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As Filed With the Securities and Exchange Commission on February 26, 1999
Registration No. 333-______
SECURITIES AND EXCHANGE COMMISSION
Washington. D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NEOTHERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)
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Delaware 93-0979187
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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157 Technology Drive, Irvine, California 92618
(949) 788-6700
(Address, including zip code, and telephone number,
including area code of registrant's principal executive offices)
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Alvin J. Glasky, Ph.D., President and Chief Executive Officer
157 Technology Drive
Irvine, California 92618
(949) 788-6700
(Name, address, including zip code, and telephone number,
including area code of agent for service)
Copies to:
C. Craig Carlson, Esq.
Robert E. Rich, Esq.
Stradling Yocca Carlson & Rauth, a Professional Corporation
660 Newport Center Drive, Suite 1600, Newport Beach, California 92660
Approximate date of commencement of proposed sale to public: As soon
as practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being
offered pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier registration statement for the
same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed maximum Proposed maximum Amount of
Title of securities Amount to be offering price aggregate offering registration
to be registered registered(1) per share price fee
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Common Stock issuable upon
conversion of Series A 658,500(2) $ 8.03(3) $5,288,578 $1,470.23
Preferred Stock
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Common Stock issuable upon
exercise of warrants 75,000 $12.98(4) $ 973,500 $ 270.63
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Total 733,500 $6,262,078 $1,740.86
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(1) In the event of a stock split, stock dividend, or similar transaction
involving the Company's common stock, in order to prevent dilution, the
number of shares registered shall automatically be increased to cover the
additional shares in accordance with Rule 416(a) under the Securities Act.
(2) The number of shares registered hereby has been determined by agreement
and includes (i) 612,558 shares of common stock, which represents 200% of
the number of shares of common stock that would be issuable upon conversion
of the Series A Preferred Stock at the initial conversion price of $13.06
per share, and (ii) 45,942 shares of common stock, which represents the
number of additional shares of common stock that would be issuable upon
conversion if no cash dividends are paid on the Series A Preferred Stock,
all such shares are held for a period of three years prior to conversion,
and assuming a conversion price of $13.06 per share.
(3) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended, on the
basis of the average of the high and low reported sale prices of the
Registrant's common stock on February 25, 1999, as reported on the Nasdaq
National Market.
(4) The exercise price of the Warrant, used for the purpose of calculating
the amount of the registration fee in accordance with Rule 457(g) under the
Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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Subject to Completion
February ___, 1999
The information in this prospectus is not complete and may be
changed. The selling stockholders may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
Up to 733,500 Shares of
NEOTHERAPEUTICS, INC.
Common Stock
Our common stock is traded on the Nasdaq National Market under the
symbol "NEOT." On February __, 1999, the closing price of our common stock was
$______.
These shares of common stock are being sold by the holders of certain
of our securities, which holders are listed under the heading "Selling
Stockholders." The selling stockholders previously received the shares from us
or will receive the shares from us by converting previously issued preferred
stock or by exercising previously issued common stock purchase warrants. We will
not receive any of the proceeds from the sales of the shares by the selling
stockholders.
Investing in our common stock involves many risks. See "Risk Factors"
beginning on page 4.
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Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or passed
upon the accuracy or adequacy of the prospectus. Any representation to the
contrary is a criminal offense.
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The date of this prospectus is ________ __, 1999.
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TABLE OF CONTENTS
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Page
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Where You Can Find More Information.....................................2
About NeoTherapeutics, Inc..............................................3
Risk Factors............................................................4
Forward-Looking Statements..............................................9
Issuance of Common Stock to Selling Stockholders.......................10
Use of Proceeds........................................................10
Selling Stockholders...................................................11
Plan of Distribution...................................................13
Legal Matters..........................................................14
Experts................................................................14
Limitation of Liability and Disclosure of Commission Position on
Indemnification For Securities Act Liabilities......................14
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, and Chicago.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Our SEC filings are also available to the public at the SEC's
web site at http://www.sec.gov.
The SEC allows us to "incorporate by reference" the information we
file with them which means that we can disclose important information to you by
referring you to those documents instead of having to repeat the information in
this prospectus. The information incorporated by reference is considered to be
part of this prospectus, and later information that we file with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings made with the SEC under
Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 until
the selling stockholders sell all the shares.
Annual Report on Form 10-K for the fiscal year ended December 31,
1998;
The definitive Proxy Statement of the Company filed pursuant to
Section 14 of the Exchange Act in Connection with the 1998 Annual Meeting of
Stockholders of the Company.
Current Reports on Form 8-K filed January 28, 1999 and February 9,
1999; and
The description of the Company's common stock contained in the
Registration of Securities of Certain Successor Issuers filed pursuant to
Section 12(g) of the Exchange Act on Form 8-B on June 27, 1997, including any
amendment or reports filed for the purpose of updating such description.
You can request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
NeoTherapeutics, Inc.
Attn: Investor Relations
157 Technology Drive
Irvine, California 92618
(949) 788-6700
You should rely only on the information contained in this prospectus
or any supplement and in the documents incorporated by reference. We have not
authorized anyone else to provide you with different information.
