<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1998
REGISTRATION NO. 333-46745
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
CHEMTRAK INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
<TABLE>
<S> <C>
DELAWARE 77-0295388
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
929 EAST ARQUES AVENUE
SUNNYVALE, CALIFORNIA 94086
(408) 773-8156
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
EDWARD F. COVELL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CHEMTRAK INCORPORATED
929 EAST ARQUES AVENUE
SUNNYVALE, CALIFORNIA 94086
(408) 773-8156
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
COPIES TO:
THOMAS C. KLEIN, ESQ.
BERNARD J. CASSIDY, ESQ.
CHRISTOPHER M. KOA, ESQ.
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304
(650) 493-9300
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM TIME
TO TIME 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. [_]
--------------
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 22, 1998
PROSPECTUS
4,266,600 SHARES
CHEMTRAK INCORPORATED
COMMON STOCK
This Prospectus relates to the offer and sale by the persons listed herein
under "Selling Stockholders" and "Plan of Distribution" (the "Selling
Stockholders") of a maximum of 4,266,600 shares (collectively, the "Shares") of
common stock, $0.001 par value ("Common Stock"), of ChemTrak Incorporated
("ChemTrak" or the "Company") to be issued from time to time to the Selling
Stockholders upon conversion of the Company's Series A 6% Cumulative
Convertible Preferred Stock (the "Series A Preferred Stock"). This Prospectus
covers the resale by the Selling Stockholders of up to 4,266,000 Shares, plus,
in accordance with Rule 416 under the Securities Act of 1933, as amended (the
"Securities Act"), such presently indeterminate number of additional Shares as
may be issuable upon conversion of the Series A Preferred Stock, based upon
fluctuations in the conversion price of the Series A Preferred Stock and upon
such additional shares of Series A Preferred Stock as the Company may pay as
dividends in lieu of cash. The Series A Preferred Stock and the shares of
Common Stock issuable upon conversion have been and will be issued in
transactions exempt from the registration requirements of the Securities Act.
See "Selling Stockholders" and "Plan of Distribution." The Company will not
receive any proceeds from the sale of the Shares covered by this Prospectus.
The Shares are being registered by the Company pursuant to the terms of
Subscription Agreements dated January 23, 1998, and January 26, 1998,
respectively, by and between the Company and the individual Selling
Stockholders (each a "Subscription Agreement"). See "Selling Stockholders" and
"Plan of Distribution."
The sale of the Shares may be effected by the Selling Stockholders from time
to time in transactions on the Nasdaq SmallCap Market, in privately negotiated
transactions or in a combination of such methods of sale, at fixed prices that
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing prices or at negotiated prices. The Selling
Stockholders may effect such transactions by selling the Shares to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders and/or the
purchasers of the Shares for whom such broker-dealers may act as agents or to
whom they may sell as principals or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). See "Selling
Stockholders" and "Plan of Distribution."
The Company has agreed, among other things, to bear certain expenses (other
than fees and expenses of counsel and underwriting discounts and commission and
brokerage commissions and fees) in connection with the registration and sale of
the Shares being offered by the Selling Stockholders. See "Selling
Stockholders."
The Common Stock is quoted on the Nasdaq SmallCap Market under the symbol
"CMTR." On February 18, 1998, the last reported sale price for the Common Stock
was $0.844 per share.
The Selling Stockholders and any agents, broker-dealers or underwriters that
participate in the distribution of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commission
received by them and any profit on the resale of the Common Stock purchased by
them may be deemed to be underwriting discounts or commissions under the Act.
The Company will not receive any proceeds from the sale of shares by the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders and certain other persons against certain liabilities, including
liabilities under the Act. See "Selling Stockholders" and "Plan of
Distribution."
-----------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
-----------
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 THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
The date of this Prospectus is , 1998.
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE BY THIS
PROSPECTUS TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY SELLING STOCKHOLDER OR BY ANY OTHER PERSON. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SHARES OFFERED HEREBY
TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE OF
OR OFFER TO SELL THE SHARES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
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<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission located at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices at Seven World Trade Center, 13th Floor, New
York, New York 10048, and Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials also can be
obtained from the Public Reference Section of the Commission, at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at prescribed rates. The
Commission also maintains a World Wide Web site that contains reports, proxy
and information statements and other information regarding registrants, such
as the Company, that file electronically with the Commission. The address of
the site is http://www.sec.gov. The Company's Common Stock is quoted on the
Nasdaq SmallCap Market. Reports, proxy statements and other information
concerning the Company can also be inspected at the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20002.
The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Common Stock offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
For further information with respect to the Company and the Common Stock
offered hereby, reference is made to the Registration Statement and to the
exhibits and schedules filed therewith. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. Copies of the Registration Statement, including all exhibits
thereto, may be obtained from the Commission's principal office in Washington,
D.C. upon payment of the fees prescribed by the Commission, or may be examined
without charge at the offices of the Commission described above.
INFORMATION INCORPORATED BY REFERENCE
The following documents previously filed by the Company with the Commission
(Commission File Number 0-19749) under the Exchange Act are incorporated
herein by reference in this Prospectus:
(i) Annual Report on Form 10-K for the year ended December 31, 1997, as
amended;
(ii) Current Reports on Form 8-K filed on June 16, 1997, October 1, 1997,
December 9, 1997, as amended, January 15, 1998 and February 9, 1998,
as amended;
(iii) Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, 1997, as amended, June 30, 1997, as amended, and September 30,
1997; and
(iv) the description of the Company's Common Stock contained in its
Registration Statement on Form 8-A filed with the Commission on
December 20, 1991, including any amendment or report updating such
description.
All documents filed by the Company 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 securities contemplated hereby shall be deemed
to be incorporated by reference in this Prospectus and to be a part hereof
from the date of filing of such documents.
3
<PAGE>
A copy of any or all of the documents incorporated or deemed to be
incorporated herein by reference (other than exhibits to such documents which
are not specifically incorporated by reference therein) will be provided
without charge to any person to whom a copy of this Prospectus is delivered,
upon written or oral request. Copies of this Prospectus, as amended or
supplemented from time to time, and any other documents (or parts of
documents) that constitute part of this Prospectus under Section 10(a) of the
Securities Act of 1933, as amended (the "Securities Act"), will also be
provided without charge to each such person, upon written or oral request.
Requests for such copies should be directed to: Chief Financial Officer,
ChemTrak Incorporated, 929 East Arques Avenue, Sunnyvale, California 94086,
telephone number (408) 773-8156.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any 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, except as so
modified or superseded, to constitute a part of this Prospectus.
4
<PAGE>
THE COMPANY
The Company develops, manufactures, markets and sells personal medical
diagnostic systems for consumer over-the-counter markets, point-of-care
markets and physician's office laboratories worldwide.
The Company currently manufactures and distributes three products in the
United States: Parent's Alert(R) Home Drug Test Service, a counselor supported
home drug test service committed to helping parents prevent and eliminate drug
abuse by their children ("Parent's Alert Home Drug Test Service"), The
CholesTrak(R) Home Cholesterol Test ("CholesTrak"); and ColoCARE(R), a Home
Test to Detect the Early Warning Signs of Colorectal Disease ("ColoCARE"). The
Company expects to begin marketing and distribution of two additional products
in 1998: the AccuMeter(R) H. pylori Test ("AccuMeter H. pylori Test"), a
physician's office test to determine the presence of bacterium associated with
gastric and peptic ulcers; and the AccuMeter(R) Theophylline Test ("AccuMeter
Theophylline Test"), a point-of-care quantitative assay for theophylline, a
commonly prescribed bronchodilator used by asthmatics. The CholesTrak,
AccuMeter H. pylori Test, and AccuMeter Theophylline Test are based on the
AccuMeter(R) ("AccuMeter") cassette system, a patented, non-instrumented,
hand-held diagnostic technology. The AccuMeter cassette system is a technology
applicable to a broad range of general chemistry and immunoassay tests
designed to screen and diagnose health conditions with accuracy comparable to
physician office and laboratory instrument tests.
The Company's home test service permits consumers to take diagnostic tests
in the privacy of their homes, mail samples to a certified testing laboratory,
and receive confidential results and counseling from ChemTrak's credentialed
counselors. The Company is in the process of developing home test services for
a variety of other health conditions including diabetes, osteoporosis,
menopause and prostate cancer.
ChemTrak's products are available through most major chain drug stores and
mass merchandisers.
ChemTrak was incorporated in California in 1985 and reincorporated in
Delaware in 1992. The Company's principal executive offices are located at 929
East Arques Avenue, Sunnyvale, California 94086-4520, its telephone number is
(408) 773-8156 and its fax number is (408) 773-1651.
RISK FACTORS
This prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this prospectus. In evaluating the company's
business, prospective investors should carefully consider the following
factors in addition to other information contained in or incorporated by
reference in this prospectus.
HISTORY OF LOSSES AND ACCUMULATED DEFICIT, FLUCTUATIONS IN OPERATING RESULTS
The Company has incurred operating losses due to the limited number of its
revenue-generating products and the high cost relative to sales of developing
and marketing consumer medical devices. As of December 31, 1997, the Company
had an accumulated deficit of $41.5 million. There can be no assurance that
the Company will ever achieve profitability, or that profitability, if
achieved, can be sustained on an ongoing basis. In addition, the Company has
historically experienced significant fluctuations in its operating results on
a quarterly and annual basis and anticipates that these fluctuations may
continue. See "--Reliance on Small Product Line."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING; GOING CONCERN
QUALIFICATION OF INDEPENDENT ACCOUNTANTS
The development and marketing of consumer medical devices is capital
intensive. The Company has funded its operations to date through public and
private equity and debt financing and product sales. The Company's
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<PAGE>
available cash, cash equivalents, short-term investments and revenues from
existing collaborations, together with anticipated product revenues will not
be sufficient to meet its capital requirements through the second quarter of
1998. The Company's accountants have issued a report that emphasizes
substantial doubt about the Company's ability to continue as a going concern.
In order to continue operations, the Company will need to seek additional debt
or equity financing. There can be no assurance that such financing will be
obtained on satisfactory terms or at all.
