PROSPECTUS
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Hemagen Diagnostics, Inc.
5,929,562 Shares of Common Stock and
2,964,781 Common Stock Purchase Warrants
This Prospectus relates to 5,929,562 shares (the "Shares") of Common
Stock, $.01 par value per share (the "Common Stock"), of Hemagen
Diagnostics, Inc., a Delaware corporation (the "Company"), of which
2,695,255 are outstanding as of the date of this Prospectus and
2,964,781 are issuable upon exercise of common stock purchase warrants at an
exercise price of $2.75 per share (the "Private Placement Warrants"). In
addition, 269,526 of the Shares are issuable upon exercise of a placement
agent warrant (the "Placement Agent Warrant") which entitles the holder(s)
to purchase up to 269,526 units ("Units"), each Unit consisting of one Share
and one Private Placement Warrant, at $2.75 per Unit. The Shares, Private
Placement Warrants and Placement Agent Warrant were issued by the Company in
connection with a private placement completed in March 1996 (the "Private
Placement") in which the Company sold 2,695,255 Units to private investors
at $2.75 per Unit. The purchase price of the Units was negotiated between
the Company and the placement agent and reflected the approximate market
price of the Common Stock at the time such price was determined.
The holders of the Shares and Private Placement Warrants are
sometimes referred to herein as the "Selling Securityholders." The Company
will receive no part of the proceeds of any sale of Shares by the Selling
Securityholders. The Company will receive the exercise price of the Private
Placement Warrants to the extent the Private Placement Warrants are
exercised. None of the Private Placement Warrants or the Placement Agent
Warrants have been exercised as of the date of this Prospectus. The Shares
and Private Placement Warrants are sometimes referred to herein collectively
as the "Securities." See "Plan of Distribution" and "Description of
Securities."
The Company's Common Stock is traded on the National Association of
Securities Dealers Automated Quotation System Small-Cap Market ("NASDAQ")
and the Boston Stock Exchange (the "BSE") under the symbols "HMGN" and
"HGN," respectively. The Shares to be offered for sale pursuant to this
Prospectus may be offered for sale on NASDAQ, the BSE, or in privately
negotiated transactions. On September 30, 1996, the last sale price
of the Company's Common Stock on NASDAQ was $2.50 per share. The Private
Placement Warrants may be offered for sale on NASDAQ under the symbol
"HMGNW". Prior to this offering, there has been no public market for the
Private Placement Warrants and no assurance can be given that an active
public market will develop for the Private Placement Warrants or, if
developed, that it will be sustained.
The Company will assume all of the costs and fees relating to the
registration of the Shares, except for any discounts, concessions or
commissions payable to underwriters, dealers or agents incident to the
offering and sale of the Shares, and any fees and disbursements of counsel
to the Selling Securityholders.
An investment in the Securities involves a high degree of risk. See
"Risk Factors" contained elsewhere in this Prospectus.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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The date of this Prospectus is November 14, 1996.
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 and information statements and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy and information statements and other
information can be inspected and copies thereof may be obtained, at
prescribed rates, at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Commission's Regional Offices located at 7 World Trade Center, 13th
Floor, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials can also be obtained by
mail from the Public Reference Section, Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of prescribed
rates. In addition, electronically filed documents, including reports, proxy
and information statements, and other information with respect to the
Company, may obtained from the Commision's Web site at http://www.sec.gov.
The Company has filed a Registration Statement on Form S-3 under the
Securities Act of 1933, as amended (the "Act"), covering the Securities
included in this Prospectus. This Prospectus does not contain
all the information set forth in or annexed to exhibits to the Registration
Statement filed by the Company with the Commission and reference is made to
such Registration Statement and the exhibits thereto for the complete text
thereof. For further information with respect to the Company and the
Securities offered hereby, reference is made to the Registration Statement,
including the exhibits filed as part thereof, copies of which may be
obtained at prescribed rates upon request to the Commission in Washington,
D.C. Any statements contained herein concerning the provisions of any
documents are not necessarily complete, and, in each instance, such
statements are qualified in their entirety by reference to such document
filed as an exhibit to the Registration Statement or otherwise filed with
the Commission.
IN CONNECTION WITH THIS OFFERING, CERTAIN SELLING SECURITYHOLDERS MAY
ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE SECURITIES ON THE OVER
THE COUNTER MARKET ON NASDAQ IN ACCORDANCE WITH RULE 10b-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "PLAN OF DISTRIBUTION."
The Company will furnish its stockholders with annual reports
containing audited financial statements and such interim reports as it deems
appropriate.
This Prospectus contains the trademarks VIRGO(R), RAICHEM(TM) and
other trademarks of the Company.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and all Financial
Statements, including the Notes thereto, appearing elsewhere in this
Prospectus.
The Company
Hemagen Diagnostics, Inc. (the "Company") develops, manufactures and
markets proprietary medical diagnostic test kits, or "assays," used to aid
in the diagnosis of autoimmune and infectious diseases and in general health
assessment. Autoimmune diseases are diseases in which the immune system
mistakenly identifies the body's cells and tissues as foreign and attempts
to destroy them. Rheumatoid arthritis is an example of an autoimmune
disease. The Company generally focuses on markets which it believes offer
significant growth potential and limited competition.
Until July 1995, the Company's products were based primarily on two
diagnostic technologies, hemagglutination and enzyme-linked immunosorbence
("ELISA" or "EIA"). In July 1995, the Company completed the acquisition of
a line of similar but complementary test kits using a third technology,
immunofluorescence, from Schiapparelli BioSystems, Inc. (the "VIRGO(R)
Acquisition"). These acquired assays are sold under the registered
trademark VIRGO(R).
On March 1, 1996, the Company acquired Reagents Applications, Inc.
("RAI") from Kone Holdings, Inc. RAI manufactures and markets a complete
line of clinical chemistry reagents and diagnostic products for in vitro
diagnostic use in hospitals, clinics and laboratories. These products are
sold under the RAICHEM(TM) label directly and through a network of over 30
distributors in the United States and international markets. RAI also
produces private label reagents for domestic and international customers.
Most RAI reagents can be used in both automated and manual analyzers. RAI's
leading product lines include blood chemistry assays used to aid the
monitoring and measurement of health profiles, such as cholesterol, blood
urea nitrogen (BUN), triglycerides, glucose and uric acid.
The Company offers over 90 products that have been cleared by the
United States Food and Drug Administration (the "FDA") for sale in the
United States. Several additional products are sold in foreign markets.
The Company markets and sells its brand name products worldwide, directly
and through national and international distributors and manufacturers'
representatives. The Company markets its products in South America through
its majority-owned subsidiary, Hemagen Diagnosticos Comercio, Importacao e
Exportacao, Ltd., a Brazilian limited liability company ("HDC"). In
addition, the Company sells certain of its products on a private-label basis
to multinational distributors of medical diagnostics.
The Company owns a proprietary technique for preserving red blood
cells, a key component of the Company's hemagglutination assays. This
technology enables the Company to manufacture products which have a shelf
life of up to 24 months (compared to a typical shelf life of 30 to 60 days
for traditional hemagglutination processes), provide quick and accurate
results, require no special laboratory equipment to perform and are more
reliable than previously available hemagglutination assays. The extended
shelf life and improvements in the consistency of these assays substantially
eliminate limitations previously encountered in the use of hemagglutination
assays. In the fiscal years ended September 30, 1995 and 1994,
approximately 45% and 35%, respectively, of the Company's sales were derived
from sales of hemagglutination assays.
The Company's executive offices are located at 34-40 Bear Hill Road,
Waltham, Massachusetts 02154. Its telephone number is (617) 890-3766. Its
manufacturing facilities are at the Waltham location, in Sao Paulo, Brazil,
at 9033 Red Branch Road, Columbia, Maryland and at 8225 Mercury Court, San
Diego, California. Unless the context otherwise requires, the term the
"Company" includes the Company, its wholly owned subsidiary, RAI, and HDC.
The Offering
<TABLE>
<S> <C>
Securities offered by
the Selling Securityholders(1)... 5,929,562 shares of Common Stock
2,964,781 Private Placement Warrants
Common Stock to be outstanding
after the offering(1)(2)......... 10,853,197
NASDAQ and BSE symbols for
the Common Stock HMGN and HGN, respectively
NASDAQ symbol for the Private Placement
Warrants HMGNW
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<F1> Includes Securities underlying the Private Placement Warrants and the
Placement Agent Warrant.
<F2> Includes the issuance of the Shares offered hereby. Excludes shares
of Common Stock issuable upon exercise of (i) options to purchase up to
494,900 shares of Common Stock under the Company's 1992 Stock Option Plan
(the "Plan"), of which options to purchase 237,225 shares of Common Stock
were outstanding as of September 30, 1996 at exercise prices ranging from
$1.75 to $5.50 per share and (ii) warrants to purchase 649,500 shares
of Common Stock at a weighted average exercise price of approximately
$2.40 per share. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources,"
"Management - 1992 Stock Option Plan," "Plan of Distribution," and
"Description of Securities."
</TABLE>
Summary Financial Information
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
June 30, September 30,
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1996 1995 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
Statement of Operations Data(1):
Total revenue $7,117 $2,217 $3,955 $ 2,361 $ 1,809
Operating loss (263) (1,094) (846) (1,131) (628)
Net loss (591) (1,168) (985) (1,108) (1,251)
Net loss per share (.12) (.37) (.31) (.35) (.46)
Weighted average shares outstanding 5,010 3,155 3,158 3,150 2,717
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996(1)
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<S> <C>
Balance Sheet Data:
Working capital................................... $ 5,344
Total assets...................................... 11,611
Current liabilities............................... 1,608
Long term debt, less current portion (2).......... 647
Stockholders' equity.............................. 9,356
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<F1> In March 1996, the Company completed the acquisition of RAI. In July
1995, the Company completed the VIRGO(R) Acquisition. Financial
information and pro forma financial information of RAI, VIRGO(R) and the
Company are included elsewhere in this Prospectus. See "Risk
Factors - Recent Acquisitions;" "Risk Factors - Risks of Acquisitions
and Expansion;" "Risk Factors - Management of Growth" and "Business -
Recent Developments."
<F2> Prior to June 30, 1996 promissory notes with an aggregate
principal balance of $1,550,000 were converted into 1,550,000 shares of
Common Stock.
</TABLE>
RISK FACTORS
The Shares offered hereby involve a high degree of risk. The Shares
should not be purchased by persons who cannot afford the loss of their
entire investment. Purchasers should carefully consider the information
presented below.
Limited Revenues and Recent History of Operating Losses. For the
fiscal years ended September 30, 1995, 1994 and 1993, the Company reported
net losses of approximately $985,000, $1,108,000 and $1,251,000,
respectively. The Company also reported a net loss of approximately
$591,000 for the nine month period ended June 30, 1996. The Company has had
limited revenues to date and no assurance can be given that the Company can
operate profitably in the future. See "Financial Statements."
Recent Acquisitions. The Company's management has undertaken a
strategy of expanding the Company's operations through a combination of
internal growth and acquisitions. In July 1995, the Company purchased
certain assets related to a product line of diagnostic assays. The Company
has leased a manufacturing facility in Columbia, Maryland to produce these
assays, which are sold under the registered trademark VIRGO(R). The Company
now markets and sells this product line through its internal sales force and
distributors. In March 1996, the Company purchased the stock of Reagents
Applications, Inc., of San Diego, California, a manufacturer of diagnostic
reagents. The Company continues to produce the reagents, sold under the
tradename RAICHEM(TM), in a leased facility in San Diego. No assurances can
be given that historical sales levels related to the VIRGO and RAICHEM
product lines will continue, or that the Company can manufacture, market and
sell these product lines on a profitable basis. See "Business - Recent
Developments."
Risks of Acquisitions and Expansion. The Company's expansion plans
will subject the Company to all of the risks incident to the expansion of a
small business, particularly the possible adverse impact associated with the
integration of new and/or acquired business operations, including but not
limited to the VIRGO and RAICHEM product lines, into the Company's existing
operations. The Company's business strategy includes the pursuit of
acquisitions, which may require additional financing, including the issuance
of additional equity securities which could result in dilution to the
Company's existing stockholders. In the event an acquisition is completed
and the Company incurs indebtedness in connection with such acquisition, the
Company may be subject to risks associated therewith, including the risks of
interest rate fluctuations and insufficiency of cash flow to pay interest
and principal. No assurance can be given that equity or debt financing will
be available or, if available, will be on terms acceptable to the Company.
The Company may incur significant expenditures in connection with a proposed
acquisition that is not completed, which would result in the Company having
to expense these costs in its then current financial statements. In
addition, companies that acquire businesses or technologies frequently
encounter unforeseen expenses, difficulties, complications and delays, which
could have a material adverse effect on the Company's results of operations.
No assurance can be given that the Company's expansion plans will not result
in significant unexpected liabilities or will ever contribute significant
revenues or profits to the Company. In addition, no assurance can be given
that the Company will pursue or realize any business opportunities in the
future or that any such business opportunity, if pursued and realized, will
prove beneficial to the Company. See "Business - Recent Developments."
Management of Growth. The Company's ability to manage continued
growth will require the Company to manage the integration of new products
and facilities into existing operations and to improve operational,
financial and management information systems, as to which no assurance can
be given. If the Company's management is unable to manage growth
effectively, the quality of the Company's products, ability to retain key
personnel and results of operations would be materially and adversely
affected.
