AMENDMENT NO.1
FORM SB-2
REGISTRATION STATEMENT
under the
SECURITIES ACT OF 1933
BIOSHIELD TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
Georgia 2842 58-2181628
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
BioShield Technologies, Inc.
4405 International Boulevard
Suite B-109
Norcross, Georgia 30093
(770) 925-3432
(Address and telephone number of principal
executive offices and principal place of business)
Timothy C. Moses
BioShield Technologies, Inc.
4405 International Boulevard, Suite B-109
Norcross, Georgia 30093
(770) 925-3432
(Name, address and telephone number of agent for service)
Copies of all communications to:
Raymond L. Moss, Esq.
Sims Moss Kline & Davis LLP Bruce A. Cheatham, Esq.
400 Northpark Town Center, Suite 310 Winstead, Sechrest & Minick P.C.
1000 Abernathy Road, N.E. 5400 Renaissannce Tower
Atlanta, Georgia 30328 Dallas, Texas 75270
(770) 481 7200 (214) 745-5400
(770) 481-7210 FAX (214) 745-5390 FAX
Approximate date of proposed sale to public:
As soon as practicable after the effective date of the Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
<PAGE>
Calculation of Registration Fee
<TABLE>
<CAPTION>
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price per Share Aggregate Offering Price Registration Fee
(1) (1) (1)
<S> <C> <C> <C> <C>
Units 862,500 $13.00 $11,212,500 $3,308
Common Sock, no
par value (2) 1,725,000 (2) (2) (2)
Redeemable Common Stock
Purchase Warrants (2) 862,500 (2) (2) (2)
Common Stock, no
par value (3) 862,500 $15.60 $13,455,000 $3,969
Underwriters' Warrants (4) $75,000 $0.01 $75 $1
Units Underlying the
Underwriter's Warrants $75,000 $15.60 $1,170,000 $345
Common Stock, no
par value (5) 150,000 (5) (5) (5)
Redeemable Common Stock
Purchase Warrants 75,000 (5) (5) (5)
Common Stock, no
par value (6) $ 75,000 $15.60 $1,170,000 $345
Total $27,007,575 $7,967
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Included in the Units. No additional registration fee is required.
(3) Issuable upon the exercise of Redeemable Common Stock Purchase Warrants.
Pursuant to Rule 416 there are also registered an indeterminate number of shares
of Common Stock, which may be issued pursuant to the antidlution provisions
applicable to the Redeemable Common Stock Purchase Warrants, the Underwriters'
Warrants and the Redeemable Common Stock Purchase Warrants issuable under the
Underwriters Warrants.
(4) Underwriters' Warrants to purchase up to 75,000 Units, consisting of an
aggregate of 150,000 shares of Common Stock and 75,000 Warrants.
(5) Included in the Units underlying the Underwriters' Warrants. No
additional registration fee is required.
(6) Issuable upon exercise of Redeemable Common Stock Purchase Warrants
underlying the Underwriters' Units.
<PAGE>
BioShield Technologies, Inc.
750,000 Units
Consisting of 1,500,000 Shares of Common Stock and
750,000 Redeemable Common Stock Purchase Warrants
BioShield Technologies, Inc. (the "Company") is hereby offering 750,000
Units, each unit (the "Unit") consisting of two shares (the "Shares") of
Common Stock, no par value (the "Common Stock"), and one Redeemable Common
Stock Purchase Warrant (the "Warrants") . The Units, the Shares and the
Warrants offered hereby are referred to collectively as the "Securities."
The Shares and Warrants included in the Units may not be separately traded
until six months after the date of this Prospectus, unless earlier separated
upon ten days' prior written notice from Tejas Securities Group to the
Company. Each Warrant entitles the holder thereof to purchase one share of
Common Stock at an exercise price of $7.80 per share, commencing at any time
after the Common Stock and Warrants become separately tradable and until five
years from the date of this Prospectus. Commencing on 12 months from the date
of this Prospectus, the Warrants are subject to redemption by the Company at
$0.05 per Warrant at any time on thirty days prior written notice, provided
that the closing price quotation for the Common Stock has equalled or
exceeded $13.00 for ten consecutive trading days. The Warrant exercise
price is subject to adjustment under certain circumstances. See "Description
of Securities."
Prior to this offering, there has been no public market for the
Securities, and there can be no asssurance that an active market will
develop. It is currently anticipated that the initial public offering price
of the Units will be $13.00 per Unit. See "Underwriting" for information
relating to the factors considered in determining the initial public offering
price. The Company intends to apply to list the Units , Common Stock and
Warrants on the NASDAQ Small Cap Market ("NASDAQ") under the symbols "BSTI.U"
, "BSTI" and "BSTI.W", respectively. There can be no assurance that the
application for listing on the NASDAQ small cap market will be approved.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE SECTION
ENTITLED "RISK FACTORS" BEGINNING ON PAGE 6 HEREOF CONCERNING THE COMPANY AND
THIS OFFERING. PROSPECTIVE INVESTORS SHOULD ALSO CONSIDER THE FACT THAT THEIR
INVESTMENT WILL RESULT IN IMMEDIATE SUBSTANTIAL DILUTION. SEE "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
Per Unit............................ $ $
Total (2)(3) $ $
$
1) In addition, the Company has agreed to pay Tejas SecuritiesGroup,Inc.,
Redstone Securities, Inc., and Seaboard Securities, Inc. (collectively,
the "Representatives"), a 2.00% nonaccountable expense allowance and to
sell to the Underwriter warrants exerciseable for four years commencing
one year from the date of this Prospectus to purchase 75,000 Warrants at
120% of the public offering price (the "Underwriters Warrants"). The
Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933 , as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting estimated expenses of $500,000 payable by the Company,
including the Representative's 2.00% nonaccountable expense allowance
and other expences of the offering estimated at $400,000 payable by the
Company. No expenses shall be paid by the Selling Shareholders. See
"Underwriting."
(3) The Company has granted to the Underwriters an option, exercisable
within 45 days from the date of this Prospectus, to purchase up to 112,500
Units, consisting of 250,000 shares of Common Stock owned by Timothy C. Moses
and Jacques Elfersy, the founders and Senior Management of the Company (the
"Selling Shareholders") and 112,500 Warrants at 120% on the same terms set
forth above, solely for the purpose of covering over-allotments, if any. If
the Underwriters' over-allotment option is exercised in full, the total Price
to the Public, Underwriting Discounts and Commissions, Proceeds to the
Company, and Proceeds to Selling Shareholders will be $ , $ and $ ,
respectively. See "Underwriting."
The Securities are being offered, subject to prior sale, when, as and if
delivered to and accepted by the Underwriters on a "firm commitment basis" and
subject to approval of certain legal matters by counsel and subject to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify the offering without notice and to reject any order, in whole or in
part. It is expected that delivery of Common Stock and Warrant certificates
will be made against payment therefor at the offices of the Underwriter in
Dallas, Texas on or about , 1998.
Tejas Securities Group, Inc.
Redstone Securities, Inc.
Seaboard Securities, Inc.
The date of this Prospectus is ,1998
<PAGE>
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (including any amendments
thereto, the "Registration Statement") under the Securities Act with respect to
the Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Securities, reference is made to the Registration Statement and the exhibits and
schedules thereto. Statements made in this Prospectus regarding the contents of
any contract or document filed as an exhibit to the Registration Statement are
not necessarily complete and, in each instance, reference is hereby made to the
copy of such contract or document so filed. Each such statement is qualified in
its entirety by such reference. The Registration Statement and the exhibits and
the schedules thereto filed with the Commission may be inspected, without
charge, at the Commission's public reference facilities located at Room 1024,
Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549, and at the public
reference facilities in the Commission's regional offices located at:
Northwestern Atrium Center, 500 West Madison Street, Room 1400, Chicago,
Illinois 60661; and Suite 1300, Seven World Trade Center, New York, New York
10048. Copies of such materials also may be obtained at prescribed rates by
writing to the Commission, Public Reference Section, 450 Fifth Street, NW,
Washington, D.C. 20549. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission at http://www.sec.gov.
As a result of this Offering, the Company will become subject to the
reporting requirements of the Exchange Act, and in accordance therewith will
file periodic reports, proxy statements and other information with the
Commission. The Company will furnish its shareholders with annual reports
containing audited consolidated financial statements certified by independent
public accountants following the end of each fiscal year, proxy statements and
quarterly reports containing unaudited consolidated financial information for
the first three quarters of each fiscal year following the end of such fiscal
quarter.
The Company has applied for listing of the Securities on Nasdaq
SmallCap Market. There can be no assurance that the Company's securities will be
accepted for listing. Reports, proxy statements and other information concerning
the Company will be available for inspection at the principal office of the
Nasdaq Stock Market, Inc. at 1735 K Street, Washington, DC 20006-1500.
--------------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
OVERALLOTMENT, ENTERING STABILIZATION BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE SECURITIES ON NASDAQ IN
CONNECTION WITH THE COMMON STOCK AND WARRANTS ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING." SEE "PLAN OF DISTRIBUTION."
UNTIL ______________, 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements (included notes thereto)
appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information herein is presented on the basis that the over-allotment option and
underwriters' warrants are not exercised. The securities offered hereby involve
a high degree of risk. Investors should carefully consider the information set
forth under "Risk Factors."
The Company
BioShield Technologies, Inc. (the "Company") is a development stage
company engaged in the development, marketing, and sale of surface modifying
antimicrobials and biostatic products, primarily through third party licensing
arrangements. The Company's primary focus is to exploit its proprietary
technology to become the leader in topical antimicrobials and biocides for
consumer, industrial and institutional markets, environmental services, and
medical device markets. BioShield products are an easily applied reactive
coating technology that modifies surfaces of all types, by creating an invisible
covalent bond between surfaces and a variety of chemical agents. The italicized
terms used in this Prospectus are defined in the Glossary beginning on page
______.
The Company focuses on providing value added and unique antimicrobial
solutions to a variety of industries and product categories. Examples of
products in the market or under development that utilize the BioShield
technology include surface-borne and air-borne products which remove or
eliminate certain allergens from the air which may cause respiratory discomfort
or asthma, nine (9) consumer products exhibiting residual antimicrobial
efficacy, a powder form of add-mixture for the control of specialty
microorganisms. The Company is developing a bio-barrier treatment for acute
wound care and a product that seeks to control food borne contaminants.
The Company's technology is currently available in four (4) different
delivery and enhanced performance systems, and current research on three (3)
other delivery systems are underway. All of the newly developed antimicrobials
are based on the ability of the Company to modify its molecular structure to
suit the required needs of a particular product category or performance
characteristics, such as slow release of antibiotics or drugs. The Company's
core products are essentially non-toxic for their intended uses. The Company
believes that no other known antimicrobial products combine the abilities to
covalently bond on a long-term basis, are generally as safe, effective, variable
and environmentally friendly or have the capability and potential regulatory
clearances for so many applications.
The Company is commercializing its antimicrobial technology through
licensing arrangements, marketing distributors which incorporate or repackage
under private labeling agreements, joint development arrangements and in direct
sales to retailers. The Company's strategy is to build and develop new and
existing retail distribution channels for its products using its technologies as
a means to partially fund the commercialization of higher margin industrial and
medical applications.
The Company has also filed certain applications for patents with the
United States Patent and Trademark Office with respect to its proprietary
technology. Specifically, the Company has discovered and claimed a variety of
new compositions and methods of making and using its proprietary antimicrobial
products. The mode of action of the core microbial technology is to disrupt the
microbial cell membrane. By contrast, other antimicrobials rely on absorption of
the antimicrobial by the organisms, which in turn disrupts the metabolic
systems. These characteristics of the Company's products combine to make the
products ideal for use in a wide range of medical, household, commercial, and
industrial applications.
The largest near-term opportunity exists in the mass market retail
outlets including supermarkets, mass volume retailers, drug stores, and home
improvement superstores. In June 1997, the Company entered into distribution
agreements for certain of its retail products through national supermarket
chains such as Kroger, Winn Dixie, A&P, Cub Foods, Drug Emporium, and
Supervalue. Sales through these customers began in January 1998 and continue
through the date hereof. The Company has previously sold to and also has a
distribution agreement with QVC, Inc. to sell its retail products via "Direct
Response T.V." QVC, Inc. began featuring the Company's products on television in
April 1998 and sales earned the Company awards as "Best of Show in Georgia" in
1997. The Company has also entered into agreements for commercial and industrial
applications of the Company's technology. An agreement with Healthsafe
Environmental, Inc. together with the agreement with QVC, Inc., has accounted
for the bulk of the Company's revenues to date. The Company has executed certain
exclusive rights to Concrete Microtech, Inc. ("CMT") to use technologies of the
Company within the concrete pipe industry as an additive for sewer pipe.
The Company was incorporated in June 1995 in the State of Georgia. The
executive offices of the Company are located at 4405 International Boulevard,
Suite 109, Norcross, Georgia 30093, and its telephone number is (770) 925-3432
and its Internet address is BioShield [email protected].
3
<PAGE>
<TABLE>
<CAPTION>
The Offering
<S> <C>
Securities offered hereby............................ 750,000 Units, each Unit consisting of two shares
of Common Stock and one Warrant, each Warrant
entitling the holder to purchase one share of
Common Stock at a price of $7.80 until (August
____), 2003. See "Description of Securities".
Description of the Warrants.......................... The Warrants are not immediately exercisable and
are not transferable separately from the Shares
until (August ____), 1999. The Warrants are
redeemable by the Company at $0.05 per Warrant
under certain conditions. See "Description of
Securities."
Common Stock to be outstanding
after the Offering (1)(2)(3)(4)..................... 6,319,125 Shares
Warrants to be outstanding
after the Offering (1)(2)(3)(4)...................... 750,000
Use of Proceeds...................................... The Company intends to use the net proceeds of this
Offering to payoff existing noteholder
indebtedness, EPA testing, FDA updates, research
and development, marketing, and working capital and
general corporate purposes. See "Use of Proceeds."
Risk Factors......................................... The securities offered hereby are speculative and
involve a high degree of risk and immediate
substantial dilution and should not be purchased by
investors who cannot afford the loss of their
entire investment. See "Risk Factors" and
"Dilution.
</TABLE>
Proposed Nasdaq Symbols
Units................................................ "BSTI.U"
Common Stock......................................... "BSTI"
Warrants............................................. "BSTI.W"
- --------
(1) Does not include an aggregate of 400,000 shares of Common Stock reserved
for issuance upon the exercise of stock options to be outstanding under the
Company's 1997 Stock Incentive Plan and the Company's 1996 Directors Stock
Option Plan (collectively, the "Plans"), 175,000 of which options are
currently exercisable. See "Management -- Employment Agreements," "Stock
Option Plans," "Principal and Selling Shareholders," "Certain Transactions"
and "Underwriting."
(2) Does not include an aggregate of up to 1,125,000 shares issuable upon
exercise of (i) the Warrants, (ii) the over-allotment option and (iii) the
Underwriters' Warrants.
(3) Does not include up to 112,500 Warrants issuable upon exercise of the
over-allotment option or the 75,000 Warrants underlying the Underwriters'
Warrants, or shares issuable upon the exercise of these Warrants.
(4) Does not include an aggregate of 224,167 shares of Common Stock reserved for
issuance upon exercise of
outstanding warrants at a weighted average price of $0.50 per share, 450,000
warrants at an exercise price equal to $6.50 per share (the "IPO Price"), 40,000
warrants at an exercise price equal to $7.80 per share, and 15,000 shares issued
to employees pursuant to the Company's 1997 Stock Incentive Plan at a price of
$1.00 per share. See "Management Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
4
<PAGE>
Selected Consolidated Financial Information
The following selected financial data has been derived from
the audited balance sheet of the Company as of June 30, 1997, audited income
statements for the fiscal years ended June 30, 1997 and 1996 and unaudited
financial statements for the eleven months ended May 31, 1998 and 1997. This
selected financial data should be read in conjunction with the financial
statements of the Company and the related notes thereto included elsewhere in
this Prospectus. See "Financial Statements."
<TABLE>
<CAPTION>
Fiscal Year Ended Eleven Months Ended
June 30, May 31,
1996 1997 1997 1998
-------------- --------------- ------------- ------
<S> <C> <C> <C> <C>
Operating Data:
Net Sales $ 0 $775,315 $578,561 $ 434,790
Cost of Sales 0 315,822 266,843 155,008
--------- ------- ------- -------
Gross Profit 0 459,493 311,718 279,782
1,528,869ating Expenses 386,217 987,533 925,724
- --------- ------- ------- -------
Operating (loss) (386,217) (527,860) (614,006) (1,249,087)
Net (loss) (356,316) (514,459) (610,801) (1,245,684)
Loss per share $ 0.09 $ 0.12 $0.16 $ 0.27
</TABLE>
<TABLE>
<CAPTION>
Year Ended Eleven Months Ended May 31,
June 30,1997 1998 1998
As Adjusted (1)
<S> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) $ 114,665 $ (949,858) $7,325,142
Current assets 590,477 299,156 7,325,142
Current liabilities 475,812 1,249,014 319,014
Total assets 692,938 466,156 8,741,156
Total liabilities 475,812 1,249,014 319,014
Shareholder's equity (deficit) 217,126 (782,858) 7,492,142
Shares outstanding 4,364,421 4,395,040 5,895,040
</TABLE>
- ------------ (1) Adjusted to reflect the sale of the Units offered by this
prospectus at an offering price of $ 13.00 per Unit and application of the net
proceeds of $8,275,000.
5
<PAGE>
RISK FACTORS
An investment in the Securities offered hereby involves a high
degree of risk. Prospective investors should consider the following factors in
addition to other information set forth in the prospectus before purchasing the
securities offered hereby.
Development Stage Company; Uncertainty of Product Development; Limited
Operating History.
The Company was organized in June 1995 and until 1998 was a
development stage company. The Company's long-term viability, profitability and
growth will depend upon successful commercialization of products resulting from
its research and product development activities. The Company may not be able to
sell significant quantities of any product, outside of retail distribution
channels, until such time, if ever, as it receives regulatory approval to
commercially market the products in the industrial and medical markets. Many of
the Company's products will require laboratory and clinical testing and
investment prior to obtaining such approvals for any product with the EPA and
the FDA and prior to full commercialization. The Company does not expect to
receive any registrations from the EPA for any product for at least 9-12 months
and with respect to the FDA for at least three years. No FDA applications or
registrations have been filed to date. Moreover, with respect to the FDA,
adverse or inconclusive results in clinical trials could significantly delay or
ultimately preclude any such approvals and, even if obtained, there can be no
assurance that any product approval will lead to the successful
commercialization of such product. Further, as a development stage company, the
Company has a limited relevant operating history upon which an evaluation of its
prospects can be made. Such prospects must be considered in light of the risks,
expenses and difficulties frequently encountered in establishing a new business
in the evolving, heavily regulated healthcare, drug, and medical device
industry, which is characterized by an increasing number of market entrants,
intense competition and a high failure rate. In addition, significant challenges
are often encountered in shifting from development to commercialization of new
products. See "Business."
History of Significant Losses; Anticipated Future Losses; Limited Product
Revenues.
To date, although the Company has recorded contract revenues,
the Company has generated only limited revenues from product sales and
consulting of $1,253,407 since 1995. Moreover, the Company has incurred
significant losses, including losses of $356,316 and $514,459 for the years
ended June 30, 1996, and 1997, respectively, and $1,245,684 for the eleven
months ended May 31, 1998. For the years ended June 30,1996, and 1997, and the
eleven month period ended May 31, 1998, the Company recorded product sale
revenues of $0, $775,315, and $434,790. Inasmuch as the Company will continue to
have a high level of research and development and general and administrative
expenses and will not have matching contract revenues as such expenditures are
incurred, the Company anticipates that, commencing in the first calendar quarter
of 1998, losses will increase significantly and 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, aside from the retail market, may depend on the success of the Company
obtaining regulatory registrations for the commercial sale of products,
including approval of any manufacturing facilities established or maintained by
the Company or its suppliers that produce such products. There can be no
assurance that any of such events will occur, that the Company will attain
revenues from commercialization of its products or that the Company will ever
achieve profitable operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and Financial
Statements.
Business Concentration
The Company is dependent upon a small base of customers for
the majority of its net sales. Sales to one customer totaled approximately
$59,000 or 14% of total sales for the period ended May 31, 1998. Sales to two
customers totaled $555,000 the fiscal year ended June 30, 1997, or 71.6% of net
sales. The Company expects that it will be less dependent upon few customers as
its customer base grows in the future. However, there can be no assurance that
it will increase its customer base, or that it will not continue to be dependent
upon a small base of customers. The loss of a significant customer or any
reduction in orders by any significant customers may have a material adverse
effect on the Company's business, financial condition and results of operations.
6
<PAGE>
Significant Capital Requirements; Dependence on Proceeds of This Offering;
Need for Additional Capital.
The Company's capital requirements have been and will continue to be
significant. To fund its capital requirements to date, the Company has been
dependent primarily on (i) sales revenues generated primarily from the sale of
products through QVC and HealthSafe (ii) the net cash proceeds of private
placements of the Company's Common Stock, aggregating approximately $1,562,500.
The Company is dependent upon the proceeds of this Offering to fund its research
and development, marketing, as well as other working capital requirements. The
Company anticipates, based on its currently proposed plans and assumptions
relating to its operations (including assumptions regarding the progress of its
research and development), that the net proceeds of this Offering, together with
the Company's existing capital resources, will be sufficient to satisfy the
Company's estimated cash requirements for at least 12 months following the
consummation of this Offering. The Company expects to incur substantial costs
over approximately the next three years to complete its primary development of
products for the medical and industrial markets. Such amounts are expected to be
substantially in excess of the net proceeds of this Offering and the existing
capital of the Company. Therefore, unless the Company generates significant
revenues during such period, the Company will need additional financing to fully
fund such development. The Company has no current arrangements with respect to,
or sources of, additional financing and it is not anticipated that any of the
officers, directors or shareholders of the Company will provide any portion of
the Company's future financing requirements. There can be no assurance that,
when needed, additional financing will be available to the Company on
commercially reasonable terms, or at all. In the event that the Company's plans
change, its assumptions change or prove inaccurate, or if the net proceeds of
this Offering, together with other capital resources, otherwise prove to be
insufficient to fund operations, the Company could be required to seek
additional financing sooner than currently anticipated. Any inability to obtain
additional financing when needed would have a material adverse effect on the
Company, including possibly requiring the Company to significantly curtail or
possibly cease its operations. In addition, any additional equity financing may
involve substantial dilution to the Company's then existing shareholders. See
"Use of Proceeds," "Dilution," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and "Certain
Transactions."
Limited Sales and Marketing Experience; Reliance on Distributors and
Corporate Partners.
At present, the Company has limited sales and marketing capability. The
Company intends to sell its products both in the United States and
internationally through distributors and corporate partners. There can be no
assurance that the Company will be able to recruit and train adequate sales and
marketing personnel to successfully commercialize their products. The inability
to retain suitable distributors and corporate partners could also have a
material adverse effect on the Company's business financial condition and
results of operations.
Limited Manufacturing Capability and Experience.
To be successfully commercialized, the Company's products must
be manufactured in large quantities in compliance with regulatory requirements
and at an acceptable cost. The Company does not intend to build manufacturing
facilities for such purpose. Rather, it currently intends to subcontract with
independent third parties to obtain all of its requirements except for the
manufacture of the Company's active concentrates which are manufactured by the
Company at its Lithonia, Georgia, manufacturing plant. The Company presently
contracts its additional manufacturing and packaging through Griffin Packaging,
Inc. located in Conyers, Georgia. Such manufacturing arrangement may be
terminated by the Company at any time. The availability of such alternate
sources of supply, on terms satisfactory to the Company, is not assured. The
Company's failure to obtain adequate supplies of its raw materials at a
competitive cost or in a timely manner could have a material adverse effect on
the Company. See "Business."
Government Regulation; FDA .
The development, manufacture, testing and marketing of all of
the Company's products are subject to extensive regulation by numerous
authorities in the United States and other countries. In the United States,
before new antimicrobial products for humans are permitted to be marketed
commercially, they must undergo extensive preclinical and clinical testing to
satisfy the FDA that they are safe and efficacious in each clinical indication
(the specific condition intended to be treated) for which approval is sought.
Additionally, approval by analogous regulatory authorities in other countries
must be obtained prior to commencing marketing of healthcare, drug products and
medical devices in those countries. The approval process varies from country to
country and approval of a drug for sale in one country does not ensure approval
in other countries. Delays in obtaining regulatory approvals may adversely
affect the development, testing or marketing of the Company's products and the
ability of the Company to generate revenues from the sale or licensing of such
products. There can be no assurance that regulatory approvals will be obtained
by the Company in the United States or any other country to sell its products
for such purposes.
7
<PAGE>
Manufacturers of therapeutic products sold in the United
States are required to satisfy the FDA that their manufacturing facilities and
processes adhere to the agency's Good Manufacturing Practices ("GMP")
regulations and to engage in extensive record keeping and reporting. Even if
regulatory approval for a product is granted, the facilities in which the
product is manufactured will be subject to periodic review and inspections by
the FDA or the analogous regulatory authorities of other countries for
compliance with GMP or similar foreign regulatory standards. Compliance with
such regulations requires substantial time and attention, and is costly. In
addition, each domestic manufacturing establishment must be registered with and
approved by the FDA. For biologics, except certain well-characterized ones, this
requires the filing of an establishment license application for the facilities
at which the product will be produced. Failure to comply with the applicable
regulatory requirements by either the Company or its strategic partners could,
among other things, result in criminal prosecution and fines, product recalls,
product seizures and operating restrictions. The Company has not yet sought FDA
approval for the commercial sale of any of its products or for the manufacturing
processes or facilities of any of its strategic partners. Moreover, even if
approval is granted, such approval may impose limitations on the indicated uses
for which a product may be marketed.
Inasmuch as the Company may manufacture products in the United
States and seek to market or license other domestic manufacturers to market
products throughout the world, the Company may become subject to United States
laws and regulations applicable to exporting drugs, including biologics. The
Federal Food, Drug, and Cosmetic Act stipulates that, prior to FDA approval for
commercial sale, a drug manufactured in the United States may be exported to any
country in the world, without prior FDA authorization, only if it has received
marketing authorization in at least one of the 25 countries listed in Section
802 of that act. Other requirements include that (i) the product is manufactured
in substantial compliance with the FDA's GMP regulations, (ii) the FDA is
notified of the exportation, and (iii) the FDA has not determined that the
probability of reimportation presents an imminent hazard to the public health
and safety of the United States. Drugs for investigational use in any of the 25
countries may be exported without notification to the FDA. Drugs for
investigational use in other countries may not be exported without FDA
authorization. Thus, the ability of the Company or its licensees to export
products manufactured in the United States prior to receiving commercial
approval in the United States will be subject to certain restrictions.
Therefore, there can be no assurance that the Company or its licensees would be
able to export for investigational use or commercial sale in any countries,
products manufactured in the United States which have not received FDA approval.
Government Regulation; EPA.
The Company is also subject to the regulations of the United
States Environmental Protection Agency as well as other federal, state and local
laws and regulations governing pesticides and antimicrobial products. Compliance
with these laws and regulations is time-consuming, expensive and failure to
receive timely approval or approval at all could have a material adverse effect
on the Company. In May of 1997, the Company made applications to the EPA for
registration of BioShield AM500 and AM500I and intends to submit an application
to the EPA for registration of BioShield AM36.OI and AM3651P to enable it to
make certain claims regarding the antimicrobial properties of certain of its
products. No assurance can be given that the EPA will approve any or all of such
claims. The adoption by federal, state or local governments of significant new
laws or regulations or a change in the interpretation of existing laws or
regulations relating to environmental or other regulatory matters could increase
the cost of producing the products manufactured by the Company or its strategic
partners or otherwise adversely affect the demand for the Company's products.
Adverse governmental regulation which might arise from future legislative or
administrative action cannot be predicted. See "Business-Government Regulation."
Risks Related to Obtaining, Maintaining and Defending Patents and
Proprietary Technology.
The Company's success will depend in part on its ability to obtain or license
U.S. and foreign
patents, protect trade secrets for its technology, and operate without
infringing on the proprietary rights of others. There can be no assurance,
however, that either the Company's or its licensors' existing patent
applications will mature into issued patents or, if issued, that such patents
will be adequate to protect the Company's products or processes. In addition,
there can be no assurance that the Company will be able to obtain any necessary
or desired additional licenses to patents or technologies of others or that the
Company will be able to develop its own additional patentable technologies.
The Company entered into a Research Agreement with Emory University on
December 22, 1995. As a result of work performed pursuant to this Research
Agreement, Emory University has filed at least two patent applications, one
composition patent independently and the other an end-use patent jointly with
the Company. Emory's independent composition patent application (the "Emory
Application") discloses and claims technologies developed in conjunction with
the Company that are different from, but similar to, only one of the three
technologies developed solely by the Company and on which the Company is
actively pursuing its own patents. If patents ultimately issue out of the Emory
Application, Emory may in the future seek to assert to the Company that the
8
<PAGE>
manufacture, sale, and use of certain antimicrobial products may infringe
certain claims of their Emory Application patent and/or foreign counterparts
thereof. The Company believes that its current products would not infringe any
claims that might issue from the Emory Application. However, any determination
in the future that one or more Company products infringe in the Emory
Application patent could have a material adverse effect on the business and
operations of the Company.
The Company believes that the patent position generally
involves complex legal and factual questions. There can be no assurance that any
future patent applications or any patents ultimately issued to the Company will
provide it with competitive advantages or that the Company's use of its
technology will not be infringing upon the patents or proprietary rights of
others, or that the patents or proprietary rights of others will not have an
adverse effect on the ability of the Company to do business. Furthermore, there
can be no assurance that others will not independently develop similar
technology or that others will not design technology to circumvent the Company's
existing or future patents or proprietary rights. In the event that the
Company's technology were deemed to be infringing upon the rights of others, the
Company could be subject to damages or enjoined from using such technology or
the Company could be required to obtain licenses to utilize such technology. No
assurance can be given that any such licenses would be made available on terms
acceptable to the Company, or at all. If the Company were unable to obtain such
licenses, it could encounter significant delays in introducing products to the
market while it attempts to design around the patents or rights infringed upon,
or the Company's development, manufacture and sale of products requiring such
licenses could be foreclosed. In addition, the Company could experience a loss
of revenues and may incur substantial costs in defending itself and indemnifying
its strategic partners in patent infringement or other actions based on
proprietary rights violations brought against it or its strategic partners. The
Company could also incur substantial costs in the event it finds it necessary to
assert claims against third parties to prevent the infringement of its patents
and proprietary rights by others.
The Company relies on proprietary know-how and confidential
information and employs various methods, such as entering into confidentiality
and noncompete agreements with its current employees and with third parties to
whom it has divulged proprietary information, to protect the processes,
concepts, ideas and documentation associated with its technologies. Such methods
may afford incomplete protection and there can be no assurance that the Company
will be able to protect adequately its trade secrets or that other companies
will not acquire information that the Company considers proprietary. The Company
will be materially adversely affected if it cannot maintain its proprietary
technologies. See "Business--Patents and Proprietary Rights."
Competition.
The markets for the Company's products are competitive.
Competition from companies that produce antimicrobials for commercial use is
intense and expected to increase. There can be no assurance that other companies
with the expertise or resources that would encourage them to attempt to develop
or market competing products will not develop new products directly competitive
with the Company's products. The Company is aware of several other companies
that manufacture products that compete directly with its products. Certain of
these companies have well-established reputations for success in the
development, sale and service of conventional antimicrobials and have
substantially greater financial, technical, personnel and other resources than
the Company. The Company competes on the basis of technological suitability,
quality, performance characteristics and price of its products, its ability to
meet customer specifications, and the quality of technical assistance and
service furnished to these customers. There can be no assurance that the Company
will be able to compete successfully, that competitors will not develop
technologies or products that render the Company's products obsolete or less
marketable or that the Company will be able to successfully enhance its existing
products or develop or acquire new products. See "Business-Competition."
Technological Change.
The antimicrobial industry is subject to rapid and significant
technological change, and the ability of the Company to compete is dependent in
large part on its continual ability to enhance and improve its products and
technologies. In order to do so, the Company must effectively utilize and expand
its research and development capabilities, and, once developed, expeditiously
convert new technology into products and processes that can be commercialized.
The Company's competitors may succeed in developing technologies, products and
processes that render the Company's processes and products obsolete. Certain
entities, such as Emory University, have filed applications for or have been
issued patents and may obtain additional patents and proprietary rights relating
to products or processes competitive with or otherwise related to those of the
Company. The scope and viability of these patents, the extent to which the
Company may be required to obtain licenses under these patents or under other
proprietary rights and the cost and availability of licenses are unknown, but
these factors may limit the Company's ability to market its products. See
"Business-Competition."
9
<PAGE>
Product Liability Exposure; Uncertainty of Availability of Insurance.
The Company's business exposes it to potential product
liability risks which are inherent in the testing, manufacturing, marketing and
sale of therapeutic products. While the Company will take precautions it deems
appropriate, there can be no assurance that it will be able to avoid significant
product liability exposure. The Company intends to obtain general liability
insurance, which will include aggregate product coverage of 200%. There can be
no assurance that it will be able to obtain coverage on acceptable terms or that
any insurance policy will provide adequate protection against potential claims.
A successful claim brought against the Company in excess of any insurance
coverage could have a material adverse effect upon the Company.
Uncertainty of Market Acceptance.
To date, the Company has generated limited revenues from sales
of its products. The Company has not yet commenced significant marketing
activities relating to product commercialization and has limited marketing
experience and limited financial, personnel, and other resources to
independently undertake extensive marketing activities. As is typically the
case, demand and market acceptance for newly introduced, innovative products is
subject to a high level of uncertainty. Achieving market acceptance for the
Company's products will require substantial marketing efforts and expenditure of
significant funds to inform customers of the distinctive characteristics and
benefits of using the Company's products. There can be no assurance that the
Company's efforts will result in successful product commercialization or initial
or continued market acceptance for its products.
Dependence on Key Personnel.
The success of the Company will be largely dependent on the abilities and
continued personal efforts of Timothy C. Moses, one of the Company's founders,
Co-Chairman of the Board, President, and Chief Executive Officer; Jacques
Elfersy, founder, Co-Chariman of the Board, Senior Vice President, Secretary,
Treasurer, and Director; Dr. Joachim Berkner, Director of Research and
Development, Organic Chemistry, of the Company. Messrs. Moses and Elfersy are
employed by the Company under an employment agreement expiring January 1, 2003.
The loss of the services of any of Mr. Moses, Mr. Elfersy, or Dr. Berkner would
have a material adverse effect on the Company. The Company intends to obtain and
become a beneficiary of key man life insurance policies, each in the amount of
$1,000,000, on each of Mr. Moses and Mr. Elfersy. It does not currently own
policies covering any other officer or employee. The Company is seeking the
services of an additional experienced senior executive. There can be no
assurance that the Company will be able to attract such a person.
See "Management."
Broad Discretion by Management in Application of Proceeds.
Although the Company currently intends to use approximately
$955,000 (11.5%) to repay certain promissory notes issued in February and March
1998 and accrued and unpaid salaries to Timothy C. Moses and Jacques Elfersy for
the years 1995-1997; $1,000,000 (12.1%) of the net proceeds of this Offering to
fund EPA testing; approximately $500,000 (6.0%) of the net proceeds to fund FDA
update of master file; $2,000,000 (24.2%) of the net proceeds of this Offering
to fund marketing; and approximately $1,620,000 (19.6%)of the net proceeds to
fund research and development, it will have broad discretion in the use of such
funds as circumstances warrant. In addition, approximately $2,200,000 (26.6%) of
the estimated net proceeds from this Offering has been allocated to working
capital and general corporate purposes. Accordingly, the Company's management
will have broad discretion as to the application of such proceeds. See "Use of
Proceeds."
Continuing Control by Existing Shareholders.