The Company has sought and intends to seek additional funding through
collaborative agreements with corporate partners, term loans secured by fixed
assets, and/or additional equity or debt financing. There can be no assurance
that the Company will be able to enter into such arrangements on acceptable
terms, or at all. If additional funds are raised by offering equity
securities, substantial dilution to stockholders will result. To obtain funds
through collaborative arrangements, the Company may be required to relinquish
certain right to its technologies or products. If adequate funds are not
available, the Company's operations will be adversely affected, and it may be
required to delay or eliminate one or more of its development programs. In
January 1998, the Company sold and issued shares of its Preferred Stock and
plans to sell and issue additional shares of its Preferred Stock. For a period
of 120 days following the issuance of the Preferred Stock, the Company may not
issue any equity, convertible debt or other securities, or conduct any public
or private offering, without the consent of the holders of the Preferred
Stock, which consent may not be unreasonably withheld. The Preferred Stock
will be convertible into shares of Common Stock pursuant to a conversion
formula that is substantially dilutive to current shareholders. The conversion
of the Preferred Stock will result in substantial dilution to stockholders.
See "--Shares Eligible for Future Sale; Substantial Dilutive Effect",
"Dilution" and "Description of Capital Stock." The Company is seeking
stockholder approval at its Annual Meeting of Stockholders for the sale of
Preferred Stock whose conversion into shares of Common Stock may be equal to
or greater than 20% of the Common Stock or voting power of the Company.
In addition, the report of the Company's independent accountants for the
year ended December 31, 1997, contains a qualification as to the Company's
ability to continue as a going concern. The Company's ability to continue as a
going concern is dependent in large part upon the successful completion of
proposed financing transactions.
PERSONNEL CHANGES; DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent upon a small group of management,
manufacturing, marketing and scientific executives, the loss of whose services
could have a material adverse effect on the Company's business, financial
condition and results of operations. Recruiting and retaining qualified
manufacturing, marketing and sales personnel and scientists to perform
research and development work in the future will also be critical to the
Company's ongoing operations. The Company faces competition for qualified
individuals from numerous pharmaceutical, biotechnology, and medical device
companies. There can be no assurance that the Company will be able to attract
and retain such individuals.
From time to time the Company has experienced difficulty in locating and
retaining candidates with appropriate qualifications. Subba Rao Gunupudi,
Ph.D., currently a consultant to the Company, resigned as Vice President,
Research and Development, in January 1998. Thomas M. Waugh, Vice President,
Operations, resigned in February 1998. The Company also believes stock options
are a critical component for motivating and retaining its key employees. The
decline in the price of the Company's Common Stock has made stock options
previously granted with higher exercise prices less valuable to the Company's
current employees and may make it more difficult for the Company to retain its
key employees. The failure of the Company to attract and retain key personnel
could have an adverse effect on the Company's business, results of operations,
financial position and cash flows.
SIGNIFICANT GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
The Company's ongoing product development activities, and the production and
marketing of products, are subject to extensive regulation by government
authorities in the United States and other countries. The regulatory
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process can be lengthy and requires the expenditure of substantial resources.
There can be no assurances that any product developed by the Company will meet
all of the applicable regulatory requirements necessary to receive marketing
approval. Regulation by government authorities is a significant factor
affecting the timing of the commercialization of the Company's products. The
timing of regulatory approvals is not entirely within the Company's control.
Failure to obtain, or delays in obtaining, requisite government approvals
could delay or preclude the Company or its licensees from marketing the
Company's products, could limit the commercial use of the products and could
also allow competitors time to introduce competing products ahead of product
introduction by the Company or its licensees and thereby have a material
adverse effect on the Company's business, results of operations and financial
condition. Moreover, Food and Drug Administration ("FDA") policy may change
and additional government regulations may be established that could prevent or
delay regulatory approval of the Company's potential products. In addition, a
marketed product and its manufacturer are subject to continual regulation and
review, and noncompliance with regulations or the later discovery of
previously unknown problems with a product or manufacturer may result in
sanctions or restrictions on such product or manufacturer, including fines,
operating restrictions, withdrawal of the product from the market, or criminal
prosecution.
In February 1995, the Company acquired Coonan Clinical Laboratories, a
company engaged in research and development of a home HIV test service. The
Company believed that the acquisition of Coonan Clinical Laboratories would
accelerate the time to market for a home HIV test service product. The Company
filed a Pre-Market Approval ("PMA") application for the AWARE Home HIV Test
Service with the FDA in 1995 and amended it in 1996. In June 1997, the Company
received a letter from the FDA in which the FDA asked for a significant amount
of clarification and additional information for the PMA filing. Due to the
substantial expense and lengthy response process, and a lack of development of
a significant home HIV test market, the Company decided to withdraw its PMA
application. The Company's agreement with Selfcare for the European
distribution of the AWARE Home HIV Test Service was terminated by Selfcare
because FDA market clearance was not received by the end of 1997.
In order to market its products abroad, the Company also must comply with
foreign regulators requirements, implemented by foreign health authorities,
governing marketing approval. The foreign regulatory approval process includes
all of the risks associated with FDA approval set forth above, and may involve
additional requirements or risks. There is no assurance that a foreign
regulatory body will accept the data developed by the Company for any of its
products, and approval by the FDA does not ensure approval in other countries.
The Parent's Alert Home Drug Test Service is currently operating under
interim FDA guidelines which permit the sale of the test without marketing
clearance from the FDA. Although the Company believes that the guidelines
represent a policy shift at the FDA to facilitate this type of home test,
there can be no assurance that the FDA will not alter its policy. Obtaining
market clearance from the FDA would entail substantial expense for the
Company. The Company's agreement with Parent's Alert, Inc. provides that it
may be terminated by ChemTrak in the event of an unfavorable change in FDA
requirements.
The Company is required to manufacture its products in compliance with the
FDA's Quality System Regulations ("QSR"), which require the Company to
register its manufacturing facility and list its products. The Company has
registered its facility and listed its products with the FDA. The Company has
also registered its manufacturing facility with the Department of Health
Services of the State of California, as required, and federal and state
inspections have found the Company's facility to be in substantial compliance
with the QSR requirements for its products. However, there can be no assurance
that the Company's facility will continue to satisfy QSR requirements. The QSR
regulations also impose additional requirements, such as reporting obligations
and restrictions on promotional activities. In addition, the manufacture, sale
or use of the Company's products are also subject to regulation by other
federal entities, such as the Occupational Safety and Health Administration
and the Environmental Protection Agency, and by various state agencies.
Federal and state regulations regarding the manufacture, sale or use of the
Company's products are subject to future change, which could have a material
adverse effect on the Company's business, financial condition and results of
operation.
7
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RELIANCE ON SMALL PRODUCT LINE; UNCERTAINTY OF MARKET ACCEPTANCE
To date, the Company has generated revenue from sales of three of its
products, CholesTrak and ColoCARE, beginning in the first quarter of 1997, and
the Parent's Alert Home Drug Test Service, during the third quarter of 1997.
The Company has generated no significant sales revenue from its AccuMeter H.
pylori Test or AccuMeter Theophylline Test, both approved by the FDA in late
1997. The timing and extent of revenues generated by these and other new
products is highly uncertain and will depend in large part on market
acceptance of the Company's products. The Company's future success will depend
in part on its ability to obtain regulatory clearance for marketing its
products and its ability to develop, manufacture and market future products on
a timely basis. There can be no assurance that the Company's current product
development efforts will be successful, or that products can be manufactured
in commercial quantities at an acceptable cost or marketed successfully. In
addition, there can be no assurance that any of the Company's products will
gain significant market acceptance among physicians or the general public.
Because of the Company's small product line, development, regulatory or market
failures for even a single product are likely to have a material adverse
effect on the Company's business, financial condition and results of
operations.
RAPID TECHNOLOGICAL CHANGE; TECHNICAL UNCERTAINTY; HIGHLY COMPETITIVE INDUSTRY
Rapid and substantial technological change are expected to continue in the
health care industry generally and the diagnostic device industry in
particular. There can be no assurance that the Company's products will not
become obsolete or noncompetitive or that the Company will be able to keep
pace with technological developments. The consumer retail and physician office
markets have attracted a large number of competitors, many of which have
substantially greater resources than ChemTrak. Numerous other companies are
developing alternative strategies for areas in which the Company is marketing
or intends to market products. These alternative strategies could compete with
the Company's products and services. The Company's ability to anticipate
changes in technology and industry standards and to develop and successfully
introduce new and improved products that can gain market acceptance on a
timely basis will be a critical factor in the Company's growth and
competitiveness. Should the Company be unable, for technological or other
reasons, to develop products that are technologically competitive, responsive
to the needs of potential customers and competitively priced, its business
will be materially adversely affected. The Company is in the early stage of
development for various proposed AccuMeter and home test services. There can
be no assurance that successful products can be developed in a timely fashion,
or at all. There can be no assurance that the Company's competitors will not
develop more effective or more affordable products or achieve earlier or more
efficient product commercialization than the Company.
RELIANCE ON CORPORATE PARTNERS FOR PRODUCT DISTRIBUTION
ChemTrak has a broker sales force and also relies on a number of
collaborative arrangements with corporate partners for the distribution of its
products. Many of these arrangements are terminable by corporate partners at
the discretion of those partners. Termination of one or more of these
arrangements could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will be able to maintain these arrangements with its corporate
partners or, if such arrangements are terminated, that the Company would be
able to enter into arrangements with other corporate partners on satisfactory
terms, or at all. In addition, there can be no assurance that corporate
partners will market the Company's products effectively. In 1997, several of
the Company's corporate partners terminated contracts with the Company.
UNCERTAINTY OF PATENT POSITION AND PROPRIETARY RIGHTS
The Company's ability to compete effectively is materially dependent on the
proprietary nature of its technology. The Company currently has 14 United
States patents, five patent applications pending and nine foreign patents. The
patent position of medical device manufacturers, including ChemTrak, is
uncertain and may involve complex legal and factual issues. Consequently, the
Company does not know whether any of its patent
8
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applications will result in the issuance of any further patents, or whether
issued patents will provide significant proprietary protection or will not be
challenged, circumvented or invalidated. Since patent applications in the
United States are maintained in secrecy until patents issue, and since
publications or discoveries in the scientific or patent literature tend to lag
behind actual discoveries by several months, ChemTrak cannot be certain that
it was the first creator of inventions covered by pending patent applications
or that it was the first to file patent applications for such inventions.
