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As filed with the Securities and Exchange Commission on February 27, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
DYNAGEN, INC.
(Exact name of Registrant as Specified in its Charter)
-----------------------------
DELAWARE 04-3029787
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Riverside Technology Center
840 Memorial Drive, 4th Floor
Cambridge, Massachusetts 02139
(617) 491-2527
(Address, including zip code, and telephone number,
including area code, of Registrant's principal
executive offices)
DR. INDU A. MUNI, President
DynaGen, Inc.
Riverside Technology Center
840 Memorial Drive, 4th Floor
Cambridge, Massachusetts 02139
(617) 491-2527
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to:
David A. Broadwin, Esq.
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
(617) 832-1000
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
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If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ___________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] ___________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following. [ ]
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
In accordance with Rule 416 under the Securities Act, this Registration
Statement also covers such indeterminate number of additional shares of the
Registrant's Common Stock, $.01 par value, as may become issuable upon
conversion of the Registrant's Series C Preferred Stock, $.01 par value per
share (the "Series C Stock"), and Series D Preferred Stock, $.01 par value per
share (the "Series D Stock"), to prevent dilution resulting from stock splits,
stock dividends or similar transactions or by reason of changes in conversion
price of the Series C Stock and Series D Stock in accordance with the respective
terms thereof.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
Title of Proposed Maximum Proposed Maximum
Shares Amount Offering Price Aggregate Offering
to be to be per Share Price Amount of
Registered Registered Registration Fee
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par 10,000,000 shares $.08(1) $800,000 $236.00(2)
value
- ------------------------ ---------------------- ---------------------- ---------------------- ----------------------
</TABLE>
(1) The price of $.08 per share, which is the average of the bid and
asked prices reported on the Nasdaq SmallCap Market on February 23,
1998, is set forth solely for purposes of calculating the filing fee
pursuant to Rule 457(c).
(2) Previously paid by wire transfer on February 6, 1998.
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PROSPECTUS
----------
DYNAGEN, INC.
10,000,000 Shares of Common Stock
($.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 a stockholder of the Company (the
"Selling Stockholder"). The Shares consist of (i) shares of Common Stock
issuable upon the conversion of the Company's Series C Preferred Stock, $.01 par
value per share (the "Series C Stock"), or that the Company may, at its option,
issue in payment of dividends on the Series C Stock and (ii) shares of Common
Stock issuable upon the conversion of the Company's Series D Preferred Stock
(the "Series D Stock").
THE COMPANY INTENDS TO HOLD A SPECIAL MEETING OF STOCKHOLDERS OF THE
COMPANY ON MARCH 4, 1998, AT WHICH THE STOCKHOLDERS WILL BE ASKED TO APPROVE A
PLAN OF RECAPITALIZATION WHICH WOULD EFFECT A ONE-FOR-TEN REVERSE STOCK SPLIT OF
THE COMPANY'S COMMON STOCK, $.01 PAR VALUE PER SHARE. IF THE STOCKHOLDERS
APPROVE THE PLAN OF RECAPITALIZATION, THEN THE NUMBER OF UNDISTRIBUTED SHARES OF
COMMON STOCK COVERED BY THIS REGISTRATION STATEMENT AND THIS PROSPECTUS WILL BE
PROPORTIONATELY REDUCED PURSUANT TO RULE 416. SEE "RISK FACTORS -- INADEQUATE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK."
In accordance with Rule 416, the Registration Statement of which this
Prospectus forms a pact also covers that indeterminate members of additional
shares of Common Stock as may become issuable upon conversion of the Series C
Stock, to prevent dilution resulting from stock splits, stock dividends or
similar transactions or by various of changes in the conversion price of the
Series C Stock and Series D Stock in accordance with the respective terms
thereof.
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 Stockholder will be borne by the Selling Stockholder.
Other expenses of the offering, estimated at $50,000, will be borne by the
Company.
The sale of the Shares by the Selling Stockholder may be effected from
time to time in one or more transactions (which may involve block transactions)
on the Nasdaq SmallCap Market, the Boston Stock Exchange, the OTC Bulletin Board
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 Stockholder may effect such
transactions with or through one or more broker-dealers, which may act as agent
or principal. The Selling Stockholder 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 Stockholder may
transfer the Shares, the Series Stock or the Series to other persons who may, in
turn, resell Shares in the manner described above. Additionally, the Selling
Stockholder may pledge or make gifts of the Shares, and the Shares may also be
sold by the pledgees or transferees. The Selling Stockholder 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
Stockholder against certain liabilities, including certain liabilities under the
Securities Act, and 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
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which it would otherwise be liable under such indemnification provision to the
fullest extent permitted by law. See "Plan of Distribution."