Upon the consummation of this Offering, assuming the exercise
in full of the over-allotment option granted by Messrs. Moses and Elfersy to the
Underwriters, Mr. Moses, Co-Chairman, President, and Chief Executive Officer of
the Company, and Mr. Elfersy, Co-Chairman of the Board, Senior Vice President,
Treasurer, Secretary and Director, will beneficially own approximately 21.6%,
and 23.5%, respectively, of the shares of Common Stock outstanding. In the event
that Mr. Moses and Mr. Elfersy were to act in concert, they may be in a position
generally to control the affairs of the Company. These two shareholders may be
able to control the outcome of shareholder votes, including votes concerning the
election of directors, the adoption of amendments to the Company's Restated
Certificate of Incorporation or Bylaws and the approval of certain mergers and
other significant corporate transactions, including a sale of substantially all
of the Company's assets. Such control by existing shareholders could also have
the effect of delaying, deferring or preventing a change in control of the
Company. Moreover, purchasers of the shares offered hereby will be minority
shareholders and, although entitled to vote on matters submitted to a vote of
shareholders, they will not control the outcome of such a vote. See "Principal
and Selling Shareholders" and "Description of Common Stock."
10
<PAGE>
Ongoing Influence of Underwriters
Upon consummation of the Offering, the Company has agreed that
for a period of five years from the closing of the sale of the Units offered
hereby, it will nominate for election as a director a person designated by the
Underwriters, and during such time as the Underwriters have not exercised such
right, the Underwriters have the right to designate an observer, who shall be
entitled to attend all meetings of the Board and receive all correspondence and
communications sent by the Company to the member of the Board. Accordingly, the
Underwriters may have ongoing influence on the Company following the Offering.
Indemnification of Directors and Officers.
The Company's Bylaws provide for the Company to indemnify each
director and officer of the Company against liabilities imposed upon him
(including reasonable amounts paid in settlement) and expenses incurred by him
in connection with any claim made against him or any action, suit or proceeding
to which he may be a party by reason of his being or having been a director or
officer of the Company and prove that the Company will, in general, indemnify
such persons to the maximum extent permitted by the Company's Bylaws and the
laws of the State of Georgia against any expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement incurred in connection with any
actual or threatened action or proceeding to which such director or officer is
made or threatened to be made a party by reason of the fact that such person is
or was a director or officer of the Company. The foregoing provisions may reduce
the likelihood of derivative litigation against directors and may discourage or
deter shareholders or management from suing directors for breaches of their duty
of care, even though such an action, if successful, might otherwise benefit the
Company and its shareholders.
See "Management -Indemnification of Directors and Officers."
No Assurance of Public Market; Arbitrary Determination of Offering Price;
Possible Volatility of Market Price of Common Stock. Prior to this Offering,
there has been no public trading market for the Common Stock. Consequently, the
initial public offering price has been determined by negotiation between the
Company and the Underwriter and is not necessarily related to the Company's
asset value, net worth or other criteria of value. Among the factors considered
in determining the offering price were 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. There can be no assurance that a regular
trading market will develop after this Offering or that, if developed, it will
be sustained. The market prices for securities of biotechnology companies have
been volatile. Announcements of technological innovations or new products by the
Company or its competitors, developments concerning proprietary rights
(including patents and litigation matters), publicity regarding actual or
potential clinical testing relating to products under development by the Company
or others, regulatory developments in both the United States and foreign
countries, public concern as to the safety of biotechnology products and
economic and other external factors, as well as period-to-period fluctuations in
financial results, may have a significant impact on the market price of the
Common Stock. Additionally, 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 the common stock of small and emerging growth
companies that trade in the over-the-counter market, have experienced wide price
fluctuations not necessarily related to the operating performance of such
companies. See "Underwriting."
Immediate and Substantial Dilution.
This offering involves an immediate and substantial dilution
of $5.23 (80%) between the pro forma net tangible book value per share of Common
Stock after the Offering and the proposed initial public offering price of $6.50
per share. See "Dilution."
Benefits of Offering to Existing Shareholders.
Upon the consummation of this Offering, the existing
shareholders 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 shareholders of their shares of Common Stock in
the secondary market, as well as an immediate increase in net tangible book
value of $1.45 per share to such shareholders based upon the pro forma net
tangible book value per share after this Offering and the initial public
offering price per share of the Common Stock offered hereby. The existing
shareholders of the Company have acquired their respective equity interests at
costs substantially below the offering price. Accordingly, to the extent that
the Company incurs losses, the investors purchasing shares in this Offering will
bear a disproportionate risk of such losses. If, at the time the existing
shareholders are able to sell their shares of Common Stock in the public market,
the market price per unit remains at the proposed $13.00 initial public offering
price (of which there can be no assurance) or $6.50 per share of common stock
giving no value to the warrant such shareholders would realize an aggregate gain
of $6.29 on the sale of all of their existing shares. See "Use of Proceeds,"
"Dilution" and "."
11
<PAGE>
Shares Eligible for Future Sale
Upon completion of this Offering, the Company's current
shareholders will own 4,819,125 shares of Common Stock, which will represent
76.3% of the then issued and outstanding shares of Common Stock (72.7% if the
over-allotment option is exercised in full). 4,395,040 of such restricted
securities have been held for more than one year and will be eligible for resale
under Rule 144 under the Securities Act of 1933, as amended (the "Securities
Act"), subject to volume limitations, beginning 90 days after the date of this
Prospectus, unless such shareholders agree to a 12 month lock-up (excluding
those shares of Common Stock offered pursuant to the Offering). Sales of
significant amounts of Common Stock by current shareholders in the public market
after this Offering could adversely affect the market price of the Common Stock.
See "Shares Eligible for Future Sale," "Principal and Selling Shareholders,"
"Management Discussion and Analysis of Financial Condition and Operating
Results," "Liquidity and Capital Resources."
Effect of Outstanding Warrants and Underwriters' Warrants.
Until the date five (5) years following the date of this
Prospectus, the holders of the Warrants and Underwriters' Warrants are given an
opportunity to profit from a rise in the market price of the Common Stock, with
a resulting dilution in the interests of the other shareholders. The shares of
Common Stock underlying the Underwriters' Warrants have certain registration
rights. Further, the terms on which the Company might obtain additional
financing during that period may be adversely affected by the existence of the
Warrants and Underwriters' Warrants. The holders of the Warrants and
Underwriters' Warrants may exercise the Warrants and Underwriters' Warrants at a
time when the Company might be able to obtain additional capital through a new
offering of securities on terms more favorable than those provided herein. The
Company has agreed that, under certain circumstances, it will register under
federal and state securities laws the Underwriters' Warrants and/or the
securities issuable thereunder. Exercise of these registration rights could
involve substantial expense to the Company at a time when it could not afford
such expenditures and may adversely affect the terms upon which the Company may
obtain financing. See "Description of Securities" and "Underwriting."
Substantial Shares of Common Stock Reserved.
The Company has reserved 400,000 shares of Common Stock for
issuance to key employees, officers, directors and consultants pursuant to the
Company's Stock Incentive Plan (the Incentive Plan") and 1,000,000 shares of
Common Stock for issuance to directors pursuant to the 1996 Directors' Stock
Option Plan (the "Directors Plan"). To date, 90,000 options have been granted
under the Stock Option Plan, none of which are immediately exercisable and
67,500 options have been granted under the Director Plan, all of which are
immediately exercisable. The existence of these options and any other options or
warrants may prove to be a hindrance to future equity financing by the Company.
Further, the holders of such options may exercise them at a time when the
Company would otherwise be able to obtain additional equity capital on terms
more favorable to the Company. See "Management - Stock Option Plan."
Authorization of Preferred Stock.
The Company's Articles of Incorporation authorize the issuance
of "blank check" preferred stock with such designations, rights and preferences
as may be determined from time to time by the Board of Directors. Accordingly,
the Board of Directors is empowered, without shareholder approval, to issue
additional preferred stock with dividend, liquidation, conversion, voting, or
other rights which could adversely affect the voting power or other rights of
the holders of the Common Stock. In the event of issuance, the preferred stock
could be utilized, under certain circumstances, as a method of discouraging,
delaying, or preventing a change in control of the Company. Although the Company
has no present intention to issue any shares of its authorized preferred stock,
there can be no assurance that the Company will not do so in the future.
Anti-Takeover Provisions.
The Articles of Incorporation and Bylaws of the Company
contain numerous anti-takeover provisions intended to encourage any potential
acquiror of the Company to deal directly with the Company's Board of Directors.
Among the features of the Company's Articles of Incorporation and Bylaws that
could have anti-takeover effects are: a classified Board of Directors with Board
members serving staggered three-year terms; prohibition of majority shareholder
actions by written consent; restricting the power to call special meetings of
shareholders to the Chairman of the Board of Directors, President, Board of
Directors or the holders of two-thirds of the outstanding shares of the Company
capital stock entitled to vote generally in the election of directors ("Voting
Stock") not held by an "Interested Shareholder"
(generally, a shareholder that,
12
<PAGE>
together with its affiliates, associates and any persons acting in concert with
them, acquires beneficial ownership of fifteen percent or more of the
outstanding shares of the Voting Stock after July 15, 1997); requiring advance
notice of shareholder nominees to stand for election to the Board of Directors
or of shareholder introduced business to be considered at a shareholders
meeting; adoption of the requirements of Part 3 of Article 11 of the Georgia
Business Corporation Code (the "Corporation Code") regarding business
combinations; express authorization of the Board of Directors to consider the
effects of a proposed acquisition on the Company employees, customers and
suppliers and the communities where the Company operates; requiring cause and a
greater than majority vote of shareholders to approve removal of directors and
amendments to the Company's Articles of Incorporation or Bylaws and providing
for a greater than majority vote of shareholders in certain circumstances
relating to an acquisition of the Company unless the amendment or acquisition
have been approved by the Board of Directors. These anti-takeover provisions
could also allow the Board of Directors to impede or prevent an acquisition of
the Company even if shareholders support the acquisition, and could also serve
to entrench incumbent management.
No Dividends.
To date, the Company has not paid any cash dividends on its
Common Stock and it does not expect to declare or pay dividends on the Common
Stock in the foreseeable future. In addition, future agreements or credit
facilities may restrict dividend payments. See "Dividend Policy" and
"Description of Common Stock."
Possible Delisting of Securities from Nasdaq System; Risks of Low-Priced Stocks.
While the Company's Common Stock and Warrants are expected to
meet the current Nasdaq SmallCap Market initial listing requirements, there can
be no assurance that such securities will meet the continued listing
requirements. Under current criteria for continued inclusion on the Nasdaq
SmallCap Market, (i) the Company will have to maintain at least $2,000,000 in
net tangible assets or $35,000,000 market capitalization or achieve net income
of $500,000 for two of the last three years, (ii) the minimum bid price of the
Common Stock will have to be $1.00 per share, (iii) there must be at least
500,000 shares in the public float valued at $1,000,000 or more, (iv) the Common
Stock must have at least two active market makers, and (v) the Common Stock must
be held by at least 300 holders.
If the Company is unable to satisfy the Nasdaq SmallCap
Market's maintenance requirements, its securities may be delisted form the
Nasdaq SmallCap Market. In such event, trading, if any, in the Common Stock and
Warrants would thereafter be conducted in the over-the-counter market in the
so-called "pink sheets" or the NASD's "Electronic Bulletin Board." Consequently,
the liquidity of the company's securities could be impaired, not only in the
number of securities which could be bought and sold, but also through delays in
the timing of transactions, reduction in security analysts' and the news media's
coverage of the Company, and lower prices for the Company's securities than
might otherwise be attained.
In addition, if the Common Stock were to become delisted from
trading on Nasdaq and the trading price of the Common Stock were to fall below
$5.00 per share, trading in the Common Stock would also be subject to the
requirements of certain rules promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as "penny
stock" (generally, any non-Nasdaq equity security that has a market price of
less than $5.00 per share, subject to certain exceptions). Such rules require
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
defined as an investor with a net worth in excess of $1,000,000 or annual income
exceeding $200,000, $300,000 together with a spouse). For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to sale. The broker-dealer also must disclose the commissions
payable to the broker-dealer, current bid and offer quotations for the penny
stock and, if the broker-dealer is the sole market-maker, the broker-dealer must
disclose this fact and the broker-dealer's presumed control over the market.
Such information must be provided to the customer orally or in writing prior to
effecting the transaction and in writing before or with the customer
confirmation. Monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. The additional burdens imposed upon
broker-dealers by such requirements may discourage them from effecting
transactions in the Common Stock, which could severely limit the liquidity of
the Common Stock and the ability of purchasers in this Offering to sell the
Common Stock in the secondary market.
13
<PAGE>
USE OF PROCEEDS
The net proceeds of this Offering to the Company, with an assumed
initial public offering price of $13.00 per Unit, will be $8,275,000
($11,212,500 if the over-allotment Option is exercised in full) after deducting
$500,000 of expenses relating to the Offering. The Company intends to use the
net proceeds as follows:
<TABLE>
<CAPTION>
Amount %
<S> <C> <C>
Debt and Liabilities Retirement (1) 955,000 11.5%
EPA testing 1,000,000 12.1%
FDA Update for Master File 500,000 6.0%
Marketing (2) 2,000,000 24.2%
Research and Development (3) 1,620,000 19.6%
Working Capital and general corporate purposes (4) 2,200,000 26.6%
--------- -----
Total $8,275,000 100.0%
</TABLE>
- -
- -----------
(1) Represents repayment of $450,000 in principal amount of three year
non-negotiable promissory notes issued in February and March of 1998, together
with accrued and unpaid interest at a rate of 10% per annum for the first year;
payment in arrears of deferred salary of $300,000 to Timothy C. Moses and
Jacques Elfersy of the Company for the years 1995-1997; $125,000 for a
promissory note to Mr. Stephen Dale, due November 13, 1998, together with
accrued and unpaid interest at a rate of 10% per annum; and three promissory
notes, in the aggregate principal amount of $80,000, payable to Mrs. Judy
Turner, the mother-in-law of Timothy C. Moses, Chief Executive Officer of the
Company, together with accrued and unpaid interest at a rate of 8% per annum.
(2) Represents a portion of cost associated with initial introductory media and
advertising by market segment, estimated at an average of $750,000 per market
segment with five total markets for the U.S. The initial focus shall be on two
product lines into five market segments (food, non-food, mass merchandisers,
do-it-yourselfers, and specialty).
(3) Represents a portion of the costs associated with research and development,
including the cost of conducting studies to determine the safety and efficacy of
synthetic skins and wound care products and further testing of 36.OI and 3651P.
The Company estimates that the amounts required to complete the primary
development projects will be substantially in excess of the portion of the
proceeds allocated to research and development. See "Business-- Research and
Development."
(4) A majority of the proceeds allocated to working capital is expected to be
utilized to pay (i) the salaries of additional management and support staff as
well as Company's two principal executive officers, Timothy C. Moses and Jacques
Elfersy, which salaries are anticipated to aggregate approximately $250,000 for
the 12 months following the consummation of this Offering and (ii) the expansion
of the Company's laboratory, research facilities and related personnel. See
"Management" and "Certain Transactions."
Pending application of the net proceeds of this Offering, the Company
may invest the net proceeds from this Offering in interest-bearing savings
accounts, United States Government obligations, certificates of deposit or
short-term interest-bearing securities.
DIVIDEND POLICY
The Company does not anticipate paying dividends on the Common Stock at any time
in the foreseeable future. The Company's Board of Directors plans to retain
earnings for the development and expansion of the Company's business. The Board
of Directors also plans to regularly review the Company's dividend policy. The
Company's ability to pay dividends will be dependent, in large measure, on its
ability to receive dividends and management fees from its life insurance
subsidiaries. The ability of these corporations to pay dividends and management
fees, in turn, is limited pursuant to applicable insurance laws. Any future
determination as to the payment of dividends will be at the discretion of the
Board of Directors of the Company and will depend on a number of factors,
including future earnings, capital requirements, financial condition and such
other factors as the Board of Directors may deem relevant.
14
<PAGE>
DILUTION
As of June 30, 1997, the net tangible book value of the Company was
$217,126 or $0.05 per share of Common Stock. The net tangible book value of the
Company is the aggregate amount of its tangible assets less its total
liabilities. The net tangible book value per share represents the total tangible
assets of the Company, less total liabilities of the Company, divided by the
number of shares of Common Stock outstanding. After giving effect to the sale of
750,000 Units (shares of Common Stock and Warrants) at an assumed offering price
of $13.00 per Unit or $6.50 per share of Common Stock (no value assigned to the
Warrants) and the application of the estimated net proceeds therefrom, the pro
forma net tangible book value per share would increase from $0.05 to $1.47. This
represents an immediate increase in net tangible book value of $1.42 per share
to current shareholders and an immediate dilution of $5.03 per share to new
investors or, as illustrated in the following table:
Public offering price per share $6.50
Deficit in Net tangible
book value per Share before this Offering $(0.18)
Increase per share attributable
to new investors 1.45
Adjusted net tangible book value
per share after this Offering $1.27
Dilution per share to new investors $5.23
The following table sets forth as of June 30, 1998, (i) the number of
shares of Common Stock purchased from the Company, the total consideration paid
to the Company and the average price per share paid by the current shareholders,
and (ii) the number of shares of Common Stock included in the Units to be
purchased from the Company and total consideration to be paid by new investors
(before deducting underwriting discounts and other estimated expenses) at an
assumed offering price of $13.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Avg. Price
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C>
4,819,125(2) holders 76.0% $ 1,375,401 9.0% $0.21
New investors 1,500,000(2) 24.0% 9,750,000(2) 91.0% 6.50(3)
--------- ------ ------------ --------
Total 6,319,125(1) 100.0% $11,125,401(2) 100.0%
========= ====== =========== ======
</TABLE>
- --------
(1) Does not include an aggregate of 1,674,167 shares of Common Stock issuable
upon the exercise of: (i) the Warrants, (ii) the Underwriters' Warrants, (iii)
the over-allotment option, (iv) employee stock options, and (v) 450,000 warrants
issued to investors in a private placement at an exercise price of $6.50 per
share, and (vi) 40,000 warrants at an exercise price of $7.80 per share. To the
extent that these options and warrants are exercised, there will, in certain
cases, be further share dilution to new investors.
(2) Upon exercise of the over-allotment option, the number of shares held by new
investors would increase to 1,725,000 or 27.7% of the total number of shares to
be outstanding after the Offering and the total consideration paid by new
investors will increase to $11,212,500. See "Principal and Selling
Shareholders."
(3) This amount assumes the attribution of the Unit purchase price solely
to the Common Stock included in each Unit. See "Use of Proceeds."
15
<PAGE>
CAPITALIZATION
The following table sets forth the pro forma short-term debt and
capitalization of the Company as of June 30, 1997, and as adjusted to give
effect to sale of 750,000 Units offered hereby and the application of the
estimated net proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
May 31, 1998
(Unaudited) As Adjusted
<S> <C> <C>
Short-term debt:
Current portion of notes payable. $ 630,000 $ 0
Total short-term debt $ 630,000 $ 0
Shareholder's equity:
Common Stock, no par value,
50,000,000 shares authorized,
4,395,040 shares issued and outstanding,
5,895,040 as adjusted (1) (2) (3) (4) $ 1,153,001 $ 1,253,001
Additional paid in capital 180,600 8,455,600
Deficit accumulated
during the Development stage (2,116,459) (2,216,459)
---------- ----------
Total shareholder's equity (deficit) (782,858) 7,492,142
----------- -----------
Total capitalization (deficit) $ (152,858) $ 7,492,142
=========== ===========
</TABLE>
- -----------
(1) Does not include an aggregate of 400,000 shares of Common Stock reserved for
issuance upon the exercise of stock options to be outstanding under the
Company's 1997 stock Incentive Plan and the Company's 1996 Directors Stock
Option Plan (collectively, the "Plans"), 175,000 of which options are currently
exercisable. See "Management - Employment Agreements," Stock Option Plans,"
"Principal and Selling Shareholders," "Certain
Transactions" and "Underwriting."
(2) Does not include an aggregate of up to 1,125,000 shares issuable upon
exercise of (i) the Warrants, (ii) the over-allotment option and (iii) the
Underwriters' Units. (3) Does not include of up to 112,500 Warrants issuable
upon exercise of the over-allotment option or the 75,000 Warrants underlying the
Underwriters' Warrants.
Does not include an aggregate of 224,167 shares of Common Stock reserved for
issuance upon exercise of outstanding warrants at a weighted average price of
$0.50 per share, 15,000 shares issued to employees pursuant to the Company's
1997 Stock Incentive Plan at a price of $1.00 per share, 450,000 warrants at an
exercise price equal to the IPO price, and 40,000 warrants at an exercise price
of $7.80 per share. See "Management Discussion and Analysis of Financial
Condition and Results of Operations - - Liquidity and Capital Resources."
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General.
Since June 1995, the Company, a development stage company, has been
engaged almost exclusively in research and development, regulatory approvals,
patent filings and activities focused on developing its antimicrobial products.
Results of Operations.
Comparison of eleven-month periods ending May 31, 1998 compared to May 31, 1997
and June 30, 1996 compared to June 30, 1997.
The Company's net sales were $434,790 compared to $578,561 during the
period ending May 31, 1998, and May 31, 1997, respectively, and $775,315 for the
year ended June 1997. There were no sales made in 1996. The Company began
minimal sales activity in March 1997, generating a significant portion of all
revenues for its period ending May 31 1997, with a significant one month
increase of June 1997, primarily due to an initial order from one customer. The
growth in sales was attributable to the beginning commercialization of the
Company's technology.
Gross Profit for the period ending May 31 1998, was $279,782 compared
to $311,718 for the same period ending in 1997 and, for fiscal year ended June
30, 1997, was $459,493 or 59% of net sales. There was no gross profit in fiscal
year ended June 1996 due to the absence of sales. Total operating expenses
increased to $1,528,869 for the period ended May 31, 1998, compared to $925,724
for the period ended May 31, 1997, primarily due to a significant increase in
regulatory applications, testing, and patent filings, representing $987,353 in
1997 compared to $328,217 in 1996. Marketing and selling expenses increased
3,705% for the period ending June 1997 from ($213,387 in 1997 and $5,608 in
1996) reflecting growth in the Company's market studies and preparation for
product launch. In addition, marketing and selling expenses during the period
ended May 31, 1998, of $368,774 compared to $204,326 during the period ended May
31, 1997, increased due to the launch in Georgia of two retail consumer
products. General and administrative expenses increased from May 31, 1998, of
$1,095,788 compared to $660,680 for May 31 1997, as a direct result of the
Company filing additional patent applications, costs associated with the IPO,
and Regulatory applications. In addition, general and administrative expenses
during the fiscal year ended June 30, increased to $700,184 in 1997 from
$195,515 in 1996 to support growth of research and development and a build up of
support personnel.
Operating loss was $1,249,087 Compared to $614,046 for the period
ending May 31, 1998, and May 31, 1997, respectively and $527,860 for the fiscal
years ended June 30, 1997 and June 30 year ended June 1996 versus $386,217 in
1996. The larger operating loss for each of the more recent periods was due to
the increase in operating expenses as the Company built up its infrastructure to
support future growth, patent application and regulatory testing and
applications. Other income was $13,401 and $29,901 in 1996 and $3,403 for the
period ended May 31, 1998 compared to $3,205 for the period respectively ended
May 31, 1997. This income, in 1997, was derived from consulting services by the
senior officers of the Company and the 1998 income was derived from interest.
Interest income for 1998 was the result of short-term interest from the sale of
a private placement of the Company. See "Liquidity and Capital Resources."
The Company incurred a net loss of $1,245,684 for the period of May 31,
1998 compared to $610,801 for the period ended May 31, 1997 and a $514,459 for
the fiscal year ended June 30 1997 compared to $356,316 for the period ended
June 30, 1996. The increase in net loss was due to the increase in operating
expenses as explained above. The Company expects such losses to continue for the
foreseeable future and until such time as the Company is able to attain sales
levels sufficient to support operations.
Liquidity and Capital Resources.
The Company has funded its activities to date through loans from
principal stockholders, debt and private placement offerings. Working capital at
June 30, 1997, was $114,665 versus a working capital deficit of ($183,663) for
the fiscal year ended June 30 1997 compared to June 30, 1996. The increase in
working capital was due to cash infusions during the year from private
placements.
17
<PAGE>
Cash used in operating activities was ($430,554) for the fiscal year
ended June 30, 1997 compared to ($90,434) for the year ended June 30, 1996,
$1,119,357 for the period ended May 31, 1998 compared to ($580,043) for the
period ended May 31,1997. The increase in cash used in operations was primarily
due to the increase in net loss and changes in current assets and current
liabilities.
In February 1998, the Company raised $450,000 from the sale of 90 Units
in a private offering. Each Unit consists of (i) a $5,000 Non-Negotiable
Interest Bearing Promissory Note due and payable on the earlier of the closing
of an "IPO" or three years from the date of issuance (the "Maturity Date"), and
(ii) a warrant to purchase up to 5,000 shares of Common Stock at the IPO
offering price which will be $6.50 per share.
During the first two calendar quarters of 1998, Mrs. Judy Turner, the
mother-in-law of Timothy C. Moses (CEO of the Company), loaned the Company a
total of $80,000 payable at the earlier of one year or an IPO at an accrued
interest rate of 8% per annum.
In November 1996, the Company sold an aggregate of 16,667 common shares and two
warrants attached at a strike price of $1.50 (50% convertible in two years and
the remaining 50% in three years) for net cash proceeds of $250,000. In April
1997, the Company sold an aggregate of 300,000 common shares and two warrants at
a strike price of $2.00 (50% convertible in two years and the remaining 50% in
three years). In December 1997, the Company initiated a 2.45 for 3.00 reverse
stock split and a reverse split of 1.00 for 2.00 on the warrants.
Prior to November 1996, the Company sold an aggregate of 28,000 common
shares in a private placement for net cash proceeds of $140,000. The
Subscription Agreement was anti-dilutive, and therefore, upon the consummation
of the November 1996 sale of stock by the Company, an additional 65,333 shares
were issued to four original shareholders.
The Company expects that its cash needs will continue to increase
substantially in future periods for expansion of its markets, marketing
expenses, research and development as well as an increase in regulatory testing
requirements by the EPA and FDA. Accordingly, the Company will need to raise
substantial additional funds to continue development and commercialization of
its products. The Company's future cash requirements will depend on many
factors, including the successful completion of the proposed public offering
contained herein. At its planned rate of spending, the Company estimates that
the net proceeds of the proposed offering combined with projected revenues will
only be sufficient for approximately 12 months of activity. However, there can
be no assurances that the underlying assumed levels of revenue and expense will
be accurate or adequate.
18
<PAGE>
BUSINESS
The italicized terms used in this Prospectus are defined in the Glossary
beginning on page _____
General.
BioShield Technologies, Inc., a Georgia corporation formed in 1995, is
a development stage company engaged in the development, marketing, and sale of
surface modifying antimicrobials and biostatic products, primarily through third
party licensing arrangements. The Company's primary focus is to exploit its
proprietary technology to become the leader in topical antimicrobials and
biocides for consumer, industrial and institutional markets, environmental
services, and medical device markets. BioShield products are an easily applied
reactive coating technology that modifies surfaces of all types, by creating an
invisible covalent bond between surfaces and a variety of chemical agents.
Through the cross linking technology, these antimicrobial properties and other
chemical agents can impart many performance-enhancing characteristics, such as
residual antimicrobial activity, removal of (surface-borne and air-borne)
allergens which may cause respiratory discomfort or asthma, infection
resistance, anti-inflamation, lubricity and drug delivery onto many surfaces
without changing the dimensions or physical properties of the modified surfaces.
The Company believes that its antimicrobial technologies have revolutionary
properties that make its products significantly more durable, effective,
versatile, and safer than currently available conventional antimicrobials for
treatment of hard and soft surfaces, surface modified medical devices, allergy
and respiratory conditions and preservatives. The Company believes that certain
manufacturers who utilize the Company's technologies are able to significantly
improve the performance of their products and, in many cases, differentiate
their products in a highly competitive marketplace.
The Company focuses on providing value added and unique antimicrobial
solutions to a variety of industries and product categories. Examples of
products in the market or under development that utilize the BioShield
technology include surface-borne and air-borne products which remove or
eliminate certain allergens from the air which may cause respiratory discomfort
or asthma, nine (9) consumer products exhibiting residual antimicrobial
efficacy, a powder form of add-mixture for the control of specialty
microorganisms, antimicrobial bio-barrier treatment for acute wound care, and
control of food borne contaminates. The Company believes further opportunities
exist to commercialize its covalent bonding technology for other market
applications, such as acute and chronic wound sites, artificial synthetic skins,
cardiology and urinary catheters, timed released anti-inflammatory and the
promotion of host cell attachment and transplant/medical device anti-rejection.
However, no assurances can be given that the Company will be successful in
commercializing any such applications or obtaining the required regulatory
approvals.
The Company's objective is to exploit its proprietary technology
patents, technical and marketing property, and future regulatory approval from
the United States Environmental Protection Agency ("EPA") and United States Food
and Drug Administration ("FDA") to become the leader in topical antimicrobial
and biocide products for the consumer, industrial and institutional markets,
environmental services, and medical device markets. The Company believes that
its antimicrobial technologies have revolutionary properties that make its
products significantly more durable, effective, and safer than currently
available conventional antimicrobials, non-antibiotics, preservatives, or
biocides.
Market Needs For Modified Antimicrobials.
The need to develop and provide protection against bacteria, fungi,
algae, yeast, and viruses has long been recognized. However, the use of
long-lasting bacteriostatic finishes has gained attention during the past
decade. This is magnified by the fact that the mortality rate from viruses and
bacteria has, according to The Centers for Disease Control and Prevention
increased 58% between 1980 and 1992 and is now the third major cause of
mortality, ranking behind only heart disease and cancer. Most recently,
according to the New England Journal of Medicine, certain forms of bacteria are
being associated with or are contributing factors to certain diseases including
some forms of cancer. Additionally, approximately 800,000 to 1.2 million
commercial buildings might be suffering from some form of "sick building
syndrome," according to the Occupational Safety and Health Association (OSHA).
More than 70 million workers might suffer from health problems caused by faulty
buildings. The Company believes that there has been a significant increase in
demand for environmental services.
19
<PAGE>
Advantages.
The Company believes its technology is significantly different, and has
many advantages and advances over conventional antimicrobials, non-antibiotic
treatments, or biocides which, themselves, offer no residual activity, long term
solution or ability for performance enhancement and are prone to adaptation and
declining efficacy due to microbial mutations. The Company's products contain no
heavy metals, mercury or formaldehyde. BioShield products are versatile
antimicrobials, easily applied, reactive coating technology that modifies
surfaces of all types, by creating an invisible covalent bond between surfaces
and a variety of chemical agents. The Company believes that its antimicrobial
technology has revolutionary properties that make them significantly more
durable, effective, versatile and safer than currently available technologies.
Unlike other antimicrobial materials, the Company's key active ingredient has,
to date, not been shown to cause genetic mutation or to be teratogenic (causing
physical defects in developing embryos). The Company has filed (but has not yet
obtained) certain applications for patents with the United States Patent and
Trademark Office with respect to its proprietary technology. Specifically, the
Company has discovered and claimed a variety of new compositions and methods of
making and using its proprietary antimicrobial products and the manipulation and
moiety of performance enhancing properties. The Company intends to continue to
pursue patent protection in the United States and other commercially important
foreign countries for its core technologies, improvements thereon, and for
certain specific products that it develops.
The Company's technology provide almost any surface with continuous
antimicrobial protection, killing a variety of viruses and bacteria as they come
in contact with the treated surface. Reapplication of the Company's
antimicrobial technology is generally not needed for up to six months to a year
in some instances. Certain manufactured devices or products, with BioShield's
antimicrobial covalent technology, provide protection to a wide array of
disposable products as the treated surface continues in many cases to kill
microorganisms for the life of the product.
The Company's technology can potentially be used to provide
manufacturers with the following surface properties.
Non Mutation. The Companies antimicrobial products take effect on contact with
the organism. It remains surface attached and is not absorbed or "ingested" by
the microorganism. As a result, to date no mutation-adaptation of microorganisms
involving the Company's active ingredient have been reported, as is frequently
the case with antibiotic compounds.
Residual Activity. Antimicrobial cleaning and treatment of surfaces is of great
importance and benefit to most environments. Disinfection and sanitation are
required application steps in, for example food processing and hospital
environments. Part of every day cleaning is to remove visible soil and invisible
organisms from surfaces. Beginning shortly after the disinfection and sanitation
step new bacteria and other microorganism can reinfect most surfaces. The
Company's antimicrobial coating converts surfaces to provide residual activity.
The residual activity allows the continuous destruction of microorganisms on the
treated surface. It continuously kills bacteria and other microorganisms that
come in contact with the surface long after the cleaning steps are completed.
The residual activity can last for six months or longer depending on the
environment.
Non Leaching. Antimicrobial treatments often migrate or leach from the
application site into the surrounding environment. This migration slowly
depletes the surface of active ingredient and possibly contaminates adjacent
sites. The Company's unique technology is based on chemistry that binds the
Company's active ingredient to the surface and has been shown to prevent the
active ingredient from leaching quickly into the environment. This ability to
localize the activity prevents the undesired spread into adjacent materials and
provides for a prolonged presence and antimicrobial activity at the application
site.
Contamination Resistance. Antimicrobial treatment of surfaces is advantageous
when the risk of infection is of concern. Uncontrolled growth of microorganisms
in the environment can be the source of microorganisms that cause infections,
diseases, allergies, spoilage of products, and aesthetic devaluation. Lethal
antibiotic-resistant organisms have become endemic in U.S. hospitals. The
Company's technology has been shown in many cases to reduce the extent of
bacterial growth on treated versus untreated surfaces. This reduction of surface
organisms provides a cleaner environment and reduced risk from surface
contamination.
Versatility. The Company's surface conversion technology is an integrated
technology. It combines the chemistry and action of several individual molecules
into one application system. The Company's integrated technology can be
modified, providing a versatility to design new coatings with a variety of
properties based on the original technology.
20
<PAGE>
The Company's long term viability, profitability, and growth will
depend upon successful commercialization of the products resulting from its
research and product development activities. The Company will attempt to gain
market share by forming alliances with strong marketing partners. The Company's
goal is to obtain new and broader approvals for its claims and products through
the EPA and through the FDA. Examples of products in the market or under
development that uses the BioShield technology include surface-borne and
air-borne products which remove or eliminate certain allergens which may cause
respiratory discomfort or asthma, nine (9) consumer products exhibiting residual
antimicrobial efficacy, powder form of add-mixture for the control of specialty
microorganisms, antimicrobial bio-barrier treatment for acute wound care,
artificial synthetic skins cardiology and urinary catheters and control of food
borne contaminates. However, no assurances can be given that the Company will be
successful in commercializing any such applications or obtaining the required
regulatory approvals.
The Company's products provide most surfaces with continuous
antimicrobial protection, killing viruses, and bacteria as they come in contact
with the treated surface depending upon the environment. Reapplication of the
Company's retail antimicrobial products is generally not needed for up to six
months to a year in some instances. Certain OEM products provide protection to a
wide array of disposable products as the treated surface continues to kill
microorganisms for the life of the product.
Overview of Technology.
The Company's products provide antimicrobial solutions based on
reactive silane quaternary ammonium salts. These salts, either independently or
as part of an integrated system, are comprised of up to two different silanes
and a suitable solvent, commonly an alcohol solvent and/or water. These
integrated systems are designed to bind to many surfaces forming an invisible
antimicrobial coating. This solution is antimicrobially active and provides
protection against microorganisms. Binding or strong interaction with the
surface of a substrate allows the antimicrobial to remain active on the surface,
often for many subsequent years, possibly the lifetime of the treated article.
The original system has found many applications over the years and extensive
data have been collected regarding the safety, application, and durability of
the product. A limitation of the product in its original form is the dependence
on methanol as a solvent. Methanol is a highly toxic, flammable substance and
when misused may cause blindness or death. In addition, dissolution in water is
slow and aqueous solutions of high concentrations have a limited shelf life.
These limitations prevented a broad scale distribution and application of the
original integrated system. The Company's inventions overcame these limitations
in creating essentially non-toxic, water stable, aqueous solutions. This
innovation allows for many unique end use applications while the base technology
continues to have utility in a wide variety of other markets.
The Company has filed four patents pertaining to the stabilization of
the silane intergrated system in different systems including water. Based on the
water stabilized integrated antimicrobial silane system, the Company has
developed numerous end use products and more products are under development.
