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FILED PURSUANT TO RULE 424(b)(2)
REGISTRATION STATEMENT NO. 333-61127
SUPPLEMENT TO AGRIBIOTECH, INC.
PROSPECTUS DATED AUGUST 14, 1998
AS PREVIOUSLY SUPPLEMENTED ON
SEPTEMBER 2, 1998, SEPTEMBER 4, 1998
AND OCTOBER 15, 1998
886,410 Shares
_________________________
All of the shares of Common Stock (the "Shares") being offered by this
Prospectus Supplement are being sold by AgriBioTech, Inc. (the "Company") to
certain investors (the "Warrantholders") who purchased common stock purchase
warrants (the "Warrants") from the Company on August 28, 1998. The purchase
price for the Shares is $12.00 per share plus tender of the Warrants.
Our Common Stock is listed and traded on the Nasdaq National Market under
the symbol "ABTX." The last reported sale price on November 12, 1998, was $12.75
per share.
_________________________
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 16.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
_________________________
November 13, 1998
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ABOUT THIS PROSPECTUS SUPPLEMENT
This Prospectus Supplement is part of a registration statement we filed with
the SEC using a "shelf" registration process. Under this process, we filed a
Registration Statement and Prospectus on August 14, 1998. The Prospectus that we
filed included a general description of the securities that we may offer at any
time for two years from the original filing date. Whenever we sell any
securities using this process, we must provide a supplement, like this one, that
contains specific information about the securities we are selling and the terms
of that sale.
This Prospectus Supplement relates to shares of common stock that we are
selling to certain existing Warrantholders.
To fully understand this offering, you should read this Prospectus
Supplement, the Prospectus (and any other supplements) and the additional
information described under the heading "WHERE YOU CAN FIND MORE INFORMATION."
TABLE OF CONTENTS
<TABLE>
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WHERE YOU CAN FIND MORE INFORMATION............................. -3-
WEB SITE DISCLOSURES............................................ -5-
RISK FACTORS.................................................... -16-
USE OF PROCEEDS................................................. -23-
PRICE RANGE OF COMMON STOCK..................................... -24-
DIVIDEND POLICY................................................. -24-
DESCRIPTION OF CAPITAL STOCK.................................... -25-
PLAN OF DISTRIBUTION............................................ -27-
COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES............................. -28-
LEGAL MATTERS................................................... -28-
</TABLE>
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Unless the context indicates otherwise, the terms the "Company" and
"ABT," or references to "we," "us," and "our" in this Prospectus refer to
AgriBioTech, Inc. and its subsidiaries.
WHERE YOU CAN FIND MORE INFORMATION
ABT is subject to the information requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"). In accordance with the Exchange Act,
we file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). You may
inspect and copy any document we file at the SEC's public reference rooms in
Washington, D.C. at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
SEC's Northeast Regional Office at Seven World Trade Center, New York, New York
10048, and at the Midwest Regional Office at 500 West Madison Street, Chicago,
Illinois 60611-2511. You may also purchase copies of our SEC filings, by writing
to the SEC, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
20549 or on the SEC's Worldwide Web site at http://www.sec.gov. You may find
additional information about ABT at our Web site at http://www.agribiotech.com.
This Prospectus Supplement and the Prospectus for which it provides
additional information, are part of a registration statement on Form S-3 that we
have filed with the SEC. The SEC allows us to "incorporate by reference"
information that we file with them. This means that we can disclose important
information to you by referring you to other documents that we have filed with
the SEC. The information that is incorporated by reference is considered part of
this Prospectus Supplement, and information that we file later will
automatically update and may supersede this information. For further information
about ABT and the securities being offered, you should refer to the registration
statement and the following documents that are incorporated by reference.
(i) Our Annual Report on Form 10-K for the fiscal year ended June 30,
1998 ("Form 10-K");
(ii) Our Quarterly Report on Form 10-QSB for the fiscal quarter ended
March 31, 1996 (as amended on July 12, 1996);
(iii) Our Current Reports on Form 8-K for October 30, 1996 (as amended on
January 13, 1997, February 17, 1998 and August 11, 1998), January 6,
1998 (as amended on March 10, 1998, March 30, 1998 and August 11,
1998), January 9, 1998 (as amended on March 10, 1998, March 30, 1998
and August 11, 1998), June 30, 1998, and August 28, 1998 (as amended
on November 12, 1998) (Forms "8-K");
(iv) The description of our Common Stock, $.001 par value, in our
registration statement on Form 8-A (File No. 0-19352), filed July 11,
1995, pursuant to Section 12(g) of the Exchange Act including any
amendment or report filed for the purpose of updating such
information;
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(v) Our Proxy Statement dated January 20, 1998 for our Annual Meeting held
on February 23, 1998; and
(vi) All documents we file pursuant to Sections 13(a), 13(c), 14 and 15(d)
of the Exchange Act after the date of this Prospectus and prior to the
filing of a post-effective amendment that indicates that all the
securities offered hereby have been sold or that deregisters all the
securities remaining unsold.
You may request a copy of all documents that are incorporated by reference
in this Prospectus by writing or telephoning us at the following address:
AgriBioTech, Inc., Attention: Secretary, 120 Corporate Park Drive, Henderson, NV
89014; telephone number (702) 566-2440. We will provide copies of all documents
requested (not including the exhibits to those documents, unless the exhibits
are specifically incorporated by reference into those documents or this
Prospectus) without charge.
We have not authorized any person to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus Supplement and the Prospectus. You should not rely on any
information or representations in connection with this offering other than the
information or representations in this Prospectus Supplement and the Prospectus.
The information in this Prospectus Supplement is correct as of the date of this
Prospectus Supplement. You should not assume that there has been no change in
the affairs of ABT since the date of this Prospectus Supplement or that the
information contained in this Prospectus Supplement is correct as of any time
after its date. This Prospectus Supplement is not an offer to sell or a
solicitation of an offer to buy shares in any circumstances in which such an
offer or solicitation is unlawful.
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WEB SITE DISCLOSURES
In the following paragraphs, the Company is disclosing information
discussed in the Company's Web Site, including forward-looking information, that
is not set forth in this Prospectus Supplement or incorporated by reference
herein. Forward-looking and other statements in this section, as well as
elsewhere in this Prospectus Supplement, reflect the good faith judgment of the
Company's management, and were solely based on facts and factors known by the
Company at the time such statements were made. Except where otherwise indicated,
the following statements in this section have not been updated since they were
made. Forward-looking statements are inherently subject to risks and
uncertainties, and actual results and outcomes may
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differ materially from the results and outcomes discussed in the forward-looking
statements. The risks and uncertainties that could cause or contribute to such
differences in results and outcome include without limitation, the Company's
historical lack of profitability, need to manage its growth, intense competition
in the seed industry, seasonality of quarterly results, weather conditions,
volatility of common stock prices, as well as those factors discussed under
"Risk Factors" and elsewhere in this Prospectus Supplement and in any documents
that are incorporated into this Prospectus Supplement by reference.
