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Filed Pursuant to Rule 424(b)(1)
Registration No. 333-33321
PROSPECTUS
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DYNAGEN, INC.
29,086,600 Shares of Common Stock
($.01 par value)
All of the shares of Common Stock, par value $.01 per share ("Common
Stock"), of DynaGen, Inc. ("DynaGen" or the "Company") offered hereby (the
"Shares") will be sold from time to time by certain stockholders of the Company
(the "Selling Stockholders"). The Shares consist of (i) up to 21,621,000 shares
of Common Stock issuable upon the conversion of the Company's Series A
Preferred Stock, $.01 par value per share (the "Series A Stock"), or that the
Company may, at its option, issue in payment of dividends on the Series A
Stock, (ii) up to 3,545,000 shares of Common Stock issuable upon conversion of
the Company's Series B Preferred Stock, $.01 par value per share (the "Series B
Stock"), or that the Company may, at its option, issue in payment of dividends
on the Series B Stock, (iii) 385,600 shares of Common Stock issuable upon
exercise of warrants issued to the holders of Series A Stock (the "Warrants")
and (iv) 3,535,000 shares of Common Stock issued to certain Selling
Stockholders (the "Common Shares"). The Series A Stock and the Series B Stock
is referred herein collectively as the "Preferred Stock." In accordance with
Rule 416 under the Securities Act of 1933, as amended (the "Securities Act"),
this prospectus also relates to an additional indeterminate number of shares
issuable upon conversion of the Preferred Stock to prevent dilution resulting
from stock splits, stock dividends or similar transactions or by reason of
changes in the conversion prices of the Preferred Stock. The Company will not
receive any of the proceeds from the sale of the Shares offered hereby. All
brokerage commissions and other similar expenses incurred by the Selling
Stockholders will be borne by the Selling Stockholders. Other expenses of the
offering, estimated at $55,000, will be borne by the Company.
The sale of the Shares by the Selling Stockholders may be effected from
time to time in one or more transactions (which may involve block transactions)
on the Nasdaq SmallCap Market (the "Nasdaq") or in the over-the-counter market,
in negotiated transactions or by a combination of such methods of sale, at fixed
prices, at market prices prevailing at the time of the sale, at prices related
to the prevailing market prices or at negotiated prices. The Selling
Stockholders may effect such transactions with or through one or more
broker-dealers, which may act as agent or principal. The Selling Stockholders
and/or any broker-dealer effecting the sales may be deemed to be an
"underwriter" within the meaning of Section 2(11) of the Securities Act, and any
commissions received by the broker-dealer and any profit on the resale of shares
as principal may be deemed to be underwriting discounts and commissions under
the Securities Act. The Selling Stockholders may transfer the Shares, the
Preferred Stock or the Warrants to other persons who may, in turn, resell Shares
in the manner described above. Additionally, the Selling Stockholders may pledge
or make gifts of the Shares, and the Shares may also be sold by the pledgees or
transferees. The Selling Stockholders may also transfer the Shares pursuant to
Rule 144 under the Securities Act, whether or not the Registration Statement of
which this Prospectus forms a part is effective at the time of any such
transfer. The Company has agreed to indemnify the Selling Stockholders against
certain liabilities, including certain liabilities under the Securities Act, and
to the extent
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any indemnification by an indemnifying party is prohibited or limited by law,
the Company has agreed to make the maximum contribution with respect to any
amounts for which it would otherwise be liable under such indemnification
provision to the fullest extent permitted by law. See "Plan of Distribution."
As of November 24, 1997, the authorized capital stock of the Company
consisted of (i) 75,000,000 shares of Common Stock, of which 33,685,644 shares
were issued and outstanding, and (ii) 10,000,000 shares of preferred stock,
$.01 par value per share, of which (A) 50,000 shares have been designated
Series A Stock, of which 46,400 shares were issued and outstanding, (B) 12,515
shares have been designated as Series B Stock, all of which were issued and
outstanding, (C) 7,500 shares have been designated Series C Stock, all of which
are issued and outstanding and (D) 60,000 shares have been designated as Series
D Stock, none of which are issued and outstanding. As of such date, the Company
had reserved for issuance (A) 14,500,000 shares of Common Stock for issuance
upon conversion of the Series A Stock, (B) 3,545,000 shares of Common Stock for
issuance upon conversion of the Series B Stock, (C) 2,150,000 shares for
issuance upon conversion of the Series C Stock, (D) 385,600 shares for issuance
upon exercise of the Warrants, and (E) no more than 16,100,000 shares of Common
Stock for issuance upon exercise of other outstanding options, warrants,
convertible preferred stock and convertible note.
The Common Stock is currently traded on the Nasdaq SmallCap Market
under the symbol "DYGN" and on the Boston Stock Exchange under the symbol "DYG."
On November 24, 1997, the closing bid price of the Common Stock, as reported by
the Nasdaq SmallCap Market, was $0.41 per share.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
SUBSTANTIAL DILUTION TO THE PUBLIC INVESTOR. SEE "RISK FACTORS"
AND "DILUTION."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is December 12, 1997
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AVAILABLE INFORMATION
DynaGen, Inc., a Delaware corporation, is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith, files reports and other information with the
Securities and Exchange Commission (the "Commission"). Reports and other
information filed by the Company with the Commission pursuant to the
informational requirements of the Exchange Act may be inspected and copied at
the public reference facilities maintained by the Commission at Judiciary Plaza,
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following
Regional Offices of the Commission: Seven World Trade Center, Suite 1300, New
York, New York 10048; and 500 West Madison Avenue, Suite 1400, Chicago, Illinois
60661. Copies of such material may be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission also maintains a Web site (at
http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding the Company. The Company's Common Stock is traded on
the Nasdaq SmallCap Market, and such reports and other information can be
inspected at the offices of Nasdaq Operations, 1735 K Street, N.W., Washington,
D.C. 20006. The Company's Common Stock is also listed on the Boston Stock
Exchange and such material is also available for inspection at the offices of
the Boston Stock Exchange, One Boston Place, Boston, Massachusetts 02109.
The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form S-3 under the Act with respect to the securities
offered hereby. As permitted by the rules and regulations of the Commission,
this Prospectus omits certain information contained in the Registration
Statement. For further information with respect to the Company and the
securities offered hereby, reference is hereby made to the Registration
Statement and to the exhibits and schedules filed therewith. Statements
contained in this Prospectus regarding the contents of any documents filed with,
or incorporated by reference in, the Registration Statement as exhibits are not
necessarily complete, and each such statement is qualified in all respects by
reference to the copy of the applicable documents filed with the Commission. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part
thereof may be obtained from such office upon payment of the prescribed fees.
