As filed with the Securities and Exchange Commission on _________, 1997
Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
EMBREX, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-1469825
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1035 SWABIA COURT
DURHAM, NORTH CAROLINA 27703
(919) 941-5185
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
RANDALL L. MARCUSON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EMBREX, INC.
1035 SWABIA COURT
DURHAM, NORTH CAROLINA 27703
(919) 941-5185
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------
COPY TO:
GERALD F. ROACH, ESQ.
SMITH, ANDERSON, BLOUNT,
DORSETT, MITCHELL & JERNIGAN, L.L.P.
2500 FIRST UNION CAPITOL CENTER
RALEIGH, NORTH CAROLINA 27601
(919) 821-1220
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 box. |_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
- ------------------------------------------ -------------- ---------------- ----------------- -------------------
<S> <C> <C> <C>
Common Stock, par value $.01 per share (1).......34,320 SHARES $6.6875(2) $229,515.00 $69.55
Common Stock, par value $.01 per share (3).......31,578 SHARES(4) $ 9.01(5) $284,517.78 $86.22
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Covers shares of Common Stock owned by certain selling stockholders which
may be offered from time to time by the selling stockholders after the
effective date of this Registration Statement.
(2) Based upon the average of the reported high and low prices of the Common
Stock as reported by the Nasdaq Stock Market on July 17, 1997, estimated
solely for the purpose of calculating the registration fee in accordance
with Rule 457(c) under the Securities Act of 1933, as amended.
(3) Covers shares of Common Stock reserved for issuance upon exercise of the
Aberlyn Warrants (as defined below).
(4) Plus such indeterminate number of shares as may be issued pursuant to
certain anti-dilution provisions as contained in the Aberlyn Warrants as
permitted by Rule 416 under the Securities Act of 1933, as amended.
(5) Based upon the exercise price for each share of Common Stock issuable upon
exercise of the Aberlyn Warrants in accordance with Rule 457(g) under the
Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
==============================================================================
<PAGE>
EXPLANATORY NOTE
This Registration Statement (the "Registration Statement") contains two
prospectuses: one relating to the offering by certain stockholders of Embrex,
Inc. (the "Company") of 34,320 shares of the common stock, par value $.01 per
share ("Common Stock"), of the Company currently outstanding (the "Stockholder
Offering Prospectus") and one relating to the offering by the Company of 31,578
shares (subject to adjustment) of Common Stock that are reserved by the
Company for issuance upon the exercise of certain outstanding warrants to
purchase Common Stock (the "Company Offering Prospectus"). The Stockholder
Offering Prospectus is set forth in full beginning on the next page. The Company
Offering Prospectus is set forth in full immediately after the Stockholder
Offering Prospectus and before Part II of the Registration Statement.
<PAGE>
EMBREX, INC.
34,320 SHARES
COMMON STOCK, PAR VALUE $.01 PER SHARE
---------------------
The shares offered hereby (the "Shares") consist of 34,320 shares of common
stock, par value $.01 per share (the "Common Stock"), of Embrex, Inc., a North
Carolina corporation ("Embrex" or the "Company"), which are owned by the selling
stockholders listed herein under "Selling Stockholders" (collectively, the
"Selling Stockholders"). The Shares were acquired from Embrex by the Selling
Stockholders in exchange for the transfer to Embrex of substantially all of the
assets of Agrimatic Corporation ("Agrimatic") in accordance with an Agreement
and Plan of Reorganization, dated May 27, 1997 (the "Agrimatic Agreement")
between Embrex, Agrimatic and certain of the shareholders of Agrimatic. See
"Selling Stockholders."
The Shares may be offered from time to time by the Selling Stockholders
after the date of this Prospectus. The Company shall pay all expenses in
connection herewith, except that each Selling Stockholder shall pay any
commissions, discounts, or other fees payable to broker-dealers in connection
with any sale of the Shares, as well as legal and accounting fees and expenses
incurred by the Selling Stockholders. None of the Shares have been registered
prior to the filing of the Registration Statement of which this Prospectus is a
part. The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholders.
The Selling Stockholders have not advised Embrex of any specific plans for
the distribution of the Shares covered by this Prospectus other than as
described herein, but it is anticipated that the Shares will be sold from time
to time primarily in transactions (which may include block transactions) on the
Nasdaq National Market of the Nasdaq Stock Market (the "Nasdaq National Market")
at the market price then prevailing, although sales may also be made in
negotiated transactions or otherwise. The Selling Stockholders and the brokers
and dealers through whom sales of the Shares may be made may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and their commissions or discounts and other compensation may
be regarded as underwriters' compensation. See "Plan of Distribution."
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE SHARES.
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "EMBX." On July 21, 1997, the last reported sale price of the
Common Stock was $6.8125 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
THE DATE OF THIS PROSPECTUS IS _________, 1997
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Securities and Exchange
Commission (the "Commission") (File No. 340-19495) pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), are incorporated herein
by reference:
1. the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, as amended by Form 10-K/A;
2. the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1997;
3. the Company's Current Report on Form 8-K dated January 28, 1997;
4. the description of the Company's Common Stock contained in its
Registration Statement on Form 8-A as filed with the Commission
on August 27, 1991;
5. all other documents filed with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of
this Prospectus and prior to the termination of the offering of
the Shares.
Any statement contained in any document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed to constitute a part of
this Prospectus except as so modified or superseded.
Embrex hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus is delivered,
upon written or oral request of such person, a copy of any and all documents and
information that have been incorporated by reference herein (not including
exhibits thereto unless such exhibits are specifically incorporated by reference
into the information incorporated herein). Such documents and information are
available upon request from the Company, 1035 Swabia Court, Durham, North
Carolina 27703, Attention: Investor Relations; Telephone: (919) 941-5185.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information filed by the Company may be inspected and copied at the Public
Reference Facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
regional offices located at 7 World Trade Center, New York, New York 10048 and
Citicorp Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois
60661-2511; copies of such materials may be obtained at prescribed rates from
the Public Reference Branch of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. Copies of such materials also may be
obtained from the web site that the Commission maintains at http://www.sec.gov.
Quotations relating to the Company's Common Stock appear on the Nasdaq National
Market and such reports, proxy statements and other information concerning the
Company also can be inspected at the offices of the Nasdaq Stock Market, 1735 K
Street, N.W., Washington, D.C. 20006-1506.
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The Company has filed with the Commission a Registration Statement on
Form S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the shares of
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which have been omitted as permitted by
the rules and regulations of the Commission. For further information, reference
hereby is made to the Registration Statement.
THE COMPANY
Embrex was incorporated in North Carolina in May 1985 and has developed
and commercialized the INOVOJECT(R) system, a proprietary, automated, in-the-egg
(or "IN OVO") injection system that eliminates the need for manual vaccination
of newly hatched broiler chicks. Embrex also is developing and marketing
patented pharmaceutical and biological products to improve bird health, reduce
bird production costs and provide other economic benefits to the poultry
industry. The Company's principal executive offices are located at 1035 Swabia
Court, Durham, North Carolina 27703, and its telephone number is (919) 941-5185.
RISK FACTORS
INFORMATION SET FORTH OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT, WHICH REPRESENT THE
COMPANY'S REASONABLE JUDGMENT CONCERNING THE FUTURE AND ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT COULD CAUSE THE COMPANY'S ACTUAL OPERATING RESULTS AND
FINANCIAL POSITION TO DIFFER MATERIALLY. SUCH FORWARD-LOOKING STATEMENTS ARE
FURTHER QUALIFIED BY THE IMPORTANT FACTORS SET FORTH BELOW.
DEPENDENCE ON CERTAIN CUSTOMERS
The Company's revenues are highly dependent on expenditures by the
poultry producing industry. The Company's operations could be materially and
adversely affected by a general economic decline in this industry. The Company
has in the past derived, and may in the future derive, a significant portion of
its revenues from a relatively limited number of customers. In 1996, two
customers (Tyson Foods, Inc. and Perdue Farms, Inc.) accounted for approximately
33% and 11%, respectively, of the Company's consolidated revenues. The Company
also has experienced such concentration in the current year and is likely to do
so in future years. The loss of any such customer could materially adversely
affect the Company's revenues.
POSSIBLE NEED FOR ADDITIONAL FINANCING
From its inception in May 1985 through March 31, 1997, Embrex had
cumulative operating losses (accumulated deficit) of $40.4 million. Until the
first quarter of 1996, Embrex had incurred operating losses since its inception.
Although the Company has been profitable since the first quarter of 1996, there
can be no assurance that Embrex will continue to operate profitably.