The Company has made certain other forward-looking and other statements
(the "Prior Statements") in prior versions of its Web Site which were included
in registration statements filed previously with the Commission. The Prior
Statements include: (a) Chairman's Update dated March 4, 1998; (b) Chairman's
Update dated April 1, 1998; (c) Chairman's Update dated June 22, 1998; (d)
Chairman's Update dated September 1, 1998; and (e) Chairman's Update dated
October 9, 1998.
The Company has deleted each of the Prior Statements in its entirety from
its Web Site. As a result, the Prior Statements are deemed not incorporated by
reference into this document and shall be deemed to be superseded for purposes
of this registration statement, in accordance with the terms of Rule 412
promulgated under the Securities Act. The Company may make other Statements that
are "forward-looking statements" as defined in Section 27A of the Securities Act
and Section 21E of the Exchange Act.
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1997 ANNUAL REPORT TO SHAREHOLDERS
The following section consists of statements from the Company's 1997 Annual
Report to Shareholders, which is not a document incorporated by reference in
this Registration Statement.
(a) Agribiotech Mission Statement. "To become the premier forage and
-----------------------------
turfgrass seed company in the world, while also providing a full service seed
product line. AgriBioTech, Inc. is committed to providing superior, value added
seed varieties and superior service. The ultimate goal is to achieve a 45%
market share in forage and turf seed by the year 2000 with annual revenues
exceeding $500 million.
(b) Chief Executive Officer's Letter.
--------------------------------
Dear Fellow Shareholders:
"In 1995, we set out to consolidate two important seed sectors and gain 45
percent market share by the year 2000; we are 12 to 18 months ahead of our
target schedule for achieving this goal. The annualized revenues from our
completed acquisitions mean that today we are approximately double the size in
market share of the second leading company. When pending acquisitions are
closed, the Company's market share position will be roughly 3.5 times that of
the largest competitive forage and cool season turfgrass seed company."
"To date, the Company has maintained historical revenues while increasing
same store sales by roughly 7 percent as a result of our consolidation
strategy."
"In Fiscal 1998, we expect to achieve full-year profitability because our
Company now has a strong platform of research and development through
traditional genetic breeding programs, seed processing plants, and national and
international distribution and sales networks for most forage and cool-season
turfgrass species."
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"We have strong management. We are number one in market share, and we have
an industry-leading germplasm position. We expect continued growth in sales,
assets and equity in 1998."
"Respected and knowledgeable analysts predict that the agricultural
biotechnology market will grow to $12 to $14 billion a year within seven to
eight years."
(c) Industry and Strategy Review.
----------------------------
Industry Overview. "Recently, however, margins in the industry have begun
-----------------
to expand as increasingly larger and more sophisticated farmers and other users
have moved away from public varieties toward higher yielding proprietary
varieties. Proprietary varieties have desirable attributes such as improved
nutritional quality and disease and insect resistance. Additionally, protection
of intellectual property in the seed industry (variety rights) has recently been
firmly established by federal legislation (1994) and an important and favorable
U.S. Supreme Court ruling for seed companies (1995).
Prior to the launch of ABT's acquisition plan in 1995, no seed company
achieved the necessary size and scope of operations in the forage and turfgrass
seed sectors to develop higher yielding and better performing proprietary
varieties for national markets. The leading U.S. and global seed companies and
industry players--Pioneer Hi-Bred International, Inc., DEKALB Genetics
Corporation, Novartis AG, Delta and Pine Land Company, Monsanto Co., and The Dow
Chemical Company--have focused on and invested in other important seed sectors
like corn, cotton and vegetables. The leaders in these sectors have used
investment in traditional seed breeding R&D and vertical integration to generate
annual returns on equity in the 20 percent range, and because of their
leadership positions, are now realizing sizable additional returns and profits
due to the commercialization of higher-value biotechnology-based seed products."
Biotechnology and Biotechnology Access. "The impact of biotechnology on the
--------------------------------------
value of agricultural crops can be great. The soybean crop in the U.S. is a
present day example of what can happen when value-added, biotechnology produced
seeds are developed and marketed. Prior to the introduction of Roundup Ready(R)
soybean seed in the U.S. (seed genetically engineered to be tolerant to a
specific, efficacious and cost-effective herb icide) farmers spent between $800
and $900 million on soybean seed in the U.S. In 1998, 20-25 percent, of all U.S.
soybean acres are expected to be planted with these seeds generating increased
value for seed companies and the technology's owner of $200 to 250 million."
(d) Business Strategy and Operations.
--------------------------------
Management and Leadership. The Company announced that on January 1, 1998
-------------------------
two key positions were filled, that of President and Chief Operating Officer and
Vice President, Director of Research. The respective biographies of Kent
Schulze, President, and Dr. Thomas B. Rice,
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Vice President, appear in the Company's Proxy Statement dated January 20, 1998.
See "Information Incorporated by Reference." This section includes the following
biographies of various other employees which also appear in the Company's 1997
Annual Report to Shareholders, none of whom, except Dr. Rice, are executive
officers of the Company.
"Dr. Thomas B. Rice, Vice President, Director of Research, who will join
the Company January 1, 1998 was formerly with DEKALB Genetics Corporation, where
he served 10 years as Director of Research and subsequently as President and
Chief Operating Officer of DEKALB Plant Genetics, a subsidiary. Tom was the
architect of DEKALB'S highly successful biotechnology effort, starting at Pfizer
in 1976 where he initiated, managed and directed the plant biotechnology effort.
This program later became DEKALB's highly productive effort as a result of a
joint venture with Pfizer. Tom's program developed the first genetically
engineered corn and received the first product patents for corn, covering insect
resistance (Bt), herbicide tolerance and improved nutritional quality. During
his seed industry career, Tom has had direct management experience in the areas
of international subsidiaries, strategic alliances, breeding and biotechnology
R&D, intellectual property rights, strategic planning and technology transfer.
He will lead ABT's R&D and biotechnology efforts to optimize the Company's
planning and investments in this critical area and in exploring the
possibilities associated with licensing in and/or collaborating in the
development of biotechnology traits, products and processes. Tom received a
Ph.D. in genetics from Yale University in 1973, and was a Post-Doctoral fellow
of Brookhaven National Laboratory and a Research Associate at Michigan State
University before joining Pfizer.
Keith Sandberg, National Sales Director, was formerly Area Manager for the
Central and Southern Regions of Cargill Hybrid Seeds, a division of Cargill,
Inc., the largest privately owned company in the U.S. Keith was responsible for
the sales and commercial development activities to support Cargill's corn,
alfalfa and sorghum product lines. From 1987 to 1993, Keith was responsible for
Sales, Sales Administration and Technical Services, Central and Southern
Regions, for Cargill, based in Aurora, Illinois. Keith managed all sales and
agronomy activities for Cargill's seed products in the Central and Southern
regions, and had primary responsibilities for managing the integration of the
seed brands PAG, Paymaster and Cargill. From 1981 to 1987, Keith managed North
American Sales for the Paymaster Brand and had product line responsibility for
Cargill's corn business in Canada.
