As filed with the Securities and Exchange Commission
on August 8, 1996
Registration No. 33-[ ]
- -----------------------------------------------------------------
- -
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
APROGENEX, INC
(Exact name of registrant as specified in its charter)
Delaware 76-0269632
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8000 El Rio Street, Houston, Texas 77054-4104
(713) 748-5114
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
--------------
J. Donald Payne
Vice President and Chief Financial Officer
Aprogenex, Inc.
8000 El Rio Street, Houston, Texas 77054-4104
(713) 748-5114
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------
Approximate date of commencement of proposed sale to the
public: From time to time after this Registration Statement
becomes effective.
If the only securities being registered on this Form are to be
offered pursuant to dividend or interest reinvestment plans,
please check the following box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, other than securities offered
only in connection with dividend or interest reinvestment plans,
check the following box. [X]
CALCULATION OF REGISTRATION FEE
=================================================================
=
Proposed Proposed
Title of maximum maximum Amount
securities Amount offering aggregate of
to be to be price per offering registration
registered registered (1) share (2) price (2) fee (3)
- -----------------------------------------------------------------
- -
Common Stock, 6,160,540 $1.00 $6,160,540 $1,176
par value shares
$.001 per
share
=================================================================
=
(1) This Registration Statement covers all Common Stock into
which the Convertible Notes, Series A Convertible Preferred Stock
and Warrants to purchase Series A Convertible Preferred Stock are
or may be initially convertible (plus an indeterminate number of
shares of Common Stock to cover any adjustment in the number of
shares issuable as a result of the antidilution provisions of the
Convertible Notes, Series A Convertible Preferred Stock and
Warrants to purchase Series A Convertible Preferred Stock), plus
Common Stock issuable upon conversion of accrued interest that
may accrue through maturity of the Convertible Notes, certain
other shares of Common Stock being registered for resale by
existing stockholders, and includes 2,768,800 shares of Common
Stock which has been previously registered for resale as set
forth in Note 3 below.
(2) Estimated pursuant to Rule 457(c) solely for purposes of
computing the registration fee and based upon the average of the
high and low sales prices reported on the American Stock Exchange
on August 7, 1996.
(3) Excludes registration fees of $2,721 that were previously
paid in connection with the Registration Statement No. 33-95014
on Form S-3 for 2,524,500 shares of Common Stock and $532
previously paid in connection with Registration Statement No. 33-
92780 on Form S-3 for 244,300 shares of Common Stock.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its
effective date until the registrant shall file a further
amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933, or until
the Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section
8(a), may determine.
Pursuant to Rule 429 under the Securities Act of 1933, the
Prospectus included in this Registration Statement is a combined
Prospectus and relates to Registration Statement No. 33-95014
previously filed by the Registrant on Form S-3 and declared
effective on October 24, 1995 and Registration Statement No. 33-
92780 previously filed by the Registrant on From S-3 and declared
effective on October 24, 1995.
================================================================
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE
ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Subject to Completion, dated August 8, 1996
PROSPECTUS
6,160,540 Shares
APROGENEX, INC.
COMMON STOCK
(par value $0.001 per share)
The 6,160,540 shares (the "Shares") of common stock, par value
$0.001 per share (the "Common Stock"), of Aprogenex, Inc., a
Delaware corporation ("Aprogenex" or the "Company"), offered
hereby are being sold by certain stockholders of the Company (the
"Selling Stockholders"). See "Selling Stockholders." Certain of
the Shares are issuable upon conversion of principal and accrued
interest on the Convertible Notes dated as of June 12, 1996 (the
"Convertible Notes") issued to certain of the Selling
Stockholders in a private placement by the Company, certain of
the Shares are issuable upon conversion of Series A Convertible
Preferred Stock, par value $.01 per share (the "Series A
Convertible Preferred Stock"), issued to stockholders in a
private placement by the Company or warrants to purchase Series A
Convertible Preferred Stock issued to representatives of the
placement agent in such private placement, and the remainder of
the Shares were previously issued by the Company in private
placements that granted shareholders or certain of their
transferees registration rights. See "Prospectus Summary_Recent
Developments_Sale of Convertible Notes and Warrants." The
Company will not receive any part of the proceeds of the sale of
the Shares. The Company has applied for the listing of the
Shares on the American Stock Exchange.
Sales of the Shares by the Selling Stockholders may be made from
time to time in one or more transactions, including block
transactions, on the American Stock Exchange, or any other
exchange or quotation system on which the Common Stock may be
admitted for trading (collectively, the "Exchanges"), pursuant to
and in accordance with the applicable rules of the Exchanges, in
negotiated transactions or in a combination of any such methods
of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Shares may
be offered directly, to or through agents designated from time to
time, or to or through brokers or dealers, or through any
combination of such methods of sale. Such agents, brokers or
dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders and/or
the purchasers of the Shares for whom such broker-dealers may act
as agents or to whom they act as principals, or both (which
compensation as to a particular broker-dealer might be in excess
of customary commissions). A member firm of an Exchange may be
engaged to act as a Selling Stockholder's agent in the sale of
Shares by such Selling Stockholder. To the extent required,
specific information regarding the Shares will be set forth in an
accompanying Prospectus Supplement. See "Plan of Distribution".
The Selling Stockholders and any brokers, dealers, agents or
others that participate with the Selling Stockholders in the
distribution of the Shares may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"), and any commissions received by such persons
and any profit on the resale of the Shares purchased by such
persons may be deemed to be underwriting commissions or discounts
under the Securities Act. The Company has agreed to indemnify
the Selling Stockholders against certain liabilities, including
liabilities under the Securities Act. See "Plan of
Distribution".
The Common Stock is listed on the American Stock Exchange under
the symbol "APG". On August 7, 1996, the closing sales price of
the Common Stock as reported on the American Stock Exchange was
$1 per share.
The Common Stock offered hereby involves a high degree of
risk. See "Risk Factors" beginning on page 5 of this
Prospectus.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------
The date of this Prospectus is August [ ], 1996.
1
No person has been authorized to give any information or to
make any representations other than those contained in this
Prospectus in connection with the offer made by 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 any offer
to buy any of the Common Stock by anyone 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 offer or solicitation is not qualified to do
so, or to any person to whom it is unlawful to make such
offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that information
contained herein is correct as of any time subsequent to the
date hereof.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and in accordance therewith files reports, proxy statements and
other information with the Securities and Exchange Commission
(the "Commission"), which can be inspected and copied at the
public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C.
20549; and at the regional offices of the Commission at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and at 7
World Trade Center, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 at prescribed rates. The Commission
maintains an Internet web site that contains reports, proxy and
information statements and other information regarding
registrants that file electronically with the Commission
(http://www.sec.gov). The Company's Common Stock is listed on
the American Stock Exchange, and such reports, proxy statements
and other information concerning the Company also may be
inspected at the offices of the American Stock Exchange, 86
Trinity Place, New York, New York 10006.
This Prospectus does not contain all the information set forth in
the Registration Statement of which it forms a part and which has
been filed by the Company with the Commission. Such additional
information may be obtained by mail from the Public Reference
Branch of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549. Statements
contained in this Prospectus as to the contents of any agreement
or other document referred to herein summarize the elements of
such agreement or document so that the discussion in this
Prospectus does not omit to state a material fact necessary to
make such discussion not misleading; however, such statements are
not necessarily complete, and in each instance reference is made
to the copy of such agreement or other document filed as an
exhibit to the Registration Statement, each such statement being
qualified in its entirety by such reference.
TABLE OF CONTENTS
Page Page
---- ----
Available Information..... 2 Description of Convertible
Incorporation of Certain Notes.................. 12
Documents by Reference.. 2 Description of Capital
Prospectus Summary........ 4 Stock.................. 12
The Company............... 4 Selling Stockholders..... 12
Recent Developments....... 4 Plan of Distribution...... 24
Risk Factors.............. 5 Legal Matters............. 25
Forward-Looking Statements 5 Experts................... 25
Use of Proceeds........... 12
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company
with the Commission pursuant to the Exchange Act (File No. 1-
12416), are incorporated in this Prospectus by reference and
shall be deemed to be a part hereof:
(a) The Company's Annual Report on Form 10-KSB for the year ended
December 31, 1995;
(b) The description of the Common Stock contained in the
Company's Registration Statement on Form 8-A dated September
20, 1993;
(c) The Company's Quarterly Report on Form 10-QSB for the quarter
ended March 31, 1996;
2
(d) The Company's Quarterly Report on Form 10-QSB for the quarter
ended June 30, 1996;
(e) The Company's Current Reports on Form 8-K dated April 1, 1996
and June 12, 1996; and
(f) The Company's Proxy Statement dated as of June 7, 1996,
relating to the annual meeting of stockholders held on July
12,1996, as adjourned from June 24, 1996.
All documents filed by the Company pursuant to Section 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 made
hereby shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of the filing of
such documents. Any statement contained in this Prospectus, in a
supplement to this Prospectus or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any subsequently
filed supplement to this Prospectus or in any document that also
is or is deemed to be incorporated by reference herein modifies
or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each
person, including any beneficial owner, to whom a copy of this
Prospectus has been delivered, on the written or oral request of
any such person, a copy of any or all of the documents referred
to above that have been or may be incorporated in this Prospectus
by reference, other than exhibits to such documents (unless such
exhibits are specifically incorporated by reference in such
documents). Written or telephone requests for such copies should
be directed to the Company at its principal executive offices
located at 8000 El Rio Street, Houston, Texas 77054-4104,
Attention: Secretary (telephone number: (713) 748-5114).
The Company has filed applications to register APROGENEX, the
Company's logo, RIGHTECHNOLOGY, APROPROBE, PAP PLUS, VIRAFLOW and
VIRAFY as trademarks with the United States Patent and Trademark
Office.
3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information statements appearing elsewhere in this
Prospectus or incorporated by reference herein. The Common Stock
offered hereby involves a high degree of risk. See "Risk
Factors."
THE COMPANY
Aprogenex, Inc. ("Aprogenex" or the "Company") develops,
manufactures and intends to market diagnostic test systems based
on its proprietary DNA probe technology to identify the presence
or extent of genetic abnormalities and disease. The Company's
Rapid Intact Gene Hybridization Technology ("RIGHTechnology")
utilizes the Company's chemically manufactured probes and
proprietary "cocktail" reagent solution which allows analysis of
single intact cells at a molecular level.
The Company believes that its RIGHTechnology has significantly
advanced and simplified DNA probe technology, allowing highly
sensitive and specific tests to be accomplished in a process that
is more rapid than any currently available for intact cell
analysis. The basic research underlying the Company's technology
was conducted by one of the Company's founders and others at the
University of Texas M.D. Anderson Cancer Center.
The Company's resources are currently focused on product
development activities in two areas. The first is an assay to
detect Human Immunodeficiency Virus ("HIV") activity in intact
cells for use in drug development efforts or in monitoring
patient therapy. The second is components of a test for prenatal
genetic disorders using fetal cells circulating in maternal blood
that could mitigate the need for invasive procedures such as
amniocentesis. In addition to these applications in virology and
genetics, the Company in prior years also performed limited
studies for applications of its technology in the areas of
oncology and microbiology.
Aprogenex is currently developing an assay that will permit
detection of HIV within cells and, unlike any currently available
product, will enable quantification of viral activity within
infected cells (i.e., viral load). The ViraFlow assay uses DNA
probes for HIV RNA ("RNA") to detect and quantitate HIV activity.
The Company's development activities in this area are focused on
two separate market opportunities. The first is a "For-Research-
Use-Only" assay to screen drugs for effectiveness against the
virus. This product is expected to be available for sale in 1996
to potential customers, which are pharmaceutical companies with
HIV drug development efforts. The ViraFlow test is designed to
measure HIV viral activity in cells before and after treatment
with potential drug candidates, thereby measuring the
effectiveness of the drug candidate.
The second HIV market opportunity is a clinical product for use
in monitoring the effectiveness of drug therapy in HIV-infected
patients. The Company has begun development activities to format
its ViraFlow assay for use in patient samples, but has performed
limited testing to date. Any such product would require
extensive regulatory approvals before marketing.
The World Health Organization estimated that there were
approximately 17 million HIV infected people worldwide in 1994.
Of that number, approximately 1.1 million were in the United
States and the European Union, which the Company believes will be
its principal markets for this product. Numerous pharmaceutical
companies have research efforts to develop drugs to combat the
virus or the effects of HIV infection. The Company believes that
the number of HIV-infected individuals receiving therapeutic
treatment, and the complexity of such treatment, will increase as
new drugs receive regulatory approval.
The Company's efforts in prenatal genetics are currently focused
on two separate product opportunities: (i) developing "For-
Research-Use-Only" DNA probe products to identify certain
chromosomes, abnormal numbers of which account for common
prenatal genetic disorders (the "AproProbe" product), and (ii)
marketing the AproProbe product line as a component to other
companies attempting to develop their own version of a product
that would use fetal cells circulating in a mother's blood to
screen for prenatal genetic disorders.
