Filed Pursuant to Rule 424(b)(3)
REGISTRATION NO. 333-14215
PROSPECTUS
683,333 Shares
PARACELSIAN, INC.
Common Stock, $.01 Par Value
________________
This Prospectus relates to the public offering of shares of
common stock (the "Shares") of Paracelsian, Inc. (the "Company")
which may be offered by certain shareholders (the "Selling
Shareholders"). The Shares were issued by the Company to the
Selling Shareholders in September of 1996 pursuant to a private
placement. The Shares may be offered from time to time in
transactions in the over-the-counter market, in negotiated
transactions, or a combination of such methods of sale, at fixed
prices which may be changed, at market prices prevailing at the
time of sale, at prices relating to prevailing market prices or
at negotiated prices. The Selling Shareholders 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
Shareholders and/or the purchasers of the Shares for whom such
broker/dealers may act as agents or to whom they sell as
principals, or both (which compensation as to a particular
broker/dealer might be in excess of customary commissions). To
the extent required, information regarding the specific Shares to
be offered and sold, the names of the Selling Shareholders, the
public offering price, the names of any such broker/dealer or
agent and any applicable commissions or discount with respect to
any particular offer is set forth herein or will be set forth in
an accompanying Prospectus supplement. See "Plan of
Distribution."
None of the proceeds from the sale of the Shares by the
Selling Shareholders will be received by the Company.
_________________________________
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
See "Risk Factors" at page 5.
_________________________________
The Shares are traded over-the-counter and are quoted
through the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") on the Small Cap Market System under
the symbol "PRLN". On November 1, 1996 the last sales price of
the Shares on the NASDAQ Small Cap System was $1.9375.
______________________________________
The Selling Shareholders and any broker/dealers or agents
that participate with the Selling Shareholders in the
distribution of the shares may be deemed to be "underwriters"
within the meaning of Section 2(ii) of the Securities Act of
1933, as amended (the "Securities Act"), and any commissions
received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
______________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is November 1, 1996.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY OTHER PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION MAY NOT LAWFULLY BE MADE.
AVAILABLE INFORMATION
The Company is subject to the informational and reporting
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 with the
Commission by the Company may be inspected and copied at the
public reference facilities maintained by the Commission at its
principal offices at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices
located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511, and 7 World Trade Center, Suite
1300, New York, New York 10048. Such reports, proxy statements
and other information may also be obtained from the web site that
the Commission maintains at http://www.sec.gov. Copies of these
materials can also be obtained at prescribed rates from the
Public Reference Section of the Commission at its principal
offices in Washington, D.C., set forth above. Additional
information with respect to this offering may be provided in the
future by means of supplements or "stickers" to the Prospectus.
The Common Stock of the Company is quoted through NASDAQ on
the SmallCap Market System, and in accordance therewith, annual
and quarterly reports, proxy statements and other information
concerning the Company may be inspected at the National
Association of Securities Dealers, Inc., at 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company has filed a Registration Statement on Form S-3
(including all amendments and supplements thereto, the
"Registration Statement") with the Commission under the
Securities Act with respect to the Shares offered hereby. This
Prospectus, which forms a part of the Registration Statement,
does not contain all of the information set forth in the
Registration Statement and the Exhibits filed therewith, certain
parts of which have been omitted in accordance with the rules and
regulations of the Commission. Statements contained herein
concerning the provisions of such documents are not necessarily
complete and, in each instance, reference is made to the
Registration Statement or to the copy of such document filed as
an Exhibit to the Registration Statement or otherwise filed with
the Commission. Each such statement is qualified in its entirety
by such reference. Copies of the Registration Statement and the
Exhibits thereto can be obtained upon payment of a fee prescribed
by the Commission or may be inspected free of charge at the
public reference facilities and regional offices referred to
above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the
Commission are incorporated in this Prospectus by reference: (1)
the Company's Annual Report on Form 10-KSB, as amended (the "Form
10-KSB") for the fiscal year ended September 31, 1995 filed
pursuant to the Exchange Act, (2) the Company's Quarterly Report
on Form 10-QSB for the fiscal quarter ended December 31, 1995
filed pursuant to the Exchange Act, (3) the Company's Quarterly
Report on Form 10-QSB for the fiscal quarter ended March 31, 1996
(the "March 10-QSB") filed pursuant to the Exchange Act, (4) the
Company's Quarterly Report on Form 10-QSB for the fiscal quarter
ended June 30, 1996 filed pursuant to the Exchange Act, (5) the
Company's Proxy Statement filed with respect to its Annual
Meeting held on April 12, 1996 filed pursuant to the Exchange
Act, and (6) the description of the Company's Common Stock
contained in its Registration Statement on Form S-1 (the "Form
S-1") filed with the Commission on December 27, 1991.