Bruce J. Ceranske, General Manager of W-L Research, was formally a District
Sales Manager for all or parts of Wisconsin, Minnesota, Michigan and Iowa, for
Cargill Hybrid Seeds based in Waupaca, Wisconsin since 1989. In addition, Bruce
was selected to Cargill Hybrid Seeds Corn Business Management Team and Forage
Management Team, which selected corn and alfalfa germplasm for production, and
commercialization. Currently, Bruce is managing W- L Research, based in
Evansville, Wisconsin. W-L Research is a world leading alfalfa research company
with varieties marketed globally.
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Keith Flynn, Forage Business Unit Director, holds a BS degree in Plant
Breeding & Genetics from the University of Reading, England. Keith was formerly
Vice President of Alfalfa, Wheat and International (1994 to 1997) for Agripro
Seeds, a wholly owned subsidiary of Helena Chemical Co. Keith directed three
profitable business units with research, production, sales and marketing as
direct reporting functions. From 1972 to 1994, Agripro Seeds and its
predecessors were owned by Shell Oil and The Royal Dutch Shell Group. Keith held
increasingly important positions in sales, marketing, product management and
general management. He has extensive knowledge of both national and
international seed business and brings 25 years of broad seed experience to ABT.
Doug Elkins, Western Regional Sales Manager joined Germain's Seeds in 1978
as a Washington State Sales Representative. He was promoted to Sales Manager in
1980, to Division Manager in 1987 and to Chief Executive Officer in 1992. Prior
to joining Germain's, Doug was employed at Ferry Morse Seed Company and Helena
Chemical. He has 24 year of experience in the seed business and served as
President of the Pacific Seed Association and currently serves as President of
the California Seed Association and holds a position on the California Seed
Advisory Board. As the Western Regional Sales Manager he has the primary
responsibility and oversight of sales and marketing for the western region of
ABT which includes Germain's Seeds and Hobart Seed Co.
Greg S. Fennell started in the seed business as a shipping coordinator in
1979, became active in seed sales in 1980 and in 1986 co-founded Olsen Fennell
Seeds, Inc. with James E. Olsen. They developed Olsen Fennell into an industry
leading turf and forage seed company with revenues in excess of $35 million.
Greg's primary responsibility at Olsen Fennell is income production where he
dedicates most of his time to distributor sales and the creation and
implementation of marketing plans for proprietary turf and forage grasses. He is
responsible for international sales, and concentrates much of his domestic
marketing efforts in the Midwestern and Southern states. Greg graduated from the
University of Oregon with a major in Business Management.
Greg McCarthy's career in the seed business began in 1976 as an agronomist
and field representative for E.F. Burlingham & Sons. Greg is experienced in
various aspects of seed management procurement and international sales. Greg and
Doug Pope purchased Burlingham in 1994 and have guided the company into becoming
an industry leading turf and grass seed research, production and distribution
company with net sales in excess of $36 million. Greg is responsible for
directing Burlingham's research and development department. He also is
responsible for the procurement and purchasing of seed, including the program
for production of proprietary seed varieties and maintaining relationships with
seed growers. Greg graduated from Oregon State University with a major in
Agronomic Crop Science.
James E. Olsen started in the seed business in 1983 as a sales trainee at
DM Combs, Co., and in 1986, co-founded Olsen Fennell Seeds, Inc. with Greg
Fennell. They developed Olsen Fennell into an industry leading turfgrass and
forage seed company with revenues in excess of
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$35 million. James is responsible for oversight of all production contracts,
grower relations and breeding work for Olsen Fennell Seeds. He also has
responsibilities for domestic sales on proprietary products for both turfgrass
and forage seeds. He graduated from Willamette University with a major in
Philosophy.
Michael Peterson, Ph.D., Director of Research, W-L Research, Inc., joined
W-L Research, Inc. in 1982. His responsibilities include the coordination of
all alfalfa breeding and product development activities at the four W-L alfalfa
research stations. He is also responsible for technical product support for the
W-L Research franchise and private label sales as well as coordination of all W-
L contract and joint venture projects. He attended the University of California
at Davis where he received a Bachelor of Science degree in Agronomy in 1978.
Mike also attended the University of Minnesota where he received his Masters of
Science and a Doctoral degree in Plant Breeding in 1982.
Doug Pope started in the seed business in 1983 when he joined E. F.
Burlingham & Sons. Prior to that he was an Account Executive for the Bell
Telephone System. Doug and Greg McCarthy purchased Burlingham in 1994 and led
it into becoming an industry leading turf and grass seed research, production
and distribution company with revenues in excess of $36 million. Doug is the
Chief Operating Officer of Burlingham and is responsible for domestic sales
which includes program and product development for Burlingham's customer base.
Doug oversee's the daily functioning of Burlingham including shipping and
warehousing. Doug graduated from Penn State University with a major in finance.
Functional Planning, Vertical Integration and Efficiencies. "Market share
----------------------------------------------------------
at the acquired companies has been maintained. In fact, sales and revenues
growth have been realized at certain, key combined operations. Improved
customer service and a superior product offering, among other things, accounts
for this and is indicative of what the Company intends to achieve and improve
upon with other acquired businesses.
Management believes that these planning, integration and optimization
efforts are typical of others to come as the Company grows and builds upon its
acquisition program success. Operationally, Management's plans are to increase
the profitability of both the Company and its customers by implementing the
[following strategies]."
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LETTER TO SHAREHOLDERS
The following section consists of a letter to the Company's shareholders
from the Company's Chief Executive Officer which appears in its entirety on the
Company's Web Site.
November 10, 1998
Dear AgriBioTech, Inc. Shareholder:
Last Thursday's analyst briefing by OPERATIONS management of ABT was
----------
historic as integration time lines, future cost savings, expected gross margin
improvements and accelerated product development plans were presented. This
landmark transition from a focus on growth through mergers and acquisitions
(phase 1 of ABT's development plans) to integration (phase 2) was possible for
three key reasons.
A) The revenue growth goal from zero to almost $500 million of annualized
revenues was achieved approximately two years ahead of schedule.
B) A first class value-added veteran, professional operations team, rich in
seed experience was recruited from industry leading companies such as Novartis,
DEKALB, Pioneer, Cargill, and Seminis.
C) The veteran operations management has successfully led teams, such as
strategy and culture teams, comprised of members from all levels of the forage
and turfgrass companies acquired by ABT through a protracted planning process
designed to develop plans to integrate 33-36 acquired companies into ABT in a
way that will enable ABT to become the forage and turf equivalent of Pioneer in
corn or Delta and Pine Land in cotton.
