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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
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[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended December 31, 1998
[ ] Transition report under Section 13 or 15(d) of the Securities Act of 1934
for the transition period from _____________ to _____________
Commission file number 0-22413
UNIVEC, INC.
(Name of Small Business Issuer in its Charter)
Delaware 11-3163455
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
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22 Dubon Court
Farmingdale, NY 11735
(516) 777-2000
(Address and telephone number of principal executive office)
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Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Act:
Title of Class
Common Stock, $.01 par value
Common Stock Purchase Warrants
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Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Revenues for the issuer's most recent fiscal year were $1,846,949.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the closing price at which the stock was sold on March
31, 1999 was $1,966,704.
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ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE REGISTRANTS
As of March 31, 1999, the issuer had 3,584,209 shares of common stock,
$.001 par value, outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
None
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Part I
Item 1. Description of Business.
UNIVEC, Inc. (the "Company" or "UNIVEC") develops, assembles, licenses and
markets safety hypodermic syringes designed to protect the healthcare worker and
patient against cross-infection. The Company also from time to time sells other
medical devices and intends to develop other medication delivery systems. 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.
In 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.
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 accurate dosages
of medicine (e.g., allergy, immunization and insulin medicines). It is more
difficult to deliver up to a .95cc dosage accurately with a syringe barrel that
is greater than 1cc. The Company does not know of any other company that offers
a lcc 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 initial marketing efforts have been directed primarily to
international relief agencies, including the International Red Cross, UNICEF and
the World Health Organization ("WHO"), as well as to public hospitals and health
facilities in the United States. Pursuant to programs of international relief
agencies, the Company has shipped its lcc locking clip syringe to over 53
countries. The Company also intends to market its locking clip syringes to (i)
governments of developing countries, (ii) private hospitals and health
facilities in the United States, and (iii) distributors in the United States.
The Company also plans to license its patents and proprietary manufacturing
processes relating to its 1cc locking clip and other syringe designs. 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 and hepatitis patients, and (iii) liability insurance companies.
Problems Associated With Traditional Disposable Syringes
In developing countries, accidental or deliberate reuse of disposable
syringes poses a serious risk of transmitting HIV-AIDS, hepatitis and other
blood-borne pathogens. At a conference in September 1997, UNICEF and WHO stated
jointly that "the consequences of reuse are striking. Current estimates put the
number of Hepatitis B cases provoked by four reuses of a syringe at up to 3,740
cases per 100,000 fully immunized children and the number of HIV infections at
81. When these risks are computed against current evidence of the reuse of
syringes, the total global morbidity due annually (to reuse) stands at around 10
million cases of Hepatitis B, 1.8 million cases of Hepatitis C, and 750,000
cases of HIV."
Relief agencies, including UNICEF and WHO, administered almost a billion
immunizations to women and children through immunization programs in developing
countries in 1998 and anticipate administering 3.5 billion immunizations by
2005. 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.
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
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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 (the "CDC") estimates that nearly half of all new HIV infections
are occurring in intravenous drug users ("IDUs'"). In the United States, up to
30% of pregnant mothers infected with HIV transmit the virus to their babies,
according to the CDC. Based on a study of children with HIV, who received care
at Children's Hospital of Wisconsin, researchers estimated that the mean total
lifetime costs of caring for a child with HIV was over $418,000. In Russia,
where HIV-AIDS is nearly an epidemic because of intravenous drug use, Health
Ministry figures suggest that it will cost at least $5 billion a year to treat
Russia's AIDS patients in the year 2000 or 50% of Russia's projected budget for
healthcare in that year.
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.
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 and WHO recommended "the use of
auto-destruct syringes instead of disposable, single use syringes in order to
avoid the hazards of unsafe injection practices." 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.
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 prevalent 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 costly to manufacture due to the complexity
of the mechanics required to retract the needle. Retractable Technologies, Inc.
(Texas) markets the Vanish Point(R), a 3cc syringe, at a retail price of $0.50
to hospitals and other health clinics. The Company believes that Vanish Point(R)
provides effective needle stick protection; however, it does not believe that
Vanish Point(R) provides adequate protection against deliberate reuse.
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 locks in their
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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 Company ("Becton-Dickinson") and Sherwood Davis &
Geck ("Sherwood") distribute traditional (1cc and 3cc) syringes with extendible
barrel sleeves at a wholesale price of $0.18 to $0.21. The Company is developing
an extendible barrel sleeve for its 1cc locking clip syringe, as well as for a
3cc locking syringe.
Difficult to Reuse Syringes
To the Company's knowledge, only Bader & Partner Medizintechnik GmbH
("Bader"), a German machine tool maker, 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 difficult to reuse syringes manufactured by Bader and
Becton-Dickinson, 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 up to a .95cc dosage of medicine (e.g., allergy, immunization and
insulin medicines). It is more difficult to deliver dosages less than 1cc
accurately with a syringe barrel that is greater than 1cc. Also unlike its
competitors, the Company offers a lcc 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 Program on Immunization ("EPI") manufactured
since 1992 by Bader. 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.
Becton-Dickinson
Designed in collaboration with UNICEF, the Becton-Dickinson UNIJECT is a
pre-filled or unit-dose syringe for immunization injections. The Company
believes that its 1cc locking clip syringe delivers medication more accurately
than the UNIJECT. Furthermore, the Company believes that its 1cc locking clip
syringe is easier to hold and inject medications with than the Becton-Dickinson
UNIJECT syringe.
The Becton-Dickinson SOLOSHOT syringe is a non-aspirating syringe
specifically designed for the EPI. The SOLOSHOT syringe, available in a 3cc
size, delivers a .5cc dose, which is the dosage for many immunizations. To
deliver a dosage other than .5cc, the Company believes that Becton-Dickinson
would have to modify components of the SOLOSHOT syringe.
UNIVEC
The Company has developed a 1cc locking clip syringe for aspirating and
non-aspirating applications, which is ideally suited for dispensing accurate
dosages of allergy, immunization and insulin medicines. The Company's 1cc
locking clip syringe can deliver dosages of up to .95cc. With the aspirating
syringe, the UNIVEC locking clip does not limit the user's ability to withdraw
and depress ("to aspirate") the plunger until the user locks the syringe
voluntarily. With the non-aspirating syringe, the UNIVEC locking clip limits the
user's ability to aspirate the plunger and locks the syringe passively.
When the non-aspirating syringes are assembled, the syringe clip is placed
on the ratcheted plunger in the position needed to limit dosage as desired. When
the operator depresses the plunger, the clip travels down the barrel by an equal
distance. Withdrawal of the plunger by any amount embeds the prongs into the
barrel and the user cannot retract the plunger.
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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.
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 is developing a 3cc, aspirating and non-aspirating syringe, for
sale to hospitals, health clinics, and relief agencies in 1999. In general,
hospitals and health clinics use more 3cc syringes than 1cc syringes. Hospitals
and clinics will have the choice of a syringe barrel with or without an
extendible barrel sleeve.
In March 1998, UNIVEC licensed rights to a United States patent for a
pre-filled or unit-dose syringe which is similar in function to the
Becton-Dickson UNIJECT syringe. The Company believes that its licensed design
for a pre-filled syringe will compete successfully with the Becton-Dickinson
UNIJECT design once it is developed.
Sales, Marketing and Distribution
The Company's initial marketing efforts have been directed primarily to
international relief agencies, including the International Red Cross, UNICEF and
WHO, as well as to public hospitals and health facilities in the Northeastern
United States. Pursuant to programs of international relief agencies, the
Company has shipped its lcc locking clip syringe to over 53 countries. The
Company also intends to market its locking clip syringes to (i) governments of
developing countries, (ii) private hospitals and health facilities in the
Northeastern United States, and (iii) distributors in the United States. The
Company also plans to license its patents and proprietary manufacturing
processes relating to its 1cc locking clip and other syringe designs. 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 and hepatitis patients, and (iii) liability insurance companies.
Production
The Company's lcc locking syringes are being assembled by a contract
manufacturer in Portugal. The Portuguese manufacturer also molds the Company's
proprietary plungers for its domestic assembly facility. The Company owns
stamping, assembly, and molding equipment at the Portuguese manufacturer. The
Company is the sole customer of the Portuguese manufacturer.
The Company also produces 1cc locking clip syringes at its Farmingdale, New
York production facility.
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 locking clip and plunger can be
assembled, with minor modifications, into barrels manufactured by
Becton-Dickinson, Sherwood,
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and other syringe manufacturers. A variety of domestic and foreign manufacturers
supply the components for the Company's lcc locking clip syringe. 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 barreled difficult to reuse, locking syringe. The stainless
steel for the locking clip and the plastic for the syringe barrels and plungers
is readily available from several sources. The syringe barrels for most of the
syringes sold by the Company have been manufactured by the Portuguese contract
manufacturer. However, the Company is pursuing alternate sources of supply for
certain components. Should there be a need for a certain component from an
alternate supplier, there can be no assurance that the Company will be able to
obtain it on acceptable terms, and there can be no assurance that production of
certain configurations of its lcc locking syringes will not be delayed. Delays
resulting from the selection of an alternate supplier to produce certain
components could have a materially adverse effect on the Company's business.
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 and
UNIJECT syringes 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 up 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
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 was granted a United States patent 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.
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.
The Company has licensed the rights to a locking device patent to develop a
3cc locking syringe. The Company is obligated to make certain minimum annual
royalty payments in respect of the licensed rights to this locking device patent
and, to the extent the Company's products utilize the claims and designs of the
licensed patent, to pay royalties to the owner of the licensed patent ranging
from 2% to 6% of net sales (or in the case of products produced under
sublicenses granted to third parties, 25% to 40% of royalties received from
those parties). This invention has U.S. patent protection, but lacks foreign
patent protection. However, the Company has filed for patent protection in
certain European countries for this invention.
The Company also has licensed the rights to a patent to develop a
pre-filled or unit dose syringe. The Company is obligated to make certain
minimum annual royalty payments in respect of the licensed rights to this patent
and, to the extent the Company's products utilize the claims and designs of the
licensed patent, to pay royalties to the owner of the licensed patent of 5% of
net sales, including net sales under sublicenses granted by the Company. This
invention has U.S. patent protection, but lacks foreign patent protection.
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The Company has registered trademarks UNIVEC(R), and Rx Ultra(R),Rx Plus,
The Univec Crest, 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.
The Company was granted a U.S. patent for a hypodermic syringe having a
retractable needle. The syringe has a retractable needle head which is provided
to slide along longitudinal grooves in the barrel.
Government Regulation
The manufacture and distribution of medical devices are subject to
extensive regulation by the FDA in the United States, and in some instances, by
foreign and state regulatory authorities. 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 standards for
effectiveness and safety could require the Company to discontinue the
manufacturing and/or marketing of the product in the United States. 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. 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. The Company's manufacturing facilities have not
been certified as satisfying GMP requirements. The Company's facilities will be
subject to extensive audits in the future, pursuant to standard FDA procedure.
No assurance can be given that when the Company 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 the Company. To date, the Company has not been audited
by the FDA. The FDA also has the authority to request repair, replacement or
refund of the cost of any device manufactured or distributed by the Company, and
the failure to meet standards for safety and effectiveness could require the
Company to discontinue marketing and/or manufacturing its product in the United
States.
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. 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 Company's products are required to satisfy international
manufacturing standards for sale in certain foreign countries. The Company's
Portuguese contract manufacturer received final ISO 9002 Certification in March
1999 approval.
Obtaining the ISO 9002 facilitates sales to certain export accounts,
particularly in Europe. Currently, sales to international relief agencies, the
Company's primary market, are not affected by ISO certification or other foreign
regulations other than those regulations which have been imposed by the
international relief agencies, with which the Company has been in compliance.
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
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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. 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.
For the years ended December 31, 1998 and 1997, the Company expended
approximately $956,000 and $327,000, respectively, on product development
expenses.
Employees
As of March 1, 1999, the Company employed 16 persons, including one in
sales and marketing, one in research and development, two in financial
administration, and twelve in production. None of the Company's employees is
covered by a collective bargaining agreement.
Item 2. Description of Property.
The Company occupies a manufacturing facility, administrative, and
executive office in Farmingdale, New York (comprised of approximately 10,000
square feet of space) pursuant to a lease that expires in September 2003. Rental
expense for the space is $68,900 per annum plus certain common charges and real
estate tax escalations, subject to an increase of 3% per annum in each
subsequent year.
Item 3. Legal Proceedings.
On February 11, 1998, the Company commenced a lawsuit against Sherwood and
its former corporate parent, American Home Products Corporation, in the Supreme
Court of the State of New York, Nassau County (Index No 98-003963) seeking money
damages of $500,000,000, plus punitive damages, alleging fraud, fraudulent
inducement, prima facie tort, tortuous interference with contract, tortuous
interference with existing and prospective business relationships, breach of
fiduciary duty, breach of duty of good faith and fair dealing, breach of
confidentiality and misuse of confidential information.
The action arises out of Sherwood's failure to produce components
satisfying the Company's tolerances. There can be no assurance that the Company
will obtain a significant monetary judgment, if any, against Sherwood, or that
the Company's prosecution of the lawsuit will not consume a significant amount
of the Company's limited management and monetary resources.
