FILED PURSUANT TO RULE 424(b)(3)
(REGISTRATION NO. 333-65393)
PROSPECTUS
ATLANTIC PHARMACEUTICALS, INC.
991,484 SHARES OF COMMON STOCK,
OFFERED BY CERTAIN SELLING SECURITYHOLDERS
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This prospectus (the "Prospectus") relates to the public offering, which is
not being underwritten, of an aggregate of 991,484 shares (collectively, the
"Securities") of Common Stock, par value $0.001 per share (the "Common Stock"),
of Atlantic Pharmaceuticals, Inc., a Delaware corporation ("Atlantic" or the
"Company"), consisting of (i) approximately 856,540 shares issuable upon
conversion of 744,809 shares of the Company's Series A Convertible Preferred
Stock, par value $0.001 per share (the "Series A Preferred"), and (ii) 134,944
shares issuable upon conversion of 117,198 shares of Series A Preferred
underlying warrants to purchase such shares of Series A Preferred (the
"Placement Warrants"). The Securities represent that number of shares of Common
Stock as are issuable upon conversion of the Series A Preferred based on a
conversion rate of 3.27 shares of Common Stock per share of Series A Preferred,
less the number of shares of Common Stock (the "Previously Registered Shares")
issuable upon conversion of the Series A Preferred based on a conversion rate of
2.12 shares of Common Stock per share of Series A Preferred, the resale of which
shares was previously registered pursuant to a Registration Statement on Form
S-3 (No. 333-35079). The Securities are or may be held by certain warrantholders
or stockholders of the Company or by pledgees, donees, transferees or other
successors in interest that receive such Securities as a gift, partnership
distribution or other non-sale related transfer (the "Selling Securityholders").
The Securities were received by the Selling Securityholders in private placement
transactions of the Company and were issued pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") provided by Section 4(2) thereof. The Securities are being
registered by the Company pursuant to a registration rights agreement with the
Selling Securityholders. See "Description of Securities" and "Plan of
Distribution."
The Securities may be offered by the Company or the Selling Securityholders
from time to time in transactions on The Nasdaq SmallCap Market tier of The
Nasdaq Stock Market ("Nasdaq"), in privately negotiated transactions, or by a
combination of such methods of sale, at market prices prevailing at the time of
sale or at prices related to such prevailing market prices or at negotiated
prices. The Securities may be sold by one or more of the following: (a) a block
trade in which the broker or dealer so engaged will attempt to sell the
Securities as agent but may position and resell a portion of the block as
principal to facilitate the transaction, (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus and (c) ordinary brokerage transactions and transactions in which the
broker solicits purchases. The Selling Securityholders may effect such
transactions by selling the Securities to or through broker-dealers and such
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the Selling Securityholders or the purchasers of the Securities
for whom such broker-dealers may act as agent or to whom they sell as principal
or both (which compensation to a particular broker-dealer might be in excess of
customary commissions). In addition, any securities covered by this Prospectus
which qualify for sale pursuant to Rule 144 may be sold under Rule 144
promulgated under the Securities Act rather than pursuant to this Prospectus.
The Company will not receive any of the proceeds from the sale of the Securities
by the Selling Securityholders, although the Company will receive proceeds from
the exercise of the Placement Warrants. The Company has agreed to bear certain
expenses in connection with the registration and sale of the Securities being
offered by the Selling Securityholders and to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Securities Act. See "Plan of Distribution."
The Units, Common Stock and Redeemable Warrants of the Company are traded on
Nasdaq under the symbols "ATLCU," "ATLC" and "ATLCW," respectively. On October
28, 1998, the last sale prices for the Units, Common Stock and Redeemable
Warrants as quoted on Nasdaq were $2.125, $1.5625 and $0.625, respectively, per
security.
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The Selling Securityholders and any broker-dealers or agents that
participate with the Selling Securityholders in the distribution of the
Securities may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act, and any commissions received by them and any profit
on the resale of the Securities purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 4.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
UNDERWRITING
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO PUBLIC COMMISSIONS(1) STOCKHOLDERS(2)
Per Share....................................... $1.5625 $0 $1.5625
Total........................................... $1,549,194 $0 $1,549,194
(1) Does not give effect to ordinary brokerage commissions or other costs of
sale that will be borne solely by the Selling Securityholders.
(2) Represents the anticipated sale by the Selling Securityholders at $1.5625
per share, the last reported sales price reported on Nasdaq on October 28,
1998. There can be no assurances, however, that the Selling Securityholders
will be able to sell their shares at this price, or that a liquid market
will exist for the Company's securities. The Company will not receive any
proceeds upon the sale of shares of Common Stock by the Selling
Securityholders, but will receive proceeds resulting from the exercise of
the Placement Warrants. Does not (i) include expenses to be paid by the
Company on behalf of the Selling Securityholders or (ii) incorporate the
expenses of preparing the Registration Statement of which this Prospectus is
a part, which will be borne by the Company.
------------------------------
THE DATE OF THIS PROSPECTUS IS OCTOBER 29, 1998.
------------------------
TO NEW JERSEY RESIDENTS ONLY:
The Securities may only be offered and sold to any person who comes within
any of the following categories, or whom the seller thereof reasonably believes
comes within any of the following categories, at the time of the sale of the
Securities to that person:
(1) Any bank as defined in section 3(a)(2) of the Securities Act of
1933, as amended (the "Securities Act"), or any savings and loan association
or other institution as defined in section 3(a)(5)(A) of the Securities Act
whether acting in its individual or fiduciary capacity; any broker or dealer
registered pursuant to section 15 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); any insurance company as defined in section
2(13) of the Securities Act; any investment company registered under the
Investment Company Act of 1940 or a business development company as defined
in section 2(a)(48) of that Act; Small Business Investment Company licensed
by the U.S. Small Business Administration under section 301(c) or (d) of the
Small Business Investment Act of 1958; any plan established and maintained
by a state, its political subdivisions, or any agency or instrumentality of
a state or its political subdivisions for the benefit of its employees, if
such plan has total assets in excess of $5,000,000; employee benefit plan
within the meaning of the Employee Retirement Income Security Act of 1974 if
the investment decision is made by a plan fiduciary, as defined in section
3(21) of such Act, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the employee
benefit plan has total assets in excess of $5,000,000 or, if a self-directed
plan, with investment decisions made solely by persons that are accredited
investors;
(2) Any private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
(3) Any organization described in Section 501(C)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets in excess of $5,000,000;
(4) Any director, executive officer, or general partner of the issuer of
the securities being offered or sold, or any director, executive officers or
general partner of a general partner of that issuer;
(5) Any natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of his purchase exceeds $1,000,000;
(6) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current
year;
(7) Any trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Rule 506(b)(2)(ii) of the
Securities Act; and
(8) Any entity in which all of the equity owners are accredited
investors.
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No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company, by any Selling
Securityholder or by any other person. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any securities other than the
shares of Common Stock offered hereby, nor does it constitute an offer to sell
or a solicitation of an offer to buy any of the shares offered hereby to any
person in any jurisdiction in which such offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall under any circumstances create any implication that the information
contained herein is correct as of any date subsequent to the date hereof.
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"Catarex-TM-" is a trademark of the Company. All other trademarks, trade
names or service marks referenced herein are the property of their respective
owners.
1
AVAILABLE INFORMATION
Atlantic was incorporated in the State of Delaware on May 18, 1993 and
commenced operations on July 13, 1993. As used in this Prospectus, unless the
context requires otherwise, the "Company" means Atlantic Pharmaceuticals, Inc.
and its subsidiaries. The Company's principal executive offices are located at
1017 Main Campus Drive, Suite 3900, Raleigh, North Carolina 27606. The Company's
telephone number at that address is (919) 513-7020. The Company's Units, Common
Stock, and Redeemable Warrants are quoted on Nasdaq under the respective symbols
"ATLCU," "ATLC" and "ATLCW."
Atlantic is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, is required to file periodic reports, proxy materials and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its
regional offices located at 1401 Brickell Avenue, Suite 200, Miami, Florida
33131 and at Seven World Trade Center, Suite 1300, New York, New York 10048.
Copies of such materials may also be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, DC 20549, at prescribed
rates. In addition, the Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
issuers, including the Company, that file electronically with the Commission.
Such Web site can be found at http://www.sec.gov. The materials described above
may also be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, DC 20006.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act. This Prospectus omits certain of the information set forth
in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Company and the Securities offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed as a part thereof. Statements contained in this Prospectus
concerning the contents of any contract or any other document referred to are
not necessarily complete; reference is made in each instance to the copy of such
contract or document filed as an exhibit to the Registration Statement. Each
such statement is qualified in all respects by such reference to such exhibit.
The Registration Statement, including all exhibits and schedules thereto, may be
inspected without charge at the Commission's principal office in Washington,
D.C., and copies of all or any part thereof may be obtained from such office
after payment of fees prescribed by the Commission.
2
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission (File No.
0-19750) pursuant to the Exchange Act are incorporated by reference in this
Prospectus:
1. The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997, Quarterly Report on Form 10-QSB for the fiscal quarter
ended March 31, 1998, and Quarterly Report on Form 10-QSB for the fiscal
quarter ended June 30, 1998;
2. The Company's definitive Proxy Statement dated April 13, 1998 filed in
connection with the Company's 1998 Annual Meeting of Stockholders;
3. The description of the Company's securities contained in the Company's
Registration Statement on Form 8-A filed under the Exchange Act on
November 27, 1995, including any amendment or report filed for the
purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus but prior to
the termination of the offering to which this Prospectus relates shall be deemed
to be incorporated by reference in this Prospectus and to be part hereof from
the date of filing of such documents. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, in its unmodified form, to constitute a part of this
Prospectus.
Upon written or oral request, the Company will provide without charge to
each person to whom a copy of the Prospectus is delivered a copy of the
documents incorporated by reference herein (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference
therein). Requests should be submitted in writing or by telephone at (919)
513-7020 to Vice President of Investor Relations, Atlantic Pharmaceuticals,
Inc., at the principal executive offices of the Company, 1017 Main Campus Drive,
Suite 3900, Raleigh, North Carolina 27606.
3
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY IS SPECULATIVE IN NATURE,
INVOLVES A HIGH DEGREE OF RISK AND SHOULD NOT BE MADE BY AN INVESTOR WHO CANNOT
AFFORD THE LOSS OF HIS ENTIRE INVESTMENT. THE FOLLOWING RISK FACTORS SHOULD BE
CONSIDERED CAREFULLY IN ADDITION TO THE OTHER INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS BEFORE PURCHASING THE SECURITIES
OFFERED HEREBY. IN ADDITION TO THE HISTORICAL INFORMATION CONTAINED HEREIN, THE
DISCUSSION IN THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS,
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE
EXCHANGE ACT, THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE
COMPANY'S PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY
STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS BEING APPLICABLE TO ALL
RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE
DISCUSSED BELOW AS WELL AS THOSE CAUTIONARY STATEMENTS AND OTHER FACTORS SET
FORTH ELSEWHERE HEREIN.
