 161,333 * 161,333 0
Rosin, Joseph A. 163,333 * 143,333 20,000
Samuel D. Anderson and
Mary Ann H. Anderson, Trustees
of the Samuel and Mary Ann
Anderson Trust Dated
March 22, 1979 100,000 * 100,000 0
Savino, Joseph E. 26,666 * 26,666 0
Schachter, Jerome 77,333 * 77,333 0
Schwartz, Sarah 38,650(12) * 25,000 13,650
Sheldon B. Cohen & Samuel
Spiro, as tenants in common 66,667 * 66,667 0
</TABLE>
7.
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<TABLE>
<CAPTION>
Shares Shares
Beneficially Beneficially
Owned Prior to Shares Being Owned After
Offering(1) Percent(2) Offered Offering(1)(3)
----------- ------- ------- --------------
Name of Selling Stockholders Number Number Number
- ---------------------------- ------ ------ ------
<S> <C> <C> <C> <C>
Shiman, Stewart A. 258,333(13) * 33,333 225,000
The Aries Trust 5,269,535(14) 13.3 493,334 4,776,201
Vulcano, Michael 18,000 * 18,000 0
Wierenga, Peter Douglas 135,000 * 34,000 101,000
Zerfass, Robb 10,000 * 10,000 0
</TABLE>
* Less than 1%
(1) Unless otherwise indicated below, the persons named in the table have
sole voting and investment power with respect to all shares
beneficially owned by them, subject to community property laws where
applicable.
(2) Applicable percentage of ownership is based on 39,447,397 shares of
common stock outstanding on October 27, 1998.
(3) Assumes the sale of all shares offered hereby.
(4) Paramount Capital Asset Management, Inc. ("PCAM") is the investment
manager of the Aries Fund, a Cayman Island Trust (the "Trust") and the
general partner of Aries Domestic Fund, L.P. (the "Partnership" and
collectively with the Trust, the "Aries Funds"). Lindsay A. Rosenwald,
M.D. is the President and sole shareholder of PCAM. Dr. Rosenwald and
PCAM share voting and dispositive power with respect to the shares held
by the Aries Funds. Dr. Rosenwald and PCAM disclaim beneficial
ownership of the shares held by the Aries Funds except to the extent of
their pecuniary interest therein, if any.
(5) Includes warrants to purchase 37,500 shares of our common stock.
(6) Includes warrants to purchase 3,625 shares of our common stock.
(7) Includes warrants to purchase 30,000 shares of our common stock.
(8) Mr. Holland's brother-in-law is Samuel D. Anderson, a member of our
board of directors.
(9) Includes warrants to purchase 6,250 shares of our common stock.
(10) Includes warrants to purchase 5,000 shares of our common stock.
(11) Includes warrants to purchase 6,250 shares of our common stock.
(12) Includes warrants to purchase 6,250 shares of our common stock.
(13) Includes warrants to purchase 75,000 shares of our common stock.
(14) Includes warrants to purchase 87,500 shares of our common stock.
8.
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PLAN OF DISTRIBUTION
The selling stockholders may offer their Cypress shares at various
times in one or more of the following transactions:
- on the Nasdaq SmallCap Market;
- in the over-the-counter market;
- in negotiated transactions other than the Nasdaq SmallCap
Market or the over-the-counter market;
- in connection with short sales of the Cypress shares;
- by pledge to secure debts and other obligations;
- in connection with the writing of call options, in hedge
transactions and in settlement of other transactions in
standardized or over-the-counter options; or
- in a combination of any of the above transactions.
The selling stockholders may sell their shares at market prices at the
time of sale, at prices related to such prevailing market prices, at negotiated
or at fixed prices.
The selling stockholders may use broker-dealers to sell their shares.
If this happens, broker-dealers will either receive discounts or commissions
from the selling stockholders, or they will receive commissions from purchasers
for whom they acted as agents.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy the documents we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from the SEC's website at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities and Exchange Act of 1934:
1. Annual report on Form 10-K for the fiscal year ended December
31, 1997;
2. Quarterly report on Form 10-Q for the quarter ended March 31,
1998;
3. Quarterly report on Form 10-Q for the quarter ended June 30,
1998; and
4. Current report on Form 8-K/A dated April 16, 1998.
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You may request a copy of these filings, at no cost, by writing the
Company at the following address:
Cypress Bioscience, Inc.