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Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of Univec, Inc. was held on December 30,
1998, to consider and vote upon (i) a proposal to elect Joel Schoenfeld, Alan H.
Gold, M.D., John Frank, Richard Lerner, and David Jay as directors, (ii) a
proposal to approve the adoption of the Company's 1998 Stock Option Plan, (iii)
a proposal to approve the issuance of shares of Common Stock of the Company upon
conversion of Series B 5% Convertible Preferred Stock in excess of 596,055
shares in lieu of cash payments, but not more than the amount of Common Stock
provided for in the Certificate of Designation defining the Series B Convertible
Preferred Stock and (iv) to ratify the appointment of Richard A. Eisner & Co.,
LLP, as the Company's auditors. The number of votes cast for and against each of
the foregoing proposals, the number of abstentions and the number of broker
non-votes where applicable are set forth below.
(i) Proposals to Elect Directors:
For Withhold Authority
Joel Schoenfeld 2,355,293 8,795
Alan H. Gold, M.D. 2,355,293 8,795
John Frank 2,355,293 8,795
Richard Lerner 2,355,293 8,795
David Jay 2,355,293 8,795
(ii) Proposal to Approve the Adoption of the Company's 1998 Stock Option Plan:
For Against Abstain Broker Non-votes
879,736 25,127 2,800 1,456,425
(iii) Proposal to Approve the Issurance of Shares of Common Stock Upon
Conversion of Series B 5% Convertible Preferred Stock:
For Against Abstain Broker Non-votes
883,295 19,517 4,851 1,456,425
(iv) Proposal to Ratify the Selection of Richard A. Eisner & Company, LLP as the
Company's Auditors.
For Against Abstain
2,355,037 6,700 2,351
Broker Non-votes represent shares for which brokers are prohibited from
exercising discretionary authority on behalf of beneficial owners who have not
provided voting instructions. Broker Non-votes are not included in the vote
totals, but are counted for determining the presence of a quorum.
Item 5. Market for Common Equity and Related Stockholder Matters.
(a)(1) Since April 24, 1997, the Company's Common Stock and redeemable
Common Stock Purchase Warrants ("Warrants") have traded on the Nasdaq SmallCap
Market under the symbols "UNVC" and "UNVCW", respectively.
7
<PAGE>
Set forth below are the high and low closing sale prices for the Common
Stock and Warrants on the Nasdaq SmallCap Market for each quarter since April
24, 1997.
<TABLE>
<CAPTION>
Common Stock Warrants
("UNVC") ("UNVCW")
---------------------- -------------------
Quarter Ended High Low High Low
- ------------------------------------------------- -------- ------- ------ ------
<S> <C> <C> <C> <C>
June 30, 1997 (since April 24, 1997) ............ $10.125 $1.625 $7.688 $0.438
September 30, 1997 .............................. $ 4.438 $1.500 $1.750 $0.313
December 31, 1997 ............................... $ 2.500 $1.125 $0.813 $0.219
March 31, 1998 .................................. $ 1.875 $1.375 $0.625 $0.250
June 30, 1998 ................................... $ 2.625 $1.625 $1.125 $0.313
September 30, 1998 .............................. $ 2.188 $1.250 $1.250 $0.500
December 31, 1998 ............................... $ 1.875 $1.250 $1.063 $0.500
March 31, 1999 (through March 31, 1999) ......... $ 1.312 $0.687 $0.875 $0.375
</TABLE>
(2) As of March 31, 1999, there were 77 holders of record of the Common
Stock. The Company believes that there were over 800 beneficial owners of the
Common Stock as of that date.
(3) From October 1, 1998 through December 31, 1998, the Company sold
unregistered securities to a limited number of persons in transactions exempt
from the registration requirements of the Securities Act, 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 Company, and in the case of transactions exempt
from registration under Section 4(2) of the Securities Act, were sophisticated
investors.
1. In September, 1998, the Company issued and sold 360,000 shares of Common
Stock to Syrinter, Ldt. In exchange for the sale by Syrinter of certain
equipment to the Registrant. The issuance of these securities was exempt
from registration under Section 4(2) of the Securities Act.
2. In September, 1998, the Company granted 139,419 options to Fernandez,
Burstein & Tuczinski, P.C., a consultant to the Company, expiring
September 15, 2001 to purchase 60,715 share of Common Stock at $2.00 per
share, and 78,704 shares of Common Stock at $3.00 per share in exchange
for services valued at $85,000.
3. In October 1998, in consideration for the surrender for cancellation of
performance stock options to purchase 2,130,000 shares of Common Stock
previously granted to Mr. Joel Schoenfeld (Chief Executive Officer), and
200,000 shares previously granted to Ms. Flora Schoenfeld
(Secretary/Treasurer), the Company has granted to them options to
purchase 2,130,000 shares of Common Stock and 200,000 shares of Common
Stock, respectively, at an exercise price of $1.75 per share,
exercisable at any time on or before March 28, 2003.
8
<PAGE>
4. In November, 1998, the Company issued 16,667 shares of Common Stock to
Dr. Sol Levinson, a consultant to the Company, in consideration of
services rendered valued at $21,875. The issuance of these securities
are exempt from registration under Sections 4(2) and 4(6) of the
Securities Act.
5. In November , 1998, the Registrant granted options to purchase an
aggregate of 54,000 shares of Common Stock as follows: Joel Schoenfeld
(Chief Executive Officer) 15,000 shares; Alan Gold (Director) 15,000
shares; Andrew Jay (Consultant) 8,000 shares; John Frank (Director)
6,000 shares; Richard Lerner (Director) 5,000 shares; and David Jay
(Director) 5,000 shares. These options are exercisable at $1.50 per
share, expiring November 19, 2003. The issuance of these securities are
exempt from registration under Sections 4(2) and 4(6) of the Securities
Act.
6. In December, 1998, the Company issued to Mr. Richard Mintz, a consultant
of the Company, 50,000 shares of Common Stock in consideration for
modifications made to equipment valued at $75,000. The issuance of these
securities are exempt from registration under Sections 4(2) and 4(6) of
the Securities Act.
7. In December, 1998, the Company issued 10,000 share of Common Stock to
Mr. John Foti, a consultant to the Company, in consideration of services
rendered valued at $13,625. The issuance of these securities are exempt
from registration under Sections 4(2) and 4(6) of the Securities Act.
8. In December, 1998, the Company issued 5,000 shares of common Stock as
follows: 1,000 shares to Marla Manowitz (Employee); 1,000 shares to
Martin Jacobson (Chief Financial Officer); 1,000 shares to Randy Cohen
(Employee); 500 shares each to Jose Pena and Franklyn Drummond
(Employees), and 1,000 shares to Dr. Sol Levinson as a bonus for
consulting services. The issuance of these securities are exempt from
registration as a transaction not including a sale.
(b) The Company commenced an initial public offering of its securities on
April 24, 1997 (the "Effective Date"), whereby it received net proceeds of
approximately $4,997,000 (the "Net Proceeds"). Since the Effective Date, the
Company has spent the following approximate amounts of the Net Proceeds towards
the purposes indicated:
Use of Net Proceeds through December 31, 1998
-----------------------------------------------------------------
Equipment ....................................................... $1,222,681
Marketing, promotion and public relations ....................... 452,641
Product development ............................................. 371,142
Payment of bridge notes ......................................... 1,000,000
Management salaries ............................................. 299,000
Working capital and general corporate purposes .................. 1,651,536
----------
Net Proceeds ................................................... $4,997,000
==========
The expenditure by the Company of the Net Proceeds since the Effective Date
for any other items not listed above has not changed since the Company's last
filed periodic report (including Form S-R) and, pursuant to the Securities Act
of 1933, as amended, and the rules and regulations promulgated thereunder, the
listing of such expenditures is omitted from this report.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements, including the notes thereto,
appearing elsewhere in this report.
Results of Operations
Years Ended December 31, 1998 and 1997
Product Sales. Product sales for the year ended December 31, 1998 increased
by approximately $1,102,000 as compared to the year ended December 31, 1997 as a
result of its increased sales of its disposable medical devices, almost all of
which were either produced in the Company's own production facility in the
United States or in its Portuguese contract manufacturer. From January to June
1997, the Company obtained and sold an inventory of difficult to reuse syringes
of an alternative design. From July to December 1997, production of the
Company's patented 1cc locking clip syringe was insufficient to meet demand.
Management believes that production of the Company's 1cc locking clip syringe
will continue to increase and will be able to meet a growing demand for the
Company's locking clip design.
Income on Supply and Licensing Agreements. Income on supply and licensing
agreements decreased by $1,683,788 during the year ended December,1998. During
1997, Univec recognized all deferred income related to the Sherwood Supply
Agreement whereby Sherwood Medical acknowledged that it was unable to produce
plungers that met the Company's tolerances and ,therefore, returned the plunger
mold. For tax reporting, the Company recognized the deferred income from the
Sherwood Supply Agreement on its 1996 S Corporation return. There were no
revenues from licensing agreements in the 1998 year.
9
<PAGE>
Cost of Product Sales. Cost of product sales for 1998 increased by
approximately $681,000 as compared to 1997. The cost of product sales for 1998
includes primarily the purchase of the Company's proprietary 1cc locking clip
syringe from its Portuguese contract manufacturer and also includes cost of
sales from its Long Island, New York production facility. The cost of sales for
1997 includes primarily the purchase of difficult to reuse syringes of an
alternative design which the Company purchased at a discount. As product sales
in the future increase, it is anticipated that the gross profit percentage will
also increase.
Marketing. Marketing expense for the fiscal year 1998 increased by
approximately $189,000 as compared to 1997. This increase is due primarily to
higher expenditures associated with promoting the Company's locking syringes to
target markets and by increased expenses incurred for marketing consultants.
Product Development. Product development expenses for the 1998 year
increased by approximately $629,000 as compared to 1997 year. This increase is
due primarily to management's decision to utilize its resources primarily in the
development of its own production facility in its New York location, which is
also used to market its licensing, rather than on specific product development.
General and Administrative. General and administrative expenses for fiscal
1998 decreased by approximately $596,000 as compared to 1997. This is due
primarily to increases in depreciation and amortization, securities maintenance
expenses and insurance expense, offset in part by a decrease in professional
fees and officer payroll.
10
<PAGE>
Interest Expense, Net. Net interest expense for 1998 decreased by
approximately $759,000 as compared to 1997. This decrease is the result of the
repayment of promissory notes issued in connection with a bridge financing
completed during 1997.
Net Loss. The net loss for 1998 increased by approximately $725,000 as
compared to 1997. This increase is due substantially to $1,684,000 of income
recognized from the Sherwood Supply Agreement in the 1997 as compared to none
for 1998. Without consideration of this income, the 1998 net loss would have
reflected a decrease of $959,000 over 1997, primarily due to the decreases in
expenses, offset by the decrease in gross profit.
Liquidity and Capital Resources
In 1998, the cash used in operating activities decreased to approximately
$1,126,000 from $2,377,000 in 1997, primarily for increases in accounts payable
and accrued expenses, offset by an increase in accounts receivable and
inventory.
The Company's investing activities have consisted primarily of expenditures
for production equipment at its contract manufacturer in Portugal and its
production facility in Long Island, New York. In 1998, the Company also
purchased equipment located at the facilities of it's foreign contractor by
issuing 360,000 shares of its Common Stock, subject to restrictions under Rule
144 of the Securities Act of 1933.
The Company's financing activities provided approximately $614,000 in 1998,
from the sale of 750 shares of its Series B 5% Convertible Preferred Stock, as
compared to approximately $4,085,000 in 1997, resulting primarily from the
initial public offering. The Company is currently pursuing additional debt and
equity financing to provide additional working capital, which could involve
dilution to existing stockholders. The Company also anticipates a decrease in
the use of cash in operations in 1999 from increased sales.
The Company had available cash of approximately $1,209,000, and no accounts
receivable at the end of 1997. At the end of 1998, the Company had available
cash and accounts receivable of approximately $131,000 and $143,000,
respectively. Also inventory increased in 1998 from 1998 by approximately
$370,000. In addition, current liabilities increased from approximately $343,000
to $1,200,000. The aggregate results were a decrease in working capital from
approximately $1,730,000 to $191,000. However, there can be no assurance as to
when, if ever, the Company will be able to obtain additional financing. Early in
the first quarter of 1999, the Company entered into a contract with one of it's
customer, a United Nations agency, for the contract sale of approximately
35,000,000 syringes during the year ending 1999. Management believes that with
the execution of this contract, its cash and accounts receivable will be
sufficient to fund its anticipated level of operations.
The Company has instituted litigation against Sherwood for failure to
provide components for the manufacture of the Company's 1cc syringes. In 1997,
Sherwood provided components for the manufacture of the Company's 1cc syringes.
During 1998 the Company was successful in obtaining adequate supplies of
components at acceptable prices and terms from other manufacturers and no is
dependant on Sherwood products.
11
<PAGE>
The Company has been advised that all of its software has been designed and
developed for the year 2000 issue ("Year 2000 Issue"). In addition, the Company
believes that its customers' and suppliers' software is "Year 2000" compliant.
However, there can be no assurance that the Company and its suppliers and
customers are Year 2000 compliant. It is not possible at present to quantify the
risk, if any, to the Company if either the Company or its customers and/or
suppliers will not be Year 2000 compliant.
Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements that involve risks and
uncertainties, including market acceptance of the Company's products, timely
development and acceptance of new products, impact of competitive products,
development of an effective organization, interruptions to production, and other
risks detailed from time to time in the Company's SEC reports and its Prospectus
dated April 24, 1997 (as supplemented by the Prospectus Supplement dated April
29, 1997) forming a part of its Registration Statement on Form SB-2 (File No.
333-20187), as amended, which was declared effective by the Commission on April
24, 1997.
Item 7. Financial Statements.
The financial statements follow Item 13 of this report.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The Company did not have any changes in or disagreements with its
accountants on accounting and financial disclosure. A change in Registrant's
Certified Accountant was properly recorded two times to properly reflect two
changes in the Company's independent auditors pursuant to Item 304(a)(3) of
Regulation S-K under the Securities Act of 1933. Most recently Form 8-K dated
March 22, 1999 was signed and properly filed with the SEC to reflect the change
in independent auditors.
12
<PAGE>
Item III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(A) of the Exchange Act.
Directors, Executive Officers and Key Employees
The directors, executive officers and key employees of the Company are as
follows:
Name Age Position
- ---- --- --------
Joel Schoenfeld 54 Chief Executive Officer and a Director
Alan H. Gold 52 Chairman of the Board of Directors
President and a Director
Flora Schoenfeld 53 Treasurer and Secretary
John Frank 59 Director
Marla Manowitz 46 Chief Financial Officer and a Director
Richard Mintz 54 Director
David Jay 69 Director
Joel Schoenfeld, the founder of the Company, has been Chief Executive
Officer of the Company since its inception in August 1992 and also served as
Chairman of the Board of Directors until Dr. Alan Gold's election to the
position on March 18, 1999. 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.
<PAGE>
Mr. Schoenfeld has been a commercial attache and a consultant to a number
of foreign and multinational governments. Currently, Mr. Schoenfeld was 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. Mr. Schoenfeld was named
in March, 1999 in a Federal Grand Jury Indictment alleging misrepresentation
with four other persons in a commercial transaction in 1991. Following the
indictment, Mr. Schoenfeld continues as Chief Executive Officer and a Director
of the Company.
Alan H. Gold, M.D., has been President of the Company since July 1996,
Chairman of the Board of Directors since March 18, 1999 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.
Marla Manowitz, an independent certified public accountant, was appointed
Chief Financial Officer of the Company on March 18, 1999, a director on April
30, 1999 and served as head of the Company's internal accounting department
since March, 1998. Prior thereto for more than the past five years she was
principally engaged as an accountant in her own private practice.
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
13
<PAGE>
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.
Richard Mintz was elected a director of the Company to fill a vacancy on
March 18, 1999. Mr. Mintz is also President of Peristaltic Technologies, Inc., a
manufacturer of medical infusion pumps and plastic disposable catheters, and
Vice President and General Manager of A.K. Allen & Co., Inc./Allen Avionics,
Inc., a manufacturer of electronic components and fluid power products,
positions he has held for more than the past five years.
David Jay has been a Director of the Company since January 1998. Prior to
his retirement in 1993, he was a CPA.
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.
Meetings of the Board of Directors and Information Regarding Committees
The Board of Directors has one standing committee, an Audit committee, The
Audit Committee is composed of Dr. Gold, Mr. Jay and Mr. Frank. The duties of
the Audit committee include recommending the engagement of independent auditors,
reviewing and considering actions of management in matters relating to audit
functions, reviewing with independent auditors the scope and results of its
audit engagement, reviewing reports from various regulatory authorities,
reviewing the system of internal controls and procedures of the company, and
reviewing the effectiveness of procedures intended to prevent violations of law
and regulations. The Audit committee held two meetings in 1998.
The Board of Directors held nine meetings in 1998, which include special
telephonic meetings as well as Unanimous Written Consent. All Directors attended
at least 75% of the total number of Board meetings and meetings of committees on
which they served during the period they served thereon during 1998.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Officers, Directors and persons who own more than ten percent of a registered
class of the Company's equity securities within specified time periods to file
certain reports of ownership and changes in ownership with the Securities and
Exchange Commission (the "Commission"). Officers, Directors and ten percent
stockholders are required by regulation to furnish the Company with copies of
all Section 16(a) forms they file. Based solely on a review of copies of such
reports received by the Company and written representations from such persons
concerning the necessity to file such reports, the Company is not aware of any
failures to file reports or report transactions in a timely manner during the
fiscal year ended December 31, 1998, except that the Company's former CFO,
Martin Jacobson, was late filing its initial statement of beneficial ownership
on Form 3. However, Mr. Jacobson was not late in filing reportable transactions.
14
<PAGE>
Item 10. Executive Compensation.
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 year ended December 31, 1998
exceeded $100,000.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------ -----------------------
Other Annual Securities
Name and Principal Position Year Salary Compensation Underlying Options
- --------------------------- ---- ----------- -------------- -----------------------
<S> <C> <C> <C> <C>
Joel Schoenfeld, Chief 1998 $228,142(1) -- 2,145,000(2)
Executive Officer 1997 $226,189(1) -- --
</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 $9,200 in 1998 and $9,800 in 1997) and life/disability/health
and car insurance (approximately $27,000 in 1998 and $24,000 in 1997).
(2) Represents the following stock options; (a) options expiring March 28, to
purchase 2,130,000 shares at an exercise price of $1.75 per share and (b)
options expiring November 13, 2003 to purchase 15,000 shares at an exercise
price of $1.50 per share. "Management - Stock Option Plan."
Employment Agreement
Joel Schoenfeld serves as Chief Executive Officer of the Company pursuant
to an employment agreement which expires on March 28, 2003. The agreement
provides Mr. Schoenfeld with a salary of $192,000 per annum and life, disability
and health insurance benefits. The Company also has agreed to reimburse Mr.
Schoenfeld for automobile lease payments under his existing vehicle lease, or
alternatively, to provide him with an automobile allowance of $10,800 per annum,
and at the expiration of the vehicle lease, to pay him the fair market value of
the vehicle if he elects to exercise the option to purchase the vehicle pursuant
to the lease. The agreement contains a non-competition covenant that prohibits
him, directly or indirectly, from engaging in a competitive business (as
defined) for a period of twelve months following the termination of his
employment. The foregoing restriction does not apply if the Company does not
offer to extend or renew his employment following the expiration of his
employment agreement on terms not less favorable to him than those set forth in
his employment agreement.
Stock Options
The following table contains information concerning the grant of stock
options to Joel Schoenfeld ( the "Named Executive Officer") during the fiscal
year ended December 31, 1998.
<TABLE>
<CAPTION>
Number of Shares Percent of Total Options
Underlying Options Granted to Employees in Exercise Price Expiration
Name Granted Fiscal Year Per Share Date
- ---- ------------------ ------------------------- -------------- ----------
<S> <C> <C> <C> <C>
Joel Schoenfeld 2,130,000(1) 91% $1.75 March 28, 2003
15,000 33% $1.50 Nov. 19, 2003
</TABLE>
- ------------
(1) 2,130,000 performance based stock options with an exercise price of $3.50
per share expiring April 11, 2007 granted to Joel Schoenfeld in Fiscal 1997 were
surrendered and replaced with stock options to purchase 2,130,000 shares of
Common Stock at a price of $1.75 per share, exercisable at any time on or before
March 28, 2003. In connection with the surrender Mr. Schoenfeld entered into a
new employment agreement with the Company expiring March 28, 2003, replacing the
former employment agreement which had a stated expiration date of March 28,
2000.
15
<PAGE>
The following table summarizes for each of the Named Executive Officer the
total number of unexercised options, if any, held at December 31, 1998, and the
aggregate dollar value of in-the-money, unexercised options, held at December
31, 1998. The value of the unexercised, in-the-money options at December 31,
1998, is the difference between their exercise or base price $1.50 to $1.75, and
the fair market value of the underlying Common Stock on December 31, 1998. The
closing bid price of the Common Stock on December 31, 1998 was $1.313.
AGGREGATED OPTION EXERCISES -- JANUARY 1, 1998 --
DECEMBER 31, 1998 AND DECEMBER 31, 1998 OPTION VALUES
<TABLE>
<CAPTION>
Value of Unexercised
Shares Acquired Upon Number of Securities In-The-Money
Exercise of Options Underlying Unexercised Options at
During Fiscal 1998 Options at December 31, 1998 December 31, 1998
--------------------------- ------------------------------- ------------------------------
Name Number Value Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Joel Schoenfeld None None 2,145,000 None None None
</TABLE>
Stock Option Plan
16
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information concerning the
beneficial ownership of the Common Stock as of March 31, 1999 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 Named Executive Officer and (iii) all directors and officers as a group.
<TABLE>
<CAPTION>
Amount and Percentage of Common
Nature of Beneficial Stock Beneficially
Name Ownership(1) Owned (2)
- ----------------------------------------------- -------------------- --------------------
<S> <C> <C>
Joel and Flora Schoenfeld(3) .................. 3,396,087(4)(5) 53.35% (6)
Alan H. Gold, M.D.(3) ......................... 885,888(4)(7) 19.82% (8)
Andrew Jay (9) ................................ 208,560(10) 5.65% (11)
John Frank(12) ................................ 575,775(13) 14.29% (14)
David Jay (9) ................................. 11,435(15)(16) *
Marla Manowitz(17) 10,600 *
Richard Mintz(18) 68,000 *
All directors and executive officers as a group
(7 persons) .................................. 4,947,785(19)(20) 67.15% (21)
</TABLE>
- ------------
* Less than 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 March 31, 1999, any security which such person or group of persons has
the right to acquire within 60 days after such date is deemed to be
outstanding for the purpose of computing the percentage ownership for such
person or persons, but is not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person. Accordingly, the
information presented in the foregoing table does not include shares of
Common Stock issuable upon exercise of Time Accelerated Restricted Stock
Options (which may not be exercised prior to the earliest of (x) April 24,
2006, (y) the attainment of certain financial performance criteria or (z)
the occurrence of a "change in control," as defined).
(2) Except as otherwise stated, calculated on the basis of 3,584,209 shares of
Common Stock issued and outstanding on March 31, 1999.
(3) Address is c/o the Company, 22 Dubon Court, Farmingdale, New York 11735.
(4) 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.
(5) Includes 2,345,000 shares upon exercise of presently exercisable options,
432,884 shares issuable upon conversion of Series A Preferred Stock, and
4,000 shares issuable upon exercise of the Company's Redeemable Common
Stock Purchase Warrants
(6) Calculated on the basis of 6,366,093 shares of Common Stock issued and
outstanding.
(7) Includes 525,000 shares upon exercise of presently exercisable options and
27,555 shares issuable upon conversion of Series A Preferred Stock.
(8) Calculated on the basis of 4,470,097 shares of Common Stock issued and
outstanding.
(9) Address for Andrew Jay is c/o David Jay, 58 Ruby Lane, Plainview, New York
11803. Andrew Jay is the son of David Jay and David Jay is the father of
Andrew Jay.
(10) Includes 108,000 shares issuable upon exercise of presently exercisable
options. Does not include shares owned by David Jay, as to which Andrew Jay
disclaims beneficial ownership.
(11) Calculated on the basis of 3,692,209 shares of Common Stock issued and
outstanding.
(12) Address is c/o The Hartford Steam Boiler Insurance & Inspection Co., P.O.
Box 5204, One State Street, Hartford, Connecticut 06102-5024.
17
<PAGE>
(13) Includes 278,236 shares issuable upon exercise of options, and 166,000
shares issuable upon exercise of the Company's Redeemable Common Stock
Purchase Warrants.
(14) Calculated on the basis of 4,028,445 shares of Common Stock issued and
outstanding.
(15) Does not include shares owned by his son, Andrew Jay, as to which David Jay
disclaims beneficial ownership.
(16) Includes 5,000 shares issuable upon exercise of presently exercisable
options.
(17) Address is c/o the Company, 22 Dubon Court, Farmingdale, NY 11735.
(18) Address is c/o Sonic Industries, Inc., 225 Henrietta Avenue, Oceanside, New
York 11572.
(19) For purposes of this calculation, shares of Common Stock beneficially owned
by more than one person have only been included once.
(20) Includes 3,783,675 shares issuable upon exercise of presently exercisable
options. See footnotes (5)(7)(13) and (16).
(21) Calculated on the basis of 7,367,884 shares of Common Stock issued and
outstanding.
Item 12. Certain Relationships and Related Transactions
From its inception in August 1992, the Company's operations have been
funded through advances from Joel Schoenfeld, Flora Schoenfeld and two companies
affiliated with Mr. Schoenfeld (collectively, the "Schoenfeld Parties"), and
certain other stockholders of the Company. As of December 30, 1996, the amount
due to these stockholders and affiliates with respect to the repayment of these
advances (including accrued interest) was as follows: the Schoenfeld Parties --
$1,160,877; Dr. Alan H. Gold -- $115,665; and John Frank -- $118,390. The
Company issued its demand promissory notes evidencing its obligation to repay
the foregoing advances, together with accrued interest on the outstanding
principal amount thereof at 8% per annum. On December 30, 1996 and January 24,
1997, the Schoenfeld Parties and Dr. Alan H. Gold exchanged for cancellation
their notes for an aggregate of 1,160 shares and 115 shares, respectively, of
the Company's Series A Preferred Stock. On May 2, 1997, the Company issued
34,397 shares of Common Stock to Mr. Frank, a director of the Company, in
exchange for the cancellation of $120,390 payable to him. 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. 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 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 (a former Director of
the Company), respectively, each of Dr. Gold and David Shonfeld delivered to
Flora Schoenfeld his non-interest bearing, demand promissory note in the amount
of $750,000, the payment of which each of them agreed to secure by a pledge of
his shares.
