<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 27, 1998
REGISTRATION NO. 333-42053
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM SB-2/A
PRE-EFFECTIVE AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AYURCORE, INC.
(Name of Small Business Issuer in Its Charter)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 2834 77-0341892
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
1737 N. FIRST STREET, SUITE 290
SAN JOSE, CALIFORNIA 95112
(408) 441-6380
(Address, including zip code, and telephone number, including area code, of
registrant's executive offices)
------------------------------
DEEPA CHITRE, M.D.
CHIEF EXECUTIVE OFFICER
AYURCORE, INC.
1737 N. FIRST STREET, SUITE 290
SAN JOSE, CALIFORNIA 95112
(408) 441-6380
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
With copies to:
<TABLE>
<S> <C>
IRWIN M. ROSENTHAL, ESQ. VIRGINIA K. SOURLIS, ESQ.
Rubin Baum Levin Constant & Friedman 192 Kingsley Street
30 Rockefeller Plaza Long Branch, New Jersey 07740
New York, New York 10112 Telephone: (732) 758-9001
Telephone: (212) 698-7700 Facsimile: (732) 758-6671
Facsimile: (212) 698-7825
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
--------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier registration statement for the same
offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL SUCH REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 27, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
AYURCORE, INC.
1,350,000 SHARES OF COMMON STOCK
AyurCore, Inc. (the "Company") hereby offers 1,350,000 shares (the "Shares")
of its common stock, $.001 par value (the "Common Stock"), at an initial public
offering price of $6.00 per share (the "Offering"). The Offering price of the
Shares was established by negotiation between the Company and Network 1
Financial Securities, Inc., the representative (the "Representative") of the
underwriters of the Offering (the "Underwriters") and does not necessarily bear
any direct relationship to the Company's assets, book value, net worth or any
other recognized criteria of value. For a discussion of the factors considered
in determining the initial public offering price, see "Underwriting."
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that any such market will develop upon completion
of the Offering or, if developed, be sustained. The Company has applied for
quotation of the Common Stock on the Nasdaq SmallCap Market ("Nasdaq") under the
proposed symbol "AYUR."
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON
PAGE 8 AND "DILUTION" ON PAGE 20.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................................ $6.00 $.60 $5.40
Total(3)................................................. $8,100,000 $810,000 $7,290,000
</TABLE>
(1) In addition, the Company has agreed to pay to the Representative, (i) a
nonaccountable expense allowance equal to 3% of the gross proceeds of the
Offering, (ii) warrants (the "Representative's Warrants") to purchase up to
135,000 shares of Common Stock, and (iii) a 24-month financial advisory and
investment banking agreement for an aggregate payment of $120,000 payable in
full at the closing of the Offering. The Company has also agreed to
indemnify the Underwriters against certain civil liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $900,000 (including the Representative's nonaccountable expense
allowance). See "Underwriting."
(3) The Company has granted the Representative an option, exercisable during the
45 days following the date of this Prospectus, to purchase up to 202,500
additional shares of Common Stock on the same terms and conditions as set
forth above, solely for the purpose of covering over-allotments, if any. If
the Representative's over-allotment option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $9,315,000, $931,500 and $8,383,500, respectively. See
"Underwriting."
------------------------
The shares of Common Stock are being offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to approval of certain legal matters by counsel and certain other
conditions. The Representative reserves the right to withdraw, cancel or modify
the Offering and to reject any order in whole or in part. It is expected that
delivery of certificates representing the shares of Common Stock offered hereby
will be made against payment therefor at the offices of the Representative, The
Galleria, Building 2, Penthouse, 2 Bridge Avenue, Red Bank, New Jersey
07701-1106, on or about , 1998.
[LOGO]
The date of this Prospectus is , 1998
<PAGE>
AYURCORE, INC.
Discovery & Development of Novel Phyto-Pharmaceuticals
- --------------------------------------------------------------------------------
* Targeting difficult-to-treat human diseases-Designed to save time-
(Picture of four plants used to make (Picture of Company's laboratory in
ARTREX-TM-) India)
Identification of Non-Toxic Medicinal Leading to Standardization
Plants Optimization and Clinical Testing
(Picture of two ARTREX boxes w/pills)
Resulting in Novel Proprietary Phyto-Pharmaceuticals
While certain of the Company's products are currently being marketed in India
and Singapore, none of them have yet received United States FDA approval, and
the Company does not expect to receive any such approval until, at the earliest,
the year 2001.
AVAILABLE INFORMATION
As of the date of this Prospectus, the Company will become subject to the
reporting requirements of the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, will file reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). The Company intends to furnish its stockholders with annual
reports containing audited financial statements and such other periodic reports
as the Company deems appropriate or as may be required by law.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK, INCLUDING PLACING STABILIZING BIDS OR EFFECTING PURCHASES OF THE COMMON
STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION, INCLUDING THE CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
EXCEPT AS OTHERWISE INDICATED HEREIN, THE INFORMATION IN THIS PROSPECTUS,
INCLUDING PER SHARE DATA AND INFORMATION RELATING TO THE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING: (i) GIVES RETROACTIVE EFFECT TO THE RECLASSIFICATION
OF THE COMPANY'S CLASS A COMMON STOCK AND CLASS B COMMON STOCK INTO ONE CLASS OF
COMMON STOCK, AN INCREASE IN THE COMPANY'S AUTHORIZED CAPITAL STOCK, AND AN
18,333.486-FOR-1 SPLIT OF THE COMMON STOCK, EACH OF WHICH WAS EFFECTED ON
NOVEMBER 26, 1997, AND (ii) ASSUMES NO EXERCISE OF THE REPRESENTATIVE'S
OVER-ALLOTMENT OPTION TO PURCHASE UP TO 202,500 ADDITIONAL SHARES OF COMMON
STOCK. SEE "UNDERWRITING" AND NOTE K OF NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
THE COMPANY
The Company is engaged primarily in the discovery, development, clinical
testing and marketing of proprietary plant-based pharmaceuticals
(phyto-pharmaceuticals) for the treatment of chronic, difficult-to-treat human
diseases. The Company currently has three phyto-pharmaceuticals in various
stages of clinical and preclinical development. RA-11, the Company's lead
phyto-pharmaceutical, recently completed a six month test-marketing program in
India, is currently being sold in Singapore and, on a limited basis, India, and
is scheduled to be launched for sale on a national basis in India in June 1998;
IM-10, which is undergoing preclinical animal pharmacology testing in India, has
been indicated for the stimulation and restoration of bone marrow and the immune
system in cancer patients being treated with chemotherapy; and HP-11, an
early-stage product candidate, is undergoing laboratory testing in India for the
treatment of hepatitis. The Company has an exclusive license under a United
States patent relating to RA-11 and its use in treating degenerative
musculoskeletal diseases. In addition, the Company has a United States patent
application pending relating to BV-6, a pharmaceutical derived from a single
animal cell component, which is undergoing early pharmacological studies at
Emory University for the treatment of degenerative diseases of the central
nervous system.
A key element of the Company's strategy is to apply the principles of
Ayurveda, an ancient science native to India, to reduce the time and costs
associated with the drug discovery process. Generations of Ayurveda scholars
have studied and documented the uses and efficacy of specific plants as
medicinal therapies over a period of several hundreds of years. Their findings,
preserved and detailed in Ayurvedic literature, provide valuable information for
modern day scientists. Through the study of Ayurveda, the Company's scientific
team seeks to rapidly identify plants, or combinations of plants, that have been
successfully used to treat symptoms and ailments characteristic of the diseases
targeted by the Company. In addition, because Ayurvedic literature has also
documented the safety of over 300 plant extracts for human use, once an
Ayurvedic plant candidate has been identified by the Company's researchers, they
are, in many instances, able to conduct early development activities in
parallel, rather than sequentially, when determining the candidate's safety and
efficacy. The Company believes that focusing its screening process on plants
whose safety and efficacy in medicinal use have been documented in Ayurvedic
literature will result in faster and more effective screening methods for the
discovery of new phyto-pharmaceuticals. The Company further believes that, based
on their long histories of safe use, these phyto-pharmaceuticals will have a
greater potential for safety and, as a result, may achieve more rapid regulatory
approval. See "Business--The AyurCore Model of Drug Discovery and Development."
The Company's research and development activities are primarily conducted by
the Company's Indian subsidiary at laboratories located in Pune, India, which
are staffed with 19 full time employees and 12 consultants. There, the Company's
India-based scientists are able to study the Ayurvedic literature (primarily
written in the ancient Sanskrit language) to accelerate the plant screening
process. In addition, by conducting operations in India, the Company is able to
access highly skilled scientific talent and other resources at an estimated
one-tenth of the cost of comparable labor and resources in the United States.
Although the Company's clinical trials to date have only been conducted in
India, they have been
3
<PAGE>
administered in accordance with protocols designed to be consistent with the
standards of the United States Food and Drug Administration (the "FDA") and in
laboratories that are designed to operate in accordance with guidelines
consistent with FDA Good Laboratory Practices ("GLP"). In addition, the
Company's proprietary plant extraction process is conducted for it by Kancor
Flavours & Extracts Pvt. Ltd., a third-party Indian supplier with an ISO-9000
certification (a worldwide industry manufacturing standard). The Company has
thus established, and continues to enhance, a network infrastructure in India
designed to identify phyto-pharmaceuticals through an accelerated process and in
a low-cost, high quality environment.
RA-11, the Company's lead product, has been derived, initially through
Ayurvedic studies, from a combination of four different plant species. The
Company holds an exclusive license on two Indian patents relating to its
proprietary plant extraction and RA-11 formulation processes, as well as a
United States patent relating to RA-11 and its use in treating degenerative
musculoskeletal diseases, such as rheumatoid arthritis and osteoarthritis.
Incidence of rheumatoid arthritis is reported to be approximately 2% of the
world population and the incidence of clinically symptomatic osteoarthritis is
reported to be between 10-15% worldwide. Moreover, in 1996, arthritis in general
was reported by the American College of Rheumatology ("ACR") to be the number
one cause of disability in the United States and the total market for
prescription arthritis drug therapy was estimated to be over $6 billion. Based
on clinical trials conducted in India (where RA-11 has been approved for
commercial sale by India's FDA equivalent) under protocols consistent with FDA
guidelines and ACR criteria, the Company believes that RA-11 may prove to be an
effective and safe drug for long-term treatment of osteoarthritis and may be
classified as a disease modifying, anti-rheumatic drug for the long-term
treatment of rheumatoid arthritis.
Effective September 1997, the Company entered into a three-year distribution
agreement with a Singapore-based pharmaceutical marketing and distribution
company, MD Pharmaceuticals Laboratories Ltd., for the distribution of RA-11 in
certain Pacific Rim countries. Marketing commenced under such agreement in May
1998. In March 1998, a six month test-marketing program of RA-11 in India was
completed. The test-marketing program was conducted by Alembic Chemical Works
Co. Limited, an Indian pharmaceutical company ("Alembic"). The Company is in
discussions with Alembic regarding a definitive agreement, and, subject to
finalization of an agreement, the Company anticipates a national launch of RA-11
in India in June 1998. Subject to successful completion of additional animal
pharmacology studies being conducted in India, the Company intends to file an
investigational new drug ("IND") application for RA-11 with the FDA in the
United States by the first quarter of 1999. Subject to approval of its IND
application, of which there can be no assurance, the Company will seek to
by-pass Phase I clinical trials (preliminary trials which focus on healthy human
subjects) in the United States, proceeding directly to Phase II clinical studies
(intermediate level trials, focused on a limited target patient population),
since it has already conducted two large, well-documented efficacy and safety
Phase II clinical trials in India using protocols prepared in the United States
consistent with FDA guidelines. The Company does not, however, anticipate
completing clinical trials or filing a new drug application ("NDA") with the FDA
for RA-11 (approval of which must be obtained prior to the commencement of its
commercial sale in the United States) until, at the earliest, the year 2001.
In addition to its activities related to RA-11, during the 12-month period
following the Offering the Company intends to focus its research and development
efforts (i) with respect to IM-10 and HP-11, on continued preclinical testing in
India and the United States and, subject to obtaining successful results, the
commencement of clinical trials in India, and (ii) with respect to BV-6, on
continued preclinical studies in the United States. The proceeds of the Offering
will not be sufficient to complete development efforts of any of these proposed
products and the Company will require substantial additional financing to
continue development efforts in these areas.
The Company is in the development stage and has not yet had any of its
products approved by the FDA. The Company's long-term viability, profitability
and growth will depend upon successful commercialization of products resulting
from its research and development activities. To date, the Company has
4
<PAGE>
recorded only limited product sales ($101,000 in net product sales from
inception through March 31, 1998), and these have been derived primarily from
sales in India of SA-12, a proprietary anti-bacterial surgical scrub acquired by
the Company from its inventor in 1995. As a result, the Company has incurred
significant operating losses since its inception, including net losses of
$1,432,000 and $1,327,000 for the years ended December 31, 1997 and 1996,
respectively, and $281,000 for the quarter ended March 31, 1998. The Company
expects that its losses will increase as the Company expands its research and
development activities and that losses will continue until such time, if ever,
as the Company is able to generate sufficient revenues to support its
operations. The Company believes that its ability to generate sufficient
revenues primarily depends on the success of the Company in completing
development, and obtaining regulatory approvals in the United States and other
major markets for the commercial sale, of RA-11 and other product candidates.
There can be no assurance that any of such events will occur or that the Company
will ever achieve profitable operations. See "Risk Factors."
Set forth below is a summary of the Company's products and product
candidates.
<TABLE>
<CAPTION>
PRODUCT TARGETED INDICATIONS OWNERSHIP STATUS STAGE OF DEVELOPMENT
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
RA-11 Treatment of rheumatoid Exclusive licensee Two large Phase II level
arthritis and clinical trials have
osteoarthritis been completed in India
using protocols
consistent with FDA
guidelines; test-
marketing successfully
completed in India;
marketed in Singapore;
pre-IND in United States
- ------------------------------------------------------------------------------------------
IM-10 Immunostimulation in Exclusive licensee Pre-clinical
cancer patients
- ------------------------------------------------------------------------------------------
HP-11 Treatment of hepatitis, Owner (by assignment) Early pre-clinical
including hepatitis A,
B, C and chemically
induced hepatitis
- ------------------------------------------------------------------------------------------
BV-6 Treatment of central Owner (by assignment) Early pre-clinical
nervous system
degenerative diseases
such as seizure
disorders, strokes,
multiple sclerosis and
Alzheimer's disease
- ------------------------------------------------------------------------------------------
SA-12 Topical antibacterial Owner (by assignment) Marketed in India
surgical scrub and
general disinfectant for
use on hands and other
skin surfaces
</TABLE>
The Company is a Delaware corporation which was organized on January 11,
1993 under the name Bio-Ved, Inc. The Company changed its name to AyurCore, Inc.
on September 27, 1995. The Company has one substantially wholly-owned
subsidiary, Bio-Ved Pharmaceuticals Private Limited, a company organized in
India ("Bio-Ved"). Unless the context otherwise requires, all references herein
to the "Company" shall be deemed to include and refer to AyurCore, Inc. and
Bio-Ved. The Company's principal executive office is located at 1737 N. First
Street, Suite 290, San Jose, California 95112 and its telephone number is (408)
441-6380.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered......................... 1,350,000 shares
Common Stock to be outstanding after the
Offering................................... 3,569,702 shares (1)
Use of Proceeds.............................. The Company intends to use the net proceeds
of the Offering for research and development,
repayment of indebtedness, manufacturing and
marketing, and working capital.
Risk Factors................................. The Company is a development stage company
and has incurred substantial losses since
inception. An investment in the securities
offered hereby is speculative in nature and
involves a high degree of risk and immediate
substantial dilution. See "Risk Factors" and
"Dilution."
Proposed Nasdaq symbol....................... "AYUR"
</TABLE>
- ------------------------
(1) Does not include: (i) 70,000 shares of Common Stock reserved for issuance
upon exercise of stock options granted, and 157,986 shares of Common Stock
reserved for issuance upon exercise of stock options available for future
grant, under the Company's 1997 Stock Option Plan (the "Option Plan"); (ii)
300,970 shares of Common Stock reserved for issuance upon exercise of
currently outstanding non-Option Plan options; (iii) 475,000 shares of
Common Stock reserved for issuance upon exercise of currently outstanding
warrants; and (iv) 135,000 shares of Common Stock reserved for issuance upon
exercise of the Representative's Warrants. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources," "Management--Stock Options," "Certain Transactions,"
"Description of Securities" and "Underwriting."
6
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
The following sets forth certain summary historical financial data for the
Company as of December 31, 1997 and for each of the years in the two-year period
ended December 31, 1997 and for the period January 11, 1993 (inception) through
December 31, 1997, which have been derived from the Consolidated Financial
Statements of the Company included elsewhere in this Prospectus. The summary
historical financial data set forth as of March 31, 1998 and for the three-month
periods ended March 31, 1998 and 1997 and for the period January 11, 1993
(inception) through March 31, 1998, have been derived from the unaudited
consolidated financial data of the Company included elsewhere herein. The
summary historical financial data should be read in conjunction with such
consolidated financial statements and the notes thereto. Operating results for
the interim periods are not necessarily indicative of results of the full fiscal
year.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 11, 1993 THREE MONTHS ENDED JANUARY 11, 1993
DECEMBER 31, (INCEPTION) MARCH 31, (INCEPTION)
---------------------- THROUGH DECEMBER 31, ---------------------- THROUGH MARCH 31,
1997 1996 1997 1998 1997 1998
---------- ---------- --------------------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Net product sales...... $ 91 $ 91 $ 10 $ 101
Royalty income......... 12 12 12
Government grant....... 100 100 $ 56 100
---------- ------- ---------- ---------- --------
Total revenue............ 203 203 10 56 213
---------- ------- ---------- ---------- --------
---------- ------- ---------- ---------- --------
Costs and expenses:
Cost of sales.......... $ 100 $ 100 $ 6 $ 106
Research and
development.......... 272 $ 401 1,312 34 $ 89 1,346
General and
administrative....... 735 844 3,012 225 183 3,237
---------- ---------- ------- ---------- ---------- --------
Total operating
expenses................. 1,107 1,245 4,424 265 272 4,689
---------- ---------- ------- ---------- ---------- --------
Loss from operations..... (904) (1,245) (4,221) (255) (216) (4,476)
Net interest income
(expense)............ (528) (82) (632) (26) (27) (658)
---------- ---------- ------- ---------- ---------- --------
Net loss............... $ (1,432) $ (1,327) $ (4,853) $ (281) $ (243) $ (5,134)
---------- ---------- ------- ---------- ---------- --------
---------- ---------- ------- ---------- ---------- --------
Basic and Diluted loss
per share(1)............. $ (.70) $ (.66) $ (.13) $ (.12)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average number
of shares outstanding--
Basic and Diluted(1)... 2,034,945 1,999,994 2,219,702 1,999,994
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
MARCH 31, 1998
DECEMBER 31, ------------------------------
1997 ACTUAL AS ADJUSTED(2)(3)
------------- --------- -------------------
<S> <C> <C> <C>
Working capital (deficit).............................................. $ (2,050) $ (2,355) $ 5,111
Total assets........................................................... 508 565 6,074
Total current liabilities.............................................. 2,098 2,412 888
Long-term debt......................................................... -- -- 514
Deficit accumulated during development stage........................... (4,963) (5,244) (5,244)
Total stockholders' equity (capital deficiency)........................ (1,590) (1,847) 4,672
</TABLE>
- ------------------------
(1) See Note B [6] to the Company's Consolidated Financial Statements.
(2) Gives effect to the reclassification of approximately $605,000 in principal
amount of short-term debt ($250,000 of which was borrowed after March 31,
1998), plus accrued interest thereon ($38,000 as of March 31, 1998), to
long-term debt upon consummation of the Offering.
(3) As adjusted to give effect to the sale of the 1,350,000 shares of Common
Stock offered hereby at the Offering price of $6.00 per share and the
anticipated application of the estimated net proceeds therefrom and the
repayment of certain indebtedness (approximately $778,000 in outstanding
principal and interest). See "Use of Proceeds."
7
<PAGE>
RISK FACTORS
THE SECURITIES BEING OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SHOULD
BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION AND FINANCIAL
DATA SET FORTH IN THIS PROSPECTUS, SHOULD BE CONSIDERED CAREFULLY IN EVALUATING
THE COMPANY AND ITS BUSINESS BEFORE MAKING AN INVESTMENT IN THE SHARES. THE
RISKS DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS ARE NOT INTENDED TO BE AN
EXHAUSTIVE LIST OF THE GENERAL OR SPECIFIC RISKS INVOLVED, BUT MERELY IDENTIFY
CERTAIN RISKS THAT ARE NOW FORESEEN BY THE COMPANY. IT MUST BE RECOGNIZED THAT
OTHER RISKS, NOT NOW FORESEEN, MIGHT BECOME SIGNIFICANT IN THE FUTURE AND THAT
THE RISKS WHICH ARE NOW FORESEEN MIGHT AFFECT THE COMPANY TO A GREATER EXTENT
THAN IS NOW FORESEEN OR IN A MANNER NOT NOW CONTEMPLATED.
EARLY STAGE OF PRODUCT DEVELOPMENT; NO ASSURANCE OF SUCCESSFUL PRODUCT
DEVELOPMENT. None of the Company's products or product candidates have been
approved for sale in the United States or Europe or in other countries with
comparable regulatory approval processes. The Company's products and product
candidates are in various stages of development and will require significant
additional development, clinical testing and investment prior to
commercialization in the United States and other countries. Products for use in
human healthcare must be evaluated in extensive human clinical trials to
determine their safety and efficacy as part of a lengthy process to obtain
government approval. Clinical trials may be terminated at any time for many
reasons, including safety or lack of efficacy. There can be no assurance that
the Company will not encounter problems in clinical trials that will cause the
Company to delay or suspend any trials which it may conduct. Further, there can
be no assurance that the Company's research and development efforts will be
successful or that any products developed will be safe, effective, capable of
being manufactured in commercial quantities at an economical cost, approved by
appropriate regulatory authorities, accepted for coverage and reimbursement by
third party payers or successfully marketed in quantities sufficient to generate
operating revenue. Failure of any of the Company's product candidates to
successfully complete any of the steps necessary for their successful
commercialization would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business."
DEVELOPMENT STAGE COMPANY; HISTORY OF SIGNIFICANT LOSSES; ANTICIPATED FUTURE
LOSSES; ACCOUNTANT'S EXPLANATORY PARAGRAPH REGARDING THE COMPANY'S ABILITY TO
CONTINUE AS A GOING CONCERN. The Company is in the development stage and, as
such, has generated only limited revenue and has incurred significant losses,
including net losses of $1,432,000 and $1,327,000 for the years ended December
31, 1997 and 1996, respectively, and $281,000 for the quarter ended March 31,
1998. As of March 31, 1998, the Company had an accumulated deficit of
$5,244,000. The Company expects to incur operating losses and negative cash flow
for the next several years and that its losses will increase as the Company
expands its research and development activities. The likelihood of the Company's
success must be considered in light of the problems, delays, expenses and
difficulties frequently encountered by enterprises in the early stage of
development, many of which may be beyond the Company's control. These include,
but are not limited to, unanticipated problems relating to product development,
preclinical and clinical testing, the obtainment of regulatory approvals for the
manufacture and sale of products, competition, manufacturing, marketing, and the
political, economic and regulatory problems associated with engaging in business
in India and other countries. These and other problems may result in additional
costs and expenses that exceed current estimates. There can be no assurance that
the Company will ever achieve significantly increased revenues or profitable
operations. In addition, the Company's independent auditors have included an
explanatory paragraph in their report stating that the Company's accumulated
deficit and its dependence, to date, upon equity financings and advances and
loans from stockholders and others raise substantial doubts about the Company's
ability to continue as a going concern. The Offering is an integral part of the
Company's plan to continue as a going concern. See "Management's Disccusion and
Analysis of Financial Condition and Results of Operations," "Certain
Transactions" and Consolidated Financial Statements.
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SIGNIFICANT CAPITAL REQUIREMENTS; DEPENDENCE ON OFFERING PROCEEDS; WORKING
CAPITAL DEFICIT; NEED FOR ADDITIONAL FINANCING. The Company's capital
requirements have been and will continue to be significant. To date, the Company
has been dependent primarily upon equity investments and advances and loans
from, or guaranteed by, stockholders to fund its capital requirements. As of
March 31, 1998, the Company had a working capital deficit of $2,355,000, and it
is dependent upon the proceeds of the Offering to fund its continuing research
and development and other working capital requirements. The Company anticipates,
based on its currently proposed plans and assumptions relating to its operations
(including assumptions regarding the nature and extent of research and
development required in connection with the regulatory approval process, the
timing of obtaining regulatory approvals, if any, market acceptance, the
competitive position of the Company's products, and the ability of the Company
to continue to secure adequate manufacturing and distribution relationships)
that the net proceeds of the Offering will be sufficient to fund the Company's
contemplated capital requirements for at least 12 months following the
consummation of the Offering. In the event the Company's plans change or its
assumptions change or prove to be incorrect, the Company could be required to
seek additional financing sooner than currently anticipated. In addition, the
Company will need to raise substantial additional capital to fund its future
operations. There can be no assurance that additional financing will be
available when needed on terms acceptable to the Company, or at all. Any
inability to obtain additional financing when needed would have a material
adverse effect upon the Company and could prevent it from implementing its
business strategy and require it to significantly curtail its operations. In
addition, if additional funds are raised by issuing equity securities, dilution
to then existing stockholders will result and future investors may be granted
rights superior to those of existing stockholders. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE UPON KEY PERSONNEL AND CONSULTANTS. The Company's success
depends in large part on the continued services of its executive management team
and other key personnel. The Company's success also depends on its ability to
retain and attract highly skilled personnel, both in the United States and
India. There can be no assurance that the Company will be able to continue to
attract or retain such persons. In addition, the Company relies to a large
extent on scientific consultants to assist it in the drug discovery and
development process. The Company's success is substantially dependent upon the
efforts of these third parties and the continued availability of their services
to the Company. Many of the Company's arrangements with its consultants are
relatively short-term or are informal. There is, therefore, no assurance that
the Company will be able to retain or continue to retain such consultants or
other qualified consultants on commercially reasonable terms, or at all. In
addition, the time and resources devoted to the Company's business by its
consultants will generally be controlled by them and not by the Company, and
many of these consultants may have commitments to other entities that could
limit their availability to the Company. Some of these consultants may also
provide consulting services to companies that may be competitors of the Company.
The loss of existing executive management or key personnel, or the failure to
recruit additional highly skilled personnel, could significantly impede the
Company's attainment of its objectives and have a material adverse effect on the
Company's business, financial condition and result of operations. See
"Business--Consultants" and "Management."
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS. The Company's success
depends in part on its ability to obtain patent protection for its products and
to preserve its trade secrets. The Company holds an exclusive license on a
United States patent relating to RA-11 and its use in treating degenerative
musculoskeletal diseases, including rheumatoid arthritis and osteoarthritis,
which patent expires in 2014. The Company also holds an exclusive license on two
Indian patents, one of which relates to the Company's proprietary plant
extraction process and the other of which relates to the Company's proprietary
process for formulating RA-11, both of which Indian patents expire in 2001. In
addition, the Company has a pending United States patent application related to
BV-6. No assurance can be given that the Company's pending patent application or
future patent applications will issue as patents, that any patents will provide
the Company with competitive advantages for its products or that they will not
be successfully challenged or circumvented by the Company's competitors. The
Company has not conducted an exhaustive patent
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search and no assurance can be given that patents do not exist or could not be
filed which would have an adverse effect on the Company's ability to market its
products. If other companies were to successfully bring legal actions against
the Company claiming patent or other intellectual property right infringements,
then, in addition to any potential liability for damages, the Company could be
required to obtain a license in order to continue to use the affected process or
to manufacture or use the affected product and, if enjoined by a court, the
Company could be required to cease using such process or product. There can be
no assurance that the Company would prevail in any such action or that any
license required under any such patent would be made available on acceptable
terms, or at all. There is significant litigation in the pharmaceutical industry
regarding patent and other intellectual property rights. If the Company becomes
involved in such litigation, it could consume a substantial portion of the
Company's financial and other resources, regardless of the outcome of such
litigation. There can be no assurance that the Company will have the financial
or other resources necessary to enforce or defend a patent infringement action.
The Company also relies on trade secrets and proprietary know-how which it seeks
to protect, in part, by confidentiality agreements with its employees and
consultants. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach or that
the Company's trade secrets will not otherwise become known or independently
developed by competitors. See "Business--Patents, Licenses, and Proprietary
Rights."
At present, India only grants process patents for pharmaceutical products.
Although India is not a signatory of the Paris Convention, it is a member of the
World Trade Organization ("WTO"). As a signatory of WTO, India is required to
comply with its obligations under Trade-Related Aspects of Intellectual Property
Rights ("TRIPS"). TRIPS requires India to grant product patents for
pharmaceutical products after a certain transition period. During the transition
period, participating countries must establish a means for filing patent
applications relating to pharmaceutical products and agricultural chemicals and
also grant exclusive marketing rights for certain periods. In response to claims
raised by other countries, WTO ruled that India has not been abiding by its
transition period commitments under TRIPS. India appealed the WTO decision, but
lost the appeal. As a result, India is supposed to conform its patent rules to
WTO requirements. Failure to do so could result in economic or other retaliation
by member countries. In addition, as an aftermath of the Convention on
Biological Diversity, India is planning to enact a law on national
bio-diversity. This law may place restrictions and/or conditions for obtaining
patents or other intellectual property relating to biological material or
products derived therefrom. See "Business--Patents, Licenses and Proprietary
Rights."
NO ASSURANCE OF REGULATORY APPROVALS. The Company's research, preclinical
development, clinical trials, and manufacturing and marketing of its products in
the United States and other countries are subject to extensive regulation by
numerous governmental authorities including, but not limited to, the FDA. The
Company has no products approved by the FDA and does not expect to achieve
profitable operations until products receive FDA approval, are commercialized
successfully, and become eligible for reimbursement by third party payers. Any
potential therapeutic product developed by the Company will be subject to
rigorous preclinical and clinical testing and approval pursuant to regulations
administered by the FDA and comparable agencies in other countries. The approval
process for the Company's drug candidates is lengthy and is likely to involve
significant expenditures. No assurance can be made that the Company will be able
to file any NDAs or that any such filings will result in FDA approval.
Furthermore, the Company cannot predict with any degree of certainty when it
might be in a position to file any NDA or the length of time involved between
the filing of an NDA and obtaining FDA approval, if at all. The cost to the
Company of conducting human clinical trials for any potential product can vary
dramatically based on a number of factors, including the order and timing of
clinical indications pursued and the extent of development and financial
support, if any, from corporate partners. The Company may have difficulty
obtaining sufficient patient populations, clinicians or support to conduct its
clinical trials as planned and may have to expend substantial additional funds
to obtain access to such resources, or delay or modify its plans significantly.
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The effect of government regulation may be to delay marketing of the
Company's proposed products for a considerable period of time, to impose costly
procedures upon the Company's activities and to furnish a competitive advantage
to companies that compete with the Company. There can be no assurance that FDA
or other regulatory authority approval for any product candidates developed by
the Company will be granted on a timely basis or at all. Any delay in obtaining
or any failure to obtain such approvals would materially and adversely affect
the marketing of the Company's drug candidates and the Company's business,
financial position and results of operations. In addition, legislation may be
enacted in the future which might adversely affect the Company's ability to
develop, manufacture or market its drug candidates. Any FDA approvals that may
be granted will be subject to continual review, and later discovery of
previously unknown problems may result in withdrawal of products from marketing.
Moreover, if and when such approval is obtained, the marketing and manufacture
of the Company's products would remain subject to extensive regulatory
requirements administered by the FDA and other regulatory bodies. Failure to
comply with these regulatory requirements could, among other things, result in
fines, suspensions or withdrawal of regulatory approvals, operating restrictions
and criminal prosecution. The Company intends, either on its own or in
collaboration with others, to market its products in major markets outside of
the United States. There can be no assurance that the Company will be successful
in establishing marketing relationships, conducting clinical testing in foreign
countries or obtaining required foreign regulatory approvals in a timely manner,
if at all. To market its products abroad, the Company must comply with numerous
and varying foreign regulatory requirements implemented by foreign health
authorities, governing, among other things, the design and conduct of clinical
trials, pricing regulations and marketing approval. The approval procedure may
vary among countries and can involve, for example, additional testing, and the
time required to obtain approval may differ from the time required to obtain FDA
approval. The foreign regulatory approval process includes all of the risks
associated with obtaining FDA approval. However, approval by the FDA of any drug
candidate does not ensure approval by the regulatory agencies of other
countries. See "Business--The Regulatory Approval Process" and "--Products and
Product Candidates."
OPERATIONS CONDUCTED IN INDIA AND DEPENDENCE ON POLITICAL AND ECONOMIC
STABILITY OF INDIA AND OTHER COUNTRIES. Substantially all the Company's
research and development operations are currently conducted, and most of the
Company's limited sales are currently generated, in India. To effectively manage
its operations in India, the Company requires, and will continue to require, the
engagement of persons with appropriate managerial skills and the implementation
of an effective supervisory program which will include a continual and current
flow of reliable information to the Company's officers in the United States and
frequent reports from, and visits to, its operations in India. Additional
administrative costs and greater security and operational risks, accordingly,
will be incurred than if the operations were conducted solely in the United
States. No assurance can be given that persons with the required managerial
skills can continue to be located and employed by the Company in India or that
an effective supervisory program can be maintained. Furthermore, the Company's
operations are, and will be, dependent on the political and economic stability
of India and other countries in which the Company may do business, as well as
such countries' laws, rules and regulations, particularly with respect to
licenses, permits, government controls, investments and conduct of operations by
foreign-owned entities, patents and other intellectual property protections,
taxes, customs, trade restrictions and exchange and currency controls. These
considerations may also apply to each of the individual states within India in
which the Company conducts or may conduct its operations. In May 1998,
underground nuclear explosions were detonated in India as part of a government
testing program. The action triggered condemnation by a number of countries
including the United States. The United States has imposed sanctions against
India in accordance with the provisions of the 1994 Nuclear Proliferation
Prevention Act. The Act, which reportedly has never before been used, provides
sanctions which cut off virtually all United States non-humanitarian aid to
India, bar American banks from making loans to the Indian government and
restrict exports of computers and other equipment that might have military uses.
The Act also requires the United States to oppose loans to India by the
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World Bank and the International Monetary Fund. The Company cannot predict the
effect, if any, the sanctions will have on the Company's operations.
A significant portion of the Company's activities have been, and for the
forseeable future are expected to continue to be, conducted in India. As a
result, the Company is exposed to risks associated with currency exchange.
Devaluation of the rupee against the dollar would reduce the dollar value of
revenue generated in India, and the Company's rupee-denominated assets.
Devaluation of the rupee would also reduce the dollar value of expenses incurred
in India, including research, development and manufacturing costs, and of the
Company's rupee-denominated liabilities. Strengthening of the rupee versus the
dollar would have the opposite effect. To the extent the Company engages in
business in other foreign countries, the Company may be exposed to currency
exchange risks involving other currencies. To date, currency fluctuations have
not had a material effect on the Company's financial condition or results of
operations. The Company's business strategy includes marketing its products in
certain Pacific Rim countries. The economies and financial markets of many of
these countries, including Singapore where one of the Company's distributors is
based, have recently experienced significant turmoil. This may have an adverse
effect on the marketing of the Company's products in those countries. See
"--Foreign Trade Risks."
INABILITY TO REPATRIATE CERTAIN FUNDS. Foreign investments in India are
subject to regulation under the Foreign Exchange Regulation Act, 1973. Under
existing Indian law, foreign investments in Indian companies can either be made
on a repatriation or non-repatriation basis. Investments made on a repatriation
basis permit return out of India of the full capital amount invested, together
with interest, dividends and other amounts earned thereon. Investments made on a
non-repatriation basis do not permit return out of India of any of the capital
amount invested. Interest, dividends and other income earned on the capital
amount, however, are currently repatriable out of India, subject to a corporate
income tax and dividend distribution tax imposed by the Government of India in
the amount of 35% and 10%, respectively. Foreign investments made on a
repatriation basis require prior approval of the Foreign Investment Promotion
Board ("FIPB"), Government of India and Reserve Bank of India ("RBI").
Investments made on a non-repatriation basis require no governmental approval if
made by non-resident Indians or overseas corporate bodies owned at least 60% by
non-resident Indians (collectively, "NRIs"). However, these investments are
required to be declared in a filing made with the RBI. Prior to the Offering,
the Company has been considered an NRI. As of March 31, 1998, an aggregate of
approximately $744,000 had been provided by the Company to fund the Company's
operations in India. Of such amount, approximately $301,000 was provided to
Bio-Ved, approximately $263,000 of which has been registered as a contribution
to Bio-Ved's capital on a non-repatriation basis and cannot be repatriated from
India. Effective December 8, 1997, the FIPB approved an application submitted by
the Company to permit future investment in Bio-Ved on a repatriation basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON SOURCES OF SUPPLY. The plant materials from which the
Company's products are being developed are currently located primarily in India.
The ability of the Company to secure an adequate supply of cultivated plant
materials will be affected by factors such as location, seasonality and weather.
Plant materials used in the production of RA-11 are purchased from one supplier,
Kancor Flavours & Extracts Pvt. Ltd. ("Kancor"), a supplier of plant extracts
located in India. Although the Company has entered into a supply agreement with
Kancor, there can be no assurance that this supplier will continue to be able to
supply the Company with all of the Company's requirements. The Company is also
dependent on Kancor and another supplier for plant materials used in connection
with the Company's other phyto-pharmaceutical research and development
activities. In addition, a continued source of plant supply is subject to the
risks inherent in international trade. Those risks include unexpected changes in
regulatory requirements, exchange rates, tariffs and barriers, difficulties in
coordinating and managing foreign operations, potentially adverse tax
consequences and disruptions in the political and economic stability of India
and other regions in which the plants are grown. The Indian government presently
prohibits the export of certain plants, plant portions and their derivatives and
extracts. Although none of the Company's
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products or product candidates are produced utilizing any of these plant
materials, there can be no assurance that the Indian government will not, in the
future, prohibit the export of plant materials used in the Company's products.
There can be no assurance of a continual source of supply of plant materials.
Interruptions in supply or material increases in the cost of the supply could
have a material adverse affect on the Company's business, financial condition
and results of operations. See "Business--Manufacturing and Supply."
LIMITED MANUFACTURING CAPACITY. The Company does not have the staff or
facilities necessary to manufacture its products on a commercial scale. The
Company has entered into a manufacturing agreement with a pharmaceutical company
located in India for the production of RA-11, and the Company will seek similar
manufacturing agreements as additional products are developed and
commercialized. SA-12 is manufactured under an agreement with another
pharmaceutical company located in India. In 1997, the Company became
dissatisfied with the performance of a former SA-12 manufacturer and began the
process of changing to the present manufacturer. Due to unanticipated delays,
related to transferring the right to use the trade name associated with SA-12,
which delays have been resolved, the Company was forced to suspend sales of
SA-12 during the first quarter of 1998. Although the Company intends to monitor
production at its manufacturers' facilities to assure their compliance with the
Company's product specifications, the Company will be dependent upon its
manufacturers to, among other things, satisfy performance and quality
specifications and dedicate sufficient production capacity to meet scheduled
delivery times. There can be no assurance that any manufacturer will devote the
resources necessary to meet any demand for the Company's products. Failure or
delay by the Company's manufacturers in supplying products would adversely
affect the Company's ability to deliver products on a timely and competitive
basis. Moreover, to the extent the Company engages manufacturers to manufacture
products to be sold in the United States, such manufacturers must comply with
the FDA's current good manufacturing practice ("cGMP") regulations and pass
pre-approval inspections by the FDA and periodic cGMP inspections. In the
future, the Company may decide to manufacture certain of its proposed products
on its own. This will require extensive investment in facilities and equipment
and will require experienced personnel. There can be no assurance that the
Company will be able to obtain the funds or other resources necessary to
establish its own manufacturing capabilities. See "Business--The Regulatory
Approval Process" and "Business--Manufacturing and Supply."
LIMITED MARKETING CAPABILITIES AND EXPERIENCE. The Company currently has no
marketing or sales staff and does not have the resources necessary to undertake
extensive marketing activities. Achieving market acceptance for the Company's
products will require substantial marketing efforts and the expenditure of
significant funds to inform potential customers of the perceived benefits of the
Company's products. Accordingly, the Company currently intends to rely on others
for the sale and marketing of its products. In March 1998, a six-month
test-marketing program of RA-11 in India was completed by Alembic Chemical Works
Co. Limited ("Alembic"), an Indian pharmaceutical company. Although the Company
is in discussions with Alembic regarding a definitive marketing agreement, there
can be no assurance that a definitive marketing agreement will be entered into
with Alembic or other potential marketers. Effective September 1997, the Company
entered into a distribution agreement with MD Pharmaceuticals Laboratories Ltd.,
a Singapore-based pharmaceutical company, covering the sale and marketing of
RA-11 and SA-12 in certain Pacific Rim countries. The Company has also entered
into a distribution agreement covering the sale and marketing of SA-12 in India.
The Company will continue to seek to market and distribute its products through
others pursuant to contractual arrangements, such as distribution agreements,
joint ventures or other strategic arrangements. To the extent the Company relies
on the efforts of others to market and distribute its products, the Company will
lose a degree of control over an important aspect of its business. While the
Company believes that third party distributors with which it enters into
distribution agreements will have an economic motivation to commercialize the
Company's products, the time and resources devoted to these activities will
generally be contributed and controlled by such entities and not by the Company.
A decline in the financial prospects of particular distributors could have an
adverse effect on the Company. There can be no assurance that the Company
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will be able to maintain its relationships with existing distributors or enter
into additional distribution arrangements or that any such arrangements will
result in the successful commercialization of any of the Company's products. See
"Business--Business Strategy" and "Business --Marketing."
RISKS RELATING TO LICENSED OR PURCHASED TECHNOLOGIES. The Company has
entered into license agreements pursuant to which it acquired exclusive
worldwide rights to RA-11. One agreement relates to India and the other
agreement relates to the rest of the world. However, the Company's licensor does
not have any patent rights relating to RA-11 outside of the United States and
India. The Company has also entered into a license agreement pursuant to which
it acquired exclusive worldwide rights to IM-10. However, the Company's licensor
does not have any patent rights relating to IM-10. The Company's rights under
these agreements are dependent upon its paying royalties at agreed upon rates
and commencing marketing within agreed upon periods of time. Although the
Company is presently in compliance with its obligations under the agreements,
there can be no assurance that it will continue to be able to comply with such
obligations. The Company has also entered into an agreement pursuant to which it
has been assigned a United States patent application related to BV-6, in
exchange for royalties. Failure by the Company to comply with the terms of any
of these agreements could result in the forfeiture by the Company of the
technologies. Such forfeiture could have a material adverse effect upon the
Company's business, financial condition and results of operations. See
"Business--Patents, Licenses and Proprietary Rights."
RAPID TECHNOLOGICAL CHANGE AND SUBSTANTIAL COMPETITION. The pharmaceutical
industry is subject to rapid and substantial technological change. Technological
competition from pharmaceutical companies, biotechnology companies and
universities is intense and is expected to increase. Many of these entities have
significantly greater research and development capabilities, as well as
substantial marketing, manufacturing, financial and managerial resources, and
represent significant competition for the Company. Some of the major
pharmaceutical companies, as well as several smaller companies, are seeking to
develop pharmacological products from plant derivatives. There can be no
assurance that developments by others will not render the Company's products or
technologies noncompetitive or that the Company will be able to keep pace with
technological developments. In addition, competitors have developed or are in
the process of developing technologies that are, or in the future may be, the
basis for competitive products. Some of these products may have an entirely
different approach or means of accomplishing the desired therapeutic effect and
may be more effective and less costly than the products developed by the
Company. The Company is aware of a number of companies engaged in research and
development of pharmaceuticals based on plants. The Company is also aware of a
number of local companies in India which sell traditional ayurvedic products,
some of which products are used to treat diseases targeted by the Company such
as arthritis. Other forms of medical treatment may also offer competition to the
Company's products. There can be no assurance that the Company will be able to
compete successfully. See "Business-- Competition."
PRODUCT LIABILITY EXPOSURE. The Company faces an inherent risk of exposure
to product liability claims in the event that the investigation or use of
products manufactured by the Company results in illness or injury. While the
Company will continue to attempt to take appropriate precautions, there can be
no assurance that it will avoid significant product liability exposure. The
Company currently has product liability insurance coverage in India, the country
in which most of its sales are generated. The Company is seeking to obtain
product liability insurance to cover sales in other foreign countries in amounts
consistent with industry practice in the countries in which its products are to
be marketed. There can be no assurance that the Company's current insurance
coverage is adequate or that adequate insurance coverage will be available at an
acceptable cost, if at all. In the event of a partially or completely uninsured
successful claim against the Company, the business and financial condition of
the Company could be materially adversely affected. See "Business--Product
Liability."
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS. In connection with the
performance of its research and development activities and the manufacturing of
materials for its clinical trials, the Company is subject to
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standards imposed by India and, to the extent the Company conducts operations or
maintains facilities in the United States, the Company will be subject to United
States federal, state and local laws, rules, regulations and policies governing
the use, generation, manufacture, storage, air emission, effluent discharge,
handling and disposal of certain materials and wastes (which activities involve
the controlled handling and disposal of hazardous and regulated materials such
as tissue samples, live viruses and chemicals). Although the Company believes
that its safety procedures comply with applicable standards in India and, when
performed in the United States, will comply with standards prescribed by United
States federal, state and local regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company could be held liable for the damages
that result and any such liability could exceed the resources of the Company.
Moreover, there can be no assurance that the Company will not be required to
incur significant costs to comply with environmental and health and safety
regulations in the future. See "Business--Other Government
Regulation--Environmental Regulation."
UNCERTAINTY OF HEALTHCARE REIMBURSEMENT; PRICING. In both domestic and
foreign markets, sales of the Company's products, if any, will be dependent in
part on coverage and reimbursement by third party payers, such as government and
private insurance plans. Third party payers are increasingly challenging the
prices charged for pharmaceutical products and services. There can be no
assurance that the Company's products will be considered cost effective, that
reimbursement will be available, or if available, that the payer's reimbursement
policies will not adversely affect the Company's ability to sell its products
with an appropriate return on its investment. See "Business--Other Government
Regulation--Coverage and Reimbursement by Third Party Payers."
FOREIGN TRADE RISKS. To date, substantially all of the Company's sales have
been made in India and the Company intends to continue to rely on sales to
foreign markets for a significant portion of its revenues. If, and to the extent
that, the Company is able to successfully market its products in foreign
markets, the Company will become increasingly subject to the risks inherent in
foreign trade, including shipping delays, increased collection risks, trade
restrictions, export duties and tariffs, fluctuations in foreign currencies and
international political, regulatory and economic developments, all of which
could have an adverse effect on the Company's operating margins and results of
operations and exacerbate the risks inherent in the Company's business. While
the Company believes that the products it currently markets have all necessary
governmental clearances required for the importation and sale of such products
in the foreign countries in which its products are currently marketed, there can
be no assurance that this is actually the case or that governmental authorities
in such foreign countries will not, in the event of noncompliance, suspend
distribution of the Company's products. See "Business--Marketing."
CONTROL BY EXISTING STOCKHOLDERS; POSSIBLE DEPRESSIVE EFFECT ON THE
COMPANY'S SECURITIES. Immediately following the consummation of the Offering,
the Company's existing stockholders will, in the aggregate, beneficially own
approximately 68% of the outstanding Common Stock (including 698,802 shares
underlying options and warrants exercisable within 60 days of the date of this
Prospectus). As a result, the Company's existing stockholders will be able to
elect all of the Company's directors, dissolve, merge or sell all of the
Company's assets and otherwise control the Company. Such concentration of
control of the Company may also have the effect of delaying, deferring or
preventing a third party from acquiring control of the Company, may discourage
bids for the Company's Common Stock at a premium over the market price and may
adversely affect the market price of the Common Stock. See "Principal
Stockholders."
IMMEDIATE AND SUBSTANTIAL DILUTION. A purchaser in the Offering will
experience immediate and substantial dilution of approximately $4.69 per share
or 78.2% from the initial public offering price per share (based on the Offering
price of $6.00 per share). See "Dilution."
BENEFITS OF THE OFFERING TO CURRENT STOCKHOLDERS. Upon the consummation of
the Offering, the current stockholders of the Company will receive substantial
benefits, including the creation of a public trading market for their securities
and the corresponding facilitation of sales by such stockholders of their shares
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of Common Stock in the secondary market (although such shares are subject to
12-month "lock-up" agreements with the Representative and to certain limitations
on resale imposed upon officers, directors and affiliates of the Company under
the Federal securities laws), as well as an immediate increase in net tangible
book value of $2.34 per share to such stockholders based upon the adjusted net
tangible book value per share after the consummation of the Offering and the
application of the estimated net proceeds of the Offering (based upon the
Offering price of $6.00 per share). If, at the time the existing stockholders
are able to sell their shares of Common Stock in the public market, the market
price per share remains at the initial public offering price, of which there can
be no assurance, such stockholders would realize an average gain of $4.83 per
share on the sale of their existing shares (again, based upon the Offering price
of $6.00 per share). In addition, the Company intends to use proceeds from the
Offering to repay its outstanding bank debt, all of which is personally
guaranteed by Sanjeev and Deepa Chitre, each a principal stockholder, director
and officer of the Company, and secured by collateral pledged by a trust for the
benefit of their daughter. This repayment will result in a benefit to such
individuals, as their guarantees and security will be released. See "Use of
Proceeds," "Dilution," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources,"
"Principal Stockholders," "Certain Transactions," "Shares Eligible for Future
Sale" and "Underwriting."
NO DIVIDENDS ANTICIPATED. The Company has never paid any dividends on its
securities and does not anticipate the payment of dividends in the foreseeable
future. See "Description of Securities--Dividend Policy."
ANTI-TAKEOVER PROVISIONS; POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION OF
PREFERRED STOCK. The Company's Certificate of Incorporation and By-Laws and
Delaware's General Corporation Law contain certain provisions that could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of the Company.
Such provisions could limit the price that certain investors might be willing to
pay in the future for shares of the Common Stock. Certain of such provisions
impose various procedural and other requirements which could make it more
difficult for stockholders to effect certain corporate actions. Furthermore, the
Company's Certificate of Incorporation authorizes the issuance of up to
5,000,000 shares of preferred stock on terms which may be fixed by the Company's
Board of Directors without further stockholder action. The terms of any series
of preferred stock, which may include priority claims to assets and dividends
and special voting rights, redemption rights and terms and liquidation
preferences could adversely affect the rights of holders of the Common Stock.
The issuance of preferred stock could make the possible takeover of the Company
or the removal of management of the Company more difficult, discourage hostile
bids for control of the Company in which stockholders may receive premiums for
their shares of Common Stock or otherwise dilute the rights of holders of Common
Stock and the market price of the Common Stock. See "Description of Securities."
NO ASSURANCE OF PUBLIC MARKET; NEGOTIATED OFFERING PRICE; POSSIBLE
VOLATILITY OF MARKET PRICE OF COMMON STOCK. Prior to the Offering, there has
been no public market for the Common Stock. There can be no assurance that any
trading market for the Common Stock will develop or that, if any such market
develops, it will be sustained. The initial public offering price of the Common
Stock has been established by negotiation between the Company and the
Representative and may not necessarily bear any relationship to the Company's
book value, assets, past operating results, financial condition or other
established criteria of value. The market price of the Common Stock following
the Offering may be highly volatile as has been the case with the securities of
other development stage companies and many emerging companies. Factors such as
the Company's operating results, announcements by the Company or its competitors
of technological innovations or new products, and various factors affecting the
pharmaceutical industry generally, may have a significant impact on the market
price of the Company's securities. In addition, in recent years, the stock
market has experienced a high level of price and volume volatility and market
prices for the stock of many companies, particularly of small and emerging
growth companies, the common stock of which trade in the over-the-counter
market, have experienced wide price fluctuations which have not necessarily been
16
<PAGE>
related to the operating performance of such companies. Accordingly, purchasers
of the Common Stock may experience difficulty selling or otherwise disposing of
their Common Stock. See "Underwriting."
POSSIBLE NASDAQ DELISTING; LOW STOCK PRICE. It is currently anticipated
that the Common Stock will be eligible for listing on Nasdaq upon the
consummation of the Offering. For continued listing on NASDAQ, a company, among
other things, must have (i) net tangible assets of at least $2,000,000, net
income of at least $500,000 in two of the three most recent fiscal years, or a
market capitalization of at least $35,000,000, (ii) a minimum bid price of $1.00
per share, (iii) a public float of at least 500,000 shares, (iv) a market value
of public float of at least $1,000,000 and (v) adhere to certain corporate
governance provisions. If, in the future, the Company should fail any of these
maintenance tests or requirements, the Common Stock could be delisted from
trading on Nasdaq and trading, if any, in the Common Stock would thereafter be
conducted in the non-Nasdaq over-the-counter market. The effects of delisting
include the limited release of the market prices of the Company's securities and
limited news coverage of the Company. Delisting may restrict investors' interest
in the Company's securities and materially adversely affect the trading market
and prices for such securities and the Company's ability to issue additional
securities or to secure additional financing. In addition to the risk of
volatile stock prices and possible delisting, low price stocks are subject to
the additional risks of federal and state regulatory requirements and the
potential loss of effective trading markets. In particular, if the Common Stock
were delisted from trading on Nasdaq and the trading price of the Common Stock
was less than $5.00 per share, the Common Stock could be subject to Rule 15g-9
under the Exchange Act which, among other things, requires that broker/dealers
satisfy special sales practice requirements, including making individualized
written suitability determinations and receiving purchasers' written consent,
prior to any transaction. If the Company's securities were also deemed penny
stocks under the Securities Enforcement and Penny Stock Reform Act of 1990, this
would require additional disclosure in connection with trades in the Company's
securities, including the delivery of a disclosure schedule explaining the
nature and risks of the penny stock market. Such requirements could severely
limit the liquidity of the Company's securities and the ability of purchasers in
the Offering to sell their securities in the secondary market.
FUTURE SALES OF RESTRICTED SECURITIES; REGISTRATION RIGHTS. Upon the
consummation of the Offering, the Company will have 3,569,702 shares of Common
Stock outstanding, of which the 1,350,000 shares of Common Stock offered hereby
will be freely tradable by persons other than affiliates of the Company, without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"). The remaining 2,219,702 shares of Common Stock (the
"Restricted Shares") outstanding were sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act and are
"restricted securities" as defined in Rule 144 promulgated under the Securities
Act and may not be sold in the absence of registration under the Securities Act
unless an exemption therefrom, including an exemption afforded by Rule 144, is
available. Under Rule 144 (and subject to the conditions thereof), 619,850 of
the Restricted Shares are eligible for sale as of the date of this Prospectus,
1,380,144 of the Restricted Shares will become eligible for sale beginning 90
days after the date of this Prospectus, and substantially all of the remaining
219,708 Restricted Shares will become eligible for sale as of October 31, 1998.
The Company's officers, directors and existing stockholders have entered into
agreements which prohibit them from selling any securities of the Company
without the prior written consent of the Representative for a period of 12
months following the date of this Prospectus. The holders of the
Representative's Warrants and October 1997 Warrants will also be entitled to
certain registration rights with respect to such securities. The sale of a
substantial number of shares of Common Stock or the availability of Common Stock
for sale could adversely affect the market price of the Common Stock prevailing
from time to time. See "Shares Eligible for Future Sale" and "Underwriting."
EFFECT OF PREVIOUSLY ISSUED OPTIONS AND WARRANTS AND OF THE REPRESENTATIVE'S
WARRANTS ON STOCK PRICE. The Company has reserved from the authorized, but
unissued, Common Stock 845,970 shares of Common Stock for issuance upon exercise
of outstanding options and warrants (375,970 of which have exercise prices of
$4.00 or less) and 157,986 shares of Common Stock for issuance upon exercise of
options
17
<PAGE>
available for future grant under the Option Plan. In addition, upon the
consummation of the Offering, the Company will sell to the Representative, for
nominal consideration, the Representative's Warrants to purchase an aggregate of
up to 135,000 shares of Common Stock at a price per share equal to 125% of the
initial offering price per share. The existence of these options and warrants
may prove to be a hindrance to future financings, since the holders of such
securities may be expected to exercise them at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company. In addition, the holders of the Representative's Warrants will have
certain registration rights, and the sale of the shares issuable upon exercise
of such securities or the availability of such shares for sale could adversely
affect the market price of the Common Stock. See "Description of Securities" and
"Underwriting."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this
Prospectus, including without limitation, statements containing the words
"believes," "anticipates," "intends," "expects," "plans" and words of similar
import, constitute "forward-looking statements." Such forward-looking statements
involve known and unknown risks, uncertainties, assumptions and other factors
which may cause the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the risks identified above under
"Risk Factors." Given these uncertainties, prospective investors are cautioned
not to place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such factors or to publicly announce the
result of any revision to any of the forward-looking statements contained herein
to reflect future events or developments.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,350,000 shares of Common Stock offered hereby are estimated to be
approximately $6,390,000 (approximately $7,447,050 if the Representative's
over-allotment option is exercised in full), and after deducting underwriting
discounts and estimated offering expenses. The Company expects to use the net
proceeds as follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE OF
ANTICIPATED USE OF NET PROCEEDS DOLLAR AMOUNT NET PROCEEDS
- ---------------------------------------------------------------- -------------- ---------------
<S> <C> <C>
Research and development(1)..................................... $ 4,350,000 68.1%
Repayment of indebtedness(2).................................... 755,000 11.8%
Manufacturing and marketing(3).................................. 300,000 4.7%
Working capital(4).............................................. 985,000 15.4%
-------------- -----
Total......................................................... $ 6,390,000 100.0%
-------------- -----
-------------- -----
</TABLE>
- ------------------------
(1) Includes estimated costs and expenses relating to (i) completion of animal
pharmacology studies necessary for, and filing of, an IND and, if IND
approval is obtained, commencing a Phase II clinical trial in the United
States and a Phase III clinical trial in India, all relating to RA-11; (ii)
continued preclinical testing of IM-10, BV-6 and HP-11 and, subject to
obtaining successful preclinical results, the commencement of clinical
trials for IM-10 and HP-11 in India; and (iii) establishing and equipping
additional laboratory facilities in India. Also includes $140,000
representing accounts payable related to research and development
activities. See "Business--Products and Product Candidates" and
"--Facilities."
(2) Includes $575,000 aggregate principal amount borrowed at various times from
November 1996 through February 1998 from the Atlantic Bank of New York under
three-month term notes at prime plus 2% per annum. The notes have been
consolidated and are presently due on August 4, 1998. Also includes $150,000
principal amount borrowed from two individual investors in March and July
1996 (plus accrued interest of approximately $30,000). The proceeds of all
such loans were used for research and development, marketing and working
capital. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
(3) Represents manufacturing expenditures relating to RA-11 and SA-12 for the
build-up of product inventory and marketing expenditures relating to RA-11
and SA-12 for promotional materials and samples, medical symposia, product
educational programs and various related activities. See
"Business--Marketing."
(4) Working capital will be used for general corporate purposes, including
approximately $330,000 in aggregate annual base compensation for the
Company's three executive officers. Also includes costs for (i) seeking
collaborative arrangements with pharmaceutical companies, (ii) establishing
and enhancing management and information systems needed to monitor, control
and coordinate the Company's activities and (iii) patent and trademark
filings. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Management."
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of the Offering during the next 12 months. This estimate is
based on certain assumptions, including that development, testing and regulatory
requirements relating to the Company's products can be completed at budgeted
costs and that commercial sales of the Company's products will increase
significantly from results previously achieved by the Company. Projected
expenditures are estimates or approximations only. Future events, including the
problems, delays, expenses, difficulties and complications frequently
encountered by companies in an early stage of development, changes in economic,
regulatory or competitive conditions or in the Company's planned business, and
the success or lack thereof of the Company's development and
19
<PAGE>
sales and marketing efforts during the 12-month period following the
consummation of the Offering may make shifts in the allocation of funds and
curtailment of certain planned expenditures necessary or desirable. Any such
shifts will be at the discretion of the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
If the Representative exercises the over-allotment option in full, the
Company will realize additional net proceeds of $1,057,050. Such additional
proceeds are expected to be added to the Company's working capital.
Proceeds not immediately required for the purposes described above will be
invested principally in short-term interest bearing securities, money market
funds, certificates of deposit or direct or guaranteed obligations of the United
States government.
DILUTION
The difference between the initial public offering price per share of Common
Stock and the net tangible book value per share of Common Stock after the
Offering constitutes the dilution to investors in the Offering. Net tangible
book value per share on any given date is determined by dividing the net
tangible book value of the Company (total tangible assets less total
liabilities) on such date by the number of then outstanding shares of Common
Stock.
At March 31, 1998, net negative tangible book value of the Company was
$(2,280,000) or $(1.03) per share. After also giving retroactive effect to the
sale of the 1,350,000 shares of Common Stock offered hereby at a price of $6.00
per share and the receipt and anticipated application of the estimated net
proceeds therefrom, the as adjusted net tangible book value of the Company at
March 31, 1998 would have been $4,672,000 or $1.31 per share, representing an
immediate increase in net tangible book value of $2.34 per share to existing
stockholders and an immediate dilution of $4.69 (78.2%) per share to investors
in the Offering.
The following table illustrates the foregoing information with respect to
dilution to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Initial public offering price................................ $ 6.00
Net negative tangible book value before Offering........... $ (1.03)
Increase attributable to investors in the Offering......... 2.34
---------
Adjusted net tangible book value after the Offering.......... 1.31
---------
Dilution to investors in the Offering........................ $ 4.69
---------
---------
</TABLE>
20
<PAGE>
The following table sets forth, with respect to existing stockholders and
the investors in the Offering, a comparison of the number of shares of Common
stock purchased from the Company, the percentage ownership of such shares, the
aggregate consideration paid, the percentage of total consideration paid, and
the average price paid per share.
<TABLE>
<CAPTION>
SHARES ACQUIRED TOTAL CONSIDERATION
---------------------- -----------------------
AVERAGE
PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... 2,219,702 62.2% $2,601,000 24.3% $ 1.17
Investors in the Offering................. 1,350,000 37.8% 8,100,000 75.7% $ 6.00
--------- ----- ---------- -----
3,569,702 100.0% $10,701,000 100.0%
--------- ----- ---------- -----
--------- ----- ---------- -----
</TABLE>
The foregoing table assumes no exercise of the Representative's
over-allotment option. If such option is exercised in full, the new investors
will have paid $9,315,000 (based upon the Offering price of $6.00 per share) for
1,552,500 shares of Common Stock, representing approximately 78.2% of the total
consideration for 41.2% of the total number of shares outstanding. In addition,
computations set forth in the above table exclude an aggregate of 845,970 shares
of Common Stock reserved for issuance upon the exercise of currently outstanding
stock options and warrants, at various prices ranging from $.34 per share to
130% of the initial public offering price per share, and 135,000 shares of
Common Stock reserved for issuance upon the exercise of the Representative's
Warrants. See "Management--Stock Options," "Description of Securities" and
"Underwriting."
21
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company as of March 31, 1998: (i) on a historical or actual basis and (ii) as
adjusted, to reflect the issuance and sale of the 1,350,000 shares of Common
Stock offered hereby at a price of $6.00 per share and the anticipated
application of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
AS
ACTUAL ADJUSTED(2)
---------- -------------
<S> <C> <C>
Short-term debt:
Due to bank.................................................... $ 10,000 $ 10,000
Bank debt...................................................... 600,000 --
Notes payable to stockholders.................................. 405,000 --
Other notes payable............................................ 100,000 --
Accrued interest............................................... 66,000 --
---------- -------------
Total short-term debt........................................ $1,181,000 $ 10,000
---------- -------------
---------- -------------
Long-term debt (net of unamortized discount of $129,000)......... $ -- $ 514,000
---------- -------------
Stockholders' equity:
Preferred Stock, $.001 par value; 5,000,000 shares authorized;
none issued.................................................. -- --
Common Stock, $.001 par value: 25,000,000 shares authorized;
2,219,702 shares issued and outstanding actual, and 3,569,702
shares issued and outstanding as adjusted (1)................ 2,000 4,000
Additional paid-in capital....................................... 3,564,000 10,081,000
Unearned compensatory stock options.............................. (166,000) (166,000)
Foreign currency translation adjustment.......................... (3,000) (3,000)
Deficit accumulated during development stage..................... (5,244,000) (5,244,000)
---------- -------------
Total stockholders' equity (capital deficiency).............. (1,847,000) 4,672,000
---------- -------------
---------- -------------
Total capitalization....................................... $(1,847,000) $ 5,186,000
---------- -------------
---------- -------------
</TABLE>
- ------------------------
(1) Does not include: (i) 70,000 shares of Common Stock reserved for issuance
upon exercise of stock options granted, and 157,986 shares of Common Stock
reserved for issuance upon exercise of options available for future grant,
under the Option Plan; (ii) 300,970 shares of Common Stock reserved for
issuance upon exercise of outstanding non-Option Plan options; (iii) 475,000
shares of Common Stock reserved for issuance upon exercise of outstanding
warrants; and (iv) 135,000 shares of Common Stock reserved for issuance upon
exercise of the Representative's Warrants. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations"--Liquidity and
Capital Resources," "Management--Stock Options," "Certain Transactions,"
"Description of Securities" and "Underwriting."
