<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 1997
REGISTRATION NO. 333-20187
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------
AMENDMENT NO. 1
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 Code Number) Identification No.)
</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>
==============================================================================================
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
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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 ............ 2,500,000(6) $ .10 $ 250,000 $75.76
- -----------------------------------------------------------------------------------------------
Common Stock ......... 2,500,000(4)(8) $ 4.50(7) $11,250,000 $3,409.09
33,436(4)(9) $ 3.50(7) $ 117,026 $35.46
- -----------------------------------------------------------------------------------------------
Total Registration Fee .................................................. $9,537.24(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 2,500,000 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) The Registrant paid $9,462.58 on January 22, 1997 and paid an additional
$74.66 on or prior to the date hereof.
<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 MARCH 14, 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
__________, 1999 [two years after the date upon which the Registration
Statement of which this Prospectus forms a part is declared effective by the
Securities Exchange Commission (the "Effective Date")] and expiring on
____________, 2002 [the fifth anniversary of the Effective Date]. The
Warrants are subject to redemption by the Company at $.05 per Warrant at any
time commencing _______________, 1999 [two years after the Effective Date]
(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 had 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."
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 2,500,000 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. Prior to the Effective Date, each
of the selling securityholders named in the Selling Securityholder Prospectus
will enter into an agreement not to sell or otherwise dispose of any
securities of the Company for a period of 24 months following the Effective
Date, without the prior written consent of the Representative. 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 $.35 $3.15
- -------------------------------------------------------------------------------
Per Warrant $.10 $.01 $.09
- -------------------------------------------------------------------------------
Total(3) $5,475,000 $547,500 $4,927,500
===============================================================================
(footnotes appear on page 3)
------
[LOGO] MAIDSTONE FINANCIAL, INC [LOGO] THE HARRIMAN GROUP INC.
------
The date of this Prospectus is , 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
$4,000 per month, or an aggregate of $96,000, 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 ($96,000) and the other
expenses of the Offering (estimated at $383,000) 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, $629,625 and $5,666,625, 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 Underwriter 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
, 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 the 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 Effective Date, 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 may also 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
______, 1999 [two years after the Effective
Date] and ending ______, 2002 [the fifth
anniversary of the Effective Date].
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
______, 1999 [two years after the Effective
Date], 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 ....... 2,500,000 Warrants(3)
After the Offering ........... 4,750,000 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
6
<PAGE>
marketing, promotion and public relations,
(3) for product development, (4) for payment
of promissory notes issued in connection
with a bridge financing completed in
December 1996 (the "Bridge Notes"), and (5)
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."
Proposed Nasdaq SmallCap
Market Symbols.............. Common Stock -- UNVC; Warrants -- UNVCW
- ------
(1) Does not include (i) 60,042 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 June 30, 1999, (ii) 2,500,000 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
Effective Date, (iii) 35,715 shares reserved for issuance upon conversion
of the Company's 12 1/2 % demand promissory note in the principal amount
of $125,000, (iv) 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 assuming the Closing occurs on March 31,
1997) concurrently with consummation of the sale of the shares of Common
Stock and Warrants offered hereby (the "Closing"), (v) 4,688,706 shares
reserved for issuance upon exercise of options which may be granted in
the future pursuant to the Company's stock option plan, and (vi) 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) 55,672 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 June 30, 1999, (ii) 4,750,000 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 Effective Date, (iii) 35,715 shares reserved for issuance
upon conversion of the Company's 12 1/2 % demand promissory note in the
principal amount of $125,000, (iv) 4,688,706 shares reserved for issuance
upon exercise of options which may be granted in the future pursuant to
the Company's stock option plan, and (vi) 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 assuming the Closing occurs
on 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
Effective Date.
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 4,948,598(3)
Accumulated deficit ........ (4,253,138) (2,649,645)(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 offered hereby 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 offered hereby.
(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 debt
financing costs of $783,292 associated with the Bridge Financing.
(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 approximately ($120,390 assuming the Closing occurs March
31, 1997) due to a director of the Company; (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 debt financing costs of $783,292 associated with the
Bridge Financing.