On November 21, 1997, following a default in payment of his promissory
note, Flora Schoenfeld purchased the 256,410 shares owned by David Shonfeld as a
secured party under a pledge agreement with David Shonfeld and pursuant to
Section 9-504(3) of the Uniform Commercial Code as in effect in New York for a
total purchase price of $515,384, or $2.01 per share, representing the average
of the high and low bid prices per share of Common Stock during the preceding 30
day period. The purchase price for the shares was credited against the $750,000
due Flora Schoenfeld under David Shonfeld's promissory notes.
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 failed to pay a
cumulative invoiced amount of $6,700,000 over the first three years of the
Sherwood Supply Agreement, provided Sherwood was able to deliver 100,000,000
plungers that met the Company's tolerances during such period. In the third
quarter of 1997, Sherwood acknowledged that it was unable to produce plungers
that met the Company's tolerances. Consequently, the individual guarantees are
no longer effective. See "Item 6. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
18
<PAGE>
In December 1996, David Chabut, the former 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). On May 2, 1997, Mr. Chabut exercised
options to purchase an additional 4,370 shares of Common Stock (at $3.50 per
share) and paid the exercise price of these options by cancellation of amounts
payable to him for accrued but unpaid compensation ($15,295). The Company paid
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.
Item l3. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Description
- - ---------- -----------
<S> <C>
3.1* Restated Certificate of Incorporation of the Registrant.
3.2* By-laws of the Registrant, as amended.
4.1* Agreement and Plan of Merger dated as of October 7, 1996 between the Registrant and UNIVEC,
Inc., a New York corporation.
4.2* Form of warrant between the Registrant and the underwriters of the Registrant's initial public
offering.
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* Registration Rights Agreement.
4.7** Certificate of Designation of Series B Preferred Stock.
4.8** Form of Warrant Agreement between Company and Selling Securityholder.
4.9** Registration Rights Agreement between Company and Selling Securityholder.
10.1* O.E.M. Supply Agreement dated May 30, 1996, between the Registrant and Sherwood Medical
Company ("Sherwood") (1).
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* Share Option Agreement dated June 5, 1995, between the Registrant and Leonard N. Tarr.
10.6* Amended 1996 Stock Option Plan of the Registrant.
10.7 Employment Agreement dated as of January 1, 1997 between the Registrant and Joel Schoenfeld.
10.8* Promissory notes of Dr. Alan H. Gold payable to Flora Schoenfeld.
10.9*** Letter of Intent with Portuguese manufacturer
10.10 1998 Stock Option Plan of the Registrant
21.1* List of Subsidiaries.
23.1 Consent of Most Horowtiz & Company, LLP
27.1 Financial Data Schedule.
</TABLE>
- ------------
* Incorporated by reference from the Registrant's Registration Statement on
Form SB-2 (File No. 333-20187) declared effective on April 24, 1997.
** Incorporated by reference from the Registrant's Registration Statement on
Form S-3 (File No. 333-62261) declared effective December 11, 1998.
*** Incorporated by reference from Amendment No. 4 to the Registrant's Annual
Report on Form 10-KSB for the year ended December 31, 1997 (File No.
0-22413)
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the fiscal quarter
ended December 31, 1998.
19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: May 20, 1999
UNIVEC, INC.
By: s/ Joel Schoenfeld
----------------------------
Joel Schoenfeld
Chief Executive Officer
(Principal Executive Officer)
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant on May
20, 1997 in the capacities indicated.
Signatures Title
---------- -----
/s/ Joel Schoenfeld Chief Executive Officer and a Director
- ----------------------------- (Principal Executive Officer)
Joel Schoenfeld
/s/ Marla Manowitz Chief Financial Officer (Principal Financial
- ----------------------------- and Accounting Officer) and Director
Marla Manowitz
/s/ Alan H. Gold President and a Director
- -----------------------------
Alan H. Gold, M.D.
/s/ John Frank Director
- -----------------------------
John Frank
/s/ Richard Mintz Director
- -----------------------------
Richard Mintz
/s/ David Jay Director
- -----------------------------
David Jay
20
<PAGE>
UNIVEC, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31,
1998 AND 1997 FOR THE YEARS THEN ENDED
Univec, Inc. and Subsidiary
Index to Consolidated Financial Statements
Page
----
Report of Independent Accountants ............................. F-2
Consolidated Balance Sheet - December 31, 1998 F-3
Consolidated Statements of Operations - years ended
December 31, 1998 and 1997 ................................... F-4
Consolidated Statements of Stockholders' Equity - years
ended December 31, 1998 and 1997 ............................. F-5
Consolidated Statements of Cash Flows - years ended
December 31, 1998 and 1997 ................................... F-6
Notes to Consolidated Financial Statements .................... F-7 to F-16
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 as of December 31, 1998 and the related consolidated statements of
operations, stockholders' equity and cash flows for the two years then ended.
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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Univec,
Inc. and Subsidiary as of December 31, 1998 and the consolidated results of
their operations and their cash flows for the two years then ended in conformity
with generally accepted accounting principles.
New York, New York /s/ Most Horowitz & Company, LLP
May 19, 1999. ----------------------------
Most Horowitz & Company, LLP
F-2
<PAGE>
Univec, Inc. and Subsidiary
Consolidated Balance Sheet
December 31, 1998
ASSETS:
Cash and cash equivalents ....................................... $ 131,181
Accounts Receivable ............................................. 142,794
Inventory ....................................................... 1,089,337
Other current assets ............................................ 27,550
----------
Total current assets ........................................... 1,390,862
Fixed assets, net ............................................... 2,632,033
Other assets..................................................... 14,525
----------
Total assets ................................................... $4,037,420
==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable and accrued expenses............................ $1,155,873
Current portion of capitalized lease obligation.................. 44,197
----------
Total Current liabilities ...................................... 1,200,070
Capitalized lease obligation .................................... 49,803
----------
Total Liabilities ............................................. 1,249,873
----------
Commitments (Notes 2, 5, 8 and 13)
Stockholders' equity (Note 9):
Preferred stock - $.001 par value; authorized: 4,996,500
shares; issued and outstanding: none .........................
Series A 8% cumulative convertible preferred stock - $.001
par value; authorized: 2,500 shares; issued and outstanding:
2,072 shares (aggregate liquidation value: $2,263,140) 2
Series B 5% cumulative convertible preferred stock - $.001
par value; authorized: 1,000 shares; issued and outstanding
720 shares (aggregate liquidation value: $735,563) 1
Common stock - $.001 par value; authorized: 25,000,000 shares;
issued and outstanding: 3,454,268 shares 3,455
Additional paid-in capital ..................................... 6,773,939
Accumulated deficit ............................................ (3,989,850)
----------
Total stockholders' equity .................................... 2,787,547
----------
Total liabilities and stockholders' equity .................... $4,037,420
==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
Univec, Inc. and Subsidiary
Consolidated Statements of Operations
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Revenues:
Product sales ..................................... $ 1,846,949 $ 744,751
Income on supply and licensing agreements ......... 1,683,788
Total revenues .................................. 1,846,949 2,428,539
----------- -----------
Expenses:
Cost of product sales ............................. 1,180,196 499,216
Marketing ......................................... 696,311 507,717
Product development ............................... 956,354 327,059
General and administrative ........................ 919,452 1,515,514
Interest expense, net.............................. (8,158) 751,486
----------- -----------
Total expenses .................................. 3,744,155 3,600,992
----------- -----------
Net loss ........................................ (1,897,206) ( 1,172,453)
Dividends attributable preferred stock ............. (181,323) (153,520)
Dividends attributable preferred stock resulting
from discount for beneficial conversion feature (215,314)
----------- -----------
Loss attributable to common stockholders ....... $(2,293,843) $(1,325,973)
=========== ===========
Share information :
Basic and diluted earnings per share
Net loss per share .............................. $ (.74) (.59)
=========== ===========
Weighted average number of common shares
outstanding .................................... 3,082,764 2,250,357
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
Univec, Inc. and Subsidiary
Consolidated Statement of Stockholders' Equity
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Series A Preferred Series B Preferred Common Stock Additional
------------------ ------------------ ------------------ Paid-in
Shares Amount Shares Amount Shares Amount Capital
------------------ ------------------ ------------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 1,269 $ 1 1,082,287 $1,082 $2,459,417
Conversion of indebtedness to
Series A Preferred Stock 650 1 649,999
Common stock issued:
Public offering 1,725,000 1,725 4,994,817
Repayment of debt 70,112 71 245,319
Stock options exercised 4,370 4 15,291
Consulting fees 100,000 100 131,150
Reclassification of S corporation
losses as of April 24, 1997 (3,486,467)
Stock options issued to non-
employees 256,637
Net loss for the year ending
December 31, 1997
----- ------ --------- ------ ----------
Balance, December 31, 1997 1,919 2 2,981,769 2,982 5,266,163
Stock dividend paid 153 153,520
Sales of Series B Preferred stock 750 $ 1 613,875
Issuance of stock options to
nonemployees 85,061
Common stock issued:
Acquisition of fixed assets 410,000 410 613,870
Consulting fees 27,667 28 36,785
Bonuses to employees 4,000 4 4,696
Conversion of Series B Preferred
Stock (30) 30,832 31 (31)
Net loss for the year ending
December 31, 1998
----- ------ --- ----- --------- ------ ----------
Balance, December 31, 1998 2,072 $ 2 720 $ 1 3,454,268 $3,455 $6,773,939
===== ====== === ===== ========= ====== ==========
<PAGE>
Deferred Total
Accumulated Offering Stockholders'
Deficit Costs Equity
------------ -------- -------------
<S> <C> <C> <C>
Balance, January 1, 1997 $(4,253,138) $(92,500) $(1,885,138)
Conversion of indebtedness to
Series A Preferred Stock 650,000
Common stock issued:
Public offering 92,500 5,089,042
Repayment of debt 245,390
Stock options exercised 15,295
Consulting fees 131,250
Reclassification of S corporation
losses as of April 24, 1997 3,486,467
Stock options issued to non-
employees 256,637
Net loss for the year ending
December 31, 1997 (1,172,453) (1,172,453)
----------- -------- -----------
Balance, December 31, 1997 (1,939,124) NONE 3,330,023
Stock dividend paid (153,520)
Sales of Series B Preferred stock 613,876
Issuance of stock options to
nonemployees 85,061
Common stock issued:
Acquisition of fixed assets 614,280
Consulting fees 36,813
Bonuses to employees 4,700
Conversion of Series B Preferred
Stock
Net loss for the year ending
December 31, 1998 (1,897,206) (1,897,206)
----------- -------- -----------
Balance, December 31, 1998 $(3,989,850) NONE $ 2,787,547
=========== ======== ===========
</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
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss .............................................................. $(1,897,206) $(1,172,453)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation, amortization and write-off of patents
(1998) and debt financing costs (1997) ............................. 228,256 888,675
Issuance of common stock for services ............................... 126,574 387,887
Write-off of leasehold improvements 14,569
Income on supply and licensing agreements ........................... (1,683,788)
Changes in assets and liabilities:
Accounts receivable ................................................ (142,794) 149,633
Inventory .......................................................... (369,821) (480,145)
Other current assets and other assets .............................. 45,274 (35,887)
Accounts payable and accrued expenses .............................. 869,384 (431,425)
----------- ----------
Net cash used in operating activities ............................ (1,125,764) (2,377,503)
----------- ----------
Cash flows from investing activities:
Purchases of fixed assets (net of capital lease obligation
of $94,000 in 1998).................................................. (566,412) (826,664)
----------- -----------
Cash flows from financing activities:
Proceeds of Preferred Stock, net of expenses ......................... 613,876
Restricted funds ..................................................... 57,000 (24,500)
Proceeds from issuance of common stock, net of expenses............... 5,089,042
Payment of notes payable ............ ................................ (57,000) (16,340)
Repayment of bridge note ............................................. (1,000,000)
Proceeds from issuance of notes ...................................... 57,000
Payment on note for acquisition of patent ............................ (20,000)
----------- -----------
Net cash provided by financing activities ........................ 613,876 4,085,202
----------- -----------
Net increase in cash and cash equivalents ........................ (1,078,300) 881,035
Cash and cash equivalents, beginning of period ......................... 1,209,481 328,446
----------- -----------
Cash and cash equivalents, end of period ............................... $ 131,181 $ 1,209,481
=========== ===========
Supplemental disclosures:
Cash paid during the year for:
Interest ............................................................ $ 2,717 $ 40,128
Income taxes ........................................................ $ 15,371 $ 4,011
Supplemental disclosures of noncash investing and financing activities:
Common stock issued for purchases of fixed assets $ 614,280
Stock dividend paid by issuance of 153 shares
of Series A Preferred Stock ....................................... $ 153,250
Conversion of indebtedness to Series A Preferred Stock .............. $ 650,000
Conversion of indebtedness to common stock .......................... $ 245,390
Conversion of officer note payable to common stock .................. $ 15,295
</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. Nature of Operations
Univec, Inc. (Company) was formed to develop, produce, license and market
medical products, primarily syringes, and resell medical devices on a global
basis.
2. Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Rx Ultra, Inc. 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.
Inventory
Inventory is valued at the lower of cost, determined by the first-in,
first-out method, or market. The cost elements of inventory include material,
labor and overhead.
Fixed Assets
Fixed assets are stated at original cost less accumulated depreciation.
Fixed assets are depreciated on a straight-line basis over the estimated useful
lives of the asset. Leasehold improvements are amortized over the life of the
improvement or the term of the lease, whichever is shorter. Maintenance and
repairs are charged to expense as incurred; renewals and improvements which
extend the life of assets are capitalized. Upon retirement or disposal, the
asset cost and related accumulated depreciation and amortization are eliminated
from the respective accounts and the resulting gain or loss, if any, is included
in the results of operations.
Patent Rights and Royalties
Patent rights acquired were 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.
Product Development
Research and development costs are expensed as incurred.
F-7
<PAGE>
Income Taxes
Deferred income taxes have been provided for temporary differences between
consolidated financial statement and income tax reporting, resulting primarily
from net operating loss carryforwards, capitalized costs and depreciation.
Loss per Share
Net loss per common share was computed based on the weighted average number
of common shares outstanding during the year.
Product Revenue Recognition
Product sales are recognized when products are shipped. Although the
Company warrants its products, it is unable to estimate the future costs
relating to warranty expense and, as such, recognizes the warranty expenses as
incurred.
Stock Based Compensation
Compensation cost for stock, stock options, warrants, etc., issued to
employees, effective January 1, 1998, and non-employees is based on the fair
value method. For 1997 and prior, compensation cost for employees was based on
the intrinsic value method. For 1998, the effect of this change was not material
(Note 10).
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.
3. Inventories
Inventories consisted of the following:
Raw material .............................. $ 448,569
Work-in-process ........................... 50,376
Finished goods ............................ 590,392
----------
$1,089,337
==========
4. Fixed Assets:
Fixed assets consisted of the following:
<TABLE>
<CAPTION>
Estimated
useful lives
in years
------------
<S> <C> <C>
Factory equipment ............................. 7 $2,903,196
Office equipment .............................. 5 30,623
Leasehold improvements ........................ 5 15,672
Furniture & Fixtures 5 3,216
Construction in progress - factory equipment...
---------
2,952,707
Less accumulated depreciation ................. (320,674)
----------
$2,632,033
==========
</TABLE>
Depreciation expense was $172,256 and $86,598 in 1998 and 1997,
respectively.
F-8
<PAGE>
5. Patent Rights
The Company has an exclusive license agreement with the estate of an
inventor related to two patents for a non-reusable syringe. Such agreement
included payments aggregating $112,000 which amounts were fully paid by June,
1997. Thereafter, the Company is required to pay quarterly royalty payments of
5% of net sales of product manufactured by the Company under the license
agreement or 10% of the difference between net sales and purchase price of
product manufactured under the license agreement by third parties for the
Company. The Company may grant non-exclusive sublicenses under the agreement, in
which case 10% of any royalties collected by the Company would be payable to the
inventor's estate.
In December 1998, the Company determined not to utilize their patents and
wrote-off the unamortized balance of $40,000.
Amortization expense for 1998 and 1997 was $16,000 each year.
6. Concentrations
The Company maintains cash in financial institutions in excess of insured
limits. In assessing its risk, the Company's policy is to maintain funds only
with reputable financial institutions.
During 1998 and 1997, product sales to two and one customers were
approximately 80% and 74%, respectively, of total product sales. As of December
31, 1998, accounts receivable from one customers was approximately 80% of total
accounts receivable.
During 1998 and 1997, approximately 85% and 95%, respectively, of total
purchases were from one supplier. Management believes there are a number of
suppliers available who could provide such purchases.
7. Income Taxes
The Company had elected as an S corporation for Federal and state income
taxation as of January 1, 1995. S corporation taxable income, whether
distributed or not, was passed through and taxed to the stockholders.
Accordingly, no provision for income taxes was included in the accompanying
statement of operations for the period January 1, 1997 through April 24, 1997.
On the closing of the public offering, the Company's income tax status as
an S corporation was terminated and is now subject to both Federal and state
income taxes. In connection with its termination as an S Corporation, the
Company transferred $3,486,467 of undistributed losses from accumulated deficit
to additional paid-in capital.
For the years ended December 31, 1998 and 1997, the Company's deferred tax
benefits (expenses) were as follows:
1998 1997
---------- ---------
Net operating loss carryforwards $1,000,000 $ 901,000
Deferred income (640,000)
Capitalized costs (185,000) (124,000)
Depreciation (90,000) (53,000)
Other 5,000 (55,000)
Valuation allowance (730,000) (29,000)
---------- ----------
None None
========== ==========
As of December 31, 1998, the tax effects of the components of deferred tax
assets and liabilities were as follows:
Deferred tax assets
Net operating loss carryforwards ................ $1,920,000
Capitalized costs 305,000
Other ........................................... 45,000
----------
Total deferred tax asset ................... 2,227,000
Deferred tax liability
Depreciation .................................... (230,000)
----------
Net deferred tax asset ..................... 2,040,000
Valuation allowance ................................ (2,040,000)
----------
None
==========
F-9
<PAGE>
As of December 31, 1998, realization of the Company's net deferred tax
asset of approximately $2,040,000 was not considered more likely than not, and
accordingly, a valuation allowance of $2,040,000 was provided.
The following is a reconciliation of expected income tax benefit utilizing
the Federal statutory tax rate to income tax benefit reported on the statement
of operations.
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Expected income tax benefit ................................................ ($645,000) ($400,000)
Benefit of S Corporation status 374,000
Deferred benefit arising from termination of S corporation status ......... (1,281,000)
Valuation allowance on deferred tax assets arising from termination........ 1,281,000
Change in valuation allowance arising in current year ..................... 730,000 29,000
State income tax benefit, net of federal income tax effect ................ (85,000) (3,000)
---------- ----------
None None
========== =========
</TABLE>
As of December 31, 1998, the Company had net operating loss carryforwards
of approximately $5,000,000 to reduce future taxable income expiring through
2013.
8. Commitments
License Agreement
The Company is committed under an exclusive license agreement with two
inventors for a patent for an insertable element which prevents reuse of a
plastic syringe. To maintain this license agreement, the Company is required to
pay an annual minimum licensing fee of $10,000. To maintain exclusivity, the
Company is required to pay an annual minimum license fee of $50,000. Under the
license agreement, royalty payments of 2% of net sales of products manufactured
and 25% of sublicense royalties received shall be made for products which do not
use specific insertable element as shown and described in the licensed patent
rights. Royalty payments of 6% of net sales of products manufactured and 40% of
sublicense royalties received shall be made for products that use the specific
insertable element. If the manufactured unit does not use the non-reusable
syringe of the type discussed in the patent, no royalties are due, other than
the minimum annual licensing fee.
During both 1998 and 1997, the Company paid $60,000 of royalties under this
agreement.
Lease
Effective October 1, 1998, the Company entered into a lease for production,
storage and office space through September, 2003. The lease provides for initial
annual rent of $68,900 and additional rents for the Company's pro rata share of
real estate taxes, liability insurance, maintenance, etc. In addition, the lease
is renewable for an additional five years at annual rent of $80,649 increasing
to $94,348.
Total rent expense for 1998 and 1997 was $37,760 and $36,031, respectively.
As of December 31, 1998, the minimum future rent payment, exclusive of the
renewal, was:
Year Ended
December 31,
------------
1999 $ 69,420
2000 71,499
2001 73,641
2002 75,852
2003 58,168
--------
$348,580
========
F-10
<PAGE>
Employment Agreements
In September 1998, the Company amended its employment agreements with two
officers through February 2003, requiring aggregate annual compensation of
$233,600, plus annual increases of 10%. The agreements also provide for life,
disability and health insurance.
Purchase Commitments
In August 1998, the Company entered into an agreement with a supplier to
purchase components for an aggregate of $427,000 over a two year period. In
January 1999, the Company borrowed $94,000 from the supplier payable with
interest of $19,000 based on production over the commitment period.
9. Stockholders' Equity
Common stock
During April 1997, the Company completed an initial public offering
(Offering) of 1,725,000 shares of common stock and 2,587,500 redeemable common
stock purchase warrants with proceeds of $4,996,542, net of expenses of
$1,299,708. In addition, the Company issued an underwriter's warrant, for
nominal consideration, to purchase 150,000 shares of common stock and 225,000
Redeemable Warrants, exercisable at $5.78, per share, and $.17, per warrant,
respectively, commencing April 1998 through April 2003.
Simultaneous with the Offering, the Company utilized a portion of the net
proceeds to pay down the $1,000,000 in bridge financing that was issued in
December 1996 and expensed the remaining unamortized debt financing costs of
$783,292 to interest expense during 1997. In addition, 1,750,000 bridge warrants
originally issued were exchanged for warrants with identical terms as the ones
issued in connection with the Offering. The remaining 750,000 bridge warrants
were surrendered to the Company without additional consideration.
In May 1997, the Company issued 35,715 and 34,397 shares, of common stock
respectively, at a price of $3.50, per share, in exchange for the cancellation
of notes payable of $125,000 and $120,390, respectively.
In May 1997, the Company issued stock options to an officer to purchase
4,370 shares of common stock at a price of $3.50, per share. The officer then
exercised the options in exchange for the cancellation of debt of $15,295.
In December 1997, the Company issued 100,000 shares of common stock with a
value of $131,250 as compensation to a consultant of the Company.
In September 1998, the Company purchased equipment valued at $539,280 in
exchange for 360,000 shares of common stock.
In November 1998, the Company issued 16,667 shares of common stock to a
consultant for services of $21,875.
In December 1998, the Company issued 50,000 shares of common stock to a
consultant to modify specific equipment with a value of $75,000.
In December 1998, the Company issued 10,000 share of common stock to a
consultant for services valued at $13,625.
In December 1998, the Company issued an aggregate of 5,000 shares of common
stock to four employees and one consultant as a performance bonus, valued at
$6,013.
Preferred Stock
Series A 8% Cumulative Convertible Preferred Shares (Series A) are entitled
to receive, prior to the payment of cash dividends of the common stock, a
cumulative dividend of $80, per share, per annum, and may be redeemed by the
Company, at $1,000, per share. In addition, Series A stockholders are entitled
to a liquidation preference of $1,000 per share, plus accrued and unpaid
dividends. Further, each share of Series A is convertible into 222.22 shares of
common stock.
In January and March 1997, the Company issued 650 shares of Series A to
certain shareholders in exchange for amounts due of $650,000.
F-11
<PAGE>
In March 1998, the Board of Directors declared a dividend to stockholders
of Series A, as of December 31, 1997, of $153,520 payable by the issuance of 153
shares of Series A.
In 1998, the Company designated Series B 5% Cumulative Convertible
Preferred Shares (Series B) which are entitled to receive, prior to the payment
of dividends of the Series A and common stock, cumulative dividends of $50, per
share, per annum, and may be redeemed at the option of the Company, at $1,000,
per share. In addition, Series B stockholders are entitled to a liquidation
preference of $1,000, per share, plus accrued and unpaid dividends. Each share
of Series B, having a value of $1,000, is convertible into shares of common
stock at the lesser of $1.10, as amended, or 85%,decreasing to 75%, of market
value, as defined, through February 2001, as amended.
In July, 1998, the Company issued 750 shares of Series B and warrants to
purchase 112,500 shares of common stock in exchange for $613,876, net of
offering expenses of $136,124. The Company has allocated $215,314 of the net
proceeds to the beneficial conversion feature of the Series B and treated the
resulting discount as a preferred dividend. These warrants are exercisable at
$2.15 , per share, through July 2001. Upon issuance of the Series C, the
exercise price of these warrants was amended to $1.92, per share, through
February 2002.
In December 1998, 30 shares of Series B were converted to 30,832 shares of
common stock at an average price of $.973 , per share.
In January, February and March 1999, 90 shares of Series B was converted to
129,941 shares of common stock at an average price of $.69, per share.
In February 1999, the Company designated series C 5% Cumulative Convertible
Preferred Shares (series C) which are entitled to receive, prior to the payment
of dividends of the Series B, Series A and common stock, cumulative dividends of
$50, per share, per annum, and may be redeemed at the option of the Company, at
$1,000, per share. In addition, Series C stockholders are entitled to a
liquidation preference of $1,000, per share, plus accrued and unpaid dividends.
Each share of Series C, having a value of $1,000, is convertible into shares of
common stock at the lesser of $1.10 or 85%, decreasing to 75%, of market value,
as defined, through July 2001.
On February 8, 1999, the Company issued 250 shares of Series C and warrants
to purchase 37,500 shares of common stock in exchange for $250,000. These
warrants are exercisable at $1.92, per share, through February 2002.
