950,000 Shares
Common Stock
MILESTONE SCIENTIFIC INC.
Certain of our stockholders are offering to sell as many as 950,000 shares
of our Common Stock. An aggregate of up to 800,000 shares will be issued to them
if and when they exercise their right to convert up to $2,000,000 principal
amount of our 3% Senior Convertible Notes into shares of our Common Stock and up
to 150,000 shares will be issued to them if and when we decide to pay the
interest due on those Notes in shares of our Common Stock. We will not receive
any of the proceeds from the sale of these shares.
Shares of our Common Stock are traded on the American Stock Exchange
under the symbol MS. On May 5, 1999 the closing price was $1.375 per share.
See "Risk Factors" beginning on Page 5 for certain factors you should
consider before buying shares of our Common Stock.
Neither the Securities and Exchange Commission nor any state securities
commission or other regulatory body has approved or disapproved of these
securities or determined if this Prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The date of this Prospectus is May 5, 1999
<PAGE>
----------------------
TABLE OF CONTENTS
Page
Where You Can Find More Information ..........................................3
Reports to Security Holders ..................................................3
Incorporation of Certain Documents by Reference ..............................3
The Company ..................................................................4
Forward-Looking Statements ...................................................4
Risk Factors .................................................................5
Use of Proceeds...............................................................9
Recent Developments...........................................................9
Selling Stockholders..........................................................13
Plan of Distribution..........................................................14
Certain Provisions of our Certificate of Incorporation........................15
Legal Matters.................................................................15
Experts.......................................................................16
You may rely only on the information contained in this Prospectus. We have
not authorized anyone to provide information that is different from that
contained in this Prospectus. This Prospectus may only be used where it is legal
to sell these securities. The information in this Prospectus may not be accurate
after the date appearing on the cover.
2
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational and reporting requirements of the
Securities Exchange Act of 1934, as amended, and, in accordance with that
statute, have filed various reports, proxy statements and other information with
the Securities and Exchange Commission. You may inspect these reports, proxy
statements and other information at the public reference facilities of the
Securities and Exchange Commission at its principal offices at Judiciary Plaza,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its regional
offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and 7 World Trade Center, Suite 1300, New York, New York 10048. You
can get copies of these reports, proxy statements and other information from
these offices upon payment of the required fees. These reports, proxy statements
and other information can also be accessed from the web site maintained by the
Securities and Exchange Commission at http://www.sec.gov. The public may obtain
information on operations of the public reference room by calling the Securities
and Exchange Commission at (800) SEC-0330.
We have filed a Registration Statement on Form S-3 with the Securities and
Exchange Commission under the Securities Act with respect to the shares offered
by this Prospectus. This Prospectus, which forms a part of the Registration
Statement, does not contain all of the information included in the Registration
Statement and the accompanying exhibits. Statements contained in this Prospectus
regarding the contents of any document is not necessarily complete and are
qualified in their entirety by such reference. You should refer to the actual
document as filed with the Securities and Exchange Commission. You can get
copies of the Registration Statement and the accompanying exhibits from the
Securities and Exchange Commission upon payment of the required fees or it may
be inspected free of charge at the public reference facilities and regional
offices referred to above.
REPORTS TO SECURITY HOLDERS
We furnish our stockholders with annual reports containing audited
financial statements. In addition, we are required to file reports on Forms
8-KSB, 10-QSB and 10-KSB with the Securities and Exchange Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by us with the Securities and Exchange
Commission are incorporated in this Prospectus by reference:
(1) Annual Report on Form 10-KSB for the fiscal year ended December 31,
1998; and
Each document filed after the date of this Prospectus pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act but before this
offering terminates is incorporated in this Prospectus by reference and is to be
treated as part of this Prospectus from the date it was filed. Any statement
contained in a document incorporated or deemed to be incorporated in this
Prospectus by reference is modified or superseded to the extent that a statement
contained in this Prospectus or in any other subsequently filed document which
is incorporated in this Prospectus by reference modifies or supersedes such
statement.
Upon written or oral request, we will provide, without charge, each person
to whom a copy of this Prospectus is delivered, a copy of any document
incorporated by reference in this Prospectus (other
3
<PAGE>
than exhibits, unless such exhibits are specifically incorporated by reference
in such documents). Requests should be directed to Milestone Scientific Inc.,
220 South Orange Avenue, Livingston Corporate Park, Livingston, New Jersey
07039, (973) 716-0087 Attention: Thomas Stuckey, Chief Financial Officer.