Possible Need for Additional Financing. Although the Company believes
that its current cash resources and anticipated cash flows, including
available lease financing, will be sufficient to fund its current working
capital requirements, no assurance can be given that this will be the case.
The Company experienced negative cash flow from operations during the nine
months ended June 30, 1996 and during the fiscal years ended September 30,
1995, 1994 and 1993 and no assurance can be given that the Company will not
require additional financing to fund its ongoing operations and plans for
expansion. In the event the Company requires additional financing, no
assurance can be given that the Company will be able to arrange such
financing on favorable terms, if at all. Failure to do so could have a
material adverse effect on the Company's business.
Limited Marketing Experience. The Company has undertaken relatively
limited commercial marketing efforts to date. Although management believes
that the Company's efforts to develop commercial arrangements within its
markets have been successful, no assurance can be given that such marketing
efforts will be successful in the future. Such marketing efforts will
require substantial efforts to inform potential customers of the commercial
applications of the Company's products. No assurance can be given that the
Company's commercial products and planned commercial products will realize
additional market acceptance. See "Business - Distribution and Marketing."
Limited Product Line; Technological Change. The Company's
hemagglutination, ELISA, VIRGO(R) and RAICHEM diagnostic kits are presently
the Company's only commercial products. Although the Company is currently
developing other products, no assurance can be given that any proposed
product will be successfully developed, marketed or sold. See "Business -
Products."
The clinical diagnostics field in which the Company operates is
undergoing technological change. No assurance can be given that the
development of new technology by others will not render the Company's
products obsolete or commercially unmarketable.
Limited Commercial Production Experience. Although the Company has
manufactured and packaged commercial quantities of finished diagnostic
products since 1985, no assurance can be given that the Company will be
able to efficiently and successfully produce substantially increased
commercial quantities of its test kits or a broader product line. See
"Business - Manufacturing and Sources of Supply."
Competition. The clinical diagnostics field in which the Company
competes is subject to intense competition. The Company generally focuses
on niche markets which it believes offer significant growth potential and
limited competition. However, the Company competes and will compete in the
future with numerous competitors, many of which have substantially greater
financial, technical and managerial resources than the Company. No
assurance can be given that the Company will be able to compete successfully
with its present or future competitors. See "Business - Competition."
Dependence on Key Personnel. The success of the Company is dependent
on the efforts and abilities of its Chief Executive Officer and President,
Dr. Carl Franzblau, and of its Vice President for Research and Development,
Dr. Ricardo de Oliveira. If the Company were to lose the services of either
Dr. Franzblau or Dr. de Oliveira before a qualified replacement could be
obtained, its business could be materially and adversely affected. The
Company has entered into employment agreements with Dr. Franzblau and Dr. de
Oliveira. In addition, the Company has purchased key-person life insurance
on the life of Dr. Franzblau, in the amount of $1,000,000 and on the life of
Dr. de Oliveira, in the amount of $1,000,000. See "Management - Directors
and Executive Officers."
Dependence on Major Customers. Olympus America ("Olympus") accounted
for approximately 6% and 21% of the Company's revenues for the nine months
ended June 30, 1996 and for the fiscal year ended September 30, 1995,
respectively. Carter-Wallace accounted for approximately 18% of the
Company's revenues for the nine months ended June 30, 1996. The decrease in
the percentage of the Company's sales to Olympus were primarily due to
increased sales of the Company and varying levels of orders made by Olympus.
Although the Company expects that its relationships with these customers
will continue, if any of these customers were to cease doing business with
the Company it would have a material adverse effect on the Company's
business. The Company's current supply agreement with Olympus expires in
February 1998. No assurance can be given that such agreement will be
renewed thereafter. See "Business - Distribution and
Marketing."
Risk of Loss of Proprietary Rights. The Company protects its
proprietary technology primarily as trade secrets rather than by relying on
patents, either because patent protection is not possible or, in
management's opinion, would be less effective than maintaining secrecy. In
addition, the Company relies upon confidentiality agreements with its
employees. To the extent that it relies on confidentiality agreements and
trade secret protection, there can be no assurance that the Company's
efforts to maintain secrecy will be successful or that third parties will
not be able to develop the technology independently. In addition, the
Company licenses technology relating to two patents owned by a third party.
The Company may in the future apply for patent protection for certain of its
technology when management believes such protection would be beneficial to
the Company. The protection afforded by patents owned or licensed by the
Company depends upon a variety of factors which may severely limit the value
of the patent protection, particularly in foreign countries, and no
assurance can be given that patents, if granted, will provide meaningful
protection for the Company's technology. In addition, no assurance can be
given that the Company's products will not infringe any patents of others.
Litigation could result in substantial cost to the Company and diversion of
effort by the Company's management and technical personnel. See "Business -
Patents and Proprietary Rights."
Regulation by Governmental Agencies. The Company's manufacturing and
marketing of diagnostic test kits are subject to government regulation in
the United States and any other countries in which the Company's products
are sought to be marketed. The process of obtaining regulatory approvals
involves lengthy and detailed laboratory and clinical testing, and other
costly and time-consuming procedures. This regulatory process may delay
marketing of new products for lengthy periods and impose costly procedures,
thereby furnishing an advantage to competitors with greater resources. No
assurance can be given that regulatory clearances will be granted on a
timely basis in the future, if at all. The extent of governmental
regulation which may arise from future legislative or administrative action
cannot be predicted. See "Business - Government Regulation."
Dependence on Supplier. One of the antigens used in two of the
Company's ELISA and two of its hemagglutination test kits is available from
only one supplier. Management believes that, if necessary, the Company
could manufacture sufficient quantities of the antigen itself. However, if
the supply of this antigen were to cease, the Company could experience
delays in producing these products, which could have an adverse impact on
the Company. In addition, no assurance can be given that the Company can
produce sufficient quantities of the antigen, if at all. See "Business -
Manufacturing and Sources of Supply."
Product Liability Risks. The Company may incur product liability due
to product failure or improper use of products by the user. Inaccurate
detection may result in the failure to administer necessary therapeutic
drugs or administration of unnecessary and potentially toxic drugs. Even
with proper use of a product, there may be specific instances in which the
results obtained from the Company's test kits could lead a physician to
incorrectly predict the appropriate therapy for a particular patient. The
Company maintains product liability insurance that it believes to be
adequate for its present operations. There is no assurance that the amount
of the Company's insurance is sufficient to fully insure against claims
which may be made against the Company. In addition, there can be no
assurance that the Company will be able to renew its product liability
insurance or find a substitute insurance carrier on favorable terms, or at
all. See "Business - Product Liability."
Risks Associated with Foreign Sales. During the fiscal year ended
September 30, 1995 and 1994 the Company derived approximately 41% and 32% of
its revenue, respectively, from sales to its dealers and end users located
in foreign countries. The Company presently intends to increase its sales
efforts in South America, Japan and Western Europe in the future. Since
most of the Company's international sales are denominated in U.S. dollars,
the Company's products may be less competitive in countries with currencies
declining in value against the dollar. To the extent the Company decreases
prices to reflect a change in exchange rates, the profitability of the
Company's business in those markets could be materially adversely affected.
In the past, there have been significant fluctuations in the exchange rates
between the dollar and the currencies in those countries. See
"Business - South American Activities" and "Business - Distribution and
Marketing."
In addition, foreign countries may impose limitations in the amount of
currency that may be withdrawn from such countries. Such limitations, if
imposed, could materially adversely affect the Company's financial condition
and results of operations.
No Dividends. The Company has not paid dividends on its Common Stock
since its inception and does not intend to pay any dividends to its
stockholders in the foreseeable future. The Company currently intends to
reinvest earnings, if any, in the development and expansion of its business.
See "Dividends."
Sales Pursuant to Rule 144. Approximately 1,800,000 shares of the
Common Stock currently outstanding have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and are
"restricted securities" under Rule 144 of the Securities Act. Ordinarily,
under Rule 144, a person holding restricted securities for a period of two
years may, every three months, sell in ordinary brokerage transactions or in
transactions directly with a market maker an amount equal to the greater of
one percent of the Company's then outstanding Common Stock or the average
weekly trading volume during the four calendar weeks prior to such sale.
Rule 144 also permits sales by a person who is not an affiliate of the
Company and who has satisfied a three-year holding period without any
quantity limitation. Future sales under Rule 144 may have a depressive
effect on the market price of the Common Stock should a public market
develop for such stock. See "Description of Securities."
Future Sales of Common Stock. Up to 494,900 shares of Common Stock
may be issued to employees, officers, directors and consultants pursuant to
the exercise of options under the Company's 1992 Stock Option Plan, of which
options to purchase 237,225 shares have been granted as of September 30, 1996
at a weighted average exercise price of approximately $2.50 per share. In
addition, the Company has issued outstanding warrants ("Warrants") to
purchase up to 649,500 shares of Common Stock at a weighted average exercise
price of approximately $2.40 per share. The existence of the stock options,
Warrants and Private Placement Warrants and the issuance and resale of the
Shares and of shares of Common Stock issuable upon exercise of stock options
and the Warrants could have a material adverse effect on the market price of
the Company's Common Stock. See "Plan of Distribution" and "Description of
Securities."
Possible Anti-Takeover Effects of Certain Charter Provisions. The
Company's Certificate of Incorporation authorizes the Board of Directors to
issue up to 1,000,000 shares of preferred stock, $.01 par value per share
(the "Preferred Stock"). No shares of Preferred Stock are currently
outstanding, and the Company has no present plans for the issuance thereof.
The Preferred Stock may be issued in one or more series, the terms of which
may be determined at the time of issuance by the Board of Directors, without
further action by stockholders, and may include voting rights (including the
right to vote as a series on particular matters), preferences as to
dividends and liquidation, conversion and redemption rights and sinking fund
provisions. However, the issuance of any such shares of Preferred Stock
could adversely affect the rights of holders of Common Stock and, therefore,
could reduce the value of the Common Stock. In addition, the ability of the
Board of Directors to issue Preferred Stock could discourage, delay or
prevent a takeover of the Company. See "Description of Securities."
In addition, the Company, as a Delaware corporation, is subject to the
General Corporation Law of the State of Delaware, including Section 203, an
anti-takeover law enacted in 1988. In general, the law restricts the
ability of a public Delaware corporation 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. As a result of the application of Section 203 and certain
provisions in the Company's Certificate of Incorporation and Bylaws,
potential acquirors of the Company may find it more difficult or be
discouraged from attempting to effect an acquisition transaction with the
Company, thereby possibly depriving holders of the Company's securities of
certain opportunities to sell or otherwise dispose of such securities at
above-market prices pursuant to such transactions.
In addition, the Company's Bylaws provide for the Company's Board of
Directors to be divided into three classes. Directors constituting
approximately one-third of the Board of Directors are elected each year for
a period of three years at the Company's annual meeting of stockholders and
serve until their successors are duly elected by the stockholders. A
classified Board of Directors could discourage, delay or prevent a takeover
or change of control of the Company.
Absence of Public Trading Market. Prior to this Offering, no public
trading market for the Private Placement Warrants has existed. Although the
Company has applied for inclusion of the Private Placement Warrants on
NASDAQ and the BSE, no assurance can be given that such application will be
accepted or, if accepted, that a market will develop for these securities,
or that if developed, that such a market will be sustained.
Current Prospectus and State Blue Sky Registration Required to Exercise
Warrants. Purchasers may buy Private Placement Warrants in the aftermarket
or may move to jurisdictions in which the shares of Common Stock issuable
upon exercise of the Private Placement Warrants are not registered or
qualified for sale during the period that the Private Placement Warrants are
exercisable. In this event, the Company would be unable to issue shares of
Common Stock to those persons desiring to exercise their Private Placement
Warrants unless and until the shares of Common Stock could be registered or
qualified for sale in the jurisdictions in which such purchasers reside, or
unless an exemption to such qualification exists in such jurisdiction. No
assurance can be given as to the ability of the Company to effect any
required registration or qualification of the Common Stock in any
jurisdiction. See "Description of Securities - Private Placement Warrants."
USE OF PROCEEDS
The Company issued 2,695,255 of the Shares and an equal number of Private
Placement Warrants in connection with the Private Placement completed in
March 1996. In addition, the Company issued a warrant to purchase up to
269,526 units ("Units") at $2.75 per unit, to Jesup and Lamont Securities
Corporation, who served as placement agent in connection with the Private
Placement. Each Unit consists of one Share and one Private Placement
Warrant.
The Company used the proceeds of the Private Placement to fund the RAI
Acquisition and for working capital and general corporate purposes. The
Private Placement Warrants are exercisable at $2.75 per share, for an
aggregate exercise price of $8,153,000. Exercise of the Private Placement
Warrants, if any, will be made at the discretion of the holders thereof. To
the extent the Private Placement Warrants are exercised, the Company intends
to use the proceeds therefrom for working capital and general corporate
purposes. The Company may also use proceeds from exercises of the Private
Placement Warrants to fund joint ventures and acquisitions of products,
technologies and other companies. As of the date of this prospectus, the
Company has no agreements, arrangements or understandings with respect to
any such joint venture or acquisition. The Company will receive no part of
the proceeds of any secondary sales by the Selling Securityholders involving
the Shares. See "Plan of Distribution" and "Description of Securities."
The Company has agreed to assume all of the costs and fees relating to
the registration of the Securities covered by this Prospectus, except for
any discounts, concessions or commissions payable to underwriters
or dealers, agent brokerage fees incident to the offering of the Shares and
any fees and disbursements of counsel to the Selling Securityholders. The
Company estimates the expenses associated with this offering will be
approximately $75,000.