Holders of preferred shares have no voting rights.
As of December 31, 1998, cumulative dividends in arrears on preferred stock
were:
Series A $191,140
Series B 15,563
--------
$206,703
========
Redeemable Common Stock Purchase Warrants
Redeemable Common Stock Purchase Warrants (Redeemable Warrants) entitle
each holder to purchase one share of common stock at an exercise price of $4.50,
per share, subject to adjustment, through April 23, 2002. The Redeemable
warrants are subject to redemption, at any time, by the Company at $.05, per
share, through April 23, 2002, provided the closing bid price of the common
stock has been at least $8.00 for 20 consecutive trading days.
Options
In September 1998, the Company granted stock options outside the Plans to
acquire 60,715 and 78,704 shares of common stock, exercisable at $2 and $3, per
share, respectively, through September 15, 2001, to a consultant and valued the
compensation at $85,061.
In addition, as of December 31, 1998, the Company had outstanding 55,672
option outside of the Plans. Each option entitles the holder to purchase one
share of common stock at an exercise price of $3.50, per share.
F-12
<PAGE>
Reserved Shares
As of December 31, 1998, the Company has reserved shares of common stock as
follows:
Redeemable Warrants 4,337,500
Underwriter's warrant 375,000
Options under the Plans 5,009,219
Other Options 890,091
Series A conversions (a) 460,440
Series B conversions (a) 734,928
Series B warrants 112,500
----------
11,919,678
==========
(a) assumes conversions as of December 31, 1998.
10. Stock Option Plans:
The 1996 Stock Option Plan (Plan) is administered by the Board of Directors
or a committee thereof and options to purchase 4,709,219 shares of common stock
may be granted under the Plan to directors, employees (including officers) and
consultants to the Company. 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). 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, the exercise price may not be
less than 110% of the fair market value on the date of grant. The aggregate fair
market value of the shares covered by ISOs granted under the Plan that become
exercisable by a Plan participant for the first time in any calendar year is
subject to a $100,000 limitation. The exercise price of each NQSO is determined
by the Board, or committee thereof, in its discretion; provided that NQSO
granted a 10% Stockholder be no less than 110% of the fair market value on the
date of grant.
Under the Plan, 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.
In December 1998, the Company adopted the 1998 Stock Option Plan (98 Plan),
under which the the Company may grant options to purchase 300,000 of common
stock to employees, directors, independent contractors and consultants of the
Company. The 98 Plan is similar to the Plan and authorizes the issuance of
ISO's, NQSO's and Stock Appreciation Rights (SAR's).
During 1997, the Company granted 695,000 stock options outside the Plans to
consultants. In connection with these grants, the Company has recorded
compensation of approximately $256,600 which was based on the fair value of the
options at the time of grant.
In connection with the amended employment agreements (Note 8), existing
options to acquire an aggregate of 2,330,000 shares were cancelled and the
Company has replaced then with ISO's to acquire 2,330,000 shares at $1.75, per
share, through March 28, 2003.
In January 1999, existing options to acquire an aggregate of 750,000 shares
of common stock have been replaced with ISO's to acquire 750,000 shares,
exercisable at $1.75, per share, through March 28, 2003.
F-13
<PAGE>
A summary of the Company's stock options under the Plans is as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------- ------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Options outstanding, beginning of year ........... 4,295,000 $2.00-$3.50 4,370 $3.50
Granted .......................................... 2,384,000 $1.74 4,500,000 $2.00 to 3.50
Exercised ........................................ (4,370) $3.50
Canceled or lapsed ............................... (2,830,000) $3.50 (205,000) $3.50
---------- ----------- ---------- -------------
Options outstanding, end of year ................. 3,849,000 $1.50-$3.50 4,295,000 $2.00 to 3.50
========== =========== ========== =============
Options exercisable, end of year ................. 3,304,000 $1.50-$2.00 170,000 $2.00
========== ==========
Options available for grant, end of year ......... 1,860,219 614,219
========== ==========
Weighted-average fair value of options granted
during the year ................................. $1.50 $3.15
========== ==========
</TABLE>
The following table summarizes information about stock options outstanding
under the Plans at December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Average Weighted
Remaining Average
Shares Contractual Shares Exercisable
Range of Exercise Prices Outstanding Life Exercisable Price
- ------------------------ ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
$2.00 .................... 170,000 6.6 170,000 $ 2.00
$3.50 .................... 545,000 7.50 0 $ 3.50
$1.75 .................... 3,080,000 4.25 3,080,000 $ 1.75
$1.50 .................... 54,000 5.00 54,000 $ 1.50
--------- ---- --------- ------
$1.50 to $3.50 ........... 3,849,000 4.80 3,304,000 $ 1.90
========= ==== ========= ======
</TABLE>
For 1997, the Company has applied the disclosure-only provision SFAS 123.
Had compensation cost been determined based on the fair value at the grant date
consistent with the provisions of SFAS 123, the Company's net income and
earnings per share would have been as follows for the year ended December 31,
1997.
Loss attributable to common stockholders ..................... $ (1,325,973)
=============
Loss attributable to common stockholders, pro forma .......... $ (1,869,638)
=============
Loss per share -- basic and diluted, as reported ............. $ (.59)
=============
Loss per share -- basic and diluted, pro forma ............... $ (.83)
=============
F-14
<PAGE>
The weighted average fair value of each option has been estimated on the
date of grant using the Black Scholes options pricing model with the following
weighted average assumptions used for grants in 1997; no dividend yield;
expected volatility of 80% to 100%, risk-free interest rate (ranging from 5% -
7%); and expected lives of approximately 1 to 9 years. Weighted averages are
used because of varying assumed exercise dates.
11. Reclassifications
Certain 1997 amounts have been reclassified to conform to 1998
classifications.
12. Income on Supply and Licensing Agreements
During 1996, the Company entered into a five year supply agreement with a
manufacturer and granted to the manufacturer an option to acquire a license to
manufacture and sell the Company's product. The supply agreement required the
manufacturer to supply up to 50,000,000 sets of syringe components per year and
100,000,000 non-aspirating plungers, and certain stockholders of the Company
agreed to pay the manufacturer up to $1,000,000 in the event the Company did not
make certain minimum purchases under the Supply Agreement. The option to license
the Company's product granted the manufacturer the right to manufacture and sell
the Company's product to certain segments of the market for a royalty of 5% of
sales of the licensed product, provided the manufacturer was able to deliver,
under the Supply Agreement, product which conformed to the Company's
specifications.
As compensation to the Company for entering into the Supply Agreement,
granting the manufacturer the option to license the Company's technology and
leasing to the manufacturer certain equipment of nominal value, the manufacturer
agreed to make monthly lease payments to the Company over a three year period
aggregating approximately $1,946,000 and provided to the Company a performance
bond from an insurance company guaranteeing the manufacturer's payments. In July
1996, the Company assigned to an unrelated party its right to receive the last
34 payments under the lease arrangement with the manufacturer and its rights
under the performance bond, without recourse, for approximately $1.6 million.
The Company has no future obligations related to the assignment of the lease
receivable and the performance bond.
In 1996, the Company deferred the $1.6 million cash received and determined
to recognize the deferred amount as income based on future sales of the
Company's product delivered under the Supply Agreement.
During 1997, the manufacturer informed the Company that it was unable to
deliver product under the Supply Agreement to the Company's specifications. The
Company's stockholders were thereby released from liability for the payments
guaranteed to the manufacturer. The Company had no further obligation to make
any purchases pursuant to the Supply Agreement or to license its technology to
the manufacturer and the Company recognized as income the amounts previously
deferred.
13. Subsequent Events
Stockholder/Officer Loans
Subsequent to December 31, 1998, the Company borrowed an aggregate of
$186,000 from a stockholder/officer without specific repayment terms or
interest.
Consulting Agreement
Effective January 1999, the Company entered into an agreement for
consulting services through January 2000 in exchange for 150,000 shares of
common stock.
Sales Commitment
In February 1999, the Company entered into agreements with a customer to
supply approximately 36 million syringes at $.0895, per syringe, through
December 31, 1999.
F-15
<PAGE>
Line of Credit
In April 1999, the Company entered into a letter of intent for a line of
credit with a finance company to borrow up to $3,500,000, consisting of a
$500,000 term loan and a $3,000,000 revolving credit facility, for a period of
three years. The agreement will provide for: (1) interest at prime plus 5.25% on
revolving loans and plus 5.75% on the term loan, per annum, (2) a prepayment
penalty equal to 3% decreasing to 1% and (3) an unused facility fee of .25%, per
annum. In addition, the borrowings under the line will be collateralized by all
the assets of the Company and guaranteed by certain officers. The Company will
also be required to pay a commitment fee of $52,500.
F-16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
- - ---------- -----------
<S> <C>
3.1* Restated Certificate of Incorporation of the Registrant.
3.2* By-laws of the Registrant, as amended.
4.1* Agreement and Plan of Merger dated as of October 7, 1996 between the Registrant and UNIVEC,
Inc., a New York corporation.
4.2* Form of warrant between the Registrant and the underwriters of the Registrant's initial public
offering.
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* Registration Rights Agreement.
4.7** Certificate of Designation of Series B Preferred Stock.
4.8** Form of Warrant Agreement between Company and Selling Securityholder.
4.9** Registration Rights Agreement between Company and Selling Securityholder.
10.1* O.E.M. Supply Agreement dated May 30, 1996, between the Registrant and Sherwood Medical
Company ("Sherwood") (1).
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* Share Option Agreement dated June 5, 1995, between the Registrant and Leonard N. Tarr.
10.6* Amended 1996 Stock Option Plan of the Registrant.
10.7 Employment Agreement dated as of January 1, 1997 between the Registrant and Joel Schoenfeld.
10.8* Promissory notes of Dr. Alan H. Gold payable to Flora Schoenfeld.
10.9*** Letter of Intent with Portuguese manufacturer
10.10 1998 Stock Option Plan of the Registrant
21.1* List of Subsidiaries.
23.1 Consent of Most Horowtiz & Company, LLP
27.1 Financial Data Schedule.
</TABLE>
- - ------------
* Incorporated by reference from the Registrant's Registration Statement on
Form SB-2 (File No. 333-20187) declared effective on April 24, 1997.
** Incorporated by reference from the Registrant's Registration Statement on
Form S-3 (File No. 333-62261) declared effective December 11, 1998.
*** Incorporated by reference from Amendment No. 4 to the Registrant's Annual
Report on Form 10-KSB for the year ended December 31, 1997 (File No.
0-22413)
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT dated as of September 4, 1998 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, and since January 1, 1997, the
Employee has been employed by the Company pursuant to the terms of an Employment
Agreement dated as of January 1, 1997 (the "1997 Agreement"), that provides for
the employment of the Employee until March 28, 2000;
WHEREAS, the Company desires to extend the term of the employment of
the Employee and Employee agrees to continue his employment with the Company
until March 28, 2003, 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, 2003 (the "Employment Term").
<PAGE>
3. Compensation. (a) During the Employment Term, the Company shall pay
the Employee for his services hereunder at a base salary of $192,000 per annum
plus a 10% per annum increase. The 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.
(b) In consideration for the Employee entering into
this agreement extending the term of his employment with the Company until March
28, 2003, the Company agrees to grant the Employee stock options to purchase an
aggregate of 2,130,000 shares of its common stock, $.001 par value, pursuant to
its Amended 1996 Stock Option Plan (the "Plan"), which options shall be
exercisable at any time on or before March 28, 2003, at an exercise price of
$1.75 per share (the "New Options"). Employee agrees to surrender for
cancellation the 2,130,000 performance stock options previously granted to him
pursuant to the Plan as a condition to the grant of the New Options.
4. Benefits. During the term hereof, the Company shall continue to
reimburse the Employee for automobile lease payments under the vehicle lease
with Jaguar Credit Corporation (the "Vehicle Lease") or alternatively, to
provide the Employee with an automobile allowance of $10,800 per annum. If at
the expiration of the Vehicle Lease the Employee elects to exercise the purchase
option set forth therein, the Company will pay the Employee an amount equal to
the fair market value of the leased vehicle so as to enable him to exercise said
purchase option. The Company also will provide the Employee during the term
hereof with life, disability and health insurance benefits with coverages no
less favorable than those in effect on the date hereof. Employee also shall be
entitled to participate in any and all benefit plans of the Company made
-2-
<PAGE>
available to executive officers of the Company. The Company also shall make
available to the Employee a membership in a country club.
5. Reimbursement. During the Employment Term, the Company shall
reimburse the Employee for all reasonable and necessary business expenses
incurred and paid directly by him in the performance of his duties hereunder,
upon submission to the Company of reasonably detailed expense reports and
appropriate vouchers and/or receipts prepared in accordance with the applicable
provisions and regulations of the Internal Revenue Code of 1986, as amended.
6. Termination. Notwithstanding any provision of this Agreement to the
contrary, the Employee's employment hereunder shall terminate immediately upon
the death of the Employee. Except as otherwise specifically provided herein or
as accrued for services performed through the date of termination, all of
Employee's rights to compensation hereunder shall cease to exist effective upon
the date of termination.
