<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 1997
REGISTRATION NO. 33-_____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM SB-2
REGISTRATION STATEMENT
SECURITIES ACT OF 1933
Harvard Scientific Corp.
(Name of Small Business Issuer in Its Charter)
Nevada 2834 226455
---------------- ------------------------- -----------------------
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Classification Identification No.)
Incorporation or Code Number)
Organization)
100 North Arlington, Suite 23-P, Reno, Nevada 89501 (702) 796-1173
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
100 North Arlington, Suite 23-P, Reno, Nevada 89501 (702) 796-1173
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED PRINCIPAL PLACE OF BUSINESS)
Ian Hicks, CEO and President
100 North Arlington, Suite 23-P
Reno, Nevada 89501
(702) 796-1173
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
With copy to:
David R. Baker, Esq.
230 Park Avenue, Suite 640
New York, New York 10169-0639
Approximate Date of Proposed Sale to the Public: As soon as practicable
after the Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act Registration Statement Number of the earlier
effective registration statement for the same offering. [ ] __________________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================
Title of Each Class Proposed Maximum Proposed Maximum
of Securities To Be Amount To Be Offering Price Per Aggregate Offering Amount of
Registered Registered Unit (1) Price Registration Fee
============================================================================================================
<S> <C> <C> <C> <C>
Common Stock 12,064,344 $4.75(3) $57,305,634 $19,760.56
============================================================================================================
</TABLE>
1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933, as
amended.
2) Based upon 300% of the shares issuable upon the conversion of $15,000,000
principal amount of 6% Convertible Debentures on April 14, 1997 if the
Debentures had been fully outstanding and were converted on that date.
3) The average of the closing bid ($4.625) and asked ($4.875) prices of the
Common Stock of the Registrant on April 14, 1997 on the OTC Electronic
Bulletin Board was $4.75 per share.
4) Pursuant to Rule 416, this Registration Statement also covers such
indeterminable additional shares as may be issued or become issuable upon
conversion of the 6% Convertible Debentures in accordance with the terms
thereof.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
ii
<PAGE> 3
PRELIMINARY PROSPECTUS DATED APRIL 21, 1997
SUBJECT TO COMPLETION
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
12,064,344 SHARES OF COMMON STOCK
HARVARD SCIENTIFIC CORP.
The shares of Common Stock ("Common Stock") offered hereby are offered by
the holders (the "Selling Securityholder") of 6% Convertible Debentures (the
"Debentures") of Harvard Scientific Corp. (the "Company"), such shares being
issuable upon the conversion of the Debentures. See "Selling Securityholder."
The Common Stock is currently quoted on the system of the National Association
of Securities Dealers, Inc. ("NASD") known as the "OTC Electronic Bulletin
Board" under the symbol "HVSF." On April 14, 1997 the closing quotations on
the NASD OTC Electronic Bulletin Board of the Common Stock were $4.875 asked
and $4.625 bid per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
THIS PROSPECTUS RELATES TO AN AGGREGATE OF 12,064,344 SHARES OF COMMON STOCK,
$.001 PAR VALUE PER SHARE, WHICH IS 300% OF THE 4,021,448 SHARES ISSUABLE IF
$15,000,000 PRINCIPAL AMOUNT OF DEBENTURES HAD BEEN OUTSTANDING ON APRIL 14,
1997 AND ALL THE DEBENTURES HAD BEEN CONVERTED ON THAT DATE. SEE "SELLING
SECURITYHOLDER." THE EXACT NUMBER OF SHARES THAT WILL BE ISSUED ON THE
CONVERSION OF THE DEBENTURES, WHEN AND IF THE DEBENTURES ARE CONVERTED, WILL
DEPEND ON THE MARKET PRICE OF THE COMMON STOCK DETERMINED WITH RESPECT TO THE
DATE OF CONVERSION AND IS NOT NOW KNOWN, ALTHOUGH IT WILL NOT BE LESS THAN
2,298,850 SHARES, BASED ON THE MARKET PRICE OF $6.525 ON MARCH 21, 1997, THE
DATE OF ISSUANCE OF THE INITIAL $5,000,000 PRINCIPAL AMOUNT OF DEBENTURES, AND
MAY INCLUDE A FURTHER INDETERMINATE NUMBER OF SHARES AS MAY BE ISSUED OR BECOME
ISSUABLE UPON CONVERSION IN ACCORDANCE WITH THE TERMS OF THE DEBENTURES. SEE
"DEBENTURES." ALL THE COMMON STOCK OFFERED HEREBY IS BEING SOLD BY THE SELLING
SECURITYHOLDER AND MAY BE OFFERED TO THE PUBLIC FROM TIME TO TIME BY THE
SELLING SECURITYHOLDER. THE COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS
RECEIVED BY THE SELLING SECURITYHOLDER FROM THE COMMON STOCK SOLD.
THE COMPANY WILL PAY ALL REASONABLE EXPENSES OF THIS OFFERING ESTIMATED AT
$110,000. THE SELLING SECURITYHOLDER, HOWEVER, WILL BEAR THE COST OF ALL
BROKERAGE COMMISSIONS AND DISCOUNTS INCURRED IN CONNECTION WITH THE SALE OF
THEIR COMMON STOCK AND THEIR LEGAL EXPENSES IN EXCESS OF $3,500. THE COMMON
STOCK MAY BE SOLD BY SELLING STOCKHOLDERS DIRECTLY OR THROUGH UNDERWRITERS,
DEALERS OR AGENTS IN MARKET TRANSACTIONS OR PRIVATELY NEGOTIATED TRANSACTIONS.
SEE "SELLING SECURITYHOLDER."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE> 4
The Company is currently a reporting Company under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the reports, proxy
statements and other information filed by the Company with the Securities and
Exchange Commission can be inspected and copied at the public reference
facilities of the Commission at 4509 Fifth Street, N.W., Washington, D.C.
20549; at its New York Regional office, 7 World Trade Center, New York, New
York 10048; and its Chicago Regional Office, 500 West Madison Street, Chicago,
Illinois 60661-2511, and copies of such material can be obtained from the
Commission's Public Reference Section at prescribed rates. The Company
furnishes its shareholders with annual reports containing audited financial
statements after the close of each fiscal year.
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<PAGE> 5
PROSPECTUS SUMMARY
THE COMPANY
The Company is a bio-pharmaceutical company in the development stage
currently working on a therapeutic treatment for male erectile dysfunction.
This product, tentatively designated as "PaGE(1)," consists of prostaglandin
("PGE-1," a natural occurring fatty acid) encapsulated in liposomes, which is
then lyophilized (freeze dried) to provide stability and a useful shelf life.
When needed for patient use, this lypholized microsphere is reconstituted using
a specially formulated detergent which lyzes the liposomes, releasing the
active substance, PGE-1. The resulting liquid is then self-applied by the
patient using a soft catheter the Company has developed for this purpose. The
catheter applies the liquid into the urethra of the penis via the urethral
meatus, with minimal risk of trauma to the patient.
The Company is the assignee of Patent Application No. 08/573408, filed
December 15, 1995, for an invention "PGE-1 Containing Lyophilized Liposomes For
Use In The Treatment of Erectile Dysfunction." This invention consists of the
encapsulation of prostaglandin in liposomes and the subsequent rupturing of
those liposomes with a dilute detergent diluent to release the prostaglandin
immediately prior to application. The Patent Office has issued an Office
Action rejecting the application with comments, which comments the Company
believes can be responded to effectively. The Company, therefore, believes that
it will be able to pursue the application and believes it will be successful,
although there can be no assurance thereof. See "Risk Factors-Uncertainty of
Patent Protection" and "Description of Business - Patents and Intellectual
Property." The Company also filed an application for a European Patent for the
invention in December 1996.
PGE-1 is already approved for the treatment of male erectile dysfunction
in an injectable formulation by Pharmacia/Upjohn and an intra urethral
insertion of a prostaglandin containing pellet by Vivus. A locally applied
intra-meatal product could be advantageous to patient comfort when compared
with an injectable or a pellet insertion product. In addition, lypholizing
extends the shelf life of PGE-1 at room temperature from less than two minutes
to three years. Although PGE-1 has been approved for treatment, the use of the
specially formulated detergent to lyze the liposomes and the lyophilizing of
the liposome encapsulated PGE-1 require full registration with the Food and
Drug Administration ("FDA") of PaGE1 as a new drug. An Investigative New Drug
application ("IND") was submitted to the FDA in May 1996 and the Phase I trial
to test safety and tolerance of PaGE1 with small group of subjects was
commenced.
The Phase I trial has been concluded with the result that preliminary
efficacy data is available indicating the possible benefits of such a therapy.
These results were presented to the FDA in April 1997 as part of the Company's
pre-Phase II Clinical Trial meeting. See "Description of Business - Government
Regulation." Although this early data suggests product efficacy, there can be
no assurance that the PaGE1 will reach the market successfully. The
manufacturing procedure is being scaled up, with assay verification and
validation in progress. A New Drug Application will be filed with the FDA,
assuming adequate data is generated upon conclusion of the clinical trial
program. There can be no assurance that the FDA will approve the product for
marketing. It is estimated that the costs of completing the above procedures
will amount to between $10 to $12 million. The FDA review process could last
as long as two (2) years and perhaps even longer in the event the FDA requires
Phase III trials or requests additional data. See "Description of Business -
Government Regulation."
The Company's future success is dependent upon its ability to raise
additional funds to complete the commercialization process for its erectile
dysfunction treatment product. The Company intends to obtain these funds
through public and private financing or from other sources such as
collaboration agreements. Although the Company has sold $5,000,000 principal
amount of Debentures and has an undertaking, subject to various conditions, to
raise an additional $10,000,000 principal amount of Debentures, there can be no
assurance that this additional funding will occur or be sufficient and that, if
this additional funding does not occur or is insufficient, other required funds
will be available or will be available on terms satisfactory to the Company.
Failure to obtain adequate financing could cause a delay or termination of the
Company's product development and marketing efforts.
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<PAGE> 6
Over the next 12 months, the Company's primary focus will be on continuing
clinical trials and product validation to conform to the regulatory process of
the FDA. Additionally, the Company will be identifying and seeking
collaborative arrangements with pharmaceutical distribution concerns and/or
licensing agreements with companies to eventually distribute PaGE1.
The Company continues to look at other products it can add to its
portfolio that it believes have market potential. In particular the Company
seeks to utilize medically researched and developed drug substances, to
determine the ability of these substances to be encapsulated in liposomes and
to determine the potential market for such products.
Harvard Scientific Corp. was incorporated in Nevada in 1987 under the name
Witch Doctor Bones, Inc. The Company's principal executive office is located
at 100 N. Arlington Avenue, Suite 23-P, Reno, Nevada, and its telephone number
is (702) 796-1173. The Company has no contractual relationship or affiliation
with Harvard University.
CURRENT FINANCING
In March 1997, pursuant to a private placement, the Company (a) sold to
one investor $5,000,000 principal amount of 6% Convertible Debentures (the
"Debentures") and (b) received a commitment from that investor, subject to
various conditions, to purchase additional Debentures in the aggregate
principal amount of up to $10,000,000 in two tranches of $5,000,000 each. The
investor may convert the Debentures into Common Stock (the "Conversion
Shares"). The Conversion Shares constitute the Selling Securityholder's Common
Stock being offered and sold by the Selling Securityholder pursuant to this
Prospectus. See "Description of Securities," "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and "Selling Securityholder and Plan of Distribution."
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered ............. 12,064,344 shares (300% of the 4,021,448
shares issuable upon the conversion of 6%
Convertible Debentures, based on the Market
Price (as defined in the Debentures) of
$4.6625 per share on April 14, 1997)
Common Stock Outstanding
Prior to Offering .............. 11,403,129 shares
Common Stock to be Outstanding
Immediately After Offering ..... 23,467,473 shares (15,424,577 shares based
on the Market Price per share on April 14,
1997)
Use of Proceeds .................. None of the proceeds of the sale of the
Common Stock registered hereunder will
accrue to the Company. See "Use of Proceeds."
Risk Factors ..................... Limited operating history; need for
additional funds; dependence on one product
line; dependence on third-party
manufacturing, marking and clinical
research; uncertainty of regulatory
approval, and other risks. See "Risk
Factors."
NASD OTC Electronic Bulletin
Board Symbol ................... "HVSF"
</TABLE>
4
<PAGE> 7
SUMMARY FINANCIAL DATA
The summary financial information set forth below is taken from and should
be read in conjunction with the Audited Financial Statements, including notes
thereto, included elsewhere in this Prospectus.
Statement of Operations Data:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------- Inception
1/31/87
to 1/31/96
1996 1995 1994 (Unaudited)
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net Sales ............................ $181,000 $-- $-- $187,387
Cost of Sales ........................ 216,870 -- -- 221,557
Gross Profit (Loss) .............. (35,870) -- -- (34,170)
Operating Expenses ................... 1,395,297 668,835 487,937 2,590,388
(Loss) from Operations ............... (1,431,167) (668,835) (487,937) (2,624,558)
Other Income (Expenses) .............. (507,777) (7,620) (1,727) (541,228)
Net Loss ............................. $(1,938,944) $(676,455) $(489,664) $(3,165,786)
Loss Per Common Share ................ $0.21 $0.29 $0.34
Weighted Average Shares Outstanding .. 9,022,404 2,333,839 1,421,563
<CAPTION>
Balance Sheet Data:
December 31,
-------------------------
1996 1995
------------ -----------
<S> <C> <C>
Cash and Prepaid Expenses ............... $1,565 $1,224,560
Total Assets ............................ $85,527 $1,349,080
Total Current Liabilities ............... $535,223 $664,727
Total Stockholders' Equity .............. ($449,696) $684,353
</TABLE>
* Not adjusted to reflect the receipt of $5,000,000 and an obligation in the
principal amount of $5,000,000, received and incurred on March 31, 1997 as a
result of a subscription for 6% Convertible Debentures.
5
<PAGE> 8
RISK FACTORS
An investment in the securities offered hereby involves a high degree of
risk, including, but not necessarily limited to, the risk factors described
below, and should be considered only by those investors who can afford the risk
of loss of their entire investment. In addition to other information in this
Prospectus, each prospective investor should carefully consider the following
risk factors inherent in and affecting the business of the Company before
making an investment decision. Moreover, prospective investors are cautioned
that the statements in this Prospectus that are not descriptions of historical
facts may be forward looking statements that involve risks and uncertainties.
The Company's actual results could differ materially from those discussed
herein. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," as well as those discussed elsewhere in this Prospectus.
LIMITED OPERATING HISTORY AND REVENUES; SIGNIFICANT AND CONTINUING LOSSES;
UNCERTAINTY OF FUTURE PROFITABILITY
The Company is a development-stage company. Since inception, the Company
has been engaged primarily in the development of PaGE1 and only commenced
limited use of PaGE1 in clinical trials in 1996. Accordingly, the Company has
limited operating history upon which an evaluation of its performance and
prospects can be based.
The likelihood of the success of the Company must be considered in light
of the risks, problems, expenses, difficulties and complications frequently
encountered in connection with a the shift from development to
commercialization of new products based on innovative technologies. It should
be noted that, during the period from January 1994 to February 1995, the
Company also investigated, acquired, tested, and ultimately abandoned
technology related to whole blood rapid testing for viruses, particularly the
HIV. The decision to abandon this technology was based on poor pre-marketing
results.
Since inception, the Company has generated limited revenues and incurred
significant losses, including losses of $489,664, $676,455 and $1,938,944 for
the fiscal years ended December 31, 1994, 1995 and 1996, respectively. Losses
are continuing through the date of this Prospectus and the Company anticipates
that it will continue to incur such losses until such time, if ever, as the
Company generates sufficient levels of revenues from product sales to offset
its operating costs. The Company believes that generation of such revenues is
dependent upon, among other things, the Company's ability to obtain FDA
approval. There can be no assurance the Company will be able to operate
profitably or be commercially successful. See "Business".
SIGNIFICANT CAPITAL REQUIREMENTS; AUDITORS' GOING CONCERN REPORT; DEPENDENCE ON
OFFERING PROCEEDS; POSSIBLE ISSUANCE OF ADDITIONAL SECURITIES; FUTURE DILUTION
The Company's capital requirements have been and will continue to be
significant, and the Company currently has very limited cash flow from
operations. As a result, the Company has been dependent on equity and debt
financings. The Independent Auditor's Report accompanying the Company's
financial statements for the years ended December 31, 1996, 1995 and 1994
states that, in light of the recurring losses suffered by the Company, its
continued existence depends upon its ability to resolve its liquidity problems.
See "Management's Discussion" and "Audited Financial Statements."
Based on the Company's operating plan, internal forecasts and assumptions
(which include: successful conclusion of clinical trials, rapid acceptance of
product due to ease and comfort of administration, price parity with competitor
products and continued growth of erectile dysfunction market niche as more
patients become aware of therapy for the problem) management believes that the
proceeds from the private placement of 6% Convertible Debentures in the
aggregate principal amount of $5,000,000 and in an additional principal amount
of $10,000,000 that has been committed and anticipated cash flow from
operations and other sources will be sufficient to meet the Company's
anticipated cash needs and finance its plans for growth. In the event that the
Company's plans change, its assumptions change or prove inaccurate, its
revenues are less than anticipated, the commitment to purchase the
6
<PAGE> 9
additional $10,000,000 principal amount of 6% Convertible Debenture or its
further financing otherwise prove insufficient to fund operations, the Company
may be required to seek additional financing. No assurance can be given that
the Company will be successful in obtaining such additional financing, or if
obtained, that such financing will be on terms favorable to the Company. Any
inability to obtain additional financing when needed and on acceptable terms
could have a material adverse effect upon the Company's operations, including
the possibility of requiring the Company to curtail or cease its operations.
In addition, any additional equity financing may involve substantial dilution
to the Company's then existing shareholders. See "Use of Proceeds" and
"Management's Discussion."
DEPENDENCE UPON SALES OF PRINCIPAL PRODUCT; LIMITED CUSTOMER BASE
The Company's future performance will depend, almost entirely, on the
successful development, introduction and customer acceptance of the Company's
principal product, PaGE1. To date, substantially all of the Company's revenues
have been generated by the distribution of PaGE1 for use in clinical trials
overseas. The Company anticipates that, once FDA approval is obtained,
substantially all of its revenues for the foreseeable future will be generated
by sales of PaGE1, both overseas and in the U.S. Although early clinical data
regarding the product suggests good probable efficacy, new product development
is highly uncertain and unanticipated developments, clinical and regulatory
delays, adverse or unexpected side effects or inadequate therapeutic efficacy
could slow or prevent the commercialization of PaGE1. There can be no
assurance that the Company will not experience these or other difficulties that
could delay or prevent the commercialization of PaGE1 . Furthermore, no
assurance can be given that, if commercialization is commenced, PaGE1 will meet
with market acceptance. The inability to successfully commercialize PaGE1, for
any reason, would have a material adverse effect on the Company's financial
condition, prospects, and ability to continue operations. See "Business."
GOVERNMENT REGULATION; UNCERTAINTY OF REGULATORY APPROVAL; UNCERTAINTY OF
PRODUCT DEVELOPMENT
The Company is subject to various FDA regulations which govern or
influence the research, testing, manufacture, safety, labeling, storage,
recordkeeping and advertising and promotion of pharmaceutical products,
biologics, and medical devices. Outside the United States the Company is
subject in most cases to similar regulation. The Company believes it is in
substantial compliance with all FDA and other material federal and state laws
and regulations. There can be no assurance, however, that the Company will be
able, for financial and other reasons, to comply with applicable laws, rules
and regulations. Failure or delay by the Company to comply with applicable
regulatory requirements could subject the Company to civil remedies, including
fines, suspensions, delays of approvals, injunctions, recalls or seizures of
products, operating restrictions, as well as potential criminal sanctions,
which could have a material adverse effect on the Company. See "Business -
Government Regulation."
The Company's research, development, clinical trials, manufacturing and
marketing of PaGE1 are subject to extensive, rigorous and frequently changing
regulatory review process by the FDA and other regulatory agencies in the U.S.
and various foreign countries. The process of obtaining and maintaining
required regulatory approvals is lengthy, expensive and uncertain. FDA
procedures for approval of pharmaceuticals and biologics involve clinical
testing which occurs in three phases to demonstrate the safety and efficacy of
the product. See "Business - Government Regulation."
The Company expects that certain aspects of PaGE1 also may be regulated by
the FDA as Class III devices. Preclinical evaluations of Class III devices are
similar to those of pharmaceuticals and biologics, with additional emphasis on
implant persistence, implant sensitization, and carrier characterization and
specifications. See "Business - Government Regulation."
There can be no assurance that FDA or other regulatory clearance in the
United States and elsewhere will not take longer than currently anticipated
because of delays, problems or unforeseen safety difficulties. Failure to
obtain FDA approval would prevent the Company from marketing PaGE1 in the U.S.,
which would have a material adverse effect on the Company's business, financial
condition and results of operations, and failure to obtain approval in key
markets outside the United States would also have a material adverse effect.
Even if regulatory approval is obtained, a marketed pharmaceutical product and
its manufacturer are subject to continuing regulatory
7
<PAGE> 10
review, and discovery of previously unknown problems or amendments to existing
statutes or regulations or the adoption of new statutes or regulations could
result in restrictions on such product or manufacturer, including withdrawal of
the product from the market. In addition, the FDA requires submission of a
pre-market approval ("PMA") notification for any change or modification to a
previously marketed product that significantly affects safety or effectiveness.
In addition, if the Company develops a different delivery device for PaGE1,
this device would be subject to FDA review procedures prior to release for
marketing. See "Business - Government Regulation."
DEPENDENCE ON THIRD-PARTY RESEARCH
The Company intends to use a significant portion of the proceeds of the
Debentures to conduct research and clinical studies, primarily for the purpose
of obtaining FDA approval for the marketing of PaGE1 in the U.S. The Company
has to date conducted only Phase I trials with respect to PaGE1. These trials
were conducted by two private, practicing urologists in Las Vegas, Nevada. The
Company plans to continue to utilize third parties to conduct the necessary
clinical trials. Several Clinical Research Organizations ("CRO"s) have
submitted bids for the clinical trials. These are under review and a suitable
CRO will be selected shortly. Therefore, the Company will be substantially
dependent upon third-party researchers and others, over whom the Company will
not have absolute control, to satisfactorily complete scientific studies
performed on behalf of the Company. There can be no assurance that third
parties will be able to carry out these studies in the proper manner, within
the time frame, and within the cost estimates currently relied upon by
management. In the event that the studies were carried out incorrectly or
improperly, or were not completed within the time frame currently contemplated,
or exceeded current cost parameters, the Company's business could be materially
adversely affected. See "Business - Research and Development."
LACK OF MANUFACTURING EXPERIENCE AND CAPABILITIES; DEPENDENCE ON THIRD-PARTY
MANUFACTURING AND SUPPLIERS
The Company does not own or lease any manufacturing facilities, does not
manufacture the product or any of its ingredients, and purchases all
ingredients from unaffiliated suppliers, including FDA validated suppliers of
the active ingredient, PGE-1. The Company does not now have any contracts with
manufacturers, although it is in the process of negotiating such contracts.
Although the Company believes that there are adequate suppliers and
manufacturers sufficient to satisfy the Company's requirements, the terms on
which suppliers and manufacturers will be available could have a material
effect on the success of the Company. See "Uncertainty of Supply of Key
Pharmaceutical Ingredient" and "Business - Manufacturing."
LIMITED SALES, MARKETING AND DISTRIBUTION EXPERIENCE; DEPENDENCE UPON THIRD
PARTY MARKETING EFFORTS
The Company has limited marketing experience and limited financial,
personnel and other resources to independently undertake extensive marketing
activities. The Company's prospects will be significantly affected by its
ability to develop and maintain a network of distributors. Although the
Company had entered into four separate marketing agreements, all but one has
been terminated. Moreover, the Company has generated only $181,000 in revenues
from the distribution agreements, primarily due to the fact that the product
has not yet received regulatory approval. These revenues were derived from
reimbursement of production costs of clinical materials supplied to a
distributor for use in clinical trials. To the extent that the Company enters
into third-party marketing and distribution arrangements, it is dependent on
the marketing efforts of such third parties and upon their provision of
installation and support services and the vagaries of changes in market
conditions. While the Company believes that any third parties with which it
enters into marketing arrangements will have an economic motivation to
commercialize the Company's products, the time and resources devoted to these
activities will be controlled by such entities and not by the Company. There
can be no assurance that the Company will be able, for financial or other
reasons, to finalize any third-party marketing arrangements or that such
arrangements, if finalized, will result in successful commercialization of the
product.
8
<PAGE> 11
COMPETITION; NO ASSURANCE OF MARKET FOR PRINCIPAL PRODUCT
The market for treatment of male erectile dysfunction is emerging and
evolving and is characterized by an increasing number of entrants. Although
the Company is not aware of any other products which deliver prostaglandin in a
locally applied intra-meatal formulation, there are several other companies
which offer products designed to treat male erectile dysfunction. The
competition is both direct (i.e., companies that produce prostaglandin using
alternative delivery mechanisms) and indirect (i.e., companies that produce
penile implants, vacuum constriction devices, and other alternative
treatments). Prostaglandin is already FDA-approved for the treatment of male
erectile dysfunction in an injectable formulation by Pharmacia/Upjohn and in a
formulation using intra-urethral insertion of a prostaglandin-containing pellet
by Vivus. Other companies, such as Pfizer and Zonagen, are currently
developing tablet formulations, and Macrochem is working on a topical solution.
See "Business - Competition."
There can be no assurance that additional technologies or products which
are functionally similar to those of the Company are not currently under
development or that other companies with the expertise or resources that would
encourage them to attempt to develop or market competing products will not
develop new products directly competitive with PaGE(1) or that the Company can
complete clinical testing of PaGE(1), obtain regulatory approvals and commence
commercial-scale manufacturing in a timely manner to be competitively
effective. Some of the Company's competitors and potential competitors have
well-established reputations for success in the development, sale and service
of medical equipment and have substantially greater financial, technical,
personnel and other resources than the Company, enabling them to undertake
clinical testing of products, obtain regulatory approvals and manufacture and
market pharmaceutical products in response to competitors seeking to market new
products and enter into new markets. There can be no assurance that the
Company will be able to compete successfully, that competitors will not develop
technologies or products that render the Company's product obsolete or less
marketable, or that the Company will be able to successfully enhance its
existing product or develop or acquire new products or produce them at
competitive prices. See "Business - Competition."
The commercial success of PaGE(1) will require acceptance by urologists,
family practitioners with a significant elderly male clientele, and medical
doctors practicing as sex therapists and the medical community as a whole.
Such acceptance will depend in large part on the results of clinical trials and
the conclusion by these physicians that PaGE(1) is a safe, cost-effective and
acceptable method of treatment. There can be no assurance that physicians will
be sufficiently encouraged by the results of the clinical trials to decide to
use the product. They may elect to use other treatment methods and procedures
which they believe to be more efficient or to have advantages over PaGE(1).
Accordingly, achieving market acceptance for PaGE(1) will require substantial
marketing efforts and expenditure of significant funds to educate doctors,
pharmacists, and the public about what the Company believes are the advantages
and benefits of PaGE(1). The majority of such marketing expenses are expected
to be borne by the distributors. However, the company expects to expend over
$3 million over the first few years of launch in supportive activities. There
can be no assurance that such efforts will result in significant initial or
continued market acceptance for PaGE(1). In addition, PaGE(1), being a complex
pharmaceutical product, may contain a number of side effects or other problems
that become apparent subsequent to widespread commercial use. Remedying such
problems could delay the Company's plans and cause it to incur additional costs
that would have a material adverse effect on the Company. See "Business -
Research and Development" and " - Sales and Marketing."
DEPENDENCE ON THIRD-PARTY REIMBURSEMENT
Successful commercialization of PaGE(1) may depend in part upon the
availability of reimbursement for the cost of related treatment from
third-party healthcare providers, principally Medicare, Medicaid and private
health insurance plans, including health maintenance organizations. To the
extent reimbursement is not provided or is limited, patients will have to pay
for the PaGE(1) out of their own pockets. Third-party payers are increasingly
challenging the price of medical products and services, which have had and
could continue to have a significant effect on the purchasing patterns of many
healthcare providers.
In markets other than the United States, reimbursement is obtained from a
variety of sources, including governmental authorities, private health
insurance plans and labor unions. In most foreign countries, there are also
private insurance systems that may offer payments for alternative therapies.
Although not as prevalent as in the
9
<PAGE> 12
U.S., health maintenance organizations are emerging in some European countries.
Accordingly, the Company may need to seek reimbursement approvals in such
other countries, although there can be no assurance that any such approvals
will be obtained in a timely manner or at all. Failure to receive
reimbursement approvals in such other countries could have an adverse effect on
market acceptance of the Company's product in those international markets in
which such approvals are sought.
The Company believes that reimbursement will be subject of increased
restrictions in the future in the U.S. and foreign markets. The overall
escalating cost of medical products and services has led to and will likely
continue to lead to increased pressures on the health care industry to reduce
the costs of products and services, potentially including products offered by
the Company. Significant uncertainty generally exists as to the reimbursement
status of newly approved healthcare products. Failure to receive adequate
levels of reimbursement for the use of prostaglandin in general, and PaGE1 in
particular, could have a material adverse effect on the Company's business,
financial condition and results of operations.
UNCERTAINTY OF PATENT PROTECTION; UNCERTAINTY OF PROTECTION OF PROPRIETARY
TECHNOLOGY
The strength of the Company's patent position may play an important role
in its long-term success. The Company is the assignee of Patent Application
No. 08/573408, filed December 15, 1995, for an invention "PGE-1 Containing
Lyophilized Liposomes For Use In The Treatment of Erectile Dysfunction." The
Patent Office has issued an Office Action rejecting the application with
comments, which comments the Company believes can be met so that it can go
forward with the application. However, there can be no assurance that any
patents in fact will be issued as a result of this application or that, if
issued, such patent or patents will be effective to protect the Company's
product from duplication by others. In addition, there can be no assurance
that the Company will be able to afford the expense of any litigation which may
be necessary to enforce its rights under any patent. Moreover, although the
Company believes that its product does not and will not infringe upon the
patents or violate the proprietary rights of others, it is possible that such
infringement or violation has or may occur. In the event that the Company's
product is determined to infringe upon the patents or proprietary rights of
others, the Company could be required to modify its product or obtain a license
for the manufacture and/or sale of the product, or could be prohibited from
selling the product. There can be no assurance that, in such an event, the
Company would be able to do so in a timely manner, upon acceptable terms and
conditions, or at all, and the failure to do any of the foregoing could have a
material adverse effect upon the Company. Furthermore, there can be no
assurance that the Company will have the financial or other resources necessary
to enforce or defend a patent infringement or proprietary rights violation
action. In addition, if the Company's product is deemed to infringe upon the
patents or proprietary rights of others, the Company could, under certain
circumstances, become liable for damages, which could also have a material
adverse effect on the Company. See "Business - Patents and Intellectual
Property."
The Company also relies substantially upon its proprietary technologies,
utilizing non-disclosure agreements with its employees, consultants and
customers to establish and protect the ideas, concepts and documentation of its
proprietary technology and know-how. Such methods, however, may not afford
complete protection, and there can be no assurance that third parties will not
independently develop such know-how or obtain access to the Company's know-how,
ideas, concepts and documentation, which could have a material adverse effect
on the Company.
POTENTIAL PRODUCT LIABILITY EXPOSURE AND INSURANCE EXPENSE; CURRENT LACK OF
PRODUCT LIABILITY INSURANCE
Upon the commencement of commercial production, the Company's business
will expose it to an inherent risk of potential product liability claims,
including claims for serious bodily injury or death, which could lead to
substantial damage awards. The Company currently maintains product liability
insurance in the amount of $1,000,000, with a maximum payout of $3,000,000,
which is the standard insurance coverage for the biopharmaceutical industry.
The Company will seek to increase the level of such insurance as its products
are commercialized. There can be no assurance, however, that the Company will
be able to maintain or increase its insurance on acceptable terms or at
reasonable costs, or that such insurance will provide the Company with adequate
coverage against potential liabilities. A successful claim brought against the
Company in excess of, or outside of, its insurance coverage could have a
material adverse effect on the Company's results of operations and financial
10
<PAGE> 13
condition. Claims against the Company, regardless of their merit or eventual
outcome, may also have a material adverse effect on the Company's ability to
obtain physician endorsement of its products or expand its business.
RELIANCE ON INTERNATIONAL SALES; CURRENCY EXCHANGE RISKS ASSOCIATED WITH
INTERNATIONAL SALES
The Company anticipates marketing PaGE1 internationally, as well as in the
U.S. To the extent the Company is able to market its product in foreign
countries, the Company will become subject to the risks associated with
international sales, including, but not limited to, health and welfare
regulatory controls imposed by foreign governments, shipping delays, customs
duties, export quotas and other trade restrictions, increased collection risks
and international political, regulatory and economic developments, and exchange
risks, any one of which could have an adverse effect on the Company's operating
results. See "Management's Discussion."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts and abilities of Jackie R. See,
M.D., its founder, Head of Research and Development and Director; of Ian Hicks,
its Chairman of the Board, President, Chief Executive Officer and Director; of
Don A. Steffens, its Chief Financial Officer, Secretary, Treasurer and
Director, and of Jeremii Wesolowski, Ph.D., its Chief Operating Officer.
Unforeseen circumstances could cause one or more of these individuals to be
unable to render his or their services to the Company. The loss of the
services of any such officers or other key personnel could have a material
adverse effect on the Company's operations.
In addition, to date, the Company has relied extensively on the services
of management and technical staff from its parent company, BTI. This technical
and management assistance has been provided as part of the consideration for
the issuance of the Company's stock, but there is no specific agreement between
the Company and BTI in this regard. There can be no assurance that BTI will
continue to provide such technical and management assistance, or if provided,
on terms acceptable to the Company, which if not provided could have a material
adverse effect on the Company's operations. To the extent that the services of
key personnel become unavailable, the Company will be required to retain other
qualified persons, for whose services the Company will be in competition with
other employers, many of which have significantly greater resources than the
Company. There can be no assurance that the Company will be able to hire or
retain such other qualified persons. See "Management's Discussion."
LACK OF BUSINESS INTERRUPTION INSURANCE
The Company does not currently maintain business interruption insurance
coverage. The Company is a development stage concern at this time. It relies
on a few key employees to direct and administrate the activities of the
Company. See "Dependence on Key Personnel." The Company outsources most
aspects of its operations, except administration. See "Dependence on
Third-Party Research," "Dependence on Third-Party Manufacturing and Suppliers"
and "Dependence on Third-Party Marketing Efforts." There can be no assurance
that the Company will be able to either obtain cost effective insurances,
diversify its outsourced functions, or maintain a core group of effective
personnel sufficiently adequate to protect the Company's financial condition.
BARRIERS TO TAKEOVER
The Company's Certificate of Incorporation and By-Laws contain certain
provisions which may deter, discourage, or make more difficult the assumption
of control of the Company by another corporation or person through a tender
offer, merger, proxy contest or similar transaction or series of transactions.