(2) Includes the repayment of approximately $750,000 in principal plus accrued
interest thereon of $28,000 and the reclassification of approximately
$605,000 in principal amount of short-term debt ($250,000 of which was
borrowed after March 31, 1998), plus accrued interest thereon ($38,000 as of
March 31, 1998), to long-term debt upon consummation of the Offering.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements included elsewhere in
this Prospectus. The statement of operations data as set forth below for each of
the years in the two-year period ended December 31, 1997 and for the period from
January 11, 1993 (inception) through December 31, 1996 and the balance sheet
data as of December 31, 1997, are derived from the audited consolidated
financial statements of the Company. The summary historical financial data set
forth as of March 31, 1998 and for the three-month periods ended March 31, 1998
and 1997 and for the period January 11, 1993 (inception) through March 31, 1998,
have been derived from the unaudited consolidated financial data of the Company
included elsewhere herein. The summary historical financial data should be read
in conjunction with such consolidated financial statements and the notes
thereto. Operating results for interim periods are not necessarily indicative of
results of the full fiscal year.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 11, 1993 THREE MONTHS ENDED JANUARY 11, 1993
DECEMBER 31, (INCEPTION) MARCH 31, (INCEPTION)
-------------------- THROUGH DECEMBER 31, -------------------- THROUGH MARCH 31,
1997 1996 1997 1998 1997 1998
--------- --------- --------------------- --------- --------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Net product sales................... $ 91 $ 91 $ 10 $ 101
Royalty income...................... 12 12 12
Government grant.................... 100 100 $ 56 100
--------- ------- --------- --------- -------
Total revenue......................... 203 203 10 56 213
--------- ------- --------- --------- -------
Costs and expenses:
Cost of sales....................... $ 100 $ $ 100 $ 6 $ 106
Research and development............ 272 401 1,312 34 $ 89 1,346
General and administrative.......... 735 844 3,012 225 183 3,237
--------- --------- ------- --------- --------- -------
Total operating expenses.............. 1,107 1,245 4,424 265 272 4,689
--------- --------- ------- --------- --------- -------
Loss from operations.................. (904) (1,245) (4,221) (255) (216) (4,476)
Net interest income (expense)....... (528) (82) (632) (26) (27) (658)
--------- --------- ------- --------- --------- -------
Net loss............................ $ (1,432) $ (1,327) $ (4,853) $ (281) $ (243) $ (5,134)
--------- --------- ------- --------- --------- -------
--------- --------- ------- --------- --------- -------
Basic and diluted loss per share(1)... $ (.70) $ (.66) $ (.13) $ (.12)
--------- --------- --------- ---------
Weighted average number of shares
outstanding--basic and diluted(1)... 2,034,945 1,999,994 2,219,702 1,999,994
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
MARCH 31, 1998
DECEMBER 31, --------------------------------
1997 ACTUAL AS ADJUSTED(2)(3)
------------- ----------- -------------------
<S> <C> <C> <C>
Working capital (deficit).......................................... $ (2,050) $ (2,355) $ 5,111
Total assets....................................................... 508 565 6,074
Total current liabilities.......................................... 2,098 2,412 888
Long-term debt..................................................... -- -- 514
Deficit accumulated during development stage....................... (4,963) (5,244) (5,244)
Total stockholders' equity (capital deficiency).................... (1,590) (1,847) 4,672
</TABLE>
- ------------------------------
(1) See Note B[6] to the Company's Consolidated Financial Statements.
(2) Gives effect to the reclassification of approximately $605,000 in principal
amount of short-term debt ($250,000 of which was borrowed after March 31,
1998), plus accrued interest thereon ($38,000 as of March 31, 1998), to
long-term debt upon consummation of the Offering.
(3) As adjusted to give effect to the sale of 1,350,000 shares of Common Stock
offered hereby at the Offering price of $6.00 per share and the anticipated
application of the estimated net proceeds therefrom, including repayment of
certain indebtedness (approximately $778,000 in outstanding principal and
interest).
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
HISTORY
The Company was organized in January 1993. The Company's initial efforts
were focused on assembling a high quality and diverse network of scientists and
institutions in the United States and India to support the Company's drug
discovery and development efforts in India. In 1994 and 1995, the Company
entered into license agreements pursuant to which it acquired exclusive
worldwide rights to RA-11 and IM-10, respectively. In 1995, the Company also
obtained exclusive licenses under a United States patent and two Indian patents
related to RA-11 and acquired SA-12 and a pending United States patent
application related to BV-6. The Company's research efforts led to the
identification of HP-11. The Company has been engaged in the development and
testing of all of these products. The Company has also devoted significant
resources to securing intellectual property protection with respect to certain
of these products. It is part of the Company's strategy to seek early revenue on
its products in India and other countries where plant-based pharmaceuticals are
more commonly known, and are generally subject to a more simplified regulatory
approval process. The Company began selling SA-12 through a distributor in India
in early 1997. In March 1998, the Company successfully completed a
test-marketing program of RA-11 in India. In May 1998, the Company initiated
commercial sales of RA-11 in Singapore through a distributor, and the Company
anticipates commencing sales of RA-11 in India on a national basis through a
distributor in June 1998. See "Business--Products and Product Candidates,"
"Business--Marketing" and "Business--Patents, Licenses and Proprietary Rights."
The Company's initial activities in India were conducted through a liaison
office in India. In November 1995, Bio-Ved was formed to facilitate the
Company's activities in India. Since the formation of Bio-Ved, substantially all
of the Company's India-based activities have been conducted by Bio-Ved under the
direction of the Company. As of March 31, 1998, the Company had provided an
aggregate of approximately $744,000 in connection with its operations in India.
Of such amount, approximately $301,000 was provided to Bio-Ved, approximately
$263,000 of which has been registered as a contribution to Bio-Ved's capital on
a non-repatriation basis. Effective December 8, 1997, the Company received
approval for future investment in Bio-Ved on a repatriation basis. The Company
expects to continue to devote significant financial and other resources to its
research and development and other operations. See "Business--Research and
Development."
As a development stage company, the Company has generated only limited
revenue and has incurred significant losses since its inception. As a result, as
of March 31, 1998, the Company had an accumulated deficit of $5,244,000. The
Company expects to incur operating losses and negative cash flow for the next
several years and that its losses will increase as the Company expands its
research and development activities. In addition, the Company's independent
auditors have included an explanatory paragraph in their report stating that the
Company's accumulated deficit and its dependence, to date, upon advances and
loans from stockholders raise substantial doubts about the Company's ability to
continue as a going concern. The Offering is an integral part of the Company's
plan to continue as a going concern. See Consolidated Financial Statements.
A significant portion of the Company's activities have been, and for the
forseeable future are expected to continue to be, conducted in India. As a
result, the Company is exposed to risks associated with currency exchange.
Devaluation of the rupee against the dollar would reduce the dollar value of
revenue generated in India, and the Company's rupee-denominated assets.
Devaluation of the rupee would also reduce the dollar value of expenses incurred
in India, including research, development and manufacturing costs, and of the
Company's rupee-denominated liabilities. Strengthening of the rupee versus the
dollar would have the opposite effect. To the extent the Company engages in
business in other foreign countries, the Company may be exposed to currency
exchange risks involving other currencies. To date, currency fluctuations have
not had a material effect on the Company's financial condition or results of
operations.
24
<PAGE>
The Company's business strategy includes marketing its products in certain
Pacific Rim countries. The economies and financial markets of many of these
countries, including Singapore where one of the Company's distributors is based,
have recently experienced significant turmoil. This may have an adverse effect
on the marketing of the Company's products in those countries.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 V. THREE MONTHS ENDED MARCH 31, 1997
The Company earned revenue of $10,000 during the three months ended March
31, 1998 (the "1998 Three Months"), with a gross margin of $4,000. All of the
revenue was attributable to sales of RA-11 in India under a test-marketing
program conducted through Alembic. The Company is in discussions with Alembic
regarding a definitive distribution agreement and, subject to finalization of an
agreement, the Company anticipates a national launch of RA-11 in India in June
1998. Sales of SA-12 were suspended in India during the 1998 Three Months due to
a change in contract manufacturers and related delays in transferring the right
to use the trade name "Multicidal." The cause of the delays has been resolved.
Also during the 1998 Three Months, both RA-11 and SA-12 were registered for sale
in Singapore, and the initial order for RA-11 was placed with the Company by its
distributor, MD Pharmaceuticals. Although the Company now has two products
approved or eligible for sale in two countries and is pursuing approvals in
additional countries, the Company does not expect margins from product sales to
be significant in comparison to the Company's anticipated expenses during the
near term. One of the Company's primary goals is to achieve approved regulatory
status for its products as prescription pharmaceuticals in the United States and
other major world markets. See "Business Strategy," "Business-Manufacturing and
Supply" and "Business-Marketing."
The Company had no revenue from product sales during the three months ended
March 31, 1997 (the "1997 Three Months"). However, during that period, the
Company earned income of $56,000, representing an installment payment on a
$100,000 Small Business Innovative Research ("SBIR") grant awarded by the
National Institutes of Health ("NIH") in September, 1996 related to BV-6. See
"Business-Research and Development."
The Company incurred research and development expenses of $34,000 and
$89,000 during the 1998 Three Months and 1997 Three Months, respectively. The
higher expenditure in 1997 was the result of BV-6-related activities conducted
in the United States, which activities were funded by the above-mentioned SBIR
grant. Research and development expenses consist primarily of compensation to
employees and consultants conducting the Company's research activities,
laboratory expenses, and testing fees for clinical and preclinical trial work.
Much of these activities is conducted in India, where compensation and other
expenses are significantly lower than in the United States.
Selling, general and administrative expenses were $225,000 and $183,000
during the 1998 Three Months and 1997 Three Months, respectively. The increase
primarily resulted from higher professional fees incurred by the Company during
the 1998 Three Months. Selling, general, and administrative expenses include
compensation to the Company's officers and administrative employees in the
United States and India, legal, accounting and other professional fees and costs
related to seeking and establishing commercial partnerships.
Interest expense remained unchanged at $27,000 for the 1998 Three Months and
the 1997 Three Months. During the second quarter of 1998, the Company will
expense a non-cash charge of $201,000, representing the fair value attributable
to the extension in that quarter of the expiration date of expired warrants. In
addition, in April 1998, a note payable was discounted by $129,000, which amount
will be amortized as interest expense over the period of the note.
During the 1998 Three Months, the Company had a net loss of $281,000, as
compared to a net loss of $243,000 for the 1997 Three Months. The increase is
primarily attributable to the lack of grant revenue and
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higher selling, general and administrative expenses in the 1998 Three Months,
partially offset by lower research and development expenses.
YEAR ENDED DECEMBER 31, 1997 V. YEAR ENDED DECEMBER 31, 1996
The Company earned revenue of $203,000 during 1997, consisting of $91,000 in
net product sales of RA-11 and SA-12, $12,000 in royalty income attributable to
sales of SA-12 and $100,000 in government grant income for the BV-6-related SBIR
grant. The Company initiated commercial sale of SA-12 in India, and
test-marketing of RA-11 in India, in 1997. The Company had no revenue during
1996.
The Company incurred research and development expenses of $272,000 and
$401,000 during 1997 and 1996, respectively. The decrease is primarily
attributable to (i) clinical trials of RA-11 in India moving into the
less-expensive open label phase as compared to the placebo-controlled trial
completed in 1996, (ii) the Company's suspension of research activities related
to certain dermatological product; and (iii) the completion in 1996 of SA-12
development activities.
Selling, general, and administrative expenses during 1997 were $735,000, as
compared to $844,000 during 1996. The decrease reflects the Company's efforts to
contain costs due to a shortage of liquidity, and is primarily attributable to a
net decrease in officer compensation and a decrease in legal fees.
The Company incurred net interest expense of $528,000 and $82,000 during
1997 and 1996, respectively. The increase is primarily attributable to (i)
increased average debt during 1997, (ii) a $384,000 non-cash interest charge in
connection with the conversion into Common Stock on October 31, 1997 of
approximately $839,000 in principal and accrued interest under certain
promissory notes at the rate of $4.00 per share (the "Note Commission") and
(iii) a non-cash charge of $90,000 relating to the granting at October 31, 1997
of warrants exercisable at $4.00 per share. See "Certain Transactions."
During the year ended December 31, 1997, the Company had a net loss of
$1,432,000, as compared to a net loss of $1,327,000 during the year ended
December 31, 1996. The increase is primarily attributable to higher interest
expense, partially offset by lower operating expenses and grant revenue.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements have been and will continue to be
significant. As of March 31, 1998, the Company had a working capital deficit and
accumulated deficit of $2,355,000 and $5,244,000, respectively, and the Company
is dependent upon the proceeds of the Offering to fund its continuing research
and development and other working capital requirements. The Company anticipates,
based on its currently proposed plans and assumptions relating to its operations
(including assumptions regarding the nature and extent of research and
development required in connection with the regulatory approval process, the
timing of obtaining regulatory approvals, if any, market acceptance, the
competitive position of the Company's products, and the ability of the Company
to secure adequate manufacturing and distribution relationships) that the net
proceeds of Offering will be sufficient to fund the Company's contemplated
capital requirements for at least 12 months following the consummation of the
Offering. In the event the Company's plans change or its assumptions change or
prove to be incorrect, the Company could be required to seek additional
financing sooner than currently anticipated. In addition, the Company will need
to raise substantial additional capital to fund its future operations. There can
be no assurance that additional financing will be available when needed on terms
acceptable to the Company, or at all.
The Company's operations have been funded primarily through a combination of
approximately $2,307,000 in equity (including the conversion into equity of
$700,000 principal amount of, and $139,000 in accrued interest on, certain debt
in connection with the Note Conversion) and $1,380,000 in principal amount of
debt ($50,000 of which principal amount has been repaid). In addition, the
Company has received an aggregate of $100,000 through SBIR grant funding from
the NIH. See "Business--Products and Product Candidates--BV-6."
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At various times from June 1993 through February 1995 the Company sold an
aggregate of 412,866 shares of Common Stock to a limited number of investors for
an aggregate purchase price of $1,465,000. These shares were sold at varying
valuations ranging from $.55 to $6.00 per share. In addition, in connection with
the Note Conversion, effective October 31, 1997, $700,000 principal amount of,
and $138,830 in accrued interest on, certain of the Company's then outstanding
notes were converted into Common Stock at the rate of $4.00 per share.
As of the date of this Prospectus, the Company has $1,330,000 in principal
amount of loan obligations outstanding, $150,000 (plus accrued interest of
approximately $30,000) of which is currently due and payable on demand, $575,000
of which is scheduled to become due and payable in August 1998, and $605,000 of
which is scheduled to become due and payable on demand commencing one year
following the consummation of the Offering. Other than such $605,000, all
presently outstanding loans are anticipated to be repaid from the proceeds of
the Offering.
The debt (including debt converted into equity in connection with the Note
Conversion) incurred by the Company since its inception includes the following:
In October 1994, the Company borrowed $250,000 from Fred Kassner, a
principal stockholder of the Company, under a two-year convertible promissory
note bearing interest at prime plus 2% per annum convertible into 61,050 shares
of Common Stock. In April 1996, the Company borrowed an additional $250,000 from
this stockholder under a 90-day promissory note bearing interest at prime plus
2% per annum. In connection with the April 1996 loan, Mr. Kassner was granted
two-year warrants to purchase up to 125,000 shares of Common Stock at 130% of
the initial public offering price per share, which warrants expired in April
1998. In May 1998, the expiration date of the warrants was extended to May 2000.
Effective October 31, 1997, pursuant to the Note Conversion, all principal and
accrued interest owing under these notes (a total of $620,000) were converted by
Mr. Kassner into 154,967 shares of Common Stock at the rate of $4.00 per share.
In connection with this transaction, Mr. Kassner was also granted October 1997
Warrants to purchase up to 45,000 shares of Common Stock at $4.00 per share. See
"Certain Transactions."
At various times from January 1996 through March 1998, the Company borrowed
an aggregate principal amount of approximately $280,000 from Sanjeev Chitre,
Chairman of the Board of Directors and a principal stockholder of the Company.
The loan is represented by a promissory note bearing interest at prime plus 2%
per annum payable semi-annually. Originally, the note was to become due on
demand, in stages. The terms of the note have been revised to provide that no
amounts will become due and payable thereunder until one year following the
consummation of the Offering, provided the Offering is consummated by August 1,
1998. The Company has allocated no proceeds of the Offering to repayment of the
loan. See "Certain Transactions."
In January 1996, the Company borrowed $25,000 from Irwin Rosenthal, the
Secretary of the Company and husband of a director of the Company, under a
promissory note bearing interest at prime plus 2% per annum. Originally, the
note was to become due on demand commencing January 1997. Mr. Rosenthal was a
director of the Company at the time of the loan. The terms of the loan have been
revised to provide that no amounts will become due and payable thereunder until
one year following the consummation of the Offering, provided the Offering is
consummated by August 1, 1998. The Company has allocated no proceeds of the
Offering to repayment of this loan. See "Certain Transactions."
In March 1996, the Company borrowed $50,000 from a stockholder and former
director of the Company under a promissory note bearing interest at prime plus
2% per annum. The note is currently due and payable on demand and is anticipated
to be repaid out of the proceeds of the Offering. In connection with the loan,
the Company granted the individual two-year warrants to purchase up to 25,000
shares of Common Stock at 130% of the initial public offering price per share,
which warrants expired in March 1998. In May, 1998, the expiration date of the
warrants was extended to May 2000.
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In each of March 1996 and August 1997, the Company borrowed $100,000 from
Michael Splinter, who subsequently became a director of the Company, and his
wife, under promissory notes each bearing interest at prime plus 2% per annum.
In connection with the loans, these individuals were granted two-year warrants
to purchase up to an aggregate of 100,000 shares of Common Stock at 130% of the
initial public offering price per share. In May 1998, the expiration date of the
warrants granted in March 1996 (which warrants expired in March 1998) was
extended to May 2000. Effective October 31, 1997, pursuant to the Note
Conversion, all principal and accrued interest owing under these notes were
converted by the holder into 54,741 shares of Common Stock at the rate of $4.00
per share. In December 1997, the Company borrowed an additional $50,000 from
these individuals under a promissory note bearing interest at prime plus 2% per
annum. The promissory note is payable on demand commencing December 23, 1998 or,
if the Offering is consummated by August 1, 1998, one year from consummation of
the Offering. See "Certain Transactions."
In July 1996, the Company borrowed $100,000 from an unrelated individual
under a promissory note bearing interest at 10% per annum. The note is currently
due and payable on demand and is anticipated to be repaid out of the proceeds of
the Offering. See "Use of Proceeds."
At various times from November 1996 through January 1998, the Company
borrowed an aggregate principal amount of $625,000 from the Atlantic Bank of New
York ("Atlantic Bank") under three-month term notes bearing interest at Atlantic
Bank's prime rate plus 2% per annum, payable monthly. In January and May 1998,
the Company repaid a total of $50,000 in principal, and notes evidencing the
$575,000 principal balance have been consolidated and are presently due on
August 4, 1998. The Atlantic Bank loan is guaranteed by Sanjeev and Deepa Chitre
and secured by a pledge of common stock of another company, which stock is owned
by the Avantika Sanjeev Chitre Irrevocable Trust, dated July 8, 1991, Bruce W.
McRoy, trustee (the "Avantika Trust"), a trust for the benefit of Sanjeev and
Deepa Chitre's minor daughter. See "Certain Transactions."
In April 1998, the Company borrowed $250,000 principal amount from an
individual under a promissory note bearing interest at prime plus 2% per annum
payable on demand commencing April 1, 1999 or, if the Company consummates the
Offering by September 30, 1998, commencing one year following consummation of
the Offering. In connection with the loan, the Company granted the lender
two-year warrants to purchase up to 125,000 shares of Common Stock at 130% of
the initial public offering price per share. The Company has allocated no
proceeds of the Offering to repayment of this loan.
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BUSINESS
GENERAL
The Company is engaged primarily in the discovery, development, clinical
testing and marketing of proprietary plant-based pharmaceuticals
(phyto-pharmaceuticals) for the treatment of chronic, difficult-to-treat human
diseases. The Company currently has three phyto-pharmaceuticals in various
stages of clinical and preclinical development. RA-11, the Company's lead
phyto-pharmaceutical, recently completed a six month test-marketing program in
India, is currently being sold in Singapore and, on a limited basis, India, and
is scheduled to be launched on a national basis in India in June 1998; IM-10,
which is undergoing preclinical animal pharmacology testing in India, has been
indicated for the stimulation and restoration of bone marrow and the immune
system in cancer patients being treated with chemotherapy; and HP-11, an
early-stage product candidate, is undergoing laboratory testing in India for the
treatment of hepatitis. The Company has an exclusive license under a United
States patent relating to RA-11 and its use in treating degenerative
musculoskeletal diseases. In addition, the Company has a United States patent
application pending relating to BV-6, a pharmaceutical derived from a single
animal cell component, which is undergoing early pharmacological studies at
Emory University for the treatment of degenerative diseases of the central
nervous system.
A key element of the Company's strategy is to apply the principles of
Ayurveda, an ancient science native to India, to reduce the time and costs
associated with the drug discovery process. Generations of Ayurveda scholars
have studied and documented the uses and efficacy of specific plants as
medicinal therapies over a period of several hundreds of years. Their findings,
preserved and detailed in Ayurvedic literature, provide valuable information for
modern day scientists. Through the study of Ayurveda, the Company's scientific
team seeks to rapidly identify plants, or combinations of plants, that have been
successfully used to treat symptoms and ailments characteristic of the diseases
targeted by the Company. In addition, because Ayurvedic literature has also
documented the safety of over 300 plant extracts for human use, once an
Ayurvedic plant candidate has been identified by the Company's researchers, they
are, in many instances, able to conduct early development activities in
parallel, rather than sequentially, when determining the candidate's safety and
efficacy. The Company believes that focusing its screening process on plants
whose safety and efficacy in medicinal use have been documented in Ayurvedic
literature will result in faster and more effective screening methods for the
discovery of new phyto-pharmaceuticals. The Company further believes that, based
on their long histories of safe use, these phyto-pharmaceuticals will have a
greater potential for safety and, as a result, may achieve more rapid regulatory
approval. See "-- The AyurCore Model of Drug Discovery and Development."
The Company's research and development activities are primarily conducted by
the Company's Indian subsidiary at laboratories located in Pune, India, which
are staffed with 19 full time employees and 12 consultants. There, the Company's
India-based scientists are able to study the Ayurvedic literature (primarily
written in the ancient Sanskrit language) to accelerate the plant screening
process. In addition, by conducting operations in India, the Company is able to
access highly skilled scientific talent and other resources at an estimated
one-tenth of the cost of comparable labor and resources in the United States.
Although the Company's clinical trials to date have only been conducted in
India, they have been administered in accordance with protocols designed to be
consistent with the standards of the United States Food and Drug Administration
(the "FDA") and in laboratories that are designed to operate in accordance with
guidelines consistent with FDA Good Laboratory Practices ("GLP"). In addition,
the Company's proprietary plant extraction process is conducted for it by a
third-party Indian supplier with an ISO-9000 (a worldwide industry manufacturing
standard) certification. The Company has thus established, and continues to
enhance, a network infrastructure in India designed to identify
phyto-pharmaceuticals through an accelerated process and in a low-cost, high
quality environment.
The Company is in the development stage and does not anticipate completing
clinical trials or filing a new drug application ("NDA") with the FDA for any of
its products (approval of which must be obtained prior to the commencement of
their commercial sale in the United States) until, at the earliest, the year
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2001. The Company's long-term viability, profitability and growth will depend
upon successful commercialization of products resulting from its research and
development activities. To date, the Company has recorded only limited product
sales revenues, and these have been derived primarily from sales in India of
SA-12, a proprietary anti-bacterial surgical scrub acquired by the Company from
its inventor in 1995. The Company believes that its ability to generate
sufficient revenues to support its operations primarily depends on the success
of the Company in completing development, and obtaining regulatory approvals for
the commercial sale, of RA-11 and other product candidates. There can be no
assurance that any of such events will occur or that the Company will ever
achieve profitable operations.
INDUSTRY OVERVIEW
According to an industry survey published in May 1997, the total worldwide
sales of prescription and over-the-counter pharmaceutical products in 1996 were
over $285 billion, of which the United States market represented over 33%.
Although growth in pharmaceutical sales has generally remained constant over the
past few years, future growth rates are expected to rise due to projected
population trends. Because a disproportionately large amount of pharmaceuticals
are prescribed for middle-aged and elderly people, expansion in these
demographic sectors bodes well for drug companies. Based on estimates by the
United States Department of Commerce, the over-65 segment and the 45- to
64-year-old segment of the population is expected to expand 16% and 46%,
respectively, from 1996 through 2010 as the baby boomers age. The influence of
these demographic trends should be especially pronounced for treatments
targeting chronic conditions that often afflict people as they age, such as
hypertension and arthritis.
Currently, the incidence of rheumatoid arthritis is reported to be
approximately 2% of the world population and the incidence of clinically
symptomatic osteoarthritis is reported to be between 10-15% worldwide. Moreover,
in 1996, arthritis in general was reported by the American College of
Rheumatology ("ACR") to be the number one cause of disability in the United
States and the total market for prescription arthritis drug therapy was
estimated to be over $6 billion. For arthritis and other chronic,
difficult-to-treat conditions, such as viral hepatitis (of major medical
importance worldwide today and yet the only available treatments for which are
usually symptomatic and involve costly injectibles with numerous side effects),
plant-based pharmaceuticals with their natural attributes have potential to be
an efficient and cost-effective therapy.
Plant-based pharmaceuticals have historically been a significant source of
therapy in Europe and other countries outside of the United States. In 1993, as
estimated by the Herbal Medical database, the phyto-pharmaceutical market was
approximately $12.4 billion worldwide of which $6.5 billion was attributed to
Europe. According to that publication, the industry had grown at an approximate
annual rate of 10-15% from 1985 through 1993, and it was estimated that such
growth rate would continue through at least 1998.
BUSINESS STRATEGY
The Company's business strategy is to capitalize on what it perceives to be
an ever growing market for phyto-pharmaceutical therapies by developing (using
Ayurvedic principles as a means of potentially accelerating both the discovery
and the regulatory approval processes) and commercializing safe and effective
plant-based pharmaceuticals for the treatment of difficult-to-treat, chronic
diseases in humans. In furtherance of its strategy, the Company intends to:
- OBTAIN FDA APPROVAL FOR RA-11 -- RA-11 has been approved for sale in India
and is exempt from licensing in Singapore. Following successful completion of
additional animal pharmacology studies being conducted in India, the Company
intends to file an investigational new drug ("IND") application with the FDA in
the United States, relating to the use of RA-11 for the treatment of rheumatoid
arthritis, osteoarthritis and other forms of non-infectious, inflammatory
arthritis, by the first quarter of 1999. The Company has already completed two
large, double blind, placebo controlled Phase II clinical trials in India
relating to RA-11 and based upon the results of such trials, the Company
believes that RA-11 may prove to be an effective and safe drug for long-term
treatment of osteoarthritis and may be classified as a disease
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modifying anti-rheumatic in the long-term treatment of rheumatoid arthritis.
Subject to approval of its IND application, of which there can be no assurance,
the Company will seek to by-pass Phase I clinical trials (preliminary trials
which focus on healthy human subjects) in the United States, proceeding directly
to Phase II clinical studies (intermediate level trials, focused on a limited
target patient population), since it has already conducted two large,
well-documented efficacy and safety Phase II level clinical trials in India
using protocols consistent with FDA guidelines. Concurrently, the Company will
seek to conduct a Phase III clinical trial in India and, subject to successful
results, the Company would then conduct a Phase III clinical trial in the United
States. Two Phase III trials are required in connection with the United States
FDA approval process, one of which must be conducted in the United States. The
Company does not anticipate completing clinical trials or filing an NDA until,
at the earliest, the year 2001. See "--The Regulatory Approval Process" and
"--Products and Product Candidates -- RA-11."
- EXPAND INTERNATIONAL MARKETING EFFORTS FOR RA-11 AND SA-12 -- The Company
has begun to recognize initial revenue from sales of SA-12 in India. In
addition, limited sales of RA-11 commenced in India in November 1997 under a
test-marketing program. The test-marketing program was successfully completed in
March 1998. The Company is in discussions with the Indian pharmaceutical company
which conducted the test-marketing program regarding entering into a definitive
marketing agreement. Subject to finalization of an agreement, the Company
anticipates a national launch of RA-11 in India in June 1998. The Company has
begun to sell RA-11 in Singapore through a distributor. The Company anticipates
the commencement of marketing of SA-12 in certain countries in the Pacific Rim
through a pharmaceutical distributor in Singapore during the second quarter of
1998. Pending regulatory approval of RA-11 by the FDA, the Company will continue
to target national pharmaceutical marketing companies in markets outside Japan,
Europe and the United States. See "--Marketing."
- ESTABLISH CORPORATE PARTNERSHIPS WITH MULTI-NATIONAL PHARMACEUTICAL
COMPANIES -- To assist the Company in conducting clinical trials, the Company is
actively seeking collaborations or partnerships with major pharmaceutical
companies or research companies whereby such strategic partners would provide
the resources to continue clinical trials, obtain regulatory approvals and
provide marketing capabilities relating to a particular product candidate, in
exchange for the receipt of exclusive marketing rights to the product in
designated geographical areas or for designated therapeutic uses. The Company
would retain proprietary rights to the product and receive royalties based on
sales. As of the date hereof, however, the Company has not entered into any such
agreements or arrangements, and no assurance can be given that the Company will
be able to successfully negotiate collaborative agreements or that if concluded,
they will not eliminate or substantially reduce the Company's proprietary rights
in the applicable product. In addition to providing financing, the Company
believes such strategic partners could be instrumental in promoting product
penetration in key markets such as Europe, the United States and Japan, if and
when applicable regulatory approvals are received. See "--Marketing."
- CONTROL MANUFACTURING -- For the foreseeable future, the Company intends
to have its products manufactured on a contract basis. All agreements will
contain provisions enabling the Company to maintain quality control over the
extraction, formulation and manufacturing processes (most of which are
proprietary to the Company). The Company's principal supplier of plant extracts
and raw material has achieved ISO-9000 certification (a worldwide industry
manufacturing standard), and the two formulation and finished product
manufacturers used by the Company in India have applied for GMP-certification
from the World Health Organization. The Company provides personnel to each of
the foregoing to support and supervise the extraction and manufacturing
processes. In connection with United States clinical trials, the Company intends
to import active plant ingredients in bulk and contract with third-party
manufacturers who have obtained GMP-certification from the FDA to produce the
finished and packaged product necessary for clinical trials. There are fewer
requirements applicable to the importation of bulk substances than to finished
pharmaceutical products. The Company's long-term goal is to operate its own FDA
GMP-certified manufacturing facilities in India. See "--Manufacturing and
Supply."
- EXPAND PIPELINE OF PHYTO-PHARMACEUTICALS -- The Company has a number of
products in various stages of research and development. The Company will
continue to apply the principles of Ayurveda in an
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effort to discover and develop new phyto-pharmaceuticals for the treatment of
chronic, difficult-to-treat diseases. The Company believes that the application
of such principles will enable it to rapidly identify new phyto-pharmaceuticals
for potential new applications. The Company's goal is to screen many sources
through an accelerated development process in a low-cost, high-quality location.
See "--The AyurCore Model of Drug Discovery and Development."
THE AYURCORE MODEL OF DRUG DISCOVERY AND DEVELOPMENT
AYURVEDA
Ayurveda is a medical science whose literature documents the study and use
of plants for medicinal purposes. Ayurveda comes from one of the most advanced
civilizations of the ancient world, India. In Sanskrit, the language in which
Ayurveda is documented, AYUR means life and VEDA means knowledge. Treatises,
written as early as 4,000 years ago, give essential information on the use,
safety and efficacy of certain medicinal plants for specific therapies. Safety
parameters were a primary goal in Ayurvedic medicine. Considerable work has been
done over the centuries in this science to define specific therapies for
specific symptoms and ailments. However, even with a documented history of
safety and efficacy, very little Ayurveda testing has been conducted in
accordance with United States standards in the past.
The Company believes that by applying the knowledge gained from the study of
Ayurveda, it can rapidly identify the specific plant species to be utilized for
targeted indications. Because the safety and efficacy of the plants included in
Ayurveda have been documented, the Company believes it can make a significant
leap in the early drug discovery process, thereby accelerating the entire
development cycle and reducing pre-clinical costs.
DRUG DISCOVERY & DEVELOPMENT PROCESS
The Company has focused its efforts on several difficult-to-treat
disease/treatment areas. In India, the Company has assembled a multidisciplinary
team of scientists which plays an important role in the Company's drug discovery
and development process. These scientists include, but are not limited to,
biochemists, ethnobotanists, phytochemists, toxicologists, pharmacologists,
immunologists, and pharmaceutical chemists.
This scientific team, along with Ayurveda specialists, search the Ayurvedic
literature to identify potential plant applications. The results of the search
are compared to modern medicine parameters, in terms of both diagnosis and
treatment. Once an Ayurveda/modern medicine interface is established, a plant
species is recommended for further evaluation in the treatment of a specific
disease condition. Identification of a plant lead is confirmed through the
testing of the plant's pharmacological activities, and subsequent investigation
of Ayurvedic and other scientific literature determines whether phytochemical
analysis of the plant has been undertaken by others previously. Based upon these
findings, purified extracts of the plant species are completed for
phyto-pharmaceutical applications. The resulting phyto-pharmaceutical candidate
must retain the desired characteristics of the original plant, yet be purified
and standardized to the level of pharmaceutical preparation quality. Once this
is accomplished, animal and human pharmacological screens are developed and
implemented using these standardized extracts or fractions thereof to establish
the efficacy of the drug for human therapeutic use.
The Company's research and development team in India conducts activities
consisting of, but not limited to: (i) toxicology studies; (ii) further
phytochemical analysis/fractionation; (iii) any other applicable preclinical
studies; (iv) Phase I pharmacokinetic and pharmaco-dynamic studies in human
volunteers; and (v) Phase II-type dose ranging/efficacy studies. Given the
history of use of ayurvedic treatments in humans, these activities can, in some
instances, be conducted in parallel.
Results of the above activities are intended to form the basis of the data
required to file an IND application with the FDA. With this approach, the
Company believes it can significantly reduce both the discovery and development
time of phyto-pharmaceuticals in the treatment of difficult-to-treat diseases.
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THE REGULATORY APPROVAL PROCESS
GENERAL
Pharmaceutical products, including phyto-pharmaceuticals, are significantly
regulated by a number of governmental entities, especially by the FDA in the
United States and by comparable authorities in other countries. These entities
regulate, among other things, research and development activities and the
testing, manufacture, safety, effectiveness, labeling, storage, record keeping,
approval, advertising, promotion, distribution and sale of such products.
Product development and approval within this regulatory framework takes a number
of years and involves the expenditure of substantial resources. Many products
that initially appear promising ultimately do not reach the market because they
are found to be unsafe or do not demonstrate efficacy during the testing
required by the regulatory process. In addition, there can be no assurance that
this regulatory framework will not change or that additional regulation will not
arise at any stage of a product's development that may affect approval, delay an
application or require additional expenditures. Moreover, even if approval is
obtained, failure to comply with present or future regulatory requirements, or
new information adversely reflecting on the safety or effectiveness of the
approved product, can lead to the FDA's withdrawal of approval to market the
product or other sanctions, including fines, recall or seizure of products,
injunctions and criminal prosecutions.
UNITED STATES REGULATION
In the United States, plant-derived pharmaceuticals are subject to FDA
review and approval as "drugs" under the Federal Food, Drug, and Cosmetic Act.
In most cases, the steps required before a new pharmaceutical can be
commercially distributed in the United States include: preclinical laboratory
and animal studies; the filing of an investigational new drug application, or
IND, with the FDA summarizing preclinical development work; controlled clinical
trials in humans to determine safety and efficacy; filing a new drug
application, or NDA, with the FDA; and FDA approval of the product for
commercial sale and of the product manufacturing facility for commercial
manufacturing.
PRECLINICAL STUDIES AND GLP. The initial testing of a pharmaceutical
product before it may be marketed in the United States is called preclinical
testing. Preclinical tests include formulation development, laboratory
evaluation of product chemistry and other end points and animal studies to
assess the potential safety and efficacy of the product as formulated. Many
preclinical studies are regulated by the FDA under a series of regulations
called the "Good Laboratory Practice" regulations. Violations of GLP regulations
can, in some cases, lead to invalidation of the studies, requiring them to be
replicated. The results of preclinical trials are submitted to the FDA as part
of the IND and are reviewed by the FDA prior to authorizing the sponsor to
conduct clinical trials in human subjects.
THE IND. FDA regulations provide that human clinical trials may begin 30
days following the submission and receipt of an IND, unless the FDA advises
otherwise or requests additional information, clarification or additional time
to review the IND submission. There is no assurance that the submission of an
IND will eventually allow a company to commence clinical trials. Once trials
have commenced, the FDA may stop the trials, or particular types of trials, by
placing a "clinical hold" on such trials because of concerns about, for example,
the safety of the product being tested or the adequacy of the trial design. Such
holds can cause substantial delay and in some cases may require abandonment of a
product. There can be no assurance that the FDA's acquiescence in an IND
constitutes any indication that the FDA will find the protocol satisfactory for
a clinical trial or that authorization of one phase of clinical trials will
result in authorization of other phases or that the FDA will accept any data
generated from a clinical trial.
CLINICAL TRIALS. Clinical trials involve the administration of the
investigational drug product to human subjects. Each protocol indicating how the
clinical trial will be conducted must be submitted for review to the FDA. The
FDA's review of a study protocol does not necessarily mean that, if the study is
successful, it will constitute proof of efficacy or safety. Further, each
clinical trial must be conducted under the auspices of an institutional review
board ("IRB"), which must be constituted and operated in conformance with FDA
regulations. The IRB considers, among other factors, ethical concerns and
informed consent
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requirements. The FDA or the IRB may require changes in a protocol both prior to
and after the commencement of a trial.
Clinical trials are typically conducted in three sequential phases, although
in certain cases, the phases may overlap. In Phase I trials (which constitute
the initial introduction of the pharmaceutical into human subjects) the
pharmaceutical is tested in healthy subjects, as opposed to patients, primarily
for safety (adverse effects), side effects, metabolism, clinical pharmacology
and optimal dosage. Phase II trials involve studies in a limited target patient
population to (i) further evaluate optimal dosage, (ii) identify possible
adverse effects and safety risks and (iii) determine the efficacy of a drug for
a specific indication. These can be further classified into Phase IIa trials,
which study dose ranging and schedule optimization from the perspective of
efficacy, and Phase IIb trials, which study (in parallel or individually) one
dose and one schedule (the frequency of dose administration) to determine length
of therapy and safety versus efficacy. When a product is found to have an
acceptable safety profile in Phase II evaluation, Phase III clinical trials are
undertaken to evaluate clinical efficacy and to further test for safety within
an expanded target patient population at geographically dispersed multiple
clinical study sites. The FDA may order the temporary or permanent
discontinuation of a clinical trial at any time for any reason. There can be no
assurance that Phase I, Phase II or Phase III testing will be completed
successfully within any specified time period, if at all, with respect to any of
the Company's products.
THE NDA. Upon completion of clinical trials, the results of the preclinical
studies and the human clinical trials are submitted to the FDA in an NDA,
approval of which must be obtained prior to commencement of commercial sales.
The NDA also includes information pertaining to the preparation of drug
substances, analytical methods, drug product formulation, details on the
manufacture of finished product and proposed product packaging and labeling. The
interval between the filing of the IND and the filing of an NDA application can
be lengthy. In general, the FDA requires at least two properly conducted and
well-controlled Phase III clinical trials demonstrating efficacy. The FDA may
deny an NDA if, among others reasons, clinical trial protocols are not adequate
or appropriate. The FDA also may deny an NDA or require additional testing or
information to assess the safety of the product if the FDA does not view the NDA
as containing adequate evidence of the product's safety and efficacy.
Notwithstanding the submission of such data, the FDA may ultimately decide that
the application does not satisfy its regulatory criteria for approval and, even
if the NDA is approved, the product may be required to undergo post-licensure
testing and surveillance to continue to monitor its safety and effectiveness
(Phase IV studies).
POST-MARKETING APPROVAL REQUIREMENTS. Once an NDA has been approved, the
NDA applicant remains subject to post-marketing requirements. These include
manufacturing, record keeping, and reporting obligations. For instance, any
adverse experiences relating to the use of the product must be reported to the
FDA. Failure to comply with the FDA's post-marketing obligations can result in
the FDA's withdrawal of approval, seizures, injunctions, and/or civil or
criminal penalties.
In the United States, in addition to patent protection, drug products
containing new chemical entities ("pioneer drugs") approved through the NDA
process may be subject to periods of marketing exclusivity. After the applicable
patents and periods of exclusivity expire, however, those pioneer drugs are
subject to competition from generic versions (duplicate or related versions) of
themselves. The FDA may approve an abbreviated NDA for the marketing of a
generic drug (I.E., a duplicated or related version of an approved pioneer drug)
that has been shown to be as safe and effective as a pioneer drug whose patents
have expired, without requiring the submission of "full reports" of safety and
effectiveness.
MANUFACTURING REGULATIONS. The FDA mandates that drugs be manufactured in
conformity with current Good Manufacturing Practice ("cGMP") regulations. In
complying with the cGMP regulations, manufacturers must continue to expend time,
money and effort in production, record keeping and quality control to ensure
that the product meets applicable specifications and other requirements. The FDA
periodically inspects drug manufacturing facilities to ensure compliance with
applicable cGMP requirements. Failure to comply subjects the manufacturer to
possible FDA action, such as suspension of
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manufacturing, seizure of the product, voluntary recall of a product, fines,
injunctions, failure to approve a product, or withdrawal of approval of a
product.
FOREIGN REGULATIONS
To market its products abroad, the Company is also subject to numerous and
varying foreign regulatory requirements, implemented by foreign health
authorities, governing, among other things, the design and conduct of human
clinical trials, product pricing and reimbursement, and marketing approval
criteria. The approval procedure currently varies among countries and can
involve additional testing. As a result, the time required to obtain foreign
approvals may differ from that required to obtain FDA approval. At present,
foreign marketing authorizations are applied for at a national level, although
within the European Union certain uniform registration procedures are available
to companies wishing to market a product in more than one member country. The
foreign regulatory approval process includes all of the risks associated with
obtaining FDA approval set forth above. However, approval by the FDA does not
ensure approval by other countries.
INDIA REGULATION
In India, pharmaceuticals, including plant-derived pharmaceuticals, are
subject to review and approval by the India Food and Drug Administration (the
"Indian FDA"), under the Drugs and Cosmetics Act of 1940, as amended, and the
regulations promulgated thereunder. The Indian FDA is a national administrative
authority which also includes separate departments having jurisdiction over each
state. The Indian FDA is headed at the national level by the Drugs Controller
General of India (the "Controller General"), and at each state level by separate
Commissioners. The scope of activities regulated by the Indian FDA is comparable
to that regulated by the US FDA, encompassing pre-clinical and clinical testing,
manufacture, safety, effectiveness, labeling, record-keeping, advertising,
marketing and sale of pharmaceuticals.
The approval process for new drugs, which are generally defined to include
drugs which have not been previously marketed in India, generally requires the
submission of comprehensive pre-clinical and clinical data regarding safety and
efficacy. The nature and extent of the required data can, under certain
circumstances, be limited if the drug has been approved for marketing in certain
countries other than India. Since Ayurvedic drugs have been available in India
for centuries, they are not considered "new drugs" and, as such, are generally
subject to a less burdensome approval process. Ayurvedic drugs which are
produced in accordance with formulation specifications described in Ayurvedic
literature do not require pre-marketing approval by the Indian FDA. If, however,
Ayurvedic drugs are produced using formulations not specifically described in
Ayurvedic literature, such as is the case with the Company's novel
phyto-pharmaceuticals, pre-marketing approval is required. Although the
regulatory approval process for new Ayurvedic drugs has become more strict in
recent years, it remains significantly less burdensome than the approval process
for new non-Ayurvedic drugs. Unlike new non-Ayurvedic drugs, new Ayurvedic
formulations require no pre-clinical data and generally require only limited
clinical data to demonstrate safety and efficacy.
Applications for approval of new Ayurvedic drugs are reviewed by a technical
advisory board of the Indian FDA at the state level (which has authority to
request additional safety or efficacy data). Unlike new non-Ayurvedic drugs
which require approval at the national level by the Controller General, a final
approval determination with respect to new Ayurvedic drugs is made by a state
commissioner. RA-11 has been approved for commercial sale in India by the Indian
FDA.
PRODUCTS AND PRODUCT CANDIDATES
RA-11
GENERAL. RA-11, the Company's lead phyto-pharmaceutical, is derived from a
combination of four different plant species. The Company holds an exclusive
license on two Indian patents relating to its proprietary plant extraction and
RA-11 formulation processes, as well as a United States patent relating to RA-11
and its use in treating degenerative musculoskeletal diseases, such as
rheumatoid arthritis and
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osteoarthritis. Incidence of rheumatoid arthritis is reported to be
approximately 2% of the world population and the incidence of clinically
symptomatic osteoarthritis is reported to be between 10-15% worldwide. Based on
clinical trials conducted in India under protocols consistent with FDA
guidelines and ACR criteria, the Company believes that RA-11 may prove to be an
effective and safe drug for long-term treatment of osteoarthritis and may be
classified as a disease modifying, anti-rheumatic drug for the long-term
treatment of rheumatoid arthritis. Additional animal pharmacology studies are
being conducted in India pursuant to an arrangement entered into in November
1997 between Bio-Ved and the National Institute of Immunology in New Delhi. The
Company anticipates completing these studies by the first quarter of 1999, at
which time the Company plans to file an IND application with the FDA. See "--The
Regulatory Approval Process" and "--Patents, Licenses and Proprietary Rights."
RHEUMATOID ARTHRITIS. Rheumatoid arthritis is an immunological disease
characterized by inflammatory arthritis of peripheral joints and associated with
a number of other manifestations. Treatments available today include steroids,
non-steroidal anti-inflammatory drugs ("NSAIDs")(eg. Diclofenac and Naproxen),
and disease modifying anti-rheumatic drugs (E.G. Methotrexate and gold salts).
All of these treatments can be accompanied by serious side effects, and the
duration of the therapeutic effects associated with steroid and NSAID treatment
is relatively brief. Newer agents under development include specific
target-oriented monoclonal antibodies and the cyclo-oxygenase-2 inhibitors.
RA-11 was initially evaluated for use in treating rheumatoid arthritis in a
small clinical trial in India. During 1994 and 1995, the Company conducted a
large Phase IIb trial in India of RA-11's efficacy and safety using ACR criteria
and FDA guidelines. This study was comprised of two parts: a 16 week, double-
blind, placebo-controlled, parallel trial, followed by a crossover study in
these patients. Out of a total of 1,445 arthritis patients screened, 182
patients participated in the study. Of these 182 patients, 165 patients
completed the full 16 weeks of the study. The treatment groups were matched with
respect to demographics at study entry. The protocol for both the double-blind
phase and the 16-week open label phase of the trial were prepared for the study
by Dr. Richard Polisson, the Clinical Director of Massachusetts General
Hospital's arthritis unit; statistics were performed by Boston Biostatistics,
Inc.; and Dr. Arvind Chopra, a rheumatologist associated with the
Interdisciplinary School of Health Sciences at the University of Pune, served as
the Chief Investigator for the trial. See "--Consultants."
Results obtained at the conclusion of the 16-week study, indicated that
patients on the drug did better than the placebo group in several clinical and
lab parameters. Statistical significance, however, as defined by the ACR and
FDA, was obtained in only two important clinical parameters--joint count and
score for swelling--and two lab indicators--rheumatoid factor and hemoglobin
count.
After 32 weeks of participation in the study, however, patients showed
statistically significant improvements from baseline, as defined by the ACR and
FDA, in all clinical criteria and, most importantly, in the latest laboratory
blood testing criteria: Interleukin-6, C-Reactive protein and Erythrocyte
sedimentation rate. These patients were further followed for 54 weeks in an open
label phase and RA-11 continued to have persistent efficacy results in both
clinical and lab criteria. The Company believes that the safety of RA-11 is
demonstrated by the fact that the incidence of minor side effects was similar in
placebo and active groups through the course of the study. Based on the data
obtained from the study, the Company believes that RA-11 has shown promising
results as a safe disease-modifying anti-rheumatic drug which can be indicated
in the long-term therapy of rheumatoid arthritis. A total of 111 patients from
the original study have now been followed for more than 3 1/2 years, and all
have remained in clinical remission (free from clinical signs and symptoms of
arthritis), free of significant side effects and with stable, normal blood
counts, serum electrolytes, and renal and liver function tests.
Concurrent with the clinical trials, the Company completed acute, subacute
and chronic toxicity studies in albino rats. These studies were not performed in
a United States GLP-certified laboratory. The animals were tested for all
typical potential toxic effects such as gastrointestinal, central nervous
system, respiratory, food consumption, abnormal secretions and alteration of
fur. The drug was administered in several multiples of therapeutic doses. In the
chronic model (6 months) there was mild incidence of bronchopneumonia (which the
Company believes can be explained by force feeding of drug/placebo and
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hence aspiration) equal in both active and placebo groups. Also noted were mild,
cloudy changes in the kidneys of certain of the animals, in both placebo and
active groups, and which the Company does not believe is significant. Part of
the proceeds of the Offering will be used to repeat these studies as well as
carcinogenicity and mutagenicity studies at a United States GLP-certified and
AALAC (American Association for Laboratory Animal Certification) accredited
laboratory.
OSTEOARTHRITIS. Osteoarthritis, also known as degenerative joint disease,
is believed to be the most common human joint disease. With the significant
increase in age expectancy in both developed and developing countries, it is
anticipated that the incidence of osteoarthritis will increase significantly
over the next decade.
Therapy in osteoarthritis is primarily with NSAIDs, but limited due to lack
of efficacy over long periods of time and/or side effects and toxicity. Steroid
injections provide temporary relief, and may be used in conjunction with
physical therapy. The patient may require surgical replacement of the affected
joints as a last resort.
During 1995 and 1996, the Company conducted a large 32-week Phase IIb
double-blind, placebo-controlled clinical trial using patients with established
osteoarthritis of the knee. As in the rheumatoid arthritis trial, the protocol
and study design were prepared by Dr. Polisson, statistics were performed at
Boston Biostatistics, Inc., and Dr. Chopra served as the Chief Investigator. The
drug dosing was twice that of the rheumatoid arthritis trial. Patients in this
trial were also matched with respect to demographic characteristics at study
entry. At the end of the study, patients receiving RA-11 performed better with
respect to almost all of the parameters used in this trial. Statistical
significance, as determined by the ACR and FDA, was achieved in several
important efficacy variables including scientific standards or criteria for
stiffness, pain and difficulty and scores for pain. Low incidence of minor side
effects was equal in the treatment and placebo groups.
IM-10
IM-10 is an oral phyto-pharmaceutical candidate derived from a single plant.
Extracts of this plant have demonstrated both immunosuppressive and
immunostimulatory properties. IM-10 is comprised of the immunostimulatory
compounds found in the plant extract and is currently undergoing preclinical
animal pharmacology testing for the stimulation and restoration of bone marrow
and the immune system in cancer patients being treated with chemotherapy. Due to
the high toxicity of chemotherapeutic agents, patients undergoing chemotherapy
often suffer compromised immune systems and significant drops in blood cell
counts. The Company has an exclusive worldwide license to IM-10. See "--Patents,
Licenses and Proprietary Rights."
In preliminary animal studies conducted by the Company in India, IM-10
showed an ability to restore to normal levels the immune system of animals
exposed to anti-cancer agents. Animals were given known anti-cancer agents which
severely depress the immune system and cause a significant drop in blood cell
counts (red blood cells, white blood cells and platelets). When IM-10 was
administered in the presence of the known anti-cancer agents, it restored the
immune system back to normal or baseline levels and increased blood cell counts.
The Company is currently conducting a much larger animal study with IM-10 in
India and similar pharmacological studies for efficacy are scheduled to start in
the third quarter of 1998, at the Veteran's Administration Hospital in Palo
Alto, California. Subject to satisfactory animal pharmacology testing, the
Company plans to determine human dosing and develop a large-scale, dose-ranging,
tolerance and efficacy trial for IM-10 in human patients undergoing cancer
chemotherapy. This study would be a placebo controlled, double-blind clinical
trial at Tata Memorial Cancer Research Center and Hospital, a cancer treatment
and research facility in Mumbai (previously known as Bombay), India. Using
protocols consistent with FDA guidelines, the Company anticipates beginning this
trial during the third or fourth quarter of 1998.
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The competition in this area consists of cell stimulating drugs such as
Leukine, Neupogen and Alpha Interferon. Besides being very expensive, all of
these are currently available only in injectable forms and can potentially have
serious side effects. IM-10 is formulated in an oral capsule form, and in prior
testing by other investigators, the plant extract from which IM-10 is derived
has been shown to be safe in multiples of IM-10's intended therapeutic range.
HP-11
HP-11, an oral phyto-pharmaceutical candidate derived from a single plant
species, has demonstrated an ability to protect and regenerate destroyed liver
cells in preliminary testing. Other species of the same plant have been
evaluated and found to have hepato-protective (protection of liver tissue) and
hepato-regenerative (regeneration and repair of liver tissue) properties.
However, the Company believes that these other species have significant toxic
effects at relatively low therapeutic doses. The Company believes that the plant
species used in HP-11 has a much broader therapeutic index, with very high
safety margins. HP-11 was identified through the research efforts of the
Company's scientific team in India.
The goal of the Company's research and development activities with respect
to HP-11 is to demonstrate hepato-protective as well as hepato-regenerative
activity in the prevention and treatment of all forms of hepatitis, especially
hepatitis A, hepatitis B, hepatitis C and chemically induced (such as with
toxins, alcohol or drugs) hepatitis. Hepatitis is a disease of the liver
characterized by inflammation and damage of liver cells and loss of all
important liver functions. Viral hepatitis is of major medical importance
worldwide today. Very little treatment exists today for hepatitis. The only
treatment is usually symptomatic, for general management of the patient's
clinical condition and improving general nutrition. In very advanced cases,
interferon offers a general palliative therapy. Recently, the FDA approved a new
bioengineered interferon, Infergen, in the treatment of hepatitis C. Both forms
of therapy are injectables with side effects and are costly. The Company's
immediate plans for HP-11 include fractionation to isolate the most active
compounds and in-vitro activity evaluation on human liver cells. Fractionation
would be followed by trials to determine bioavailability (the rate and extent to
which the active compounds enter the general circulation).
BV-6
BV-6 is a naturally-occurring, biological, single molecule. BV-6, which is
derived from an animal cell component, is undergoing testing for the treatment
of degenerative diseases of the central nervous system, including seizure
disorders, strokes, multiple sclerosis and Alzheimer's disease. BV-6 has been
tested in cultured central nervous system neurons and in animals. BV-6 appears
to act by bypassing certain receptors in the brain that cause degeneration of
the brain tissue and, to date, has exhibited no toxicity over the entire
physiologically effective concentration range.
The NIH awarded an SBIR grant in the amount of $100,000 to the Company in
September 1996. Those studies have been successfully completed, confirming the
previous findings and a report has been submitted. An additional SBIR grant
application for $750,000 was submitted in April 1997 for further animal studies.
The application was amended in December 1997 to provide additional information,
and no response has been received to date. In 1995, the Company was assigned a
pending United States patent application related to BV-6. See "Patents, Licenses
and Proprietary Rights."
SA-12
SA-12, a non-plant based, proprietary antibacterial surgical scrub and
general disinfectant (not a pharmaceutical) for use on the hands or other skin
surfaces, was acquired by the Company from the product's inventor in 1995.
SA-12 is a scented, fast drying liquid, requiring no wipe-off, and it leaves
no oily feel after evaporation. SA-12 does not appear to irritate the skin. The
Company has tested the skin of SA-12 treated subjects for the presence of common
pathogens (streptococcus, staphylococcus, etc.) and has found no measurable
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concentrations of microbial content for over two hours on the treated skin
(hands). Similar results were also obtained for highly virulent but less common
organisms such as Pseudomonas, E. coli and Candida Albicans. In a comparative
study, SA-12 was superior in terms of spectrum, speed and duration of activity
to the most widely used and known antibacterial agents currently available such
as Betadine, PhisoHex, Hibiclens and Sterillium.
SA-12 is comprised of ingredients listed in the United States Pharmacopeia
and can be produced at a cost which the Company believes will enable it to
compete effectively in developing countries, in very price sensitive healthcare
sectors, such as hospitals, and the food industry.
The product was launched in India in the second quarter of 1997 under the
brand name Multicidal-Registered Trademark- and will be introduced in Pacific
Rim countries and elsewhere under the brand name Periban-Registered Trademark-.
The initial introduction has been targeted at hospitals, clinics and physician
offices. After an initial period, the Company may consider promoting the product
directly to consumers in the over-the-counter market. The Company has no present
intention of marketing SA-12 in the United States. See "--Manufacturing and
Supply", "--Marketing" and "--Patents, Licenses and Proprietary Rights."
Currently, the Company is marketing 500 ml and 200 ml plastic dispenser
bottles, as well as pump dispensers. Additional consumer line extensions which
the Company may explore include small towel wipes in unit packages, soaps, body
lotions and other convenient applications.
RESEARCH AND DEVELOPMENT
The goal of the Company's research and development activities is to conduct
research at a level that is acceptable to the FDA and other regulatory bodies,
as well as global markets. With the exception of BV-6, substantially all of the
Company's research and development activities are presently conducted through
Bio-Ved in India. The Company funds most of Bio-Ved's research activities and
all ownership rights automatically vest in the Company. Bio-Ved currently has
three operational laboratories integrated at one site in India. These
laboratories are staffed with Bio-Ved's research and development scientists and
are also utilized by scientific consultants in connection with the Company's
activities. The Plant Screening Laboratory has the responsibility for analyzing
potential plant candidates and for the fractionation/ standardization of new and
existing products. The Formulations Laboratory has the primary mission of
developing the appropriate dosage forms for phyto-pharmaceuticals and quality
control and analytical procedures. The Animal Pharmacology Laboratory has the
responsibility for the study of pharmacological activity and mechanisms of
actions and for monitoring biochemical reactions in animal models. The Company
will seek to expand these laboratories to include other chemistry and
pharmacology activities. The Company, either directly or through Bio-Ved, also
has relationships with scientific institutions in India and elsewhere with whom
the Company has engaged and expects to continue to engage in joint research
activities.
Research and development activities with respect to BV-6 are currently
conducted at Emory University in the United States.
During the years ended December 31, 1997 and 1996, the Company expended
$272,000 and $401,000, respectively, in connection with its research and
development activities. In September 1996, the Company received a SBIR grant in
the amount of $100,000 from the NIH in connection with its BV-6 research
activities. In April 1997, the Company applied for an additional SBIR grant
relating to its BV-6 research in the amount of $750,000. The application was
amended in December 1997 in response to NIH comments.
MANUFACTURING AND SUPPLY
The Company currently relies on Kancor Flavours & Extracts Pvt. Ltd.
("Kancor") located in Southern India to provide all of the plant extracts used
in the production of RA-11. Kancor's production facility is ISO-9000 certified.
Kancor and the Company have entered into a five-year renewable agreement
covering the supply of these plant extracts. Plant extracts used in the
production of IM-10 and HP-11 for
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testing purposes are purchased on an order-by-order basis. The Company has been
and expects to continue to be able to obtain plant extracts in quantities
sufficient for its testing and commercial production purposes for at least the
next 12 months without any significant interruption or sudden price increase,
although there can be no assurance thereof. Even though all plants used in the
production of the Company's phyto-pharmaceuticals are commercially cultivated,
no assurance can be given of continual sources of supply of required materials
or that reasonable arrangements can be made for their supply. Supply risks
include unexpected changes in regulatory requirements, exchange rates, tariffs
and barriers, difficulties in coordinating and managing foreign operations,
potentially adverse tax consequences and disruptions in the political and
economic stability of India and the other regions in which the Company's source
plants are grown as well as seasonality and weather factors. Interruptions in
supply or material increases in the cost of the supply could have a material
adverse effect on the Company's financial condition and results of operations.
Kancor has indicated that it intends to build a stand alone facility which would
be designed to meet the FDA's GMP requirements for bulk active pharmaceutical
ingredients. The Company is in preliminary discussions with Kancor regarding
utilization of such facility to produce bulk ingredients for the Company's
phyto-pharmaceuticals.
In October 1997, the Company entered into an agreement with Eisen
Pharmaceutical Co. (Pvt.) Ltd. of Pune, India ("Eisen"), for the manufacture of
RA-11. The agreement has a five-year term and is terminable by either party upon
three months' notice. Pursuant to the terms of the agreement, the Company
supplies the manufacturer with the raw materials used in, and retains a
supervisory role over, the manufacturing process. The Company operates under a
similar agreement with S.P.B. (Inc.) of Pune, India for the manufacture of
SA-12, except that the agreement commits the Company to purchase minimum monthly
quantities. Each of S.P.B. (Inc.) and Eisen has applied for a GMP approval
rating for finished formulations from the World Health Organization. In 1997,
the Company became dissatisfied with the performance of a former SA-12
manufacturer and began the process of changing to the present manufacturer. Due
to unanticipated delays, which have been resolved, related to transferring the
right to use the trade name associated with SA-12, the Company was forced to
suspend sales of SA-12 during the first quarter of 1998. The loss of the
manufacturing capacitates of either S.P.B. (Inc.) or Eisen would cause an
interruption in the supply of products produced by the respective manufacturer.
This could, in turn, have a material adverse effect on the Company's financial
condition and results of operations.
To provide the Company's requirements of RA-11 for United States clinical
trials, the Company intends to import active ingredients in bulk into the United
States. The United States has fewer requirements for import of active
ingredients and formulations than for finished formulations. The Company would
seek to enter into arrangements with third-party manufacturers which are United
States GMP-certified to supply finished product. The Company's long-term goal is
to build or acquire a United States GMP-certified manufacturing base in India to
produce the products sold by the Company in India and other countries.
MARKETING
The Company has no marketing or sales staff and currently intends to rely on
third-party distributors for the sale and marketing of all products it may
develop.
In April 1996, the Company entered into a memorandum of understanding with
Blue Cross Laboratories Ltd, of Mumbai (previously known as Bombay), India
("Blue Cross"), in connection with the distribution in India of SA-12 (the "BCL
Agreement"). Pursuant to the BCL Agreement, the Company is obligated to cause
S.P.B. (Inc.) to manufacture and deliver SA-12 to Blue Cross for distribution on
an exclusive basis. In addition to a negotiated sales price, Blue Cross will pay
the Company a percentage of all sales of SA-12 made by Blue Cross through March
31, 2001, the expiration date of the BCL Agreement. The Company is required to
maintain one month's supply of SA-12, and the Company is liable for damages for
nondelivery. The Company is also responsible for product liability claims. The
BCL Agreement is subject to termination by either party on six months' prior
notice.
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Effective September 1997, the Company entered into a distribution agreement
(the "MD Agreement") with MD Pharmaceuticals Laboratories Ltd. for the marketing
of RA-11 and SA-12 in Singapore, Thailand and other Pacific Rim countries. The
MD Agreement is a three-year renewable direct marketing supply and distribution
agreement pursuant to which the Company sells finished product at an agreed upon
price. In May 1998, the Company commenced sales of RA-11 in Singapore under the
MD Agreement.
In September 1997, the Company entered into a memorandum of understanding
with Alembic Chemical Works Co. Limited ("Alembic") of Baroda, India for the
distribution in India of RA-11 (the "Alembic Agreement"). Pursuant to the
Alembic Agreement, the Company will manufacture and package RA-11 and sell it to
Alembic at an agreed upon price. Initially, Alembic is only required to test
market RA-11 in the State of Maharashtra, during which time an assessment
regarding the acceptance and effectiveness of RA-11 will be made. The Company
agreed to provide Alembic with 350,000 physician sample capsules without charge
through March 31, 1998. The test-marketing program was successfully completed in
March 1998. Although the Alembic Agreement provides that neither party will have
any obligation to the other if a definitive agreement is not reached by March
31, 1998, the parties are in discussions regarding a definitive agreement and
the Company contemplates a national launch of RA-11 in India in June 1998,
although there can be no assurance thereof. RA-11 will be marketed in India
under the trade name ARTREX-TM-.
The Company will continue to seek distribution arrangements with national
pharmaceutical distributors in countries other than the United States, Europe
and Japan. For products that may be sold in the United States and other large
markets, the Company will seek alliances or collaborative arrangements with
pharmaceutical companies that have established sales forces as well as the
ability and expertise to conduct clinical trials and finished product
manufacturing. The Company may license the products to such an entity or
entities in exchange for licensing and/or royalty payments. In any such
relationship, the Company's goal would be to supply the active raw material in
bulk to such entities who would then be responsible for finished product
manufacture and marketing. The Company cannot assure that it will be able to
enter into any such arrangements on terms acceptable to the Company, or at all.