DIVIDEND POLICY
The Company has never paid a cash dividend on its Common Stock and
does not anticipate paying any cash dividends in the foreseeable future.
The Company presently intends to retain future earnings to fund the
development and growth of its business. See "Risk Factors - No Dividends."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has traded on the NASDAQ Small-Cap
Market ("NASDAQ") and the Boston Stock Exchange since the Company's initial
public offering, which was completed in February 1993. The following table
sets forth the high and low sale prices for the Common Stock as reported by
NASDAQ for the periods indicated. All high and low sale prices for the
Common Stock have been rounded to the nearest cent.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1995
First Quarter $3.50 $1.88
Second Quarter $2.25 $1.13
Third Quarter $2.13 $1.09
Fourth Quarter $4.50 $1.75
Fiscal 1996
First Quarter $3.50 $1.75
Second Quarter $4.13 $2.50
Third Quarter $4.13 $2.63
Fourth Quarter $3.13 $2.00
Fiscal 1997
First Quarter (through 10/30/96) $2.63 $2.31
</TABLE>
On September 30, 1996, the last sale price for the Common Stock as
reported by NASDAQ was $2.63 per share and there were approximately 240
record holders of the Common Stock.
BUSINESS
General
The Company develops, manufactures and markets proprietary medical
diagnostic test kits, or "assays," used to aid in the diagnosis of
autoimmune and infectious diseases. Autoimmune diseases are diseases in
which the immune system mistakenly identifies the body's cells and tissues
as foreign and attempts to destroy them. Rheumatoid arthritis is an example
of an autoimmune disease. The Company generally focuses on niche markets
which it believes offer significant growth potential and limited
competition.
Until July 1995, the Company's products were based primarily on two
diagnostic technologies, hemagglutination and ELISA. In July 1995, the
Company completed the acquisition of a line of similar but complementary
test kits using a third technology, immunofluorescence, from Schiapparelli
BioSystems, Inc. (the "VIRGO(R) Acquisition"). The assays acquired are sold
under the registered trademark VIRGO(R).
On March 1, 1996, the Company acquired a producer of general clinical
chemistry reagents utilizing colorimetric, turbometric and enzymatic
procedures from Kone Holdings, Inc. (the "RAI Acquisition"). The RAI assays
are sold under the registered trademark RAICHEM(TM).
The Company offers approximately 100 test kits, of which over 90 have
been cleared by the FDA for sale in the United States. The Company sells
test kits that have not yet been cleared by the FDA in foreign markets. The
Company markets and sells its brand name products worldwide, directly and
through national and international distributors and manufacturers'
representatives. The Company markets its products in South America through
its majority-owned subsidiary HDC. In addition, the Company sells certain
of its products on a private-label basis to multinational distributors of
medical diagnostics.
Recent Developments
Reagents Applications, Inc.
On March 1, 1996, the Company acquired all of the capital stock of
Reagents Applications, Inc. ("RAI") for a total purchase price of
approximately $4.9 million in cash. RAI, based in San Diego, California,
manufactures and markets clinical reagents and assays used in hospitals and
private laboratories. The Company sells these products worldwide directly
and through distributors and original equipment manufacturers. RAI had
revenues of approximately $5,807,000 for the year ended December 31, 1995.
No assurance can be given that historical revenue levels of RAI will provide
an accurate reflection of future revenues.
VIRGO(R) Acquisition
On July 1, 1995, the Company completed the VIRGO(R) Acquisition from
Schiapparelli BioSystems, Inc. ("SBI"). In connection with this
acquisition, the Company paid $1,000,000 in cash and issued a promissory
note for approximately $380,000, which was paid on December 15, 1995. The
Company manufactures the VIRGO(R) products at a portion of the facility
previously used by SBI in Columbia, Maryland.
The VIRGO(R) products consist primarily of assays that aid in the
diagnosis of infectious and autoimmune diseases using immunofluorescence
technology. VIRGO(R) test kits are used by over 300 clinical laboratories
in the United States and Europe, including by certain pre-existing customers
of the Company. The Company sells the VIRGO(R) products through some of its
existing distribution channels and to former customers and distributors of
SBI. The VIRGO(R) products generated sales of approximately $1,186,000 and
$2,661,000 for the six months ended June 30, 1995 and the year ended
December 31, 1994, respectively. No assurance can be given that historical
sales levels of VIRGO(R) products will provide an accurate reflection of
future sales levels.
Agreement with Sheffield Medical Technologies, Inc.
In December 1995, the Company entered into an agreement with Sheffield
Medical Technologies, Inc. to develop a test for an antibody believed to be
responsible for nonprogression of the HIV virus into Acquired Immune
Deficiency Syndrome ("AIDS") in HIV-positive individuals. The agreement
calls for the Company to develop a blood test for the antibody which is
believed to be present in virtually all of the HIV-positive individuals who
survive at least ten years following diagnosis of the HIV infection. The
assay, if developed, could be useful in monitoring the effectiveness of a
vaccine that may one day be developed to generate the antibody.
Carter-Wallace Agreement
In December 1994 the Company entered into a five-year agreement (the
"Carter-Wallace Agreement") with Carter-Wallace, Inc. ("Carter-Wallace") to
manufacture approximately 14 diagnostic test kits for the Wampole division
of Carter-Wallace. The test kits, which had previously been manufactured by
Carter-Wallace, are used to aid the diagnosis of common diseases such as
rheumatoid arthritis, mononucleosis, strep throat and rubella, as well as to
detect pregnancy. Carter-Wallace has agreed to purchase its requirements for
these test kits from the Company during the term of the Agreement, subject
to the Company maintaining certain quality standards. The test kits are
sold by Carter-Wallace to clinical laboratories and physicians' office
laboratories both domestically and abroad.
From December 1994 through May 1995, the Company remodeled its
manufacturing facility and developed certain technical capabilities in
preparation for producing test kits under the Carter-Wallace Agreement.
Initial shipments of finished goods under the Carter-Wallace Agreement began
during the Company's third quarter of fiscal 1995 and full scale production
commenced in the Company's second quarter of fiscal 1996. The Carter-
Wallace Agreement contains provisions for two-year extensions and may be
expanded to include additional products. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Technology
The presence and concentration of certain antibodies in the blood of
an individual can assist physicians in the diagnosis of certain diseases.
The Company's hemagglutination, ELISA and immunofluorescence immunoassays
are in vitro (outside of a patient's body) diagnostic tests that are used to
measure specific substances, either antigens or antibodies, in blood or
other body fluids. An antigen is a substance that reacts with a particular
antibody in a manner which, in the proper environment, is detectable either
by the naked eye or with the aid of a laboratory technique which amplifies
the reaction so that it is rendered visible. The Company's hemagglutination
and ELISA assays are two examples of such an amplification.
The Company relies upon proprietary technologies in the manufacture of
its kits. These technologies include a lyophilization technique which
substantially extends the shelf life of the Company's hemagglutination
assays, and proprietary methods to prepare antigens for its ELISA assays.
Hemagglutination
Hemagglutination is the agglutination or "clumping" of red blood cells
("RBCs"). Many substances, including certain antibodies, when placed in
contact with RBCs, will cause agglutination.
Under the appropriate conditions, human RBCs may be modified or
sensitized by binding specific foreign antigens to their surface. These
sensitized RBCs will agglutinate when placed in contact with a specific
antibody to the foreign antigen. The presence of certain antibodies in an
individual's serum (blood from which most red blood cells have been removed)
can indicate certain diseases. By sensitizing RBCs with an antigen that
specifically reacts with a particular antibody, the simple visible
observation of the agglutination reaction will indicate the presence of the
disease-produced antibody. The use of RBCs instead of other particles can
allow for simple visual observation of the agglutination reaction in the
proper environment, and reduces the non-specific reactions seen in
artificial systems such as those that utilize latex particles.
To perform the Company's hemagglutination test, a technician combines
the Company's sensitized RBCs with a patient's serum in a small well with a
V-shaped bottom according to a set of directions included with the Company's
test kits. If no agglutination takes place, the RBCs will settle to the
bottom of the well, resulting in a clearly visible red dot which indicates
that the test is negative.
In contrast, if the particular antibody is present in the patient's
blood, the RBCs will agglutinate, which prevents the RBCs from settling to
the bottom of the well. Instead of the small red dot, the substance will
appear diffuse, which indicates a positive reaction.
ELISA
ELISA (or EIA) tests employ small plastic vessels coated with
particular antigens. The test process involves introducing the patient's
serum into the vessel to allow a reaction to occur. If the antibody being
tested for is present, it will bind to the antigens on the bottom surface of
the vessel. After the vessel is rinsed, the specifically bound antibody will
remain while any non-specific antibodies will be washed away. To detect the
quantity of the specific antibody, other compounds are added which will
cause a color change in the vessel, the intensity of which is directly
proportionate to the quantity of the specific antibody bound. If no color is
noted, this indicates that the patient's serum did not contain detectable
quantities of the specific antibody.
Immunofluorescence
The Company's immunofluorescence tests are analyzed using a
fluorescent microscope. Mammalian cells grown on microscope slides are
treated with disease-producing organisms (viral or bacterial). Serum from a
patient is placed in contact with the infected cells. If a patient has
antibodies to the organism causing the disease, the antibodies will bind to
the organism. A chemical is added to the slide which binds to the organism
and the antibody, if present. When the slide is illuminated with light at a
specific wavelength in the microscope, the chemically-treated cells will
appear fluorescent, indicating a positive test result. If the patient did
not have the appropriate antibody, no fluorescence will appear and the test
result will be deemed negative.
Apolipoproteins and Acute Phase Reactants
The Company has developed a new application for its ELISA technology
to detect cardiovascular risk factors (apolipoproteins) and inflammatory
signals (acute phase reactants), the latter of which are present in a
patient's blood prior to the clinical manifestation of infection or
inflammation. If successful, these technologies could lead to earlier
detection and treatment of cardiovascular disease, the imminent rejection of
transplanted organs, or the onset of infections, than is possible with
techniques now commercially available. Such earlier detection could enable
physicians to better plan appropriate treatment of patients with these
conditions. The Company currently markets two test kits to detect
inflammatory signals, one of which has received clearance from the FDA for
clinical use and one of which is currently sold for research purposes.
Product sales for these tests were not material in fiscal 1995 or 1994.
Current Products
Hemagglutination Assays
The Company believes that it manufactures and markets the only
commercially available hemagglutination kits which test for antibodies to
antigens present in the nucleus of a cell ("extractable nuclear antigens,"
or "ENAs") which are markers of certain autoimmune diseases. Each of the
Company's hemagglutination assays is based on the Company's proprietary
technique to lyophilize, or "freeze dry," the RBCs which form the central
component of a hemagglutination assay. The Company's proprietary
lyophilization technique for the preservation of RBCs permits the production
of standardized, easy-to-use and accurate hemagglutination tests with an
extended shelf life, all of which are attributes previously unavailable
using hemagglutination assays. The shelf-life of the lyophilized RBCs before
reconstitution may be up to 24 months. A technician reconstitutes the
powdered cells in a water-based solution prior to introducing the patient's
serum.
Each hemagglutination test also requires a specific formula to
sensitize the RBCs prior to lyophilization such that they will react to a
specific antibody. For each of its tests, the Company uses a proprietary
formula to combine antigens and other reagents with RBCs in a manner that
allows for standard, sensitive and specific agglutination reactions. Results
from the Company's test kits are generally available within two hours. The
Company's hemagglutination test kits aid in the diagnosis of the following
diseases:
SLE (lupus) dermatomyositis
mixed connective tissue disease polymyositis
Sjogren's syndrome rheumatoid arthritis
scleroderma (systemic sclerosis) Chagas' disease
cytomegalovirus (cmv)
In Fiscal 1995 and 1994, the Company derived approximately 45% and 35%
of its revenues, respectively, from sales of hemagglutination assays.
ELISA Assays
The Company develops and markets ELISA tests for the detection of
disease markers. As with corresponding hemagglutination tests produced by
the Company, most of the Company's ELISA assays test for elevated levels of
antibodies, which are useful indicators of certain diseases. ELISA tests are
widely used by large laboratories because these tests adapt easily to
automated diagnostic testing equipment. The Company's ELISA test kits aid
in the diagnosis of the following diseases:
SLE (lupus) polymyositis
mixed connective tissue disease dermatomyositis
Sjogren's syndrome connective tissue diseases
scleroderma (systemic sclerosis) dermatomyositis
Chagas' disease
Certain of the Company's ELISA tests are also used to monitor the
acute phase response to infection and inflammation in diseases such as lupus
and rheumatoid arthritis.
The Company derived approximately 32% and 65% of its revenues,
respectively, from sales of ELISA test kits in Fiscal 1995 and 1994,
respectively. Carter-Wallace sales accounted for 7% of Fiscal 1995 revenue
and 0% of fiscal 1994 revenues, while sales of the VIRGO(R) line accounted
for 16% of Fiscal 1995 revenues and 0% in Fiscal 1994.
The Company's ELISA and hemagglutination kits include screen tests in
which up to six different diagnostic indices are monitored at the same time,
which is useful in the rapid initial screening of patients. If the screen
test is positive, individual kits are available to identify which of these
six indices is present.
VIRGO(R) Products
The Company's immunofluorescence ("IFA") products, sold under the
trade name VIRGO(R), consist primarily of diagnostic assays for infectious
diseases. VIRGO(R) test kits are used as primary or confirmatory tests in
many large clinical laboratories in the United States. There are currently
15 kits in the VIRGO(R) product line.