Each document filed subsequent to the date of this
Prospectus pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act prior to the termination of this offering shall be
deemed to be incorporated in this Prospectus by reference and to
be a part hereof from the date of the filing of such documents.
Any statement contained in a document incorporated or deemed to
be incorporated herein by reference 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.
The Company will provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus
is delivered, upon the written or oral request of any such
person, a copy of any document incorporated by reference in this
Prospectus (other than exhibits unless such exhibits are
specifically incorporated by reference in such documents).
Requests should be directed to Paracelsian, Inc., 222 Langmuir
Laboratories, Cornell Technology Park, Ithaca, New York 14850,
(607) 257-4224, Attention: Arthur A. Koch, Jr., Chief Financial
Officer.
RISK FACTORS
An investment in the shares of Common Stock offered hereby
involves a high degree of risk. Prospective investors should
carefully consider, among other things, the following factors
before a decision is made to purchase any shares of Common Stock.
Limited Operating History. Although the Company commenced
operations in April 1991, its first year having sales revenue was
fiscal 1994. Revenues in the first nine months of fiscal 1996
were approximately $33,500 compared to approximately $294,000 for
the first nine months of fiscal 1995. Revenues for fiscal 1995
and 1994 were approximately $305,690 and $74,000, respectively.
Fiscal 1995 revenues were primarily attributable to licensing
fees from one contract. Future revenues will be derived from
sales of the Company's products that are currently under
development and royalties in connection with licensing of its
technology. There can be no assurance that the Company will be
able to attain such revenues in sufficient amounts to achieve
profitable operations. Results of operations in the future will
be influenced by numerous factors, including market acceptance of
the Company's products, the ability of the Company to develop and
manage the introduction of new products, competition and the
ability to control costs.
Additional Financing Requirements and Access to Capital
Funding. The Company believes that the net proceeds of
approximately $2,030,500 from its private placement to the
Selling Shareholders and its current cash on hand will satisfy
its cash needs through October 1997 even if the Company's
operations do not generate any significant revenues. While the
Company hopes to begin generating revenues from the
commercialization and sale of certain products in March 1997,
there can be no assurance that such will be the case, and even if
such is the case, such revenue is not expected to result in
positive cash flow for the Company in fiscal 1996 or fiscal 1997.
The Company has expended and will continue to expend in the
future substantial funds for the research and development of its
products, and to market such products. The Company may require
additional funds for these purposes. No assurance can be given
that funds will be available for the Company to finance its
development on acceptable terms, if at all. If adequate funds
are not available from operations or sources of financing, the
Company's business will be materially adversely affected.
Supply of Herbs. The Company obtains its herbs, including
those herbs which the Company uses in its products, from
suppliers in China and India with which it does not have long
term contracts. While the Company believes its relationship with
these suppliers is good, no assurance can be given that the
Company will be able to continue to obtain herbs from such
suppliers in the future. While the Company believes new
suppliers could be found, a termination of these relationships
could disrupt the Company's marketing and sales of its products.
Manufacture of Products. The Company currently intends to
subcontract the manufacture of its products with a manufacturer
who has produced trial runs of certain products of the Company.
However, the Company does not have any long term agreement with
such manufacturer. While there are numerous sources to which the
Company can turn to manufacture these products, since the Company
initially expects to manufacture small quantities, if the
Company's relationship with this manufacturer were to terminate,
locating a substitute manufacturer could be time consuming and
expensive which could disrupt the Company's marketing and sale of
such products.