THE COMPANY
We were organized in August 1989 under the laws of Delaware. Our principal
executive office is located at 220 South Orange Avenue, Livingston Corporate
Park, Livingston, New Jersey 07039, telephone number (973) 716-0087.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain "forward-looking statements" based on
current expectations, assumptions, estimates and projections about us and the
industry in which we operate. We use words such as "plan," "believes,"
"expects," "future" and "intends" and similar expressions to identify
forward-looking statements. These forward-looking statements involve numerous
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
as more fully described elsewhere in this Prospectus. We undertake no obligation
to update any forward-looking statements for any reason, even if new information
becomes available or other events occur in the future.
4
<PAGE>
RISK FACTORS
You should carefully consider the risk factors described below, as well as
other information appearing in this Prospectus or incorporated by reference,
before purchasing shares of our Common Stock.
Unless stated to the contrary, all references in this Prospectus to "we,"
"us," "our" or "the Company" refer to Milestone Scientific Inc. (formerly U.S.
Opportunity Search, Inc.), its wholly owned subsidiaries, Princeton PMC, Inc.
("Princeton PMC") and Sagacity I, Inc., doing business in the United States as
the Wisdom Toothbrush Co. ("Wisdom"), and its 69% owned subsidiary, Spintech,
Inc. ("Spintech").
History of Losses; Accumulated Deficit. Our operations commenced in
November 1995, when we acquired a 65% interest in Spintech. For the fiscal years
ending December 31, 1995, 1996 and 1997 we had limited revenues. For the fiscal
year ended December 31, 1998 our revenues were approximately $8.8 million. In
addition, we have had losses for each of the years ended December 31, 1995,
1996, 1997 and 1998 including a loss of approximately $10.7 million for 1998. At
December 31, 1998 we had an accumulated deficit of approximately $20.9 million.
We cannot assure you we will be able to generate operating profits and resultant
cash flow sufficient to fund our operations in the future.
Need for Market Acceptance of "The Wand". As with any new technology,
there is substantial risk that the marketplace will not accept the potential
benefits of such technology or be willing to pay for any cost differential with
the existing technologies. Market acceptance of the Company's principal product,
"The Wand," depends, in large part, upon our ability to educate potential
customers of the distinctive characteristics and benefits of The Wand and will
require substantial marketing efforts and expense. During the first quarter of
1998 and through the next month and a half of the second quarter, the Company in
an effort to meet the demand for the product, maintained high levels of
production and committed capital to increase production capacity. The product's
early success was then tempered by significant returns and declining sales
throughout the remainder of the year. In addition, during the last quarter of
1998, less than 300,000 disposable handpieces were sold. Since at least one
disposable handpiece should be used for each patient visit, this reflects a low
level of usage of The Wand units by dentists. Unless equipment sales and rates
of usage of the equipment improve, we may be forced to curtail marketing efforts
and rely on the gradual build-up of demand as a result of increasing placement
of units in dental schools and from growing awareness of the benefits of The
Wand technology as a result of additional clinical studies. We cannot assure
that our current or proposed products will be accepted by the end users or that
any of the current or proposed products will be able to compete effectively
against current and future alternative products.
Limited Financial Resources; Need for Additional Financing. Our capital
requirements have been and will continue to be significant. Assuming no
improvement to our business operations, we believe that we have sufficient
working capital for the next 12 months. However, if we have underestimated our
operating expenses or our expected revenue, we will be required to borrow funds
or sell equity securities, or curtail or reduce our activities. We have no
current arrangements for future additional financing. We cannot assure you any
sources of additional financing will be available on acceptable terms, or at
all. To the extent that any future financing involves the sale of our equity
securities, the ownership interest of our stockholders could be substantially
diluted.
Highly Competitive Industry; Technological and Product Obsolescence. We
face intense competition from many companies in the medical and dental device
industry, including well-established
5
<PAGE>
academic institutions, possessing substantially greater financial, marketing,
personnel, and other resources. Most of our competitors have established
reputations, stemming from their success in the development, sale, and service
of competing dental products. Further, rapid technological change and research
may adversely affect our product. Current or new competitors could, at any time,
introduce new or enhanced products with features that render our products less
marketable, or even obsolete. Therefore, we must devote substantial efforts and
financial resources to enhance our existing products, to bring our products to
market quickly, and to develop new products for related markets. In addition,
our ability to compete successfully, require that we establish an effective
distribution network. Several regulatory authorities must approve our products
before they may be marketed. We cannot assure you that we can compete
successfully, that our competitors will not develop technologies or products
that render our products less marketable or obsolete, or that we will be able to
successfully enhance our existing products, effectively develop new products, or
obtain required regulatory approval for those products.
Limited Distribution; Establishing Distribution Channels. Our future
revenues depend on our ability to successfully market and distribute The Wand.