These provisions include an unusually large number of authorized shares
(100,000,000) and the prohibition of cumulative voting. The overall effect of
these provisions may be to deter a future tender offer or other takeover
attempt that some stockholders might view to be in their best interest as the
offer might include a premium over the market price of the Company's capital
stock at the time. In addition, these provisions may have the effect of
assisting the Company's current management in retaining its position and place
it in a better position to resist changes which some
11
<PAGE> 14
stockholders may want it to make if dissatisfied with the conduct of the
Company's business. See "Description of Securities -- Nevada Law and Corporate
Provisions Affecting Shareholders."
LIMITATIONS ON LIABILITY OF DIRECTORS AND OFFICERS
Section 78.751 of the Nevada General Corporation Law ("NGCL") allows the
Company to indemnify any person who is or was made a party to, or is or was
threatened to be made a party to, any pending, completed, or threatened action,
suit or proceeding by reason of the fact that he or she is or was a director,
officer, employee or agent of the Company or is or was serving at the request
of the Company as a director, officer, employee or agent of any corporation,
partnership, joint venture, trust or other enterprise. The NGCL permits the
Company to advance expenses to an indemnified party in connection with
defending any such proceeding, upon receipt of an undertaking by the
indemnified party to repay those amounts if it is later determined that the
party is not entitled to indemnification.
The foregoing provision may reduce the likelihood of derivative litigation
against directors and officers and discourage or deter shareholders from suing
directors or officers for breaches of their duties to the Company, even though
such an action, if successful, might otherwise benefit the Company and its
shareholders. In addition, to the extent that the Company expends funds to
indemnify directors and officers, funds will be unavailable for operational
purposes. See "Description of Securities -- Nevada Law and Corporate
Provisions Affecting Shareholders."
VOLATILITY OF THE COMPANY'S COMMON STOCK PRICES
The market price of the Company's Commons Stock has experienced
significant volatility, with per share bids ranging from a low of $.25 to a
high of $16.63 over the period from the second quarter of 1995 to December 31,
1996. Various factors and events, including announcements by the Company or
its competitors concerning patents, proprietary rights, technological
innovations or new commercial products, as well as public concern about the
safety of medical products and practice in general, may have a significant
impact on the Company's business and the price of the Company's Common Stock.
EFFECT OF DEBENTURE CONVERSION
Upon conversion of the Debentures there will be not less than 13,702,042
shares of Common Stock outstanding, consisting of 11,403,129 shares currently
outstanding and a minimum of 2,298,1850 shares (and potentially substantially
more depending upon the Market Price at the time of conversion) issuable upon
conversion by the Debentures available for offer by the Selling Shareholders,
which shares will be tradable without restriction or further registration under
the Securities Act of 1933, as amended (the "Securities Act"), as long as the
prospectus covering such sales remains current and effective. No prediction
can be made as to the effect, if any, that future sales of shares of Common
Stock whether offered by the Selling Securityholder or others will have on the
market price of the shares of Common Stock prevailing from time to time. Sales
of substantial amounts of Common Stock, or the perception that these sales
could occur, could adversely affect prevailing market prices for the Common
Stock and could impair the ability of the Company to raise additional capital
through the sale of its equity securities or through debt financing. See
"Market for Common Equity and Related Stockholder Matters."
ILLIQUID MARKET RISKS RELATING TO LOW-PRICED STOCKS
The Common Stock of the Company is currently traded on the system of the
National Association of Securities Dealers, Inc., known as the OTC Electronic
Bulletin Board under the symbol "HVSF." This market generally is not as liquid
as the market for NASDAQ equity securities or exchange-listed securities, and
discounts and transactional costs may be greater than in the more liquid
markets. In addition, the trading price of the Common Stock has fallen below
$5.00 per share at various times during the past years and may do so in the
future, at which price trading in the Common Stock is subject to the
requirements of certain rules promulgated under the
12
<PAGE> 15
Exchange Act, which require additional disclosure by broker-dealers in
connection with any trades involving a stock defined as a penny stock
(generally, any non-NASDAQ equity security that has a market price of less than
$5.00 per share, subject to certain exceptions). Such rules require the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors. The
additional burdens imposed upon broker-dealers by such requirements could, in
the event the Common Stock were deemed to be a penny stock, discourage
broker-dealers from effecting transactions in the stock, which could severely
limit the market liquidity of the Common Stock and the ability of purchasers in
this offering to sell the stock in the secondary market.
TRANSACTIONS WITH CONTROLLING PERSONS; POTENTIAL CONFLICTS OF INTEREST
In consideration of the assignment of the intellectual property rights to
patent, develop, manufacture and market the PaGE1, the Company issued 2,856,000
shares of common stock to its parent company, BTI. The Company also issued a
further 6,138,500 shares of common stock with BTI for BTI's assistance in
raising working capital, prosecuting the patent application, management
assistance, and for assignment of rights under four distribution agreements for
the PaGE1 product. BTI owned 63% of the Company's outstanding shares as of
December 31, 1996. 11,000,000 of BTI's shares, or 44% are owned by Jackie R.
See, M.D., who is also the Company's founder, Head of Research and Development
and a Director. Dr. See also has potential voting rights on another 2,000,000
BTI shares.
During 1994, the Company paid $$150,000 to related parties for work
performed in completing a merger with Grant City Corporation ("GCC"), which was
effected in 1993. Of this amount, $100,000 was paid to BTI and the remaining
$50,000 was paid to individuals affiliated with BTI. The Company has entered
into a royalty agreement with Dr. See, whereby it will pay Dr. See two percent
(2%) of gross proceeds. During 1997, the Company transferred 1,250,000 shares
to related parties as compensation for services previously rendered, including
350,000 shares to Dr. See.
The foregoing arrangements and relationships may give rise to conflicts of
interest with respect to future interpretation of the agreements between the
Company, BTI and Dr. See. There can be no assurance that future transactions
or arrangements between the Company and any affiliates will be advantageous to
the Company, although the Company intends to enter into transactions with BTI
or Dr. See only if they are at least as favorable to the Company as could be
could be obtained from independent third parties. See "Dependence on Key
Personnel," "Dependence on Third-Party Researchers," "Business - Research and
Development," "Management's Discussion" and "Certain Transactions."
PENDING LITIGATION
The Company is a party to several legal proceedings during the past twelve
months which could have a materially adverse effect upon the Company's
financial condition or operation. See "Business - Legal Proceedings."
13
<PAGE> 16
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company's authorized stock consists of 100,000,000 shares of Common
Stock, $.001 par value. As of the date hereof, there were 11,403,129 shares of
Common Stock outstanding, which were held of record by 180 stockholders. The
Company's shares are listed on the NASD OTC Electronic Bulletin Board under
the symbol "HVSF".
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Holders of
Common Stock are not entitled to cumulative voting rights. Holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities. Holders of Common Stock have no preemptive rights and no right to
convert their Common Stock into any other securities. There are no redemption
or sinking fund provisions applicable to the Common Stock. All the outstanding
shares of Common Stock are validly issued, fully paid and nonassessable.
The Company has not paid any dividends on its Common Stock since its
inception and does not contemplate or anticipate paying any dividends on its
Common Stock in the foreseeable future. Earnings, if any, will be used to
finance the development and expansion of the Company's business.
6% CONVERTIBLE DEBENTURES
The Company's 6% Convertible Debentures ("Debentures") bear an interest
rate of six percent (6%) per annum and mature on March 30, 1998 as to the
$5,000,000 principal amount of Debentures currently outstanding and as of the
end of the first anniversary month of the issuance of the two additional
$5,000,000 trenches of Debentures that the Selling Shareholder has agreed to
purchase. See "Use of Proceeds from Sale of Debentures." The Debentures are
issuable in denominations of $100,000 and integral multiples thereof and, at
the holder's request, are exchangeable for an equal aggregate principal amount
of debentures of different authorized denominations. Upon maturity of the
Debentures, payment for principal and accrued interest will be made either in
currency or in shares of the Company's Common Stock, at the option of the
holder.
The holder may convert the Debentures into Common Stock commencing on the
effective date of this Registration Statement. The conversion price per share
will be either (a) $6.525, the Market Price as defined in the Debentures as of
March 21, 1997, or (b) 80% of the Market Price on the date of conversion,
whichever is lower. "Market Price," as used herein, means the average closing
bid price of the Common Stock on the five (5) trading days immediately
preceding March 21, 1997 or Conversion Date as may be applicable, as reported
by the National Association of Securities Dealers, or the closing bid price on
the over-the-counter market on such date or, in the event the Common Stock is
listed on a stock exchange or traded on NASDAQ, the Market Price means the
closing price on the exchange on such date, as reported in the Wall Street
Journal. The Company has the option to pay the interest accrued from the date
of issuance to the date of conversion either in cash or in shares of Common
Stock.
The Company may redeem any Debentures for which a Notice of Conversion has
not been submitted if the conversion price equals or is less than $1.60 per
share by delivering a Notice of Redemption to the holder. However, the holder
may still opt to convert any such Debentures into shares of Common Stock by
submitting a Notice of Conversion to the Company within three business days of
the holder's receipt of the Company's Notice of Redemption.
The redemption price will be 125% of the principal amount of the
Debentures, plus accrued unpaid interest. The Company must pay the redemption
price to the holder within ten days from the date of the Notice of Redemption.
If the Company fails to make the redemption payment within these ten days, the
Company forfeits its right to redeem those Debentures.
14
<PAGE> 17
A holder may also require the Company to declare whether it intends to
effect a redemption within the following ten days by faxing a notice to the
Company. The Company must respond to this notice within 24 hours. If it fails
to do so, the Company may not redeem that holder's Debentures during the ten
day period commencing 24 hours after the date of the notice from the holder.
If the Company merges or consolidates with another corporation or sells or
transfers all or substantially all of its assets to another person and, as a
condition of such merger, consolidation or sale, the holders of the Company's
Common Stock are entitled to receive stock or securities in another corporation
or to receive property in exchange for the Company's Common Stock, then the
Debenture may be converted into the kind and amount of stock, securities or
property receivable by the holders of the Company's Common Stock pursuant to
the transaction. If, within 15 days of the holder's receipt of a notice from
the Company advising of a proposed merger, consolidation or sale, the holder
has not submitted a Notice of Conversion, then the Company may prepay all
outstanding principal and accrued interest and thereby terminate the holder's
conversion rights.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The capital stock of the Company began trading on the system of the
National Association of Securities Dealers, Inc. (NASD) known as the OTC
Electronic Bulletin Board under the symbol "HVSF" in June 1995 and continues to
be traded thereon as of the effective date of this Prospectus and Registration
Statement.
The following table sets forth the range of high and low bid quotations
for the Company's capital stock for each quarterly period indicated, as
reported by brokers and dealers making a market in the capital stock. Such
quotations reflect inter-dealer prices without retail markup, markdown or
commission, and may not necessarily represent actual transactions:
<TABLE>
<CAPTION>
CAPITAL STOCK
-------------------------------------
QUARTER ENDED HIGH BID LOW BID
------------------ -------- -------
<S> <C> <C>
March 31, 1997
December 31, 1996 $ 2.62 $0.87
September 30, 1996 $ 3.31 $1.50
June 30, 1996 $ 7.25 $2.19
March 31, 1996 $16.63 $5.25
December 31, 1995 $14.50 $2.75
September 30, 1995 $ 3.63 $1.69
June 30, 1995* $ 1.88 $0.25
</TABLE>
--------------------
* From the initial time of trading in June 1995.
REGISTRATION RIGHTS
In connection with the Company's private placement of $5,000,000 principal
amount of 6% Convertible Debentures on March 21, 1997, the Company was required
to prepare and file, within 30 days of such date, a registration statement
under the Securities Act for 300% of the number of shares of Common Stock
issuable upon the exercise of the Conversion rights calculated as of the time
of filing the registration statement and assuming the entire $15,000,000
principal amount of Debentures had been issued. Timely filing of the
registration statement has been made. The Company is obligated to use its best
efforts to cause the registration statement to become effective by June 19,
1997 and to keep the registration statement effective for two years or until
the Selling Securityholder
15
<PAGE> 18
may sell all registerable securities under Rule 144 or until the Selling
Securityholder no longer owns any registerable securities, whichever occurs
first. The Company is further obligated to register and qualify the securities
under such state securities laws as the Investors may request subject to
specified limitations. The Company will bear the reasonable expenses of the
registration and qualification of the shares under the Securities Act and State
Securities laws other than any underwriting discounts and commissions and legal
fees in excess of $3,500.
If the Registration Statement is not effective by June 19,1997, then the
Company will make payments to the Selling Securityholder in such amounts and at
such times as determined pursuant to Section 2(c) of the Registration Rights
Agreement, which states that the amount to be paid by the Company to the
Selling Securityholder shall be determined as of each Computation Date, and
such amount shall be equal to two percent (2%) of the purchase price paid by
the Selling Securityholder for the Debenture for the period from the Initial
Date to the first Computation Date, and three percent (3%) of the purchase
price for each Computation Date thereafter, to the date the Registration
Statement is declared effective by the SEC, except to the extent any delay in
the effectiveness of the Registration Statement occurs because of an act of, or
a failure to act or to act timely, by the Selling Securityholder or its
counsel. "Computation Date" means the date which is the earlier of (a) 35 days
after the Company is notified by the SEC that the Registration Statement may be
declared effective or (b) July 19, 1997, and, if the Registration Statement has
not theretofore been declared effective by the SEC, each date which is thirty
(30) days after the previous Computation Date until such Registration Statement
is so declared effective.
POSSIBLE EFFECT OF FUTURE SALES OF COMMON STOCK
Upon consummation of this offering, the Company will have 15,424,577
Shares of Common Stock outstanding, assuming the sale of $15,000,000 principal
amount of Debentures, and further assuming the conversion of all the
Debentures, at a Market Price (as defined in the Debentures) of the Common
Stock of $4.6625, the Market Price on April 14, 1997, of which the Common Stock
offered hereby will be freely tradable without restriction or further
registration under the Securities Act. Most of the remaining Shares
outstanding are held by Affiliates (as defined below) of the Company and may
only be sold pursuant to an effective registration under the Securities Act, in
compliance with the exemption provisions of Rule 144 promulgated under the
Securities Act or pursuant to another exemption under the Securities Act, such
as Regulation S. "Affiliates" of the Company include all executive officers and
directors of the Company and all other persons that directly, or indirectly
through one or more intermediaries, control, or are controlled by, or are under
common control with, the Company.
In general, under Rule 144, subject to the satisfaction of certain other
conditions, a person, including an Affiliate of the Company (or persons whose
shares are aggregated with an Affiliate) who has owned restricted shares of
Common Stock beneficially for at least two years is entitled to sell, within
any three-month period, a number of shares that does not exceed the greater of
1% of the then outstanding shares of the issuer's Common Stock or the average
weekly trading volume during the four calendar weeks preceding such sale,
provided that certain public information about the issuer as required by Rule
144 is then available and the seller complies with certain other requirements.
Affiliates must sell such shares in compliance with Rule 144 regardless of the
holding period requirement. A person who is not an Affiliate, has not been an
Affiliate within three months prior to sale, and has beneficially owned the
restricted shares for at least three years is entitled to sell such shares
under Rule 144 without regard to any of the limitations described above.
No prediction can be made as to the effect, if any, that market sales of
Common Stock, including the Conversion Shares, or the availability of such
shares for sale will have on the market price prevailing from time to time.
Nevertheless, the possibility that substantial amounts of Common Stock may be
sold in the public market may adversely effect prevailing market prices for the
Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities.
NEVADA LAW AND CORPORATE PROVISIONS AFFECTING SHAREHOLDERS
The Company's Certificate of Incorporation and By-laws contain certain
provisions which may deter, discourage, or make more difficult the assumption
of control of the Company by another corporation or person
16
<PAGE> 19
through a tender offer, merger, proxy contest or similar transaction or series
of transactions. These provisions include an unusually large number of
authorized shares (100,000,000) and the prohibition of cumulative voting. The
overall effect of these provisions may be to deter a future tender offer or
other takeover attempt that some stockholders might view to be in their best
interest as the offer might include a premium over the market price of the
Company's capital stock at the time. In addition, these provisions may have
the effect of assisting the Company's current management in retaining its
position and place it in a better position to resist changes which some
stockholders may want it to make if dissatisfied with the conduct of the
Company's business. See "Risk Factors - Anti-Takeover Provisions."
Furthermore, Section 78.751 of the Nevada General Corporation Law ("NGCL")
allows the Company to indemnify any person who is or was made a party to, or is
or was threatened to be made a party to, any pending, completed, or threatened
action, suit or proceeding by reason of the fact that he or she is or was a
director, officer, employee or agent of the Company or is or was serving at the
request of the Company as a director, officer, employee or agent of any
corporation, partnership, joint venture, trust or other enterprise. The NGCL
permits the Company to advance expenses to an indemnified party in connection
with defending any such proceeding, upon receipt of an undertaking by the
indemnified party to repay those amounts if it is later determined that the
party is not entitled to indemnification.
The foregoing provisions may reduce the likelihood of derivative
litigation against directors and officers and discourage or deter shareholders
from suing directors or officers for breaches of their duties to the Company,
even though such an action, if successful, might otherwise benefit the Company
and its shareholders. In addition, to the extent that the Company expends
funds to indemnify directors and officers, funds will be unavailable for
operational purposes. See "Risk Factors - Indemnification of Officers and
Directors."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Nevada Agency and
Trust Company, Reno, Nevada.
USE OF PROCEEDS FROM SALE OF DEBENTURES
None of the proceeds from the sale of the Common Stock registered
hereunder will accrue to the Company.
Through private placement, the Company has obtained $5,000,000 of
financing in the form of 6% Convertible Debentures. The holder of these
Debentures, who is also the Selling Securityholder, has agreed to purchase an
additional $10,000,000 aggregate principal amount of Debentures in two tranches
of $5,000,000 each commencing not less than 60 days after the effective date of
the Registration Statement of which this Prospectus is a part, subject to (i)
the effectiveness of the Registration Statement of which this Prospectus is a
part, (ii) the continuing material accuracy of specified representations and
warranties of the Company to the Selling Securityholder and (iii) the Market
Price of the Common Stock for the five trading days prior to the purchase of
the tranches exceeds $3.50.
The Company intends to apply the net proceeds of the Debentures to
conclude the process/manufacturing validation, to fulfill FDA requirements for
the submission of a New Drug Application and to fulfill the requirements for
foreign regulatory approval of PaGE(1), estimated to be $10,000,000 to
$12,000,000.
The Company believes that its existing available resources, the net
proceeds of the Debentures, anticipated up-front and milestone payments from
strategic distribution partners, and revenues from sales of clinical materials
under the IND and for use in overseas clinical trials should be sufficient to
fund its operating expenses until it reaches positive cash flow, although there
can be no assurance thereof. The amount and timing of expenditures will depend
upon the progress of the clinical trials, the terms of any collaborative
arrangements entered into by the Company for licensing and distribution, the
timing of receipt of regulatory approvals, if any, and other factors,
17
<PAGE> 20
many of which are beyond the Company's control. The Company reserves the right
to allocate the net proceeds among the foregoing uses. See "Business -
Strategic Alliances, Collaborations and Licenses."
Pending such uses, the net proceeds will be invested in short-term,
interest bearing securities.
CAPITALIZATION
The following table sets forth, as of December 31, 1997, the actual
capitalization of the Company, as adjusted to reflect the sale of $15,000,000
principal amount of Debentures and as further adjusted to reflect the
conversion of all the Debentures, assuming that the Market Price (as defined in
the Debentures) of the Common Stock on the date of conversion of the Debentures
was $4.6625, the Market Price on April 14, 1997 and excluding current
liabilities of $535,223. The table should be read in conjunction with the
Audited Financial Statements and notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------
Pro Forma,
Pro Forma, Assuming
Assuming Sale Conversion of
Actual of Debentures Debentures
----------- ------------- -------------
<S> <C> <C> <C>
6% Convertible Debentures $15,000,000
Stockholders' Equity:
Common stock, $.001 par value, 100,000,000
authorized; 9,883,129 outstanding actual and
pro forma assuming sale of Debentures;
15,424,577 outstanding pro forma assuming
conversion of debentures at the Market Price on
April 14, 1997 $ 9,883 9,883 $ 13,904
Additional paid-in capital 2,706,207 2,706,207 17,702,186
Deficit accumulated during the development stage (3,165,786) (3,165,786) (3,165,786)
Total Stockholders' Equity $ (449,696) $ (449,696) $14,550,304
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 85,527 $14,550,304 $14,550,304
</TABLE>
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
As of the date of this Prospectus, the Selling Securityholder owned
$5,000,000 principal amount of 6% Convertible Debentures, had committed to
purchase an additional $10,000,000 of Debentures, and held no shares of Common
Stock. Upon conversion of the Debentures, the Selling Securityholder will
acquire shares on the basis set forth in the following paragraph, provided
however, that the Selling Securityholder can never own more than 4.9% of the
outstanding shares. (See note(1), in Common Stock Ownership of Certain
Beneficial Owners and Management.)
The Company has agreed to register the public offering of the Selling
Securityholder's shares of Common Stock under the Securities Act and to pay all
expenses in connection therewith other than brokerage commissions
18
<PAGE> 21
and discounts in connection with the sale of the Conversion Shares and the
expenses of counsel for the Selling Securityholder in excess of $3,500. The
aggregate number of Conversion Shares that may be offered and sold pursuant to
this Prospectus by the Selling Securityholder will be determined by how many
shares are issued upon conversion of the Debentures, which will be determined
by the conversion price applicable to the Conversion Shares. See "Description
of Securities." The conversion price for a Conversion Share will be the lesser
of the Market Price (as defined in the Debentures) on March 21, 1997, which was
$6.525, and 80% of the Market Price on the Conversion Date of the Debenture
with respect to such share. Assuming that the Market Price on the date of
Conversion is $4.6625 (which is the Market Price calculated as of April 14,
1997) with respect to all the Debentures, and that all the Debentures are
converted, the aggregate number of Conversion Shares issued would be 4,021,448,
and if all the Conversion Shares are issued, the Selling Shareholder would have
no beneficial interest in the Common Stock of the Company, assuming that the
Selling Shareholder did not acquire a beneficial interest in the Common Stock
of the Company otherwise than through the conversion of the Debentures.
The Selling Securityholder's Shares may be offered and sold from time to
time as market conditions permit in the over-the-counter market, or otherwise,
at prices and terms then prevailing or at prices related to the then-current
market price, or in negotiated transactions. The Selling Securityholder's
Shares may be sold by one or more of the following methods, without limitation:
(i) a block trade in which a broker or dealer so engaged will attempt to sell
the share a s agent but may position and resell a portion of the block as
principal to facilitate the transaction; (ii) purchases by a broker or dealer
as principal and resale by such broker or dealer for its accounts pursuant to
this Prospectus; (iii) ordinary brokerage transactions and transactions in
which the broker solicits purchases; and (iv) transactions between sellers and
purchasers without a broker or dealer. In effecting sales, brokers or dealers
engaged by the Selling Securityholder may arrange for other brokers or dealers
to participate. Such brokers or dealers may receive commissions or discounts
from Selling Securityholder in amounts to be negotiated. Such brokers and
dealers and any other participating brokers and dealers may be deemed to be
"underwriters" within the meaning of the Securities Act, in connection with
such sales.
DESCRIPTION OF BUSINESS
The Company was incorporated under the laws of the State of Nevada on
January 13, 1987 with the name of Witch Doctor Bones, Inc. On August 12, 1987,
the Company qualified a public offering under Rule 504 of Regulation D of the
Securities Act of 1933, as amended, with the Secretary of State of Nevada. On
June 17, 1988, the Company changed its name to Careyward, Inc. and authorized a
forward split of ten (10) shares for one (1).
On October 18, 1993, the Company acquired Grant City Corporation by a
merger. As a result thereof, 50,000 shares were issued which carried two
classes of warrants. Class A warrants entitled the holder to purchase stock at
$8.00 per share and the Class B warrants entitled the holder to purchase stock
for $10.00 per share. The warrants could only be exercised if a registration
statement was in effect filed with the United States Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended. No such filing
has been made by the Company. Both classes of warrants have been redeemed by
the Company at $0.001 per warrant with twenty (20) days written notice. Thus,
the warrants have been canceled.
On January 6, 1994, the Company entered into an Asset Purchase Agreement
with Bio-Sphere Technologies, Inc. ("BTI") whereby the Company acquired
intellectual property rights relating to prostaglandin microsphere delivery in
exchange for 2,856,000 shares of the Company's Common Stock. As a result of
this transaction, the Company became a subsidiary of BTI.
On January 18, 1994, the name of the Company was changed to The Male Edge,
Inc. On May 10, 1994, the name of the Company was changed to Harvard
Scientific Corp.
The Company is a development stage bio-pharmaceutical company engaged in
the development of a product for the treatment of male erectile dysfunction.
On February 13, 1996, the Company received an assignment of an application for
a patent identified as Application Serial No. 08/573408, filed December 15,
1995, for an invention "PGE-1 Containing Lyophilized Liposomes For Use In The
Treatment of Erectile Dysfunction." The
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<PAGE> 22
assignment was made by the holder of the application, BTI, which owns a
majority of the Company's issued and outstanding stock. The assignment states
that BTI sold, assigned, transferred and set over to the Company "the entire
right, title and interest" in the application for the PGE-1 invention. The
Company understands this to mean that the assignment in question is exclusive.
The Company also filed an application for a European Patent in December 1996.
The Company's principal product, PaGE(1), is a lyophilized liposomal
formulation of Prostaglandin E-1 ("PGE-1") in which the PGE-1 is encapsulated
in liposomes and then lyophilized (freeze dried). This provides the product
with stability, the shelf life of which is expected to exceed three years at
room temperature. The lyophilized material is reconstituted through the use of
a non-irritating dilute detergent, which lyses the liposomes, releasing the
PGE-1 into solution. This solution is then applied via the urethral meatus
(the opening at the end of the urethral tract at the tip of the penis).
PGE-1 is an oxygenated, unsaturated cyclic fatty acid which occurs
naturally in all cells of the body. It has already been approved by the FDA
for therapeutic use as an intravenous infusion in newborn babies with
congenital heart defects. PGE-1 has also been approved by the FDA for the
treatment of male erectile dysfunction, as an injection and as an
intra-urethrally administered pellet. However, the use of the specially
formulated detergent to lyze the liposomes and the lyophilizing of the
liposome-encapsulated PGE-1 require full registration of PaGE(1) with the FDA as
a new drug. Accordingly, the Company filed an IND application with the FDA in
May 1996. PaGE(1) has undergone a Phase I clinical study, the results of which
indicated the possible benefits of such therapy and provided the Company with
sufficient information for the recommendation of two doses of the product to be
developed for marketing, as well as an indication of the safety of the product.
The study's results will be presented at the annual American Urology
Association meeting in New Orleans in April 1997.
The Company continues to qualify products in development within BTI to
determine safety, effectiveness, market potential, and time and cost to
commercialization. In addition, the Company is looking into existing
pharmocological agents of other pharmaceutical companies which could be made
more effective by utilizing the Company's delivery system technology. As of
this date, the Company is concentrating its personnel and financing resources
exclusively on its erectile dysfunction treatment and has no immediate plans to
add additional products to the Company's commercialization and marketing
efforts.
THE MARKET
Male erectile dysfunction ("ED") occurs when there is a persistent
inability to achieve an erection sufficient to permit sexual intercourse. It
is not a loss of desire or the ability to experience orgasm. In about 60% of
cases a medical condition such as diabetes, vascular disease, high blood
pressure or a neurological disorder is found to be interfering with the
erection process. An estimated additional 25% of cases occur due to
medications such as anti-hypertensive medications. Smoking and excessive
drinking of alcohol may also contribute to the condition. The remaining 15% of
cases may have some form of psychological difficulty, including anxiety and
stress. Often there is a combination of factors at work.
PGE-1 is absorbed across the urethral mucosa into the corpus spongiosum.
Some of the dose enters the corpora cavernosum, while some of the dose goes
into pelvic veinous circulation. The half life varies from 30 seconds to 10
minutes, although intra-urethrally administered product is barely discernable
in circulation. Alprostadil causes the smooth muscle relaxation in the penile
corpora and vasodilation of the arteries. This results in rapid filling of the
corpora with blood which causes the compression of corporal sinusoids against
the tunica albuginea, impeding venous outflow. The result is the development
of an erection.
According to the Consensus Report of the American Medical Association, ten
to twenty percent of men in the United States suffer from erectile dysfunction.
The market for treatments for ED, such as PaGE(1), is expected to grow over the
next few years as more men become comfortable with the fact that ED is
treatable. The aging of the male population as the so-called "Baby Boomers"
enter middle age is also expected to expand the market, since incidence of ED
is likely to increase with a man's age.
20
<PAGE> 23
COMPETITION
The market for treatment of ED is emerging and evolving and is
characterized by an increasing number of entrants. The company faces
competition from a number of existing and potential competitors.
Pharmacia/Upjohn, Schwartz Pharma and Senetek each produce PGE-1 in injectable
formulation. Upjohn's product has received regulatory approval worldwide,
Schwartz Pharma's product is approved for use in Europe, and Senetek's product
has received FDA approval for sale in the United States.
The product most similar to the Company's product is produced by Vivus.
It consists of a pellet containing PGE-1 which is released into the urethra via
the specialized MUSE(R) device designed specifically for this purpose. This
product has the potential for side effects, including dizziness, drop in blood
pressure and pain at application
There are tablet formulations of erectile dysfunction products
(phentolamine and sildanafil) currently in Phase III of clinical testing. The
tablet formulations have potential benefits for patients who suffer from mild
dysfunction problems. However, they could present various undesirable side
effects which must be overcome. Pfizer and Zonagen are the two known
competitors developing tablet formulations.
Another competitor, Macrochem is currently undertaking Phase I clinical
trials of a topical solution containing PGE-1.
Other forms of competition are penile implants and vacuum pumps. However,
the Company anticipates that the market for these devices will decline with the
increasing awareness of various drug formulations which provide a more natural
erection.
Although the Company is not aware of any additional technologies or
products which are functionally similar to those of the Company currently under
development, there can be no assurance that such technologies or products will
not be developed or that other companies with the expertise or resources that
would encourage them to attempt to develop or market competing products will
not develop new products directly competitive with PaGE(1). Some of the
Company's competitors and potential competitors have well-established
reputations for success in the development, sale and service of
biopharmaceuticals and have substantially greater financial, technical,
personnel and other resources than the Company, enabling them to undertake
clinical testing of products, obtain regulatory approvals and manufacture and
market pharmaceutical products in response to competitors seeking to market new
products and enter into new markets. In addition, there can be no assurance
that the Company can complete clinical testing of PaGE(1), obtain regulatory
approvals and commence commercial-scale manufacturing in a timely manner to be
effectively competitive.
PRODUCTION AND MANUFACTURING
The Company's product will be manufactured by two third party
manufacturers located in Southern California. The manufacturers will produce
the Company's product per the Company's directions and specifications and
deliver the product to the Company. The Company sees no reason to acquire the
equipment necessary for production at this time and anticipates utilizing its
existing current arrangement with outside laboratories for the manufacturing of
its products for distribution.
The Company anticipates that the ingredient from which PaGE(1), will be
manufactured will be supplied by Sigma Chemical Company, Austin Chemical Co.,
Inc., Spectrum Chemical Company, Interchem Corporation and West Company.
The Company is not aware of any environmental issues related to the use of
disposal of its product. The chemistry involved produces no damaging effects
on human, animal or plant life if exposed to the general population's air,
water or soil supply. The Company's previous manufacturer Collaboration
Laboratories did not disclose or relate any information indicating that the
manufacturing process would produce any environmentally harmful by-products.
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<PAGE> 24
MARKETING
The commercial success of PaGE(1) will require acceptance by urologists,
family practitioners with a significant elderly male clientele, medical doctors
practicing as sex therapists and the medical community as a whole. Such
acceptance will depend in large part on the results of clinical trials and the
conclusion by these physicians that PaGE(1) is a safe, cost-effective and
acceptable method of treatment. Accordingly, achieving market acceptance for
PaGE1 will require substantial marketing efforts and expenditure of significant
funds to educate doctors, pharmacists, and the public about what the Company
believes are the advantages and benefits of PaGE(1). To that end, the Company
is currently negotiating distribution agreements with major international
pharmaceutical companies delivering the United States, European and South
American market. As is customary in the biopharmaceutical industry, operating
in these market the Company anticipates that these distribution agreements will
provide for the distributor to pay the Company up-front licensing fees and
milestone payments. In addition, the distributor will be responsible for the
costs of registration and/or FDA approval and validations. Despite these
arrangements, the Company expects to expend over $3 million over the first few
years of launch in marketing support activities.
EMPLOYEES
As of December 31, 1996, the Company had two full time employees. These
full time employees are engaged in management and administrative activities.
None of the Company's employees are subject to a collective bargaining
agreement and the Company believes its relations with its employees are good.
From time to time, the Company elicits the services of management and technical
staff from its parent company, Bio-Sphere Technology, Inc. ("BTI"). The
Company reimburses BTI for time contributed directly by its employees in
providing technical and scientific services and assistance to the Company.
GOVERNMENT REGULATION
The Company is subject to various FDA regulations which govern or
influence the research, testing, manufacture, safety, labeling, storage,
recordkeeping and advertising and promotion of pharmaceutical products,
biologics, and Class II devices. The Company believes it is in substantial
compliance with all material federal and state laws and regulations. There can
be no assurance, however, that the Company will be able, for financial and
other reasons, to comply with applicable laws, rules and regulations. Failure
or delay by the Company to comply with FDA regulations or other applicable
regulatory requirements could subject the Company to civil remedies, including
fines, suspensions, delays of approvals, injunctions, recalls or seizures of
products, operating restrictions, as well as potential criminal sanctions,
which could have a material adverse effect on the Company.
The Company's research, development, clinical trials, manufacturing and
marketing of PaGE1 are subject to extensive, rigorous and frequently changing
regulatory review process by the FDA and other regulatory agencies in the U.S.
and various foreign countries. The process of obtaining and maintaining
required regulatory approvals is lengthy, expensive and uncertain. FDA
procedures for approval of pharmaceuticals and biologics involve clinical
testing which occurs in three phases to demonstrate the safety and efficacy of
the product. Phase I clinical trials consist of testing for the safety and
tolerance of the product with a small group of subjects and may also yield
preliminary information about the effectiveness and dosage levels of the
product. Phase II clinical trials involve testing for efficacy, determination
of optimal dosage, and identification of possible side effects in a larger
patient group. Phase III clinical trials consist of additional testing for
efficacy and safety with an expanded patient group. Upon successful completion
of Phase III testing, a New Drug Application ("NDA") can be filed. Approval
requires a review of detailed data resulting from the clinical studies, the
composition of the drug, the labeling that will be used, information on
manufacturing methods, and samples of the products. After the FDA completes
its review of the application, the product is typically reviewed by a panel of
medical experts, and the applicant is required to answer questions regarding
its safety and efficacy. At the recommendation of the panel, an NDA may be
granted and the product may then be marketed. After the product has been
approved for marketing, Phase IV post-marketing surveillance studies may be
required to provide additional data to the FDA for longer term follow-up
concerns.