The Company believes that the potential market for a non-invasive
procedure to screen for prenatal genetic disorders could be
extensive. Using a maternal blood sample, such products would be
designed to identify the rare fetal cells circulating within the
mother's blood and to permit the diagnosis of genetic disorders
that account for up to 95% of prenatal genetic abnormalities,
such as Down's Syndrome. If successfully developed, the Company
believes that such products could provide a rapid, cost-effective
method of screening pregnancies for early detection of genetic
abnormalities, providing a non-invasive test which could
supersede currently available blood screening tests and mitigate
the need for many amniocentesis and chorionic villus sampling
("CVS") procedures, thereby avoiding the risks associated with
such procedures including spontaneous miscarriage and damage to
the fetus. During 1992, there
4
were approximately 4.0 million live births in the United States
and 4.3 million in the Western Europe, the areas the Company
considers to be the primary markets for such a product.
There are a number of research groups currently focusing on the
development of enrichment systems, which are processes designed
to enrich the fetal component in a maternal blood sample by
reducing the number of maternal cells (i.e., to concentrate the
fetal cells present in the maternal blood sample). It is
expected that any successfully developed enrichment system will
require DNA probes to screen the fetal cells for genetic
disorders. Accordingly, the Company's strategy currently is to
separately market its DNA probe products as components to other
companies developing their own versions of a complete prenatal
genetics screen using maternal blood.
The Company began the sale of a "For-Research-Use-Only" version
of AproProbe in 1995. The principal customers for these DNA
probe products have been laboratories conducting research on more
rapid methods of providing amniocentesis results than through
karyotyping, as well as certain companies conducting research on
their own enrichment systems. The Company believes this is a
limited market and does not expect significant sales volumes from
this sales effort until such time as an enrichment system is
successfully developed by others and such companies select the
Company as the supplier of DNA probe products for such system.
The Company previously was engaged in the development of its own
enrichment system as well as in efforts to license the enrichment
systems of others; both such efforts were ended in 1996 in
conjunction with the Company's collaboration efforts with other
companies developing enrichment systems.
Aprogenex from time to time also engages in discussions with
diagnostic companies regarding collaborative arrangements
regarding the Company's RIGHTechnology. Such arrangements, if
consummated, may include joint research and development, product
distribution or license or sale of the technology for specific
applications. There can be no assurance, however, that the
Company will enter into any such arrangements.
The Company was incorporated in Delaware in 1988 under the name
Molecular Analysis Incorporated. Effective August 20, 1992, the
Company's name was changed to Aprogenex, Inc. The Company's
principal executive offices are located at 8000 El Rio Street,
Houston, Texas 77054-4104, and its telephone number is
(713) 748-5114.
RECENT DEVELOPMENTS
Sale of Convertible Notes and Warrants. On June 12, 1996,
Aprogenex, Inc. (the "Company") completed the sale of $2,005,000
of convertible notes (the "Convertible Notes") and warrants to
acquire 130,323 shares of Common Stock, $.001 par value (the
"1996 Warrants") in a private placement. The Convertible Notes
are due May 28, 1998 and are convertible into Common Stock at the
rate of one share of Common Stock for every $1.10 in principal
and interest owed, subject to certain adjustments. The Warrants
are exercisable at $1.10 per share and expire on May 28, 1999.
See "Description of Convertible Notes" and "Description of
Capital Stock_Options and Warrants".
Board of Directors. In August, 1996. Philippe Sommer and
Robert De Cresce, M.D., were elected to the Board of Directors.
Mr. Sommer is the President of Alsacia & Sommer, Inc., which
provides consulting services to early-stage health care
companies. Mr. Sommer is also the President of Alsacia Venture
Management, Inc., which provides management services to Medical
Venture Holdings, Inc., which is the general partner of the
managing general partner of WestMed Venture Partners, L.P. See
"Selling Stockholders." Mr. Sommer was previously a director of
the Company from 1989 until October, 1994. Dr. De Cresce is
Assistant Vice President and Director of Clinical Laboratories of
Rush-Presbyterian Medical Center in Chicago, Illinois.
RISK FACTORS
In evaluating the Company and its business, prospective investors
should carefully consider the following risk factors. Because an
investment in the Common Stock involves a high degree of risk,
only investors who can bear such risk should purchase Common
Stock offered hereby.
Anticipated Losses and Uncertainty of Future Profitability.
The Company is in the development stage and has not begun to
market or generate significant revenues from any products. The
Company has incurred substantial operating losses since its
inception and expects to incur substantial operating losses until
such time, if ever, as there is sufficient commercialization of
the Company's products to offset its research, development,
clinical investigation, marketing and general and administrative
costs. The Company does not believe that it is likely that the
sales of its "For Research Use Only" genetic testing products
will provide sufficient commercialization to fund its operations.
The Company can not currently predict the success or market
acceptance of its "For Research Use Only" HIV product. There can
be no assurance that the Company will ever achieve profitability
or that its products will be marketed successfully or become
commercially viable. There can be no assurance that the Company
will not encounter substantial expenses related to further
testing and development, regulatory compliance, production and
marketing problems, and competition or defense of the Company's
license and patent rights.
Requirement for Additional Financing; Explanatory Paragraph
to Auditors' Report.
The Company expects to seek financing in 1996 to fund its
operations during 1997 and later years. The Company's
5
current cash resources are expected to fund the Company's normal
operations through the end of 1996. The Company will seek to
obtain additional funds through equity or debt financing,
collaborative or other arrangements with corporate partners and
others, and from other sources. There can be no assurance that
there will be significant sales of the Company's products or that
such revenues will be sufficient for operations. In such event,
the Company would also be required to seek additional funds.
There can be no assurance that additional financing, whenever
required, will be available when needed or on terms acceptable to
the Company. If adequate funds are not available, the Company
may be required to delay or to eliminate expenditures for certain
of its products, to license to third parties the rights to
commercialize additional products or technologies that the
Company would otherwise seek to develop itself or if no other
reasonable alternative is available, to cease operations.
The report of the Company's independent auditors on the financial
statements for the year ended December 31, 1995 includes an
explanatory paragraph with respect to the need for future
financing and expresses substantial doubt as to the Company's
ability to continue as a going concern if such needs are not met.
A similar opinion is expected for the year ended December 31,
1996 unless the Company can obtain sufficient resources to fund
its operations beyond 1997.
Uncertainty of Repayment of Convertible Notes.
As indicated above, there can no assurance that the Company will
ever achieve profitability or that it will receive significant
revenues from the sale of products. There can be no assurance
that the Company will have sufficient funds available from
operations to repay the Convertible Notes upon maturity in 1998,
or that the Company can or will obtain such funds from other
sources. If additional debt securities are issued prior to the
repayment of the Convertible Notes, a portion of the Company's
cash flow will have to be dedicated to payment of principal and
interest on such indebtedness, reducing the cash flow available
to repay the Convertible Notes, and the Company may be subject to
certain restrictive financial and operating restrictions in the
agreements and instruments relating to such indebtedness. If the
Company has insufficient resources at the maturity of the
Convertible Notes, or is unable to induce the holders thereof to
convert the Convertible Notes into Common Stock, the Company may
be forced to seek bankruptcy protection from its creditors, to
sell assets, and/or to liquidate. There can be no assurance
that, in the event of any liquidation proceeding or dissolution,
that the Company will have sufficient assets to repay the
principal and accrued interest on the Convertible Notes.
Expected Future Dilution to Stockholders.
As discussed above, the Company believes it is likely that it
will be required to raise funds to fund its future operations.
If additional funds are raised by the Company through issuing
equity securities, dilution to stockholders may occur. The Board
of Directors of the Company is empowered, without stockholder
approval (other than in certain cases approvals of the holders of
the Series A Convertible Preferred Stock), to issue additional
shares of Series A Preferred Stock or other series of preferred
stock with dividend, liquidation, conversion, voting and other
rights that could adversely affect the voting power or other
rights of the holders of the Company's securities. Any such
sales of securities may occur at any time and may be at a price
below then-current trading prices of the Company's Common Stock.
Products in Early State of Development.
The Company's products are in various early stages of development
and will require substantial additional investment, laboratory
development, clinical investigation and regulatory approval prior
to their commercialization for diagnostic purposes. There can be
no assurance that the Company will be successful in developing
such existing or future products, that such products will prove
to be efficacious in clinical investigations, that required
regulatory approvals can be obtained for such products or that
such products, if developed and approved, will be capable of
being manufactured in commercial quantities at reasonable costs.
There can be no assurance that the Company will not encounter
substantial delays in the development and testing of its
products. Certain applications of the Company's proprietary DNA
probe technology may require special formats or processing or
handling technologies for which the Company may not then have any
expertise. There can be no assurance that the Company will be
able to develop such special technologies at an acceptable cost
or at all, or that it will be able to acquire such technologies
from other parties on acceptable terms or at all.
The Company has not completed all development activities for, nor
has it performed extensive testing, of its HIV drug development
or clinical products or its prenatal genetic screening products.
There can be no assurances that any products will be successfully
developed. The Company believes the market opportunity for
genetic testing products in general will be limited prior to the
development of an enrichment system by others and that there can
be no assurance that such a system will ever be successfully
developed. In particular, the market opportunity for the
Company's products, even if such a system is successfully
developed by others, will be limited unless the Company's
AproProbe product line is used in conjunction with such system.
The terms of such use, whether by marketing arrangement, license
or otherwise, may not be financially beneficial to the Company.
Uncertainty of Developing Markets for Products.
The market for DNA probe tests is only now developing and has to
date been limited to market niches. The Company's success will
depend not only upon
6
capturing customers in existing markets but also on the
development of new markets in response to the Company's products.
There can be no assurance that the Company's products will be
marketed successfully or will be accepted by the medical
diagnostic community, that the Company's products will be
competitive with other technologies or products available to
potential customers, or that market demand for such products will
be sufficient to allow profitable operations. While the Company
has identified certain broad target markets for its products,
there can be no assurance as to what portion of such target
markets, if any, will find the Company's tests to be either
applicable or to be a preferable alternative to other diagnostic
tests or procedures.
Products and Exports Subject to U.S. and Foreign Regulatory
Approval.
The Company intends to market its products throughout the world.
The Company's products are subject to extensive regulation by
governmental authorities in the United States, particularly the
Food And Drug Administration (the "FDA") as well as health
authorities in foreign countries. The FDA and corresponding
health authorities in other countries impose substantial
requirements which must be satisfied before newly developed
products may be sold for diagnostic use. The FDA, and similar
agencies in foreign countries, have promulgated substantial
regulations which apply to the testing, marketing, export and
manufacturing of diagnostic products. The Company has not
applied for and does not have the approval of the FDA or any
foreign country to sell its products in any such country for
diagnostic use, nor has the Company been inspected for compliance
with any regulatory requirements. There can be no assurance that
any required regulatory permissions or approvals will be received
on a timely basis or at all. The failure of the Company's
products to receive requisite approvals, or significant delays in
obtaining any such approvals, could have a materially adverse
effect on the business of the Company. There can be no assurance
that any of the Company's products will receive any such approval
or, even if a particular product does receive such approval, that
the Company will ever recover its costs in connection with
obtaining such approval.
Prior to receipt of FDA approvals, the Company's products may be
sold in the United States "For Laboratory Use," "For Research Use
Only" or "For Investigational Use Only" and must be labeled
accordingly. Regulatory authorities could require the Company to
cease sales of such products if such authorities determine or
contend misuse of the products by customers.
In addition, approval by the FDA to export the products may be
required before sales for diagnostic purposes can occur in
foreign countries. There can be no assurance that the Company
would receive approval to export its products on a timely basis
or at all, and the failure to obtain such approval could have a
materially adverse effect on the Company's operations.
Similar filings and governmental approvals will be required in
certain major foreign countries before the Company's products can
be marketed for diagnostic purposes in such countries. There are
numerous foreign regulatory bodies that regulate the sale of
diagnostic products, and these bodies may be affected or
influenced by criteria materially different than that of the FDA.
The sale of the Company's products may be materially affected by
the policies of these regulatory bodies or the domestic policies
of the countries involved.
Uncertainty of Type of, Timing or Receipt of FDA Approval.
The form of requisite regulatory approval for a particular
product in the U.S. is often uncertain and subject to changes in
regulatory policy, changes in the interpretation of laws and
regulations, or the enactment of new laws or the promulgation of
new regulations, as well as the nature of and use of the
particular product. Additionally, the form of regulatory
approval to be required by the FDA could be influenced by the
form of approval sought by other diagnostic companies for similar
or dissimilar tests. While the Company has made determinations
regarding the appropriate form or forms of approval that may be
required for certain of its products, such determinations are
continually reviewed and may change as a result of various
factors, including changes in FDA policies, discussions with
regulatory agencies or consultants and changes in product
composition. There can be no assurance that such determinations
are correct, that the FDA will concur with such conclusions or
that such determinations may not be altered due to new
interpretations or new data that may become available.
The clinical investigation required of the Company's products may
take several months or several years to complete, depending on
the nature of the FDA filing. There can be no assurance that the
FDA will act favorably or quickly in making its reviews, and
significant difficulties or costs may be encountered by the
Company in its efforts to obtain FDA approvals that could delay
or preclude the Company from marketing its products for
diagnostic purposes. Furthermore, there can be no assurance that
the FDA will not request the development of additional data
following the original submission. Based upon the data submitted
to it, the FDA may also limit the scope of the labeling or
permitted use of the product or deny the application altogether.
