AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 11, 1997
REGISTRATION NO. 333-
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ENAMELON, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
2834
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
13-3669775
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
15 KIMBALL AVENUE, YONKERS, NY 10704(914) 237-1308
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DR. STEVEN R. FOX, CHAIRMAN OF THE BOARD, ENAMELON, INC.
15 KIMBALL AVENUE, YONKERS, NY 10704 (914) 237-1308
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
JACK BECKER, ESQ.
SNOW BECKER KRAUSS P.C.
605 THIRD AVENUE
NEW YORK, NEW YORK 10158
TEL: (212) 687-3860
FAX: (212) 949-7052
------------------------
Approximate Date of Commencement of Proposed Sale to The Public: As
soon as practicable after the Registration Statement becomes effective.
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, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
==============================================================================
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE(1) PRICE(1) FEE
--------------------------- ---------- -------- -------- ---
<S> <C> <C> <C> <C>
Common Stock, $.001 1,200,000 shs $15.75(2) $18,900,00O $5,727.27
par value
Total Registration Fee $5,727.27
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933, as
amended.
(2) The closing bid price of the Common Stock of the Registrant on July 7,
1997, on the NASDAQ National Market.
================================================================================
(ii)
<PAGE>
ENAMELON, INC.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NO. AND CAPTION IN FORM S-1 LOCATION IN PROSPECTUS
<S> <C>
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus Outside Front Cover Page.
2. Inside Front and Outside Back Cover
Pages of Prospectus................................ Inside Front and Outside Back Cover
Pages.
3. Summary Information, Risk Factors
and Ratio of Earnings To Fixed
Charges............................................ Prospectus Summary; Risk Factors.
4. Use of Proceeds.................................... Use of Proceeds.
5. Selling Securityholders............................ Selling Securityholders
6. Plan of Distribution............................... Plan of Distribution
7. Description of Securities to be
Registered......................................... Description of Securities to be
Registered
8. Interest of Named Experts and
Counsel .......................................... Interest of Named Experts and
Counsel
9. Information with Respect to the
Registrant........................................ Information with Respect to the
Registrant: Description of the
Business; Description of
Properties; Legal Proceedings;
Stockholder Matters; Financial
Statement Schedules; Selected
Financial Data; Management's
Discussion and Analysis of
Financial Condition and Results of
Operation; Quantitative and
Qualitative Disclosures about
Market Risks; Management;
Management -- Executive
Compensation; Principal
Stockholder's; Certain
Relationships and Related
Transactions.
10. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities.................................... Management -- Indemnification
</TABLE>
<PAGE>
PROSPECTUS
ENAMELON, INC.
1,200,000 SHARES OF COMMON STOCK
This Prospectus pertains to up to 1,200,000 shares (the "Shares") of
common stock, $.001 par value per share (the "Common Stock"), of Enamelon, Inc.,
a Delaware corporation (the "Company"), that may be sold by the Selling
Securityholders named herein (the "Selling Securityholders"). See "Selling
Securityholders."
Of the shares of Common Stock offered hereby, 1,080,000 shares were
issued by the Company to accredited investors in June 1997 pursuant to a private
offering (the "June Offering") exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act") and 120,000 Shares
were sold by Dr. Steven R. Fox, Chief Executive Officer of the Company, in June
1997 in the June Offering. The Company will not receive any of the proceeds from
the sale of the Shares by the Selling Securityholders. The registration of the
Shares offered hereby is being effected pursuant to registration rights granted
by the Company to the Selling Securityholders and, in accordance with the terms
of such rights, the Company will bear the expense of such registration, except
that the Selling Securityholders will bear the cost of all brokerage commissions
and discounts incurred in connection with the sale of their Securities and their
respective legal expenses.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Commencing on the effective date of this Prospectus, the Shares may be
sold, from time to time, by the Selling Securityholders directly to purchasers
or, alternatively, may be offered through agents, brokers, dealers or
underwriters, who may receive compensation in the form of concessions or
commissions from the Selling Securityholders or purchasers of the Shares. Sales
of the Shares may be made on the Nasdaq National Market ("NASDAQ"), in privately
negotiated transactions or otherwise, and such sales may be made at the market
price prevailing at the time of sale, a price related to such prevailing market
price or a negotiated price.
Any brokers, dealers or agents that participate in the
distribution of the Shares may be deemed to be underwriters, and
The date of this Prospectus is July 11, 1997
<PAGE>
any commissions received by them and any profit on the resale of such shares
positioned by them may be deemed to be underwriting discounts and commissions
under the Securities Act.
-------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 9.
-------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by the Company may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices located at Seven
World Trade Center, New York, New York 10048, and at Northwestern Atrium Center,
500 West Madison Street, Chicago, Illinois 60661. Copies of such material may be
obtained, at prescribed rates, by writing to the Commission, Public Reference
Section, 450 Fifth Street, N.W. Washington, D.C. 20549.
The Company has filed with the Commission a Registration Statement on
Form S-1 under the Securities Act with respect to the securities offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits thereto, as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock, reference is hereby made to such Registration
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<PAGE>
Statement and the exhibits thereto or incorporated therein by reference. The
Registration Statement, including such exhibits, may be inspected without charge
at the public reference facilities maintained by the Commission and at the SEC's
regional offices at the addresses stated above. Copies of these documents may be
obtained, at prescribed rates, by writing to the Commission's Public Reference
Section at its office set forth above.
The Company furnishes its stockholders with annual reports which
contain financial statements audited by its independent certified public
accounts and such other interim reports containing unaudited financial
information as it deems appropriate.
The Company will provide without charge to each person who receives
this Prospectus, upon written request a copy of any information that is
incorporated by reference, in the Prospectus (not including exhibits to the
information that is incorporated by reference unless the exhibits are themselves
specifically incorporated by reference). Such requests should be directed to the
following address:
ENAMELON, INC.
758 Route 18 North
Suite 102
New Brunswick, N.J. 08816
Attention: Chief Financial Officer
4
<PAGE>
TWO DIAGRAMS OF A TOOTH DESCRIBING THE DEMINERALIZATION
PROCESS AND ENHANCED REMINERALIZATION RESULTING FROM USE OF
ENAMELON FLUORIDE TOOTHPASTE.
------------------------
Enamelon(TM) is a trademark of the Company. Certain other trademarks of
the Company and other companies, including ENAMELINE(TM), Crest(R), Colgate(R),
Aquafresh(R), Mentadent(R), Arm & Hammer Dental Care(R) and Sensodyne(R), are
used in this Prospectus.
5
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements and notes thereto appearing
elsewhere in this Prospectus. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, those discussed in "Risk Factors."
THE COMPANY
Enamelon, Inc. is focused on developing and marketing over-the-counter
oral care products based on proprietary formulations and pending technologies.
The Company's products are intended to stop cavities before they begin. Its
prototype formulations have been demonstrated in animal and IN VITRO studies to
strengthen tooth enamel. ENAMELON(TM) toothpaste contains the active ingredients
sodium fluoride, plus calcium and phosphate ions, to enhance the
remineralization of tooth enamel. The Company has introduced an all-family
toothpaste into test markets, consisting of approximately 5% of United States
households and currently expects to begin a national roll-out of its toothpaste
product in the first half of 1998.
On a daily basis, teeth lose small amounts of calcium and phosphate,
the major structural ingredients of tooth enamel. This "demineralization"
process is caused by plaque acids produced during the bacterial breakdown of
sugars in the mouth. These acids dissolve the enamel, producing lesions. As this
process continues, the mineral structure gradually is destroyed, eventually
forming a dental cavity, which can only be repaired by a dentist.
ENAMELON toothpaste simultaneously supplies the active ingredient
sodium fluoride, and high concentrations of ions of the inactive ingredients
calcium and phosphate in soluble form during brushing. The Company's IN VITRO
and animal studies have demonstrated that Enamelon anticavity fluoride
toothpaste enhances remineralization with a higher level of fluoride uptake, and
the tooth structure was shown to be strengthened and hardened having the added
calcium and phosphate. This makes the tooth less soluble and more resistant to
attacks by acids from decay-causing bacteria. The Company currently is
conducting intra oral and small scale clinical studies intended to establish
additional advertising claims, including comparative claims.
6
<PAGE>
The worldwide toothpaste market is estimated to exceed $5.0 billion in
annual retail sales. Annual toothpaste sales in the United States are expected
to be $1.7 billion in 1996 and are projected to reach $2.0 billion by the turn
of the century. Over the last five years, the toothpaste market has become
segmented as new, premium-priced products offering benefits such as tartar
control or whitening or containing ingredients such as baking soda have steadily
attracted consumers away from older, mature products.
The Company holds licenses from the American Dental Association Health
Foundation (the "ADAHF") to use patented and patent pending technologies (the
"ADAHF Patented Technology") relating to a method for oral use of various
amorphous calcium phosphate compounds that enhance the natural activity of
fluoride to prevent tooth decay. The ADAHF has granted the Company (i) exclusive
worldwide licenses to develop, manufacture and market toothpaste, chewing gum,
food and confectionery products using the ADAHF patented technology and (ii) a
non-exclusive international license covering products not covered by the
Company's exclusive licenses (including oral spray, mouth rinse and professional
gel products) using the ADAHF patented technology. The Company's international
license is co-extensive with a non-exclusive international license granted to
SmithKline Beecham Corp. ("Smithkline"), which also obtained from the ADAHF an
exclusive United States license covering products not covered by the Company's
exclusive licenses.
The Company has developed additional technologies relating to
prevention of tooth decay before it begins. It has received six United States
patents, and has fifteen United States patent applications pending with respect
to certain of those technologies (the "Enamelon Proprietary Technology").
The Company's objective is to become a leading niche marketer of a
variety of oral care, chewing gum, food and confectionery products based on the
ADAHF Patented Technology and/or the Enamelon Proprietary Technology. The
Company's strategic plan for accomplishing this objective is to (i)market its
proposed toothpaste products with sodium fluoride as the sole active
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<PAGE>
ingredient in compliance with Food and Drug Administration requirements, (ii)
conduct further testing to establish advertising and marketing claims, including
comparative claims (iii) collaborate with corporate partners in certain product
areas and international markets and (iv) capitalize on additional commercial
applications.
The Company was incorporated in Delaware in June 1992. The Company's
executive offices are located at 15 Kimball Avenue, Yonkers, New York, 10704,
and its telephone number is (914) 237-1308.
THE OFFERING
<TABLE>
<S> <C>
Shares of Common Stock
Offered.................................................. 1,200,000 shares
The Shares may be offered to the public from time to time by the Selling
Securityholders directly or through underwriters, dealers or agents in market
transactions or through privately negotiated transactions.
Use of Proceeds............................................ The Company will not receive
any proceeds from the sale of
the Shares by the Selling
Securityholders.
Risk Factors............................................... Prospective investors should
carefully consider the matters
set forth under the caption
"Risk Factors". An investment
in the shares of Common Stock
offered hereby involves a high
degree of risk and immediate
and substantial dilution.
Nasdaq National
Market Symbol.............................................. "ENML"
</TABLE>
SUMMARY FINANCIAL DATA
8
<PAGE>
The following summary financial information has been derived from the
company's financial statements included elsewhere in this Prospectus. The
following summary should be read in conjunction with the Financial Statements
and related notes and management's discussion and analysis included elsewhere in
this Prospectus. See "Financial Statements".
<TABLE>
<CAPTION>
Three Months Ended
Year ended December 31, March 31,
----------------------- --------------------
1994 1995 1996 1997 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED STATEMENT
OF OPERATIONS DATA:
Total expenses $ 536,280 $ 1,080,581 $ 3,120,249 $ 2,080,326 $ 552,207
Other income 262,644 196,663 195,419 130,956 35,435
Net Loss (798,924) $(1,060,918) $(2,924,830) $(1,949,370) (516,772)
SELECTED PER SHARE DATA:
Net Loss per share $(.21) $(0.20) $ (0.52) $ (0.28) $ (0.09)
Weighted average
common shares outstanding 3,784,800 5,234,289 5,636,935 6,900,378 5,563,389
</TABLE>
<TABLE>
<CAPTION>
At March 31, 1997
At December
31, 1996 Actual Pro Forma*
<S> <C> <C> <C>
SELECTED BALANCE SHEET
DATA:
Total Assets $12,391,684 $10,951,107 $23,077,000
Total Liabilities 1,093,271 1,602,064 1,697,664
Working Capital 10,543,096 8,032,528 21,109,451
Stockholders' Equity 11,298,413 9,349,043 22,425,966
</TABLE>
- -------------
* As adjusted to reflect net proceeds of $13,076,923 for the June
offering of 1,080,000 shares of Common Stock.
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a
high degree of risk and immediate and substantial dilution and should only be
made by persons who can afford a loss of their entire investment. In evaluating
an investment in the Common Stock being offered hereby, investors should
consider carefully, among other matters, the following risk factors, as well as
the other information contained in this Prospectus.
9
<PAGE>
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has a limited history of operations and has accumulated net
losses from inception in June 1992 through March 31, 1997, of approximately
$7,067,783. Losses have resulted principally from research and development
costs, costs of manufacturing and test marketing of ENAMELON(TM) toothpaste, and
general and administrative costs. Although the Company commenced test marketing
of ENAMELON(TM) toothpaste in March 1997, costs of production presently exceed
revenues. The Company expects to continue to incur annual operating losses at
least through 1999, principally as a result of expenses of ongoing clinical
testing and anticipated marketing and manufacturing expenses associated with the
introduction of ENAMELON(TM) toothpaste. There can be no assurance that the
Company will ever generate an operating profit or achieve profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
UNCERTAINTY OF CONSUMER ACCEPTANCE OF ENAMELON PRODUCTS
The Company will be dependent upon consumer acceptance of ENAMELON(TM)
toothpaste as an alternative to current well known brand name toothpastes.
Market acceptance will depend on the Company's ability to demonstrate to
consumers the effectiveness of its products. There can be no assurance that
clinical studies will support the Company's anticipated advertising claims, that
the Company will be able to market its toothpaste successfully or that future
products, if any, will be accepted in the marketplace.
UNCERTAINTIES RELATED TO DEVELOPMENT OF ADDITIONAL PRODUCTS
The Company has focused its product development efforts to date on
ENAMELON(TM) toothpaste. Accordingly, the Company will require significant
10
<PAGE>
additional efforts to develop other products using the Enamelon technologies.
All such future product development efforts are subject to certain risks and may
not succeed. These risks include, but are not limited to, the possibility that
(i) new products will be found ineffective or unsafe, (ii) even if safe and
effective, they will be difficult to develop into commercially viable products
or to manufacture economically on a large scale, free of governmental or
competitive challenges and (iii) any such products will fail to achieve and
sustain market acceptance. Therefore, there is substantial risk that the
Company's product development efforts will not be successful.
COMPETITION
Competition in toothpaste products, as well as in chewing gum, food and
confectionery products, is intense. The Company's primary competitors include
companies with substantially greater financial, technological, marketing,
personnel and research and development resources than those of the Company.
There can be no assurance that the Company will be able to compete successfully
in these markets. The Company's toothpaste products will compete with other
brand name toothpastes, including Crest, Colgate, Aquafresh, Mentadent, Arm &
Hammer Dental Care and Sensodyne. Further, new products or future developments
by others may provide therapeutic or cost advantages over the Company's proposed
products. There can be no assurance that developments by others of similar or
more effective products will not render the Company's products or technologies
noncompetitive or obsolete or that competitors will not challenge the validity
of the Company's patent rights. Since the Company's proposed products will be
new to the market and sold in competition with the products of companies with
greater financial and other resources, there can be no assurance that a market
for the Company's proposed products will develop.
The Company's non-exclusive license to market products not covered by
its exclusive licenses (including oral sprays, mouth rinses, and professional
gels) outside of the United States is co-extensive with a license granted to
SmithKline, which has financial and other resources that are substantially
greater than those of the Company. Therefore, it is likely that the Company will
not be able to compete with SmithKline for the sale of those products outside of
the United States unless the Company enters into strategic alliances with other
companies having financial and other resources comparable to those of
SmithKline. However, there can be no assurance that the Company will be able to
successfully market products covered by its non-exclusive license, even if it is
able to form such alliances.
COMPLIANCE WITH THE FDA MONOGRAPH
The Company's products are subject to regulation by the Food and Drug
Administration (the "FDA"). The FDA has published a final monograph, Anticaries
Drug Products for Over-the-Counter Human Use (the "Monograph"), for
over-the-counter anticaries drug products, the category of non-prescription drug
products that includes the Company's proposed
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<PAGE>
oral care products. The Monograph establishes conditions under which
over-the-counter drug products that aid in the prevention of tooth decay
generally are recognized as being safe and effective and not misbranded. The
Company's products may be lawfully marketed without being required to file a New
Drug Application (an "NDA") with the FDA if they use as their sole active
ingredient one of the active ingredients permitted in the Monograph and only
make labeling claims permitted in the Monograph. The Company's proposed products
are being developed with the sole active ingredient being sodium fluoride, an
active ingredient permitted under the Monograph, and the Company intends to
comply with the Monograph in all other respects. However, there can be no
assurance that the FDA will determine that the Company's proposed products meet
all of the conditions of the Monograph. The Company will be limited in the
claims it can make with respect to its products in order to remain in compliance
with the Monograph. The Company's inability to market its proposed toothpaste
products under the Monograph would have a material adverse effect on the
Company.
In order to market its proposed products other than in compliance with
the Monograph, the Company would be required to file an NDA. An NDA would
require substantial testing procedures which are costly and time consuming.
Accordingly, the Company's ability to sell its proposed products in the United
States could be delayed for an indefinite period of time. Further, the Company
may not have sufficient financial or other resources available to complete the
NDA process and assuming such financial and other resources are available, there
is no assurance that the FDA would approve the Company's NDA, if one were
necessary.
SUBSTANTIATION OF ADDITIONAL ADVERTISING CLAIMS
The Company intends to continue to conduct human clinical studies of
ENAMELON(TM) toothpaste, which are intended to broaden advertising claims. The
Company believes that these advertising claims will distinguish ENAMELON(TM)
toothpaste from competitors' products and give the Company a competitive
advantage. However, there can be no assurance that the results of the human
clinical studies will substantiate the anticipated advertising claims.
COMPLIANCE WITH OTHER GOVERNMENT REGULATION
In addition to regulation by the FDA under the Monograph, the Company
is subject to additional FDA regulation as well as regulation under various
other federal and state laws and agencies. Each domestic drug product
manufacturing facility must be registered with the FDA, and each manufacturer
must inform the FDA of every drug product it has in commercial distribution and
keep such list updated. Domestic manufacturing facilities are also subject to at
least biennial inspection by the FDA for compliance with Good Manufacturing
Practice ("GMP") regulations promulgated by the FDA. Compliance with GMP
regulations is
12
<PAGE>
required at all times during the manufacture and processing of drug products.
Accordingly, to the extent that the Company uses contract manufacturers, such
manufacturers must be in compliance with FDA requirements. If any such
manufacturer is not in compliance with GMP, the FDA could bring an action to
enforce its regulations, which could lead to closing such manufacturing
facility. In that instance, the Company would be required to contract with
another manufacturer, any such contract could possibly be on terms less
favorable to the Company than its former agreement, and the sales and marketing
of the Company's products could be disrupted. See "Business - Manufacturing,"
"Government Regulation," and "Risk Factors--Dependence on Others to
Manufacture,".
Both the Company's products and its product claims may be challenged by
the Company's competitors or by the Federal Trade Commission (the "FTC") or
other governmental or private agencies. Such challenges may include an assertion
that the data obtained by the Company to substantiate the Company's advertising
claims may be inadequate or that such claims are inaccurate. There can be no
assurance that the Company will successfully defend any challenge in this area
or be able to modify its products or the claims with respect thereto to such an
extent that the products remain commercially viable. If the Company is unable to
defend such claims, it may become subject to an FTC cease and desist order,
which could impair its ability to market its products.
The laws and regulations administered by governmental agencies are
subject to change and varying interpretations. While the Company intends to use
its best efforts to comply with relevant laws and regulations, no assurance can
be given that an agency might not assert a claim of noncompliance against the
Company in the future. Unanticipated changes in laws or adverse interpretations
of regulations could materially jeopardize the Company's ability to distribute
its products or engage in its contemplated business activities.
The marketing of the Company's proposed products abroad will be subject
to significant regulation by foreign cosmetic and/or drug regulatory agencies.
No assurance can be given that the Company will be granted approval to market
its proposed products in foreign countries, and the failure to obtain such
required approvals would have a adverse effect on the Company's ability to
market its products internationally.
See "Business -- Regulation."
DEPENDENCE ON LICENSING AGREEMENTS
Since the Company considers the ADAHF Technology to be a key element in
its product development, the Company's license agreements with the American
Dental Association Health Foundation ( the "ADAHF") are material to the
Company's business. If sales of the company's products do not generate royalties
of at least $17,000 during the last year of any exclusivity period under the
Company's exclusive licenses, then the Company will not be entitled to renew the
period of exclusivity, and the ADAHF will be entitled to license the ADAHF
Technology to the Company's
13
<PAGE>
competitors. Furthermore, if the Company fails to pay the minimum royalties
required under the license agreements or otherwise breaches such agreements,
then the ADAHF will be entitled to terminate the agreements. In that event, the
Company would be unable to use the ADAHF Technology, which would have a material
adverse effect on the ability of the Company to develop, manufacture and sell
its products, or even to continue in business. See Business -- ADAHF Patents and
Licenses."
UNCERTAIN ABILITY TO PROTECT PATENTS AND OTHER INTELLECTUAL PROPERTY
The Company's ability to compete effectively depends on its success in
protecting the Enamelon Technologies, both in the United States and abroad. No
assurance can be given that the Company's protection of patents or other
proprietary technology within and/or outside of the United States is sufficient
to deter others, legally or otherwise, from developing or marketing competitive
products using the Enamelon Technologies.
The United States patents and the pending foreign patent applications
covering the ADAHF Technology (the "ADAHF Patent Rights") and the Company's
patents and pending patent applications (the "Enamelon Patent Rights")
(collectively with the ADAHF Patent rights, the "Patent Rights") are material to
the Company's business. No assurance can be given that any further patents will
be issued from the United States or foreign patent offices for the Patent Rights
or that the Company will receive any patents in the future based on its
continued development efforts. The Company believes that the protection afforded
by the Patent Rights is material to its future revenues and earnings. There can
be no assurance that any of the Patent Rights will be found to be valid or that
any of the Patent Rights will be enforceable or prevent others from developing
and marketing competitive products or methods. A successful challenge to the
validity of the Patent Rights would have a material adverse effect on the
Company and could jeopardize its ability to engage in its contemplated business.
An infringement action on behalf of the Company may require the diversion of
substantial funds from the Company's operations and may require management to
expend efforts that might otherwise be devoted to the Company's operations.
Furthermore, there can be no assurance that the Company will be successful in
enforcing the Patent Rights. See "Risk Factors--Competition."
There can be no assurance that the patent infringement claims in the
United States or in other countries will not be asserted against the Company by
a competitor or others, and if asserted, that the Company will be successful in
defending against such claims. In the event one of the Company's proposed
products is adjudged to infringe patents of others with the likely consequence
of a damage award, the Company or any sublicensee may be enjoined from using and
selling such product or be required to obtain a royalty-bearing license, if
available on acceptable terms. Alternatively, in the event a license is not
offered, the Company might be required to redesign those aspects of the product
held to infringe so as to avoid future infringement. In such case, any redesign
efforts undertaken by the Company would require significant expense,
14
<PAGE>
necessitate an FDA review, delay the introduction or the re-introduction
of the Company's products into certain markets, or be so significant as
to be impractical. See "Business -- ADAHF Patents and Licenses."
PROTECTION OF PROPRIETARY TECHNOLOGY AND INFORMATION
The Company also intends to rely on trade secrets, know-how and
continuing technological advancement to establish and maintain a competitive
position in the market for its products. Although the Company has entered into
confidentiality and invention agreements with its employees and consultants, no
assurance can be given that such agreements will be honored or that the Company
will be able to effectively protect its rights to its unpatented trade secrets
and know-how. Moreover, no assurance can be given that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets and know-how.