The ability of Embrex to attain revenues sufficient to meet its cash
requirements for operations is dependent upon continued market acceptance of the
INOVOJECT(R) system on lease terms acceptable to Embrex and on the successful
development and commercialization of additional products. The extent of the
Company's future revenues, if any, derived from INOVOJECT(R) fees is subject to
many variables such as whether additional agreements for INOVOJECT(R) systems
are reached, the timing of any agreements, whether existing or new installation
schedules are met, and the extent to which customers use the INOVOJECT(R)
system.
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Until the Company realizes revenues sufficient to satisfy its cash
requirements, it will depend on its current cash and short-term investment
balances and on access to external financing to meet its equipment, working
capital and operating requirements. Although the Company anticipates that its
existing funds, as well as revenues from operations and existing equipment
financing lines, will be sufficient to sustain its existing operations for the
foreseeable future, there are no assurances that such funds will be sufficient.
If additional funds become necessary to sustain existing operations, the Company
will be required to seek additional financing, and there can be no assurance
that such financing will be obtainable or that, if available, such financing
will be on terms favorable or acceptable to the Company. The Company may need
additional financing in order to sustain its anticipated growth, in the event it
does not generate revenues sufficient to satisfy its cash requirements for
future growth. Obtaining additional financing for such purposes may be difficult
or impossible, or financing may only be available on terms unfavorable or
unacceptable to the Company.
EFFECT OF ECONOMIC FACTORS ON REVENUES
The Company's revenues may be impacted by economic factors that are
beyond the Company's control, such as fluctuations in the price of poultry feed
and export demand for U.S. poultry products. A principal component of the
Company's revenues is fees charged to customers for the number of eggs injected
with the INOVOJECT(R) system. Rising poultry feed prices increase the production
costs of commercial poultry producers and may cause them to reduce production
which, in turn, could adversely impact the Company's revenues. Reduced demand
for U.S. poultry products in markets outside the U.S. also could impact the
Company's revenues adversely.
NO ASSURANCE OF MARKET ACCEPTANCE OR DEVELOPMENT OF NEW PRODUCTS
Embrex's principal existing product, the INOVOJECT(R) system, has only
been in full commercial use since 1993. The market acceptance of new
technologies, including those of the Company, is subject to a number of factors,
including the ability of the technology to meet potential customers' needs
more effectively than competitive products or technologies and any concerns
which may be associated with the use of new technology, such as reliability and
maintenance.
In addition to the presently marketed INOVOJECT(R) system, Embrex, both
itself and together with collaborators, is developing vaccines for control of
viral and parasitic diseases and products for health and performance
modification which are in various stages of development. These products are
subject to the risks inherent in the development of products based on innovative
technologies and are subject to various regulatory approval requirements.
Embrex has developed and commercialized a new technology using its
proprietary viral neutralizing factor ("VNF(R)") which permits a single dose
immunization of an egg embryo for the life of the bird. The Company markets a
vaccine known as BURSAPLEX(TM) (formerly known as BDA-Blen) which uses Embrex's
VNF(R). The vaccine has been approved by the United States Department of
Agriculture ("USDA") for IN OVO and post-hatch use. However, BURSAPLEX(TM) has
not yet been accepted in the market and there is no assurance that the product
will be successfully marketed even if it is shown to be effective.
The development and commercialization of additional new products will
require substantial testing and development and regulatory approval.
GOVERNMENT REGULATION AND NEED FOR REGULATORY APPROVAL
Although the use of the INOVOJECT(R) system is not subject to
regulatory approval in the U.S., the research and development activities of
Embrex as well as the investigation, manufacture and sale of poultry health and
performance enhancement products are subject to regulation either by the USDA or
the United States Food and Drug Administration ("FDA") and state and foreign
agencies. Foreign agencies
4
<PAGE>
also may require approval of the INOVOJECT(R) system. The process of obtaining
governmental approval is costly and at the USDA generally takes from one to
three years and at the FDA five or more years. There can be no assurance that
any future product that Embrex may develop will be approved by the USDA, the FDA
or any other regulatory agency. Delays in obtaining regulatory approval may
adversely affect the marketing of any products developed by Embrex and the
ability of Embrex to receive product revenues and royalties. There can be no
assurance that regulatory approvals for Embrex's future products will be
obtained without lengthy delays, if at all.
In June 1997, Embrex announced that Ft. Dodge Animal Health, a division
of American Home Products, indicated that Ft. Dodge Animal Health's application
for British regulatory approval of its Bursamune(TM) infectious bursal disease
vaccine containing Embrex's VNF(R) was provisionally refused; however, the
British authority requested that further data be supplied. There can be no
assurance that British regulatory approval of Bursamune(TM) will be obtained, or
that there will not be a lengthy delay prior to approval.
Moreover, Embrex is, or may become, subject to various federal, state
and local laws, regulations and recommendations relating to safe working
conditions, laboratory and manufacturing practices and the use and disposal of
hazardous substances used in conjunction with Embrex's research work. In
addition, Embrex cannot predict the extent of governmental regulations which
might have an adverse effect on the production and marketing of Embrex's
products.
Embrex has entered into and intends to continue to enter into licensing
or joint development agreements pursuant to which costs associated with the
regulatory approval process for some products are and will be borne by the
licensees or joint developers. To the extent that Embrex is unable to generate
sufficient funds from operations or enter into licensing or joint development
agreements to develop products, it may not have the financial resources to
complete the regulatory approval process with respect to all or any of the
products currently under development. Products developed by Embrex may not be
marketed commercially in any jurisdiction in which required approvals have not
been obtained.
PATENTS AND PROPRIETARY RIGHTS
Certain of Embrex's products and certain of the processes by which
Embrex is able to produce its products are proprietary. Embrex has ownership
rights to some of the technologies employed in these processes, and some are
owned by others and exclusively licensed to Embrex. Embrex believes that patent
protection of materials or processes it develops and any products that may
result from Embrex's and licensors' research and development efforts are
important to the possible commercialization of Embrex's products. The patent
position of companies such as Embrex generally is highly uncertain and involves
complex legal and factual questions. To date no consistent policy has emerged
regarding the breadth of claims allowed in biotechnology patents. Accordingly,
there can be no assurance that patent applications relating to Embrex's products
or technology will result in patents being issued or that, if issued, the
patents will afford protection against competitors with similar technology.
Moreover, some patent licenses held by Embrex may be terminated upon the
occurrence of certain events or become non-exclusive after a specified period.
In addition, companies that obtain patents claiming products or processes that
are necessary for or useful to the development of Embrex's products could bring
legal actions against Embrex claiming infringement. Embrex is currently not the
subject of any patent infringement claim. There can be no assurance that Embrex
will have the financial resources necessary to enforce any patent rights it may
hold. Also, Embrex may be required to obtain licenses from others to develop,
manufacture or market its products. There can be no assurance that Embrex will
be able to obtain such licenses on commercially reasonable terms or that the
patents underlying the licenses will be valid and enforceable.
Embrex also relies upon unpatented, proprietary technology, and no
assurance can be given that others will not independently develop substantially
equivalent proprietary information or techniques or
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<PAGE>
properly gain access to Embrex's proprietary technology, or disclose such
technology or that Embrex can meaningfully protect its rights in such unpatented
proprietary technology.
Embrex attempts and will continue to attempt to protect its proprietary
materials and processes by relying on trade secret laws and non-disclosure and
confidentiality agreements with its employees and certain other persons who have
access to its proprietary materials or processes or who have licensing or
research arrangements with Embrex. Despite these protections, no assurance can
be given that others will not independently develop or obtain access to such
materials or processes or that Embrex's competitive position will not be
adversely affected thereby.
In September 1996, Embrex filed an action for patent infringement and
breach of contract against Service Engineering Corp. and a related party. The
infringement action relates to a patent (the Sharma Patent) exclusively licensed
to Embrex for the IN OVO injection of vaccines into an avian embryo which Embrex
has incorporated into its INOVOJECT(R) egg injection systems; the breach of
contract action is based on a previous infringement action by Embrex against
these parties which was settled. The defendants have filed counterclaims against
Embrex alleging, among other things, that Embrex violated federal law by
misrepresenting the defendants' commercial activities and sought to maintain
prices for IN OVO vaccinations at an artificially high level. The outcome of
this litigation is uncertain and there is no assurance that Embrex will prevail
on the merits or successfully defend the validity of its patent.
In November 1996, Embrex filed an action for patent infringement
against IGI, Inc. and the same related party, relating to the same patent. The
defendants have asserted various affirmative defenses, including allegations of
invalidity of the patent, and denied the substantive allegations in Embrex's
complaint. The outcome of this litigation is uncertain and there is no assurance
that Embrex will prevail on the merits or successfully defend the validity of
its patent.