With respect to patented products or technologies, delays imposed
by the governmental approval process may materially reduce the
period during which the Company will have the exclusive right to
exploit those products or technologies. There is no assurance
that the Company will have sufficient resources to complete the
required testing and regulatory review process or that it could
survive the inability to obtain, or delays in obtaining, such
approvals. There can be no assurance that the necessary
approvals
7
will be obtained by the Company or, if they are obtained, that
they will be obtained on a timely basis. Recently, because of
the volume of applications, FDA application backlog and response
times have been increasing.
The Company believes that any diagnostic HIV test will require a
Pre-Market Approval ("PMA") filing with the FDA. The regulatory
approval, if ever, for a PMA submission could take two years or
longer after filing. However, the FDA may require the submission
of a Product License Application ("PLA"), rather than a PMA, for
approval to market as a diagnostic test. If a PLA is required,
the product's manufacturing facilities, systems and equipment
must also be approved through an Establishment License
Application ("ELA"). Should the Company be required to and
succeed in obtaining a PLA and an ELA, substantially greater
costs and delays will be incurred than if marketing approval were
received under a PMA. There is no assurance when or if such
approvals would be granted or that the Company would or could
undergo the commitment of time and resources to file a PLA and an
ELA.
Based on recent publications from the FDA, the Company believes
that the FDA will probably require submission of AproProbe as a
PMA, but there can no assurances of this. Also any regulatory
approval for the use of AproProbe in conjunction with any
enrichment systems developed by others would require a clinical
investigation using the two products together.
Other Government Regulations May Adversely Affect the
Company.
The Company's products could be affected by the Clinical
Laboratory Improvement Amendments of 1988 ("CLIA"), which are
intended to assure the quality and reliability of medical testing
in the United States regardless of where tests are performed.
CLIA or regulations thereunder could negatively affect the
Company's ability to market its products. Additionally, the
Company is or may become subject to various federal, state and
local laws and regulations, particularly those relating to the
reporting of test results, safe working conditions, laboratory
and manufacturing practices (e.g., including the FDA's Good
Manufacturing Practices) and the use and disposal of hazardous or
potentially hazardous substances, including infectious disease
agents and radioactive compounds, used in connection with the
Company's research and development work. Existing or future
regulations may have an adverse effect on the Company's
operations, and the extent of such regulations may increase.
General Uncertainty of Patent Protection .
The success of the Company may depend on its ability or that of
its licensors to establish, protect and enforce patent rights on
its products and processes. In general, however, the patent
position of biotechnology firms is highly uncertain and involves
complex legal, scientific and factual questions. There can be no
assurance that any patents will be granted with respect to the
patent applications filed by or licensed to the Company.
Furthermore, there can be no assurance that any patents issued or
licensed to the Company will provide commercial benefit to the
Company or will not be infringed, invalidated or circumvented by
others. The United States Patent and Trademark Office currently
has a significant backlog of biotechnology patent applications,
and the approval or rejection of patents may take several years.
Prior to actual issuance, the contents of U.S. patent
applications are generally not made public. Once issued, such a
patent would constitute prior art from its filing date, which
might predate the date of a patent application on which the
Company relies. Conceivably, the issuance of such a patent, or
the discovery of "prior art" of which the Company is currently
unaware, could invalidate a patent of the Company or its licensor
or prevent commercialization of a product disclosed therein.
Even if patent protection is obtained, the Company or its
licensor may not have the resources or ability to seek the
enforcement of such foreign patents.
Uncertainty of International Patent Protection.
The availability of patents in foreign markets, and the nature of
any protection against competition that may be afforded by such
patents, is often difficult to predict, and varies significantly
from country to country. Moreover, the Company or its licensor
may choose not to seek, or may for any of various reasons be
unable to obtain, patent protection in a country that might
become an important market for the Company's products or
technology.
Possibility of Patent Infringement Claims Against the
Company.
The Company's products and processes may give rise to claims that
they infringe the patents of others. The Company may not become
aware of such patents until after it has made a substantial
investment in the products or processes. Such other persons,
companies or institutions could bring legal actions against the
Company or its commercial partners claiming damages and seeking
an injunction that would prevent them, the Company or its
partners from testing, manufacturing or marketing the affected
product or process. If such actions were successful, in addition
to potential liability for damages, the Company or its commercial
partners could be required to obtain a license in order to
continue to test, manufacture or market the affected product or
use the affected process. There can be no assurance that any
such required license would be made available or, if available,
would be available on acceptable terms. The Company expects that
it may have to expend substantial resources in litigation, either
in enforcing its patents, defending against the infringement
claims of others or both.
8
Trade Secrets and Proprietary Know-How; No Assurance of
Confidentiality.
In addition to patent protection, the Company also relies on
trade secrets, proprietary know-how and technological advances
which it seeks to protect, in part, by confidentiality agreements
with its collaborators, employees and consultants. There can be
no assurance that these agreements will not be breached, that the
Company would have adequate remedies for any breach, or that the
Company's trade secrets and proprietary know-how will not
otherwise become known or be independently discovered by others.
Limited Manufacturing and Marketing Experience.
To date, the Company has manufactured the limited quantity of its
products required for its development and its limited sales
activities. There can be no assurance that manufacturing or
quality control problems will not arise as the Company increases
production of its products, begins significant commercialization
or as additional facilities are required in the future.
Additionally, the manufacturing and sale of any product will be
dependent on adequate supplies and timeliness of delivery of raw
materials or component parts of the product. There can be no
assurances as to the availability or cost of such materials at
such times and in such quantities as required by the Company.
The Company's dependence on others for the raw materials or
component parts of its products may adversely affect the
Company's profitability and its ability to manufacture such
products on a timely basis. The Company has no direct experience
in marketing and distributing diagnostic products.
Effect of Arrangements With Potential Collaborative
Partners.
The Company from time to time engages in discussions with
diagnostic and other companies regarding collaborative
arrangements for the expansion of applications of its technology
or the license or joint venture of portions of such technology.
Such arrangements, if consummated, may include joint research and
development, product distribution, license or sale of the
technology for specific applications or the issuance of equity or
debt securities of the Company and may involve royalty
arrangements. There can be no assurance that the Company will be
successful in consummating any collaborative arrangement for its
technology, nor can there be any assurance as to the timing or
terms of any such agreements.
Such collaborative arrangements, if entered into, may provide for
the Company to receive a royalty for sales of its products by the
licensee. Such royalties will depend in part upon the efforts
required of the licensee, which may include the completion of
product research and development, performance of clinical
investigations, obtaining regulatory approvals and manufacturing
and marketing any products. The amount and timing of resources
devoted to these activities will be controlled by the licensee.
Should the licensee fail to perform any required functions, the
Company's business and results could be adversely affected. In
addition, there can be no assurance that any of the Company's
collaborative partners would not pursue alternative technologies
or develop alternative products on their own or in collaboration
with others, including the Company's competitors.
Potential Adverse Effect of Technological Change and
Competition.
The diagnostic and biotechnology industries are subject to
intense competition and rapid and significant technological
change. Competitors of the Company in the United States and
abroad are numerous and include, among others, diagnostic,
biotechnology and chemical companies, academic institutions,
governmental agencies and other public and private research
organizations. Many of these competitors have substantially
greater financial and technical resources and production and
marketing capabilities than the Company. There can be no
assurance that these competitors will not succeed in developing
technologies and products that are more effective, easier to use
or less expensive than those which are being developed by the
Company or that would render the Company's technology and
products obsolete and noncompetitive. In addition, many of the
Company's competitors have significantly greater experience than
the Company in conducting clinical investigations of new
diagnostic products and in obtaining FDA and other regulatory
approvals of products for use in health care. Accordingly, the
Company's competitors may succeed in obtaining regulatory
approval for products more rapidly than the Company.
The Company is aware that other companies have developed or may
be developing probe test systems which may be competitive with
the Company's products. The existence of any competing products
or procedures that may be developed in the future may adversely
affect the marketability of products developed by the Company.
The Company is aware of at least two companies that are marketing
assays to measure the amount of HIV virus in plasma, rather than
in intact cells. Substantial research has been devoted to the
correlation between such measures and the effect of therapy or
the progress of the disease, and both products have been filed
with the FDA. The Company's HIV product will face competition
from such assays and such research or regulatory approval for
other products may limit the market acceptance of the Company's
products. Also, several competitors have announced efforts to
develop a prenatal genetic testing product using maternal blood.
Additionally, the Company is aware that several other competitors
are currently marketing probe-based tests utilizing in situ
hybridization, some of which are in various phases of the
regulatory approval process. The Company believes that its
products based on the Company's technology will have advantages
over those announced by its competitors; there can be no
assurance, however, that this will be the case.
9
In addition, many companies and institutions are attempting to
identify sequences of genes. In some cases, including the
discovery of whole genes, patent protection for such sequences
has been granted. Increasingly, patent applications are being
filed with respect to sequences for which no gene has been
identified. Continuation of this process of patenting genes and
sequences could, to the extent that desired gene targets for the
Company's DNA probes are patented by others, foreclose the
Company from developing probes for such targets or require the
Company to pay license fees in order to market probes for such
targets.
Potential Adverse Effect of Automation Trends.
The medical diagnostics industry has experienced a trend toward
the automation of testing procedures that may have an impact on
the Company's competitive position. The Company's ability to
develop and market its tests may be limited by the availability,
cost and characteristics of generally available automated
instrumentation. Competitive pressures have begun to require
diagnostic companies to provide automated equipment to each
laboratory, physician's office or other customer and to generate
sales through such customers' use of those companies' products in
conducting the tests. The Company currently does not have the
financial resources to purchase and provide such instrumentation
to its customers. The Company may, therefore, be unable to
compete effectively with diagnostics companies that either
manufacture their own automated equipment or that have the
capital resources to purchase such equipment. Additionally, as
the trend towards automation continues, the Company will likely
be required to either design its tests so as to be formatted for
use with instrumentation that is then generally available from
manufacturers or enter into arrangements for the manufacture of
instrumentation specifically designed for use with the Company's
diagnostics. Additionally, the Company may not have the
financial resources to obtain such specially made instrumentation
and will be at a competitive disadvantage to those diagnostic
companies that manufacture such instrumentation or have the
capital resources to purchase such instrumentation. The
Company's HIV tests are formatted for analysis using a flow
cytometer, and potential customers may not own or have access to
such instrumentation, limiting the market acceptance of the
Company's products.
Use of Hazardous Materials.
Employees of the Company dealing with human blood and tissue
specimens may be exposed to risks of infection from HIV,
hepatitis and other blood and specimen-borne diseases if
appropriate laboratory practices are not followed. There can be
no assurance that such infections will not occur in the future or
result in liability to the Company. The Company's research and
development involves the controlled use of hazardous materials
and chemicals, and the Company's products includes reagents that
are known carcinogens. Accidental contamination or injury from
these materials could result in a material adverse effect on the
Company. The Company may also incur substantial costs to comply
with environmental regulations.
Possibility of Product Liability Claims.
The testing, marketing, manufacturing and sale of health care
products could expose the Company to the risk of product
liability claims. A product liability claim could have a
material adverse effect on the business or financial condition of
the Company. The Company currently maintains limited amounts of
product liability insurance coverage, but there can be no
assurance that product liability insurance will be available to
the Company in the future on acceptable terms, if at all. There
can be no assurance that product liability insurance will prove
adequate or that a product liability claim, insured or uninsured,
would not have a material adverse effect on the Company. Even if
a product liability claim is not successful, the time and expense
of defending against such a claim may adversely affect the
Company.
Uncertainty of Health Care Reform and Reimbursement By
Third-Party Payors for Products.
Cost control measures adopted by Medicare, Medicaid and private
health insurance plans and other third-party payers in recent
years have had and may continue to have a significant effect on
the purchasing practices of many health care providers, generally
causing them to be more selective in the purchase of medical
products and performance of diagnostic services and treatments.
Third-party payers may deny reimbursement in some cases. As a
result of, among other things, the changing health care
environment, significant uncertainty exists as to the
reimbursement status of newly approved health care products,
diagnostic services and treatments. Failure by future users of
the Company's products to obtain reimbursement from payers,
together with current and future changes in third-party payer
reimbursement practices regarding the diagnostic services and
treatments performed with such products, may adversely affect the
Company's business, financial condition, results of operations
and access to future capital.
In 1994, Congress considered a series of legislative and
regulatory proposals aimed at reforming the U.S. health care
system. Although these proposals were not enacted, Congress may
consider new health care reform proposals in the future. While
the Company cannot predict whether any such legislative or
regulatory proposals will be considered or adopted or the effect
such proposals may have on its business, the uncertainty of such
proposals could have a material adverse effect on the Company's
ability to raise capital and to identify and reach agreements
with potential partners, and the adoption of such proposals could
have a material adverse effect on the Company. Furthermore, the
Company's ability to commercialize its potential product
portfolio may be adversely affected to the extent that such
proposals have a material adverse effect on the business,
financial condition and profitability of other companies that are
current or prospective collaborators for certain of the Company's
proposed products.
10
Dependency on Key Personnel.
The Company's ability to successfully develop marketable products
and to maintain a competitive position will depend in large part
on its ability to attract and retain highly qualified scientific
and management personnel and to develop and maintain
relationships with leading research institutions and consultants.
The Company is highly dependent upon the principal members of its
management, the loss of any of whom could have a material adverse
effect on the Company. The Company's Chief Executive Officer is
currently engaged on a part-time basis as a consultant, and such
arrangement may be terminated by either party after June 30,
1996. The remaining members of management are not parties to
employment agreements with the Company.