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The selling stockholders will not make an offer of these shares in any state
where the offer is not permitted. You should not assume that the information in
this prospectus or any supplement or in the documents incorporated by reference
is accurate on any date other than the date on the front of those documents.
This prospectus is part of a registration statement we filed with the
SEC (Registration No. 333-___________). More information about the shares sold
by the selling stockholders is contained in that registration statement and the
exhibits filed along with the registration statement. Because information about
contracts referred to in this prospectus is not always complete, you should read
the full contracts which are filed as exhibits to the registration statement.
You may read and copy the full registration statement and its exhibits at the
SEC's public reference rooms or their web site.
ABOUT NEOTHERAPEUTICS
NeoTherapeutics, Inc. is a development stage biopharmaceutical company
engaged in the discovery and development of novel therapeutic drugs intended to
treat neurological diseases and conditions, such as memory deficits associated
with Alzheimer's disease and aging, stroke, spinal cord injuries, Parkinson's
disease, migraine and obesity. Our initial product candidate, Neotrofin(TM)
(AIT-082, leteprinim potassium) and other compounds under development are based
on our patented technology. This technology uses small synthetic molecules to
create non-toxic compounds, intended to be administered orally or by injection,
that are capable of passing through the blood-brain barrier to rapidly act upon
specific target cells in specific locations in the central nervous system,
including the brain. Animal and laboratory tests have shown that our AIT-082
compound appears to selectively increase the production of certain neurotrophic
factors, a type of large protein, in the areas of the brain implicated in
memory. These neurotrophic factors regulate nerve cell growth and function.
Neotrofin(TM) (AIT-082) has been developed to capitalize on the beneficial
effects of these proteins, which have been widely acknowledged to be closely
involved in the early formation and differentiation of the central nervous
system.
NeoTherapeutics, Inc. was incorporated in Colorado in December 1987
and reincorporated in Delaware in June 1997. All references to "we," "our" or
"NeoTherapeutics" refer to NeoTherapeutics, Inc. and its subsidiaries. Our
executive offices are located at 157 Technology Drive, Irvine, California 92618.
Our telephone number is (949) 788-6700.
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RISK FACTORS
An investment in the common stock involves a high degree of risk. You
should carefully consider the risks described below and the other information
contained in this prospectus before deciding to invest in our common stock. The
risks described below are not the only ones facing our company. Additional risks
not presently known to us or which we currently consider immaterial may also
adversely affect our company. If any of the following risks actually occur, our
business, financial condition and operating results could be materially
adversely affected. In such case, the trading price of our common stock could
decline, and you could lose a part or all of your investment.
Historical Operating Losses; Expected Continued Losses
We are considered to be a development stage company because we have not
generated revenues from sales. Moreover, even if we eventually generate revenues
from sales, we nevertheless expect to incur significant operating losses over
the next several years. From our inception in 1987 through September 30, 1998,
we have incurred cumulative losses of approximately $20.3 million, almost all of
which consisted of research and development and general and administrative
expenses. Our ability to become profitable will depend on (1) our development of
our proposed products, (2) our obtaining regulatory approvals for such products
and (3) our success in bringing these products to market. Many factors have a
bearing on our likelihood of long-term success. These include the expenses,
difficulties and delays frequently encountered in the development and
commercialization of new pharmaceutical products, competitive factors in the
marketplace and the burdensome regulatory environment in which we operate. It is
possible that we may never achieve significant revenues or become profitable.
Early Stage of Product Development; Risk of Failure
Our proposed products are in an early stage of development. They will
require additional research and development, clinical testing and regulatory
clearances. We do not currently sell any products and do not expect to have any
products commercially available for at least several years. Our proposed
products are subject to the risks of failure inherent in the development of
pharmaceutical products based on innovative technologies. Some of these risks
are that a proposed product (1) could be found to be ineffective or toxic, (2)
may fail to receive necessary regulatory clearances, (3) will be uneconomical to
manufacture or market, (4) may not be sold because of patent or other rights of
third parties or (5) becomes unmarketable because a third party introduces a
superior or equivalent product. As a result, we are unable to predict whether
our research and development activities will result in any commercially viable
products or applications. Our primary area of therapeutic focus, disorders of
the central nervous system, is not thoroughly understood and we cannot be
certain that our proposed products will prove to be safe or effective in
treating such disorders or any other diseases.
Need For Additional Funding; Uncertain Access To Capital
We will require substantial additional capital to further develop our
proposed products and to commercialize any products that may be developed. Our
capital requirements will depend on many factors, including (1) the progress of
our research and development programs, (2) the progress of pre-clinical and
clinical testing, (3) the time and cost involved in obtaining regulatory
approvals, (4) the cost of filing, prosecuting, defending and enforcing patent
claims and other intellectual property rights, (5) competing technological and
market developments and (6) our ability to establish collaborative and other
arrangements with third parties, such as licensing and manufacturing agreements.
On March 27, 1998, we entered into a Private Equity Line of Credit
Agreement with a private investor (the "Equity Line Agreement"). Under the
Equity Line Agreement the Company may sell shares of our common stock to the
investor at a price equal to 88% of the market price of the common stock at the
time of such sales, subject to certain limitations contained in the Equity Line
Agreement.