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INFORMATION INCORPORATED BY REFERENCE
The following documents heretofore filed by the Company with the
Commission (File No. 1-11352) pursuant to the Exchange Act are incorporated by
reference in this Prospectus:
(1) Annual Report on Form 10-K for the fiscal year ended June 30, 1996;
(2) Transition Report on Form 10-K for the six-month period from July
1, 1996 to December 31, 1996, as amended;
(3) Quarterly Reports on Form 10-Q for the fiscal quarters ended
September 30, 1996, March 31, 1997, June 30, 1997 and September 30, 1997;
(4) The Company's Proxy Statement for its Annual Meeting of
Stockholders held on January 30, 1997;
(5) The Company's Current Reports on Form 8-K filed on August 23, 1996,
September 23, 1996, January 15, 1997, February 3, 1997, March 24, 1997 and July
3, 1997, as amended;
(6) All other documents filed by the Company pursuant to Section 13(a)
or 15(d) of the Exchange Act since the end of the fiscal year covered by the
Annual Report referred to in (1) above; and
(7) The "Description of Securities" contained in the Company's
Registration Statement No. 33-71416 on Form S-1 and incorporating by reference
the information contained in the Company's Final Prospectus dated March 16,
1994, filed under Section 424(b) under the Securities Act of 1933.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of this Offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing
such documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
Copies of the documents incorporated herein by reference (excluding exhibits
unless such exhibits are specifically incorporated by reference into such
documents) may be obtained upon written or oral request without charge by
persons, including beneficial owners, to whom this Prospectus is delivered.
Request should be made to Mr. Dennis R. Bilodeau, Controller, DynaGen, Inc., 840
Memorial Drive, Cambridge Massachusetts 02139 (telephone: 617-491-2527).
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PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
more detailed information appearing elsewhere in this Prospectus or incorporated
herein by reference and the financial statements which are incorporated herein
by reference.
THE COMPANY DynaGen, Inc. (the "Company") develops, manufactures and
markets proprietary and generic diagnostic and
therapeutic products for human health care. During 1996,
DynaGen began expanding its business focus from being a
development and licensing company to building a
diversified healthcare company focused on the
manufacture and distribution of generic drug products
and specialty pharmaceuticals, as well as the continued
development of therapeutic products for immune system
modulation and bone and joint repair and a medical
device for tumor localization and tracking during breast
biopsy.
RISK FACTORS The offering involves substantial risk, including the
Company's history of losses and the anticipation of
future losses, the Company's future capital needs and
the uncertainty of additional funding, uncertainties
related to its current or future licensing of the
NicErase(R) technology, the integration of recently
acquired companies, the risks associated with managing a
changing business and implementing future acquisitions,
limited manufacturing and marketing capability and
experience, competition, dependence on patents and
proprietary technology, volatility of stock price and
limited trading volume of Common Stock. See "Risk
Factors."
SECURITIES OFFERED 29,086,600 shares of the Company's Common Stock, par
value $.01 per share.
OFFERING PRICE All or part of the Shares offered hereby may be sold
from time to time in amounts and on terms to be
determined by the Selling Stockholders at the time of
sale.
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USE OF PROCEEDS The Company will receive no part of the proceeds from
the sale of any of the Shares by the Selling
Stockholders. The Company will, however, receive
proceeds from the exercise of the Warrants at a price
to be determined based upon 120% of the average market
price for the Common Stock for the five consecutive
trading days immediately preceding the date on which
the Commission declares effective the Registration
Statement of which this Prospectus is a part. The
Company has received proceeds from the sale of the
Preferred Stock, the Warrants and the Common Shares to
the Selling Stockholders, which proceeds were applied
to working capital and the acquisition of Superior
Pharmaceutical Company.
SELLING STOCKHOLDERS The Shares being offered hereby are being offered for
the account of the Selling Stockholders specified under
the caption "Selling Stockholders."
STOCK MARKET SYMBOLS: Nasdaq SmallCap Market Boston Stock Exchange
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Common Stock DYGN DYG
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THE COMPANY
The Company, organized in November 1988, develops, manufactures and
markets proprietary and generic therapeutic and diagnostic products for the
human health care market. During 1996, DynaGen began expanding its business
focus from being a development and licensing company to building a diversified
healthcare company focused on the manufacture and distribution of generic drug
products and specialty pharmaceuticals, as well as the continued development of
therapeutic products. The Company intends to implement this strategy through the
acquisition of businesses, technologies and products that the Company believes
are undervalued, as well as through continued internal product development. In
August 1996, the Company acquired the tablet business of Able Laboratories, Inc.
("Able"), a generic pharmaceutical products subsidiary of ALPHARMA USPD INC.;
and in June 1997, the Company acquired Superior Pharmaceutical Company
("Superior"), which markets and distributes generic pharmaceutical products to
independent retail chains and institutional pharmacies; and on September 18,
1997, the Company signed a letter of intent to acquire the assets and
liabilities of Generic Distributors Limited Partnership ("GDI").
DynaGen's strategy with respect to the multisource (generic
pharmaceutical) business is to compete with other generic companies through
vertical integration of key elements of the multisource business including
manufacturing, packaging and distribution. In August 1996, the Company acquired
Able, a 46,000 square foot tablet and suppository manufacturing facility. As
part of this acquisition, the Company obtained rights to eleven approved
Abbreviated New Drug Applications ("ANDAs") as well as other generic
formulations. Since the acquisition, DynaGen has updated and expanded Able's
manufacturing capability, validated several of the acquired products, retrained
employees in quality assurance procedures and successfully met FDA requirements
and guidelines to manufacture these products. The Company is increasing sales of
its current generic products through the expansion of its distribution networks
and by providing contract manufacturing services to various pharmaceutical
companies.
In April 1997, the Company signed an agreement with Kali Laboratories
Inc. ("Kali"), a privately-held company specializing in the development of
generic drugs. The agreement provides for Kali to assist DynaGen in developing
seven specific generic drugs and obtaining approval of the U.S. Food and Drug
Administration ("FDA") for these drugs. The patents on these targeted drugs have
expired or will expire over the next five years and provide an opportunity for
DynaGen to introduce generic equivalents. Kali's management and scientific staff
have significant experience in developing and obtaining approvals on generic
drugs.
To complement the acquisition of Able and pursue vertical integration,
the Company acquired all of the outstanding shares of Superior. Superior markets
and distributes generic pharmaceuticals and healthcare-related products through
a sales force of approximately 40 telemarketers. Superior markets and sells its
products to pharmacies, physicians, buying groups, retail chains and long-term
care and managed care facilities throughout the United States. Superior's
primary operations are in Cincinnati, Ohio, where it employs approximately 65
people, and has 40,000 square feet of office, warehouse and distribution space.
Superior also has a sales division located in Memphis, Tennessee, where it
operates under the name of Williams Generics. Superior reported 1996 sales of
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approximately $32 million with pre-tax income of over $3 million. Under the
terms of the merger agreement with Superior and its stockholders, DynaGen paid
Superior's stockholders $6.25 million in cash, $5 million in three-year notes
and 1,666,667 shares of DynaGen's Common Stock (which shares have a guaranteed
value of $5 million). The stockholders may also receive certain cash incentive
payments based on Superior's performance during the three years following the
close of the transaction.
On September 18, 1997, the Company signed a letter of intent to acquire
assets and liabilities of GDI. GDI distributes generic pharmaceutical products
primarily in Louisiana and the southern United States. In 1996, GDI reported
revenues of $6.0 million and earnings before taxes of $325,000. The proposed
acquisition price of $2.25 million consists of $1.2 million in cash and $1.05
million in convertible preferred stock. The preferred stock would not be
convertible for at least one year from the closing of the transaction. The
Company intends to finance the cash portion of the purchase price through bank
debt. Finalization of the GDI acquisition by the Company will depend on the
Company's ability to obtain adequate financing and the negotiation of a
definitive acquisition agreement. There can be no assurance that the GDI
acquisition will occur and if the acquisition does occur that any anticipated
benefits from this acquisition will be realized.