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The Company submitted an Investigative New Drug ("IND") application to the
FDA in May 1996 and has concluded its Phase I trial. The results of the Phase I
trial are being assembled for presentation to the FDA in April 1997 as part its
pre-Phase II clinical trial meeting. The manufacturing procedure is being
scaled up, with assay verification and validation in progress. The Company
anticipates that an NDA will be filed with the FDA in late 1998, assuming
adequate data is generated upon conclusion of the clinical trial program. It
is estimated that the costs of competing the above procedures for approval by
the FDA will cost $10,000,000 to $12,000,000. The FDA review process could
last as long as two years and perhaps be even further extended in the event
that the FDA requires additional data.
The Company expects that certain of its potential products also may be
regulated by the FDA as Class II devices upon completion of clinical testing.
This application must contain data demonstrating the safety of the product for
human use, information on manufacturing processes and procedures. A 510(k)
will be filed with the FDA at the time of the NDA submission. Class II devices
also cover urological catheters.
There can be no assurance that FDA or other regulatory clearance will not
take longer than currently anticipated because of delays, problems or
unforeseen safety difficulties. Failure to obtain FDA approval would prevent
the Company from marketing PaGE1 in the U.S. which would have a material
adverse effect on the Company's business, financial condition and results of
operations. Even if regulatory approval is obtained, a marketed pharmaceutical
product and its manufacturer are subject to continuing regulatory review, and
discovery of previously unknown problems or amendments to existing statutes or
regulations or the adoption of new statutes or regulations could result in
restrictions on such product or manufacturer, including withdrawal of the
product from the market. In addition, the FDA requires submission of a
pre-market approval ("PMA") notification for any change or modification to a
previously marketed product that significantly affects safety or effectiveness.
The distribution of the Company's products outside the United States will
also be subject to extensive government regulation. These regulations,
including the requirements for approvals or clearance to market, and the time
required for regulatory review and the sanctions imposed for violations, vary
from country to country. There can be no assurance that the Company will
obtain regulatory approvals in such countries or that it will not be required
to incur significant costs in obtaining or maintaining its foreign regulatory
approvals. Failure to obtain necessary regulatory approvals, the restriction,
suspension or revocation of existing approvals or any other failure to comply
with regulatory requirements would prevent the Company from marketing PaGE1 in
such foreign country or countries, which would have a material adverse effect
on the Company's business, financial condition and results of operations.
The manufacturing processes of the Company's product will be subject to
certain regulatory guidelines. These guidelines are laid down by the FDA. All
pharmaceutical manufacturers must conform to these guidelines. The FDA
inspects these facilities on a regular basis and any deficiencies are notes.
The facility must correct those deficiencies within a finite period of time.
Any new pharmaceutical facility must go through a strict inspection by the
FDA, in a full audit, and then adhere to the guidelines. Any facility not
adhering to these guidelines is subject to FDA regulatory action.
See "Business - Research and Development."
COLLABORATIVE ARRANGEMENTS
The Company operates as a "virtual company" and relies on subcontracting
and collaborative arrangements for its research and development, manufacturing,
clinical trial and marketing operations. Since January 1994, when BTI acquired
the majority of the Company's Common Stock, the Company has relied extensively
on management, technical and financial services provided by BTI.
The Company has paid BTI for the PaGE1 patent application, as well as
licensing and distribution agreements and utilization of its scientific and
technical personnel, with Company stock. The Company initially issued 714,000
shares (as currently restated) to BTI in January 1994 for the intellectual
rights to the product with the stipulation that the company pay for and effect
a patent application. The Company was not able to fund the patent process. In
order to protect its primary assets, a reorganization agreement between BTI and
the Company was
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structured in 1995 and culminated in November whereby BTI received 6,138,500
additional shares of the Company for funding the patent application and other
benefits to the Company mentioned above.
The Company reimburses BTI for the time contributed by its employees. The
Company paid Bio-Sphere Technology, Inc. $40,501 in overhead expenses incurred
in 1994, $67,979 in 1995 and $80,000 in 1996.
Furthermore, the Company intends to continue to seek and enter into
collaborative arrangements with pharmaceutical distribution concerns to
eventually distribute PaGE1.
LEGAL PROCEEDINGS
1. Harvard Scientific Corp. v. Nevada Agency and Trust Company and Thomas
E. Waite & Associates, Case No. CV96-0495, Second Judicial District Court of
Nevada, County of Washoe, filed August 2, 1996. This action involved a dispute
over performance of an agreement between the Company and a consultant, Thomas
E. Waite & Associates ("Waite"), who had been issued 350,000 shares of Common
Stock in exchange for services to be performed by Waite. Those services
involved obtaining the financing for the Company. In this action, the Company
claimed that Waite had not performed those services and had breached its
agreement with the company. Nevada Agency and Trust Company, the Company's
transfer agent, was included as a defendant in order to enjoin the transfer of
the 350,000 shares which had been issued to Waite. The Company sought to
recover damages for Waite's breach of contract and obtain a declaratory
judgment declaring the agreement between the Company and Waite null and void,
and canceling the shares issued to Waite. The action was settled amicably
between the parties and is no longer pending.
2a. Harvard Scientific Corp. v. Ailouros Ltd., Case No. CV-N-97-00088-HDM,
Second Judicial District Court of the State of Nevada, County of Washoe, filed
February 6, 1997, removed to United States District Court for the District of
Nevada. This action concerns 7% Convertible Debentures the Company executed in
favor of the defendant in June 1996. The Company claimed the defendant had
breached its contract with the Company regarding the terms of resale for the
Debentures and conversion shares issued pursuant thereto and that the defendant
had breached its duty of good faith and fair dealing in connection with the
entering into and performance of the agreement underlying the Debentures. The
Company also alleged that an accord and satisfaction had been reached between
the parties on their dispute, and that such accord and satisfaction should be
enforced by the Court. The Company also sought damages for the breach of the
underlying contract terms.
On or about March 10, 1997, the Company filed an amended complaint which
added a cause of action seeking to have any shares previously issued to
Ailouros, as well as any shares which may be issued to Ailouros in the future
pursuant to the Debenture agreement which is the subject of this action, be
issued pursuant to the requirements of Regulation S due to the fact that at the
time the Company entered into its agreement with Ailouros, the Company's Form
10 filing had not yet become effective and therefore the Company was not a
reporting company. This litigation is still pending.
2b. Ailouros Ltd. v. Harvard Scientific Corp., Case No. CV-N-97-00089-ECR,
United States District Court for the District of Nevada, filed February 13,
1997. In this action Ailouros claimed that the Company had breached the
Debenture agreement which is the subject of the action brought by the Company
against Ailouros referred to above. Ailouros claimed it is entitled to 263,225
shares of the Registrant's common stock and/or is entitled to damages in the
amount of $2,000,000. Ailouros sought to have its suit against the Company and
the Company's suit against Ailouros consolidated. The Company does not oppose
such consolidation. This litigation remains pending.
3a. Harvard Scientific Corp. v. D. Weckstein and Co., Inc., and Donald E.
Weckstein, Case No. CV-97-00806, Second Judicial District Court of Nevada,
County of Washoe, filed February 10, 1997. This action involves an agreement
between the Company and a consultant, pursuant to the terms of which the
defendants agreed to help the Company obtain financing in exchange for 25,000
shares of the Company's common stock. In this action, the Company alleges that
defendants breached their agreement to help the Company obtain financing and/or
were negligent in performing their duties in helping the Company obtain
financing. The complaint also alleges that
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<PAGE> 27
the defendants breached the covenant of good faith and fair dealing and
misrepresented their expertise, know-how, contacts and experience in order to
induce the Company to enter into the agreement that is the subject of this
action.
3b. D. Weckstein and Co., Inc. v. Harvard Scientific Corp. and Thomas E.
Waite & Associates, Inc., Index No. 97-103324, Supreme Court of New York,
County of New York, filed February 18, 1997. In this action, Weckstein claims
that the Company breached the same agreement which is the subject of the action
filed by the Company against Weckstein in Nevada. Weckstein also seeks damages
against Thomas E. Waite & Associates, claiming that Thomas E. Waite &
Associates tortiously interfered with the agreement between the Company and
Weckstein. Weckstein also seeks damages for alleged fraud on the part of
Thomas E. Waite & Associates, in connection with its dealings with Weckstein.
Weckstein has also brought a cause of action against the Company for
"abuse of process" in connection with the filing of the Nevada action brought
by the Company against Weckstein. In this claim, Weckstein asserts that the
Nevada Court has no personal jurisdiction over either of the defendants to the
Nevada action, and that the Company brought the action in Nevada simply to
inconvenience Weckstein. This litigation has been settled amicably between the
parties and is no longer pending.
4. Rex Morden v. Harvard Scientific Corp. and Does I through X, Case No.
A371111, District Court of Nevada, County of Clark, filed March 17, 1997. In
this action, the plaintiff, a former officer of the Company, alleges that the
Company failed to pay when demanded the principal amount and accrued interest
of a Promissory Note executed by the Company on March 1, 1995 and due on
demand. The plaintiff seeks damages of $42,275 (the principal amount of the
Note) plus interest accrued at the rate of 8% per annum. The plaintiff also
seeks attorneys fees and costs.
In addition to these lawsuits, the Company is negotiating with its
European marketer, Pharma Maehle, to terminate its licensing and marketing
agreement. The Company also has noted some possible irregularities pertaining
to a Regulation "S" debenture in June 1996 and has taken steps to rectify this
matter.
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SELECTED FINANCIAL DATA
The following selected financial information is derived from the Company's
Audited Financial Statements, unless other wise indicated. The financial
statements for the year ended December 31, 1996 were audited by W. Dale McGhie,
CPA, independent accountant. The financial statements for the years ended
December 31, 1995 and 1994, respectively, were audited by Fair, Anderson &
Langerman, independent accountants. Certain other financial data has been
derived from unaudited financial statements prepared by the Company. The
selected financial data presented below should be read in conjunction with the
Company's Audited Financial Statements, including the notes thereto, contained
in this Prospectus and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Historical results are not necessarily
indicative of the results of operations which may be expected in the future.
<TABLE>
<S> <C> <C> <C> <C>
Statement of Operations Data:
Inception
1/13/87
to 12/31/96
1996 1995 1994 (Unaudited)
------------ ---------- ---------- -----------
Net Sales ........................................ $181,000 $-- $-- $187,387
Cost of Sales .................................... 216,870 -- -- 221,557
------------ -----------
Gross Profit (Loss) ............................ (35,870) -- -- (34,170)
------------ -----------
Operating Expenses:
General and administrative ..................... 1,244,272 434,320 324,699 2,040,870
Research and development (Notes 7 and 9) ....... 109,553 194,965 124,366 428,884
Depreciation and amortization (notes 3 and 7) .. 41,472 39,550 38,872 120,634
------------ ---------- ---------- -----------
Total Operating Expenses .................... 1,395,297 668,835 487,937 2,590,388
------------ ---------- ---------- -----------
(Loss) from operation ....................... (1,431,167) (668,835) (487,937) (2,624,558)
------------ ---------- ---------- -----------
Other Income (Expenses):
Settlements (Note 10) .......................... (494,813) -- -- (494,813)
Interest Income ................................ -- -- -- 397
Interest expense ............................... (12,964) (7,620) (1,727) (22,312)
Loss on disposition of marketable securities ... (24,500)
------------ ---------- ---------- -----------
(507,777) (7,620) (1,727) (541,228)
------------ ---------- ---------- -----------
Net Loss ......................................... $(1,938,944) $(676,455) $(489,664) (3,165,786)
============ ========== ========== ===========
Loss Per Common Share ............................ $0.21 $0.29 $0.34
============ ========== ==========
Weighted Average Shares Outstanding .............. 9,022,404 2,333,839 1,421,563
============ ========== ==========
Balance Sheet Data:
1996 1995
------------ ----------
Cash and Prepaid Expenses ........................ $1,565 $1,224,560
Total Assets ..................................... $85,527 $1,349,080
Total Current Liabilities ........................ $535,223 $664,727
Total Stockholders' Equity ....................... ($449,696) $684,353
</TABLE>
26
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
The discussion contained in this Item 6 is "forward looking", as that term
is identified in, or contemplated by, Section 27A of the Securities Act and
Section 21E of the Exchange Act. Accordingly, actual results may materially
differ from projections. Additional information concerning factors that could
cause actual results to differ materially is readily available in this item.
OVERVIEW:
Harvard Scientific Corp., is a bio-pharmaceutical development company.
The Company's corporate objective is to utilize medically researched and
developed drug substances, determine the ability of these substances to be
encapsulated in liposomes and to determine the potential market for such
products. The company will ensure development, regulatory testing and Federal
Drug Administration (FDA) processing to the point of distribution. The Company
is currently working on only one product--a therapeutic treatment for male
erectile dysfunction. The Company is assembling the results of its Phase I
clinical study for presentation to the FDA in April 1997 as part of its
pre-Phase II clinical trial meeting. During 1994, 1995 and 1996, the Company's
activities consisted primarily of raising capital, identifying a core
management team, developing a patent application, concluding manufacturing
scale up and initial clinical trials and formulating both a commercialization
and clinical development strategy.
The Company continues to look at other products it can add to its
portfolio that it believes has market potential.
The Company's future success is dependent upon its ability to raise
additional funds to complete the commercialization process for its erectile
dysfunction treatment product. The Company intends to obtain these funds
through public and private financing or from other sources such as
collaboration agreements. There can be no assurance that such funds will be
available or will be available on satisfactory terms to the Company. Failure
to obtain adequate financing could cause a delay or termination of the
Company's product development and marketing efforts.
Over the next 12 months, the Company's primary focus will be on continuing
clinical trials and product validation to conform to the regulatory process of
the FDA. The Company believes that an 18 to 24 month time-line to obtain
regulatory approval is the current assumption, but there can be no assurance,
if ever, that the product will receive FDA approval in that time span.
Additionally, the Company will be identifying and seeking collaborative
arrangements with pharmaceutical distribution concerns and/or licensing
agreements with companies to eventually distribute the erectile dysfunction
product.
The Company's success is dependent on its ability to raise additional
capital to effect all aspects of its operations.
In the next twelve months, the Company has no plans to purchase or sell
any significant capital assets in the form of either plant or equipment, with
the exception of office equipment and furnishings to effect its administrative
activities.
RESULT OF OPERATIONS:
FOR THE PERIOD FROM JANUARY 13, 1987 (INCEPTION) THROUGH DECEMBER 31, 1993:
The Company is in the development stages and has had limited operating
revenues since its inception on January 13, 1987. During this period, the
Company's activities consisted primarily of reviewing business opportunities
and acquisitions, as well as maintaining the business entity. During 1987 and
1988, the Company realized limited revenues from wholesaling activities
unrelated to its current planned operations. The Company had
27
<PAGE> 30
no operational activity form fiscal years 1989 through 1993 and all expenses
incurred during that period were related solely to maintaining the entity and
reviewing possible business opportunities. Therefore, the Company has had a
limited history of operation. From January 13, 1987 through December 31, 1993,
the Company had an accumulated deficit of $60,722.
FOR THE YEAR ENDED DECEMBER 31, 1994:
On January 7, 1994, the Company acquired intellectual property rights from
Bio-Sphere Technology, Inc. for the treatment of male erectile dysfunction.
The Company issued 2,856,000 shares (714,000 shares as currently restated) to
acquire this technology. Subsequently, the Company offered a private placement
memorandum to qualified investors to fund the further development and
commercialization of this product. The capital raised totaled $354,150 net of
issuance cost during this period.
At this same time, the Company investigated and eventually acquired an
additional intellectual property and technology related to whole blood rapid
testing for viruses, particularly the HIV virus. At the time, the Company felt
the addition of this new product line was valuable to the Company in two ways.
First, the technology was qualified as the best available testing device for
both accuracy and ease of use in the marketplace. Second, it provided the
Company with diversity in its potential product line, reducing the risks
associated with a single product company.
In July of 1994, the Company purchased the property rights to the HIV
testing technology that would permit the improvement of the existing product of
the Disease Detection International and Trinity Biotech, Ltd. companies. The
Company issued 1,340,000 shares (335,000 shares as currently restated) to three
individuals for those property rights. Two of those individuals were directors
and the third was the son of one of the directors of the Company.
In July 1994, the Company entered into a joint venture research and
development agreement with Disease Detection International, Inc., a Delaware
corporation, and its current parent, Trinity Biotech, Ltd., an Irish
corporation, for the improvement and enhancement of the rapid whole blood HIV
test device. The agreement calls for complimentary marketing rights and a
50/50 split of the profits on any products produced as a result of this
agreement. Subsequently, in August of 1994, the two companies signed a
marketing agreement further defining the manufacturing, pricing and patent
rights to the new product.
After several months of pre-marketing of this rapid detection device, the
Company determined that approval by the marketing authority in the United
States was not likely due to adverse psychological reactions by private testing
patients. Trinity Biotech, Ltd. terminated the agreements in February of 1995.
The Company contributed $34,470 directly to the research and development cost
of this product. At this time, the Company has not taken any action in this
matter and has abandoned the project with Trinity Biotech, Ltd.
The Company incurred a net loss for the year ended December 31, 1994 in
the amount of $489,664. General and administrative expenses consisted
primarily of salaries of corporate officers, directors fees, office staffing
accounting, legal and marketing-related expenses, rent and occupancy costs.
Research and development cost consisted primarily of reimbursements to our
parent company for expenditures to consultants, patent attorneys, lab costs and
product sampling materials necessary to formulate the treatment for erectile
dysfunction. Inclusive in the Company's research and development for 1994 was
the expenditure of $34,470 with regard to the HIV testing research and
development program.
FOR THE YEAR ENDED DECEMBER 31, 1995:
In 1995, the Company experienced an increase in both general and
administrative expenses, as well as research and development expenses. The net
loss for the year ended December 31, 1995 amounted to $676,455. The total
operating expenditures for the two years ended December 31, 1995 represented
approximately 97% of the total operating expenses from inception, primarily due
to the fact that the Company was not operational prior to that time and all
expenses incurred form inception to the end of 1993 were primarily to maintain
the Company's status.
28
<PAGE> 31
In 1995, the Company's activities centered around raising capital. The
Company started the year with a cash balance of $724. The only capital
available for most of the year was provided through loans from the Company's
directors and others. These moneys were primarily used to attempt to raise
investment capital and maintain the corporate entity.
In November of 1995, the Company exchanged 6,138,500 shares of its common
stock with its parent company, Bio-Sphere Technology, Inc. (BTI) for patent
assignment necessary to strengthen its position on the treatment of male
erectile dysfunction. In addition, BTI assigned licensing and distribution
contracts associated with the Company's impotency treatment. BTI agreed to
make scientific and technical, as well as to provide management and marketing
personnel, available for the Company's use and to assist in raising working
capital.
As a result of this reorganization, the Company raised $831,300, net of
issuance cost, on December 29, 1995. These proceeds were used to fund the
Company's existing operations and retire a portion of loans and note payables
incurred earlier in the year.
FOR THE YEAR ENDED DECEMBER 31, 1996:
The Company experienced an increase in administrative and general
expenses, including research and development costs. The Company experienced a
management change in December 1996. The net loss for the year ending December
31, 1996 amounted to $1,938,944.
During 1996 the Company's activities centered around continued fund
raising efforts and development of the product. The Company started the year
with a cash balance of $799,466. The Company raised funds though a Regulation
"S" debenture in June 1996. The Company submitted an IND to the FDA and
concluded a Phase I clinical trial.
RISK FACTORS:
The Company has identified at least two sources as contract manufacturers
for its product. The product under development by the Company has never been
manufactured on a commercial scale and there can be no assurance that such a
product can be manufactured at a cost or in quantities necessary to make it
commercially viable.
The Company has engaged a clinical research organization to develop and
strategize on completing the FDA regulatory process. The Company's long-term
success is predicated on the strength of its patent position. The Company is
the exclusive assignee of a U.S. patent application for the therapeutic remedy
of male erectile dysfunction. The Company relies on trade secrets and
unpatented proprietary technology in producing its product.
The competition for the product of the Company is primarily Upjohn and
Vivus and secondarily other treatments for male erectile dysfunction, including
penile implants and vacuum systems.
Another uncertainty is the dependence on key personnel familiar with the
manufacturing process. The loss of any of the Company's key scientific
personnel could have an adverse effect on the Company's continued product
development and business operations.
GENERAL:
Industry experts estimate that erectile dysfunction in one form or another
afflicts nearly 50,000,000 men world-wide. This number is expected to increase
as the male population increases its life expectancy and the current "baby
boom" generation ages. Erectile dysfunction becomes more prevalent as men get
older.
29
<PAGE> 32
If the Company's product receives the appropriate regulatory approvals,
which is not certain, the Company expects to be able to capitalize on this
trend. Estimates of funding needed to pursue the regulatory process run as
high as $15,000,000. In the short term, this is likely to retard liquidity as
the Company's capital needs will increase.
The Company expects to obtain capital funds either from the issuance of
common stock or debt. It is expected that external sources will be available
to provide these funds, but there can be no guarantees of such funding.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
DIRECTORS AND EXECUTIVE OFFICERS
As of December 31, 1996, the directors and executive officers of the
Company, their ages, positions in the company, the dates of their initial
election or appointment as director or executive officer, and the expiration of
the terms as directors are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Name Age Position* Period Served As Director
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Jackie R. See, M.D.** 55 Director Since 1-6-94
Ian Hicks 45 Chairman of the Board, Since 12-6-96
President, Chief Executive
Officer and Director
Don Steffens 49 Chief Financial Officer, Since 12-6-96
Secretary, Treasurer
and Director
Jeremii Wesolowski, Ph.D. 60 Chief Operating Officer
- --------------------------------------------------------------------------------------
</TABLE>
* The Company's directors are elected at the annual meeting of
stockholders and hold office until their successors are elected and
qualified. The Company's officers are appointed annually by the Board of
Directors and serve at the pleasure of the Board.
** In his role as consultant, Dr. See acts as the Company's Chief Scientific
Officer.
BUSINESS EXPERIENCE:
JACKIE R. SEE, M.D., F.A.C.C., is a Director of the Company. Dr. See is a
cardiologist and the principal investigator of the microsphere technology of
"PGE-1-EDT". He received his M.D. from the University of California, College
of Medicine (Irvine) in 1968. Dr. See completed his Residency in Internal
Medicine at Huntington in 1973. He went on to do research fellowship work in
cardiology at Peter Bent Brigham Hospital, Harvard Medical School (Boston). He
was an Associate Director of the Foundation for Cardiovascular Research
(1968-1984) and a Fellow of the American College of Cardiology since 1980.
Dr. See is licensed to practice medicine in the States of California and
Nevada and is Board eligible by the American Board of Cardiovascular Diseases.
He is the author or co-author of more than 60 research articles for various
medical publications.
IAN HICKS is the Chairman of the Board, President, Chief Executive
Officer and a Director of the Company. Mr. Hicks has significant experience in
the various aspects of pharmaceutical product development, business development
and operations internationally and in the USA. He holds a Science degree, and
marketing qualifications. Mr. Hicks has specialized in niche market products
for treatment of conditions in areas such as
30
<PAGE> 33
neurology, oncology and infectious diseases. He gained his broad experience
during assignments in South Africa, Sweden and the USA. Mr. Hicks brings more
than 20 years of experience to the company.
DON A. STEFFENS is the Chief Financial Officer, Secretary, Treasurer and
a Director of the Company. He brings more than 20 years of business management,
product development and marketing expertise to the Company. Mr. Steffens has
founded companies and assisted Dr. See in the development and manufacturing
process of the product. Mr. Steffens was President of Marina Systems
International, Inc., a software development and marketing company based in San
Francisco, California; Branch Manager, Litton Industries, Los Angeles,
California; and Regional Sales Manager, Victor Business Products, Chicago,
Illinois.
JEREMII WESOLOWSKI, Ph.D., is the Chief Operating Officer of the Company.
He was most recently President of Bio-Farma, Inc. a consulting firm he founded
engaged in international product licensing in the biopharmaceutical industry.
Dr. Wesolowski has extensive operational experience having worked as General
Manager of various firms in Europe and Latin America; NeXstar Pharmaceuticals,
Beecham Pharmaceuticals, SmithKline Beecham and Squibb International.
In his capacity as country General Manager he had varied experience in
operations of different sizes directing product development and product
enhancement, new product launches, manufacturing of antibiotics and finished
pharmaceuticals, regulatory affairs and licensing negotiations. As General
Manager for SmithKlineBeecham Pharmaceuticals in Brazil he oversaw the 1989
merger of Beecham and SmithKline Pharmaceuticals in that market.
Dr. Wesolowski received his M.S. and Ph.D. in Pharmaceutical Chemistry
from State University of Iowa and Master in Industrial Management from the
M.I.T., Sloan School of Management.
31
<PAGE> 34
EXECUTIVE COMPENSATION
The following table sets forth information about compensation paid or
accrued by the Company during the years ended December 31, 1996, 1995 and 1994
to the Company's officers and directors. None of the Company's Executive
Officers earned more than $110,000 during the years ended December 31, 1996,
1995 and 1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Other Securities
Salary Annual Restricted Underlying
Name and Consulting Compen- Stock Options/ LTIP Other Compen-
Principal Position Year Fees Bonus sation Awards SARs Payouts sation
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JACKIE R. SEE* 1996 $104,000 None None $350,000 None None None
Director of 1995 $ 16,000 None None $ 7,000 None None None
Research 1994 None None None $ 790 None None $26,000
IAN HICKS** 1996 None None None $250,000 None None $16,440
CEO & President 1995 None None None None None None None
1994 None None None None None None None
DON STEFFENS** 1996 None None None $250,000 None None None
CFO, Secretary & 1995 None None None None None None None
President 1994 None None None None None None None
JEREMII
WESOLOWSKI*** 1996
Chief Operating 1995
Officer 1994
- -----------------------------------------------------------------------------------------------------
</TABLE>
* Dr. See is not an employee, and all compensation paid to him was as a
consultant.
** Mr. Hicks and Mr. Steffens were not employees of the Company during
1994 and 1995.
*** Dr. Wesolowski was not an employee of the Company during the years
above mentioned.
32
<PAGE> 35
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 14, 1997
and as adjusted to reflect the sales of Common Stock offered hereby (estimated
as 4,021,448 shares for the purposes of calculation, see "Selling
Securityholder") by (i) each Director and Executive Officer of the Company,
(ii) all directors and officers as a group and (iii) each person known to the
Company to be the beneficial owner of more than five percent of the Company's
Common Stock:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Percentage of Outstanding
Amount and Nature of Shares of Common Stock
Name and Address Beneficial -----------------------------------------------
Title of Class of Beneficial Owner Ownership (1) Before Offering After Offering(2)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock Dr. Jackie R. See 7,202,500 (3) 63.2% 46.7%
17991 Fitch
Irvine, CA 92614
Common Stock Ian Hicks 250,000 2.2% 1.6%
17991 Fitch
Irvine, CA 92614
Common Stock Don Steffens 250,000 2.2% 1.6%
17991 Fitch
Irvine, CA 92614
Common Stock Jeremii Wesolowski
Common Stock All Directors and 7,702,500 (3) 67.5% 49.9%
Officers as a Group
Common Stock Bio-Sphere Technology, Inc. 6,852,500 60.1% 44.1%
Suite 23P
100 N. Arlington Avenue
Reno, NV 89501
Common Stock Thomas E. Waite & Assoc.
106 Ridge Road
Lake Mary, FL 32746 883,750 7.8% 5.7%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The ownership of the shares deemed to be held by Springrange Investment
Group, Ltd., the Selling Securityholder, due to its ownership of
$5,000,000 principal amount of Debentures and its right to acquire an
additional $10,000,000 principal amount of Debentures is not reflected due
to Springrange's contractual obligation to the Company pursuant to which
it is not entitled to convert any Debenture to the extent that after such
conversion the number of shares of Common Stock beneficially owned by
Springrange and its affiliates (excluding any shares deemed beneficially
owned through any continuing ownership of Debentures) exceeds 4.9% of the
outstanding Common Stock. The conversion price will be adjusted and the
number of shares beneficially owned and being offered by the Selling
Securityholder will vary in accordance with the terms of the Debentures to
reflect changes in the Market Price of common stock, stock dividends,
stock splits, and certain other circumstances. See "Description of
Securities."
(2) Assumes that $15,000,000 principal amount of Debentures is issued and all
Debentures are converted at an exercise price of $4.6625 per share of
Common Stock, the exercise price that would have resulted from the
exercise of Debentures on April 14, 1997. See "Description of
Securities."
(3) Includes 6,852,500 shares owned by Bio-Sphere Technology, Inc., of which
Dr. See is a controlling person.
33
<PAGE> 36
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of December 31, 1996, BTI owned 63.2% of the Company's outstanding
shares. 11,000,000 of BTI's shares, or 44%, are owned by Dr. Jackie See, who
is also a Director of the Company. Dr. See also has potential voting rights on
a further 2,000,000 BTI shares. Dr. See may be considered a promoter of the
Company.
On September 25, 1995, the Company issued 203,500 shares to the following
officers, directors or consultants for services to the Company:
<TABLE>
<S> <C>
Rex Morden..............................21,000
Alexander Sparkuhl.......................5,000
Neal Armstrong..........................50,000
Steven Rayman...........................75,000
Eric Savage.............................32,500
Jackie R. See...........................20,000
</TABLE>
On February 2, 1994, the Company issued a total of 960,000 shares in
connection with the assignment of intellectual property to the Company and for
services rendered by consultants and former owners and directors of the
Company. Of this amount, 714,000 shares were issued to BTI in consideration of
the assignment of the intellectual property rights to patent, develop,
manufacture and market the PGE-1 product. The remaining shares were issued to
consultants and former owners and directors of the Company in return for
services they rendered. Of this amount, 123,000 shares were returned to
treasury in July of 1994 as a result of the non-performance of services by the
individuals who had originally received the shares.
On December 7, 1995 the Company issued 6,138,500 shares of common stock to
BTI for BTI's assistance in raising working capital, prosecuting the patent
application, management assistance, and for assignment of rights under four
distribution agreements for the PaGE(1) product. In entering into the Exchange
Agreement with BTI under which this transaction took place, the Company's
management prepared its valuation of the BTI technology based on the three
standard comparative conventional methods of assessment--income, replacement
cost and industry comparables. The component parts of the property were
assessed at the time of exchange in total and allocated to the parts. The
total value determined for property asset was $6,852,500 and is broken out as
follows:
<TABLE>
<S> <C>
Technology...................................$5,612,000
Patent Application..............................300,000
Sae Han Pharmaceutical Agreement................363,500
Pharma Maehle Agreement.........................425,000
Aerobic Life Agreement..........................152,000
Commercial Service Agreement........................-0-
</TABLE>
The issuance of stock was based on a discounted value of the fair market value
of the stock at the time.
During November 1995, the Company entered into a two-year agreement with
Thomas Waite & Associates to provide an array of business services to enhance
the Company's asset base and further the development of the Company's business
plan. The contracted services include public/investor relations, marketing and
sales plans, identifying strategic partnership arrangements, and other
opportunities that would enhance the market value and viability of the Company.
In December 1995, the Company issued the consultant 350,000 shares of Common
Stock in consideration of the services to be provided for the two-year
duration.
On April 12, 1996, the corporation issued 180,000 shares of Common Stock
to Alexander H. Walker, Jr. in connection with legal services rendered and to
be rendered to the Company. On July 5, 1996, the Company issued 20,000 shares
of Common Stock to Alexander H. Walker III and 20,000 shares of Common Stock to
S.T. Cardinalli for legal services rendered and to be rendered to the Company.
34
<PAGE> 37
The Company entered into a royalty agreement with its founder, Dr. See, in
April 1996 whereby it will pay Dr. See two percent (2%) of all gross proceeds.
The Company has a payable to BTI of $183,535 as of December 31, 1996. The
payable is related to costs incurred by the parent on the Company's behalf for
research and development of PaGE(1).
In January and February of 1997, the Company issued a total of 250,000
shares to Ronald E. Patterson in connection with services rendered to the
Company. On March 18, 1997, the Company issued a total of 1,270,000 shares of
its common stock to eight individuals for legal and consulting services and for
services rendered by officers and directors of the Company as follows:
<TABLE>
<S> <C>
S.T. Cardinalli...........................20,000
Roger T. Crenshaw, M.D...................100,000
Ian Hicks................................250,000
Ronald E. Patterson......................100,000
Jackie R. See............................350,000
Don Steffens.............................250,000
Alexander H. Walker, Jr..................180,000
Alexander H. Walker III...................20,000
</TABLE>
The Company may continue the practice of issuing shares of Common Stock in
lieu of cash payment in the future if it determines that such issuance is in
the best interests of the Company and is consistent with the Company's
agreement.
The foregoing arrangements and relationships may give rise to conflicts of
interest with respect to future interpretation of the agreements between the
Company and its affiliates or with respect to future transactions between the
Company and its affiliates. There can be no assurance that future transactions
or arrangements between the Company and any affiliates will be advantageous to
the Company. See "Risk Factors - Transactions with Affiliates," "- Dependence
on Key Personnel," "- Dependence on Third-Party Researchers," "Business -
Research and Development," "Management's Discussion" and "Principal
Shareholders."
LEGAL MATTERS
The validity of the shares of Common Stock will be passed upon for the
Company by Alexander H. Walker, Jr., Esq., Reno, Nevada, who owns 360,000
shares of the Company's Common Stock. Various legal matters will be passed
upon for the Company by David R. Baker, Esq., New York, New York.
EXPERTS AND CHANGE IN ACCOUNTANTS
The financial statements of the Company included in this prospectus for
the years ended December 31, 1996 and 1995 have been audited by Dale McGhie,
independent certified public accountant, as set forth in his report thereon
appearing elsewhere herein. Mr. McGhie's report includes an explanatory
paragraph stating that, in light of the recurring losses suffered by the
Company, its continued existence depends upon its ability to resolve its
liquidity problems.
The Company's former accountant, Fair, Anderson & Langerman, was replaced
by W. Dale McGhie, Certified Public Accountant, 1539 Vasser Street, Reno,
Nevada 89502, as the Company's independent accountant in connection with the
financial statements for the year ended December 31, 1996. Fair, Anderson &
Langerman did not resign and did not decline to stand for re-appointment. They
were replaced because the Company's
35
<PAGE> 38
headquarters were moved to Reno, Nevada, where Mr. McGhie is located, from Las
Vegas, Nevada, where Fair, Anderson & Langerman is located, and the Company
believed that it would be more efficient and effective to use Mr. McGhie as a
Reno-based accountant. The decision to change accountants was recommended and
approved by the Board of Directors.
Fair Anderson & Langerman's report on the financial statements for the
years ended December 31, 1995 and 1994 was presented on the assumption that the
Company would continue as a going concern and was unqualified. There were no
disagreements with that firm on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to Fair, Anderson & Langerman's satisfaction, would have
caused that firm to make reference to the subject matter of any such
disagreements in connection with its reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission in Washington, DC a registration
statement on Form SB-2 (together with all amendments thereto, the "Registration
Statement"), under the Securities Act with respect to the securities offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules filed therewith, certain
portions of which have been omitted as permitted by the rules and regulations
of the Commission. For further information with respect to the Company and the
Common Stock offered hereby, reference is hereby made to the Registration
Statement and to the exhibits and schedules filed therewith. Statements
contained in this Prospectus regarding the contents of any contract or other
document referred to are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being deemed to be
qualified in its entirety by such reference. The Registration Statement,
including all exhibits and schedules thereto, may be inspected without charge
at the principal office of the Commission, at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, DC 20549, and at the regional offices of
the Commission located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and at Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, DC 20549, upon the payment of prescribed fees.