In March 1997, Service Engineering Corp. and the same related party
filed suit against the USDA alleging that the USDA did not follow the
appropriate administrative procedures in granting to Embrex an exclusive license
to the patent which is the subject of the suits described above and in
subsequently extending the period of exclusivity for the license through the
expiration of the patent. The plaintiffs request that the extension of the
exclusive period of the license granted to Embrex be set aside. The outcome of
this litigation is uncertain, and there can be no assurance that the USDA will
be able to successfully defend its grant of an exclusive license to Embrex or
the lengthening of the period of exclusivity thereof. Should the USDA fail to
prevail in its defense of this suit, Embrex's license rights could be adversely
affected.
DEPENDENCE ON KEY PERSONNEL
Embrex's ability to develop marketable products and maintain a
competitive research and technological position will depend on its ability to
continue to attract and retain experienced and highly educated, scientific and
management personnel and advisors. Competition for qualified employees among
biotechnology companies is intense and the loss of key scientific or management
personnel would adversely affect Embrex. Embrex has obtained insurance in the
amount of $1,000,000 on the life of Randall L. Marcuson, its President and Chief
Executive Officer, of which Embrex is the sole beneficiary. There can be no
assurance that Embrex will be able to continue to attract and retain qualified
staff.
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SUPPORT AND MAINTENANCE REQUIREMENTS
The Company is required to supply, support, and maintain large numbers
of INOVOJECT(R) systems at its customers' hatcheries on a timely basis at a
reasonable cost to the Company. There can be no assurance that the Company will
be able to continue to provide such services on a cost-effective basis.
TECHNOLOGY AND COMPETITION
The areas of technology in which Embrex is involved are subject to
rapid and significant technological change. Competitors include independent
companies that specialize in biotechnology as well as major chemical and
pharmaceutical companies, universities, and public and private research
organizations, many of which are well established and have substantially greater
marketing, financial, technological and other resources than Embrex. There can
be no assurance that competitors will not succeed in developing technologies and
products that are more effective than any which have been or are being developed
by Embrex or which would render Embrex's technology and products obsolete or
non-competitive.
DEPENDENCE ON OTHERS
Embrex plans to continue to conduct its operations with third party
collaborators, licensors or licensees. While Embrex believes its present and
future collaborators, licensors and licensees will have an economic motivation
to succeed in performing their obligations under its agreements with them, the
amount and timing of funds and other resources to be devoted under such
agreements will be controlled by such other parties and are subject to financial
or other difficulties that may befall such other parties. Thus, no assurance can
be given that Embrex will generate any revenues from such agreements.
Embrex does not have large scale facilities for the production of
Embrex's INOVOJECT(R) system and biological products and does not plan to
develop such facilities in the foreseeable future. Embrex therefore will rely
principally upon relationships with contract manufacturers. There can be no
assurance that manufacture and supply agreements will be maintained on terms and
at costs acceptable to Embrex.
The Company has developed a strategic relationship with a single
contract manufacturer to fabricate its INOVOJECT(R) systems. While other machine
fabricators exist and have contracted limited numbers of INOVOJECT(R) systems, a
change in fabricators could cause a delay in manufacturing and a possible delay
in the timing of future INOVOJECT(R) installations and revenues from those
installations.
The Company has granted Select Laboratories, Inc. ("Select"), a
wholly-owned subsidiary of Rhone Merieux SA, exclusive rights to manufacture
bursal disease vaccines containing Embrex's proprietary VNF(R) product for
Embrex to market in North America, South America and Asia. Embrex also has
granted Cyanamid Websters, a subsidiary of American Home Products, Inc.,
exclusive rights to manufacture bursal disease vaccines containing the Company's
VNF(R) product to be marketed in Europe, the Middle East and Africa.
Additionally, the Company has two contract suppliers of its VNF(R) product
although only one of these suppliers was included in the USDA's approval for IN
OVO use of BURSAPLEX(TM). The manufacture of the bursal disease vaccines being
produced by Select and Cyanamid Websters and the Company's VNF(R) product
generally must be performed in licensed facilities and/or under approved
regulatory methods. Although there are other manufacturers who are capable of
manufacturing bursal disease products and producing products such as VNF(R), a
change of suppliers could adversely effect the Company's future operating
results due to the time it would take a new supplier to obtain regulatory
approval of its production process and/or manufacturing facilities.
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ISSUANCE OF PREFERRED STOCK; SHAREHOLDER RIGHTS PLAN; ANTI-TAKEOVER EFFECTS
The Board of Directors has the authority to issue up to 15,000,000
shares of Preferred Stock, no par value per share, in one or more series and to
determine the designations, preferences and relative participating, optional or
other special rights and qualifications, limitations or restrictions thereof, of
the shares constituting any series of Preferred Stock, without any further vote
or action by the shareholders. The issuance of Preferred Stock by the Board of
Directors could affect the rights of the holders of Common Stock. For example,
such issuance could result in a class of securities outstanding that would have
preferences with respect to voting rights and dividends and in liquidation over
the Common Stock, and could (upon conversion or otherwise) enjoy all of the
rights appurtenant to Common Stock. As of the date of this Prospectus, there are
no issued and outstanding shares of Preferred Stock.
The authority of the Board of Directors to issue Preferred Stock could
potentially be used to discourage attempts by others to obtain control of the
Company through merger, tender offer, proxy contest or otherwise by making such
attempts more difficult to achieve or more costly. The Board of Directors may
issue the Preferred Stock without shareholder approval and with voting and
conversion rights which could adversely affect the voting power of the holders
of Common Stock. There are no agreements or understandings for the issuance of
Preferred Stock and the Board of Directors has no present intention to issue any
Preferred Stock.
In March 1996, Embrex adopted a shareholder rights plan which could
have the effect of discouraging a takeover of the Company. The rights plan, if
triggered, would make it more difficult to acquire the Company by, among other
things, allowing existing shareholders to acquire additional shares at a
substantial discount, thus substantially inhibiting an acquiror's ability to
obtain control of the Company.
INTERNATIONAL SALES AND MARKETING
The Company intends to continue its efforts to expand its markets
outside of North America. Sales outside of North America accounted for
approximately 10%, 6% and 2% of the Company's consolidated revenues in fiscal
1996, 1995 and 1994, respectively. The volume and consistency of such sales is
subject to economic and political conditions in the markets in which Embrex does
business, which are beyond the Company's control. In addition, there is no
assurance that INOVOJECT(R) will be successfully marketed outside of North
America since market acceptance is often dependent on the need for drugs to be
administered and on regulatory approval of IN OVO administration.
USE OF PROCEEDS
The Shares offered by the Selling Stockholders are for their own
accounts and are not being sold by the Company. Accordingly, the Company will
not receive any proceeds from the sale thereof. See "Plan of Distribution."
<PAGE>
SELLING STOCKHOLDERS
The Selling Stockholders acquired the Shares from Embrex in exchange
for the transfer of substantially all of the assets of Agrimatic to Embrex in
accordance with the Agrimatic Agreement. Pursuant to the Agreement, Embrex
granted registration rights to Agrimatic with respect to the Shares. Such
registration rights are transferable only to the stockholders of Agrimatic upon
the liquidation of Agrimatic and distribution of the Shares to the Agrimatic
stockholders.
The following table sets forth certain information as of July 18, 1997
regarding the shares of the Company's Common Stock owned of record or known to
the Company to be owned beneficially by each Selling Stockholder and as adjusted
to give effect to the sale of the Shares offered hereby. The Shares are being
registered to permit public secondary trading in the Shares and the Selling
Stockholders may offer the Shares for resale from time to time. See "Plan of
Distribution."
<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER OF
NAME OF SELLING OWNED PRIOR TO SHARES SHARES BENEFICIALLY OWNED
STOCKHOLDER OFFERING (1) OFFERED AFTER OFFERING (1)
NUMBER PERCENT NUMBER PERCENT
<S> <C> <C>
Agrimatic Corporation 34,320 * 34,320 0 *
</TABLE>
- ----------------------------
* Less than 1%
(1) Based on 8,220,046 shares of Common Stock outstanding as of
June 30, 1997 and the same number of shares outstanding after the
offering.
Other than as a result of the ownership of shares of Common Stock or as
set forth above, none of the Selling Stockholders has had any material
relationship with the Company within the three year period ending on the date of
this Prospectus.
9
<PAGE>
PLAN OF DISTRIBUTION
The Company is registering the Shares on behalf of the Selling
Stockholders. The Company will not receive any proceeds from any sales of the
Shares. All costs, expenses and fees in connection with the registration of the
Shares offered hereby will be borne by the Company. Commissions, discounts, or
other fees payable to broker-dealers, if any, attributable to the sale of Shares
will be borne by the Selling Stockholders (or their donees or pledgees).