DynaGen's specialty or emerging pharmaceutical business strategy is to
create a business based on branded generic products and multi-drug combinations
in convenient packaging for specific indications and treatments. Physicians
routinely prescribe two or more separate drugs for the treatment of several
common medical problems. These drugs are separately prescribed and dispensed but
are taken at various times during the course of the day as directed by the
physician. A major problem in such multi-drug therapies is lack of compliance by
the patient and therefore less than desirable therapeutic efficacy. For this
reason, the Company initially intends to focus its efforts in this area on
compliance enhancement packaging. DynaGen has identified near-term opportunities
in compliance enhancement packaging for women's healthcare products. The Company
is developing convenience packaging which it believes will provide ease of
prescription, dispensing, storage and self-administration.
The Company's proposed specialty pharmaceutical products are in an
early stage of development and therefore are subject to the risks of
unsuccessful development, marketing and commercialization. These proposed
products will require substantial further development which may include clinical
testing, bio-equivalency studies and regulatory approval, all at a substantial
cost to the Company. The use of specialty pharmaceuticals will require the
acceptance of a new way of prescribing medication and there can be no assurance
a market will develop for such products. Additional investment by the Company in
manufacturing, marketing and sales infrastructures will also be required prior
to commercialization. No assurance can be given that these development efforts
will be successfully completed or that the products, if introduced, will be
successfully marketed.
Since its inception, the Company's business has consisted of
development and licensing of proprietary diagnostic and therapeutic products.
One of the Company's proposed products, NicErase(R)-SL, is intended as an aid in
smoking cessation and to provide relief from nicotine withdrawal symptoms.
Unlike currently available smoking cessation products, NicErase's active
ingredient is lobeline, a non-nicotine therapeutic compound.
The Company recently completed a multi-center pivotal Phase 3 clinical
trial on NicErase-SL. The combined results of its 750-subject clinical trial did
not yield a statistically significant difference between the placebo and
NicErase-SL groups. However, one center, the Tobacco Research Center at the West
Virginia University School of Medicine, was able to demonstrate efficacy and
achieve statistical significance. This site, under the direction of Elbert D.
Glover, Ph.D., demonstrated 23% (p = 0.033) abstinence rate in subjects who
received NicErase-SL compared to 13% rate in subjects who received placebo
treatment.
Dr. Glover was able to repeat his earlier success with NicErase-SL in
the Company's prior pilot Phase 3 trial in which the data from his site showed
the highest trend toward efficacy. The Company believes that his previous
experience with NicErase-SL may have contributed to the higher therapeutic
compliance observed in this pivotal trial, which resulted in the clinical
efficacy achieved at the West Virginia site. The Company also believes that the
overall low therapeutic compliance reported in the pivotal trial at the other
two centers may have contributed to an overall lack of statistically significant
efficacy.
In light of the results of the 750-subject clinical trial, the Company
intends to discontinue the NicErase-SL program at the present time and to focus
its resources on the multisource drug business and other programs now underway
at DynaGen. The Company is considering alternative delivery formats for the
NicErase technology and intends to seek strategic partners to further develop
and market these delivery formats. The Company has entered into a licensing
agreement with Nastech
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Pharmaceutical Company Inc. ("Nastech") in which the Company granted Nastech a
worldwide, exclusive license to develop a lobeline sulfate nasal delivery
formulation of the Company's NicErase product candidate. Nastech will be
responsible for the development of nasal formulations, preclinical animal
studies and limited human studies and shall bear all the development costs. The
Company and Nastech will cooperate in licensing the product to a third party and
will share equally in licensing fees and royalties.
The Company has also signed a memorandum of understanding with LTS
Lohmann Therapie Systeme GmbH ("LTS") regarding the evaluation and possible
development of NicErase transdermal and buccal formulations for smoking
cessation therapy. Under this memorandum, it is intended that DynaGen will
license its NicErase know-how, technology and patents to LTS and that LTS will
assume responsibility for development and manufacturing of the products and for
identification of distribution partners. The parties intend to sign a definitive
license agreement covering this relationship, but there can be no assurance that
the Company will enter into a definitive agreement.
In December 1996, the Company obtained FDA clearance to market its
proprietary NicCheck(R) I product, a colorometric test strip that measures the
urinary content of nicotine and its metabolites. The test distinguishes between
smokers and nonsmokers with 97% accuracy and is also able to distinguish between
high and low consumers of nicotine. NicCheck can be used both as a companion
product for NicErase-SL or independently for clinical evaluation. The Company
has begun marketing NicCheck to physicians, smoking cessation programs, HMOs and
insurance companies.
In December 1996, the Company acquired, through a licensing arrangement
from BioLoc, Inc. ("BioLoc"), rights to a tumor localization and tracking
technology for use in breast biopsy. This technology, which is in a
developmental stage, is intended to improve the accuracy and efficiency and
reduce the overall cost of surgical breast biopsy procedures. Core needle
biopsy, the most commonly used non-surgical procedure for diagnosis of
suspicious lesions in breasts, is limited in its efficacy due to the difficulty
in capturing the targeted tissue and the need for multiple attempts to obtain
accurate and sufficient samples, resulting in unnecessary pain, scarring and
anxiety. The BioLoc technology is intended to overcome the shortcomings of the
core needle biopsy procedure by accurately guiding the surgical biopsy
instruments directly to the suspected tissue lesion identified during
mammography examination.
The Company is developing ImmuDyn(TM) which is a proprietary lipid
preparation that modulates immune system function. Immune modulators have shown
potential clinical usefulness as either stand-alone drugs or as adjunct therapy
to existing treatments for various immune system deficiency conditions and
autoimmune diseases. The ImmuDyn technology was exclusively licensed by DynaGen
from the Cantacuzino Institute of Bucharest, Romania. DynaGen has filed U.S.
patent applications covering the broad use of ImmuDyn as an immune system
modulator as well as for specific target disease conditions, including HIV
infection, thrombocytopenia (ITP), and drug-induced neutropenia. The Company
intends to pursue its ImmuDyn patent position as additional animal and clinical
study data are obtained.
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Recently, the Company filed an Orphan Drug Designation application with
the FDA for the use of ImmuDyn in the treatment of ITP. DynaGen has conducted
overseas clinical studies to evaluate ImmuDyn's safety and efficacy in the
treatment of autoimmune diseases such as immune thrombocytopenic purpura ITP.
U.S. clinical studies will initially focus on ITP, an autoimmune disease in
which the destruction of platelets is accelerated. Platelets are blood cells
that facilitate blood clotting; a decrease in platelet count can result in
life-threatening bleeding episodes. The Company has also tested ImmuDyn in
individuals with compromised immune system function, such as in cases of HIV
infection and in individuals receiving cancer chemotherapy. The results of these
trials have indicated an acceptable safety profile and suggest positive
efficacy. The ImmuDyn technology is in an early stage of development and
therefore is subject to the risks of unsuccessful development, marketing and
commercialization. No assurance can be given that these development efforts will
be successfully completed, that a patent will be issued covering the ImmuDyn
technology or that the products, if introduced, will be successfully marketed.
With respect to both the BioLoc and ImmuDyn technologies, the Company
intends to spin off each of these technologies into two separate majority owned
entities and to pursue separate financing for each. There can be no assurance,
however, that the subsidiaries will be able to secure financing.