We believe that our existing capital resources, including the proceeds
from any future sales of our common stock under the Equity Line Agreement, will
be sufficient to satisfy our current and projected funding requirements for the
next 12 months. Thereafter, we may require substantial additional capital.
Moreover, if we experience unanticipated cash requirements during the next 12
months, we could require additional capital sooner. We may seek such additional
funding through public or private financing or collaborative or other
arrangements with third parties.
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We cannot be certain that additional funds will be available on acceptable
terms, if at all. From time to time, we may receive additional funds from the
exercise of our outstanding warrants and stock options, but we cannot be certain
that these will be exercised or that the amounts we receive will be sufficient
for our purposes. If we raise additional funds by issuing equity securities, our
existing stockholders may experience substantial dilution. We may be able to
obtain additional funds through sales of our common stock under our Equity Line
Agreement, but we may not be able to do so under certain circumstances. If
adequate funds are not available, we may be required to delay, scale back or
eliminate one or more of our development programs. Alternatively, we may obtain
funds by entering into arrangements with third parties. These arrangements may
require us to relinquish rights to certain of our products or technologies that
the we would not otherwise relinquish.
Dependence on Third Parties for Clinical Testing, Manufacturing and Marketing
Except with respect to our AIT-082 compound, we do not intend to
conduct later-stage human clinical trials ourselves or to manufacture any of our
proposed products for commercial sale nor do we have the resources necessary to
do so. We intend to seek larger pharmaceutical companies as partners to conduct
such activities. In connection with our efforts to secure corporate partners, we
will seek to retain certain co-marketing rights to certain of our proposed
products, so that we may promote such products to selected medical specialists
while our corporate partner promotes these products to the medical market
generally. We cannot be certain that we will be able to enter into any such
partnering arrangements on this or any other basis. In addition, we cannot be
certain that we or our potential corporate partners can successfully introduce
our proposed products or that such proposed products will achieve acceptance by
patients, health care providers and insurance companies. Further, it is possible
that we may not be able to manufacture and market our proposed products at
prices that would permit us to make a profit.
Lack of Operating Experience
To date, we have engaged exclusively in the development of
pharmaceutical technology and products. Our management has substantial
experience in pharmaceutical company operations, but NeoTherapeutics itself has
no experience in manufacturing or procuring products in commercial quantities or
in marketing pharmaceutical products and has only limited experience in
negotiating, setting up and maintaining strategic relationships, conducting
clinical trials and other later-stage phases of the regulatory approval process.
We cannot be certain that we will be able to successfully engage in any of these
activities with respect to any of our proposed products which we may attempt to
commercialize. If we decide to establish a commercial-scale manufacturing
facility for AIT-082, we will require substantial additional funds and personnel
and will be required to comply with extensive regulations applicable to such a
facility. We cannot be certain that we will be able to successfully develop
manufacturing or marketing capabilities either on our own or through third
parties.
Need to Comply with Governmental Regulation and to Obtain Product Approvals
Various regulatory agencies in the United States and abroad regulate
the testing, manufacturing, labeling, distribution, marketing and advertising of
our proposed products and our ongoing research and development activities. The
U.S. Food and Drug Administration ("FDA") and comparable agencies in foreign
countries impose many requirements on the introduction of new pharmaceutical
products through lengthy and detailed clinical testing procedures, sampling
activities and other costly and time consuming compliance procedures. Our
proprietary compounds will require substantial clinical trials and FDA review as
new drugs. We cannot predict with certainty when we might submit any of our
proposed products currently under development for regulatory review. Once we
submit a proposed product for review, there can be no assurance that FDA or
other regulatory approvals for any of our proposed products will be granted on a
timely basis, if at all. If we are delayed or fail to obtain such approvals, our
business and results of operations would be damaged. If we fail to comply with
regulatory requirements we could be subject to regulatory or judicial
enforcement actions. These actions could result in product recalls or seizures,
injunctions, civil penalties, criminal prosecution, refusals to approve new
products and withdrawal of existing approvals, as well as potentially enhanced
product liability exposure. If we sell our products outside the United States,
we will be subject to regulatory requirements governing such sales. These
requirements vary widely from country to country and could delay introduction of
our proposed products in those countries.
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Dependence on Key Personnel
Our success will depend largely upon the contributions of our key
management and scientific personnel. If we lose the services of any such
personnel we could be delayed in or precluded from achieving our business
objectives. Although we currently have key-man life insurance on Dr. Alvin
Glasky in the face amount of $2 million, the loss of Dr. Glasky's services could
substantially damage our business. We will need substantial additional expertise
in such areas as finance and marketing, among others in order to achieve our
business objective. Competition for qualified personnel among pharmaceutical
companies is intense, and the loss of key personnel, or the inability to attract
and retain the additional skilled personnel required for the expansion of our
business, could damage our business.
Uncertainty Regarding Patents and Proprietary Rights
We actively pursue a policy of seeking patent protection for our
proprietary products and technologies. We hold three United States patents and
currently have five United States patent applications pending. In addition, we
have numerous foreign patents corresponding to our first patent and have
corresponding patent applications with respect to our second United States
patent and pending United States patent applications which have been filed in
various foreign jurisdictions. We cannot be certain that our patents will
protect us against our competitors. We could be required to file suit to protect
our patents, and we cannot be certain that we will have the resources necessary
to pursue such litigation or otherwise to protect our patent rights.