The Company's VIRGO(R) products are used to aid in the diagnosis of
the following:
cytomegaloviras herpes simplex
SLE (lupus) german measles
connective tissue diseases chicken pox
primary bilary cirrhosis infections with Epstein-Barr virus
toxoplasmosis chlamydial infections
syphilis measles
primary RSV infections mumps infections
In the three month period from July 1, 1995, the date the VIRGO(R)
Acquisition was completed, through September 30, 1995, the Company derived
approximately 30% of its revenues from sales of VIRGO(R) products. Sales of
VIRGO(R) products accounted for 24% of the Company's sales for the nine month
period ended June 30, 1996.
RAI Products
The Company's general chemistry products, sold under the trade name
RAICHEM(TM), consist of a broad range of assays used on automated and semi-
automated clinical chemistry analysis systems. Many of the RAICHEM assays
are used in profiling general health conditions and as specific indications
of possible disease states.
South American Activities
In 1991, the Company began to market its product line in South America
through HDC. In fiscal 1994, HDC completed the renovation of a new
manufacturing and office facility in Sao Paulo, Brazil, which allows HDC to
manufacture test kits in South America. This facility began to manufacture
products in fiscal 1994.
The Company markets its full product line to the South American
market, including three proprietary assays for Chagas' disease. Chagas'
disease (American Trypanosomiasis) is an insect and blood transfusion
transmitted parasitic infection which eventually attacks the victim's
cardiovascular system. Due to poor sanitation and other factors, insects
have transmitted Chagas' disease widely throughout Central and South
America, with substantial encroachment into Mexico. In response to the need
for efficient and accurate testing for Chagas' disease, the Company has
developed three diagnostic tests: an instrument-free hemagglutination assay,
an ELISA assay, and a hemagglutination assay prepared specifically for use
with certain automated blood-typing instruments.
The office in Sao Paulo is presently staffed by three full-time
salespeople administrators who receive and process orders, and two people in
production, shipping and technical support. In addition, Dr. de Oliveira,
the Company's Vice President of Research and Development, spends time in
Brazil attending to business of the Company. In Fiscal 1995 and 1994 the
Company derived product sales through HDC of approximately $973,000 and
$268,000, respectively. See "Business - Facilities," "Management" and
"Certain Transactions."
Distribution and Marketing
In the United States, the Company sells its products directly to
clinical laboratories and blood banks and on a private-label basis through
multinational distributors of medical supplies. Internationally, the
Company sells its products primarily through distributors. The Company
grants exclusive and non-exclusive distributorships, which generally cover
limited geographic areas and specific test kits. The Company's exclusive
distributorship arrangements generally condition exclusivity on the
distributor maintaining minimum purchases from the Company. The Company has
relationships with approximately 35 distributors and its products have been
sold in over 20 countries. The Company also engages four independent sales
representatives, who market the Company's products to blood banks and
clinical laboratories.
Since 1989 the Company has been the exclusive provider of test kits to
detect CMV antibodies for use with the Olympus PK-7100, the world's most
widely used automated blood-typing instrument in blood banks and large
commercial laboratories. Pursuant to the terms of the Company's agreement
with Olympus, the Company provides CMV test kits for sale by Olympus
worldwide to users of the PK-7100. The agreement provides that Olympus must
purchase a minimum number of hemagglutination CMV test kits annually from
the Company through February 1996, subject to the Company meeting certain
requirements. The agreement specifies that during its term, the Company
will not sell its CMV assays to any customers worldwide which use Olympus
instruments or use competing laboratory analysis equipment in blood banks.
Sales of CMV assays to Olympus were approximately $674,000 and $592,000
during Fiscal 1995 and 1994, respectively. The Company's current supply
agreement with Olympus expires in February 1998. No assurance can be
given that such agreement will be renewed thereafter. See "Risk
Factors - Dependence on Major Customers."
The Company also manufactures products on a private label basis for
Sigma Diagnostics, Boehringer Mannheim GmbH ("Boehringer"), and Carter-
Wallace pursuant to supply agreements. These agreements do not currently
provide for minimum purchases and therefore the Company cannot predict the
level of revenues it will derive from these agreements.
Olympus accounted for approximately 21% of the Company's revenue for
Fiscal 1995 and approximately 6% of the Company's revenue for the nine
months ended June 30, 1996. Carter-Wallace accounted for approximately 18%
of the Company's revenues for the nine months ended June 30, 1996. Although
the Company expects that its relationships with these customers will
continue, if any of these customers were to cease doing business with the
Company it could have a material adverse effect on the Company's business.
See "Risk Factors - Dependence on Major Customers."
Products Under Development
The Company is presently developing new products in areas described
below. The Company spent a total of approximately $562,000, $727,000 and
$440,000 on Company-sponsored research and development for the fiscal years
ended September 30, 1995, 1994 and 1993, respectively. The Company spent a
total of approximately $11,000, $0 and $102,000 on customer-sponsored
research and development for the years ended September 30, 1995, 1994 and
1993, respectively. No assurance can be given that any technologies or
products under development by the Company will be successfully developed,
marketed or sold on a profitable basis.
Autoimmune Diseases
The Company intends to continue its development of products to aid in
the diagnosis of autoimmune diseases. Hemagglutination and ELISA kits for
the detection of antibodies associated with chronic autoimmune active
hepatitis, primary biliary cirrhosis and thyroiditis are currently under
development. The Company believes that it will have commercially available
assays for these purposes in fiscal 1997, subject to obtaining appropriate
regulatory clearances. See "Risk Factors - Government Regulation."
Acute Phase Reactants and Apolipoproteins
The Company continues to develop an application for its ELISA
technology which would detect cardiovascular risk factors (apolipoproteins)
and inflammatory signals (acute phase reactants) that are present in a
patient's blood prior to the manifestation of disease. In addition, this
assay could lead to earlier detection of organ transplant rejection or
infection than is possible with techniques now commercially available. This
technology is licensed by the Company from Boston University, which has a
patent for the technology. See "Business - Relationship with Boston
University."
The Company's acute phase reactant technology has a number of
potential applications, including:
* Transplantation
The key to successful organ transplantation is to ensure that the new
organ is not rejected by the recipient's body. This can be aided in part by
administering appropriate drugs prior to the time when the recipient's body
rejects the transplant. It has been reported that during the early phase of
the rejection process, the body will produce increased levels of certain
acute phase reactants. Using the Company's serum amyloid A ("SAA") assay,
physicians may be able to detect the point at which a body is rejecting a
transplanted organ earlier than current techniques allow.
* Cardiovascular Diseases
The Company is developing a test to measure two blood lipoproteins,
which are indicators of risk of cardiovascular disease. High levels of these
two lipoproteins have been cited as more reliable indices of cardiovascular
risk than cholesterol levels. Together with SAA, these technologies could
detect high cardiovascular risk levels in patients with chronic autoimmune
disease.
* Rheumatoid Arthritis
In connection with the Company's development program, the Company has
sold test kits utilizing its acute phase reactant technology to Pfizer for
use in the evaluation of Pfizer's experimental drug Tenidapr for the
treatment of rheumatoid arthritis.
Infectious Diseases
The Company continues to develop additional assays to aid in the
diagnosis of infectious diseases. The Company recently completed the
development of products are known as a "ToRCH panel," and include assays for
toxoplasmosis, rubella, CMV, and herpes. The Company is also developing test
kits for Lyme disease and for Epstein-Barr virus. As with all of the
Company's products under development, these products will have to undergo
FDA review before they can be marketed and sold in the United States. The
Company cannot predict when it will receive FDA clearance for these
products, if at all. See "Risk Factors - Government Regulation" and
"Business - Government Regulation."
Relationship with Boston University
Dr. Carl Franzblau, the Chairman of the Board, Chief Executive Officer
and President of the Company, serves as a Professor and Chairman of the
Department of Biochemistry and as Associate Dean for Graduate Affairs at the
Boston University School of Medicine. Dr. Alan Cohen, a Director of the
Company, serves as a Professor of Medicine and Pharmacology at Boston
University School of Medicine. Lawrence Gilbert, a Director of the Company,
is a former Director of the Patent and Technology Administration at Boston
University. Dr. John I. Sandson, a Director of the Company, is Dean Emeritus
of the Boston University School of Medicine. Charles W. Smith, a Director of
the Company, served as Senior Vice President of Boston University from 1984
through 1989 and as its Treasurer from 1983 through June 1992. The Company
believes that the continuing relationship between Boston University and
these individuals, particularly Dr. Franzblau, is beneficial to the Company,
particularly with respect to providing the Company with access to new
developments in scientific areas related to the Company's business. See
"Management" and "Certain Transactions."
License Agreements
In March 1992, the Company entered into a license agreement (the "B.
U. License Agreement") with Boston University (the "University") pursuant to
which the Company has obtained the exclusive right to use certain of the
University's patented technology to manufacture and market assays for the
detection of acute phase reactants. See "Business - Products under
Development." Pursuant to the B. U. License Agreement, the Company is
obligated to pay an annual royalty of 5% of the first $50,000 of the
Company's net sales of these assays, and 10% of the Company's net sales of
these assays in excess of $50,000 until the Company has paid the University
a license fee of $10,000 and reimbursed it for certain patent expenses.
Thereafter, the Company will pay a 5% royalty on its net sales of these
assays. Sales under the B.U. License Agreement have been immaterial to
date.
In July 1994, the Company entered into a second license agreement with
the University under which the Company obtained the exclusive right to use
additional patented and patent-pending technology of the University to
manufacture and market certain products relating to tumor markers. The
royalties due under the terms of the agreement are the same as the B.U.
License Agreement and will be applied to a license fee of $15,000. No
royalties were paid in the years ended September 30, 1995 or 1994 and no
amounts were accrued for royalties at September 30, 1995 or 1994. The
agreement terminates upon the termination of the patents.
Product Development Agreement
On February 14, 1992 the Company entered into a product development
agreement with the University to develop a urine-based assay to measure
levels of desmosine, which can indicate certain diseases such as cystic
fibrosis and emphysema. This agreement was terminated in 1993. The parties
are currently in discussions concerning the desirability of commercializing
this technology.
Manufacturing and Sources of Supply
The Company manufactures its hemagglutination and ELISA test kits at
its facility in Waltham, Massachusetts, and its VIRGO(R) products based on
immunofluorescence technology at its facility in Columbia, Maryland. The
RAICHEM line is produced at the Company's facility in San Diego, California.
The Company purchases RBCs and some of the antigens and other reagents used
in the kits from outside vendors. Most reagents used in the Company's test
kits are manufactured at the Company's facilities. The Company uses
lyophilization equipment to preserve sensitized RBCs for its
hemagglutination test kits.
All components used in the Company's products are available from
multiple sources, except for an antigen called SSA, which the Company uses
in two of its ELISA and two of its hemagglutination test kits. The Company
believes that the supplier of this antigen produces this antigen for many
customers. Management believes that if necessary, the Company could produce
sufficient quantities of this antigen itself. Therefore, if the supply of
this antigen were to cease, the Company believes it would not have a long-
term material adverse impact on the Company's business taken as a whole. See
"Risk Factors - Dependence on Suppliers."
Government Regulation
The Company's manufacturing and marketing of diagnostic test kits are
subject to government regulation in the United States and any other
countries in which the Company's products are sought to be marketed. The
Company may also seek regulatory approval to market its products and
proposed products in jurisdictions other than the United States. The
process of obtaining regulatory clearance involves lengthy and detailed
laboratory and clinical testing, and other costly and time consuming
procedures. This regulatory process may delay marketing of new products for
lengthy periods and impose costly procedures, thereby furnishing an
advantage to competitors with greater resources. Although over 90 of the
Company's current products have been cleared by the FDA through the 510(k)
review process, described below, there can be no assurance that regulatory
clearance will be granted on a timely basis in the future, if at all. The
extent of government regulation which may arise from future legislative or
administrative action cannot be predicted.
In vitro monitoring products, such as those employing antibodies for
the detection of autoimmune diseases in humans, are generally classified as
medical devices by the FDA. For some in vitro products, the United States
Food, Drug, and Cosmetic Act provides a process known as a "510(k) review"
to enable the manufacturer to demonstrate that the proposed product is
"substantially equivalent" to another product in commercial distribution in
the United States before May 28, 1976 or which has subsequently been
classified as a Class I or Class II medical device. When a 510(k) review is
used, a sponsor is required to submit a Pre-Market Notification to the FDA.
In the absence of a response from the FDA, the Company would not be able to
proceed with sales of its in vitro product for diagnostic use unless and
until it received notification from the FDA. In the event that the FDA
requests additional information for the Pre-market Notification, there could
be multiple cycles of submissions until clearance is obtained. The FDA has
statutory authority to also require clinical studies data to support a Pre-
Market Notification 510(k) application.
In cases where there are no existing FDA approved products
"substantially equivalent" to the new product, an approved pre-market
approval application ("PMA"), which involves a lengthier and more burdensome
process, would be required before the FDA would allow commercial
distribution. No assurance can be given that any in vitro blood test the
Company develops in the future will be found to have an intended use that
would qualify the new test for 510(k) clearance. Accordingly, a PMA may be
required for any new application of the Company's proposed in vitro blood
tests.