As of February 5, 1998, the authorized capital stock of the Company
consisted of (i) 75,000,000 shares of Common Stock, of which 74,497,660 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 22,105 shares were issued and outstanding, (B) 12,515 shares
have been designated as Series B Stock, of which 9,765 shares were issued and
outstanding, (C) 7,500 shares have been designated Series C Preferred Stock $.01
par value per share, ("Series C Stock") all of which were issued and
outstanding, (D) 60,000 shares have been designated as Series D Preferred Stock
$.01 par value per share, ("Series D Stock") none of which were issued and
outstanding, (E) 10,500 shares have been designated as Series E Preferred Stock,
$.01 par value per share ("Series E Stock"), none of which were issued and
outstanding and (F) 5,000 shares have been designated as Series F Preferred
Stock, $.01 par value per share ("Series F Stock"), of which none were issued
and outstanding. As of such date, the Company was obligated to issue
approximately 104,520,000 shares of Common Stock upon exercise of outstanding
options, rights, warrants, convertible preferred stock and convertible notes.
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 February 23, 1998, the closing bid price of the Common Stock, as reported by
the Nasdaq SmallCap Market, was approximately $.08 per share.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
SUBSTANTIAL DILUTION TO THE PUBLIC INVESTOR. SEE "RISK FACTORS" AND "DILUTION."
----------------------------
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.
----------------------------
The date of this Prospectus is February 26, 1998.
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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, proxy and
information statements 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, proxy and
information statements 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.
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;
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(6) The Company's Proxy Statement for the March 4, 1998 Special
Meeting of Stockholders;
(7) 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
(8) 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: Investor Relations, DynaGen, Inc., 840 Memorial
Drive, Cambridge Massachusetts 02139 (telephone: 617-491-2527).
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 inadequate number of authorized shares of Common
Stock, the possible delisting of the Company's Common
Stock from the Nasdaq SmallCap Market, the Company's
history of losses and the anticipation of future losses,
the Company's present inability to meet all of its
obligations to issue Common Stock in respect of
outstanding convertible securities, 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,
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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 10,000,000 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 Stockholder at the time of sale.
USE OF PROCEEDS The Company will receive no part of the proceeds from the
sale of any of the Shares by the Selling Stockholder.
The Company has received proceeds from the sale of the
Series C Stock which proceeds were applied to working
capital. The Company will receive proceeds from the sale
of Series D Stock, which proceeds will be applied to
working capital.
SELLING STOCKHOLDER The Shares being offered hereby are being offered for the
account of the Selling Stockholder specified under the
caption "Selling Stockholder."
STOCK MARKET SYMBOLS: Nasdaq SmallCap Market Boston Stock Exchange
---------------------- ---------------------
Common Stock DYGN DYG
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. In 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.
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("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 December 15,
1997, the Company signed an agreement to acquire the assets and assume
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's 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.
There can be no assurance that the Company will be able to successfully
integrate the businesses of Superior and Able or that the Company will realize
anticipated benefits of the Able or Superior acquisitions. See "Risk Factors --
Integration of Able and Superior Acquisitions".
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
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. The shares have a guaranteed
value of $5 million. See "Risk Factors -- Contingent Obligations with Respect to
Superior Acquisition." 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 an agreement to acquire
assets and assume 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
$1.15 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
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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.
In 1997, the Company 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.
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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 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 has assigned all of its rights in the
BioLoc technology to BioTrak, Inc., a subsidiary of the Company ("BioTrak").
The Company, through its subsidiary Apex Pharmaceuticals, Inc.
("Apex"), is developing ImmuDyn(TM), 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 the
Company from the Cantacuzino Institute of Bucharest, Romania, and the Company
has assigned its rights to Apex. The Company 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,
and drug-induced
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neutropenia. The Company intends to pursue its ImmuDyn patent position as
additional animal and clinical study data are obtained.
Recently, the Company filed an Orphan Drug Designation application with
the FDA for the use of ImmuDyn in the treatment of immune thrombocytopenic
purpura ("ITP"). The Company has conducted overseas clinical studies to evaluate
ImmuDyn's safety and efficacy in the treatment of autoimmune diseases such as
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.
See "Risk Factors -- Limited Commercialization of Proprietary Products."
With respect to both the BioLoc and ImmuDyn technologies, the Company
intends to pursue separate financing for each of BioTrak and Apex. There can be
no assurance, however, that the subsidiaries will be able to secure financing.
If the subsidiaries are able to obtain financing, it will probably be dilutive
to the Company's equity in them. See "Risk Factors -- Risks Associated with
Subsidiary Operations."
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 orthopedic
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.
