AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 2008
REGISTRATION NO. 333-145502
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM S-3/A
AMENDMENT NO. 2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
ELITE PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
--------------------------------------------------------------------------------
DELAWARE 2834 22-3542636
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification
incorporation or Number)
organization)
--------------------------------------------------------------------------------
BERNARD BERK, CHIEF EXECUTIVE OFFICER
ELITE PHARMACEUTICALS, INC.
165 LUDLOW AVENUE
NORTHVALE, NEW JERSEY 07647
(201) 750-2646
(Name, address, including zip
code, and telephone number, including area code,
of registrant's principal executive offices
and agent for service)
With copies to:
SCOTT H. ROSENBLATT, ESQ.
GARY M. EMMANUEL, ESQ.
REITLER BROWN & ROSENBLATT, LLC
800 THIRD AVENUE, 21ST FLOOR
NEW YORK, NEW YORK 10022-4611
(212) 209-3050
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or reinvestment plans, please check the following box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |X|
If this Form is filed to register additional securities 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 this form is a registration statement pursuant to General
Instruction I.D. or a post-effective amendment thereto that shall become
effective upon filing with the Commission pursuant to Rule 462(e) under the
Securities Act, check the following box. |_|
If this form is a post-effective amendment to a registration statement
pursuant to General Instruction I.D. filed to register additional securities or
additional classes of securities pursuant to Rule 413(b) under the Securities
Act, check the following box. |_|
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Shares of maximum maximum
common stock offering aggregate
Title of each class of to be price per offering Amount of
securities to be registered registered(1) share(2) price registration fee
--------------------------- --------------- -------- ----- ----------------
Common Stock, par value $.01 per share 1,555,815(3) $2.18 $3,391,676.70 $104.13(4)
(1) In accordance with Rule 416 under the Securities Act of 1933, as
amended, this registration statement also registers the resale by the
selling stockholders of any additional shares of our common stock which
become issuable in connection with such shares because of any stock
dividend, stock split, recapitalization or other similar transaction
effected without the receipt of consideration which results in an
increase in the number of outstanding shares of our common stock.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as
amended, and based on the average of the high and low sale price per
share of shares of the common stock on the American Stock Exchange on
August 10, 2007.
(3) Consists of (i) 1,313,747 shares of our common stock issuable upon
conversion of outstanding shares of our Series C Preferred Stock issued
in a private placement that closed on July 17, 2007 and shares of
common stock issuable in satisfaction of certain Series C Preferred
Stock dividend obligations; and (ii) 242,068 shares of our common stock
issuable upon exercise of warrants issued in the private placement.
(4) A filing fee of $282.44 was submitted previously.
-----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
================================================================================
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING STOCKHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING
OFFERS TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE OF THESE
SECURITIES IS NOT PERMITTED.
PROSPECTUS
SUBJECT TO COMPLETION, DATED JANUARY __, 2008
ELITE PHARMACEUTICALS INC.
COMMON STOCK
----------------------
This is an offering (the "OFFERING") of the following shares of common
stock, par value $.01 per share, of Elite Pharmaceuticals, Inc. (the "COMPANY",
"ELITE", "WE", "US" or "OUR"), by the selling stockholders named in this
prospectus or by pledgees, donees, transferees or other successors in interest
to the selling stockholders (the "SELLING STOCKHOLDERS"):
(i) 1,313,747 shares of common stock issuable upon conversion of
outstanding shares of our Series C Preferred Stock, par value $.01 per
share issued in a private placement that closed on July 17, 2007 and
shares of common stock issuable in satisfaction of certain Series C
Preferred Stock dividend obligations;
(ii) 242,068 shares of common stock issuable upon exercise of warrants
issued in the private placement;
The common stock is listed on the American Stock Exchange under the
symbol "ELI." On December 31, 2007, the closing sales price of our common stock
on the American Stock Exchange was $2.08 per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DISCUSSION OF FACTORS THAT
YOU SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Other than receipt of the cash exercise price upon exercise of the
warrants issued in the private placement, we will receive no proceeds from the
sale of the shares of common stock sold by the Selling Stockholders.
----------------------
The date of this prospectus is January __, 2008.
TABLE OF CONTENTS
Page
WHERE YOU CAN FIND MORE INFORMATION ABOUT US...................................1
PROSPECTUS SUMMARY.............................................................1
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION.....................2
RISK FACTORS...................................................................3
USE OF PROCEEDS...............................................................11
SELLING STOCKHOLDERS..........................................................12
SUPPLEMENTAL INFORMATION REGARDING THE JULY PRIVATE PLACEMENT AND THE
SELLING STOCKHOLDERS .........................................................14
PLAN OF DISTRIBUTION..........................................................32
LEGAL MATTERS.................................................................33
EXPERTS.......................................................................33
INCORPORATION BY REFERENCE....................................................34
INFORMATION NOT REQUIRED IN PROSPECTUS......................................II-1
SIGNATURES..................................................................II-4
i
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file reports, proxy statements, information statements and other
information with the Securities and Exchange Commission (the "SEC" or
"COMMISSION"). You may read and copy this information, for a copying fee, at the
SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for more information in its public
reference rooms. Our SEC filings are also available to the public from
commercial document retrieval services, from the American Stock Exchange and at
the web site maintained by the SEC at http://www.sec.gov.
We have not authorized anyone to give any information or make any
representation about the offering that differs from, or adds to, the information
in this prospectus or in our documents that are publicly filed with the SEC and
that are incorporated in this prospectus. Therefore, if anyone does give you
different or additional information, you should not rely on it. The delivery of
this prospectus does not mean that there have not been any changes in our
condition since the date of this prospectus. If you are in a jurisdiction where
it is unlawful to offer the securities offered by this prospectus, or if you are
a person to whom it is unlawful to direct such activities, then the offer
presented by this prospectus does not extend to you. This prospectus speaks only
as of its date except where it indicates that another date applies. Documents
that are incorporated by reference in this prospectus speak only as of their
date, except where they specify that other dates apply.
THIS PROSPECTUS IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY NOR SHALL THERE BE ANY SALE OF SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM, OR
INCORPORATED BY REFERENCE INTO, THIS PROSPECTUS AND MAY NOT CONTAIN ALL THE
INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND OUR BUSINESS AND THIS
OFFERING FULLY, YOU SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE
CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES AND THE DOCUMENTS
INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. REFERENCES IN THIS PROSPECTUS TO
THE "COMPANY," "ELITE," "ELITE PHARMACEUTICALS," "WE," "OUR," AND "US" REFER TO
ELITE PHARMACEUTICALS, INC., A DELAWARE CORPORATION, TOGETHER WITH OUR
SUBSIDIARIES. PLEASE SEE "INCORPORATION BY REFERENCE" FOR A DESCRIPTION OF
PUBLIC FILINGS DEEMED INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. PLEASE SEE
"SUPPLEMENTAL INFORMATION REGARDING THE JULY PRIVATE PLACEMENT AND THE SELLING
STOCKHOLDERS" FOR ADDITIONAL INFORMATION RELATING TO THE JULY PRIVATE PLACEMENT
AND THE SELLING STOCKHOLDERS.
THE COMPANY
OVERVIEW
We are a specialty pharmaceutical company principally engaged in the
development and manufacture of oral, controlled release products. We develop
oral, controlled release products using proprietary technology and license these
products. Our strategy includes improving off-patent drug products for life
cycle management and developing generic versions of controlled release drug
products with high barriers to entry. Our technology is applicable to develop
delayed, sustained or targeted release pellets, capsules, tablets, granules and
powders.
We have two products, Lodrane 24(R) and Lodrane 24D(R), currently being
sold commercially, and a pipeline of seven drug candidates under development in
the therapeutic areas that include pain management, allergy and infection. Of
the products under development, ELI-216, an abuse deterrent oxycodone product
and ELI-154, a once daily oxycodone product are in clinical trials and we have
two generic product candidates that are undergoing pivotal studies. The
addressable market for our pipeline of products exceeds $6 billion. Our facility
in Northvale, New Jersey also is a Good Manufacturing Practice (GMP) and DEA
registered facility for research, development and manufacturing.
At the end of 2006, we formed, together with VGS Pharma, LLC, Novel
Laboratories, Inc. ("NOVEL"), a Delaware corporation as a separate specialty
pharmaceutical company for the research, development, manufacturing, licensing
and acquisition of specialty generic pharmaceuticals.
We believe that our business strategy enables us to reduce our risk by
having a
1
diverse product portfolio that includes both branded and generic products in
various therapeutic categories and build collaborations and establish licensing
agreements with companies with greater resources thereby allowing us to share
costs of development and to improve cash-flow.
CORPORATE INFORMATION
Elite Pharmaceuticals, Inc. was incorporated on October 1, 1997 under
the laws of Delaware, and our wholly-owned subsidiaries, Elite Laboratories,
Inc. ("ELITE LABS") and Elite Research, Inc. ("ELITE RESEARCH") were
incorporated on August 23, 1990 and December 20, 2002, respectively, under the
laws of Delaware.
On October 24, 1997, Elite Pharmaceuticals merged with and into our
predecessor company, Prologica International, Inc. ("PROLOGICA"), an inactive
publicly held corporation formed under the laws of Pennsylvania. At the same
time, Elite Labs merged with a wholly-owned subsidiary of Prologica. Following
these mergers, Elite Pharmaceuticals survived as the parent of its wholly-owned
subsidiary, Elite Labs.
On September 30, 2002, we acquired from Elan Corporation, plc and Elan
International Services, Ltd. (together "ELAN") Elan's 19.9% interest in Elite
Research, Ltd., a Bermuda corporation ("ERL"), a joint venture formed between
Elite and Elan in which our initial interest was 100% of the outstanding common
stock which represented 80.1% of the outstanding capital stock. As a result of
the termination of the joint venture, we owned 100% of ERL's capital stock. On
December 31, 2002, ERL was merged into Elite Research, our wholly-owned
subsidiary.
Our common stock is traded on the American Stock Exchange under the
symbol "ELI". The market for our stock has historically been characterized
generally by low volume and broad range of prices and volume volatility. We
cannot give any assurance that a stable trading market will develop for our
stock.
Our executive offices are located at 165 Ludlow Avenue, Northvale, New
Jersey 07647, Phone No.: (201) 750-2646; Facsimile No.: (201) 750-2755.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
Certain information contained in or incorporated by reference into this
prospectus includes forward-looking statements (as defined in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934)
that reflect our current views with respect to future events and financial
performance. Certain factors, such as unanticipated technological difficulties,
the volatile and competitive environment for drug delivery products and the
development of generic drug products, changes in domestic and foreign economic,
market and regulatory conditions, the inherent uncertainty of financial
estimates and projections, the degree of success, if any, in concluding business
partnerships or licenses with viable pharmaceutical companies, instabilities
arising from terrorist actions and responses thereto, and other considerations
described as "RISK FACTORS" in this prospectus could cause actual results to
differ materially from those in the forward-looking statements. When used in
this registration statement, statements that are not statements of current or
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "plan", "intend", "may," "will," "expect," "believe",
"could," "anticipate," "estimate," or "continue" or similar expressions or other
variations or comparable terminology are intended to identify such
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. Except
as required by law, we undertake no obligation to update any forward-looking
statements, whether as a result of new information, future events or otherwise.
2
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
INCLUDING THE OTHER DOCUMENTS INCORPORATED HEREIN BY REFERENCE AND REFERRED
BELOW, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING
AN INVESTMENT IN US AND IN ANALYZING OUR FORWARD-LOOKING STATEMENTS.
RISKS RELATED TO OUR BUSINESS
WE HAVE A RELATIVELY LIMITED OPERATING HISTORY, WHICH MAKES IT DIFFICULT TO
EVALUATE OUR FUTURE PROSPECTS.
Although we have been in operation since 1990, we have a relatively
short operating history and limited financial data upon which you may evaluate
our business and prospects. In addition, our business model is likely to
continue to evolve as we attempt to expand our product offerings and our
presence in the generic pharmaceutical market. As a result, our potential for
future profitability must be considered in light of the risks, uncertainties,
expenses and difficulties frequently encountered by companies that are
attempting to move into new markets and continuing to innovate with new and
unproven technologies. Some of these risks relate to our potential inability to:
o develop new products;
o obtain regulatory approval of our products;
o manage our growth, control expenditures and align costs with
revenues;
o attract, retain and motivate qualified personnel; and
o respond to competitive developments.
If we do not effectively address the risks we face, our business model
may become unworkable and we may not achieve or sustain profitability or
successfully develop any products.
WE HAVE NOT BEEN PROFITABLE AND EXPECT FUTURE LOSSES.
To date, we have not been profitable, and since our inception in 1990,
we have not generated any significant revenues. We may never be profitable or,
if we become profitable, we may be unable to sustain profitability. We have
sustained losses in each year since our incorporation in 1990. We incurred net
losses of $11,803,512, $6,883,914, $5,906,890, $6,514,217 and $4,061,422, for
the years ended March 31, 2007, 2006, 2005, 2004 and 2003, respectively. We
expect to realize significant losses for the current year of operation and to
continue to incur losses until we are able to generate sufficient revenues to
support our operations and offset operating costs.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FINANCING NEEDED FOR THE EXPENDITURES FOR
THE DEVELOPMENT AND COMMERCIALIZATION OF OUR DRUG PRODUCTS, IT WOULD IMPAIR OUR
ABILITY TO CONTINUE TO MEET OUR BUSINESS OBJECTIVES.