The Company is also developing OrthoDyn(R), a bioresorbable bone cement
system for bone and joint repair, which is currently in the preclinical
development stage. In April 1997, the Company entered into an agreement with
Smith & Nephew, plc ("Smith & Nephew") providing Smith & Nephew an exclusive
period of 12 months to evaluate the OrthoDyn product's human orthopaedic
applications. Additionally, the Company expanded its resorbable polymer
technology patent base by obtaining a patent for its Sleeper(TM) vaccine
technology which enables vaccines to be delivered in a single administration
rather than in multiple vaccinations over a period of time.
The Company has also developed proprietary diagnostic tests for certain
infectious diseases including tuberculosis. The Company is currently selling the
MycoDot(R) product, a test to detect antibodies against mycobacteria in blood or
serum, through distributors primarily in Asia, Pacific Rim countries, China,
India and Japan. The Company's MycoAKT(R) products, diagnostic tests that
identify three mycobacterial species in culture, are sold by a third party under
exclusive U.S. manufacturing and distribution rights and semi-exclusive
worldwide rights granted by the Company.
The Company maintains its principal executive offices and laboratory
facilities at 840 Memorial Drive, Cambridge, Massachusetts 02139, U.S.A., and
its telephone number is (617) 491-2527.
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RISK FACTORS
The shares of Common Stock offered hereby involve a high degree of risk
and should not be purchased by persons who cannot afford the loss of their
entire investment. The following factors, in addition to the other information
discussed in this Prospectus, should be considered carefully in evaluating an
investment in the Company and its business.
HISTORY OF LOSSES; ANTICIPATION OF FUTURE LOSSES. The Company has
incurred operating losses since its inception and has an accumulated deficit of
$31,927,895 as of September 30, 1997. The Company incurred a net loss of
$7,612,704 for the nine months ended September 30, 1997, as compared with a net
loss of $5,065,649 for the same period ended September 30, 1996. The Company
incurred a net loss of $4,306,140 for the six months ended December 31, 1996, as
compared with a net loss of $1,809,816 for the same period ended December 31,
1995. The Company incurred a net loss of $5,097,419 for the fiscal year ended
June 30, 1996, compared with a net loss of $3,042,383 for the fiscal year ended
June 30, 1995. Such losses have resulted principally from expenses incurred in
research and development and from general and administrative costs associated
with the Company's development efforts. In addition, the Able subsidiary has
incurred operating losses resulting primarily from insufficient revenues. The
continued development of the Company's products will require the commitment of
substantial resources to conduct further development and preclinical and
clinical trials, and to establish manufacturing, sales, marketing, regulatory
and administrative capabilities. In addition, the Company's recently acquired
subsidiary, Able, has incurred net operating losses in the past. The Company
expects to provide its Able subsidiary with working capital during the
foreseeable future until Able can become self-supporting. The Company expects to
incur substantial operating losses over the next several years as its product
programs expand, various clinical trials commence and marketing efforts are
launched. The amount of net losses and the time required by the Company to reach
sustained profitability are highly uncertain and to achieve profitability, the
Company must, among other things, successfully complete development of its
products, obtain regulatory approvals, and establish manufacturing and marketing
capabilities by itself or with third parties. There is no assurance that the
Company will ever generate substantial revenues from its proprietary and generic
products or achieve profitability.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. It is
anticipated that the Company will continue to expend significant amounts of
capital to fund its research and development, clinical trials and generic
pharmaceutical business and future acquisitions, if any. The Company's available
working capital is inadequate for completion of the Company's development
programs, and additional financing will be necessary for the continued support
of the Company's proposed products and operations, including the establishment
of manufacturing, marketing and distribution capabilities for its proposed
products and the continued operations of Able and Superior. There can be no
assurance that the Company will be able to secure additional financing or that
such financing will be available on favorable terms. If the Company is unable to
obtain such additional financing, the Company's ability to maintain its current
level of operations would be materially and adversely affected and the Company
will be required to reduce or eliminate its expenditures relating to its
business.
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UNCERTAINTIES RELATED TO NICERASE. Under applicable law, the Company's
current or future licensees will not be permitted to sell NicErase, and thus
generate any revenue from their development of NicErase, unless they obtain the
necessary regulatory approvals from the FDA for the commercial sale of that
product. To obtain such regulatory approvals, the Company's current or future
licensees must demonstrate to the satisfaction of the FDA, through preclinical
studies and clinical trials, that NicErase is safe and effective. In light of
the Company's recently completed pivotal Phase 3 clinical trial of NicErase-SL,
which did not show statistically significant efficacy, the Company is unable to
predict whether delivery formulations of lobeline other than sublingual will
demonstrate acceptable safety and efficacy to obtain FDA approval. There can be
no assurance that the Company's current or future licensees will be able to
successfully formulate new delivery systems for lobeline, that such licensees
will have sufficient technological or financial resources to initiate and
complete the required clinical trials, or that such trials will demonstrate
sufficient safety and efficacy to obtain the required regulatory approvals or
develop marketable products. A number of companies in the pharmaceutical
industry have suffered significant setbacks in advanced clinical trials, even
after promising results in earlier trials. If any future clinical trials do not
show NicErase to be safe and effective in any alternative delivery format, and
if the Company's licensees are thus unable to commercialize NicErase, the
Company will not realize any revenues from the NicErase product.
INTEGRATION OF ABLE AND SUPERIOR ACQUISITIONS. In August 1996, the
Company acquired certain assets of Able, and in June 1997, the Company purchased
all of the outstanding shares of Superior. There can be no assurance that the
anticipated benefits from the Able or Superior acquisition will be realized.
Additionally, there can be no assurance that the Company will be able to
effectively market the existing Able products, that it will obtain FDA approval
to market additional generic drugs or that it will be successful in managing the
combined operations. The integration of Able and Superior requires substantial
attention from management, many of whom have limited experience in integrating
acquisitions. The diversion of management's attention, the process of
integrating the businesses and any difficulties encountered in the transition
process could cause an interruption of business, and could have a material
adverse effect on the Company's operations and financial performance.
RISKS ASSOCIATED WITH MANAGING A CHANGING BUSINESS. The Company has
begun to expand its business focus from being a development and licensing
company to building a diversified healthcare company focused on the manufacture
and distribution of generic drug products as well as the continued development
of therapeutic and diagnostic products. In order to achieve this expansion, the
Company must undergo substantial changes in its operations, which may
significantly strain the Company's limited administrative, operational and
financial resources. The ability of the Company to achieve its business
objectives will depend in large part on its ability to build and expand its
manufacturing operations and sales and marketing capabilities, to generally
expand its operational capabilities and its financial and management information
systems, to develop the management skills of its managers and supervisors and to
train, motivate and manage both its existing employees and the additional
employees that will be required if the Company is to expand its business. There
can be no assurance that the Company
-12-
<PAGE> 13
will succeed in developing all or any of these capabilities, and any failure to
do so would have a material adverse effect on the Company's business, financial
condition and results of operations.
FUTURE ACQUISITIONS. Management may from time to time consider other
acquisitions of assets, businesses or technologies that will enable the Company
to acquire complementary skills and capabilities, offer new products, expand its
customer base or obtain other competitive advantages. On September 18, 1997, the
Company signed a letter of intent to acquire assets and liabilities of GDI.