Shareholders should recognize that it does no good to build "Franchise
Value" through the acquisition of industry leading market share, industry
leading germplasm (genetic research), world class personnel and development of a
biotechnology program unless a first rate integration plan is implemented and
------
executed on a timely basis. The "team" process employed by ABT may initially
appear to be slow to shareholders, but the plan will achieve exceptional end
results rapidly and efficiently due to accelerated implementation achieved
through "buy in" by all employees.
Analysts, both buy and sell side, received the information quite favorably.
Positive points presented by management and subsequently emphasized by the
respective analysts included the following:
. An integration plan which will mold the 33-36 acquisitions into an
exceptional, customer oriented, world class seed company.
. A research and development program which is currently three times as large
as any competitor and which is projected to triple in size over the
next five years.
. An emerging biotechnology program was unveiled, which is more advanced
than previous perceptions of analysts.
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. Revelation of an integration timeline and resulting efficiencies which
will continue to improve profitability.
. Sizeable gross margin improvements are expected through product shifts
prior to biotechnology introduction.
. Acceptance that fiscal 1999 will be an integration year resulting in giant
steps forward, but at the cost of dual operating expenses and a non-
recurring charge of approximately $5 - $l5 million.
. Limited guidance was provided by ABT on Fiscal 1999 EPS estimates of
analysts. The first quarter will be profitable, but less than the
consensus estimate, $0.04 per share. The fiscal year will be
profitable from operations, but may be a loss after the non-recurring
charge, depending upon the size of the charge.
. A further realization that the forage and turfgrass seed markets are very
large, approximately twice the acres of any other seed sector.
. Increased confidence that ABT will attract significant interest from
potential strategic partners.
Shareholders may rightfully ask why did the common share price move
downward on Thursday and Friday, if the information and meeting were so
positive? The answer should be obvious. Critics of ABT (including short
sellers of over 6.8 million shares and their "touts") have seized the moment to
distort a number of issues. The following comments are offered on the distorted
issues raised by critics.
* Non-recurring cost: Virtually all companies which grow rapidly through
acquisitions have non-recurring costs. ABT's $5 - $l5 million expected
restructuring cost is much less than might be expected considering our
rapid and large growth through acquisitions. The non-recurring charge
will likely include some non-cash items and some accrued charges;
therefore the impact on cash flow will be minimal prior to completion of
the strategic investment process.
* Fiscal 1999 EPS: Strategic investors in ABT are not concerned with
Fiscal 1999 EPS. ABT's real value is in harnessing the "Franchise
Value" acquired into a world class seed company poised to efficiently
develop and introduce new value added products with dramatically
improved future profitability.
* Low gross margins: Critics do not appear to be aware of seed industry
gross margin history. All seed sectors once marketed commodity type
products with low gross margins as a result of fragmented ownership
and small investments in
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research, development and intellectual property protection. Shareholders
should look at soybean seeds as a recent example of rapid margin
changes. The soybean seed sector began to expand private research and
development in l970 due to the passage of the Plant Variety Protection
Act. Significant consolidation of the sector occurred in the late 1980's
through the early 1990's. In l994, the sector had been consolidated
significantly and annual soybean seed sales to farmers were
approximately $700 million with gross margins which were lower than
-----
forage and turfgrass seed margins. In only four short years, annual
soybean seed sales to farmers have increased to approximately $1.7
billion, a billion dollar increase in market size, with gross margins
dramatically improved to about 36% primarily as a result of one product
introduction. Continued gross margin improvement is anticipated as
additional proprietary products are released. ABT is poised to lead the
forage and turfgrass seed sector through a gross margin change
comparable to the past four years for soybeans. There is no reason why
similar improvement in gross margin and growth in the market size of the
forage and turfgrass seed sector will not steadily occur.
* Strategic investor interest: Critics want to convince shareholders that
strategic investors will not be interested in ABT or the forage and
turfgrass seed sector. Critics' apparent desperation is fueled by their
need to cover their reported 6.8 million short share position before the
------
bidding process results in a new share valuation likely to be in the
$25-$50 per share price expectation range of analysts who are current on
ABT fundamentals. ABT management believes that strategic investors will
recognize the importance of the forage and turfgrass sector as the
second largest seed market and recognize in ABT the factors that have
been "drivers" of value for other major seed companies.
* Financial strength: ABT's debt situation is as follows, contrary to
general representations made by critics.
- $100 million revolving line of credit: This is a three year
facility, currently drawn to about $95 million, including the $15
million overadvance which is permitted above borrowing base
calculations (the "BABC Bridge"). The $15 million portion of the
$100 million revolving line will be paid off prior to December 31,
1998 (the due date) or a new due date will be negotiated or a
combination of partial pay down and negotiation of a new due date
for the balance will occur.
- $15 million Deutsche Bank Bridge: This bridge is due December 31,
1998; however, agreement in principle has been reached to extend the
due date to March 31, 1999 or the date the strategic investment is
completed, whichever occurs first.
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- $19.8 million other debt: ABT has $12.5 million in long term debt
with financial institutions that have 1 to 10 year maturities and
approximately $7.3 million in other long term obligations such as
covenants not to compete and other amounts due to former owners of
acquired businesses.
- Financing alternatives: The Company has a number of alternatives,
including renegotiation of debt terms, exercise of a portion of the
outstanding options and warrants (the aggregate exercise price of
which is approximately $100 million), term debt using part or all of
the $60 million of unencumbered property, plant and equipment as
collateral, limited private placement of equity or debt.
In summary, ABT has entered into the important integration process led by
an experienced and exceptional professional team of managers. The process of
strategic investment of 20% or more of the Company's stock or a total buyout
process is expected to result in an ABT valuation well above current share
prices. The process is expected to take approximately three months measured
from October 8, 1998 to determine the identity, type and terms of the
investment. Thanksgiving and Christmas holidays may impact the schedule by two
- - three weeks, but the process is proceeding well.
Shareholders should carefully consider the source and motive behind all
information disseminated about ABT. Carefully evaluate information presented by
ABT management, informed analysts with seed industry experience, as well as the
critics and then compare the information against the recent history of other
seed company valuations.
ABT does not plan to hold a press conference when first quarter results are
formally released. Management believes the press release disclosing the
quarterly numbers, coupled with recent guidance given by the Company and
information released on November 5 by ABT provide investors with adequate
information.
I wish each of you well over the next couple of months as you develop your
investment strategy as appropriate. As always, thanks for your past and
continued support.
Sincerely yours,
Johnny R. Thomas
Chairman/CEO
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RISK FACTORS
Before you invest in our Common Stock, you should be aware that there are
various risks, including those described below, that may affect our business,
financial condition and results of operations. We caution you, however, that
this list of risk factors may not be exhaustive, particularly with respect to
future filings.
You should also be aware that this Prospectus Supplement contains forward-
looking statements. Forward looking statements discuss future expectations,
contain projections of results of operations or financial condition, and general
business prospects. Words such as "expects," "may," "will," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," and similar expressions
identify forward-looking statements. The forward-looking statements in this
Prospectus Supplement reflect the good faith judgment of the Company's
management. However, forward-looking statements can only be based on facts and
factors currently known. Consequently, actual results and outcomes may differ
materially from the results and outcomes discussed in the forward-looking
statements. You should carefully consider the risk factors described below
together with all of the other information included or incorporated by reference
in this Prospectus Supplement before you decide to purchase shares of our Common
Stock.
