<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 1997
REGISTRATION NO. 333-20187
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
UNIVEC, INC.
(Name of Small Business Issuer in Its Charter)
<TABLE>
<S> <C> <C>
Delaware 3841 11-3163455
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or organization) Industrial Classification Identification No.)
Code Number)
</TABLE>
999 Franklin Avenue
Garden City, New York 11530
Telephone: (516) 294-1000
Telecopier: (516) 739-3343
(Address and telephone number of principal executive offices)
------
Joel Schoenfeld
Chairman of the Board and Chief Executive Officer
UNIVEC, Inc.
999 Franklin Avenue
Garden City, New York 11530
Telephone: (516) 294-1000
Telecopier: (516) 739-3343
(Name, address and telephone number of agent for service)
------
Copies to:
Jack Becker, Esq. Jay M. Kaplowitz, Esq.
Snow Becker Krauss P.C. Arthur S. Marcus, Esq.
605 Third Avenue Gersten, Savage, Kaplowitz, Fredericks
New York, New York 10158-0125 & Curtin, LLP
Telephone: (212) 687-3860 101 East 52nd Street
Telecopier: (212) 949-7052 New York, New York 10022-6018
Telephone: (212) 752-9700
Telecopier: (212) 980-5192
------
Approximate Date of Proposed Sale to the Public: As soon as practicable
after the effective date of this registration statement.
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. [ ]
If any of the securities on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act, please check
the following box. [X]
------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may determine.
===============================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================
<S> <C> <C> <C> <C>
Title of Each
Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price Aggregate Offer- Amount of
Registered Registered Per Security(1) ing Price(1) Registration Fee
- --------------------------------------------------------------------------------------------
Common Stock, $0.001 par
value ("Common Stock") 1,725,000(2) $3.50 $6,037,500 $1,829.55
- --------------------------------------------------------------------------------------------
Redeemable Common
Stock Purchase
Warrants ("Warrants") 2,587,500(3) $.10 $258,750 $78.41
- --------------------------------------------------------------------------------------------
Common Stock issuable
upon exercise of
Warrants ............ 2,587,500(4) $4.50 $11,643,750 $3,528.41
- --------------------------------------------------------------------------------------------
Underwriters' Warrants
to purchase shares of
Common Stock ........ 150,000 $.000025 $3.75 (5)
- --------------------------------------------------------------------------------------------
Underwriters' Warrants
to purchase Warrants 225,000 $.000025 $6.25 (5)
- --------------------------------------------------------------------------------------------
Common Stock issuable
upon exercise of
Underwriters'
Warrants ............ 150,000(4) $5.775 $866,250 $262.50
- --------------------------------------------------------------------------------------------
Warrants issuable upon
exercise of
Underwriters'
Warrants ............ 225,000 $.165 $37,125 $11.25
- --------------------------------------------------------------------------------------------
Common Stock issuable
upon exercise of
Warrants underlying
Underwriters'
Warrants ............ 225,000(4) $4.50 $1,012,500 $306.81
- --------------------------------------------------------------------------------------------
Redeemable Common
Stock Purchase
Warrants ............ 1,750,000(6) $.10 $175,000 $53.03
- --------------------------------------------------------------------------------------------
Common Stock ......... 1,750,000(4)(8) $4.50(7) $7,875,000 $2,386.36
33,436(4)(9) $3.50(7) $117,026 $35.46
- --------------------------------------------------------------------------------------------
Total Registration Fee .................................................. $ 8,491.78(10)
============================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933.
(2) Includes 225,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(3) Includes 337,500 Warrants which may be purchased by the Underwriters to
cover over-allotments, if any.
(4) Pursuant to Rule 416, there are also being registered such indeterminate
number of additional shares as may become issuable pursuant to the
anti-dilution provisions of the Warrants, the Underwriters' Warrants
(and the Warrants included therein), and the warrants and options owned
by the selling securityholders named herein.
(5) Pursuant to Rule 457(g) promulgated under the Securities Act of 1933, no
filing fee is required.
(6) Represents Redeemable Common Stock Warrants being registered for sale by
selling securityholders.
(7) Calculated pursuant to Rule 457(g).
(8) Represents 1,750,000 shares issuable upon exercise of Redeemable Common
Stock Purchase Warrants registered for sale by selling securityholders.
(9) Represents 33,436 shares issuable upon exercise of certain options
registered for sale by a selling securityholder.
(10) A filing fee of $9,537.24 was previously paid.
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: (i) one to
be used in connection with an offering by the Company of shares of Common
Stock and Redeemable Common Stock Purchase Warrants (the "Prospectus") and
(ii) one to be used in connection with the sale of Redeemable Common Stock
Purchase Warrant and shares of Common Stock issuable upon exercise of those
Redeemable Common Stock Purchase Warrants and outstanding options by certain
selling securityholders (the "Selling Securityholder Prospectus"). The
Prospectus and the Selling Securityholder Prospectus will be identical in all
respects except for the alternate pages for the Selling Securityholder
Prospectus included herein which are labeled "Alternate Page for Selling
Securityholder Prospectus."
<PAGE>
The 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.
PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION, DATED APRIL 21, 1997
UNIVEC, INC.
1,500,000 SHARES OF COMMON STOCK AND
2,250,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
This Prospectus relates to an offering (the "Offering") by UNIVEC, Inc.
(the "Company") of 1,500,000 shares of common stock, par value $.001 per
share (the "Common Stock"), and 2,250,000 redeemable common stock purchase
warrants (the "Warrants"). The shares of Common Stock and the Warrants
offered hereby may be purchased separately and will be transferable
separately after issuance. The Common Stock is being offered at $3.50 per
share and the Warrants at $.10 per Warrant.
Each Warrant entitles the registered holder thereof to purchase one share
of Common Stock at an exercise price of $4.50 per share, subject to
adjustment in certain events, at any time during the period commencing April
, 1999 and expiring on April , 2002. The Warrants are subject to redemption
by the Company at $.05 per Warrant at any time commencing April , 1999 (with
the prior written consent of Maidstone Financial, Inc., the representative of
the Underwriters (the "Representative"), on not less than 30 days prior
written notice to the holders of the Warrants, provided the closing bid price
of the Common Stock has been at least $8.00 for 20 consecutive trading days
ending on the third day prior to the date on which the Company gives notice
of redemption. The Warrants will be exercisable until the close of business
on the day immediately preceding the date fixed for redemption. The Common
Stock and the Warrants have been approved for quotation, subject to notice of
issuance, on The Nasdaq SmallCap Market under the trading symbols "UNVC" and
"UNVCW", respectively. See "Description of Securities -- Warrants."
Prior to the Offering, there has been no public market for the Common
Stock or Warrants, and there can be no assurance that any such market for the
Common Stock or Warrants will develop after the closing of the Offering, or
that, if developed, it will be sustained. The offering prices of the Common
Stock and Warrants and the terms of the Warrants were established by
negotiations between the Company and the Representative and do not
necessarily bear any direct relationship to the Company's assets, earnings,
book value per share or other generally accepted criteria of value.
The Company has registered for resale under a separate prospectus (the
"Selling Securityholder Prospectus") as part of the Registration Statement
warrants to purchase 1,750,000 shares of Common Stock (having terms identical
to the warrants offered hereby) and the shares of Common Stock issuable upon
exercise thereof, and 33,436 shares of Common Stock issuable upon exercise of
options. The warrants were issued in connection with a bridge financing
completed by the Company in December 1996. The National Association of
Securities Dealers, Inc. (the "NASD") has rendered an opinion only with
regard to the underwriting terms and arrangements in connection with the
primary offering by the Company of 1,500,000 shares of Common Stock and
2,250,000 Warrants. Therefore, no NASD member may participate in the offering
by the selling securityholders named in the Selling Securityholder Prospectus
(the "Selling Securityholders") of 1,750,000 warrants, the shares of Common
Stock issuable upon exercise of those warrants, or 33,436 shares of Common
Stock issuable upon exercise of options, without first submitting the terms
and arrangements to the NASD for review and approval. See "Underwriting."
Each of the Selling Securityholders has entered into an agreement not to sell or
otherwise dispose of any securities of the Company prior to April , 1999,
without the prior written consent of the Representative, which consent may not
be granted prior to April , 1998. The Company will not receive any proceeds from
the sale of the warrants or shares of Common Stock by the selling
securityholders, but will receive the exercise price of the warrants and options
exercised. See "Selling Securityholder Offering."
<PAGE>
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. ONLY INVESTORS WHO CAN BEAR THE RISK OF LOSS OF THEIR ENTIRE INVESTMENT
SHOULD INVEST. FOR A DESCRIPTION OF CERTAIN RISKS REGARDING AN INVESTMENT IN
THE COMPANY AND IMMEDIATE SUBSTANTIAL DILUTION, SEE "RISK FACTORS" COMMENCING
ON PAGE 9 AND "DILUTION" AT PAGE 22.
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
==============================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- ------------------------------------------------------------------------------
Per Share ........... $3.50 $.315 $3.185
- ------------------------------------------------------------------------------
Per Warrant ........ $.10 $.009 $.091
- ------------------------------------------------------------------------------
Total(3) ........... $5,475,000 $492,750 $4,982,250
==============================================================================
(footnotes appear on page 3)
------
[LOGO] MAIDSTONE FINANCIAL, INC. [LOGO] H
G
Incorporated
------
The date of this Prospectus is April , 1997.
<PAGE>
[INSERT PICTURES]
ASPIRATING VS. NON-ASPIRATING:
With the aspirating syringe, the UNIVEC locking clip does not limit the user's
ability to withdraw and depress ("to aspirate") the plunger until the user locks
the syringe voluntarily.
With the non-aspirating syringe, the UNIVEC locking clip limits the user's
ability to aspirate the plunger and locks the syringe passively.
VACCINATION
NON-ASPIRATING
INSULIN
ASPIRATING
WITH NEEDLE
TUBERCULIN
NON-ASPIRATING
WITH NEEDLE
TUBERCULIN
NON-ASPIRATING
WITHOUT NEEDLE
TUBERCULIN
ASPIRATING
WITH NEEDLE
TUBERCULIN
ASPIRATING
WITHOUT NEEDLE
---------------------------
UNIVEC(R), and R/ Ultra(R) are registered trademarks of the Company. All
other trademarks appearing in this Prospectus are the property of their
respective holders.
2
<PAGE>
(1) Does not include additional compensation consisting of (i) a
non-accountable expense allowance payable to the Representative equal to
3% of the gross proceeds of the Offering, of which $55,000 has been paid
by the Company to date, (ii) warrants (the "Underwriters' Warrants")
entitling the Underwriters to purchase an amount equal to 10% of the
number of shares of Common Stock and Warrants offered hereby (excluding
the Over-Allotment Option, as defined in footnote 3, below) for a
purchase price of 165% of the initial public offering price thereof, and
(iii) a financial advisory agreement with the Representative for 24
months commencing on the date of the closing of the Offering for a fee of
$4,416.67 per month, or an aggregate of $106,000, payable in its entirety
at the closing of the Offering. In addition, the Company has agreed to
pay the Representative, under certain circumstances, a warrant
solicitation fee of 8% of the exercise price of each Warrant exercised
and to indemnify the Underwriters against certain civil liabilities,
including those arising under the Securities Act. See "Underwriting."
(2) After deducting discounts and commissions payable to the Underwriters,
but before payment of the Representative's non-accountable expense
allowance ($164,250, or $188,887 if the Over-Allotment Option is
exercised in full), the financial advisory fee ($106,000) and the other
expenses of the Offering (estimated at $427,750) payable by the Company.
See "Underwriting."
(3) The Company has granted the Underwriters an option, exercisable for a
period of 45 days after the closing of the Offering, to purchase up to an
additional 15% of the shares of Common Stock and/or Warrants offered
hereby, upon the same terms and conditions solely for the purpose of
covering over-allotments, if any (the "Over-Allotment Option"). If the
Over-Allotment Option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$6,296,250, $566,662 and $5,729,588, respectively. See "Underwriting."
The Common Stock and Warrants are being offered by the Underwriters on a
"firm commitment" basis, subject to prior sale, when, as and if delivered to
the Underwriters and subject to certain conditions. Subject to the provisions
of the underwriting agreement between the Underwriters and the Company, the
Underwriters reserve the right to withdraw, cancel or modify the Offering and
to reject any order in whole or in part. It is expected that delivery of
certificates will be made against payment therefor at the office of the
Representative, 101 East 52nd Street, New York, New York 10022, on or about
April , 1997.
------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
AND WARRANTS OFFERED HEREBY, INCLUDING PURCHASES OF THE COMMON STOCK OR
WARRANTS TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE COMMON STOCK OR
WARRANTS TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK OR
WARRANTS MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
3
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2 under the Securities Act with respect to
the securities offered hereby (the "Registration Statement"). This Prospectus
does not contain all the information set forth in the Registration Statement
and the exhibits thereto as permitted by the Rules and Regulations of the
Commission. For further information with respect to the Company and such
securities, reference is made to the Registration Statement and to the
exhibits filed therewith. Statements contained in this Prospectus as to the
contents of any contracts or other documents referred to herein are not
necessarily complete and where such contract or other document is an exhibit
to the Registration Statement, each such statement is qualified in all
respects by the provisions of such exhibit to which reference is made for a
full statement of the provisions thereof. The Registration Statement,
including exhibits filed therewith, may be inspected, without charge, at the
principal office of the Commission located at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549. Copies of all or any part of the Registration
Statement (including the exhibits thereto) also may be obtained from the
Public Reference Section of the Commission at its principal office in
Washington, D.C., at the Commission's prescribed rates. Electronic
registration statements made through the Electronic Data Gathering Analysis
and Retrieval system are publicly available through the Commission's web site
at http://www.sec.gov.
On the date of the Prospectus, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, will file reports, proxy and
information statements and other information with the Securities and Exchange
Commission. Such reports, proxy and information statements and other information
can be inspected and copied at the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of such material also may be obtained from the Public Reference Section
of the Commission at prescribed rates. The Commission maintains a web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically. The Company
intends to furnish its stockholders with annual reports containing audited
financial statements and such other reports as the Company deems appropriate or
as may be required by law.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements appearing elsewhere in this
Prospectus. Unless otherwise indicated or the context otherwise requires, all
references herein to the Company or UNIVEC include UNIVEC, Inc., a New York
corporation ("UNIVEC-NY"), which was merged into the Company on October 10,
1996, and R/ Ultra, Inc., a wholly owned subsidiary of UNIVEC. Except as
otherwise stated, all information assumes no exercise of the Over-Allotment
Option.
THE COMPANY
UNIVEC, Inc. (the "Company" or "UNIVEC") develops and markets safety
hypodermic syringes designed to protect the healthcare worker and patient
against cross-infection. The Company also sells and intends to develop other
hypodermic devices. In January 1997, the Company commenced production and
sales of its 1cc locking clip syringes, which are designed to make accidental
or deliberate reuse difficult. The accidental or deliberate reuse of syringes
is a frequent cause of the spread of the human immunodeficiency ("HIV") and
hepatitis viruses, as well as other blood-borne pathogens. The Company has
received 510(k) clearance from the U.S. Food and Drug Administration (the
"FDA") to market its locking clip syringes in the United States. In the first
two months of 1997, the Company sold approximately 1,777,000 locking clip
syringes resulting in sales of approximately $159,000.
Public health officials have encouraged the medical industry to develop
safer, more difficult to reuse, syringes, to prevent the spread of
blood-borne pathogens, such as HIV and hepatitis. In 1995, the House of
Delegates -- American Medical Association requested "manufacturers of
disposable hypodermic needles and syringes to adopt designs to prevent reuse
and to include in the packaging clear directions for their correct disposal."
In late 1995, UNICEF recommended "the use of auto-destruct syringes instead
of disposable, single use syringes in order to avoid the hazards of unsafe
injection practices." In 1996, Brazil adopted a law requiring disposable
syringes manufactured or marketed in that country to include a safety device
to prevent its reuse. During 1996, New York State enacted legislation
authorizing a limited number of pilot projects to test the practicality and
effectiveness of difficult to reuse syringes. Such pilot tests are to be
conducted, subject to funding, in state-operated facilities, such as prisons,
hospitals, youth detention facilities and development centers.
The Company believes that its 1cc difficult to reuse syringes are more
effective than competitive syringes and that they are competitively priced.
The Company also believes that it is the only company that markets a
difficult to reuse syringe with a 1cc barrel, which is ideal for dispensing
.05cc to .95cc dosages of medicine (e.g., allergy, immunization and insulin
medicines). It is more difficult to deliver .05cc to .95cc dosages accurately
with a syringe barrel that is greater than 1cc. The Company does not know of
any other company that offers an aspirating syringe that can be locked.
Healthcare workers need aspirating syringes to mix medications in the syringe
barrel and inject medications intravenously. Furthermore, the Company
believes that aspirating syringes are preferred by diabetes patients and
needle-exchange programs.
The Company's syringes will be assembled primarily by Harmac Medical
Products, Inc. ("Harmac"), one of the largest independent, privately-owned
contract manufacturers of disposable medical products in the United States,
using assembly and packaging equipment supplied by the Company. Sherwood
Davis & Geck ("Sherwood"), a subsidiary of American Home Products, will
supply most of the components for the syringes assembled by Harmac. Some of
the Company's syringes and its proprietary aspirating plunger will be
manufactured by INSERPOR, a contract manufacturer in Portugal.
The Company's initial marketing efforts will be directed primarily to
UNICEF, the World Health Organization ("WHO") and public hospitals and health
facilities in New York. The Company also intends to market its locking clip
syringes to (i) governments of developing countries, (ii) private hospitals
and health facilities in New York, New Jersey and Connecticut, and (iii)
retail distributors in the United States.
5
<PAGE>
The Company also plans to license its patents and proprietary manufacturing
processes relating to its locking clip and other syringe designs to
established medical device manufacturers. To stimulate demand for its safety
syringes, the Company plans to initiate promotional and educational campaigns
directed at (i) public health officers and other government officials
responsible for public health policies, (ii) doctors and administrators of
healthcare facilities responsible for treatment of HIV-AIDS patients, and
(iii) liability insurance companies. The Company plans to enter into
arrangements with independent sales agents and distributors in targeted
markets and to hire a marketing director following the completion of the
Offering.
The Company is a Delaware corporation, incorporated on October 7, 1996,
and the successor by merger to UNIVEC, Inc., a New York corporation,
incorporated on August 18, 1992. The executive officers of the Company are
located at 999 Franklin Avenue, Garden City, New York 11530 (telephone number
(516) 294-1000).
THE OFFERING
Securities Offered............. 1,500,000 shares of common stock, $0.001 par
value per share (the "Common Stock"), and
2,250,000 redeemable common stock purchase
warrants (the "Warrants"). Each Warrant
entitles the holder thereof to purchase one
share of Common Stock at an exercise price
of $4.50 per share, subject to adjustment in
certain events. The shares of Common Stock
and the Warrants are separately tradeable
and transferable upon issuance. See
"Description of Securities" and
"Underwriting."
Offering Price................. $3.50 per share of Common Stock and $.10 per
Warrant.
Terms of Warrants:
Exercise price............... $4.50 per share, subject to adjustment in
certain events. See "Description of
Securities -- Warrants."
Exercise period............... Any time during the period commencing April
, 1999 and ending April , 2002.
Redemption.................... Redeemable by the Company, with the prior
written consent of the Representative, at a
price of $.05 per Warrant upon not less than
30 days prior written notice to the holders
of the Warrants at any time commencing April
, 1999, provided the closing bid price of
the Common Stock has been at least $8.00 for
20 consecutive trading days ending on the
third day prior to the date upon which the
Company gives notice of redemption. See
"Description of Securities -- Warrants."
Common Stock Outstanding:
Prior to the Offering........ 1,082,287(1) shares of Common Stock
After the Offering............ 2,621,054(2) shares of Common Stock
Warrants Outstanding:
Prior to the Offering ....... 1,750,000 Warrants(3)
After the Offering ........... 4,000,000 Warrants
Use of Proceeds................ The net proceeds of the Offering,
aggregating approximately $4,284,250, will
be used (1) for the purchase of equipment,
(2) for marketing, promotion and public
relations, (3) for product development, (4)
for payment of promissory notes issued in
connection with
6
<PAGE>
a bridge financing completed in December
1996 (the "Bridge Notes") and a demand
promissory note issued in December 1995, (5)
for management salaries and (6) for working
capital and general corporate purposes. See
"Use of Proceeds."
Risk Factors.................. The securities offered hereby involve a high
degree of risk and immediate substantial
dilution to new investors. Only investors
who can bear the risk of their entire
investment should invest. See "Risk Factors"
and "Dilution."
Nasdaq SmallCap Market
Symbols..................... Common Stock -- UNVC; Warrants -- UNVCW
- ------
(1) Does not include (i) 3,750,042 shares reserved for issuance upon exercise
of outstanding options, at an exercise price of $3.50, expiring at
various dates from February 22, 1999 through April 11, 2007, (ii)
1,750,000 shares issuable upon exercise of warrants ("Bridge Warrants")
issued in connection with a bridge financing completed in December 1996
(the "Bridge Financing"), which warrants will be automatically converted
into warrants having terms identical to the Warrants offered hereby on
the date of the Prospectus, (iii) approximately 34,397 shares of Common
Stock to be issued to a director of the Company in exchange for the
cancellation of amounts due to him ($120,390 as of March 31, 1997)
concurrently with consummation of the sale of the shares of Common Stock and
Warrants offered hereby (the "Closing"), (iv) 998,706 shares reserved for
issuance upon exercise of options which may be granted in the future
pursuant to the Company's stock option plan, and (v) 426,440 shares reserved
for issuance upon conversion of the Company's Series A 8% Cumulative
Convertible Preferred Stock (the "Series A Preferred Stock"). See "Certain
Transactions," "Management -- Stock Option Plan" and "Description of
Securities -- Series A Preferred Stock."
(2) Does not include (i) 3,745,672 shares reserved for issuance upon exercise
of outstanding options, at an exercise price of $3.50, expiring at
various dates from February 22, 1999 through April 11, 2007, (ii)
4,000,000 shares issuable upon exercise of the Warrants and the warrants
to be issued to holders of Bridge Warrants upon the automatic conversion
of the Bridge Warrants on the date of the Prospectus, (iii) 998,706 shares
reserved for issuance upon exercise of options which may be granted in the
future pursuant to the Company's stock option plan, and (iv) 426,440 shares
reserved for issuance upon conversion of the Series A Preferred Stock.
Includes (i) approximately 34,397 shares of Common Stock to be issued to a
director of the Company concurrently with the Closing in exchange for the
cancellation of amounts due to him ($120,390 as of March 31, 1997) and (ii)
4,370 shares to be issued to an officer of the Company concurrently with the
Closing upon exercise of options. See "Certain Transactions," "Management --
Stock Option Plan" and "Description of Securities -- Series A Preferred
Stock."
(3) Represents the Bridge Warrants, which will convert automatically into
warrants having terms identical to the Warrants offered hereby on the date
of the Prospectus.
7
<PAGE>
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial information set forth below is derived
from and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
consolidated financial statements, including the notes thereto, appearing
elsewhere herein.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------------
1995 1996
------------ -------------
<S> <C> <C>
Sales ............................................... $1,106,930 $ 461,131
Gross profit ........................................ 90,400 114,373
Net loss ............................................ (946,014) (1,440,771)
Historical and pro forma net loss per common share .. ($ 0.89) ($ 1.36)
Historical and pro forma weighted average number of
common and common equivalent shares outstanding .... 1,059,001 1,059,299
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------
As Adjusted
Actual (1)
-------------- --------------
<S> <C> <C>
Working capital (deficit) .. ($ 1,066,521) $3,203,780(2)
Total assets ............... 2,463,589 4,823,598(3)
Accumulated deficit ........ (4,253,138) (2,447,145)(4)
Stockholders' equity
(deficit) ............... (1,885,138) 2,494,005(5)
</TABLE>
- ------
(1) Gives effect to the issuance and sale of the 1,500,000 shares of Common
Stock and 2,250,000 Warrants in the Offering and the application of the
estimated net proceeds thereof.
(2) Gives effect to (i) the payment of $15,949 by the Company for federal and
state withholding and payroll taxes incurred by an officer of the
Company, upon exercise of stock options; and (ii) the cancellation of
$2,000 accrued interest in respect of notes payable to stockholders in
exchange for 2 shares of Series A Preferred Stock.
(3) Gives effect to (i) a deduction for the payment of $15,949 by the Company
for federal and state withholding and payroll taxes incurred by an
officer of the Company, upon exercise of stock options; and (ii) the
receipt of net proceeds of $4,284,250 from the issuance and sale of the
1,500,000 shares of Common Stock and 2,250,000 Warrants in the Offering.
(4) Gives effect to (i) the reclassification of $2,386,785 of S corporation
undistributed losses to paid-in capital; and (ii) the write-off of
adjusted debt financing costs of $580,792 associated with the Bridge
Financing (deferred financing costs of $783,292 as of December 31, 1996
have been reduced by $202,500 as a result of the surrender of 750,000
Bridge Warrants to the Company for cancellation without consideration).
(5) Gives effect to (i) the issuance of an aggregate of 650 shares of Series
A Preferred Stock subsequent to December 31, 1996 in exchange for the
cancellation of approximately $650,000 due to certain stockholders and
affiliates of the Company; (ii) the issuance of approximately 34,397
shares of Common Stock concurrently with the Closing in exchange for the
cancellation of amounts due to a director of the Company ($120,390
as of March 31, 1997); (iii) the issuance of an aggregate of 4,370 shares of
Common Stock upon exercise of options by an officer of the Company, at an
exercise price of $3.50 per share, in exchange for the cancellation of
accrued compensation ($31,244); and (iv) the write-off of adjusted debt
financing costs of $580,792 associated with the Bridge Financing (deferred
financing costs of $783,292 as of December 31, 1996 have been reduced by
$202,500 as a result of the surrender of 750,000 Bridge Warrants to the
Company for cancellation without consideration).
8
<PAGE>
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk, including but not limited to the risk factors described below. Each
prospective investor should carefully consider the following risk factors
before making an investment decision.
1. Continuing Losses; Accumulated Deficit; Working Capital Deficit. Since
inception, the Company has experienced losses, including a net loss of
approximately $1,441,000 (on sales of approximately $461,000) for the year
ended December 31, 1996, as compared to a net loss of approximately $946,000
(on sales of approximately $1,107,000) for the year ended December 31, 1995.
The Company expects to continue to incur operating losses until such time, if
ever, as it can generate significant sales of its locking clip syringes and
reduce the cost of sales of its locking clip syringes on a per unit basis so
that it can realize adequate gross profits to cover overhead expenses. There
can be no assurance that the Company will ever operate profitably. As of
December 31, 1996, the Company had an accumulated deficit of approximately
$4,253,000 and a working capital deficit of approximately $1,067,000. The
Company's ability to operate profitably depends upon market acceptance of its
locking clip syringes, the development of an effective sales and marketing
organization, the development of new products, and improvements to existing
products and manufacturing processes. There can be no assurance that the
Company's locking clip syringes will achieve a level of market acceptance in
foreign or domestic markets to generate sufficient revenues to become
profitable. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial
statements, including the notes thereto, appearing elsewhere herein.
2. Ability to Continue as a "Going Concern"; Qualified Report of
Independent Accountants. The Company's consolidated financial statements for
the year ended December 31, 1996, indicate there is substantial doubt about
the Company's ability to continue as a going concern due to the Company's
need to generate cash from operations and obtain additional financing. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Report of Independent Accountants" on the Company's
consolidated financial statements appearing at page F-2 hereof.
3. Limited Operating History. Although the Company commenced operations
in August 1992, its operations have consisted primarily of the design of its
patented locking clip and plunger, the design of the manufacturing processes
and equipment for production of the locking clip syringe, the hiring of key
personnel, formulation of a marketing plan for the sale of its syringes, and
the negotiation of production and supply agreements with contract
manufacturers and suppliers of components to be used in the production of its
syringes. Accordingly, the Company has a limited operating history upon which
an evaluation of its business and prospects can be based. An investment in
the securities of the Company is subject to all of the risks involved in a
newly established business venture. Potential investors should be aware of
the problems, delays, expenses and difficulties encountered by companies at
this early stage of operations, many of which may be beyond the Company's
control, including but not limited to commencement of production, marketing
and product introduction, competition, market acceptance of the Company's
difficult to reuse syringes, and unanticipated problems and additional costs
relating to the development and testing of products. The Company's officers
have limited experience in the production and sale of medical devices. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Risk Factors -- Limited Experience of Management in the
Production and Sale of Medical Devices" and "Management."
4. Ability to Manage Growth. The Company contemplates a rapid expansion of
its business. If the Company were to experience significant growth in the
future, such growth would likely result in new and increased responsibilities
for management personnel and place significant strain upon the Company's
management, operating and financial systems and resources. To accommodate
such growth and compete effectively, the Company must continue to implement
and improve its operational, financial, management and information systems,
procedures and controls, and to expand, train and manage its personnel. There
can be no assurance that the Company's personnel, systems, procedures or
controls will be adequate to support the Company's future operations. Any
failure to implement and improve the Company's operational, financial,
management and information systems, procedures or controls or to expand,
train or manage employees, could materially and adversely affect the
Company's business, financial condition and results of operations. See "Use
of Proceeds," "Risk Factors -- Dependence on Management," "Business --
Employees" and "Management -- Directors, Executive Officers and Key
Employees."
9
<PAGE>
5. Government Regulation. The manufacture and distribution of medical
devices are subject to extensive regulation by the FDA and, in some
instances, by foreign and state governments. Approval by the FDA and foreign
government authorities is unpredictable and uncertain, and no assurance can
be given that the necessary approvals or clearances for the Company's
products will be granted on a timely basis or at all. Delays in receipt of,
or a failure to receive, such approvals or clearances, or the loss of any
previously received approvals or clearances, could have a materially adverse
effect on the business, financial condition and results of operations of the
Company. Furthermore, approvals that have been or may be granted are subject
to continual review, and later discovery of previously unknown problems may
result in product labeling restrictions or withdrawal of the product from the
market. Moreover, changes in existing requirements or adoption of new
requirements or policies could adversely affect the ability of the Company to
comply with regulatory requirements. In addition, there can be no assurance
that the Company will not be required to incur significant costs to comply
with applicable laws and regulations in the future. Failure to comply with
applicable laws or regulatory requirements could have a materially adverse
effect on the Company's business, financial position and results of
operations. See "Business -- Government Regulation."
FDA and State Regulation. Pursuant to the Federal Food, Drug, and Cosmetic
Act, as amended, and the regulations promulgated thereunder (collectively,
the "FDC Act"), the FDA regulates the clinical testing, manufacture,
labeling, sale, distribution and promotion of medical devices. Before a new
device can be introduced into the market, a manufacturer must obtain FDA
permission to market through either the 510(k) pre-market notification
process or the costlier, lengthier and less certain pre-market approval
("PMA") application process. The FDA has granted the Company 510(k) clearance
to market its 1cc locking clip syringe, which has been classified as a Class
II device under the FDC Act, and accordingly, the Company may market and sell
its 1cc locking clip syringe in the United States, subject to compliance with
other applicable FDA regulatory requirements. As a Class II device,
performance standards may be developed for the 1cc locking clip syringe which
the product would then be required to meet. Failure to meet those standards
would require the Company to discontinue the marketing of the product.
Furthermore, manufacturers of medical devices are subject to recordkeeping
requirements and required to report adverse experiences relating to the use
of the device. Device manufacturers also are required to register their
establishments and list their devices with the FDA and with certain state
agencies and are subject to periodic inspections by the FDA and certain state
agencies. The FDC Act requires devices to be manufactured in accordance with
good manufacturing practices ("GMP") regulations, which impose certain
procedural and documentation requirements upon the Company with respect to
manufacturing and quality assurance activities. The FDA conducts periodic
audits and surveillance of the manufacturing, sterilizing and packaging
facilities of medical device manufacturers to determine compliance with GMP
requirements. The failure of a medical device manufacturer to be able to show
in the audit or post-market surveillance that it has adequately complied with
GMP requirements can result in penalties or enforcement proceedings being
imposed on the manufacturer. Harmac's facilities will be subject to extensive
audits in the future, pursuant to standard FDA procedure. No assurance can be
given that when Harmac is audited that it will be found to be in compliance
with GMP requirements, or that if it is not found in compliance, what
penalties, enforcement procedures or compliance effort will be levied on or
required of Harmac and/or the Company. Recently adopted GMP requirements,
including those pertaining to design control, are likely to increase the cost
of GMP compliance. Noncompliance with applicable FDA requirements, including
GMP regulations, can result in, among other things, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant pre-market clearance or
pre-market approval for devices, withdrawal of marketing approvals, and
criminal prosecution. The FDA also has the authority to request repair,
replacement or refund of the cost of any device manufactured or distributed
by the Company.
Foreign Regulations. The introduction of the Company's products in foreign
markets will subject the Company to foreign regulatory clearances which may
impose additional substantive costs and burdens. The Company's products are
required to satisfy international manufacturing standards required by the
International Standards Organization ("ISO") for sale in certain foreign
countries. Although Harmac expects to achieve ISO 9001 certification by the
end of the second quarter of 1997, until Harmac obtains ISO 9001
certification, the Company will have difficulty selling to some export
accounts, particularly in Europe. International sales of medical devices are
subject to the regulatory requirements of each country. The regulatory review
process varies from country to country. Many countries also impose product
standards, packaging requirements, labeling requirements and import
restrictions on devices. In addition, each country has its own tariff
regulations, duties and tax requirements.
10
<PAGE>
6. Product Acceptance; Demand for Locking Clip Syringes. The Company
expects to derive a significant portion of its revenues from sales of locking
clip syringes and/or licensing of its intellectual property. Despite
increased public awareness of the risks associated with conventional
disposable syringes, of the major syringe manufacturers only Becton-Dickinson
and Company ("Becton-Dickinson") is manufacturing a difficult to reuse
syringe for sale to UNICEF and WHO. Accordingly, the Company's future success
and financial performance will depend almost entirely on its ability to
successfully market its locking clip syringes. There can be no assurance that
the Company's marketing efforts will be successful or that sales of the
Company's difficult to reuse syringes will generate sufficient revenues for
the Company to become profitable. Export sales, particularly in Europe, may
be adversely affected until the Company's contract manufacturers are able to
manufacture the Company's syringes in accordance with manufacturing standards
required by the International Standards Organization. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."
7. Licensing. The Company intends to license its patents and proprietary
manufacturing processes relating to its locking clip and other syringe
designs to established medical device manufacturers worldwide. Although the
Company has granted Sherwood an option for a non-exclusive license to
manufacture and sell the Company's locking clip syringe in the United States,
there can be no assurance that Sherwood will exercise the option, that others
will enter into license arrangements with the Company, or that the Company
will be successful in its licensing efforts. See "Business."
8. Dependence on Certain Customers. The Company's initial marketing
efforts have been directed, to a significant extent, to relief agencies,
including UNICEF and WHO, which administered almost one billion injections to
women and children through immunization programs in developing countries in
1995. The Company does not have a legally binding commitment from UNICEF or
WHO and there can be no assurance as to the number of locking clip syringes
which UNICEF or WHO will purchase from the Company. The failure of UNICEF,
WHO or other relief agencies to purchase the Company's locking clip syringes
in substantial quantities would have a materially adverse effect on the
Company's business, financial condition and results of operations. See
"Business."
Furthermore, in 1996, New York State enacted legislation authorizing a
limited number of pilot projects to test the practicality and effectiveness
of difficult to reuse syringes. Such pilot tests are to be conducted, subject
to funding, in state-operated facilities, such as prisons, hospitals, youth
detention facilities, and development centers. New York State officials have
expressed an intent to buy the Company's syringes. However, the Company does
not have a legally binding commitment from purchasing agents for any of the
New York state- operated facilities, and there can be no assurance as to the
number of locking syringes which New York state-operated facilities will
purchase from the Company, if any.
9. Dependence on Certain Suppliers. The Company has entered into a letter of
understanding with INSERPOR, a Portuguese syringe manufacturer, for the
production of its proprietary plungers, which satisfy tolerance limits for
assembly of its aspirating and non-aspirating syringes. If INSERPOR is unable or
not willing to supply sufficient quantities of the Company's proprietary
plungers which satisfy such tolerance limits, the Company will be required to
obtain alternative sources of supply. The Company has contracted with Sherwood
to mold the non-aspirating plunger, and it has commenced discussions with Harmac
to mold the aspirating plunger; however, there can be no assurance that the
Company will be able to obtain an alternative source of supply on acceptable
terms. Furthermore, if the Company is able to obtain an alternative source of
supply, there can be no assurance that production of its locking clip syringes
will not be delayed. The Company's failure to obtain an alternate supplier for
its proprietary plunger or delays resulting from the selection of an alternate
supplier could have a materially adverse effect on the Company's business. See
"Business -- Suppliers."
The Company is dependent upon Sherwood for supplying syringe component
sets for the production of its locking clip syringes for other customers.
Pursuant to its supply agreement with the Company, Sherwood is only
11
<PAGE>
obligated to deliver 4,166,667 component sets per month. There can be no
assurance that Sherwood will be able to supply component sets in excess of
that amount if the Company receives orders for syringes in excess thereof, or
that the Company will be able to obtain additional component sets from
alternative sources of supply on favorable terms, if at all. Failure to
obtain an adequate supply of syringes and related components could result in
the cancellation of orders and consequently, could have a materially adverse
effect on the Company's business. The Company also is dependent upon Sherwood
to supply the Company's proprietary plunger which satisfies tolerance limits
for assembly of its non-aspirating syringe. Sherwood has advised the Company
that it anticipates that it will be able to supply plungers which satisfy
tolerance limits for assembly of non-aspirating syringes by June 1997. Until
Sherwood is able to deliver such plungers, INSERPOR will be the sole supplier
of plungers for assembly of the Company's non-aspirating syringes. If
Sherwood is unable to supply sufficient quantities of the Company's
proprietary plunger which satisfies such tolerance limits, the Company will
be required to obtain alternative sources of supply. The Company has
commenced discussions with Harmac to mold the non-aspirating plunger;
however, there can be no assurance that the Company will be able to obtain an
alternative source of supply on acceptable terms. See "Business --
Suppliers."
10. Dependence on Certain Assemblers. The Company has entered into a
manufacturing agreement with Harmac for the assembly of the Company's locking
clip syringes. The equipment that the Company has supplied Harmac with for the
assembly of 1ocking clip syringes is capable currently of producing 36 million
syringes per year. With further testing and certain modifications and
adjustments to the assembly equipment at Harmac, the Company expects to increase
capacity to 80 million syringes per year and to decrease its cost of sales on a
per unit basis. However, there can be no assurance that the Company will be able
to increase the production capacity at Harmac. Furthermore, there can be no
assurance that Harmac will produce syringes at costs sufficiently less than the
Company's selling prices so that gross profits are adequate to cover overhead
expenses. See "Business -- Production."
The Company has entered into a letter of understanding with INSERPOR for
the assembly of the Company's non-aspirating, locking syringes for WHO and
other UN-related immunization programs, as long as INSERPOR can supply the
required volume of syringes. During the first two months of 1997, INSERPOR
assembled approximately 1,777,000 locking clip syringes. INSERPOR is capable
of producing 30 million syringes per year, subject to certain modifications
to existing assembly equipment and additional equipment to subassemble the
clip to the plunger (clip assembly line). The Company expects to purchase the
clip assembly line with a portion of the net proceeds of the Offering.
Currently, INSERPOR is capable of producing only 12 million syringes per
year. The Company believes that INSERPOR will be able to increase its
production capacity to 30 million syringes per year within twelve months
following the completion of the Offering. There can be no assurance that
INSERPOR will produce quantities of syringes at costs sufficiently less than
the Company's selling prices so that gross profits are adequate to cover
overhead expenses. See "Business -- Production."
11. Interruptions to Production. The Company has commenced production of
clip-plunger subassemblies at Harmac's facilities, which it exports to INSERPOR
for final assembly. Although the Company expects to complete assembly of its
locking clip syringes at Harmac's facilities before the end of June 1997, there
can be no assurance that the commencement of production will not be interrupted
as a result of delays in obtaining supplies of components or in complying with
GMP requirements, including the attainment of acceptable quality levels. The
failure to timely produce locking clip syringes would delay receipt of revenues
and would have a materially adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Dependence on Certain
Suppliers" and "Business -- Production."
12. Limited Experience of Management in the Production and Sale of Medical
Services. The Company's management has had limited experience in the
production and sale of medical devices. There can be no assurance that the
Company will be able to compete successfully with the major syringe
manufacturers. See "Risk Factors -- Limited Operating History," "Risk Factors
- -- Competition" and "Management."
13. Ability to Develop 3cc Syringe. The Company intends to develop 3cc
locking clip syringes for hospitals and health clinics in 1997, and
anticipates that production of the non-aspirating model will commence by
1998. In general, hospitals and health clinics use more 3cc syringes than 1cc
syringes, and may not be willing to purchase the Company's 1cc locking clip
syringes until such time as the Company is able to offer 3cc syringes.
However, there can be no assurance that the 3cc designs selected for
commercialization will be accepted by hospitals and health clinics. Moreover,
the Company has not yet selected a product design for its
12
<PAGE>
aspirating model, nor has it selected a design for the assembly equipment or
an engineering firm to construct the equipment. The Company's failure to
timely select a design for an aspirating model, a design for assembly
equipment, or an engineering firm to construct such assembly equipment could
delay the production and commercial introduction of the Company's 3cc
syringe. Depending on the design selected, the Company may be required to
obtain 510(k) clearance from the FDA prior to commencing commercial sales of
its 3cc aspirating syringes in the United States. See "Business."
14. Uncertainty Regarding Patents and Protection of Proprietary
Technology; Risk of Future Litigation. The Company's success will depend, in
part, on the strength of its patents, as well as its ability to preserve its
trade secrets and operate without infringing the proprietary rights of
others. The Company's policy is to seek protection of its proprietary
position by, among other methods, filing United States and foreign patent
applications related to its technology, inventions and improvements that are
important to the development of its business. The Company holds three United
States patents, including a patent for its locking clip and has filed a
United States patent application for its aspirating plunger, and has filed
patent applications for its locking clip in Canada, Brazil, Mexico, certain
European countries, Japan, South Korea, China, Russia and Australia. In
addition, the Company has acquired licensed rights for United States patents
on two other locking devices, which utilize different locking apparatuses or
methods than those claimed by the UNIVEC clip patents. The Company licensed
these patents to develop a 3cc locking syringe. The Company has filed for
patent protection in certain European Countries for one of these licenses,
which may be used in connection with the 3cc non-aspirating syringe that the
Company plans to develop.
There can be no assurance that pending or future applications for patents
and trademarks will mature into issued patents, or that the Company will
continue to develop its own patentable technologies. Furthermore, there can
be no assurance that any of the Company's patents or patents that may be
issued in the future will not be challenged, invalidated or circumvented in
the future or that the rights granted thereunder will provide a competitive
advantage. In addition, patent applications filed in foreign countries and
patents granted in such countries are subject to laws, rules and procedures
that differ from those in the United States. Patent protection in such
countries may be different from patent protection provided by the laws of the
United States.
Patent applications in the United States are maintained in secrecy until
patents issue, and patent applications in foreign countries are maintained in
secrecy for a period after filing. Publication of discoveries in the
scientific or patent literature tends to lag behind actual discoveries and
the filing of related patent applications. Accordingly, there can be no
assurance that current and potential competitors and other third parties have
not filed or in the future will not file applications for, or have not
received or in the future will not receive, patents or obtain additional
proprietary rights that will prevent, limit or interfere with the Company's
ability to make, use or sell its products either in the United States or
internationally.
The medical device industry in general has been characterized by
substantial competition and litigation regarding patent and other proprietary
rights. The Company intends to vigorously protect and defend its patents and
other proprietary rights relating to its proprietary technology. Litigation
alleging infringement claims against the Company (with or without merit), or
instituted by the Company to enforce patents and to protect trade secrets or
know-how owned by the Company or to determine the enforceability, scope and
validity of the proprietary rights of others, is costly and time consuming.
If any relevant claims of third-party patents are upheld as valid and
enforceable in any litigation or administrative proceedings, the Company
could be prevented from practicing the subject matter claimed in such
patents, or would be required to obtain licenses from the patent owners of
each patent, or to redesign its products or processes to avoid infringement.
There can be no assurance that such licenses would be available or, if
available, would be available on terms acceptable to the Company or that the
Company would be successful in any attempt to redesign its products or
processes to avoid infringement. Accordingly, an adverse determination in a
judicial or administrative proceeding or failure to obtain necessary licenses
could prevent the Company from manufacturing and selling its products, which
would have a materially adverse effect on the Company's business, financial
condition and results of operations.
The Company also relies upon trade secrets, technical know-how and
continuing technological innovation to develop and maintain its competitive
position. There can be no assurance that competitors will not independently
develop substantially equivalent proprietary information and techniques or
otherwise gain access to the Company's proprietary technology, or that the
Company can meaningfully protect its rights in unpatented proprietary
technology. See "Business -- Patents and Proprietary Rights" and "Risk
Factors -- Competition."
13
<PAGE>
15. Competition. The Company's principal competition is from manufacturers
of traditional disposable syringes. Becton-Dickinson, Sherwood and Terumo
Medical Corporation of Japan ("Terumo") control approximately 74%, 19% and
5%, respectively, or a total of approximately 98%, of the worldwide syringe
market, and are substantially larger, more established and have significantly
greater financial, sales and marketing, distribution, engineering, research
and development and other resources than the Company. To the Company's
knowledge, only Becton-Dickinson and Bader & Partner Medizintechnik GmbH
("Bader"), a German machine tool manufacturer, distribute commercially a line
of difficult to reuse syringes, none of which allow for aspiration. The Bader
DestroJect syringe and the Becton-Dickinson SOLOSHOT syringe were developed
originally for WHO-UNICEF immunization programs. There can be no assurance
that the major syringe manufacturers or others will not commence production
of difficult to reuse syringes, or that the Company will be able to
successfully compete in this market. See "Business -- Difficult to Reuse
Syringes" and "Business -- Competition."
16. Dependence on Third Parties for Marketing; Limited Marketing
Experience. The Company intends to sell its products primarily through sales
agents and third-party distributors and may, on a limited basis, sell
products independently. The Company has entered into a limited number of
agreements with sales agents for the sale of its products. There can be no
assurance that the Company will be able to obtain satisfactory arrangements
with sales agents or distributors or that the Company will generate
substantial revenues from sales by sales agents and distributors. See
"Business -- Sales, Marketing and Distribution."
17. Reliance on Foreign Sales. The Company believes that a significant
portion of its revenues will be derived from the sale of its locking clip
syringes in foreign markets, which will result in the Company being subject
to risks associated with foreign sales, including economic or political
instability, shipping delays, fluctuations in foreign currency exchange
rates, custom duties and export quotas and other trade restrictions, any of
which could have a materially adverse effect on the Company's business.
Although the Company intends to negotiate confirmed (irrevocable) letters of
credit and to transfer product title to the buyer when delivered to the
shipper (f.o.b. warehouse), there is no assurance that such terms will be
acceptable to customers.
18. Product Liability. The manufacture and sale of medical products
exposes the Company to the risk of significant damages from product liability
claims. The Company maintains product liability insurance against product
liability claims in the amount of $5 million per occurrence and $5 million in
the aggregate. The Company also has applied for recall insurance, although
there can be no assurance that such coverage can be obtained at acceptable
cost. There can be no assurance that the coverage limits of the Company's
insurance policies will be adequate, that the Company will continue to be
able to procure and maintain such insurance coverage, that such insurance can
be maintained at acceptable costs, or that customers will be able to satisfy
indemnification claims. In addition, any successful claim against the Company
in an amount exceeding its insurance coverage could have a materially adverse
effect on its business, financial condition or results of operations.
19. Control of the Company; Ownership of Shares by Directors and
Officers. Upon completion of the Offering, officers and directors of the
Company will beneficially own in the aggregate approximately 43% of the
outstanding shares of the Company's Common Stock. Although these stockholders
may or may not agree on any particular matter that is the subject of a vote
of the stockholders, these stockholders may be effectively able to control
the outcome of any issues which may be subject to a vote of stockholders,
including the election of directors, proposals to increase the authorized
capital stock, or the approval of mergers, acquisitions, or the sale of all
or substantially all of the Company's assets. See "Security Ownership of
Certain Beneficial Owners and Management."
20. Dependence on Management. The Company is dependent for the conduct of
its business on the experience, abilities and continued services of Joel
Schoenfeld, Chairman of the Board and Chief Executive Officer of the Company,
Dr. Alan H. Gold, President and a Director of the Company, David Shonfeld,
Director of Research and Development and a Director of the Company, and David
Chabut, Chief Financial Officer of the Company. The Company is dependent upon
Joel Schoenfeld for strategy, marketing and general management, Dr. Alan H.
Gold for functional definition of its products, David Shonfeld for product
design to meet functional requirements and David Chabut for financial
management. Joel Schoenfeld, David Shonfeld and David Chabut are employed by
the Company pursuant to employment agreements which expire on March 28, 2000,
July 31, 1997 and September 30, 1997, respectively. Dr. Alan H. Gold is
professionally employed by, and is the President of, the Long Island Plastic
Surgical Group, and he only works part-time with the Company. Although David
14
<PAGE>
Shonfeld is compensated on an hourly basis, he currently is working on a
full-time basis for the Company. Furthermore, there is no plan
of succession if one or more of the Company's officers dies or becomes
disabled. The loss of the services of Joel Schoenfeld, Dr. Alan H. Gold,
David Shonfeld or David Chabut could have a materially adverse effect on the
Company. See "Management."
21. Broad Discretion in the Application of Net Proceeds. Approximately
$671,250, or approximately 15.7% of the net proceeds of the Offering have
been allocated to working capital and general corporate purposes.
Accordingly, management will have broad discretion with respect to that
portion of the net proceeds. See "Use of Proceeds."
22. Application of Net Proceeds to Pay Management Salaries. Approximately
$316,000, or approximately 7.4% of the net proceeds of the Offering may be
used to pay the salaries of Joel Schoenfeld, Chief Executive Officer of the
Company ($192,000 per annum), and David Chabut, Chief Financial Officer of
the Company ($120,000 per annum), until cash flow from operations are
sufficient to pay such salaries. See "Use of Proceeds" and "Management --
Employment Agreements."
23. Application of Net Proceeds to Pay Bridge Notes and 12 1/2 %
Promissory Note. Approximately $1,125,000, or approximately 26.3% of the net
proceeds of the Offering, will be used to pay the Bridge Notes in the
principal amount of $1,000,000 issued in connection with the Bridge Financing
and a 12 1/2 % demand promissory note in the principal amount of $125,000
issued to an individual lender in December 1995. See "Use of Proceeds" and
"Description of Securities -- Bridge Financing."
24. Office Lease with Related Party. Dr. Alan H. Gold, the President, a
director and principal stockholder of the Company, is the president and
stockholder of the owner of the premises occupied by the Company. See
"Certain Transactions."
25. Need for Additional Financing. Although the Company anticipates that the
net proceeds of the Offering, together with cash flow from operations, will be
sufficient to satisfy the Company's anticipated cash requirements for the 12
months following the date of the Prospectus, there can be no assurance that the
Company will not require additional financing at an earlier date. This will
depend upon the Company's ability to generate sufficient sales of its products
and the timing of required expenditures. If the Company is required to obtain
financing in the future, there can be no assurance that such financing will be
available on terms acceptable to the Company, if at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
26. Limitation on Director Liability. The Company's certificate of
incorporation provides that a director of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, with certain exceptions under Delaware law.
This may discourage stockholders from bringing suit against a director for
breach of fiduciary duty and may reduce the likelihood of derivative
litigation brought by stockholders on behalf of the Company against a
director. In addition, the Company's certificate of incorporation provides
for mandatory indemnification of directors and officers. See "Management --
Indemnification of Officers and Directors and Limitation on Directors'
Liability."
27. Absence of Dividends on Common Stock. Since inception, the Company has
not paid any cash dividends on its Common Stock and it does not anticipate
paying such dividends in the foreseeable future. The payment of dividends by
the Company is within the discretion of its Board of Directors and depends
upon the Company's earnings, capital requirements, financial condition and
other factors deemed relevant by the Board. The Company intends to retain
earnings, if any, to finance its operations. See "Dividends."
28. Dilution. Purchasers of Common Stock in the Offering will suffer
immediate dilution of $2.58 per share (or approximately 74%) in the net
tangible book value of their investment from the initial public offering
price of $3.50 per share of Common Stock. See "Dilution."
29. Consideration Paid By Existing Stockholders. Officers, directors and
other existing stockholders acquired their shares of Common Stock at an
average per share price of $0.58 per share, substantially less than the
initial public offering price of $3.50 per share. Accordingly, investors in
the Offering will bear a disproportionate share of the risk of an investment
in the Company. See "Dilution."
15
<PAGE>
30. Authorization and Discretionary Issuance of Preferred Stock. The
Company's Restated Certificate of Incorporation authorizes the issuance of
5,000,000 shares of "blank check" preferred stock with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights which could decrease the amount of earnings and assets
available for distribution to holders of Common Stock and adversely affect the
relative voting power or other rights of the holders of the Company's Common
Stock. In the event of issuance, the preferred stock could be used, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. Except for 2,500 shares of Series A Preferred
Stock authorized for issuance in exchange for the cancellation of amounts due to
Joel Schoenfeld, Flora Schoenfeld and two corporation's affiliated with Mr.
Schoenfeld (collectively, the "Schoenfeld Parties"), and Dr. Alan Gold, and
payment of dividends thereon in additional shares of Series A Preferred Stock,
the Company has no present intention to issue any shares of its preferred stock.
However, there can be no assurance that the Company will not issue shares of
preferred stock in the future. The Company has agreed with the Underwriters
that, except for issuances disclosed in or contemplated by this Prospectus, it
will not issue any securities, including but no limited to any shares of
preferred stock, prior to April , 1999, without the prior written consent of the
Representative. See "Certain Transactions" and "Description of Securities --
Preferred Stock."
31. No Assurance of Public Market; Determination of Public Offering Price;
Possible Volatility of Market Price for the Common Stock and Warrants. Prior
to the Offering, there has been no public trading market for the Common Stock
or the Warrants. Consequently, the initial public offering price of the
Common Stock and Warrants and the exercise price and other terms of the
Warrants were determined through negotiations between the Company and the
Representative and bear no relationship whatsoever to the Company's assets,
book value per share, results of operations or other generally accepted
criteria of value. The offering prices of the Common Stock and Warrants, as
well as the exercise price of the Warrants, should not be construed as
indicative of their value. There can be no assurance that an active trading
market for the Common Stock and Warrants will develop after the Offering or
that, if developed, it will be sustained. As a result, investors will be
exposed to a risk of a decline in the market prices of the Common Stock and
Warrants after the Offering. The market prices of the Common Stock and
Warrants following the Offering may be highly volatile as has been the case
with the securities of many emerging companies. The Company's operating
results and various factors affecting the medical device industry may impact
the market price of the Company's securities to a significant degree. In
addition, in recent years the stock market has experienced a high level of
price and volume volatility, and market prices for the securities of many
companies have experienced wide price fluctuations not necessarily related to
the operating performance of such companies. There can be no assurance that
the market price of the Common Stock and the Warrants will not experience
significant fluctuations or decline below the initial public offering price.
32. Limited Underwriting Experience of Representative. The Representative
has served as the sole or managing underwriter of only three firm commitment
public offerings and participated in two other underwritten public offerings
as a member of the underwriting syndicate. Since the Representative's
experience in underwriting firm commitment public offerings is limited, there
can be no assurance that its lack of experience may not adversely affect the
public offering of the Company's securities and the subsequent development,
if any, of a trading market for the Company's securities. See "Risk Factors
- -- Representative's Influence on the Market; Possible Limitations on Market
Making Activities."
33. Informal Investigation of Underwriters. The Company has been advised
that each of the Underwriters is subject to an informal investigation
commenced in March 1996 by the Securities and Exchange Commission. To date,
the Commission has only requested certain documents from the Underwriters and
the Underwriters have not been advised of the status of the investigation.
There can be no assurance that a formal order of investigation will not be
issued, or if issued, that sanctions will not be imposed against the
Underwriters. In October 1996, the National Association of Securities
Dealers, Inc. (the "NASD") commenced an examination of certain of the
Underwriters' previous underwritings and has requested documents and
information in connection with those underwritings. The NASD examination is
ongoing and no findings have been made to date. There can be no assurance
that such investigation or examination may not affect the Underwriters'
ability to maintain a market in the Common Stock and Warrants.
16
<PAGE>
34. Representative's Influence on the Market; Possible Limitations on
Market Making Activities. A significant number of shares of Common Stock and
Warrants may be sold to customers of the Representative. Such customers
subsequently may engage in transactions for the sale or purchase of such
securities through or with the Representative. The Representative has
indicated that it intends to act as a market-maker and otherwise effect
transactions in the Common Stock and Warrants. To the extent the
Representative acts as a market-maker in the Common Stock and Warrants, it
may exert a dominating influence in the markets for those securities. The
prices and liquidity of the shares of Common Stock and Warrants may be
significantly affected to the extent, if any, that the Representative
participates in such markets. Furthermore, the Representative may discontinue
such activities at any time or from time to time. The Representative also has
the right to act as the Company's exclusive agent in connection with any
future solicitation of holders of Warrants to exercise their Warrants.
Applicable rules of the Securities and Exchange Commission prohibit the
Representative and any other soliciting broker-dealers from engaging in any
market making activities or solicited brokerage activities with regard to the
Common Stock and Warrants for a period of up to five business days prior to
the solicitation of the exercise of any Warrants until the later of the
termination of such solicitation activity or the termination of any right the
Representative may have to receive a fee for the solicitation of the
Warrants. As a result, the Representative and such soliciting broker-dealers
may be unable to continue to make a market for the Common Stock and the
Warrants during certain periods while the Warrants are exercisable. Such a
limitation, while in effect, could impair the liquidity and market price of
the Common Stock and the Warrants. See "Underwriting."
35. Representative's Potential Influence on the Company. The Company has
agreed that for three years following the date of the Prospectus, the
Representative may designate one person for election to the Company's Board of
Directors and that the Company will reasonably cooperate with the Representative
in respect of such designation. The election of such designee, if any, may
enable the Representative to exert influence on the Company. The Representative
has not designated any individual for election to the Company's Board of
Directors. See "Underwriting."