Moreover, the Company may have to participate in interference proceedings
declared by the United States Patent and Trademark Office to determine the
priority of inventions, which could result in substantial cost to the Company
as well as commitment of management resources. Third parties may be issued
patents covering, or may otherwise acquire rights to, technology necessary or
potentially useful to the Company. The commercial success of the Company is
dependent in part upon its not infringing patents of third parties. There can
be no assurance that licenses to such technology will be available on
acceptable terms or at all. Failure of the Company to obtain any necessary
licenses could delay or prevent the introduction of Company products. The
Company may be required to resort to litigation to protect its patents or,
other proprietary rights or may be the subject of litigation to protect its
patents or against claims of infringement. Such litigation could result in
costs and diversions of resources and could have a material adverse effect on
the Company's business, results of operations and financial condition. There
can be no assurance that the Company's patent applications will result in
further issued patents or that such patents will offer protection against
competitors with similar technology.
VOLATILITY OF STOCK PRICE
The securities markets have from time to time experienced significant price
and volume fluctuations that may be unrelated to the operating performance of
particular companies. In addition, the market prices of the common stock of
many publicly traded medical device companies, including the Company, have in
the past been, and can in the future be expected to be, especially volatile.
Announcements of technological innovations or new products by the Company or
its competitors, developments or disputes concerning patents or proprietary
rights, publicity regarding actual or potential medical results relating to
products under development by the Company or its competitors, regulatory
developments in both the United States and foreign countries and economic and
other external factors, as well as period-to-period fluctuations in the
Company's financial results, may have a significant impact on the market price
of the Company's Common Stock.
Substantially all of the outstanding Common Stock of the Company is
available for sale in the public marketplace. The Company has stock options
outstanding to purchase an aggregate of 1,306,117 shares at exercise prices
ranging from $0.75 to $9.75 per share. In addition, the Company has issued
warrants as part of an equity financing agreement to purchase 133,333 shares
of Common Stock at an exercise price of $0.75 per share. These warrants expire
on the earliest date that the Company sells substantially all of its assets or
the Company is acquired. The Company has also sold and issued shares of
Preferred Stock pursuant to an equity financing agreement and plans to issue
and sell additional shares of Preferred Stock in subsequent financings. The
Preferred Stock will be convertible into shares of Common Stock pursuant to a
conversion formula which is substantially dilutive to current shareholders. No
prediction can be made as to the effect, if any, that exercises or conversions
of these options, warrants or Preferred Stock will have on the market prices
prevailing from time to time. The possibility that substantial amounts of
options, warrants or Preferred Stock can be exercised or converted may
adversely affect prevailing market prices for the Common Stock, and could
impair the Company's ability to raise capital through the sale of its equity
securities.
RISK OF PRODUCT LIABILITY; UNCERTAINTY OF AVAILABILITY OF INSURANCE
The Company's business exposes it to potential product liability risks that
are inherent in the testing, manufacturing and marketing of medical devices.
The Company maintains product liability insurance for products approved for
marketing and intends to seek additional insurance as new products are
approved. However, no assurance can be given that the Company will be able to
acquire or maintain insurance or that insurance can be acquired or maintained
at a reasonable cost or in sufficient amounts to protect the Company. There
can be no assurance that insurance coverage and the resources of the Company
would be sufficient to
9
<PAGE>
satisfy any liability resulting from product liability claims. A successful
product liability claim or series of claims brought against the Company could
have a material adverse effect on its business, financial condition and
results of operations.
UNCERTAINTIES RELATED TO ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
Due to the nature of its current and proposed manufacturing processes, the
Company is subject to stringent federal, state and local laws, rules,
regulations and policies governing the use, generation, manufacture, storage,
air emission, effluent discharge, handling and disposal of certain materials
and wastes. Although the Company believes that it has complied with these laws
and regulations in all material respects and has not been required to take any
action to correct any noncompliance, there can be no assurance that the
Company will not be required to incur significant costs to comply with
environmental and health and safety regulations as it continues to increase
production to commercial levels. In addition, the landlord of the Company's
facility in Sunnyvale, California has advised the Company that the groundwater
may be affected by contaminants migrating from an off-site source. Although
the Company has been indemnified by its landlord as to claims brought by third
parties with respect to this contamination and no claims have been asserted,
in the event remedial action is required, there can be no assurance that the
Company will not have to incur significant costs if the Company is required to
remedy the groundwater contamination even though the Company is not
responsible for the contamination or if the landlord does not fulfill its
obligations.
RISKS ASSOCIATED WITH HAZARDOUS MATERIALS
The Company's research and development involves the controlled use of
hazardous materials and chemicals. Although the Company believes that its
safety procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated.
In the event of such an accident, the Company could be held liable for any
damages that result and any such liability could exceed the resources of the
Company. In addition, the Company may incur substantial costs to comply with
environmental regulations for its manufacturing operations. See "--
Environmental Regulation."
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company's Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the Company's
stockholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that has been issued or may be issued in the future. The Company
recently sold and issued shares of Preferred Stock pursuant to an equity
financing in which it sold 1,300 shares of Preferred Stock. It plans to sell
and issue additional shares of Preferred Stock in subsequent equity
financings. The Preferred Stock will be convertible into shares of Common
Stock pursuant to a conversion formula that is substantially dilutive to
current shareholders. The ability of the Board of Directors to authorize
further issuances, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. In addition, the Company is subject
to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which prohibits the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. The application of Section 203 could have the effect of delaying or
preventing a change of control of the Company. The Company's Certificate of
Incorporation provides for staggered terms for the members of the Board of
Directors. The staggered Board of Directors and certain other provisions of
the Company's Certificate of Incorporation and Bylaws may have the effect of
delaying or preventing changes in control or management of the Company, which
could adversely affect the market price of the Company's Common Stock.
10
<PAGE>
PENNY STOCK REGULATIONS
The Common Stock is traded on the Nasdaq SmallCap Market. In order to
maintain its listing on the Nasdaq SmallCap Market, the Company must maintain
net tangible assets, capital and public float at specified levels, and
generally must maintain a minimum bid price of $1.00 per share. The Company's
net tangible assets were approximately $2.2 million at December 31, 1997,
compared to the current listing standard of $2 million. If the Company fails
to maintain the specified standards necessary to be quoted on the Nasdaq
SmallCap Market, the Company's securities could become subject to delisting.
If the securities are delisted, trading in the securities could be conducted
on the OTC Bulletin Board or in the over-the-counter market in what is
commonly referred to as the "pink sheets." If this occurs a stockholder will
find it more difficult to dispose of the securities or to obtain accurate
quotations as to the price of the Securities. In addition, the Common Stock
could become subject to the "penny stock" regulations promulgated under the
Exchange Act, which impose additional restrictions on broker-dealers who trade
in such stock and could severely limit the liquidity of the Company's
securities.
On March 3, 1998, the Company received a letter from Nasdaq stating that the
Company would be delisted 90 days after the issuance of the letter, unless the
Company generally maintained a bid price of $1.00 per share. The Company
intends to solicit stockholders' votes for a reverse stock split during such
90 day period in order to maintain its Nasdaq SmallCap listing.
SHARES ELIGIBLE FOR FUTURE SALE; SUBSTANTIAL DILUTIVE EFFECT
Substantially all of the Company's shares are eligible for sale in the
public market. The issuance of the Company's Common Stock upon conversion of
its Preferred Stock, as well as future sales of such Common Stock or of shares
of Common Stock by existing stockholders, or the perception that such sales
could occur, could adversely affect the market price of the Common Stock.
Conversion of the Company's Preferred Stock for shares of Common Stock could
adversely affect the market price of the Common Stock. In addition, investors
could experience substantial dilution upon conversion of the Company's
Preferred Stock into Common Stock as a result of either (i) a decline in the
market price of the Company's Common Stock immediately prior to conversion or
(ii) an event triggering the antidilution rights of any outstanding shares of
Conversion of the Company's Preferred Stock. The Company would be obligated to
issue the shares of Common Stock upon conversion of the Preferred Stock
regardless of the substantial dilution such issuance might have on the
ownership interests of other stockholders of the Company. See "Dilution",
"Selling Stockholders" and "Description of Capital Stock."
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares. All proceeds from the sale of the Shares will be for the account of
the Selling Stockholders, as described below. See "Selling Stockholders" and
"Plan of Distribution."
FORWARD-LOOKING STATEMENTS
This Prospectus, including the information incorporated by reference herein,
contains forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Actual results could
differ materially from those projected in the forward-looking statements as a
result of the risk factors set forth above. Reference is made in particular to
the discussion set forth under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Annual Report on Form
10-K for the fiscal year ended December 31, 1996, and the Quarterly Report on
10-Q for the period ended September 30, 1997, incorporated herein by
reference. In connection with forward-looking statements which appear or are
incorporated by reference herein, prospective purchasers of the Common Stock
offered hereby should carefully consider the factors set forth in this
Prospectus under "Risk Factors."