Supply of Additional Herbal Extracts Under License
Agreement. The Company has received 2,800 out of a total of
approximately 10,000 herbal extracts it expects to receive under
its license agreement with the Institute of Nutrition and Food Hygiene
of the Chinese Academy of Preventive Medicine. While the Company
expects to obtain the remaining extracts, the inability of the Company
to obtain these extracts could have a material adverse affect on the
Company's future business. However, the Company's current inventory of
herbal extracts will adequately supply the Company's activities for the
next several years.
Uncertainty of Product Market. The Company's success will
be dependent upon market acceptance of its products. Market
acceptance of new products and methodologies requires substantial
time and effort and is subject to various risks. To date, the
Company has not achieved large sales of its products and there
can be no assurance that the Company will achieve market
acceptance of its products or that significant sales levels will
be achieved and/or maintained.
Technological Change, Obsolescence, Competition. The
biotechnology industry is subject to rapid and significant
technological change. Competitors of the Company engaged in all
areas of biotechnological development in the United States and
abroad are numerous and include, among others, major industrial
companies, specialized firms, universities and other research
institutions. There can be no assurance that the Company's
competitors will not succeed in developing technologies and
products that are more effective than any which have been or are
being developed by the Company or which would render the
Company's technology and products obsolete or non-competitive.
Many of these competitors have substantially greater financial
and technical resources and production and marketing capabilities
than the Company. In addition, many of the Company's competitors
have significantly greater experience than the Company in
commercially producing and marketing their products.
Accordingly, the Company's competitors may succeed in
commercially producing and marketing their products more rapidly
than the Company.
Government Regulation. The sale by the Company of Chinese
herbs or natural products derived solely from such herbs are not
currently required to be approved by the Food and Drug
Administration (the "FDA") or other Federal regulatory agencies.
However, the labeling of such products is regulated by the FDA.
In addition, extracts of the Chinese herbs and pure compounds
with biological activity identified from these herbs may be
subject to FDA or other regulatory authorities and would require
extensive testing and validation procedures before they could be
sold.
The Company's diagnostic test developed from the IN
VITRO-CPA (trademark) ELISA kit will be subject to FDA or other
regulatory approval if it is used in clinical diagnostics. This test
may be classified by the FDA as a Class III medical
device, automatically requiring an FDA-approved pre-market approval
application ("PMA") prior to commercial marketing and
distribution in the clinical diagnostic market. The Company will
not be able to commercialize a medical diagnostic test classified
by the FDA as a Class III medical device until the FDA approves a
PMA for the product.
In addition, due to the nature of the Company's products it
is likely that the Company could become subject to further
governmental regulation in the future.
Dependence on Key Personnel. The Company's success is
dependent on certain key management and scientific personnel.
Competition for qualified employees among biotechnology companies
is intense, and the loss of key personnel, or the inability to
attract and retain the additional highly skilled employees
required for the expansion of the Company's activities, could
adversely affect its business. There is currently no employment
agreement between the Company and Dr. Babish and, although the
relationship between the parties is good, there can be no
assurance that Dr. Babish will continue to work in his current
capacity with the Company. See "Executive
Compensation--Employment Agreement" in Form 10-KSB.
