As filed with the Securities and Exchange Commission on February 4, 1998
Registration No. 333-45057
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------------
MEDTOX SCIENTIFIC, 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.)
402 West County Road D
St. Paul, Minnesota 55112
(612) 636-7466
(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 Robert Ribeiro
MEDTOX SCIENTIFIC, INC. Hinshaw & Culbertson
402 West County Road D Suite 3300
St. Paul, Minnesota 55112 222 South Ninth Street
(612) 636-7466 Minneapolis, Minnesota 55402
(Name, address, including zip code, (612) 333-4800
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 ]
<PAGE>
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 (1) price fee
- ------------- ---------- --------- ----- ---
Common Stock, 775,363 $.3125 $242,300.94 $83.54 (2)
par value $.15
per share
(1) Estimated solely for purposes of calculating the registration fee
based upon the closing price reported on the American Stock Exchange on January
26, 1998.
(2) Previously paid.
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.
<PAGE>
MEDTOX SCIENTIFIC, 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 FEBRUARY 4, 1998
775,363 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.
MEDTOX SCIENTIFIC, INC.
This Prospectus relates to an aggregate total of 775,363 shares of
Common Stock, par value $.15 per share (the "Common Stock") of MEDTOX
Scientific, Inc. (the "Company") issued to former shareholders of MLI
Dissolution, Inc., ("MEDTOX" or "MLI") formerly MEDTOX Laboratories, Inc.
pursuant to an Asset Purchase Agreement between the Company and MLI (the "MEDTOX
Agreement"). The MEDTOX Shareholders 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" ON PAGE 7.
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.
<PAGE>
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 "TOX". On January 26, 1998, the closing
price of the Common Stock as reported by the American Stock Exchange was $.3125
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.
(4) Without deduction of expenses for the offering (all of which will be
borne by the Company), estimated to be approximately $10,000.
The date of this Prospectus is February 4, 1998.
<PAGE>
(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 Commission maintains a web site that contains
reports, proxy and information statements, and other information regarding
issues that are filed electronically with the Commission. The address of the web
site is http:// www.sec.gov.
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, 86 Trinity Place, New York, NY 10006.
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:
<PAGE>
a. Amendment No. 1 to Form 10-Q for the three months ended March 31, 1996.
b. Amendment No. 1 to Form 10-Q for the three months ended June 30, 1996.
c. Amendment No. 1 to Form 10-Q for the three months ended September 30,
1996.
d. The Company's Report on Form 10-K for the fiscal year ended December 31,
1996.
e. Amendment No. 1 to Form 10-K for the fiscal year ended December 31,
1996.
f. Amendment No. 2 to Form 10-K for the fiscal year ended December 31,
1996.
g. The Company's Report on Form 10-Q for the quarter ended March 31, 1997.
h. Amendment No. 1 to Form 10-Q for the three months ended March 31, 1997.
i. The Company's Report on Form 10-Q for the three months ended June 30,
1997.
j. Amendment No. 1 to Form 10-Q for the three months ended June 30, 1997.
k. The Company's Report on Form 10-Q for the three months ended September
30, 1997.
l. Description of the Common Stock contained under the caption "Description
of Registrant's Securities to be Registered" in the Company's Registration
Statement onForm 8-A filed pursuant to Section 12(g) of the Exchange Act.
There have been no material transactions since the date of the latest
balance sheet at December 31, 1996 of the Company that would materially change
or otherwise affect the financial condition of the Company or the results of
operations of the Company.
<PAGE>
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 MEDTOX Scientific, Inc., Attention: Secretary, 402 West
County Road D, St. Paul, Minnesota 55112, (612) 636-7466.
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.
<PAGE>
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 financing and other
factors which are described herein and/or in documents incorporated by reference
herein.
