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SECURITIES AND EXCHANGE COMMISSION
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
LIDAK PHARMACEUTICALS
(Exact name of registrant as specified in its charter)
California
(State or other jurisdiction of incorporation or organization)
33-0314804
(I.R.S. Employer Identification No.)
11077 North Torrey Pines Road, La Jolla, California 92037
(619) 558-0364
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Dr. David H. Katz, 11077 North Torrey Pines Road, La Jolla, California 92037
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Approximate date of commencement of proposed sale to the public as soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following.
/ /
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/
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed
Title of each class Proposed maximum Amount of
of securities to be Amount to be maximum offering aggregate offering registration
registered Registered price per share price fee(2)
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<S> <C> <C> <C> <C>
Class A Common
Stock 5,994,669 $3.9375(1) $23,604,009.00(1) $8,139.31
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933 (the "Securities
Act"). Pursuant to Rule 457(c), the maximum offering price per share is
$3.9375, the average of the bid and asked prices of a share of the
Registrant's Class A Common Stock as reported on the National Market
System of the National Association of Securities Dealers Automated
Quotation System on December 7, 1995, and the maximum aggregate
offering price is the product of $3.9375 and 5,994,669, the number of
shares of the Registrant's Common Stock being registered hereby.
(2) The registration fee for the securities being registered hereby, has
been calculated pursuant to Section 6(b) of the Securities Act and Rule
457(b) promulgated thereunder as follows: one-twenty-ninth of one
percent of $23,604,009.00, the maximum aggregate offering price.
The registrant hereby amends this Registration Statement on such date 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, as amended, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS
LIDAK PHARMACEUTICALS
5,994,669 shares of Class A Common Stock
This Prospectus relates to 5,994,669 shares (the "Shares") of Class A
Common Stock, no par value (the "Class A Common Stock") of LIDAK Pharmaceuticals
(the "Company") being offered by the Selling Shareholders listed herein or by
pledgees, donees, transferees or other successors in interest that receive any
of the Shares as a gift, partnership distribution or other non-sale related
transfer (the "Selling Shareholders"). Of this number of shares of Class A
Common Stock, 481,651 shares were originally sold by the Company to certain
Selling Shareholders in a private placement and up to 5,513,018 shares are
issuable upon conversion of $7,500,000 in principal amount of Convertible Notes
("Notes") which were sold to certain of the same Shareholders in the same
placement as described within.
The distribution of the Shares by the Selling Shareholders may be
effected in one or more transactions that may take place in the over-the-counter
market, or such other market on which the Company's securities may from time to
time be trading, including ordinary broker's transactions or through sales to
one or more dealers for resale of the Shares as principals, in privately
negotiated transactions, through the writing of options on the Shares (whether
such options are listed on an options exchange or otherwise) or by a combination
of such methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiates prices. Usual and customary or specifically negotiated
brokerage fees or commissions may be paid by the Selling Shareholders in
connection with such sales of the Shares. To the extent required, the specific
Shares to be sold, the names of the Selling Shareholders, the purchase price,
the public offering price, the names of any agent, dealer or underwriter, any
applicable commission or discount with respect to a particular offering of the
securities covered hereby, and other terms pertaining to any particular plan of
distribution thereof and not set forth herein, will be set forth in an
accompanying Prospectus supplement. Selling Shareholders may also sell the
Shares pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"1933 Act").
The aggregate proceeds to the Selling Shareholders from the sale of the
Shares will be the sale price of the Shares sold less the aggregate
underwriters' commissions and underwriters' discounts, if any, and the expenses
of distribution not borne by the Company. The Company has agreed to pay certain
expenses of the sale of the Shares by the Selling Shareholders. The Company will
not receive any proceeds directly from the sale of Shares by the Selling
Shareholders. See "Use of Proceeds and Description of Securities." The Company
has agreed to indemnify the Selling Shareholders against certain liabilities,
including certain liabilities under the 1933 Act. See "Plan of Distribution" for
indemnification arrangements.
The Selling Shareholders and any broker-dealer, agent or underwriter
that participates with the Selling Shareholders in the distribution of Shares
may be deemed "underwriters" within the meaning of the 1933 Act and any
commission received by them and any profit on the resale of the Shares purchased
by them may be deemed to be underwriting commissions or discounts under the 1933
Act.
The Class A Common Stock of the Company is included on the National
Market System of the Automated Quotation System of the National Association of
Securities Dealers, Inc. ("NASDAQ") under the symbol LDAKA. On __________, 1996,
the closing bid and asked prices of the Class A Common Stock were $__________
and $__________, respectively.
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. RISK FACTORS REGARDING THE COMPANY INCLUDE SUBSTANTIAL
OPERATING LOSSES, CONTINUING NEED FOR WORKING CAPITAL AND IMMEDIATE DILUTION.
(SEE "RISK FACTORS" AND "DILUTION").
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE 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 January __, 1996.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and, in accordance therewith, files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information filed with the
Commission by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's Regional Offices located at 7
World Trade Center, Suite 1300, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, at prescribed rates. Because the Company's Common
Stock is traded on the NASDAQ Market, annual reports and other reports and
information concerning the Company can also be inspected at the office of the
National Association of Securities Dealers, Inc. at 1735 K Street N.W.,
Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on
Form S-3 (herein, together with all amendments, incorporated documents and
exhibits, referred to as the "Registration Statement"), of which this Prospectus
is a part. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information
pertaining to the Company, reference is made to the Registration Statement.
Statements contained herein or in any Prospectus Supplement or in any document
incorporated herein by reference concerning the provisions of documents are
necessarily summaries of such documents and each such statement is qualified in
its entirety by reference to the copy of the applicable document filed with the
Commission. Copies of the Registration Statement are on file at the offices of
the Commission and may be obtained upon payment of the fees prescribed by the
Commission, or examined without charge at the public reference facilities of the
Commission described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following Company documents shall be deemed to be incorporated in this
Prospectus and to be a part hereof from the date of the filing of such
documents:
(1) Annual Report on Form 10-K for the year ended September 30, 1995;
(2) Form 8-K dated November 17, 1995;
(3) All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, prior
to the termination of the offering described herein.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for all purposes to the extent that
a statement contained in this Prospectus or in any other subsequently filed
document which is also incorporated herein by reference modifies or replaces
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on written or oral request of such persons, a copy
(without exhibits) of any or all
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documents incorporated by reference in this Prospectus. Requests for such copies
should be directed to Mr. Michael H. Lorber, Chief Financial Officer, LIDAK
Pharmaceuticals, (i) if by telephone to (619) 558-0364 or (ii) if by mail to
11077 North Torrey Pines Road, La Jolla, California 92037.
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THE COMPANY
PART I
ITEM 1. BUSINESS
GENERAL
LIDAK Pharmaceuticals ("LIDAK" or the "Company") is a development stage
company organized to engage in research, development and commercialization of
innovative pharmaceutical products. The Company was incorporated in California
in 1988 and since inception has operated in one business segment -- research and
development of pharmaceutical products. The Company is currently focusing on the
development and commercialization of 1) its patented therapeutic product
n-docosanol 10% cream (LIDAKOL(TM)), as a topical treatment for oral herpes
(cold sores or fever blisters), and 2) its patented Large Multivalent Immunogen
("LMI") technology as a potential immunotherapeutic vaccine treatment of
malignant melanoma and other human cancers.