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. "Going Concern." 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, 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 and
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 Key Personnel," "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
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
assembly of syringes ordered by relief agencies such as WHO, as long as
INSERPOR can supply the required volume of syringes. If INSERPOR is unable or
not willing to supply a sufficient quantity of components, the Company would
seek to purchase additional quantities of components from alternative
suppliers, such as Sherwood. However, there can be no assurance that the
Company would be able to obtain sufficient quantities of the syringe and
related components required to fill orders from relief agencies from
alternative suppliers. In addition, the Company is dependent upon INSERPOR to
supply the Company's proprietary plunger which satisfies tolerance limits for
assembly of its aspirating syringe. If INSERPOR is unable or not willing 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 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 aspirating 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. 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 which the Company has supplied Harmac with for
the assembly of 1cc syringes only is capable of producing 36 million syringes
per year. With improvements to manufacturing processes 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. Delays in Establishing Production. Although the Company expects to
commence production of its locking clip syringes at Harmac's facilities
before the end of March 1997, there can be no assurance that the commencement
of production will not be delayed as a result of delays in complying with GMP
requirements, including the attainment of acceptable quality levels. The
failure to timely commence production would delay receipt of revenues and
would have a materially adverse effect on the Company's business, financial
condition and results of operations.
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 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."
12
<PAGE>
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 three 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."
15. Competition. The Company's principal competition is from manufacturers
of traditional disposable syringes. Becton-Dickinson and Company
("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
13
<PAGE>
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.
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
Shonfeld is compensated on an hourly basis, he currently is working on a
full-time basis for the Company. The Company does not have key-man insurance
on the life of any of its executive officers. The Company has applied for
key-man insurance on the lives of Joel Schoenfeld and David Chabut, each in
the amount of $1,000,000;
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<PAGE>
however there can be no assurance that such insurance can be obtained at
acceptable cost. 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
$987,250, or approximately 23% 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. 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 Effective Date, 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."
23. 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."
24. 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."
25. 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."
26. 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."
27. Authorization and Discretionary Issuance of Preferred Stock. The
Company's 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, for a period of 24
months following the Effective Date, without the prior written consent of the
Representative. See "Certain Transactions" and "Description of Securities --
Preferred Stock."
15
<PAGE>
28. 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.
29. 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."
30. 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."
31. Representative's Potential Influence on the Company. The Company has
agreed that for three years from the Effective Date, 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."
32. Possible Delisting. Application has been made for the inclusion of the
shares of Common Stock and Warrants on The Nasdaq SmallCap Market. There can
be no assurance that the Common Stock and Warrants
16
<PAGE>
will qualify for quotation on The Nasdaq SmallCap Market. Furthermore,
assuming that the Common Stock and Warrants are approved for quotation on The
Nasdaq SmallCap Market, there can be no assurance that the Company will be
able to satisfy specified financial tests and market related criteria
required for continued quotation thereon following the Offering. 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 "Electronic Bulletin Board" of the National Association of Securities
Dealers, Inc. ("NASD"), 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.
The Nasdaq Stock Market has recently proposed amendments to its rules
increasing eligibility and maintenance criteria for The Nasdaq SmallCap
Market. Existing eligibility criteria for inclusion on The Nasdaq SmallCap
require, among other things, that an issuer have total assets of $4 million
and total equity of $2 million, and that the security to be listed has a
minimum bid price of $3.00 per share. The proposed amendment would require,
among other things, that an issuer have net tangible assets (i.e., total
assets less total liabilities and intangible assets) of $4 million (or
alternatively, net income in two of the most recent three fiscal years of at
least $750,000, or a market capitalization of $50 million) and that the
security to be listed has a minimum bid price of $4.00 per share. Existing
maintenance criteria require, among other things, that an issuer have total
assets of $2 million and total equity of $1 million and that the listed
security has a minimum bid price of $1.00. The amendment 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) and that the listed
security has a minimum bid price of $1.00. Adoption of the proposed
amendments, which are not expected to become effective until after the
completion of the Offering, would further increase the risk of having the
Company's Common Stock and Warrants delisted.
33. 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
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.
34. 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
17
<PAGE>
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 3,676,726 shares of Common Stock, have entered into agreements not
to sell or otherwise dispose of any securities of the Company, including
Common Stock, for a period of 24 months following the Effective Date (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 during such 24
month period, 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 2,500,000 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. 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."