The cautionary statements made pursuant to the Private Securities
Litigation 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. Dilutive Effect on Market Price of Common Stock. In order to fund
the Company's history of operating losses, the Company has issued from 1991
through 1996 shares of Common Stock in a number of private transactions. In
addition, in 1996 and 1997, the Company has issued through December 31, 1997 a
total of 45,285,331 shares of Common Stock as a result of the Company's
acquisition of MEDTOX in January, 1996, including the 775,363 shares being
offered in this Prospectus. These shares were issued to converting holders of
the Series A Preferred Stock and the former shareholders of MEDTOX. Accordingly,
at December 31, 1995 the Company had 10,439,775 shares of Common Stock
outstanding and at December 31, 1997 the Company had 56,828,173 shares of Common
Stock outstanding. The issuance of the additional shares of Common Stock
throughout 1996 and 1997 has had and may continue to have a substantial dilutive
effect on the market price of the Common Stock. See Risk Factors "Dependence on
Sales of Equity," "Shares Available for Future Sale," "Availability of
Regulation S Common Stock in the Market" and Adverse Effect of Registered
Shares."
2. Dependence on Sales of Equity. As of December 31, 1996, the Company
had not achieved a positive cash flow from operations. Accordingly, the Company
has in the past relied and may continue to rely on available credit
<PAGE>
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, 1996, the Company raised
approximately $12 million from equity financing through the issuance of
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. Additionally, in order to finance, in part, the
acquisition of MEDTOX, pay costs and expenses applicable to such acquisition and
to provide working capital, the Company raised approximately $20 million from
the sale of shares of Series A Preferred Stock and shares of Common Stock. The
funds raised through the issuance of equity and the Company's borrowings
pursuant to the Loan Agreement (as hereinafter defined) have allowed the Company
to consummate the MEDTOX acquisition and the Company believes should sustain the
Company's operations until such time as the Company achieves consistent positive
cash flow. If the Company is unable to achieve a consistent 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 thereof will be
favorable to the Company.
3. Operating Losses; Uncertainty of Sales Growth and Market Acceptance
of Products and Services. From its inception in June 1983 through September 30,
1997, the Company accumulated a deficit from operations of approximately $46
million. The Company currently derives approximately 89% of its revenue from the
sale of its Laboratory Testing Services and approximately 5% 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 the
ability to develop, introduce and successfully market new 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 successfully develop,
introduce and market the new on-site test kits. Additionally, there can be no
assurance that the Company will achieve profitability or that the Company will
achieve savings from the integration of laboratory operations. (See "Risk
Factors - Obsolescence and Technological Change" and "Risk Factors - Government
Regulation").
4. Company Debt. On January 14, 1998, the Company entered into a Credit
and Security Agreement (the "Norwest Credit Agreement") with Norwest Business
Credit ("Norwest"). The Norwest Credit Agreement consists of (i) a term loan of
<PAGE>
$2,125,000 which matures on January 15, 2001, (ii) a term loan of $700,000 which
matures on January 15, 1999, (iii) a revolving line of credit based upon the
balance of the Company's trade accounts receivable, and (iv) a note of up to
$1,200,000 for the purchase of capital equipment for 1998. The Company borrowed
$2.0 million of an available $2.8 million under the revolving line of credit.
The term loan of $2,125,000 carries an interest rate equal to 1.25% above the
publicly announced rate of interest by Norwest Bank Minnesota, N.A. (the "Base
Rate"). The $700,000 term loan has an interest rate equal to 3.00% above the
Base Rate while the revolving line of credit carries an interest rate equal to
3.00% above the Base Rate. The note for the capital expenditures carries an
interest rate equal to 1.25% above the Base Rate. The Company utilized $4.5
million of the proceeds received from Norwest to pay off the outstanding loan
balances owed to its former lender. The Company had been in default of certain
loan covenants with its previous lender.
5. Adverse Effect of Registered Shares. The Company filed a Registration
Statement, Reg. No. 333-827, declared effective by the Securities and Exchange
Commission on May 15, 1996, which registered for resale by certain shareholders
11,798,193 shares of the Company's Common Stock. The Company filed a
Registration Statement, Reg. No. 333-18547, declared effective by the Securities
and Exchange Commission on February 13, 1997, which registered for resale by
certain shareholders 8,396,755 shares of the Company's Common Stock. The Company
filed a Registration Statement, Reg. No. 333-28783, declared effective by the
Securities and Exchange Commission on October 8, 1997, which registered for
resale by certain shareholders 3,652,689 shares of the Company's Common Stock.