We continue to require additional financing to ensure that we will be
able to meet our expenditures to develop and commercialize our products. In
particular, in order to maintain our investment in our joint venture in Novel,
we are required to make a substantial investment of up to an additional
$20,000,000. If we fail to meet this financing requirement, VGS, our co-venturer
in Novel, may exercise a purchase right that would result in significant
dilution of our interest in Novel.
We do not have committed external sources of funding and may not be
able to obtain any additional funding, especially if volatile market conditions
persist for biotechnology companies. We believe our existing cash resources,
including the gross proceeds of $20 million raised in the private placement of
our Series C Preferred Stock that closed on April 24, 2007 and July 17, 2007, is
sufficient to meet our cash requirements for the next six months.
Other possible sources of the required financing are income from
product sales or sales of market rights, distributions from Novel, income from
co-development or partnering arrangements and the cash exercise of warrants and
options that are currently outstanding. No
3
representation can be made that we will be able to obtain such revenue or
additional financing or if obtained it will be on favorable terms, or at all. No
assurance can be given that any offering if undertaken will be successfully
concluded or that if concluded the proceeds will be material. Our inability to
obtain additional financing when needed would impair our ability to continue our
business.
If any future financing involves the further sale of our securities,
our then-existing stockholders' equity could be substantially diluted. On the
other hand, if we incurred debt, we would be subject to risks associated with
indebtedness, including the risk that interest rates might fluctuate and cash
flow would be insufficient to pay principal and interest on such indebtedness.
SUBSTANTIALLY ALL OF OUR PRODUCT CANDIDATES ARE AT AN EARLY STAGE OF DEVELOPMENT
AND ONLY A PORTION OF THESE ARE IN CLINICAL DEVELOPMENT.
Other than ELI-154 which is in Phase I clinical development and ELI-216
which is in Phase II clinical development, our five other product candidates are
still at an early stage of development. We do not have any products that are
commercially available other than Lodrane 24(R) and Lodrane 24D(R). We will need
to perform additional development work for all of our product candidates in our
pipeline before we can seek the regulatory approvals necessary to begin
commercial sales.
IF WE ARE UNABLE TO SATISFY REGULATORY REQUIREMENTS, WE MAY NOT BE ABLE TO
COMMERCIALIZE OUR PRODUCT CANDIDATES.
We need FDA approval prior to marketing our product candidates in the
United States of America. If we fail to obtain FDA approval to market our
product candidates, we will be unable to sell our product candidates in the
United States of America and we will not generate revenue from the sale of such
products.
This regulatory review and approval process, which includes evaluation
of preclinical studies and clinical trials of our product candidates is lengthy,
expensive and uncertain. To receive approval, we must, among other things,
demonstrate with substantial evidence from well-controlled clinical trials that
our product candidates are both safe and effective for each indication where
approval is sought. Satisfaction of these requirements typically takes several
years and the time needed to satisfy them may vary substantially, based on the
type, complexity and novelty of the pharmaceutical product. We cannot predict if
or when we might submit for regulatory approval any of our product candidates
currently under development. Any approvals we may obtain may not cover all of
the clinical indications for which we are seeking approval. Also, an approval
might contain significant limitations in the form of narrow indications,
warnings, precautions, or contra-indications with respect to conditions of use.
The FDA has substantial discretion in the approval process and may
either refuse to file our application for substantive review or may form the
opinion after review of our data that our application is insufficient to allow
approval of our product candidates. If the FDA does not file or approve our
application, it may require that we conduct additional clinical, preclinical or
manufacturing validation studies and submit that data before it will reconsider
our application. Depending on the extent of these or any other studies, approval
of any applications that we submit may be delayed by several years, or may
require us to expend more resources than we have available. It is also possible
that additional studies, if performed and completed, may not be considered
sufficient by the FDA to make our applications approvable. If any of these
outcomes occur, we may be forced to abandon our applications for approval, which
might cause us to cease operations.
We will also be subject to a wide variety of foreign regulations
governing the development, manufacture and marketing of our products. Whether or
not FDA approval has been obtained, approval of a product by the comparable
regulatory authorities of foreign countries must still be obtained prior to
manufacturing or marketing the product in those countries. The approval process
varies from country to country and the time needed to secure approval may be
longer or shorter than that required for FDA approval. We cannot assure you that
clinical trials conducted in one country will be accepted by other countries or
that approval in one country will result in approval in any other country.
BEFORE WE CAN OBTAIN REGULATORY APPROVAL, WE NEED TO SUCCESSFULLY COMPLETE
CLINICAL TRIALS, OUTCOMES OF WHICH ARE UNCERTAIN.
In order to obtain FDA approval to market a new drug product, we must
demonstrate proof of safety and effectiveness in humans. To meet these
requirements, we must conduct extensive preclinical testing and "adequate and
well-controlled" clinical trials. Conducting
4
clinical trials is a lengthy, time consuming, and expensive process. Completion
of necessary clinical trials may take several years or more. Delays associated
with products for which we are directly conducting preclinical or clinical
trials may cause us to incur additional operating expenses. The commencement and
rate of completion of clinical trials may be delayed by many factors, including,
for example:
o ineffectiveness of our product candidate or perceptions by
physicians that the product candidate is not safe or effective
for a particular indication;
o inability to manufacture sufficient quantities of the product
candidate for use in clinical trials;
o delay or failure in obtaining approval of our clinical trial
protocols from the FDA or institutional review boards;
o slower than expected rate of patient recruitment and
enrollment;
o inability to adequately follow and monitor patients after
treatment;
o difficulty in managing multiple clinical sites;
o unforeseen safety issues;
o government or regulatory delays; and
o clinical trial costs that are greater than we currently
anticipate.
Even if we achieve positive interim results in clinical trials, these
results do not necessarily predict final results, and positive results in early
trials may not be indicative of success in later trials. A number of companies
in the pharmaceutical industry have suffered significant setbacks in advanced
clinical trials, even after promising results in earlier trials. Negative or
inconclusive results or adverse medical events during a clinical trial could
cause us to repeat or terminate a clinical trial or require us to conduct
additional trials. We do not know whether our existing or any future clinical
trials will demonstrate safety and efficacy sufficiently to result in marketable
products. Our clinical trials may be suspended at any time for a variety of
reasons, including if the FDA or we believe the patients participating in our
trials are exposed to unacceptable health risks or if the FDA finds deficiencies
in the conduct of these trials.
Failures or perceived failures in our clinical trials will directly
delay our product development and regulatory approval process, damage our
business prospects, make it difficult for us to establish collaboration and
partnership relationships, and negatively affect our reputation and competitive
position in the pharmaceutical community.
Because of these risks, our research and development efforts may not
result in any commercially viable products. Any delay in, or termination of, our
preclinical or clinical trials will delay the filing of our drug applications
with the FDA and, ultimately, our ability to commercialize our product
candidates and generate product revenues. If a significant portion of these
development efforts are not successfully completed, required regulatory
approvals are not obtained or any approved products are not commercially
successful, our business, financial condition, and results of operations may
be materially harmed.
IF OUR COLLABORATION OR LICENSE ARRANGEMENTS ARE UNSUCCESSFUL, OUR REVENUES AND
PRODUCT DEVELOPMENT MAY BE LIMITED.
We have entered into several collaboration and licensing arrangements
for the development of generic products. However, there can be no assurance that
any of these agreements will result in FDA approvals, or that we will be able to
market any such finished products at a profit. Collaboration and licensing
arrangements pose the following risks:
o collaborations and licensee arrangements may be terminated, in
which case we will experience increased operating expenses and
capital requirements if we elect to pursue further development
of the product candidate;
o collaborators and licensees may delay clinical trials and
prolong clinical development, under-fund a clinical trial
program, stop a clinical trial or abandon a product candidate;
5
o expected revenue might not be generated because milestones may
not be achieved and product candidates may not be developed;
o collaborators and licensees could independently develop, or
develop with third parties, products that could compete with
our future products;
o the terms of our contracts with current or future
collaborators and licensees may not be favorable to us in the
future;
o a collaborator or licensee with marketing and distribution
rights to one or more of our products may not commit enough
resources to the marketing and distribution of our products,
limiting our potential revenues from the commercialization of
a product;
o disputes may arise delaying or terminating the research,
development or commercialization of our product candidates, or
result in significant and costly litigation or arbitration;
and
o one or more third party developers could obtain approval for a
similar product prior to the collaborator or licensee
resulting in unforeseen price competition in connection with
the development product.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND AVOID CLAIMS
THAT WE INFRINGED ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, OUR ABILITY TO
CONDUCT BUSINESS MAY BE IMPAIRED.
Our success depends on our ability to protect our current and future
products and to defend our intellectual property rights. If we fail to protect
our intellectual property adequately, competitors may manufacture and market
products similar to ours.
We currently hold five patents, have two patents pending and we intend
to file further patent applications in the future. With respect to our pending
patents, we cannot be certain that these applications will result in the
issuance of patents. If patents are issued, third parties may sue us to
challenge such patent protection, and although we know of no reason why they
should prevail, it is possible that they could. It is likewise possible that our
patent rights may not prevent or limit our present and future competitors from
developing, using or commercializing products that are similar or functionally
equivalent to our products.
In addition, we may be required to obtain licenses to patents, or other
proprietary rights of third parties, in connection with the development and use
of our products and technologies as they relate to other persons' technologies.
At such time as we discover a need to obtain any such license, we will need to
establish whether we will be able to obtain such a license on favorable terms.
The failure to obtain the necessary licenses or other rights could preclude the
sale, manufacture or distribution of our products.
We rely particularly on trade secrets, unpatented proprietary expertise
and continuing innovation that we seek to protect, in part, by entering into
confidentiality agreements with licensees, suppliers, employees and consultants.
We cannot provide assurance that these agreements will not be breached or
circumvented. We also cannot be certain that there will be adequate remedies in
the event of a breach. Disputes may arise concerning the ownership of
intellectual property or the applicability of confidentiality agreements. We
cannot be sure that our trade secrets and proprietary technology will not
otherwise become known or be independently developed by our competitors or, if
patents are not issued with respect to products arising from research, that we
will be able to maintain the confidentiality of information relating to these
products. In addition, efforts to ensure our intellectual property rights can be
costly, time-consuming and/or ultimately unsuccessful.
LITIGATION IS COMMON IN OUR INDUSTRY, PARTICULARLY THE GENERIC PHARMACEUTICAL
INDUSTRY, AND CAN BE PROTRACTED AND EXPENSIVE AND COULD DELAY AND/OR PREVENT
ENTRY OF OUR PRODUCTS INTO THE MARKET, WHICH, IN TURN, COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.
Litigation concerning patents and proprietary rights can be protracted
and expensive. Companies that produce brand pharmaceutical products routinely
bring litigation against applicants that seek FDA approval to manufacture and
market generic forms of their branded products. These companies allege patent
infringement or other violations of intellectual property rights as the basis
for filing suit against an applicant. Likewise, other patent holders may bring
patent infringement suits against us alleging that our products, product
candidates and technologies infringe upon intellectual property rights.
Litigation often
6
involves significant expense and can delay or prevent introduction or sale of
our products.
There may also be situations where we use our business judgment and
decide to market and sell products, notwithstanding the fact that allegations of
patent infringement(s) have not been finally resolved by the courts. The risk
involved in doing so can be substantial because the remedies available to the
owner of a patent for infringement include, among other things, damages measured
by the profits lost by the patent owner and not by the profits earned by the
infringer. In the case of a willful infringement, the definition of which is
subjective, such damages may be trebled. Moreover, because of the discount
pricing typically involved with bioequivalent products, patented brand products
generally realize a substantially higher profit margin than bioequivalent
products. An adverse decision in a case such as this or in other similar
litigation could have a material adverse effect on our business, financial
position and results of operations and could cause the market value of our
common stock to decline.
THE PHARMACEUTICAL INDUSTRY IS HIGHLY COMPETITIVE AND SUBJECT TO RAPID AND
SIGNIFICANT TECHNOLOGICAL CHANGE, WHICH COULD IMPAIR OUR ABILITY TO IMPLEMENT
OUR BUSINESS MODEL.
The pharmaceutical industry is highly competitive, and we may be unable
to compete effectively. In addition, it is undergoing rapid and significant
technological change, and we expect competition to intensify as technical
advances in each field are made and become more widely known. An increasing
number of pharmaceutical companies have been or are becoming interested in the
development and commercialization of products incorporating advanced or novel
drug delivery systems. We expect that competition in the field of drug delivery
will increase in the future as other specialized research and development
companies begin to concentrate on this aspect of the business. Some of the major
pharmaceutical companies have invested and are continuing to invest significant
resources in the development of their own drug delivery systems and technologies
and some have invested funds in such specialized drug delivery companies. Many
of our competitors have longer operating histories and greater financial,
research and development, marketing and other resources than we do. Such
companies may develop new formulations and products, or may improve existing
ones, more efficiently than we can. Our success, if any, will depend in part on
our ability to keep pace with the changing technology in the fields in which we
operate.