RESET DATE OF SERIES A CONVERTIBLE PREFERRED STOCK; PAYMENT IN KIND DIVIDENDS
The shares of the Company's Series A Preferred are convertible into shares
of Common Stock of the Company. Prior to August 7, 1998 (the "Reset Date"), each
share of Series A Preferred was convertible into 2.12 shares of Common Stock and
the conversion price of the Series A Preferred was $4.72 per share. Pursuant to
the Certificate of Designations for the Series A Preferred (the "Certificate of
Designations"), the conversion price was adjusted on the Reset Date such that
the new conversion price equals $3.06 per share and each share of Series A
Preferred is convertible into 3.27 shares of Common Stock. The conversion price
is subject to adjustment as more fully described in the Certificate of
Designations. No cash is paid to the Company upon the conversion of the Series A
Preferred into shares of the Company's Common Stock.
In addition, commencing on the Reset Date the holders of the Series A
Preferred are entitled to payment-in-kind dividends ("PIK dividends"), payable
semi-annually in arrears, on their shares of Series A Preferred at the rate of
0.13 shares of Series A Preferred for each outstanding share of Series A
Preferred.
As a result of the reduction of the conversion price of the Series A
Preferred, the holders of the Series A Preferred are entitled to receive a
greater number of shares of the Company's Common Stock upon conversion of the
Series A Preferred than previously received upon such conversion, which could
adversely affect the prevailing market price of the Common Stock. If the Company
is obligated to pay PIK dividends to the holders of the Series A Preferred then
more shares of Common Stock will be issuable upon conversion of the Series A
Preferred, which could also adversely affect the prevailing market price of the
Company's Common Stock.
The complete description of the rights and preferences of the Series A
Preferred is contained in the Certificate of Designations filed with the
Secretary of State of the State of Delaware.
DEVELOPMENT STAGE COMPANY; HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT;
UNCERTAINTY OF FUTURE PROFITABILITY
The technologies and products under development by the Company are in the
research and development stage and no operating revenue (outside of a milestone
payment made by Bausch & Lomb Surgical ("Bausch & Lomb") and grant revenues) has
been generated to date. Except for any payments that Bausch & Lomb may be
obligated to make pursuant to the Development & License Agreement (the
"Development & License Agreement"), dated May 14, 1998, between Optex
Ophthalmologics, Inc., a majority-owned subsidiary of Atlantic ("Optex"), and
Bausch & Lomb, the Company does not expect to generate any revenues in the near
future. As a result, the Company must be evaluated in light of the problems,
delays, uncertainties and complications encountered in connection with recently
established businesses. The Company has incurred operating losses since its
inception. As of June 30, 1998, the
4
Company's working capital and accumulated deficit were $7,880,022 and
$13,839,735, respectively. Operating losses have resulted principally from costs
incurred in identifying and acquiring the technologies under development,
research and development activities, patent prosecution and maintenance costs
and general and administrative costs. The Company expects to incur significant
operating losses over the next several years, primarily due to continuation and
expansion of its research and development programs, including preclinical
studies and clinical trials for its products and technologies under development,
as well as costs incurred in identifying and, possibly, acquiring, additional
technologies. The Company's ability to achieve profitability depends upon its
ability (alone or with corporate partners) to develop pharmaceutical and medical
device products, obtain regulatory approval for its proposed products and/or
enter into agreements either for the sale or sublicense of its technologies or
for product development, manufacturing and commercialization. There can be no
assurance that the Company will ever achieve significant revenues or profitable
operations from the sale of its proposed products.
NEED FOR ADDITIONAL FINANCING; ISSUANCE OF SECURITIES BY THE COMPANY AND ITS
SUBSIDIARIES;
FUTURE DILUTION
The Company will require, and is constantly considering potential sources
for, substantial additional financing to continue its research, to complete its
product development and to manufacture and market any products that may be
developed. Based solely upon its currently existing consulting, license,
sponsored research, independent contractor and employment agreements, the
Company currently anticipates that it will spend all of its current cash
reserves by the end of the first quarter of 2000. There can be no assurance,
however, that the Company's current cash reserves will not be expended prior to
that time. The Company anticipates that further funds may be raised at any time
through additional public or private debt or equity financings conducted either
by the Company or by one or more of its subsidiaries, or through collaborative
ventures entered into between the Company or one or more of its subsidiaries and
one or more corporate partners. There can be no assurance that the Company will
be able to obtain additional financing or that such financing, if available, can
be obtained on terms acceptable to the Company. If additional financing is not
otherwise available, the Company will be required to modify its business
development plans or reduce or cease certain or all of its operations. In such
event, holders of securities of the Company will, in all likelihood, lose their
entire investment.
Although Atlantic and each of its subsidiaries will seek to enter into
collaborative ventures with corporate partners to fund some or all of its
activities, as well as to manufacture or market the products which may be
developed, Atlantic and its subsidiaries currently have only one such
arrangement in place with a corporate partner (I.E., Bausch & Lomb), and there
can be no assurance that Atlantic or any of its subsidiaries will be able to
enter into any additional ventures on favorable terms, if at all. In addition,
no assurance can be given that Atlantic or any of its subsidiaries would be able
to complete a private placement or public offering of its securities. Failure by
Atlantic or any of its subsidiaries to enter into such collaborative ventures or
to receive additional funding either through a public offering or a private
placement to complete its proposed product development programs would have a
material adverse effect on the Company.
In the event that the Company obtains any additional funding, such
financings may have a dilutive effect on the holders of the Company's
securities. In addition, if one or more of the Company's subsidiaries raises
additional funds through the issuance and sale of its equity securities, the
interest of the Company and its stockholders in such subsidiary or subsidiaries,
as the case may be, could be diluted and there can be no assurance that the
Company will be able to maintain its majority interest in any or all of its
current subsidiaries. In addition, the interest of the Company and its
stockholders in each subsidiary will be diluted or subject to dilution to the
extent any such subsidiary issues shares or options to purchase shares of its
capital stock to employees, directors, consultants and others. In the event that
the Company's voting interest in any of its current subsidiaries falls below
50%, the Company may not be able to exercise an adequate degree of control over
the affairs and policies of such subsidiary as currently being exercised.
5
In addition, the Company has outstanding convertible securities (other than
the Series A Preferred) that are exercisable into an aggregate of 4,739,905
shares of Common Stock at exercise prices ranging from $0.75 to $10.00 per
share. Most of such convertible securities are currently exercisable at prices
above the per share price of the Common Stock as quoted on Nasdaq as of June 30,
1998. As of August 27, 1998, the Company had outstanding 744,809 shares of its
Series A Preferred and warrants to purchase 117,198 shares of Series A
Preferred, all of which currently are convertible into shares of the Company's
Common Stock at a conversion rate of 3.27 shares of Common Stock for each share
of Series A Preferred. The aforementioned conversion rate is subject to
adjustment in favor of the holders of the Series A Preferred upon the occurrence
of certain events. The exercise of such convertible securities or the conversion
of the Series A Preferred, if any, may dilute the value of the Common Stock. In
addition, so long as such convertible securities remain unexercised, the terms
under which the Company could obtain additional capital may be adversely
affected.
BAUSCH & LOMB DEVELOPMENT & LICENSE AGREEMENT
On May 14, 1998, Atlantic's majority-owned subsidiary, Optex, entered into a
worldwide licensing agreement with Bausch & Lomb to complete the development of
Catarex, the cataract removal technology developed by Optex. Under the terms of
the agreement, Optex and Bausch & Lomb intend to jointly complete the final
design and development of Optex's Catarex cataract removal system. Bausch & Lomb
will assume responsibility for commercializing Catarex globally. Optex received
a milestone payment upon execution of the Development & License Agreement and is
to receive certain additional milestone payments from Bausch & Lomb. In
addition, Bausch & Lomb has committed to pay ongoing royalties on sales of
Catarex products. There can be no assurance that the Company and Bausch & Lomb
will be able to complete the development of Catarex, that the milestones that
trigger payment obligations from Bausch & Lomb will be reached or that Bausch &
Lomb will be able to successfully commercialize Catarex and, consequently, pay
royalties to the Company.
NO DEVELOPED OR APPROVED PRODUCTS
To achieve profitable operations, the Company, alone or with others, must
successfully develop, obtain regulatory approval for, introduce and market its
products under development. Most of the preclinical and clinical development
work for the products under development of the Company remains to be completed.
The Company has not generated, nor is it expected to generate in the near
future, any operating revenues (other than some grant revenues and the milestone
payment received from Bausch & Lomb). In addition, the Company has no
manufacturing or marketing facilities nor any contracts with any commercial
manufacturing or marketing entities to manufacture or market the Company's
products to consumers (except for the License & Development Agreement with
Bausch & Lomb). No assurance can be given that any of its product development
efforts will be successfully completed, that required regulatory approvals will
be obtained, or that any such products, if developed and introduced, will be
successfully marketed or achieve market acceptance.
TECHNOLOGICAL UNCERTAINTY AND EARLY STAGE OF PRODUCT DEVELOPMENT
The technologies and products which the Company intends to develop are in
the early stages of development, require significant further research,
development and testing and are subject to the risks of failure inherent in the
development of products based on innovative or novel technologies. These risks
include the possibility that any or all of the Company's proposed technologies
and products will be found to be ineffective or unsafe, will fail to meet
applicable regulatory standards or will fail to obtain required regulatory
approvals or that such technologies and products once developed, although
effective, are uneconomical to market, that third parties hold proprietary
rights that preclude the Company from marketing such technologies and products,
that third parties market superior or equivalent technologies and products or
that third parties have superior resources to market similar products or
technologies.
6
Further, the Company's proposed technologies and products might prove to have
undesirable or unintended side effects that prevent or limit their commercial
use.
The Company's agreements with licensors do not contain any representations
by the licensors as to the safety or efficacy of the inventions or discoveries
covered thereby. The Company is unable to predict whether the research and
development activities it is funding will result in any commercially viable
products or applications. In addition, there can be no assurance that the
Company's research and development schedules will be met. Further, due to the
extended testing required before marketing clearance can be obtained from the
U.S. Food and Drug Administration (the "FDA") or other similar agencies, the
Company is not able to predict with any certainty, when, if ever, the Company
will be able to commercialize any of its proposed technologies or products.
ANALYSIS OF RESULTS OF A PIVOTAL STUDY OF THE CYCLODEXTRIN TECHNOLOGY
The Company has performed several studies in small animal models of its
cyclodextrin technology and the results of this research have indicated that the
sulfated cyclodextrins may have potential as a treatment for restenosis and late
vein graft failure. In the first quarter 1998, the Company completed research in
large animal models of the cyclodextrin technology, and the results of the
research in the large animal models are believed to be more predictive of the
effect of the cyclodextrin technology in humans for the treatment of restenosis.