The FDA invariably requires clinical data for a PMA and, although the
FDA may grant 510(k) clearance without supporting clinical data, such data
may be required if the FDA determines that technical differences from
existing products suggest the need for additional evidence of safety or
effectiveness of the new product. If clinical studies are necessary, the FDA
may require the Company to obtain an investigational device exemption
("IDE"). An IDE normally restricts the distribution of an investigational
device to a limited number of institutions, and use by a limited number of
investigators, for the purpose of performing studies to be submitted to the
FDA in a 510(k) Pre-Market Notification or a PMA. The amount that can be
charged for use of an investigational device in a clinical study is
generally limited to recovery of costs until a 510(k) notification is
cleared or PMA approval is granted by the FDA. Accordingly, no significant
return can be expected during the study of investigational devices.
Although certain diagnostic products are exempt from IDE requirements,
the exemption applies only to tests which do not require an invasive
sampling procedure that presents significant risk, do not introduce energy
(such as X-rays) into a subject, and are not used as diagnostics without a
confirmatory diagnosis by a medically established diagnostic product or
procedure. The Company's products would not be used as diagnostics without
such a confirmatory diagnosis while an investigational device.
Medical devices may be exported before receiving IDE, 510(k) or PMA
clearance under certain conditions, providing FDA approval of the proposed
exportation is obtained. The receiving country must certify that the device
is not in conflict with the laws of that country and that the foreign
government is aware of the device's import. In addition, the FDA may require
safety data similar to that required for approval of an IDE before approving
the exportation of a new device. In foreign countries, the Company's
distributors are generally responsible for obtaining any required government
consents.
The Company is also required to register with the FDA as a device
manufacturer and list its devices. As such, the Company is subject to
inspection on a routine basis for compliance with the FDA's Good
Manufacturing Practice ("GMP") regulations. These regulations require that
the Company manufacture its products and maintain its documents in a
prescribed manner with respect to manufacturing, testing and control
activities. Failure to comply with applicable GMP or other regulatory
requirements can result in, among other things, sanctions, fines, delays or
suspensions of approvals, injunctions against further distribution, seizures
or recalls of products, operating restrictions and criminal prosecutions. In
addition, the Company is required to comply with various FDA requirements
for labeling. Pursuant to the Medical Device Reporting Act regulations, the
Company is also required to notify the FDA of any deaths or serious injuries
alleged to have been associated with the use of its diagnostic test kits as
well as product malfunctions that would likely cause or contribute to death
or serious injury if the malfunction were to recur. Finally, the FDA
prohibits an approved device from being marketed for unapproved
applications. Failure to comply with regulatory requirements could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors - Government Regulation."
Competition
Competition in the clinical diagnostics industry is intense. There are
many companies, both public and private, engaged in diagnostics-related
research and development, including a number of well-known pharmaceutical
and chemical companies. Competition is based primarily on product
reliability, customer service and price. Some of these companies have
substantially greater capital resources and have marketing and business
organizations of substantially greater size than the Company. Many companies
have been working on immunodiagnostic reagents and products, including some
products believed to be similar to those currently marketed and under
development by the Company, for a longer period of time than has the
Company. The Company believes that its primary competitors in the
diagnostics market include Abbott Laboratories, Sigma Diagnostics, Trace-
America, Inc. NA, Gull Laboratories, Inc., Inova, Sanofi Diagnostics
Pasteur, Inc. (formerly Kallestad Diagnostics, Inc.), Diamedix Corporation
and Clark Laboratories. The Company expects competition within this industry
to intensify. See "Risk Factors - Competition."
Product Liability
The testing, marketing and sale of clinical diagnostics products
entail an inherent risk of allegations of product liability, and there can
be no assurance that product liability claims will not be asserted against
the Company. The Company may incur product liability due to product failure
or improper use of products by the user. Inaccurate detection may result in
the failure to administer necessary therapeutic drugs or administration of
unnecessary and potentially toxic drugs. Even with proper use of a product,
there may be specific instances in which the results obtained from the
Company's test kits could lead a physician to incorrectly predict the
appropriate therapy for a particular patient. The Company maintains product
liability insurance in the amount of up to $5,000,000 per incident and in
the aggregate which, based on the Company's experience and industry
practice, the Company believes to be adequate for its present operations. No
assurance can be given that the amount of the Company's insurance is
sufficient to fully insure against claims which may be made against the
Company. See "Risk Factors - Product Liability Risks."
Patents and Proprietary Rights
The Company protects its technology primarily as trade secrets rather
than by relying on patents, either because patent protection is not possible
or, in management's opinion, would be less effective than maintaining
secrecy. In addition, the Company relies upon confidentiality agreements
with its employees. To the extent that it relies on confidentiality
agreements and trade secret protection, there can be no assurance that the
Company's efforts to maintain secrecy will be successful or that third
parties will not be able to develop the technology independently. The
Company may in the future apply for patent protection for certain of its
technology when management believes such protection would be beneficial to
the Company. The protection afforded by patents depends upon a variety of
factors which may severely limit the value of the patent protection,
particularly in foreign countries, and no assurance can be given that
patents, if granted, will provide meaningful protection for the Company's
technology. See "Risk Factors - Patents and Proprietary Rights."
Royalty Obligations
The Company is required to pay royalties to third parties on sales of
some of its products and proposed products. See "Business - Relationship
with Boston University" and "Certain Transactions."
Employees
As of September 30, 1996, the Company had 98 full-time employees, of
which five are executive officers, 15 are employed in general and
administrative activities, 14 are involved in sales and marketing and 64 are
involved in production and research and development.
Facilities
The Company maintains its principal executive offices, laboratory and
production operations in Waltham, Massachusetts in two adjacent buildings;
one a 4,000 sq. ft. facility which houses the Company's research and
development laboratories, and the other a 15,000 sq. ft. facility which
accommodates the laboratory and production operations and the executive
offices of the Company. The Company pays rent in the amount of $36,000 per
annum for the 4,000 square foot facility on a month-to-month basis. The
Company pays rent in the amount of $82,500 per annum for the 15,000 square
foot facility pursuant to the terms of that lease which ends May 30, 1997.
The Company leases 29,000 square feet in a production facility in Columbia,
Maryland where it manufactures the VIRGO(R) product line. Under the
Columbia lease, which has a five-year term through June 30, 2000, the
Company pays $100,000 per annum in rent. The Company also leases 20,100
square feet in San Diego, California, where it manufactures the RAICHEM
products. Under the San Diego lease, which extends through September 30,
1997, the Company pays $225,084 per annum. In addition, the Company leases
a 1,900 square foot warehouse facility near its production site for which it
pays $13,080 per annum on an annual lease which may be renewed each April 1.
The Company believes that its facilities are adequate for its present and
foreseeable needs. See "Use of Proceeds."
The Company's 51%-owned subsidiary, HDC, leases approximately 4,500
square feet in Sao Paulo, Brazil pursuant to a lease which expires on
September 30, 1997. This subsidiary pays rent in an amount of approximately
$5,500 per month for this space. The Company does not anticipate it will
require additional space in South America. See "Certain Transactions."
Legal Matters
The Company is not presently involved in any material pending
litigation.
MANAGEMENT
The following table sets forth the ages of and positions and offices
presently held by each Director and executive officer of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Carl Franzblau, Ph.D. 61 Chairman of the Board of Directors, Chief
Executive Officer, President and Secretary
Ricardo M. de Oliveira, M.D. 44 Vice President of Research and Development
and Director
Peter von Stein 61 Vice President and Chief Operating Officer
Myrna Franzblau 58 Treasurer
William Franzblau 34 Chief Financial Officer and General Counsel
Alan S. Cohen, M.D. 69 Director
Lawrence Gilbert 63 Director
John I. Sandson, M.D. 68 Director
Charles W. Smith 64 Director
</TABLE>
Each of the Company's Directors has served in such capacity since the
Company's inception in 1985. The Company's Board of Directors is divided
into three classes. Directors constituting approximately one-third of the
Board of Directors are elected annually for a period of three years at the
Company's Annual Meeting of Stockholders to serve until their successors are
duly elected by the stockholders. The terms of Dr. Franzblau and Dr. de
Oliveira expire in 1997; and the terms of Dr. Sandson and Mr. Smith expire
in 1998; the terms of Dr. Cohen and Mr. Gilbert expire in 1999. A
classified Board of Directors could discourage, delay or prevent a takeover
or change of control of the Company. Vacancies and newly created
directorships resulting from any increase in the number of authorized
Directors may be filled by a majority vote of Directors then in office.
Officers are elected by and serve at the pleasure of the Board of Directors.
The following is a brief summary of the background of each Director
and executive officer of the Company:
Carl Franzblau, Ph.D. has served as Chairman of the Board of
Directors, Chief Executive Officer and President of the Company since its
inception. For more than the past five years, Dr. Franzblau has served as a
Professor and Chairman of the Biochemistry Department and Associate Dean for
Graduate Affairs at the Boston University School of Medicine. Dr. Franzblau
received his Bachelor of Science degree in Chemistry from the University of
Michigan and his Ph.D. in Biochemistry from the Albert Einstein College of
Medicine. Dr. Franzblau devotes a minimum of 30 hours per week to the
business of the Company pursuant to the terms of his employment agreement.
Dr. Franzblau is the husband of Myrna Franzblau, the Company's Treasurer,
and the father of William Franzblau, the Company's Chief Financial Officer
and General Counsel.
Ricardo M. de Oliveira, M.D. has been the Vice President of Research
and Development and a Director of the Company since its inception. From
1980 through 1990, Dr. de Oliveira was a Professor at the University of Sao
Paulo in Brazil. Dr. de Oliveira is also the Director of Clinical Pathology
at the Cancer Hospital of Sao Paulo, Brazil. Dr. de Oliveira received his
M.D. degree from the Faculdade de Ciencias Medicas da Santa Casa de Sao
Paulo in Brazil.
Peter von Stein joined the Company in August 1992 as its Vice
President and Chief Operating Officer after having served as a consultant to
the Company since February 1992. From August 1991 to June 1992, Mr. von
Stein served as Chief Executive Officer of Health Protection Products, a
privately-held distributor of hip-protection devices. From October 1990
through June 1991, Mr. von Stein served as President and Chief Executive
Officer of Adams Scientific, Inc., a privately-held microbiology company.
From 1983 to 1991, Mr. von Stein served as Chief Executive Officer of Access
Medical Systems, Inc., a privately-held manufacturer of medical-diagnostics
products. Access Medical Systems filed a petition in bankruptcy court for
protection from creditors five months after Mr. von Stein's departure and
completed its reorganization in late 1991. Mr. von Stein received his
Bachelor of Arts degree from Brown University.
Myrna Franzblau has been the Company's Treasurer since its inception.
Mrs. Franzblau received her Bachelor of Arts from Brooklyn College and her
Master's degree in Education from Boston University. Mrs. Franzblau is the
wife of Carl Franzblau, the Company's President, and the mother of William
Franzblau, the Company's Chief Financial Officer and General Counsel.
William Franzblau joined the Company in March, 1993 as its General
Counsel and became the Company's Chief Financial Officer in February 1996.
From January 1, 1991 to March, 1993, Mr. Franzblau was an associate at the
law firm of Shapiro, Israel and Weiner. Mr. Franzblau received his Bachelor
of Arts, J.D. and L.L.M. degrees from Boston University. Mr. Franzblau is
the son of Dr. and Mrs. Franzblau.
Alan S. Cohen, M.D. has served as a Director of the Company since its
inception. Dr. Cohen has been employed by the Boston University School of
Medicine as a Professor of Medicine since 1968 and a Professor of
Pharmacology since 1974. Dr. Cohen served as the Director of the Arthritis
Center of Boston University from 1976 to 1994. From 1972 to 1992, Dr. Cohen
served as Chief of Medicine of Boston City Hospital. Dr. Cohen is a past
President of the American College of Rheumatology. Dr. Cohen received his
Bachelor of Arts degree from Harvard College and his M.D. degree from the
Boston University School of Medicine.
Lawrence Gilbert has served as a Director of the Company since its
inception and served as Clerk of the Company from its inception until 1988.
From 1987 until 1995, Mr. Gilbert served as the Director of Patent and
Technology Administration for Boston University. Since 1995, Mr. Gilbert
has served as the Director of Technology Transfer at the California
Institute of Technology. Mr. Gilbert received his Bachelor of Arts degree
from Brandeis University, his Bachelor of Foreign Trade from the American
Institute of Foreign Trade and a J.D. degree from Suffolk University Law
School.
John I. Sandson, M.D. has served as a Director of the Company since
its inception. Since 1988, Dr. Sandson has been Dean Emeritus of the Boston
University School of Medicine. He was Dean of the Boston University School
of Medicine from 1974 to 1988. Dr. Sandson was a Director and the Clerk of
Peer Review Analysis, Inc., from 1990 to 1993, a publicly-held provider of
medical cost-containment services. Dr. Sandson received his Bachelor's
degree from St. Vincent College and received his M.D. from Washington
University School of Medicine.
Charles W. Smith has served as a Director of the Company since its
inception. From 1984 through 1989, Mr. Smith served as a Senior Vice
President of Boston University. From 1983 through June 1992, Mr. Smith also
served as the Treasurer and a member of the Board of Trustees of Boston
University. Mr. Smith was a Director of Seragen, Inc., a publicly-held
biotechnology company, through May 1996 and was a director of Peer Review
Analysis, Inc. from 1990 to 1994. Mr. Smith attended Metropolitan College
in England and is a fellow of the Institute of Chartered Accountants in
England and Wales.