35. 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 12,047,413 shares of Common Stock
authorized but unissued and not reserved for specific purposes and an
additional 10,331,533 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), (iv) upon
conversion of a 12 1/2 % demand promissory note in the principal amount of
$125,000, and (v) 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, for a period of 24 months following the
Effective Date, 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."
18
<PAGE>
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 13.7%
Product development(3) .......................... 270,000 6.3%
Payment of Bridge Notes(4) ...................... 1,000,000 23.3%
Working capital and general corporate purposes(5) 987,250 23.0%
------------- ---------
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) 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.
(5) Includes working capital to support inventory and accounts receivable, and
management salaries. See "Management -- Employment Agreements.
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
will be sufficient to satisfy the Company's anticipated cash requirements for
the 12 months following the Effective Date.
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 5,141,027 (6)
Accumulated deficit ............................................... (4,253,138) (2,649,645)(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, assuming the
Closing occurs on 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) 60,042 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 June 30, 1999; (ii) 35,715 shares
reserved for issuance upon conversion of the Company's 12 1/2 % demand
promissory note in the principal amount of $125,000; (iii) 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 assuming the Closing occurs on March 31, 1997). See "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) 55,672 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 June 30, 1999; (ii) 35,715 shares
reserved for issuance upon conversion of the Company's 12 1/2 % demand
promissory note in the principal amount of $125,000; and (iii) 4,750,000
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 Effective Date. See "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 debt financing costs of $783,292 associated
with the Bridge Financing.
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 assuming the Closing
occurs on March 31, 1997) concurrently with the Closing in exchange for the
issuance of approximately 34,397 shares of Common Stock, (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 assuming the
Closing occurs on 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 55,672
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 June 30, 1999, (ii) 35,715 shares reserved for
issuance upon conversion of the Company's 12 1/2 % demand promissory note in
the principal amount of $125,000, (iv) 4,750,000 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 Effective Date, (v)
562,500 shares reserved for issuance upon exercise of the Over- Allotment
Option and the Warrants included therein, and (vi) 375,000 shares reserved
for issuance pursuant to the Underwriter's 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 sold 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 2,250,000 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
Effective Date.
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 is 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 expects that Harmac will
commence production of the Company's syringes before the end of March 1997.
The Company is completing applicable requirements for GMP. As soon as the
Company satisfies GMP requirements, Harmac will begin production of the
Company's lcc locking clip syringes. However, 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 full capacity before the end of 1997. See "Risk Factors -- Dependence on
Certain Assemblers."
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 syringe. 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 three 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 three 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 7% 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). See Notes 5 and 12 to the
Company's consolidated financial statements appearing elsewhere herein.
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."
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<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 March 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 51 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 $120,000(2) -- 20,513(3)
</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 and amounts to be reimbursed to Mr.
Chabut for taxes incurred in connection with his exercise of certain
stock options described in footnote (3) below.
(3) 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 at 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, plus a car
allowance of $9,000 per annum and life, disability and health insurance
benefits. The 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.
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>
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<PAGE>
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>
Value of Unexercised
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"). As of December 31, 1996, options to
purchase 20,513 shares have been granted under the Plan.
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 a NQSO granted a 10% Stockholder be no less than 110% of the fair market
value on the date of grant.
The Company has agreed with the Underwriters that the exercise price of
options to purchase 4,500,000 shares of Common Stock will not be less than
$3.50 per share and that such options will be exercisable for a period of ten
years, commencing upon the earlier of (x) nine years after the Effective Date
and (y) two years after the Effective Date, 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 ("Time Accelerated Restricted Stock
Options").
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 or such
other form of payment as may be permitted under the Plan.
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<PAGE>
INDEMNIFICATION OF OFFICERS AND DIRECTORS AND LIMITATION ON DIRECTORS'
LIABILITY
The Company's 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 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 -- $120,390. 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 assuming the
Closing occurs on 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.
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 incorpora-
40
<PAGE>
tion 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 Effective Date, 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.
(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
34,397 shares of Common Stock in exchange for the cancellation of
amounts payable to him ($120,388 as of December 31, 1996), 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."
<PAGE>
(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
concurrently with the Closing in exchange for cancellation of amounts
payable to him ($120,390, including accrued interest, assuming the
Closing occurs on 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 assuming the Closing occurs on 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.