Initial data analysis of the large animal studies of the cyclodextrin technology
for restenosis that were completed in the second quarter indicates promising
results with continuous intravenous infusion of CT-1 and significant
inflammatory reactions with CT-2 (each sulfated beta-cyclodextrins). The Company
intends to conduct additional data analysis of the CT-2 study. Depending on its
analysis of the results of these studies of the cyclodextrin technology as well
as the results of ongoing additional studies, the Company may elect, among other
alternatives, to sublicense all or some of its proprietary rights and/or to
relinquish its proprietary rights to the cyclodextrin technology.
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
The Company's proposed products and technologies are in early stages of
development. The research, preclinical development, clinical trials, product
manufacturing and marketing to be conducted by, or on behalf of, the Company is
subject to extensive regulation by the FDA, comparable agencies in state and
local jurisdictions and similar health authorities in foreign countries. FDA
approval of the Company's products, as well as the manufacturing processes and
facilities, if any used to produce such products will be required before such
products may be marketed in the United States. The processes of obtaining
approvals from the FDA are costly, time consuming and often subject to
unanticipated delays. There can be no assurance that approvals of the Company's
proposed products, processes or facilities will be granted on a timely basis, or
at all. In addition, new government regulations may be established that could
delay or prevent regulatory approval of the Company's products under
development. Any future failure to obtain or delay in obtaining any such
approval will materially and adversely affect the ability of the Company to
market its proposed products and the business, financial condition and results
of operations of the Company.
The Company's proposed products and technologies may also be subject to
certain other federal, state and local government regulations, including, but
not limited to, the Federal Food, Drug and Cosmetic Act, the Environmental
Protection Act, the Occupational Safety and Health Act and state, local and
foreign counterparts to certain of such acts. The Company intends to develop its
business to strategically address regulatory needs. However, the Company cannot
predict the extent of the adverse effect on its business or the financial and
other costs that might result from any government regulations arising out of
future legislative, administrative or judicial action.
Before a new medical device can be introduced in the market, the
manufacturer must generally obtain FDA clearance or approval through either
clearance of a 510(k) notification or approval of a Pre-Market
7
Approval Application. A 510(k) clearance will be granted if the submitted
information establishes that the proposed device is "substantially equivalent"
to certain categories of legally marketed medical devices. The FDA recently has
been requiring more rigorous demonstration of substantial equivalence than in
the past, including in some cases requiring submission of clinical data. The FDA
may determine that the proposed device is not substantially equivalent to a
predicate device or that additional information is needed before a substantial
equivalence determination can be made. It generally takes from 4 to 12 months
from submission to obtain 510(k) premarket clearance, but may take longer. A
"not substantially equivalent" determination, or a request for additional
information, could prevent or delay the market introduction of products that
fall into this category. For any devices that are cleared through the 510(k)
process, modifications or enhancements that could significantly affect safety or
effectiveness, or constitute a major change in the intended use of the device,
will require new 510(k) submissions.
The steps required before a drug may be approved by applicable government
agencies for marketing in the United States generally include (i) preclinical
laboratory and animal tests, (ii) the submission to the FDA of an
Investigational New Drug Application, (iii) adequate and well controlled human
clinical trials to establish the safety and efficacy of the drug, (iv)
submission to the FDA of a New Drug Application and (v) satisfactory completion
of an FDA inspection of the manufacturing facility or facilities at which the
drug is made to assess compliance with Good Manufacturing Practices. Lengthy and
detailed preclinical and clinical testing, validation of manufacturing and
quality control processes, and other costly and time-consuming procedures are
required. 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. The effect of government
regulation may be to delay or to prevent marketing of potential products for a
considerable period of time and to impose costly procedures upon the Company's
activities. There can be no assurance that the FDA or any other regulatory
agency will grant approval for any products developed by the Company on a timely
basis, or at all. Success in preclinical or early stage clinical trials does not
assure success in later stage clinical trials. Data obtained from preclinical
and clinical activities are susceptible to varying interpretations that could
delay, limit or prevent regulatory approval. If regulatory approval of a product
is granted, such approval may impose limitations on the indicated uses for which
a product may be marketed. Further, even if such regulatory approvals are
obtained, a marketed drug or device and its manufacturer are subject to
continued review, and later discovery of previously unknown problems may result
in restrictions on such product or manufacturer, including withdrawal of the
product from the market. Any delay or failure of the Company to obtain and
maintain regulatory approval of its proposed products, processes or facilities
would have a material adverse effect on the business, financial condition and
results of operations of the Company.
DEPENDENCE ON LICENSE AND SPONSORED RESEARCH AGREEMENTS
The Company depends on license agreements from third parties that form the
basis of its proprietary technology. Optex owns the proprietary rights that form
the basis of the Catarex technology. In general, the Company also relies on
sponsored research agreements for its research and development efforts. However,
the research and development for the Catarex device is jointly conducted at the
laboratory facilities of the Company's subsidiary, Optex, and at the laboratory
facilities of Bausch & Lomb and some of the research and development concerning
the 2-5A Chimeric Antisense Technology is conducted at the laboratory facilities
of the Company's subsidiary, Gemini Technologies, Inc. The license agreements
that have been entered into by the Company typically require the Company's use
of due diligence in developing and bringing products to market and the payment
of certain milestone amounts that in some instances may be substantial. With the
exception of its license from Optex, the Company is also obligated to make
royalty payments on the sales, if any, of products resulting from such licensed
technology. The Company is also responsible for the costs of filing and
prosecuting patent applications and maintaining issued patents. Certain research
and development activities of the Company are intended to be conducted by
universities or other institutions pursuant to sponsored research agreements.
The sponsored research agreements
8
entered into and contemplated to be entered into by the Company generally
require periodic payments on an annual, quarterly or monthly basis.
If the Company does not meet its financial, development or other obligations
under either its license agreements or its sponsored research agreements in a
timely manner, the Company could lose the rights to its proprietary technology
or the right to have the applicable university or institution conduct its
research and development efforts. If the rights of the Company under its license
or sponsored research agreements are terminated, such termination could have a
material adverse effect on the business and research and development efforts of
the Company.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The success of the Company will depend in large part on its and/or its
licensors' ability to obtain patents, defend their patents, maintain trade
secrets and operate without infringing upon the proprietary rights of others,
both in the United States and in foreign countries. The patent position of firms
relying upon biotechnology is highly uncertain and involves complex legal and
factual questions. To date there has emerged no consistent policy regarding the
breadth of claims allowed in biotechnology patents or the degree of protection
afforded under such patents. The Company relies on certain United States patents
and pending United States and foreign patent applications relating to various
aspects of its products and technologies. With the exception of intellectual
property owned by Optex, all of these patents and patent applications are owned
by third parties and are licensed or sublicensed to the Company. Optex owns the
patents and the patent applications relating to the Catarex technology; however,
Optex has licensed those rights to Bausch & Lomb. The patent application and
issuance process can be expected to take several years and entail considerable
expense to the Company, as it is responsible for such costs under the terms of
its license agreements. There can be no assurance that patents will issue as a
result of any such pending applications or that the existing patents and any
patents resulting from such applications will be sufficiently broad to afford
protection against competitors with similar technology. In addition, there can
be no assurance that such patents will not be challenged, invalidated, or
circumvented, or that the rights granted thereunder will provide competitive
advantages to the Company. The commercial success of the Company will also
depend upon avoiding infringement of patents issued to competitors. A United
States patent application is maintained under conditions of confidentiality
while the application is pending, so the Company cannot evaluate any inventions
being claimed in pending patent applications filed by its competitors.
Litigation may be necessary to defend or enforce the Company's patent and
license rights or to determine the scope and validity of others' proprietary
rights. Defense and enforcement of patent claims can be expensive and time
consuming, even in those instances in which the outcome is favorable to the
Company, and can result in the diversion of substantial resources from the
Company's other activities. An adverse outcome could subject the Company to
significant liabilities to third parties, require the Company to obtain licenses
from third parties, or require the Company to alter its products or
technologies, or cease altogether any related research and development
activities or product sales, any of which could have a material adverse effect
on the Company's business, results of operations and financial condition.
The Company has certain proprietary rights and in the future may require
additional licenses from other parties to develop, manufacture and market
commercially viable products effectively, and the Company's commercial success
could depend in part on obtaining and maintaining such licenses. There can be no
assurance that such licenses could be obtained or maintained on commercially
reasonable terms, if at all, that the patents underlying such licenses would be
valid and enforceable or that the proprietary nature of the patented technology
underlying such licenses would remain proprietary.
The Company relies substantially on certain technologies that are not
patentable or proprietary and are therefore available to its competitors. The
Company also relies on certain proprietary trade secrets and know-how that are
not patentable. Although the Company has taken steps to protect its unpatented
trade secrets and know-how, in part through the use of confidentiality
agreements with its employees, consultants and contractors, there can be no
assurance that these agreements will not be breached, that the
9
Company would have adequate remedies for any breach, or that the Company's trade
secrets will not otherwise become known or be independently developed or
discovered by competitors.
The success of the Company is also dependent upon the skills, knowledge and
experience of its scientific and technical personnel (both employees and
independent contractors). The management and scientific personnel of the Company
has been recruited primarily from other scientific companies, pharmaceutical
companies and academic institutions. In some cases, these individuals may be
continuing research in the same areas with which they were involved prior to
their employment by the Company. Although the Company has not received any
notice of any claims and knows of no basis for any claims, it could be subject
to allegations of violation of trade secrets and similar claims which could,
regardless of merit, be time consuming, expensive to defend, and have a material
adverse effect on the Company's business, results of operations and financial
condition.
RAPID TECHNOLOGICAL CHANGE; COMPETITION
The Company's business is characterized by intensive research efforts and
intense competition and is subject to rapid and substantial technological
change. Many companies, research institutes, hospitals and universities are
working to develop products and technologies in the Company's fields of
research. Most of these entities have substantially greater financial,
technical, research and development, manufacturing, marketing, distribution and
other resources than the Company. Certain of such entities have experience in
undertaking testing and clinical trials of new or improved products similar in
nature or that have a similar therapeutic effect to that which the Company is
developing. In addition, certain competitors have already begun testing of
similar products or technologies and may introduce such products or technologies
before the Company may do so. Accordingly, other entities may succeed in
developing products earlier than the Company or that are more effective, more
widely accepted or more economical than those proposed to be developed by the
Company. There can be no assurance that developments by others will not render
the Company's products or technologies noncompetitive or that the Company will
be able to keep pace with technological developments. Further, it is expected
that competition in the Company's fields will intensify. There can be no
assurance that the Company will be able to compete successfully in the future.