11
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of December 31, 1997
was $3.5 million or $0.26 per share of Common Stock. Pro forma net tangible
book value represents the Company's total tangible assets less total
liabilities (including proceeds of $1.3 million received from the issuance of
Series A Preferred Stock in January 1998). Pro forma net tangible book value
per share after conversion is calculated by dividing the pro forma net
tangible book value by the pro forma number of outstanding shares of Common
Stock after giving effect to the conversion of the Series A Preferred Stock
into Common Stock(1). Dilution per share represents the difference between the
pro forma net tangible book value per share before giving effect to the
conversion and the pro forma net tangible book value per share after giving
effect to the conversion. This represents an immediate dilution in pro forma
net tangible book value of $0.04 per share as illustrated in the following
table:
<TABLE>
<S> <C>
Pro forma net tangible book value per share before conversion...... $0.26
Pro forma net tangible book value per share after conversion....... $0.22
Dilution in pro forma net tangible book value per share assuming
conversion........................................................ $0.04
=====
</TABLE>
SELLING STOCKHOLDERS
The Shares being offered hereby by the Selling Stockholders may be acquired
from time to time, upon the conversion of the Series A Preferred Stock, which
were acquired from the Company in a private placement transaction exempt from
the registration requirements of the Securities Act by Regulation D and
Regulation S thereof, each pursuant to the terms of Subscription Agreements,
dated as of January 23, 1998, and January 26, 1998, respectively (each a
"Subscription Agreement"). This Prospectus covers the resale by the Selling
Stockholders of up to 4,266,000 Shares, plus, in accordance with Rule 416
under the Securities Act, such presently indeterminate number of additional
Shares as may be issuable upon conversion of the Series A Preferred Stock,
based upon fluctuations in the conversion price of the Series A Preferred
Stock or upon payment of dividends on the Series A Preferred Stock.
Pursuant to the Subscription Agreement, each of the Selling Stockholders has
represented that it acquired the Series A Preferred Stock for investment and
with no present intention of distributing the Series A Preferred Stock. The
Company agreed, in such Subscription Agreement, to prepare and file a
registration statement and to bear all expenses for such preparation and
filing other than fees and expenses of counsel for the Selling Stockholders
and underwriting discounts and commissions and brokerage commissions and fees.
In addition, and in recognition of the fact that each of the Selling
Stockholders, even though purchasing the Series A Preferred Stock without a
view to distribution, may wish to be legally permitted to sell the Shares
received upon conversion of such Series A Preferred Stock when it deems
appropriate, the Company filed with the Commission a Registration Statement on
Form S-3, of which this Prospectus forms a part, with respect to, among other
things, the resale of the Shares from time to time at prevailing prices in the
over-the-counter market or in privately-negotiated transactions, and the
Company further has agreed to prepare and file such amendments and supplements
to the Registration Statement as may be necessary to keep the Registration
Statement effective until all Shares offered hereby have been sold pursuant
thereto.
The Selling Stockholders have had no material relationship with the Company
within the past three years.
The following table sets forth the names of the Selling Stockholders, the
number of shares of Common Stock owned beneficially by the Selling
Stockholders as of May 13, 1998, the number of shares being offered pursuant
to this Prospectus and the number of shares owned after the Offering. The
numbers of Shares shown in the table as being offered by the Selling
Stockholders do not include such presently indeterminate number of
- --------
(1) For purposes of the calculation, the Conversion Price has been assumed to
be 75% of the average of the Closing Bid Price of the Common Stock for the
five trading days immediately preceding the date of issuance of the Series
A Preferred Stock. See "Selling Stockholders."
12
<PAGE>
shares of Common Stock as may be issuable upon conversion of the Preferred
Shares pursuant to the provisions thereof regarding determination of the
applicable conversion price or payment of dividends on the Series A Preferred
Stock but which shares are, in accordance with Rule 416 under the Securities
Act, included in the Registration Statement of which this Prospectus forms a
part. This information is based upon information provided by the Selling
Stockholders. There are currently no agreements, arrangements or
understandings with respect to the sale of any of the Shares. The Shares are
being registered to permit public secondary trading of the Shares, and the
Selling Stockholders may offer the Shares for resale from time to time.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES OWNED NUMBER OF SHARES OWNED
PRIOR TO SHARES BEING AFTER THE
NAME OFFERING(1) OFFERED OFFERING
---- ------------ ------------ ------------
<S> <C> <C> <C>
Austost Anstalt Schaan............. 82,914 820,500 0
Balmore Funds S.A. ................ 123,532 820,500 0
Arcadia Mutual Funds, Inc. ........ 98,198 492,300 0
Asia Equities...................... 136,028 328,200 0
Dora Fried......................... 264,817 820,500 0
Guilherme Duque.................... 105,300 492,300 0
Paril Holding...................... 248,759 492,300 0
</TABLE>
--------
(1) As of May 13, 1998, Selling Stockholder hold 1,057,548 shares of
Common Stock and 695 shares of Series A Preferred Stock
convertible into shares of Common Stock pursuant to the formula
set forth above.
The Preferred Stock quarterly accrues dividends in the amount of 6% per
annum. The Series A Preferred Stock is convertible into Common Stock as
follows: Each share of the Preferred Stock has a purchase price of $1,000 and
a stated value of $1,000 (the "Stated Value"). After 60 days from the date on
which a share of Preferred Stock was issued, each holder of shares of
Preferred Stock has the right at any time, and from time to time, to convert
some or all such shares into fully paid and nonassessable shares of Common
Stock. Any such conversion shall occur according to the following formula: the
number of shares of Common Stock issuable upon conversion of each share of
Preferred Stock will equal (i) the sum of (A) the Stated Value per share and
(B) accrued and unpaid dividends on such share, divided by (ii) the Conversion
Price. The Conversion Price shall be equal to the lesser of: (i) 75% of the
average of the Closing Bid Price (as defined below) of the Common Stock for
the five trading days immediately preceding the date of issuance of the
Preferred Stock; or (ii) 75% of the average of the Closing Bid Price for the
five trading days immediately preceding conversion of the Preferred Stock. The
Closing Bid Price shall mean the closing bid price of the Common Stock as
reported from the Nasdaq SmallCap Market (or if not reported by Nasdaq as
reported by such other exchange or market where traded). The minimum aggregate
Stated Value able to be converted will be at least $25,000 (unless if at the
time of such conversion the aggregate Stated Value of all shares of Preferred
Stock registered to the Holder is less than $25,000, then the whole amount may
be converted).
On the date two years after the issuance of the Preferred Stock (the
"Mandatory Conversion Date"), any shares of Preferred Stock not previously
converted into shares of Common Stock shall automatically be converted into
shares of Common Stock at the Conversion Price. On and after the Mandatory
Conversion Date, all dividends on the Preferred Stock shall cease to accrue
and the shares represented thereby shall no longer be deemed outstanding and
all rights of the holders thereof as stockholders of the Company shall cease
and terminate, except the right to receive the shares of Common Stock upon
conversion.
13
<PAGE>
The following table sets forth the number of shares that would be issued and
the dilution to stockholders based on a range of various prices upon
conversion of the Series A Preferred Stock.
CHEMTRAK
PRO FORMA SHARE OWNERSHIP
(SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
ASSUMED PRICE PER SHARE
-------------------------------------------------------
$0.8190 $1.02375 $0.6143 $0.4095
------------- ------------- ------------- -------------
CLASS OF STOCK SHARES % SHARES % SHARES % SHARES %
- -------------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock as of
December 31, 1997...... 13,643 86.6% 13,643 86.6% 13,643 82.9% 13,643 76.3%
Series A Preferred Stock
as of
January 23, 1998....... 2,116 13.4% 2,116 13.4% 2,822 17.1% 4,233 23.7%
------ ------ ------ ------ ------ ------ ------ ------
Total................. 15,759 100.0% 15,759 100.0% 16,465 100.0% 17,876 100.0%
====== ====== ====== ====== ====== ====== ====== ======
DILUTION PRO FORMA NET TANGIBLE BOOK VALUE PER SHARE
- -------- ------------------------------------------------
Before Conversion....... 0.26 0.26 0.26 0.26
After Conversion........ 0.22 0.22 0.21 0.20
------ ------ ------ ------
Dilution Assuming
Conversion............. 0.04 0.04 0.05 0.06
====== ====== ====== ======
</TABLE>
The assumed price per share of $0.8190 represents the five day average
closing bid price as of January 23, 1998. 75% of $0.8190, or $0.6143, is the
maximum price the Series A Preferred Stock holders will have to pay. The
prices shown in the remaining columns are 125%, 75% and 50% of $0.8190 and
provide examples of dilution at various prices. The computation in the above
table does not include additional shares to be issued upon conversion due to
accrued and unpaid dividends.
14
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 40,000,000 shares of
Common Stock, $0.001 par value, and 5,000,000 shares of Preferred Stock,
$0.001 par value. As of February 18, 1998, there were approximately 13,643,145
shares of Common Stock outstanding held of record by approximately 614 holders
and 1,300 shares of Series A Preferred Stock outstanding held of record by
approximately 7 holders.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any then outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends as may
be declared by the Board of Directors out of funds legally available therefor.
In the event of a liquidation, dissolution or winding up of the Company,
holders of the Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference of any
then outstanding Preferred Stock. Holders of Common Stock have no preemptive
rights and no right to convert their Common Stock into any other securities.
There are no redemption or sinking fund provisions applicable to the Common
Stock. All outstanding shares of Common Stock are, and all shares of Common
Stock to be outstanding upon completion of this offering will be, fully paid
and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue the undesignated Preferred
Stock in one or more series, without stockholder approval, with voting and
conversion rights which could adversely affect the voting power of the holders
of the Common Stock and have the effect of delaying, deferring or preventing a
change in the control of the Company.
After 60 days from the date on which a share of Series A Preferred Stock was
issued, each holder of shares of Series A Preferred Stock has the right at any
time, and from time to time, to convert some or all such shares into fully
paid and nonassessable shares of Common Stock. Any such conversion shall occur
according to the following formula: the number of shares of Common Stock
issuable upon conversion of each share of Series A Preferred Stock will equal
(i) the sum of (A) the Stated Value per share and (B) accrued and unpaid
dividends on such share, divided by (ii) the Conversion Price. The Conversion
Price shall be equal to the lesser of: (i) 75% of the average of the Closing
Bid Price (as defined below) of the Common Stock for the five trading days
immediately preceding the date of issuance of the Series A Preferred Stock; or
(ii) 75% of the average of the Closing Bid Price for the five trading days
immediately preceding conversion of the Series A Preferred Stock. The Closing
Bid Price shall mean the closing bid price of the Common Stock as reported
from the Nasdaq SmallCap Market (or if not reported by Nasdaq as reported by
such other exchange or market where traded). The minimum aggregate Stated
Value able to be converted will be at least $25,000 (unless if at the time of
such conversion the aggregate Stated Value of all shares of Series A Preferred
Stock registered to the Holder is less than $25,000, then the whole amount may
be converted).