Committees; Compensation of Non-Employee Directors
The Company has established an Executive Committee, an Audit Committee
and a Compensation Committee of the Board of Directors. Members of the
Executive Committee are Dr. Franzblau, Dr. Sandson and Dr. de Oliveira. The
Executive Committee is authorized to take any action that the Board of
Directors is authorized to act upon with the exception of the issuance of
stock, the sale of all or substantially all of the Company's assets and any
other significant corporate transaction.
Members of the Audit Committee are Mr. Smith and Mr. Gilbert. The
Audit Committee is concerned primarily with recommending the selection of
the Company's independent accountants and reviewing the effectiveness of the
Company's accounting policies and practices, financial reporting and
internal controls. The Audit Committee reviews the scope of audit
coverages, the results of audits, the fees charged by the accountants, and
internal control systems.
The Compensation Committee consists of Dr. Franzblau and two
independent outside Directors, Dr. Sandson and Dr. Cohen. The Compensation
Committee was established to set and administer the policies that govern
annual compensation for the Company's executives.
During fiscal 1995 and 1994, members of the Executive Committee, Audit
Committee and Compensation Committee did not meet as separate committees.
Instead, during such time, the Board of Directors, as a whole, addressed the
policies and issues related to the functions of the Executive, Audit and
Compensation Committees. The Board of Directors met four times during
fiscal 1995. All of the Directors attended at least 75% of the meetings of
the Board of Directors. The Company does not have a standing nominating
committee or a committee performing similar functions.
In fiscal 1995 and 1996 the Company issued to each of its four non-
management Directors 3,000 and 5,000 shares of Common Stock, respectively,
as compensation for such Directors' services to the Company. Drs. Franzblau
and de Oliveira receive no compensation for their services as Directors.
Except for Dr. and Mrs. Franzblau and William Franzblau, no Director
or executive officer is related by blood, marriage or adoption to any other
Director or executive officer.
Executive Officers' Compensation
The following table sets forth the compensation paid to the Company's
Chief Executive Officer during the fiscal years ended September 30, 1995,
1994 and 1993, and the other executive officers of the Company who earned a
total annual salary and bonus in excess of $100,000 during the fiscal year
ended September 30, 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
- --------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
Securities
Underlying
Name and Other Annual Options
Principal Position Year Salary Bonus Compensation (#)(4)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Carl Franzblau 1995 $103,000 0 $5,073 (1) 0
Chief Executive Officer 1994 $ 97,950 0 $5,073 0
1993 $ 76,000 0 $5,000 0
Ricardo de Oliveira 1995 $103,000 0 $3,496 (2) 0
Vice President 1994 $100,350 0 $3,496 0
Research & Development 1993 $ 88,600 0 $3,000 0
Peter von Stein 1995 $100,000 0 $3,000 (3) 0
Chief Operating 1994 $ 97,500 0 $2,925 0
Officer 1993 $ 93,500 0 $ 0 0
<F1> The Company had provided Dr. Franzblau with the use of a Company-owned
or leased car during the fiscal years ended September 30, 1995, 1994 and
1993, and has recorded an annual expense for Dr. Franzblau's automobile
of approximately $5,073, $5,073 and $5,000 respectively.
<F2> The Company had provided Dr. de Oliveira with the use of a Company-owned
or leased car during the fiscal years ended September 30, 1995, 1994 and
1993, and has recorded an annual expense for Dr. de Oliveira's
automobile of approximately $3,500, $3,500 and $3,000, respectively.
<F3> Mr. von Stein received an average monthly reimbursement of approximately
$1,200 for housing, automobile and travel expenses associated with his
weekly commute to the Boston area from out of state during the fiscal
years presented. At the election of each employee who has been employed
by the Company for more than twelve (12) months, the Company matches
contributions made by that employee into his or her individual
retirement account, up to a maximum of three percent (3%) of the
employee's annual salary. Mr. von Stein participates in the Company's
retirement assistance program and the Company paid $3,000 and $2,925
into Mr. von Stein's individual retirement account for fiscal 1995 and
1994, respectively. Drs. Franzblau and de Oliveira do not participate
in this program.
<F4> No options have been granted to Dr. Franzblau or Dr. de Oliveira in the
fiscal years ended September 30, 1995, 1994 and 1993. On August 17,
1992, 50,000 options were granted to Mr. von Stein at an exercise price
of $5.00 per share to vest annually over a three-year period. The
exercise price of these options were reduced to $1.75 per share in July
1995. As of September 30, 1995, all of Mr. von Stein's options have
vested, none of which have been exercised.
</TABLE>
The following table sets forth the value of Mr. von Stein's
outstanding options held as of September 30, 1995.
Aggregated Option Exercises in Fiscal 1995 and FY-End Option Values
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Securities Value of
Underlying Unexercised Unexercised
Options/SARs In-the-Money
At FY-End(#) Options/SARS at FY-End(#)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise(#) Value Realized($) Unexercisable Unexercisable(1)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Peter von Stein 0 0 50,000/0 $62,500/n.a.
<F1> Options listed carry an exercise price of $1.75 per share. The fair
market value of the Company's Common Stock underlying the options, as of
September 30, 1995, was $3.00 per share (NASDAQ closing price on
September 29, 1995).
</TABLE>
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
The Company has entered into employment and non-competition agreements
with Dr. Franzblau and Dr. de Oliveira, that expire on June 30, 1997, and
with Mr. von Stein, that expired on December 31, 1995. For the year ended
December 31, 1995, Dr. Franzblau and Dr. de Oliveira each received base
annual salaries of $103,000, the use of an automobile owned or leased by the
Company and bonuses as may be determined by the Board of Directors. The
employment agreements of Dr. Franzblau and Dr. de Oliveira provide that they
each devote a minimum of 30 hours and 40 hours per week, respectively, to
the business of the Company. For the year ended December 31, 1995, Mr. von
Stein received a base annual salary of $100,000 and an annual allowance for
his housing, automobile and travel expenses.
Pursuant to Dr. Franzblau's agreement with Boston University, Dr.
Franzblau must disclose certain inventions made by him to the University.
Dr. Franzblau is also responsible for ensuring that his employment with the
Company does not conflict with the patent policy of the University. As Dr.
Franzblau is not primarily responsible for conducting laboratory research
for the Company and the Company's research is generally unrelated to Dr.
Franzblau's research for the University, the Company does not believe that
these provisions will have any material effect on, or restrict the Company's
ownership or use of, future technological advances, if any, developed by the
Company.
1992 Stock Option Plan
The Company may issue up to 494,900 shares of Common Stock under its
1992 Stock Option Plan (the "Plan"). As of September 30, 1996, 237,225 shares
of the 494,900 shares of Common Stock issuable under the Plan were subject
to outstanding options. In addition, options to purchase 5,100 shares of
Common Stock had been exercised.
The purpose of the Plan is to strengthen the ability of the Company to
attract and retain well-qualified executive and managerial personnel and to
provide additional incentive to the Company's employees and officers to
contribute to the success of the Company, and thereby to enhance stockholder
value. The Plan was originally adopted by the Board of Directors and the
Company's stockholders on May 6, 1992.
Options under the Plan may be either "incentive stock options" within
the meaning of Section 422 of the United States Internal Revenue Code of
1986, as amended (the "Code"), or non-qualified options. Incentive stock
options may be granted only to employees of the Company, while non-qualified
options may be issued to non-employee Directors, employees and consultants
of the Company.
The per share exercise price of the Common Stock subject to incentive
stock options granted pursuant to the Plan may not be less than the fair
market value of the Common Stock on the date the option is granted. Under
the Plan, the aggregate fair market value (determined as of the date the
option is granted) of the Common Stock that first became exercisable by any
employee in any one calendar year pursuant to the exercise of incentive
stock options may not exceed $100,000. No person who owns, directly or
indirectly, at the time of the granting of an incentive stock option to him,
10% or more of the total combined voting power of all classes of stock of
the Company (a "10% Stockholder"), shall be eligible to receive any
incentive stock options under the Plan unless the option price is at least
110% of the fair market value of the Common Stock subject to the option,
determined on the date of the grant. Non-qualified options are not subject
to this limitation. Options granted under the Plan are not transferrable,
except upon death of the optionee.
Options under the Plan must be granted within 10 years from the
effective date thereof. Incentive stock options granted under the Plan
cannot be exercised more than 10 years from the date of grant, except that
incentive stock options issued to a 10% Stockholder are limited to five year
terms. Any unexercised options under the Plan that expire or that terminate
upon an employee's ceasing to be employed with the Company become available
once again for issuance.
SELLING SECURITYHOLDERS
The following table sets forth the name of each Selling Securityholder;
the number of shares of Common Stock owned by each Selling Securityholder
before this offering as of June 11, 1996 to the knowledge of the Company;
the number of Shares offered hereby; the number of shares of Common Stock
owned by each Selling Securityholder after completion of this offering to
the knowledge of the Company; and the percentage of the class represented by
those shares of Common Stock owned after completion of this offering.
The Selling Securityholders comprise those persons who purchased or
acquired shares of Common Stock and Private Placement Warrants of the
Company in connection with the Private Placement. Sales of the Securities
would occur at the discretion of the Selling Securityholders. See "Plan of
Distribution."
<TABLE>
<CAPTION>
Shares
Beneficially Shares to be
Owned Prior Sold in Shares Beneficially
to Offering(1)(2) Offering(1) Owned After Offering(2)
---------------------- ------------ -----------------------
Name of Selling Number of Number of
Securityholder Shares Percent Shares Percent
- --------------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Ando International, Inc. 727,272 9.1 727,272 0 0
Haussmann Holdings 680,000 8.5 680,000 0 0
Laurentian Special Equity Fund 360,000 4.6 360,000 0 0
One & Co. 336,000 4.3 336,000 0 0
Essex High Tech Fund LP 270,000 3.5 270,000 0 0
Virginia Guilder 230,000 3.0 230,000 0 0
The Fisher Fund 220,000 2.8 220,000 0 0
Eugene Melnyk 181,820 2.4 181,820 0 0
Apollo Medical Partners 150,000 1.9 150,000 0 0
Okura & Co. (America), Inc. 145,454 1.9 145,454 0 0
Gary Davis(3) 131,256 1.7 131,256 0 0
Barry M. Manuel 120,000 1.6 120,000 0 0
Jesup and Lamont Securities Corp.(3) 111,064 1.4 111,064 0 0
Ville de Montreal 100,000 1.3 100,000 0 0
U.S. Technology 100,000 1.3 100,000 0 0
The New Discovery Fund 90,000 1.2 90,000 0 0
Joseph D. Cooper and
Carol J. Cooper, JTWROS 80,000 1.0 80,000 0 0
Wind River Partners LP 80,000 1.0 80,000 0 0
Jesup and Lamont Capital
Markets, Inc.(3) 73,278 * 73,278 0 0
Bradley Resources Company 72,000 * 72,000 0 0
The John Merck Fund 70,000 * 70,000 0 0
Money Purchase Pension Plan 60,000 * 60,000 0 0
Trust Pret et Revenu 60,000 * 60,000 0 0
Lawrence G. Goldberg 50,000 * 50,000 0 0
Hiro Yamagishi(3) 46,964 * 46,964 0 0
Lawrence Kobren(3) 46,000 * 46,000 0 0
G.W. Merck Trust Under Indenture
F/B/O Serena M. Hatch 44,000 * 44,000 0 0
Leib Merkin Inc. 44,000 * 44,000 0 0
Family trust for Wife and
Descendants of Thomas J.
Berardino 40,000 * 40,000 0 0
Leonard J. Adams 40,000 * 40,000 0 0
Robert K. Fuchs 40,000 * 40,000 0 0
Wayne Saker 40,000 * 40,000 0 0
Louis A. Saporito, Jr. 40,000 * 40,000 0 0
Alan Vogel and
Susan Gaits, JTWROS 40,000 * 40,000 0 0
IHG Limited Profit Sharing Plan 37,600 * 37,600 0 0
John M. Curry 36,364 * 36,364 0 0
Howard Caral(3) 35,000 * 35,000 0 0
Reuben F. Richards, Jr.(3) 35,000 * 35,000 0 0
Guy F. Bernheim 20,000 * 20,000 0 0
Robert E. Briefel 20,000 * 20,000 0 0
Dwight M. Evans 20,000 * 20,000 0 0
Anthony Ferro 20,000 * 20,000 0 0
Charles Fischer 20,000 * 20,000 0 0
Generic Trading Associates, LLC 20,000 * 20,000 0 0
Michael Kubin and
Nicole Kubin, JTWROS 20,000 * 20,000 0 0
Claude Lemire 20,000 * 20,000 0 0
Michael I. Michael and
Venetia Michael, JTWROS 20,000 * 20,000 0 0
Donald G. Prigmore 20,000 * 20,000 0 0
Louis I. Meisel 20,000 * 20,000 0 0
Deborah L. Shear 20,000 * 20,000 0 0
Elliott Stagnari 20,000 * 20,000 0 0
George W.M. Hatch 20,000 * 20,000 0 0
Stanley Zaslow 20,000 * 20,000 0 0
Fonds Desjardins - Croissance 20,000 * 20,000 0 0
Ronald Brown and
Beverly J. Brown, JTWROS 20,000 * 20,000 0 0
Nathan Roseman and
Susan Roseman, JTWROS 20,000 * 20,000 0 0
Marshall Kaplan and
Marsha Kaplan, JTWROS 20,000 * 20,000 0 0
Steven G. Cooperman, M.D. 20,000 * 20,000 0 0
Mitchell J. Held 20,000 * 20,000 0 0
Leader Financial Corporation 20,000 * 20,000 0 0
Francis W. Hatch 20,000 * 20,000 0 0
Serena M. Hatch 20,000 * 20,000 0 0
Marjory K. Hatch 20,000 * 20,000 0 0
Fonds Commun Canagex -
Actions Canadiennes Cruissance 20,000 * 20,000 0 0
Serena H. Whitridge 16,000 * 16,000 0 0
Timothy Brody(3) 15,000 * 15,000 0 0
Ron Furman(3) 15,000 * 15,000 0 0
Brett Yarusi 15,000 * 15,000 0 0
James E. Forrest 12,000 * 12,000 0 0
North Star Assoc., #1 12,000 * 12,000 0 0
Robert L. Leeds, III 11,000 * 11,000 0 0
Spencer Trask Securities Inc.(3) 10,200 * 10,200 0 0
Arbor Interiors Pension Fund 10,000 * 10,000 0 0
James J. Baldino & Rosanne M.