36. Possible Delisting. The Common Stock and Warrants have been approved,
subject to notice of issuance, for inclusion on The Nasdaq SmallCap Market.
For continued inclusion on the NASDAQ SmallCap Market, an issuer is required,
among other things, to have total assets of $2 million and total equity of $1
million and the bid price of the listed security must be at least $1.00. The
Nasdaq Stock Market has proposed an amendment to its rules increasing the
financial criteria for continued inclusion on The Nasdaq SmallCap Market
which would require, among other things, that an issuer have net tangible
assets of $2 million (or alternatively, net income of $500,000 in two of the
most recent three fiscal years, or a market capitalization of $35 million).
There can be no assurance that the Company will be able to satisfy the
maintenance criteria for continued inclusion of the Common Stock and Warrants
on The Nasdaq SmallCap Market. If the Company is unable to satisfy The Nasdaq
SmallCap maintenance criteria in the future, the Common Stock and Warrants
may be delisted from trading on The Nasdaq SmallCap Market, and if delisted,
trading, if any, would thereafter be conducted in the over-the-counter market
in the so-called "pink sheets" or the NASD's "Electronic Bulletin Board,"
and, consequently, an investor could find it more difficult to dispose of, or
to obtain accurate quotations as to the price of, the Company's securities.
37. Risk of Low-Priced Securities. The regulations of the Securities and
Exchange Commission promulgated under the Exchange Act require additional
disclosure relating to the market for penny stocks in connection with trades
in any stock defined as a penny stock. Commission regulations generally
define a penny stock to be an equity security that has a market price of less
than $5.00 per share, subject to certain exceptions. Unless an exception is
available, those regulations require the delivery, prior to any transaction
involving a penny stock, 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 (generally institutions). In
addition, the broker-dealer must provide the customer with current bid and
offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction, and monthly account statements
showing the market value of each penny stock held in the customer's account.
Moreover, broker-dealers who recommend such securities to persons other than
established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's
written agreement to a transaction prior to sale. If the Company's securities
17
<PAGE>
become subject to the regulations applicable to penny stocks, the market
liquidity for the Company's securities could be severely affected. In such an
event, the regulations on penny stocks could limit the ability of broker-
dealers to sell the Company's securities and thus the ability of purchasers
of the Company's securities to sell their securities in the secondary market.
38. Shares Eligible for Future Sale. No assurance can be given as to the
effect, if any, that future sales of Common Stock, or the availability of
shares of Common Stock for future sales, will have on the market price of the
Common Stock from time to time. Sales of substantial amounts of Common Stock
(including shares issued upon the exercise of warrants or stock options), or
the possibility of such sales, could adversely affect the market price of the
Common Stock and Warrants and also impair the Company's ability to raise
capital through an offering of its equity securities in the future. Upon
completion of the Offering, the Company will have 2,621,054 shares of Common
Stock outstanding, of which only the 1,500,000 shares of Common Stock offered
hereby will be transferable without restriction under the Securities Act. The
remaining 1,121,054 shares, issued in private transactions, will be
"restricted securities" (as defined in Rule 144 promulgated under the
Securities Act) which may be publicly sold only if registered under the
Securities Act or if sold in accordance with an applicable exemption from
registration, such as Rule 144. In general, under Rule 144, as currently in
effect, subject to the satisfaction of certain other conditions, a person,
including an affiliate of the Company, who has beneficially owned restricted
securities for at least two years (which holding period will be reduced to
one year under a recent amendment to Rule 144 that becomes effective April
29, 1997), is entitled to sell (together with any person with whom such
individual is required to aggregate sales), within any three-month period, a
number of shares that does not exceed the greater of 1% of the total number
of outstanding shares of the same class or, if the Common Stock is quoted on
The Nasdaq Stock Market or a national securities exchange, the average weekly
trading volume during the four calendar weeks preceding the sale. A person
who has not been an affiliate of the Company for at least three months and
who has beneficially owned restricted securities for at least three years
(which holding period will be reduced to two years under a recent amendment
to Rule 144 that becomes effective April 29, 1997) is entitled to sell such
restricted shares under Rule 144 without regard to any of the limitations
described above. Officers, directors and other securityholders of the Company
owning and/or having rights to acquire in the aggregate 2,926,726 shares of
Common Stock, have entered into agreements not to sell or otherwise dispose
of any securities of the Company, including Common Stock, prior to April , 1999
(the "Lock-Up Agreements"), without the prior written consent of the
Representative, which may be granted or withheld in the sole and absolute
discretion of the Representative; provided, however, that if prior to April ,
1999, the Company's shares of Common Stock are subject to a tender offer and
holders of the Company's Common Stock (other than the current stockholders)
agree to tender a majority of the outstanding shares of Common Stock to the
offeror, then the Representative shall release all stockholders subject to the
Lock-Up Agreement from the restrictions imposed thereby solely for the purposes
of tendering their shares of Common Stock to the offeror pursuant to the terms
of the tender offer. The Company has registered for resale pursuant to the
Selling Securityholder Prospectus (i) warrants to purchase 1,750,000 shares of
Common Stock (having terms identical to the Warrants offered hereby) and the
shares of Common Stock issuable upon exercise thereof and (ii) 33,436 shares of
Common Stock issuable upon exercise of options, subject to the Lock-Up
Agreements. The Representative has agreed that it will not release the
restrictions imposed by the Lock-Up Agreements with respect to the Warrants
offered pursuant to the Selling Securityholder Prospectus prior to April , 1998.
Following expiration of the term of the Lock-Up Agreements, or the earlier
release of the restrictions contained therein, 1,121,054 shares will become
eligible for resale pursuant to Rule 144, subject to the volume limitations and
compliance with the other provisions of Rule 144, assuming the sale of the
shares pursuant to the Selling Securityholder Prospectus. Furthermore, the
holders of the Underwriters' Warrants (including the securities issuable upon
exercise thereof) have demand and piggyback registration rights with respect to
the shares of Common Stock and Warrants issuable upon exercise of the
Underwriters' Warrants. See "Description of Securities -- Registration Rights,"
"Description of Securities -- Shares Eligible for Future Sale," "Certain
Transactions," "Underwriting" and "Selling Securityholder Offering."
18
<PAGE>
39. Effect of Issuance of Common Stock Upon Exercise of Warrants and
Options; Possible Issuance of Additional Options. Immediately after the
Offering, assuming the Over-Allotment Option is not exercised, the Company
will have an aggregate of approximately 12,833,128 shares of Common Stock
authorized but unissued and not reserved for specific purposes and an
additional 9,545,818 shares of Common Stock unissued but reserved for
issuance (i) upon exercise of options (including options which may be granted
in the future pursuant to the Company's stock option plan), (ii) upon
exercise of warrants (including the Warrants), (iii) upon exercise of the
Underwriters' Warrants (and the Warrants included therein), and (iv) upon
conversion of the Company's Series A Preferred Stock. All of such shares may be
issued without any action or approval by the Company's stockholders. Although
there are no present plans, agreements, commitments or undertakings with respect
to the issuance of additional shares or securities convertible into any such
shares by the Company, any shares of Common Stock issued would further dilute
the percentage ownership of the Company held by the public stockholders. The
Company has agreed with the Underwriters that, except for the issuances
disclosed in or contemplated by this Prospectus, it will not issue any
securities, including but not limited to any shares of Common Stock, prior to
April , 1999, without the prior written consent of the Representative. See
"Underwriting."
The exercise of warrants or options and the sale of the underlying shares
of Common Stock (or even the potential of such exercise or sale) may have a
depressive effect on the market price of the Common Stock and the Warrants.
Moreover, the terms upon which the Company will be able to obtain additional
equity capital may be adversely affected since the holders of outstanding
warrants and options can be expected to exercise them, to the extent they are
able, at a time when the Company would, in all likelihood, be able to obtain
any needed capital on terms more favorable to the Company than those provided
in the warrants and options. See "Management -- Stock Option Plan,"
"Description of Securities" and "Underwriting."
36. Adverse Effect of Redemption of Warrants. Under certain conditions,
the Warrants may be redeemed by the Company with the prior written consent of
the Representative, at a redemption price of $.05 per Warrant upon not less
than 30 days prior written notice to the holders of such Warrants, provided
the closing bid price of the Common Stock has been at least $8.00 for 20
consecutive trading days ending on the third day prior to the date the notice
of redemption is given. The Warrants will be exercisable until the close of
business on the day immediately preceding the date fixed for redemption. The
redemption of the Warrants could force the holders (i) to exercise the
Warrants and pay the exercise price at a time when it may be disadvantageous
for the holders to do so, (ii) to sell the Warrants at the then current
market price when they might otherwise wish to hold the Warrants or (iii) to
accept the redemption price, which is likely to be substantially less than
the market value of the Warrants at the time of redemption. See "Description
of Securities -- Warrants."
37. Need for Future Registration of Warrants; State Blue Sky Registration;
Exercise of Warrants. The Warrants will trade separately upon the completion
of the Offering. Although the Warrants will not knowingly be sold to
purchasers in jurisdictions in which the Warrants are not registered or
otherwise qualified for sale, purchasers may buy Warrants in the after-market
or may move to jurisdictions in which the Warrants and the shares of Common
Stock underlying the Warrants are not so registered or qualified. In this
event, the Company would be unable to issue shares of Common Stock to those
persons desiring to exercise their Warrants unless and until the Warrants and
the underlying shares of Common Stock are qualified for sale in jurisdictions
in which such purchasers reside, or an exemption from such qualification
exists in such jurisdictions. There can be no assurance that the Company will
be able to effect any required qualification.
The Warrants will not be exercisable unless the Company maintains a
current Registration Statement on file with the Commission through
post-effective amendments to the Registration Statement containing the
Prospectus. Although the Company has agreed to file appropriate
post-effective amendments to the Registration Statement containing the
Prospectus and to maintain a current Prospectus with respect to the Warrants,
there can be no assurance that the Company will file post-effective
amendments necessary to maintain a current Prospectus or that the Warrants
will continue to be so registered. See "Description of Securities --
Warrants."
19
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock and Warrants offered hereby, after deducting underwriting discounts and
other expenses of the Offering, are estimated to be $4,284,250 ($4,998,738 if
the Over-Allotment Option is exercised in full). The Company expects to use
the net proceeds of the Offering as follows:
<TABLE>
<CAPTION>
Approximate
Amount Percent
------------- ---------
<S> <C> <C>
Equipment(1) .................................... $1,442,000 33.7%
Marketing, promotion and public relations(2) .... 585,000 13.6%
Product development(3) .......................... 270,000 6.3%
Payment of Bridge Notes and 12 1/2 % Promissory
Note(4) ........................................ 1,125,000 26.3%
Management salaries(5) .......................... $ 316,000 7.3%
Working capital and general corporate purposes(6) 546,250 12.8%
------------- ---------
Total ......................................... $4,284,250 100.0%
============= =========
</TABLE>
- ------
(1) Includes production equipment (mold and inserts, assembly machine, clip
attachment line, packaging machine and automatic loader), as well as
furniture, fixtures and equipment for a warehouse facility. Except for the
clip attachment line, which will be used by INSERPOR at its production
facility in Portugal to assemble the Company's syringes, all of the
production equipment will be used by Harmac at its production facility in
Buffalo, New York to assemble the Company's syringes. The Company will
retain ownership of the production equipment and neither INSERPOR nor Harmac
will acquire any interest therein, other than the right to use the equipment
in connection with the assembly of the Company's syringes.
(2) Includes the cost of hiring and retaining a marketing director and expenses
relating to market research, promotion (including advertising) and public
relations.
(3) Includes the cost of retaining a research and development officer and the
cost of developing prototype parts.
(4) A portion of the net proceeds of the Offering will be used to pay the Bridge
Notes in the principal amount of $1,000,000 and the Company's 12 1/2 %
promissory note in the principal amount of $125,000. The Bridge Notes,
issued in connection with the Bridge Financing in the fourth quarter of
1996, bear interest at 8% per annum and are payable upon the earlier of
November 27, 1997 or the consummation of an initial public offering or
private placement of the Company's debt and/or equity securities resulting
in gross proceeds to the Company of at least $5,000,000. The net proceeds of
the Bridge Financing (approximately $820,000) were used in part to purchase
machinery ($235,000) and for sales and marketing ($235,000). The Company
used the remaining net proceeds as working capital. The 12 1/2 % promissory
note was issued in December 1995 to an individual lender and is payable upon
demand. The proceeds of that loan were used as working capital.
(5) The Company may use approximately $316,000 of the net proceeds of the
Offering to pay the salaries of Joel Schoenfeld, Chief Executive Officer of
the Company ($196,000 per annum), and David Chabut, Chief Financial Officer
of the Company ($120,000 per annum), until cash flows from operations are
sufficient to pay such salaries. See "Management -- Employment Agreements".
(6) Includes working capital to support inventory and accounts receivable.
Additional proceeds from the exercise of the Over-Allotment Option and the
Warrants will be added to the Company's working capital and be available for
general corporate purposes. Pending application, the Company will invest the
net proceeds of the Offering in United States government securities, short
term certificates of deposit, money market securities, investment grade
commercial paper or other short-term interest-bearing investment-grade
securities.
The Company has not determined the specific allocation of the net proceeds
within each of the various uses described above. Specific allocations of such
net proceeds will ultimately depend on the development of the Company's
products and the related technology and commercial acceptance of its
products. The Company anticipates, based on currently proposed plans and
assumptions relating to its operations, that the net proceeds of the
Offering, together with cash flow from operations, will be sufficient to
satisfy the Company's anticipated cash requirements for the 12 months
following the date of the Prospectus.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
December 31, 1996, and (ii) such capitalization, as adjusted after giving
effect to the issuance and sale of the 1,500,000 shares of Common Stock and
2,250,000 Warrants in the Offering and the application of the net proceeds
thereof. The information set forth below should be read in conjunction with
the consolidated financial statements and notes thereto appearing elsewhere
herein and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------
Actual As Adjusted
------------- --------------
<S> <C> <C>
Unearned income in connection with Supply and License Agreements .. $ 1,683,788 $ 1,683,788
Notes due stockholders and affiliates (1) ......................... 121,371 --
Notes due officers (2) ............................................ 675,635 --
------------- --------------
2,480,794 1,683,788
Stockholders' equity:
Preferred Stock, par value $0.001; 4,997,500 shares authorized;
none issued and outstanding at September 30, 1996, and as adjusted -- --
Series A 8% Cumulative Convertible Preferred Stock, par value
$0.001; 2,500 shares authorized; 1,269 issued and outstanding at
December 31, 1996; and 1,919 shares, as adjusted (3) ............. 1 2
Common Stock, par value $0.001; 25,000,000 shares authorized;
1,082,287 shares issued and outstanding at December 31, 1996 (4);
and 2,621,054 shares issued and outstanding, as adjusted (5) ..... 1,082 2,621
Additional paid-capital ........................................... 2,459,417 4,938,527 (6)
Accumulated deficit ............................................... (4,253,138) (2,447,145)(7)
Deferred offering costs ........................................... (92,500) --
------------- --------------
Stockholders' equity (deficit) .................................... (1,885,138) 2,494,005
------------- --------------
Total capitalization ............................................ $ 595,656 $ 4,177,793
============= ==============
</TABLE>
- ------
(1) Includes $4,998 payable to Joel Schoenfeld, and two companies affiliated
with Mr. Schoenfeld (the "Schoenfeld Parties"), and $116,373 payable to John
Frank, a director of the Company. Subsequent to December 31, 1996, the
Company issued 5 shares of Series A Preferred Stock to the Schoenfeld
Parties in exchange for the cancellation of the amounts payable to them.
Concurrently with the Closing, the Company will issue approximately 34,397
shares of Common Stock to Mr. Frank in exchange for the cancellation of the
amount payable to him ($120,390, including accrued interest, as of March 31,
1997). See "Certain Transactions" and "Description of Securities -- Series A
Preferred Stock."
(2) Includes amounts accrued for compensation payable to Joel Schoenfeld
($644,391) and David Chabut ($31,244). Subsequent to December 31, 1996, the
Company issued 644 shares of Series A Preferred Stock to Mr. Schoenfeld in
exchange for the cancellation of the amount payable to him. Mr. Chabut has
advised the Company that he intends to exercise options to purchase 4,370
shares of Common Stock concurrently with the Closing and pay the exercise
price thereof with a portion of the amount payable to him. See "Management
-- Summary Compensation Table" and "Certain Transactions."
(3) Represents 649 shares issued to the Schoenfeld Parties in exchange for the
cancellation of amounts payable to them and 1 share issued to Dr. Alan H.
Gold in exchange for unpaid interest included in accrued expenses. See
footnotes (1) and (2) above, "Certain Transactions" and "Description of
Securities -- Series A Preferred Stock."
(4) Does not include (i) 3,750,042 shares reserved for issuance upon exercise of
outstanding options, at an exercise price of $3.50, expiring at various
dates from February 22, 1999 through April 11, 2007 (including options to
purchase 3,690,000 shares granted subsequent to December 31, 1996); and (ii)
approximately 34,397 shares to be issued concurrently with the Closing to a
director of the Company in exchange for the cancellation of amounts payable
to him ($120,390 as of March 31, 1997). See "Management -- Stock Option
Plan" and "Certain Transactions."
21
<PAGE>
(5) Includes (i) approximately 34,397 shares to be issued to a director of the
Company concurrently with the Closing in exchange for the cancellation of
amounts payable to him; and (ii) 4,370 shares to be issued to an officer of
the Company concurrently with Closing upon exercise of stock options. Does
not include (i) 3,745,672 shares reserved for issuance upon exercise of
outstanding options, at an exercise price of $3.50, which expire at various
dates from February 22, 1999 through April 11, 2007 (including options to
purchase 3,690,000 shares granted subsequent to December 31, 1996); and
(iii) 4,000,000 shares to be reserved for issuance upon exercise of the
Warrants and the warrants to be issued upon automatic conversion of the
Bridge Warrants on the date of the Prospectus. See "Management -- Stock
Option Plan," "Certain Transactions" and "Description of Securities."
(6) Gives effect to the reclassification of $2,386,785 of S corporation
undistributed losses to paid-in capital.
(7) Give effect to the write-off of adjusted debt financing costs of $580,792
associated with the Bridge Financing (deferred financing costs of $783,292
as of December 31, 1996 have been reduced by $202,500 as a result of the
surrender of 750,000 Bridge Warrants to the Company for cancellation without
consideration).
DILUTION
At December 31, 1996, the net tangible book value (deficit) of the Company
was ($2,090,430), or approximately ($1.93) per share of Common Stock, as
adjusted for the cancellation of approximately $650,000 of accrued expenses
due to certain stockholders and affiliates of the Company in exchange for 650
shares of Series A Preferred Stock subsequent to December 31, 1996. The net
tangible book value of the Company is the tangible assets (total assets less
intangible assets, deferred financing and offering costs) less total
liabilities. Dilution per share represents the difference between the amount
paid per share of Common Stock by investors in the Offering, attributing no
value to the Warrants.
After giving effect to (i) the issuance and sale of 1,500,000 shares of
Common Stock and 2,250,000 Warrants in the Offering, (ii) the cancellation of
amounts payable to a director of the Company ($120,390 as of March 31, 1997)
concurrently with the Closing in exchange for the issuance of approximately
34,397 shares of Common Stock, and (iii) the cancellation of amounts payable to
an officer of the Company ($15,295) concurrently with the Closing in exchange
for the issuance of 4,370 shares of Common Stock, but without taking into
account any other changes in net tangible book value subsequent to December 31,
1996, other than those described in the immediately preceding paragraph, the pro
forma net tangible book value of the Company as of December 31, 1996 would have
been $2,422,005, or $0.92 per share. This represents an increase in net tangible
book value per share of $2.85 to the Company's existing stockholders and an
immediate dilution of $2.58 per share (or 73.7% of the offering price) to new
stockholders purchasing shares of Common Stock in the Offering. The following
table illustrates this dilution on a per share basis:
<TABLE>
<CAPTION>
<S> <C> <C>
Public offering price per share ................ $3.50
Net tangible book value before Offering ........ ($1.93)
Increase attributable to new investors ......... $2.85
---------
Pro forma net tangible book value after Offering 0.92
-------
Dilution to new investors ...................... $2.58
=======
</TABLE>
22
<PAGE>
The information in the following table summarizes through December 31,
1996, as adjusted for (A) the issuance of approximately 34,397 shares of
Common Stock to a director of the Company concurrently with the Closing in
exchange for the cancellation of amounts due to him ($120,390 as of March 31,
1997), and (B) the issuance of 4,370 shares of Common Stock to an officer of the
Company concurrently with the Closing upon exercise of options, (i) the number
and percentages of shares of Common Stock purchased from the Company, (ii) the
amount and percentage of consideration paid and (iii) the average price per
share paid to the Company, by existing stockholders and by new investors
pursuant to the Offering:
<TABLE>
<CAPTION>
Average
Price
Shares Purchased Total Consideration Paid Per Share
----------------------- ------------------------ -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders 1,121,054 42.8% $ 652,185 11.0% $0.58
New investors ....... 1,500,000 57.2% 5,250,000 89.0% $3.50
----------- -------- ------------ --------
2,621,054 100.0% $5,902,185 100.0%
</TABLE>
The information in the foregoing table does not give effect to (i) 3,745,672
shares reserved for issuance upon exercise of outstanding options, at an
exercise price of $3.50 per share, which expire at various dates from February
22, 1999 through April 11, 2007 (including options to purchase 3,690,000 shares
granted subsequent to December 31, 1996), (ii) 4,000,000 shares to be reserved
for issuance upon exercise of the Warrants and the warrants to be issued upon
automatic conversion of the Bridge Warrants on the date of the Prospectus, (iii)
562,500 shares reserved for issuance upon exercise of the Over-Allotment Option
and the Warrants included therein, and (iv) 375,000 shares reserved for issuance
pursuant to the Underwriters' Warrants and the Warrants included therein. See
"Capitalization" and "Underwriting."
DIVIDEND POLICY
The payment of dividends by the Company is within the discretion of its
Board of Directors and depends in part upon the Company's earnings, capital
requirements and financial condition. Since its inception, the Company has
not paid any cash dividends on its Common Stock and does not anticipate
paying such dividends in the foreseeable future. The Company intends to
retain earnings, if any, to finance its operations.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth selected consolidated financial information
regarding the results of operations and financial position of the Company for
the periods and at the dates indicated. The selected consolidated financial
information as of December 31, 1995 and 1996 and for the fiscal years ended
December 31, 1995 and 1996 have been derived from the audited consolidated
financial statements of the Company for those fiscal years. This information
should be read in conjunction with the Company's consolidated financial
statements (including the notes thereto) and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------
1995 1996
------------ --------------
<S> <C> <C>
Sales .................................................. $1,106,930 $ 461,131
Cost of sales .......................................... 1,016,530 346,758
------------ --------------
Gross profit .......................................... 90,400 114,373
Expenses:
Marketing ............................................. 115,431 189,930
Product development ................................... 299,498 218,532
General and administrative ............................ 433,012 753,122
Interest .............................................. 153,473 260,560
Royalties ............................................. 35,000 133,000
------------ --------------
Total expenses ...................................... 1,036,414 1,555,144
------------ --------------
Net loss ............................................... ($ 946,014) ($1,440,771)
============ ==============
Historical and pro forma net loss per common share ..... ($ 0.89) ($ 1.36)
Historical and pro forma weighed average number of
common and common equivalent shares outstanding ....... 1,059,001 1,059,299
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
Working capital (deficit) ..... ($ 1,462,499) ($ 1,066,521)
Total assets .................. 606,917 2,463,589
Accumulated deficit ........... (2,812,367) (4,253,138)
Stockholders' equity (deficit).. (2,377,367) (1,885,138)
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with
the consolidated financial statements, including the notes thereto, appearing
elsewhere in this Prospectus.
Since inception, the Company's operations have consisted primarily of the
design, development, testing and evaluation of its locking clip syringes,
production processes, and production equipment, which include molds, inserts
and assembly machine. As of December 31, 1996, UNIVEC had no commercial sales
of its locking clip syringes. In the fourth quarter of 1995 and in 1996, the
Company sold lancets manufactured by Sherwood to one distributor, which
resold the lancets to retailers in Canada and the United States. The terms of
purchase and resale of these lancets was negotiated by the Company
independently with Sherwood and the distributor. The Company does not have a
distribution agreement or similar arrangement with Sherwood for lancets. In
the first two months of 1997, the Company sold approximately 1,777,000
syringes produced by INSERPOR, including over 900,000 to WHO.
In the second quarter of 1996, the Company entered into an agreement to
buy syringe components from Sherwood (the "Sherwood Supply Agreement"). In
connection with the Sherwood Supply Agreement, Sherwood sold all of its
right, title and interest in and to the production mold for the plunger,
including the mold inserts and insert base (together, the "Plunger Mold") to
the Company in consideration for an option to enter into a non-exclusive
license to manufacturer and sell the Company's locking clip syringes in the
United States. The Company also entered into a lease agreement with Sherwood
pursuant to which it leased back the Plunger Mold to Sherwood (the "Equipment
Lease") for a period of six years for use in the manufacture and production
of the plungers as part of the assembly of non-aspirating syringes using the
Company's proprietary design specifications. Sherwood is required to make
aggregate rental payments of $1,946,016 in 36 equal consecutive monthly
installments of $54,056, over the first three years of the term of the
Equipment Lease. In consideration for said lease payments, the Company agreed
to pay Sherwood 14.925% of the cumulative invoiced amount of components in
excess of $3,350,000 up to a maximum invoiced amount of $6,700,000 (or a
maximum of $500,000). In addition, certain stockholders of the Company agreed
to pay Sherwood up to $1 million (less 14.925% of each dollar paid by the
Company under the Sherwood Supply Agreement) in the event the Company fails
to pay a cumulative invoiced amount of $6.7 million over the first three
years of the Sherwood Supply Agreement. In July 1996, the Company sold the
Plunger Mold, subject to the Equipment Lease, together with the Company's
right to the payments under the Equipment Lease, to a financial institution
for net cash consideration of $1,600,000 ($1,837,904 less expenses of
approximately $238,000). In connection with such sale, the financial
institution agreed to sell the Plunger Mold back to the Company for a nominal
amount upon expiration of the term of the Equipment Lease. The Company has
deferred recognition of approximately $1,684,000, which equals the net
proceeds from the lease payments received from Sherwood and the 34 payments
sold to a financial institution. Unearned income in connection with these
agreements will be recognized upon the sale of the Company's locking clip
syringes which include components supplied by Sherwood under the Sherwood
Supply Agreement. See "Business -- Suppliers" and "Certain Transactions."
In the United States, the Company's products are subject to regulation by
the FDA. In December 1994, the Company was granted 510(k) clearance by the
FDA for its locking clip syringe. In addition, the FDA requires the Company
to be in compliance with GMP requirements and to demonstrate that its devices
are safe and effective. At any time, the FDA can audit the Company's
compliance with GMP requirements and can require the Company to demonstrate
that its products are safe and effective. See "Risk Factors -- Government
Regulation."
The Company has incurred net losses for each period since its inception.
The Company expects operating losses to continue until such time, if ever, as
the Company can sell significant units of its locking clip syringes, and it
can manufacture syringes at costs sufficiently lower than selling prices so
that gross profits cover overhead expenses. See "Risk Factors -- Continuing
Losses; Accumulated Deficit; Working Capital Deficit," " Risk Factors --
Limited Operating History" and "Risk Factors -- Product Acceptance; Demand
for Locking Clip Syringes."
25
<PAGE>
RESULTS OF OPERATIONS
Fiscal Years Ended December 31, 1996 and 1995
Sales. Sales for the fiscal year ended December 31, 1996 ("Fiscal 1996")
decreased by approximately $646,000 as compared to the fiscal year ended
December 31, 1995 ("Fiscal 1995") as result of fewer resales of medical
devices. However, gross profits for Fiscal 1996 increased by approximately
$24,000 as compared to Fiscal 1995 as result of higher margins. During Fiscal
1996, the Company had no sales of its locking clip syringes, but it resold
lancets manufactured by Sherwood to one distributor, which resold the lancets
to retailers in Canada and the United States. During Fiscal 1995, the Company
had no sales of its locking clip syringes, but it resold lancets manufactured
by Sherwood and syringes manufactured by INSERPOR, which did not utilize the
Company's locking clip.
Cost of Sales. Cost of sales for Fiscal 1996 decreased by approximately
$670,000 as compared to Fiscal 1995 as result of fewer resales of medical
devices. The cost of sales for Fiscal 1996 includes the purchase of lancets
from Sherwood and freight charges. The cost of sales for Fiscal 1995 includes
the purchase of lancets from Sherwood, the purchase of syringes from
INSERPOR, and freight charges.
Marketing. Marketing expenses for Fiscal 1996 (approximately $190,000)
increased by approximately $75,000, or 65%, as compared to Fiscal 1995
(approximately $115,000). This increase is primarily due to increased
expenditures for brochures and package design and, to a lesser extent,
increased expenditures for promotion.
Product Development. Product development expenses for Fiscal 1996
(approximately $219,000) decreased by approximately $80,000, or 27%, as
compared to Fiscal 1995 (approximately $299,000). This decrease is primarily
due to a reduction in legal fees for patents.
General and Administrative. General and administrative expenses for Fiscal
1996 (approximately $753,000) increased by approximately $320,000, or 74%, as
compared to Fiscal 1995 (approximately $433,000). This increase is
principally attributable to an increase in legal fees for the Sherwood Supply
Agreement, financing transactions and general corporate matters, and to a
lesser extent, higher payroll, including the salary of a full-time chief
financial officer for the entire Fiscal 1996 as compared to only four months
of Fiscal 1995.
Interest Expense. Interest expense for Fiscal 1996 (approximately
$261,000) increased by approximately $108,000, or 71%, as compared to Fiscal
1995 (approximately $153,000), due to increased notes payable weighted for
the period of time the indebtedness was outstanding.
Royalty Expense. Royalty expense for Fiscal 1996 (approximately $133,000)
increased by approximately $98,000, or 280%, as compared to the 1995 interim
(approximately $35,000) as result of certain payments made to secure licensed
rights for patents covering two locking devices for hypodermic syringes
utilizing apparatuses or methods different than those covered by the
Company's locking clip patents. During Fiscal 1995, the Company made payments
to secure licensed rights relating to another patent. The Company licensed
these patents to develop a 3cc locking syringe.
Net Loss. The net loss for Fiscal 1996 (approximately $1,441,000)
increased by approximately $495,000, or 52%, as compared to the net loss for
Fiscal 1995 (approximately $946,000), due to higher marketing, general and
administrative, royalty and interest expenses. This increase was offset
partially by higher gross profits and lower product development expenses.
Because the Company elected to be treated as an S corporation for 1995, the
net loss for Fiscal 1995 and Fiscal 1996 was passed through to its
stockholders. The accumulated deficit of approximately $1,866,000 at the end
of Fiscal 1994, when the Company was treated as a C corporation, is available
to offset future net income after the Company's tax status returns to a C
corporation in 1997 as a result of the Offering.
LIQUIDITY AND CAPITAL RESOURCES
In Fiscal 1995 and Fiscal 1996, the Company's expenses have exceeded gross
profits from resales of hypodermic devices. Operations have been funded
primarily from (a) the receipt of two payments under the Sher-
26
<PAGE>
wood Lease Agreement and the assignment of the remaining 34 payments
(approximately $1,684,000), and (b) net proceeds of approximately $820,000
from the issuance and sale of $1,000,000 principal amount of Bridge Notes and
Bridge Warrants to purchase 2,500,000 shares of Common Stock, for a total
purchase price of $1,000,000. See "Business -- Supplies," "Certain
Transactions" and "Description of Securities -- Bridge Financing."
The Company used cash from operating activities in Fiscal 1995 and Fiscal
1996. Net losses in each of these periods greatly affected net cash from
operations. In Fiscal 1995, the Company used cash from operations of
approximately ($530,000): (a) the increases to cash from operating activities
were mostly from accounts payable and accrued expenses of approximately
$426,000 (including $171,000 payable to two officers) and issuance of Common
Stock for services of $35,000, and (b) the decreases to cash from operating
activities were primarily from a net loss of approximately ($946,000) and
accounts receivable of approximately ($63,000). In Fiscal 1996, the Company
used cash from operations of approximately ($1,217,000): (a) the increases to
cash from operating activities were mostly from accounts payable and accrued
expenses of approximately $456,000 (including $73,000 payable to two
officers) and depreciation, amortization and non cash charges of
approximately $145,000 and (b) the decreases to cash from operating
activities were primarily from a net loss of approximately ($1,441,000),
accounts receivable of approximately ($86,000), and inventory of syringe
components available for production of approximately ($239,000).
The Company's investing activities have consisted primarily of
expenditures for production equipment, which totaled approximately $374,000
and $489,000 in Fiscal 1995 and Fiscal 1996, respectively. The expenditures
for Fiscal 1995 and Fiscal 1996 were for assembly equipment and tools and
dies to produce the Company's proprietary clip. As of December 31, 1996, the
Company is committed to pay (approximately $45,000) for production equipment
for its first syringe line located at Harmac in Buffalo, New York. The
Company intends to use a portion of the net proceeds of the Offering to
purchase a clip-attachment line for INSERPOR in Portugal, a second production
line for Harmac in Buffalo, New York, and furniture, fixtures and equipment
for a warehouse facility (approximately $1,442,000).
The Company provided cash from financing activities in Fiscal 1995 and
Fiscal 1996. In Fiscal 1995, cash from financing activities was approximately
$1,011,000, provided primarily from the issuance of promissory notes for
$665,000 and the sale of equity securities to a director for $300,000. In
Fiscal 1996, cash provided from financing activities was approximately
$1,985,000: (a) increases to cash were comprised primarily of approximately
$1,684,000 contributed by unearned income from supply and licensing
agreements with Sherwood, $1,000,000 provided through the sale of Bridge
Notes as part of the Bridge Financing and $397,000 from the sale of
promissory notes, and (b) decreases to cash from financing activities were
primarily from payments of promissory notes ($937,000), deferred financing
costs ($179,500) and deferred offering costs ($92,500).
The Company expects to incur additional operating losses and cash
requirements at least through 1997. These losses will continue until such
time as the Company builds up sufficient sales and margins to offset
expenses, which include continuing product and machine development for new
syringe products. The timing and amounts of these cash requirements will
depend on many factors, some of which are beyond the Company's control, such
as the progress of the Company's product development projects, improvements
to existing manufacturing processes, and sales of Company products at prices
sufficient to cover expenses. The Company expects that the net proceeds of
the Offering, together with cash flow from operations, will be sufficient to
satisfy its anticipated cash requirements for the 12 months following the
date of the Prospectus.
The Company's consolidated financial statements for the year ended
December 31, 1996, indicate that there is substantial doubt about the
Company's ability to continue as a going concern due to the Company's need to
attain profitable operations and to obtain adequate long-term financing. See
Note 2 of Notes to the Company's consolidated financial statements appearing
elsewhere herein.
27
<PAGE>
BUSINESS
UNIVEC develops and markets safety hypodermic syringes designed to protect
the healthcare worker and patient against cross-infection. The Company also
sells and intends to develop other hypodermic devices. In January 1997, the
Company commenced production and sales of its 1cc locking clip syringes,
which are designed to make accidental or deliberate reuse difficult. The
accidental or deliberate reuse of syringes is a frequent cause of the spread
of the human immunodeficiency and hepatitis viruses, as well as other
blood-borne pathogens. The Company has received 510(k) clearance from the
U.S. Food and Drug Administration to market its locking clip syringes in the
United States.
The Company offers aspirating and non-aspirating models of its lcc locking
clip syringes. With the aspirating syringe, the UNIVEC locking clip does not
limit the user's ability to withdraw and depress ("to aspirate") the plunger
until the user locks the syringe voluntarily. With the non-aspirating
syringe, the UNIVEC locking clip limits the user's ability to aspirate the
plunger and locks the syringe passively.
In addition to marketing its safety syringes, the Company resells medical
devices of other companies (e.g., traditional disposable syringes and
lancets, which are hypodermic devices used in conjunction with blood
testing). To date, the Company's revenues have been derived almost
exclusively from resales of traditional disposable devices and lancets. The
Company seeks to resell other medical devices that promote safety and
complement its hypodermic syringes. The Company's management expects the
relative significance of its resale activities to decrease over time as sales
of its safety syringes increase.
PROBLEMS ASSOCIATED WITH TRADITIONAL DISPOSABLE SYRINGES
Accidental or deliberate reuse of disposable syringes poses a serious risk
of transmitting HIV-AIDS, hepatitis and other blood-borne pathogens for
patients and injection drug users. Disposable syringes are used traditionally
in developed countries and by many relief agencies such as UNICEF and WHO.
Intravenous drug users, who share syringes or use syringes discarded by
hospitals, medical clinics and laboratories, doctors or diabetic patients,
are extremely susceptible to HIV, hepatitis and other blood-borne pathogens.
An article in the May 1996 American Journal of Public Health for Disease
Control written by an epidemiologist for the Center for Disease Control and
Prevention estimates that nearly half of all new HIV infections are occurring
in intravenous drug users ("IDUs"). The article indicates that in New York
City the number of IDUs at risk (69,000) exceeds the number of men who have
sex with other men at risk ("MSM"), and that the number of IDUs at risk in
Chicago (10,500) and Detroit (3,460) is 87% and 71%, respectively, of the
number of MSMs at risk in those cities.
Relief agencies, including UNICEF and WHO, administered almost a billion
injections to women and children through immunization programs in developing
countries in 1995. WHO reported that surveys carried out in four of its six
regions indicated that up to a third of immunization injections were
unsterile. But immunization injections account for less than 10% of
injections administered within the health sector. The United Nations
estimates that more than half of all non-immunization injections in
developing countries are unsafe. According to an article in the New York
Times on July 7, 1996, an estimated 21.8 million adults and children
worldwide are infected with HIV, 90% of whom live in developing countries.
As a result of the findings in the United States and developing countries,
public health officials have encouraged the medical industry to develop safer
syringes to prevent the spread of blood-borne pathogens, such as HIV and
hepatitis. In 1995, the House of Delegates -- American Medical Association
requested "manufacturers of disposable hypodermic needles and syringes to
adopt designs to prevent reuse and to include in the packaging clear
directions for their correct disposal." In late 1995, UNICEF recommended "the
use of auto-destruct syringes instead of disposable, single use syringes in
order to avoid the hazards of unsafe injection practices." In 1996, Brazil
adopted a law requiring disposable syringes manufactured or marketed in that
country to include a safety device to prevent its reuse. During 1996, New
York State enacted legislation authorizing a limited number of pilot projects
to test the practicality and effectiveness of difficult to reuse syringes.
Such pilot tests are to be conducted, subject to funding, in state-operated
facilities, such as prisons, hospitals, youth detention facilities and
development centers.
28
<PAGE>
As a result of the increase in the incidence of HIV-AIDS cases, there has
also been considerable discussion concerning over-the-counter sales of
non-prescription syringes and needle exchange programs, in which intravenous
drug users exchange used syringes for sterile syringes. However, political
and social concerns that over- the-counter sales of non-prescription syringes
and needle exchange programs encourage and condone illegal drug use have
limited the access of intravenous drug users to sterile syringes, including
those with the added safety feature of a locking device to discourage reuse.
Nevertheless, 41 states, including Connecticut, Florida, Ohio, Michigan,
Texas and Virginia, have legalized over-the-counter sales of non-prescription
syringes.
Since the introduction of the disposable syringe in the late 1940's, two
types of features have been developed to deter the spread of blood-borne
pathogens as a result of accidental or deliberate reuse of syringes --
needle-stick prevention devices and difficult to reuse syringes.
NEEDLE STICK PREVENTION
Needle-stick prevention devices are designed to prevent accidental
puncture injuries to health care workers and patients before, during, and
after the use of hypodermic syringes and needles. Statistics indicate that
less than 1% of all reported HIV infections in the United States are
attributed to needle-stick injuries. The most prevalant needle stick
prevention device, the extendible barrel sleeve, is not a substitute for
features that render a syringe difficult to reuse; however, it can be
combined with devices that make a syringe difficult to reuse. Needle-stick
prevention methods include:
Retracting Needles, which through mechanical devices incorporated in the
syringe, pull back the needle into the barrel after use. These devices are
effective needle-stick prevention devices; however, operators must manually
trigger the retraction of needles. Retracting needle devices that
automatically trigger with a single use of the syringe can render the syringe
design difficult to reuse. However, such devices are prone to malfunction and
are costly to manufacture due to the complexity of the mechanics required to
retract the needle.
Self-Destruct Needles, which permit the needle to be collapsed or deformed
into a shape which cannot result in a needle-stick injury. Although
self-destruct needle devices are mechanically simpler than retracting needle
devices, less prone to malfunction and less costly to manufacture, such
devices are effective only if the operator triggers the self-destruct
feature.
Extendible Barrel Sleeves, which enclose the barrel of the syringe in a
second cylinder which the operator extends before and after use to cover the
tip of the needle. The extendible barrel sleeves often lock in their extended
position after use. In virtually all designs, the operator of the syringe
must manually extend the barrel sleeve after use. The sleeve does not prevent
multiple use of the syringe before the operator encloses the barrel. However,
extendible barrel sleeves are more cost-effective than the other alternatives
and can be combined with a device that makes the syringe difficult to reuse.
Becton Dickinson and Sherwood distribute traditional (1cc and 3cc) syringes
with extendible barrel sleeves called safety syringes at a wholesale price of
$0.18 to $0.21.
DIFFICULT TO REUSE SYRINGES
To the Company's knowledge, only Bader and Becton-Dickinson distribute
commercially, a line of difficult to reuse syringes, none of which allow for
aspiration. Both companies developed their syringes for WHO and UNICEF
immunization programs.
Relative to the Bader and Becton-Dickinson syringes, the Company believes
that its 1cc locking clip syringes are more effective and that they are
competitively priced. Unlike its competitors, the Company markets a locking
clip syringe with a 1cc barrel, which is ideal for dispensing .05cc to .95cc
dosages of medicine (e.g., allergy, immunization and insulin medicines). It
is more difficult to deliver .05cc to .95cc dosages accurately with a syringe
barrel that is greater than 1cc. Also unlike its competitors, the Company
offers an aspirating syringe that healthcare workers can lock. Healthcare
workers need aspirating syringes to mix medications in the syringe barrel and
inject medications intravenously. Furthermore, the Company believes that
aspirating syringes are preferred by diabetes patients and needle-exchange
programs.
BADER
The Bader DestroJect syringe is a non-aspirating syringe developed for use
with WHO's and UNICEF's Expanded Programme on Immunization ("EPI")
manufactured since 1992 by Bader, a German machine tool
29
<PAGE>
manufacturer. The DestroJect syringe, available in a 1.5 cc size, delivers a
.5cc dose, which is the dosage for many immunizations. To deliver a dosage
other than .5cc, the Company believes that Bader would have to modify
components of the DestroJect syringe. Bader can supply DestroJect syringes in
a special dispensing carton which doubles as the disposal box for used
syringes. The disposal box is designed to incinerate the used syringes
reducing them to ash and an inert block of plastic and metal residue.
BECTON-DICKINSON
The Becton-Dickinson SOLOSHOT syringe is a non-aspirating syringe
specifically designed for the EPI. Becton-Dickinson can package the SOLOSHOT
syringes in an incineration box similar to that used by Bader. The SOLOSHOT
syringe, available in a 3cc size, delivers a .5cc dose, which is the dosage
for many immunizations. To deliver a dosage other than .5cc, the Company
believes that Becton-Dickinson would have to modify components of the
SOLOSHOT syringe.
UNIVEC
The Company has developed a 1cc locking clip syringe for aspirating and
non-aspirating applications, which is ideally suited for dispensing accurate
dosages of allergy, immunization and insulin medicines. The Company's 1cc
locking clip syringe can deliver dosages of up to .95cc. With the aspirating
syringe, the UNIVEC locking clip does not limit the user's ability to
withdraw and depress ("to aspirate") the plunger until the user locks the
syringe voluntarily. With the non-aspirating syringe, the UNIVEC locking clip
limits the user's ability to aspirate the plunger and locks the syringe
passively.
When the non-aspirating syringes are assembled, the syringe clip is placed
on the ratcheted plunger in the position needed to limit dosage as desired.
When the operator depresses the plunger, the clip travels down the barrel by
an equal distance. Withdrawal of the plunger by any amount embeds the prongs
into the barrel and the user cannot retract the plunger.
The Company's 1cc, non-aspirating, syringe was developed for the needs of
immunization programs of EPI. Using existing components, the Company can
limit its non-aspirating syringe to any dosage between .05cc and .95cc;
however, the Company will have to modify its existing assembly machine to
produce syringes with a nominal dosage less than .95cc. Recently, the EPI has
prioritized its program for immunizing children under one for tuberculosis
("TB"). In 1997 for TB immunization, the EPI expects to vaccinate 100 million
children and to buy 100 million 1cc tuberculin syringes. The dosage for a TB
vaccination is .05cc. After the Company modifies its assembly machine, it
will be able to produce a syringe limited to a nominal dosage amount of
.05cc. Without modifications to components, the difficult to reuse syringes
of Bader and Becton-Dickinson can only deliver a dosage of .5cc. For the EPI,
the Company plans to distribute its locking clip syringes in incinerating
cartons similar to those distributed by Bader and Becton-Dickinson.
The Company's 1cc aspirating syringe works similarly to the non-aspirating
model, except that the clip prongs do not engage the barrel until the
operator withdraws the plunger completely. Once the operator does so, the
clip catches a single ratchet and travels down the barrel as the plunger is
depressed and the operator cannot withdraw the plunger.
The Company's 1cc aspirating syringe was developed for healthcare workers,
who need to mix medications in the syringe barrel and inject medicines
intravenously. Furthermore, the Company believes that aspirating syringes are
preferred by diabetes patients and needle-exchange programs. The Company does
not know of any other Company that offers an aspirating syringe that can be
locked.
The Company intends to develop a 3cc syringe with a luer (needleless) tip
for use in hospitals and health clinics in 1997. In general, hospitals and
health clinics use more 3cc syringes than 1cc syringes. Hospitals and clinics
will have the choice of an aspirating or non-aspirating plunger and a choice
of a syringe barrel with or without an extendible needle sheath. It is
anticipated that production of the Company's 3cc non-aspirating syringe will
commence by 1998. See "Risk Factors -- Ability to Develop 3cc Syringe."
30
<PAGE>
SALES, MARKETING AND DISTRIBUTION
The Company's initial marketing efforts will be directed primarily to
UNICEF, WHO and public hospitals and health facilities in New York. The
Company also intends to market its locking clip syringes to (i) governments
of developing countries, (ii) private hospitals and health facilities in New
York, New Jersey and Connecticut, and (iii) retail distributors in the United
States. The Company also plans to license its patents and proprietary
manufacturing processes relating to its locking clip and other syringe
designs to established medical device manufacturers. To stimulate demand for
its safety syringes, the Company plans to initiate promotional and
educational campaigns directed at (i) public health officers and other
government officials responsible for public health policies, (ii) doctors and
administrators of healthcare facilities responsible for treatment of HIV-AIDS
patients, and (iii) liability insurance companies. The Company plans to enter
into arrangements with independent sales agents and distributors in targeted
markets and to hire a marketing director after the Closing.
PRODUCTION
The Company's syringes will be assembled primarily by Harmac, one of the
largest independent, privately-owned contract manufacturers of medical products
in the United States, at its production facility in Buffalo, New York. The
Company has entered into a manufacturing agreement with Harmac for the assembly
of syringes, using assembly and packaging equipment supplied by the Company. The
manufacturing agreement may be terminated by Harmac or the Company upon 90 days'
prior written notice at the end of any calendar year. Sherwood will supply most
of the components for the syringes assembled by Harmac. See "Business --
Suppliers." The Company has commenced production of clip-plunger subassemblies
at Harmac's facilities, which it exports to INSERPOR for final assembly of its
syringes. The Company expects that Harmac will complete assembly of its
syringes before the end of June 1997. The Company's assembly equipment currently
can operate at approximately 45% of its rated capacity. The Company expects
production of its syringes at Harmac will be at or close to 100% of its rated
capacity before the end of 1997. See "Risk Factors -- Dependence on Certain
Assemblers" and "Risk Factors -- Interruptions to Production."
The Company also has entered into a letter of understanding with INSERPOR,
a Portuguese syringe manufacturer, for the assembly by INSERPOR of
non-aspirating syringes for orders, if any, received from relief agencies
such as WHO, using syringe components supplied by INSERPOR. In addition,
INSERPOR will manufacture the Company's proprietary plunger for its
aspirating and non-aspirating syringes. INSERPOR commenced production of the
Company's syringes in January 1997. The Company has sold approximately
1,777,000 locking clip syringes produced by INSERPOR, including over 900,000
to WHO. See "Risk Factors -- Dependence on Certain Assemblers."
Initially, the Company will produce only 1cc locking clip syringes in
aspirating and non-aspirating models. The Company's syringes consist of a
standard needle, barrel, rubber stopper, a ratcheted plunger designed by the
Company, and a pronged stainless steel locking clip designed by the Company.
The Company has obtained a patent on its stainless steel locking clip, and
has been granted a patent for the design of a plunger which, when combined
with the locking clip, results in a narrow barrelled difficult to reuse,
locking syringe. The locking clip and plunger can be assembled, with minor
modifications, into barrels manufactured by Becton-Dickinson, Sherwood,
Terumo and other syringe manufacturers. The plunger is made from plastic
materials which are readily available from numerous sources and is currently
manufactured by Sherwood and INSERPOR. The locking clip is made of stainless
steel and cut and formed for the Company by Harmac. The Company owns or
otherwise controls all production tooling used by suppliers of these
components.
Capacity can be expanded by purchasing new production systems. The Company
plans to use a portion of the net proceeds of the Offering to acquire
production equipment for an additional production line to be placed at Harmac
and a clip attachment line to be placed at INSERPOR.
SUPPLIERS
The Company has entered into a supply agreement with Sherwood (the
"Sherwood Supply Agreement"), pursuant to which Sherwood has agreed to supply
the Company with at least 50 million syringe component sets per year (or
4,166,667 per month), each set consisting of a syringe barrel, with or
without a permanently pre-
31
<PAGE>
attached needle and sheath or separate hooded needle, and a plunger tip and
up to 8,333,333 non-aspirating syringe plungers per month, against receipt of
purchase orders from the Company at specified prices, subject to revision for
cost increases (not to exceed 5% during any twelve month period). In
addition, in order for Sherwood to commit to the minimum supply requirements
under the Sherwood Supply Agreement, the Company has agreed to pay Sherwood
14.925% of the cumulative invoiced amount of components in excess of
$3,350,000 up to a maximum invoiced amount of $6,700,000 (or a maximum of
$500,000) and Joel Schoenfeld, Dr. Alan H. Gold, David Shonfeld and John
Frank agreed, jointly and severally, to pay Sherwood up to $1,000,000 (less
$0.14925 for each dollar paid to Sherwood under the Sherwood Supply
Agreement) in the event the Company fails to pay a cumulative invoiced amount
of $6,700,000 over the first three years of the Sherwood Supply Agreement.
The Sherwood Supply Agreement is for a term of five years, but may be
extended under certain circumstances if prior thereto Sherwood enters into a
license agreement to manufacture and sell the Company's locking clip syringe.
In connection with the Sherwood Supply Agreement, Sherwood sold all of its
right, title and interest in and to the production mold for the plunger,
including the mold inserts and insert base (together, the "Plunger Mold") to
the Company in consideration for an option to enter into a non-exclusive
license to manufacturer and sell the Company's locking clip syringes in the
United States (the "License Agreement"). The Company also entered into a
lease agreement with Sherwood pursuant to which it leased back the Plunger
Mold to Sherwood (the "Equipment Lease") for a period of six years for use in
the manufacture and production of the plungers as part of the assembly of
non-aspirating syringes using the Company's proprietary design
specifications. Sherwood is required to make aggregate rental payments of
$1,946,016 in 36 equal consecutive monthly installments of $54,056, over the
first three years of the term of the Equipment Lease. In July 1996, the
Company sold the Plunger Mold, subject to the Equipment Lease, together with
the Company's right to the payments under the Equipment Lease, to a financial
institution for net cash consideration of $1,600,000 ($1,837,904 less
expenses of approximately $238,000). In connection with such sale, the
financial institution agreed to sell the Plunger Mold back to the Company for
a nominal amount upon expiration of the term of the Equipment Lease.
Sherwood has the right to exercise its option to enter into the License
Agreement at any time prior to November 30, 1999. Upon exercise of the
option, Sherwood is required to pay the Company a royalty advance of
$100,000, against which royalty payments may be offset. Under the License
Agreement, Sherwood is required to pay the Company a royalty equal to 5% of
net sales. The License Agreement may be terminated by Sherwood upon 30 days
prior written notice. If on or before February 1, 1998, the Company receives
a bona fide written offer from an unrelated third party to exclusively
license the Company's patent rights for its locking clip syringe, Sherwood,
within 30 days notice of such offer, has the right to exercise its option to
enter into the License Agreement or to enter into an exclusive license on the
same terms and conditions set forth in the third party offer. In the event of
a third party offer, the Company has the right to buy-out the option rights
granted Sherwood for $100,000.
COMPETITION
The Company's principal competition is from traditional disposable
syringes. Becton-Dickinson, Sherwood and Terumo control approximately 74%,
19% and 5%, respectively, or a total of approximately 98%, of the worldwide
syringe market, and are substantially larger, more established and have
significantly greater financial, sales and marketing, distribution,
engineering, research and development and other resources than the Company.
To the Company's knowledge, only Becton-Dickinson and Bader, a German machine
tool manufacturer, distribute commercially a line of difficult to reuse
syringes, none of which allow for aspiration. The Bader DestroJect syringe
and the Becton-Dickinson SOLOSHOT syringe were developed specifically for
WHO-UNICEF-EPI immunization programs. The Bader DestroJect syringe and the
Becton-Dickinson SOLOSHOT syringe were designed to dispense a dosage of .5cc
only, whereas the UNIVEC 1cc locking clip syringe was designed to dispense
dosages from .05cc to .95cc. The Company believes that UNIVEC syringes are
more effective than competitive difficult to reuse syringes and that they are
competitively priced. There can be no assurance that the major syringe
manufacturers or others will not commence production of 1cc difficult to
reuse syringes, or locking syringes which aspirate, or that the Company will
be able to successfully compete in this market.
PATENTS AND PROPRIETARY RIGHTS
The Company's policy is to seek patent protection for all developments,
inventions and improvements that are patentable and which have potential
value to the business of the Company and to protect as trade secrets other
confidential and proprietary information.
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<PAGE>
In 1995, the Company was granted a United States patent for a locking clip
device not biased against the plunger. The patent is broad enough to include
several applications of the design covering the first series of products to
be marketed by the Company. The Company also has filed a United States patent
application for a plunger design which, in conjunction with its patented
locking clip, results in a narrow barrel difficult to reuse syringe that
allows for aspiration during use. In addition, the Company has licensed the
rights to two other locking device patents. The Company licensed these
patents to develop a 3cc locking syringe. The Company is obligated to make
certain minimum annual royalty payments in respect of the licensed rights to
these two locking device patents and, to the extent the Company's products
utilize the claims and designs of the licensed patents, to pay royalties to
the owner of the licensed patents ranging from 2% to 6% of net sales (or in
the case of products produced under sublicenses granted to third parties, 10%
to 40% of royalties received from those parties).
The Company also has filed patent applications for its locking clip and
aspirating plunger in certain foreign countries participating in the Patent
Cooperation Treaty (Canada, Brazil, Mexico, certain European countries,
Japan, South Korea, China, Russia and Australia). However, patent
applications filed in foreign countries and patents granted in such countries
are subject to laws, rules and procedures that differ from those in the
United States, and accordingly, patent protection in such countries may be
different from patent protection provided by United States laws.
Strategically, the Company seeks manufacturing processes and agreements that
will enable it to have reliable quality and the lowest production costs. By
protecting its manufacturing processes, which enable the quality and cost
competitiveness of its products, the Company believes that it can defend
market share regardless of foreign patent protections, which are often
unenforceable or non-existent in many world markets (e.g., China and India).
See "Risk Factors -- Uncertainty Regards Patents and Proprietary Technology;
Risk of Future Litigation."
The Company has patents and licenses suitable for a 3cc syringe. All of
these inventions have U.S. patent protection, but most of these inventions
lack foreign patent protection. However, the Company has filed for patent
protection in certain European countries for one of its licenses, which is
the basis for the 3cc non- aspirating syringe that the Company plans to
develop. For the aspirating model, the choice of design will depend upon
certain factors, including patent protection, manufacturing costs, ability to
control quality and product features. It is anticipated that production of
the Company's 3cc non-aspirating syringe will commence by 1998. See "Risk
Factors -- Uncertainty Regarding Patents and Proprietary Technology; Risk of
Future Litigation."
The future success of the Company may depend upon the strength of its
patents. The Company believes that the scope of its patents and licenses is
sufficient to prevent competitors from introducing devices of similar design
to its current products and that its patents are valid and enforceable.
However, there can be no assurance that the Company's patents will not be
challenged, invalidated or circumvented in the future or that the rights
granted thereunder will provide a competitive advantage.
The Company is not aware of any patent infringement claims against the
Company or of any infringement of the Company's patents. Litigation to
enforce patents issued to the Company, to protect proprietary information
owned or licensed by the Company, or to defend the Company against claimed
infringement of the rights of others, could be costly and could divert the
resources of the Company from other planned activities. There can be no
assurance that the Company would be successful in any such litigation.
The Company protects its proprietary information and trade secrets,
including all aspects of its syringe assembly system, through confidentiality
agreements with its employees and suppliers.
The Company has registered trademarks UNIVEC(R), and R/ Ultra(R), and the
symbol representing no second use, (i.e., the number 2 crossed out inside of
a circle), with the United States Patent and Trademark Office. See "Risk
Factors -- Uncertainty Regarding Patents and Protection of Proprietary
Technology."