Recent Rapid Growth; Ability to Manage Growth. We have acquired all or
---------------------------------------------
part of 33 businesses in the forage and turfgrass seed sector since January 1,
1995 and currently intend to further expand current levels of operations. As a
result of these acquisitions, we have experienced significant revenue growth and
expanded the number of our employees and the geographic scope of our operations.
These factors have resulted in increased responsibilities for management
personnel. This rapid growth has placed and may continue to place significant
demands on our management, technical, financial and other resources. In
addition, successful expansion of our operations will depend on, among other
things, our ability to attract, hire and retain skilled management and other
personnel, secure adequate sources of seed on commercially reasonable terms and
successfully manage growth. To manage growth effectively, we will need to
improve operational, financial and management information systems, procedures
and controls. We may not be able to manage future growth effectively, and
failure to do so could have a material adverse effect on our business, financial
condition and/or operating results. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in the Form 10-K ("MD&A"), and
"Description of Business - Acquisition Program" in the Form 10-K.
Integration of Acquisitions. Our future success depends upon our ability
---------------------------
to combine the operations of the businesses we have acquired and businesses we
may acquire in the future into a vertically integrated company. This process is
made more difficult by the fact that our subsidiaries are geographically
disparate and represent the full spectrum of the forage and turfgrass seed
production, processing, sales and distribution process, rather than just one
component of this process. You should therefore evaluate our prospects in light
of the problems, expenses, delays and complications associated with operating,
managing and integrating a large
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<PAGE>
group of diverse businesses. We may not be able to effectively integrate all of
the businesses we have acquired or that we acquire in the future. If we cannot
successfully integrate these businesses, our business, financial condition
and/or operating results may be materially adversely affected. See "MD&A" and
"Description of Business - Acquisition Program" in the Form 10-K.
No Assurance of Future Acquisitions. We have experienced significant
-----------------------------------
growth in net sales, from approximately $26 million in the fiscal year ended
June 30, 1996 ("Fiscal 1996") to $66 million in the fiscal year ended June 30,
1997 ("Fiscal 1997"), $205 million in the fiscal year ended June 30, 1998
("Fiscal 1998") and pro forma net sales of approximately $429 million for Fiscal
1998. This growth was primarily a result of the businesses that we have
acquired. Our future growth depends upon our ability to continue to make
acquisitions, and to increase sales from existing operations. We may not be
successful in doing either.
While we have been able to acquire 33 businesses since January 1995, we may
not make as many acquisitions in the future. We are unable to predict whether
and when any prospective business will become available or the likelihood that
any acquisition will be completed. We also may, in certain circumstances,
compete for businesses with entities that have substantially greater resources
than we do.
Potential Liabilities Associated with Acquisitions. The businesses that we
--------------------------------------------------
have acquired may have existing liabilities that we did not discover or may have
been unable to discover during our pre-acquisition investigation. These
liabilities may arise from environmental contamination or non-compliance by
prior owners with environmental laws or regulatory requirements. In addition,
environmental laws or regulatory requirements may change in the future with
retroactive effect. If that were to happen, we could have liabilities that
result from the conduct of prior owners of the property. Any indemnities or
warranties that we receive from prior owners may not fully cover such
liabilities due to their limited scope, amount or duration, the financial
limitations of the indemnitor or warrantor, or for other reasons. If we are
held responsible for liabilities from acquired businesses, our operations may be
materially adversely affected.
Development of New Products. We are developing new, genetically superior
---------------------------
forage and turfgrass varieties. We believe that the development and marketing
of these elite varieties will play a key role in our success. There can be no
assurance that we will successfully develop genetically superior strains either
through our own efforts or with industry partners. If we are not able to
develop and successfully market new product lines, our business, financial
condition and results of operations may be materially adversely affected. See
"Description of Business--Research and Development" in the Form 10-K.
Market Acceptance. Even if we are successful in developing genetically
-----------------
superior forage and turfgrass varieties, there can be no assurance that there
will be a market for such products. Even if a market for these products
develops, there can be no assurance that we will recoup the
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costs associated with developing and marketing them. If we cannot effectively
market new products we develop at prices sufficient to cover costs and generate
adequate return on capital, our business, financial condition and results of
operations may be materially adversely affected.
Reliance on Patents and Proprietary Rights. We own the proprietary rights
------------------------------------------
to a number of forage and turfgrass species that are protected under the Plant
Variety Protection Act ("PVPA") and are seeking to acquire and/or develop other
PVPA protected varieties. The PVPA prohibits others from selling seed of
proprietary varieties for 20 years. However, these proprietary rights may be
challenged, invalidated or circumvented. In addition, others could claim that
products that we develop violate their proprietary rights. We may incur
substantial costs in asserting our proprietary rights against others, and/or
defending any infringement suits brought against us by others. The proprietary
rights we own may not provide us with a competitive advantage. It is also
possible that our competitors possess protected varieties that perform better
than ours. See "Description of Business--Proprietary Rights" in the Form 10-K.
Access to Biotechnology. Breakthroughs in biotechnology have led to the
-----------------------
introduction of new, improved and specialized seeds in the corn, soybean and
cotton seed sectors. By introducing specialized seeds developed through
biotechnology, companies in these seed sectors have improved margins and
increased profitability. We believe that similar biotechnology breakthroughs
will also lead to the introduction of enhanced seeds in the forage and turfgrass
seed sector. This in turn will allow improved margins and greater profitability
for forage and turfgrass seed companies. Our objective is to become the
licensee or partner of choice in our seed sector for owners of value-added
genetic traits developed through biotechnology. If we cannot license value-
added genetic traits, or if we cannot develop and market commercially viable
products from such licenses at prices sufficient to cover costs and generate
adequate return on capital, our business, financial condition and results of
operations may be materially adversely affected. See "Description of Business--
Proprietary Rights" in the Form 10-K.
Competition. The seed industry and the field of agricultural technology
-----------
are both highly competitive. The major agricultural seed companies in the
United States focus their sales around hybrid seed corn (Pioneer Hi-Bred
International, DEKALB Genetics Corporation, Novartis AG and Mycogen
Corporation), cotton seed (Delta and Pine Land Company) and other grain crops.
Each of these competitors has national brand name acceptance. In the past,
these companies have treated forage and turfgrass seeds as ancillary crops.
This is the opposite of our business strategy, which is to treat forage and
turfgrass seed as our primary product. Therefore, our major competitors in the
forage and turfgrass seed sector currently are large regional companies and
numerous small family seed businesses. However, any of the major agricultural
seed companies may decide to intensify their efforts in the forage and turfgrass
seed sector.