Forward Thinking.
The integrated system provides the flexibility to modify individual
parts of the system. For example, removing one component and replacing it with
another more heat stable renders the entire system more heat stable. This is an
important feature for incorporation of the system into thermoplastic materials.
This same flexibility is complemented by the large amount of formulation
experience. Modifications and mixtures that enhance hydrophobic character,
hydrophilic character, antisoiling, antistatic, dye fastness, handle, and other
favorable end-use substrate properties are available both under certain patents
and under proprietary knowledge.
In addition to providing improved antimicrobial properties, research
into new materials based on silane integrated systems is expected to provide new
products such as anti-rejection agents for use in human organ transplants. An
example is the problem of rejection of transplant organs or artificial implants
by the receiving body's immune system. Rejection is often based on the
recognition of the implant as a foreign body. This recognition is affected by
the surface of the implant. Silane treatment of implants may change the surface
and recognition of the implant. A possible modification of the silane is the
incorporation of body proteins to mask the implant or attachment of molecules
known to reduce the likelihood of rejection. However, no assurances can be given
that the Company will be successful in commercializing any such applications or
obtaining the required regulatory approvals.
21
<PAGE>
Although there has been an enormous interest in silane chemistry,
historically, product development has not been focused on end-use products
containing reactive silane, possibly because of the difficulty associated with
providing safe means of application, for example from aqueous solutions. By
providing water stable solutions of reactive silanes, a whole field of chemistry
research with many useful molecules synthesized and characterized is readily
available to the Company for commercialization. However, no assurances can be
given that the Company will obtain the required regulatory approvals or will be
successful in bringing any of these products to market.
In summary, the Company has developed new technologies for the
stabilization of reactive silanes or silane integrated systems in user friendly
solvents, primarily water. This new technology allows the utilization of a
well-known antimicrobial system into medical and consumer products providing
durable treatments possibly otherwise unavailable.
Marketing and Sales
There are numerous product, process, and service uses for the Company's
unique antimicrobial technologies. Viewed collectively, they form the basis of a
mini-industry built around a single key active ingredient chemistry that, like
penicillin, might change the way microbes are controlled in the future.
The largest number of opportunities require additional development
activities. In some, much of the technical work has been completed and generally
only regulatory work is required. In others, significant technical development
is still required.
The Company intends to initially concentrate its efforts towards the
marketing and sales of products for the retail consumer and industrial markets.
The Company believes that product market is comprised of four primary
segments as described below: Retail-Household Care products,
Industrial-Institutional products, Healthcare products, and Environmental
Services.
Technical development has been completed on several products, and many
are ready for commercialization in areas where regulatory requirements permit.
Initially, however, products are being commercialized by the Company in the
retail consumer market and institutional and industrial (I & I) marketplaces as
described below.
Products Market Segment.
Retail-Household Care Market. Microbial fears have promoted lively
sales of antibacterial products. Because of the increase of microbial infections
and disease, companies like Colgate-Palmolive have increased sales by 20% by
incorporating a simple antibacterial agent within their hand soaps, which helps
to control germs on hands. Companies like 3M have absorbed 50% of the sponge
market by incorporating an antibacterial agent that kills germs in the sponge,
but not on the surface with which it comes in contact. Reckitt & Coleman, Inc.
claims that its Lysol Antibacterial Kitchen Cleaner mopped up $25 million in
retail sales, or 5% of the total Lysol line in 1995 - its first full year on the
market.
The Company believes that its largest near-term opportunities for
revenue generation exist in the mass market retail outlets including
supermarkets, mass volume retailers, drug stores and perhaps DIY (do-
it-yourselfers) outlets. Household cleaners represent a retail market value in
the annual range of $1.5 billion dollars in supermarkets only.
To capitalize on this opportunity the Company is developing a network
of manufacturer's representative firms to market its first antimicrobial retail
products. These are primarily traditional food "brokers" plus general
merchandise reps. General merchandise reps are frequently more effective with
drug and mass volume retailers, such as Walgreens, CVS, Eckerd, K-Mart, etc.
In nine southeastern states, the Company has engaged offices of a
regional food trade brokerage firm, Budd Mayer Company, with offices in Atlanta,
GA; Nashville, TN; Charlotte, NC; Tampa, FL; Memphis, TN; Raleigh, NC; Miami,
FL; Fayetteville, AR; Greenville, SC; Orlando, FL; Jackson, MS; Birmingham, AL;
Jacksonville, FL; Little Rock, AR; and Montgomery, AL.
As of June 1, 1998, the Company has acceptance in several major
supermarket accounts buying locally in the Georgia market. The Company's first
two retail products are BioShield Mold & Mildew (stain) and Odor Protectant and
BioShield Carpet and Upholstery Cleaner. Kroger (150 stores), Winn Dixie (101),
A & P (51), Cub Foods (13) and wholesaler Super-Valu have committed to stock
these products in their 550+ retail outlets.
Company products for the Florida, North/South Carolina and Georgia
markets are scheduled for shipping/advertising in the third and fourth calendar
quarters of 1998.
22
<PAGE>
The Company believes that the challenge of greatest magnitude for the
Company is to develop consumer awareness, induce first time purchase of such
products and build brand awareness.
The Company will be required to expend approximately 11.5% of revenues
from these retail outlets toward media placement and advertising of which radio
will account for approximately 75-80% of the total planned budget. Creative
approaches are being "tested" and, the Company presently anticipates, will be
kicked-off in four-week flights in Georgia in September and Florida during
October. Additionally, the Company has set aside 10% of sales to these retail
outlets (which accrues on a quarterly basis and which is redeemable on a
quarterly basis) for in-store premium promotion programs. All radio spots will
be tagged with names of retailers with the Company's items on their shelves.
The Company has commenced the process of selecting marketing support in
the advertising and public relations arenas. The Company plans to spend
approximately $2,000,000 for advertising and public relations through 1999. The
Company's spending levels in advertising and account development funds will
enable the Company to find talented agencies to build creative and
results-oriented activities.
The Company has launched additional products (BioShield KleenAire
Healthy Home Systems to reduce airborne allergens and BioShield Antimicrobial
stain guard (for fabrics) in Spring of 1998 on the QVC cable channel and
anticipates commencing distribution into new and existing supermarket chains
effective the fourth quarter of 1998. The Company anticipates introducing a
total of seven retail lines by the end of 1999.
Industrial and Institutional Markets (I & I).
The Company intends to follow a path taken by many other proprietary
chemical manufacturers and has targeted leading industrial and institutional
products companies that currently formulate and market to this industry.
The following products have been developed for sale to the industrial and
institutional markets but have not received regulatory approval.(See Government
Regulation):
BioShield AM500
- molecular bonding additive for formulating institutional
industrial disinfectants
- molecular bonding additive for formulating sanitizers
and microbiocides
- for use in laundry additives
- additive for carpet treatment products
- for use in upholstery and drapery treatment products
- for use in building cleaning and treatment products
- additive for household cleaning products
- for use in food processing plants
BioShield AM36.OI
- molecular bonding additive for formulating institutional and
industrial disinfectants - molecular bonding additive for
formulating sanitizers and microbiocides - for use in laundry
additives - for use additive for carpet treatment products - for
use in upholstery and drapery treatment products - in building
cleaning and treatment products - additive for household cleaning
products - for use in food processing plants - higher strength
than BioShield AM500
BioShield AM3651P
- molecular bonding additive for formulating institutional and
industrial disinfectants - can be used similar to BioShield
AM36.OI - produces coating with migrating properties - for use as
preservative in personal care product
Technology Licensing Activities.
The Company is seeking to finalize private label agreements with certain
manufacturers in the janitorial and sanitary supply industry. The manufacturing
and technology licensing program incorporates a licensing agreement for an
initial term of two (2) years. This agreement allows licensees to purchase
BioShield industrial concentrates for private label use in either BioShield
supplied formulations or formulae that are developed independently by the
licensee. BioShield structures the agreement so that a royalty is collected on
each unit (quart, gallon, etc.) of product that is shipped by the licensee which
contains BioShield. In structuring the licensing agreements exclusivity in
certain market channels or product categories has not been given as a general
practice, however, agreements are being structured to allow a "market lead time
advantage" in certain segments so long as volume purchases of the industrial
concentrates by the licensee are met on a predetermined basis.
Initial discussions are underway with several large direct industrial
prospect accounts. However, none have been consummated to date. Sales to these
direct accounts, as well as those through reselling distributors are expected to
be slow until approval of pending EPA registrations.
23
<PAGE>
The Environmental Services Market.
The environmental services market describes the treatment of materials
in-place. The Company will seek to exploit opportunities in the aftercare market
through two distribution channels. The first of these channels is the sale of
BioShield products through specialty distributors and is targeted at the small
operator that will treat residences and small commercial buildings. The second
distribution channel is being developed with bulk sales, full technical training
and support, and will target the large restoration companies and other high
volume users who see the value in the technical support and the more technical
market positioning sell.
Microbial contamination causes a variety of problems, ranging from odors,
staining, rotting and defacement of goods to allergies, illnesses, and other
health related problems. This may allow for the development of business
opportunities directed at solving specific problems. These include Company
products to prevent musty odors and staining caused by mold, providing a
hypoallergenic environment for people with allergies, asthmatics, and persons
with respiratory ailments, and the prevention of algal and fungal deterioration
and staining of roofing shingles. The Company believes that other potential
applications may include treatment of swimming pools and building exteriors to
provide additional market potential. These applications will require EPA
approval for antimicrobial claims. However, no assurances can be given that the
Company will be successful in commercializing any of these products or will
receive EPA or other required regulatory approvals.
Approximately 800,000 to 1.2 million commercial buildings might be
suffering from some form of "sick building syndrome," according to the
Occupational Safety and Health Association (OSHA). More than 70 million workers
might suffer from health problems caused by faulty buildings. The Company
currently has treated over two hundred schools, hospitals, and sick buildings
with great success. The Company has currently seen a significant increase in
demand for environmental services.
The Indoor Environmental Quality (IEQ) market includes all enclosed space
that is occupied by people, animals, plants, and valuable or perishable items.
Microbial problems within these structures are the prime focus of the Company in
this segment of the antimicrobials marketplace. Within the large array of indoor
pollutants and mitigating factor, microorganisms are the only pollutants that
may produce a gas (VOC metabolic wastes), a particulate (spores and somatic
parts), or a toxin, which may result in human irritation, allergy sensitization,
or disease.
Business Agreements.
Agreements with QVC, Healthsafe and Others.
The Company currently has several agreements in place for distribution
rights to its different antimicrobial technologies on an exclusive basis. The
Company has entered into various sales distribution agreements for its products.
The most significant of which are through QVC and HealthSafe Environmental
Products, Inc. Since the Company's inception sales through QVC have accounted
for $225,000 in revenues and through HealthSafe of $330,000 in revenues for a
total of 71.6% of revenues.
Currently the Company has given HealthSafe Environmental, Inc. the
worldwide right to exclusively distribute the BioShield 36.OI concentrate
product for use in the commercial/residential building restoration industry.
Such application includes applications before or after building disasters
(floods, fire, water damage) for the prevention and control of microbial
contamination. In addition, HealthSafe has the exclusive worldwide right to
distribute concentrates to the allergy and respiratory discomfort medical
market. Such applications to large interior surface areas will be marketed
pending EPA approval to assist in the prevention and control of health related
illnesses caused from exposure to microbial germs. This contract requires
HealthSafe to purchase $1.3 million, $2.6 million, and $3.9 million for the
first three years, with additional years of not less than 120% of previous years
purchases. To date, HealthSafe is in default of the terms of the licensing
agreement and amounts. The Company is currently in negotiations with HealthSafe
to enter into a new licensing agreement with HealthSafe contingent upon various
regulatory approvals from the EPA. No assurances can be given that such
approvals will be obtained or that such negotiations will result in a new
licensing agreement.
24
<PAGE>
Pursuant to an agreement dated November 1997, the Company has entered
into a marketing and distribution agreement to build brand equity with QVC (the
QVC "Agreement") to promote its products on an exclusive basis via direct
response television. The Agreement is renewable on an approval basis. However,
the Agreement will be automatically renewed in the event that net purchases by
QVC equal $1,500,000 during the first year and 110% of such amount each year
thereafter. QVC has also agreed to work with the Company to help it introduce
six (6) new consumer products on QVC's television shopping program during the
term of the Agreement. The Company has also granted QVC certain option rights to
purchase shares of the Company's Common Stock upon exceeding $2,000,000 in sales
goals.
In addition to the two contracts above, the Company has entered
into certain agreements with Concrete Microtech, Inc., (CMT) and Sanitary Coding
Systems. CMT has the right to use the technology within the concrete pipe
industry as an additive for sewer pipe. To date, CMT has successfully specified
AM500 in three municipalities waste water treatment contracts and one additional
municipality has already installed approximately 5,000 linear feet of sewer pipe
using BioShield. To date, CMT is in default of the terms of the The Company is
currently in negotiations with CMT to enter into a new licensing agreement with
CMT contingent regulatory approvals from the EPA. No assurances can be given
that such approvals will be obtained or that such negotiations will result in a
new licensing agreement.
Manufacturing
The Company is unique in that the only manufacturing contemplated is
the production of its antimicrobial concentrates. No special equipment is
required other than typical chemical manufacturing vessels and are in abundant
supply. The Company is currently producing its concentrates at its Lithonia,
Georgia, location and does not, in the foreseeable future, plan any additional
manufacturing operations. The Company intends to use chemical compounders
located around the U.S. and as centrally located to the Company's four U.S.
market segments. The Company may elect to open distribution centers in these
five markets or contract distribute.
Competition.
The antimicrobial industry is an expanding and changing industry
characterized by intense competition. The key active ingredients used by the
industry have not changed significantly in the last twenty-five or more years.
Another characteristic of the modern antimicrobial industry is the increasing
involvement of foreign companies in the field. These companies have found the
USA regulatory climate very complex and costly (money and time) and their
products appear to be of the traditional leaching types where they utilize
reservoirs in fibers or coatings to try to extend the useful life of their
products. Others have entered the market with slight modifications of old
technologies that on some substrates extend the life of their products but
clearly fail to deal with all of the other problems that are inherent in the
active-ingredients list.
The Company believes that its ability to compete will be dependent in
large part upon its ability to continually enhance and improve its products and
technologies and to build a tradename presence that obviates the nature of the
technologies. In order to do so, the Company must effectively utilize and expand
its research and development capabilities and, once developed, expeditiously
convert new technology into products and processes that can be commercialized.
This must be complemented with the marketplace expansions encompassed in this
document.
The Company's ability to compete is based primarily on scientific and
technological superiority, technical support, availability of patent protection,
access to adequate capital, the ability to develop, acquire, and market products
and processes successfully, the ability to obtain further governmental approvals
and the ability to serve the particular needs of commercial customers with
service, products, and tradenames. Corporations and institutions with greater
resources than the Company may, therefore, have a significant competitive
advantage. The Company's potential competitors include consumer products
companies, product based pharmaceutical companies, and biotechnology companies.
Almost all of these potential competitors have substantially greater capital
resources, research and development capabilities, manufacturing and marketing
resources, and experience than the Company. The Company's competitors may
succeed in developing products or processes that are more effective or less
costly than any that may be developed by the Company, or that gain regulatory
approval prior to the Company's products. The Company also expects that the
number of its competitors and potential competitors will increase as more
antimicrobial products receive commercial marketing approvals from the EPA, FDA
or analogous foreign regulatory agencies. Any of these competitors may be more
successful than the Company in manufacturing, marketing and distributing its
products. There can be no assurance that the Company will be able to compete
successfully.
25
<PAGE>
Patents and Proprietary Rights.
The Company seeks patent protection for its technology and products. It
typically files United States patent applications and related foreign patent
applications as soon as such technology and products are developed. The Company
files foreign patent applications on some of its technology and products in
countries where, in the Company's opinion, business considerations warrant such
filings. The foreign countries in which the Company files patent applications
usually include Japan, Canada, Australia, and countries of the European Economic
Community.
The Company has applied for four United States patents on its core
technology of novel composition and one joint patent with Emory University
("Emory") with respect to methods for producing water-stable organosilanes and
methods of using these compositions.
In addition, the Company intends to file additional patent applications in
1998 and in future years for improvements in its core technologies and for
specific products that it develops. There can be no assurance, however, that the
Company's patent applications will mature into issued patents, or, if issued,
that such patents will be adequate to protect the Company's products or
processes. In addition, there can be no assurance that the Company will be able
to obtain any necessary or desired additional licenses to patents or
technologies of others or that the Company will be able to develop its own
additional patentable technologies.
Patent Claims Made By Others.
The Company entered into a Research Agreement with Emory University on
December 22, 1995. As a result of work performed pursuant to this Research
Agreement, Emory University has filed at least two patent applications, one
composition patent independently and the other an end-use patent jointly with
the Company. The Emory Application discloses and claims technologies developed
in conjunction with the Company that are different from, but similar to, only
one of the three technologies developed solely by the Company and on which the
Company is actively pursuing its own patents. If patents ultimately issue out of
the Emory Application, Emory may in the future seek to assert to the Company
that the manufacture, sale, and use of certain antimicrobial products may
infringe certain claims of their Emory Application patent and/or foreign
counterparts thereof.
The Company believes that its current products would not infringe any
claims that might issue from the Emory Application. However, any determination
in the future that one or more Company products infringe in the Emory
Application patent could have a material adverse effect on the business and
operations of the Company.
In addition, there can be no assurance that the Company is aware of all
patents or patent applications that may materially affect the Company's ability
to make, use, or sell any products. United States patent applications are
confidential while pending in the United States Patent and Trademark Office
("PTO"), and patent applications filed in foreign countries are often first
published six months or more after filing. Any conflicts resulting from
third-party patent applications and patents could significantly reduce the
coverage of the patents or patent applications licensed to the Company and limit
the ability of the Company to obtain meaningful patent protection. If patents
are issued to other companies that contain competitive or conflicting claims,
the Company may be required to obtain licensees to these patents or to develop
or obtain alternative technology. There can be no assurance that the Company
will be able to obtain any such license on acceptable terms or at all. If such
licenses are not obtained, the Company could be delayed in or prevent from the
development or commercialization of its product candidates, which would have a
material adverse effect on the Company. See "Business-Patents and Proprietary
Rights and Certain Transactions."
The Company believes that its patent position involves complex legal
and factual questions. There can be no assurance that any future patent
applications or any patents issued to the Company will provide it with
competitive advantages or that the Company's use of its technology will not be
challenged as infringing upon the patents or proprietary rights of others, or
that the patents or proprietary rights of others will not have an adverse effect
on the ability of the Company to do business. Furthermore, there can be no
assurance that others will not independently develop similar technology or that
others will not design technology to circumvent the Company's existing or future
patents or proprietary rights. In the event that the Company's technology were
deemed to be infringing upon the rights of others, the Company could be subject
to damages or enjoined from using such technology or the Company could be
required to obtain licenses to utilize such technology. No assurance can be
given that any such licenses would be made available on terms acceptable to the
Company, or at all. If the Company were to be unable to obtain such licenses, it
could encounter significant delays in introducing products to the market while
it attempts to design around the patents or rights infringed upon, or the
Company's development, manufacture and sale of products requiring such licenses
could be foreclosed. In addition, the Company could experience a loss of
revenues and may incur substantial costs in defending itself and indemnifying
its strategic partners in patent infringement or other actions based on
proprietary rights violations brought against it or its strategic partners. The
Company could also incur substantial costs in the event it finds it necessary to
assert claims against third parties to prevent the infringement of its patents
and proprietary rights by others.
26
<PAGE>
In March of 1997, the Company filed trademark applications for Duralast
and BioShield with the United States Patent and Trademark Office. The Company is
presently aware of a prior trademark filing for the name "BioShield," which the
Company believes has not been used in interstate commerce and has been
abandoned. The Company has instituted a cancellation proceeding with the U.S.
Patent and Trademark Office with respect to such prior trademark filing. No
assurances can be given that the Company will be successful in such cancellation
proceeding or in securing a trademark for the name BioShield.
The Company relies on proprietary know-how and confidential information
and employs various methods, such as entering into confidentiality and
non-competition agreements with its current employees and with third parties to
whom it has divulged proprietary information, to protect the processes,
concepts, ideas and documentation associated with its technologies. Such methods
may afford incomplete protection and there can be no assurance that the Company
will be able to protect adequately its trade secrets or that other companies
will not acquire information that the Company considers to be proprietary. The
Company will be materially adversely affected if it cannot maintain its
proprietary technologies.
Government Regulation.
Environmental Protection Agency. The Company's research and
development, manufacturing, distribution, and sales activities are subject to
comprehensive regulation by numerous governmental authorities in the United
States and other countries. The Company's current products and products in
short-term development, where pest control claims are made, are regulated by the
EPA. The key applicable regulations governing pesticide products are the Federal
Insecticide, Fungicide, and Rodenticide Act (FIFRA) and Federal Food, Drug, and
Cosmetic Act (FFDCA) as amended by the Food Quality Protection Act (FQPA) of
August 3, 1996, and other federal statutes and regulations, and certain state,
local and tribal regulations. These statues and regulations govern the
development, testing, formulation, manufacture, labeling, storage, record
keeping, quality control, advertising, promotion, sale, distribution and
approval of pesticide products. Failure to comply with applicable requirements
can result in fines, recall or seizure of products, total or partial suspension
of production, refusal by the government to approve marketing of the product,
and criminal prosecution.
In order to obtain EPA approval of a new product, the Company and its
strategic partners, if any, must submit proof of safety, efficacy, purity, and
stability, and the Company must demonstrate validation of its manufacturing
process. The testing and application process is expensive and time consuming,
often taking years to complete. There is no assurance that the EPA will act
favorably or quickly in reviewing applications. With respect to patented
products, processes, or technologies, delays imposed or caused by the
governmental approval process may materially reduce the period during which the
Company will have the exclusive right to exploit them. Delays could also affect
the commercial advantages derived from the proprietary processes. There is no
assurance that the regulatory agencies will find present or future submissions
of the Company to be adequate.
The Company's planned pesticide products include certain antimicrobial
products for non-agricultural uses. EPA's Office of Pesticide Programs recently
has been extensively reorganized. Among other things, OPP has recently
established a new Antimicrobial Division (AD) to manage the registration and
reregistration of antimicrobial products with non-agricultural uses. This
interdisciplinary approach will allow most registration and reregistration
activities to be consolidated within a single division and may yield
efficiencies and shorten review times. However, the reorganization can be
expected to cause substantial delays at first as new policies and procedures are
implemented by persons who in many cases will be somewhat unfamiliar with the
responsibilities of their new positions.
Food and Drug Administration. The Company's research and development
activities are subject to comprehensive regulation by numerous governmental
authorities in the United States and other countries. If the Company is able to
produce and market products, such production and marketing will place the
Company under continued regulation. Among the applicable regulations in the
United States, pharmaceutical and over-the-counter drugs products are subject to
the Federal Food, Drug and Cosmetic Act, the Public Health Service Act, other
federal statutes and regulations, and certain state and local regulations. These
statutes and regulations govern the development, testing, formulation,
manufacture, labeling, storage, record keeping, quality control, advertising,
promotion, sale, distribution and approval of drug products. Failure to comply
with applicable requirements can result in fines, recall or seizure of products,
total or partial suspension of production, refusal by the government to approve
marketing of the product and criminal prosecution. As the proprietary silane
chemistry is not considered an over-the-counter drug, all products for human
application will be considered new drugs.
27
<PAGE>
A new drug or medical device may not be legally marketed for commercial
use in the United States without FDA approval. In addition, upon approval, a
drug may only be marketed for the indications, in the formulations and at the
dosage levels approved by the FDA. The FDA also has the authority to withdraw
approval of drugs or devices in accordance with applicable statutes and
regulations. Analogous foreign regulators impose similar approval requirements
relating to commercial marketing of a drug or medical device in their respective
countries and may impose similar restrictions and limitations after approval.
In order to obtain FDA approval of a new drug product, the Company and
its strategic partners, if any, must submit proof of safety, efficacy, purity,
and stability and validation of its manufacturing process. The testing and
application process is expensive and time consuming, often taking years to
complete. There is no assurance that the FDA will act favorably or quickly in
reviewing applications. With respect to patented products, processes or
technologies, delays imposed or caused by the governmental approval process may
materially reduce the period during which the Company will have the exclusive
right to exploit them. Delays could also affect the commercial advantages
derived from proprietary processes. There is no assurance that the regulatory
agencies will find present or future submissions of the Company to be adequate.
To obtain approval of medical devices, a premarket notification
(510(k)) or premarket approval (PMA) application must be submitted to FDA that
proves the device is as safe and effective or substantially equivalent to a
legally marketed device. There is no assurance that the FDA will act favorably
or quickly in reviewing applications. With respect to patented products,
processes or technologies, delays imposed or caused by the governmental approval
process may materially reduce the period during which the company will have the
exclusive right to exploit them. Delays could also affect the commercial
advantage derived from proprietary processes. There is no assurance that the
regulatory agencies will find present or future submissions of the Company to be
adequate.
The Company is currently considering numerous applications for the
proprietary technology, which may require multiple IND and NDA submissions prior
to commercial sale. The development of the appropriate pre-clinical safety,
efficacy, and chemistry testing may require a minimum of one (1) year to produce
and will not be funded from the proceeds of this Offering. Portions of this data
may be appropriate for support of numerous IND applications for each proposed
use-pattern (for example, anti-acne/wrinkle facial preparation, wound care
products, body sanitizer, and synthetic skin.) The IND application may become
effective 30 days following receipt by the FDA. Although there is no assurance
that the FDA will grant the IND.
Human clinical trials are typically conducted in three sequential
phases with some amount of overlap allowed. Preclinical tests must be conducted
by laboratories that comply with FDA Good Clinical Practices regulations
governing the testing of drugs in humans and animals,. Phase 1 trials normally
consist of testing the product in a small number of patient volunteers for
establishing safety (adverse effects), dosage tolerance, metabolism,
distribution, excretion and clinical pharmacology. In Phase 2, the continued
safety and initial efficacy of the product are evaluated in a somewhat larger
patient population, and appropriate dosage amounts and treatment intervals are
determined. Phase 3 trials typically involve more definitive testing of the
appropriate dose for safety and clinical efficacy in an expanded patient
population at multiple clinical testing centers. A clinical plan or "protocol,"
accompanied by the approval of the research center's Institutional Review Board,
must be submitted to the FDA prior to commencement of each clinical trial. The
Clinical Research and Development phases on the average last 5 years.
The Institutional Review Board ("IRB") evaluates the protocol and
monitors the conduct of the study to protect the rights and safety of the human
subjects. An IRB may require changes in a protocol, and there can be no
assurance that an IRB will permit any given study to be initiated or completed.
In addition, the FDA may order the temporary or permanent discontinuation of
clinical trials at any time. In light of this process, the Company must
necessarily rely on other persons and institutions to conduct studies. The
Company cannot guarantee
be no assurance that Phase 1, Phase 2 and Phase 3 testing of the Company's
products will be completed successfully within any specified time period, if at
all.
All the results of the preclinical and clinical studies on a
pharmaceutical or device product are submitted to the FDA in the form of an NDA
or PMA, for approval to commence commercial distribution. Submission of an NDA
or PMA does not assure FDA approval for marketing. The application review
process takes more than two years on average to complete. However, the process
may take substantially longer if the FDA has questions or concerns about a
28
<PAGE>
product or studies regarding the product. In general, the FDA requires at least
two adequate and well-controlled clinical studies demonstrating efficacy with
sufficient levels of statistical assurance. However, additional support may be
required. The FDA also may request additional information relating to safety or
efficacy, such as long-term toxicity studies. In responding to NDA or a PMA, the
FDA may grant marketing approval, require additional testing and/or information
or deny the application. Accordingly, there can be no assurance about any
specific time frame for approval, if any, of products by the FDA. The FDA also
may require post-marketing testing and surveillance to monitor the safety record
of a product and its continued compliance with regulatory requirements.
The facilities of each pharmaceutical and device manufacturer must be
registered with and approved by the FDA as compliant with the agency's good
manufacturing practice regulations ("GMP"). In order to comply with GMP,
manufacturers must continue to expend time, money and effort in production,
record keeping and quality control. In addition, manufacturers must be
registered with the United States Environmental Protection Agency and similar
state and local regulatory authorities if they generate toxic or dangerous waste
streams. Other regulatory agencies, such as the Occupational Safety and Health
Administration, also monitor manufacturing facilities for compliance with
workplace safety regulations. Each of these organizations conducts periodic
establishment inspections to confirm continued compliance with its regulations.
Failure to comply with any of these regulations could mean fines, interruption
of production and even criminal prosecution.
For foreign markets, the company is subject to regulatory requirements,
review procedures and product approvals which, generally, may be as extensive,
if not more extensive, as those in the United States. Although the technical
descriptions of the clinical trials are different, the trials themselves are
often substantially the same as those in the United States. Approval of a
product by regulatory authorities of foreign countries must be obtained prior to
commencing commercial product marketing in those countries, regardless of
whether FDA approval has been obtained. The time and cost required to obtain
market approvals in foreign countries may be greater than required for FDA
approval and may be subject to delay. There can be no assurance that regulatory
authorities of foreign countries will grant approval.
There are a number of anticipated applications that require listing
with the Cosmetics, Toiletries, and Fragrances Association (CTFA) inventory.
This is largely a procedural process but one that will have to be done before
the Company can fully capitalize on the use of its active ingredient or its
formulations in the personal care industry.
Filings Made to Date Include Current Applications and Future Filings.
In May 1997, the Company made application to the EPA for registration
of BioShield AM500 and AM500I to enable it to make certain claims regarding the
antimicrobial properties of products.
The Company has included with the EPA registration application the
claims for AM500, which, the Company believes, are sufficiently documented to
allow approval by the EPA without further testing. However, no assurances can be
given in this regard. Because of the unique properties of BioShield AM500,
additional applications for this product appear feasible and the following list
of claims is not intended as a list of all possible applications and benefits of
BioShield AM500. The primary uses listed in the application are as an active
ingredient for formulating disinfectants, sanitizers, and microbiocides for use
in laundry additives, carpet treatment products, upholstery and drapery
treatment products, and building cleaning and treatment products, and to give a
surface durable antimicrobial treatment effective against a wide variety of
bacteria, fungi, algae and yeast.
The Company has requested EPA approval for AM500 and AM500I to be used
to impart durable, broad-spectrum antimicrobial protection to substrates for the
following applications:
air filters/materials; aquarium filter material; bed sheets, blankets and
bedspreads; buffer pads (abrasive and polishing); carpets and draperies;
fiberfill; fiberglass ductboard; fire hose fabric; humidifier belts; mattress
pads and ticking; men's underwear and outerwear; non-woven disposable diapers;
non-woven polyester; outerwear apparel; disposable polyurethane foam cushions
for Lapidus Airfloat Systems; polyurethane and polyethylene foam, when covered;
polyurethane foam for packaging and cushioning in non-food contact applications;
roofing materials; sand bags, tents, tarpaulins, sails, and ropes; athletic and
causal shoes; shoe insoles; shower curtains; socks; providing residual
self-sanitizing activity against athlete's foot fungus throw rugs; toilet tank
and seat covers; umbrellas; upholstery vacuum cleaner bags and filters; women's
hosiery; and women's intimate apparel.
Additional information and tests have been requested by the EPA in
support of the applications. In May 1998, the Company provided additional
information to the EPA for the AM500 I products. The EPA is currently reviewing
the newly submitted information. The Company has not responded to the request
for additional information for the remaining products.
29
<PAGE>
Future Filings.
The Company intends to submit applications to the EPA for registration
of BioShield AM36.OI and AM3651P, to enable it to make certain claims regarding
the antimicrobial properties of products. The Company's new industrial strength
products AM36.OI and AM3651P are two new, and the Company believes, unique
products. Whereas both are new formulations of the silane integrated system,
neither product is water based. However, AM36.OI and AM3651P provide stable
aqueous solutions.
The primary use claims, intended to be included in the application for
AM36.OI and AM3651P, are as an active ingredient for formulating disinfectants,
sanitizers and microbiocides for use in laundry additives, carpet treatment
products, upholstery and drapery treatment products, and building cleaning and
treatment products, and to give a surface durable antimicrobial treatment
effective against a wide variety of bacteria, fungi, algae and yeast. The
following features are planned as descriptions of the products in the
application:
Whereas AM36.OI is a concentrate designed for ease of application and
durability, the strength of AM3651P lies in its intended use as a preservative.
AM3651P is a blend of active ingredients chosen for their performance. The
interplay of the ingredients of the active blend provides high efficiency in
small concentrations. The company believes that because of this interplay of the
ingredients and the resulting independence from toxic compounds such as
chlorine, formaldehyde or formaldehyde donors, AM3651P is ideally suited as a
preservative.
Materials treated with formulations containing the antimicrobial agent
AM36.OI or AM3651P are preserved by the bacteriostatic, fungistatic and
algistatic action imparted by the active ingredient. AM36.OI and AM3651P inhibit
the growth of microorganisms that are responsible for causing odor,
discoloration and deterioration. It also provides residual inhibition of
microorganisms to aid in the control of these deleterious effects. AM36.OI and
AM3651P form a coating on a wide variety of substrates and antimicrobial action
is exhibited on contact.
The Company intends to seek approval that AM36.OI and AM36.51P can be
used to impart durable, broad-spectrum, antimicrobial protection to substrates
for the following applications:
air filters/materials; aquarium filter material; bed sheets, blankets,
and bedspreads; buffer pads (abrasive and polishing); carpets and
draperies; fiberfill; fiberglass ductboard; fire hose fabric; humidifier
belts; mattress pads and ticking; men's underwear and outerwear;
non-woven disposable di Airfloat Systems; polyurethane foam polyethylene
foam, polyurethane foam used as a growth pidus
medium for non-food crops and plants; roofing materials; sand bags,
tents, tarpaulins, sails, and ropes; athletic and casual shoes; shoe
insoles; shower curtains; socks; providing residual self-sanitizing
activity against athlete's foot fungus; toilet tank and seat covers;
umbrellas; upholstery vacuum cleaner bags and filters; vinyl wallpaper
and wallpaper for non-food contact surfaces; women's hosiery; and
women's intimate apparel.
In addition, it is planned to seek approval for use of AM3651P as a
preservative in FDA regulated products, including cosmetic articles, such as
skin creams; hair treatment products, for example shampoos; non-regulated
products, including detergents and detergent formulations; other preservative
applications, such as interior and exterior paints, latex, machine oils, and
lubricants; cutting fluids; water for cooling systems and swimming pools which
may require EPA registration. However, no assurances can be given that the
Company will be successful in commercializing these products or will receive the
required regulatory approvals.
Research and Development.
Research and development activities are performed principally by Dr. Joachim
Berkner, Director of Research and Development, Organic Chemistry, of the
Company.
The Company's core technologies are in aqueous reactive silanes and
antimicrobial products. Combinations of both technologies are producing
compounds with new properties and are setting new standards. The Company's new
product releases in the near future will be based on these core technologies.
Research on silane based and non silane based antimicrobials will expand
application of antimicrobial Company products from pesticides to medications and
treatments to preventive care. Research on silane based durable products will
provide the applicator with the opportunity to give any surface any desired new
property.
30
<PAGE>
Future development efforts are anticipated to focus on development of
antimicrobial products for medical applications, specifically, human and animal
skin treatments, new formaldehyde free product preservatives, agricultural and
food antimicrobials, and new active ingredients and formulations useful in the
markets currently providing antimicrobial products, ranging from antimicrobial
absorbents to cleaning solutions and disinfectants and other household and
products. Products in this category include materials treated by the
manufacturer, for example socks, shower curtains and carpets. Product
development in this category is anticipated on a market-need basis in
collaboration with the manufacturers. In addition, a number of new applications
based on the uniqueness of the Company products are anticipated. There can be no
assurance that the Company will be successful in developing these or other
products.