The decision to offer and sell the Shares, and the timing and amount of
any offers or sales that are made, is and will be within the sole discretion of
the Selling Stockholders. Sales of Shares may be effected from time to time in
transactions (which may include block transactions) on the Nasdaq National
Market, in negotiated transactions, or a combination of such methods of sale, at
fixed prices which may be changed, at market prices prevailing at the time of
sale or at negotiated prices. The Selling Stockholders may effect such
transactions by selling Common Stock directly to purchasers or to or through
broker-dealers which may act as agents or principals. Such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Stockholder and/or the purchasers of Common Stock for whom such
broker-dealers may act as agents or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). The Selling Stockholders and any broker-dealers that act
in connection with the sale of the Common Stock might be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act in
connection with such sales and any commission received by them and any profit on
the resale of the shares of Common Stock as principal might be deemed to be
underwriting discounts and commissions under the Securities Act. The Selling
Shareholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act. Liabilities
under the federal securities laws cannot be waived.
Because the Selling Stockholders may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, the Selling
Stockholders will be subject to prospectus delivery requirements under the
Securities Act.
Each Selling Stockholder and any other person participating in a
distribution of the Shares will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which may restrict certain activities of, and limit
the timing of purchases and sales of the Shares by, Selling Stockholders and
other persons participating in a distribution of the Shares. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distribution, subject to specified exceptions or
exemptions. All of the foregoing may affect the marketability of the securities
offered hereby.
The Company anticipates that the Registration Statement shall remain
effective for a period of 90 days from the date hereof, excluding any days for
which the Company has notified the Selling Stockholders to suspend use of the
Prospectus. To the extent required, the specific Shares to be sold, the name of
the Selling Stockholders, the purchase price, the names of any agent or
broker-dealer and any applicable commission or discount with respect to a
particular offering will be set forth in an accompanying Prospectus Supplement.
The Common Stock is quoted on the Nasdaq National Market, and the
Shares have been authorized for quotation on the Nasdaq National Market.
The Company and the Selling Stockholders have agreed to indemnify each
other in certain circumstances against certain liabilities, including
liabilities arising under the Securities Act.
There can be no assurance that the Selling Stockholders will sell any
or all of the Shares offered by them hereunder.
10
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed
upon for the Company by Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan,
L.L.P., 2500 First Union Capitol Center, Raleigh, North Carolina 27601.
EXPERTS
The consolidated financial statements of the Company incorporated
herein by reference from the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, as amended by Form 10-K/A, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
FORWARD LOOKING STATEMENTS
Information included or incorporated by reference herein contains
various "forward looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, which statements represent
the Company's judgment concerning the future and are subject to risks and
uncertainties that could cause the Company's actual operating results and
financial position to differ materially. Such forward looking statements can be
identified by the use of forward looking terminology such as "may," "will,"
"expect," "anticipate," "estimate," "believe," or "continue," or the negative
thereof or other variations thereof or comparable terminology.
The Company cautions that any such forward looking statements are
further qualified by important factors that could cause the Company's actual
operating results to differ materially from those in the forward looking
statements, including without limitation, considerations described in connection
with the forward looking statements, factors set forth in this Prospectus under
the caption "Risk Factors," and other cautionary elements specified in documents
incorporated by reference in this Prospectus.
11
<PAGE>
EMBREX, INC.
31,578 SHARES
COMMON STOCK, PAR VALUE $.01 PER SHARE
---------------------
The shares offered hereby (the "Shares") consist of 31,578 shares (subject
to adjustment as described below) of common stock, par value $.01 per share (the
"Common Stock"), of Embrex, Inc., a North Carolina corporation ("Embrex" or the
"Company"), reserved for issuance upon the exercise of warrants (the "Aberlyn
Warrants") to purchase shares of Common Stock issued pursuant to (1) an
Agreement to Issue Warrant, dated as of January 28, 1994, between the Company
and Aberlyn Capital Management Limited Partnership (the "ACM Warrant Agreement")
and (2) an Agreement to Issue Warrant, dated as of January 28, 1994, between the
Company and Aberlyn Holding Company, Inc. (the "AHC Warrant Agreement," together
with the ACM Warrant Agreement, the "Aberlyn Warrant Agreements").
See "Description of Aberlyn Warrants."
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE SHARES.
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "EMBX." On July 21, 1997, the last reported sale price of the
Common Stock was $6.8125 per share.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
THE DATE OF THIS PROSPECTUS IS _________, 1997
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Securities and Exchange
Commission (the "Commission") (File No. 340-19495) pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), are incorporated herein
by reference:
1. the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, as amended by Form 10-K/A;
2. the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1997;
3. the Company's Current Report on Form 8-K dated January 28, 1997;
4. the description of the Company's Common Stock contained in its
Registration Statement on Form 8-A as filed with the Commission
on August 27, 1991;
5. all other documents filed with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act, after the date of
this Prospectus and prior to the termination of the offering of
the Shares.
Any statement contained in any document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed to constitute a part of
this Prospectus except as so modified or superseded.
Embrex hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus is delivered,
upon written or oral request of such person, a copy of any and all documents and
information that have been incorporated by reference herein (not including
exhibits thereto unless such exhibits are specifically incorporated by reference
into the information incorporated herein). Such documents and information are
available upon request from the Company, 1035 Swabia Court, Durham, North
Carolina 27703, Attention: Investor Relations; Telephone: (919) 941-5185.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information filed by the Company may be inspected and copied at the Public
Reference Facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
regional offices located at 7 World Trade Center, New York, New York 10048 and
Citicorp Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois
60661-2511; copies of such materials may be obtained at prescribed rates from
the Public Reference Branch of the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. Copies of such materials also may be
obtained from the web site that the Commission maintains at http://www.sec.gov.
Quotations relating to the Company's Common Stock appear on the Nasdaq National
Market and such reports, proxy statements and other information concerning the
Company also can be inspected at the offices of the Nasdaq Stock Market, 1735 K
Street, N.W., Washington, D.C. 20006-1506.
2
<PAGE>
The Company has filed with the Commission a Registration Statement on
Form S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the shares of
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which have been omitted as permitted by
the rules and regulations of the Commission. For further information, reference
hereby is made to the Registration Statement.
THE COMPANY
Embrex was incorporated in North Carolina in May 1985 and has developed
and commercialized the INOVOJECT(R) system, a proprietary, automated, in-the-egg
(or "IN OVO") injection system that eliminates the need for manual vaccination
of newly hatched broiler chicks. Embrex also is developing and marketing
patented pharmaceutical and biological products to improve bird health, reduce
bird production costs and provide other economic benefits to the poultry
industry. The Company's principal executive offices are located at 1035 Swabia
Court, Durham, North Carolina 27703, and its telephone number is (919) 941-5185.
RISK FACTORS
INFORMATION SET FORTH OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT, WHICH REPRESENT THE
COMPANY'S REASONABLE JUDGMENT CONCERNING THE FUTURE AND ARE SUBJECT TO RISKS AND
UNCERTAINTIES THAT COULD CAUSE THE COMPANY'S ACTUAL OPERATING RESULTS AND
FINANCIAL POSITION TO DIFFER MATERIALLY. SUCH FORWARD-LOOKING STATEMENTS ARE
FURTHER QUALIFIED BY THE IMPORTANT FACTORS SET FORTH BELOW.
DEPENDENCE ON CERTAIN CUSTOMERS
The Company's revenues are highly dependent on expenditures by the
poultry producing industry. The Company's operations could be materially and
adversely affected by a general economic decline in this industry. The Company
has in the past derived, and may in the future derive, a significant portion of
its revenues from a relatively limited number of customers. In 1996, two
customers (Tyson Foods, Inc. and Perdue Farms, Inc.) accounted for approximately
33% and 11%, respectively, of the Company's consolidated revenues. The Company
also has experienced such concentration in the current year and is likely to do
so in future years. The loss of any such customer could materially adversely
affect the Company's revenues.
POSSIBLE NEED FOR ADDITIONAL FINANCING
From its inception in May 1985 through March 31, 1997, Embrex had
cumulative operating losses (accumulated deficit) of $40.4 million. Until the
first quarter of 1996, Embrex had incurred operating losses since its inception.
Although the Company has been profitable since the first quarter of 1996, there
can be no assurance that Embrex will continue to operate profitably.
The ability of Embrex to attain revenues sufficient to meet its cash
requirements for operations is dependent upon continued market acceptance of the
INOVOJECT(R) system on lease terms acceptable to Embrex and on the successful
development and commercialization of additional products. The extent of the
Company's future revenues, if any, derived from INOVOJECT(R) fees is subject to
many variables such as whether additional agreements for INOVOJECT(R) systems
are reached, the timing of any agreements, whether existing or new installation
schedules are met, and the extent to which customers use the INOVOJECT(R)
system.