Finalization of the GDI acquisition by the Company will depend on the Company's
ability to obtain adequate financing and the negotiation of a definitive
acquisition agreement. There can be no assurance that the GDI acquisition will
occur and if the acquisition does occur that any anticipated benefits from this
acquisition will be realized. There can also be no assurance that the Company
will be able to successfully identify additional suitable acquisition
candidates, obtain financing on satisfactory terms, complete acquisitions,
integrate acquired operations into its existing operations or expand into new
markets. Acquisitions may result in potentially dilutive issuances of equity
securities, the incurrence of debt and contingent liabilities, and amortization
expense related to intangible assets acquired, any of which could materially
adversely affect the Company's business and results of operations. Acquisitions,
including the Company's recent acquisitions of Able and Superior and the
proposed acquisition of GDI, involve a number of potential risks, including
difficulties in the assimilation of the acquired company's operations and
products, diversion of management's resources, uncertainties associated with
operating in new markets and working with new employees and customers, and the
potential loss of the acquired company's key employees. There can also be no
assurance that the Able and Superior acquisitions and future acquisitions, if
any, will not have a material adverse effect upon the Company's business and
results of operations. Once integrated, acquired operations may not achieve
expected levels of revenues, profitability or productivity, or otherwise perform
as expected.
LIMITED MANUFACTURING CAPABILITY AND EXPERIENCE. The Company's
NicCheck, MycoDot and MycoAKT products are currently made by licensed
manufacturers. The Company intends to enter into licenses, joint venture and
similar collaborative arrangements with third parties for the manufacture of
other proprietary products and proposed products. There are no other such
agreements and there can be no assurance that the Company will be successful in
securing manufacturing agreements for its products or that such agreements will
prove to be on terms favorable to the Company. In addition, the Company's
dependence upon third parties for the manufacture of its products and proposed
products could have an adverse effect on the Company's profitability and its
ability to deliver its proposed products on a timely and competitive basis. To
the extent that the Company attempts to manufacture any of its products, there
can be no assurance that the Company will be able to attract and retain
qualified manufacturing personnel, or build or rent manufacturing facilities.
The Company's generic therapeutic products are manufactured at its Able
Laboratories facility in South Plainfield, New Jersey. In order to maintain
compliance with FDA Good Manufacturing Practices ("GMP") standards, the Company
will have to make significant investments in its infrastructure and plant
facility. The Company will need to raise capital to finance these investments
and there can be no assurance that the Company will be able to obtain such
financing or that such financing will be available on favorable terms. There can
be no assurance that such capital expenditures and overhead costs will not have
a material adverse effect upon the Company's ability to achieve profitability.
There can be no assurance that the Company will retain the key employees it
acquired in the Able acquisition.
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<PAGE> 14
LIMITED COMMERCIALIZATION OF PROPRIETARY PRODUCTS. The Company has
commercially introduced and is currently marketing through distributors only
three of its proprietary products, yielding limited revenues from the sale of
these products. Historically, substantially all of the Company's revenues had
been generated from research and development contracts and license fees. The
Company's ability to achieve profitability will depend on its ability to develop
and introduce commercially viable products, obtain regulatory approvals for
these products and either successfully manufacture, market and distribute such
products on its own or enter into collaborative agreements for product
manufacturing, marketing and distribution. Many of the Company's proposed
therapeutic and diagnostic products will require substantial further
development, preclinical and clinical testing, and investment by the Company or
third party licensees in manufacturing, marketing and sales infrastructures
prior to their commercialization. No assurance can be given that the Company's
development efforts will be successfully completed, that regulatory approvals
will be obtained, or that these products, once introduced, will be successfully
marketed.
EARLY STAGE OF PRODUCT DEVELOPMENT. Several of the Company's proposed
products, including its specialty pharmaceuticals, OrthoDyn, the breast biopsy
technology being licensed from BioLoc and the bacterial extract for treatment of
infectious diseases, are at an early stage of development. The Company does not
expect that its early stage products will be available for a significant number
of years, if at all. The early stage products will require significant research
and development, and potential products that appear to be promising at early
stages of development may not reach the market for a number of reasons.
Potential products may be found ineffective or cause harmful side effects during
preclinical testing or clinical trials, fail to receive necessary regulatory
approvals, be difficult to manufacture on a large scale, be uneconomical to
produce, fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of third parties. There can be no
assurance that the Company's or its collaborative partners' product development
efforts will be successfully completed, that required regulatory approvals will
be obtained or that any products, if introduced, will be successfully marketed
or achieve customer acceptance.
LACK OF MARKETING EXPERIENCE. The Company currently does not plan to
market its proprietary products directly and does not have adequate resources or
expertise to develop a substantial marketing organization and internal sales
force for these products. Since the Company does not have the financial or other
resources to undertake extensive direct marketing activities, the Company
intends to enter into marketing arrangements with third parties, including
possible joint venture, license or distribution arrangements. While the Company
intends to license its products for manufacture and sale to established health
care or pharmaceutical companies, it has had very limited success in its efforts
to enter into such agreements to date. There can be no assurance that the
Company will be able to locate collaborative partners or that these strategic
alliances, if consummated, will prove successful.
With respect to the Company's generic therapeutic products, there can
be no assurance that present and potential customers of Able and Superior will
continue their recent buying patterns, and any significant delay or reduction in
orders could have a material adverse effect on the Company's near-term business
and results of operations.
-14-
<PAGE> 15
REGULATION BY GOVERNMENT AGENCIES. The Company's research, preclinical
development, clinical trials, manufacturing and marketing of its proposed
products are subject to extensive regulation by numerous governmental
authorities in the United States (including the FDA), and other equivalent
foreign regulatory authorities. The process of obtaining FDA and other required
regulatory approvals is lengthy and expensive. There can be no assurance that
the Company will be able to obtain the necessary approvals for clinical testing
or for the manufacturing or marketing of its proposed products. Further,
additional governmental regulation may be established which could prevent or
delay regulatory approval of the Company's products. The regulatory process may
delay for long periods, and ultimately prevent, marketing of new products or
impose costly procedures that would have a material adverse effect on the
Company's business. Failure to comply with the applicable regulatory
requirements can, among other things, result in fines, suspensions of regulatory
approvals, product recalls, operating restrictions and criminal prosecution.
The Company's success in the generic drug market depends, in part, on
its ability to obtain FDA approval of ANDAs for its new products, as well as its
ability to procure a continuous supply of raw materials and to validate the
manufacturing processes used to produce consistent test batches for FDA
approval. Sources for certain materials for the Company's products must be
approved by the FDA, and in many instances only one source has been approved. If
raw materials from a specified supplier were to become unavailable, the Company
would be required to file a supplement to its ANDA and revalidate the
manufacturing process using a new supplier's materials. This could cause a delay
of several months in the manufacture of the drug involved and the consequent
loss of potential revenue and market share. Additionally, there is often a time
lag, sometimes significant, between the receipt of ANDA approval and the actual
marketing of the approved product due to this validation process.
The Able Laboratories facility is subject to plant inspections by the
FDA to determine compliance with GMP standards. The Company could be subject to
fines and sanctions such as the suspension of manufacturing or the seizure of
drug products if it were found to be in non-compliance with GMP standards.
RAPID TECHNOLOGICAL ADVANCES AND COMPETITION. The therapeutic and
diagnostic markets in which the Company competes have undergone and can be
expected to continue to undergo rapid and significant technological advances.