36
<PAGE> 39
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
INDEPENDENT AUDITOR'S REPORT F-2
BALANCE SHEETS F-3
STATEMENTS OF OPERATIONS F-5
STATEMENTS OF STOCKHOLDERS' EQUITY F-6
STATEMENTS OF CASH FLOWS F-8
NOTES TO THE FINANCIAL STATEMENTS F-10
</TABLE>
F-1
<PAGE> 40
DALE MCGHIE Town & Country Plaza
CERTIFIED PUBLIC ACCOUNTANT 1539 Vassar St. Reno, Nevada 89502
Tel: 702-323-7744
Fax: 702-323-8288
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
and Shareholders of
Harvard Scientific Corp.
I have audited the balance sheet of Harvard Scientific Corp. (A Development
Stage Company) as of December 31, 1996, and 1995, and the related statements
of operations, stockholders' equity, and cash flows for each of the years in
the three-year period ended December 31, 1996. These financial statements are
the responsibility of the Company's management. My responsibility is to
express an opinion on the financial statements based on my audits.
I have conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. I believe that my audits provide a reasonable basis
for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Harvard Scientific Corp. as
of December 31, 1996, and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been presented assuming that the
company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company has suffered recurring losses from operations
that raises substantial doubt about its ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
/Dale McGhie/
W. Dale McGhie, CPA
Reno, Nevada
March 20, 1997
F-2
<PAGE> 41
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ -- $ 799,486
Prepaid expenses (Note 7) 1,565 425,094
------------ ------------
TOTAL CURRENT ASSETS 1,565 1,224,560
------------ ------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
at cost, less accumulated depreciation of
$3,491 at December 31, 1996 and $6,637 at
December 31, 1995 (Note 3) 5,925 10,861
------------ ------------
INTANGIBLE ASSETS:
Intellectual property, net of accumulated amortization
of $1,048 at December 31, 1996 and $1,771 at
December 31, 1995 (Notes 4 and 7) 7,948 8,563
Organizational cost, net of accumulated amortization
of $105,760 at December 31, 1996, and $70,754 at
December 31, 1995 (Note 7) 69,789 104,796
------------ ------------
77,737 113,359
------------ ------------
OTHER ASSETS:
Deposits 300 300
------------ ------------
TOTAL ASSETS $ 85,527 $ 1,349,080
============ ============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-3
<PAGE> 42
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable (Note 7) $ 36,625 $ 105,791
Accrued expenses (Note 5) 20,329 84,380
Bank Overdraft 134
Due to related parties (Note 7) 190,860 406,881
Note payable to related parties (Notes 6 and 7) 37,275 67,675
Note payable - Convertible (Note 6) 250,000 --
------------ ------------
TOTAL CURRENT LIABILITIES 535,223 664,727
------------ ------------
CONTINGENCIES: (Note 10) -- --
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 100,000,000
authorized; 9,883,129 and 8,749,125 shares issued
and outstanding at December 31, 1996 and
December 31, 1995 respectively (Note 1) 9,883 8,749
Additional paid-in capital 2,706,207 1,902,445
Deficit accumulated during the development stage (3,165,786) (1,226,841)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (449,696) 684,353
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 85,527 $ 1,349,080
============ ============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-4
<PAGE> 43
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
INCEPTION
TO
12/31/96
1996 1995 1994 (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 181,000 $ -- $ -- $ 187,387
COST OF SALES 216,870 -- -- 221,557
----------- ----------- ----------- -----------
GROSS PROFIT (35,870) -- -- (34,170)
----------- ----------- ----------- -----------
OPERATING EXPENSES:
General and administrative 1,244,272 434,320 324,699 2,040,870
Research and development (Notes 7 and 9) 109,553 194,965 124,366 428,884
Depreciation and amortization (Notes 3 and 7) 41,472 39,550 38,872 120,634
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 1,395,297 668,835 487,937 2,590,388
----------- ----------- ----------- -----------
(LOSS) FROM OPERATIONS (1,431,167) (668,835) (487,937) (2,624,558)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES)
Settlements (Note 10) (494,813) -- -- (494,813)
Interest income -- -- -- 397
Interest expense (12,964) (7,620) (1,727) (22,312)
Loss on disposition of marketable securities -- -- -- (24,500)
----------- ----------- ----------- -----------
(507,777) (7,620) (1,727) (541,228)
----------- ----------- ----------- -----------
NET LOSS $(1,938,944) $ (676,455) $ (489,664) $(3,165,786)
=========== =========== =========== ===========
LOSS PER COMMON SHARE $ 0.21 $ 0.29 $ 0.34
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 9,022,404 2,333,839 1,421,563
=========== =========== =========== ===========
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-5
<PAGE> 44
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
RESTATED DEFICIT
COMMON STOCK ADDITIONAL FROM
------------------------- PAID-IN INCEPTION
SHARES AMOUNT CAPITAL TO DATE TOTAL
---------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of shares for cash on
January 13, 1987 (inception) 103,000 $ 103 $ 2,097 $ 2,200
Issuance of shares for cash,
net of offering costs 51,000 51 19,223 19,274
Issuance of shares for services 90,000 90 -- 90
Issuance of shares for services 20,000 20 -- 20
Issuance of shares for services 36,000 36 -- 36
Issuance of shares to acquire
Grant City Corporation 50,000 50 39,827 39,877
Issuance of shares to effect a
four-for-one split 1,050,000 1,050 (1,050) --
Issuance of shares for
intellectual property rights 4,196,000 4,196 -- 4,196
Issuance of shares for
corporation property rights 394,000 394 24,321 24,625
Issuance of shares for fees
and services 1,045,000 1,045 96,893 97,938
---------- --------- ---------- -----------
BALANCE CARRIED FORWARD 7,035,000 7,035 181,221 188,256
---------- --------- ---------- -----------
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-6
<PAGE> 45
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
RESTATED DEFICIT
COMMON STOCK ADDITIONAL FROM
------------------------- PAID-IN INCEPTION
SHARES AMOUNT CAPITAL TO DATE TOTAL
---------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE BROUGHT FORWARD 7,035,000 7,035 181,221 188,256
Issuance of shares for cash,
net of offering costs 393,500 393 353,757 354,150
Adjustment of shares of effect
a four-for-one reverse split (5,571,375) (5,571) 5,571 --
Cumulative loss from inception
to December 31, 1994 -- -- -- (550,386) (550,386)
---------- --------- ---------- ----------- -----------
Balance December 31, 1994 1,857,125 1,857 540,549 (550,386) (7,980)
Issuance of common stock
for directors' fees and
services 553,500 553 530,796 -- 531,349
Issuance of common stock
at par value for
intellectual property rights 6,138,500 6,139 -- -- 6,139
Issuance of common stock
for cash, net of offering
costs 200,000 200 831,100 -- 831,300
Net loss for the year ended
December 31, 1995 -- -- -- (676,455) (676,455)
---------- --------- ---------- ----------- -----------
Balance December 31, 1995 8,749,125 8,749 1,902,445 (1,226,841) 684,353
Issuance of common stock for
services and debt reduction 565,254 565 309,518 -- 310,083
Issuance of common stock
for legal settlement 568,750 569 494,244 -- 494,813
Net loss for the year ended
December 31, 1996 -- -- -- (1,938,945) (1,938,945)
---------- --------- ---------- ----------- -----------
Balance December 31, 1996 9,883,129 $ 9,883 $2,706,207 $(3,165,786) $ (449,696)
========== ========= ========== =========== ===========
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-7
<PAGE> 46
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
INCEPTION
TO
12/31/96
1996 1995 1994 (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $ 181,000 $ -- $ -- $ 181,000
Cash paid to suppliers and employees (1,389,634) (38,958) (251,363) (1,711,867)
Cash paid for interest (3,167) -- -- (3,167)
Cash paid for settlement (50,000) -- -- (50,000)
----------- ----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,261,801) (38,958) (251,363) (1,584,034)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash from sale (purchase) of equipment (7,399) -- (17,498) (24,897)
Capitalized organization costs -- -- (150,000) (150,924)
Purchase of marketable securities -- -- -- (24,500)
----------- ----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (7,399) -- (167,498) (200,321)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital stock,
net of offering costs 250,000 831,300 354,149 1,496,946
Proceeds from debt, net of costs 251,100 80,719 83,625 415,444
Principal payments on debt (31,500) (74,319) (22,350) (128,169)
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 469,600 837,700 415,424 1,784,221
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (799,600) 798,742 (3,437) (134)
CASH AT BEGINNING OF YEAR 799,466 724 4,161 --
----------- ----------- ----------- -----------
CASH AT END OF YEAR $ (134) $ 799,466 $ 724 $ (134)
=========== =========== =========== ===========
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-8
<PAGE> 47
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND THE PERIOD FROM JANUARY 13, 1987 (DATE OF INCEPTION)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
INCEPTION
TO
12/31/96
1996 1995 1994 (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES
NET LOSS (1,938,945) $ (676,455) $ (489,664) $(3,165,786)
----------- ----------- ----------- -----------
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Book value of assets sold 6,483 -- -- 6,483
Loss on disposition of marketable securities -- -- -- 24,500
Depreciation and amortization 41,472 39,550 38,872 120,634
Issuance of stock for director's fees
and services 485,129 71,974 97,938 689,375
Issuance of stock in legal settlement 494,813 494,813
(Increase) decrease in assets:
Prepaid expenses (1,565) 38,281 (4,000) (1,565)
Deposits -- (300) (300)
Increase (decrease) in liabilities:
Accounts payable (69,116) 100,962 1,268 36,624
Accrued expenses (64,051) 82,779 1,600 20,328
Due to related parties (216,021) 303,951 102,923 190,860
----------- ----------- ----------- -----------
TOTAL ADJUSTMENTS 677,144 637,497 238,301 1,581,752
----------- ----------- ----------- -----------
NET CASH (USED) IN OPERATING ACTIVITIES $(1,261,801) $ (38,958) $ (251,363) $(1,584,034)
=========== =========== =========== ===========
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-9
<PAGE> 48
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 1 - NATURE OF BUSINESS AND ORGANIZATION
NATURE OF BUSINESS:
Harvard Scientific Corp. (the "Company") is a development stage company. The
Company's primary business operations consist of development,
commercialization, marketing, and distribution of products relating to
prostaglandin/microsphere delivery and the way in which the product is applied
in treating male sexual dysfunction. The Company has preliminary data
available, indicating the possible benefits of such a therapy.
On February 13, 1996, the Company received an assignment of an application for
a patent entitled "PGE-1 Containing Lyophilized Liposomes For Use In The
Treatment of Erectile Dysfunction" and identified as United States Application
No. 08/573,408 ("PGE-1"). The assignment was made by the holder of the
application, Bio-Sphere Technology, Inc. ("BTI"), the Company's majority
shareholder. The Company plans to focus its operations on PGE-1 in order to
bring the product to the marketplace.
ORGANIZATION:
The Company was incorporated under the laws of the State of Nevada on January
13, 1987, under the name of Witch Doctors Bones, Inc. On August 12, 1987, the
Company qualified a public offering under Rule 504 of Regulation D of the
Securities Act of 1933, as amended, with the Secretary of State of Nevada. On
June 17, 1988, the Company changed its name to CareyWard, Inc.
On October 18, 1993, the Company acquired Grant City Corporation by merger,
changed its name to Grant City Corporation, and issued 50,000 shares of stock
carrying two classes of warrants. Class A warrants entitled the holder to
purchase stock at $8.00 per share and the Class B warrants entitled the holder
to purchase stock for $10.00 per share. The warrants could only be exercised
if a registration statement was filed with the United States Securities and
Exchange Commission ("SEC") pursuant to the Securities Act of 1933 as amended.
The warrants were redeemable by written notice of twenty (20) days at a
redemption price of $.001 per warrant. During 1996, before the warrants
could be exercised, the Company gave the required notice and redeemed both
classes of warrants.
On January 18, 1994, the Company changed its name to The Male Edge, Inc. On
May 10, 1994, the Company changed its name to Harvard Scientific Corp.
The Company has 100,000,000 shares of common stock authorized with 9,883,129
shares issued and outstanding as of December 31, 1996. The Company had
8,749,124 shares issued and outstanding on December 31, 1995. BTI owned
approximately 63% of the Company's shares at December 31, 1996.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATIONAL COSTS:
Organization costs are being amortized over a five-year period using the
straight line method. See also discussion contained in Note 7.
F-10
<PAGE> 49
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EQUIPMENT:
Equipment is stated at cost. Depreciation is incorporated on a straight line
basis over a period of 5 to 7 years. Expenditures for maintenance and repairs
are charged to expenses as incurred. Upon retirement or disposal of assets,
the cost and accumulated depreciation are eliminated from the account and any
resulting gain or loss is included in expense. See Note 3.
USE OF ESTIMATES:
In order to prepare financial statements in conformity with generally accepted
accounting principals, management must make estimates and assumptions that
affect certain reported accounts and disclosures. Actual results could differ
from these estimates.
INTELLECTUAL PROPERTIES:
The costs of intellectual properties are amortized using the straight-line
method over a period of fifteen years. See Note 4.
EARNINGS PER SHARE:
The earnings per share calculation is based on the weighted average number of
shares outstanding during the period: 9,022,404 shares in 1996 and 2,333,839
shares in 1995.
INCOME TAX:
Because of losses sustained since inception, no provision has been made for
income tax.
NOTE 3 - EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and building improvements at December 31, 1996 and 1995, consist of
the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Equipment $ 9,417 $ 11,682
Leasehold Improvements -- 5,816
-------- --------
9,417 17,498
Less accumulated depreciation 3,491 6,637
-------- --------
$ 5,926 $ 10,861
======== ========
</TABLE>
The Company relocated to Reno, Nevada, during December, 1996. By relocating,
the Company reduced its need for certain equipment and leasehold improvements.
The Company does not own manufacturing equipment for its product. The product
has been and will continue to be manufactured by third-party manufacturers
according to the Company's specifications.
F-11
<PAGE> 50
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 4 - INTELLECTUAL PROPERTIES
On January 7, 1994, the Company exchanged 2,856,000 shares with BTI for the
intellectual rights to patent, develop, manufacture, and market PGE-1. The
Company recorded the transfer of intellectual properties at the par value of
stock transferred, which amounted to $2,856. BTI's largest shareholder, the
originator of PGE-1 holds a 2% royalty interest in the Company's gross
proceeds.
On November 16, 1995, the Company exchanged 6,138,500 shares of common stock
with BTI for assistance in raising working capital, patent application.,
management assistance and distribution agreements associated with the PGE-1
product. The Company recorded the transfer at the par value of stock
transferred, which amounted to $6,139.
During 1996, the Company expensed the unamortized cost of acquiring technology
relating to the development of an HIV home test kit. The Company, which
originally acquired the rights in exchange for 335,000 shares of common stock,
ceased product development in connection with a settlement accrued in 1995
(Note 10).
NOTE 5 - ACCRUED EXPENSES
Accrued expenses at December 31, 1996 and 1995, consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Settlement costs (Note 10) $ -- $ 50,000
Payroll 9,680 32,000
Payroll taxes 1,000 1,680
Interest on notes 9,649 --
Transfer fees -- 700
-------- --------
$ 20,329 $ 84,380
======== ========
</TABLE>
See also Notes 9 and 10.
NOTE 6 - NOTES PAYABLE
The Company had the following notes payable at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
8% note, payable to former director
on demand, unsecured (Note 7) $ 37,275 $ 62,675
8% note, payable to a related party
on demand, unsecured -- 5,000
7% convertible debentures 250,000 --
-------- --------
$287,275 $ 67,675
======== ========
</TABLE>
F-12
<PAGE> 51
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 6 - NOTES PAYABLE (CONTINUED)
See also Notes 9 and 10.
NOTE 7 - RELATED PARTY TRANSACTIONS
During 1994, the Company paid $150,000, to related parties for work performed
in completing a merger (described in Note 1). Of this amount, $100,000 was
paid to BTI. The remaining $50,000 was paid to individuals affiliated with BTI.
These amounts have been capitalized and are included in organizational costs.
Additional organizational costs of $24,625 were capitalized in 1994. The
Company transferred 246,000 shares to its former owners and directors in
return for corporation property rights and 148,000 shares to individuals for
assistance in acquiring the rights. These shares were valued at $.0625 per
share as determined by a 1994 appraisal.
During 1994 and 1995, the Company entered into three significant transactions
with related parties for the acquisition of intellectual rights and the
provision of technological, management, fundraising, and marketing assistance.
Note 4 describes the valuation of these transactions.
The Company has a payable to BTI of $183,535 and $130,000 as of December 31,
1996 and 1995, respectively. The payable is related to costs incurred by BTI
on the Company's behalf for consultation and rent, as well as research and
development of the PGE-1 product.
The Company has a note payable to a former director as of December 31, 1996 and
1995 (Note 6). The amount of accrued interest associated with the note at
year-end in 1996 and 1995 was $6,419 and $8,097, respectively.
The Company often pays for services, fees, and salaries by issuing stock. Most
of this stock is issued with a two-year selling restriction. After the Company
files its registration statement in 1997, the two-year restriction may be
lifted. The shares are valued at a discount of free-trading stock, if market
valuation is available. Several material transactions of this type occurred
during 1995 and 1996 during which time the Company issued 1,188,754 shares
recorded at $841,432.
See also the discussions regarding agreements, intellectual properties, and
subsequent events in Notes 4, 9, and 12.
NOTE 8 - INCOME TAXES
The Company has federal net operating loss carryforwards for financial
statement purposes of approximately $3,200,000 at December 31, 1996, which will
be used to offset future earnings of the Company. The loss carryforwards will
expire during the years ending 2002 through 2012 if not used.
F-13
<PAGE> 52
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 9 - AGREEMENTS
In conjunction with the agreement of November 16, 1995, between BTI and the
Company (Note 4), BTI transferred four agreements to the Company related to
the manufacture, marketing, and distribution of the PGE-1 product overseas.
The Company terminated two of these agreements during 1996 for nonperformance.
A third agreement for distribution in Korea was terminated in 1996 by mutual
agreement. The Company is prepared to terminate a fourth agreement with its
European licensor, Pharma Maehle unless Pharma Maehle can resolve the Company's
concerns (Note 10).
In December 1996, the Company entered into an agreement with Martin E. Janis &
Company, Inc. The agency will create and carry out a financial public
relations program in exchange for costs and an option on 50,000 shares of
free-trading stock, exercisable at $1.25 a share.
NOTE 10 - CONTINGENCIES
The Company has been named as a party in certain pending or threatened legal,
governmental, administrative, or judicial proceedings that arose in the
ordinary course of business. These pending or threatened proceedings may
affect the Company in a material way.
These financial statements reflect the way in which the Company resolved two
lawsuits:
a. The Company reached a mutual release regarding a Distribution
Agreement which provided for the manufacture, marketing, and
distribution of HIV test kits. The mutual release called for a
$50,000 payment which accrued during 1995 and was paid in full
during the first quarter of 1996.
b. The Company amicably settled an action with Thomas E. Waite &
Associates regarding the a contract under which Waite was to provide
an array of business services. The Company issued 568,750 shares of
stock in settlement which was accrued in these financial statements at
$494,813.
The ultimate effect of other proceedings cannot be estimated at this time.
The Company has noted some possible irregularities pertaining to the June 1996
issuance of its convertible debentures and has taken steps to rectify the
matter. The Company hopes to resolve two pending claims related to the
debenture issuance which aim to force a stock conversion. These claims were
filed after December 31, 1996, and are discussed in Note 12 as subsequent
events.
One additional act may impact the Company in the future although no
determination can be made at this time. The Company is prepared to terminate
its licensing agreement with Pharma Maehle, the holder of the Company's
distribution rights in a portion of its overseas market. The Company is
negotiating to resolve the contract issues to benefit business operations, but
the ultimate resolution and its impact upon the Company cannot be estimated.
F-14
<PAGE> 53
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
NOTE 10 - CONTINGENCIES (CONTINUED)
The Company experienced a management change in December 1996 as it moved its
headquarters to Reno, Nevada. The Company expects no negative impact from the
change.
NOTE 11 - UNCERTAINTY - GOING CONCERN
The financial statements of the company have been prepared assuming that the
Company will continue as a going concern. The Company's continued existence is
dependent upon its ability to resolve its liquidity problems, principally by
obtaining additional equity capital and through the sale of the PGE-1 product.
If additional capital is not secured, then there is substantial doubt about the
Company's ability to continue as a going concern. See also Note 12 regarding
the Company's plans to issue 6% Convertible Debentures in 1997.
NOTE 12 - SUBSEQUENT EVENTS
In February 1997, the Company became a defendant in a U.S. District Court
action initiated by Ailouros Ltd. Ailouros claims it is entitled to 263,225
shares of common stock and/or damages in the amount of $2,000,000. The
Company had previously initiated a lawsuit in the Nevada courts respecting the
same claim and both matters were removed to Federal court. The Company is
asking that any shares issued to Ailouros be issued pursuant to the
requirements of the SEC's Regulation S. It is too early to estimate the
monetary outcome of this litigation.
In February 1997, the Company filed an action for damages due to negligence and
breach of contract by D. Weckstein and Co. Inc. and Donald Weckstein. The
contract at issue was an agreement to obtain financing in exchange for Company
stock. The Weckstein defendants subsequently filed a lawsuit in New York
against the Company respecting the same contract and asked for damages against
a third party for tortious interference with the contract. The Weckstein
plaintiffs seek damages on their contract claim in the amount of $250,000 and
$400,000, and damages in excess of $10,000 on an abuse of process claim. It is
too early to estimate the monetary outcome of this litigation.
The Company is preparing to issue $15,000,000 worth of 6% Convertible
Debentures. If issued as planned, the Debentures will be convertible into
shares of common stock at the lesser of the market price on March 21, 1997, or
80% of the market price on the conversion date.
During 1997, the Company authorized a transfer of 1,250,000 shares of common
stock to related parties in exchange for services previously rendered.
As discussed in Note 3, the Company moved its headquarters to Reno, Nevada, in
early 1997. The Company still shares research and development facilities with
BTI in Irvine, California.
F-15
<PAGE> 54
NO DEALER, SALESMAN 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 OR ANY UNDERWRITER.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary ................................ 3
The Offering ...................................... 4
Summary Financial Data ............................ 5
Risk Factors ...................................... 6
Description of Securities ......................... 14
Market for Common Equity and Related
Stockholder Matters ............................. 15
Use of Proceeds from Sale of Debentures ........... 17
Capitalization .................................... 18
Selling Securityholders and Plan of Distribution .. 18
Description of Business ........................... 19
Selected Financial Data ........................... 26
Management's Discussion and Analysis
of Plan of Operations ........................... 27
Directors, Executive Officers, Promoters,
and Control Persons ............................. 30
Executive Compensation ............................ 32
Common Stock Ownership of Certain Beneficial
Owners and Management ........................... 33
Certain Relationships and Related Transactions .... 34
Legal Matters ..................................... 35
Experts and Change in Accountants ................. 35
Additional Information ............................ 36
Index to Financial Statements ..................... F-1
</TABLE>
HARVARD SCIENTIFIC CORP.
SHARES OF
COMMON STOCK
PROSPECTUS
<PAGE> 55
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Nevada General Corporation Law (Nevada Revised Statutes, Chapter 78;
the "NGCL") permits a corporation organized thereunder to indemnify its
directors and officers for certain of their acts. Article of the
Company's Certificate of Incorporation provides that the Company shall, to the
full extent permitted by GCL, indemnify all persons whom may be indemnified
pursuant thereto.
Section 78.751 of the NGCL provides generally that a corporation may
indemnify any person who was or is threatened to be made a named defendant or
respondent to any threatened, pending or completed action, suit or proceeding
by reason of the fact that he was or is a director, officer, employee or agent
of the Corporation, against expenses (which expenses, including attorney's
fees, may be advanced by the corporation when authorized under certain
circumstances), reasonably incurred by him in connection with such action, suit
or proceeding 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 or, with
respect to a criminal action, he had no reasonable cause to believe his conduct
was unlawful. In a suit, action or proceeding against such person brought by
or on behalf of the corporation in which such person was found, after
exhaustion of all appeals, to be liable to the corporation, any indemnification
must be approved by the court in which such action is brought. In addition,
unless limited by the articles of incorporation, should a director be
successful on the merits, Section 78.751 provides that he shall be indemnified
against expenses incurred by him.
Section 78.752 of the NGCL empowers corporations to purchase and maintain
insurance on behalf of a director, officer, employee or agent of the
corporation against any liability, regardless of whether the corporation could
indemnify such person against such liabilities.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE
COMPANY PURSUANT TO THE ABOVE, THE COMPANY HAS BEEN INFORMED THAT IN THE
OPINION OF THE SECURITIES AND EXCHANGE COMMISSION SUCH INDEMNIFICATION IS
AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an itemized list of all expenses to be
borne by the Registrant in connection with the issuance and distribution of the
securities being registered hereby other than underwriting discounts and
commissions and non-accountable expenses (items marked with an asterisk (*)
represent estimated expenses):
<TABLE>
<S> <C>
SEC Registration Fee............................$19,761
Printing and Engraving Expenses..................10,000*
Legal Fees and Expenses..........................60,000*
Accounting Fees and Expenses......................3,000*
Blue Sky Fees and Expenses.......................15,000*
Stock Transfer Fees...............................1,000*
Miscellaneous.....................................1,239*
Total..................................$110,000
</TABLE>
II-1
<PAGE> 56
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During 1994, the Company paid $150,000 to related parties for work
performed in completing a merger between Careyward, Inc. (as the Company was
then known) and Grant City Corporation ("GCC"), which was effected in 1993. Of
this amount, $100,000 was paid to BTI and the remaining $50,000 was paid to
individuals affiliated with BTI. The Company also transferred 246,000 shares,
as described below, to former owners and directors of GCC in return for GCC's
property rights and 148,000 shares to individuals in acquiring these rights.
The Company had issued shares to various individuals and businesses in
lieu of cash payment for salaries, fees and services. These include rent for
office space, consultancy services, scientific and technical advice,
directors' fees, and legal services. During 1995 and 1996 alone, 1,188,754
shares were issued in such transactions. Most of the stock issued for such
services carries a two-year selling restriction. See "Recent Sales of
Unregistered Securities". The Company anticipates that it will continue the
practice of issuing shares of Common Stock in lieu of cash payment in the
future.
On February 2, 1994, the Company issued a total of 3,840,000 shares in
connection with the assignment of intellectual property to the Company and for
services rendered by consultants and former owners and directors of the
Company. Of this amount, 2,856,000 shares were issued to BTI in consideration
of the assignment of the intellectual property rights to patent, develop,
manufacture and market PGE-1. The remaining shares were issued to consultants
and former owners and directors of the Company in return for services they
rendered. Of this amount, 492,000 shares were returned to treasury in July of
1994 as a result of the non-performance of services by the individuals who had
originally received the shares. All of the shares listed in this paragraph
were issued in reliance upon the exemption provided by Section 4(2) of the
Securities Act of 1933, as amended. All of these shares were also subject to
the four (4) to one (1) reverse split of the corporation's shares effective
February 1, 1995.
On June 17, 1994, the Company issued 198,500 shares of its common stock to
accredited investors in exchange for $148,650.00. An additional 5,000 shares
were issued to one of these investors on July 15, 1994 in connection with the
same consideration. All of the shares were issued pursuant to the exemption
from registration provided in Section 4(2) of the Securities Act of 1933, as
amended. All of these shares were subject to the four (4) for one (1) reverse
split effective February 1, 1995.
On July 15, 1994, the Company issued a total of 2,337,000 shares in
connection with services rendered by officers, directors and consultants to the
Company and in connection with property rights to intellectual property
transferred to the Company. Of this amount, 12,000 shares were issued in
connection with the Company's March 1, 1994 agreement to rent office space
located in Las Vegas, Nevada. Also, of this amount, 12,500 shares were
returned to the corporation on September 25, 1995 as a result of the
consultant's failure to render the services for which the shares were issued.
In addition, of this amount, 1,340,000 shares were issued to an affiliated
group, which included one of the Company's directors, a former director and a
family member of one director, to acquire intellectual property rights for
technology related to the development of a home HIV test kit. Such shares were
issued to : Dr. Jackie See, 790,00 shares; Dr. Darryl M. See, son of Dr. Jackie
See, 250,000 shares; and Eric Savage, former director, 300,000 shares. The
Company retains the rights to implement the technology, if and when it feels
the market and regulatory climate is receptive to approving this product. The
Company currently does not have any plans to commercialize product associated
with this technology. All such shares described above were issued pursuant to
the exemption from registration under Section 4(2) of the Securities Act of
1933, as amended. All such shares also were subject to the four (4) for one
(1) reverse split effective February 1, 1995.
On July 15, 1994, the Company issued 122,500 shares of its common stock to
accredited investors in exchange for $148,650.00. All of the shares were
issued pursuant to the exemption from registration provided in Section 4(2) of
the Securities Act of 1933, as amended. All of these shares were subject to
the four (4) for one (1) reverse split effective February 1, 1995.
II-2
<PAGE> 57
On September 7, 1994, the Company issued 25,000 shares of its common stock
to individuals who had purchased shares from the Company in the transactions
described above. Such issuance was made in order to correct an under issuance
of shares made in such transactions.
On October 18, 1994, the Company issued 38,500 shares of its common stock
to five (5) individuals who had rendered legal or consulting services to the
corporation. Such shares were issued pursuant to the exemption from
registration provided in Section 4(2) of the Securities Act of 1933, as
amended. These shares were later subject to the four (4) for one (1) reverse
split effective on February 1, 1995.
On October 25, 1994, the Company issued 1,000 shares to an individual in
connection with the sale of stock transactions described above under the date
of June 17, 1994 and July 15, 1994. Such shares were issued as part of the
consideration described above and were issued to correct errors in the amount
of shares previously issued.
On January 23, 1995, the Company issued 3,000 shares to an individual in
connection with the sale of stock transactions described above under the date
of June 17, 1994 and July 15, 1994. Such shares were issued for part of the
consideration described above and were issued to correct errors in the amount
of shares previously issued.
On September 25, 1995, the corporation issued 203,500 shares to officers,
directors or consultants for services to the Company. These shares were issued
pursuant to the exemption from registration provided in Section 4(2) of the
Securities Act of 1933, as amended.
On December 7, 1995, the Company issued 6,138,500 shares of its common
stock to BTI for BTI's assistance in raising working capital, prosecuting the
patent application, management assistance and for assignment of rights under
the Distribution Agreements for PGE-1. In entering into the Exchange Agreement
with BTI under which this transaction took place, the Company's management
prepared its valuation of the BTI technology based on the three standard
comparative conventional methods of assessment: income, replacement cost and
industry comparables. The component parts of the property were assessed at the
time of exchange in total and allocated to the parts. The total value
determined for property asset was $6,852,500 and = is broken down as follows:
<TABLE>
<S> <C>
Technology....................................$5,612,000
Patent Application...............................300,000
Sae Han Pharmaceutical Agreement.................363,500
Pharma Maehle Agreement..........................425,000
Aerobic Life Agreement...........................152,000
Commercial Service Agreement.........................-0-
</TABLE>
The exchange of stock was based on a discounted value of the fair market value
of the stock at the time. Such shares were issued in reliance upon the
exemption from registration provided in Section 4(2) of the Securities Act of
1933, as amended.
On December 11, 1995, the Company issued 200,000 shares of its common
stock to a non-U.S. entity in connection with a private placement of the
Company's shares pursuant to Regulation S promulgated under the Securities Act
of 1933, as amended. All such shares subsequently were returned to the
Company's treasury as a result of a failure of consideration for the issuance
of such shares.
On December 12, 1995, the Company issued 200,000 shares of its common
stock in connection with an offering of the Company's shares pursuant to Rule
504 promulgated under the Securities Act of 1933, as amended. Such shares were
issued to one (1) entity in exchange for the consideration of $831,300.
II-3
<PAGE> 58
During November 1995, the Company entered into a two-year agreement with a
consultant to provide an array of business services to enhance the Company's
asset base and further the development of the Company's business plan. The
contracted services included public/investor relations, marketing and sales
plans, identifying strategic partnership arrangements, and other opportunities
that would enhance the market value and viability of the Company. On December
15, 1995, the Company issued the consultant 350,000 shares of common stock in
consideration of the services to be provided for the two-year duration. Such
shares were issued pursuant to the exemption from registration under Section
4(2) of the Securities Act of 1933, as amended.
On January 12, 1996, the Company issued 10,000 shares of its common stock
in connection with consulting services rendered to the corporation by one (1)
individual on the Company's scientific advisory board in exchange for research
and development conducted by the individual. Such shares were issued pursuant
to the exemption from registration under Section 4(2) of the Securities Act of
1933, as amended.
On April 12, 1996, the corporation issued 180,000 shares of its common
stock in connection with legal services rendered for the Company. Such shares
were issued pursuant to the exemption from registration under Section 4(2) of
the Securities Act of 1933, as amended.
On July 5, 1996, the Company issued 40,000 shares of its common stock to
two (2) individuals for legal services rendered for the Company. Such shares
were issued pursuant to the exemption from registration under Section 4(2) of
the Securities Act of 1933, as amended.
On August 15, 1996, the Company issued 33,333 shares of its common stock to one
(1) entity in connection with consulting services rendered to the Company.
Such shares were issued pursuant to the exemption from registration under
Section 4(2) of the Securities Act of 1933, as amended.
On August 22, 1996, the Company issued 276,921 shares of its common stock
to one (1) entity in connection with consulting services rendered to the
Company. Such shares were issued pursuant to the exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended.
On November 20, 1996, the Company issued 30,500 shares of its common stock
to two (2) individuals and one (1) entity for consulting and printing services
rendered to the Company. Such shares were issued pursuant to the exemption
from registration under Section 4(2) of the Securities Act of 1933, as amended.
Of this amount, the Company is seeking the return of 5,500 shares issued in
connection with printing services rendered for the Company. Subsequent to the
issuance of these shares, the Company learned that such printing services had
been paid for in cash and that the issuance of the 5,500 shares constituted a
double payment for such services. Accordingly, the Company will assure the
return of such shares to treasury.
On December 18, 1996, the Company issued 568,750 shares of its common
stock as part of a settlement agreement in the litigation between the Company
and Thomas Waite & Associates described herein. See "Business -Legal
Proceedings". Such shares were issued pursuant to the exemption from
registration under Section 4(2) of the Securities Act of 1933, as amended.
In January and February of 1997, the Company issued a total of 250,000
shares to one (1) individual in connection with services rendered to the
Company. Such shares were issued pursuant to the exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended.
On March 18, 1997, the Company issued a total of 1,270,000 shares of its
common stock to eight (8) individuals for legal and consulting services and for
services rendered by officers and directors of the Company. Such shares were
issued pursuant to the exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended. See "Common Stock Ownership of Certain
Beneficial Owners and Management."
As of December 31, 1996, BTI owned 63% of the Company's outstanding
shares. 11,000,000 of BTI's shares or 44% are owned by Dr. Jackie See, who is
also a director of the Company. Dr. See also has potential voting rights on a
further 2,000,000 BTI shares. Dr. See could be considered a promoter of the
Company.