Certain Anti-Takeover Effects.
The Company's Restated Certificate Incorporation and Bylaws
include certain provisions that may be deemed to have anti-
takeover effects. The Board of Directors of the Company is
empowered, without approval of the stockholders other than
certain approvals of holders of the Series A Convertible
Preferred Stock, to cause shares of undesignated Preferred Stock
to be issued in one or more series, with the numbers of shares of
each series and the rights, preferences and limitations of each
series to be determined by it. Such issuance of shares of
undesignated Preferred Stock, or the issuance of rights to
purchase such shares, could adversely affect the voting power of
the Common Stock or Series A Convertible Preferred Stock,
discourage an unsolicited acquisition proposal or make it more
difficult for a third party to gain control of the Company. The
Company's Bylaws establish advance notice procedures with regard
to the nomination, other than by or at the direction of the Board
of Directors, of candidates for election as directors and with
regard to certain matters to be brought before an annual meeting
of stockholders of the Company. The Company is subject to Section
203 of the Delaware General Corporation Law which could have the
effect of delaying, deferring or preventing a change in control
of the Company or the removal of existing management or deterring
potential acquirors from making an offer to stockholders of the
Company, notwithstanding that a majority of the stockholders
might benefit from such a change in control or offer.
Possible Control by Existing Stockholders.
Current executive officers and directors of the Company or their
affiliates beneficially own securities, including Convertible
Notes, with approximately 28% of the voting power of all the
Company's voting securities if the Convertible Notes were
converted into Common Stock. As a result, these stockholders
will, to the extent they act together, have the ability to exert
significant influence or control over matters requiring the
approval of the Company's stockholders, including possibly the
election of a majority of the Company's Board of Directors.
Volatility of Common Stock Price and Thin Trading Market.
Although the Common Stock is listed on the American Stock
Exchange, recently daily trading volume of the Common Stock has
generally been limited. The market prices for securities of
diagnostic or biotechnology companies have historically been
highly volatile, and recently a number of biotechnology
companies' stock prices have decreased sharply following
announcement of disappointing clinical trials. The trading price
of the Common Stock has experienced considerable fluctuation
since the Company's initial public offering in 1993 and is
extremely sensitive to large volume trades. Announcements of or
changes in product development timelines, technological
innovations or new products by the Company or its competitors,
developments concerning proprietary rights, including patents and
litigation matters, publicity regarding actual or potential
results with respect to products under development by the Company
or others, regulatory and health care reform developments in both
the United States and foreign countries and public concern as to
the safety of new technologies and other factors, may have a
significant impact on the market price of the Common Stock.
Listing on the American Stock Exchange.
The Company is currently not in compliance with certain minimum
requirements for continued listing of the Common Stock on the
American Stock Exchange. To date, to the Company's knowledge,
the AMEX has taken no affirmative action to delist the Common
Stock, but has reserved the right to do so in the future. If the
Common Stock is delisted from the AMEX, there would likely be a
material adverse effect on the marketability of the Common Stock.
There can be no assurance that the Company could qualify for
listing of the Common Stock on any other exchange, or qualify to
have shares of the Common Stock quoted through the National
Association of Securities Dealers, Inc. Automated Quotation/
National Market System or any other interdealer quotation system.
Failure to retain AMEX-listed status could adversely affect the
exemption of resales of shares of Common Stock under certain
state securities or "blue sky" laws, impeding free
transferability of such shares. In addition, the Company's
ability to raise additional equity would be negatively impacted
in the event the AMEX were to delist the Common Stock.
Effect of Shares Eligible for Future Sale on Market Price
and Liquidity.
The ability of purchasers of the Common Stock offered by this
Prospectus to resell any Common stock acquired, or the price
received upon such resale, may be adversely affected by the
shares of Common Stock currently eligible for sale or may become
eligible for sale in the future.
11
Substantially all of the outstanding Common Stock and any Common
Stock issuable upon conversion of the Series A Preferred Stock
and related placement agent warrants are eligible for sale either
as a result of registration or pursuant to Rule 144 of the
Securities Act of 1933 (the "Securities Act"). The sale of such
shares in the open market by existing stockholders under Rule 144
or otherwise or through the exercise of warrants, outstanding
vested options, registration rights or otherwise could adversely
affect the market price of the Common Stock and may have a
material adverse effect on the Company's ability to raise the
capital necessary to fund its future operations.
The Company has also granted registration rights to certain
stockholders of the Company prior to its initial public offering,
certain warrantholders, and the recipient of Common Stock issued
in an acquisition. These registration rights generally require
the Company to file one or more registration statements at its
expense upon demand or to include such holders' shares in any
registration statement filed by the Company. Registration of
shares under the Securities Act would result in such shares
becoming freely tradable without the restriction under the
Securities Act (except for shares purchased by affiliates of the
Company) immediately upon the effectiveness of such registration.
The Company may grant additional registration rights if it issues
securities in the future.
Shares purchasable upon conversion of the Convertible Notes are
registered under the Registration Statement of which this
prospectus is a part.
FORWARD-LOOKING STATEMENTS
The statements contained in this document regarding future cash
uses and requirements, expected expenditure levels, business and
product development or strategy and other statements which are
not historical facts are forward-looking statements that involve
risks and uncertainties. The words "expect," "project,"
"estimate," "predict," "anticipate," "believes" and similar
expressions are also intended to identify forward-looking
statements. While various factors will influence the outcome of
these forward-looking statements, the principal factors, among
others, that will affect the Company include the progress or
results of the Company's development activities, including any
need for additional capital equipment, personnel or consultants
or revisions to product development activities that may arise
from interim results of such activities; competition in the
marketplace, including the various factors that may affect sales
of the Company's research products or the need to alter research
plans or development activities to respond to competition or
technological changes; the terms and results of collaborative
relationships with others; retention of key personnel and the
need to expend resources to replace such individuals; any
litigation that may arise; and the need to expend resources on
seeking additional financing.
Additional factors to consider in assessing the risks and
uncertainties of such forward-looking statements include, but are
not limited to, those relating to: the Company's products being
in the early stage of development; uncertainty of developing
markets; the need for additional financing and limited access to
capital funding; the Company's limited operating history; its
accumulated deficit and anticipated losses; government regulation
(including that the Company's products are subject to extensive
regulation and required government approvals, that there is no
assurance of regulatory approvals and that failure to obtain such
approvals will have an adverse effect; uncertainty of the type
of, timing or receipt of FDA approval; that the Company will be
subject to numerous international regulations and that other
regulations may adversely affect the Company); the Company's
reliance on distributors and collaborative partners; license
patents and trade secrets (including the uncertainty of domestic
and international patent protection, the possibility of patent
infringement claims against the Company, the Company's reliance
on trade secrets and proprietary know-how and that there is no
assurance of confidentiality); the potential adverse effects of
technological change and competition; potential of limited third-
party reimbursement; use of hazardous materials; possibility of
product liability claims; dependence on key personnel; limited
manufacturing and marketing experience; uncertainty relating to
health care reform measures; and other risks and uncertainties
described in this prospectus (including specifically those
described in "Risk Factors") and other factors detailed in the
Company's other Securities and Exchange Commission filings.
USE OF PROCEEDS
The Company will not receive any part of the proceeds from any
sale of the Shares by the Selling Stockholders.
DESCRIPTION OF CONVERTIBLE NOTES
On June 12, 1996, the Company issued $2,005,000 principal amount
of Notes due on May 29, 1998. The Notes bear interest at the
rate of 10% per annum, based on a 365 day year, compounded
quarterly. Interest is payable at maturity or upon prepayment.
12
The Notes are convertible into Common Stock at the option of the
holder at any time after the earlier of (i) the approval for
listing by the American Stock Exchange (the "AMEX") of the Common
Stock issuable upon conversion of the Notes, or (ii) if the
Common Stock of the Company ceases to be listed for trading on
the AMEX, on the day of such de-listing. However, the Notes may
not be converted after the close of business on the fifth
business day prior to either the scheduled maturity or any
scheduled redemption.
The Notes are convertible into Common Stock at a rate of one
share of Common Sock for every $1.10 in principal and accrued
interest (the "Conversion Price"). Accordingly, the Notes are
initially convertible into a total of 1,822,727 shares of Common
Stock, but such number of shares will increase as a result of
accrued interest on the Notes and may be further adjusted by
changes in the Conversion Price as set forth herein. All or part
of the principal amount of the Notes may be converted at the
election of the holder, but accrued interest applicable to the
converted principal amount will also be converted into Common
Stock.
On the twentieth business day prior to the maturity date of the
Notes (the "Reset Date"), the Conversion Price will be adjusted
to the average of the closing price of the Common Stock on the
AMEX (or such other trading forum as may be applicable at that
time) for the ten trading days prior to the Reset Date (the
"Reset Conversion Price") if and only if such new Reset
Conversion Price is lower than the then-current Conversion Price.
However, such price shall not be less than 50% of the then-
Conversion Price.
The Notes contain provisions to protect the holders against
dilution by adjusting the number of shares issuable upon
conversion thereof upon the occurrence of certain events,
including payment of stock dividends and distributions, stock
splits, recapitalizations, reclassifications and reorganizations.
The Company has the right to prepay principal and accrued
interest upon twenty days notice to the holders of the Notes.
However, the holders have the right to convert the Notes into
Common Stock as set forth above prior to such redemption.
The principal and accrued interest of the Notes become
immediately due and payable upon the insolvency of the Company,
the commission of any act of bankruptcy by the Company, the
execution by the Company of a general assignment for the benefit
of creditors, the filing by or against the Company of any
petition in bankruptcy or any petition for relief under the
provisions of the federal bankruptcy act or any other state or
federal law for the relief of debtors and the continuation of
such petition without dismissal for a period of thirty days or
more, or the appointment of a receiver or trustee to take
possession of the property or assets of the Company.
DESCRIPTION OF CAPITAL STOCK
Under the Company's Restated Certificate of Incorporation, as
amended, the authorized capital stock of the Company is
31,200,000 shares, of which 20,000,000 shares are Common Stock,
par value $.001 per share, and 11,200,000 shares are preferred
stock, par value $.001 per share ("Preferred Stock"). As of June
30, 1996, the Company had outstanding 5,200,598 shares of Common
Stock and 449,000 shares of Preferred Stock, all of which were
designated as Series A Convertible Preferred Stock. As of June
30, 1996, stock options for an aggregate of 396,309 shares and
warrants to purchase an additional aggregate of 577,809 shares of
Common Stock and 45,900 shares of Series A Convertible Preferred
Stock were outstanding. Additionally, the Series A Convertible
Preferred Stock is convertible into 2,236,020 shares of Common
Stock, and the Convertible Notes are currently convertible into
1,822,727 shares of Common Stock (excluding any shares issuable
upon conversion of accrued interest related to the principal
balance of the Convertible Note so converted).
Common Stock
Holders of Common Stock are entitled to one vote per share with
respect to all matters required by law to be submitted to
stockholders of the Company. As described below, the holders of
Common Stock and the Series A Convertible Preferred Stock
together as a class will have the sole right to vote, except as
otherwise provided by law or by the Company's Restated
Certificate of Incorporation (including provisions for which the
Series A Convertible Preferred Stock has a class vote and
provisions governing subsequently created series of Preferred
Stock). The Common Stock has no cumulative voting rights.
Accordingly, holders of shares with the majority of the voting
power of all shares entitled to vote in any election of directors
may elect all of the directors standing for election. See
"Series A Convertible Preferred Stock_Voting Rights."
Subject to the prior rights of holders of Series A Convertible
Preferred Stock (and other series, if any, of Preferred Stock),
holders of the Common Stock are entitled to receive such
dividends as may be lawfully declared by the Board
13
of Directors of the Company. Upon any dissolution, liquidation
or winding up of the Company, whether voluntary or involuntary,
holders of the Common Stock are entitled to share ratably in all
assets remaining after the liquidation payments have been made on
all outstanding shares of Series A Convertible Preferred Stock
and other series, if any, of Preferred Stock. See "Series A
Convertible Preferred Stock_Dividends and "_Liquidation
Rights."
The Common Stock does not have any preemptive, subscription or
conversion rights.
Series A Convertible Preferred Stock
The Series A Convertible Preferred Stock is a series of Preferred
Stock consisting of up to 880,000 shares. As of June 30, 1996,
449,000 of these shares were issued and outstanding and 45,900
shares were reserved for issuance upon exercise of the Placement
Agent Warrants. The following summary description of the Series
A Convertible Preferred Stock is qualified in its entirety by
reference to the Certificate of Designations governing the Series
A Convertible Preferred Stock.
Dividends
The holders of shares of Series A Convertible Preferred Stock are
entitled to receive dividends and distributions, when, as and if
declared by the Board of Directors. If the Company declares a
dividend or distribution on the Common Stock, the Company will
declare and pay a dividend or distribution on the Series A
Preferred Stock in the amount of the dividend or distribution on
the number of shares of Common Stock into which each share of
Series A Convertible Preferred Stock would be convertible on the
record date for such dividend or distribution. If the Company
declares a dividend or distribution on any other class or series
of Preferred Stock, the Series A Convertible Preferred Stock will
be entitled to a dividend or distribution in an amount in
proportion to the dividend or distribution declared on such other
class or series based upon the liquidation preference of the
Series A Convertible Preferred Stock relative to that of such
other class or series, unless the holders of at least 66% of the
outstanding shares of Series A Convertible Preferred Stock
consent otherwise. In any such case, the Company will establish
the same record date for the dividend or distribution on the
Series A Convertible Preferred Stock as is established for such
dividend or distribution on the Common Stock or such other class
or series of Preferred Stock. The consent of the holders of at
least 66% of the outstanding shares of Series A Convertible
Preferred Stock is required for certain matters relating to
payment of dividends or distributions on other classes and series
of stock and the creation of other classes or series of Preferred
Stock. See "_Voting Rights."