Unpredictability of Patent Protection; Proprietary
Technology. Certain of the technologies utilized in the
Company's products are proprietary. The Company believes that
patent protection of materials or processes it develops and any
products that may result from the Company's research and
development efforts are important to the possible
commercialization of the Company's products. The Company
currently has three US patent applications and three foreign
applications that are pending. In the 1995 fiscal year, the
Company filed for US patent protection regarding the use of
compounds identified from two of its traditional Chinese medicine
extracts and for another patent describing an improved
Ah-IMMUNOASSAY (Trademark) technology. In addition, the Company filed
for patent protection in Europe and Canada on its findings of
increased presences of cyclin-dependent kinases protein in cells
that are exposed to carcinogenic chemicals. However, there can
be no assurance that the Company's pending applications will be
issued as patents or that any of its issued patents will afford
adequate protection to the Company or its licensees. Further,
there can be no assurance that any patents that have been or may
be issued will provide the Company with significant protection
from competitors. Other private and public entities may file
applications for patents and other proprietary rights to
technology which could be harmful to the commercialization of the
Company's products. The ultimate scope and validity of patents
which are now owned by or which may be granted to third parties
in the future, the extent to which the Company may wish or be
required to acquire rights under such patents, and the cost or
availability of such rights cannot be determined by the Company
at this time. In addition, the Company also relies on unpatented
proprietary technology in the development and commercialization
of its products. There is no assurance that others may not
independently develop the same or similar technology or obtain
access to the Company's proprietary technology or disclose such
technology or that the Company can meaningfully protect its
rights in such unpatented proprietary technology. See
"Business--Patent Applications and Proprietary Technology" in
Form 10-KSB.
The patent positions of biopharmaceutical and biotechnology
firms, as well as of academic and other research institutions,
are uncertain and involve complex factual and legal questions.
Accordingly, no firm predictions can be made regarding the
allowance, breadth or enforceability of claims in these
applications or others that may be filed by the Company. Cornell
Research Foundation, Inc. and the Company believe that they have
the sole and exclusive rights in the technologies underlying the
Company's products. The Company would vigorously defend any
attempt by any individuals to assert any rights in such
technologies. Although Cornell Research Foundation, Inc. has
substantial resources to legally enforce its patent rights, there
can be no assurance that it will do so. If Cornell Research
Foundation, Inc. elects not to enforce its patent rights in the
technologies underlying the Company's products, the Company has
the right under the License Agreement to seek to enforce those
rights. See "Business--Exclusive License Agreement with Cornell
Research Foundation, Inc." in Form 10-KSB. However, in such
event, there can be no assurance that the Company will have the
financial resources to do so. In addition, although all of the
Company's employees are parties to confidentiality agreements
which are intended to protect the Company's proprietary
technology, there can be no assurance that any of such employees
will not compromise any of the Company's proprietary rights.
Certain of the research activities relating to the
development of the technologies underlying the Company's products
were funded by grants from the United States government. When
the United States government participates in the funding of
research activities, it retains certain rights, which include the
retention of a royalty free license to use the technologies for
governmental purposes.
Uncertainty of Results of Clinical Trials of PN355 for AIDS
and PN27,1 for Cancer. There can be no assurance that the
clinical trials for toxicity of the Company's compounds PN355 for
AIDS and PN27,1 for Cancer will be successful. The outcome of
the trials cannot be predicted. The lack of success of the
trials, as well as that of future trials, can have an adverse
affect on the Company's business and prospects.
Legal Proceedings. In June 1993, a suit was commenced by
certain individuals against the Company and a current and former
officer of the Company whereby the plaintiffs allege, among other
things, prior to the Company's incorporation, a partnership had
been formed by such individuals to utilize certain technology in
order to commercialize certain products which the Company was
developing at that time. The Company never commercialized any
such products and the Company is no longer utilizing and has no
interest in such technology to commercialize future products.
Damages, an accounting and an injunction are being sought against
the Company. By decision dated September 14, 1994, the court
dismissed certain of the plaintiffs' claims against the Company
while permitting a claim seeking damages for unfair competition,
an accounting and injunctive relief to proceed. The Company has
appealed the court's failure to dismiss the remaining claims and
such appeal is pending. While the Company believes that the suit
against it is without merit and continues to vigorously contest
the allegations, there can be no assurance that the Company will
be successful in its defense of the allegations. If the
plaintiffs are successful in the action against the Company, the
Company's financial position could be materially adversely
affected. See "Legal Proceedings" in Form 10-KSB.
Product Liability. The testing, marketing and sale of
biotechnology products assumes an inherent risk of product
liability. There can be no assurance that product liability
claims will not be asserted against the Company. The Company has
product liability insurance coverage in the aggregate amount of
$1,000,000; however, there can be no assurance that such coverage
will be sufficient for the Company's needs.