42
<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. On the Effective Date, 1,082,287 shares of
Common Stock and 1,919 shares of Series A Preferred Stock will be 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 Certificate of
Incorporation, a Certificate of Designation authorizing the Series A
Preferred Stock, 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 Certificate of Incorporation, the Certificate of Designation, 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 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, for a period of 24 months following the
Effective Date, 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) for a period of five years
commencing ______, 1999 [two years after the Effective Date] and ending
______, 2002 [five years after the Effective Date] (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, together with
the form
43
<PAGE>
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. On the Effective Date, there will be outstanding options to
purchase an aggregate of 60,042 shares of Common Stock at an exercise price
of $3.50, which expire at various dates from February 22, 1999 through June
30, 1999. 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 at the Closing. See "Certain Transactions." In addition,
4,688,706 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, including 4,500,000 Time Accelerated
Restricted Stock Options. See "Management -- Stock Option Plan."
Warrants. On the Effective Date, there will be outstanding warrants to
purchase an aggregate of 2,500,000 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. No shares of preferred stock will be outstanding on the
Effective Date, 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, for a period of 24 months following the Effective Date, 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, set forth in a Certificate of Designation filed with the
Office of the Secretary of the State for the State of Delaware, 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 may be redeemed at the option of
the Company, as a whole at any time or in part from time to time, at $1,000
per share. Written notice of redemption must be given to the registered
holders of the Series A Preferred Stock not less than twenty (20) nor more
than thirty (30) days prior to the date fixed for the redemption of the
Series A Preferred Stock. The Company has agreed with the Underwriters that
it will not redeem any shares of Series A Preferred Stock prior to the fifth
anniversary of the Effective Date, without the prior written consent of the
Representative.
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
upon the earlier of September 30, 1999 and 24 months after the Effective
Date. 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. On the Effective Date, the Bridge Warrants will convert
automatically into warrants having terms identical to the Warrants being
offered in the Offering. 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.
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 2,250,000 shares of Common Stock (having terms identical
to the Warrants offered hereby) which are to be issued on the Effective Date
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
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<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), for a period of 24 months following the
Effective Date, without the prior written consent of the Representative,
which may be granted or withheld in the sale and absolute discretion of the
Representative. 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 3,676,726 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, for a period of 24 months following the Effective
Date (the "Lock-Up Agreements"), without the prior written consent of the
Representative, which may be granted or withheld at the sole and absolute
discretion of the Representative; provided, however, that if during such 24
month period, 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 2,500,000 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. 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 March 1, 1996, 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. Prior to the Effective Date, the Company will file 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. .
The Harriman Group,
Inc. ............
-------------- -----------
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 one year from the Effective Date 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
for a period of one year after the Effective Date, 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 its
designees, made at any time within the period commencing one year and ending
five years after the Effective Date, 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 Effective Date, 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, for a period of 24 months after the Effective
Date, 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 3,653,343 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), for a
period of 24 months following the Effective Date, without the prior written
consent of the Representative, which may be granted or withheld in the sole
and absolute discretion of the Representative. 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 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
50
<PAGE>
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 Effective Date
at a fee equal to $4,000 per month. The entire fee ($96,000) 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 no later than the
Effective Date. Such firm, or an acceptable substitute firm, shall be
continuously engaged from the Effective Date to 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.
SELLING STOCKHOLDER OFFERING
The Company has registered for resale under a separate prospectus (the
"Selling Securityholder Prospectus") as part of the Registration Statement
warrants to purchase 2,500,000 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.
Prior to the Effective Date, each of the selling securityholders named in the
Selling Securityholder Prospectus (the "Selling Securityholders") will enter
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) for a period of 24 months following the
Effective Date, 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 by the Selling Securityholders pursuant
to the Selling Stockholder Prospectus prior to the date upon which the
Over-Allotment Option expires, or such earlier date upon which the
Over-Allotment Option is fully exercised. 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.
51
<PAGE>
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 March 12,
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 Common
Preferred Stock
---------------- ---------
Shares Amount Shares
------ ------ ---------
<S> <C> <C> <C>
Balance, December 31, 1994 .................... 1,025,641
Issuance of stock ............................. 33,360
Shareholder payment of company liability ......
