As filed with the Securities and Exchange Commission on April 25, 1996
Registration No. 333-827
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT #2
FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------------
EDITEK, INC.
(Exact name of registrant as specified in its charter)
Delaware 8071 95-3863205
(State of (Primary Standard Industrial (I.R.S Employer
incorporation) Classification Code Number) Identification No.)
1238 Anthony Road
Burlington, North Carolina 27215
(910) 226-6311
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
Peter J. Heath
Vice President of Finance and Copies to:
Chief Financial Officer James Verdonik
EDITEK, INC. Petree Stockton, L.L.P.
1238 Anthony Road 4101 Lake Boone Trail
Burlington, North Carolina 27215 Raleigh, NC 27607
(910) 226-6311 (919) 420-1700
(Name, address, including zip code,
and telephone number, including area
code, of agent for service)
Approximate date of commencement of proposed sale to public: From time
to time after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [ X ]
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CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of each maximum maximum
class of Amount offering aggregate Amount of
securities to to be price per offering registration
be registered registered share price fee
- ------------- ---------- ------------ ---------- -------
Common Stock,
par value $.15
per share 11,478,193 $3.50 (1) $40,173,675 (1) $13,851.88 (2)
Common Stock,
par value $.15
per share 320,000 $1.00 (3) $ 320,000 (3) $ 110.40
(1) Estimated solely for purposes of calculating the registration fee
based upon the closing price reported on the American Stock Exchange on February
6, 1996.
(2) Previously paid.
(3) Estimate solely for purposes of calculating the registration fee
based upon the closing price reported on the American Stock Exchange on April
19, 1996.
The Registrant hereby amends the Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
of the Securities Act of 1933, may determine.
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EDITEK, INC.
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Item Number and Caption Heading in Prospectus
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus Front Page of Registration
Statement; Front Cover
Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus Second Page of Prospectus;
Back Cover Page of
Prospectus
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges Risk Factors
4. Use of Proceeds N/A
5. Determination of Offering
Price Front Cover Page of
Prospectus
6. Dilution N/A
7. Selling Shareholders Selling Shareholders
8. Plan of Distribution Front Cover Page of
Prospectus;
Plan of Distribution
9. Description of Securities
to be Registered Outstanding Shares
10. Interests of Named Experts
and Counsel Legal Matters; Experts
11. Material Changes Recent Developments
12. Incorporation of Certain
Information by Reference Incorporation of Certain
Information by Reference
13. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities N/A
<PAGE>
PROSPECTUS DATED APRIL 25, 1996
SUBJECT TO COMPLETION
11,798,193 SHARES OF COMMON STOCK
This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
EDITEK, INC.
This Prospectus relates to an aggregate total of 11,798,193 shares of
Common Stock, par value $.15 per share (the "Common Stock") of EDITEK, Inc. (the
"Company" or "EDITEK"), which number of shares includes (i) 2,517,306 shares
issued to MLI Dissolution, Inc., ("MLI") formerly MEDTOX Laboratories, Inc.
pursuant to an Asset Purchase Agreement between the Company and MLI (the "MEDTOX
Agreement"), (ii) 235,295 shares sold to Dr. Harry McCoy, a MEDTOX shareholder,
in a transaction immediately after the Company's acquisition of MEDTOX, (iii) a
minimum of 1,873,873 shares which are issuable to the holders of 104 shares of
the Company's Series A Convertible Preferred Stock (the "Series A Preferred
Stock") upon conversion of the Series A Preferred Stock (the "Conversion
Shares"), and (iv) up to 6,265,052 shares which may be issued in certain
circumstances to the MEDTOX shareholders and the holders of the 104 shares of
Series A Preferred Stock held by Selling Shareholders ("Price Protection
Shares"). This Prospectus also relates to 906,667 shares of Common Stock
issuable upon the exercise of warrants issued as compensation for the sale
of securities (the "Investment Banker Warrants"). The MEDTOX shareholders,
Dr. Harry McCoy, the holders of 104 shares of Series A Preferred Stock, and
the holders of Investment Banker Warrants are hereinafter referred to as
the "Selling Shareholders." See "Plan of Distribution", "Selling Shareholders"
and "Number of Shares of Common Stock." The securities offered hereby (the
"Shares") are to be offered on account of the Selling Shareholders.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE CONSIDERED ONLY
BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK
FACTORS".
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.
Price to Proceeds to Company
Public Discounts or other Persons
Per Share (1) (2) (3)
Total Maximum (4) (1) (2) (3)
(1) The Selling Shareholders may from time to time affect the sale of their
Shares at prices and at terms then prevailing or at prices related to
the then-current market price. The Common Stock of the Company is
traded on the American Stock Exchange under the symbol "EDI". On April
19, 1996, the closing price of the Common Stock as reported by the
American Stock Exchange was $1.00 per share.
(2) The Selling Shareholders may pay regular brokers' commissions in
cash at the time(s) of the sale of their Shares.
(3) The Company will not receive any proceeds from the sales of the Shares
to which this Prospectus relates. The Selling Shareholders will receive
proceeds based on the market price of the Shares at the time(s) of
sale. The Company will, however, receive $2.83 per share upon the
exercise of the Investment Banker Warrants.
(4) Without deduction of expenses for the offering (all of which will be
borne by the Company), estimated to be approximately $28,000.
The date of this Prospectus is April 25, 1996
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(Inside front cover page of Prospectus)
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at its Regional Offices located at 75
Park Place, New York, New York 10007, and the John C. Kluczynski Federal
Building, 230 South Dearborn Street, Chicago, Illinois 60604. Copies of such
material can be obtained from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 upon request and
payment of the prescribed fee.
The Company's Common Stock is listed on the American Stock Exchange
(the "AMEX"), and reports, proxy statements and other information filed by the
Company can be inspected at such exchange.
The Company has filed with the Commission in Washington, D.C., a
Registration Statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the registration of the securities offered
hereby. This Prospectus omits certain of the information contained in the
Registration Statement, of which this Prospectus is a part. Statements contained
herein concerning the provisions of any documents are not necessarily complete
and, in each instance, reference is made to the copy of such document filed as
an exhibit to the Registration Statement. Each such statement is qualified in
its entirety by such reference. Items of information omitted from this
Prospectus but contained in the Registration Statement may be obtained from the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
upon request and payment of the prescribed fee.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, each of which was previously filed by the
Company with the Commission pursuant to Section 13 of the Exchange Act, are
incorporated herein by reference:
a. The Company's Proxy Statement dated September 25,
1995.
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b. The Company's Report on Form 10-K for the fiscal year
ended December 31, 1995.
c. The Company's Report on Form 8-K dated January 30,
1996.
d. The Company's Report on Form 8-K dated March 5, 1996.
e. Description of the Common Stock contained under the
caption "Description of Registrant's Securities to be
Registered" in the Company's Registration Statement on
Form 8-A filed pursuant to Section 12(g) of the Exchange Act.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering made hereby shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of the
filing of such reports and documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein or in any
accompanying Prospectus Supplement modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a
Prospectus is delivered upon written or oral request of each person, a copy of
any documents incorporated herein by reference (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference into
the documents that this Prospectus incorporates). Requests for such copies
should be directed to EDITEK, Inc., Attention: Secretary, 1238 Anthony Road,
Burlington, North Carolina 27215, (910) 226-6311.
CAUTIONARY STATEMENT IDENTIFYING IMPORTANT
FACTORS THAT COULD CAUSE THE COMPANY'S
ACTUAL RESULTS TO DIFFER FROM THOSE PROJECTED
IN FORWARD LOOKING STATEMENTS
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, readers of this document and any
document incorporated by reference herein, are advised that this document and
documents incorporated by reference into this document contain both statements
of historical facts and forward looking statements. Forward looking statements
are subject to certain risks and uncertainties, which could cause actual results
to differ materially from those indicated by the forward looking statements.
Examples of forward looking statements include, but are not limited to (i)
projections of revenues, income or loss, earning or loss per share, capital
expenditures, dividends, capital structure and other financial items, (ii)
statements of the plans and objectives of the Company or its management or
Board of Directors, including the introduction of new products, or estimates
or predictions of actions by customers, suppliers, competitors or regulatory
authorities, (iii) statements of future economic performance, and (iv)
statements of assumptions underlying other statements and statements about the
Company or its business.
This document and any document incorporated by reference herein also
identify important factors which could cause actual results to differ
materially from those indicated by the forward looking statements. These risks
and uncertainties include price competition, the decisions of customers, the
actions of competitors, the effects of government regulation, possible delays
in the introduction of new products, customer acceptance of products and
services, the possible effects of the MEDTOX acquisition and its related
financings and other factors which are described herein and/or in documents
incorporated by reference herein.
The cautionary statements made pursuant to the Private Litigation
Securities Reform Act of 1995 above and elsewhere by the Company should not
be construed as exhaustive or as any admission regarding the adequacy of
disclosures made by the Company prior to the effective date of such Act. Forward
looking statements are beyond the ability of the Company to control and in many
cases the Company cannot predict what factors would cause results to differ
materially from those indicated by the forward looking statements.
RISK FACTORS
An investment in the Common Stock is speculative and involves a high
degree of risk. Investors should carefully consider the following factors, among
others, before investing in the Common Stock.
1. Dependence on Sales of Equity. As of December 31, 1995, the Company
had not achieved a positive cash flow from operations. Accordingly, the Company
relies on available credit arrangements, outside funding of research and
development and continued sales of its equity securities to fund operations
until a positive cash flow can be achieved. From January 1, 1991 through
December 31, 1995, the Company raised approximately $12 million
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from equity financing and issued 6,058,699 shares of the Company's Common Stock
for an average price of $1.98 per share, all of which were issued at a discount
to the market value of the Company's Common Stock. In order to finance the
acquisition of MEDTOX, pay applicable costs and expenses and to provide working
capital, the Company raised approximately $20 million from the sale of the
Preferred Stock and Common Stock. This amount and the amount borrowed, as
described below, have allowed the Company to consummate the MEDTOX acquisition
and the Company believes should provide enough working capital to help the
Company achieve positive cash flow. If the Company is unable to achieve a
positive cash flow, additional financing will be required. There can be no
assurance that additional financing can be obtained or if obtained, that the
terms will be favorable to the Company.