3
<PAGE>
Until the Company realizes revenues sufficient to satisfy its cash
requirements, it will depend on its current cash and short-term investment
balances and on access to external financing to meet its equipment, working
capital and operating requirements. Although the Company anticipates that its
existing funds, as well as revenues from operations and existing equipment
financing lines, will be sufficient to sustain its existing operations for the
foreseeable future, there are no assurances that such funds will be sufficient.
If additional funds become necessary to sustain existing operations, the Company
will be required to seek additional financing, and there can be no assurance
that such financing will be obtainable or that, if available, such financing
will be on terms favorable or acceptable to the Company. The Company may need
additional financing in order to sustain its anticipated growth, in the event it
does not generate revenues sufficient to satisfy its cash requirements for
future growth. Obtaining additional financing for such purposes may be difficult
or impossible, or financing may only be available on terms unfavorable or
unacceptable to the Company.
EFFECT OF ECONOMIC FACTORS ON REVENUES
The Company's revenues may be impacted by economic factors that are
beyond the Company's control, such as fluctuations in the price of poultry feed
and export demand for U.S. poultry products. A principal component of the
Company's revenues is fees charged to customers for the number of eggs injected
with the INOVOJECT(R) system. Rising poultry feed prices increase the production
costs of commercial poultry producers and may cause them to reduce production
which, in turn, could adversely impact the Company's revenues. Reduced demand
for U.S. poultry products in markets outside the U.S. also could impact the
Company's revenues adversely.
NO ASSURANCE OF MARKET ACCEPTANCE OR DEVELOPMENT OF NEW PRODUCTS
Embrex's principal existing product, the INOVOJECT(R) system, has only
been in full commercial use since 1993. The market acceptance of new
technologies, including those of the Company, is subject to a number of factors,
including the ability of the technology to meet the potential customers' needs
more effectively than competitive products or technologies and any concerns
which may be associated with the use of new technology, such as reliability and
maintenance.
In addition to the presently marketed INOVOJECT(R) system, Embrex, both
itself and together with collaborators, is developing vaccines for control of
viral and parasitic diseases and products for health and performance
modification which are in various stages of development. These products are
subject to the risks inherent in the development of products based on innovative
technologies and are subject to various regulatory approval requirements.
Embrex has developed and commercialized a new technology using its
proprietary viral neutralizing factor ("VNF(R)") which permits a single dose
immunization of an egg embryo for the life of the bird. The Company markets a
vaccine known as BURSAPLEX(TM) (formerly known as BDA-Blen) which uses Embrex's
VNF(R). The vaccine has been approved by the United States Department of
Agriculture ("USDA") for IN OVO and post-hatch use. However, BURSAPLEX(TM) has
not yet been accepted in the market and there is no assurance that the product
will be successfully marketed even if it is shown to be effective.
The development and commercialization of additional new products will
require substantial testing and development and regulatory approval.
GOVERNMENT REGULATION AND NEED FOR REGULATORY APPROVAL
Although the use of the INOVOJECT(R) system is not subject to
regulatory approval in the U.S., the research and development activities of
Embrex as well as the investigation, manufacture and sale of poultry health and
performance enhancement products are subject to regulation either by the USDA or
the United States Food and Drug Administration ("FDA") and state and foreign
agencies. Foreign agencies
4
<PAGE>
also may require approval of the INOVOJECT(R) system. The process of obtaining
governmental approval is costly and at the USDA generally takes from one to
three years and at the FDA five or more years. There can be no assurance that
any future product that Embrex may develop will be approved by the USDA, the FDA
or any other regulatory agency. Delays in obtaining regulatory approval may
adversely affect the marketing of any products developed by Embrex and the
ability of Embrex to receive product revenues and royalties. There can be no
assurance that regulatory approvals for Embrex's future products will be
obtained without lengthy delays, if at all.
In June 1997, Embrex announced that Ft. Dodge Animal Health, a division
of American Home Products, indicated that Ft. Dodge Animal Health's application
for British regulatory approval of its Bursamune(TM) infectious bursal disease
vaccine containing Embrex's VNF(R) was provisionally refused; however, the
British authority requested that further data be supplied. There can be no
assurance that British regulatory approval of Bursamune(TM) will be obtained, or
that there will not be a lengthy delay prior to approval.
Moreover, Embrex is, or may become, subject to various federal, state
and local laws, regulations and recommendations relating to safe working
conditions, laboratory and manufacturing practices and the use and disposal of
hazardous substances used in conjunction with Embrex's research work. In
addition, Embrex cannot predict the extent of governmental regulations which
might have an adverse effect on the production and marketing of Embrex's
products.
Embrex has entered into and intends to continue to enter into licensing
or joint development agreements pursuant to which costs associated with the
regulatory approval process for some products are and will be borne by the
licensees or joint developers. To the extent that Embrex is unable to generate
sufficient funds from operations or enter into licensing or joint development
agreements to develop products, it may not have the financial resources to
complete the regulatory approval process with respect to all or any of the
products currently under development. Products developed by Embrex may not be
marketed commercially in any jurisdiction in which required approvals have not
been obtained.
PATENTS AND PROPRIETARY RIGHTS
Certain of Embrex's products and certain of the processes by which
Embrex is able to produce its products are proprietary. Embrex has ownership
rights to some of the technologies employed in these processes, and some are
owned by others and exclusively licensed to Embrex. Embrex believes that patent
protection of materials or processes it develops and any products that may
result from Embrex's and licensors' research and development efforts are
important to the possible commercialization of Embrex's products. The patent
position of companies such as Embrex generally is highly uncertain and involves
complex legal and factual questions. To date no consistent policy has emerged
regarding the breadth of claims allowed in biotechnology patents. Accordingly,
there can be no assurance that patent applications relating to Embrex's products
or technology will result in patents being issued or that, if issued, the
patents will afford protection against competitors with similar technology.
Moreover, some patent licenses held by Embrex may be terminated upon the
occurrence of certain events or become non-exclusive after a specified period.
In addition, companies that obtain patents claiming products or processes that
are necessary for or useful to the development of Embrex's products could bring
legal actions against Embrex claiming infringement. Embrex is currently not the
subject of any patent infringement claim. There can be no assurance that Embrex
will have the financial resources necessary to enforce any patent rights it may
hold. Also, Embrex may be required to obtain licenses from others to develop,
manufacture or market its products. There can be no assurance that Embrex will
be able to obtain such licenses on commercially reasonable terms or that the
patents underlying the licenses will be valid and enforceable.
Embrex also relies upon unpatented, proprietary technology, and no
assurance can be given that others will not independently develop substantially
equivalent proprietary information or techniques or
5
<PAGE>
properly gain access to Embrex's proprietary technology, or disclose such
technology or that Embrex can meaningfully protect its rights in such unpatented
proprietary technology.
Embrex attempts and will continue to attempt to protect its proprietary
materials and processes by relying on trade secret laws and non-disclosure and
confidentiality agreements with its employees and certain other persons who have
access to its proprietary materials or processes or who have licensing or
research arrangements with Embrex. Despite these protections, no assurance can
be given that others will not independently develop or obtain access to such
materials or processes or that Embrex's competitive position will not be
adversely affected thereby.
In September 1996, Embrex filed an action for patent infringement and
breach of contract against Service Engineering Corp. and a related party. The
infringement action relates to a patent (the Sharma Patent) exclusively licensed
to Embrex for the IN OVO injection of vaccines into an avian embryo which Embrex
has incorporated into its INOVOJECT(R) egg injection systems; the breach of
contract action is based on a previous infringement action by Embrex against
these parties which was settled. The defendants have filed counterclaims against
Embrex alleging, among other things, that Embrex violated federal law by
misrepresenting the defendants' commercial activities and sought to maintain
prices for IN OVO vaccinations at an artificially high level. The outcome of
this litigation is uncertain and there is no assurance that Embrex will prevail
on the merits or successfully defend the validity of its patent.
In November 1996, Embrex filed an action for patent infringement
against IGI, Inc. and the same related party, relating to the same patent. The
defendants have asserted various affirmative defenses, including allegations of
invalidity of the patent, and denied the substantive allegations in Embrex's
complaint. The outcome of this litigation is uncertain and there is no assurance
that Embrex will prevail on the merits or successfully defend the validity of
its patent.
In March 1997, Service Engineering Corp. and the same related party
filed suit against the USDA alleging that the USDA did not follow the
appropriate administrative procedures in granting to Embrex an exclusive license
to the patent which is the subject of the suits described above and in
subsequently extending the period of exclusivity for the license through the
expiration of the patent. The plaintiffs request that the extension of the
exclusive period of the license granted to Embrex be set aside. The outcome of
this litigation is uncertain, and there can be no assurance that the USDA will
be able to successfully defend its grant of an exclusive license to Embrex or
the lengthening of the period of exclusivity thereof. Should the USDA fail to
prevail in its defense of this suit, Embrex's license rights could be adversely
affected.