Net loss for the year ended December 31, 1995 .
------ ------ ---------
Balance, December 31, 1995 .................... 1,059,001
Conversion of indebtedness to Series A
Preferred Stock .............................. 1,269 1
Exercise of stock options ..................... 16,143
Expenses paid through issuance of common stock 7,143
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
====== ====== =========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Additional Deferred Total
Paid-in Accumulated Offering Stockholders'
Amount Capital Deficit Costs Equity
------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 .................... $1,025 $ 98,975 $(1,866,353) $(1,766,353)
Issuance of stock ............................. 34 299,966 300,000
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 .................... 1,059 433,941 (2,812,367) (2,377,367)
Conversion of indebtedness to Series A
Preferred Stock .............................. 1,268,999 1,269,000
Exercise of stock options ..................... 16 56,484 56,500
Expenses paid through issuance of common stock 7 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 .................... $1,082 $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:
Construction in progress - machinery ............................ $ 90,015
Factory equipment ...................,.......................... 756,572
Office equipment ............................................... 21,335
----------
867,922
Less accumulated depreciation .................................. (61,037)
----------
$806,885
==========
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:
Patent rights .................................................. $112,000
Less accumulated amortization ................................... (40,000)
-----------
$ 72,000
===========
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:
Payroll ....................................................... $ 36,000
Payroll taxes ................................................. 22,499
Interest ...................................................... 23,502
Professional fees .............................................. 45,694
Royalties ..................................................... 25,000
Other ......................................................... 22,500
----------
$175,195
==========
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:
1997 .................................... $282,000
1998 .................................... 192,000
1999 .................................... 192,000
2000 .................................... 192,000
----------
$858,000
==========
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 and may be redeemed at the option of the Company, at $1,000
per share (aggregate liquidation preference of $1,269,000). 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
F-13
<PAGE>
Univec, Inc. and Subsidiary
Notes to Consolidated Financial Statements - (Continued)
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.
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.
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 Underwriter. 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 ................ 51
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
------
MAIDSTONE FINANCIAL, INC.
, 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 MARCH 14, 1997
UNIVEC, INC.
2,533,436 SHARES OF COMMON STOCK AND
2,500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
This Prospectus relates to 2,533,436 shares of common stock, par value
$.001 per share (the "Common Stock") of UNIVEC, Inc. (the "Company"), and
2,500,000 redeemable common stock purchase warrants (the "Warrants") that may
be sold by the selling securityholders named herein (the "Selling
Securityholders"). See "Selling Securityholders". The 2,500,000 Warrants
offered hereby were issued in connection with a bridge financing completed by
the Company in December 1996. Of the 2,533,436 shares of Common Stock offered
hereby, 2,500,000 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
__________, 1999 [two years after the date upon which the Registration
Statement of which this Prospectus forms a part is declared effective by the
Securities Exchange Commission (the "Effective Date")] and expiring on
____________, 2002 [the fifth anniversary of the Effective Date]. The
Warrants are subject to redemption by the Company at $.05 per Warrant at any
time commencing _______________, 1999 [two years after the Effective Date],
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) until 24 months after
the Effective Date, 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 the expiration of the
45-day period commencing on the date of the closing of the IPO during which
the Underwriters may exercise an option to purchase from the Company up to an
additional 15% of the shares of Common Stock and/or Common Stock Purchase
Warrants offered in the IPO to cover over-allotments, if any (the
"Over-Allotment Option"), or such earlier date upon which the Over-Allotment
Option is fully exercised.
<PAGE>
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............. 2,533,436 shares of common stock, $0.001 par
value per share (the "Common Stock"), and
2,500,000 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
______, 1999 [two years after the Effective
Date] and ending ______, 2002 [the fifth
anniversary of the Effective Date].
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
______, 1999 [two years after the Effective
Date], 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........... 4,750,000
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."