EVOLVING PRODUCT FORMULATIONS
The Company expects that the formulation of its toothpaste and other
products will be modified from time to time as a result of the Company's ongoing
research and product testing programs. As a result of such modifications,
products that the Company produces in the future may differ from those that were
the subject of earlier research and testing. Therefore, the research studies
conducted to date and relied upon by the Company for efficacy and claims
substantiation, as well as the Patent Rights obtained at this time, might not
necessarily be applicable to the Company's future product formulations. In that
event, the Company may be required to make significant additional expenditures
on development and testing of these new formulations. Furthermore, there can be
no assurance that future product formulations will comply with the Monograph,
that the Company will not be required to file an NDA, or that any products using
such formulations will be commercially viable. See "Business -- Research and
Development" and " -- ADAHF Patents and Licenses."
LIMITED MARKETING CAPABILITY
The Company has limited marketing capabilities and resources. Achieving
market penetration will require significant efforts by the Company to create
awareness of, and demand for, its proposed products. Accordingly, the Company's
ability to build its customer base will be dependent on its marketing efforts,
including its ability to establish an effective internal sales organization or
establish strategic marketing arrangements with other companies. The Company's
failure to successfully develop its marketing capabilities, both internally and
through wholesalers and brokers, would have a material adverse effect on the
Company's business. Further, there can be no assurance that the development of
such marketing capabilities will lead to sales of the Company's proposed
products. The Company will be limited in the claims it can make with respect to
its products in order to remain in compliance
15
<PAGE>
with the Monograph. See "Business -- Marketing" and "Risk Factors --
Compliance with the Monograph."
DEPENDENCE ON OTHERS TO MANUFACTURE
The Company currently has limited manufacturing capability, and
therefore, it is using a contract manufacturer to manufacture its toothpaste
products for the United States market. There can be no assurance that if the
Company's present contract manufacturer becomes unavailable, the Company will be
able to retain another qualified manufacturer on terms favorable to the Company.
For the balance of the worldwide toothpaste markets, as well as for the
Company's other proposed products, the Company may seek to sublicense or enter
into joint ventures or strategic partnerships with major consumer product
companies or other entities on either an exclusive or non-exclusive basis.
Manufacturing arrangements in these markets are likely to be encompassed in any
agreements establishing such relationships and may place primary manufacturing
responsibility on others. The Company has no plan, agreement, understanding or
arrangement with respect to such relationships, and no assurance can be given
that any will be entered into.
The Company's dependence upon others to manufacture its products may
adversely affect its future profit margins, if any, and may affect the Company's
ability to sell its proposed products on a timely and competitive basis. See
"Risk Factors--Compliance with Other Government Regulation" and "Business --
Manufacturing".
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The Company's cash requirements may vary materially from those now
planned depending on numerous factors, including the status of the Company's
marketing efforts, the Company's business development activities, the results of
clinical trials, the regulatory process and competition. The Company currently
estimates that its cash on hand including the net proceeds from the June
Offering will be sufficient to finance its working capital and other
requirements for a period of approximately 15 months. Thereafter, or sooner if
conditions make it necessary, the Company will need to raise additional funds
through public or private financings, including equity financings which may be
dilutive to stockholders. There can be no assurance that the Company will be
able to raise additional funds if its capital resources are exhausted, or that
funds will be available on terms attractive to the Company or at all. If
adequate funds are not available, the Company may be required to delay, reduce
the scope of, or eliminate the commercial introduction of ENAMELON toothpaste
and otherwise reduce materially its proposed operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
PRODUCT LIABILITY
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<PAGE>
The sale of any over-the-counter consumer product may result in claims
of adverse reactions by users. Although the Company has no intention of
marketing any product without reasonable belief in its safety and efficacy when
used in accordance with its instructions, misuse of the Company's products may
result in consumer injury. In addition, future developments, including possible
adverse medical studies and associated negative publicity, could have a material
adverse impact on the market for the Company's products and on its results of
operations. Further, the Company may be subject to certain consumer claims and
informal complaints relating to its products that are incidental and routine to
its business and for which the Company intends to maintain insurance coverage.
The Company currently maintains product liability insurance of $6
million per claim and $7 million in the aggregate on a "per occurrence" basis.
Product liability insurance coverage is expensive and subject to many
exclusions, and there can be no assurance that the Company will be able to
maintain its current insurance coverage or to obtain additional insurance
coverage in sufficient amounts or on favorable terms. Exclusions or damage
limitations may render any insurance coverage obtained insufficient to protect
the Company adequately from the successful assertion of a product liability
claim. There can be no assurance that the Company's present or future insurance
coverage will be sufficient to satisfy product liability claims, if any, made
against the Company with respect to injuries arising from the use of such
products. In the event of a successful product liability claim against the
Company, the insufficiency of insurance coverage and the negative publicity from
such a suit could have a material adverse effect on the Company and jeopardize
its ability to engage in its contemplated business activities. There also can be
no assurance that the Company will be able to increase such insurance coverage
or to maintain such coverage on acceptable terms. If the Company's insurance
coverage were to lapse or be terminated, then the Company would have no
insurance coverage for claims arising subsequent to the lapse or termination of
the policy. Product liability claims successfully asserted after the lapse or
termination of the policy could have a materially adverse effect on the Company.
See "Business -- Liability Insurance."
DEPENDENCE ON KEY PERSONNEL
The success of the Company will be largely dependent upon the
personal efforts of Dr. Steven R. Fox, D. Brooks Cole, Norman Usen,
Thomas J. Duncan and Anthony E. Winston. The loss of the services of any
of such persons could have a material adverse effect on the Company's
business and prospects. The Company has entered into a five-year
employment agreement with Dr. Fox as Chairman of the Board and Chief
Executive Officer. Notwithstanding, Dr. Fox currently continues to
practice dentistry on a part-time basis. The Company has also entered
into an employment agreement with Mr. Cole as President and Chief
Operating Officer pursuant to which Mr. Cole serves at the pleasure of
the Board of Directors. Although the Company has entered into employment
agreements with each of the aforementioned individuals, there can be no
17
<PAGE>
assurance that the Company will be able to retain their services. The success of
the Company will also be dependent upon its ability to hire and retain
additional qualified management, marketing and financial personnel. The Company
will compete with other companies with greater financial and other resources for
such personnel. See "Management -- Employment and Consulting Agreements."
CONTROL BY PRINCIPAL STOCKHOLDERS
The Company's directors, executive officers and principal stockholders
beneficially own approximately 45.6% of the Company's Common Stock.
Consequently, they will have the ability to affect the election of the Company's
directors and the outcome of all other issues submitted to the Company's
stockholders, and they will continue to control direction of the day-to-day
affairs of the Company. See "Principal Stockholders."
NO ASSURANCE OF ACTIVE OR CONTINUED PUBLIC MARKET
Although a public trading market for the Common Stock currently exists,
there can be no assurance that such trading market will provide significant
liquidity with regard to the Common Stock or that such market will be sustained.
POSSIBLE VOLATILITY OF STOCK PRICE
Trading volume and prices for the Common Stock have been and could
continue to be subject to wide fluctuations in response to quarterly variations
in operations, financial results, announcements with respect to sales and
earnings, technological innovations, new product developments, the sale or
attempted sale of a large amount of securities in the public market, and other
events or factors that cannot be foreseen or predicted by the Company. In
addition, various factors affecting consumer products companies, as well as
price and volume volatility affecting small and emerging growth companies
generally, but not necessarily related to their particular operating
performance, may have a significant impact on the market price of the Common
Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders pursuant to Rule
144 ("Rule 144") promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to registration rights granted to certain holders of
warrants to purchase the Company's Common Stock, or pursuant to other
registrations or exemptions from registration under the Securities Act, could
have an adverse effect on the price of the shares of Common Stock. As of July 1,
1997, the Company had approximately 8,142,749 shares of Common Stock
outstanding. In addition, the Company has reserved for issuance (i) 1,350,431
shares of Common Stock upon exercise of options granted under the Company's 1993
Incentive Stock Option Plan (the "1993 Plan"), (ii) 114,194 shares upon exercise
of options to be granted under the 1993 Plan, (iii) 750,000 shares upon
18
<PAGE>
the exercise of options to be granted under the Company's 1997 Incentive Stock
Option Plan, and (iv) 915,743 shares upon exercise of outstanding warrants.
Of the 8,142,749 shares of Common Stock issued and outstanding,
1,700,000 were sold publicly in the Company's initial public offering,
approximately 338,684 shares have been sold publicly pursuant to Rule 144, and
1,200,000 shares may be sold publicly pursuant to the registration statement of
which this Prospectus is a part. The remaining 6,104,065 outstanding shares of
Common Stock are "restricted securities," as that term is defined in Rule 144,
and may only be sold pursuant to a registration statement under the Securities
Act or an applicable exemption from registration thereunder, including
exemptions provided by Rule 144. All of such shares are presently eligible for
resale under Rule 144. In addition, holders of 558,399 shares of Common Stock
and warrants to purchase 631,250 shares of Common Stock at prices ranging from
$3.60 to $5.75 per share have three demand registration rights exercisable until
October 24, 2001, and unlimited piggyback registration rights exercisable until
January 23, 2003 (subject to certain limitations), and holders of warrants to
purchase 170,000 shares of Common Stock at $8.40 per share have one demand
registration right exercisable after October 23, 1997, and unlimited piggyback
registration rights exercisable until October 29, 2001. Employees, consultants,
and other eligible holders of options to purchase approximately 1,198,431 shares
of Common Stock granted under the Company's 1993 Plan prior to the Company's
initial public offering also have the right to exercise their options and
immediately sell the shares of Common Stock received upon exercise under Rule
144. No prediction can be made as to the effect that future sales of Common
Stock, or the availability of shares of Common Stock for future sales, will have
on the market prices for the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect prevailing market prices for the Common Stock, or
the perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock and could impair the Company's ability to
raise capital through the future sale of its equity securities. See "Principal
Stockholders" and "Shares Eligible for Future Sale."
ISSUANCE OF PREFERRED STOCK; ANTITAKEOVER PROVISIONS OF DELAWARE LAW
The Company's Amended Certificate of Incorporation authorizes the
issuance of 5,000,000 shares of Preferred Stock with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without obtaining
stockholder approval, to issue Preferred Stock with dividend, liquidation,
conversion, voting or other rights that could adversely affect the voting power
of other rights of the holders of the Common Stock. In the event of issuance,
the Preferred Stock could be used, under certain circumstances, as a method of
discouraging, delaying or preventing a change in the control of the Company.
Certain provisions of Delaware law may also discourage third party attempts to
acquire control of the Company. See "Description of Securities."
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<PAGE>
USE OF PROCEEDS
The Shares are being offered for sale solely by the Selling
Stockholders pursuant to certain registration rights granted to them by the
Company in the Private Offering. Accordingly, the Company will not receive any
proceeds from the sale of the Shares.
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock since its
inception and for the foreseeable future intends to follow a policy of retaining
all of its earnings, if any, to finance the development and continued expansion
of its business. There can be no assurance that dividends will ever be paid by
the Company. Any future determination as to payment of dividends will depend
upon the Company's financial condition, results of operations and such other
factors as the Board of Directors deems relevant.
CAPITALIZATION
The following table sets forth the capitalization of the Company at
March 31, 1997, and as adjusted on a pro forma basis to give effect to the
issuance of 1,080,000 shares of Common Stock sold in a private placement on June
26, 1997. This table should be read in conjunction with the Financial Statements
and the related Notes thereto included elsewhere in this Prospectus.
20
<PAGE>
<TABLE>
<CAPTION>
March 31, 1997
Actual Pro Forma*
<S> <C> <C>
CAPITALIZATION
Preferred stock ........................................................ $ - -
Common stock,........................................................... 6,900 $ 7,980
Additional paid-in capital.............................................. 16,409,926 29,485,769
Accumulated deficit during the development stage........................ ( 7,067,783) (7,067,783)
----------- -----------
Total Capitalization................................................ $ 9,349,043 $22,425,966
----------- -----------
</TABLE>
- ------------
* As adjusted to reflect the June offering of 1,080,000 Common Stock shares.
MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
MARKET DATA
Since October 24, 1996, the Company's Common Stock has traded on the Nasdaq
Stock Market under the symbol "ENML".
Set forth below is the trading range of the high and low prices for the
Common Stock during fiscal 1996 as reported on the Nasdaq Stock Market.
Fiscal 1996
Quarter Ended High Low
December 31, 1996 $7 1/8 $5/38
Fiscal 1997
Quarter Ended High Low
March 31, 1997 $24 1/4 $6 1/8
June 30, 1997 $24 1/4 $13 3/4
NASDAQ TRADING
As of the date of this Prospectus the Company complied with all of the
requirements of the National Association of Securities Dealers, Inc. ("NASD")
for continued listing of the Common Stock in the Nasdaq Stock Market.
HOLDERS
The approximate number of holders of record of the Common Stock, as of
the date of this Prospectus is 311 record holders of Common Stock. For
information with respect to the Company's Common Stock, see Note 4 of the
Notes to Financial Statements in this report.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHORE DATA)
Set forth below is selected financial data with respect to the statements
of operations of the Company for the period from June 1992 (Inception) to
December 31, 1992, and for the twelve months ended December 31, 1993, 1994, 1995
and 1996, the three months ended March 31, 1996 and 1997 and the balance sheets
of the Company at December 31, 1992, 1993, 1994, 1995, 1996, and March 31, 1996
and 1997. Such data was derived from the Company's Financial statements audited
by BDO Seidman, LLP, independent certified public accountants, certain of which
are included elsewhere in the Prospectus. The data should be read in conjunction
with the Financial Statements (including the Notes thereto) and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this Prospectus.
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<PAGE>
<TABLE>
<CAPTION>
June 9, 1992 Three Months Ended
(Inception) Year Ended December 31, March 31,
to December 31, ------------------------------------------- ---------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Statements of
Operations Data:
Total Expenses $ 37 $311 $536 $1,081 $ 3,120 $ 552 $ 2,080
Other income (charge) -- 14 (263) 20 195 35 130
----- ----- ----- ------ ------- ---- ------
Net Loss $(37) $(297) $(799) $(1,061) $(2,925) $ (517) $(1,949)
Per Share Data:
Net loss per share * * * $(0.20)** $(0.52) $(0.09) $(0.28)
Weighted average shares
outstanding * * * 5,234** 5,636 5,563 6,900
At December 31, At March 31, 1997
------------------------------------------------------ -----------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Selected Balance Sheet Data:
Working Capital (deficit) $ 55 $474 $(58) $1,628 $10,543 $ 7,763
Total assets $112 $795 $265 $2,041 $12,392 $10,951
Stockholders' equity $108 $744 $151 $1,867 $11,298 $ 9,349
</TABLE>
__________
* Earnings per share are not presented for prior periods since the Company does
not believe historical earnings per share are meaningful as a result of
changes in the Company's capital structure following the completion of this
public offering in October 1996.
** Earnings per share are presented for 1995 on a pro forma basis to give
retroactive effect to the conversion of the redeemable preferred stock as a
result of the public offering in October 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes thereto appearing elsewhere in this
Prospectus. Except for the historical information contained herein, the
following discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
projected in the forward-looking statements discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in this section, as well as in the sections entitled "Risk Factors"
and "Business."
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH
31, 1996
Total expenses were approximately $2,080,000 for the three months ended
March 31, 1997, compared with total expenses of approximately $552,000 for the
same period in the prior year, an increase of $1,528,000. This increase was
primarily the result of higher marketing and selling expenses of $849,000,
higher research and development expenses of $273,000, higher administrative and
other expenses of $406,000.
Marketing and selling expenses increased from $4,000 to $853,000 as a
result of the efforts to support the launch of the Company's toothpaste product
into test market. The Company has begun to ship into test market
22
<PAGE>
on March 26, 1997. For financial reporting purposes the Company is still being
treated as being in the development stage. Revenue of approximately $15,000 from
the sales of toothpaste has been treated as a reduction in marketing expenses.
Research and development expenses increased from $473,000 to $746,000
primarily as a result of studies performed at universities and research
facilities and development activities necessary to bring the toothpaste into
test market.
Administrative and other expenses increased from $75,000 to $481,000
primarily attributable to increased payroll and benefits, consulting and other
administrative office expenses which resulted from the Company's expanded
operations.
These increases were offset in part by $96,000 of additional interest and
dividend income.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31,
1995
Total operating expenses were approximately $3,120,000 for the year ended
December 31, 1996, compared with total expenses of $1,081,000 in the prior year,
an increase of $2,039,000. This increase was primarily the result of higher
marketing and selling expenses of $362,000, higher research and testing expenses
of $1,215,000 and higher administrative and other expenses of $462,000.
Additionally, the Company anticipates that total expenses will increase over the
next few years as the Company increases its product development, manufacturing
and marketing activities. Such increased business activities will require
additional personnel and payments to third parties.
The increase of $362,000 in marketing and selling expenses resulted from
marketing creative fees necessary to bring the Company's product to test market.
The increase in research and testing expenses from $547,000 to $ 1,762,000
resulted from the expansion of the Company's research and development program at
its laboratory facility and clinical testing at various independent oral care
research facilities in the United States.
The increase in administrative and other expenses from $534,000 to $996,000
is primarily attributable to increased consulting and administrative office
expenses, associated with the hiring of additional personnel.
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<PAGE>
These increases were offset in part by $195,000 of interest and dividend
income earned from $10,425,000 of net proceeds from the Company's initial public
offering in October 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31,
1994
Total expenses were approximately $1,081,00 in 1995, compared with total
expenses of $536,000 in 1994, an increase of $545,000, or 101.7%. The increase
was primarily attributable to a $234,000 increase in payroll and benefits
expenses as well as a $128,000 increase in research and testing expenses and a
$183,000 increase in administrative expenses.
The increase in payroll and benefits expenses of 174.6%, from $134,000 to
$368,000, was attributable to increased compensation for the Company's Chief
Executive Officer, Vice-President of Product Development/Operations and
Vice-President of Technology and
clinical Research.
The increase in research and testing expenses of 87.1%, from $147,000 to
$275,000, was the result of the expansion of the Company's research and
development program at its laboratory facility, additional laboratory supplies,
expansion of the IN VITRO studies and the initiation of IN VIVO studies at the
University of Connecticut.
During 1995, ten IN VITRO studies, comparing approximately 120 potential
formulations, were performed at Indiana University. Based on the data and the
results of in-house laboratory studies, the Company successfully transitioned
the science from a concept to practical technology, which can be incorporated
into toothpaste. Results from animal studies at the University of Connecticut
provided the Company with the initial indication that the technology
successfully enhanced remineralization.
The increase in administrative and other expenses of 71.8%, from $255,000
to $438,000, was primarily attributable to increased legal and accounting fees
incurred in connection with the Company's efforts to secure additional
investment capital and the preparation of interim financial statements.
The net loss in 1994 was increased by approximately $270,000 as
a result of the Company expensing deferred offering costs related
to a proposed private placement transaction that was not
consummated. See "Financial Statements."
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in June 1992, the Company has financed its operations
primarily through private placements of Series A Preferred Stock and Common
Stock and a public offering of Common Stock totaling approximately $16.1
million, net of expenses. At March 31, 1997, the Company had cash and cash
equivalents of approximately $9.3 million and working capital of $8.0 million.
The Company has no outstanding debt (other than accounts payable and accrued
expenses) or available lines of credit as of March 31, 1997.
Since its inception and through March 31, 1997, the Company has incurred
losses aggregating approximately $7.1 million and had available net operating
loss carryforwards as of December 31, 1996 of approximately $5.1 million. The
net operating loss carryforwards will expire if not used by the period from 2007
through 2011 and may be limited by United States federal tax law as a result of
future changes in ownership. The Company expects to continue to incur operating
losses at least through 1999 while it continues clinical testing and initial
toothpaste marketing efforts. In March 1997, the Company began to test market
ENAMELONTM all family toothpaste in selected United States markets. Assuming the
successful completion of test marketing, the Company intends to begin a national
roll-out of this product in the first quarter of 1998.
Since its inception and through March 31, 1997, the Company has paid
$1,044,000 for the purchase of equipment and approximately $321,000 for costs
associated with obtaining patents, trademarks and licenses rights. The Company
intends to use approximately $500,000 of its cash to purchase additional
manufacturing equipment for the production of the Company's patent pending,
split system toothpaste tube and for high-speed filling equipment, and for
computer equipment and software to support operations.
In June 1997, the Company issued 1,080,000 shares of its common stock at
$13 per share for an aggregate consideration of $14,040,000.
The Company's cash requirements may vary materially from those now planned
depending on numerous factors, including the status of the Company's marketing
efforts, the Company's business development activities, the availability of
alternative financing for the acquisition of manufacturing equipment, the
results of clinical trials, the regulatory process and competition. The Company
currently estimates that cash on hand, together with its projected cash flow
from operations, if any, will be sufficient to finance
25
<PAGE>
its working capital and other requirements for a period of approximately 15
months which includes the test marketing period. Thereafter, or sooner if
conditions necessitate, the Company may need to raise additional funds through
public or private financings. If adequate funds are not available, then the
Company may be required to delay, reduce the scope of, or eliminate the
commercial introduction of its toothpaste product and otherwise reduce the
proposed operations.
The foregoing discussion should be read in conjunction with the Financial
Statements and Notes thereto appearing elsewhere in this Prospectus and in the
Company's Form 10-KSB for the year ended December 31, 1996. Except for the
historical information contained herein, the foregoing discussion contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those projected in the
forward-looking statements discussed herein. Factors that could cause actual
results to differ materially include, but are not limited to, the following:
acceptance of the Company's products by consumers; the Company's ability to
procure additional financing from time to time as necessary to maintain its
operations until it becomes profitable; changes if Food and Drug administration
and Federal Trade Commission regulations as they apply to the Company's
products; and challenges to patents either licensed to or held directly by the
Company. Those and other risks are described in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1996.
Recently issued accounting standards may affect the Company's Financial
Statements in the future. See Note 4 in the Notes to the Financial Statements
for the three months ended March 31, 1997 in the Financial Statements section of
this Prospectus.
BUSINESS
OVERVIEW
Enamelon, Inc. (the "Company") is focused on developing and marketing
over-the-counter oral care products based on proprietary formulations and
pending technologies. The Company's products are intended to stop cavities
before they begin. Its prototype formulations have been proven scientifically in
animal and IN VITRO studies conducted by the Company to strengthen tooth enamel.
ENAMELONTM toothpaste is based on the active ingredient sodium fluoride in a
formulation that enhances tooth "remineralization," whereby minerals, such as
calcium and phosphate, are reintroduced
26
<PAGE>
into tooth enamel. The Company has introduced an all-family toothpaste into test
markets, consisting of approximately 5% of United States households and
currently expects to begin a national roll-out of its toothpaste product in the
first half of 1998.
The Company holds licenses from the American Dental Association Health
Foundation (the "ADAHF") to use patented technologies (the "ADAHF Patented
Technology") relating to a method for oral use of various amorphous calcium
phosphate compounds that enhance the natural activity of fluoride to prevent
tooth decay. The ADAHF has granted the Company (i) exclusive worldwide licenses
to develop, manufacture and market toothpaste, chewing gum, food and
confectionery products using the ADAHF Patented Technology and (ii) a
non-exclusive international license covering products not covered by the
Company's exclusive licenses (including oral spray, mouth rinse and professional
gel products) using the ADAHF Patented Technology. The Company's international
license is co-extensive with a non-exclusive international license granted to
SmithKline Beecham Corp. ("SmithKline"), which also obtained from the ADAHF an
exclusive United States license covering products not covered by the Company's
exclusive licenses. The Company will be required to pay the ADAHF royalties
under these license agreements. Provided that the Company satisfies minimum
royalty and certain sales requirements, the licenses and any exclusivity
thereunder will continue with respect to each such patent until its expiration.
The Company has developed additional proprietary technologies relating
to enhancing remineralization of tooth enamel, has been granted 6 United States
patents, and has 7 United States patent applications pending with respect to
certain of those technologies (the "Enamelon Proprietary Technology").
The Company's objective is to become a leading niche marketer of a
variety of oral care, chewing gum, food and confectionery products based on the
ADAHF Patented Technology and/or Enamelon Proprietary Technology.
The significant events in the Company's progress to date include the
following:
o In 1992, the Company was organized and received from the ADAHF
exclusive worldwide licenses for toothpaste, chewing gum, food
and confectionery products, and a non-exclusive international
license for products not covered by the exclusive licenses.