During fiscal 1995, a Phase 3 clinical trial of LIDAKOL as a topical
treatment for oral herpes was completed in Europe by the Company's European
licensing partner, Yamanouchi Europe. Three additional Phase 3 clinical trials
of LIDAKOL for the same indication conducted by the Company in the U.S. and
Canada have been recently completed and results of these trials are expected in
the first calendar quarter of 1986.
To date, the Company has entered into four licensing agreements
relating to the marketing of LIDAKOL. In November 1991, the Company entered into
an agreement with Yamanouchi Europe, b.v., formerly Brocades-Pharma, b.v. of the
Netherlands ("Yamanouchi"), under which Yamanouchi received rights to market
certain topical indications of LIDAKOL in certain European and other countries.
In July 1993, the Company entered into a licensing agreement with CTS Chemical
Industries, Ltd. ("CTS"), a subsidiary of CTS, Ltd., located in Kiryat Malchi,
Israel, under which CTS received rights to market certain topical indications of
LIDAKOL in Israel. In July 1994, the Company entered into an agreement with
Boryung Pharmaceuticals Company, Ltd. ("Boryung"), located in Seoul, Korea,
under which Boryung received the rights to market certain topical indications of
LIDAKOL in the Republic of Korea. In October 1994, the Company entered into an
agreement with Grelan Pharmaceutical Co., Ltd. ("Grelan"), located in Tokyo,
Japan, under which Grelan received rights to market certain indications of
LIDAKOL in Japan. In each of the territories covered by the above agreements, as
well as in the United States and other territories not covered by these
agreements, marketing of LIDAKOL is subject to obtaining appropriate government
approvals. The Company is currently seeking to enter into licensing and/or other
collaborative arrangements with respect to LIDAKOL in the United States and
other territories not covered by the above agreements.
The Company's second current area of focus is the development of new
therapeutic approaches to cancer and viral infections using the LMI technology.
This technology involves the use of antigen-containing artificial cell membranes
to stimulate the immune system's defense against cancer and viral diseases. The
Company has an Investigational New Drug Application ("IND") approved by the
United States Food and Drug Administration ("FDA") and anticipates initiating a
Phase 1/Phase 2 clinical trial of LMI in patients with malignant melanoma in the
first quarter of fiscal 1996. The Company's rights to the LMI technology, and
certain other technologies, derive from a licensing agreement with Medical
Biology Institute ("MBI"), a non-profit research organization founded in 1981 by
Dr. David H. Katz, the founder, President and Chief Executive Officer of the
Company.
The Company has experienced significant losses since inception and its
business is subject to
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significant risks. The Company does not expect LIDAKOL, LMI or any other of its
proposed products to be available for commercial sale for several years, if at
all. Assuming that the Company is successful in obtaining applicable regulatory
approvals, it will still be necessary to enter into additional licensing or
other collaborative arrangements with pharmaceutical or biotechnology companies
which have sufficient financing and personnel resources and/or to raise
substantial additional financing and hire appropriate personnel in order for the
Company to successfully commercialize LIDAKOL to oral herpes in the United
States. In order for the Company to successfully commercialize other indications
of LIDAKOL, LMI, or any other technologies, it will be necessary to enter into
additional licensing or other collaborative arrangements with pharmaceutical or
biotechnology companies which will bear the cost of completing the remaining
non-clinical development, the required clinical trails and regulatory approval
process and marketing of such products, if approved, and/or to raise substantial
additional financing and hire appropriate personnel.
There can be no assurance that the results from the Phase 3 clinical
trials of LIDAKOL in the U.S. and Canada or future clinical trials of LMI will
demonstrate satisfactory efficacy and safety to support the filing of New Drug
Applications ("NDA") with the FDA or other marketing approval applications with
regulatory agencies outside the U.S., that the FDA and/or other regulatory
agencies outside the U.S. will not require the Company to perform additional
clinical trials or that the FDA and/or other regulatory agencies outside the
U.S. will ultimately grant marketing approval for these products. There can be
no assurance that additional non-clinical and clinical testing will demonstrate
that the Company's other technologies will meet the safety and efficacy
requirements to complete development and obtain appropriate regulatory marketing
approvals. Furthermore, there can be no assurance that the Company will be able
to raise sufficient additional capital to complete development efforts and
commercialize any of its proposed products or that additional licensing
arrangements can be established on terms favorable to the Company, or at all.
The Company was incorporated in California on August 31, 1988. The
Company's executive offices are located at 11077 North Torrey Pines Road, La
Jolla, California 92037 and its telephone number is (619) 558-0364. See "Risk
Factors--Relationship with and Dependence on Medical Biology Institute."
RISK FACTORS
The purchase of the securities offered hereby involves a high degree of
risk including, but not necessarily limited to, the risk factors described
below. Prospective investors should carefully review and consider the following
risks as well as the other information provided in this Prospectus.