2. Operating Losses; Uncertainty of Sales Growth and Market Acceptance
of Products. From its inception in June 1983 through December 31, 1995, the
Company accumulated a deficit from operations of approximately $34 million. The
Company currently derives approximately 57% of its revenue from the sale of its
Laboratory Testing Services and approximately 15% of its revenue from the sale
of Substance of Abuse Testing Products. The markets for Laboratory Testing
Services and Substance of Abuse Testing Products are extremely competitive. The
Company's ability to finance its operations and to achieve profitability will
depend, in large part, upon the Company's ability to increase the sales volume
of its current on-site products and laboratory services and to achieve cost
savings by integrating MEDTOX and the Company's existing laboratory operations,
as well as the ability to develop, introduce and successfully market new VERDICT
and EZ-SCREEN on-site test kits. Market acceptance of new products and the
ability to increase sales volume of current products and services generally
requires substantial time and effort. There can be no assurance that the Company
and its products and services will compete effectively against other diagnostic
testing methods that now exist, or may be developed by others, or that the
Company will achieve profitability and there can be no assurance of savings from
the integration of laboratory operations. (See "Risk Factors - Obsolescence and
Technological Change" and "Risk Factors - Government Regulation").
3. Debt Service; Debt Seniority; No Dividends. To finance the
acquisition of MEDTOX and to provide working capital the Company borrowed $5
million in January, 1996. The debt financing consists of two term loans totaling
$4 million and up to $7 million in the form of a revolving line of credit based
on the receivables of the Company (the "Loan Agreement"). The amount of credit
available to the Company varies with the accounts receivable and the inventory
of the Company. On January 30, 1996, the receivables and inventory amounts made
$2.9 million of the credit facility available. The two term loans of $2 million
each have interest rates of 2.5% above prime rate and 2.0% above prime rate
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respectively. The revolving line of credit has an interest rate equal to 1.5%
above prime rate. There can be no assurance that the Company will have
sufficient revenues to service payments of principal and interest on this
indebtedness. Failure to service this indebtedness would have a material adverse
effect on the Company. The indebtedness of the Company will be senior to the
Series A Preferred Stock and shares of Common Stock upon liquidation of the
Company. Interest payments on the indebtedness may cause there to be
insufficient cash to pay any dividends. In addition, the loan amount and the
line of credit agreement contain covenants that restrict the Company's ability
to pay dividends even if the Company has cash available from which to pay
dividends. See "Number of Shares of Common Stock - Debt Financing."
4. Unexpected Effects of Merger(s). The Company completed the
acquisition of the MEDTOX assets on January 30, 1996 (the "Closing Date"). The
Company also acquired the assets and operations of Bioman Products, Inc. on June
1, 1995. The Company anticipates that certain synergism will arise between the
Company and Bioman and MEDTOX. In February 1994, the Company acquired Princeton
Diagnostic Laboratories of America, Inc. ("PDLA"). In connection with the
acquisition of MEDTOX, the Company determined that it would be beneficial to
consolidate the laboratory operations of PDLA into the laboratory operations of
MEDTOX. There can be no assurance that any synergism will arise from the recent
acquisitions and the associated laboratory consolidation. The efforts required
to integrate the business of the Company with other operations may have a
material adverse effect on the operations of either the Company or the acquired
company(s).
5. Adverse Effect on Market Price of Future Sales of the Company Stock.
A substantial number of shares of stock of the Company have been issued in
transactions that are exempt from registration under the Securities Act of 1933,
as amended, either in private placements or pursuant to Regulation S, see "Risk
Factors - Dependence on Sales of Equity."
In addition to the shares of Common Stock covered by this Prospectus,
on January 30, 1996 and February 2, 1996, the Company sold 303 shares of Series
A Preferred Stock utilizing the exemption afforded by Regulation S of the
Commission (the "Offshore Offering"), which shares are convertible into a
minimum of 5,459,459 shares of Common Stock and may be convertible into more
shares of Common Stock if the market price of the Common Stock of the Company is
less than $3.70 per share on the conversion dates. As of April 19, 1996, the
market price of the Common Stock was $1.00 per share at which price the 303
shares of Series A Preferred Stock would be convertible into 20,200,000 shares
of Common Stock, based on a conversion price of $.75 per share or a 25% discount
to the market price on April 19, 1996.
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Regulation S provides generally that offers or sales that occur outside
the United States and in compliance with the requirements thereof are not
subject to the registration requirements of the Act. Subject to certain
restrictions and conditions set forth therein, Regulation S is available for
offers and sales to investors that are not U.S. persons. Such offshore investors
who purchase the shares of Series A Preferred Stock in the Offshore Offering
pursuant to Regulation S are not permitted to transfer such shares or Conversion
Shares to a U.S. Person (defined generally as a resident of the U.S. or an
entity organized under the laws of the U.S.) for a period of at least 40 days
after February 2, 1996, the closing of the Offshore Offering (the "Restricted
Period"). Resales to buyers who are not U.S. persons are permitted at any time.
After the expiration of the Restricted Period, investors who purchased
shares of Series A Preferred Stock in the Offshore Offering may sell such shares
or Conversion Shares in the U.S., but only if such shares are registered or an
exemption from registration is available. Accordingly, beginning on March 30,
1996 (the first day any investor was able to convert shares of Series A
Preferred Stock into shares of Common Stock), to the extent that any offshore
investors have converted their shares of Series A Preferred Stock into Common
Stock, such offshore investors are able to sell such Common Stock in the U.S.
if the shares are registered or an exemption is available. As of April 19, 1996,
the Company had received conversion notices for 57 shares of Series A Preferred,
which resulted in the issuance of 2,398,730 shares of Common stock.
Sales of Conversion Shares for such offshore investors must be made
in compliance with an exemption from registration. The agreements between the
Company and offshore investors provide that the stock certificates will not
contain restrictive securities legends. Consequently, if the Company complies
with these agreements, the Company would not be able to prevent illegal
resales of Series A Preferred Stock or Conversion Shares by offshore investors
and each offshore investor will make its own determination whether such sales
qualify for exemptions from registration. On March 27, 1996 the Company
determined it would place legends on Common Stock certificates to assure
that all resales of securities are made in compliance with applicable
securities laws. Since that date, the Company has been in discussion with
Preferred shareholders about whether the Common Stock should be legended.
In part to avoid protracted litigation from Preferred shareholders and in
part in reliance on the cooperation of Preferred shareholders who have
reaffirmed their intention to comply with securities laws on all resales,
the Company has begun to issue Common Stock certificates without legends.
The Company will seek to work with its Preferred shareholders to assure
compliance with securities laws on resales. The Company intends to monitor
trading in its stock closely, but notwithstanding that the Preferred
shareholders sell only pursuant to an available exemption, there can be
no assurance that the trading activities on their transferees will not result
in decreases in the market price of the Company's Common Stock. The Company
is continuing to discuss issues related to conversion with its Preferred
shareholders and may offer registration rights and/or other rights to
Preferred shareholders as an inducement to delay conversion.
There can be no assurance the issues related to resale of the Common
Stock of the Company issued pursuant to Regulation S will not have a material
adverse affect on the Company, including the ability of the Company to raise
additional capital in the future.
If substantial sales of the Company's Common Stock occur, whether by
the investors in the Offshore Offering or by U.S. investors pursuant to this
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Prospectus or otherwise, such sales could have a material adverse effect on the
market price of the Company's Common Stock.
6. Adverse Effect of Price Protection Provisions. The number of shares
of Common Stock issuable upon conversion of a share of Series A Preferred Stock
will equal the number derived by dividing (i) the purchase price of the Series A
Preferred Stock ($50,000 per share) by (ii) the lower of (x) $2.775 or (y) 75%
of the Market Price of the Common Stock on the day the shares of Series A
Preferred Stock are converted into Common Stock. "Market Price" is defined for
this purpose as the daily average of the closing bid prices quoted on the
American Stock Exchange or other exchange on which the Common Stock is traded
for the five trading days immediately preceding the date the shares are
converted. Accordingly, a minimum of 7,333,333 shares of Common Stock are
issuable upon conversion of the 407 shares of Series A Preferred Stock sold in
both the U.S. Offering and the Offshore Offering, but the actual number of
shares of Common Stock issuable upon conversion of the Series A Preferred Stock
will not be known until the time of issuance of the shares of Common Stock upon
conversion. As of April 19, 1996, the market price of the Common Stock was $1.00
per share at which price the 407 shares of Series A Preferred Stock would be
convertible into 27,133,333 shares of Common Stock, based on a conversion price
of $.75 per share or a 25% discount to the market price on April 19, 1996.
The MEDTOX Asset Purchase Agreement provides that, if after the Closing
Date the market value of the Common Stock of the Company declines below $1.986
per share during four specified periods (the "Repricing Periods") following
press releases by the Company, the Company will issue additional shares of
Common Stock ("Additional Shares") to shareholders of MEDTOX who retain their
shares of Common Stock through four specified dates (the "Repricing Dates") to
compensate the MEDTOX shareholders for decreases after the closing of the MEDTOX
acquisition in the market price of the Common Stock of the Company below $1.986
per share. The Repricing Dates are the fifth trading day following the date the
Registrant issues press releases announcing its financial performance for the
fiscal quarters ending on March 31, 1996, September 30, 1996 and September 30,
1997 and the fiscal year ending on December 31, 1996 and the Repricing Periods
are the dates between the dates of the press releases and the Repricing Dates.
Accordingly, the number of Additional Shares issuable in the future in
connection with the MEDTOX acquisition cannot be determined at this time and
will depend upon changes in the market price of the Common Stock, as well as the
extent to which MEDTOX shareholders retain the MEDTOX shares on each of the
Repricing Dates. However, if all MEDTOX shares are retained on the Repricing
Dates, an aggregate of 2,466,959 additional shares would be issuable based on
the April 19, 1996 market price of $1.00 per share.
The price protection provisions of the Series A Preferred Stock and the
MEDTOX shareholders could result in the Company being required to issue
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more shares of Common Stock than the Company is authorized to issue. The
Company's Certificate of Incorporation currently authorizes the issuance of
30,000,000 shares of Common Stock, of which 15,592,798 shares are currently
issued and outstanding. 1,736,133 shares of Common Stock are issuable pursuant
to outstanding stock options, stock purchase plans and warrants. If the
remaining outstanding shares of the Series A Preferred Stock were to be
converted at a 25% discount from the $1.00 per share market price of the
Company's Common Stock on April 19, 1996, 23,333,333 shares of Common
Stock would be issuable upon conversion of the Series A Preferred Stock.