Liquidation Rights
In the event of (i) a liquidation, dissolution or winding up of
the Company, whether voluntary or involuntary or (ii) a sale or
other disposition of all or substantially all of the assets of
the Company, after payment or provision for payment of debts and
other liabilities of the Company, the holders of Series A
Convertible Preferred Stock will be entitled to receive the
liquidation preference of $13.00 per share before any payment or
distribution is made to the holders of Common Stock or any other
class or series of the Company's capital stock ranking junior as
to rights upon liquidation to the Series A Convertible Preferred
Stock, but the holders of Series A Convertible Preferred Stock
will not be entitled to receive the liquidation preference of
such stock until the liquidation preference of any of the
Company's other class or series of capital stock which may
hereafter be created ranking senior as to rights upon liquidation
to the Series A Convertible Preferred Stock ("Senior Liquidation
Stock") has been paid in full. The ability of the Company to
authorize or issue Senior Liquidation Stock is limited as set
forth below under "Voting Rights." The holders of Series A
Convertible Preferred Stock and all classes or series of stock
that rank on a parity as to liquidation rights with the Series A
Convertible Preferred Stock will be entitled to share ratably, in
accordance with the respective preferential amounts payable on
such stock, in any distribution (after payment of the liquidation
preference of any Senior Liquidation Stock) which is not
sufficient to pay in full the aggregate of the amounts payable
thereon. After payment in full of the liquidation preference of
the shares of the Series A Convertible Preferred Stock, the
holders of such shares will not be entitled to any further
participation in any distribution of assets by the Company. A
consolidation or merger of the Company with or into another
corporation will not be considered a liquidation, dissolution,
winding-up or sale of substantially all assets of the Company.
Voting Rights
Except as described below or otherwise provided by law, the
holders of shares of Series A Convertible Preferred Stock, the
holders of shares of Common Stock and the holders of any other
class of series of stock entitled to vote with the Common Stock
will vote together as one class on all matters submitted to a
vote of stockholders of the Company. In any such vote, each
share of Series A Convertible Preferred Stock will entitle the
holder thereof to cast the number of votes equal to the number of
votes which could be cast in such vote by a holder of the Common
Stock into which such share of Series A Convertible Preferred
Stock is convertible on the record date for such vote,
14
or, if no record date has been established, on the date such vote
is taken. Any shares of Series A Convertible Preferred Stock
held by the Company or any entity controlled by the Company will
not have voting rights and will not be counted in determining the
presence of a quorum.
In addition, so long as more than 50% of the shares of Series A
Convertible Preferred Stock issued in the initial offering
thereof or issuable upon exercise of the Placement Agent Warrants
are outstanding, the Company may not, without the affirmative
vote or consent of the holders of at least 66% of all outstanding
shares of Series A Convertible Preferred Stock, voting separately
as a class, (i) amend, alter or repeal any provision of the
Amended and Restated Certificate of Incorporation, as amended
(including the Certificate of Designations relating to the
Series A Convertible Preferred Stock) or the bylaws of the
Company so as adversely to affect the relative rights,
preferences, qualifications, limitations or restrictions of the
Series A Convertible Preferred Stock, (ii) until May 25, 1998,
declare any dividend or distribution on the Common Stock or any
other class or series of Preferred Stock or (iii) authorize or
issue, or increase the authorized amount of any additional class
or series of stock or any security convertible into stock of such
class or series, (A) ranking prior to, or on a parity with, the
Series A Convertible Preferred Stock upon liquidation,
dissolution or winding up of the Company or a sale of all or
substantially all assets of the Company, or (B) providing for the
payment of any dividend or distribution other than (1) a dividend
or distribution that is payable on the Common Stock or is payable
to a holder of such class or series in the event a dividend or
distribution is declared on the Common Stock or is payable to a
holder of such class or series in the event a dividend or
distribution is declared on the Common Stock in the amount of the
dividend or distribution that would be received by a holder of
the number of shares of Common Stock into which a share of such
class or series would be convertible on the record date for such
dividend or distribution and (2) a dividend or distribution
payable on a class or series of Preferred Stock as a result of a
payment of a dividend or distribution being declared on another
class or series of Preferred Stock in an amount per share for the
first class or series based upon the first class or series'
liquidation preference relative to that of such other class or
series of Preferred Stock. A class vote on the part of the
Series A Convertible Preferred Stock shall, without limitation,
specifically not be deemed to be required (except as otherwise
required by law or resolution of the Company's Board of
Directors) in connection with: (a) the authorization, issuance or
increase in the authorized amount of Common Stock or of any
shares of any other class or series of stock (x) ranking junior
to the Series A Convertible Preferred Stock in respect of
distributions upon liquidation, dissolution or winding up of the
Company or (y) described in clause (iii)(B)(1) or (2) above;
(b) the authorization, issuance or increase in the amount of the
Series A Convertible Preferred Stock or any bonds, mortgages,
debentures or other obligations of the Company (other than bonds,
mortgages, debentures or other obligations convertible into or
exchangeable for or having option rights to purchase any shares
of stock of the Company the authorization, issuance or increase
in amount of which would require the consent of the holders of
the Series A Convertible Preferred Stock); or (c) any
consolidation or merger of the Company with or into another
corporation, a sale or transfer of all or part of the Company's
assets for cash, securities or other property, or a compulsory
share exchange.
Conversion Rights
The holder of any shares of Series A Convertible Preferred Stock
has the right, at the holder's option, to convert any or all such
shares into Common Stock. The shares of Series A Convertible
Preferred Stock are convertible at a rate of 4.98 shares of
Common Stock per share of Series A Convertible Preferred Stock
($2.01 per share of Common Stock), subject to certain anti-
dilution adjustments. Such conversion rate and conversion price
include the effect of certain anti-dilution provisions related to
the sale of the Convertible Notes and 1996 Warrants.
The conversion rate per share of Common Stock is subject to
further adjustment in certain other events, including: the
issuance of stock as a dividend on the Common Stock; subdivisions
or combinations of the Common Stock; the reclassification of the
Common Stock; the issuance to all or substantially all holders of
Common Stock of rights, options, warrants or convertible
securities entitling such holders to subscribe for or purchase
Common Stock at a price per share which is lower than the then
current market price of the Common Stock; or the distribution to
all or substantially all holders of Common Stock of evidences of
indebtedness or assets (excluding cash dividends paid out of
earnings) or rights, options, warrants or convertible securities
containing the right to subscribe for or purchase Common Stock
(other than those referred to above); or the sale or issuance of
bonds, mortgages, debentures or other debt obligations
convertible into or exchangeable for, or having attached or
detachable rights or warrants to purchase, Common Stock at a
price per share lower than the then current market price of the
Common Stock. No adjustment in the conversion rate will be
required to be made until cumulative adjustments amount to 1% or
more of the conversion rate as last adjusted; however, any
adjustment not made will be carried forward.
If the Company enters into any consolidation, merger, combination
or other transaction in which shares of Common Stock constituting
in excess of 50% of the voting power of the Company are exchanged
for or changed into other stock or securities, cash and/or any
other property (a "Merger Transaction"), then in any such case
the shares of Series A Convertible Preferred Stock will at the
same time be similarly exchanged or changed in an amount per
15
share equal to (x) the conversion rate in effect at such time
multiplied by (y) the aggregate fair market value, as determined
in good faith by the Board of Directors of the Company, of stock,
securities, cash and/or any other property (payable in kind), as
the case may be, into which or for which each share of Common
Stock is changed or exchanged (the "Per Share Merger
Consideration").
Mandatory Conversion
At any time, the Company, at its option, may cause the Series A
Convertible Preferred Stock to be converted in whole, but not in
part, into shares of Common Stock at the conversion price in
effect at that time if the closing price of the Common Stock has
exceeded 150% of the then applicable conversion price for at
least 20 trading days in any 30 consecutive trading day period.
Registration Rights
The Company has filed with the Securities and Exchange Commission
a Registration Statement to register the resale of the Common
Stock issuable upon conversion of the Series A Convertible
Preferred Stock.
Other Provisions
The holders of shares of Series A Convertible Preferred Stock
have no preemptive rights with respect to any securities of the
Company.
Other Preferred Stock
The Board of Directors of the Company is empowered, without
approval of the stockholders other than certain approvals of
holders of the Series A Convertible Preferred Stock as described
above, to cause shares of undesignated Preferred Stock to be
issued in one or more series, with the numbers of shares of each
series and the rights, preferences and limitations of each series
to be determined by it. Among the specific matters that may be
determined by the Board of Directors are the rate of dividends,
the redemption price, the terms of a sinking fund, the amount
payable in the event of any voluntary liquidation, dissolution or
winding up of the affairs of the Company, conversion rights and
voting powers.
The issuance of shares of undesignated Preferred Stock, or the
issuance of rights to purchase such shares, could adversely
affect the voting power of the Common Stock or Series A
Convertible Preferred Stock, discourage an unsolicited
acquisition proposal or make it more difficult for a third party
to gain control of the Company. For instance, the issuance of a
series of undesignated Preferred Stock might impede a business
combination by including class voting rights that would enable
the holder to block such a transaction, or facilitate a business
combination by including voting rights that would provide a
required percentage vote of the stockholders. Although the Board
of Directors is required to make any determination to issue such
stock based on its judgment as to the best interests of the
stockholders of the Company, the Board of Directors could act in
a manner that would discourage an acquisition attempt or other
transaction that some, or a majority, of the stockholders might
believe to be in their best interests or in which stockholders
might receive a premium for their stock over the then market
price of such stock. The Board of Directors does not at present
intend to seek stockholder approval prior to any issuance of
currently authorized stock, unless otherwise required by law.
Options and Warrants
As of June 30, 1996, the Company had 523,407 shares of Common
Stock reserved for issuance under its 1990 Stock Option Plan, and
options to purchase 345,109 shares of Common Stock thereunder
have been granted and are outstanding. As of June 30, 1996, the
Company had 100,000 shares of Common Stock reserved for issuance
under its Directors Stock Option Plan, and options to purchase
51,200 shares of Common Stock thereunder have been granted and
are outstanding. On July 12, 1996, amendments to the Directors
Stock Option Plan were approved by stockholders, and the number
of shares authorized for issuance under the plan increased to
150,000. Options to acquire an additional 40,000 shares of
Common Stock were granted on July 12, 1996 with an exercise price
of $1.1875 per share, increasing the number of shares of Common
Stock that may be purchased under granted options to 91,200
shares. Additionally, as of June 30, 1996, the Company had
577,809 shares of Common Stock reserved for issuance of various
warrants, including warrants to purchase 130,323 shares issued
in conjunction with the Convertible Notes (the "1996
Warrants").
16
Principal Terms of the 1996 Warrants
Warrants to acquire 130,323 shares of Common Stock were issued in
conjunction with the Convertible Notes, or warrants for
approximately 6,500 shares for every $100,000 of principal.
The 1996 Warrants entitle the holders thereof to purchase Common
Stock at $1.10 per share and are exercisable at any time after
the earlier of (i) the approval for listing by the American Stock
Exchange (the "AMEX") of the Common Stock issuable upon exercise
of the warrants, or (ii) if the Common Stock of the Company
ceases to be listed for trading on the AMEX, on the day of such
de-listing, but such exercise must occur prior to the close of
business on May 28, 1999. The 1996 Warrants contain provisions
to protect the holders thereof against dilution by adjusting the
price at which the 1996 Warrants are exercisable and the number
of shares issuable upon exercise thereof upon the occurrence of
certain events, including the payment of stock dividends and
distributions, stock splits, recapitalizations, reclassifications
and reorganizations. Commencing September 10, 1996, the holders
of the 1996 Warrants will have "piggyback" registration rights to
require the Company to include the Common Stock underlying such
warrants in certain registration statements filed by the Company.
Other Warrants
In connection with various capital lease obligations, the Company
has issued warrants that allow the holder to purchase an
aggregate of 10,665 shares of Common Stock at $2.881 per share
and 15,951 shares at $7.24 per share (the "Capital Lease
Warrants"). Warrants for 10,665 shares expire upon the earlier
of March 27, 2000 or the occurrence of certain specified events.