COMPETITION
Competition in the pharmaceutical industry is extremely intense. The
principal factors upon which such competition is based include the following:
marketing, distribution, price, therapeutic efficacy, side effect profile, ease
of use, safety, physician acceptance and patient compliance. Many pharmaceutical
companies have significantly greater research and development capabilities, as
well as substantially greater marketing, financial and human resources than the
Company. In addition, many of these competitors have significantly greater
experience than the Company in undertaking preclinical testing and human
clinical trials of new pharmaceutical products and obtaining regulatory
approvals of such products. These companies may represent significant long-term
competition for the Company.
There can be no assurance that developments by other pharmaceutical
companies will not render the Company's products or technologies obsolete or
noncompetitive or that the Company will be able to keep pace with technological
developments of its competitors. Many of the Company's competitors have
developed or are in the process of developing technologies that are, or in the
future may be, the basis for competitive products. Some of these products may
have an entirely different approach or means of accomplishing the desired
therapeutic effect than products being developed by the Company. These competing
products may be more effective and less costly than the products developed by
the Company.
The Company is aware of a number of companies engaged in research and
development of pharmaceuticals based on plants. The Company is also aware of a
number of local companies in India which sell traditional ayurvedic products,
some of which products are used to treat diseases targeted by the Company, such
as arthritis. Many of the ayurvedic products sold by other companies in India
are not standardized to ensure consistent potency. Moreover, to the Company's
knowledge, none of the other
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companies conduct clinical trials as well as other scientific confirmations
consistent with United States standards.
PATENTS, LICENSES AND PROPRIETARY RIGHTS
TECHNOLOGY AGREEMENTS
The Company has entered into license agreements with Dr. Bhushan Patwardhan
pursuant to which the Company acquired exclusive worldwide rights to RA-11. One
agreement relates to the rights to commercialize RA-11 in India and the other
agreement relates to similar rights throughout the rest of the world. To
maintain its rights under the RA-11 agreements, in addition to paying royalties
on sales, the Company must commence marketing in India by January 1998 and
commence marketing outside India by 2003. The Company is currently in compliance
with its obligations under the agreements. The Company has also entered into a
license agreement with Dr. Patwardhan pursuant to which the Company acquired
exclusive worldwide rights to IM-10. To maintain its rights under the agreement,
in addition to paying royalties on sales, the Company must commence marketing in
India within one year of clinical confirmation and approval by the Drug
Controller of India (India's FDA equivalent) and commence marketing in at least
one country outside India within seven years of its initial marketing in India.
See "--Consultants."
In December 1995, the Company entered into an agreement with Dr. Abraham
Rosenberg pursuant to which the Company was assigned a United States patent
application related to BV-6, in exchange for royalties. See "--Consultants."
In June 1995, the Company entered into an agreement with S.V. Karnataki
pursuant to which the Company purchased SA-12 and related technology for an
initial signing fee and limited manufacturing and marketing milestone payments.
PATENTS AND PROPRIETARY RIGHTS
The Company's policy is to protect its technology by filing patent
applications. In addition to intending to file patent applications in the United
States, the Company has filed, and intends to file, patent applications in
foreign countries on a selective basis. The Company also relies on trade
secrets, unpatented know-how and technological innovation to develop and
maintain its competitive position.
The Company is the exclusive licensee under an issued United States patent,
which expires in 2014, relating to RA-11 and its use in treating degenerative
musculoskeletal disorders, including rheumatoid arthritis and osteoarthritis.
The Company also holds an exclusive license on two Indian patents, one of which
relates to the Company's proprietary plant extraction process and the other to
the Company's proprietary process for formulating RA-11, which expire in 2001.
However, the Company's licensor does not have any patent rights relating to
RA-11 outside of the United States and India. In addition, the Company has a
United States patent application pending for the use of BV-6 in the treatment of
degenerative diseases of the central nervous system.
Although a patent has a statutory presumption of validity in the United
States, the issuance of a patent is not conclusive as to such validity or as to
the enforceable scope of the claims of the patent. There can be no assurance
that the Company's issued patent or any patents subsequently issued to or
licensed by the Company will not be successfully challenged in the future. The
validity or enforceability of a patent after its issuance by the patent office
can be challenged in litigation. If the outcome of the litigation is adverse to
the owner of the patent, third parties may then be able to use the invention
covered by the patent without payment. There can be no assurance that the
Company's patents will not be infringed or successfully avoided through design
innovation.
There can be no assurance that patent applications owned by or licensed to
the Company will result in patents being issued or that, if issued, the patents
will afford protection against competitors with similar technology. It is also
possible that third parties may obtain patent or other proprietary rights that
may be necessary or useful to the Company. In cases where third parties are
first to invent a particular product or
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technology, it is possible that those parties will obtain patents that will be
sufficiently broad so as to prevent the Company from using certain technology or
from further developing or commercializing certain product candidates. If
licenses from third parties are necessary but cannot be obtained,
commercialization of the product candidates would be delayed or prevented.
There may be patent applications and issued patents belonging to competitors
that may require the Company to alter its product candidates, pay licensing fees
or cease certain activities. If the Company's products or product candidates
conflict with patents that have been or may be granted to competitors,
universities or others, such other persons could bring legal actions against the
Company claiming damages and seeking to enjoin manufacturing and marketing of
the affected products. If any such actions are successful, in addition to any
potential liability for damages, the Company could be required to obtain a
license in order to continue to manufacture or market the affected products.
There can be no assurance that the Company would prevail in any such action or
that any license required under any such patent would be made available on
acceptable terms or at all. The Company believes that there may be significant
litigation in the industry regarding patent and other intellectual property
rights. If the Company becomes involved in such litigation, it could consume
substantial resources.
The enactment of the legislation implementing the General Agreement on Trade
and Tariffs has resulted in certain changes to United States patent laws that
became effective on June 8, 1995. Most notably, the term of patent protection
for patent applications filed on or after June 8, 1995 is no longer a period of
seventeen years from the date of grant. The new term of United States patents
will commence on the date of issuance and terminate twenty years from the
earliest effective filing date of the application. Because the time from filing
to issuance of patent applications is often more than three years, a twenty-year
term from the effective date of filing may result in a substantially shortened
term of patent protection, which may adversely impact the Company's patent
position. If this change results in a shorter period of patent coverage, the
Company's business could be adversely affected in the future, to the extent that
the duration and level of the royalties it is entitled to receive from its
potential collaborators is based on the existence of a valid patent. None of the
issued patents currently owned or licensed by the Company are adversely affected
by these changes in the term of patent protection.
At present, India only grants process patents for pharmaceutical products.
Although India is not a signatory of the Paris Convention, it is a member of the
World Trade Organization ("WTO"). As a signatory of WTO, India is required to
comply with its obligations under Trade-Related Aspects of Intellectual Property
Rights ("TRIPS"). TRIPS requires India to grant product patents for
pharmaceutical products after a certain transition period. During the transition
period, participating countries must establish a means for filing patent
applications relating to pharmaceutical products and agricultural chemicals and
also grant exclusive marketing rights for certain periods. In response to claims
raised by other countries, WTO ruled that India has not been abiding by its
transition period commitments under TRIPS. India appealed the WTO decision, but
lost the appeal. As a result, India is supposed to conform its patent rules to
WTO requirements. Failure to do so could result in economic or other retaliation
by member countries. In addition, as an aftermath of the Convention on
Biological Diversity, India is planning to enact a law on national
bio-diversity. This law may place restrictions and/or conditions for obtaining
patents or other intellectual property relating to biological material or
products derived therefrom.
The Company also relies on unpatented technology, trade secrets and
information and no assurance can be given that others will not independently
develop substantially equivalent information and techniques or otherwise gain
access to the Company's technology or disclose such technology, or that the
Company can meaningfully protect its rights in such unpatented technology, trade
secrets and information. The Company requires each of its employees, consultants
and advisors to execute a confidentiality agreement at the commencement of an
employment or consulting relationship with the Company. The agreements generally
provide that all inventions conceived by the individual in the course of
employment or in providing services to the Company and all confidential
information developed by, or made known to,
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the individual during the term of the relationship shall be the exclusive
property of the Company and shall be kept confidential and not disclosed to
third parties except in limited specified circumstances. There can be no
assurance, however, that these agreements will provide meaningful protection for
the Company's information in the event of unauthorized use or disclosure of such
confidential information.
TRADEMARKS
The Company seeks to file trademark applications on major products before
the products are publicly available. The following table reviews the Company's
current trademark filings:
<TABLE>
<CAPTION>
PRODUCT UNITED STATES INDIA
- -------------------------- ----------------------------------- --------------------------------------
<S> <C> <C>
MENDAR-Registered Trademark-
RA-11 RADICURE-Registered Trademark- ARTREX-TM-
SA-12 PERIBAN-Registered Trademark- MULTICIDAL-Registered Trademark-MICROCIDAL-TM-
HP-11 MODALEX-Registered Trademark- MODALEX-TM-
</TABLE>
OTHER GOVERNMENT REGULATION
COVERAGE AND REIMBURSEMENT BY THIRD PARTY PAYERS
The ability of the Company to successfully commercialize any products that
receive FDA approval will depend, in part, on coverage and reimbursement of such
products by third-party payers, such as government health care programs,
indemnity insurers, and managed care organizations. Significant uncertainty
exists as to the coverage and reimbursement status of pharmaceuticals and other
products following approval by the FDA. Government and other third-party payers
are increasingly attempting to contain costs by limiting both coverage and
reimbursement for pharmaceuticals and products approved for marketing by the FDA
and by refusing, in some cases, to provide coverage of approved pharmaceuticals
and products for disease indications for which the FDA has not granted marketing
approval. Payers are also increasingly applying cost effectiveness criteria to
new therapies for which alternatives exist. There can be no assurance that the
Company's products will be deemed cost effective compared to other alternative
therapies, or that adequate third-party coverage and reimbursement will be
available for the Company to realize an appropriate return on its investment. If
adequate coverage and reimbursement is not provided by government and other
third-party payers for uses of the Company's products, the market acceptance of
these products could be adversely affected.
HEALTH CARE "FRAUD AND ABUSE"
Once the Company's products are marketed in the United States, the Company
(and other entities marketing, purchasing, or seeking reimbursement for the
Company's products), will be subject to various federal and state laws
pertaining to health care "fraud and abuse," including anti-kickback laws and
false claims laws. Anti-kickback laws make it illegal to solicit, offer,
receive, or pay any remuneration in exchange for, or to induce, the referral of
business, including the purchase or prescription of a particular drug. False
claims laws prohibit anyone from knowingly and willfully presenting, or causing
to be presented, claims for payment to third party payers (including Medicare
and Medicaid) that are false or fraudulent, for items or services not provided
as claimed, or for medically unnecessary items or services. Thus, the Company's
activities relating to sale and marketing of its products, including any advice
that might be given concerning billing or reimbursement, would be subject to
scrutiny under these laws. Violations of fraud and abuse laws are punishable by
criminal and/or civil sanctions, including in some instances imprisonment and
exclusion from participation in federal health care programs, such as Medicare
and Medicaid. The Company intends to structure its sales, marketing and other
activities to comply with these and other laws. However, given the broad reach
of these laws, there can be no assurance that the Company's future activities
would not be subject to scrutiny and/or challenge at some time in the future.
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ENVIRONMENTAL REGULATION
In connection with its research and development activities and its
manufacturing of clinical trial materials, the Company is subject to laws and
standards prescribed by the Indian government, and will be subject to United
States federal, state and local laws, rules, regulations and policies governing
the use, generation, manufacture, storage, air emission, effluent discharge,
handling and disposal of certain materials and wastes. There can be no assurance
that the Company will not be required to incur significant costs to comply with
environmental and health and safety regulations in the future. The Company's
research and development involves the controlled use of hazardous materials,
chemicals, viruses and animal tissues. Although the Company believes that its
safety procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company could be held liable for any damages
that result and any such liability could exceed the resources of the Company.
OTHER REGULATION
The Company is also subject to laws of more general applicability dealing
with issues such as occupational safety, employment, medical leave, and civil
rights and discrimination. In the United States, federal, state and local
governments in many instances are expanding the regulatory requirements on
businesses, and the imposition of these regulatory requirements may have the
effect of increasing operating costs and reducing the profitability of the
Company's operations.
HEALTH CARE REFORM
In the past several years there have been numerous initiatives in the United
States on the federal and state government levels for comprehensive or
incremental reforms affecting the payment for health care services and products,
including a number of proposals that would significantly limit reimbursement
under the Medicare and Medicaid programs. The Company anticipates that federal
and state governments will continue to review and assess alternative health care
delivery systems and payment methodologies. It is not clear at this time what
existing or future proposals, if any, will be adopted or, if adopted, what
effect such proposals would have on the Company's business. Aspects of certain
of these health care proposals, such as cutbacks in Medicare and Medicaid
coverage and reimbursement for pharmaceuticals, could adversely affect the
Company. There can be no assurance that past, present or future proposals for
health care reform, or other changes in the administration or interpretation of
governmental health care programs, will not have an adverse effect on the
Company.
PRODUCT LIABILITY
The testing and marketing of pharmaceuticals entail an inherent risk of
product liability attributable to unwanted and potentially serious health
effects. The Company intends to obtain clinical trial liability insurance
coverage in an amount consistent with industry practice. However, there can be
no assurance that such insurance coverage is or will continue to be adequate. In
addition, the Company has product liability insurance in India, the country in
which most of the Company's sales are generated. The Company is seeking to
obtain product liability insurance to cover sales in other foreign countries, in
amounts consistent with industry practice in those countries in which its
products are to be marketed. There can be no assurance, however, that insurance
will be available at all or in sufficient amounts to protect the Company at a
reasonable cost.
FACILITIES
The Company currently leases approximately 2,000 square feet of office space
in San Jose, California. The lease has a three-year term, which commenced in
October 1995, and provides for a monthly rental payment of approximately $3,200.
The lease may be renewed, at the Company's option, for one additional
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three-year term at a rental based on the then fair market value. Bio-Ved leases
approximately 1,550 square feet of office space in Pune, India under a
three-year lease expiring in May 1999. The annual rental payment is
approximately $15,000. In addition, Bio-Ved currently utilizes approximately
4,000 square feet of laboratory space provided by the Bharati Vidyapeeth's Pune
College of Pharmacy. The laboratory space is provided pursuant to a five-year
agreement which expires in 1999 under which the Company has agreed to pay an
aggregate of approximately $7,000 annually to fund research fellowships and as a
grant to the College. The Company intends to use proceeds from the Offering to
establish and equip additional laboratory facilities for its research and
development activities in India and believes that there is an adequate supply of
suitable space in the Pune region for its expansion needs.
EMPLOYEES
As of March 31, 1998, the Company had 26 employees, 17 of whom were engaged
in research and development activities and nine are in executive management and
marketing. The Company's employees are not governed by any collective bargaining
agreement and the Company believes that its relationship with its employees is
good.
MEDICAL/SCIENTIFIC ADVISORY BOARD
The Company intends to form an Advisory Board from a multidisciplinary group
of distinguished scientists representing different fields closely associated
with the Company's business. Most of the prospective members will come from the
existing consultants to the Company and will be supplemented by one or more
representatives yet to be recruited.
CONSULTANTS
The Company utilizes various consultants in India and in the United States
for research and development of drug candidates, as well as for discovering
potential new drug candidates. The Company confers with such consultants as
necessary to discuss details of specific projects. Certain of the listed
consultants have entered into agreements specifying the terms and scope of their
individual consulting relationship with the Company. The Company does not
believe that termination of any individual agreement would materially adversely
affect its business. Although all these consultants have entered into
confidentiality agreements, none of these individuals is employed by the Company
and, therefore, they may have commitments to, or consulting contracts with,
other entities which may compete with their obligations to the Company. The
Company's consultants are:
NARENDRA BHATT, M.D. (Ayurveda), a fourth generation Ayurvedic physician,
received his M.D. degree from the University of Bombay in 1974. He has more than
23 years of experience in teaching, Ayurvedic clinical and pre-clinical research
and pharmaceuticals. His career includes academic teaching and research in
Ayurveda at the Government Podar Ayurvedic Institutes (1974-1987) and later as
R&D/Medical Director for two well known Ayurvedic pharmaceutical companies. He
has been R&D Advisor to Proctor & Gamble and Hoechst, India. He has authored
numerous papers and publications (both in India and internationally) and has
been awarded the highest honor by the International Academy of Ayurveda. He is
an expert advisor to several international bodies in the area of plant
pharmaceuticals. Among these is the Medical Control Authority (US FDA
equivalent) of the United Kingdom.
ARVIND CHOPRA, M.D. (Rheumatologist) received his M.D. degree from the Armed
Forces Medical College at Pune, India, in 1977. He is a fellow of the American
College of Rheumatology and a lifetime member in the Association of Physicians
in India, Cardiological Society of India, Indian Rheumatology Association and
the Interdisciplinary School of Health Sciences at the University of Pune. Dr.
Chopra has numerous papers and publications to his credit and has organized many
professional conferences in India.
GEORGE EHRLICH, M.D. (Medical Affairs) is the Founding Master of the
American College of Rheumatology and the Arthritis Foundation of North America.
He currently is a professor of medicine at New York University and the
University of Pennsylvania. In addition, Dr. Ehrlich is the Chairman of the
Expert
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Advisory Panel on Chronic Degenerative Diseases of the World Health
Organization. He has held teaching and academic positions at various
institutions, including Tufts University, Cornell University, Temple University
and Hahnemann University School of Medicine. He retired as Vice President of
Medical Affairs for Ciba Geigy Ltd. Worldwide. He was Chairman of the Arthritis
Advisory Committee, FDA council 1993-1996, among other noted positions. Dr.
Ehrlich is considered a world expert in inflammatory, arthritic and rheumatic
diseases. He has written more than 200 publications, 55 abstracts, 60 book
chapters and 11 books.
PHILIP LAVIN, PH.D (Biostatistics) founded Boston Biostatistics, Inc. in
1983. He has been a statistical consultant for industry since 1976, member of
the Harvard Medical School faculty since 1977, and has served on FDA advisory
panels since 1983. He has co-authored over 150 publications in biostatistics and
medicine. He is a recognized authority in clinical, regulatory, and
biostatistical issues relating to drugs, devices, biologics, and cosmetics.
Under his direction, Boston Biostatistics has grown into a mid-size contract
research organization offering expert services in study and case report file
design, site recruitment and monitoring, medical affairs, regulatory affairs,
database development, data management and biostatistics, report writing, and
regulatory submissions.
KALINDI PHADKE, PH.D. (BioChemistry) has a Ph.D. degree in BioChemistry from
the University of Bombay. She has held research positions in large
multi-national pharmaceutical companies in the United States. Recently, she was
Senior Research Scientist at Eli Lilly and Company, in Indianapolis. A United
States citizen, she moved to India for family reasons where she was Deputy
Director of the National Cell Sciences Center at the University of Pune. She has
a special research fellowship from the National Institutes of Health. She has
more than 50 publications, including original work in arthritis pharmacology
models which are the standard of research in this area worldwide today.
BHUSHAN PATWARDHAN, PH.D (Interdisciplinary Health Sciences) received his
Ph.D. degree from the University of Pune, India. He is currently Dean of the
Interdisciplinary School of Health Sciences University of Pune. In 1993, Dr.
Patwardhan was selected as Co-Chairman of the 5th Annual INWIN and World Health
Organization Interscience World Congress in Geneva, Switzerland. Dr. Patwardhan
is a lifetime member of the Indian Medical Association, Indian Drug Research
Association and the Indian Society for Cancer Research. He is the founding
member of Ayurvedic International Diffusing Association, Science and Technology
Park Society and Indian Society for Clinical Pharmacology and Therapeutics.
RICHARD P. POLISSON, M.D., M.H.S. (Rheumatologist) was the Clinical
Associate Professor, Immunology Branch, National Cancer Institute, National
Institutes of Health in Bethesda, Maryland from 1978 through 1980. Later, he has
held a number of academic appointments at Massachusetts General Hospital,
Harvard Medical School and Duke University. He has been the principal
investigator on a number of research projects and co-investigator on several
others. The National Institutes of Health and many foundations and
pharmaceutical companies have funded his projects. Since 1994, Dr. Polisson has
held the position of Clinical Director, Arthritis Unit, and Director of all
Clinical Research at Massachusetts General Hospital. Very recently, he has been
named the Medical Director of Genzyme Tissue Repair (Genzyme, Corp.).
SUSAN A. RICE, PH.D., D.A.B.T. (Toxicologist and Pharmacologist) received
her Ph.D. degree in Comparative Pharmacology and Toxicology from the University
of California at Davis. She has held numerous appointments, most recently as
Senior Managing Scientist at Failure Analysis Associates, Inc. in California,
and in the Department of Anesthesia at Stanford University School of Medicine
from 1976 to the present. Dr. Rice is a member of the American Society of
Anesthesia, American Society for Pharmacology and Experimental Therapeutics, the
California Society of Anesthesiologists and the Northern California Chapter,
Society of Toxicology. Her experience includes review and analysis studies for
IND and pre-marketing approval applications.
ABRAHAM ROSENBERG, PH.D. (Biochemistry and Neurochemistry) has a Ph.D.
degree in Biochemistry from Columbia University College of Physicians and
Surgeons. He was both a Fullbright Scholar and a Fullbright Senior Lecturer
early in his career. He has been in academics and research most of his life. His
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positions include Professor, Biochemistry, Pennsylvania State University; Chief,
Division of Molecular Biology, New York University and Professor, Brain Research
and Neuropsychiatric Institutes, UCLA. Currently he is Professor, Psychiatry and
Behavioral Sciences at Emory University. He has published more than 80 papers
and served on the Editorial Boards of several reputed journals. He received the
National Institutes of Health James A. Shannon Director's Award in 1996 for his
work in neurochemistry.
SUBRAMANIAM S. SHASTRI, PH.D., M.B.A. (Pharmaceutical Sciences) received a
Ph.D. degree in Pharmacy and M.B.A. degree from the University of Iowa. He has
28 years of experience in the broad spectrum of pharmaceutical product
development, including multidisciplinary project team management practices and
is well-versed with the relevant regulatory requirements. Dr. Shastri has held
several positions with Syntex Corporation since 1969, including management of
the Research Pharmaceutical Operations from 1979 to 1993, during which sales
nearly quadrupled. Dr. Shastri has received two patents from the United States.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL OF THE COMPANY
The Company's directors, executive officers and key personnel are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Sanjeev Chitre(1)(2)................................. 44 Chairman of the Board of Directors
Deepa Chitre, M.D.(1)(2)............................. 40 President, Chief Executive Officer and Director
Barry Wald........................................... 60 President, International Operations
Nina Renaud.......................................... 47 Chief Financial Officer and Treasurer
Cynthia R. May....................................... 45 Director
Suzanne Rosenthal.................................... 62 Director
Michael Splinter..................................... 47 Director
Ajit Chitre.......................................... 54 Managing Director--Bio-Ved
</TABLE>
- ------------------------
(1) Sanjeev Chitre and Deepa Chitre are married.
(2) May be considered a founder of the Company as that term is defined under the
Securities Act.
SANJEEV R. CHITRE has served as Chairman of the Board of Directors of the
Company since inception. In 1989, Mr. Chitre founded Integrated Process
Equipment Corp., a publicly traded semiconductor equipment manufacturer, and has
served as its chairman since its inception in 1989 and as its chief executive
officer from inception until August 1997. Mr. Chitre was a vice president of
marketing and sales of Superwave Technology, Inc., a manufacturer of automated
in-line systems for the semiconductor industry, from 1984 through 1989.
DEEPA CHITRE, M.D. has served as a director of the Company since inception,
as its Chief Executive Officer since October 1996 and as its President since
October 1997. From 1993 to 1996, Dr. Chitre practiced pediatric medicine in
private practice. From November 1990 to August 1996, Dr. Chitre served on the
academic teaching faculty of Santa Clara Valley Medical Center, Stanford
University Medical Center and Lucille Packard Children's Hospital. During this
time, she was active in and chaired a number of committees involved in health
care, scientific research, clinical management, hospital administration and
medical teaching standards.
BARRY WALD has served as President, International Operations of the Company
since October 1997. From April 1994 until October 1997, Mr. Wald served as
President and a Director of the Company. From 1991 to March 1994, he served as a
consultant to the pharmaceutical drug delivery and biotechnology industry in
marketing, business development and strategic planning. From 1976 to 1990, he
was employed in various capacities, including Vice President, Marketing from
1981 until 1990, by Syntex Corporation, a pharmaceutical company. Mr. Wald
played a significant role in the launches of several major products by Syntex
Corporation, including a leading analgesic with worldwide sales reported to
exceed $400 million. From 1968 to 1975, Mr. Wald was employed in various
capacities by Merck Sharpe & Dohme.
NINA RENAUD has served as Chief Financial Officer of the Company since
September 1997. Since July 1995, Ms. Renaud has been a Managing Director of
Corporate Golf, a San Francisco-based marketing company of which she is a
principal and co-founder. Ms. Renaud currently devotes approximately 60% of her
business time to the Company and the balance to Corporate Golf. From October
1992 until December 1994, Ms. Renaud was Vice President, Finance and Chief
Financial Officer of Harris Moran Seed Company, a joint venture of Rhone-Poulenc
and Lefarge-Coppee. Ms. Renaud has also served as a divisional chief financial
officer, and as a director responsible for international licensing and export
operations, for Pioneer Hi-Bred International and CBS, Inc.
CYNTHIA R. MAY has served as a director of the Company since July 1995.
Since 1981, Ms. May has been employed by Saginaw Controls & Engineering Corp., a
private manufacturing company, most recently as vice president. Since July 1997,
Ms. May has been a director and chief operating officer of Graminex USA L.L.C.,
a manufacturer and processor of agricultural products including herbs for the
food and pharmaceutical industry. Since 1994, Ms. May has been treasurer of
Marathon Investments L.L.C. and vice president and treasurer of GRQ, L.L.C., two
private investment and financing entities.
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SUZANNE ROSENTHAL has served as a director of the Company since October
1997. Ms. Rosenthal is currently Chairman of the Board Emeritus of the Crohn's &
Colitis Foundation of America, Inc. ("CCFA"), a position she has held since
1987. She served as CCFA's National President and its Executive Vice President
for over 30 years since its founding in 1967. Ms. Rosenthal has served as a
member of a number of National Institutes of Health advisory boards, councils
and committees, and since 1993 has served on the Advisor Council of the National
Institute of Diabetes, Digestive and Kidney Diseases. Ms. Rosenthal is the
Founder and past President of the Digestive Disease National Coalition, a
consortium of lay and medical professional organizations that educates the
public regarding the need for increased research and improved health care for
patients with digestive diseases.
MICHAEL SPLINTER has served as a director of the Company since October 7,
1997. Mr. Splinter has been employed in various capacities with Intel
Corporation ("Intel"), semiconductor chip manufacturer, since approximately
1984. He is currently a corporate Vice President and co-manages Intel's
Technology and Manufacturing group, which is responsible for Intel's process
development and worldwide manufacturing network. Mr. Splinter has authored
numerous technical and management papers and holds two patents.
AJIT CHITRE has served as Managing Director of Bio-Ved since September 1996
and as a consultant to the Company from April 1994 to August 1996. From May 1993
to August 1996 he was a consultant in marketing and new business development in
the biotechnology and pharmaceutical industry including AyurCore. From 1988 to
May 1993 he was Managing Director of Atija Corporation, a company involved in
direct sales and marketing of equipment in the semiconductor and biotechnology
industries. Mr. Ajit Chitre is a brother-in-law of Mr. Sanjeev and Dr. Deepa
Chitre.
All directors of the Company are elected by the stockholders, or in the case
of a vacancy, by the directors then in office, to hold office until the next
annual meeting of stockholders of the Company and until their successors are
elected and qualified or until their earlier resignation or removal.
In connection with the Offering, the Company has agreed, subject to certain
exceptions, that it will, for a period of five years from the date of this
Prospectus, upon the written request of the Representative, nominate and use its
best efforts to elect a designee of the Representative (which designee may
change from time to time) to serve as a director of the Company, or at the
Representative's option, appoint such designee as a non-voting advisor to the
Company's Board of Directors. The Representative has not yet exercised its right
to designate such a person. See "Underwriting."
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has established an Executive Committee, a Compensation and Stock
Option Committee, and an Audit Committee. The Executive Committee, consisting of
Messrs. Sanjeev Chitre and Michael Splinter and Dr. Deepa Chitre, exercises all
the power and authority of the Board of Directors in the management and affairs
of the Company between meetings of the Board of Directors, to the extent
permitted by law.
The Compensation and Stock Option Committee, consisting of Ms. Cynthia May
and Mr. Michael Splinter, makes recommendations to the Board of Directors
concerning compensation, including incentive arrangements, of the Company's
officers and key employees and others and administers the Company's Option Plan
and determines the officers, key employees and others to be granted options
under the Option Plan and the number of shares subject to such options.
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The Audit Committee, consisting of Ms. Suzanne Rosenthal and Mr. Michael
Splinter, reviews the engagement of the Company's independent auditors and the
independence of the accounting firm, the audit and non-audit fees of the
independent accountants and the adequacy of the Company's internal control
procedures.
DIRECTOR COMPENSATION
Directors who are employees of the Company receive no compensation, as such,
for service as members of the Board. All directors are reimbursed for expenses
incurred in connection with attendance of Board and committee meetings. On
November 18, 1997, the Company granted options under the Option Plan to purchase
15,000 shares of Common stock at the initial public offering price per share to
each of Cynthia May, Suzanne Rosenthal and Michael Splinter. See "--Stock
Options--1997 Option Plan."
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate compensation paid or accrued by
the Company for services rendered in all capacities to the Company during the
fiscal years ended December 31, 1997, 1996 and 1995 by Dr. Deepa Chitre, its
President and Chief Executive Officer, and by Mr. Barry Wald, the only other
executive officer whose compensation exceeded $100,000 during the fiscal year
ended December 31, 1997 (together, the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS
- ----------------------------------------------------------------------------- ------------- ---------- ---------
<S> <C> <C> <C>
Deepa Chitre, Chief Executive Officer and President.......................... 1997 $ 140,000(1) --
1996 $ 42,000(2) --
1995 $ 35,000 --
Barry Wald, President, International Operations.............................. 1997 $ 130,000(3) --
1996 $ 125,000(4) --
1995 $ 123,077 $ 23,595
</TABLE>
- ------------------------
(1) All of which has been deferred.
(2) Of such amount, $28,000 has been deferred.
(3) Of such amount, $104,932 has been deferred.
(4) Of such amount, $48,753 has been deferred.
No stock options were granted to the executive officers named in the Summary
Compensation Table during the fiscal years ended December 31, 1997, 1996 and
1995. See "--Stock Options."
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information for the Named Executive
Officers with respect to the exercise of options to purchase Common Stock during
the fiscal year ended December 31, 1997 and the number and value of securities
underlying unexercised options held by the Named Executive Officers as of
December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES DECEMBER 31, 1997 AT DECEMBER 31, 1997(1)
ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Deepa Chitre....................... -0- -0- -0- -0- -0- -0-
Barry Wald......................... 10,000 36,000 93,034 34,467 $ 526,572 $ 195,083
</TABLE>
- ------------------------
(1) Calculated on the basis of $6.00 per share, minus the per share exercise
price multiplied by the number of shares underlying the option.
51
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Dr. Deepa
Chitre and Mr. Barry Wald, effective as of the date of this Prospectus, pursuant
to which such individuals are employed as (i) President and Chief Executive
Officer, and (ii) President, International Operations, respectively, of the
Company. Each agreement expires three years following the date of this
Prospectus. Under the agreements (i) each executive has agreed to devote full
time to the business of the Company, (ii) Dr. Chitre and Mr. Wald are to be paid
annual salaries of $140,000 and $130,000, respectively, and each executive may
be entitled to annual bonuses, at the sole discretion of the Company, of $35,000
and $30,000, respectfully and (iii) each executive is entitled to fringe
benefits (such as paid vacation, disability insurance and participation in
medical insurance and employee benefit plans) as are generally available to
employees of the Company as well as such other benefits as may from time to time
be authorized by the Company. Each agreement includes provisions restricting
competitive activities and disclosure of confidential information, as well as
provisions relating to ownership of inventions. Prior to entering into the
present agreement, Mr. Wald had been employed pursuant to an agreement dated
April 1994 under which Mr. Wald was initially entitled to an annual salary of
$110,000, increasing to $130,000 (with a discretionary bonus) when the agreement
expired on December 31, 1996, at which time Mr. Wald's employment was continued
under the same terms pending finalization of the present agreement.
The Company has obtained key-person life insurance coverage in the face
amount of $2,000,000 on the life of Dr. Deepa Chitre naming the Company as
beneficiary under such policy. The Company has agreed with the Representative to
maintain such a policy in force for a minimum period of three years from the
date of this Prospectus or the respective term of the employment agreement
between the Company and such officer, whichever period is longer.
STOCK OPTIONS
1997 STOCK OPTION PLAN
In November 1997, the Board of Directors adopted and the stockholders
approved the 1997 Stock Option Plan (the "Option Plan"). The Option Plan
provides for the grant of incentive stock options ("ISOs") (within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"))
and non-qualified stock options ("NQSOs") to certain directors, officers,
employees and consultants of the Company. The purpose of the Option Plan is to
attract and retain exemplary employees, agents, consultants and directors.
Options granted under the Option Plan may not be exercisable for terms in excess
of 10 years from the date of grant. In addition, no options may be granted under
the Option Plan later than 10 years after the Option Plan's effective date.
Pursuant to the terms of the Option Plan, 227,986 shares of Common Stock have
been reserved for issuance upon the exercise of options granted or available for
grant under the Option Plan. Any shares subject to an option that terminates,
expires or lapses for any reason, and any shares purchased pursuant to an option
and subsequently repurchased by the Company pursuant to the terms of the option,
shall again be available for grant under the Option Plan. As of the date of this
Prospectus, a total of 45,000 options under the Option Plan have been granted to
three of the Company's non-employee directors (15,000 options each), which
options are exercisable at a price equal to the Offering price for a period of
five years (vesting at the rate of one-third per year), commencing as of
November 25, 1997. In addition, the Company granted an aggregate of 25,000
options under the Option Plan to three employees and consultants, which options
are exercisable at $6.00 per share in various vesting schedules commencing May
13, 1999. No other options have yet been granted under the Option Plan.
The Option Plan will be administered by the Board of Directors of the
Company which will determine, in its discretion, among other things, the
recipients of grants, whether a grant will consist of ISOs or NQSOs, or a
combination thereof, and the number of shares of Common Stock to be subject to
such options. The Board of Directors of the Company may, in its discretion,
delegate its power, duties and responsibilities under the Option Plan to a
committee consisting of two or more directors who are "disinterested persons"
within the meaning of Rule 16b-3 promulgated under the Exchange Act. The
Compensation and Stock Option Committee is responsible for administering the
Option Plan. Options
52
<PAGE>
may not be granted under the Option Plan with an exercise price which is less
than the market price per share on the date of grant.
The Option Plan contains certain limitations applicable only to ISOs granted
thereunder. To the extent that the aggregate fair market value, as of the date
of grant, of the shares to which ISOs become exercisable for the first time by
an optionee during the calendar year exceeds $100,000, the ISO will be treated
as a NQSO. In addition, if an optionee owns more than 10% of the Company's stock
at the time the individual is granted an ISO, the option price per share cannot
be less than 110% of the fair market value per share and the term of the option
cannot exceed five years.
OPTION GRANTS OUTSIDE OF THE OPTION PLAN
As of the date of this Prospectus, the Company has granted options outside
of the Option Plan for the purchase of an aggregate of 310,970 shares of Common
Stock, including options to purchase 137,501 shares at $.34 per share (all of
which are currently vested and 10,000 of which were exercised in December 1997
by forgiveness of $3,400 in accrued and unpaid salary), 60,000 shares at $3.00
per share (vesting in three equal annual installments commencing September 15,
1998), and 10,000 shares at $3.00 per share (vesting in three equal annual
installments commencing January 1, 1998), granted to Barry Wald, Nina Renaud and
Ajit Chitre, respectively, each an executive officer or significant employee of
the Company. The other 103,469 options granted are exercisable at various per
share prices ranging from $3.00 to the initial public offering price per share,
commencing at various times beginning immediately.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has included in its Certificate of Incorporation provisions to
indemnify its directors and officers to the extent permitted by Delaware law.
The Company's Certificate of Incorporation also includes provisions to eliminate
the personal liability of its directors and officers to the Company and its
stockholders to the fullest extent permitted by Delaware law. Under current law,
such exculpation would extend to an officer's or director's breaches of
fiduciary duty, except for (i) breaches of such person's duty of loyalty, (ii)
those instances where such person is found not to have acted in good faith and
(iii) those instances where such person received an improper personal benefit as
the result of such breach.
The Company's bylaws provide that the Company may indemnify any person,
including officers and directors, with regard to any action or proceeding to the
fullest extent permitted under Delaware law.
The Company will enter into an Indemnification Agreement ("Indemnification
Agreement") with each of its directors and officers. Each Indemnification
Agreement will provide that the Company will indemnify the indemnitee against
expenses, including reasonable attorneys' fees, judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with any civil or criminal action or administrative proceeding
arising out of his or her performance of his or her duties as a director or
officer, other than an action instituted by the director or officer. Such
indemnification is available if the indemnitee acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action, had no
reasonable cause to believe his or her conduct was unlawful. Each
Indemnification Agreement also will require that the Company indemnify the
director or other party thereto in all cases to the fullest extent permitted by
director or officer that is party thereto to bring suit to seek recovery of
amounts due under such Indemnification Agreement and will require that the
Company indemnify the director or other party thereto in all cases to the
fullest extent permitted by applicable law. Although the Company intends to seek
to obtain directors' and officers' liability insurance, such insurance is
generally very expensive. If the Company is not able or willing to obtain
director' and officers' liability insurance to cover amounts, if any, required
to be indemnified by the Company, any payments made by the Company under an
Indemnification Agreement will have an adverse impact on its earnings.
It is the position of the Commission that insofar as the foregoing
provisions may be invoked to disclaim liability for damages arising under the
Securities Act, that provision is against public policy as expressed in the
Securities Act and is therefore unenforceable.
53
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of the date of this Prospectus and as
adjusted to reflect the sale of the 1,350,000 shares of Common Stock offered
hereby, certain information concerning the beneficial ownership of the Common
Stock by: (i) each person known by the Company to own more than 5% of the
outstanding Common Stock, (ii) each of the Company's directors, (iii) each of
the Company's Named Executive Officers, and (iv) all executive officers and
directors of the Company as a group:
<TABLE>
<CAPTION>
PERCENTAGE
OF OUTSTANDING
SHARES BENEFICIALLY
NUMBER OF OWNED(1)
SHARES ------------------------
NAME AND ADDRESS OF BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNER OWNED (1) OFFERING OFFERING
- ------------------------------------------------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Avantika Sanjeev Chitre Irrevocable Trust, dated July 8, 1991,
Bruce W. Mcroy, Trustee..................................................... 690,072 31.09% 19.33%
c/o Bruce W. McRoy, Esq.
Reicker, Clough, Pfau & Pyle LLP
15 West Carillo Street, Suite 100
Santa Barbara, CA 93102
Sanjeev and Deepa Chitre (2).................................................. 690,072 31.09% 19.33%
Fred Kassner.................................................................. 386,017(3) 16.15% 10.32
c/o Liberty Travel
69 Spring Street
Ramsey, NJ 07446
Cynthia R. May (2)............................................................ 226,651(4) 9.94% 6.24%
Marathon Investments, L.L.C................................................... 221,651(5) 9.74% 6.12%
13260 Spencer Road
Hemlock, MI 48626
Irwin M. Rosenthal............................................................ 172,518(6) 7.77% 4.83
c/o Rubin Baum Levin Constant & Friedman
30 Rockefeller Center
New York, NY 10012
Michael R. Splinter (2)....................................................... 159,741(7) 6.87% 4.35%
Barry Wald (2)................................................................ 137,501(8) 5.86% 3.72
Suzanne Rosenthal (2)......................................................... 5,000(9) * *
All executive officers and directors as a group (6 persons)................... 1,218,965(10) 48.43% 31.52%
</TABLE>
- ------------------------
* Denotes less than 1%
(1) Except as indicated in the footnotes to this table, the Company believes
that all the persons named in the table have sole voting and investment
power with respect to all shares shown as beneficially owned by them,
subject to community property laws where applicable. In accordance with the
rules of the Commission, a person or entity is deemed to be the beneficial
owner of securities that can be acquired by such person or entity within 60
days from the date of this Prospectus upon the exercise of options or
warrants. Each beneficial owner's percentage ownership is determined by
assuming that options and warrants that are held by such person (but not
those held by any other person) and which are exercisable within 60 days of
the date of this Prospectus have been exercised. The inclusion herein of
such shares listed as beneficially owned does not constitute an admission of
beneficial ownership.
54
<PAGE>
Percentages herein assume a base of 2,219,702 shares of Common Stock
outstanding as of the date of this Prospectus and a base of 3,569,702 shares
of Common Stock outstanding immediately after the consummation of the
Offering.
(2) The address of the beneficial owner is c/o AyurCore, Inc., 1737 N. First
Street, Suite 290, San Jose, California 97112.
(3) Includes 170,000 shares of Common Stock underlying warrants. See
"Description of Securities."
(4) Includes 5,000 shares of Common Stock underlying options granted under the
Option Plan. Does not include an additional 10,000 shares underlying options
granted under the Option Plan which are not exercisable within the next 60
days. Also includes 221,651 shares beneficially owned (including 55,000
shares underlying October 1997 Warrants) by Marathon Investments, L.L.C.
("Marathon"), of which Ms. May is a principal. Ms. May disclaims beneficial
ownership of the shares owned by Marathon to the extent such shares exceed
her proportionate interest therein. Does not include shares held by Ms.
May's father, as to which Ms. May disclaims beneficial ownership.
(5) Includes 55,000 shares of Common stock underlying October 1997 Warrants. See
"Description of Securities."
(6) Mr. Rosenthal is a partner in the law firm of Rubin Baum Levin Constant &
Friedman, which firm shares beneficial ownership of shares held of record by
Mr. Rosenthal. Mr. Rosenthal disclaims beneficial ownership of such shares
to the extent such shares exceed his proportionate interest therein. Does
not include 15,000 shares underlying an option granted under the Option Plan
to Mr. Rosenthal's wife, Suzanne Rosenthal, a director of the Company.
(7) Includes (i) 54,741 shares of Common Stock held by the Splinter Roboostoff
Family Partnership, of which Mr. Michael Splinter and his wife, Ms. Patricia
Roboostoff, are general partners and (ii)100,000 shares of Common Stock
underlying warrants and 5,000 shares of Common Stock underlying options
granted under the Option Plan. Mr. Splinter disclaims beneficial ownership
of the shares owned by the Splinter Roboostoff Family Partnership to the
extent such shares exceed his proportionate interest therein. Does not
include an additional 10,000 shares of Common Stock underlying options
granted under the Option Plan which are not exercisable within the next 60
days. See "Description of Securities."
(8) Includes 127,501 shares of Common Stock underlying non-Option Plan options.
(9) Represents shares of Common stock underlying stock options granted under the
Option Plan. Does not include an additional 10,000 shares underlying options
granted under the Option Plan which are not exercisable within the next 60
days.
(10) Includes 155,000 shares of Common Stock underlying warrants, 15,000 shares
underlying options granted under the Option Plan and 127,501 shares
underlying non-Option Plan options.
CERTAIN TRANSACTIONS
In October 1994, the Company borrowed $250,000 from Fred Kassner, a
principal stockholder of the Company, under a two-year convertible promissory
note bearing interest at prime plus 2% per annum, which was convertible into
61,050 shares of Common Stock. In April 1996, the Company borrowed an additional
$250,000 from Mr. Kassner under a 90-day promissory note bearing interest at
prime plus 2% per annum. In connection with the April 1996 loan, Mr. Kassner was
granted two-year warrants to purchase up to 125,000 shares of Common Stock at
130% of the initial public offering price per share, which warrants expired in
April 1998. In May 1998, the expiration date of these warrants was extended to
May 2000. Effective October 31, 1997, pursuant to the Note Conversion, the
outstanding principal and accrued interest under such notes, totaling $619,868,
was converted into 154,967 shares of Common Stock.
55
<PAGE>
In connection with this transaction Mr. Kassner was also granted October 1997
Warrants to purchase up to 45,000 shares of Common Stock at $4.00 per share.
In February 1995, Marathon, a principal stockholder of the Company,
purchased 166,651 shares of Common Stock from the Company for an aggregate
purchase price of $1,000,000, or $6.00 per share. Under the subscription
agreement, Marathon was granted certain anti-dilution rights. In consideration
for the waiver by Marathon of the anti-dilution rights, Marathon was granted
October 1997 Warrants to purchase up to 55,000 shares of Common Stock at $4.00
per share. Cynthia R. May, a director of the Company, is also a principal of
Marathon.
At various times from January 1996 through March 1998, the Company borrowed
an aggregate principal amount of approximately $280,000 from Sanjeev Chitre, the
Chairman of the Board of Directors and a principal stockholder of the Company.
The loan is evidenced by a promissory note bearing interest at prime plus 2% per
annum payable semi-annually. Originally, the note was to become due on demand,
in stages. The terms of the note have been revised to provide that no amounts
will become due and payable thereunder until one year following the consummation
of the Offering, provided the Offering is consummated by August 1, 1998. The
Company has allocated no proceeds of the Offering to repayment of the loan.
In January 1996, Mr. Irwin Rosenthal, Secretary of the Company and husband
of Ms. Suzanne Rosenthal, a director of the Company, loaned the Company $25,000,
as evidenced by a promissory note bearing an annual interest rate of prime plus
2%. Originally, the note was to become due and payable on demand commencing
January 1997. Mr. Rosenthal was a director of the Company at the time of the
loan. The terms of the loan have been revised to provide that no amounts will
become due and payable thereunder until one year following the consummation of
the Offering, provided the Offering is consummated by August 1, 1998. The
Company has allocated no proceeds of the Offering to the repayment of this loan.
Mr. Rosenthal is also a partner of Rubin Baum Levin Constant & Friedman
("RBLC&F"), counsel to the Company. During the years ended December 31, 1997 and
1996, RBLC&F rendered legal services for the Company in the amount of
approximately $250,000 (including deferred registration costs of approximately
$210,000) and $68,000, respectively. The Company paid to RBLC&F a total of
$50,000 and $0 during the years ended December 31, 1997 and 1996, respectively,
and an additional $10,000 in February 1998. In addition, RBLC&F contributed
services to the Company valued at approximately $118,000 in the aggregate over
such periods. At March 31, 1998, approximately $358,000 was owed by the Company
to RBLC&F for legal services rendered through that date. See "Legal Matters."
In each of March 1996 and August 1997, Michael R. Splinter, a director of
the Company, and his wife, Patricia Roboostoff, loaned the Company $100,000, as
evidenced by promissory notes each bearing an annual interest rate of prime plus
2%. In connection with the loans, these individuals were granted two-year
warrants to purchase up to an aggregate of 100,000 shares of Common Stock at
130% of the initial public offering price per share. In May 1998, the expiration
date of the warrants granted in March 1996 (which warrants expired in March
1998) was extended to May 2000. Effective October 31, 1997, the outstanding
principal and accrued interest under such notes, totaling $218,964, was
converted into 54,741 shares of Common Stock in connection with the Note
Conversion. In December 1997, the Company borrowed an additional $50,000 from
these individuals under a promissory note bearing interest at prime plus 2% per
annum. The promissory note is payable on demand commencing December 23, 1998 or,
if the Offering is consummated by August 1, 1998, one year from consummation of
the Offering.
At various times from November 1996 through January 1998, the Company
borrowed an aggregate principal amount of $625,000 from Atlantic Bank under
three-month term notes bearing interest at Atlantic Bank's prime rate plus 2%
per annum, payable monthly. In January and May 1998, the Company repaid a total
of $50,000 in principal, and the notes representing the $575,000 principal
balance have been consolidated and are presently due on August 4, 1998. The
Atlantic Bank loan is guaranteed by Sanjeev
56
<PAGE>
and Deepa Chitre and secured by a pledge of common stock of another company,
which stock is owned by the Avantika Sanjeev Chitre Irrevocable Trust, dated
July 8, 1991, Bruce W. McRoy, trustee (the "Avantika Trust"), a trust for the
benefit of Sanjeev and Deepa Chitre's minor daughter. The Company intends to use
proceeds from the Offering to repay this loan.
Effective upon the inception of Bio-Ved in November 1995, all of the
outstanding stock of Bio-Ved was registered in the names of Mr. Sanjeev Chitre's
sister, Anita Chitre, and her husband, Ajit Chitre, Managing Director of
Bio-Ved, both of whom are resident Indians. The stock was registered in the
names of these individuals pending compliance with Indian regulatory
requirements applicable to AyurCore, Inc.'s investment in Bio-Ved. Currently,
and as a result of such investment, Bio-Ved is owned more than 99% by AyurCore,
Inc. with the balance being owned by Mr. and Mrs. Ajit Chitre. Since January
1995, Mr. Ajit Chitre has been compensated for services rendered in connection
with the Company's India operations at the rate of approximately $9,000 per
year.
DESCRIPTION OF SECURITIES
GENERAL
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, $.001 par value per share, and 5,000,000 shares of preferred
stock, $.001 par value per share (the "Preferred Stock"). As of the date of this
Prospectus, there were outstanding 2,219,702 shares of Common Stock (held by 12
holders) and no shares of Preferred Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. There is no
cumulative voting for election of directors. Subject to the prior rights of any
series of Preferred Stock which may from time to time be outstanding, holders of
Common Stock are entitled to receive dividends ratably, when, as, and if
declared by the Board of Directors' out of funds legally available therefor and,
upon the liquidation, dissolution, or winding up of the Company, are entitled to
share ratably in all assets remaining after payment of liabilities and payment
of accrued dividends and liquidation preferences on any Preferred Stock. Holders
of Common Stock have no preemptive rights and have no rights to convert their
Common Stock into any other securities. All of the outstanding shares of Common
Stock are validly authorized and issued, fully paid, and nonassessable.
PREFERRED STOCK
The Preferred Stock may be issued in one or more series, the terms of which
may be determined at the time of issuance by the Board of Directors, without
further action by stockholders, and may include voting rights (including the
right to vote as a series on particular matters), preferences as to dividends
and liquidation, conversion rights, redemption rights, and sinking fund
provisions. The issuance of any such Preferred Stock could adversely affect the
rights of the holders of Common Stock and, therefore, reduce the value of the
Common Stock. The ability of the Board of Directors to issue Preferred Stock
could discourage, delay, or prevent a takeover of the Company.
OUTSTANDING WARRANTS
The Company has outstanding warrants to purchase up to an aggregate of
375,000 shares of Common Stock at a purchase price of 130% of the initial public
offering price per share. These warrants expire at various times from August
1999 to May 2000. In addition, the Company has outstanding October 1997 Warrants
to purchase up to an aggregate of 100,000 shares of Common Stock at $4.00 per
share. These warrants expire in October 2002. Subject to certain limitations and
exclusions, holders of these warrants
57
<PAGE>
are entitled to certain piggyback registration rights with respect to the
underlying shares. See "Underwriting" for a description of the material terms of
the Representative's Warrants to be issued by the Company to the Representative
upon completion of the Offering.
DIVIDEND POLICY
The Company has never paid any cash dividends on its Common Stock. The
Company anticipates that in the future, earnings, if any, will be retained for
use in the business of the Company or for other corporate purposes, and it is
not anticipated that cash dividends in respect of the Common Stock will be paid.
DELAWARE ANTI-TAKEOVER LAW
Section 203 of the Delaware General Corporation Law (the "Delaware
anti-takeover law") generally prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an interested stockholder for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) the corporation has elected in its
original certificate of incorporation not be governed by the Delaware
anti-takeover law (the Company has not made such an election), (ii) prior to
such date the Board of Directors of the corporation approved either the business
combination or the transaction in which the person became an interested
stockholder, (iii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the outstanding voting stock of the corporation excluding shares
owned by directors who are also officers of the corporation and by certain
employee stock plans, (iv) on or after such date the business combination is
approved by the Board of Directors of the corporation and by the affirmative
vote of at least 66 3/4% of the outstanding voting stock of the corporation that
is not owned by the interest stockholder, or (v) the majority of the
corporation's stockholders adopt an amendment to the corporation's certificate
of incorporation electing not to be governed by the Delaware anti-takeover law,
such amendment not being effective for 12 months following its adoption and not
applicable to any business combination between the corporation and a stockholder
who became an interested stockholder after its adoption. A "business
combination" generally includes mergers, asset sales and similar transactions
between the corporation and the interested stockholder, and other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns 15% or more of
the corporation's voting stock or who is an affiliate or associate of the
corporation and, together with his affiliates and associates, has owned 15% or
more of the corporation's voting stock within three years.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company, at 40 Wall Street, 46th Floor, New
York, New York, 10005, will serve as the Company's Transfer Agent and Registrar
for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have outstanding
3,569,702 shares of Common Stock. Of such shares, the 1,350,000 shares of Common
Stock offered hereby will be freely tradable without restriction or further
registration under the Securities Act except for any shares purchased by a
person who is or thereby becomes an affiliate of the Company, which shares will
be subject to the resale limitations contained in Rule 144 promulgated under the
Securities Act. The remaining 2,219,702 shares of Common Stock are restricted
securities within the meaning of Rule 144 under the Securities Act and, in
general, if held for at least one year, will be eligible for sale in the public
market in reliance upon and subject to the limitations of Rule 144.
58
<PAGE>
In general under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated), including a person who may be deemed to be an affiliate
of the Company as that term is defined under the Securities Act, is entitled to
sell, within any three-month period, a number of shares beneficially owned for
at least one year that does not exceed the greater of (i) one percent of the
number of the then outstanding shares of Common Stock or (ii) the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain requirements as to the
manner of sale, notice and the availability of current public information about
the Company. Furthermore, a person who is not deemed to have been an affiliate
of the Company during the ninety days preceding a sale by such person and who
has beneficially owned such shares for at least two years is entitled to sell
such shares without regard to the volume, manner of sale or notice requirements.
Under Rule 144 (and subject to the conditions thereof), of the 2,219,702 shares
of Common Stock outstanding as of the date of this Prospectus, 619,850 are
eligible for sale immediately, 1,380,144 are held by affiliates of the Company
and will become eligible for sale beginning 90 days after the date of this
Prospectus; and substantially all of the remaining 219,708 shares will become
eligible for sale as of October 31, 1998. Notwithstanding the foregoing, the
holders of all of such shares have agreed, subject to certain limited
exceptions, not to offer, sell, assign, pledge or transfer any of such shares
for a period of 12 months from the date of this Prospectus without the
Representative's prior written consent. In addition, the Company has granted
certain registration rights with respect to the 135,000 shares of Common Stock
underlying the Representative's Warrants and the 100,000 shares of Common Stock
underlying the October 1997 Warrants, commencing one year following the date of
this Prospectus. See "Underwriting."
Under Rule 701 of the Securities Act, persons who purchase shares upon the
exercise of options granted prior to the effective date of the Offering are
entitled to sell such shares 90 days after the effective date of the Offering
and in reliance on Rule 144 without having to comply with the holding period
requirements of Rule 144 and, in the case of nonaffiliates, without having to
comply with the public information, volume limitation, or notice provisions of
Rule 144.
Prior to the Offering, there has been no public market for the Company's
securities. Following the Offering, the Company cannot predict the effect, if
any, that market sales of the Common Stock, or the availability of such shares
for sale, will have on the market price prevailing from time to time.
Nevertheless, sales by the existing stockholders of substantial amounts of
Common Stock in the public market could adversely affect prevailing market
prices for the Company's securities. In addition, the availability for sale of
substantial amounts of Common Stock acquired through the exercise of options or
warrants could adversely affect prevailing market prices for the Common Stock.
UNDERWRITING
The underwriters named below (collectively, the "Underwriters") for which
Network 1 Financial Securities, Inc. (the "Representative") is acting as
representative, have agreed severally, not jointly, subject to the terms and
conditions contained in the underwriting agreement between the Company and the
Underwriters (the "Underwriting Agreement"), to purchase from the Company, and
the Company has agreed to sell to the several Underwriters, the 1,350,000 shares
of Common Stock offered hereby. The number of shares of Common Stock that each
Underwriter has agreed to purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Network 1 Financial Securities, Inc..............................................
----------
Total............................................................................ 1,350,000
----------
----------
</TABLE>
59
<PAGE>
The Underwriters are committed to purchase and pay for all of the shares of
Common Stock offered hereby (other than shares offered pursuant to the
over-allotment option) if any shares are purchased. The shares of Common Stock
are being offered by the Underwriters, subject to prior sale, when, as and if
delivered to and accepted by the Underwriters and subject to approval of certain
legal matters by counsel and to certain other conditions.
Through the Representative, the several Underwriters have advised the
Company that they propose to offer the shares of Common Stock to the public at
the public offering price set forth on the cover page of this Prospectus. The
Underwriters may allow to certain dealers who are members of the National
Association of Securities Dealers, Inc. ("NASD") concessions, not in excess of
$.36 per share, of which not in excess of $.18 per share may be reallowed to
other dealers who are members of the NASD. After the commencement of the
Offering, the public offering price, concessions and reallowance may be changed.
The Company has granted the Representative an option, exercisable for 45
days following the date of this Prospectus, to purchase up to 202,500 additional
shares of Common Stock at the public offering price set forth on the cover page
of this Prospectus, less the underwriting discounts and commissions. The
Representative may exercise this option in whole or, from time to time, in part,
solely for the purpose of covering over-allotments, if any, made in connection
with the sale of the shares of Common Stock offered hereby.
The Company has agreed to pay to the Representative individually, and not as
a representative of the Underwriters, a 3% nonaccountable expense allowance,
$10,000 of which has been paid to the Representative as of the date of this
Prospectus. In September 1997, the Company paid $25,000 to be applied against a
nonaccountable expense allowance of a former underwriter whose relationship with
the Company has been terminated. The Company has also agreed to pay all expenses
in connection with qualifying the shares of Common Stock offered hereby for sale
under the laws of such states as the Representative may designate, including
expenses of counsel retained for such purpose by the Representative.
The Company has agreed to issue to the Representative and its designees, for
nominal considerations warrants (this "Representative's Warrants") to purchase
from the Company for four years, commencing one year from the date of this
Prospectus, up to 135,000 shares of Common Stock, at an exercise price of
$ per share (125% of the initial public offering price per share). The
Representative's Warrants may not be transferred for one year following the date
of this Prospectus, except to the officers and partners of the Representative or
the Underwriters or members of the selling group, and are exercisable at any
time, and from time to time, during the four-year period commencing one year
following the date of this Prospectus (the "Warrant Exercise Term"). During the
Warrant Exercise Term, the holders of the Representative's Warrants are given,
at nominal cost, the opportunity to profit from a rise in the market price of
the Common Stock. To the extent that the Representative's Warrants are exercised
or exchanged, dilution to the interests of the Company's then stockholders will
occur. Further, the terms upon which the Company will be able to obtain
additional equity capital may be adversely affected since the holders of the
Representative's Warrants can be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed capital on terms
more favorable to the Company than those provided in the Representative's
Warrants. Any profit realized by the Representative on the sale of the
Representative's Warrants or the underlying shares of Common Stock may be deemed
additional underwriting compensation. Subject to certain limitations and
exclusions, the Company has agreed to register, at the request of the holders of
a majority of the Representative's Warrants and at the Company's expense, the
Representative's Warrants and the shares of Common Stock underlying the
Representative's Warrants under the Securities Act on one occasion during the
Warrant Exercise Term and to include such Representative's Warrants and such
underlying shares in any appropriate registration statement that is filed by the
Company during the seven years following the date of this Prospectus.
In addition, the Company has agreed to enter into a consulting agreement to
retain the Representative as a financial consultant for a period of two years
from the consummation of this Offering at a fee
60
<PAGE>
equal to $5,000 per month, the entire $120,000 payable in full, in advance. The
consulting agreement will not require the consultant to devote a specific amount
of time to the performance of its duties thereunder.
The Company has also agreed, for a period of three years following
consummation of the Offering, if so requested by the Representative, to nominate
and use its best efforts to elect a designee of the Representative as a director
of the Company, or, at the Representative's option, as a non-voting adviser to
the Company's Board of Directors.
All of the Company's officers, directors and stockholders have agreed that,
for the 12-month period following the date of this Prospectus, they will not,
subject to certain limited exceptions, directly or indirectly sell, offer for
sale, transfer, pledge or otherwise dispose of any securities of the Company,
without the prior written consent of the Representative.
The Representative has informed the Company that the Underwriters do not
intend to sell any of the shares of Common Stock offered hereby to discretionary
accounts.
The Company has agreed to indemnify the Underwriters against certain civil
liabilities in connection with the Registration Statement of which this
Prospectus forms a part, including liabilities under the Securities Act.
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price of the shares of Common Stock
will be determined by negotiation between the Company and the Representative and
may not necessarily relate to the Company's asset value, net worth or other
established criteria of value. Among the factors that will be considered in
determining the offering price are the Company's financial condition and
prospects, management, market prices of similar securities of comparable
publicly-traded companies, certain financial and operating information of
companies engaged in activities similar to those of the Company and the general
condition of the securities market. In connection with this Offering, certain
underwriters and selling group members and their respective affiliates may
engage in transactions that stabilize, maintain or otherwise affect the market
price of the Common Stock. Such transactions may include stabilization
transactions effected in accordance with Rule 104 of Regulation M, pursuant to
which such persons may bid for or purchase Common Stock for the purpose of
stabilizing their respective market prices. The underwriters also may create a
short position for the account of the underwriters by selling more shares of
Common Stock in connection with the Offering than they are committed to purchase
from the Company, and in such case may purchase shares of Common Stock in the
open market following completion of the Offering to cover all or a portion of
such short position. The underwriters may also cover all or a portion of such
short position by exercising the Over-Allotment Option. In addition, the
underwriter may impose "penalty bids" under contractual arrangements with other
underwriters whereby it may reclaim from an Underwriter (or dealer participating
in the Offering) for the account of other underwriters, the selling concession
with respect to shares of Common Stock that are distributed in the Offering but
subsequently purchased for the account of the Underwriter in the open market.
Any of the transactions described in this paragraph may result in the
maintenance of the price of Common Stock at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph is required, and, if they are undertaken they may be discontinued at
any time.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the securities
offered hereby will be passed upon for the Company by Rubin Baum Levin Constant
& Friedman, New York, New York. Irwin M. Rosenthal, a partner of Rubin Baum
Levin Constant & Friedman, is Secretary of the Company, is married to Ms.
Suzanne Rosenthal, a director of the Company, and owns 172,518 shares of Common
Stock. Mr. Rosenthal rendered legal services to the Company in connection with
the Offering. Nishith Desai Associates has served as special counsel to the
Company in connection with matters related to the laws of
61
<PAGE>
India. Virginia K. Sourlis, Esq., Long Branch, New Jersey, will pass upon
certain legal matters for the Underwriter.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31,
1997, for the years ended December 31, 1997 and 1996 and for the period from
January 11, 1993 (inception) through December 31, 1997, included herein and
elsewhere in the Registration Statement, of which this Prospectus forms a part,
have been audited by Richard A. Eisner & Company, LLP, independent auditors, as
set forth in their report (which contains an explanatory paragraph relating to
the existence of substantial doubt about the Company's ability to continue as a
going concern) thereon appearing elsewhere in the Registration Statement, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission, a Registration Statement on Form
SB-2 (together with all amendments, schedules and exhibits thereto, the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
the Registration Statement. Statements made in the Prospectus as to the contents
of any contract, agreement or other document are not necessarily complete; with
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. The Registration Statement
and the exhibits thereto may be inspected, without charge, at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices at Northwestern Atrium Center, 500 West Madison Street, Room 1400,
Chicago, IL 60661, and 7 World Trade Center, Suite 1300, New York, NY 10048.
Copies of such material can also be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the Commission maintains a website that contains
reports, proxy statements, and other information filed with the Commission. The
address of such site is http://www.sec.gov.
62
<PAGE>
AYURCORE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Financial Statements
Consolidated balance sheet as of December 31, 1997 and March 31, 1998 (unaudited)........................ F-3
Consolidated statements of operations and consolidated statements of comprehensive loss for each of the
years in the two-year period ended December 31, 1997 and for the period from January 11, 1993
(inception) through December 31, 1997, for the three-month periods ended March 31, 1998 and 1997
(unaudited) and for the period January 11, 1993 (inception) through March 31, 1998 (unaudited)......... F-4
Consolidated statements of changes in capital deficiency for the period from January 11, 1993 (inception)
through December 31, 1993 and for each of the years in the four-year period ended December 31, 1997 and
for the three months ended March 31, 1998 (unaudited).................................................. F-5
Consolidated statements of cash flows for each of the years in the two-year period ended December 31,
1997 and for the period from January 11, 1993 (inception) through December 31, 1997, for the
three-month periods ended March 31, 1998 and 1997 (unaudited) and for the period January 11, 1993
(inception) through March 31, 1998 (unaudited)......................................................... F-6
Notes to consolidated financial statements............................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
AyurCore, Inc.