Two years after the issuance of the Series A Preferred Stock (the "Mandatory
Conversion Date"), any shares of Series A Preferred Stock not previously
converted into shares of Common Stock shall automatically be converted into
shares of Common Stock at the Conversion Price. On and after the Mandatory
Conversion Date, all dividends on the Preferred Stock shall cease to accrue
and the shares represented thereby shall no longer be deemed outstanding and
all rights of the holders thereof as stockholders of the Company shall cease
and terminate, except the right to receive the shares of Common Stock upon
conversion.
The holders of outstanding shares of Series A Preferred Stock are entitled
to receive preferential dividends in cash out of any funds of the Company
legally available at the time for declaration of dividends before any dividend
or other distribution will be paid or declared and set apart for payment on
any shares of any Common Stock or other class of stock junior to the Series A
Preferred Stock (the Common Stock and such junior stock being hereinafter
collectively the "Junior Stock") at the rate of 6% simple interest per annum
on the Stated
15
<PAGE>
Value per share payable quarterly when and as declared; provided, however,
that these preferential cumulative dividends, if not paid, will accumulate as
a liability of the Company. In addition, fully paid and non-assessable shares
of Series A Preferred Stock at a rate of one share of Series A Preferred Stock
for each $1,000 of such dividend not paid in cash, and the issuance of such
additional shares, will constitute full payment of such dividend.
The dividends on the Series A Preferred Stock will be cumulative whether or
not earned so that if, at any time, full cumulative dividends at the rate
aforesaid on all shares of the Series A Preferred Stock then outstanding from
the date from and after which dividends thereon are cumulative to the end of
the quarterly dividend period next preceding such time shall not have been
paid or declared and set apart for payment, or if the full dividend on all
such outstanding Series A Preferred Stock for the then current dividend period
shall not have been paid or declared and set apart for payment, the amount of
the deficiency shall be paid or declared and set apart for payment (but
without interest thereon) before any sum shall be set apart for or applied by
the Company or a subsidiary of the Company to the purchase redemption or other
acquisition of the Series A Preferred Stock and before any dividend or other
distribution shall be paid or declared and set apart for payment on any Junior
Stock and before any sum shall be set aside for or applied to the purchase,
redemption or other acquisition of Junior Stock.
Dividends on all shares of the Series A Preferred Stock begin to accrue and
be cumulative from and after the date of issuance thereof. A dividend period
is deemed to commence on the day following a quarterly dividend payment date
herein specified and to end of the next succeeding quarterly dividend payment
date herein specified.
In the event of the dissolution, liquidation or winding-up of the Company,
whether voluntary or involuntary, the holders of the Series A Preferred Stock
will be entitled to receive before any payment or distribution will be made on
the Junior Stock, out of the assets of the Company available for distribution
to stockholders, the Stated Value per share of Series A Preferred Stock and
all accrued and unpaid dividends to and including the date of payment thereof.
Upon the payment in full of all amounts due to holders of the Series A
Preferred Stock, then the holders of the Junior Stock of the Company will
receive, ratably, all remaining assets of the Company legally available for
distribution. If the assets of the Company available for distribution to the
holders of the Series A Preferred Stock are insufficient to permit payment in
full of the amounts payable as aforesaid to the holders of Series A Preferred
Stock upon such liquidation, dissolution or winding-up, whether voluntary or
involuntary, then all such assets of the Company will be distributed to the
exclusion of the holders of shares of Junior Stock ratably among the holders
of Series A Preferred Stock.
Neither purchase nor the redemption by the Company of shares of any class of
stock nor the merger nor consolidation of the Company with or into any other
corporation or corporations nor the sale or transfer by the Company of all or
any part of its assets will be deemed to be a liquidation, dissolution or
winding-up of the Company for the purposes of the liquidation rights that
would be available under the Financing. The Investors will enjoy a right of
participation in any proposed public offering of Common Stock and a right of
first refusal in the event of any future equity financing.
The Company may elect to redeem all or part of the Stated Value of the
Series A Preferred Stock upon payment of an amount of dollars equal to the
number of shares of Common Stock that could be obtained by converting into the
Company's Common Stock that amount of Stated Value plus accrued but unpaid
dividends and any other sums payable in respect of that Stated Value at the
conversion price in effect on the date notice of redemption is given to the
Holder (the "Redemption Date") multiplied by the average of the Closing Bid
Price of the Common Stock for the five trading days immediately preceding such
date. The Company may not redeem any amount which the Holder has elected to
convert, including a notice of conversion given after the Redemption Date but
prior to receipt by the Holder of the payment under the redemption provisions.
The shares of Series A Preferred Stock have no voting rights. The shares of
Common Stock into which the Series A Preferred Stock is converted will have
full voting rights upon such conversion.
16
<PAGE>
The Company executed a private placement of approximately $1,002,000 on
April 6, 1998 through the issuance and sale of 1,002 shares of 6% Cumulative
Series B Convertible Preferred Stock, $0.001 par value per share, convertible
to Common Stock pursuant to a formula that includes a lower-than-market
conversion price (the "Series B Preferred Stock"). Each share of the Series B
Preferred Stock has a stated value of $1,000 (the "Series B Stated Value").
The Company intends to seek stockholder approval for the issuance and sale of
up to 5,000 shares of Series B Preferred Stock in a private placement of up to
$5,000,000 to qualified persons on the terms and conditions outlined in the
definitive proxy intended to be distributed.
After 90 days from the date on which a share of Series B Preferred Stock was
issued, each holder of shares of Series B Preferred Stock has the right at any
time, and from time to time, to convert some or all such shares into fully
paid and nonassessable shares of Common Stock. Any such conversion shall occur
according to the following conversion formula. The number of shares of Common
Stock issuable upon conversion of each share of Series B Preferred Stock will
equal (i) the sum of (A) the Series B Stated Value per share and (B) accrued
and unpaid dividends on such share, divided by (ii) the Series B Conversion
Price. The Series B Conversion Price shall be equal to 75% of the average of
the Closing Bid Price of the Common Stock for the five trading days
immediately preceding the date of Series B conversion of the Series B
Preferred Stock but in no event more than 100% of the average Closing Bid
Price for the five trading days immediately preceding the date of issuance of
the Series B Preferred Stock. The conversion formula does not specify an upper
limit on the number of shares of Common Stock that may be issued upon
conversion of the Series B Preferred Stock.
Two years after the issuance of the Series B Preferred Stock (the "Series B
Mandatory Conversion Date"), any shares of Series B Preferred Stock not
previously converted into shares of Common Stock shall automatically be
converted into shares of Common Stock at the Series B Conversion Price. On and
after the Series B Mandatory Conversion Date, all dividends on the Series B
Preferred Stock shall cease to accrue and the shares represented thereby shall
no longer be deemed outstanding and all rights of the holders thereof as
stockholders of the Company shall cease and terminate, except the right to
receive the shares of Common Stock upon conversion.
The holders of outstanding shares of Series B Preferred Stock are entitled
to receive preferential dividends in cash out of any funds of the Company
legally available at the time for declaration of dividends before any dividend
or other distribution will be paid or declared and set apart for payment on
any shares of any Common Stock or other class of stock junior to the Series B
Preferred Stock (the Common Stock and such junior stock being hereinafter
collectively the "Series B Junior Stock") at the rate of 6% simple interest
per annum on the Series B Stated Value per share payable quarterly when and as
declared; provided, however, that these preferential cumulative dividends, if
not paid, will accumulate as a liability of the Company. In addition, fully
paid and non-assessable shares of Series B Preferred Stock at a rate of one
share of Series B Preferred Stock for each $1,000 of such dividend not paid in
cash, and the issuance of such additional shares will constitute full payment
of such dividend.
The dividends on the Series B Preferred Stock will be cumulative whether or
not earned so that if, at any time, full cumulative dividends at the rate
aforesaid on all shares of the Series B Preferred Stock then outstanding from
the date from and after which dividends thereon are cumulative to the end of
the quarterly dividend period next preceding such time shall not have been
paid or declared and set apart for payment, or if the full dividend on all
such outstanding Series B Preferred Stock for the then current dividend period
shall not have been paid or declared and set apart for payment, the amount of
the deficiency shall be paid or declared and set apart for payment (but
without interest thereon) before any sum shall be set apart for or applied by
the Company or a subsidiary of the Company to the purchase redemption or other
acquisition of the Series B Preferred Stock and before any dividend or other
distribution shall be paid or declared and set apart for payment on any Series
B Junior Stock and before any sum shall be set aside for or applied to the
purchase, redemption or other acquisition of Series B Junior Stock.
Dividends on all shares of the Series B Preferred Stock will begin to accrue
and be cumulative from and after the date of issuance thereof on a quarterly
basis.
17
<PAGE>
In the event of the dissolution, liquidation or winding-up of the Company,
whether voluntary or involuntary, the holders of the Series B Preferred Stock
will be entitled to receive before any payment or distribution will be made on
the Series B Junior Stock, out of the assets of the Company available for
distribution to stockholders, the Series B Stated Value per share of Series B
Preferred Stock and all accrued and unpaid dividends to and including the date
of payment thereof. Upon the payment in full of all amounts due to holders of
the Series B Preferred Stock, then the holders of the Series B Junior Stock of
the Company will receive, ratably, all remaining assets of the Company legally
available for distribution. If the assets of the Company available for
distribution to the holders of the Series B Preferred Stock are insufficient
to permit payment in full of the amounts payable as aforesaid to the holders
of Series B Preferred Stock upon such liquidation, dissolution or winding-up,
whether voluntary or involuntary, then all such assets of the Company will be
distributed to the exclusion of the holders of shares of Series B Junior Stock
ratably among the holders of Series B Preferred Stock.