Accordingly, if all the remaining Series A Preferred Shares are converted at
these prices, the Company would not have enough shares to issue to all of the
preferred shareholders and for future use. The Company's Certificate of
Incorporation also authorizes the issuance of 1,000,000 shares of Preferred
Stock for which the Board of Directors has the power to designate the rights
and preferences, of which only 350 shares are issued and outstanding. The
Company intends to hold a special shareholders meeting to amend the
Certificate of Incorporation of the Company to increase the number of
authorized shares of Common Stock of the Company, which additional shares
would be available to satisfy the price protection provisions of the Series A
Preferred Stock and the MEDTOX shareholders and for other corporate purposes.
At such time as additional shares are authorized, the Company will be
obligated to file a Registration Statement covering additional "Price
Protection Shares" based on the number of shares issuable to the MEDTOX
shareholders and Series A Preferred Stockholders at current market prices.
The price protection provisions of the Series A Preferred Stock are
transferred upon any transfer of the Series A Preferred Stock, but terminate
upon conversion of the Series A Preferred Stock. The price protection afforded
the MEDTOX shareholders terminates upon transfer of the Common Stock issued to
MEDTOX shareholders.
Other shareholders of the Company do not have the price protection
afforded holders of Series A Preferred Stock and the MEDTOX shareholders.
Accordingly, if the market price of the Common Stock of the Company declines,
the interests in the Company's other shareholders will be diluted by the price
protection provisions afforded holders of Series A Preferred Stock and the
MEDTOX shareholders. Substantial sales of shares of Common Stock by the MEDTOX
shareholders or purchasers of Series A Preferred Stock or other shareholders may
have a material adverse effect on the market price of the Common Stock of the
Company, which would increase the number of Additional Shares issuable to MEDTOX
shareholders on the Repricing Dates and the number of shares of Common Stock
issuable upon conversion of the Series A Preferred Stock.
7. Obsolescence and Technological Change. Modern biotechnology has
undergone, and continues to undergo, rapid and significant technological change.
The Company requires adequate financial resources in order to maintain a
competitive position with respect to its technology and to continue to attract
and retain qualified technical personnel. These financial resources may be
unavailable. The Company concentrates its research and development resources on
those products which it believes will generate the most revenue
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most quickly. There can be no assurance, however, that future technological
developments will not render existing or proposed products of the Company
uneconomical or obsolete.
8. Competition.
Laboratory Services. Competition in the area of drugs of
abuse testing is intense. Competitors and potential competitors include forensic
testing units of large clinical laboratories, such as Laboratory Corporation of
America Holdings, Corning/Metpath Laboratories and SmithKline Laboratories, Inc.
and other independent laboratories, other specialized laboratories, and in-house
testing facilities maintained by hospitals.
Competitive factors include reliability and accuracy of tests,
price structure, service, transportation collection networks and the ability to
establish relationships with hospitals, physicians, and users of drug abuse
testing programs. It should be recognized, however, that many of the competitors
and potential competitors have substantially greater financial and other
resources than the Company.
The industry in which the Company competes is characterized by
service issues including, turn-around time of reporting results, price, the
quality and reliability of results, and an absence of patent or other
proprietary protection. In addition, since tests performed by the Company are
not protected by patents or other proprietary rights, any of these tests could
be performed by competitors. However, there are proprietary assay protocols for
the more specialized testing that are unique to the Company.
Some specific segments of the laboratory testing business are
price competitive with low margins. Other segments, which place a premium on
quality, constitute a large part of the business of MEDTOX, where, to date,
quality service has been a more important competitive factor than price. This
has allowed MEDTOX to generate positive gross margins and operating income. The
Company's ability to successfully compete in the future and maintain it margins
will be based on its ability to maintain its quality and customer service
strength while maintaining efficiencies and low cost operations. There can be no
assurance that price competitiveness will not increase in importance as a
competitive factor in the business of MEDTOX.
Immunoassay Tests. The diagnostics market has become highly
competitive with respect to the price, quality and ease of use of various tests
and is characterized by rapid technological and regulatory changes. The Company
has designed its on-site tests as inexpensive, on-site tests for use by
unskilled personnel, and has not endeavored to compete with laboratory-based
systems. Numerous large companies with greater research and development,
marketing, financial, and other capabilities, as well as government-funded
institutions and smaller research firms, are engaged in research, development
and marketing of diagnostic assays for application in the areas for which the
Company produces its products.
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The Company has experienced increased competition with respect
to its immunoassay tests from systems and products developed by others, many of
whom compete solely on price. As the number of firms marketing diagnostic tests
has grown, the Company has experienced increased price competition. A further
increase in competition may have a material adverse effect on the business and
future financial prospects of the Company.
9. Inadequacy of Patents and Proprietary Information Protection. The
Company holds nine issued United States patents of which eight of these patents
generally form the basis for the EZ-SCREEN and one-step technologies.
Additionally, the Company has one patent that relates to methods of utilizing
whole blood as a sample medium on its immunoassay devices. The Company also
holds various patents in several foreign countries. The Company also holds two
United States patents which it acquired in the acquisition of Granite
Technological Enterprises, Inc. in 1986.
Of the eight U.S. patents mentioned above, which generally
form the basis for the EZ-SCREEN and one-step technologies, one expires in 2000,
one expires in 2004, five expire in 2007, and one expires in 2010. The patent
which relates to the methods of utilizing whole blood as a sample medium expires
in 2012.
There can be no guarantee that there will not be a challenge
to the validity of the patents. In the event of such a challenge, the Company
might be required to spend significant funds to defend its patents, and there
can be no assurance that the Company would be successful in any such action.
The Company holds twelve registered trade names and/or
trademarks in reference to its products and corporate names. The trade names
and/or trademarks of the Company range in duration from ten to twenty years with
expiration dates from 2001 to 2008. Additionally, applications have been made
for additional trade names.
The Company believes that the basic technologies requisite to
the production of antibodies are in the public domain and are not patentable.
The Company intends to rely upon trade secret protection of certain proprietary
information, rather than patents, where it believes disclosure could cause the
Company to be vulnerable to competitors who could successfully replicate the
Company's production and manufacturing techniques and processes.
10. Government Regulation. The products and services of the
Company are subject to the regulations of a number of governmental agencies as
listed below. It is believed that the Company is currently in compliance with
all
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regulatory authorities. The Company cannot predict whether future changes in
governmental regulations might significantly increase compliance costs or
adversely affect the time or cost required to develop and introduce new
products. In addition, products of the Company are or may become subject to
foreign regulations.
a. United States Food and Drug Administration
(FDA). Certain tests that will be administered to humans must be cleared by
the FDA prior to their marketing for in vitro diagnostic use in the United
States. The FDA regulated products produced by the Company are in vitro
diagnostic products subject to FDA clearance through the 510(k) process
which requires the submission of information and data to the FDA that
demonstrates that the device to be marketed is substantially equivalent to a
currently marketed device. This data is generated by performing clinical
studies comparing the results obtained using the Company's device to those
obtained using an existing test product. Although no maximum statutory
response time has been set for review of a 510(k) submission as a matter of
policy the FDA has attempted to complete review of 510(k) submissions within
90 days. To date, the Company has received 510(k) clearance for 10 different
products and the average time for clearance was 58 days with a maximum of
141 days and a minimum of 20 days. Products subject to 510(k) regulations may
not be marketed for in vitro diagnostic use until the FDA issues a letter
stating that a finding of substantial equivalence has been made. There is no
assurance that the Company will obtain FDA approval on a timely basis for
future 510(k) submissions and failure to receive approval may have a material
adverse effect on the Company's business, financial condition and operations.
As a registered manufacturer of FDA regulated products, the Company is
subject to a variety of FDA regulations including the Good Manufacturing
Practices (GMP) regulations which define the conditions under which FDA
regulated products are to be produced. These regulations are enforced by FDA and
failure to comply with GMP or other FDA regulations can result in the delay of
premarket product reviews, fines, civil penalties, recall, seizures, injunctions
and criminal prosecution. FDA's regulatory requirements and related enforcement
activities may have a material adverse effect on the Company's business,
financial condition and operations.
b. Health Care Financing Administration (HCFA). The Clinical
Laboratory Improvement Act (CLIA) introduced in 1992 requires that all in vitro
diagnostic products be categorized as to level of complexity. A request for CLIA
categorization of any new clinical laboratory test system must be made
simultaneously with FDA 510(k) submission. The complexity category to which a
clinical laboratory test system is assigned may limit the number of laboratories
qualified to use the test system thus impacting product sales. The IN VITRO
diagnostic products manufactured and/or sold by EDITEK have been categorized
as moderately complex, which permits use of the products in both physician
offices and clinical laboratories which meet certain quality control and
personnel standards.