As we expand our presence in the generic pharmaceuticals market through
our joint venture, Novel, its product candidates may face intense competition
from brand-name companies that have taken aggressive steps to thwart competition
from generic companies. In particular, brand-name companies continue to sell or
license their products directly or through licensing arrangements or strategic
alliances with generic pharmaceutical companies (so-called "authorized
generics"). No significant regulatory approvals are required for a brand-name
company to sell directly or through a third party to the generic market, and
brand-name companies do not face any other significant barriers to entry into
such market. In addition, such companies continually seek to delay generic
introductions and to decrease the impact of generic competition, using tactics
which include:
o obtaining new patents on drugs whose original patent
protection is about to expire;
o filing patent applications that are more complex and costly to
challenge;
o filing suits for patent infringement that automatically delay
approval of the FDA;
o filing citizens' petitions with the FDA contesting approval of
the generic versions of products due to alleged health and
safety issues;
o developing controlled-release or other "next-generation"
products, which often reduce demand for the generic version of
the existing product for which we may be seeking approval;
o changing product claims and product labeling;
o developing and marketing as over-the-counter products those
branded products which are about to face generic competition;
and
o making arrangements with managed care companies and insurers
to reduce the economic incentives to purchase generic
pharmaceuticals.
These strategies may increase the costs and risks associated with our
efforts to introduce our generic products under development and may delay or
prevent such introduction
7
altogether.
IF OUR PRODUCT CANDIDATES DO NOT ACHIEVE MARKET ACCEPTANCE AMONG PHYSICIANS,
PATIENTS, HEALTH CARE PAYORS AND THE MEDICAL COMMUNITY, THEY WILL NOT BE
COMMERCIALLY SUCCESSFUL AND OUR BUSINESS WILL BE ADVERSELY AFFECTED.
The degree of market acceptance of any of our approved product
candidates among physicians, patients, health care payors and the medical
community will depend on a number of factors, including:
o acceptable evidence of safety and efficacy;
o relative convenience and ease of administration;
o the prevalence and severity of any adverse side effects;
o availability of alternative treatments;
o pricing and cost effectiveness;
o effectiveness of sales and marketing strategies; and
o ability to obtain sufficient third-party coverage or
reimbursement.
If we are unable to achieve market acceptance for our product
candidates, then such product candidates will not be commercially successful and
our business will be adversely affected.
WE ARE DEPENDENT ON A SMALL NUMBER OF SUPPLIERS FOR OUR RAW MATERIALS, AND ANY
DELAY OR UNAVAILABILITY OF RAW MATERIALS CAN MATERIALLY ADVERSELY AFFECT OUR
ABILITY TO PRODUCE PRODUCTS.
The FDA requires identification of raw material suppliers in
applications for approval of drug products. If raw materials were unavailable
from a specified supplier, FDA approval of a new supplier could delay the
manufacture of the drug involved. In addition, some materials used in our
products are currently available from only one supplier or a limited number of
suppliers.
Further, a significant portion of our raw materials may be available
only from foreign sources. Foreign sources can be subject to the special risks
of doing business abroad, including:
o greater possibility for disruption due to transportation or
communication problems;
o the relative instability of some foreign governments and
economies;
o interim price volatility based on labor unrest, materials or
equipment shortages, export duties, restrictions on the
transfer of funds, or fluctuations in currency exchange rates;
and
o uncertainty regarding recourse to a dependable legal system
for the enforcement of contracts and other rights.
In addition, recent changes in patent laws in certain foreign
jurisdictions (primarily in Europe) may make it increasingly difficult to obtain
raw materials for research and development prior to expiration of applicable
United States or foreign patents. Any delay or inability to obtain raw materials
on a timely basis, or any significant price increases that cannot be passed on
to customers, can materially adversely affect our ability to produce products.
This can materially adversely affect our business and operations.
EVEN AFTER REGULATORY APPROVAL, WE WILL BE SUBJECT TO ONGOING SIGNIFICANT
REGULATORY OBLIGATIONS AND OVERSIGHT.
Even if regulatory approval is obtained for a particular product
candidate, the FDA and foreign regulatory authorities may, nevertheless, impose
significant restrictions on the indicated uses or marketing of such products, or
impose ongoing requirements for post-approval studies. Following any regulatory
approval of our product candidates, we will be subject to continuing regulatory
obligations, such as safety reporting requirements, and additional
post-marketing obligations, including regulatory oversight of the promotion and
8
marketing of our products. If we become aware of previously unknown problems
with any of our product candidates here or overseas or our contract
manufacturers' facilities, a regulatory agency may impose restrictions on our
products, our contract manufacturers or on us, including requiring us to
reformulate our products, conduct additional clinical trials, make changes in
the labeling of our products, implement changes to or obtain re-approvals of our
contract manufacturers' facilities or withdraw the product from the market. In
addition, we may experience a significant drop in the sales of the affected
products, our reputation in the marketplace may suffer and we may become the
target of lawsuits, including class action suits. Moreover, if we fail to comply
with applicable regulatory requirements, we may be subject to fines, suspension
or withdrawal of regulatory approvals, product recalls, seizure of products,
operating restrictions and criminal prosecution. Any of these events could harm
or prevent sales of the affected products or could substantially increase the
costs and expenses of commercializing and marketing these products.
IF KEY PERSONNEL WERE TO LEAVE US OR IF WE ARE UNSUCCESSFUL IN ATTRACTING
QUALIFIED PERSONNEL, OUR ABILITY TO DEVELOP PRODUCTS COULD BE MATERIALLY HARMED.
Our success depends in large part on our ability to attract and retain
highly qualified scientific, technical and business personnel experienced in the
development, manufacture and marketing of oral, controlled release drug delivery
systems and generic products. Our business and financial results could be
materially harmed by the inability to attract or retain qualified personnel.
IF WE WERE SUED ON A PRODUCT LIABILITY CLAIM, AN AWARD COULD EXCEED OUR
INSURANCE COVERAGE AND COST US SIGNIFICANTLY.
The design, development and manufacture of our products involve an
inherent risk of product liability claims. We have procured product liability
insurance; however, a successful claim against us in excess of the policy limits
could be very expensive to us, damaging our financial position. The amount of
our insurance coverage, which has been limited due to our limited financial
resources, may be materially below the coverage maintained by many of the other
companies engaged in similar activities. To the best of our knowledge, no
product liability claim has been made against us as of December 31, 2007.
RISKS RELATED TO OUR COMMON STOCK
FUTURE SALES OF OUR COMMON STOCK COULD LOWER THE MARKET PRICE OF OUR COMMON
STOCK.
Sales of substantial amounts of our shares in the public market could
harm the market price of our common stock, even if our business is doing well. A
significant number of shares of our common stock are eligible for sale in the
public market under SEC Rule 144 subject in some cases to volume and other
limitations. In addition, we have recently filed a registration statement for
the resale of 6,465,504 shares of common stock issuable upon conversion of
outstanding shares of our Series C Preferred Stock issued in the private
placement that closed on April 24, 2007, 4,187,643 shares of common stock
issuable in satisfaction of certain Series C Preferred Stock dividend
obligations and 2,133,606 shares of common stock issuable upon exercise of
warrants issued in the private placement and a registration statement for the
resale of 957,396 shares of common stock and 478,698 shares of common stock
issuable upon the exercise of warrants issued to VGS Pharma, LLC, an affiliate
of Veerappan Subramanian, one of our directors and acting Chief Scientific
Officer and 1,750,000 shares of common stock issuable upon the exercise of
options granted to Dr. Subramanian.
In addition, pursuant hereto, we are registering the resale of:
o 1,313,747 shares of common stock issuable upon conversion of
outstanding shares of our Series C Preferred Stock issued in
the private placement that closed on July 17, 2007 and shares
of common stock issuable in satisfaction of certain Series C
Preferred Stock dividend obligations; and
o 242,068 shares of common stock issuable upon exercise of
warrants issued in the private placement.
Due to the foregoing factors, sales of a substantial number of shares
of our common stock in the public market could occur at any time. These sales,
or the perception in the market that the holders of a large number of shares
intend to sell shares, could reduce the market price of our common stock.
OUR STOCK PRICE HAS BEEN VOLATILE AND MAY FLUCTUATE IN THE FUTURE.
9
There has been significant volatility in the market prices for publicly
traded shares of pharmaceutical companies, including ours. For the twelve months
ended December 31, 2007, the closing sale price on the American Stock Exchange
of our common stock fluctuated from a high of $2.75 per share to a low of $1.52
per share. The per share price of our common stock may not remain at or exceed
current levels. The market price for our common stock, and for the stock of
pharmaceutical companies generally, has been highly volatile. The market price
of our common stock may be affected by:
o Results of our clinical trials;
o Approval or disapproval of abbreviated new drug applications
or new drug applications;
o Announcements of innovations, new products or new patents by
us or by our competitors;
o Governmental regulation;
o Patent or proprietary rights developments;
o Proxy contests or litigation;
o News regarding the efficacy of, safety of or demand for drugs
or drug technologies;
o Economic and market conditions, generally and related to the
pharmaceutical industry;
o Healthcare legislation;
o Changes in third-party reimbursement policies for drugs; and
o Fluctuations in our operating results.
THE FAILURE TO MAINTAIN THE AMERICAN STOCK EXCHANGE LISTING OF THE COMMON STOCK
WOULD HAVE A MATERIAL ADVERSE EFFECT ON THE MARKET FOR OUR COMMON STOCK AND OUR
MARKET PRICE.
On January 4, 2006, we received a letter from the American Stock
Exchange ("AMEX") notifying us that, based on our unaudited financial statements
as of September 30, 2005, we were not in compliance with the continued listing
standards set forth in the AMEX Company Guide in that under one listing standard
our shareholders' equity is less than $4,000,000 and we had losses from
continuing operations and/or net losses in three of our four most recent fiscal
years and under another listing standard our shareholders' equity is less than
$6,000,000 and we had losses from continuing operations and/or net losses in our
five most recent fiscal years. At the request of AMEX, we submitted a plan on
February 3, 2006 advising AMEX of action, we had taken, and will take, to bring
ourselves in compliance with the continued listing standards within a maximum of
18 months from January 4, 2006. On March 15, 2006, we completed a private
placement of our Series B Preferred Stock and warrants to purchase common stock.
We received $10,000,000 in gross proceeds from the private placement. On March
21, 2006, we submitted an update to the plan we had previously submitted on
February 6, 2006. Upon notice of the March 2006 private placement and the
acceptance of the updated plan. AMEX allowed us to maintain our AMEX listing,
subject to periodic review of the our progress by the AMEX staff. If we are not
in compliance with the continued listing standards, AMEX may then initiate
delisting proceedings. The failure to maintain listing of our common stock on
AMEX will have an adverse effect on the market and the market price for our
common stock.
THE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK OR OUR PREFERRED STOCK
COULD MAKE A CHANGE OF CONTROL MORE DIFFICULT TO ACHIEVE.
The issuance of additional shares of our common stock or the issuance
of shares of an additional series of preferred stock could be used to make a
change of control of us more difficult and expensive. Under certain
circumstances, such shares could be used to create impediments to or frustrate
persons seeking to cause a takeover or to gain control of us. Such shares could
be sold to purchasers who might side with the Board in opposing a takeover bid
that the Board determines not to be in the best interests of our stockholders.
It might also have the effect of discouraging an attempt by another person or
entity through the acquisition of a substantial number of shares of our common
stock to acquire control of us with a view to consummating a merger, sale of all
or part of our assets, or a similar
10
transaction, since the issuance of new shares could be used to dilute the stock
ownership of such person or entity.
IF PENNY STOCK REGULATIONS BECOME APPLICABLE TO OUR COMMON STOCK THEY WILL
IMPOSE RESTRICTIONS ON THE MARKETABILITY OF OUR COMMON STOCK AND THE ABILITY OF
OUR STOCKHOLDERS TO SELL SHARES OF OUR STOCK COULD BE IMPAIRED.
The SEC has adopted regulations that generally define a "penny stock"
to be an equity security that has a market price of less than $5.00 per share or
an exercise price of less than $5.00 per share subject to certain exceptions.
Exceptions include equity securities issued by an issuer that has (i) net
tangible assets of at least $2,000,000, if such issuer has been in continuous
operation for more than three years, or (ii) net tangible assets of at least
$5,000,000, if such issuer has been in continuous operation for less than three
years, or (iii) average revenue of at least $6,000,000 for the preceding three
years. Unless an exception is available, the regulations require that prior to
any transaction involving a penny stock, a risk of disclosure schedule must be
delivered to the buyer explaining the penny stock market and its risks. Our
common stock is currently trading at under $5.00 per share. Although we
currently fall under one of the exceptions, if at a later time we fail to meet
one of the exceptions, our common stock will be considered a penny stock. As
such the market liquidity for our common stock will be limited to the ability of
broker-dealers to sell it in compliance with the above-mentioned disclosure
requirements.
You should be aware that, according to the SEC, the market for penny
stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include:
o Control of the market for the security by one or a few
broker-dealers;
o "Boiler room" practices involving high-pressure sales tactics;
o Manipulation of prices through prearranged matching of
purchases and sales;
o The release of misleading information;
o Excessive and undisclosed bid-ask differentials and markups by
selling broker- dealers; and
o Dumping of securities by broker-dealers after prices have been
manipulated to a desired level, which hurts the price of the
stock and causes investors to suffer loss.
We are aware of the abuses that have occurred in the penny stock
market. Although we do not expect to be in a position to dictate the behavior of
the market or of broker-dealers who participate in the market, we will strive
within the confines of practical limitations to prevent such abuses with respect
to our common stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW MAY DETER A THIRD PARTY FROM
ACQUIRING US.