Neither purchase nor the redemption by the Company of shares of any class of
stock nor the merger nor consolidation of the Company with or into any other
corporation or corporations nor the sale or transfer by the Company of all or
any part of its assets will be deemed to be a liquidation, dissolution or
winding-up of the Company for the purposes of the liquidation rights that
would be available to the holders of the Series B Preferred Stock. The holders
of the Series B Preferred Stock will enjoy a right of participation in any
proposed public offering of Common Stock and a right of first refusal in the
event of any future private equity financing.
The Company may elect to redeem all or part of the shares of outstanding
Series B Preferred Stock upon payment of the Series B Stated Value (plus any
dividends accumulated thereon) multiplied by 1.333 (the "Redemption Price").
After the date on which the Company gives written notice to a holder of shares
of Series B Preferred Stock of the Company's intent to redeem the shares of
Series B Preferred Stock, the holder of such shares of Series B Preferred
Stock shall have five business days to notify the Company if such holder
elects to convert the Series B Preferred Stock to Common Stock (rather than
have the Series B Preferred Stock redeemed by the Company).
If the Company cannot issue shares of Common Stock pursuant to the
conversion provisions of the Series B Preferred Stock for any reason, the
holder of those shares of Series B Preferred Stock for which the Company is
unable to issue Common Stock, solely at such holder's option, may elect to
require the Company to redeem all of part of such Series B Preferred Stock at
the Redemption Price within ten business days of receiving notice; provided
the Company can make such a distribution to such holders under the provisions
of the state corporation laws then applicable. In the event the Company
receives a conversion notice from more than one holder of Series B Preferred
Stock on the same day, and the Company is able to convert some, but not all,
of such Series B Preferred Stock, the Company will convert from each such
holder electing to have Series B Preferred Stock converted at such time an
amount equal to such holder's pro rata amount (based on the number of Series B
Preferred Stock held by such holder relative to the number of Series B
Preferred Stock outstanding) of all Series B Preferred Stock being converted
and the remaining shares that cannot be converted will be redeemed pro rata at
such time at the Redemption Price.
The shares of Series B Preferred Stock have no voting rights. The shares of
Common Stock into which the Series B Preferred Stock is converted will have
full voting rights.
The beneficial conversion feature attached to the Series A Preferred Stock
and the Series B Preferred Stock will be recognized and measured by allocating
a portion of the proceeds equal to the intrinsic value of that feature to
additional paid-in capital. The intrinsic value will be calculated at the date
of issue as the difference between the issue price and the fair market value
of the Common Stock into which the security is convertible, multiplied by the
number of shares into which the security is convertible. As the security
provides more than one method of determining the conversion rate, the
computation will be made using the conversion terms that are most beneficial
to the investor. The discount resulting from an allocation of proceeds to the
beneficial conversion feature is analogous to a dividend and will be
recognized as a return to the preferred stockholders over the minimum period
in which the preferred stockholders can realize that return, which is 60 days
and 90 days after issuance for the Series A Preferred Stock and the Series B
Preferred Stock, respectively. The discount, or the
18
<PAGE>
"deemed dividend," will be accreted using the effective interest method from
the date of issuance through the date the security is first convertible.
The mechanics of the conversion for the $1,300,000 of Series A Preferred
Stock state that the conversion price will be computed as the lesser of: (i)
75% of the average of the closing bid price of the Common Stock for the five
trading days immediately preceding the date of issuance of the Series A
Preferred Stock; or (ii) 75% of the average of the closing bid price of the
Common Stock for the five trading days immediately preceding conversion of the
Series A Preferred Stock. Beginning 60 days after issuance, each holder would
have the right at any time, and from time to time, to convert some or all such
shares into fully paid and nonassessable shares of Common Stock.
On January 23, 1998 the Company issued $1,300,000 of Series A Preferred
Stock to private investors. The following table sets forth the deemed dividend
and the impact on net loss per share as of the date of issuance and the number
of shares outstanding as of December 31, 1997.
<TABLE>
<S> <C>
Five day average closing bid price on the date of issuance
(January 23, 1998): $ 0.8190
Conversion price: $ 0.61425
----------
Intrinsic value per post conversion share: $ 0.20475
Series A Preferred Stock offered: $1,300,000
Minimum shares to be issued: 2,116,402
Deemed dividend: $ 433,333
Shares used in calculating net loss attributable to common
stockholders per common share as of December 31, 1997: 13,643,145
Impact on net loss per share as of the date of issuance: $ 0.032
</TABLE>
The deemed dividend or return to the preferred stockholders that should be
recognized over the minimum period in which the preferred stockholders can
realize the return by converting will be $433,333. The deemed dividend will
affect net loss per share in computing net loss attributable to common
stockholders. Additional shares will be issued if the stock price falls below
$0.8190 on the date of conversion. Based on the computations in the above
table, the anticipated impact on net loss per share from the 25% conversion
feature of the Series A Preferred Stock will result in an increase in net loss
per share to common stockholders of $0.032. The deemed dividend of $433,333
was accreted to accumulated deficit in the first three months of 1998.
The mechanics of the conversion for the $5,000,000 of Series B Preferred
Stock state that the conversion price will be computed as 75% of the average
closing bid price of the Common Stock for the five trading days immediately
preceding the date of the conversion of the Series B Preferred Stock, but at
no event more than 100% of the average Closing Bid Price for the five trading
days immediately preceding the date of issuance of the Series B Preferred
Stock. Beginning 90 days after issuance, each holder would have the right at
any time, and from time to time, to convert some or all such shares into fully
paid and nonassessable shares of Common Stock.
19
<PAGE>
The following is an example showing the deemed dividend or return to the
holders of Preferred Stock that should be recognized over the minimum period
in which the holders of Series B Preferred Stock can realize the return by
converting and the different number of shares to be issued based upon the five
day average closing bid price the date of conversion.
<TABLE>
<CAPTION>
EXAMPLE 1 EXAMPLE 2 EXAMPLE 3 EXAMPLE 4
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Five day average closing bid
price on the date of issuance
(assumed issuance date
March 27, 1998): $ 0.90 $ 0.90 $ 0.90 $ 0.90
Assumed five day average
closing bid price the date of
conversion: $ 1.20 $ 1.00 $ 1.50 $ 0.90
Conversion price: $ 0.90 $ 0.75 $ 0.90 $ 0.675
---------- ---------- ---------- ----------
Intrinsic value per post
conversion share: $ 0.225 $ 0.225 $ 0.225 $ 0.225
Series B Preferred Stock
offered: $5,000,000 $5,000,000 $5,000,000 $5,000,000
Shares to be issued: 5,555,555 6,666,666 5,555,555 7,407,407
Deemed dividend: $1,666,667 $1,666,667 $1,666,667 $1,666,667
</TABLE>
The deemed dividend will affect net loss per share in computing net loss
attributable to common stockholders. The minimum shares to be issued are
5,555,555 shares. Additional shares will be issued if the five day average
closing bid price falls below $1.20 on the date of conversion.
Based on the computations in the above table, if all shares of Series B
Preferred Stock are issued, the anticipated impact on net loss per share from
the conversion feature of the Series B Preferred Stock will result in an
increase in net loss per share to common stockholders.
On April 6, 1998 the Company issued $1,002,000 of Series B Preferred Stock
to private investors. The following table sets forth the deemed dividend and
the impact on net loss per share as of the date of issuance and the number of
shares outstanding as of March 31, 1998.
<TABLE>
<S> <C>
Five day average closing bid price on the date of issuance
(April 6, 1998): $ 0.74375
Assumed five day average closing bid price on the date of
conversion: $ 0.74375
Conversion price (75%): $ 0.55781
----------
Intrinsic value per post conversion share: $ 0.18594
Series B Preferred Stock offered: $1,002,000
Shares to be issued: 1,796,311
Deemed dividend: $ 334,006
Shares used in calculating net loss attributable to common
stockholders per common share as of March 31, 1998: 14,061,000
Impact on net loss per share as of the date of issuance: $ 0.024
</TABLE>
For purposes of the calculation in the above table the five day average
closing bid price on the date of conversion has assumed to be the same as the
five day average closing bid price on the date of issuance on April 6, 1998.
The deemed dividend of $334,006 will be accreted to accumulated deficit in the
second quarter of 1998.
20
<PAGE>
PLAN OF DISTRIBUTION
The Shares offered hereunder may be offered and sold from time to time by
the Selling Stockholders, or by pledgees, donees, transferees or other
successors in interest. Such sales may be made on the Nasdaq SmallCap Market
or in the over-the-counter market or otherwise, at prices and on terms then
prevailing or related to the then-current market price, or in negotiated
transactions. The Shares may be sold to or through one or more of the
following methods, including, without limitation, broker-dealers, acting as
agent or principal, in underwritten offerings, block trades, agency
placements, exchange distributions, brokerage transactions or otherwise, or in
any combination of transactions.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Shares may not simultaneously engage in
market making activities with respect to the Company's Common Stock for a
period of two business days prior to the commencement of such distribution. In
addition and without limiting the foregoing, the Selling Stockholders will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Regulation M, which
provisions may limit the timing of purchases and sales of shares of Common
Stock by the Selling Stockholders.
At the time a particular offer of Shares is made, to the extent required, a
supplemental prospectus will be distributed which will set forth the number of
shares being offered and the terms of the offering including the name or names
of any underwriters, dealers or agents, the purchase price paid by an
underwriter for the Shares purchased from the Selling Stockholders and any
discounts, concessions or commissions allowed or reallowed or paid to dealers.
In connection with any transaction involving the Shares, broker-dealers or
others may receive from the Selling Stockholders, and/or the purchasers of the
Shares for whom such broker-dealers act as agents or to whom they may sell as
principals or both, compensation in the form of discounts, concessions or
commissions in amounts to be negotiated at the time (which compensation as to
a particular broker-dealer might be in excess of customary commissions).
Broker-dealers and any other persons participating in a distribution of the
Shares may be deemed to be "underwriters" within the meaning of the Act in
connection with such distribution, and any such discounts, concessions or
commissions may be deemed to be underwriting discounts or commissions under
the Act. From time to time, the Selling Stockholders may pledge, hypothecate
or grant a security interest in some or all of the Shares owned by them, and
the pledgees, secured parties or persons to whom such securities have been
hypothecated shall, upon foreclosure in the event of default, be deemed to be
Selling Stockholders hereunder. In addition, the Selling Stockholders may,
from time to time, sell short the Common Stock of the Company, and in such
instances, this Prospectus may be delivered in connection with such short
sales and the Shares offered hereby may be used to cover such short sales.