II-4
<PAGE> 59
The Company had a payable to BTI of $183,535 as of December 31, 1996. The
payable is related to costs incurred by the parent on the Company's behalf for
research and development of PaGE(1).
The Company also had notes payable to related parties in the outstanding
principal amount of $37,275 as of December 31, 1996. The Company borrowed
funds from one of its directors, Rex A. Morden, now a former director, in order
to meet certain operating expenses of the Company. The notes are payable on
demand and carry an interest rate of 8% per annum. [WE MAY WANT TO ADD A
SENTENCE REGARDING THE NEW LITIGATION WITH MORDEN OVER THIS AMOUNT. WE ALSO
MAY WANT TO INDICATE THAT THE COMPANY MAY DISPUTE THIS AMOUNT IN THAT
LITIGATION. SUGGEST WE DISCUSS WITH DON STEFFENS BEFORE FINALIZING THIS
SECTION SO THAT POSITION IN LITIGATION IS NOT ADVERSELY AFFECTED.]
The Company also entered into a royalty agreement with Dr. See in April of
1996 whereby it will pay Dr. See two percent (2%) of net sales.
The foregoing arrangements and relationships may give rise to conflicts of
interest with respect to future interpretation of the agreements between the
Company and its affiliates or with respect to future transaction between the
Company and its affiliates. There can be no assurance that future transactions
between the Company and any affiliates will be advantageous to the Company.
See "Risk Factors - Transactions with Affiliates," "Dependence on Key
Personnel," "Dependence on Third-Party Researchers," "Business - Research and
Development" and "Management's Discussion."
ITEM 27. EXHIBITS
Number Description
------ -----------
3.1 Articles of Incorporation of Registrant, as amended to date.*
3.2 By-Laws of Registrant, as amended to date.*
4.1 Form of 6% Debenture (See Annex I to Item 10.2).
5.1 Opinion of Alexander H. Walker, Jr., Esq., including consent.
6.1 Consent of W. Dale McGhie, CPA.
6.2 Consent of David R. Baker, Esq.
10.1 Consulting Agreement, dated April 19, 1996, between the Registrant and
Dr. Jackie R. See, as amended on March 19, 1997.
10.2 Securities Purchase Agreement, dated March 21, 1997, between the
Registrant and Springrange Investment Group, Ltd.
10.3 Licensing Agreement, dated November 3, 1995, between Pharma Maehle
and Bio-Technology, Inc., as modified by assignment to the Registrant
on February 27, 1996.
10.4 Consulting Agreement, dated November 3, 1995, between the Registrant
and Thomas A. Waite and Associates, Inc.
10.5 Consulting Agreement, dated April 2, 1997, between the Registrant and
David E. Jordan.
10.6 Agreement for the Acquisition of Intellectual Property Rights, dated
January 7, 1994, between the Registrant and Bio-Sphere Technology,
Inc.
10.7 Exchange Agreement dated November 16, 1995, between the Registrant
and Bio-Sphere Technology, Inc.
II-5
<PAGE> 60
10.8 Assignment of Patent Application No. 08/573408, filed 12/15/95, for
an invention entitled PGE-1 Containing Lyophilized Liposomes for the
Treatment of Erectile Dysfunction.*
_______________________________
* Incorporated by reference from the Registrant's Annual Report on Form
10-SB filed on April 30, 1996.
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, (the "Securities Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to any of the provisions
described above, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling persons in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will governed by the final adjudication of
such issue.
The Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
(a) include any prospectus required by Section 10(a)
of the Securities Act;
(b) reflect in the prospectus any facts or events
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement; and, notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
the volume and price represent no more than a 20% change in
the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(c) include additional or changed material
information with respect to the plan of distribution.
(2) For determining any liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial bonafide offering; and
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the termination of the
offering.
The Registrant hereby further undertakes that it will:
(1) For determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the
II-6
<PAGE> 61
Securities Act as part of this Registration Statement as of the time
the Commission declared it effective; and
(2) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus as
a new registration statement for the securities offered in the
Registration Statement, and the offering of such securities at that
time as the initial bona fide offering of those securities.
II-7
<PAGE> 62
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in Reno, State of
Nevada, on 4/16, 1997.
HARVARD SCIENTIFIC CORP.
By
/Don Steffens/
-------------------------
Don Steffens, Secretary
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
Name Title Date
---- ----- ----
Director, President,
Chief Executive Officer
/Ian Hicks/ and Chairman of the Board 4/16 , 1997
- -------------------------- ---------------
Ian Hicks
Director, Chief Financial
Officer, Secretary, and
/Don Steffens/ Treasurer 4/16 , 1997
- -------------------------- ---------------
Don Steffens
/Jackie R. See M. D./ Director 4/16 , 1997
- -------------------------- ----------------
Jackie R. See, M.D.
/Jeremii Wesolowski, Ph.D./ Chief Operating Officer 4/16 , 1997
- -------------------------- ----------------
Jeremii Wesolowski, Ph.D.
II-8
<PAGE> 63
CONSENT OF COUNSEL
I hereby consent to the reference to me under the caption "Legal Matters"
in the Prospectus contained in this Registration Statement.
/David R. Baker, Esq/
-------------------------------
David R. Baker, Esq.
Dated: April 17, 1997
--------------------------
New York, New York
II-9
<PAGE> 64
CONSENT OF INDEPENDENT AUDITOR
I hereby consent to the reference to my firm under the caption "Experts"
and to the use of my report on financial statements for the years ended
December 31, 1996, 1995 and 1994 dated March 20, 1997 in the Registration
Statement (Form SB-2) in which this consent is included and the related
Prospectus of Harvard Scientific Corp.
I also consent to the addition of Supplemental Schedules V and VI of
Harvard Scientific Corp. for the years ended December 31, 1996 and 1995 in such
Registration Statement and Prospectus.
/Dale McGhie/
----------------------
W. Dale McGhie, CPA
Dated: April 16, 1997
Reno, Nevada
II-10
<PAGE> 65
DALE MCGHIE Town & Country Plaza
CERTIFIED PUBLIC ACCOUNTANT 1539 Vassar St. Reno, Nevada 89502
Tel: 702-323-7744
Fax: 702-323-8288
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
and Shareholders of
Harvard Scientific Corp.
I have audited the balance sheet of Harvard Scientific Corp. (A Development
Stage Company) as of December 31, 1996, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended, and
have issued my opinion thereon dated March 20, 1997. Such financial statements
and opinion are included in your 1987 Annual Report to Stockholders and are
incorporated herein by reference. My examination also comprehended
Supplemental Schedules V and VI of Harvard Scientific Corp. (A Development
Stage Company). In my opinion, Schedules V and VI, when considered in relation
to the basic financial statements, present fairly in all material respects the
information shown therein.
/s/ Dale McGhie
- --------------------
W. Dale McGhie, CPA
Reno, Nevada
March 20, 1996
S-1
<PAGE> 66
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
SCHEDULE V -- PROPERTY, PLANT, AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
======================================================================================================================
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
======================================================================================================================
OTHER CHANGES
BALANCE AT ADDITIONS RECLASSIFICATIONS BALANCE AT
CLASSIFICATION BEGINNING OF YEAR AT COST RETIREMENTS ADD (DEDUCT) END OF YEAR
- -------------------------- ----------------- ---------- ------------ ----------------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1996:
Furniture and equipment $ 11,682 $ 7,399 $ (9,665) $ -- $ 9,416
Intellectual property* 10,335 -- (1,340) -- 8,995
Leasehold and leasehold
improvements 5,816 -- (5,816) -- --
------------ ---------- ------------ ------------- -----------
TOTAL $ 27,833 $ 7,399 $ (16,821) $ -- $ 18,411
============ ========== ============ ============= ===========
December 31, 1995:
Furniture and equipment $ 11,682 $ -- $ -- $ -- $ 11,682
Intellectual property* 4,196 6,139 -- -- 10,335
Leasehold and leasehold
improvements 5,816 -- -- -- 5,816
------------ ---------- ------------ ------------- -----------
TOTAL $ 21,694 $ 6,139 $ -- $ -- $ 27,833
============ ========== ============ ============= ===========
</TABLE>
*Supplemental disclosure
S-2
<PAGE> 67
HARVARD SCIENTIFIC CORP.
(A DEVELOPMENT STAGE COMPANY)
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT, AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
======================================================================================================================
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
======================================================================================================================
ADDITIONS OTHER CHANGES
BALANCE AT CHARGED TO COSTS RECLASSIFICATIONS BALANCE AT
CLASSIFICATION BEGINNING OF YEAR AND EXPENSES RETIREMENTS ADD (DEDUCT) END OF YEAR
- -------------------------- ----------------- ---------------- ------------ ----------------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1996:
Furniture and equipment $ 4,408 $ 3,235 $ (4,152) $ -- $ 3,491
Intellectual property* 1,771 2,067 (2,791) -- 1,047
Leasehold and leasehold
improvements 2,228 1,163 (3,391) -- --
============ ========== ============ ============= ===========
TOTAL $ 8,407 $ 6,465 $ (10,334) $ -- $ 4,538
December 31, 1995:
Furniture and equipment $ 2,072 $ 2,336 $ -- $ -- $ 4,408
Intellectual property* 728 1,043 -- -- 1,771
Leasehold and leasehold
improvements 1,065 1,163 -- -- 2,228
------------ ---------- ------------ ------------- -----------
TOTAL $ 3,865 $ 4,542 $ -- $ -- $ 8,407
============ ========== ============ ============= ===========
</TABLE>
*Supplemental disclosure
S-3
<PAGE> 68
EXHIBIT INDEX
Number Description
------ -----------
3.1 Articles of Incorporation of Registrant, as amended to date.*
3.2 By-Laws of Registrant, as amended to date.*
4.1 Form of 6% Debenture (See Annex I to Item 10.2).
5.1 Opinion of Alexander H. Walker, Jr., Esq., including consent.
6.1 Consent of W. Dale McGhie, CPA.
6.2 Consent of David R. Baker, Esq.
10.1 Consulting Agreement, dated April 19, 1996, between the Registrant and
Dr. Jackie R. See, as amended on March 19, 1997.
10.2 Securities Purchase Agreement, dated March 21, 1997, between the
Registrant and Springrange Investment Group, Ltd.
10.3 Licensing Agreement, dated November 3, 1995, between Pharma Maehle
and Bio-Technology, Inc., as modified by assignment to the Registrant
on February 27, 1996.
10.4 Consulting Agreement, dated November 3, 1995, between the Registrant
and Thomas A. Waite and Associates, Inc.
10.5 Consulting Agreement, dated April 2, 1997, between the Registrant and
David E. Jordan.
10.6 Agreement for the Acquisition of Intellectual Property Rights, dated
January 7, 1994, between the Registrant and Bio-Sphere Technology,
Inc.
10.7 Exchange Agreement dated November 16, 1995, between the Registrant
and Bio-Sphere Technology, Inc.
10.8 Assignment of Patent Application No. 08/573408, filed 12/15/95, for
an invention entitled PGE-1 Containing Lyophilized Liposomes for the
Treatment of Erectile Dysfunction.*
_______________________________
* Incorporated by reference from the Registrant's Annual Report on Form
10-SB filed on April 30, 1996.
<PAGE> 1
ITEM 5.1
ALEXANDER H. WALKER, JR.
Attorney at Law
American Plaza II
57 West 200 South, Suite 400
Salt Lake City, Utah 84101
(801) 521-3292
(801) 521-3301 (Fax)
April 16, 1997
Harvard Scientific Corp.
100 No. Arlington, Suite 23P
Reno, NV 89501
Gentlemen:
I have acted as General Counsel on behalf of Harvard Scientific Corp.
("Harvard"), a Nevada corporation, in connection with the 6% Convertible
Debentures (the "Debentures"), which are the subject of the Securities Purchase
Agreement dated March 21, 1997 to which Harvard is a party.
Pursuant to the terms of the Securities Purchase Agreement, Harvard
will issue Convertible Debentures in denominations of $100,000.00 which bear
interest at the rate of 6% per annum and mature on March 30, 1998 as to the
first tranche of $5,000,000.00 worth of Debentures already issued and will
mature as of the end of the first anniversary month of issuance of the two (2)
additional $5,000,000.00 tranches contemplated under the Securities Purchase
Agreement. Upon the maturity of the Debentures, payment for principal and
accrued interest will be made either in currency or in shares of Harvard's
stock, at the option of the holder.
The holder may convert the Debentures into shares of Harvard's common
stock commencing on the effective date of a Registration Statement for such
shares. The conversion price per share will be either (a) $6.525, the market
price as defined in the Debentures as of March 21, 1997, or (b) 80% of the
market price on the date of conversion, whichever is lower. "Market Price", as
used in connection with the Debentures, means the average closing bid price of
the common stock of Harvard on the five (5) trading days immediately preceding
March 21, 1997 or the conversion date as may be applicable, as reported by the
National Association of
<PAGE> 2
Harvard Scientific Corp.
April 16, 1997
Page 2
Securities Dealers, or the closing bid price on the over-the-counter market on
such date, or in the event the common stock is listed on a stock exchange or
traded on NASDAQ, the "Market Price" means the closing price on the exchange on
such date, as reported in the Wall Street Journal. Harvard has the option of
paying the interest accrued from the date of issuance to the date of conversion
either in cash or in shares of common stock.
Pursuant to the terms of the Securities Purchase Agreement and the
Debentures, Harvard may redeem the Debentures for which a Notice of Conversion
has not been submitted if the conversion price equals or is less than $1.60 per
share by delivering a Notice of Redemption to the holder. However, the holder
may still opt to convert any such Debentures into shares of common stock by
submitting a Notice of Conversion to Harvard within three (3) business days of
the holder's receipt of the company's Notice of Redemption.
Also pursuant to the terms of the Securities Purchase Agreement and
the Debentures, the redemption price will be 125% of the principal amount of
the Debentures, plus accrued unpaid interest. Harvard must pay a redemption
price to the holder within ten (10) days from the date of the Notice of
Redemption. If Harvard fails to make the redemption payment within the ten
(10) day period, the company forfeits the right to redeem those Debentures.
Pursuant to the terms of the Securities Purchase Agreement and the
Debentures, a holder may also require Harvard to declare whether it intends to
effect a redemption within the following ten (10) days by faxing a notice to
the company. Harvard must respond to this notice within 24 hours. If it fails
to do so, Harvard may not redeem the holder's Debentures during the ten (10)
day period commencing 24 hours after the date of the notice from the holder.
Pursuant to the terms of the Securities Purchase Agreement and
<PAGE> 3
Harvard Scientific Corp.
April 16, 1997
Page 3
the Debentures, if Harvard merges or consolidates with another corporation, or
sells or transfers all or substantially all of its assets to another person
and, as a condition of such merger, consolidation or sale, the holders of the
company's common stock are entitled to receive stock or securities in another
corporation or to receive property in exchange for the company's common stock,
then the Debenture may be converted into the kind and amount of stock,
securities or property receivable by the holders of the Harvard's common stock
pursuant to the transaction. If, within fifteen (15) days of the holder's
receipt of a notice from the company advising of a proposed merger,
consolidation or sale, the holder has not submitted a Notice of Conversion,
then Harvard may prepay all outstanding principal and accrued interest and
thereby terminate the holder's conversion rights.
As General Counsel for the corporation in this regard, I have reviewed
the various corporate proceedings taken by Harvard in connection with the
authorization and issuance of the Debentures and the authorization and
reservation for issuance of the shares of common stock issuable in connection
with the Debentures, and I have examined originals, or copies certified to my
satisfaction, of such corporate records of Harvard and other instruments and
documents as I have deemed necessary as the basis for the opinions hereinafter
expressed.
On the basis of the foregoing, I am of the opinion that the Debentures
have been duly and validly authorized by Harvard and that the shares of common
stock which may be issued in connection with the Debentures will be legally and
validly issued: (1) upon the effectiveness of the company's Registration
Statement for such shares on Form SB-2; and, (2) the completion of all
requirements or contingencies contained in the Securities Purchase Agreement
and the Debentures for the conversion of such Debentures into the shares of
common stock of Harvard.
<PAGE> 4
Harvard Scientific Corp.
April 16, 1997
Page 4
I consent to the filing of this opinion as a exhibit to the
Registration Statement. I also consent to the references made to me, if any,
under the caption "Legal Opinions" in the prospectus contained in the
Registration Statement.
Very truly yours,
/Alexander H. Walker, Jr./
A.H.Walker,Jr.:cje
<PAGE> 1
ITEM 6.1
CONSENT OF INDEPENDENT AUDITOR
I hereby consent to the reference to my firm under the caption
"Experts" and to the use of my report on financial statements for the years
ended December 31, 1996, 1995 and 1994 dated March 20, 1997 in the Registration
Statement (Form SB-2) in which this consent is included and the related
Prospectus of Harvard Scientific Corp.
I also consent to the addition of Supplemental Schedules V and VI of
Harvard Scientific Corp. for the years ended December 31, 1996 and 1995 in such
Registration Statement and Prospectus.
/s/ DALE MCGHIE
-------------------------------
W. Dale McGhie, CPA
Dated: April 16, 1997
Reno, Nevada
<PAGE> 1
ITEM 6.2
CONSENT OF COUNSEL
I hereby consent to the reference to me under the caption "Legal
Matters" in the Prospectus contained in this Registration Statement.
/s/ DAVID R. BAKER
--------------------------------
David R. Baker, Esq/
Dated: April 17, 1997
New York, New York
<PAGE> 1
ITEM 10.1
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT, made and entered into this 19th
day of April, 1996 by and between JACKIE R. SEE, M.D., hereinafter referred to
as "CONSULTANT" and HARVARD SCIENTIFIC CORP., a Nevada corporation, hereinafter
referred to as "HARVARD."
The parties agree as follows:
1. TERM OF AGREEMENT. The consulting relationship between HARVARD and
CONSULTANT shall commence APRIL 1, 1996 (the "Commencement Date"), and shall
continue until MARCH 30, 1999 unless terminated earlier as provided in Section
5 hereof.
2. DUTIES OF CONSULTANT. Consultant shall render services as requested
by Harvard and shall hold the office of CHIEF SCIENTIFIC OFFICER. The time
devoted by Consultant shall be as needed to fulfill his duties. Consultant
shall be free to engage in other forms of employment or provide services to
other persons or firms so long as such employment does not interfere with
Consultant's duties to Harvard or such persons or firms do not compete with
Harvard.
3. TIME AND EFFORTS. Consultant will at all times be faithfully and
industriously and to the best of his ability, experience and talents perform
all duties that may be required under this Agreement. Such duties shall be
rendered primarily at the office of Harvard, although Consultant may be
required to travel at the sole expense of Harvard to such places as
1
<PAGE> 2
may be required to conduct business on behalf of Harvard. However, such travel
must be at reasonable times and shall be required in such a way as to not
impose a burden upon Consultant.
4. COMPENSATION. In full payment for Consultant's services, Employer
shall pay to Consultant compensation determined in accordance with the terms
below.
4.1 SALARY. Consultant shall receive a salary of $12,500 per month
to be reviewed by the Board of Directors on a quarterly basis. Harvard
agrees to increase said salary to a level more in conformity with industry
standards as soon as economically feasible for the company in view of the
performance of Consultant and the earnings of Harvard.
4.2 PERCENTAGE OF FEES BASED ON GROSS PROCEEDS. In addition to the
monthly salary described in Section 4.1 above, the Consultant shall be entitled
to 5% of the gross proceeds and/or 2% of net sales of the HARVARD. Payment
hereunder shall be made to Consultant within five (5) days after the beginning
of each calendar month subject to adjustment within thirty (30) days after the
end of each calendar year.
4.3 EXPENSES. Harvard shall reimburse Consultant for all
reasonable and necessary business expenses incurred by Consultant in the
discharge of his duties.
4.4 AIR TRAVEL. When Consultant travels on business for Harvard,
he shall travel on the same basis as Harvard's most favorably treated employee
or director.
2
<PAGE> 3
4.5 MEMBER OF BOARD OF DIRECTORS. Consultant shall serve on
Harvard's Board of Directors during the initial term of this contract, or until
the shareholders of Harvard elect a new Board of Directors.
4.6 CONTROL OF MANUFACTURING. Consultant, as inventor of the
erectile dysfunction product, shall be assigned the duty of supervising the
manufacturing process to insure the integrity of the product. Consultant shall
be allowed to choose the manufacturer as well as all components of the process
and shall be consulted regarding the marketing strategy to be employed in the
sale of the product.
5. TERMINATION.
5.1 This Consulting Agreement may be terminated at any time by
Consultant with or without cause. Harvard has no right to terminate this
Consulting Agreement except upon the breach hereof by Consultant. Without
limitation of the foregoing, Consultant shall not be required to mitigate his
damages in the event Harvard shall terminate this Consulting Agreement, and
earnings or other compensation received by the Consultant from third parties
during the unexpired term of this agreement shall not be offset against or
reduce any amounts payable for Harvard hereunder. If, at any time, Consultant
breaches material obligation under this Consulting Agreement, Harvard shall
give written notice to Consultant and may terminate this agreement if such
breach is not promptly cured. Such termination is effective upon the date set
forth in such notice.
3
<PAGE> 4
Upon termination, all of Harvard and Consultant's confidential information and
solicitation shall survive the termination, breach or expiration of this
Consulting Agreement for a period of ten (10) years.
5.2 Upon lawful termination in accordance with this Consulting
Agreement, Harvard shall only be liable to Consultant for the salary and
percentage of gross sales fully earned and paid under paragraph 4 above, as of
the termination date.
6. TRADE SECRETS AND PROPRIETARY INFORMATION OF HARVARD.
6.1 Consultant will have access to, will acquire and become
acquainted with various trade secrets, confidential and proprietary
information, relating to Harvard's business, including but not limited to:
client, consultant, employee, supplier and distributor lists, contacts,
addresses, information about employees and employee relations, training manuals
and procedures, recruitment methods and procedures, employment and client
contracts, contracts with suppliers of goods and services, employee handbooks,
information about clients and suppliers, price lists, costs and expenses,
documents, ledgers, proposals, financial information, inventions, protocols,
patterns, processes, computer programs, manufacturing, recruitment and
distribution techniques, specifications, tapes and compilations of information,
all of which are owned by Harvard or clients of Harvard and which are used in
the operation of Harvard's or clients' business. Consultant shall hold in the
strictest confidence and shall not (other than as specifically allowed in
writing by Harvard) disclose or use any trade secret or confidential
information of Harvard, directly or indirectly, or use them in any way, either
during the term of the Consultant's engagement, or at any time thereafter,
except as required by Harvard, in the course of Harvard's engagement.
Consultant understands that the term
4
<PAGE> 5
trade secret or confidential information means all information concerning
Harvard, clients of Harvard, or any parent, subsidiary or affiliate of Harvard
or a client, any supplier, or any client (including, but not limited to,
information regarding the peculiarities, preferences and manner of doing
business) that is not generally known to the public. All items referred to in
this paragraph and similar items relating to business of Harvard or client,
whether prepared by Consultant or otherwise, shall remain the exclusive
property of Harvard or client and shall not be removed otherwise, shall remain
the exclusive property of Harvard or client, and shall not be removed from
Harvard's or client's premises without prior written consent of Harvard.
Consultant also agrees that the remedy at law for breach of this paragraph is
inadequate and the Harvard, in addition to any other remedy, can seek
appropriate injunctive relief from an appropriate court or arbitrator, at its
election, without bond, including mandatory injunction.
6.2 LETTER PATENT. Consultant will, at any time during his
engagement or thereafter, upon request and without further compensation
therefore, but at no expense to him, do unlawful acts, including the execution
of paper and oaths and the giving of testimony, that in the opinion of Harvard,
may be necessary or
5
<PAGE> 6
desirable for obtaining, sustaining, reusing or enforcing Letters Patent in the
United States and throughout the world for said inventions, and for perfecting,
recording or maintaining the title of Harvard, its successors and assigns, to
said Inventions and to any patent applications made and any Letters Patent
granted for said inventions in the United States and throughout the world.
6.3 RECORDS, OBLIGATION TO KEEP. Consultant will keep complete,
accurate and authentic accounts, notes, data and records of any and all kinds
of said inventions in the manner and form requested by Harvard. Such accounts,
notes, data and records, including all copies thereof, shall be the property of
Harvard and upon its request, Consultant will promptly surrender the same to
it, or if not previously surrendered, will promptly surrender the same to
Harvard at the conclusion of his engagement.
6.4 RECORDS PROPERTY OF EMPLOYER. Consultant agrees that all
accounts, notes, data, sketches, drawings and other documents and records, and
all material and physical items of any kind, including all reproductions and
copies thereof, which relate in any way to the business, products, practices or
techniques of Harvard or contain confidential information, made by Consultant
or that come into his possession by reason of his engagement are the property
of Harvard at the conclusion of this Consulting Agreement.
7. DISPUTE RESOLUTION PROCEDURE. Any controversy or claim, including,
but not limited to tort and contract claims, arising out of, or relating to
Consultant's engagement, the termination of
6
<PAGE> 7
Consultant's employment, commissions, the terms and conditions of this
Consulting Agreement, or the coverage of this dispute resolution procedure
shall be resolved by binding arbitration in accordance with the Commercial
Rules them obtaining of the American Arbitration Association Judgment upon the
arbitrator's award may be entered by any court of competent jurisdiction and
may include reasonable attorneys fees in the discretion of the arbitrator.
8. INJUNCTIVE RELIEF. The services of Consultant, as well as the trade
secrets and the proprietary and confidential information of Harvard are of a
special, unique, unusual and extraordinary nature, which gives them a peculiar
value, the loss of which cannot reasonably or adequately be compensated for in
damages in an action at law. The breach by either party of any provision of
this Consulting Agreement would cause the other party irreparable injury and
damage, the measure of which could not be adequately measured at law.
Accordingly, each party shall be entitled, as a matter of right, to injunctive
and other equitable relief to prevent the violation of any provision of this
Consulting Agreement by the other. Each party hereby consents to the granting
of such injunctive or other equitable relief provided notice is given
hereunder. The exercise by either party of its rights hereunder shall not
constitute a waiver by such party of any other rights which it may have to
damages or otherwise.
9. CONSENT TO JURISDICTION. All legal proceedings in connection with
this Consulting Agreement shall be undertaken
7
<PAGE> 8
before an arbitrator pursuant to paragraph 7, except that claims for injunctive
or other equitable relief, or extraordinary writs may be brought in a proper
court in the State of Nevada, County of Washoe. Election by any party to this
Agreement to seek such relief in court shall not constitute a waiver of
arbitration pursuant to paragraph 7, but shall be used to preserve the status
quo pending arbitration. Both parties consent to the jurisdiction of any
arbitrator or court, state or federal, in the State of Nevada, provided notice
is given as provided in paragraph 10 below, of the commencement of such action.
10. NOTICE. Any notices hereunder shall be in writing and shall be
effective upon personal delivery or five days after deposit in the United
States mail, registered or certified, return receipt requested, postage
prepaid, addressed as follows or to such other addresses as may be specified in
the same manner:
If to Consultant to:
Jackie R. See, M.D.
2519 Emerald Avenue.
Las Vegas, NV 89120
If to Harvard to:
Harvard Scientific Corp.
1061 East Flamingo, Suite 18
Las Vegas, NV 89119
11. ATTORNEY'S FEES. In the event that any of the parties must resort
to legal action in order to enforce the provisions of this Consulting Agreement
or to defend such suit, the prevailing party shall be entitled to receive
reimbursement from the non-prevailing party for all reasonable attorney's fees
and all other
8
<PAGE> 9
costs incurred in commencing or defending such suit.
12. SEVERABILITY. If any term or provision of this Consulting
Agreement is or are held to be invalid or unenforceable, the remaining portions
of this Consulting Agreement shall continue to valid and will be by law, and
the invalid or unenforceable term shall be deemed amended and limited in
accordance with the intent of the parties as determined the face of the
Consulting Agreement, to the extent necessary to permit the maximum
enforceability of the term of provision.
13. ENTIRE AGREEMENT. This Consulting Agreement embodies the entire
understanding between the parties with respect to the subject between them, and
no party shall be bound by any definitions, conditions, or warranties, or
representations other than as expressly stated in this Consulting Agreement or
as subsequently set forth in a writing signed by the duly authorized
representatives of all the parties hereto, or the party whose rights are
affected. This agreement may only be changed or modified and any provisions
hereof may only be changed or modified and any provisions hereof may only be
waived in or by a writing signed by the party against whom enforcement of any
waiver, change or modifications sought. This agreement may be amended only in
writing by mutual consent of the parties.
14. Confidentiality. The existence of this Consulting Agreement and its
terms are confidential and shall not be disclosed by Consultant or Harvard
except as may be required by law or to enforce the provisions hereof.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Consulting
Agreement to be executed the day and year first above written.
CONSULTANT
By: /s/ JACKIE R. SEE
-----------------------------
Jackie R. See, M.D.
HARVARD SCIENTIFIC CORP.
By: /s/ TOM HICKS
-----------------------------
Tom Hicks, President
(Hereunto duly authorized)
10
<PAGE> 11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made by and between HARVARD
SCIENTIFIC CORP., a Nevada Corporation, referred to as ("Employer") and JACKIE
R. SEE, M.D. referred to herein as ("Employee").
The parties agree as follows:
1. Term of Agreement. The consulting relationship between Employer and
Employee shall commence APRIL 1, 1996 ("the Commencement Date"); and shall
continue until MARCH 30, 1999 unless terminated earlier as provided in Section
5 hereof.
2. Duties of Employee. Employee shall render services as requested by
Employer and shall hold the office of CHIEF SCIENTIFIC OFFICER. The time
devoted by Employee to his duties shall be as needed to fulfill his duties.
Employee shall be free to engage in other forms of employment or provide
services to other persons or firms so as long as such employment does not
interfere with Employee's duties to Employer or such persons or firms do not
compete with Employer.
3. Time and Efforts. Employee will at all times be faithfully and
industriously and to the best of his ability, experience and talents perform
all duties that may be required under this Agreement. Such duties shall be
rendered primarily at the office of Employer in Las Vegas, Nevada, although
Employee may be required to travel at the sole expense of Employer to such
places as may be required to conduct business on behalf of Employer. However,
such travel must be at reasonable times and shall be required in such a way as
to not impose a burden upon Employee.
4. Compensation. In full payment for Employee's services, Employer
shall pay to Employee compensation determined in accordance with the terms
below.
4.1 Salary. Employee shall receive a salary of $12,500 per
month to be reviewed by the Board of Directors on a quarterly basis. Employer
agrees to increase said salary to a level more in conformity with industry
standards as soon as economically feasible for the company in view of the
performance of employee and the earnings of Employer.
4.2 Percentage Fees Based on Net Sales. In addition to the
monthly salary described in Section 4.1 above, the Employee shall be entitled
to 2 PERCENT of the net sales of the Harvard Scientific Corp. Payment hereunder
shall be made to Employee within 5 days after the beginning of each calendar
month subject to adjustment within 30 days after the end of each calendar year.
4.3 Expenses. Employer shall reimburse Employee for all
reasonable and necessary business expenses incurred by Employee in the
discharge of his duties.
4.4 Air Travel. When Employee travels on business for
Employer, he shall travel on the same basis as employer's most favorably
treated employee or Director.
4.5 Board of Director Membership. Employee shall serve on
Employer's Board of Directors during the initial term of this contract or until
the shareholders of Employer elect a new Board of Directors.
4.6 Control of Manufacturing. Employee, as inventor of the
erectile dysfunction product, shall be assigned the duty of supervising the
manufacturing process to insure the integrity of the product. Employee shall be
allowed to choose the manufacturer as well as all components of the process and
shall be consulted regarding the marketing strategy to be employed in the sale
of the product.
<PAGE> 12
5. Termination.
5.1 This Agreement may be terminated at any time by employee
with or without cause. Employer has no right to terminate this Agreement except
upon the breach hereof by Employee without limitation of the foregoing.
Employee shall not be required to mitigate his damages in the event Employer
shall terminate this Agreement, and earnings or other compensation received by
the Employee from third parties during the unexpired term of this Agreement
shall not be offset against or reduce any amounts payable for Employer
hereunder. If, at any time, Employee breaches material obligation under this
agreement, Employer shall give written notice to Employee and may terminate
this Agreement if such breach is not promptly cured. Such termination is
effective upon the date set forth in such notice. Upon termination, all of
Employer and Employee's confidential information and solicitation shall survive
the termination, breach or expiration of this Agreement for a period of ten
(10) years.
5.2 Upon lawful termination in accordance with this Agreement,
Employer shall only be liable to employer for the salary and percentage of
gross sales fully earned and paid under paragraph 4 above, as of the
termination date.
6. Trade Secrets and Proprietary Information of Employer.
6.1 Employee will have access to, will acquire and become
acquainted with various trade secrets, confidential and proprietary
information, relating to Employer's business, including but not limited to:
client, consultant, employee, supplier, and distributor lists, contacts,
addresses, information about employees and employee relations, training manuals
and procedures, recruitment methods and procedures, employment and client
contracts, contracts with suppliers of goods and services, employee handbooks,
information about clients and suppliers, price lists, costs and expenses,
documents, budgets, proposals, financial information, inventions, protocols,
patterns, processes, computer programs, manufacturing, recruitment and
distribution techniques, specifications, tapes and compilations of information,
all of which are owned by Employer or clients of Employer and which are used in
the operation of Employer's or clients business. Employee shall hold in the
strictest confidence and shall not (other than as specifically allowed in
writing by Employer) disclose or use any trade secret or confidential
information of Employer, directly or indirectly, or use them in any way, either
during the term of the Employee's engagement, or at any time thereafter, except
as required by Employer, in the course of Employee's engagement. Employee
understands that the term "trade secret" or "confidential information" means
all information concerning Employer, clients of Employer, or any parent,
subsidiary or affiliate of Employer or a client, any supplier, or any client
(including, but not limited to, information regarding the peculiarities,
preferences and manner of doing business) that is not generally known to the
public. All items referred to in this paragraph and similar items relating to
business of employer or client, whether prepared by Employee or otherwise,
shall remain the exclusive property of Employer or client and shall not be
removed otherwise, shall remain the exclusive property of Employer or client
and shall not be removed from employer's or client's premises without prior
written consent of Employer. Employee also agrees that the remedy at law for
breach of this paragraph is inadequate and the Employer, in addition to any
other remedy, can seek appropriate injunctive relief from an appropriate court
or arbitrator, at its election, without bond, including mandatory injunction.
6.2 Letter Patent. Employee will, at any time during his
engagement or thereafter, upon request and without further compensation
therefore, but at no expense to him, do unlawful acts, including the execution
of paper and oaths and the giving of testimony, that in the opinion of
employer, may be necessary or desirable for obtaining, sustaining, reusing or
enforcing Letters Patent in the United States and throughout the world for said
Inventions, and for perfecting, recording or maintaining the title of Employer,
its successors and assigns, to said Inventions and to any patent applications
made and any Letters Patent granted for said Inventions in the United States
and throughout the world.
<PAGE> 13
6.3 Records, Obligation to Keep. Employee will keep complete,
accurate and authentic accounts, notes, data and records of any and all of said
inventions in the manner and form requested by Employer. Such accounts, notes,
data and records, including all copies thereof, shall be the property of
employer and upon its request, employee will promptly surrender the same to it,
or if not previously surrendered, will promptly surrender the same to Employer
at the conclusion of his engagement.