DEPENDENCE ON OTHERS FOR CLINICAL DEVELOPMENT OF, REGULATORY APPROVALS FOR AND
MANUFACTURE AND MARKETING OF PHARMACEUTICAL PRODUCTS
The Company does not have the resources to directly manufacture, market or
sell any of its proposed products and the Company has no current plans to
acquire such resources. Atlantic's subsidiary, Optex, has entered into a License
& Development Agreement with Bausch & Lomb, and the Company anticipates that it
may, in the future, enter into additional collaborative agreements with
pharmaceutical and/or biotechnology companies for the development of, clinical
testing of, seeking of regulatory approval for, manufacturing of, marketing of
and commercialization of certain of its proposed products. The Company may in
the future grant to its collaborative partners rights to license and
commercialize any products developed under these collaborative agreements, and
such rights would limit the Company's flexibility in considering alternatives
for the commercialization of such products. Under such agreements, the Company
may rely on its respective collaborative partners to conduct research efforts
and clinical trials on, obtain regulatory approvals for and manufacture, market
and commercialize certain of its products. The Company expects that the amount
and timing of resources devoted to these activities generally will be controlled
by each such individual partner. The inability of the Company to acquire such
third party development, clinical testing, seeking of regulatory approval,
manufacturing, distribution, marketing and selling arrangements on commercially
acceptable terms for the Company's long-term needs for such anticipated products
would have a material adverse effect on the Company's business. There can be no
assurance that the Company will be able to enter into any additional
arrangements for the development, clinical testing, seeking of regulatory
approval, manufacturing, marketing and selling of its products, or
10
that, if such arrangements are entered into, such future partners will be
successful in commercializing products or that the Company will derive any
revenues from such arrangements.
UNCERTAINTY OF PRODUCT PRICING AND REIMBURSEMENT; HEALTH CARE REFORM AND RELATED
MEASURES
The levels of revenues and profitability of pharmaceutical and/or
biotechnology products and companies may be affected by the continuing efforts
of governmental and third party payors to contain or reduce the costs of health
care through various means and the initiatives of third party payors with
respect to the availability of reimbursement. For example, in certain foreign
markets, pricing or profitability of prescription pharmaceuticals is subject to
government control. In the United States there have been, and the Company
expects that there will continue to be, a number of federal and state proposals
to implement similar governmental control. Although the Company cannot predict
what legislative reforms may be proposed or adopted or what impact actions taken
by federal, state or private payors for health care goods and services in
response to any health care reform proposals or legislation may have on its
business, the existence and pendency of such proposals could have a material
adverse effect on the Company in general. In addition, the Company's ability to
commercialize potential pharmaceutical and/or biotechnology products may be
adversely affected to the extent that such proposals have a material adverse
effect on other companies that are prospective collaborators with respect to any
of the Company's product candidates.
In addition, in both the United States and elsewhere, sales of medical
products and services are dependent in part on the availability of reimbursement
to the consumer from third party payors, such as government and private
insurance plans. Third party payors are increasingly challenging the prices
charged for medical products and services. If the Company succeeds in bringing
one or more products to the market, there can be no assurance that these
products will be considered desirable or cost effective and that reimbursement
to the consumer will be available or will be sufficient to allow the Company to
sell its products on a competitive basis.
DEPENDENCE UPON KEY PERSONNEL AND CONSULTANTS
The Company is highly dependent upon its officers and directors, as well as
its Scientific Advisory Board members, consultants and collaborating scientists.
Atlantic and its subsidiaries have an aggregate of only ten full-time employees,
three of whom are officers of Atlantic and each of its subsidiaries, and the
loss of any of these individuals would have a material adverse effect on the
Company. Although Atlantic has entered into employment agreements with each of
its officers, such employment agreements do not contain provisions which would
prevent such employees from resigning their positions with Atlantic at any time
or from competing with the Company, directly or indirectly. The Company does not
maintain key-man life insurance policies on any of such key personnel. Each of
the Company's non-employee directors, advisors and consultants devotes only a
portion of his or her time to the Company's business. The loss of certain of
these individuals could have a material adverse effect on the Company. On July
10, 1998, Jon Douglas Lindjord, then President and Chief Executive Officer of
the Company and a member of its Board of Directors, resigned from such
positions. This resignation may have a material adverse effect on the Company.
At this time, Robert A Fildes, Ph.D., the Company's Chairman of the Board, is
serving as Interim President and Chief Executive Officer, and the Company is
conducting an executive search for a replacement for Mr. Lindjord.
The Company may seek to hire additional personnel. Competition for qualified
employees among pharmaceutical and biotechnology companies is intense, and the
loss of any of such persons, or the inability to attract, retain and motivate
any additional highly skilled employees required for the expansion of the
Company's activities could have a material adverse effect on the Company. There
can be no assurance that the Company will be able to retain its existing
personnel or to attract additional qualified employees.
11
The Company's scientific advisors are employed on a full time basis by
employers unrelated to the Company and some have entered into one or more
additional consulting or other advisory arrangements with other entities which
may conflict or compete with their obligations to the Company. Inventions or
processes discovered by such persons, other than those for which the Company is
able to acquire licenses or those which were invented while performing
consulting services on behalf of the Company pursuant to a proprietary
information agreement, will not become the property of the Company, but will
likely remain the property of such persons or of such persons' full-time
employers. Failure to obtain needed patents, licenses or proprietary information
held by others could have a material adverse effect on the Company.
CERTAIN INTERLOCKING RELATIONSHIPS; POTENTIAL CONFLICTS OF INTEREST
Lindsay A. Rosenwald, M.D., a principal stockholder of the Company, is the
President and sole stockholder of Paramount Capital, Incorporated, a New
York-based merchant and investment banking firm specializing in the
biotechnology industry ("Paramount" or the "Placement Agent"), and the placement
agent for the Company's 1997 private placements of its Series A Preferred (the
"Private Placement"). Steven H. Kanzer, a Director of the Company, is the Senior
Managing Director, Head of Venture Capital of Paramount. Michael S. Weiss, the
Company's Secretary, is the Senior Managing Director, Head of Investment Banking
of Paramount. A. Joseph Rudick, Jr., M.D., an associate of Paramount and
Paramount Capital Investments, LLC, a company wholly owned by Dr. Rosenwald, is
a director of each of Channel Therapeutics, Inc., a wholly owned subsidiary of
the Company, and Optex Ophthalmologics, Inc., a majority-owned subsidiary of the
Company. In the regular course of its business, Paramount identifies, evaluates
and pursues investment opportunities in biomedical and pharmaceutical products,
technologies and companies. Generally, Delaware corporate law requires that any
transactions between the Company and any of its affiliates be on terms that,
when taken as a whole, are substantially as favorable to the Company as those
reasonably obtainable from a person who is not an affiliate in an arms-length
transaction. The Company is bound by agreements between itself and Paramount
pursuant to which Paramount agreed to provide financial advisory services to the
Company and pursuant to which Paramount agreed to provide placement advisory
services in connection with the Private Placement. Nevertheless, none of
Paramount, Dr. Rosenwald, Mr. Kanzer, Mr. Weiss, Dr. Rudick is obligated
pursuant to any agreement or understanding with the Company to make any
additional products or technologies available to the Company, nor can there be
any assurance, and the Company does not expect and securityholders should not
expect, that any biomedical or pharmaceutical product or technology identified
by Paramount, Dr. Rosenwald, Mr. Kanzer, Mr. Weiss, Dr. Rudick in the future
will be made available to the Company. In addition, certain of the officers and
directors of the Company may from time to time serve as officers or directors of
other biopharmaceutical or biotechnology companies. There can be no assurance
that such other companies will not, in the future, have interests in conflict
with those of the Company.
CONTROL BY EXISTING STOCKHOLDERS
Dr. Rosenwald and VentureTek, L.P. (a limited partnership controlled by
certain relatives of Dr. Rosenwald but as to the partnership interests of which
Dr. Rosenwald disclaims beneficial ownership) together beneficially own
approximately 22% of the outstanding shares of Common Stock of the Company and
Dr. Rosenwald and certain affiliates of Paramount own Placement Warrants to
purchase approximately seven percent of the Series A Preferred. Generally, the
holders of the Common Stock and the Series A Preferred vote together as a single
class. Accordingly, such holders, if acting together, may have the ability to
exert significant influence over the election of the Company's Board of
Directors and other matters submitted to the Company's stockholders for
approval. The voting power of these holders may discourage or prevent any
proposed takeover of the Company.
12
NO ASSURANCE OF IDENTIFICATION OF ADDITIONAL PROJECTS
The Company is engaged in the development and commercialization of
biomedical and pharmaceutical products and technologies. From time to time, if
the Company's resources allow, the Company may explore the acquisition and
subsequent development and commercialization of additional biomedical and
pharmaceutical products and technologies. However, there can be no assurance
that the Company will be able to identify any additional products or
technologies and, even if suitable products or technologies are identified, the
Company may not have sufficient resources to pursue any such products or
technologies.
TERMS OF SERIES A PREFERRED
The Certificate of Designations of the Series A Preferred provides that the
holders of the Series A Preferred generally vote with the holders of the Common
Stock as a single class. However, so long as at least 687,500 shares of Series A
Preferred are outstanding, the Company needs the approval of 66.67% of the
outstanding shares of the Series A Preferred, voting separately as a class, to
approve certain actions of the Company. In addition, the holders of the Series A
Preferred receive a liquidation preference upon the consummation of certain
corporate transactions, are entitled to notice of certain corporate transactions
and the conversion price of the Series A Preferred is adjustable upon the
occurrence of certain events. The preferences accorded to the Series A Preferred
may adversely affect the prevailing market price of the Company's other
securities.
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF REDEEMABLE WARRANTS
As of December 14, 1996, the Redeemable Warrants are subject to redemption
commencing December 14, 1996 by the Company under certain conditions. Redemption
of the Redeemable Warrants could encourage holders to exercise the Redeemable
Warrants and pay the exercise price at a time when it may be disadvantageous for
the holders to do so, to sell the Redeemable Warrants at the current market
price when they might otherwise wish to hold the Redeemable Warrants, or to
accept the redemption price, which may be substantially less than the market
value of the Redeemable Warrants at the time of redemption. The holders of the
Redeemable Warrants will automatically forfeit their rights to purchase the
shares of Common Stock issuable upon exercise of such Redeemable Warrants unless
the Redeemable Warrants are exercised before they are redeemed. The holders of
Redeemable Warrants do not possess any rights as stockholders of the Company
unless and until such Redeemable Warrants are exercised.
POSSIBLE ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
Future sales by existing stockholders could adversely affect the prevailing
market price of the Company's securities. The outstanding shares of the
Company's Common Stock and the shares of Common Stock issuable upon conversion
of the Series A Preferred are all freely tradable, subject to volume and other
restrictions imposed by Rule 144 under the Securities Act with respect to sales
by affiliates of the Company. An 18-month restriction on transfer applicable to
the shares of Common Stock now owned or hereafter acquired by the Company's
officers, directors and certain stockholders expired on June 14, 1997. A
nine-month restriction on transfer applicable to the shares of Common Stock
issuable upon conversion of the Series A Preferred expired on August 11, 1998.
Sales of substantial amounts of Common Stock may have an adverse effect on the
market price of the Company's securities.
No prediction can be made as to the effect, if any, that sales of Units,
Redeemable Warrants and/or Common Stock or the availability of such securities
for sale will have on the market prices prevailing from time to time for such
securities. Nevertheless, the possibility that substantial amounts of such
securities may be sold in the public market may adversely affect prevailing
market prices for the Company's equity securities and could impair the Company's
ability to raise capital in the future through the sale of equity securities.