DEPENDENCE ON KEY PERSONNEL
Embrex's ability to develop marketable products and maintain a
competitive research and technological position will depend on its ability to
continue to attract and retain experienced and highly educated, scientific and
management personnel and advisors. Competition for qualified employees among
biotechnology companies is intense and the loss of key scientific or management
personnel would adversely affect Embrex. Embrex has obtained insurance in the
amount of $1,000,000 on the life of Randall L. Marcuson, its President and Chief
Executive Officer, of which Embrex is the sole beneficiary. There can be no
assurance that Embrex will be able to continue to attract and retain qualified
staff.
6
<PAGE>
SUPPORT AND MAINTENANCE REQUIREMENTS
The Company is required to supply, support, and maintain large numbers
of INOVOJECT(R) systems at its customers' hatcheries on a timely basis at a
reasonable cost to the Company. There can be no assurance that the Company will
be able to continue to provide such services on a cost-effective basis.
TECHNOLOGY AND COMPETITION
The areas of technology in which Embrex is involved are subject to
rapid and significant technological change. Competitors include independent
companies that specialize in biotechnology as well as major chemical and
pharmaceutical companies, universities, and public and private research
organizations, many of which are well established and have substantially greater
marketing, financial, technological and other resources than Embrex. There can
be no assurance that competitors will not succeed in developing technologies and
products that are more effective than any which have been or are being developed
by Embrex or which would render Embrex's technology and products obsolete or
non-competitive.
DEPENDENCE ON OTHERS
Embrex plans to continue to conduct its operations with third party
collaborators, licensors or licensees. While Embrex believes its present and
future collaborators, licensors and licensees will have an economic motivation
to succeed in performing their obligations under its agreements with them, the
amount and timing of funds and other resources to be devoted under such
agreements will be controlled by such other parties and are subject to financial
or other difficulties that may befall such other parties. Thus, no assurance can
be given that Embrex will generate any revenues from such agreements.
Embrex does not have large scale facilities for the production of
Embrex's INOVOJECT(R) system and biological products and does not plan to
develop such facilities in the foreseeable future. Embrex therefore will rely
principally upon relationships with contract manufacturers. There can be no
assurance that manufacture and supply agreements will be maintained on terms and
at costs acceptable to Embrex.
The Company has developed a strategic relationship with a single
contract manufacturer to fabricate its INOVOJECT(R) systems. While other machine
fabricators exist and have contracted limited numbers of INOVOJECT(R) systems, a
change in fabricators could cause a delay in manufacturing and a possible delay
in the timing of future INOVOJECT(R) installations and revenues from those
installations.
The Company has granted Select Laboratories, Inc. ("Select"), a
wholly-owned subsidiary of Rhone Merieux SA, exclusive rights to manufacture
bursal disease vaccines containing Embrex's proprietary VNF(R) product for
Embrex to market in North America, South America and Asia. Embrex also has
granted Cyanamid Websters, a subsidiary of American Home Products, Inc.,
exclusive rights to manufacture bursal disease vaccines containing the Company's
VNF(R) product to be marketed in Europe, the Middle East and Africa.
Additionally, the Company has two contract suppliers of its VNF(R) product
although only one of these suppliers was included in the USDA's approval for IN
OVO use of BURSAPLEX(TM). The manufacture of the bursal disease vaccines being
produced by Select and Cyanamid Websters and the Company's VNF(R) product
generally must be performed in licensed facilities and/or under approved
regulatory methods. Although there are other manufacturers who are capable of
manufacturing bursal disease products and producing products such as VNF(R), a
change of suppliers could adversely effect the Company's future operating
results due to the time it would take a new supplier to obtain regulatory
approval of its production process and/or manufacturing facilities.
7
<PAGE>
ISSUANCE OF PREFERRED STOCK; SHAREHOLDER RIGHTS PLAN; ANTI-TAKEOVER EFFECTS
The Board of Directors has the authority to issue up to 15,000,000
shares of Preferred Stock, no par value per share, in one or more series and to
determine the designations, preferences and relative participating, optional or
other special rights and qualifications, limitations or restrictions thereof, of
the shares constituting any series of Preferred Stock, without any further vote
or action by the shareholders. The issuance of Preferred Stock by the Board of
Directors could affect the rights of the holders of Common Stock. For example,
such issuance could result in a class of securities outstanding that would have
preferences with respect to voting rights and dividends and in liquidation over
the Common Stock, and could (upon conversion or otherwise) enjoy all of the
rights appurtenant to Common Stock. As of the date of this Prospectus, there are
no issued and outstanding shares of Preferred Stock.
The authority of the Board of Directors to issue Preferred Stock could
potentially be used to discourage attempts by others to obtain control of the
Company through merger, tender offer, proxy contest or otherwise by making such
attempts more difficult to achieve or more costly. The Board of Directors may
issue the Preferred Stock without shareholder approval and with voting and
conversion rights which could adversely affect the voting power of the holders
of Common Stock. There are no agreements or understandings for the issuance of
Preferred Stock and the Board of Directors has no present intention to issue any
Preferred Stock.
In March 1996, Embrex adopted a shareholder rights plan which could
have the effect of discouraging a takeover of the Company. The rights plan, if
triggered, would make it more difficult to acquire the Company by, among other
things, allowing existing shareholders to acquire additional shares at a
substantial discount, thus substantially inhibiting an acquiror's ability to
obtain control of the Company.
INTERNATIONAL SALES AND MARKETING
The Company intends to continue its efforts to expand its markets
outside of North America. Sales outside of North America accounted for
approximately 10%, 6% and 2% of the Company's consolidated revenues in fiscal
1996, 1995 and 1994, respectively. The volume and consistency of such sales is
subject to economic and political conditions in the markets in which Embrex does
business, which are beyond the Company's control. In addition, there is no
assurance that INOVOJECT(R) will be successfully marketed outside of North
America since market acceptance is often dependent on the need for drugs to be
administered and on regulatory approval of IN OVO administration.
USE OF PROCEEDS
In the event that the holders of the Aberlyn Warrants elect to exercise
the Aberlyn Warrants in whole or in part, the Company anticipates that the
proceeds (which are not determinable at this time since the exercise price is
subject to adjustment from time to time under the terms of the Aberlyn Warrants)
would be used for working capital and other general corporate purposes.
DESCRIPTION OF ABERLYN WARRANTS
In connection with capital lease financing arrangements which Embrex
entered in 1994 with Aberlyn Capital Management Limited Partnership ("Aberlyn")
to fund construction of INOVOJECT(R) systems, Embrex agreed to issue the Aberlyn
Warrants to Aberlyn and its affiliate. An aggregate of 31,578 shares of Common
Stock are issuable under the Aberlyn Warrants. Initially, the Aberlyn Warrants
were exercisable at a price of $9.50 per share for a period of five years. The
Aberlyn Warrants contain anti-dilution adjustment provisions which provide for
reductions, which could be significant in certain circumstances, in the exercise
price of the Aberlyn Warrants upon the occurrence of certain events, including
the issuance of shares of Common Stock of the Company for a price below the
exercise price of the Aberlyn Warrants then in effect. The Aberlyn Warrants also
provide for changes in the number of shares of Common Stock purchasable upon
exercise of
8
<PAGE>
the Aberlyn Warrants upon the occurrence of certain extraordinary events,
including the issuance of a stock dividend and the occurrence of a stock split
or reverse stock split, and for adjustment in the type of securities issuable
upon exercise of the Aberlyn Warrants to reflect any changes in the Common
Stock. The Registration Statement of which this Prospectus is a part covers both
the shares originally issuable under the Aberlyn Warrants and, pursuant to Rule
416 under the Securities Act, any additional shares issuable as a result of the
events described in this paragraph.
This description of the Aberlyn Warrants is a summary of their
principal terms and does not purport to be complete. Reference is made to the
Aberlyn Warrant Agreements, under which the Aberlyn Warrants were issued, which
are incorporated herein by reference. See "Incorporation of Certain Documents by
Reference" and "Available Information."
PLAN OF DISTRIBUTION
The Company is registering the Shares for issuance to the holders of
the Aberlyn Warrants upon exercise of the Aberlyn Warrants. The Shares currently
are reserved for issuance by Embrex. All costs, expenses and fees in connection
with the registration of the Shares offered hereby will be borne by the Company.
The Company anticipates that the Common Stock issuable upon exercise of
the Aberlyn Warrants will be authorized for quotation on the Nasdaq National
Market.
Under the Aberlyn Warrant Agreements, the Company and the holders of
the Aberlyn Warrants have agreed to indemnify each other against certain
liabilities arising under the Securities Act.
The Company anticipates that the Registration Statement shall remain
effective for a period of 90 days from the date hereof, excluding any days for
which the Company notifies the holders of the Aberlyn Warrants to suspend use of
the Prospectus.