Control by Directors, Officers and Employees. The
directors, officers and employees of the Company beneficially own
or have voting control over 1,861,416 shares of Common Stock
(including 410,300 shares subject to currently exercisable stock
options and redeemable common stock purchase warrants (the
"Redeemable Warrants"), issued pursuant to a warrant dividend by
the Company declared on June 28, 1993 to the holders of record of
the Common Stock on September 8, 1993), or approximately 15.4% of
the Company's outstanding shares of Common Stock. Such
directors, officers and employees are therefore in a position to
significantly influence the election of the Company's directors
and thereby select management and direct policies of the Company.
Cornell Research Foundation, Inc., the owner of approximately
2.3% of the Company's outstanding shares of Common Stock, has
expressed in the license agreement between the Company and
Cornell Research Foundation, Inc., an intention to maintain a
passive non-voting position with respect to its stockholdings and
has acted accordingly up to this time. If this intention
continues, directors, officers and employees of the Company will
effectively control a greater percentage of the vote than
reflected by their equity position in the Company. See "Security
Ownership of Certain Beneficial Owner and Management" in Form
10-KSB.
Volatility of Share Price. The market price of the
Company's Common Stock since the initial public offering has been
volatile. As recently as September 1995, the market price of the
Company's Common Stock was $8.00 per share while in January 1996
the market price of the Company's Common Stock was $1.00 per
share. Factors such as announcements of technological innovations
or new commercial products by the Company or its competitors, the
results of clinical testing, patent or proprietary rights,
developments or other matters may have a significant impact on
the market price of the Common Stock. See "Market for Common
Equity and Related Stockholder Matters" in Form 10-KSB.
Non-payment of Cash Dividends. The Company has not paid
any cash dividends and it is unlikely that the Company will pay
any cash dividends in the foreseeable future. Earnings, if any,
will be retained by the Company for further development and
expansion of its business. There can be no assurance that the
Company will ever pay cash dividends.
Effects of Issuance of Preferred Stock. The Company's
Articles of Incorporation authorized the issuance of up to
1,000,000 shares of preferred stock on terms which may be fixed
by the Company's Board of Directors without further shareholder
action. While the Company has previously issued shares of
preferred stock, as of the date of this Prospectus the Company
has no shares of preferred stock outstanding. The terms of any
future series of preferred stock, which may include priority
claims to assets and dividends and special voting rights, could
adversely affect the rights of holders of the Common Stock. The
issuance of such preferred stock could make the possible takeover
of the Company or the removal of management of the Company more
difficult, discourage hostile bids for control of the Company in
which shareholders may receive premiums for their shares of
Common Stock, or otherwise dilute the rights of holders of Common
Stock and the market price of the Common Stock. See "Description
of Securities" in the Form S-1.
RECENT DEVELOPMENTS
Private Placement Financings.
I. In September 1996, the Company completed a private placement
financing to the Selling Shareholders for approximately
$2,050,000 in which it issued:
1) 683,333 shares of Common Stock;
2) Warrants to purchase 372,727 shares of Common Stock at an
exercise price of $4.00 per share, of which the right to purchase
300,000 shares of Common Stock is not immediately exercisable and
is void after the fifth anniversary of the date on which they
first become exercisable and of which the right to purchase
72,727 shares of Common Stock is immediately exercisable and void
after September 30, 2001; and
3) Warrants to purchase 310,606 shares of Common Stock at an
exercise price of $4.50 per share, of which the right to purchase
250,000 shares is not immediately exercisable and is void after
the fifth anniversary of the date on which they first become
exercisable and of which the right to purchase 60,606 shares is
immediately exercisable and void after September 30, 2001.
The Selling Shareholders have certain rights to require the
Company to register the shares of Common Stock underlying the
warrants.
The Company intends to use the proceeds of the private
placement for product launch expenses, working capital and
research and development..