1. Development Stage Company; Explanatory Paragraph in Independent
Auditors' Report for the Fiscal Year Ended September 30, 1995; History of and
Continuing Losses. The Company's independent auditors have included an
explanatory paragraph in their report issued in connection with their audit of
the Company's financial statements as of and for the fiscal year ended September
30, 1995 that refers to the Company's activities as those of a development stage
enterprise. Through September 30, 1995 the Company has generated only limited
revenues. Primarily as a result of expenses incurred in organizational and
research and development activities, the Company has incurred net losses
aggregating approximately $28.2 million from its inception through September 30,
1995. Since September 30, 1995 the Company has incurred operating losses, and
anticipates that it will continue to incur substantial operating losses until
such time, if ever, that the Company achieves significant revenue from its
products. There can be no assurance that the Company will be able to
successfully implement its marketing strategy or achieve significant revenues or
profitable operations. Potential investors should be aware of the problems,
delays, expense and difficulties encountered by any company in the developmental
stage, many of which may be beyond the Company's control. These include, but are
not limited to, unanticipated problems relating to product development and
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formulation, clinical testing, regulatory compliance, production and marketing,
additional costs and competition. There can be no assurance that the Company's
proposed products, if fully developed and if required regulatory approvals are
obtained, can be successfully marketed or that the Company will ever achieve
significant revenues or profitable operations.
2. Significant Capital Requirements; Need for Working Capital and
Additional Financing. The commercialization of LIDAKOL or any of the Company's
other products will require capital reserves substantially greater than those
currently available to the Company. Accordingly, the Company will be required to
raise additional capital and/or to collaborate with one or more large
pharmaceutical companies which will provide the necessary financing and
expertise to obtain regulatory approvals, complete clinical development,
manufacture and market LIDAKOL or any other products for sale in the United
States and certain other foreign countries. To date, the Company has entered
into four such agreements relating to LIDAKOL for herpes. There can be no
assurance that the Company will be able to raise additional capital or to enter
into other collaborative arrangements necessary to further develop or
commercialize LIDAKOL or any of its other proposed products on acceptable terms.
Failure to obtain required additional financing, or to enter into additional
collaborative and licensing arrangements for the continued development,
manufacturing, marketing and distribution of the Company's products, would
materially limit the Company's ability to finance or undertake its proposed
operations. In such event, if the Company were unable to obtain from alternate
sources the substantial financing necessary on acceptable terms, it would be
unable to commercialize any products.
In addition, the Company is obligated to repay the Notes two years from
the date of issuance and, under certain conditions earlier with a 25% premium,
as set forth in more detail under "Description of Securities - Convertible
Notes Due 1997," below. Accordingly, the Company may be required to raise
additional capital to repay the Notes. There can be no assurance that the
Company can successfully raise such capital if required. Faliure to do so would
likely have a material and adverse effect on the Company.
3. Early Stage of Research Development; Unproven Products; Possible
Loss of Product Development Costs. The Company does not expect LIDAKOL for oral
herpes to be available for commercial sale or use in the United States and
certain foreign markets for several years, if at all. There can be no assurance
that LIDAKOL or any of the Company's other proposed products will be
successfully developed, proved to be safe and efficacious in clinical trials,
prove to be more effective than formulated products based on existing or newly
developed technologies, meet applicable regulatory standards, demonstrate
substantial therapeutic benefits in the treatment of any disease, be capable of
being produced in commercial quantities at reasonable costs or be successfully
marketed. There can be no assurance that effectiveness of these technologies in
pre-clinical studies performed in vitro or in animal models will be pertinent to
the development of, or indicative of the efficacy of, a product for human use.
The continued development of the Company's products, including LIDAKOL, remain
subject to all the risks inherent in the development of products based on
innovative technologies, including unanticipated development problems and the
possible insufficiency of funds which could result in the abandonment or
substantial change in the development of a specific product. The development of
medical products is a lengthy and capital intensive process. The risk of failure
to complete development of the Company's proposed products is substantial.
Unsuccessful Phase 3 clinical trial results for proposed products or the
inability to successfully complete development, or a determination by the
Company, for economic or other reasons, not to undertake to complete development
of a particular product, could have a material adverse effect on the Company.
Such a material adverse effect with respect to unsuccessful clinical trial
results for LIDAKOL for oral herpes would be virtually assured.
4. Uncertainty of Market Acceptance; Limited Marketing Arrangements
for Proposed Products. Except for its arrangement with Molecular Probes, Inc.,
the Company has not commenced marketing of any products to date and, at the
present time, has limited marketing capabilities. Achieving market acceptance
will require substantial marketing efforts and the expenditure of significant
funds to inform potential consumers of the perceived benefits of the Company's
proposed products. The Company has no experience in the marketing or
distribution of its proposed products. Moreover, the Company does not have the
financial and other resources to undertake extensive marketing and advertising
activities. Accordingly, the Company intends generally to rely on marketing
arrangements, including possible joint ventures, license or distribution
arrangements with
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third parties. To date, the Company has entered into
agreements with Yamanouchi, CTS, Boryung, Grelan and Molecular Probes, Inc.
There can be no assurance that it will be successful in entering into similar
agreements with other parties in the future or that its products can be
successfully marketed.
5. Government Regulation. The development, production, testing,
manufacturing and marketing of pharmaceutical products is subject to significant
regulation by governmental authorities in the United States, including the
United States Food and Drug Administration (the "FDA"), and other countries. The
clinical testing and regulatory approval process can take a number of years and
require the expenditure of substantial resources. There can be no assurance that
regulatory approval will be obtained for any of the Company's proposed products.
A significant portion of the proceeds of the Company's financings are being used
for research and development and clinical trials necessary for seeking such
approvals for the Company's products. There is no assurance that the Company
will be able to enter into additional collaborative arrangements with large
pharmaceutical companies to provide the financing necessary to complete the
required testing and regulatory review process for the Company's products.
Further, the expenditures by the Company will be made without any assurance that
approvals will be obtained and before it can be ascertained whether the
Company's products can be commercialized. The inability to obtain, or delays in
obtaining, such approval would adversely affect the Company's ability to
commence marketing such products and could have a material adverse effect on the
Company. The Company is unable to predict the extent of adverse governmental
regulation which might arise from future United States or foreign legislative or
administrative action.
Moreover, the Company cannot predict with accuracy the effect of
unspecified, but possible, future changes in the regulatory approval process and
in the domestic health care system. Possible future changes could affect the
time frame required for regulatory review and the sale prices of the Company's
products, if approved for sale.
6. Technological Change and Competition. The pharmaceutical industry
is subject to rapid, unpredictable and significant technological change.
Competition from universities, research institutions and pharmaceutical,
chemical and bio-engineering companies may be intense. There can be no assurance
that developments by the Company's competitors or potential competitors will not
render the Company's proposed products obsolete. Most of such competitors or
potential competitors have greater financial resources, research and development
facilities and manufacturing and marketing experience than the Company. If the
Company's first proposed product, LIDAKOL, is successfully developed, it will
compete with one prescription product for oral herpes known to the Company
currently on the market in the United States and other over-the-counter
preparations, as well as other products or potential products which are or may
be under development or undergoing the FDA regulatory approval process.