There can be no assurance that the technological developments of others will not
render the Company's technology or products incorporating such technology either
uneconomical or obsolete. The Company competes with a number of specialized
biotechnology companies and major pharmaceutical companies. Most of these
companies have substantially greater financial, technical and human resources
and research and development staffs and facilities, as well as substantially
greater experience in conducting clinical trials, obtaining regulatory
approvals, and manufacturing and marketing products than does the Company. There
can be no assurance that the Company's products or proposed products will be
able to compete successfully.
-15-
<PAGE> 16
In addition, with its newly acquired generic product line, the Company
is now competing in a new market with off-patent drug manufacturers, brand-name
pharmaceutical companies that manufacture off-patent drugs, the original
manufacturers of brand-name drugs and manufacturers of new drugs that may be
used for the same indications as the Company's products. There is no assurance
that the Company will compete successfully in this market. Revenues and gross
profit derived from generic pharmaceutical products tend to follow a pattern
based on regulatory and competitive factors unique to the generic pharmaceutical
industry. As patents for brand name products and related exclusivity periods
mandated by regulatory authorities expire, the first generic manufacturer to
receive regulatory approval for generic equivalents of such products is usually
able to achieve relatively high revenues and gross profit. As other generic
manufacturers receive regulatory approvals on competing products, prices and
revenues typically decline. Accordingly, the level of revenues and gross profit
attributable to generic products developed and manufactured by the Company is
dependent, in part, on its ability to develop and introduce new generic
products, the timing of regulatory approval of such products, and the number and
timing of regulatory approvals of competing products. In addition, competition
in the United States generic pharmaceutical market continues to intensify as the
pharmaceutical industry adjusts to increased pressures to contain health care
costs. Brand name companies are increasingly selling their products into the
generic market directly by acquiring or forming strategic alliances with generic
pharmaceutical companies. No regulatory approvals are required for a brand name
manufacturer to sell directly or through a third party to the generic market,
nor do such manufacturers face any other significant barriers to entry into such
market. These competitive factors may have a material adverse effect on the
Company's ability to sell its generic products.
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY. The Company owns
certain patents and has applied for other patents relating to its technology and
proposed products. No assurance can be given, however, whether pending patent
applications will be granted or whether any patents granted will be enforceable
or provide the Company with meaningful protection from competitors. Even if a
competitor were to infringe the Company's patents, the costs of enforcing its
patent rights may be substantial or even prohibitive. In addition, there can be
no assurance that the Company's proposed products will not infringe the patent
rights of others. The Company may be forced to expend substantial resources if
the Company is required to defend against any such infringement claims. The
Company also may desire or be required to obtain licenses from others in order
to further develop, produce and market commercially viable products effectively.
There can be no assurance that such licenses will be obtainable on commercially
reasonable terms, if at all, that the patents underlying such licenses will be
valid and enforceable or that the proprietary nature of the unpatented
technology underlying such licenses will remain proprietary. The Company also
relies on unpatented proprietary know-how and trade secrets, and employs various
methods including confidentiality agreements with employees, consultants,
manufacturing and marketing partners to protect its trade secrets and know-how.
However, such methods may not afford complete protection and there can be no
assurance that others will not independently develop such trade secrets and
know-how or obtain access thereto.
-16-
<PAGE> 17
The manufacture and sale of certain products developed by the Company
will involve the use of processes, products or information, the rights to
certain of which are owned by others. Although the Company has obtained licenses
with regard to the use of certain such processes, products and information,
there can be no assurance that such licenses will not be terminated or expire
during critical periods, that the Company will be able to obtain licenses for
other rights which may be important to it, or, if obtained, that such licenses
will be obtained on commercially reasonable terms. If the Company is unable to
obtain such licenses, the Company may have to develop alternatives to avoid
infringing patents of others, potentially causing increased costs and delays in
product development and introduction, or precluding the Company from developing,
manufacturing or selling its proposed products. Additionally, there can be no
assurance that the patents underlying any licenses will be valid and
enforceable. To the extent any products developed by the Company are based on
licensed technology, royalty payments on the licenses will reduce the Company's
gross profit from such product sales and may render the sales of such products
uneconomical.
UNCERTAINTY OF AVAILABILITY OF HEALTH CARE REIMBURSEMENTS. The ability
of the Company to maintain profitability in Superior's generic distribution
business or to commercialize its product candidates depends in part on the
extent to which reimbursement for the cost of such products will be available
from government health administration authorities, private health insurers and
other organizations. Third party payors are attempting to control costs by
limiting the level of reimbursement for medical products, including
pharmaceuticals, which may adversely effect the pricing of the Company's product
candidates. Moreover, health care reform has been, and may continue to be, an
area of national and state focus, which could result in the adoption of measures
which could adversely affect the pricing of pharmaceuticals or the amount of
reimbursement available from third party payors. There can be no assurance that
health care reimbursement laws or policies will not materially adversely affect
the Company's ability to sell its products profitably or prevent the Company
from realizing an appropriate return on its investment in product development.
UNCERTAINTIES RELATED TO PRODUCT SUPPLIERS. Superior purchases its
products from several pharmaceutical manufacturers. If a manufacturer is unable
to supply a product or is unable to supply a product at a competitive price,
Superior may lose revenues or experience significantly reduced gross profit
margins. One or more of Superior's products could be subject to a manufacturer's
product recall due to manufacturing defects or other reasons. Such recalls would
result in lost revenues and additional costs to Superior. There can be no
assurance that Superior can maintain a continuous and uninterrupted supply of
products.
CUSTOMER CONCENTRATION; CONSOLIDATION OF DISTRIBUTION NETWORK. The
distribution network for pharmaceutical products has in recent years been
subject to increasing consolidation. As a result, a few large wholesale
distributors control a significant share of the market. In addition, the number
of independent drug stores and small chains has decreased as retail pharmacy
consolidation has occurred. Further consolidation among, or any financial
difficulties of, distributors or retailers could result in the combination or
elimination of warehouses, thereby stimulating product returns to Superior.
Consolidation or financial difficulties could cause customers to reduce their
inventory levels, or otherwise reduce purchases of Superior's products,
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<PAGE> 18
which could have a materially adverse effect on the Company's business,
results of operations and financial condition.
VOLATILITY OF STOCK PRICE. The market for securities of biotechnology
companies, including those of the Company, has been highly volatile. The market
price of the Company's Common Stock has fluctuated between $7.00 and $0.38 from
January 1, 1993 to September 30, 1997 and was $0.41 on November 24, 1997, and it
is likely that the price of the Common Stock will continue to fluctuate widely
in the future. Announcements of technical innovations, new commercial products,
results of clinical trials, regulatory approvals, patent or proprietary rights
or other developments by the Company or its competitors could have a significant
impact on the Company's business and the market price of the Common Stock.
DILUTION. At September 30, 1997, the net tangible book value of the
Company was $(10,642,968), or approximately $(0.32) per share. Purchasers of the
Company's Common Stock offered hereby will experience immediate and substantial
dilution. See "Dilution."
LIMITED TRADING VOLUME OF COMMON STOCK. The development of a public
market having the desirable characteristics of liquidity and orderliness depends
upon the presence in the marketplace of a sufficient number of willing buyers
and sellers at any given time, over which neither the Company nor any market
maker has any control. Accordingly, there can be no assurance that a significant
trading market for the securities offered hereby will develop, that quotations
will be available on the Nasdaq as contemplated, or if a significant market
develops, that such market will continue. Although the trading volume for the
Common Stock, as reported by the Nasdaq, averaged 714,976 shares per week during
the 52-week period ended September 30, 1997 and 1,061,980 shares per week during
the four-week period ended September 30, 1997, there can be no assurance that
persons purchasing the securities offered hereby will be able to readily sell
the securities at the time or price desired.