II. In June and July 1996, the Company completed a private
placement to certain investors including the Selling Shareholders
for approximately $2.25 million in which it issued:
1) 825,001 shares of Common Stock;
2) Warrants to purchase 825,001 shares of Common Stock at an
exercise price of $3.25 per share, of which the right to purchase
550,000 shares of Common Stock is not immediately exercisable and
is void after the fifth anniversary of the date on which they
first become exercisable and of which the right to purchase
275,000 shares is immediately exercisable and void after June 26,
2001; and
3) Warrants to purchase 375,001 shares of Common Stock at an
exercise price of $4.50 per share, of which the right to purchase
250,000 shares is not immediately exercisable and is void after
the fifth anniversary of the date on which they first become
exercisable and of which the right to purchase 125,001 shares is
immediately exercisable and void after June 26, 2001.
The investors have certain rights to require the Company to
register the shares of Common Stock underlying the warrants.
The Company used the proceeds of the private placement for
working capital and research and development.
Appointment of New Directors.
On June 21, 1996 the Company expanded the Board of Directors
to nine members and elected, effective as of July 15, 1996, the
following directors:
William Warwick was elected to the Board for a term that
expires at the next Annual Meeting. Mr. Warwick is President and
Chief Executive Officer of AT&T China, where he has worked for
over the past five years. From January 1995 to date, Mr. Warwick
has served as a consultant to the Board of Directors on
management and operational issues for which he was granted an
option to purchase 5,000 shares of Common Stock at $2.50 per
share. Mr. Warwick is 62 years of age.
Jack O'Reilly was elected to the Board for a term that
expires at the 1998 Annual Meeting. From August 1993 to date he
has been a director and President of Vectorpharma International
Corporation, a pharmaceutical-bio-technology related concern.
From November 1992 to date, Mr. O'Reilly has been a self-employed
consultant on pharmaceutical and healthcare issues. From 1987 to
November 1992 Mr. O'Reilly was Senior Director, Corporate and
Business Development for Syntex Corporation, a pharmaceutical
company. Mr. O'Reilly is 53 years of age.
In accordance with the Company's stock option plan, upon
election to the Board of Directors each of Messrs. Warwick and
O'Reilly was granted options to purchase 2,500 shares of Common
Stock at a price of $3.125 per share (the market price on the
date of their election).
Option to Purchase East West Herbs Ltd. ("EWH") and Simultaneous
Loan to EWH.
On April 3, 1996, the Company made a $340,000 loan to EWH
which loan is evidenced by a promissory note and bears interest
at a floating LIBOR rate (the "Loan"). The principal of the Loan
is to be repaid in eight equal quarterly installments beginning
October 3, 1997. Interest on the Loan is payable quarterly in
arrears. The Loan is secured by all of the assets of EWH, which
security interest is second in priority to an existing bank
security interest. The Company has a right to appoint one member
of the Board of Directors of EWH for so long as any amount of the
Loan is outstanding.
In consideration of the making of the Loan and a
non-refundable payment of $20,000, the shareholders of EWH
granted to the Company an option to acquire all of the
outstanding shares of EWH (the "Option") for an amount equal to
$780,000 in cash and that number of shares of common stock of the
Company valued at the higher of (a) $2.75 or (b) the average
closing price of such common stock for the 15 trading days prior
to the exercise of the Option, as shall equal $2,400,000. The
Option may be exercised by the Company at any time prior to April
3, 1997.
EWH is one of the largest marketers and distributors of
traditional Chinese medicines ("TCM") in the United Kingdom, with
sales of approximately (british pound sterling) 1 million for the
fiscal year ended March 31, 1996. EWH acts as an advisor to both
pharmaceutical firms and government agencies in setting the herbal
quality standards for TCM in the United Kingdom. See "Item 7-
Subsequent Events" in the Notes to Consolidated Financial Statements in
the March 10-QSB.
Clinical Trial of the Company's Compounds PN355 and PN27,1.
In January 1996, the Company began a clinical trial for
toxicity of its compound, PN355 for AIDS. The compound is the
first of the Company's extracts that has already been identified
through the Company's proprietary screening technology to have
potential, positive therapeutic effects to undergo such trials.