Proposed Nasdaq SmallCap
Market Symbols............... Common Stock -- UNVC; Warrants -- UNVCW
- ------
(1) Does not include (i) 55,672 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 June 30, 1999, (ii) 4,750,000 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) 35,715
shares reserved for issuance upon conversion of the Company's 12 1/2 %
demand promissory note in the principal amount of $125,000 of the IPO
(the "Clos-
6
<PAGE>
[Alternate Page for Selling Securityholder Prospectus]
ing"), (iv) 4,688,706 shares reserved for issuance upon exercise of
options which may be granted in the future pursuant to the Company's
stock option plan, and (vi) 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 at the
Closing in exchange for the cancellation of amounts due to him ($120,390
assuming the Closing occurs on 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
Effective Date, 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>
Norben Import Corp./Profit Sharing Plan 0 750,000 0
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
Effective Date 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 two
years after the Effective Date.
(2) Except as otherwise indicated, represents the number of Warrants and
shares of Common Stock issuable upon exercise thereof owned by the
Selling Stockholder.
(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) until 24 months after the Effective Date, 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 the expiration of the 45-day period commencing on the
date of the closing of the IPO during which the Underwriters may exercise the
Over-Allotment Option, or such earlier date upon which the Over-Allotment
Option is fully exercised.
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 7 of the Registrant's 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 7 of the Registrant's 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 7 of the Registrant's Certificate of Incorporation provides that a
person indemnified under Article 7 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 Certificate of
Incorporation by petitioning a court of competent jurisdiction.
Article 7 of the Registrant's 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 Certificate of Incorporation, or any statute or agreement,
or otherwise.
Finally, Article 7 of the Registrant's 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 7 of
the 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 8 of the Registrant's 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 following table sets forth 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 ............................. 96,000.00
Directors' and Officers' liability insurance .............. 80,000.00
Printing expenses (other than stock certificates) ......... 60,000.00
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 .............................. 75,000.00
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 ............................................. 815.47
------------
Total .................................................... $643,250.00
============
</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 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.
4. 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").
5. 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>
6. 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.
7. 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.
8. 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.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Advisory and Investment Banking Agreement between the Registrant and
Maidstone Financial, Inc.
3.1 Certificate of Incorporation of the Registrant.
3.2 By-laws of the Registrant.
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.
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").
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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 1996 Stock Option Plan of the Registrant.
10.10* Form of Employment Agreement dated as of January 1, 1997 between the Registrant and Joel 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 Amendment No. 1 to this 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 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.
II-4
<PAGE>
(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.
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 March 14, 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 March 14, 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.
1.2 Form of Advisory and Investment Banking Agreement between the Registrant
and Maidstone Financial, Inc.
3.1 Certificate of Incorporation of the Registrant.
3.2 By-laws of the Registrant.
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 1996 Stock Option Plan of the Registrant.
10.10* Form of Employment Agreement dated as of January 1, 1997 between the Registrant and Joel 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 Amendment No. 1 to this Registration Statement.
(1) Confidential treatment has been requested for certain portions of this
document.
<PAGE>
NUMBER SHARES
UC
UNIVEC, Inc.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK CUSIP 91335U 10 8
SEE REVERSE FOR CERTAIN
DEFINITIONS AND CLASS PROVISIONS
THIS CERTIFIES that
is the holder of
FULLY PAID AND NON-ASSESSABLE SHARES $.001 PAR VALUE OF THE COMMON STOCK OF
UNIVEC, Inc., transferable only on the books of the Corporation in person or by
duly authorized attorney upon surrender of this certificate properly endorsed.
This certificate is not transferable until countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the signatures of its duly
authorized officers.
Dated:
SEAL
Secretary President
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, NJ)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
UNIVEC, Inc.
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK. THE
CORPORATION WILL FURNISH WITHOUT CHARGE TO ANY STOCKHOLDER WHO SO REQUESTS THE
POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF, AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws and regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT _______ Custodian _______
(Cust) (Minor)
TEN ENT - as tenants by entireties
under Uniform Gifts to Minors Act
JT TEN - as joint tenants with _________________________________
right of survivorship (State)
and not as tenants in
common
Additional abbreviations may also be used though not in the above list.
For value received _______________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
| |
|____________________________________|_________________________________________
_______________________________________________________________________________
Please print or typewrite name and address, including postal zip code
of assignee
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint_____________________________________________
_______________________________________________________________________Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated,___________________
__________________________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon
the face of the certificate, in every
particular, without alteration or
enlargement or any change whatever.
Signature Guaranteed:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION, (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM). PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
, 1997
Maidstone Financial, Inc.