We have audited the accompanying consolidated balance sheet of AyurCore,
Inc. and subsidiary (collectively, the "Company"), a development stage company,
as of December 31, 1997, and the related consolidated statements of operations,
comprehensive loss and cash flows for each of the years in the two-year period
ended December 31, 1997 and for the period January 11, 1993 (inception) through
December 31, 1997 and changes in capital deficiency for each of the years ended
December 31 in the period January 11, 1993 (inception) through December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in
all material respects, the consolidated financial position of AyurCore, Inc. and
subsidiary as of December 31, 1997 and the consolidated results of their
operations and their consolidated cash flows for each of the years in the two-
year period ended December 31, 1997 and for the period January 11, 1993
(inception) through December 31, 1997 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
A to the financial statements, the Company has sustained recurring losses, a
working capital deficiency, negative cash flows from operating activities and
shareholders' capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note A. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Richard A. Eisner & Company, LLP
New York, New York
February 18, 1998
F-2
<PAGE>
AYURCORE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET (NOTE A)
<TABLE>
<CAPTION>
MARCH 31,
1998
DECEMBER 31, -------------
1997
------------- (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................................................. $ 23,000 $ 7,000
Accounts receivable............................................................... 9,000 21,000
Inventory (Notes B[2] and C)...................................................... 8,000 18,000
Prepaid expenses and other current assets......................................... 8,000 11,000
------------- -------------
Total current assets............................................................ 48,000 57,000
Equipment, net (Notes B[3] and D)................................................... 45,000 40,000
Investments to be held to maturity (Note E)......................................... 12,000 11,000
Deferred offering costs (Note K[5])................................................. 379,000 433,000
Other assets........................................................................ 24,000 24,000
------------- -------------
$ 508,000 $ 565,000
------------- -------------
------------- -------------
LIABILITIES
Current liabilities:
Due to bank (Note E).............................................................. $ 4,000 $ 10,000
Bank debt (Note H)................................................................ 500,000 600,000
Accounts payable and accrued expenses (Note I).................................... 1,085,000 1,231,000
Notes payable (including $355,000 and $405,000 to stockholders) (Note J).......... 455,000 505,000
Accrued interest (including $38,000 and 48,000 to stockholders) (Note J).......... 54,000 66,000
------------- -------------
Total current liabilities....................................................... 2,098,000 2,412,000
------------- -------------
Commitments and other matters (Notes A, M and N)
CAPITAL DEFICIENCY (NOTE K)
Preferred stock--$.001 par value, 5,000,000 shares authorized, none issued
Common stock--$.001 par value, 25,000,000 shares authorized, 2,219,702
issued and outstanding............................................................ 2,000 2,000
Additional paid-in capital.......................................................... 3,565,000 3,564,000
Unearned compensatory stock options................................................. (186,000) (166,000)
Foreign currency translation adjustment............................................. (8,000) (3,000)
Deficit accumulated during the development stage.................................... (4,963,000) (5,244,000)
------------- -------------
Total capital deficiency........................................................ (1,590,000) (1,847,000)
------------- -------------
$ 508,000 $ 565,000
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements.
F-3
<PAGE>
AYURCORE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS (NOTE A)
<TABLE>
<CAPTION>
JANUARY
JANUARY 11, 11,
1993 THREE MONTHS 1993
YEAR ENDED (INCEPTION) ENDED (INCEPTION)
DECEMBER 31, THROUGH MARCH 31, THROUGH
---------------------- DECEMBER 31, ---------------------- MARCH 31,
1997 1996 1997 1998 1997 1998
---------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
UNAUDITED (UNAUDITED)
Revenue:
Net product sales (Note L)........ $ 91,000 $ 91,000 $ 10,000 $ 101,000
Royalty income (Note N[3])........ 12,000 12,000 12,000
Government grant.................. 100,000 100,000 $ 56,000 100,000
---------- ------------ ---------- ---------- ----------
203,000 203,000 10,000 56,000 213,000
---------- ------------ ---------- ---------- ----------
Costs and expenses:
Cost of sales..................... 100,000 100,000 6,000 106,000
Research and development.......... 272,000 $ 401,000 1,312,000 34,000 89,000 1,346,000
General and administrative........ 735,000 844,000 3,012,000 225,000 183,000 3,237,000
---------- ---------- ------------ ---------- ---------- ----------
1,107,000 1,245,000 4,424,000 265,000 272,000 4,689,000
---------- ---------- ------------ ---------- ---------- ----------
Operating (loss) before other income
(expense)......................... (904,000) (1,245,000) (4,221,000) (255,000) (216,000) (4,476,000)
Other income (expense):
Interest income................... 1,000 12,000 1,000 13,000
Interest expense.................. (528,000) (83,000) (644,000) (27,000) (27,000) (671,000)
---------- ---------- ------------ ---------- ---------- ----------
NET LOSS............................ $(1,432,000) $(1,327,000) $(4,853,000) $ (281,000) $ (243,000) $(5,134,000)
---------- ---------- ------------ ---------- ---------- ----------
---------- ---------- ------------ ---------- ---------- ----------
BASIC AND DILUTED LOSS PER SHARE.... $ (.70) $ (.66) $ (.13) $ (.12)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING--BASIC AND
DILUTED........................... 2,034,945 1,999,994 2,219,702 1,999,994
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (NOTE B[11])
Net Loss.......................... $(1,432,000) $(1,327,000) $(4,853,000) $ (281,000) $ (243,000) $(5,134,000)
Currency Translation Adjustment... (8,000) (8,000) 5,000 (9,000) (3,000)
---------- ---------- ------------ ---------- ---------- ----------
Comprehensive loss................ $(1,440,000) $(1,327,000) $(4,861,000) $ (276,000) $ (252,000) $(5,137,000)
---------- ---------- ------------ ---------- ---------- ----------
---------- ---------- ------------ ---------- ---------- ----------
</TABLE>
See notes to financial statements
F-4
<PAGE>
AYURCORE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL DEFICIENCY (NOTES A AND K)
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK ADDITIONAL UNEARNED CURRENCY
---------------------- PAID-IN COMPENSATORY TRANSLATION
SHARES AMOUNT CAPITAL STOCK OPTIONS ADJUSTMENT
--------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of shares to founders.................................. 1,587,128 $ 2,000 $ (2,000)
Sale of common stock ($0.55 per share).......................... 45,833 25,000
Sale of common stock ($1.36 per share).......................... 139,332 190,000
Contribution of services (Note F)............................... 28,000
Value of options granted (Note K[4])............................ 22,000 $ (22,000)
Compensatory stock options earned............................... 3,000
Net loss..................................................
--------- ----------- ----------- ------------- -----------
BALANCE--DECEMBER 31, 1993...................................... 1,772,293 2,000 263,000 (19,000) $ 0
Sale of common stock ($4.09 per share).......................... 61,050 250,000
Proceeds from payment of subscription receivables...............
Contribution of services (Note F)............................... 15,000
Value of options granted (Note K[4])............................ 398,000 (398,000)
Compensatory stock options earned............................... 73,000
Net loss..................................................
--------- ----------- ----------- ------------- -----------
BALANCE--DECEMBER 31, 1994...................................... 1,833,343 2,000 926,000 (344,000) 0
Sale of common stock ($6.00 per share) (Note K[2]).............. 166,651 1,000,000
Contribution of services (Note F)............................... 42,000
Compensatory stock options earned............................... 142,000
Net loss..................................................
--------- ----------- ----------- ------------- -----------
BALANCE--DECEMBER 31, 1995...................................... 1,999,994 2,000 1,968,000 (202,000) 0
Contribution of services (Note F)............................... 33,000
Valuation of warrants (Note J).................................. 15,000
Value of options granted (Note K[4])............................ 39,000 (39,000)
Compensatory stock options earned (net of $4,000 for
forfeitures).................................................. (4,000) 167,000
Net loss..................................................
--------- ----------- ----------- ------------- -----------
BALANCE--DECEMBER 31, 1996...................................... 1,999,994 2,000 2,051,000 (74,000) 0
Valuation of warrants (Notes and K[3]))......................... 103,000
Value of options granted (Note K[4])............................ 200,000 (200,000)
Compensatory stock options earned (net of $35,000 for
forfeitures).................................................. (35,000) 88,000
Proceeds from exercise of stock options......................... 10,000 3,000
Conversion of debt to common stock (Note J)..................... 209,708 1,133,000
Foreign currency translation adjustment......................... (8,000)
Value of warrants issued in consideration of waiver (Note
K[3])......................................................... 110,000
Net loss..................................................
--------- ----------- ----------- ------------- -----------
BALANCE--DECEMBER 31, 1997...................................... 2,219,702 $ 2,000 $3,565,000 $(186,000) $ (8,000)
Compensatory stock earned (net of $1,000 forfeitures)........... (1,000) 20,000
Foreign currecy translation adjustment.......................... 5,000
Net loss..................................................
--------- ----------- ----------- ------------- -----------
BALANCE--MARCH 31, 1998 (UNAUDITED)............................. 2,219,702 $ 2,000 $3,564,000 $(166,000) $ (3,000)
--------- ----------- ----------- ------------- -----------
--------- ----------- ----------- ------------- -----------
<CAPTION>
DEFICIT
ACCUMULATED
DURING THE TOTAL
DEVELOPMENT SUBSCRIPTION CAPITAL
STAGE RECEIVABLE DEFICIENCY
------------ ------------ ----------
<S> <C> <C> <C>
Issuance of shares to founders.................................. $ 0
Sale of common stock ($0.55 per share).......................... 25,000
Sale of common stock ($1.36 per share).......................... $ (90,000) 100,000
Contribution of services (Note F)............................... 28,000
Value of options granted (Note K[4])............................ 0
Compensatory stock options earned............................... 3,000
Net loss.................................................. $ (163,000) (163,000)
------------ ------------ ----------
BALANCE--DECEMBER 31, 1993...................................... (163,000) (90,000) (7,000)
Sale of common stock ($4.09 per share).......................... 250,000
Proceeds from payment of subscription receivables............... 90,000 90,000
Contribution of services (Note F)............................... 15,000
Value of options granted (Note K[4])............................ 0
Compensatory stock options earned............................... 73,000
Net loss.................................................. (768,000) (768,000)
------------ ------------ ----------
BALANCE--DECEMBER 31, 1994...................................... (931,000) 0 (347,000)
Sale of common stock ($6.00 per share) (Note K[2]).............. 1,000,000
Contribution of services (Note F)............................... 42,000
Compensatory stock options earned............................... 142,000
Net loss.................................................. (1,163,000) (1,163,000)
------------ ------------ ----------
BALANCE--DECEMBER 31, 1995...................................... (2,094,000) 0 (326,000)
Contribution of services (Note F)............................... 33,000
Valuation of warrants (Note J).................................. 15,000
Value of options granted (Note K[4])............................ 0
Compensatory stock options earned (net of $4,000 for
forfeitures).................................................. 163,000
Net loss.................................................. (1,327,000) (1,327,000)
------------ ------------ ----------
BALANCE--DECEMBER 31, 1996...................................... (3,421,000) 0 (1,442,000)
Valuation of warrants (Notes and K[3]))......................... 103,000
Value of options granted (Note K[4])............................ 0
Compensatory stock options earned (net of $35,000 for
forfeitures).................................................. 53,000
Proceeds from exercise of stock options......................... 3,000
Conversion of debt to common stock (Note J)..................... 1,133,000
Foreign currency translation adjustment......................... (8,000)
Value of warrants issued in consideration of waiver (Note
K[3])......................................................... (110,000) 0
Net loss.................................................. (1,432,000) (1,432,000)
------------ ------------ ----------
BALANCE--DECEMBER 31, 1997...................................... $(4,963,000) $ 0 $(1,590,000)
Compensatory stock earned (net of $1,000 forfeitures)........... 19,000
Foreign currecy translation adjustment.......................... 5,000
Net loss.................................................. (281,000) (281,000)
------------ ------------ ----------
BALANCE--MARCH 31, 1998 (UNAUDITED)............................. $(5,244,000) $ 0 $(1,847,000)
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
See notes to financial statements
F-5
<PAGE>
AYURCORE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 11, JANUARY 11,
1993 1993
YEAR ENDED (INCEPTION) THREE MONTHS (INCEPTION)
DECEMBER 31, THROUGH ENDED MARCH 31 THROUGH
---------------------- DECEMBER 31, -------------------- MARCH 31,
1997 1996 1997 1998 1997 1998
---------- ---------- ------------ --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................ $(1,432,000) $(1,327,000) $(4,853,000) $(281,000) $(243,000) ($5,134,000)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization..... 19,000 12,000 40,000 5,000 6,000 45,000
Contribution of services.......... 33,000 118,000 118,000
Compensation expense attributable
to options...................... 53,000 163,000 434,000 19,000 18,000 453,000
Interest expense attributable to
warrants........................ 90,000 90,000 90,000
Interest expense attributable to
conversion of debt to stock..... 294,000 294,000 294,000
Amortization of debt discount..... 13,000 15,000 28,000 28,000
Accrued interest.................. 94,000 68,000 193,000 12,000 20,000 205,000
Changes in:
Inventory....................... 4,000 (12,000) (8,000) (10,000) (5,000) (18,000)
Accounts receivable............. (9,000) (9,000) (10,000) (19,000)
Other assets.................... 35,000 (39,000) (32,000) (3,000) (15,000) (35,000)
Accounts payable and accrued
expenses...................... 318,000 295,000 785,000 96,000 87,000 881,000
---------- ---------- ------------ --------- --------- -----------
Net cash used in operating
activities.................. (521,000) (792,000) (2,920,000) (172,000) (132,000) (3,092,000)
---------- ---------- ------------ --------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments............. (12,000) (12,000) (12,000)
Purchase of equipment............... (12,000) (42,000) (87,000) (6,000) (87,000)
---------- ---------- ------------ --------- --------- -----------
Net cash used in investing
activities.................. (24,000) (42,000) (99,000) 0 (6,000) (99,000)
---------- ---------- ------------ --------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sales of common
stock............................. 1,465,000 1,465,000
Proceeds from bank borrowings....... 303,000 200,000 503,000 106,000 100,000 609,000
Proceeds from notes payable......... 200,000 200,000 200,000
Proceeds from stockholder loans and
advances.......................... 263,000 442,000 965,000 50,000 50,000 1,015,000
Repayment of stockholder advances... (10,000) (10,000)
Deferred offering costs............. (76,000) (76,000) (4,000) (80,000)
---------- ---------- ------------ --------- --------- -----------
Net cash provided by financing
activities.................. 490,000 842,000 3,047,000 152,000 150,000 3,199,000
---------- ---------- ------------ --------- --------- -----------
Effect of exchange rates on cash...... (5,000) (5,000) 4,000 9,000 (1,000)
---------- ---------- ------------ --------- --------- -----------
NET (DECREASE) INCREASE IN CASH....... (60,000) 8,000 23,000 (16,000) 21,000 7,000
Cash at beginning of period........... 83,000 75,000 23,000 83,000
---------- ---------- ------------ --------- --------- -----------
CASH AT END OF PERIOD................. $ 23,000 $ 83,000 $ 23,000 $ 7,000 $ 104,000 $ 7,000
---------- ---------- ------------ --------- --------- -----------
---------- ---------- ------------ --------- --------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for
interest.......................... $ 37,000 $ 37,000 $ 12,000 $ 7,000 $ 49,000
Noncash activities:
Conversion of notes payable and
accrued interest into shares of
common stock.................... $ 839,000 $ 839,000 $ 839,000
Offering costs accrued............ $ 303,000 $ 303,000 $ 50,000 $ 353,000
</TABLE>
See notes to financial statements
F-6
<PAGE>
AYURCORE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1997 IS UNAUDITED)
NOTE A--THE COMPANY
AyurCore, Inc. was incorporated in Delaware on January 11, 1993. On October
10, 1997 the Board of Directors of Bio-Ved Pharmaceuticals Private Limited
("Bio-Ved") (a company organized in India in November 1995), authorized the
issuance of 27,165 shares of its common stock for $7,500 to AyurCore, Inc.,
representing substantially all of its outstanding common stock. Effective
November 1995, Bio-Ved was wholly owned by relatives of the majority
stockholders of AyurCore, Inc. and was solely funded by AyurCore, Inc. The
acquisition of Bio-Ved has been accounted for in a manner similar to a
pooling-of-interests and accordingly the accompanying financial statements
include the accounts of Bio-Ved from inception.
AyurCore, Inc. and Bio-Ved (collectively, the "Company") are engaged in the
discovery, development, clinical testing and marketing of proprietary
plant-based pharmaceuticals (phyto-pharmaceuticals) for the treatment of
chronic, difficult-to-treat human diseases, applying the principles of Ayurveda
(an ancient science native to India which uses plants as medicinal therapies).
Substantially all the Company's operations relating to Ayurvedic drugs are being
conducted in India and certain of the Company's products require raw materials
which are cultivated in India. The Company is in the development stage and, to
date, has not generated any significant sales, has incurred expenses and has
sustained losses. Consequently, its operations are subject to all the risks
inherent in the establishment of a new business enterprise.
For the period from inception through December 31, 1997, the Company has
accumulated a deficit of $4,963,000, and has been dependent upon equity
financing and advances and loans from stockholders and others. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. In order to continue its operations, the Company is seeking additional
financing, which it is endeavoring to do by means of a public offering of
securities (see Note K[5]). However, there is no assurance that the Company can
complete its proposed securities offering or that it can obtain adequate
additional financing from other sources or that profitable operations can be
attained. The financial statements do not include any adjustments relating to
the recoverability of recorded asset amounts or the amount and classification of
liabilities that might be necessary as a result of the above uncertainty.
Foreign investments in Indian companies are subject to currency exchange
control laws. Such laws may restrict the repatriation of income earned by, and
capital invested in, such subsidiaries. Under current regulations, dividends up
to the amount of net income are freely repatriatable. On December 8, 1997, the
Company received approval for status which permits repatriation of invested
capital as well. The Company's investments prior to that date, aggregating
approximately $703,000, cannot be repatriated. Dividends from Bio-Ved to the
Company are subject to an Indian distribution tax.
In addition, the Indian government prohibits the export of certain plants,
plant portions and their derivatives and extracts. This prohibition does not
affect current operations.
F-7
<PAGE>
AYURCORE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1997 IS UNAUDITED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] BASIS OF PRESENTATION:
The accompanying consolidated financial statements include the accounts of
AyurCore, Inc. (including its Indian liaison office) and its substantially
wholly owned subsidiary, Bio-Ved. All material intercompany transactions and
account balances have been eliminated in consolidation.
[2] INVENTORY:
Inventory is stated at the lower of cost (first-in, first-out method) or
market.
[3] EQUIPMENT:
Equipment is carried at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets which range
from three to five years. Leasehold improvements are amortized over the lesser
of the economic useful life of the improvement or term of the lease.
[4] RESEARCH AND DEVELOPMENT AND PATENTS:
Research and development costs and patent expenses are charged to operations
as incurred.
[5] USE OF 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.
[6] LOSS PER SHARE OF COMMON STOCK:
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share," in the year ended December 31, 1997 and has
retroactively applied the effects thereof for all periods presented.
Accordingly, the presentation of per share information includes calculations of
basic and dilutive loss per share. The impact on the per share amounts
previously reported was not significant.
Additionally, pursuant to the Securities and Exchange Commission's Staff
Accounting Bulletin No. 98, issuances of common shares and potential common
shares issued for nominal consideration during the periods covered by statements
of operations that are included in the registration statement and in subsequent
filings with the SEC are reflected in computations of loss per share in a manner
similar to a stock split or stock dividend.
[7] FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying value of cash, notes payable, trade payables and accrued
expenses approximates their fair value because of the short maturity of those
instruments.
F-8
<PAGE>
AYURCORE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1997 IS UNAUDITED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[8] FOREIGN CURRENCY:
The financial statements for the operations in India are translated into
U.S. dollars from the Company's functional currency (Indian Rupee) at year end
exchange rates for assets and liabilities and weighted average exchange rate for
revenue and expenses. The effect of foreign currency translation adjustments are
included as a component of capital deficiency.
The Company's activities in India expose it to the risk associated with
currency exchange fluctuations. These currency exchange fluctuations have not
had a significant impact on reported results.
[9] STOCK-BASED COMPENSATION:
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has elected to account for its employee
stock-based compensation plans using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"). Under the provisions of APB No. 25, compensation cost
for stock options is measured as the excess, if any, of the quoted market price
of the Company's common stock at the date of the grant over the amount an
employee must pay to acquire the stock. Stock options granted to nonemployees
for goods or services are measured using the fair value of these options and
such costs are included in operating results as an expense.
[10] REVENUE RECOGNITION:
Sales revenue is recognized when product is shipped. Grant revenues are
recognized as the expenses for research and development activities performed
under the terms of the grant award are incurred.
[11] COMPREHENSIVE INCOME:
As of December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income"
issued in June 1997. SFAS 130 requires the reporting and display of
comprehensive income items in a full set of general purpose financial
statements. Other comprehensive income items are revenues, expenses, gains and
losses that under generally accepted accounting principles are excluded from net
loss and reflected as a component of equity, such as currency translation.
[12] INTERIM FINANCIAL INFORMATION:
The financial statements at March 31, 1998 and for the three months ended
March 31, 1998 and 1997 are unaudited, but include all adjustments (consisting
only of normal recurring adjustments) which management considers necessary for a
fair presentation of financial position, results of operations and cash flows
for those periods. Results of interim periods are not necessarily indicative of
results for the entire year or any future periods.
F-9
<PAGE>
AYURCORE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1997 IS UNAUDITED)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[13] RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 129, "Disclosure of Information about Capital
Structure" and No. 131, "Disclosures about Segments of an Enterprise and Related
Information". The Company has not yet determined whether the above
pronouncements will have a significant effect on the information presented in
the financial statements.
NOTE C--INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------- -----------
<S> <C> <C>
Raw materials....................................................... $ 6,000 $ 9,000
Finished goods...................................................... 2,000 9,000
------ -----------
$ 8,000 $ 18,000
------ -----------
------ -----------
</TABLE>
NOTE D--EQUIPMENT
Equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
<S> <C> <C>
Office furniture and equipment....................................... $ 30,000 $ 30,000
Computer equipment................................................... 21,000 21,000
Laboratory equipment................................................. 25,000 25,000
Leasehold improvements............................................... 9,000 9,000
------------ -----------
85,000 85,000
Less accumulated depreciation and amortization....................... 40,000 45,000
------------ -----------
$ 45,000 $ 40,000
------------ -----------
------------ -----------
</TABLE>
NOTE E--INVESTMENTS
The Company accounts for its investments based on the following categories:
(1) held-to-maturity; (2) available for sale and (3) trading investments.
Held-to-maturity investments at December 31, 1997 consist of interest bearing
deposits in Indian banks (see Note A). The carrying amount approximates fair
value and the deposits mature between January 1999 and August 2000. At December
31, 1997 and March 31, 1998 approximately $5,000 and $8,000, respectively of the
deposits are collateral for loans due to bank.
F-10
<PAGE>
AYURCORE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1997 IS UNAUDITED)
NOTE F--RELATED PARTY TRANSACTIONS
The Company's operations in India are being directed by a relative of the
principal stockholders. Such individual's compensation, based on an agreement,
amounts to $9,000 per annum.
For the years ended December 31, 1997 and 1996 approximately $40,000 and
$101,000, respectively (including services contributed), were charged to
operations for services provided by a law firm, of which a partner is also a
stockholder of the Company. At December 31, 1997 and March 31, 1998 amounts owed
to this related party aggregated approximately $328,000 and $358,000,
respectively, and are included in accounts payable.
NOTE G--INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
The Company has available for tax purposes the following net operating loss
carryforwards utilizable against the taxable income generated in each of the
respective jurisdictions:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31
1997 1998
------------ ------------
<S> <C> <C>
United States (expiring through 2012)............................ $3,557,000 $ 3,736,000
India (expiring through 2005).................................... $ 230,000 $ 253,000
</TABLE>
At December 31, 1997 and March 31, 1998, the Company has provided a
valuation reserve against the full amount of its net operating loss benefit of
approximately $1,500,000 and $1,580,000, respectively, (including $81,000 and
$89,000, respectively, net operating loss benefit arising from the Indian
subsidiary which may only be utilized against future Indian taxable income) and
the benefit of $310,000 and $340,000, respectively from other temporary
differences, principally compensation expense not currently deductible, since
the likelihood of realization cannot be determined.
A reconciliation between the actual income tax benefit and income taxes
computed by applying the United States Federal income tax rate of 34% to the net
loss is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------ ------------------------
1997 1996 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Computed federal income tax (benefit) at 34% rate.................. $ (487,000) $ (451,000) $ (96,000) $ (82,000)
Impact of difference between foreign jurisdictions effective tax
rate
and U.S. tax rate................................................ (1,000) (6,000) (1,000)
State taxes, net of federal tax benefit............................ (77,000) (73,000) (15,000) (11,000)
Nondeductible interest charge...................................... 117,000
Increase in valuation reserve...................................... 448,000 530,000 111,000 94,000
----------- ----------- ----------- -----------
Effective rate..................................................... $ 0 $ 0 $ 0 $ 0
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
F-11
<PAGE>
AYURCORE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1997 IS UNAUDITED)
NOTE G--INCOME TAXES (CONTINUED)
Dividends paid by the Company's subsidiary are subject to a ten percent tax.
The Internal Revenue Code contains provisions which may limit the
utilization of the net operating loss carryforward available in any given year
if significant changes occur in shareholder ownership interests. If the proposed
public offering discussed in Note K[5] to the financial statements is
consummated, it is probable that the amount of carryforward available in any
given year will be limited.
NOTE H--BANK DEBT
In October 1996 the Company borrowed $200,000 from a bank, payable on demand
evidenced by a note bearing interest at 2% above the bank's "Benchmark Rate"
(8.50% at December 31, 1997). Additionally, the Company borrowed $100,000 in May
1997 and $200,000 in September 1997. In September 1997 the three notes were
combined into one note for $500,000 which was due February 2, 1998. On February
2, 1998 the Company borrowed an additional $100,000 and all the notes were
combined into one note for $600,000 due May 4, 1998. On that date, the Company
repaid $25,000 and the remaining balance of $575,000 was extended to August 4,
1998. The debt is collateralized by certain securities of a public company held
by a principal stockholder and guaranteed by two principal stockholders who are
also executive officers and directors.
NOTE I--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
<S> <C> <C>
Professional fees (Note F)....................................... $ 495,000 $ 573,000
Payroll and related expenses..................................... 342,000 402,000
Consulting....................................................... 132,000 129,000
Other............................................................ 116,000 127,000
------------ ------------
$1,085,000 $ 1,231,000
------------ ------------
------------ ------------
</TABLE>
F-12
<PAGE>
AYURCORE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1997 IS UNAUDITED)
NOTE J--NOTES PAYABLE
Notes payable are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ----------
<S> <C> <C>
Note payable to stockholder (1).................................... $ 50,000 $ 50,000
Notes payable (2).................................................. 100,000 100,000
Notes payable to stockholders (3).................................. 305,000 355,000
------------ ----------
$ 455,000 $ 505,000
------------ ----------
------------ ----------
</TABLE>
- ------------------------
(1) Note bears interest at 2% above prime (8.50% at December 31, 1997 and March
31, 1998) and are payable on demand.
(2) Note bears interest at 10% and is payable on demand.
(3) Notes bearing interest at 2% above prime (8.50% at December 31, 1997 and
March 31, 1998), of which $230,000 is payable on August 1, 1998, $75,000 is
payable in December, 1998 and $50,000 as of March 31, 1998 is payable in the
first quarter of 1999, unless a public offering is consummated prior to
August 1, 1998, in which case the notes shall be payable one year from
consummation of the Offering.
From January 1, through March 31, 1998, a stockholder made advances
aggregating approximately $50,000 to the Company. The amounts have been combined
with the stockholders' existing note with the same terms as shown in (3) above.
In conjunction with certain notes issued, the Company granted warrants to
purchase common stock (see Note K[3]). During the years ended December 31, 1997
and 1996, the Company valued these warrants, using the Black-Scholes pricing
model, at $13,000 and $15,000, respectively which are being treated as debt
discount and amortized over the period of each loan.
Effective October 31, 1997, certain noteholders exchanged approximately
$700,000 of principal (including $250,000 of convertible debt) plus accrued
interest of $139,000 into shares of common stock at $4.00 per share. Except for
the portion of the principal attributable to the convertible debt, the
difference between the estimated fair value of the common stock and the $4.00
per share conversion price has been recorded as interest expense. If shares were
issued at $4.00 per share in lieu of debt at the respective issuance date of
debt, supplementary basic and diluted net loss per share for the years ended
December 31, 1997 and 1996 and for the three months ended March 31, 1997 would
have been $(.49), $(.60) and $(.11), respectively.
On April 1, 1998, an individual loaned $250,000 to the Company. Principal
and interest (calculated at 2% above prime) are payable on April 1, 1999;
provided, however, if a public offering or a private placement is consummated by
October 1, 1998, then principal and interest are payable one year thereafter. In
connection with the note, the Company issued 125,000 warrants (see Note K[3]).
F-13
<PAGE>
AYURCORE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1997 IS UNAUDITED)
NOTE K--CAPITAL DEFICIENCY
[1] STOCK SPLIT AND CHANGE IN CAPITAL:
On November 18, 1997, the Board of Directors of the Company approved a
18,333.486-for-1 stock split of its common stock. In addition, the Board of
Directors increased the authorized shares to 25,000,000 shares of common stock
and 5,000,000 shares of preferred stock. All per share and share amounts in the
accompanying financial statements have been retroactively adjusted to reflect
the stock split.
[2] COMMON STOCK:
On November 18, 1997 the Board of Directors of the Company approved the
reclassification of its Class A and Class B common stock into one class of
common stock. The accompanying financial statements present common stock on the
one class basis.
In 1995 an agreement was entered into for the purchase of 166,651 shares of
common stock for $1,000,000 which contained an antidilution provision on the
next subscription for the same class of stock which is at a per share price less
than $6.00 (see Note K[3]).
[3] WARRANTS:
In connection with certain notes payable issued during the year ended
December 31, 1996 (see Note J) the Company issued warrants for the purchase of
200,000 shares of common stock at an exercise price of 130% of the anticipated
initial public offering price. In May 1998, the Company authorized the extension
of the expiration date of these then expired warrants, which will result in a
non-cash charge to operations of $201,000 in the second quarter of 1998,
representing the fair value of these warrants.
In connection with a note payable issued during the year ended December 31,
1997 (see Note J), the Company issued warrants for the purchase of 50,000 of
common stock at an exercise price of 130% of the anticipated initial public
offering price, expiring August 1999.
On December 8, 1997, the Board of Directors of the Company approved the
grant of warrants to purchase 45,000 shares of common stock in connection with a
debt conversion. The Company valued these warrants at $90,000. In addition,
warrants to purchase 55,000 shares of common stock were granted in consideration
for the waiver of certain antidilution rights (see Note K[2]). The difference
between the estimated fair value of the underlying shares of common stock and
the $4.00 per share exercise price of the warrants has been recorded either as
interest expense or in the case of the antidilution waiver warrants as a
dividend. The 100,000 warrants expire on October 30, 2002.
On April 1, 1998, in connection with the note payable issued (see Note J),
the Company issued warrants for the purchase of 125,000 shares of common stock
at an exercise price of 130% of the anticipated initial public offering price,
expiring on April 1, 2000.
[4] STOCK OPTIONS:
Pro forma information regarding net loss and loss per share basic and
assuming dilution is required by SFAS No. 123, and has been determined as if the
Company had accounted for its employee stock options
F-14
<PAGE>
AYURCORE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1997 IS UNAUDITED)
NOTE K--CAPITAL DEFICIENCY (CONTINUED)
under the fair value method of that statement. The effect of applying SFAS No.
123 on 1997 and 1996 proforma net loss and recognizing compensation expense for
consultants as stated below are not necessarily representative of the effects on
reported net loss for future years due to, among other things, (1) the vesting
period of the stock options, (2) fair value of additional stock options in
future years and (3) reflect employee options granted subsequent to December 31,
1994. Had compensation cost for the Company's stock option grants to employees
and directors been determined based upon the fair value at the grant date
consistent with the methodology prescribed under SFAS No. 123, the Company's net
loss in 1997 and 1996 would have been approximately $(1,483,000) and
$(1,327,000) or $(.73) and $(.66), respectively, for basic and diluted loss per
share. The fair value of options granted to employees during the years ended
December 31, 1997 and 1996 is estimated to be $2.14 and $1.37 per share,
respectively. The fair value of these options was estimated at the date of grant
using the Black-Scholes option pricing model with the following weighted average
assumptions for the year ended December 31, 1997: risk free interest rate of
5.55%--5.79%; dividend yield 0%; volatility 40% and expected life for options
granted of 5 years and for the year ended December 31, 1996: risk free interest
rate of 6.64%--6.73%; dividend yield of 0%; volatility of 40% and expected life
for options granted of 5 years.
During the years ended December 31, 1997, 1996 and 1994, the Company issued
options for 5,000, 29,000 and 30,000 shares of common stock to consultants which
were valued at $20,000, $39,000 and $46,000, respectively, and are being
amortized over the period of the related agreements.
Through December 31, 1994 the Company has granted 261,252 options to
employees at exercise prices less than the fair value of the underlying common
stock at the dates of grant. The Company recorded the difference as unearned
compensation, which is being amortized over the vesting period.
During the year ended December 31, 1997 the Company granted 60,000 options
to an employee at an exercise price which is $3.00 below the estimated fair
value of the underlying common stock. The Company recorded the difference as
unearned compensation, which is being amortized over the vesting period.
No options were granted during the three month periods ended March 31, 1998
and March 31, 1997.
F-15
<PAGE>
AYURCORE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1997 IS UNAUDITED)
NOTE K--CAPITAL DEFICIENCY (CONTINUED)
Stock option activity with respect to non-plan options is summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE NUMBER OF
EXERCISE SHARES
OPTIONS PRICE EXERCISABLE
--------- ----------- -----------
<S> <C> <C> <C>
Outstanding at December 31, 1995........................... 291,252 .99 80,317
-----------
-----------
Granted.................................................... 40,500 3.00
Forfeited.................................................. (55,000) .14
---------
Outstanding at December 31, 1996........................... 276,752 1.46 117,184
-----------
-----------
Granted.................................................... 65,000 3.00
Forfeited.................................................. (25,782) 1.02
Exercised.................................................. (10,000) .34
---------
Outstanding at December 31, 1997........................... 305,970 1.86 165,336
Forfeited.................................................. (5,000) 3.00
--------- -----------
--------- -----------
Outstanding at March 31, 1998.............................. 300,970 $ 1.84 174,503
--------- -----------
--------- -----------
</TABLE>
On November 18, 1997, the Board of Directors of the Company approved the
Company's 1997 stock option plan (the "Plan"). Pursuant to the Plan a total of
227,986 shares of common stock have been reserved for issuance as incentive
stock options to be granted to employees (including officer and directors) and
nonqualified stock options to be granted to employees (including officers),
directors, agents and consultants. Options granted under the Plan are
exercisable for a period of up to 10 years from date of grant at an exercise
price which is not less than the fair value on date of grant, except that the
exercise period of options granted to a stockholder owning more than 10% of the
outstanding capital stock may not exceed five years and their exercise price may
not be less than 110% of the fair value of the common stock at date of grant.
Options generally vest one-third immediately and thereafter one-third annually
on the anniversary date of the grant.
On November 18, 1997 the Board of Directors authorized the grant of an
aggregate of 45,000 nonqualified stock options under the Plan to three
nonemployee directors. The options are exercisable at $6.00 per share, vest
one-third immediately and balance in two equal annual installments and are
exercisable through November 18, 2002. At December 31, 1997 and March 31, 1998
the Company had 182,986 options available to issue under the Plan.
F-16
<PAGE>
AYURCORE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1997 IS UNAUDITED)
NOTE K--CAPITAL DEFICIENCY (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OUTSTANDING
------------------------------------------- EXERCISABLE
WEIGHTED- ----------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICE NUMBER LIFE (IN YEARS) PRICE NUMBER PRICE
- --------------------- ----------- ----------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
.34 $- 1.02....... 170,470 5.86 $ .51 136,003 $ .55
3.00$- 6.00...... 180,500 3.94 $ 4.16 44,333 $ 4.01
----------- ---------
350,970 180,336
----------- ---------
----------- ---------
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING
------------------------------------------- EXERCISABLE
WEIGHTED- ----------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICE NUMBER LIFE (IN YEARS) PRICE NUMBER PRICE
- --------------------- ----------- ----------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
$ .34 - $1.02 170,470 5.61 $ .51 136,003 $ .55
$ 3.00 - 6.00 175,500 3.70 $ 4.20 53,500 $ 3.84
----------- ---------
345,970 189,503
----------- ---------
----------- ---------
</TABLE>
[5] PROPOSED PUBLIC OFFERING:
The Company has signed a letter of intent with an underwriter with respect
to a proposed public offering of the Company's securities. There is no assurance
that such offering will be consummated. In connection therewith the Company
anticipates incurring substantial expenses which, if the offering is not
consummated, will be charged to expense.
NOTE L--SIGNIFICANT CUSTOMERS
Two Indian customers accounted for all of the product sales for the year
ended December 31, 1997. One of these customers accounted for all of the product
sales during the three months ended March 31, 1998.
NOTE M--ROYALTIES
In September 1994, April 1995 and June 1995, the Company acquired certain
exclusive intellectual property rights from two inventors for payments
aggregating $38,000, including certain milestone payments ($22,000 paid as of
December 31, 1997). The Company has ongoing royalty commitments for sales of
certain products covered by the rights acquired. The agreements provide for the
payment of royalties on gross revenue earned on these product sales and
sublicensing incorporating the technology.
F-17
<PAGE>
AYURCORE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1997 IS UNAUDITED)
NOTE M--ROYALTIES (CONTINUED)
In December 1995, the Company was assigned certain exclusive intellectual
property rights from an inventor for royalty payments on net receipts and on net
royalties received from sublicenses.
As of December 31, 1997 and March 31, 1998, royalties due under these
agreements were DE MINIMIS.
NOTE N--COMMITMENTS
[1] LEASES:
The Company is obligated for annual minimum rentals under operating leases
for office, equipment and laboratory facilities as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ---------------------------------------------------------------------------------------
<S> <C>
1998................................................................................... $ 44,000
1999................................................................................... 6,000
---------
$ 50,000
---------
---------
</TABLE>
Rent expense was approximately $52,000, $49,000, $16,000 and $11,000, for
the years ended December 31, 1997 and 1996 and for the three months ended March
31, 1998 and 1997, respectively.
[2] EMPLOYMENT AND CONSULTING AGREEMENTS:
The Company has employment agreements with two officers which provide for
annual base salaries of $140,000 and $130,000 (subject to annual increases of
not more than 10% per year and bonuses of $35,000 and $30,000, respectively, at
the discretion of the Board of Directors), for a period of three years,
commencing on the effective date of the initial public offering.
At December 31, 1997, the Company has a consulting agreement which provides
for payments aggregating $11,000 through May 1998.
In November 1997, the Company entered into an agreement with the National
Institute of Immunology ("NII") in New Dehli, whereby NII will conduct certain
animal studies for a period of one year. The total amount payable to NII under
this agreement is approximately $20,000, of which approximately $4,000 has been
paid as of December 31, 1997.
[3] DISTRIBUTION AND MARKETING AGREEMENTS:
In April 1996, the Company entered into a five-year exclusive agreement to
provide Blue Cross Laboratories Ltd. of Mumbai, India ("Blue Cross") with an
antiseptic formulation at a mutually agreed upon price. The agreement provides
for the Company to have available one month's supply of the product and is
subject to penalties for nondelivery. The Company is to receive a royalty based
on a percentage of the net sales value realized by Blue Cross. During the year
ended December 31, 1997, the Company earned $12,000 of royalties under this
agreement.
F-18
<PAGE>
AYURCORE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1997 IS UNAUDITED)
NOTE N--COMMITMENTS (CONTINUED)
In September 1997, the Company entered into an exclusive three-year
agreement with MD Pharmaceuticals Laboratories Ltd. ("MD") to distribute two of
the Company's products to certain countries in southeast Asia. MD will provide
the Company with sales orders on a quarterly basis (subject to minimum quantity
orders). The Company reserves the right to discontinue manufacturing any of its
products with six month notice to MD and agrees to refund the purchase price of
discontinued inventory held by MD or replace it with ongoing product. The
Agreement may be cancelled by either party after August 31, 2000 with six month
notice or for cause.
In September 1997, the Company also entered into a memorandum of
understanding with Alembic Chemical Works Co. Limited ("Alembic"). Under the
agreement, Alembic test marketed a product in the Indian State of Maharashtra
for a period of six months. The Company provided 350,000 free capsules through
March 1998 and all other marketing costs were borne by Alembic. At March 31,
1998, neither party has any continuing obligation to the other.
[4] MANUFACTURING AND SUPPLY AGREEMENTS WITH INDIAN COMPANIES:
In October 1997, the Company entered into a five year manufacturing
agreement with Eisen Pharmaceutical Co. Pvt. Ltd. ("Eisen") whereby Eisen will
manufacture one of the Company's products at an agreed upon price. The agreement
may be terminated by either party with three months notice without any further
consideration.
In October 1997, the Company also entered into a five-year agreement with
Kancor Flavours & Extracts Pvt. Ltd. ("Kancor") whereby Kancor will provide
plant extracts for use in the manufacture of one of the Company's products at an
agreed upon price. Upon termination of the agreement due to breach by one of the
parties it may be subject to damages incurred by the other party.
The Company is not subject to any minimum purchase orders under the above
agreements.
In December 1997, the Company entered into a five year manufacturing
agreement with S.P.B. Inc. ("SPB") whereby SPB will manufacture one of the
Company's products at a price to be mutually agreed upon. The Company has a
commitment to purchase 30,000 units per month. The agreement may be terminated
by either party with three months notice without further consideration.
NOTE O--INFORMATION ON BUSINESS SEGMENT
The Company operates in a single industry, the discovery, development,
clinical testing and marketing of proprietary plant-based pharmaceuticals
(phyto-pharmaceuticals) for the treatment of chronic, difficult-
F-19
<PAGE>
AYURCORE, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1997 IS UNAUDITED)
NOTE O--INFORMATION ON BUSINESS SEGMENT (CONTINUED)
to-treat human diseases, applying the principles of Ayurveda. The Company's
activities consist of operations in India and the United States. Information
related to domestic and foreign operations is as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------ ------------------------
1997 1996 1998 1997
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Revenues:
United States.............................................. $ 100,000 $ 56,000
India...................................................... 103,000 $ 10,000
---------- ---------- ------------
$ 203,000 $ 10,000 $ 56,000
---------- ---------- ------------
---------- ---------- ------------
Operating loss:
United States.............................................. $ 745,000 $ 809,000 $ 258,000 $ 183,000
India...................................................... 159,000 436,000 23,000 60,000
---------- ------------ ---------- ------------
$ 904,000 $ 1,245,000 $ 281,000 $ 243,000
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
Identifiable assets:
United States.............................................. $ 413,000 $ 93,000 $ 456,000 $ 108,000
India...................................................... 95,000 123,000 109,000 149,000
---------- ------------ ---------- ------------
$ 508,000 $ 216,000 $ 565,000 $ 257,000
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
Capital expenditures for the years ended December 31, 1997 and 1996 were $0
and $4,000, respectively, in the United States and $12,000 and $38,000,
respectively, in India. Depreciation and amortization expense for the years
ended December 31, 1997 and 1996 and the three months ended March 31, 1998 and
1997 was $3,000, $2,000, $1,000 and $1,000, respectively, in the United States
and $16,000, $10,000, $4,000 and $5,000, respectively, in India.
F-20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 8
Use of Proceeds................................. 19
Dilution........................................ 20
Capitalization.................................. 22
Selected Consolidated Financial Data............ 23
Managements' Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 24
Business........................................ 29
Management...................................... 49
Principal Stockholders.......................... 54
Certain Transactions............................ 55
Description of Securities....................... 57
Shares Eligible for Future Sale................. 58
Underwriting.................................... 59
Legal Matters................................... 61
Experts......................................... 62
Additional Information.......................... 62
Index to Consolidated Financial Statements...... F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS FROM THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
AYURCORE, INC.
1,350,000 SHARES
OF
COMMON STOCK
---------------------
PROSPECTUS
---------------------
NETWORK 1 FINANCIAL SECURITIES, INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Eight of the Certificate of Incorporation of AyurCore, Inc. (the
"Registrant") eliminates the personal liability of directors to the Registrant
or its stockholders for monetary damages for breach of fiduciary duty as a
director, provided that such elimination of the personal liability of directors
of the Registrant does not apply to (a) any breach of the director's duty of
loyalty to the Registrant or its stockholders, (b) act or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, (c)
action prohibited under section 174 of the Delaware General Corporation Law, and
(d) any transaction from which the director derived an improper personal
benefit.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses of the issuance and distribution of
the securities being registered, all of which will be paid by the "Registrant".
<TABLE>
<S> <C>
SEC Registration fee............................................. $3,267.13
NASD filing fee.................................................. 1,607.50
Nasdaq listing fee............................................... 10,000
Printing expenses................................................ 70,000
Fees and expenses of counsels.................................... 360,000
Fees and expenses of accountants................................. 110,000
Transfer agent and registrar fees................................ 5,000
Blue sky fees and expenses....................................... 50,000
Representative's nonaccountable expense allowance................ 243,000
Director and officer insurance premium........................... 45,000
Miscellaneous.................................................... 2,125.37
---------
Total............................................................ $ 900,000
---------
---------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is information as to securities of the Registrant sold
within the past three years which were not registered under the Securities Act
of 1933, as amended (the "Act"). In connection with such sales, the Registrant
relied upon the exemption from registration provided by Section 4(2) of the Act.
All purchasers have represented that they are accredited investors. The
information below gives effect to (i) the reclassification of the Registrant's
Class A Common Stock and Class B Common Stock as a single class of Common stock
and (ii) a stock split effected November 26, 1997, pursuant to which each
outstanding share of common stock was reclassified and converted into 18,333.486
shares of Common Stock.
On February 3, 1995, Marathon Investments L.L.C. purchased 166,651 shares of
Common Stock of the Registrant at a purchase price of $1,000,000.
From March 1996 to August 1997, the Company issued warrants to purchase
250,000 shares of Common Stock to three lenders in connection with their loans
to the Company in the aggregate amount of $500,000. Each warrant entitles the
holder to purchase one share of Common Stock at a price equal to 130% of the
initial public offering price per share for a period of two years.
Effective October 31, 1997, two holders of debt aggregating $838,830 in
principal and accrued interest (the "Debt") converted the Debt into an aggregate
of 209,708 shares of Common Stock of the Registrant. In addition, effective
December 8, 1997, the Company approved the issuance of 45,000 warrants to one of
such holders in connection with the Debt conversion, as well as 55,000 warrants
to another stockholder of the Company in consideration for the release of
certain antidilution rights. Each warrant entitles the holder to purchase one
share of common stock at $4.00 per share for a period of five years.
II-1
<PAGE>
On December 31, 1997, Mr. Barry Wald exercised an option with respect to
10,000 shares of Common Stock at $.34 per share. The purchase price was paid by
forgiveness of $3,400 in accrued and unpaid salary.
ITEM 27. EXHIBITS.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant (including amendments thereto).(1)
3.2 By-Laws of the Registrant, as amended.
4.1 Form of Representative's Warrant Agreement.
4.2 Form of Common Stock Certificate.
5.1 Opinion of Rubin Baum Levin Constant & Friedman regarding legality.
10.1 Form of Employment Agreement entered into between the Registrant and Barry Wald.(1)
10.2 Form of Employment Agreement entered into between the Registrant and Deepa Chitre.(1)
10.3 1997 Stock Option Plan (including forms of option agreements).(1)
10.4 Form of Indemnification Agreement to be entered into between the Registrant and its directors and
executive officers.
10.5 Lease Deed, dated as of April 19, 1996, by and between BAIF Development Research Foundation and Bio-Ved
Pharmaceuticals Private Limited ("Bio-Ved") (including agreement for furniture, fixtures and
fittings).(1)
10.6 Office Building Lease, dated as of September 8, 1995, by and between Northwestern Mutual Life Insurance
Company by its Agent Gibson Speno Management Company and Bio-Ved.(1)
10.7 Agreement, dated as of July 26, 1994, by and between Poona College Pharmacy and Bio-Ved.(1)
10.8 Memorandum of Understanding, dated as of October 9, 1997, by and between Bio-Ved and Alembic Chemicals
Works Co. Limited.(1)
10.9 Memorandum of Understanding, dated as of October 23, 1997, by and between Kancor Flavours & Extracts
Pvt. Ltd. and Bio-Ved.(1)(2)
10.10 Agreement, dated as of October 10, 1997, by and between Bio-Ved and Eisen Pharmaceutical Co. (Pvt.)
Ltd.(1)(2)
10.11 Agreement, dated as of September 28, 1994, by and between Bio-Ved and Dr. Bhushan Patwardhan
("Patwardhan") regarding RA-11.(1)(2)
10.12 Agreement, dated as of April 7, 1995, by and between Patwardhan and the Registrant regarding
RA-11.(1)(2)
10.13 Agreement, dated as of April 7, 1995, by and between Patwardhan and the Registrant regarding
RA-11.(1)(2)
10.14 Agreement, dated as of April 7, 1995, by and between Patwardhan and the Registrant regarding
IM-10.(1)(2)
10.15 Agreement, dated as of June 26, 1995, by and between the Registrant and S.V. Karnataki.(1)(2)
10.16 Patent Agreement, dated as of December 15, 1995, by and between Dr. Abraham Rosenberg and the
Registrant.(1)(2)
</TABLE>
- ------------------------
(1) Previously filed.
(2) Confidential treatment is being requested for portions of this exhibit
pursuant to Rule 406 under the Securities Act.
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.17 Distribution Agreement, dated as of September 1, 1997, by and between the Registrant and MD
Pharmaceuticals Laboratories Ltd.(1)(2)
10.18 Memorandum of Understanding, dated as of April 1, 1996, by and between Bio-Ved and Blue Cross
Laboratories Ltd. (including supplement thereto).(1)(2)
10.19 Promissory Note, dated January 29, 1996, made by the Registrant in favor of Irwin Rosenthal, as amended
by letter dated May 26, 1998.
10.20 Promissory Note, dated as of March 24, 1998, made by the Registrant in favor of Sanjeev Chitre, as
amended by letter dated May 26, 1998.
10.21 Stock Purchase Agreement, dated as of October 31, 1997, between the Registrant and Fred Kassner.(1)
10.22 Stock Purchase Agreement, dated as of October 31, 1997, between the Registrant and Michael Splinter and
Patricia Roboostoff.(1)
10.23 Form of Financial Advisory and Investment Banking Agreement between the Registrant and Network 1
Financial Securities, Inc.
10.24 Form of Warrant, dated as of December 8, 1997, in favor of each of Fred Kassner and Marathon
Investments, LLC.(1)
10.25 Form of Registration Rights Agreement, dated as of December 8, 1997, in favor of each of Fred Kassner
and Marathon Investments, LLC.(1)
10.26 Promissory Note, dated December 23, 1997, made by Registrant in favor of Michael Splinter and Patricia
Roboostoff, as amended by letter dated May 26, 1998.
10.27 Memorandum of Understanding, dated as of December 10, 1997, by and between Bio-Ved and S.P.B. (Inc.)
10.28 Promissory Note, dated April 1, 1998, made by Registrant in favor of Raj Rajartaman.
10.29 Warrant, dated as of April 1, 1998, issued to Raj Rajartaman.
10.30 Warrants, dated May 13, 1998, issued to each of Fred Kassner, Michael Splinter and Patricia Roboostoff
and Paul Gupta in connection with prior loans.
21.1 Subsidiaries of Registrant.(1)
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Consent of Rubin Baum Levin Constant & Friedman (included in Exhibit 5).
24.1 Power of Attorney (included with the signature page to the registration statement).(1)
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
(1) Previously filed.
(2) Confidential treatment is being requested for portions of this exhibit
pursuant to Rule 406 under the Securities Act.
ITEM 28. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that it will:
(1) File during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) include any prospectus required by section 10(a)(3) of the Securities
Act;
(ii) reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the
II-3
<PAGE>
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement; and
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fida offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(b) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closings specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser of the Common Stock
offered hereby.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(d) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for the filing on Form SB-2 and authorized this Amendment to its
Registration Statement to be signed on its behalf by the undersigned, there unto
duly authorized, in the City of San Jose, California, on May 26, 1998.
AYURCORE, INC.
By: /s/ DEEPA CHITRE
-----------------------------------------
Deepa Chitre,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities and on the dates
indicated:
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
President, Chief Executive
/s/ DEEPA CHITRE Officer and Director
- ------------------------------ (Principal Executive May 26, 1998
Deepa Chitre, M.D. Officer)
/s/ SANJEEV CHITRE
- ------------------------------ Chairman of the Board of May 26, 1998
Sanjeev Chitre Directors
Chief Financial Officer
/s/ NINA RENAUD and Treasurer (Principal
- ------------------------------ Financial and Accounting May 26, 1998
Nina Renaud Officer)
/s/ MICHAEL SPLINTER
- ------------------------------ Director May 26, 1998
Michael Splinter
/s/ CYNTHIA R. MAY
- ------------------------------ Director May 26, 1998
Cynthia R. May
/s/ SUZANNE ROSENTHAL
- ------------------------------ Director May 26, 1998
Suzanne Rosenthal
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ----------- --------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant (including amendments thereto).(1)
3.2 By-Laws of the Registrant, as amended.
4.1 Form of Representative's Warrant Agreement.
4.2 Form of Common Stock Certificate.
5.1 Opinion of Rubin Baum Levin Constant & Friedman regarding legality.
10.1 Form of Employment Agreement entered into between the Registrant and Barry Wald.(1)
10.2 Form of Employment Agreement entered into between the Registrant and Deepa Chitre.(1)
10.3 1997 Stock Option Plan (including forms of option agreements).(1)
10.4 Form of Indemnification Agreement to be entered into between the Registrant and its directors
and executive officers.
10.5 Lease Deed, dated as of April 19, 1996, by and between BAIF Development Research Foundation
and Bio-Ved Pharmaceuticals Private Limited ("Bio-Ved") (including agreement for furniture,
fixtures and fittings).(1)
10.6 Office Building Lease, dated as of September 8, 1995, by and between Northwestern Mutual Life
Insurance Company by its Agent Gibson Speno Management Company and Bio-Ved.(1)
10.7 Agreement, dated as of July 26, 1994, by and between Poona College Pharmacy and Bio-Ved.(1)
10.8 Memorandum of Understanding, dated as of October 9, 1997, by and between Bio-Ved and Alembic
Chemicals Works Co. Limited.(1)
10.9 Memorandum of Understanding, dated as of October 23, 1997, by and between Kancor Flavours &
Extracts Pvt. Ltd. and Bio-Ved.(1)(2)
10.10 Agreement, dated as of October 10, 1997, by and between Bio-Ved and Eisen Pharmaceutical Co.
(Pvt.) Ltd.(1)(2)
10.11 Agreement, dated as of September 28, 1994, by and between Bio-Ved and Dr. Bhushan Patwardhan
("Patwardhan") regarding RA-11.(1)(2)
10.12 Agreement, dated as of April 7, 1995, by and between Patwardhan and the Registrant regarding
RA-11.(1)(2)
10.13 Agreement, dated as of April 7, 1995, by and between Patwardhan and the Registrant regarding
RA-11.(1)(2)
10.14 Agreement, dated as of April 7, 1995, by and between Patwardhan and the Registrant regarding
IM-10.(1)(2)
10.15 Agreement, dated as of June 26, 1995, by and between the Registrant and S.V. Karnataki.(1)(2)
10.16 Patent Agreement, dated as of December 15, 1995, by and between Dr. Abraham Rosenberg and the
Registrant.(1)(2)
10.17 Distribution Agreement, dated as of September 1, 1997, by and between the Registrant and MD
Pharmaceuticals Laboratories Ltd.(1)(2)
10.18 Memorandum of Understanding, dated as of April 1, 1996, by and between Bio-Ved and Blue Cross
Laboratories Ltd. (including supplement thereto).(1)(2)
10.19 Promissory Note, dated January 29, 1996, made by the Registrant in favor of Irwin
Rosenthal,as amended by letter dated May 26, 1998.
10.20 Promissory Note, dated as of March 24, 1998, made by the Registrant in favor of Sanjeev
Chitre, as amended by letter dated May 26, 1998.
10.21 Stock Purchase Agreement, dated as of October 31, 1997, between the Registrant and Fred
Kassner.(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ----------- --------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
10.22 Stock Purchase Agreement, dated as of October 31, 1997, between the Registrant and Michael
Splinter and Patricia Roboostoff.(1)
10.23 Form of Financial Advisory and Investment Banking Agreement between the Registrant and
Network 1 Financial Securities, Inc.
10.24 Form of Warrant, dated as of December 8, 1997, in favor of each of Fred Kassner and Marathon
Investments, LLC.(1)
10.25 Form of Registration Rights Agreement, dated as of December 8, 1997, in favor of each of Fred
Kassner and Marathon Investments, LLC.(1)
10.26 Promissory Note, dated December 23, 1997, made by Registrant in favor of Michael Splinter and
Patricia Roboostoff, as amended by letter dated May 26, 1998.
10.27 Memorandum of Understanding, dated as of December 10, 1997, by and between Bio-Ved and S.P.B.
(Inc.)
10.28 Promissory Note, dated April 1, 1998, made by Registrant in favor of Raj Rajartaman.
10.29 Warrant, dated as of April 1, 1998, issued to Raj Rajartaman.
10.30 Warrants, dated May 13, 1998, issued to each of Fred Kassner, Michael Splinter and Patricia
Roboostoff and Paul Gupta in connection with prior loans.
21.1 Subsidiaries of Registrant.(1)
23.1 Consent of Richard A. Eisner & Company, LLP.
23.2 Consent of Rubin Baum Levin Constant & Friedman (included in Exhibit 5).
24.1 Power of Attorney (included with the signature page to the registration statement).(1)
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
(1) Previously filed.
(2) Confidential treatment is being requested for portions of this exhibit
pursuant to Rule 406 under the Securities Act.
<PAGE>
Exhibit 1.1
AYURCORE, INC.
1,350,000 SHARES OF COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
New York, New York
, 1998
------------
NETWORK 1 FINANCIAL SECURITIES, INC.
As Representative of the Several Underwriters
named in Schedule A hereto
The Galleria, Penthouse
2 Bridge Avenue, Building 2
Red Bank, New Jersey 07701
Dear Ladies and Gentlemen:
AyurCore, Inc., a Delaware corporation (the "Company"), confirms its
agreement with Network 1 Financial Securities, Inc. ("Network 1") and each of
the underwriters named in Schedule A hereto (collectively, the
"Underwriters," which term shall also include any underwriter substituted as
hereinafter provided in Section 11), for whom Network 1 is acting as
representative (in such capacity, Network 1 shall hereinafter be referred to
as "you" or the Representative"), with respect to the sale by the Company and
the purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of shares ("Shares") of the Company's common stock, $.001
par value per share ("Common Stock"), set forth in Schedule A hereto.
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriters, acting severally and
not jointly, up to an additional 202,500 shares of Common Stock for the
purpose of covering over-allotments, if any. Such 202,500 shares of Common
Stock are hereinafter referred to as the "Option Securities." The Company
also proposes to issue and sell to you warrants (the "Representative's
Warrants") pursuant to the Representative's Warrant Agreement (the
"Representative's Warrant Agreement") for the purchase of an additional
135,000 shares of Common Stock. The shares of
<PAGE>
Common Stock issuable upon exercise of the Representative's Warrants are
hereinafter referred to as the "Representative's Securities." The Common
Stock, the Option Securities, the Representative's Warrants and the
Representative's Securities (collectively, hereinafter referred to as the
"Securities") are more fully described in the Registration Statement and the
Prospectus referred to below.
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, each of the Underwriters as of the date
hereof, and as of the Closing Date (as hereinafter defined) and each Option
Closing Date (as hereinafter defined), if any, as follows:
a. The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 333-42053) including any
related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Common Stock, the Option Securities and the
Representative's Securities under the Securities Act of 1933, as amended (the
"Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act, and
the rules and regulations (the "Regulations") of the Commission under the
Act. The Company will promptly file a further amendment to said registration
statement in the form heretofore delivered to the Underwriters and will not
file any other amendment thereto to which the Underwriters shall have
objected in writing after having been furnished with a copy thereof. Except
as the context may otherwise require, such registration statement, as
amended, on file with the Commission at the time the registration statement
becomes effective (including the prospectus, financial statements, schedules,
exhibits and all other documents filed as a part thereof or incorporated
therein (including, but not limited to those documents or information
incorporated by reference therein) and all information deemed to be a part
thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the
Regulations), is hereinafter called the "Registration Statement," and the
form of prospectus in the form first filed with the Commission pursuant to
Rule 424(b) of the Regulations, is hereinafter called the "Prospectus." For
purposes hereof, "Rules and Regulations" mean the rules and regulations
adopted by the Commission under either the Act or the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as applicable.
b. Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or Prospectus or any part of any
thereof and no proceedings for a stop order suspending the effectiveness of
the Registration Statement or any of the Company's securities have been
instituted or are pending or threatened. Each of the Preliminary Prospectus,
2
<PAGE>
the Registration Statement and Prospectus at the time of filing thereof,
conformed with the requirements of the Act and the Rules and Regulations, and
none of the Preliminary Prospectus, the Registration Statement or Prospectus
at the time of filing thereof, contained any untrue statement of material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except that this representation and
warranty does not apply to statements made in reliance upon and in conformity
with written information furnished to the Company with respect to the
Underwriters by or on behalf of the Underwriters expressly for use in such
Preliminary Prospectus, Registration Statement or Prospectus or any amendment
thereof or supplement thereto.
c. When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (as defined herein) and each
Option Closing Date (as defined herein), if any, and during such longer
period as the Prospectus may be required to be delivered in connection with
sales by the Underwriters or a dealer, the Registration Statement and the
Prospectus will contain all statements which are required to be stated
therein in accordance with the Act and the Rules and Regulations, and will
conform to the requirements of the Act and the Rules and Regulations; neither
the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, will contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
are made, not misleading, provided, however, that this representation and
warranty does not apply to statements made or statements omitted in reliance
upon and in strict conformity with information furnished to the Company in
writing by or on behalf of any Underwriter expressly for use in the
Preliminary Prospectus, Registration Statement or Prospectus or any amendment
thereof or supplement thereto.
d. Each of the Company and the Company's wholly-owned subsidiary,
(such subsidiary being the only subsidiary that is a "significant subsidiary"
(as defined in the Rules and Regulations) of the Company, is hereinafter
referred to as the "Subsidiary"), has been duly organized and is validly
existing as a corporation in good standing under the laws of the state of its
incorporation. Except as set forth in the Prospectus, neither the Company nor
the Subsidiary own an interest in any corporation, partnership, trust, joint
venture or other business entity. Each of the Company and the Subsidiary is
duly qualified and licensed and in good standing as a foreign corporation in
each jurisdiction in which its ownership or leasing or any properties or the
character of its operations requires such qualification or licensing. The
Company owns, directly or indirectly, one hundred percent (100%) of the
outstanding capital stock of the Subsidiary, and all of such shares have been
validly issued, are fully paid and non-assessable, were not issued in
violation of any preemptive rights, and, except as set forth in the
Prospectus, are owned free and clear of any liens charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever. Each of the Company and the Subsidiary has
all requisite power and authority (corporate and other), and has obtained any
and all necessary authorizations, approvals, orders,
3
<PAGE>
licenses, certificates, franchises and permits of and from all governmental
or regulatory officials and bodies (including, without limitation, those
having jurisdiction over environmental or similar matters), domestic or
foreign, to own or lease its properties and conduct its business as described
in the Prospectus; each of the Company and the Subsidiary is and has been
doing business in compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and all applicable federal,
state, local and foreign laws, rules and regulations; and neither the Company
nor the Subsidiary have received any notice of proceedings relating to the
revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would
materially and adversely affect the condition, financial or otherwise, or the
earnings, position, prospects, value, operation, properties, business or
results of operations of the Company or the Subsidiary. The disclosures in
the Registration Statement concerning the effects of federal, state, local,
and foreign laws, rules and regulations on the Company's and the Subsidiary'
businesses as currently conducted and as contemplated, are correct in all
material respects and do not omit to state a material fact required to be
stated therein or necessary to make the statements contained therein, not
misleading, in light of the circumstances under which they were made.
e. The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set
forth therein on the Closing Date and each Option Closing Date, if any, based
upon the assumptions set forth therein, and the Company is not a party to or
bound by any instrument, agreement or other arrangement providing for it to
issue any capital stock, rights, warrants, options or other securities,
except for this Agreement and the Representative's Warrant Agreement and as
described in the Prospectus. The Securities and all other securities issued
or issuable by the Company conform or, when issued and paid for, will
conform, in all respects to all statements with respect thereto contained in
the Registration Statement and the Prospectus. All issued and outstanding
securities of the Company have been duly authorized and validly issued and
are fully paid and non-assessable and the holders thereof have no rights of
rescission with respect thereto, and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security of the
Company or similar contractual rights granted by the Company. The Securities
are not and will not be subject to any preemptive or other similar rights of
any stockholder, have been duly authorized and, when issued, paid for and
delivered in accordance with the terms hereof, will be validly issued, fully
paid and non-assessable and will conform to the description thereof contained
in the Prospectus; the holders thereof will not be subject to any liability
solely as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities has been duly and validly
taken; and the certificates representing the Securities will be in due and
proper form. Upon the issuance and delivery pursuant to the terms hereof of
the Securities to be sold by the Company hereunder,
4
<PAGE>
the Underwriters or the Representative, as the case may be, will acquire good
and marketable title to such Securities free and clear of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other restriction or
equity of any kind whatsoever.
f. The consolidated financial statements of the Company and the
Subsidiary, together with the related notes and schedules thereto, included
in the Registration Statement, each Preliminary Prospectus and the
Prospectus, fairly present the financial position, income, changes in cash
flow, changes in stockholders' equity and the results of operations of the
Company and the Subsidiary at the respective dates and for the respective
periods to which they apply and such financial statements, have been prepared
in conformity with generally accepted accounting principles and the Rules and
Regulations, consistently applied throughout the periods involved and such
financial statements as are audited have been examined by Richard A. Eisner &
Company, LLP, as applicable, who are independent certified public accountants
within the meaning of the Act and the Rules and Regulations, as indicated in
their respective reports filed therewith. There has been no adverse change or
development involving a prospective adverse change in the condition,
financial or otherwise, or in the earnings, position, prospects, value,
operation, properties, business, or results of operations of the Company and
the Subsidiary taken as a whole, whether or not arising in the ordinary
course of business, since the date of the financial statements included in
the Registration Statement and the Prospectus and the outstanding debt, the
property, both tangible and intangible, and the business of the Company and
the Subsidiary, conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. Financial
information (including, without limitation, any pro forma financial
information) set forth in the Prospectus under the headings "Summary
Consolidated Financial Information," "Selected Consolidated Financial Data,"
"Capitalization," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, on the basis stated in
the Prospectus, the information set forth therein, and have been derived from
or compiled on a basis consistent with that of the audited financial
statements included in the Prospectus; and, in the case of pro forma
financial information, if any, the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate to
give effect to the transactions and circumstances referred to therein. The
amounts shown as accrued for current and deferred income and other taxes in
such financial statements are sufficient for the payment of all accrued and
unpaid federal, state, local and foreign income taxes, interest, penalties,
assessments or deficiencies applicable to the Company and the Subsidiary,
whether disputed or not, for the applicable period then ended and periods
prior thereto; adequate allowance for doubtful accounts has been provided for
unindemnified losses due to the operations of the Company and the Subsidiary;
and the statements of income do not contain any items of special or
nonrecurring income not earned in the ordinary course of business, except as
specified in the notes thereto.