Attn: Investor Relations
4350 Executive Drive, Suite 325
San Diego, CA 92121
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DESCRIPTION OF CAPITAL STOCK
GENERAL
As of the date of this prospectus, our Certificate of Incorporation
authorizes us to issue 60,000,000 shares of common stock and 15,000,000 shares
of preferred stock, including 3,333,333 shares of Series A Convertible Preferred
Stock. As of October 27, 1998, 39,447,397 shares of common stock and 3,063,561
shares of Series A Convertible were outstanding. The Board of Directors may
issue shares of the preferred stock at any time, in one or more series without
stockholder approval. The Board of Directors determines the designation,
relative rights, preferences and limitations of each series of preferred stock.
COMMON STOCK AND PREFERRED STOCK
Each share of Series A Convertible Preferred has a liquidation
preference of $1.50 per share plus unpaid dividends. Each share of Series A
Convertible Preferred is entitled to any dividends that are declared on the
common stock. Our common stockholders and our preferred stockholders have the
right to receive dividends that our Board of Directors declares in the form of
cash, securities or property.
The Series A Convertible Preferred Stock is not redeemable. The
holders may convert each share of Series A Convertible Preferred Stock into one
share of common stock (subject to anti-dilution adjustments). In addition, if
the price per share in the Company's next equity financing in which the Company
receives aggregate proceeds of at least $7,500,000 (the "Qualified Subsequent
Financing") is less than the applicable conversion price of the Series A
Convertible Preferred Stock, the conversion price will be adjusted to equal the
per share price paid in the Qualified Subsequent Financing.
Common stockholders have the right to vote one vote per share on all
matters that require their vote. This could change if we amend our charter
documents. Holders of Series A Convertible Preferred Stock are entitled to one
vote for each share of preferred and vote together with common stock on all
matters submitted to the common stockholders.
WARRANTS
As of October 27, 1998 there were warrants outstanding to purchase up
to 2,724,149 shares of our common stock at an exercise price of $2.00 per
share, the warrants were registered under the Securities Act. The warrants were
issued in October and November 1996 as a part of a "Unit," which was two shares
of our common stock and one warrant to purchase one share of our common stock.
The warrants were issued in registered form under a Warrant Agreement, dated as
of September 18, 1996 between the Company and American Stock Transfer and Trust
Company, who agreed to serve as the warrant agent for the warrants.
Under certain circumstances, all or any portion of the warrants are
redeemable, in whole or in part, at our option at a redemption price of $0.10
per warrant. If we attempt to redeem any warrants, the warrant may be exercised
until the close of business on the fifth business day preceding the day on which
we call for the redemption, the day on which we call for the redemption will be
specified in a notice of redemption.
The warrants are fully exercisable as of the date of this Prospectus
and will generally expire on October 1, 2001, unless exercised earlier.
COMPENSATION WARRANTS
As of October 27, 1998, there were warrants outstanding to purchase
154,000 shares of our common stock at an exercise price of $1.875 per share. We
originally issued these warrants to our directors, officers, employees and
consultants as compensation for their services (the
11.
<PAGE> 12
"Compensation Warrants"). The Compensation Warrants are fully exercisable as of
the date of this Prospectus and will generally expire in June 2001, unless they
are exercised earlier.
We are obligated to register the shares of common stock underlying the
Compensation Warrants. We will try to keep any such registration statement and
prospectus filed with the SEC to register the Compensation Warrants effective
for the life of the Compensation Warrants. We agreed to pay all the expenses of
registration of the shares underlying the Compensation Warrants.
OTHER WARRANTS
As of October 27, 1998, there were warrants outstanding to purchase
300,000 shares of our common stock at an exercise price of $2.875 per share,
which we originally issued in April 1994 to Allen & Company Incorporated as a
placement agent fee in connection with a private placement of 7% Convertible
Debentures. Such warrants are fully exercisable as of the date of this
prospectus and will expire in April 1999 unless they are exercised earlier. In
addition, as of October 27, 1998, Allen & Company Incorporated held an
additional warrant to purchase 125,000 shares of our common stock at an exercise
price of $2.00 per share. These warrants, which were acquired by Allen & Company
Incorporated in connection with our October 1996 private placement of Units,
are fully exercisable as of the date of this prospectus and generally expire
October 2001, unless exercised earlier.
As of October 27, 1998, there were outstanding warrants to purchase
150,000 shares of our common stock at a weighted average price of $2.27 per
share. The warrants were issued in November 1996 to certain or our consultants
in exchange for consulting services. Such warrants are exercisable as of the
date of this prospectus and expire November 2001, unless exercised earlier.
LEGAL MATTERS
For purposes of this offering, Cooley Godward LLP, San Diego,
California, is giving its opinion on the validity of the shares.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997 incorporated herein by reference from the Company's Annual Report
(Form 10-K) have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
12.