ADVERSE CONSEQUENCES ASSOCIATED WITH RESERVATION OF SUBSTANTIAL SHARES
OF COMMON STOCK. Excluding the Shares offered hereby, the Company has reserved
11,998,700 shares of Common Stock for issuance upon the conversion or exercise
of its outstanding warrants, convertible preferred stock and a convertible note
and 4,101,300 shares for issuance to employees, officers, directors and
consultants. The price which the Company may receive for the Common Stock
issuable upon exercise of such options and warrants will, in all likelihood, be
less than the market price of the Common Stock at the time of such exercise.
Consequently, for the life of such options and warrants the holders thereof may
have been given, at nominal cost, the opportunity to profit from a rise in the
market price of the Common Stock.
The exercise of all of the aforementioned securities may also adversely
affect the terms under which the Company could obtain additional equity capital.
In all likelihood, the Company would be able to obtain additional equity capital
on terms more favorable to the Company at the time the holders of such
securities choose to exercise them. In addition, should a significant number of
these securities be exercised, the resulting increase in the amount of the
Common Stock in the public market may reduce the market price of the Common
Stock. Also, the Company has agreed that, under certain circumstances, it will
register under Federal and state
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<PAGE> 19
securities laws certain securities issuable in connection with warrants issued
to the investment banker and placement agent of the Company's Common Stock.
-19-
<PAGE> 20
DILUTION
"Dilution" represents the difference between the assumed price to
public per share of Common Stock and the net tangible book value per share
immediately after the completion of this offering. "Net tangible book value per
share" represents the amount of total tangible assets less total liabilities and
preferred stock at liquidation value, divided by the number of shares of Common
Stock outstanding.
As of September 30, 1997, the net tangible book value of the Company's
Common Stock was $(10,642,968) or $(0.32) per share of Common Stock. Assuming a
price to the public of $0.41 per share (based upon the last reported sales price
of the Common Stock on Nasdaq at November 24, 1997), there will be an immediate
dilution per share of $0.73 to new investors purchasing the Shares offered
hereby.
The following table illustrates the dilution per share described above:
<TABLE>
<CAPTION>
<S> <C>
Assumed price to public per share....................................... $ 0.41
Net tangible book value per share at September 30, 1997, as defined
above................................................................. $(0.32)
------
Dilution to new investors............................................... $ 0.73
</TABLE>
Between June 1997 and November 1997, the Company issued the Preferred
Stock, the Warrants and the Common Shares to the Selling Stockholders as part of
private placement transactions. Each share of Preferred Stock is convertible
into shares of Common Stock at any time at the option of the Selling Stockholder
holding such share of Preferred Stock, subject to certain limitations, at a
discount on the average of the closing bid price per share of the Company's
Common Stock for the five (5) consecutive trading days ending immediately prior
to the date the notice of conversion is received by the Company. The Warrants
are exercisable for an aggregate of 385,600 shares of Common Stock at a purchase
price per share equal to 120% of the average market price for the five
consecutive trading days immediately preceding the date on which the Commission
declares effective the Registration Statement of which this Prospectus forms a
part.
The pro forma net tangible book value of the Company's Common Stock at
September 30, 1997, assuming full conversion of the Preferred Stock, exercise of
the Warrants and issuance of the Common Shares (based upon a price of $0.44
which represents an average of the closing bid price for the Common Stock on
Nasdaq for the five(5) consecutive trading days ended on November 21, 1997),
resulting in the issuance of approximately 20,354,600 shares, would be
$(3,701,626) or $(0.07) per share. Assuming a price to the public of $0.44 per
share, there would be an immediate dilution per share of $0.51 to new investors.
At November 24, 1997, the Company had outstanding options to purchase
4,101,300 shares of Common Stock, at exercise prices ranging between $0.01 and
$6.25 per share. At November 24, 1997, the Company also had outstanding
warrants, convertible preferred stock and a convertible note which have exercise
or conversion prices ranging between $.01 and $4.37, which if exercised would
result in the issuance of
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<PAGE> 21
11,998,700 shares of Common Stock.
USE OF PROCEEDS
The Company will receive no part of the proceeds from the sale of any
of the Shares by any of the Selling Stockholders. The Company will, however,
receive proceeds from the exercise of the Warrants at a price to be determined
based upon 120% of the average market price for the Common Stock for the five
consecutive trading days immediately preceding the date on which the Commission
declares effective the Registration Statement of which this Prospectus is a
part. The Company has received proceeds from the sale of the Preferred Stock and
the Warrants to the Selling Stockholders, which proceeds were applied to working
capital and the acquisition of Superior.
SELLING STOCKHOLDERS
The following table sets forth information concerning the beneficial
ownership of shares of Common Stock by the Selling Stockholders as of the date
of this Prospectus and the number of such shares included for sale in this
Prospectus assuming the sale of all such Shares being offered by this
Prospectus. To the best of the Company's knowledge, except as noted by footnote,
none of the Selling Stockholders has held any office or maintained any material
relationship with the Company or any of its predecessors or affiliates over the
past three years. The Selling Stockholders may reduce the number of shares
offered for sale or otherwise decline to sell any or all of the Shares
registered hereunder.
<TABLE>
<CAPTION>
Number of Shares
to be Acquired upon Number of
Number of Shares of Conversion of Preferred Shares of
Common Stock Owned Prior Stock Common Stock
to the Offering and/or Exercise to
Names of Warrant be Sold
----- ------------------------- ----------------------- -------------
<S> <C> <C> <C>
Ardsen Financial S.A. 0(1) (2)(3) 1,917,588(2)(3)(4)
Voica Trading S.A. 0(1) (2)(3) 1,597,990(2)(3)(4)
Taib Bank E.C. 0(1) (2)(3) 1,369,705(2)(3)(4)
Sovereign Partners LP 0(1) (2)(3) 2,282,842(2)(3)(4)
Legong Investments N.V. 0(1) (2)(3) 2,282,842(2)(3)(4)
</TABLE>
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<PAGE> 22
<TABLE>
<CAPTION>
Number of Shares
to be Acquired upon Number of
Number of Shares of Conversion of Preferred Shares of
Common Stock Owned Prior Stock Common Stock
to the Offering and/or Exercise to
Names of Warrant be Sold
----- ------------------------- ----------------------- -------------
<S> <C> <C> <C>
RIC Asset Limited 0(1) (2)(3) 2,282,842(2)(3)(4)
Gross Foundation 0(1) (2)(3) 1,141,421(2)(3)(4)
Deere Park 0(1) (2)(3) 1,141,421(2)(3)(4)
Lampton, Inc. 0(1) (2)(3) 456,568(2)(3)(4)
Throne LTD 0(1) (2)(3) 456,568(2)(3)(4)
Colbo KFT 0(1) (2)(3) 1,050,107(2)(3)(4)
The Endeavour Capital Fund S.A. 0(1) (2)(3) 2,739,411(2)(3)(4)
Arab Commerce Bank, Ltd. 0(1) (2)(3) 228,285(2)(3)(4)
Swedebank Luxembourg 0(1) (2)(3) 456,568(2)(3)(4)
Paul Enquist 0(1) (2)(3) 114,142(2)(3)(4)
Leo Genecco & Sons Inc. 0(1) (2)(3) 570,711(2)(3)(4)
William S. Kissel 0(1) (2)(3) 205,456(2)(3)(4)
Irving Schotz 0(1) (2)(3) 114,142(2)(3)(4)
Dick Alaimo, Jr. 0(1) (2)(3) 114,142(2)(3)(4)
Jon A. Travers 0(1) (2)(3) 114,142(2)(3)(4)
C. Robert Cusick 0(1) (2)(3) 228,285(2)(3)(4)
Robert C. Cohen 0(1) (2)(3) 114,142(2)(3)(4)
Christopher Grieco 0(1) (2)(3) 114,142(2)(3)(4)
Richard and Rhonda Tennis 0(1) (2)(3) 114,142(2)(3)(4)
Robert Frankel 0(1) (2)(3) 114,142(2)(3)(4)
A. Ronald Jacobson 0(1) (2)(3) 114,142(2)(3)(4)
J. Michael Nixon 0(1) (2)(3) 228,285(2)(3)(4)
Guarantee & Trust Co. FBO 0(1) (2)(3) 342,427(2)(3)(4)
J. Thomas Chess
Julius Baer Securities Inc., 855,166(1) (2) 2,349,451(2)(5)
as agent for certain non-U.S.