We also rely on trade secret protection for our unpatented proprietary
technology. However, trade secrets are difficult to protect. It is possible that
others will independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade secrets or that
such trade secrets will be disclosed. We have a policy requiring that our
employees and consultants execute proprietary information agreements upon
commencement of employment or consulting relationships. These agreements provide
that all confidential information developed or made known to the individual
during the course of the relationship shall be kept confidential except in
specified circumstances. However, these agreements may not successfully protect
our trade secrets or other proprietary information.
We cannot be certain that others will not assert claims against us
based on patents held by others. Such claims, if brought, could seek damages as
well as an injunction prohibiting clinical testing, manufacturing and marketing
of the product at issue. Such claims may or may not be successful. If any such
actions are successful, in addition to any potential liability for damages, we
could be required to obtain a license in order to continue to manufacture or
market the product at issue. It is possible that any license required under any
such patent would not be made available on acceptable terms, if at all. There
has been, and we believe that there will continue to be, significant litigation
in the pharmaceutical industry regarding patent and other intellectual property
rights. If we become involved in any litigation, a substantial portion of our
financial and personnel resources could be consumed, regardless of the outcome
of such litigation.
Competition
Competition in the pharmaceuticals market is intense. Many companies,
both public and private, including well-known pharmaceutical companies, are
engaged in the development of products for certain of the applications we are
pursuing. Most of these companies have substantially greater financial, research
and development, manufacturing and marketing experience and resources than we do
and represent substantial long-term competition. In addition, numerous other
companies are in the process of developing products for the treatment of
diseases and disorders for which we are developing products. Such companies may
develop pharmaceutical products that are more effective or less costly than any
products which we may develop.
Factors affecting competition in the pharmaceutical industry vary
depending on the extent to which the competitor is able to achieve a competitive
advantage based on proprietary technology. If we are able to establish and
maintain a significant proprietary position with respect to our proposed
products, competition will likely depend primarily on the effectiveness of the
particular product and the number, gravity and severity of its unwanted side
effects as compared to alternative products or treatments.
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We compete in an industry which is characterized by extensive research
and development efforts and rapid technological progress. Although we believe
that our proprietary position may give us a competitive advantage with respect
to our proposed products, new developments are expected to continue and it is
possible that discoveries by others will render our potential products
noncompetitive. Our competitive position also depends on our ability to attract
and retain qualified scientific and other personnel, develop effective
proprietary products, implement development and marketing plans, obtain patent
protection and secure adequate capital resources. We cannot be certain that we
will be able to do so.
Dilutive Effect of Conversion of Series A Preferred Stock
As of February __, 1999, there were outstanding a total of 400 shares
of Series A Preferred Stock. These shares presently are convertible, at any time
at the option of their holders, into an aggregate of 306,278 shares of our
common stock. After April 27, 1999, the conversion price of the Series A
Preferred Stock may decrease. After such date the conversion price of the Series
A Preferred Stock will be equal to the lesser of $13.06 per share of common
stock or 101% of the average of the ten lowest closing bid prices of the common
stock occurring in the 30 trading days preceding the particular conversion.
However, in no event can all 400 outstanding shares of Series A Preferred Stock
convert into more than 1,450,000 shares of our common stock. In the event the
conversion prices decreases, the number of shares of our common stock to be
issued upon conversion will increase proportionately. The conversion of the
Series A Preferred Stock into an increasing number of shares of common stock
could cause the market price of our common stock to drop.
Shares Eligible for Future Sale
As of ___________, 1999, security holders held options and warrants
which, if exercised, would obligate us to issue [3,953,173] shares of common
stock. Substantially all of such shares, when issued upon exercise, will be
available for immediate resale in the public market. In addition, our Equity
Line Agreement provides that we may issue up to an additional $10.75 million of
our common stock during its term. The shares of common stock which the Company
may sell under our Equity Line Agreement will be available for immediate resale
in the public market. The market price of our common stock could drop because of
such resales.
Dilutive and Other Effects of Future Equity Issuances
If we issue equity securities, such issuances may have a dilutive
impact on our other stockholders. Additionally, such issuances would cause our
net income (loss) per share to decrease (increase) in future periods. As a
result, the market price of our common stock could drop. In addition, if we
issue common stock under our Equity Line Agreement, it will be issued at a
discount to its then-prevailing market price. These discounted sales could cause
the market price of our common stock to drop.
Risk of Product Liability
Although we currently carry product liability insurance, it is possible
that the amounts of such coverage will be insufficient to protect us from future
claims. Further, we cannot be certain that we will be able to obtain or maintain
additional insurance on acceptable terms for our clinical and commercial
activities or that such additional insurance would be sufficient to cover any
potential product liability claim or recall. Failure to maintain sufficient
insurance coverage could have a material adverse effect on our business and
results of operations.