During 1998 we relied, primarily, on independent dental distributors to sell The
Wand. After the second quarter of 1998, it became apparent that their efforts
were largely unsuccessful. Accordingly, we have been forced to consider
alternative means of distributing the product, including the use of our own
sales force. At present, our sales force is quite limited and, if we decide to
market The Wand with our own sales force, that sales force will require
substantial expansion and we will incur significant up-front expense. We cannot
assure you that we will be able to hire and retain our own sales force or that
such force will be able to successfully market and sell The Wand.
Patent and Intellectual Property Protection. We hold U.S. patents
applicable to the "The Wand(TM)" and we have applied for certain improvement
patents on The Wand as well as the "SplatrFree(TM)" prophy angle. We rely on a
combination of patent, trade secret, and trademark laws and employee and
third-party nondisclosure agreements to protect our intellectual property
rights. Despite the precautions we have taken to protect our products,
unauthorized parties may attempt to reverse engineer, copy, or obtain and use
our products and other information we regard as proprietary. We may have to
initiate lawsuits to protect our intellectual property rights. Such lawsuits are
costly and divert management's time and effort away from our business with no
guarantee of success. Our failure to protect our proprietary rights, and the
expense of doing so, could have a material adverse effect on our operating
results and financial condition. Although we have not received any claims of
infringement, it is possible that our products may infringe on existing or
future patents or proprietary rights of others. If that happens we may have to
modify our processes or to obtain a license. We cannot assure you that we will
be able to do so in a timely manner, upon acceptable terms and conditions, or at
all.
Dependence on Manufacturers. We have informal arrangements with certain
manufacturers with respect to the manufacture of our products. Termination of
the manufacturing relationship with any of these manufacturers could
significantly and adversely affect our ability to produce and sell our products.
Though alternate sources of supply exist and new manufacturing relationships
could be established, we would need to recover our existing tools or have new
tools produced. Establishing new manufacturing relationships could involve
significant expense and delay. Any curtailment or interruptions of the supply,
whether or not as a result or termination of the relationship, would adversely
affect us.
Product Liability. We could be subject to claims for personal injury from
the use of our dental and medical products. We have liability insurance in the
aggregate amount of $2,000,000 with a per-occurrence limit of $1,000,000 which
we believe is adequate, although we cannot assure you that the
6
<PAGE>
insurance coverage will be sufficient to pay such claims should they be made. A
partially or completely uninsured claim, if successful and of significant
magnitude, could have a material adverse effect on us.
Reliance Upon Management. We depend on the personal efforts and abilities
of Leonard Osser, our Chairman and Chief Executive Officer. While we have a key
man life insurance policy in the amount of $3,000,000 on the life of Mr. Osser
any loss of his services could have a material adverse effect.
Litigation. On April 10, 1997, the Board of Directors of Spintech
terminated the employment of Dr. Ronald Spinello as its Chairman and Director of
Research. The action by the Board followed the bringing by Milestone and
Spintech of legal action against Dr. Spinello in which they seek, among other
things, a declaratory judgment that Dr. Spinello has no personal rights to
certain technology developed while he was employed as Director of Research of
Spintech relating to the design and production of ancillary components of "The
Wand(TM)" and a declaratory judgment that they have not breached Dr. Spinello's
employment agreement. Milestone, as principal stockholder of Spintech, also
removed Dr. Spinello and Glenn Spinello as directors of Spintech. On May 21,
1997, Dr. Spinello filed an Answer and Counterclaim denying the material
allegations of the complaint and making certain counterclaims, including
recovery for breach of his employment agreement. On May 28, 1997, Milestone and
Spintech filed a reply to the counterclaim denying any liability. Milestone has
been advised by its patent counsel that all technology developed by Dr. Spinello
while employed by Spintech is owned by Spintech. Further, we believe that
ownership of the technology relating to these ancillary components which are the
subject of this litigation is not required for the manufacture and sale of its
anesthetic delivery system at economically viable prices.
In addition, a Class Action lawsuit has been brought against the Company
seeking damages in an amount that may substantially exceed our insurance
coverage. Further, though Milestone believes it has meritorious defenses, the
defense of the action would divert management's attention from operation of the
business. No assurance can be given that the Company will prevail in this
litigation. Failure of the Company to prevail and a judgement or settlement in
excess of insurance coverage, if any, could have a material adverse effect on
the Company.
For details of the above litigations, see "Recent Developments, Legal
Proceedings--Spinello Lawsuits and Class Action Law Suit."
No Dividends. We have never paid a cash dividend on our Common Stock.