5
<PAGE>
g. Each of the Company and the Subsidiary (i) has paid all federal,
state, local, and foreign taxes for which it is liable, including, but not
limited to, withholding taxes and amounts payable under Chapters 21 through
24 of the Internal Revenue Code of 1986, as amended (the "Code"), and has
furnished all information returns it is required to furnish pursuant to the
Code, (ii) has established adequate reserves for such taxes which are not due
and payable, and (iii) does not have any tax deficiency or claims
outstanding, proposed or assessed against it.
h. No transfer tax, stamp duty or other similar tax is payable by or
on behalf of the Underwriters in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Underwriters of the
Common Stock and the Option Securities from the Company and the purchase by
the Representative of the Representative's Warrants from the Company, (iii)
the consummation by the Company of any of its obligations under this
Agreement, or (iv) resales of the Common Stock and the Option Securities in
connection with the distribution contemplated hereby.
1. Each of the Company and the Subsidiary maintains insurance
policies, including, but not limited to, general liability, product and
property insurance, which insures each of the Company, the Subsidiary and
their respective employees, against such losses and risks generally insured
against by comparable businesses. Neither the Company nor the Subsidiary (A)
have failed to give notice or present any insurance claim with respect to any
matter, including but not limited to the Company's business, property or
employees, under any insurance policy or surety bond in a due and timely
manner, (B) have any disputes or claims against any underwriter of such
insurance policies or surety bonds or has failed to pay any premiums due and
payable thereunder, or (C) have failed to comply with all conditions
contained in such insurance policies and surety bonds. There are no facts or
circumstances under any such insurance policy or surety bond which would
relieve any insurer of its obligation to satisfy in full any valid claim of
the Company or the Subsidiary.
j. There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the
Company or the Subsidiary which (i) questions the validity of the capital
stock of the Company, this Agreement or the Representative's Warrant
Agreement, or of any action taken or to be taken by the Company pursuant to
or in connection with this Agreement or the Representative's Warrant
Agreement, (ii) is required to be disclosed in the Registration Statement
which is not so disclosed (and such proceedings as are summarized in the
Registration Statement are accurately summarized in all material respects),
or (iii) might materially and adversely affect the condition, financial or
otherwise, or the earnings, position, prospects,
6
<PAGE>
stockholders' equity, value, operation, properties, business or results of
operations of the Company and the Subsidiary taken as a whole.
k. The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, enter into this Agreement
and the Representative's Warrant Agreement and to consummate the transactions
provided for in this Agreement and the Representative's Warrant Agreement;
and this Agreement and the Representative's Warrant Agreement have each been
duly and properly authorized, executed and delivered by the Company. Each of
this Agreement and the Representative's Warrant Agreement constitutes a
legal, valid and binding agreement of the Company enforceable against the
Company in accordance with its terms, and none of the Company's issue and
sale of the Securities, execution or delivery of this Agreement or the
Representative's Warrant Agreement, its performance hereunder and thereunder,
its consummation of the transactions contemplated herein and therein, or the
conduct of its business as described in the Registration Statement, the
Prospectus, and any amendments or supplements thereto, conflicts with or will
conflict with or results or will result in any breach or violation of any of
the terms or provisions of, or constitutes or will constitute a default
under, or result in the creation or imposition of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or equity
of any kind whatsoever upon, any property or assets (tangible or intangible)
of either the Company or the Subsidiary pursuant to the terms of (i) the
certificate of incorporation or by-laws of either the Company or the
Subsidiary, (ii) any license, contract, collective bargaining agreement,
indenture, mortgage, deed of trust, lease, voting trust agreement,
stockholders agreement, note, loan or credit agreement or any other agreement
or instrument to which either the Company or the Subsidiary are a party or by
which either the Company or the Subsidiary are or may be bound or to which
any of their respective properties or assets (tangible or intangible) is or
may be subject, or any indebtedness, or (iii) any statute, judgment, decree,
order, rule or regulation applicable to either the Company or the Subsidiary
of any arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign,
having jurisdiction over either the Company or the Subsidiary or any of their
respective activities or properties.
1. No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic
or foreign, is required for the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the performance of this Agreement
and the Representative's Warrant Agreement and the transactions contemplated
hereby and thereby, including without limitation, any waiver of any
preemptive, first refusal or other rights that any entity or person may have
for the issue and/or sale of any of the Securities, except such as have been
or may be obtained under the Act or may be required under state securities or
Blue Sky laws in connection with the Underwriters'
7
<PAGE>
purchase and distribution of the Common Stock and the Option Securities, and
the Representative's Warrants to be sold by the Company hereunder.
m. All executed agreements, contracts or other documents or copies
of executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which either the Company or the Subsidiary are a
party or by which either of them may be bound or to which any of their
respective assets, properties or business may be subject have been duly and
validly authorized, executed and delivered by the Company or the Subsidiary,
as the case may be, and constitute the legal, valid and binding agreements of
the Company or the Subsidiary, as the case may be, enforceable against each
of them in accordance with their respective terms. The descriptions in the
Registration Statement of agreements, contracts and other documents are
accurate and fairly present the information required to be shown with respect
thereto by Form SB-2, and there are no contracts or other documents which are
required by the Act to be described in the Registration Statement or filed as
exhibits to the Registration Statement which are not described or filed as
required, and the exhibits which have been filed are complete and correct
copies of the documents of which they purport to be copies.
n. Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, neither the Company
nor the Subsidiary have (i) issued any securities or incurred any liability
or obligation, direct or contingent, for borrowed money, (ii) entered into
any transaction other than in the ordinary course of business, or (iii)
declared or paid any dividend or made any other distribution on or in respect
of its capital stock of any class. and there has not been any change in the
capital stock, or any change in the debt (long or short term) or liabilities
or material adverse change in or affecting the general affairs, management,
financial operations, stockholders' equity or results of operations of either
the Company or the Subsidiary.
o. No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, collective bargaining
agreement, indenture, mortgage, installment sale agreement, lease, deed of
trust, voting trust agreement, stockholders agreement, partnership agreement,
note, loan or credit agreement, purchase order, or any other agreement or
instrument evidencing an obligation for borrowed money, or any other material
agreement or instrument to which either the Company or the Subsidiary are a
party or by which either the Company or the Subsidiary may be bound or to
which the property or assets (tangible or intangible) of either the Company
or the Subsidiary are subject or affected.
p. Each of the Company and the Subsidiary has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
compliance with all federal, state, local, and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours. There are no pending
8
<PAGE>
investigations involving either the Company or the Subsidiary by the U.S.
Department of Labor, or any other governmental agency responsible for the
enforcement of such federal, state, local or foreign laws and regulations.
There is no unfair labor practice charge or complaint against either the
Company or the Subsidiary pending before the National Labor Relations Board,
or any comparable foreign agency, or any lockout, strike, picketing, boycott,
dispute, slowdown or stoppage pending or threatened against or involving
either the Company or the Subsidiary, or any predecessor entity, and none has
ever occurred. No representation question exists respecting the employees of
either the Company or the Subsidiary, and no collective bargaining agreement
or modification thereof is currently being negotiated by either the Company
or the Subsidiary. No grievance or arbitration proceeding is pending under
any expired or existing collective bargaining agreements of either the
Company or the Subsidiary. No labor dispute with the employees of either the
Company or the Subsidiary exists, or, is imminent.
q. Neither the Company nor the Subsidiary maintain, sponsor or
contribute to any program or arrangement that is an "employee pension benefit
plan," an "employee welfare benefit plan," or a "multiemployer plan" as such
terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA
Plans"). Neither the Company nor the Subsidiary maintain or contribute, now
or at any time previously, to a defined benefit plan, as defined in Section
3(35) of ERISA. No ERISA Plan (or any trust created thereunder) has engaged
in a "prohibited transaction" within the meaning of Section 406 of ERISA or
Section 4975 of the Code, which could subject the Company or the Subsidiary
to any tax penalty on prohibited transactions and which has not adequately
been corrected. Each ERISA Plan is in compliance with all reporting,
disclosure and other requirements of the Code and ERISA as they relate to any
such ERISA Plan. Determination letters have been received from the Internal
Revenue Service with respect to each ERISA Plan which is intended to comply
with Code Section 401(a), stating that such ERISA Plan and the attendant
trust are qualified thereunder. Neither the Company nor the Subsidiary have
ever completely or partially withdrawn from a "multiemployer plan."
r. Neither the Company, the Subsidiary, nor any of their respective
employees, directors, stockholders, partners, or affiliates (within the
meaning of the Rules and Regulations) of any of the foregoing have taken or
will take, directly or indirectly, any action designed to or which has
constituted or which might be expected to cause or result in, under the
Exchange Act, or otherwise, stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Securities or
otherwise.
s. Except as otherwise disclosed in the Prospectus, none of the
patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights to the foregoing presently owned or held
by either the Company or the Subsidiary, are in dispute so far as known by
the Company or are in any conflict with the right of any other
9
<PAGE>
person or entity. Each of the Company and the Subsidiary (i) owns or has the
right to use, free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities of any
kind whatsoever, all patents, trademarks, service marks, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to be
conducted without infringing upon or otherwise acting adversely to the right
or claimed right of any person, corporation or other entity under or with
respect to any of the foregoing and (ii) is not obligated or under any
liability whatsoever to make any payment by way of royalties, fees or
otherwise to any owner or licensee of, or other claimant to, any patent,
trademark, service mark, trade name, copyright, know-how, technology or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
t. Each of the Company and the Subsidiary owns and has the
unrestricted right to use all trade secrets, know-how (including all other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), inventions, designs, processes, works of authorship,
computer programs and technical data and information (collectively herein
"intellectual property") that are material to the development, manufacture,
operation and sale of all products and services sold or proposed to be sold
by either the Company or the Subsidiary, free and clear of and without
violating any right, lien, or claim of others, including without limitation,
former employers of its employees; provided, however, that the possibility
exists that other persons or entities, completely independently of either the
Company or the Subsidiary, or any of their respective employees or agents,
could have developed trade secrets or items of technical information similar
or identical to those of either the Company or the Subsidiary. Neither the
Company nor the Subsidiary are aware of any such development of similar or
identical trade secrets or technical information by others.
u. Each of the Company and the Subsidiary has taken reasonable
security measures to protect the secrecy, confidentiality and value of its
intellectual property in all material respects.
v. Each of the Company and the Subsidiary has good and marketable
title to, or valid and enforceable leasehold estates in, all items of real
and personal property stated in the Prospectus to be owned or leased by it,
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects, or other restrictions or equities of any kind whatsoever,
other than those referred to in the Prospectus and liens for taxes not yet
due and payable.
w. Richard E. Eisner & Company, LLP, whose reports are filed with
the Commission as a part of the Registration Statement, are independent
certified public accountants as required by the Act and the Rules and
Regulations.
10
<PAGE>
x. The Company has caused to be duly executed legally binding and
enforceable agreements ("Lock-up Agreements") pursuant to which each of the
officers and directors of the Company, all holders of Shares of Common Stock
issued and outstanding on the effective date of the Registration Statement,
and all holders of options, warrants or other securities exchangeable or
exercisable for or convertible into Shares of Common Stock issued and
outstanding on the effective date of the Registration Statement has agreed
(i) not to, directly or indirectly, issue, offer, offer to sell, sell, grant
any option for the sale or purchase of, assign, transfer, pledge, hypothecate
or otherwise encumber or dispose of any shares of Common Stock or securities
convertible into, exercisable or exchangeable for or evidencing any right to
purchase or subscribe for any shares of Common Stock (either pursuant to Rule
144 of the Rules and Regulations or otherwise) or dispose of any beneficial
interest therein for a period of not less than twelve (12) months following
the effective date of the Registration Statement without the prior written
consent of Network 1 and (ii) to waive all rights to request or demand the
registration pursuant to the Act of any securities of the Company which are
registered in the name of or beneficially owned by any such holder. During
the twelve (12) month period commencing on the effective date of the
Registration Statement, the Company shall not, without the prior written
consent of the Representative, sell, contract or offer to sell, issue,
transfer, assign, pledge, distribute, or otherwise dispose of, directly or
indirectly, any shares of Common Stock or any options, rights or warrants
with respect to any shares of Common Stock, except pursuant to (i) the
exercise of the Representative's Warrants, (ii) options outstanding or
available for grant under the Company's option plans existing on the date
hereof (and subject to their issuance at the greater of fair market value and
$______ [the initial public offering price] per share of Common Stock on the
date of grant) and (iv) the Company's stock purchase plan existing on the
date hereof; provided, however, that the Company and any Subsidiary or
affiliates thereof may sell or offer for sale any of their securities without
the consent of the Representative in connection with any merger or
acquisition transaction, joint venture or other "corporate partnering"
transaction entered into by any of the Company and its Subsidiary or
affiliates. The Company will cause the Transfer Agent (as hereinafter
defined) to mark an appropriate legend on the face of stock certificates
representing all of such securities and to place "stop transfer" orders on
the Company's stock ledgers.
y. There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities
hereunder or any other arrangements, agreements, understandings, payments or
issuance with respect to the Company, the Subsidiary, or any of their
respective officers, directors, stockholders, partners, employees or
affiliates, that may affect the Underwriters' compensation, as determined by
the National Association of Securities Dealers, Inc. ("NASD").
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z. The Common Stock has been approved for quotation on the Nasdaq
SmallCap Market ("Nasdaq").
aa. None of the Company, the Subsidiary, nor any of their
respective officers, employees, agents or any other person acting on behalf
of either the Company or the Subsidiary have, directly or indirectly, given
or agreed to give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any customer,
supplier, employee or agent of a customer or supplier, or official or
employee of any governmental agency (domestic or foreign) or instrumentality
of any government (domestic or foreign) or any political party or candidate
for office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of either the Company or the
Subsidiary (or assist either the Company or the Subsidiary in connection with
any actual or proposed transaction) which (a) might subject either the
Company or the Subsidiary, or any other such person to any damage or penalty
in any civil, criminal or governmental litigation or proceeding (domestic or
foreign), (b) if not given in the past, might have had a material adverse
effect on the assets, business or operations of either the Company or the
Subsidiary, or (c) if not continued in the future, might adversely affect the
assets, business, condition, financial or otherwise, earnings, position,
properties, value, operations or prospects of either the Company or the
Subsidiary. The Company's and the Subsidiary' internal accounting controls
are sufficient to cause each of the Company and the Subsidiary to comply with
the Foreign Corrupt Practices Act of 1977, as amended.
bb. Except as set forth in the Prospectus, no officer,
director, stockholder or partner of the Company or of the Subsidiary, or any
"affiliate" or "associate" (as these terms are defined in Rule 405
promulgated under the Rules and Regulations) of any of the foregoing persons
or entities has or has had, either directly or indirectly, (i) an interest in
any person or entity which (A) furnishes or sells services or products which
are furnished or sold or are proposed to be furnished or sold by either the
Company or the Subsidiary, or (B) purchases from or sells or furnishes to
either the Company or the Subsidiary any goods or services, or (ii) a
beneficiary interest in any contract or agreement to which the Company or the
Subsidiary are a party or by which it may be bound or affected. Except as set
forth in the Prospectus under "Certain Transactions," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among
the Company or the Subsidiary, and any officer, director, or 5% or greater
securityholder of the Company or the Subsidiary, or any partner, affiliate or
associate of any of the foregoing persons or entities.
cc. Any certificate signed by any officer of the Company or the
Subsidiary, and delivered to the Underwriters or to Underwriters' Counsel (as
defined herein)
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shall be deemed a representation and warranty by the Company to the
Underwriters as to the matters covered thereby.
dd. The minute books of each of the Company and the Subsidiary
have been made available to the Underwriters and contain a summary of all
meetings and actions of the directors (including committees thereof) and
stockholders of each of the Company and the Subsidiary, since their
respective dates of incorporation, and reflect all transactions referred to
in such minutes accurately in all material respects.
ee. Except and to the extent described in the Prospectus, no
holders of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to
include any securities issued by the Company in the Registration Statement or
any registration statement to be filed by the Company or to require the
Company to file a registration statement under the Act and no person or
entity holds any anti-dilution rights with respect to any securities of the
Company.
ff. (A) Each of the Company and the Subsidiary is in compliance
with all federal, state, local or foreign laws, common law, rules, codes,
administrative orders or regulations relating to pollution or protection of
human health, the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or wildlife,
including without limitation, all laws, common law, rules, codes,
administrative orders and regulations relating to the release or threatened
release of chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum or petroleum products (collectively,
"Hazardous Materials") or to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials
(collectively, "Environmental Laws") and (B) to the best of the Company's
knowledge, there are no events or circumstances that could form the basis of
an order for clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting either the
Company or the Subsidiary relating to any Hazardous Materials or the
violation of any Environmental Laws. The Company has no reason to believe
that it will not receive all necessary and required approvals,
authorizations, validations and certifications from the EPA and other
applicable regulatory authorities to enable the Company to commence full
operations as contemplated in the Registration Statement and the Prospectus.
gg. The Company has as of the effective date of the
Registration Statement entered into an employment agreement with each Deepa
Chitre and Mr. Barry Wald in the form filed as Exhibit 10.2 and 10.1,
respectively, to the Registration Statement. The Company has obtained
key-person life insurance on the life of Dr. Deepa Chitre in the amount of
two million ($2,000,000), naming the Company as the beneficiary under the
policy.
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hh. As of the date hereof, the Company does not have more than
3,569,702 shares of Common Stock issued and outstanding (including securities
with equivalent rights as the Common Stock and shares of Common Stock, or
such equivalent securities, issuable upon exercise of any and all options,
warrants and other contract rights and securities convertible directly or
indirectly into shares of Common Stock or such equivalent securities, but
excluding (i) 70,000 shares of Common Stock reserved for issuance upon
exercise of stock options granted, and 157,986 shares of Common Stock
reserved for issuance upon exercise of stock options available for future
grant, under the Company's 1997 Stock Option Plan; (ii) 300,970 shares of
Common Stock reserved for issuance upon exercise of currently outstanding
non-Option Plan options; (iii) 475,000 shares of Common Stock reserved for
issuance upon exercise of currently outstanding warrants; and (iv) 135,000
shares of Common Stock reserved for issuance upon exercise of the
Representative's Warrants.
ii. Each of the Company and the Subsidiary confirms as of the
date hereof that it is in compliance with all provisions of Section 1 of Laws
of Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business
with Cuba, and each of the Company and the Subsidiary further agrees that if
it or any affiliate commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the Commission or
with the Florida Department of Banking and Finance (the "Department"),
whichever date is later, or if the information reported or incorporated by
reference in the Prospectus, if any, concerning the Company's, the
Subsidiary' or any affiliate's, business with Cuba or with any person or
affiliate located in Cuba changes in any material way, the Company will
provide the Department notice of such business or change, as appropriate, in
a form acceptable to the Department.
jj. The Company is not, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net proceeds
therefrom as described in the Prospectus under the caption "Use of Proceeds"
will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company Act
of 1940, as amended (the "1940 Act").
kk. Each of the Company and the Subsidiary maintains a system
of internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's
general or specific authorizations; and (iv) the recorded accountability for
assets is compared with the
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<PAGE>
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
ll. Except as set forth in the Prospectus, each of the Company
and the Subsidiary (i) is in all material respects in compliance with the
provisions of all laws relating to the regulation of the Company's products,
including the Federal Food Drug and Cosmetic act (the "FD&C Act") and all
comparable state, local and foreign laws, the rules and regulations
promulgated thereunder and all rules and regulations promulgated by the
United States Food and Drug Administration (the "FDA") and all comparable
state, local and foreign regulatory authorities; (ii) has all authorizations,
approvals, consents, orders, registrations, licenses or permits of any court
or the FDA and all comparable state and foreign regulatory authorities which
are necessary or required to conduct its business; (iii) has had no material
liabilities, debts, obligations or claims asserted against it, whether
accrued, absolute, contingent or otherwise, and whether due or to become due,
on account of such regulatory matters and (iv) does not manufacture,
fabricate or market any product or perform any service which is subject to
regulation by the FDA, or to any provision of the FD&C Act, or any rule or
regulation promulgated thereunder. The language contained in the Prospectus
with respect to the FDA and all comparable state and foreign regulatory
authorities, the laws relating to the regulation of the Company's products,
including the FD&C Act and all comparable state, local and foreign laws,
rules and regulations, and all other such 12 regulatory matters, is accurate,
complete and true in all material respects and does not omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
2. Purchase Sale and Delivery of the Securities.
a. On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to each Underwriter, and each
Underwriter, severally and not jointly, agrees to purchase from the Company
at a price of $______ per Share, that number of Common Stock set forth in
Schedule A opposite the name of such Underwriter, subject to such adjustment
as the Representative in its sole discretion shall make to eliminate any
sales or purchases of fractional shares, plus any additional number of Common
Stock which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 11 hereof.
b. In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of an
additional 202,500 shares of Common Stock at a price of $____ per share of
Common Stock. The option granted hereby will expire forty-five (45) days
after (i)
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the date the Registration Statement becomes effective, if the Company has
elected not to rely on Rule 430A under the Rules and Regulations, or (ii) the
date of this Agreement if the Company has elected to rely upon Rule 430A
under the Rules and Regulations, and may be exercised in whole or in part
from time to time only for the purpose of covering over-allotments which may
be made in connection with the offering and distribution of the Common Stock
upon notice by the Representative to the Company setting forth the number of
Option Securities as to which the several Underwriters are then exercising
the option and the time and date of payment and delivery for any such Option
Securities. Any such time and date of delivery (an "Option Closing Date"')
shall be determined by the Representative, but shall not be later than three
(3) full business days after the exercise of said option, nor in any event
prior to the Closing Date, as hereinafter defined, unless otherwise agreed
upon by the Representative and the Company. Nothing herein contained shall
obligate the Underwriters to make any over-allotments. No Option Securities
shall be delivered unless the Common Stock shall be simultaneously delivered
or shall theretofore have been delivered as herein provided.
c. Payment of the purchase price for, and delivery of certificates
for, the Common Stock shall be made at the offices of the Representative at
The Galleria, 2 Bridge Avenue, Penthouse, Building 2, Red Bank, New Jersey
07701, or at such other place as shall be agreed upon by the Representative
and the Company. Such delivery and payment shall be made at 10:00 a.m. (New
York City time) on ____________, 1998 [settlement date] or at such other time
and date as shall be agreed upon by the Representative and the Company, but
not less than three (3) nor more than five (5) full business days after the
effective date of the Registration Statement (such time and date of payment
and delivery being herein called the "Closing Date"). In addition, in the
event that any or all of the Option Securities are purchased by the
Underwriters, payment of the purchase price for, and delivery of certificates
for, such Option Securities shall be made at the above-mentioned office of
the Representative or at such other place as shall be agreed upon by the
Representative and the Company on each Option Closing Date as specified in
the notice from the Representative to the Company. Delivery of the
certificates for the Common Stock and the Option Securities, if any, shall be
made to the Underwriters against payment by the Underwriters, severally and
not jointly, of the purchase price for the Common Stock and the Option
Securities, if any, to the order of the Company for the Common Stock and the
Option Securities, if any, by New York Clearing House funds. In the event
such option is exercised, each of the Underwriters, acting severally and not
jointly, shall purchase that proportion of the total number of Option
Securities then being purchased which the number of Common Stock set forth in
Schedule A hereto opposite the name of such Underwriter bears to the total
number of Common Stock, subject in each case to such adjustments as the
Representative in its discretion shall make to eliminate any sales or
purchases of fractional shares. Certificates for the Common Stock and the
Option Securities, if any, shall be in definitive, fully registered form,
shall bear no restrictive legends and shall be in such denominations and
registered in such names as the Underwriters may request in writing at least
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<PAGE>
two (2) business days prior to the Closing Date or the relevant Option
Closing Date, as the case may be. The certificates for the Common Stock and
the Option Securities, if any, shall be made available to the Representative
at such office or such other place as the Representative may designate for
inspection, checking and packaging no later than 9:30 a.m. on the last
business day prior to the Closing Date or the relevant Option Closing Date,
as the case may be.
d. On the Closing Date, the Company shall issue and sell to the
Representative Representative's Warrants at a purchase price of $10.00, which
Representative's Warrants shall entitle the holders thereof to purchase an
aggregate of 135,000 shares of Common Stock. The Representative's Warrants
shall be exercisable for a period of four (4) years commencing one (1) year
from the effective date of the Registration Statement at $____ per share
[125% of the respective initial public offering price of the Shares]. The
Representative's Warrant Agreement and form of Warrant Certificate shall be
substantially in the forms filed as Exhibits 4.1 and 4.2, respectively, to
the Registration Statement. Payment for the Representative's Warrants shall
be made on the Closing Date.
3. Public Offering of the Shares. As soon after the Registration
Statement becomes effective as the Representative deems advisable, the
Underwriters shall make a public offering of the Shares (other than to
residents of or in any jurisdiction in which qualification of the Shares is
required and has not become effective) at the price and upon the other terms
set forth in the Prospectus. The Representative may from time to time
increase or decrease the respective public offering price after distribution
of the Shares has been completed to such extent as the Representative, in its
sole discretion deems advisable. The Underwriters may enter into one of more
agreements as the Underwriters, in each of their sole discretion, deem
advisable with one or more broker-dealers who shall act as dealers in
connection with such public offering.
4. Covenants and Agreements of the Company. The Company
covenants and agrees with each of the Underwriters as follows:
a. The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective
date of the Registration Statement, file any amendment to the Registration
Statement or supplement to the Prospectus or file any document under the Act
or Exchange Act before termination of the offering of the Shares by the
Underwriters of which the Representative shall not previously have been
advised and furnished with a copy, or to which the Representative shall have
objected or which is not in compliance with the Act, the Exchange Act or the
Rules and Regulations.
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<PAGE>
b. As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Representative and confirm the notice in writing
(i) when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective;
(ii) of the issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceeding suspending the
effectiveness of the Registration Statement or any order preventing or
suspending the use of the Preliminary Prospectus or the Prospectus, or any
amendment or supplement thereto, or the institution of proceedings for that
purpose; (iii) of the issuance by the Commission or by any state securities
commission of any proceedings for the suspension of the qualification of any
of the Securities for offering or sale in any jurisdiction or of the
initiation, or the threatening, of any proceeding for that purpose; (iv) of
the receipt of any comments from the Commission; and (v) of any request by
the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information. If
the Commission or any state securities commission shall enter a stop order or
suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
c. The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to
Rule 424(b)(1) (or, if applicable and if consented to by the Representative,
pursuant to Rule 424(b)(4)) not later than the Commission's close of business
on the earlier of (i) the second business day following the execution and
delivery of this Agreement and (ii) the fifth business day after the
effective date of the Registration Statement.
d. The Company will give the Representative notice of its intention
to file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Securities which differs
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), and will furnish the Representative with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such prospectus to
which the Representative or Virginia K. Sourlis, Esq. ("Underwriters'
Counsel") shall object.
e. The Company shall endeavor in good faith, in cooperation with the
Representative, at or prior to the time the Registration Statement becomes
effective, to qualify
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<PAGE>
the Securities for offering and sale under the securities laws of such
jurisdictions as the Representative may designate to permit the continuance
of sales and dealings therein for as long as may be necessary to complete the
distribution, and shall make such applications, file such documents and
furnish such information as may be required for such purpose; provided,
however, the Company shall not be required to qualify as a foreign
corporation or file a general or limited consent to service of process in any
such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Representative agrees that such action
is not at the time necessary or advisable, use all reasonable efforts to file
and make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.
f. During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with
all requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings
in the Securities in accordance with the provisions hereof and the
Prospectus, or any amendments or supplements thereto. If at any time when a
prospectus relating to the Securities is required to be delivered under the
Act, any event shall have occurred as a result of which, in the opinion of
counsel for the Company or Underwriters' Counsel, the Prospectus, as then
amended or supplemented, includes any untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or if it is necessary at any time to amend
the Prospectus to comply with the Act, the Company will notify the
Representative promptly and prepare and file with the Commission an
appropriate amendment or supplement in accordance with Section 10 of the Act,
each such amendment or supplement to be satisfactory to Underwriters'
Counsel, and the Company will furnish to the Underwriters copies of such
amendment or supplement as soon as available and in such quantities as the
Underwriters may request.
g. As soon as practicable, but in any event not later than
forty-five (45) days after the end of the 12-month period beginning on the
day after the end of the fiscal quarter of the Company during which the
effective date of the Registration Statement occurs (ninety (90) days in the
event that the end of such fiscal quarter is the end of the Company's fiscal
year), the Company shall make generally available to its security holders, in
the manner specified in Rule 158(b) of the Rules and Regulations, and to the
Representative, an earnings statement which will be in the detail required
by, and will otherwise comply with, the provisions of Section 11(a) of the
Act and Rule 158(a) of the Rules and Regulations, which statement need not be
audited unless required by the Act, covering a period of at least twelve (12)
consecutive months after the effective date of the Registration Statement.
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h. During a period of seven (7) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports of earnings, and will deliver to
the Representative:
i. concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in the
form furnished to the Company's stockholders and certified by the Company's
principal financial or accounting officer;
ii. concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity,
and cash flows of the Company for such fiscal year, accompanied by a copy of
the certificate thereon of independent certified public accountants;
iii. as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
iv. as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD or
any securities exchange;
v. every press release and every material news item or article
of interest to the financial community in respect of the Company, or its
affairs, which was released or prepared by or on behalf of the Company; and
vi. any additional information of a public nature concerning
the Company (and any future subsidiary) or its businesses which the
Representative may request.
During such seven-year period, if the Company has an active subsidiary,
the foregoing financial statements will be on a consolidated basis to the
extent that the accounts of the Company and its subsidiary(ies) are
consolidated, and will be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.
i. The Company will maintain a transfer agent and warrant agent
("Transfer Agent") and, if necessary under the jurisdiction of incorporation
of the Company, a Registrar (which may be the same entity as the Transfer
Agent) for its Common Stock.
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j. The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative
may designate, copies of each Preliminary Prospectus, the Registration
Statement and any pre-effective or post-effective amendments thereto (two of
which copies will be signed and will include all financial statements and
exhibits), the Prospectus, and all amendments and supplements thereto,
including any prospectus prepared after the effective date of the
Registration Statement, in each case as soon as available and in such
quantities as the Representative may request.
k. On or before the effective date of the Registration Statement,
the Company shall provide the Representative with true original copies of
duly executed, legally binding and enforceable Lock-up Agreements pursuant to
which, for a period of twelve (12) months from the effective date of the
Registration Statement, each of the Company's officers and directors, or
securityholders (i) will not, directly or indirectly, issue, offer to sell,
sell, grant an option for the sale or purchase of, assign, transfer, pledge,
hypothecate or otherwise encumber or dispose of any shares of Common Stock or
securities convertible into, exercisable or exchangeable for or evidencing
any right to purchase or subscribe for any shares of Common Stock (either
pursuant to Rule 144 of the Rules and Regulations or otherwise) or dispose of
any beneficial interest therein for a period of not less than twelve (12)
months following the effective date of the Registration Statement without the
prior consent of Network 1 and (ii) waives any and all rights to request or
demand the registration pursuant to the Act, of any securities of the Company
which are registered in the name of or beneficially owned by it or he or she,
respectively. During the twelve (12) month period commencing on the effective
date of the Registration Statement, the Company shall not, without the prior
written consent of the Representative, sell, contract or offer to sell,
issue, transfer, assign, pledge, distribute, or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any options, rights or
warrants with respect to any shares of Common Stock, except pursuant to (i)
the exercise of the Representative's Warrants, (ii) options outstanding or
available for grant under the Company's option plans existing on the date
hereof (and subject to their issuance at the greater of fair market value and
$_____ [initial public offering price] per share of Common Stock on the date
of grant), (iii) the Company's stock purchase plan existing on the date
hereof; provided, however, that the Company and any Subsidiary or affiliates
thereof may sell or offer for sale any of their securities without the
consent of the Representative in connection with any merger or acquisition
transaction, joint venture or other "corporate partnering" transaction
entered into by any of the Company and its Subsidiary or affiliates. On or
before the Closing Date, the Company shall deliver instructions to the
Transfer Agent authorizing it to place appropriate legends on the
certificates representing the securities subject to the Lock-up Agreements
and to place appropriate stop transfer orders on the Company's ledgers.
l. None of the Company, the Subsidiary, nor any of their respective
officers, directors, stockholders, nor any of their respective affiliates
(within the meaning of the
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Rules and Regulations) will take, directly or indirectly, any action designed
to, or which might in the future reasonably be expected to cause or result
in, stabilization or manipulation of the price of any securities of the
Company.
m. The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use
of Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
n. The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may
be required pursuant to Rule 463 under the Act) from time to time, under the
Act, the Exchange Act, and the Rules and Regulations, and all such reports,
forms and documents filed will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act, and the Rules and
Regulations.
o. The Company shall furnish to the Representative as early as
practicable prior to each of the date hereof, the Closing Date and each
Option Closing Date, if any, but no later than two (2) full business days
prior thereto, a copy of the latest available unaudited interim financial
statements of the Company (which in no event shall be as of a date more than
thirty (30) days prior to the date of the Registration Statement) which have
been read by the Company's independent public accountants, as stated in their
letters to be furnished pursuant to Sections 6(1) and 6(m) hereof.
p. The Company shall cause the Common Stock to be quoted on Nasdaq
and, for a period of seven (7) years from the date hereof, use its best
efforts to maintain the Nasdaq quotation of the Common Stock to the extent
outstanding.
q. For a period of five (5) years from the Closing Date, the Company
shall furnish to the Representative at the Representative's reasonable
requests and at the Company's sole expense, (i) daily consolidated transfer
sheets relating to the Common Stock (ii) the list of holders of all of the
Company's securities and (iii) a Blue Sky "Trading Survey" for secondary
sales of the Company's securities prepared by counsel to the Company.
r. As soon as practicable, (i) but in no event more than five (5)
business days before the effective date of the Registration Statement, file a
Form 8-A with the Commission providing for the registration under the
Exchange Act of the Securities and (ii) but in no event more than thirty (30)
days after the effective date of the Registration Statement, take all
necessary and appropriate actions to be included in Standard and Poor's
Corporation Descriptions and to continue such inclusion for a period of not
less than seven (7) years.
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<PAGE>
s. The Company hereby agrees that it will not, for a period of
twelve (12) months from the effective date of the Registration Statement,
adopt, propose to adopt or otherwise permit to exist any employee, officer,
director, consultant or compensation plan or similar arrangement permitting
(i) the grant, issue, sale or entry into any agreement to grant, issue or
sell any option, warrant or other contract right (x) at an exercise price
that is less than the greater of the public offering price of the Shares set
forth herein and the fair market value on the date of grant or sale or (y) to
any of its executive officers or directors or to any holder of 5% or more of
the Common Stock, except as provided in subsection (ii) of this subparagraph;
(ii) the maximum number of shares of Common Stock or other securities of the
Company purchasable at any time pursuant to options or warrants issued by the
Company to exceed those 988,956 shares reserved for future issuance under
options granted, the Company's 1997 Stock Option Plan, Company's Non-Option
Plan options, currently outstanding warrants as described in footnote one (1)
to the "Prospectus Summary - The Offering" section of the Prospectus; (iii)
the payment for such securities with any form of consideration other than
cash; or (iv) the existence of stock appreciation rights, phantom options or
similar arrangements.
t. Until the completion of the distribution of the Securities, the
Company shall not, without the prior written consent of the Representative
and Underwriters' Counsel, issue, directly or indirectly, any press release
or other communication or hold any press conference with respect to the
Company or its activities or the offering contemplated hereby, other than
trade releases issued in the ordinary course of the Company's business
consistent with past practices with respect to the Company's operations.
u. For a period equal to the lesser of (i) seven (7) years from the
date hereof, and (ii) the sale to the public of the Representative's
Securities, the Company will not take any action or actions which may prevent
or disqualify the Company's use of Form SB-2 (or other appropriate form) for
the registration under the Act of the Representative's Securities. The
Company further agrees to use its best efforts to file such post-effective
amendments to the Registration Statement, as may be necessary, in order to
maintain its effectiveness and to keep such Registration Statement effective
while any of the Representative's Warrants remain outstanding.
v. At the effective date of the Registration Statement and on each
of the Closing Date and each Option Closing Date, if any, the Company shall
have obtained all necessary and required approvals, authorizations,
franchises, licenses, orders, permits, validations and certifications from
all domestic and foreign regulatory authorities required to conduct its
business as presently conducted and described in the Prospectus, and none of
such approvals, authorizations,
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AyurCore, Inc.
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franchises, licenses, orders, permits, validations and certifications shall
have been revoked, restricted or limited in any manner and all of such
approvals, authorizations, franchises, licenses, orders, permits, validations
and certifications shall be in full force and effect on each of the effective
date of the Registration Statement, the Closing Date and each Option Closing
Date, if any.
w. The Company hereby agrees that the Representative
may nominate for election one person to the Company's Board of Directors
(which person shall be reasonably acceptable to the Company) for a period of
three (3) years from the Effective Date and that certain of the Company's
officers, directors and stockholders have agreed to vote their shares of
common stock in favor of such designee. In the event the Representative
elects not to exercise the right as set forth in this paragraph, then the
Representative may designate one person (which person shall be reasonably
acceptable to the Company) to attend meetings of the Company's Board of
Directors as a non-voting advisor. Such designee shall be entitled to attend
all such meetings of the Company's Board of Directors and to receive all
notices and other correspondence and communications sent by the Company to
members of its Board of Directors. The Company shall reimburse designees of
the Representative for their out-of-pocket expenses incurred in connection
with their attendance of meetings of the Company's Board of Directors.
x. Supply the Representative with three (3), and
Virginia K. Sourlis, Esq., with two (2), bound volumes of the underwriting
materials within a reasonable time after the latest Closing Date.
5. Payment of Expenses.
a. The Company hereby agrees to pay on each of the
Closing Date and the Option Closing Date (to the extent not paid at the
Closing Date) all expenses and fees (other than fees of Underwriters'
Counsel, except as provided in (iv) below) incident to the performance of the
obligations of the Company under this Agreement and the Representative's
Warrant Agreement, including, without limitation, (i) the fees and expenses
of accountants and counsel for the Company, (ii) all costs and expenses
incurred in connection with the preparation, duplication, printing (including
mailing and handling charges), filing, delivery and mailing (including the
payment of postage with respect thereto) of the Registration Statement and
the Prospectus and any amendments and supplements thereto and the printing,
mailing (including the payment of postage with respect thereto) and delivery
of this Agreement, the Representative's Warrant Agreement, the Agreement
Among Underwriters, the Selected Dealer Agreements, and related documents,
including the cost of all copies thereof and of the Preliminary Prospectuses
and of the Prospectus and any amendments thereof or supplements thereto
supplied to the Underwriters and such dealers as the Underwriters may
request, in quantities as hereinabove stated, (iii) the printing, engraving,
issuance and delivery of the Securities including, but not limited to, (x)
the purchase by the Underwriters of the Common Stock and the Option
Securities and the purchase by the Representative of the Representative's
Warrants from the Company, (y)
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AyurCore, Inc.
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the consummation by the Company of any of its obligations under this
Agreement and the Representative's Warrant Agreement, and (z) resale of the
Common Stock and the Option Securities by the Underwriters in connection with
the distribution contemplated hereby, (iv) the qualification of the
Securities under state or foreign securities or "Blue Sky" laws and
determination of the status of such securities under legal investment laws,
including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and disbursements and fees of counsel in connection
therewith, (v) advertising costs and expenses, including but not limited to
costs and expenses in connection with the "road show," information meetings
and presentations, bound volumes and prospectus memorabilia and "tomb-stone"
advertisement expenses; (vi) costs and expenses in connection with due
diligence investigations, including but not limited to the fees of any
independent counsel, expert or consultant retained, (vii) fees and expenses
of the Transfer Agent and registrar and all issue and transfer taxes, if any,
(viii) applications for assignment of a rating of the Securities by qualified
rating agencies, (ix) the fees payable to the Commission and the NASD, and
(x) the fees and expenses incurred in connection with the quotation of the
Securities on Nasdaq and any other exchange. It is agreed that the services
to be provided under clause (iv) of the foregoing sentence shall be performed
by Underwriters' Counsel.
b. If this Agreement is terminated by the Underwriters
in accordance with the provisions of Section 6 or Section 12, the Company
shall reimburse and indemnify the Underwriters for all of their actual
out-of-pocket expenses, including the fees and disbursements of Underwriters'
Counsel, less any amounts already paid pursuant to Section 5(c) hereof;
provided, however, that the Representative will refund to the Company any
unaccounted-for portion of any amounts already advanced by the Company to the
Representative pursuant to Section 5(c) hereof. In addition, the Company
shall remain liable for all Blue Sky counsel fees and disbursements, expenses
and filing fees.
c. The Company further agrees that, in addition to the
expenses payable pursuant to subsection (a) of this Section 5, it will pay to
the Representative on the Closing Date by certified or bank cashier's check
or, at the election of the Representative, by deduction from the proceeds of
the offering contemplated herein, a non-accountable expense allowance equal
to three percent (3%) of the gross proceeds received by the Company from the
sale of the Common Stock, $10,000 of which has been paid to date. In the
event the Representative elects to exercise the over-allotment option
described in Section 2(b) hereof, the Company agrees to pay to the
Representative on the Option Closing Date (by certified or bank cashier's
check or, at the Representative's election, by deduction from the proceeds of
the offering) a non-accountable expense allowance equal to three percent (3%)
of the gross proceeds received by the Company from the sale of the Option
Securities.
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6. Conditions of the Underwriters' Obligations. The
obligations of the Underwriters hereunder shall be subject to the continuing
accuracy of the representations and warranties of the Company herein as of
the date hereof and as of the Closing Date and each Option Closing Date, if
any, as if they had been made on and as of the Closing Date or each Option
Closing Date, as the case may be; the accuracy on and as of the Closing Date
or Option Closing Date, if any, of the statements of the officers of the
Company made pursuant to the provisions hereof; and the performance by the
Company on and as of the Closing Date and each Option Closing Date, if any,
of its covenants and obligations hereunder and to the following further
conditions:
a. The Registration Statement shall have become
effective not later than 12:00 P. M., New York time, on the date of this
Agreement or such later date and time as shall be consented to in writing by
the Representative, and, at the Closing Date and each Option Closing Date, if
any, no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending or contemplated by the Commission and any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of Underwriters' Counsel.
If the Company has elected to rely upon Rule 430A of the Rules and
Regulations, the price of the Shares and any price-related information
previously omitted from the effective Registration Statement pursuant to such
Rule 430A shall have been transmitted to the Commission for filing pursuant
to Rule 424(b) of the Rules and Regulations within the prescribed time period
and, prior to the Closing Date, the Company shall have provided evidence
satisfactory to the Representative of such timely filing, or a post-effective
amendment providing such information shall have been promptly filed and
declared effective in accordance with the requirements of Rule 430A of the
Rules and Regulations.
b. The Representative shall not have advised the
Company that the Registration Statement, or any amendment thereto, contains
any untrue statement of fact which, in the Representative's opinion, is
material, or omits to state a fact which, in the Representative's opinion, is
material and is required to be stated therein or is necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or that the Prospectus, or any supplement thereto, contains
any untrue statement of fact which, in the Representative's opinion, is
material, or omits to state a fact which, in the Representative's opinion, is
material and is required to be stated therein or is necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
c. On or prior to each of the Closing Date and each
Option Closing Date, if any, the Representative shall have received from the
Company's Counsel, such opinion or opinions with respect to the organization
of the Company, the validity of the Securities, the Registration Statement,
the Prospectus and other related matters as the Representative may
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AyurCore, Inc.
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request and Company's Counsel shall have received such papers and information
as they request to enable them to pass upon such matters.
d. At the Closing Date, the Underwriters shall have
received the favorable opinion of Rubin, Baum, Levin, Constant & Friedman,
counsel to the Company and the Subsidiary, dated the Closing Date, addressed
to the Underwriters and in form and substance satisfactory to Underwriters'
Counsel, to the effect that:
i. each of the Company and the Subsidiary (A) has
been duly organized and is validly existing as a corporation in good standing
under the laws of its jurisdiction, (B) is duly qualified and licensed and in
good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of any properties or the character of its operations
requires such qualification or licensing, and (C) has all requisite corporate
power and authority, and has obtained any and all necessary authorizations,
approvals, orders, licenses, certificates, franchises and permits of and from
all governmental or regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental or similar matters),
to own or lease its properties and conduct its business as described in the
Prospectus; each of the Company and the Subsidiary is and has been doing
business in compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits and all federal, state, local
and foreign laws, rules and regulations; and, neither the Company nor the
Subsidiary has received any notice of proceedings relating to the revocation
or modification of any such authorization, approval, order, license,
certificate, franchise, or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would materially
adversely affect the business, operations, condition, financial or otherwise,
or the earnings, business affairs, position, prospects, value, operation,
properties, business or results of operations of the Company and the
Subsidiary taken as whole. The disclosures in the Registration Statement
concerning the effects of federal, state, local and foreign laws, rules and
regulations on each of the Company's and the Subsidiary' businesses as
currently conducted and as contemplated are correct in all material respects
and do not omit to state a fact required to be stated therein or necessary to
make the statements contained therein not misleading in light of the
circumstances in which they were made;
ii. The Company owns, directly or indirectly, one
hundred percent (100%) of the outstanding capital stock of the Subsidiary,
and all such shares have been validly issued, are fully paid and
non-assessable, were not issued in violation of any preemptive rights and are
owned free and clear of any liens, charges, claims, encumbrances, pledges,
security interests, defects or other restrictions or equities of any kind
whatsoever;
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AyurCore, Inc.
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iii. except as described in the Prospectus,
neither the Company nor the Subsidiary own an interest in any other
corporation, partnership, joint venture, trust or other business entity;
iv. the Company has a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus, and any amendment
or supplement thereto, under "CAPITALIZATION," and the Company is not a party
to or bound by any instrument, agreement or other arrangement providing for
it to issue, sell, transfer, purchase or redeem any capital stock, rights,
warrants, options or other securities, except for this Agreement and the
Representative's Warrant Agreement and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company conform
in all material respects to all statements with respect thereto contained in
the Registration Statement and the Prospectus. All issued and outstanding
securities of the Company have been duly authorized and validly issued and
are fully paid and non-assessable; the holders thereof have no rights of
rescission with respect thereto, and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security of the
Company or any similar rights granted by the Company. The Securities to be
sold by the Company hereunder and under the Representative's Warrant
Agreement are not and will not be subject to any preemptive or other similar
rights of any stockholder, have been duly authorized and, when issued, paid
for and delivered in accordance with the terms hereof, will be validly
issued, fully paid and non-assessable and conform to the description thereof
contained in the Prospectus; the holders thereof will not be subject to any
liability solely as such holders; all corporate action required to be taken
for the authorization, issue and sale of the Securities has been duly and
validly taken; and the certificates representing the Securities are in due
and proper form. The Representative's Warrants constitute a valid and binding
obligation of the Company to issue and sell, upon exercise thereof and
payment therefor, the number and type of securities of the Company called for
thereby. Upon the issuance and delivery pursuant to this Agreement of the
Common Stock and the Option Securities and the Representative's Warrants to
be sold by the Company, the Underwriters and the Representative,
respectively, will acquire good and marketable title to the Common Stock and
the Option Securities and the Representative's Warrants free and clear of any
pledge, lien, charge, claim, encumbrance, pledge, security interest, or other
restriction or equity of any kind whatsoever. No transfer tax is payable by
or on behalf of the Underwriters in connection with (A) the issuance by the
Company of the Securities, (B) the purchase by the Underwriters and the
Representative of the Common Stock and the Option Securities and the
Representative's Warrants, respectively, from the Company, (C) the
consummation by the Company of any of its obligations under this Agreement or
the Representative's Warrant Agreement, or (D) resales of the Common Stock
and the Option Securities in connection with the distribution contemplated
hereby;
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AyurCore, Inc.
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v. the Registration Statement is effective under
the Act, and, if applicable, filing of all pricing information has been
timely made in the appropriate form under Rule 430A, and no stop order
suspending the use of the Preliminary Prospectus, the Registration Statement
or Prospectus or any part of any thereof or suspending the effectiveness of
the Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or, to the best of such counsel's
knowledge, threatened or contemplated under the Act;
vi. each of the Preliminary Prospectus, the
Registration Statement, and the Prospectus and any amendments or supplements
thereto (other than the financial statements and other financial and
statistical data included therein, as to which no opinion need be rendered)
comply as to form in all material respects with the requirements of the Act
and the Rules and Regulations;
vii. to the best of such counsel's knowledge, (A)
there are no agreements, contracts or other documents required by the Act to
be described in the Registration Statement and the Prospectus and filed as
exhibits to the Registration Statement other than those described in the
Registration Statement (or required to be filed under the Exchange Act if
upon such filing they would be incorporated, in whole or in part, by
reference therein) and the Prospectus and filed as exhibits thereto, and the
exhibits which have been filed are correct copies of the documents of which
they purport to be copies; (B) the descriptions in the Registration Statement
and the Prospectus and any supplement or amendment thereto of contracts and
other documents to which the Company or the Subsidiary are a party or by
which it is bound, including any document to which the Company or the
Subsidiary are a party or by which it is bound, incorporated by reference
into the Prospectus and any supplement or amendment thereto, are accurate and
fairly represent the information required to be shown by Form SB-2; (C) there
is no action, arbitration, suit, proceeding, inquiry, investigation,
litigation, governmental or other proceeding (including, without limitation,
those having jurisdiction over environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that may give rise
to the same), or involving the properties or business of either the Company
or the Subsidiary which (x) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings as are summarized
in the Registration Statement are accurately summarized in all respects), (y)
questions the validity of the capital stock of the Company or this Agreement
or the Representative's Warrant Agreement, or of any action taken or to be
taken by the Company pursuant to or in connection with any of the foregoing;
(D) no statute or regulation or legal or governmental proceeding required to
be described in the Prospectus is not described as required; and (E) there is
no action, suit or proceeding pending, or threatened, against or affecting
either the Company or the Subsidiary before any court or arbitrator or
governmental body, agency or official (or any basis thereof known to such
counsel) in which there is a reasonable possibility of a decision which may
result in a material adverse change in the
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AyurCore, Inc.
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condition, financial or otherwise, or the earnings, position, prospects,
stockholders' equity, value, operation, properties, business or results of
operations of either the Company or the Subsidiary, which could adversely
affect the present or prospective ability of the Company to perform its
obligations under this Agreement or the Representative's Warrant Agreement or
which in any manner draws into question the validity or enforceability of
this Agreement or the Representative's Warrant Agreement;
viii. the Company has full legal right, power and
authority to enter into each of this Agreement and the Representative's
Warrant Agreement, and to consummate the transactions provided for therein;
and each of this Agreement and the Representative's Warrant Agreement has
been duly authorized, executed and delivered by the Company. Each of this
Agreement and the Representative's Warrant Agreement, assuming due
authorization, execution and delivery by each other party thereto constitutes
a legal, valid and binding agreement of the Company enforceable against the
Company in accordance with its terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution may be
limited by applicable law), and none of the Company's execution or delivery
of this Agreement and the Representative's Warrant Agreement, its performance
hereunder or thereunder, its consummation of the transactions contemplated
herein or therein, or the conduct of its business as described in the
Registration Statement, the Prospectus, and any amendments or supplements
thereto, conflicts with or will conflict with or results or will result in
any breach or violation of any of the terms or provisions of, or constitutes
or will constitute a default under, or result in the creation or imposition
of any lien, charge, claim, encumbrance, pledge, security interest, defect or
other restriction or equity of any kind whatsoever upon, any property or
assets (tangible or intangible) of either the Company or the Subsidiary
pursuant to the terms of, (A) the certificate of incorporation or by-laws of
either the Company or the Subsidiary, (B) any license, contract, collective
bargaining agreement, indenture, mortgage, deed of trust, lease, voting trust
agreement, stockholders agreement, note, loan or credit agreement or any
other agreement or instrument to which either the Company or the Subsidiary
are a party or by which either of them is or may be bound or to which any of
their respective properties or assets (tangible or intangible) is or may be
subject, or any indebtedness, or (C) any statute, judgment, decree, order,
rule or regulation applicable to either the Company or the Subsidiary of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign,
having jurisdiction over either the Company or the Subsidiary or any of their
respective activities or properties;
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AyurCore, Inc.
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ix. no consent, approval, authorization or order,
and no filing with, any court, regulatory body, government agency or other
body (other than such as may be required under Blue Sky laws, as to which no
opinion need be rendered) is required in connection with the issuance of the
Common Stock and the Option Securities pursuant to the Prospectus and the
Registration Statement, the issuance of the Representative's Warrants, the
performance of this Agreement and the Representative's Warrant Agreement, and
the transactions contemplated hereby and thereby;
x. the properties and business of each of the
Company and the Subsidiary conform in all material respects to the
description thereof contained in the Registration Statement and the
Prospectus; and each of the Company and the Subsidiary has good and
marketable title to, or valid and enforceable leasehold estates in, all items
of real and personal property stated in the Prospectus to be owned or leased
by it, in each case free and clear of all liens, charges, claims,
encumbrances, pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, other than those referred to in the
Prospectus and liens for taxes not yet due and payable;
xi. neither the Company nor the Subsidiary are in
breach of, or in default under, any term or provision of any license,
contract, collective bargaining agreement, indenture, mortgage, installment
sale agreement, deed of trust, lease, voting trust agreement, stockholders'
agreement, partnership agreement, note, loan or credit agreement or any other
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which either the Company or the Subsidiary
are a party or by which either the Company or the Subsidiary may be bound or
to which the respective properties or assets (tangible or intangible) of
either the Company or the Subsidiary are subject or affected; and neither the
Company nor the Subsidiary are in violation of any term or provision of its
Articles of Incorporation or By-Laws or in violation of any franchise,
license, permit, judgment, decree, order, statute, rule or regulation,
domestic or foreign;
xii. the statements in the Prospectus under "THE
COMPANY," "BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN
TRANSACTIONS," "DESCRIPTION OF SECURITIES," and "SHARES ELIGIBLE FOR FUTURE
SALE" have been reviewed by such counsel, and insofar as they refer to
statements of law, descriptions of statutes, licenses, rules or regulations
or legal conclusions, are correct in all material respects;
xiii. the Securities have been accepted for
quotation on Nasdaq;
xiv. to the best of such counsel's knowledge, the
persons listed under the caption "PRINCIPAL STOCKHOLDERS" in the Prospectus
are the respective
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"beneficial owners" (as such phrase is defined in regulation 13d-3 under the
Exchange Act) of the securities set forth opposite their respective names
thereunder as and to the extent set forth therein;
xv. to the best of such counsel's knowledge, none
of the Company, the Subsidiary nor any of their respective officers,
stockholders, employees or agents, nor any other person acting on behalf of
either the Company or the Subsidiary have, directly or indirectly, given or
agreed to give any money, gift or similar benefit (other than legal price
concessions to customers in the ordinary course of business) to any customer,
supplier, employee or agent of a customer or supplier, or official or
employee of any governmental agency or instrumentality of any government
(domestic or foreign) or any political party or candidate for office
(domestic or foreign) or other person who is or may be in a position to help
or hinder the business of either the Company or the Subsidiary (or assist it
in connection with any actual or proposed transaction) which (A) might
subject either the Company or the Subsidiary to any damage or penalty in any
civil, criminal or governmental litigation or proceeding, (B) if not given in
the past, might have had an adverse effect on the assets, business or
operations of the Company and the Subsidiary taken as a whole, as reflected
in any of the financial statements contained in the Registration Statement,
or (C) if not continued in the future, might adversely affect the assets,
business, operations or prospects of the Company and the Subsidiary taken as
a whole;
xvi. no person, corporation, trust, partnership,
association or other entity has the right to include and/or register any
securities of the Company in the Registration Statement, require the Company
to file any registration statement or, if filed, to include any security in
such registration statement;
xvii. to the best of such counsel's knowledge,
except as described in the Prospectus, there are no claims, payments,
issuances, arrangements or understandings for services in the nature of a
finder's or origination fee with respect to the sale of the Securities
hereunder or financial consulting arrangements or any other arrangements,
agreements, understandings, payments or issuances that may affect the
Underwriters' compensation, as determined by the NASD;
xviii. assuming due execution by the parties
thereto other than the Company, the Lock-up Agreements are legal, valid and
binding obligations of the parties thereto, enforceable against the party and
any subsequent holder of the securities subject thereto in accordance with
its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting enforcement of creditors' rights and the
application of equitable principles in any
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action, legal or equitable, and except as rights to indemnity or contribution
may be limited by applicable law);
xix. except as described in the Prospectus,
neither the Company nor the Subsidiary (A) maintains, sponsors or contributes
to any ERISA Plans, (B) maintains or contributes, now or at any time
previously, to a defined benefit plan, as defined in Section 3(35) of ERISA,
and (C) has ever completely or partially withdrawn from a "multiemployer
plan;"
xx. the minute books of each of the Company and
the Subsidiary have been made available to the Underwriters and contain a
summary of all meetings and actions of the directors and stockholders of the
Company since their respective dates of incorporation and reflect all
transactions referred to in such minutes accurately in all material respects;
xxi. except as set forth in the Prospectus and to
the best knowledge of such counsel, no officer, director or stockholder of
either the Company or the Subsidiary, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and
Regulations) of any of the foregoing persons or entities has or has had,
either directly or indirectly, (A) an interest in any person or entity which
(x) furnishes or sells services or products which are furnished or sold or
are proposed to be furnished or sold by either the Company or the Subsidiary,
or (y) purchases from or sells or furnishes to either the Company or the
Subsidiary any goods or services, or (B) a beneficial interest in any
contract or agreement to which either the Company or the Subsidiary are a
party or by which either of them may be bound or affected. Except as set
forth in the Prospectus under "CERTAIN TRANSACTIONS," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among
any of the Company or the Subsidiary, and any officer, director, or 5% or
greater securityholder of any of the Company or the Subsidiary, or any
affiliate or associate of any such person or entity;
xxii. to the best of such counsel's knowledge,
each of the Company and the Subsidiary is in compliance with all provisions
of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to
Disclosure of Doing Business with Cuba; and
xxiii. none of the Company, the Subsidiary or any
of their respective affiliates shall be subject to the requirements of or
shall be deemed an "Investment Company," pursuant to and as defined under,
respectively, the Investment Company Act.
Such counsel shall state that such counsel has participated
in conferences with officers and other representatives of the Company and the
Subsidiary, and representatives of the independent public accountants for the
Company and the Subsidiary, at which conferences such
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counsel made inquiries of such officers, representatives and accountants and
discussed the contents of the Preliminary Prospectus, the Registration
Statement, the Prospectus, and related matters and, although such counsel is
not passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Preliminary
Prospectus, the Registration Statement and Prospectus, on the basis of the
foregoing, no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment
thereto, at the time such Registration Statement or amendment became
effective or the Preliminary Prospectus or Prospectus or any amendment or
supplement thereto as of the date of such opinion contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not misleading
(it being understood that such counsel need express no opinion with respect
to the financial statements and schedules and other financial and statistical
data included in the Preliminary Prospectus, the Registration Statement or
the Prospectus). Such counsel shall further state that its opinion may be
relied upon by Underwriters' Counsel in rendering its opinion to the
Underwriters.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such
counsel deems proper and to the extent specified in such opinion, if at all,
upon an opinion or opinions (in form and substance satisfactory to
Underwriters' Counsel) of other counsel acceptable to Underwriters' Counsel,
familiar with the applicable laws; (B) as to matters of fact, to the extent
they deem proper, on certificates and written statements of responsible
officers of each of the Company and the Subsidiary and certificates or other
written statements of officers of departments of various jurisdictions having
custody of documents respecting the corporate existence or good standing of
each of the Company and the Subsidiary, provided that copies of any such
statements or certificates shall be delivered to Underwriters' Counsel if
requested. The opinion of such counsel for the Company and the Subsidiary
shall state that the opinion of any such other counsel is in form
satisfactory to such counsel and that the Representative, Underwriters'
Counsel and they are each justified in relying thereon. Any opinion of
counsel for the Company and the Subsidiary shall not state that it is to be
governed or qualified by, or that it is otherwise subject to, any treatise,
written policy or other document relating to legal opinions, including,
without limitation, the Legal Opinion Accord of the ABA Section of Business
Law (1991) or any comparable state accord.
e. At each Option Closing Date, if any, the
Underwriters shall have received the favorable opinion of Rubin, Baum, Levin,
Constant & Friedman, counsel to the Company and the Subsidiary, dated such
Option Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel confirming as of such Option Closing
Date the statements made by Rubin, Baum, Levin, Constant & Friedman in its
opinion delivered on the Closing Date.
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f. On or prior to each of the Closing Date and
each Option Closing Date, if any, Company's Counsel shall have been furnished
such documents, certificates and opinions as they may reasonably require for
the purpose of enabling them to review or pass upon the matters referred to
in subsection (c) of this Section 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company or herein contained.
g. Prior to each of the Closing Date and each
Option Closing Date, if any, (i) there shall have been no adverse change nor
development involving a prospective change in the condition, financial or
otherwise, earnings, position, value, properties, results of operations,
prospects, stockholders' equity or the business activities of either the
Company or the Subsidiary, whether or not in the ordinary course of business,
from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by either
the Company or the Subsidiary, from the latest date as of which the financial
condition of the Company and the Subsidiary are set forth in the Registration
Statement and Prospectus which is adverse to the Company and the Subsidiary
taken as a whole; (iii) neither the Company nor the Subsidiary shall be in
default under any provision of any instrument relating to any outstanding
indebtedness; (iv) neither the Company nor the Subsidiary shall have issued
any securities (other than the Securities) or declared or paid any dividend
or made any distribution in respect of its capital stock of any class and
there has not been any change in the capital stock or any change in the debt
(long or short term) or liabilities or obligations of either the Company or
the Subsidiary (contingent or otherwise); (v) no material amount of the
assets of either the Company or the Subsidiary shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus;
(vi) no action, suit or proceeding, at law or in equity, shall have been
pending or threatened (or circumstances giving rise to same) against either
the Company or the Subsidiary, or affecting any of their respective
properties or businesses before or by any court or federal, state or foreign
commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may adversely affect the business, operations,
earnings, position, value, properties, results of operations, prospects or
financial condition or income of the Company and the Subsidiary taken as a
whole; and (vii) no stop order shall have been issued under the Act and no
proceedings therefor shall have been initiated, threatened or contemplated by
the Commission.
h. At each of the Closing Date and each Option
Closing Date, if any, the Underwriters shall have received a certificate of
the Company signed by the principal executive officer and by the chief
financial or chief accounting officer of the Company, dated the Closing Date
or Option Closing Date, as the case may be, to the effect that each of such
persons has carefully examined the Registration Statement, the Prospectus and
this Agreement, and that:
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i. The representations and warranties of the
Company in this Agreement are true and correct, as if made on and as of the
Closing Date or the Option Closing Date, as the case may be, and the Company
has complied with all agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or satisfied at or
prior to such Closing Date or Option Closing Date, as the case may be;
ii. No stop order suspending the effectiveness
of the Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending or, to the
best of each of such person's knowledge, after due inquiry, are contemplated
or threatened under the Act;
iii. The Registration Statement and the
Prospectus and, if any, each amendment and each supplement thereto, contain
all statements and information required to be included therein, and none of
the Registration Statement, the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading and neither the Preliminary Prospectus or
any supplement thereto included any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading; and
iv. Subsequent to the respective dates as of
which information is given in the Registration Statement and the Prospectus,
(a) neither the Company nor the Subsidiary have incurred up to and including
the Closing Date or the Option Closing Date, as the case may be, other than
in the ordinary course of its business, any material liabilities or
obligations, direct or contingent; (b) neither the Company nor the Subsidiary
have paid or declared any dividends or other distributions on its capital
stock; (c) neither the Company nor the Subsidiary have entered into any
transactions not in the ordinary course of business; (d) there has not been
any change in the capital stock or long-term debt or any increase in the
short-term borrowings (other than any increase in the short-term borrowings
in the ordinary course of business) of either the Company or the Subsidiary;
(e) neither the Company nor the Subsidiary have sustained any loss or damage
to any of their respective properties or assets, whether or not insured; (f)
there is no litigation which is pending or threatened (or circumstances
giving rise to same) against any of the Company or the Subsidiary or any
affiliated party of any of the foregoing which is required to be set forth in
an amended or supplemented Prospectus which has not been set forth; and (g)
there has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been set forth.