During the fiscal years ended June 30, 1996, and 1997, the Company
incurred expenses of $73,000 and $65,000, respectively, resulting from
Company-sponsored research and development activities. Research and development
is expected to remain a significant component of the Company's business. In the
short term, the Company expects to concentrate on the primary development
projects and intends to use approximately $1,620,000 of the estimated net
proceeds of this Offering and other funds to the extent they are, or may become,
available for such projects. However, the Company may abandon or de-emphasize
its research and development activities with respect to the primary development
projects and expand research and development of other products as circumstances
warrant. The Company has contracted out substantially all of its clinical
research and intends to continue to do so while utilizing its staff for
monitoring such research.
1. Antimicrobial Biobarriers: Burn Care/Synthetic Skin.
Commonly, the greater the skin damage, the greater the risk of
infection. The skin damage and the risk of infection are especially serious in
burn victims. To this day, proper treatment of burn patients remains a challenge
to the healthcare professional. In addition to direct wound application, the
Company believes that the Company's technology may, under certain conditions, be
appropriate for application to skin grafts, either manufactured or from cadavers
and most importantly, animal collagen matrixes. Collagen matrix based products
are frequently applied graft materials. In addition to their importance as skin
grafts, their chemical composition is such that a very favorable bonding with
the Company antimicrobial products and the graft may be possible. The Company
believes that the unique properties of the Company's core technology may, under
certain circumstances, allow certain products based upon its technology to form
a bound protective layer that allows the grafted skin to breath and transport
liquids, but reduce/prohibit the entry of microorganisms.
The initial intention of the antimicrobial protective layer is to
provide protection. Integration of additional features, such as the slow release
of growth stimulants to accelerate the healing process is contemplated for
future exploration. Development of compounds beneficial to the healing process
is planned parallel to the skin graft development. Each integrated part has to
be evaluated separately for efficacy, and the focus of the skin graft
application lies in the antimicrobial protection. However, the flexibility of
the Company technologies is expected to provide several new additions to the
skin graft technology.
Integration of the Company's products and research may lead to new skin
treatment products that the Company believes may provide continuous effective
skin condition treatment. Adverse skin conditions caused by microbes appear
susceptible to treatment by the Company's products. However, no assurances can
be given that the Company will be successful in commercializing these products
or will receive the required regulatory approvals.
2. Transplant/Medical Device Treatments.
A common problem in the transplant of organs or artificial implants is
rejection by the receiving body's immune system. The rejection is often based on
the recognition of the implant as a foreign body. This recognition is affected
by the surface of the implant. Silane treatment of implants changes the surface
of the implant, the treatment can be modified to be permanent or temporary. (For
example, permanent on man-made implants and temporary on organ transplant
transplants). One approach may be to chemically bond currently available
anti-rejection medication to the silane. Design, synthesis, and characterization
of this application is planned at the Company facilities and initial tests are
to be performed at collaborating laboratories to prove efficacy and viability of
this approach. This application will require FDA approval prior to clinical
testing and commercial introduction. However, no assurances can be given that
the Company will be successful in commercializing these products or will receive
the required regulatory approvals.
31
<PAGE>
3. Quaternary Ammonium Salts of Phosphate Esters as Pesticidal Polymer
Additives.
Phosphate esters have long been known to be effective pesticides. Over
the years, these compounds developed into especially useful additives for
polymers by reacting to the free acid of the phosphate ester with tertiary
amines. The antimicrobial activity of the amine is secondary in this approach.
The primary function of the amine is to "solubilize" the phosphate ester amine
salt in the polymer, allowing the active ingredient to migrate in the polymer.
The amines selected for this approach are known surfactants and often used as
polymer additives. Once exposed on the surface of the polymer, the amine
"surfactant" again aids in the migration of the phosphate, providing
antimicrobial activity.
A potential new invention may be the use of a quaternary ammonium as
the cation in the phosphate ester salt. The quaternary ammonium salt would be
distinguished from the amine salts used in the previous inventions by having
four alkyl chains attached to the nitrogen atom. According to a preliminary
literature review, this is a novel idea and similar products have only been
disclosed for antimicrobial active quaternary ammonium phosphate ester salts for
cleaning applications. This new compound may perform similarly or better than to
the previously disclosed compounds. However, no assurances can be given that the
Company will be successful in commercializing these products or will receive the
required regulatory approvals.
Property.
The Company's executive and administrative offices are located at 4405
International Blvd., Suite B109, Norcross, Georgia in a 6,900 square foot
facility leased by the Company. The building contains offices, meeting rooms,
and an organic chemistry lab with biological storage area. In addition the
Company currently leases a 5,000 square foot manufacturing facility in Lithonia,
Georgia for the production of the Company's active antimicrobial agent. The
Company believes that the facility is adequate for its present and anticipated
uses.
Employees.
The Company currently has seven employees, two of whom are executive
officers, one of whom is involved in research and development, three of whom are
in marketing and sales, and one of whom is clerical staff. The Company believes
that its relations with its employees are good. None are covered by a collective
bargaining agreement with the Company.
Legal Proceedings.
The Company is not a party to any material legal proceedings.
MANAGEMENT
Directors and Executive Officers.
The following table sets forth certain information regarding the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Timothy C. Moses 41 Co-Chairman of the Board, President, Chief
Executive Officer and Director
Jacques Elfersy 47 Co-Chairman of the Board, Senior Vice
President, Secretary, Treasurer and Director
Douglas Moore 62 Vice President, National Sales
Dr. Joachim Berkner 29 Director of Research and Development,
Organic Chemistry
Carl T. Garner 50 Director
Michel Azran 52 Director
</TABLE>
32
<PAGE>
Mr. Timothy C. Moses, a Director and Founder, is the Company's
Co-Chairman, President, and Chief Executive Officer, and Director of Marketing
and Sales. For over a decade, Mr. Moses has been an independent businessman and
entrepreneur with Mr. Elfersy, the Senior Vice President of the Company. His
career has spanned from sales and marketing to Director of Securities and
Investment. He has developed knowledge in the chemical and chemical siloxane
industry and business since leaving his former employer, Dow Corning Corporation
in 1986, where he acted as liaison between management and technical sales in the
role of new product planning and launches. As President of his former company,
DCI, Inc., a silicone and siloxane based technology company, Mr. Moses was
instrumental in seeking and raising of investment capital as well as Director of
Marketing and Sales to clients on a direct basis. Mr. Moses co-developed a new
antimicrobial silicone based coating system for textile applications and
coordinated sales from the (EEC) European Economic Community countries to the
United States. Mr. Moses is also a co-inventor of three inventions for which
patent applications have been filed by the Company on its core antimicrobial
technologies. Mr. Moses is a graduate of a division of Georgia Institute of
Technology where he received his B.S. degree in 1980.
Mr. Jacques Elfersy, a Director and Founder/Co-Founder, is the
Company's Co-Chairman, Senior Vice President, acting Chief Financial Officer,
Secretary, and Treasurer. Mr. Elfersy has been instrumental in the discovery,
development, and patent filing of the Company's core antimicrobial technology.
In addition to his duties, Mr. Elfersy continues to oversee the Company's
research and development activities and objectives. Mr. Elfersy is a graduate of
the McGill University where he earned his Bachelor's Degree in Civil Engineering
in 1979. For a decade, Mr. Elfersy has been an independent businessman and
entrepreneur. His career reflects extensive knowledge of silicone-based
technology and silane-based antimicrobial (as a result of his past employment
and business relationship with Dow Corning) program management and supervision
of large-scale projects and installations, contract negotiations and
implementation, and customer support services and communications. As Executive
Vice President of his former Company, DCI, Inc., a silicone-based technology and
silane-based antimicrobial, Mr. Elfersy was instrumental in the implementation
of research and development on projects requiring antimicrobial-based coating
processes and production application. In addition, he acted as senior management
of engineering and production and was responsible for meeting critical time
frames and budgets as well as manpower constraint requirements.
Mr. Douglas Moore has been the Vice President, National Sales, of the
Company since March 1997. Mr. Moore has 40 years of sales and marketing
experience. Mr. Moore received his B.B.A. Finance from Emory University in
Atlanta, Georgia, in 1957. He then began his career at Proctor & Gamble with
assignments for a total of eight years in Nashville, Atlanta, Birmingham, and
Columbus, Georgia, as a Unit Manager and District Head Salesman for Territory
Sales. Mr. Moore then spent several years with a Kroger Company division and ten
years with Warner Lambert Company with assignments as Director of Broker
Operations and Sales Operations, Manager of Marketing Development, Sales
Training and Sales Operations, and Chicago District Manager. He then became a
National Sales Manager for the W.E. Bassett Company, Derby, Connecticut, from
1978 to 1981, and the Director, Sales Merchandising, for Tambrands, Inc. from
1981 to 1985 when he developed the Maxithins product launch. Mr. Moore then
served as Vice President, Marketing and Sales Service for Faberge, Inc., Mahwah,
New Jersey, from 1985 to 1988 and Vice President, Administration and Sales -
Suncare/Skincare, for Eclipse Labs, Inc. of Boca Raton, Florida, in 1988 and
1989 before beginning an extended period as a marketing and sales consultant to
numerous clients prior to joining the Company in March 1997.
Dr. Joachim Berkner has been Director of Research and Development, Organic
Chemistry, of the Company since January 1996. Dr. Berkner has served as
consultant to Alpha Gamma Research; a company involved in cancer research since
1992 and as a consultant to Chemical Products Technology, a company involved in
dye synthesis and process development since 1995. He has published several
articles on Organic Chemistry and polymers and has co-authored several sections
of the Encyclopedia of Reagents for Organic Synthesis. Dr. Berkner received his
Ph.D. in Chemistry and BioChemistry from the Georgia Institute of Technology in
the fall of 1996 and received his valdiplom in Chemistry from Philipps
Univeritat Marburg in Marburg, Germany, in 1990.
Carl T. Garner has been a Director of the Company since 1996. Since 1995,
Mr. Garner has been a partner in Garner and Nevins (a division of Nevins
Marketing Group, Inc.), a promotional and advertising agency based in Atlanta,
Georgia. Mr. Garner received a B.S. in Business/Accounting from Jacksonville
State University in 1969, a masters degree in Management from Georgia College in
1977, and a masters degree in Business Administration from Jacksonville State
University in 1978. Mr. Garner also acts as an Advisory Director to the Company.
Mr. Michel M. Azran has been a Director of the Company since December 1997.
Since August 1994, he has been a partner at J.C. Bradford & Co., a securities
and brokerage firm. From 1982 through 1994, Mr. Azran was employed by The
Robinson-Humphrey Company, Inc. and last served in the capacity of Senior Vice
President - Investments. He holds an Accounting and Finance degree from
University of Lyons (1967) and Paris (1975) and was in public accounting in
France until October 1977
33
<PAGE>
The Company's directors are divided into three classes which serve
staggered three-year terms or until their successors have been duly elected and
qualified. Currently, Michel M. Azran is serving in Class I with a term ending
at the Company's 1998 annual meeting of shareholders, Carl T. Garner is serving
in Class II with a term expiring at the Company's 1999 annual meeting of
shareholders, and Jacques Elfersy and Timothy C. Moses are serving in Class III
directors with a term expiring at the 2000 annual meeting of shareholders.
Following the IPO, the Company currently intends to pay directors who are not
employees of the Company a fee of (i) $1,000 per regularly scheduled Board
meeting attended (or $250 for participation in a regularly scheduled Board
meeting by conference telephone) and (ii) $12,000 annually. The Company
reimburses all directors for their expenses in connection with their attendance
at such meetings.
Officers are elected annually by the Board of Directors and serve at
the discretion of the Board.
The Company currently intends to apply for $1,000,000 insurance
policies on the lives of each of Mr. Moses and Mr. Elfersy upon completion of
the initial public offering.
Executive Compensation.
The following table sets forth for the two years ended June 30, 1997
compensation paid by the Company to its Co-Chairman of the Board, Chief
Executive Officer, and Director and its Co-Chairman of the Board, Senior Vice
President, Acting Chief Financial Officer, Secretary, Treasurer, and Director.
None of the Company's other executive officers had annual compensation in excess
of $100,000 for services rendered during either of the two years ended June 30,
1997 or 1996.
Summary Compensation Table
<TABLE>
<CAPTION>
Other Annual
Name and Principal Position Year Salary Bonus Compensation
<S> <C> <C> <C> <C>
Timothy C. Moses, 1997 120,000 - -
Co- Chairman of the Board,
President, Chief Executive 1996 120,000 - -
Officer and Director.
Jacques Elfersy, 1997 120,000 - -
Co-Chairman of the Board,
Executive, Vice President, 1996 120,000 - -
Acting Chief Financial Officer,
Director of Regulatory Affairs,
Secretary, Treasurer, and Director.
</TABLE>
Employment Agreements
The Company has entered into Employment Agreements, each dated January
1, 1998, with Mr. Moses and Mr. Elfersy. The agreements have an initial term
commencing January 1, 1998, and expiring December 31, 2003. However, the
remaining term of each agreement will be extended automatically for one year on
each July 1 beginning July 1, 2001, so that each agreement expires three years
from such date unless either party notifies the other party in writing of an
intent not to renew at least ninety (90) days prior to the applicable July 1st.
Under the agreements, each of Mr. Moses and Mr. Elfersy is required to devote
their full business time to the The agreements also contain certain non-compete
provisions, which provisions a state court may determine not to enforce or only
to partially enforce.
Each agreement provides for a base salary at the rate of $125,000. The
base salaries are then subject to increase, but not decrease, as of January 1,
in the case of Messrs. Moses and Elfersy, of each year during the term of the
agreements as determined by the Company's Board of Directors. Each agreement
also provides for an annual performance bonus based upon a matrix of dollar
sales levels and dollar before-tax profitability. Cells within the matrix
represent specific combinations of sales and profits, with performance falling
within a particular cell resulting in a bonus to the Mr. Moses or Mr. Elfersy
expressed as a percent of his base salary. This matrix, which allows for bonuses
running from 0% to 150% of base salary, is constructed to reward the executive
for reaching specific combinations of sales and profit levels with higher sales
and profit resulting in a larger bonus. The maximum amount paid to either Mr.
Moses or Mr. Elfersy pursuant to the matrix cannot exceed $50,000 per year.
34
<PAGE>
In addition, each agreement provides a severance package in the event
the executive is terminated other than for cause (as defined) or the executive
terminates his agreement for good reason (as defined) an amount equal to the sum
of (A) the greater of two (2) years of the base salary applicable to the
executive on the date of termination or the base salary (assuming no increases)
payable for remaining term of his agreement assuming no termination, plus (B)
two (2) times the average of the annual bonuses paid or payable to the executive
during the term of his agreement, payable in six (6) equal, consecutive monthly
installments commencing no later than thirty (30) days after the date of
termination. In addition, all outstanding options, stock grants, share of
restricted stock or any other equity, incentive compensation shall be and become
fully vested and nonforfeitable and the executive and the executive's family
will be entitled to receive welfare plan benefits (other than continued group
long-term disability coverage) generally available to executives with comparable
responsibilities or positions for a period of two (2) years from the date of
termination at the same cost to the executive as is charged to such executives
from time to time for comparable coverage.
Advisory Board.
The Company's Advisory Board (the "Advisory Board") was organized to
review and evaluate the Company's research and development programs and to
advise the Company generally in addressing various scientific and business
issues. The Company generally selects for membership persons who have experience
in finance, marketing and science. Members of the Advisory Board ("Advisors")
may meet as a group or individually with management of the Company. They are not
employed by the Company and may have commitments to, or consulting or advisory
agreements with, other entities that may limit their availability to the
Company. These entities may also be competitors of the Company. The Company is
not aware of any conflict of interest between work performed by Advisors on
behalf of the Company and work performed by them on behalf of other parties. The
Company requires each Advisor to execute a confidentiality agreement upon the
commencement of his or her relationship with the Company. The agreements
generally provide that all confidential information made known to the individual
during the term of the relationship is the exclusive property of the Company and
shall be kept confidential and not disclosed to third parties. The current
members of the Advisory Board are as follows:
Mr. Martin Savarick, age 58, is currently President of The Printstar
Group, Inc., a marketing and management consulting firm. He has been the
Chairman of the Board, President, and Chief Executive Officer of two publicly
traded companies - Beacon Photo Service, Inc. and Imprint Products, Inc. Both
companies dealt with retail customers throughout the United States exclusively
on a mail-order basis. The companies employed various innovative marketing
techniques to advertise and sell its products. Mr. Savarick also served as
President of a fund raising organization and of a direct mail marketing
consulting firm.
Dr. Cecil R. Smith, age 44, is currently Chief Executive Officer and
Director in BioShield Research Corporation, a company based in Powell, Ohio,
which conducts biohazard control evaluations for indoor environmental quality of
such buildings and develops contamination control protocols for the
biotechnology/pharmaceutical industry and provides site safety analysis. Since
1987, Dr. Smith has also been Assistant Vice President of Environmental Health
and Safety of the Ohio State University. In that capacity, Dr. Smith is
responsible for the administration of an environmental, occupational health and
radiation safety program which includes biological/chemical safety, safety
engineering, industrial hygiene, infectious/hazardous waste management, safety
training and environmental compliance. Since 1991, Mr. Smith has also served as
Assistant Professor to the Ohio State University, School of Public Health. Dr.
Smith received his Ph.D. in Public Health and Masters Degree in Public Health
from the University of North Carolina. In 1983 and 1980, respectively, Dr. Smith
received his B.S. in Microbiology from North Dakota State University in 1977 and
his B.A. in Biology and Natural Science from Gustavus Adolphus College in 1975.
Edward H. Brown, age 39, is a partner in Schreeder, Wheeler & Flint, based
in Atlanta, Georgia. Mr. Brown is a corporate lawyer and has served as corporate
counsel to the Company since 1995. Mr. Brown received his J.D. from the
Washington and Lee School of Law in Lexington, Virginia in 1984 and his B.A.
from Washington and Lee University in 1980.
35
<PAGE>
Advisors receive reimbursement of travel expenses connected with
Company business and stock options under the Director Plan. Consultation
services include assisting the Company in the development of a marketing plan as
well as research plan to elucidate the biological effects, safety and efficacy
of the Company's products and assisting the Company in analyzing data from
research trials and other studies concerning the Company's products. The Company
anticipates that each Advisor will devote approximately six days per year to the
affairs of the Company in his capacity as an Advisor, consisting of three
one-day meetings of the Advisory Board to be held each year and preparation for
such meetings.
Indemnification of Directors and Officers.
The Company's Bylaws provide for the Company to indemnify each director
and officer of the Company against liabilities imposed upon him (including
reasonable amounts paid in settlement) and expenses incurred by him in
connection with any claim made against him or any action, suit or proceeding to
which he may be a party by reason of his being or having been a director or
officer of the Company. The Company has also entered into Indemnification
Agreements with each officer and director pursuant to which the Company will, in
general, indemnify such persons to the maximum extent permitted by the Company's
Bylaws and the laws of the State of Georgia against any expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement incurred in
connection with any actual or threatened action or proceeding to which such
director or officer is made or threatened to be made a party by reason of the
fact that such person is or was a director or officer of the Company. The
foregoing provisions may reduce the likelihood of derivative litigation against
directors and may discourage or deter shareholders or management from suing
directors for breaches of their duty of care, even though such an action, if
successful, might otherwise benefit the Company and its shareholders.
Insofar as indemnification of liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, or persons controlling the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been informed that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable. 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 his 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 Act and will be governed by the final adjudication of
such issue.
Stock Option Plans.
In December 1997, the Board of Directors adopted and the shareholders
of the Company approved the 1997 Stock Incentive Plan (the "Incentive Plan").
The Board of Directors and shareholders approved the 1996 Directors Stock Option
Plan (the "Director Plan") in 1996.
Terms of Incentive Plan.
The Incentive Plan provides the Company with increased flexibility to
grant equity-based compensation to key employees, officers and consultants of
the Company. The purpose of the Incentive Plan is to: (i) provide incentives to
stimulate individual efforts toward the Company's long-term growth and
profitability; (ii) encourage stock ownership by officers, key employees and
consultants by enabling them to acquire a proprietary interest in the Company in
the form of shares of Common Stock or to receive compensation based on
appreciation in the value of the Common Stock; and (iii) provide a means of
obtaining, rewarding and retaining key personnel. The Company has reserved
400,000 shares of Common Stock for issuance pursuant to awards that may be made
under the Incentive Plan. Awards of 15,000 shares of Common Stock were granted
under the Incentive Plan to key employees in March of 1998.
The nature, terms and conditions of awards under the Incentive Plan
will be determined by the Stock Option Committee of the Board of Directors (the
"Committee"). The members of the Committee are selected by the Board of
Directors. The current members of the Committee are Messrs. Garner and Azran.
The Incentive Plan permits the Committee to make awards of Common Stock,
incentive or non-qualified stock options (collectively, "Stock Incentives") with
the following terms and conditions:
36
<PAGE>
Terms and Conditions of all Stock Incentives. The number of shares of
Common Stock as to which a Stock Incentive may be granted will be determined by
the Committee in its sole discretion. To the extent required under Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations thereunder relating to compensation to be treated as qualified
performance-based compensation, the maximum number of shares of Common Stock
with respect to which options or SARs may be granted during any one-year period
to any employee may not exceed 25,000. Each Stock Incentive will either be
evidenced by a Stock Incentive Agreement or Stock Incentive Program, in each
case containing such terms, conditions and restrictions as the Committee may
deem appropriate. Stock Incentives are not transferable or assignable except by
will or by the laws of descent and distribution and are exercisable only by the
recipient during his or her lifetime or by the recipient's legal representative
in the event of the recipient's death or disability.
Stock Awards. The number of shares of Common Stock, subject to a Stock
Award and restrictions or conditions on such shares, if any, will be determined
by the Committee. The Committee may require a cash payment from the recipient in
an amount no greater than the aggregate fair market value of the shares of
Common Stock awarded, as determined at the date of grant.
Options. Options may be either incentive stock options, as described in
Section 422 of the Code, or non-qualified stock options. The exercise price of
each option will be determined by the Committee and set forth in a Stock
Incentive Agreement but may not be less than the fair market value of the Common
Stock on the date the option is granted. No incentive stock options will be
granted to beneficial owners of over 10% of the outstanding Common Stock ("10%
Owners"). The exercise price may not be less than 110% of the fair market value
of the Common Stock on the date the option is granted. The exercise price may
not be changed after the option is granted, and options may not be surrendered
in consideration of, or exchanged for, a grant of a new option with a lower
exercise price. Incentive stock options will expire 10 years after the date of
grant. Non-qualified stock options will expire on the date set forth in the
respective Stock Incentive Agreement. Payment for shares of Common Stock
purchased upon exercise of an option may be made in any form or manner
authorized by the Committee in the Stock Incentive Agreement or by amendment
thereto. In the event of a recipient's termination of employment, the option or
unexercised portion thereof will expire no later than three months after the
date of termination, except that in the case of the recipient's death or
disability, such period will be extended to one year. The Committee may set
forth longer time limits in the Stock Incentive Agreement, although in such
cases incentive stock option treatment will not be available under the Code.
Termination and Amendment of the Incentive Plan.
The Board of Directors may amend or terminate the Incentive Plan
without stockholder approval at any time; provided, however, that the Board may
condition any amendment on the approval of the stockholders if such approval is
necessary or advisable with respect to tax, securities or other applicable laws.
No such termination or amendment without the consent of the holder of a Stock
Incentive may adversely affect the rights of a holder under the terms of that
Stock Incentive.
Changes in Capitalization.
The Incentive Plan provides for an adjustment of the number of shares
of Common Stock reserved and subject to awards issued pursuant to the Incentive
Plan and of the exercise price of options granted under the Incentive Plan in
the event of any increase or decrease in the number of issued shares of Common
Stock resulting from a subdivision or combination of shares or the payment of a
stock dividend in shares of Common Stock or any other increase or decrease in
the number of shares of Common Stock outstanding effected without receipt of
consideration by the Company. In the event of a merger, consolidation or other
reorganization of the Company or a tender offer for its shares of Common Stock,
the Committee may take such action as it deems necessary or appropriate to
reflect the effect of the applicable transaction, including but not limited to:
(i) the substitution, adjustment or acceleration of awards; (ii) the removal of
restrictions on awards; or (iii) the termination of outstanding awards in
exchange for the cash value of the vested portion of the award.
37
<PAGE>
Federal Income Tax Consequences.
The following discussion outlines generally the federal income tax
consequences of the receipt of options under the Incentive Plan. Individual
circumstances may vary these results. The federal income tax laws and
regulations are frequently amended, and each participant should rely on his or
her own tax counsel for advice regarding federal income tax treatment under the
Incentive Plan. If the recipient is subject to Section 16(b) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), special rules may apply
to determine the federal income tax consequences of certain option exercises.
Participants in the Incentive Plan should consult their own tax advisors as to
the specific tax consequences applicable to them and to the tax consequences
applicable to other types of Stock Incentives that may be awarded under the
Incentive Plan.
Incentive Stock Options. The recipient of an incentive stock option is
not subject to any federal income tax upon the grant of such an option pursuant
to the Incentive Plan, nor does the grant of an incentive stock option result in
an income tax deduction for the Company. Further, a recipient will not recognize
income for federal income tax purposes and the Company normally will not be
entitled to any federal income tax deduction as a result of the exercise of an
incentive stock option and the related transfer of shares of Common Stock to the
recipient. However, the excess of the fair market value of the shares
transferred upon the exercise of the incentive stock option over the exercise
price for such shares generally will constitute an item of alternative minimum
tax adjustment to the recipient for the year in which the option is exercised.
Thus, certain recipients may increase their federal income tax liability as a
result of the exercise of an incentive stock option under the alternative
minimum tax rules under the Code. If the shares of Common Stock transferred
pursuant to the exercise of an incentive stock option are disposed of within two
years from the date the option is granted or within one year from the date the
option is exercised, the recipient generally will recognize ordinary income
equal to the lesser of (1) the gain recognized (i.e., the excess of the amount
realized on the disposition over the exercise price) or (2) the excess of the
fair market value of the shares transferred upon exercise over the exercise
price for such shares. The balance, if any, of the recipient's gain over the
amount treated as ordinary income on disposition generally will be treated as
long- or short-term capital gain depending upon whether the holding period
applicable to long-term capital assets is satisfied. The Company normally would
be entitled to a federal income tax deduction equal to any ordinary income
recognized by the recipient, provided the Company satisfies applicable federal
income tax withholding requirements. If the shares of Common Stock transferred
upon the exercise of an incentive stock option are disposed of after the holding
periods have been satisfied, such disposition will result in a long-term capital
gain or loss treatment with respect to the difference between the amount
realized on the disposition and the exercise price. The Company will not be
entitled to a federal income tax deduction as a result of a disposition of such
shares after these holding periods have been satisfied.
Non-Qualified Options. A recipient will not recognize income upon the
grant of a non-qualified option or at any time prior to the exercise of the
option or a portion thereof. At the time the recipient exercises a non-qualified
option or portion thereof, he or she will recognize compensation taxable as
ordinary income in an amount equal to the excess of the fair market value of the
Common Stock on the date the option is exercised over the price paid for the
Common Stock, and the Company will then be entitled to a corresponding
deduction. Depending upon the period for which shares of Common Stock are held
after exercise, the sale or other taxable disposition of shares acquired through
the exercise of a non-qualified option generally will result in a short-or
long-term capital gain or loss equal to the difference between the amount
realized on such disposition and the fair market value of such shares when the
non-qualified option was exercised. Special rules apply to a participant who
exercises a non-qualified option by paying the exercise price in whole or in
part by a transfer of shares of Common Stock to the Company.
Director Plan.
The purpose of the Director Plan is to provide an incentive to outside
directors and members of the Company's Advisory Board ("Advisors") for
continuous association with the Company and to reinforce the gains. Awards of
120,000 shares of Common Stock were issued by the Company in 1997 to Advisory
Directors; and 120,000 shares of Common Stock were issued by the Company in 1996
to Advisory Directors. Pursuant to the Director Plan, options vest in three
stages, 20,000 shares at date of grant and 20,000 shares on the first and second
anniversary of the date of the stock option agreement.
38
<PAGE>
Consultants.
The Company has entered into a consulting agreement in November 1997
with R.T. Consulting, Inc. ("R.T."), to provide the Company with various
consulting services, including rendering strategic and financial advice,
developing marketing plans and materials, financial plans and budgets, and
initiating strategic business initiatives. Pursuant to its agreement with the
Company, R.T. will receive $3,000 per calendar month for a period of four (4)
calendar years commencing on the effective date of a registration statement
filed with the SEC with respect to any IPO.
In May 1998, the Company entered into an agreement with Revere Financial
Group, Inc. ("Revere") to provide Edgarization, pre-press services, and
assistance with the roadshow presentation in connection with this Offering in
exchange for a fee equal to $50,000. Revere is a company affiliated with Tejas
Securities Group, Inc., one of the underwriters.
In August 1998, the Company entered into a consulting agreement with
Moran Marketing Company, Inc. to provide the Company with various consulting
services relating to, among other things, the restructuring of the Company, the
formulation of strategic marketing and business plans, and the retention of key
employees.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information as of the date of this
Prospectus and as adjusted to reflect the sale of 750,000 units offered hereby,
based upon information obtained from the persons named below, relating to the
beneficial ownership of shares of Common Stock by (i) each person known to the
Company to own five percent or more of the outstanding Common Stock, (ii) each
director of the Company and (iii) all officers and directors of the Company as a
group.
<TABLE>
<CAPTION>
Before the Offering (1) After the Offering (3)
--------------------- ----------------------
Shares
Name and Address Shares Percent Offered by Shares Percent
of Beneficial Owner Owned of Class Shareholders (2) Owned of Class
- ------------------- -------- -------- ---------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Timothy C. Moses
405 North Errol Court, N.W.
Atlanta, Georgia 30327 1,399,594 29.0% 112,500 1,287,094 20.4%
Jacques Elfersy
1771 East Clifton Road
Atlanta, Georgia 30307 1,511,649 31.36% 112,500 1,399,149 22.1%
Carl T. Garner (2)
4473 Chattahoochee Plantation
Marietta, Georgia 30067 60,000 1.2% 0- * *
All officers and directors
as a group (5 persons) (4) 2,971,243 66.6% 225,000 2,746,243 42.7%
</TABLE>
* Less than 1%
- -------
39
<PAGE>
(1) A person is deemed to be a beneficial owner of securities that can be
acquired by such person 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 held by such person (but not those held by
any other person) and that are exercisable within 60 days from the date of this
Prospectus have been exercised. (2) Offered pursuant to the over-allotment
option granted to the Underwriters. (3) Assumes full exercise of over-allotment
option for a total of 225,000 shares of Common Stock granted by Selling
Shareholders to the Underwriters. See "Underwriting." (4) Includes 40,000 shares
of Common Stock subject to currently exercisable options.
CERTAIN TRANSACTIONS
In June 1998, Timothy C. Moses and Jacques Elfersy contributed
approximately $600,000 of capital to the Company. Such contribution was funded
by the sale of 200,000 shares of Common Stock of the Company owned by such
persons since 1995 at a purchase price of $3.00 per share.
In January, March, and June 1998, Judith B. Turner, the mother-in-law
of Timothy C. Moses, lent the Company $30,000, $25,000, and $25,000,
respectively. The Company has agreed to repay such sums to Mrs. Turner pursuant
to three promissory notes, dated January 16, 1998, February 27, 1998, and June
5, 1998 (the "Notes"). Each of the Notes mature on the earlier of the first
anniversary of issuance or the effective date of the IPO and bear interest at
the rate of 8% per annum.
Upon consummation of this Offering, Messrs. Moses and Elfersy will receive
$300,000 in the aggregate from the Company representing repayment of accrued and
unpaid salary due and payable by the Company to such persons for their
employment for the period June 1995 through December 31, 1997.
Although the Company believes that the foregoing transactions were on terms
no less favorable to the Company than would have been available from
unaffiliated third parties in arm's length transactions, there can be no
assurance that this is the case. All future transactions and loans between the
Company and its officers, directors and 5% shareholders will be on terms no less
favorable to the Company than could be obtained from independent, third parties.
There can be no assurance, however, that future transactions or arrangements
between the Company and its affiliates will be advantageous, that conflicts of
interest will not arise with respect thereto or that if conflicts do arise, that
they will be resolved in favor of the Company.
DESCRIPTION OF SECURITIES
Units.
Each Unit consists of two shares of Common Stock and one Warrant. The
Shares and the Warrants included in the Units may not be separately traded until
(February ____), 1999, unless earlier separated upon ten day's written notice
from the Representatives to the Company.
Common Stock.
The Company is authorized to issue 50,000,000 shares of Common Stock,
without par value, and 10,000,000 of blank check preferred stock. As of August
____, 1998 there were 4,819,125 shares of Common Stock issued.
There were 43 holders of record of Common Stock, as of August ____, 1998.
The holders of outstanding shares of all classes of Common Stock are
entitled to share ratably in any dividends paid on the Common Stock when, as and
if declared by the Board of Directors out of funds legally available. Each
holder of Common Stock is entitled to one vote for each share held of record.
The Common Stock is not entitled to cumulative voting or preemptive rights and
is not subject to redemption. Upon liquidation, dissolution or winding-up of the
Company, the holders of Common Stock are entitled to share ratably in the net
assets legally available for distribution. All outstanding shares of Common
Stock are fully paid and non-assessable.
40
<PAGE>
Warrants.
The Warrants will be issued in registered form under, governed by, and
subject to the terms of a warrant agreement (the "Warrant Agreement") between
the Company and the American Stock Transfer & Trust Company as warrant agent
(the "Warrant Agent"). The following statements are brief summaries of certain
provisions of the Warrant Agreement. Copies of the Warrant Agreement may be
obtained from the Company or the Warrant Agent and have been filed with the
Commission as an exhibit to the Registration Statement of which this Prospectus
is a part.
Each Warrant entitles the holder thereof to purchase at any time one
share of Common Stock at an exercise price of $7.80 per share at any time after
the Common Stock and Warrants become separately tradable until August ____,
2003. The right to exercise the Warrants will terminate at the close of business
on August ____, 2003. The Warrants contain provisions that protect the Warrant
holders against dilution by adjustment of the exercise price in certain events,
including but not limited to stock dividends, stock splits, reclassification or
mergers. A Warrant holder will not possess any rights as a shareholder of the
Company. Shares of Common Stock, when issued upon the exercise of the Warrants,
in accordance with the terms thereof, will be fully paid and non-assessable.
Commencing six months after the date of this Prospectus, the Company
may redeem some or all of the Warrants at a call price of $0.05 per Warrant,
upon thirty (30) day's prior written notice if the closing sale price of the
Common Stock on the Nasdaq SmallCap Market has equaled or exceeded $13.00 for
ten (10) consecutive days.
The Warrants may be exercised only if a current prospectus relating to
the underlying Common Stock is then in effect and only if the shares are
qualified for sale or exempt from registration under the securities laws of the
state or states in which the purchaser resides. So long as the Warrants are
outstanding, the Company has undertaken to file all post-effective amendments to
the Registration Statement required to be filed under the Securities Act, and to
take appropriate action under federal law and the securities laws of those
states where the Warrants were initially offered to permit the issuance and
resale of the Common Stock issuable upon exercise of the Warrants. However,
there can be no assurance that the Company will be in a position to effect such
action, and the failure to do so may cause the exercise of the Warrants and the
resale or other disposition of the Common Stock issued upon such exercise to
become unlawful. The Company may amend the terms of the Warrants, but only by
extending the termination date or lowering the exercise price thereof. The
Company has no present intention of amending such terms. However, there can be
no assurances that the Company will not alter its position in the future with
respect to this matter.
Transfer Agent and Registrar.
The Transfer Agent and Registrar, for the Units, the Common Stock and
the Warrants, is American Stock Transfer & Trust Company, 40 Wall Street, New
York, New York 10005.
Underwriters' Warrants.
Upon the closing of this Offering, the Company has agreed to sell to
the Underwriters, for nominal consideration, Underwriters' Warrants to purchase
up to 75,000 Units. These Units will be substantially similar to the Units
offered hereby except that (i) the holders of the Underwriters' Warrants will
have certain registration rights for the Underwriters' Warrants and the Common
Stock and Warrants included in the Units underlying Underwriters' Warrants and
(ii) the Warrants issuable upon exercise of an Underwriters' Warrant will be
subject to redemption by the Company. The Underwriters' Warrants may not be
sold, transferred, assigned or hypothecated for one year, except to the officers
of the Underwriters and their successors and dealers participating in the
Offering and /or their partners or officers. The Underwriters' Warrants are
exercisable at 120% of the public offering price, subject to adjustment in
certain events to protect against dilution, for a four-year period commencing
one year from the effective date of this Offering. See "Underwriting."