6.4 Records Property of Employer. Employee agrees that all
accounts, notes, data, sketches, drawings and other documents and records, and
all material and physical items of any kind, including all reproductions and
copies thereof, which relate in any way to the business, products, practices or
techniques of Employer or contain confidential information, made by Employee or
that come into his possession by reason of his engagement are the property of
employer at the conclusion of this agreement.
7. Dispute Resolution Procedure. Any controversy or claim, including,
but not limited to tort and contract claims, arising out of, or relating to
Employee's engagement, the termination of Employer's employment, commissions,
the terms and conditions of this Agreement, or the coverage of this dispute
resolution procedure shall be resolved by binding arbitration in accordance
with the Commercial Rules them obtaining of the American Arbitration
Association Judgment upon the arbitrator's award may be entered by any court of
competent jurisdiction and may include reasonable attorneys fees in the
discretion of the arbitrator.
8. Injunctive Relief. The services of Employee, as well as the trade
secrets and the proprietary and confidential information of Employer are of a
special, unique, unusual and extraordinary nature, which gives them a peculiar
value, the loss of which cannot reasonably or adequately be compensated for in
damages in an action at law. The breach by either party of any provision of
this Agreement would cause the other party irreparable injury and damage, the
measure of which could not be adequately measured at law. Accordingly, each
party shall be entitled, as a matter of right, to injunctive and other
equitable relief to prevent the violation of any provision of this Agreement by
the other. Each party hereby consents to the granting of such injunctive or
other equitable relief provided notice is given hereunder. The exercise by
either party of its rights hereunder shall not constitute a waiver by such
party of any other rights which it may have to damages or otherwise.
9. Consent to Jurisdiction. All legal proceedings in connection with
this Agreement shall be undertaken before an arbitrator pursuant to paragraph
7, except that claims for injunctive or other equitable relief, or
extraordinary writs may be brought in a proper court in the State of Nevada,
County of Clark. No party's election to seek such relief in court shall not
constitute a waiver of arbitration pursuant to paragraph 7, but shall be used
to preserve the status quo pending arbitration. Both parties consent to the
jurisdiction of any arbitrator or court, state or federal, in the State of
Nevada, provided notice is given as provided in paragraph 10 below, of the
commencement of such action.
<PAGE> 14
10. Notice. Any notices hereunder shall be in writing and shall be
effective upon personal delivery or five days after deposit in the United
States mail, registered or certified, return receipt requested, postage
prepaid, addressed as follows or to such other addresses as may be specified in
the same manner:
If to Employee: JACKIE R. SEE, M.D.
2519 Emerald Avenue.
Las Vegas, NV 89120
If to Employer: HARVARD SCIENTIFIC CORP.
1061 East Flamingo, Suite 18
Las Vegas, NV 89119
11. Attorney's Fees. In the event that any of the parties must resort
to legal action in order to enforce the provisions of this Agreement or to
defend such suit, the prevailing party shall be entitled to receive
reimbursement from the non-prevailing party for all reasonable attorney's fees
and all other cost incurred in commencing or defending such suit.
12. Severability. If any term or provision of this Agreement is or are
held to be invalid or unenforceable, the remaining portions of this Agreement
shall continue to valid and will be by law, and the invalid or unenforceable
term shall be deemed amended and limited in accordance with the intent of the
parties as determined the face of the Agreement, to the extent necessary to
permit the maximum enforceability of the term of provision.
13. Entire Agreement. This Agreement embodies the entire understanding
between them, and no party shall be bound by any definitions, conditions, or
warranties, or representations other than as expressly stated in this Agreement
or as subsequently set forth in a writing signed by the duly authorized
representatives of all the parties hereto, or the party whose rights are
affected. This Agreement may only be changed or modified and any provisions
hereof may only be changed or modified and any provisions hereof may only be
waived in or by a writing signed by the party against whom enforcement of any
waiver, change or modifications sought. This Agreement may be amended only in
writing by mutual consent of the parties.
14. Confidentiality. The existence of this Agreement and its terms are
confidential and shall not be disclosed by Employee or employer except as may
be required by law or to enforce the provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first set forth above.
DATE OF THIS AGREEMENT: April 19, 1996
--------------------
HARVARD SCIENTIFIC CORP.
By: /s/ NEAL ARMSTRONG, CEO
---------------------------
Name & Title
-and-
/s/ JACKIE R. SEE
---------------------------
Jackie R. See
<PAGE> 1
ITEM 10.2
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of
acceptance set forth below, is entered into by and between HARVARD SCIENTIFIC
CORPORATION, a Nevada corporation, with headquarters located at 100 North
Arlington, Suite 23P, Reno, Nevada 89501(the "Company"), and the undersigned
(the "Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and
delivering this Agreement in reliance upon the exemption from securities
registration afforded by Rule 506 under Regulation D ("Regulation D") as
promulgated by the United States Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "1933 Act"), and/or Section
4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and
subject to the conditions of this Agreement, 6% Convertible Debentures (the
"Debenture"), of the Company which will be convertible into shares of Common
Stock, $.01 par value per share (the "Common Stock"), of the Company upon the
terms and subject to the conditions of such Debenture (the Common Stock and the
Debenture sometimes referred to herein as the "Securities"), and subject to
acceptance of this Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. PURCHASE. The undersigned hereby agrees to purchase
from the Company, the Debentures of the Company, in the principal amount set
forth on the signature page of this Agreement, out of a total offering of
$15,000,000 in Debentures, and having the terms and conditions and being in the
form attached hereto as ANNEX I. The purchase price for the Debenture shall be
as set forth on the signature page hereto and shall be payable in United States
Dollars.
b. FORM OF PAYMENT. The Buyer shall pay the purchase
price for the Debenture by delivering immediately available good funds in
United States Dollars to the escrow agent (the "Escrow Agent") identified in
the Joint Escrow Instructions attached hereto as ANNEX II (the "Joint Escrow
Instructions") as set forth below. Promptly following payment by the Buyer to
the Escrow Agent of the purchase price of the Debentures, the Company shall
deliver the Debenture duly executed on behalf of the Company to the Escrow
Agent. By signing this Agreement, the Buyer and the Company, and subject to
acceptance by the Escrow Agent, each agrees to all of the terms and
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<PAGE> 2
conditions of, and becomes a party to, the Joint Escrow Instructions, all of
the provisions of which are incorporated herein by this reference as if set
forth in full.
c. METHOD OF PAYMENT. Payment into escrow of the purchase
price for the Debenture shall be made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Account No. _________________________
Not later than 1:00 p.m., New York time, on the date which is three (3) New
York Stock Exchange trading days after the Company shall have accepted this
Agreement and returned a signed counterpart of this Agreement to the Escrow
Agent by facsimile, the Buyer shall deposit with the Escrow Agent the aggregate
purchase price for the Debenture, in currently available funds. Time is of the
essence with respect to such payment, and failure by the Buyer to make such
payment, shall allow the Company to cancel this Agreement.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees
with, the Company as follows:
a. Without limiting Buyer's right to sell the Common Stock
pursuant to the Registration Statement, the Buyer is purchasing the Debenture
and will be acquiring the shares of Common Stock issuable upon conversion of
the Debenture for its own account for investment only and not with a view
towards the public sale or distribution thereof and not with a view to or for
sale in connection with any distribution thereof;
b. The Buyer is (i) an "accredited investor" as that term
is defined in Rule 501 of the General Rules and Regulations under the 1933 Act
by reason of Rule 501(a)(3), and (ii) experienced in making investments of the
kind described in this Agreement and the related documents, (iii) able, by
reason of the business and financial experience of its officers (if an entity)
and professional advisors (who are not affiliated with or compensated in any
way by the Company or any of its affiliates or selling agents), to protect its
own interests in connection with the transactions described in this Agreement,
and the related documents, and (iv) able to afford the entire loss of its
investment in the Securities;
c. All subsequent offers and sales of the Debenture and
the shares of Common Stock issuable upon conversion of, or issued as dividends
on, the Debenture (the "Shares" and,
2
<PAGE> 3
together with the Debenture, the "Securities") by the Buyer shall be made
pursuant to registration of the Shares under the 1933 Act or with respect to
the Debenture pursuant to an exemption from registration;
d. The Buyer understands that the Debenture is being
offered and sold, and the Shares are being offered, to it in reliance on
specific exemptions from the registration requirements of United States federal
and state securities laws and that the Company is relying upon the truth and
accuracy of, and the Buyer's compliance with, the representations, warranties,
agreements, acknowledgements and understandings of the Buyer set forth herein
in order to determine the availability of such exemptions and the eligibility
of the Buyer to acquire the Debenture and to receive an offer of the Shares;
e. The Buyer and its advisors, if any, have been furnished
with all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Debenture and the
offer of the Shares which have been requested by the Buyer, including ANNEX V
hereto. The Buyer and its advisors, if any, have been afforded the opportunity
to ask questions of the Company and have received complete and satisfactory
answers to any such inquiries. Without limiting the generality of the
foregoing, the Buyer has also had the opportunity to obtain and to review the
Company's (1) a draft of the Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996, (2) Quarterly Report on Form 10-QSB for the fiscal
quarter ended September 30, 1996, and (3) Form 10-SB (the "Company's SEC
Documents").
f. The Buyer understands that its investment in the
Securities involves a high degree of risk;
g. The Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed on or
made any recommendation or endorsement of the Securities;
h. This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Buyer and is a valid and binding
agreement of the Buyer enforceable in accordance with its terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors'
rights generally.
i. Neither Buyer, nor any affiliate of Buyer, has any
present intention of entering into, any put option, short position, or other
similar position with respect to the Debenture or the Shares.
j. Notwithstanding the provisions hereof or of the
Debenture, in no event (except with respect to an Event of Mandatory Conversion
upon the maturity of the Debenture) shall the holder be entitled to convert any
Debenture to the extent after such conversion, the sum of (1) the number of
shares of Common Stock beneficially owned by the Buyer and its affiliates
(other than shares of Common Stock which may be deemed beneficially owned
through the ownership of the
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<PAGE> 4
unconverted portion of the Debenture), and (2) the number of shares of Common
Stock issuable upon the conversion of the Debenture with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Buyer and its affiliates of more than 4.9% of the outstanding
shares of Common Stock. For purposes of the proviso to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13 D-G thereunder, except as otherwise provided in clause (1) of
such proviso.
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that:
a. CONCERNING THE SHARES. There are no preemptive rights
of any stockholder of the Company, as such, to acquire the Common Shares.
b. REPORTING COMPANY STATUS. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Nevada. The Company has registered its Common Stock pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the Common Stock is listed and traded on the NASDAQ/Bulletin Board.
The Company has received no notice, either oral or written, with respect to the
continued eligibility of the Common Stock for such listing.
c. AUTHORIZED SHARES. The Company has sufficient
authorized and unissued Shares as may be reasonably necessary to effect the
conversion of the Debenture. The Common Shares have been duly authorized and,
when issued upon conversion of, or as interest on, the Debenture, will be duly
and validly issued, fully paid and non-assessable and will not subject the
holder thereof to personal liability by reason of being such holder.
d. SECURITIES PURCHASE AGREEMENT; REGISTRATION RIGHTS
AGREEMENT AND STOCK. This Agreement and the Registration Rights Agreement, the
form of which is attached hereto as ANNEX IV (the "Registration Rights
Agreement"), and the transactions contemplated thereby, have been duly and
validly authorized by the Company, this Agreement has been duly executed and
delivered by the Company and this Agreement is, and the Registration Rights
Agreement, when executed and delivered by the Company, will be, valid and
binding agreements of the Company enforceable in accordance with their
respective terms, subject as to enforceability to general principles of equity
and to bankruptcy, insolvency, moratorium, and other similar laws affecting the
enforcement of creditors' rights generally; and the Debenture will be duly and
validly authorized and, when executed and delivered on behalf of the Company in
accordance with this Agreement, will be a valid and binding obligation of the
Company in accordance with its terms, subject to general principles of equity
and to bankruptcy, insolvency, moratorium, or other similar laws affecting the
enforcement of creditors' rights generally.
e. NON-CONTRAVENTION. The execution and delivery of this
Agreement and the Registration Rights Agreement by the Company, the issuance of
the Securities, and the
4
<PAGE> 5
consummation by the Company of the other transactions contemplated by this
Agreement, the Registration Rights Agreement, and the Debenture do not and will
not conflict with or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under (i) the articles of incorporation
or by-laws of the Company, (ii) any indenture, mortgage, deed of trust, or
other material agreement or instrument to which the Company is a party or by
which it or any of its properties or assets are bound, including any listing
agreement for the Common Stock, (iii) any existing applicable law, rule, or
regulation or any applicable decree, judgment, or (iv) order of any court,
United States federal or state regulatory body, administrative agency, or other
governmental body having jurisdiction over the Company or any of its properties
or assets, except such conflict, breach or default which would not have a
material adverse effect on the transactions contemplated herein.
f. APPROVALS. No authorization, approval or consent of
any court, governmental body, regulatory agency, self-regulatory organization,
or stock exchange or market or the Stockholders of the Company is required to
be obtained by the Company for the issuance and sale of the Securities to the
Buyer as contemplated by this Agreement, except such authorizations, approvals
and consents that have been obtained.
g. SEC FILINGS. None of the SEC Filings with the
Securities and Exchange Commission since the filing of the 10-QSB on September
30, 1996 contained, at the time they were filed, any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements made therein in light of the circumstances
under which they were made, not misleading. Except as set forth on Annex V
hereto, the Company has since September 30, 1996 timely filed all requisite
forms, reports and exhibits thereto with the Securities and Exchange
Commission.
h. ABSENCE OF CERTAIN CHANGES. Since September 30, 1996,
there has been no material adverse change and no material adverse development
in the business, properties, operations, financial condition, or results of
operations of the Company, except as disclosed in the documents referred to in
Section 2(e) hereof.
i. FULL DISCLOSURE. There is no fact known to the Company
(other than general economic conditions known to the public generally) that has
not been disclosed in writing to the Buyer that (i) could reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise) or in the earnings, business affairs, properties or assets of the
Company or (ii) could reasonably be expected to materially and adversely affect
the ability of the Company to perform its obligations pursuant to this
Agreement.
j. ABSENCE OF LITIGATION. Except as set forth in ANNEX V
hereto, and in the draft of the Form 10-QSB, which the Buyer has reviewed,
there is no action, suit, proceeding, inquiry or investigation before or by any
court, public board or body pending or, to the knowledge of the Company or any
of its subsidiaries, threatened against or affecting the Company or any of its
subsidiaries, wherein an unfavorable decision, ruling or finding would have a
material adverse effect on the properties, business, condition (financial or
other), results of operations or prospects of the
5
<PAGE> 6
Company and its subsidiaries taken as a whole or the transactions contemplated
by this Agreement or any of the documents contemplated hereby or which would
adversely affect the validity or enforceability of, or the authority or ability
of the Company to perform its obligations under, this Agreement or any of such
other documents.
k. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in
ANNEX V hereto, no Event of Default, as defined in the respective agreement to
which the Company is a party, and no event which, with the giving of notice or
the passage of time or both, would become an Event of Default (as so defined),
has occurred and is continuing, which would have a material adverse effect on
the Company's financial condition or results of operations.
l. NO DEFAULT. The Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it or its property
is bound, and neither the execution, nor the delivery by the Company, nor the
performance by the Company of its obligations under this Agreement or the
Debenture, other than the conversion provision thereof, will conflict with or
result in the breach or violation of any of the terms or provisions of, or
constitute a default or result in the creation or imposition of any lien or
charge on any assets or properties of the Company under, any material
indenture, mortgage, deed of trust or other material agreement applicable to
the Company or instrument to which the Company is a party or by which it is
bound or any statute or the Certificate of Incorporation or By-Laws of the
Company, or any decree, judgment, order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or its
properties, or the Company's listing agreement for its Common Stock.
m. PRIOR ISSUES. During the twelve (12) months preceding
the date hereof, the Company has not issued any securities except as set forth
in Exhibit 3(m). The presently outstanding unconverted principal amount of
each such issuance as at March 20, 1997 are set forth in Exhibit 3(m).
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS. The Buyer acknowledges that (1)
the Debenture has not been and is not being registered under the provisions of
the 1933 Act and, except as provided in the Registration Rights Agreement, the
Shares have not been and are not being registered under the 1933 Act, and may
not be transferred unless (A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that
the Securities to be sold or transferred may be sold or transferred pursuant to
an exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or
6
<PAGE> 7
the rules and regulations of the SEC thereunder; and (3) neither the Company
nor any other person is under any obligation to register the Securities (other
than pursuant to the Registration Rights Agreement) under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder.
b. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees
that the Debentures, and, until such time as the Common Stock has been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement and sold in accordance with such Registration Statement, the shares
of Common Stock issued to the Holder upon conversion of the Debentures shall
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the Debenture and such
shares of Common Stock):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER
EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH REGISTRATION
IS NOT REQUIRED.
c. REGISTRATION RIGHTS AGREEMENT. The parties hereto
agree to enter into the Registration Rights Agreement, in substantially the
form attached hereto as ANNEX IV, on or before the Closing Date.
d. FILINGS. The Company undertakes and agrees to make all
necessary filings in connection with the sale of the Debenture to the Buyer
under any United States laws and regulations, or by any domestic securities
exchange or trading market, and to provide a copy thereof to the Buyer promptly
after such filing.
e. REPORTING STATUS. So long as the Buyer beneficially
owns any of the Debentures, the Company shall file all reports required to be
filed with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended (the "1934 Act"), and the Company shall not terminate
its status as an issuer required to file reports under the 1934 Act even if the
1934 Act or the rules and regulations thereunder would permit such termination.
f. USE OF PROCEEDS. The Company will use the proceeds
from the sale of the Debenture (excluding amounts paid by the Company for legal
fees and finder's fees in connection with the sale of the Debenture) for
internal working capital purposes and shall not, directly or indirectly, use
such proceeds for any loan to or investment in any other corporation,
partnership enterprise or other person, except its parent Biosphere Technology,
Inc.
g. CERTAIN AGREEMENTS. The Company covenants and agrees
that it will not (i)
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<PAGE> 8
enter into any subsequent or further offer or sale of common stock or
securities convertible into common stock with any third party until the
expiration of a period of one hundred eighty (180) days after the effective
date of the Registration Statement under the Registration Rights Agreement.
However, clause g(i) will not apply to (i) the issuance of securities (other
than for cash) in connection with a merger, consolidation, sale of assets,
disposition of a business, product or license by the Company, strategic
alliance, public offering, securities issued at the then current market price,
in exercise of options, or (ii) the exchange of the capital stock of the
Company for assets, stock or other equity interests.
h. OPTION. Notwithstanding Section 4(g), during the six
(6) month period following the Closing Date, the Buyer agrees to purchase up to
an additional $10,000,000 principal amount of Debentures (the "Additional
Debentures") in two tranches of $5,000,000 each, commencing not less than sixty
(60) days after the Effective Date, upon the same terms and conditions as those
applicable to the Debentures issued pursuant to this Agreement, (the
"Additional Closing Date"). Buyer's obligation to purchase the Additional
Debentures on the Additional Closing Date shall be contingent upon the
satisfaction of the following conditions: On each the Additional Closing Date
(i) the Registration Statement required to be filed under the Registration
Rights Agreement is effective (the "Effective Date"), (ii) the representations
and warranties of the Company contained in Section 3 are true and correct in
all material respects, and (iii) the Market Price for the five trading days
prior to each Additional Closing Date exceeds $3.50. Each such Debenture shall
mature on the last day of the twelfth month following its issuance.
i. PERMISSIVE REDEMPTION. [T/B/D]
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the
aggregate purchase price for the Debenture in accordance with Section 1(c)
hereof, the Company will irrevocably instruct its transfer agent to issue
Common Stock from time to time upon conversion of the Debenture in such amounts
as specified from time to time by the Company to the transfer agent, bearing
the restrictive legend specified in Section 4(b) of this Agreement prior to
registration of the Shares under the 1933 Act, registered in the name of the
Buyer or its nominee and in such denominations to be specified by the Buyer in
connection with each conversion of the Debenture. The Company warrants that no
instruction other than such instructions referred to in this Section 5 and stop
transfer instructions to give effect to Section 4(a) hereof prior to
registration and sale of the Shares under the 1933 Act will be given by the
Company to the transfer agent and that the Shares shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement, and applicable
law. Nothing in this Section shall affect in any way the Buyer's obligations
and agreement to comply with all applicable securities laws upon resale of the
Securities. If the Buyer provides the Company with an opinion of counsel
reasonably satisfactory to the Company that registration of a resale by the
Buyer of any of the Securities in accordance with clause (1)(B) of Section 4(a)
of this Agreement is not required under the 1933 Act, the Company shall (except
as provided in clause (2) of Section 4(a) of this Agreement) permit the
transfer of the Securities and, in the case of the Shares, promptly instruct
the Company's
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<PAGE> 9
transfer agent to issue one or more certificates for Common Stock without
legend in such name and in such denominations as specified by the Buyer.
b. The Company will permit the Buyer to exercise its right
to convert the Debenture by telecopying an executed and completed Notice of
Conversion to the Company with a copy to the Transfer Agent and delivering
within three business days thereafter, the original Notice of Conversion and
the Debenture representing the Shares to the Company by express courier to the
Transfer Agent. Each date on which a Notice of Conversion is telecopied to and
received by the Company in accordance with the provisions hereof shall be
deemed a Conversion Date. The Company will transmit the certificates
representing the Shares of Common Stock issuable upon conversion of any
Debenture (together with the Debenture representing the Shares not so
converted) to the Buyer via express courier, by electronic transfer or
otherwise, within three business days after receipt by the Company of the
original Notice of Conversion and the Debenture representing the Shares to be
converted (the "Delivery Date").
c. The Company understands that a delay in the issuance of
the Shares of Common Stock beyond the Delivery Date could result in economic
loss to the Buyer. As compensation to the Buyer for such loss, the Company
agrees to pay late payments to the Buyer for late issuance of Shares upon
Conversion in accordance with the following schedule (where "No. Business Days
Late" is defined as the number of business days beyond five (5) business days
from Delivery Date:
<TABLE>
<CAPTION>
Late Payment For Each
$10,000 of Debenture
No. Business Days Late Principal Amount Being Converted
---------------------- --------------------------------
<S> <C>
1 $50
2 $100
3 $150
4 $200
5 $250
6 $300
7 $350
8 $400
9 $450
10 $500
Greater than 10 $500 + $100 for each Business
Day Late beyond 10 days
</TABLE>
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit Buyer's right to
pursue actual damages for the Company's failure to issue and delivery Common
Stock to the Buyer. Furthermore, in addition to any other remedies which may
be available to the Buyer, in the event that the Company fails for any reason
to effect delivery of such shares of Common Stock within five business days
after the Delivery Date,
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<PAGE> 10
the Buyer will be entitled to revoke the relevant Notice of Conversion by
delivering a notice to such effect to the Company whereupon the Company and the
Buyer shall each be restored to their respective positions immediately prior to
delivery of such Notice of Conversion.
6. DELIVERY INSTRUCTIONS.
The Debenture shall be delivered by the Company to the Escrow
Agent pursuant to Section 1(b) hereof, or a delivery against payment basis at
the closing.
7. CLOSING DATE.
The date and time of the issuance and sale of the Debenture
(the "Closing Date") shall occur no later than 12:00 Noon, New York time on
Friday, March 21, 1997, after the fulfillment or waiver of all Closing
conditions pursuant to Sections 8 and 9, or such other mutually agreed to time.
The closing shall occur on the Closing Date at the offices of the Escrow Agent.
Notwithstanding anything to the contrary contained herein, the Escrow Agent
will be authorized to release the fund representing the Purchase Price for the
Debenture, and the Debenture only upon satisfaction of the conditions set forth
in Section 8 hereof.
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the
Debentures on the Closing Date and Additional Closing Date to the Buyer
pursuant to this Agreement is conditioned upon:
a. The receipt and acceptance by the Company of such
Agreement as evidenced by execution of this Agreement by the Company for at
least Five Million ($5,000,000.00) Dollars in Debenture (or such lesser amount
as the Company, in its sole discretion, shall determine);
b. Delivery by the Buyer to the Escrow Agent of good funds
as payment in full of an amount equal to the purchase price for the Debenture
in accordance with Section 1(c) hereof;
c. The accuracy on the Closing Date and Additional Closing
Date of the representations and warranties of the Buyer contained in this
Agreement as if made on the Closing Date and the performance by the Buyer on or
before the Closing Date and Additional Closing Date of all covenants and
agreements of the Buyer required to be performed on or before the Closing Date
and Additional Closing Date;
d. There shall not be in effect any law, rule or
regulation prohibiting or restricting the transactions contemplated hereby, or
requiring any consent or approval which shall not have been obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
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<PAGE> 11
The Company understands that the Buyer's obligation to purchase
the Debentures on the Closing Date and Additional Closing Date is conditioned
upon:
a. Acceptance by Buyer of an Agreement for the sale of
Debenture, as indicated by execution of this Agreement;
b. Delivery by the Company to the Escrow Agent of the
Debenture in accordance with this Agreement;
c. The accuracy in all material respects on the Closing
Date and Additional Closing Date of the representations and warranties of the
Company contained in this Agreement as if made on the Closing Date and
Additional Closing Date and the performance by the Company on or before the
Closing Date and Additional Closing Date of all covenants and agreements of the
Company required to be performed on or before the Closing Date and Additional
Closing Date; and
d. On the Closing Date and Additional Closing Date, the
Buyer having received an opinion of counsel for the Company, dated the Closing
Date and Additional Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer, to the effect set forth in ANNEX III attached
hereto, and the Registration Rights Agreement annexed hereto as ANNEX IV.
10. GOVERNING LAW: MISCELLANEOUS.
This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York. Each of the parties
consents to the jurisdiction of the federal courts whose districts encompass
any part of the City of New York or the state courts of the State of New York
sitting in the City of New York in connection with any dispute arising under
this Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions. A facsimile
transmission of this signed Agreement shall be legal and binding on all parties
hereto. This Agreement may be signed in one or more counterparts, each of
which shall be deemed an original. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto
with respect to the subject matter hereof.
11. NOTICES. Any notice required or permitted hereunder
shall be given in writing (unless otherwise specified herein) and shall be
deemed effectively given upon personal delivery or seven business days after
deposit in the United States Postal Service, by (a) advance copy by fax, and
(b) mailing by express courier or registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses, or at such other addresses as a party may designate by ten
days advance written notice to each of the other
11
<PAGE> 12
parties hereto.
COMPANY: Harvard Scientific Corporation
Suite 23P
100 North Arlington
Reno, Nevada 89501
Telecopier No. ( )
with a copy to:
Alexander H. Walker, Jr., Esq.
Nevada Agency & Trust Company
Suite 880
50 West Liberty
Reno, Nevada 89501
Telecopier: (702) 322-5623
PURCHASER: At the address set forth on the signature page of this
Agreement.
ESCROW AGENT: Krieger & Prager, Esqs.
319 Fifth Avenue
New York, New York 10016
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each
parties representations and warranties shall survive the execution and delivery
hereof of this Agreement and the delivery of the Debenture.
12
<PAGE> 13
IN WITNESS WHEREOF, this Agreement has been duly executed by
the Buyer or one of its officers thereunto duly authorized as of the date set
forth below.
AGGREGATE PURCHASE PRICE OF SUCH DEBENTURE: $15,000,000
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this 21st day of March, 1997.
111 Arlosnov Street SPRINGRANGE INVESTMENT GROUP LTD.
- ----------------------------------- Printed Name of Subscriber
Address
- -----------------------------------
By: /s/ JOHN SAINSFORD
---------------------------------
Telecopier No. (Signature of Authorized Person)
---------------------
JOHN SAINSFORD - DIRECTOR
British Virgin Islands ----------------------------------
- ----------------------------------- Printed Name and Title
Jurisdiction of Incorporation
or Organization
This Agreement has been accepted as of the date set forth below.
HARVARD SCIENTIFIC CORPORATION
By: /s/ DON STEFFENS
---------------------------
Don Steffens
Title: Secretary & Treasurer
Date: March 21, 1997
<PAGE> 14
ANNEX I FORM OF DEBENTURE
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE MATERIALS
<PAGE> 15
FORM OF DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON CONVERSION
HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE OR UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES ARE RESTRICTED
AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT IN
ACCORDANCE WITH REGULATION S UNDER THE ACT, OR AS PERMITTED UNDER THE
ACT PURSUANT TO REGISTRATION OR EXEMPTION OR SAFE HARBOR THEREFROM.
No. 1 US $5,000,000
HARVARD SCIENTIFIC CORPORATION
6% CONVERTIBLE DEBENTURE DUE MARCH 30, 1998
THIS DEBENTURE is one of a duly authorized issue of $15,000,000 in
Debentures of HARVARD SCIENTIFIC CORPORATION, a corporation duly organized and
existing under the laws of the State of Nevada (the "Company") designated as
its 6% Convertible Debenture Due [End Month] 1998.
FOR VALUE RECEIVED, the Company promises to pay to Springrange
Investment Group, Ltd., the registered holder hereof (the "Holder"), the
principal sum of Five Milllion Dollars (US $5,000,000) on [End Month] 1998 (the
"Maturity Date") and to pay interest on the principal sum outstanding from time
to time in arrears upon conversion as provided herein on [End Month] 1998 at
the rate of 6% per annum accruing from the date of initial issuance. Accrual
of interest shall commence on the first such business day to occur after the
date hereof until payment in full of the principal sum has been made or duly
provided for. Subject to the provisions of 4 below, the principal of, and
interest on, this Debenture are payable at the option of the Holder, in shares
of Common Stock of the Company, $.001 par value ("Common Stock"), or in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts, at the address last
appearing on the Debenture Register of the Company as designated in writing by
the Holder from time to time. The Company will pay the principal of and
interest upon this Debenture on the Maturity Date, less any amounts required by
law to be deducted, to the registered holder of this Debenture as of the tenth
day prior to the Maturity Date and addressed to such holder as the last address
appearing on the Debenture Register. The forwarding of such check shall
constitute a payment of principal and interest hereunder and shall satisfy and
discharge the liability for principal and interest on this Debenture to the
extent of the sum represented by such check plus any amounts so deducted.
<PAGE> 16
This Debenture is subject to the following additional provisions:
1. The Debentures are issuable in denominations of One Hundred
Thousand Dollars (US$100,000) and integral multiples thereof. The Debentures
are exchangeable for an equal aggregate principal amount of Debentures of
different authorized denominations, as requested by the Holders surrendering
the same. No service charge will be made for such registration or transfer or
exchange.
2. The Company shall be entitled to withhold from all payments of
principal of, and interest on, this Debenture any amounts required to be
withheld under the applicable provisions of the United States income tax laws
or other applicable laws at the time of such payments, and Holder shall execute
and deliver all required documentation in connection therewith.
3. This Debenture has been issued subject to investment
representations of the original purchaser hereof and may be transferred or
exchanged only in compliance with the Securities Act of 1933, as amended (the
"Act"), and other applicable state and foreign securities laws. In the event
of any proposed transfer of this Debenture, the Company may require, prior to
issuance of a new Debenture in the name of such other person, that it receive
reasonable transfer documentation including opinions that the issuance of the
Debenture in such other name does not and will not cause a violation of the Act
or any applicable state or foreign securities laws. Prior to due presentment
for transfer of this Debenture, the Company and any agent of the Company may
treat the person in whose name this Debenture is duly registered on the
Company's Debenture Register as the owner hereof for the purpose of receiving
payment as herein provided and for all other purposes, whether or not this
Debenture be overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
4. (a) Subject to Section 4(b), the Holder of this Debenture is
entitled, at its option, to convert at any time (a) commencing the earlier of
(i) ninety (90) days after the closing of sale of the Debenture with respect to
one-half of the principal amount of this Debenture, (ii) one hundred twenty
(120) days after the closing of sale of the Debentures with respect to the
balance of the principal amount of this Debenture (the "Closing"), or (b) the
effective date of the Registration Statement filed pursuant to the Registration
Rights Agreement between the Company and the Holder, or the Holder's
predecessor in interest, the principal amount of this Debenture, provided that
the principal amount is at least US $10,000 (unless if at the time of such
election to convert the aggregate principal amount of all Debentures registered
to the Holder is less that Ten Thousand Dollars (US $10,000), then the whole
amount thereof) into shares of Common Stock of the Company at a conversion
price for each share of Common Stock equal to the lesser of (a) 100% of the
Market Price on March 21, 1997, or (b) 80% of the Market Price on the
Conversion Date. For purposes of this Section 4, the Market Price shall be the
average closing bid price of the Common Stock on the five (5) trading days
immediately preceding March 21,
<PAGE> 17
1997 or Conversion Date, as may be applicable, as reported by the National
Association of Securities Dealers, or the closing bid price on the
over-the-counter market on such date or, in the event the Common Stock is
listed on a stock exchange or traded on NASDAQ, the Market Price shall be the
closing price on the exchange on such date, as reported in the Wall Street
Journal. Conversion shall be effectuated by surrendering the Debentures to be
converted to the Company with the form of conversion notice attached hereto as
Exhibit A, executed by the Holder of the Debenture evidencing such Holder's
intention to convert this Debenture or a specified portion (as above provided)
hereof, and accompanied, if required by the Company, by proper assignment
hereof in blank. Interest accrued or accruing from the date of issuance to the
date of conversion shall, at the option of the Company, be paid in cash or
Common Stock upon conversion. No fraction of Shares or scrip representing
fractions of shares will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share. The date on which notice
of conversion is given (the "Conversion Date") shall be deemed to be the date
on which the Holder has delivered this Debenture, with the conversion notice
duly executed, to the Company or, the date set forth in such facsimile delivery
of the notice of conversion if the Debenture is received by the Company within
three (3) business days therefrom. Facsimile delivery of the conversion notice
shall be accepted by the Company at telephone number (702-322-5623; ATT: Don
Steffens). Certificates representing Common Stock upon conversion will be
delivered within three (3) business days from the date the notice of conversion
is delivered to the Company.
(b) (i) If such conversion price on the date of conversion
would be or is less than or equal to $1.60 per share,
the Company shall have the right to redeem any
Debentures for which a Notice of Conversion has not
theretofore been submitted by delivering a Notice of
Redemption to the Holder of the Debenture.
(ii) The redemption price shall be calculated at 125% of
the principal amount of the Debenture, plus accrued
and unpaid interest, and shall be paid to the Holder
within ten (10) days from the date of the Notice of
Redemption. Any such Notice of Redemption shall not
be effective, with respect to any Debentures for
which a Notice of Conversion is submitted to the
Company, within three (3) business days of the
Holder's receipt of the Company's Notice of
Redemption. Furthermore, in the event such payment
is not timely made, any rights of the Company to
redeem the Debenture shall terminate, and the Notice
of Redemption shall be null and void.
(iii) A Holder may also fax a notice to the Company, Attn:
Don Steffens, requiring the Company to declare by
faxed notice within 24 hours of the Notice from the
Holder, whether it intends to effect any redemption
during the ten (10) business days following 24 hours
from the Holder's Notice. In the event the Company
does not reply during said 24 hour period, the
Company may not redeem that Holder's Debentures
during the ten (10) day period commencing 24 hours
after the Notice from the Holder.