Warrants for 15,951 shares expire on June 30, 1999. In May 1993,
the Company issued to certain then-existing investors a bridge
loan in an aggregate dollar amount of $600,000 and warrants to
purchase an aggregate of 144,586 shares of Common Stock (the
"Bridge Loan Warrants"). These warrants are exercisable at $5.67
per share. These warrants expire on October 22, 1998. In
connection with the Company's initial public offering, the
Company sold to H. J. Meyers & Co., Inc., the representative of
the underwriters in such offering (the "IPO Representative"), at
an aggregate cost of $100, warrants (the "Representative's
Warrants") to purchase from the Company up to 147,424 shares of
Common Stock at an exercise price per share equal to $8.01. The
Representative's Warrants are exercisable for a period of four
years beginning October 15, 1994. The Representative's Warrants
allow for exercise, with the Company's consent, on a "net
exercise" basis. In connection with the acquisition of the
assets of the research program of MediGene, the Company issued
warrants to purchase 100,000 shares of Common Stock (the
"MediGeneWarrants"). The MediGene Warrants are exercisable until
April 15, 1998 at an exercise price of $16 per share. These
warrants may be exercised on a "net exercise" basis that does not
require the payment of any cash to the Company. Pursuant to the
sale of units of Common Stock and warrants (the "May 1995
Warrants") in May, 1995, the Company issued the May 1995
Warrants, exercisable for 28,860 shares of Common Stock. The May
1995 Warrants are exercisable at prices ranging from $7.25 (for
warrants to acquire 18,060 shares of Common Stock) to $3.00 (for
warrants to acquire 10,000 shares of Common Stock), and all of
such warrants expire on March 31, 1997. In June, 1996, in
connection with the sale of the Convertible Notes, the Company
issued the 1996 Warrants to acquire 130,323 shares of Common
Stock. The 1996 Warrants are exercisable at $1.10 per share of
Common Stock and expire on May 28, 1999. All of the warrants
contain provisions to protect the holders thereof against
dilution by adjusting the price at which the warrants are
exercisable and the number of shares issuable upon exercise
thereof upon the occurrence of certain events, including payment
of stock dividends and distributions, stock splits,
recapitalizations, reclassifications and reorganizations and, in
the case of the Capital Lease Warrant for 15,951 shares, Bridge
Loan Warrants and the Representatives Warrants, issuances of
Common Stock at below the then current market price. The holders
of the warrants (other than the MediGene Warrants) and any shares
of stock issued upon exercise thereof have certain rights to
register the Common Stock underlying such warrants. A holder of
warrants has no rights as a stockholder of the Company until the
warrants are exercised.
In connection with the sale of the Series A Convertible Preferred
Stock, the Company issued to designees of the placement agent for
that offering, warrants to purchase 45,900 shares of Series A
Convertible Preferred Stock (the "Placement Agent Warrants").
The Placement Agent Warrants entitle the holder to purchase
Series A Convertible Preferred Stock at $11.00 per share, and may
be exercised only on a "net exercise" basis that does not require
the payment of any cash to the Company. The Placement Agent
Warrants are exercisable at any time after November 22, 1995 and
will expire on the fifth anniversary of their issuance. The
Placement Agent Warrants contain provisions to protect the
holders thereof against dilution by adjusting the price at which
the Placement Agent Warrants are exercisable and the number of
shares issuable upon exercise thereof upon the occurrence of
certain events, including the payment of stock dividends and
distributions, stock splits, recapitalizations, reclassifications
and reorganizations affecting Series A Convertible Preferred
Stock and issuances of Series A Convertible Preferred Stock at
below the then market price (which is based on an "as-converted"
market price based upon the market price of the Common Stock).
Following the conversion of all of the Series A Convertible
Preferred Stock into Common Stock, the Placement Agent Warrants
will become warrants to purchase Common Stock and the
antidilution provisions will apply to issuances of Common Stock
instead of applying to issuances of Series A Convertible
17
Preferred Stock. The holders of the Placement Agent Warrants and
any shares of stock issuable upon exercise thereof have certain
rights to register the Common Stock underlying such warrants in
the resale registration statement that was filed with respect to
the Common Stock underlying the Series A Convertible Preferred
Stock.
As a result of the sale of the Convertible Notes and 1996
Warrants, there were changes in the exercise price and number of
shares for which warrants are exercisable pursuant to the
antidilution provisions, the Capital Lease Warrants, the Bridge
Warrants and the Representative's Warrant (but not the MediGene
Warrants, May 1995 Warrants or Placement Agent Warrants). These
changes are reflected in the numbers set forth above.
Limitation on Directors' Liability; Indemnification
Delaware law authorizes corporations to limit or eliminate the
personal liability of directors to corporations and their
stockholders for monetary damages for breach of directors'
fiduciary duty of care. The Restated Certificate of
Incorporation of the Company limits the liability of directors of
the Company (in their capacity as directors but not in their
capacity as officers) to the Company or its stockholders to the
fullest extent permitted by Delaware law. Specifically,
directors of the Company will not be personally liable for
monetary damages for breach of a director's fiduciary duty as a
director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the
director derived an improper personal benefit.
The inclusion of this provision in the Restated Certificate of
Incorporation may have the effect of reducing the likelihood of
derivative litigation against directors, and may discourage or
deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefited the Company
and its stockholders.
The Company's Bylaws provide for the indemnification of its
executive officers and directors, and the advancement to them of
expenses in connection with proceedings and claims, to the
fullest extent permitted by the Delaware General Corporation Law.
The Bylaws include related provisions meant to facilitate the
indemnitees' receipt of such benefits. These provisions cover,
among other things: (i) specification of the method of
determining entitlement to indemnification and the selection of
independent counsel that will in some cases make such
determination, (ii) specification of certain time periods by
which certain payments or determinations must be made and actions
must be taken and (iii) the establishment of certain presumptions
in favor of an indemnitee. The benefits of certain of these
provisions are available to an indemnitee only if there has been
a change in control (as defined). In addition, the Company has
purchased customary directors' and officers' liability insurance
policies for its directors and officers with limits of $1
million.
Other Matters
The Company's Bylaws establish advance notice procedures with
regard to the nomination, other than by or at the direction of
the Board of Directors, of candidates for election as directors
and with regard to certain matters to be brought before an annual
meeting of stockholders of the Company. These procedures provide
that the notice of proposed stockholder nominations for election
of directors must be timely given in writing to the Secretary of
the Company prior to the meeting at which directors are to be
elected. The procedures also provide that at an annual meeting,
and subject to any other applicable requirements, only such
business may be conducted as has been brought before the meeting
by, or at the direction of, the Board of Directors or by a
stockholder who has given timely prior written notice to the
Secretary of the Company of such stockholder's intention to bring
such business before the meeting. In all cases, to be timely,
notice must be received at the principal executive offices of the
Company not less than 90 days prior to the anniversary date of
the immediately preceding annual meeting of stockholders (or if
the election of directors is to be held at a special meeting of
stockholders, not later than the 10th day following the day on
which notice of the special meeting was mailed or public
disclosure of the meeting was made, whichever occurs first). The
notice must contain certain information specified in the Bylaws.
The Company is a Delaware corporation and is subject to Section
203 of the Delaware General Corporation Law (the "Delaware Law").
Generally, Section 203 prohibits a publicly held 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, unless (i) prior to such date, either the business
combination or such transaction is approved by the board of
directors of the corporation, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least
85% of the outstanding voting stock or (iii) on or after such
date the business combination is approved by the board and by the
affirmative vote of at least 66-2/3% of the outstanding voting
stock that is not owned by the interested
18
stockholder. A "business combination" includes mergers, asset
sales and certain other transactions resulting in a financial
benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of
the corporation's outstanding voting stock. The provisions of
Section 203 of the Delaware Law could have the effect of
delaying, deferring or preventing a change in control of the
Company or the removal of existing management or deterring
potential acquirors from making an offer to stockholders of the
Company. This could be the case notwithstanding that a majority
of the stockholders might benefit from such a change in control
or offer.
Transfer Agent and Registrar
American Securities Transfer, Incorporated and United Missouri
Trust Company of New York serve as the Co-Transfer Agents and Co-
Registrars for the Common Stock.
SELLING STOCKHOLDERS
Except as set forth below, none of the Selling Stockholders has
had a material relationship with the Company within the past
three years other than as a result of the ownership of the Shares
or the underlying Convertible Notes or the underlying Series A
Convertible Preferred Stock (or warrants to purchase the same),
as described below.
Upon the acquisition by the Selling Stockholders of the
Convertible Notes, the Series A Convertible Preferred Stock, or
warrants to acquire Series A Convertible Preferred Stock, the
conversion of which will result in the issuance by the Company of
the Shares, or of the Shares issued directly to the Selling
Stockholders, each Selling Stockholder represented to the Company
that it was acquiring the Convertible Notes, the Series A
Convertible Preferred Stock (or warrants to acquire Series A
Convertible Preferred Stock) or the Common Stock for investment
purposes only. The Company granted the Selling Stockholders
certain registration rights covering the resale of the Shares.
The Company is filing under the Securities Act with the
Commission a Registration Statement on Form S-3, of which this
Prospectus forms a part, with respect to the resale of the Shares
from time to time. See "Plan of Distribution".
Shares Issuable Upon Conversion of Convertible Notes.
Certain of the Shares may be acquired by the Selling Stockholders
from the Company upon conversion of Convertible Notes issued in
the sale of the Convertible Notes and the 1996 Warrants. See
"Recent Developments."
A substantial part of the Notes and 1996 Warrants were purchased
by existing stockholders and affiliates of the Company.
W.S. Farish & Company purchased $1,170,000 of Convertible Notes
and 1996 Warrants to acquire 76,050 shares of Common Stock.
Prior to such purchase, W.S. Farish & Company was the owner of
431,155 shares of Common Stock and warrants to acquire 50,510
shares of Common Stock (the "Bridge Warrants"). The Bridge
Warrants for 44,230 shares were issued in May, 1993 in connection
with the purchase from the Company by W.S. Farish & Company of
$239,167 in 10% promissory notes (the "Bridge Loans"). The
Bridge Loans were repaid in October 1993 with the proceeds from
the Company's initial public offering. The Bridge Warrants for
the remaining 6,280 shares were acquired in February 1994 from
another stockholder. In connection with antidilution provisions
of the Bridge Warrants, upon the sale of the Convertible Notes
and 1996 Warrants, the exercise price of the Bridge Warrants was
reduced from $7.39 per share of Common Stock to $5.67 per share
of Common Stock and the number of shares of Common Stock that may
be purchased upon exercise of the Bridge Warrant increased to
65,832 shares. W.S. Farish & Company is a party to the Amended
and Restated Stockholders' Agreement dated as of June 8, 1993
among the Company and various stockholders (the "Stockholders'
Agreement"). The Stockholders Agreement grants the parties
thereto the right to include certain shares of Common Stock in
any registration statements filed by the Company. As set forth
in the table below, W.S. Farish & Company has included 371,155
shares of Common Stock in the Shares as a result of such
registration rights in addition to the Shares issuable upon
conversion of the Convertible Notes.
Terry Ward is the Financial Vice President and a director of W.S.
Farish & Company, and has been a director of the Company since
March 1994 and Chairman of the Board of the Company since October
1995. Mr. Ward purchased $70,000 of Convertible Notes and 1996
Warrants to acquire 4,550 shares of Common Stock. Prior to such
purchase, Mr. Ward was the owner of 16,966 shares of Common Stock
and Bridge Warrants to acquire 4,629 shares of Common Stock. The
Bridge Warrants for 4,438 shares were issued in May, 1993 in
connection with the purchase from the Company by Mr. Ward of
$24,000 in 10% promissory notes (the "Bridge Loans"). The Bridge
Loans were repaid in October 1993 with the proceeds from the
Company's initial public offering. The Bridge Warrants for the
remaining 191 shares were acquired in February 1994 from another
stockholder. In connection with antidilution
19
provisions of the Bridge Warrants, upon the sale of the
Convertible Notes and 1996 Warrants, the exercise price of the
Bridge Warrants was reduced from $7.39 per share of Common Stock
to $5.67 per share of Common Stock and the number of shares of
Common Stock that may be purchased upon exercise of the Bridge
Warrant increased to 6,032 shares. Mr. Ward is a party to the
Stockholders' Agreement which grants the parties thereto the
right to include certain shares of Common Stock in any
registration statements filed by the Company. As set forth in
the table below, Mr. Ward has included 15,966 shares of Common
Stock in the Shares as a result of such registration rights in
addition to the Shares issuable upon conversion of the
Convertible Notes. As a director of the Company, Mr. Ward has
also been granted options to acquire Common Stock under the
Directors Stock Option Plan. The number of shares subject to the
options and the exercise prices are as follows: 4,000 shares
exercisable at $7.375 per share granted in January 1995, 4,800
shares exercisable at $1.75 per share granted in January 1996,
and 10,000 shares exercisable at $1.1875 granted in July 1996.
Mr. W.S. Farish purchased $100,000 of Convertible Notes and 1996
Warrants to acquire 6,500 shares of Common Stock. Mr. Farish is
a director and stockholder in W.S. Farish and Company. Members
of Mr. Farish's immediate family also acquired $50,000 of
Convertible Notes and 1996 Warrants to acquire 3,250 shares of
Common Stock. Prior to such purchase, Mr. Farish was the owner
of 6,942 shares of Common Stock and Bridge Warrants to acquire
4,438 shares of Common Stock. The Bridge Warrants were issued in
May, 1993 in connection with the purchase from the Company by Mr.
Farish of $24,000 in Bridge Loans. The Bridge Loans were repaid
in October 1993 with the proceeds from the Company's initial
public offering. In connection with antidilution provisions of
the Bridge Warrants, upon the sale of the Convertible Notes and
1996 Warrants, the exercise price of the Bridge Warrants was
reduced from $7.39 per share of Common Stock to $5.67 per share
of Common Stock and the number of shares of Common Stock that may
be purchased upon exercise of the Bridge Warrant increased to
5,784 shares. Mr. Farish is a party to the Stockholders'
Agreement which grants the parties thereto the right to include
certain shares of Common Stock in any registration statements
filed by the Company. As set forth in the table below, Mr.