Any or all of the sales or other transactions involving the Shares described
above, whether effected by the Selling Stockholders, any broker-dealer or
others, may be made pursuant to this Prospectus. In addition, any Shares that
qualify for sale pursuant to Rule 144 under the Act may be sold under Rule 144
rather than pursuant to this Prospectus. The Selling Stockholders' Shares may
also be offered in one or more underwritten offerings, on a firm commitment or
best efforts basis. The Company will receive no proceeds from the sale of the
Selling Stockholders' Shares by the Selling Stockholders. The Shares may be
sold from time to time in one or more transactions at a fixed offering price,
which may be changed, or at varying prices determined at the time of sale or
at negotiated prices. Such prices will be determined by the Selling
Stockholders or by agreement between the Selling Stockholders and its
underwriters, dealers, brokers or agents.
To the extent required under the Securities Act, the aggregate amount of
Selling Stockholders' Shares being offered and the terms of the offering, the
names of any such agents, brokers, dealers or underwriters and any applicable
commission with respect to a particular offer will be set forth in an
accompanying Prospectus supplement. Any underwriters, dealers, brokers or
agents participating in the distribution of the Shares may receive
compensation in the form of underwriting discounts, concessions, commissions
or fees from a Selling Stockholders and/or purchasers of Selling Stockholders'
Shares, for whom they may act. In addition, sellers of
21
<PAGE>
Selling Stockholders' Shares may be deemed to be underwriters under the
Securities Act and any profits on the sale of Selling Stockholders' Shares by
them may be deemed to be discount commissions under the Securities Act. The
Selling Stockholders may have other business relationships with the Company
and its subsidiaries or affiliates in the ordinary course of business.
From time to time the Selling Stockholders may transfer, pledge, donate or
assign Selling Stockholders' Shares to lenders, family members and others and
each of such persons will be deemed to be a "Selling Stockholders" for
purposes of this Prospectus. The number of Selling Stockholders' Shares
beneficially owned by the Selling Stockholders who so transfer, pledge, donate
or assign Selling Stockholders' Shares will decrease as and when they take
such actions. The plan of distribution for Selling Stockholders' Shares sold
hereunder will otherwise remain unchanged, except that the transferees,
pledgees, donees or other successors will be Selling Stockholders hereunder.
Including and without limiting the foregoing, in connection with
distributions of the Common Stock, the Selling Stockholders may enter into
hedging transactions with broker-dealers and the broker-dealers may engage in
short sales of the Common Stock in the course of hedging the positions they
assume with the Selling Stockholders. The Selling Stockholders may also enter
into option or other transactions with broker-dealers that involve the
delivery of the Common Stock to the broker-dealers, who may then resell or
otherwise transfer such Common Stock. The Selling Stockholders may also loan
or pledge the Common Stock to a broker-dealer and the broker-dealer may sell
the Common Stock so loaned or upon a default may sell or otherwise transfer
the pledged Common Stock.
In order to comply with the securities laws of certain states, if
applicable, the Stocks may be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless the Shares have been registered or qualified for
sale or an exemption from registration or qualification requirements is
available and is complied with.
All cost associated with this offering, other than fees and expense of
counsel for the Selling Stockholders and underwriting discounts and
commissions and brokerage commissions and fees, will be paid by the Company.
The Company has agreed to indemnify the Selling Stockholders against certain
liabilities in connection with any offering of the Shares pursuant to this
Prospectus, including liabilities arising under the Securities Act.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California.
EXPERTS
The financial statements of ChemTrak Incorporated at December 31, 1996 and
for both of the years in the period ended December 31, 1996 appearing or
incorporated by reference in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, to the extent
indicated in their reports thereon also appearing elsewhere herein and in the
Registration Statement or incorporated by reference. The balance sheet as of
December 31, 1997 and the statements of operations, stockholders' equity, and
cash flows for the year then ended, incorporated by reference in this
Prospectus and Registration Statement, have been incorporated herein in
reliance on the report, which includes an explanatory paragraph relating to
substantial doubt about the entity's ability to continue as a going concern,
of Coopers & Lybrand L.L.P., independent accountants, given on the authority
of that firm as experts in accounting and auditing. Such financial statements
have been included herein or incorporated herein by reference in reliance upon
such reports given upon the authority of such firms as experts in accounting
and auditing.
22
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY SELLING
STOCKHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 3
Information Incorporated by Reference...................................... 3
The Company................................................................ 5
Risk Factors............................................................... 5
Use of Proceeds............................................................ 11
Forward-Looking Statements................................................. 11
Dilution................................................................... 12
Selling Stockholders....................................................... 12
Description of Capital Stock............................................... 15
Plan of Distribution....................................................... 21
Legal Matters.............................................................. 22
Experts.................................................................... 22
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
4,266,600 SHARES
CHEMTRAK INCORPORATED
COMMON STOCK
(PAR VALUE $0.001 PER SHARE)
----------------
PROSPECTUS
----------------
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all costs and expenses payable by the Company
in connection with the sale of Common Stock being registered hereunder. All of
the amounts are estimates except the SEC registration fee and the NASD filing
fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
-----------
<S> <C>
SEC Registration Fee........................................ $ 1,082.50
Nasdaq Listing Fee Printing Expenses........................ $ 7,500.00
Printing Expenses........................................... $ 50,000.00
Accounting Fees and Expenses................................ $ 10,000.00
Legal Fees and Expenses..................................... $ 40,000.00
Miscellaneous Expenses...................................... $ 3,000.00
-----------
Total..................................................... $111,582.50
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law the Company has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act.
The Company's Bylaws provide that the Company will indemnify its directors and
executive officers and may indemnify other officers to the full extend
permitted by law. The Company believes that indemnification under its Bylaws
covers at least negligence and gross negligence by directors and officers, and
requires the Company to advance litigation expenses in the case of stockholder
derivative actions or other actions, against an undertaking by the officer or
director to repay such advances if it is ultimately determined that the
director or officer is not entitled to indemnification. The Bylaws further
provide that rights conferred under such Bylaws shall not be deemed to be
exclusive of any other right such persons may have or acquire under any
statute, provision of any Restated Certificate of Incorporation, Bylaw,
agreement, vote of stockholders, disinterested directors or otherwise.
In addition, the Company's Restated Certificate of Incorporation provides
that, pursuant to Delaware law, its directors shall not be liable for monetary
damages for breach of the directors' fiduciary duty of care to the Company and
its stockholders. This provision in the Restated Certificate of Incorporation
does not eliminate the duty of care, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief
will remain available under Delaware law. In addition, each director will
continue to be subject to liability for breach of the director's duty of
loyalty to the Company, for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision also does not affect a director's responsibilities under
any other law, such as the federal securities laws or state or federal
environmental laws.
The Company has entered into indemnification contracts with certain of its
directors and executive officers. The Company currently has a liability
insurance policy which insures directors and officers of the Company in
certain circumstances. The policy also insures the Company against losses as
to which its directors and officers are entitled to indemnification.
II-1
<PAGE>
ITEM 16.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 Certificate of Incorporation of the Company (incorporated by reference
from the Exhibits to the Company's Registration Statement on Form S-1
Registration No. 33-44673 which became effective February 19, 1992).
3.2 Certificate of Amendment of Certificate of Incorporation (incorporated
by reference from the Exhibits to the Company's Registration
Statement on Form S-1 Registration No. 33-44673 which became
effective February 19, 1992).
3.3 Amended and Restated Certificate of Incorporation (incorporated by
reference from the Exhibits to the Company's Registration Statement
on Form S-1 Registration No. 33-44673 which became effective February
19, 1992).
3.4* Certificate to Set Forth Designations, Voting Powers, Preferences,
Limitations, Restrictions, and Relative Rights of Series A 6%
Cumulative Convertible Series A Preferred Stock, $0.001 Par Value Per
Share.
3.5* Certificate of Correction Filed to Correct a Certain Error in the
Certificate to Set Forth Designations, Voting Powers, Preferences,
Limitations, Restrictions, and Relative Rights of Series A 6%
Cumulative Convertible Series A Preferred Stock, $0.001 Par Value Per
Share of ChemTrak Incorporated Filed in the Office of the Secretary
of State of Delaware on January 16, 1998.
3.6* Revised Certificate of Correction Filed in the Office of the Secretary
of State of Delaware on February 19, 1998 to Correct a Certain Error
in the Certificate to Set Forth Designations, Voting Powers,
Preferences, Limitations, Restrictions, and Relative Rights of Series
A 6% Cumulative Convertible Preferred Stock, $0.001 Par Value Per
Share of ChemTrak Incorporated Filed in the Office of the Secretary
of State of Delaware on January 16, 1998.
3.7 Bylaws of the Company (incorporated by reference from the Exhibits to
the Company's Registration Statement on Form S-1 Registration No. 33-
44673 which became effective February 19, 1992).
3.8* Amended Certificate to Set Forth Designations, Voting Powers,
Preferences, Limitations, Restrictions, and Relative Rights of Series
A 6% Cumulative Convertible Preferred Stock, $0.001 Par Value Per
Share, and Series B 6% Cumulative Convertible Preferred Stock, $0.001
Par Value Per Share of ChemTrak Incorporated Filed in the Office of
the Secretary of State of Delaware on April 8, 1998.
3.9 Certificate of Correction Filed to Correct a Certain Error in the
Amended Certificate to Set Forth Designations, Voting Powers,
Preferences, Limitations, Restrictions, and Relative Rights of Series
A 6% Cumulative Convertible Preferred Stock, $0.001 Par Value Per
Share, and Series B 6% Cumulative Convertible Preferred Stock, $0.001
Par Value Per Share of ChemTrak Incorporated Filed in the Office of
the Secretary of State of Delaware on April 8, 1998.
4.1* Form of Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included as part of
Exhibit 5.1).