33
<PAGE>
GOVERNMENT REGULATION
The manufacture and distribution of medical devices are subject to
extensive regulation by the FDA and, in some instances, by foreign and state
governments. Pursuant to the Federal Food, Drug, and Cosmetic Act, as
amended, and the regulations promulgated thereunder (collectively, the "FDC
Act"), the FDA regulates the clinical testing, manufacture, labeling, sale,
distribution and promotion of medical devices. Before a new device can be
introduced into the market, a manufacturer must obtain FDA permission to
market through either the 510(k) pre-market notification process or the
costlier, lengthier and less certain pre-market approval ("PMA") application
process. The FDA has granted the Company 510(k) clearance to market its 1cc
locking clip syringe, which has been classified as a Class II device under
the FDC Act, and accordingly, the Company may market and sell its 1cc locking
clip syringe in the United States, subject to compliance with other
applicable FDA regulatory requirements. As a Class II device, performance
standards may be developed for the 1cc locking clip syringe which the product
would then be required to meet. Failure to meet those standards would require
the Company to discontinue the marketing of the product. Furthermore,
manufacturers of medical devices are subject to recordkeeping requirements
and required to report adverse experiences relating to the use of the device.
Device manufacturers are also required to register their establishments and
list their devices with the FDA and with certain state agencies and are
subject to periodic inspections by the FDA and certain state agencies.
Medical devices are subject to strict federal regulations regarding the
quality of manufacturing ("Good Manufacturing Practices" or "GMP"). GMP
regulations impose certain procedural and documentation requirements upon the
Company with respect to manufacturing and quality assurance activities. The
FDA conducts periodic audits and surveillance of the manufacturing,
sterilizing and packaging facilities of medical device manufacturers to
determine compliance with GMP requirements. The failure of a medical device
manufacturer to be able to show in the audit or post-market surveillance that
it has adequately complied with GMP requirements can result in penalties or
enforcement proceedings being imposed on the manufacturer. These procedures
may include a product recall of a product or a "cease distribution" order
which would require the manufacturer to direct its distributors and sales
agents to stop selling products, as well as other enforcement sanctions.
Harmac's manufacturing facilities have been certified as satisfying GMP
requirements. Harmac's facilities will be subject to extensive audits in the
future, pursuant to standard FDA procedure. No assurance can be given that
when Harmac is audited that it will be found to be in compliance with GMP
requirements, or that if it is not found in compliance, what penalties,
enforcement procedures or compliance effort will be levied on or required of
Harmac and/or the Company. Recently adopted GMP requirements, including those
pertaining to design control, are likely to increase the cost of GMP
compliance. Noncompliance with applicable requirements, including GMP
requirements, can result in, among other things, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant pre-market clearance or pre-
market approval for devices, withdrawal of marketing approvals, and criminal
prosecution. The FDA also has the authority to request repair, replacement or
refund of the cost of any device manufactured or distributed by the Company.
The introduction of the Company's products in foreign markets will also
subject the Company to foreign regulatory clearances which may impose
additional substantive costs and burdens. The Company's products are required
to satisfy international manufacturing standards for sale in certain foreign
countries. Harmac expects to achieve ISO 9001 certification by the end of the
second quarter of 1997. However, until Harmac obtains ISO 9001 certification,
the Company will have difficulty selling to some export accounts,
particularly in Europe. INSERPOR expects to obtain ISO 9002 in 1997.
International sales of medical devices are subject to the regulatory
requirements of each country. The regulatory review process varies from
country to country. Many countries also impose product standards, packaging
requirements, labeling requirements and import restrictions on devices. In
addition, each country has its own tariff regulations, duties and tax
requirements.
The approval by the FDA and foreign government authorities is
unpredictable and uncertain, and no assurance can be given that the necessary
approvals or clearances for the Company's products will be granted on a
timely basis or at all. Delays in receipt of, or a failure to receive, such
approvals or clearances, or the loss of any previously received approvals or
clearances, could have a materially adverse effect on the business, financial
condition and results of operations of the Company. Furthermore, approvals
that have been or may be granted are subject to continual review, and later
discovery of previously unknown problems may result in prod-
34
<PAGE>
uct labeling restrictions or withdrawal of the product from the market.
Moreover, changes in existing requirements or adoption of new requirements or
policies could adversely affect the ability of the Company to comply with
regulatory requirements. There can be no assurance that the Company will not
be required to incur significant costs to comply with applicable laws and
regulations in the future. Failure to comply with applicable laws or
regulatory requirements could have a materially adverse effect on the
Company's business, financial position and results of operations.
FACILITIES
The Company occupies its executive offices in Garden City, New York
(comprised of approximately 1,200 square feet of space) pursuant to a lease
which expires in December 1998; however, the Company may extend the term of
the lease for an additional two years. Rental expense for the space is
$28,704 per annum, subject to an increase of 4% per annum in each subsequent
year. Dr. Alan H. Gold, the President, a Director and principal stockholder
of the Company, is the president and a stockholder of the owner of the
premises, the Long Island Plastic Surgical Group.
The Company is seeking approximately 25,000 square feet of warehouse
space, and intends to use a portion of the net proceeds of the Offering for
furniture, fixtures and equipment for a warehouse facility.
EMPLOYEES
As of April 1, 1997, the Company employed five persons, including one in
sales and marketing, one in research and development, one in regulatory
affairs and quality assurance and two in financial administration. The
Company also has engaged the services of several independent contractors.
None of the Company's employees is covered by a collective bargaining
agreement.
The Company intends to hire a full-time marketing director upon completion
of the Offering and to staff its warehouse facility with four people.
LITIGATION
The Company is not involved in any legal proceedings.
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<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees
The directors, executive officers and key employees of the Company are as
follows:
Name Age Position
- ---- --- --------
Joel Schoenfeld 52 Chairman of the Board; Chief Executive
Officer; and a Director
Alan H. Gold* 50 President and a Director
David Shonfeld 41 Director of Research and Development
and a Director
David Chabut 38 Chief Financial Officer
Flora Schoenfeld 51 Treasurer and Secretary
John Frank* 57 Director
Richard Lerner* 52 Director
- ------
* Member of Audit Committee
Joel Schoenfeld, the founder of the Company, has been Chairman of the
Board and Chief Executive Officer of the Company since its inception in
August 1992. Mr. Schoenfeld was the founder and President of J&B Schoenfeld,
a global trading company whose main focus was on the import, export and
processing of pelts and hides, specializing in trade with the USSR and
Europe.
In 1988, Mr. Schoenfeld formed the American-Russian International Trading
Company ("AMRU"), which advised on trade agreements between the USSR and
United States. AMRU's broad base of interest and expertise enabled it to take
on such diverse projects as a joint venture with the Soviet government and
military known as AMRU-STAR, the representation of the Soviet Space Agency to
Washington, D.C., the introduction of western advertising to the USSR in
conjunction with another American company, Transportation Displays, Inc.
("TDI"), and the construction of a studio producing children's films for
international distribution.
As a result of the political changes in the former USSR, Mr. Schoenfeld
sought to further his business strategies. In 1990, he founded Joel
Schoenfeld & Associates in Garden City, New York. With affiliate offices in
Moscow, San Jose, London, and Boston, the company's purpose was to originate,
structure, capitalize, negotiate and advise on the implementation of import
and export trade transactions, projects and programs.
Mr. Schoenfeld has been a commercial attache and a consultant to a number
of foreign and multinational governments. Currently, Mr. Schoenfeld is an
advisor to United Nations Development Programs ("UNDP"). Previously, he
served as:
o Senior Advisor to the Costa Rican Ambassador to the United Nations
o Senior Advisor and Coordinator, Chief of Staff to the Chairman of the
Committee of States Parties to the International Covenant on Civil and
Political Rights to the United Nations
o Senior Economic and Trade Advisor to the United Nations Commission on
Transnational Corporations
Mr. Schoenfeld is the husband of Flora Schoenfeld.
Alan H. Gold, M.D., has been President of the Company since July 1996 and
a Director of the Company since inception in August 1992. Dr. Gold has been a
plastic surgeon since 1972, and is president of the Long Island Plastic
Surgical Group. He is a vice president and board member of Day-Op Center of
Long Island, a privately-owned surgery center in New York. Dr. Gold is a
medical advisor to the UNDP.
David Shonfeld has been Director of Research and Development of the
Company since its inception in August 1992. From December 1988 to February
1992, he was Vice President of Research and Development of Shyder, Inc. (a
designer of air purification systems). In 1986 and 1987, he was a participant
in a "think-tank" for Israel Aircraft Industries, developing a new security
system for Israel's borders. From 1983 to 1986, he super-
36
<PAGE>
vised a project involving "high-speed fiber optic communications" for IBM
France. From 1980 to 1983, he continued his university studies at Israel's
Technion Institute, majoring in physics and specializing in electronics and
electro-optics. From 1977 to 1980, he worked as a manager of automation,
robotics and production systems for Aloni Tiles, an international
manufacturing concern.
David Chabut has been the Chief Financial Officer of the Company since
October 1995. From January 1994 to September 1995 and from April 1992 to
January 1993, Mr. Chabut was a self-employed financial consultant. From
February 1993 to December 1993, he was chief operating officer for MediMax,
Inc. (which invested in accounts receivable financing of health care
providers), where he directed marketing, treasury and administration. From
August 1982 to March 1992, Mr. Chabut was a senior consultant for Coopers &
Lybrand in Chicago and New York where he advised several companies about
improving or starting operations. Mr. Chabut is a CPA and earned an MBA from
the University of Michigan.
Flora Schoenfeld has been Treasurer and Secretary of the Company since its
inception in August 1992. Since March 1992, she also has been Treasurer and
Secretary of Joel Schoenfeld & Associates. From 1980 to 1992, she was
Treasurer and Secretary of J & B Schoenfeld, Inc. Flora Schoenfeld is the
wife of Joel Schoenfeld.
John Frank has been a consultant to the Company in the areas of corporate
development and strategic planning since its inception in August 1992. Mr.
Frank has been Chief Information Officer of The Hartford Steam Boiler
Inspection and Insurance Co. since August 1996. From October 1994 to August
1996, he was Special Projects Manager for Electronic Data Systems
Corporation. From August 1993 to September 1994, he was the chief auditor of
Travelers Insurance Companies. From September 1991 to July 1993, he was a
principal of Lipera Frank Inc., of which he was a co-founder. From January
1982 to September 1991, Mr. Frank was a partner of Coopers & Lybrand, where
he managed strategic planning and financial management engagements for
Fortune 500 clients. Mr. Frank is a CPA and earned an MBA from Harvard
University.
Richard Lerner has been a Director of the Company since inception in
August 1992. He is President of Lerner, Gordon & Hirsch, P.C., a law firm.
All directors hold office until the annual meeting of stockholders of the
Company following their election or until their successors are duly elected
and qualified. Officers are appointed by the Board of Directors and serve at
its discretion.
Directors do not receive any cash compensation from the Company for
service as members of the Board of Directors; however, the Company reserves
the right to adopt a policy providing for compensation of independent
directors.
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<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and each other executive
officer of the Company whose salary and bonus for the years ended December
31, 1995 and 1996 exceeded $100,000.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------- -----------------------------
Other Annual
Name and Principal Position Year Salary Compensation Securities Underlying Options
-------------------------------- ------ ------------- -------------- -----------------------------
<S> <C> <C> <C> <C>
Joel Schoenfeld, Chairman of the
Board and Chief Executive
Officer ....................... 1996 $192,000(1) -- --
David Chabut, Chief Financial
Officer ....................... 1996 $104,051(2) $15,949(3) 20,513(4)
</TABLE>
- ------
(1) The Company accrues compensation expense for Joel Schoenfeld at a rate of
$192,000 per annum, plus benefits, which include a car allowance
(approximately $8,500) and life/disability/health insurance
(approximately $7,500).
(2) Includes health insurance benefits.
(3) Represents the amount to be reimbursed to Mr. Chabut for taxes incurred
in connection with his exercise of certain stock options described in
footnote (4) below.
(4) Represents options granted to Mr. Chabut at $3.50 per share, exercisable
until March 31, 1999. Mr. Chabut has exercised options to purchase 16,143
shares and has advised the Company that he intends to exercise options to
purchase an additional 4,370 shares concurrently with the Closing. See
"Management -- Stock Options" and "Certain Transactions."
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Joel Schoenfeld
pursuant to which he serves as Chairman of the Board and Chief Executive
Officer of the Company at a salary of $192,000 per annum. The agreement
provides Mr. Schoenfeld with life, disability and health insurance benefits.
The Company also has agreed to reimburse Mr. Schoenfeld for automobile lease
payments under his existing vehicle lease, or alternatively, to provide him
with an automobile allowance of $10,800 per annum, and at the expiration of
the vehicle lease, to pay him the fair market value of the vehicle if he
elects to exercise the option to purchase the vehicle pursuant to the lease.
The employment agreement expires on March 28, 2000.
The Company has entered into an employment agreement with David Chabut
pursuant to which he serves as Chief Financial Officer of the Company at a
salary of $120,000 per annum (including health insurance benefits). The
agreement expires on September 30, 1997.
David Shonfeld is employed as Director of Research and Development of the
Company pursuant to an employment agreement which expires on July 30, 1997.
The agreement may be terminated by the Company or Mr. Shonfeld upon not less
than 30 days prior written notice at any time after December 31, 1996. Under
the agreement, Mr. Shonfeld is compensated at the rate of $50 per hour for
research and development performed on a project basis.
The employment agreements with Messrs. Schoenfeld, Chabut and Shonfeld
contain non-competition covenants that prohibit each of them, directly or
indirectly, from engaging in a competitive business (as defined) for a period
of twelve months following the termination of employment. The foregoing
restriction does not apply to Mr. Schoenfeld if the Company does not offer to
extend or renew his employment following the expiration of his employment
agreement on terms not less favorable to him than those set forth in his
employment agreement.
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<PAGE>
STOCK OPTIONS
The following table contains information concerning the grant of stock
options to Joel Schoenfeld and David Chabut (the "Named Executive Officers")
during the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
Number of Shares Percent of Total Options
Underlying Options Granted to Employees in Exercise Price
Name Granted Fiscal Year Per Share Expiration Date
--------------- ------------------ ------------------------ -------------- ---------------
<S> <C> <C> <C> <C>
Joel Schoenfeld 0 -- -- --
David Chabut .. 20,513 100% $ 3.50 March 31, 1999
</TABLE>
The following table summarizes for each of the Named Executive Officers
the total number of unexercised options, if any, held at December 31, 1996,
and the aggregate dollar value of in-the-money, unexercised options, held at
December 31, 1996. The value of the unexercised, in-the-money options at
December 31, 1996, is the difference between their exercise or base price and
the value of the underlying Common Stock on December 31, 1996, at an assumed
price of $3.50 per share.
AGGREGATED OPTION EXERCISES -- JANUARY 1, 1996 --
DECEMBER 31, 1996 AND DECEMBER 31, 1996 OPTION VALUES
<TABLE>
<CAPTION>
Shares Acquired Upon Number of Securities In-The-Money
Exercise of Options during Underlying Unexercised Options at
Fiscal 1996 Options at December 31, 1996 December 31, 1996
--------------------------- -------------------------------- --------------------------------
Name Number Value Realized Exercisable Unexercisable Exercisable Unexercisable
--------------- --------- -------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Joel Schoenfeld -- -- -- -- -- --
David Chabut .. 16,143* -- 4,370 -- -- --
</TABLE>
- ------
* The Company will reimburse Mr. Chabut for $15,949 in taxes incurred by him
in connection with the exercise of these options.
STOCK OPTION PLAN
The Board of Directors has adopted, and the Company's stockholders have
approved, the 1996 Stock Option Plan (the "Plan"). The Plan is to be
administered by the Board of Directors or a committee thereof. Pursuant to
the Plan, options to purchase 4,709,219 shares of Common Stock may be granted
to directors, employees (including officers) and consultants to the Company
(collectively, "Plan participants").
The Plan authorizes the issuance of incentive stock options ("ISOs"), as
defined in Section 422A of the Internal Revenue Code of 1986, as amended, and
non-qualified stock options ("NQSOs", and together with ISOs, "Options").
Consultants and directors who are not also employees of the Company are
eligible for grants of only NQSOs. The exercise price of each ISO may not be
less than 100% of the fair market value of the Common Stock at the time of
grant, except that in the case of a grant to an employee who owns 10% or more
of the outstanding stock of the Company or a subsidiary or parent of the
Company (a "10% Stockholder"), the exercise price may not be less than 110%
of the fair market value on the date of grant. The aggregate fair market
value of the shares covered by ISOs granted under the Plan that become
exercisable by a Plan participant for the first time in any calendar year is
subject to a $100,000 limitation. The exercise price of each NQSO is
determined by the Board, or committee thereof, in its discretion; provided
that the exercise price of an NQSO granted a 10% Stockholder may not be less
than 110% of the fair market value on the date of grant.
Options to purchase 3,710,513 shares of Common Stock have been granted
pursuant to the Plan, including Time Accelerated Restricted Stock Options to
purchase 3,690,000 shares of Common Stock granted to officers and directors
of the Company at an exercise price of $3.50 per share. Time Accelerated
Restricted Stock Options are exercisable commencing upon the earliest of (i)
April , 2006, (ii) April , 2000, if the Company has at least $30,000,000 in
gross revenues and net income of at least $2,000,000 for the fiscal year
ended December 31, 1999, (iii) April , 2001, if the Company has at least
$45,000,000 in gross revenues and net income of at least $3,000,000 for the
fiscal year ended December 31, 2000, (iv) April , 2002, if the Company has
at least
39
<PAGE>
$60,000,000 in gross revenues and net income of $4,000,000 for the fiscal
year ended December 31, 2001, or (v) immediately upon the occurrence of a
"change in control" (as defined) of the Company. In no event may a Time
Accelerated Restricted Stock Option be exercised after the tenth anniversary
of the date of grant. Time Accelerated Restricted Stock Options to purchase
2,130,000 shares and 120,000 shares have been granted to Joel Schoenfeld and
David Chabut, respectively. ISOs to purchase an additional 20,513 shares also
have been granted to Mr. Chabut under the Plan. Mr. Chabut has exercised
options to purchase 16,143 shares and intends to exercise options to purchase
an additional 4,370 shares concurrently with the Closing. See "Management --
Stock Options" and "Certain Transactions."
Subject to the provisions of the Plan, the Board, or committee thereof,
has the authority to determine the individuals to whom the stock options are
to be granted, the number of shares to be covered by each option, the type of
option, the exercise period, the restrictions, if any, on the exercise of the
option, the terms for the payment of the exercise price and other terms and
conditions. Payments by holders of options upon exercise of any option may be
made (as determined by the Board or a committee thereof) in cash, by delivery
of shares of Common Stock or such other form of payment as may be permitted
under the Plan.
INDEMNIFICATION OF OFFICERS AND DIRECTORS AND LIMITATION ON DIRECTORS'
LIABILITY
The Company's Restated Certificate of Incorporation provides for
indemnification of directors and officers in conformity with Section 145 of
the Delaware General Corporation Law, as amended (the "DGCL"), which
authorizes the Company to indemnify any director or officer under certain
prescribed circumstances and subject to certain limitations against certain
costs and expenses, including attorneys' fees actually and reasonably
incurred in connection with any action, suit or proceeding, whether civil,
criminal, administrative or investigative, to which such person is a party by
reason of being a director or officer of the Company if it is determined that
such person acted in accordance with the applicable standard of conduct set
forth in such statutory provisions.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
The Company's Restated Certificate of Incorporation also contains a
provision eliminating the personal liability of a director to the Company or
its stockholders for damages for breach of fiduciary duty as a director to
the fullest extent permitted by the DGCL, as the same exists or may
thereafter be amended.
CERTAIN TRANSACTIONS
From its inception in August 1992, the Company's operations have been
funded through advances from Joel Schoenfeld, Flora Schoenfeld and two
companies affiliated with Mr. Schoenfeld (collectively, the "Schoenfeld
Parties"), and certain other stockholders of the Company. As of December 30,
1996, the amount due to these stockholders and affiliates with respect to the
repayment of these advances (including accrued interest) was as follows: the
Schoenfeld Parties -- $1,160,877; Dr. Alan H. Gold -- $115,665; and John
Frank -- $118,390. The Company issued its demand promissory notes evidencing
its obligation to repay the foregoing advances, together with accrued
interest on the outstanding principal amount thereof at 8% per annum. On
December 30, 1996 and January 24, 1997, the Schoenfeld Parties and Dr. Alan
H. Gold exchanged for cancellation their notes for an aggregate of 1,160
shares and 115 shares, respectively, of the Company's Series A Preferred
Stock. See "Description of Securities -- Series A Preferred Stock."
Concurrently with the Closing, the Company will issue approximately 34,397
shares of Common Stock to Mr. Frank, a director of the Company, in exchange
for the cancellation of the amount payable to him ($120,390 as of March 31,
1997). In addition, as of December 31, 1996, the Company had accrued
compensation payable to the Schoenfeld Parties in the amount of $644,391,
including management fees of $382,191 for periods prior to June 30, 1994. Since
June 30, 1994, the Company has recorded a salary expense for Mr. Schoenfeld in
lieu of management fees due to affiliates of Mr. Schoenfeld. See "Management --
Summary Compensation Table." On March 12, 1997, the Company issued 644 shares of
Series A Preferred Stock to Mr. Schoenfeld in exchange for the cancellation of
the amount payable to him for unpaid compensation.
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<PAGE>
In connection with the formation of the Company, and in consideration for
the dilution resulting to Joel Schoenfeld and Flora Schoenfeld (the then
owner of all of the Company's outstanding shares) from the issuance by the
Company of 333,333 shares and 205,128 shares to Dr. Alan H. Gold and David
Shonfeld, respectively, each of Dr. Gold and David Shonfeld delivered to
Flora Schoenfeld his promissory note in the amount of $750,000, the payment
of which each of them agreed to secure by a pledge of his shares. The
promissory notes were subsequently transferred to Joel Schoenfeld, the
husband of Flora Schoenfeld, who is the Chief Executive Officer and Chairman
of the Board of the Company. The promissory notes are non-interest bearing
and payable on demand.
In connection with the Sherwood Supply Agreement, Joel Schoenfeld, Dr.
Alan H. Gold, David Shonfeld and John Frank agreed, jointly and severally, to
pay Sherwood up to $1,000,000 (less $0.14925 for each dollar paid to Sherwood
under the Sherwood Supply Agreement) in the event the Company fails to pay a
cumulative invoiced amount of $6,700,000 over the first three years of the
Sherwood Supply Agreement. See "Business -- Suppliers."
On October 10, 1996, UNIVEC-NY, the then owner of all of the outstanding
capital stock of the Company, was merged with and into the Company, solely
for the purpose of effecting a change in its state of incorporation from New
York to Delaware. In the merger, shareholders of UNIVEC-NY received
10,256.3954 shares of Common Stock for each share of UNIVEC-NY common stock
owned, with the total number of shares issuable to each shareholder rounded
up to the nearest whole share.
The Company occupies its executive offices, consisting of approximately
1,200 square feet of space, pursuant to a lease which expires in December
1998; however, the Company has the right to extend the term of the lease for
an additional two years. Rental expense for the space is $28,704 per annum,
subject to an increase of 4% per annum in each subsequent year. Dr. Alan H.
Gold, the President, a Director and principal stockholder of the Company, is
the president and a stockholder of the owner of the premises, the Long Island
Plastic Surgical Group.
In December 1996, David Chabut, the Chief Financial Officer of the
Company, exercised options to purchase 16,143 shares of Common Stock, having
an exercise price of $3.50 per share, the exercise price of which was paid
for by the cancellation of amounts payable to him for accrued, but unpaid
compensation ($44,000) and certain advances ($12,500). Mr. Chabut has advised
the Company that he intends to exercise options to purchase an additional
4,370 shares of Common Stock (at $3.50 per share) concurrently with the
Closing, and to pay the exercise price of these options by cancellation of
amounts payable to him for accrued but unpaid compensation ($15,295). The
Company has agreed to pay the remaining amount due to Mr. Chabut ($15,949)
for federal and state withholding and payroll taxes incurred by him in
connection with the exercise of such options. See "Management -- Stock
Options."
All future transactions between the Company and its directors, officers
and owners of more than five percent of the Company's voting securities will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties and will be approved by a majority of the
disinterested directors of the Company.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of the Common Stock immediately prior to and after the
Offering by (i) each stockholder known by the Company to be a beneficial
owner of more than five percent of the outstanding Common Stock, (ii) each
director of the Company and each executive officer of the Company listed in
the Summary Compensation Table under the caption "Management -- Summary
Compensation Table" and (iii) all directors and officers as a group.
<TABLE>
<CAPTION>
Percentage of Common
Stock Benefically
Owned
Amount and -----------------------------------
Nature of Beneficial Before After
Name Ownership((1)) Offering((2)) Offering((3))
----------------------------------------- -------------------- ---------------- ---------------
<S> <C> <C> <C>
Joel and Flora Schoenfeld((4)) .......... 333,333(5)(6) 30.80% 12.72%
Alan H. Gold, M.D.((4)) ................. 333,333(5) 30.80% 12.72%
David Shonfeld((4)) ..................... 256,410(6) 23.69% 9.78%
John Frank((7)) ......................... 141,275(8) 12.40%(9) 5.34%(10)
Richard Lerner .......................... 41,026 3.79% 1.57%
David Chabut((4)) ....................... 20,513(11) 1.89%(12) *
All directors and executive officers as a
group (7 persons) ...................... 1,125,890(13)(14) 98.48%(15) 42.59%(16)
</TABLE>
- ------
* Less then 1%
(1) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated, subject to community
property laws, where applicable. For purposes of computing the
percentage of outstanding shares held by each person or group of persons
named above as of the date of the Prospectus, any security which such
person or group of persons has the right to acquire within 60 days after
such date is deemed to be outstanding for the purpose of computing the
percentage ownership for such person or persons, but is not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person. Accordingly, the information presented in the foregoing table
does not include shares of Common Stock issuable upon (i) conversion of the
Series A Preferred Stock (which may not be converted prior to April , 1999)
or (ii) Time Accelerated Restricted Stock Options (which may not be
exercised prior to the earliest of (x) April , 2006, (y) the attainment of
certain financial performance criteria or (z) the occurrence of a "change
in control," as defined). See "Description of Securities -- Series A
Preferred Stock" and "Management -- Stock Option Plan."
(2) Except as otherwise stated, calculated on the basis of 1,082,287 shares
of Common Stock issued and outstanding.
(3) Except as otherwise stated, calculated on the basis of 2,621,054 shares of
Common Stock issued and outstanding. Gives effect to (i) the issuance and
sale of 1,500,000 shares of Common Stock in the Offering, (ii) the issuance
to a director of the Company concurrently with the Closing of approximately
34,397 shares of Common Stock in exchange for the cancellation of
amounts payable to him ($120,390 as of March 31, 1997), and (iii) the
issuance to an officer of the Company concurrently with the Closing of
4,370 shares upon exercise of an option. See "Certain Transactions."
(4) Address is c/o the Company, 999 Franklin Avenue, Garden City, New York
11530.
(5) All of the shares owned by Dr. Gold have been pledged to secure certain
indebtedness to Joel Schoenfeld. Dr. Gold retains voting and dispositive
power with respect to the pledged shares until the occurrence of a
default in the payment of the indebtedness secured by the pledged
shares. Accordingly, the pledged shares have been included in the number
of shares beneficially owned by Dr. Gold and excluded from the number of
shares beneficially owned by Mr. Schoenfeld. See "Certain Transactions."
(6) All of the shares owned by Mr. Shonfeld have been pledged to secure
certain indebtedness to Joel Schoenfeld. Mr. Shonfeld retains voting and
dispositive power with respect to the pledged shares until the
occurrence of a default in the payment of the indebtedness secured by
the pledged shares. Accordingly, the pledged shares have been included
in the number of shares beneficially owned by Mr. Shonfeld and excluded
from the number of shares beneficially owned by Mr. Schoenfeld. See
"Certain Transactions."
(7) Address is c/o The Hartford Steam Boiler Insurance & Inspection Co.,
P.O. Box 5204, One State Street, Hartford, Connecticut 06102-5024.
(8) Includes approximately 34,397 shares to be issued to Mr. Frank
<PAGE>
concurrently with the Closing in exchange for cancellation of amounts
payable to him ($120,390, including accrued interest, as of March 31,
1997), and 22,236 shares issuable upon exercise of options, at an exercise
price of $3.50 per share, which expire on February 22, 1999.
(9) Calculated on the basis of 1,138,920 shares of Common Stock issued and
outstanding.
(10) Calculated on the basis of 2,643,290 shares of Common Stock issued and
outstanding.
(11) Includes 4,370 shares issuable upon exercise of options, at an exercise
price of $3.50 per share, which expire on March 31, 1999. Mr. Chabut has
advised the Company that he intends to exercise options to purchase
these shares concurrently with the Closing. See "Certain Transactions."
(12) Calculated on the basis of 1,086,657 shares of Common Stock issued and
outstanding.
(13) For purposes of this calculation, shares of Common Stock beneficially
owned by more than one person have only been included once.
(14) Includes 22,236 shares and 4,370 shares issuable upon exercise of
options held by Messrs. Frank and Chabut, respectively, and
approximately 34,397 shares to be issued to Mr. Frank concurrently with
the Closing in exchange for cancellation of amounts payable to him
($120,390 as of March 31, 1997). See footnotes (8) and (11) above.
(15) Calculated on the basis of 1,143,290 shares of Common Stock issued and
outstanding.
(16) Calculated on the basis of 2,643,290 shares of Common Stock issued and
outstanding.
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<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 25,000,000 shares of
Common Stock, $0.001 par value per share, 2,500 shares of Series A 8% Cumulative
Convertible Preferred Stock, $0.001 par value per share (the "Series A Preferred
Stock"), and 4,997,500 shares of "blank check" preferred stock, $0.001 par value
per share. As of the date of the Prospectus, 1,082,287 shares of Common Stock
and 1,919 shares of Series A Preferred Stock are issued and outstanding.
The following are brief descriptions of the securities offered hereby and
other securities of the Company. The rights of the holders of shares of the
Company's capital stock are established by the Company's Restated Certificate of
Incorporation, the Company's By-laws and Delaware law. The following statements
do not purport to be complete or give full effect to statutory or common law,
and are subject in all respects to the applicable provisions of the Restated
Certificate of Incorporation, By-laws and state law.
COMMON STOCK
Holders of the Common Stock are entitled to one vote per share, and
subject to the rights of holders of the Series A Preferred Stock or any other
series of preferred stock, to receive dividends when, as and if declared by
the Board of Directors and to share ratably in the assets of the Company
legally available for distribution to holders of Common Stock in the event of
the liquidation, dissolution or winding up of the Company. Holders of the
Common Stock do not have subscription, redemption, conversion or preemptive
rights.
Each share of Common Stock is entitled to one vote on any matter submitted
to the holders, including the election of directors. Holders of Common Stock
do not have cumulative voting rights; therefore, holders of a majority of the
outstanding shares of Common Stock entitled to vote for the election of
Directors may elect all of the Directors to be elected, if they so choose,
and in such event, the holders of the remaining shares will not be able to
elect any of the Company's Directors. Except as otherwise required by the
DGCL, all stockholder action (other than the election of Directors, who are
elected by plurality vote), is subject to approval by a majority of the
shares of Common Stock present at a stockholders' meeting at which a quorum
(a majority of the issued and outstanding shares of Common Stock) is present
in person or by proxy, or by written consent pursuant to Delaware law.
All shares of Common Stock outstanding are fully paid and non-assessable,
and the shares of Common Stock offered hereby and the shares of Common Stock
issuable upon exercise of the Warrants, when issued upon payment of the
purchase price set forth on the cover page of the Prospectus or payment of
the exercise price specified in the Warrants, as the case may be, will be
fully paid and non-assessable.
The Board of Directors is authorized to issue additional shares of Common
Stock within the limits authorized by the Company's Restated Certificate of
Incorporation without further stockholder action. The Company has agreed with
the Underwriters that it will not issue any securities, including but not
limited to shares of Common Stock, prior to April , 1999, except as disclosed in
or contemplated by this Prospectus, without the prior written consent of the
Representative.
WARRANTS
The Warrants offered hereby will be issued in registered form under a
Warrant Agreement (the "Warrant Agreement") between the Company and
Continental Stock Transfer & Trust Company, as Warrant Agent (the "Warrant
Agent").
Each Warrant will be separately transferable and will entitle the registered
holder thereof to purchase one share of Common Stock at $4.50 per share (subject
to adjustment as described below) commencing April , 1999 and ending April ,
2002 (the "Exercise Period"). The exercise price and the number of shares of
Common Stock issuable upon the exercise of each Warrant are subject to
adjustment in the event of a stock split, stock dividend, recapitalization,
merger, consolidation or certain other events. A holder of Warrants may exercise
such Warrants by surrendering the certificate evidencing such Warrants to the
Warrant Agent,
43
<PAGE>
together with the form of election to purchase on the reverse side of such
certificate attached thereto properly completed and executed and the payment
of the exercise price and any transfer tax. If less than all of the Warrants
evidenced by a Warrant certificate are exercised, a new certificate will be
issued for the remaining number of Warrants.
The Company has authorized and reserved for issuance a number of shares of
Common Stock sufficient to provide for the exercise of the Warrants. When
issued, upon payment of the exercise price specified in the Warrants, each
share of Common Stock will be fully paid and nonassessable. Holders of
Warrants will not have any voting or other rights as stockholders of the
Company unless and until Warrants are exercised and shares issued pursuant
thereto.
The Warrants may be redeemed by the Company, at a price of $.05 per
Warrant, upon not less than 30 days prior written notice at any time during
the Exercise Period, with the prior written consent of the Representative,
provided the average of the closing bid quotations of the Common Stock,
during the period of twenty (20) consecutive trading days ending on the third
day prior to the date upon which notice of redemption is given, as reported
on The Nasdaq SmallCap Market (or if the Common Stock is not quoted thereon,
the closing sale price of the Common Stock on the Nasdaq National Market or
other principal securities exchange upon which the Common Stock is then
quoted or listed, or such other reporting system that provides closing sale
prices for the Common Stock), has been at least $8.00 per share. The Warrants
will be exercisable until the close of business on the day immediately
preceding the date fixed for the redemption of the Warrants in the notice of
redemption.
The Company will pay the Representative a fee of 8% of the exercise price
of each Warrant exercised, provided (i) the market price of the Common Stock
on the date the Warrant was exercised was equal to or greater than the
Warrant exercise price on that date, (ii) the exercise price of the Warrant
was solicited by a member of the NASD, (iii) the Warrant was not held in a
discretionary account, (iv) the disclosure of compensation arrangements was
made in documents provided to the holders of the Warrants, (v) the
solicitation of the exercise of the Warrant was not a violation of Rule 101
of Regulation M under the Exchange Act and (vi) the Representative is
designated in writing as the soliciting NASD member. The Representative and
any other soliciting broker/dealers will be prohibited from engaging in any
market making activities or solicited brokerage activities with regard to the
Company's securities during the periods prescribed by Rule 101 of Regulation
M before the solicitation of the exercise of any Warrant until the later of
the termination of such solicitation activity or the termination of any right
the Representative and any other soliciting broker/dealer may have to receive
a fee for the solicitation of the exercise of the Warrants.
For a holder of a Warrant to exercise the Warrant, there must be a current
registration statement on file with the Securities and Exchange Commission
and various state securities commissions. The Company will be required to
file post-effective amendments to the registration statement when events
require such amendments and to take appropriate action under state securities
laws. While it is the Company's intention to file post-effective amendments
when necessary and to take appropriate action under state securities laws,
there can be no assurance that the Company will file all post-effective
amendments required to maintain the effectiveness of the registration
statement or that the Company will take all appropriate action under state
securities laws. If the registration statement is not kept current for any
reason, the Warrants will not be exercisable, and holders thereof may be
deprived of value.
OPTIONS AND WARRANTS
Options. As of the date of the Prospectus, there are outstanding options to
purchase an aggregate of 3,750,042 shares of Common Stock at an exercise
price of $3.50, which expire at various dates from February 22, 1999 through
April 11, 2007, including Time Accelerated Restricted Stock Options to
purchase 3,690,000 shares. See "Management -- Stock Option Plan." David
Chabut, Chief Financial Officer of the Company, has advised the Company that
he intends to exercise options to purchase 4,370 shares of Common Stock
concurrently with the Closing. See "Certain Transactions." In addition,
998,706 shares of Common Stock have been reserved for issuance upon exercise
of options which may be granted in the future pursuant to the Company's 1996
Stock Option Plan. See "Management -- Stock Option Plan."
Warrants. As of the date of the Prospectus, there are outstanding warrants
to purchase an aggregate of 1,750,000 shares of Common Stock having terms
identical to the Warrants offered hereby. See "Description of Securities --
Bridge Financing."
44
<PAGE>
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of "blank check"
preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without further stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
that could decrease the amount of earnings and assets available for distribution
to holders of Common Stock or adversely affect the voting power or other rights
of the holders of the Company's Common Stock. In the event of issuance, the
preferred stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company. As of
the date of the Prospectus, no shares of preferred stock are outstanding, other
than the 1,919 shares of Series A Preferred Stock owned by the Schoenfeld
Parties and Dr. Alan H. Gold. Except for shares of Series A Preferred Stock
which may be issued in payment of dividends on the Series A Preferred Stock, the
Company has no present intention to issue any shares of preferred stock. The
Company has agreed with the Underwriters that, except for issuances disclosed in
or contemplated by this Prospectus, it will not issue any securities, including
but no limited to any shares of preferred stock, prior to April , 1999, without
the prior written consent of the Representative. See "Certain Transactions" and
"Description of Securities -- Series A Preferred Stock."
SERIES A PREFERRED STOCK
The Board of Directors has authorized the issuance of up to 2,500 shares
of Series A Preferred Stock, of which 1,919 shares, owned by the Schoenfeld
Parties and Dr. Alan H. Gold are outstanding. The terms of the Series A
Preferred Stock are as follows:
Dividend Rights. Holders of Series A Preferred Stock are entitled to
receive, prior to the payment of cash dividends on the Common Stock,
cumulative dividends at the rate of $80 per share per annum, and no more,
when, as and if declared by the Company's Board of Directors, out of funds
legally available therefor. Dividends on the Series A Preferred Stock are
payable, in the sole and absolute discretion of the Board of Directors, in
cash, additional shares of Series A Preferred Stock (based upon the
liquidation value thereof), or a combination thereof. Dividends may not be
paid or declared on, and no other distributions may be made with respect to,
and no expenditure shall be made for the purchase, redemption or retirement
of, any of the Company's capital stock junior to or in parity with the Series
A Preferred Stock, unless all cumulative dividends payable on the Series A
Preferred Stock for all prior annual dividend periods have been paid. The
Company has agreed with the Underwriters that it will not declare or pay any
cash dividends on the Series A Preferred Stock without the prior written
consent of the Representative.
Redemption. The Series A Preferred Stock is not subject to redemption.
Liquidation Rights. Subject to the prior rights of the Company's creditors
and the holders of senior securities, the holders of the Series A Preferred
Stock are entitled to receive, upon any voluntary or involuntary liquidation,
dissolution or winding-up of the Company, $1,000 per share, plus accrued and
unpaid dividends. If, in any such case, the assets of the Company are
insufficient to make such payment in full, then the available assets will be
distributed among the holders of the Series A Preferred Stock and any other
series of preferred stock which is in parity with the Series A Preferred
Stock, ratably in proportion to the full amount to which each holder would be
entitled.
Conversion Rights. Each share of Series A Preferred Stock is convertible
into 222.22 shares of Common Stock (the "conversion rate"), subject to
adjustment in certain events, at the option of the holder thereof commencing
April , 1999. The conversion rate is subject to adjustment in the event of a
stock split, stock dividend, recapitalization, merger, consolidation or cer-
45
<PAGE>
tain other events. The right of conversion with respect to the shares of the
Series A Preferred Stock called for redemption will terminate at the close of
business on the business day preceding the date fixed for redemption. Upon
conversion, no payment or allowance will be made in respect of any accrued
but unpaid dividends on the Series A Preferred Stock.
Voting Rights. Holders of Series A Preferred Stock have no voting rights,
except as may be required by law.
STATUTORY PROVISIONS AFFECTING STOCKHOLDERS
Following the consummation of the Offering, the Company will be subject to
Section 203 of the Delaware General Corporation Law, the State of Delaware's
"business combination" statute. In general, such statute prohibits a publicly
held Delaware corporation from engaging in various "business combination"
transactions with any "interested stockholder" for a period of three years
after the date of the transaction in which the person became an "interested
stockholder," unless (i) the transaction in which the interested stockholder
obtained such status or the business combination is approved by the Board of
Directors prior to the date the interested stockholder obtained such status;
(ii) upon consummation of the transaction which resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" owned at
least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned by (a) persons who are directors and
officers and (b) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or
subsequent to such date the "business combination" is approved by the Board
of Directors and authorized at an annual or special meeting of stockholders
by the affirmative vote of at least 66 2/3 % of the outstanding voting stock
which is not owned by the "interested stockholder." A "business combination"
includes mergers, asset sales and other transactions resulting in financial
benefit to a stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did
own) 15% or more of a corporation's voting stock. The statute could prohibit
or delay mergers or other takeover or change in control attempts with respect
to the Company and, accordingly, may discourage attempts to acquire the
Company.
BRIDGE FINANCING
In November and December 1996, the Company sold an aggregate of 40 Units,
each Unit consisting of the Company's 8% promissory note in the principal amount
of $25,000 (the "Bridge Notes") and Bridge Warrants to purchase 62,500 shares of
Common Stock for a purchase price of $25,000 per Unit (or an aggregate of
$1,000,000). The Bridge Notes are payable upon the earlier of November 27, 1997
or the consummation of an initial public offering or private placement of the
Company's debt and/or equity securities resulting in gross proceeds to the
Company of at least $5,000,000. Each Bridge Warrant entitles the registered
holder thereof to purchase one share of Common Stock at an exercise price of
$4.50 per share, subject to adjustment in certain events, at any time during the
period commencing November 27, 1997 and ending on November 26, 2001. The Bridge
Warrants will convert automatically into warrants having terms identical to the
Warrants being offered in the Offering on the date of the Prospectus. The net
proceeds of the Bridge Financing (approximately $820,000) were used in part to
purchase machinery ($235,000) and for sales and marketing ($235,000). The
Company used the remaining net proceeds as working capital, including the
payment of some of the expenses of the Offering. Bridge Warrants to purchase
750,000 shares have been surrendered to the Company for cancellation without
consideration.
REGISTRATION RIGHTS
Investors who acquired Bridge Warrants in connection with the Bridge
Financing have the right to request registration of the Bridge Warrants (or
securities issued in exchange therefor) and the shares of Common Stock issued
or issuable upon exercise thereof in any registration statement filed by the
Company with the Commission under the Securities Act (with certain
exceptions) for the issuance and sale of its securities. The Company has
registered for resale pursuant to the Selling Securityholder Prospectus
warrants to purchase 1,750,000 shares of Common Stock (having terms identical
to the Warrants offered hereby) issued on the date of the Prospectus
upon automatic conversion of the Bridge Warrants, and the shares of Common
Stock issuable upon exercise of those warrants. The Company also has
registered for resale pursuant to the Selling Securityholder
46
<PAGE>
Prospectus 33,436 shares of Common Stock issuable upon exercise of an option
granted to an individual who through an affiliated entity, provided the Company
with debt financing in 1995. The Company granted that individual piggyback and
demand registration rights with respect to those shares. Investors in the Bridge
Financing and the optionee have agreed not to sell or otherwise dispose of
securities of the Company, including shares of Common Stock (except under
certain circumstances in connection with a third party tender offer for the
Common Stock), prior to April , 1999, without the prior written consent of the
Representative, which may be granted or withheld in the sole and absolute
discretion of the Representative. The Representative has agreed that it will not
release the restrictions imposed by the Lock-Up Agreements with respect to the
Warrants effected by the Selling Securityholder Prospectus prior to April ,
1998. See "Selling Securityholder Offering."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 2,621,054 shares of
Common Stock outstanding, of which 1,500,000 will be transferable under the
Securities Act. The remaining 1,121,054 shares, issued in private transactions,
will be "restricted securities" (as that term is defined in Rule 144 promulgated
under the Securities Act) which may be publicly sold only if registered under
the Securities Act or if sold in accordance with an applicable exemption from
registration, such as Rule 144. In general, under Rule 144 as currently in
effect, subject to the satisfaction of certain other conditions, a person,
including an affiliate of the Company, who has beneficially owned restricted
securities for at least two years (which holding period will be reduced to one
year under an amendment to Rule 144 that becomes effective April 29, 1997), is
entitled to sell (together with any person with whom such individual is required
to aggregate sales), within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class, or, if the Common Stock is quoted on The Nasdaq Stock Market or a
national securities exchange, the average weekly trading volume during the four
calendar weeks preceding the sale. A person who has not been an affiliate of the
Company for at least three months, and who has beneficially owned restricted
securities for at least three years (which holding period will be reduced to two
years under an amendment to Rule 144 that becomes effective April 29, 1997) is
entitled to sell such restricted shares under Rule 144 without regard to any of
the limitations described above. Officers, directors and other securityholders
of the Company owning and/or having rights to acquire in the aggregate 2,926,726
shares of Common Stock have entered into agreements not to sell or otherwise
dispose of any securities of the Company, including shares of Common Stock,
prior to April , 1999 (the "Lock-Up Agreements"), without the prior written
consent of the Representative, which may be granted or withheld in the sole and
absolute discretion of the Representative; provided, however, that if prior to
April , 1999, the Company's shares of Common Stock are subject to a tender offer
and holders of the Company's Common Stock (other than the existing stockholders)
agree to tender a majority of the outstanding shares of Common Stock to the
offeror, then the Representative shall release all stockholders subject to the
Lock-Up Agreement from the restrictions imposed thereby solely for the purpose
of tendering their shares of Common Stock to the offeror pursuant to the terms
of the tender offer. The Company has registered for resale pursuant to the
Selling Securityholder Prospectus (i) warrants to purchase 1,750,000 shares of
Common Stock (having terms identical to the Warrants offered hereby) and the
shares of Common Stock issuable upon exercise thereof, and (ii) 33,436 shares of
Common Stock issuable upon exercise of options, subject to the Lock-Up
Agreements. The Representative has agreed that it will not release the
restrictions imposed by the Lock-Up Agreements with respect to the Warrants
offered by the Selling Securityholder Prospectus prior to April , 1998.
Following expiration of the term of the Lock-Up Agreements, or the earlier
release of the restrictions contained therein, 1,121,054 shares will become
eligible for resale pursuant to Rule 144, subject to the volume limitations and
compliance with the other provisions of Rule 144, assuming the sale of all
shares pursuant to the Selling Securityholder Prospectus. Furthermore, the
holders of the Underwriters' Warrants (including the securities issuable upon
exercise thereof) have demand and piggyback registration rights with respect to
the shares of Common Stock and Warrants issuable upon exercise of the
Underwriters' Warrants. See "Description of Securities -- Registration Rights,"
"Certain Transactions," "Underwriting" and "Selling Securityholder Offering."
As a result of the Offering, an additional 2,250,000 shares of Common
Stock (2,587,500 if the Over-Allotment Option is fully exercised) will be
subject to issuance upon the exercise of the Warrants offered hereby.
As of April 1, 1997, there were eight record holders of the Common Stock.
47
<PAGE>
DIVIDEND POLICY
Since its inception, the Company has not paid any dividends on its Common
Stock and it does not anticipate paying such dividends in the foreseeable
future. The Company intends to retain earnings, if any, to finance its
operations.
REPORTS TO STOCKHOLDERS
The Company intends to furnish its stockholders with annual reports
containing financial statements audited and reported upon by its independent
certified public accountants after the end of each fiscal year, and will make
available such other periodic reports as the Company may deem to be appropriate
or as may be required by law. The Company's fiscal year end is December 31. The
Company has filed a Registration Statement on Form 8-A with the Commission to
register under, and be subject to the reporting requirements of, the Exchange
Act.
TRANSFER AGENT AND WARRANT AGENT
The Company has engaged Continental Stock Transfer & Trust Company to act
as Transfer Agent for the Company's Common Stock and Warrant Agent for the
Warrants.
48
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement"), the Company has agreed to sell to the Underwriters
named below, for whom Maidstone Financial Inc. is acting as representative
(in such capacity, the "Representative"), and the Underwriters have
severally, and not jointly, agreed to purchase, the number of shares of
Common Stock and Warrants set forth opposite their respective names below.
<TABLE>
<CAPTION>
Shares of
Underwriters Common Stock Warrants
------------------------- -------------- -----------
<S> <C> <C>
Maidstone Financial,
Inc. .............
HGI Incorporated ...
-------------- -----------
Total ......... 1,500,000 2,250,000
============== ===========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent. The Underwriters are committed
to purchase all of the shares of Common Stock and Warrants offered hereby, if
any are purchased.
The Representative has advised the Company that the Underwriters propose
initially to offer the 1,500,000 shares of Common Stock and 2,250,000
Warrants to the public at the respective initial public offering prices set
forth on the cover page of this Prospectus and that it may allow to selected
dealers who are members of the NASD concessions not in excess of $ per share
of Common Stock and $ per Warrant, of which not more than $ per share of
Common Stock and $ per Warrant may be re-allowed to certain other dealers.
The Underwriting Agreement also provides that the Representative will
receive a non-accountable expense allowance of 3% of the gross proceeds of
the Offering, of which $55,000 has been paid by the Company to date. The
Company also has agreed to pay all expenses in connection with qualifying the
shares of Common Stock and the Warrants offered hereby for sale under the
laws of such states as the Representative may designate, including expenses
of counsel retained for such purpose by the Underwriters.
Pursuant to the Over-allotment Option, which is exercisable for a period
of 45 days after the closing of the Offering, the Underwriters may purchase
up to 15% of the total number of shares of Common Stock and Warrants offered
hereby, solely to cover over-allotments.
The Company has agreed to sell to the Underwriters, for nominal
consideration, the Underwriters' Warrants to purchase an amount equal to 10% of
the number of shares of Common Stock and Warrants sold to the public. The
Underwriters' Warrants shall be exercisable for a period of five years
commencing April , 1998 at an exercise price equal to 165% of the offering
price of the shares of Common Stock and Warrants sold to the public in the
Offering. The Underwriters' Warrants are not transferable prior to April ,
1998 except to officers of the Underwriters, members of the selling group and
their officers and partners.
The Company has agreed that, upon written request of the then holder(s) of
a majority of the Warrants and the shares of Common Stock issued and/or
issuable upon exercise of the Underwriters' Warrants (the "Underwriters'
Warrant Shares") which were originally issued to the Underwriters or to their
designees, made at any time within the period commencing one year and ending
five years after the date of the Prospectus, the Company will file, at its sole
expense, no more than once, a registration statement under the Securities Act
registering the Underwriters' Warrant Shares. The Company has agreed to use
its best efforts to cause the registration statement to become effective. The
holders of the Underwriter's Warrants may demand registration without
exercising the Underwriters' Warrants and, in fact, are never required to
exercise same.
The Company has also agreed that if, at any time within the period commencing
one year and ending five years after the date of the Prospectus, it should file
a registration statement with the Commission pursuant to the Securities Act,
regardless of whether some of the holders of the Underwriters' Warrants and the
Underwriters' Warrant Shares shall have therefore availed themselves of any of
the registration rights above, the Company, at its own expense, will offer to
said holders (with certain exceptions) the opportunity to register or qualify
the Underwriters' Warrant Shares. The objection of a subsequent underwriter to
the above "piggyback" registration rights would preclude such inclusion.
49
<PAGE>
In addition to the demand and "piggyback" registration rights, the Company
will cooperate with the then holders of the Underwriters' Warrants and
Underwriters' Warrant Shares in the preparation and execution of any
registration statement required in order to sell or transfer the
Underwriters' Warrant Shares and will supply all information required
therefore, but such additional expenses of such registration statement will
be pro-rated between the Company and the holders of the Underwriters'
Warrants and Underwriters' Warrant Shares according to the aggregate sales
price of the securities being issued.
For the life of the Underwriters' Warrants, the holders thereof are given,
at nominal cost, the opportunity to profit from a rise in the market price of
the Common Stock with a resulting dilution in the interest of other
stockholders. Further, such holders may be expected to exercise the
Underwriters' Warrants at a time when the Company would in all likelihood be
able to obtain equity capital on terms more favorable than those provided in
the Underwriters' Warrants.
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock
and Warrants. Such transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation M, pursuant to which such
persons may bid for or purchase Common Stock or Warrants for the purpose of
stabilizing their respective market prices, The Underwriters also may create
a short position for the account of the Underwriters by selling more shares
of Common Stock or Warrants in connection with the Offering than they are
committed to purchase from the Company, and in such case may purchase shares
of Common Stock or Warrants in the open market following completion of the
Offering to cover all or a portion of such short position. The Underwriters
may also cover all or a portion of such short position by exercising the
Over-Allotment Option. In addition, the Representative, on behalf of the
Underwriters, may impose "penalty bids" under contractual arrangements with
the Underwriters whereby it may reclaim from an Underwriter (or dealer
participating in the Offering) for the account of other Underwriters, the
selling concession with respect to shares of Common Stock and Warrants that
are distributed in the Offering but subsequently purchased for the account of
the Underwriters in the open market. Any of the transactions described in
this paragraph may result in the maintenance of the price of the Common Stock
and Warrants at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required,
and, if they are undertaken they may be discontinued at any time.
The Company has agreed, prior to April , 1999 not to issue any shares of
Common Stock, preferred stock or any warrants, options or other rights to
purchase Common Stock or preferred stock without the prior written consent of
the Representative, except as contemplated by or as disclosed in the Prospectus.
Officers, directors and other securityholders of the Company owning and/or
having rights to acquire in the aggregate 2,926,726 shares of Common Stock have
entered into agreements not to sell or otherwise dispose of any securities of
the Company, including shares of Common Stock (except under certain
circumstances in connection with a third party tender offer for the Common
Stock), prior to April , 1999, without the prior written consent of the
Representative, which may be granted or withheld in the sole and absolute
discretion of the Representative. The Representative has agreed that it will not
release the restrictions imposed by the Lock-Up Agreements with respect to the
Warrants offered by the Selling Securityholder Prospectus prior to April , 1998.
See "Description of Securities -- Shares Eligible for Future Sale."
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against liabilities in connection with the
Offering, including liabilities under the Securities Act.
The Representative has informed the Company that it has been advised by
the Underwriters that they do not expect sales to discretionary accounts to
exceed 2% of the shares of Common Stock and Warrants offered hereby.
The Representative has served as the sole or managing underwriter of only
three firm commitment public offerings and participated in two other
underwritten public offerings as a member of the underwriting syndicate.
Since the Representative's experience in underwriting firm commitment public
offerings is limited, there can be no assurance that its lack of experience
may not adversely affect the public offering of the Company's securities and
the subsequent development, if any, of a trading market for the Company's
securities. See "Risk Factors -- Representative's Influence on the Market;
Possible Limitations on Market Making Activities."
50
<PAGE>
The Company has been advised that each of the Underwriters is subject to
an informal investigation commenced in March 1996 by the Securities and
Exchange Commission. To date, the Commission has only requested certain
documents from the Underwriters and the Underwriters have not been advised of
the status of the investigation. There can be no assurance that a formal
order of investigation will not be issued, or if issued, that sanctions will
not be imposed against the Underwriters. In October 1996, the NASD commenced
an examination of certain of the Underwriters' previous underwritings and has
requested documents and information in connection with those underwritings.
The NASD examination is ongoing and no findings have been made to date. There
can be no assurance that such investigation or examination may not affect the
Underwriters' ability to maintain a market in the Common Stock and Warrants.
The Company has agreed that upon closing of the Offering it will, for a
period of not less than three years, engage a designee of the Representative
as advisor to the Board. In addition and in lieu of the Representative's
right to designate an advisor, the Company has agreed, if requested by the
Representative during such three year period, to nominate and use its best
efforts to cause the election of a designee of the Representative as a
director of the Company. The Representative has not yet designated any such
person.
The Representative intends to act as a market maker for the Common Stock
and Warrants after the closing of the Offering.
The Company will pay the Representative a fee of 8% of the exercise price
of each Warrant exercised, provided (i) the market price of the Common Stock
on the date the Warrant was exercised was equal to or greater than the
Warrant exercise price on that date, (ii) the exercise price of the Warrant
was solicited by a member of the NASD, (iii) the Warrant was not held in a
discretionary account, (iv) the disclosure of compensation arrangements was
made in documents provided to the holders of the Warrants, (v) the
solicitation of the exercise of the Warrant was not a violation of Rule 101
of Regulation M under the Exchange Act and (vi) the Representative is
designated in writing as the soliciting NASD member. The Representative and
any other soliciting broker/dealers will be prohibited from engaging in any
market making activities or solicited brokerage activities with regard to the
Company's securities during the periods prescribed by Rule 101 of Regulation
M before the solicitation of the exercise of any Warrant until the later of
the termination of such solicitation activity or the termination of any right
the Representative and any other soliciting broker/dealer may have to receive
a fee for the solicitation of the exercise of the Warrants.
The Representative acted as placement agent for the Bridge Financing, for
which it received selling commissions of $100,000 and a non-accountable
expense allowance of $30,000.
The Company has agreed to retain the Representative as a management and
financial advisor for a period of 24 months commencing on the date of the
Prospectus at a fee equal to $4,166.67 per month. The entire fee ($106,000)
is payable at the closing of the Offering. In its capacity as an advisor to
the Company, the Representative will be obligated to provide general
financial advisory services to the Company on an as-needed basis with respect
to possible future financing or acquisitions by the Company and related
matters. The Representative is not obligated to provide any minimum number of
hours of advisory services to the Company.
In addition, the Company has agreed to engage a financial public relations
firm reasonably satisfactory to the Representative. The public relations firm
will not be associated with the Representative or HGI Incorporated or any of
the respective affiliates. Such firm, or an acceptable substitute firm, shall
be continuously engaged until a date 24 months from the closing of the
Offering.
The initial public offering prices of the shares of Common Stock and
Warrants offered hereby and the initial exercise price and other terms of the
Warrants have been determined by negotiation between the Company and the
Representative and do not necessarily bear any direct relationship to the
Company's assets, earnings, book value per share or other generally accepted
criteria of value. Factors considered in determining the offering prices of
the shares of Common Stock and Warrants and the exercise price of the
Warrants included the business in which the Company is engaged, the Company's
financial condition, an assessment of the Company's management, the general
condition of the securities markets and the demand for similar securities of
comparable companies.