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AyurCore, Inc.
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References to the Registration Statement and the Prospectus
in this subsection (h) are to such documents as amended and supplemented at
the date of such certificate.
i. By the Closing Date, the Underwriters will have
received clearance from the NASD as to the amount of compensation allowable
or payable to the Underwriters, as described in the Registration Statement.
j. At the time this Agreement is executed, the
Underwriters shall have received a letter, dated such date, addressed to the
Underwriters in form and substance satisfactory (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii)
below) in all respects to the Underwriters and Underwriters' Counsel, from
Richard A. Eisner & Company, LLP:
i. confirming that they are independent
certified public accountants with respect to the Company and the Subsidiary
within the meaning of the Act and the applicable Rules and Regulations;
ii. stating that it is their opinion that the
consolidated financial statements of the Company and the Subsidiary included
in the Registration Statement comply as to form in all material respects with
the applicable accounting requirements of the Act and the Rules and
Regulations thereunder and that the Representative may rely upon the opinion
of Richard A. Eisner & Company, LLP with respect to the consolidated
financial statements included in the Registration Statement;
iii. stating that, on the basis of a limited
review which included a reading of the latest available unaudited interim
financial statements of each of the Company and the Subsidiary, a reading of
the latest available minutes of the stockholders and board of directors and
the various committees of the boards of directors of each of the Company and
the Subsidiary, consultations with officers and other employees of each of
the Company and the Subsidiary responsible for financial and accounting
matters and other specified procedures and inquiries, nothing has come to
their attention which would lead them to believe that (A) the unaudited
consolidated financial statements of the Company and the Subsidiary included
in the Registration Statement do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the Rules
and Regulations or are not fairly presented in conformity with generally
accepted accounting principles applied on a basis substantially consistent
with that of the audited consolidated financial statements of the Company and
the Subsidiary included in the Registration Statement, or (B) at a specified
date not more than five (5) days prior to the effective date of the
Registration Statement, there has been any change in the capital stock or
long-term debt of either the Company or the Subsidiary, or any increase in
the stockholders' deficit or net current assets or net assets of either the
Company or the
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AyurCore, Inc.
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Subsidiary as compared with amounts shown in the December 31, 1997 balance
sheet included in the Registration Statement, other than as set forth in or
contemplated by the Registration Statement, or, if there was any change or
decrease, setting forth the amount of such change or decrease, and (C) during
the period from January 1, 1997 to a specified date not more than five (5)
days prior to the effective date of the Registration Statement, there was any
decrease in net revenues, net earnings or increase in net earnings per common
share of either the Company or the Subsidiary, in each case as compared with
the corresponding period beginning January 1, 1996, other than as set forth
in or contemplated by the Registration Statement, or, if there was any such
decrease, setting forth the amount of such decrease;
iv. setting forth, at a date not later than
five (5) days prior to the date of the Registration Statement, the amount of
liabilities of the Company and the Subsidiary taken as a whole (including a
break-down of commercial paper and notes payable to banks);
v. stating that they have compared specific
dollar amounts, numbers of shares, percentages of revenues and earnings,
statements and other financial information pertaining to the Company and the
Subsidiary set forth in the Prospectus in each case to the extent that such
amounts, numbers, percentages, statements and information may be derived from
the general accounting records, including work sheets, of the Company and the
Subsidiary and excluding any questions requiring an interpretation by legal
counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement;
vi. statements as to such other matters
incident to the transaction contemplated hereby as the Representative may
request.
k. At the Closing Date and each Option Closing
Date, if any, the Underwriters shall have received from Richard A. Eisner &
Company, LLP a letter, dated as of the Closing Date or the Option Closing
Date, as the case may be, to the effect that they reaffirm that statements
made in the letter furnished pursuant to subsection (j) of this Section,
except that the specified date referred to shall be a date not more than five
(5) days prior to the Closing Date or the Option Closing Date, as the case
may be, and, if the Company has elected to rely on Rule 430A of the Rules and
Regulations, to the further effect that they have carried out procedures as
specified in clause (v) of subsection (j) of this Section with respect to
certain amounts, percentages and financial information as specified by the
Representative and deemed to be a part of the Registration Statement pursuant
to Rule 430A(b) and have found such amounts, percentages and financial
information to be in agreement with the records specified in such clause (v).
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AyurCore, Inc.
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l. On each of the Closing Date and each Option
Closing Date, if any, there shall have been duly tendered to the
Representative for the several Underwriters' accounts the appropriate number
of Securities.
m. No order suspending the sale of the Securities
in any jurisdiction designated by the Representative pursuant to subsection
(e) of Section 4 hereof shall have been issued on either the Closing Date or
the Option Closing Date, if any, and no proceedings for that purpose shall
have been instituted or shall be contemplated.
n. On or before the Closing Date, the Company
shall have executed and delivered to the Representative, (i) the
Representative's Warrant Agreement substantially in the form filed as Exhibit
4.1 to the Registration Statement, in final form and substance satisfactory
to the Representative, and (ii) the Representative's Warrants in such
denominations and to such designees as shall have been provided to the
Company.
o. On or before the Closing Date, the Common Stock
and Option Securities shall have been duly approved for quotation on Nasdaq,
subject to official notice of issuance.
p. On or before the Closing Date, there shall have
been delivered to the Representative all of the Lock-up Agreements, in form
and substance satisfactory to Underwriters' Counsel.
If any condition to the Underwriters' obligations hereunder
to be fulfilled prior to or at the Closing Date or the relevant Option
Closing Date, as the case may be, is not so fulfilled, the Representative may
terminate this Agreement or, if the Representative so elects, it may waive
any such conditions which have not been fulfilled or extend the time for
their fulfillment.
7. Indemnification.
a. The Company agrees to indemnify and hold
harmless each of the Underwriters (for purposes of this Section 7,
"Underwriters" shall include the officers, directors, partners, employees,
agents and counsel of the Underwriters), and each person, if any, who
controls each of the Underwriters ("controlling person") within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act, from and
against any and all losses, claims, damages, expenses or liabilities, joint
or several (and actions in respect thereof), whatsoever (including but not
limited to any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, or any claim whatsoever), as such are incurred, to which the
Underwriters or such controlling person may become subject under the
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AyurCore, Inc.
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Act, the Exchange Act or any other statute or at common law or otherwise or
under the laws of foreign countries, arising out of or based upon (A) any
untrue statement or alleged untrue statement of a material fact contained (i)
in any Preliminary Prospectus, the Registration Statement or the Prospectus
(as from time to time amended and supplemented); (ii) in any post-effective
amendment or amendments or any new registration statement and prospectus in
which is included securities of the Company issued or issuable upon exercise
of the Securities; or (iii) in any application or other document or written
communication (in this Section 7, collectively referred to as "applications")
executed by the Company or based upon written information furnished by the
Company in any jurisdiction in order to qualify the Securities under the
securities laws thereof or filed with the Commission, any state securities
commission or agency, the NASD, Nasdaq or any securities exchange; (B) the
omission or alleged omission therefrom of a material fact required to be
stated therein or necessary to make the statements therein not misleading (in
the case of the Prospectus, in light of the circumstances in which they were
made); or (C) any breach of any representation, warranty, covenant or
agreement of the Company contained herein or in any certificate by or on
behalf of the Company or any of its officers delivered pursuant hereto,
unless, in the case of clause (A) or (B) above, such statement or omission
was made in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriter by or on behalf of
the Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment thereof or
supplement thereto, or in any application, as the case may be. The indemnity
agreement in this Section 7(a) shall be in addition to any liability which
the Company may have at common law or otherwise.
The indemnity agreement in this subsection (a) shall be in
addition to any liability which the Company may have at common law or
otherwise.
b. Each of the Underwriters agrees severally, but
not jointly, to indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed the Registration Statement,
and each other person, if any, who controls the Company within the meaning of
the Act, to the same extent as the foregoing indemnity from the Company to
the Underwriters but only with respect to statements or omissions, if any,
made in any Preliminary Prospectus, the Registration Statement or Prospectus
or any amendment thereof or supplement thereto or in any application made in
reliance upon, and in strict conformity with, written information furnished
to the Company with respect to any Underwriter by such Underwriter expressly
for use in such Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment thereof or supplement thereto or in any such
application, provided that such written information or omissions only pertain
to disclosures in the Preliminary Prospectus, the Registration Statement or
Prospectus directly relating to the transactions effected by the Underwriters
in connection with this Offering. The Company acknowledges that the
statements with respect to the public offering of the Common Stock and the
Option Securities set
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AyurCore, Inc.
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forth under the heading "Underwriting" and the stabilization legend in the
Prospectus have been furnished by the Underwriters expressly for use therein
and constitute the only information furnished in writing by or on behalf of
the Underwriters for inclusion in the Prospectus.
c. Promptly after receipt by an indemnified party
under this Section 7 of notice of the commencement of any claim, action,
suit, investigation, inquiry, proceeding or litigation, such indemnified
party shall, if a claim in respect thereof is to be made against one or more
indemnifying parties under this Section 7, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such claim, action, suit,
investigation, inquiry, proceeding or litigation is brought against any
indemnified party, and it notifies an indemnifying party or parties of the
commencement thereof, the indemnifying party or parties will be entitled to
participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party. Notwithstanding
the foregoing, the indemnified party or parties shall have the right to
employ its or their own counsel in any such case but the fees and expenses of
such counsel shall be at the expense of such indemnified party or parties
unless (i) the employment of such counsel shall have been authorized in
writing by the indemnifying parties in connection with the defense thereof at
the expense of the indemnifying party, (ii) the indemnifying parties shall
not have employed counsel reasonably satisfactory to such indemnified party
to have charge of the defense thereof within a reasonable time after notice
of commencement thereof, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to one or all of
the indemnifying parties (in which case the indemnifying parties shall not
have the right to direct the defense thereof on behalf of the indemnified
party or parties), in any of which events such fees and expenses of one
additional counsel shall be borne by the indemnifying parties. In no event
shall the indemnifying parties be liable for fees and expenses of more than
one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one claim, action,
suit, investigation, inquiry, proceeding or litigation or separate but
similar or related claims, actions, suits, investigations, inquiries,
proceedings or litigation in the same jurisdiction arising out of the same
general allegations or circumstances. Anything in this Section 7 to the
contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim, action, suit, investigation, inquiry, proceeding or
litigation effected without its written consent; provided, however, that such
consent was not unreasonably withheld. An indemnifying party will not,
without the prior written consent of the indemnified parties, settle,
compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit, investigation, inquiry, proceeding
or litigation in respect of
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AyurCore, Inc.
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which indemnification or contribution may be sought hereunder (whether or not
the indemnified parties are actual or potential parties to such claim,
action, suit, investigation, inquiry, proceeding or litigation), unless such
settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such claim, action,
suit, investigation, inquiry, proceeding or litigation and (ii) does not
include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
d. In order to provide for just and equitable
contribution in any case in which (i) an indemnified party makes claim for
indemnification pursuant to this Section 7, but it is judicially determined
(by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of this Section 7
provide for indemnification in such case, or (ii) contribution under the Act
may be required on the part of any indemnified party, then each indemnifying
party shall contribute to the amount paid as a result of such losses, claims,
damages, expenses or liabilities (or actions in respect thereof) (A) in such
proportion as is appropriate to reflect the relative benefits received by
each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand, from the offering of the Common Stock and the
Option Securities or (B) if the allocation provided by clause (A) above is
not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of each of the contributing parties, on the one hand,
and the party to be indemnified, on the other hand, in connection with the
statements or omissions that resulted in such losses, claims, damages,
expenses or liabilities, as well as any other relevant equitable
considerations. In any case where the Company is the contributing party and
the Underwriters are the indemnified party, the relative benefits received by
the Company on the one hand, and the Underwriters, on the other, shall be
deemed to be in the same proportion as the total net proceeds from the
offering of the Common Stock and the Option Securities (before deducting
expenses) bear to the total underwriting discounts received by the
Underwriters hereunder, in each case as set forth in the table on the Cover
Page of the Prospectus. Relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, or by the Underwriters, and
the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), the Underwriters shall not be required to
contribute any amount in excess of the underwriting discount applicable to
the Common Stock and the Option Securities purchased by the Underwriters
hereunder. No person guilty of fraudulent misrepresentation
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AyurCore, Inc.
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(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person, if any, who
controls the Company within the meaning of the Act, each officer of the
Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this subsection (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution
may be made against another party or parties under this subsection (d),
notify such party or parties from whom contribution may be sought, but the
omission so to notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they
may have hereunder or otherwise than under this subsection (d), or to the
extent that such party or parties were not adversely affected by such
omission. The contribution agreement set forth above shall be in addition to
any liabilities which any indemnifying party may have at common law or
otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant
hereto, shall be deemed to be representations, warranties and agreements at
the Closing Date and the Option Closing Date, as the case may be, and such
representations, warranties and agreements of the Company and the indemnity
agreements contained in Section 7 hereof, shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter, the Company, any controlling person of any Underwriter or the
Company, and shall survive termination of this Agreement or the issuance and
delivery of the Securities to the Underwriters and the Representative, as the
case may be.
9. Effective Date. This Agreement shall become effective at
10:00 a.m., New York City time, on the next full business day following the
date hereof, or at such earlier time after the Registration Statement becomes
effective as the Representative, in its discretion, shall release the
Securities for sale to the public; provided, however, that the provisions of
Sections 5, 7 and 10 of this Agreement shall at all times be effective. For
purposes of this Section 9, the Securities to be purchased hereunder shall be
deemed to have been so released upon the earlier of dispatch by the
Representative of telegrams to securities dealers releasing such securities
for offering or the release by the Representative for publication of the
first newspaper advertisement which is subsequently published relating to the
Securities.
10. Termination.
a. Subject to Section 10(b) hereof, the
Representative shall have the right to terminate this Agreement: (i) if any
domestic or international event or act or occurrence
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AyurCore, Inc.
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has materially adversely disrupted, or in the Representative's opinion will
in the immediate future materially adversely disrupt, the financial markets;
or (ii) if any material adverse change in the financial markets shall have
occurred; or (iii) if trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the NASD, the Boston Stock Exchange,
the Commission or any governmental authority having jurisdiction over such
matters; or (iv) if trading of any of the securities of the Company shall
have been suspended, or if any of the securities of the Company shall have
been delisted, on any exchange or in any over-the-counter market; or (v) if
the United States shall have become involved in a war or major hostilities,
or if there shall have been an escalation in an existing war or major
hostilities, or a national emergency shall have been declared in the United
States; or (vi) if a banking moratorium shall have been declared by any state
or federal authority; or (vii) if a moratorium in foreign exchange trading
shall have been declared; or (viii) if the Company shall have sustained a
material or substantial loss by fire, flood, accident, hurricane, earthquake,
theft, sabotage or other calamity or malicious act which, whether or not such
loss shall have been insured, will, in the Representative's opinion, make it
inadvisable to proceed with the delivery of the Securities; or (ix) if there
shall have been such a material adverse change in the conditions or prospects
of the Company, or if there shall have been such a material adverse change in
the general market, political or economic conditions, in the United States or
elsewhere, as in the Representative's judgment would make it inadvisable to
proceed with the offering, sale and/or delivery of the Securities.
b. If this Agreement is terminated by the
Representative in accordance with the provisions of Section 10(a), the
Company shall promptly reimburse and indemnify the Representative for all of
its actual out-of-pocket expenses, including the fees and disbursements of
counsel for the Underwriters (less amounts previously paid pursuant to
Section 5(c) above); provided, however, that the Representative will refund
to the Company any unaccounted-for portion of any amounts already advanced by
the Company to the Representative pursuant to Section 5(c) hereof.
Notwithstanding any contrary provision contained in this Agreement, if this
Agreement shall not be carried out within the time specified herein, or any
extension thereof granted by the Representative, by reason of any failure on
the part of the Company to perform any undertaking or satisfy any condition
of this Agreement by it to be performed or satisfied (including, without
limitation, pursuant to Section 6 or Section 12) then, the Company shall
promptly reimburse and indemnify the Representative for all of its actual
out-of-pocket expenses, including the fees and disbursements of counsel for
the Underwriters (less amounts previously paid pursuant to Section 5(c)
above); provided, however, that the Representative will refund to the Company
any unaccounted-for portion of any amounts already advanced by the Company to
the Representative pursuant to Section 5(c) hereof. In addition, the Company
shall remain liable for all Blue Sky counsel fees and disbursements, expenses
and filing fees. Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to
44
<PAGE>
AyurCore, Inc.
Underwriting Agreement
Sections 6, 10, 11 and 12 hereof), and whether or not this Agreement is
otherwise carried out, the provisions of Section 5 and Section 7 shall not be
in any way affected by such election or termination or failure to carry out
the terms of this Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify
the termination of this Agreement under the provisions of Section 6, Section
10 or Section 12 hereof) to purchase the Securities which it or they are
obligated to purchase on such date under this Agreement (the "Defaulted
Securities"), the Representative shall have the right, within 24 hours
thereafter, to make arrangement for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than
all, of the Defaulted Securities in such amounts as may be agreed upon and
upon the terms herein set forth; if, however, the Representative shall not
have completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not
exceed 10% of the total number of Common Stock to be purchased on such date,
the non-defaulting Underwriters shall be obligated to purchase the full
amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds
10% of the total number of Common Stock, this Agreement shall terminate
without liability on the part of any non-defaulting Underwriters (or, if such
default shall occur with respect to any Option Securities to be purchased on
an Option Closing Date, the Underwriters may at the Representative's option,
by notice from the Representative to the Company, terminate the Underwriters'
obligation to purchase Option Securities from the Company on such date).
No action taken pursuant to this Section 11 shall relieve
any defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Representative shall have the right to
postpone the Closing Date for a period not exceeding seven (7) days in order
to effect any required changes in the Registration Statement or Prospectus or
in any other documents or arrangements.
12. Default by the Company. If the Company shall fail at
the Closing Date or at any Option Closing Date, as applicable, to sell and
deliver the number of Securities which it is obligated to sell hereunder on
such date, then this Agreement shall terminate (or, if such default shall
occur with respect to any Option Securities to be purchased on an Option
Closing Date, the Underwriters may at the Representative's option, by notice
from the Representative to
45
<PAGE>
AyurCore, Inc.
Underwriting Agreement
the Company, terminate the Underwriters' obligation to purchase Option
Securities from the Company on such date) without any liability on the part
of any non-defaulting party other than pursuant to Section 5, Section 7 and
Section 10 hereof. No action taken pursuant to this Section 12 shall relieve
the Company from liability, if any, in respect of such default.
13. Notices. All notices and communications hereunder,
except as herein otherwise specifically provided, shall be in writing and
shall be deemed to have been duly given if mailed or transmitted by any
standard form of telecommunication. Notices to the Underwriters shall be
directed to the Representative at Network 1 Financial Securities, Inc., The
Galleria, Building 2, 2 Bridge Avenue, Red Bank, New Jersey 07701 Attention:
William Hunt, President, with a copy to Virginia K. Sourlis, Esq., 192
Kingsley Street, Long Branch, New Jersey 07740. Notices to the Company shall
be directed to the Company at 1737 N. First Street, Suite 290, San Jose,
California, 95112, Attention: Deepa Chitre, M.D., President, with a copy to
Rubin, Baum, Levin, Constant & Friedman, 30 Rockefeller Plaza, New York, New
York, 10112 Attention: Keith Moskowitz, Esq.
14. Parties. This Agreement shall inure solely to the
benefit of and shall be binding upon, the Underwriters, the Company and the
controlling persons, directors and officers referred to in Section 7 hereof,
and their respective successors, legal representatives and assigns, and no
other person shall have or be construed to have any legal or equitable right,
remedy or claim under or in respect of or by virtue of this Agreement or any
provisions herein contained. No purchaser of Securities from any Underwriter
shall be deemed to be a successor by reason merely of such purchase.
15. Construction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
without giving effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, and
all of which taken together shall be deemed to be one and the same instrument.
17. Entire Agreement; Amendments. This Agreement and the
Representative's Warrant Agreement constitute the entire agreement of the
parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof.
This Agreement may not be amended except in a writing, signed by the
Representative and the Company.
46
<PAGE>
AyurCore, Inc.
Underwriting Agreement
If the foregoing correctly sets forth the understanding
between the Underwriters and the Company, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement among us.
Very truly yours,
AYURCORE, INC.
By:
---------------------------------
Name:
Title:
Confirmed and accepted as of the date first above written.
NETWORK 1 FINANCIAL SECURITIES, INC.
For itself and as Representative of the several
Underwriters named in Schedule A hereto.
By:
------------------------------------
Name:
Title:
47
<PAGE>
AyurCore, Inc.
Underwriting Agreement
SCHEDULE A
TO THE UNDERWRITING AGREEMENT
<TABLE>
<CAPTION>
Number of Shares
Names of Underwriters to be Purchased
<S> <C>
Network 1 Financial Securities, Inc......
Total............................... 1,350,000
---------
---------
</TABLE>
48
<PAGE>
Exhibit 3.2
BY-LAWS
OF
AYURCORE, INC.
(a Delaware corporation)
(as amended through May 13, 1998)
ARTICLE I
Office
Section 1.1. Registered Office. The registered office of AyurCore, Inc.
(the "Corporation") in the State of Delaware shall be located at 15 East
North Street, in the City of Dover, County of Kent, or at such other place as
the Board of Directors may at any time or from time to time designate.
Section 1.2. Registered Agent. The registered agent of the Corporation
in the State of Delaware at its registered office is United Corporate
Services, Inc., or such other person, firm or corporation as the Board of
Directors may at any time or from time to time designate.
Section 1.3. Other Offices. The Corporation may establish or
discontinue, from time to time, an office or offices and places of business
other than said registered office, within or without the State of Delaware,
as may be deemed proper for the conduct of the business of the Corporation.
<PAGE>
ARTICLE II
Meetings of Stockholders
Section 2.1. Annual Meeting. The annual meeting of such holders of
capital stock ("Stock") as are entitled to vote thereat ("Annual Meeting of
Stockholders") shall be held for the election of directors and the transaction
of such other business as properly may come before it at such date and time as
the Board of Directors may determine.
Section 2.2. Special Meetings. In addition to such special
meetings as are provided for by law or by the Certificate of Incorporation,
special meetings of the stockholders of the Corporation may be called at any
time by the Board of Directors, and shall be called by the Chairman of the
Board or President upon the written request of stockholders of record holding
not less than 20% of the Stock entitled to vote at the meeting. Special
meetings shall be called by means of a notice as provided in Section 2.4
hereof.
Section 2.3. Place of Meetings. All meetings of the stockholders
shall be held at such place within or without the State of Delaware as shall be
designated by the Board of Directors.
Section 2.4. Notice of Meetings. Whenever stockholders are required
or permitted to take any action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and hour of the meeting and, in
case of a special meeting, the purpose or purposes for which the meeting is
called. The notice of each Annual Meeting of Stockholders shall identify each
matter intended to be acted upon at such meeting. If mailed, the notice shall
be addressed to each stockholder in a postage-prepaid envelope at his address as
it appears on the records of the Corpo-
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<PAGE>
ration unless, prior to the time of mailing, the Secretary shall have received
from any such stockholder a written request that notices intended for him be
mailed to some other address. In such case the notice intended for such
stockholder shall be mailed to the address designated in such request. Notice
of each meeting of stockholders shall be delivered personally or mailed not less
than ten (10) nor more than sixty (60) days before the date fixed for the
meeting to each stockholder entitled to vote at such meeting.
Section 2.5. Waiver of Notice. Whenever notice is required to be
given, a written waiver thereof signed by the person entitled to notice whether
before or after the time stated therein for such meeting shall be deemed
equivalent to notice. Attendance of a person at a meeting of stockholders shall
constitute a waiver of notice of such meeting, except as otherwise provided by
law. Neither the business to be transacted at nor the purpose of any regular or
special meeting of the stockholders need be specified in any written waiver of
notice.
Section 2.6. Organization of Meetings. The Chairman of the Board,
if any, shall act as chairman at all meetings of stockholders at which he is
present and, as such chairman, shall call such meetings of stockholders to order
and shall preside thereat. If the Chairman of the Board shall be absent from
any meeting of stockholders, the duties otherwise provided in this Section to be
performed by him at such meeting shall be performed at such meeting by the
President. If both the Chairman of the Board and the President shall be absent,
such duties shall be performed by a Vice
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<PAGE>
President designated by the Chairman of the Board to preside at such meeting.
If no such officer is present at such meeting, any stockholder or the proxy of
any stockholder entitled to a vote at the meeting may call the meeting to order
and a chairman to preside thereat shall be elected by a majority of those
present and entitled to vote. The Secretary of the Corporation shall act as
secretary at all meetings of the stockholders but, in his absence, the chairman
of the meeting may appoint any person present to act as secretary of the
meeting.
Section 2.7. Stockholders Entitled to Vote. The Board of Directors
may fix a date not less than ten (10) nor more than sixty (60) days preceding
the date of any meeting of stockholders, or preceding the last day on which the
consent of stockholders may be effectively expressed for any purpose without a
meeting, as a record date for the determination of the stockholders entitled:
(a) to notice of, and to vote at, such meeting and any adjournment thereof; or
(b) to express such consent. In such case such stockholders of record on the
date so fixed, shall be entitled to notice of, and to vote at, such meeting and
any adjournment thereof or to express such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the Corporation after
any such record date is so fixed.
Section 2.8. List of Stockholders Entitled to Vote. The Secretary
shall prepare and make or cause to be prepared and made, at least ten (10) days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at such meet-
-4-
<PAGE>
ing, arranged in alphabetical order and showing the address of each such
stockholder as it appears on the records of the Corporation and the number of
shares registered in the name of each such stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place specified in the notice of meeting within the
city where the meeting is to be held or, if not so specified, at the place where
the meeting is to be held, and a duplicate list shall be similarly open to
examination at the principal place of business of the Corporation. Such list
shall be produced and kept at the time and place of the meeting during the whole
time thereof and may be inspected by any stockholder who is present.
Section 2.9. Quorum and Adjournment. Except as otherwise provided
by law and in the Certificate of Incorporation, the holders of a majority of the
shares of Stock entitled to vote at the meeting shall constitute a quorum at
each meeting of the stockholders. Where more than one class or series of Stock
is entitled to vote at such a meeting, a majority of the shares of each such
class or series of Stock entitled to vote at such meeting shall constitute a
quorum at such meeting. In the absence of a quorum, the holders of a majority
of all such shares of Stock present in person or by proxy may adjourn any
meeting from time to time until a quorum shall attend. At any such adjourned
meeting at which a quorum may be present, any business may be transacted which
might have been transacted at the meeting as originally called. Notice
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<PAGE>
of an adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 2.10. Order of Business. The order of business at all
meetings of stockholders shall be as determined by the chairman of the meeting.
Section 2.11. Vote of Stockholders. Except as otherwise permitted by
law, by the Certificate of Incorporation or elsewhere in these By-Laws, all
action by stockholders shall be taken at a meeting of the stockholders. Except
as otherwise provided in the Certificate of Incorporation, every stockholder of
record, as determined pursuant to Section 2.7 hereof, who is entitled to vote
shall at every meeting of the stockholders be entitled to one vote for each
share of Stock to participate in such vote held by such stockholder on the
record date. Every stockholder entitled to vote shall have the right to vote in
person or by proxy. Except as otherwise provided by law, no vote on any
question upon which a vote of the stockholders may be taken need be by ballot
unless the chairman of the meeting shall determine that it shall be by ballot or
the holders of a majority of the shares of Stock present in person or by proxy
and entitled to participate in such vote shall so demand. In a vote by ballot
each ballot shall state the number of shares voted and the name of the
stockholder or proxy voting. Unless otherwise provided by law or by the
Certificate of Incorporation, each director shall be elected by the vote of the
holders of a plurality, and all other questions shall be decided by the vote of
the holders of a majority, of the shares of Stock present
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<PAGE>
in person or by proxy at the meeting and entitled to vote on the question.
Section 2.12. Proxies. Each stockholder entitled to vote at a
meeting of stockholders or to express consent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. A proxy acting for any stockholder shall be duly appointed by an
instrument in writing subscribed by such stockholder.
Section 2.13. Consent of Stockholders in Lieu of Meeting. Whenever
the vote of stockholders at a meeting thereof is required or permitted to be
taken for or in connection with any corporate action by any provisions of the
General Corporation Law of the State of Delaware, the meeting, prior notice of
such meeting and the vote of the stockholders may be dispensed with and such
corporate action may be taken with the written consent of the stockholders of
Stock having not less than the minimum percentage of the total vote required by
statute for the proposed corporate action, unless the Certificate of
Incorporation or the By-Laws require a greater percentage for such action, in
which case the consent shall be that of the holders of such greater percentage;
provided, however, that prompt notice is given to all the stockholders who have
not consented of the taking of such corporate action without a meeting and by
less than unanimous written consent.
Section 2.14. Attendance at Meetings of Stockholders. Any
stockholder of the Corporation not entitled to notice of the
-7-
<PAGE>
meeting or to vote at such meeting shall nevertheless be entitled to attend any
meeting of stockholders of the Corporation.
ARTICLE III
Board of Directors
Section 3.1. Number, Election and Term of Office. The number of
directors which shall constitute the entire Board of Directors of the
Corporation shall be not less than three, the exact number to be fixed from time
to time by the Board of Directors pursuant to a resolution duly adopted by a
majority of the Board. Any decrease in the number of directors shall be
effective at the time of the next succeeding Annual Meeting of Stockholders
unless there shall be vacancies in the Board of Directors, in which case such
decrease may become effective at any time prior to the next succeeding Annual
Meeting of Stockholders to the extent of the number of such vacancies.
Directors need not be stockholders. Except as otherwise provided by statute or
these By-Laws, the directors (other than members of the initial Board of
Directors) shall be elected at the Annual Meeting of Stockholders. Each
director shall hold office until his successor shall have been elected and
qualified, or until his earlier resignation or removal.
Section 3.2. General Powers. The business, properties and affairs
of the Corporation shall be managed by or under the direction of the Board of
Directors which, without limiting the generality of the foregoing, shall have
the power to appoint the officers and agents of the Corporation, to fix and
alter the sal-
-8-
<PAGE>
aries of officers, employees, and agents of the Corporation, to grant general or
limited authority (including authority to delegate and sub-delegate) to
officers, employees, and agents of the Corporation, to make, execute, affix the
corporate seal to and deliver contracts and other instruments and documents
including bills, notes, checks or other instruments for the payment of money, in
the name and on behalf of the Corporation without specific authority in each
case and to appoint committees in addition to those provided for in Articles IV
and V hereof with such powers and duties as the Board of Directors may determine
and as provided by law. The membership of such committees shall consist of such
persons as are designated by the Board of Directors. In addition, the Board of
Directors may exercise all the powers of the Corporation and do all lawful acts
and things which are not reserved to the stockholders by law, by the Certificate
of Incorporation or by the By-Laws.
Section 3.3. Place of Meetings. Meetings of the Board of Directors
may be held at the principal place of business of the Corporation or at any
other place, within or without the State of Delaware, from time to time as
designated by the Board of Directors. Meetings of the Board of Directors may be
held, and one or more directors may attend any meeting of the Board of
Directors, by telephonic conference.
Section 3.4. Organization Meeting. The Board of Directors,
including its newly elected members, shall meet and organize without notice as
soon as practicable after each Annual Meeting of Stockholders at the place at
which such meeting of stockholders
-9-
<PAGE>
took place. If a quorum is not present, such organization meeting may be held
at any other time or place which may be specified for special meetings of the
Board of Directors in a notice given in the manner provided in Section 3.6
hereof or in a waiver of notice thereof.
Section 3.5. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times as may be determined by resolution of the
Board of Directors. No notice shall be required for any regular meeting.
Except as otherwise provided by law, any business may be transacted at any
regular meeting of the Board of Directors.
Section 3.6. Special Meetings; Notice; and Waiver of Notice.
Special meetings of the Board of Directors shall be called by the Secretary or
an Assistant Secretary at the request of the Chairman of the Board or Vice
Chairman of the Board, if any, the President, a Vice President, or at the
request in writing of one or more of the whole Board of Directors stating the
purpose or purposes of such meeting. Notices of special meetings shall be
delivered personally to each director or shall be mailed to each director either
by overnight courier service or first-class mail addressed to him at his
residence or usual place of business or other address provided to the
Corporation, or shall be sent to him at any of such places by telegraph,
telecopy, or shall be communicated to him personally or by telephone, such that
such notice is received by each director not later than the three (3) days
before the day on which the meeting is to be held. Notice of any meeting
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<PAGE>
of the Board of Directors shall not be required to be given to any director if
he shall sign a written waiver thereof either before or after the time stated
therein for such meeting or if he shall be present at the meeting and
participate in the business transacted thereat. Any and all business transacted
at any meeting of the Board of Directors shall be fully effective without any
notice thereof having been given if all the members shall be present thereat.
Unless limited by law, the Certificate of Incorporation, the By-Laws, or by the
terms of the notice thereof, any and all business may be transacted at any
special meeting without the notice thereof having so specifically enumerated the
matters to be acted upon.
Section 3.7. Organization. The Chairman of the Board, if any, shall
preside at all meetings of the Board of Directors at which he is present. If
the Chairman of the Board shall be absent from any meeting of the Board of
Directors, the duties otherwise provided in this Section 3.7 to be performed by
him at such meeting shall be performed by the President, if he is a director.
If the Chairman of the Board and the President, if he is a director, shall be
absent, such duties shall be performed by a director designated by the Chairman
of the Board to preside at such meeting. If no such officer or director is
present at such meeting, one of the directors present shall be chosen to preside
by a majority vote of the members of the Board of Directors present at such
meeting. The Secretary of the Corporation shall act as the secretary at all
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<PAGE>
meetings of the Board of Directors and, in his absence, a temporary secretary
shall be appointed by the chairman of the meeting.
Section 3.8. Quorum and Adjournment. Except as otherwise provided
by these By-Laws and by the Certificate of Incorporation, at every meeting of
the Board of Directors a majority of the total number of directors shall
constitute a quorum. Except when the total number of directors is one, in no
event shall a quorum consist of less than two directors. Except as otherwise
provided by law, by the Certificate of Incorporation or elsewhere herein
(including without limitation in Sections 2.11, 3.12, 4.1, 4.8, 5.1, 6.3, or
10.2 hereof), the vote of a majority of the directors present at any meeting at
which a quorum is present shall be the act of the Board of Directors. In the
absence of a quorum, any meeting may be adjourned from time to time until a
quorum is present. Notice of an adjourned meeting shall be required to be given
if notice was required to be given of the meeting as originally called.
Section 3.9. Voting. On any question on which the Board of
Directors shall vote, the names of those voting and their votes shall be entered
in the minutes of the meeting when any member of the Board of Directors present
at the meeting so requests.
Section 3.10. Acting Without a Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board of
Directors or of such committee,
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<PAGE>
as the case may be, consent thereto in writing and such written consents are
filed with the minutes of such proceeding.
Section 3.11. Resignations. Any director may resign at any time by
written notice thereof to the Corporation. Any resignation shall be effective
immediately unless some other time is specified for it to take effect.
Acceptance of any resignation shall not be necessary to make it effective unless
such resignation is tendered subject to such acceptance.
Section 3.12. Filling of Vacancies. Unless otherwise provided by the
Certificate of Incorporation, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause shall be filled by the Board of Directors at
any meeting by affirmative vote of a majority of the remaining directors then in
office or by a sole remaining director though the remaining director or
directors be less than the quorum provided for in Section 3.8 hereof. Each
director so elected shall hold office until his successor shall have been
elected and qualified or until his earlier resignation or removal.
Section 3.13. Compensation. The Board of Directors shall have the
authority to fix the compensation, including without limitation, fees and
expenses, of directors for services to the Corporation in any capacity.
Section 3.14. Records. The Board of Directors shall keep minutes of
its acts and proceedings. Any action taken by the
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<PAGE>
Board of Directors shall be entered into the minutes of the Board of Directors.
Each director shall be entitled to receive a copy of the minutes of the Board of
Directors at his request.
ARTICLE IV
Executive Committee
Section 4.1. Appointment and Powers. The Board of Directors may, by
resolution adopted by affirmative vote of a majority of the whole Board of
Directors, appoint an Executive Committee and the members thereof consisting of
one or more members which shall have and may exercise, during the intervals
between the meetings of the Board of Directors, all of the powers of the Board
of Directors in the management of the business, properties and affairs of the
Corporation; provided, however, that the foregoing is subject to the applicable
provisions of law and the Certificate of Incorporation and shall not be
construed as authorizing action by the Executive Committee with respect to any
action which is required to be taken by vote of a specified proportion of the
whole Board of Directors. So far as practicable, the members of the Executive
Committee shall be appointed at the organization meeting of the Board of
Directors in each year and, unless sooner discharged by affirmative vote of a
majority of the whole Board of Directors, shall hold office until the next
annual organization meeting of the Board of Directors and until their respective
successors are appointed or until they sooner die, resign or are removed. All
acts done and powers conferred by the Executive Com-
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<PAGE>
mittee shall be deemed to be, and may be certified as being, done or conferred
under authority of the Board of Directors.
Section 4.2. Place of Meetings. Meetings of the Executive Committee
may be held at the principal place of business of the Corporation or at any
other place within or without the State of Delaware from time to time designated
by the Board of Directors or the Executive Committee. Meetings of the Executive
Committee may be held, and one or more members may attend any meeting of the
Executive Committee, by telephonic conference.
Section 4.3. Meetings; Notice; and Waiver of Notice. Regular
meetings of the Executive Committee shall be held at such times as may be
determined by resolution either of the Board of Directors or the Executive
Committee and no notice shall be required for any regular meeting. Special
meetings of the Executive Committee shall be called by the Secretary or an
Assistant Secretary upon the request of any member of the Executive Committee.
Notices of special meetings shall be delivered personally to each member or
shall be mailed to each member either by overnight courier service or
first-class mail addressed to him at his residence or usual place of business or
other address provided to the Corporation, or shall be sent to him at any of
such places by telegraph, telecopy, or shall be communicated to him personally
or by telephone, such that such notice is received by each member not later than
the business day before the date fixed for the meeting. Notice of any such
meeting shall not be required to be given to any member of the Executive
Committee if he shall sign a written waiver
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<PAGE>
thereof either before or after the time stated therein for such meeting or if he
shall be present at the meeting and participate in the business transacted
thereat, and all business transacted at any meeting of the Executive Committee
shall be fully effective without any notice thereof having been given if all the
members shall be present thereat. Unless limited by law, the Certificate of
Incorporation, the By-Laws, or the terms of notice thereof, any and all business
may be transacted at any special meeting without the notice thereof having
specifically enumerated the matters to be acted upon.
Section 4.4. Organization. The Chairman of the Executive Committee
shall preside at all meetings of the Executive Committee at which he is
present. In the absence of the Chairman of the Executive Committee, the
Chairman of the Board, if he is a member of the Executive Committee, shall
preside at meetings of the Executive Committee at which he is present. In
the absence of the Chairman of the Executive Committee and the Chairman of
the Board, the President, if he is a member of the Executive Committee, shall
preside at meetings of the Executive Committee at which he is present. In
the absence of the Chairman of the Executive Committee, the Chairman of the
Board, the President, if he is a member of the Executive Committee, one of
the members present shall be chosen by the members of the Executive Committee
present to preside at such meeting. The Secretary of the Corporation shall
act as secretary at all meetings of the Executive Committee, if he is a
member thereof, and, in his absence, or if he is not a member thereof, a
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<PAGE>
temporary secretary shall be appointed by the secretary of the meeting.
Section 4.5. Quorum and Adjournment. A majority of the members of
the Executive Committee shall constitute a quorum for the transaction of
business. The vote of a majority of those present at any meeting at which a
quorum is present shall be the act of the Executive Committee. In the absence
of a quorum, any meeting may be adjourned from time to time until a quorum is
present. No notice of any adjourned meeting shall be required to be given other
than by announcement at the meeting that is being adjourned.
Section 4.6. Voting. On any question on which the Executive
Committee shall vote, the names of those voting and their votes shall be entered
in the minutes of the meeting when any member of the Executive Committee present
at the meeting so requests.
Section 4.7. Records. The Executive Committee shall keep minutes of
its acts and proceedings which shall be submitted at the next regular meeting of
the Board of Directors. Any action taken by the Board of Directors with respect
thereto shall be entered in the minutes of the Board of Directors. Each
director shall be entitled to receive a copy of the minutes of the Executive
Committee at his request.
Section 4.8. Vacancies; Alternate Members; and Absences. In case of
any increase in the number of members of the Executive Committee or of any
vacancy created by death, resignation, disqualification or otherwise, the
additional member or members may be elected or the vacancy or vacancies
filled,as the case
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may be, by affirmative vote of a majority of the remaining Board of Directors or
by a sole remaining director, though the remaining director or directors be less
than the quorum provided for herein. By similar vote, the Board of Directors
may designate one or more directors as alternate members of the Executive
Committee who may replace any absent or disqualified member at any meeting of
the Executive Committee.
ARTICLE V
Other Committees of the Board
Section 5.1. Appointing Other Committees of the Board. The Board of
Directors may from time to time by resolution adopted by affirmative vote of a
majority of the whole Board of Directors appoint other committees of the Board
of Directors and the members thereof which shall have such powers of the Board
of Directors and such duties as the Board of Directors may properly determine
and as provided by law. Such other committee of the Board of Directors shall
consist of one or more directors. By similar vote, the Board of Directors may
designate one or more directors as alternate members of any such committee who
may replace any absent or disqualified member at any meeting of any such
committee. In the absence or disqualification of any member of any such
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
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Section 5.2. Place and Time of Meetings; Notice; Waiver of Notice;
and Records. Meetings of such committees of the Board of Directors may be held
at any place, within or without the State of Delaware, from time to time
designated by the Board of Directors or the committee. Regular meetings of any
such committee shall be held at such times as may be determined by resolution of
the Board of Directors or the committee and no notice shall be required for any
regular meeting. A special meeting of any such committee shall be called by
resolution of the Board of Directors or by the Secretary or an Assistant
Secretary upon the request of any member of the committee. The provisions of
Section 4.3 hereof with respect to notice and waiver of notice of special
meetings of the Executive Committee shall also apply to all special meetings of
other committees of the Board of Directors. Any such committee may make rules
for holding and conducting its meetings and shall keep minutes of all meetings.
Meetings of any such committee may be held, and one or more members of such
committee may attend any meeting of such committee, by telephonic conference.
ARTICLE VI
The Officers
Section 6.1. Officers. The officers of the Corporation shall be a
Chairman of the Board, President, Secretary and Treasurer. The officers shall
be elected by the Board of Directors. The Board of Directors may also elect a
Vice Chairman of the Board, one or more Vice Presidents, one or more Executive
Vice
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Presidents, a Chairman of the Executive Committee, a Controller, one or more
Second Vice Presidents, Assistant Secretaries, Assistant Treasurers, Assistant
Controllers and such other officers and agents as in their judgment may be
necessary or desirable. The Chairman of the Board, the Vice Chairman of the
Board and the Chairman of the Executive Committee shall be selected from the
directors.
Section 6.2. Terms of Office and Vacancies. So far as is
practicable, all officers shall be appointed at the organization meeting of the
Board of Directors in each year and, except as otherwise provided in Sections
6.1, 6.3, and 6.4 hereof, shall hold office until the organization meeting of
the Board of Directors in the next subsequent year and until their respective
successors are elected and qualify or until they sooner die, retire, resign or
are removed. If any vacancy shall occur in any office, the Board of Directors
may elect a successor to fill such vacancy for the remainder of the term.
Section 6.3. Removal of Officers. Any officer may be removed at any
time, either with or without cause, by affirmative vote of a majority of the
whole Board of Directors at any regular meeting or at any special meeting called
for that purpose.
Section 6.4. Resignations. Any officer may resign at any time by
giving written notice thereof to the Corporation. Any resignation shall be
effective immediately unless some other date is specified for it to take
effect. Acceptance of any resignation
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shall not be necessary to make it effective unless such resignation is tendered
to such acceptance.
Section 6.5. Officers Holding More Than One Office. Any officer may
hold two or more offices so long as the duties of such offices can be
consistently performed by the same person.
Section 6.6. The Chairman of the Board. The Chairman of the Board
shall be a member of the Board of Directors, and, subject to the control of the
Board of Directors, shall have general and active charge, control and
supervision of the business, property and affairs of the Corporation. As
provided in Section 2.6 hereof, he shall act as chairman at all meetings of the
stockholders at which he is present; as provided in Section 3.7 hereof, he shall
preside at all meetings of the Board of Directors at which he is present; and as
provided in Section 4.4 hereof, in the absence of the Chairman of the Executive
Committee, he shall preside at all meetings of the Executive Committee at which
he is present, if he is a member thereof. He shall also perform such other
duties and shall have such other powers as may from time to time be assigned to
him by the Board of Directors.
Section 6.7. The Vice Chairman of the Board. The Vice Chairman of
the Board shall perform such duties and have such powers as may from time to
time be assigned to him by the Board of Directors.
Section 6.8. The President. The President shall perform such duties
and have such powers as may from time to time be assigned to him by the Board of
Directors. As provided in Section
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4.4 hereof, in the absence of the Chairman of the Executive Committee and the
Chairman of the Board, he shall preside at all meetings of the Executive
Committee at which he is present, if he is a member thereof. In the absence or
disability of the Chairman of the Board, the duties of the Chairman of the
Board, including those duties set forth in Sections 2.6, 3.7 and 4.4 hereof,
shall be performed and his powers may be exercised by the President. If neither
the President nor the Chairman of the Board is available, the duties of the
President shall be performed and his powers may be exercised by such member of
the Board of Directors as may be designated by the President and, failing such
designation or in the absence of the person so designated, by such member of the
Board of Directors as may be designated by the Chairman of the Board.
Section 6.9. The Vice Presidents. The Vice Presidents, including
the Executive Vice Presidents, shall perform such duties and have such powers as
may from time to time be assigned to them by the Board of Directors, the
Chairman of the Board or the President.
Section 6.10. The Secretary. The Secretary shall attend to the
giving of notice of each meeting of stockholders, the Board of Directors and
committees thereof and, as provided in Sections 2.6, 3.7, and 4.4 hereof, shall
act as secretary at each meeting of stockholders, directors and the Executive
Committee, if he is a member thereof. He shall keep minutes of all proceedings
at such meetings as well as of all proceedings at all meetings of such other
committees of the Board of Directors as any such committee
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shall direct him to so keep. The Secretary shall have charge of the corporate
seal and he or any officer of the Corporation shall have authority to attest to
any and all instruments or writings to which the same may be affixed. He shall
keep and account for all books, documents, papers and records of the Corporation
except those for which some other officer or agent is properly accountable. He
shall generally perform all the duties usually appertaining to the office of
secretary of a corporation. In the absence of the Secretary, such person as
shall be designated by the chairman of any meeting shall perform his duties.
Section 6.11. The Treasurer. The Treasurer shall have the care and
custody of all the funds of the Corporation and shall deposit such funds in such
banks or other depositories as the Board of Directors or any officer or officers
thereunto duly authorized by the Board of Directors shall from time to time
direct or approve. In the absence of a Controller, he shall perform all duties
appertaining to the office of Controller of the Corporation. He shall generally
perform all the duties usually appertaining to the office of a treasurer of a
corporation. When required by the Board of Directors, he shall give bonds for
the faithful discharge of his duties in such sums and with such sureties as the
Board of Directors shall approve. In the absence of the Treasurer, such person
as shall be designated by the Chairman of the Board or President shall perform
his duties.
Section 6.12. The Controller. The Controller shall prepare and have
the care and custody of the books of account of
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the Corporation. He shall keep a full and accurate account of all moneys
received and paid on account of the Corporation. He shall render a statement of
his accounts whenever the Board of Directors shall require. He shall generally
perform all the duties usually appertaining to the office of controller of a
corporation. When required by the Board of Directors, he shall give bonds for
the faithful discharge of his duties in such sums and with such sureties as the
Board of Directors shall approve.
Section 6.13. Additional Powers and Duties. In addition to the
foregoing specifically enumerated duties and powers, the several officers of the
Corporation shall perform such other duties and exercise such further powers as
the Board of Directors may from time to time determine or as may be assigned to
them by any superior officer.
ARTICLE VII
Stock and Transfers of Stock
Section 7.1. Stock Certificates. The Stock of the Corporation shall
be represented by certificates signed by two officers of the Corporation, one
the Chairman of the Board, the Vice Chairman of the Board, the President or a
Vice President and the other the Secretary or an Assistant Secretary. Any or
all of the signatures may be a facsimile. Such certificates shall be sealed
with the seal of the Corporation. Such seal may be a facsimile, engraved or
printed. In case any officer who has signed any such certificate shall have
ceased to be such officer before
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such certificate is issued, it may nevertheless be issued by the Corporation
with the same effect as if he were such officer at the date of issue.
Certificates representing the Stock of the Corporation shall be in such form as
shall be approved by the Board of Directors.
Section 7.2. Registration of Transfers of Stock. Registration of a
transfer of Stock shall be made on the books of the Corporation only upon
presentation by the person named in the certificate evidencing such stock, or by
an attorney lawfully authorized in writing, upon surrender and cancellation of
such certificate, with duly executed assignment and power of transfer endorsed
thereon or attached thereto, and with such proof of the authenticity of the
signature thereon as the Corporation or its agents may reasonably require.
Section 7.3. Lost Certificates. In case any certificate
representing Stock shall be lost, stolen or destroyed, the Board of Directors in
its discretion or any officer or officers thereunto duly authorized by the Board
of Directors may authorize the issuance of a substitute certificate in the place
of the certificate so lost, stolen or destroyed; provided, however, in each such
case the Corporation may require the owner of the lost, stolen or destroyed
certificate or his legal representative to give the Corporation evidence which
the Corporation determines in its discretion satisfactory of the loss, theft or
destruction of such certificate and of the ownership thereof and may also
require a bond sufficient to indemnify it against any claim that may be made
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against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 7.4. Determination of Stockholders of Record for Certain
Purposes. In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix in advance a record date which shall not be more than sixty
(60) days prior to any such action.
ARTICLE VIII
Indemnification and Insurance
Section 8.1. The Corporation may indemnify, to the maximum extent
permitted by law, whomever the Corporation has the power to indemnify under the
provisions of the General Corporation Law of the State of Delaware, or
otherwise.
Section 8.2. Expenses incurred in defending or investigating a
threatened or pending action, suit or proceeding may be paid by the Corporation
in advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the director, officer, employee or
agent to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article
VIII.
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Section 8.3. The indemnification and advancement of expenses
provided by or granted pursuant to this Article VIII shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any By-law, agreement, contract,
vote of stockholders or disinterested directors or pursuant to the direction
(howsoever embodied) of any court of competent jurisdiction or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office.
Section 8.4. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power or the obligation to indemnify him against such
liability under the provisions of this Article VIII.
Section 8.5. For purposes of this Article VIII, references to "the
Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, and
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employees or agents so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article VIII with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
Section 8.6. The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article VIII, shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE IX
Miscellaneous
Section 9.1. Seal. The seal of the Corporation shall have inscribed
thereon the name of the Corporation, the year of its organization and the state
of its incorporation.
Section 9.2. Fiscal Year. The fiscal year of the Corporation shall
be determined by the Board of Directors.
Section 9.3. Signatures on Negotiable Instruments. All bills,
notes, checks or other instruments for the payment of money shall be signed or
countersigned by such officers or agents of Cor-
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poration and in such manner as from time to time may be prescribed by resolution
(whether general or special) of the Board of Directors or as may be prescribed
by any officer or officers or any officer and agent jointly thereunto duly
authorized by the Board of Directors.
Section 9.4. Books of the Corporation. Except as otherwise provided
by law, the books of the Corporation shall be kept at the principal place of
business of the Corporation and at such other locations as the Board of
Directors may from time to time determine.
Section 9.5. References to Gender. Whenever in the By-Laws
reference is made to the masculine gender, such reference shall where the
context so requires be deemed to include the feminine gender, and the By-Laws
shall be read accordingly.
Section 9.6. References to Articles and Section Numbers and to the
By-Laws and the Certificate of Incorporation. Whenever in the By-Laws reference
is made to an Article or Section number, such reference is to the number of an
Article or Section of the By-Laws. Whenever in the By-Laws reference is made to
the By-Laws, such reference is to these By-Laws of the Corporation as the same
may be from time to time amended. Whenever reference is made to the Certificate
of Incorporation, such reference is to the Certificate of Incorporation of the
Corporation as the same may from time to time be amended.
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ARTICLE X
Amendments
Section 10.1. Stockholders. Except as provided in these By-Laws or
in the Certificate of Incorporation, these By-Laws may be amended or repealed,
or new By-Laws may be adopted, at any annual or special meeting of the
stockholders, by a majority of the total votes of the stockholders, or when
stockholders are required to vote by class, by a majority of the appropriate
class, in person or represented by proxy and entitled to vote on such action;
provided, however, that the notice of such meeting shall have been given as
provided in these By-Laws, which notice shall mention that amendment or repeal
of these By-Laws, or the adoption of new By-Laws, is one of the purposes of such
meeting.
Section 10.2. Directors. Except as provided in the Certificate of
Incorporation or these By-Laws, these By-Laws may also be amended or repealed or
new By-Laws may be adopted by vote of two-thirds of all members of the Board at
any meeting thereof; provided, however, that notice of such meeting shall have
been given as provided in these By-Laws, which notice shall mention that
amendment or repeal of the By-Laws, or the adoption of new By-Laws, is one of
the purposes of such meeting. By-Laws adopted by the Board may be amended or
repealed by the stockholders as provided in Section 10.1 of this Article X.
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EXHIBIT 4.1
AYURCORE, INC.
AND
NETWORK 1 FINANCIAL SECURITIES, INC.
---------------
REPRESENTATIVE'S
WARRANT AGREEMENT
Dated , 1998
----------- ----
- -------------------------------------------------------------------------------
<PAGE>
AyurCore, Inc.
Representative's Warrant Agreement
REPRESENTATIVE'S WARRANT AGREEMENT dated as , 1998
------- ---
between AYURCORE, INC., a Delaware corporation (the "Company"), and NETWORK 1
FINANCIAL SECURITIES, INC. (the "Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative,
in its individual capacity and not as representative of the several Underwriters
(defined below), warrants ("Warrants") to purchase up to 135,000 (as such number
may be adjusted from time to time pursuant to Article 8 of this Agreement)
shares (the "Shares") of common stock, $.001 par value per share, of the Company
(the "Common Stock"); and
WHEREAS, the Representative has agreed, pursuant to the
Underwriting Agreement (the "Underwriting Agreement") dated ,
--------- ----
1998, between the Representative, as representative of the several underwriters
named in Schedule A to the Underwriting Agreement (the "Underwriters"), and the
Company, to act as representative of the several underwriters in connection with
the Company's proposed public offering (the "Public Offering") of 1,350,000
shares of the Common Stock (the "Public Shares") at an initial public offering
price of $ per share; and
-----
WHEREAS, the Warrants issued pursuant to this Agreement are
being issued by the Company to the Representative and/or to its designees who
are officers or partners of the Representative and/or, at the Representative's
direction, to members of the selling group or
2
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underwriting syndicate participating in the distribution of the Public Shares in
the Public Offering and/or their respective officers or partners (collectively,
the "Designees"), in consideration for, and as part of the Representative's
compensation in connection with the Representative acting as the representative
pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment
by the Representative or the Designees to the Company of TEN DOLLARS ($10), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. GRANT. The Representative and/or its Designees are hereby
granted the right to purchase, at any time from , 1999, until 5:00
-------- ----
p.m., New York time, on , 2003, (the "Warrant Exercise Term") up to
-----------
135,000 fully paid and non-assessable Shares at an initial exercise price
(subject to adjustment as provided in Article 8 hereof) of $ per Share.
----
2. WARRANT CERTIFICATES. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth as Exhibit A, attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
3. EXERCISE OF WARRANT.
3
<PAGE>
3.1 Cash Exercise. The Warrants initially are exercisable at a
price of $ per Share, payable in cash or by check to the order of the
----
Company, or any combination of thereof, subject to adjustment as provided in
Article 8 hereof. Upon surrender of a Warrant Certificate with the annexed Form
of Election to Purchase duly executed, together with payment of the Exercise
Price (as hereinafter defined) for the Shares purchased at the Company's
principal executive offices in California (presently located at 1737 N. First
Street, Suite 290, San Jose, California 95112), the registered Holder of a
Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a
certificate or certificates for the Shares so purchased. The purchase rights
represented by each Warrant Certificate are exercisable at the option of the
Holders thereof, in whole or in part (but not as to fractional shares of the
Common Stock). In the case of the purchase of less than all the Shares
purchasable under any Warrant Certificate, the Company shall cancel said Warrant
Certificate upon surrender thereof and shall execute and deliver a new Warrant
Certificate of like tenor for the balance of the Shares purchasable thereunder.
3.2 Cashless Exercise. At any time during the Warrant Exercise
Term, the Holder may, at the Holder's option, exchange, in whole or in part, the
Warrants represented by such Holder's Warrant Certificate (a "Warrant
Exchange"), into the number of Shares determined in accordance with this Section
3.2, by surrendering such Warrant Certificate at the principal office of the
Company or at the office of its transfer agent, accompanied by a notice stating
such Holder's intent to effect such exchange, the number of Warrants to be so
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of
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AyurCore, Inc.
Representative's Warrant Agreement
Exchange"). The Warrant Exchange shall take place on the date specified in the
Notice of Exchange or, if later, the date the Notice of Exchange is received by
the Company (the "Exchange Date"). Certificates for the Shares issuable upon
such Warrant Exchange and, if applicable, a new Warrant Certificate of like
tenor representing the Warrants which were subject to the surrendered Warrant
Certificate and not included in the Warrant Exchange, shall be issued as of the
Exchange Date and delivered to the Holder within three (3) days following the
Exchange Date. In connection with any Warrant Exchange, the Holder shall be
entitled to subscribe for and acquire (i) the number of Shares (rounded to the
next highest integer) which would, but for the Warrant Exchange, then be
issuable pursuant to the provisions of Section 3.1 above upon the exercise of
the Warrants specified by the Holder in its Notice of Exchange (the "Total
Number") less (ii) the number of Shares equal to the quotient obtained by
dividing (a) the product of the Total Number and the existing Exercise Price (as
hereinafter defined) by (b) the Market Price (as hereinafter defined) of a
Public Share on the day preceding the Warrant Exchange. "Market Price" at any
date shall be deemed to be the last reported sale price, or, in case no such
reported sales takes place on such day, the average of the last reported sale
prices for the last three (3) trading days, in either case as officially
reported by the principal securities exchange on which the Common Stock is
listed or admitted to trading or as reported in the NASDAQ National Market
System, or, if the Common Stock is not listed or admitted to trading on any
national securities exchange or quoted on the NASDAQ National Market System, the
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AyurCore, Inc.
Representative's Warrant Agreement
closing bid price as furnished by (i) the National Association of Securities
Dealers, Inc. through NASDAQ or (ii) a similar organization if NASDAQ is no
longer reporting such information.
4. ISSUANCE OF CERTIFICATES. Upon the exercise of the
Warrants, the issuance of certificates for the Shares purchased, shall be made
forthwith (and in any event within three (3) business days thereafter) without
charge to the Holder thereof including, without limitation, any tax which may be
payable in respect of the issuance thereof, and such certificates shall (subject
to the provisions of Article 5 hereof) be issued in the name of, or in such
names as may be directed by, the Holder thereof; provided however, that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder, and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.
The Warrant Certificates and the certificates representing the
Shares shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future Chairman or Vice Chairman of the Board of
Directors, or Chief Executive Officer, or President or Vice President of the
Company under its corporate seal reproduced thereon, attested to by the manual
or facsimile signature of the present or any future Secretary or Assistant
Secretary of the Company.
6
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AyurCore, Inc.
Representative's Warrant Agreement
Upon exercise, in part or in whole, of the Warrants,
certificates representing the Shares shall bear a legend substantially similar
to the following:
"The securities represented by this certificate and the other
securities issuable upon exercise thereof have not been
registered for purposes of public distribution under the
Securities Act of 1933, as amended (the "Act"), and may not be
offered or sold except (i) pursuant to an effective
Registration Statement under the Act, (ii) to the extent
applicable, pursuant to Rule 144 under the Act (or any similar
rule under such Act relating to the disposition of
securities), or (iii) upon the delivery by the Holder to the
Company of an opinion of counsel, reasonably satisfactory to
counsel to the Company, stating that an exemption from
registration under such Act is available."
5. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of a
Warrant Certificate, by the Holder's acceptance thereof, covenants and agrees
that the Warrants are being acquired as an investment and not with a view to the
distribution thereof, and that the Warrants may not be sold, transferred,
assigned, hypothecated or otherwise disposed of, in whole or in part, for a
period of one (1) year from the date hereof, except to the Designees.
6. PRICE.
6.1 Initial and Adjusted Exercise Price. The initial exercise
price of each Warrant shall be $ per Share. The adjusted exercise price per
-----
Share shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Article 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall
mean the initial exercise price or the adjusted exercise price, depending upon
the context.
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AyurCore, Inc.
Representative's Warrant Agreement
7. REGISTRATION RIGHTS.
7.1 Registration Under the Securities Act of 1933. The
Warrants and Shares and any other securities issuable upon exercise of the
Warrants, have not been registered under the Securities Act of 1933, as amended
(the "Act").
7.2 Registrable Securities. As used herein the term
"Registrable Security" means each of the Warrants, the Shares and any shares of
Common Stock issued upon any stock split or stock dividend in respect of such
Shares; provided, however, that with respect to any particular Registrable
Security, such security shall cease to be a Registrable Security when, as of the
date of determination, (i) it has been effectively registered under the Act and
disposed of pursuant thereto, (ii) registration under the Act is no longer
required for the subsequent public distribution of such security or (iii) it has
ceased to be outstanding. The term "Registrable Securities" means any and/or all
of the securities falling within the foregoing definition of a "Registrable
Security." In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of "Registrable Security"
as is appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Article 7.
7.3 Piggyback Registration. If, at any time commencing one
year and ending five (5) years after the Effective Date of the Public Offering,
the Company proposes to register any of its securities under the Act (for
purposes of this Article 7, the "Registration Statement") (other than pursuant
to Form S-4, Form S-8 or a comparable Registration Statement)
8
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AyurCore, Inc.
Representative's Warrant Agreement
it will give written notice of its intention to do so by registered mail
("Notice"), at least thirty (30) business days prior to the filing of each such
Registration Statement, to all Holders of the Registrable Securities. Upon the
written request of such a Holder (a "Requesting Holder"), made within twenty
(20) business days after receipt of the Notice that the Company include any of
the Requesting Holder's Registrable Securities in the proposed Registration
Statement, the Company shall as to each such Requesting Holder, use its best
efforts to effect the registration under the Act of the Registrable Securities
which it has been so requested to register ("Piggyback Registration"), at the
Company's sole cost and expense and at no cost or expense to the Requesting
Holder.
Notwithstanding the provisions of this Section 7.3, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.3 (irrespective of whether a written request
for inclusion of Registrable Securities shall have already been made) to elect
not to file any such proposed Registration Statement, or to withdraw the same
after the filing but prior to the effective date thereof.
7.4 Demand Registration.
(a) At any time during the Warrant Exercise Term, any
"Majority Holder" (as such term is defined in Section 7.4(c) below) of the
Registrable Securities shall have the right (which right is in addition to the
piggyback registration rights provided under Section 7.3 hereof), exercisable by
written notice to the Company (the "Demand Registration Request"), to have the
Company prepare and file with the Securities and Exchange Commission (the
9
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AyurCore, Inc.
Representative's Warrant Agreement
"Commission"), on one occasion, at the sole expense of the Company (except as
provided in Section 7.5(b) hereof), a Registration Statement and such other
documents, including a prospectus, as may be necessary in the opinion of both
counsel for such Majority Holder), in order to comply with the provisions of the
Act, so as to permit a public offering and sale of the Registrable Securities by
the Holders thereof. The Company shall use its best efforts to cause the
Registration Statement to become effective under the Act, so as to permit a
public offering and sale of the Registrable Securities by the Holders thereof.