Our largest United States competitors in the alfalfa seed industry are
Cenex/Land O'Lakes/Research Seed, Helena/AgriPro, Pioneer and Cal/West Seeds,
each of which we estimate has annual alfalfa seed sales of between $20 and $60
million. Our largest competitors for forages other than alfalfa are FFR
Research and its farm cooperative members. We also
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compete with small family owned businesses that are strong competitors in small
geographic areas. In the cool-season turfgrass seed industry we compete with a
number of companies that have annual sales of between $20 and $80 million. Most
of these companies are regional companies with only Pennington Seed and O.M.
Scott having national brand name acceptance.
Although many of our competitors are small family owned businesses and
regional companies, any of the major agricultural seed companies may decide to
intensify their efforts in the forage and turfgrass seed sector. Accordingly we
compete with, and expect to continue to compete with, companies with
substantially greater financial, marketing, personnel and research and
development resources. We may not be able to compete successfully against such
companies. These competitive factors could have a material adverse effect on
the Company's business, results of operation and/or financial condition. See
"Description of Business--Competition" in the Form 10-K.
Lack of Historical Profitability; Accumulated Deficit. Over the life of
------------------------------------------------------
the Company, we have not shown consistent profitability. We have reported only
three profitable quarters since becoming a publicly owned company in September
1993 and Fiscal 1998 was our first profitable year. We had an accumulated
deficit of $12,037,840 through June 30, 1998.
Substantial Indebtedness; Effects of Financial Leverage. We have
-------------------------------------------------------
indebtedness that is substantial in relation to our stockholders' equity, and
interest and debt service requirements that are significant compared to our cash
flow from operations. As of June 30, 1998, we had approximately $65 million of
short-term debt and long-term obligations outstanding. We also have a revolving
credit facility (the "Revolving Credit Facility") under which we may incur up to
$100 million of indebtedness (subject to a borrowing base computation and
compliance with certain financial covenants). As of November 12, 1998, we have
borrowed approximately $93.7 million under the Revolving Credit Facility and
$6.3 million was available to be borrowed.
The degree to which we are leveraged could have important consequences to
you. For example: (i) our level of indebtedness could make it more difficult to
satisfy our debt repayment obligations; (ii) our level of indebtedness could
increase our vulnerability to general adverse economic and industry conditions;
(iii) a substantial portion of our cash flow from operations must be dedicated
to debt service and is, therefore, not available for operations and other
purposes; (iv) our ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions, research and development,
or general corporate purposes may be impaired; (v) our leverage position and
covenants contained in the Revolving Credit Facility could limit our ability to
expand, compete and make capital improvements; and (vi) our borrowings under
the Revolving Credit Facility are and will continue to be at variable rates of
interest, which exposes us to the risk of increased interest rates.
Our ability to pay interest on the Revolving Credit Facility and to satisfy
our other obligations depends upon our future financial and operating
performance. Our financial and operating performance may be affected by
prevailing economic conditions and financial,
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business, competitive, regulatory and other factors that are beyond our control.
Our cash flow from operations has not been sufficient to meet our debt service
obligations without additional equity and debt financings. We may not have
sufficient funds in the future to meet our obligations under the Revolving
Credit Facility and any other indebtedness that we may incur. This is
particularly true as we continue to expand operations. If we are unable to
service our indebtedness, we will be forced to adopt an alternative strategy
that may include reducing or delaying capital expenditures, scaling back
expansion efforts, selling assets, restructuring or refinancing indebtedness or
seeking additional equity capital. We may not be able to implement any of these
strategies on terms acceptable to us. See "MD&A."
Restrictions Imposed by Terms of Certain Indebtedness. The Revolving
-----------------------------------------------------
Credit Facility contains certain restrictive covenants that limit us in many
ways. These restrictive covenants may significantly limit or prohibit us from
incurring indebtedness, making prepayments of certain indebtedness, paying
dividends, making investments, engaging in certain transactions with affiliates,
creating liens, selling assets and engaging in mergers and corporate
consolidations. The Revolving Credit Facility also requires us to maintain
specified financial ratios and to satisfy certain financial condition tests.
Our ability to comply with these restrictions and to meet those financial
ratios and financial condition tests can be affected by events and factors
beyond our control (e.g., the general economy and the weather). A breach of any
of these covenants could constitute an event of default under the Revolving
Credit Facility.
Our obligations under the Revolving Credit Facility are secured by
substantially all of our assets, except fixed assets and real estate. If there
were an event of default under the Revolving Credit Facility, the lenders could
declare the total amount outstanding, together with accrued interest,
immediately due and payable. If this were to happen we might not be able to
repay the amount owed plus our other debt obligations. If we were unable to
repay those amounts, the lenders under the Revolving Credit Facility could
proceed to foreclose their security interest in the collateral securing the
indebtedness. See "MD&A."
Need for Additional Capital. Our capital requirements have been and are
---------------------------
expected to remain significant. Our capital requirements depend on many factors.
These factors include the timing and cost of future acquisitions, the time and
cost involved in integrating completed acquisitions, and our success at
expanding existing operations. We will need additional capital to fund
acquisitions and to repay $30 million principal amount of interim bridge
financings due at the end of 1998. After the bridge financings are repaid we
believe that we will have funds available under the Revolving Credit Facility to
fund operations through June 30, 1999 for acquisitions completed through
September 30, 1998. However, we may need to seek an increase in or an
alternative to the Revolving Credit facility to finance increased operating
needs resulting from unexpected changes in seasonality or weather patterns, or
if acquisitions are completed more rapidly than anticipated. If we are unable to
obtain additional capital, we will be unable to fund additional acquisitions and
expand our operations. In that case, we may have to delay or abandon certain
development and expansion plans. See "MD&A."
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<PAGE>
Dependence on Key Personnel. Our success depends in large part on the
---------------------------
efforts, abilities and expertise of Dr. Johnny R. Thomas, Chief Executive
Officer, and the four other executive officers. The loss of any of these key
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations. We have obtained a key-man life
insurance policy in the amount of $3 million on the life of Dr. Thomas. Our
prospects also depend upon our ability to attract and retain qualified
marketing, financial, management information system, and other technical
personnel. Competition for qualified personnel is intense and there can be no
assurance that we will be successful in attracting or retaining such personnel.
See "Management" in the Form 10-K.
Cyclical Nature of Agricultural Products. Most agricultural products,
----------------------------------------
including forage and turfgrass seed, are commodities that are subject to wide
fluctuations in price based on supply and demand. Demand for seed by farmers is
determined by the general farm economy. In addition, a variety of nature's
adversities affect the production of seed. For example, drought, wind, hail,
disease, insects, early frost and numerous other forces could adversely affect
the growing of seed in any growing season. This, in turn, could result in large
fluctuations in our results of operations between quarters. See "MD&A--
Seasonality of Business and Quarterly Comparisons" in the Form 10-K.