As of January 15, 1998, there are no amounts due to the former lender.
Substantial sales of shares of Common Stock pursuant to the Registration
Statement may have a material adverse effect on the market price of the
Company's Common Stock.
6. Shares Available for Future Sale. As of December 31, 1997, the
Company had 60,000,000 shares of Common Stock authorized, of which 56,828,173
were outstanding. Of the outstanding shares, 9,870,546 shares of the Common
Stock (Regulation S Common Stock) were issued to Converting Preferred Holders
who received share(s) of Series A Preferred Stock ("Regulation S Preferred
Stock") pursuant to an offering by the Company pursuant to Regulation S (the
"Regulation S Offering") under the Securities Act of 1933, as amended (the
"Act") completed on January 30, 1996 and February 2, 1996 and who exercised the
right to convert such shares into Common Stock (the "Conversion Right"), and
8,528,962 shares issued to and continue to be held by MLI Shareholders ("MLI
Holder Common Stock").
On January 26, 1998, the Company received a Notice of Conversion for
the remaining four shares of Series A Preferred Stock. A total of 1,066,667
<PAGE>
shares of Common Stock will be issued for the conversion of the four shares of
Series A Preferred Stock.
Pursuant to the Conversion Right applicable to each share of Series A
Preferred Stock, each such share may be converted to the Conversion Amount of
Common Stock ("Conversion Shares"). The "Conversion Amount" is derived by
dividing (i) $50,000 (the purchase price of one share of Series A Preferred
Stock) by (ii) the lower of (x) $2.775 or (y) 75% of the Market Price of the
Common Stock on the date the Conversion Right is exercised. The "Market Price"
is defined as the daily average of the closing bid prices quoted on the AMEX (or
other exchange on which the Common Stock is traded) for the five trading days
immediately preceding the date the Conversion Right is exercised.
Regulation S Common Stock and Regulation S Preferred Stock are subject
to certain restrictions on trading. See "Risk Factors--Availability of
Regulation S Common Stock in the Market." Pursuant to certain agreements, the
Company, by means of this Registration Statement, is providing for the
registration under the Act of the Conversion Shares with respect to the
Regulation D Preferred Stock.
The MEDTOX Agreement provides that, if after the Closing Date, the
average closing sales prices of the Company's Common stock on the Repricing
Dates and the four trading days preceding the Repricing Date (the "Repricing
Date Market Price") of the Common Stock declines below $1.986 per share during
four specified periods (the "Repricing Periods"), the Company will issue
additional shares of Common Stock ("Price Protection Shares") to the MLI
Shareholders who retain their MLI Holder Common Stock through four specified
dates (the "Repricing Dates"). The "Repricing Dates" are the fifth trading days
following the date the Company 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. The
Repricing Periods are the dates between the dates of the press releases and the
Repricing Dates immediately following such press releases. The number of Price
Protection Shares to be issued will be such that after such issuance of Price
Protection Shares, the MLI Holder Common Stock and any previously issued Price
Protection Shares (the "Applicable Shares), are equal in value to the product
determined by multiplying (a) the number of Applicable Shares still held by the
MLI Shareholder after the close of trading on the day immediately preceding the
Repricing Date, by (b) the Price Protection Price. The right to receive Price
Protection Shares is void upon a sale by an MLI Holder of his MLI Holder Common
Stock.
The first Repricing Date was on May 21, 1996. The number of Price
Protection Shares issued was 1,119,057. The second Repricing Date was November
21, 1996 which resulted in the issuance of 1,293,458 Price Protection Shares.
<PAGE>
The third Repricing Date was March 27, 1997 which resulted in the issuance of
5,168,363 Price Protection Shares. The fourth and final Repricing Date was
November 19, 1997 which resulted in the issuance of the 775,363 Price Protection
Shares offered pursuant to this Prospectus.