The National Association of Securities Dealers, Inc. (the "NASD") has
advised the Underwriters that it is not issuing any opinion at this time that
it has no objection to any underwriting compensation to be received or
51
<PAGE>
any other terms and arrangements of an offering by the Underwriters or any
NASD member in connection with a sale by the Selling Securityholders.
Therefore, no NASD member would be permitted to participate in a public
offering by the Selling Securityholders of 1,750,000 warrants, the shares of
Common Stock issuable upon exercise of those warrants or the 33,436 shares of
Common Stock issuable upon exercise of options, without filing and receiving
an opinion from the NASD that it has no objection to the underwriting
compensation or other terms and arrangements of an offering. (Member firms of
the NASD are referred to Notice To Members 88-101 for guidance.) As a result,
the Selling Securityholders may be subject to delays or limitations which
will affect the liquidity of their securities.
The Representative has given a representation to the NASD that in the
event any Underwriter enters into any arrangement or intends to sell any of
the warrants or shares to be offered by Selling Securityholders in an
offering of securities, that the Underwriter will make a filing with the
NASD, disclosing in detail the proposed terms and arrangements of any
contemplated offer, sale, or purchase of Selling Securityholder securities in
a timely manner so as to permit the NASD ample time to review and render an
opinion as to the reasonableness of the terms and arrangements of the
offering, prior to commencement of the distribution, including any additional
disclosure the NASD may deem necessary. There can be no assurance that the
NASD will issue an opinion that it has no objections to the underwriting
compensation or other terms and arrangements of an offering. Therefore,
absent such an opinion, no NASD member, including the Underwriters, would be
permitted to participate in a public offering by the Selling Securityholders
of 1,750,000 warrants, the shares issuable upon exercise of those warrants or
the 33,436 shares of Common Stock issuable upon exercise of options.
SELLING SECURITYHOLDER OFFERING
The Company has registered for resale under a separate prospectus (the
"Selling Securityholder Prospectus") as part of the Registration Statement
warrants to purchase 1,750,000 shares of Common Stock (having terms identical to
the warrants offered hereby) and the shares of Common Stock issuable upon
exercise thereof, and 33,436 shares of Common Stock issuable upon exercise of an
option granted to an individual who, through an affiliated entity, provided debt
financing to the Company in 1995. Those warrants were issued in connection with
a bridge financing completed by the Company in December 1996. Each of the
selling securityholders named in the Selling Securityholder Prospectus (the
"Selling Securityholders") has entered into an agreement not to sell or
otherwise dispose of any securities of the Company (except under certain
circumstances in connection with a third party tender offer for the Common
Stock) prior to April , 1999, without the prior written consent of the
Representative, which may be granted or withheld in the sole and absolute
discretion of the Representative. The Representative has agreed that it will not
consent to the sale of any of the warrants offered by the Selling
Securityholders pursuant to the Selling Securityholder Prospectus prior to April
, 1998. See "Description of Securities -- Bridge Financing," "Description of
Securities -- Registration Rights" and "Description of Securities -- Shares
Eligible for Future Sale."
The Company will not receive any proceeds from the sale of the warrants or
shares of Common Stock by the Selling Securityholders, but will receive the
exercise price of the warrants and options exercised. Sales of the securities
offered by the Selling Securityholders, or even the potential for such sales,
would likely have an adverse effect on the market price of the Company's
securities.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Snow Becker Krauss P.C., 605 Third Avenue, New York, New York
10158-0125. Certain legal matters in connection with the Offering will be
passed upon for the Underwriters by Gersten, Savage, Kaplowitz, Fredericks &
Curtin, LLP, 101 East 52nd Street, New York, New York 10022-6018.
EXPERTS
The consolidated balance sheet as of December 31, 1996 and the
consolidated statements of operations, stockholders' deficiency and cash
flows for each of the two years in the period ended December 31, 1996,
included in the Prospectus, have been included herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of said firm as experts in accounting and auditing.
52
<PAGE>
UNIVEC, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Report of Independent Accountants ................................................................... F-2
Consolidated Balance Sheet as of December 31, 1996 .................................................. F-3
Consolidated Statements of Operations for the years ended December 31, 1996 and 1995 ................ F-4
Consolidated Statements of Stockholders' Deficiency for the years ended December 31, 1996 and 1995 .. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995 ................ F-6
Notes to Consolidated Financial Statements .......................................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Univec, Inc.:
We have audited the accompanying consolidated balance sheet of Univec,
Inc. and Subsidiary (the "Company") as of December 31, 1996 and the related
consolidated statements of operations, stockholders' deficiency and cash
flows for each of the two years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Univec, Inc.
and Subsidiary as of December 31, 1996 and the consolidated results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations since its inception and has a net capital deficiency that
raises substantial doubt about the Company's ability to continue as a going
concern. Management's plans with regard to these matters are also discussed
in Note 2. The financial statements do not include any adjustments relating
to the recoverability and classification of asset carrying amounts or the
amount and classification of liabilities that might result should the Company
be unable to continue as a going concern.
Coopers & Lybrand L.L.P.
Melville, New York
February 17, 1997, except for
Note 15 as to which
the date is April 15,
1997.
F-2
<PAGE>
UNIVEC, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1996
--------------
<S> <C>
ASSETS:
Cash and cash equivalents ....................................................... $ 328,446
Restricted cash ................................................................. 32,500
Accounts receivable ............................................................. 149,633
Inventory ....................................................................... 239,371
Prepaid expenses other current assets ........................................... 51,462
--------------
Total current assets ....................................................... 801,412
Fixed assets, net ............................................................... 806,885
Patent rights, net .............................................................. 72,000
Deferred financing costs, net ................................................... 783,292
--------------
Total assets ............................................................... $ 2,463,589
==============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
Bridge notes payable ............................................................ $ 1,000,000
Accounts payable ................................................................ 547,738
Accrued expenses ................................................................ 175,195
Notes payable ................................................................... 125,000
Patent acquisition liability .................................................... 20,000
--------------
Total current liabilities .................................................. 1,867,933
Unearned income in connection with supply and licensing agreements .............. 1,683,788
Notes payable to officers ....................................................... 675,635
Notes payable to stockholders ................................................... 116,373
Due to affiliates ............................................................... 4,998
--------------
Total liabilities .......................................................... 4,348,727
Commitments (Notes 2 and 12)
Stockholders' deficiency:
Preferred stock $.001 par value; 4,997,500 shares authorized; none issued and
outstanding ................................................................
Series A 8% Cumulative Convertible Preferred Stock, $.001 par value, 2,500
shares authorized; 1,269 shares issued and outstanding ..................... 1
Common stock $.001 par value; 25,000,000 shares authorized; issued and
outstanding 1,082,287 shares ............................................... 1,082
Additional paid-in capital .................................................... 2,459,417
Accumulated deficit ........................................................... (4,253,138)
Less deferred offering costs .................................................. (92,500)
--------------
Total stockholders' deficiency ............................................. (1,885,138)
--------------
Total liabilities and stockholders' deficiency ............................. $ 2,463,589
==============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-3
<PAGE>
UNIVEC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended
December 31,
--------------------------------
1996 1995
--------------- -------------
<S> <C> <C>
Sales ........................................................... $ 461,131 $1,106,930
Cost of sales ................................................... 346,758 1,016,530
--------------- -------------
Gross profit ............................................... 114,373 90,400
Expenses:
Marketing ..................................................... 189,930 115,431
Product development ........................................... 218,532 299,498
General and administrative .................................... 753,122 433,012
Interest ...................................................... 260,560 153,473
Royalties ..................................................... 133,000 35,000
--------------- -------------
Total expenses ............................................. 1,555,144 1,036,414
--------------- -------------
Net loss ................................................... $ (1,440,771) $ (946,014)
=============== =============
Historical and pro forma net loss per share (Note 1) ............ $ (1.36) $ (.89)
=============== =============
Historical and pro forma weighted average common stock
outstanding (Note 1) .......................................... 1,059,299 1,059,001
=============== =============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-4
<PAGE>
UNIVEC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
Series A
Preferred Common Stock
---------------- ---------------------
Shares Amount Shares Amount
------ ------ --------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 .................... 1,025,641 $1,025
Issuance of stock ............................. 33,360 34
Shareholder payment of company liability ......
Net loss for the year ended December 31, 1995 .
------ ------ --------- ------
Balance, December 31, 1995 .................... 1,059,001 1,059
Conversion of indebtedness to Series A
Preferred Stock .............................. 1,269 1
Exercise of stock options ..................... 16,143 16
Expenses paid through issuance of common stock 7,143 7
Payment of offering costs .....................
Warrants issued in connection with private
placement ....................................
Net loss for the year ended December 31, 1996 .
------ ------ --------- ------
Balance, December 31, 1996 .................... 1,269 $ 1 1,082,287 $1,082
====== ====== ========= ======
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Additional Deferred Total
Paid-in Accumulated Offering Stockholders'
Capital Deficit Costs Equity
----------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 .................... $ 98,975 $(1,866,353) $(1,766,353)
Issuance of stock ............................. 299,966 300,000
Shareholder payment of company liability ...... 35,000 35,000
Net loss for the year ended December 31, 1995 . (946,014) (946,014)
----------- ------------- ---------- -------------
Balance, December 31, 1995 .................... 433,941 (2,812,367) (2,377,367)
Conversion of indebtedness to Series A
Preferred Stock .............................. 1,268,999 1,269,000
Exercise of stock options ..................... 56,484 56,500
Expenses paid through issuance of common stock 24,993 25,000
Payment of offering costs ..................... (92,500) (92,500)
Warrants issued in connection with private
placement .................................... 675,000 675,000
Net loss for the year ended December 31, 1996 . (1,440,771) (1,440,771)
----------- ------------- ---------- -------------
Balance, December 31, 1996 .................... $2,459,417 $(4,253,138) $ (92,500) $(1,885,138)
=========== ============= ========== =============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-5
<PAGE>
UNIVEC, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
1996 1995
--------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ............................................................... $ (1,440,771) $ (946,014)
Adjustments to reconcile net loss to net cash used in operating
activities:
Payment of Company liability by stockholder issuance of stock for
services .......................................................... 35,000
Depreciation, amortization and other non cash charges ............... 144,941 18,616
Changes in assets and liabilities:
Accounts receivable ............................................... (86,307) (63,326)
Inventory ......................................................... (239,371)
Prepaid expenses and other current assets ......................... (51,462)
Accounts payable and accrued expenses ............................. 455,740 425,735
--------------- -------------
Net cash used in operating activities .......................... (1,217,230) (529,989)
--------------- -------------
Cash flows from investing activities:
Purchase of fixed assets ............................................... (489,005) (373,990)
Payment on note for acquisition of patent .............................. (30,000) (35,000)
--------------- -------------
Net cash used in investing activities .......................... (519,005) (408,990)
--------------- -------------
Cash flows from financing activities:
Proceeds from Bridge Note .............................................. 1,000,000
Proceeds from issuance of common stock ................................. 300,000
Payment of notes ....................................................... (937,000)
Proceeds from issuance of notes ........................................ 397,000 665,000
Issuance of notes to officers .......................................... 108,844
Advances from affiliates/stockholders, net ............................. 36,571 46,430
Deferred debt financing costs .......................................... (179,500)
Deferred offering costs ................................................ (92,500)
Unearned income on supply and licensing agreements ..................... 1,683,788
Restricted funds ....................................................... (32,500)
--------------- -------------
Net cash provided by financing activities ...................... 1,984,703 1,011,430
--------------- -------------
Net increase in cash ........................................... 248,468 72,451
Cash at beginning of period .............................................. 79,978 7,527
--------------- -------------
Cash at end of period .................................................... $ 328,446 $ 79,978
=============== =============
Supplemental disclosures:
Cash paid during the year for:
Interest ............................................................ $ 53,599 $ 52,899
Income taxes ........................................................ 2,733 350
Supplemental disclosures of noncash investing and financing activities:
Expenses paid through the issuance of common stock. ................. $ 25,000
Conversion of debt to affiliates into Series A Preferred Stock. (See
Note 8). .......................................................... 1,269,000 $ 35,000
Shares of common stock issued to an officer of the Company through
conversion of an outstanding note payable. (See Notes 8 and 15). .. 56,500
Warrants issued in connection with a debt offering .................. 675,000
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-6
<PAGE>
UNIVEC, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. OPERATIONS AND REORGANIZATION:
Univec, Inc. (the "Company" or "Univec") was incorporated on August 18,
1992 in the State of New York. The Company was formed to develop, produce,
market medical products and resell medical devices of other companies on a
global basis.
On October 7, 1996, the Company formed a wholly-owned subsidiary organized
under the laws of Delaware. The new corporation has been authorized with
25,000,000 shares of common stock, $.001 par value and 5,000,000 shares of
preferred stock, $.001 par value. The Company merged with its wholly-owned
subsidiary, with the wholly-owned subsidiary being the surviving corporation.
Accordingly, the Company issued 10,256 for each outstanding common share of
the parent company. The accompanying financial statements of the Company
retroactively reflect the foregoing reorganization to present the current
capitalization.
2. GOING CONCERN:
The financial statements have been prepared on a going concern basis,
which contemplates realization of assets and liquidation of liabilities in
the ordinary course of business. The Company has a working capital deficit of
$1,066,521 and a stockholders' deficiency of $1,885,138 as of December 31,
1996. The ability to continue as a going concern is dependent, among other
things, upon the Company's obtaining adequate long-term financing and the
attainment of profitable commercial operations. Management has signed a
letter of intent to raise additional working capital through an initial
public offering ("IPO").
Although management expects that the above factors will allow the Company
to continue as a going concern, there is no assurance that the financing will
be consummated or revenues from product sales will generate profitable
operations. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Rx Ultra, Inc., which was incorporated on
February 2, 1996. All material intercompany balances and transactions have
been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments, purchased with
original maturities of three months or less, to be cash equivalents. At
December 31, 1996, the Company had $32,500 of restricted cash which is to be
used to pay costs associated with the private placement (see Note 10).
INVENTORY
Inventory is valued at the lower of cost, determined by the first-in,
first-out method, or market.
FIXED ASSETS
Fixed assets are stated at original cost less accumulated depreciation.
Fixed assets are depreciated on a straight-line basis over a five to
seven-year useful life depending on the nature of the asset. Maintenance and
repairs are charged to expense as incurred; renewals and improvements which
extend the life of assets are capitalized. Gains or losses on the disposal of
fixed assets are charged to operations.
F-7
<PAGE>
Univec, Inc. and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
PATENT RIGHTS AND ROYALTIES
Patent rights acquired are capitalized and amortized on a straight line
basis over an estimated useful life of seven years. Royalties based on future
revenues will be charged to operations when and if they are incurred (see
Note 5).
PRODUCT DEVELOPMENT
Research and development costs are expensed as incurred.
INCOME TAXES
The Company records its income taxes under the provisions of the Statement
of Financial Accounting Standards No. 109 "Accounting for Income Taxes,"
(SFAS No. 109). This method requires recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under SFAS No. 109,
deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse (see Note 11).
The Company had elected treatment as an S corporation for Federal and
state income taxation as of January 1, 1995. S corporation taxable income,
whether distributed or not, is passed through and taxed at the stockholder
level. Accordingly, for the above referenced period, no provision for Federal
income taxes is included in the accompanying statements of operations.
LOSS PER SHARE
Loss per share has been computed by dividing net losses by the weighted
average number of common shares outstanding during each period. Retroactive
restatement has been made to all share and per share amounts for the
reorganization discussed in Note 1.
Pro forma loss per share does not differ from historical loss per share,
and there is no effect in converting from an S corporation to a C corporation
in 1996 and 1995.
REVENUE RECOGNITION
Revenues are recognized when products are shipped. Unearned income in
connection with the supply and licensing agreements are recognized upon sale
of the product supplied by the manufacturer (see Note 12).
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
DEFERRED OFFERING COSTS
At December 31, 1996, the Company has deferred offering costs aggregating
$92,500, in connection with an expected public offering of its equity
securities. If the offering is unsuccessful, such costs will be charged to
operations.
DEBT FINANCING COSTS
At December 31, 1996, the Company has incurred debt issuance costs
aggregating $783,292 in connection with a private placement of debt completed
during December 1996 (see Note 10). These costs have been capitalized and are
being amortized to interest expense using the effective interest method over
the life of the related debt. As of December 31, 1996, $71,208 of such costs
was charged to interest expense.
F-8
<PAGE>
Univec, Inc. and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist of cash deposits. Cash balances are held
principally at one financial institution.
The Company's contract manufacturers are concentrated among a few
suppliers and assemblers. The loss of any one supplier or assembler could
have a significant impact on the Company's financial position or results of
operations.
Sales for 1996 and 1995 resulted primarily from the resale of medical
devices manufactured by others.
NEWLY ISSUED ACCOUNTING STANDARDS
Effective 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of."
SFAS No. 121 requires that an entity shall review, long-lived assets and
certain identifiable intangibles to be held and used, for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. If an asset is identified as impaired, the
entity shall estimate future cash flows (undiscounted and without interest)
which are expected to result from the use of the asset and its eventual
disposition. If the sum of the future cash flows is less than the carrying
amount of the asset, the entity shall recognize an impairment loss in
accordance with this pronouncement. The adoption of this statement did not
have an impact on the Company's financial position and results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which established financial accounting and reporting standards
for stock based plans. The Statement requires the Company to choose between
accounting for issuances of stock and other equity instruments to employees
based on their fair value or to continue to use an intrinsic value based
method and disclosing the pro forma effects such accounting would have had on
the Company's net income and earnings per share. The Company has elected to
use the intrinsic value based method, which does not result in compensation
cost. Due to the minimal number of options issued in fiscal 1996 and 1995,
the effects of the adoption are not significant.
RECLASSIFICATIONS
Certain reclassifications have been made to conform prior year amounts to
the current year presentation.
4. FIXED ASSETS:
Fixed assets consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Construction in progress - machinery ............................ $ 90,015
Factory equipment .............................................. 756,572
Office equipment ............................................... 21,335
----------
867,922
Less accumulated depreciation .................................. (61,037)
----------
$806,885
==========
</TABLE>
Depreciation expense was $57,733 and $2,814 in fiscal 1996 and 1995,
respectively.
5. PATENT RIGHTS:
On June 30, 1994, the Company entered into an exclusive license agreement
with the estate of an inventor related to two patents for a difficult to
reuse syringe. Such agreement includes fixed payments aggregating $112,000
through June, 1997. Thereafter, the Company is required to pay quarterly
royalty payments of 5% of net sales of product manufactured by Univec under
the license agreement or 10% of the difference between net
F-9
<PAGE>
Univec, Inc. and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
sales and purchase price of product manufactured under the license agreement
by third parties for Univec shall be made. Univec may grant non-exclusive
sublicenses under the agreement, in which case 10% of any royalties collected
by Univec would be payable to the inventor's estate. If the manufactured
product does not use the difficult to reuse syringe of the type discussed in
the patent, no royalties are due, other than the minimum annual licensing
fees.
Patent rights consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Patent rights .................................................. $112,000
Less accumulated amortization ................................... (40,000)
-----------
$ 72,000
===========
</TABLE>
Amortization expense for fiscal 1996 and 1995 was $16,000, respectively.
The Company paid $92,000 through December 31, 1996 in connection with this
agreement, and the remaining fixed payments of $20,000 are scheduled to
mature in fiscal 1997.
6. ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Payroll ...................................................... $ 36,000
Payroll taxes ................................................ 22,499
Interest ..................................................... 23,502
Professional fees ............................................. 45,694
Royalties .................................................... 25,000
Other ........................................................ 22,500
----------
$175,195
==========
</TABLE>
7. NOTES PAYABLE:
On February 9, 1995, the Company entered into a term note agreement with
an available line of $600,000. This facility is collateralized by the assets
of the Company and bears interest at a rate of 16%. As of December 31, 1995,
$540,000 was outstanding under this agreement. During July 1996, the Company
repaid the outstanding balance. Interest expense for fiscal 1996 and 1995
approximated $60,600 and $49,000, respectively, in connection with this
agreement.
In December 1995, the Company issued a demand note payable of $125,000.
The note is collateralized by the assets of the Company and bears an interest
rate of 12-1/2%. Interest expense for 1996 and 1995 approximated $15,600 and
$1,300, respectively. The note agreement contains an option to convert the
note into common shares of the Company at the IPO price (35,715 shares at a
proposed share price of $3.50).
8. NOTES PAYABLE TO OFFICERS AND STOCKHOLDERS:
In September 1996, the Company entered into an agreement to convert the
outstanding balance of approximately $732,000 owed two officers into notes
due the earlier of two years following an IPO or September 30, 1999. During
December 1996, one of the officers converted $56,500 of the indebtedness into
common shares (16,143 shares, at a proposed share price of $3.50).
In December 1996, the Company converted $161,000 of notes payable to
stockholders into Series A Preferred Stock (see Note 13). The remaining
$116,373 balance at December 31, 1996 will automatically be converted into
common shares upon the consummation of an IPO (33,250 shares at a proposed
share price of $3.50).
F-10
<PAGE>
Univec, Inc. and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
9. DUE TO AFFILIATES:
Upon founding of the Company in August 1992, pending Univec's obtaining
its own financing, the Company's costs were funded by Joel Schoenfeld, an
owner officer of the Company, and JS Associates, and J&B Schoenfeld (together
with Joel Schoenfeld, the "Affiliates"), each of whose sole stockholder is
Joel Schoenfeld. These costs, representing research and development, market
analysis and development and various administrative costs (including office
salaries and rental of office space), were accrued by Univec as paid by the
Affiliates. Such costs have been included in the statement of operations
based on the type of costs incurred to be reimbursed to the Affiliates. The
related liability has been recorded on the balance sheet as due to
affiliates. These advances are due on demand and bear interest at a rate of
8% per annum. Interest expense for fiscal 1996 and 1995 in connection with
these advances approximated $76,100 and $78,000, respectively. In December
1996, the Company converted $1,108,342 of these notes to Series A Preferred
Stock (see Note 13).
10. BRIDGE NOTE:
During December 1996, the Company raised $1,000,000 through a private
placement of 40 units with each unit consisting of an 8% bridge note in the
principal amount of $25,000 and warrants to purchase 62,500 shares of common
stock. Each warrant entitles the holder to purchase one share of common stock
at an exercise price of $4.50 per share at any time during the period
commencing November 27, 1997 and ending on November 26, 2001. The net
proceeds of approximately $820,000 were used for sales and marketing, capital
expenditures, working capital, and general corporate expenses.
These uncollateralized notes are payable upon the earlier of November 27,
1997 or the consummation of an initial public offering, private placement of
debt or equity securities resulting in gross proceeds of at least $5,000,000.
All the warrants issued in connection with the placement were valued at
$675,000 and will be amortized to interest expense over the expected term of
the debt.
11. INCOME TAXES:
The Company has cumulative losses of $4,253,138 as of December 31, 1996.
Losses aggregating approximately $1,900,000 which were incurred prior to the
Company changing its tax status to an S corporation would be available should
the Company return to C corporation status. The Company's net operating loss
for tax purposes differs from the loss for financial reporting purposes as a
result of certain costs being capitalized and expensed over a five-year
period for tax purposes. The Company has recorded a full valuation allowance
against the potential future benefit of such deferred tax assets.
Upon closing of the proposed public offering, the Company's income tax
status as an S corporation will terminate. The Company will convert to a C
corporation and will be subject to both Federal and state income taxes.
Accordingly, the Company will record a deferred tax asset of approximately
$760,000 resulting from net operating loss carryforwards and a corresponding
valuation allowance of approximately $760,000. Any income tax adjustment
required as a result of the conversion will be reflected in the period C
corporation status becomes effective.
In addition, the undistributed losses of the S corporation through the
date of consummation of the offering will be reclassified to additional
paid-in capital.
12. COMMITMENTS:
On January 1, 1995, the Company entered into an exclusive license
agreement with two inventors related to a patent for an insertable element
which prevents reuse of a disposable syringe. To maintain this license
agreement in force, the Company is required to pay an annual minimum
licensing of $10,000. In order for the agreement to remain exclusive,
exclusivity payments of $25,000 in 1996 and 1995 and $50,000 annually
thereafter, are required to be made. In both fiscal 1996 and 1995, $35,000
was charged to operations in connection
F-11
<PAGE>
Univec, Inc. and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
with this agreement. Under the license agreement, royalty payments of 2% of
net sales of product manufactured and 25% of sublicense royalties received
shall be made for products which use a modification of the specific
insertable element as shown and described in the licensed patent rights.
Royalty payments of 6% of net sales of product manufactured and 40% of
sublicense royalties received shall be made for products that use the
specific insertable element. If the manufactured product does not use the
difficult to reuse syringe of the type discussed in the patent, no royalties
are due, other than the minimum annual licensing fees.
On February 28, 1996, the Company entered into an exclusive license
agreement with an inventor related to a patent for a difficult to reuse
hypodermic syringe. The Company is required to pay a royalty advance of
$10,000, which will be applied towards future royalties. As of December 31,
1996, $10,000 was charged to operations in connection with this agreement. In
addition, royalty payments of 2% of net sales of product manufactured and 10%
of sublicense royalties received shall be made for products which use a
modification of the specific embodiment as shown and described in the
licensed patent rights. Royalty payments of 6% of net sales of product
manufactured and 25% of sublicense royalties received shall be made for
products that use the specific embodiment. If the manufactured products which
use a modification of the difficult to reuse syringe of the type discussed in
the patent, no royalties are due, other than the minimum annual licensing
fees.
On March 25, 1996, the Company entered into an exclusive license agreement
with an inventor related to a patent for a difficult to reuse hypodermic
syringe. The Company was required to pay $10,000 upon the execution of the
agreement and an additional two payments of $20,000 on the six-month and
one-year anniversaries to maintain the agreement. In connection with this
agreement, the Company has also agreed to pay $15,000 upon signing of a
separate consultation agreement and $39,000 over the next twenty months for
consultation assistance in the development of manufacturing and assembly
equipment. As of December 31, 1996, $72,000 was charged to operations. In
addition, royalty payments of 2% of net sales of product manufactured and 10%
of sublicense royalties received shall be made for products which use a
modification of the specific embodiment as shown and described in the
licensed patent rights. Royalty payments of 7% of net sales of product
manufactured and 25% of sublicense royalties shall be made for products that
use the specific embodiment. If the manufactured product does not use the
difficult to reuse syringe of the type discussed in the patent, no royalties
are due, other than the minimum annual licensing fees.
On May 30, 1996, the Company entered into a five-year supply and licensing
agreement with a manufacturer. The supply agreement requires the manufacturer
to supply Univec with approximately 50,000,000 syringe components per year.
In connection with this supply agreement, the manufacturer sold a production
mold and inserts to Univec for nominal consideration, and subsequently leased
back the equipment. Under this lease, the lessee is required to make payments
over three years approximating $1,946,000 to Univec. In July 1996, Univec
assigned its rights to the last 34 lease payments to an unrelated corporation
for approximately $1.6 million. Certain stockholders of the Company have
agreed to pay the manufacturers up to $1,000,000 (less $0.14925 for each
dollar paid by the Company under the agreement) if Univec does not purchase
$6,700,000 of products from the manufacturer over the first three years of
the agreement.
Simultaneous with the supply agreement, the Company granted the
manufacturer the option to license the Company's product providing the
manufacturer the right to manufacture and sell the Company product to certain
segments of the market for a royalty of 5% of sales of the licensed product.
Unearned income in connection with these agreements will be recognized in
income upon the sale of the Company's product supplied by the manufacturer.
No amounts have been recognized in income in 1996.
The Company has executed employment agreements, expiring through March
2000, with certain executive officers of the Company. Future payments under
such agreements are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 . ......................................................... $282,000
1998 . ......................................................... 192,000
1999 . ......................................................... 192,000
2000 . ......................................................... 192,000
----------
$858,000
==========
</TABLE>
F-12
<PAGE>
Univec, Inc. and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
The Company leases office space under an operating lease that expires in
December 1998 from a stockholder and officer of the Company. Minimum future
rentals under this lease are $28,704 through fiscal 1998. Rent expense for
fiscal 1996 and 1995 was $27,600, respectively.
13. EQUITY:
The following share and per share amounts have been restated to reflect
the reorganization as described in Note 1.
In February 1995, the Company's board of directors and stockholders
approved the sale of 33,360 shares of the common stock to a stockholder of
the Company for an aggregate purchase price of $300,000. The individual also
received the option to purchase 22,236 additional shares of common stock at
the initial public offering price. The agreement expires on February 22,
1999.
In June 1995, the Company's board of directors and stockholders approved a
Share Option Agreement between the Company and an individual. The individual
has the option to purchase 33,436 shares of the common stock at the initial
public offering price. As of December 31, 1996, no options were exercised.
The agreement expires on June 30, 1998.
In December 1995, a stockholder of the Company gave 10,256 shares of his
common stock to a creditor of the Company to satisfy a liability for services
rendered. The Company has recorded a $35,000 contribution to paid-in capital.
On December 14, 1996, the Company issued 7,143 shares at a price of $3.50
per share in exchange for the cancellation of $25,000 of indebtedness payable
to a consultant for the Company.
In connection with the reorganization in October 1996 (see Note 1), the
Company authorized the issuance of 1,269 shares of Series A Preferred Stock
to certain officers in exchange for the cancellation of notes due to
affiliate and payable to stockholders of $1,269,000.
Series A preferred shares are entitled to receive, prior to the payment of
cash dividends of the common stock, cumulative dividends at a rate of $80 per
share per annum. In addition, preferred stockholders are entitled to a
liquidation preference of $1,000 per share, plus accrued and unpaid
dividends. Each share of Series A Preferred Stock is convertible at the
earlier of two years following an IPO or September 30, 1999 into 222.22
shares of common stock ($4.50 per share). Holders of these shares have no
voting rights.
14. STOCK OPTION PLAN:
The Board of Directors has adopted, and the Company's stockholders have
approved, the 1996 Stock Option Plan (the "Plan"). The Plan is to be
administered by the Board of Directors or a committee thereof. Pursuant to
the Plan, options to purchase 4,709,219 shares of common stock may be granted
to directors, employees (including officers) and consultants to the Company
(collectively, "Plan participants"). The Plan authorizes the issuance of
incentive stock options ("ISOs"), as defined in Section 422A of the Internal
Revenue Code of 1986, as amended, and non-qualified stock options ("NQSOs",
and together with ISOs, "Options"). Consultants and directors who are not
also employees of the Company are eligible for grants of only NQSOs. The
exercise price of each ISO may not be less than 100% of the fair market value
of the common stock at the time of grant, except that in the case of a grant
to an employee who owns 10% or more of the outstanding stock of the Company
or a subsidiary or parent of the Company (a "10% Stockholder"), the exercise
price may not be less than 110% of the fair market value on the date of
grant. The aggregate fair market value of the shares covered by ISOs granted
under the Plan that become exercisable by a Plan participant for the first
time in any calendar year is subject to a $100,000 limitation. The exercise
price of each NQSO is determined by the Board, or committee thereof, in its
discretion; provided that NQSO granted a 10% Stockholder be no less than 110%
of the fair market value on the date of grant. On December 14, 1996, the
Company granted ISOs to an officer of the Company to purchase 20,513 shares
of common stock at an exercise price of $3.50 per share. As of December 31,
1996, 16,143 options were exercised.
F-13
<PAGE>
Univec, Inc. and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
The Company has set aside Options to purchase 4,500,000 shares of common
stock based on the criteria listed below. These Options will become
exercisable commencing upon the earlier of (x) nine years after the effective
date of the option, or (y) two years after the effective date of the option,
provided that in the case of clause (y), the Company shall have obtained (i)
at least $30,000,000 in gross revenues and after tax net income of at least
$2,000,000 in the second full fiscal year following the effective date, or
(ii) at least $45,000,000 in gross revenues and $3,000,000 in after-tax net
income in the third full fiscal year following the effective date, or (iii)
at least $60,000,000 in gross revenues and $4,000,000 in after-tax net income
in the fourth full fiscal year following the effective date.
15. SUBSEQUENT EVENT:
In January and March 1997, the Company authorized the issuance of 650
shares of Series A 8% Cumulative Convertible Preferred Stock to certain
shareholders of common stock in exchange for amounts due of $650,000.
In April 1997, the Company granted options to purchase 3,690,000 shares of
common stock to certain officers and directors at $3.50 per share in
accordance with the Company's stock option plan (see note 14). In addition,
certain debt holders surrendered warrants to purchase 750,000 shares of
common stock (see note 10), to the Company for cancellation without
consideration.
F-14
<PAGE>
==============================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations in connection with the Offering
other than those contained in the Prospectus and, if given or made, such
other information and representations must not be relied upon as having been
authorized by the Company or the Underwriters. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create
any implication that there had been no change in affairs of the Company since
the date hereof. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities offered hereby by anyone in
jurisdictions in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not qualified to do so
or to anyone to whom it is unlawful to make such offer or solicitation.
------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Additional Information ......................... 4
Prospectus Summary ............................. 5
Risk Factors ................................... 9
Use of Proceeds ................................ 20
Capitalization ................................. 21
Dilution ....................................... 22
Dividend Policy ................................ 23
Selected Consolidated Financial Information .... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................... 25
Business ....................................... 28
Management ..................................... 36
Certain Transactions ........................... 40
Security Ownership of Certain Beneficial
Owners and Management ......................... 42
Description of Securities ...................... 43
Underwriting ................................... 49
Selling Securityholder Offering ................ 52
Legal Matters .................................. 52
Experts ........................................ 52
Index to Consolidated Financial Statements ..... F-1
</TABLE>
------
Until , 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
==============================================================================
<PAGE>
==============================================================================
1,500,000 SHARES OF COMMON STOCK
AND 2,250,000 REDEEMABLE
COMMON STOCK PURCHASE
WARRANTS
UNIVEC, INC.
------
PROSPECTUS
------
[LOGO] MAIDSTONE FINANCIAL, INC.
[LOGO] H
G
Incorporated
, 1997
==============================================================================
<PAGE>
The 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.
[Alternate Page for Selling Securityholder Prospectus]
PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION, DATED APRIL 21, 1997
UNIVEC, INC.
1,783,436 SHARES OF COMMON STOCK AND
1,750,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
This Prospectus relates to 1,783,436 shares of common stock, par value
$.001 per share (the "Common Stock") of UNIVEC, Inc. (the "Company"), and
1,750,000 redeemable common stock purchase warrants (the "Warrants") that may
be sold by the selling securityholders named herein (the "Selling
Securityholders"). See "Selling Securityholders". The 1,750,000 Warrants
offered hereby were issued in connection with a bridge financing completed by
the Company in December 1996. Of the 1,783,436 shares of Common Stock offered
hereby, 1,750,000 shares are issuable upon exercise of the Warrants and
33,436 shares are issuable upon exercise of options.
Each Warrant entitles the registered holder thereof to purchase one share
of Common Stock at an exercise price of $4.50 per share, subject to
adjustment in certain events, at any time during the period commencing April
, 1999 and expiring on April , 2002. The Warrants are subject to redemption
by the Company at $.05 per Warrant at any time commencing April , 1999, with
the prior written consent of Maidstone Financial, Inc. ("Maidstone" or the
"Representative"), on not less than 30 days prior written notice to the
holders of the Warrants, provided the closing bid price of the Common Stock
has been at least $8.00 for 20 consecutive trading days ending on the third
day prior to the date on which the Company gives notice of redemption. The
Warrants will be exercisable until the close of business on the day
immediately preceding the date fixed for redemption. The Company has applied
for quotation of the Common Stock and the Warrants on The Nasdaq SmallCap
Market under the trading symbols "UNVC" and "UNVCW", respectively. See
"Description of Securities -- Warrants."
The Selling Securityholders may sell Warrants and shares of Common Stock from
time to time directly to purchasers, or through broker-dealers who may receive
compensation in the form of commissions or discounts from the Selling
Securityholders or purchasers. Sales of Warrants and shares of Common Stock may
be effected by broker-dealers in ordinary brokerage transactions or block
transactions on The Nasdaq SmallCap Market, through sales to one or more dealers
who may resell as principals, in privately negotiated transactions or otherwise,
at the market price prevailing at the time of sale, a price related to such
prevailing market price or at a negotiated price. Usual and customary or
specifically negotiated brokerage fees may be paid by the Selling
Securityholders in connection therewith. To the Company's knowledge, none of the
Selling Securityholders has entered into any underwriting arrangements for the
sale of such securities. The Company has offered, by separate Prospectus dated
the date hereof, 1,500,000 shares of Common Stock and 2,225,000 Common Stock
Purchase Warrants having terms identical to the Warrants offered hereby for
which Maidstone acted as the Representative of the Underwriters (the "Offering"
or the "IPO"). Each of the Selling Securityholders has agreed not to offer or
sell the Warrants or shares of Common Stock offered hereby (except under certain
circumstances in connection with a third party tender offer for the Common
Stock) prior to April , 1999, without the prior written consent of the
Representative, which may be granted or withheld in the sole and absolute
discretion of the Representative. The Representative has agreed that it will not
consent to the sale of any of the securities offered hereby prior to April ,
1998.
The Company will not receive any proceeds from the sale of the Warrants or
shares of Common Stock by the Selling Securityholders, but will receive the
exercise price of Warrants and options exercised. See "Use of Proceeds."
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. ONLY INVESTORS WHO CAN BEAR THE RISK OF LOSS OF THEIR ENTIRE INVESTMENT
SHOULD INVEST. FOR A DESCRIPTION OF CERTAIN RISKS REGARDING AN INVESTMENT IN
THE COMPANY, SEE "RISK FACTORS" COMMENCING ON PAGE 9.
------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
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>
[Alternate Page for Selling Securityholder Prospectus]
The Selling Securityholders may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933 (the "Securities Act") and any profits
realized by them may be deemed to be underwriting commissions. Any
broker-dealers that participate in the distribution of the Warrants or shares
of Common Stock also may be deemed to be "underwriters", as defined in the
Securities Act, and any commissions or discounts paid to them, or any profits
realized by them upon the resale of any securities purchased by them as
principals, may be deemed to be underwriting commissions or discounts under
the Securities Act. The sale of the Warrants and shares of Common Stock by
the Selling Securityholders is subject to the prospectus delivery and other
requirements of the Securities Act.
The Warrants and shares of Common Stock offered hereby have been
registered pursuant to registration rights granted to the Selling
Securityholders. All costs, expenses and fees in connection with the
registration of the Warrants and shares of Common Stock offered by the
Selling Securityholders will be borne by the Company. The Selling
Securityholders are responsible for the payment of brokerage commissions and
discounts incurred in connection with the sale of their Warrants and shares
of Common Stock. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Securities Act.
3
<PAGE>
[Alternate Page for Selling Securityholder Prospectus]
ing clip and other syringe designs to established medical device
manufacturers. To stimulate demand for its safety syringes, the Company plans
to initiate promotional and educational campaigns directed at (i) public
health officers and other government officials responsible for public health
policies, (ii) doctors and administrators of healthcare facilities
responsible for treatment of HIV-AIDS patients, and (iii) liability insurance
companies. The Company plans to enter into arrangements with independent
sales agents and distributors in targeted markets and to hire a marketing
director following the completion of this Offering.
The Company is a Delaware corporation, incorporated on October 7, 1996, and
the successor by merger to UNIVEC, Inc., a New York corporation, incorporated
on August 18, 1992. The executive officers of the Company are located at 999
Franklin Avenue, Garden City, New York 11530 (telephone number (516)
294-1000).
THE OFFERING
Securities Offered............. 1,783,436 shares of common stock, $0.001 par
value per share (the "Common Stock"), and
1,750,000 redeemable common stock purchase
warrants (the "Warrants"). Each Warrant
entitles the holder thereof to purchase one
share of Common Stock at an exercise price
of $4.50 per share, subject to adjustment in
certain events. See "Description of
Securities" and "Plan of Distribution."
Terms of Warrants:
Exercise price............... $4.50 per share, subject to adjustment in
certain events. See "Description of
Securities -- Warrants."
Exercise period............... Any time during the period commencing April
, 1999 and ending April , 2002.
Redemption.................... Redeemable by the Company, with the prior
written consent of the Representative, at a
price of $.05 per Warrant upon not less than
30 days prior written notice to the holders
of the Warrants at any time commencing April
, 1999, provided the closing bid price of
the Common Stock has been at least $8.00 for
20 consecutive trading days ending on the
third day prior to the date upon which the
Company gives notice of redemption. See
"Description of Securities -- Warrants."
Common Stock Outstanding....... 2,621,054(1)
Warrants Outstanding........... 4,000,000
Risk Factors................... The securities offered hereby involve a high
degree of risk . Only investors who can bear
the risk of their entire investment should
invest. See "Risk Factors."
Nasdaq SmallCap
Market Symbols............... Common Stock -- UNVC; Warrants -- UNVCW
- ------
(1) Does not include (i) 3,745,672 shares reserved for issuance upon exercise of
outstanding options, at an exercise price of $3.50, expiring at various
dates from February 22, 1999 through April 11, 2007, (ii) 4,000,000 shares
issuable upon exercise of the Warrants and 2,250,000 warrants to be issued
in the IPO having the same terms as the Warrants, (iii) 998,706 shares
reserved for issuance upon exercise of options which may be granted in the
future pursuant to the Com-
6
<PAGE>
[Alternate Page for Selling Securityholder Prospectus]
pany's stock option plan, and (iv) 426,440 shares reserved for issuance upon
conversion of the Company's Series A Cumulative Convertible Preferred Stock
(the "Series A Preferred Stock"). Includes (i) approximately 34,397 shares
of Common Stock to be issued to a director of the Company concurrently with
the consummation of the sale of the shares of Common Stock and warrants to
be issued in the IPO (the "Closing") in exchange for the cancellation of
amounts due to him ($120,390 as of March 31, 1997), and (ii) 4,370 shares to
be issued to an officer of the Company at Closing upon exercise of options.
See "Certain Transactions," "Management -- Stock Option Plan" and
"Description of Securities -- Series A Preferred Stock."
7
<PAGE>
[Alternate Page for Selling Securityholder Prospectus]
SELLING SECURITYHOLDERS
The table below sets forth, with respect to each Selling Securityholder,
based upon information available to the Company as of the date hereof, the
number of shares of Common Stock beneficially owned, the number of Warrants
and/or shares of Common Stock to be sold, and the number of outstanding shares
of Common Stock beneficially owned after the sale of the Warrants and/or shares
of Common Stock offered hereby. None of the Selling Securityholders has been an
officer, director or affiliate of the Company during the preceding three years.
Except as stated below, each of the Selling Stockholders acquired the Warrants
offered hereby in connection with a bridge financing of Units completed by the
Company in December 1996. Each Unit consisted of the Company's 8% Bridge Notes
in the principal amount of $25,000 and Bridge Warrants to purchase 62,500 shares
of Common Stock. On the date of the Prospectus, the Bridge Warrants will convert
automatically into the Warrants. The Bridge Notes will be paid out of the net
proceeds of the IPO. Although there can be no assurance that the Selling
Securityholders will sell any or all of the Warrants and/or shares of Common
Stock offered hereby, the following table assumes that each of the Selling
Securityholders will sell all Warrants and/or shares of Common Stock offered by
this Selling Securityholder Prospectus.
<TABLE>
<CAPTION>
Warrants and/or Warrants and/or
Amount and Shares of Common Shares of Common
Nature Beneficial Stock to Be Stock Owned
Name Ownership (1) Sold(2) After Offering
--------------------- ----------------- ----------------- ----------------
<S> <C> <C> <C>
Leonard N. Tarr ..... 33,436(3) 656,250 Wts.(4) 0
689,686 Shs.(5)
Charles J. Diven, Jr. 0 500,000(6) 0
Wilfred Bonilla ..... 0 250,000(6) 0
Martin Rosenman ..... 0 125,000 0
David A. Clanton .... 0 62,500
Robert A. Dubofsky .. 0 62,500 0
Richard D. Siegel ... 0 31,250 0
WBM Associates ...... 0 31,250 0
Richard Gershman .... 0 31,250(6) 0
</TABLE>
- ------
(1) Unless otherwise indicated, each person has sole investment and voting power
with respect to the shares indicated, subject to community property laws,
where applicable. For purposes of computing the percentage of outstanding
shares held by each Selling Securityholder, any security which such person
has the right to acquire within 60 days after the date of the Prospectus is
deemed to be outstanding for the purpose of computing the percentage
ownership for such person, but is not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person.
Accordingly, shares issuable upon exercise of the Warrants have not been
included since the Warrants are not exercisable until April , 1999.
(2) Except as otherwise indicated, represents the number of Warrants and
shares of Common Stock issuable upon exercise thereof owned by the
Selling Securityholder.
(3) Represents shares issuable upon exercise of presently exercisable options
granted to Mr. Tarr, who through an affiliated entity obtained debt
financing for the Company in 1995.
(4) Includes Warrants to purchase 531,250 shares of Common Stock registered
in the name of the Leonard N. Tarr P.C. Trust No. 1, of which Mr. Tarr is
the trustee and beneficiary.
(5) Includes 656,250 shares issuable upon exercise of Warrants and 33,436
shares issuable upon exercise of options. See footnotes (3) and (4)
above.
(6) These Warrants were acquired in January 1996 from an investor in the
Bridge Financing.
<PAGE>
[Alternate Page for Selling Securityholder Prospectus]
PLAN OF DISTRIBUTION
Selling Securityholders may sell the Warrants and shares of Common Stock
offered hereby from time to time directly to purchasers, or through
broker-dealers who may receive compensation in the form of commissions or
discounts from the Selling Securityholders or purchasers. Sales of Warrants and
shares of Common Stock may be effected by broker-dealers in ordinary brokerage
transactions or block transactions on The Nasdaq SmallCap Market, through sales
to one or more dealers who may resell as principals, in privately negotiated
transactions or otherwise, at the market price prevailing at the time of sale, a
price related to such prevailing market price or at a negotiated price. Usual
and customary or specifically negotiated brokerage fees may be paid by the
Selling Securityholders in connection therewith. To the Company's knowledge,
none of the Selling Securityholders have entered into any underwriting
arrangements for the sale of such securities. Each of the Selling
Securityholders has agreed not offer or sell the Warrants or shares of Common
Stock offered hereby (except under certain circumstances in connection with a
third party tender offer for the Common Stock) prior to April , 1999, without
the prior written consent of the Representative, which may be granted or
withheld in the sole and absolute discretion of the Representative. The
Representative has agreed that it will not consent to the sale of any of the
securities offered hereby prior to April , 1998.
The Selling Securityholders may be deemed to be "underwriters" within the
meaning of the Securities Act and any profits realized by them may be deemed
to be underwriting commissions. Any broker-dealers that participate in the
distribution of the Warrants or shares of Common Stock also may be deemed to
be "underwriters", as defined in the Securities Act, and any commissions or
discounts paid to them, or any profits realized by them upon the resale of
any securities purchased by them as principals, may be deemed to be
underwriting commissions or discounts under the Securities Act. The sale of
the Warrants and shares of Common Stock by the Selling Securityholders is
subject to the prospectus delivery and other requirements of the Securities
Act.
The Warrants and shares of Common Stock offered hereby have been
registered pursuant to registration rights granted to the Selling
Securityholders. All costs, expenses and fees in connection with the
registration of the Warrants and shares of Common Stock offered by the
Selling Securityholders will be borne by the Company. The Selling
Securityholders are responsible for the payment of brokerage commissions and
discounts incurred in connection with the sale of their Warrants and shares
of Common Stock. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Securities Act.
Under the Exchange Act and the regulations thereunder, any person engaged
in a distribution of the Warrants and Common Stock offered by this Selling
Securityholder Prospectus may not simultaneously engage in market-making
activities with respect to the Warrants or Common Stock during the applicable
"cooling off" period prescribed by Rule 101 of Regulation M prior to the
commencement of such distribution. In addition, and without limiting the
foregoing, the Selling Securityholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder
including, without limitation, Rule 102 of Regulation M, which provisions may
limit the timing of purchases and sales of Warrants and Common Stock by the
Selling Securityholders.
To the extent required, the Company will use its best efforts to file,
during any period in which offers or sales of Warrants and/or shares of
Common Stock are being made by or on behalf of the Selling Securityholders,
one or more amendments or supplements to this Selling Securityholder
Prospectus which describe any material information with respect to the plan
of distribution not previously disclosed herein, including the name or names
of any underwriters, broker-dealers or agents, if any, the purchase price
paid by any underwriter for Warrants and/or shares of Common Stock purchased
from a Selling Securityholder, and any discounts, commissions or concessions
allowed or reallowed or paid to broker-dealers.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 6 of the Registrant's Restated Certificate of Incorporation, in
accordance with Section 145 of the DGCL, provides that directors and officers
shall be indemnified against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement in connection with specified actions,
suits or proceedings, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation --
a "derivative action") if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard of
care is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) incurred
in connection with the defense or settlement of such an action. Moreover, the
DGCL requires court approval before there can be any indemnification where
the person seeking indemnification has been found liable to the corporation.
Article 6 of the Registrant's Restated Certificate of Incorporation
further provides that directors and officers are entitled to be paid by the
Registrant the expenses incurred in defending the proceedings specified above
in advance of their final disposition, provided that such payment will only
be made upon delivery to the Registrant by the indemnified party of an
undertaking to repay all amounts so advanced if it is ultimately determined
that the person receiving such payments is not entitled to be indemnified.
Article 6 of the Registrant's Restated Certificate of Incorporation
provides that a person indemnified under Article 6 of the Certificate of
Incorporation may contest any determination that a director, officer,
employee or agent has not met the applicable standard of conduct set forth in
the Restated Certificate of Incorporation by petitioning a court of competent
jurisdiction.
Article 6 of the Registrant's Restated Certificate of Incorporation
provides that the right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition
conferred in the Article will not be exclusive of any other right which any
person may have or acquire under the Restated Certificate of Incorporation,
or any statute or agreement, or otherwise.
Finally, Article 6 of the Registrant's Restated Certificate of
Incorporation provides that the Registrant may maintain insurance, at its
expense, to reimburse itself and directors and officers of the Registrant and
of its direct and indirect subsidiaries against any expense, liability or
loss, whether or not the Registrant would have the power to indemnify such
persons against such expense, liability or loss under the provisions of
Article 6 of the Restated Certificate of Incorporation. The Registrant has
applied for such insurance, and expects to have such insurance in effect on
the date this Registration Statement is declared effective by the Commission.
Article 7 of the Registrant's Restated Certificate of Incorporation
eliminates the personal liability of the Registrant's directors to the
Registrant or its stockholders for monetary damages for breach of their
fiduciary duties as a director to the fullest extent provided by Delaware
law. Section 102(b)(7) of the DGCL provides for the elimination off such
personal liability, except for liability (i) for any breach of the director's
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for any
transaction from which the director derived any improper personal benefit.
Reference is made to Section 1.1 of the Underwriting Agreement between the
Registrant and the Underwriters, filed as Exhibit 1.1 to this Registration
Statement, which provides for indemnification by the Underwriters of the
Registrant and the directors and officers of the Registrant under certain
limited circumstances.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
\ the expenses (other than underwriting
discounts and commissions) which will be paid by the Registrant in connection
with the issuance and distribution of the securities being registered hereby.
With the exception of the SEC registration fee and the NASD filing fee, all
amounts indicated are estimates.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration fee ...................................... $ 9,537.24
NASD filing fee ........................................... 3,647.29
NASDAQ filing fee ......................................... 10,000.00
Representative's non-accountable expense allowance ........ 164,250.00
Representative's advisory fee ............................. 106,000.00
Directors' and Officers' liability insurance .............. 105,000.00
Printing expenses (other than stock certificates) ......... 70,000.00
Printing and engraving of stock and warrant certificates .. 4,000.00
Legal fees and expenses (other than blue sky) ............. 100,000.00
Accounting fees and expenses .............................. 85,000.00
Blue sky fees and expenses (including legal and filing
fees) .................................................... 35,000.00
Transfer Agent and Warrant Agent fees and expenses ........ 5,000.00
Miscellaneous ............................................. 565.47
------------
Total .................................................... $698,000.00
============
</TABLE>
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES
During the past three years, the Registrant has sold securities to a
limited number of persons, as described below. Except as indicated, there
were no underwriters involved in the transactions and there were no
underwriting discounts or commissions paid in connection therewith. The
purchasers of securities in each such transaction represented their intention
to acquire the securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate legends were
affixed to the certificates for the securities issued in such transactions.
All purchasers of securities in each such transaction had adequate access to
information about the Registrant, and in the case of transactions exempt from
registration under Section 4(2) of the Securities Act, were sophisticated
investors.
1. Between February 28, 1995 and June 30, 1995, the Registrant issued and
sold to John Frank, a director of the Registrant, an aggregate of 33,360
shares of Common Stock for a purchase price of $300,000 ($8.93 per share). In
connection therewith, the Registrant granted Mr. Frank an option to purchase
an additional 22,236 shares of Common Stock at an exercise price of $77,826
($3.50 per share). The issuance of these securities was exempt from
registration under Sections 4(2) and 4(6) of the Securities Act.
2. On June 7, 1995, the Registrant granted Leonard N. Tarr options to
purchase 33,436 shares of Common Stock at an exercise price of $116,529
($3.50 per share), who through an affiliated entity obtained debt financing
for the Registrant in 1995. The issuance of these securities was exempt from
registration under Sections 4(2) and 4(6) of the Securities Act.
3. On December 1995, the Registrant issued and sold to Andrew Jay its 12 1/2%
demand promissory note in the principal amount of $125,000. The issuance of the
12 1/2% demand promissory note was exempt from registration under Section 4(2)
of the Securities Act.
4. On January 3, 1996, the Registrant issued and sold to Gary Sazer, a
consultant to the Registrant, 10,257 shares of Common Stock in consideration
for services rendered valued at $35,000 ($3.41 per share). The issuance of
these securities was exempt from registration under Sections 4(2) and 4(6) of
the Securities Act.
5. On December 14, 1996, the Registrant granted options to purchase 20,513
shares of Common Stock, at an exercise price of $3.50 per share, to David
Chabut, the chief financial officer of the Registrant. The issuance of these
securities was exempt from registration under Sections 4(2) and 4(6) of the
Securities Act and Rule 505 of Regulation D promulgated under Section 4(2) of
the Securities Act ("Regulation D").
6. On December 14, 1996, the Registrant issued to Howard Klein, a
consultant to the Company, 7,143 shares of Common Stock in exchange for the
cancellation of $25,000 of indebtedness payable to him for consulting
services. The issuance of these securities was except from registration under
Section 4(2) of the Securities Act.
II-2
<PAGE>
7. On December 31, 1996, the Registrant issued and sold to David Chabut,
the chief financial officer of the Registrant, 16,143 shares of Common Stock
for a purchase price of $56,500 ($3.50 per share). The issuance of these
securities was exempt from registration under Sections 4(2) and 4(6) of the
Securities Act and Rule 505 of Regulation D.
8. On December 31, 1996, January 24, 1997, and March 12, 1997, the
Registrant issued an aggregate of 1,919 shares of Series A Preferred to three
officers of the Registrant, including Joel Schoenfeld, Chairman of the Board
and Chief Executive Officer of the Registrant, and two companies affiliated
with Mr. Schoenfeld, in exchange for the cancellation of $1,919,000 payable
to them. One share of Series A Preferred Stock was issued in exchange for
each $1,000 payable to such person. Shares of Series A Preferred were issued
to Joel Schoenfeld (1,039 shares); Flora Schoenfeld, the Treasurer and
Secretary of the Registrant (48 shares); Dr. Alan H. Gold, President of the
Registrant (115 shares); and to two corporations affiliated with Mr.
Schoenfeld -- JS Associates (343 shares) and J&B Schoenfeld (374 shares). The
issuance of these securities was exempt from registration under Sections
3(a)(9) and 4(6) of the Securities Act, as well as Rule 505 of Regulation D.
9. From November 27, 1996 until December 30, 1996, Registrant issued and
sold an aggregate of 40 units (the "Units"), each Unit consisting of the
Company's 8% Bridge Note in the principal amount of $25,000 and Warrants to
purchase 62,500 shares of Common Stock (the "Bridge Warrants"), for a
purchase price of $25,000 per Unit, or an aggregate of $1,000,000 (the
"Bridge Financing"). The 8% Bridge Notes mature upon the earlier of November
27, 1997 and the consummation of an initial public offering or private
placement of the Registrant's debt and/or equity securities resulting in
gross proceeds to the Registrant of at least $5,000,000. The 8% Bridge Notes
will be repaid with a portion of the net proceeds of this offering. In
connection the Bridge Financing, the Registrant paid Maidstone Financial,
Inc., as placement agent, selling commissions of $100,000, and a
non-accountable expense allowance of $30,000. Each of the investors in the
Bridge Financing represented to the Registrant that it was an "accredited
investor" (as defined in Rule 501(a) of Regulation D). The names of those
persons who purchased Units in the Bridge Financing (together with the total
number of Units purchased and the total purchase price paid by each
purchaser) are as follows: Norben Import Corp./Profit Sharing Plan (12 Units
- -- $300,000); Leonard N. Tarr and the Leonard N. Tarr, P.C. Trust No. 1 (a
total of 11 Units -- $275,000); Alan Adler (4 Units -- $100,000); Bruce Adler
(4 Units -- $100,000); Phyllis Kramer (4 Units -- $100,000); Martin Rosenman
(2 Units -- $50,000); David A. Clanton (1 Unit -- $25,000); Robert L.
Dubofsky (1 Unit -- $25,000); Richard D. Siegel ( 1/2 Unit -- $12,500); and
WBM Associates ( 1/2 Unit -- $12,500). The issuance of such securities was
exempt from registration under the Securities Act pursuant to Sections 4(2)
and 4(6) thereof and Rule 505 of Regulation D.