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed
upon for the Company by Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan,
L.L.P., 2500 First Union Capitol Center, Raleigh, North Carolina 27601.
EXPERTS
The consolidated financial statements of the Company incorporated
herein by reference from the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, as amended by Form 10-K/A, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
9
<PAGE>
FORWARD LOOKING STATEMENTS
Information included or incorporated by reference herein contains
various "forward looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act, which statements represent
the Company's judgment concerning the future and are subject to risks and
uncertainties that could cause the Company's actual operating results and
financial position to differ materially. Such forward looking statements can be
identified by the use of forward looking terminology such as "may," "will,"
"expect," "anticipate," "estimate," "believe," or "continue," or the negative
thereof or other variations thereof or comparable terminology.
The Company cautions that any such forward looking statements are
further qualified by important factors that could cause the Company's actual
operating results to differ materially from those in the forward looking
statements, including without limitation, considerations described in connection
with the forward looking statements, factors set forth in this Prospectus under
the caption "Risk Factors," and other cautionary elements specified in documents
incorporated by reference in this Prospectus.
10
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table shows the estimated expenses of the issuance and
distribution of the securities offered hereby.
SEC Registration Fee........................ $ 155.77
Legal Fees and Expenses..................... 10,000.00
Accounting Fees and Expenses................ 7,500.00
Printing and Engraving Expenses............. 750.00
Miscellaneous Expenses...................... 100.00
Total ---------
$18,505.77
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 55-8-50 through 55-8-58 of the North Carolina Business
Corporation Act permit a corporation to indemnify its directors, officers,
employees or agents under either or both a statutory or non-statutory scheme of
indemnification. Under the statutory scheme, a corporation may, with certain
exceptions, indemnify a director, officer, employee or agent of the corporation
who was, is, or is threatened to be made, a party to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative, or investigative, because of the fact that such person was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. This indemnity may include the obligation to
pay any judgment, settlement, penalty, fine (including an excise tax assessed
with respect to an employee benefit plan) and reasonable expenses incurred in
connection with the proceeding (including attorneys' fees), but no such
indemnification may be granted unless such director, officer, agent or employee
(i) conducted himself in good faith, (ii) reasonably believed (1) that any
action taken in his official capacity with the corporation was in the best
interest of the corporation or (2) that in all other cases his conduct at least
was not opposed to the corporation's best interest, and (iii) in the case of any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. Whether a director has met the requisite standard of conduct for the
type of indemnification set forth above is determined by the board of directors,
a committee of directors, special legal counsel or the shareholders in
accordance with Section 55-8-55. A corporation may not indemnify a director
under the statutory scheme in connection with the proceeding by or in the right
of the corporation in which the director was adjudged liable to the corporation
or in connection with the proceeding in which a director was adjudged liable on
the basis of having received an improper personal benefit.
In addition to, and separate and apart from the indemnification
described above under the statutory scheme, Section 55-8-57 of the North
Carolina Business Corporation Act permits a corporation to indemnify or agree to
indemnify any of its directors, officers, employees or agents against liability
and expenses (including attorneys' fees) in any proceeding (including
proceedings brought by or on behalf of the corporation) arising out of their
status as such or their activities in such capacities, except for any
liabilities or expenses incurred on account of activities that were, at the time
taken, known or believed by the person to be clearly in conflict with the best
interests of the corporation. The Company's bylaws provide for indemnification
to the extent provided by North Carolina law, except that in the event of an
action or suit by or in the right of the Company, (a) a person may be
indemnified only to the extent of expenses (including attorneys' fees)
reasonably incurred by him in connection with the defense or settlement thereof
and not for any judgments, fines or amounts paid in settlement and (b) no
indemnification may be made in respect of any claim, issue or matter as to which
a person was adjudged to be liable for negligence or misconduct in the
performance of his duties, except as such indemnification is determined to be
proper by a court. Accordingly, the Company may indemnify its directors,
officers, employees and agents in accordance with either the statutory or
non-statutory standard.
II-1
<PAGE>
Sections 55-8-52 and 55-8-56 of the North Carolina Business Corporation
Act require a corporation, unless its articles of incorporation (unlike the
Company's) provide otherwise, to indemnify a director or officer who has been
wholly successful, on the merits or otherwise, in the defense of any proceeding
to which such director or officer was a party. Unless prohibited by the articles
of incorporation, a director or officer also may make application and obtain
court-ordered indemnification if the court determines that such director or
officer is fairly and reasonably entitled to such indemnification as provided in
Sections 55-8-54 and 55-8-56.
Finally, Section 55-8-57 of the North Carolina Business Corporation Act
provides that a corporation may purchase and maintain insurance on behalf of an
individual who is or was a director, officer, employee or agent of the
corporation against certain liabilities incurred by such persons, whether or not
the corporation is otherwise authorized by the North Carolina Business
Corporation Act to indemnify such party. The Company's directors and officers
are currently covered under directors' and officers' insurance policies
maintained by the Company.
As permitted by North Carolina law, the Company's Articles of
Incorporation limit the personal liability of directors for monetary damages for
breaches of duty as a director provided that such limitation will not apply to
(i) acts or omissions not made in good faith that the director at the time of
the breach knew or believed were in conflict with the best interests of the
Company, (ii) any liability for unlawful distributions under N.C. Gen. Stat.
Section 55-8-33, (iii) any transaction from which the director derived an
improper personal benefit or (iv) acts or omissions occurring prior to the date
the provision became effective.
ITEM 16. EXHIBITS
The following documents (unless indicated) are filed herewith and made
a part of this Registration Statement.
Exhibit
No. Description
4.01(1) Specimen Common Stock Certificate
4.02(2) Restated Articles of Incorporation
4.03(3) Articles of Amendment to Restated Articles of Incorporation
4.04(4) Bylaws
4.05 Terms of registration rights granted by Embrex to Agrimatic
Corporation
5.01 Opinion of Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan,
L.L.P.
23.01 Consent of Ernst & Young LLP
23.02 Consent of Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan,
L.L.P. (included in Exhibit 5.01 hereto)
24.01 Powers of Attorney (included on the signature page hereof)
(1) Exhibit to the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission for the fiscal year ended December
31, 1996, as amended by Form 10-K/A, and incorporated herein by
reference.
(2) Exhibit to the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission for the fiscal year ended December
31, 1991 and incorporated herein by reference.
II-3
<PAGE>
(3) Exhibit to the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission for the fiscal year ended December
31, 1995 and incorporated herein by reference.
(4) Exhibit to the Company's Registration Statement on Form S-1 as filed
with the Securities and Exchange Commission (Registration No. 33-42482)
effective November 7, 1991 and incorporated herein by reference.
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers and 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.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of the
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement;
(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 (a)(1)(i) and (a)(1)(ii) of this
section do not apply if the registration statement is on Form S-3, Form
S-8 or Form F-3, and the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission 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
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE>
(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.
The undersigned registrant hereby undertakes 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 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
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 foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Durham, State of North
Carolina, on July 17, 1997.
EMBREX, INC.
By: /s/ Randall L. Marcuson
Randall L. Marcuson
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Randall L. Marcuson and Don T. Seaquist
and each of them, each with full power to act without the other, his true and
lawful attorneys-in-fact and agents, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this registration statement, 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 full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons on July
17, 1997 in the capacities indicated.
SIGNATURE TITLE
/s/ Randall L. Marcuson President, Chief Executive Officer and Director
Randall L. Marcuson
/s/ Don T. Seaquist Vice President, Finance and Administration
Don T. Seaquist (Principal Financial and Accounting Officer)
/s/ Charles E. Austin Chairman of the Board of Directors
Charles E. Austin
/s/ Lester M. Crawford Director
Lester M. Crawford
/s/ Stephen Hartogensis Director
Stephen Hartogensis
/s/ Kenneth N. May Director
Kenneth N. May
/s/ Arthur M. Pappas Director
Arthur M. Pappas
II-6
<PAGE>
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
NUMBER OF EXHIBIT
4.01(1) Specimen Common Stock Certificate
4.02(2) Restated Articles of Incorporation
4.03(3) Articles of Amendment to Restated Articles of Incorporation
4.04(4) Bylaws
4.05 Terms of registration rights granted by Embrex to Agrimatic
Corporation
5.01 Opinion of Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan, L.L.P.
23.01 Consent of Ernst & Young LLP
23.02 Consent of Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan, L.L.P. (included in Exhibit 5.01 hereto)
24.01 Powers of Attorney (included on the signature page hereof)
(1) Exhibit to the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission for the fiscal year ended December
31, 1996, as amended by Form 10-K/A, and incorporated herein by
reference.
(2) Exhibit to the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission for the fiscal year ended December
31, 1991 and incorporated herein by reference.