INADEQUATE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Company does not presently have adequate shares of Common Stock
available for issuance upon conversion of preferred stock and other convertible
securities. The Company's authorized capital consists of 75,000,000 shares of
common stock, $.01 par value per share, and 10,000,000 shares of preferred
stock, $.01 par value per share. As of February 23, 1998, there were 74,797,660
shares of Common Stock issued and outstanding. The Company has issued to various
investors convertible preferred stock, warrants, convertible debt and options
convertible into Common Stock. The number of shares of Common Stock issuable
upon conversion of shares of preferred stock fluctuates based on the trading
price of the Common Stock from time to time. As of February 23, 1998, all
presently outstanding convertible securities of the Company were convertible or
exercisable in the aggregate into approximately 104,520,000 shares of Common
Stock. Therefore, the Company presently has an insufficient number of shares of
Common Stock available to meet all of its obligations to issue additional shares
of Common Stock to holders of convertible securities. The Company's board of
directors has voted to place before the Company's stockholders, at a special
meeting scheduled to be held on March 4, 1998, a proposal to effect a
recapitalization of the Company which would result in a one-for-ten reverse
stock split of the Company's Common Stock (the "Reverse Split"). The Reverse
Split, if approved by the stockholders, would reduce the number of outstanding
shares by a factor of ten, and would result in 75,000,000 shares of Common Stock
authorized. The Company believes that the Reverse Split will result in an
increased per share price for its Common Stock, and will thus reduce the number
of shares which the Company is obligated to issue. There can be no assurance
that the stockholders will approve the Reverse Split or that the per share price
of the Company's Common Stock will increase as a result of the Reverse Split.
The Company's inability to meet its obligations to issue additional shares of
Common Stock could have a material adverse effect on its operations.
COMMON STOCK SUBJECT TO DELISTING FROM NASDAQ SMALLCAP MARKET. The
Nasdaq Stock Market, Inc. ("Nasdaq") has established new minimum criteria for
the continued listing of securities on the Nasdaq SmallCap Market. For its
Common Stock to remain listed, the Company must satisfy at least one of several
sets of alternative maintenance criteria relating to its financial condition,
results of operations and trading market for the Common Stock. The Company has
been informed by Nasdaq that it does not presently appear to meet the new
listing requirements. Specifically, the closing bid price of the Company's
Common Stock as of February 23, 1998 was approximately $.06, below the minimum
set by Nasdaq of $1.00, and the Company's market capitalization of approximately
$4,500,000 is below the minimum of $35,000,000 set by the new listing rules. The
Company's Common Stock is therefore subject to delisting from the Nasdaq
SmallCap Market. The Company anticipates that, if its Common Stock is delisted
from the Nasdaq SmallCap Market, it will continue to trade on the Boston Stock
Exchange and may also be quoted on the OTC Bulletin Board. However, delisting of
the Company's Common Stock from the Nasdaq SmallCap Market could have a material
adverse effect on the liquidity of the Common Stock and on the Company's ability
to raise capital necessary for the Company's continued operations.
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 Company's 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. 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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RISKS ASSOCIATED WITH SUBSIDIARY OPERATIONS
The Company's results of operations depend to a large degree upon the
performance of its subsidiaries, including both its recently acquired
subsidiaries Able Laboratories, Inc. and Superior Pharmaceutical Company, as
well as its newly formed subsidiaries, BioTrak, Inc. and Apex Pharmaceuticals,
Inc. In its role as a holding company with respect to these subsidiaries, the
Company is dependent on dividends or other intercompany transfers for funds from
the subsidiaries to meet the Company's obligations. Agreements between the
Company and certain of its creditors restrict the Company's ability to cause its
subsidiaries to make such dividends or other intercompany transfers. Claims of
creditors of the Company's subsidiaries, including trade creditors, will
generally have priority as to the assets of such subsidiaries over the claims of
the Company and the holders of the Company's indebtedness. The Company intends
to seek separate financing for its Apex and Bio Track subsidiaries, which will
be dilutive to the Company's equity interest.