Farish has included 6,942 shares of Common Stock in the Shares as
a result of such registration rights in addition to the Shares
issuable upon conversion of the Convertible Notes.
WestMed Venture Partners L.P. ("WestMed") purchased $200,000 of
Convertible Notes and 1996 Warrants to acquire 13,000 shares of
Common Stock. Prior to such purchase, WestMed was the owner of
476,739 shares of Common Stock and Bridge Warrants to acquire
16,458 shares of Common Stock. The Bridge Warrants were issued
in May, 1993 in connection with the purchase from the Company by
WestMed of $89,000 in Bridge Loans. The Bridge Loans were repaid
in October 1993 with the proceeds from the Company's initial
public offering. In connection with antidilution provisions of
the Bridge Warrants, upon the sale of the Convertible Notes and
1996 Warrants, the exercise price of the Bridge Warrants was
reduced from $7.39 per share of Common Stock to $5.67 per share
of Common Stock and the number of shares of Common Stock that may
be purchased upon exercise of the Bridge Warrant increased to
21,450 shares. WestMed is a party to the Stockholders' Agreement
which grants the parties thereto the right to include certain
shares of Common Stock in any registration statements filed by
the Company. As set forth in the table below, WestMed has
included 476,739 shares of Common Stock in the Shares as a result
of such registration rights. Mr. Philippe Sommer is the President
of Alsacia & Sommer, Inc., which provides consulting services to
early-stage health care companies. Mr. Sommer is also the
President of Alsacia Venture Management, Inc., which provides
management services to Medical Venture Holdings, Inc., which is
the general partner of the managing general partner of WestMed
Venture Partners, L.P. Mr. Sommer was elected to the Board of
Directors of the Company in August, 1996. Mr. Sommer was
previously a director of the Company from 1989 until October,
1994.
Shares Issuable Upon Conversion of Series A Convertible
Preferred Stock.
Certain of the Shares may be acquired by the Selling
Stockholders from the Company upon conversion of Series A
Convertible Preferred Stock (or warrants to purchase the same)
issued by the Company in May 1995 (the "Preferred Stock
Offering"). The Company sold 459,000 shares of Series A
Convertible Preferred Stock for gross proceeds of $4,590,000 in
the Preferred Stock Offering. Certain Selling Stockholders are
employees and officers of the placement agent for the Preferred
Stock Offering (the "Placement Agent"). Pursuant to the
Placement Agency Agreement between the Company and the Placement
Agent, the Company paid to the Placement Agent for its services
compensation in the form of (i) an advance non-refundable
expense payment of $30,000, creditable against the Expense
Allowance (as defined below), (ii) cash commissions of $280,625
(equal to 6.25% of the gross proceeds from the sale of all
Series A Convertible Preferred Stock), (iii) a non-accountable
expense allowance of $112,250 (equal to 2.5% of the gross
proceeds from the sale of all Series A Convertible Preferred
Stock (the "Expense Allowance")) and (iv) warrants to acquire
45,900 newly issued shares of Series A Convertible Preferred
Stock (equal to 10% of the Series A Convertible Preferred Stock
issued in the Preferred Stock Offering).
Shares Issued in the May 1995 Common Stock Offering.
Certain of the Shares were acquired from the Company in private
placements of Common Stock and warrants in May 1995 (the "1995
Common Offering"). The Company sold 144,300 shares of Common
Stock and warrants to acquire 28,860 shares of Common Stock at a
price of $4.50 per unit, with a unit consisting of one share of
Common Stock and one-fifth of a warrant. The warrants
20
were originally exercisable at $7.25 per share, but the exercise
price of certain of the warrants have been reduced by amendment
to $3.00 per share.
Shares Issued in Prior Private Placements.
The Company and certain of its stockholders are party to the
Amended and Restated Stockholders' Agreement dated as of June 8,
1993 (the Stockholders' Agreement") which imposes certain
restrictions on the transfer of the Common Stock subject to the
Stockholders' Agreement and grants the parties the right to
participate in certain registration statements filed by the
Company. Shares of certain of the Selling Stockholders are
included below by exercise of such registration rights by the
Selling Stockholder.
Shares Issued to Research Development Foundation.
In August 1995, the Company acquired ownership of certain patent
rights for its core technology previously licensed to the Company
by the Research Development Foundation ("RDF") in 1989. The
Company issued 125,000 shares of Common Stock to RDF in the
acquisition, and, by amendment to the Amended and Restated
Stockholders Agreement dated as of June 8, 1993 among Aprogenex
and various of its stockholders, RDF was granted the right to
participate in certain registration statements filed by the
Company. As set forth in the table below, RDF has included
125,000 shares of Common Stock in the Shares as a result of such
registration rights.
Selling Stockholders.
The Shares offered by this Prospectus may be offered from time to
time by the Selling Stockholders named below. The following
table sets forth certain information, as of the date hereof, with
respect to the number of Shares attributable to each of the
Selling Stockholders and as adjusted to give effect to the sale
of the Common Stock offered hereby. The Shares are being
registered to permit public secondary trading of the Shares, and
the Selling Stockholders may offer the Shares for resale from
time to time. See "Plan of Distribution".
Number of Shares
Beneficially Owned Beneficial
Ownership
Prior to Offering After Offering
Number
of Shares Number
Name of Number of Being of
Selling Stockholders Shares (1) Percent Offered Shares
Percent
W.S. Farish & 1,662,676 24.2% 1,662,676 0 _
Company (1)(2)
W.S. Farish (1)(2) 117,328 2.2% 117,328 0 _
Terry W. Ward (1)(2) 93,236 1.8% 93,236 0 _
William S. Farish, Jr.(1) 55,193 1.1% 55,193 0 _
Carol D. Cockrell, 116,991 2.2% 116,991 0 _
Louisiana Trust (1)(2)
Ernest H. Cockrell, 116,991 2.2% 116,991 0 _
Louisiana Trust (1)(2)
Laura V. Jennings, Texas 34,495 * 34,495 0 _
Test. Trust (1)
John W. Jennings III,
Texas Test. Trust (1) 34,495 * 34,495 0 _
Ernest D. Cockrell II, 34,495 * 34,495 0 _
Texas Test. Trust (1)
David A. Cockrell, 34,495 * 34,495 0 _
Texas Test. Trust (1)
Milton T. Graves (1) 16,557 * 16,557 0 _
Harry Strulovici, M.D.(1) 55,193 1.1% 55,193 0 _
21
A.W. Epley III (1) 110,386 2.1% 110,386 0 _
Westmed Venture 697,511 11.8% 697,511 0 _
Partners (1)(2)
Palmetto Partners, 49,800 * 49,800 0 _
Inc. (3)
David J. Bershad (3) 49,800 * 49,800 0 -
Arthur J. Nagle (3) 12,450 * 12,450 0 _
David W. Ruttenberg (3) 12,450 * 12,450 0 _
J.F. Shea Co., Inc. (3) 74,700 1.4% 74,700 0 _
Yonah J. Hamlet, M.D. 12,450 * 12,450 0 _
Profit Sharing Plan (3)
H. Virgil Sherrill (3) 124,500 2.3% 124,500 0 _
Richard Wurtman (3) 12,450 * 12,450 0 _
Bruce Slovin (3) 49,800 * 49,800 0 _
Leeor Sabbah (3) 99,600 1.9% 99,600 0 _
M.D. Sabbah (3) 199,200 3.7% 199,200 0 _
Donald G. Drapkin (3) 37,350 * 37,350 0 _
Myron M. Teitelbaum, 12,450 * 12,450 0 _
M.D. (3)
Seymour Buehler (3) 24,900 * 24,900 0 _
The 1992 Houston 37,350 * 37,350 0 _
Parthnership, L.P. (3)
Jackson Hole Investments 49,800 * 49,800 0 _
Acquisitions, L.P. (3)
Burton P. Hoffner (3) 12,450 * 12,450 0 _
S. Sauder Trust (3) 24,900 * 24,900 0 _
Keys Foundation (3) 249,000 4.6% 249,000 0 _
Melvyn I. Weiss (3) 24,900 * 24,900 0 _
Robert J. Conrads (3) 24,900 * 24,900 0 _
Herbert Hoffner (3) 12,450 * 12,450 0 _
Jerry L. Ruyan (3) 24,900 * 24,900 0 _
Hermann Merkin (3) 12,450 * 12,450 0 _
Erica Jesselson, Lucy 49,800 * 49,800 0 _
Lang,Claire Strauss,
Michael G.Jesselson,
Benjamin J. Jesselson
Trustee UID 12/18/80 FBO
Michael G.Jesselson (3)
22
Donald R. Kendall, Jr. & 12,450 * 12,450 0 _
Diane S. Kendall (3)
Uzi Zucker (3) 24,900 * 24,900 0 _
Marvin Rosen (3) 24,900 * 24,900 0 _
Elizabeth K. and Robert 37,350 * 37,350 0 _
P. Gordon (3)
Leland Corporation (3) 49,800 * 49,800 0 _
Daniel E. Koshland (3) 24,900 * 24,900 0 _
Lawrence J. Kessell, 12,450 * 12,450 0 _
M.D. (3)
Patrick J. Callahan, 12,450 * 12,450 0 _
Jr. (3)
Lake Trust U/A 99,600 1.9% 99,600 0 _
DTD 9/3/91 (3)
Armen Partners (3) 99,600 1.9% 99,600 0 _
South Ferry #2 L.P.(3) 124,500 2.3% 124,500 0 _
Lon Hayden Brooks (3) 24,900 * 24,900 0 _
The Aries Trust (3) 19,920 * 19,920 0 _
Aries Domestic Fund, 39,840 * 39,840 0 _
LP (3)
Linton Lake S.A. (3) 24,900 * 24,900 0 _
Gerlach & Co. (3) 42,600 * 42,600 0 _
Marcy F. Blender and 4,980 * 4,980 0 _
Alan M.Blender (3)
Venturetek, L.P. (3) 99,600 1.9% 99,600 0 _
Dr. Juerg F. Geigy (3) 24,900 * 24,900 0 _
Mark Goodman (3) 24,900 * 24,900 0 _
Hayden Leason (3) 99,600 1.9% 99,600 0 _
Gregory S. Lenchner, 4,980 * 4,980 0 _
M.D. (3)
Irja Steiner (3) 49,800 * 49,800 0 _
Martin S. Kratchman (4) 2,321 * 2,321 0 -
Timothy S. McInerney (4) 4,357 * 4,357 0 _
Scott A. Katzmann (4) 27,203 * 27,203 0 _
Michael S. Weiss (4) 17,143 * 17,143 0 _
Lindsay A. Rosenwald (4) 147,233 2.8% 147,233 0 _
Peter M. Kash (4) 12,431 * 12,431 0 _
23
Wayne L. Rubin (4) 17,143 * 17,143 0 _
Paviland Finance 747 * 747 0 _
(Canada) Ltd.(4)
Ernest H. Cockrell (2) 104,000 2.0% 104,000 0 _
Research Development 125,000 2.3% 125,000 0 _
Foundation (2)
MediGene, Inc. (2) 100,000 1.9% 100,000 0 _
Ryan J. O'Neill (2) 4,000 * 4,000 0 _
Lester T. Vesell (2) 25,000 * 25,000 0 _
Lenox Investments, 32,000 * 32,000 0 _
Ltd.(2)
Ernest Gottdiener (2) 25,000 * 25,000 0 _
Robert Schenck (2) 33,300 * 33,300 0 _
Frank Zee (2) 10,000 * 10,000 0 _
G&G Diagnostics, L.P.(2) 15,000 * 15,000 0 _
- -----------------------
* Less than 1%.
(1) Includes the number of shares of Common Stock into which the
Convertible Notes held by the Selling Stockholders, plus accrued
interest through the maturity date of the Convertible Notes,
would be convertible.
(2) Includes Common Stock included through the exercise of
registration rights under the Stockholders' Agreement or other
registration rights.
(3) Represents the number of shares of Common Stock into which
the shares of Series A Convertible Preferred Stock held by the
Selling Stockholders would be convertible.
(4) Represents the number of shares of Common Stock into which
the shares of Series A Convertible Preferred Stock would be
convertible, assuming the exercise of the warrants to acquire
Series A Convertible Preferred Stock held by the Selling
Stockholders
PLAN OF DISTRIBUTION
General
Sales of the Shares by the Selling Stockholders may be made from
time to time in one or more transactions, including block
transactions, on the American Stock Exchange or any other
exchange or quotation system on which the Shares may be listed
or quoted (collectively, the "Exchanges") pursuant to and in
accordance with the applicable rules of the Exchanges, in
negotiated transactions or in a combination of any such methods
of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Shares
may be offered directly, to or through agents designated from
time to time or to or through brokers or dealers, or through any
combination of these methods of sale. Such agent, broker or
dealer may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders and/or
the purchasers of the Shares for whom such broker-dealers may
act as agents or to whom they sell as principals, or both (which
compensation as to a particular broker-dealer might be in excess
of customary commissions). A member firm of an Exchange may be
engaged to act as the Selling Stockholder's agent in the sale of
Shares by the Selling Stockholders. To the extent required,
specific information regarding the Shares will be set forth in a
Prospectus Supplement.