10. On April 12, 1997, the Registrant granted options to purchase an
aggregate of 3,690,000 shares of Common Stock to directors and officers of
the Registrant as follows: Joel Schoenfeld (Chairman of Board and Chief
Executive Officer) -- 2,130,000 shares; Flora Schoenfeld
(Secretary/Treasurer) -- 200,000 shares; Alan H. Gold (President and a
Director) -- 500,000 shares; John Frank (Director) -- 500,000 shares; David
Shonfeld (Director of Research and Development and a Director) -- 200,000
shares; David Chabut (Chief Financial Officer) -- 120,000 shares; and Richard
Lerner (a Director) -- 40,000 shares. These options are exercisable at $3.50
per share, commencing upon the earliest of (x) April , 2006, (y) the
attainment of certain financial criteria by the Registrant or (z) the
occurrence of a "change in control" of the Registrant (as defined). The
issuance of these securities was exempt from registration under Section 4(2)
and 4(6) of the Securities Act.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
1.1* Form of Underwriting Agreement (as revised).
1.2 Form of Advisory and Investment Banking Agreement between the Registrant and
Maidstone Financial, Inc.
3.1* Restated Certificate of Incorporation of the Registrant.
3.2* By-laws of the Registrant, as amended.
4.1 Agreement and Plan of Merger dated as of October 7, 1996 between the Registrant
and UNIVEC, Inc., a New York corporation.
4.2 Form of Underwriters' Warrants.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.3 Form of Warrant Agreement.
4.4 Specimen Common Stock Certificate.
4.5 Specimen Warrant Certificate (included as Exhibit A to Exhibit 4.3 herein).
4.6 Form of Bridge Note.
4.7 Form of Bridge Warrant.
4.8 Registration Rights Agreement among the Registrant and the holders of the Bridge
Warrants.
4.9 Form of Lock-up Agreement.
5.1 Opinion of Snow Becker Krauss P.C., counsel to the Company.
10.1*(1) O.E.M. Supply Agreement dated May 30, 1996, between the Registrant and Sherwood
Medical Company ("Sherwood").
10.2 Guaranty of Certain Stockholders of the Registrant in favor of Sherwood.
10.3 Equipment Lease dated May 30, 1996 between the Registrant and Sherwood.
10.4 Purchase Agreement dated as of June 27, 1996 between the Registrant and Paramount
Financial Corporation.
10.5(1) Manufacturing Agreement effective December 4, 1996, between the Registrant and
Harmac Medical Products, Inc.
10.6 Employment Agreement dated as of October 15, 1996, between the Registrant and
David Chabut.
10.7 Employment Agreement dated as of October 1, 1996, between the Registrant and
David Shonfeld.
10.8 Share Option Agreement dated June 5, 1995, between the Registrant and Leonard N.
Tarr.
10.9* Amended 1996 Stock Option Plan of the Registrant.
10.10* Employment Agreement dated as of January 1, 1997 between the Registrant and Joel Schoenfeld.
10.11* Promissory notes of David Schonfeld payable to Flora Schoenfeld.
10.12* Promissory notes of Dr. Alan H. Gold payable to Flora Schoenfeld.
21.1 List of Subsidiaries.
23.1 Consent of Snow Becker Krauss P.C. (to be included in Exhibit 5.1 to this Registration
Statement).
23.2* Consent of Coopers & Lybrand L.L.P., independent certified public accountants, is included
in Part II of this Registration Statement.
24.1 Power of Attorney (included on the signature page of this Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
- ------
* Filed with this Amendment to the Registration Statement.
(1) Confidential treatment has been requested for certain portions of this
document.
ITEM 28. UNDERTAKINGS
(a) Rule 415 Offering
The undersigned small business issuer 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:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act.
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information set forth in the registrant statement.
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
II-4
<PAGE>
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in 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.
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment as a new registration statement relating
to the securities offered, and the offering of such securities at
that time to be the initial bona fide offering thereof.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(d) Equity Offerings by Non-Reporting Small Business Issuers
The undersigned small business issuer hereby undertakes that it will
provide the underwriters at the closing specified in the Underwriting
Agreement certificates in such denominations and registered in such names
as required by the Underwriters to permit prompt delivery to each
purchaser.
(e) Request for Acceleration of Effective Date
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion
of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of the expenses incurred or
paid by a director, officer, or controlling person of the small business
issuer in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection
with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(f) Rule 430A Offering
(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 small business
issuer under Rule 424(b)(1) or (4) or 497(h) under the Securities
Act as part of this registration statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effect amendment that contains a form of prospectus as a new
registration statement for the securities offered in the
registration statement, and that offering of the securities at that
time as the initial bona fide offering of those securities.
(g) Transactions with or by Selling Security Holders; Lock-Up Periods.
The undersigned small business issuer hereby undertakes:
(1) To file a post-effective amendment to this Registration Statement
in the event that there is a change in the plans, proposals,
agreements, arrangements or understandings, if any, with respect to
transactions with or by Selling Security Holders or plans to waive
or shorten the lock-up periods applicable to such Selling Security
Holders from those set forth in the Registration Statement; and
(2) In the event that all or a part of the Selling Security Holders are
released by the Underwriter from their respective lock-up
agreements, to file (i) a post-effective amendment to this
Registration Statement if more than 10% of the Selling Security
Holders' Securities are proposed to be released and (ii) a sticker
prospectus supplement if between 5% and 10% of the Selling Security
Holders' Securities are proposed to be released.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirement for filing on Form SB-2 and has duly caused this amendment to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Garden City, in the State of New
York, on April 18, 1997.
UNIVEC, INC.
By: /s/ Joel Schoenfeld By: /s/ David Chabut
--------------------- --------------------------------
Joel Schoenfeld David Chabut
Chairman of the Board and Chief Financial Officer
Chief Executive Officer (Principal Financial and
(Principal Executive Officer) Accounting Officer)
In accordance with the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed on April 18, 1997 by
the following persons in the capacities indicated.
<TABLE>
<CAPTION>
<S> <C>
/s/ Joel Schoenfeld Chairman of the Board, Chief
- ----------------------------- Executive Officer and a Director
Joel Schoenfeld (Principal Executive Officer)
/s/ Alan H. Gold Director
- -----------------------------
Alan H. Gold
/s/ David Chabut Chief Financial Officer
- ----------------------------- (Principal Financial and Accounting Officer)
David Chabut
/s/ David Shonfeld Director
- -----------------------------
David Shonfeld
/s/ Director
*
- -----------------------------
John Frank
/s/ Director
*
- -----------------------------
Richard Lerner
*By: /s/ Joel Schoenfeld Director
- -----------------------------
Joel Schoenfeld
(Attorney-In-Fact)
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
1.1* Form of Underwriting Agreement (as revised).
1.2 Form of Advisory and Investment Banking Agreement between the Registrant
and Maidstone Financial, Inc.
3.1* Restated Certificate of Incorporation of the Registrant.
3.2* By-laws of the Registrant, as amended.
4.1 Agreement and Plan of Merger dated as of October 7, 1996 between the Registrant
and UNIVEC, Inc., a New York corporation.
4.2 Form of Underwriter's Warrants.
4.3 Form of Warrant Agreement.
4.4 Specimen Common Stock Certificate.
4.5 Specimen Warrant Certificate (included as Exhibit A to Exhibit 4.3 herein).
4.6 Form of Bridge Note.
4.7 Form of Bridge Warrant.
4.8 Registration Rights Agreement among the Registrant and the holders of the Bridge
Warrants.
4.9 Form of Lock-up Agreement.
5.1 Opinion of Snow Becker Krauss P.C., counsel to the Company.
10.1*(1) O.E.M. Supply Agreement dated May 30, 1996, between the Registrant and Sherwood
Medical Company ("Sherwood").
10.2 Guaranty of Certain Stockholders of the Registrant in favor of Sherwood.
10.3 Equipment Lease dated May 30, 1996 between the Registrant and Sherwood.
10.4 Purchase Agreement dated as of June 27, 1996 between the Registrant and Paramount
Financial Corporation.
10.5(1) Manufacturing Agreement effective December 4, 1996, between the Registrant and
Harmac Medical Products, Inc.
10.6 Employment Agreement dated as of October 15, 1996, between the Registrant and
David Chabut.
10.7 Employment Agreement dated as of October 1, 1996, between the Registrant and
David Shonfeld.
10.8 Share Option Agreement dated June 5, 1995, between the Registrant and Leonard N.
Tarr.
10.9* Amended 1996 Stock Option Plan of the Registrant.
10.10* Employment Agreement dated as of January 1, 1997 between the Registrant and Joel Schoenfeld.
10.11* Promissory notes of David Shonfeld payable to Flora Schoenfeld.
10.12* Promissory notes of Dr. Alan H. Gold payable to Flora Schoenfeld.
21.1 List of Subsidiaries.
23.1 Consent of Snow Becker Krauss P.C. (to be included in Exhibit 5.1 to this Registration
Statement).
23.2* Consent of Coopers & Lybrand L.L.P., independent certified public accountants, is included
in Part II of this Registration Statement.
24.1 Power of Attorney (included on the signature page of this Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
------
* Filed with this Amendment to the Registration Statement.
(1) Confidential treatment has been requested for certain portions of this
document.
<PAGE>
EXHIBIT 1.1
UNIVEC, INC.
UNDERWRITING AGREEMENT
New York, New York
Dated: , 1997
MAIDSTONE FINANCIAL, INC.
101 East 52nd Street
New York, New York 10022
Gentlemen:
The undersigned, UNIVEC, INC., a Delaware corporation (the
"Company"), proposes to issue and sell to the several underwriters (the
"Underwriters") named on Schedule A hereto, pursuant to this Underwriting
Agreement ("Agreement"), an aggregate of 1,500,000 shares of Common Stock, par
value $.001 per share, of the Company (the "Common Stock"), and 2,250,000
Redeemable Common Stock Purchase Warrants (the "Warrants"). Maidstone Financial,
Inc. (the "Representative" or "Maidstone") is acting as representative of the
Underwriter. The Warrants will each be exercisable to purchase one share of
Common Stock, at any time commencing two years from the date on which the
Registration Statement (as defined in Section 1(a) hereof), shall have become or
been declared effective (the "Effective Date"), and ending on the fifth
anniversary of the Effective Date. The Warrant exercise price, subject to
adjustment as described in the agreement providing for the Warrants (the
"Warrant Agreement"), shall be $4.50 per share, subject to adjustment as
described in the Warrant Agreement.
Commencing two years after the Effective Date, the Warrants
are subject to redemption by the Company at $.05 per Warrant, provided that (a)
prior notice of not less than 30 days is given to the holders of the Warrants
(the "Warrantholders"), and (b) the closing high bid price per share of Common
Stock, if traded on The NASDAQ Stock Market, or the last sale price per share of
Common Stock, if traded on a national exchange, for the 20 consecutive trading
days ending on the third day prior to the date on which notice of redemption is
given, is at least $8.00.
1
<PAGE>
In addition, the Company proposes to grant to the Underwriters
the Over-Allotment Option (as defined in Section 2(c) hereof) to purchase all or
any part of an aggregate of 225,000 shares of Common Stock and/or 337,500
Warrants, and to issue to you the Underwriters' Warrants (as defined in Section
1 hereof) to purchase certain further additional Shares and/or Warrants.
The aggregate of 1,500,000 shares of Common Stock to be sold
by the Company, together with the aggregate of 225,000 additional shares of
Common Stock that are the subject of the Over-allotment Option, are herein
collectively called the "Shares." The Shares and the Warrants (the Warrants, the
additional Warrants subject to the Over-Allotment Option and the Warrants
issuable upon exercise of the Underwriters' Warrants), the shares of Common
Stock issuable upon exercise of the Warrants and the shares of Common Stock
issuable upon exercise of the Underwriters' Warrants, are herein collectively
called the "Securities. " The term "Underwriters' Counsel" shall mean the firm
of Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP, counsel to the
Underwriter, and the term "Company Counsel" shall mean the firm of Snow Becker
Krauss P.C., counsel to the Company. Unless the context otherwise requires, all
references herein to a "Section" shall mean the appropriate Section of this
Agreement.
You have advised the Company that you, severally and not
jointly, desire to purchase the Shares and Warrants as herein provided. The
Company confirms the agreements made by it with respect to the purchase of the
Shares and Warrants by you, as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to, and agrees with, the Underwriter that:
(a) Registration Statement; Prospectus. A registration
statement (File No. 333-20187) on Form SB-2 relating to the public offering of
the Securities (the "Offering"), including a preliminary form of prospectus,
copies of which have heretofore been delivered to you, has been prepared by the
Company in conformity with the requirements of the Securities Act of 1933 (the
"Act"), and the rules and regulations of the Securities and Exchange Commission
(the "Commission") promulgated thereunder (the "Rules and Regulations"), and has
been filed with the Commission under the Act. As used herein, the term
"Preliminary Prospectus" shall mean each prospectus filed pursuant to Rule 430
or Rule 424(a) of the Rules and Regulations. The Preliminary Prospectus bore the
legend required by Item 501 of Regulation S-B under the Act and the Rules and
Regulations. Such registration statement (including all financial statements,
schedules and exhibits) as amended at the time it becomes effective and the
final prospectus included therein are herein respectively called the
"Registration Statement" and the "Prospectus," except that (i) if the prospectus
filed by the Company pursuant to Rule 424(b) or Rule 430A of the Rules and
Regulations shall differ from such final prospectus as then amended, then the
term "Prospectus" shall instead mean the prospectus first filed pursuant to said
Rule 424(b) or Rule 430A, and (ii) if such registration statement is amended or
such prospectus is amended or supplemented after the effective date of such
registration statement and prior to the Option Closing Date (as defined in
Section 2(c) hereof), then (unless the context necessarily requires otherwise)
the term "Registration Statement" shall include such registration statement as
so amended, and the term "Prospectus" shall include such prospectus as so
amended or supplemented, as the case may be.
2
<PAGE>
(b) Contents of Registration Statement. On the Effective
Date, and at all times subsequent thereto for so long as the delivery of a
prospectus is required in connection with the offering or sale of any of the
Securities, (i) the Registration Statement and the Prospectus shall in all
material respects conform to the requirements of the Act and the Rules and
Regulations, and (ii) neither the Registration Statement nor the Prospectus
shall include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary or make statements
therein in light of the circumstances in which they were made, not misleading;
provided, however, that the Company makes no representations, warranties or
agreements as to information contained in or omitted from the Registration
Statement or Prospectus in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation thereof. It is understood that the
statements set forth in the Prospectus with respect to stabilization, the
material set forth under the caption "UNDERWRITING," the information on the
cover page of the Prospectus regarding the underwriting arrangements and the
identity of the Underwriters' Counsel under the caption "LEGAL MATTERS," which
information the Underwriter hereby represents and warrants to the Company is
true and correct in all material respects and does not omit to state any
material fact required to be stated therein or necessary to make statements
therein, in light of the circumstances in which they were made, not misleading,
constitute the only information furnished in writing by or on behalf of the
Underwriter for inclusion in the Registration Statement and Prospectus, as the
case may be.
Except for the registration rights granted under the
Underwriters' Warrants, to the Selling Security Holders named in the
Registration Statement, or as disclosed in the Prospectus, no holders of any
securities of the Company or of any options, warrants or convertible or
exchangeable securities of the Company exercisable for or convertible or
exchangeable for securities of the Company, have the right to include any
securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company.
(c) Organization, Standing, Etc. The Company is duly
incorporated and validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation, with full power and corporate
authority to own its properties and conduct its business as described in the
Prospectus, and is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each other jurisdiction in which the
nature of its business or the character or location of its properties requires
such qualification, except where failure so to qualify will not have an adverse
effect on the business or financial condition of the Company ("Material Adverse
Effect").
3
<PAGE>
(d) Capitalization. The authorized, issued and outstanding
capital stock of the Company as of the date of the Prospectus is as set forth in
the Prospectus under the caption "CAPITALIZATION". The shares of Common Stock
issued and outstanding on the Effective Date have been duly authorized, validly
issued and are fully paid and non-assessable. No options, warrants or other
rights to purchase, agreements or other obligations to issue, or agreements or
other rights to convert any obligation into, any shares of capital stock of the
Company have been granted or entered into by the Company, except as expressly
described in the Prospectus. The Securities conform to all statements relating
thereto contained in the Registration Statement or the Prospectus.
(e) Securities. The Securities conform, or will conform
when issued, in all material respects to all statements with respect thereto
contained in the Registration Statement and the Prospectus. The Securities have
been duly authorized and, when issued and delivered against payment therefor
pursuant to this Agreement, the Warrant Agreement or the Underwriters' Warrants,
as the case may be, will be duly authorized, validly issued, fully paid and
non-assessable and free of preemptive rights of any security holder of the
Company. Neither the filing of the Registration Statement nor the offering or
sale of any of the Securities as contemplated by this Agreement gives rise to
any rights, other than those which have been waived or satisfied, for or
relating to the registration of any securities of the Company, except as
described in the Registration Statement.
(f) Authority, Etc. This Agreement, the Warrant Agreement,
the Underwriters' Warrants, and the Financial Consulting Agreement (as
hereinafter defined), have been duly and validly authorized, executed and
delivered by the Company and, assuming due execution of this Agreement and such
other agreements by the other party or parties hereto and thereto, constitute
valid and binding obligations of the Company enforceable against the Company in
accordance with their respective terms, except as such enforcement is limited by
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
affecting the enforcement of creditors' rights generally, and except insofar as
the enforceability of the indemnification and contribution terms may be limited
by applicable as or public policy. The Company has full right, power and lawful
authority to authorize, issue and sell the Securities and the Underwriters'
Warrants on the terms and conditions set forth herein. All consents, approvals,
authorizations and orders of any court or governmental authority which are
required in connection with the authorization, execution and delivery of such
agreements, the authorization, issue and sale of the Securities and the
Underwriters' Warrants, and the consummation of the transactions contemplated
hereby have been obtained.
(g) No Conflict. Except as described in the Prospectus,
the Company is not in violation, breach or default of or under, and consummation
of the transactions hereby contemplated and fulfillment of the terms of this
Agreement will not conflict with or result in a breach of, any of the terms or
provisions of, or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance pursuant to the terms of, any
contract, indenture, mortgage, deed of trust, loan agreement or other material
agreement or instrument to which the Company is a party or by which the Company
may be bound or to which any of the property or assets of the Company is
4
<PAGE>
subject, except such as would not have a Material Adverse Effect, nor will such
action result in any violation of the provisions of the Certificate of
Incorporation or the By-laws of the Company, except such as would not have a
Material Adverse Effect, or any statute or any order, rule or regulation
applicable to the Company, or of any court or of any regulatory authority or
other governmental body having jurisdiction over the Company, except such as
would not have a Material Adverse Effect.
(h) Assets. Subject to the qualifications stated in the
Prospectus: (i) the Company has good and marketable title to all properties and
assets described in the Prospectus as owned by it, including without limitation
intellectual property, free and clear of all liens, charges, encumbrances or
restrictions, except such as do not materially affect the value of such
properties or assets and do not interfere with the use made or proposed to be
made of such assets or properties by the Company or are not materially
significant or important in relation to the business of the Company; (ii) all of
the material leases and subleases under which the Company is the lessor or
sublessor of properties or assets or under which the Company hold properties or
assets as lessee or sublessee, as described in the Prospectus, are in full force
and effect and, except as described in the Prospectus, the Company is not in
default in any material respect with respect to any of the terms or provisions
of any of such leases or subleases, and no claim has been asserted by any party
adverse to the rights of the Company as lessor, sublessor, lessee or sublessee
under any such lease or sublease, or affecting or questioning the right of the
Company to continued possession of the leased or subleased premises or assets
under any such lease or sublease, except as described or referred to in the
Prospectus; and (iii) the Company owns or leases all such assets and properties,
described in the Prospectus, as are necessary to its operations as now conducted
and, except as otherwise stated in the Prospectus, as proposed to be conducted
as set forth in the Prospectus.
The outstanding debt, the property and the business of the
Company conforms in all material respects to the descriptions thereof contained
in the Registration Statement and Prospectus.
(i) Independent Accountants. Coopers & Lybrand, who have
given their report on certain financial statements filed or to be filed with the
Commission as a part of the Registration Statement, and which are included in
the Prospectus, are with respect to the Company, independent public accountants
as required by the Act and the Rules and Regulations.
(j) Financial Statements. The consolidated financial
statements, together with related notes, set forth in the Registration Statement
and the Prospectus present fairly the consolidated financial position, results
of operations, changes in shareholders' equity and cash flows of the Company on
the basis stated in the Registration Statement, at the respective dates and for
the respective periods to which they apply. Such financial statements and
related notes have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the entire period
involved, except to the extent disclosed therein. The Summary Financial Data and
Selected Financial Data included in the Registration Statement and the
Prospectus present fairly the information shown therein and have been prepared
on a basis consistent with that of the financial statements included in the
Registration Statement and the Prospectus.
5
<PAGE>
(k) No Material Change. Except as otherwise set forth in
the Prospectus, subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Company has not: (i)
incurred any liability or obligation, direct or contingent, or entered into any
transaction, which is material to its business; (ii) effected or experienced any
change in its capital stock or incurred any long-term debt; (iii) issued any
options, warrants or other rights to acquire its capital stock; (iv) declared,
paid or made any dividend or distribution of any kind on its capital stock; or
(v) effected or experienced any material adverse change, or development
involving a prospective material adverse change, in its financial position, net
worth, results of operations, business or business prospects, assets or
properties or key personnel.
(l) Litigation. Except as set forth in the Prospectus,
there is not now pending nor, to the knowledge of the Company, threatened, any
action, suit or proceeding (including any related to environmental matters or
discrimination on the basis of age, sex, religion or race), whether or not in
the ordinary course of business, to which the Company is a party or its business
or property is subject, before or by any court or governmental authority, which,
if determined adversely to the Company, would have a material adverse effect on
the financial position, net worth, or results of operations, business or
business prospects, assets or property of the Company; and no labor disputes
involving the employees of the Company exist which would affect materially
adversely the business, property, financial position or results of operations of
the Company.
(m) Employee and Independent Contractor Matters. The
Company has generally enjoyed satisfactory employer/employee relationships with
its employees and is in compliance in all material respects with all Federal,
state and local laws and regulations, including but not limited to, applicable
tax laws and regulations, respecting the employment of employees and employment
practices, terms and conditions of employment and wages and hours relating
thereto. To the knowledge of the Company, there are no pending or threatened
investigations involving the Company by the U.S. Department of Labor or
corresponding foreign agency, or any other governmental agency responsible for
the enforcement of such Federal, state or local laws and regulations. To the
knowledge of the Company, there are no unfair labor practice charges or
complaints against the Company pending before the National Labor Relations Board
or corresponding foreign agency or any strikes, picketing, boycotts, disputes,
slowdowns or stoppages pending or threatened against or involving the Company,
or any predecessor entity, and none has occurred. No representation question
exists respecting the employees of the Company. No collective bargaining
agreements or modifications thereof are currently in effect or being negotiated
by the Company and their respective employees. No grievance or arbitration
proceeding is pending under any expired or existing collective bargaining
agreements of the Company.
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The Company does not: (i) maintain nor has it maintained,
sponsored or contributed to any program or arrangement that is an "employee
pension benefit plan," an "employee welfare benefit plan" or a "multi-employer
plan" as such terms are defined in Sections 3(2), 3(l) and 3(37), respectively
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
except for the Stock Option Plan described in the Prospectus; (ii) presently
maintain or contribute nor at any time in the past, has maintained or
contributed to a defined benefit plan, as defined in Section 3(35) of ERISA; or
(iii) has ever completely or partially withdrawn from a "multi-employer plan. "
The Company has generally enjoyed satisfactory
relationships with its independent contractors and is in compliance in all
material respects with all federal, state and local laws and regulations,
including but not limited to applicable tax laws and regulations, respecting the
engagement of its independent contractors.
(n) No Unlawful Prospectuses. The Company has not
distributed any prospectus or other offering material in connection with the
Offering contemplated herein, other than any Preliminary Prospectus, the
Prospectus or other material permitted by the Act and the Rules and Regulations.
(o) Taxes. Except as disclosed in the Prospectus, the
Company has filed all necessary federal, state, local and foreign income and
franchise tax returns and has paid all taxes shown as due thereon on or before
the date such taxes are due to be paid; and there is no tax deficiency which has
been or, to the knowledge of the Company, might be asserted against the Company.
(p) Licenses, Etc. The Company has in effect all necessary
licenses, permits and other governmental authorizations currently required for
the conduct of its business or the ownership of its property, as described in
the Prospectus, and is in all material respects in compliance therewith. To the
knowledge of the Company, none of the activities or business of the Company is
in violation of, or would cause the Company to violate, any law, rule,
regulation or order of the United States, any country, state, county or
locality, the violation of which would have a material adverse effect upon the
financial position, net worth, results of operations, business or business
prospects, assets or property of the Company taken as a whole.
(q) No Prohibited Payments. The Company has not, nor, to
the knowledge of the Company, any of its employees or officers or directors,
agents or any other person acting on behalf of the Company has, directly or
indirectly, contributed or agreed to contribute any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer,
supplier, or official or governmental agency or instrumentality of any
government (domestic or foreign) or any political party or candidate for office
(domestic or foreign) or other person who was, is, or may be in a position to
help or hinder the business of the Company (or assist it in connection with any
actual or proposed transaction) which (i) could reasonably be expected to
subject the Company to any material damage or penalty in any civil, criminal or
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governmental litigation or proceeding, or (ii) if not made in the future, could
reasonably be expected to materially adversely affect the assets, business,
operations or prospects of the Company. The Company's internal accounting
controls and procedures are sufficient to cause the Company to comply in all
material respects with the Foreign Corrupt Practices Act of 1977, as amended.
(r) Transfer Taxes. On the Closing Dates (as defined in
Section 2(d) hereof), all transfer and other taxes (including franchise, capital
stock and other taxes, other than income taxes, imposed by any jurisdiction), if
any, which are required to be paid in connection with the sale and transfer of
the Securities to the Underwriters hereunder shall have been fully paid or
provided for by the Company, and all laws imposing such taxes shall have been
fully complied with.
(s) Exhibits. All contracts and other documents of the
Company described in the Registration statement or the Prospectus or to be filed
as exhibits to the Registration Statement, have been described in the
Registration Statement or the Prospectus or filed with the Commission, as
required under the Rules and Regulations.
(t) Subsidiaries. Except as described in the Prospectus,
the Company has no subsidiaries.
(u) Registration Rights. No security holder of the Company
whose securities are not included in the Registration Statement has any rights
with respect to the registration of any Securities, and all registration rights
with respect to the Offering have been waived.
(v) No Stabilization or Manipulation. Neither the Company
nor, to the Company's knowledge, any of its officers or directors or any of its
employees or shareholders, have taken and will not take, directly or indirectly,
any action designed to cause or result in, or which has constituted or which
might reasonably be expected to constitute, under the Exchange Act or otherwise,
the stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Securities.
(w) No Finders. Except as described in the Prospectus, to
the knowledge of the Company, there are no claims, payments, issuances,
arrangements or understandings for services in the nature of a finder's or
origination fee with respect to the sale of the Securities hereunder or any
other arrangements, agreements, understandings, commitments, payments or
issuances of securities with respect to the Company that may affect the
Underwriter's compensation, as determined by the National Association of
Securities Dealers, Inc. ("NASD").
(x) Lock-up Agreements. The Company has obtained from each
director, officer and existing shareholder of the Company (the "Existing
Shareholders"), a LockUp Agreement (as defined in Section 3(q) hereof) in the
form previously delivered.
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(y) Licensing and Accreditation. The Company has at all
times since the commencement of its business been in substantial compliance with
all federal, state and local laws, rules and regulations applicable to the
nature of its business and operations. The Company has all necessary licenses to
operate its business.
(aa) No Adverse Effect of Transaction Contemplated Hereby.
Neither the completion of the Offering nor any of the transactions contemplated
herein or in the Prospectus, including but not limited to the issuance of any of
the Securities, will result in a "change of control" or the loss of, or have any
adverse effect on, the maintenance in good standing of the Company's licenses.
2. PURCHASE, DELIVERY AND SALE OF SECURITIES
(a) Purchase Price Securities. The Securities shall be
sold to and purchased by the Underwriters at the purchase price of $3.185 per
Share and $.091 per Warrant (that being the public offering price of $3.50 per
Share and $.10 per Warrant less an underwriting discount of 10 percent) (the
"Purchase Price").
(b) Firm Securities.
(i) Subject to the terms and conditions of this
Agreement, and on the basis of the representations, warranties and agreements
herein contained the Company agrees to issue and sell to the Underwriters, and
the Underwriters, agree to buy from the Company at the Purchase Price, all of
the Shares and Warrants (the "Firm Securities").
(ii) Delivery of the Firm Securities against payment
therefor shall take place at the offices of Maidstone Financial, Inc., 101 East
52nd Street, New York, New York 10022 (or at such other place as may be
designated by agreement between you and the Company) at 10:00 a.m., New York
Time, on _______, 1997, or at such later time and date, not later than five
business days after the Effective Date, as you may designate (such time and date
of payment and delivery for the Firm Securities being herein called the "First
Closing Date").
(c) Option Securities.
(i) In addition, subject to the terms and conditions
of this Agreement, and on the basis of the representations, warranties and
agreements herein contained, the Company hereby grants to the Underwriters an
option (the "Over-Allotment Option"), to purchase from the Company all or any
part of an aggregate of an additional 225,000 Shares and/or 337,500 Warrants at
the Purchase Price (the "Option Securities").
(ii) The Over-Allotment Option may be exercised by the
Underwriters, in whole or in part, within forty-five business days after the
Effective Date, upon written notice by Maidstone to the Company advising it of
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the number of Option Securities as to which the Over-Allotment Option is being
exercised, the names and denominations in which the certificates for the Shares
and the Warrants comprising such Option Securities are to be registered, and the
time and date when such certificates are to be delivered. Such time and date
shall be determined by you but shall not be less than two nor more than ten
business days after exercise of the Over-Allotment Option, nor in any event
prior to the First Closing Date (such time and date being herein called the
"Option Closing Date"). Delivery of the Option Securities against payment
therefor shall take place at Maidstone's offices.
(iii) The Over-Allotment may be exercised only to
cover over allotments in the sale by the Underwriters of Firm Securities.
(d) Delivery of Certificates; Payment.
(i) The Company shall make the certificates for the
Shares and the Warrants to be purchased hereunder available to you for checking
at least one full business day prior to the First Closing Date or the Option
Closing Date (each, a "Closing Date"), as the case may be. The certificates
shall be in such names and denominations as you may request at least two
business days prior to the relevant Closing Date. The availability of the
certificates at the time and place specified in this Section 2(d)(i) is a
further condition to the obligations of the Underwriter hereunder.
(ii) On the First Closing Date, the Company shall
deliver to you for the account of the Underwriters definitive engraved
certificates in negotiable form representing all of the Shares and the Warrants
to be sold by the Company, against payment of the Purchase Price therefor by you
for the account of the Underwriters, by certified or bank cashier's checks
payable in New York Clearing House funds to the order of the Company.
(iii) In addition, if and to the extent that the
Underwriters exercise the Over-Allotment Option, then on the Option Closing Date
the Company shall deliver to you for the account of the Underwriters or its
designees definitive engraved certificates in negotiable form representing the
Shares and the Warrants to be sold by the Company, against payment of the
Purchase Price therefor by the Underwriters for the account of the Underwriters
or its designees, by certified or bank cashier's checks payable in next day
funds to the order of the Company.
(iv) It is understood that the Underwriters propose to
offer the Shares and Warrants to be purchased hereunder to the public, upon the
terms and conditions set forth in the Registration Statement, after the
Registration Statement becomes effective.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees
with the Underwriters that:
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(a) Registration.
(i) The Company shall use its best efforts to cause
the Registration Statement to become effective and, upon notification from the
Commission that the Registration Statement has become effective, shall so advise
you and shall not at any time, whether before or after the Effective Date, file
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus of which you shall not previously have been advised and furnished
with a copy, or to which you or Underwriters' Counsel shall have objected in
writing, or which is not in compliance with the Act and the Rules and
Regulations.
(ii) Promptly after you or the Company shall have been
advised thereof, you shall advise the Company or the Company shall advise you,
as the case may be, and confirm such advice in writing, of (A) the receipt of
any comments of the Commission, (B) the effectiveness of any post-effective
amendment to the Registration Statement, (C) the filing of any supplement to the
Prospectus or any amended Prospectus, (D) any request made by the Commission for
amendment of the Registration Statement or amendment or supplementing of the
Prospectus, or for additional information with respect thereto, or (E) the
issuance by the Commission or any state or regulatory body of any stop order or
other order denying or suspending the effectiveness of the Registration
Statement, or preventing or suspending the use of any Preliminary Prospectus, or
suspending the qualification of the Securities for offering in any jurisdiction,
or otherwise preventing or impairing the Offering, or the institution or threat
of any proceeding for any of such purposes. The Company and you shall not
acquiesce in such order or proceeding, and shall instead actively defend such
order or proceeding, unless the Company and you agree in writing to such
acquiescence.
(iii) The Company has caused to be delivered to you
copies of each Preliminary Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the Act. The
Company authorizes the Underwriters and selected dealers to use the Prospectus
in connection with the sale of the Securities for such period as in the opinion
of Underwriters' Counsel the use thereof is required to comply with the
applicable provisions of the Act and the Rules and Regulations. In case of the
happening, at any time within such period as a prospectus is required under the
Act to be delivered in connection with sales by an underwriter or dealer, of any
event of which the Company has knowledge and which materially affects the
Company or the Securities, or which in the opinion of Company Counsel or of
Underwriters' Counsel should be set forth in an amendment to the Registration
Statement or an amendment or supplement to the Prospectus in order to make the
statement made therein not then misleading, in light of the circumstances
existing at the time the Prospectus is required to be delivered to a purchaser
of the Securities, or in case it shall be necessary to amend or supplement the
Prospectus to comply with the Act or the Rules and Regulations, the Company
shall notify you promptly and forthwith prepare and furnish to the Underwriters
copies of such amended Prospectus or of such supplement to be attached to the
Prospectus, in such quantities as you may reasonably request, in order that the
Prospectus, as so amended or supplemented, shall not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements in the Prospectus, in the light of the
circumstances under which they are made, not misleading. The preparation and
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furnishing of each such amendment to the Registration Statement, amended
Prospectus or supplement to be attached to the Prospectus shall be without
expense to the Underwriters, except that in the case that the Underwriters are
required, in connection with the sale of the Securities, to deliver a prospectus
nine months or more after the Effective Date, the Company shall upon your
request and at the expense of the Underwriter, amend the Registration Statement
and amend or supplement the Prospectus, or file a new registration statement, if
necessary, and furnish the Underwriters with reasonable quantities of
prospectuses complying with section 10(a)(3) of the Act.
(iv) The Company will deliver to you at or before the
First Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto. The Company will deliver to or upon your order, from time to time until
the Effective Date as many copies of any Preliminary Prospectus filed with the
Commission prior to the Effective Date as the Underwriters may reasonably
request. The Company will deliver to you on the Effective Date and thereafter
for so long as a Prospectus is required to be delivered under the Act, from time
to time, as many copies of the Prospectus, in final form, or as thereafter
amended or supplemented, as the Underwriters may from time to time reasonably
request.
(v) The Company shall comply with the Act, the Rules
and Regulations, and the Securities Exchange Act of 1934 (the "Exchange Act"),
and the rules and regulations promulgated thereunder in connection with the
offering and issuance of the Securities in all material respects.
(b) Blue Sky. The Company shall, at its own expense, use
its best efforts to qualify or register the Securities for sale (or obtain an
exemption from registration) under the securities or "blue sky" laws of such
jurisdictions as you may designate, and shall make such applications and furnish
such information to Underwriters' Counsel as may be required for that purpose,
and shall comply with such laws; provided, however, that the Company shall not
be required to qualify as a foreign corporation or a dealer in securities or to
execute a general consent to service of process In any jurisdiction in any
action other than one arising out of the offering or sale of the Securities. The
Company shall bear all of the expense of such qualifications and registrations,
including without limitation the legal fees and disbursements of Underwriters'
Counsel, of $35,000 ($10,000 of which has already been paid), plus disbursements
relating to, but not limited, long-distance telephone calls, photocopying,
messengers, excess postage, overnight mail and courier services. After each
Closing Date, the Company shall, at its own expense, from time to time prepare
and file such statements and reports as may be required to continue each such
qualification (or maintain such exemption from registration) in effect for so
long a period as required by law, regulation or administrative policy in
connection with the offering of the Securities.
(c) Exchange Act Registration. The Company shall at its
own expense, prepare and file with the Commission a registration statement (on
Form 8-A or Form 10) under section 12 of the Exchange Act, and shall use its
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best efforts to cause such registration statement to be declared effective by
the Commission on an accelerated basis on the Effective Date and maintained in
effect for at least five years from the Effective Date.
(d) Prospectus Copies. The Company shall deliver to you on
or before the First Closing Date a copy of the Registration Statement including
all financial statements, schedules and exhibits filed therewith, and of all
amendments thereto. The Company shall deliver to or on the order of the
Underwriter, from time to time until the Effective Date, as many copies of any
Preliminary Prospectus filed with the Commission prior to the Effective Date as
the Underwriters may reasonably request. The Company shall deliver to the
Underwriters on the Effective Date, and thereafter for so long as a prospectus
is required to be delivered under the Act, from time to time, as many copies of
the Prospectus, in final form, or as thereafter amended or supplemented, as the
Underwriters may from time to time reasonably request.
(e) Amendments and Supplements. The Company shall,
promptly upon your request, prepare and file with the Commission any amendments
to the Registration Statement, and any amendments or supplements to the
Preliminary Prospectus or the Prospectus, and take any other action which in the
reasonable opinion of Underwriters' Counsel and Company Counsel may be
reasonably necessary or advisable in connection with the distribution of the
Securities, and shall use its best efforts to cause the same to become effective
as promptly as possible.
(f) Certain Market Practices. The Company has not taken,
and shall not take, directly or indirectly, any action designed, or which might
reasonably be expected, to cause or result in, or which has constituted, the
stabilization or manipulation of the price of the Securities to facilitate the
sale or resale thereof.
(g) Certain Representations. Neither the Company nor any
representative of the Company has made nor shall make any written or oral
representation in connection with the Offering and sale of the Securities or the
Underwriters' Warrants which is not contained in the Prospectus, which is
otherwise inconsistent with or in contravention of anything contained in the
Prospectus, or which shall constitute a violation of the Act, the Rules and
Regulations, the Exchange Act or the rules and regulations promulgated under the
Exchange Act.
(h) Continuing Registration of Warrants and Underlying
Common Stock. For so long as any Warrant is outstanding, the Company shall, at
its own expense: (i) use its best efforts to cause post-effective amendments to
the Registration Statement, or new registration statements relating to the
Warrants and the Common Stock underlying the Warrants to become effective in
compliance with the Act and without any lapse of time between the effectiveness
of the Registration Statement and of any such post-effective amendment or new
registration statement; provided, however, that the Company shall have no
obligation to maintain the effectiveness of such Registration Statement or file
a new Registration Statement, or to keep available a prospectus at any time at
which such registration or prospectus is not then required; (ii) cause a copy of
each Prospectus, as then amended, to be delivered to each holder of record of a
Warrant; (iii) furnish to the Underwriters and dealers as many copies of each
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such Prospectus as the Underwriters or dealers may reasonably request; and (iv)
maintain the "blue sky" qualification or registration of the Warrants and the
Common Stock underlying the Warrants, or have a currently available exemption
therefrom, in each jurisdiction in which the Securities were so qualified or
registered for purposes of the Offering.
(i) Use of Proceeds. The Company shall apply the net
proceeds from the sale of the Securities substantially for the purposes set
forth in the Prospectus under the caption "USE OF PROCEEDS," and shall file such
reports with the Commission with respect to the sale of the Securities and the
application of the proceeds therefrom as may be required pursuant to Rule 463 of
the Rules and Regulations.
(j) Twelve Months' Earnings Statement. The Company shall
make generally available to its security holders and deliver to you as soon as
it is practicable so to do, but in no event later than ninety days after the end
of twelve months after the close of its current fiscal quarter, an earnings
statement (which need not be audited) covering a period of at least twelve
consecutive months beginning after the Effective Date, which shall satisfy the
requirements of section 11(a) of the Act.
(k) NASDAQ Exchange Listings, Etc. The Company shall
immediately make all filings required to seek approval for the quotation of the
Securities on the NASDAQ SmallCap Market ("NASDAQ") and shall use its best
efforts to effect and maintain such approval for at least five years from the
Effective Date. Within 10 days after the Effective Date, the Company shall
arrange to list itself, on an expedited basis, in Moody's OTC Industrial Manual,
Standard and Poor's Corporation Descriptions or other recognized securities
manuals acceptable to the Underwriters and to cause such listing to be
maintained for five years from the Effective Date.
(l) Board of Directors. For a period of three (3) years
after Closing Date I, nominate and use its best efforts to engage a designee of
the Representative, as a nonvoting advisor to the Company's Board of Directors
(the "Advisor") or in lieu thereof, at the Representative's option, to designate
an individual for election as a director, in which case the Company shall use
its best efforts to have such individual elected as a director. The designee may
be a director, officer, partner, employee or affiliate of the Underwriters and
the Representative shall designate such person in writing to the Board. In the
event the Underwriters shall not have designated such individual at the time of
any meeting of the Board or such person is unavailable to serve, the Company
shall notify the Representative of each meeting of the Board. An individual, if
any, designated by the Representative shall receive all notices and other
correspondence and communications sent by the Company to members of the Board.
Such Advisor or director, as the case may be, shall be entitled to receive
reimbursement for all reasonable costs incurred in attending such meetings
including, but not limited to, food, lodging, and transportation. In addition,
such Advisor or Director shall be entitled to the same compensation as the
Company gives to other non-employee directors for acting in such capacity. The
Company further agrees that, during said three (3) year period, it shall give
the Advisor or Director, as the case may be, the same notice of any meeting of
the Company's Board of Directors as it affords its other directors.
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The Company agrees to indemnify and hold the Underwriters
and such Advisor harmless against any and all claims, actions, damages, costs
and expenses, and judgments arising solely out of the attendance and
participation of the Advisor at any such meeting described herein. In the event
the Company maintains a liability insurance policy affording coverage for the
acts of its officers and directors, it agrees, if possible to include the
Advisor as an insured under such policy.
(m) Periodic Reports. For so long as the Company is a
reporting company under section 12(g) or section 15(d) of the Exchange Act, the
Company shall, at its own expense, hold an annual meeting of shareholders for
the election of directors within 180 days after the end of each of the Company's
fiscal years and, within 150 days after the end of each of the Company's fiscal
years, furnish to its shareholders an annual report (including financial
statements audited by certified public accountants) in reasonable detail. In
addition, during the period ending five years from the date hereof, the Company
shall, at its own expense, furnish to you: (i) within 90 days of the end of each
fiscal year, a balance sheet of the Company as at the end of such fiscal year,
together with statements of income, shareholders' equity and cash flows of the
Company as at the end of such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of certified public
accountants; (ii) as soon as they are available, a copy of all reports
(financial or otherwise) distributed to security holders, and (iii) as soon as
they are available, a copy of all non-confidential reports and financial
statements furnished to or filed with the Commission. The financial statements
referred to herein shall be on a consolidated basis to the extent the accounts
of the Company are consolidated in reports furnished to its shareholders
generally.
(n) Form S-8 Registrations. Subject to the provisions of
subsection (o) below, for a period of two years following the First Closing
Date, the Company shall not, without Maidstone's prior written consent, register
or otherwise facilitate the registration of any of its securities issuable upon
the exercise of options, warrants (other than options issued pursuant to the
1996 Stock Option Plan, the Warrants and the Underwriter's Warrants) or other
rights whether by means of a Registration Statement on Form S-8 or otherwise,
unless the holders of shares of Common Stock being registered in such S-8 agree
not to sell such shares for a period of two years from the Effective Date
without the consent of the Representative.
(o) Future Sales. For a period of two years following the
First Closing Date, the Company shall not, without Maidstone's prior written
consent, issue any shares of Common Stock, Preferred Stock or securities
convertible into Common Stock. Notwithstanding the foregoing, the Company may at
any time issue shares of Common Stock pursuant to the exercise of the Warrants,
the Warrants underlying the Underwriter's Warrants, and options, warrants or
conversion rights issued and outstanding on the Effective Date and described in
the Prospectus.
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(p) Regulation S Sales. For a period of two years
following the First Closing Date, the Company shall not issue or sell any
securities pursuant to Regulation S of the Rules and Regulations under the Act,
without Maidstone's prior written consent.
(q) Agreements with Shareholders, Directors and Officers.
The Company shall cause each of the Company's existing stockholders, directors
and officers to enter into written agreements with Maidstone (the "Lock-up
Agreements") prior to the Effective Date, that, for a period of twenty-four
months from the Effective Date, they will not, without the consent of Maidstone,
(i) publicly sell any securities of the Company owned directly or indirectly by
them or owned beneficially by them (as defined in the Exchange Act), or (ii)
otherwise sell, or transfer such securities unless the transferee agrees in
writing to be bound by an identical lock-up.
(r) Warrant Solicitation. Upon the exercise of any
Warrants on or after the first anniversary of the Effective Date, the Company
shall pay to Maidstone a commission of eight (8%) percent of the aggregate
exercise price of such Warrants, a portion of which may be reallowed by
Maidstone to the dealer who solicited the exercise (which may also be you), if:
(i) the market price of the Common Stock is greater than the exercise price of
the Warrant on the date of exercise; (ii) the exercise of the Warrant was
solicited by Maidstone; (iii) the Warrant is not held in a discretionary
account; (iv) the disclosure of the compensation arrangements has been made in
documents provided to customers, both as part of the Offering and at the time of
exercise; and (v) the solicitation of the Warrant was not in violation of Rule
101 of Regulation M promulgated under the Exchange Act. No commission shall be
paid to you on any Warrant exercise prior to the first anniversary of the
Effective Date, or on any Warrant exercised at any time without solicitation by
Maidstone or a soliciting dealer.
(s) Available Shares. The Company shall reserve and at all
times keep available that maximum number of its authorized but unissued shares
of Common Stock which are issuable upon exercise of the Warrants, the
Underwriters' Warrants, and the Warrants issuable upon exercise of the
Underwriters' Warrants, in each case taking into account the antidilution
provisions thereof.
(t) Financial Consulting Agreement. On the First Closing
Date and simultaneously with the delivery of the Firm Securities, the Company
shall execute and deliver to Maidstone an agreement with Maidstone, or its
representative, in the form previously delivered to the Company by Maidstone,
regarding the services of Maidstone or its representative a financial consultant
to the Company (the "Financial Consulting Agreement"), for a twenty-four month
period commencing as of the date hereof at a fee equal to $4,416.67 per month
which shall be paid in its entirety on the First Closing Date.
(u) Management. On each Closing Date, the Chief Executive
Officer of the Company shall be Joel Schoenfeld and the Chief Financial Officer
of the Company shall be David Chabut. Prior to the Effective Date, the Company
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shall have obtained "key-employee" life insurance coverage in the amount
of $1,000,000 on each of them. As of the Effective Date, the Company shall have
entered into employment agreements with Messrs. Schoenfeld and Shabut as set
forth in the Registration Statement.
(v) Stock Transfer Sheets. The Company shall instruct its
Transfer Agent (as defined in Section 4(h) hereto) to deliver to you copies of
all advice sheets showing the daily transfer of the outstanding shares of Common
Stock and Warrants sold by the Company in the public offering and shall, at its
own expense, furnish you weekly following the First Closing Date during the
period ending three years following the First Closing Date with Depository Trust
Company stock transfer sheets.
(w) Public Relations. As of the Closing Date, the Company
shall have retained a public relations firm reasonably acceptable to you, and
shall continue to retain such firm, or an alternate firm reasonably acceptable
to Maidstone, for a period of twelve (12) months.
(x) Additional Representations. The Company shall engage
the Underwriters' Counsel to provide the Underwriter, at the First Closing Date
and quarterly thereafter, until such time as the Common Stock is listed on the
New York Stock Exchange or the American Stock Exchange or quoted on NASDAQ
National Market System, with an opinion, setting forth those states in which the
Common Stock may be traded in non-issuer transactions under the blue sky laws of
the fifty states. The Company shall pay the Underwriters' Counsel a one-time fee
of $12,500 at the First Closing Date for such opinions.
(aa) Bound Volumes. Within a reasonable time after the
First Closing Date, the Company shall deliver to you, at the Company's expense,
five bound volumes, containing the Registration Statement and all exhibits filed
therewith and all amendments thereto, and all other agreements, correspondence,
filings, certificates and other documents filed and/or delivered in connection
with the Offering.
4. CONDITIONS TO UNDERWRITERS' OBLIGATIONS. The
obligations of the Underwriters to purchase and pay for the Securities which the
Underwriters have agreed to purchase hereunder are subject to the material
accuracy (as of the date hereof and as of each Closing Date) of the
representations and warranties of the Company contained herein, the performance
by the Company of all of its respective obligations hereunder and the following
further conditions:
(a) Effective Registration Statement; No Stop Order. The
Registration Statement shall have become effective and you shall have received
notice thereof not later than 6:00 p.m., New York time, on the date of this
Agreement, or at such later time or on such later date as provided herein or to
which you may agree in writing. In addition, on each Closing Date (i) no stop
order denying or suspending the effectiveness of the Registration Statement
shall be in effect, and no proceedings for that or any similar purpose shall
have been instituted or shall be pending or, to your knowledge or to the
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knowledge of the Company, shall be contemplated by the Commission, and (ii) all
requests on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of Underwriters' Counsel.
(b) Opinion of Company Counsel. On the First Closing Date,
you shall have received the opinion, dated as of the First Closing Date, of
Company Counsel, in form and substance satisfactory to the Underwriters'
Counsel, to the effect that:
(i) the Company has been duly incorporated and validly
exists as a corporation in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority
to own its properties and conduct its business as described in the
Prospectus, and to such counsel's knowledge, is duly qualified or
licensed to do business as a foreign corporation and is in good
standing in each other jurisdiction in which the nature of its business
or the character or location of its properties requires such
qualification, except where failure to so qualify will not have a
material adverse affect on the business, properties or financial
condition of the Company taken as a whole;
(ii) (A) the authorized capitalization of the Company
as of the date of the Prospectus was as is set forth in the Prospectus
under the caption "CAPITALIZATION." (B) all of the shares of Common
Stock now outstanding have been duly authorized and validly issued, are
fully paid and non-assessable, conform in all material respects to the
description thereof contained in the Prospectus, have not been issued
in violation of the preemptive rights of any shareholder and, except as
described in the Prospectus, are not subject to any restrictions upon
the voting or transfer thereof; (C) all of the Shares and all of the
Warrants comprising the Securities have been duly authorized and, when
issued and delivered to the Underwriters against payment therefor as
provided herein, shall be validly issued, fully paid and
non-assessable, shall not have been issued in violation of the
preemptive rights of any shareholder, and no personal liability shall
attach to the ownership thereof; (D) the stockholders of the Company do
not have any preemptive rights or other rights to subscribe for or
purchase, and except as described in the Prospectus, and for the
transfer restrictions imposed by Rule 144 of the Rules and Regulations
promulgated under the Act or contained in the Lockup Agreements
executed with the Underwriters, there are no restrictions upon the
voting or transfer of, any of the Securities; (E) the Shares and the
Warrants comprising the Securities, the Warrant Agreement and the
Underwriters' Warrants conform in all material respects to the
respective descriptions thereof contained in the Prospectus; (F) all
issuances of the Company's securities have been made in compliance
with, or under an exemption from, the Act and applicable state
securities laws; (G) a sufficient number of shares of Common Stock has
been reserved, for all times when any of the Warrants (including the
Warrants issuable upon exercise of the Underwriters' Warrants) are
outstanding, for issuance upon exercise of all of the Warrants; and
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<PAGE>
(H) to the knowledge of such counsel, neither the filing of the
Registration Statement nor the offering or sale of the Securities as
contemplated by this Agreement gives rise to any registration rights or
other rights, other than those which have been effectively waived or
satisfied or described in the Prospectus, for or relating to the
registration of any securities of the Company,
(iii) the certificates evidencing the Shares and the
Warrants comprising the Securities are each in valid and proper legal
form; and the Warrants are exercisable for shares of Common Stock in
accordance with the terms of the Warrants;
(iv) this Agreement, the Warrant Agreement, the
Underwriters' Warrants, and the Financial Consulting Agreement have
been duly and validly authorized, executed and delivered by the Company
and (assuming due execution and delivery thereof by the Underwriter
and/or Continental Stock Transfer & Trust Company, as the case may be)
all of such agreements are, or when duly executed shall be, the valid
and legally binding obligations of the Company, enforceable in
accordance with their respective terms (except as enforceability may be
limited by bankruptcy, insolvency or other laws affecting the rights of
creditors generally or by general equitable principles); provided,
however, that no opinion need to be expressed as to the enforceability
of the indemnity provisions contained in Section 6 or the contribution
provisions contained in Section 7;
(v) Other than as described in the Prospectus (A)
there is no pending or to the knowledge of such counsel, threatened or
contemplated legal or governmental proceeding affecting the Company
which would have a Material Adverse Effect, or which questions the
validity of the Offering, the Securities, this Agreement, the Warrant
Agreement, the Underwriters' Warrants, or the Financial Consulting
Agreement or of any action taken or to be taken by the Company pursuant
thereto; and (B) to the knowledge of such counsel, there is no legal or
governmental regulatory proceeding required to be described or referred
to in the Registration Statement which is not so described or referred
to;
(vi) (A) the Company is not in violation of or default
under this Agreement, the Warrant Agreement, the Underwriters'
Warrants, or the Financial Consulting Agreement; and (B) to the
knowledge of such counsel, the execution and delivery hereof and
thereof and consummation of the transactions herein or therein
contemplated shall not result in a material violation of, or constitute
a material default under, the Certificate of Incorporation of the
Company, or any material obligation, agreement, covenant of condition
contained in any bond, debenture, note or other evidence of
indebtedness, or in any material contract, indenture, mortgage, loan
agreement, lease, joint venture or other material agreement or
instrument to which the Company is a party or by which the assets of
the Company is bound, or any material order, rule, regulation, writ,
injunction or decree of any government, governmental instrumentality or
court applicable to the Company;
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(vii) (a) the Company has obtained, or is in the
process of obtaining, all material licenses, permits and other
governmental authorizations required to conduct its business as
described in the Prospectus, (b) such obtained material licenses,
permits and other governmental authorizations are in full force and
effect, and (c) the Company is in all material respects complying
therewith;
(viii) the Registration Statement has become effective
under the Act, and to the knowledge of such counsel, no stop order
denying or suspending the effectiveness of the Registration Statement
is in effect, and no proceedings for that or any similar purpose have
been instituted or are pending before or threatened by the Commission;
(ix) the Registration Statement and the Prospectus
(except for the financial statements, notes thereto and other financial
information and statistical data contained therein, as to which counsel
need not express an opinion) comply as to form in all material respects
with the Act and the Rules and Regulations;
(x) all descriptions contained in the Registration
Statement and the Prospectus, and any amendments or supplements
thereto, of' contracts and other documents are accurate and fairly
present the information required to be described, and such counsel is
familiar with all contracts and other documents referred to in the
Registration Statement and the Prospectus, and any such amendment or
supplement, or filed as exhibits to the Registration Statement and, to
the knowledge of such counsel, no contract, document, license or permit
of a character required to be summarized or described therein or to be
filed as an exhibit thereto is not so summarized, described or filed.
(xi) the statements in the Registration Statement and
the Prospectus under the captions "Risk Factors," "Use of Proceeds,"
"Business," "Management, " and "Description of Securities, " which
purport to summarize the provisions of agreements, licenses, statutes
or rules and regulations, have been reviewed by such counsel and are
accurate summaries in all material respects;
(xii) except for registration under the Act and
registration or qualification of the Securities under applicable state
or foreign securities or blue sky laws and NASD approval, no
authorization, approval, consent or license of any governmental or
regulatory authority or agency is necessary in connection with: (A) the
authorization, issuance, sale, transfer or delivery of the Securities
20
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by the Company in accordance with this Agreement; (B) the execution,
delivery and performance of this Agreement by the Company or the taking
of any action contemplated herein; (C) the issuance of the
Underwriters' Warrants in accordance with this Agreement or the
Securities issuable upon exercise thereof; or the taking of any action
contemplated herein.
In rendering the opinions as set forth above, such counsel may rely upon
certificates of officers of the Company and of public officials as to matters of
fact. Such opinion shall also include a statement to the effect that in
connection with the preparation of the Registration Statement and the
Prospectus, such counsel has participated in conferences with officers and other
representatives of the Company, the Representative, Underwriters' counsel and
the independent certified public accountants of the Company, at which
conferences the contents of the Registration Statement and the Prospectus and
related matters were discussed, and although such counsel is not passing on, and
has not verified the accuracy, completeness or fairness of the statements
contained in the Registration Statement and Prospectus (except for customary due
diligence) nothing has come to the attention of such counsel which leads them to
believe that at the time the Registration Statement became effective under the
Act, the Prospectus, on the date it was filed pursuant to Rule 424(b), and the
Registration Statement and the Prospectus as of the date hereof (other than the
financial statements and schedules and other financial and statistical
information as to which counsel need not express an opinion) contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. In addition, such opinion shall also cover such
matters incident to the transactions contemplated hereby as you or Underwriters'
Counsel shall reasonably request. In rendering such opinion, Company Counsel may
rely as to matters of fact upon certificates of officers of the Company, and of
public officials, and may rely as to all matters of law other than the law of
the United States or the State of New York and the General Corporation Law of
the State of Delaware, upon opinions of counsel reasonably satisfactory to you,
in which case the opinion shall state that they have no reason to believe that
you and they are not entitled so to rely.
(c) Intentionally omitted.
(d) Corporate Proceedings. All corporate proceedings and
other legal matters relating to this Agreement, the Registration Statement, the
Prospectus and other related matters shall be reasonably satisfactory to or
approved by Underwriters' Counsel.
(e) Comfort Letter. Prior to the Effective Date, and again
on and as of the First Closing Date, you shall have received a letter from
Coopers & Lybrand, certified public accountants for the Company, reasonably
satisfactory in form and substance to the Underwriters' Counsel.