41
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 6,319,125
shares of Common Stock outstanding. Of these shares, the 1,500,000 shares sold
in this Offering (1,725,000 if the over-allotment option is exercised in full)
will be freely tradable in the public market without restriction under the
Securities Act, except shares purchased by an "affiliate" (as defined in the
Securities Act) of the Company. The remaining 4,819,125 shares (the "Restricted
Shares") (4,594,125 if the over-allotment option is exercised in full) will be
"restricted shares" within the meaning of the Securities Act and may be publicly
sold only if registered under the Securities Act or sold in accordance with an
applicable exemption from registration, such as those provided by Rule 144 under
the Securities Act.
In general, under Rule 144, as currently in effect, a person (or
persons whose shares are aggregated) is entitled to sell Restricted Shares if at
least one year has passed since the later of the date such shares were acquired
from the Company or any affiliate of the Company. Rule 144 provides, however,
that, within any three-month period, such person may only sell up to the greater
of 1% of the then outstanding shares of the Company's Common Stock
(approximately 63,000 shares following the completion of this Offering) or the
average weekly trading volume in the Company's Common Stock during the four
calendar weeks immediately preceding the date on which the notice of the sale is
filed with the Commission. Sales pursuant to Rule 144 also are subject to
certain other requirements relating to manner of sale, notice of sale and
availability of current public information. Any person who has not been an
affiliate of the Company for a period of ninety (90) days preceding a sale of
Restricted Shares is entitled to sell such shares under Rule 144 without regard
to such limitations if at least two years have passed since the later of the
date such shares were acquired from the Company or any affiliate of the Company.
Shares held by persons who are deemed to be affiliated with the Company are
subject to such volume limitations regardless of how long they have been owned
or how they were acquired.
Without consideration of contractual restrictions described below, an
aggregate of 4,819,125 shares of Common Stock, representing 76.3% of the
outstanding shares of the Common Stock, or 4,594,125 shares representing 72.7%
if the over-allotment option is exercised in full will be eligible for sale in
the public market pursuant to Rule 144 after the completion of this Offering.
The Company is unable to estimate the number of shares that may be sold from
time to time under Rule 144, since such number will depend upon the market price
and trading volume for the Common Stock, the personal circumstances of the
sellers and other factors.
After this Offering, executive officers, directors and senior
management will own 2,971,243 shares of the Common Stock (2,746,243 if the
Underwriter's over-allotment option is exercised). The Company's shareholders
and directors have entered into an agreement with the Representatives providing
that they will not sell or otherwise dispose of any shares of Common Stock held
by them for a period of one year after the date of this Prospectus without the
prior written consent of the Representatives, except for shares sold upon
exercise of the over-allotment option.
The Company can make no prediction as to the effect, if any, that offer
or sale of these shares would have on the market price of the Common Stock.
Nevertheless, sales of significant amounts of Restricted Shares in the public
markets could adversely affect the fair market price of Common Stock, as well as
impair the ability of the Company to raise capital through the issuance of
additional equity securities.
UNDERWRITING
The following section is a summary of all of the material terms of the
Underwriting Agreement and does not purport to be complete. A copy of the
Underwriting Agreement has been filed as an exhibit to this Registration
Statement.
Pursuant to the terms and subject to the conditions contained in the
Underwriting Agreement, the Company has agreed to sell to the Underwriters named
below, and each of the Underwriters, for whom Tejas Securities Group, Inc.,
Redstone Securities, Inc., and Seaboard Securities, Inc., (the
"Representatives") are acting as Representatives, has severally agreed to
purchase the number of Units set forth opposite its name in the following table.
42
<PAGE>
Underwriters Number of Units
Tejas Securities Group, Inc.
Redstone Securities, Inc
Seaboard Securities, Inc
Total..................... 750,000
=======
The Representatives have advised the Company that the Underwriters
propose to offer the Units to the public at the initial public offering price
per unit set forth on the cover page of this Prospectus and to certain dealers
at such price less a concession of not more than $_____ per Unit, of which
$________ may be reallowed to other dealers. After the initial public offering,
the public offering price, concession and reallowance to dealers may be reduced
by the Representatives. No such reduction shall change the amount of proceeds to
be received by the Company as set forth on the cover page of this Prospectus.
The Company and the Selling Shareholders have granted to the
Underwriters an option, exercisable during the 45-day period after the date of
this Prospectus, to purchase up to 112,500 additional Units to cover
over-allotments, if any, at the same price per share as the Company will receive
for the 750,000 Units that the Underwriters have agreed to purchase. If the
over-allotment option is exercised in full, the Selling Shareholders will sell
225,000 shares of Common Stock to the Underwriter. To the extent that the
Underwriters exercise such option, each of the Underwriters will have a firm
commitment to purchase approximately the same percentage of such additional
Units that the number of Units to be purchased by it shown in the above table
represents as a percentage of the 750,000 Units offered hereby. If purchased,
such additional Units will be sold by the Underwriters on the same terms as
those on which the 750,000 Units are being sold .
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, and the Company against certain civil liabilities, including
liabilities under the Securities Act.
The holders of approximately 4,819,125 shares of the Common Stock,
after the Offering, have agreed with the Representatives that, until one year
after the date of this Prospectus, subject to certain limited exceptions, they
will not sell, contract to sell, or otherwise dispose of any shares of Common
Stock, any options to purchase shares of Common Stock, or any securities
convertible into, exercisable for, or exchangeable for shares of Common Stock,
owned directly by such holders, or with respect to which they have the power of
disposition, without the prior written consent of the Representatives.
Substantially all of such shares will be eligible for immediate public sale
following expiration of the lock-up periods, subject to the provisions of Rule
144. In addition, the Company has agreed that until 365 days after the date of
this Prospectus, the Company will not, without the prior written consent of the
Representatives, subject to certain limited exceptions, issue, sell, contract to
sell, or otherwise dispose of, any shares of Common Stock, any options to
purchase any shares of Common Stock or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock other than the
Company's sales of shares in this Offering, the issuance of Common Stock upon
the exercise of outstanding options or warrants or the issuance of options under
its employee stock option plan or pursuant to merger and acquisition. See
"Shares Eligible for future Sale."
The Underwriters have the right to offer the Securities offered hereby
only through licensed securities dealers in the United States who are members of
the National Association of Securities Dealers, Inc. and may allow such dealers
such portion of its ten (10%) percent commission as the Underwriters may
determine.
The Underwriters will not confirm sales to any discretionary accounts
without the prior written consent of their customers.
43
<PAGE>
In connection with this Offering, the Underwriters and certain selling
group members may engage in certain transactions that stabilize, maintain or
otherwise affect the market price of the Units, the Common Stock and the
Warrants. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may bid
for or purchase the Units, the Common Stock and the Warrants for the purpose of
pegging, fixing or maintaining the market price of such securities. The
Underwriters may also create a short position in the Units by selling more Units
in connection with this Offering than it is committed to purchase from the
Company, and in such case the Representatives may reduce all or a portion of
that short position by purchasing the Units, the Common Stock and the Warrants
in the open market. The Representatives also may also elect to reduce any short
position by exercising all or any portion of the over-allotment option described
herein. In addition, the Representatives may impose "penalty bids" on certain
Underwriters and selling group members. This means that if a Representative
purchases shares of Common Stock or Warrants in the open market to reduce the
Underwriters' short position or to stabilize the price of the Common Stock or
the Warrants, they may reclaim the amount of the selling concession from the
Underwriters and selling group members who sold those shares of Common Stock or
Warrants as part of this Offering. Any of the transactions described in this
paragraph may stabilize or maintain the market price of the Units, the Common
Stock and the Warrants at a level above that which might otherwise prevail in
the open market.
Neither the Company nor the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Units, the Common Stock and the
Warrants. In addition, neither the Company nor the Underwriters make any
representation that the Underwriters or any selling group members will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
The Company has agreed to pay the Representatives a non-accountable
expense allowance of 2.00% of the gross amount of the Units sold ($195,000 on
the sale of the Units offered) at the closing of the Offering. The Underwriters'
expenses in excess thereof will be paid by the Representatives. To the extent
that the expenses of the underwriting are less than that amount, such excess
shall be deemed to be additional compensation to the Underwriters. In the event
this Offering is terminated before its successful completion, the Company may be
obligated to pay the Representatives a maximum of $25,000 on an accountable
basis for expenses incurred by the Underwriters in connection with this
Offering.
The Company has agreed that for a period of five years from the closing
of the sale of the Units offered hereby, it will nominate for election as a
director a person designated by the Representatives, and during such time as the
Representatives have not exercised such right, the Representatives shall have
the right to designate an observer, who shall be entitled to attend all meetings
of the Board and receive all correspondence and communications sent by the
Company to the members of the Board. The representatives have not yet identified
to the Company the person who is to be nominated for election as a director or
designated as an observer.
The Underwriting Agreement provides for indemnification among the
Company and the Underwriters against certain civil liabilities, including
liabilities under the Securities Act. In addition, the Underwriters' Warrants
provide for indemnification among the Company and the holders of the
Underwriters' Warrants and underlying shares against certain civil liabilities,
including liabilities under the Securities Act, and the Exchange Act.
Underwriters' Warrants.
Upon the closing of this Offering, the Company has agreed to sell to
the Underwriters, for nominal consideration, the Underwriters' Warrants to
purchase up to 75,000 Units consisting of 150,000 shares of Common Stock and
75,000 warrants. The Underwriters' Warrants are exercisable at 120% of the
public offering price for a four-year period
commencing one year from the
44
<PAGE>
effective date of this Offering. The Underwriters' Warrants may not be sold,
transferred, assigned or hypothecated for a period of one year from the date of
this Offering except to the officers of the Underwriters and their successors
and dealers participating in the Offering and/or their partners or officers. The
Underwriters' Warrants will contain antidilution provisions providing for
appropriate adjustment of the number of shares subject to the Warrants under
certain circumstances. The holders of the Underwriters' Warrants have no voting,
dividend or other rights as shareholders of the Company with respect to shares
underlying the Underwriters' Warrants until the Underwriters' Warrants have been
exercised.
The Company has agreed, subject to certain exceptions, during the four
year period commencing one year from the date of this Offering, to give advance
notice to the holders of the Underwriters' Warrants or underlying securities of
its intention to file a registration statement, other than in connection with
employee stock options, mergers, or acquisitions, and in such case the holders
of the Underwriters' Warrants and underlying securities shall have the right to
require the Company to include their securities in such registration statement
at the Company's expense.
For the term of the Underwriters' Warrants, the holders thereof will be
given the opportunity to profit from a rise in the market value of the Company's
shares, with a resulting dilution in the interest of other shareholders. The
holders of the Underwriters' Warrants can be expected to exercise the
Underwriters' Warrants at a time when the Company would, in all likelihood, be
able to obtain needed capital by an offering of its unissued shares on terms
more favorable to the Company than those provided by the Underwriters' Warrants.
Such facts may adversely affect the terms on which the Company can obtain
additional financing. Any profit realized by the Underwriters on the sale of the
Underwriters' Warrants or shares issuable upon exercise of the Underwriters'
Warrants may be deemed additional underwriting compensation.
If the Representatives, at their election, at any time one year after
the date of this Prospectus, solicits the exercise of the Warrants, the Company
will be obligated, subject to certain conditions, to pay the Representatives a
solicitation fee equal to 5% of the aggregate proceeds received by the Company
as a result of the solicitation. No warrant solicitation fees will be paid
within one year after the date of this Prospectus. No solicitation fee will be
paid if the market price of the Common Stock is lower than the exercise price of
the Warrants at such time, no solicitation fee will be paid if the Warrants
being exercised are held in a discretionary account at the time of exercise,
except where prior specific approval for exercise is received from the customer
exercising the Warrants, and no solicitation fee will be paid unless the
customer exercising the Warrants states in writing that the exercise was
solicited and designates in writing the Representative or other broker-dealer to
receive compensation in connection with the exercise. The Representatives may
re-allow a portion of the fee to soliciting broker-dealers.
Regulation M may prohibit the Representatives or any other soliciting
broker-dealer from engaging in any market making activities with regard to the
Company's securities for the period from five (5) business days (or such other
applicable period as Regulation M may provide) prior to any solicitation by a
Representative of the exercise of Warrants until the later of the termination of
such solicitation activity or the termination (by waiver or otherwise) of any
right that a Representative may have to receive a fee for the exercise of
Warrants following such solicitation. As a result, the Representatives may be
unable to provide a market for the Company's securities during certain periods
while the Warrants are exercisable.
Determination of Offering Price.
The initial public offering price was determined by negotiations
between the Company and the Representatives. The factors considered in
determining the public offering price include the Company's revenue growth since
its organization, the industry in which it operates, the Company's business
potential and earning prospects and the general condition of the securities
markets at the time of the Offering. The offering price does not bear any
relationship to the Company's assets, book value, net worth or other recognized
objective criteria of value.
45
<PAGE>
Prior to this Offering, there has been no public market for the
Securities, and there can be no assurance than an active market will develop.
Nasdaq SmallCap Market.
The Units, Common Stock, and Warrants have been applied for listing on
the Nasdaq SmallCap Market under the trading symbols "BSTI.U," "BSTI," and
"BSTI.W," respectively. The Offering is contingent upon the Company obtaining
400 shareholders.
LEGAL MATTERS
The validity of the issuance of the Securities offered hereby will be
passed upon for the Company by Sims Moss Kline & Davis LLP, Atlanta, Georgia.
Raymond L. Moss, a partner with Sims Moss Kline & Davis LLP, owns or has the
right to acquire 22,708 shares of Common Stock. Certain legal matters in
connection with the sale of the Securities offered hereby will be passed upon
for the Underwriters by Winstead Sechrest & Minick P.C., Dallas, Texas.
EXPERTS
The financial statements for each of the two fiscal years in the period
ended June 30, 1997, included in this Prospectus have been so included in
reliance on the report of Grant Thornton LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
46
<PAGE>
GLOSSARY
- ---------------------------------------------------------------------------
Alkyl Groups - Univalent groups derived from alkanes by removal of a hydrogen
atom from any carbon atom: CnH2n+1-. See also cycloalkyl groups. Cf. hydrocarbyl
groups.
Antimicrobial - Harmful to microorganisms by either killing or inhibiting
growth. Antimicrobial pesticides comprise a broad range of products designed to
control undesirable microorganisms such as bacteria, viruses, or algae on
non-living (inanimate) objects or surfaces(1), and on raw fruits and vegetables.
Antimicrobial products are marketed in several formulations, including sprays,
liquids, concentrated powders, and gases. Uses range from swimming pools to
medical equipment to sinks and toilets to wood preservatives to drinking water
for humans and livestock. Antimicrobial products can be divided into public
health uses and non-public health uses.
Antimicrobial agent - A chemical that kills or inhibits the growth of
microorganisms.
Bacteriostatic - Antimicrobial agent that is capable of inhibiting
bacterial growth without killing.
Biostatic - A term loosely used for bacteriostatic.
Ester - An organic compound formed by the reaction of
acid and alcohol.
Hydrocarbyl group - Univalent (having a valence of one) groups
formed by removing a hydrogen atom from a
hydrocarbon.
Lyophilic - A general term ("solvent loving") applied to a specific solute and
solvent mixed together, indicating the solubility relationship between the two.
A highly water soluble material such as acetone would be termed lyophilic in
water.
Lyophobic - The opposite of lyophilic ("solvent hating"). A hydrocarbon, for
example, would be lyophobic in relation to water. If the solvent in question
were changed to octane, the hydrocarbon would then become lyophilic.
Phosphate Ester - Synonym for phosphoric acid ester.
Polymers - A long series of molecules.
Quaternary ammonium - Derivatives of ammonium compounds,
NH4+ Y-, in which all four of the hydrogens
bonded to nitrogen have been replaced with
hydrocarbyl groups.
Silane - Saturated silicon hydrides, analogues of the alkanes; i.e. compounds of
the general formula SinH2n+2. Silanes may be subdivided into silane,
oligosilanes and polysilanes. Note: hydrocarbyl derivatives and other
derivatives are often referred to loosely as silanes.
Substrate - The material to be treated or applied to.
Surface active agent - The descriptive generic term for
soaps and other materials that preferentially
adsorb at interfaces as a result of the presence
of both lyophilic and lyophobic structural units,
the adsorption generally resulting in the
alteration of the surface or interfacial
properties of the system.
Surfactant - The term for "surface active agents."
Tertiary amine - Derivatives of ammonia, NH3, in which all three of the
hydrogens bonded to nitrogen have been replaced with hydrocarbyl groups. E.g.
(CH3)3N trimethylamine.
47
<PAGE>
C O N T E N T S
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
FINANCIAL STATEMENTS
BALANCE SHEETS F-2
STATEMENTS OF OPERATIONS F-3
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) F-4
STATEMENTS OF CASH FLOWS F-5
NOTES TO FINANCIAL STATEMENTS F-6
48
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
BioShield Technologies, Inc.
We have audited the accompanying balance sheets of BioShield
Technologies, Inc., as of June 30, 1997 and 1996, and the related statements of
operations, stockholders' equity (deficit), and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BioShield Technologies, Inc. as
of June 30, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
Atlanta, Georgia
July 28, 1997
The foregoing auditor's report is in the form which will be signed upon
effectiveness of the offering contemplated and described in Note A to the
financial statements.
/s/ Grant Thornton LLP
Atlanta, Georgia
July 28, 1997
F-1
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
May 31, 1998 June 30,
(unaudited) 1997 1996
--------------- -------------- ---------
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 20,584 $ 398,921 $ 25,066
Accounts receivable 111,024 29,294 -
Inventories 165,048 142,194 38,034
Prepaid expenses and other current assets 2,500 20,068 11,791
--------------- ------------ -----------
Total current assets 299,156 590,477 74,891
PROPERTY AND EQUIPMENT, NET 106,090 42,657 -
DEPOSITS AND OTHER LONG-TERM
ASSETS 60,910 59,804 2,847
$ 466,156 $ 692,938 $ 77,738
=============== ============ ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<S> <C> <C> <C>
CURRENT LIABILITIES
Notes payable $ 450,000 $ - $ -
Notes payable - other 180,000 - -
Accounts payable 295,955 168,880 44,951
Accrued payroll 323,059 306,932 213,603
--------------- ------------ -----------
Total current liabilities 1,249,014 475,812 258,554
COMMITMENTS AND CONTINGENCIES - - -
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - no par value; 10,000,000
shares authorized, 4,395,040, 4,364,421 and
3,969,698 issued and outstanding at May 31,
1998, June 30,1997 and 1996, respectively 1,153,001 965,501 115,500
Additional paid-in capital 180,600 122,400 60,000
Deficit accumulated during the development
stage (2,116,459) (870,775) (356,316)
--------------- ------------ -----------
(782,858) 217,126 (180,816)
--------------- ------------ -----------
$ 466,156 $ 692,938 $ 77,738
=============== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
Eleven months ended Year ended June 1, 1995
-------------------------
(inception)
May 31, May 31, June 30, to June 30,
---------------------
1998 1997 1997 1996 1997
-------------------------- -------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 434,790 $ 578,561 $ 775,315 $ - $ 775,315
Cost of sales 155,008 266,843 315,822 - 315,822
----------- ---------- ----------- ---------- -------------
Gross profit 279,782 311,718 459,493 - 459,493
Operating expenses
Marketing and selling 368,774 204,326 213,387 5,608 218,995
General and administrative 1,095,788 660,680 700,184 195,515 895,699
Research and development 64,307 60,718 73,782 185,094 258,876
----------- ---------- ----------- ---------- -------------
1,528,869 925,724 987,353 386,217 1,373,570
----------- ---------- ----------- ---------- -------------
Loss from operations (1,249,087) (614,006) (527,860) (386,217) (914,077)
Other income
Consulting income, net of consulting
expenses of $19,474 and $62,227
for the periods ended June 30,
1997 and 1996, respectively - - 10,007 29,901 39,908
Interest income 3,403 3,205 3,394 - 3,394
----------- ---------- ----------- ---------- -------------
3,403 3,205 13,401 29,901 43,302
----------- ---------- ----------- ---------- -------------
Net loss before income taxes (1,245,684) (610,801) (514,459) (356,316) (870,775)
Income tax (expense) benefit - - - - -
----------- ---------- ----------- ---------- -------------
Net loss $ (1,245,684)$ (610,801) $ (514,459) $ (356,316) $ (870,775)
=========== ========== =========== ========== =============
Net loss per common share
Basic $ (0.28)$ (0.16) $ (0.12) $ (0.09) $ (0.21)
=========== ========== ========== ========== ============
Weighted average number
of shares 4,395,040 3,917,177 4,150,270 3,917,177 4,150,720
=========== ========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Periods ended May 31, 1998 (unaudited) and June 30, 1997 and 1996
<TABLE>
<CAPTION>
Deficit
accumulated
Common stock Additional during the
no par value paid-in development
Shares Amount capital stage Total
<S> <C> <C> <C> <C> <C>
Balance at June 1, 1995 - $ - $ - $ - $ -
Proceeds from original issuance
of shares 3,907,086 500 - - 500
Proceeds from issuance of shares
under a private placement offering 62,612 115,000 - - 115,000
Issuance of stock warrants for
services rendered - - 60,000 - 60,000
Net loss - June 1, 1995 (inception)
through June 30, 1996 - - - (356,316) (356,316)
----------- ----------- ----------- ------------ -----------
Balance at June 30, 1996 3,969,698 115,500 60,000 (356,316) (180,816)
Proceeds from issuance of shares
under a private placement offering 149,723 275,001 - - 275,001
Proceeds from issuance of shares
under a private placement offering 245,000 600,000 - - 600,000
Stock issuance costs related to
private placement offerings - (25,000) - - (25,000)
Issuance of stock warrants for
services rendered - - 62,400 - 62,400
Net loss for the year ended
June 30, 1997 - - - (514,459) (514,459)
------------ ----------- ----------- ------------ ------------
Balance at June 30, 1997 4,364,421 965,501 122,400 (870,775) 217,126
Proceeds from issuance of shares
under private placement offering
(unaudited) 30,619 187,500 - - 187,500
Issuance of stock options for
Services rendered (unaudited) - - 58,200 - 58,200
Net loss for the period ended
May 31, 1998 (unaudited) - - - (1,245,684) (1,245,684)
------------ ----------- ----------- ------------ ------------
Balance at May 31, 1998 (unaudited) 4,395,040 $ 1,153,001 $ 180,600 $ (2,116,459) $ (782,858)
============ =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Periods ended May 31, 1998 and 1997 (unaudited) and
June 30, 1997 and 1996
<TABLE>
<CAPTION>
Eleven months ended Year ended June 1, 1995
-------------------------
(inception)
May 31, May 31, June 30, to June 30,
---------------------
1998 1997 1997 1996 1997
-------------------------- -------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,245,684)$ (610,801) $ (514,459) $ (356,316) $ (870,775)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization
expense 13,047 15,158 16,536 1,504 18,040
Issuance of stock and stock
options for services rendered 58,200 62,400 62,400 60,000 122,400
Changes in operating assets
and liabilities:
(Increase) decrease in:
Accounts receivable (81,730) (19,666) (29,294) - (29,294)
Inventory (22,854) (97,716) (104,160) (38,034) (142,194)
Prepaid expenses
and other current
assets 17,568 (21,448) (21,448) (12,862) (34,310)
Stock issuance costs - (42,000) (42,000) - (42,000)
Deposits and other
assets (1,106) (15,387) (15,387) (3,280) (18,667)
Increase (decrease) in:
Accounts payable 127,075 56,088 123,929 44,951 168,880
Accrued payroll 16,127 93,329 93,329 213,603 306,932
----------- ---------- ----------- ---------- -------------
Net cash used in operating
activities (1,119,357) (580,043) (430,554) (90,434) (520,988)
----------- ---------- ----------- ---------- -------------
Cash flows from investing activities:
Capital expenditures (76,480) (45,592) (45,592) - (45,592)
------------ ---------- ----------- ---------- -------------
Cash flows from financing activities:
Proceeds from debt 630,000 - - - -
Private offering of stock, net 187,500 850,001 850,001 115,500 965,501
----------- ---------- ----------- ---------- -------------
Net cash provided by
financing activities 817,500 850,001 850,001 115,500 965,501
----------- ---------- ----------- ---------- -------------
Net increase (decrease) in
cash (378,337) 224,366 373,855 25,066 398,921
Cash at beginning of period 398,921 25,066 25,066 - -
----------- ---------- ----------- ---------- -------------
Cash at end of period $ 20,584 $ 249,432 $ 398,921 $ 25,066 $ 398,921
=========== ========== =========== ========== =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
May 31, 1998 (unaudited) and June 30, 1997 and 1996
NOTE A - NATURE OF OPERATIONS
BioShield Technologies, Inc. (the "Company"), was incorporated on June 1,
1995. The Company was formed to develop, manufacture and distribute certain
antimicrobial agents and products. Patents for these new agents and products
are currently pending. The Company is in the process of developing
distribution channels for these products throughout the United States and
internationally.
The Company is in the development stage and its efforts though May 31, 1998,
have been principally devoted to organizational activities, raising capital,
regulatory approvals, research and development and further investigation into
new markets.
During the next fiscal year, the Company is planning an initial public
offering.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with a maturity of
three months or less to be cash equivalents.
2.Revenue Recognition
The Company recognizes revenue and provides for the estimated cost of returns
and allowances in the period the products are shipped and title transfers to
the customer.
3. Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventories consist primarily of
raw materials, work in progress and finished goods.
4. Property, Equipment and Depreciation
Property and equipment are recorded at historical cost. Depreciation is
provided for in amounts sufficient to relate the cost of depreciable assets
to operations over their estimated service lives on a straight-line basis.
Depreciation expense related to property and equipment charged to operations
was approximately $13,000, $3,000 and $0 for the periods ended 1998, 1997 and
1996, respectively. Estimated service lives are as follows:
Office Equipment 3 years
Machinery, leasehold improvements,
furniture and equipment 5-10 years
F-6
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
May 31, 1998 (unaudited) and June 30, 1997 and 1996
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
5.Use of Estimates in the Preparation of Financial Statements
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 disclosures 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 these estimates.
6.Income Taxes
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates applied to taxable income. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date. A valuation allowance is
provided for deferred tax assets when it is more likely than not that the
asset will not be realized.
7.Research and Development Costs
The costs of research and development and consumable supplies and materials
to be used for the development of the Company's intended products are
expensed when incurred. Research and development expense was $64,307, $73,782
and $185,094 for the periods ending May 31, 1998, June 30, 1997 and 1996,
respectively. Research and development expense for the period ended June 30,
1996, included $120,000 of certain officers' compensation that related to
conceptual formulation, testing and design of product alternatives.
8.Advertising Costs
The Company expenses the cost of advertising the first time advertising takes
place. Costs of developing advertising materials are expensed at the time the
advertising materials are produced and distributed to customers. Advertising
expense was $66,624 and $69,932 for the periods ended May 31, 1998 and June
30, 1997, respectively.
9.Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents. The
carrying value of cash and cash equivalents approximates fair value due to
the relatively short period to maturity of the instruments.
F-7
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
May 31, 1998 (unaudited) and June 30, 1997 and 1996
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
10. General and Administrative Costs
General and administrative costs include, amongst other things, the cost of
testing and consulting related to filings with the Environmental Protection
Agency (EPA) and patent filings as well as professional fees associated with
private placement offerings and the Company's proposed initial public offering.
11. Reverse Stock Split
Effective December 11, 1997, the Company's board of directors approved a
reverse split, which had the following effect on all outstanding securities:
Common stock - 2.45 for 3.00
Warrants - 1 for 2
The exercise price on all warrants issued prior to December 11, 1997 was reduced
to $0.50 in connection with the reverse split.
All share and per share amounts and option and warrant amounts have been
restated retroactively to reflect these reverse splits.
12. Loss Per Common Share
Basic loss per common share has been calculated using the weighted average
number of shares of common stock outstanding during each period as adjusted for
the reverse split as discussed in Note A-13. Diluted loss per common share is
not disclosed because the effect of the exchange or exercise of common stock
equivalents would be antidilutive.
F-8
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
May 31, 1998 (unaudited) and June 30, 1997 and 1996
NOTE C - INVENTORIES
Inventories consist of the following :
<TABLE>
<CAPTION>
(Unaudited)
May 31, June 30, June 30,
1998 1997 1996
<S> <C> <C> <C>
Raw Materials $ 44,657 $ 100,146 $ 27,155
Work in Progress 82,821 30,828 10,879
Finished Goods 37,570 11,220 -
----------- ----------- ----------
$ 165,048 $ 142,194 $ 38,034
=========== =========== ==========
NOTE D - PROPERTY AND EQUIPMENT
Property and Equipment consists of the following:
(Unaudited)
May 31, June 30, June 30,
1998 1997 1996
Leasehold improvements $ 58,092 $ - $ -
Office furniture and equipment 28,433 23,890 -
Machinery and equipment 35,547 21,702 -
----------- ----------- ----------
Total property and equipment 122,072 45,592 -
Less accumulated depreciation (15,982) (2,935) -
----------- ----------- ----------
$ 106,090 $ 42,657 $ -
=========== =========== ==========
</TABLE>
NOTE E - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain office and operating facilities and certain
equipment under operating lease agreements which expire on various dates
through 2000 and require the Company to pay all maintenance costs. Rent
expense under these leases was $59,003 and $16,133 for the periods ended May
31, 1998 and June 30, 1997, respectively.
F-9
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
May 31, 1998 (unaudited) and June 30, 1997 and 1996
NOTE E - COMMITMENTS AND CONTINGENCIES - Continued
Commitments under noncancelable operating leases are summarized as follows:
Fiscal Year:
1998 $ 48,437
1999 49,903
2000 42,269
2001 and Thereafter -
------------
Total $ 140,609
============
NOTE F - STOCKHOLDERS' EQUITY
Warrants
At June 30, 1997, warrants for the purchase of 901,504 shares had been
issued in connection with various private placement offerings. In connection
with the reverse split discussed in Note A-13, the restated number of warrants
outstanding at June 30, 1997 was 479,502, with an exercise price of $.50. The
expiration date was also restated to reflect a five year term ending in April,
2003. In connection with a private placement during the period ended May 31,
1998, warrants for the purchase of 490,000 shares were issued with an exercise
price ranging from $6.50 to $7.80 expiring April, 2003. During the period ended
May 31, 1998, warrants for the purchase of 18,750 shares were issued in
connection with private placement offerings. These warrants have a five year
term and an exercise price of $.50.
Warrants Issued for Services in Lieu of Cash
During the period ended June 30, 1997, warrants to purchase 150,000
shares were issued to consultants at an exercise price of $.50. The Company
recorded $62,400 of expense during the period ended June 30, 1997, as a result
of issuing these warrants.
Options
During 1996, the Company implemented a directors' stock option plan covering
all members of the Company's board of directors. The provisions of this plan
included a grant of options to acquire 120,000 shares of common stock at an
exercise price of $2.00 per share for the period ended June 30, 1996. The
Company recorded $60,000 of expense during the period ended June 30, 1996 as
a result of granting these options.
No options were granted during the year ended June 30, 1997.
F-10
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
May 31, 1998 (unaudited) and June 30, 1997 and 1996
NOTE F - STOCKHOLDERS' EQUITY - Continued
Options - Continued
During the period ended May 31, 1998, the Company issued options to purchase
120,000 shares of common stock at an exercise price of $5.00 per share to two
members of its advisory board. The options vest over a three year period
allowing each optionee to acquire 20,000 shares beginning on each anniversary
date of the grant and expiring five years from the date of grant. The
exercise price was at lease 100% of market value on the date of grant, and
accordingly, no expense has been charged as a result of this grant.
During the period ended May 31, 1998, the Company issued options to acquire
15,000 shares of common stock at an exercise price of $1.00 per share to
employees. The Company uses the intrinsic value method in accounting for its
stock option plan. In applying this method, compensation cost of $58,200 has
been recognized in the accompanying financial statements for the period ended
May 31, 1998. No compensation cost was recognized for the periods ended June
30, 1997 and 1996. Had compensation cost for the Company's stock option plans
been determined based on the fair value at the grant dates for awards under
this plan, the Company's net loss and loss per share would have resulted in
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
May 31, 1998 June 30, 1997 June 30,1996
------------ ------------- ------------
<S> <C> <C> <C>
Net loss
As reported $(1,245,684) $(514,459) $(356,316)
Pro forma (1,245,684) (527,847) (371,616)
Net loss per
common shareAs reported $(0.28) $(0.09) $(0.07)
Pro forma (0.28) (0.10) (0.07)
</TABLE>
For purposes of the pro forma amounts above, the fair value of each option
grant was estimated by reference to other equity instruments issued during
the period to non-employees.
In addition, warrants to purchase 75,000 shares of common stock have been
reserved for the Company's underwriters in connection with the Company's
proposed initial public offering. The vesting of these warrants is contingent
upon a certain level of net proceeds obtained from the offering.
F-11
BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
May 31, 1998 (unaudited) and June 30, 1997 and 1996
NOTE F - STOCKHOLDERS' EQUITY - Continued
Options - Continued
Stock option and warrant transactions are summarized as follows:
<TABLE>
<CAPTION>
Period ended Year ended Year ended
May 31, 1998 June 30, 1997 June 30, 1996
------------------ -------------------- -----------------
Weighted Weighted Weighted
Average average average
Exercise exercise exercise
Shares price Shares price Shares price
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of period749,502$ 0.74 120,000 $ 2.00 - $ -
Issued in connection with private
placement offerings 450,000 6.50 479,502 0.50 - -
Issued in connection with
private placement offering 40,000 7.80 - - - -
Issued in connection with
private placement offering 18,750 0.50 - - - -
Issued to non-employees for
services rendered - 150,000 0.50 120,000 2.00
Issued to employees 15,000 1.00
Issued to advisory board 120,000 5.00 - - - -
Exercised - - - - - -
Canceled - - - - - -
------------- ------ ---------- ------ -------- ------
Outstanding, end of period 1,393,252 $ 3.17 749,502 $ 0.74 120,000 $ 2.00
========= ======= ======= ====== ======= =======
</TABLE>
The weighted average remaining contractual life of options and warrants
outstanding is approximately 5.0 years as of May 31, 1998.
NOTE G - INCOME TAXES
The Company's temporary differences result in a deferred income tax asset
which is reduced to zero by a related valuation allowance, summarized as
follows:
<TABLE>
<CAPTION>
May 31, June 30, June 30,
1998 1997 1996
<S> <C> <C> <C>
Deferred income tax assets:
Operating loss carryforwards $ 582,000 $ 163,918 $ 30,767
Payroll accruals 117,000 116,634 81,169
Options for services and other 68,000 46,512 22,800
---------- ----------- ----------
Gross deferred tax assets 767,000 327,064 134,736
Deferred tax asset valuation allowance (767,000) (327,064) (134,736)
---------- ----------- ----------
Net deferred income tax asset $ - $ - $ -
========== =========== ==========
</TABLE>
F-12
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
May 31, 1998 (unaudited) and June 30, 1997 and 1996
NOTE G - INCOME TAXES - Continued
The income tax provisions for the periods ended May 31, 1998, June 30, 1997
and 1996, differ from the amounts determined by applying the applicable U.S.
statutory federal income tax rate to pretax results of operations. These
differences are a result of applying valuation allowances against the
deferred tax assets.
Reconciliations of statutory Federal tax rates to the effective tax rate for the
periods ended May 31, 1998, June 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
May 31, June 30, June 30,
1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Income tax benefit at applicable Federal rate of 34% $ 423,532 $ 174,916 $ 121,147
State tax benefit, net of Federal income tax effect 49,800 20,578 14,253
Other (33,396) (3,166) (664)
439,936 192,328 134,736
Increase in deferred income tax asset valuation allowance (439,936) (192,328) (134,736)
----------- ----------- ---------
Net income tax benefit $ - $ - $ -
=========== =========== =========
</TABLE>
At June 30, 1997, the Company had operating loss carryforwards for U.S.
income tax purposes of approximately $400,000 available to reduce future
taxable income. These loss carryforwards will expire in fiscal years 2011 and
2012.