Section 203 of the Delaware General Corporation Law prohibits a merger
with a 15% shareholder within three years of the date such shareholder acquired
15%, unless the merger meets one of several exceptions. The exceptions include,
for example, approval by the holders of two-thirds of the outstanding shares
(not counting the 15% shareholder), or approval by the Board prior to the 15%
shareholder acquiring its 15% ownership. This provision makes it difficult for a
potential acquirer to force a merger with or takeover of us, and could thus
limit the price that certain investors might be willing to pay in the future for
shares of our common stock.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares by the
Selling Stockholders pursuant to this prospectus.
A portion of the shares covered by this prospectus are issuable upon
exercise of warrants to purchase our common stock. Upon any exercise of the
warrants for cash, the Selling Stockholders would pay us the exercise price of
the warrants, as applicable. Under certain conditions set forth in the warrants,
the warrants are exercisable on a cashless basis. If the warrants are exercised
on a cashless basis, we would not receive any cash payment from the Selling
Stockholder upon any exercise of the warrants. Any proceeds from the exercise of
the warrants will be used for working capital.
11
SELLING STOCKHOLDERS
On July 17, 2007 we issued 5,000 shares of Series C Preferred Stock
convertible into 2,155,167 shares of our common stock and warrants to purchase
711,199 shares of our common stock in a private placement (the "JULY PRIVATE
PLACEMENT"). Pursuant to the registration rights agreement related to such
private placement, we agreed to file, at our expense, a registration statement,
of which this prospectus is a part, with the SEC to register for resale, from
time to time, the 2,155,167 shares of our common stock issuable upon conversion
of the shares of Series C Preferred Stock, 1,353,756 shares of our common stock
issuable in satisfaction of certain Series C Preferred Stock dividend
obligations, and 711,199 shares of our common stock issuable upon exercise of
the warrants issued in the private placement.
Of these shares, we are registering 806,896 shares of our common stock
issuable upon conversion of shares of Series C Preferred Stock, 506,851 shares
of our common stock issuable in satisfaction of certain Series C Preferred Stock
dividend obligations, and 242,068 shares of our common stock issuable upon
exercise of warrants, to permit the Selling Stockholders to offer these shares
for resale from time to time. The Selling Stockholders may sell all, some or
none of the shares covered by this prospectus. For more information, see the
section of this prospectus entitled "PLAN OF DISTRIBUTION." Please see
"Supplemental Information Regarding the July Private Placement and the Selling
Stockholders" for additional information relating to the July Private Placement
and the Selling Stockholders.
The table below presents information as of January 2, 2008, regarding
the Selling Stockholders and the shares of our common stock that they may offer
and sell from time to time under this prospectus. The information is based on
information provided by or on behalf of the Selling Stockholders. Except as
noted in the footnotes, no Selling Stockholder has had, within the past three
years, any position, office, or material relationship with us or any of our
predecessors or affiliates. The table has been prepared on the assumption that
all shares offered under this prospectus will be sold to parties unaffiliated
with the Selling Stockholders. Except as indicated below the Selling
Stockholders have sole voting and investment power with their respective shares.
SHARES BENEFICIALLY OWNED
AFTER OFFERING
NUMBER OF
SHARES
BENEFICIALLY
NAME OF SELLING OWNED PRIOR TO NUMBER OF NUMBER OF PERCENTAGE
STOCKHOLDER(1) OFFERING SHARES OFFERED SHARES(2) OF CLASS(3)
Consonance Capital
Master Account LP(4) 724,717(5) 724,717(5) 0 0
Midsummer
Investment Ltd.(6) 2,640,431(7) 831,098(8) 1,809,333 7.8%
12
(1) Selling Stockholders means the persons listed in the table above, as
well as the pledgees, assignees or other successors in interest to the
Selling Stockholders.
(2) Assumes that the Selling Stockholders dispose of all the shares of
common stock covered by this prospectus and do not acquire or dispose
of any additional shares of common stock. The Selling Stockholders are
not representing, however, that any of the shares covered by this
prospectus will be offered for sale, and the Selling Stockholders
reserve the right to accept or reject, in whole or in part, any
proposed sale of shares.
(3) The percentage of common stock beneficially owned is based on
21,299,667 shares of common stock (excluding 100,000 treasury shares)
outstanding on July 17, 2007. Notwithstanding the inclusion of the
warrants and Series B and Series C Preferred Stock beneficially owned
by the referenced investors in the beneficial ownership calculation,
the warrants and Series B and Series C Preferred Stock provide that the
holder of the warrants and Series B and Series C Preferred Stock, as
applicable, shall not have the right to exercise any portion of the
warrants and Series B and Series C Preferred Stock, respectively, and
we shall not effect any exercise of such warrants and Series B and
Series C Preferred Stock, as applicable, to the extent that after
giving effect to such issuance after exercise such holder of the
warrants and Series B and Series C Preferred Stock, as applicable,
together with his, her or its affiliates, would beneficially own in
excess of 4.99% of the number of shares of common stock outstanding
immediately after giving effect to such issuance. Such 4.99% limitation
may be waived by each holder upon not less than 61 days prior notice to
change such limitation to 9.99% of the number of shares of common stock
outstanding immediately after giving effect to such issuance.
(4) Mr. Mitchell J. Blutt has the power to vote or dispose of the shares.
(5) Consists of 375,862 shares of common stock issuable upon conversion
of shares of Series C Preferred Stock, 236,097 dividend shares and
112,758 shares of common stock issuable upon exercise of warrants.
(6) Midsummer Capital, LLC is the investment advisor to Midsummer
Investment, Ltd. By virtue of such relationship, Midsummer Capital, LLC
may be deemed to have dispositive power over the shares owned by
Midsummer Investment, Ltd. Midsummer Capital, LLC disclaims beneficial
ownership of such shares. Mr. Michel Amsalem and Mr. Scott Kaufman have
delegated authority from the members of Midsummer Capital, LLC with
respect to the shares of common stock owned by Midsummer Investment,
Ltd. Messrs. Amsalem and Kaufman may be deemed to share dispositive
power over the shares of our common stock owned by Midsummer
Investment, Ltd. Messrs. Amsalem and Kaufman disclaim beneficial
ownership of such shares of our common stock and neither person has any
legal right to maintain such delegated authority.
(7) Consists of 1,612,367 shares of common stock issuable upon conversion
of shares of Series C Preferred Stock, 270,754 dividend shares and
757,310 shares of common stock issuable upon exercise of warrants. Does
not include any shares of common stock issuable in satisfaction of
certain Series B Preferred Stock dividend obligations from the March
15, 2006 private placement.
(8) Consists of 431,034 shares of common stock issuable upon conversion
of shares of Series C Preferred Stock, 270,754 dividend shares and
129,310 shares of common stock issuable upon exercise of warrants.
13
SUPPLEMENTAL INFORMATION REGARDING
THE JULY PRIVATE PLACEMENT AND THE SELLING STOCKHOLDERS
DESCRIPTION OF THE JULY PRIVATE PLACEMENT
In the July Private Placement, we sold, through Oppenheimer & Company,
Inc., the placement agent ("PLACEMENT AGENT"), the remaining 5,000 shares of our
Series C Preferred Stock, at a price of $1,000 per share, each share convertible
(at $2.32 per share) into 431.0345 shares of our common stock, or an aggregate
of 2,155,167 shares of our common stock. Purchasers of the Series C Preferred
Stock (the "INVESTORS") also acquired warrants to purchase shares of common
stock (the "WARRANTS"), exercisable on or prior to July 17, 2012. The Warrants
represent the right to purchase shares of our common stock in an amount equal to
30% of the aggregate number of shares of common stock into which the Series C
Preferred Stock purchased by the Investors may be converted as of the date of
issuance, or an aggregate of 646,544 shares of common stock, at an exercise
price of $3.00 per share. If at any time after one year from the date of
issuance of the Warrants there is no effective registration statement
registering, or no current prospectus available for, the resale of the shares of
common stock underlying the Warrants by the holder of such Warrants, then the
Warrants may also be exercised at such time by means of a "cashless exercise."
The private placement of the Series C Preferred Stock and the Warrants
was made pursuant to a Securities Purchase Agreement, dated as of July 17, 2007
(the "PURCHASE AGREEMENT"), between us and the Investors. For so long as the
Series C Preferred Stock is outstanding, if at any time we issue common stock or
securities convertible or exercisable for common stock, the holders of the
Series C Preferred Stock will have preemptive rights to purchase their pro rata
share of the common stock or securities convertible or exercisable for common
stock on the same terms, conditions and price provided for in such issuance;
provided, that this right is subject to exceptions as set forth in the Purchase
Agreement.
The gross proceeds of the July Private Placement were $5,000,000 before
payment of $350,000 in commissions to the Placement Agent and its selected
dealers and $18,000 in expenses incurred by the Placement Agent and its selected
dealers. Pursuant to the placement agent agreement, we issued to the Placement
Agent and its designees warrants (the "PLACEMENT WARRANTS") to purchase an
aggregate of 64,655 shares of common stock. Such Placement Warrants are at an
exercise price of $3.00 per share, exercisable on or prior to July 17, 2012.
Pursuant to the Registration Rights Agreement, dated as of July 17,
2007 (the "REGISTRATION RIGHTS AGREEMENT"), holders of the Series C Preferred
Stock are provided demand and piggy-back registration rights at our expense. We
have filed the registration statement (of which this prospectus forms a part)
under the Securities Act of 1933, as amended (the "ACT" or "SECURITIES ACT"), to
register the resale of the shares of common stock (the "REGISTRABLE SECURITIES")
issuable upon conversion of the Series C Preferred Stock, upon exercise of the
Warrants, and as payment of dividends on the Series C Preferred Stock within
14
30 days of the closing of the private placement (the "FILING DATE") as set forth
in the Registration Rights Agreement, subject to limitations based on written,
oral, or other guidance provided by the Commission otherwise limiting the
securities which may be included in the registration statement ("SEC GUIDANCE").
Subject to SEC Guidance, if (i) the Initial Registration Statement (as defined
in the Registration Rights Agreement) is not filed on or prior to its Filing
Date (as defined in the Registration Rights Agreement); (ii) as to 7,000,000 of
the Registrable Securities, subject to certain adjustments (collectively, the
"INITIAL SHARES"), a registration statement registering for resale all of the
Initial Shares is not declared effective by the SEC by November 13, 2007 (or
December 13, 2007 in the case of a "full review" by the SEC of the Initial
Registration Statement); or (iii) all of the Registrable Securities, other than
the Initial Shares, are not registered for resale pursuant to one or more
effective Registration Statements on or before February 28, 2008, (any such
failure or breach being referred to as an "EVENT", and the date on which such
Event occurs, the "EVENT DATE"), then, in addition to any other rights the
holders of Registrable Securities may have under the registration statement or
under applicable law, on each such Event Date and on each monthly anniversary of
each such Event Date (if the applicable Event shall not have been cured by such
date) until the applicable Event is cured, we have agreed to pay to each holder
of Registrable Securities an amount in cash, as partial liquidated damages and
not as a penalty, equal to 1.5% of the aggregate purchase price paid by such
holder pursuant to the Purchase Agreement for any unregistered Registrable
Securities then held by such holder (calculated as if all convertible securities
had been fully converted). In no event will we be liable for liquidated damages
under the Registration Rights Agreement (1) with respect to any Warrants or
shares of common stock issuable upon exercise of the Warrants; and (2) in excess
of 1.5% of the Subscription Amount (as defined in the Purchase Agreement) in any
30-day period. In addition, the maximum aggregate liquidated damages payable to
a holder of Registrable Securities under the Registration Rights Agreement shall
be 15% of the aggregate Subscription Amount paid by such holder.
Each of the Investors has represented that it is an "ACCREDITED
INVESTOR" and has agreed that the securities issued in the July Private
Placement are to bear a restrictive legend against resale without registration
under the Act. The Series C Preferred Stock and Warrants were sold by us
pursuant to the exemption from registration afforded by Section 4(2) of the Act
and Regulation D thereunder.
The rights and preferences of the Series C Preferred Stock are governed
by the Certificate of Designations, Preferences and Rights of Series C Preferred
Stock filed with the Secretary of State of the State of Delaware on April 24,
2007, as amended by the Certificate of Correction of the Certificate of
Designations, Preferences and Rights of Series C Preferred Stock filed with the
Secretary of State of the State of Delaware on April 25, 2007 (the "CERTIFICATE
OF DESIGNATIONS"). Pursuant to the Purchase Agreement, the Series C Preferred
Stock purchased by the Investors in the July Private Placement are to accrue
dividends, commencing on July 17, 2007, at the rate of 8% per annum on their
purchase price of $1,000 per share (increasing to 15% per annum after April 24,
2009) payable quarterly on January 1, April 1, July 1 and October 1, payable in
cash or shares of common stock, which will be valued solely for such purpose at
95% of the average Volume-Weighted Average Price ("VWAP") (as defined in the
Certificate of Designations) for the 20 consecutive trading days ending on the
trading day that is immediately
15
prior to the dividend payment date, in accordance with the terms of the
Certificate of Designations. Any dividends, whether paid in cash or shares of
common stock, that are not paid within five trading days, following a dividend
payment date, shall continue to accrue and shall entail a late fee, which must
be paid in cash, at the rate of 18% per annum or the lesser rate permitted by
applicable law (such fees to accrue daily, from the dividend payment date
through and including the date of payment). No payment or dividends may be
payable on common stock or any other capital stock ranked junior to the Series C
Preferred Stock prior to the satisfaction of the dividend obligation on the
Series C Preferred Stock.