Payment of dividends on our Common Stock is within the discretion of the Board
of Directors and will depend upon our earnings, capital requirements and
financial condition, and other relevant factors. We do not currently intend to
declare any dividends on our Common Stock in the foreseeable future.
Control by Certain Persons. Our current officers and directors own
approximately 30% of the currently outstanding shares of Common Stock.
Accordingly, by reason of their stockholdings, and their control of the means
for soliciting stockholder votes, the officers and directors will be able to
exercise control and, in all likelihood, will be able to continue to elect all
directors.
Limitation of Director Liability. Our Certificate of Incorporation
provides that our directors are not be personally liable to us or any of our
stockholders for monetary damages for breach of the fiduciary duty of care as a
director, including breaches which constitute gross negligence, subject to
certain limitations imposed by the Delaware General Corporation Law. Thus, under
certain circumstances, neither we nor our stockholders can recover damages even
if directors take actions which harm us.
7
<PAGE>
Government Regulation and FDA Clearance. The manufacture and sale of the
Company's "SplatrFree(TM)" prophy angles and "The Wand(TM)", are subject to
extensive regulation by the FDA pursuant to the Federal Food, Drug, and Cosmetic
Act ("FDC Act"), and by other federal, state and foreign authorities. Under the
FDC Act, these medical devices must receive FDA clearance before they can be
commercially marketed in the United States. Some products must undergo rigorous
pre-clinical and clinical testing and an extensive FDA approval process before
they can be marketed. These processes can take a number of years and require the
expenditure of substantial resources. The time required for completing such
testing and obtaining such approvals is uncertain, and FDA clearance may never
be obtained. Delays or rejections may be based upon changes in FDA policy during
the period of product development and FDA regulatory review of each submitted
application. Similar delays may also be encountered in other countries. While
the "SplatrFree(TM)" prophy angle and "The Wand(TM)" have received FDA marketing
clearance there can be no assurance that all of our products under development
will obtain the required regulatory clearance on a timely basis, or at all. If
regulatory clearance of a product is granted, such clearance may impose
limitations on the indicated uses for which the product may be marketed. In
addition, modifications may be made to our products to incorporate and enhance
their functionality and performance based upon new data and design review. There
can be no assurance that the FDA will not request additional information
relating to product improvements, that any such improvements would not require
further regulatory review thereby delaying the testing, approval and
commercialization of the our products or that ultimately any such improvements
will receive FDA clearance. FDA regulations also require manufacturers of
medical devices to adhere to certain "Good Manufacturing Practices" ("GMP"),
which include testing, design, quality control and documentation procedures.
Compliance with applicable regulatory requirements is subject to continual
review and will be monitored through periodic inspections by the FDA. Later
discovery of previously unknown problems with a product, manufacturer, or
facility may result in restrictions on such product or manufacturer, including
fines, delays or suspensions of regulatory clearances, seizures or recalls of
products, operating restrictions, halt of operations and criminal prosecution
and could have a material adverse effect on us.
Restricted Securities; Possible Volatility of Market Price. Shares of our
Common Stock are currently traded on The American Stock Exchange. From time to
time the market prices of dental and medical product companies have been
affected by various factors, including adverse publicity. We cannot assure you
that the market price of our Common Stock will not be volatile as a result of
factors such as our financial results, possible adverse publicity resulting from
any infractions of governmental regulations and various other factors affecting
dental and medical product companies or the market generally. In recent years
the stock market has experienced wide price fluctuations not necessarily related
to the operating performance of companies.
Effect of Outstanding Warrants and Options. We currently have outstanding
options and warrants to purchase 2,455,530 shares of our Common Stock at prices
ranging from $1.56 to $23.00 per share. Holders of these warrants and options
are given the opportunity to profit from a rise in the market price of our
Common Stock and are likely to exercise their securities at a time when we would
be able to obtain additional equity capital on more favorable terms. Thus, the
terms upon which we will be able to obtain additional equity capital may be
adversely affected since the holders of outstanding options and warrants can be
expected to exercise them at a time when we would, in all likelihood, be able to
obtain any needed capital on terms more favorable to us than the exercise terms
provided by such outstanding securities. We have granted registration rights
with respect to our shares of our Common Stock covered by these warrants.
8
<PAGE>
USE OF PROCEEDS
All shares of our Common Stock offered by this Prospectus are being
registered for the account of the selling stockholders. We will not receive any
of the proceeds from the sale of these shares.