Baldino, JTWROS 10,000 * 10,000 0 0
Sol J. Barer 10,000 * 10,000 0 0
Howard Berke 10,000 * 10,000 0 0
Frank J. Coppola and
Barbara Ann Coppola, JTWROS 10,000 * 10,000 0 0
Myron J. Elfland 10,000 * 10,000 0 0
Peter Grabler 10,000 * 10,000 0 0
Brent D. Holmes and
Kathleen A. Holmes, JTWROS 10,000 * 10,000 0 0
Andre W. Iseli 10,000 * 10,000 0 0
Lewis J. Levine 10,000 * 10,000 0 0
Robert P. McGovern 10,000 * 10,000 0 0
Howard G. Schoor and
Joan Schoor, JTWROS 10,000 * 10,000 0 0
Donald C. Weinberger 10,000 * 10,000 0 0
Huyler C. Held 10,000 * 10,000 0 0
Ville de Laval 10,000 * 10,000 0 0
Ville de Jonquiere 10,000 * 10,000 0 0
Spencer F. Segura 10,000 * 10,000 0 0
E. Consulting 10,000 * 10,000 0 0
Delaware Charter Guaranty
and Trust, cust for IRA
Robert Walker 10,000 * 10,000 0 0
Edward Yodowitz 10,000 * 10,000 0 0
Konstantine Vaxevaneris 10,000 * 10,000 0 0
Joseph M. Copolla and
Margaret Coppola, JTWROS 10,000 * 10,000 0 0
Douglas Spooner(3) 8,290 * 8,290 0 0
Samuel Gordon(3) 5,000 * 5,000 0 0
Susan Sweet(3) 5,000 * 5,000 0 0
Eileen Sena(3) 2,000 * 2,000 0 0
------------------------------------------------------------
TOTAL 5,929,562 56.0 5,929,562 0 0
============================================================
- ------------
<F1> Includes Shares of Common Stock issuable upon exercise of the
Private Placement Warrants.
<F2> Pursuant to the rules of the Securities and Exchange Commission,
shares of Common Stock which an individual or group has a right to
acquire within 60 days pursuant to the exercise of options or warrants
are deemed to be outstanding for the purpose of computing the percentage
ownership of such individual or group, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of
any other person shown in the table.
<F3> Includes Shares issuable upon exercise of Placement Agent Warrants,
including upon exercise of the Private Placement Warrants underlying
the Placement Agent Warrants. See "Plan of Distribution."
</TABLE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of June 11, 1996, certain information
concerning stock ownership of the Company by (i) each person who is known by
the Company to own beneficially 5% or more of the Company's Common Stock,
(ii) each of the Company's Directors, and (iii) all Directors and officers
as a group. Except as otherwise indicated, the stockholders listed in the
table have sole voting and investment powers with respect to the shares
indicated. To the extent the following persons have rights to acquire any
of the Shares, the information presented below is also set forth under
"Selling Securityholders."
<TABLE>
<CAPTION>
Percentage of Class (1)
-----------------------
Name and Address Number of Shares Before After
of Beneficial Owner(2) Beneficially Owned Offering Offering(3)
- ---------------------- ------------------ -------- -----------
<S> <C> <C> <C>
Carl Franzblau, Ph.D., and
Myrna Franzblau(4) 649,021 8.5 6.0
Ricardo M. de Oliveira, M.D.(5) 375,698 5.1 3.5
Lawrence Gilbert(6) 166,887 2.2 1.5
Alan S. Cohen, M.D.(7) 138,705 1.9 1.3
Charles W. Smith(8) 144,159 1.9 1.3
John I. Sandson, M.D.(9) 84,691 1.1 *
All Directors & Officers as a
Group (9 persons)(10) 1,741,551 22.3 15.9
- ------------
<F*> Less than 1%
<F1> Pursuant to the rules of the Securities and Exchange Commission,
shares of Common Stock which an individual or group has a right to
acquire within 60 days pursuant to the exercise of options or
warrants are deemed to be outstanding for the purpose of computing the
percentage ownership of such individual or group, but are not deemed to
be outstanding for the purpose of computing the percentage ownership of
any other person shown in the table.
<F2> The addresses for all of the named individuals is c/o Hemagen
Diagnostics, Inc., 34-40 Bear Hill Road, Waltham, Massachusetts 02154.
<F3> Except to the extent stated in the notes below, the percentage
ownership of such individual or group does not include up to 494,900
shares of Common Stock reserved for issuance pursuant to stock options
that have been or may be granted under the Company's 1992 Stock Option
Plan. As of September 30, 1996, options to purchase 237,225 shares are
currently outstanding pursuant to this plan with an average exercise
price of approximately $2.50 per share.
<F4> Includes 317,010 shares owned by Dr. Franzblau and 307,011 shares
owned by Mrs. Franzblau. Also includes (i) 15,000 shares of Common
Stock issuable upon exercise of outstanding Warrants, and (ii) 10,000
shares issuable upon exercise of stock options at an exercise price of
$1.75 per share. Excludes a total of 128,780 shares of Common Stock
owned by the children of Dr. and Mrs. Franzblau as to which Dr. and
Mrs. Franzblau disclaim any beneficial interest, including 12,500
shares of Common Stock issued upon conversion of Notes.
<F5> Excludes 40,014 shares owned by each of Dr. de Oliveira's spouse,
brother and sister as to which Dr. de Oliveira disclaims any beneficial
interest.
<F6> Includes 50,000 shares held by Mr. Gilbert's wife. Excludes a total
of 31,572 shares of Common Stock owned by children of Mr. Gilbert, as to
which Mr. Gilbert disclaims any beneficial interest.
<F7> Includes 7,500 shares of Common Stock issuable upon exercise of
outstanding Warrants. Excludes a total of 63,754 shares of Common Stock
owned by sons of Dr. Cohen as to which Dr. Cohen disclaims any beneficial
interest, including 7,500 shares of Common Stock issuable upon exercise
of outstanding warrants.
<F8> Includes 7,500 shares of Common Stock issuable upon exercise of
outstanding Warrants. Excludes a total of 51,300 shares of Common Stock
owned by children of Mr. Smith as to which Mr. Smith disclaims any
beneficial interest.
<F9> Includes 7,500 shares of Common Stock issuable upon exercise of
outstanding Warrants. Excludes a total of 22,708 shares of Common Stock
owned by children of Dr. Sandson as to which Dr. Sandson disclaims any
beneficial interest.
<F10> Includes the shares referenced in notes (4) through (9) above, plus
(i) 57,500 shares issuable pursuant to currently exercisable options and
warrants held by Mr. Peter von Stein, the Company's Chief Operating
Officer, (ii) 50,000 shares of Common Stock issuable upon exercise of
outstanding warrants, (iii) 64,390 shares of Common Stock held by
William Franzblau, Esquire, the Company's Chief Financial Officer and
General Counsel, and (iv) 10,500 shares of Common Stock issuable upon
exercise of stock options at a weighted average exercise price of
approximately $1.75 per share.
</TABLE>
CERTAIN TRANSACTIONS
During 1993, the Company acquired a 51% interest in HDC, that had been
100% beneficially owned by Dr. Ricardo M. de Oliveira, the Company's Vice
President of Research and Development and a Director of the Company. The
Company purchased its interest in HDC in exchange for the forgiveness of a
$25,000 advance to HDC that was outstanding as of September 30, 1992. The
Company loaned HDC $185,500, $100,000 and $50,000 in August 1994, November
1993 and August 1993, respectively, to renovate, equip and operate a new
manufacturing facility in Sao Paulo, Brazil. This indebtedness is evidenced
by three five-year promissory notes, each with interest payable quarterly at
the rate of approximately 12% per annum. The Company and HDC have signed an
agreement in principle for the Company to acquire substantially all of the
remaining interest in HDC by issuing stock options to the minority
stockholders of HDC with an exercise price at or above the fair market value
of the Company's Common stock. The Company and HDC's minority stockholders
are currently negotiating the final details of this arrangement.
The Company has entered into two license agreements and one product
development agreement with Boston University. In the fiscal year ended
September 30, 1993, the Company repaid a $50,000 demand note plus accrued
interest to Boston University. Several of the Company's Directors,
including Dr. Franzblau, the Chairman, Chief Executive Officer and President
of the Company, have affiliations with Boston University. See "Business -
Relationship with Boston University."
Pursuant to a prior arrangement, the Company paid to Dr. Antonio
Lazzari, a principal stockholder and former Director of the Company,
royalties of 1.5% on all revenues arising from sales of certain
hemagglutination test kits through June 1993. In the fiscal years ended
September 30, 1992 and 1993, Dr. Lazzari received approximately $12,000 and
$5,000, respectively, pursuant to this arrangement. According to the terms
of the arrangement, this royalty could have increased to 5% if Dr. Lazzari's
ownership interest in the Company fell below 9%. The Company believes that
it is no longer required to make such payments to Dr. Lazzari, and has not
paid Dr. Lazzari royalties since June 1993. Dr. Lazzari has indicated to
the Company that he believes the royalty payments should continue. The
Company has accrued these royalties on the Company's financial statements
through September 30, 1995, and does not believe that payment of these
royalties, if they were to be re-established, would have a material adverse
effect on the Company's results from operations.
In July 1995 the following Directors and officers of the Company
subscribed for Notes in the following amounts:
<TABLE>
<CAPTION>
Individual Amount of Note
---------- --------------
<C> <C>
*Carl Franzblau, Ph.D., and Myrna Franzblau $ 62,500
Peter von Stein 50,000
**Alan S. Cohen, M.D. 50,000
Lawrence Gilbert 50,000
John I. Sandson, M.D. 25,000
Charles W. Smith 50,000
--------
Total $287,500
___________________
<F*> Includes $12,500 invested by Dr. and Mrs. Franzblau's children.
<F**> Includes $25,000 invested by one of Dr. Cohen's sons.
</TABLE>
The Notes subscribed for by the officers and Directors listed above
are convertible into an aggregate of 287,500 shares of Common Stock of the
Company at the conversion price of $1.00 per share. See "Selling
Stockholders."
The Company believes the terms of these agreements are on terms at
least as favorable as those which it could otherwise have obtained.
PLAN OF DISTRIBUTION
The Company issued 2,695,255 of the Shares and an equal number of Private
Placement Warrants in connection with the Private Placement completed in
March 1996. The Private Placement Warrants are exercisable at the election
of the holder at the exercise price of $2.75 per share through February 28,
2001. In addition, the Company issued a warrant to purchase up to 269,526
units ("Units") at $2.75 per Unit, to Jesup and Lamont Securities
Corporation ("Jesup"), who served as placement agent in connection with the
Private Placement. The warrant issued to Jesup is exercisable through
February 28, 1999. Each Unit consists of one Share and one Private
Placement Warrant. As of September 30, 1996, none of the Private Placement
Warrants had been exercised. See "Description of Securities."
Subject to the foregoing, the Securities covered hereby may be offered
and sold from time to time by the Selling Securityholders. The Selling
Securityholders will act independently of the Company in making decisions
with respect to the timing and price of sales of Securities covered by
this Prospectus. The Shares covered by this Prospectus may be sold by
the Selling Securityholders in one or more transactions on NASDAQ or the BSE
at market prices then prevailing or in privately negotiated transactions.
The Company intends to apply for inclusion of the Private Placement Warrants
on NASDAQ and the BSE. If such applications are accepted, the Selling
Securityholders may sell the Private Placement Warrants on NASDAQ or the BSE
at market prices then prevailing or in privately negotiated transactions.
In effecting sales, broker-dealers engaged by the Selling Securityholders
may arrange for other broker-dealers to participate. Broker-dealers will
receive commissions or discounts from the Selling Securityholders in amounts
to be negotiated immediately prior to the sale.
In offering the Securities, the Selling Securityholders and any
broker-dealers and any other participating broker-dealers who execute sales
for the Selling Securityholders may be deemed to be "underwriters" within
the meaning of the Act in connection with such sales, and any profits
realized by the Selling Securityholders and the compensation of such broker-
dealer may be deemed to be underwriting discounts and commissions. In
addition, any Securities covered by this Prospectus which qualify for sale
pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this
Prospectus.
The Company has advised the Selling Securityholders that they are
required to furnish each broker-dealer through which Securities included
herein may be offered with copies of this Prospectus, and may not bid for or
purchase any securities of the Company or attempt to induce any person to
purchase any securities except as permitted under the Exchange Act.
Rule 10b-6 under the Exchange Act prohibits, with certain exceptions,
participants in a distribution from bidding for or purchasing, for an
account in which the participant has a beneficial interest, any of the
securities that are the subject of the distribution. Rule 10b-7 governs
bids and purchases made in order to stabilize the price of a security in
connection with a distribution of the security. Certain brokers or Selling
Securityholders may engage in passive market making as permitted under Rule
10b-6A of the Exchange Act. Such passive market making may be discontinued
at any time, which could have the effect of decreasing the trading price of
the Common Stock.