(f) Bring Down. At each of the Closing Dates, (i) the
representations and warranties of the Company contained in this Agreement shall
be true and correct with the same effect as if made on and as of such Closing
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Date, and the Company shall have performed all of its obligations hereunder and
satisfied all the conditions to be satisfied at or prior to such Closing Date;
(ii) the Registration Statement and the Prospectus shall contain all statements
which are required to be stated therein in accordance with the Act and the Rules
and Regulations, and shall in all material respects conform to the requirements
of the Act and the Rules and Regulations, and neither the Registration Statement
nor the Prospectus shall contain any untrue statement of a material fact or omit
to state any material fact required to be stated or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; (iii) there shall have been, since the respective dates as of
which information is given, no material adverse change in the business,
operations, condition (financial or otherwise), earnings, capital stock,
long-term or short-term debt or general affairs of the Company from that set
forth in the Registration Statement and the Prospectus, except changes which the
Registration Statement and Prospectus indicate might occur after the Effective
Date, and the Company shall not have incurred any material liabilities nor
entered into any material agreement other than as referred to in the
Registration Statement and Prospectus; and (iv) except as set forth in the
Prospectus, no action, suit or proceeding shall be pending or threatened against
the Company before or by any commission, board or administrative agency in the
United States or elsewhere, wherein an unfavorable decision, ruling or finding
would materially adversely affect the business, property, operations, condition
(financial or otherwise), earnings or general affairs of the Company. In
addition, you shall have received, at the First Closing Date, a certificate
signed by the principal executive officer and by the principal financial officer
of the Company, dated as of the First Closing Date, evidencing compliance with
the provisions of this Section 4(f).
(g) Transfer and Warrant Agent. On or before the Effective
Date, the Company shall have appointed Continental Stock Transfer & Trust
Company (or other agent mutually acceptable to the Company and Maidstone), as
its transfer agent and warrant agent ("Transfer Agent") to transfer all of the
Shares and Warrants issued in the Offering, as well as to transfer other shares
of the Common Stock outstanding from time to time.
(h) NASD Approval Of Underwriters' Compensation. By the
Effective Date, the Underwriter shall have received clearance from the NASD as
to the amount of compensation allowable or payable to the Underwriters, as
described in the Registration Statement.
(i) Certain Further Matters. On each Closing Date.
Underwriters' Counsel shall have been furnished with all such other documents
and certificates as they may reasonably request for the purpose of enabling them
to render their legal opinion to the Underwriter and in order to evidence the
accuracy and completeness of any of the representations, warranties or
statements, the performance of any of the covenants, or the fulfillment of any
of the conditions, herein contained.
(j) All proceedings taken in connection with the
authorization, issuance or sale of the Securities, as herein contemplated shall
be reasonably satisfactory in form and substance to the Underwriters and to
Underwriters' Counsel;
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(k) On each Closing Date there shall have been duly
tendered to you for your account the appropriate number of Securities;
(l) No order suspending the sale of the Securities in any
Jurisdiction designated by you pursuant to Section 3(b) hereof shall have been
issued on either Closing Date, and no proceedings for that purpose shall have
been instituted or, to the knowledge of the Underwriters or the Company, shall
be contemplated;
(m) Prior to each Closing Date, there shall not have been
received or provided by the Company's independent public accountants or
attorneys, qualifications to the effect of either difficulties in furnishing
certifications as to material items including, without limitation, information
contained within the footnotes to the financial statements, or as affecting
matters incident to the issuance and sale of the Securities or as to corporate
proceedings or other matters;
(n) On or prior to the First Closing Date, the
Underwriters' Warrants, the Warrant Agreement and the Financial Consulting
Agreement shall have been executed and delivered by the Company, and the Lock-Up
Agreements shall have been executed and delivered by all of the Company's
officers, directors and existing shareholders, to the Underwriters.
(o) Additional Conditions Relating to Option Closing. Upon
exercise of the Over-Allotment Option, Maidstone's obligations to purchase and
pay for the Option Securities shall be subject to the following conditions:
(i) The Registration Statement shall remain effective
at the Option Closing Date, no stop order denying or suspending the
effectiveness thereof shall have been issued, and no proceedings for that or any
similar purpose shall have been instituted or shall be pending or, to your
knowledge or the knowledge of the Company, shall be contemplated by the
Commission, and all reasonable requests on the part of the Commission for
additional information shall have been complied with to the satisfaction of
Underwriters' Counsel.
(ii) On the Option Closing Date there shall have been
delivered to you the signed opinion of Company Counsel, dated as of the Option
Closing Date, in form and substance satisfactory to Underwriters' Counsel, which
opinion shall be substantially the same in scope and substance as the opinion
furnished to you on the First Closing Date pursuant to Section 4(b), except that
such opinion, where appropriate, shall cover the Option Securities rather than
the Firm Securities. If the First Closing Date is the same as the Option Closing
Date, such opinions may be combined.
(iii) All proceedings taken at or prior to the Option
Closing Date in connection with the sale and issuance of the Option Securities
shall be reasonably satisfactory in form and substance to you, and you and
Underwriters' Counsel shall have been furnished with all such documents,
certificates and opinions as you may reasonably request in connection with
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<PAGE>
this transaction in order to evidence the accuracy and completeness of any of
the representations, warranties or statements of the Company or its compliance
with any of the covenants or conditions contained herein.
(iv) On the Option Closing Date there shall have been
delivered you a letter in form and substance satisfactory to Maidstone from
Coopers & Lybrand, dated the Option Closing Date addressed to you, confirming
the information in their letter referred to in Section 4(f) as of the date
thereof and stating that, without any additional investigation required, nothing
has come to their attention during the period from the ending date of their
review referred to in such letter to a date not more than five banking days
prior to the Option Closing Date which would require any change in such letter
if it were required to be dated the Option Closing Date.
Any certificate signed by any officer of the Company and
delivered to the Underwriters or to Underwriters' Counsel shall be deemed a
representation and warranty by the Company to the Underwriter as to the
statements made therein. If any of the conditions herein provided for in this
Section shall not have been completely fulfilled as of the date indicated, this
Agreement and all obligations of the Underwriter under this Agreement may be
cancelled at, or at any time prior to, each Closing Date by your notifying the
Company of such cancellation in writing or by telecopy at or prior to the
applicable Closing Date. Any such cancellation shall be without liability of any
Underwriters to the Company, except as otherwise provided herein.
5. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company to sell and deliver the Securities are subject to the
following conditions:
(a) Effective Registration Statement. The Registration
Statement shall have become effective not later than 6:00 p.m. New York Time, on
the date of this Agreement, or at such later time or on such later date as the
Company and you may agree in writing.
(b) No Stop Order. On the applicable Closing Date, no stop
order denying or suspending the effectiveness of the Registration Statement
shall have been issued under the Act or any proceedings therefor initiated or
threatened by the Commission.
(c) Payment for Securities. On the applicable Closing
Date, you shall have made payment, for the account of the Underwriters, of the
aggregate Purchase Price for the Securities then being purchased by certified or
bank cashier's checks payable in next day funds to the order of the Company.
If the conditions to the obligations of the Company provided by this Section 5
have been fulfilled on the First Closing Date but are not fulfilled after the
First Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Option Securities upon
exercise of the Over-Allotment Option shall be affected.
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6. INDEMNIFICATION.
(a) Indemnification by the Company. As used in this
Agreement, the term "Liabilities" shall mean any and all losses, claims, damages
and liabilities, and actions and proceedings in respect thereof (including
without limitation all reasonable costs of defense and investigation and all
attorneys' fees) including without limitation those asserted by any party to
this Agreement against any other party to this Agreement. The Company hereby
indemnities and holds harmless the Underwriters and each person, if any, who
controls the Underwriters within the meaning of the Act, from and against all
Liabilities, to which the Underwriters or such controlling person may become
subject, under the Act or otherwise, insofar as such Liabilities arise out of or
are based upon: (i) any untrue statement or alleged untrue statement of any
material fact, in light of the circumstances in which it was made, contained in
(A) the Registration Statement or any amendment thereto, or the Prospectus or
any Preliminary Prospectus, or any amendment or supplement thereto, or (B) any
"blue sky" application or other document executed by the Company specifically
for that purpose, or based upon written information furnished by the Company,
filed in any state or other jurisdiction in order to qualify any or all of the
Securities under the securities laws thereof (any such application, document or
information being herein called a "Blue Sky Application"); or (ii) the omission
or alleged omission to state in the Registration Statement or any amendment
thereto, or the Prospectus or any Preliminary Prospectus, or any amendment or
supplement thereto, or in any Blue Sky Application, a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which it was made, not misleading; provided, however, that the
Company shall not be liable in any such case to the extent, but only to the
extent, that any such Liabilities arise out of or are based upon an untrue
statement or alleged untrue statement or omission or alleged omission (x) made
in reliance upon and in conformity with written information furnished to the
Company through you by or on behalf of the Underwriters specifically for use in
the preparation of the Registration Statement or any such amendment thereto, or
the Prospectus or any such Preliminary Prospectus, or any such amendment or
supplement thereto, or any such Blue Sky Application or (y) corrected by the
final Prospectus and the failure of the Underwriter to deliver the final
Prospectus. The foregoing indemnity shall be in addition to any other liability
which the Company may otherwise have.
(b) Indemnification by each Underwriter. The Underwriters
hereby indemnify and hold harmless the Company, each of its directors, each
nominee (if any) for director named in the Prospectus, each of its officers who
have signed the Registration Statement, and each person, if any, who controls
the Company within the meaning of the Act, from and against all Liabilities to
which the Company or any such director, nominee, officer or controlling person
may become subject under the Act or otherwise, insofar as such Liabilities arise
out of or are based upon (i) any untrue statement or alleged untrue statement of
any material fact contained in the Registration Statement or any amendment
thereto, or the Prospectus or any Preliminary Prospectus, or any amendment or
supplement thereto, or (ii) the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that any such Liabilities arise out of or are based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement or any amendment thereto, or the Prospectus
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<PAGE>
or any Preliminary Prospectus, or any amendment or supplement thereto, in
reliance upon and in conformity with written information furnished to the
Company through you, by or on behalf of such Underwriters, specifically for use
in the preparation thereof. In no event shall any Underwriters be liable under
this Section 6(b) for any amount in excess of the compensation received by such
Underwriters, in the form of underwriting discounts or otherwise, pursuant to
this Agreement or any other agreement contemplated hereby. The foregoing
indemnity shall be in addition to any other liability which any Underwriters may
otherwise have.
(c) Procedure. Promptly after receipt by an indemnified
party under this Section 6 of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 6, notify in writing the indemnifying
party of the commencement thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 6 unless the rights of
the indemnifying party have been prejudiced by such omission or delay. In case
any such action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
subject to the provisions hereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided,
however, that the fees and expenses of such counsel shall be at the expense of
the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both such
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it which
are different from or in addition to those available to the indemnifying party
or that the indemnified and indemnifying party have conflicting interests which
would make it inappropriate for the same counsel to represent both of them (in
which case the indemnifying party shall have the right to assume the defense of
such action on behalf of the indemnified party, it being understood, however,
that the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys). No
settlement of any action against an indemnified party shall be made without the
consent of the indemnified party, which shall not be unreasonably withheld in
light of all factors of importance to such indemnified party.
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7. CONTRIBUTION. In order to provide for just and equitable
contribution under the Act in any case in which (a) any indemnified party makes
claims for indemnification pursuant to Section 6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case, notwithstanding the
fact that the express provisions of Section 6 provide for indemnification in
such case, or (b) contribution under the Act may be required on the part of any
indemnified party, then such indemnified party and each indemnifying party (if
more than one) shall contribute to the aggregate Liabilities to which it may be
subject, in either such case (after contribution from others) in such
proportions that the Underwriters are responsible in the aggregate for the
portion of such Liabilities represented by the percentage that the underwriting
discount per Share and per Warrant appearing on the cover page of the Prospectus
bears to the public Offering price per Share and per Warrant appearing thereon,
and the Company shall be responsible for the remaining portion; provided,
however, that if such allocation is not permitted by applicable law, then the
relative fault of the Company, and the Underwriters in connection with the
statements or omissions which resulted in such Liabilities and other relevant
equitable considerations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case of an untrue
statement of material fact or the omission to state a material fact, such
statement or omission relates to information supplied by the Company, or the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
Company and the Underwriters agree that it would not be just and equitable if
the respective obligations of the Company, and the Underwriters to contribute
pursuant to this Section 7 were to be determined by pro rata or per capita
allocation of the aggregate Liabilities or by any other method of allocation
that does not take account of the equitable considerations referred to in the
first sentence of this Section 7. Moreover, the contribution of any Underwriters
shall not be in excess of the cash compensation received by such Underwriters,
in the form of underwriting discounts or otherwise, pursuant to this agreement
or any other agreement contemplated hereby. No person guilty of a fraudulent
misrepresentation (within the meaning of section II (f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. As used in this Section 7, the term "Company" shall include
any officer, director or person who controls the Company within the meaning of
section 15 of the Act. If the full amount of the contribution specified in this
Section 7 is not permitted by law, then each indemnified party and each person
who controls an indemnified party shall be entitled to contribution from each
indemnifying party to the full extent permitted by law. The foregoing
contribution agreement shall in no way affect the contribution liabilities of
any persons having liability under section II of the Act other than the Company
and the Underwriters. No contribution shall be requested with regard to the
settlement of any matter from any party who did not consent to the settlement;
provided, however, that such consent shall not be unreasonably withheld in light
of all factors of importance to such party.
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8. COSTS AND EXPENSES.
(a) Certain Costs and Expenses. Whether or not this
Agreement becomes effective or the sale of the Securities to the Underwriters is
consummated, the Company shall pay all costs and expense incident to the
issuance, offering, sale and delivery of the Securities and the performance of
its obligations under this Agreement, including without limitation: (i) all fees
and expenses of the Company's legal counsel and accountants; (ii) all costs and
expenses incident to the preparation, printing, filing and distribution of the
Registration Statement (including the financial statements contained therein and
all exhibits and amendments thereto), each Preliminary Prospectus and the
Prospectus, each as amended or supplemented, this Agreement and the other
underwriting documents, as well as the other agreements and documents referred
to herein and the Blue Sky Memorandum; each in such quantities as you shall deem
necessary; (iii) all fees of NASD required in connection with the filing
required by NASD to be made by the Underwriter with respect to the Offering;
(iv) all expenses, including fees (but not in excess of the amount set forth in
Section 3(b)) and disbursements of Underwriters' Counsel in connection with the
qualification of the Securities under the "blue sky" laws which you shall
designate; (v) all costs and expenses of printing the respective certificates
representing the Shares and the Warrants; (vi) the expense of placing one or
more "tombstone" advertisements or promotional materials as directed by you
(provided, however, that the aggregate amount thereof shall not exceed $15,000)
and of offering memorabilia; (vii') all costs and expenses of the Company and
its employees associated with due diligence meetings and presentations
(including the payment for road show conference centers); (viii) any and all
taxes (including without limitation any transfer, franchise, capital stock or
other tax imposed by any jurisdiction) on sales of the Securities to the
Underwriters hereunder; and (xi) all costs and expenses incident to the
finishing of any amended Prospectus or any supplement to be attached to the
Prospectus as required by Sections 3(a) and 3(d), except as otherwise provided
by said Sections. In addition, the Company shall engage Underwriters' Counsel to
provide the Underwriters, at the Closing and quarterly thereafter, until such
time as the Common Stock is listed on the New York Stock Exchange or the
American Stock Exchange or quoted on NASDAQ/NMS, with a memorandum, setting
forth those states in which the Common Stock and the Warrants may be traded in
non-issuer transactions under the blue sky laws of the 50 states. The Company
shall pay such counsel a one-time fee of $12,500 at the Closing for such
opinions.
(b) Underwriters' Expense Allowance. In addition to the
expenses described in Section 8(a), the Company shall on the First Closing Date
pay to Maidstone the balance of a non-accountable expense allowance, exclusive
of the fees referred to in Section 3(b), an amount equal to three percent (3%)
of the gross proceeds received upon sale of the Firm Securities, of which
$55,000 has been paid to Maidstone prior to the date hereof. In the event that
the Over-Allotment Option is exercised, then the Company shall, on the Option
Closing Date, pay to Maidstone, based on the number of Option Securities to be
sold by the Company, an additional amount equal to three percent (3 %) of the
gross proceeds received upon sale of any of the Option Securities. In the event
that the transactions contemplated hereby fail to be consummated for any reason,
then Maidstone shall return to the Company that portion of $55,000 heretofore
paid by the Company to the extent that it has not been utilized by you in
connection with the Offering for reasonable accountable out-of-pocket expenses;
provided, however, that if such failure is due to a breach by the Company of any
covenant, representation or warranty contained herein or because any other
condition to the Underwriters' obligations hereunder required to be fulfilled by
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the Company is not fulfilled, then the Company shall be liable for your
reasonable accountable out-of-pocket expenses to the full extent thereof (with
credit given to the $55,000 paid).
(c) No Finders. No person is entitled either directly or
indirectly to compensation from the Company, the Underwriters or any other
person for services as a finder in connection with the Offering, and the Company
hereby indemnifies and hold harmless the Underwriters, and the Underwriters
hereby indemnify and hold harmless the Company from and against all Liabilities,
joint or several, to which the indemnified party may become subject insofar as
such Liabilities arise out of or are based upon the claim of any person (other
than an employee of the party claiming indemnity) or entity that he or it is
entitled to a finder's fee in connection with the Offering by reason of such
person's or entity's influence or prior contact with the indemnifying party.
9. EFFECTIVE DATE. The Agreement shall become effective at
9:30 A.M. on the first full business day following the day on which the
Registration Statement becomes effective or at the time of the initial public
offering by you of the Stock, whichever is earlier. The time of the initial
public offering shall mean the time of release by you of the first newspaper
advertisement which is subsequently published with respect to the Securities, or
the time when the Securities are first generally offered by you to dealers by
letter or telegram, whichever shall first occur. You or the Company may prevent
this Agreement from becoming effective without liability at any party to any
other party, except as provided in Section 8, by giving the notice indicated
below in Section 13 before the time this Agreement becomes effective.
10. TERMINATION.
(a) Grounds for Termination.
(i) This Agreement, except for Sections 6, 7, 8, 12,
13, 14 and 15, may be terminated at any time prior to the First Closing Date,
and the Over-Allotment Option, if exercised, may be cancelled at any time prior
to the Option Closing Date, by you if in your sole judgment it is impracticable
to offer for sale or to enforce contracts made by you for the resale of the
Securities agreed to be purchased hereunder, by reason of: (A) the Company
having sustained a material loss, whether or not insured, by reason of fire,
earthquake, flood, accident or other calamity, or from any labor dispute or
court or government action, order or decree; (B) trading in securities on the
New York Stock Exchange or the American Stock Exchange having been suspended or
limited; (C) material governmental restrictions having been imposed on trading
in securities generally which are not in force and effect on the date hereof;
(D) a banking moratorium having been declared by federal or New York State
authorities; (E) an outbreak or significant escalation of major international
hostilities or other national or international calamity having occurred; (F) the
passage by the Congress of the United States or by any state legislative body of
similar impact, of any act or measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative accounting institute
or board, or any governmental executive, which is reasonably believed likely by
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<PAGE>
you to have a material adverse impact on the business, financial condition or
financial statements of the Company; (G) any material adverse change in the
financial or securities markets beyond normal fluctuations in the United States
having occurred since the date of this Agreement; or (H) any material adverse
change having occurred, since the respective dates for which information is
given in the Registration Statement and Prospectus, in the earnings, business,
prospects or condition (financial or otherwise) of the Company, whether or not
arising in the ordinary course of business.
(ii) Maidstone shall have the right, in its sole
discretion, to terminate this Agreement, including without limitation, the
obligation to purchase the Firm Securities and the obligation to purchase the
Option Securities after the exercise of the Over-Allotment Option, by notice
given to the Company prior to delivery and payment for all the Firm Securities
or the Option Securities, as the case may be, if any of the conditions
enumerated in Section 4 are not either fulfilled or waived by the Underwriters
on or before any Closing Date.
(iii) Anything herein to the contrary
notwithstanding, if this Agreement shall not be carried out within the time
specified herein, or any extensions thereof granted by the Underwriters, by
reason of any failure on the part of the Company to perform any undertaking or
satisfy any condition of this Agreement by it to be performed or satisfied then,
in addition to the obligations assumed by the Company pursuant to Section 8(a)
hereof, the Underwriter shall provide the Company with, and the Company shall
pay, a statement of the Underwriters' accountable expenses.
(b) Notification. If you elect to prevent this Agreement
from becoming effective or to terminate this Agreement as provided by this
Section 10 or by Section 9, the Company shall be promptly notified by you, by
telephone or telegram, confirmed by letter.
11. UNDERWRITERS' WARRANTS. On the First Closing Date, the
Company shall issue and sell to you, for nominal consideration, and upon the
terms and conditions set forth in the form of Underwriters' Warrants filed as an
exhibit to the Registration Statement, a Warrant entitling you to purchase
150,000 Shares and/or 225,000 Warrants at an exercise price equal to 165% of the
initial public offering price per Share or Warrant, as the case may be,
exercisable for a period of four years commencing one year from the Effective
Date (the "Underwriters' Warrants"). The Underwriters' Warrants grant to the
holders thereof certain "piggyback" registration rights for a period of four
years, and demand registration rights for a period of four years, commencing one
year from the Effective Date with respect to the registration under the
Securities Act of the Securities issuable upon exercise thereof. In the event of
conflict in the terms of this Agreement and the Underwriters' Warrants, the
terms and conditions of the Underwriters' Warrants shall control.
12. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. The respective indemnities, agreements, representations, warranties,
covenants and other statements of the Company and the Underwriter set forth in
Sections 3, 6, 7 and 8 of this Agreement shall remain in full force and effect
30
<PAGE>
regardless of any investigation made by or on behalf of any other party, and
shall survive delivery of and payment for the Securities and the termination of
this Agreement. The Company hereby indemnities and holds harmless the
Underwriters from and against all Liabilities, joint or several, to which the
Underwriters may become subject insofar as such Liabilities arise out of or are
based upon the breach or failure of any of the provisions of Sections 3, 6, 7
and 8.
13. NOTICES. All communications hereunder shall be in writing
and, except as otherwise expressly provided herein, if sent to you, shall be
mailed, delivered or telegraphed and confirmed to you at Maidstone Financial,
Inc., 101 East 52nd Street, New York, New York 10022, with a copy sent to Jay M.
Kaplowitz, Esq., Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP, 101 East
52nd Street, New York, New York 10022; or if sent to the Company, shall be
mailed, delivered, or telegraphed and confirmed to it at Univec, Inc., 999
Franklin Avenue, Garden City, New York 11530, Attention: Joel Schoenfeld, with a
copy sent to Jack Becker, Esq., Snow Becker Krauss P.C., 605 Third Avenue, New
York, New York 10158-0125.
14. PARTIES IN INTEREST. This Agreement is made solely for the
benefit of the Underwriters, the Company, and, to the extent expressed, any
person controlling the Company or the Underwriters, as the case may be, and the
directors of the Company, nominees for directors of the Company (if any) named
in the Prospectus, officers of the Company who have signed the Registration
Statement, and their respective executors, administrators, successors and
assigns; and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "successors and assigns" shall not include any
purchaser, as such, from an underwriter of the Securities.
15. CONSTRUCTION. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without giving effect to conflict of laws. The parties agree to submit
themselves to the jurisdiction of the courts of the State of New York or of the
United States of America for the Southern District of New York, which shall be
the sole tribunals in which any parties may institute and maintain a legal
proceeding against the other party arising from any dispute in this Agreement.
In the event either party initiates a legal proceeding in a jurisdiction other
than in the courts of the State of New York or of the United States of America
for the Southern District of New York, the other party may assert as a complete
defense and as a basis for dismissal of such legal proceeding that the legal
proceeding was not initiated and maintained in the courts of the State of New
York or of the United States of America for the Southern District of New York,
in accordance with the provisions of this Section 15.
16. ENTIRE AGREEMENT. This Agreement, the Underwriter's
Warrants, and the Financial Consulting Agreement contain the entire agreement
between the parties hereto in connection with the subject matter hereof and
thereof.
17. COUNTERPARTS. This Agreement may be executed in two or
more counterpart copies, each of which shall be deemed and an original but all
of which together shall constitute one and the same instrument.
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18. DEFAULT BY AN UNDERWRITER.
(a) If any Underwriter or Underwriters shall default in
its or their obligations to purchase the Stock and Warrants hereunder, and if
the number of shares and Warrants with respect to which such default relates
does not exceed in the aggregate 10% of the number of shares of Stock and
Warrants which all Underwriters have agreed to purchase hereunder, then such
Stock and Warrants to which the default relates shall be purchased by the
nondefaulting Underwriters in proportion to their respective commitments
hereunder.
(b) In the event that such default relates to more than
10% of the number of shares of Stock and Warrants, you may in your discretion
arrange for yourself or for another party or parties to purchase such Stock and
Warrants to which such default relates on the terms contained herein within one
(1) business day after such default relating to more than 10% of the number of
shares of Stock and Warrants, the Representative or the Underwriters
satisfactory to you do not elect to purchase the Stock and Warrants which the
defaulting Underwriter agreed but failed to purchase, then the Company shall be
entitled to a further period of one (1) business day within which to procure
another party or parties satisfactory to you to purchase said Stock and Warrants
on such terms. In the event that neither you nor the Company arrange for the
purchase of the Stock and Warrants to which a default relates as provided in
this Section 18, this Agreement may be terminated by you or the Company (except
as provided in Section 6 and Section 8(a) hereof) or the several Underwriters,
but nothing herein shall relieve a defaulting Underwriter of its liability, if
any, to the other several Underwriters and to the Company for damages occasioned
by its default hereunder.
(c) In the event that the Stock and Warrants to which the
default relates is to be purchased by the non-defaulting Underwriters, or is to
be purchased by another party or parties as aforesaid, you or the Company shall
have the right to postpone the Closing Date for a reasonable period but not in
any event exceeding five (5) business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus or
in any other documents and arrangements, and the Company agrees to file promptly
any amendment to the Registration Statement or the Prospectus which in the
opinion of counsel for the Underwriters may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any party substituted
under this Section 18 with like effect as if it had originally been a party to
this Agreement with respect to such Stock.
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<PAGE>
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return this Agreement, whereupon it will become a
binding agreement between the Company and the Underwriters in accordance with
its terms.
Very truly yours,
UNIVEC, INC.
By:__________________________
Name:
Title:
Accepted as of the date
first above written:
New York, New York
MAIDSTONE FINANCIAL, INC., as Representative
of the
By:_____________________
Name:
Title:
33
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EXHIBIT A
Name Number of Shares and/or Warrants
- ---- --------------------------------
Maidstone Financial, Inc.
HGI Incorporated
34
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RESTATED CERTIFICATE OF INCORPORATION
OF
UNIVEC, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation")
is UNIVEC, Inc., which is the name under which the Corporation was originally
incorporated. The date of filing of the original Certificate of Incorporation of
the Corporation with the Secretary of State was October 7, 1996.
2. Pursuant to the Article 4 of the Certificate of Incorporation, by
Certificate of Designation filed with the Secretary of State on December 31,
1996 in accordance with Section 151 of the General Corporation Law, the
Corporation authorized a series of preferred stock designated Series A 8%
Cumulative Convertible Preferred Stock (the "Series A Preferred Stock").
3. This Restated Certificate of Incorporation restates and amends the
Certificate of Incorporation of the Corporation to eliminate the redemption
provisions of the Series A Preferred Stock.
4. The Restated Certificate of Incorporation has been duly adopted by
unanimous written consent in lieu of a meeting of the Board of Directors of the
Corporation in accordance with the provisions of Sections 141(f), 242 and 245 of
the General Corporation Law of the State of Delaware and by holders of all of
the outstanding Series A Preferred Stock and the holders of a majority of each
other class of outstanding stock entitled to vote hereon as a class by written
consent given in accordance with Section 228 of the General Corporation Law of
the State of Delaware. Written notice pursuant to Section 228 has been given to
those stockholders of the Corporation who have not consented in writing to this
action.
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
UNIVEC, INC.
1. The name of the corporation is UNIVEC, Inc. (the "Corporation").
2. The address of the registered office of the Corporation in Delaware
is 1013 Centre Road, City of Wilmington, County of New Castle, Delaware 19805.
The name of the corporation's registered agent at that address is Corporation
Service Company.
3. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "General Corporation Law").
4. The total number of shares of capital stock which the Corporation
shall have authority to issue is 30,000,000 shares, of which 5,000,000 shares
shall be designated as preferred stock, each having a par value of $0.001 per
share (the "Preferred Stock"), and 25,000,000 shares shall be designated as
common stock, each having a par value of $0.001 per share (the "Common Stock").
The Board of Directors of the Corporation is hereby expressly vested with
authority by resolution or resolutions to authorize the issuance of shares of
Preferred Stock in one or more series, from time to time, with each such series
to have such designations, powers, preferences, and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the resolution or
resolutions providing for the issue of such series adopted by the Board of
Directors of the Corporation, subject to the limitations prescribed by law and
in accordance with the provisions hereof. The authority of the Board of
Directors with respect to each such series shall include, but not be limited to,
the determination or fixing of the following:
(i) The distinctive designation and number of shares
comprising such series, which number may (except where
otherwise provided by the Board of Directors in creating such
series) be increased or decreased (but not below the number of
shares then outstanding) from time to time by like action of
the Board of Directors;
(ii) The dividend rate of such series, the conditions
and time upon which such dividends shall be payable, the
relation that such dividends shall bear to the dividends
payable on any other class or classes of stock or series
thereof, or any other series of the same class, and whether
such dividends shall be cumulative or non-cumulative;
(iii) The conditions upon which the shares of such
series shall be subject to redemption by the Corporation and
the times, prices and other terms and provisions upon which
the shares of the series may be redeemed;
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(iv) Whether or not the shares of the series shall be
subject to the operation of a retirement or sinking fund to be
applied to the purchase or redemption of such shares and, if
such retirement or sinking fund be established, the annual
amount thereof and the terms and provisions relative to the
operation thereof;
(v) Whether or not the shares of the series shall be
convertible into or exchangeable for shares of any other class
or classes, with or without par value, or of any other series
of the same class, and, if provision is made for conversion or
exchange, the times, prices, rates, adjustments, and other
terms and conditions of such conversion or exchange;
(vi) Whether or not the shares of the series shall
have voting rights, in addition to the voting rights provided
by law, and, if so, the terms of such voting rights;
(vii) The rights of the shares of the series upon the
distribution of the assets of the Corporation in the event of
the liquidation, dissolution, or winding up of the affairs of
the Corporation, whether voluntary or involuntary; and
(viii) Any other powers, preferences and relative
participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, of the
shares of such series, as the Board of Directors may deem
advisable and as shall not be inconsistent with the provisions
of the Certificate of Incorporation.
The holders of shares of the Preferred Stock of each series shall be
entitled to receive, when and as declared by the Board of Directors, out of
funds legally available for the payment of dividends, dividends (if any) at the
rates fixed by the Board of Directors for such series, and no more, before any
cash dividends shall be declared and paid, or set apart for payment, on the
Common Stock with respect to the same dividend period.
The holders of shares of the Preferred Stock of each series shall be
entitled upon liquidation or dissolution or upon the distribution of the assets
of the Corporation to such preferences as provided in the resolution or
resolutions creating such series of Preferred Stock, and no more, before any
distribution of the assets of the Corporation shall be made to the holders of
the Common Stock. Whenever the holders of shares of the Preferred Stock shall
have been paid the full amounts to which they shall be entitled, the holders of
the Common Stock shall be entitled to share ratably in all assets of the
Corporation remaining.
By Certificate of Designation filed with the Secretary of State on
December 31, 1996, in accordance with Section 151 of the General Corporation
Law, the Corporation has authorized a series of preferred stock designated
Series A 8% Cumulative Convertible Preferred Stock (the "Series A Preferred
Stock"), consisting of 2,500 shares, par value $0.001 per share, having the
following preferences and rights, qualifications, limitations and restrictions:
3
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1. Dividend Rights.
1.1 The holders of shares of Series A Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors, but only
out of funds legally available for payment of dividends, (i) cumulative
dividends at the rate of $80 per share per annum (the "Series A Preferred
Dividend"), which dividends shall accrue and be cumulative from the date of
issuance, payable at the option of the Company in cash, in additional shares of
Series A Preferred Stock, or a combination thereof. The number of additional
shares of Series A Preferred Stock to be issued in payment of cumulative
dividends shall be determined based upon the liquidation preference ($1,000) of
the Series A Preferred Stock, so that .08 of a share of Series A Preferred Stock
would be issued for each $80 of cumulative cash dividends.
1.2 Dividends shall cease to accrue on shares of Series A
Preferred Stock that are redeemed pursuant to Paragraph 4 hereof as of the date
fixed for such redemption.
1.3 So long as any shares of Series A Preferred Stock are
outstanding, no dividends shall be paid or declared and set apart for payment,
nor shall any other distribution be made, on the Common Stock, or on any other
stock junior to the Series A Preferred Stock as to dividends (other than
dividends payable in Common Stock or other stock junior to Series A Preferred
Stock both as to dividends and distribution upon liquidation), unless dividends
on Series A Preferred Stock for the current dividend period and all past
dividend periods shall have been paid or declared and set apart for payment.
1.4 So long as any shares of Series A Preferred Stock are
outstanding, no shares of any stock on a parity with or junior to Series A
Preferred Stock shall be purchased, redeemed or otherwise acquired by the
Corporation or by any subsidiary, nor shall any funds be set aside or made
available for any purchase, retirement or sinking fund for the purchase or
redemption of any stock on a parity with or junior to Series A Preferred Stock,
unless dividends on the Series A Preferred Stock for the current dividend period
and all past dividend periods shall have been paid or declared and set apart for
payment.
1.5 Subject to the foregoing provisions, such dividends
(payable in cash, property or stock junior to Series A Preferred Stock) as may
be determined by the Board of Directors may be declared and paid from time to
time on the shares of any stock junior to Series A Preferred Stock, without any
right of participation therein by the holders of Series A Preferred Stock.
1.6 Accrued and unpaid dividends on Series A Preferred Stock
shall not bear interest.
1.7 In case dividends on the Series A Preferred Stock for any
dividend period in which they are payable are not paid in full, all shares of
Series A Preferred Stock and all shares of any other series of Preferred Stock
ranking as to dividends on a parity with Series A Preferred Stock shall
participate ratably in the payment of dividends for such period in proportion to
the full amounts of dividends for such period to which they are respectively
entitled.
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2. Liquidation Rights.
2.1 In the event of any liquidation, dissolution or winding up
of the affairs of the Corporation, whether voluntary or involuntary (each of
which is hereinafter referred to as a "Liquidation"), the holders of shares of
Series A Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its stockholders an
amount per share equal to $1,000, plus accrued but unpaid dividends, before any
distribution shall be made to the holders of Common Stock or any other stock
junior to Series A Preferred Stock as to the distribution of assets upon
Liquidation. If upon Liquidation the Corporation's assets are not sufficient to
pay in full the amounts so payable to the holders of shares of Series A
Preferred Stock and the holders of any other series of Preferred Stock ranking
on a parity as to the distribution of assets on Liquidation with shares of
Series A Preferred Stock, all shares of Series A Preferred Stock and of such
other series of Preferred Stock shall participate ratably in the distribution of
assets in proportion to the full amounts to which they are respectively
entitled.
2.2 For the purpose of this Paragraph 2, a consolidation or
merger of the Corporation with any other corporation, or the sale, transfer of
lease of all or substantially all of its assets, shall not constitute or be
deemed a Liquidation.
3. Redemption
Shares of Series A Preferred Stock are not subject to
redemption.
4. Status of Series A Preferred Stock Reacquired.
Shares of Series A Preferred Stock which have been issued
and reacquired in any manner shall (upon compliance with applicable provisions
of the laws of the State of Delaware), be deemed to be cancelled and have the
status of authorized and unissued shares of the class of Preferred Stock
issuable in series undesignated as to series and may be redesignated and
reissued.
5. No Voting Rights.
Holders of Series A Preferred Stock shall have no voting
rights, except as may be required by law.
5
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6. Conversion Rights.
6.1 Upon the terms and in the manner hereinafter set forth in
this Paragraph 6, any holder of shares of the Series A Preferred Stock may, at
the option of such holder, at any time and from time to time after the earlier
of (i) September 30, 1999 and (ii) the second anniversary of the date upon which
the Securities and Exchange Commission declares effective under the Securities
Act of 1933, as amended, a registration statement for an underwritten public
offering of the Corporation's Common Stock, convert each share of Series A
Preferred Stock into 222.22 shares of Common Stock (the "Conversion Rate"), as
adjusted and readjusted from time to time in accordance with this Paragraph 6.
6.1.2 In order to convert shares of Series A Preferred Stock
into Common Stock, the holder thereof shall (i) surrender the certificate or
certificates for such shares of Series A Preferred Stock, duly endorsed to the
Corporation or in blank, to the Corporation at its principal office or at the
office of the agency maintained for such purposes, (ii) give written notice to
the Corporation at such office that such holder elects to convert such shares of
Series A Preferred Stock, and (iii) state in writing therein the name or names
in which such holder wishes the certificate or certificates for shares of Common
Stock to be issued. Each conversion shall be deemed to have been effected at the
close of business on the date on which the Corporation or such agency shall have
received such surrendered Series A Preferred Stock certificate(s), and the
person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become the record holder or holders of the shares represented thereby on
such date. As soon as practicable after such conversion, the Corporation shall
issue or deliver at such office to the holder for whose account such shares of
Series A Preferred Stock were so surrendered, or to such holder's nominee or
nominees, certificates (bearing such legend(s) as may be required under
applicable securities laws) for the number of full shares of Common Stock to
which such holder shall be entitled, plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash equal to such fraction
multiplied by the closing price per share of the Common Stock on the principal
exchange on which it is then listed, or if it is not so listed, the mean between
the closing bid and ask prices per share for such stock, as reported by NASDAQ,
The National Quotation Bureau, Incorporated, or other similar service, in each
instance as of the close of business on the date of such conversion.
6.1.3 No accrued but unpaid dividends shall be paid on shares
of Series A Preferred Stock converted, except that no holder shall be
prejudiced, by reason of conversion, in his rights to recover dividends declared
and unpaid, if the payment date of the dividends declared preceded the date of
conversion.
6.2 The conversion rate shall be subject to adjustment from
time to time as follows: in case the Corporation shall at any time pay a stock
dividend in its Common Stock (other than on the Series A Preferred Stock), or in
case the Corporation shall at any time either subdivide or combine the
outstanding shares of Common Stock, the conversion rate shall immediately be
proportionately adjusted. In case of any capital reorganization or any
reclassification of the capital stock of the Corporation or in case of the
consolidation or merger of the Corporation with or into
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another corporation or the sale of all or substantially all of the assets of the
Corporation as or substantially as an entirety to another corporation, each
share of Series A Stock shall thereafter be convertible into the number of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock of the Corporation then deliverable upon conversion of
such share of Series A Preferred Stock would have been entitled upon such
reorganization, reclassification, consolidation, merger or conveyance; and, in
any such case, appropriate adjustment (as determined by the Board of Directors)
shall be made in the application of the provisions herein set forth with respect
to the rights and interests thereafter of the holders of the shares of Series A
Preferred Stock, to the end that the provisions set forth herein (including
provisions with respect to changes in and other adjustments of the conversion
rate) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the shares of Series A Preferred Stock.
6.3 No adjustment in the conversion rate shall be required
unless such adjustment (and any other adjustments which by reason of this
Paragraph 6.3 are not required to be made) would not, if made, entitle the
holders of all then outstanding shares of Series A Preferred Stock upon
conversion thereof to receive additional shares of Common Stock equal in the
aggregate to one percent (1%) or more of the total issued and outstanding shares
of Common Stock. All calculations under this Paragraph 6.3 shall be made to the
nearest one one-hundredth (1/100) of a share.
6.4 Whenever the conversion rate is adjusted as herein
provided, an officer of the Corporation shall compute the adjusted conversion
rate in accordance with the foregoing provisions and shall prepare a written
instrument setting forth such adjusted conversion rate and showing in detail the
facts upon which such adjustment is based, and a copy of such written instrument
shall forthwith be mailed to each holder of record of the Series A Preferred
Stock, and made available for inspection by the stockholders of the Corporation.
6.5 The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued
Common Stock, for the purpose of effecting the conversion of the shares of
Series A Preferred Stock, the full number of shares of Common Stock then
deliverable upon the conversion of all shares of Series A Preferred Stock then
outstanding, and such shares shall be listed, subject to notice of issuance, on
any stock exchange(s) on which outstanding shares of Common Stock may then be
listed.
6.6 The Corporation will pay and all taxes that may be payable
in respect of the issuance or delivery of shares of Common Stock on conversion
of shares of Series A Preferred Stock pursuant hereto. The Corporation shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares of Common Stock in a name
other than that in which the shares of Series A Preferred Stock so converted
were registered, and no such issue or delivery shall be made unless and until
the person requesting such issue has paid to the Corporation the amount of any
such tax, or has established, to the satisfaction of the Corporation, that such
tax has been paid or is not payable.
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7. Exclusion of Other Rights. Except as may otherwise be
required by law, the shares of Series A Preferred Stock shall not have any
preferences or relative, participating, optional or other special rights other
than those specifically set forth in this Restated Certificate of Incorporation
of the Corporation, as amended.
8. Headings of Subdivisions. The headings of the various
subdivisions hereof are for convenience of reference only and shall not affect
the interpretation of any of the provisions hereof.
9. Severability of Provisions. If any right, preference or
limitation of the Series A Preferred set forth in Restated Certificate of
Incorporation, may be amended from time to time) is invalid, unlawful, or
incapable of being enforced by reason of any rule of law or public policy, all
other rights, preferences and limitations set forth in this Restated Certificate
of Incorporation (as so amended) which can be given effect without the invalid,
unlawful or unenforceable right, preference or limitation shall, nevertheless,
remain in full force and effect, and no right, preference or limitation herein
set forth shall be deemed dependent upon any other such right, preference or
limitation unless so expressed herein.
5. The election of the Board of Directors need not be by written
ballot.
6. The Corporation shall indemnify, and hold harmless, to the fullest
extent permitted by Section 145 of the General Corporate Law, as amended from
time to time ("Section 145"), any person who was or is made or is threatened to
be made a party or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (each, a "proceeding")
by reason of the fact that he, or a person for whom he is the legal
representative, is or was a director or officer of the Corporation (each, an
"Eligible Indemnitee"), against all liability and loss suffered and expenses
reasonably incurred by such person in connection with a proceeding initiated by
him only if the proceeding was authorized by the Board of Directors. In
addition, the Corporation may indemnify and hold harmless, to the fullest extent
permitted by Section 145, any other person who was or is made or is threatened
to be made a party or is otherwise involved in any proceeding by reason of the
fact that he, or an officer, director or a person for whom he is the legal
representative, is or was an employee or agent of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust,
enterprise or non-profit entity (each, a "Permitted Indemnitee"), including
service with respect to employee benefit plans, against all liability and loss
suffered and expenses reasonably incurred by such person in connection with such
proceeding. If the Corporation elects to indemnify a Permitted Indemnitee for
liability and loss suffered and expenses reasonably incurred by such person in
connection with a proceeding, its obligation to indemnify such person shall be
reduced by the amount of any indemnity payments received by the Permitted
Indemnitee from any other corporation, partnership, joint venture, trust,
enterprise or non-profit entity on behalf of whom he was acting at the request
of the Corporation and as a result of which he became a party to or was
otherwise became involved in the proceeding.
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The Corporation shall pay the expenses incurred by any Eligible
Indemnitee in investigating or defending any proceeding in advance of its final
disposition (unless the proceeding is of a nature for which advancement of
expenses is not permitted by Section 145), but only upon receipt of an
undertaking from the Eligible Indemnitee to repay all amounts advanced if it is
ultimately determined that the Eligible Indemnitee is not entitled to be
indemnified under Section 145, this Article or otherwise. In addition, the
Corporation may pay the expenses incurred by any Permitted Indemnitee in
defending any proceeding in advance of its final disposition (unless the
proceeding is of a nature for which advancement of expenses is not permitted by
Section 145), but only upon receipt of an undertaking from the Permitted
Indemnitee to repay all amounts advanced if it is ultimately determined that the
Permitted Indemnitee is not entitled to be indemnified under Section 145, this
Article or otherwise.
If a claim for indemnification or payment of expenses under this
Article is not paid in full within sixty days after a written claim therefor has
been received by the Corporation, the claimant may file suit to recover the
amount of such claim and, if successful in whole or in part, shall be entitled
to be paid the expenses of prosecuting such claim. In any such action, the
Corporation shall have the burden of proving that the claimant was not entitled
to the requested indemnification or payment of expenses under Section 145, this
Article or otherwise.
The rights conferred on any person by this Article shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, any provision of the By-laws of this Corporation, any
agreement, any vote of stockholders or disinterested directors or otherwise.
The Corporation shall have the power to purchase and maintain insurance
on behalf of any Eligible Indemnitee or Permitted Indemnitee against any
liability asserted against him and incurred by him for actions undertaken on
behalf of the Corporation in his capacity, or arising out of his status with the
Corporation, whether or not the Corporation would have had the power to
indemnify him against such liability under this Article or otherwise.
Any amendment or repeal of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
7. No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director for
any act or omission occurring subsequent to the date when this provision becomes
effective, except that he may be liable (i) for breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law, as the same exists
or hereafter may be amended, or (iv) for any transaction from which the director
derived an improper personal benefit. If the General Corporation Law hereafter
is amended to authorize the further elimination or limitation of the liability
of directors, then the liability of a director of the Corporation, in addition
to the limitation of personal liability provided herein, shall be limited o\to
the fullest extent permitted by the amended General Corporation law. Any repeal
or modification of this Article by the stockholders
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of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation existing at the time of such repeal or modification.
8. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code on the application
of trustees in dissolution or any receiver or receivers appointed for this
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or the stockholders or class of stockholders of this Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
this Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
9. All the powers of this Corporation, insofar as the same may be
lawfully vested by this Certificate of Incorporation in the Board of Directors,
are hereby conferred upon the board of directors of this Corporation. In
furtherance and not in limitation of that power, the Board of Directors shall
have the power to make, adopt, alter, amend and repeal from time to time By-laws
of this Corporation, subject to the right of the stockholders entitled to vote
with respect thereto to adopt, alter, amend and repeal By-laws made by the Board
of Directors.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Joel Schoenfeld, its Chairman of the Board and Chief Executive Officer
and attested to by Flora Schoenfeld, its Secretary, this 14th day of April 1997.
By: /s/ Joel Schoenfeld
-----------------------------------
Joel Schoenfeld
Chairman of the Board and
Chief Executive Officer
Attest:
/s/ Flora Schoenfeld
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Flora Schoenfeld
Secretary
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BY-LAWS
OF
UNIVEC, INC.*
1. MEETINGS OF STOCKHOLDERS
1.1 Annual Meeting. An annual meeting of stockholders shall be held for the
election of directors at such date, time and place, either within or without the
State of Delaware, as may be designated by resolution of the Board of Directors
(the "Board") from time to time. Any other proper business may be transacted at
the annual meeting.
1.2 Special Meetings. Special meetings of the stockholders may be called at
any time by resolution of the Board or by the Chairman of the Board, the Chief
Executive Officer, the President or upon the written request of holders of not
less than 25% of the outstanding shares of the voting stock of the Corporation,
and such special meetings may be held either within or without the State of
Delaware.
1.3 Notice of Meetings. Written notice of each meeting of stockholders
shall be given to each stockholder entitled to vote at the meeting, personally
or by mail, not less than 10 nor more than 60 days before the meeting and shall
state the time and place of the meeting, and unless it is the annual meeting,
shall state the purposes for which it is called. If mailed, notice shall be
considered given when mailed to a stockholder at his address on the
Corporation's records.
1.4 Adjournments. Any meeting of stockholders, annual or special, may
adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
1.5 Quorum. Except as provided by law, the Certificate of Incorporation or
these By-laws, at each meeting of stockholders, the presence in person or by
proxy of the holders of a majority of the issued and outstanding shares of stock
entitled to vote shall constitute a quorum for the transaction of any business.
In the absence of a quorum, holders of a majority of the shares of stock
entitled to vote present in person or by proxy, or, if no stockholders are
present, any officer entitled to preside at or to act as secretary of the
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* Amended as of April 12, 1997
<PAGE>
meeting, may adjourn the meeting from time to time in the manner provided in
Section 1.4 of these By-laws until a quorum is present.
1.6 Organization. Meetings of stockholders shall be presided over by the
Chairman of the Board, or in his absence, the Vice Chairman of the Board, or in
his absence, by the Chief Executive Officer, or in his absence, by the
President, or in the absence of the foregoing persons by a chairman designated
by the Board of Directors, or in the absence of such designation by a chairman
chosen at the meeting. The Secretary shall act as secretary of the meeting, but
in his absence the chairman of the meeting may appoint any person to act as
secretary of the meeting.
1.7 Voting; Proxies. Each stockholder of record entitled to vote at any
meeting of stockholders shall be entitled to one vote for every share registered
in his name, except as otherwise provided in the Certificate of Incorporation or
any certificate of designation authorizing the creation of any series or class
of stock of the Corporation filed with the Secretary of State pursuant to
Section 151 of the Delaware General Corporation Law. Corporate action to be
taken by stockholder vote, other than the election of directors, shall be
authorized by a majority of the votes cast at a meeting of stockholders, except
as otherwise provided by law, Section 1.10 of these By-laws, or in the
Certificate of Incorporation or any certificate of designation authorizing the
creation of any series or class of stock of the Corporation filed with the
Secretary of State pursuant to Section 151 of the Delaware General Corporation
Law. Directors shall be elected in the manner provided in Section 2.1 of these
By-laws. Unless required by statute or the Certificate of Incorporation, or
ordered by the chairman of the meeting, voting need not be by written ballot.
Each stockholder entitled to vote at any meeting of stockholders or express
consent to or dissent from corporate action in writing without a meeting may
authorize another person to act for him by proxy. Every proxy must be signed by
the stockholder or his attorney-in-fact. No proxy shall be valid after three
years from its date unless it provides otherwise. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or another duly executed proxy bearing a later date with the Secretary of
the Corporation.
1.8 Fixing Date for Determination of Stockholders of Record. In order that
the Corporation may determine the
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stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board and which record date: (1) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than 60 nor less
than 10 days before the date of such meeting; (2) in the case of determination
of stockholders entitled to express consent to corporate action in writing
without a meeting, shall not be more than 10 days from the date upon which the
resolution fixing the record date is adopted by the Board; and (3) in the case
of any other action, shall not be more than 60 days prior to such other action.
If no record date is fixed, (1) the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given, or
if notice is waived, at the close of business on the day next preceding the day
on which the meeting is held; (2) the record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting
when no prior action of the Board is required by law shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the corporation in accordance with applicable law, or, if
prior action by the Board is required by law, shall be at the close of business
on the day on which the Board adopts the resolution taking such prior action;
and (3) the record date for determining stockholders for any other purpose shall
be at the close of business on the day on which the Board adopts the resolution
relating thereto. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board may fix a new record date for the
adjourned meeting.
1.9 List of Stockholders. Not less than 10 days prior to the date of any
meeting of stockholders, the Secretary of the corporation shall prepare a
complete list of stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in his name. For a period of not less than 10 days prior to
the meeting, the list shall be available during ordinary business hours for
inspection by any stockholder for any purpose germane to the meeting. During
this period, the list shall be kept either (a) at a place within the city where
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the meeting is to be held, if that place shall have been specified in the notice
of meeting, or (b) if not so specified, at the place where the meeting is to be
held. The list also shall be available for inspection by stockholders at the
time and place of the meeting.
1.10 Action by Consent without a Meeting. Unless otherwise provided in the
Certificate of Incorporation, any action required or permitted to be taken at
any annual or special meeting of stockholders of the Corporation may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voting. Prompt notice of the taking of
any such action shall be given to those stockholders who did not consent in
writing.
1.11 Inspectors. The Board may, in advance of any meeting of stockholders,
appoint one or more inspectors to act at such meeting or any adjournment
thereof. If the inspectors shall not be so appointed or if any of them shall
fail to appear or act, the chairman of the meeting may, and at the request of
any stockholder entitled to vote thereat shall, appoint inspectors. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting or any
stockholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. Inspectors may, but need not, be
stockholders.
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2. BOARD OF DIRECTORS
2.1 Number, Qualification, Election and Term of Directors. The business of
the Corporation shall be managed by the Board of Directors. The Board of
Directors shall consist of not more than seven nor less than three directors, as
fixed from time to time by resolution of the Board, except that the number of
directors constituting the Board may be less than three provided the number of
directors is not less than the number of stockholders. The number of directors
may be changed by a resolution of a majority of the directors then in office or
by the stockholders, but no decrease may shorten the term of any incumbent
director. Directors shall be elected at each annual meeting of stockholders by a
plurality of the votes cast and shall hold office until the election and
qualification of their respective successors, or if earlier, their death,
resignation or removal in accordance with the provisions of Section 2.9 of these
By-laws, or as otherwise provided by law or the Certificate of Incorporation.
2.2 Quorum and Manner of Acting. A majority of the directors then in office
shall constitute a quorum for the transaction of business at any meeting, except
as provided in Section 2.7 of these By-laws. In the absence of a quorum, a
majority of the directors present may adjourn any meeting from time to time
until a quorum is present. Action of the Board shall be authorized by the vote
of a majority of the directors present at the time of the vote if there is a
quorum, unless otherwise provided by law, these By-laws or the Certificate of
Incorporation.
2.3 Annual and Regular Meetings. Annual meetings of the Board for the
election of officers and consideration of other matters may be held either
within or without the State of Delaware and shall be held either (a) without
notice immediately after the annual meeting of stockholders and at the same
place, or (b) as soon as practicable after the annual meeting of stockholders,
on notice as provided in Section 2.5 of these By-laws. Regular meetings of the
Board may be held without notice at such times and places as the Board
determines. If the day fixed for the regular meeting is a legal holiday, the
meeting shall be held on the next business day.
2.4 Special Meetings. Special meetings of the Board may be held at any time
and place within or without the State of Delaware whenever called by the
Chairman of the Board, the Vice Chairman of the Board, the Chief Executive
Officer, the President or by a majority of the directors. Only business related
to the purposes set forth in the notice of meeting may be transacted at a
special meeting.
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2.5 Notice of Meetings. Notice of the time and place of each special
meeting of the Board, and of each annual meeting not held immediately after the
annual meeting of stockholders and at the same place, shall be given to each
director by mailing it to him at his residence or usual place of business at
least three days before the meeting, or by delivering, telephoning or faxing it
to him at least 24 hours before the meeting. Notice of a special meeting shall
also state the purpose or purposes for which the meeting is called. Notice of
any adjourned meeting need not be given, other than by announcement at the
meeting at which the adjournment is taken.
2.6 Organization. Meetings of the Board of Directors shall be presided over
by the Chairman of the Board, or in his absence, the Vice Chairman of the Board,
or in his absence, the Chief Executive Officer, or in his absence, the
President, or in their absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his absence the chairman
of the meeting may appoint any person to act as secretary of the meeting.
2.7 Board or Committee Action without a Meeting. Any action required or
permitted to be taken by the Board or by any committee of the Board may be taken
without a meeting if all of the members of the Board or the committee consent in
writing to the adoption of a resolution authorizing the action. The resolution
and the written consents by the members of the Board or the committee shall be
filed with the minutes of the proceedings of the Board or of the committee.
2.8 Participation in Board or Committee Meetings by Conference Telephone.
Any or all members of the Board or of any committee of the Board may participate
in a meeting of the Board or of the committee by means of a conference telephone
or similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means shall
constitute presence in person at the meeting.
2.9 Resignation and Removal of Directors. Any director may resign at any
time by delivering his resignation in writing to the Chairman of the Board, the
Vice Chairman of the Board, the Chief Executive Officer, the President or the
Secretary of the Corporation, to take effect at the time specified in the
resignation, and the acceptance of a resignation, unless required by its terms,
shall not be necessary to make it effective. Except as otherwise provided by law
or in the Certificate of Incorporation, any or all of the directors may be
removed at any time, either with or without cause, by vote of a majority of the
shares then entitled to vote for the election of directors.
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2.10 Vacancies. Any vacancy in the Board, including one created by an
increase in the number of directors, may be filled by a majority vote of the
remaining directors, although such majority is less than a quorum, or by a
plurality of the votes cast at a meeting of the stockholders, and each director
so elected shall hold office until the expiration of the term of the director
whom he has replaced or until his successor is elected and qualified.
2.11 Compensation. Directors shall receive such compensation as the Board
determines, together with reimbursement of their reasonable expenses in
connection with the performance of their duties. A director also may be paid for
serving the Corporation, its affiliates or subsidiaries in other capacities.
3. COMMITTEES
3.1 Executive Committee. The Board, by resolution adopted by a majority of
the entire Board, may designate an Executive Committee of one or more directors
which shall have all the powers and authority of the Board, except as otherwise
provided in the resolution, Section 141(c) of the Delaware General Corporation
Law, or any other applicable law. The members of the Executive Committee shall
serve at the pleasure of the Board. All action of the Executive Committee shall
be reported to the Board at its next meeting.
3.2 Other Committees. The Board, by resolution adopted by a majority of the
entire Board, may designate other committees of the Board of one or more
directors, which shall serve at the Board's pleasure and have such powers and
duties as the Board determines, subject to the limitations set forth in Section
141(c) of the Delaware General Corporation Law.
3.3 Rules Applicable to Committees. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of any member of a committee, the member or members present at
a meeting of the committee and not disqualified, whether or not a quorum, may
unanimously appoint another director to act at the meeting in place of the
absent or disqualified member. All action of the committee shall be reported to
the Board at its next meeting. Each committee shall adopt rules of procedure and
shall meet as provided by those rules or by resolutions of the Board.
4. OFFICERS
4.1 Executive Officers. The executive officers of the Corporation shall
consist of the Chairman of the Board, the
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Chief Executive Officer, the President, one or more Vice Presidents (one or more
of whom may be designated Executive Vice President or Senior Vice President),
the Chief Financial Officer, a Secretary and a Treasurer. Any two or more
offices may be held by the same person.
4.2 Election; Term of Office. The executive officers of the Corporation
shall be elected annually by the Board, and each such officer shall hold office
until the next annual meeting of the Board and until the election of his
successor, or his earlier death, resignation or removal in accordance with the
provisions of Section 4.4 of these By-laws.