101 East 52nd Street
New York, New York 10022
Re: Univec, Inc.
------------
Dear Sir or Madame:
The undersigned, a beneficial owner of the common stock of Univec, Inc.
(the "Company"), and/or warrants, options or rights to purchase, or securities
convertible into, Common Stock, understands that the Company has filed with the
Securities and Exchange Commission a registration statement on Form SB-2 (No.
333-20187) for the registration of Common Stock and redeemable warrants (the
"Redeemable Warrants") of the Company (the "Registration Statement") in
connection with a public offering of such securities. The undersigned further
understands that upon the effectiveness of the Registration Statement, the
Company and Maidstone Financial, Inc. (the "Underwriter") intend to enter into
an underwriting agreement (the "Underwriting Agreement") in connection with such
public offering.
In order to induce the Underwriter to proceed with such public offering,
the undersigned agrees, for the benefit of the Company and the Underwriter, that
should such public offering be effectuated, the undersigned will not, without
the prior written consent of the Underwriter, sell, assign, pledge, hypothecate
or otherwise dispose of, directly or indirectly, any shares of Common Stock or
other securities of the Company owned by the undersigned, or subsequently
acquired through the exercise or issuance of any options, warrants or rights,
split or other distribution of stock, or grant of options, rights or warrants
with respect to any such shares of Common Stock, during the twenty-four (24)
month period commencing on the closing date of said public offering.
Furthermore, the undersigned will permit all certificates evidencing the
undersigned's shares of Common Stock or other securities to be endorsed with the
appropriate restrictive legends, and will consent to the placement of
appropriate stop transfer orders with the transfer agent for the Company.
<PAGE>
Page 2
- -------------------------------------
In the event that the Registration Statement becomes effective, the
undersigned agrees to be bound by the provisions of this Agreement.
Very truly yours,
----------------------------
Printed Name
----------------------------
Signature
----------------------------
If the signatory is an entity,
print name and title of
individual signing
- ----------------------------
Please indicate number of
shares of Common Stock owned.
Please list any options, warrants,
rights or convertible securities
owned and the number of shares of
Common Stock issuable upon the
exercise or conversion of such
securities:
- ----------------------------
Options
- ----------------------------
Warrants
- ----------------------------
Rights
- ----------------------------
Convertible Securities
<PAGE>
SNOW BECKER KRAUSS P.C.
Attorneys at Law
605 Third Avenue
New York, New York 10158
----------
(212) 687-3860
March 14, 1997
Board of Directors
UNIVEC, Inc.
999 Franklin Avenue
Garden City, NY 11530
Ladies and Gentlemen:
You have requested our opinion, as counsel for Univec, Inc., a
Delaware corporation (the "Company"), in connection with the registration
statement on Form SB-2 (No. 333-20187) (the "Registration Statement"), under the
Securities Act of 1933 (the "Act"), filed by the Company with the Securities and
Exchange Commission.
The Registration Statement relates to (i) an offering by the
Company of up to 1,725,000 shares (the "Shares") of common stock, par value
$0.001 ("Common Stock"), of the Company and up to 2,587,500 redeemable common
stock purchase warrants (the "Redeemable Warrants"), each exercisable to
purchase one share of Common Stock, (ii) an offering by the selling
securityholders named in the Registration Statement (the "Selling
Securityholders") of up to 2,500,000 Redeemable Warrants and up to 2,533,436
shares of Common Stock, including 2,500,000 shares issuable upon exercise of
Redeemable Warrants (the aggregate of 5,087,500 shares of Common Stock issuable
upon exercise of the Redeemable Warrants being hereinafter referred to as the
"Warrant Shares") and 33,436 shares issuable upon exercise of options (the
"Option Shares") and (iii) warrants (the "Underwriter's Warrants") to purchase
150,000 shares of Common Stock and 225,000 warrants (the "Underwriter's Common
Stock Warrants"), each exercisable to purchase one share of Common Stock (the
aggregate of 375,000 shares of Common Stock issuable upon exercise of the
Underwriter's Warrants, including the Underwriter's Common Stock Warrants, being
hereinafter referred to as the "Underwriter's Warrant Shares").
<PAGE>
Univec, Inc.
March 14, 1997
Page 2
We have examined such records and documents and made such
examinations of law as we have deemed relevant in connection with this opinion.