7. Relationship With and Dependence on Medical Biology Institute.
With the exception of LIDAKOL, the Company's technologies have been obtained by
license from Medical Biology Institute ("MBI"), a nonprofit research
organization founded by Dr. Katz and principally funded by research grants
awarded by the National Institutes of Health. Dr. Katz serves as President and
Chief Executive Officer of MBI. Under this licensing agreement (the "MBI
Agreement"), the Company was granted a twenty-year exclusive worldwide license
to all technology and know-how which MBI developed or had under development as
of October 10, 1988, the date of the MBI Agreement, and a right of first
preference to license future technology subject to restrictions, if any, in the
funding agreements by which MBI develops the technology. In consideration of
these rights, MBI received 2,000,000 shares of the Company's nonvoting Series A
Preferred Stock, licensing fees in the amount of $900,000, 10 percent of all net
license fees obtained by the Company based on licensed technology, 20 percent of
all royalties paid to the Company by any sublicensee and 6 percent royalties
(for patented inventions) or 3 percent royalties (for nonpatented inventions) on
net sales of products based on licensed technology manufactured and marketed
directly by the Company or any of its
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subsidiaries. In addition, if the Company failed to market on a production scale
at least one product derived from a licensed technology or pay a royalty of at
least $100,000 per year for the calendar year ending December 31, 1995, or any
calendar year thereafter, MBI had the right to convert the license to a
nonexclusive license upon six months' notice. MBI may terminate the MBI
Agreement upon 180 days' notice in the event of a default thereunder by the
Company which remains uncured for 90 days.
In July 1993, the MBI Agreement was amended, and pursuant to the
terms of the amendment, the Company issued 1,500,000 shares of Class A Common
Stock to MBI in consideration for a 5-year extension of their exclusive
technology rights (until October 10, 2013) and a 5-year postponement (until
December 31, 2000) of the Company's obligation to pay minimum royalties to MBI.
The shares granted to MBI pursuant to the amendment are restricted stock under
the federal securities laws and do not enjoy any registration rights.
Additionally, in connection with the issuance of the new shares, MBI waived all
rights to 1,500,000 of its Series A Preferred Shares which were then held in
escrow.
In July 1994 the MBI Agreement was further amended to provide for
future research funding and support for projects outside the realm of the
initial license agreement. This amendment provides for the transfer of ownership
rights for each specific project during the time it is being funded by the
Company.
There can be no assurance that the Company will have the ability
to satisfy all of its obligations under the MBI Agreement, that the MBI
Agreement will result in the development of any additional products or
technologies, that the Company will be able to maintain its exclusivity to MBI
technology, that MBI will be able to continue to receive adequate research
funding, or that MBI will be able to attract and/or maintain qualified
scientific or administrative personnel. Modification or termination of the MBI
Agreement could have a material adverse effect on the Company.
8. Dependence Upon Key Personnel. The Company is dependent on its
executive management and scientific staff, particularly Dr. David H. Katz, its
President and Chief Executive Officer. Dr. Katz also serves as President, Chief
Executive Officer and a Director of MBI and devotes a portion of his time to
MBI. A reduction in the amount of time Dr. Katz or other key personnel devote to
the Company or the loss of any key person could have a material adverse effect
upon the Company's business. The Company has entered into an employment
agreement with Dr. Katz and has obtained "key-man" life insurance on the life of
Dr. Katz in the amount of $1,000,000. In addition, in order to carry out its
business plan, the Company will be required to retain additional qualified
scientific, technical and administrative personnel. There can be no assurance
that the Company will be able to attract or maintain such additional personnel.
9. Patents and Proprietary Rights. The Company owns five United
States and two European patents. In addition, the Company has other pending
United States and foreign patent applications relating to LIDAKOL and other
technologies and has been granted rights under certain United States and foreign
patents and patent applications held by third parties, including MBI. There can
be no assurance that the claims in the pending patent applications will issue as
patents, that any issued patents will provide the Company with significant
competitive advantages, or that challenges will not be instituted against the
validity or enforceability of any patent owned by the Company or, if instituted,
that such challenges will not be successful. The cost of litigation to uphold
the validity and prevent infringement of a patent would be substantial.
Furthermore, there can be no assurance that others will not independently
develop similar technologies or duplicate the Company's technology or design
around the patented aspects of the Company's technology. There is no assurance
the Company's proposed technology will not infringe patents or other rights
owned by others, licenses to which may not be available to the Company. In this
regard, the Company was at one time negotiating to acquire another company
working on an anti-viral topical therapeutic product, but such negotiations
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were terminated. Although there can be no assurance that this other company will
not assert rights with respect to LIDAKOL in the future, the Company believes it
will have meritorious defenses to any such assertions. Finally, federal NIH
regulations provide that if federally-funded institutions do not timely pursue
patent applications for patentable inventions, the government can exercise its
right to own such inventions. This right is in addition to the government's
right to use the results of government sponsored research for specified
purposes. Accordingly, the Company must monitor MBI's filing of patent
applications in order to protect the value of its license agreement with MBI.
The MBI Agreement requires the Company to pay the costs of pursuing and
obtaining patents on the licensed technology and any improvements thereto.
In some cases, the Company may rely on trade secrets and
confidentiality agreements to protect its innovations. There can be no assurance
that trade secrets will be established, that secrecy obligations will be honored
or that others will not independently develop similar or superior technology. To
the extent that consultants, key employees or other third parties apply
technological information independently developed by them or by others to
Company projects, disputes may arise as to the proprietary rights to such
information which may not be resolved in favor of the Company.
10. Dependence Upon a Limited Number of Proposed Products. The
Company's principal efforts to date have been devoted to the development of
LIDAKOL, LMI, FFA and hu-PBL-SCID mouse technologies. Of these products and
technologies, the Company believes that LIDAKOL is the product most likely to be
first available for commercial distribution; however, the Company does not
expect LIDAKOL to be available for commercial sale or use in the United States
and certain foreign markets for several years, if at all. The FFA assay is
currently available for sale to the research community and the Company has
entered into a distribution agreement with an independent, third-party
distributor. The Company does not believe that revenues from the distribution of
the FFA assay will materially add to the revenues of the Company for several
years, if ever. Accordingly, it is not anticipated that the Company will
generate any significant revenues from sales for several years.