CONTINGENT OBLIGATIONS WITH RESPECT TO SUPERIOR ACQUISITION
The Company used a combination of cash, a note and 1,666,667 shares of
Common Stock to acquire Superior in June 1997. The Agreement and Plan of Merger
for the Superior acquisition provides that the Company is also obligated to
issue to the former stockholders of Superior up to an additional 1,666,667
shares of Common Stock if on June 18, 1998 the Common Stock has not had an
average closing bid price of at least $3.00 per share for the 10 previous
trading days. The merger agreement provides further that if the Common Stock is
not trading at least $1.50 per share, DynaGen shall pay to the former Superior
stockholders in immediately available funds the difference between $1.50 and the
then current trading price of its Common Stock for each of the 3,333,334 shares
then held by the former Superior stockholders. If the Common Stock continued to
trade at its present price of approximately $0.06 per share, the Company would
become obligated to pay approximately $4,800,000 in cash to the former
stockholders of Superior. There can be no assurance that the Common Stock will
be traded at a price of $1.50 or greater as of June 18, 1998 or that the Company
will have the ability to meet any future obligation to pay cash to the former
Superior stockholders. The Company's inability to meet any such obligation or
other fixed or contingent obligations of the Company as they become due could
have a material adverse effect on the Company's ability to continue its
operations.
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
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or Superior acquisitions 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 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 or, 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.
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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.
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
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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.
POTENTIAL PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE
The testing, marketing and sale of pharmaceutical products for human
use entail inherent risks. Liability might result from claims made directly by
consumers or by pharmaceutical companies or others selling the Company's
products. The Company's Superior and Able subsidiaries presently carry product
liability insurance in amounts that the Company believes to be adequate, but
there can be no assurance that such insurance will remain available at a
reasonable cost or that any insurance policy would offer coverage sufficient to
meet any liability arising as a result of a claim. If the Company succeeds in
developing proposed products through its Apex and BioTrak subsidiaries, sales of
the products could expose the Company to liability resulting from their use. The
Company does not currently have product liability insurance coverage for the
activities of Apex or BioTrak. The Company intends to seek to obtain insurance
coverage if and when its proposed products are commercialized but can give no
assurance that it will be able to obtain such insurance on reasonable terms or
that, if obtained, such insurance will be sufficient to protect the Company
against such potential liability or at a reasonable cost. The obligation to pay
any product liability claim or a recall of a product could have a material
adverse affect on the business, financial condition and future prospects of the
Company.
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.
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
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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.
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
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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.
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.
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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, 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 technology
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 $0.13 from
January 1, 1993 to December 31, 1997 and was approximately $0.06 on February 23,
1998, 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's Common Stock 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 sustained. Although the
trading volume for the Common Stock, as reported by the Nasdaq, averaged
1,079,832 shares per week during the 52-week period ended December 31, 1997 and
4,448,976 shares per week during the four-week period ended December 31, 1997,
there can be no assurance that persons purchasing the securities offered hereby
will be able readily to sell the securities at the time or price desired.
ADVERSE CONSEQUENCES ASSOCIATED WITH THE OBLIGATION TO ISSUE
SUBSTANTIAL SHARES OF COMMON STOCK UPON CONVERSION OF CONVERTIBLE SECURITIES. As
of February 23, 1998 the Company was obligated to issue approximately
101,935,000 shares of Common Stock for issuance upon the conversion or exercise
of its outstanding warrants, rights, convertible preferred stock and a
convertible note and 2,585,000 shares of Common Stock have been reserved 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
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<PAGE> 20
reduce the market price of the Common Stock. Also, the Company has agreed that,
under certain circumstances, it will register under Federal and state securities
laws certain securities issuable in connection with warrants issued to the
investment banker and placement agent of the Company's Common Stock.
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 $0.06 per share (based upon the last reported sales price
of the Common Stock on Nasdaq at February 23, 1998, there will be an immediate
dilution per share of $0.38 to new investors purchasing the Shares offered
hereby.
The following table illustrates the dilution per share described above:
<TABLE>
<S> <C>
Assumed price to public per share....................................... $ 0.06
Net tangible book value per share at September 30, 1997, as defined
above................................................................. $(0.32)
Dilution to new investors............................................... $ 0.38
</TABLE>
In August 1997, the Company issued the Series C Stock to the Selling
Stockholder as part of a private placement transaction. Each share of Series C
Stock is convertible into shares of Common Stock at any time at the option of
the Selling Stockholder holding such share, of Series C 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 Company also issued to the Selling Stockholder a warrant (the
"Warrant") exercisable for an aggregate of 250,000 shares of Common Stock at a
purchase price per share of $0.74609. The Company also agreed to issue up to
$2,400,000, and the Selling Stockholder agreed to purchase up to $4,800,000, of
Series D Stock, in a series of tranches commencing thirty (30) days after the
effective date of the Registration Statement of which this Prospectus forms a
part and upon certain conditions. The agreement between the Company and the
Selling Stockholder provides that if the Company does not exercise its option to
require the Selling Stockholder to purchase at least $2,400,000 of Series D
Stock, or the Selling Stockholder declines to purchase such amount because
either (i) the conditions to the Selling Stockholder's obligation have not been
satisfied or (ii) the time for the Selling Stockholder's performance has been
suspended, then the Company will issue to the Selling Stockholder no later than
13 months after the effective date of this Registration Statement a warrant to
purchase 300,000 shares of Common Stock. No shares of Series D Stock have been
issued, and there can be no assurance that the Company will be
20
<PAGE> 21
able to satisfy the conditions to the Selling Stockholder's obligation to
purchase Series D Stock. The inability of the Company to obtain additional
financing would have a material adverse effect on its ability to continue
operations. See "Risk Factors -- Inadequate Number of Authorized Shares of
Common Stock and -- Future Capital Needs; Uncertainty of Additional Financing."