NOTE H - SIGNIFICANT CUSTOMERS
During 1997, the Company entered into sales agreements with two customers
that include provisions for certain exclusive marketing rights and
preferential payment terms. These agreements range from one to three years
and provide for minimum purchase commitments on behalf of these customers.
Sales to these customers totaled approximately $555,000 or 72% of total sales
during the year ended June 30, 1997. Sales to one customer totalled
approximately $59,000 or 14% of total sales for the period ended May 31,
1998. No other customer represented more than 10% of sales during this
period.
F-13
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
May 31, 1998 (unaudited) and June 30, 1997 and 1996
NOTE I - NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards (SFAS) 131, Disclosure About
Segments of An Enterprise and Related Information, which is effective for
fiscal years beginning after December 15, 1997 requires companies to report
information about an entity's different types of business activities and the
different economic environments in which it operates, referred to as
operating segments. Management does not expect the adoption of this SFAS to
have a material impact on the Company's results of operations or financial
condition.
NOTE J - CONTINUED OPERATIONS
The Company's continued existence as a going concern is ultimately dependent
upon the success of future operations and its ability to obtain additional
financing. As shown in the financial statements, the Company incurred losses
of $1,245,684, $514,459 and $356,316 for the periods ended May 31, 1998, June
30, 1997 and 1996, respectively. Management believes that its ability to
generate sufficient revenues may depend on the success of a proposed initial
public offering. The Company is dependent on the proceeds of this offering in
order to continue operations.
NOTE K - NOTES PAYABLE
Notes payable consist of ninety $5,000 notes payable to individuals totaling
$450,000 at May 31, 1998. The notes are due the earlier of the completion of a
successful initial public offering or March 2001. The notes bear interest at 10%
per annual during the first twelve months, 13% per annum during the second
twelve months, and 15% per annum during the third twelve months. In connection
with these notes, warrants for the purchase of 450,000 shares at an exercise
price of $6.50 were issued. The value attributable to these warrants is not
significant to the accompanying financial statements and accordingly, the value
has not been included therein.
Other notes payable consist of a $55,000 note payable to a relative of a
principle stockholder bearing interest at 8% and maturing the earlier of a
successful initial public offering or May, 1999, and a $125,000 note payable to
an individual bearing interest at prime plus 2% and maturing the earlier of a
successful initial public offering or six months.
F-14
<PAGE>
No person has been authorized to give any information or to make any
representation in connection with this offering other than those contained in
this Prospectus and, if given or made, such information or representation must
not be relied upon as having been authorized by the Company or any
Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy
such securities in any circumstances in which such offer or solicitation is
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstance, create any implication that there has been no
change in the affairs of the Company since the date hereof or that the
information herein is correct as of any time subsequent to the date hereof.
750,000
UNITS
EACH UNIT CONSISTING OF
TABLE OF CONTENTS ONE SHARE OF COMMON STOCK
PAGE AND ONE
REDEEMABLE COMMON
Additional Information.................... 2 STOCK
PURCHASE WARRANT
Prospectus Summary........................ 3
Risk Factors.............................. 6
Use of Proceeds........................... 15
Dividend Policy........................... 15 BIOSHEILD
Dilution.................................. 16 TECNOLOGIES
Capitalization............................ 17
Management's Discussion and............... OFFERING PRICE
Analysis of Financial Condition $13.00 PER UNIT
and Results of Operation................. 18
Business.................................. 20
Management................................ 34
Principal Shareholders.................... 41
Certain Relationships
and Related Transactions............... 42 PROSPECTUS
Description of Securities................. 43
Shares Eligible For Future Sale........... 45 ,1998
Underwriting.............................. 46 Tejas Securities
Group, Inc.
Legal Matters............................. 48 Redstone Securities
Group, Inc.
Experts................................... 48 Seaboard Securities
Glossary.................................. 49 Group, Inc.
Index to Financial Statements............. 50
.........Until ____ , 1998 (25 days from the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 14-2-202(b)(4) of the Georgia Business Corporation Code
provides that a corporation's articles of incorporation may contain a provision
eliminating or limiting the personal liability of a director to the corporation
or its shareholders for monetary damages for breach of duty of care or other
duty as a director. This Section also provides, however, that such a provision
shall not eliminate or limit the liability of a director (i) for any
appropriation, in violation of his duties, of any business opportunity of the
corporation, (ii) for acts or omissions involving intentional misconduct or a
knowing violation of law, (iii) for certain other types of liability set forth
in the Code, and (iv) for transactions from which the director derived an
improper personal benefit. Article VI of the Registrant's Articles of
Incorporation contains a provision eliminating or limiting the personal
liability of a director of the Registrant to the fullest extent authorized by
the Georgia Business Corporation Code.
In addition, Sections 14-2-851 and 14-2-857 of the Georgia Business
Corporation Code, provides for indemnification of directors and officers of the
Registrant for liability and expenses reasonably incurred by them in connection
with any civil, criminal, administrative or investigative action, suit or
proceeding in which they may become involved by reason of being a director or
officer of the Registrant. Indemnification is permitted if the director or
officer acted in a manner which he believed in good faith to be in or not
opposed to the best interests of the Registrant and, with respect to any
criminal action or proceeding, if he had no reasonable cause to believe his
conduct to be unlawful; provided that the Registrant may not indemnify any
director or officer (i) in connection with a proceeding by or in the right of
the corporation in which the director was adjudged liable to the corporation or
(ii) in connection with any other proceeding in which he was adjudged liable on
the basis that personal profit was improperly received by him, except as
determined by a court of competent jurisdiction. Article 9 of the Registrant's
Bylaws contains a provision providing for the indemnification of officers and
directors and advancement of expenses to the fullest extent authorized by the
Georgia Business Corporation Code.
The Registrant may seek to purchase and maintain directors and officers
liability insurance which insures against liabilities that directors and
officers of the Registrant may incur in such capacities.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemized statement of all expenses in
connection with the issuance and distribution of the securities being registered
other than underwriting discounts and commissions and the Underwriter's
non-accountable expense allowance:
<TABLE>
<S> <C>
Securities and Exchange Commission filing $ 7,967
NASDAQ fee 7,738*
National Association of Securities Dealers, Inc. filing fee 3,201
Printing and engraving expenses 85,000*
Legal Fees and expenses 180,000*
Registrar and transfer agent fees 5,000*
Accounting fees and expenses 95,000*
Non Accountable expense allowance 195,000*
Blue sky fees and expenses 4,000*
Miscellaneous 5,000*
---------
Total $587,906*
*Estimated.
</TABLE>
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During February and April of 1996, the Company sold a total of 18,000
(pre-split) shares of Common Stock to three investors at a price of $1.50 per
share (an aggregate sale price of $26,500). Beginning on July 23, 1996, the
Company sold units consisting of one share of Common Stock and two warrants to
purchase one share of Common Stock (the "Private Units") at prices of $1.50 and
$2.00 per Private Unit, with the same price of $1.50 or $2.00 per share applying
to the respective Private Unit warrants. The Company sold 6,000 Private Units
for $9,000 on July 23, 1996, to a single investor, 229,168 Private Units for
$375,001 to six married couples in November 1996, 50,000 Private Units for
$100,000 to a husband and wife and another investor on December 4, 1996, and a
total of 131,833 Private Units to four existing and three new investors for an
aggregate of $229,000 during January 1997. On February 17, 1997, an existing
shareholder purchased an additional 25,000 Private Units for $50,000. In
February and March 1997, five new investors purchased an aggregate of 75,000
Private Units for an aggregate of $150,000, and during June and July 1997, three
new investors purchased 37,500 Private Units at a price of $5.00 per unit. All
of the shares and Private Units were issued pursuant to the exemption from the
registration requirements of the Securities Act afforded by Section 4(2) of that
Act. All of such investors were accredited and were provided with a private
placement memorandum describing the terms of the offering.
On December 11, 1997, the Company effected a 2.45-for-3 reverse stock
split of its Common Stock and each outstanding Private Unit warrant was adjusted
to provide for an exercise price of $.50 per share of Common Stock. The shares
issued in the reverse split did not require registration under the Securities
Act in that the reverse split and warrant adjustment was not a "sale," "offer
for sale" or "offer" as such terms are defined in the Securities Act.
On February 27, March 16, and March 24, 1998, the Company sold 90 units
to 12 investors for an aggregate of $450,000 or $5,000 per unit, with each unit
consisting of (i) a $5,000 non-negotiable promissory note payable on the earlier
of an initial public offering or three years from the date of issuance, and (ii)
a warrant to purchase up to 5,000 shares of Common Stock at the initial public
offering price beginning six months after the offering and ending five years
after issuance. First Atlanta Securities, LLC acted as the Company's placement
agent with respect to the placement of the units and received $40,000 in cash
and a warrant to purchase 40,000 shares of Common Stock at a price per share
equal to 110% of the initial public offering price. The units and related
placement agent's warrants were issued pursuant to the exemption from the
registration requirements of the Securities Act afforded by Section 4(2) of the
Act. All of such investors were accredited and were provided with a private
placement memorandum describing the terms of the offering.
II-2
<PAGE>
ITEM 27. EXHIBITS
Number Description
Exhibit 1.1 Form of Underwriting Agreement (1)
Exhibit 1.2 Form of Underwriter's Warrant (1)
Exhibit 3.1 Amended and Restated Articles of Incorporation of the
Company, dated February 13, 1998 (2)
Exhibit 3.2 Bylaws of the Company (2)
Exhibit 4.1 Form of Stock Certificate (1)
Exhibit 4.2 Form of Unit Certificate (1)
Exhibit 4.3 Form of Unit Warrant Certificate (1)
Exhibit 4.4 Form of Investor Warrant (2)
Exhibit 4.5 First Atlanta Warrant (2)
Exhibit 4.6 Form of Investor Warrant Agreement (1)
Exhibit 5.1 Opinion of Sims Moss Kline & Davis (2)
Exhibit 10.1 Employment Agreement between the Company and Timothy C.
Moses, dated January 1, 1998 (2)
Exhibit 10.2 Employment Agreement between the Company and Jacques
Elfersy, dated January 1, 1998 (1)
Exhibit 10.3 Employment Agreement between the Company and Joachim
Berkner, dated January 1, 1998 (1)
Exhibit 10.4 Employment Agreement between the Company and William O.
Hitt, dated March 11, 1998 (2)
Exhibit 10.5 Material Lease between the Company and Weeks Realty for
Property in Norcross, Georgia, dated
April 24, 1997 (2)
Exhibit 10.6 Material Lease between the Company and Selig Enterprises
for Property in Atlanta, Georgia,
dated September 4, 1997 (2)
Exhibit 10.7 Marketing and Distribution Agreement between the Company
and QVC, Inc., dated November 5,
1997 (1)
Exhibit 10.8 Sales Agreement between the Company and HealthSafe
Environmental Products, Inc., dated
February 6, 1997 (1)
Exhibit 10.9 Sales and Distribution Agreement between the Company and
Concrete MicroTech, Inc., dated
February 7, 1997 (1)
Exhibit 10.10 Sales Agreement between the Company and Sanitary Coating
Systems, Inc., dated November 13,
1997 (1)
Exhibit 10.11 Consulting Agreement between the Company and R.T.Consulting,
dated December 5, 1997 (2)
Exhibit 10.12 Promissory Note between the Company and
Stephen M. Dale, dated May 12, 1998 (2)
Exhibit 10.13 Agreement to provide
Edgarization Services between the Company and Revere
Financial Group, Inc., dated May 28, 1998 (2)
Exhibit 10.14 Three Promissory Notes between the Company and in
favor of Judy Turner, dated January 16, 1998, May 27, 1998,
and June 5, 1998 (2)
Exhibit 10.15 1996 Director's Stock Option Plan and 1996 Director's Stock
Option Agreement Pursuant to 1996 Director's Stock Option
Plan (2)
Exhibit 10.16 1997 Stock Incentive Plan (2)
Exhibit 10.17 Patent Assignment Agreements by and among Jacques Elfersy,
Joachim Berkner, Timothy C. Moses,
and the Company, dated February 5, 1998 (4)
Exhibit 21.1 Form of Consent by Grant Thornton, LLP (2)
(1) Filed herewith
(2) Previously Filed
(3) To be filed by amendment
(4) Confidential treatment has been requested with respect to portions of this
document. Omitted portions have been filed separately with the Securities
and Exchange Commission.
II-3
<PAGE>
ITEM 28. UNDERTAKINGS.
The Company hereby undertakes that:
(1) It will file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement to:
(a) Include any prospectus required under Section 10(a)
(3)of the Securities Act;
(b) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in this 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 Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(c) Include any additional or changed material information on
the plan of distribution.
(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
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the provisions described under Item 24 above, or otherwise, the Company 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 Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted against
the Company by such director, officer or controlling person in connection with
the securities being registered, the Company 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.
The Company hereby undertakes that (i) for purposes of determining
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 Company pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be a part
of this Registration Statement as of the time it was declared effective; and
(ii) for purposes 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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
The Company will provide to the Underwriter at the closing 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.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this amendment to the
registration statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Atlanta, State of Georgia, on June 22, 1998.
BIOSHIELD TECHNOLOGIES, INC.
By: /s/ Timothy C. Moses
Timothy C. Moses, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints TIMOTHY C. MOSES and JACQUES ELFERSY and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully and to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes may lawfully do or cause to
be done by virtue hereof.
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Timothy C. Moses President; Chief
Executive Officer;
June 22, 1998
Timothy C. Moses Director
/s/ Jacques Elfersy Chairman of the Board;
June 22, 1998
Jacques Elfersy Vice President of Operations
and Director of Regulatory Affairs;
Chief Financial Officer
/s/ Carl T. Garner Director June 22, 1998
- --------------------
Carl T. Garner
/s/ Michel Azran Director June 22, 1998
- ----------------
Michel Azran
</TABLE>
II-6
750,000 UNITS
BIOSHIELD TECHNOLOGIES, INC.
(a Georgia corporation)
Each Unit Consisting of
Two Shares of Common Stock and
One Redeemable Common Stock Purchase Warrant
August ___, 1998
UNDERWRITING AGREEMENT
TEJAS SECURITIES GROUP, INC.
REDSTONE SECURITIES, INC.
SEABOARD SECURITIES, INC.
As Representatives of the Several Underwriters
c/o Tejas Securities Group, Inc.
8214 Westchester
Suite 500
Dallas, Texas 75225
Gentlemen:
<PAGE>
-1-
1. INTRODUCTION. BioShield Technologies, Inc., a Georgia corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A attached hereto (the "Underwriters") for whom you are acting as
representatives (the "Representatives") pursuant to this Underwriting Agreement
(this "Agreement") an aggregate of Seven Hundred Fifty Thousand (750,000) Units
(the "Units") consisting of (i) two shares (the "Shares") of common stock, no
par value (the "Common Stock"), and (ii) one redeemable warrant to purchase one
share of Common Stock (the "Redeemable Warrants") at a price of __________
Dollars ($_____) per Unit. The Redeemable Warrants are subject to redemption, in
certain instances, commencing one (1) year from the date of the Prospectus (as
hereinafter defined). The Shares and Redeemable Warrants included in the Units
(including the Units) are herein collectively called the "Firm Securities." In
addition, the Company proposes to grant to the Underwriters an option to
purchase all or any part of an aggregate of One Hundred Twelve Thousand Five
Hundred (112,500) additional Units consisting of 225,000 shares of Common Stock
owned by Timothy C. Moses and Jacques Elfersy, the founders and senior
management of the Company (the "Selling Shareholders") and 112,500 Redeemable
Warrants, at a price of ___________ Dollars ($_____) per Unit, solely for
covering over-allotments, if any (the "Option Securities"). The Firm Securities
and the Option Securities are hereinafter sometimes referred to as the "Offered
Securities." The 862,500 shares of Common Stock issuable upon exercise of the
Redeemable Warrants included as part of the Offered Securities are hereinafter
referred to as the "Public Warrant Shares"; and the Offered Securities and
Public Warrant Shares are sometimes hereinafter referred to collectively as the
"Public Securities."
The Shares and Redeemable Warrants may not be separately traded until
six (6) months after the date of the Prospectus (as hereinafter defined) unless
earlier separated upon ten (10) days' prior written notice from Tejas Securities
Group, Inc. to the Company. Each Redeemable Warrant shall be exercisable after
the Redeemable Warrants become separately tradeable and until five (5) years
from the date of the Prospectus, and shall entitle the holder to purchase one
share of Common Stock at a price equal to $7.80 per share, which price is
subject to adjustment in certain circumstances to prevent dilution. Commencing
twelve (12) months from the date of the Prospectus, the Company shall have the
right, at any time, to call each of the Redeemable Warrants for redemption upon
not less than thirty (30) days' prior written notice at any time at a redemption
price of $.05 per Redeemable Warrant, subject to adjustment, provided that the
closing bid quotation of the Common Stock as reported on The Nasdaq Stock Market
or the last sales price if quoted on a national securities exchange for a period
of ten (10) consecutive trading days, exceeds $13.00 per share, subject to
adjustment in certain circumstances to prevent dilution. The Redeemable Warrants
will be issued pursuant to a warrant agreement dated the date hereof between the
Company and ___________________ (the "Public Warrant Agreement"), a form of
which has been filed as Exhibit ____ to the Registration Statement.
The Company also proposes to issue and sell to the Representatives,
pursuant to the terms of a warrant agreement, dated as of the First Closing Date
(as hereinafter defined), between you and the Company (the "Underwriters'
Warrant Agreement"), warrants (the "Underwriters' Warrants") to purchase up to
75,000 Units for One Hundred Dollars ($100). The Underwriters' Warrants shall be
exercisable during the four-year period commencing twelve (12) months from the
Effective Date, at a price per unit of 120% of the initial public offering
price, subject to adjustment in certain events to protect against dilution. The
75,000 Units issuable upon exercise of the Underwriters' Warrants are
hereinafter referred to as the "Underwriters' Units"; the 75,000 shares of
Common Stock underlying the Underwriters' Units are hereinafter referred to as
the "Underwriters' Shares"; the 75,000 Redeemable Warrants underlying the
Underwriters' Units are hereinafter referred to as the "Underwriters' Redeemable
Warrants"; the 75,000 shares of Common Stock issuable upon exercise of the
Underwriters' Redeemable Warrants are hereinafter referred to as the
"Underwriters' Warrant Shares"; and the Underwriters' Warrants, the
Underwriters' Units, the Underwriters' Shares, the Underwriters' Redeemable
Warrants and the Underwriters' Warrant Shares are sometimes hereinafter referred
to collectively as the "Underwriters' Securities." The Public Securities and the
Underwriters' Securities are sometimes hereinafter referred to collectively as
the "Registered Securities."
The Registered Securities are more fully described in the Registration
Statement and the Prospectus referred to below.
The several Underwriters have advised the Company that they desire to
purchase the Units. The Company confirms the agreements made by it with respect
to the purchase of the Units by the Underwriters as follows:
<PAGE>
-1-
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to, and agrees with, the several Underwriters:
<PAGE>
-1-
(a) A registration statement (File No. 333-57767) on Form SB-2 relating to the
public offering of the Units, including a form of prospectus subject to
completion, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules
and Regulations") of the Securities and Exchange Commission (the "Commission" )
thereunder, and has been filed with the Commission under the Act and one or more
amendments to such registration statement may have been so filed. The Company
will not, so long as any Redeemable Warrants, Underwriter's Warrants or
Underwriters' Redeemable Warrants remain outstanding and exercisable, file any
amendment thereto or any amendment or supplement to the Preliminary Prospectus
or the Prospectus (as those terms are defined below) unless the Company has
given reasonable and prior notice thereof to the Representatives and counsel for
the Underwriters and none of which shall have reasonably objected within a
reasonable period of time prior to the filing thereof. As used in this Agreement
and unless the context indicates otherwise, the term "Registration Statement"
refers to and means said registration statement, including any exhibit,
financial statement and prospectus included therein, as finally amended and
revised on or prior to the effective date (the "Effective Date") of said
registration statement. The term "Preliminary Prospectus" refers to and means
any prospectus filed with the Commission and included in said registration
statement before it becomes effective, and the term "Prospectus" refers to and
means the prospectus included in the Registration Statement, except that if the
prospectus first filed by the Company pursuant to Rule 424(b) of the Rules and
Regulations shall differ from the Prospectus, the term "Prospectus" shall refer
to the prospectus filed pursuant to Rule 424(b). If the Registration Statement
or the Prospectus is amended or supplemented after the Effective Date and prior
to or on the Closing Dates (as hereinafter defined), then the terms
"Registration Statement" and "Prospectus" shall refer to such documents as so
amended or supplemented. For purposes of this Agreement, all references to the
Registration Statement, any Preliminary Prospectus or any amendment or
supplement to any of the foregoing shall be deemed to include the copy filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR"). Each Preliminary Prospectus and the Prospectuses
delivered to the Underwriters for use in connection with this offering was
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
The terms used herein shall have the same meaning as in the Prospectus
unless the context hereof otherwise requires.
<PAGE>
-1-
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary
Prospectus, nor has the Commission or any such authority instituted or, to the
best knowledge of the Company, threatened to institute any proceedings with
respect to such an order. At the
time the Registration Statement becomes effective and at all times subsequent
thereto up to and on the First Closing Date (as hereinafter defined) or the
Option Closing Date (as hereinafter defined), as the case may be,
(i) the Registration Statement and Prospectus will in all respects conform to
the requirements of the Act and the Rules and Regulations and (ii) neither
the Registration Statement nor the Prospectus will include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to
make statements therein not misleading; provided, however, that the Company
makes no representations, warranties or agreements as to information contained
in or omitted from the Registration Statement or Prospectus in reliance
upon, and in conformity with, written information
furnished to the Company by or on behalf of the
Underwriters specifically for use in the
preparation thereof.
<PAGE>
-1-
(c) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority (corporate and other) to own its
properties and conduct its business as described in the Registration Statement
and Prospectus and is duly qualified to do business as a foreign corporation and
is in good standing in all other jurisdictions in which the nature of its
business or the character or location of its properties requires such
qualification, except where failure to so qualify will not have a material
adverse effect the Company's business, properties, assets, condition (financial
or other) or results of operations (a "Material Adverse Effect"). The Company
holds all authorizations, approvals, licenses, certificates, franchises and
permits from state, federal or other regulatory authorities necessary for the
conduct of its business as presently conducted and as described in or
contemplated by the Registration Statement and is in compliance with all laws
and regulations and all orders and decrees applicable to it or to such business
or assets except where the absense of such authorizations, approvals, licenses,
certificates, franchises and permits will not have a Material Adverse Effect,
and there are no proceedings pending or, to the best knowledge of the Company,
threatened, seeking to cancel, terminate or limit such authorizations,
approvals, licenses, certificates, franchises or permits.
<PAGE>
-1-
(d) The authorized, issued and outstanding capital stock of the Company as of
__________, 1998 is as set forth in the Prospectus under "Capitalization"; all
shares of issued and outstanding capital stock of the Company set forth
thereunder have been duly authorized, validly issued and are fully paid and
non-assessable; except as set forth in the Prospectus, no options, warrants, or
other rights to purchase, agreements or other obligations to issue, or
agreements or other rights to convert any obligation into, any shares of capital
stock of the Company have been granted or entered into by the Company; and the
capital stock conforms to all statements relating thereto contained in the
Registration Statement and Prospectus. The issuances and sales of all such
capital stock complied in all respects with applicable federal and state
securities laws; 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.
<PAGE>
-1-
(e) This Agreement, the Public Warrant Agreement and the Underwriters' Warrant
Agreement have been duly and validly authorized by the Company, and this
Agreement constitutes, and the Public Warrant Agreement and the Underwriters'
Warrant Agreement, when executed and delivered pursuant to this Agreement
(assuming due execution by the Underwriters and/or the appropriate parties to
such agreements), will each constitute, a valid and binding agreement of the
Company, enforceable against the Company in accordance with their respective
terms, except (i) as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or similar laws
affecting creditors' rights generally, (ii) as enforceability of any
indemnification, contribution or exculpation provision may be limited under
applicable federal and state securities laws, and (iii) that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought ((i), (ii) and (iii) are hereinafter
referred to as the "Enforceability Exceptions").
<PAGE>
-1-
(f) The Company has full power and lawful authority to authorize, issue and sell
the Registered Securities to be sold by it hereunder on the terms and conditions
set forth herein, and no consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or agency
is required in connection with such authorization, execution and delivery or
with the authorization, issue and sale of the Registered Securities, except such
as may be required under the Act, state securities or blue sky laws and from the
National Association of Securities Dealers, Inc. ("NASD").
<PAGE>
-1-
(g) The Units and the Shares have been duly authorized and, when issued and
delivered pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable. The Redeemable Warrants have been duly authorized
and, when issued and delivered pursuant to this Agreement, will constitute valid
and legally binding obligations of the Company enforceable in accordance with
their terms, subject to the Enforceability Exceptions, and will be entitled to
the benefits provided by the Public Warrant Agreement. The Public Warrant Shares
have been reserved for issuance upon exercise of the Redeemable Warrants and,
when issued in accordance with the terms of the Redeemable Warrants and Public
Warrant Agreement, will be duly authorized, validly issued, fully paid and
non-assessable. The Underwriters' Warrants have been duly authorized and, when
issued and delivered pursuant to this Agreement and the Underwriters' Warrant
Agreement, will constitute valid and legally binding obligations of the Company
enforceable in accordance with their terms, subject to the Enforceability
Exceptions, and will be entitled to the benefits provided by the Underwriters'
Warrant Agreement. The Underwriters' Shares have been reserved for issuance upon
exercise of the Underwriters' Warrants and, when issued in accordance with the
terms of the Underwriters' Warrants and Underwriters' Warrant Agreement, will be
duly authorized, validly issued, fully paid and non-assessable. The
Underwriters' Redeemable Warrants, when issued in accordance with the terms of
the Underwriters' Warrants and Underwriters' Warrant Agreement, will be duly
authorized and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms, subject to the
Enforceability Exceptions, and will be entitled to the benefits provided by the
Public Warrant Agreement. The Underwriters' Warrant Shares have been reserved
for issuance upon exercise of the Underwriters' Redeemable Warrants and, when
issued in accordance with the terms of the Underwriters' Redeemable Warrants and
the Public Warrant Agreement, will be duly authorized, validly issued, fully
paid and non-assessable. The issuance of any of the Registered Securities will
not violate or otherwise be subject to the preemptive rights of any holders of
any security of the Company or similar contractual rights granted by the
Company, and none of the holders of any of the Registered Securities will be
subject to personal liability by reason of being such holders.
<PAGE>
-1-
(h) Except as described in the Prospectus, the Company is not in violation of
any term or provision of its Amended and Restated Articles of Incorporation or
Bylaws or of any contract or agreement or of any statute or any order, rule or
regulation or of any other regulatory authority or other governmental body
having jurisdiction over the Company, which violation may have a Material
Adverse Effect on the Company. Neither the execution and delivery of this
Agreement, nor the issuance and/or sale of any of the Registered Securities, nor
the consummation of any of the transactions contemplated herein, nor the
compliance by the Company with the terms and provisions hereof, has conflicted
with or will conflict with, or has resulted in or will result in a breach of,
any of the terms and provisions, or has constituted or will constitute a default
under, or has resulted in or will result in the creation or imposition of any
lien, charge or encumbrance upon the property or assets of the Company pursuant
to the terms of, any indenture, mortgage, deed of trust, note, loan or credit
agreement or any other agreement or instrument evidencing an obligation for
borrowed money, or any other agreement or instrument towhich the Company is a
party, or by which the Company may be bound, or to which any of the property or
assets of the Company is subject; nor will such actions result in any violation
of the provisions of the Amended and Restated Articles of Incorporation or the
Bylaws of the Company or of any contract or agreement, or of any statute or any
order, rule or regulation applicable to the Company or of any other regulatory
authority or other governmental body having jurisdiction over the Company, which
conflict, breach, default or violation would have a Material Adverse Effect on
the Company.
<PAGE>
- -1- (i) Except as described in the Prospectus, no default exists in the due
performance and observance of any term, covenant or condition of any license,
contract, indenture, mortgage, deed of trust, note, loan or credit agreement, or
any other agreement or instrument to which the Company is a party or by which
the Company may be bound or to which any of the property or assets of the
Company are subject, which default would have a Material Adverse Effect on the
Company.
<PAGE>
-1-
(j) Except as described in the Prospectus, the Company has good and marketable
title to all properties and assets described in the Prospectus as owned by it,
free and clear of all liens, charges, encumbrances or restrictions, except such
as are not materially significant or important in relation to its business; all
of the leases and subleases under which the Company is the lessor or sublessor
of properties or assets or under which the Company holds properties or assets as
lessee or sublessee as described in the Prospectus are in full force and effect,
and, except as described in the Prospectus, the Company is not in default with
respect to any of the terms or provisions of any of such leases or subleases,
and no claim has been asserted by anyone adverse to rights of the Company as
lessor, sublessor, lessee or sublessee under any of the leases or subleases
mentioned above, or affecting or questioning the right of the Company to
continued possession of the leased or subleased premises or assets under any
such lease or sublease except as described or referred to in the Prospectus; and
the Company owns or leases all such properties described in the Prospectus as
are necessary to its operations as now conducted and, except as otherwise stated
in the Prospectus, as proposed to be conducted as set forth in the Prospectus.
(k) Grant Thornton LLP, who have audited and given their reports on certain
financial statements filed and to be filed with the Commission as a part of the
Registration Statement, which are incorporated in the Prospectus, are, with
respect to the Company, independent public accountants as required by the Act
and the Rules and Regulations.
(l) The financial statements, together with related notes, set forth in the
Prospectus or the Registration Statement present fairly the financial position
and results of operations and changes in cash flow position of the Company on
the basis stated in the Registration Statement, at the respective dates and for
the respective periods to which they apply. Said statements and related notes
have been prepared in accordance with generally accepted accounting principles
applied on a basis which is consistent during the periods involved, except as
otherwise stated therein, and all adjustments necessary for a fair presentation
of results for such periods have been made. The information set forth under the
captions "Dilution," "Capitalization," and "Selected Consolidated Financial
Information" in the Prospectus fairly present, on the basis stated in the
Prospectus in all material respects, the information included therein.
(m) Subsequent to the respective dates as of which information is given in the
Registration Statement and Prospectus, (i) the Company has not incurred any
material liabilities or obligations, direct or contingent, or entered into any
material transactions other than in the ordinary course of business; (ii) there
has not been any change in the capital stock, funded debt (other than regular
repayments of principal and interest on existing indebtedness) or other
securities of the Company; (iii) there has not been any adverse change in the
condition (financial or otherwise), business, operations, income, net worth or
properties, including any loss or damage to the properties, of the Company
(whether or not such loss is insured against); (iv) the Company has not paid or
declared any dividend or other distribution on its Common Stock or its other
securities or redeemed or repurchased any of its Common Stock or other
securities; and (v) the Company has not become a party to, and neither the
business nor the property of the Company has become the subject of, any material
litigation whether or not in the ordinary course of business.
(n) Except as set forth in the Prospectus, there is not now pending or, to the
knowledge of the Company, threatened, any action, suit or proceeding to which
the Company or any of the respective officers, directors or securityholders
thereof is a party before or by any court or governmental agency or body, which
might result in any material adverse change in the condition (financial or
otherwise), operations, business prospects, income, net worth, or properties of
the Company, or which might materially adversely affect the properties or assets
thereof, or prevent consummation of the transactions contemplated hereby; nor
are there any actions, suits or proceedings related to environmental matters or
related to discrimination on the basis of age, sex, religion or race; and there
are no labor disputes involving the employees of the Company exist or are
imminent which might be expected to adversely affect the conduct of the
business, property or operations or the financial condition or results of
operations of the Company.
- -1- (o) There is no contract or other document which is required by the Act or
by the Rules and Regulations to be filed as an exhibit to the Registration
Statement which has not been so filed. Each contract which is filed as an
exhibit to the Registration Statement is and shall be in full force and effect
at each of the Closing Dates or shall have been terminated in accordance with
its terms or as set forth in the Registration Statement and Prospectus. No party
to any such contract has given notice to the Company of the cancellation of or,
to the best knowledge of the Company, shall have threatened to cancel, any such
contract, and, except as set forth in the Prospectus, the Company is not or
shall not be in default thereunder, which termination, cancellation or default
would have a Material Adverse Effect on the Company.
(p) Except as disclosed in the Prospectus, the Company has filed all necessary
federal, state, local and foreign income and franchise tax returns and has paid
all taxes shown as due thereon; there is no tax deficiency which has been or to
the best knowledge of the Company might be asserted against the Company; and the
Company has established adequate reserves for such taxes which are not yet due
and payable.
(q) To the best knowledge of the Company, none of the activities or business
of the Company are in violation of, or cause the Company to violate, any law,
rule, regulation or order of the United States, any state, county or locality,
or of any agency or body of the United States or of any state, county or
locality, the violation of which would have a material adverse impact upon the
condition (financial or otherwise), business, property, prospective results of
operations, or net worth of the Company.
(r) The Company maintains insurance, which is in full force and effect, of the
types and in the amounts currently adequate for its business, including but not
limited to personal injury and product liability insurance, insurance covering
all personal property owned or leased by the Company against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against.
The Company has not (i) 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, (ii) had 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 (iii) failed to comply with all conditions contained in
such insurance policies and surety bonds. To the best knowledge of the Company,
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.
(s) The Company owns or possesses adequate rights to use all patents, patent
rights, inventions, trademarks, service marks, trade names, copyrights ,
know-how (including all other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), technology, trade secrets,
designs, processes, works of authorship, computer programs and technical data
and information (collectively, "Intellectual Property") necessary for the
conduct of its business as described in the Prospectus or that are material to
the development, manufacture, operation and sale of all products and services
sold or proposed to be sold by the Company, and the Company has not received any
notice of infringement of or conflict with, and the Company, to the best of the
Company's knowledge, is not infringing or in conflict with asserted rights of
others with respect to, any Intellectual Property.
(t) Except as set forth in the Prospectus, the Company 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 Intellectual
Property, with respect to the use thereof or in connection with the conduct of
its business or otherwise. In addition, the Company owns and has the
unrestricted right to use all Intellectual Property free and clear of and
without violating any right, lien, or claim of others, including without
limitation, former employers of its employees. The Company is not aware of any
development by any other person or entity of trade secrets or items of technical
information similar to those of the Company. The Company has taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
its Intellectual Property in all material aspects.
(u) The Company is not obligated to pay and has not paid within the past twelve
(12) months, and has not obligated, and will not obligate, the Underwriters to
pay, any finder's fee in connection with the underwriting contemplated hereby or
any other fee (cash, securities or otherwise) in consideration of financial,
consulting or investment banking services.
(v) No officer or director of the Company or any "affiliate" or "associate" (as
such terms are defined in Rule 405 promulgated under the Rules and Regulations)
of the Company or any such officer or director has taken, and each officer or
director has agreed that he will not take, directly or indirectly, any action
designed to or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of any security issued by the
Company.
(w) No officer, director or greater than 5% stockholder of the Company, or any
affiliate or associate of any of the foregoing persons or entities has or has
had, either directly or indirectly, (i) an interest (other than ownership of an
immaterial number of shares of capital stock of an entity whose securities are
publicly traded) in any person or entity which (A) furnishes or sells products
or services which are furnished or sold or are proposed to be furnished or sold
by the Company, or (B) purchases from or sells or furnishes to the Company any
goods or services, or (ii) a beneficial interest in any contract or agreement to
which the Company is 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, or transactions, between or among the Company and any
officer or director of the Company, or any partner, affiliate or associate of
any of the foregoing persons or entities.
(x) The minute books of the Company have been made available to the
Representatives and contain a complete summary of all meetings and actions of
the directors and shareholders of the Company since the time of its date of
organization, and reflect all transactions referred to in such minutes
accurately in all respects.
(y) The Company is not aware of any bankruptcy, labor disturbance or other event
affecting any of its principal suppliers or customers which is reasonably likely
to result in a material adverse change in the condition, financial or otherwise,
prospects, business or results of operation of the Company.