The Company has granted certain warrants and options to purchase
1,832,596 shares of Common Stock at exercise prices ranging from $1.41 to $7.19
per share.
No prediction can be made as to the effect, if any, that the future
issuance of shares of Common Stock, or the availability of shares of Common
Stock for future sales, will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock or
the perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock. See "Future Sales of Common Stock."
7. Unexpected Effects of Merger(s). The Company completed the
acquisition of the MEDTOX assets on January 30, 1996 (the "Closing Date"). 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. The consolidation
took place throughout 1996 and to date has been successful in generating cost
savings while maintaining the customer base. While the Company continues to work
to take advantage of other synergies, there can be no assurance that any
additional synergism or benefit to the Company will arise from the laboratory
consolidation. The efforts required to integrate the business of the Company
with other operations could have a material adverse effect on the operations of
the Company.
8. Availability of Regulation S Common Stock in the Market. As of
December 31, 1997, there were 4 shares of Regulation S Preferred Stock and
24,139,423 shares of Regulation S Common Stock issued. On January 26, 1998, the
Company received a Notice of Conversion for the remaining four shares of Series
A Preferred Stock. A total of 1,066,667 shares of Common Stock will be issued
for the conversion of the four shares of Series A Preferred Stock. Any shares of
Regulation S Preferred Stock with respect to which the Conversion Right is
exercised would yield additional outstanding shares of Regulation S Common
Stock.
Regulation S provides generally that offers or sales of securities 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 only
for offers and sales of securities to investors that are not U.S. persons as
defined in Regulation S.
<PAGE>
Pursuant to Regulation S, the offshore investors who purchased the
Regulation S Preferred Stock in the Regulation S Offering are not permitted to
transfer such Regulation S Preferred Stock or Regulation S Common Stock to a
U.S. person for a period of at least 40 days after February 2, 1996, the closing
of the Regulation S Offering, on March 30, 1996, whereupon such Shares may be
sold in the U.S. only if they are registered under the Act or an exemption from
registration is available. Neither the Regulation S Preferred Stock or the
Regulation S Common Stock are registered. Resales to buyers who are not U.S.
persons are permitted at any time. As a result of settlements of litigation with
certain holders of the Regulation S Common Stock, 2,193,156 shares of Regulation
S Common Stock have been registered.
The agreements between the Company and the holders of the Regulation S
Preferred Stock provide that the stock certificates with respect to the
Regulation S Preferred Stock and the Regulation S Common Stock will not contain
legends restricting the transfer of such securities. Consequently, such stock
certificates have not been legended, the Company is unable to prevent illegal
resales of the Regulation S Preferred Stock and the Regulation S Common Stock
and each holder thereof will make its own determination whether transfers of
such stock are permitted. The Company will seek to work with the holders of the
Regulation S Preferred Stock and the Regulation S Common Stock to assure
compliance with securities laws upon resales thereof. The Company intends to
monitor trading in its stock closely, but there can be no assurance that the
original holders of the Regulation S Preferred Stock and the Regulation S Common
Stock will comply with the requirements of Regulation S with respect to such
shares. Additionally, there can be no assurance that the issues related to
resale of the Regulation S Common Stock will not have a material adverse effect
on the Company, including the ability of the Company to raise additional capital
in the future.
No prediction can be made as to the effect, if any, that the sale of
shares of Regulation S Preferred Stock and Regulation S Common Stock, or the
availability of such shares for future sales, will have on the market price of
the Common Stock prevailing from time to time. Sales of substantial amounts of
Regulation S Common Stock or the perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock. See "Future
Sales of Common Stock."