7. Developments. The Employee agrees promptly to disclose in writing to
the Company any invention or discovery made by him during his employment with
the Company, whether during or after working hours, that relates to (i) any
disposable medical devices for drug delivery, including but not limited to
hypodermic needles, (ii) inventions developed for the Company through projects
participated in by Employee and (iii) processes, including equipment used to
produce items covered by clauses (i) and (ii) (the items referred to in clauses
(i), (ii) and (iii) being hereinafter referred to collectively as "Covered
Inventions"), and such inventions and discoveries shall be the Company's sole
property. Upon the Company's request, whether during or after the term of his
employment, Employee shall execute and assign to the Company all applications
for letters patent and copyrights of the United States and such foreign
countries as the Company may designate
-3-
<PAGE>
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, (A) if at the expiration of the term hereof, the
Company does not offer to extend the term of the Employee's employment with the
Company, whether pursuant to a written employment agreement or otherwise, on
terms not less favorable to the Employee than those set forth herein, then the
restriction set forth above shall not apply following the expiration of the term
of this Agreement, and (B)Employee may own, beneficially or legally, up to one
percent (1%) of the outstanding securities of any organization registered under
Section 12 of the Securities Exchange Act of 1934, as amended, or which are
otherwise publicly traded.
-4-
<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
-5-
<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
(ii) deposited with a
-6-
<PAGE>
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, including the 1997 Agreement, which is hereby
terminated effective as of the date hereof. 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
respect to, arising out of, under or
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<PAGE>
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.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
UNIVEC, INC.
By: /s/ Alan H. Gold
----------------------
Dr. Alan H. Gold
President
/s/ Joel Schoenfeld
----------------------
Joel Schoenfeld
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<PAGE>
UNIVEC, INC.
1998 STOCK OPTION PLAN
1. PURPOSE.
The UNIVEC, INC. 1998 STOCK OPTION PLAN (the "Plan") is intended to
provide the employees, directors, independent contractors and consultants of
Univec, Inc. (the "Company") and/or any subsidiary or parent thereof with an
added incentive to commence and/or continue their services to the Company and to
induce them to exert their maximum efforts toward the Company's success. By thus
encouraging employees, directors, independent contractors and consultants and
promoting their continued association with the Company, the Plan may be expected
to benefit the Company and its stockholders. The Plan allows the Company to
grant Incentive Stock Options ("ISOs") (as defined in Section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code"), Non-Qualified Stock
Options ("NQSOs") not intended to qualify under Section 422(b) of the Code and
Stock Appreciation Rights ("SARs") (collectively the "Options"). The vesting of
one or more Options granted hereunder may be based on the attainment of
specified performance goals of the participant or the performance of the
Company, one or more subsidiaries, parent and/or division of one or more of the
above.
2. SHARES SUBJECT TO THE PLAN.
The total number of shares of Common Stock of the Company, $0.001 par
value per share, that may be subject to Options granted under the Plan shall be
300,000 in the aggregate, subject to adjustment as provided in Paragraph 8 of
the Plan; however, the grant of an ISO to an employee together with a tandem SAR
or any NQSO to an employee together with a tandem SAR shall only require one
share of Common Stock available subject to the Plan to satisfy such joint
Option. The Company shall at all times while the Plan is in force reserve such
number of shares of Common Stock as will be sufficient to satisfy the
requirement of outstanding Options granted under the Plan. In the event any
Option granted under the Plan shall expire or terminate for any reason without
having been exercised in full or shall cease for any reason to be exercisable in
whole or in part, the unpurchased shares subject thereto shall again be
available for granting of Options under the Plan.
3. ELIGIBILITY.
ISO's or ISO's in tandem with SAR's (provided the SAR meets the
requirements set forth in Temp. Reg. Section 14a.422A-1, A-39 (a) through (e)
inclusive) may be granted from time to time under the Plan to one or more
employees of the Company or of a "subsidiary" or "parent" of the Company, as the
quoted terms are defined within Section 424 of the Code. An Officer is an
employee for the above purposes. However, a director of the Company who is not
otherwise an employee is not deemed an employee for such purposes. NQSOs and
NQSO's in tandem with SARs may be granted from time to time under the Plan to
one or more employees of the Company, Officers, members of the Board of
Directors, independent contractors, consultants and other individuals who are
not employees of, but are involved in the continuing development and success
<PAGE>
of the Company and/or of a subsidiary of the Company, including persons who have
previously been granted Options under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Board of Directors of the
Company as such Board of Directors may be composed from time to time and/or by a
Stock Option Committee or Compensation Committee (the "Committee") which shall
be comprised of solely of at least two Outside Directors (as such term is
defined in regulations promulgated from time to time with respect to Section
162(m)(4)(C)(i) of the Code) appointed by such Board of Directors of the
Company. As and to the extent authorized by the Board of Directors of the
Company, the Committee may exercise the power and authority vested in the Board
of Directors under the Plan. Within the limits of the express provisions of the
Plan, the Board of Directors or Committee shall have the authority, in its
discretion, to determine the individuals to whom, and the time or times at
which, Options shall be granted, the character of such Options (whether ISOs,
NQSOs, and/or SARs in tandem with NQSOs, and/or SARs in tandem with ISOs) and
the number of shares of Common Stock to be subject to each Option, the manner
and form in which the optionee can tender payment upon the exercise of his
Option, and to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions of
Option agreements that may be entered into in connection with Options (which
need not be identical), subject to the limitation that agreements granting ISOs
must be consistent with the requirements for the ISOs being qualified as
"incentive stock options" as provided in Section 422 of the Code, and to make
all other determinations and take all other actions necessary or advisable for
the administration of the Plan. In making such determinations, the Board of
Directors and/or the Committee may take into account the nature of the services
rendered by such individuals, their present and potential contributions to the
Company's success, and such other factors as the Board of Directors and/or the
Committee, in its discretion, shall deem relevant. The Board of Directors'
and/or the Committee's determinations on the matters referred to in this
Paragraph shall be conclusive.
(b) Notwithstanding anything contained herein to the contrary, at any
time during the period the Company's Common Stock is registered pursuant to
Section 12 of the Securities Exchange Act of 1934 (the "1934 Act"), the
Committee, if one has been appointed to administer all or part of the Plan,
shall have the exclusive right to grant Options to Covered Employees, as defined
under Section 162(m)(3) of the Code (generally persons subject to Section 16 of
the 1934 Act) and set forth the terms and conditions thereof. With respect to
persons subject to Section 16 of the 1934 Act, transactions under the Plan are
intended, to the extent possible, to comply with all applicable conditions of
Rule 16b-3, as amended from time to time, (and its successor provisions) if any,
under the 1934 Act and Section 162(m)(4)(C) of the Code of 1986, as amended. To
the extent any provision of the Plan or action by the Board of Directors or
Committee fails to so comply, it shall be deemed null and void, to the extent
permitted by law and deemed advisable by the Board of Directors and/or such
Committee.
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<PAGE>
5. TERMS OF OPTIONS.
Within the limits of the express provisions of the Plan, the Board of
Directors or the Committee may grant either ISOs or NQSOs or SARs in tandem with
NQSOs or SARs in tandem with ISOs. An ISO or an NQSO enables the optionee to
purchase from the Company, at any time during a specified exercise period, a
specified number of shares of Common Stock at a specified price (the "Option
Price"). The optionee, if granted a SAR in tandem with a NQSO or ISO, may
receive from the Company, in lieu of exercising his option to purchase shares
pursuant to his NQSO or ISO, at one of the certain specified times during the
exercise period of the NQSO or ISO as set by the Board of Directors or the
Committee, the excess of the fair market value upon such exercise (as determined
in accordance with subparagraph (b) of this Paragraph 5) of one share of Common
Stock over the Option Price per share specified upon grant of the NQSO or
ISO/SAR multiplied by the number of shares of Common Stock covered by the SAR so
exercised. The character and terms of each Option granted under the Plan shall
be determined by the Board of Directors and/or the Committee consistent with the
provisions of the Plan, including the following:
(a) An Option granted under the Plan must be granted within 10 years
from the date the Plan is adopted, or the date the Plan is approved by the
stockholders of the Company, whichever is earlier.
(b) The Option Price of the shares of Common Stock subject to each ISO
and each SAR issued in tandem with an ISO shall not be less than the fair market
value of the Common Stock at the time such ISO is granted. Such fair market
value shall be determined by the Board of Directors and, if the Common Stock is
listed on a national securities exchange or quoted on The Nasdaq Stock Market,
Inc. ("Nasdaq"), the fair market value shall be the closing price of the Common
Stock on such exchange or Nasdaq, or if closing prices are not available or the
Common Stock is quoted on the National Association of Securities Dealers, Inc.
("NASD") OTC Bulletin Board (the "OTC Bulletin Board") or otherwise traded in
the over-the-counter market, the fair market value shall be the mean of the
closing bid and asked prices of the Common Stock, as reported by Nasdaq, the
NASD, the OTC Bulletin Board or the National Quotation Bureau, Inc., as the case
may be, on the day on which the Option is granted or, if there is no closing
price or bid or asked price on that day, the closing price or mean of the
closing bid and asked prices on the most recent day preceding the day on which
the Option is granted for which such prices are available. If an ISO or SAR in
tandem with an ISO is granted to any individual who, immediately before the ISO
is to be granted, owns (directly or through attribution) more than 10% of the
total combined voting power of all classes of capital stock of the Company or a
subsidiary or parent of the Company, the Option Price of the shares of Common
Stock subject to such ISO shall not be less than 110% of the fair market value
per share of the shares of Common Stock at the time such ISO is granted.
(c) The Option Price of the shares of Common Stock subject to an NQSO
or an SAR in tandem with a NQSO granted pursuant to the Plan shall be determined
by the Board of Directors or the Committee, in its sole discretion, but in no
event less than 85% of the fair market value per share of the shares of Common
Stock at the time of grant.
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<PAGE>
(d) In no event shall any Option granted under the Plan have an
expiration date later than 10 years from the date of its grant, and all Options
granted under the Plan shall be subject to earlier termination as expressly
provided in Paragraph 6 hereof. If an ISO or an SAR in tandem with an ISO is
granted to any individual who, immediately before the ISO is granted, owns
(directly or through attribution) more that 10% of the total combined voting
power of all classes of capital stock of the Company or of a subsidiary or
parent of the Company, such ISO shall by its terms expire and shall not be
exercisable after the expiration of five (5) years from the date of its grant.
(e) An SAR may be exercised at any time during the exercise period of
the ISO or NQSO with which it is granted in tandem and prior to the exercise of
such ISO or NQSO. Notwithstanding the foregoing, the Board of Directors and/or
the Committee shall in their discretion determine from time to time the terms
and conditions of SAR's to be granted, which terms may vary from the
afore-described conditions, and which terms shall be set forth in a written
stock option agreement evidencing the SAR granted in tandem with the ISO or
NQSO. The exercise of an SAR granted in tandem with an ISO or NQSO shall be
deemed to cancel such number of shares subject to the unexercised Option as were
subject to the exercised SAR. The Board of Directors or the Committee has the
discretion to alter the terms of the SARS if necessary to comply with Federal or
state securities law. Amounts to be paid by the Company in connection with an
SAR may, in the Board of Director's or the Committee's discretion, be made in
cash, Common Stock or a combination thereof.
(f) An Option granted under the Plan shall become exercisable, in whole
at any time or in part from time to time, but in no event may an Option (i) be
exercised as to less than one hundred (100) shares of Common Stock at any one
time, or the remaining shares of Common Stock covered by the Option if less than
one hundred (100), and (ii) except with respect to performance based Options,
become fully exercisable more than five years from the date of its grant nor
shall less than 20% of the Option become exercisable by the end of any of the
first five years of the Option, determined on an aggregate basis, if not
terminated as provided in Paragraph 6 hereof. The Board of Directors or the
Committee, if applicable, shall, in the event it so elects in its sole
discretion, set one or more performance standards with respect to one or more
Options upon which vesting is conditioned (which performance standards may vary
among the Options).
(g) An Option granted under the Plan shall be exercised by the delivery
by the holder thereof to the Company at its principal office (to the attention
of the Secretary) of written notice of the number of full shares of Common Stock
with respect to which the Option is being exercised, accompanied by payment in
full, which payment at the option of the optionee shall be in the form of (i)
cash or certified or bank check payable to the order of the Company, of the
Option Price of such shares of Common Stock, or, (ii) if permitted by the
Committee or the Board of Directors, as determined by the Committee or the Board
of Directors in its sole discretion at the time of the grant of the Option with
respect to an ISO and at or prior to the time of exercise with respect to a
NQSO, by the delivery of shares of Common Stock having a fair market value equal
to the Option Price or the delivery of an interest-bearing promissory note
having an original principal balance equal to the Option Price and an interest
rate not below the rate which would result in imputed interest under
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<PAGE>
the Code (provided, in order to qualify as an ISO, more than one year shall have
passed since the date of grant and one year from the date of exercise), or (iii)
at the option of the Committee or the Board of Directors, determined by the
Committee or the Board of Directors in its sole discretion at the time of the
grant of the Option with respect to an ISO and at or prior to the time of
exercise with respect to a NQSO, by a combination of cash, promissory note
and/or such shares of Common Stock (subject to the restriction above) held by
the employee that have a fair market value together with such cash and principal
amount of any promissory note that shall equal the Option Price, and, in the
case of any Option at the discretion of the Committee or Board of Directors by
having the Company withhold from the shares of Common Stock to be issued upon
exercise of the Option that number of shares having a fair market value equal to
the exercise price and/or the tax withholding amount due, or otherwise provide
for withholding as set forth in Paragraph 9(c) hereof, or in the event an
employee is granted an ISO or NQSO in tandem with an SAR and desires to exercise
such SAR, such written notice shall so state such intention. To the extent
allowed by applicable Federal and state securities laws, the Option Price may
also be paid in full by a broker-dealer to whom the optionee has submitted an
exercise notice consisting of a fully endorsed Option, or through any other
medium of payment as the Board of Directors and/or the Committee, in its
discretion, shall authorize.