This offering will terminate on the date on which all Securities
offered hereby have been sold by the Selling Securityholders.
DESCRIPTION OF SECURITIES
Common Stock
The Company is authorized to issue up to 30,000,000 shares of Common
Stock, $.01 par value, of which 7,620,890 were issued and outstanding as of
September 30, 1996, including 62,500 shares of Common Stock deemed to be issued
by the Company subject to receipt of cancelled promissory notes with an
aggregate principal balance of $62,500. The following summary description
of the Common Stock is qualified in its entirety by reference to the
Company's Restated Certificate of Incorporation. As of September 30, 1996,
the Company had 240 stockholders of record.
The holders of Common Stock are entitled to one vote for each share
held of record on each matter submitted to a vote of Securityholders. There
is no cumulative voting for the election of Directors. Subject to the prior
rights of any series of Preferred Stock which may from time to time be
outstanding, 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, and, upon the liquidation, dissolution or winding up of
the Company, are entitled to share ratably in all assets remaining after
payment of liabilities and payment of accrued dividends and liquidation
preference on the Preferred Stock, if any. Holders of Common Stock have no
preemptive rights and have no rights to convert their Common Stock into any
other securities. The outstanding Common Stock is, and the Common Stock to
be outstanding upon completion of the Offering will be, validly issued,
fully paid, and nonassessable.
As of September 30, 1996 the officers and Directors of the Company, may
be deemed to own approximately 19.6% of the outstanding shares of Common
Stock, exclusive of shares of Common Stock issuable upon exercise of
outstanding options or warrants. As a result, the Company's existing
management is in a position through its voting control to exert substantial
influence over the election of all of the members of the Board of Directors
and to effectively control the Company.
Preferred Stock
The Company is authorized to issue up to 1,000,000 shares of Preferred
Stock, $.01 par value (the "Preferred Stock"). The Preferred Stock may be
issued in one or more series, the terms of which may be determined at the
time of issuance by the Board of Directors, without further action by
securityholders, and may include voting rights (including the right to vote
as a series on particular matters), preferences as to dividends and
liquidation, conversion, redemption rights, and sinking fund provisions.
No shares of Preferred Stock will be outstanding as of the closing of
the Offering and the Company has no present plans for the issuance thereof.
The issuance of any such Preferred Stock could reduce the rights, including
voting rights, of the holders of Common Stock, and, therefore, reduce the
value of the Common Stock. In particular, specific rights granted to future
holders of Preferred Stock could be used to restrict the Company's ability
to merge with or sell its assets to a third party, thereby preserving
control of the Company by existing management.
Private Placement Warrants
The following is a brief summary of certain provisions of the Common
stock purchase warrants (the "Private Placement Warrants") issued in
connection with a private placement completed by the Company in March 1996
(the "Private Placement"). This summary does not purport to be complete and
is qualified in all respects by reference to the actual text of the Warrant
Agreement between the Company and Continental Stock Transfer & Trust Company
(the "Transfer and Warrant Agent"). As of September 30, 1996, the Company had
2,695,255 Private Placement Warrants outstanding. An additional 269,526
Private Placement Warrants are issuable upon exercise of a warrant issued to
the placement agent in connection with the Private Placement.
Exercise Price and Terms
Each Private Placement Warrant entitles the registered holder thereof
to purchase one share of Common Stock at an exercise price of $2.75, subject
to adjustment in accordance with the anti-dilution and other provisions
referred to below.
The holder of any Private Placement Warrant may exercise such Private
Placement Warrant by surrendering the certificate representing the Private
Placement Warrant to the Company's Transfer and Warrant Agent, with the
subscription on the reverse side of such certificate properly completed and
executed, together with payment of the exercise price. The Private
Placement Warrants may be exercised at any time in whole or in part at the
applicable exercise price until expiration of the Private Placement Warrants
on February 28, 2001. No fractional shares will be issued upon the exercise
of the Private Placement Warrants.
Adjustments
The exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Private Placement Warrants are subject
to adjustment upon the occurrence of certain events, including stock
dividends, stock splits, combinations or reclassifications on or of the
Common Stock. Additionally, an adjustment would be made in the case of a
reclassification or exchange of Common Stock, consolidation or merger of the
Company with or into another corporation or sale of all or substantially all
of the assets of the Company in order to enable holders of Private Placement
Warrants to acquire the kind and number of shares of stock or other
securities or property receivable in such event by a holder of the number of
shares that might otherwise have been purchased upon the exercise of the
Private Placement Warrant. No adjustments will be made unless such
adjustment would require an increase or decrease of at least $.10 or more in
such exercise price. No adjustment to the exercise price of the shares
subject to the Private Placement Warrants will be made for dividends
(other than stock dividends), if any, paid on the Common Stock or for
securities issued pursuant to exercise of the Private Placement Warrants.
Transfer, Exchange and Exercise
The Company has agreed to endeavor to register with the Securities and
Exchange Commission the Private Placement Warrants and the shares of Common
Stock underlying the Private Placement Warrants. Prior to such
registration, the Private Placement Warrants are only transferable under
exemption to the registration requirements of the Securities Act of 1933, as
amended, and applicable state securities laws. Following such registration,
as to which no assurance can be given, the Private Placement Warrants may be
presented to the Transfer and Warrant Agent for transfer, exchange or
exercise at any time at or prior to the close of business on February 28,
2001, at which time the Private Placement Warrants become wholly void and of
no value. If the Private Placement Warrants are registered and a market for
the Private Placement Warrants is developed and maintained, the holder may
sell the Private Placement Warrants instead of exercising them. There can
be no assurance, however, that a market for the Private Placement Warrants
will be developed or maintained. If the Company is unable to qualify for
sale in particular states its Common Stock underlying the Private Placement
Warrants, holders of the Private Placement Warrants desiring to exercise the
Private Placement Warrants in those states will have no choice but to either
sell such Private Placement Warrants or let them expire.
Warrantholder not a Stockholder
The Private Placement Warrants do not confer upon holders any voting
or other rights as stockholders of the Company.
Transfer and Warrant Agent
The Company has appointed Continental Stock Transfer & Trust Company
of New York, New York, as its Transfer Agent for its Common Stock.
Limitation of Officers' and Directors' Liabilities Under Delaware Law
In accordance with Delaware law, the Company's Certificate of
Incorporation, as amended, eliminates in certain circumstances the liability
of Directors of the Company for monetary damages for breach of their
fiduciary duty as Directors. This provision does not eliminate the
liability of a Director (i) for a breach of the Director's duty of loyalty
to the Company or its securityholders, (ii) for acts or omissions by the
director not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for a willful or negligent declaration of an
unlawful dividend, stock purchase or redemption, or (iv) for transactions
from which the Director derived an improper personal benefit.
In addition, the Company's Bylaws include provisions to indemnify its
officers and Directors and other persons against expenses, judgments, fines
and amounts paid in settlement in connection with threatened, pending or
completed suits or proceedings against such persons by reason of serving or
having served as officers, directors or in other capacities, except in
relation to matters with respect to which such persons shall be determined
not to have acted in good faith, unlawfully or in the best interests of the
Company. With respect to matters as to which the Company's officers and
Directors and others are determined to be liable for misconduct or
negligence in the performance of their duties, the Company's Bylaws provide
for indemnification only to the extent that the Company determines that such
person acted in good faith and in a manner not opposed to the best interests
of the Company.
However, insofar as indemnification for liabilities may be permitted
to Directors, officers, or persons controlling the Company pursuant to
Delaware state law, as well as the foregoing charter and bylaw provisions,
the Company has been informed that in the opinion of the Commission, such
indemnification as it relates to federal securities laws is against public
policy, and therefore, unenforceable.
Further, insofar as limitation of liabilities may be so permitted
pursuant to Delaware state law, as well as the foregoing charter and bylaw
provisions, such limitation of liabilities does not apply to any liabilities
arising under federal securities laws.
Dividend Policy
The Company has not paid dividends on its Common Stock since its
inception and has no intention of paying any dividends to its
securityholders in the foreseeable future. The Company intends to reinvest
earnings, if any, in the development and expansion of its business. Any
declaration of dividends in the future will be at the election of the Board
of Directors and will depend upon the earnings, capital requirements and
financial position of the Company, general economic conditions, requirements
of any bank lending arrangements which may then be in place and other
pertinent factors.
LEGAL MATTERS
Certain legal matters relating to the Common Stock offered hereby have
been passed upon for the Company by O'Connor, Broude & Aronson, 950 Winter
Street, Waltham, Massachusetts 02154.
EXPERTS
The financial statements incorporated in this Prospectus by reference
to the annual report on Form 10-KSB of Hemagen Diagnostics, Inc. for the
year ended September 30, 1995 have been incorporated in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of Reagent Applications, Inc. as of December
31, 1995 and 1994 and for the years then ended, have been incorporated by
reference in this Prospectus in reliance upon the report of BDO Seidman, LLP,
independent certified public accountants, and upon the authority of said firm
as experts in accounting and auditing.
CHANGE IN CERTIFYING ACCOUNTANTS
On January 29, 1996, Price Waterhouse LLP ("Price Waterhouse")
declined to stand for re-election as independent accountants for the
Company.
There were no disagreements between the Company and Price Waterhouse
regarding any matters of accounting principles or practices, financial
statement disclosure or auditing scope or procedures in connection with the
audit of each of the Company's fiscal years in the period October 1, 1993
through September 30, 1995, or at any time through January 29, 1996 which,
if not resolved to the satisfaction of Price Waterhouse, would have caused
Price Waterhouse to make reference to the subject matter of such
disagreement in connection with its report. There have been no reportable
events (as defined by Regulation S-B Item 304(a)(1)(iv)(B)) during the
period from October 1,1993 through September 30, 1995, and during the period
through January 29, 1996. In addition, during this period, the Company has
not consulted another accountant regarding the application of accounting
principles to a specified transaction.
The report of Price Waterhouse upon the Company's financial statements
for each of the fiscal years in the period October 1, 1993 through September
30, 1995, contained neither an adverse opinion nor a disclaimer of opinion
nor was such report qualified or modified as to uncertainty, audit scope or
accounting principles.
The Company has requested that Price Waterhouse furnish it with a
letter addressed to the SEC stating whether or not it agrees with the above
statements. A copy of such letter, dated February 2, 1996, was filed as an
Exhibit to the Company's report on Form 8-K filed with the Commission on
February 3, 1996 and is incorporated herein by reference.
On May 20, 1996, the Board of Directors of the Company approved the
engagement of BDO Seidman, LLP as the independent accountants for the
Company.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are incorporated herein by reference the following documents or
portions of documents filed by the Company with the Commission: (1) the
Company's latest annual report on Form 10-KSB filed pursuant to Section 13(a)
or 15(d) of the Exchange Act which contains financial statements for the
Company's latest fiscal year for which a Form 10-KSB was required to have been
filed; (2) all other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since the end of the fiscal year referred to in (1) above, and
(3) the description of the Common Stock contained in the Company's
Registration Statement on Form 8-A under the Exchange Act filed on February 2,
1993, together with any and all amendments and reports filed for the purpose
of updating such description including but not limited to: Form 10-QSB for
the period ending December 31, 1995, Form 10-QSB for the period ending
March 31, 1996, Form 10-QSB for the period ending June 30, 1996, Form 8-K
filing dated March 4, 1996, Form 8-K/A filing dated March 28, 1996 and
Form 8-K filing dated September 27, 1995.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of the Common Stock made hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing such documents. Any statement contained herein or
in a document, all or a portion of which is 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 or portion thereof that 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.
The Company will provide without charge to each person, including any
beneficial owner, to whom a Prospectus is delivered, upon written or oral
request of such person, a copy of any or all of the information that has been
incorporated by reference herein (other than exhibits to the information unless
such exhibits are incorporated by reference into the information that the
Prospectus incorporates). Such written requests should be addressed to Hemagen
Diagnostics, Inc., 34-40 Bear Hill Road, Waltham, Massachusetts 02154,
Attention: Peter von Stein. Telephone requests may be directed to
Peter von Stein at (617) 890-3766.
============================================================================
All dealers effecting transactions in the registered securities, whether or
not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions. No dealer, salesman or any other person has
been authorized in connection with this Offering 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. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to any person to whom it is
unlawful to make such an offer or solicitation. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create an implication that there has been no change in the circumstances of
the Company or the facts herein set forth since the date hereof.
-------------------
TABLE OF CONTENTS
Page
----
Available Information ...................................... 3
The Company ................................................ 4
Risk Factors ............................................... 6
Use of Proceeds............................................. 12
Dividend Policy............................................. 12
Price Range of Common Stock................................. 12
Business.................................................... 13
Management.................................................. 25
Selling Securityholders .................................... 31
Principal Stockholders...................................... 34
Certain Transactions........................................ 35
Plan of Distribution........................................ 37
Description of Securities .................................. 38
Legal Matters .............................................. 41
Experts .................................................... 41
Change in Certifying Accountants ........................... 43
Incorporation of Certain Documents by Reference ............ 43
==============================================================================
==============================================================================
5,929,562 Shares of Common Stock
2,964,781 Common Stock Purchase Warrants
HEMAGEN DIAGNOSTICS, INC.
-------------------
PROSPECTUS
-------------------
November 14, 1996