13
SECURITIES LAW RESTRICTIONS ON THE EXERCISE OF REDEEMABLE WARRANTS
A holder of Redeemable Warrants has the right to exercise such Redeemable
Warrants for the purchase of shares of Common Stock only if the Company has
filed with the Commission a current prospectus meeting the requirements of the
Securities Act covering the issuance of such shares of Common Stock issuable
upon exercise of the Redeemable Warrants and only if the issuance of such shares
has been registered or qualified, or is deemed to be exempt from registration or
qualification under, the securities laws of the state of residence of the holder
of the Redeemable Warrant. The Company has filed and has undertaken to keep
effective and current a prospectus permitting the purchase and sale of the
Common Stock underlying the Redeemable Warrants, but there can be no assurance
that the Company will be able to keep such prospectus effective and current.
Although the Company intends to seek to qualify for sale the shares of Common
Stock underlying the Redeemable Warrants in those states in which the securities
are to be offered, no assurance can be given that such qualification will occur.
The Redeemable Warrants may be deprived of any value if a prospectus covering
the shares of Common Stock issuable upon the exercise thereof is not kept
effective and current or if such underlying shares are not, or cannot be,
registered in the applicable states.
NO DIVIDENDS
The Company has not paid any cash dividends on its Common Stock since its
formation and does not anticipate paying any cash dividends in the foreseeable
future. Management anticipates that all earnings and other resources of the
Company, if any, will be retained by the Company for investment in its business.
POSSIBLE DELISTING FROM NASDAQ AND MARKET ILLIQUIDITY
Although the Common Stock, Redeemable Warrants and Units of the Company are
quoted on Nasdaq, continued inclusion of such securities on Nasdaq will require
that (i) the Company maintain at least $2,000,000 in net tangible assets, (ii)
the minimum bid price for the Common Stock be at least $1.00 per share, (iii)
the public float consist of at least 500,000 shares of Common Stock, valued in
the aggregate at more than $1,000,000, (iv) the Common Stock have at least two
active market makers, (v) the Common Stock be held by at least 300 holders and
(vi) the Company adhere to certain corporate governance requirements. If the
Company is unable to satisfy such maintenance requirements, the Company's
securities may be delisted from Nasdaq. In such event, trading, if any, in the
securities would thereafter be conducted in the over-the-counter market in the
"pink sheets" or the National Association of Securities Dealers' "Electronic
Bulletin Board." Consequently, the liquidity of the Company's securities could
be materially impaired, not only in the number of securities that can be bought
and sold at a given price, but also through delays in the timing of transactions
and reduction in security analysts' and the media's coverage of the Company,
which could result in lower prices for the Company's securities than might
otherwise be attained and could also result in a larger spread between the bid
and asked prices for the Company's securities.
In addition, if the securities are delisted from trading on Nasdaq and the
trading price of the Common Stock is less than $5.00 per share, trading in the
securities would also be subject to the requirements of Rule 15g-9 promulgated
under the Exchange Act. Under such rule, broker/dealers who recommended such
low-priced securities to persons other than established customers and accredited
investors must satisfy special sales practice requirements, including a
requirement that they make an individualized written suitability determination
for the purchaser and receive the purchaser's written consent prior to the
transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of
1990 also requires additional disclosure in connection with any trades involving
a stock defined as a penny stock (generally, according to recent regulations
adopted by the Commission, any equity security not traded on an exchange or
quoted on Nasdaq that has a market price of less than $5.00 per share, subject
to certain exceptions), including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith. Such requirements could severely limit the market
14
liquidity of the Common Stock, Redeemable Warrants or Units of the Company.
There can be no assurance that such securities will not be delisted or treated
as penny stock.
LIQUIDITY OF INVESTMENT; VOLUME OF TRADING
The Company's securities are traded on the Nasdaq SmallCap Market and lack
the liquidity of securities traded on the principal trading markets.
Accordingly, an investor may be unable to promptly liquidate an investment in
the Company's securities.
VOLATILITY OF STOCK PRICE
The securities markets have, from time to time, experienced significant
price and volume fluctuations that may be unrelated to the operating performance
of particular companies. These fluctuations often substantially affect the
market price of a company's securities. In particular, the market prices for
securities of medical device companies and biotechnology companies have in the
past been, and can in the future be expected to be, especially volatile. The
market price of the Company's securities has in the past and in the future may
be subject to volatility in general and from quarter to quarter in particular
depending upon announcements regarding developments of the Company or its
competitors, or other external factors, as well as continued operating losses by
the Company and fluctuations in the Company's financial results. These factors
could have a material adverse effect on the Company's business, financial
condition and results of operations and may not be indicative of the prices that
may prevail in the public market.
RISK OF PRODUCT LIABILITY; NO INSURANCE
Should the Company develop and market any products, the marketing of such
products, through third-party arrangements or otherwise, may expose the Company
to product liability claims. The Company presently does not carry product
liability insurance. Upon clinical testing or commercialization of the Company's
proposed products, certain of the licensors require that the Company obtain
product liability insurance. There can be no assurance that the Company will be
able to obtain such insurance or, if obtained that such insurance can be
acquired in sufficient amounts to protect the Company against such liability or
at a reasonable cost. The Company is required to indemnify the Company's
licensors against any product liability claims incurred by them as a result of
the products developed by the Company. None of the Company's licensors has made,
and are not expected to make, any representations as to the safety or efficacy
of the inventions covered by the licenses or as to any products which may be
made or used under rights granted therein or thereunder. In addition, Optex is
required to indemnify Bausch & Lomb for certain matters under the terms of their
Development & License Agreement.
ENVIRONMENTAL REGULATION
In connection with its research and development activities, the Company is
subject to federal, state and local laws, rules, regulations and policies
governing the use, generation, manufacture, storage, air emission, effluent
discharge, handling and disposal of certain materials and wastes. Although the
Company believes that it has complied with these laws and regulations in all
material respects and has not been required to take any action to correct any
noncompliance, there can be no assurance that the Company will not be required
to incur significant costs to comply with environmental and health and safety
regulations in the future.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
DELAWARE LAW
Atlantic's Restated Certificate of Incorporation (the "Certificate of
Incorporation") authorizes the issuance of shares of "blank check" Preferred
Stock. Its Board of Directors has the authority to issue the Preferred Stock in
one or more series and to fix the relative rights, preferences and privileges
and restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of
15
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series. The issuance of
Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholders of
the Company. The issuance of Preferred Stock with voting and conversion rights
may adversely affect the voting power of the holders of the Common Stock,
including the loss of voting control to others.
The Company is subject to Section 203 of the Delaware General Corporation
Law, which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person affiliated
with or controlling or controlled by such entity or person. The foregoing
provisions could have the effect of discouraging others from making tender
offers for the Company's shares and, as a consequence, they also may inhibit
fluctuations in the market price of the Company's shares that could result from
actual or rumored takeover attempts. Such provisions also may have the effect of
preventing changes in the management of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation limits, to the maximum extent
permitted by Delaware law, the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director. The Company's Bylaws
provide that the Company shall indemnify its officers and directors and may
indemnify its employees and other agents to the fullest extent permitted by law.
The Company has entered into indemnification agreements with its officers and
directors containing provisions that are in some respects broader than the
specific indemnification provisions contained in Delaware law. The
indemnification agreements may require the Company, among other things, to
indemnify such officers and directors against certain liabilities that may arise
by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature) and to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified. Section 145 of the Delaware law provides that a
corporation may indemnify a director, officer, employee or agent made or
threatened to be made a party to an action by reason of the fact that he was a
director, officer, employee or agent of the corporation or was serving at the
request of the corporation against expenses actually and reasonably incurred in
connection with such action if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Delaware law does not
permit a corporation to eliminate a director's duty of care, and the provisions
of the Company's Certificate of Incorporation have no effect on the availability
of equitable remedies, such as injunction or rescission, for a director's breach
of the duty of care.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in
approximately two years, computer systems and/or software used by many companies
may need to be upgraded to comply with such "Year 2000" requirements.
Significant uncertainty exists concerning the potential effects associated with
such compliance. The Company has reviewed its internal system and doesn't expect
material adverse effect on the Company's business, financial condition and
operating results. The Company is in the process of reviewing third party
software to comply with this issue.
16
RECENT DEVELOPMENTS
On May 22, 1997 and August 7, 1997, the Company completed the Private
Placement of an aggregate of 123.72 units, each unit consisting of 10,000 shares
of the Company's Series A Preferred, for gross proceeds of approximately
$12,372,000. Paramount acted as placement agent for the Private Placement.
Lindsay A. Rosenwald, M.D., a principal stockholder of the Company, is the
President and sole stockholder of Paramount. Steven H. Kanzer, a Director of the
Company, is the Senior Managing Director, Head of Venture Capital of Paramount.
Michael S. Weiss, the Company's Secretary, is the Senior Managing Director, Head
of Investment Banking of Paramount. A. Joseph Rudick, Jr., M.D., an associate of
Paramount and Paramount Capital Investments, LLC, a company wholly owned by Dr.
Rosenthal, is a director of each of Channel Therapeutics, Inc., a wholly owned
subsidiary of the Company, and Optex Ophthalmologics, Inc., a majority-owned
subsidiary of the Company.
Pursuant to the Certificate of Designations, on August 7, 1998, the
conversion price of the Series A Preferred was adjusted from $4.72 per share to
$3.06 per share. As a result, on such date the conversion rate of the Series A
Preferred was adjusted such that each share of Series A Preferred converted
after August 7, 1998 is convertible into 3.27 shares of Common Stock, whereas
each share of Series A Preferred converted prior to August 7, 1998 was
convertible into 2.12 shares of Common Stock.
17
SELLING SECURITYHOLDERS
The following tables set forth certain information, as of August 27, 1998,
with respect to the number of shares of Common Stock beneficially owned by the
Selling Securityholders as a result of their ownership of shares of Series A
Preferred. The shares of Common Stock listed below represent that number of
shares of Common Stock as are issuable upon conversion of the Series A
Preferred, based on the new conversion rate of 3.27 shares of Common Stock per
share of Series A Preferred, less the Previously Registered Shares (that number
of shares as were issuable upon conversion of the Series A Preferred, based on
the prior conversion rate of 2.12 shares of Common Stock per share of Series A
Preferred).
Any or all of the shares of Common Stock listed below may be offered for
sale pursuant to this Prospectus by the Selling Securityholders from time to
time. Accordingly, no estimate can be given as to the amounts of shares of
Common Stock that will be held by the Selling Securityholders upon consummation
of any such sales. In addition, the Selling Securityholders identified below may
have sold, transferred or otherwise disposed of all or a portion of their shares
of Series A Preferred since the date on which the information regarding their
Series A Preferred was provided, in transactions exempt from the registration
requirements of the Securities Act. Beneficial ownership of the securities held
by the Selling Securityholders after this offering will depend on the number of
securities sold by each Selling Securityholder in this offering. The Securities
are being registered to permit public secondary trading of the Securities, and
the Selling Securityholders may offer the Securities for resale from time to
time. Except as indicated in this Prospectus, none of the Selling
Securityholders has had a material relationship with the Company within the past
three years other than as a result of the ownership of the Shares or other
securities of the Company. See "Plan of Distribution."