Seasonality of Quarterly Results. Our sales are subject to wide seasonal
--------------------------------
fluctuations that reflect the typical purchasing and growing patterns for forage
and turfgrass crops. Also, because the purchasing and growing patterns are
different for forage and turfgrass seeds, our sales are affected by the
breakdown of our product mix. In addition, weather affects commodity prices,
seed yields and planting decisions by farmers. Results of operations from
quarter to quarter do not necessarily reflect the results that may be expected
for any other interim period. Quarterly results also do not indicate the
results that may be expected for the entire year. See "MD&A--Seasonality of
Business and Quarterly Comparisons" in the Form 10-K.
Government Regulation. Our operations are directly and indirectly subject
----------------------
to various Federal and state environmental controls and regulations. We believe
that we are in substantial compliance with existing environmental regulations.
However, these regulations may be changed with retroactive effect and new laws
or regulations may be promulgated at any time. If existing environmental
regulations are changed, or additional laws or regulations are promulgated, the
cost of complying with those laws may be substantial.
The United States Department of Agriculture, the Food and Drug
Administration, the Environmental Protection Agency (the "EPA"), and various
state agencies regulate the development of seed of genetically altered plants.
The regulatory agencies that administer existing or future regulations or
legislation may not allow us to produce and market genetically engineered seed.
Even if we are legally permitted to produce and market genetically engineered
seed, existing or future regulations and legislation may prevent us from doing
so in a timely manner or under technically or commercially feasible conditions.
See "Description of Business-Government Regulation" in the Form 10-K.
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Adverse Effect of Potential Future Sales of Common Stock. As of November
--------------------------------------------------------
6, 1998, we had 39,433,368 shares of Common Stock issued and outstanding. Of
these shares, approximately 6,934,000 shares are "restricted securities" as that
term is defined in Rule 144 under the Securities Act. All but approximately
1,000,000 of these restricted shares have been registered for resale under the
Securities Act. We also have approximately 8.9 million shares of Common Stock
available for issuance without restriction upon exercise of outstanding options.
We cannot predict what effect sales of these shares may have on the existing
market price of our Common Stock. It is possible that the sale of these shares,
or even the potential for such sales, may have a depressive effect on the price
of our Common Stock in the public trading market. Any such depressive effect
could impair the Company's ability to raise additional equity capital.
Any of the Warrantholders or any person who is an affiliate of the
Warrantholders who publicly offers or sells our securities may be deemed to be
an underwriter pursuant to Section 2(11) of the Securities Act. Accordingly, the
Warrantholders must satisfy the Prospectus delivery and other requirements of
the Securities Act prior to making any sales of the Shares, unless such sales
are made in accordance with the provisions of Rule 144. Under rule 144, if we
are in compliance with certain public information requirements, holders of
restricted securities that have held those securities for at least one year may
sell limited amounts of those securities. Rule 144 also permits non-affiliates
to sell restricted securities free of any volume limitations if those securities
have been held for at least two years.
Public Market Risks; Possible Volatility of Securities Prices. The market
-------------------------------------------------------------
price for our securities has been and may continue to be volatile. Factors such
as our financial results, financing efforts, changes in earnings estimates by
analysts, conditions in our business and various factors affecting the
agriculture industry generally may have a significant impact on the market price
of our securities. Additionally, in the last several years, the stock market
has experienced a high level of price and volume volatility. During this period
the market prices for many companies, particularly small and emerging growth
companies like ours, have experienced wide price fluctuations and volatility
that have not necessarily been related to the operating performance of those
companies. Our operating results are also tracked by professional analysts. If,
in some future quarter, our operating results are below the expectations of
these analysts, the price of our securities may be materially adversely
affected. These factors and general economic and market trends may adversely
affect the price of our securities. See "Market for Common Equity and Related
Stockholder Matters" in the Form 10-K.
Immediate Substantial Dilution. Net tangible book value per share is equal
------------------------------
to the total tangible assets of a company less total liabilities divided by the
number of shares of common stock outstanding. Because our present stockholders
acquired their shares of Common Stock at costs substantially less than the price
that you will pay in this offering, if you purchase Common Stock in this
offering, you will incur an immediate and substantial dilution in pro forma net
tangible book value per share. This means that the net tangible book value per
share of our Common Stock is less than the price you paid.
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Management Information Systems and the Year 2000 Risks. Because of the
------------------------------------------------------
large number of businesses we have acquired, we have several different data
processing systems in use. These systems are substantially the same systems
that were in use by the acquired companies prior to their acquisition by ABT.
Our preliminary assessment of these systems is that they generally are not Year
2000 compliant. Local area networks (LANs), desktop hardware, and desktop
operating systems in some cases also are not compliant. Although we have
determined that some of the non-compliant systems can be updated to be
compliant, a number of them can not be updated because of software and hardware
limitations.
To address this issue and integrate all our information systems into one
company-wide system, we have contracted for software, hardware and consulting
services to implement an enterprise resource planning ("ERP") system. The ERP
system and related network and hardware systems are Year 2000 compliant. All
non-compliant desktop and LAN systems will be converted either through normal
attrition or through the ERP system implementation. We expect the cost of this
implementation to be approximately $6 million, including internal costs for
personnel, training, supplies, travel and equipment. We believe that we have
allocated adequate resources to ensure that all our information systems are Year
2000 compliant. We expect to complete the ERP system implementation prior to
January 1, 2000.
The ability of third parties with whom we do business to adequately address
their Year 2000 issues is outside of our control. We are taking steps to
confirm that the systems of our suppliers and customers are Year 2000 compliant
and to determine whether any noncompliance would have a material adverse effect
on us. If we cannot complete the ERP system implementation before January 1,
2000, or if a significant portion of our suppliers or customers fail to
adequately address their Year 2000 issues, our business, financial condition,
cash flows and operations may be materially adversely affected. See "MD&A."
USE OF PROCEEDS
The Company will receive gross proceeds of up to $10,636,920 from the sale
of 886,410 shares to the Warrantholders. We intend to use the net proceeds from
this offering to reduce the balance due under the Company's short-term
indebtedness and then draw down upon its revolving line of credit when it
requires funds for working capital purposes.
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PRICE RANGE OF COMMON STOCK
The Company's Common Stock has traded on the Nasdaq National Market since
February 14, 1997, under the symbol "ABTX."
The following table sets forth the high and low closing prices for the
Common Stock for each quarter in Fiscal 1997 and Fiscal 1998, on the Nasdaq
SmallCap Market until February 13, 1997 and on the Nasdaq National Market
thereafter.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL 1997
July 1, 1996-September 30, 1996........ $ 4 1/16 $ 2 5/32
October 1, 1996-December 31, 1996...... $ 2 3/16 $ 2 1/32
January 1, 1997-March 31, 1997......... $ 3 3/8 $ 2 1/16
April 1, 1997-June 30, 1997............ $ 6 15/16 $ 2 15/32
FISCAL 1998
July 1, 1997-September 30, 1997........ $10 1/2 $ 6 1/32
October 1, 1997-December 31, 1997...... $17 1/16 $ 9
January 1, 1998-March 31, 1998......... $19 3/32 $13 7/16
April 1, 1998-June 30, 1998............ $29 $13 3/4
FISCAL 1999
July 1, 1998-September 30, 1998........ $25 3/4 $ 8 1/8
October 1, 1997-November 12, 1998...... $17 3/16 $ 8 15/16
</TABLE>
As of November 11, 1998, the Company had 475 record holders of its Common
Stock and reasonably believes that there are in excess of 4,000 beneficial
holders of its Common Stock.