9. Litigation by Holders of Series A Preferred Stock and Possible
Litigation by MLI Shareholders. On December 20, 1996, the Company held a special
meeting of the holders of its Common Stock (the "Shareholder Meeting") whereupon
such shareholders voted to amend the Company's Certificate of Incorporation (the
"Certificate") to increase the amount of authorized Common Stock from 30 million
shares to 60 million shares. Prior to the Shareholder Meeting, the Company was
unable to meet requests to issue 1,119,057 Price Protection Shares, 4,133,702
<PAGE>
Conversion Shares, as well as obligations to register certain of such shares,
and 15,061,766 shares of the Regulation S Common Stock due to the fact that
there were an insufficient number of shares of Common Stock authorized for
issuance.
As a result of the Shareholder Meeting, the Company is now authorized
to issue sufficient shares to comply with its obligations to issue such shares
and the registration of Common Stock pursuant to this Registration Statement
will cause the Company to comply with its obligation to register certain of such
shares. As of December 20, 1996, five separate lawsuits had been commenced
against the Company by certain holders of the Series A Preferred Stock. Each of
the five lawsuits has been settled and dismissed with prejudice. As of September
30, 1997, the Company has issued all of the 4,133,702 Conversion Shares and
6,119,915 shares of the Regulation S Common Stock. The Company may be subject to
additional litigation by the MLI Shareholders and/or certain former holders of
Series A Preferred Stock who may claim damages resulting from delays in the
issuance or registration of shares.
10. Obsolescence and Rapid, Significant 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 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.
11. Intense 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. Many of the competitors and
potential competitors have substantially greater financial and other resources
than the Company. 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 laboratory procedures
for the more specialized testing that are unique to the Company.
Competitive factors include reliability and accuracy of tests,
price structure, service (including turn-around time of reporting results and
the quality and reliability of results), transportation collection networks and
<PAGE>
the ability to establish relationships with hospitals, physicians, and users of
drug abuse testing programs.
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.
A large portion of the business of MEDTOX is comprised of a
segment of the laboratory testing business in which quality of service has been
a more important competitive factor than price. Accordingly, MEDTOX's ability to
compete successfully with respect to service has allowed MEDTOX to generate
positive gross margins and operating income from the laboratory operation. The
Company's ability to successfully compete in the future and maintain its margins
will be based on its ability to maintain its quality and customer service
strength while maintaining laboratory testing 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.
On-Site Diagnostic 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.
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.
12. 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.
<PAGE>
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.
13. Government Regulation. The products and services of the
Company are subject to the regulations of a number of governmental agencies as
listed below. The Company believes that it is currently in compliance with all
the regulations and requirements of such 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. Any failure by the
Company to comply with applicable government regulations or requirements could
have a material adverse effect on the Company.
a. United States Food and Drug Administration (FDA). Certain
tests that the Company markets for administration to humans must be cleared by
the FDA through the 510(k) process prior to their marketing in the United
States. The 510(k) process 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
<PAGE>
days. To date, the Company has received 510(k) clearance for 11 different
products and the average time for clearance was 72 days with a maximum of 141
days and a minimum of 20 days. 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. If the Company fails to comply with the FDA's
regulatory requirements, the Company would be subject to FDA enforcement
activities which 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 the Company 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. There can be no assurance that any future products will
receive a favorable complexity category. Any failure to receive such favorable
complexity category may have a material adverse effect on the Company. In
addition, the laboratory at MEDTOX is a CLIA licensed laboratory.
c. 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 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.
d. 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
<PAGE>
laboratories are registered with the DEA to conduct chemical analyses with
controlled substances. The Company's manufacturing facility in North Carolina 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.
e. Substance Abuse and Mental Health Services Administration
(SAMHSA). MEDTOX laboratories is certified by SAMHSA, and has been 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 negatively impacting revenues from laboratory
operations and have a material adverse impact on the Company.
f. Additional Laboratory Regulations. The MEDTOX laboratory
and certain of the laboratory personnel are licensed or otherwise regulated by
certain federal agencies, states, and localities in which MEDTOX conducts
business. Federal, state and local laws and regulations require 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 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.
The MEDTOX laboratory receives and uses 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.
14. 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
<PAGE>
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.
15. 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.
16. 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.
17. 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 Agreement.