The pro forma net tangible book value of the Company's Common Stock at
September 30, 1997, assuming the issuance of 10,000,000 shares of Common Stock
upon conversion of shares of Series C Stock, would be $(10,155,468) or $(0.23)
per share. Assuming a price to the public of $0.06 per share, there would be an
immediate dilution per share of $0.29 to new investors.
At February 23, 1998, the Company had outstanding options to purchase
2,585,000 shares of Common Stock, at exercise prices ranging between $0.01 and
$6.25 per share. At February 5, 1998, the Company also had outstanding warrants,
rights, 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 101,935,000 shares of Common Stock. See "Risk Factors
- -- Inadequate Number of Authorized 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 the Selling Stockholder. The Company has received proceeds from
the sale of the Series C Stock, which proceeds were applied to working capital.
the Company will receive proceeds from the sale of Series D Stock, which
proceeds will be applied to working capital.
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<PAGE> 22
SELLING STOCKHOLDER
The following table sets forth information known to the Company
concerning the beneficial ownership of shares of Common Stock by the Selling
Stockholder 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. The Selling Stockholder has not held any office or
maintained any material relationship with the Company or any of its predecessors
or affiliates over the past three years. In August 1997, the Company and the
Selling Stockholder entered into a Stock Purchase Agreement pursuant to which
the Selling Stockholder purchased 7,500 shares of Series C Stock and the Company
issued the Warrant to the Selling Stockholder; also, the Selling Stockholder
agreed to purchase up to $4,800,000, and the Company agreed to issue up to
$2,400,000, of Series D Stock in a series of tranches commencing thirty (30)
days after the effective date of the Registration Statement of which this
Prospectus forms a part and upon certain conditions. See "Dilution." The Stock
Purchase Agreement provides the Selling Stockholder a right of first refusal to
acquire additional securities of the Company issuable in connection with future
acquisitions, subject to certain prior rights of first refusal held by holders
of Series A Stock. The Selling Stockholder 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 of
Number of Shares of Common Stock Number of Shares
Common Stock Owned to Owned
Names Prior to the Offering be Sold After Offering
----- --------------------- ------------ -----------------
<S> <C> <C> <C>
Endeavour Capital Fund S.A. 29,756,540(1) 10,000,000(2) 19,756,540(1)(2)
</TABLE>
- --------------------
(1) Includes, pursuant to the rules of the Commission, shares of Common
Stock which the Selling Stockholder has a right to acquire within 60
days upon conversion of Preferred Stock or upon the exercise of the
Warrant. Shares of Series C Stock and Series D Stock are convertible
into Common Stock at a discount on the average market price for the
Common Stock for the five consecutive trading days immediately
preceding the date on which the stock is converted. In addition,
pursuant to the terms of the Preferred Stock, the conversion rights of
the holders of Preferred Stock are limited in that the number of shares
of Common Stock thereby issuable, together with the number of shares of
common stock then held by such holder and its affiliates may not exceed
4.9% of the then outstanding Common Stock of the Company, as determined
in accordance with Section 13(d) of the Exchange Act.
(2) Consists of shares of Common Stock included in this Offering issuable
upon conversion of the Series C Stock and Series D Stock. The actual
number of shares set forth represents an estimate of the number of
shares of Common Stock to be offered by the Selling Stockholder. The
actual number of shares of common stock issuable upon conversion of the
Series C Stock and Series D Stock is indeterminate, is subject to
adjustment and could be materially less or more than such estimated
number depending on a number of factors which cannot be predicted by
the Company at this time, including among other factors, the future
market price of the Common Stock. The actual number of shares of common
stock offered hereby, and included in the Registration Statement of
which this Prospectus is a part, includes such additional shares of
common stock as may be issued or issuable upon conversion of the Series
C Stock and Series D Stock by reason of the floating rate conversion
price mechanism or other adjustment mechanisms described therein, or by
reason of any stock split, stock dividend or similar transaction
involving the Common Stock, in order to prevent dilution, in accordance
with Rule 416 under the Securities Act.