DIVIDEND POLICY
The Company has never declared or paid any dividends on its Common Stock.
The Company and its Board of Directors currently intend to retain any earnings
for use in the operation and expansion of the Company's business and do not
anticipate paying any dividends on the Common stock for the foreseeable future.
The Company's Revolving Credit Facility prohibits the payment of cash dividends
without the lenders' approval.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED
The authorized capital stock of the Company consists of 75,000,000
shares of Common Stock, $.001 par value, and 10,000,000 shares of preferred
stock, $.001 par value ("Preferred Stock").
COMMON STOCK
The Company is authorized to issue 75,000,000 shares of Common Stock,
$.001 par value per share, of which 39,433,368 shares were issued and
outstanding as of November 6, 1998. All of the outstanding shares of Common
Stock and those issuable upon completion of this offering, are and will be, duly
authorized, validly issued, fully paid and non-assessable. Holders of shares of
Common Stock are entitled to one vote for each share held of record on all
matters to be voted on by shareholders. There are no preemptive, subscription,
conversion or redemption rights pertaining to the Common Stock. Holders of
shares of Common Stock are entitled to receive such dividends as may be declared
on Common Stock by the Board of Directors out of funds legally available
therefor and to share ratably in the assets of the Company available upon
liquidation subject to rights of creditors and any shares of Preferred Stock.
The holders of shares of Common Stock do not have the right to cumulate their
votes in the election of directors and, accordingly the holders of more than 50%
of all the Common Stock outstanding are able to elect all directors. The current
officers and directors beneficially held 5,222,975 (13.2%) of the shares
outstanding and 7,657,975 shares or (18.3%), after giving full effect to the
exercise of their respective options exercisable within 60 days of November 6,
1998.
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred
Stock, $.001 par value per share. As of the date hereof, the Company had no
shares of Preferred Stock issued and outstanding.
The Preferred Stock may be divided by the Company's Board of Directors
from time to time into one or more series. The Board of Directors is authorized
to determine the rights, preferences, privileges and restrictions, including the
dividend rights, conversion rights, voting rights, terms of redemption
(including sinking fund provisions, if any) and liquidation preferences, of any
series of Preferred Stock and to fix the number of shares of any such series
without any further vote or action by stockholders. The Company has no present
plans,
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<PAGE>
proposals, commitments or arrangements to issue any additional shares of
Preferred Stock. The Company's Certificate of Incorporation authorizes the
issuance of Preferred Stock with such designations, rights, and preferences as
may be determined from time to time by the Board of Directors. Accordingly, the
Board of Directors is empowered, without stockholder approval, to issue
Preferred Stock with dividend, liquidation, conversion, voting or other rights
that could adversely affect the voting power or other rights of the holders of
the Common Stock. Although the Preferred Stock may be used for any lawful
purpose, the Company has agreed not to use it as an anti-takeover device that
could be utilized as a method of discouraging, delaying or preventing a change
in control of the Company without the approval of the Company's stockholders.
WARRANTS
On May 4, 1998 and May 13, 1998, respectively, the Company issued
241,600 and 344,900 redeemable warrants (the "Redeemable Warrants") to purchase
shares of its Common Stock. The Redeemable Warrants were issued to certain
qualified institutional buyers and investors in private placements of units.
Each unit was sold for $29.00 and consisted of two shares of Common Stock and
one Warrant. The Redeemable Warrants are exercisable at a price of $17.50 per
share for three years commencing on their respective dates of issuance. The
Redeemable Warrants are subject to redemption at $.01 per Redeemable Warrant on
five prior business days' notice if the closing sale price of the Company's
Common Stock exceeds $25.00 per share for 15 consecutive trading days and the
Company notifies the holder it intends to force a mandatory conversion of the
Redeemable Warrants and the Holder fails to exercise the Redeemable Warrant. The
shares of Common Stock issuable upon exercise of the Redeemable Warrants have
been registered with the Commission on a separate registration statement.
On August 28, 1998, the Company issued 886,410 Warrants to purchase its
Common Stock to certain qualified institutional buyers and investors in private
placements. The Warrants were sold for $2.00 per Warrant and are exercisable at
$12.00 per share for three years commencing on their date of issuance. The
Warrants are subject to mandatory conversion on five prior business days' notice
if the closing sale price of the Company's Common Stock exceeds $19.50 per share
for 20 trading days out of any 30 consecutive trading day period ending within
15 days of the Company's mailing of notice of the conversion. The Company has
the right to reduce the exercise price and/or extend the exercise period at its
discretion, and/or make other inducements to Warrantholders to encourage early
exercise of Warrants. The holders of Warrants who agree to tender their Warrants
and $12.00 per share to the Company will receive in exchange an equal number of
shares of Common Stock. The shares of Common Stock issuable in exchange for the
Warrants have been registered as part of this Registration statement and shall
be issued pursuant to this Prospectus Supplement.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Company's Common Stock is
Corporate Stock Transfer, Inc., Denver, Colorado.
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<PAGE>
PLAN OF DISTRIBUTION
All of the Shares being offered by this Prospectus Supplement are being
sold by the Company to the Warrantholders who purchased the Warrants from the
Company on August 28, 1998 in transactions exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act").
The Warrantholders will tender their Warrants and the $12 per share exercise
price in exchange for the Shares. The Shares have been registered pursuant to
the Company's Registration Statement on Form S-3 (No. 333-61127) of which the
Prospectus Supplement forms a part. Accordingly, the Shares that will be issued
hereunder are freely tradeable and may be resold by the Warrantholders without
restriction.
The Warrantholders and/or their assignees, transferees,
intermediaries, donees, pledgees or other successors in interest through whom
the Warrantholders Shares are sold may be deemed "underwriters" within the
meaning of Section 2(11) of the Securities Act, with respect to the Shares
offered and any profits realized or commissions received may be deemed to be
underwriting compensation. Any broker-dealers that participate in the
distribution of the Shares also may be deemed to be "underwriters," as defined
in the Securities Act, and any commissions, discounts, concessions or other
payments made to them, or any profits realized by them upon the resale of the
Shares purchased by them as principals, may be deemed to be underwriting
commissions or discounts under the Securities Act.
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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
issuer pursuant to the foregoing provisions or otherwise, the Company has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon by Snow Becker Krauss P.C., 605 Third Avenue, New York, New York
10158. Snow Becker Krauss P.C. owns 43,823 shares of the Company's Common Stock
and individual members of the firm own additional shares of Common Stock.
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