See "Number of Shares of Common Stock Rights of Series A Preferred Stock" and
"Number of Shares of Common Stock - Debt Financing."
18. 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
<PAGE>
damages. The Company is unaware of any product liability claims that are pending
against it.
The MEDTOX laboratory testing services are primarily diagnostic and
expose the laboratory to the risk of liability claims. MEDTOX has retained
continuous professional and general liability insurance coverage since 1984. To
date MEDTOX has not had any substantial liability and no material professional
service claims currently pending against MEDTOX.
19. Applicability of Delaware Anti-Takeover Law. The Company is subject
to the provisions of Section 203 of the Delaware General Corporation Law.
Section 203 provides, with certain exceptions, that a Delaware corporation may
not engage in certain business combinations with a person or affiliate or
associate of such person who is an "interested stockholder" for a period of
three years from the date such person became an interested stockholder unless:
(i) the transaction resulting in the acquiring person's becoming an interested
stockholder, or the business combination, is approved by the board of directors
of the corporation before the person becomes an interested stockholder; (ii) the
interested stockholder acquires 85% or more of the outstanding voting stock of
the corporation in the same transaction which makes it an interested stockholder
(excluding certain employee stock option plans); or (iii) on or after the date
the person becomes an interested stockholder, the business combination is
approved by the corporation's board of directors and by the holders of at least
66 2/3% of the corporation's outstanding voting stock at an annual or special
meeting, excluding shares owned by the interested stockholder. Except as
otherwise specified in Section 203, an " interested stockholder" is defined as
any person that is (a) the owner of 15% or more of the outstanding voting stock
of the corporation, (b) an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the three year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder, or
{(c) the affiliates or associates of any such person}. By restricting the
ability of the Company to engage in business combinations with an interested
person, the application of Section 203 to the Company may provide a barrier to
hostile or unwanted takeovers. Under Delaware law, the Company could have opted
out of Section 203 but elected to be subject to its provisions.
20. 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
<PAGE>
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 may limit
the price that certain investors may be willing to pay in the future for shares
of the Company's Stock.
SELLING SHAREHOLDERS
This Prospectus relates to an aggregate total of 775,363 shares of
Common Stock which are issued or are issuable to the Selling Shareholders.
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>
Percent
Material Securities Common Stock
Relationship Had Securities Beneficially Owned After
With the Company Beneficially Owned Owned After Completion
Name of Selling Within Past Three As of November 19, Securities Completion of Offering
Shareholder Years 1997, (1) Offered Hereby of Offering (2)
----------- ----- ---- -------------- --------
<S> <C> <C> <C> <C> <C>
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
MEDTOX SHAREHOLDERS:
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
John Walker Abelson
& Beverly Jean Abelson Shareholder 11,905 1,082 10,823 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
James S. Arrington Shareholder 224,785 20,435 204,350 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Richard A. Brotherton Shareholder 629,391 57,217 572,174 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Robert Brotherton Shareholder 134,870 12,261 122,609 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Judd Y. Carpenter Shareholder 263,000 23,909 239,091 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Matthew S. Carpenter Shareholder 90,039 8,185 81,854 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Scott M. Carpenter Shareholder 263,000 23,909 239,091 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Walter S. Carpenter and
Elsa M. Carpenter,
Trustees of the Walter S.
Carpenter Revocable Trust
Shareholder 105,122 9,557 95,565 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Louis B. Hauser and Mary
M. Hauser Shareholder 70,799 6,436 64,363 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
D. Gary Hemphill Shareholder 481,136 43,740 437,396 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Donald Hunt and Johanne
Hunt Shareholder 102,507 9,319 93,188 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
William A. Jetter and Mary
E. Jetter Shareholder 251,755 22,887 228,868 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
<PAGE>
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Marian M. Johnson, et al.,
Trustees of the Marian M.