Each share of Series C Preferred Stock will be entitled to a preference
equal to the per share purchase price ($1,000 subject to adjustment) plus any
accrued but unpaid dividends thereon and any other fees or liquidated damages
owing thereon upon our liquidation, dissolution or winding-up, whether voluntary
or involuntary ("LIQUIDATION"), which preference ranks PARI PASSU with our
Series B 8% Convertible Preferred Stock, par value $0.01 per share (the "SERIES
B PREFERRED STOCK" and together with the Series C Preferred Stock, the
"PREFERRED STOCK") and senior to any other capital stock ranked junior to the
Series C Preferred Stock. A Fundamental Transaction (as defined in the
Certificate of Designations) or Change of Control Transaction (as defined in the
Certificate of Designations) will not be deemed a Liquidation under the
Certificate of Designations.
The holders of Series C Preferred Stock will not have any voting rights
except as specifically provided in the Certificate of Designations or as
required by law. However, as long as any shares of Series C Preferred Stock are
outstanding, we will not, without the prior affirmative vote of holders of at
least 70% of the then outstanding shares of the Series C Preferred Stock and our
Series B Preferred Stock collectively, (i) alter or change adversely the powers,
preferences or rights given to the Preferred Stock or alter or amend the
Certificate of Designations; (ii) authorize or create any class of stock ranking
as to dividends, redemption or distribution of assets upon a Liquidation senior
to or otherwise PARI PASSU with the Preferred Stock; (iii) amend our certificate
of incorporation, by-laws or other charter documents in any manner that
adversely affects any rights of the holders of the Preferred Stock; (iv)
increase the authorized number of shares of Preferred Stock; (v) other than
Permitted Indebtedness (as defined in the Certificate of Designations), until
April 24, 2010, incur any indebtedness for borrowed money of any kind; (vi)
other than Permitted Liens (as defined in the Certificate of Designations),
until April 24, 2010, incur any liens of any kind; (vii) repay or repurchase
other than more than a DE MINIMIS number of shares of common stock or securities
convertible or exchangeable into common stock, other than as permitted by the
Certificate of Designations; (viii) pay cash dividends or distributions on any
of our securities junior to the Preferred Stock; or (ix) enter into any
agreement or understanding with respect to the foregoing. Notwithstanding the
above, the Registrant may issue any security issued in connection with a
Strategic Transaction (as defined in the Certificate of Designations) that ranks
as to dividends, redemption or distribution of assets upon a Liquidation PARI
PASSU with or junior to the Preferred Stock without the prior affirmative vote
of holders of at least 70% of the then outstanding shares of Preferred Stock.
Each share of Series C Preferred Stock is initially convertible into
431.0345 shares of common stock. The conversion price per share for the Series C
Preferred Stock is equal to $2.32,
16
subject to adjustment for certain events, including dividends, stock splits,
combinations and the sale of common stock or securities convertible into or
exercisable for common stock at a price less than the then applicable conversion
price. If we do not meet our share delivery requirements set forth in the
Certificate of Designations, the holders of Preferred Stock shall be entitled to
(i) liquidated damages, payable in cash; and (ii) cash equal to the amount by
which the cost of the shares of common stock such holder is required by its
brokerage firm to purchase (in an open market transaction or otherwise) for
delivery in satisfaction of a sale by such holder of the shares of common stock
issuable upon conversion of such holder's Series C Preferred Stock which such
holder was entitled to receive upon the conversion at issue exceeds the product
of (1) the aggregate number of shares of common stock that such holder was
entitled to receive from the conversion at issue multiplied by (2) the actual
sale price at which the sell order giving rise to such purchase obligation was
executed.
We may force conversion of our Series C Preferred Stock in the event
that we provide written notice to the holders of the Series C Preferred Stock
that the VWAP for each 20 consecutive trading day period during a Threshold
Period (as defined in the Certificate of Designations) of common stock exceeded
$5.38 (subject to adjustment) and the average volume the trading days during
such Threshold Period exceed 50,000 shares of common stock (subject to
adjustment for forward and reverse stock splits, recapitalizations, stock
dividends and the like).
Upon the occurrence of certain Triggering Events (as defined in the
Certificate of Designations) each holder of the Series C Preferred Stock shall
have the right, exercisable at the sole option of such holder, to require us to
redeem each share of such holder's Series C Preferred Stock for cash in an
amount equal to 130% of the stated value, all accrued but unpaid dividends
thereon and all liquidated damages and other costs, expenses or amounts due in
respect of the Series C Preferred Stock (the "TRIGGERING REDEMPTION AMOUNT");
provided, however, that each Investor has waived its right, pursuant to the
Certificate of Designations, to require us to redeem any or all shares of Series
C Preferred Stock purchased under the Purchase Agreement upon our failure to
cause the Conversion Shares Registration Statement (as defined in the
Certificate of Designations) to be declared effective by the SEC on or prior to
January 23, 2008; provided further, that if the Conversion Shares Registration
Statement is not declared effective by the SEC on or prior to April 16, 2008,
each Investor shall have the right to require redemption as provided under the
Certificate of Designations. Upon certain Triggering Events, each holder of
Series C Preferred Stock shall have the right, exercisable at the sole option of
such holder, to require us to redeem each share of Series C Preferred Stock for
shares of common stock equal to the number of shares of common stock equal to
the Triggering Redemption Amount divided by 85% of the average of the VWAP for
the 10 consecutive trading days immediately prior to the date of the redemption.
If at any time the Securities and Exchange Commission, our auditors, American
Stock Exchange (or similar trading exchange) or any other governmental or
regulatory authority having jurisdiction over us determines that a Triggering
Event for which a holder shall be entitled to a cash redemption constitutes a
condition for redemption which is not solely within our control (as set forth in
Item 28 of Rule 5-02 of Regulation S-X of the Securities Exchange Act of 1934,
as amended), or that as a result of any such Triggering Event, the Series C
Preferred Stock shall not be included in our balance sheet under the heading
"stockholder equity," then the holders
17
of Series C Preferred Stock shall not be entitled to receive a cash payment, but
instead shall be entitled to receive shares of common stock.
We may redeem all of the Series C Preferred Stock outstanding, at any
time after April 24, 2009, for a redemption price, payable in cash, for each
share of Series C Preferred Stock equal to the sum of (i) 150% of the stated
value; (ii) accrued but unpaid dividends thereon; and (iii) all liquidated
damages and other amounts due in respect of the Series C Preferred Stock.
LIMITATION ON SECURITIES INCLUDED HEREIN
Prior to the July Private Placement, we consummated an offering of such
securities which closed on April 24, 2007 (the "APRIL PRIVATE PLACEMENT"). The
resale of shares of common stock issuable upon the conversion of, or otherwise
pursuant to, the shares of Series C Preferred Stock sold in the April Private
Placement, and the shares of common stock issuable upon the exercise of the
Warrants sold in the April Private Placement, was registered by us in a
registration statement under the Securities Act (Registration No. 333-143246),
declared effective by the SEC on July 10, 2007 (the "PRIOR REGISTRATION"). The
registration statement of which this prospectus forms a part registers the
resale of shares of common stock attributable to purchasers in the July Private
Placement who were not, and the affiliates of which were not, included in the
Prior Registration. We refer to the purchasers in the July Private Placement so
excluded from the registration statement of which this prospectus forms a part
as the "EXCLUDED PURCHASERS."
PROCEEDS OF THE PRIVATE PLACEMENT
Our net proceeds from the July Private Placement were $4,632,000, after
the payment of $368,000 in placement agent fees and related expenses. Assuming
the exercise in full of the Warrants, the aggregate net proceeds of the July
Private Placement would be $6,765,597.
Based upon a closing market price of $2.69 per share of common stock on
the American Stock Exchange on July 17, 2007, the aggregate dollar value of the
securities that we have registered for resale in the registration statement of
which this prospectus forms a part is $4,185,142.35, or $11,352,128.18 if we
include the Excluded Purchasers.
POTENTIAL PAYMENTS REQUIRED DURING INITIAL YEAR
Set forth below is disclosure of the dollar amount of each payment
or potential payment(1) (including the value of any payments to be made in
common stock) in connection with the July Private Placement that we have made or
may be required to make to any Selling Stockholder, any affiliate of a Selling
Stockholder, or any person with whom any Selling Stockholder has a contractual
relationship regarding the July Private Placement (including any interest
payments, liquidated damages, payments made to "finders" or "placement agents,"
and any other payments or potential payments) during the initial year. We have
excluded from the table below any shares of common stock to be issued during
the initial year upon the conversion of the Series C Preferred Stock.
18
The total possible payments to the Selling Stockholders, and their
affiliates, in the first year following the closing of the July Private
Placement is $430,560, equaling the total value, assuming all cash payments, of
dividends payable on the Series C Preferred Stock purchased in the July Private
Placement, plus maximum partial liquidated damages for which we may potentially
be liable, as described more fully below.
SERIES C PREFERRED POTENTIAL PARTIAL
STOCK DIVIDENDS LIQUIDATED
SELLING STOCKHOLDER PAYABLE IN FIRST YEAR(2) DAMAGES(3) TOTAL
------------------- ------------------------ -------- -----
Consonance Capital Master Account L.P. $69,760 $130,800(4) $200,560
Midsummer Investment, Ltd. $80,000 $150,000(5) $230,000
TOTAL $149,760 $280,800 $430,560
-----
-----------
(1) Listed below are payments that we may potentially be required to make to a
Selling Stockholder, pursuant to the Certificate of Designations, the
Purchase Agreement, and the Registration Rights Agreement, but that cannot
properly be valued currently as a result of the contingent nature of the
payments and/or the need for future information which cannot be ascertained
currently:
- LIQUIDATION PAYMENTS: Selling Stockholders may be entitled to
liquidation payments, pursuant to the Certificate of Designations,
however these payments cannot be valued unless and until the
occurrence of an applicable dissolution or winding-up;
- PARTIAL LIQUIDATED DAMAGES: Selling Stockholders may be entitled
to partial liquidated damages, pursuant to the Certificate of
Designations, however, these payments cannot be valued because
valuation is contingent on our failure, in the future, to properly
issue and deliver shares of common stock upon conversion of Series
C Preferred Stock;
- COMPENSATION FOR BUY-IN ON FAILURE TO TIMELY DELIVER CERTIFICATES
UPON CONVERSION: Selling Stockholders may be entitled to partial
liquidated damages, pursuant to the Certificate of Designations,
however, these payments cannot be valued because valuation is
contingent on our failure, upon a conversion by a Selling
Stockholder, to deliver on a timely basis the certificate(s)
evidencing the shares the Selling Stockholder is entitled to
receive upon conversion;
- INDEMNIFICATION OF THE SELLING STOCKHOLDERS: Selling Stockholders
may benefit from indemnification by us in certain situations, as
provided in the Registration Rights Agreement.
Excluded from the table, above, are redemptions of shares of Series C
Preferred Stock. For a discussion of both forced and optional redemptions,
please see "Description of the Private Placement," above, under "Supplemental
Information Regarding the July Private Placement and the Selling Stockholders."
Payments made to the placement agent in the July Private Placement for
fees and related expenses is disclosed in this section, above, under the heading
"PROCEEDS OF THE PRIVATE PLACEMENT."
(2) For purposes of this table, we disclosed the value of dividends payable to
the Selling Stockholders on the Series C Preferred Stock purchased in the
July Private Placement (the "SERIES C DIVIDENDS") for the first full year
following the date of sale, assuming cash payment. This amount was
calculated by multiplying the aggregate stated value of the shares of Series
C Preferred Stock held by the Selling Stockholders by 8%, the rate at which
the dividends accrue during the one-year period, in accordance with the
Certificate of Designations. On April 24, 2009, the rate at which dividends
accrue on the Series C Preferred Stock will increase to 15% per annum.
Series C Dividends that we fail to pay, whether in cash or shares of common
stock, within the time period prescribed in the Certificate of Designations,
continue to accrue and entail a late fee, which must be paid in cash, at the
rate of 18% per annum or lesser rate permitted by law, accruing daily until
and including the date of payment.
19
(3) The data provided in this table represents the maximum possible liquidated
damages payable to the Selling Stockholders under the Registration Rights
Agreement, as described below. Pursuant to the Registration Rights
Agreement, upon the occurrence of certain events, we may be liable for
partial liquidated damages, with certain limitations, payable in cash to the
Selling Stockholders. On each date on which an applicable event occurs and
on each anniversary of such date (if such event has not been cured) until
cured, we must pay to each Selling Stockholder 1.5% of the aggregate
purchase price paid by each Selling Stockholder pursuant to the Purchase
Agreement for any unregistered Registrable Security, as defined thereunder,
then held (calculated as if all convertible securities had been fully
converted). Our liability for liquidated damages is limited, however, to
1.5% of the aggregate subscription amount of a Selling Stockholder in any
30-day period, and the maximum aggregate liquidated damages payable to a
Selling Stockholder is 15% of the aggregate subscription amount paid by such
Selling Stockholder under the Purchase Agreement. We are not liable for the
payment of partial liquidated damages on Warrants or Warrant Shares. To
date, we have incurred a total of $25,078.25 in liquidated damages payable
to the Selling Stockholders.