(z) The Registered Securities and all the other securities of the Company
conform to all statements in relation thereto in the Registration Statement.
(aa) Except for the registration rights granted under the Underwriters' Warrant
Agreement or disclosed in the Prospectus, no holder of any securities of the
Company has the right to require that the Company include such securities in the
Registration Statement or any registration statement to be filed by the Company;
and the current holders of registration rights have agreed not to exercise such
registration rights for a period of twelve (12) months from the completion of
the offering contemplated hereby and to waive any right which such person or
entity may have to include any of such holder's securities in the Registration
Statement.
(bb) The Units, Shares and Redeemable Warrants are eligible for quotation on The
Nasdaq SmallCap Market. The Company has filed a registration statement with the
Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and has used its best efforts to have same
declared effective by the Commission on an accelerated basis on the Effective
Date.
(cc) Neither the Company nor any officer, director or other agent thereof has,
acting on behalf of the Company, at any time (i) made any contributions to any
candidate for political office in violation of law, or failed to disclose fully
any such contributions in violation of law, (ii) made any payment to any state,
federal or foreign governmental officer or official, or any other person charged
with similar public or quasi-public duties, other than payments required or not
prohibited by law or (iii) made any payment of funds of the Company or received
or retained any funds in violation of any law, rule or regulation and under
circumstances requiring the disclosure of such payment, receipt or retention of
funds in the Prospectus. The Company's internal accounting controls and
procedures are sufficient to cause the Company to comply in all material
respects with the Foreign Corrupt Practices Act of 1977, as amended.
(dd) On the Closing Dates (as hereinafter defined) all transfer or other taxes,
(including franchise, capital stock or other tax, other than income taxes,
imposed by any jurisdiction) if any, which are required to be paid in connection
with the sale and transfer of the Units to the Underwriters hereunder will have
been fully paid or provided for by the Company and all laws imposing such taxes
will have been fully complied with.
(ee) The Company has no subsidiaries.
(ff) Except as previously disclosed in writing by the Company to
the Representatives, no officer, director or stockholder of the Company
has any affiliation or association with any member of the NASD.
(gg) The Company is not, and upon receipt of the proceeds from the sale of the
Units will not be, an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder.
-1-
(hh) The Company has not distributed and will not distribute prior to the First
Closing Date any offering material in connection with the offering and sale of
the Units other than the Preliminary Prospectus, Prospectus, the Registration
Statement or the other materials permitted by the Act, if any.
-1-
(ii) The employment agreements between the Company and its respective officers,
as disclosed in the Registration Statement, are or will be on or before the
First Closing Date binding and enforceable obligations upon the respective
parties thereto in accordance with their respective terms, subject to the
Enforceability Exceptions.
-1-
(jj) Except as set forth in the Prospectus, the Company has no employee benefit
plans (including, without limitation, profit sharing and welfare benefit plans)
or deferred compensation arrangements that are subject to the provisions of the
Employee Retirement Income Security Act of 1974.
<PAGE>
(kk) Except as disclosed in the Prospectus, there are no voting or other
shareholder agreements between the Company and any shareholders of the Company
or between or by and among any shareholders of the Company.
(ll) The Company 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 investigations involving the Company 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 the Company pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or, to the Company's best knowledge, threatened against or involving the
Company, and none has ever occurred. No representation question exists
respecting the employees of the Company, and no collective bargaining agreement
or modification thereof is currently being negotiated by the Company. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements to which the Company is or was a party. No
labor dispute with the employees of the Company exists, or is imminent.
(mm) The statements in the Prospectus under "Risk Factors," "Business," "Certain
Transactions," "Management" and "Description of Securities," insofar as they
refer to statements of law, descriptions of statutes, licenses, regulations or
legal conclusions are correct in all material respects.
(nn) The conditions for use of Form SB-2, as set forth in the General
Instructions thereto, have been satisfied.
(oo) There are no business relationships or related-party transactions of the
nature described in Item 404 of Regulation S-B involving the Company and any
person described in such Item that are required to be disclosed in the
Prospectus and that have not been so disclosed.
(pp) Any certificate signed by an officer of the Company in his capacity as such
and delivered to the Representatives or counsel for the Underwriters shall be
deemed a representation and warranty by the Company to the Representatives as to
the matters covered thereby.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. Each Selling
Shareholder represents, warrants and covenants to each Underwriter as follows:
(a) This Agreement has been duly and validly authorized by or on behalf of such
Selling Shareholder and when executed and delivered will constitute a valid and
binding agreement of such Selling Shareholder, enforceable against such Selling
Shareholder in accordance with its terms, except as such enforceability may be
limited by the Enforceability Exceptions.
(b) Each of the (i) Custody Agreement signed by such Selling Shareholder and
Winstead Sechrest & Minick P.C., as custodian (the "Custodian"), relating to the
deposit of the Shares to be sold by such Selling Shareholder (the "Custody
Agreement") and (ii) Power of Attorney appointing certain individuals named
therein as such Selling Shareholder's attorneys-in-fact (each, an
"Attorney-in-Fact") to the extent set forth therein relating to the transactions
contemplated hereby and by the Prospectus (the "Power of Attorney"), of such
Selling Shareholder has been duly and validly authorized, executed and delivered
by such Selling Shareholder and is a valid and binding agreement of such Selling
Shareholder, enforceable against such Selling Shareholder in accordance with its
terms, except as such enforceability may be limited by the Enforceability
Exceptions.
<PAGE>
-1-
(c) Such Selling Shareholder has, and on the Option Closing Date (as hereinafter
defined) will have, good and valid title to all of the Shares that may be sold
by such Selling Shareholder pursuant to this Agreement on such date and the
legal right and power, and all authorizations and approvals required by law to
enter into this Agreement and its Custody Agreement and Power of Attorney, to
sell, transfer and deliver all of the Shares that may be sold by such Selling
Shareholder pursuant to this Agreement and to comply with its other obligations
hereunder and thereunder.
<PAGE>
-1-
(d) Delivery of the Shares that are sold by such Selling Shareholder pursuant to
this Agreement will pass good and valid title to such Shares, free and clear of
any security interest, mortgage, pledge, lien, encumbrance or other claim.
<PAGE>
-1-
(e) The execution and delivery by such Selling Shareholder of, and the
performance by such Selling Shareholder of its obligations under, this
Agreement, the Custody Agreement and the Power of Attorney will not contravene
or conflict with, result in a breach of, or constitute a default under, or
require the consent of any other party to any agreement or instrument to which
such Selling Shareholder is a party or by which it is bound or under which it is
entitled to any right or benefit, any provision of applicable law or any
judgment, order, decree or regulation applicable to such Selling Shareholder of
any court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over such Selling Shareholder. No consent,
approval, authorization or other order of, or registration or filing with, any
court or other governmental authority or agency, is required for the
consummation by such Selling Shareholder of the transactions contemplated in
this Agreement, except as may be required under the Act, applicable state
securities or blue sky laws and from the NASD.
(f) Such Selling Shareholder does not have any registration or other similar
rights to have any equity or debt securities registered for sale by the Company
under the Registration Statement or included in the offering contemplated by
this Agreement, except for such rights as are being exercised in the offering
contemplated by this Agreement or such rights as have been duly waived.
(g) Except for the
(i) consent of such Selling Shareholder to the respective number of Shares to be
sold by all of the Selling Shareholders pursuant to this Agreement and (ii)
waiver by certain other holders of Common Stock of certain registration rights,
no consent, approval or waiver is required under any instrument or agreement to
which such Selling Shareholder is a party or by which it is bound or under which
it is entitled to any right or benefit, in connection with the offering, sale or
purchase by the Underwriters of any of the Shares which may be sold by such
Selling Shareholder under this Agreement or the consummation by such Selling
Shareholder of any of the other transactions contemplated hereby.
(h) All information furnished by or on behalf of such Selling Shareholder in
writing expressly for use in the Registration Statement and Prospectus is, and
on the Closing Dates will be, true, correct, and complete in all material
respects, and does not, and on the Closing Dates will not, contain any untrue
statement of a material fact or omit to state any material fact necessary to
make such information not misleading. Such Selling Shareholder confirms as
accurate the number of shares of Common Stock set forth opposite such Selling
Shareholder's name in the Prospectus under the caption "Principal and
Selling Shareholders" (both prior to and after giving effect to the sale of
the Shares).
(i) Such Selling Shareholder has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(j) Such Selling Shareholder has no reason to believe that the
representations and warranties of the Company contained in Section 2 hereof
are not true and correct, is familiar with the Registration Statement and
the Prospectus and has no knowledge of any material fact, condition or
information not disclosed in the Registration Statement or the Prospectus
that has had or may have a material adverse effect on the business,
properties, financial condition or operations of the Company and is not
prompted to sell shares of Common Stock by any information concerning the
Company that is not set forth in the Registration Statement and the
Prospectus.
(k) Such Selling Shareholder has not, at any time (i) made any
contributions to any candidate for political office in violation of law, or
failed to disclose fully any such contributions in violation of law, (ii)
made any payment to any state, federal or foreign governmental officer or
official, or any other person charged with similar public or quasi-public
duties, other than payments required or not prohibited by law or (iii) made
any payment of funds or received or retained any funds in violation of any
law, rule or regulation and under circumstances requiring the disclosure of
such payment, receipt or retention of funds in the Prospectus. Any
certificate signed by or on behalf of any Selling Shareholder and delivered
to the Underwriters or to counsel for the Underwriters shall be deemed to
be a representation and warranty by such Selling Shareholder to each
Underwriter as to the matters covered thereby.
4. PURCHASE, DELIVERY AND SALE OF THE UNITS.
(a) Subject to the terms and conditions of this Agreement, and upon the
basis of the representations, warranties, and agreements herein contained,
the Company agrees to issue and sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to buy from the Company at
$13.00 per Unit, at the place and time hereinafter specified, the number of
Units set forth opposite the name of such Underwriter in Schedule A
attached hereto (the "First Units") plus any additional Units which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 13 hereof. The First Units shall consist of Seven Hundred Fifty
Thousand (750,000) Units to be purchased from the Company. Delivery of the
First Units against payment therefor shall take place at the offices of
________________, [ADDRESS] (or at such other place as may be designated by
agreement between the Representatives and the Company) at 10:00 a.m.,
Dallas time, on [__], 1998, or at such later time and date as the
Representatives may designate, such time and date of payment and delivery
for the First Units being herein called the "First Closing Date".
<PAGE>
-1-
(b) In addition, subject to the terms and conditions of this Agreement, and
upon the basis of the representations, warranties and agreements herein
contained, the Company, with respect to the Redeemable Warrants, and the
Selling Shareholders, with respect to the Shares, hereby grant an option
(the "Over-Allotment Option") to the Underwriters to purchase all or any
part of an aggregate of an additional One Hundred Twelve Thousand Five
Hundred (112,500) Units at $15.60 per Unit (such additional Units being
referred to herein as the "Option Units"). This option may be exercised
within forty-five (45) days after the Effective Date upon notice by the
Representatives to the Company advising as to the amount of Option Units as
to which the option is being exercised, the names and denominations in
which the certificates for such Option Units are to be registered and the
time and date when such certificates are to be delivered. Such time and
date shall be determined by the Representatives, but shall not be earlier
than four (4) nor later than ten (10) full business days after the exercise
of said option, nor in any event prior to the First Closing Date, and such
time and date is referred to herein as the "Option Closing Date." Delivery
of the Option Units against payment therefor shall take place at the
offices of ________________, [ADDRESS]. The number of Option Units to be
purchased by each Underwriter, if any, shall bear the same percentage to
the total number of Option Units being purchased by the several
Underwriters pursuant to this Section 4(b) as the number of Units such
Underwriter is purchasing bears to the total number of the First Units
being purchased pursuant to Section 4(a), as adjusted, in each case by the
Representatives in such manner as the Representatives may deem appropriate.
The Over-Allotment Option granted hereunder may be exercised only to cover
over-allotments in the sale by the Underwriters of First Units referred to
in Section 4(a), and the Underwriters shall have no obligation to make any
over-allotments. No Option Securities shall be delivered and paid for
unless the Firm Securities shall be simultaneously delivered or shall
theretofore have been delivered and paid for as herein provided. In the
event the Company declares or pays a dividend or distribution on its Common
Stock, whether in the form of cash, shares of Common Stock or any other
consideration, prior to the Option Closing Date, such dividend or
distribution shall also be paid on the Option Units on the Option Closing
Date.
(c) On the First Closing Date, the Company shall issue and sell to the
Underwriters the Underwriters' Warrants. The total purchase price of the
Underwriters' Warrants shall be $75.00. The Underwriters' Warrants shall be
exercisable for a period of four (4) years commencing twelve (12) months
from the Effective Date, to purchase 75,000 Units at $15.60 per Unit. The
Underwriters' Warrant Agreement, including the forms of Underwriters'
Warrant Certificates, shall be substantially in the form filed as Exhibit
___ to the Registration Statement. Payment for the Underwriters' Warrants
shall be made to the Company on the First Closing Date.
(d) The Company will make the certificates for the securities comprising
the Units to be purchased by the Underwriters hereunder available to the
Representatives for checking at least two (2) full business days prior to
the First Closing Date or the Option Closing Date (which are collectively
referred to herein as the "Closing Dates"). The certificates shall be in
such names and denominations as the Representatives may request, at least
two (2) full business days prior to the Closing Dates. Time shall be of the
essence and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriters. Definitive
certificates in negotiable form for the Units to be purchased by the
Underwriters hereunder will be delivered by the Company to the
Representatives for the accounts of the Underwriters against payment of the
respective purchase prices by the Underwriters, by certified or bank
cashier's checks or, at the option of Representatives, by wire transfer of
immediately available funds, payable to the order of the Company. In
addition, in the event the Underwriters exercise the option to purchase
from the Company all or any portion of the Option Units pursuant to the
provisions of Section 4(b) above, payment for such Units shall be made to
or upon the order of the Company, with respect to the Redeemable Warrants,
and the Selling Shareholders, with respect to the Shares, by certified or
bank cashier's checks or, at the option of Representatives, by wire
transfer payable in immediately available funds at the offices of Tejas
Securities Group, Inc., 8214 Westchester, Suite 500, Dallas, Texas 75225,
at the time and date of delivery of such Units as required by the
provisions of Section 4(b), against receipt of the certificates for such
Units by the Representatives for the respective accounts of the
Underwriters registered in such names and in such denominations as the
Representatives may request. It is understood that each of the
Representatives, each individually and not as representatives of the
several Underwriters, may (but shall not be obligated to) make any and all
payments required pursuant to this Section 4 on behalf of any Underwriters
whose check or checks shall not have been received by the Representatives
at the time of delivery of the Units to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such
Underwriter or Underwriters of any of its or their obligations hereunder.
It is understood that the Underwriters propose to offer the Units to be
purchased hereunder to the public upon the terms and conditions set forth
in the Registration Statement, after the Registration Statement becomes
effective.
5. PUBLIC OFFERING BY THE UNDERWRITER. The Representatives agree to cause
the Firm Securities to be offered to the public initially at the prices and
under the terms set forth in the Prospectus as soon, on or after the
effective date of this Agreement, as the Representatives deem advisable,
but no more than five (5) full business days after such effective date. The
Representatives may allow such concessions and discounts upon sales to
other dealers as set forth in the Prospectus. The Representatives agree to
notify the Company in writing when the such offering is first made and when
it is completed. After the completion of the initial public offering, the
public offering prices, the concessions and the allowances may be changed
by the Representatives.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective as promptly as possible. If required, the
Company will file the Prospectus and any amendment or supplement thereto
with the Commission in the manner and within the time period required by
Rules 434 and 424(b) under the Act. Upon notification from the Commission
that the Registration Statement has become effective, the Company will so
advise you and will not at any time, whether before or after the Effective
Date, file the Prospectus or any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been
advised and furnished with a copy or to which the Representatives or
counsel to the Underwriters shall have objected in writing or which is not
in compliance with the Act and the Rules and Regulations. At any time prior
to the later of (i) the completion by all of the Underwriters of the
distribution of the Units contemplated hereby (but in no event more than
nine (9) months after the Effective Date) and (ii) twenty-five (25) days
after the Effective Date, the Company will prepare and file with the
Commission, promptly upon your request, any amendments or supplements to
the Registration Statement or Prospectus which, in your opinion, may be
necessary or advisable in connection with the distribution of the Units. As
soon as the Company is advised thereof, the Company will advise you, and
confirm the advice in writing, of the receipt of any comments of the
Commission, of the effectiveness of any post-effective amendment to the
Registration Statement, of the filing of any supplement to the Prospectus
or any amended Prospectus, of any request made by the Commission for
amendment of the Registration Statement or for supplementing of the
Prospectus or for additional information with respect thereto, of the
issuance by the Commission or any state or regulatory body of any stop
order or other order or threat thereof suspending the effectiveness of the
Registration Statement or any order preventing or suspending the use of any
Preliminary Prospectus, or of the suspension of the qualification of any of
the Offered Securities for offering in any jurisdiction, or of the
institution of any proceedings for any of such purposes, and will use its
best efforts to prevent the issuance of any such order, and, if issued, to
obtain as soon as possible the lifting thereof. The Company has caused to
be delivered to you copies of each Preliminary Prospectus, and the Company
has consented and hereby consents to the use of such copies for the
purposes permitted by the Act. The Company authorizes the Underwriters and
dealers to use the Prospectus in connection with the sale of the Units for
such period as in the opinion of counsel to the Underwriters the use
thereof is required to comply with the applicable provisions of the Act and
the Rules and Regulations. In case of the happening, at any time within
such period as a Prospectus is required under the Act to be delivered in
connection with sales by an underwriter or dealer of any event of which the
Company has knowledge and which materially affects the Company or the
securities of the Company, or which in the opinion of counsel for the
Company or counsel for the Underwriters should be set forth in an amendment
of the Registration Statement or a supplement to the Prospectus in order to
make the statements therein not then misleading, in light of the
circumstances existing at the time the Prospectus is required to be
delivered to a purchaser of the Units or in case it shall be necessary to
amend or supplement the Prospectus to comply with law or with the Rules and
Regulations, the Company will notify you promptly and forthwith prepare and
furnish to you copies of such amended Prospectus or of such supplement to
be attached to the Prospectus, in such quantities as you may reasonably
request, in order that the Prospectus, as so amended or supplemented, will
not contain any untrue statement of a material fact or omit to state any
material facts necessary in order to make the statements in the Prospectus,
in the light of the circumstances under which they are made, not
misleading. The preparation and furnishing of any such amendment or
supplement to the Registration Statement or amended Prospectus or
supplement to be attached to the Prospectus shall be without expense to the
Underwriters, except that in case any Underwriter is required, in
connection with the sale of the Units to deliver a Prospectus nine (9)
months or more after the Effective Date, the Company will upon request of
and at the expense of the applicable Underwriter, amend or supplement the
Registration Statement and Prospectus and furnish the applicable
Underwriter with reasonable quantities of prospectuses complying with
Section 10(a)(3) of the Act. The Company will comply with the Act, the
Rules and Regulations and the Exchange Act and the rules and regulations
thereunder in connection with the offering and issuance of the Units.
Within the time during which the Prospectus is required to be delivered
under the Act, or pursuant to the undertakings of the Company in the
Registration Statement, the Company will comply, at its own expense, with
all requirements imposed upon it by the Act, the Rules and Regulations, the
Exchange Act or the rules and regulations of the Commission promulgated
under the Exchange Act, each as now or hereafter amended or supplemented,
and by any order of the Commission so far as necessary to permit the
continuance of sales of, or dealings in, the Registered Securities.
(b) The Company will use its best efforts to qualify to register the Units
for sale under the securities or "blue sky" laws of such jurisdictions as
the Representatives may designate and will make such applications and
furnish such information as may be required for that purpose and to comply
with such laws, provided the Company shall not be required to qualify as a
foreign corporation or a dealer in securities or to execute a general
consent of service of process in any jurisdiction in any action other than
one arising out of the offering or sale of the Units. The Company will,
from time to time, prepare and file such statements and reports as are or
may be required to continue such qualification in effect for so long a
period as the Representatives may reasonably request.
(c) Prior to the completion of this offering, the Company will make all
filings required to (i) cause a registration statement under the Exchange
Act to be declared effective concurrently with the completion of this
offering and will notify the Representative in writing immediately upon the
effectiveness of such registration statement, (ii) obtain a listing of the
Units, Common Stock and Redeemable Warrants on the Nasdaq Small Cap Market
and will use its best efforts to maintain such listing for at least five
(5) years from the date of this Agreement, and (iii) if requested by the
Representatives, to obtain and keep current a listing in the Standard &
Poors or Moody's Industrial OTC Manual.
-1-
(d) For so long as the Company is a reporting company under either Section
12(g) or 15(d) of the Exchange Act, the Company, at its expense, will
furnish to its shareholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail
and at its expense, will furnish to the Representatives during the period
ending five (5) years from the date hereof, (i) copies of each annual
report of the Company; (ii) as soon as practicable and in any event upon
filing such report with the Commission, a financial report of the Company,
which will include a balance sheet as of the end of the preceding fiscal
year, a statement of operations, a statement of stockholders' equity
(deficit) and a statement of cash flows covering such fiscal year, such
report being in reasonable detail and audited by independent public
auditors; (iii) for each fiscal quarter of the Company other than the last
fiscal quarter in any fiscal year, as soon as practicable and in any event
upon filing such report with the Commission, a financial report of the
Company, which will include a balance sheet as of the end of the fiscal
quarter, a statement of operations, a statement of stockholders' equity
(deficit) and a statement of cash flows covering such fiscal quarter,
together with notes thereto, for such fiscal quarter and, with respect to
the statement of operations, for the fiscal year to date, setting forth in
each case in comparative form the corresponding figures for the preceding
year, such report being in reasonable detail and certified by the Chief
Financial Officer of the Company to be correct and complete to the best of
such officer's knowledge, to fairly present the financial condition of the
Company at the date thereof and the results of operations for the period
then ending and to have been prepared in accordance with generally accepted
accounting principles consistently applied, except for normal year end
adjustments; (iv) a copy of any Schedule 13D, 13G, 14D-1, 13E-3 or 13E-4
received or filed by the Company from time to time; (v) a copy of any
report filed by the Company pursuant to the Exchange Act; (vi) copies of
all statements, documents or other information which the Company shall mail
or otherwise make available to any class of its security holders, or shall
file with the Commission or with any exchange upon which the securities
issued by the Company shall then be listed or registered; and (vii) such
other publicly available information as the Representatives may from time
to time request. If, and so long as, the Company has an active subsidiary
or subsidiaries, the Company's financial statements will be on a
consolidated basis to the extent the accounts of the Company and its
subsidiary or subsidiaries are consolidated in reports furnished to its
shareholders generally. Separate financial statements shall be furnished
for all subsidiaries whose accounts are not consolidated but which at the
time are significant subsidiaries as defined by the Rules and Regulations.
With respect to each consolidated and unconsolidated significant subsidiary
and affiliate, if any, the financial reports shall be in sufficient detail
to show the basis of any consolidated reports required hereunder.
Notwithstanding the foregoing, the Company's financial statements shall be
deemed to comply with the requirements of this paragraph if they comply
with the Rules and Regulations.
(e) The Company will deliver to the Representatives at or before the First
Closing Date two (2)signed copies of the Registration Statement including
all financial statements and exhibits filed therewith, and of all
amendments thereto, and will deliver to the Underwriters such number of
conformed copies of the Registration Statement, including such financial
statements but without exhibits, and of all amendments thereto, as the
Underwriters may reasonably request. The copies of the Registration
Statement and each amendment thereto furnished to the Underwriters will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation
S-T. The signed copies of the Registration Statement so furnished to the
Representatives will include signed copies of any and all consents and
reports of the independent public auditors as to the financial statements
included in the Registration Statement and Prospectus, and signed copies of
any and all consents and certificates of any other person whose profession
gives authority to statements made by them and who are named in the
Registration Statement or Prospectus as having prepared, certified or
reviewed any parts thereof.
The Company will deliver to or upon the order of the Underwriters, from
time to time until the Effective Date, as many copies of any Preliminary
Prospectus filed with the Commission prior to the Effective Date as the
Underwriters may reasonably request. The Company will deliver to the
Underwriters on the Effective Date and thereafter for so long as a
Prospectus is required to be delivered under the Act, from time to time, as
many copies of the Prospectus, in final form, or as thereafter amended or
supplemented, as the Underwriters may from time to time reasonably request.
The Company, not later than (i) 5:00 p.m., New York City time, on the date
of determination of the public offering price, if such determination
occurred at or prior to 12:00 noon, New York City time, on such date or
(ii) 6:00 p.m., New York City time, on the business day following the date
of determination of the public offering price, if such determination
occurred after 12:00 noon, New York City time, on such date, will deliver
to the Underwriters, without charge, as many copies of the Prospectus and
any amendment or supplement thereto as the Underwriters may reasonably
request for purposes of confirming orders that are expected to settle on
the First Closing Date. The Prospectus and each Prelimarily Prospectus and
any amendments or supplements thereto furnished to the Underwriters will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation
S-T.
(f) The Company will make generally available to its security holders and
to the registered holders of its Redeemable Warrants and deliver to the
Representatives as soon as it is practicable to do so but in no event later
than ninety (90) days after the end of twelve (12) months after its current
fiscal quarter, an earnings statement (which need not be audited) covering
a period of at least twelve (12) consecutive months beginning after the
Effective Date, which shall satisfy the requirements of Section 11(a) of
the Act.
(g) The Company will apply the net proceeds from the sale of the Units for
the purposes set forth under "Use of Proceeds" in the Prospectus, and will
file such reports with the Commission with respect to the sale of the Units
and the application of the proceeds therefrom as may be required pursuant
to Rule 463 under the Act.
(h) The Company on the First Closing Date will sell to the Underwriter the
Underwriters' Warrants according to the terms specified in Section 4(c)
hereof. The Company has reserved and shall continue to reserve a sufficient
number of shares of Common Stock for issuance upon exercise of the
Underwriters' Warrants and the Underwriters' Redeemable Warrants.
(i) For the five (5) year period following the First Closing Date, the
Company agrees that the Representatives shall have the right to designate
for nomination, and the Company shall use its best efforts to cause the
election of, one member of the Company's Board of Directors (the "Board"),
who shall be reasonably acceptable to the Company; alternatively, the
Representatives may designate an observer, who shall be entitled to attend
all meetings of the Board, which observer would be entitled to the same
cash compensation and reimbursement of expenses as the Company affords its
directors who are not also officers or employees of the Company (and would,
in any event, be reimbursed for all reasonable costs incurred in attending
Board meetings, including but not limited to, food, lodging and
transportation) and to receive all copies of all notices and other
documents distributed to the members of the Board (including, but not
limited to, any unanimous consents prepared and advance notices of all
proposed Board actions or consents), as if such observer were a member of
the Board. To the extent permitted by law, the Company agrees to indemnify
and hold the designee (as a director or advisor) and the Representatives
harmless against any and all claims, actions, awards and judgments arising
out of such designee's service. The Company shall immediately after the
First Closing Date use its reasonable best efforts to obtain directors' and
officers' liability insurance in amounts reasonable and customary for
similarly situated companies, at a premium that the Company can reasonably
afford. In the event the Company maintains a liability insurance policy
affording coverage for the acts of its officers and directors, it will, if
possible, include the Representatives and their designee (as a director) as
insureds under such policy. The rights and benefits of such indemnification
and the benefits of such insurance shall, to the extent possible, extend to
the Representatives insofar as they may be, or be alleged to be,
responsible for such advisor. The Company will deliver, on or before the
date hereof, the agreements of each of its officers, directors and holders
of 5% or more of its Common Stock to vote, during the five (5) year period
commencing on the First Closing Date, for the election of the
Representatives' designee for director, if any.
(j) The Company will maintain insurance in full force and effect of the
types and in the amounts adequate for its business and in line with
insurance maintained by similar companies and businesses, including but not
limited to, personal injury and product liability insurance and insurance
covering all personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and all other risks
customarily insured against.
(k) During the course of the distribution of the Offered Securities, the
Company will not 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 prices of the Units, Common Stock
and/or Redeemable Warrants. During the so-called "quiet period" in which
delivery of a prospectus is required, if applicable, the Company will not
issue press releases or engage in any other publicity regarding the
Company, its business or any terms of the offering contemplated hereby,
without the prior written consent of the Representatives. During such
period, copies of all documents which the Company or its public relations
advisors intend to distribute will be provided to the Representatives for
review prior to such distribution.
(l) The Company will, promptly upon your request, prepare and file with the
Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in
the reasonable opinion of counsel to the Underwriters, may be reasonably
necessary or advisable in connection with the distribution of the Offered
Securities, and will use its best efforts to cause the same to become
effective as promptly as possible.
(m) The Company will reserve and keep available the maximum number
of its authorized but unissued securities which are issuable upon exercise
of the Unit Purchase Option outstanding from time to time.
(n) On the Closing Dates, all transfer or other taxes (other than income
taxes) which are required to be paid in connection with the sale and
transfer of the Registered Securities will have been fully paid by the
Company and all laws imposing such taxes will have been fully complied
with.
-1- (o) Subsequent to the dates as of which information is given in the
Registration Statement and Prospectus and prior to the Closing Dates,
except as disclosed in or contemplated by the Registration Statement and
Prospectus, (i) the Company will not have incurred any liabilities or
obligations, direct or contingent, or entered into any material
transactions other than in the ordinary course of business; (ii) there
shall not have been any change in the capital stock, funded debt (other
than regular repayments of principal and interest on existing indebtedness)
or other securities of the Company, any adverse change in the condition
(financial or otherwise), business, operations, income, net worth or
properties, including any loss or damage to the properties of the Company
(whether or not such loss is insured against), which could adversely affect
the condition (financial or otherwise), business, operations, income, net
worth or properties of the Company; and (iii) the Company shall not have
paid or declared any dividend or other distribution on its Common Stock or
its other securities or redeemed or repurchased any of its Common Stock or
other securities. The Company shall furnish to the Underwriter as early as
practicable prior to each of the date hereof, the First 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 sixty (60) days prior to the date of the Registration
Statement) which have been reviewed by the Company's independent public
accountants, as stated in their letters to be furnished pursuant to Section
8(g) hereof
(p) Timothy C. Moses shall be Co-Chairman of the Board and Chief Executive
Officer of the Company on the Closing Dates, and Jacques Elfersy shall be
Co-Chairman of the Board and Executive Vice President of the Company on the
Closing Dates. The Company will obtain key person life insurance on the
lives of Messrs. Moses and Elfersy in an amount of not less than One
Million Dollars ($1,000,000) for each of them and will use its best efforts
to maintain such insurance during the five (5) year period commencing with
the First Closing Date unless his employment with the Company is earlier
terminated. In such event, the Company will obtain a comparable policy on
the life of his successor for the balance of the five (5) year period. For
a period of twelve(12) months from the First Closing Date, the compensation
of the executive officers of the Company shall not be increased from the
compensation levels disclosed in the Prospectus.
-1- (q) So long as any Redeemable Warrants are outstanding, the Company
shall use its best efforts to cause post-effective amendments to the
Registration Statement to become effective in compliance with the Act and
without any lapse of time between the effectiveness of any such
post-effective amendments and cause a copy of each Prospectus, as then
amended, to be delivered to each holder of record of a Redeemable Warrant
and to furnish to each Underwriter and dealer as many copies of each such
Prospectus as such Underwriter or dealer may reasonably request. The
Company shall not call for redemption any of the Redeemable Warrants unless
a registration statement covering the securities underlying the Redeemable
Warrants has been declared effective by the Commission and remains current
at least until the date fixed for redemption. In addition, for so long as
any Redeemable Warrant is outstanding, the Company will promptly notify the
Representative of any material change in the business, financial condition
or prospects of the Company.
(r) Upon the exercise of any Redeemable Warrants after one (1) year from
the Effective Date, the Company will pay the Representatives, each
individually and not as representatives of the Underwriters, a fee of 5% of
the aggregate exercise price of the Redeemable Warrants, of which a portion
may be reallowed to the dealer who solicited the exercise (which may also
be a Representative) if (i) the market price of the Company's Common Stock
is greater than or equal to the exercise price of the Redeemable Warrants
on the date of exercise; (ii) the exercise of the Redeemable Warrants was
solicited by a member of the NASD, (iii) the holder of the Redeemable
Warrants so exercised designates in writing that the exercise of the
Redeemable Warrant was solicited by a member of the NASD and designates in
writing the Representative or other broker-dealer to receive compensation
for such exercise; (iv) the Redeemable Warrants are not held in a
discretionary account (except where prior specific approval for exercise is
received from the customer exercising the Redeemable Warrants); (v) the
disclosure of compensation arrangements has been made in documents provided
to customers, both as part of the original offering and at the time of
exercise, and (vi) the solicitation of exercise of the Redeemable Warrants
was not in violation of Regulation M promulgated under the Exchange Act.
The Company agrees not to solicit the exercise of any Redeemable Warrants
other than through the Representatives and will not authorize any other
dealer to engage in such solicitation without the prior written consent of
the Representatives.
(s) For a period of five (5) years from the Effective Date the Company, at
its expense, shall cause its regularly engaged independent certified public
accountants to review (but not audit) the Company's financial statements
for each of the first three (3) fiscal quarters prior to the announcement
of quarterly financial information, the filing of the Company's 10-Q
quarterly report and the mailing of quarterly financial information
to shareholders.
(t) The Company maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurances
that: (i) transactions are executed in accordance with management's general
or specific authorization; (ii) transactions are recorded as necessary in
order to permit preparation of financial statements in accordance 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 authorization; and (iv) the recorded
accountability for assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(u) The Company agrees that for so long as the Common Stock is registered
under the Exchange Act, the Company will hold an annual meeting of
shareholders for the election of directors within 180 days after the end of
each of the Company's fiscal years and, within 150 days after the end of
each of the Company's fiscal years, will provide the Company's shareholders
with the audited financial statements of the Company as of the end of the
fiscal year just completed prior thereto. Such financial statements shall
be those required by applicable rules under the Exchange Act and shall be
included in an annual report pursuant to the requirements thereof.
(v) 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 Underwriters' Securities, the
Company will not take any action or actions which may prevent or disqualify
the Company's use of Form S-1 or Form SB-2 (or other appropriate form) for
the registration under the Act of the Underwriters' Redeemable Warrants,
the Underwriters' Shares or the Underwriters' Warrant Shares.
(w) The Company shall cause each director and officer of the Company and
certain other shareholders, including the Selling Shareholders, to enter
into an agreement with the Underwriter pursuant to which he, she or it will
agree not to sell or otherwise transfer any securities of the Company for a
period of one (1) year following the Effective Date without the prior
consent of the Representatives.
(x) As promptly as practicable after the Closing Date, the Company will
prepare, at its own expense, hard cover "bound volumes" relating to the
offering, and will distribute at least four (4) of such volumes to the
individuals designated by the Representatives or counsel to the
Underwriters.
(y) The Company shall, for a period of six (6) years after date of this
Agreement, submit such reports to the Secretary of the Treasury and to
shareholders, as the Secretary may require, pursuant to Section 1202 of the
Internal Revenue Code, as amended, or regulations promulgated thereunder,
in order for the Company to qualify as a "small business" so that
stockholders may realize special tax treatment with respect to their
investment in the Company.
7. COVENANTS OF THE SELLING SHAREHOLDERS. Each Selling Shareholder further
covenants and agrees with each Underwriter:
(a) Such Selling Shareholder will not, without the prior written consent of
the Representatives (which consent may be withheld in their sole
discretion), directly or indirectly, sell, offer, contract or grant any
option to sell (including without limitation any short sale), pledge,
transfer, establish an open "put equivalent position" within the meaning of
Rule 16a-1(h) under the Exchange Act, or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock, or
securities exchangeable or exercisable for or convertible into shares of
Common Stock currently or hereafter owned either of record or beneficially
(as defined in Rule 13d-3 under the Exchange Act) by such Selling
Shareholder, or publicly announce suchSelling Shareholder's intention to do
any of the foregoing, for a period commencing on the date hereof and
continuing through the close of trading on the date ninety (90) days after
the date of the Prospectus.