O IN JANUARY 1995, THE COMPANY CONDUCTED SUCCESSFUL IN
VITRO testing of a prototype formulation using the
27
<PAGE>
Enamelon Technologies at the Oral Health Research
Institute of Indiana University.
o In October 1995, and January 1996, the Company conducted
successful animal studies of a prototype formulation using the
Enamelon Technologies at the School of Dentistry of the
University of Connecticut.
o In June 1996, the Company commenced preliminary intra oral and
clinical studies of its toothpaste intended to establish
additional advertising claims, for advertising to consumers
and dentists.
o In October 1996, the Company completed its initial public
offering of 1,700,000 shares of common stock at $7.00 per
share receiving net cash proceeds of approximately $10.4
million. Concurrent with the public offering, 558,399 shares
of redeemable preferred stock were automatically converted
into an equivalent number of shares of common stock.
o In November 1996, the Company was granted its first
patent and in February 1997 was granted two additional
patents all of which relate to Enamelon Proprietary
Technology. See "Patents, Trademarks and Proprietary
Information".
o In March 1997, the Company began to test market Enamelon
toothpaste in selected United States markets.
o In June 1997, the Company completed a private placement
of 1,080,000 shares of Common Stock to certain
institutional investors and high-net-worth individuals
for which Allen & Company Incorporated and Dillon, Read
& Co. Inc. acted as placement agents.
The Company intends to continue its test market of Enamelon toothpaste
in several representative markets in selected United States households. In
addition, the Company currently is conducting intra oral and small scale
clinical studies to establish additional advertising claims to consumers and
dentists. Market testing is expected to continue throughout 1997, with a
national roll-out of ENAMELON toothpaste in the first half of 1998. The Company
expects to continue to incur operating losses throughout this period and expects
to require additional financing to continue its operations thereafter.
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The worldwide toothpaste market is estimated to exceed $5.0 billion in
annual retail sales. Annual toothpaste sales in the United States were estimated
at $1.7 billion in 1996 and are projected to reach $2.0 billion by the turn of
the century. Over the last five years, the toothpaste market has become
segmented as new, premium-priced products offering benefits such as tartar
control or whitening or containing ingredients such as baking soda have steadily
attracted consumers away from older, more mature products.
TECHNOLOGY
On a daily basis, teeth lose small amounts of calcium and phosphate,
the major structural ingredients of tooth enamel. This demineralization occurs
as plaque acids gradually dissolve tooth enamel.
Saliva contains low levels of calcium and phosphate ions to naturally
fight this demineralization process. The presence of fluoride in the saliva is
also known to facilitate remineralization of calcium and phosphate. However,
remineralization is limited by the small amounts of calcium and phosphate ions
normally present in the saliva. If the demineralization process is not balanced
by remineralization, it eventually dissolves the mineral structure of the tooth
and causes dental cavities, which can only be repaired by a dentist.
In the 1950s, scientists at Indiana University discovered that the
inclusion of fluoride in toothpaste reduces the incidence of tooth decay. When
teeth are brushed with a fluoride-containing toothpaste, the fluoride diffuses
into the tooth along with minerals existing in saliva, including calcium and
phosphate. with currently available fluoride toothpastes, this process is
limited by the low levels of calcium and phosphate ions found in saliva as well
as by the small amounts of fluoride absorbed into the tooth as a result of
brushing. This slow remineralization process can be overcome by demineralization
cycles resulting in the gradual destruction of the mineral structure of teeth.
In contrast, the Companies studies have demonstrated that ENAMELON
toothpaste simultaneously supplies the active ingredient, sodium fluoride, and
high concentrations of ions of the inactive ingredients calcium and phosphate in
soluble form during brushing. The Company's IN VITRO and animal studies have
demonstrated that ENAMELON anticavity fluoride toothpaste enhances
remineralization with a higher level of fluoride uptake, and the tooth structure
was shown to be strengthened and hardened having the added calcium and
phosphate. This makes the tooth less soluble and more resistant to
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attacks by acids from decay-causing bacteria. The Company currently is
conducting intra oral and small scale clinical studies intended to establish
additional advertising claims, including comparative claims. See "Business -
Research and Development".
STRATEGY
The Company's objective is to develop a variety of oral care, chewing
gum, food and confectionery products that prevent tooth decay at its earliest
stage and are based on the Enamelon Technologies. The Company has developed a
strategic plan to accomplish this goal. The Company's primary strategies are to:
o FOCUS INITIALLY ON TOOTHPASTE. The Company is focusing
on completing the development of its toothpaste products
and packaging, along with the necessary manufacturing
processes required to achieve desired production speeds
while controlling manufacturing costs. The Company will
seek to establish distinctive brand identity emphasizing
the enhanced remineralization benefits of its products,
which will be communicated to both consumers and dental
professionals.
o CONDUCT FURTHER TESTING. The Company believes that a
heightened understanding of the chemistry required for
effective remineralization of tooth enamel will lead to
stronger protection from competition. Clinical studies are
being conducted to establish additional marketing claims for
consumers and dentists.
o COLLABORATE WITH CORPORATE PARTNERS IN CERTAIN PRODUCT
AREAS AND INTERNATIONAL MARKETS. The Company intends to
seek domestic and international strategic alliances with
consumer product companies that will assist in the
marketing and manufacturing of oral care products outside
United States.
o CAPITALIZE ON ADDITIONAL COMMERCIAL APPLICATIONS. The Company
believes that products such as gum, lozenges and mints may
provide benefits similar to those of its toothpaste and
represent large potential markets for the application of the
Enamelon Technologies.
PRODUCTS
The Company has introduced toothpaste as its initial product line. The
Company also is exploring application of the Enamelon Technologies to oral
spray, mouth rinse, professional gel, chewing
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gum and food and confectionery products, which it intends to develop after the
successful commercialization of its toothpaste. See "Risk Factors -- Dependence
on successful Development of Initial Products," -- "Uncertainties Related to
Development of Additional Products," and "Business-ADAHF and Licenses."
TOOTHPASTES
The Company's introductory product is an all-family fluoride toothpaste
intended to stop cavities before they begin and to enhance remineralization of
tooth enamel by providing the active ingredient sodium fluoride. Product
development activities for the Company's all-family toothpaste were completed in
the end of 1996. The Company introduced its toothpaste into test markets
consisting of approximately 5% of United States households in the early part of
1997. Assuming the successful completion of test marketing, the Company intends
to begin a national roll-out of this product in the first half of 1998.
The Company is planning to follow-up this introduction with a
toothpaste for sensitive teeth. This toothpaste will provide cavity protection
and pain relieving properties while enhancing remineralization activity in
individuals with exposed dentin caused by receding gums. Other entries such as
tartar control and gum care toothpastes also are anticipated as future product
line extensions.
In order to dispense its toothpaste products, the Company also had
developed a patent pending, split system toothpaste tube that simultaneously
dispenses two formulations. The split system tube has dual chambers, maintaining
separation between two-component formulations until they are dispensed onto a
toothbrush. Unlike presently used split system toothpaste dispensing systems,
which employ expensive pumps, the Company's tube was designed to be filled with
conventional high-speed tube filling equipment, thus making the cost lower than
other dual chamber toothpaste dispensing systems. See "Business--Manufacturing".
ADDITIONAL POTENTIAL PRODUCTS
CHEWING GUM. Chewing gum stimulates saliva which helps
neutralize some of the acids remaining in the mouth after eating.
The Company believes that providing greater levels of calcium and
phosphate in chewing gum may have the two-fold benefit of reducing
demineralization through the increased stimulation of saliva while
increasing remineralization through the utilization of the Enamelon
Technologies. Accordingly, the Company believes that its proposed
chewing gum may be a beneficial supplement to brushing. Currently,
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the Company does not have plans to develop and market independently a chewing
gum. Therefore, it may seek to sublicense or enter into joint ventures or
strategic partnerships with major chewing gum manufacturers or other entities
that have appropriate sales and marketing expertise to develop and market these
products.
ORAL SPRAY, MOUTH RINSE AND PROFESSIONAL GELS. The Company is pursuing
the development of other oral care products including oral sprays, mouthwash and
professional dental gels to be marketed outside of the United States.
FOOD AND CONFECTIONERY. The Company believes that the addition of the
Enamelon Technologies to food and confectionery products, such as lozenges or
mints, can provide therapeutic effects similar to the Company's other proposed
products. The Company has begun to evaluate the possible uses of the Enamelon
Technologies in these areas and intends to explore such applications following
the commercialization of its toothpastes.
To date, the Company has concentrated development efforts on
its toothpaste products. Expansion of the Company's product
development activities with respect to other potential applications
of the Enamelon Technologies will require significant efforts. See
"Risk Factors-Uncertainties Related to Development of Additional
Products."
RESEARCH AND DEVELOPMENT
Since January 1994, the Company has centralized its internal research
and development activities at its research laboratory. The laboratory is
responsible for all technology, formulation, flavor, packaging and process
development, and stability evaluations. Much of the efficacy testing is
performed at leading universities and outside research facilities.
The Company's products are subject to regulation by the Food and Drug
Administration (the "FDA"). The FDA has published a final monograph, "Anticaries
Drug Products for Over-the Counter Human Use" (the "Monograph"), which covers
regulations relating to the Company's toothpaste. The toothpaste may be lawfully
marketed without filing a New Drug Application (an "NDA") with the FDA if the
sole active ingredient is one of the active fluoride ingredients permitted in
the Monograph. The Company is required to make labeling claims within those
permitted in the Monograph. Also, the Company must demonstrate the
bio-availability of fluoride using certain approved tests. The Company's
toothpaste is being developed with the sole active ingredient being sodium
fluoride, an active ingredient permitted under the Monograph, and the Company
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intends to comply with the Monograph in all other respects. However there can be
no assurance that the FDA will determine that the Company's toothpaste meet all
the conditions of the Monograph.
The Company has conducted IN VITRO and animal studies to assess the
effectiveness of technology in its proprietary remineralization technology. The
results of these studies have demonstrated that the technology strengthens tooth
enamel and enhances fluoride uptake. The Company is continuing to perform
additional IN VITRO, animal, intra oral and small scale clinical studies at
leading independent oral research facilities in the United States to establish
benefits for the technology. The Company is also determining how the technology
can be applied to the development of other oral care products.
While studies to date indicate that the claims being made for the
toothpaste are truthful, there can be no assurance that additional studies will
be supportive, that additional claims can be made for the product, or that the
technology can be applied in other oral care products.
From the Company's inception to March 31, 1997, the Company expended
approximately $3,376,702 on its research and development activities, including
$1,762,000 for the year ended December 31, 1996. The Company expects the level
of its research and development expense to increase in the future.
MANUFACTURING
The Company will not manufacture its toothpaste products for the United
States market at the outset, but will instead utilize contract manufacturers.
For the balance of the worldwide toothpaste markets, as well as for the
Company's other proposed products, the Company may seek to sublicense or enter
into joint ventures or strategic partnerships with major consumer product
companies or other third parties on either an exclusive or non-exclusive basis.
Manufacturing arrangements in these markets are likely to be reflected in any
agreements establishing such relationships and may place primary manufacturing
responsibilities on others.
The Company possesses laboratory size batching and tube filing
capabilities, enabling it to produce small quantities of its
proposed products at Enamelon's laboratory facility. The Company
has contracted with an FDA-approved manufacturer with facilities
capable of providing proper batching and high speed filling and
packaging, according to the Company's specifications. The Company
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purchases all packaging and raw materials and the manufacturer is
responsible for quality control.
The Company has purchased manufacturing equipment for the production of
its patent pending, split system toothpaste tube and for high speed tube
filling. The equipment is owned by the Company for use by the contract
manufacturer. The Company believes that this will provide greater long-term
flexibility, permitting it to change manufacturers or even to commence its own
manufacturing operations. As demand for the Company's products increases, it
will be necessary to utilize other contract manufacturers. See "Business --
Government Regulation," "Use of Proceeds," and "Risk Factors -- Dependence on
Others to Manufacture" and "-- Compliance with Other Government Regulation."
MARKETING
The Company is focusing its initial marketing activities on entering
the toothpaste market. The toothpaste market is highly competitive and
constantly changing as consumers continue to be receptive to product
improvements, taste enhancements and innovative packaging changes. The Company
believes that cavity prevention remains one of the most important product
attributes to attract consumers, and it intends to emphasize these qualities of
its proposed toothpaste product.
In March 1997, the Company began to test market ENAMELON all- family
toothpaste in selected United States markets. This test market introduction will
allow the Company to assess carefully all elements of the marketing mix and make
desired changes prior to launching its toothpaste nationally. Upon successful
completion of test marketing, the Company intends to initiate introduction of
its all-family toothpaste nationally in the first half of 1998. See "Risk
Factors -- Dependence on Successful Development of Initial Product" and " --
Uncertainty of Consumer Acceptance of Enamelon Products."
The Company recognizes that the highly competitive nature of the
toothpaste market will require significant expenditures during the introductory
phase of marketing. However, the Company believes, based on management's
experience in the over-the-counter consumer products industry, that the claims
for its proposed toothpaste may permit development of unique product
advertising, thus enabling it to gain market share. Achieving and maintaining
market penetration will require significant efforts by the Company to create
awareness of and demand for the Company's proposed products.
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The Company's ability to build its customer base will be dependent on
its developing a successful marketing program. To the extent the Company
sublicenses or enters into joint ventures or strategic partnerships with a
well-established company in international markets, its domestic marketing
capabilities may thereby be complemented and enhanced. See "Risk Factors -
Limited Marketing Capability."
PROFESSIONAL MARKETING
The Company presently anticipates establishing relationships
with dental professionals to create awareness and endorsements for its
technology and products. The Company's professional marketing activities are
expected to include placing advertisements and technical articles in
professional journals as well as attending professional conventions and
distributing patient samples.
CONSUMER AND TRADE MARKETING
The Company plans to build retail distribution and obtain retail shelf
space in food, drug and mass merchandisers through recruiting and supervising
experienced food and drug brokers who have strong regional ties with major
retailers. These efforts will be supported by competitive trade allowances,
television advertising and introductory trial promotions including sampling and
couponing.
FOREIGN MARKETING
The Company will initially focus its marketing activities in the United
States. Accordingly, the Company has only preliminary formulated plans for its
foreign marketing activities. However, the Company's role in marketing its
products in foreign countries will depend on the type of strategic relationships
it can develop with third parties.
COMPETITION
The United States toothpaste industry is dominated by Procter & Gamble
Co.'s Crest, Colgate-Palmolive Company's Colgate, SmithKline's Aquafresh,
Chesebrough-Pond's USA Co.'s Mentadent, Church & Dwight Co., Inc.'s Arm & Hammer
Dental Care, and Block Drug Co., Inc.'s Sensodyne. The industry is led by
Procter & Gamble Co. and its leading brand, Crest, which established it position
as a market leader when it received the seal of the American Dental
Association's Council on Dental Therapeutics for its use of fluoride in the
early 1960's.
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Although the toothpaste market is mature, in recent years new products
have captured market share from established brands. Market share gains have been
achieved by higher priced, more therapeutically oriented new products with
unique marketing positions. Consequently, the Company believes that the focus on
enhanced remineralization of tooth enamel will capture consumer and professional
interest.
If the Company attempts to develop a chewing gum using the Enamelon
Technologies, then it will be entering a highly competitive industry. The
chewing gum market in the United States is dominated by major competitors
including Wm. Wrigley Jr. Co., Warner-Lambert Company and RJR Nabisco, Inc. The
Company also intends to compete in the food and confectionery industries. To the
extent that the Company will sublicense or enter into joint ventures or
strategic partnerships with major consumer products companies, of which no
assurance can be given, it may be aligning itself with one or more of its major
competitors instead of competing with them. The Company will also be required to
comply with FDA's food labeling regulations, which may limit the claims that may
be made for the Company's proposed chewing gum.
Additionally, the Company is pursuing the development of its rights to
manufacture and market oral sprays, mouth rinses and professional gels outside
of the United States, in addition to its proposed toothpaste, chewing gum, food
and confectionery products. The international markets for these products are in
many ways similar to the United States markets in that consumers are becoming
increasingly aware of the importance of oral hygiene. Product innovation with
emphasis on therapeutic benefits is continuous. The Company's competition in
markets outside the United States will vary by product and from country to
country. However, in general, such markets tend to be highly competitive and
dominated by large multinational and domestic corporations. The Company does not
presently have the resources that are necessary to compete on a global scale and
intends to seek corporate partners and/or negotiate license agreements with
companies that have the resources to compete effectively in foreign markets.
Although the Company will attempt to form strategic alliances with global
companies, it may also seek to negotiate on a country-by-country basis with
major regional companies, as necessary or appropriate.
ADAHF PATENTS AND LICENSES
The United States patents and the pending foreign patent applications
covering the ADAHF Patented Technology (the "ADAHF Patent Rights") and the
Company's issued patents and pending patent applications (the "Enamelon Patent
Rights") (collectively with the
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ADAHF Patent Rights, the "Patent Rights") are material to the Company's
business.
The ADAHF Patent Rights licensed to the Company relate to five United
States patents. Three of the issued patents cover formulations, including
toothpastes, chewing gums, mouth rinses and professional gels, containing gels,
containing or capable of producing Amorphous Calcium Phosphate ("ACP"),
Amorphous Calcium Phosphate Fluoride ("ACPF"), as well as the application of
these formulations to teeth. The other two patents cover advanced technology,
including Amorphous Calcium Phosphate Carbonate Fluoride ("ACPCF"), Amorphous
Calcium Fluoride ("ACF") compounds and other technology not covered in the first
three United States Patents. Foreign patent applications are pending with
respect to one of the United States pending applications in approximately 28
countries.
In June 1992, the Company entered into a License Agreement (the
"License Agreement") with the ADAHF. This License Agreement, as restated and
amended, grants the Company the exclusive United States licenses to manufacture
and sell toothpastes, chewing gum, food and confectionery products utilizing the
ADAHF Patented Technology. The License Agreement extends until three years after
the Company determines and thereafter notifies the ADAHF that the following two
conditions have been met: (i) The material claimed in the ADAHF patents and
patent application has been stabilized in the form to be used in toothpastes,
chewing gums, confections and foods to enable it to be stored and marketed in a
manner similar to other such products and (ii) a licensed product has received
the first FDA approval necessary if any for marketing to professionals or the
general public. Although neither of those conditions has been satisfied, they
will be required to be satisfied before the Company can market any of its
products. The exclusive license under the License Agreement may be extended by
the Company in additional four-year increments as to each of the product
categories or as to all such product categories, provided that the Company has
complied with its royalty and other obligations under the License Agreement and
has, as to each relevant product category or categories, sold products
generating more than $17,000 in royalties in the last year of the preceding
exclusivity period. Unless the License Agreement is otherwise terminated as
provided therein, it will extend for the term of the last to expire of any
patent licensed under the License Agreement in the United States, including
patents of improvements licensed as described below. If the period of
exclusivity under the License Agreement is not renewed, then the license becomes
non-exclusive for the remaining term of the agreement. The Company paid $5,000
as an initial license fee under the License Agreement.
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The License Agreement may not be assigned, transferred or sublicensed
by the Company without the prior written consent of the ADAHF, which consent may
not be unreasonably withheld. However, the License Agreement may be assigned to
another company in which the Company owns more than 50% of the voting stock
without the prior written consent of the ADAHF.
The License Agreement provides that improvements that are used with or
that require use of toothpastes, chewing gum, foods or confections that embody
material claimed in the ADAHF Patent Rights, as well as any improvements and
inventions that are made jointly by the Company and the ADAHF that do not relate
to remineralization or commercialization of such products or of the subject
matter of the ADAHF Patent Rights, will be owned by the ADAHF and licensed to
the Company. The Company has the right to veto the granting of licenses relating
to such improvements and inventions that are developed in part by the Company.
In November 1992, the Company entered into a Foreign License Agreement
(the "Foreign License Agreement"), which was subsequently restated and amended
with the ADAHF and grants the Company an exclusive license to manufacture and
sell toothpastes, chewing gum, food and confections using the inventions that
are the subject matter of foreign patent applications filed by the ADAHF in
approximately 28 countries. In addition, the Foreign License Agreement grants
the Company the non-exclusive right to manufacture and sell other products in
such countries using inventions that are the subject of such foreign patent
applications, including oral sprays, mouth rinses and professional gels. The
Foreign License Agreement expires upon the earlier of the termination of the
License Agreement, except as to those countries for which the royalty paid per
county in the preceding year exceeded $7,000, or the expiration of the last to
expire of any foreign patent licensed under the Foreign License Agreement or the
abandonment or lapse of all foreign patents and applications.
The Company was notified in July 1995 that the ADAHF entered into a
license agreement with SmithKline for exclusive rights in the United States for
the fields of use other than toothpastes, chewing gum, food and confections
(including oral sprays, mouth rinse and professional gels) utilizing the ADAHF
Patented Technology. The Company's non-exclusive rights for these additional
applications outside of the United States are co-extensive with the
non-exclusive rights granted to SmithKline for these products outside of the
United States. Since SmithKline has substantially greater financial and other
resources than those of the Company, the Company may be limited in its ability
to compete effectively with SmithKline outside of the United States, unless
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the Company enters into a strategic alliance with another company
having financial and other resources comparable to those of
SmithKline. See "Risk Factors -- Competition."
The License Agreement and Foreign License Agreement are both subject to
(i) licenses granted to the United States, which are not transferable by the
government and (ii) rights retained by the ADAHF to make and use its inventions
for research and testing, but not to sell or use them commercially in fields
licensed exclusively to the company.
Under the Foreign License Agreement, as restated, the Company was also
granted an option and right of first refusal during the term of the Foreign
License Agreement, for a limited license under future patents and patent
applications for inventions and material covered by and claimed in the ADAHF's
foreign patent rights, for all territories not included within the United States
or licensed territories under the licenses, with respect to toothpastes, chewing
gum, food and confectionery products. Before granting such a license for a
territory to third-parties, the ADAHF must first notify the Company, which will
then have the right to obtain a license for that territory on terms consistent
with the Foreign License Agreement. To the extent the ADAHF has not granted a
license to a third-party notwithstanding the Company's failure to exercise its
right of first refusal, the Company has the additional option to receive a
license in any of such territories on terms consistent with the Foreign Licenses
Agreement.
Under the License Agreement, the Company is required to make royalty
payments of 4% of net sales, subject to minimum royalty payments of $3,000 in
1992, $5,000 in 1993 and $7,000 in each subsequent year. Under the Foreign
License Agreement, the Company is required to pay 7% of net sales (4% if such
sales are made by an entity that joint ventures with the Company) and bear the
costs of prosecution of foreign patent applications. If the Company sublicenses
a foreign patent, it is required to pay to the ADAHF 25% of the gross income
resulting from such sublicense actually received by the Company.
The ADAHF has made no representation or warranty, express or implied,
with respect to the efficacy or possible commercial exploitation of the
Company's proposed products.
GOVERNMENT REGULATION
Under the Federal Food, Drug, and Cosmetic Act, as amended, and the
implementing regulations promulgated by the FDA, a non- prescription
(over-the-counter) drug may be marketed in one of two
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ways. The FDA has established a program to promulgate "monographs" determining
the conditions under which most non-prescription drugs may be marketed without
the requirement of an NDA. The monographs establish those active ingredients
that are safe and effective at specified levels and all aspects of the labeling
that are permitted for these products. The monographs establish all of the
conditions for marketing a non-prescription drug without the need for an NDA.
Any non-prescription drug that does not comply with the final monograph may
lawfully be marketed only if it has an approved NDA. Because it is time
consuming and costly to obtain FDA approval of an NDA, most non-prescription
drugs (except those that have recently been switched from prescription to
non-prescription status) are marketed pursuant to an FDA over-the counter drug
monograph.
The FDA has published the Monograph for over-the counter anticaries
drug products, the category of over-the-counter drug products covering the
Company's proposed oral care products. The Monograph establishes conditions
under which non-prescription drug products that aid in the prevention of dental
caries or cavities are generally recognized as being safe and effective and not
misbranded. The Company intends to rely on the advice of FDA counsel to satisfy
formulation and labeling requirements of the Monograph as they apply to the
Company's products.
Although the Company intends to make only such packaging claims as are
permitted by the Monograph in order to avoid the substantial expense and time
required to receive FDA approval under an NDA, it may seek to file an NDA with
the FDA in order to make further claims not covered by the Monograph. If the
Company decides to or is required to make such additional claims, it may seek
strategic partners to assist in the financing of the NDA process. Further, the
Company may not have sufficient financing or other resources available to
complete the NDA process and assuming such financing and resources are
available, there is no assurance that the FDA will approve the NDA.
Each domestic drug product manufacturing facility must be registered
with the FDA. Each manufacturer must inform the FDA of every drug product it has
in commercial distribution and keep such list updated. Domestic manufacturing
facilities are also subject to at least biannual inspection by the FDA for
compliance with Good Manufacturing Practice ("GMP") regulations promulgated by
the FDA. Compliance with GMP regulations is required at all times during the
manufacture and processing of drug products. Accordingly, to the extent that the
Company utilizes contract manufacturers, such manufacturers must be in
compliance with all FDA requirements.