RECENT DEVELOPMENTS
Private Offering
In March 1999, we sold at face amount, $2.25 million principal amount of
our 3% senior convertible promissory notes due March 15, 2003. The Convertible
Notes are convertible into shares of our Common Stock at the option of the note
holders. Until maturity conversion prices of the notes range from $2.50 per
share in the first year to $6.00 per share in the fourth year. 800,000 of the
shares of our Common Stock covered by this Prospectus will be issued assuming
that all of the Convertible Notes are converted at the lowest possible
conversion price. Alternatively, if the Convertible Notes are converted at the
highest conversion price, only 333,333 shares of our Common Stock will be issued
to the noteholders. In addition, at its option, the Company may pay interest on
the Convertible Notes in shares of its Common Stock. This Prospectus also covers
the resale of an estimated 150,000 shares of Common Stock payable as interest on
$2.00 million principal amount of the Convertible Notes assuming that future
market prices used in determining the number of shares issued for such purpose
are at current levels. Leonard Osser, Chairman and Chief Executive Officer
purchased $250,000 of the Notes but has waived his right to have his underlying
shares, or any shares issued in payment of interest, included in this
Registration Statement.
Registration Rights
We agreed to register the re-offer and re-sale of the shares of our Common
Stock into which the notes described in the preceding paragraph are convertible
by filing the Registration Statement of which this Prospectus is a part under
the Securities Act and the securities laws of states reasonably selected by the
note holders. We agreed to pay all the expenses and fees incurred in connection
with the preparation, filing and modification or amendment of the Registration
Statement.
Legal Proceedings
Spinello Lawsuits
On March 26, 1997, Milestone and Spintech commenced legal action in the
United States District Court of New Jersey against Ronald Spinello, DDS, former
Chairman and Director of Research of Spintech. In the complaint, plaintiffs seek
recovery of compensatory and punitive damages for extortion and tortious
interference with existing and prospective contract and business relationships,
a declaratory judgment that Dr. Spinello has no personal rights to certain
technology developed while he was employed as Director of Research of Spintech
relating to the design and production of ancillary components of its computer
controlled local anesthetic delivery system, a declaratory judgment that
plaintiffs have not breached Dr. Spinello's employment agreement or the
agreement for the initial purchase by Milestone of a 65% equity interest in
Spintech and injunctive relief. On May 21, 1997, Dr. Spinello filed an answer
and counterclaim which denies the material allegations of the complaint and
seeks recovery for breach of the defendant's employment agreement, initiates a
derivative action against Milestone with respect to various expenditures and
actions for which Defendant, on behalf of Spintech,
9
<PAGE>
seeks an amount in excess of $75,000, alleges civil conspiracy against Milestone
with respect to certain of those matters and the entry into the employment
agreement with Defendant and seeks indemnification for expenses, including
attorneys fees, in the pending action. On May 25, 1997 the Company filed a reply
to counterclaims which denied all of the material allegations of the
counterclaims. On December 30, 1997, Dr. Spinello made a motion for leave to
join as an additional Defendant on Counterclaim the Company's Chairman, Leonard
Osser, and to file an amended Answer and Counterclaim against the Company. Both
the Company and Mr. Osser opposed the motion and in addition, the Company made a
Cross-Motion to dismiss certain claims asserted in the initial Answer and
Counterclaim. The additional claims which Dr. Spinello sought to assert against
the Company include a fraud in the inducement claim based upon the alleged
failure of the Plaintiffs to advise Dr. Spinello of the legal effects of his
employment agreement; and a civil conspiracy claim. Dr. Spinello also sought to
add a jury demand through his amended pleading. The Company's Cross-Motion
sought to dismiss all of Dr. Spinello's claims, except his claim for unpaid
salary, on the basis that his derivative claim is fatally defective because he
did not make any demand upon Spintech, the entity on whose behalf he purports to
bring suit, and his indemnification claim is fatally defective because the
claims against him do not arise by reason of the fact that Dr. Spinello was an
officer or director of Spintech.
On May 5, 1998, the United States Magistrate Judge issued a Report
recommending that the Court grant Milestone's motions to dismiss the
counterclaims brought by defendant Spinello for a shareholder's derivative
action and civil conspiracy, finding that defendant Spinello had failed "to
state a claim upon which relief may be granted." The Report also recommended
that the Court dismiss defendant Spinello's counterclaim for indemnification
against Milestone and a portion of the indemnification claim against Spintech.
In a second decision, the Magistrate Judge denied defendant Spinello's motion to
join Milestone's Chairman as an additional party and to file an amended answer
asserting revised and additional counterclaims against Milestone and Spintech.