4.3 Subordinate Officers. The Board may appoint subordinate officers
(including assistant secretaries and assistant treasurers), agents or employees,
each of whom shall hold office for such period and have such powers and duties
as the Board determines. The Board may delegate to any executive officer or to
any committee the power to appoint and define the powers and duties of any
subordinate officers, agents or employees. The Board may require any officer,
agent or employee to give security for the faithful performance of his duties.
4.4 Resignation and Removal of Officers. Any officer may resign at any time
by delivering his resignation in writing to the Chairman of the Board, the Vice
Chairman of the Board, the Chief Executive Officer, the President or the
Secretary of the Corporation, to take effect at the time specified in the
resignation, and the acceptance of such resignation, unless required by its
terms, shall not be necessary to make it effective. Any officer appointed by the
Board or appointed by an executive officer or by a committee may be removed by
the Board either with or without cause, and in the case of an officer appointed
by an executive officer or by a committee, by the officer or committee who
appointed him or by the Chairman of the Board, the Vice Chairman of the Board,
the Chief Executive Officer or the President.
4.5 Vacancies. A vacancy in any office may be filled for the unexpired term
in the manner prescribed in Sections 4.2 and 4.3 of these By-laws for election
or appointment to the office.
4.6 Chairman of the Board. The Chairman of the Board of the Corporation
shall preside at all meetings of the Board and of the stockholders and shall
have such other powers and duties as the Board assigns to him.
4.7 Chief Executive Officer. The Chief Executive Officer of the Corporation
shall supervise and direct the business and affairs of the Corporation, subject
to the control of the Board,
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and shall have such other powers and duties as the Board assigns to him.
4.8 President. The President of the Corporation shall, subject to the
direction of the Chief Executive Officer and the control of the Board, direct
and manage the day-to-day business activities and general affairs of the
Corporation, and shall have such other powers and duties as the Board assigns to
him.
4.9 Vice-President. Each vice president shall have such powers and duties
as the Board or the Chairman of the Board, the Chief Executive Officer or the
President assigns to him.
4.10 Secretary. The Secretary shall be the secretary of, and keep the
minutes of, all meetings of the Board and of the stockholders, shall be
responsible for giving notice of all meetings of stockholders and of the Board,
and shall keep the seal and, when authorized by the Board, apply it to any
instrument requiring it. Subject to the control of the Board, he shall have such
powers and duties as the Board, the Chairman of the Board or the President
assigns to him. In the absence of the Secretary from any meeting, the minutes
shall be kept by the person appointed for that purpose by the presiding officer.
4.11 Chief Financial Officer. The Chief Financial Officer of the
Corporation shall be the principal financial and accounting officer of the
Corporation, and shall have primary responsibility for the Corporation's books
and accounts. Subject to the control of the Board, he shall have such other
powers and duties as the Board, the Chairman of the Board, the Chief Executive
Officer or the President assigns to him.
4.12 Treasurer. The Treasurer of the Corporation shall have custody of the
corporate funds and securities and, subject to the control of the Board, shall
have such other powers and duties as the Board, the Chairman of the Board, the
Chief Executive Officer, the President or the Chief Financial Officer assigns to
him.
4.13 Salaries. The Board may fix the officers' salaries, if any, or it may
authorize the Chairman of the Board or the President to fix the salary of any
other officer.
5. SHARES
5.1 Certificates. The Corporation's shares shall be represented by
certificates in the form approved by the Board. Each certificate shall be signed
by the Chairman of the Board, the Vice Chairman of the Board, the Chief
Executive Officer, the
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President or a Vice President and by the Secretary or an Assistant Secretary, or
the Treasurer or an Assistant Secretary, and shall be sealed with the
Corporation's seal or a facsimile of the seal. Any or all of the signatures on
the certificate may be a facsimile.
5.2 Transfers. Shares shall be transferable only on the Corporation's
books, upon surrender of the certificate for the shares, properly endorsed.
5.3 Lost, Stolen or Destroyed Certificates. The Corporation may issue a new
certificate of stock in the place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed, and the Corporation may require
the owner of any lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of any new
certificate.
6. MISCELLANEOUS
6.1 Seal. The corporate seal shall bear the Corporation's name and the year
and state in which it was incorporated.
6.2 Fiscal Year. The Board, by resolution, may determine the Corporation's
fiscal year. Until changed by the Board, the Corporation's fiscal year shall be
the calendar year.
6.3 Waiver of Notice of Meetings of Stockholders, Directors and Committees.
Any written waiver of notice, signed by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at the meeting shall constitute a waiver of notice of
such meeting, except when the person attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business transacted at, nor the purpose of, any regular or special meeting of
the stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice.
6.4 Interested Directors; Ouorum. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership or association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the
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<PAGE>
Board or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if: (1) the
material facts as to his relationship or interest and as to the contract or
transaction are disclosed or are known to the Board or the committee, and the
Board or the committee in good faith authorizes the contract or transaction by
the affirmative votes of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum; or (2) the material facts as
to his relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (3) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approve or ratified by the Board, a committee
thereof, or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board or of a committee
which authorizes the contract or the transaction.
6.5 Voting of Shares in other Corporations. Shares in other corporations
which are held by the Corporation may be represented and voted by the Chairman
of the Board, the Chief Executive Officer, the President or a Vice President of
the Corporation or by proxy or proxies appointed by any one of them. The Board
may, however, appoint some other person to vote the shares.
6.6 Amendments. These By-laws may be amended or repealed, and new By-laws
may be adopted, by the Board, subject to compliance with Section 2.2 of these
By-Laws, but the stockholders may adopt additional By-laws and may amend and
repeal any By-laws whether adopted by them or otherwise.
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<PAGE>
EXHIBIT 10.1
SL-1888
05/29/96
Page 1 of 16
O.E.M. SUPPLY AGREEMENT
THIS AGREEMENT, made effective this _____ day of______, 1996, by and
between Sherwood Medical Company, doing business as Sherwood-Davis & Geck, a
corporation organized and existing under the laws of the State of Delaware,
having an office at 1915 Olive Street, St. Louis, Missouri 63103 (hereinafter
referred to as "Sherwood-D&G") and Univec, Inc., a corporation organized and
existing under the laws of the State of New York, having an office at 999
Franklin Avenue, Garden City, New York 11530 (hereinafter referred to as
"Customer").
SECTION 1. DEFINITIONS
As used in this Agreement, the following terms shall be deemed to have the
following meanings:
1(a) "Contract Year" shall mean each twelve (12) month period during the
term of the Agreement beginning with the Commencement Date.
1(b) "Products" shall mean hypodermic syringe component sets, each
consisting of a syringe barrel with or without a permanently pre-attached
cannula and sheath or a separate hooded needle, and a plunger tip (a "Component
Set); and single-use syringe plungers ("Plungers"), each as more fully described
in Exhibit A hereto, and as amended from time to time in writing by the parties.
1(c) "Specifications" shall mean the specifications and protocols set forth
in Exhibit B attached hereto.
1(d) "Sufficient Production Capacity" shall mean having sufficient
manufacturing facilities, equipment, staff, raw materials and shipping
facilities to manufacture and deliver to Customer at least fifty million
(50,000,000) Component Sets during each Contract Year.
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SECTION 2. PURCHASE AND SALE OF PRODUCTS
2(a) In accordance with the terms and conditions of this Agreement,
Sherwood-D&G shall manufacture and sell the Products to Customer, and Customer
shall purchase the Products from Sherwood-D&G.
2(b) Sherwood-D&G shall maintain Sufficient Production Capacity at all
times during the term of this Agreement. Upon receipt of written purchase orders
from Customer using Customer's standard form of purchase Order, Sherwood-D&G
shall manufacture and deliver Component Sets and Plungers in accordance with
such written purchase orders, provided, however, notwithstanding anything to the
contrary herein, Sherwood-D&G shall only be obligated to manufacture and deliver
an average of four million one hundred sixty-six thousand six hundred
sixty-seven (4,166,667) Component Sets and the quantity of acceptable Plungers
that it has the capacity and capability to manufacture, as set forth in Section
2(c) hereof, each month against such purchase orders during the term of this
Agreement. Sherwood-D&G shall keep Customer informed of its capacity and
capability to manufacture acceptable Plungers. Nothing contained herein shall
require Customer to order any minimum quantity of Products at any time during
the term of this Agreement.
2(c) Sherwood-D&G shall exert reasonable business efforts to manufacture
and deliver to Customer the quantity of acceptable Plungers ordered by Customer
each month up to an average of eight million three hundred thirty-three thousand
three hundred thirty-three (8,333,333) Plungers per month. Beginning on the
Commencement Date, Sherwood-D&G and Customer shall cooperate to develop mutually
acceptable Specifications for the Plungers that will allow the greatest yield
from Sherwood-D&G's plunger mold while functioning in a reasonably acceptable
manner in Customer's assembly process without sacrificing the quality of the
finished product. Specifically, Sherwood-D&G shall exert its reasonable business
efforts to refine its plunger mold and manufacturing process for the Plungers to
increase its capacity and capability
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to manufacture acceptable Plungers and Customer shall exert its reasonable
business efforts to refine its syringe assembly process to accept such Plungers.
2(d) Customer may place its orders on Customer's purchase order forms,
specifying shipping instructions and destinations. Any terms and conditions
included in any such purchase order form of Customer or any acknowledgment or
other form of Sherwood-D&G shall be of no force and effect and shall form no
part of the agreement between the parties. Minimum order quantities are ten
million (10,000,000) Component Sets or Plungers. Minimum shipment quantities are
two million (2,000,000) Component Sets or Plungers. Sherwood-D&G shall satisfy
all purchase orders promptly after receipt of Customer's written purchase order
or, except for the quantities of Products set forth in Section 2(b) which may
not be objected to or rejected, shall object to or reject any such purchase
order within fifteen (15) days after receipt thereof. Any purchase order for the
Products received by Sherwood-D&G and not objected to or rejected within fifteen
(15) days after receipt shall be deemed accepted by Sherwood-D&G. Delivery shall
be required by Customer no sooner than ninety (90) days from receipt of
Customer's written purchase order. Customer shall provide Sherwood-D&G with six
(6) month non-binding forecasts of purchases of the Products sixty (60) days in
advance of each six (6) month period throughout the term of this Agreement.
Within thirty (30) days of receipt of such non-binding forecasts from Customer,
Sherwood-D&G shall notify Customer in writing whether, in its sole judgment, it
has available production capacity to supply Customer with more than twenty-five
million (25,000,000) Component Sets during the applicable six (6) month period
covered by such forecast. If Customer desires to purchase from Sherwood-D&G in
excess of twenty-five million (25,000,000) Component Sets during such six (6)
month period, it shall, within fifteen (15) days of receipt of the notice of
sufficient available capacity from Sherwood-D&G, issue to Sherwood-D&G binding
purchase orders for such additional Component Sets up to the available capacity
set forth in Sherwood-D&G's notice. The parties agree that said purchase orders
for such additional Component Sets shall be binding on both Sherwood-D&G and
Customer for the quantities set
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forth therein. All purchase orders and forecasts shall be sent to Sherwood-D&G
in accordance with Section 10 hereof.
SECTION 3. TERM OF AGREEMENT
3(a) This Agreement shall commence on the effective date first written
above (the "Commencement Date") and, unless sooner terminated or extended in
accordance with the provisions of Sections 3(b) or 6 hereof, shall continue for
a period of five (5) years (the "Initial Term") from the initial delivery and
acceptance of commercial quantities of Products.
3(b) In the event that Sherwood-D&G exercises the option set forth in
Section 9 hereof to enter into the Non-Exclusive License Agreement (U.S.), the
Initial Term shall continue from the Commencement Date until the greater of (A)
five (5) years or (B) the sooner to occur of (i) market introduction and
commercial sale by Sherwood-D&G of Licensed Product (as defined in the
Non-Exclusive License Agreement (U.S.), or (ii) two and one-half (2-1/2) years
from execution of the Non-Exclusive License Agreement (U.S.) by both of the
parties hereto.
SECTION 4. PRICE AND PAYMENT TERMS
4(a) For all Products purchased from Sherwood-D&G for delivery to Customer
during the first twelve (12) months of the Initial Term, Customer shall pay to
Sherwood-D&G the price for each of the Products set forth in Exhibit A
(hereinafter referred to as the "Product Purchase Price"), FOB Sherwood-D&G's
manufacturing facility. All prices are exclusive of sales, use and other taxes.
All export, import and other duties, tariffs and customs shall be paid by
Customer. If exemption is claimed by Customer from any of the foregoing,
Customer shall furnish to Sherwood-D&G satisfactory proof of such exemption. For
the first fifty million (50,000,000) Components Sets and Plungers ordered by
Customer, Sherwood-D&G shall maintain an inventory of a ninety (90) day supply
of such Products (or such lesser amount as may be requested from
<PAGE>
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time to time by Customer) until needed by Customer, with payment terms of net
sixty (60) days from date of shipment. Thereafter, payment terms are net thirty
(30) days from date of shipment.
4(b) Sherwood-D&G shall have the right to revise the prices set forth in
Exhibit A not more often than once during any twelve (12) month period
commencing twelve (12) months after the Commencement Date, by giving Customer
thirty (30) days written advance notice. Such revisions in price shall not
exceed the actual changes in the cost to Sherwood-D&G for parts, materials,
labor and overhead directly related to the manufacture, packaging and labeling
of the Products, utilizing generally accepted accounting principles, but in no
event will any price increase for any Product exceed five percent (5%) in any
twelve (12) month period. Customer may, at its option, request verification of
such increases by independent certified public accountants, reasonably
acceptable to Sherwood-D&G. In no event shall any such upward price revision
take into account any amount with respect to any lease payments or amortization
charges or any increase in maintenance, overhead or any other cost or expense
relating to the plunger mold leased by Sherwood-D&G from Customer to make the
Plunger.
4(c) Customer will be charged and will pay to Sherwood-D&G a surcharge
equal to fourteen and nine hundred twenty-five thousandths percent (14.925%) of
the invoice price of Products ordered and received by Customer up to a maximum
invoiced amount of Six Million Seven Hundred Thousand Dollars ($6,700,000) of
Product purchases. Sherwood-D&G will give Customer a discount on Product
Purchase Prices by a credit equal to the amount of the surcharge on invoiced
amounts up to a maximum aggregate of Three Million Three Hundred Fifty Thousand
Dollars ($3,350,000) of Product purchases. No surcharge shall be applied to
invoiced amounts in excess of an aggregate amount of Six Million Seven Hundred
Thousand Dollars ($6,700,000) and no credits shall be applied to invoiced
amounts in excess of an aggregate amount of Three Million Three Hundred Fifty
Thousand Dollars ($3,350,000). In no event shall
<PAGE>
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Customer pay or be required to pay more than Five Hundred Thousand Dollars
($500,000) in surcharges net of the above credits.
SECTION 5. WARRANTIES, COVENANTS AND INDEMNIFICATION
5(a) Sherwood-D&G warrants that it has title to all Products sold to
Customer hereunder free of all liens and encumbrances of any kind or nature.
Sherwood-D&G further warrants and guarantees that at the time of shipment of
Products to Customer pursuant to Customer's purchase orders, the Products shall
conform to the Specifications and shall have been manufactured in accordance
with all applicable federal, state and local laws, including the Federal Food,
Drug and Cosmetic Act, as amended, and the regulations issued thereunder.
5(b) The parties represent and warrant that they have the full right to
enter into this Agreement and that this Agreement does not conflict with any
other agreements so long as the other terms of this Agreement are met.
5(c) THE FOREGOING WARRANTIES OF THE PARTIES ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. Except as
otherwise provided herein, in no event will either party be liable for any
indirect, special, consequential, incidental or contingent damages in connection
with the purchase, use or sale of the Products. Notwithstanding anything to the
contrary contained herein, in the event that Sherwood-D&G fails to deliver to
Customer Products meeting the Specifications, on a timely basis, as required by
any Customer purchase orders delivered to and accepted by Sherwood-D&G pursuant
to this Agreement, Customer shall be entitled, in addition to any other remedy
available to it, to recover the profits that Customer would have made on the
sale of single-use syringes that would have incorporated such Products had such
Products been delivered.
<PAGE>
SL-1888
05/29/96
Page 6 of 16
5 (d) Upon notification by Customer to Sherwood-D&G that there has been or
may be a claim threatened or suit for damages instituted against Customer for
personal injury or property damage related to use of the Products, Sherwood-D&G,
its successors and assigns shall defend, indemnify and save harmless Customer,
its employees, officers, subsidiaries and affiliated companies, their successors
and assigns, against such claim or suit if based upon or arising out of an
alleged defect in the Product, unless such claim or suit is based upon or arises
out of an alleged defect (i) in the design of the Product, provided that the
design of the Product (less the Plunger) is not defective as used by
Sherwood-D&G for its standard line of hypodermic syringes, or (ii) created by
the combination of the Component Sets with the Plunger, or (iii) caused by the
assembly process in which the Component Sets and Plungers are assembled into
complete single-use syringes; or is otherwise based upon or arises out of any
negligent or intentional acts or omissions of Customer. It shall be prima facie
evidence that a Product is defective if it fails to meet the Specifications.
Sherwood-D&G shall maintain comprehensive General Liability Insurance, including
contractual and product liability, in amounts not less than $1,000,000 per
occurrence and $3,000,000 annual aggregate on a date of occurrence basis (not a
date of claim basis). Upon request, Sherwood-D&G shall submit a certificate
evidencing such insurance to Customer,, which certificate shall provide that the
insurance policy evidenced thereby may not be canceled or reduced in amount
without thirty (30) days prior notification to Customer. In the event of any
claim or suit arising under this indemnity, prompt notice thereof shall be given
to Sherwood-D&G, which shall have the right to conduct and control the defense
in respect thereto, but Customer may have counsel present at its own expense and
shall be entitled to participate in the defense. Customer shall cooperate with
Sherwood-D&G in such defense as requested by Sherwood-D&G, at the expense of
Sherwood-D&G. If Sherwood-D&G shall timely fail or refuse
<PAGE>
SL-1888
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to assume such defense, Customer may employ counsel with respect thereto and all
reasonable fees and expenses of such counsel shall be paid by Sherwood-D&G.
5 (e) Upon notification by Sherwood-D&G to Customer that there has been or
may be a claim threatened or suit for damages instituted against Sherwood-D&G
for personal injury or property damage related to use of the Products, Customer,
its successors and assigns shall defend, indemnify and save harmless
Sherwood-D&G, its employees, officers, subsidiaries and affiliated companies,
their successors and assigns, against such claim or suit if based upon or
arising out of an alleged defect (i) in the design of the Product, provided that
the design of the Product (less the Plunger) is not defective as used by
Sherwood-D&G for its standard line of hypodermic syringes, or (ii) created by
the combination of the Component Sets with the Plunger, or (iii) caused by the
assembly process in which the Component Sets and Plungers are assembled into
complete single-use syringes; or is otherwise based upon or arises out of any
negligent or intentional acts or omissions of Customer. Customer shall maintain
comprehensive General Liability Insurance, including contractual and product
liability, in amounts not less than One Million Dollars ($1,000,000.00) per
occurrence and Three Million Dollars ($3,000,000.00) annual aggregate on a
date-of-occurrence basis (not a date of claim basis). Upon request, Customer
shall submit a certificate evidencing such insurance to Sherwood-D&G, which
certificate shall provide that the insurance policy evidenced thereby may not be
canceled or reduced in amount without thirty (30) days prior notification to
Sherwood-D&G. In the event of any claim or suit arising under this indemnity,
prompt notice thereof shall be given to Customer, which shall have the right to
conduct and control the defense in respect thereto, but Sherwood-D&G may have
counsel present at its own expense and shall be entitled to participate in the
defense. Sherwood-D&G shall cooperate with Customer in such defense as requested
by Customer, at the expense of Customer. If Customer shall timely fail or refuse
to assume such
<PAGE>
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defense, Sherwood-D&G may employ counsel with respect thereto and all reasonable
fees and expenses of such counsel shall be paid by Customer.
5(f) Customer, its successors, assigns and legal representatives, shall
forever defend, indemnify and save harmless Sherwood-D&G, its employees and
officers, their successors, assigns and customers against all damages, claims,
demand, seizures, injunctions, judgments, third party attorneys' fees and costs
of any kind for any actual or alleged infringement, including willful
infringement, of any patent, registered design, copyright or other industrial
property right, including rights arising from confidential disclosures or
relationships, because of the manufacture, use and/or sale of the Plunger or the
combination by or for Customer of Component Sets with the Plunger or any other
components or devices, but not with respect to the Component Sets per se. In the
event of any claim or suit arising under this indemnity, prompt notice thereof
shall be given to Customer, which shall have the right to conduct and control
the defense in respect thereto, but Sherwood-D&G may have counsel present at its
own expense and shall be entitled to participate in the defense. Sherwood-D&G
shall cooperate with Customer in such defense as requested by Customer, at the
expense of Customer.
5(g) Sherwood-D&G, its successors, assigns and legal representatives, shall
forever defend, indemnify and save harmless Customer, its employees and
officers, their successors, assigns and customers against all damages, claims,
demand, seizures, injunctions, judgments, third party attorneys' fees and costs
of any kind for any actual or alleged infringement, including willful
infringement, of any patent, registered design, copyright or other industrial
property right, including rights arising from confidential disclosures or
relationships, because of the manufacture, use and/or sale of the Component Sets
per se, but not with respect to the Plunger or to any combination of the
Component Sets with the Plunger or with any other components or devices. In the
event of any claim or suit arising under this indemnity, prompt notice thereof
shall be given
<PAGE>
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to Sherwood-D&G, which shall have the right to conduct and control the defense
in respect thereto, but Customer may have counsel present at its own expense and
shall be entitled to participate in the defense. Customer shall cooperate with
Sherwood-D&G in such defense as requested by Sherwood-D&G, at the expense of
Sherwood-D&G.
SECTION 6. TERMINATION
6 (a) Either party may terminate this Agreement by giving written notice to
the other party in the following circumstances:
(i) following thirty (30) days notice in the event the other party
commits any material breach of any obligation of this Agreement
which is not cured within said thirty (30) day period; or
(ii) immediately upon giving notice in the event a petition of
bankruptcy is filed against the other party which is not vacated
or stayed within ninety (90) days, or in the event the other
party makes a general assignment for the benefit of creditors, or
a receiver is appointed for the other party.
6 (b) Termination of this Agreement shall not affect any rights or
obligations accrued prior to the effective date of such termination, including,
but not limited to, Customer's obligation to pay for Products ordered and
shipped to Customer. Notwithstanding the foregoing, the right to exercise the
option pursuant to Section 9 hereof shall be suspended immediately upon the
giving of notice of termination by Customer pursuant to this Section 6 and such
option shall terminate and cease to be exercisable on the thirtieth (30th) day
after the date of such notice unless Sherwood-D&G shall have cured the breach or
other cause for such notice of termination. The provisions set forth in Section
5 hereof shall survive termination of this Agreement. The rights provided in
this Paragraph shall be in addition and without prejudice to any other rights
<PAGE>
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which the parties may have with respect to any breach or violation of the
provisions of this Agreement.
6(c) Waiver by either party of a single default or breach or of a
succession of defaults or breaches shall not deprive such party of any right to
terminate this Agreement pursuant to the terms hereof upon the occasion of any
subsequent default or breach.
SECTION 7. RETURNS AND CREDITS
Sherwood-D&G shall furnish Customer with a written certificate for each lot
of Products shipped to Customer, stating that the Products in that lot,
identified by lot number, conform to the Specifications. If the Products are not
of United States origin, Sherwood-D&G shall attempt, but shall not be required,
to inform Customer of the country or countries of manufacture. Customer, within
thirty (30) days of receipt, shall have the right to reject any lots or units
which, by inspection, fail to meet the Specifications, and to receive credit
therefor. Rejected lots of Products will be shipped to Sherwood-D&G's
manufacturing facility with an identified rejection criteria, freight collect.
SECTION 8. FORCE MAJEURE
If either party is prevented from performing any of its obligations
hereunder (other than the payment of money) for unforeseeable and unavoidable
causes beyond its control and without its fault or negligence, which wholly or
partially prevent the manufacture, delivery, transportation, receipt, sale or
use of the Products, including but not limited to fire, strike, explosion, flood
or other acts of God, the inability of a vendor to supply approved raw materials
(unless caused by the negligence or the intentional acts or omissions of the
party seeking to avail itself of this provision) or any act or order of any
governmenta1 agency, such party shall not be liable to the other party for
breach of this Agreement, provided the party so affected gives prompt notice of
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such cause to the other party and exercises due diligence to remove the cause as
soon as reasonably practical.
SECTION 9. OPTION
9(a) In consideration for the transfer by Sherwood-D&G to Customer of all
of Sherwood-D&G's right, title and interest in and to the production mold for
the Plunger, including the mold inserts and the mold base, as evidenced by the
Bill of Sale attached hereto as Exhibit D, Customer grants to Sherwood-D&G an
option, exercisable (subject to Section 6(c) hereof) at any time prior to the
sooner to occur of termination of this Agreement or three and one-half (3-1/2)
years from the Commencement Date (hereinafter referred to as the "Option
Period"), to enter into the Non-Exclusive License Agreement (U.S.) attached
hereto as Exhibit C. Subject to Section 6(c) hereof, Sherwood-D&G may exercise
its option to enter into the Non-Exclusive License Agreement (U.S.) at any time
during the Option Period by executing a copy of same and returning it to
Customer together with the applicable license fee in accordance with Section 3
of the Non-Exclusive License Agreement (U.S.). Upon receipt of the signed
Non-Exclusive License Agreement (U.S.) and payment in full of the applicable
license fee, Customer will execute the Non-Exclusive License Agreement (U.S.)
and return a fully executed copy to Sherwood-D&G.
9(b) If, during the period beginning eighteen (18) months after the
Commencement Date and ending on expiration of the Option Period, Customer
receives a bona fide written offer from an unrelated third party to exclusively
license the Licensed Patent Rights (as defined in the Non-Exclusive License
Agreement (U.S.)), Customer shall notify Sherwood-D&G of the receipt of said
offer by providing a true copy thereof to Sherwood-D&G. Upon receipt of said
written offer, Sherwood-D&G shall, within thirty (30) days of receipt, notify
Customer of its intent either:
(i) to exercise the option to enter into the Non-Exclusive License
Agreement (U.S.) pursuant to Section 9(a) hereof; or
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(ii) to enter into an exclusive license with Customer on the same terms as
set forth in the offer (but including the Movern Patents if not
included in the bona fide offer); or
(iii) to terminate its option rights hereunder in consideration of the
payment by Customer to Sherwood-D&G of the greater of One Hundred
Thousand Dollars ($100,000.00) or the balance of the surcharge amount
payable under Section 4(c) hereof as of the date of Sherwood-D&G's
notice to Customer hereunder.
If Sherwood-D&G elects Section 9(b)(i), it shall execute the Non-Exclusive
License Agreement (U.S.) and return it to Customer with the applicable license
fee in the manner set forth in Section 9(a); if Sherwood-D&G elects Section
9(b)(ii), the parties shall, as soon as practicable and in any event prior to
the expiration of the bona fide offer, negotiate and execute an exclusive
license agreement on the same terms as set forth in the third-party offer; or if
Sherwood-D&G elects Section 9(b)(iii), the parties shall agree on the balance of
the surcharge amount payable under Section 4(c) hereof and that amount, but not
less than One Hundred Thousand Dollars ($100,000.00), shall be paid to
Sherwood-D&G within ten (10) days of Sherwood-D&G's election, and the option of
Section 9 shall terminate and be of no further force and effect.
SECTION 10. DISTRIBUTION AGREEMENT
Sherwood-D&G and Customer agree to negotiate in good faith the terms of a
non-exclusive distribution agreement to become effective after the exercise of
the option and immediately upon Sherwood-D&G's introduction to the market and
commercial sale of a single-use syringe under the Non-Exclusive License
Agreement (U.S.). The parties shall commence negotiations regarding the terms of
the distribution agreement immediately upon execution of this
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Agreement and shall diligently and in good faith negotiate such terms in an
effort to reach agreement with respect thereto within thirty (30) days after the
date hereof.
SECTION 11. NOTICES
All notices specified in this Agreement shall be given in writing and shall
be effective when either served by personal delivery or facsimile transmission,
or on the day following timely delivery for next-day delivery to a national
overnight courier service guaranteeing next-day delivery, or five (5) days after
being addressed to the other party at the address specified below and deposited
first class mail. Unless otherwise specified in accordance with the provision of
this Section, the addresses of the parties shall be:
Univec, Inc.
999 Franklin Avenue
Garden City, New York 11530
Attention: Joel Schoenfeld
Facsimile No. 516/739-3343
and
Sherwood Medical Company
1915 Olive Street
St. Louis, Missouri 63103
Attention: Vice President, OEM Sales
Facsimile No. 314/241-0232
SECTION 12. MISCELLANEOUS PROVISIONS
12(a) This document constitutes the entire Agreement between the parties,
there being no warranties, representations or conditions of any kind or nature
between the parties except as set forth herein. This Agreement may not be
changed or modified except by an instrument in writing duly signed by the
parties hereto. The December 22, 1994 OEM Supply Agreement between the parties
is hereby expressly terminated and canceled, together with all rights and
obligations of the parties with respect thereto. The parties hereto, their
respective employees, officers, directors, subsidiaries, successors and assigns,
hereby waive, release and discharge
<PAGE>
SL-1888
05/29/96
Page 15 of 16
each other, and any of their past, present or future shareholders, employees,
officers, directors, parents, subsidiaries, affiliates, successors, assigns,
agents or representatives, from any and all claims, liabilities, damages and
demands whatsoever, in law or in equity, known or unknown, arising out of the
December 22, 1994 OEM Supply Agreement, all modifications thereto, or any other
prior agreement between the parties, oral or written, express or implied,
relating to the supply by Sherwood-D&G to Customer of the Products or any other
products. This Agreement supersedes all prior agreements and arrangements,
written or oral, between the parties hereto with respect to the subject matter
hereof.
12(b) This Agreement may not be assigned by either party without the
written consent of the other except to a subsidiary or in the case of a sale or
transfer of all or substantially all of its business by way of acquisition,
consolidation or merger. Notwithstanding the foregoing, this Agreement shall be
binding upon the respective successors and assigns of either party hereto.
12(c) The laws of the State of New York, without regard to principles of
conflicts of laws shall govern the interpretation and all disputes arising out
of this Agreement.
12(d) Nothing contained in this Agreement shall permit either party to
incur any debts or liabilities on behalf of the other party except as
specifically provided in this Agreement. The parties are and will remain at all
times independent contractors, and no agency or employment relationship exists
between them.
12(e) The headings and captions contained herein are for reference only and
shall not constitute a substantive part of this Agreement.
12(f) If any part of this Agreement is rendered void, invalid or
unenforceable by a court of competent jurisdiction after the expiration or
waiver of all rights to appeal, such shall not affect the validity or
enforceability of any other provisions of this Agreement except those where the
<PAGE>
SL-1888
05/29/96
Page 16 of 16
invalid or unenforceable provisions comprise an integral part of or are
otherwise clearly inseparable from the intent and purpose of this Agreement. In
the event any provision is held invalid or unenforceable, the parties will
attempt to agree upon a valid and enforceable provision which shall be a
reasonable substitute for such invalid or unenforceable provision in light of
the intent of this Agreement and, upon so agreeing, shall incorporate such
substitute provision in this Agreement.
12(g) The parties agree that the prevailing party in any litigation under
this Agreement shall be entitled to recover, as part of its judgment, its
reasonable attorneys' fees and any related costs and expenses.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate originals by their duly authorized representatives.
CUSTOMER: UNIVEC, INC. SHERWOOD MEDICAL COMPANY
d/b/a SHERWOOD - DAVIS & GECK
By: /s/ Joel Schoenfeld By: /s/ Peter DiGasbarro
-------------------------------- ---------------------------
(Signture) (Signature)
Joel Schoenfeld Peter DiGasbarro
-------------------------------- ---------------------------
(Print Name) (Print Name)
Title: C.E.O Sr VP Marketing
------------------------------ ---------------------------
Date: 6/7/96 5/31/96
------------------------------ ---------------------------
H:\NANCY\AGMT\UNIVEC.CLN
<PAGE>
SL-1888
5/29/96
EXHIBIT A
PRODUCTS AND PRICING
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Product
Products*** Purchase Price*
- ---------------------------------------------------------------------------------------
<S> <C>
5551-791600 1cc barrel, private label with preattached 27ga x 1/2"
cannula and sheath, non-sterile, bulk packed #
- ---------------------------------------------------------------------------------------
5551-761025 or 5551-500019 1cc plunger tip, non-sterile, bulk packed
(with or without silicone) #
- ---------------------------------------------------------------------------------------
1cc Tuberculin, Luer Slip, barrel only, private labor, non-sterile,
bulk packed
#
Hooded needle, 20-27ga x 1/2"-1", non-sterile, bulk packed
- ---------------------------------------------------------------------------------------
Univec design single-use Plungers, non-sterile, bulk packed #
- ---------------------------------------------------------------------------------------
</TABLE>
* A one-time die cost of $1,500.00 will be paid by Customer for each private
label barrel.
** 1" cannula and other gauges and cannula lengths will be made available to
Customer when Sherwood-D&G has production capacity and capability to
manufacture. Sherwood-D&G currently has the capacity to also manufacture 28
and 29 gauge by 1/2" cannula. (Product Purchase Price may vary.)
*** 1cc sliding sleeve safety syringe barrel, private label, non-sterile, bulk
packed, may be added as a Product provided that Sherwood-D&G has production
capacity and capability to manufacture and the parties agree on the Product
Purchase Price therefor.
- ---------
# Confidential treatment has been sought by the Company for the omitted
portions and such material has been filed separately with the Commission.
<PAGE>
SL-1888
5/29/96
EXHIBIT B
SPECIFICATIONS
Barrels, Hooded Needles and Plunger Tip - See attached.
Plunger - To be mutually agreed upon by the parties and attached hereto.
<PAGE>
SCHEMATIC DEPICTING OPERATION, SPECIFICATIONS,
AND MATERIAL OF EPOXY 1CC TUBERCULIN SYRINGE
CANNULA CANNULA SHEATH
GAGE D.D. I.D. COLOR
- ---------------------------------------------------------------------
27 .0160/.0165 .0075/.0090 DK. ORANGE
- ---------------------------------------------------------------------
28 .0140/.0145 .0065/.0080 DK. ORANGE
- ---------------------------------------------------------------------
29 .0130/.0135 .0065/.0080 DK. ORANGE
- ---------------------------------------------------------------------
NOTES:
1. MATERIAL: BARREL-POLYPROPYLENE
SHEATH-POLYETHYLENE
CANNULA-STAINLESS STEEL TUBING, AISI TYPE 304
EPOXY-THERMAL
LUBRICANT-SHERWOOD CONFIDENTIAL
SHERWOOD
MEDICAL
MIAMI, FLORIDA
---------------------------------
TITLE
ASSEMBLY-BARREL, CANNULA, SHEATH
1CC EPOXY SYRINGE, U-100 INSULIN
CUSTOMER DISTRIBUTION ONLY
---------------------------------
. Used for DWG No. Rev.
Scale 2/1 B-91353 ---
---------------------------------
<PAGE>
SCHEMATIC DEPICTING OPERATION, SPECIFICATIONS,
AND MATERIAL OF EPOXY 1CC INSULIN SYRINGE
CANNULA CANNULA SHEATH
GAGE D.D. I.D. COLOR
- ---------------------------------------------------------------------
27 .0160/.0165 .0075/.0090 YELLOW
- ---------------------------------------------------------------------
28 .0140/.0145 .0065/.0080 RED/BROWN
- ---------------------------------------------------------------------
29 .0130/.0135 .0065/.0080 CLEAR
- ---------------------------------------------------------------------
NOTES:
1. MATERIAL: BARREL-POLYPROPYLENE
SHEATH-POLYETHYLENE
CANNULA-STAINLESS STEEL TUBING, AISI TYPE 304
EPOXY-THERMAL
LUBRICANT-SHERWOOD CONFIDENTIAL
SHERWOOD
MEDICAL
MIAMI, FLORIDA
---------------------------------
TITLE
ASSEMBLY-BARREL, CANNULA, SHEATH
1CC EPOXY SYRINGE, TUBERCULIN
CUSTOMER DISTRIBUTION ONLY
---------------------------------
. Used for DWG No. Rev.
Scale 2/1 B-91354 ---
---------------------------------
<PAGE>
EXHIBIT B
QUALITY ASSURANCE CLASSIFICATION CD 1003
SHERWOOD MEDICAL OF DEFECTS MANUAL REV O
NORFOLK NEBRASKA COMPONENTS DATE O5/23/96
- --------------------------------------------------------------------------------
DOCUMENT COORDINATOR Q. A. MANAGER EFFECTIVE
DATE
- --------------------------------------------------------------------------------
TITLE: UNIVEC EPOXY SYRINGE SUBASSEMBLY (B/C/S)
I. VISUAL EVALUATION
------------------
Zero magnification unless otherwise specified
CL-1 Defects 0.065% A.Q.L.
--------------------------
1. Split or hole in sheath which may allow loss of sterility
CL-2 Defects 0.250% A.Q.L.
--------------------------
1. Water in assembled unit
2. Blood on syringe assembly
3. Missing point
4. Needle piercing sheath
5. Damaged or hook on point
6. Graduation printing error which will cause a volume error in excess of
+/-.02ml or +/-2 units (insulin only)
CL-3 Defects 0.400% A.Q.L.
--------------------------
1. Incomplete or incorrect assembly
2. Damaged product components (non-functional)
3. Flash which renders unit unserviceable
4. Graduation printing
a. Printing not legible
b. High or low graduation lines which cause volume to be out of
specification
c. Complete lack of printing of numbers; i.e. 1, 2, etc.
d. Non-printing of two or more graduations
5. Hole, split or crack in barrel which permits leakage
6. Impossible to remove sheath from syringe barrel
7. Epoxy flake on free length (attached)
8. Split cannula
9. Bent cannula
10. Primary grind only
11. Burr on lancet point
12. Mixed needle lengths or gage
13. Corrosion on cannula
14. Any defect visually obnoxious; i.e. hair, insect, etc.
15. Foreign material in fluid pathway
16. Missing, incorrect or illegible lot number of product identification -
packaging material
CL-4 Defects 1.500% A.Q.L.
--------------------------
1. Foreign material on outside of syringe
2. Damage components (functional but less than desired)
3. Fingernail flash exceeds 1/32" or parting line flash exceeding 1/16"
total
4. Non-printing of one graduation
5. Epoxy spillover on cannula not to exceed 1/16"
6. Printing smeared but legible
7. Globs (hardened lubricant) on cannula
8. Light burr on lancet point
1
UNAPPROVED COPY
<PAGE>
EXHIBIT B
QUALITY ASSURANCE CLASSIFICATION CD 1003
SHERWOOD MEDICAL OF DEFECTS MANUAL REV O
NORFOLK NEBRASKA COMPONENTS DATE O5/23/96
CL-5 Defects 6.500% A.Q.L.
--------------------------
1. Poor workmanship
2. Excessive lubricant, droplets or pools visible through the barrel
3. Inclusions in parts
4. Fractures exceeding 5/8" in length (sheath only)
5. Incomplete epoxy fill in barrel (recessed below flush)
6. Excessive epoxy that migrates over half the distance of the rib
II. PHYSICAL EVALUATION
-------------------
CL-1 Defects 6.500% A.Q.L.
--------------------------
1. Pull test of cannula below three (3) pounds
CL-2 Defects 0.250% A.Q.L.
--------------------------
1. None defined
CL-3 Defects 0.400% A.Q.L.
--------------------------
1. Leakage in fluid pathway
2. Clogged or partially clogged needle
3. Cleanliness of neddle: O.D. of cannula
4. Pull test of cannula below five {5) pounds
5. No lubricant on cannula
CL-4 Defects 0.500% A.Q.L.
--------------------------
1. Pull test of sheath from barrel exceeds (7) seven pounds
2. Cannula does not meet straightness specification
3. Constriction
4. Partial lubricant on cannula
CL-5 Defects 6.500% A.Q.L.
---------------------------
1. Long or short cannula free length
END OF PROCEDURE
UNAPPROVED COPY
2
<PAGE>
EXHIBIT B
SCHEMATIC OF BARREL-LUER SLIP
NOTES:
1. MATERIAL: BARREL-POLYPROPYLENE
2. DIA. "A" TO BE A MIN. OF .002 SMALLER THAN DIA. "B".
SHERWOOD
MEDICAL
MIAMI, FLORIDA
---------------------------------
TITLE
1CC BARREL-LUER SLIP
PRINTED-TUBERCULIN
CUSTOMER DISTRIBUTION ONLY
---------------------------------
. Used for DWG No. Rev.
Scale NONE B-91355 ---
---------------------------------
<PAGE>
EXHIBIT B
QUALITY ASSURANCE CLASSIFICATION CD 1005
SHERWOOD MEDICAL OF DEFECTS MANUAL REV O
NORFOLK NEBRASKA COMPONENTS DATE O5/23/96
DOCUMENT COORDINATOR Q A MANAGER EFFECTIVE
DATE
TITLE: UNIVEC REGULAR LUER TIP PRINTED BARREL
I. VISUAL EVALUATION
------------------
(Zero Magnification Unless Otherwise Specified)
CL-1 Defects 0.065% A.Q.L
--------------------------
1. None Defined
CL-2 Defects 0.250% A.Q.L.
--------------------------
l. Water in units
2. Blood in units
CL-3 Defects 0.400% A.Q.L.
--------------------------
1. Incomplete or incorrect assembly
2. Damaged product components (non-functional)
3. Flash which renders unit unserviceable.
4. Graduation printing
4.1 Printing not legible
4.2 High or low graduation lines which cause volume to be out of
specification
4.3 Complete lack of printing of numbers; i.e. 1, 2, etc.
4.4. Non-printing of two or more graduations
5. Hole, split or crack in barrel which permits leakage
6. Any defect visually obnoxious; i.e. hair, insect, etc. Foreign
material in fluid pathway
7. Missing, incorrect or illegible lot number or product identification -
packaging material
CL-4 Defects 1.500% A.Q.L.
--------------------------
1. Foreign material on outside of barrel
2. Damaged component (functional but less than desired)
3. Fingernail flash exceeds 1/32" or parting line flash exceeding 1/16"
total
4. Absence of top line or one whole graduation line
5. Printing clarity or numerals and lettering and graduations must be
visible and legible at 18". Questionable unreadable printing will be
judged with a plunger rod inside the barrel
6. Crazing visible at 18"
7. The printing of the unit of measurement must be in full evidence (ml,
cc, oz, etc.)
CL-5 Defects 6.500% A.Q.L.
--------------------------
1. Poor workmanship
2. Printing not in line with flat of flange
3. Printing smeared but legible
UNAPPROVED COPY
1
<PAGE>
EXHIBIT B
QUALITY ASSURANCE CLASSIFICATION CD 1005
SHERWOOD MEDICAL OF DEFECTS MANUAL REV O
NORFOLK NEBRASKA COMPONENTS DATE O5/23/96
II. PHYSICAL EVALUATION
-------------------
CL-1 Defects 0.065% A.Q.L.
--------------------------
1. None Defined
CL-2 Defects 0.250% A.Q.L.
--------------------------
1. None Defined
CL-3 Defects 0.400% A.Q.L.
--------------------------
1. Printing on syringe barrel does not pass the ink permanency test
2. Syringe printing volume check exceeds the +/- 1.5% of syringe volume
plus 2.0% expelled volume at each major graduation (audit)
3. Failed leak test ( standard luer taper)
CL-4 Defects 1.500% A.Q.L.
--------------------------
1. None defined
CL-5 Defects 6.500% A.Q.L.
---------------------------
1. None defined
END OF PROCEDURE
UNAPPROVED COPY
2
<PAGE>
EXHIBIT B
SCHEMATIC DEPICTING DIAMETER, MATERIAL AND GENERAL SPECIFICATIONS
NOTES:
1. MATERIAL: BLACK RUBBER COMPOUND:
SHERWOOD
MEDICAL
MIAMI, FLORIDA
---------------------------------
TITLE
PLUNGER TIP-1cc SYRINGE
CUSTOMER DISTRIBUTION ONLY
---------------------------------
. Used for DWG No. Rev.
Scale xxxx B-xxxxx ---
---------------------------------
<PAGE>
EXHIBIT B
QUALITY ASSURANCE CLASSIFICATION CD 1004
SHERWOOD MEDICAL OF DEFECTS MANUAL REV 0
NORFOLK NEBRASKA COMPONENTS DATE 05/23/96
UNAPPROVED COPY
- --------------------------------------------------------------------------------
DOCUMENT COORDINATOR Q.A. MANAGER EFFECTIVE
DATE
- --------------------------------------------------------------------------------
TITLE: UNIVEC SYRINGE RUBBER PLUNGER TIP
I. VISUAL EVALUATION
-----------------
Zero magnification unless otherwise specified
CL-1 Defects 0.065% A.Q.L.
-------------------------
1. None defined
CL-2 Defects 0.250% A.Q.L.
-------------------------
1. None defined
CL-3 Defects 0.400% A.Q.L.
-------------------------
1. Cleanliness - foreign matter or particles, grease, etc.
2. Malforms, voids and no fills (applicable to face and first ring)
3. Splits and pin holes
4. Trim in excess of ring O.D.
5. Water on units
6. Any defect visibly obnoxious; i.e. hair, insects, etc.
7. Concentricity
CL-4 Defects 1.500% A.Q.L.
-------------------------
1. Missing, incorrect or illegible lot number or product
identification - packaging material
CL-5 Defects 6.500% A.Q.L.
-------------------------
1. Poor workmanship
2. Inclusions
II. PHYSICAL EVALUATION
-------------------
CL-1 Defects 0.065% A.Q.L.
-------------------------
1. None defined
CL-2 Defects 0.250% A.Q.L.
-------------------------
1. None defined
CL-3 Defects 0.400% A.Q.L.
-------------------------
1. Leakage of water beyond the first ring during leak test. Test
conducted when visual examination is not conclusive
2. Concentricity exceeds .020 T.I.R. (dimensional check to be
conducted when visual examination is not conclusive)
CL-4 Defects 1.500% A.Q.L.
-------------------------
1. None defined
CL-5 Defects 6.500% A.Q.L.
-------------------------
1. None defined
END OF PROCEDURE
<PAGE>
EXHIBIT B
[SCHEMATIC DEPICTING OPERATION, MATERIAL AND
SPECIFICATIONS OF M500E HOODED NEEDLE]
NOTES:
1. MATERIAL:
CANNULA-AISI TYPE 304.SS.
HUB-POLYPROPYLENE
SHEATH-POLYPROPYLENE-CLEAR
EPOXY-U.V. ADHESIVE OR THERMAL EPOXY
LUBRICANT-SHERWOOD CONFIDENTIAL,5-1038
2. EPOXY MAXIMUM PROTRUSION 3/32".
3. 18 GA. NEEDLES TO USE THERMAL EPOXY ONLY.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
NEEDLE | FREE | "A" OVERALL | "B" SHEATH | | HUB |
DESCPIPTION | LENGTH | MIN. | MAX. | MIN. | MAX. | | COLOR | REMARKS
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
18 x 1" A | 1" +- 1/16 | 1.736 | 1.791 | 1.600 | 1.620 | | | GREEN |
- ----------------------------------------------------------------------------------------------------------------------------
18 x 1 1/2" A | 1 1/2" +- 1/16 | 2.226 | 2.291 | 2.090 | 2.120 | | | GREEN |
- ----------------------------------------------------------------------------------------------------------------------------
19TW x 1" A | 1" +- 1/16 | 1.736 | 1.791 | 1.600 | 1.620 | | | LIME |
- ----------------------------------------------------------------------------------------------------------------------------
19TW x 1 1/2" A | 1 1/2" +- 1/16 | 2.226 | 2.291 | 2.090 | 2.120 | | | LIME |
- ----------------------------------------------------------------------------------------------------------------------------
20 x 1" A | 1" +- 1/16 | 1.736 | 1.791 | 1.600 | 1.620 | | | PINK |
- ----------------------------------------------------------------------------------------------------------------------------
20 x 1 1/2" A | 1 1/2" +- 1/16 | 2.226 | 2.291 | 2.090 | 2.120 | | | PINK |
- ----------------------------------------------------------------------------------------------------------------------------
21 x 1" A | 1" +- 1/16 | 1.736 | 1.791 | 1.600 | 1.620 | | | LAVENDER |
- ----------------------------------------------------------------------------------------------------------------------------
21 x 1 1/2" A | 1 1/2" +- 1/16 | 2.226 | 2.291 | 2.090 | 2.120 | | | LAVENDER |
- ----------------------------------------------------------------------------------------------------------------------------
22 x 1" A | 1" +- 1/16 | 1.736 | 1.791 | 1.600 | 1.620 | | | BLUE |
- ----------------------------------------------------------------------------------------------------------------------------
22 x 1 1/2" A | 1 1/2" +- 1/16 | 2.226 | 2.291 | 2.090 | 2.120 | | | BLUE |
- ----------------------------------------------------------------------------------------------------------------------------
25 x 1" A | 1" +- 1/16 | 1.736 | 1.791 | 1.600 | 1.620 | | | ORANGE |
- ----------------------------------------------------------------------------------------------------------------------------
25 x 5/8 A | 5/8" +- 3/64 | 1.736 | 1.791 | 1.600 | 1.620 | | | RED |
| 5/8" - 1/16 | | | | | | | |
- ----------------------------------------------------------------------------------------------------------------------------
25 x 1" A | 1" +- 1/16 | 1.736 | 1.791 | 1.600 | 1.620 | | | RED |
- ----------------------------------------------------------------------------------------------------------------------------
20 x 1" B | 1" +- 1/16 | 2.226 | 2.291 | 2.090 | 2.120 | | | PINK |
- ----------------------------------------------------------------------------------------------------------------------------
18 x 3/4" B | 3/4" +- 1/16 | 1.736 | 1.791 | 1.600 | 1.620 | | | GREEN |
- ----------------------------------------------------------------------------------------------------------------------------
18 x 5/8" B | 5/8" + 3/64 | 1.736 | 1.791 | 1.600 | 1.620 | | | GREEN |
| 5/8" - 1/16 | | | | | | | |
- ----------------------------------------------------------------------------------------------------------------------------
20 x 5/8" B | 5/8" + 3/64 | 1.736 | 1.791 | 1.600 | 1.620 | | | PINK |
| 5/8" - 1/16 | | | | | | | |
- ----------------------------------------------------------------------------------------------------------------------------
27 x 1/2" I | 1/2" + 3/64 | 1.736 | 1.791 | 1.600 | 1.620 | | | YELLOW |
| 1/2" - 1/16 | | | | | | | |
- ----------------------------------------------------------------------------------------------------------------------------
27 x 1 1/2" A | 1 1/2" +- 1/16 | 2.226 | 2.291 | 2.090 | 2.120 | | | YELLOW |
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SHERWOOD
MEDICAL
DELANO, FLORIDA
---------------------------------
TITLE
CUSTOMER DISTRIBUTION
M500E HOODED NEEDLE
---------------------------------
. Based on DWG No. Rev.
O.E.M.
Scale None B-90415 G
---------------------------------
<PAGE>
EXHIBIT B
|----------------------------------------------------
[LOGO] SHERWOOD MEDICAL |TITLE |SPEC. NO. | REV.
CLASSIFICATIONS OF | |CD-2114 | B
DEFECTS |CLASSIFICATIONS OF DEFECTS |SHEET 1 of 3 |
| EPOXY HOODED NEEDLES |--------------------
| |ISSUE
| |DATE 9/19/88
- -------------------------------------------------------------------------------
Compiled by: | APPROVALS AND DATE
DeLand Mfg. |-----------------------------------------------------------
7-22-88 | 7-27-88 | 8-16-88 | 8-24-88 | |
| | | | |
J. Hansen | [illegible] | [illegible] | [illegible] | |
- -------------------------------------------------------------------------------
I. VISUAL EVALUATION (ZERO MAGNIFICATION UNLESS OTHERWISE SPECIFIED)
-----------------------------------------------------------------
CL-1 DEFECTS. 0.065% A.Q.L.
---------------------------
1. Split or hole in sheath which may allow loss of sterility
CL-2 DEFECTS: 0.25% A.Q.L.
---------------------------
1. Blood on needle assembly
2. Needle piercing sheath
3. Missing point
4. Hook or severe point damage
5. Reversed cannula
6. No visible epoxy
CL-3 DEFECTS: 0.4% A.Q.L.
--------------------------
1. Incorrect or incomplete assembly
2. Damaged product components (non-functional)
3. Split cannula
4. Mixed cannula
5. Bent cannula
6. Corrosion on cannula
7. Any defect visibly obnoxious i.e., hair, insect, etc.
8. Slivers, loosely attached metallic material or debris in cannula bevel
or inside hub
9. Preliminary grind only
10. Burr on lancet point
11 Incomplete or geometrically unacceptable grind
12. Hee1 of bevel improperly dulled
CL 4 DEFECTS: 1.5% A.Q.L.
--------------------------
1. Foreign material on outside of hub or cannula
2. Damaged components (functional but less than desired)
3. Light burr on lancet point
4. Globs (hardened lubricant)
5. Mixed bevels
6. Attached epoxy splatter or solid above 3/32" on cannula free length
(1" free length or less)
RELEASE FOR PRODUCTION
THIS PRINT INCORPORATES THE LATEST APPROVED
SPECIFICATIONS AND SUPERSEDES ALL PREVIOUS ISSUES
NOTICE: SHERWOOD CONFIDENTIAL
<PAGE>
EXHIBIT B
|----------------------------------------------------
[LOGO] SHERWOOD MEDICAL |TITLE |SPEC. NO. | REV.
CLASSIFICATIONS OF | |CD-2114 | B
DEFECTS |CLASSIFICATION OF DEFECTS |SHEET 3 of 3 |
| EPOXY HOODED NEEDLES |--------------------
| |ISSUE
| |DATE 9/19/88
- -------------------------------------------------------------------------------
REVISION | RELEASE NO. | DESCRIPTION | APPROVALS
- ----------|-----------------|------------------------------------|-------------
| | |
- | DR-4331 |RELEASED TO PRODUCTION | G.E. 9-19-88
| | |
A | DR-4742 |DELETED III. BIOLOGICAL EVALUATION | G.E. 3-23-91
| | |
B | DR-4840 |UNIVERSAL VISUAL EVALUATION | [ILLEGIBLE]
| |1.CL 4 ITEM 6 WAS:EPOXY SPLATTER OR | 8-20-91
| | SOLID ABOVE 3/32" ON CANNULA FREE|
| | LENGTH (ATTACHED) |
| |2.ADDED CL 5 ITEM 6 |
| | |
| | |
| | PRELIMINARY |
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
USED ON USED ON USED ON
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT B
|----------------------------------------------------
[LOGO] SHERWOOD MEDICAL |TITLE |SPEC. NO. | REV.
CLASSIFICATIONS OF | |CD-2114 | B
DEFECTS |CLASSIFICATION OF DEFECTS |SHEET 2 of 3 |
| EPOXY HOODED NEEDLES |--------------------
| |ISSUE
| |DATE 9/19/88
- -------------------------------------------------------------------------------
CL-5 DEFECTS: 6.5% A.Q.L.
------------
1. Poor workmanship
2. Fractures in sheath exceeding 5/8" in length
3. Inclusions in plastic parts
4. Foreign material on outside of sheath
5. Excessive epoxy on outside of hub
6. Attached epoxy splatter or solid above 3/32" on cannula free length
(1 1/4 free length or longer)
II. PHYSICAL EVALUATION
---------------------
CL-1 DEFECTS: 0.065% A.Q.L.
-------------
1. Pull test of cannula to hub below three (3) pounds
CL-2 DEFECTS: 0.25% A.Q.L.
-------------
NONE
CL-3 DEFECTS: 0.4% A.Q.L.
-------------
1. Clogged or partially clogged needle
2. Pull test of cannula below specification (over three (3) pounds)
3. Cleanliness of needle: OD of cannula
4. Leakage at cannula junction or luer taper
5. No lubricant on cannula
CL-4 DEFECTS: 1.5% A.Q.L.
-------------
1. Cannula does not meet straightness specification
2. Partial lubricant on cannula
3. Tight sheath to hub fit
CL-5 DEFECTS: 6.5% A.Q.L.
-------------
1. Long or short cannula free length
APPLICATION SPECIFICATIONS
- --------------------------
The following documents form a part of this specification:
CD 2001 - Definitions of Monoject Quality Requirements.
PRELIMINARY
<PAGE>
EXHIBIT D
BILL OF SALE
THIS BILL OF SALE is made, executed and delivered as of ____________, 1996,
by Sherwood Medical Company, doing business as Sherwood - Davis & Geck, a
Delaware corporation ("Sherwood-D&G"), to Univec, Inc., a New York corporation
("Customer"). Unless otherwise defined herein, capitalized terms used in this
Bill of Sale shall have the meanings given to them in the OEM Supply Agreement
(the "Agreement"), dated as of the date hereof, between Sherwood-D&G and
Customer.
Sherwood-D&G hereby conveys, grants, bargains, sells, transfers, sets over,
assigns, delivers and confirms unto Customer, its successors and assigns
forever, the 128 cavity plunger mold, including the mold base and the inserts,
Sherwood-D&G Asset No. 1713 (the "Mold"), used by Sherwood-D&G to mold the
Plungers, as described in the Agreement. TO HAVE AND TO HOLD the Mold, unto
Customer, its successors and assigns, to its and their own use forever.
Sherwood-D&G further covenants and agrees that it will do, execute and
deliver, or will cause to be done, executed and delivered, all such further
acts, transfers, assignments and conveyances, confirmations, powers of attorney,
assurances and consents, conveying and confirming unto Customer of all the
rights, title and interests of Sherwood-D&G in and to the Mold, as Customer
shall reasonably require.
Sherwood-D&G does hereby bind itself, its successors, heirs and assigns to
forever warrant and defend transfer to title to the Mold unto Customer, its
successors and assigns, against any person claiming the same, or any part
thereof.
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IN WITNESS WHEREOF, Sherwood-D&G has caused this Bill of Sale to be
executed as of the day and year first above written.
SHERWOOD MEDICAL COMPANY,
D/B/A SHERWOOD - DAVIS & GECK
By:___________________________
Title:________________________
STATE OF MISSOURI )
) ss.