persons
Coutts & Co. AG 300,000(1) (2) 1,720,549(2)(6)
Curzon Management Limited 1,000,000 0 1,000,000
Active Conditioning Corp. 0 0 500,000
Kali Laboratories, Inc. 0 0 1,000,000
Quaker Capital Advisors 0 0 225,000
Wolf, Greenfield & Sachs 0 0 85,000
Excel Chemicals International LLC 0 0 200,000
</TABLE>
- --------------------
(1) Does not include shares of Common Stock issuable upon conversion of the
Preferred Stock or exercise of the Warrants.
(2) The Selling Stockholder can receive shares of Common Stock through
conversion of the Preferred Stock. The Preferred Stock is convertible
into Common Stock at the lesser of (i) 120% with respect to Series A
Stock or 125% with respect to Series B Stock of the average market
price for the five consecutive trading days immediately preceding the
date on which the Commission declares effective the Registration
Statement of which this Prospectus forms a part or (ii) a discount on
the average market price for the Common Stock for the five consecutive
trading days immediately preceding the date on which the Preferred
Stock is converted. The terms of the Preferred Stock provide that no
holder of Preferred Stock and its affiliates may beneficially own, in
the aggregate, more than 4.9% of the Company's outstanding Common
Stock.
(3) The Selling Stockholder can receive shares of Common Stock through
exercise of the Warrants. The exercise price of the Warrants is 120% of
the average market price for the Common Stock for the five consecutive
trading days immediately preceding the date on which the Commission
declares effective the Registration Statement of which this Prospectus
is a part.
-22-
<PAGE> 23
(4) Consists of shares of Common Stock included in this offering that are
issuable upon conversion of the Series A Stock, upon exercise of the
Warrant and in payment of dividends on the Series A Stock held by such
Selling Stockholder.
(5) Consists of 225,000 shares of Common Stock owned plus shares of Common
Stock included in this offering that are issuable upon conversion of
the Series B Stock and in payment of dividends on the Series B Stock.
(6) Consists of 300,000 shares of Common Stock owned plus shares of Common
Stock included in this offering that are issuable upon conversion of
the Series B Stock and in payment of dividends on the Series B Stock.
-23-
<PAGE> 24
PLAN OF DISTRIBUTION
The distribution by the Selling Stockholders of the Shares may be
effected in one or more transactions that may take place in the over-the-counter
market, or such other market on which the Company's securities may from time to
time be trading, including ordinary broker's transactions or through sales to
one or more dealers for resale of the Shares as principals, in privately
negotiated transactions, through the writing of options on the Shares (whether
such options are listed on an options exchange or otherwise) or by a combination
of such methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. If the Selling Stockholders effect such
transactions by selling the Shares through underwriters, dealers or agents, such
underwriters, dealers or agents may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Stockholders
and/or the purchasers of the Shares for whom they may act as agent. The Selling
Stockholders and any such underwriters, dealers or agents that participate in
the distribution of the Shares may be deemed to be underwriters, and any profit
on the sale of the Shares by them and any discounts, commissions or concessions
received by them may be deemed to be underwriting discounts and commissions
under the Securities Act. The Selling Stockholders may also sell the Shares
pursuant to Rule 144 under the Securities Act. Brokers or dealers acting in
connection with the sale of the Shares may receive fees or commissions in
connection therewith. The Company will not receive any of the proceeds from the
sale of the Shares by the Selling Stockholders.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of shares of Common Stock may not
simultaneously engage in market making activities with respect to such shares of
Common Stock for a period of up to five business days prior to the commencement
of such distribution, subject to certain exceptions. In addition and without
limiting the foregoing, the Selling Stockholders and any other person
participating in the distribution of the Shares will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Rule 10b-5 and Regulation M, which provisions may
limit the time of purchases and sales of any Shares by the Selling Stockholders
or any other such person. All of the foregoing may affect the marketability of
the Shares.
The Company has agreed with the Selling Stockholders to file the
Registration Statement of which this Prospectus is a part with the Commission,
and has agreed with the Selling Stockholders to keep the Registration Statement
effective until November 5, 1999 or such earlier time as all of the Shares have
been sold. The Company will pay all of the expenses incident to the registration
of the Shares and certain other expenses related to the offering. The Company
has agreed to indemnify the Selling Stockholders against certain liabilities
they may incur in connection with the issuance and sale of the Shares, including
liabilities under the Securities Act. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the Company has agreed to
make the maximum contribution with respect to any amounts for which it would
otherwise be liable under such indemnification provision to the fullest extent
permitted by law.
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<PAGE> 25
In order to comply with certain states' securities laws, if applicable,
the Shares may be sold in such jurisdictions only through registered or licensed
brokers or dealers. In certain states, the Shares may not be sold unless the
Shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.
LEGAL MATTERS
Certain legal matters with respect to the validity of the securities
offered hereby will be passed upon for the Company by Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The Company's balance sheets as of December 31, 1996 and June 30, 1996
and 1995 and the related statements of loss, changes in stockholders' equity and
cash flows for the six months ended December 31, 1996 and each of the years in
the three year period ended June 30, 1996 incorporated by reference in this
Prospectus, have been audited by Wolf & Company, P.C., independent auditors, and
are incorporated in reliance on the report of such firm, given on their
authority as experts in accounting and auditing.
Superior's balance sheets as of December 31, 1996 and 1995 and the
related statements of earnings, retained earnings and cash flows for each of the
years in the three year period ended December 31, 1996 incorporated by reference
in this Prospectus, have been audited by Grant Thornton LLP, independent
auditors, and are incorporated in reliance on the report of such firm, given on
their authority as experts in accounting and auditing.
Able's balance sheets as of June 30, 1996, December 31, 1995 and 1994
and the related statements of operations, division equity and cash flows for the
periods ended June 30, 1996, December 31, 1995, 1994 and 1993 incorporated by
reference in this Prospectus, have been audited by Feldman Radin & Co., P.C.,
independent auditors, and are incorporated in reliance on the report of such
firm, given on their authority as experts in accounting and auditing.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the 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 Company of expenses incurred or paid by a director, officer or
controlling person of the Company 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 Company 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 Securities
Act and will be governed by the final adjudication of such issue.
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