(h) The holder of an Option shall have none of the rights of a
stockholder with respect to the shares of Common Stock covered by such holder's
Option until such shares of Common Stock shall be issued to such holder upon the
exercise of the Option.
(i) All Options granted under the Plan shall not be transferable,
except by will or the laws of descent and distribution and may be exercised
during the lifetime of the holder thereof only by the holder. No Option granted
under the Plan shall be subject to execution, attachment or other process.
(j) The aggregate fair market value, determined as of the time any ISO
or SAR in tandem with an ISO is granted and in the manner provided for by
Subparagraph (b) of this Paragraph 5, of the shares of Common Stock with respect
to which ISOs granted under the Plan are exercisable for the first time during
any calendar year and under incentive stock options qualifying as such in
accordance with Section 422 of the Code granted under any other incentive stock
option plan maintained by the Company or its parent or subsidiary corporations,
shall not exceed $100,000. Any grant of Options in excess of such amount shall
be deemed a grant of a NQSO.
(k) Notwithstanding anything contained herein to the contrary, an SAR
which was granted in tandem with an ISO shall (i) expire no later than the
expiration of the underlying ISO; (ii) be for no more than 100% of the spread at
the time the SAR is exercised; (iii) only be exercised when the underlying ISO
is eligible to be exercised; and (iv) only be exercisable when there is a
positive spread.
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<PAGE>
(l) In no event shall an employee be granted Options for more than
_______ shares of Common Stock during any calendar year period; provided,
however, that the limitation set forth in this Section 5(1) shall be subject to
adjustment as provided in Section 8 herein.
6. DEATH OR TERMINATION OF EMPLOYMENT/CONSULTING RELATIONSHIP.
(a) Except as provided herein, or otherwise determined by the Board of
Directors or the Committee in its sole discretion, upon termination of
employment with the Company voluntarily by the employee or termination of a
consulting relationship with the Company prior to the termination of the term
thereof, a holder of an Option under the Plan may exercise such Options to the
extent such Options were exercisable as of the date of termination at any time
within thirty (30) days after termination, subject to the provisions of
Subparagraph (d) of this Paragraph 6. Except as provided herein, or otherwise
determined by the Board of Directors or the Committee in its sole discretion, if
such employment or consulting relationship shall terminate for any reason other
than death, voluntary termination by the employee or for cause, then such
Options may be exercised at anytime within three (3) months after such
termination. Notwithstanding anything contained herein to the contrary, unless
otherwise determined by the Board of Directors or the Committee in its sole
discretion, any options granted hereunder to an Optionee and then outstanding
shall immediately terminate in the event the Optionee is terminated for cause,
and the other provisions of this Paragraph 6 shall not be applicable thereto.
For purposes of this Paragraph 6, termination for cause shall be deemed the
decision of the Company, in its sole discretion, that Optionee has not
adequately performed the services for which he/she/it was hired.
(b) If the holder of an Option granted under the Plan dies (i) while
employed by the Company or a subsidiary or parent corporation or while providing
consulting services to the Company or a subsidiary or parent corporation or (ii)
within three (3) months after the termination of such holder's
employment/consulting, such Options may, subject to the provisions of
subparagraph (d) of this Paragraph 6, be exercised by a legatee or legatees of
such Option under such individual's last will or by such individual's personal
representatives or distributees at any time within such time as determined by
the Board of Directors or the Committee in its sole discretion, but in no event
less than six months after the individual's death, to the extent such Options
were exercisable as of the date of death or date of termination of employment,
whichever date is earlier.
(c) If the holder of an Option under the Plan becomes disabled within
the definition of Section 22(e)(3) of the Code while employed by the Company or
a subsidiary or parent corporation, such Option may, subject to the provisions
of subparagraph (d) of this Paragraph 6, be exercised at any time within six
months after such holder's termination of employment due to the disability.
(d) Except as otherwise determined by the Board of Directors or the
Committee in its sole discretion, an Option may not be exercised pursuant to
this Paragraph 6 except to the extent that the holder was entitled to exercise
the Option at the time of termination of employment, consulting relationship or
death, and in any event may not be exercised after the original expiration date
of the Option. Notwithstanding anything contained herein which may be to the
contrary, such termination
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<PAGE>
or death prior to vesting shall, unless otherwise determined by the Board of
Directors or Committee, in its sole discretion, be deemed to occur at a time the
holder was not entitled to exercise the Option.
(e) The Board of Directors or the Committee, in its sole discretion,
may at such time or times as it deems appropriate, if ever, accelerate all or
part of the vesting provisions with respect to one or more outstanding options.
The acceleration of one Option shall not infer that any other Option is or to be
accelerated.
7. LEAVE OF ABSENCE.
For the purposes of the Plan, an individual who is on military or sick
leave or other bona fide leave of absence (such as temporary employment by the
Government) shall be considered as remaining in the employ of the Company or of
a subsidiary or parent corporation for ninety (90) days or such longer period as
such individual's right to reemployment is guaranteed either by statute or by
contract.
8. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) In the event that the outstanding shares of Common Stock are
hereafter changed by reason of recapitalization, reclassification, stock
split-up, combination or exchange of shares of Common Stock or the like, or by
the issuance of dividends payable in shares of Common Stock, an appropriate
adjustment shall be made by the Board of Directors, as determined by the Board
of Directors and/or the Committee, in the aggregate number of shares of Common
Stock available under the Plan, in the number of shares of Common Stock issuable
upon exercise of outstanding Options, and the Option Price per share. Subject to
subparagraph (b) of this Paragraph 8, in the event of any consolidation or
merger of the Company with or into another company, or the conveyance of all or
substantially all of the assets of the Company to another company for solely
stock and/or securities, each then outstanding Option shall upon exercise
thereafter entitle the holder thereof to such number of shares of Common Stock
or other securities or property to which a holder of shares of Common Stock of
the Company would have been entitled to upon such consolidation, merger or
conveyance; and in any such case appropriate adjustment, as determined by the
Board of Directors of the Company (or successor entity) shall be made as set
forth above with respect to any future changes in the capitalization of the
Company or its successor entity. In the event of the proposed dissolution or
liquidation of the Company, subject to subparagraph (b) of this Paragraph 8, the
sale of substantially all the assets of the Company for other than stock and/or
securities, all outstanding Options under the Plan will automatically terminate,
unless otherwise provided by the Board of Directors of the Company or any
authorized committee thereof.
(b) Any Option granted under the Plan, may, at the discretion of the
Board of Directors of the Company and said other corporation, be exchanged for
options to purchase shares of capital stock of another corporation which the
Company, and/or a subsidiary thereof is merged into, consolidated with, or all
or a substantial portion of the property or stock of which is acquired by said
other corporation or separated or reorganized into. The terms, provisions and
benefits to the
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<PAGE>
optionee of such substitute option(s) shall in all respects be identical to the
terms, provisions and benefits of optionee under his Option(s) prior to said
substitution. To the extent the above may be inconsistent with Sections
424(a)(1) and (2) of the Code, the above shall be deemed interpreted so as to
comply therewith.
(c) Any adjustment in the number of shares of Common Stock shall apply
proportionately to only the unexercised portion of the Options granted
hereunder. If fractions of shares of Common Stock would result from any such
adjustment, the adjustment shall be revised to the next higher whole number of
shares of Common Stock.
9. FURTHER CONDITIONS OF EXERCISE.
(a) Unless the shares of Common Stock issuable upon the exercise of an
Option have been registered with the Securities and Exchange Commission pursuant
to the Securities Act of 1933, as amended, prior to the exercise of the Option,
an optionee must represent in writing to the Company that such shares of Common
Stock are being acquired for investment purposes only and not with a view
towards the further resale or distribution thereof, and must supply to the
Company such other documentation as may be required by the Company, unless in
the opinion of counsel to the Company such representation, agreement or
documentation is not necessary to comply with said Act.
(b) The Company shall not be obligated to deliver any shares of Common
Stock until they have been listed on each securities exchange (including for
this purpose, the Nasdaq Stock Market, Inc.) on which the shares of Common Stock
may then be listed or until there has been qualification under or compliance
with such state or federal laws, rules or regulations as the Company may deem
applicable.
(c) The Board of Directors or Committee may make such provisions and
take such steps as it may deem necessary or appropriate for the withholding of
any taxes that the Company is required by any law or regulation of any
governmental authority, whether federal, state or local, domestic or foreign, to
withhold in connection with the exercise of any Option, including, but not
limited to, (i) the withholding of payment of all or any portion of such Option
and/or SAR until the holder reimburses the Company for the amount the Company is
required to withhold with respect to such taxes, or (ii) the canceling of any
number of shares of Common Stock issuable upon exercise of such Option and/or
SAR in an amount sufficient to reimburse the Company for the amount it is
required to so withhold, (iii) the selling of any property contingently credited
by the Company for the purpose of exercising such Option, in order to withhold
or reimburse the Company for the amount it is required to so withhold, or (iv)
withholding the amount due from such employee's wages if the employee is
employed by the Company or any subsidiary thereof.
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<PAGE>
10. TERMINATION, MODIFICATION AND AMENDMENT.
(a) The Plan (but not Options previously granted under the Plan) shall
terminate ten (10) years from the earliest of the date of its adoption by the
Board of Directors, or the date the Plan is approved by the stockholders of the
Company, or such date of termination, as hereinafter provided, and no Option
shall be granted after termination of the Plan.
(b) The Plan may from time to time be terminated, modified or amended
by the affirmative vote of the holders of a majority of the outstanding shares
of capital stock of the Company entitled to vote thereon.
(c) The Board of Directors of the Company may at any time, prior to ten
(10) years from the earlier of the date of the adoption of the Plan by such
Board of Directors or the date the Plan is approved by the stockholders,
terminate the Plan or from time to time make such modifications or amendments of
the Plan as it may deem advisable; provided, however, that the Board of
Directors shall not, without approval by the affirmative vote of the holders of
a majority of the outstanding shares of capital stock of the Company present in
person or by proxy at an Annual or Special Meeting of the Stockholders and
voting thereon, increase (except as provided by Paragraph 8) the maximum number
of shares of Common Stock as to which Options or shares may be granted under the
Plan, or materially change the standards of eligibility under the Plan.
(d) No termination, modification or amendment of the Plan may adversely
affect the rights under any outstanding Option without the consent of the
individual to whom such Option shall have been previously granted.
11. EFFECTIVE DATE OF THE PLAN.
The Plan shall become effective upon adoption by the Board of Directors
of the Company. The Plan shall be subject to approval by the affirmative vote of
the holders of a majority of the outstanding shares of capital stock of the
Company present in person or by proxy at an Annual or Special Meeting of the
Stockholders and voting thereon within one year after adoption of the Plan by
the Board of Directors.
12. NOT A CONTRACT OF EMPLOYMENT OR FOR SERVICES.
Nothing contained in the Plan or in any option agreement executed
pursuant hereto shall be deemed to confer upon any individual to whom an Option
is or may be granted hereunder any right to remain in the employ of or be
engaged by the Company or of a subsidiary or parent of the Company or in any way
limit the right of the Company, or of any parent or subsidiary thereof, to
terminate the employment of any employee or engagement of any consultant.
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13. OTHER COMPENSATION PLANS.
The adoption of the Plan shall not affect any other stock option plan,
incentive plan or any other compensation plan in effect for the Company, nor
shall the Plan preclude the Company from establishing any other form of stock
option plan, incentive plan or any other compensation plan.
14. DISTRIBUTION OF FINANCIAL STATEMENTS.
The Company shall provide copies of the Company's annual financial
statements for its most recently completed fiscal year to each person granted or
exercising an option pursuant to the Plan as long as that person continues to
hold such options or shares. The Company shall not be required to provide such
financial statements to key employees whose duties in connection with the
Company assure their access to equivalent information.
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<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements on
Form S-3 (File No. 333-62261 and File No. 333-74199 and in post effective
amendment No. 2 on Form S-3 to the registration statement on Form SB-2 (File No.
333-20187) of Univec, Inc. and Subsidiary, of our report, dated May 19, 1999, on
our audit of the consolidated financial statements of Univec, Inc. and
Subsidiary as of December 31, 1998 and December 31, 1997, and for the two years
then ended, which report appears in the Annual Report of Univec, Inc. on Form
10-KSB for the year ended December 31, 1998.
s/ Most Horowitz & Company, LLP
-------------------------------
Most Horowitz & Company, LLP
New York, New York
May 19, 1999
<TABLE> <S> <C>
<ARTICLE> 5
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