Use of Hazardous Materials
Our research and development efforts involve the use of hazardous
materials. We are subject to federal, state and local laws and regulations
governing the storage, use and disposal of such materials and certain waste
products. We believe that our safety procedures for handling and disposing of
such materials comply with the standards prescribed by federal, state and local
regulations. However, we cannot completely eliminate the risk of accidental
contamination or injury from these materials. If there was an accident, we could
be held liable for any damages that result. Such liability could exceed our
resources. We may incur substantially increased costs to comply with
environmental regulations if we develop our own commercial manufacturing
facility.
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Volatility of Stock Price
The stock market from time to time experiences significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may cause the market price
of our common stock to drop. In addition, the market price of our common stock
is highly volatile. Factors that may cause the market price of our common stock
to drop include fluctuations in our results of operations, timing and
announcements of our technological innovations or new products or those or our
competitors, FDA and foreign regulatory actions, developments with respect to
patents and proprietary rights, public concern as to the safety of products
developed by us or others, changes in health care policy in the United States
and in foreign countries, changes in stock market analyst recommendations
regarding our common stock, the pharmaceutical industry generally and general
market conditions. In addition, the market price of our common stock may drop if
our results of operations fail to meet the expectations of stock market analysts
and investors.
Control by Directors and Executive Officers
Our directors and executive officers beneficially own in the aggregate
approximately 26.8% of our outstanding common stock. These stockholders, if they
acted together, would be able to exert substantial control over matters
requiring approval by our stockholders. These matters would include the election
of directors and the approval of mergers or other business combination
transactions. This concentration of ownership may discourage or prevent someone
from acquiring our business.
Effect of Certain Charter and Bylaws Provisions
Certain provisions of our Certificate of Incorporation and Bylaws may
make it more difficult for someone to acquire control of us. These provisions
may make it more difficult for stockholders to take certain corporate actions
and could delay or prevent someone from acquiring our business. These provisions
could limit the price that certain investors might be willing to pay for shares
of our common stock.
The Year 2000 Issue
The Year 2000 issue (the "Year 2000 Issue") in computers arises from
the common industry practice of using two digits to represent a date in computer
software code and databases to enhance both processing time and save storage
space. Therefore, when dates in the year 2000 and beyond are indicated and
computer programs read the date "00", the computer may default to the year
"1900" rather than the correct "2000". This could result in incorrect
calculations, faulty data and computer shutdowns, which would cause disruptions
of operations. In addition, the year 2000 is a leap year and systems need to
recognize it as such.
We have completed an inventory and risk assessment of our internal
information technology system applications (including voice and data systems),
our internal non-IT facilities systems (including embedded software in
environmental controls, security systems, fire protection systems, elevators and
public utility connections for gas, electric and telephone systems), and
embedded and external software contained in laboratory and other equipment that
we believe could be adversely affected by the Year 2000 Issue. We believe that
our internal systems are, at the present time, substantially compliant based
upon internal systems tests, currently available information and reasonable
assurance by our equipment and software vendors. Any costs to remediate Year
2000 Issues with regard to these systems are not anticipated to be material.
In June of 1998, we began sending questionnaires to and/or contacting
our outside vendors regarding their state of readiness with respect to
identifying and remediating their Year 2000 Issues. We have completed our risk
assessment of our outside vendors and are currently reviewing their compliance.
We can not be certain that our vendors will adequately address their Year 2000
Issues. Furthermore, we can not determine that third parties upon which our
vendors depend will accomplish adequate remediation of their Year 2000 Issues.
Except for our public utility service vendors, who have indicated that they
expect to be in compliance by mid-1999, we believe that, with respect to the
computer systems of our major outside vendors, should a Year 2000 Issue exist
whereby a vendor was unable to address our needs, alternative vendors have been
identified and are readily available that could furnish us with the same or
similar supplies or services that we presently receive from these vendors
without undue cost or expense.
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Based on currently available information, we believe that the impact of
the Year 2000 Issue, as it relates to our internal operations, information
systems and software applications will not be material. In the event we fail to
successfully resolve our Year 2000 Issues with respect to our internal systems
in a timely manner, we believe that, while such events would be disruptive to
our operations in the short term, such circumstances would not have a material
adverse effect on our business, financial condition and results of operations
over the long term. However, failure of the major third parties, in particular
the financial institutions with which we have significant banking and investment
management relationships and our third party manufacturers, to be Year 2000
compliant could have a material adverse effect on our business, financial
condition and results of operations or business prospects.
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference into this
prospectus contain forward-looking statements that are based on current
expectations, estimates and projections about our industry, management's
beliefs, and assumptions made by management. Words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates," and variations
of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions that
are difficult to predict; therefore, actual results may differ materially from
those expressed or forecasted in any forward-looking statements. Such risks and
uncertainties include those noted in "Risk Factors" above and in the documents
incorporated by reference. We undertake no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
9
<PAGE> 12
ISSUANCE OF COMMON STOCK TO SELLING STOCKHOLDERS
On January 29, 1999 we entered into a Preferred Stock Purchase
Agreement with Westover Investments L.P., a Delaware limited partnership, and
Montrose Investments L.P., a Cayman Islands exempt limited partnership. Under
that agreement, we issued and sold a total of 400 shares of our 5% Series A
Preferred Stock with Conversion Features and warrants to purchase 75,000 shares
of common stock for cash consideration of $4.0 million. Under the agreement, we
also have the option to sell $2.0 million of 5% Series B Preferred Stock with
Conversion Features to Westover Investments L.P. and Montrose Investments L.P.
commencing 180 days after January 29, 1999, subject to certain conditions
contained in the Preferred Stock Purchase Agreement and the Certificate of
Designation governing the Series A Preferred Stock with Conversion Features.