The Securities offered by this Prospectus may be offered from time to time
by the Selling Securityholders named below:
COMMON STOCK(1)
----------------------
NUMBER NUMBER
BENEFICIALLY OFFERED
NAME AND POSITION OF SELLING SECURITYHOLDER OWNED HEREBY
- ------------------------------------------------------------------------------------------ ----------- ---------
Mark Abel................................................................................. 2,875 2,875
Ross D. Ain............................................................................... 1,150 1,150
Sal and Lorraine Albanese................................................................. 2,908 2,908
Leslie and Maria Anderson................................................................. 5,750 5,750
Andrade Enterprises, LLC.................................................................. 11,500 11,500
Mario Aristizabal......................................................................... 2,928 2,928
Harriet E. Arneson........................................................................ 2,875 2,875
Austray Limited........................................................................... 23,000 23,000
Martin G. Ballweg......................................................................... 5,750 5,750
Bryan C. and Leah D. Barker............................................................... 2,875 2,875
Ronald Baruch............................................................................. 403 403
Sam & Katie Benrubi....................................................................... 2,875 2,875
Larry Bernstein........................................................................... 1,150 1,150
Blumen Partners........................................................................... 721 721
Lewis S. Broad............................................................................ 5,750 5,750
Betty Joan Burr........................................................................... 1,438 1,438
Henry Burr................................................................................ 1,438 1,438
John Burr................................................................................. 1,438 1,438
Cambrian Investments Limited Partnership.................................................. 2,875 2,875
Robert A. Cameron......................................................................... 5,750 5,750
Francis P. Cappione....................................................................... 721 721
Thomas L. Cassidy......................................................................... 1,438 1,438
18
COMMON STOCK(1)
----------------------
NUMBER NUMBER
BENEFICIALLY OFFERED
NAME AND POSITION OF SELLING SECURITYHOLDER OWNED HEREBY
- ------------------------------------------------------------------------------------------ ----------- ---------
Jacob T. Chachkes and Bette Chachkes, Trustees for Jacob T. Chachkes, M.D., P.C., MPPP,
Dated 11-1-85........................................................................... 2,875 2,875
Richard L. Childs......................................................................... 1,438 1,438
Moun-Shung Chi & Sue-Jame Chi, Co-Trustees, Chi Living Trust.............................. 23,000 23,000
Claughton Company Inc..................................................................... 2,875 2,875
CNCA SCT BRUNOY/acct BGP.................................................................. 28,750 28,750
Irwin J. Cohen, M.D....................................................................... 2,875 2,875
Max Cohen................................................................................. 1,438 1,438
Concordia Partners L.P.................................................................... 14,375 14,375
Robert J. Conrads......................................................................... 2,161 2,161
Bradley Cooper............................................................................ 5,750 5,750
Archibald Cox, Jr......................................................................... 14,863 14,863
Thomas H. Cruikshank...................................................................... 5,750 5,750
Alfred C. D'Alessandro.................................................................... 2,875 2,875
Michael and Mary Darling JTWROS........................................................... 2,875 2,875
Andrew Davilman & Nancy Davilman, JTWROS.................................................. 2,875 2,875
Tommy Lee Davis........................................................................... 11,500 11,500
Delaware Charter FBO R. Craig Fetz........................................................ 23,000 23,000
Chris P. Dialynas, as Trustee of the Chris and Sheri Dialynas Living Trust, Dated January
30, 1997................................................................................ 5,750 5,750
Dorothy Dulman............................................................................ 5,750 5,750
David Dworetzky........................................................................... 2,875 2,875
Edward Dworetzky.......................................................................... 11,500 11,500
Robert & Evelyn Elliott Trust............................................................. 2,875 2,875
Richard C. & Mary Ann Fick Community Property............................................. 2,875 2,875
Denis Fortin.............................................................................. 2,875 2,875
Lloyd A. Fox.............................................................................. 5,750 5,750
Brian D. Frenzel.......................................................................... 2,875 2,875
Benjamin & Sharyn Friedman................................................................ 2,875 2,875
Merrit Brad Friedman...................................................................... 2,875 2,875
Craig S. Frolich.......................................................................... 1,438 1,438
Gerald Frolich & Gloria A. Frolich JT Ten................................................. 2,875 2,875
Robert J. Gall............................................................................ 2,875 2,875
A. Mark Gambee, M.D. and Karen D. Todd, M.D. J.T.-W.R.O.S................................. 2,875 2,875
Ofelia Anton Gomez........................................................................ 923 923
Michael J. Gordon......................................................................... 361 361
Robert P. Gordon.......................................................................... 719 719
Philip Granowitz.......................................................................... 2,875 2,875
Bernard Gross............................................................................. 579 579
Grossman Family Trust..................................................................... 2,875 2,875
Leonard Grunstein......................................................................... 1,261 1,261
Allison Gushe Molkenthin.................................................................. 5,578 5,578
Alan and Paula Halperin................................................................... 2,875 2,875
Fridolf Hanson............................................................................ 2,300 2,300
Harrigan Family Trust..................................................................... 2,875 2,875
Thomas Scott Haydon & Thomas Welch Haydon................................................. 2,875 2,875
Austin E. Hills........................................................................... 2,875 2,875
19
COMMON STOCK(1)
----------------------
NUMBER NUMBER
BENEFICIALLY OFFERED
NAME AND POSITION OF SELLING SECURITYHOLDER OWNED HEREBY
- ------------------------------------------------------------------------------------------ ----------- ---------
HM Singer & Co Employee Pension Trust, Howard M. Singer TTEE U/A/D/ 1/1/95................ 2,875 2,875
Harry Huang and Adrienne Masters, Tenants by the Entirety................................. 4,600 4,600
Hull Overseas, Ltd........................................................................ 5,750 5,750
Gerald Johnston........................................................................... 5,750 5,750
Charles Jurgensmeyer...................................................................... 5,750 5,750
Joe Jurgensmeyer.......................................................................... 5,750 5,750
Robert Jurgensmeyer....................................................................... 5,750 5,750
Virgil Jurgensmeyer....................................................................... 5,750 5,750
Patrick M. Kane........................................................................... 3,038 3,038
Amram Kass P.C. Defined Benefit Pension Plan.............................................. 1,438 1,438
Ery W. & Helga L. Kehaya, JTWROS.......................................................... 11,500 11,500
Kenbar Group, LP.......................................................................... 17,250 17,250
Donald R. Kendall, Jr..................................................................... 5,750 5,750
John R. Kennedy........................................................................... 719 719
Shirley F. Kerbel......................................................................... 2,875 2,875
Keys Foundation........................................................................... 28,750 28,750
Robert Knox............................................................................... 2,875 2,875
Gwen S. Korovin, M.D...................................................................... 2,875 2,875
Larkstone Inc............................................................................. 11,500 11,500
Joseph Larosa............................................................................. 2,875 2,875
Laser Trading Ltd......................................................................... 1,160 1,160
Stephen H. Lebovitz....................................................................... 5,750 5,750
Theodore Levine........................................................................... 2,875 2,875
Hyman Lezell Revocable Trust.............................................................. 11,500 11,500
L.G. Foley Inc. Profit Sharing Plan....................................................... 5,750 5,750
Donna Lipman and Lawrence Lipman, Tenants in Common....................................... 2,875 2,875
Alfredo Livas............................................................................. 1,725 1,725
M&S Andrade Rev. Tr. For Comm. & Sep. Property UA Dtd 10/19/78, as Amended................ 2,875 2,875
Jon S. Marks.............................................................................. 2,875 2,875
William M. Marks.......................................................................... 2,875 2,875
Masada I Limited Ptnrs.................................................................... 1,009 1,009
Kevin T. McManus, MD...................................................................... 721 721
Lindsay A. McManus........................................................................ 2,875 2,875
Mega International Corporation............................................................ 2,875 2,875
William H. Metzger MD Inc. Retirement Trust............................................... 2,875 2,875
Maurice Meyer III......................................................................... 2,875 2,875
Michael C. Miles.......................................................................... 2,875 2,875
Mike & Terry Miller....................................................................... 2,875 2,875
Moonlight International Ltd............................................................... 13,800 13,800
W. Kym Murphy............................................................................. 2,875 2,875
Arthur J. Nagle........................................................................... 2,875 2,875
Mechie Nebenzahl.......................................................................... 1,150 1,150
John S. Osterweis, Trustee For The Osterweis Revocable Trust U/A Dated 09/13/93........... 1,438 1,438
Palmetto Partners, Ltd.................................................................... 5,777 5,777
20
COMMON STOCK(1)
----------------------
NUMBER NUMBER
BENEFICIALLY OFFERED
NAME AND POSITION OF SELLING SECURITYHOLDER OWNED HEREBY
- ------------------------------------------------------------------------------------------ ----------- ---------
Alan Paulenoff............................................................................ 2,875 2,875
Gregory P. & Christine K. Pellizzon....................................................... 2,875 2,875
Peter & Pamela Pellizzon.................................................................. 2,875 2,875
Nita E. Pepper and James G. Pepper, Co Trustees, Trust F/B/O Nita E. Pepper U/A Dtd
1/9/90.................................................................................. 11,500 11,500
Dr. Tis Prager............................................................................ 4,313 4,313
Profutures Special Equities Fund, LP...................................................... 5,750 5,750
Alois Putre Jr............................................................................ 2,875 2,875
Raimundo J. Rodriguez P. and Anelies H. Huter de R........................................ 2,875 2,875
Marion Roffer............................................................................. 5,750 5,750
Robert W. Rohrlich........................................................................ 2,875 2,875
Michael Rosenbaum......................................................................... 5,750 5,750
Jonathan Rothschild....................................................................... 2,875 2,875
RSA Trust (DTD) 3/7/95 (Ralph E. Adams Jr. and Shirlee Yvonne Adams, Trustees for RSA
Trust).................................................................................. 2,875 2,875
Alan T. Rubin............................................................................. 8,625 8,625
David W. Ruttenberg....................................................................... 2,875 2,875
Sagres Group Ltd.......................................................................... 8,788 8,788
Gordon S. Salter.......................................................................... 2,875 2,875
Kaya K. Sarier............................................................................ 1,438 1,438
Barry A. Saunders......................................................................... 2,875 2,875
Jan A. Saunders........................................................................... 2,875 2,875