(3)
PLAN OF DISTRIBUTION
The distribution by the Selling Stockholders of the Shares may be
effected in one or more transactions that may take place on the Nasdaq SmallCap
Market, the Boston Stock Exchange, the OTC Bulletin Board, in the
over-the-counter market, or in such other markets 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
22
<PAGE> 23
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 Stockholder effects 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 Stockholder 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
Stockholder.
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 Stockholder 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 Stockholder
or any other such person. All of the foregoing may affect the marketability of
the Shares.
The Company has agreed with the Selling Stockholder to file the
Registration Statement of which this Prospectus is a part with the Commission,
and has agreed to keep the Registration Statement effective until August 21,
1999 or such earlier time as all of the Shares have been sold. The Company will
pay all of the expenses incidental 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.
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 Foley, Hoag & Eliot LLP.
EXPERTS
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<PAGE> 24
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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<PAGE> 25
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an estimate of the expenses expected to
be incurred in connection with the issuance and distribution of the securities
being registered:
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission..............$ 236.00
Nasdaq SmallCap Market additional listing fee....................... 7,500.00
Boston Stock Exchange additional listing fee........................ 5,000.00
Blue Sky Fees and Expenses.......................................... 1,000.00
Accounting Fees and Expenses........................................ 2,000.00
Legal Fees and Expenses............................................. 30,000.00
Transfer Agent Fees and Expenses.................................... 1,000.00
Miscellaneous....................................................... 3,264.00
----------
TOTAL....................................$50,000.00
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(A) THE COMPANY IS A DELAWARE CORPORATION. SECTION 145 OF THE
DELAWARE GENERAL CORPORATION LAW, AS AMENDED, PROVIDES IN REGARD TO
INDEMNIFICATION OF DIRECTORS AND OFFICERS AS FOLLOWS:
"(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the
25
<PAGE> 26
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (included attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this section. Such expenses (including attorneys'
fees) incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and
26
<PAGE> 27
incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents so that
any person who was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person."
(B) ARTICLE 9 OF THE COMPANY'S CERTIFICATE OF INCORPORATION CONTAINS
THE FOLLOWING PROVISION RELATING TO THE INDEMNIFICATION OF DIRECTORS AND
OFFICERS:
"To the maximum extent permitted by Section 102(b)(7) of the General
Corporation Law of Delaware, a director of this Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit."
(C) ARTICLE VII OF THE COMPANY'S BY-LAWS CONTAINS THE FOLLOWING
PROVISIONS RELATING TO INDEMNIFICATION OF OFFICERS AND DIRECTORS:
"Reference is made to Section 145 and any other relevant provisions of
the General Corporation Law of the State of Delaware. Particular reference is
made to the class of persons, hereinafter called "Indemnitees," who may be
indemnified by a Delaware corporation pursuant to the provisions of such Section
145, namely, any person or the heirs, executors, or administrators of such
person, who was or
27
<PAGE> 28
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit, or proceeding, whether civil, criminal, administrative,
or investigative, by reason of the fact that such person is or was a director,
officer, employee, or agent of such corporation or is or was serving at the
request of such corporation as a director, officer, employee, or agent of such
corporation or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, or other enterprise. The Corporation shall, and is hereby
obligated to, indemnify the Indemnitees, and each of them in each and every
situation where the Corporation is obligated to make such indemnification
pursuant to the aforesaid statutory provisions. The Corporation shall indemnify
the Indemnitees, and each of them, in each and every situation where, under the
aforesaid statutory provisions, the Corporation is not obligated, but is
nevertheless permitted or empowered, to make such indemnification, it being
understood that, before making such indemnification with respect to any
situation covered under this sentence, (i) the Corporation shall promptly make
or cause to be made, by any of the methods referred to in Subsection (d) of such
Section 145, a determination as to whether each Indemnitee acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, in the case of any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful,
and (ii) that no such indemnification shall be made unless it is determined that
such Indemnitee acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the Corporation, and, in the case
of any criminal action or proceeding, had no reasonable cause to believe that
his conduct was unlawful."
ITEM 16. EXHIBITS.
The following exhibits, required by Item 601 of Regulation S-K, are
filed as a part of this Registration Statement. Exhibit numbers, where
applicable, in the left column correspond to those of Item 601 of Regulation
S-K.
<TABLE>
<CAPTION>
Exhibit No. Item and Reference
<S> <C>
4a -- Specimen Common Stock Certificate (filed as Exhibit 4a
to the Company's Registration Statement on Form S-1, No.
33-31836-B and incorporated by reference).
4b -- Certificate of Designations, Preferences and Rights of
Series C Preferred Stock of the Company (filed as
Exhibit 3b to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997 and
incorporated by reference).