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The Company is also subject to regulation under various federal and
state laws regarding, among other things, occupational safety, environmental
protection, hazardous substance control and product advertising and promotion.
In connection with its research and development activities, the Company is
subject to federal, state and local laws, rules, regulations and policies
governing the use, generation, storage, discharge, handling and disposal of
certain materials and wastes. The Company believes that it has complied with
these laws and regulations in all material respects and it has not been required
to take any action to correct any material noncompliance. The Company does not
currently anticipate that any material capital expenditures will be required in
order to comply with federal, state and local environmental laws or that
compliance with such laws will have a material effect on the financial condition
or competitive position of the Company. The Company may also be subject to
foreign government regulations regarding over-the-counter drug products.
Accordingly, the Company intends to submit applications to foreign regulatory
agencies, if necessary, to make therapeutic health claims for its products to be
marketed abroad. See "Risk Factors -- Compliance with Other Government
Regulation."
PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION
PATENTS
As of July 8, 1997, Enamelon has obtained six U.S. patents and has
fifteen pending patent applications, nine in the United States and six outside
the United States. The patents cover the Company's remineralization technology
as it could be applied to a broad range of oral care products including
toothpaste, mouth rinse, chewing gum, lozenges, and professional dental
treatments. The Enamelon patents may claim the effectiveness of ingredients that
do not fall under the Monograph. The Company's products currently under
development do not rely on those ingredients as active ingredients, but rely
only on sodium fluoride as the sole active ingredient.
The Company is unaware of the existence of any challenges to the
validity of its patents or of any claim made by a third-party of patent
infringement with respect to its products. However, no assurance can be given
that such challenges or claims will not be asserted in the future.
TRADEMARKS
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The Company intends to protect the names of certain of its products and
formulations by registration of its trademarks, where appropriate, both in the
United States and in foreign countries.
The Company has filed applications in the United States Patent and
Trademark Office to register the word mark ENAMELON, on the Principal Register,
for toothpaste, chewing gum, certain confection products, and various oral care
products, such as medicated mouth washes and professional dental gels. All of
the applications have been allowed, subject to use of the mark. The Company has
also registered or applied to register the ENAMELON mark for toothpaste, chewing
gum and certain confection products in eight foreign countries. It is possible
that prior registrations and/or uses of the mark (or a confusingly similar mark)
may exist in one or more countries, in which case the Company might thereby be
precluded from registering and/or using the ENAMELON mark is such countries.
Accordingly, other trademarks are being considered by the Company.
The Company has also applied to register its stylized "E" logo in the
United States and Canada, for toothpaste, chewing gum, certain confection
products, and various oral care products. All of the applications have been
approved, subject to use of the mark.
The Company has also filed applications in the United States and Canada
to register the word mark FLUOREMIN for toothpaste. Each of such applications
has been allowed, subject to use of the mark.
The Company recently filed applications in the United States and Canada
to register (i) the word mark LIQUID CALCIUM for toothpaste, various oral care
products, and in Canada, also various oral care products, and certain confection
products. Each of such applications is presently and awaiting examination.
In connection with its trademark protection and registration program,
the Company acquired from a third party its rights in and to the mark ENAMELINE,
for use in connection with chewing gum, including the United States registration
for such mark. The assignment was made on a quitclaim basis without any
representations or warranties as to the validity or subsistence of the rights
and registration so assigned, and the Company may or may not make use of the
mark ENAMELINE.
PROPRIETARY INFORMATION
Much of the Company's technology is dependent upon the knowledge,
experience and skills of key scientific and technical personnel. To protect
rights to its proprietary know-how and
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technology, Company policy requires all employees and consultants to execute
confidentiality agreements that prohibit the disclosure of confidential
information to anyone outside the Company. These agreements also require
disclosure and assignment to the Company of discoveries and inventions made by
such persons while devoted to Company activities. There can be no assurance that
these agreements will not be breached, that the Company will have adequate
remedies for any such breach or that the Company's trade secrets will not
otherwise become known or be independently developed by competitors. In
addition, it is possible others may infringe the patent rights of the Company.
See "Risk Factors -- Protection of Proprietary Technology and Information."
LIABILITY INSURANCE
The Company's business involves exposure to potential product liability
risks that are inherent in manufacturing and marketing of pharmaceutical
products. The Company currently has general liability insurance with coverage
limits of $1,000,000 per occurrence and $2,000,000 on an annual aggregate basis
and product liability insurance with coverage limits of $6,000,000 per
occurrence and $7,000,000 on an aggregate basis. While the Company's insurance
polices provide coverage on a "per occurrence" basis and are subject to annual
renewal, there can be no assurance that the Company will be able to maintain
such insurance on acceptable terms, that the Company will be able to secure
increased coverage or that any insurance will provide adequate protection
against potential liabilities.
PERSONNEL
The Company has fifteen full-time employees and two part-time
employees.
PROPERTIES
The Company currently subleases office facilities located at 15 Kimball
Avenue, Yonkers, New York from an affiliate. The Company leases office and
laboratory facilities in East Brunswick, New Jersey which expires December 31,
1998. The combined amount of space which relate to the above leased premises
total approximately 5,200 square feet.
The Company leased an additional 5,000 square feet for its product
development needs in the second quarter of 1997 and anticipates occupying the
additional space in the third quarter.
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The Company believes that these properties are sufficient for its
administrative and research and development needs for the foreseeable future.
Since the Company presently intends to rely on outside manufacturers to
manufacture its products, it does not have a manufacturing facility. See "Risk
Factors -- Dependence on Others to Manufacture" and "Business -- Manufacturing."
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the Company's
directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Dr. Steven R. Fox............................ 44 Chairman of the Board and Chief
Executive Officer
D. Brooks Cole............................... 57 President and Chief Operating
Officer
Norman Usen.................................. 55 Vice President-Product
Development and Secretary
Anthony E. Winston........................... 51 Vice President-Technology and
Clinical Research
Thomas J. Duncan............................. 39 Vice President-Operations
Edwin Diaz................................... 34 Chief Financial Officer, Vice-
President- Finance and Treasurer
Dr. S.N. Bhaskar............................. 74 Director
Dr. Bert D. Gaster........................... 69 Director
Richard A. Gotterer.......................... 33 Director
Eric D. Horodas, Esq......................... 43 Director
</TABLE>
The business experience, principal occupations and employment, as well
as the periods of service, of each of the directors and executive officers of
the Company during at least the last five years are set forth below.
STEVEN R. FOX, D.D.S., F.I.C.D., F.A.C.D., is the founder of
the Company, and has been Chairman of the Board of Directors and
Chief Executive Officer of the Company since June 1992. From June
1992 through December 1995 and from June 1992 through June 1996,
respectively, Dr. Fox was also the Company's President and
Treasurer. Dr. Fox is a member of the faculty of the Harvard School
of Dental Medicine. Since July 1978, Dr. Fox has been a practicing
dentist and currently practices dentistry on a part-time basis. Dr.
Fox was an Assistant Clinical Professor at New York University's
College of Dentistry from 1979 to 1987. Dr. Fox has been active in
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<PAGE>
various professional organizations, including the International Dental Research
Society, the American Dental Association and the Ethics Committee of the Ninth
District Dental Society. See "Management -- Employment and Consulting
Agreements."
D. BROOKS COLE has been the President and Chief Operating Officer of
the Company since January 1996. Commencing in September 1993, Mr. Cole was
retained by the Company as a consultant. Mr. Cole has over twenty-five years of
experience in the marketing of over-the-counter drugs, oral care products and
cosmetics. Mr. Cole was employed by the Mentholatum Company, Inc., an
over-the-counter drug company, in various positions from 1980 to 1993, most
recently as President of the United States Division, and a member of the
Executive Committee and the Board of Directors from 1983 to 1993. He was
employed at Avon Products, Inc., a cosmetics company, in various positions from
1971 to 1980, most recently as a Vice President from 1976 to 1980. Mr. Cole was
employed at Vick Chemical Company, a consumer drug company, and served in
several sales, promotion and product marketing positions from 1961 to 1971. Mr.
Cole was a Vice President of the Non Prescription Drug Manufacturers Association
and served on its Board of Directors and Executive Committee from 1990 to 1993.
See "Management -- Employment and Consulting Agreements."
NORMAN USEN had been Vice President-Research and Development and
Product Development of the Company since July 1993. In May 1995, Mr. Usen became
the Company's Vice President-Product Development and Secretary. Mr. Usen also
served as Vice-President of Operations from May 1995 to November 1996. Mr. Usen
is a consultant specializing in consumer product development with thirty years'
experience in product development, contract manufacturing and consumer research.
He had substantial responsibility for the development of Arm & Hammer Toothpaste
and Toothpowder for Church & Dwight Co., Inc. from 1982 to 1991. Since 1992, Mr.
Usen, as President and sole stockholder of Nu-Products, Inc. ("NP"), has been an
independent consultant. From August 1993 through April 1995, NP was retained by
the Company as a consultant on a part-time basis to coordinate product
development. See "Management -- Employment and Consulting Agreements."
ANTHONY E. WINSTON has been the Vice President-Technology and Clinical
Research since January 1995. Mr. Winston has over 25 years of technology
development and clinical research experience most recently as Technical Director
for Church & Dwight Co., Inc. where he was responsible for technology
development, clinical research, ADA and FDA interface, claim substantiation and
patent protection for Arm & Hammer's baking soda toothpastes, including their
latest introduction: Peroxy Care(R). Mr. Winston is the holder or
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<PAGE>
co-holder of more than 60 United States patents, of which 14 are for toothpaste
products, with two additional oral care patents pending. See "Management --
Employment and Consulting Agreements."
THOMAS J. DUNCAN has been the Vice President-Operations since November
1996. Mr. Duncan has over 20 years of experience in manufacturing and
engineering at consumer products companies. Mr. Duncan was a Project Manager in
Corporate Engineering at Church & Dwight Co., Inc. from 1982 through 1995. Mr.
Duncan also was a Division Engineer at Boyle-Midway Division of American Home
Products from May 1978 through October 1981.
EDWIN DIAZ, has been Chief Financial Officer, Vice President Finance,
and Treasurer since August 1996. Prior to joining the Company, Mr. Diaz was the
Corporate Controller of NYCOR, INC., a manufacturer of devices used in heating
and cooling systems, from September 1994 to August 1996. He was the Controller
of Lancer Industries, Inc., a company specializing in the acquisition of
distressed and under-performing companies, from 1990 until August 1994. Mr. Diaz
was employed by the Alferi Organization, a real estate development company, as
Assistant Controller from 1988 until 1990 and by the accounting firm of Arthur
Young & Company from 1986 until 1988. Mr. Diaz is a certified public accountant.
S.N. BHASKAR, D.D.S., M.S., Ph.D., Major General U.S. Army (Ret.) has
been a director of the Company since August 1994 and the Chairman of the
Scientific Advisory Board since August 1992. Since 1981, Dr. Bhaskar has been in
a private dental practice in Monterey and Salinas, California. From January 1955
to December 1980, Dr. Bhaskar was Major General, Dental Corps in the United
States Army, Assistant Surgeon General for Dental Services of the United States
Army and Chief of the United States Army Dental Corps. He is an Honorary Fellow
of the Academy of General Dentistry, a Diplomat to the American Board of Oral
Medicine and the American Board of Oral Pathology, and a member of the Dental
Research Advisory Committee to the United States Army. Dr. Bhaskar is a former
Vice Chairman of Atrix Laboratories, Inc. and a consultant to the Board of
Directors at Vipont, Inc., a publicly-traded company engaged in the development
and marketing of oral care products.
BERT D. GASTER, D.D.S., M.S.D. has been a director of the Company since
November 1992 and is a tenured Associate Professor at New York University's
College of Dentistry. Dr. Gaster has held various faculty positions with New
York University's College of Dentistry since 1972, including that of Clinic
(Module) Director for nine years. Dr. Gaster is a member of the American College
of Prosthodontics, has served on the Budget Policy Development Committee and
currently is a Director of the New York University
46
<PAGE>
Dental Alumni Association. Dr. Gaster is currently an attending Prosthodontist
with four hospitals in the New York metropolitan area.
RICHARD A. GOTTERER has been a director of the Company since November
1992 and has been a portfolio manager of fixed income securities at Schroder
Wertheim Investment Services, an investment banking firm since September 1993.
Mr. Gotterer was a private investor from June 1990 through August 1993. Mr.
Gotterer was the Vice President of Finance and Chief Financial Officer of
Channel American LPTV Holdings, Inc., an entertainment company, from February
1988 to May 1990. He was a financial analyst with Oppenheimer & Co., Inc., an
investment banking firm, from October 1985 to October 1987.
ERIC D. HORODAS, Esq. has been a director of the Company since November
1992. Mr. Horodas is President of Markev Realty Corporation, and is Vice
President and Secretary of Baco Realty Corporation, both of which are actively
engaged in originating, managing and servicing commercial real estate and
mortgage investments. He has also been acting as a consultant to various
insurance regulators and insurance industry members in connection with the
restructuring and rehabilitation of financially troubled insurance companies
since October 1993. Mr. Horodas was a founding partner and member of the
Management Committee of the law firm of Rubinstein & Perry, from February 1988
until October 1993.
All directors hold office until the next annual meeting of stockholders
or until their successors are elected and qualify. Officers are elected annually
by, and serve at the discretion of, the Board of Directors.
SCIENTIFIC ADVISORY BOARD
The Company has established a four-member Scientific Advisory Board
(the "SAB"). Each member is a distinguished chemist or dental researcher chosen
for his continuing commitment to chemistry and dental science. The SAB provides
expertise and advice to the Company in several areas including guidance for the
ethical and scientific conduct of the scientific testing of the Company's
proposed products. The SAB also works in cooperation with the Company and the
scientists at the American Dental Association's Paffenbarger Research Center at
the United States Government's National Institute of Standards and Technology,
where the ADAHF Patented Technology was developed.
Consulting compensation at annual rates ranging from $5,000 to
$15,000 are paid to certain members of the SAB. In addition, the
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<PAGE>
Company intends to grant, from time to time, stock options to members of the
SAB. See "Management -- Employee Benefit Plans" for a description of options
already granted to certain SAB members. SAB members are elected annually by, and
serve at the discretion of, the Board of Directors. Currently, the members of
the SAB are as follows:
S.N. BHASKAR, D.D.S., Ph.D., Major General United States Army (Ret.)
serves as the Chairman of the SAB and is also a member of the Company's Board of
Directors. See "Management -- Directors and Executive Officers."
ROBERT BRUCE MERRIFIELD, Ph.D. is the recipient of the 1984 Nobel Prize
in Chemistry as well as numerous other scientific honors, and has been the John
D. Rockefeller, Jr. Professor at The Rockefeller University since 1966. He has
been a member of the faculty at The Rockefeller Institute for Medical Research
since 1963. Dr. Merrifield is an Associate Editor of The International Journal
of Peptide and Protein Research, on the Editorial Board of Analytical
Biochemistry, and a member of the American Chemical Society, American Society of
Biological Chemists, American Institute of Chemists and the National Academy of
Sciences. Dr. Merrifield has been the Nobel Guest Professor, Uppsala, Sweden.
MING S. TUNG, Ph.D. is the inventor of the ADAHF Patented Technology
licensed to the Company, and has been the Project Leader on the chemistry of
calcium phosphates, prevention of dental caries, and coatings of the tooth
research projects at the American Dental Association Health Foundation
Paffenbarger Research Center, National Institute of Standards and Technology,
since 1974. Dr. Tung was associated with Brown University and the University of
Maryland conducting research on biopolymers, self-association proteins and
allosteric proteins from 1965 to 1974.
JOSEPH L. HENRY, D.D.S., M.S., Ph.D., F.A.C.D., F.R.S.H., F.I.C.D. has
held faculty positions at the Harvard School of Dental Medicine, including
Interim Dean for the Dental School and Associate Dean for Government and
Community Affairs, since 1975. In December 1994, Dr. Henry retired as Associate
Dean at the Harvard School of Dental Medicine, and Professor and Chairman of the
Department of Oral Diagnosis and Oral Radiology at the Harvard School of Dental
Medicine. Dr. Henry held various faculty positions at Howard University College
of Dentistry from 1953 to 1975, including Professor of Oral Medicine,
Superintendent and Director of Clinics, and served as Dean of the Dental College
for nine years.
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<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee, established in July 1993, currently consists of
Dr. Bhaskar and Mr. Gotterer (Chairman). The functions of the Audit Committee
are to recommend annually to the Board of Directors the appointment of the
independent public accountants of the Company, review the scope of their annual
audit and other services they are asked to perform, review the report on the
Company's financial statements following the audit, review the accounting and
financial policies of the Company and review management's procedures and
policies with respect to the Company's internal accounting controls.
The Compensation Committee, also established in July 1993,
currently consists of Dr. Gaster and Mr. Horodas (Chairman). The
functions of the Compensation Committee are to review and approve
salaries, benefits and bonuses for all executive officers of the
Company, and to review and recommend to the Board of Directors
matters relating to employee compensation and employee benefit
plans. The Compensation Committee also administers the Plan. See
"Management -- Employee Benefit Plans."
EXECUTIVE COMPENSATION
The table below summarizes the compensation received by the Company's
Chief Executive Officer and Vice President -- Technology and Clinical Research
("named executive officers") for services rendered during the fiscal years ended
December 31, 1996, 1995 and 1994. No other executive officer of the Company
received compensation in excess of $100,000 during such years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term
Compensation
Securities
Underlying
Name and Principal Salary Bonus Options
Position(1) Year ($) ($) (#)
(a) (b) (c) (d) (g)
<S> <C> <C> <C> <C>
Steven R. Fox
Chairman of the Board and
Chief Executive 1996 $175,000 $75,000 50000
Officer(2)(3)
1995 $75,000 $10,000
1994 $75,000 -- --
Anthony E. Winston
Vice President - Technology 1996 $135,000 $20,250
and Clinical Research
1995 $129,875 -- 160,000
49
<PAGE>
Annual Compensation Long-Term
Compensation
Securities
Underlying
Name and Principal Salary Bonus Options
Position(1) Year ($) ($) (#)
(a) (b) (c) (d) (g)
D. Brooks Cole President and 1996 $150,000 $22,500 50,000
Chief Operating Officer(3)
Normen Usen 1996 $115,000 $17,000 -
Vice-President- Product
Development
</TABLE>
(1) See "Management -- Employment and Consulting Agreements" for
a description of Dr. Fox's employment agreement with the
Company as Chairman of the Board and Chief Executive Officer
which commenced on January 1, 1994; Anthony E. Winston's
employment agreement with the Company as the Company's Vice
President-Technology and Clinical Research which commenced on
January 1, 1995; D. Brooks Cole's employment agreement with
the Company whereby Mr. Cole became the Company's President
and Chief Operating Officer as of January 1, 1996; and Norman
Usen's employment agreement with the Company as the Company's
Vice President -- Research and Development.
(2) Dr. Fox resigned as the Company's President effective on
January 1, 1996, and as Treasurer effective August 1996.
(3) Options granted on December 11, 1996 issued at $6.875 for Dr. Fox and
$6.25 for Mr. Cole vest 25% as of December 11, 1997 and an additional
25% on December 11 in each successive year.
The following table sets forth the individual grants of stock options
made during the fiscal year ended December 31, 1996 to each of the named
executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE
<S> <C> <C> <C> <C> <C>
Steven R. Fox 50,000(1) 31.3% $6.875 12/10/01
D. Brooks Cole 50,000(1) 31.3% $6.25 12/10/06
Anthony E. Winston -- -- -- --
Norman Usen -- -- -- --
</TABLE>
50
<PAGE>
The following table sets forth the number of exercisable or vested and
unexercisable or unvested options during the fiscal year ended December 31, 1996
held by each of the named executive officers and the year-end value of such
options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS AT
SHARES OPTIONS AT FISCAL FISCAL
ACQUIRED YEAR-END(#) YEAR-END($)
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Steven R. Fox - - 450,000/50,000 $ 1,462,500/0
Anthony E. Winston - - 160,000/0 360,000/0
D. Brooks Cole - - 135,000/50,000 498,870/0
Norman Usen - - 168,762/30,000 830,309/147,600
</TABLE>
COMPENSATION OF DIRECTORS
Each non-employee director receives $500 for attendance at each meeting
plus reimbursement for expenses for each meeting attended. See "Management --
Employee Benefit Plans" and "-- Employment and Consulting Agreements" for a
description of options granted to members of the Board of Directors. Each member
of the Audit Committee and the Compensation Committee receives $250 for each
meeting attended together with reimbursement of expenses.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Dr. Bert D. Gaster and Mr. Eric D. Horodas served as members
of the Company's compensation committee during the last completed
fiscal year. There are no compensation committee (or board of
directors) interlock relationships with respect to the Company.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has entered into an employment agreement with Dr. Steven R.
Fox, pursuant to which Dr. Fox is employed as Chairman of the Board of Directors
and Chief Executive Officer for a term of five years commencing on January 1,
1994. The agreement, as amended, provides that Dr. Fox shall devote such time to
the Company as necessary to perform his responsibilities thereunder, but no less
then forty hours per week, in consideration of an annual salary of $75,000,
which increased to $175,000 per year in January 1996. The employment agreement
acknowledges that Dr. Fox shall be entitled to maintain his dental practice and
see patients
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<PAGE>
on a basis that does not interfere with the performance of his duties
thereunder. Dr. Fox continues to practice dentistry on a part-time basis.
Pursuant to the agreement, if Dr. Fox opposes a change of control of the
Company, as defined in the agreement, and thereafter elects to terminate his
employment with the Company, he is entitled to a one time payment of either (i)
two and nine-tenths (2.9) times the sum of Dr. Fox's current base annual salary
plus any amounts due to him under the Company's Incentive Compensation Plan if a
majority of the Company's Board of Directors opposed the change of control or
(ii) two and one-half (2.5) times the sum of Dr. Fox's current base annual
salary plus any amounts due to him under the Company's Incentive Compensation
Plan if a majority of the Company's Board of Directors voted in favor of the
change of control. However, such payment shall not exceed the maximum payment
permitted by Section 280G of the Internal Revenue Code of 1986, as amended.
Pursuant to the Company's Incentive Compensation Plan, Dr. Fox shall be entitled
to 50% of all amounts allocated to such plan.
See "Management -- Employee Benefit Plans."
The Company has entered into an employment agreement with D. Brooks
Cole, pursuant to which Mr. Cole is employed as President and Chief Operating
Officer. The agreement, as amended, provides that Mr. Cole shall devote all of
his business time to the Company in consideration of an annual salary of
$150,000, subject to adjustment. In addition, Mr. Cole shall be entitled to 15%
of all amounts allocated to the Company's Incentive Compensation Plan. Mr. Cole
serves at the pleasure of the Board of Directors; however, if the Company elects
to terminate the agreement, Mr. Cole is entitled to six months severance pay
including all salary and benefits. Pursuant to the employment agreement, Mr.
Cole was granted a seven-year option to purchase 99,000 shares of Common Stock
at an exercise price equal to $1.33 per share, immediately exercisable from the
date of the grant, and expiring seven years thereafter. Prior to the
commencement of this agreement, Mr. Cole had been retained by the Company on a
consulting basis at a rate of $3,000 per month, plus, for the period from July
1994 through July 1995, 3,000 Common Stock options per month at an exercise
price of $1.33 per share. Effective November 1, 1995, the consulting fee was
increased to $4,000 per month.
The Company has entered into an employment agreement with Norman Usen,
pursuant to which Mr. Usen is employed full-time as Vice President -- Product
Development and Vice President-Operations for a term of three years commencing
on May 1, 1995. The consulting agreement between the Company and NP terminated
upon the commencement of Mr. Usen's employment agreement. Pursuant to the
employment agreement, Mr. Usen will devote his full time to the Company in
consideration of an annual salary of $105,000 the first
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<PAGE>
year of the term, $115,000 the second year of the term, and $125,000 for the
third year of the term. If Mr. Usen is terminated from the Company without
cause, as defined in the agreement, then he shall be entitled to continue to
receive his salary and benefits until the end of the term of the agreement. As
additional compensation, Mr. Usen shall be entitled to 12.5% of all amounts
allocated to the Company's Incentive Compensation Plan. Pursuant to the
employment agreement, Mr. Usen was granted seven-year options to purchase an
aggregate 90,000 shares of Common Stock at an exercise price equal to $1.33 per
share. The options previously granted to NP were terminated and reissued to Mr.