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c. United States Department of Agriculture (USDA). The
Company's animal facilities are subject to and comply with applicable
regulations of the USDA. The livestock related products of the Company may
become subject to state regulation but the Company does not anticipate any
difficulties in complying with these regulations, if enacted.
d. United States Department of Defense (DOD). With
reclassification of the Company's contract with the DOD from UNCLASSIFIED to
SECRET, it has been necessary to establish the appropriate security procedures
and facilities, including designation of a Facility Security Officer who is
responsible for overseeing the security system, including conduct of periodic
security audits by appropriate defense agencies. Additionally, the Company is
now subject to periodic audits of its accounting systems and records by the
Defense Audit Agency.
e. Drug Enforcement Administration (DEA). The primary business
of the Company involves either testing for drugs of abuse or developing test
kits for the detection of drugs/drug metabolites in urine. PDLA and MEDTOX
laboratories are registered with the DEA to conduct chemical analyses with
controlled substances. The EDITEK facility is registered by the DEA to
manufacture and distribute controlled substances and to conduct research with
controlled substances. Maintenance of these registrations requires that the
Company comply with applicable DEA regulations. Failure of the Company to
maintain the required DEA registrations would have a material adverse effect on
the Company's ability to develop and produce drug test kits or to provide
laboratory testing services thus adversely effecting the Company's business and
financial condition.
f. Substance Abuse and Mental Health Services Administration
(SAMHSA). Both PDLA and MEDTOX laboratories are certified by SAMHSA, PDLA since
1989 and MEDTOX since 1988. SAMHSA certifies laboratories meeting strict
standards under Subpart C of Mandatory Guidelines for Federal Workplace Drug
Testing Programs. Continued certification is accomplished through periodic
inspection by SAMHSA to assure compliance with applicable regulations. Failure
of the Company to maintain SAMHSA certification would limit the potential client
base to which laboratory services could be marketed thus impacting revenues from
laboratory operations.
g. Additional Laboratory Regulations. The PDLA and MEDTOX
laboratories and certain of the laboratory personnel are licensed or otherwise
regulated by certain federal agencies, states, and localities in which PDLA and
MEDTOX conduct business. Federal, state and local laws and regulations require
PDLA and MEDTOX, among other things, to meet standards governing the
qualifications of laboratory owners and personnel, as well as the maintenance of
proper records, facilities, equipment, test materials, and quality
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control programs. In addition, both laboratories are subject to a number of
other federal, state, and local requirements which provide for inspection of
laboratory facilities and participation in proficiency testing, as well as
govern the transportation, packaging, and labeling of specimens tested by either
laboratory. The laboratories are also subject to laws and regulations
prohibiting the unlawful rebate of fees and limiting the manner in which
business may be solicited.
Both laboratories receive and use small quantities of hazardous
chemicals and radioactive materials in their operations and are licensed to
handle and dispose of such chemicals and materials. Any business handling or
disposing of hazardous and radioactive waste is subject to potential liabilities
under certain of these laws.
11. Dependence on Key Personnel. Although the Company believes it has
been successful to date in recruiting and retaining qualified personnel, the
growth of the Company is dependent on its ability to continue to attract the
services of qualified executive, technical and marketing personnel. The Company
has entered into an employment agreement with James D. Skinner, Chairman,
President and CEO, Peter J. Heath, Vice President Finance and Chief Financial
Officer and Michael A. Terretti, Vice President EDITEK and Executive Vice
President MEDTOX. In addition, the Company has entered into employment
agreements with six employees of MEDTOX. The Company considers these six
employees critical to the continued success of MEDTOX. The Company currently
does not maintain any life insurance policy on any personnel. There can be no
assurance the Company will be able to attract and retain the personnel it
requires.
12. Possible Volatility of Stock Price. Factors such as announcement of
technological innovations or new commercial products by the Company or its
competitors, governmental regulation, patent or proprietary right developments,
or public safety and health concerns may have a significant impact on the market
price of the Company's securities. In addition, resales of securities by
shareholders may add significantly to volatility. Moreover, there has been a
history in recent years of significant volatility in the market prices for
securities of companies in the biotechnology field.
13. Potential Conflicts of Interest. The Company has in the past
engaged in a number of material transactions with its directors and executive
officers and may engage in such transactions in the future. All such
transactions have been in the past, and will be in the future, approved by a
majority of the Company's disinterested directors.
14. Dividends. The Company, to date, has not declared or paid any cash
dividends. The shares of Series A Preferred Stock issued to finance the MEDTOX
acquisition have certain dividend rights. The Company's ability to declare or
pay such dividends are restricted by certain covenants in the Loan
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Agreement. See "Number of Shares of Common Stock Rights of Series A Preferred
Stock" and "Number of Shares of Common Stock - Debt Financing."
15. Potential Product Liability. Manufacturing and marketing of
products by the Company entail a risk of product liability claims. The exposure
to product liability claims in the past was mitigated to some extent by the fact
that the Company's products were principally directed toward food processors (as
contrasted with human diagnostics) and most of its Conventional Biodiagnostic
Products were used as components in research, testing or manufacturing by the
purchaser and conformed to the purchaser's specifications. On August 13, 1993,
the Company procured insurance coverage against the risk of product liability
arising out of events after such date, but such insurance does not cover claims
made after that date based on events that occurred prior to that date.
Consequently, for uncovered claims, the Company could be required to pay any and
all costs associated with any product liability claims brought against it, the
cost of defense whatever the outcome of the action, and possible settlement or
damages if a court rendered a judgment in favor of any plaintiff asserting such
a claim against the Company. Damages may include punitive damages, which may
substantially exceed actual damages. The obligation to pay such damages could
have a material adverse effect on the Company and exceed its ability to pay such
damages. No product liability claims are pending.
The MEDTOX and PDLA laboratory testing services are primarily
diagnostic and expose the laboratories to the risk of liability claims. PDLA has
retained continuous professional and general liability insurance coverage since
1985. MEDTOX has retained continuous professional and general liability
insurance coverage since 1984. To date, PDLA or MEDTOX have not had any
substantial product liability and no material professional service claims are
currently pending.
16. Anti-Takeover Effect of State Law and Certain Charter and Bylaw
Provisions. The Company's Certificate of Incorporation and Bylaws contain
certain provisions that could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. For example, the Board of Directors has the
authority to fix the rights and preferences of and issue shares of Preferred
Stock without further action by stockholders. Therefore, Preferred Stock could
be issued without stockholder approval that could have voting, liquidation, and
dividend rights superior to that of existing shares of the Company stock. The
issuance of Preferred Stock could adversely affect the voting power of holders
of Common Stock and the likelihood that such holders would 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 shares of Preferred Stock. Such provisions
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<PAGE>
may limit the price that certain investors may be willing to pay in the future
for shares of the Company's Stock.
NUMBER OF SHARES OF COMMON STOCK
This Prospectus relates to a total of 11,798,193 shares of Common Stock
of the Company. 2,517,306 of these shares of Common Stock were issued to MLI
pursuant to the MEDTOX Agreement and 235,295 shares were sold to Dr. Harry
McCoy, a shareholder of MEDTOX, immediately following the acquisition of MEDTOX.
Of the shares issued to MLI, 2,391,441 shares have been distributed to the
shareholders of MEDTOX and 125,865 shares are being held in an escrow account to
satisfy certain contingent indemnification obligations of MLI pursuant to the
MEDTOX Agreement. This Prospectus also relates to shares of Common Stock which
are issuable to the holders of 104 shares of Series A Preferred Stock upon the
conversion of the Series A Preferred Stock of which a minimum of 1,873,873
shares of Common Stock are issuable and 906,667 shares of Common Stock issuable
upon the exercise of the Investment Banker Warrants.
Price Protection Shares
This Prospectus also relates to 6,265,052 shares of Common Stock (the
"Price Protection Shares") which may be issued to the former shareholders of
MEDTOX and upon the conversion of the Series A Preferred Stock in certain
circumstances in the future as described below.
The MEDTOX Asset Purchase Agreement which provides that, if after the
Closing Date the market value of the Common Stock of the Company declines below
$1.986 per share during the Repricing Periods following press releases, the
Company will issue additional shares of Common Stock ("Additional Shares") to
shareholders of MEDTOX who retain their shares of Common Stock through four
specified dates (the "Repricing Dates") to compensate the MEDTOX shareholders
for decreases in the market price of the shares after the closing of the MEDTOX
acquisition in the market price of the Common Stock of the Company below $1.986
per share. The Repricing Dates are the fifth trading day following the date the
Registrant issues press releases announcing its financial performance for the
fiscal quarters ending on March 31, 1996, September 30, 1996 and September 30,
1997 and the fiscal year ending on December 31, 1996 and the Repricing Periods
are the dates between the press releases and the Repricing Dates. Consequently,
the number of Additional Shares issuable in the future in connection with the
MEDTOX acquisition cannot be determined at this time and will depend upon
changes in the market price of the Common Stock, as well as the extent to which
MEDTOX shareholders retain the MEDTOX shares on each of the Repricing Dates.
If all MEDTOX shares are retained on the Repricing Dates, an aggregate of
2,466,959 Additional Shares would be issuable based on the April 19, 1996
market price of $1.00 per share.
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The Preferred Stock is convertible into shares of Common Stock, at any
time from March 30, 1996, the 60th day after the shares of Series A Preferred
Stock were first issued by the Company (the "Initial Conversion Date"), until
January 30, 1998, the second anniversary of the Initial Preferred Issuance Date,
at which time all conversion rights terminate and any remaining shares of Series
A Preferred Stock will be automatically converted, at a rate determined by a
formula based on a discount from the market price of the Common Stock at the
time of conversion, unless the holder of such Series A Preferred Stock notifies
the Company not to convert such shares. The Series A Preferred Stock has no
voting power and has certain liquidation preference and dividend rights. The
number of shares of Common Stock issuable upon conversion of a share of Series A
Preferred Stock will equal the number derived by dividing (i) the purchase price
of the Series A Preferred Stock ($50,000 per share) by the lesser of (i) $2.775
or (ii) 75% of the Market Price of the Common Stock on the day the shares of
Series A Preferred Stock are converted into Common Stock. "Market Price" is
defined for this purpose as the daily average of the closing bid prices quoted
on the American Stock Exchange or other exchange on which the Common Stock is
traded for the five trading days immediately preceding the date the shares are
converted. The actual number of shares of Common Stock issuable upon conversion
of the 104 shares of Series A Preferred Stock will not be known until the
Conversion Date of such shares, but will not be less than 1,873,873 shares if
all 104 shares of Series A Preferred Stock are converted. As of April 19, 1996,
the market price of the Common Stock was $1.00 per share at which price 104
shares of Series A Preferred Stock would be convertible into 6,933,333 shares of
Common Stock.
The price protection provisions of the Series A Preferred Stock are
transferred upon any transfer of the Series A Preferred Stock, but terminate
upon conversion of the Series A Preferred Stock. The price protection afforded
the MEDTOX shareholders terminates upon transfer of the Common Stock issued to
the MEDTOX shareholders.
The Company will not receive any proceeds from the sale of shares by the
Selling Shareholders. The Company will, however, receive an average of $2.83 per
share upon the exercise of the Investment Banker Warrants. See "Selling
Shareholders" and "Plan of Distribution."
The number of shares of Common Stock described above includes only
shares covered by this Prospectus and does not include the minimum of 5,459,460
shares of Common Stock issuable upon conversion of 303 shares of Preferred Stock
sold by the Company to offshore investors pursuant to Regulation S.