The failure of these products to achieve commercial viability would
have a material adverse effect upon the business and financial condition of the
Company.
11. Potential Conflicts of Interest. The Company's President and
Chief Executive Officer is also employed by MBI and serves on the board of
directors of MBI. Other than LIDAKOL, it is hoped that a large part of the
Company's business activities will relate to development of technologies
licensed from MBI. However, conflicts could arise with respect to, among other
things, the funding for development of licensed projects between the Company and
MBI, as well as the terms of licenses to future developments at MBI pursuant to
the Company's right of first preference to such developments. Although the
decisions with respect to such matters must be approved by a majority of the
members of the Board of Directors not employed by MBI, there can be no assurance
that effective transactions between the Company and MBI will be advantageous to
the Company, that conflicts of interest will not arise with respect to such
transactions or that, if conflicts of interest do arise, they will be resolved
in a manner favorable to the Company.
12. Control by Insiders. As of October 31, 1995, the officers and
directors of the Company own approximately 4.46% of the outstanding capital
stock of the Company and possess approximately 7.27% of the voting power. The
officers and directors of the Company are thus able, as a practical matter, to
influence considerably the election of directors and thereby select the
management and direct the policies of the Company. The officers and directors of
the Company also hold options and warrants to purchase an additional 3,718,006
shares of Class A Common Stock and 407,000 shares of Class B Common Stock.
- 10 -
<PAGE> 12
13. Dependence Upon Third-Party Arrangements. The Company does not
have and does not expect to have in the foreseeable future the resources to
manufacture or directly market on a large commercial scale LIDAKOL or any other
products which it may develop. To successfully commercialize LIDAKOL or any
other products it will be necessary for the Company to enter into collaborative
arrangements with pharmaceutical or biotechnology companies to assist in funding
development costs, including the costs of clinical testing necessary to obtain
regulatory approvals, and costs of manufacturing and marketing. The Company
believes that these arrangements will be more effective in promoting and
distributing its products in view of the Company's limited resources and the
extensive marketing networks and large promotional and advertising budgets of
established pharmaceutical companies. The Company has entered into several
licensing agreements which cover the clinical development, manufacturing and
marketing of LIDAKOL. There can be no assurance, however, that the Company will
be able to finalize any licensing or distributorship arrangements for the United
States and other territories not covered by existing agreements on favorable
terms or at all. The Company may ultimately determine to establish its own
manufacturing and/or marketing capability, at least for certain products, in
which case it will require substantial additional funds and personnel.
14. Risks Related to Foreign Sales. The Company is subject to various
risks inherent in foreign trade in connection with the continued development of
LIDAKOL by foreign licensees, and the manufacture, marketing and distribution of
LIDAKOL, if ever, overseas by foreign licensees. Such risks could include
economic or political instability, shipping delays, fluctuations in foreign
currency exchange rates, customs duties and export quotas and other trade
restrictions, all of which could have a significant impact on the Company's
ability to deliver its products.
15. Possible Volatility of Stock Price. Recent history relating to the
market prices of the shares of biotechnology companies in general, and the
historical fluctuations in the market price of the Company's Class A Common
Stock, indicates that following this offering the market price of the Company's
Class A Common Stock may be highly volatile. Factors such as fluctuations in the
Company's operating results, developments relating to the progress of clinical
trials for the Company's products and the Company's relationships with present
and potential licensees and distributors, announcements of technological
innovations or new products by the Company or its competitors, and changes in
market conditions and in the economy generally, may have a significant impact in
the market price of the Company's Class A Common Stock. Further, the market
price for the securities of many biotechnology companies have experienced wide
fluctuations which were not necessarily related to the operating performance of
such companies.
16. Dilution. Purchasers of the shares of the Common Stock offered
hereby will experience immediate and substantial dilution in the net tangible
book value of their shares of approximately $3.91 per share or 92% based on the
last reported sales price of the Company's Common Stock on December 6, 1996.
17. Product Liability; Absence of Insurance Coverage. The testing,
marketing and sale of pharmaceutical products entails a risk of product
liability claims by consumers and others. Claims may be asserted against the
Company by end users of any of the Company's proposed products which may be
developed. The Company has obtained product liability insurance coverage for its
clinical trials in the amount of $2,000,000 per incident, and aggregate, and
although the Company will attempt to obtain additional product liability
insurance prior to the marketing of any of its proposed products, there is no
assurance that the Company will be able to obtain such insurance or, if
obtained, that such insurance can be acquired at a reasonable cost or will be
sufficient to cover all possible liabilities. In the event of a successful suit
against the Company, lack or insufficiency of insurance coverage could have a
material adverse effect on the Company. Further, certain distributors of
pharmaceutical products require minimum product liability insurance coverage as
a condition precedent to purchasing or accepting products for distribution.
Failure to satisfy such insurance
- 11 -
<PAGE> 13
requirements could impede the ability of the Company to achieve broad
distribution of its proposed products, which would have a material adverse
effect upon the business and financial condition of the Company.
18. Future Sales of Common Stock. All of the Company's shares of Class
B Common Stock currently outstanding are "restricted securities" as that term is
defined in Rule 144 promulgated under the Securities Act of 1933, as amended,
(the "Act") and under certain circumstances may be sold without registration
pursuant to such Rule. The outstanding shares of Class B Common Stock, which
will convert into Class A Common Stock upon certain sales or transfers, are
eligible for sale under Rule 144. Additionally, 1,493,000 shares of Class A
Common Stock, outstanding as of October 31, 1995, which were issued to MBI in
July 1993 are also "restricted securities" as defined in Rule 144 of the Act and
under certain circumstances are also eligible for sale without registration
under such Rule. Finally, up to 5,513,018 shares of Class A Common Stock are
issuable upon conversion of the Notes. (See "Description of Securities -
Convertible Notes Due 1997"). The Company is unable to predict the effect that
sales made under Rule 144, or otherwise, may have on the then prevailing market
price of the Class A Common Stock although any substantial sale of restricted
securities pursuant to Rule 144 may have an adverse effect.