The Magistrate Judge determined that defendant Spinello's proposed amended
counterclaims "are futile and could not withstand a motion to dismiss under
federal rule of civil procedure 12(b)(6)". Defendant Spinello timely filed an
appeal from the May 5, 1998 Order and objections to the Report. On August 24,
1998, a United States District Judge for the District of New Jersey issued a
memorandum opinion and signed an Order denying Dr. Spinello's appeal of the May
5, 1998 Order and affirming the May 5, 1998 Order in its entirety. The Judge
further denied in its entirety Dr. Spinello's objections to the Report and
granted the Company's motion to dismiss counts one, two, three and four of Dr.
Spinello's initial Counterclaim.
As a result of the affirmance of the May 1998 Order and the adoption of
the Report granting the Company's motion to dismiss, the only claims remaining
in the litigation with Dr. Spinello are Milestone's claims against Dr. Spinello
and Dr. Spinello's counterclaim for unpaid salary for the period subsequent to
his alleged wrongful termination, and a portion of his indemnification claim
against Spintech.
In October 1998, the Company received a settlement demand from Counsel for
Dr. Spinello and Glenn Spinello which stated that, notwithstanding the United
States District Judge's decision, substantial claims remain to be litigated and
that there are substantial risks to Milestone from this litigation. The
settlement demand letter, which was not accepted by the Company, does not
describe the nature of any claims that Dr. Spinello could assert against the
Company, but it does allude to potential litigation in other forums and the
possibility of future litigation brought by minority stockholders of the
Company. If Dr. Spinello does seek to assert additional claims, or if minority
stockholders should assert claims, against the Company, the Company intends to
vigorously defend such claims and believes that it has meritorious defenses
thereto.
10
<PAGE>
On March 5, 1999, the parties completed discovery. The parties are
currently preparing various dispositive motions for summary judgment on certain
of the issues remaining in the case. The motions are scheduled to be filed on or
about April 15, 1999, with a return date of May 10, 1999. If the motions for
summary judgment are not granted, the Court will hold a trial on any remaining
issues in late 1999. The Company believes that it has meritorious defenses to
Dr. Spinello's claims and meritorious claims against Dr. Spinello. Moreover,
Milestone has been advised by its patent counsel that all technology developed
by Dr. Spinello while employed by Spintech is owned by Spintech. The Company
believes that ownership of the technology relating to these ancillary components
which are the subject of this litigation in no way prevents the manufacture and
sale of its anesthetic delivery system at economically viable prices.
On May 20, 1997, Glenn R. Spinello filed a Complaint in the Court of
Common Pleas, York County, Pennsylvania seeking damages as a result of the
alleged breach of his Employment Agreement. On June 20, 1997, the Company and
Spintech filed a notice of Removal which transferred venue of Glenn Spinello's
lawsuit to the United States District Court for the Middle District of
Pennsylvania. On June 27, 1997, the Company and Spintech filed an Answer to
Glenn Spinello's Complaint which denied the material allegations of the
Complaint and asserted counterclaims based upon Glenn Spinello's breach of his
Employment Agreement. On July 27, 1997 Glenn Spinello filed a reply to the
counterclaims by the Company and Spintech, denying the material allegations of
the counterclaims. On March 16, 1999, the parties completed discovery. Although
the case is scheduled for trial during the fall of the 1999 term, Glenn
Spinello's attorney advised the Company's attorney that he intends to move for
summary judgment. Any such motion must be filed by April 16, 1999. The Company
intends to oppose such a motion and, if successful, proceed to trial. The
Company believes it has meritorious defenses to Glenn Spinello's claims and
meritorious counterclaims.
Class Action Lawsuit
Several class action lawsuits have been commenced against the Company,
certain present and former executive officers, one outside director and
consultants in the United States District Court for the District of New Jersey.
The District Judge before whom the cases are pending has entered an order
consolidating all of the class actions into one consolidated action. The
Complaints contain generally overlapping and similar allegations of violations
of the Securities Exchange Act of 1934, including allegations that the Company
and certain of the other defendants violated the Act by issuing false and
misleading financial statements and disseminating misleading statements about,
among other things, the demand for the Company's principal product, its expected
sales growth, the acceptance of that product by dental professionals, shipments
during certain time periods and misrepresentations as to third-party evaluations
of the efficacy of the product through failure to disclose the issuance of stock
options to certain consultants. On October 22, 1998, the District Judge entered
an order appointing lead plaintiff to represent the interests of all class
members. Milestone believes that material allegations of the complaints lack
merit and intends to vigorously defend the above actions. Specifically,
Milestone believes that its financial statements present fairly its results of
operations, that the information which it has publicly disclosed does not
contain any material misstatements or misrepresentations and that stock options
issued to persons who published research reports were issued for other services
for the Company, principally service as spokespersons and demonstrators of the
Company's product. Further, the Company continues to believe that The Wand(TM)
embodies superior technology, is a major advance in dentistry and may ultimately
become the accepted method for delivering local dental anesthesia.