Robert Schlotterbeck & Barbara J. Schlotterbeck, TTEES U/A Dtd 12/22/89 The Schlotterbeck
Family Trust............................................................................ 2,875 2,875
Robert L. Schuessler...................................................................... 2,875 2,875
Carl F. Schwartz.......................................................................... 4,313 4,313
Roberto Segovia........................................................................... 2,875 2,875
Uri R. Shabto M.D., P.C................................................................... 2,875 2,875
Gerald Shepps............................................................................. 2,875 2,875
Melvin Silon.............................................................................. 2,875 2,875
Nathaniel Silon Revocable Living Trust Dtd 6/2/93......................................... 11,500 11,500
William & Elinor Silver................................................................... 2,875 2,875
Ronald Simon.............................................................................. 719 719
Harvey Slevin, TTEE U/A Dtd 4/25/90 Harvey Slevin Revoc. Liv. Trust....................... 719 719
Hollis R. and Lucille B. Smith............................................................ 2,875 2,875
Philip Solomon............................................................................ 2,875 2,875
Sovereign Partners L.P.................................................................... 11,500 11,500
Robert L. Spint Trustee For Robert L. Spint Trust UAD 10/19/89............................ 2,875 2,875
Stern Joint Venture, L.P.................................................................. 8,625 8,625
Andrew Strassman.......................................................................... 2,875 2,875
Joseph & Barbara Strassman................................................................ 11,500 11,500
Richard Strassman......................................................................... 2,875 2,875
Robert Strassman.......................................................................... 1,437 1,437
Burton M. Strauss, Jr..................................................................... 2,875 2,875
Michael and Pamela Sulewski............................................................... 1,438 1,438
Sidney Sutter............................................................................. 2,008 2,008
The 1992 Houston Partnership, L.P......................................................... 5,750 5,750
21
COMMON STOCK(1)
----------------------
NUMBER NUMBER
BENEFICIALLY OFFERED
NAME AND POSITION OF SELLING SECURITYHOLDER OWNED HEREBY
- ------------------------------------------------------------------------------------------ ----------- ---------
Tokenhouse Trading Company Limited........................................................ 7,703 7,703
Alyce P. Twomey........................................................................... 1,438 1,438
Union D'Etudes et D'Investissements....................................................... 57,500 57,500
Valori Associates, Inc.................................................................... 1,438 1,438
Donald E. and Virginia V. Vinson Trust.................................................... 2,875 2,875
J. Vitols................................................................................. 11,500 11,500
Mark & Sallie Lynn Walko.................................................................. 3,581 3,581
Saul Waring............................................................................... 2,875 2,875
Paul H. Warren............................................................................ 5,750 5,750
Robert J. Whetten......................................................................... 4,313 4,313
Allen Whipple............................................................................. 17,250 17,250
John R. Wiencek........................................................................... 879 879
B. R. Williamson Jr....................................................................... 5,750 5,750
Robert B. Wolford IRA..................................................................... 2,875 2,875
Charles C. Young.......................................................................... 2,156 2,156
Lindsay A. Rosenwald, M.D. (2)(3)......................................................... 54,347 54,347
Scott A. Katzman (2)(4)................................................................... 19,309 19,309
Michael S. Weiss (2)(5)................................................................... 8,090 8,090
Wayne L. Rubin (2)(4)..................................................................... 8,090 8,090
Credit Agricole (2)(7).................................................................... 5,757 5,757
A. Joseph Rudick, Jr., M.D. (2)(6)........................................................ 5,728 5,728
Tim McInerney (2)(4)...................................................................... 5,153 5,153
Martin S. Kratchman (2)(4)................................................................ 4,956 4,956
Richard Strassman (2)(4).................................................................. 4,622 4,622
Karl Ruggeberg (2)(4)..................................................................... 4,402 4,402
David R. Walner (2)(4).................................................................... 2,717 2,717
Bluestone Capital (2)(7).................................................................. 2,376 2,376
Marc Florin (2)(4)........................................................................ 1,888 1,888
Joseph Edelman (2)(4)..................................................................... 1,783 1,783
Peter M. Kash (2)(4)...................................................................... 1,698 1,698
Joseph Fabiani, Jr. (2)(4)................................................................ 1,440 1,440
Deborah Solomon (2)(4).................................................................... 1,353 1,353
Lauren S. Fischer (2)(4).................................................................. 618 618
John Knox (2)(4).......................................................................... 618 618
----------- ---------
TOTAL................................................................................. 991,484 991,484
----------- ---------
----------- ---------
- ------------------------
(1) Represents shares of Common Stock into which the shares of Series A
Preferred owned by such Selling Securityholder are convertible.
(2) Represents shares of Common Stock issuable upon conversion of Series A
Preferred issuable upon exercise of the Placement Warrants.
(3) Lindsay A. Rosenwald, M.D., a principal stockholder of the Company, is the
President and sole stockholder of Paramount. VentureTek, L.P., a principal
stockholder of the Company, is a limited partnership, the limited partners
of which include Dr. Rosenwald's wife, children, sisters of Dr. Rosenwald's
wife, and their husbands and children.
(4) Securityholder is an agent of Paramount.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
22
(FOOTNOTES CONTINUED FROM PRECEDING PAGE)
(5) Michael S. Weiss, the Company's Secretary, is the Senior Managing Director,
Head of Investment Banking of Paramount.
(6) Dr. Rudick, an associate of Paramount and Paramount Capital Investments,
LLC, a company wholly owned by Dr. Rosenwald, is a director of each of
Channel Therapeutics, Inc., a wholly owned subsidiary of the Company, and
Optex Ophthalmologics, Inc., a majority-owned subsidiary of Atlantic.
(7) Securityholder acted as a Selected Dealer in the Private Placement.
The preceding table has been prepared based upon information furnished to
the Company by Continental Stock Transfer & Trust Company. From time to time,
additional information concerning ownership of the shares of Common Stock may
rest with certain holders thereof not named in the preceding table, with whom
the Company believes it has no affiliation.
23
PLAN OF DISTRIBUTION
The offering of the Securities by the Selling Securityholders is not being
underwritten. The Securities offered hereby may be sold by the Selling
Securityholders from time to time in transactions (which may include block
transactions ) in the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, or at negotiated prices. The
Selling Securityholders may effect such transactions by selling the Securities
directly to purchasers or through broker-dealers that may act as agents or
principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders and/or
the purchasers of the Securities for whom such broker-dealers may act as agents
or to whom they sell as principals, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
Lindsay A. Rosenwald, M.D., a Selling Securityholder and principal
stockholder of the Company, is the President and sole stockholder of Paramount,
certain agents of which are Selling Securityholders. VentureTek, L.P., a
principal stockholder of the Company, is a limited partnership, the limited
partners of which include Dr. Rosenwald's wife, children, sisters of Dr.
Rosenwald's wife, and their husbands and children. Steven H. Kanzer, a Director
of the Company, is the Senior Managing Director, Head of Venture Capital of
Paramount. Michael S. Weiss, the Company's Secretary, is the Senior Managing
Director, Head of Investment Banking of Paramount. A. Joseph Rudick, Jr., M.D.,
an associate of Paramount and Paramount Capital Investments, LLC, a company
wholly owned by Dr. Rosenwald, is a director of each of Channel Therapeutics,
Inc., a wholly owned subsidiary of the Company, and Optex Ophthalmologics, Inc.,
a majority-owned subsidiary of the Company. See "Risk Factors--Certain
Interlocking Relationships; Potential Conflicts of Interest." In addition,
certain of the Selling Securityholders are agents of Paramount. See "Selling
Securityholders." Other than the foregoing, there are no material relationships
between any of the Selling Securityholders and the Company or any of its
predecessors or affiliates.
The Selling Securityholders and any broker-dealers that act in connection
with the sale of the Securities as principals may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act and any commission
received by them and any profit on the resale of such securities as principals
might be deemed to be underwriting discounts and commissions under the
Securities Act. The Selling Securityholders may agree to indemnify any agent,
dealer or broker-dealer that participates in transactions involving sales of
such securities against certain liabilities, including liabilities arising under
the Securities Act. The Company will not receive any proceeds from the sales of
the Securities by the Selling Securityholders, although the Company will receive
proceeds from the exercise of the Placement Warrants. Sales of the Securities by
the Selling Securityholders, or even the potential of such sales, would likely
have an adverse effect on the market price of the Company's outstanding
securities.
At the time a particular offer of Securities is made, except as herein
contemplated, by or on behalf of the Selling Securityholders or by the Company
upon exercise of warrants, to the extent required, a prospectus will be
distributed which will set forth the number of Securities being offered and the
terms of the offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any underwriter for Securities
purchased from the Selling Securityholders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers.
In order to comply with the securities laws of certain states, if
applicable, the Securities may be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Securities 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 Securities may not simultaneously engage in
market making activities with respect to the securities of the Company for a
period of two business days prior to the commencement of such distribution. In
addition and without limiting the foregoing, each Selling Securityholder will be
subject to
24
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, the Rules promulgated under
Regulation M, which provisions may limit the timing of purchases and sales of
shares of the Company's securities by the Selling Securityholders.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock and 10,000,000 shares of Preferred Stock.
UNITS
As of August 27, 1998, there were 1,872,750 Units outstanding. Each Unit
consists of one share of Common Stock and one Redeemable Warrant. The securities
included in each Unit trade separately.
COMMON STOCK
As of August 27, 1998, there were 4,002,921 shares of Common Stock
outstanding, which include the shares of Common Stock composing the Units. In
addition, as of August 27, 1998, there were outstanding options to purchase
913,155 shares of Common Stock at exercise prices ranging from $0.75 to $9.875
per share and warrants to purchase up to 3,826,750 shares of Common Stock at
exercise prices ranging from $5.33 to $10.00 per share. Such options and
warrants expire on various dates through August 15, 2006.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Company's Board of Directors out of funds legally available
therefor. In the event of the liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution rights of
Preferred Stock, if any, then outstanding. The Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are fully paid and nonassessable.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes 10,000,000 shares of
Preferred Stock. The Company's Board of Directors has the authority to issue
Preferred Stock in one or more series and to fix the relative rights,
preferences and privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series. The issuance of Preferred Stock
may have the effect of delaying, deferring or preventing a change in control of
the Company without further action by the stockholders of the Company. The
issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of the Common Stock, including the loss
of voting control to others. See "Risk Factors--Need for Additional Financing;
Issuance of Securities by the Operating Companies; Future Dilution" and
"--Antitakeover Effects of Provisions of the Certificate of Incorporation and
Delaware Law."
SERIES A CONVERTIBLE PREFERRED STOCK
The Company has designated 1,375,000 shares of Preferred Stock as the Series
A Preferred. As of August 27, 1998, there were outstanding 744,809 shares of
Series A Preferred and warrants to purchase 117,198 shares of Series A
Preferred. The following is a brief summary of the rights, preferences and
privileges of the Series A Preferred. A complete description of the rights,
preferences and privileges of the Series A Preferred is set forth in the
Company's Certificate of Designations with respect thereto.