Usen. See "Certain Transactions."
The Company has entered into an employment agreement with Anthony E.
Winston, pursuant to which Mr. Winston is employed full-time as Vice President
- -- Technology and Clinical Research for a term of two years commencing in
January 1995. Pursuant to the employment agreement, Mr. Winston will devote his
full time to the Company in consideration of an annual salary of $135,000. If
Mr. Winston is terminated from the Company without cause, as defined in the
agreement, then he shall be entitled to continue to receive his salary and
benefits until the end of the term of the agreement. As additional compensation,
Mr. Winston shall be entitled to 5% of all amounts allocated to the Company's
Incentive Compensation Plan. Pursuant to the employment agreement, Mr. Winston
was granted ten-year options to purchase an aggregate 150,000 shares of Common
Stock at an exercise price equal to $1.33 per share.
EMPLOYEE BENEFIT PLANS
1993 STOCK OPTION PLAN
In July 1993, the Board of Directors adopted the 1993 Plan which was
approved by the Company's stockholders in September 1993. The 1993 Plan provides
for the grant to qualified employees (including officers and directors) of the
Company of options to purchase shares of Common Stock. A total of 1,500,000
shares of Common Stock have been reserved for issuance upon exercise of stock
options granted under the 1993 Plan. The 1993 Plan is administered by the Board
of Directors or a committee of the Board of Directors (the "Committee") whose
members are not entitled to receive options under the 1993 Plan (excluding
options granted exclusively for directors fees). The Committee has complete
discretion to select the optionee and to establish the terms and conditions of
each option, subject to the provisions of the 1993 Plan. Options granted under
the Plan may or may not be "incentive stock options" as defined in Section 422
of the Internal Revenue Code ("Incentive
53
<PAGE>
Options") depending upon the terms established by the Committee at the time of
grant, but the exercise price of options granted may not be less than 100% of
the fair market value of the Common Stock as of the date of grant (110% of the
fair market value if the grant is an Incentive Option granted to an employee who
owns more than 10% of the outstanding Common Stock). Options may not be
exercised more than 10 years after the grant (five years if the grant is an
Incentive Option to any employee who owns more than 10% of the outstanding
Common Stock). Options granted under the 1993 Plan are not transferable and may
be exercised only by the respective grantees during their lifetimes or by their
heirs, executors or administrators in the event of death. Under the 1993 Plan,
shares subject to canceled or terminated options are reserved for subsequently
granted options. The number of options outstanding and the exercise price
thereof are subject to adjustment in the case of certain transactions such as
mergers, recapitalizations, stock splits or stock dividends.
As of the date of this Prospectus, the Company has granted pursuant to
the 1993 Plan options exercisable for periods of three to ten years to purchase
an aggregate of 1,203,355 shares of Common Stock, at an exercise price ranging
from $1.33 to $4.00 per share, to certain employees, officers and directors of
the Company, including options to purchase an aggregate of 450,000 shares
granted to the Company's Chairman of the Board at $3.00 per share, options to
purchase an aggregate of 130,515 shares granted to other members of the
Company's Board of Directors at prices ranging from $1.86 to $2.67 per share,
and options to purchase an aggregate of 41,628 shares granted to members of the
Company's Scientific Advisory Board other than members of the Company's Board of
Directors at $2.67 per share. See "Management -- Employment and Consulting
Agreements" for a description of options granted to an affiliate of an officer
of the Company.
1997 STOCK OPTION PLAN
In December 1996, the Board of Directors adopted the 1997 Incentive
Stock Option Plan ("1997 Plan") which was approved by the Company's stockholders
in May 1997. The 1997 Plan provides for the grant to qualified employees
(including officers and directors), independent contractors and consultants of
the Company and/or any subsidiary or parent thereof options to purchase shares
of Common Stock. A total of 750,000 shares of Common Stock, par value $.001,
have been reserved for issuance upon exercise of stock options granted under the
1997 Plan. The 1997 Plan is administered by the Board of Directors or a Stock
Option Committee or Compensation Committee of the Board of Directors (the
"Committee") which shall be comprised of at least two Outside Directors,
appointed by the
54
<PAGE>
Board of Directors of the Company. The Committee has complete discretion to
select the optionee and to establish the terms and conditions of each option,
subject to the provisions of the 1997 Plan. Options granted under the Plan may
or may not be "incentive stock options" as defined in Section 422 of the
Internal Revenue Code ("Incentive Options") depending upon the terms established
by the Committee at the time of grant, but in no event shall the option price be
less than 85% of the fair market value of the Common Stock at the time of grant
(110% of the fair market value if the grant is an Incentive Option granted to an
employee who owns more than 10% of the outstanding Common Stock). Options may
not be exercised more than 10 years after the grant. Options granted under the
1997 Plan are not transferable otherwise by will or the laws of descent and
distribution and may be exercised only by the respective grantees during their
lifetimes or by their heirs, executors or administrators in the event of death.
Under the 1997 Plan, shares subject to canceled or terminated options are
reserved for subsequently granted options. In no event shall an employee be
granted options for more than 150,000 shares of Common Stock during any calendar
year period, subject to changes in the Company's capitalization. The number of
options outstanding and the exercise price thereof are subject to adjustment in
the case of certain transactions such as mergers, recapitalizations, stock
splits or stock dividends.
As of the date of this Prospectus, the Company has not granted any
options pursuant to the 1997 Plan.
INCENTIVE COMPENSATION PLAN
The Company has established a five-year incentive compensation program
to award officers and key employees for their efforts on behalf of the Company
as measured by yearly increases in the net income (before income taxes and
extraordinary items) generated by the Company. The program provides for
incentive compensation utilizing an objective formula based upon guidelines in
accordance with the Company's goals. The Company will establish a yearly bonus
pool commencing with the closing date of the offering, equal to five percent of
its net income before income taxes including the amount provided for by the
incentive compensation plan, and extraordinary items ("ICP Income"), to be
distributed to officers and key employees. For the subsequent four fiscal years,
such bonus pool shall only be established in the event the Company's ICP Income
equals or exceeds by at least 5% the Company's ICP Income for the prior fiscal
year. Amounts remaining in the yearly bonus pool which are not distributed do
not carry over into the
55
<PAGE>
subsequent year's pool. The maximum amount an executive or key employee may
receive from the bonus pool is limited to two times such person's salary.
INDEMNIFICATION
Pursuant to the Company's Certificate of Incorporation and Bylaws,
officers and directors of the Company shall be indemnified by the Company to the
fullest extent allowed under Delaware law for claims brought against them in
their capacities as officers or directors. Indemnification is not allowed if the
officer or director does not act in good faith and in a manner reasonably
believed to be in the best interests of the Company, or if the officer or
director had no reasonable cause to believe his conduct was lawful. Accordingly,
indemnification may occur for liabilities arising under the Securities Act. The
Company and the Underwriters have agreed to indemnify each other (including
officers and directors) against certain liabilities, including liabilities under
the Securities Act. See "Underwriting." Insofar as indemnification for
liabilities arising under the Securities Act my be permitted for directors,
officers and controlling persons of the Company pursuant to the foregoing
provisions or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
56
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of the date of this prospectus, and
as adjusted to reflect the sale of 1,200,000 shares of Common Stock offered
hereby, certain information, with respect to the beneficial ownership of shares
of Common Stock by (i) each person known by the Company to be the owner of more
than 5% of the outstanding shares of Common Stock, (ii) each director, (iii)
each named executive officer and (iv) all directors and executive officers as a
group:
<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE OF
NATURE OF OUTSTANDING SHARES OWNED(2)
NAME AND ADDRESS BENEFICIAL BEFORE AFTER
OF BENEFICIAL OWNERS OWNERSHIP(1) OFFERING OFFERING
<S> <C> <C> <C>
Dr. Steven R. Fox(3) 3,423,240(4) 47.2% 39.8%
Dr. Bert Gaster(3) 25,253(5) * *
Mr. Richard Gotterer(3) 90,512(5) 1.3% 1.1%
Mr. Eric Horodas(3) 109,262(5)(6) 1.5% 1.3%
Dr. S.N. Bhaskar(3) 68,756(7) * *
Anthony E. Winston(3) 160,000(8) 2.2% 1.9%
Mr. D. Brooks Cole(3) 135,000(9) 1.9% 1.6%
Mr. Norman Usen(3) 198,762(10) 2.7% 2.4%
All directors and
executive officers as
a group (8 persons)(11) 4,210,785 53.1% 45.6%
</TABLE>
- ----------------
* Represents less than 1%.
(1) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them. A person is deemed to be the beneficial
owner of securities that can be acquired by such person within 60 days from the
date hereof upon the exercise of warrants or options. Each beneficial owner's
percentage ownership is
determined by assuming that options or warrants that are held by such
person (but not those held by any other person) and which are
exercisable within 60 days from the date hereof have been exercise.
(2) Based on 8,142,749 shares of Common Stock issued and outstanding as of
July 1, 1997, which reflects the sale of 1,080,000 shares issued on
June 26, 1997 in the June Offering.
(3) The address of this person is c/o Enamelon, Inc., 15 Kimball Avenue,
Yonkers, NY 10704.
(4) Includes 36,348 shares held in trust for the benefit of Dr. Fox's minor
children. Also includes 450,000 shares issuable upon exercise of
currently exercisable stock options.
57
<PAGE>
(5) Includes 25,253 shares issuable upon exercise of currently exercisable
stock options.
(6) Includes 9,375 shares issuable upon exercise of warrants.
(7) Includes 68,756 shares issuable upon exercise of stock options.
(8) Includes 160,000 shares issuable upon exercise of stock options.
(9) Includes 135,000 shares issuable upon exercise of stock options.
(10) Includes 198,762 shares issuable upon exercise of stock options.
(11) Includes 1,088,277 shares issuable upon exercise of currently
exercisable stock options and 9,375 shares issuable upon exercise of
currently exercisable warrants.
By virtue of his ownership of shares of Common Stock and position with
the Company, Dr. Steven R. Fox may be deemed a "parent" and a "founder" of the
Company as such terms are defined under the federal securities laws.
SELLING SECURITYHOLDERS
The table below sets forth, with respect to each Selling
Securityholder, based upon information available to the Company as of the date
hereof, the number of shares of Common Stock beneficially owned or underlying
other securities beneficially owned, the number of shares to be sold; and the
number and percentage of outstanding Common Shares beneficially owned before and
after the sale of the Shares offered hereby. None of the Selling Securityholders
has been an affiliate of the Company during the preceding three years. An
aggregate 1,200,000 Shares are being offered for the accounts of the Selling
Securityholders. Although there can be no assurance that the Selling
Securityholders will sell any or all of the Shares, the following table assumes
that each of the Selling Stockholders will sell all Shares offered by this
Prospectus.
<TABLE>
<CAPTION>
Amount and
Nature Shares
Beneficial Shares Beneficially Percent of Class(3)
Ownership to Be Owned After Before After
Name (1)(2) Sold(2) Offering Offering Offering
- ---- ------ ------- -------- -------- --------
<S> <C> <C> <C> <C>
Allen & Company 162,888(5) 36,600 126,288 2.0% 1.5%
Incorporated
Ambit & Co. 50,000(4) 50,000 0 1.0% 0
Smith Barney FBO Wood 127,500(9) 54,000 0 1.5% 1.0%
Island Associates
SBSF Biotechnology 66,000(4) 66,000 0 1.0% 0
Fund, L.P.
Barry Diller 23,000(4) 23,000 0 - 0
58
<PAGE>
<CAPTION>
Amount and
Nature Shares
Beneficial Shares Beneficially
Ownership to Be Owned After
Name (1)(2) Sold(2) Offering
- ---- ------ ------- -------- Percent of Class(3)
Before After
Offering Offering
-------- --------
Zweig-DiMenna Special 15,900(4) 15,900 0 - 0
Opportunities, L.P.
Zweig-DiMenna 61,800(4) 61,800 0 1.0% 0
International Ltd.
SC Fundamental Value 17,250(4) 17,250 0 - 0
Fund, L.P.
SC Fundamental Value 7,750(4) 7,750 0 - 0
BVI, Ltd.
Barbara Fromm 1,000(4) 1,000 0 - 0
Fromm Revocable Trust 30,000(4) 30,000 0 - 0
Froma, A Partnership 13,000(4) 13,000 0 - 0
Larry Flinn 38,400(4) 38,400 0 - 0
John W. Gilden 10,000(4) 10,000 0 - 0
Gamma North Peel 56,250(6) 25,000 31,250 1.0% -
Laboratory Limited
Goldman Grandchildren 3,000(4) 3,000 0 - 0
Irrevocable Trust
Hare & Co. 200,000(4) 200,000 0 2.4% 0
Haussmann Holdings 13,900(4) 13,900 0 - 0
N.V.
JLA Partners, Ltd. 10,000(4) 10,000 0 - 0
Maurice D. Kent 12,500(4) 12,500 0 - 0
Lawrence J. Kent 12,500(4) 12,500 0 - 0
Friends Fromm 10,000(4) 10,000 0 - 0
Institute for Life
Long Learning
Huizenga Investments 50,000(4) 50,000 0 1.0% 0
Limited Partnership
Bernard Holdings 50,000(4) 50,000 0 1.0% 0
Limited Partnership
Maier Family Trust 13,000(7) 3,000 10,000 - -
Diana Maier Trust 2,000(4) 2,000 0 - 0
Arthur B. Modell 42,628(8) 10,000 32,628 1.0% 0
Network Fund III, Ltd. 83,000(4) 83,000 0 1.0% 0
Network IV LLC 30,000(4) 30,000 0 - 0
59
<PAGE>
<CAPTION>
Amount and
Nature Shares
Beneficial Shares Beneficially
Ownership to Be Owned After
Name (1)(2) Sold(2) Offering
- ---- ------ ------- -------- Percent of Class(3)
Before After
Offering Offering
-------- --------
William P. O'Donell 2,000(4) 2,000 0 - 0
Kenneth F. Siebel 2,000(4) 2,000 0 - 0
Simon Community 3,000(4) 3,000 0 - 0
Property
Raifinanz AG 10,000(4) 10,000 0 - 0
JDK Partners 25,000(4) 25,000 0 - 0
SBSF Biotechnology 9,000(4) 9,000 0 - 0
Partners, L.P.
Maple Partners, Ltd. 10,000(4) 10,000 0 - 0
Westbury (Bermuda) 100,000(4) 100,000 0 1.0% 0
Ltd.
Weyerhauser Company 7,400(4) 7,400 0 - 0
Master Retirement
Trust
Whittier Opportunity 50,000(4) 50,000 0 1.0% 0
Fund
Vange, LP 20,000(4) 20,000 0 - 0
Victor Ventures LLC 20,000(4) 20,000 0 - 0
- -------------------------
</TABLE>
- - Represents less than 1%
(1) Unless otherwise indicated, the Company believes that all persons
named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them.
A person is deemed to be the beneficial owner of securities that can
be acquired by such person within 60 days from the date hereof upon
the exercise of warrants or options. Each beneficial owner's
percentage ownership is determined by assuming that options or
warrants that are held by such person (but not those held by any
other person) and which are exercisable within 60 days from the date
hereof have been exercised.
(2) Includes shares of Common Stock issuable upon exercise of warrants and
options, but does not include fractional shares to be purchased by the
Company.
(3) Based on 8,328,749 shares of Common Stock issued and outstanding as of
July 1, 1997, which reflects the sale of 1,080,000 shares issued in the
June Offering and 100,000 Class B Warrants and 12,500 Class C Warrants
held by Allen & Company Incorporated.
60
<PAGE>
(4) Represents shares acquired in the June Offering.
(5) Includes 36,600 shares issued in the June Offering and 13,788 shares
of Common Stock, 100,000 Class B Warrants and 12,500 Class C Warrants
issued in the Company's January 23, 1996 private placement.
(6) Includes 25,000 shares issued in the June Offering and 31,250 shares
issued in the Company's October 13, 1995 private placement.
(7) Includes 3,000 shares issued in the June Offering and 10,000 shares
issued in the Company's December 14, 1995 private placement.
(8) Includes 10,000 shares issued in the June Offering and 32,628 shares
issued in the Company's June 7, 1993 private placement.
(9) Includes 54,000 shares issued in the June offering and 73,500 shares of
Common Stock purchased in the open market.
CERTAIN TRANSACTIONS
The Company has subleased its office facilities without a written
agreement, since December 1, 1992, from Dr. Steven R. Fox, the Chairman of the
Board, at a rent of $600 per month. Commencing January 1, 1996 for a period of
one year, the Company entered into a lease with a relative of Dr. Fox for
additional office facilities at a rent of $2,500 per month. See "Business --
Properties" for a description of such facilities. For information concerning
employment and consulting agreements with, and compensation of, the Company's
executive officers and directors, see "Management -- Executive Compensation,"
"-- Employment and Consulting Agreements" and "-- Employee Benefit Plans."
On June 26, 1997, the Company completed a private placement of
1,080,000 shares of Common Stock to accredited investors (the "June Offering")
for a total purchase price of $14,040,000.
In connection with the June Placement, the Company paid Allen & Company
Incorporated a sales commission of 6% of the aggregate proceeds of the June
Placement.
The Company believes that the terms of each of the foregoing
transactions and those which will exist after the consummation of the
61
<PAGE>
Offering are no less favorable to the Company than could have been obtained from
non-affiliated third parties, although no independent appraisals were obtained.
In the future, all transactions between the Company and its affiliates will also
be on terms which the Company believes will continue to be no less favorable to
the Company than the Company could obtain from non-affiliated parties.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 20,000,000 shares of Common Stock,
$0.001 par value per share, of which 8,142,749 shares are currently outstanding
and held of record by approximately 310 holders. Holders of shares of Common
Stock are entitled to one vote for each share held of record on all matters to
be voted on by stockholders. There are no preemptive, subscription, conversion
or redemption rights pertaining to the shares of Common Stock. Holders of shares
of Common Stock are entitled to receive dividends when, as and if declared by
the Board of Directors from funds legally available therefor and to share
ratably in the assets of the Company available upon liquidation, dissolution or
winding up. The holders of shares of Common Stock do not have cumulative voting
rights for the election of directors and, accordingly, the holders of more than
50% of the shares of Common Stock are able to elect all directors. If the
officers and directors of the Company were to exercise all of their presently
exercisable warrants and options, they would control 45.6% of the votes
following completion of the offering. After the completion of this offering,
they would be entitled to vote 52.1% of the shares of Common Stock, and,
accordingly, in all likelihood they will be able to elect all of the Company's
directors. All of the outstanding shares of Common Stock are duly authorized,
validly issued, fully paid and non-assessable.
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders pursuant to Rule
144 ("Rule 144") promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to registration rights granted to certain holders of
warrants to purchase the Company's Common Stock, or pursuant to other
registrations or exemptions from registration under the Securities Act, could
have an adverse effect on the price of the shares of Common Stock. As of July 1,
1997, the Company had approximately 8,142,749 shares of Common Stock
outstanding. In addition, the Company has reserved for issuance (i) 1,350,431
shares of Common Stock upon exercise of options granted under the Company's 1993
Incentive Stock Option Plan (the "1993 Plan"), (ii) 114,194 shares upon exercise
of options to be granted under the 1993 Plan, (iii) 750,000 shares upon the
exercise of options to be granted under the Company's 1997 Incentive Stock
Option Plan, and (iv) 915,743 shares upon exercise of outstanding warrants.
Of the 8,142,749 shares of Common Stock issued and outstanding,
1,700,000 were sold publicly in the Company's initial public offering,
approximately 338,684 shares have been sold publicly pursuant to Rule 144, and
1,200,000 shares may be sold publicly pursuant to the registration statement of
which this Prospectus is a part. The remaining 6,104,067 outstanding shares of
Common Stock are "restricted securities," as that term is defined in Rule 144,
and may only be sold pursuant to a registration statement under the Securities
Act or an applicable exemption from registration thereunder, including
exemptions provided by Rule 144. All of such shares are presently eligible for
resale under Rule 144. In addition, holders of 558,399 shares of Common Stock
and warrants to purchase 631,250 shares of Common Stock at prices ranging from
$3.60 to $5.75 per share have three demand registration rights exercisable until
October 24, 2001, and unlimited piggyback registration rights exercisable until
January 23, 2003 (subject to certain limitations), and holders of warrants to
purchase 170,000 shares of Common Stock at $8.40 per share have one demand
registration right exercisable after October 23, 1997, and unlimited piggyback
registration rights exercisable until October 29, 2001. Employees, consultants,
and other eligible holders of options to purchase approximately 1,198,431 shares
of Common Stock granted under the Company's 1993 Plan prior to the Company's
initial public offering also have the right to exercise their options and
immediately sell the shares of Common Stock received upon exercise under Rule
144. No prediction can be made as to the effect that future sales of Common
Stock, or the availability of shares of Common Stock for future sales, will have
on the market prices for the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect prevailing market prices for the Common Stock, or
the perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock and could impair the Company's ability
63
<PAGE>
to raise capital through the future sale of its equity securities. See
"Principal Stockholders" and "Shares Eligible for Future Sale."
PLAN OF DISTRIBUTION
The Selling Securityholders are offering the Shares for their own
account and not for the account of the Company. The Shares may be sold from time
to time by the Selling Securityholders directly to purchasers or, alternatively,
may be offered from time to time through agents, brokers, dealers or
underwriters, who may receive compensation in the form of concessions or
commissions from the Selling Stockholders or purchasers of the Shares. Sales of
the Shares may be made in one or more transactions on the NASDAQ National Market
or in privately negotiated transactions or otherwise, and such sales may be made
at the market price prevailing at the time of sale, a price related to such
prevailing market price or a negotiated price.
Under the Exchange Act and the regulations thereunder, any person
engaged in a distribution of the shares of Common Stock of the Company offered
by this Prospectus may not simultaneously engage in market making activities
with respect to the Common Stock of the Company during the applicable "cooling
off" periods prior to the commencement of such distribution. In addition, and
without limiting the foregoing, the Selling Securityholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder including, without limitation, Regulation M, which provisions may
limit the timing of purchases and sales of Common Stock by the Selling
Securityholders.
To the extent required, the Company will use its best efforts to file,
during any period in which offers or sales are being made, one or more
supplements to this Prospectus to describe any material information with respect
to the plan of distribution not previously disclosed in this Prospectus.
LEGAL MATTERS
The Company is not a party to any pending legal or administrative
proceeding, and its property is not subject to such a proceeding.
INTERESTS OF NAMED EXPERTS AND COUNSEL
SBK Investment Partners, a partnership consisting of members of Snow
Becker Krauss P.C., counsel to the Company, owns 96,600 shares of Common Stock
and holds an option to purchase 32,628 shares of Common Stock.
64
<PAGE>
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Pursuant to the Company's Certificate of Incorporation and By-laws,
officers and directors of the Company shall be indemnified by the Company to the
fullest extent allowed under Delaware law for claims brought against them in
their capacities as officers or directors. Indemnification is not allowed if the
officer or director does not act in good faith and in a manner reasonably
believed to be in the best interests of the Company, or if the officer or
director had no reasonable cause to believe his conduct was lawful. Accordingly,
indemnification may occur for liabilities arising under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted for directors, officers and controlling persons of the Company
pursuant to the foregoing provisions or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
EXPERTS
The financial statements included in this Prospectus have been audited
by BDO Seidman, LLP, independent certified public accountants, to the extent and
for the periods indicated in their report appearing elsewhere herein and are
included in reliance on such report given upon the authority of said firm as
experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 including all amendments
thereto (the "Registration Statement") under the Securities Act with respect to
the Common Stock offered by this Prospectus. This Prospectus does not contain
all of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and this
offering, reference is made to the Registration Statement, including the
exhibits filed therewith. The
65
<PAGE>
Registration Statement may be inspected and copies may be obtained from the
Public Reference Section at the Commission's principal office, 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Northeast Regional
Office, 7 World Trade Center, 13th Floor, New York, New York 10048 and the
Chicago Regional Office, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661-2511, upon payment of the fees prescribed by the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete and where the contract or other document
has been filed as an exhibit to the Registration Statement, each such statement
is qualified in all respects by such reference to the applicable document filed
with the Commission.
The Company intends to distribute to its stockholders annual reports
containing audited financial statements certified by its certified public
accountants and such other periodic reports as the Company may determine to be
appropriate or as may be required by law.
66
<PAGE>
GLOSSARY
The following glossary is intended to provide the reader with an
explanation of certain terms used in this Prospectus.