Johnson Revocable Trust
Shareholder 82,341 7,486 74,855 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Ann C. Kay Shareholder 263,000 23,909 239,091 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Paul A. Kay Shareholder 187,470 17,043 170,427 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Kingsley R. Labrosse Shareholder 113,606 10,328 103,278 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Mary J. Labrosse Shareholder 165,007 15,001 150,006 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Shareholder/Pres./
Harry G. McCoy Chairman 2,732,837 227,049 2,505,788 4.5%
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Harry G. McCoy and
Julia McCoy Shareholder 730,099 66,373 663,726 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Charles F. Mettille and
Anita Mettille Shareholder 179,826 16,348 163,478 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Frank Mettille Shareholder 449,570 40,870 408,700 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Clifford T. Orton and Ruth
L. Orton Shareholder 181,106 16,464 164,642 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Clifford T. Orton, Jr. and
Andrea K. Orton Shareholder 12,264 1,115 11,149 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Andre C. Pool Shareholder 30,785 2,799 27,986 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Katherine L. Seifert Shareholder 51,249 4,659 46,590 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Michael Spiten and Linda
Spiten Shareholder 46,305 4,210 42,095 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Harriet A. Thomas Shareholder 427,093 38,827 388,266 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Lowell Van De Riet and
Mary Van De Riet Shareholder 163,646 14,887 148,769 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Cynthia K. Veit Shareholder 139,917 12,720 127,197 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Donald Veit Shareholder 89,915 8,174 81,741 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
Cheryl Wachenheim Shareholder 89,915 8,174 81,741 *
- ---------------------------- -------------------- -------------------- ---------------- -------------- --------------
</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.
(3) 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 Agreement.
PLAN OF DISTRIBUTION
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
<PAGE>
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. To the extent required, the type and number
of Shares to be sold, the purchase price and public offering price, the name or
names of any agent, dealer or underwriter, and any applicable commissions or
discounts with respect to a particular offering will be set forth in an
accompanying Prospectus Supplement to this Prospectus.
RECENT DEVELOPMENTS
On January 14, 1998, the Company entered into a Credit and Security
Agreement with Norwest Business Credit. The Company utilized certain of the
proceeds to pay off its remaining loan obligation with its previous lender. See
"Risk Factors: Company Debt."
On January 31, 1997, the Company initiated litigation against Morgan
Capital LLC and two of Morgan Capital's principals, David Bistricer and Alex
Bistricer, to recover short-swing profits under 16b of the Securities Exchange
Act of 1934. David and Alex Bistricer are former members of the Company's Board
of Directors. The complaint alleges that at a time when the defendants
beneficially owned more than 10 percent of the Company's common stock, the
Company's common stock was purchased and subsequently sold on several occasions
within six months and the defendants realized in excess of $500,000 in
short-swing profits. The lawsuit was filed in Federal court in St. Paul, MN.
On August 4, 1997, the U.S. District Court granted Defendants' motion
to dismiss the Company's complaint, ruling that the Defendants' conduct did not
constitute a violation of Section 16(b). On October 29, 1997, the Company filed
an appeal of that decision to the United States Court of Appeals for the Eighth
Circuit. That appeal is currently pending.
<PAGE>
EXPERTS
The consolidated financial statements of MEDTOX Scientific, Inc.
(formerly EDITEK, Inc.) included its Annual Report (Form 10-K/A-2) for the year
ended December 31, 1996 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
LEGAL MATTERS
Legal matters in connection with the issuance of the Common Stock
offered hereby will be passed upon for the Company by Hinshaw & Culbertson
("Hinshaw"). As of December 31, 1997, attorneys at Hinshaw 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 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
<PAGE>
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.
<PAGE>
PROSPECTUS
MEDTOX SCIENTIFIC, INC.
February 4, 1998
TABLE OF CONTENTS
Page
Available Information ..................................... 4
Incorporation of Certain Information by Reference ... 4
Risk Factors ................................................. 7
Selling Shareholders ....................................... 20
Plan of Distribution ........................................ 21
Recent Developments ......................................... 22
Experts ....................................................... 23
Legal Matters ............................................... 23
Indemnification and Limitation of Liability .................. 23
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.