During the first 90 days after the closing, the Series A Preferred
Stock is convertible into common stock at an initial price of $13.06 per share.
Thereafter, the Series A Preferred Stock is convertible in 25% cumulative
monthly increments at a price equal to the lesser of $13.06 or 101% of the
average of the ten lowest closing bid prices of the common stock occurring in
the 30 trading days preceding the particular conversion. Dividends at the rate
of 5% per annum on the Series A Preferred Stock may be paid quarterly in cash
or, at our option, accrued and paid in common stock at the time of conversion.
In no event can all 400 shares of Series A Preferred Stock be converted into
more than 1,450,000 shares of common stock. Additional features of the preferred
stock include, among other things, a redemption feature at the Company's option
if the common stock trades below a floor or above a ceiling price. The Series B
Preferred Stock will contain terms and conditions for conversion substantially
identical to the Series A Preferred Stock, except that the fixed conversion
price of the Series B Preferred Stock will be set at 125% of the average market
value of the common stock for the fifteen trading days preceding the date of the
second closing.
In connection with the purchase of the Series A Preferred Stock, the
investors also received warrants to purchase a total of 75,000 shares of common
stock at an exercise price of $12.98 per share exercisable for a period of 5
years.
Pursuant to a Registration Rights Agreement which we entered into with
Westover Investments L.P. and Montrose Investments L.P., we have filed a
registration statement, of which this Prospectus forms a part, in order to
permit the selling stockholders to resell to the public the shares of common
stock that they acquire upon the conversion of the Series A Preferred Stock or
upon any exercise of the warrants. The number of shares which we have registered
has been determined by the Registration Rights Agreement and includes 200% of
the number of shares of common stock initially issuable upon conversion of the
Series A Preferred Stock at the initial conversion price of $13.06 per share,
shares issuable upon exercise of warrants to purchase common stock plus
sufficient shares to pay dividends in common stock on all outstanding Series A
Preferred Stock for a period of three years.
USE OF PROCEEDS
The proceeds from the sale of the common stock will belong to the
selling stockholders. We will not receive any proceeds from such sales.
10
<PAGE> 13
SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the our common stock by the selling stockholders as of February __,
1999. Upon the completion of the offering and assuming the sale by the selling
stockholders of all of the shares of common stock available for resale under
this Prospectus, the selling stockholders will not own more than 1% of our
outstanding common stock.
<TABLE>
<CAPTION>
Number of Shares Number of Shares
of Common Stock Number of Shares of Common Stock
Beneficially Owned of Common Stock Beneficially Owned
Name Before Offering Offered Hereby Following the Offering(5)
---- ------------------ ---------------- -------------------------
% of Class
----------
<S> <C> <C> <C>
Montrose Investments L.P. 247,831(1)(3) 476,775(4) 0 *
Westover Investments L.P. 133,447(2)(3) 256,725(4) 0 *
</TABLE>
- ----------------
* Represents less than 1%
(1) The number of shares of Common Stock listed as beneficially owned by
Montrose represents the number of shares of Common Stock issuable to
Montrose (i) subject to the limitations set forth in footnote 3, upon
conversion of 260 shares of Series A Preferred Stock at an assumed
conversion price of $13.06 per share (which price, after the ninetieth
day following the date of issuance of the Series A Preferred Stock (such
date, the "Record Date"), will fluctuate from time to time based on
changes in the market price of the Common Stock and provisions in the
formula for determining the conversion price), and (ii) upon exercise of
the warrant issued to Montrose in conjunction with the sale of the Series
A Preferred Stock for the purchase of 48,750 shares of Common Stock (the
"Montrose Warrant").
(2) The number of shares of Common Stock listed as beneficially owned by
Westover represents the number of shares of Common Stock issuable to
Westover (i) subject to the limitations set forth in footnote 3, upon
conversion of 140 shares of Series A Preferred Stock at an assumed
conversion price of $13.06 per share (which price, after the Record Date,
will fluctuate from time to time based on changes in the market price of
the Common Stock and provisions in the formula for determining the
conversion price), and (ii) upon exercise of the warrant issued to
Montrose in conjunction with the sale of the Series A Preferred Stock for
the purchase of 26,250 shares of Common Stock (the "Westover Warrant").
(3) The certificate of designation governing the Series A Preferred Stock
prohibits the holder thereof from converting shares of Series A Preferred
Stock to the extent that such conversion would result in the holder
thereof beneficially owning in excess of 4.999% of the outstanding shares
of Common Stock following such conversion. Such restriction may be waived
by the holder of the Series A Preferred Stock as to itself upon not less
than 75 days' notice to the Company. Since the number of shares of Common
Stock issuable upon conversion of the Series A Preferred Stock is, after
the Record Date, dependent in part upon the market price of the Common
Stock prior to a conversion, the actual number of shares of Common Stock
that will then be issued in respect of such conversions, and consequently
the number of shares of Common Stock that will then be beneficially owned
by each of the selling stockholders, will fluctuate daily and cannot be
determined at this time. However, in no event can all 400 shares of
Series A Preferred Stock be converted into more than 1,450,000 shares of
Common Stock.