<PAGE> 18
5. No provision of this Debenture shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on, this Debenture at the time, place, and rate, and
in the coin or currency, herein proscribed. This Debenture and all other
Debentures now or hereafter issued of similar terms are direct obligations of
the Company.
6. No recourse shall be had for the payment of the principal of,
or the interest on, this Debenture, or for any claim based hereon, or otherwise
in respect hereof, against any incorporator, shareholder, officer or director,
as such, past, present or future, of the Company or any successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
7. If the Company merges or consolidates with another corporation
or sells or transfers all or substantially all of its assets to another person
and the holders of the Common Stock are entitled to receive stock, securities
or property in respect of or in exchange for Common Stock, then as a condition
of such merger, consolidation, sale or transfer, the Company and any such
successor, purchaser or transferee agree that the Debenture may thereafter be
converted on the terms and subject to the conditions set forth above into the
kind and amount of stock, securities or property receivable upon such merger,
consolidation, sale or transfer by a holder of the number of shares of Common
Stock into which this Debenture might have been converted immediately before
such merger, consolidation, sale or transfer, subject to adjustments which
shall be as nearly equivalent as may be practicable. In the event of any
proposed merger, consolidation or sale or transfer of all or substantially all
of the assets of the Company (a "Sale"), the Holder hereof shall have the right
to convert by delivering a Notice of Conversion to the Company within fifteen
(15) days of receipt of notice of such Sale from the Company. In the event the
Holder hereof shall elect not to convert, the Company may prepay all
outstanding principal and accrued interest on this Debenture, less all amounts
required by law to be deducted, upon which tender of payment following such
notice, the right of conversion shall terminate.
8. The Holder of the Debenture, by acceptance hereof, agrees that
this Debenture is being acquired for investment and that such Holder will not
offer, sell or otherwise dispose of this Debenture or the Shares of Common
Stock issuable upon conversion thereof except under circumstances which will
not result in a violation of the Act or any applicable state Blue Sky or
foreign laws or similar laws relating to the sale of securities.
9. This Debenture shall be governed by and construed in
accordance with the laws of the State of New York. Each of the parties
consents to the jurisdiction of the federal courts whose districts encompass
any part of the City of New York or the state courts of the State of New York
sitting in the City of New York in connection with any dispute arising under
this
<PAGE> 19
Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non coveniens, to the
bringing of any such proceeding in such jurisdictions.
10. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal
or interest on this Debenture; or
b. Any of the representations or warranties made by the
Company herein, in the Subscription Agreement, or in
any certificate or financial or other written
statements heretofore or hereafter furnished by the
Company in connection with the execution and delivery
of this Debenture or the Subscription Agreement shall
be false or misleading in any material respect at the
time made; or
c: The Company fails to issue shares of Common Stock to
the Holder or to cause its Transfer Agent to issue
shares of Common Stock upon exercise by the Holder of
the conversion rights of the Holder in accordance
with the terms of this Debenture, fails to transfer
or to cause its Transfer Agent to transfer any
certificate for shares of Common Stock issued to the
Holder upon conversion of this Debenture and when
required by this Debenture or the Registration Rights
Agreement, or fails to remove any restrictive legend
or to cause its Transfer Agent to transfer on any
certificate or any shares of Common Stock issued to
the Holder upon conversion of this Debenture as and
when required by this Debenture, the Agreement or the
Registration Rights Agreement and any such failure
shall continue uncured for five (5) business days.
d. The Company shall fail to perform or observe, in any
material respect, any other covenant, term,
provision, condition, agreement or obligation of the
Company under this Debenture and such failure shall
continue uncured for a period of thirty (30) days
after written notice from the Holder of such failure;
or
e. The Company shall (1) admit in writing its inability
to pay its debts generally as they mature; (2) make
an assignment for the benefit of creditors or
commence proceedings for its dissolution; or (3)
apply for or consent to the appointment of a trustee,
liquidator or receiver for its or for a substantial
part of its property or business; or
f. A trustee, liquidator or receiver shall be appointed
for the Company or for a substantial part of its
property or business without its consent and shall
not be discharged within sixty (60) days after such
appointment; or
<PAGE> 20
g. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental
agency shall assume custody or control of the whole
or any substantial portion of the properties or
assets of the Company and shall not be dismissed
within sixty (60) days thereafter; or
h. Any money judgment, writ or warrant of attachment, or
similar process in excess of Two Hundred Thousand
($200,000) Dollars in the aggregate shall be entered
or filed against the Company or any of its properties
or other assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of sixty(60) days
or in any event later than five (5) days prior to the
date of any proposed sale thereunder; or
i. Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors
shall be instituted by or against the Company and, if
instituted against the Company, shall not be
dismissed within sixty (60) days after such
institution or the Company shall by any action or
answer approve of, consent to, or acquiesce in any
such proceedings or admit the material allegations
of, or default in answering a petition filed in any
such proceeding; or
j. The Company shall have its Common Stock suspended or
delisted from an exchange or over-the- counter market
from trading.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default) at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kinds, all of which are hereby expressly waived, anything herein
or in any note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.
11. Nothing contained in this Debenture shall be construed as
conferring upon the Holder the right to vote or to receive dividends or to
consent or receive notice as a shareholder in respect of any meeting of
shareholders or any rights whatsoever as a shareholder of the Company, unless
and to the extent converted in accordance with the terms hereof.
<PAGE> 21
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: March 21, 1997
HARVARD SCIENTIFIC CORPORATION
By: /s/ DON STEFFENS
------------------------------------------
DON STEFFENS
------------------------------------------
(Print Name)
SECRETARY/TREASURER
------------------------------------------
(Title)
ATTEST:
[TRANSFER AGENT]
By: /s/ ALEXANDER H. WALKER, JR.
ALEXANDER H. WALKER, JR.
CHAIRMAN OF THE BOARD
<PAGE> 22
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debenture)
The undersigned hereby irrevocably elects to convert $
________________ of the principal amount of the above Debenture No. ___ into
Shares of Common Stock of HARVARD SCIENTIFIC CORPORATION (the "Company")
according to the conditions hereof, as of the date written below.
The undersigned represents that it is not a U.S. Person as defined in
Regulation S promulgated under the Securities Act of 1933 and is not converting
the Debenture on Behalf of any U.S. Person.
Date of Conversion*
- --------------------------------------------------------------------------------
Applicable Conversion Price
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
[Name]
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* This original Debenture and Notice of Conversion must be received by the
Company by the fifth business date following the Date of Conversion.
<PAGE> 23
ANNEX IV
TO
STOCK PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of March 21, 1997
(this "Agreement"), is made by and between Harvard Scientific Corporation, a
Nevada corporation (the "Company"), and the person named on the signature page
hereto (the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement, dated as of March 21, 1997, between the Initial
Investor and the Company (the "Securities Purchase Agreement"), the Company has
agreed to issue and sell to the Initial Investor 6% Convertible Debentures of
the Company and an option to acquire an additional $10,000,000 in two tranches
of $5,000,000 each in Debentures (said principal amount of $15,000,000
collectively the "Debentures") which will be convertible into shares of the
common stock, $.01 par value (the "Common Stock"), of the Company (the
"Conversion Shares") upon the terms and subject to the conditions of such
Debentures; and
WHEREAS, to induce the Initial Investor to execute and deliver
the Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Conversion Shares;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Company and
the Initial Investor hereby agrees as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall
have the following meanings:
(i) "Investor" means the Initial Investor and any
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "Register," "Registered," and "Registration" refer to
a registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering
1
<PAGE> 24
securities on a continuous basis ("Rule 415"), and the declaration or ordering
of effectiveness of such Registration Statement by the United States Securities
and Exchange Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion Shares.
(iv) "Registration Statement" means a registration
statement of the Company under the Securities Act.
(b) As used in this Agreement, the term Investor includes
(i) each Investor (as defined above) and (ii) each person who is a permitted
transferee or assignee of the Registrable Securities pursuant to Section 9 of
this Agreement.
(c) Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the Securities
Purchase Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare
and file with the SEC, no later than thirty (30) days after the Closing Date,
either a Registration Statement on Form SB-2 covering a sufficient number of
shares of Common Stock for the Initial Investors(or any other available form),
but in no event less than 300% of the number of shares into which the
Debentures would be convertible at the time of filing of the Form SB-2, and
such Registration Statement shall state that, in accordance with the Securities
Act, it also covers such indeterminate number of additional shares of Common
Stock as may become issuable to prevent dilution resulting from stock splits,
or stock dividends). If at any time the number of shares of Common Stock into
which the Debenture may be converted exceeds the aggregate number of shares of
Common Stock then registered, the Company shall, within ten (10) business days
after receipt of a written notice from any Investor, either (i) amend the
Registration Statement filed by the Company pursuant to the preceding sentence,
if such Registration Statement has not been declared effective by the SEC at
that time, to register all shares of Common Stock into which the Debenture may
be converted, or (ii) if such Registration Statement has been declared
effective by the SEC at that time, file with the SEC an additional Registration
Statement on Form SB-2 to register the shares of Common Stock into which the
Debenture may be converted that exceed the aggregate number of shares of Common
Stock already registered.
(b) UNDERWRITTEN OFFERING. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors acting by majority in interest of the Registrable
Securities subject to such underwritten offering shall have the right to select
one legal counsel to represent their interests, and an investment banker or
bankers and manager or managers to administer the offering, which investment
banker or bankers or manager or managers shall be reasonably satisfactory to
the Company. The Investors who hold the Registrable Securities to be included
in such underwriting shall pay all underwriting discounts and commissions and
other fees and expenses of such investment banker or bankers and manager or
managers so selected in accordance with this Section 2(b) (other than fees and
expenses relating to registration of Registrable Securities under federal or
state securities laws, which are payable by the Company
2
<PAGE> 25
pursuant to Section 5 hereof) with respect to their Registrable Securities and
the fees and expenses of such legal counsel so selected by the Investors.
(c) PAYMENTS BY THE COMPANY. If the Registration
Statement covering the Registrable Securities required to be filed by the
Company pursuant to Section 2(a) hereof is not effective within ninety (90)
days after the Closing Date (the "Initial Date"), then the Company will make
payments to the Initial Investor in such amounts and at such times as shall be
determined pursuant to this Section 2(c). The amount to be paid by the
Company to the Initial Investor shall be determined as of each Computation
Date, and such amount shall be equal to two (2%) percent of the purchase price
paid by the Initial Investor for the Debenture pursuant to the Securities
Purchase Agreement for the period from the Initial Date to the first
Computation Date, and three (3%) percent of the purchase price for each
Computation Date thereafter, to the date the Registration Statement is declared
effective by the SEC (the "Periodic Amount"). The full Periodic Amount shall
be paid by the Company in immediately available funds within three business
days after each Computation Date. Notwithstanding the foregoing, the amounts
payable by the Company pursuant to this provision shall not be payable to the
extent any delay in the effectiveness of the Registration Statement occurs
because of an act of, or a failure to act or to act timely by the Initial
Investor or its counsel.
As used in this Section 2(c), the following terms shall have
the following meanings:
"Computation Date" means the date which is the earlier of (a)
35 days after the Company is notified by the SEC that the Registration
Statement may be declared effective or (b) one hundred twenty (120) days after
the Closing Date and, if the Registration Statement required to be filed by the
Company pursuant to Section 2(a) has not theretofore been declared effective by
the SEC, each date which is thirty (30) days after the previous Computation
Date until such Registration Statement is so declared effective.
3. OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities, the Company shall do each of the
following.
(a) Prepare promptly, and file with the SEC within thirty
(30) days of the Closing Date, a Registration Statement with respect to not
less than the number of Registrable Securities provided in Section 2(a), above,
and thereafter use its best efforts to cause each Registration Statement
relating to Registrable Securities to become effective the earlier of (i) five
days after notice from the Securities and Exchange Commission that the
Registration Statement may be declared effective, or (b) ninety (90) days after
the Closing Date, and keep the Registration Statement effective at all times
until the earliest (the "Registration Period") of (i) the date that is two
years after the Closing Date (ii) the date when the Investors may sell all
Registrable Securities under Rule 144 or (iii) the date the Investors no longer
own any of the Registrable Securities, which Registration Statement (including
any amendments or supplements thereto and prospectuses contained therein) shall
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading;
3
<PAGE> 26
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and
the prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) Furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel identified to the
Company, (i) promptly after the same is prepared and publicly distributed,
filed with the SEC, or received by the Company, one (1) copy of the
Registration Statement, each preliminary prospectus and prospectus, and each
amendment or supplement thereto, and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents, as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor;
(d) Use reasonable efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdictions as the Investors who hold a
majority in interest of the Registrable Securities being offered reasonably
request and in which significant volumes of shares of Common Stock are traded,
(ii) prepare and file in those jurisdictions such amendments (including post-
effective amendments) and supplements to such registrations and qualifications
as may be necessary to maintain the effectiveness thereof at all times during
the Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during
the Registration Period, and (iv) take all other actions reasonably necessary
or advisable to qualify the Registrable Securities for sale in such
jurisdictions; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to (A) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (B) subject itself to general taxation in any such
jurisdiction, (C) file a general consent to service of process in any such
jurisdiction, (D) provide any undertakings that cause more than nominal expense
or burden to the Company or (E) make any change in its articles of
incorporation or by-laws, which in each case the Board of Directors of the
Company determines to be contrary to the best interests of the Company and its
stockholders;
(e) As promptly as practicable after becoming aware of such
event, notify each Investor of the happening of any event of which the Company
has knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading, and use its best efforts promptly to prepare a
supplement or amendment to the Registration Statement or other appropriate
filing with the SEC to correct such untrue statement or omission, and deliver a
number of copies of such supplement or amendment to each Investor as such
Investor may reasonably request;
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<PAGE> 27
(f) As promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the SEC of any notice of effectiveness or any stop order or other
suspension of the effectiveness of the Registration Statement at the earliest
possible time;
(g) Use its commercially reasonable efforts, if eligible,
either to (i) cause all the Registrable Securities covered by the Registration
Statement to be listed on a national securities exchange and on each additional
national securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation of all the Registrable Securities covered by the
Registration Statement as a National Association of Securities Dealers
Automated Quotations System ("NASDAQ") "Small Capitalization" within the
meaning of Rule 11Aa2-1 of the SEC under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the quotation of the Registrable
Securities on the NASDAQ Small Cap Market; or if, despite the Company's
commercially reasonable efforts to satisfy the preceding clause (i) or (ii),
the Company is unsuccessful in doing so, to secure NASDAQ authorization and
quotation for such Registrable Securities and, without limiting the generality
of the foregoing, to arrange for at least two market makers to register with
the National Association of Securities Dealers, Inc. ("NASD") as such with
respect to such Registrable Securities;
(h) Provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement;
(i) Cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates for the Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts as the case may be, as the
Investors may reasonably request and registered in such names as the Investors
may request; and, within three (3) business days after a Registration Statement
which includes Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel selected by the Company to
deliver, to the transfer agent for the Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) an appropriate instruction and opinion of such counsel; and
(j) Take all other reasonable actions necessary to expedite
and facilitate disposition by the Investor of the Registrable Securities
pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(a) It shall be a condition precedent to the obligations
of the Company to complete the registration pursuant to this Agreement with
respect to the Registrable Securities of a particular Investor that such
Investor shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
the Registrable Securities held by it, as shall be reasonably required to
effect the registration of such Registrable
5
<PAGE> 28
Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least five (5) days
prior to the first anticipated filing date of the Registration Statement, the
Company shall notify each Investor of the information the Company requires from
each such Investor (the "Requested Information") if such Investor elects to
have any of such Investor's Registrable Securities included in the Registration
Statement. If at least two (2) business days prior to the filing date the
Company has not received the Requested Information from an Investor (a
"Non-Responsive Investor"), then the Company may file the Registration
Statement without including Registrable Securities of such Non-Responsive
Investor;
(b) Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
3(e) or 3(f), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or 3(f) and, if
so directed by the Company, such Investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
5. EXPENSES OF REGISTRATION. All reasonable expenses,
other than underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 3, but including,
without limitation, all registration, listing, and qualifications fees,
printers and accounting fees, the fees and disbursements of counsel for the
Company and a fee for a single counsel for the Investor not exceeding $3,500,
shall be borne by the Company.
6. INDEMNIFICATION. In the event any Registrable
Securities are included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Investor who holds such Registrable
Securities, the directors, if any, of such Investor, the officers, if any, of
such Investor, each person, if any, who controls any Investor within the
meaning of the Securities Act or the Exchange Act (each, an "Indemnified
Person"), against any losses, claims, damages, liabilities or expenses (joint
or several) incurred (collectively, "Claims") to which any of them may become
subject under the Securities Act, the Exchange Act or otherwise, insofar as
such Claims (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any of the following
statements, omissions or violations in the Registration Statement, or any
post-effective amendment thereof, or any prospectus included therein: (i) any
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any post-effective amendment thereof or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact
6
<PAGE> 29
contained in any preliminary prospectus if used prior to the effective date of
such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation under the
Securities Act, the Exchange Act or any state securities law (the matters in
the foregoing clauses (i) through (iii) being, collectively, "Violations").
The Company shall reimburse the Investors, promptly as such expenses are
incurred and are due and payable, for any legal fees or other reasonable
expenses incurred by them in connection with investigating or defending any
such Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a) shall not (I) apply to
a Claim arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company by or on
behalf of any Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(b) hereof; (II) with respect to any preliminary
prospectus, inure to the benefit of any such person from whom the person
asserting any such Claim purchased the Registrable Securities that are the
subject thereof (or to the benefit of any person controlling such person) if
the untrue statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or supplemented, if
such prospectus was timely made available by the Company pursuant to Section
3(b) hereof; (III) be available to the extent such Claim is based on a failure
of the Investor to deliver or cause to be delivered the prospectus made
available by the Company; or (IV) apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld. Each Investor will
indemnify the Company and its officers, directors and agents against any claims
arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company, by or on
behalf of such Investor, expressly for use in connection with the preparation
of the Registration Statement, subject to such limitations and conditions as
are applicable to the Indemnification provided by the Company to this Section
6. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.
(b) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against
any indemnifying party under this Section 6, deliver to the indemnifying party
a written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the reasonable fees and
expenses to be paid by the indemnifying party, if, in the reasonable opinion of
counsel retained by the indemnifying party, the representation by such counsel
of the Indemnified Person or Indemnified Party and the indemnifying party would
be inappropriate
7
<PAGE> 30
due to actual or potential differing interests between such Indemnified Person
or Indemnified Party and any other party represented by such counsel in such
proceeding. In such event, the Company shall pay for only one separate legal
counsel for the Investors; such legal counsel shall be selected by the
Investors holding a majority in interest of the Registrable Securities included
in the Registration Statement to which the Claim relates. The failure to
deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party
of any liability to the Indemnified Person or Indemnified Party under this
Section 6, except to the extent that the indemnifying party is prejudiced in
its ability to defend such action. The indemnification required by this
Section 6 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
7. CONTRIBUTION. To the extent any indemnification by
an indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which
it would otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6; (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
seller of Registrable Securities who was not guilty of such fraudulent
misrepresentation; and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such
seller from the sale of such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making
available to the Investors the benefits of Rule 144 promulgated under the
Securities Act or any other similar rule or regulation of the SEC that may at
any time permit the Investors to sell securities of the Company to the public
without registration ("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to each Investor so long as such Investor
owns Registrable Securities, promptly upon request, (i) a written statement by
the Company that it has complied with the reporting requirements of Rule 144,
the Securities Act and the Exchange Act, (ii) a copy of the most recent annual
or quarterly report of the Company and such other reports and documents so
filed by the Company and (iii) such other information as may be reasonably
requested to permit the Investors to sell such securities pursuant to Rule 144
without registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to
have the Company register Registrable Securities pursuant to this Agreement
shall be automatically assigned by the Investors to any transferee of in excess
of fifty (50%) percent or more of the Registrable Securities (or all or any
portion of any Debenture of the Company which is convertible into such
securities)
8
<PAGE> 31
only if: (a) the Investor agrees in writing with the transferee or assignee to
assign such rights, and a copy of such agreement is furnished to the Company
within a reasonable time after such assignment, (b) the Company is, within a
reasonable time after such transfer or assignment, furnished with written
notice of (i) the name and address of such transferee or assignee and (ii) the
securities with respect to which such registration rights are being transferred
or assigned, (c) immediately following such transfer or assignment the further
disposition of such securities by the transferee or assignee is restricted
under the Securities Act and applicable state securities laws, and (d) at or
before the time the Company received the written notice contemplated by clause
(b) of this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein. In the event of
any delay in filing or effectiveness of the Registration Statement as a result
of such assignment, the Company shall not be liable for any damages arising
from such delay, or the payments set forth in Section 2(c) hereof.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of
this Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold a majority in interest of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of
Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
(b) Notices required or permitted to be given hereunder
shall be in writing and shall be deemed to be sufficiently given when
personally delivered (by hand, by courier, by telephone line facsimile
transmission, receipt confirmed, or other means) or sent by certified mail,
return receipt requested, properly addressed and with proper postage pre-paid
(i) if to the Company, at Suite 23P, 100 North Arlington, Reno, Nevada 89501
ATT: Don Steffens, with a copy to Alexander H. Walker, Jr., Esq., Nevada Agency
& Trust Company, Suite 880, 50 West Liberty, Reno, Nevada 89501; (ii) if to the
Initial Investor, at the address set forth under its name in the Securities
Purchase Agreement, with a copy to Samuel Krieger, Esq., Krieger & Prager, 319
Fifth Avenue, Third Floor, New York, NY 10016 and (iii) if to any other
Investor, at such address as such Investor shall have provided in writing to
the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 11(b), and shall be effective, when
personally delivered, upon receipt and, when so sent by certified mail, four
(4) calendar days after deposit with the United states Postal Service.
9
<PAGE> 32
(c) Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such right
or remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New York. Each of the parties
consents to the jurisdiction of the federal courts whose districts encompass
any part of the City of New York or the state courts of the State of New York
sitting in the City of New York in connection with any dispute arising under
this Agreement and hereby waives, to the maximum extent permitted by law, any
objection, including any objection based on forum non coveniens, to the
bringing of any such proceeding in such jurisdictions. A facsimile
transmission of this signed Agreement shall be legal and binding on all parties
hereto. This Agreement may be signed in one or more counterparts, each of
which shall be deemed an original. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto
with respect to the subject matter hereof.
(e) This Agreement constitutes the entire agreement among
the parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a
party, may be delivered to the other party hereto by telephone line facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
10
<PAGE> 33
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
HARVARD SCIENTIFIC CORPORATION
By: /s/ DON STEFFENS
------------------------------------
Name: DON STEFFENS
Title: SECRETARY/TREASURER
------------------------------------
SPRINGRANGE INVESTMENT GROUP LTD.
By: /s/ JOHN SAINSFORD
------------------------------------
Name: JOHN SAINSFORD
Title: DIRECTOR
11
<PAGE> 1
ITEM 10.3
LICENSING AGREEMENT
This Agreement is entered into as of the 3rd November 1995, by and between
Pharma Maehle, Ernst Grote Street 23,30196 Isernhagen, Germany, a privately
held company organized under the laws of Germany (hereafter "LICENSEE") and
Bio-sphere Technology, 4446 Los Reyes Court, Las Vegas, Nevada 89121, USA, a
U.S. corporation (hereafter "LICENSOR").
LICENSOR is a research and development company which has expended considerable
resources to develop certain manufacturing process, including Licensor
technology and Licensor process and product patents. This Agreement pertains
specifically to the technologies referred to within LICENSOR as the proprietary
technologies and proprietary process and product patents, which are defined
below.
LICENSEE is a company which, among other things, manufactures through third
parties, products as well as markets and distributes products. LICENSOR and
LICENSEE mutually desire to enter into an Agreement whereby LICENSOR permits
LICENSEE to utilize LICENSOR technology and patents to manufacture, market and
sell products developed by LICENSOR under LICENSEE'S label. LICENSEE
compensates LICENSOR therefore, all upon the terms and conditions of this
Agreement.
Now therefore in consideration of the mutual covenants and undertakings set
forth herein the parties agree:
1.0 DEFINITION
1.1 "LICENSOR technology" means and includes LICENSOR design
technology and LICENSOR process technology for the PGE1 male erectile
dysfunction product, which includes all technical information and know-how,
including product manufacture and clinical date which is available. This
information is specific to a particular technology, which, in this Agreement
includes proprietary process and product technology.
1.2 "LICENSOR process and product patents" means any U.S., European of
International patent or patent applications now owned or controlled by
LICENSOR.
1.3 Execution date" is the date this Agreement is signed.
1.4 "Documentation date" is the date of the delivery of each category
of documents is completed.
<PAGE> 2
1.5 "Payment" shall mean receipt by Licensor of the agree-upon sum for
the delivery of the technology as per this Agreement.
1.6 "Territory" shall mean Western and Eastern Europe.
2.0 Grant of License
2.1 LICENSOR grants to LICENSEE for the life of this Agreement the
following rights.
2.1.1 An exclusive to the Licensor's technology for use only
in Licensee designed facilities in the Territory according to the conditions of
this Agreement, for the purpose of manufacturing the components of and the
completed product for distribution and sales in the Territory.
3.0 Transfer of Technology
LICENSOR shall furnish to LICENSEE all the required Licensor
technology in its possession, including documentation, software, training and
consultation initiated upon signing this Agreement.
4.0 Options
LICENSOR may develop and second generation product, or subsequent
trade secrets, additional internal technology, patents or trademarks, which are
proprietary to the LICENSOR. LICENSEE has the right to a non-exclusive option
to negotiate for such technology or subsequent trade secrets during the term of
this agreement with LICENSOR.
5.0 New Developments
5.1 LICENSOR and LICENSEE agree to keep each other regularly and fully
informed about new improvement, modification, applications and other
developments relating to LICENSOR TECHNOLOGY, whether patentable or
unpatentable. Any developments that are jointly developed by LICENSOR and
LICENSEE shall be owned by both Parties, unless negotiated and agreed
otherwise, to only include the same license rights as this agreement in the
Territory described in Section 1.6 above.
6.0 Representations, Warrants & Covenants
6.1 in order to induce LICENSEE to enter into the Agreement and to
consummate the transaction contemplated hereunder, LICENSOR makes the following
representations:
<PAGE> 3
6.1.1 Organization: Licensor is a corporation duly organized,
validly existing, and in good standing order under the law of the state of
Nevada, USA.
6.1.2 Authorization. The execution and delivery of the Agreement
and consummation of the transaction contemplated hereby have been
duly authorized by the Board of Directors of LICENSOR.
6.1.3 Licensor is owner of the deliverables listed. In the
event Licensor is not prepared to maintain patents and provide protection to
Licensee. The Licensee should be so informed immediately. The Licensee then has
three (3) months in which time can assume all such responsibilities for the
patents pertaining to the product, as well as assuming full legal and
maintenance costs of such patents.
6.2 Representations to Licensee: In order to induce the Licensor to
enter into this Agreement and to consummate the transactions contemplated
hereunder License make the following representations:
6.2.1 Licensee is a corporation duly organized, validly
existing, and in good standing order under the laws of Germany.
6.2.2 Authorization: The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by the Board of Directors of the Licensee, and this
Agreement constitutes Licensee's valid and binding obligations and is
enforceable in accordance with its terms.
6.3 Licensor and Licensee mutually covenant to comply with all the
time deadlines imposed by this Agreement.
7.0 Confidentiality and Non-Disclosure
7.1 Licensee hereby agrees to keep confidential from any third party
any and all information relating to Licensor's technology, other than those
parties who have a need to know to manufacture product for Licensee or those
parties to whom information must be disclosed according to local law.
7.2 Licensee agrees that information relating to Licensor's technology
provided by Licensor will be disclosed or made available only to those
employees or stockholders ro subcontractors who agree in writing to receive
information and to retain confidentiality thereof.
7.3 The term of confidentiality shall be three years from the date of
signing this Agreement, unless the information becomes public knowledge
<PAGE> 4
through no fault of action of either Licensee of Licensor. In the event of
breach of confidentiality, either party may seek compensatory damages through
the legal system as permitted by law. In the event information becomes
available to third parties to this Agreement shall make available to the other
its communications records in order to ensure that the
8.0 Infringements.
8.1 To the best of Licensor's knowledge, none of the Licensor patents
infringe the rights of any third party. In the event that such infringements
are alleged by third parties, Licensor agrees to use all best commercial
efforts to remedy the situation and to assume full liability for such
infringements.
8.2 Licensee agrees to exercise diligence in locating possible
infringements and shall immediately inform Licensor of any such situation which
may come to the attention of Licensee. In such event, Licensor shall initiate
any and all appropriate legal actions to stop such infringements. Licensee will
share Licensor's cost in dealing with such possible infringers in the Territory
described in Section 1.6. Any damages recovered from such action will be
divided between Licensor and Licensee shall be borne by Licensor.
9.0 Inspection to Verify Compliance
Licensee shall permit duly authorized representatives of Licensor,
upon reasonable notice, to enter into and upon any premises of Licensee for the
purpose of inspecting the same to ascertain that all of the provisions of this
Agreement are being complied with by Licensee..
10.0 Government Approvals
As a condition to the process transfer in whole or in part, Licensee
shall obtain or cause to be obtained at its expense all permits including legal
registration of the product for marketing and sale within the Territory. Such
permits and approvals will also include any necessary for importing components
of the product to be manufactured with Licensor's technology.
11.0 Indemnities for Malfeasance, Liability for Personal Injury on
Indemnification
11.1 The License herein granted to Licensee in primarily in the nature
of sharing information. Process operation, plant and equipment safety shall be
the sole responsibility of Licensee. Accordingly, Licensor shall not be liable
for any personal injury, property damage resulting from the design or
manufacture of products or product components used in connection with this
Agreement.
<PAGE> 5
11.2 When one party to this Agreement admits another party's
representative to his premises, the admitting party shall not be liable for any
claims, losses, damages, or expenses due to death or injury suffered in the said
premises by the said visiting personnel.
12.0 Term and Termination
12.1 This Agreement shall remain in force for the life of the patent
from the execution date, but this Agreement may be renewed thereafter, from
year to year, until expiration of the last to expire of Licensor patents.
12.2 Should this Agreement be terminated for any reason, Licensee
shall not be able to claim from Licensor any damages or compensation for losses
or expenses incurred, or for lost profits.
12.3 Termination of this Agreement for any reason, Licensee shall not
affect (a) obligations including the payment of any fees, which have accrued as
of the date of termination, and (b) those obligations which, from the context
hereof, are intended to survive termination of this Agreement.
12.4 Termination of intent to terminate this agreement requires
notification from the terminating party to the other in writing, 6 months prior
to the termination date, which shall be the date of expiration of the last of
the patents held by the Licensor.
12.5 Should either party declare bankruptcy, the surviving party has
the right of first refusal to acquire the patents and proprietary information
from the bankrupt party. In the event Bio-sphere declares bankruptcy, Pharma
Maehle has the right to continue the marketing of the product, use of and
access to the patents, with continuing royalty payments to the original patent
holder. In the event Pharma Maehle declares bankruptcy, Bio-sphere has the
right to assume control of distributors and continue product marketing and
distribution in the Territory.
12.6 Licensor can terminate this Agreement with three (3) months
written notice if Licensee is unable to initiate sales of the product in the
Territory within 2 months of receipt of Board of Health approval of the
marketing of the product in the countries within the Territory.
12.7 Licensee will submit to Licensor an annual business plan for each
country in the Territory which include projected product sales. Licensor and
Licensee shall mutually agree to these projected product sales as a monitoring
mechanism for Licensee performance, including annual growth of sales. Failure
of Licensee to perform according to agreed upon product sales levels could lead
to loss of exclusivity according to this agreement, however, Licensee and
<PAGE> 6
Licensor shall negotiate in good faith to reach agreement on remediation of any
such performance issues/s.
12.8 Licensee agrees to pay Licensor a royalty of 205 of the
Licensee's selling price to its distributors or subsidiaries. Once the amount
of $250,000 has been paid to Licensor from the royalty on product sales, the
royalty shall be reduced to 13% of the Licensee's selling price to its
distributors or subsidiaries. Royalties will be paid quarterly in US dollars in
a manner to be determined and agreed upon by the parties to this Agreement.
13.0 Waivers
If either party waives its right to sue or terminate this Agreement
arising from a breach of any provision thereof, that waiver will not be
construed as a continuing waiver of other breaches of the same or other
provisions.
14.0 No Assignment
This Agreement and any of the rights and obligations hereunder cannot
be assigned or otherwise transferred by either party and will not inure to the
benefit of any successor of either party, whether by operation of law or
otherwise, without the written consent of the other party. The assignment or
transfer without such consent will be null and void, and will constitute breach
of this Agreement. Either party reserves the right to transfer information to a
wholly or majority owned subsidiary of the party, provided all other terms and
conditions of this Agreement are adhered to.
In the event of acquisition or merger of either party with another organization
this Agreement shall continue to remain in force.
15.0 Force Majeur
Neither party shall be in default hereunder by reason of its delay in
the performance of or its failure to perform any of its obligations hereunder
if such delay or failure is caused by strikes, acts of God or the public enemy,
riots, incendiaries, interference by civil or military authorities, compliance
with governmental laws, rules and regulations, delays in transit or delivery,
inability to secure necessary governmental priorities for materials, or any
fault beyond its control or without its fault of negligence.
16.0 Arbitration
16.1 This Agreement will be construed, in all respects, according to
the laws of the state of Nevada, USA, provided, however, that if any provisions
of this Agreement are in contravention of the laws of Germany, such provisions
shall either be ineffective to the extent that they are in conravention of such
laws without invalidating the remaining provisions hereof.
<PAGE> 7
16.2 Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, will be settled by binding arbitration to
take place in Nevada, USA.
17.0 Notices
17.1 All notices required herein shall be transmitted by first class
mail, or overnight courier delivery, if necessary.
17.2 Written notices may be delivered personally or may be transmitted
by facsimile to the president of the subject party or to the officer specified
in subparagraph 17.3.
17.3 Mailed notices shall be deemed to have been effective seven days
following the date of mailing by certified mail, postage prepaid, return
receipt requested addressed as follows:
Bio-sphere Technology, Inc., 4446 Los Reyes Court, Las Vegas, Nevada 89121, USA.
Pharma Maehle, Ernst Grote Street 23, 30196 Isernhagen, Germany.
18.0 English Language
This Agreement is prepared in the English language only. Any other
summary or documentation prepared in the German language shall be translated
into English.
19.0 Entire Agreement
This Agreement constitutes the entire and only agreement between the
parties relating to the subject matter hereof and supersedes and cancels all
previous Agreements, negotiations, commitments, and representations in respect
thereto, and cannot be released, discharged, abandoned, changed or modified in
any manner except by an instrument in writing of concurrent or subsequent date
and signed by duly authorized officers or representatives or each of the
parties hereto.
<PAGE> 8
Agreed to on this third day of November by:
Pharma Maehle: Bio-Sphere Technology:
Name: /s/ H. MAEHLE Name: /s/ JACKIE R. SEE, M.D.
---------------------------- -------------------------------------
Signature: H. MAEHLE Signature: Jackie R. See
----------------------- -------------------------------
Title: President Title: President
--------------------------- ------------------------------------
Date: November 3, 1995 Date: November 3, 1995
---------------------------- -------------------------------------
<PAGE> 9
This Modification to Agreement dated December 29, 1995 by and between:
Bio-sphere Technology, Inc. (A Nevada Corporation)
herein referred to as "Bio-sphere".