11
<PAGE>
Derivative Action Lawsuit
In February 1999, a purported owner of Milestone stock, had commenced a
derivative action on behalf of the Company, in the Court of Chancery of the
State of Delaware in Newcastle County, against certain present and former
executive officers and directors. In the action, plaintiff alleges that, based
on the same facts as the class actions described above, the defendants engaged
in violations of the securities laws, committed fraud and securities fraud,
wasted corporate assets and damaged the Company's reputation. As a derivative
action, even if the plaintiff is successful, any award, after deduction of
plaintiff's costs and disbursements, would be payable to the Company.
Nevertheless, Milestone believes that the material allegations of the complaint
lack merit and intends to provide a legal defense for its present and former
officers and directors in accordance with the indemnification provisions of its
Certificate of Incorporation.
12
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information as to the ownership of
our Common Stock by the Selling Stockholders on April 13, 1999 adjusted to
assume the conversion of our 3% Convertible Notes at the price of $2.50 per
share. Unless otherwise indicated, it is assumed that each Selling Stockholder
listed below possess sole voting and investment power with respect to the shares
now owned by the Selling Stockholders, including those issuable upon conversion
of the notes. In addition, unless otherwise indicated, none of these selling
stockholders has had a material relationship with us or any of our predecessors
or affiliates within the past three years.
Percentage
of Common
Number of Shares to be Stock Owned
Shares that Owned After
Shares Owned May Be After the the
Selling Stockholder (1)(2) Sold(2) Offering(3) Offering(3)
------------------- ------ ------- ----------- -----------
Cumberland Partners(4) 824,800 460,000 364,800 3.97
K. Tucker Andersen(5) 772,500 100,000 672,500 7.63
LongView Partners(6) 152,200 50,000 102,200 1.17
LongView Partners
B,L.P.(7) 94,500 66,000 28,500 *
LongView Partners
C,L.P.(8) 37,500 24,000 13,500 *
Strategic
Restructuring
Partnership L.P.(9) 100,000 100,000 -- --
- ----------
* Less than 1%
(1) Includes shares issuable upon conversion of the 3% Convertible Notes at an
assumed conversion price of $2.50 per share
(2) Excludes an undetermined number of shares (estimated for purposes of the
Prospectus at an aggregate of 150,000 shares) that may be issued by the
Company to the Selling Stockholders as payment of interest on the 3%
Convertible Notes and may be sold by the Selling Stockholders pursuant to
this Prospectus
(3) Assumes conversion of certain of the 3% Convertible Notes owned by the
applicable Selling Stockholder into an aggregate of 800,000 shares
(resulting in an estimated 9,517,882 outstanding shares) and the
subsequent sale in the Offering of all shares received upon such
stockholder's conversion of such Notes but does not take into account any
conversion of the 3% Convertible Notes by any other Selling Stockholder.
(4) Includes 460,000 shares underlying the 3% Convertible Notes
(5) Includes 641,500 shares owned by certain partnership and individual
accounts which are managed by Cumberland Associates LLC, a limited
liability company in which Mr. Andersen is a member, and as to which Mr.
Andersen disclaims beneficial ownership except to the extent of his
pecuniary interest in certain of those shares; includes 100,000 shares
underlying the 3% Convertible Notes; and includes 31,000 shares, some of
which are owned by Mr. Andersen's wife and children and as to which Mr.
Andersen disclaims beneficial ownership
(6) Includes 50,000 shares underlying the 3% Convertible Notes
(7) Includes 66,000 shares underlying the 3% Convertible Notes
(8) Includes 24,000 shares underlying the 3% Convertible Notes
(9) Includes 100,000 shares underlying the 3% Convertible Notes
13
<PAGE>
PLAN OF DISTRIBUTION
Sales of the shares of our Common Stock covered by this Prospectus may be
effected from time to time in transactions (which may include block
transactions) on the American Stock Exchange (or other markets on which shares
of our Common Stock is then traded), in negotiated transactions, through put or
call options transactions relating to the shares, through short sales of shares,
or a combination of such methods of sale, at fixed prices which may be changed,
at market prices prevailing at the time of sale, or at negotiated prices. None
of the selling stockholders has entered into agreements, understandings or
arrangements with any underwriters or broker-dealers regarding the sale of their
shares. The selling stockholders may effect transactions by selling their shares
directly to purchasers or to or through broker-dealers, who may act as agents or
principals. Such broker-dealers may receive compensation in the form of
discounts, concessions, or commissions from the selling stockholders and/or the
purchasers of the shares for whom such broker-dealers may act as agents or to
whom they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The selling
stockholders and any broker-dealers that act in connection with the sale of the
shares might be deemed to be "underwriters" within the meaning of Section 2(11)
of the Securities Act of 1933 and any commissions received by such
broker-dealers and any profit on the resale of the shares sold by them while
acting as principals might be deemed to be underwriting discounts or commissions
under the Securities Act. We have agreed to indemnify each selling stockholder
against certain liabilities, including liabilities arising under the Securities
Act. The selling stockholders may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the
securities against certain liabilities, including liabilities arising under the
Securities Act. As used herein, "selling stockholders" includes donees and
pledgees selling shares received from a named selling stockholder after the date
of this Prospectus.