(4) The number of shares of Common Stock indicated as being offered hereby
has been determined by agreement between the Company and the selling
stockholders and includes 200% of the number of shares of Common Stock
initially issuable upon conversion of the Series A Preferred Stock at the
initial conversion price of $13.06 per share, shares of Common Stock
issuable upon exercise of the Montrose Warrant and the Westover Warrant,
and sufficient shares of Common Stock to pay dividends in Common Stock on
all outstanding shares of Series A Preferred Stock assuming no cash
dividends are paid and all such shares are held for a period of three
years prior to conversion. Since the number of shares of Common Stock
issuable upon conversion of the
11
<PAGE> 14
Series A Preferred Stock (including any shares issuable upon conversion
in respect to accrued dividends) is, after the Record Date, dependent in
part upon the market price of the Common Stock prior to a conversion, the
actual number of shares of Common Stock that will then be issued in
respect of such conversions and, consequently, offered for sale under
this Registration Statement, cannot be determined at this time. However,
in no event can all 400 shares of Series A Preferred Stock be converted
into more than 1,450,000 shares of Common Stock.
(5) Assumes sale of all shares of common stock offered hereby.
12
<PAGE> 15
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of the shares of
common stock offered hereby on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The selling stockholders may use any one or more of
the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling stockholders may also engage in short sales against the
box, puts and calls and other transactions in securities of the Company or
derivatives of Company securities and may sell or deliver shares in connection
with these trades. The selling stockholders may pledge their shares to their
brokers under the margin provisions of customer agreements. If a selling
stockholder defaults on a margin loan, the broker may, from time to time, offer
and sell the pledged shares. The selling stockholders have advised the Company
that they have not entered into any agreements, understandings or arrangements
with any underwriters or broker-dealers regarding the sale of their shares other
than ordinary course brokerage arrangements, nor is there an underwriter or
coordinating broker acting in connection with the proposed sale of shares by the
selling stockholders.
Broker-dealers engaged by the selling stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
selling stockholders. The Company has agreed to indemnify the selling
stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
Upon the Company being notified by a selling stockholder that any
material arrangement has been entered into
13
<PAGE> 16
with a broker-dealer for the sale of shares through a block trade, special
offering, exchange distribution or secondary distribution or a purchase by a
broker or dealer, a supplement to this prospectus will be filed, if required,
pursuant to Rule 424(b) under the Securities Act, disclosing (i) the name of
each such selling stockholder and of the participating broker-dealer(s), (ii)
the number of shares involved, (iii) the price at which such shares were sold,
(iv) the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable, (v) that such broker-dealer(s) did not
conduct any investigation to verify the information set out or incorporated by
reference in this prospectus, and (vi) other facts material to the transaction.
In addition, upon the Company being notified by a selling stockholder that a
donee or pledgee intends to sell more than 500 shares, a supplement to this
prospectus will be filed.
The Company has advised the selling stockholders that the
anti-manipulative provisions of Regulation M promulgated under the Securities
Exchange Act of 1934 may apply to their sales of the shares offered hereby.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered
hereby will be passed upon for the Company by Stradling Yocca Carlson & Rauth, a
Professional Corporation, Newport Beach, California.
EXPERTS
The consolidated financial statements of the Company incorporated by
reference in this registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report. Reference is made to said report which states
that the Company is in the development stage, as described in Note 1 to the
consolidated financial statements.
LIMITATION ON LIABILITY AND DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our by-laws provide for indemnification of our directors and officers
to the fullest extent permitted by law. Insofar as indemnification for
liabilities under the Securities Act may be permitted to directors, officers or
controlling persons of the Company pursuant to the Company's Certificate of
Incorporation, as amended, by-laws and the Delaware General Corporation Law (the
"DGCL"), the Company has been informed that in the opinion of the Commission
such indemnification is against public policy as expressed in such Act and is
therefore unenforceable.
14
<PAGE> 17
================================================================================
733,500 SHARES OF COMMON STOCK
NEOTHERAPEUTICS, INC.
PROSPECTUS
___________ ___, 1999
================================================================================
<PAGE> 18
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following sets forth the costs and expenses, all of which shall be
borne by the Registrant, in connection with the offering of the securities
pursuant to this Registration Statement:
<TABLE>
<S> <C>
Registration Fee .............. $ 1,740.86
Accounting Fees and Expenses... $ *
Legal Fees and Expenses ....... $ *
Miscellaneous ................. $ *
Total ................ $
</TABLE>
* Estimated
Item 15. Indemnification of Directors and Officers.
The by-laws of the Registrant provide for indemnification of the
Registrant's directors and officers to the fullest extent permitted by law.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers or controlling persons of the Registrant
pursuant to the Registrant's Certificate of Incorporation, by-laws and the
Delaware General Corporation Law (the "DGCL"), the Registrant has been informed
that in the opinion of the Commission such indemnification is against public
policy as expressed in such Act and is therefore unenforceable.