PN355 was patented in December 1994. It has reached human safety
testing in a very short time primarily because of the Company's
access to the documented historical use in traditional Chinese
medicine of the herb from which PN355 has been isolated. Results
of this trial are expected in the fourth quarter of 1996. There
is no assurance that the results of this trial will be
successful.
In March 1996, the Company began a clinical trial for
toxicity of its compound, PN27,1 for Cancer. The compound is the
second of the Company's extracts that has already been identified
through the Company's proprietary screening technology to have
potential, positive therapeutic effects to undergo such trials.
Because of preliminary promising results of the trial, the trial
has been expanded to include 300 patients. Results of the trial
are expected in the first half of 1997. There is no assurance
that the results of the trial will be successful.
SELLING SHAREHOLDERS
The following table shows the names of the Selling Shareholders,
the Shares owned beneficially by each of them, as of October 7,
1996, the number of Shares that may be offered by each of them
pursuant to this Prospectus and the number of Shares and
percentage of outstanding Shares to be owned by each of them
after the completion of this Offering, assuming all of the Shares
being offered are sold. None of the Selling Shareholders was an
officer or director of the Company or, to the knowledge of the
Company, had any material relationship with the Company within
the past three years.
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Percentage of
Number of Shares
Shares Number of Number of Shares Beneficially
Beneficially Shares that May Benefically Owned Owned After
Selling Shareholders Owned Be Sold After the Offering the Offering
The Travelers Ins. Co. 1,100,000 (1) 550,000 550,000 (1) 4.7%
Davin Capital, LP 325,001 (2) 50,000 275,001 (2) 2.3%
Doran Capital 391,667 (3) 83,333 308,334 (3) 2.6%
Management, LP
</TABLE>
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(1) Does not include warrants not exercisable within 60 days of
the effective date of this offering to purchase 550,000, 500,000
and 300,000 shares of the Company's Common Stock at $3.25, $4.50
and $4.00 per share, respectively. Neither The Travelers Insurance
Company nor any of its affiliates has assumed, or has any reponsibility
for the management, business or operation of the Company or for the
statements contained in this Prospectus or the Registration Statement of
which this Prospectus forms a part (other than the information set out
above as to share ownership and certain information with respect to the
Selling Shareholders set forth under the caption "Plan of
Distribution").
(2) Includes warrants exercisable within 60 days of the
effective date of this offering to purchase 91,667, 64,394 and
27,273 shares of the Company's Common Stock at $3.25, $4.50 and
$4.00 per share, respectively.
(3) Includes warrants exercisable within 60 days of the
effective date of this offering to purchase 91,667, 79,546 and
45,454 shares of the Company's Common Stock at $3.25, $4.50 and
$4.00 per share, respectively.
PLAN OF DISTRIBUTION
The Company will not receive any proceeds from this
Offering. The Shares may be offered from time to time in
transactions in the over-the-counter market, in negotiated
transactions, or a combination of such methods of sale, at fixed
prices which may be changed, at market prices prevailing at the
time of sale, at prices relating to prevailing market prices or
at negotiated prices. The Selling Shareholders 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
Shareholders and/or the purchasers of the Shares for whom such
broker/dealers may act as agents or to whom they sell as
principals, or both (which compensation as to a particular
broker/dealer might be in excess of customary commissions). The
Selling Shareholders and any broker/dealers or agents that may
participate in the distribution of the Shares may be deemed to be
"underwriters" under the Securities Act and any profit on the
sale of the Shares by them and any discounts, commissions or
concessions received by any such broker/dealers or agents might
be deemed to be underwriting discounts and commissions under the
Securities Act.
At the time a particular offer of the Shares is made, to the
extent required, a Prospectus Supplement will be distributed
which will set forth the number of Shares being offered, the
names of the Selling Shareholders, the public offering price, the
names of any broker/dealers or agents, and any applicable
commissions or discounts with respect to any particular offer.
In order to comply with the applicable securities laws of
certain states, if any, the Shares will be offered or sold
through registered or licensed brokers or dealers in those
states. In addition, in certain states the Shares may not be
offered or sold unless they have been registered or qualified for
sale in such states or an exemption from such registration or
qualification requirement is available and such offering or sale
is in compliance therewith.