<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 $ 83.54
Legal Fees 5,000.00
Accounting Fees and Expenses 3,000.00
Miscellaneous 1,000.00
------------------------------- ---------------
Total $ 9,083.54
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
<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
<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.
<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.
<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.
<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 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.
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.
<PAGE>
Item 16. Exhibits
5.1 Legal Opinion of Hinshaw & Culbertson
23.1 Consent of Hinshaw & Culbertson
(Contained in Exhibit 5.1)
23.2 Consent of Ernst & Young 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.
<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.
<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 February 4,
1998.
MEDTOX SCIENTIFIC, INC.
By /s/ Harry G. McCoy
Harry G. McCoy, Pharm.D.
President 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/ Harry G. McCoy President and February 4, 1998
Harry G. McCoy, Pharm.D. Chairman of the Board
/s/ Richard J. Braun Chief Executive Officer February 4, 1998
Richard J. Braun and Director
/s/ Peter J. Heath Vice President of February 4, 1998
Peter J. Heath Finance and C.F.O.
/s/ Samuel C. Powell Director February 4, 1998
Samuel C. Powell, Ph.D.
/s/ Louis Perlman Director February 4, 1998
Louis Perlman
/s/ James W. Hansen Director February 4, 1998
James W. Hansen
/s/ Miles E. Efron Director February 4, 1998
Miles E. Efron
* 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
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
5.1 Legal Opinion of Hinshaw & Culbertson
23.1 Consent of Hinshaw & Culbertson
(Contained in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
Exhibit 5.1
(Hinshaw & Culbertson letterhead)
February 3, 1998
MEDTOX Scientific, Inc.
1238 Anthony Road
Burlington, North Carolina 27215
Re: Registration Statement on Form S-3, Registration No. 333-45057
Ladies and Gentlemen:
We have acted as counsel to MEDTOX Scientific, Inc., a Delaware corporation (the
"Company") in connection with a Registration Statement on Form S-3, Registration
No. 333-45057 (the "Registration Statement") filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, relating to
the sale of up to 775,363 shares of common stock of the Company, par value $.15
per share ("Common Stock"), of which all such shares will be sold from time to
time by the Selling Shareholders named in the Registration Statement, on the
American Stock Exchange or otherwise, directly or through underwriters, brokers
or dealers.
We have examined such documents and have reviewed such questions of law as we
have considered necessary and appropriate for the purposes of our opinions set
forth below. In rendering our opinions set forth below, we have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures and the conformity to authentic originals of all documents
submitted to us as copies. We have also assumed the legal capacity for all
purposes relevant hereto of all natural persons and, with respect to all parties
to agreements or instruments relevant hereto other than the Company, that such
parties had the requisite power and authority (corporate or otherwise) to
execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to questions of fact material to our opinions, we have relied
upon certificates of officers of the Company and of public officials.
<PAGE>
MEDTOX Scientific, Inc.
February 3, 1998
Page 2
Based on the foregoing, we are of the opinion that the shares of Common Stock
which have been issued to the Selling Shareholders have been duly authorized by
all requisite corporate action and are validly issued, fully paid and
nonassessable and the shares of Common Stock which have not yet been issued to
the Selling Shareholders have been duly authorized by all requisite corporate
action and, upon issuance, will be validly issued, fully paid and nonassessable.
Our opinions expressed above are limited to the general corporation laws of the
State of Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters" in the Prospectus constituting part of the Registration Statement.
Very truly yours,
Hinshaw & Culbertson
By /s/ Robert R. Ribeiro
Exhibit No. 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-45057) and related Prospectus of MEDTOX
Scientific, Inc. (formerly EDITEK, Inc.) for the registration of 775,363 shares
of its common stock and to the incorporation by reference therein of our report
dated February 21, 1997, except for Note 12, as to which the date is July 18,
1997, with respect to the consolidated financial statements and financial
statement schedule of MEDTOX Scientific, Inc. included in its Annual Report
(Form 10-K/A-2) for the year ended December 31, 1996, filed with the Securities
and Exchange Commission.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
February 4, 1998