Section 102(b)(7) of the DGCL provides that a certificate of
incorporation may include a provision which eliminates or limits the personal
liability of a director 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 company 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 DGCL,
relating to prohibited dividends or distributions or the repurchase or
redemption of stock or (iv) for any transaction from which the director derives
an improper personal benefit. The Registrant's Certificate of Incorporation
includes such a provision. As a result of this provision, the Registrant and its
stockholders may be unable to obtain monetary damages from a director for breach
of his or her duty of care.
Item 16. Exhibits.
<TABLE>
<CAPTION>
Exhibits Description
-------- -----------
<S> <C>
4.1 Certificate of Designation of 5% Series A Preferred Stock
with Conversion Features.(1)
4.2 Preferred Stock Purchase Agreement dated as of January 29,
1999, by and among Registrant, Westover Investments L.P. and
Montrose Investments L.P.(1)
4.3 Registration Rights Agreement dated as of January 29, 1999,
by and among Registrant, Westover Investments L.P. and
Montrose Investments L.P.(1)
4.4 Form of Warrant issued by Registrant to Westover Investments
L.P. and Montrose Investments L.P. dated as of January 29,
1999.(1)
5.1* Opinion of Stradling Yocca Carlson & Rauth, a Professional
Corporation.
23.1* Consent of Stradling Yocca Carlson & Rauth, a Professional
Corporation (Included in Exhibit 5).
23.2* Consent of Arthur Andersen, LLP.
</TABLE>
II-1
<PAGE> 19
<TABLE>
<S> <C>
24.1 Power of Attorney (included on the signature page to the
Registration Statement - see page II-3).
</TABLE>
(1) Previously filed with the Commission as an Exhibit to, and incorporated
herein by reference from, the Registrant's Current Report on Form 8-K dated
January 29, 1999.
* To be filed by amendment.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(iii) Include any additional or changed information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement
of the securities offered, and the offering of the securities
at that time to be deemed the initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the
end of the offering.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer 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
small business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer 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 small business issuer 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-2
<PAGE> 20
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 Irvine, State of California, on the 26th day of
February, 1999.
NEOTHERAPEUTICS, INC.
By: /s/ Alvin J. Glasky, Ph.D.
-------------------------------------
Alvin J. Glasky, Ph.D.
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of NeoTherapeutics, Inc., do
hereby constitute and appoint Alvin J. Glasky, Ph.D. and Samuel Gulko or either
of them, our true and lawful attorneys-in-fact and agents, each with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite are necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each of said
attorney-in-fact and agents, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Alvin J. Glasky, Ph.D. Chief Executive Officer, President February 26, 1999
- ------------------------------------ and Director (principal executive
Alvin J. Glasky, Ph.D. officer)
/s/ Samuel Gulko Chief Financial Officer, Secretary, February 26, 1999
- ------------------------------------ Treasurer and Director (principal
Samuel Gulko financial and accounting officer)
/s/ Mark J. Glasky Director February 26, 1999
- ------------------------------------
Mark J. Glasky
/s/ Frank M. Meeks Director February 26, 1999
- ------------------------------------
Frank M. Meeks
/s/ Paul H. Silverman, Ph.D., D.Sc. Director February 26, 1999
- ------------------------------------
Paul H. Silverman, Ph.D., D.Sc.
/s/ Carol O'Cleireacain, Ph.D. Director February 26, 1999
- ------------------------------------
Carol O'Cleireacain, Ph.D.
</TABLE>
II-3
<PAGE> 21
<TABLE>
<S> <C> <C>
/s/ Eric L. Nelson, Ph.D. Director February 26, 1999
- ------------------------------------
Eric L. Nelson, Ph.D.
/s/ Stephen Runnels Director February 26, 1999
- ------------------------------------
Stephen Runnels
/s/ Joseph Rubinfeld, Ph.D. Director February 26, 1999
- ------------------------------------
Joseph Rubinfeld, Ph.D.
</TABLE>
II-4
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibits Description
-------- -----------
<S> <C>
4.1 Certificate of Designation of 5% Series A Preferred Stock
with Conversion Features.(1)
4.2 Preferred Stock Purchase Agreement dated as of January 29,
1999, by and among Registrant, Westover Investments L.P. and
Montrose Investments L.P.(1)
4.3 Registration Rights Agreement dated as of January 29, 1999,
by and among Registrant, Westover Investments L.P. and
Montrose Investments L.P.(1)
4.4 Form of Warrant issued by Registrant to Westover Investments
L.P. and Montrose Investments L.P. dated as of January 29,
1999.(1)
5.1* Opinion of Stradling Yocca Carlson & Rauth, a Professional
Corporation.
23.1* Consent of Stradling Yocca Carlson & Rauth, a Professional
Corporation (Included in Exhibit 5)
23.2* Consent of Arthur Andersen, LLP.
24.1 Power of Attorney (included on the signature page to the
Registration Statement - see page II-3).
</TABLE>
(1) Previously filed with the Commission as an Exhibit to, and incorporated
herein by reference from, the Registrant's Current Report on Form 8-K dated
January 29, 1999.
* To be filed by amendment.