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The Common Stock is traded on the American Stock Exchange under the
symbol "EDI." On April 19, 1996, the closing price of the Common Stock as
reported by the American Stock Exchange was $1.00 per share.
Debt Financing
To finance the acquisition of MEDTOX and to provide working capital,
the Company borrowed $4,990,000 as of January 30, 1996. The debt financing
consists of two term loans of $2 million each and a revolving line of credit
based on the accounts receivable and inventory of the Company. The Loan
Agreement contains certain restrictions on the payment of dividends. The
capitalized terms below are defined in the Loan Agreement. The Company is
restricted from paying any dividends until February 1, 1997 and only in the
amount not in excess of one-third of the Excess Cash Flow for the previous
fiscal year. For this purpose, Excess Cash Flow means, for any period, the
greater of (A) zero (0); or (B) without duplication, the total of the following
for the Company and its respective Subsidiaries on a consolidated basis, each
calculated for such period: (1) EBITDA; plus (2) tax refunds actually received;
less (3) Capital Expenditures (to the extent actually made in cash and or due to
be made in cash within such period); less (4) income and franchise taxes paid or
accrued excluding any provision for deferred taxes included in the determination
of net income; less (5) decreases in deferred income taxes resulting from
payments of deferred taxes accrued in prior periods; less (6) Interest Expenses
paid or accrued; less (7) scheduled amortization of Indebtedness actually paid
and/or due to be paid within such period less (8) voluntary prepayments of the
Term Loans. In addition, the Company is restricted from paying any dividends
until the first of the two term loans is paid off and after giving effect to any
such dividend payment, the Company must have at least $500,000 available under
the revolving line of credit. The last scheduled payment of that term loan is
July 1, 1997.
Capital Stock
As of April 19, 1996, the Company's authorized capital stock consisted
of 30,000,000 shares of Common Stock, par value $.15 per share, 480 shares of
Series A Preferred Stock (of which 350 shares were issued and outstanding as of
April 19, 1996) and 999,520 shares of undesignated Preferred Stock, par value
$1.00 per share. Each share of the Series A Preferred Stock is convertible into
shares of Common Stock of the Company. See "Rights of the Series A Preferred
Shares." The Board of Directors is authorized, subject to any limitations
prescribed by law, without further stockholder approval, to issue from time to
time additional shares of Preferred Stock, in one or more classes or series.
Each class or series of Preferred Stock shall have such number of shares,
designations, preferences, voting powers, qualifications and special or relative
rights or privileges as shall be determined by the Board of Directors,
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which may include, among others, dividend rights, voting rights, redemption and
sinking fund provisions, liquidation preferences, conversion rights and
preemptive rights.
Rights of Common Stock
Holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, stockholders casting a plurality of the votes cast
by the stockholders entitled to vote in an election of directors may elect all
of the directors standing for election.
Holders of Common Stock are entitled to receive ratably such dividends,
if any, as may be declared by the Board of Directors out of funds legally
available therefore, subject to any preferential dividend rights of Series A
Preferred Stock and other Preferred Stock that may be issued in the future.
Delaware law prohibits the payment of dividends or other distributions to
holders of shares of Common Stock if after the payment the net assets of the
Company would be less than its capital. In addition, the Company may be
prohibited from paying dividends under the terms of loan agreements or other
contracts.
Upon the liquidation, dissolution or winding up of the Company, the
holders of Common Stock are entitled to receive ratably the net assets of the
Company available after the payment of all debts and other liabilities and
subject to the prior rights of Preferred Stock that may be issued in the future.
Holders of Common Stock have no preemptive, subscription or conversion rights.
The outstanding shares of Common Stock are, and the shares issuable upon
conversion of Series A Preferred Stock and upon exercise of warrants and when
issued pursuant to the MEDTOX Agreement will be, when issued and paid for,
fully-paid and nonassessable. The rights, preferences and privileges of holders
of Common Stock are subject to the rights of the holders of shares of the Series
A Preferred Stock and any other class or series of Preferred Stock that the
Company may designate and issue in the future.
The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, a majority of the outstanding voting stock of the Company. The
Company has no present plans to issue any additional shares of Preferred Stock.
Rights of the Series A Preferred Stock
The principal rights of the Series A Preferred Stock are summarized
below. This description is qualified, and subject to the rights set forth in the
Certificate of Designations of EDITEK, Inc. Series A Convertible Preferred
Stock.
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Conversion Rights. The Series A Preferred Stock is convertible into
shares of Common Stock with the number of shares issuable upon conversion of
each share of Series A Preferred Stock to be determined by dividing (i) the
aggregate price paid for the Series A Preferred Stock ($50,000 per share), by
(ii) the lower of (a) $2.775 or (b) Seventy-Five Percent (75%) of the average
closing bid price of the Common Stock of the Company over the five-day period
immediately preceding the conversion date. As the market price of the Common
Stock changes from day to day, the number of shares issuable upon conversion
will vary depending upon the conversion date.
The Series A Preferred Stock will be automatically converted if not
converted on or before January 30, 1998 unless a holder of such shares instructs
the Company not to convert the shares. No shares may be converted during the
fifty-nine (59) days after issuance of the first The Series A Preferred Stock.
Commencing March 30, 1996, all the Series A Preferred Stock can be converted.
Voting Rights. Except as required by applicable law, the Series A
Preferred Stock does not have voting rights.
Dividend Rights. The Series A Preferred Stock will accrue an annual
dividend of Four Thousand Five Hundred ($4,500) Dollars per share (the
"Preferred Dividend"). Such Preferred Dividend shall be payable when and as
declared by the Board of Directors in its sole discretion. The Preferred
Dividend is cumulative until December 31, 1997. Dividends accruing after
December 31, 1997 will not be cumulative. No dividend shall be payable on shares
of Common Stock of the Company until all accrued cumulative unpaid dividends are
paid to holders of the Series A Preferred Stock.
Liquidation Preference. Holders of shares of Series A Preferred Stock
will have a preference upon the liquidation of the Company over the Common
Stock. The initial liquidation preference shall equal Fifty Thousand ($50,000)
Dollars per share of Series A Preferred Stock and shall increase to equal the
sum of Fifty Thousand ($50,000) Dollars, plus all accrued but unpaid cumulative
Preferred Dividends, plus all declared but unpaid noncumulative Preferred
Dividends. After payment in full of the liquidation preference, the holders of
Series A Preferred Stock shall not be entitled to receive any additional
liquidation payments.
THE COMPANY
EDITEK, Inc., a Delaware corporation, was organized in September, 1986
to succeed the operations of a predecessor California corporation. EDITEK, Inc.
and its subsidiaries are referred to herein as "the Company". The Company
operates a toxicology laboratory that provides testing services for
identification of substances of abuse and develops, manufactures and markets
on-site diagnostic
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and screening tests which are used to detect substances in humans, foodstuffs,
animals or feed and the environment.
The Company entered the laboratory business on February 11, 1994 when
it completed the acquisition of Princeton Diagnostic Laboratories of America,
Inc. ("PDLA") which is now a wholly owned subsidiary. PDLA was incorporated in
Delaware in December, 1986. On December 22, 1986, it acquired from Stauffer
Chemical Company, a subsidiary of Cheesebrough-Pond's Inc., all of the Common
Stock of Psychiatric Diagnostic Laboratories of America, Inc., through which
PDLA conducts most of its operations. On January 30, 1996, the Company acquired
the assets and certain liabilities of another laboratory, MEDTOX. MEDTOX was
formed in 1984 and is located in St. Paul, Minnesota. MEDTOX enjoys a well
deserved reputation for quality and customer service and is often referred to in
the laboratory industry as a "Laboratory's Laboratory."
MEDTOX was co-founded in 1984 by Dr. Harry McCoy. Dr. McCoy saw the
need for a state-of-the-art, full service, toxicology reference laboratory that
would provide timely, accurate analysis for a wide range of drugs and toxins.
From its inception, MEDTOX has fulfilled that goal by offering broad-based
toxicology services, including 24 hour emergency service at no extra cost to the
client, therapeutic drug monitoring, medico-legal investigations, etc.
MEDTOX rapidly gained a reputation for high quality and superb customer
service in the local Minnesota medical market through the provision of
toxicology laboratory services for local hospitals, physicians and general
medical laboratories. MEDTOX then began an expanded regional program as well as
national marketing which increased revenues and expanded the customer base.
In 1987, MEDTOX purchased its largest Minneapolis competitor,
Metropolitan Medical Center, and gained the services of Dr. Gary Hemphill, one
of the leading scientists and laboratory directors at MEDTOX today. Dr. Hemphill
and MMC also gave MEDTOX a foothold in the burgeoning employment drug screening
business, forensic toxicology market.
With the creation of National Institute for Drug Abuse ("NIDA") in 1988
to oversee mandated drug screening for safety sensitive employees, MEDTOX became
one of the first ten laboratories in the country on the original list of NIDA
certified laboratories. MEDTOX business then rapidly grew in two major
toxicology market segments:
1. Forensic toxicology (substance abuse testing).
2. Medical toxicology - the provision of reference toxicology testing in the
areas of therapeutic drug monitoring, etc., for hospitals, physicians and
general clinical laboratories lacking the sophisticated toxicology
capabilities of MEDTOX.
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For the year ended December 31, 1995, MEDTOX had net revenues of
$20,219,000 with net income of $2,879,000.
The combination of the laboratory services of PDLA, MEDTOX and the
Company's other products and services allows the Company to offer a full line of
products and services for the substance abuse testing marketplace, including (1)
on-site tests for the detection of substance of abuse drugs (EZ-SCREEN(R) and
VERDICT(R)); (2) on-site qualitative and quantitative determination of alcohol
intoxication (both disposable and electronic instrument detection devices); (3)
Substance Abuse and Mental Health Services Administration (SAMHSA), formerly
NIDA, certified laboratory testing (screening and confirmation); (4) accessory
items (gloves, specimen containers, permanent recording temperature strips); and
(5) consultation (National Consortium For a Drug-Free Workplace) (NCDFW). All of
these products and services will be marketed through MEDTOX. Sales of these
Substance Abuse Testing Products and Services accounted for approximately 72% of
the revenues of the Company for the year ended December 31, 1995.