Once effective, the Company will use its best efforts to maintain the
effectiveness of the Registration Statement until the earlier of (i) the date
that all of the Registrable Securities have been sold or (ii) the date that the
Holders of the Registrable Securities receive an opinion of counsel to the
Company that all of the Registrable Securities may be freely traded (without
limitation or restriction as to quantity or timing and without registration
under the Act) under Rule 144(k) promulgated under the Act or otherwise.
(b) The Company covenants and agrees to give written notice of
any Demand Registration Request to all Holders of the Registrable Securities
within ten (10) business days from the date of the Company's receipt of any such
Demand Registration Request. After receiving notice from the Company as provided
in this Section 7.4(b), Holders of Registrable Securities may request the
Company to include their Registrable Securities in the Registration Statement to
be filed pursuant to Section 7.4(a) hereof by notifying the Company of their
10
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AyurCore, Inc.
Representative's Warrant Agreement
decision to have such securities included within ten (10) days of their receipt
of the Company's notice.
(c) The term "Majority Holder" as used in Section 7.4 hereof
shall mean any Holder or any combination of Holders of Registrable Securities,
if included in such Holders' Registrable Securities are that aggregate number of
Shares (including Shares already issued and Shares issuable pursuant to the
exercise of outstanding Warrants) as would constitute a majority of the
aggregate number of Shares (including Shares already issued and Shares issuable
pursuant to the exercise of outstanding Warrants) included in all the
Registrable Securities.
7.5 Covenants of the Company With Respect to Registration. The
Company covenants and agrees as follows:
(a) In connection with any registration under Section 7.4
hereof, the Company shall file a Registration Statement as expeditiously as
possible, but in no event no later than twenty (20) business days following
receipt of any demand therefor, shall use its best efforts to have any
Registration Statements declared effective at the earliest possible time, and
shall furnish each such Holder of Registrable Securities such number of
prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs, fees and expenses (other
than underwriting fees, discounts and non-accountable expense allowances
applicable to the Registrable Securities and the fees and expenses of counsel
retained by the Holders of the Registrable Securities) in connection with all
Registration Statements filed pursuant to Sections
11
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AyurCore, Inc.
Representative's Warrant Agreement
7.3 and 7.4(a) hereof including, without limitation, the Company's legal and
accounting fees, printing expenses, blue sky fees and expenses.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Registrable Securities included in the
Registration Statement for offering and sale under the securities or blue sky
laws of such states as are reasonably requested by the Holders of such
securities.
(d) The Company shall indemnify any Holder of the Registrable
Securities to be sold pursuant to any Registration Statement and any underwriter
or person deemed to be an underwriter under the Act and each person, if any, who
controls such Holder or underwriter or person deemed to be an underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise, arising
from such Registration Statement, to the same extent and with the same effect as
the provisions pursuant to which the Company has agreed to indemnify each of the
Underwriters as set forth in Section 7 of the Underwriting Agreement and to
provide for just and equitable contribution as set forth in Section 7 of the
Underwriting Agreement..
(e) Any Holder of the Registrable Securities to be sold
pursuant to a Registration Statement, and their successors and assigns, shall
severally, and not jointly,
12
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AyurCore, Inc.
Representative's Warrant Agreement
indemnify the Company, its officers and directors and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which they may become subject under
the Act, the Exchange Act or otherwise, arising from information furnished by or
on behalf of such Holder, or such Holder's successors or assigns, for specific
inclusion in such Registration Statement to the same extent and with the same
effect as the provisions pursuant to which the Underwriters have agreed to
indemnify the Company as set forth in Section 7 of the Underwriting Agreement
and to provide for just and equitable contribution as set forth in Section 7 of
the Underwriting Agreement.
(f) Nothing contained in this Agreement shall be construed as
requiring any Holder to exercise the Warrants held by such Holder prior to the
initial filing of any Registration Statement or the effectiveness thereof.
(g) If the Company shall fail to comply with the provisions of
this Section 7 the Company shall, in addition to any other equitable or other
relief available to the holders of Registrable Securities, be liable for any or
all incidental, special and consequential damages sustained by the holders of
Registrable Securities, requesting registration of their securities.
(h) The Company shall promptly deliver copies of all
correspondence between the Commission and the Company, its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff with
respect to the Registration Statement to each
13
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AyurCore, Inc.
Representative's Warrant Agreement
Holder of Registrable Securities included for registration in such Registration
Statement pursuant to Section 7.3 hereof or Section 7.4 hereof that requests
such correspondence and memoranda and to the managing underwriter, if any, of
the offering in connection with which such Holder's Registrable Securities are
being registered and shall permit each such Holder and managing underwriter to
do such investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the Registration Statement as it deems
reasonably necessary to comply with applicable securities laws or rules of the
National Association of Securities Dealers, Inc. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
or managing underwriter shall reasonably request.
8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SHARES.
8.1 Computation of Adjusted Price. In case the Company shall
at any time after the date hereof pay a dividend in shares of Common Stock or
make a distribution in shares of Common Stock, then upon such dividend or
distribution, the Exercise Price in effect immediately prior to such dividend or
distribution shall forthwith be reduced to a price determined by dividing: (a)
an amount equal to the total number of shares of Common Stock outstanding
immediately prior to such dividend or distribution multiplied by the Exercise
Price in effect immediately prior to such dividend or distribution, by (b) the
total number of shares of
14
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AyurCore, Inc.
Representative's Warrant Agreement
Common Stock outstanding immediately after such issuance or sale. For the
purposes of any computation to be made in accordance with the provisions of this
Section 8.1, the Common Stock issuable by way of dividend or other distribution
on any stock of the Company shall be deemed to have been issued immediately
after the opening of business on the date following the date fixed for the
determination of shareholders entitled to receive such dividend or other
distribution.
8.2. Subdivision and Combination. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
8.3. Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Article 8, the number of
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full number by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Shares issuable
upon exercise of the Warrants immediately prior to such adjustment and dividing
the product so obtained by the adjusted Exercise Price.
8.4. Reclassification, Consolidation, Merger, etc. In case of
any reclassification or change of the outstanding shares of Common Stock (other
than a change in par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the
15
<PAGE>
AyurCore, Inc.
Representative's Warrant Agreement
Company into, another corporation (other than a consolidation or merger in which
the Company is the surviving corporation and which does not result in any
reclassification or change of the outstanding shares of Common Stock, except a
change as a result of a subdivision or combination of such shares or a change in
par value, as aforesaid), or in the case of a sale or conveyance to another
corporation of the property of the Company as an entirety, the Holders shall
thereafter have the right to purchase the kind and number of shares of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance as if the Holders were the owners of
the shares of Common Stock underlying the Warrants immediately prior to any such
events at a price equal to the product of (x) the number of shares of Common
Stock issuable upon exercise of the Holder's Warrants and (y) the Exercise Price
in effect immediately prior to the record date for such reclassification,
change, consolidation, merger, sale or conveyance as if such Holders had
exercised the Warrants.
8.5. Determination of Outstanding Shares of Common Stock. The
number of shares of Common Stock at any one time outstanding shall include the
aggregate number of shares of Common Stock issued and the aggregate number of
shares of Common Stock issuable upon the exercise of options, rights, warrants
and upon the conversion or exchange of convertible or exchangeable securities.
8.6. Dividends and Other Distributions with Respect to
Outstanding Securities.
In the event that the Company shall at any time prior to the
exercise of all Warrants make any distribution of its assets to holders of its
Common Stock as a liquidating or a
16
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AyurCore, Inc.
Representative's Warrant Agreement
partial liquidating dividend, then the holder of Warrants who exercises its
Warrants after the record date for the determination of those holders of Common
Stock entitled to such distribution of assets as a liquidating or partial
liquidating dividend shall be entitled to receive for the Warrant Price per
Warrant, in addition to each share of Common Stock, the amount of such
distribution (or, at the option of the Company, a sum equal to the value of any
such assets at the time of such distribution as determined by the Board of
Directors of the Company in good faith) which would have been payable to such
holder had he been the holder of record of the Common Stock receivable upon
exercise of his Warrant on the record date for the determination of those
entitled to such distribution. At the time of any such dividend or distribution,
the Company shall make appropriate reserves to ensure the timely performance of
the provisions of this Subsection 8.6.
8.7. Subscription Rights for Shares of Common Stock or Other
Securities.
In the case the Company or an affiliate of the Company shall
at any time after the date hereof and prior to the exercise of all the Warrants
issue any rights, warrants or options to subscribe for shares of Common Stock or
any other securities of the Company or of such affiliate to all the shareholders
of the Company, the Holders of unexercised Warrants on the record date set by
the Company or such affiliate in connection with such issuance of rights,
warrants or options shall be entitled, in addition to the shares of Common Stock
or other securities receivable upon the exercise of the Warrants, to receive
such rights, warrants or options that such Holders would have been entitled to
receive had they been, on such record date, the holders of record of
17
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AyurCore, Inc.
Representative's Warrant Agreement
the number of whole shares of Common Stock then issuable upon exercise of their
outstanding Warrants (assuming for purposes of this Section 8.7), that the
exercise of the Warrants is permissible immediately upon issuance).
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Shares in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction, or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrant Certificates, if mutilated, the Company will make and deliver a new
Warrant Certificate of like tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not
be required to issue certificates representing fractions of Shares, nor shall it
be required to issue scrip or pay cash in lieu of fractional interests, it being
the intent of the parties that all fractional interests shall be eliminated by
rounding any fraction up to the nearest whole number of Shares.
18
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AyurCore, Inc.
Representative's Warrant Agreement
11. RESERVATION AND LISTING OF SECURITIES. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants,
such number of shares of Common Stock or other securities, properties or rights
as shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all Shares and other securities issuable upon such exercise shall be duly and
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any shareholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Warrants to be listed on or quoted by NASDAQ or listed
on such national securities exchange in the event the Common Stock is listed on
a national securities exchange.
12. NOTICES TO WARRANT HOLDERS. Nothing contained in this
Agreement shall be construed as conferring upon the Holder or Holders the right
to vote or to consent or to receive notice as a shareholder in respect of any
meetings of shareholders for the election of directors or any other matter, or
as having any rights whatsoever as a shareholder of the Company. If, however, at
any time prior to the expiration of the Warrants and their exercise, any of the
following events shall occur:
(a) the Company shall take a record of the Holders of its
shares of Common Stock for the purpose of entitling them to receive a dividend
or distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained
19
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AyurCore, Inc.
Representative's Warrant Agreement
earnings or capital surplus (in accordance with applicable law), as indicated by
the accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the Holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall be
proposed; or
(d) reclassification or change of the outstanding shares of
Common Stock (other than a change in par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination),
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or a sale or conveyance to another corporation of the property of
the Company as an entirety is proposed; or
(e) The Company or an affiliate of the Company shall propose
to issue any rights to subscribe for shares of Common Stock or any other
securities of the Company or of such affiliate to all the shareholders of the
Company;
20
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AyurCore, Inc.
Representative's Warrant Agreement
then, in any one or more of said events, the Company shall
give written notice to the Holder or Holders of such event at least fifteen (15)
days prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the shareholders entitled to such
dividend, distribution, convertible or exchangeable securities or subscription
rights, options or warrants, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale. Such notice shall specify such record date or
the date of closing the transfer books, as the case may be. Failure to give such
notice or any defect therein shall not affect the validity of any action taken
in connection with the declaration or payment of any such dividend, or
distribution, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
(a) If to the registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
of this Agreement or to such other address as the Company may designate by
notice to the Holders.
14. SUPPLEMENTS AND AMENDMENTS. The Company and the
Representative may from time to time supplement or amend this Agreement without
the approval of any Holders of Warrant Certificates in order to cure any
ambiguity, to correct or supplement
21
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AyurCore, Inc.
Representative's Warrant Agreement
any provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Representative may deem
necessary or desirable and which the Company and the Representative deem not to
adversely affect the interests of the Holders of Warrant Certificates.
15. SUCCESSORS. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Holders and their respective successors and assigns hereunder.
16. TERMINATION. This Agreement shall terminate at the close
of business on 2006. Notwithstanding the foregoing, this
------------ -----
Agreement will terminate on any earlier date when all Warrants have been
exercised and all the Shares have been resold to the public; provided, however,
that the provisions of Section 7.5 hereof shall survive any termination pursuant
to this Section 16 until the close of business on , 2009.
--------- ----
17. GOVERNING LAW. This Agreement and each Warrant Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of New York and for all purposes shall be construed in accordance with the
laws of said State without giving effect to the rules of said state governing
the conflicts of laws.
18. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including
the Underwriting Agreement, to the extent portions thereof are referred to
herein)
22
<PAGE>
AyurCore, Inc.
Representative's Warrant Agreement
contains the entire understanding between the parties hereto with
respect to the subject matter hereof and may not be modified or amended except
by a writing duly signed by the party against whom enforcement of the
modification or amendment is sought.
19. SEVERABILITY. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
20. CAPTIONS. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
21. BENEFITS OF THIS AGREEMENTS. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Representative and any other registered Holder or Holders of the Warrant
Certificates, Warrants or the Shares, any legal or equitable right, remedy or
claim under this Agreement; and this Agreement shall be for the sole and
exclusive benefit of the Company and the Representative and any other Holder or
Holders of the Warrant Certificates, Warrants or the Shares.
22. COUNTERPARTS. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
23
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AyurCore, Inc.
Representative's Warrant Agreement
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
AYURCORE, INC.
By:
------------------------------------
Name:
Title:
Attest:
- -------------------------------
NETWORK 1 FINANCIAL SECURITIES, INC.
By:
------------------------------------
Name:
Title:
24
<PAGE>
EXHIBIT A
AYURCORE, INC.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, , 2003
------------------
No. W-
----
Warrants
-----------------
WARRANT CERTIFICATE
This Warrant Certificate certifies that , or
---------------
registered assigns, is the registered holder of Warrants to purchase, at any
time from , 1999 until 5:00 p.m. New York time on , 2003
----------- -------- ----
(the "Expiration Date"), up to fully-paid and non-assessable shares
------------
(the "Shares") of common stock, $.001 par value per share (the "Common Stock"),
at the initial exercise price, subject to adjustment in certain events (the
"Exercise Price"), of $ per Share upon surrender of this Warrant
-----
Certificate and payment of the Exercise Price at an office or agency of the
Company, but subject to the conditions set forth herein and in the Warrant
Agreement dated as of , 1998 between the Company and NETWORK 1
--------------
FINANCIAL SECURITIES, INC. (the "Warrant Agreement"). Payment of the Exercise
Price may be made in cash, or by certified or official bank check in
<PAGE>
New York Clearing House funds payable to the order of the Company, or any
combination thereof.
No Warrant may be exercised after 5:00 P.M., New York City
time, on the Expiration Date, at which time all Warrants evidenced hereby,
unless exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to in a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events, the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated: , 1998
-----------------
[SEAL]
AYURCORE, INC.
By:
---------------------------------
Name:
Title:
Attest:
- -----------------------------
3
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
Shares of Common Stock;
-----------------
and herewith tenders in payment for such Shares, cash or a certified or official
bank check payable in New York Clearing House Funds to the order of AyurCore,
Inc. in the amount of $ , all in accordance with the terms hereof.
---------------
The undersigned requests that a certificate for such Shares be registered in the
name of whose address is
---------------------------------
and that such Certificate be delivered to
- ---------------------------------
whose address is
- ------------------------ ---------------------------------
Dated: Signature:
----------------- --------------------------------------
(Signature must conform in all
respects to the name of holder as
specified on the face of the Warrant
Certificate.)
--------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED hereby sells,
----------------------
assigns and transfers unto
-----------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ,
-------------------
Attorney, to transfer the within Warrant Certificate on the books of AyurCore,
Inc., with full power of substitution.
Dated: Signature:
----------------- ---------------------------------
(Signature must conform in all
respects to the name of holder as
specified on the face of the Warrant
Certificate.)
--------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
NUMBER
SHARES
A
AYURCORE, INC.
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
CUSIP 054763 10 7
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.001 PAR VALUE, OF
AYURCORE, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney, upon surrender of this Certificate properly
endorsed.
This Certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ Irwin M. Rosenthal
SECRETARY
/s/ Deepa Chitre
PRESIDENT
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED OFFICER
- -------------------------------------------------------------------------------
<PAGE>
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT -- Custodian
----------- -----------
(Cust) (Minor)
under Uniform Gifts to Minors Act
---------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
----------------
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- -----------------------------------------------------------------
to transfer the said stock on the books of the within named Company with full
power of substitution in the premises.
Dated
-------------------------
- -------------------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- ------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM).
PURSUANT TO S.E.C. RULE 17Ad-15.
- -------------------------------------------------------------------------------
<PAGE>
[RUBIN BAUM LEVIN CONSTANT & FRIEDMAN LETTERHEAD]
May 26, 1998
AyurCore, Inc.
1737 N. First Street, Suite 290
San Jose, California 95112
Ladies and Gentlemen:
We refer to the Registration Statement on Form SB-2, File No. 333-42053
(the "Registration Statement"), filed by AyurCore, Inc., a Delaware corporation
(the "Company"), with the Securities and Exchange Commission for the purpose of
registering under the Securities Act of 1933, as amended: (a) up to 1,552,500
shares of the Company's Common Stock, par value $.001 per share (the "Common
Stock"), (b) warrants (the "Representative's Warrants") to purchase up to
135,000 shares of Common Stock.
As counsel to the Company, we have examined such corporate records,
documents and agreements and such matters of law as we have considered necessary
or appropriate for the purpose of this opinion. Upon the basis of such
examination, we advise you that in our opinion:
(i) the Common Stock to be sold by the Company to the several
underwriters, if and when paid for and issued in accordance with the terms of
the underwriting agreement between the Company and the several underwriters in
the form of Exhibit 1.1 to the Registration Statement (the "Underwriting
Agreement"), will be legally issued, fully paid and nonassessable;
(ii) the Common Stock issuable upon exercise of the Representative's
Warrants, if and when paid for and issued upon exercise of the Representative's
Warrants in accordance with the terms thereof, will be legally issued, fully
paid and nonassessable; and
<PAGE>
RUBIN BAUM LEVIN CONSTANT & FRIEDMAN
May 26, 1998
Page 2
(iii) the Representative's Warrants to be sold by the Company to the
representative of the several underwriters, if and when paid for and issued in
accordance with the terms of the Underwriting Agreement, will be valid and
binding obligations of the Company.
The opinion expressed in paragraph (iii) above with regard to the validity
and binding nature of the obligations referred to therein is limited to the
extent that the validity and binding nature of such obligations may be limited
by bankruptcy, insolvency, moratorium or other similar laws or equitable
principles relating to or limiting creditors' rights generally.
We are members of the New York Bar, and the opinions expressed herein are
limited to questions arising under the laws of the State of New York, the
General Corporation Law of the State of Delaware and the Federal law of the
United States, and we disclaim any opinion whatsoever with respect to matters
governed by the laws of any other jurisdiction.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to this firm under the caption "Legal Matters" in
the Prospectus which is a part of the Registration Statement.
Very truly yours,
s/ Rubin Baum Levin Constant & Friedman
RUBIN BAUM LEVIN CONSTANT & FRIEDMAN
<PAGE>
INDEMNIFICATION AGREEMENT
This agreement, made and entered into as of the ____ day of
___________, 1998 ("Agreement"), by and between AyurCore, Inc., a Delaware
corporation (the "Corporation"), and ______________ ("Indemnitee"):
RECITALS
WHEREAS, highly competent persons are becoming more reluctant to serve
as directors, officers or in other capacities unless they are provided with
adequate protection through insurance or adequate indemnification against
inordinate risks of claims and actions against them arising out of their service
to and activities on behalf of the Corporation; and
WHEREAS, the current difficulty of obtaining adequate insurance and
the uncertainties relating to indemnification have increased the difficulty of
attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Corporation has determined that
the inability to attract and retain such persons is detrimental to the best
interests of the Corporation's stockholders and that the Corporation should act
to assure such persons that there will be increased certainty of such protection
in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Corporation
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Corporation free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Corporation on the condition that
Indemnitee be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Corporation and Indemnitee do hereby covenant and agree as
follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings given here:
1.01 "Board" means the Board of Directors of the Corporation.
<PAGE>
1.02 "Change in Control" means a change in control of the Corporation
occurring after the Effective Date (as defined herein) of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A (or in response to any similar item on any similar schedule or form)
promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or
not the Corporation is then subject to such reporting requirement; provided,
however, that, without limitation, such a Change in Control shall be deemed to
have occurred if after the Effective Date (i) any "person" (as such term is used
in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Corporation representing 20% or more of the combined voting power of the
Corporation's then outstanding securities without the prior approval of at least
two-thirds of the members of the Board in office immediately prior to such
person attaining such percentage interest; (ii) the Corporation is a party to a
merger, consolidation, sale of assets or other reorganization, or a proxy
contest, as a consequence of which members of the Board in office immediately
prior to such transaction or event constitute less than a majority of the Board
thereafter; or (iii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board (including for this
purpose any new director whose election or nomination for election by the
Corporation's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board.
1.03 "Corporate Status" describes the status of a person who is or was
a director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation, as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
enterprise.
1.04 "Disinterested Director" means a director of the Corporation who
is not a party to, as of any time of determination thereof, the Proceeding (as
defined herein) in respect of which indemnification is sought by the Indemnitee.
1.05 "Effective Date" means the date a registration statement filed
with the Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended, registering securities issued by the Corporation, is
effective.
1.06 "Enterprise" shall mean the Corporation and any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise of which Indemnitee is or was serving at the request of the
Corporation as a director, officer, employee or agent.
1.07 "Expenses" shall include but not be limited to all reasonable
attorneys' fees, retainers, court costs, transcript costs, fees of experts,
witness fees, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, and all other disbursements
or expenses of the types actually and reasonably incurred by him in connection
with prosecuting, defending, preparing to prosecute or defend, investigating, or
being or preparing to be a witness in a Proceeding.
2
<PAGE>
1.08 "Good Faith" shall mean Indemnitee having acted in good faith and
in a manner Indemnitee reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, with respect to any criminal Proceeding,
having had no reasonable cause to believe Indemnitee's conduct was unlawful.
1.09 "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporate law and neither presently is,
nor in the past five years has been, retained to represent: (i) the Corporation
or Indemnitee in any matter material to either such party, or (ii) any other
party to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Corporation or Indemnitee in an action to determine Indemnitee's rights under
this Agreement.
1.10 "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, administrative hearing or any other threatened, pending or
completed proceeding whether civil, criminal, administrative or investigative,
other than one initiated by Indemnitee. For purposes of the foregoing sentence,
a "Proceeding" shall not be deemed to have been initiated by Indemnitee where
Indemnitee seeks pursuant to Article VIII of this Agreement to enforce
Indemnitee's rights under this Agreement or his rights to indemnification under
the Certificate of Incorporation or Bylaws of the Corporation or Delaware law,
or where Indemnitee seeks to enforce any rights he may have under any directors'
and officers' liability insurance policy maintained by the Corporation.
ARTICLE II
TERM OF AGREEMENT
This Agreement shall continue until and terminate upon the later of:
(i) 10 years after the date that Indemnitee shall have ceased to serve as a
director, officer, employee and/or agent of the Enterprise; or (ii) the final
termination of all Proceedings commenced prior to the date referred to in (i)
above in respect of which Indemnitee is granted rights of indemnification or
advancement of Expenses hereunder and of any Proceeding commenced by Indemnitee
pursuant to Article VIII of this Agreement relating thereto.
ARTICLE III
SERVICES BY INDEMNITEE, NOTICE OF PROCEEDINGS
3.01 SERVICES. Indemnitee agrees to serve as a director and/or
officer of the Corporation. Indemnitee may at any time and for any reason
resign from such position.
3
<PAGE>
3.02 NOTICE OF PROCEEDING. Indemnitee agrees promptly to notify the
Corporation in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.
ARTICLE IV
INDEMNIFICATION
4.01 IN GENERAL. In connection with any Proceeding, the Corporation
shall indemnify, and advance Expenses to, Indemnitee as provided in this
Agreement and to the fullest extent permitted by applicable law in effect on the
date hereof and to such greater extent as applicable law may thereafter from
time to time permit.
4.02 PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE
CORPORATION. Indemnitee shall be entitled to the rights of indemnification
provided in this Section 4.02 if, by reason of Indemnitee's Corporate Status,
Indemnitee was or is, or is threatened to be made, a party to any Proceeding,
other than a Proceeding by or in the right of the Corporation. Indemnitee
shall be indemnified against Expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by Indemnitee or on Indemnitee's
behalf in connection with such Proceeding or any claim, issue or matter
therein, if Indemnitee acted in Good Faith.
4.03 PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. Indemnitee
shall be entitled to the rights of indemnification provided in this Section
4.03 if, by reason of Indemnitee's Corporate Status, Indemnitee was or is, or
is threatened to be made, a party to any Proceeding brought by or in the
right of the Corporation to procure a judgment in its favor. Indemnitee
shall be indemnified against Expenses, judgments, fines and amounts paid in
settlement, actually and reasonably incurred by Indemnitee or on Indemnitee's
behalf in connection with such Proceeding or any claim, issue or matter
therein, if Indemnitee acted in Good Faith. Notwithstanding the foregoing,
no such indemnification shall be made in respect of any claim, issue or
matter in such Proceeding as to which Indemnitee shall have been adjudged to
be liable to the Corporation, unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such Proceeding shall
have been brought determines that, despite the adjudication of liability but
in view of all the circumstances of the case, the Indemnitee is fairly and
reasonably entitled to indemnity for such portion of the settled amount,
Expenses, judgments, and fines as such court deems proper.
4.04 INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee is, by reason
of Indemnitee's Corporate Status, a witness in any Proceeding, Indemnitee shall
be indemnified against all Expenses actually and reasonably incurred by
Indemnitee or on Indemnitee's behalf in connection therewith.
4
<PAGE>
ARTICLE V
ADVANCEMENT OF EXPENSES
Notwithstanding any provision to the contrary in Article VI, the
Corporation shall advance all reasonable Expenses which, by reason of
Indemnitee's Corporate Status, were charged to or incurred by or on behalf of
Indemnitee in connection with any Proceeding, within twenty days after the
receipt by the Corporation of a statement or statements from Indemnitee
requesting such advance or advances whether prior to or after final
disposition of such Proceeding. Such statement or statements shall
reasonably evidence the Expenses incurred by Indemnitee and shall include or
be preceded or accompanied by an undertaking by or on behalf of Indemnitee to
repay any Expenses if it shall ultimately be determined that Indemnitee is
not entitled to be indemnified against such Expenses.
ARTICLE VI
PROCEDURES FOR DETERMINATION OF
ENTITLEMENT TO INDEMNIFICATION
6.01 INITIAL REQUEST. To obtain indemnification under this
Agreement, Indemnitee shall submit to the Corporation a written request,
including therein or therewith such documentation and information as is
reasonably available to Indemnitee and is reasonably necessary to determine
whether and to what extent Indemnitee is entitled to indemnification. The
Secretary of the Corporation shall promptly advise the Board in writing that
Indemnitee has requested indemnification.
6.02 METHOD OF DETERMINATION. A determination (if required by
applicable law) with respect to Indemnitee's entitlement to indemnification
shall be made by the Board by a majority vote of the Disinterested Directors
(even though less than a quorum). In the event that there are no
Disinterested Directors, or if a majority of the Disinterested Directors so
directs, the determination shall be made by Independent Counsel in a written
opinion to the Board, a copy of which shall be delivered to Indemnitee, or by
the stockholders of the Corporation, as determined by such quorum of
Disinterested Directors or by a majority of the Board, as the case may be.
If a Change in Control has occurred and Indemnitee so requests, the
determination shall be made by Independent Counsel in a written opinion to
the Board, a copy of which shall be delivered to Indemnitee.
6.03 SELECTION, PAYMENT, DISCHARGE OF INDEPENDENT COUNSEL. In the
event the determination of entitlement to indemnification is to be made by
Independent Counsel pursuant to Section 6.02 of this Agreement, the Independent
Counsel shall be selected, paid, and discharged in the following manner:
5
<PAGE>
(a) The Independent Counsel shall be selected by the Board, and
the Corporation shall give written notice to Indemnitee
advising Indemnitee of the identity of the Independent
Counsel so selected.
(b) Following the initial selection described in clause (a) of
this Section 6.03, Indemnitee may, within seven days after
such written notice of selection has been given, deliver to
the Corporation a written objection to such selection. Such
objection may be asserted only on the ground that the
Independent Counsel so selected does not meet the
requirements of "Independent Counsel" as defined in Section
1.09 of this Agreement, and the objection shall set forth
with particularity the factual basis of such assertion.
Absent a proper and timely objection, the person so selected
shall act as Independent Counsel. If such written objection
is made, the Independent Counsel so selected may not serve
as Independent Counsel unless and until a court has
determined that such objection is without merit or
Indemnitee has delivered a written withdrawal of such
objection to the Corporation.
(c) Either the Corporation or Indemnitee may petition the Court
of Chancery of the State of Delaware or other court of
competent jurisdiction if the parties have been unable to
agree on the selection of Independent Counsel (if
applicable) within 20 days after submission by Indemnitee of
a written request for indemnification pursuant to Section
6.01 of this Agreement. Such petition may request a
determination whether an objection to the party's selection
is without merit and/or seek the appointment as Independent
Counsel of a person selected by the Court or by such other
person as the Court shall designate. A person so appointed
shall act as Independent Counsel under Section 6.02 of this
Agreement.
(d) The Corporation shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent
Counsel in connection with acting pursuant to this
Agreement, and the Corporation shall pay all reasonable fees
and expenses incident to the procedures of this Section
6.03, regardless of the manner in which such Independent
Counsel was selected or appointed.
6.04 COOPERATION. Indemnitee shall cooperate with the person,
persons or entity making the determination with respect to Indemnitee's
entitlement to indemnification under this Agreement, including providing to
such person, persons or entity upon reasonable advance request any
documentation or information which is not privileged or otherwise protected
from disclosure and which is reasonably available to Indemnitee and
reasonably necessary to such
6
<PAGE>
determination. Any costs or expenses (including reasonable attorneys' fees
and disbursements) incurred by Indemnitee in so cooperating with the person,
persons or entity making such determination shall be borne by the Corporation
(irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Corporation hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
6.05 PAYMENT. If it is determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten (10) days
after such determination.
ARTICLE VII
PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS
7.01 BURDEN OF PROOF. In making a determination with respect to
entitlement to indemnification hereunder, the person or persons or entity
making such determination shall presume that Indemnitee is entitled to
indemnification under this Agreement if Indemnitee has submitted a request
for indemnification in accordance with Section 6.01 of this Agreement, and
the Corporation shall have the burden of proof to overcome that presumption
in connection with the making by any person, persons or entity of any
determination contrary to that presumption.
7.02 EFFECT OF OTHER PROCEEDINGS. The termination of any
Proceeding or of any claim, issue or matter therein, by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not (except as otherwise expressly provided in this
Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in Good
Faith.
7.03 RELIANCE AS SAFE HARBOR. For purposes of any determination of
Good Faith, Indemnitee shall be deemed to have acted in Good Faith if
Indemnitee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to
Indemnitee by the officers of the Enterprise in the course of their duties,
or on the advice of legal counsel for the Enterprise or on information or
records given or reports made to the Enterprise by an independent certified
public accountant or by an appraiser or other expert selected with reasonable
care by the Enterprise. The provisions of this Section 7.03 shall not be
deemed to be exclusive or to limit in any way the other circumstances in
which the Indemnitee may be deemed to have met the applicable standard of
conduct set forth in this Agreement.
7.04 ACTIONS OF OTHERS. The knowledge and/or actions, or failure
to act, of any director, officer, agent or employee of the Enterprise shall
not be imputed to Indemnitee for purposes of determining the right to
indemnification under this Agreement.
7
<PAGE>
ARTICLE VIII
REMEDIES OF INDEMNITEE
8.01 APPLICATION. This Article VIII shall apply in the event of a
Dispute. For purposes of this Article, "Dispute", shall mean any of the
following events:
(a) a determination is made pursuant to Article VI of this
Agreement that Indemnitee is not entitled to
indemnification under this Agreement;
(b) advancement of Expenses is not timely made pursuant to
Article V of this Agreement;
(c) the determination of entitlement to be made pursuant to
Section 6.02 of this Agreement had not been made within 60
days after receipt by the Corporation of the request for
indemnification;
(d) payment of indemnification is not made pursuant to Section
4.05 of this Agreement within ten (10) days after receipt by
the Corporation of written request therefor; or
(e) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is
entitled to indemnification pursuant to Article VI of this
Agreement.
8.02 ADJUDICATION. In the event of a Dispute, Indemnitee shall be
entitled to an adjudication in the Court of Chancery of the State of Delaware
or in any other court of competent jurisdiction, of Indemnitee's entitlement
to such indemnification and advancement of Expenses. Alternatively,
Indemnitee, at Indemnitee's option, may seek an award in arbitration to be
conducted by a single arbitrator sitting in New York, New York, pursuant to
the rules of the American Arbitration Association. The Corporation shall not
oppose Indemnitee's right to seek any such adjudication or award in
arbitration.
8.03 DE NOVO REVIEW. In the event that a determination shall have
been made pursuant to Article VI of this Agreement that Indemnitee is not
entitled to indemnification, any judicial proceeding or arbitration commenced
pursuant to this Article VIII shall be conducted in all respects as a de novo
trial, or arbitration, on the merits and Indemnitee shall not be prejudiced
by reason of that adverse determination. In any such proceeding or
arbitration, the Corporation shall have the burden of proving that Indemnitee
is not entitled to indemnification or advancement of Expenses, as the case
may be.
8
<PAGE>
8.04 CORPORATION BOUND. If a determination shall have been made
pursuant to Article VI of this Agreement that Indemnitee is entitled to
indemnification, the Corporation shall be bound by such determination in any
judicial proceeding or arbitration absent a prohibition of such indemnification
under applicable law.
8.05 PROCEDURES VALID. The Corporation shall be precluded from
asserting in any judicial proceeding or arbitration commenced pursuant to this
Article VIII that the procedures and presumptions of this Agreement are not
valid, binding and enforceable and shall stipulate in any such court or before
any such arbitrator that the Corporation is bound by all the provisions of this
Agreement.
8.06 EXPENSES OF ADJUDICATION. In the event that Indemnitee,
pursuant to this Article VIII, seeks a judicial adjudication of or an award in
arbitration to enforce Indemnitee's rights under, or to recover damages for
breach of, this Agreement, Indemnitee shall be entitled to recover from the
Corporation and shall be indemnified by the Corporation against, any and all
expenses (of the types described in the definition of Expenses in Section 1.07
of this Agreement) actually and reasonably incurred by Indemnitee in such
adjudication or arbitration, but only if Indemnitee prevails therein. If it
shall be determined in such adjudication or arbitration that Indemnitee is
entitled to receive part but not all of the indemnification of advancement or
expenses sought, the expenses incurred by Indemnitee in connection with such
adjudication or arbitration shall be appropriately prorated.
ARTICLE IX
NON-EXCLUSIVITY, INSURANCE, SUBROGATION
9.01 NON-EXCLUSIVITY. The rights of indemnification and to receive
advancement of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled
under applicable law, the Certificate of Incorporation, the By-Laws, any
agreement, a vote of stockholders or a resolution of Disinterested Directors, or
otherwise. No amendment, alteration, rescission or replacement of this
Agreement or any provision hereof shall be effective as to Indemnitee with
respect to any action taken or omitted by such Indemnitee in Indemnitee's
Corporate Status prior to such amendment, alteration, rescission or replacement.
9.02 INSURANCE. The Corporation may maintain an insurance policy or
policies against liability arising out of this Agreement or otherwise.
9.03 SUBROGATION. In the event of any payment under this Agreement,
the Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and take
all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Corporation to bring suit to enforce
such rights.
9
<PAGE>
9.04 NO DUPLICATIVE PAYMENT. The Corporation shall not be liable
under this Agreement to make any payment of amounts otherwise indemnifiable
hereunder if and to the extent that Indemnitee has otherwise actually received
such payment under any insurance policy, contract, agreement or otherwise.
ARTICLE X
GENERAL PROVISIONS
10.01 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the Corporation and its successors and assigns and shall inure to the
benefit of Indemnitee and Indemnitee's heirs, executors and administrators.
10.02 SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever:
(a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation,
each portion of any Section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable,
that is not itself invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and
(b) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of
any Section of this Agreement containing any such provision
held to be invalid, illegal or unenforceable, that is not
itself invalid, illegal or unenforceable) shall be construed
so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
10.03 NO ADEQUATE REMEDY. The parties declare that it is
impossible to measure in money the damages which will accrue to either party by
reason of a failure to perform any of the obligations under this Agreement.
Therefore, if either party shall institute any action or proceeding to enforce
the provisions hereof, such party against whom such action or proceeding is
brought hereby waives the claim or defense that such party has an adequate
remedy at law, and such party shall not urge in any such action or proceeding
the claim or defense that the other party has an adequate remedy at law.
10.04 IDENTICAL COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
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<PAGE>
10.05 HEADINGS. The headings of the sections of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
10.06 MODIFICATION AND WAIVER. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
10.07 NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
If to Indemnitee, to:
As shown with Indemnitee's signature below.
If to the Corporation, to:
AyurCore, Inc.
1737 N. First Street
San Jose, CA 95112
Attention: Deepa Chitre, President
with a copy to:
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10112
Attn: Irwin M. Rosenthal, Esq.
or to such other address as may have been furnished to Indemnitee by the
Corporation or to the Corporation by Indemnitee, as the case may be.
10.08 GOVERNING LAW. The parties agree that this Agreement shall
be governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
10.09 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties hereto in reference to all the
matters herein agreed upon. This
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<PAGE>
Agreement replaces in full all prior indemnification agreements or
understandings of the parties hereto, and any and all such prior agreements or
understandings are hereby rescinded by mutual agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
AYURCORE, INC.
By
-----------------------------
Its
----------------------------
INDEMNITEE
--------------------------------
Print name:
Address:
-----------------------
-----------------------
12
<PAGE>
Exhibit 10.19
AyurCore, Inc.
PROMISSORY NOTE
January 29, 1996
FOR VALUE RECEIVED, AyurCore, Inc., a Delaware corporation
("Borrower"), promises to pay Irwin Rosenthal, ("Lender") the principal amount
of $25,000, together with interest on the unpaid balance thereof from the date
of this Promissory Note to the date such balance is paid, at the prime rate
shown in the Western Edition of the Wall Street Journal, plus 2% per annum.
Interest shall be due and payable on June 30 and December 31, of each year.
Principal shall be due on demand commencing one year from the date hereof;
provided, however, that if, after the date of this Promissory Note, Borrower
shall concluded a debt or equity financing, of $500,00 or more, the unpaid
principal and accrued interest hereunder shall be payable on the fifth business
day after the closing of such financing.
If any one or more of the following events ("Events of Default") shall occur:
a. Borrower shall fail to pay any amount under this Promissory Note when
the same shall become due and payable, whether at maturity or by
acceleration or otherwise; or
b. (i) the Borrower shall commence any action (A) under any law relating
to bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to the Borrower or its debts
or (B) seeking appointment of custodian, receiver or similar office for the
Borrower or any substantial part o its property; or (ii) any action of a
nature referred to above shall commenced against the Borrower and results
in an order for relief or is not dismissed, discharged or fully bonded
within 30 day; or (iii) there shall be commenced against the Borrower any
action seeking attachment, execution or similar process against any
substantial part of the Borrower's property, which action is not within 30
days discharged or stayed or fully bonded; or (iv) the Borrower shall, by
act or omission, indicate its consent to or acquiescence in any of the
foregoing, without regard to the grace periods set forth above; or (v) the
Borrower shall be unable, or admit in writing inability, to pay the
Borrower's debts as they become due; or (vi) the Borrower shall transfer or
conceal its property within intent to hinder, delay or defraud any
creditors or to benefit any class of creditors or creditors generally or
shall suffer for 30 days or longer while insolvent any lien on the
Borrower's property resulting from judicial proceedings; or
c. the dissolution or other winding up of the Borrower; then, in such
event and at any time thereafter, if such event shall then be continuing,
Lender may, at its option upon written notice to Borrower, declare this
Promissory Note to be due and payable, whereupon (or without the necessity
for such notice in the case of any event described in clause (i) or (ii) of
paragraph (b) above, the entire balance of this Promissory Note shall
forthwith become and be due and payable.
<PAGE>
Except as otherwise hereinabove expressly provided, Borrower hereby waives
diligence, demand, protest, presentment and all notices (whether of nonpayment,
dishonor, protest, acceleration or otherwise) and consents to acceleration of
the time of payment and to surrender, substitution or any other action or
inaction with respect to security and to forbearance and to other indulgence,
all without notice. Failure of Lender to assert any right herein shall not be
deemed a waiver thereof.
The Borrower shall have the right, at any time, to prepay without penalty
all of this Promissory Note together with accrued interest thereon.
Lender shall not assign its rights hereunder without the prior written
consent of Borrower.
This Promissory Note 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 such State.
IN WITNESS WHEREOF, the Borrower has signed this Promissory Note as of the
date first written above.
AyurCore, Inc.
By: /s/ Andrew Ganes
-------------------------------
Authorized Signature
<PAGE>
May 26, 1998
Deepa Chitre
Chief Executive Officer
AyurCore, Inc.
1737 N. First Street, Suite 290
San Jose, California 95112
Dear Mrs. Chitre:
Reference is hereby made to that certain Promissory Note, dated as of
January 29, 1996, made by AyurCore, Inc. ("AyurCore") in favor of Irwin M.
Rosenthal (the "Note"). In order to facilitate AyurCore's contemplated initial
public offering (the "Offering"), the undersigned hereby agrees that no
payments shall be due or payable under the Note prior to the first
anniversary of the consummation of the Offering; provided, however, that this
agreement shall be of no further force or effect if the Offering shall not be
consummated by August 1, 1998.
/s/Irwin M. Rosenthal
-------------------------
Irwin M. Rosenthal
<PAGE>
AyurCore, Inc.
PROMISSORY NOTE
March 24, 1998
FOR VALUE RECEIVED, AyurCore, Inc., a Delaware Corporation
("Borrower"), promises to pay to the order of Sanjeev Chitre
("Lender"), the principal amount of $279,655.84, together with
interest on the unpaid principal balance thereof from the respective
dates Lender loaned such amounts to the Borrower as set forth on
Schedule A attached hereto to the date such balance is paid, at the
prime rate shown in the Western Edition of the Wall Street Journal,
plus 2% annum. Interest shall be due and payable on June 30 and
December 31, of each year. Principal shall be due on demand from and
after the respective maturity dates set forth on Schedule A; provided,
however, that if Borrower shall conclude a debt or equity financing of
$500,000 or more at any time after the date hereof and prior to the
date any principal amount hereunder shall otherwise become due and
payable, such unpaid principal and accrued interest hereunder shall be
payable on the fifth business day after the closing of such financing.
If any one or more of the following events ("Events of Default") shall
occur:
(a) Borrower shall fail to pay any amount under this Promissory
Note when the same shall become due and payable, whether at
maturity or by acceleration or otherwise; or
(b) (i) the Borrower shall commence any action (A) under any
law relating to bankruptcy, insolvency, reorganization or relief
of debtors, seeking to have an order for relief entered with
respect to the Borrower or its debts or (B) seeking appointment
of a custodian, receiver or similar officer for the Borrower or
any substantial part of its property; or (ii) any action of a
nature referred to above shall be commenced against the Borrower
and results in an order for relief or is not dismissed,
discharged or fully bonded within 30 days; or (iii) there shall
be commenced against the Borrower any action seeking attachment,
execution or similar process against any substantial part of the
Borrower's property, which action is not within 30 days
discharged or stayed or fully bonded; or (iv) the Borrower shall,
by act or omission, indicate its consent to or acquiescence in
any of the foregoing, without regard to the grace periods set
forth above; or (v) the Borrower shall be unable, or admit in
writing, inability to pay the Borrower's debts as they become
due; or (vi) the Borrower shall transfer or conceal its property
within intent to hinder, delay or defraud any creditors or to
benefit any class of creditors or creditors generally or shall
suffer for 30 days or longer while insolvent any lien on the
Borrower's property resulting from judicial proceedings; or
(c) the dissolution or other winding up of the Borrower;
<PAGE>
then, in such event and at any time thereafter, if such event shall
then be continuing, Lender may, at its option upon written notice to
Borrower, declare this Promissory Note to be due an payable, whereupon
(or without the necessity for such notice in the case of any event
described in clause (i) or (ii) of paragraph (b) above) the entire
balance of this Promissory Note shall forthwith become and be due and
payable.
Except as otherwise hereinabove expressly provided, Borrower hereby
waives diligence, demand, protest, presentment and all notices
(whether of nonpayment, dishonor, protest, acceleration or otherwise)
and consents to acceleration of the time of payment and to surrender,
substitution or any other action or inaction with respect to security
and to forbearance and to other indulgence, all without notice.
Failure of Lender to assert any right herein shall not be deemed a
waiver thereof.
The Borrower shall have the right, at any time, to prepay without
penalty all of this Promissory Note together with accrued interest
thereon.
Lender shall not assign its rights hereunder without the prior written
consent of Borrower.
This Promissory Note supersedes in all respects the Promissory Note
dated as of January 29, 1998 issued by the Borrower in favor of the
Lender.
This Promissory Note 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 such State.
IN WITNESS WHEREOF, the Borrower has signed this Promissory Note as of
the date first written above.
AyurCore, Inc.
By: s/ Nina Renaud
----------------------------
Nina Renaud, Chief Financial
Officer
Authorized Signatory
<PAGE>
SCHEDULE A
Chitre Promissory Note
<TABLE>
<CAPTION>
<S> <C> <C>
Principal Amount Loaned
Date by Lender to Borrower Maturity Date
1/15/96 $25,000 1/15/97
8/15/96 $38,000 8/15/97
9/5/96 $6,300 9/5/97
9/17/96 $6,150 9/17/97
9/30/96 $4,000 9/30/97
10/8/96 $8,000 10/8/97
10/11/96 $4,250 10/11/97
10/23/96 $25,000 10/23/97
2/20/97 $25,000 2/20/98
3/20/97 $25,000 3/20/98
5/28/97 $15,000 5/28/98
6/15/97 $5,500 6/15/98
6/29/97 $2,500 6/29/98
7/14/97 $15,000 7/14/98
12/16/97 $25,000 12/16/98
1/21/98 $11,380.84 1/21/99
1/29/98 $10,000 1/29/99
3/24/98 $28,575 3/24/99
$279,655.84
</TABLE>
<PAGE>
May 26, 1998
Deepa Chitre
Chief Executive Officer
AyurCore, Inc.
1737 N. First Street, Suite 290
San Jose, California 95112
Dear Mrs. Chitre:
Reference is hereby made to that certain Promissory Note, dated as of
March 24, 1998, made by AyurCore, Inc. ("AyurCore") in favor of Sanjeev Chitre
(the "Note). In order to facilitate AyurCore's contemplated initial public
offering (the "Offering"), the undersigned hereby agrees that no payments shall
be due or payable under the Note prior to the first anniversary of the
consummation of the Offering; provided, however, that this agreement shall be of
no further force or effect if the Offering shall not be consummated by
August 1, 1998.
s/ Sanjeev Chitre
------------------
Sanjeev Chitre
<PAGE>
EXHIBIT 10.23
FINANCIAL ADVISORY AND INVESTMENT BANKING AGREEMENT
This Agreement is made and entered into as of the ____ day of
_________, 1998 between Network 1 Financial Securities, Inc., a Texas
corporation (sometimes referred to as "Network 1" and sometimes referred to
as the "Consultant') and AyurCore, Inc., a Delaware corporation (the
"Company").
In consideration of the mutual promises made herein and for other
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. Purpose: The Company hereby engages Network 1 for the term
specified in Paragraph 2 hereof to render advice to the Company as an
investment banker relating to financial and similar matters upon the terms
and conditions set forth herein.
2. Term: Except as otherwise specified in Paragraph 4 hereof, this
Agreement shall be effective from the Closing Date, as defined in the
Underwriting Agreement of even date between Network 1 and the Company, and
for twenty-four (24) months thereafter.
3. Duties of Network 1: During the term of this Agreement, Network 1
shall, upon the request of the Company, provide the Company with corporate
finance and related financial advisory services, advice with corporate
finance and related financial advisory services, advice with respect to
potential acquisitions and other business transactions and
<PAGE>
advice with respect to stockholder relations matters. All obligations of the
Consultant contained herein shall be subject to the Consultant's availability
to perform such services and the amount of notice received from the Company.
The Consultant shall devote such time and effort to the performance of its
duties hereunder as the Consultant shall determine is reasonably necessary.
The Consultant may look to such others for such factual information,
investment recommendations, economic advice and/or research, upon which to
base its advice to the Company hereunder, as it shall deem appropriate. The
Company recognizes that Network 1 now renders and may continue to render
financial and other advisory services to other individuals and entities which
may or may not conduct activities similar to those of the Company and
acknowledges that Network 1 shall be free to render such advice and to
perform such services for these and other individuals and entities.
4. Compensation:
4.1 In consideration for the services rendered by Network 1
to the Company pursuant to this Agreement (and in addition to the expenses
provided for in Paragraph 5 hereof) the Company shall pay Network 1 a
non-refundable fee of One-Hundred and Twenty-Thousand ($120,000.00) Dollars,
payable in advance, upon the execution of this Agreement. This fee represents
a monthly fee of Five-Thousand ($5,000.00) Dollars throughout the term of
this Agreement. In addition, if any Transaction (as defined below) occurs
during the term of this
2
<PAGE>
Agreement or within twelve months thereafter, the Company shall pay fees to
Network1 as follows:
<TABLE>
<CAPTION>
Consideration Fee
------------- ---
<S> <C>
First $1,000,000 5% of First $1,000,000
Second $1,000,000 4% of Second $1,000,000
Third $1,000,000 3% of Third $1,000,000
Fourth $1,000,000 2% of Fourth $1,000,000
Consideration in excess 1% of Consideration in
of the fourth $1,000,000 excess of fourth $1,000,000
</TABLE>
For purposes of this Agreement, a "Transaction" shall mean (i) any
transaction originated by Network 1, other than in the ordinary course of
trade or business of the Company, whereby, directly of indirectly, control
of, or a material interest in, the Company and its subsidiaries or the
business or assets of the Company and its subsidiaries, is transferred for
Consideration, or (ii) any transaction originated by Network 1 whereby the
Company acquires any other company, or the assets of any other company or an
interest in any other company; and "Consideration" shall mean the total
market values on the day of the closing of stock, cash, assets and all other
property (real or personal) exchanged or received, directly or indirectly by
the Company or any of its security holders in connection with any
Transaction. Any co-broker retained by Network 1 shall be paid by Network 1.
All Transaction fees to be paid pursuant to this Agreement, except as
3
<PAGE>
otherwise specified, are due and payable to Network 1 in cash at the closing
or closings of a Transaction. In the event that this Agreement shall not be
renewed or is terminated for any reason, notwithstanding any such non-renewal
or termination, Network 1 shall be entitled to the entire fee provided in
this Paragraph 4, for any Transaction for which the discussions were
initiated during the term of this Agreement and which is consummated within a
period of twelve months after non-renewal or termination of this Agreement.
Nothing herein shall impose any obligation on the part of the Company to
enter into any Transaction.
4.2 In the event Network 1 originates a line of credit with
a lender or a corporate partner, the Company and Network 1 will mutually
agree on a satisfactory fee and the terms of payment of such fee. In the
event Network 1 introduces the Company to a joint venture partner or customer
and sales develop as a result of the introduction, the Company agrees to pay
a fee to Network 1 of five (5%) percent of total sales generated directly
from this introduction during the first two years following the date of the
first sale. Total sales shall mean gross receipts less any applicable
refunds, returns, allowances, credits, taxes and shipping charges and monies
paid by the Company by way of settlement or judgment arising out of claims
made by or threatened against the Company. Commission payments shall be paid
on the 15th day of each third month following the receipt of customers'
payments. In the event any adjustments are made to the total sales after the
commission has been paid, the Company shall be entitled to an appropriate
refund or credit against future payments under this Agreement.
4
<PAGE>
4.3 All fees to be paid pursuant to this Agreement, except
as otherwise specified, are due and payable to Network 1 in cash or company
check at the closing or closings of any Transaction specified in Paragraph 4.
In the event that this Agreement shall not be renewed or if terminated for
any reason, notwithstanding any such non-renewal or termination, Network 1
shall be entitled to a full fee as provided under Paragraphs 4 and 5 hereof,
for any Transaction for which the discussions were initiated during the term
of this Agreement and which is consummated within a period of twelve months
after non-renewal or termination of this Agreement. Nothing herein shall
impose any obligation on the part of the Company to enter into any
Transaction.
5. Expenses of Network 1: In addition to the fees payable hereunder
and regardless of whether any Transaction is proposed or consummated, the
Company shall reimburse Network 1, up to a maximum aggregate of $2,500, for
the reasonable fees and disbursements of Network 1's counsel and Network 1's
reasonable travel and out-of-pocket expenses incurred in connection with the
services performed by Network 1 pursuant to this Agreement and at the request
of the Company, including without limitation, hotels, food and associated
expenses and long-distance telephone calls.
6. Liability of Network 1:
6.1 In furnishing the Company with the advice and other
services as herein provided, neither Network 1 nor any officer, director or
agent thereof shall be liable to the
5
<PAGE>
Company or its creditors for any acts and/or omissions attributable to or
arising from such services, including, but not limited to, errors of judgment
in connection therewith, but not including intentional or willful misconduct
by the Consultant in the performance of such services.
6.2 It is further understood and agreed that Network 1 may
rely upon information furnished to it reasonably believed to be accurate and
reliable and that, except as herein provided, Network 1 shall not be
accountable for any loss suffered by the Company by reason of the Company's
action or inaction on the basis of any advice, recommendation or approval of
Network 1, its partners, employees or agents.
6.3 The Company acknowledges that all opinions and advice
(written or oral) given by Network 1 to the Company in connection with
Network 1's engagement are intended solely for the benefit and use of the
Company in considering the transaction to which they relate, and the Company
agrees that no person or entity other than the Company shall be entitled to
make use of or rely upon the advice of Network 1 to be given hereunder, and
no such opinion or advice shall be used for any other purpose or reproduced,
disseminated, quoted or referred to at any time, in any manner or for any
purpose, nor may the Company make any public references to Network 1, or use
Network 1's name in any annual reports or any other reports or releases of
the Company without Network 1's prior written consent.
6
<PAGE>
6.4 The Company acknowledges that Network 1 makes no
commitment whatsoever as to making a market in the Company's securities or to
recommending or advising its clients to purchase the Company's securities.
Research reports or corporate finance reports that may be prepared by Network
1 will, when and if prepared, be done solely on the merits based upon an
analysis performed by Network 1 and its corporate finance personnel.
7. Company Information:
7.1 The Company shall furnish to the Consultant all data,
material and other information relevant to the performance by the Consultant
of its obligations under this Agreement, or particular projects as to which
the Consultant is acting as advisor, which will permit the Consultant to know
all facts material to the advice to be rendered, and all material or
information reasonably requested by the Consultant. The Company acknowledges
and agrees that in performing its services under this engagement, Network 1
may rely upon the data, material and other information supplied by the
Company without independently verifying the accuracy, completeness or
veracity of same. In the event that the Company fails or refuses to furnish
any such data, material or information reasonably requested by the
Consultant, and thus prevents or impedes the Consultant's performance
hereunder, any inability of the Consultant to perform shall not be a breach
of its obligations hereunder.
7.2 Except as contemplated by the terms hereof or as
required by applicable law, Network 1 shall keep confidential all non-public
information to any third party without the
7
<PAGE>
Company's prior written consent, other than to such of its employees and
advisors as Network 1 determines in its sole judgment need to have access
thereto. Notwithstanding the foregoing, the Consultant shall not be required
to maintain confidentiality with respect to information (I) which is or
becomes part of the public domain; (ii) of which it had independent knowledge
prior to disclosure; (iii) which comes into the possession of the Consultant
or its employees or agents in the normal and routing course of its own
business from and through independent non-confidential sources; or (iv) which
is required to be disclosed by the Consultant pursuant to legal process or in
accordance with governmental or regulatory requirements. If the Consultant is
requested or required (by oral questions, interrogatories, requests for
information or document subpoenas, civil investigative demands, or similar
process) to disclose any confidential information supplied to it by the
Company, or the existence of other negotiations in the course of its dealings
with the Company or its representatives, the Consultant shall, unless
prohibited by law, promptly notify the Company of such request (s) so that
the Company may seek an appropriate protective order.
8. Indemnification: The Company agrees to indemnify and hold
harmless the Consultant, its partners, employees, agents, representatives and
controlling persons (and the officers, directors, employees, agents,
representatives and controlling persons of each of them) from and against any
and all losses, claims, damages, liabilities, costs and expenses (and all
actions, suits, proceedings or claims in respect thereof) and any legal or
other expenses in giving
8
<PAGE>
testimony or furnishing documents in response to a subpoena or otherwise
(including, without limitation, the cost of investigating, preparing or
defending any such action, suit, proceeding or claim, whether or not in
connection with any action, suit, proceeding or claim in which the Consultant
is a party), as and when incurred, directly or indirectly, caused by,
relating to, based upon or arising out of the Consultant's service pursuant
to this Agreement. The Company further agrees that the Consultant shall incur
no liability to the Company or any other party on account of this Agreement
or any acts or omissions arising out of or related to the actions of the
Consultant relating to this Agreement or the performance or failure to
perform any services under this Agreement, except for the Consultant's
intentional or willful misconduct. The obligations of the Company under the
Section shall survive the termination of this Agreement.
9. Independent Contractor: Network 1 shall perform its services
hereunder as an independent contractor and not as an employee of the Company
or an affiliate thereof. It is expressly understood and agreed to by the
parties hereto that Network 1 shall have no authority to act for, represent
or bind the Company or any affiliate thereof in any manner, except as may be
agreed to expressly by the Company in writing from time to time.
10. Miscellaneous:
10.1 This Agreement between the Company and Network 1
constitutes the entire agreement and understanding of the parties hereto and
supersedes any and all previous
9
<PAGE>
agreements and understandings, whether oral or written, between the parties
with respect to the matters set forth herein.
10.2 Any notice or communication permitted or required
hereunder shall be in writing and shall be deemed sufficiently given if
hand-delivered or sent (i) postage prepaid by registered mail, return receipt
requested, or (ii) by facsimile to the respective parties as set forth below,
or to such other address as either party may notify the other in writing:
If to the Company to: AyurCore, Inc.
1737 N. First Street, Suite 290
San Jose, California 95112
Facsimile: (403) 441-6382
with a copy to: Keith Moskowitz, Esq.
Rubin, Baum, Levin, Constant & Friedman
30 Rockefeller Plaza
New York, New York 10112
Facsimile: (212) 698-7825
If to Network 1, to: Network 1 Financial Securities, Inc.
The Galleria, Penthouse
2 Bridge Avenue, Building 2
Red Bank, New Jersey 07701
Attn: William R. Hunt, Jr.
Facsimile: (732) 758-6671
with a copy to: Virginia K. Sourlis, Esq.
192 Kingsley Street
Long Branch, New Jersey 07740
Facsimile: (732) 758-6671
10.3 This Agreement shall be binding upon and inure to the
benefit of each of the parties hereto and their respective successors, legal
representative and assigns.
10
<PAGE>
10.4 This Agreement may be executed in any number of
counterparts, each of which together shall constitute one and the same
original document.
10.5 No provision of this Agreement may be amended,
modified or waived, except in a writing signed by all of the parties hereto.
10.6 This Agreement shall be construed in accordance with
and governed by the laws of the State of New York, without giving effect to
conflict of law principles.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
NETWORK 1 FINANCIAL SECURITIES, INC.
By:_________________________________
Name:
Title:
AGREED AND ACCEPTED:
AYURCORE, INC.
By:__________________________________
Name:
Title:
11
<PAGE>
AyurCore, Inc.
PROMISSORY NOTE
December 23, 1997
FOR VALUE RECEIVED, AyurCore, Inc., a Delaware corporation
("Borrower"), promises to pay to Michael R. Splinter and Patricia Robestoff
("Lender") the principal amount of $50,000, together with interest on the
unpaid balance thereof from the date of this Promissory Note to the date
such balance is paid, at the prime rate shown in the Western Edition of the
Wall Street Journal, plus 2% per annum. Principal and interest shall be due
and payable on demand commencing one year from the date hereof; provided,
however, that if the Company consummates an initial public offering of its
equity securities within six months from the date hereof, the unpaid
principal and accrued interest hereunder shall become due and payable on
demand commencing one year from the date of consummation of the initial
public offering.
If any one or more of the following events ("Events of Default") shall
occur:
(A) Borrower shall fail to pay any amount under this Promissory
Note when the same shall become due and payable, whether at maturity
or by acceleration or otherwise; or
(B) (i) the Borrower shall commence any action (A) under any
law relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to
the Borrower or its debts or (B) seeking appointment of a custodian,
receiver or similar official for the Borrower or any substantial part
of its property; or (ii) any action of a nature referred to above
shall be commenced against the Borrower and results in an order for
relief or is not dismissed, discharged or fully bonded within 30 days;
or (iii) there shall be commenced against the Borrower any action
seeking attachment, execution or similar process against any
substantial part of the Borrower's property, which action is not
within 30 days discharged or stayed or fully bonded; or (iv) the
Borrower shall, by act or omission, indicate its consent to or
acquiescence in any of the foregoing, without regard to the grace
periods set forth above; or (v) the Borrower shall be unable, or admit
in writing inability, to pay the Borrower's debts as they become due;
or (vi) the Borrower shall transfer or conceal its property with
intent to hinder, delay or defraud any creditors or to benefit any
class of creditors or creditors generally or shall suffer for 30 days
or longer while insolvent any lien on the Borrower's property
resulting from judicial proceedings; or
(C) the dissolution or other winding up of the Borrower;
then, in such event and at any time thereafter, if such event shall then be
continuing, Lender may, at its option upon written notice to Borrower,
declare this Promissory Note to be due and payable, whereupon (or without
the necessity for such notice in the case of any event described in
<PAGE>
clause (i) or (ii) of paragraph (B) above) the entire balance of this
Promissory Note shall forthwith become and be due and payable.
Except as otherwise hereinabove expressly provided, Borrower hereby
waives diligence, demand, protest, presentment and all notices (whether of
nonpayment, dishonor, protest, acceleration or otherwise) and consents to
acceleration of the time of payment and to surrender, substitution or any
other action or inaction with respect to security and to forbearance and to
other indulgence, all without notice. Failure of Lender to assert any right
herein shall not be deemed a waiver thereof.
The Borrower shall have the right, at any time, to prepay without
penalty all of this Promissory Note together with accrued interest thereon.
Lender shall not assign its rights hereunder without the prior written
consent of Borrower.
This Promissory Note shall be governed by and construed in accordance
with the laws of the State of Delaware applicable to contracts made and to
be performed wholly within such State.
IN WITNESS WHEREOF, the Borrower has signed this Promissory Note as of
the date first written above.
AyurCore, Inc.
By: /s/ Deepa Chitre
------------------------------------------
Deepa Chitre, M.D., CEO and President
-2-
<PAGE>
May 26, 1998
Deepa Chitre
Chief Executive Officer
AyurCore, Inc.
1737 N. First Street, Suite 290
San Jose, California 95112
Dear Mrs. Chitre:
Reference is hereby made to that certain Promissory Note, dated as of
December 23, 1997, made by AyurCore, Inc. ("AyurCore") in favor of Michael
Splinter and Patricia Roboostoff (the "Note"). In order to facilitate
AyurCore's contemplated initial public offering (the "Offering"), the
undersigned hereby agrees that no payments shall be due or payable under
the Note prior to the first anniversary of the consummation of the Offering;
provided, however, that this agreement shall be of no further force or effect
if the Offering shall not be consummated by August 1, 1998.
/s/ Michael Splinter
-------------------------
Michael Splinter
/s/ Patricia Roboostoff
--------------------------
Patricia Roboostoff
<PAGE>
[Ten Rupees Bill]
MEMORANDUM OF UNDERSTANDING
THIS AGREEMENT made at Pune this Tenth day of December 1997, between M/s
Bio-Ved Pharmaceuticals Pvt. Ltd., a company incorporated under the
provisions of the company act, 1956, and having its registered office at
6, Pradeep Chambers, Bhandarkar Institute Road, Pune 411005, Maharashtra,
hereinafter referred to as "the Company" (which expression shall unless
repugnant to or inconsistent to the context or meaning thereof the deemed,
mean and include its successors and assignees) of the ONE PART AND S.P.B.
(Inc.), a company incorporated under the provisions of the company act,
1956, and having its registered office at Maharashtra, hereinafter referred
to as "the Manufacturer" (which expression shall unless repugnant to or
inconsistent to the context or meaning thereof the deemed, mean and include
its successors and assignees) of the OTHER PART.
[Ten Rupees Bill]
WHEREAS:
A. The Company is carrying on business of manufacturing and sale of
pharmaceuticals and possesses expertise, technical know-how and
technology for the manufacture thereof;
B. The Manufacturer has represented to the Company that it has the
necessary manufacturing facilities, including that of filling,
packaging and supplying of pharmaceutical liquid with requisite
specifications of quality control as required by the Company; spare
capacity, adequate equipment and competent staff at its factory
situated at 179/2 Garmal, Vadgeon Dhayari, Sinhgad Road, Tal Haveli,
Dist. Pune 411041, has offered the same to the Company.