23.3 Consent of Coopers & Lybrand L.L.P.
</TABLE>
- --------
* Previously filed with the initial filing of this Registration Statement.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(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;
(2) That, for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof; and
(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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act,
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Sunnyvale, California, on May 21,
1998.
CHEMTRAK INCORPORATED
/s/ Donald V. Fluken
By: _________________________________
Donald V. Fluken
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by or on behalf of the following
persons on May 21, 1998, in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Prithipal Singh, Ph.D. Chairman of the Board
_____________________________________________
Prithipal Singh, Ph.D.
/s/ Edward F. Covell President and Chief Executive Officer
_____________________________________________ (Principal Executive Officer)
Edward F. Covell
/s/ Donald V. Fluken Chief Financial Officer (Principal Financial
_____________________________________________ and Accounting Officer)
Donald V. Fluken
* Director
_____________________________________________
Malcolm Jozoff
* Director
_____________________________________________
Robert P. Kiley
* Director
_____________________________________________
David Rubinfien
* Director
_____________________________________________
Gordon Russell
</TABLE>
*By: /s/Prithipal Singh, Ph.D.
------------------------------------
Prithipal Singh, Ph.D.
Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 Certificate of Incorporation of the Company (incorporated by reference
from the Exhibits to the Company's Registration Statement on Form S-1
Registration No. 33-44673 which became effective February 19, 1992).
3.2 Certificate of Amendment of Certificate of Incorporation (incorporated
by reference from the Exhibits to the Company's Registration
Statement on Form S-1 Registration No. 33-44673 which became
effective February 19, 1992).
3.3 Amended and Restated Certificate of Incorporation (incorporated by
reference from the Exhibits to the Company's Registration Statement
on Form S-1 Registration No. 33-44673 which became effective February
19, 1992).
3.4* Certificate to Set Forth Designations, Voting Powers, Preferences,
Limitations, Restrictions, and Relative Rights of Series A 6%
Cumulative Convertible Series A Preferred Stock, $0.001 Par Value Per
Share.
3.5* Certificate of Correction Filed to Correct a Certain Error in the
Certificate to Set Forth Designations, Voting Powers, Preferences,
Limitations, Restrictions, and Relative Rights of Series A 6%
Cumulative Convertible Series A Preferred Stock, $0.001 Par Value Per
Share of ChemTrak Incorporated Filed in the Office of the Secretary
of State of Delaware on January 16, 1998.
3.6* Revised Certificate of Correction Filed in the Office of the Secretary
of State of Delaware on February 19, 1998 to Correct a Certain Error
in the Certificate to Set Forth Designations, Voting Powers,
Preferences, Limitations, Restrictions, and Relative Rights of Series
A 6% Cumulative Convertible Preferred Stock, $0.001 Par Value Per
Share of ChemTrak Incorporated Filed in the Office of the Secretary
of State of Delaware on January 16, 1998.
3.7 Bylaws of the Company (incorporated by reference from the Exhibits to
the Company's Registration Statement on Form S-1 Registration No. 33-
44673 which became effective February 19, 1992).
3.8* Amended Certificate to Set Forth Designations, Voting Powers,
Preferences, Limitations, Restrictions, and Relative Rights of Series
A 6% Cumulative Convertible Preferred Stock, $0.001 Par Value Per
Share, and Series B 6% Cumulative Convertible Preferred Stock, $0.001
Par Value Per Share of ChemTrak Incorporated Filed in the Office of
the Secretary of State of Delaware on April 8, 1998.
3.9 Certificate of Correction Filed to Correct a Certain Error in the
Amended Certificate to Set Forth Designations, Voting Powers,
Preferences, Limitations, Restrictions, and Relative Rights of Series
A 6% Cumulative Convertible Preferred Stock, $0.001 Par Value Per
Share, and Series B 6% Cumulative Convertible Preferred Stock, $0.001
Par Value Per Share of ChemTrak Incorporated Filed in the Office of
the Secretary of State of Delaware on April 8, 1998.
4.1* Form of Common Stock Certificate.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included as part of
Exhibit 5.1).
23.3 Consent of Coopers & Lybrand L.L.P.
</TABLE>
- --------
* Previously filed with the initial filing of this Registration Statement.
<PAGE>
Exhibit 3.9
CERTIFICATE OF CORRECTION FILED TO CORRECT A CERTAIN ERROR IN THE AMENDED
CERTIFICATE TO SET FORTH DESIGNATIONS, VOTING POWERS, PREFERENCES,
LIMITATIONS, RESTRICTIONS, AND RELATIVE RIGHTS OF SERIES A 6% CUMULATIVE
CONVERTIBLE PREFERRED STOCK, $0.001 PAR VALUE PER SHARE, AND SERIES B 6%
CUMULATIVE CONVERTIBLE PREFERRED STOCK, $0.001 PAR VALUE PER SHARE OF
CHEMTRAK INCORPORATED FILED IN THE OFFICE OF THE SECRETARY OF STATE OF
DELAWARE ON APRIL 8, 1998
CHEMTRAK INCORPORATED hereby certifies that:
1. The name of the corporation is ChemTrak Incorporated, a Delaware
corporation.
2. That an AMENDED CERTIFICATE TO SET FORTH DESIGNATIONS, VOTING POWERS,
PREFERENCES, LIMITATIONS, RESTRICTIONS, AND RELATIVE RIGHTS OF SERIES A 6%
CUMULATIVE CONVERTIBLE PREFERRED STOCK, $0.001 PAR VALUE PER SHARE, AND SERIES B
6% CUMULATIVE CONVERTIBLE PREFERRED STOCK, $0.001 PAR VALUE PER SHARE was
filed by the Secretary of State of Delaware on April 8, 1998 and that said
Certificate requires correction as permitted under Section 103 of the General
Corporation Law of the State of Delaware.
3. The inaccuracy or defect of said Certificate to be corrected is as
follows: Article III, Section 4(b) included a clerical error.
4. Article III, Section 4(b) of the Certificate is corrected to read as
follows:
(b) Each share of Series B Preferred Stock shall have a stated
value equal to $1,000 (as adjusted for any stock combinations or splits
with respect to such shares) (the "Stated Value"). The number of shares of
Common Stock issuable upon conversion of each share of Series B Preferred
Stock shall equal (i) the sum of (A) the Stated Value per share and (B)
accrued and unpaid dividends on such share, divided by (ii) the Conversion
Price. The Conversion Price shall be equal to the lesser of: (i) one
hundred percent (100%) of the average of the Closing Bid Price (as
hereinafter defined) of the Corporation's Common Stock for the five (5)
trading days immediately preceding the date of issuance of the Series B
Preferred Stock; or (ii) seventy-five percent (75%) of the average of the
Closing Bid Price for the five trading days immediately preceding
conversion of the Series B Preferred Stock. The Closing Bid Price shall
mean the closing bid price of the Corporation's Common Stock as reported
from the NASDAQ SmallCap Market (or if not reported by NASDAQ as reported
by such other exchange or market where traded). The Company may elect to
redeem all of part of the Series B Preferred Stock upon payment of the
Stated Value (plus any dividends accumulated thereon) multiplied by 1.333
(the "Redemption Price") to the Holders for each share to be redeemed. The
date notice of redemption is given to the Holder is the
<PAGE>
Redemption Date. The Company shall effect a Redemption by written notice to
the Holder. The Redemption Price must be paid by the Company to the Holder
not sooner than five business days, but not later than ten business days
after such notice is sent. The Company may not redeem any amount that the
Holder has elected to convert, including a notice of conversion given after
the Redemption Date but prior to receipt by the Holder of the Redemption
Price. In the event the Company gives written notice to affect a
redemption, but fails to timely pay the Redemption Price, then the Holder
may elect to avoid the Redemption Notice. After such failure, the Company
will no longer have the right to affect any Redemption.
IN WITNESS WHEREOF, said CHEMTRAK INCORPORATED has caused this Certificate
to be signed by Edward Covell, its President, and attested by Donald Fluken, its
Chief Financial Officer, this 21st day of May, 1998.
Signed on this 21st day of May, 1998.
CHEMTRAK, INCORPORATED
By: /s/ Edward Covell
_________________________________
Edward Covell, President
ATTEST:
/s/ Donald Fluken
________________________________
Donald Fluken, Chief Financial Officer
-2-
<PAGE>
EXHIBIT 5.1
May 21, 1998
ChemTrak Incorporated
929 E. Arques Avenue
Sunnyvale, CA 94086
Re: ChemTrak Incorporated (the "Company") Registration Statement on Form S-3
------------------------------------------------------------------------
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 filed by the Company
with the Securities and Exchange Commission on February 23, 1998 (Registration
No. 333-46745), as amended (the "Registration Statement") in connection with
the registration under the Securities Act of 1933, as amended, of 4,266,600
shares of Common Stock of the Company (the "Shares"). As your counsel, we have
examined the proceedings taken and are familiar with the proceedings proposed to
be taken by you in connection with the issuance and sale of the Shares.
It is our opinion that the Shares, when issued and sold in the manner
referred to in the Registration Statement, will be legally and validly issued,
fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the Prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-3 No. 333-46745) and related Prospectus of
ChemTrak Incorporated for the registration of 4,266,600 shares of its common
stock and to the incorporation by reference therein of our report dated
January 17, 1997, with respect to the financial statements of ChemTrak
Incorporated included in its Annual Report (Form 10-K) for the year ended
December 31, 1996, filed with the Securities and Exchange Commission.
/S/ ERNST & YOUNG LLP
Palo Alto, California
May 21, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF COOPERS & LYBRAND L.L.P., INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-3
(Registration No. 333-46745) of our report, which includes an explanatory
paragraph relating to substantial doubt about the entity's ability to continue
as a going concern, dated January 16, 1998, except for Note 10 for which the
date is January 26, 1998 and Note 12 for which the date is April 6, 1998, on
our audit of the financial statements and the financial statement schedule of
ChemTrak Incorporated. We also consent to the reference to our firm under the
caption "Experts."
/S/ COOPERS & LYBRAND L.L.P.
San Jose, California
May 21, 1998