In 1993 diAGnostix, inc. was incorporated by the Company in Delaware
as a wholly owned subsidiary to address the broadly defined environmental
testing marketplace. In 1995, the Company acquired Bioman Products, Inc. and
successfully developed and introduced to the market the EZ-QUANT(R) DON Test
Kit. Development of new food safety testing products by the Company continues,
with at least one new product launch planned for 1996. diAGnostix, inc. is
currently sourcing additional products manufactured by other companies that
could be sold through diAGnostix, inc. Sales of the products sold through
diAGnostix, inc. accounted for approximately 16% of the Company's revenues for
the year ended December 31, 1995.
The Company also sells prepared and dehydrated culture media, animal
blood products, sera and plasma, custom antisera, and other biomedical products
and supplies, which are either produced by the Company or purchased from other
suppliers. The Company also markets contract manufacturing services which
utilize the same manufacturing equipment and processes used to manufacture the
on-site products. The Company expects sales of these products, which were first
introduced in 1986, to account for a smaller portion of its future revenues due
to the highly competitive nature of that market and management's decision to
focus primarily on the marketing of its diagnostic tests. Sales of these
products accounted for approximately 5% of the revenues of the Company for the
year ended December 31, 1995.
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The balance of the Company's revenues are from work performed for the
U.S. Department of Defense including product sales as well as royalties, fees
and other income. These revenues represented approximately 7% of the Company's
revenues for the year ended December 31, 1995.
EDITEK executive offices are located at 1238 Anthony Road, Burlington,
North Carolina 27215, and its telephone number is (910) 226-6311.
SELLING SHAREHOLDERS
This Prospectus relates to an aggregate total of 11,798,193 shares of
the Common Stock, of which (i) 2,517,306 shares were issued to MLI Dissolution,
Inc. (formerly MEDTOX Laboratories, Inc.) ("MLI") pursuant to an Asset Purchase
Agreement between the Company and MLI, with 2,391,441 shares being subsequently
distributed to the shareholders of MEDTOX ("MEDTOX Shareholders") and 125,865
shares being held in escrow to satisfy certain contingent indemnification
obligations of MEDTOX, (ii) 235,295 shares were issued to Dr. Harry McCoy
("McCoy") in a private placement that occurred following the MEDTOX acquisition;
(iii) a minimum of 1,873,873 shares ("Conversion Shares") are issuable to
certain holders (the "Series A Preferred Shareholders") of 104 shares of the
Company's Series A Preferred Stock upon conversion of the Preferred Stock; and
(iv) 586,667 shares are issuable to Harlan Kleiman and affiliated persons
("Placement Agent") upon the exercise of Investment Banker Warrants issued as
compensation for sales of the Series A Preferred Stock pursuant to an agreement
between Placement Agent and the Company and 320,000 issuable to Harlan Kleiman
as Compensation for the sale of securities in previous offerings. MLI, the
MEDTOX Shareholders, McCoy, the Series A Preferred Shareholders and the
Placement Agent are hereinafter referred to as the "Selling Shareholders". The
remaining 6,265,052 shares ("Price Protection Shares") of Common Stock
covered by this Prospectus are being registered in the event the MEDTOX
Shareholders become entitled to receive "Additional Shares" and/or more
than the minimum number of Conversion Shares become issuable upon conversion of
the Series A Preferred Stock. See "Number of Shares of Common Stock."
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<PAGE>
Set forth below is a list and description of each Selling Shareholder,
together with the number of Shares beneficially owned, the number of Shares
being offered, and the number of Shares (and the percent of the class) to be
owned after completion of the offering.
<TABLE>
<CAPTION>
Material Securities Percent Common
Relationship Securities Beneficially Stock Owned
Had With the Beneficially Owned Owned After After
Name of Selling Company Within As of February 7, Securities Completion of Completion of
Shareholder Past Three Years 1996 (1) Offered Hereby Offering (2) Offering
<S> <C> <C> <C> <C> <C>
MEDTOX SHAREHOLDERS:
John Walker Abelson
and Beverly Jean Abelson Shareholder 9,192 (3) 9,192 (3) 0 *
James S. Arrington Shareholder 40,417 (3) 40,317 (3) 100 *
Richard A. Brotherton Shareholder 112,887 (3) 112,887 (3) 0 *
Robert Brotherton Shareholder 26,190 (3) 24,190 (3) 2,000 *
Judd Y. Carpenter Shareholder 47,171 (3) 47,171 (3) 0 *
Matthew S. Carpenter Shareholder 47,171 (3) 47,171 (3) 0 *
Scott M. Carpenter Shareholder 47,171 (3) 47,171 (3) 0 *
Walter S. Carpenter and
Elsa M. Carpenter,
Trustees of the Walter
S. Carpenter Revocable
Trust Shareholder 113,694 (3) 113,694 (3) 0 *
Louis B. Hauser and Mary
M. Hauser Shareholder 37,092 (3) 37,092 (3) 0 *
D. Gary Hemphill Shareholder 161,268 (3) 161,268 (3) 0 *
Donald Hunt and Johanne
Hunt Shareholder 18,385 (3) 18,385 (3) 0 *
William A. Jetter and
Mary E. Jetter Shareholder 46,655 (3) 45,155 (3) 1,500 *
Marian M. Johnson, et
al., Trustees of the
Marian M. Johnson
Revocable Trust Shareholder 43,139 (3) 43,139 (3) 0 *
Patsy O. Johnson and
Ramon E. Johnson Shareholder 4,032 (3) 4,032 (3) 0 *
Ann C. Kay Shareholder 47,171 (3) 47,171 (3) 0 *
Paul A. Kay Shareholder 33,624 (3) 33,624 (3) 0 *
Kingsley R. Labrosse Shareholder 193,682 (3) 193,682 (3) 0 *
Mary J. Labrosse Shareholder 75,472 (3) 75,472 (3) 0 *
Shareholder/
Harry G. McCoy Director 687,007 (3) (4) 687,007 (3) (4) 0 *
Harry G. McCoy and
Julia McCoy Shareholder 130,949 (3) 130,949 (3) 0 *
MLI Dissolution, Inc. Shareholder 125,865 (3) (5) 125,865 (3) (5) 0 *
Charles F. Mettille and
23
<PAGE>
Anita Mettille Shareholder 32,254 (3) 32,254 (3) 0 *
Frank Mettille Shareholder 80,634 (3) 80,634 (3) 0 *
Clifford T. Orton and
Ruth L. Orton Shareholder 193,682 (3) 193,682 (3) 0 *
Clifford T. Orton, Jr.
and Andrea K. Orton Shareholder 4,032 (3) 4,032 (3) 0 *
Thomas J. Orton Shareholder 2,016 (3) 2,016 (3) 0 *
Nancy Pinto-Orton and
Brian R. Pinto Shareholder 4,032 (3) 4,032 (3) 0 *
Andre C. Pool Shareholder 16,127 (3) 16,127 (3) 0 *
Katherine L. Seifert Shareholder 9,192 (3) 9,192 (3) 0 *
Michael Spiten and Linda
Spiten Shareholder 8,305 (3) 8,305 (3) 0 *
Harriet A. Thomas Shareholder 76,602 (3) 76,602 (3) 0 *
Lowell Van De Riet and
Mary Van De Riet Shareholder 29,351 (3) 29,351 (3) 0 *
Cynthia K. Veit Shareholder 219,486 (3) 219,486 (3) 0 *
Donald Veit Shareholder 16,127 (3) 16,127 (3) 0 *
Cheryl Wachenheim Shareholder 18,127 (3) 16,127 (3) 2,000 *
SERIES A PREFERRED
SHAREHOLDERS:
Capital Ventures
International Shareholder 360,360 (6) 360,360 (6) 0 *
Kensington Partners L.P. Shareholder 90,090 (6) 90,090 (6) 0 *
Little Wing L.P. Shareholder 270,270 (6) 270,270 (6) 0 *
Morgan Capital, L.L.C. Shareholder 882,882 (6) 882,882 (6) 0 *
Santina Holding Corp. Shareholder 270,270 (6) 270,270 (6) 0 *
PLACEMENT AGENT:
Harlan Kleiman Placement Agent 737,320 (7) 737,320 (7) 0 *
Rob Schachter Placement Agent 146,667 (7) 146,667 (7) 0 *
Wayne Colson Placement Agent 22,680 (7) 22,680 (7) 0 *
</TABLE>
* Less than 1%.
(1) Includes Common Stock as to which the holder has sole or shared voting or
investment power and Common Stock issuable pursuant to options and/or warrants
exercisable within the next 60 days.
(2) Assumes all Shares being registered in this offering will be sold. However,
to the best of the Company's knowledge, the holders of such securities have no
commitment to anyone to sell all or part of the securities being registered.
24
<PAGE>
(3) Does not include "Additional Shares" which may become issuable to MEDTOX
shareholders for shares held on the "Repricing Dates" in the event the market
price of the Common Stock of the Company is less than $1.986 on any Repricing
Date. See "Number of Shares of Common Stock - Price Protection Shares." If all
Medtox shares are retained on the Repricing Dates, an aggregate of 2,466,959
Additional Shares would be issuable based on the April 19, 1996 market price of
$1.00 per share.
(4) Includes 235,295 shares of Common Stock purchased by McCoy after the MEDTOX
acquisition, which 235,295 shares do not have the benefit of the price
protection provisions of the MEDTOX Purchase Agreement. See "Number of Shares of
Common Stock."
(5) 125,865 shares held in escrow, subject to the indemnification provisions of
the MEDTOX Purchase Agreement. Any shares not delivered to the Company prior to
January 30, 1997 shall be delivered to MLI and the Company has been advised that
such shares will be distributed to the MEDTOX shareholders in connection with
the liquidation and dissolution of MLI if not used to satisfy the
indemnification obligations of MLI.
(6) The number of shares of Common Stock listed as beneficially owned is the
minimum number of Conversion Shares issuable upon conversion of the Series A
Preferred Stock. A greater number of Conversion Shares will be issuable to any
Series A Preferred Shareholder who exercises its Series A Preferred Stock at a
time when the market price of the Common Stock of the Company is less than $3.70
per share. As of April 19, 1996, the market price of the Common Stock was $1.00
per share at which price the 104 shares of Series A Preferred Stock would be
convertible into 6,933,333 shares of Common Stock, resulting in a 270%
increase in the beneficial ownership shown in the table. See "Number of Shares
of Common Stock Price Protection Shares."