Harvard Scientific Corp. (A Nevada Corporation),
formerly named The Male Edge, Inc., a subsidiary company of Bio-sphere,
herein referred to as "HSC"; and
Pharma Maehle, Ernst Grote St. 23, 30196 Isernhagen, Germany
herein referred to as "Licensee".
WHEREAS, Bio-sphere developed a Frosiaglandin based treatment for male proctile
dysfunction, herein referred to as "product", and;
WHEREAS, Bio-sphere entered into licensing Agreement ("Agreement") with
Licensee dated November 3, 1995 to register, manufacture, market and sell its
product within the Territory of Eastern and Western Europe;
AND WHEREAS, HSC holds all rights to the product and Bio-sphere has assigned
Agreement to HSC;
IT IS THEREFORE AGREED on this date set forth below that:
1) HSC shall assume the responsibilities of Bio-sphere under the same
terms and conditions in the Agreement.
2) Licensee and Bio-sphere acknowledges this assignment is the only
modification to the original Agreement as of this date and that all other terms
and conditions remain in full force and effect as of the signing of this
Modification to Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth below.
<TABLE>
<CAPTION>
Harvard Scientific Corp. Bio-Sphere Technology, Inc. Pharma Maehle
<S> <C> <C>
/s/ Neal Armstrong /s/ Donald Steffens /s/ H. MAEHLE
- -------------------------- ------------------------- ----------------------
By: Neal Armstrong By: Donald Steffens By: H. Maehle
Chief Financial Officer Vice President President
Date: February 27, 1996 Date: February 20, 1996 Date: February 26, 1996
--------------------- -------------------- ------------------
</TABLE>
<PAGE> 10
Amendment
Ref: Licensing Agreement dated 3 November 1995, Section 19.0. Entire Agreement,
page 7
19.0 Entire Agreement
This agreement constitutes the entire and only Agreement between Bio-sphere
Technology, Inc. And Pharma Maehle (or its predecessor company, innoteo Pharma
and Consulting), or any of its progeny, relating to the subject matter hereof
and supersedes and cancels all previous Agreements, negotiations, commitments,
and representations in respect thereto, and cannot be released, discharged,
abandoned, changed or modified in any manner except by an instrument in writing
of concurrent or subsequent date and signed by duly authorized officers or
representatives or each of the parties hereto.
Pharma Maehle: Bio-Sphere Technology:
Name: /s/ HEIKE MAEHLE Name: /s/ IAN HILKS
-------------------------- -----------------------------
Signature: /s/ Heike Maehle Signature: /s/ Ian Hilks
--------------------- ------------------------
Date: March 20, 1996 Date: March 20, 1996
-------------------------- -----------------------------
<PAGE> 1
ITEM 10.4
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is entered into as of this
3rd day of November, 1995, by and among Thomas E. Waite and Associates, Inc. A
Florida corporation ("Consultant") with corporate office at 106 Ridge Road,
Lake Mary, Florida 32746 and Harvard Scientific Corp., a Nevada corporation
("Harvard"), with corporate offices at 1601 East Flamingo, Suite 18, Las Vegas,
Nevada 89119.
WHEREAS, Harvard desires to engage Consultant to perform certain
services including public relations services on its behalf and to advise
Harvard on certain business opportunities; and
WHEREAS, Consultant has represented that it has the expertise to
perform those certain services which will enhance the growth and value of
Harvard;
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties hereto agree as follows;
1. REPRESENTATIONS OF HARVARD. Harvard represents and warrants that;
(a) Harvard the full power and authority to execute and deliver
this Agreement, and to perform all of its obligations herein.
(b) All news releases or other publicity about Harvard will be
coordinated with the Consultant and will be issued in
accordance with the legal requirements of a public company.
(C) Harvard shall approve or disapprove within 48 hours the
issuance of all press releases and any other material
representations about Harvard suggested by Consultant.
(d) The common stock of Harvard to be issued to Consultant as
compensation shall be properly authorized, issued and
registered under the Securities Act of 1933, on a Form S-8
registration statement or other appropriate form.
2. REPRESENTATIONS OF CONSULTANT. Consultant represents and warrants
that:
(a) Consultant has the full power and authority to execute and
deliver this Agreement, and to perform all of its obligations
herein.
(b) Consultant shall limit his representations about Harvard to
facts disclosed by Harvard to Consultant.
<PAGE> 2
3. SERVICES TO BE PERFORMED. Consultant agrees to provide the following
services on behalf of Harvard from the date this Agreement is signed
until November 2. 1997;
(a) Consultant shall open channels of distribution for Harvard's
products throughout the world;
(b) Consultant shall provide input on Harvard's marketing and
sales plans and distribution agreements;
(c) Consultant shall review, advise and have input on Harvard's
distribution agreements;
(d) Consultant shall provide advise and assistance to Harvard with
regard to public relations, mergers, acquisitions and other
business opportunities;
(e) Consultant shall provide public relations services to Harvard
and shall advise Harvard regarding press releases and
communications with the investment community, including
mutual funds, money manages, investors and brokerage firms;
(f) Consultant shall write and release all press releases and
public announcements in coordination with Harvard and
Harvard's legal counsel;
(g) Consultant shall coordinate press conferences with general
media, newspapers, trade publications, magazines financial
news letters, investments advisory reports, wire services
such as Dow Jones, Reuters, and Bloomberg, and financial
television and radio programs; and
(h) Consultant shall act as Harvard's spokesperson to the
investment community.
4. TERMS OF THIS AGREEMENT. This Agreement shall be binding and in effect
from the date this Agreement is signed through November 2, 1997.
5. COMPENSATION.
(a) Base Compensation. As compensation for Consultant's services,
Harvard shall transfer to Consultant 350,000 shares of free-
trading Harvard common stock. These shares shall be delivered
to Consultant simultaneously with the execution of this
Agreement. Harvard shall immediately undertake to register
such shares under the Securities Act of 1933 on Form 2-8 or
any other available for, at Harvard's sole costs and expense.
On the date of this Agreement, shares of Harvard are quoted at
2 5/8 bid on the Bulletin Board of the National Association of
Securities Dealers, Inc.
-2-
<PAGE> 3
(b) Bonus Compensation. The Board of Directors of Harvard shall,
from time to time, review the activities of Consultant with a
view towards bonus compensation which may be awarded such
compensation may take the form of cash, common stock or other
property, and shall be commensurate with the services
rendered by Consultant on behalf of Harvard and the value
thereby added to Harvard and to its stockholders.
6. EXPENSES. Harvard shall be responsible during the entire term of this
Agreement for all of its own expenses incurred in connection with this
Agreement. Harvard shall reimburse Consultant for any and all
out-of-pocket expenses incurred by Consultant in the performance of
this Agreements and its activities for Harvard, provided however, that
to the extent that such expenses exceed $10,000 in any month, such
excess expenses hall be pre-approved in writing by Harvard, by its
then--Chief Executive Officer. Consultant shall provide Harvard with
receipts and/or vouchers for all expenses.
7. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and personally delivered or sent by
registered or certified mail to the following addresses:
If to Harvard: Harvard Scientific Corp.
1601 East Flamingo, Suite 18
Las Vegas, Nevada 89119
Copy to: Jody M. Walker, Esquire
7841 South Garfield Way
Littleton, Colorado 80122
If to Consultant: Thomas E. Waite & Associates, Inc.
106 Ridge Road
Lake Mary, Florida 32746
Copy to: Victor L. Chapman, Esquire
Barretto Chapman & Ruta, P.A.
940 Highland Avenue
Orlando, Florida 32803
Provided, however, that neither party hereto may, from time to time give to the
other party written notice, in the manner provided for herein, of some other
address to which communications to such party shall be Bent, in which event
notices to such party shall be personally delivered or sent by registered or
certified mail to such address. Notice shall be deemed effectively given
hereunder when personally delivered or deposited in the United States mail
postage prepaid, registered or certified, return receipt requested, or
transmittal by overnight receipted courier as the case may be.
-3-
<PAGE> 4
8. LEGAL FEES. Subject to the rights of indemnification and release
contained herein, in the event of any legal action or proceeding
instituted with respect to this Agreement, the party prevailing in
such action or proceeding shall be entitled to collect from the
non-prevailing in such action or proceeding shall be entitled to
collect from the non-prevailing party reasonable attorney fees,
paralegal fees, law clerk fees and other legal cost and expenses,
whether incurred at or before trial, and whether incurred at the trial
level or in any appellate proceeding.
9. BINDING EFFECT, ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
personal representative, heirs, spouses, beneficiaries, successors and
permitted assigns. Neither party to this Agreement may assign such
party's rights or obligations hereunder without the prior written
consent of the other party.
10. COMPLETE ASSIGNMENT. This Agreement constitutes the complete
understanding between the parties with respect to the subject matter
hereof. This Agreement constitutes the entire agreement between the
parties hereto with respect to the matters covered herein and
supersedes all prior or contemporaneous agreements, negotiations,
representations or discussions with respect to such subject matter.
This Agreement may not be amended or modified except by a written
instrument executed by parties hereto.
11. GOVERNING LAW. This Agreement and performance hereunder shall be
governed by and construed in accordance with the laws of the State of
Florida. In the event of any legal or equitable action arising under
this Agreement, the parties hereto hereby agree that the courts of the
State of Florida shall have sole and exclusive jurisdiction and venue
over any such action and hereby consent to such jurisdiction.
12. FURTHER ACTIONS. Each party to this Agreement shall take such further
actions to execute, file, record, publish and deliver such additional
certificates, instruments, agreements and other documents as the other
party from time to time, reasonably request in order to effectuate the
transfer contemplated herein, or otherwise to accomplish the purposes
of this Agreement.
13. WAIVER. No waiver of any breach of any term or condition of this
Agreement shall be deemed to be a waiver of any subsequent breach of
any term or condition of a like or different nature.
14. SEVERABILITY. If any provision of this Agreement shall be held invalid
or unenforceable, such validity or unenforceability shall not, if
possible, affect the validity or enforceability of any other provision
of this Agreement, and this Agreement shall, if possible, be
-4-
<PAGE> 5
construed and enforced in all respects are if such invalid or
unenforceable provision had not been contained herein.
15. DRAFTSMANSHIP. The fact that one of the parties may have drafts or
structured any provision hereof shall not be considered in construing
the particular provision either in favor of, or against, such party.
16. COUNTERPARTS. This Agreement may be executed simultaneously in several
counterparts, each of which shall be deemed an original, but al of
which shall only constitute one instrument. Facsimile signatures are
acceptable.
IN WITNESS WHEREOF, each of the parties having agreed to the above
mentioned terms and conditions have hereunder set their hands and seals as of
this 3rd day of August, 1995.
THOMAS E. WAITE & ASSOCIATES, INC.
By: /s/ THOMAS E. WAITE
---------------------------------
Thomas E. Waite - President
HARVARD SCIENTIFIC CORP.
By: /s/ REX A. MORDEN
---------------------------------
Director
-5-
<PAGE> 1
ITEM 10.5
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is made and entered into
by and between HARVARD SCIENTIFIC CORP. (the "Principal"), and DAVID E. JORDAN
(the "Consultant"). (The Principal and the Consultant being hereinafter
collectively referred to as the "Parties" and generically as a "Party").
PREAMBLE:
WHEREAS, Principal desires to retain Consultant's services and
Consultant agrees to take on Principal as an active client, the Parties hereby
intending to be legally bound, and in consideration for the mutual promises and
covenants contained below, do hereby agree to the following terms and
conditions:
ARTICLE ONE
CONSULTING SERVICES
1.1 Financial Public Relations
(a) For a period of one year commencing on the signing of this
Agreement, Consultant shall serve as Principal's financial public relations
consultant. Consultant will be responsible for preparing and releasing
information concerning Principal to the financial community, and establishing a
public relations program for Principal. Consultant will also arrange to use the
services of other public relations firms whose skills cover various areas of
expertise needed to cover the broad spectrum of specific services required. The
costs for these additional services must be approved by the Principal prior to
implementation.
(b) Consultant shall, immediately following execution of this
Agreement by Principal, proceed to evaluate Principal's financial statements
and business plan as well as any other corporate records necessary to develop a
strategic plan for bring the company to the attention of the public.
Additionally a program for the dissemination of information concerning
Principal to its stockholders and the investment banking community shall be
implemented.
1.2 Responsibility and Liability
Principal shall review and approve all releases that Consultant
prepares as to the accuracy of the information contained therein. Principal
shall be solely responsible for the accuracy of all information contained
therein. Principal hereby agrees to indemnify and defend Consultant against,
and to hold Consultant harmless from, any claims, demand, suits, losses,
damages, including legal fees and expenses, arising out of or relating to
Consulting's use of or reliance upon the facts, material, information and data
supplied to Consultant by Principal. In
Initialed: Principal Consultant
------------ ------------ ------------
<PAGE> 2
the event that a claim is made or suit brought against Consultant, Principal
shall retain at its own expense counsel of Consultant's choice to defend
Consultant.
1.3 Releases Prepared by Principal
Principal shall not release any information to the public without
first providing Consultant an opportunity to review and comment on the release
in advance. However, once Consultant has had an opportunity to review and
approve said release prepared by or for Principal by another entity, Principal
shall be free to release the information in its sole discretion. Principal
shall be solely responsible for all releases it disseminates to the public.
1.4 Acknowledgments
Principal acknowledges that it has been informed and agrees that
Consultant's main responsibility is to advise Principal as to how to interact
with the financial community. Principal further acknowledges that it has been
informed and agrees that Consultant will not directly prepare all of the
material that will be released to the public. Instead, Consultant will retain,
on Principal's behalf, other public relation firms to prepare such materials
for dissemination to various outlets such as radio, television, magazines, the
press and financial investors such as mutual funds both domestic and foreign.
Principal shall have the right to pre-approve any project and budget proposed
by Consultant. Once approved, Principal shall not direct Consultant as to how
best to complete the project.
1.5 Principal Duty To Keep Consultant Informed
(a) PRINCIPAL HEREBY IRREVOCABLY AGREES TO KEEP CONSULTANT APPRISED OF
ALL MATERIAL MATTERS INVOLVING PRINCIPAL, AS REQUIRED TO PERMIT CONSULTANT TO
FULLY, PROPERLY AND LEGALLY PERFORM IT DUTIES ASSUMED UNDER THIS AGREEMENT.
Principal shall be deemed to make a continuing representation as the accuracy
of any and all facts, material, information and data which it supplies to
Consultant. Principal acknowledges that Consultant will rely upon this
representation and will disseminate information to the public and the
investment community based upon the facts, material, information and data
supplied to it by Principal without further inquiry, investigation or due
diligence.
(b) Principal shall promptly provide Consultant with full and complete
copies of all filings with all state and federal securities agencies or
departments. Principal shall also provide to Consultant, prior to their
release, all shareholder reports and communications, all facts, material
information and data supplied to any analyst, broker-dealer, market maker,
mutual fund and any other member of the financial community.
(c) Principal shall provide Consultant with all product or service
brochures, sales material and any other facts, material, information and data
supplied to its clientele and/or the public.
Initialed: Principal Consultant
------------ ------------ ------------
<PAGE> 3
(d) Principal shall give Consultant advance notice of the filing of
any registration statement for the sale of securities and/or of any other event
which triggers any restriction on publicity.
1.6 Confidentiality
Consultant shall not disclose to any third party, other than those it
retains to help prepare materials for Principals benefit, any confidential
non-public information furnished by Principal to it or other wise obtained in
Principal's service. This duty will survive termination of this Agreement
except that Consultant may use any information it obtains if needed in its
defense if litigation arises between the parties the concerning the subject
matter of this Agreement.
1.7 Termination
This Agreement may only be canceled for good caused or upon mutual
agreement.
1.8 Damages
The Parties agree that damages are hard to access in advance of a
breach of contract. If this Agreement is terminated for any reason, other than
good cause, Consultant's damages will be the remaining monthly fees for the
life of the contract as well as any out of pocket expenses Consultant may have
incurred on Principal's behalf which were not reimbursed prior to Consultant's
termination and interest on both at the legal rate to run from the date of the
termination of this Agreement. These sums shall be paid as liquidated damages
and not as a penalty or a forfeiture for the injuries suffered by Consultant.
Principal agrees that the remedies described above shall be in
addition to, and not in limitation of, any of the rights or remedies to which
Consultant is or may be entitled to, whether at law or in equity, under or
pursuant to this Agreement.
ARTICLE TWO
CONSULTANT COMPENSATION
2.1 Consultant's Fee
Consultant's fee is 100,000 shares of unregistered stock of Harvard
Scientific Corp and $8,000.00 per month for the services described in Article
One. The stock shall be issued simultaneously with signing of this contract and
Consultant's monthly cash fees shall be payable in advance, due on the first of
the preceding month and must be paid by the 5th. The first month's fee is due
upon the signing of this Agreement. All regular monthly consulting fees will be
paid by Principal regardless if an invoice is submitted to it by Consultant.
Consultant' fee does not include costs for any third party's work. All
subcontractor's fees shall be paid by Principal to Consultant upon invoice from
Consultant, in addition to Consultant's fees.
Initialed: Principal Consultant
------------ ------------ ------------
<PAGE> 4
2.2 Other Services
The foregoing fees are solely for the services specified in this
Agreement. Principal hereby agrees to and acknowledges that if Consultant is
required to perform other services not specified in this Agreement that
Principal shall be responsible to provide Consultant with additional
compensation on terms to be mutually agreed upon by the Parties.
2.3 Agency Fees
Principal acknowledges that it has been informed and agrees that
Consultant will be entitled to all agency fees which public relations and/or
advertising firms receive when preparing material or placing advertising. Said
fees are in addition to Consultant's monthly fee.
2.4 Advanced Costs
Consultant may, but is not required to, advance cost for out of pocket
expenses. Principal shall reimburse all costs advanced by Consultant within ten
(10) days of receipt of Consultant's invoice. For all costs that Consultant
does not advance Principal shall promptly provide to Consultant, or pay to a
third party, all costs necessary to allow Consultant to perform its obligations
under this Agreement. Consultant will directly bill Principal for all public
relations services under that Consultant provides through a third party
subcontractor. Principal acknowledges that it has been informed in advance that
Consultant plans on obtaining substantial services from third party
subcontractors.
2.5 Approved Costs
Costs that Consultant may incur include, but are not limited to:
travel, entertainment, printing, telephone, advertising, third party services,
printing, postage and courier fees. Consultant will seek and receive
Principal's approval for any expenditures in excess of $5,000 monthly prior to
expending said monies or incurring said expense.
2.6 Guarantee
Principal hereby guarantees all fees payable to Consultant under this
Agreement.
ARTICLE THREE
MISCELLANEOUS
Initialed: Principal Consultant
------------ ------------ ------------
<PAGE> 5
3.1 Notices
All notices, demands or other written communications hereunder shall
be in writing and unless otherwise provided, shall be deemed to have been duly
given if transmitted by FAX as follows:
To Consultant:
DAVID E. JORDAN
823 Southeast Eighth Avenue
Deerfield Beach, Florida 33441
Fax 954-429-8865
To Principal:
DON STEFFENS, Vice President
HARVARD SCIENTIFIC CORP.
17991 Fitch Avenue
Irvine, California 92614
714-252-8191
In each case, copies of all notices, demands or other written
communications will be sent to such other address(es) or to such other
person(s) as a Party shall designate to the other for such purposes in the
manner hereinabove set forth.
3.2 Amendments
No modification, waiver, amendment, discharge or change of this
Agreement shall be valid unless the same is in writing and signed by the Party
to be charged.
3.3 Merger
This instrument, together with the instrument referred to herein,
contains all of the understandings and agreements of the Parties with respect
to this Agreement. All prior agreement whether written or oral are merged
herein and shall be of no force or effect.
3.4 Survival
Initialed: Principal Consultant
------------ ------------ ------------
<PAGE> 6
The several representations, warranties and covenants of the Parties
contained herein shall survive the execution hereof and shall be effective
regardless of any investigation that may have been made or may be made by or on
behalf of any Party hereto.
3.5 Severability
If any provision or any portion of any provision of this Agreement,
other than a condition precedent, if any, or the application of such provision
or any portion thereof to any person or circumstance shall be held invalid or
unenforceable, the remaining portions of such provision and the remaining
provisions of this Agreement or the application of such provision or portion of
such provision as is held invalid or unenforceable to persons or circumstances
other than those to which it held invalid or unenforceable, shall not be
affected thereby.
3.6 Governing Law and Venue
This Agreement shall be construed in accordance with laws of the State
of Florida. Any proceeding arising between the Parties in any matter pertaining
or related to this Agreement or the service to be provided under this Agreement
shall, to the extent permitted by law, be held in the County of Broward, State
of Florida.
3.7 Litigation
In any action between the Parties to enforce any of the terms of this
Agreement or any other matter arising from this Agreement, the prevailing Party
shall be entitled to recover all of its prelitigation and litigation costs and
expenses including reasonable attorney's fees up to and including all
negotiations, trials, and appeals, whether or not litigation is actually
initiated.
3.8 Benefit of Agreement
The terms and provisions of this Agreement shall be binding upon and
inure to the benefit of the Parties, jointly and severally, their successors,
assigns personal representatives, estate, heirs and legatees.
3.9 Captions
The captions in this Agreement are for convenience and reference only
and in no way define, describe, extend or limit the scope of this Agreement or
the intent of any provisions hereof.
Initialed: Principal Consultant
------------ ------------ ------------
<PAGE> 1
ITEM 10.6
AGREEMENT FOR THE ACQUISITION OF INTELLECTUAL PROPERTY RIGHTS
This Agreement is entered into by and between The Male Edge, Inc. a
Nevada corporation (hereafter "TMEI"), and Bio-Sphere Technology, Inc., a
Delaware corporation (hereafter "BTI").
Witnesseth:
WHEREAS, BTI is the owner of all right, title and interest in the
intellectual property pertaining to the liposomal PGE-1 formula for the
treatment of male impotence and erectile dysfunctional, to the marketed under
the trade name "The Male Edge" as well as other possible trade names; and
WHEREAS, TMEI desires to acquire all related intellectual property
rights and all rights to develop, manufacture, and market "The Male Edge" and
all products derived from the technology; and
WHEREAS, BTI desires to transfer all such intellectual property rights
in exchange for the consideration set forth below;
Now, therefore in consideration of the promises and mutual covenants
contained herein, the parties hereto agree as follow:
ARTICLE I
GRANT
Section 1.01. Upon the terms and conditions set forth herein, BTI grants to
TMEI any and all intellectual property rights in and to the product "The Male
Edge" and any related technology or products, including the exclusive right to
manufacture, develop and sell "The Male
<PAGE> 2
Edge" or any related product under trade name except for such territories and
under such conditions as the parties may otherwise agree in writing signed by
both parties.
Section 1.02. TMEI has been informed that such intellectual property rights
have not been patented and TMEI agrees to promptly take all steps necessary to
patent the product and the related technology in the United States and all
other countries and locations where a significant market for the product
exists. Significant market shall be interpreted to mean such locations where
potential sales justify the expense of pursuing the prosecution of a patent
application. The failure of TMEI to promptly fulfill its obligations under this
provision shall be deemed to be a material breach of the terms of this
agreement.
ARTICLE
CONSIDERATION
Section 2.01. In exchange for the grant of such intellectual property
rights, TMEI shall require to BTI 2,856,000 shares of restricted common stock
of TMEI. Section 2.02. The parties have stipulated that the value of the
technology acquired is $5,712,000.
ARTICLE III
EMPLOYMENT AGREEMENTS
Section 3.1. TMEI shall appoint, subject to the approval of its
shareholders, Jackie R. See, M.D., President of BTI, and James L. Rather,
Secretary of BTI, as officers and directors of TMEI. See and Rather shall be
provided annual employment contracts with salary and benefits commensurate with
compensation packages standard in the industry. Section 3.2. TMEI shall further
grant to See full control over the manufacturing process of the
<PAGE> 3
product in recognition of his responsibilities and potential liabilities as the
inventor. See shall be vested with such authority as is necessary to assure the
integrity of the product, and he shall also be consulted regarding the
marketing strategies employed in the eventual marketing of the product.
ARTICLE IV
DURATION AND TERMINATION
Section 4.01. Unless this Agreement is otherwise terminated as hereinafter
set forth, all right title and interest in and to the acquired intellectual
property shall be forever retained by TMEI or its successors or assigns. In the
event of termination of this Agreement, the patent or intellectual property
rights shall be returned to Jackie R. See, M.D. as the inventor.
Section 4.02. In the event of any one of the following:
(1) A party breaches the Agreement and does not cure
such breach within forty-five (45) days after notice
thereof from the other party specifying such breach;
(2) Liquidation of a party;
(3) Insolvency or bankruptcy of a party whether voluntary
or involuntary;
(4) Inability of a party to meet its obligations hereunder;
(5) Failure of a party to satisfy and judgment against it;
or
(6) Appointment of a trustee or receiver for a party;
then, and in addition to all rights and remedies which the other party may have
at law or in equity, the other party may, at its option, terminate this
Agreement by notice thereof in writing specifying the reason for such
termination and a termination date. Such termination shall become effective on
the date of termination set forth in the notice of termination, but in no event
earlier than
<PAGE> 4
forty-five (45) from the date of mailing thereof.
Section 4.03. The waiver of any default under this Agreement shall not
constitute a waiver of the right to terminate this Agreement for any subsequent
default.
ARTICLE V
NOTICES
Section 5.01. All notices required to be several under the terms and
conditions of this Agreement by any of the parties hereto upon the other shall
be in writing sent by registered mail, with a copy by regular first class mail,
to the other parties hereto at the addresses so stated herein or any later
addresses, notices of which has previously been given by one party to the
other, and the time of such notice shall start with day of deposit of such in
the Post Office by the sender. Failure of any party to give any of the notices
referred to in this Agreement shall not relieve any party to this Agreement of
its obligations under this Agreement not shall it constitute a waiver with
respect to any subsequent default. Any such notice may be addressed as follows:
Bio-Sphere Technology, Inc. The Male Edge, Inc. 2545 South Bruce Street, Suite
C 1601 East Flamingo, Suite 18 Las Vegas, NV 89109 Las Vegas, NV89119
ARTICLE VII
FORCE MAJEURE
Section 6.01. None of the parties hereto shall be liable in damages or have
the right to cancel for any delay or default in performing hereunder if such
delay or default is caused by conditions beyond its control, including but not
limited to Acts of God, Government restrictions, continuing domestic or
international problems such as wars or insurrections, strikes, fires, floods,
work,
<PAGE> 5
stoppages and embargoes.
ARTICLE VII
CONSTRUCTION AND INTERPRETATION
Section 7.01. This Agreement set forth the entire agreement between the
parties and supersedes all prior agreements and understandings between the
parties, and their officers, directors or employees relating to the subject
matter hereof. None of the parties has relied upon any oral representation or
oral information given to it by any representative of any of the other parties.
ARTICLE IX
SETTLEMENT OF DISPUTES
Section 9.01. All disputes arising in connection with this Agreement shall
be finally settled under the Rules of the American Arbitration Association by
one or more arbitrators appointed in accordance with the Rules of that
organization.
ARTICLE X
GOVERNMENT CONSENT
Section 10.01. It is understood that TMEI shall have the sole obligation to
secure the written approval of any regulatory agencies and boards for the
manufacturing and marketing of the product.
<PAGE> 6
ARTICLE XI
COUNTERPARTS
Section 11.01. This Agreement may be executed in any number of
counterparts, each of which so executed shall be considered an original, but
all such counterparts shall together be one and the same Agreement.
ARTICLE XII
INFRINGEMENT AND OTHER ACTIONS
Section 12.01. BTI shall assist TMEI to the extent necessary in the
procurement of any protection for, or to protect any of, TMEI's rights in and
to the Product or the use of the Trademarks in connection therewith, provided,
however, that the provisions of this Paragraph shall not be construed so as to
require or obligate BTI to provide any financial assistance hereby. Each party
shall notify the other, in writing, of any infringements or limitations by
others of the Products similar to those covered by this Agreement that may come
to their attention.
ARTICLE XIII
INDEMNIFICATION
Section 13.01. In the event of a breach of this Agreement, the breaching
party shall fully indemnify the other party and its respective employees and
agents, from all judgments, damages, legal costs and attorney's fees, claims,
suits, causes of action, or legal proceedings (including any governmental
proceedings) that result from such breach.
Section 13.02. TMEI agrees to indemnify and hold BTI and its respective
employee s agents, and each of them, harmless from all judgments, damages,
legal costs and proceedings (including any governmental proceedings) arising as
a result of or relating to the manufacture, marketing, advertising, sale,
distribution, or use of the Properties under this Agreement, (including,
<PAGE> 7
without limitation, any manufacturing, packages, labeling, or advertising
defect) not arising out of any malicious wrongs, gross negligence, or
deliberate misrepresentations of BTI relating to the Product under this
Agreement.
ARTICLE XIV
ATTORNEY'S FEES
Section 14.01. In the event of any controversy, claim, or dispute
between the parties, arising out of or relating to this Agreement or its
breach, the prevailing party shall be entitled in addition to any other relief,
to cover reasonable attorney's fees, expenses, and costs whether or not the
controversy, claim or dispute results in litigation or arbitration between the
parties.
ARTICLE XV
WAIVER OR MODIFICATION
Section 15.01. No waiver or modification of this Agreement shall be
valid unless in writing and signed by the party to be charged thereto. No
waiver of any breach of this Agreement shall be deemed a waiver of any
subsequent breach of like or similar nature.
ARTICLE
BINDING EFFECT
Section 16.01. This Agreement shall inure to the benefit of, and shall
be binding upon, the assigns and successors in interest of either party.
ARTICLE XVII
SEVERABILITY
Section 17.01. If any provision of this Agreement shall be held to be
invalid, illegal, or unenforceable, the remaining provisions shall not be
affected thereby but shall continue in full force and effect. To the extent any
provision is unenforceable, it shall be enforced to the fullest extent
<PAGE> 8
permitted by law.
ARTICLE XVIII
ENTIRE AGREEMENT
Section 18.01. This Agreement constitutes the entire agreement and
understanding between the parties and supersedes all prior representations,
promises, negotiations, or covenants, whether written or oral.
IN WITNESS HEREOF, the parties have caused this Agreement to be signed
by the respective officers hereunto duly authorized.
ATTEST:
BIO-SPHERE TECHNOLOGY, INC.
By: /s/ JACKIE R. SEE, M.D. By: /s/ JAMES L. RATHER
-------------------------- --------------------------
Title: President Title: Secretary
----------------------- ------------------------
Date: January 7, 1994 Date: January 7, 1994
----------------------- -------------------------
THE MALE EDGE, INC.
By: /s/ JAMES L. RATHER By: /s/ REX A. MORDEN
-------------------------- --------------------------
Title: Secretary/Treasurer Title: Director
----------------------- -----------------------
Date: January 7, 1994 Date: January 7, 1997
----------------------- ------------------------
<PAGE> 1
ITEM 10.7
EXCHANGE AGREEMENT
Exchange Agreement dated as of November 16, 1995, between Harvard
Scientific Corp., a Nevada corporation with its principal address at 1601 East
Flamingo, Suite 18, Las Vegas, Nevada 89119 ("Harvard") and Bio-Sphere
Technology, Inc., a Nevada corporation with its principal address at 4446 Los
Reyes Court, Las Vegas, Nevada 89121 ("Bio-Sphere").
W I T N E S S E T H
WHEREAS, Harvard and Bio-Sphere have entered into an agreement
effective January 1994 (the "Existing Agreement") whereby Bio-Sphere
transferred to Harvard certain intellectual property rights and the U.S.
development , manufacturing and marketing rights to the Liposomal PaGE-1
formula for treatment of erectile dysfunction (the "Product") in exchange for
714,000 shares of common stock of Harvard (the "Harvard Stock"); and
WHEREAS, the parties hereto desire to modify the terms of the Existing
Agreement to expand the rights given to Harvard thereunder to the Product,
including to give Harvard full international rights to the Product and the
benefit of existing distribution agreement covering Western Europe and Korea,
respectively, which have been entered into with unrelated third parties, and
the parties have agreed to take certain other action relating to their
relationship, all in exchange for the additional issuance by Harvard to
Bio-Sphere of an aggregate of 6,138,500 shares of Harvard Stock, thereby
resulting in Bio-Sphere's ownership on the effective date thereof of 80% of the
issued and outstanding shares of Harvard Stock, all upon the terms and
conditions herein contained.
<PAGE> 2
NOW, THEREFORE, the parties hereto agree as follows:
1. The Existing Agreement relating to the Product is hereby
modified in the following respects:
(a) Article II is hereby modified to provide that
Harvard shall issue to Bio-Sphere, on or promptly
following the date hereof, an aggregate of
6,138,500 shares of Harvard Stock. In addition to
the 714,000 shares previously issued to Bio-Sphere.
Harvard represents that Bio-Sphere's total
ownership will then be 6,852,500 shares, or
approximately 80% of the 8,565,625 shares of
Harvard Stock to be issued and outstanding (after
giving effect to the issuance of such shares to
Bio-Sphere) and after giving effect to all
outstanding option conversation rights and other
rights to acquire shares of Harvard Stock.
(b)
Bio-Sphere acknowledges that the shares of Harvard
Stock to be issued it have not been registered
under the Securities Act of 1933, as amended (the
"Act") and may not be sold or transferred by
Bio-Sphere accept in accordance with the provisions
of the Act.
(c) The parties agree that the value of the additional
technology and rights conveyed hereunder by
Bio-Sphere (together with the other undertakings
made by Bio-Sphere) is equal to the fair market
value of the 6,138,500 shares of Harvard Stock
being issued to Bio-Sphere hereunder.
(d)
Bio-Sphere hereby transfer, assigns and conveys to
Harvard, and Harvard accepts such assignment and
agrees to be bound by, all rights and
responsibilities of Bio-Sphere under those certain
licensing agreements
<PAGE> 3
dated November 3, 1995 with Pharma Maehle and dated
January 9, 1995 between Bio-Sphere (as the
Manufacturer) and Sae Han Pharmaceutical Company
Ltd., copies of which agreements being annexed
hereto and made a part hereof.
2. Bio-Sphere agrees to assist Harvard in raising additional working
capital for commercial exploitation and further development of the Product and
marketing and sales thereof, subject to market conditions. Bio-Sphere shall
also undertake, until such capital is raised, to advance up to $150,000 to
Harvard on an interest-free basis for use by Harvard as for additional working
capital.
3. Harvard agrees with Bio-Sphere to use its best efforts to actively
and diligently further develop, including obtaining regulatory clearance for,
and promotion of, the commercial sale of the Product in the U.S. and elsewhere.
4. Except as modified hereby, the Existing Agreement between the
parties shall remain in full force and effect. In the event of any conflict
between the terms of this Agreement and the terms of the Existing Agreement,
the provisions of this Agreement shall govern.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the day and year first set forth above.
HARVARD SCIENTIFIC CORP.
By: /s/ REX A. MORDEN
---------------------------------
Director, Rex A. Morden
November 16, 1995
BIO-SPHERE TECHNOLOGY, INC.
By: /s/ DON STEFFENS
---------------------------------
Vice President, NOVEMBER 16, 1995