25
DIVIDENDS. Holders of Series A Preferred will be entitled to receive
dividends as, when and if declared by the Board of Directors. Commencing on
August 7, 1998, holders of Series A Preferred are entitled to the PIK Dividend
payable in additional shares of Series A Preferred at the rate of 10% per annum
of the Dividend Base Amount, payable semi-annually, unless their shares of
Series A Preferred have previously been converted into Common Stock. The
Dividend Base Amount is $13.00 plus accrued and unpaid dividends (subject to
antidilution adjustment), and represents a premium to the holders of Series A
Preferred of 30% over the $10.00 per share purchase price. The Company may not
declare any dividend or distribution on any other capital stock of the Company
unless and until a special dividend or distribution of $13.00 per share (subject
to appropriate adjustment to reflect any stock split, combination,
reclassification or reorganization of the Series A Preferred) has been declared
and paid on the Series A Preferred. No dividend or distribution, as the case may
be, may be declared or paid on any junior stock unless the same dividend is paid
to holders of Series A Preferred. The Company does not intend to pay cash
dividends on the Series A Preferred or the underlying Common Stock for the
foreseeable future.
CONVERSION. Each share of Series A Preferred is convertible at the option
of the holder thereof, at any time after the issuance thereof, into shares of
Common Stock at a conversion price equal to $3.06. The conversion price is
subject to adjustment upon the occurrence of certain events, including the
issuance of Common Stock at a per share price less than the conversion price, or
the occurrence of a merger reorganization, consolidation, reclassification,
stock dividend or stock split which will result in an increase or decrease in
the number of shares of Common Stock outstanding. Unless converted earlier, the
Company may, at any time after August 7, 1998, at its option, cause the
conversion of the Series A Preferred, in whole or in part, on a PRO RATA basis,
into shares of Common Stock at the conversion price in effect at that time if
the closing bid price of the Common Stock has exceeded 200% of the then
applicable conversion price for at least 20 trading days in any 30 consecutive
trading day period ending three days prior to the date of notice of conversion.
LIQUIDATION PREFERENCE. Upon (i) a liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, (ii) a sale or other
disposition of all or substantially all of the assets of the Company or (iii)
any consolidation, merger, combination, reorganization or other transaction in
which the Company is not the surviving entity or in which the shares of Common
Stock constituting in excess of 50% of the voting power of the Company are
exchanged for or changed into other stock or securities, cash and/ or any other
property, after payment or provision for payment of the debts and other
liabilities of the Company, the holders of the Series A Preferred then
outstanding will first be entitled to receive, PRO RATA (on the basis of the
number of shares of the Series A Preferred then outstanding), and in preference
to the holders of the Common Stock and any capital stock of the Company, an
amount per share equal to $13.00 plus accrued but unpaid dividends, if any,
which in certain circumstances may be paid in securities of another corporation.
VOTING RIGHTS. The holders of shares of Series A Preferred have the right
at all meetings of stockholders of the Company to that number of votes equal to
the number of shares of Common Stock issuable upon conversion of the Series A
Preferred at the record date for determination of the stockholders entitled to
vote on such matters or, if no such record date is established, at the date such
vote is taken. So long as at least 50% of the shares of Series A Preferred
remain outstanding, the affirmative vote or consent of the holders of 66.67% of
the shares of Series A Preferred shall be necessary to permit, effect or
validate any one or more of the following: (i) the amendment of the Certificate
of Incorporation or Bylaws of the Company if it adversely affects the relative
rights of the holders of the Series A Preferred, (ii) the declaration or payment
of a dividend on any securities of the Company other than the Series A Preferred
or the authorization of the repurchase of any securities of the Company, (iii)
the issuance of any security ranking senior to or on a parity with the Series A
Preferred with respect to (A) a liquidation event, (B) the payment of dividends
or (C) voting rights (except class voting rights required by law), (iv) any
liquidation, dissolution or sale of substantially all of the assets of the
Company, (v) the incorporation of any subsidiary company and (vi) the issuance
of any debt securities or incurrence of indebtedness for borrowed money in
26
excess of $1,000,000, PROVIDED, HOWEVER, that any issuance of debt securities or
incurrence of indebtedness for borrowed money in excess of $500,000 shall be
approved by a supermajority of the Board of Directors of the Company.
REDEEMABLE WARRANTS
The Redeemable Warrants were issued pursuant to a warrant agreement (the
"Redeemable Warrant Agreement") among Joseph Stevens & Company, L.P. ("JSLP"),
the Company and Continental Stock Transfer & Trust Company (the "Warrant
Agent"), and are evidenced by warrant certificates in registered form. The
following summary is qualified in its entirety by the text of the Redeemable
Warrant Agreement, a copy of which has been filed with the Commission.
Each Redeemable Warrant entitles the registered holder thereof to purchase
one share of Common Stock at a price of $5.50 per share, subject to adjustment,
commencing on the date of issuance. The Redeemable Warrants expire on December
13, 2000 (the "Expiration Date"). As of December 14, 1996 the Redeemable
Warrants are subject to redemption by the Company at a redemption price of $0.05
per Redeemable Warrant on 30 days' prior written notice, provided that the
average closing bid price (or last sales price) of the Common Stock as reported
on Nasdaq (or on such exchange on which the Common Stock is then traded) equals
or exceeds $8.25 per share, subject to adjustment, for any 20 trading days
within a period of 30 consecutive trading days ending on the fifth trading day
prior to the date of notice of redemption. The holder of a Redeemable Warrant
will lose his right to purchase if such right is not exercised prior to
redemption by the Company on the date for redemption specified in the Company's
notice of redemption or any later date specified in a subsequent notice. Notice
of redemption by the Company shall be given by first class mail to the holders
of the Redeemable Warrants at their addresses set forth in the Company's
records.
The exercise price of the Redeemable Warrants and the number and kind of
shares of Common Stock or other securities and property to be obtained upon
exercise of the Redeemable Warrants are subject to adjustment in certain
circumstances including a stock split of, or stock division, combination or
recapitalization of, the Common Stock. Additionally, an adjustment would be made
upon the consolidation of the Company with or the merger of the Company with or
into another corporation (other than a consolidation or merger which does not
result in any reclassification or change of the outstanding Common Stock) so as
to enable Redeemable Warrant holders to purchase the kind and number of shares
of stock or other securities or property (including cash) receivable in such
event by a holder of the number of shares of Common Stock that might otherwise
have been purchased upon exercise of such Redeemable Warrant. No adjustment for
cash dividends, if any, will be made upon exercise of the Redeemable Warrants.
The exercise price of the Redeemable Warrants bears no relation to any
objective criteria of value and should not be regarded as an indication of the
future market price of the securities offered hereby. The Redeemable Warrants do
not confer upon the holder any voting or any other rights of a stockholder of
the Company. Upon notice to the Redeemable Warrant holders, the Company has the
right to reduce the exercise price or extend the expiration date of the
Redeemable Warrants.
The Redeemable Warrants may be exercised upon surrender of the Redeemable
Warrant certificate on or prior to the expiration date (or earlier redemption
date) of such Redeemable Warrant at the offices of the Warrant Agent, with the
form of "Election to Purchase" on the reverse side of the Redeemable Warrant
certificate completed and executed as indicated, accompanied by payment of the
full exercise price (by cashier's or certified check payable to the order of the
Warrant Agent) for the number of Redeemable Warrants being exercised. The
Redeemable Warrants will become void and of no value upon the Expiration Date. A
holder may sell the Redeemable Warrants instead of exercising them. There can be
no assurance, however, that a market for the Redeemable Warrants will continue.
If a prospectus covering the shares of Common Stock issuable upon the exercise
of Redeemable Warrants is not kept effective and current or if such shares are
not qualified for sale in certain states, holders of Redeemable Warrants
27
desiring to exercise the Redeemable Warrants will have no choice but either to
sell such Redeemable Warrants or let them expire. See "Risk Factors--Securities
Law Restrictions on the Exercise of Redeemable Warrants."
The Redeemable Warrant Agreement provides that it may be amended at any time
with the written consent of registered holders representing at least 66 2/3% of
the Redeemable Warrants then outstanding.
UNDERWRITER'S WARRANTS
In connection with the Company's initial public offering (the "Unit
Offering"), the Company sold to JSLP, for nominal consideration, warrants (the
"Underwriter's Warrants") to purchase from the Company 165,000 Units. The
Underwriter's Warrants are initially exercisable at a price equal to $6.60 and
may be exercised at any time during the four year period commenced December 14,
1996. The shares of Common Stock and Redeemable Warrants issuable upon exercise
of the Underwriter's Warrants are identical to those offered to the public
pursuant to the Unit Offering, except that the Redeemable Warrants issuable upon
exercise of the Underwriter's Warrants have an exercise price of $6.05 per share
and such Redeemable Warrants have not been approved for quotation on Nasdaq. The
Underwriter's Warrants contain anti-dilution provisions providing for adjustment
of the number of warrants and exercise price under certain circumstances. The
Underwriter's Warrants grant to the holders thereof certain rights of
registration of the securities issuable upon exercise of the Underwriter's
Warrants.
PLACEMENT WARRANTS
In connection with the Private Placement, the Company sold to Paramount, for
nominal consideration, Placement Warrants to purchase from the Company 123,720
shares of Series A Preferred. Placement Warrants to purchase 117,198 of such
shares remain outstanding as of August 27, 1998. The Placement Warrants are
initially exercisable at a price equal to $11.00 per share and may be exercised
at any time during the 10-year period commenced February 7, 1998. The rights,
preferences and privileges of the shares of Series A Preferred issuable upon
exercise of the Placement Warrants are identical to those offered to the
participants in the Private Placement. The Placement Warrants contain
anti-dilution provisions providing for adjustment of the number of securities
underlying the Series A Preferred issuable upon exercise of the Placement
Warrants and the exercise price of the Placement Warrants under certain
circumstances. The Placement Warrants are not redeemable and will remain
outstanding, to the extent not exercised, notwithstanding any mandatory
redemption or conversion of the Series A Preferred underlying the Placement
Warrants.
ANTITAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
28
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
The Transfer Agent and Registrar for the Units, Common Stock, Series A
Preferred and Redeemable Warrants is Continental Stock Transfer & Trust Company
("CST&T"), 2 Broadway, New York, New York 10004. CST&T can be reached at (212)
509-4000. CST&T is also the Warrant Agent for the Redeemable Warrants.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Securities offered
hereby are being passed upon for the Company by Brobeck, Phleger & Harrison LLP,
Palo Alto, California.
EXPERTS
The consolidated financial statements of the Company appearing in the
Company's Annual Report on Form 10-KSB for the years ended December 31, 1997 and
1996, for each of the years in the three-year period ended December 31, 1997,
and for the period from July 13, 1993 (inception) to December 31, 1997, have
been incorporated by reference herein in reliance upon the report of KPMG Peat
Marwick LLP ("KPMG"), independent certified public accountants, and upon the
authority of such firm as experts in accounting and auditing.
29
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION FOR AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
PAGE
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Available Information..................................................... 2
Information Incorporated by Reference..................................... 3
Risk Factors.............................................................. 4
Recent Developments....................................................... 17
Selling Securityholders................................................... 18
Plan of Distribution...................................................... 24
Description of Securities................................................. 25
Legal Matters............................................................. 29
Experts................................................................... 29
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ATLANTIC
PHARMACEUTICALS, INC.
991,484 SHARES
COMMON STOCK
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PROSPECTUS
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October 29, 1998
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