19. Effect of Outstanding Convertible Stock, Option and Warrants. As
of October 31, 1995, exclusive of the Shares registered herein, there are
outstanding stock options, to purchase an aggregate of 4,977,927 shares of Class
A Common Stock, which have exercise prices ranging between $0.9375 to $6.75 per
share, and 445,000 shares of Class B Common Stock which have exercise prices
ranging between $0.0125 to $.50 per share. In addition, the Company had
outstanding 283,000 shares of Class B Common Stock at that date, each share of
which is convertible into one share of Class A Common Stock. In addition, the
Company had outstanding at October 31, 1995, Class D and E Warrants which have
exercise prices ranging from $0.20 - $1.50, which, if exercised, would result in
the issuance of 1,880,021 shares of Class A Common Stock. Finally, up to
5,513,018 shares of Class A Common Stock are issuable upon conversion of the
Notes. (See "Description of Securities - Convertible Notes Due 1997").
To the extent that these outstanding securities are exercised or
converted, dilution of the percentage ownership of the Company's Shareholders
will occur. See "Dilution." Sales in the public market of the Class A Common
Stock underlying options, warrants and the Notes may adversely affect prevailing
market prices for the Class A Common Stock. Moreover, the terms upon which the
Company will be able to obtain additional equity capital may be adversely
affected since the holders of such outstanding securities can be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain any needed capital on terms more favorable to the Company than those
provided in the outstanding securities.
20. Dividends Unlikely. The Company does not intend to declare or pay
cash dividends in the foreseeable future. Earnings are expected to be retained
to finance its business.
21. Lack of Trading Market in Certain Jurisdictions. Although
securities of the Company have been qualified for sale only in certain
jurisdictions, the Company's Listed Securities are exempted from the
qualification requirements for offers in the secondary market of most states
because of their listing on the NMS/NASDAQ. However, the Company has not
qualified the secondary offering of its securities in the state of Hawaii and
NMS/NASDAQ exemption is not available in Hawaii. Consequently, the secondary
trading of securities of the Company (including the shares of Class A Common
Stock offered by this Prospectus) in Hawaii can only be conducted through
unsolicited buy and sell orders, privately negotiated transactions, or through
other exempt transactions. Similar restrictions may apply in other
jurisdictions.
- 12 -
<PAGE> 14
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Shareholders. The Company has, however, received proceeds
from the sale of the Shares and the Notes to the Selling Shareholders, which
proceeds were applied to working capital. In the event and to the extent that
the Selling Shareholders elect to convert the Notes, the Company will have no
obligation to repay the Notes. See "Description of Securities -Convertible Notes
Due 1997" below.
- 13 -
<PAGE> 15
DILUTION
As of September 30, 1995, the pro forma net tangible book value of the
Company's Class A Common Stock was $10,309,716 or $0.34 per share of Common
Stock. Pro forma net tangible book value per share represents (1) the dollar
amount of total tangible assets of the Company plus (a) $9,000,000 representing
the gross proceeds from the sale of 481,651 of the Shares which were sold to the
Selling Shareholders in November 1995 (the "November 1995 Shares") and (b) the
$7,500,000 principal of Notes, reduced by (2) the dollar amount of total
liabilities at such date plus the $7,500,000 principal of Notes and divided by
(3) the number of shares of Common Stock outstanding at such date, including the
November 1995 Shares. See "Use of Proceeds", "Selling Shareholders" and
"Description of Securities - Convertible Notes Due 1997." Assuming a price to
the public of $4.25 per share (based upon the last reported sales price of the
Class A Common Stock on NASDAQ at December 6, 1995), there will be an immediate
dilution per share of $3.91 to new investors purchasing the Shares offered
hereby. The dilution to be experienced by new investors will be the same
regardless of the number of Shares sold relating to the November 1995 Shares
because the Company would receive no consideration for the sale to new investors
thereof.
The following table illustrates the dilution per share described above:
<TABLE>
<S> <C> <C>
Assumed price to public per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4.25
Pro forma net tangible book value per share at
September 30, 1995, as defined above 0.34
----
Increase attributable to purchase of Class A Common
Stock by new investors 0.00
----
Pro forma net tangible book value per share of common
stock at September 30, 1995 as defined above . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . 0.34
Dilution to new investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . $3.91
</TABLE>
In the event that the Notes are converted in full at a price per share
($1.36) that results in the maximum number of Shares issuable upon conversion
(5,513,018) and such cash and shares were included in the above calculations as
of September 30, 1995, the pro forma net tangible book value of Class A Common
Stock at such date would be $17,809,716 or $0.49 per share. Assuming a price to
the public of $4.25 per share (as described above) there would be an immediate
dilution per share of $3.76 to new investors purchasing the Shares offered
hereby. See "Description of Securities-Convertible Notes Due 1997".
At October 31, 1995, the Company also had outstanding options to
purchase 4,977,927 shares of Class A Common Stock, at exercise prices ranging
between $.9375 and $6.75 per share, and 445,000 shares of Class B Common Stock,
at an exercise price ranging between $0.0125 and $0.50 per share. In addition,
the Company had outstanding at October 31, 1995, Class D and E Warrants which
have exercise prices ranging from $0.20 - $1.50, which if exercised would result
in the issuance of 1,880,021 shares of Class A Common Stock. To the extent such
options and warrants are exercised below the net tangible book value, there will
be further dilution to the purchasers of the Shares offered hereby from the
assumed public offering price.
- 14 -
<PAGE> 16
SELLING SHAREHOLDER
The following table sets forth the name of the Selling Shareholders and the
number of shares of Common Stock held by the Selling Shareholders as of the date
of this Prospectus regardless of whether such Selling Shareholders has a present
intent to sell.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
NUMBER OF
SHARES OF % HELD NUMBER OF SHARES
COMMON STOCK PRIOR TO COMMON OF COMMON STOCK % HELD
RELATIONSHIP OWNED PRIOR TO OFFERING STOCK TO BE OWNED AFTER THE AFTER
NAME WITH COMPANY THE OFFERING (1) SOLD OFFERING OFFERING(1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GFL Advantage Fund Investor 5,259,600 14.54% 5,259,600 0 0.00
Limited
- -----------------------------------------------------------------------------------------------------------------------------
GFL Performance Fund Investor 735,069 2.03% 735,069 0 0.00
Limited
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on total amount of Common Stock outstanding as of October 31,
1995, plus the number of Shares covered by this Prospectus (5,994,669),
assuming full conversion of the Notes (see "Dilution").