The Selling Stockholders and any brokers, dealers, agents or
others that participate with the Selling Stockholders in the
distribution of the Shares may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commissions or
fees received by such persons and any profit on the resale of
the Shares purchased by such persons may be deemed to be
underwriting commissions or discounts under the Securities Act.
24
Agents, brokers and dealers may be entitled under agreements
entered into by the Selling Stockholders and/or the Company to
indemnification against certain civil liabilities, including
liabilities under the Securities Act.
There is no assurance that any of the Selling Stockholders will
sell any or all of the shares of Common Stock offered hereby.
Original Issuance of the Shares
Under the terms of the Convertible Note Subscription Agreements
executed by each purchaser of Convertible Notes, the Subscription
Agreements executed by each purchaser of Series A Convertible
Preferred Stock and the warrants to acquire Series A Convertible
Preferred Stock, the purchase agreements for Common Stock sold in
the 1995 Common Offering, as well as under the terms of the
Stockholders' Agreement, the Company agreed to register under the
Securities Act the Common Stock issuable upon conversion of the
Convertible Notes or Series A Convertible Preferred Stock or
previously issued to the Selling Stockholders and to indemnify
and hold the Selling Stockholders and certain related person
harmless against certain liabilities under the Securities Act
that could arise in connection with the sale by the Selling
Stockholders of the Shares.
The Company has agreed to pay all reasonable fees and expenses
incident to the filing of this Registration Statement, but not
selling commissions or discounts.
LEGAL MATTERS
Certain legal matters in connection with the Shares will be
passed upon for the Company by Baker & Botts, L.L.P., Houston,
Texas.
EXPERTS
The financial statements of the Company incorporated by reference
in this Prospectus, to the extent and for the periods indicated
in their report with respect thereto, have been audited by Arthur
Andersen LLP, independent public accountants, and are
incorporated by reference herein in reliance upon the authority
of said firm in giving said report, which includes an explanatory
paragraph that describes the uncertainty regarding the Company's
ability to continue as a going concern.
25
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution
All expenses (other than underwriting discounts and commissions
and fees and expenses of legal or other advisers to the Selling
Stockholders) in connection with the offering described in this
Registration Statement will be paid by the Company. Such
expenses are estimated (other than the Commission's registration
fee) as follows:
Securities and Exchange Commission Registration $ 1,176
Printing expenses................................. 250
Accounting fees and expenses...................... 3,000
Legal fees and expenses........................... 10,000
Blue Sky qualification fees and expenses.......... 300
Miscellaneous..................................... 500
-------
Total...................................... .$15,226
=======
ITEM 15. Indemnification of Directors and Officers
The Restated Certificate of Incorporation, as amended, of the
Company limits the personal liability of directors of the Company
to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director to the fullest extent
permitted by Delaware law. Specifically, directors of the
Company will not be held personally liable for monetary damages
for breach of a director's fiduciary duty as a director, except
for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware General Corporation Law, which relates to
unlawful payments of dividends or unlawful stock repurchases or
redemptions or (iv) for any transaction from which the director
derived an improper personal benefit. The Delaware General
Corporation Law does not eliminate a director's duty of care and
has no effect on the availability of equitable remedies such as
injunction or rescission based upon a director's breach of the
duty of care.
Section 145 of the Delaware General Corporation Law permits a
Delaware corporation to indemnify any persons who are, or are
threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action
by or in the right of such corporation), by reason of the fact
that such person is or was a director, officer, employee or agent
of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that
such officer or director acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's
best interest, or, for criminal proceedings, had no reasonable
cause to believe his conduct was illegal. A Delaware corporation
may indemnify officers and directors in an action by or in the
right of the corporation under the same conditions, except that
no indemnification is permitted without judicial approval if the
officer or director is adjudged to be liable to the corporation
in the performance of his duty. Where an officer or director is
successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him
against the expenses with such officer or director actually and
reasonably incurred.
The Company's Bylaws provide for the indemnification of its
executive officers and directors, and the advancement to them of
expenses in connection with proceedings and claims, to the
fullest extent permitted by the Delaware General Corporation Law.
The Bylaws include related provisions meant to facilitate the
indemnitees' receipt of such benefits. These provisions cover,
among other things: (i) specification of the method of
determining entitlement to indemnification and the selection of
independent counsel that will in some cases make such
determination, (ii) specification of certain time periods by
which certain payments of determinations must be made and actions
must be taken and (iii) the establishment of certain presumptions
in favor of an indemnitee. The benefits of certain of these
provisions are available to an indemnitee only if there has been
a change in control (as defined). In addition, the Company has
purchased customary directors' and officers' liability insurance
policies for its directors and officer.
II-1
ITEM 16. Exhibits
Exhibits incorporated by reference to a prior filing are
designated by an asterisk (*).
Exhibit
Number Description
4.1* Amended and Restated Certificate of Incorporation of the
Company. (Incorporated by reference from Exhibit 3.1 to the
Company's Registration Statement on Form SB-2, Reg. No. 33-66586-
FW, declared effective October 15, 1993).
4.2* Certificate of Amendment of Amended and Restated
Certificate of Incorporation of Aprogenex, Inc. effective as of
June 10, 1994 (Incorporated by reference from Exhibit 3.1 to the
Company's Form 10-QSB for the quarterly period ended June 30,
1994).
4.3* Certificate of Designations of Series A Convertible
Preferred Stock effective May 26, 1995 (Incorporated by reference
from Exhibit 4.4 to the Company's Registration Statement on Form
S3, Reg No. 33-95014, filed July 26, 1995).
4.4* Bylaws of the Company (Incorporated by reference from
Exhibit 4-3 to the Company's Registration Statement on Form S-3,
Reg. No. 33-90514, filed on July 26, 1995).
4.5* Form of Certificate of Common Stock. (Incorporated by
reference from Exhibit 4.1 to the Company's Registration
Statement on Form SB-2, Reg. No. 33-66586-FW, declared effective
October 15, 1993.)
4.6* Convertible Note Subscription Agreement dated as of May 1,
1996 among Aprogenex, Inc. and the various purchasers
(Incorporated by reference from Exhibit 4.1(a) to the Company's
Form 8-K dated as of June 12, 1996).
4.7* Form of Convertible Note dated as of June 12, 1996
(Incorporated by reference from Exhibit 4.1(b) to the Company's
Form 8-K dated as of June 12, 1996).
4.8* Director Stock Option Plan, as Amended and Restated on July
12, 1996 (Incorporated by reference from Exhibit 4.1 to the
Company's Form 10-QSB for the period ended June 30, 1996).
5 Opinion of Baker and Botts, L.L.P.
23.1 Consent of Baker and Botts, L.L.P. (included in Exhibit 5).
23.2 Consent of Arthur Andersen LLP.
- --------------------
ITEM 17. Undertakings
The registrant will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to include any additional or changed material
information on the plan of distribution.
(2) For purposes of determining liability under the
Securities Act, treat each post-effective amendment as a new
registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the end
of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the issuer in
the successful defense of any action, suit or proceeding) is
II-2
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication
of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on
Form S-3 and as duly caused this Registration Statement or
Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Houston, the State
of Texas, on August 8, 1996.
APROGENEX, INC.
By: /s/ J. Donald Payne
---------------------------
- -
J. Donald Payne
Vice President_Finance
Chief Financial Officer
Pursuant to the requirements of the Securities Act of
1933, this Registration Statement or Amendment has been
signed by the following persons in the capacities stated on
August 8, 1996.
Signature Title
/s/ David M. Leech
- ------------------------------- Acting President and Chief
(David M. Leech) Executive Officer and
Director
(Principal Executive Officer)
/s/ J. Donald Payne
- --------------------------- Vice President_Finance, Chief
(J. Donald Payne) Financial Officer and
Director
(Principal Financial and
Accounting Officer)
/s/ Terry W. Ward
- --------------------------- Director
(Terry W. Ward)
/s/ Christopher T. Kelly
- --------------------------- Director
(Christopher T. Kelly)
/s/ Dr. Michael Hogan
- --------------------------- Director
(Dr. Michael Hogan)
II-4
Exhibit Index
Exhibits incorporated by reference to a prior filing are
designated by an asterisk (*).
Exhibit
Number Description
4.1* Amended and Restated Certificate of Incorporation of the
Company. (Incorporated by reference from Exhibit 3.1 to the
Company's Registration Statement on Form SB-2, Reg. No. 33-66586-
FW, declared effective October 15, 1993).
4.2* Certificate of Amendment of Amended and Restated
Certificate of Incorporation of Aprogenex, Inc. effective as of
June 10, 1994 (Incorporated by reference from Exhibit 3.1 to the
Company's Form 10-QSB for the quarterly period ended June 30,
1994).
4.3* Certificate of Designations of Series A Convertible
Preferred Stock effective May 26, 1995 (Incorporated by reference
from Exhibit 4.4 to the Company's Registration Statement on Form
S3, Reg No. 33-95014, filed July 26, 1995).
4.4* Bylaws of the Company (Incorporated by reference from
Exhibit 4-3 to the Company's Registration Statement on Form S-3,
Reg. No. 33-90514, filed on July 26, 1995).
4.5* Form of Certificate of Common Stock. (Incorporated by
reference from Exhibit 4.1 to the Company's Registration
Statement on Form SB-2, Reg. No. 33-66586-FW, declared effective
October 15, 1993.)
4.6* Convertible Note Subscription Agreement dated as of May 1,
1996 among Aprogenex, Inc. and the various purchasers
(Incorporated by reference from Exhibit 4.1(a) to the Company's
Form 8-K dated as of June 12, 1996).
4.7* Form of Convertible Note dated as of June 12, 1996
(Incorporated by reference from Exhibit 4.1(b) to the Company's
Form 8-K dated as of June 12, 1996).
4.8* Director Stock Option Plan, as Amended and Restated on July
12, 1996 (Incorporated by reference from Exhibit 4.1 to the
Company's Form 10-QSB for the period ended June 30, 1996).
5 Opinion of Baker and Botts, L.L.P.
23.1 Consent of Baker and Botts, L.L.P. (included in Exhibit 5).
23.2 Consent of Arthur Andersen LLP.
Exhibit 5
BAKER & BOTTS
L.L.P.
ONE SHELL PLAZA
910 LOUISIANA
HOUSTON, TEXAS 77002-4995
19581.011 August 8, 1996
Aprogenex, Inc.
8000 El Rio Street
Houston, Texas 77054-4104
Ladies and Gentlemen:
As set forth in a Registration Statement on Form S-3 (the
"Registration Statement"), to be filed by Aprogenex, Inc., a
Delaware corporation (the "Company"), with the Securities and
Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act"), relating to 3,391,740 shares
(the "Shares") of the Company's common stock, par value $.001 per
share ("Common Stock"), certain legal matters in connection with
the Shares are being passed upon for the Company by us. Certain
of the Shares (the Conversion Shares ) are issuable upon (i) the
conversion of the aggregate principal amount of $2,005,000 of the
Company s Convertible Notes due May 29, 1998 (the Notes ), into
shares of Common Stock and (ii) the conversion of accrued
interest on the Notes that may accrue through maturity of the
Notes into shares of Common Stock. We understand that (a) the
Notes were issued to the holders thereof pursuant to Convertible
Note Subscription Agreements dated as of May 1, 1996 (the
Agreements ), a form of which was incorporated by reference as
Exhibit 4.6 to the Registration Statement from Exhibit 4.1(a) to
the Company s Form 8-K dated as of June 12, 1996 and (b) the
Notes are convertible into shares of Common Stock pursuant to the
terms and conditions of the Agreements and the Notes, a form of
which was incorporated by reference as Exhibit 4.7 to the
Registration Statement from Exhibit 4.1(b) to the Company s Form
8-K dated as of June 12, 1996.
We have acted as the Company's counsel in connection with the
registration by the Company of the proposed sale of the Shares by
certain selling shareholders. In such capacity, we have examined
the Company's Amended and Restated Certificate of Incorporation
and Bylaws, each as amended to date, and have examined the
originals, or copies certified or otherwise identified, of
corporate records of the Company, certificates of public
officials and of representatives of the Company, statutes and
other instruments and documents as a basis for the opinions
hereinafter expressed. In giving such opinions, we have relied
upon certificates of officers of the Company with respect to the
accuracy of the material factual matters contained in such
certificates.
Aprogenex, Inc. -2- August 8,
1996
On the basis of the foregoing, and subject to the assumptions,
limitations and qualifications hereinafter set forth, we are of
the opinion that:
1. The Shares have been duly authorized by all necessary
corporate action on the part of the Company.
2. If and when issued to holders of Notes upon conversion
thereof in accordance with the terms and conditions of the
Agreements and the Notes, the Conversion Shares will be validly
issued, fully paid and nonassessable.
3. The Shares (other than the Conversion Shares) are validly
issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to us under
"Legal Matters" in the prospectus forming a part of the
Registration Statement.
Very truly yours,
/s/ Baker & Botts, L.L.P.
GJO; MLW
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountant, we hereby consent to the
incorporation by reference in this Form S-3 Registration
Statement of our report dated February 2, 1996, included in
Aprogenex, Inc.'s Form 10-KSB for the year ended December 31,
1995, and to all references to our firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
- --------------------------
Houston, Texas
August 8, 1996