4c -- Form of Securities Purchase Agreement among the Company
and Endeavor Capital Fund S.A. (filed as Exhibit 4d to
the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1997 and incorporated
by reference).
4d -- Registration Rights Agreement dated August 21, 1997
among the Company and Endeavor Capital Fund S.A. (filed
as Exhibit 4 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997 and
incorporated by reference).
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C>
4e -- Common Stock Purchase Warrant issued by the Company to
Endeavour Capital Fund S.A.(filed as Exhibit 4f to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1997 and incorporated by
reference).
4f -- Certificate of Designations, Preferences and Rights of
Series D Preferred Stock of the Company (filed as
Exhibit 3c to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997 and
incorporated by reference).
4g -- Registration Rights Agreement dated August 21, 1997
between the Company and Endeavour Capital Fund S.A.
(filed as Exhibit 4e to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30,
1997 and incorporated by reference).
5.1 Opinion of Foley, Hoag & Eliot LLP
23a -- Consent of Wolf & Company, P.C. dated February 26, 1998.
23b -- Consent of Grant Thornton LLP dated February 26, 1998.
23c -- Consent of Feldman Radin & Co., P.C. dated February 26, 1998.
23d -- Consent of Foley, Hoag & Eliot LLP (see Exhibit 5).
24 -- Power of Attorney empowering Dhananjay G. Wadekar and
Indu A. Muni and each of them to execute any and all
amendments to this Registration Statement (included on
the signature page of this Registration Statement).
</TABLE>
29
<PAGE> 30
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned registrant hereby undertakes that for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A, and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h), under the Securities Act
shall be deemed to be part of this registration statement as of the time it was
declared effective.
(d) The undersigned registrant hereby undertakes that for the purpose
of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein,
30
<PAGE> 31
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Cambridge, Commonwealth of Massachusetts on
February 26, 1998.
DYNAGEN, INC.
By: /s/ DHANANJAY G. WADEKAR
-----------------------------
Dhananjay G. Wadekar
Chairman of the Board and
Executive Vice President
POWER OF ATTORNEY
Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints Dr. Indu A. Muni and Dhananjay G. Wadekar and
each of them, with full power to act without the other, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities (until
revoked in writing) to sign any and all amendments (including post-effective
amendments and amendments thereto) to this Registration Statement on Form S-3 of
DynaGen, Inc., and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary fully to all intents and purposes as he might or could do in person
thereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Name Capacity Date
- ---- -------- ----
<S> <C> <C>
/s/ Dhananjay G. Wadekar Chairman of the Board, Executive February 26, 1998
- ------------------------ Vice President and Director
Dhananjay G. Wadekar
</TABLE>
31
<PAGE> 32
<TABLE>
<S> <C> <C>
/s/ Indu A. Muni President, Chief Executive Officer, February 26, 1998
- ------------------------ Treasurer, (Principal Executive,
Dr. Indu A. Muni Financial and Accounting Officer)
and Director
/s/ F. Howard Schneider Director February 26, 1998
- ------------------------
Dr. F. Howard Schneider
/s/ Steven Georgiev Director February 26, 1998
- ------------------------
Steven Georgiev
Director
- ------------------------
Dr. Michael Sorell
</TABLE>
32
<PAGE> 33
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
<S> <C>
4a -- Specimen Common Stock Certificate (filed as Exhibit 4a
to the Company's Registration Statement on Form S-1, No.
33-31836-B and incorporated by reference).
4b -- Certificate of Designations, Preferences and Rights of
Series C Preferred Stock of the Company (filed as
Exhibit 3b to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997 and
incorporated by reference).
4c -- Form of Securities Purchase Agreement among the Company
and Endeavor Capital Fund S.A. (filed as Exhibit 4d to
the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1997 and incorporated
by reference).
4d -- Registration Rights Agreement dated August 21, 1997
among the Company and Endeavor Capital Fund S.A. (filed
as Exhibit 4 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997 and
incorporated by reference).
4e -- Common Stock Purchase Warrant issued by the Company to
Endeavour Capital Fund S.A.(filed as Exhibit 4f to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1997 and incorporated by
reference).
4f -- Certificate of Designations, Preferences and Rights of
Series D Preferred Stock of the Company (filed as
Exhibit 3c to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997 and
incorporated by reference).
4g -- Registration Rights Agreement dated August 21, 1997
between the Company and Endeavour Capital Fund S.A.
(filed as Exhibit 4e to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30,
1997 and incorporated by reference).