(4) Represents maximum partial liquidated damages payable based on 872 shares of
Series C Preferred Stock. To date, we have incurred $11,681.75 in
liquidated damages payable to the Selling Stockholder.
(5) Represents maximum partial liquidated damages payable based on 1,000 shares
of Series C Preferred Stock. To date, we have incurred $13,396.50 in
liquidated damages payable to the Selling Stockholder.
20
POTENTIAL PROFIT
JULY PRIVATE PLACEMENT - TOTAL POSSIBLE PROFIT AND SHARES; COMBINED
MARKET PRICE OF UNDERLYING SECURITIES; DISCOUNT
Set forth below is disclosure of the following:
o the total possible profit the Selling Stockholders could
realize as a result of the conversion discount for the
securities underlying the Series C Preferred Stock and
Warrants;
o the total possible shares underlying the Series C Preferred
Stock and Warrants (assuming no cash dividend payments,
complete conversion of the shares of preferred stock and
complete exercise of the warrants) of the Selling
Stockholders;
o the combined market price of the total number of shares
underlying the Series C Preferred Stock and Warrants of the
Selling Stockholders, calculated by using the market price per
share on the date of the sale of the Series C Preferred and
Warrants and the total possible shares underlying the Series C
Preferred Stock and Warrants;
o the total possible shares the Selling Stockholders may receive
and the combined conversion price of the total number of
shares underlying the Series C Preferred Stock and Warrants of
the Selling Stockholders calculated by using the
conversion/exercise price on the date of the sale of the
Series C Preferred Stock and Warrants and the total possible
number of shares the Selling Stockholders may receive; and
o the total possible discount to the market price as of the date
of the sale of the Series C Preferred Stock and Warrants,
calculated by subtracting the total conversion/exercise price
on the date of the sale of the Series C Preferred Stock and
Warrants from the combined market price of the total number of
shares underlying the Series C Preferred Stock and Warrants on
that date.
21
TOTAL
POSSIBLE
DISCOUNT
TO THE
COMBINED MARKET
CONVERSION & PRICE
COMBINED EXERCISE OF THE
SHARES OF MARKET PRICE CONVERSION PRICE SERIES C
SHARES OF COMMON STOCK OF SHARES PRICE OF OF SHARES PREFERRED
COMMON STOCK SHARES OF UNDERLYING UNDERLYING SHARES EXERCISE UNDERLYING STOCK
UNDERLYING COMMON THE SERIES C SERIES C UNDERLYING PRICE OF SERIES C & WARRANTS
THE SERIES C STOCK PREFERRED PREFERRED SERIES C SHARES PREFERRED AS OF THE
SELLING PREFERRED UNDERLYING STOCK & STOCK & PREFERRED UNDERLYING STOCK & DATE OF
STOCKHOLDER STOCK WARRANTS WARRANTS WARRANTS(1) STOCK(2) WARRANTS(3) WARRANTS SALE
----------- ------------ ---------- -------- ---------- ----------- ----------- ---------- ----------
Consonance
Capital
Master
Account L.P. 375,862 112,758 488,620 $1,314,387.80 $871,999.84 $338,274.00 $1,210,273.84 $104,113.96
Midsummer
Investment,
Ltd. 431,034 129,310 560,344 $1,507,325.36 $999,998.88 $387,930.00 $1,387,928.88 $119.396.48
TOTAL 806,896 242,068 1,048,964 $2,821,713.16 $1,871,998.72 $726,204 $2,598,202.72 $223,510.44
-----
--------------
(1) Using a market price of $2.69 per share, the closing price per share of
common stock listed on the American Stock Exchange, as of July 17, 2007.
(2) Using a conversion price of $2.32 per share, pursuant to the Certificate of
Designations.
(3) Using a Warrant exercise price of $3.00 per share, pursuant to the Purchase
Agreement.
22
TOTAL POSSIBLE PROFIT AND SHARES; COMBINED MARKET PRICE OF SHARES
UNDERLYING OTHER SECURITIES OF THE COMPANY; DISCOUNT
Set forth in the below table(1) is disclosure of the following:
o the total possible profit to be realized by the Selling
Stockholders as a result of any conversion discounts for
securities underlying any warrants, options, notes, or other
securities of ours that are held by the Selling Stockholders
or any of their affiliates;
o the total possible shares to be received by the Selling
Stockholders under the particular securities (assuming
complete conversion/exercise);
o the combined market price of the total number of underlying
shares, calculated by using the market price per share on the
date of the sale of that other security and the total possible
shares to be received;
o the total possible shares to be received and the combined
conversion price of the total number of shares underlying that
security calculated by using the conversion price on the date
of the sale of that other security and the total possible
number of underlying shares; and
o the total possible discount to the market price as of the date
of the sale of that security, calculated by subtracting the
total conversion/exercise price on the date of the sale of
that other security from the combined market price of the
total number of underlying shares on that date.
COMBINED
CONVERSION & TOTAL
SHARES OF EXERCISE POSSIBLE
COMMON MARKET PRICE PRICE OF DISCOUNT TO
STOCK OF SHARES SHARES THE MARKET
UNDERLYING UNDERLYING UNDERLYING PRICE OF THE
OTHER OTHER OTHER OTHER
WARRANTS, WARRANTS, WARRANTS, WARRANTS,
OPTIONS, OPTIONS, OPTIONS, OPTIONS,
SELLING NOTES, OR NOTES, OR NOTES, OR NOTES, OR
STOCKHOLDER SECURITIES SECURITIES SECURITIES SECURITIES
OF THE OF THE OF THE OF THE
COMPANY COMPANY COMPANY COMPANY
HELD HELD HELD HELD
---------- -------- -------- -------- --------
Consonance
Capital Master
Account L.P. - - - -
Midsummer
Investment,
Ltd. 1,884,000(1) $4,239,000 $4,710,000(2) ($471,000)
TOTAL 1,884,000 $4,239,000 $4,710,000 ($471,000)
-----
23
--------
(1) Representing 1,256,000 shares of common stock underlying Series B Preferred
Stock, 314,000 shares of common stock underlying First Class Series B
Warrants, as defined below, and 314,000 shares of common stock underlying
Second Class Series B Warrants, as defined below. March 15, 2006 is the
date of sale for the Series B Preferred Stock. For purposes of the
calculations in this table, we used the following prices, as of the date
of sale of the Series B Preferred Stock: (a) $2.25, the closing price per
share of our common stock, as listed on Yahoo! Finance; (b) $2.25, the
conversion price per share of the Series B Preferred Stock, as provided
in the Certificate of Designations, Preferences and Rights of Series B
Preferred Stock, dated as of March 15, 2006 (the "SERIES B CERTIFICATE
OF DESIGNATIONS"); (c) $2.75, the exercise price per share of the first
class of warrants (the "FIRST CLASS SERIES B WARRANTS") issued in connection
with the Series B Preferred Stock, as provided in the Securities Purchase
Agreement, dated as of March 15, 2006 (the "SERIES B PURCHASE AGREEMENT");
and (d) $3.25, the price per share of the second class of warrants (the
"SECOND CLASS SERIES B WARRANTS") issued in connection with the Series B
Preferred Stock, as provided in the Series B Purchase Agreement.
(2) Calculated by taking the sum of (a) the number of shares of common stock
underlying the Series B Preferred Stock multiplied by the conversion price
per share, (b) the number of shares of common stock underlying the First
Class Series B Warrants multiplied by the exercise price per share, and (c)
the number of shares of common stock underlying the Second Class Series B
Warrants multiplied by the exercise price per share.
ADJUSTMENTS TO CONVERSION PRICE AND EXERCISE PRICE
SERIES C PREFERRED STOCK
Set forth below is a description of provisions set forth in the
Certificate of Designations that could result in a change in the conversion
price per share upon the occurrence of certain events.
TRIGGERING EVENT (AS
EACH IS DEFINED UNDER
THE CERTIFICATE OF
DESIGNATIONS) RESULTING ADJUSTMENT IN THE CONVERSION PRICE
--------------------- --------------------------------------------
"Stock Dividends and The Conversion Price is multiplied by a fraction, the
Stock Splits" numerator being the number of shares of common stock
(excluding Treasury Shares) outstanding immediately
before, and the denominator the number outstanding
immediately after, such event.
"Subsequent Equity The Conversion Price is multiplied by a fraction, the
Sales,"at an effective numerator being the number of shares of common stock
price lower than issued and outstanding immediately prior to the
the then applicable Dilutive Issuance plus the number of shares of common
conversion price(1) stock which the offering price for such Dilutive
Issuance would purchase at the then applicable
Conversion Rate, and the denominator being the sum of
the number of shares of common stock issued and
outstanding immediately prior to the Dilutive
Issuance and the number of shares so issued or
issuable in connection with the Dilutive
Issuance.(2)
"Subsequent Rights The Conversion Price is multiplied by a fraction, the
Offerings"(3) numerator being the number of shares of common stock
outstanding on the date of issuance of such rights or
warrants plus the number of shares which the
aggregate offering price of the total number of
shares so offered would purchase at such VWAP, and
the denominator being the number of shares of common
stock outstanding on the date of issuance of such
rights or warrants plus the number of additional
shares of common stock offered for subscription or
purchase.(4)
24
"Pro Rata The Conversion Price, in each such case, in effect
Distributions" immediately prior to the record date fixed for
determination of stockholders entitled to receive
such distribution is multiplied by a fraction, the
numerator being such VWAP less the then fair market
value, on such record date, of the portion of such
assets, evidence of indebtedness or rights or
warrants so distributed applicable to one outstanding
share of the common stock as determined by the Board
of Directors in good faith, and the denominator being
the VWAP determined as of the record date described
above.
"Fundamental The Conversion Price is adjusted, for purposes of any
Transaction" such conversion, to apply to such Alternate
Consideration based on the amount of Alternate
Consideration issuable in respect of one share of
common stock in such Fundamental Transaction, and we
apportion the Conversion Price among the Alternate
Consideration in a reasonable manner reflecting the
relative value of any different components of the
Alternate Consideration.(5)
------------
(1) Excluding a reduction in the Exercise Price of the Warrants issued to the
Selling Stockholders on the "Original Issue Date," as defined in the
Certificate of Designations.
(2) In the event of an "Exempt Issuance," as defined in the Certificate of
Designations, there is no adjustment of the Conversion Price despite
circumstances that would otherwise merit an adjustment.
(3) We, while Series C Stock is outstanding, issue rights, options, or warrants
to all holders of common stock entitling them to subscribe for or purchase
shares of common stock at a price per share that is lower than the VWAP on
the record date for the determination of stockholders entitled to receive
such rights, options, or warrants.
(4) Such adjustment becomes effective immediately after the described record
date. If any such rights, options, or warrants expire without being
exercised, the Conversion Price as adjusted upon the issuance of the same
shall be readjusted to the Conversion Price that would have been in effect
had an adjustment been made on the basis that only additional shares of
common stock so issued were the additional shares of common stock, if any,
actually issued or sold on the exercise of such rights, options, or warrants
and such additional shares of common stock if any, were issued or sold for
the consideration actually received by us upon such exercise, plus the
consideration, if any, actually received by us for the granting of all such
rights, options, or warrants, whether or not exercised, except that such
readjustment does not apply to prior conversions of the Series C Preferred
Stock.
(5) If the holders of shares of common stock are given any choice as to the
securities, cash, or property to be received in a Fundamental Transaction,
then the holders of Series C Preferred Stock are to be given the same choice
as to the Alternate Consideration it receives upon any conversion of the
Series C Preferred Stock following such Fundamental Transaction.
WARRANTS
Set forth below is a description of provisions set forth in the Warrant
that could result in a change in the exercise price per share upon the
occurrence of certain events.
TRIGGERING EVENT (AS
EACH IS DEFINED UNDER
THE TERMS OF THE
WARRANT) RESULTING ADJUSTMENT IN THE WARRANT EXERCISE PRICE
--------------------- --------------------------------------------------
"Stock Dividends and The Exercise Price is multiplied by a fraction, the
Splits" numerator being the number of shares of common stock
(excluding Treasury Shares) outstanding immediately
before, and the denominator the number outstanding
immediately after, such event.
"Subsequent Equity The Exercise Price is multiplied by a fraction, the
Sales," at an effective numerator being the number of shares of common stock
price lower than the issued and outstanding immediately prior to the
then applicable Dilutive Issuance plus the number of shares of common
Conversion Price stock which the offering price for such Dilutive
Issuance would purchase at the then
25
applicable Conversion Price, and the denominator
being the sum of the number of shares of common stock
issued and outstanding immediately prior to the
Dilutive Issuance and the number of shares so issued
or issuable in connection with the Dilutive Issuance
and the number of Warrant Shares issuable under the
Form of Warrant, are to be increased such that the
aggregate Exercise Price payable under the Form of
Warrant, after taking into account the decrease in
the Exercise Price, shall be equal to the aggregate
Exercise Price prior to such adjustment.(1)
"Subsequent Rights The Exercise Price is multiplied by a fraction, the
Offerings"(2) numerator being the number of shares of common stock
outstanding on the date of issuance of such rights or
warrants plus the number of shares which the
aggregate offering price of the total number of
shares so offered would purchase at such VWAP, and
the denominator being the number of shares of common
stock outstanding on the date of issuance of such
rights or warrants plus the number of additional
shares of common stock offered for subscription or
purchase.(3)
"Pro Rata Distributions" The Exercise Price, in each such case, in effect
immediately prior to the record date fixed for
determination of stockholders entitled to receive
such distribution is multiplied by a fraction, the
numerator being such VWAP less the then fair market
value at such record date of the portion of such
assets or evidence of indebtedness so distributed
applicable to one outstanding share of the common
stock as determined by the Board of Directors in good
faith, and the denominator being the VWAP determined
as of the record date described above.