C. The Company is desirous of utilizing the manufacturing facilities and
the spare capacity of the manufacturer in respect of the products
listed in the "Schedule I" hereto annexed upon and subject to the
terms and conditions hereinafter appearing.
NOW IT IS HEREBY MUTUALLY AGREED TO BY AND BETWEEN the
parties hereto as follows:
I. MANUFACTURE (PRINCIPAL TO PRINCIPAL ARRANGEMENT):
i) The manufacturer will manufacture MULTICIDAL HICIDAL PERIBAN/
MICROCIDAL solely for the sale purpose to Company. The
Manufacturer shall not manufacture same product for sale to any
other buyer than the Company (Bio-Ved). The Company shall place
Purchase Orders to the Manufacturer for such products as
mentioned in 'Schedule I' hereto annexed. The manufacturer shall
manufacture such product/s as mentioned in the schedule I hereto
annexed as per
<PAGE>
the standards and specifications specified in the 'Proposed
Manufacturing Guide' or 'Master Formula' (and currently in force)
given by the company to the Manufacturer. No deviation and/or
alterations in part or whole shall be carried out without prior
written permission of the Company.
ii) The Company shall provide the Manufacturer with Manufacturing
programme/schedule at least 6 weeks in advance and the
Manufacturer shall make available the required facilities to the
company as per the schedule previously agreed upon. The Company
agrees to purchase 30,000 units per month from the Manufacturer.
iii) The Manufacturer shall make arrangement of procuring raw and
packaging materials in advance in such a manner as to allow
sufficient time for its analysis and release for use in
manufacturing as per the schedule given by the Company. The
Manufacturer shall make arrangements to analyze all starting
materials so as to achieve production scheduled quantity on time.
iv) The Manufacturer shall make every effort to ensure delay
prevention by advance planning and shared projection. The
Manufacturer shall develop alternative sources to ensure adequate
supplies and build inventory for the purpose.
v) The manufacturer shall make adequate arrangement for storage of
raw materials, Packaging Materials, In-process goods, Finished
Product and Change-parts as per the guidelines given by the
Company.
vi) The Manufacturer shall follow and comply with all the
statutory/regulatory requirements mentioned in Drug Act 1940 and
Rules 1945 including Amendment to Drug Act 1988 - Good Mfg.
Practices (as per Schedule M and U).
vii) The Manufacturer shall document the batch details on the protocol
of Batch Manufacturing Record (B.M.R.) as provided by the Company
and arrange to send a photocopy of B.M.R. of each batch along
with the Certificate Of Analysis (COA) to the Company to obtain
their 'Release Note' before releasing a batch of finished product
for sale from the warehouse of the Manufacturer. Such a Release
note should be given within 10 days.
II. PERMISSIONS:
The Company and the Manufacturer shall obtain from the authorities
concerned and maintain from time to time and at all times during the
continuance of this Agreement all necessary permits, approvals and
licences, requisite, usual, expedient or proper in relation to or in
connection with the manufacture of the product under this Agreement.
-2-
<PAGE>
III. EQUIPMENT, MACHINERY AND OTHER FACILITIES:
The Manufacturer shall ensure and guarantee that adequate facilities
including power is available at all times for manufacture of the said
products as per the manufacturing schedule given by the Company. If
necessary the manufacturer shall install at its own cost generator set
for ensuring availability of power and make available all consumables
at all times.
IV. DISPATCHES:
The Manufacturer shall dispatch the finished products to locations and
parties/persons as may be intimated by the Company from time to time.
The Company shall arrange to make necessary documentations including
challans, debit notes, memos, etc. which shall accompany the goods to
various destinations. The Manufacturer thus co-operates and works
with the Company in getting necessary documentation and tapes in
place. Transportation costs including loading/unloading of goods
shall be borne by the Company. The Company agrees to lift the finished
goods within 10 days from the date of intimation by the manufacturer.
V. QUALITY ASSURANCE:
i) The Manufacturer shall analyze all the raw and packaging
materials as per the specifications provided by the Company
before using the same for manufacturing purpose. In case of any
problem of non-compliance with any of the control parameters of
specifications, the Manufacturer shall consult the Company
immediately and in such case, the Company's decision shall be
final and binding on the Manufacturer. The Manufacturer shall
keep detailed records of such analysis of RM, PM and finished
goods.
ii) The Company reserves the right to analyze independently any or
all batches of starting materials and finished product and reject
if found substandard. It also reserves the right to reject
partly or wholly the finished product based on its independent
analysis or suggest reprocessing method to be carried out by the
Manufacturer at the cost of the Manufacturer. The Manufacturer
shall ensure in such event that the agreed Production schedule is
not disturbed.
iii) The Company shall have an access to any and all documentation
pertaining to the manufacturing and testing documents of the
product including the inspection of storage conditions and Q.A.
systems. The Company may carry out an audit of the
Manufacturer's premises, systems and documents to ensure the
Quality, Purity and Integrity of the Company's products.
-3-
<PAGE>
iv) The Manufacturer shall arrange to hand over 'Control Samples' of
each batch of Company's products manufactured in its premises to
the Company as per the Sample quantity specified by the Company
in writing. This may include samples for stability studies. The
Manufacture shall maintain documentation records of all such
samples drawn by the Company on BMR.
v) The Manufacturer shall bear the loss of all market complaints and
credit it to the Company within 60 days from the date of
receiving complaint along with complaint sample. Alternately a
free replacement for the same quantity and pack size for market
complaints may be made by the Manufacturer.
vi) The Manufacturer shall observe the Company's authorized Standard
Operating Procedure for addition of Recovery and also for
Destruction of Non-Recoverable materials including finished
product.
VI. CHARGES:
i) Since the product is to be manufactured on P & P basis, the rates
will be mutually decided by the Company and the Manufacturer and
cost of the finished product will be reviewed and revised, if
required, after every six months starting by mutual discussion
and consent of both the parties.
ii) The Purchase Order shall accompany 50% Advance by cheque payable
at Pune. Balance against release of goods by our laboratory, by
30 days post dated cheque.
VII. DURATION:
This agreement shall commence on 10th day of December, 1997 and shall
be in force for a period of five years from that date subject to its
prior termination or determination as hereinafter provided.
VIII. RENEWAL:
This Agreement may be renewed by either party by giving to the other
three months' notice in that behalf on terms and conditions to be
mutually agreed upon.
IX. TERMINATION:
i) Either parties shall be entitled to terminate this agreement on
the happening of any of the following events -
a) If counter part commits a breach of any of the terms or
provisions of this Agreement and fails to rectify or remedy
the breach within seven days from
-4-
<PAGE>
the date of receipt of written notice calling upon it to do
so.
b) If the counter part goes into liquidation, voluntary or
otherwise.
c) If counter part makes any arrangement or compensation with
its creditors or if distress execution or other process of
the court is levied upon or if any encumbrancer takes
possession of or a receiver or other officer of the court is
appointed in respect of its assets or properties.
ii) Notwithstanding anything contained hereinabove and without
prejudice to the rights and remedies open, either party shall be
entitled to terminate this Agreement by giving three months'
notice to the other party. However, before the termination of
this Agreement, the parties shall discuss the cause of
termination. In such event none of the parties herein shall be
entitled to any compensation or compensation of any kind
whatsoever.
X. CONSEQUENCES OF TERMINATION:
Upon termination of this Agreement in any manner -
i) The manufacturer shall immediately discontinue the manufacture
packaging of the products.
ii) The Company shall pay and settle with the Manufacturer all the
due charges against production of bills, invoices, vouchers etc.
in respect thereof
iii) The Manufacturer shall not be entitled to any other compensation
or reimbursement of whatsoever nature.
iv) The Manufacturer shall not claim any right, title or interest in
respect of any of the trade marks of the Company whether
registered or not as well as any similar trade marks.
v) For a period of at least 10 years, the Manufacturer shall not
manufacture or produce directly or indirectly the same products
for itself or for any other person whatsoever.
XI. SECRECY CLAUSE AND UNDERTAKING:
i) The Manufacturer undertakes that it shall keep strictly secret
and confidential and shall not disclose, divulge or reveal during
the continuance of this Agreement or at any time thereafter the
know-how, formula, manufacturing process and its details or any
part disclosed or communicated by the Company to it under this
Agreement
-5-
<PAGE>
relating to the manufacturing or packaging of the products or
otherwise gained or acquired by virtue of or as a result of the
implementation of this Agreement to any person, firm, company,
body, corporate or authority and shall ensure that the same is
kept secret and confidential.
ii) The Manufacturer further undertakes not to manufacture/pack the
products mentioned in 'Schedule I' hereto annexed and, or
manufacture/pack or market similar products while this agreement
is in force and for at least 10 years from the termination of
this agreement for whatever reason.
iii) The Manufacturer further undertakes to take all reasonable measures
to ensure that its employees and/or personnel are responsible for
the satisfactory performance of conditions and obligations herein
including condition to preserve strict secrecy of the information
disclosed to them.
iv) The Manufacturer shall also take suitable undertakings to the
satisfaction of the Company from such employees or personnel not
to manufacture and/or market same products listed in the
'Schedule I' hereto annexed while this Agreement is in force.
XII. TRADEMARKS:
i) The Manufacturer hereby agrees forthwith upon the expiry or earlier
termination of this Agreement for any cause whatsoever or any or
all the rights or permission herein granted, to discontinue any and
every application and/or affixation whatsoever of the said trade
mark "MULTICIDAL/HICIDAL/PERIBAN/MICROCIDAL" and/or any other
trade mark of "MULTICIDAL/HICIDAL/PERIBAN/MICROCIDAL" in
connection with any goods, products, service or business or trade
as also of any other word, name, logo, device, alphabets, script or
language so closely similar in sound, appearance or meaning to the
trade mark "MULTICIDAL/HICIDAL/PERIBAN/MICROCIDAL" words, names,
logos or devices whether applied and/or affixed separately or in
conjunction or juxtaposition with or to the said trade mark or any
other trade mark as to be likely to cause confusion or deception or
to detract from or adversely affect the right, title or interest of
the Company in or to any other trade mark.
ii) The Manufacturer further agrees and undertakes that upon the
termination of this Agreement, it will not directly or indirectly
represent or describe or cause to be represented or described on
any labels, advertising materials, circulars or in any other
manner whatsoever that represents that Manufacturer was formerly
manufacturing the said goods under the said trade mark of the
Company and/or any other trade mark of the Company.
-6-
<PAGE>
iii) Upon the termination of this Agreement for any reason whatsoever
the Company shall purchase from the Manufacturer all the said
goods which are in the possession, custody or control of the
Manufacturer and which are in a good and saleable condition by
paying to Manufacturer the prices agreed under this Agreement.
XIII. INSURANCE
The Manufacturer shall insure all the raw materials and packaging
materials, finished products and stock in process to its own account.
The Company shall render the necessary documents in connection
therewith.
XIV. JURISDICTION
This Agreement shall be deemed to be an Agreement made in Pune and the
jurisdiction of Courts other than in Pune is hereby excluded by the
consent of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have these presents the day and year
first hereinabove written.
SIGNED AND DELIVERED BY SIGNED AND DELIVERED BY
within named "The Company" within named "The Manufacturer"
For Bio-Ved Pharmaceuticals Pvt. Ltd. For S.P.B. (Inc.)
S/ AJIT P. CHITRE S/ MANEESH SAPTE
Mr. Ajit P. Chitre Mr. Maneesh Sapte
Director (Operations) Partner
in the presence of in the presence of
Mr. R. Ramakrishnan Mr. Mahesh Belvalkar
-7-
<PAGE>
Exhibit 10.28
AyurCore, Inc.
PROMISSORY NOTE
April 1, 1998
FOR VALUE RECEIVED, AyurCore, Inc., a Delaware Corporation ("Borrower"),
promises to pay Raj Rajaratnam ("Lender"), the principal amount of $250,000,
together with interest on the unpaid balance thereof from the date of this
Promissory Note to the date such balance is paid, at the prime rate shown in
the Western Edition of the Wall Street Journal, plus 2% per annum. Principal
and interest shall be due and payable on demand commencing one year from the
date hereof, provided, however, that if the Company consummates and initial
public offering or a private placement of its equity securities, in excess of
$5,000,000, within six months from the date hereof, the unpaid principal and
accrued interest hereunder shall become due and payable on the first
anniversary of the date of consummation of the initial public offering or
private placement.
If any one or more of the following events ("Events of Default") shall
occur:
(A) Borrower shall fail to pay any amount under this Promissory Note
when the same shall become due and payable, whether at maturity or by
acceleration or otherwise; or
(B) (i) the Borrower shall commence any action (a) under any law
relating to bankruptcy, insolvency, reorganization or relief of debtors,
seeking to have an order for relief entered with respect to the Borrower or
its debts; or (b) seeking appointment of a custodian, receiver or similar
official for the Borrower or any substantial part of its property; or (ii)
any action of a nature referred to above shall be commenced against the
Borrower and results in an order for relief or is not dismissed, discharged
or fully bonded within 30 days; or (iii) there shall be commenced against the
Borrower any action seeking attachment, execution or similar process against
any substantial part of the Borrower's property, which action is not within
30 days discharged or stayed or fully bonded; or (iv) the Borrower shall, by
act or omission, indicate its consent to or acquiescence in any of the
foregoing, without regard to the grace periods set forth above; or (v) the
Borrower shall be unable, or admit in writing inability, to pay the
Borrower's debts as they become due; or (vi) the Borrower shall transfer or
conceal its property with intent to hinder, delay or defraud any creditors or
to benefit any class of creditors or creditors generally or shall suffer for
30 days or longer while insolvent any lien on the Borrower's property
resulting from judicial proceedings; or
(C) the dissolution or other winding up of the Borrower; then, in such
event and at any time thereafter, if such event shall then be continuing,
Lender may, at its option upon written notice to Borrower, declare this
Promissory Note to be due and payable, whereupon (or without the necessity
for such notice in the case of any event described in clause (i) or (ii) of
paragraph (B) above) the entire balance of this Promissory Note shall
forthwith become and be due and payable.
Except as otherwise hereinabove expressly provided, Borrower hereby waives
diligence, demand, protest, presentment and all notices (whether of
nonpayment, dishonor, protest, acceleration
<PAGE>
or otherwise) and consents to acceleration of the time of payment and to
surrender, substitution or any other action or inaction with respect to
security and to forbearance and to other indulgence, all without notice.
Failure of Lender to assert any right herein shall not be deemed a waiver
thereof.
The Borrower shall have the right, at any time, to prepay without penalty
all of this Promissory Note together with accrued interest thereon.
Lender shall not assign its rights hereunder without the prior written
consent of Borrower.
This Promissory Note shall be governed by and construed in accordance
with the laws of the State of Delaware applicable to contracts made and to be
performed wholly within such State.
As additional consideration for making this loan the Borrower shall issue
to the Lender a warrant on terms and conditions to be agreed upon within 14
days of the signing of this Promissory Note.
IN WITNESS WHEREOF, the Borrower has signed this Promissory Note as of
the date first written above.
AyurCore, Inc.
By: /s/ Deepa Chitre
------------------------
Deepa Chitre
Chief Executive Officer
General Outline of Terms of Warrant
Assumptions:
Pre-IPO shares: 1,500,000
IPO price: $5.00-$7.00
Terms of Warrant:
Warrant price: $6.50-$9.10
Number of Warrants: 125,000
Term of Warrant: 2 years from date of Promissory Note
2
<PAGE>
Exhibit 10.29
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED FOR
THE PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE
OFFERED, SOLD OR TRANSFERRED UNTIL (A) A REGISTRATION STATEMENT
UNDER THE ACT OR SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE
BECOME EFFECTIVE WITH REGARD THERETO, OR (B) IN THE OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY REGISTRATION UNDER THE ACT OR
SUCH APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED IN CONNECTION WITH SUCH PROPOSED
OFFER, SALE OR TRANSFER.
This Common Stock Purchase Warrant is issued as of the 1st day of April,
1998, by AyurCore, Inc., a Delaware corporation (the "Company"), to Raj
Rajaratnam ("Holder").
W I T N E S S E T H:
1. Issuance of Warrant; Term. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company hereby grants to Holder, subject to the provisions hereinafter set
forth, the right to purchase 125,000 shares of the Company's Common Stock, $.001
par value per share (the "Common Stock"), (this "Warrant"). The shares of Common
Stock issuable upon exercise of this Warrant are hereinafter referred to as the
"Shares". This Warrant shall be exercisable at any time after the date hereof
and on or before 5:00 p.m. on the 1st day of April, 2000. The number of Shares
issuable upon exercise of this Warrant shall be subject to adjustment as
hereinafter set forth.
2. Exercise Price. The exercise price per share for which all
or any of the Shares may be purchased pursuant to the terms of this Warrant
shall be 130% of the price to the public in the planned initial public
offering or, if such initial public offering is not consummated by June 30,
1998, $7.80, subject to adjustment as hereinafter set forth
(hereinafter referred to as the "Exercise Price").
3. Exercise.
(a) This Warrant may be exercised by the Holder (but only on
the conditions hereinafter set forth) in whole or in part, upon delivery of
written notice to the Company, specifying the number of Shares which the Holder
has elected to purchase, at the following address: 1737 N. First Street, Suite
290, San Jose, California 95112, Attention: Chief Executive Officer, or such
other address as the Company shall designate in written notice to the Holder
hereof, together with this Warrant and payment (in the manner described in
Section 3(b) below) for the aggregate Exercise Price of the Shares so purchased.
Upon exercise of this Warrant as aforesaid, the Company shall as promptly as
practicable execute and deliver to the Holder a certificate or certificates for
the total number of whole Shares for which this Warrant is being exercised in
such names and denominations as are requested by such Holder. If this Warrant
shall be exercised with respect to less than all of the Shares, the Holder shall
be entitled to receive a new Warrant covering the number of Shares in
<PAGE>
respect of which this Warrant shall not have been exercised, which new
Warrant shall in all other respects be identical to this Warrant.
(b) Payment for the Shares to be purchased upon exercise of
this Warrant shall be made by the delivery of a certified or cashier's check
payable to the Company for the aggregate Exercise Price of the Shares to be
purchased.
(c) If on any exercise of this Warrant the Holder would be
entitled to acquire a fraction of a share of Common Stock, in lieu of such
fraction of a share, the Holder of this Warrant otherwise entitled to a
fraction of such share of Common Stock shall receive, upon surrender to the
Company of the Warrant held by such Holder, a cash amount for such fraction
of a share equal to the product obtained by multiplying (I) such fraction of
a share of Common Stock, by (ii) the amount obtained by subtracting the
Exercise Price from the fair market value of a share of Common Stock as
determined by the Board of Directors of the Company.
4. Covenants and Conditions. The above provisions are
subject to the following:
(a) Neither this Warrant nor the Shares have been
registered under the Securities Act of 1933, as amended (the "Act"), or any
state securities laws ("Blue Sky Laws"). This Warrant has been acquired by
Holder for investment purposes and not with a view to distribution or resale
and may not be made subject to a security interest, pledged, hypothecated,
sold or otherwise transferred without an effective registration statement for
this Warrant under the Act and such applicable Blue Sky Laws or an opinion of
counsel reasonably satisfactory to the Company and its counsel that
registration is not required under the Act and under any applicable Blue Sky
Laws. Transfer of the Shares issued upon the exercise of this Warrant shall
be restricted in the same manner and to the same extent as this Warrant, and
the certificates representing such Shares shall bear substantially the
following legend:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED FOR THE
PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE OFFERED, SOLD OR
TRANSFERRED UNTIL (A) A REGISTRATION STATEMENT UNDER THE ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO OR (B) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY REGISTRATION UNDER THE ACT OR SUCH APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED OFFER, SALE OR
TRANSFER.
Other legends as required by applicable federal and state laws may be placed
on this Warrant and such certificates. The Holder and the Company agree to
execute such other documents and instruments as counsel for the Company
reasonably deems necessary to effect the compliance of the issuance of this
Warrant and any Shares issued upon exercise hereof with applicable federal
and state securities
2
<PAGE>
laws. The Holder agrees that the Company may decline to permit a transfer of
this Warrant if such transfer would result in this Warrant being held by more
than 35 persons, exclusive of "accredited" investors as defined under
Regulation D promulgated under the Act, or if such proposed transferee does
not meet then applicable qualifications for investors in securities offerings
exempt from registration. Furthermore, the unexercised Warrant may be
transferred in full (subject to the provisions hereof) but not in part.
(b) The Company covenants and agrees that all Shares which
may be issued upon exercise of this Warrant shall, upon issuance and payment
therefor in accordance with the terms hereof, be legally and validly issued
and outstanding, fully paid and nonassessable. The Company shall at all times
reserve and keep available for issuance upon the exercise of this Warrant
such number of authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of this Warrant and all other
outstanding Warrants.
5. Warrant Holder Not Shareholder. This Warrant does not
confer upon the Holder hereof, as such, any right or privilege whatsoever as
a shareholder of the Company until the Holder shall have delivered the notice
and tendered payment as required under the provisions of Sections 2 and 3
hereof.
6. Anti-Dilution. Wherever this Warrant specifies a number
of Shares or an Exercise Price per share, the specified number of Shares or
the specified Exercise Price per share shall be changed to reflect
adjustments required by this section. If prior to the expiration or exercise
of this Warrant there shall be any change in the capital structure of the
Company, the Shares covered by this Warrant and the Exercise Price payable
therefor shall be adjusted as follows:
(a) If a stock dividend is declared on the Common Stock,
there shall be added to the shares of Common Stock issuable under this
Warrant the number of shares of Common Stock ("total additional shares")
which would have been issuable to the Holder had the Holder been the holder
of record only of the number of shares of Common Stock covered by this
Warrant but not exercised at the stock dividend record date. Such additional
shares resulting from such stock dividend shall be delivered without
additional cost, upon the exercise of this Warrant, and, in the event that
less than all of the Shares covered by this Warrant are purchased, the number
of additional shares to be delivered shall be the same fraction of the total
additional shares as the number of shares purchased bears to the total number
of shares of Common Stock covered by this Warrant. Any distribution to the
holders of the Common Stock of the Company, other than a distribution of cash
as a dividend out of surplus or net profits or a distribution by way of
granting of rights to subscribe for shares of capital stock of the Company,
shall be treated as a stock dividend.
(b) If an increase shall be effected in the number of
outstanding shares of Common Stock by reason of a subdivision of such shares,
the number of shares which may thereafter be purchased under this Warrant
shall be increased by the number of shares that would have been received by
the Holder on such subdivision had he been the holder of record only of the
number of shares of Common Stock covered by this Warrant at the effective
date of the subdivision. In such
3
<PAGE>
event, the Exercise Price per share shall be decreased by multiplying the
Exercise Price theretofore in effect by a fraction, the numerator of which is
the number of shares of Common Stock outstanding immediately prior to such
subdivision and the denominator of which is the number of shares of Common Stock
outstanding immediately after the subdivision.
(c) If a decrease shall be effected in the number of
outstanding shares of Common Stock by reason of a combination or reverse stock
split, the number of shares which may thereafter be purchased under this Warrant
shall be changed to the number of shares which would have been held by the
Holder after said combination or reverse stock split had he been the holder only
of the number of shares of Common Stock covered by this Warrant at the effective
date of the combination or reverse stock split. In such event, the Exercise
Price per share shall be increased by multiplying the Exercise Price theretofore
in effect by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately prior to the combination or reverse stock
split and the denominator of which is the number of shares of Common Stock
outstanding immediately after the combination or reverse stock split.
(d) If there is any capital reorganization or reclassification
of the capital stock of the Company, or any consolidation or merger of the
Company with any other corporation or corporations, or any sale or distribution
of all or substantially all of the Company's property and assets, adequate
provision shall be made by the Company so that there shall remain and be
substituted under this Warrant the stock, securities, or assets that would have
been issuable or payable in respect of or in exchange for the shares of Common
Stock then remaining under this Warrant and not theretofore purchased and issued
hereunder, as if the Holder had been the owner of such shares on the applicable
record date. Until the expiration or exercise of this Warrant, any shares of
stock so substituted under this Warrant shall be subject to adjustment as
provided in this Section 6 in the same manner and to the same effect as the
shares of Common Stock covered by this Warrant.
7. Notices. All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given if delivered personally, given by
prepaid telegram or mailed first class, postage prepaid, registered or certified
mail as follows:
If to the Company: AyurCore, Inc.
1737 N. First Street
Suite 290
San Jose, California 95112
Attention: President
If to Holder: Raj Rajaratnam
60 Sutton Place South I8BN
New York, New York 10022-4168
4
<PAGE>
8. Governing Law. This Warrant shall be construed and enforced
in accordance with the laws of the state of New York.
9. Successors, Assigns. This Warrant shall be binding upon and
inure to the benefit of any successor or successors of the Company, and shall
inure to the benefit of and shall be enforceable by the Holder and the Holder's
legal representatives, successors, heirs and permitted assigns.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed and delivered by its duly authorized officer as of the date first above
written.
AYURCORE, INC.
By: /s/ Deepa Chitre
----------------------------
Deepa Chitre
Chief Executive Officer
5
<PAGE>
Exhibit 10.30
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED FOR
THE PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE
OFFERED, SOLD OR TRANSFERRED UNTIL (A) A REGISTRATION STATEMENT
UNDER THE ACT OR SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE
BECOME EFFECTIVE WITH REGARD THERETO, OR (B) IN THE OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY REGISTRATION UNDER THE ACT OR
SUCH APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED IN CONNECTION WITH SUCH PROPOSED
OFFER, SALE OR TRANSFER.
This Common Stock Purchase Warrant is issued this 13th day of May,
1998, by AyurCore, Inc., a Delaware corporation (the "Company"), to Fred Kassner
("Holder").
W I T N E S S E T H:
1. Issuance of Warrant; Term. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company hereby grants to Holder, subject to the provisions hereinafter set
forth, the right to purchase 125,000 shares of the Company's Common Stock, $.001
par value per share (the "Common Stock"), (this "Warrant"). The shares of Common
Stock issuable upon exercise of this Warrant are hereinafter referred to as the
"Shares". This Warrant shall be exercisable at any time after the date hereof
and on or before 5:00 p.m. on the 31st day of May, 2000. The number of Shares
issuable upon exercise of this Warrant shall be subject to adjustment as
hereinafter set forth.
2. Exercise Price. The exercise price per share for which all
or any of the Shares may be purchased pursuant to the terms of this Warrant
shall be $7.80 or, in the event the Company shall effect an initial public
offering during the term of this Warrant, 130% of the price to the public in
such initial public offering, subject to adjustment as hereinafter set forth
(hereinafter referred to as the "Exercise Price").
3. Exercise.
(a) This Warrant may be exercised by the Holder (but only on
the conditions hereinafter set forth) in whole or in part, upon delivery of
written notice to the Company, specifying the number of Shares which the Holder
has elected to purchase, at the following address: 1737 N. First Street, Suite
290, San Jose, California 95112, Attention: Chief Executive Officer, or such
other address as the Company shall designate in written notice to the Holder
hereof, together with this Warrant and payment (in the manner described in
Section 3(b) below) for the aggregate Exercise Price of the Shares so purchased.
Upon exercise of this Warrant as aforesaid, the Company shall as promptly as
practicable execute and deliver to the Holder a certificate or certificates for
the total number of whole Shares for which this Warrant is being exercised in as
are requested by such Holder. If this Warrant shall be exercised with respect to
less than all of the
<PAGE>
Shares, the Holder shall be entitled to receive a new Warrant covering the
number of Shares in respect of which this Warrant shall not have been exercised,
which new Warrant shall in all other respects be identical to this Warrant.
(b) Payment for the Shares to be purchased upon exercise of
this Warrant shall be made by the delivery of a certified or cashier's check
payable to the Company for the aggregate Exercise Price of the Shares to be
purchased.
(c) If on any exercise of this Warrant the Holder would be
entitled to acquire a fraction of a share of Common Stock, in lieu of such
fraction of a share, the Holder of this Warrant otherwise entitled to a fraction
of such share of Common Stock shall receive, upon surrender to the Company of
the Warrant held by such Holder, a cash amount for such fraction of a share
equal to the product obtained by multiplying (I) such fraction of a share of
Common Stock, by (ii) the amount obtained by subtracting the Exercise Price from
the fair market value of a share of Common Stock as determined by the Board of
Directors of the Company.
4. Covenants and Conditions. The above provisions are subject
to the following:
(a) Neither this Warrant nor the Shares have been registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired by Holder for
investment purposes and not with a view to distribution or resale and may not be
made subject to a security interest, pledged, hypothecated, sold or otherwise
transferred without an effective registration statement for this Warrant under
the Act and such applicable Blue Sky Laws or an opinion of counsel reasonably
satisfactory to the Company and its counsel that registration is not required
under the Act and under any applicable Blue Sky Laws. Transfer of the Shares
issued upon the exercise of this Warrant shall be restricted in the same manner
and to the same extent as this Warrant, and the certificates representing such
Shares shall bear substantially the following legend:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED FOR THE
PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE OFFERED, SOLD OR
TRANSFERRED UNTIL (A) A REGISTRATION STATEMENT UNDER THE ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO OR (B) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY REGISTRATION UNDER THE ACT OR SUCH APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED OFFER, SALE OR
TRANSFER.
Other legends as required by applicable federal and state laws may be placed on
this Warrant and such certificates. The Holder and the Company agree to execute
such other documents and instruments as counsel for the Company reasonably deems
necessary to effect the compliance of the issuance of
-2-
<PAGE>
this Warrant and any Shares issued upon exercise hereof with applicable federal
and state securities laws. The Holder agrees that the Company may decline to
permit a transfer of this Warrant if such transfer would result in this Warrant
being held by more than 35 persons, exclusive of "accredited" investors as
defined under Regulation D promulgated under the Act, or if such proposed
transferee does not meet then applicable qualifications for investors in
securities offerings exempt from registration. Furthermore, the unexercised
Warrant may be transferred in full (subject to the provisions hereof) but not in
part.
(b) The Company covenants and agrees that all Shares which may
be issued upon exercise of this Warrant shall, upon issuance and payment
therefor in accordance with the terms hereof, be legally and validly issued and
outstanding, fully paid and nonassessable. The Company shall at all times
reserve and keep available for issuance upon the exercise of this Warrant such
number of authorized but unissued shares of Common Stock as will be sufficient
to permit the exercise in full of this Warrant and all other outstanding
Warrants.
5. Warrant Holder Not Shareholder. This Warrant does not
confer upon the Holder hereof, as such, any right or privilege whatsoever as a
shareholder of the Company until the Holder shall have delivered the notice and
tendered payment as required under the provisions of Sections 2 and 3 hereof.
6. Anti-Dilution. Wherever this Warrant specifies a number of
Shares or an Exercise Price per share, the specified number of Shares or the
specified Exercise Price per share shall be changed to reflect adjustments
required by this section. If prior to the expiration or exercise of this Warrant
there shall be any change in the capital structure of the Company, the Shares
covered by this Warrant and the Exercise Price payable therefor shall be
adjusted as follows:
(a) If a stock dividend is declared on the Common Stock, there
shall be added to the shares of Common Stock issuable under this Warrant the
number of shares of Common Stock ("total additional shares") which would have
been issuable to the Holder had the Holder been the holder of record only of the
number of shares of Common Stock covered by this Warrant but not exercised at
the stock dividend record date. Such additional shares resulting from such stock
dividend shall be delivered without additional cost, upon the exercise of this
Warrant, and, in the event that less than all of the Shares covered by this
Warrant are purchased, the number of additional shares to be delivered shall be
the same fraction of the total additional shares as the number of shares
purchased bears to the total number of shares of Common Stock covered by this
Warrant. Any distribution to the holders of the Common Stock of the Company,
other than a distribution of cash as a dividend out of surplus or net profits or
a distribution by way of granting of rights to subscribe for shares of capital
stock of the Company, shall be treated as a stock dividend.
(b) If an increase shall be effected in the number of
outstanding shares of Common Stock by reason of a subdivision of such shares,
the number of shares which may thereafter be purchased under this Warrant shall
be increased by the number of shares that would have been received by the Holder
on such subdivision had he been the holder of record only of the number of
-3-
<PAGE>
shares of Common Stock covered by this Warrant at the effective date of the
subdivision. In such event, the Exercise Price per share shall be decreased by
multiplying the Exercise Price theretofore in effect by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately prior to such subdivision and the denominator of which is the number
of shares of Common Stock outstanding immediately after the subdivision.
(c) If a decrease shall be effected in the number of
outstanding shares of Common Stock by reason of a combination or reverse stock
split, the number of shares which may thereafter be purchased under this Warrant
shall be changed to the number of shares which would have been held by the
Holder after said combination or reverse stock split had he been the holder only
of the number of shares of Common Stock covered by this Warrant at the effective
date of the combination or reverse stock split. In such event, the Exercise
Price per share shall be increased by multiplying the Exercise Price theretofore
in effect by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately prior to the combination or reverse stock
split and the denominator of which is the number of shares of Common Stock
outstanding immediately after the combination or reverse stock split.
(d) If there is any capital reorganization or reclassification
of the capital stock of the Company, or any consolidation or merger of the
Company with any other corporation or corporations, or any sale or distribution
of all or substantially all of the Company's property and assets, adequate
provision shall be made by the Company so that there shall remain and be
substituted under this Warrant the stock, securities, or assets that would have
been issuable or payable in respect of or in exchange for the shares of Common
Stock then remaining under this Warrant and not theretofore purchased and issued
hereunder, as if the Holder had been the owner of such shares on the applicable
record date. Until the expiration or exercise of this Warrant, any shares of
stock so substituted under this Warrant shall be subject to adjustment as
provided in this Section 6 in the same manner and to the same effect as the
shares of Common Stock covered by this Warrant.
7. Notices. All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given if delivered personally, given by
prepaid telegram or mailed first class, postage prepaid, registered or certified
mail as follows:
If to the Company: AyurCore, Inc.
1737 N. First Street
Suite 290
San Jose, California 95112
Attention: President
-4-
<PAGE>
If to Holder: Fred Kassner
c/o Liberty Travel
59 Spring Street
Ramsey, New Jersey 07446
8. Governing Law. This Warrant shall be construed and enforced
in accordance with the laws of the state of New York.
9. Successors, Assigns. This Warrant shall be binding upon and
inure to the benefit of any successor or successors of the Company, and shall
inure to the benefit of and shall be enforceable by the Holder and the Holder's
legal representatives, successors, heirs and permitted assigns.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed and delivered by its duly authorized officer as of the date first above
written.
AYURCORE, INC.
By: /s/ Deepa Chitre
---------------------------------
Deepa Chitre
Chief Executive Officer
-5-
<PAGE>
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED FOR
THE PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE
OFFERED, SOLD OR TRANSFERRED UNTIL (A) A REGISTRATION STATEMENT
UNDER THE ACT OR SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE
BECOME EFFECTIVE WITH REGARD THERETO, OR (B) IN THE OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY REGISTRATION UNDER THE ACT OR
SUCH APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED IN CONNECTION WITH SUCH PROPOSED
OFFER, SALE OR TRANSFER.
This Common Stock Purchase Warrant is issued this 13th day of May,
1998, by AyurCore, Inc., a Delaware corporation (the "Company"), to Michael
Splinter and Patricia Roboostoff ("Holder").
W I T N E S S E T H:
1. Issuance of Warrant; Term. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company hereby grants to Holder, subject to the provisions hereinafter set
forth, the right to purchase 50,000 shares of the Company's Common Stock, $.001
par value per share (the "Common Stock"), (this "Warrant"). The shares of Common
Stock issuable upon exercise of this Warrant are hereinafter referred to as the
"Shares". This Warrant shall be exercisable at any time after the date hereof
and on or before 5:00 p.m. on the 12th day of August, 1999. The number of Shares
issuable upon exercise of this Warrant shall be subject to adjustment as
hereinafter set forth.
2. Exercise Price. The exercise price per share for which all
or any of the Shares may be purchased pursuant to the terms of this Warrant
shall be $7.80 or, in the event the Company shall effect an initial public
offering during the term of this Warrant, 130% of the price to the public in
such initial public offering, subject to adjustment as hereinafter set forth
(hereinafter referred to as the "Exercise Price").
3. Exercise.
(a) This Warrant may be exercised by the Holder (but only on
the conditions hereinafter set forth) in whole or in part, upon delivery of
written notice to the Company, specifying the number of Shares which the Holder
has elected to purchase, at the following address: 1737 N. First Street, Suite
290, San Jose, California 95112, Attention: Chief Executive Officer, or such
other address as the Company shall designate in written notice to the Holder
hereof, together with this Warrant and payment (in the manner described in
Section 3(b) below) for the aggregate Exercise Price of the Shares so purchased.
Upon exercise of this Warrant as aforesaid, the Company shall as promptly as
practicable execute and deliver to the Holder a certificate or certificates for
the total number of whole Shares for which this Warrant is being exercised in as
are requested by such Holder. If this Warrant shall be exercised with respect to
less than all of the
<PAGE>
Shares, the Holder shall be entitled to receive a new Warrant covering the
number of Shares in respect of which this Warrant shall not have been exercised,
which new Warrant shall in all other respects be identical to this Warrant.
(b) Payment for the Shares to be purchased upon exercise of
this Warrant shall be made by the delivery of a certified or cashier's check
payable to the Company for the aggregate Exercise Price of the Shares to be
purchased.
(c) If on any exercise of this Warrant the Holder would be
entitled to acquire a fraction of a share of Common Stock, in lieu of such
fraction of a share, the Holder of this Warrant otherwise entitled to a fraction
of such share of Common Stock shall receive, upon surrender to the Company of
the Warrant held by such Holder, a cash amount for such fraction of a share
equal to the product obtained by multiplying (I) such fraction of a share of
Common Stock, by (ii) the amount obtained by subtracting the Exercise Price from
the fair market value of a share of Common Stock as determined by the Board of
Directors of the Company.
4. Covenants and Conditions. The above provisions are subject
to the following:
(a) Neither this Warrant nor the Shares have been registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired by Holder for
investment purposes and not with a view to distribution or resale and may not be
made subject to a security interest, pledged, hypothecated, sold or otherwise
transferred without an effective registration statement for this Warrant under
the Act and such applicable Blue Sky Laws or an opinion of counsel reasonably
satisfactory to the Company and its counsel that registration is not required
under the Act and under any applicable Blue Sky Laws. Transfer of the Shares
issued upon the exercise of this Warrant shall be restricted in the same manner
and to the same extent as this Warrant, and the certificates representing such
Shares shall bear substantially the following legend:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED FOR THE
PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE OFFERED, SOLD OR
TRANSFERRED UNTIL (A) A REGISTRATION STATEMENT UNDER THE ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO OR (B) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY REGISTRATION UNDER THE ACT OR SUCH APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED OFFER, SALE OR
TRANSFER.
Other legends as required by applicable federal and state laws may be placed on
this Warrant and such certificates. The Holder and the Company agree to execute
such other documents and instruments as counsel for the Company reasonably deems
necessary to effect the compliance of the issuance of
-2-
<PAGE>
this Warrant and any Shares issued upon exercise hereof with applicable federal
and state securities laws. The Holder agrees that the Company may decline to
permit a transfer of this Warrant if such transfer would result in this Warrant
being held by more than 35 persons, exclusive of "accredited" investors as
defined under Regulation D promulgated under the Act, or if such proposed
transferee does not meet then applicable qualifications for investors in
securities offerings exempt from registration. Furthermore, the unexercised
Warrant may be transferred in full (subject to the provisions hereof) but not in
part.
(b) The Company covenants and agrees that all Shares which may
be issued upon exercise of this Warrant shall, upon issuance and payment
therefor in accordance with the terms hereof, be legally and validly issued and
outstanding, fully paid and nonassessable. The Company shall at all times
reserve and keep available for issuance upon the exercise of this Warrant such
number of authorized but unissued shares of Common Stock as will be sufficient
to permit the exercise in full of this Warrant and all other outstanding
Warrants.
5. Warrant Holder Not Shareholder. This Warrant does not
confer upon the Holder hereof, as such, any right or privilege whatsoever as a
shareholder of the Company until the Holder shall have delivered the notice and
tendered payment as required under the provisions of Sections 2 and 3 hereof.
6. Anti-Dilution. Wherever this Warrant specifies a number of
Shares or an Exercise Price per share, the specified number of Shares or the
specified Exercise Price per share shall be changed to reflect adjustments
required by this section. If prior to the expiration or exercise of this Warrant
there shall be any change in the capital structure of the Company, the Shares
covered by this Warrant and the Exercise Price payable therefor shall be
adjusted as follows:
(a) If a stock dividend is declared on the Common Stock, there
shall be added to the shares of Common Stock issuable under this Warrant the
number of shares of Common Stock ("total additional shares") which would have
been issuable to the Holder had the Holder been the holder of record only of the
number of shares of Common Stock covered by this Warrant but not exercised at
the stock dividend record date. Such additional shares resulting from such stock
dividend shall be delivered without additional cost, upon the exercise of this
Warrant, and, in the event that less than all of the Shares covered by this
Warrant are purchased, the number of additional shares to be delivered shall be
the same fraction of the total additional shares as the number of shares
purchased bears to the total number of shares of Common Stock covered by this
Warrant. Any distribution to the holders of the Common Stock of the Company,
other than a distribution of cash as a dividend out of surplus or net profits or
a distribution by way of granting of rights to subscribe for shares of capital
stock of the Company, shall be treated as a stock dividend.
(b) If an increase shall be effected in the number of
outstanding shares of Common Stock by reason of a subdivision of such shares,
the number of shares which may thereafter be purchased under this Warrant shall
be increased by the number of shares that would have been received by the Holder
on such subdivision had he been the holder of record only of the number of
-3-
<PAGE>
shares of Common Stock covered by this Warrant at the effective date of the
subdivision. In such event, the Exercise Price per share shall be decreased by
multiplying the Exercise Price theretofore in effect by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately prior to such subdivision and the denominator of which is the number
of shares of Common Stock outstanding immediately after the subdivision.
(c) If a decrease shall be effected in the number of
outstanding shares of Common Stock by reason of a combination or reverse stock
split, the number of shares which may thereafter be purchased under this Warrant
shall be changed to the number of shares which would have been held by the
Holder after said combination or reverse stock split had he been the holder only
of the number of shares of Common Stock covered by this Warrant at the effective
date of the combination or reverse stock split. In such event, the Exercise
Price per share shall be increased by multiplying the Exercise Price theretofore
in effect by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately prior to the combination or reverse stock
split and the denominator of which is the number of shares of Common Stock
outstanding immediately after the combination or reverse stock split.
(d) If there is any capital reorganization or reclassification
of the capital stock of the Company, or any consolidation or merger of the
Company with any other corporation or corporations, or any sale or distribution
of all or substantially all of the Company's property and assets, adequate
provision shall be made by the Company so that there shall remain and be
substituted under this Warrant the stock, securities, or assets that would have
been issuable or payable in respect of or in exchange for the shares of Common
Stock then remaining under this Warrant and not theretofore purchased and issued
hereunder, as if the Holder had been the owner of such shares on the applicable
record date. Until the expiration or exercise of this Warrant, any shares of
stock so substituted under this Warrant shall be subject to adjustment as
provided in this Section 6 in the same manner and to the same effect as the
shares of Common Stock covered by this Warrant.
7. Notices. All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given if delivered personally, given by
prepaid telegram or mailed first class, postage prepaid, registered or certified
mail as follows:
If to the Company: AyurCore, Inc.
1737 N. First Street
Suite 290
San Jose, California 95112
Attention: President
-4-
<PAGE>
If to Holder: Michael Splinter and Patricia Roboostoff
8160 Kinsbrook Lane
Granite Bay, California 95746
8. Governing Law. This Warrant shall be construed and
enforced in accordance with the laws of the State of New York.
9. Successors, Assigns. This Warrant shall be binding upon
and inure to the benefit of any successor or successors of the Company, and
shall inure to the benefit of and shall be enforceable by the Holder and the
Holder's legal representatives, successors, heirs and permitted assigns.
IN WITNESS WHEREOF, the Company has caused this Warrant to
be executed and delivered by its duly authorized officer as of the date first
above written.
AYURCORE, INC.
By: Deepa Chitre
----------------------------
Deppa Chitre
Chief Executive Officer
-5-
<PAGE>
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED FOR
THE PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE
OFFERED, SOLD OR TRANSFERRED UNTIL (A) A REGISTRATION STATEMENT
UNDER THE ACT OR SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE
BECOME EFFECTIVE WITH REGARD THERETO, OR (B) IN THE OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY REGISTRATION UNDER THE ACT OR
SUCH APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED IN CONNECTION WITH SUCH PROPOSED
OFFER, SALE OR TRANSFER.
This Common Stock Purchase Warrant is issued this 13th day of May,
1998, by AyurCore, Inc., a Delaware corporation (the "Company"), to Michael
Splinter and Patricia Roboostoff ("Holder").
W I T N E S S E T H:
1. Issuance of Warrant; Term. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company hereby grants to Holder, subject to the provisions hereinafter set
forth, the right to purchase 50,000 shares of the Company's Common Stock, $.001
par value per share (the "Common Stock"), (this "Warrant"). The shares of Common
Stock issuable upon exercise of this Warrant are hereinafter referred to as the
"Shares". This Warrant shall be exercisable at any time after the date hereof
and on or before 5:00 p.m. on the 31st day of May, 2000. The number of Shares
issuable upon exercise of this Warrant shall be subject to adjustment as
hereinafter set forth.
2. Exercise Price. The exercise price per share for which all
or any of the Shares may be purchased pursuant to the terms of this Warrant
shall be $7.80 or, in the event the Company shall effect an initial public
offering during the term of this Warrant, 130% of the price to the public in
such initial public offering, subject to adjustment as hereinafter set forth
(hereinafter referred to as the "Exercise Price").
3. Exercise.
(a) This Warrant may be exercised by the Holder (but only on
the conditions hereinafter set forth) in whole or in part, upon delivery of
written notice to the Company, specifying the number of Shares which the Holder
has elected to purchase, at the following address: 1737 N. First Street, Suite
290, San Jose, California 95112, Attention: Chief Executive Officer, or such
other address as the Company shall designate in written notice to the Holder
hereof, together with this Warrant and payment (in the manner described in
Section 3(b) below) for the aggregate Exercise Price of the Shares so purchased.
Upon exercise of this Warrant as aforesaid, the Company shall as promptly as
practicable execute and deliver to the Holder a certificate or certificates for
the total number of whole Shares for which this Warrant is being exercised in as
are requested by such Holder. If this Warrant shall be exercised with respect to
less than all of the
<PAGE>
Shares, the Holder shall be entitled to receive a new Warrant covering the
number of Shares in respect of which this Warrant shall not have been exercised,
which new Warrant shall in all other respects be identical to this Warrant.
(b) Payment for the Shares to be purchased upon exercise of
this Warrant shall be made by the delivery of a certified or cashier's check
payable to the Company for the aggregate Exercise Price of the Shares to be
purchased.
(c) If on any exercise of this Warrant the Holder would be
entitled to acquire a fraction of a share of Common Stock, in lieu of such
fraction of a share, the Holder of this Warrant otherwise entitled to a fraction
of such share of Common Stock shall receive, upon surrender to the Company of
the Warrant held by such Holder, a cash amount for such fraction of a share
equal to the product obtained by multiplying (I) such fraction of a share of
Common Stock, by (ii) the amount obtained by subtracting the Exercise Price from
the fair market value of a share of Common Stock as determined by the Board of
Directors of the Company.
4. Covenants and Conditions. The above provisions are subject
to the following:
(a) Neither this Warrant nor the Shares have been registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired by Holder for
investment purposes and not with a view to distribution or resale and may not be
made subject to a security interest, pledged, hypothecated, sold or otherwise
transferred without an effective registration statement for this Warrant under
the Act and such applicable Blue Sky Laws or an opinion of counsel reasonably
satisfactory to the Company and its counsel that registration is not required
under the Act and under any applicable Blue Sky Laws. Transfer of the Shares
issued upon the exercise of this Warrant shall be restricted in the same manner
and to the same extent as this Warrant, and the certificates representing such
Shares shall bear substantially the following legend:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED FOR THE
PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE OFFERED, SOLD OR
TRANSFERRED UNTIL (A) A REGISTRATION STATEMENT UNDER THE ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO OR (B) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY REGISTRATION UNDER THE ACT OR SUCH APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED OFFER, SALE OR
TRANSFER.
Other legends as required by applicable federal and state laws may be placed on
this Warrant and such certificates. The Holder and the Company agree to execute
such other documents and instruments as counsel for the Company reasonably deems
necessary to effect the compliance of the issuance of
-2-
<PAGE>
this Warrant and any Shares issued upon exercise hereof with applicable federal
and state securities laws. The Holder agrees that the Company may decline to
permit a transfer of this Warrant if such transfer would result in this Warrant
being held by more than 35 persons, exclusive of "accredited" investors as
defined under Regulation D promulgated under the Act, or if such proposed
transferee does not meet then applicable qualifications for investors in
securities offerings exempt from registration. Furthermore, the unexercised
Warrant may be transferred in full (subject to the provisions hereof) but not in
part.
(b) The Company covenants and agrees that all Shares which may
be issued upon exercise of this Warrant shall, upon issuance and payment
therefor in accordance with the terms hereof, be legally and validly issued and
outstanding, fully paid and nonassessable. The Company shall at all times
reserve and keep available for issuance upon the exercise of this Warrant such
number of authorized but unissued shares of Common Stock as will be sufficient
to permit the exercise in full of this Warrant and all other outstanding
Warrants.
5. Warrant Holder Not Shareholder. This Warrant does not
confer upon the Holder hereof, as such, any right or privilege whatsoever as a
shareholder of the Company until the Holder shall have delivered the notice and
tendered payment as required under the provisions of Sections 2 and 3 hereof.
6. Anti-Dilution. Wherever this Warrant specifies a number of
Shares or an Exercise Price per share, the specified number of Shares or the
specified Exercise Price per share shall be changed to reflect adjustments
required by this section. If prior to the expiration or exercise of this Warrant
there shall be any change in the capital structure of the Company, the Shares
covered by this Warrant and the Exercise Price payable therefor shall be
adjusted as follows:
(a) If a stock dividend is declared on the Common Stock, there
shall be added to the shares of Common Stock issuable under this Warrant the
number of shares of Common Stock ("total additional shares") which would have
been issuable to the Holder had the Holder been the holder of record only of the
number of shares of Common Stock covered by this Warrant but not exercised at
the stock dividend record date. Such additional shares resulting from such stock
dividend shall be delivered without additional cost, upon the exercise of this
Warrant, and, in the event that less than all of the Shares covered by this
Warrant are purchased, the number of additional shares to be delivered shall be
the same fraction of the total additional shares as the number of shares
purchased bears to the total number of shares of Common Stock covered by this
Warrant. Any distribution to the holders of the Common Stock of the Company,
other than a distribution of cash as a dividend out of surplus or net profits or
a distribution by way of granting of rights to subscribe for shares of capital
stock of the Company, shall be treated as a stock dividend.
(b) If an increase shall be effected in the number of
outstanding shares of Common Stock by reason of a subdivision of such shares,
the number of shares which may thereafter be purchased under this Warrant shall
be increased by the number of shares that would have been received by the Holder
on such subdivision had he been the holder of record only of the number of
-3-
<PAGE>
shares of Common Stock covered by this Warrant at the effective date of the
subdivision. In such event, the Exercise Price per share shall be decreased by
multiplying the Exercise Price theretofore in effect by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately prior to such subdivision and the denominator of which is the number
of shares of Common Stock outstanding immediately after the subdivision.
(c) If a decrease shall be effected in the number of
outstanding shares of Common Stock by reason of a combination or reverse stock
split, the number of shares which may thereafter be purchased under this Warrant
shall be changed to the number of shares which would have been held by the
Holder after said combination or reverse stock split had he been the holder only
of the number of shares of Common Stock covered by this Warrant at the effective
date of the combination or reverse stock split. In such event, the Exercise
Price per share shall be increased by multiplying the Exercise Price theretofore
in effect by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately prior to the combination or reverse stock
split and the denominator of which is the number of shares of Common Stock
outstanding immediately after the combination or reverse stock split.
(d) If there is any capital reorganization or reclassification
of the capital stock of the Company, or any consolidation or merger of the
Company with any other corporation or corporations, or any sale or distribution
of all or substantially all of the Company's property and assets, adequate
provision shall be made by the Company so that there shall remain and be
substituted under this Warrant the stock, securities, or assets that would have
been issuable or payable in respect of or in exchange for the shares of Common
Stock then remaining under this Warrant and not theretofore purchased and issued
hereunder, as if the Holder had been the owner of such shares on the applicable
record date. Until the expiration or exercise of this Warrant, any shares of
stock so substituted under this Warrant shall be subject to adjustment as
provided in this Section 6 in the same manner and to the same effect as the
shares of Common Stock covered by this Warrant.
7. Notices. All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given if delivered personally, given by
prepaid telegram or mailed first class, postage prepaid, registered or certified
mail as follows:
If to the Company: AyurCore, Inc.
1737 N. First Street
Suite 290
San Jose, California 95112
Attention: President
-4-
<PAGE>
If to Holder: Michael Splinter and Patricia Roboostoff
8160 Kinsbrook Lane
Granite Bay, California 95746
8. Governing Law. This Warrant shall be construed and
enforced in accordance with the laws of the State of New York.
9. Successors, Assigns. This Warrant shall be binding upon
and inure to the benefit of any successor or successors of the Company, and
shall inure to the benefit of and shall be enforceable by the Holder and the
Holder's legal representatives, successors, heirs and permitted assigns.
IN WITNESS WHEREOF, the Company has caused this Warrant to
be executed and delivered by its duly authorized officer as of the date first
above written.
AYURCORE, INC.
By: Deepa Chitre
----------------------------
Deppa Chitre
Chief Executive Officer
-5-
<PAGE>
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED FOR
THE PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE
OFFERED, SOLD OR TRANSFERRED UNTIL (A) A REGISTRATION STATEMENT
UNDER THE ACT OR SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE
BECOME EFFECTIVE WITH REGARD THERETO, OR (B) IN THE OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY REGISTRATION UNDER THE ACT OR
SUCH APPLICABLE STATE SECURITIES LAWS IS NOT
REQUIRED IN CONNECTION WITH SUCH PROPOSED
OFFER, SALE OR TRANSFER.
This Common Stock Purchase Warrant is issued this 13th day of May,
1998, by AyurCore, Inc., a Delaware corporation (the "Company"), to Paul Gupta
("Holder").
W I T N E S S E T H:
1. Issuance of Warrant; Term. For good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company hereby grants to Holder, subject to the provisions hereinafter set
forth, the right to purchase 25,000 shares of the Company's Common Stock, $.001
par value per share (the "Common Stock"), (this "Warrant"). The shares of Common
Stock issuable upon exercise of this Warrant are hereinafter referred to as the
"Shares". This Warrant shall be exercisable at any time after the date hereof
and on or before 5:00 p.m. on the 31st day of May, 2000. The number of Shares
issuable upon exercise of this Warrant shall be subject to adjustment as
hereinafter set forth.
2. Exercise Price. The exercise price per share for which all
or any of the Shares may be purchased pursuant to the terms of this Warrant
shall be $7.80 or, in the event the Company shall effect an initial public
offering during the term of this Warrant, 130% of the price to the public in
such initial public offering, subject to adjustment as hereinafter set forth
(hereinafter referred to as the "Exercise Price").
3. Exercise.
(a) This Warrant may be exercised by the Holder (but only on
the conditions hereinafter set forth) in whole or in part, upon delivery of
written notice to the Company, specifying the number of Shares which the Holder
has elected to purchase, at the following address: 1737 N. First Street, Suite
290, San Jose, California 95112, Attention: Chief Executive Officer, or such
other address as the Company shall designate in written notice to the Holder
hereof, together with this Warrant and payment (in the manner described in
Section 3(b) below) for the aggregate Exercise Price of the Shares so purchased.
Upon exercise of this Warrant as aforesaid, the Company shall as promptly as
practicable execute and deliver to the Holder a certificate or certificates for
the total number of whole Shares for which this Warrant is being exercised in as
are requested by such Holder. If this Warrant shall be exercised with respect to
less than all of the
<PAGE>
Shares, the Holder shall be entitled to receive a new Warrant covering the
number of Shares in respect of which this Warrant shall not have been exercised,
which new Warrant shall in all other respects be identical to this Warrant.
(b) Payment for the Shares to be purchased upon exercise of
this Warrant shall be made by the delivery of a certified or cashier's check
payable to the Company for the aggregate Exercise Price of the Shares to be
purchased.
(c) If on any exercise of this Warrant the Holder would be
entitled to acquire a fraction of a share of Common Stock, in lieu of such
fraction of a share, the Holder of this Warrant otherwise entitled to a fraction
of such share of Common Stock shall receive, upon surrender to the Company of
the Warrant held by such Holder, a cash amount for such fraction of a share
equal to the product obtained by multiplying (I) such fraction of a share of
Common Stock, by (ii) the amount obtained by subtracting the Exercise Price from
the fair market value of a share of Common Stock as determined by the Board of
Directors of the Company.
4. Covenants and Conditions. The above provisions are subject
to the following:
(a) Neither this Warrant nor the Shares have been registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws ("Blue Sky Laws"). This Warrant has been acquired by Holder for
investment purposes and not with a view to distribution or resale and may not be
made subject to a security interest, pledged, hypothecated, sold or otherwise
transferred without an effective registration statement for this Warrant under
the Act and such applicable Blue Sky Laws or an opinion of counsel reasonably
satisfactory to the Company and its counsel that registration is not required
under the Act and under any applicable Blue Sky Laws. Transfer of the Shares
issued upon the exercise of this Warrant shall be restricted in the same manner
and to the same extent as this Warrant, and the certificates representing such
Shares shall bear substantially the following legend:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE BEEN ACQUIRED FOR THE
PRIVATE INVESTMENT OF THE HOLDER HEREOF AND MAY NOT BE OFFERED, SOLD OR
TRANSFERRED UNTIL (A) A REGISTRATION STATEMENT UNDER THE ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO OR (B) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY REGISTRATION UNDER THE ACT OR SUCH APPLICABLE STATE SECURITIES
LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED OFFER, SALE OR
TRANSFER.
Other legends as required by applicable federal and state laws may be placed on
this Warrant and such certificates. The Holder and the Company agree to execute
such other documents and instruments as counsel for the Company reasonably deems
necessary to effect the compliance of the issuance of
-2-
<PAGE>
this Warrant and any Shares issued upon exercise hereof with applicable federal
and state securities laws. The Holder agrees that the Company may decline to
permit a transfer of this Warrant if such transfer would result in this Warrant
being held by more than 35 persons, exclusive of "accredited" investors as
defined under Regulation D promulgated under the Act, or if such proposed
transferee does not meet then applicable qualifications for investors in
securities offerings exempt from registration. Furthermore, the unexercised
Warrant may be transferred in full (subject to the provisions hereof) but not in
part.
(b) The Company covenants and agrees that all Shares which may
be issued upon exercise of this Warrant shall, upon issuance and payment
therefor in accordance with the terms hereof, be legally and validly issued and
outstanding, fully paid and nonassessable. The Company shall at all times
reserve and keep available for issuance upon the exercise of this Warrant such
number of authorized but unissued shares of Common Stock as will be sufficient
to permit the exercise in full of this Warrant and all other outstanding
Warrants.
5. Warrant Holder Not Shareholder. This Warrant does not
confer upon the Holder hereof, as such, any right or privilege whatsoever as a
shareholder of the Company until the Holder shall have delivered the notice and
tendered payment as required under the provisions of Sections 2 and 3 hereof.
6. Anti-Dilution. Wherever this Warrant specifies a number of
Shares or an Exercise Price per share, the specified number of Shares or the
specified Exercise Price per share shall be changed to reflect adjustments
required by this section. If prior to the expiration or exercise of this Warrant
there shall be any change in the capital structure of the Company, the Shares
covered by this Warrant and the Exercise Price payable therefor shall be
adjusted as follows:
(a) If a stock dividend is declared on the Common Stock, there
shall be added to the shares of Common Stock issuable under this Warrant the
number of shares of Common Stock ("total additional shares") which would have
been issuable to the Holder had the Holder been the holder of record only of the
number of shares of Common Stock covered by this Warrant but not exercised at
the stock dividend record date. Such additional shares resulting from such stock
dividend shall be delivered without additional cost, upon the exercise of this
Warrant, and, in the event that less than all of the Shares covered by this
Warrant are purchased, the number of additional shares to be delivered shall be
the same fraction of the total additional shares as the number of shares
purchased bears to the total number of shares of Common Stock covered by this
Warrant. Any distribution to the holders of the Common Stock of the Company,
other than a distribution of cash as a dividend out of surplus or net profits or
a distribution by way of granting of rights to subscribe for shares of capital
stock of the Company, shall be treated as a stock dividend.
(b) If an increase shall be effected in the number of
outstanding shares of Common Stock by reason of a subdivision of such shares,
the number of shares which may thereafter be purchased under this Warrant shall
be increased by the number of shares that would have been received by the Holder
on such subdivision had he been the holder of record only of the number of
-3-
<PAGE>
shares of Common Stock covered by this Warrant at the effective date of the
subdivision. In such event, the Exercise Price per share shall be decreased by
multiplying the Exercise Price theretofore in effect by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately prior to such subdivision and the denominator of which is the number
of shares of Common Stock outstanding immediately after the subdivision.
(c) If a decrease shall be effected in the number of
outstanding shares of Common Stock by reason of a combination or reverse stock
split, the number of shares which may thereafter be purchased under this Warrant
shall be changed to the number of shares which would have been held by the
Holder after said combination or reverse stock split had he been the holder only
of the number of shares of Common Stock covered by this Warrant at the effective
date of the combination or reverse stock split. In such event, the Exercise
Price per share shall be increased by multiplying the Exercise Price theretofore
in effect by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately prior to the combination or reverse stock
split and the denominator of which is the number of shares of Common Stock
outstanding immediately after the combination or reverse stock split.
(d) If there is any capital reorganization or reclassification
of the capital stock of the Company, or any consolidation or merger of the
Company with any other corporation or corporations, or any sale or distribution
of all or substantially all of the Company's property and assets, adequate
provision shall be made by the Company so that there shall remain and be
substituted under this Warrant the stock, securities, or assets that would have
been issuable or payable in respect of or in exchange for the shares of Common
Stock then remaining under this Warrant and not theretofore purchased and issued
hereunder, as if the Holder had been the owner of such shares on the applicable
record date. Until the expiration or exercise of this Warrant, any shares of
stock so substituted under this Warrant shall be subject to adjustment as
provided in this Section 6 in the same manner and to the same effect as the
shares of Common Stock covered by this Warrant.
7. Notices. All notices, requests, demands and other
communications required or permitted to be given hereunder shall be in writing
and shall be deemed to have been duly given if delivered personally, given by
prepaid telegram or mailed first class, postage prepaid, registered or certified
mail as follows:
If to the Company: AyurCore, Inc.
1737 N. First Street
Suite 290
San Jose, California 95112
Attention: President
-4-
<PAGE>
If to Holder: Paul Gupta
15000 Blue Gum Court
Saratoga, California 95070
8. Governing Law. This Warrant shall be construed and
enforced in accordance with the laws of the State of New York.
9. Successors, Assigns. This Warrant shall be binding upon
and inure to the benefit of any successor or successors of the Company, and
shall inure to the benefit of and shall be enforceable by the Holder and the
Holder's legal representatives, successors, heirs and permitted assigns.
IN WITNESS WHEREOF, the Company has caused this Warrant to
be executed and delivered by its duly authorized officer as of the date first
above written.
AYURCORE, INC.
By: Deepa Chitre
----------------------------
Deppa Chitre
Chief Executive Officer
-5-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this registration statement on Form SB-2 of
our report, dated February 18, 1998, based on our audit of the consolidated
financial statements of AyurCore, Inc. and subsidiary as of December 31, 1997
and for each of the years in the two-year period ended December 31, 1997 and for
the period from January 11, 1993 (Inception) through December 31, 1997. We also
consent to the reference to our firm under the caption "Experts."
/s/ Richard A. Eisner & Company, LLP.
New York, New York
May 26, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998
<CASH> 23,000 7,000
<SECURITIES> 0 0
<RECEIVABLES> 9,000 21,000
<ALLOWANCES> 0 0
<INVENTORY> 8,000 18,000
<CURRENT-ASSETS> 48,000 57,000
<PP&E> 85,000 85,000
<DEPRECIATION> 40,000 45,000
<TOTAL-ASSETS> 508,000 565,000
<CURRENT-LIABILITIES> 2,098,000 2,412,000
<BONDS> 0 0
0 0
0 0
<COMMON> 2,000 2,000
<OTHER-SE> (1,592,000) (1,849,000)
<TOTAL-LIABILITY-AND-EQUITY> 508,000 565,000
<SALES> 91,000 10,000
<TOTAL-REVENUES> 203,000 10,000
<CGS> 100,000 6,000
<TOTAL-COSTS> 100,000 6,000
<OTHER-EXPENSES> 1,007,000 259,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 528,000 27,000
<INCOME-PRETAX> (1,432,000) (281,000)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,432,000) (281,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,432,000) (281,000)
<EPS-PRIMARY> (.70) (.13)
<EPS-DILUTED> (.70) (.13)
</TABLE>