Under applicable rules and regulations under the Exchange
Act, any person engaged in a distribution of securities may not
simultaneously engage in market making activities with respect to
such securities for a period of two business days prior to the
commencement of such distribution. In addition and without
limiting the foregoing, the Selling Shareholders will be subject
to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Rules
10b-2, 10b-5, 10b-6 and 10b-7, in connection with transactions in
the Shares during the effectiveness of the Registration Statement
of which this Prospectus is a part. All of the foregoing may
affect the marketability of the Shares.
The Company will pay all of the expenses, including, but not
limited to, fees and expenses of compliance with state securities
or "blue sky" laws, incident to the registration of the Shares
other than selling commissions. The expenses payable by the
Company are estimated to be $19,500.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
BY-LAWS
Generally, Section 145 of the General Corporation Law of the
State of Delaware (the "DGCL") provides that directors and
officers of Delaware corporations are entitled, under certain
circumstances, to be indemnified against all expenses and
liabilities (including attorneys' fees) incurred by them as a
result of any suit brought against them in their capacity as a
director or officer, if they acted in good faith and in a manner
they reasonably believed to be in or not opposed to the best
interest of the corporation, and, with respect to any criminal
action or proceeding, if they had no reasonable cause to believe
their conduct was unlawful. A director or officer may also be
indemnified against expenses incurred in connection with a
derivative suit if such director acted in good faith and in a
manner reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may
be made without court approval if such person was adjudged liable
to the corporation. Article TENTH of the Company's Certificate
of Incorporation entitles officers and directors of the Company
to indemnification to the full extent permitted by Section 145 of
the DGCL, as the same may be supplemented or amended from time to
time. In addition, Article NINTH of the Company's Certificate of
Incorporation limits a director's liability to the Company or to
any stockholder for monetary damages for breaches of fiduciary
duty as a director to the full extent permitted by Section 102 of
the DGCL, and the same may be supplemented or amended from time
to time.
The Certificate of Incorporation and By-Laws of the Company
contain certain provisions that may enhance the likelihood of
continuity and stability in the composition of the Company's
Board of Directors and may have the effect of delaying, deferring
or preventing a future takeover or change of control of the
Company. Such provisions also may have the effect of rendering
changes in the Board of Directors and management of the Company
more difficult.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the
foregoing provisions, or otherwise, the small business issuer has
been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
The By-Laws of the Company provide for the classification of
the Board into three classes serving staggered three-year terms.
There are currently nine directors.
The By-Laws of the Company also provide that a vacancy on
the Board of Directors occurring from an increase in the number
of directors or otherwise may be filled by the vote of a majority
of directors then in office, though less than a quorum.
LEGAL MATTERS
The validity of the securities offered hereby will be passed
upon for the Company by Morse, Zelnick, Rose & Lander, LLP, 450
Park Avenue, New York, New York 10022. Members of the firm own
in the aggregate options to purchase 50,000 shares of Common
Stock of the Company, none of which are currently exercisable.
EXPERTS
The Company's annual report on Form 10-KSB, as amended for the
fiscal year ended September 30, 1995 incorporated by reference in this
prospectus and elsewhere in the registration statement has been audited
by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance
upon the authority of said firm as experts in giving said reports.
No dealer, salesperson or any other person has been
authorized to give any information or to make any representation
not contained in this Prospectus with respect to the offering
made hereby. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any of the securities
offered hereby to any person or by anyone in any jurisdiction in
which such offer or solicitation may not lawfully be made.
Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication
that there has been no change in the information set forth herein
or in the business of the Company since the date hereof.
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TABLE OF CONTENTS
Page
Available Information 3
Incorporation of Certain Documents
by Reference 3
Risk Factors 5
Recent Developments 9
Selling Shareholders 12
Plan of Distribution 13
Certain Provisions of the Certificate
of Incorporation and By-Laws 13
Legal Matters 14
Experts 14
683,333 Shares of Common Stock
Paracelsian, Inc.
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PROSPECTUS
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November 1, 1996