"Fundamental The Exercise Price is adjusted, for purposes of any
Transactions" such exercise by the Warrant holder, to apply to such
Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one
share of common stock in such Fundamental
Transaction, and we apportion the Conversion Price
among the Alternate Consideration in a reasonable
manner reflecting the relative value of any different
components of the Alternate Consideration.(4)
--------------
(1) Such adjustments are made whenever such shares of common stock or common
stock Equivalents are issued. However, under no circumstance will such
adjustments be made, paid or issued with respect to an Exempt Issuance.
(2) We, while Warrants are outstanding, issue rights, options, or warrants to
all holders of common stock entitling them to subscribe for or purchase
shares of common stock at a price per share that is lower than the VWAP on
the record date for the determination of stockholders entitled to receive
such rights, options, or warrants.
(3) Such adjustment becomes effective immediately after the described record
date. If any such rights, options, or warrants expire without being
exercised, the Conversion Price as adjusted upon the issuance of the same
shall be readjusted to the Conversion Price that would have been in effect
had an adjustment been made on the basis that only additional shares of
common stock, if any, actually issued or sold on the exercise of such
rights, options, or warrants and such additional shares of common stock, if
any, were issued or sold for the consideration actually received by us upon
such exercise, plus the consideration, if any, actually received by us for
the granting of all such rights, options, or warrants, whether or not
exercised, except that such readjustment does not apply to prior exercises
of the Warrant.
(4) If the holders of shares of common stock are given any choice as to the
securities, cash, or property to be received in a Fundamental Transaction,
then the holders of Warrants are to be given the same choice as to the
Alternate Consideration it receives upon any exercise of a Warrant following
such Fundamental Transaction.
ANALYSIS OF PAYMENTS IN RELATION TO NET OFFERING PROCEEDS AND COMBINED TOTAL
PROFITS
Set forth below is disclosure of the following:
o the gross proceeds paid or payable to us in the July Private
Placement;
26
o all payments that have been made or that may be required to be
made by us to the Selling Stockholders;
o the resulting net proceeds to us;
o the combined total possible profit to be realized by the Selling
Stockholders and the Excluded Purchasers as a result of any
conversion discounts regarding the securities underlying the
Series C Preferred Stock and the Warrants and any other warrants,
options, notes, or other securities of ours that are held by the
Selling Stockholders or any affiliates of the Selling
Stockholders; and
o the percentage of the total amount of all possible payments by us
and the total possible discount to the market price of the shares
underlying the Series C Preferred Stock and Warrants divided by
the net proceeds to us from the sale of the Series C Preferred
Stock and the Warrants, as well as the amounts of that resulting
percentage averaged over the term of the warrants.
COMBINED TOTAL
POSSIBLE PROFIT
REALIZABLE FROM
CONVERSION POTENTIAL PAYMENTS
DISCOUNTS IN PAYMENTS OR TO BE MADE BY US
CONNECTION WITH POTENTIAL PLUS COMBINED TOTAL
THE JULY PAYMENTS TO BE POSSIBLE PROFIT
PRIVATE MADE BY US PLUS REALIZABLE FROM
PLACEMENT AND COMBINED TOTAL CONVERSION
ANY OTHER POSSIBLE PROFIT DISCOUNTS DIVIDED
SECURITIES OF REALIZABLE FROM BY OUR NET
PAYMENTS OR OURS HELD BY CONVERSION PROCEEDS(%)
POTENTIAL NET PROCEEDS THE SELLING DISCOUNTS DIVIDED AVERAGED OVER
GROSS PAYMENTS TO BE TO THE STOCKHOLDERS OR BY OUR NET 5-YEAR TERM OF
PROCEEDS MADE BY US COMPANY THEIR AFFILIATES PROCEEDS(%) WARRANTS
-------- -------------- ------------ ---------------- ----------------- ------------------
SELLING
STOCKHOLDERS $2,598,204(1) $(430,560)(2) $2,167,644 $(247,489.56) (31.28)% (6.26)%
EXCLUDED
PURCHASERS $4,535,393(3) $(719,440)(4) $3,815,953 $(540,493.18)(5) (33.02)% (6.6)%
PLACEMENT AGENT $0 $(368,000) $(368,000) N/A N/A N/A
TOTAL $7,133,597 $(1,518,000) $5,615,597 $(787,982.74) (41.06)% (8.21)%
-----
--------------
(1) Representing the proceeds payable to us by the Selling Stockholders in
connection with the July Private Placement assuming the exercise in full of
the Warrants held by the Selling Stockholders.
(2) Representing dividends payable to the Selling Stockholders on the Series C
Preferred Stock purchased in the July Private Placement during the first
year following sale, plus potential partial liquidated damages payable to
the Selling Stockholders.
(3) Representing proceeds payable to us by the Excluded Purchasers in connection
with the July Private Placement assuming the exercise in full of the
Warrants acquired by the Excluded Purchasers.
(4) Representing dividends payable to the Excluded Purchasers on the Series C
Preferred Stock purchased in the July Private Placement during the first
year following sale, plus potential partial liquidated damages payable to
the Excluded Purchasers based on the Series C Preferred Stock purchased in
the July Private Placement.
27
(5) Representing the total discount to the market price realized by the Excluded
Purchasers in the July Private Placement plus the total discount to the
market price realized by the Excluded Purchasers in the April Private
Placement; this calculation does not include warrants issued to any Excluded
Purchasers or their affiliates for placement agent services in connection
with the Series B Preferred Stock private placement transaction that closed
on March 15, 2006 (the "SERIES B PRIVATE PLACEMENT"). Based on information
provided to us by or on behalf of the Excluded Purchasers, none of the
Excluded Purchasers or their affiliates purchased shares of our Series B
Preferred Stock in the Series B Private Placement.
SECURITIES OUTSTANDING PRIOR TO OFFERINGS
In connection with the Series B Private Placement, Midsummer
Investment, Ltd. purchased from us 2,826 shares of Series B Preferred Stock,
convertible into 1,256,000 shares of common stock, at a conversion rate of 1
share of Series B Preferred Stock for 444.4444 shares of common stock. We issued
a total of 10,000 shares of Series B Preferred Stock in connection with the
Series B Private Placement. Immediately prior to the Series B Private Placement,
no shares of Series B Preferred Stock were outstanding and 19,090,159 shares of
common stock were outstanding. The closing market price per share of our common
stock on the date of closing of the Series B Private Placement, as listed on
Yahoo! Finance, was $2.15. The closing market price per share of the common
stock as of December 17, 2007, as listed on Yahoo! Finance, was $1.75.
There were no other prior securities transactions between us (or any of
our predecessors) and the Selling Stockholders (or any affiliates of the Selling
Stockholders, or any person with whom any Selling Stockholder has a contractual
relationship regarding the transaction (or any predecessors of those persons)).
SHARES REGISTERED ON BEHALF OF THE SELLING STOCKHOLDERS; SALES; PRIOR HOLDINGS
Set forth below in tabular form is an analysis of the following:
o the number of shares of common stock outstanding prior to the July
Private Placement that are held by persons other than the Selling
Stockholders, our affiliates, and affiliates of the Selling
Stockholders;
o the number of shares of common stock registered for resale by the
Selling Stockholders or affiliates of the Selling Stockholders in
prior registration statements;
o the number of shares of common stock registered for resale by the
Selling Stockholders or affiliates of the Selling Stockholders
that continue to be held by the Selling Stockholders or affiliates
of the Selling Stockholders;
o the number of shares of common stock that have been sold in
registered resale transactions by the Selling Stockholders or
affiliates of the Selling Stockholders; and
o the number of shares of common stock registered for resale on
behalf of the Selling Stockholders or affiliates of the Selling
Stockholders in the current
28
transaction.
For purposes of this table, the calculation of the number of
outstanding shares of common stock does not include any securities underlying
any outstanding convertible securities, options, or warrants.
SHARES OF
SHARES OF COMMON STOCK
COMMON STOCK REGISTERED FOR
REGISTERED FOR RESALE BY
RESALE BY SELLING SHARES OF COMMON
SELLING STOCKHOLDERS PREVIOUSLY STOCK OUTSTANDING
STOCKHOLDERS THAT CONTINUE REGISTERED PRIOR TO THE JULY
OR AFFILIATES TO BE HELD BY SHARES SOLD IN PRIVATE PLACEMENT(2)
OF SELLING THE SELLING REGISTERED HELD BY PERSONS
STOCKHOLDERS STOCKHOLDERS OR RESALE SHARES OF COMMON OTHER THAN THE
IN PRIOR AFFILIATES OF TRANSACTIONS STOCK REGISTERED SELLING STOCKHOLDERS
SELLING REGISTRATION SELLING BY SELLING FOR RESALE IN (OR THEIR AFFILIATES)
STOCKHOLDER(1) STATEMENTS STOCKHOLDERS STOCKHOLDERS CURRENT TRANSACTION OR OUR AFFILIATES
-------------- -------------- ---------------- -------------- ------------------- ---------------------
Consonance Capital
Master Account L.P. 0 0 0 724,717 --
Midsummer
Investment, Ltd. 2,690,484 2,690,484 0 831,098 --
TOTAL 2,690,484 2,690,484 0 1,555,815 17,903,959
-----
----------
(1) For purposes of this table, the term "Selling Stockholder" includes
affiliates of the Selling Stockholders.
(2) There were a total of 21,299,667 shares of our common stock outstanding on
July 17, 2007, just prior to the closing of the July Private Placement.
FINANCIAL ABILITY TO MAKE PAYMENTS AND DIVIDENDS
We intend to make, and have reasonable basis to believe that we have
the financial ability to make, all payments and dividends on the overlying
securities.
SHORT SALES BY SELLING STOCKHOLDERS
The following statements are based on information provided to us by, or
on behalf of, the Selling Stockholders.
Midsummer Investment, Ltd. in the ordinary course of its business may
inter into short sales. However, no such short sales are entered into by
Midsummer Investment, Ltd. while in possession of any material, nonpublic
information. Midsummer Investment, Ltd. acknowledges the position of the Staff
of the SEC set forth in Item A.65 of the SEC Telephone Interpretations Manual.
29
RELATIONSHIPS BETWEEN US AND THE SELLING STOCKHOLDERS
No Selling Stockholder has had, within the past three years, any
position, office, or material relationship or arrangements with us or any of our
predecessors or affiliates, except as provided in this prospectus, and all such
arrangements between or among us, or any of our predecessors or affiliates, and
any of the Selling Stockholders are included as exhibits to the registration
statement of which this prospectus forms a part.
So long as Midsummer Investment Ltd. and Bushido Capital Master Fund,
LP (collectively, the "PRINCIPAL SERIES B INVESTORS") continue to hold at least
25% of our then outstanding shares of the Series B Preferred Stock, in the event
that we intend to take an action, pursuant to certain sections of the Series B
Certificate of Designations, as amended, which would require the affirmative
vote or written consent of the holders of at least 70% of the then outstanding
shares of the Series B Preferred Stock or Series C Preferred Stock, then we
shall not take such action unless both Principal Series B Investors vote in
favor of, or consent to, such action.
DETERMINATION OF TO BE SHARES REGISTERED
We determined the number of shares of common stock that we seek to
register for resale in the registration statement, of which this prospectus
forms a part, by taking the sum of the following:
o the number of shares of common stock underlying the Series C
Preferred Stock purchased by the Selling Stockholders in the July
Private Placement;
o the number of shares of common stock underlying the Warrants
issued in the July Private Placement; and
o the aggregate number of shares of common stock issuable in
satisfaction of dividend obligations on the shares of Series C
Preferred Stock purchased by the Selling Stockholders in the July
Private Placement (the "DIVIDEND SHARES").
In deciding the number of Dividend Shares to register, we first determined that,
pursuant to the Certificate of Designations, the VWAP portion of the dividend
formula at such time amounted to 2.185. Accordingly, we calculated the number of
Dividend Shares to register with respect to each Selling Stockholder by taking
the sum of:
o for the initial partial year, commencing on July 17, 2007, and
ending April 24, 2008, 0.77 times the product of the aggregated
stated value of the shares of Series C Preferred Stock purchased
and a fraction, of which the numerator is .08, the rate at which
dividends accrue during that period, and the denominator is 2.185,
rounding down to the nearest number;
o for the subsequent full year, the product of the aggregated stated
value of the shares of Series C Preferred Stock purchased and a
fraction, of which
30
the numerator is .08, the rate at which dividends accrue during
that period, and the denominator is 2.185, rounding down to the
nearest number; and
o for the subsequent three full years, three times the product of
the aggregated stated value of the shares of Series C Preferred
Stock purchased and a fraction, of which the numerator is .15, the
rate at which dividends accrue during that period, and the
denominator is 2.185, rounding down to the nearest number.