(3) Exhibit to the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission for the fiscal year ended December
31, 1995 and incorporated herein by reference.
(4) Exhibit to the Company's Registration Statement on Form S-1 as filed
with the Securities and Exchange Commission (Registration No. 33-42482)
effective November 7, 1991 and incorporated herein by reference.
<PAGE>
EXHIBIT 4.05
EMBREX, INC.
TERMS OF REGISTRATION RIGHTS GRANTED BY EMBREX TO AGRIMATIC
7. Registration Rights.
(a) Embrex shall use its reasonable best efforts to (i) file
as promptly as practicable a registration statement on Form S-3 (or such other
comparable form as Embrex shall select) under the Securities Act with respect to
the Shares (the "Registration Statement"), and thereafter to cause the
Registration Statement to be declared effective by the United States Securities
and Exchange Commission (the "Commission"); (ii) secure such corresponding
qualifications under and compliance with applicable blue sky and other
securities laws as are reasonably requested by Agrimatic; and (iii) cause the
Registration Statement to remain effective for not less than ninety (90) days
(exclusive of days subject to Suspension Notices, as described in subsection (b)
below). Neither Agrimatic nor any successor thereof shall, or shall be entitled
to, resell any Shares in reliance upon the Registration Statement after the
passage of such 90-day resale period.
(b) Notwithstanding subsection (a) above, Embrex shall not be
required to take any action with respect to the registration or the declaration
or continuation of effectiveness of the Registration Statement or any such
qualification or compliance:
(i) in any particular jurisdiction in which Embrex
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless Embrex is
already subject to service in such jurisdiction and except as may be required by
the Securities Act; or
(ii) following notice to Agrimatic from Embrex (a
"Suspension Notice") of the existence of any state of facts or the happening of
any event (including without limitation pending negotiations relating to, or the
consummation of, a transaction, or the occurrence of any event which in the
opinion of Embrex might require additional disclosure of material, non-public
information by Embrex in the Registration Statement as to which Embrex believes
it has a bona fide business purpose for preserving confidentiality or which
renders Embrex unable to comply with the published rules and regulations of the
Commission promulgated under the Securities Act or the Securities Exchange Act
of 1934, as amended, as in effect at any relevant time) which might reasonably
result in (1) the Registration Statement, any amendment or post-effective
amendment thereto, or any document incorporated therein by reference containing
an untrue statement of a material fact or omitting to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (2) the prospectus issued under the Registration Statement, any
prospectus supplement, or any document incorporated therein by reference
including an untrue statement of material fact or omitting to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
Upon receipt of a Suspension Notice from Embrex, Agrimatic
will forthwith discontinue disposition of the Shares pursuant to the
Registration Statement until receipt from Embrex of copies of prospectus
supplements or amendments prepared by or on behalf of
<PAGE>
Embrex, together with a notification that the Suspension Notice is no longer in
effect, and, if so directed by Embrex, Agrimatic will deliver to Embrex all
copies in its possession of the prospectus covering such Shares current at the
time of receipt of any Suspension Notice.
(c) Expenses of Registration. All expenses incurred in
connection with the registration pursuant to this Section 7 shall be borne by
Embrex, except that all selling discounts and commissions (if any) and stock
transfer taxes applicable to the Shares and all fees and disbursements of
counsel for Agrimatic relating thereto shall be borne by Agrimatic.
(d) Information by Holder. Agrimatic shall furnish to Embrex
such information regarding Agrimatic, the Shares and the distribution proposed
by Agrimatic as Embrex may request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Section 7. Agrimatic shall notify Embrex as promptly as practicable of any
inaccuracy or change in information previously furnished by Agrimatic to Embrex
or of the occurrence of any event as a result of which any prospectus included
in the Registration Statement contains or would contain an untrue statement of a
material fact regarding Agrimatic or Agrimatic's intended method of distribution
of the Shares or omits to state any material fact regarding Agrimatic or
Agrimatic's intended method of distribution of Shares necessary to make the
statements therein, in light of the circumstances then existing, not misleading,
and promptly to furnish to Embrex any additional information required to correct
and update any previously furnished information or required so that such
prospectus shall not contain, with respect to Agrimatic or the distribution of
the Shares, an untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
then existing, not misleading.
(e) Indemnification.
(i) Embrex will indemnify Agrimatic, each of
Agrimatic's directors and officers, and each person who controls Agrimatic
within the meaning of Section 15 of the Securities Act, against all expenses,
claims, losses, damages, or liabilities (or actions in respect thereof),
including any of the foregoing incurred in settlement of any litigation,
commenced or threatened, arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other document, or any amendment or
supplement thereto, incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
or any violation by Embrex of the Securities Act or any rule or regulation
promulgated under the Securities Act applicable to Embrex in connection with any
such registration, qualification or compliance, and Embrex will reimburse
Agrimatic and each such other person for any legal and any other expenses
reasonably incurred in connection with investigating, preparing or defending any
such claim, loss, damage, liability or action, provided that Embrex will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission made in conformity with
information furnished to Embrex by Agrimatic.
(ii) Agrimatic will indemnify Embrex, each of
Embrex's directors and officers, each person who controls Embrex within the
meaning of Section 15 of the Securities Act, and each other person or entity
including securities in such registration, qualification or
<PAGE>
compliance and each controlling person thereof against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse Embrex and all such directors,
officers and persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in conformity with information furnished to Embrex by
Agrimatic.
(f) Transfer of Registration Rights. The registration rights
in this Section 7 are not transferable except by Agrimatic to its shareholders,
and even then only in compliance with all applicable laws, rules and regulations
and upon the unqualified agreement of the transferee to comply with Agrimatic's
obligations pursuant to this Section 7, the provisions of which shall apply
equally to such transferee.
<PAGE>
EXHIBIT 5.01
Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P.
Raleigh, North Carolina
Phone: 919-821-1220
Fax: 919-821-6800
July 22, 1997
(919) 821-1220
Embrex, Inc.
1035 Swabia Court
Durham, North Carolina 27703
Ladies and Gentlemen:
As counsel for Embrex, Inc. (the "Company"), we furnish the following
opinion in connection with the preparation of a Registration Statement on Form
S-3 ("Registration Statement") to be filed by the Company with the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Act"), relating to the registration of (a) 34,320 shares (the "Resale Shares")
of the Company's common stock, par value $.01 per share ("Common Stock"), which
have been included in the Registration Statement for the respective accounts of
the persons identified in the Registration Statement as Selling Stockholders and
(b) 31,578 shares (the "Warrant Shares"), subject to adjustment, reserved for
issuance by the Company upon the exercise of certain warrants to purchase shares
of Common Stock described in
<PAGE>
the Registration Statement (the "Aberlyn Warrants"). This opinion is furnished
pursuant to the requirement of Item 601(b)(5) of Regulation S-K under the Act.
We have examined the Restated Articles of Incorporation, as amended,
and the Bylaws of the Company, the minutes of meetings of its Board of
Directors, and such other corporate records of the Company and other documents
and have made such examinations of law as we have deemed relevant for purposes
of this opinion. We also have received a certificate of an officer of the
Company, dated of even date herewith, relating to the Registration Statement.
Based on and subject to the foregoing and to the additional
qualifications set forth below, it is our opinion that (a) the Resale Shares
have been legally issued in accordance with the Company's Restated Articles of
Incorporation, as amended, and its Bylaws and, assuming due delivery against
payment therefor when the Shares were issued, are fully paid and nonassessable,
and (b) the Warrant Shares, when issued by the Company in accordance with the
Company's Restated Articles of Incorporation, as amended, and its Bylaws, will
be legally issued and, assuming due delivery against payment therefor when the
Warrant Shares are issued upon the exercise of the Aberlyn Warrants, will be
fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. Such consent shall not be deemed to be an admission that
this firm is within the category of persons whose consent is required under
Section 7 of the Act or the regulations promulgated pursuant to the Act.
This opinion is limited to the laws of the State of North Carolina and
no opinion is expressed as to the laws of any other jurisdiction.
Our opinion is as of the date hereof, and we do not undertake to advise
you of matters which might come to our attention subsequent to the date hereof
which may affect our legal opinion expressed herein.
Sincerely yours,
SMITH, ANDERSON, BLOUNT, DORSETT,
MITCHELL & JERNIGAN, L.L.P.
<PAGE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectuses of Embrex, Inc. for
the registration of 65,898 shares of its common stock and to the incorporation
by reference therein of our report dated March 19, 1997, with respect to the
consolidated financial statements of Embrex, Inc. included in its Annual Report
(Form 10-K) for the year ended December 31, 1996, filed with the Securities and
Exchange Commission.
Ernst & Young LLP
Raleigh, North Carolina
July 17, 1997