<TABLE>
<S> <C>
Active Ingredient....................... Element responsible for the therapeutic
activity of a product. However, other
ingredients in the product may enhance the
effectiveness of the active ingredient. In
ENAMELON toothpaste, the active ingredient is
sodium fluoride.
Calcium Important elemental constituent of teeth and bones.
Caries An oral disease caused by the presence of cariogenic
bacteria in plaque. Signs of the disease are lesions
and/or cavities in the teeth.
Cavity Area of the tooth where mineral loss, due to
demineralization, has been extensive, resulting in
collapse of the tooth structure. A cavity cannot be
remineralized and must be filled by a dentist.
Demineralization Chemical process whereby acids, produced by cariogenic
bacteria in plaque, dissolve and remove calcium and
phosphate from tooth enamel and/or dentin, making the
tooth weaker and more porous. If allowed to continue,
demineralization will eventually cause the tooth
structure to collapse and a cavity to be formed.
Dentin An underlying tooth material that contains minerals
and organic matter. Dentin is covered by enamel in the
crown and cementum in the root.
Enamelon Technologies The ADAHF Patented Technology together
with the Enamelon Proprietary Technology as described
in Item 1, "Description of Business".
Fluoride Inorganic form of the element fluorine in combination
with other elements.
Inactive Ingredient Element not responsible for the therapeutic activity
of the product. Inactive ingredients may be important
for other product attributes and may substantially
67
<PAGE>
enhance the effectiveness of the active ingredient.
Interproximal Lesions Lesions that occur between the teeth.
In Vitro Literally means "in glass" (Latin) . Refers to
experimental studies carried out under laboratory
conditions that do not involve living species.
In Vivo Literally means "in life" (Latin). Refers to
experimentation performed on live animals or humans.
Ions Dissolved particles bearing a positive or negative
charge. Because of their charges, ions attract a
sphere of water molecules around themselves, which
helps to keep them in solution.
Lesions Defects in teeth resulting from loss of tooth mineral
due to demineralization in localized areas of the
tooth. Lesions often, but not always, show up as
visible white or colored spots on teeth. They may or
not be detected by x-rays.
Phosphate Combination of the elements phosphorous and oxygen in
ionic form or part of an inorganic or organic
compound. An important constituent of teeth and bones.
Plaque Soft sticky film formed on teeth and between teeth due
to eating sugar-containing foods. Contains a very high
concentration of bacteria.
Plaque Acids Acidic materials formed by the break-down of sugars
due to the action of plaque bacteria. Plaque acids,
primarily lactic and acetic acid, are highly corrosive
to the tooth mineral structure, and cause
demineralization of the tooth.
Professional Gels Therapeutic materials applied to the teeth for the
prevention, arrestment, or reversal of lesions or
cavities. Applied directly by a qualified dental
practitioner or supplied to the user through a
prescription supplied by a qualified dental
practitioner.
68
<PAGE>
Remineralization Chemical process whereby calcium and phosphate, lost
during demineralization, are replaced into tooth
enamel and dentin, thereby rebuilding, restoring and
restrengthening the tooth.
Sodium Fluoride Compound consisting of the element sodium combined
with the element fluorine and which provides fluoride
ions when dissolved in water. Sodium fluoride is an
accepted active ingredient in anti-caries products for
over- the-counter use.
Tooth Enamel Outer hard mineral layer of the crown, which is the
part of the tooth that emerges from the gum.
Vickers Hardness Units
("VHUs") A standard measure of surface hardness based on the
size of indentation made by a diamond indenter.
</TABLE>
69
<PAGE>
ENAMELON, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(AUDITED)
Report of Independent
Certified Public Accountants............................. F-2
Financial statements:
Balance sheets................................... F-3
Statements of operations......................... F-4
Statements of stockholders' equity............... F-5
Statements of cash flows......................... F-6
Notes to the financial statements................ F-7-
F-17
THREE MONTHS ENDED MARCH 31, 1996 AND 1997
(UNAUDITED)
Financial statements:
Balance sheets .................................. F-18
Statements of operations ........................ F-19
Statements of stockholders' equity............... F-20
Statements of cash flows ........................ F-21
Notes to financial statements ................... F-22-
F-23
F-1
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Enamelon, Inc.
Yonkers, New York
We have audited the accompanying balance sheets of Enamelon, Inc. (A
Development Stage Company) as of December 31, 1996 and 1995, and the related
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1996 and for the period from June
9, 1992 (inception) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Enamelon, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 and for the
period from June 9, 1992 (inception) to December 31, 1996, in conformity with
generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
February 11, 1997
F-2
<PAGE>
ENAMELON, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1995 1996
ASSETS
<S> <C> <C>
Current:
Cash and cash equivalents (Note 1).................................. $ 1,790,666 $11,389,894
Prepaid expenses and other assets................................... 11,077 193,290
Inventory .................................................... -- 53,183
----------- -----------
Total current assets.............................................. 1,801,743 11,636,367
Equipment, net (Note 1 and 2)....................................... 58,077 438,348
Deferred costs, net (Note 1 and 3).................................. 172,157 308,030
Other assets ....................................................... 8,939 8,939
----------- -----------
Total assets..................................................... $ 2,040,916 $12,391,684
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................... $ -- $ 553,377
Accrued expenses.................................................... 173,939 539,894
----------- -----------
Total current liabilities......................................... 173,939 1,093,271
----------- -----------
COMMITMENTS (NOTES 6 AND 7)
STOCKHOLDERS' EQUITY (NOTE 4):
Preferred stock, $0.01 par value - shares...........................
authorized 4,172,750 none issued or outstanding -- --
Common stock, $0.001 par value - shares
authorized 20,000,000; issued
and outstanding 4,635,273 and 6,900,378........................... 4,635 6,900
Additional paid-in capital.......................................... 4,055,925 16,409,926
Accumulated deficit during the development stage.................... (2,193,583) (5,118,413)
----------- -----------
Total stockholders' equity........................................ 1,866,977 11,298,413
----------- -----------
Total liabilities and stockholders equity......................... $ 2,040,916 $12,391,684
----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
ENAMELON, INC.
(A development stage company)
Statements of Operations
<TABLE>
<CAPTION>
Period from
June 9, 1992
Year ended December 31, (Inception) to
---------------------------------- December 31,
1994 1995 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Expenses:
Marketing and selling............... -- $ -- $ 362,371 $362,371
Research and testing................ 206,126 546,994 1,761,718 2,631,305
Administrative and other............ 330,154 533,587 996,160 2,091,000
------- ----------- ----------- ---------
Total expenses.................... 536,280 1,080,581 3,120,249
Other charges (income):
Interest and dividends.............. (7,325) (19,663) (195,419) (236,232)
Write-off of deferred
offering costs (Note 1)............. 269,969 -- -- 269,969
-------- -------
Net loss .................... (798,924) $(1,060,918) $(2,924,830) $(5,118,413)
======== =========== =========== ===========
Pro forma net loss per
common share (Note 1)................ $(.21) $ (0.20) $ (0.52)
----------- -----------
Weighted average common
shares outstanding................... 3,784,800 5,234,289 5,636,935
--------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ENAMELON, INC.
(A DEVELOPMENT COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (NOTE 4)
<TABLE>
<CAPTION>
Common Stock Additional Accumulated Total
paid-in deficit during the stockholders'
Shares Par value capital development stage equity
<S> <C> <C> <C> <C> <C>
Issuance of common stock in June and December 1992............ 3,331,458 $3,331 $ 111,684 $ -- $ 115,015
Issuance of common stock for legal services rendered.......... 9,792 10 29,960 -- 29,970
Net loss...................................................... -- -- -- (37,070) (37,070)
------------------------------------- ------------ --------------
BALANCE, DECEMBER 31, 1992.................................... 3,341,250 3,341 141,644 (37,070) 107,915
Issuance of common stock at $3.06 per share in private
placement, net of costs ................................. 293,619 294 868,648 -- 868,942
Issuance of common stock for legal services rendered.......... 17,268 17 63,348 -- 63,365
Net loss...................................................... -- -- -- (296,671) (296,671)
------------------------------------ ------------ -------------
BALANCE, DECEMBER 31, 1993.................................... 3,652,137 3,652 1,073,640 (333,741) 743,551
Issuance of common stock at $1.33 per share in private
placement, net of costs ................................. 118,125 118 141,783 -- 141,901
Issuance of common stock for legal services rendered.......... 14,538 15 63,985 -- 64,000
Net loss...................................................... -- -- -- (798,924) (798,924)
------------------------------------ ------------ -------------
BALANCE, DECEMBER 31, 1994.................................... 3,784,800 3,785 1,279,408 (1,132,665) 150,528
Issuance of common stock at $1.33 per share in private
placement, net of costs ................................. 93,750 94 124,906 -- 125,000
Issuance of common stock at $4.00 per share in private
placement, net of costs ................................. 648,723 648 2,504,024 -- 2,504,672
Issuance of common stock for legal services rendered.......... 108,000 108 147,587 -- 147,695
Net loss...................................................... -- -- -- (1,060,918) (1,060,918)
------------------------------------- ------------ -------------
BALANCE, DECEMBER 31, 1995.................................... 4,635,273 4,635 4,055,925 (2,193,583) 1,866,977
Issuance of common stock for legal services rendered.......... 6,706 7 26,817 -- 26,824
Issuance of common stock in public offering, net of costs..... 1,700,000 1,700 10,423,572 -- 10,425,272
Conversion of preferred stock to common stock................. 558,399 558 1,903,442 -- 1,904,000
Warrants exercised............................................ -- -- 170 -- 170
Net loss...................................................... -- -- -- (2,924,830) (2,924,830)
------------------------------------- ------------ -------------
BALANCE, DECEMBER 31, 1996.................................... 6,900,378 $6,900 $16,409,926 $(5,118,413) $11,298,413
--------- ------ ----------- ------------ -------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ENAMELON, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Period from
June 9, 1992
(Inception) to
Year ended December 31, December 31,
1994 1995 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................... $(798,924) $(1,060,918) $(2,924,830) $(5,118,413)
Adjustments to reconcile net loss to net cash
used in operating activities:
Write-off of deferred offering costs............................. 269,969 -- -- 269,969
Stock issued for services........................................ -- 147,695 26,824 174,519
Depreciation and amortization.................................... 15,433 23,490 45,488 89,257
Increase in prepaid expenses and other assets.................... (7,896) (2,203) (182,213) (202,228)
Increase in inventory............................................ -- -- ( 53,183) (53,183)
Increase in deferred costs....................................... -- -- -- (1,133)
Increase in accrued expenses and account payable 63,633 59,287 616,078 788,017
---------- ---------- ----------- -------
Net cash used in operating activities.......................... (457,785) (832,649) (2,471,836) (4,053,195)
---------- ---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment........................................... (39,559) (28,949) (411,056) (489,678)
Patents, trademarks and licenses................................. (35,707) (27,505) (150,575) (298,181)
---------- ---------- ----------- -----------
Net cash used in investing activities.......................... (75,266) (56,454) (561,631) (787,859)
---------- ---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock............................... 141,901 2,718,459 11,900,000 15,744,317
Proceeds from sale of preferred stock............................ -- -- 2,025,000 3,025,000
Offering costs................................................... (75,520) (88,787) (1,292,305) (1,538,369)
---------- ---------- ----------- -----------
Net cash provided by financing activities...................... 66,381 2,629,672 12,632,695 16,230,948
---------- ---------- ----------- -----------
Net increase in cash and cash equivalents............................ (466,670) 1,740,569 9,599,228 11,389,894
Cash and cash equivalents, beginning of period....................... 516,767 50,097 1,790,666 --
---------- ---------- ----------- -----------
Cash and cash equivalents, end of period............................. $50,097 $1,790,666 $11,389,894 $11,389,894
========== ========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING ACTIVITIES:
The Company issued common stock for professional
services performed by unrelated parties........................ $ 64,000 $ 147,695 $ 26,824 $ 331,854
========== ========== =========== ===========
Accrued offering cost............................................ -- -- $ 282,423 -
========== ========== =========== =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
ENAMELON, INC.
(A development stage company)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
ORGANIZATION
The Company (a development stage company) was founded in June 1992 to
develop and market over-the-counter oral care products that prevent tooth decay
at its earliest stage and are based on proprietary formulations and
technologies. To date, the Company has not commenced any product
commercialization or realized any operating revenues.
The Company completed formulation of its all-family toothpaste and the
testing required by the monograph published by the Food and Drug Administration
during 1996. The Company intends to begin in the early part of 1997 to test
market ENAMELON toothpaste in several representative markets comprising
approximately 5% of all United States households. Test marketing and additional
clinical human studies to establish additional marketing claims for consumers
and dentists are expected to continue throughout 1997, with a national roll-out
of ENAMELON toothpaste in the first half of 1998. The Company expects to
continue to incur operating losses throughout this period and may require
additional financing to continue its operations thereafter.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, prepaid expenses and accrued expenses
approximate fair value because of the short maturity of these items.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of highly liquid debt
instruments with original maturities of three months or less, principally
Treasury Bills and money market accounts.
EQUIPMENT
Equipment is stated at cost. Depreciation is computed over the
estimated useful lives of the assets using the straight-line method.
F-7
<PAGE>
ENAMELON, INC.
(a development stage company)
Notes to Financial Statements
- continued -
DEFERRED COSTS
Organization costs are amortized using the straight-line method over a
sixty-month period.
Licensing costs and patent rights are amortized using the straight-line
method over seventeen years, which is the term of the licensing agreements and
the estimated useful lives of the patents, respectively.
Trademarks are being amortized using the straight-line method over
seventeen years.
Deferred offering costs related to a proposed private placement had
been deferred until the proceeds of the private placement were raised. Since the
related private placement transaction did not occur as expected, these costs
were expensed in 1994.
INCOME TAXES
Income taxes are computed in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"), which requires, among other things, a liability approach to
calculating deferred income taxes. SFAS 109 requires a company to recognize
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Deferred tax assets must be reduced by a valuation allowance to amounts expected
to be realized.
EARNINGS PER SHARE
Earnings per share are presented for 1995 and 1996 on a pro forma basis
to give retroactive effect to the conversion of the redeemable preferred stock
as a result of the public offering discussed in Note 4. The calculation of
earnings per share reflects the conversion of the preferred stock as if it
occurred on January 1, 1995.
The weighted average number of common shares outstanding used in
computing the net loss per common share for the year ended December 31, 1996 was
adjusted for the effects of the application of Securities and Commission (SEC)
Staff Accounting Bulletin (SAB) No. 83. Pursuant to SAB No. 83, common stock
issued by the Company at a price less than the initial public offering price
during the twelve months immediately preceding the initial filing of the
offering together with common stock purchase warrants and options issued during
such period with an exercise price less than the initial public offering price,
are treated as outstanding for all periods presented. Earnings (loss) per share
are
F-8
<PAGE>
ENAMELON, INC.
(a development stage company)
Notes to Financial Statements
- continued -
computed using a treasury stock method, under which the number of shares
outstanding reflects an assumed use of the proceeds from the issuance of such
shares and from the assumed exercise of such warrants and options, to repurchase
shares of the Company's common stock at the average market price outstanding
since the initial public offering.
RECENT ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," which requires that certain long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicated that the carrying amount
may not be recoverable. The adoption of this pronouncement in 1996 did not have
a significant effect on the Company's financial statements.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which allows the choice of
either the intrinsic value method or the fair value method of accounting for
employee stock options. The Company has selected the option to continue the use
of the current intrinsic value method.
PRESENTATION OF PRIOR YEAR DATA
Certain reclassifications have been made to conform prior year data
with the current presentation.
2. EQUIPMENT
<TABLE>
<CAPTION>
Equipment is summarized December 31, Estimated
as follows: Useful Life
1995 1996
---- ----
<S> <C> <C> <C> <C>
Furniture and fixtures $ 6,691 $ 27,334 5 - 7 years
Equipment 71,931 462,344 3 - 10 years
------- --------
78,622 489,678
Less: Accumulated 20,545 51,330
------- -------
depreciation
$ 58,077 $ 438,348
======== =========
</TABLE>
3. DEFERRED COSTS
Deferred costs are summarized as follows:
F-9
<PAGE>
ENAMELON, INC.
(a development stage company)
Notes to Financial Statements
- continued -
<TABLE>
<CAPTION>
December 31,
1995 1996
---- ----
<S> <C> <C>
Patent rights $ 132,207 $ 256,557
Trademarks
43,082 67,840
Licensing costs
18,962 18,962
Organization cost 1,133 2,600
------ ------
195,384 345,959
Less: Accumulated 23,227 37,929
------- -------
amortization
$ 172,157 $ 308,030
========= =========
</TABLE>
4. STOCKHOLDERS' EQUITY
REDEEMABLE PREFERRED STOCK
In January 1996, the Company issued 500,000 units at $4.00 per
unit, each consisting of 1.103 shares of 5% convertible Series A preferred
stock and 1 common stock purchase warrant, exercisable at $5.75 per share.
In April 1996, the Company issued an additional 6,250 units at $4.00 per
unit. The Company received proceeds of $2,025,000 for these issuances. In
October 1996, the 558,399 shares of Series A Preferred Stock were converted
into common stock and retired upon the consummation of the initial public
offering.
In connection with the placement of the transaction, the Company
issued warrants to purchase 100,000 shares at an exercise price of $4.80
and 23,750 shares at $3.60 per share, which expire January 23, 2003.
COMMON STOCK
In November 1992, the Board of Directors amended the Company's
Certificate of Incorporation to increase the number of authorized common
shares from 15,000 shares to 3,000,000 shares and effected a 100-for-one
stock split. The Company effectuated a 1.19688-for-one stock split of its
common stock in July 1993, a one-for-1.65068 reverse stock split of its
common stock in September 1994 and a three- for-one stock split in June
1995. All common shares, common stock options and price per share
information disclosed in the financial statements and notes thereto have
been adjusted to give retroactive effect for these stock splits. The Board
of Directors amended the
F-10
<PAGE>
ENAMELON, INC.
(a development stage company)
Notes to Financial Statements
- continued -
Company's Certificate of Incorporation to increase the Company's authorized
shares of common stock from 3,000,000 to 20,000,000.
In December 1992, 9,792 shares of stock were issued for services
performed by unrelated parties. In September 1993, November 1993 and
January 1994, an additional 4,545 share, 12,723 shares and 14,538 shares,
respectively, were issued for services performed by unrelated parties. In
May and June 1995, an additional 105,000 shares and 3,000 shares,
respectively, were issued for services performed by unrelated parties. In
January 1996, an additional 6,706 shares were issued for services performed
by unrelated parties. Common stock issued for services was valued at the
estimated fair value of the stock issued.
In January 1993, the Company issued an aggregate 293,619 shares of
its common stock to private investors, officers and directors of the
Company for the aggregate consideration of $900,000.
In September 1994, the Company sold 118,125 shares of common stock
and warrants to purchase 59,064 shares of common stock at an exercise price
of $1.33 per share for an aggregate amount of $157,500.
In May 1995, the Company issued an aggregate 93,750 shares of its
common stock and warrants to purchase 93,750 shares of common stock at an
exercise price of $1.33 per share to private investors, officers and
directors of the Company for an aggregate consideration of $125,000.
On various dates through December 31, 1995, the Company issued an
aggregate 648,723 shares of its common stock pursuant to a private
placement memorandum dated June 20, 1995 to private investors, officers and
directors of the Company for an aggregate consideration of $2,504,672, net
of expenses. In connection with the private placement, the Company
authorized the issuance of warrants to purchase 26,276 shares of common
stock at an exercise price of $4.00 per share, and 1,562 shares of common
stock at an exercise price of $3.60 per share, which expire December 14,
2000, to representatives in the offering.
INITIAL PUBLIC OFFERING
In October 1996, the Company completed the initial public offering of
1,700,000 shares of common stock at $7.00 per share. Cash proceeds net of costs
was $10,425,000. Concurrent with the public offering, 558,399 shares of
redeemable preferred stock were automatically converted into an equivalent
number of shares of common stock.
F-11
<PAGE>
ENAMELON, INC.
(a development stage company)
Notes to Financial Statements
- continued -
STOCK OPTION PLAN
In 1993, the Company adopted the 1993 Stock Option Plan (the
"Option Plan"). The Option Plan provides for the grant of options to
qualified employees (including officers and directors) of the Company to
purchase an aggregate of 1,500,000 shares of common stock. The Option Plan
is administered by the Board of Directors or a committee of the Board of
Directors (the "Compensation Committee") whose members are not entitled to
receive options under the Option Plan (excluding options granted
exclusively for directors' fees). Options granted under the Plan may or may
not be "incentive stock options" as defined in the Internal Revenue Code
("Incentive Options") depending upon the terms established by the
Compensation Committee at the time of grant. The exercise price shall not
be less than the fair market value of the Company's common stock as of the
date of grant (110% of the fair market value if the grant is an Incentive
Option to an employee who owns more than 10% of the Company's outstanding
common stock). Options granted under the Plan are subject to a maximum term
of 10 years.
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, requires
the Company to provide pro forma information regarding net income and
earnings per share as if compensation cost for the Company's stock option
plans had been determined in accordance with the fair value based method
prescribed in SFAS No. 123. The Company estimates the fair value of each
stock option at the grant date by using the Black- Scholes option-pricing
model with the following weighted-average assumptions used for grants
during the period from January 1, 1995 to October 24, 1996 ("pre IPO"), and
October 25, 1996 to December 31, 1996 ("post IPO"), respectively; no
dividend yield for both years; expected volatility of .01 and 35 percent;
risk-free interest rates of 6.5 and 6.2 percent and expected lives of 6.3
and 6.8 years for the options.
Under the accounting provisions of SFAS No. 123, the Company's net
loss and loss per share would have been reduced to the pro forma amounts
indicated below:
F-12
<PAGE>
ENAMELON, INC.
(a development stage company)
Notes to Financial Statements
- continued -
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Net loss
As reported $1,060,918 $2,924,830
Pro forma $1,735,766 $3,365,581
Loss per share
As reported $(0.20) $(0.52)
Pro forma $(0.33) $(0.60)
</TABLE>
A summary of activity for the Company's Plan, including those
options granted pursuant to the terms of certain employment and other
agreements (see Note 7), is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTION SHARES EXERCISE PRICE
<S> <C> <C>
Balance, January 1, 1995 380,487 $3.02
Granted 937,081 2.35
Exercised -- --
Canceled ( 108,762) 3.37
---------- ----
Balance, December 31, 1995 1,208,806 2.50
Granted 160,000 6.51
Exercised -- --
Canceled -- --
---------- ----
Balance, December 31, 1996 1,368,806 $2.97
========== =====
</TABLE>
<TABLE>
<CAPTION>
December 31,
1995 1996
----
<S> <C> <C>
Options exercisable 1,148,806 1,192,806
Weighted average exercise
price of option exercisable $ 2.56 $ 2.57
Weighted average fair value of $674,848 $440,751
options granted during the
year
</TABLE>
The following table summarized information about fixed stock
options outstanding at December 31, 1996:
F-13
<PAGE>
ENAMELON, INC.
(a development stage company)
Notes to Financial Statements
- continued -
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/96 Life Price at 12/31/96 Price
--------------- ----------- ------ ------- ----------- ------
<S> <C> <C> <C> <C> <C>
$1.33 to $2.67 405,213 6.2 $1.37 375,213 $1.38
$3.00 to $4.00 803,593 3.1 $3.07 803,593 $3.07
$5.81 to $7.00 160,000 7.5 $6.51 14,000 $6.25
--------- ------
$1.33 to $7.00 1,368,806 4.6 $2.97 1,192,806 $2.57
========== =========
</TABLE>
5. INCOME TAXES
At December 31, 1996, the Company had a deferred tax asset of
approximately $2,047,000 primarily attributable to net operating loss
carryforwards. The deferred tax asset has been fully reserved by a
valuation allowance of the same amount.
The net operating loss carryforwards at December 31, 1996 totaling
approximately $5,118,000 will expire if not used by the period from 2007
through 2011 and may be limited by United States federal tax law as a
result of future changes in ownership.
6. COMMITMENTS
LEASES
The Company leases office facilities in New York from a related
party and laboratory facilities in New Jersey. The lease for the laboratory
facilities includes provisions requiring the Company to pay a proportionate
share of the increase in real estate taxes and operating expenses over base
period amounts. The minimum rents for the leased property for the
subsequent years are as follows:
YEAR ENDING DECEMBER 31,
1997 $ 79,000
1998 52,000
------------
$ 131,000
F-14
<PAGE>
ENAMELON, INC.