(7) Shares issuable upon the exercise of the Investment Banker Warrants. See
"Number of Shares of Common Stock ."
If Additional Shares become issuable to any MEDTOX Shareholder or if
more than the minimum number of Conversion Shares become issuable to any Series
A Preferred Shareholder, such shares will be taken from the pool of Price
Protection Shares registered hereby but not listed next to the name of any
Selling Shareholder in the table. Price Protection Shares will be issued to
Selling Shareholders in the chronological order based on the date the shares
become issuable. In the event the number of Additional Shares and extra
Conversion Shares issued exceeds the number of Price Protection Shares
registered hereby, the Company intends to register more shares of Common Stock
to cover the deficiency when and as the need arises.
PLAN OF DISTRIBUTION
25
<PAGE>
The Selling Shareholders may from time to time effect the sale of their
Shares in one or more transactions in the public market, at prices and at terms
then prevailing or at prices related to the then-current market price, or in
negotiated transactions or otherwise. The Shares may be sold pursuant to the
Registration Statement, another registration statement or pursuant to an
exemption from registration, including Rule 144. If all or a portion of the
Shares are sold in such transactions, they may be sold by means of: (a) a block
trade in which the broker or dealer so engaged will attempt to sell the Shares
as agent but may position and resell a portion of the block as principal to
facilitate the transactions; (b) purchases by a broker as principal and resale
by such broker for its account pursuant to this Prospectus; (c) an exchange
distribution in accordance with the rules of such exchange; (d) ordinary
brokerage transactions and transactions in which the broker solicits purchasers;
(e) short sales; or (f) a combination of the foregoing methods. In effecting
sales, brokers or dealers engaged by the Selling Shareholders may arrange for
other brokers or dealers to participate. The brokers or dealers engaged by the
Selling Shareholders will receive commissions or discounts from the Selling
Shareholders in amounts to be negotiated prior to the sale. Such brokers or
dealers and any other participating brokers or dealers, as well as the Selling
Shareholders, may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales. To the best knowledge of the
Company, there are currently no plans, arrangements or understandings between
any of the Selling Shareholders and any broker or dealer regarding the sale of
stock by the Selling Shareholders.
RECENT DEVELOPMENTS
On January 30, 1996, the Company completed the acquisition of MEDTOX
pursuant to the MEDTOX Agreement. The purchase price for the MEDTOX assets and
the assumption of certain liabilities was $24 million of which $19 million was
paid in cash at closing and $5 million was paid in the form of 2,517,306 shares
of Common Stock of the Company. The amount used to purchase the assets and
certain liabilities of MEDTOX was raised from the issuance of 380 shares of the
Series A Preferred Stock and the borrowing of approximately $5 million by the
Company.
To obtain funds necessary to complete the MEDTOX Acquisition and to
provide for the Company's working capital needs, the Company and its affiliated
entities, Psychiatric Diagnostic Laboratories of America, Inc. and diAGnostix,
Inc., Delaware corporations and wholly-owned subsidiaries of the Company,
entered into a credit facility with Heller Financial, Inc. ("Heller") consisting
of two term loans in the amount of $2 million each, one with an eighteen-month
term and an interest rate equal to 2.5% plus the Bank Prime Rate and the other
with a three-year term and an interest rate equal to 2.0% plus the Bank Prime
Rate, and a revolving line of credit of up to $7 million (the "Credit Facility")
with the amount available under the Credit Facility dependent upon the amount of
assets available to secure borrowings under
26
<PAGE>
the Credit Facility. The interest rate on the Credit Facility is equal to 1.5%
plus the Bank Prime Rate. As of January 30, 1996 approximately $2.9 million was
available under the Credit Facility. The closing for the term loans and the
Credit Facility occurred on January 30, 1996.
In connection with the Credit Facility, the Company and its
subsidiaries have granted Heller a security interest in substantially all their
assets and have agreed to comply with many financial and other covenants which
restrict operations of the Company and its subsidiaries, including the ability
to pay dividends. See "Number of Shares of Common Stock-Debt Financing" for a
description of restrictions on dividends imposed by the Credit Facility.
On January 31, 1996, the Board of Directors of the Company elected two
additional members to the Board of Directors of the Company, bringing the total
number of Directors to six. Dr. Harry McCoy was the President and Co-Founder of
MEDTOX. Dr. McCoy received his Bachelors Degree in Biology from the University
of California, San Diego and a Doctorate in Pharmacy from the University of
California, San Francisco. He conducted his clinical internship at the Stanford
Medical Center, University of California and pursued his Post-Doctoral
Fellowship in Pharmacokinetics with the University of Minnesota where he held
joint faculty appointments at the U. of M. College of Pharmacy and the Section
of Clinical Pharmacology at the St. Paul-Ramsey Medical Center.
Mr. George Masters is Vice Chairman, President and Chief Executive
Officer of Seragen, Inc. Mr. Masters has spend his entire business career in
the healthcare industry, including 20 years with Warner-Lambert. He left
Warner-Lambert in 1983 as a Group President, and for the past 12 years has
held senior management positions with a number of biotechnology companies.
Mr. Masters has been a board member of approximately fifteen medically oriented
companies and currently serves as a member of the Board of Directors of: CME
Telemetrix, Hemosol, Inc., ImmuCell Corporation, Intelligent Medical Imaging,
and Seragen. Mr. Masters is on the Board of Directors of the Biotechnology
Industry Organization in Washington, DC and serves on its Executive
Committee. He is on the Board of Visitors of Boston University School of
Medicine and the Board of Associates of the Whitehead Institute for Biomedical
Research at MIT. He also acts as an investment advisor to three venture capital
funds.
EXPERTS
The consolidated financial statements of EDITEK, Inc. incorporated by
reference in EDITEK, Inc.'s Annual Report (Form 10-K) for the year ended
December 31, 1995 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
27
<PAGE>
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The consolidated financial statements of MEDTOX Laboratories, Inc. at
December 31, 1995, and for the year then ended, incorporated by reference in
EDITEK, Inc.'s Annual Report (Form 10-K) for the year ended December 31, 1995
have been audited by Ernst & Young LLP, independent auditors, and at December
31, 1994, and for each of the two years in the period ended December 31, 1994,
by KPMG Peat Marwick LLP, independent auditors, as set forth in their respective
reports thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firms as experts in
accounting and auditing.
LEGAL MATTERS
Legal matters in connection with the issuance of the Common Stock
offered hereby will be passed upon for the Company by Petree Stockton, L.L.P
Raleigh, North Carolina. As of April 19, 1996, attorneys at Petree Stockton,
L.L.P. owned no shares of Common Stock of the Company.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Bylaws of the Company provide that the Company shall indemnify the
directors and officers of the Company against liability (and expenses related
thereto) arising out of their status as directors and officers to the extent
permitted by law. Additionally certain mandatory indemnification rights are
available under the Delaware General Corporation Law ("DGCL") to officers and
directors to the extent they are successful in the defense of any proceeding to
which they were a party by virtue of their position as a director or officer.
Further, as permitted by the DGCL, the Certificate of Incorporation of
the Company includes a provision limiting the personal liability of its
directors for monetary damages for certain breaches of their duties as directors
to the extent permitted under the DGCL. The Company also maintains a directors'
and officers' liability policy which insures such persons against claims arising
from certain acts or decisions by them in their capacities as directors and
officers of the Company, subject to certain exclusions and deductible and
maximum amounts.
In addition to such other rights of indemnification as they may have as
directors or as members of a committee of directors, the Company's Amended and
Restated Equity Compensation Plan and Amended and Restated Stock
28
<PAGE>
Option Plan for Non-Employee Directors provide for indemnification for certain
of the Company's directors for liabilities arising in connection with their
actions taken as members of the committees administering such plans.
Such limitation of liability pursuant to state law does not affect
liability, if any, arising under the federal securities laws. Further, insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to contractual 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 Securities Act and is, therefore
unenforceable.
29
<PAGE>
PROSPECTUS
EDITEK, INC.
April 25, 1996
TABLE OF CONTENTS
Page
Available Information. 2
Incorporation of Certain Information by Reference 2
Risk Factors 3
Number of Shares of Common Stock 15
The Company 19
Selling Shareholders 22
Plan of Distribution 26
Recent Developments 26
Experts 27
Legal Matters 28
Indemnification and Limitation of Liability 28
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
this offering, and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company. This Prospectus
does not constitute an offer to sell, or a solicitation of an offer to buy, any
securities other than the registered securities to which it relates, or an offer
to or solicitation of any person in any jurisdiction in which such offer or
solicitation would be unlawful. The delivery of this Prospectus at any time does
not imply that information herein is correct as of any time subsequent to its
date.
30
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
5.1 Legal Opinion of Petree Stockton, L.L.P.
23.1 Consent of Petree Stockton, L.L.P.
(Contained in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
23.3 Consent of KPMG Peat Marwick LLP
31
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses of this Registration Statement will be
paid by the Registrant and are as follows:
Registration Fee - Securities and
Exchange Commission $ 13,962.28
Legal Fees 10,000.00
Accounting Fees and Expenses 3,000.00
Miscellaneous 1,000.00
Total $ 27,962.28
Item 15. Indemnification of Directors and Officers.