It is our opinion that when there has been compliance with the Act and the
applicable state securities laws:
(1) The Shares have been duly authorized and, when issued,
delivered and paid for in the manner described in the form of
Underwriting Agreement filed as Exhibit 1.1 to the
Registration Statement, will be legally issued, fully paid and
nonassessable.
(2) The Warrant Shares have been duly authorized, and when issued,
delivered and paid for upon exercise of the Redeemable
Warrants in the manner described in the form of Warrant
Agreement filed as Exhibit 4.3 to the Registration Statement
(the "Warrant Agreement"), will be legally issued, fully paid
and nonassessable.
(3) The Option Shares have been duly authorized, and when issued,
delivered and paid for in the manner described in the Share
Option Agreement filed as Exhibit 10.8 to the Registration
Statement, will be legally issued, fully paid and
non-assessable.
(4) The Underwriter's Warrant Shares, have been duly authorized
and when issued, delivered and paid for in the manner
described in the Underwriter's Warrants filed as Exhibit 4.1
to the Registration Statement or the Warrant Agreement, as the
case may be, will be legally issued, fully paid and
nonassessable.
(5) The Redeemable Warrants, the Underwriters' Warrants and the
Underwriters' Common Stock Warrants, have been duly
authorized, and when issued and paid for as set forth in the
Registration Statement, will be legally issued, fully paid and
non-assessable, and will constitute the valid and legally
binding obligations of the Company, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to the
availability of remedies (regardless of whether such
enforcement is considered in a proceeding in equity or at
law).
<PAGE>
Univec, Inc.
March 14, 1997
Page 3
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Registration Statement. In so doing, we do not admit that
we are in the category of persons whose consent is required under Section 7 of
the Act or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Very truly yours,
/s/ Snow Becker Krauss P.C.
---------------------------------
SNOW BECKER KRAUSS P.C.
<PAGE>
EXHIBIT 10.1
<PAGE>
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.
<PAGE>
SL-1888
05/29/96
Page 2 of 16
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
<PAGE>
SL-1888
05/29/96
Page 3 of 16
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
<PAGE>
SL-1888
05/29/96
Page 4 of 16
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>
SL-1888
05/29/96
Page 5 of 16
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>
SL-1888
05/29/96
Page 5 of 16
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
05/29/96
Page 7 of 16
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>
SL-1888
05/29/96
Page 8 of 16
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>
SL-1888
05/29/96
Page 9 of 16
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>
SL-1888
05/29/96
Page 11 of 16
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
<PAGE>
SL-1888
05/29/96
Page 12 of 16
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
<PAGE>
SL-1888
05/29/96
Page 13 of 16
(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
<PAGE>
SL-1888
05/29/96
Page 14 of 16
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 FOR EPOXY 1 CC TUBERCULIN SYRINGE
<PAGE>
SCHEMATIC FOR EPOXY 1 CC INSULIN SYRINGE
<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]
<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 OF LCC PLUNGER TIP]
<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 OF M500E HOODED NEEDLE]
<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.
1
<PAGE>
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 .
2
<PAGE>
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:
<PAGE>
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
2
<PAGE>
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.
3
<PAGE>
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.
4
<PAGE>
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
5
<PAGE>
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,
6
<PAGE>
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
7
<PAGE>
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
8
<PAGE>
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.
9
<PAGE>
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.
10
<PAGE>
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.
11
<PAGE>
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.
12
<PAGE>
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.
13
<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:
____________________________
14
<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
<PAGE>
base salary shall 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. The Company shall pay the Employee an automobile allowance
of $9,000 per annum and provide the Employee with life, disability and health
insurance benefits with coverages no less favorable than those in effect on the
date herof. Employee also shall be entitled to participate in any and all
benefit plans of the Company made available to executive officers of the
Company.
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 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
-2-
<PAGE>
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 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, 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.
-3-
<PAGE>
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 (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
-4-
<PAGE>
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 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
-5-
<PAGE>
(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 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
-6-
<PAGE>
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 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:
----------------------------
Dr. Alan H. Gold
President
-----------------------------
Joel Schoenfeld
-7-
<PAGE>
Exhibit 23.1
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, 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
March 12, 1997.
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