(a development stage company)
Notes to Financial Statements
- continued -
Rent expense for the years ended December 31, 1995 and 1996 was
$35,500 and $83,028 respectively, and $160,483 for the period from June 9,
1992 (inception) to December 1996.
PATENT LICENSE AGREEMENTS
In June 1992, the Company entered into a patent licensing
agreement with the ADAHF, the holder and/or the applicant for the patents
for the Amorphous Calcium Compounds ("ACC"). The agreement, as modified,
grants the Company the exclusive United States license to manufacture and
sell dentifrices, chewing gum, food and confection formulated according to
the patented process in return for royalty payments to the licensor. In
November 1992, the Company entered into an exclusive international patent
licensing agreement which, as modified, granted the Company patent license
rights in Austria, Belgium, Canada, China, Denmark, France, Germany,
Greece, Ireland, Italy, Japan, Luxembourg, Monaco, the Netherlands,
Portugal, Spain, Sweden, Switzerland, Liechtenstein, Taiwan and the United
Kingdom. The grants extend to improvements in patent compounds and
utilities in dentifrices, chewing gum, food and confectionery products
developed by the ADAHF.
The exclusive United States license has been granted for an
initial term from the date of the agreement until three years following the
physical and chemical stabilization of the formula in a commercially viable
product and following the first Food and Drug Administration ("FDA")
approval necessary to market any ACC products in their commercially viable
form to professionals or the general public. The foreign license expires
upon the earlier of the termination of the United States license or the
expiration of the foreign patents license thereunder. The licenses are
renewable in four year increments for the life of the ACC patents subject
to minimum royalty payment terms, and transferable under certain conditions
with the prior written consent of the licensor, which consent may not be
unreasonably withheld. The licenses are subject to cancellation in the
event the Company fails to comply with its terms and conditions, including
payment of royalties and other amounts due thereunder.
The Company was also granted an option and right of first refusal,
as amended, for a limited license under future patents and patent
applications for ACC for all territories not included within the licensed
territories under the foreign patent license, with respect to dentifrices,
chewing gum, food and confection. Before granting such a license to third
parties, the ADAHF must first offer the license to the Company on the terms
consistent with the foreign license agreement. To the extent the ADAHF has
not granted the license to a third party due to the Company's failure to
exercise its right of first refusal, the Company has the option to receive
a license in any
F-15
<PAGE>
ENAMELON, INC.
(a development stage company)
Notes to Financial Statements
- continued -
of such territories with the terms consistent with the foreign license
agreement.
In consideration for the grant of the exclusive United States
license, the Company is required to make royalty payments of four percent
of net sales, subject to minimum royalty payments of $7,000. In
consideration for the grant of foreign patent rights, the Company is
required to pay seven percent of net sales and four percent in a joint
venture and bear the costs of prosecution of foreign patent applications.
However, to the extent the ADAHF grants a foreign license to a third party
to use ACC in products other than dentifrices, chewing gum, food and
confection, then such third party must share with the Company the costs
associated with the foreign patent applications. If the Company sublicenses
a foreign patent, it will pay to the ADAHF twenty-five percent of the gross
income resulting from such sublicenses actually received by the Company.
7. EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has established a five-year incentive compensation program
(the "Incentive Compensation Program") for certain of its officers and key
employees. The Incentive Compensation Program provides for the establishment of
a yearly pool, equal to 5% of the Company's net income before expenses pursuant
to the Incentive Compensation Program, taxes and extraordinary items ("Plan Net
Income"). Such pool shall only be established in the event that the Company's
Plan Net Income equals or exceeds by at lease 5% the Company's Plan Net Income
for the prior fiscal year.
The Company has entered into a five-year employment agreement for the
services of a Chairman of the Board of Directors and Chief Executive Officer
commencing January 1, 1994. The agreement, as amended, provides for an annual
salary of $175,000 in 1996 and $250,000 per year in January 1997, subject to
adjustment, as well as 50% of all amounts allocated by the Board of Directors to
the Company's Incentive Compensation Program. The Company has granted this
officer an option to purchase 450,000 shares of common stock at an exercise
price of $3.00 per share, which expires five years from the date of grant.
The Company entered into an employment agreement for the services of a
President and Chief Operating Officer which provides for an annual salary of
$150,000 in 1996 and $175,000 in 1997, subject to adjustment, as well as 15% of
all amounts allocated by the Board of Directors to the Company's Incentive
Compensation Program. In addition, in 1996 the Company granted this individual
an option to purchase 99,000 shares of common stock at an exercise price of
$3.00 per share which expires seven years from the date of grant.
F-16
<PAGE>
ENAMELON, INC.
(a development stage company)
Notes to Financial Statements
- continued -
In May 1995, the Company entered into a three-year employment agreement
for the services of a Vice President - Product Development and Operations and
Secretary. This agreement, which replaced a prior consulting agreement (the
"Consulting Agreement"), provides for annual compensation of $105,000 in the
first year, $115,000 in the second year and $125,000 in the third year, subject
to adjustment, as well as 12.5% of all amounts allocated by the Board of
Directors to the Company's Incentive Compensation Program. In addition, options
to purchase 108,762 shares of common stock at various exercise prices previously
granted to the individual pursuant to the Consultanting Agreement were canceled
and regranted to the officer at an exercise price of $1.33 per share.
Furthermore, the Company has granted this individual an option to purchase an
additional 90,000 shares of common stock at an exercise price of $1.33 per share
which expires seven years from the date of grant.
The Company has entered into a an employment agreement for a term of
three years expiring January 2000, for the services of a Vice President of
Technology and Clinical Research. The agreement as amended provides for an
annual salary of $143,000 in 1997, $151,000 in 1998 and $160,00 in 1999, as well
as 10% of all amounts allocated by the Board of Directors to the Company's
Incentive Compensation Program. In addition, the Company has granted this
individual an option to purchase 150,000 shares of common stock at an exercise
price of $1.33 per share, which expires ten years from the date of grant.
The Company has entered into an employment agreement commencing August
1996 for the services of a Vice President and Chief Financial Officer. The
agreement provides for an annual salary of $89,000, subject to adjustment, as
well as not less than 5% of all amounts allocated by the Board of Directors to
the Company's Incentive Compensation Program. In addition, the Company has
granted this individual an option to purchase 25,000 shares of the Company's
common stock subject to certain vesting provisions at an exercise price of $7.00
per share.
F-17
<PAGE>
ENAMELON, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS March 31, 1997
--------------
<S> <C>
CURRENT:
Cash and cash equivalents .............................................. $ 9,324,317
Prepaid expenses and other assets . .................................... 110,149
Inventory............................................................... 200,126
-----------
Total currents assets................................................... 9,634,592
Equipment, less accumulated depreciation of
$62,079................................................................. 981,889
Deferred costs, less accumulated amortization of
$43,277................................................................. 325,603
Other assets - security deposits........................................ 9,023
-----------
TOTAL ASSETS............................................................ $10,951,107
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Account Payable......................................................... $ 871,018
Accrued expenses........................................................ 731,046
-----------
Total current liabilities............................................... 1,602,064
-----------
COMMITMENTS
STOCKHOLDERS' EQUITY (note 2) Preferred stock, $0.01 par value - shares
authorized 4,172,750; none issued or outstanding Common stock, $0.001 par value
- - shares authorized 20,000,000;issued and
outstanding and 6,900,378............................................... 6,900
Additional paid-in capital.............................................. 16,409,926
Accumulated deficit during the development stage........................
........................................................................ (7,067,783)
-----------
Total stockholders' equity.............................................. 9,349,043
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............................. $10,951,107
-----------
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
ENAMELON, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Period from
June 9, 1992
Three Months Ended (Inception)
March 31, to March 31, 1997
----------------------- -----------------
1997 1996
---- ----
<S> <C> <C> <C>
Expenses:
Marketing and selling $ 853,018 $ 4,000 $ 1,215,389
Research and development 746,056 473,182 3,376,702
Administrative and other.. 481,252 75,025 2,572,911
----------- -------- -----------
Total expenses.. 2,080,326 552,207 7,165,002
Other charges (income):
Interest and dividends (130,956) (35,435) (367,188)
Write-off of deferred
offering costs. -- -- 269,969
----------- --------- -----------
Net loss $(1,949,370) $(516,772) $(7,067,783)
----------- --------- -----------
Pro forma net loss per
common share (note 2) $ (0.28) $ (0.09)
------- -------
Weighted average common
shares outstanding 6,900,378 5,563,389
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
ENAMELON, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional deficit during the Total
paid-in development stockholders'
Shares Par value capital stage equity
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 6,900,378 $ 6,900 $ 16,409,926 $ (5,118,413) $11,298,413
Net loss -- -- -- (1,949,370) (1,949,370)
-------------- ------------------------------- ------------- ------------
Balance, March 31, 1997 6,900,378 $ 6,900 $ 16,409,926 $ (7,067,783) $ 9,349,043
--------- -------- ------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
ENAMELON, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Period from
June 9, 1992
(Inception) to
Three Months ended March 31, March 31,
1997 1996 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss.............................................. $(1,949,370) $ (516,772) $(7,067,783)
Adjustments to reconcile net loss to net
cash provided by (used in)
operating activities:
Write-off of deferred offering costs.................. -- -- 269,969
Stock issued for services............................. -- 26,824 174,519
Depreciation and amortization......................... 16,097 8,863 105,354
Change in operating assets and liabilities:
Decrease (increase) in prepaid expenses and
other assets........................................ 83,057 (832) (119,171)
Increase in inventory................................. (146,943) (200,126)
Increase in accrued expenses and
account payable..................................... 631,216 95,491 1,418,100
----------- ---------- -----------
Net cash used in operating activities................. (1,365,943) (386,426) (5,419,138)
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment................................ (554,290) (71,378) (1,043,968)
Patents, trademarks and licenses...................... (22,921) (31,772) (321,102)
----------- ------- -----------
Net cash used in investing activities................. (577,211) (103,150) (1,365,070)
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock.................... -- -- 15,744,317
Proceeds from sale of preferred stock................. -- 1,979,000 2,025,000
Offering costs........................................ (122,423) (265,000) (1,660,792)
----------- ---------- -----------
Net cash provided by financing
activities.......................................... (122,423) 1,714,000 16,108,525
----------- ---------- -----------
Net increase (decrease) in cash and
cash equivalents.................................... (2,065,577) 1,224,424 9,324,317
Cash and cash equivalents,
beginning of period................................. 11,389,894 1,790,666 --
----------- ---------- -----------
Cash and cash equivalents,
end of period....................................... $ 9,324,317 $3,015,090 $ 9,324,317
----------- ---------- -----------
SUPPLEMENTAL DISCLOSURES OF
NONCASH FINANCING ACTIVITIES:
The Company issued common stock for
professional services performed by
unrelated parties................................... $ -- $ 26,824 $ 331,854
----------- ---------- -----------
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
ENAMELON, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(UNAUDITED)
1. Statement of information furnished
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 210 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation have been included.
Results for the interim period ended March 31, 1997 are not necessarily
indicative of results for the entire year.
For further information, refer to the annual financial statements and
footnotes thereto included elsewhere herein.
2. Amounts per share
Net loss per share is presented for the three months ended March 31,
1996 on a pro forma basis to give effect to the conversion of the redeemable
preferred stock as a result of the public offering consummated in October 1996.
The calculation of net loss per share reflects the conversion of the preferred
stock as if it occurred on January 1, 1996.
The weighted average number of common shares outstanding used in
computing the pro forma net loss per common share was adjusted for the effects
of the application of Securities and Exchange Commission (SEC) Staff Accounting
Bulletin (SAB) No.83. Pursuant to SAB No. 83, common stock issued by the Company
at a price less than the initial public offering price during the twelve months
immediately preceding the initial public offering, together with common stock
purchase warrants and options issued during such period with an exercise price
less than the initial public offering price, are treated as outstanding for all
periods presented. Earnings (loss) per share are computed using the treasury
stock method, under which the number of shares outstanding reflects an assumed
use of the proceeds from the issuance of such shares and from the assumed
exercise of such warrants and options, to repurchase shares of the Company's
common stock at the initial public offering price.
3. Inventory is summarized as follows:
March 31, 1997
Raw materials $ 89,842
F-22
<PAGE>
ENAMELON, INC.
(a development stage company)
Notes to Financial Statements
- continued -
Work in process 10,350
Finished goods 99,934
--------
$200,126
========
Inventories are valued at the cost of materials and contract manufacturing
by the first-in, first-out method.
4. Effect of New Accounting Pronouncement
In February 1997, the FASB issued SFAS No. 128 "Earning Per
Share". In accordance with this statement, basic earnings per share are
based on the weighted average shares outstanding during the period and
diluted earnings per share are based on the weighted average number of
common shares and all dilutive potential common shares that were
outstanding during the period. In addition, prior period financial
statements have to be restated to reflect the change in accounting
principle. Effective December 15, 1997, the Company will adopt this
statement. The effect of the adoption will not have a material impact on
the Company's net loss per share previously reported.
F-23
<PAGE>
No person has been authorized to give any information or to make
any representations in connection with this offering other than those
contained in or incorporated by reference into the Prospectus and, if given
or made, such other information and representations must not be relied upon
as having been authorized by the Company or the Underwriters. This
Prospectus does not constitute an offer to sell or the solicitation of an
offer to buy any securities other than the securities to which it relates
or any offer to sell or the solicitation of an offer to buy such securities
in any circumstances in which such offer or solicitation is unlawful.
Subject to any duties and obligations under applicable securities laws to
update information contained or incorporated by reference herein, neither
the delivery of this Prospectus nor any sales made hereunder shall, under
any circumstances, create any implication that there has been no change in
the affairs of the Company since the date hereof or that the information
contained herein is correct as of any time subsequent to the date
hereof. __________________
TABLE OF CONTENTS
PAGE
Prospectus Summary...............................
Risk Factors.....................................
Use of Proceeds..................................
Dividend Policy..................................
Capitalization...................................
Selected Financial Data..........................
Management's Discussion and
Analysis of Financial Condition
and Results of Operations......................
Business.........................................
Management.......................................
Principal Stockholders...........................
Certain Transactions.............................
Description of Securities........................
Shares Eligible for Future Sale..................
Underwriting.....................................
Legal Matters....................................
Experts..........................................
Additional Information...........................
Index to Financial Statements....................
ENAMELON, INC.
1,200,000 SHARES
COMMON STOCK
PROSPECTUS
JULY 11, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by the
Registrant in connection with the issuance and distribution of the
securities being registered hereunder.
All of the amounts shown are estimates (except for the SEC and the NASD
filing fees).
SEC filing fee.................................. $ 5,727.27
NASD, Inc. filing fee........................... $ 2,390.00
NASDAQ listing fee.............................. $17,500.00
Transfer agent's fee............................ $ 2,500.00
Printing and engraving expenses................. $ 2,500.00
Legal fees and expenses......................... $40,000.00
Blue sky filing fees and expenses
(including counsel fees).............. $ 2,000.00
Accounting fees and expenses.................... $10,000.00
Miscellaneous expenses.......................... $12,982.73
Total................................. $95,600.00
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, the
Registrant has broad powers to indemnify its directors and officers against
liabilities they may incur in such capacities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"). The
Registrant's Bylaws provide that the Registrant will indemnify its
directors, executive officers, other officers, employees and agents to the
fullest extent permitted by Delaware law.
The Registrant's Certificate of Incorporation provides for the
elimination of liability for monetary damages for breach of the directors'
fiduciary duty of care to the Registrant and its stockholders. These
provisions do not eliminate the directors' duty of care and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to the Registrant, for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of
law, for any transaction from which the director derived an improper
personal benefit, and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law. The
provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Effective November 30, 1992, the Company effectuated a 100-for-one
stock split of its Common Stock. In July 1993, the Company effectuated a
1.19688-for-one stock split of its Common Stock. In September 1994, the
Company effectuated a one-for-1.65068 stock split of its Common Stock. In
June 1995, the Company effectuated a three-for-one stock split of its
Common Stock. All of the following information regarding the issuance of
shares of the Company's Common Stock has been adjusted, where appropriate,
to reflect such stock splits. Since June 1994, the Registrant has sold the
following securities without registration under the Securities Act:
(1) In September 1994, the Registrant sold an aggregate of 118,125
shares of its Common Stock and Warrants to purchase 59,064 shares of Common
Stock at an exercise price of $1.33 a share to six unaffiliated persons,
for an aggregate consideration of $157,500 ($1.33 per share ascribing no
value to the Warrants).
(2) In May 1995, the Registrant sold an aggregate of 93,750 shares
of its Common Stock and Warrants to purchase 93,750 shares of Common Stock
at an exercise price of $1.33 a share to eight persons, for an aggregate
consideration of $125,000 ($1.33 per share ascribing no value to the
Warrants). Eric Horodas, a Director of the Registrant, acquired 9,375
shares of Common Stock and 9,375 Warrants.
(3) In June 1995 the Registrant sold an aggregate of 3,000 shares
of its Common Stock to an unrelated party in consideration for services
rendered to the Registrant, valued at $8,045 ($2.68 per share).
(4) In August through December 1995, the Registrant sold an
aggregate of 648,723 shares of its Common Stock to an aggregate of 112
unaffiliated persons, for an aggregate consideration of $2,594,892 ($4.00
per share).
(5) In connection with the sales in ITEM 15(4) above, the
Registrant authorized the issuance of warrants to purchase an aggregate of
26,276 shares of Common Stock at an exercise price of $4.00 per share, and
1,562 shares of Common Stock at an exercise price of $3.60 per share.
(6) In January 1996 the Registrant sold an aggregate of 6,706
shares of its Common Stock to an unrelated party in consideration for
services rendered to the Registrant, valued at $26,824 ($4.00 per share).
(7) In January 1996, the Registrant sold an aggregate of 500,000
Units to an aggregate of 19 unaffiliated persons, for an aggregate
consideration of $2,000,000 ($4.00 per Unit). Each Unit consisted of 1.103
shares of 5% Convertible Preferred Stock and 1 Common Stock Purchase
Warrant, exercisable at $5.75 per share.
(8) In connection with the placement of the offering in ITEM 15(7)
above, the Registrant authorized the issuance of warrants to purchase an
aggregate of 100,000 shares of Common Stock at an exercise price of $4.80
per share, and 23,750 shares of Common Stock at an exercise price of $3.60
per share.
<PAGE>
(9) In April 1996, the Registrant sold an aggregate of 6,250 Units
to an unrelated party, for an aggregate consideration of $25,000 ($4.00 per
Unit). Each Unit consisted of 1.103 shares of 5% Convertible Preferred
Stock and 1 Common Stock Purchase Warrant, exercisable at $5.75 per share.
(10) In April and May of 1997, the Registrant sold an
aggregate of 35,375 shares of its Common Stock to an aggregate of four
unaffiliated persons for an aggregate consideration of $100,373.
(11) In June 1997 the Registrant sold an aggregate of
1,080,000 shares of Common Stock to 42 unaffiliated persons, for an
aggregate consideration of $14,040,000 ($13.00 per share).
The issuances described in ITEMS 15(1),(3), (5), (6) and (8) above were
made in reliance upon the exemption from the registration requirements of
the Securities Act provided by Section 4(2) of the Securities Act for
transactions by an issuer not involving a public offering. The issuances
described in ITEMS 15 (2), (4), (7), (9) and (11) above were made in
reliance upon the exemption from the registration requirements of the
Securities Act for transactions by an issuer not involving a public
offering provided by Section 4(6) of the Securities Act and Regulation D
promulgated thereunder. The recipients of the securities in each of the
above transactions represented their intentions to acquire the securities
for investment only and not with a view to or a sale in connection with any
distribution thereof. Allen & Company Incorporated acted as the placement
agent for the issuances described in ITEM 15(7) above and received a fee of
100,000 warrants described in 15(8). Claremont York Capital acted as a
finder in such transaction and received 23,750 warrants as described in
15(8). No underwriter or underwriting discount or commission was involved
in any other issuance. The issuances described in ITEM 15(10) were made in
reliance upon Section 3(b) of the Securities Act and Rule 701 promulgated
thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
The following Exhibits are filed herewith and made a part hereof.
3.1 Certificate of Incorporation of the Company
3.2 By-Laws of the Company
5.1 Opinion of Snow Becker Krauss P.C.
10.1 Enamelon, Inc. 1993 Stock Option Plan
10.2 Enamelon, Inc. 1997 Stock Option Plan
23.1 Consent of Snow Becker Krauss P.C. (contained in
Exhibit 5.1)
23.2 Consent of BDO Seidman, LLP
24.1 Power of Attorney (see Signature Page to this Registration
Statement)
(b) FINANCIAL STATEMENT SCHEDULES
<PAGE>
All other schedules have been omitted because the information to be set
forth therein is not applicable or is shown in the financial statements or
the notes thereto.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and
(iii) include any additional or changed material information on the
plan of distribution
(2) For determining liability under the Act, to 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) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
YONKERS, STATE OF NEW YORK, ON THE 11th DAY OF JULY 1997.
ENAMELON, INC.
By: /s/ Dr. Steven R. Fox
DR. STEVEN R. FOX, CHAIRMAN
OF THE BOARD OF DIRECTORS AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
EACH OF THE UNDERSIGNED HEREBY AUTHORIZES DR. STEVEN R. FOX AS HIS
ATTORNEY-IN-FACT TO EXECUTE IN THE NAME OF EACH SUCH PERSON AND TO FILE
SUCH AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION
STATEMENT AS THE REGISTRANT DEEMS APPROPRIATE AND APPOINTS SUCH PERSON AS
ATTORNEY-IN-FACT TO SIGN ON HIS BEHALF INDIVIDUALLY AND IN EACH CAPACITY
STATED BELOW AND TO FILE ALL AMENDMENTS, EXHIBITS, SUPPLEMENTS AND
POST-EFFECTIVE AMENDMENTS TO THIS REGISTRATION STATEMENT.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES STATED:
<TABLE>
<CAPTION>
SIGNATURE
<S> <C> <C>
Chairman of the Board of Directors and Chief
/s/ Dr. Steven R. Fox Executive Officer (Principal Executive July 11,
DR. STEVEN R. FOX Officer) 1997
/s/ Edwin Diaz Treasurer, Vice President - Finance and Chief July 11,
EDWIN DIAZ Financial Officer (Principal Financial Officer) 1997
/s/ Dr. Bert D. Gaster Director July 11,
DR. BERT D. GASTER 1997
/s/ Richard A. Gotterer Director July 11,
RICHARD A. GOTTERER 1997
/s/ Eric D. Horodas Director July 11,
ERIC D. HORODAS 1997
/s/ Dr. S.N. Bhaskar Director July 11,
DR. S.N. BHASKAR 1997
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY NUMBERED
EXHIBIT PAGE DESCRIPTION
<S> <C>
3.1 Certificate of Incorporation of the
Company*
3.2 By-Laws of the Company*
5.1 Opinion of Snow Becker Krauss P.C.
10.1 Enamelon, Inc. 1993 Stock Option
Plan*
10.2 Enamelon, Inc. 1997 Stock Option
Plan
23.1 Consent of Snow Becker Krauss P.C.
(contained in Exhibit 5.1)
23.2 Consent of BDO Seidman, LLP
24.1 Power of Attorney (see Signature
Page to this Registration Statement)
</TABLE>
------------------
* Incorporated by reference to the Company's Form S-1 effective
October 24, 1996.
<PAGE>
Exhibit 5.1
Opinion of Snow Becker Krauss P.C.
<PAGE>
SNOW BECKER KRAUSS P.C.
Attorneys at Law
605 Third Avenue
New York, New York 10158
(212) 687-3860
July 11, 1997
Board of Directors
Enamelon, Inc.
15 Kimball Avenue
Yonkers, New York 10704
Gentlemen:
You have requested our opinion, as counsel for Enamelon, Inc., a
Delaware corporation (the "Company"), in connection with the registration
statement on Form S-1 (No. 333- ) (the "Registration Statement"), under the
Securities Act of 1933 (the "Act"), filed by the Company with the
Securities and Exchange Commission.
The Registration Statement relates to an offering of up to
1,200,000 shares (the "Shares") of common stock, par value $0.001 ("Common
Stock"), of the Company.
We have examined such records and documents and made such
examinations of law as we have deemed relevant in connection with this
opinion. It is our opinion that when there has been compliance with the Act
and the applicable state securities laws the Shares will have been duly
authorized and, when issued, delivered and paid for in the manner described
in the Registration Statement, will be legally issued and the Shares, when
so issued, delivered and paid for will also be 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 our firm under the
caption "Legal Matters" in the Registration Statement. In so doing, we do
not admit that we are in the category of persons whose consent is required
under Section 7 of the Act or the rules and regulations of the Securities
and Exchange Commission promulgated thereunder.