COUNTY OF ST. LOUIS )
On this ________day of_______, 1996, before me, the undersigned notary
public, personally appeared ___________, known to me to be the person whose name
is subscribed to the within instrument and acknowledged that he executed the
same for the purposes therein contained.
In witness whereof, I hereunto set my hand and official seal.
----------------------------
Notary Public
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EXHIBIT C
NON-EXCLUSIVE LICENSE AGREEMENT (U.S.)
THIS AGREEMENT, made effective as of the ____ day of_______ 199_, by and
between SHERWOOD MEDICAL COMPANY, a corporation incorporated under the laws of
the State of Delaware of the United States of America, doing business as
Sherwood-Davis & Geck and having its principal offices at 1915 Olive Street, St.
Louis, Missouri 63103 (hereinafter referred to as "Sherwood"), and UNIVEC, INC.,
a corporation incorporated under the laws of the State of New York, having
offices at 999 Franklin Avenue, Garden City, New York 11530 (hereinafter
referred to as "Licensor");
WITNESSETH:
WHEREAS, Licensor owns an invention relating to single-use syringes
(hereinafter defined and referred to as "Licensed Invention") which is disclosed
in an Application for United States Letters Patent identified as Serial Number
08/237,749 filed on April 25, 1994, entitled "Single Use Syringe" (hereinafter
further identified, defined and referred to as the "Licensed Patent
Application"); and
WHEREAS, Licensor has entered into a License Agreement (hereinafter
referred to as the "Movern License") effective June 17, 1994 between Licensor
and Verna Movern whereby Licensor is granted exclusive rights under certain
United States patents (hereinafter referred to as the "Movern Patents")
including the right in Licensor to grant non-exclusive sublicenses under the
Movern Patents; and
WHEREAS, Sherwood is desirous of securing, and Licensor is willing to grant
to Sherwood, a non-exclusive license to make, have made for it, use and/or sell
in the hereinafter defined Licensed Territory, the Licensed Invention under said
Licensed Patent Application and/or utilizing any know-how heretofor developed by
Licensor relating to the Licensed Invention, all upon the terms and conditions
hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
Sherwood and Licensor agree as follows:
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SECTION 1. DEFINITIONS
As used in this Agreement, the following terms shall be deemed to have the
following meanings:
1 (a) "Licensed Invention" shall mean the invention claimed and/or
disclosed in the Licensed Patent Application, as herein defined.
1 (b) "Licensed Patent Application" shall mean the application for United
States Letters Patent, Serial Number 08/232,749 filed on April 25, 1994 by Joel
Schoenfeld and David Shonfeld entitled "Single Use Syringe".
1 (c) "Licensed Patent Rights" shall mean (i) the Licensed Patent
Application, (ii) any other patent applications filed by the Licensor on the
Licensed Invention in the Licensed Territory, (iii) any divisional,
continuation, continuation-in-part, or substitute patent applications filed by
the Licensor on the Licensed Invention in the Licensed Territory, (iv) any
patents that shall issue on any of the above-described patent applications, (v)
any reissues, reexaminations and extensions of the above, and (vi) any patent
application or patent filed and/or issued in the Licensed Territory on any
invention which embraces the Licensed Invention and which is owned or controlled
by Licensor before or during the term of this Agreement or which is licensed to
the Licensor during the term of this Agreement with a right to sublicense
(excluding the Movern Patents).
1 (d) "Licensed Product", singular or plural, shall mean:
(i) any product made and/or sold in the Licensed Territory and claimed in
any pending claim in any pending patent application of the Licensed
Patent Rights in the Licensed Territory, or claimed in any valid,
enforceable claim in any unexpired patent of the Licensed Patent
Rights in the Licensed Territory, or
(ii) any product made and sold, or sold and used, in the Licensed Territory
employing, or intended to be utilized employing, a process or method
claimed in any pending claim in any pending patent application of the
Licensed Patent Rights in the Licensed Territory, or claimed in any
valid, enforceable claim in any unexpired patent of the Licensed
Patent Rights in the Licensed Territory.
1 (e) "Net Sales" shall mean the total or gross billings for sales or other
transfers of Licensed Products by Sherwood, any sublicensees and/or any Related
Companies, as hereinafter defined, in any arm's-length transactions to unrelated
third-party distributors, retailers or end users, less the following deductions
where factually applicable: (i) discounts and rebates allowed and taken, in
amounts customary to the trade; (ii) outbound transportation and insurance
charges separately billed to the customer or prepaid; (iii) special outbound
packing separately billed to the customer or prepaid; (iv) sales, excise, use,
turnover, inventory, value-added and similar taxes
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and/or duties imposed upon and with specific reference to the particular sales
of Licensed Products, but not including net income tax; (v) free samples and
replacements in amounts refunded or credited upon purchase price on returned or
defective Licensed Products; and (vi) the purchase price of any Licensed
Products or components of Licensed Products purchased from Licensor or any
source designated by Licensor. Sales shall be accounted for when invoiced and
credits and refunds shall be accounted for when allowed.
1 (f) "Licensed Know-how" shall mean any and all data, technology,
drawings, documentation, and other proprietary and confidential information
owned, acquired or developed by or for Licensor before or during the term of
this Agreement that relate to the Licensed Invention, the design and/or
manufacture thereof (excluding any such data, technology, drawings,
documentation and other information relating to the design and/or construction
of the SMT Machine), and/or the Licensed Products.
1 (g) "Licensed Territory" shall mean the United States of America and its
territories and possessions.
1 (h) "Related Company", singular or plural, shall mean any parent,
subsidiary or affiliate company of Sherwood, or any subsidiary or affiliate of
any parent or subsidiary of Sherwood.
l(i) "Sherwood Developments" shall mean any modifications of or
improvements to the Licensed Invention or the Licensed Product, whether patented
or not, made, owned, acquired or developed by Sherwood or made for Sherwood by
another, and/or licensed to Sherwood by another with the right to sublicense,
before or during the term of this Agreement.
SECTION 2. WARRANTY; COVENANT
2 (a) Licensor warrants that Licensor is the owner of the entire right,
title and interest in and to the Licensed Invention, the Licensed Patent Rights
and the Licensed Know-how, that no license embracing said Invention, Patent
Rights and/or Know-how has heretofore been granted, that Licensor has the right
to grant the licenses granted in Section 4 hereof, that to Licensor's best
knowledge and belief the Licensed Patent Rights are, or will be, valid and
enforceable, and that manufacture, use and/or sale of the Licensed Invention
will not infringe any patent presently known to Licensor.
2 (b) Licensor warrants that Licensor has disclosed or will timely disclose
to Sherwood any and all Licensed Know-how presently owned or heretofore
developed by Licensor, and warrants and agrees that Licensor will timely
disclose to Sherwood any additional Licensed Know-how that Licensor may own,
acquire or develop during the term of this Agreement.
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2 (c) Licensor warrants that Licensor will cooperate in prosecution and
maintenance of the Licensed Patent Rights. The responsibility for directing
payment of any patent maintenance fees shall be in Licensor. Licensor further
warrants that after execution of this Agreement, any fee payable to the United
States Patent and Trademark Office for any of the Licensed Patent Rights will
not be paid based on a claim of small entity status and that Licensor will
instruct Licensor's attorneys to that effect, and that Licensor will provide to
Sherwood, within thirty (30) days of any request by Sherwood, any information
and copies of any records that Licensor has concerning conception and/or first
reduction to practice of the Licensed Invention and the dates thereof. Licensor
further warrants that Licensor will instruct Licensor's attorneys (i) to pay any
maintenance fee for the Licensed Patent Rights, (ii) to keep Sherwood informed
of the status of the Licensed Patent Rights, (iii) to provide Sherwood with
copies of all official papers relating to the filing, prosecution and
maintenance of such Licensed Patent Rights, (iv) to promptly notify Sherwood of
issuance of any patent included in the Licensed Patent Rights, and (v) to
counsel with Sherwood attorneys in an effort to secure the broadest possible
patent protection on the Licensed Invention that is reasonably available.
However, Licensor shall have the right to control and finally decide any matters
in regard to preparation, filing, prosecution and/or maintenance of the Licensed
Patent Rights.
2 (d) Licensor represents and warrants that Licensor and any direct or
ultimate parent entities of Licensor do not have total assets and/or annual net
sales of Ten Million Dollars ($10,000,000.00) or more within the meaning of
Title 11 of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (15 U.S.C.
ss. 18a) and the regulations promulgated thereunder, 16 C.F.R. 801.1 et seq.
2 (e) Sherwood warrants, covenants and agrees that it shall timely disclose
to Licensor any and all information relating to Sherwood Developments, including
without limitation, all data, technology, drawings, documentation, and other
proprietary and/or confidential information.
SECTION 3. INITIAL PAYMENT
3 (a) Upon execution of this Agreement, Sherwood will pay to Licensor the
sum of One Thousand Dollars ($ 1,000.00) in full payment for the non-exclusive
license to utilize the Licensed Know-how granted in Paragraph 4(a) hereof.
3 (b) Additionally, upon execution of this Agreement, Sherwood will pay to
Licensor the sum of One Hundred Thousand Dollars ($100,000.00) as an advance
payment of, and offsettable against, any payments due under Paragraphs 5(a),
5(b) and 5(c) hereof.
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SECTION 4. LICENSES GRANTED
4(a) Licensor hereby grants to Sherwood and Sherwood hereby accepts a
paid-up non-exclusive license to utilize the Licensed Know-how in perpetuity to
make, have made for it, use and/or sell the Licensed Invention, and/or the
Licensed Products in the Licensed Territory.
4(b) Licensor hereby grants to Sherwood and Sherwood hereby accepts a
non-exclusive license under the Licensed Patent Rights and a non-exclusive
sub-license under the Movern Patent to make, have made for it, use and/or sell
the Licensed Invention and/or the Licensed Products in the Licensed Territory.
4(c) Sherwood hereby grants to Licensor and Licensor hereby accepts a
perpetual, fully paid, royalty free, non-exclusive license to make, use and/or
sell the Sherwood Developments or products incorporating the Sherwood
Developments.
SECTION 5. ROYALTIES
5 (a) As consideration for the non-exclusive license herein granted in
Paragraph 4(b) hereof, Sherwood agrees to pay to Licensor an earned royalty
equal to five percent (5 %) of Net Sales of Licensed Products invoiced for sale
by Sherwood. Such royalty payment shall be mailed to Licensor within sixty (60)
days (the "Royalty Payment Date") after the end of each six-month period ending
June 30 and December 31 (each a "Royalty Reporting Period") of each year (each,
a "Royalty Year") during the term of this Agreement.
5 (b) It is understood that this Agreement includes no obligation on the
part of Sherwood, expressed or implied, to commercialize Licensed Product, to
sell any specific number of Licensed Products, or to do so in any set period of
time. However, if Sherwood shall either (i) fail to introduce to the market and
make commercial sales of Licensed Product within two (2) years from the
effective date of this Agreement, or (ii) fail to sell any Licensed Product for
a continuous period of five (5) years at any time during the term of this
Agreement, then in either event, Licensor shall have the option, upon sixty (60)
days written notice to Sherwood, to terminate this Agreement.
5 (c) In the event that any of the Licensed Patent Rights in the Licensed
Territory is finally declared abandoned, lapsed, unenforceable or, in whole or
in part, invalid to the extent that no claim of the Licensed Patent Rights
survives which claims Licensed Products made and/or sold by Sherwood or any
Related Company within the Licensed Territory, then thereafter, Sherwood shall
not be required to pay any royalty under this Agreement. In the event that a
valid, enforceable patent claiming Licensed Products made and/or sold by
Sherwood or any Related Company in the Licensed Territory is not granted to
Licensor within three (3) years after the effective date of this Agreement,
then, unless otherwise mutually agreed in writing or unless and until a valid,
enforceable patent claiming Licensed Products is subsequently granted to
Licensor within the Licensed Territory, Sherwood shall thereafter only be
required to pay to Licensor
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one-half (1/2) the applicable royalty set forth in Paragraph 5(a) hereof on the
Net Sales in the Licensed Territory of products previously meeting the
definition of Licensed Products under Paragraph 1 (d) hereof for the remainder,
if any, of a period of three (3) years from the date of first sale of Licensed
Products by Sherwood or Related Company. Sherwood and any sublicensees shall
thereafter be deemed to have a fully paid-up, royalty-free non-exclusive license
under the Licensed Patent Rights within the Licensed Territory, unless and until
a valid, enforceable patent claiming Licensed Products is subsequently granted
to Licensor, in which event the obligation to pay a full royalty under Paragraph
5(a) hereof for the future shall be reinstated.
5 (d) Sherwood shall have the right to deduct from any payments due to
Licensor under Paragraphs 5(a), 5(b) and/or 5(c) hereof, the full amount of any
payments required to be made and actually made by Sherwood with respect to any
rights under the Movern Patents or the Movern License in connection with the
Licensed Invention, the Licensed Patent Rights or this Agreement.
SECTION 6. ROYALTY CALCULATION, REPORTS AND RECORDS
6 (a) Sherwood agrees, and will require any Related Companies to agree,
to keep true and accurate records adequate to establish any royalty payable
under this Agreement and to permit an independent certified public accountant
selected by Licensor and reasonably acceptable to Sherwood, to inspect, on a
confidential basis and at Licensor's expense, said records once annually at
reasonable times upon reasonable notice, but only within a period of three (3)
years after the last day of the Royalty Reporting Period to which such records
relate. On the Royalty Payment Date, Sherwood shall provide to Licensor a report
(a "Royalty Report") for each Royalty Reporting Period, setting forth the earned
royalty due and payable on Net Sales, if any, of Sherwood and/or any Related
Companies of Licensed Products during such Royalty Reporting Period, accompanied
by payment of all amounts shown to be so due and payable, if any.
6 (b) Earned royalty, as provided in Paragraph 5(a) hereof, shall accrue
upon the first sale of Licensed Product to an unrelated third-party distributor,
retailer or end user.
6 (c) Only a single royalty under Paragraph 5(a) hereof shall be payable to
Licensor for each specific unit of Licensed Product regardless of the number of
countries in which manufacture, importation, sale, resale and/or use is made by
Sherwood, any Related Companies and/or any direct or indirect customer thereof.
Nothing herein is intended nor shall it be construed to grant Sherwood any right
to sell or export or manufacture for sale to any place outside the Licensed
Territory. Each Royalty Report shall contain a certification that no sale of
Licensed Product was made outside the Territory by Sherwood during the Royalty
Reporting Period to which such Royalty Report relates.
6 (d) All taxes, assessments and fees of any nature levied by any
governmental entity in the Licensed Territory of this Agreement on the sale of
Licensed Products by Sherwood, or any Related Company shall be paid by Sherwood,
or any Related Company for its account. However,
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if an income or other tax is levied on the recipient of any royalty under this
Agreement by any governmental entity and is legally required to be withheld from
the payment of royalty from Sherwood or from any Sherwood sublicensee and/or
Related Company to Sherwood, such tax shall be paid by Sherwood, its sublicensee
and/or Related Company for the account of Licensor, in which event an official
receipt will be secured evidencing such payment, the receipt forwarded to
Licensor, and the amount of such tax deducted from royalty paid to Licensor.
6(e) The provisions herein as to payment of royalties shall not apply to
Licensed Products embodying only the subject matter of claims of the Licensed
Patent Rights which have become abandoned, lapsed, expired or which have been
finally declared invalid or unenforceable.
SECTION 7. PATENT ENFORCEMENT AND DEFENSE
7(a) If Sherwood obtains notice or knowledge that a third party is
infringing or misappropriating any patent, trademark, copyright or other
proprietary rights with respect to the Licensed Patent Rights, the Movern
Patent, the Licensed Invention or the Licensed Products, Sherwood shall promptly
notify Licensor of such infringement or misappropriation. Sherwood agrees to
cooperate with Licensor in the conduct of any litigation which Licensor or its
licensors may elect to undertake with respect to such infringement or
misappropriation. Sherwood shall have the right but not the obligation to be
represented in such litigation by its own counsel at its own cost and expense.
7(b) Licensor shall not be obligated to undertake by litigation or
otherwise the collection of any claim against any person for loss of, damage to,
or governmental taking of the Licensed Invention, the Licensed Patent
Application, the Licensed Patent Rights or the Licensed Products, but Licensor
will cooperate with Sherwood at Sherwood's expense if Sherwood elects to pursue
such claims.
7(c) Licensor shall indemnify and hold Sherwood harmless from and against
any liabilities, losses, damages, expenses (including without limitation
reasonable attorneys' fees and expenses), causes of action, suits, claims, or
judgments asserted by third parties (a "Third Party Claim") against Sherwood
arising out of a Third Party Claim with respect to the infringement or
misappropriation of a patent or other proprietary rights, which may be asserted
by such third party, because of Sherwood's making, using or selling the Licensed
Invention or the Licensed Products pursuant to and in accordance with the terms
and conditions of this Agreement, provided that Sherwood shall give Licensor (i)
prompt written notice of the institution or the assertion of a Third Party Claim
for which indemnity is or will be claimed hereunder and (ii) to the extent
permitted by law, the opportunity to take over, control, settle and defend such
Third Party Claim, at the sole expense of Licensor and with counsel selected by
Licensor. Sherwood has the right but not the obligation to be represented in any
such Third Party Claim by its own counsel, at its own cost and expense, provided
that such right does not prejudice the right of Licensor to take over, control,
settle and defend such Third Party Claim to the extent permitted by law. If
making, using or selling the Licensed
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Invention or the Licensed Products, or part thereof is enjoined for any reason
whatsoever during the term of this Agreement, Licensor has the right at its own
expense to (i) procure for Sherwood the right to continue to make, have made for
it, use and/or sell the Licensed Invention and the Licensed Products, or part
thereof which is the subject of such injunction, or (ii) to terminate this
Agreement without further obligation of either party to the other. This Section
7 contains Sherwood's sole and exclusive remedy and Licensor's only obligations
with respect to the infringement or misappropriation of a patent or other
proprietary right which may be asserted by an owner thereof or any other person
having an interest therein.
7(d) Licensor shall not indemnify Sherwood, hold Sherwood harmless or
defend Sherwood in respect of any claim of infringement or misappropriation
where such infringement or misappropriation is the result of any modification or
change in the Licensed Invention or Licensed Products (including but not limited
to the Sherwood Developments) which departs in any manner from the terms of the
Licensed Patent Rights.
SECTION 8. PATENT NOTICE MARKING
Sherwood shall, and shall require each Related Company, to mark all
Licensed Products with the number of any applicable patent or other
identification of the Licensed Patent Rights in accordance with the provisions
of 35 U.S.C. ss.287.
SECTION 9. FORCE MAJEURE
Neither party to this Agreement shall be responsible to the other party for
nonperformance or delay in performance of any terms or conditions of this
Agreement due to acts of God, acts of governments, wars, riots, strikes,
accidents in transportation, or other causes beyond the reasonable control of
the parties. Failure to pay money shall not be excused under this Section.
SECTION 10. TERM OF AGREEMENT
Unless this Agreement shall be terminated by either party pursuant to the
provisions hereof, this Agreement shall remain in force and effect during the
pendency and until the expiration of the last-to-expire of the Licensed Patent
Rights in the Licensed Territory, at which time this Agreement will expire.
However, Sherwood and any Related Companies shall thereafter have a fully
paid-up, royalty-free non-exclusive license to make, have made for it, use
and/or sell the Licensed Invention and any other invention claimed in the
Licensed Patent Rights without limitation.
SECTION 11. TERMINATION
11 (a) In the event that either party hereto shall fail to comply with any
of its material obligations under this Agreement after the other party shall
have given thirty (30) days written notice of such failure to the first party,
which notice shall fully specify the obligation with which
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the first party has not complied, then the other party, by further written
notice to the first party, may terminate this Agreement.
11(b) All rights and licenses granted under or pursuant to this Agreement
by Licensor to Sherwood are, and shall otherwise be deemed to be, for purposes
of Section 365(n) of Title 11 U.S. Code (the "Bankruptcy Code"), licenses and
rights to "intellectual property" as defined under Section 101 of the Bankruptcy
Code. The parties agree that Sherwood, as a licensee of such rights under this
Agreement, shall retain and may fully exercise all of its rights and elections
under the Bankruptcy Code. Licensor shall also have the right to terminate this
Agreement in the event of the filing of a voluntary or involuntary petition of
bankruptcy of Sherwood.
11 (c) Sherwood may terminate this Agreement at any time on thirty (30)
days notice in writing to Licensor.
SECTION 12. ASSIGNABILITY
12(a) This Agreement may be assigned by Licensor and shall inure to the
benefit of its successors, assigns or other legal representatives. Without the
prior written consent of Licensor, which may be withheld for any or no reason
whatsoever, Sherwood may not assign any rights arising under this Agreement
except to a Related Company or to the successor in interest to the entire
syringe business of Sherwood which, in any case, expressly assumes, in writing,
the obligations hereunder.
12(b) Licensor agrees to notify Sherwood in writing within thirty (30) days
of any change in ownership or transfer of rights in any of the Licensed Patent
Rights from any owner to any third party.
SECTION 13. NOTICES AND PAYMENTS
13(a) Any notice, request, consent, demand or other communication given or
required to be given under this License shall be effective only if in writing
and shall be sent by one of the following means to the addressee at the address
set forth in Sections 13(b) below (or at such other address as shall be
designated in accordance with this Section 13, and shall be deemed conclusively
to have been given: (i) on the first business day following the day timely
deposited with an international or national overnight courier, with the cost of
delivery prepaid, assuming proof of delivery; (ii) on the third business day
following the day duly sent by certified or registered mail, postage prepaid and
return receipt requested; (iii) on the first business day after it is otherwise
actually delivered to the addressee by courier; or (iv) on the first business
day after the day it is duly sent by both confirmed facsimile transmission and
one of the forms provided in (i), (ii) or (iii) above, with the cost of
transmission prepaid.
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13(b) The addresses and facsimile telephone numbers of the parties and
those persons receiving copies are as follows:
To Lessor: Univec, Inc.
999 Franklin Avenue
Garden City, New York 11530
Attention: Joel Schoenfeld
Facsimile No.: 516-739-3343
Telephone No.: 516-294-1000
Copy to: Sazer, Vaccaro & Prisco LLP
325 Wireless Boulevard
Hauppauge, New York 11788
Attention: Gary Sazer, Esq.
Facsimile No.: 516-273-9685
Telephone No.: 516-273-7171
To Lessee: Sherwood-Davis & Geck
1915 Olive Street
St. Louis, Missouri 63103-1642
Attention: Vice President -- OEM Sales
Facsimile No.: (314) 241-0232
Telephone No.: (314) 621-7788
Copy to: Sherwood-Davis & Geck
1915 Olive Street
St. Louis, Missouri 63103-1642
Attention: Corporate Counsel
Facsimile No.: (314) 241-5855
Telephone No.: (314) 621-7788
13(c) All payments to be made hereunder shall be sent to Univec, Inc. at
999 Franklin Avenue, Garden City, New York 11530, Attention: President.
SECTION 14. APPLICABLE LAW; JURISDICTION
The parties hereto agree that this Agreement shall be considered to have
been made in, and shall be construed and interpreted in accordance with the law
of, the State of New York, without regard to any principles of conflicts of
laws. The parties further agree that the courts of the State of New York shall
have exclusive jurisdiction over any dispute arising hereunder.
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SECTION 15. TECHNICAL AND OTHER INFORMATION; CONFIDENTIALITY
15(a) To the best of Licensor's knowledge, any Licensed Know-how disclosed
under this Agreement is correct. However, nothing herein shall be construed to
indicate that Licensor in any manner guarantees the correctness of the Licensed
Know-how, or that Licensor assumes any liability whatsoever for any products or
parts thereof manufactured and sold by Sherwood in accordance with said Licensed
Know-how, or as a result of the use thereof. Sherwood shall assume all such
liabilities and hold Licensor harmless from any liability resulting from the
manufacture, use and sale of the Licensed Products under this Agreement, except
as herein provided.
15(b) Subject to the provisions of this Agreement, until the end of five
years after the expiration of the last-to-expire of the Licensed Patent Rights
in the Licensed Territory, Sherwood shall respect and ensure respect for the
strict confidentiality of all aspects of the information, data, studies,
processes and secrets pertaining to the Licensed Know-how and shall not disclose
nor allow the same to be disclosed to any other person without the prior written
consent of Licensor. In furtherance hereof, Sherwood hereby covenants and agrees
that it shall:
(1) not disclose any Licensed Know-how or permit access to any
Licensed Know-how by any person except as reasonably required to fulfill
its obligations under this Agreement; and
(2) take all reasonable measures deemed necessary or expedient to
ensure respect for the confidentiality and continued protection of the
Licensed Know-how and to prevent unauthorized access to the Licensed
Know-how or possession, reproduction, modification, use or distribution
thereof, and in particular to take appropriate measures, by agreement or
otherwise, to ensure that its employees and former employees are prevented
from doing anything that Sherwood is prohibited from doing pursuant to this
Agreement.
15(c) The obligations of Sherwood under this Section 15 shall not apply to
any Licensed Know-how that:
(1) is now, or comes to be publicly known through no breach of this
Agreement by Sherwood; or
(2) can be established by documentary evidence that prior to
disclosure by Licensor, was in Sherwood's possession without restriction on
disclosure imposed by any third party (and not in violation of any
obligation by such third party directly or indirectly to Licensor to keep
such information confidential); or
(3) is disclosed to Sherwood on a non-confidential basis by a third
party having no obligation of confidentiality, directly or indirectly, to
Licensor in regard thereto.
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15(d) Sherwood shall use its reasonable business efforts to assure that all
information relating to Sherwood Developments disclosed to Licensor pursuant to
this Agreement shall be correct. However, nothing herein shall be construed to
indicate that Sherwood in any manner guarantees the correctness of the Sherwood
Developments, or that Sherwood assumes any liability whatsoever for any products
or parts thereof manufactured and sold by Licensor in accordance with said
Sherwood Developments, or as a result of the use thereof. Licensor shall assume
all such liabilities and hold Sherwood harmless from any liability resulting
from the manufacture, use and sale of the Sherwood Developments under this
Agreement, except as herein provided.
15(e) Subject to the provisions of this Agreement, until the end of five
years after the expiration of the last-to-expire of the Licensed Patent Rights
in the Licensed Territory, Licensor shall respect and ensure respect for the
strict confidentiality of all aspects of the information, data, studies,
processes and secrets pertaining to the Sherwood Developments and shall not
disclose nor allow the same to be disclosed to any other person without the
prior written consent of Sherwood. In furtherance hereof, Licensor hereby
covenants and agrees that it shall:
(1) not disclose any Sherwood Developments or permit access to any
Sherwood Developments by any person except as reasonably required to
fulfill its obligations under this Agreement; and
(2) take all reasonable measures deemed necessary or expedient to
ensure respect for the confidentiality and continued protection of the
Sherwood Developments and to prevent unauthorized access to the Sherwood
Developments or possession, reproduction, modification, use or distribution
thereof, and in particular to take appropriate measures, by agreement or
otherwise, to ensure that its employees and former employees are prevented
from doing anything that Licensor is prohibited from doing pursuant to this
Agreement.
15(f) The obligations of Licensor under this Section 15 shall not apply to
any Sherwood Developments that:
(1) is now, or comes to be publicly known through no breach of this
Agreement by Licensor; or
(2) can be established by documentary evidence that prior to
disclosure by Sherwood, was in Licensor's possession without restriction on
disclosure imposed by any third party (and not in violation of any
obligation by such third party directly or indirectly to Sherwood to keep
such information confidential); or
(3) is disclosed to Licensor on a non-confidential basis by a third
party having no obligation of confidentiality, directly or indirectly, to
Sherwood in regard thereto.
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SECTION 16. MISCELLANEOUS
16(a) Upon the termination of this Agreement, Sherwood and any Related
Companies shall have the right to dispose of all Licensed Products then on hand,
including work in process, and to meet all pending orders for Licensed Products.
All earned royalties which would otherwise be payable pursuant to Paragraph 5(a)
of this Agreement, had such termination not become effective, shall be paid with
respect to all such Licensed Products when sold as though this Agreement had not
been terminated.
16(b) Neither termination nor expiration of this Agreement shall terminate
Sherwood's obligation to pay all earned royalties which shall accrue through the
date of such expiration or termination. Sherwood's obligation to report royalty
due and to submit its books and records for inspection as provided in Paragraph
6(a) hereof shall continue until Sherwood's royalty obligations shall have been
fully determined and discharged by proper payment.
16(c) This Agreement contains all of the agreements and understandings made
between the parties hereto concerning Licensed Products in the Licensed
Territory, and any prior agreements, express or implied, relating to the subject
matter hereof are expressly superseded and canceled. No amendment of this
Agreement shall be effective unless in writing and signed by the parties hereto.
16(d) This Agreement may be executed in one or more counterparts which
taken together shall constitute one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective on
the day and year first above written.
SHERWOOD MEDICAL COMPANY,
doing business as SHERWOOD-DAVIS & GECK
By: ATTEST:
____________________________ __________________________
____________________________ By: _____________________________
(Type or Print Name)
Title: ____________________________
Date:
____________________________
UNIVEC, INC.
By: ATTEST:
____________________________ __________________________
____________________________ By: _____________________________
(Type or Print Name)
Title: ____________________________
Date:
____________________________
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<PAGE>
UNIVEC, INC.
AMENDED 1996 STOCK OPTION PLAN
SECTION 1. PURPOSE:
--------
The purpose of the Univec Inc.. 1996 Stock Option Plan (the
"Plan") is to enable Univec, Inc. (the "Company") to attract
and retain employees, directors and consultants who contribute
to the Company's success by their ability, ingenuity and
industry, and to enable such employees, directors and
independent consultants to participate in the long-term
success and growth of the Company by giving them an equity
interest in the Company. The vesting of one or more Stock
Options (as defined in Section 5.1 below) granted hereunder
may be based on the attainment of specified performance goals
of the participant or the performance of the Company, one or
more subsidiaries, parent and/or division of one or more of
the above.
SECTION 2. ADMINISTRATION.
---------------
2.1 The Plan shall be administered by the Company=s Board of
Directors (the "Board"), as such Board may be composed from
time to time, and/or by a Stock Option or compensation
committee (the "Compensation Committee") appointed by the
Board. As and to the extent authorized by the Board, the
Compensation Committee may exercise the powers and authority
vested in the Board under the Plan. The Board of Directors. or
such Compensation Committee, whichever is serving as
administrator of the Plan, is hereinafter referred to as the
"Committee".
2.2 The Committee shall have the authority to grant Stock Options
to eligible grantees under the Plan and to adopt, alter and
repeal such administrative rules, guidelines and practices
governing the Plan as it shall deem advisable; to interpret
the terms and provisions of the Plan and any Stock Options
granted under the Plan; and to otherwise supervise the
administration of the Plan. In particular, and without
limiting its authority and powers, the Committee shall have
the authority, consistent with the terms of the Plan, as in
effect from time to time:
(a) to determine whether and to what extent any Stock
Options will be granted hereunder:
(b) to select the grantees to whom Stock Options will be
granted;
(c) to determine the number of shares of the common stock
of the Company (the "Stock") to be covered by each
Stock Option granted hereunder;
(d) to determine the terms and conditions of any Stock
Option granted hereunder, including, but not limited
to, any vesting or other restrictions
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based on performance and such other factors as the
Committee may determine, and to determine whether the
terms and conditions of the Stock Option are
satisfied;
(e) to determine the treatment of Stock Options upon a
grantee's retirement, disability, death, termination
for cause or other termination;
(f) to determine pursuant to a formula or otherwise the
fair market value of the Stock on a given date;
(g) to provide that the shares of Stock received as a
result of exercise of a Stock Option shall be subject
to the terms of a shareholders agreement or subject
to such other terms and conditions relating to
transfer as the Committee may specify;
(h) to amend the terms of any Stock Option, prospectively
or retroactively; provided, however, that no
amendment shall impair the rights of the award holder
without his or her consent; and
(i) to substitute new Stock Options for previously
granted Stock Options, including previously granted
options having higher option prices; provided,
however, that no substitution shall impair the rights
of the awards holder without his or her consent.
2.3 In making such determinations, the Committee may take into
account the nature of the services rendered by the
individuals, their present and potential contributions to the
Company's success, and such other factors as the Committee
shall deem relevant. All determinations made by the Committee
pursuant to the provisions of the Plan shall be final and
binding on all persons, including the Company and Plan
participants.
2.4 Notwithstanding anything contained herein to the contrary, at
any time during the period the Company=s Stock is registered
pursuant to Section 12(g) of the Securities Exchange Act of
1934 ("1934 Act"), transactions under the Plan are intended,
to the extent possible, to comply with all applicable
conditions (if any) of Rule 16b-3, as amended from time to
time (and its successor provision, if any) under the 1934 Act.
To the extent that any provision of the Plan or action by the
Board or the Committee fails to so comply, it shall be deemed
null and void, to the extent permitted by law and deemed
advisable by the Board and/or the Committee.
SECTION 3. STOCK SUBJECT TO PLAN.
----------------------
3.1 The total number of' shares of Stock reserved and available
for distribution under
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<PAGE>
the Plan shall be 4,709,219, subject to further adjustment as
provided below. Such shares may consist of authorized but
unissued shares or treasury shares.
3.2 (a) In the event that the outstanding shares of Common Stock
are hereafter changed by reason of recapitalization,
reclassification, stock split-up, combination or exchange of
shares of Common Stock or the like, or by the issuance of
dividends payable in shares of Common Stock, an appropriate
adjustment shall be made by the Board of Directors in the
aggregate number of shares of Common Stock available under the
Plan, in the number of shares of Common Stock issuable upon
exercise of outstanding Stock Options, and the Option Price
per share. In the event of any consolidation or merger of the
Company with or into another company, where the Company is not
the surviving entity, or the conveyance of all or
substantially all of the assets of the Company to another
company for solely stock and/or securities, except as provided
in (b) below, each then outstanding Stock Option shall upon
exercise thereafter entitle the holder thereof to such number
of shares of Common Stock or other securities or property to
which a holder of shares of Common Stock of the Company would
have been entitled to upon such consolidation, merger or
conveyance; and in any such case appropriate adjustment, as
determined by the Board of Directors of the Company (or
successor entity) shall be made as set forth above with
respect to any future changes in the capitalization of the
Company or its successor entity. In the event of the proposed
dissolution or liquidation of the Company, or, except as
provided in (b) below, the sale of substantially all the
assets of the Company for other than stock and/or securities,
all outstanding Stock Options under the Plan will
automatically terminate, unless otherwise provided by the
Board of Directors of the Company or any authorized committee
thereof.
(b) Any Stock Option granted under the Plan may, at the
discretion of the Board of Directors of the Company and said
other corporation, be exchanged for options to purchase shares
of capital stock of another corporation which the Company,
and/or a subsidiary thereof is merged into, consolidated with,
or all or a substantial portion of the property or stock of
which is acquired by said other corporation or separated or
reorganized into. The terms, provisions and benefits to the
optionee of such substitute option(s) shall in all respects be
identical to the terms, provisions and benefits of optionee
under his Option(s) prior to said substitution. To the extent
the above may be inconsistent with Sections 424(a)(1) and (2)
of the Code, the above shall be deemed interpreted so as to
comply therewith.
(c) Any adjustment in the number of shares of Common Stock
shall apply proportionately to only the unexercised portion of
the Stock Options granted hereunder. If fractions of shares of
Common Stock would result from any such adjustment, the
adjustment shall be revised to the next higher whole number of
shares of Common Stock.
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<PAGE>
SECTION 4. ELIGIBILITY.
-----------
Officers and other key employees of the Company are eligible
to participate and be granted Stock Options, under the Plan. A
Director of the Company who is otherwise an employee is not
deemed an employee for such purposes. Directors of the Company
(whether or not also employees of the Company ) and
consultants to the Company also are eligible to participate
and be granted Non-Qualified Stock Options under the Plan. The
participants under the Plan shall be selected from time to
time by the Committee, in its sole discretion, from among
those eligible.
SECTION 5. TERMS OF STOCK OPTIONS
----------------------
5.1 The Stock Options awarded under the Plan may be one of two
types: (i) Incentive Stock Options within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or any successor provision thereto; and (ii)
Non-Qualified Stock Options. To the extent that any Stock
Option does not qualify as an Incentive Stock Option, it shall
constitute a Non-Qualified Stock Option. Stock Options are
defined herein to include Incentive Stock Options and
Non-Qualified Stock Options.
5.2 Subject to the following provisions, Stock Options awarded
under the Plan shall be in such form and shall have such terms
and conditions as the Committee may determine:
(a) Option Price. The option price per share of Stock
purchasable under a Stock Option shall be determined
by the Committee.
(b) Option Term. The term of each Stock Option shall be
fixed by the Committee, but such term shall not be
longer than 10 years.
(c) Exercisability. Stock Options shall be exercisable at
such time or times and subject to such terms and
conditions as shall be determined by the Committee.
If the Committee provides that any Stock Option is
exercisable only in installments, the Committee may
waive such installment exercise provisions at any
time in whole or in part.
(d) Method of Exercise. Stock Options may be exercised in
whole or in part at any time during the option period
by giving written notice of exercise to the Company
in such form and manner as the Committee may require
specifying the number of shares to be purchased,
accompanied by payment of the purchase price. Payment
of the purchase price shall be made in such form and
manner as the Committee may provide in the award,
which may include cash, delivery of shares of Stock
already owned by the optionee,
4
<PAGE>
any other form and manner determined by the Committee
and permitted by law, or any combination of the
foregoing.
(e) No Stockholder Rights. An optionee shall have neither
rights to dividends, nor other rights of a
stockholder with respect to shares subject to a Stock
Option until the optionee has given written notice of
exercise and has paid for such shares.
(f) Non-transferability. No Incentive Stock Options shall
be transferable by the optionee other than by will or
by the laws of descent and distribution. During the
optionee's lifetime, all Incentive Stock Options
shall be exercisable only by the optionee. The
Committee shall have the right, in its sole
discretion, to determine whether or not a
Non-Qualified stock Option is transferable.
(g) Termination of Employment or Service.
(i) Except as provided herein, or otherwise
determined by the Board of Directors or the Committee
in its sole discretion, upon termination of
employment with the Company or termination of a
consulting relationship with the Company prior to the
termination of the term thereof by the person to whom
the Option was initially granted for any reason other
than death, disability, cause, or voluntary
termination thereof , without the consent of the
Company, prior to the end of the term of any
employment or consulting agreement by the person to
whom the Option was initially granted, a holder of an
Option under the Plan may only exercise such Options
to the extent such Options were exercisable as of the
date of termination at any time within three (3)
months after the date of such termination, subject to
the provisions of subparagraph (iv) of this
subparagraph (g). Any options granted hereunder to an
optionee and then outstanding shall immediately
terminate in the event such optionee is terminated
for cause or voluntary terminates, without the
consent of the Company, prior to the end of the term
of any employment or consulting agreement by such
optionee. An optionee shall be deemed terminated for
cause if such termination results from optionee's
fraud, gross negligence, or willful misconduct. In
the event of a merger or consolidation where the
Company is not the surviving entity, unless otherwise
determined by the Board of Directors in its sole
discretion, an optionee's employment or consulting
relationship with the Company shall only be deemed to
be continuing during the period optionee is employed
by or provides consulting service for the surviving
entity.
(ii) If the optionee to whom an Incentive
Stock Option was granted under the Plan dies (i)
while employed by the Company or a subsidiary or
5
<PAGE>
parent corporation or (ii) within three (3) months
after the termination of such holder's employment,
such Incentive Stock Options may, subject to the
provisions of subparagraph (iv) of this subparagraph
(g), be exercised by a legatee or legatees of such
optionee under such individual's last will or by such
individual's personal representatives or distributees
at any time within such time as determined by the
Board of Directors or the Committee in its sole
discretion, but in no event less than six months
after the individual's death, to the extent such
Incentive Stock Options were exercisable as of the
date of death or date of termination of employment,
whichever date is earlier. If the optionee to whom a
Non Qualified Stock Option was granted under the Plan
dies while employed by the Company or a subsidiary or
parent corporation, such Non Qualified Stock Options
may, subject to the provisions of subparagraph (iv)
of this subparagraph (g), be exercised by a
transferee at any time within such time as determined
by the Board of Directors or the Committee in its
sole discretion, but in no event less than six months
after the individual's death, to the extent such Non
Qualified Stock Options were exercisable as of the
date of death or date of termination of employment,
whichever date is earlier.
(iii) If the optionee to whom an Incentive
Stock Option was granted under the Plan becomes
disabled within the definition of section 22(e)(3) of
the Code while employed by the Company or a
subsidiary or parent corporation, such Option may,
subject to the provisions of subparagraph (iv) of
this subparagraph (g), be exercised at any time
within six months after such optionee's termination
of employment due to the disability.
(iv) Except as otherwise determined by the
Board of Directors or the Committee in its sole
discretion, a Stock Option may not be exercised
pursuant to this subparagraph (g) except to the
extent that the optionee to whom the Option was
granted was entitled to exercise the Stock Option or
would have been entitled to exercise the Option if he
was then the holder, at the time of termination of
employment/consulting relationship or death, and in
any event may not be exercised after the original
expiration date of the Stock Option.
5.3 Notwithstanding the provisions of Section 5.2, no Incentive
Stock Option shall (i) have an option price which is less than
100% of' the fair market value of the Stock (as determined
pursuant to Sections 422(c)(7) and 422(d)(3) of the Code and
the regulations promulgated thereunder) on the date of the
award of the Stock Option (110%, in the case of a 10%
shareholder described in Section 422(b)(6) of the Code (a "10%
6
<PAGE>
Shareholder"), (ii) be exercisable more than ten years after
the date such Incentive Stock Option is awarded (5 years, in
the case of a 10% Shareholder), (iii) be awarded more than ten
years after the effective date of the Plan or (iv) be awarded
to any optionee who is not an employee of the Company or a
parent or subsidiary corporation of the Company (as defined in
Section 424 of the Code).
5.4 Notwithstanding the provision of Section 5.2, no Non-Qualified
Stock Option shall be awarded more than ten years after the
effective date of the Plan or (ii) have an option price which
is less than 85% of the fair market value of the Stock on the
date of the award of the Stock Option.
SECTION 6. TAX WITHHOLDING.
----------------
6.1 Each employee shall, no later than the date as of which the
value of a Stock Option first becomes includible in the
employee's gross income for applicable tax purposes, pay to
the Company, or make arrangements satisfactory to the
Committee regarding payment of any federal, state, local or
other taxes of any kind required by law to be withheld with
respect to the Stock Option (or portion thereof). The
obligations of the Company under the Plan shall be conditional
on such payment or arrangements, and the Company shall, to the
extent permitted by law, have the right to deduct any such
taxes from any payment of any kind otherwise due to the
employee.
6.2 To the extent permitted by the Committee, and subject to such
terms and conditions as the Committee may provide, an employee
may elect to have the withholding tax obligation with respect
to any Stock Options hereunder satisfied by (i) having the
Company withhold shares of Stock otherwise deliverable to the
employee with respect to the award or (ii) delivering to the
Company shares of Stock.
SECTION 7. AMENDMENTS AND TERMINATION.
---------------------------
The Board may discontinue the Plan at any time and may amend it from
time to time; provided, however that the affirmative vote of the
holders of a majority of the outstanding shares of capital stock of the
Company entitled to vote thereon, shall be required to increase (except
as provided in Paragraph 3.2) the maximum number of shares of Common
Stock as to which Options or shares may be granted under the Plan or
materially change the standards of eligibility under the Plan. No
amendment or discontinuation of the Plan shall adversely affect any
award previously granted without the optionee's written consent.
SECTION 8. GENERAL PROVISIONS.
-------------------
8.1 Each Stock Option under the Plan shall be subject to the
requirement that, if at any time the Committee shall determine
that (i) the listing, registration or
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<PAGE>
qualification of the Stock subject thereto upon any securities
exchange or under any state or Federal law, or (ii) the
consent or approval of any government regulatory body, or
(iii) an agreement by the recipient of a Stock Option with
respect to the disposition of Stock is necessary or desirable
(in connection with any requirement or interpretation of any
federal or state securities law, rule or regulation) as a
condition of, or in connection with, the granting of such
Stock option or the issuance, purchase or delivery of Stock
thereunder, such Stock Option shall not be granted or
exercised, in whole or in part, unless such listing,
registration, qualification, consent, approval or agreement
shall have been effected or obtained free of any conditions
not acceptable to the Committee.
8.2 Nothing set forth in this Plan shall prevent the Board from
adopting other or additional compensation arrangements.
Neither the adoption of nor participation in the Plan nor the
grant of any Stock Option hereunder shall confer upon any
employee of the Company any right to continued employment or
any director or consultant any right to continued service or
interfere in any way with the right of the Company to
terminate such employee's employment at any time, nor shall it
interfere in any way with the employee's right to terminate
his or her employment or the director's or consultant's right
to terminate his or her service.
8.3 Determinations by the Committee under the Plan relating to the
form, amount and terms and conditions of awards need not be
uniform and may be made selectively among persons who receive
or are eligible to receive Stock Options under the Plan,
whether or not such persons are similarly situated.
8.4 No member of the Board or the Committee, nor any officer or
employee of the Company acting on behalf of the Board or the
Committee, shall be personally liable for any action,
determination or interpretation taken or made with respect to
the Plan, and all members of the Board and the Committee and
all officers and employees of the Company acting on their
behalf shall, to the extent permitted by law and under the
Certificate of Incorporation and By Laws of the Company be
fully indemnified and protected by the Company in respect of
any such action, determination or interpretation.
8.5 The Plan and all rights and obligations thereunder shall be
construed and enforced in accordance with the laws of the
State of New York without regard to conflicts of law
provisions.
SECTION 9. EFFECTIVE DATE OF PLAN.
-----------------------
The Plan shall become effective upon approval by the Company's
stockholders.
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT dated as of January 1, 1997 between UNIVEC, Inc., a Delaware
corporation (the "Company"), having its principal office at 999 Franklin Avenue,
Garden City, New York 11530, and Joel Schoenfeld, an individual (the "Employee")
residing at 3 Eagle Chase, Woodbury, New York 11797.
WHEREAS, the Employee has been employed by the Company as Chairman of
the Board and Chief Executive since August 1992;
WHEREAS, the Company desires to continue the employment of the Employee
and Employee agrees to continue his employment with the Company on the terms and
conditions herein provided;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
1. Employment and Duties. During the term of this Agreement, the
Employee shall serve as the Company's Chairman of the Board and Chief Executive
Officer, and in such capacity shall be the principal executive officer of the
Company.
2. Term. Subject to the termination provisions of Section 5 hereof,
Employee's employment by the Company hereunder is for a term commencing on the
date hereof and ending on March 28, 2000 (the "Employment Term").
3. Compensation. During the Employment Term, the Company shall pay the
Employee for his services hereunder at a base salary of $192,000 per annum. The
base salary shall
<PAGE>
be paid to the Employee in appropriate installments in accordance with the
Company's usual and customary payroll practices for its executive officers.
4. Benefits. During the term hereof, the Company shall continue to
reimburse the Employee for automobile lease payments under the vehicle lease
with Jaguar Credit Corporation (Lease No. 01-0002-432658) (the "Vehicle Lease")
or alternatively, to provide the Employee with an automobile allowance of
$10,800 per annum. If at the expiration of the Vehicle Lease the Employee elects
to exercise the purchase option set forth therein, the Company will pay the
Employee an amount equal to the fair market value of the leased vehicle so as to
enable him to exercise said purchase option. The Company also will provide the
Employee during the term hereof with life, disability and health insurance
benefits with coverages no less favorable than those in effect on the date
hereof. Employee also shall be entitled to participate in any and all benefit
plans of the Company made available to executive officers of the Company. The
Company also shall make available to the Employee a membership in a country
club.
5. Reimbursement. During the Employment Term, the Company shall
reimburse the Employee for all reasonable and necessary business expenses
incurred and paid directly by him in the performance of his duties hereunder,
upon submission to the Company of reasonably detailed expense reports and
appropriate vouchers and/or receipts prepared in accordance with the applicable
provisions and regulations of the Internal Revenue Code of 1986, as amended.
6. Termination. Notwithstanding any provision of this Agreement to the
contrary, the Employee's employment hereunder shall terminate immediately upon
the death of the Employee. Except as otherwise specifically provided herein or
as accrued for services performed
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<PAGE>
through the date of termination, all of Employee's rights to compensation
hereunder shall cease to exist effective upon the date of termination.
7. Developments. The Employee agrees promptly to disclose in writing to
the Company any invention or discovery made by him during his employment with
the Company, whether during or after working hours, that relates to (i) any
disposable medical devices for drug delivery, including but not limited to
hypodermic needles, (ii) inventions developed for the Company through projects
participated in by Employee and (iii) processes, including equipment used to
produce items covered by clauses (i) and (ii) (the items referred to in clauses
(i), (ii) and (iii) being hereinafter referred to collectively as "Covered
Inventions"), and such inventions and discoveries shall be the Company's sole
property. Upon the Company's request, whether during or after the term of his
employment, Employee shall execute and assign to the Company all applications
for letters patent and copyrights of the United States and such foreign
countries as the Company may designate relating to Covered Inventions, and
Employee shall execute and deliver to the Company such other instruments as the
Company deems necessary to vest in the Company the sole ownership of all
exclusive rights in and to such inventions and discoveries, as well as the
patents and/or copyrights. If services in connection with applications for
patents and/or copyrights are performed by Employee at the Company's request
after the termination of his employment, the Company shall pay him reasonable
compensation for such services rendered after termination of this Agreement.
8. Non-Competition. During the Employment Term and for a period of
twelve (12) months after the termination of this Agreement, however occasioned,
Employee shall not within the United States, Canada, Mexico or Japan, directly
or indirectly, as principal, agent, stockholder, joint venturer, investor,
employee, consultant, officer, director, partner, adviser, guarantor or in any
other
- 3 -
<PAGE>
capacity, render services or provide advice relating to, or otherwise engage in
or assist others in engaging in, any Competitive Business, or own or control any
interest in any entity which is so engaged. As used herein, "Competitive
Business" means the design, manufacture, marketing, sale or distribution of any
Covered Inventions. Anything to the contrary in the foregoing notwithstanding,
(A) if at the expiration of the term hereof, the Company does not offer to
extend the term of the Employee's employment with the Company, whether pursuant
to a written employment agreement or otherwise, on terms not less favorable to
the Employee than those set forth herein, then the restriction set forth above
shall not apply following the expiration of the term of this Agreement, and
(B) Employee may own, beneficially or legally, up to one percent (1%) of the
outstanding securities of any organization registered under Section 12 of the
Securities Exchange Act of 1934, as amended, or which are otherwise publicly
traded.
9. Non-Solicitation. The Employee agrees that he will not during the
term of this Agreement and for a period of one (1) year following the
termination of his employment with the Company for any reason, directly or
indirectly, solicit or contact any employee of the Company with a view to
encouraging such employee to leave the employ of the Company for the purpose of
being hired by him, or any employer affiliated with him, or any competitor of
the Company.
10. Confidentiality. Executive agrees that he will not, during the term
of this Agreement and thereafter, use or disclose to any individual, firm,
corporation, partnership, business trust, or other business entity (any of the
foregoing being hereinafter referred to as a "Person") any confidential or
proprietary information of the Company for any reason or purpose whatsoever, nor
shall he make use of any such confidential or proprietary information for his
own purpose or for the benefit of any Person other than the Company, including
but not limited to any and all patents
- 4 -
<PAGE>
(issued or pending), designs, drawings, blueprints, manufacturing processes,
specifications, test data, graphics, charts and all other technical information,
currently in existence or subsequently developed, relating to the Company's
research and development activities and marketing strategy, or information
relating to the Company's costs, pricing practices, customer lists or financial
data; except that nothing herein shall be construed to prohibit him from
complying with legal process or using or disclosing such information if it shall
have become public knowledge other than by or as a result of disclosure by a
Person not having a right to make such disclosure.
11. Specific Performance. Employee acknowledges that the covenants set
forth in Paragraphs 7, 8, 9 and 10 are reasonable and necessary for the
protection of the Company and that his violation of any of the such provisions
shall cause the Company immediate and irreparable harm and he agrees that in
such event, an injunction restraining him from such violation or threatened
violations may be entered against him in addition to any other remedy available
to the Company. Employee waives any right which he may otherwise have to assert
in any such proceeding that the Company has an adequate remedy at law.
12. Assignment. This Agreement shall be binding and inure to the
benefit of the Company, its successors and permitted assigns and to the
Employee, his heirs and personal representatives. However, neither this
Agreement nor any of the rights of the parties hereunder may be transferred or
assigned by either party hereto, except that if the Company merges or
consolidates with or into or sells or otherwise transfers substantially all its
assets to another corporation which assumes the Company's obligations under this
Agreement, the Company may assign its rights hereunder to that corporation. Any
other attempted transfer or assignment in violation of this
- 5 -
<PAGE>
paragraph shall be void. Since this is a contract for personal services, only
the Employee is deemed capable of performing the services contemplated
hereunder.
13. Waiver. The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver
thereof or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement. Any waiver of any
breach of any provision of this Agreement shall not constitute a waiver of any
other breach of such provision or any other provision hereof.
14. Notices. Any demand, notice or other communication under this
Agreement shall be in writing and shall be deemed duly given, and received by
the addressee at the address stated above (or at such other address as may be
specified by a party in a written notice delivered in accordance with the
provisions of this Paragraph) upon receipt, duly evidenced if (i) mailed by
certified or registered mail, return receipt requested, with postage prepaid
(ii) deposited with a recognized overnight courier service such as Federal
Express, UPS or Express Mail, (iii) by hand delivery, or (iv) upon the receipt
of actual written notice.
15. Indemnification. Employee shall be entitled throughout the term of
this Agreement and thereafter to indemnification in respect of any actions or
omissions as an officer of the Company (or any successor pursuant to Paragraph
11 hereof) to the fullest extent permitted by the Delaware General Corporation
Law or other applicable law.
16. Entire Agreement. This Agreement constitutes the entire agreement
between the parties as of the date hereof with respect to Employee's employment
by the Company, superseding all prior or contemporaneous understandings or
agreements, oral or written. This Agreement may not be modified or amended,
except by subsequent written agreement of the parties which
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<PAGE>
specifically states that it is intended to be a modification, amendment or
supplement to this Agreement, and is signed by all of the parties hereto. No
course of dealing or custom shall be referred to as modifying any of the terms
and conditions of this Agreement.
17. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York applicable to contracts
made and to be performed wholly within that State, and any action, suit or
proceeding which shall be permitted by this Agreement, or by action of law,
shall be commenced in any court having jurisdiction in New York County, or in
the United States District Court for the Southern District of New York, and the
parties hereto hereby waive any objection to jurisdiction or venue in any such
action, suit or proceeding commenced in such courts.
18. Arbitration. Except as specifically provided in Paragraph 11 of
this Agreement, any and all claims, disputes and other matters in question with
respect to, arising out of, under or in connection with this Agreement,
including without limitation, the validity, interpretation, performance and
breach hereof, or the rights and privileges provided by, or responsibilities and
obligations under this Agreement, shall be finally decided by arbitration in the
City of New York before three (3) arbitrators in accordance with the Rules of
the American Arbitration Association then in effect, unless the parties mutually
agree otherwise. This Agreement to arbitrate shall be specifically enforceable
under the prevailing arbitration law. The award rendered by the arbitrators
shall be final, and judgment may be entered upon it in accordance with
applicable law in any court having jurisdiction thereof. The parties agree that
the arbitrators will have full authority to award the costs of the arbitration,
including attorneys' fees.
19. Severability. In the event any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, such holding
shall not invalidate or render
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<PAGE>
unenforceable any other provision hereof. Such invalid or unenforceable
provision shall be amended, if possible, in order to accomplish the purposes of
this Agreement.
20. Headings. The headings of the various sections of this Agreement
have been inserted for convenience of reference only and shall not be deemed to
be a part of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
UNIVEC, INC.
By: /s/ Alan H. Gold
---------------------------
Dr. Alan H. Gold
President
/s/ Joel Schoenfeld
---------------------------
Joel Schoenfeld
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<PAGE>
EXHIBIT 10.11
February 1, 1995
$250,000.00 ON DEMAND for value received, I promise to pay to the order of
FLORA SCHOENFELD, TWO HUNDRED FIFTY THOUSAND AND 00/100 Dollars at 999 Franklin
Avenue, Garden City, New York 11530 without interest.
This note is one of a series of 1 notes of even date herewith,
aggregating $250,000.00.
No. 1 Due On Demand
/s/ David Shonfeld
--------------------------
DAVID SHONFELD
September 1, 1994
$500,000.00 ON DEMAND for value received, I promise to pay to the order of
FLORA SCHOENFELD, FIVE HUNDRED THOUSAND AND 00/100 Dollars at 999 Franklin
Avenue, Garden City, New York 11530 without interest.
This note is one of a series of 1 notes of even date herewith,
aggregating $500,000.00.
No. 1 Due On Demand
/s/ David Shonfeld
--------------------------
DAVID SHONFELD
<PAGE>
EXHIBIT 10.12
February 1, 1995
$250,000.00 ON DEMAND for value received, I promise to pay to the order of
FLORA SCHOENFELD, TWO HUNDRED FIFTY THOUSAND AND 00/100 Dollars at 999 Franklin
Avenue, Garden City, New York 11530 without interest.
This note is one of a series of 1 notes of even date herewith,
aggregating $250,000.00.
No. 1 Due On Demand
/s/ Alan Gold
--------------------------
DR. ALAN GOLD
September 1, 1994
$500,000.00 ON DEMAND for value received, I promise to pay to the order of
FLORA SCHOENFELD, FIVE HUNDRED THOUSAND AND 00/100 Dollars at 999 Franklin
Avenue, Garden City, New York 11530 without interest.
This note is one of a series of 1 notes of even date herewith,
aggregating $500,000.00.
No. 1 Due On Demand
/s/ Alan Gold
--------------------------
DR. ALAN GOLD
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 (File
No. 333-20187) of our report which includes an explanatory paragraph concerning
the Company's ability to continue as a going concern, dated February 17, 1997,
except for Note 15 as to which the date is April 15, 1997, on our audit of the
financial statements of Univec, Inc. and Subsidiary. We also consent to the
reference to our Firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
----------------------------
Coopers & Lybrand L.L.P.
Melville, New York
April 15, 1997.