Article III, Section 6, of the Bylaws of the Registrant
provides as follows:
The corporation shall indemnify any person made a party to an
action by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he, his testator or intestate, is
or was a director or officer of the corporation, against expenses,
including attorneys fees, actually and necessarily incurred by him in
connection with the defense of such action or in connection with an
appeal therein, except in relation to matters as to which such director
or officer is adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation except as otherwise provided
by law or in the Certificate of Incorporation of the corporation. The
corporation shall indemnify any person made or threatened to be made a
party to an action or proceeding other than one of the type referred to
in the foregoing, whether civil or criminal, including, without
limitation, an action by or in the right of any other corporation which
any director or officer of the corporation served in any capacity at
the request of the corporation, by reason of the fact that he, his
testator or intestate was a director or officer of the corporation or
served such other corporation in any capacity, against judgments,
fines, amounts paid in settlement and expenses, including attorneys
fees, actually and necessarily incurred as a result of such action or
proceeding or any appeal therein, if such director or officer acted, in
good faith, for the purpose which he reasonably
II-1
<PAGE>
believed to be in the best interest of the corporation and, in criminal
actions or proceedings, in addition, had no reasonable cause to believe
that his conduct was unlawful. The termination of any such civil or
criminal action or proceeding by judgment, settlement, conviction or
upon a plea of nolo contendere, or its equivalent, shall not in itself
create a presumption that any such director or officer did not act in
good faith for a purpose which he reasonably believed to be in the best
interest of the corporation or that he had reasonable cause to believe
that his conduct was unlawful. Expenses incurred in defending a civil
or criminal action or proceeding may be paid by the corporation in
advance of the final disposition of such action or proceeding. The
foregoing right of indemnification shall not be deemed exclusive of any
other rights to which those indemnified may be entitled as a matter of
law or any Bylaw, agreement, vote of stockholders, provision in the
Certificate of Incorporation, or otherwise.
Reference is made to paragraph 8 of Article Sixth of the
Registrant's Certificate of Incorporation, as amended, which provides as
follows:
8. A director of this Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law, or (iv) for
any transaction from which the director derived an improper personal
benefit.
Reference is also made to Section 145 of Title 8 of the
Delaware Code, which provides as follows:
(a) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action
II-2
<PAGE>
or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was
unlawful.
(b) A corporation may indemnify any person who was or
is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact
that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or
such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent
of a corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in subsections
(a) and (b) of this section, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
(d) Any indemnification under subsections (a) and (b) of this
section (unless ordered by a court) shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper
in the circumstances because he has met the applicable standard of
conduct set forth in subsections (a) and (b) of this section.
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<PAGE>
(e) Expenses (including attorneys' fees) incurred by any
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation
in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that
he is not entitled to be indemnified by the corporation as authorized
in this section. Such expenses (including attorney's fees) incurred by
other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other subsections of this section shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such, whether
or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the
corporation" shall include, in addition to the resulting corporation,
any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under this section with
respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had
continued.
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<PAGE>
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the
request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent
with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted
in a manner "not opposed to the best interests of the corporation" as
referred to in this section.
(j) The indemnification and advancement of expenses provided
by, or granted pursuant to, this section shall, unless otherwise
provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a
person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of
expenses or indemnification brought under this section or under any
bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise. The Court of Chancery may summarily determine a
corporation's obligation to advance expenses (including attorneys
fees).
In actions other than those brought by or on behalf of the Company, the
Company may indemnify its directors, officers, employees and other agents for
expenses (including attorneys fees), judgments, fines and settlements incurred
by such persons, provided that the person seeking indemnification acted in
accordance with a statutory of good faith conduct. In actions brought
derivatively on behalf of the Company ("derivative actions") or by the Company
itself, the Company may indemnify such individuals for expenses actually and
reasonably incurred and not for judgments, fines or settlements. Such limited
indemnification is not permitted in any derivative or direct action as to issues
or claims for which the officer or director is held liable to the Company unless
the Court determines that, in view of all the circumstances, the person is
fairly and reasonably entitled to indemnity for such expenses. The Company may
advance expenses incurred by any person entitled to indemnification in defending
a proceeding, provided that, if such advance is made to an officer or director,
such person provides an undertaking to the Company to repay all amounts advanced
if it is ultimately determined that the person is not entitled to be
indemnified.
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<PAGE>
In addition to such other rights of indemnification as they may have as
directors or as members of a committee of directors, the Company's Amended and
Restate Equity Compensation Plan and Amended and Restated Stock OptionPlan for
Non-Employee Directors provide for indemnification for certain of the Company's
directors for liabilities arising in connection with their actions taken as
members of the committees administering such plans.
Further, the Company maintains a directors' and officers' liability
policy which insures such persons against claims arising from certain acts or
decisions by them in their capacities as directors and officers of the Company,
subject to certain exclusions and deductible and maximum amounts.
II-6
<PAGE>
Item 16. Exhibits
5.1 Legal Opinion of Petree Stockton, L.L.P.
23.1 Consent of Petree Stockton, L.L.P.
(Contained in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
23.3 Consent of KPMG Peat Marwick LLP
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement;
Provided, however, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the Registration Statement is on Form S-3 or
Form S-8, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by the
Registrant pursuant to section 13 or section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the Registration Statement.
II-7
<PAGE>
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Burlington, State of North Carolina, on
April 24, 1996.
EDITEK, INC.
By: /s/ James D. Skinner
James D. Skinner
President,
Principal Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated.
Signature Title Date
/s/ James D. Skinner President, April 24, 1996
James D. Skinner Principal Executive
Officer, and
Chairman of the Board
/s/ Samuel C. Powell Director April 24, 1996
Samuel C. Powell, Ph.D.
/s/ Peter J. Heath Vice President of April 24, 1996
Peter J. Heath Finance and Chief
Financial Officer, and
Principal Accounting
Officer
/s/ Gene E. Lewis * Director April 24, 1996
Gene E. Lewis
/s/ Robert J. Beckman * Director April 24, 1996
Robert J. Beckman
/s/ Harry G. McCoy, Pharm.D. Director April 24, 1996
Harry G. McCoy, Pharm.D.
/s/ George W. Masters * Director April 24, 1996
George W. Masters
* Executed on behalf of these persons by Peter J. Heath, duly approved
Attorney-In-Fact of each such person.
/s/ Peter J. Heath
Peter J. Heath
Attorney-In-Fact
II-10
<PAGE>
PETREE STOCKTON, L.L.P.
ATTORNEYS AT LAW
4101 LAKE BOONE TRAIL, SUITE 400
RALEIGH, NORTH CAROLINA 27607-6519
TELEPHONE (919) 420-1700
FAX (919) 420-1800 OTHER OFFICES
CHARLOTTE, N. C.
WINSTON-SALEM, N. C.
April 25, 1996
EDITEK, Inc.
1238 Anthony Road
Burlington, North Carolina 27215
Dear Gentlemen:
We refer to the Registration Statement on Form S-3, No. 333-827 (the
"Registration Statement") filed by EDITEK, Inc. (the "Company") with the
Securities and Exchange Commission (the "Commission") on February 9, 1996, under
the Securities Act of 1933, as amended, and Amendment No. 1 thereto, filed with
the Commission on or about March 27, 1996, and Amendment No. 2 thereto, filed
with the Commission on or about April 25, 1996, (the "Amendment") relating to
the proposed public offering of an aggregate of 11,798,193 shares of Common
Stock, par value $.15 per share (the "Shares"), of which (1) 2,752,601 Shares
(the "Outstanding Shares") are currently issued and outstanding on the date
hereof; (2) 1,873,873 Shares (the "Conversion Shares") are issuable in the
future pursuant to conversion rights of certain issued and outstanding shares of
Series A Convertible Preferred Stock of the Company as set forth in the
Company's Amended and Restated Certificate of Designations of Preferred Stock
filed with the Delaware Secretary of State on January 29, 1996 (the "Certificate
of Designations"), as described in the Registration Statement; (3) 906,667
Shares (the "Warrant Shares") are issuable in the future pursuant to the terms
of a warrant agreements (collectively the "Warrant Agreements"), as described in
the Registration Statement; and (4) 6,265,052 Shares (the "Price Protection
Shares") are issuable in the future pursuant to the terms of an asset purchase
agreement by and between the Company and MedTox Laboratories, Inc. (the "MedTox
Agreement"), pursuant to the conversion rights of the Series A Convertible
Preferred Stock set forth in the Certificate of Designations, and pursuant to
the terms of letter agreements between the Company and certain security holders
of the Company (the "Letter Agreements"), as described in the Registration
Statement.
As counsel for the Company, we have examined such corporate records, other
documents, and such questions of law as we have considered necessary or
appropriate for the purposes of this opinion. Upon the basis of that
examination, we advise you that, in our opinion, (1) the Outstanding Shares have
been duly authorized, validly issued and delivered and are fully paid and
nonassessable and (2) subject to the availability of authorized but unissued
shares of Common Stock pursuant to the Certificate of Incorporation of the
Company (a) the Conversion Shares have been duly authorized, and when issued and
delivered in accordance with the terms of the Certificate of Designations and
the Certificate of Incorporation of the Company, will be validly issued, fully
paid and nonassessable, (b) the
<PAGE>
EDITEK, Inc.
April 25, 1996
Page 2
Warrant Shares have been duly authorized, and when issued, delivered and paid
for in accordance with the terms of the Warrant Agreements and the Certificate
of Incorporation of the Company will be validly issued, fully paid and
nonassessable, and (c) the Price Protection Shares have been duly authorized,
and when issued and delivered in accordance with the terms of the MedTox
Agreement, the Certificate of Designations, the Certificate of Incorporation
and/or the Letter Agreements, will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name in the related
Prospectus under the caption "Legal Matters." This consent is not to be
construed as an admission that we are a person whose consent is required to be
filed with the Registration Statement under the provisions of the Securities Act
of 1933, as amended.
Very truly yours,
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement Amendment No. 2 (Form S-3 No. 333-827) and related
Prospectus of EDITEK, Inc. for the registration of 11,798,193 shares of its
common stock and to the incorporation by reference therein of our report dated
February 23, 1996, with respect to the consolidated financial statements and
schedule of EDITEK, Inc. and of our report dated March 6, 1996 with respect to
the consolidated financial statements of MEDTOX Laboratories, Inc. included in
its Annual Report (Form 10-K) for the year ended December 31, 1995, filed with
the Securities and Exchange Commission.
Ernst & Young LLP
Raleigh, North Carolina
April 24, 1996
<PAGE>
Exhibit 23.2
The Board of Directors
EDITEK, Inc.
We consent to the incorporation by reference in the registration statement
(No. 333-827) on Form S-3 of EDITEK, Inc. of our report dated January 31, 1995,
with respect to the consolidated balance sheet of Medtox Laboratories, Inc. and
subsidiary as of December 31, 1994, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
two-year period ended December 31, 1994, which report appears in the Form 10-K
of EDITEK, Inc. dated April 1, 1996. We also consent to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 24, 1996
<PAGE>