- 15 -
<PAGE> 17
PLAN OF DISTRIBUTION
The distribution of the Shares by the Selling Shareholders may be effected in
one or more transactions that may take place in the over-the-counter market, or
such other market on which the Company's securities may from time to time be
trading, including ordinary broker's transactions or through sales to one or
more dealers for resale of the Shares as principals, in privately negotiated
transactions, through the writing of options on the Shares (whether such options
are listed on an options exchange or otherwise) or by a combination of such
methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. If the Selling Shareholders effect such
transactions by selling 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 Shareholders
and/or the purchasers of the Shares for whom they may act as agent. The Selling
Shareholders 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 1933 Act. Selling Shareholders may also sell Shares pursuant to Rule
144 under the 1933 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 by the Selling Shareholders
of Shares.
At the time a particular offer of Shares is made pursuant to
the Offering, to the extent required, a supplement to this Prospectus will be
distributed which will identify and set forth the number of Shares being offered
and the terms of the offering, including the name or names of any underwriters,
dealers or agents, any discounts, commissions and other items constituting
compensation from the Selling Shareholders and/or the Company and any discounts,
commissions or concessions allowed or reallowed or paid to dealers, including
the proposed selling price to the public. Such supplement to this Prospectus
and, if necessary, a post-effective amendment to the Registration Statement of
which this Prospectus is a part, will be filed with the Commission to reflect
the disclosure of additional information with respect to the distribution of
Shares.
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 marking activities with respect to such shares
of Common Stock for a period of nine business days prior to the commencement of
such distribution, subject to certain exceptions. In addition and without
limiting the foregoing, the Selling Shareholders any other person participating
in the distribution of Shares will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Rules 10b-6 and 10b-7, which provisions may limit the timing of
purchases and sales of any Shares by the Selling Shareholders or any other such
person. All of the foregoing may affect the marketability of the Shares.
The Company has agreed with the Selling Shareholders to file
the Registration Statement of which this Prospectus is a part with the
Commission, and has agreed with the Selling Shareholders to keep the
Registration Statement effective until such date that is three years after the
date that the Registration Statement is first ordered effective by the
Commission or such earlier time as all of the Shares have been sold. The Company
will pay all of the expenses incident to the registration of the Shares and
certain other expenses related to the Offering. The Company has agreed to
indemnify the Selling Shareholders against certain liabilities they may incur in
connection with the issuance and sale of the Shares, including liabilities under
the 1933 Act.
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.
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 99,490,000 shares of Class A Common
Stock, no par value, 29,973,350 of which were issued and outstanding at October
31, 1995, and 510,000 shares of
- 16 -
<PAGE> 18
Class B Common Stock, no par value, 283,000 of which were issued and outstanding
at October 31, 1995.
Holders of Class A Common Stock and Class B Common Stock have equal
rights to receive dividends when, as and if declared by the Board of Directors
out of funds legally available therefor.
Holders of Class A Common Stock have one vote for each share held of
record and holders of Class B Common Stock have five votes for each share held
of record on all matters to be voted on by the Shareholders. The Class A Common
Stock and Class B Common Stock vote as one class on all matters requiring
stockholder approval except that under California law the affirmative vote of a
majority of the outstanding shares of Class A Common Stock and a majority of the
outstanding shares of Class B Common Stock, each voting separately as a class,
is required for any amendment to the Company's Articles of Incorporation which
would alter or change the powers, preferences or special rights of, or increase
or decrease the number of shares of, or create a new class or series of shares
having rights, preferences or privileges prior to, each respective class of the
Company's common stock. Therefore, the present holders of the Class B Common
Stock, which possess a majority of voting rights, may elect a majority of the
Company's directors and authorize certain corporate transactions without the
concurrence of the public Shareholders.
Holders of both classes of Common Stock are entitled upon liquidation
of the Company to share ratably in the net assets available for distribution
subject to the rights, if any, of holders of any preferred stock then
outstanding. Shares of both classes of Common Stock are not redeemable and have
no preemptive or similar rights. The Class B Common Stock may be converted into
Class A Common Stock on a share for share basis at any time at the election of
the holder and will automatically convert into Class A Common Stock upon sale or
transfer other than to another holder of Class B Common Stock.
PREFERRED STOCK
The Company is authorized to issue up to 10,000,000 shares of Preferred Stock
containing such rights, preferences, privileges and restrictions as the
Company's Board of Directors may determine.
CONVERTIBLE NOTES DUE 1997
In November, 1995 the Company sold $7,500,000 in principal amount of Convertible
Notes ("Notes"). The Notes bear interest of 7%, payable quarterly, with the
principal due and payable two years from the date of issue if and to the extent
that the Notes are not previously converted. The Notes are convertible into
Class A Common Stock at a price equal to 80% of the average closing bid price
for the Class A Common Stock on the NASDAQ for the seven trading days prior to
the date of conversion. One-third of the original principal amount of the Notes
may be converted 15 days, 45 days and 65 days, respectively, after the effective
date of the Registration Statement of which this Prospectus is a part. The
shares of Class A Common Stock underlying the Notes are eligible for sale under
this Prospectus.
The $7.5 million of Notes and any additional Notes sold pursuant to this private
financing are convertible into a maximum of 5,513,018 shares of the Company's
Class A Common Stock at the option of the holders. Any Notes not converted are
due and payable two years from the issue date (November 15, 1997). Any
additional Notes sold by the Company also will be due and payable two years from
the date of issuance in the event that such Notes are not converted. In the
event that shares of Class A Common Stock cannot be issued upon request for
conversion due to the above referenced maximum share limitation, the Company is
immediately obligated to repay the principal of that portion of the Notes which
cannot be converted plus a premium equal to 25% of such principal plus any
accrued and unpaid interest.
DIVIDEND POLICY
The Company does not anticipate paying cash dividends on its common
stock in the foreseeable future.
- 17 -
<PAGE> 19
LEGAL MATTERS
The validity of the securities offered hereby have been passed upon for
the Company by Baker & McKenzie, San Diego, California.
EXPERTS
The financial statements of the Company at September 30, 1994 and 1995
and for each of the three years in the period ended September 30, 1995 and for
the period from August 31, 1988 (inception) to September 30, 1995, incorporated
in this Prospectus by reference from the Company's Annual Report on Form 10-K
for the year ended September 30, 1995, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report which is incorporated
herein by reference (which report includes an explanatory paragraph referring to
the status of the Company as a development stage enterprise), and has been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE COMMON STOCK
OFFERED BY THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY COMMON STOCK IN ANY CIRCUMSTANCES IN
WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED BY REFERENCE HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
- 18 -
<PAGE> 20
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated cumulative expenses of this offering of all which are to
be paid by the Registrant in connection with the issuance and distribution of
the securities being registered are estimated as follows:
<TABLE>
<S> <C>
SEC Registration Fee $ 8,139.31(1)
Accounting Fees and Expenses 10,000.00
Legal Fees and Expenses 10,000.00
Miscellaneous Expenses 1,000.00
----------
Total $29,139.31
</TABLE>
_______________
(1) Registration Fee paid upon the initial filing of this Registration
Statement.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 204(a)(10) and (11), 204.5 and 317 of the California General
Corporation Law which covers the indemnification of directors, officers,
employees and agents of a corporation is hereby incorporated herein by
reference. Reference is made to Article 6 of Registrant's Restated Articles of
Incorporation and Section 3.15 of Registrant's By-Laws which provide for
indemnification by the Registrant in the manner and to the full extent permitted
by California law.