Very truly yours,
/s/ Snow Becker Krauss P.C.
SNOW BECKER KRAUSS P.C.
<PAGE>
Exhibit 10.2
Enamelon, Inc. 1997 Stock Option Plan
<PAGE>
ENAMELON, INC.
1997 INCENTIVE STOCK OPTION PLAN
1. Purposes.
The ENAMELON, INC. 1997 INCENTIVE STOCK OPTION PLAN (the "Plan") is
intended to provide the employees, directors, independent contractors and
consultants of Enamelon Corporation (the "Company") and/or any subsidiary
or parent thereof with an added incentive to commence and/or continue their
services to the Company and to induce them to exert their maximum efforts
toward the Company's success. By thus encouraging employees, directors,
independent contractors and consultants and promoting their continued
association with the Company, the Plan may be expected to benefit the
Company and its stockholders. The Plan allows the Company to grant
Incentive Stock Options ("ISOs") (as defined in Section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code"), Non-Qualified Stock
Options ("NQSOs") not intended to qualify under Section 422(b) of the Code
and Stock Appreciation Rights ("SARs") (collectively the "Options"). The
vesting of one or more Options granted hereunder may be based on the
attainment of specified performance goals of the participant or the
performance of the Company, one or more subsidiaries, parent and/or
division of one or more of the above.
2. Shares Subject to the Plan.
The total number of shares of Common Stock of the Company, $.001 par
value per share, that may be subject to Options granted under the Plan
shall be seven hundred fifty thousand (750,000) in the aggregate, subject
to adjustment as provided in Paragraph 8 of the Plan; however, the grant of
an ISO to an employee together with a tandem SAR or any NQSO to an employee
together with a tandem SAR shall only require one share of Common Stock
available subject to the Plan to satisfy such joint Option. The Company
shall at all times while the Plan is in force reserve such number of shares
of Common Stock as will be sufficient to satisfy the requirement of
outstanding Options granted under the Plan. In the event any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole
or in part, the unpurchased shares subject thereto shall again be available
for granting of Options under the Plan.
3. Eligibility.
All employees of the Company or of a "subsidiary" or "parent" of the
Company, as the quoted terms are defined within Section 424 of the Code are
eligible to receive ISO's or ISO's in tandem with SAR's (provided the SAR
meets the requirements set forth in Temp. Reg. Section 14a.422A-1, A-39 (a)
through (e) inclusive). ISO's or ISO's in tandem with SAR's (provided the
SAR meets the requirements set forth in Temp. Reg. Section 14a.422A-1, A-39
(a) through (e) inclusive) may be granted from time to time under the Plan
to one or more employees of the Company or of a "subsidiary" or "parent" of
the Company, as the quoted terms are defined within Section 424 of the
Code. An Officer is an employee for the above purposes. However, a director
of the Company who is not otherwise an employee is not deemed an employee
for such purposes. NQSOs and NQSO's in tandem with SARs may be granted from
time to time under the Plan to
<PAGE>
one or more employees of the Company, Officers, members of the Board of
Directors, independent contractors, consultants and other individuals who
are not employees of, but are involved in the continuing development and
success of the Company and/or of a subsidiary of the Company, including
persons who have previously been granted Options under the Plan.
4. Administration of the Plan.
(a) The Plan shall be administered by the Board of Directors of the
Company as such Board of Directors may be composed from time to time and/or
by a Stock Option Committee or Compensation Committee (the "Committee")
which shall be comprised of solely of at least two Outside Directors (as
such term is defined in regulations promulgated from time to time with
respect to Section 162(m)(4)(C)(i) of the Code) appointed by such Board of
Directors of the Company. As and to the extent authorized by the Board of
Directors of the Company, the Committee may exercise the power and
authority vested in the Board of Directors under the Plan. Within the
limits of the express provisions of the Plan, the Board of Directors or
Committee shall have the authority, in its discretion, to determine the
individuals to whom, and the time or times at which, Options shall be
granted, the character of such Options (whether ISOs, NQSOs, and/or SARs in
tandem with NQSOs, and/or SARs in tandem with ISOs) and the number of
shares of Common Stock to be subject to each Option, the manner and form in
which the optionee can tender payment upon the exercise of his Option, and
to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions of
Option agreements that may be entered into in connection with Options
(which need not be identical), subject to the limitation that agreements
granting ISOs must be consistent with the requirements for the ISOs being
qualified as "incentive stock options" as provided in Section 422 of the
Code, and to make all other determinations and take all other actions
necessary or advisable for the administration of the Plan. In making such
determinations, the Board of Directors and/or the Committee may take into
account the nature of the services rendered by such individuals, their
present and potential contributions to the Company's success, and such
other factors as the Board of Directors and/or the Committee, in its
discretion, shall deem relevant. The Board of Directors' and/or the
Committee's determinations on the matters referred to in this Paragraph
shall be conclusive.
(b) Notwithstanding anything contained herein to the contrary, at
anytime during the period the Company's Common Stock is registered pursuant
to Section 12(g) of the Securities Exchange Act of 1934 (the "1934 Act),
the Committee, if one has been appointed to administer all or part of the
Plan, shall have the exclusive right to grant Options to Covered Employees
as defined under Section 162(m)(3) of the Code (generally executive
officers subject to Section 16 of the 1934 Act) and set forth the terms and
conditions thereof. With respect to persons subject to Section 16 of the
1934 Act, transactions under the Plan are intended, to the extent possible,
comply with all applicable conditions of Rule 16b-3, as amended from time
to time, (and its successor provisions, if any) under the 1934 Act and
Section 162(m)(4)(C) of the Code of 1986, as amended. To the extent any
provision of the Plan or action by the Board of Directors or Committee
fails to so comply, it shall be deemed null and void, to the extent
permitted by law and deemed advisable by the Board of Directors and/or such
Committee.
5. Terms of Options.
<PAGE>
Within the limits of the express provisions of the Plan, the Board of
Directors or the Committee may grant either ISOs or NQSOs or SARs in tandem
with NQSOs or SARs in tandem with ISOs. An ISO or an NQSO enables the
optionee to purchase from the Company, at any time during a specified
exercise period, a specified number of shares of Common Stock at a
specified price (the "Option Price"). The optionee, if granted a SAR in
tandem with a NQSO or ISO, may receive from the Company, in lieu of
exercising his option to purchase shares pursuant to his NQSO or ISO, at
one of the certain specified times during the exercise period of the NQSO
or ISO as set by the Board of Directors or the Committee, the excess of the
fair market value upon such exercise (as determined in accordance with
subparagraph (b) of this Paragraph 5) of one share of Common Stock over the
Option Price per share specified upon grant of the NQSO or ISO/SAR
multiplied by the number of shares of Common Stock covered by the SAR so
exercised. The character and terms of each Option granted under the Plan
shall be determined by the Board of Directors and/or the Committee
consistent with the provisions of the Plan, including the following:
(a) An Option granted under the Plan must be granted within 10 years
from the date the Plan is adopted, or the date the Plan is approved by the
stockholders of the Company, whichever is earlier.
(b) The Option Price of the shares of Common Stock subject to each ISO
and each SAR issued in tandem with an ISO shall not be less than the fair
market value of such shares of Common Stock at the time such ISO is
granted. Such fair market value shall be determined by the Board of
Directors and, if the shares of Common Stock are listed on a national
securities exchange or traded on the over-the-counter market, the fair
market value shall be the closing price on such exchange, or the mean of
the closing bid and asked prices of the shares of Common Stock on the
over-the-counter market, as reported by the Nasdaq Stock Market, the
National Association of Securities Dealers OTC Bulletin Board or the
National Quotation Bureau, Inc., as the case may be, on the day on which
the Option is granted or, if there is no closing price or bid or asked
price on that day, the closing price or mean of the closing bid and asked
prices on the most recent day preceding the day on which the Option is
granted for which such prices are available. If an ISO or SAR in tandem
with an ISO is granted to any individual who, immediately before the ISO is
to be granted, owns (directly or through attribution) more than 10% of the
total combined voting power of all classes of capital stock of the Company
or a subsidiary or parent of the Company, the Option Price of the shares of
Common Stock subject to such ISO shall not be less than 110% of the fair
market value per share of the shares of Common Stock at the time such ISO
is granted.
(c) The Option Price of the shares of Common Stock subject to an NQSO
or an SAR in tandem with a NQSO granted pursuant to the Plan shall be
determined by the Board of Directors or the Committee, in its sole
discretion, but in no event less than 85% of the fair market value per
share of the shares of Common Stock at the time of grant.
(d) In no event shall any Option granted under the Plan have an
expiration date later than 10 years from the date of its grant, and all
Options granted under the Plan shall be subject to earlier termination as
expressly provided in Paragraph 6 hereof. If an ISO or an SAR in tandem
with an ISO is granted to any individual who, immediately before the ISO is
granted, owns (directly or through attribution) more that 10% of the total
combined voting power of all classes of capital stock of the
<PAGE>
Company or of a subsidiary or parent of the Company, such ISO shall by its
terms expire and shall not be exercisable after the expiration of five (5)
years from the date of its grant.
(e) An SAR may be exercised at any time during the exercise period of
the ISO or NQSO with which it is granted in tandem and prior to the
exercise of such ISO or NQSO. Notwithstanding the foregoing, the Board of
Directors and/or the Committee shall in their discretion determine from
time to time the terms and conditions of SAR's to be granted, which terms
may vary from the afore-described conditions, and which terms shall be set
forth in a written stock option agreement evidencing the SAR granted in
tandem with the ISO or NQSO. The exercise of an SAR granted in tandem with
an ISO or NQSO shall be deemed to cancel such number of shares subject to
the unexercised Option as were subject to the exercised SAR. The Board of
Directors or the Committee has the discretion to alter the terms of the
SARS if necessary to comply with Federal or state securities law. Amounts
to be paid by the Company in connection with an SAR may, in the Board of
Director's or the Committee's discretion, be made in cash, Common Stock or
a combination thereof.
(f) An Option granted under the Plan shall become exercisable, in whole at
any time or in part from time to time, but in no event may an Option (i) be
exercised as to less than one hundred (100) shares of Common Stock at any
one time, or the remaining shares of Common Stock covered by the Option if
less than one hundred (100), and (ii) except with respect to performance
based Options, become fully exercisable more than five years from the date
of its grant nor shall less than 20% of the Option become exercisable in
any of the first five years of the Option, if not terminated as provided in
Section 6 hereof. The Board of Directors or the Committee, if applicable,
shall, in the event it so elects in its sole discretion, set one or more
performance standards with respect to one or more Options upon which
vesting is conditioned (which performance standards may vary among the
Options).
(g) An Option granted under the Plan shall be exercised by the delivery by
the holder thereof to the Company at its principal office (to the attention
of the Secretary) of written notice of the number of full shares of Common
Stock with respect to which the Option is being exercised, accompanied by
payment in full, which payment at the option of the optionee shall be in
the form of (i) cash or certified or bank check payable to the order of the
Company, of the Option Price of such shares of Common Stock, or, (ii) if
permitted by the Committee or the Board of Directors, as determined by the
Committee or the Board of Directors in its sole discretion at the time of
the grant of the Option with respect to an ISO and at or prior to the time
of exercise with respect to a NQSO, by the delivery of shares of Common
Stock having a fair market value equal to the Option Price or the delivery
of an interest-bearing promissory note having an original principal balance
equal to the Option Price and an interest rate not below the rate which
would result in imputed interest under the Code (provided, in order to
qualify as an ISO, more than one year shall have passed since the date of
grant and one year from the date of exercise), or (iii) at the option of
the Committee or the Board of Directors, determined by the Committee or the
Board of Directors in its sole discretion at the time of the grant of the
Option with respect to an ISO and at or prior to the time of exercise with
respect to a NQSO, by a combination of cash, promissory note and/or such
shares of Common Stock (subject to the restriction above) held by the
employee that have a fair market value together with such cash and
principal amount of any promissory note that shall equal the Option
<PAGE>
Price, and, in the case of a NQSO, at the discretion of the Committee or
Board of Directors by having the Company withhold from the shares of Common
Stock to be issued upon exercise of the Option that number of shares having
a fair market value equal to the exercise price and/or the tax withholding
amount due, or otherwise provide for withholding as set forth in Paragraph
9(c) hereof, or in the event an employee is granted an ISO or NQSO in
tandem with an SAR and desires to exercise such SAR, such written notice
shall so state such intention. To the extent allowed by applicable Federal
and state securities laws, the Option Price may also be paid in full by a
broker-dealer to whom the optionee has submitted an exercise notice
consisting of a fully endorsed Option, or through any other medium of
payment as the Board of Directors and/or the Committee, in its discretion,
shall authorize.
(h) The holder of an Option shall have none of the rights of a stockholder
with respect to the shares of Common Stock covered by such holder's Option
until such shares of Common Stock shall be issued to such holder upon the
exercise of the Option.
(i) All ISOs or SARs in tandem with ISOs granted under the Plan shall not
be transferable otherwise than by will or the laws of descent and
distribution and may be exercised during the lifetime of the holder thereof
only by the holder. The Board or the Committee, in its sole discretion,
shall determine whether an Option other than an ISO or SAR in tandem with
an ISO shall be transferable. No Option granted under the Plan shall be
subject to execution, attachment or other process.
(j) The aggregate fair market value, determined as of the time any ISO or
SAR in tandem with an ISO is granted and in the manner provided for by
Subparagraph (b) of this Paragraph 5, of the shares of Common Stock with
respect to which ISOs granted under the Plan are exercisable for the first
time during any calendar year and under incentive stock options qualifying
as such in accordance with Section 422 of the Code granted under any other
incentive stock option plan maintained by the Company or its parent or
subsidiary corporations, shall not exceed $100,000. Any grant of Options in
excess of such amount shall be deemed a grant of a NQSO.
(k) Notwithstanding anything contained herein to the contrary, an SAR
which was granted in tandem with an ISO shall (i) expire no later than the
expiration of the underlying ISO; (ii) be for no more than 100% of the
spread at the time the SAR is exercised; (iii) shall only be transferable
when the underlying ISO is transferable; (iv) only be exercised when the
underlying ISO is eligible to be exercised; and (v) only be exercisable
when there is a positive spread.
(l) In no event shall an employee be granted Options for more than 150,000
shares of Common Stock during any calendar year period; provided, however,
that the limitation set forth in this Section 5(l) shall be subject to
adjustment as provided in Section 8 herein.
6. Death or Termination of Employment/Consulting Relationship.
(a) Except as provided herein, or otherwise determined by the Board of
Directors or the Committee in its sole discretion, upon termination of
employment with the Company voluntarily by the employee or termination of a
consulting relationship with the Company prior to the
<PAGE>
termination of the term thereof, a holder of an Option under the Plan may
exercise such Options to the extent such Options were exercisable as of the
date of termination at any time within thirty (30) days after termination,
subject to the provisions of Subparagraph (d) of this Paragraph 6. Except
as provided herein, or otherwise determined by the Board of Directors or
the Committee in its sole discretion, if such employment or consulting
relationship shall terminate for any reason other than death, voluntary
termination by the employee or for cause, then such Options may be
exercised at anytime within three (3) months after such termination.
Notwithstanding anything contained herein to the contrary, unless otherwise
determined by the Board of Directors or the Committee in its sole
discretion, any options granted hereunder to an Optionee and then
outstanding shall immediately terminate in the event the Optionee is
terminated for cause, and the other provisions of this Section 6 shall not
be applicable thereto. For purposes of this Section 6, termination for
cause shall be deemed the decision of the Company, in its sole discretion,
that Optionee has not adequately performed the services for which he/she/it
was hired.
(b) If the holder of an Option granted under the Plan dies (i) while
employed by the Company or a subsidiary or parent corporation or while
providing consulting services to the Company or a subsidiary or parent
corporation or (ii) within three (3) months after the termination of such
holder's employment/consulting, such Options may, subject to the provisions
of subparagraph (d) of this Paragraph 6, be exercised by a legatee or
legatees of such Option under such individual's last will or by such
individual's personal representatives or distributees at any time within
such time as determined by the Board of Directors or the Committee in its
sole discretion, but in no event less than six months after the
individual's death, to the extent such Options were exercisable as of the
date of death or date of termination of employment, whichever date is
earlier.
(c) If the holder of an Option under the Plan becomes disabled within the
definition of section 22(e)(3) of the Code while employed by the Company or
a subsidiary or parent corporation, such Option may, subject to the
provisions of subparagraph (d) of this Paragraph 6, be exercised at any
time within six months less one day after such holder's termination of
employment due to the disability.
(d) Except as otherwise determined by the Board of Directors or the
Committee in its sole discretion, an Option may not be exercised pursuant
to this Paragraph 6 except to the extent that the holder was entitled to
exercise the Option at the time of termination of employment, consulting
relationship or death, and in any event may not be exercised after the
original expiration date of the Option. Notwithstanding anything contained
herein which may be to the contrary, such termination or death prior to
vesting shall, unless otherwise determined by the Board of Directors or
Committee, in its sole discretion, be deemed to occur at a time the holder
was not entitled to exercise the Option.
(e) The Board of Directors or the Committee, in its sole discretion, may
at such time or times as it deems appropriate, if ever, accelerate all or
part of the vesting provisions with respect to one or more outstanding
options. The acceleration of one Option shall not infer that any Option is
or to be accelerated.
7. Leave of Absence.
<PAGE>
For the purposes of the Plan, an individual who is on military or sick
leave or other bona fide leave of absence (such as temporary employment by
the Government) shall be considered as remaining in the employ of the
Company or of a subsidiary or parent corporation for ninety (90) days or
such longer period as such individual's right to reemployment is guaranteed
either by statute or by contract.
8. Adjustment Upon Changes in Capitalization.
(a) In the event that the outstanding shares of Common Stock are hereafter
changed by reason of recapitalization, reclassification, stock split-up,
combination or exchange of shares of Common Stock or the like, or by the
issuance of dividends payable in shares of Common Stock, an appropriate
adjustment shall be made by the Board of Directors, as determined by the
Board of Directors and/or the Committee, in the aggregate number of shares
of Common Stock available under the Plan, in the number of shares of Common
Stock issuable upon exercise of outstanding Options, and the Option Price
per share. In the event of any consolidation or merger of the Company with
or into another company, where the Company is not the surviving entity, or
the conveyance of all or substantially all of the assets of the Company to
another company for solely stock and/or securities, each then outstanding
Option shall upon exercise thereafter entitle the holder thereof to such
number of shares of Common Stock or other securities or property to which a
holder of shares of Common Stock of the Company would have been entitled to
upon such consolidation, merger or conveyance; and in any such case
appropriate adjustment, as determined by the Board of Directors of the
Company (or successor entity) shall be made as set forth above with respect
to any future changes in the capitalization of the Company or its successor
entity. In the event of the proposed dissolution or liquidation of the
Company, or, except as provided in (b) below, the sale of substantially all
the assets of the Company for other than stock and/or securities, all
outstanding Options under the Plan will automatically terminate, unless
otherwise provided by the Board of Directors of the Company or any
authorized committee thereof.
(b) Any Option granted under the Plan, may, at the discretion of the Board
of Directors of the Company and said other corporation, be exchanged for
options to purchase shares of capital stock of another corporation which
the Company, and/or a subsidiary thereof is merged into, consolidated with,
or all or a substantial portion of the property or stock of which is
acquired by said other corporation or separated or reorganized into. The
terms, provisions and benefits to the optionee of such substitute option(s)
shall in all respects be identical to the terms, provisions and benefits of
optionee under his Option(s) prior to said substitution. To the extent the
above may be inconsistent with Sections 424(a)(1) and (2) of the Code, the
above shall be deemed interpreted so as to comply therewith.
(c) Any adjustment in the number of shares of Common Stock shall apply
proportionately to only the unexercised portion of the Options granted
hereunder. If fractions of shares of Common Stock would result from any
such adjustment, the adjustment shall be revised to the next higher whole
number of shares of Common Stock.
9. Further Conditions of Exercise.
(a) Unless the shares of Common Stock issuable upon the
exercise of an Option have been registered with the Securities and
<PAGE>
Exchange Commission pursuant to the Securities Act of 1933, as amended,
prior to the exercise of the Option, an optionee must represent in writing
to the Company that such shares of Common Stock are being acquired for
investment purposes only and not with a view towards the further resale or
distribution thereof, and must supply to the Company such other
documentation as may be required by the Company, unless in the opinion of
counsel to the Company such representation, agreement or documentation is
not necessary to comply with said Act.
(b) The Company shall not be obligated to deliver any shares of Common
Stock until they have been listed on each securities exchange on which the
shares of Common Stock may then be listed or until there has been
qualification under or compliance with such state or federal laws, rules or
regulations as the Company may deem applicable.
(c) The Board of Directors or Committee may make such provisions and take
such steps as it may deem necessary or appropriate for the withholding of
any taxes that the Company is required by any law or regulation of any
governmental authority, whether federal, state or local, domestic or
foreign, to withhold in connection with the exercise of any Option,
including, but not limited to, (i) the withholding of payment of all or any
portion of such Option and/or SAR until the holder reimburses the Company
for the amount the Company is required to withhold with respect to such
taxes, or (ii) the canceling of any number of shares of Common Stock
issuable upon exercise of such Option and/or SAR in an amount sufficient to
reimburse the Company for the amount it is required to so withhold, (iii)
the selling of any property contingently credited by the Company for the
purpose of exercising such Option, in order to withhold or reimburse the
Company for the amount it is required to so withhold, or (iv) withholding
the amount due from such employee's wages if the employee is employed by
the Company or any subsidiary thereof.
10. Termination, Modification and Amendment.
(a) The Plan (but not Options previously granted under the Plan) shall
terminate ten (10) years from the earliest of the date of its adoption by
the Board of Directors, or the date the Plan is approved by the
stockholders of the Company, or such date of termination, as hereinafter
provided, and no Option shall be granted after termination of the Plan.
(b) The Plan may from time to time be terminated, modified or amended by
the affirmative vote of the holders of a majority of the outstanding shares
of capital stock of the Company entitled to vote thereon.
(c) The Board of Directors of the Company may at any time, prior to ten
(10) years from the earlier of the date of the adoption of the Plan by such
Board of Directors or the date the Plan is approved by the stockholders,
terminate the Plan or from time to time make such modifications or
amendments of the Plan as it may deem advisable; provided, however, that
the Board of Directors shall not, without approval by the affirmative vote
of the holders of a majority of the outstanding shares of capital stock of
the Company entitled to vote thereon, increase (except as provided by
Paragraph 8) the maximum number of shares of Common Stock as to which
Options or shares may be granted under the Plan, or materially change the
standards of eligibility under the Plan. Any amendment to the Plan which,
in the opinion of counsel to the Company, will be deemed to result in the
adoption of a new Plan, will
<PAGE>
not be effective until approved by the affirmative vote of the holders of a
majority of the outstanding shares of capital stock of the Company entitled
to vote thereon.
(d) No termination, modification or amendment of the Plan may adversely
affect the rights under any outstanding Option without the consent of the
individual to whom such Option shall have been previously granted.
11. Effective Date of the Plan.
The Plan shall become effective upon adoption by the Board of Directors of
the Company. The Plan shall be subject to approval by the affirmative vote
of the holders of a majority of the outstanding shares of capital stock of
the Company entitled to vote thereon within one year before or after
adoption of the Plan by the Board of Directors.
12. Not a Contract of Employment.
Nothing contained in the Plan or in any option agreement executed pursuant
hereto shall be deemed to confer upon any individual to whom an Option is
or may be granted hereunder any right to remain in the employ of the
Company or of a subsidiary or parent of the Company or in any way limit the
right of the Company, or of any parent or subsidiary thereof, to terminate
the employment of any employee.
13. Other Compensation Plans.
The adoption of the Plan shall not affect any other stock option plan,
incentive plan or any other compensation plan in effect for the Company,
nor shall the Plan preclude the Company from establishing any other form of
stock option plan, incentive plan or any other compensation plan.
<PAGE>
Exhibit 23.1
Consent of Snow Becker Krauss P.C.
<PAGE>
CONSENT OF COUNSEL
The consent of Snow Becker Krauss P.C. is contained in its
Opinion which is filed as Exhibit 5.1 to this Registration Statement.
<PAGE>
Exhibit 23.2
Consent of BOD Seidman, LLP
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated February 11, 1997, relating to
the financial statements of Enamelon, Inc., which is contained in that
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
New York, New York
July 11, 1997