31
PLAN OF DISTRIBUTION
OFFER AND SALE OF SHARES
Each Selling Stockholder has or its pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on the American Stock Exchange or any other stock exchange,
market or trading facility on which the shares are traded or in private
transactions. These sales may be at fixed or negotiated prices. A Selling
Stockholder may use any one or more of the following methods when selling
shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o broker-dealers may agree with the Selling Stockholders to sell
a specified number of such shares at a stipulated price per
share;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or
otherwise;
o a combination of any such methods of sale; or
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 of the
Securities Act, if available, rather than under this prospectus.
In connection with sales of the shares of common stock or otherwise,
the Selling Stockholders may enter into hedging transactions with
broker-dealers, which may in turn engage in short sales of the shares of common
stock in the course of hedging in positions they assume. The Selling
Stockholders may also sell shares of common stock short and deliver shares of
common stock covered by this prospectus to close out short positions and to
return borrowed shares in connection with such short sales. The Selling
Stockholders may also loan or pledge shares of common stock to broker-dealers
that in turn may sell such shares.
The Selling Stockholders may pledge or grant a security interest in
some or all of the warrants or shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock from time to time pursuant
to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act of 1933, as amended, amending,
if necessary, the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling stockholders under this
prospectus. The Selling Stockholders also may transfer and donate the shares of
common stock in other
32
circumstances in which case the transferees, donees, pledgees or other
successors in interest will be the selling beneficial owners.
Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated, but, except as set forth in a supplement to this Prospectus, in the
case of an agency transaction not in excess of a customary brokerage commission
in compliance with NASDR Rule 2440; and in the case of a principal transaction a
markup or markdown in compliance with NASDR IM-2440.
The Selling Stockholders and any broker-dealers or agents involved in
selling the shares may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each Selling Stockholder has informed us
that it does not have any written or oral agreement or understanding, directly
or indirectly, with any person to distribute the common stock. In no event shall
any broker-dealer receive fees, commissions and markups which, in the aggregate,
would exceed eight percent (8%).
We are required to pay certain fees and expenses incurred by us
incident to the registration of the shares. We have agreed to indemnify the
Selling Stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
Because Selling Stockholders may be deemed to be "underwriters" within
the meaning of the Securities Act, they will be subject to the prospectus
delivery requirements of the Securities Act including Rule 172 thereunder. In
addition, any securities covered by this prospectus which qualify for sale
pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather
than under this prospectus. There is no underwriter or coordinating broker
acting in connection with the proposed sale of the resale shares by the Selling
Stockholders.
We agreed to keep this prospectus effective until the earlier of (i)
the date on which the shares may be sold by the Selling Stockholders without
registration and without regard to any volume limitations by reason of Rule
144(k) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to this prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The shares will be sold only
through registered or licensed brokers or dealers if required under applicable
state securities laws. In addition, in certain states, the shares may not be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the shares may not simultaneously engage
in market making activities with respect to the common stock for the applicable
restricted period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases and
sales of shares of the common stock by the Selling Stockholders or any other
person. We will make copies of this prospectus available to the Selling
Stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale (including by
compliance with Rule 172 under the Securities Act).
LEGAL MATTERS
Reitler Brown & Rosenblatt LLC, New York, New York, as our counsel will
pass upon whether the shares of common stock which are being registered under
the Securities Act of 1933, as amended, by the registration statement of which
this prospectus is a part are fully paid, nonassessable and validly issued.
EXPERTS
Miller, Ellin & Company, LLP, independent certified public accountants,
has audited our consolidated financial statements included in our Annual Report
on Form 10-K for the year ended March 31, 2007 as set forth in their reports,
which are incorporated by reference in this prospectus and elsewhere in the
registration statement. Our financial statements are
33
incorporated by reference in reliance on Miller Ellin's report, given on their
authority as experts in accounting and auditing.
INCORPORATION BY REFERENCE
The Securities and Exchange Commission allows us to incorporate by
reference the information that we file with it, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference into this registration statement is
considered to be part of this registration statement, and information that we
file later with the Commission will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings (including those filed by us prior to the termination of the
offering) we make with the Commission under Sections 13(a), 13(c), 14, or 15(d)
of the Exchange Act:
a. our annual report on Form 10-K for the year ended March 31,
2007, filed with the Commission on June 28, 2007;
b. our quarterly report on Form 10-Q for the quarter ended June
30, 2007, filed with the Commission on August 10, 2007;
c. our current report on Form 8-K dated July 23, 2007, filed
with the Commission on July 23, 2007;
d. the description of our capital stock which is contained in our
registration statement on Form 8-A filed on February 16, 2000
including any subsequent amendments and reports filed for the
purpose of updating that description;
e. our quarterly report on Form 10-Q for the quarter ended
September 30, 2007, filed with the Commission on November 14,
2007;
f. our current report on Form 8-K dated October 24, 2007, filed
with the Commission on October 24, 2007;
g. our current report on Form 8-K dated November 13, 2007, filed
with the Commission on November 13, 2007.
You may request a copy of these filings, at no cost, by written or oral
request to us at the following address:
Mark I. Gittelman
Corporate Secretary
Elite Pharmaceuticals, Inc.
165 Ludlow Avenue
Northvale, New Jersey 07647
(201) 750-2646
No person has been authorized to give any information or to make any
representation other than those contained in this prospectus in connection with
the offering of the shares of our common stock by the Selling Stockholders. If
information or representations other than those contained in this prospectus are
given or made, you must not rely on it as if we authorized it. Neither the
delivery of this prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that the information contained or
incorporated by reference herein is correct as of any time subsequent to its
date or that there has been no change in our affairs since such date. This
prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any securities offered hereby in any jurisdiction in which such offer or
solicitation is not permitted, or to anyone whom it is unlawful to make such
offer or solicitation. The information in this prospectus is not complete and
may be changed.
34
1,888,251 SHARES
ELITE PHARMACEUTICALS, INC.
COMMON STOCK
----------------------------
PROSPECTUS
[____________], 2008
----------------------------
Until [__________], 2008, all dealers that buy, sell, or trade the common
stock, may be required to deliver a prospectus, regardless of whether they are
participating in this offering. This is in addition to the dealers' obligation
to deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of the estimated expenses incurred by us
in connection with the distribution of the securities registered under this
registration statement:
AMOUNT
TO BE PAID *
----------
SEC Registration Fee ........... $ 282.44
Legal Fees and Expenses ........ $10,000.00*
Accounting Fees and Expenses ... $ 1,000.00*
Printing Expenses .............. $ 2,000.00*
Miscellaneous .................. $ 2,000.00*
----------
Total .......................... $15,282.44*
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to authority conferred by Section 102 of the Delaware General
Corporation Law (the "DGCL"), our Certificate of Incorporation, as amended,
contains a provision providing that the personal liability of a director is
eliminated to the fullest extent provided by the DGCL. The effect of this
provision is that none of our directors is personally liable to us or our
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability for (i) any breach of the director's duty of loyalty to us
or our stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payment of
dividends as provided in Section 174 of the DGCL and (iv) any transaction from
which the director derived an improper personal benefit. This provision is
intended to eliminate the risk that a director might incur personal liability to
us or our stockholders for breach of duty of care. The Certificate of
Incorporation, as amended, also provides that if the Delaware Law is amended to
eliminate or limit further the liability of directors, then the liability of our
directors shall be eliminated or limited, without further stockholder action.
Section 145 of the DGCL contains provisions permitting and, in some
situations, requiring Delaware corporations, such as us, to provide
indemnification to their officers and directors for losses and litigation
expenses incurred in connection with their service to the corporation in those
capacities. Our Certificate of Incorporation, as amended, and by-laws contain
such a provision requiring that we indemnify our directors and officers to the
fullest extent permitted by law, as the law may be amended from time to time.
In our registration rights agreement with each of the Selling
Stockholders, we have agreed to indemnify the purchaser against damages or
losses and expenses arising from any losses or expenses incurred in connection
with a loss or alleged loss arising from a material misstatement in or a
material omission from the registration statement or any violation of the
Securities Act except for a material misstatement or omission based on written
information provided to us by the purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions or otherwise, it 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.
ITEM 16. EXHIBITS
4.1 Form of Common Stock certificate, incorporated by reference to Exhibit
4.1 to the Registration Statement on Form SB-2, Registration No.
333-90633, made effective on February 28, 2000.
5.1 Opinion of Reitler Brown & Rosenblatt LLC.
II-1
10.1 Form of Securities Purchase Agreement between the Registrant and
purchasers listed as signatories thereto, incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K dated July 23, 2007 and
filed with the Commission on July 23, 2007.
10.2 Form of Registration Rights Agreement between the Registrant and
purchasers listed as signatories thereto, incorporated by reference to
Exhibit 10.2 to the Current Report on Form 8-K dated July 23, 2007 and
filed with the Commission on July 23, 2007.
10.3 Placement Agent Agreement between Oppenheimer & Co., Inc. and the
Registrant, incorporated by reference to Exhibit 10.3 to the Current
Report on Form 8-K dated April 25, 2007 and filed with the Commission
on April 25, 2007.
10.4 Form of Common Stock Purchase Warrant, incorporated by reference to
Exhibit 4.2 to Elite's Current Report on Form 8-K dated April 25, 2007
and filed with the Commission on April 25, 2007.
10.5 Form of Common Stock Purchase Warrant issued to the Placement Agent,
incorporated by reference to Exhibit 4.3 to the Current Report on Form
8-K dated April 25, 2007 and filed with the Commission on April 25,
2007.
10.6 Form of Securities Purchase Agreement between the Registrant and
purchasers listed as signatories thereto, incorporated by reference to
Exhibit 10.1 to the Current Report on Form 8-K dated March 15, 2006 and
filed with the Commission on March 16, 2006.
10.7 Form of Registration Rights Agreement between the Registrant and
purchasers listed as signatories thereto, incorporated by reference to
Exhibit 10.2 to the Current Report on Form 8-K dated March 15, 2006 and
filed with the Commission on March 16, 2006.
10.8 Certificate of Designations, Preferences and Rights of Series B
Preferred Stock, incorporated by reference to Exhibit 3.1 to the
Current Report on Form 8-K dated March 15, 2006 and filed with the
Commission on March 16, 2006.
23.1 Consent of Miller, Ellin & Company LLP.
23.2 Consent of Reitler Brown & Rosenblatt LLC (included in Exhibit 5.1
above).
24.1 Power of Attorney (included on Signature page).
---------------
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
notwithstanding the foregoing, any increase or decrease in amount of securities
offered (if the total dollar value of the securities offered would not exceed
that which was registered) may be reflected in the form of prospectus filed with
the Securities and Exchange Commission pursuant to Rule 424(b) if the change in
volume represents no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; provided,
however, that paragraphs (a)(1)(i), (ii) and (iii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission by the Registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in this registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such
II-2
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE
SECURITIES ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS AND CONTROLLING
PERSONS OF THE REGISTRANT PURSUANT TO THE FOREGOING PROVISIONS, OR OTHERWISE,
THE REGISTRANT HAS BEEN ADVISED THAT IN THE OPINION OF THE SECURITIES AND
EXCHANGE COMMISSION SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED
IN THE SECURITIES ACT OF 1933 AND IS, THEREFORE, UNENFORCEABLE. IN THE EVENT
THAT A CLAIM FOR INDEMNIFICATION AGAINST SUCH LIABILITIES (OTHER THAN THE
PAYMENT BY THE REGISTRANT OF EXPENSES INCURRED OR PAID BY A DIRECTOR, OFFICER OR
CONTROLLING PERSON OF THE REGISTRANT IN THE SUCCESSFUL DEFENSE OF ANY ACTION,
SUIT OR PROCEEDING) IS ASSERTED AGAINST THE REGISTRANT BY SUCH DIRECTOR, OFFICER
OR CONTROLLING PERSON IN CONNECTION WITH THE SECURITIES BEING REGISTERED, THE
REGISTRANT WILL, UNLESS IN THE OPINION OF ITS COUNSEL THE MATTER HAS BEEN
SETTLED BY CONTROLLING PRECEDENT, SUBMIT TO A COURT OF APPROPRIATE JURISDICTION
THE QUESTION WHETHER SUCH INDEMNIFICATION BY IT IS AGAINST PUBLIC POLICY AS
EXPRESSED IN THE SECURITIES ACT OF 1933 AND WILL BE GOVERNED BY THE FINAL
ADJUDICATION OF SUCH ISSUE.
(c)(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
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 Borough of
Northvale, State of New Jersey, on January 14, 2008.
ELITE PHARMACEUTICALS, INC.
/s/ Bernard Berk
--------------------------------------------
Bernard Berk
President and Chief Executive Officer
II-4
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 indicated.
Dated: January 14, 2008 /s/ Bernard Berk
--------------------------------------------
Bernard Berk
Chief Executive Officer and
Chairman of the Board of Directors
Dated: January 14, 2008 *
--------------------------------------------
Mark I. Gittelman
Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: January 14, 2008 *
--------------------------------------------
Barry Dash
Director
Dated: January 14, 2008 *
--------------------------------------------
Veerappan Subramanian
Director
Dated: January 14, 2008 *
--------------------------------------------
Robert J. Levenson
Director
*By /s/ Bernard Berk
---------------------
Bernard Berk
Attorney-in-Fact
II-5