Beginning August 10, 1992, the Company has maintained directors' and
officers' liability insurance with policy limits of $5,000,000. The policy
covers 100 percent of losses arising from, among other things, claims of breach
of duty, neglect, error, alleged misstatement, misleading statement or omission
by the directors and officers in their capacity as such. Payment for loss would
be made to or on behalf of the Company where the Company is required or
permitted to indemnify directors or officers for covered losses pursuant to
statutory or common law, the Articles of Incorporation or Bylaws of the Company
or by agreement. The policy provides for retention of $5,000 per director or
officer, subject to a maximum of $10,000 for each loss, except in the case of
payment for loss to or on behalf of the Company, in which case the retention is
$100,000.
ITEM 16. EXHIBITS.
Exhibit
Number
- ------
4.1 Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
statement on Form S-1, Registration No. 33-49082);
5.1 Opinion of Baker & McKenzie as to legality of securities being
registered;
23.1 Independent Auditors' Consent;
23.2 Consent of Counsel (Contained in Exhibit 5.1);
II - 1
<PAGE> 21
24 Power of Attorney (included on signature page).
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the underwriting agreement, certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes:
1. The file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
i. To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
ii. To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement; and
iii. To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
Provided, however, that paragraphs (1)(i) and (1)(ii) above do
not apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration statement.
2. That, for the purpose of determining any liability under the
Act, 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 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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions of its Restated Articles of
Incorporation and By-Laws of the Registrant, the California General Corporation
Law 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 issuer 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
II - 2
<PAGE> 22
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.
II - 3
<PAGE> 23
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 the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in La Jolla, California, on December 11, 1995.
LIDAK PHARMACEUTICALS
By: David H. Katz, M.D.
------------------------------
David H. Katz, M.D.
President and Chief Executive
Officer
II - 4
<PAGE> 24
Power of Attorney
Each person whose signature appears below on this Registration Statement hereby
constitutes and appoints David A. Katz and Daniel J. Paracka 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 Form S-3 Registration Statement of Lidak
Pharmaceuticals, 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 has been signed below by the following persons in the capacities and
on the dates so indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
David H. Katz, M.D. President-Chief Executive Officer December 11, 1995
------------------------------- and Director
David H. Katz, M.D.
Michael H. Lorber Vice President, Chief Financial December 11, 1995
------------------------------- Officer (Principal Financial and
Michael H. Lorber Accounting Officer) and Secretary
Helmer P.K. Agersborg, Jr. Director December 11, 1995
-------------------------------
Helmer P.K. Agersborg, Jr.
William N. Jenkins Director December 11, 1995
-------------------------------
William N. Jenkins
Kenneth E. Olson Director December 11, 1995
-------------------------------
Kenneth E. Olson
Daniel J. Paracka Director December 11, 1995
-------------------------------
Daniel J. Paracka
Stuart A. Samuels Director December 11, 1995
-------------------------------
Stuart A. Samuels
Sidney N. Towle, Jr. Director December 11, 1995
-------------------------------
Sidney N. Towle, Jr.
</TABLE>
II - 5
<PAGE> 25
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ ------------------------------------------------
<S> <C>
4.1 Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
statement on Form S-1, Registration No. 33-49082)
5.1 Opinion of Baker & McKenzie as to
legality of securities being registered
23.1 Independent Auditors' Consent
23.2 Consent of Counsel (included on
Exhibit 5.1, hereto)
24 Power of Attorney (included on
signature page)
</TABLE>
II - 6
<PAGE> 1
EXHIBIT 5.1
Opinion of Baker & McKenzie
[Please see attached]
II - 7
<PAGE> 2
December 11, 1995
Lidak Pharmaceuticals
11077 North Torrey Pines Road
La Jolla, California 92037
Gentlemen:
We have examined the Registration Statement on Form S-3 to be filed by you with
the Securities and Exchange Commission on or about December 13, 1995 in
connection with the registration under the Securities Act of 1933, as amended,
of an aggregate of 5,994,669 shares of the Company's Class A Common Stock. As
your legal counsel, we have examined the Company's Articles of Incorporation and
By-laws, records of corporate proceedings, with respect to the offer and sale of
the Common Stock and such documents as we have deemed necessary in connection
with the sale and issuance of the Shares.
Based upon the foregoing examinations and upon applicable laws, we are of the
opinion that the Shares, when offered and sold in the manner provided for in the
Registration Statement, will be legally issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to said Registration
Statement and further consent to the use of our name wherever appearing in said
Registration Statement and amendments thereto.
Very truly yours,
BAKER & McKENZIE
II - 8
<PAGE> 1
EXHIBIT 23.1
Consent of Deloitte & Touche LLP
[Please see attached]
II - 9
<PAGE> 2
INDEPENDENT AUDITORS' CONSENT
LIDAK Pharmaceuticals:
We consent to the incorporation by reference in this Registration Statement of
LIDAK Pharmaceuticals (a development stage enterprise) on Form S-3 of our report
dated November 15, 1995 (which report contains an explanatory paragraph
referring to the status of the Company as a development stage enterprise),
appearing in the Annual Report on Form 10-K of LIDAK Pharmaceuticals for the
year ended September 30, 1995 and to the reference to us under the heading
"Experts" in the Prospectus, which is a part of this Registration Statement.
DELOITTE & TOUCHE LLP
San Diego, California
December 13, 1995
II - 10
<PAGE> 1
EXHIBIT 23.2
Consent of Baker & McKenzie
The consent of Baker & McKenzie is contained in its opinion filed as Exhibit 5.1
to the Registration Statement.
II - 11
<PAGE> 1
EXHIBIT 24
Power of Attorney
Contained on page II-5 of this Registration Statement.
II - 12