5.1 -- Opinion of Foley, Hoag & Eliot LLP
23a -- Consent of Wolf & Company, P.C. dated February 26, 1998
23b -- Consent of Grant Thornton LLP dated February 26, 1998
23c -- Consent of Feldman Radin & Co., P.C. dated February 20, 1998
23.4 -- Consent of Foley, Hoag & Eliot LLP (See Exhibit 5)
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C>
24 -- Power of Attorney (set forth on the signature page of
this Registration Statement.
</TABLE>
34
<PAGE> 1
EXHIBIT 5.1
FOLEY, HOAG & ELIOT LLP
ONE POST OFFICE SQUARE
BOSTON, MASSACHUSETTS 02109-2170
------------
TELEPHONE 617-832-1000
FACSIMILE 617-832-7000
http://www.fhe.com
February 9, 1998
DynaGen, Inc.
Riverside Technology Center
840 Memorial Drive, 4th Floor
Cambridge, MA 02139
Gentlemen:
We are familiar with the Registration Statement on Form S-3 (the
"Registration Statement") to which this opinion is an exhibit, to be filed by
DynaGen, Inc., a Delaware corporation (the "Company"), with the Securities and
Exchange Commission under Rule 462(b) the Securities Act of 1933, as amended.
The Registration Statement relates to the proposed public offering by a
securityholder of the Company of a total of 10,000,000 shares (the "Shares") of
the Company's common stock, $0.01 par value per share ("Common Stock"), issuable
upon conversion of shares of Series C Preferred Stock, $0.01 par value per share
("Series C Stock") of the Company held by such securityholder.
In arriving at the opinion expressed below, we have examined and relied
on the following documents:
(1) the Certificate of Incorporation and By-laws of the
Company, each as amended as of the date hereof; and
(2) the records of meetings and consents of the Board of
Directors and stockholders of the Company relating to the issuance of
the Shares provided to us by the Company.
In addition, we have examined and relied on the originals or copies certified or
otherwise identified to our satisfaction of all such corporate records of the
Company and such other instruments and other certificates of public officials,
officers and representatives of the Company and such other persons, and we have
made such investigations of law, as we have deemed appropriate as a basis for
the opinion expressed below. In such examination, we have assumed, without
independent verification, the genuineness of all signatures (whether original or
<PAGE> 2
DynaGen, Inc.
February 9, 1998
Page 2
photostatic), the authenticity of all documents submitted to us as originals and
the conformity to authentic original documents of all documents submitted to us
as certified or photostatic copies.
In rendering the following opinion, we have further assumed: (a) that
at a special meeting scheduled to be held on March 4, 1998, the Company's
stockholders will approve a recapitalization that will effect a reverse split of
the outstanding shares of Common Stock and cause a sufficient number of duly
authorized and unissued shares of Common Stock to be available for issuance at
the time the shares of Series C Stock are presented for conversion in accordance
with the terms thereof; and (b) that the consideration received by the Company
in respect of each Share will be no less than its par value.
Based upon and subject to the foregoing, it is our opinion that the
Shares, when issued upon receipt of consideration therefor, and when
certificates for the same have been duly executed and countersigned and
delivered, will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
FOLEY, HOAG & ELIOT LLP
By: /s/ David A. Broadwin
-------------------------------
A Partner
<PAGE> 1
EXHIBIT 23a
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
DynaGen, Inc. on Form S-3 of our report dated February 14, 1997, except for Note
14 as to which the date is March 7, 1997, appearing in the Transition Report on
Form 10-K of DynaGen, Inc. for the six-month period from July 1, 1996 to
December 31, 1996, as amended and to the incorporation by reference of our
report dated July 24, 1996, except for Note 12 as to which the date is August
19, 1996, appearing in the Annual Report on Form 10-K of DynaGen, Inc. for the
fiscal year ended June 30, 1996. We also consent to the reference to us under
the heading "Experts" in this Prospectus, which is part of this Registration
Statement.
/s/ Wolf & Company, P.C.
--------------------------------
WOLF & COMPANY, P.C.
Boston, Massachusetts
February 26, 1998
<PAGE> 1
EXHIBIT 23b
We have issued our report dated January 24, 1997, accompanying the financial
statements and schedules of Superior Pharmaceutical Company contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned reports in the Registration Statement and Prospectus, as amended,
and to the use of our name as it appears under the caption "Experts".
/s/ Grant Thornton LLP
- - ----------------------
Grant Thornton
Cincinnati, Ohio
February 26, 1998
<PAGE> 1
EXHIBIT 23c
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement on
Form S-3, of Dynagen, Inc. of our report dated August 19, 1996 appearing in
DynaGen, Inc.'s Current Report on Form 8-K dated August 19, 1996, as amended. We
also consent to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
/s/ FELDMAN RADIN & CO., P.C.
New York, New York
February 26, 1998