Selling stockholders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of such Rule.
We have agreed to keep the Registration Statement, of which this
Prospectus is a part, effective until all the shares covered by this Prospectus
are sold or can be sold freely under an appropriate exemption from the
securities laws of the United States and the states, without limitation.
In order to comply with the applicable securities laws of certain states,
if any, the shares covered by this Prospectus will be offered or sold through
registered or licensed brokers or dealers in those states. In addition, in
certain states the shares may not be offered or sold unless they have been
registered or qualified for sale in such states or an exemption from such
registration or qualification requirement is available and such offering or sale
is in compliance therewith.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the shares may not simultaneously engage in market
making activities with respect to such securities for a period beginning when
such person becomes a distribution participant and ending upon such person's
completion of participation in a distribution, including stabilization
activities in the Common Stock to effect syndicate covering transactions, to
impose penalty bids or to effect passive market making bids. In addition, the
selling stockholders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, including, without limitation,
Rule 10b-5 and, insofar as the selling stockholders are distribution
participants, Regulation M and Rules 100, 101, 102,
14
<PAGE>
103, 104 and 105 thereof, all of which may affect the marketability of the
shares covered by this Prospectus.
We will pay all of the expenses relating to the registration of the
shares covered by this Prospectus except for selling commissions. These
expenses are estimated at $30,000.
CERTAIN PROVISIONS OF OUR CERTIFICATE OF INCORPORATION
Limitation of Director Liability; Indemnification
Our Certificate of Incorporation provides that a director will not be
personally liable to us or to our stockholders for monetary damages for breach
of the fiduciary duty of care as a director, including breaches which constitute
gross negligence. This provision does not eliminate or limit the liability of a
director (i) for breach of his or her duty of loyalty to us or to our
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 (relating to unlawful payments or dividends
or unlawful stock repurchases or redemptions), (iv) for any improper benefit or
(v) for breaches of a director's responsibilities under the Federal securities
laws.
Our Certificate of Incorporation also provides that we indemnify and hold
harmless each of our directors and officers to the fullest extent authorized by
the Delaware General Corporation Law, against all expense, liability and loss
(including attorney's fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith.
Section 203 of Delaware General Corporation Law
Section 203 of the Delaware General Corporation Law prohibits us from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the transaction is approved in a
prescribed manner. As a result, potential acquirors may be discouraged from
attempting to effect acquisition transactions with us thereby possibly depriving
our stockholders of certain opportunities to sell or otherwise dispose of their
securities at above-market prices pursuant to such transactions.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons pursuant to
our Certificate of Incorporation, Bylaws and the Delaware General Corporation
Law, we have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy and is, therefore,
unenforceable.
LEGAL MATTERS
Morse, Zelnick, Rose & Lander, LLP, 450 Park Avenue, New York, New York
10022 will deliver an opinion that the issuance of the shares covered by this
Prospectus has been approved by our Board of Directors and that such shares,
when issued, will be fully paid and non-assessable under Delaware law. Members
of and counsel to Morse, Zelnick, Rose & Lander, LLP own, in the aggregate, the
following securities: 169,083 shares of our Common Stock; options or warrants to
purchase 139,250 shares of our Common Stock, all of which are currently
exerciseable; and warrants to purchase 83,333 units, each unit consisting of one
share of our Common Stock and a warrant to purchase one share of our Common
Stock.
15
<PAGE>
EXPERTS
Our financial statements for the year ended December 31, 1998 incorporated
in this Prospectus by reference to the Form 10-K have been so incorporated in
reliance on the report of Grant Thornton LLP, independent accountants, given on
the authority of such firms as experts in accounting and auditing.
16
<PAGE>
========================================
950,000 Shares
Common Stock
MILESTONE SCIENTIFIC INC.
----------
PROSPECTUS
----------
May 5, 1999
========================================