-1-
(b) Such Selling Shareholder will deliver to the Underwriters prior to the
First Closing Date a properly completed and executed United States Treasury
Department Form W-8 (if the Selling Shareholder is a non-United States
person) or Form W-9 (if the Selling Shareholder is a United States Person).
The Representatives may, in their sole discretion, waive in writing the
performance by the Company or any Selling Shareholder of any one or more of
the foregoing covenants or extend the time for their performance.
-1-
8. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of
the Underwriters to purchase and pay for the Units which it has agreed to
purchase hereunder, are subject to the accuracy (as of the date hereof, and
as of the Closing Dates) of and compliance with the representations and
warranties of the Company herein, to the performance by the Company of its
obligations hereunder, and to the following conditions:
<PAGE>
-1-
(a) The Registration Statement shall have become effective and you shall
have received notice thereof not later than 10:00 A.M., Dallas time, on the
date on which the amendment to the registration statement originally filed
with respect to the Offered Securities or to the Registration Statement, as
the case may be, containing information regarding the initial public
offering price of the Units has been filed with the Commission, or such
later time and date as shall have been agreed to by the Representatives; if
required, the Prospectus and any amendment or supplement thereto shall have
been filed with the Commission in the manner and within the time period
required by Rule 434 and 424(b) under the Act; on or prior to the Closing
Dates no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that or a similar
purpose shall have been instituted or shall be pending or, to the best
knowledge of the Representatives and the Company, shall be contemplated by
the Commission; qualification under the securities laws of such states as
the Representatives may designate of the issue and sale of the Offered
Securities upon the terms and conditions herein set forth or contemplated
and containing no provision unacceptable to the Representatives shall have
been secured; and no stop order shall be in effect denying or suspending
effectiveness of such qualifications, nor shall any stop order proceedings
with respect thereto be instituted or pending or, to the best knowledge of
the Company and the Representatives, threatened under such laws. If the
Company has elected to rely upon Rule 430A of the Rules and Regulations,
the price of the Units 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 First Closing Date the Company shall have provided evidence
satisfactory to the Representatives 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; any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the Underwriters;
-1-
(b) No amendments to the Registration Statement, any Preliminary Prospectus
or the Prospectus to which the Representatives or counsel for the
Underwriters shall have objected, after having received reasonable notice
of a proposal to file the same, shall have been filed.
-1- (c) The Representatives shall not have discovered and disclosed to the
Company prior to the respective Closing Dates that the Registration
Statement or the Prospectus, or any amendment or supplement thereto,
contains an untrue statement of fact which, in the reasonable opinion of
counsel for the Underwriters, is material, or omits to state a fact which,
in the opinion of such counsel, is material and is required to be stated
therein or is necessary to make the statements therein not misleading.
(d) At the First Closing Date, the Representatives shall have received the
opinion, together with copies of such opinion for each of the other
Underwriters, dated as of the First Closing Date, of Sims Moss Kline &
Davis LLP, counsel for the Company, in form and substance satisfactory to
counsel for the Underwriters, to the effect that:
-1-
(i) the Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Georgia, with full
corporate power and authority to own its properties and conduct its business as
described in the Registration Statement and Prospectus and is duly qualified to
do business as a foreign corporation and is in good standing in all other
jurisdictions in which the nature of its business or the character or location
of its properties requires such qualification, except where the failure to so
qualify will not have a material adverse affect on the Company's business,
properties or financial condition;
<PAGE>
-1- (ii) to the best knowledge of such counsel, (a) the Company has
obtained all licenses, permits and other governmental authorizations
necessary to the conduct of its business as described in the Prospectus,
(b) such licenses, permits and other governmental authorizations obtained
are in full force and effect, and (c) the Company is in all material
respects complying therewith;
-1- (iii) the authorized capitalization of the Company as of
__________________, 1998 is as set forth in the Prospectus under
"Capitalization"; all shares of issued and outstanding capital stock of the
Company set forth thereunder have been duly authorized, validly issued, and
are fully paid and non-assessable and conform to the description thereof
contained in the Prospectus; to the best of such counsel's knowledge, the
outstanding shares of Common Stock of the Company have not been issued in
violation of the preemptive rights of any shareholder and the shareholders
of the Company do not have any statutory preemptive rights to subscribe for
or to purchase, nor are there any restrictions upon the voting or transfer
of any of the Stock; the Registered Securities, the Public Warrant
Agreement and the Underwriters' Warrant Agreement conform as to legal
matters in all material respects to the respective descriptions thereof
contained in the Prospectus; the Shares have been, and the Public Warrant
Shares and Underwriters' Warrant Shares upon issuance in accordance with
the terms of the Public Warrants and the Public Warrant Agreement and the
Underwriters' Warrants and the Underwriters' Warrant Agreement,
respectively, have been duly authorized and, when issued and delivered,
will be duly and validly issued, fully paid, non-assessable, free of
preemptive rights and no personal liability will attach to the ownership
thereof; a sufficient number of shares of Common Stock has been reserved
for issuance upon exercise of the Redeemable Warrants, Underwriters'
Warrants and Underwriters' Redeemable Warrants, and to the best of such
counsel's knowledge, neither the filing of the Registration Statement nor
the offering or sale of the Registered Securities as contemplated by this
Agreement gives rise to, any registration rights or other rights, other
than those which have been waived or satisfied, for or relating to the
registration of any shares of Common Stock;
<PAGE>
-1-
(iv) this Agreement, the Public Warrant Agreement and the Underwriters'
Warrant Agreement have been duly and validly authorized, executed and
delivered by the Company and, assuming due execution by each other party
hereto or thereto, each constitutes a legal, valid and binding obligation
of the Company enforceable against the Company in accordance with its
respective 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;
-1-
(v) the certificates evidencing the shares of Common Stock are in valid and
proper legal form; the Public Warrants and the Underwriters' Warrants will
be exercisable for shares of Common Stock in accordance with their terms
and at the prices therein provided for;
-1-
(vi) delivery of certificates for the Shares and Redeemable Warrants
underlying the Units, upon payment therefor by the Underwriters as provided
in this Agreement, will transfer valid title to such securities to the
Underwriters; and, upon payment for such securities, the Underwriters will
acquire such securities free and clear of any liens;
-1-
(vii) such counsel knows of no pending or threatened legal or governmental
proceedings to which the Company is a party which could materially
adversely affect the business, property, financial condition or operations
of the Company; or which question the validity of the Registered
Securities, this Agreement, the Public Warrant Agreement or the
Underwriters' Warrant Agreement, or of any action taken or to be taken by
the Company pursuant to such agreements; and no such proceedings are known
to such counsel to be contemplated against the Company; to such counsel's
knowledge there are no governmental proceedings or regulations required to
be described or referred to in the Registration Statement which are not so
described or referred to;
-1-
(viii) to such counsel's knowledge the Company is not in violation of or
default under, nor will the execution and delivery of this Agreement, the
Public Warrant Agreement or the Underwriters' Warrant Agreement, and the
incurrence of the obligations herein and therein set forth and the
consummation of the transactions herein or therein contemplated, result in
a breach or violation of, or constitute a default under the Amended and
Restated Articles of Incorporation or Bylaws, in the performance or
observance of any material obligations, agreement, covenant or condition
contained in any bond, debenture, note or other evidence of indebtedness or
in any material contract, indenture, mortgage, loan agreement, lease, joint
venture or other agreement or instrument to which the Company is a party or
by which it or any of its properties may be bound or in violation of any
material order, rule, regulation, writ, injunction, or decree of any
government, governmental instrumentality or court, domestic or foreign, the
effect of which default, breach or violation would be material to the
Company;
<PAGE>
-1-
(ix) the Registration Statement has become effective under the Act, and to
the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement is in effect, and no
proceedings for that purpose have been instituted or are pending before, or
threatened by, the Commission; the Registration Statement and the
Prospectus (except for the financial statements and other financial data
contained therein, or omitted therefrom, as to which such counsel need
express no opinion) comply as to form in all material respects with the
applicable requirements of the Act and the Rules and Regulations;
-1-
(x) such counsel has participated in the preparation of the Registration
Statement and the Prospectus and, although such counsel did not
independently verify and is not passing upon and does not assume any
responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus,
based upon such participation (relying as to materiality to a large extent
upon the certificates of officers and other representatives of the
Company), nothing has come to the attention of such counsel to cause such
counsel to have reason to believe that the Registration Statement or any
amendment thereto at the time it became effective contained any untrue
statement of a material fact required to be stated therein or omitted to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading or that the Prospectus or any
supplement thereto contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make statements
therein, in light of the circumstances under which they were made, not
misleading (except, in the case of both the Registration Statement and any
amendment thereto and the Prospectus and any supplement thereto, for the
(1) financial statements, notes thereto and other financial information and
schedules contained therein or (2) matters relating to government
regulatory matters relating to the development and potential marketing and
sale of the Company's products as to all of which such counsel need express
no opinion);
-1-
(xi) all descriptions in the Registration Statement and the Prospectus, and
any amendment or supplement thereto, of contracts and other documents are
accurate and fairly summarize in all material respects the information
required to be shown, and such counsel is familiar with all contracts and
other documents referred to in the Registration Statement and the
Prospectus and any such amendment or supplement or filed as exhibits to the
Registration Statement, and such counsel does not know of any contracts or
documents of a character required to be summarized or described therein or
to be filed as exhibits thereto which are not so summarized, described or
filed;
-1-
(xii) no authorization, approval, consent, or license of any governmental
or regulatory authority or agency is necessary in connection with the
authorization, issuance, transfer, sale or delivery of the Registered
Securities by the Company, in connection with the execution, delivery and
performance of this Agreement by the Company or in connection with the
taking of any action contemplated herein, other than registrations or
qualifications of the Registered Securities under applicable state or
foreign securities or blue sky laws and registration under the Act;
(xiii) such counsel is unaware of another entity or individual having any
right or claim in any of the Intellectual Property of the Company by virtue
of any contract, license or other agreement and (1) such counsel has no
reason to believe, except as discussed in the Prospectus, that the Company
lacks or will be unable to obtain rights to use all Intellectual Property
necessary to conduct the business now or proposed to be conducted by the
Company and (2) such counsel is unaware of any material facts which form a
basis for a finding of unenforceability or invalidity of any of the
Intellectual Property owned, licensed or used by the Company;
(xiv) the Company has not received notice of any claim of infringement or
violation of or conflict with the rights or claims of others with respect
to any Intellectual Property owned, licensed or used by the Company and (1)
such counsel is not aware of any agreements or proprietary rights of others
which are literally infringed by the Company's products, processes or
operations and (2) the Company conducts its business without willful
infringement of the Intellectual Property of others;
-1-
(xv) there are no material legal or governmental proceedings pending, or,
to the best knowledge of such counsel, threatened or contemplated by
governmental authorities related to the Intellectual Property of the
Company; and
-1-
(xvi) the statements in the Registration Statement under the captions
"Business," "Management," "Shares Eligible for Future Sale," "Certain
Transactions," and "Description of Securities" have been reviewed by such
counsel and insofar as they refer to descriptions of agreements, statements
of law, descriptions of statutes, licenses, rules or regulations or legal
conclusions, are correct in all material respects;
-1-
(xvii) based solely upon advice of representatives of Nasdaq, the Units,
the Common Stock and the Warrants have been duly authorized for quotation
on the Nasdaq Small Cap Market; and
-1-
(xviii) to such counsel's knowledge, there are no business relationships or
related-party transactions of the nature described in Item 404 of
Regulation S-B involving the Company and any person described in such Item
that are required to be disclosed in the Prospectus and which have not been
so disclosed.
Such counsel need express no opinion with respect to the financial
statements and other financial data included in or omitted from the
Registration Statement or Prospectus nor to matters pertaining to
government regulatory matters relating to the development and potential
marketing and sale of the Company's products. Such opinion shall also cover
such matters incident to the transactions contemplated hereby as the
Representatives or counsel for the Underwriters shall reasonably request.
In rendering such opinion, such counsel may rely upon certificates of any
officer of the Company or public officials as to matters of fact; and may
rely as to all matters of law other than the law of the United States or of
the State of Georgia upon opinions of counsel satisfactory to you, in which
case the opinion shall state that they have no reason to believe that you
and they are not entitled to so rely.
-1-
(e) On the Option Closing Date the Representatives shall have received the
opinion, together with copies of such opinion for each of the other
Underwriters, dated as of the Option Closing Date, of _______________,
counsel for the Selling Shareholders in form and substance satisfactory to
the counsel for the Underwriters.
-1-
(f) All corporate proceedings and other legal matters relating to this
Agreement, the Registration Statement, the Prospectus and other related
matters shall be satisfactory to or approved by counsel to the
Underwriters.
-1- (g) The Representatives shall have received two letters from Grant
Thornton LLP, independent public accounts for the Company, one dated and
delivered on the Effective Date and one dated and delivered on the First
Closing Date, in form and substance satisfactory to the Representatives,
and including estimates of the Company's revenues and results of operations
for the period ending at the end of the month immediately preceding the
Effective Date and results of the comparable period during the prior fiscal
year.
-1-
(h) The Representatives shall have received a certificate, dated
and delivered as of the date of the First Closing Date, of the Chief
Executive Officer and Secretary of the Company stating that:
-1-
(i) The Company and such officers have complied with all the agreements and
satisfied all the conditions on their respective part to be performed or
satisfied hereunder at or prior to such date, including but not limited to
the agreements and covenants of the Company set forth in Section 6 hereof.
-1-
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for that purpose have been
instituted or are pending, contemplated or threatened under the Act.
-1-
(iii) Such officers have carefully examined the Registration Statement and
the Prospectus and any supplement or amendment thereto, each of which
contains all statements required to be stated therein or necessary to make
the statements therein not misleading and does not contain any untrue
statement of a material fact, and since the Effective Date there has
occurred no event required to be set forth in the amended or supplemented
prospectus which has not been set forth.
-1-
(iv) As of the date of such certificate, the representations and warranties
contained in Section 2 hereof are true and correct as if such
representations and warranties were made in their entirety on the date of
such certificate, and the Company has complied with all its agreements
herein contained as of the date hereof.
-1-
(v) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus, and except as contemplated in
the Prospectus, the Company has not incurred any liabilities or
obligations, direct or contingent, or entered into any material
transactions and there has not been any change in the Common Stock or
funded debt of the Company or any adverse change in the condition
(financial or otherwise), business, operations, income, net worth,
properties or prospects of the Company.
-1-
(vi) Subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus, the Company shall have not
sustained any material loss of or damage to its properties, whether or not
insured, and since such respective dates, no dividends or distributions
whatever shall have been declared or paid, or both, on or with respect to
any security (except interest in respect of loans) of the Company.
-1-
(vii) Neither the Company nor any of its officers or affiliates shall have
taken, and the Company, its officers and affiliates will not take, directly
or indirectly, any action designed to, or which might reasonably be
expected to, cause or result in the stabilization or manipulation of the
price of the Company's securities to facilitate the sale or resale of the
Offered Securities.
-1-
(viii) No action, suit or proceeding, at law or in equity, shall be pending
or, to the knowledge of such officers, threatened against the Company, or
affecting any of its properties, before or by any commission, board or
other administrative agency, except as otherwise set forth in the
Registration Statement.
-1-
(i) All of the Units shall have been tendered for delivery in accordance
with the terms and provisions of this Agreement.
-1-
(j) On the date hereof, the Company and the Selling Shareholders shall have
furnished for review by the Representatives copies of the Powers of
Attorney and Custody Agreements executed by each of the Selling
Shareholders and such further information, certificates and documents as
the Representatives may reasonably request.
-1-
(k) On the date hereof, the Company and the Selling Shareholders
shall have furnished for review by the Representatives copies of the Powers
of Attorney and Custody Agreements executed by each of the Selling
Shareholders and such further information, certificates and documents as the
Representatives may reasonably
request.
-1-
(l) The Underwriter shall have received each of the lock-up agreements
referred to in Section 6(bb) hereof.
-1-
(m) At each of the Closing Dates, (i) the representations and warranties of
the Company (and the Selling Shareholders at the Option Closing Date)
contained in this Agreement shall be true and correct with the same effect
as if made on and as of the Closing Dates and the Company shall have
performed all its obligations due to be performed prior thereto; (ii) the
Registration Statement and the Prospectus and any amendment or supplement
thereto shall contain all statements which are required to be stated
therein in accordance with the Act and the Rules and Regulations and
conform in all material respects to the requirements thereof, and neither
the Registration Statement nor the Prospectus nor any amendment or
supplement thereto shall 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 not misleading; (iii) there shall have been,
since the date as of which information is given, no material adverse change
in the condition, business, operations, properties, business prospects,
securities, long-term or short-term debt or general affairs of the Company
from that set forth in the Registration Statement or the Prospectus, except
changes which the Registration Statement and the Prospectus indicate will
occur after the Effective Date and prior to such Closing Date, and the
Company shall not have incurred any material liabilities or obligations,
direct or contingent, or entered into any material transaction, contract or
agreement not in the ordinary course of business other than as referred to
in the Registration Statement and the Prospectus; and (iv) except as set
forth in the Prospectus, no action, suit or proceeding, at law or in
equity, shall be pending or threatened against the Company which might be
required to be set forth in the Registration Statement, and no proceedings
shall be pending or threatened against the Company before or by any
commission, board or administrative agency in the United States or
elsewhere, wherein an unfavorable decision, ruling or finding might
adversely affect the condition, business, operations, properties, prospects
or general affairs of the Company.
-1-
(n) Upon exercise of the Over-Allotment Option provided for in Section 4(b)
hereof, the obligations of the Underwriter to purchase and pay for the
Option Shares and/or the Redeemable Warrants will be subject to the
following additional conditions:
-1-
(i) The Registration Statement shall remain effective at the Option Closing
Date, and no stop order suspending the effectiveness thereof shall have
been issued and no proceedings for that purpose shall have been instituted
or shall be pending, or, to the best knowledge of the Underwriter or the
Company, shall be contemplated by the Commission, and any request on the
part of the Commission for additional information shall have been complied
with to the satisfaction of counsel for the Underwriters.
-1-
(ii) At the Option Closing Date there shall have been delivered to the
Representatives the signed opinion of Sims Moss Kline & Davis LLP, counsel
for the Company, in form and substance reasonably satisfactory to counsel
for the Underwriters, which opinion shall be substantially the same in
scope and substance as the opinions furnished to the Representatives by
such counsel at the First Closing Date pursuant to Section 8(d).
-1-
(iii) At the Option Closing Date there shall have been delivered to the
Representatives a certificate of the Chief Executive Officer and the
Secretary of the Company dated the Option Closing Date, in form and
substance satisfactory to counsel for the Underwriters, substantially the
same in scope and substance as the certificates furnished to the
Representatives at the First Closing Date pursuant to Section 8(h).
-1-
(iv) At the Option Closing Date there shall have been delivered to the
Representatives a letter, in form and substance satisfactory to the
Representatives, from Grant Thornton LLP, dated the Option Closing Date and
addressed to the Representatives, confirming the information in its letter
referred to in Section 8(g) hereof and stating that nothing has come to
their attention during the period from the ending date of their review
referred to in said certificate or letter to a date not more than five (5)
business days prior to the Option Closing Date which would require any
change in said letter if it were required to be dated the Option Closing
Date.
-1-
(v) At the Option Closing Date there shall have been delivered to the
Representatives a certificate executed by the Attorney-in-Fact of each
Selling Shareholder, dated as of the Option Closing Date, to the effect
that:
(A) the representations, warranties and covenants of
such Selling Shareholder set forth in Section 3 of this Agreement are
true and correct with the same force and effect as though expressly
made by such Selling Shareholder on and as of the Option Closing Date;
and
(B) such Selling Shareholder has complied with all
the agreements and satisfied all the conditions on its part to be
performed or satisfied under this Agreement at or prior to the Option
Closing Date.
-1-
(vi) All proceedings taken at or prior to the Option Closing Date in
connection with the sale and transfer of the Option Securities shall be
satisfactory in form and substance to the Representatives, and the
Representatives and counsel for the Underwriters, shall have been furnished
with all such documents, certificates, affidavits and opinions as the
Representatives and counsel for the Underwriters may reasonably request in
connection with this transaction in order to evidence the accuracy and
completeness of any of the representations, warranties or statements of the
Company or the Selling Shareholders or compliance by the Company or the
Selling Shareholders with any of the covenants or conditions contained
herein.
-1-
(o) The Company shall have executed and delivered the Public
Warrant Agreement and the Underwriters' Warrant Agreement, and
shall have issued the Underwriters' Warrants.
-1-
(p) The Company and the Selling Shareholders shall have furnished to the
Representatives such other certificates, documents, and opinions as the
Representatives may have reasonably requested (including certificates from
officers of the Company and from the Selling Shareholders) as to the
accuracy, at the Closing Dates, of the representations and warranties of
the Company and the Selling Shareholders herein, as to the performance by
the Company and the Selling Shareholders of their respective obligations
hereunder and as to other conditions concurrent and precedent to the
obligations of the Underwriters hereunder.
The opinions and certificates mentioned above or elsewhere in this
Agreement will be deemed to be in compliance with the provisions hereof
only if they are reasonably satisfactory to the Representatives and to
counsel for the Underwriters.
Any certificate signed by an officer of the Company delivered to the
Representatives or to counsel for the Underwriters, will be deemed a
representation and warranty by the Company to the Representatives as to the
statements made therein.
-1-
(q) No action shall have been taken by the Commission or the NASD the
effect of which would make it improper, at any time prior to the Closing
Dates, for members of the NASD to execute transactions (as principal or
agent) in the Registered Securities and no proceedings for the taking of
such action shall have been instituted or shall be pending, or, to the
knowledge of the Underwriters or the Company, shall be contemplated by the
Commission or the NASD. The Company represents that at the date hereof it
has no knowledge that any such action is in fact contemplated by the
Commission or the NASD. The Company shall have advised the Representatives
of any NASD affiliation of any of its officers, directors, stockholders or
their affiliates.
-1-
(r) If any of the conditions herein provided for in this Section 8 shall
not have been fulfilled as of the date indicated, this Agreement and all
obligations of the Underwriters under this Agreement may be canceled at, or
at any time prior to, each Closing Date by the Representatives. Any such
cancellation shall be without liability of the Underwriters to the Company.
-1-
9. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligation of the
Company to sell and deliver the Units, the Shares, the Redeemable Warrants
and the Underwriters' Warrants, is subject to the condition that at the
Closing Dates, no stop orders suspending the effectiveness of the
Registration Statement shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission. If the
condition to the obligations of the Company provided for in this Section 9
have been fulfilled on the First Closing Date but are not fulfilled after
the First Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Units on exercise of the
Over-Allotment Option shall be affected.
-1-
10. INDEMNIFICATION.
-1-
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of the
Act against any losses, claims, damages or liabilities, joint or several
(which shall, for all purposes of this Agreement, include, but not be
limited to, all reasonable costs of defense and investigation and all
attorneys' fees), to which such Underwriter or such controlling person may
become subject, under the Act or otherwise, and will reimburse, as
incurred, such Underwriter and such controlling persons for any legal or
other expenses reasonably incurred in connection with investigating,
defending against or appearing as a third party witness in connection with
any losses, claims, damages or liabilities, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in (A) the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, (B) any
blue sky application or other document executed by the Company specifically
for that purpose or based upon written information furnished by the Company
filed in any state or other jurisdiction in order to qualify any or all of
the Units under the securities laws thereof (any such application, document
or information being hereinafter called a "Blue Sky Application"), or arise
out of or are based upon the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, Prospectus, or any
amendment or supplement thereto, or in any Blue Sky Application, a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the Company will not be
liable in any such case to the extent, but only to the extent, that any
such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Underwriters specifically
for use in the preparation of the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or any
such Blue Sky Application. This indemnity will be in addition to any
liability which the Company may otherwise have.
-1-
(b) Each Underwriter, severally, but not jointly, will indemnify and hold
harmless the Company, each of its directors, each nominee (if any) for
director named in the Prospectus, each of its officers who have signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of the Act, against any losses, claims, damages or
liabilities (which shall, for all purposes of this Agreement, include, but
not be limited to, all costs of defense and investigation and all
attorneys' fees) to which the Company or any such director, nominee,
officer or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, anyPreliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto (i) in
reliance upon and in conformity with written information furnished to the
Company any Underwriter specifically for use in the preparation thereof and
(ii) relates to the transactions effected by the Underwriters in connection
with the offer and sale of the Public Securities contemplated hereby. This
indemnity agreement will be in addition to any liability which the
Underwriters may otherwise have.
-1-
(c) Promptly after receipt by an indemnified party under this Section 10 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
this Section 10, notify in writing the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under this Section 10. In case any such action is
brought against any indemnified party, and it notifies the indemnifying
party of the commencement thereof, the indemnifying party will be entitled
to participate in, and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
subject to the provisions herein stated, with counsel reasonably
satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 10 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. The
indemnified party shall have the right to employ separate counsel in any
such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall not be at the expense of the indemnifying
party ifthe indemnifying party has assumed the defense of the action with
counsel reasonably satisfactory to the indemnified party; provided that if
the indemnified party is an Underwriter or a person who controls an
Underwriter within the meaning of the Act, the fees and expenses of such
counsel shall be at the expense of the indemnifying party if (i) the
employment of such counsel has been specifically authorized in writing by
the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the Underwriter or such
controlling person and the indemnifying party and in the judgment of the
applicable Underwriter, it is advisable for the applicable Underwriter or
controlling persons to be represented by separate counsel (in which case
the indemnifying party shall not have the right to assume the defense of
such action on behalf of the applicable Underwriter or such controlling
person, it being understood, however, that the indemnifying party shall
not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys for the applicable
Underwriter and controlling persons, which firm shall be designated in
writing by the applicable Underwriter). No settlement of any action against
an indemnified party shall be made without the consent of the indemnifying
party, which shall not be unreasonably withheld in light of all factors of
importance to such indemnifying party.
<PAGE>
-1-
11. CONTRIBUTION. In order to provide for just and equitable contribution
under the Act in any case in which (i) an Underwriter makes claim for
indemnification pursuant to Section 10 hereof but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial
of the last right of appeal) that such indemnification may not be enforced
in such case, notwithstanding the fact that the express provisions of
Section 10 provide for indemnification in such case, or (ii) contribution
under the Act may be required on the part of any Underwriter, then the
Company and each person who controls the Company, in the aggregate, and any
such Underwriter shall contribute to the aggregate losses, claims, damages
or liabilities to which they may be subject (which shall, for all purposes
of this Agreement, include, but not be limited to, all reasonable costs of
defense and investigation and all reasonable attorneys' fees) in either
such case (after contribution from others) in such proportions that all
such Underwriters are only responsible for that portion of such losses,
claims, damages or liabilities represented by the percentage that the
underwriting discount per Unit appearing on the cover page of the
Prospectus bears to the public offering price appearing thereon, and the
Company shall be responsible for the remaining portion, provided, however,
that (a) if such allocation is not permitted by applicable law then the
relative fault of the Company and the applicable Underwriter and
controlling persons, in the aggregate, in connection with the statements or
omissions which resulted in such damages and other relevant equitable
considerations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case of an
untrue statement of a material fact or the omission to state a material
fact, such statement or omission relates to information supplied by the
Company or the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The Company and the Underwriters agree (a) that it
would not be just and equitable if the respective obligations of the
Company and the Underwriters to contribute pursuant to this Section 11 were
to be determined by pro rata or per capita allocation of the aggregate
damages or by any other method of allocation that does not take account of
the equitable considerations referred to in the first sentence of this
Section 11 and (b) that the contribution of each contributing Underwriter
shall not be in excess of its proportionate share (based on the ratio of
the number of Units purchased by such Underwriter to the number of Units
purchased by all contributing Underwriters) of the portion of such losses,
claims, damages or liabilities for which the Underwriters are responsible.
No person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person
who is not guilty of such fraudulent misrepresentation. As used in this
Section 11, the word "Company" includes any officer, director, or person
who controls the Company within the meaning of Section 15 of the Act. If
the full amount of the contribution specified in this Section 11 is not
permitted by law, then the applicable Underwriter and each person who
controls the applicable Underwriter shall be entitled to contribution from
the Company, its officers, directors and controlling persons to the full
extent permitted by law. The foregoing contribution agreement shall in no
way affect the contribution liabilities of any persons having liability
under Section 11 of the Act other than the Company and the Underwriters. No
contribution shall be requested with regard to the settlement of any matter
from any party who did not consent to the settlement; provided, however,
that such consent shall not be unreasonably withheld in light of all
factors of importance to such party.
<PAGE>
-1- 12. COSTS AND EXPENSES.
<PAGE>
-1-
(a) Whether or not this Agreement becomes effective or the sale of the
Units to the Underwriters is consummated, the Company will pay all costs
and expenses incident to the performance of this Agreement by the Company
including, but not limited to, the fees and expenses of counsel to the
Company and of the Company's accountants; the costs and expenses incident
to the preparation, printing, filing and distribution under the Act of the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), Preliminary Prospectus and the
Prospectus, as amended or supplemented; the fee of the NASD in connection
with the filing required by the NASD relating to the offering of the Units
contemplated hereby; all expenses, including reasonable fees and
disbursements of counsel to the Underwriters, in connection with the
qualification of the Units under the state securities or blue sky laws
which the Representatives shall designate; the out-of-pocket travel
expenses of the Underwriters and counsel to the Underwriters or other
professionals designated by the Underwriters to visit the Company's
facilities for purposes of discharging due diligence responsibilities; the
cost of printing and furnishing to the Underwriters copies of the
Registration Statement, each Preliminary Prospectus, the Prospectus, this
Agreement, the Public Warrant Agreement, the Underwriters' Warrant
Agreement, the Agreement Among Underwriters, Selling Agreement,
Underwriters' Questionnaire, and the Blue Sky Memorandum; any fees relating
to the listing of the Units, Common Stock and Redeemable Warrants on the
Nasdaq Small Cap Market or any other securities exchange; the cost of
printing the certificates representing the securities comprising the Units;
the fees of the transfer agent and warrant agent the cost of publication of
at least three (3) "tombstones" of the offering (at least one of which
shall be in national business newspaper and one of which shall be in a
major New York newspaper); and the cost of preparing at least four (4) hard
cover "bound volumes" relating to the offering, in accordance with the
Representatives' request. The Company shall pay any and all taxes
(including any transfer, franchise, capital stock or other tax imposed by
any jurisdiction) on sales to the Underwriters hereunder. The Company will
also pay all costs and expenses incident to the furnishing of any amended
Prospectus or of any supplement to be attached to the Prospectus as called
for in Section 6(a) of this Agreement except as otherwise set forth in said
Section 6(a).
<PAGE>
-1-
(b) In addition to the foregoing expenses the Company shall at the First
Closing Date pay to the Representatives, each individually and not as
representatives of the Underwriters, a non-accountable expense allowance
equal to two percent (2%) of the gross proceeds derived from the sale of
Units offered hereby, of which $75,000 has been paid. In the event the
Over-Allotment Option is exercised, the Company shall pay to the
Representatives at the Option Closing Date an additional amount equal to
two percent (2%) of the gross proceeds received upon exercise of the
Over-Allotment Option. In the event the transactions contemplated hereby
are not consummated by reason of any action by the Underwriters (except if
such prevention is based upon a breach by the Company of any covenant,
representation or warranty contained herein or because any other condition
to the Underwriters' obligations hereunder required to be fulfilled by the
Company is not fulfilled) the Company shall be liable for the accountable
out-of-pocket expenses of the Representative, including "blue sky" legal
fees up to a maximum of $25,000. In the event the transactions contemplated
hereby are not consummated by reason of any action of the Company or
because of a breach by the Company of any covenant, representation or
warranty herein, the Company shall be liable for the accountable
out-of-pocket expenses of the Representative, including legal fees, up to a
maximum of $25,000.
-1-
(c) If at any time prior to the First Closing Date, (i) the Company will
not or cannot expeditiously proceed with the sale of the Registered
Securities, including without limitation as a result of the Company taking
or not taking actions, (ii) any of the representations, warranties or
covenants of the Company contained in this Agreement or any agreement
contemplated hereby are not true and correct or cannot be complied with,
(iii) in the judgment of the Representatives, there occurs a material
adverse change in the Company's financial condition, business, prospects or
obligations, and the Underwriters shall not commence or continue the
underwriting, or (v) in the judgment of the Representatives, reasonably
exercised, market conditions are unsuitable for the offering contemplated
hereby and the Underwriters shall not commence or continue the
underwriting, then the Company shall reimburse the Underwriter in full for
its actual out-of-pocket expenses (including, without limitation, its legal
fees and disbursements), up to $25,000 (in each case inclusive of any
portion of the non-accountable expense allowance paid pursuant to Section
12(b).
-1-
(d) The Representatives shall determine in which states or jurisdictions
the Offered Securities shall be registered or qualified for sale, provided
that such states or jurisdictions do not require the Company to qualify as
a foreign business corporation or to file a general consent to service of
process. Immediately prior to the Effective Date, counsel for the
Underwriters shall advise counsel for the Company in writing of all states
in which the offering has been registered or qualified for sale or has been
canceled, withdrawn or denied and the number of Offered Securities
registered or qualified for sale in each such state.
-1-
(e) No person is entitled either directly or indirectly to compensation
from the Company, from the Underwriters or from any other person for
services as a finder in connection with the proposed offering, and the
Company agrees to indemnify and hold harmless the Representatives and the
other Underwriters, against any losses, claims, damages or liabilities,
joint or several (which shall, for all purposes of this Agreement, include,
but not be limited to, all costs of defense and investigation and all
attorneys' fees), to which the Underwriters or person may become subject
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon the claim of any person
(other than an employee of the party claiming indemnity) or entity that he
or it is entitled to a finder's fee in connection with the proposed
offering by reason of such person's or entity's influence or prior contact
with the indemnifying party.
-1-
13. SUBSTITUTION OF UNDERWRITERS. If any Underwriters shall for any reason
not permitted hereunder cancel their obligations to purchase the First
Units hereunder, or shall fail to take up and pay for the number of First
Units set forth opposite their respective names in Schedule A hereto upon
tender of such First Units in accordance with the terms hereof, then:
-1-
(a) If the aggregate number of First Units which such Underwriter or
Underwriters agreed but failed to purchase does not exceed ten percent
(10%) of the total number of First Units, the other Underwriters shall be
obligated severally, in proportion to their respective commitments
hereunder, to purchase the First Units which such defaulting Underwriter or
Underwriters agreed but failed to purchase.
<PAGE>
-1-
(b) If any Underwriter or Underwriters so default and the agreed number of
First Units with respect to which such default or defaults occurs is more
than ten percent (10%) of the total number of First Units, the remaining
Underwriters shall have the right to take up and pay for (in such
proportion as may be agreed upon among them) the First Units which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If
such remaining Underwriters do not, at the First Closing Date, take up and
pay for the First Units which the defaulting Underwriter or Underwriters
agreed but failed to purchase, the time for delivery of the First Units
shall be extended to the next business day to allow the several
Underwriters the privilege of substituting within twenty-four (24) hours
(including non-business hours) another underwriter or underwriters
satisfactory to the Company. If no such underwriter or underwriters shall
have been substituted as aforesaid, within such twenty-four (24) hour
period, the time of delivery of the First Units may, at the option of the
Company, be again extended to the next following business day, if
necessary, to allow the Company the privilege of finding within twenty-four
(24) hours (including non-business hours) another underwriter or
underwriters to purchase the First Units which the defaulting Underwriter
or Underwriters agreed but failed to purchase. If it shall be arranged for
the remaining Underwriters or substituted Underwriters to take up the First
Units of the defaulting Underwriter or Underwriters as provided in this
Section 13, (i) the Company or the Representatives shall have the right to
postpone the time of delivery for the period of not more than seven (7)
business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus
which may thereby be made necessary, and (ii) the respective numbers of
First Units to be purchased by the remaining Underwriters or substituted
Underwriters shall be taken at the basis of the underwriting obligation for
all purposes of this Agreement.
If in the event of a default by one or more Underwriters and the remaining
Underwriters shall not take up and pay for all the First Units agreed to be
purchased by the defaulting Underwriters or substitute another underwriter
or underwriters as aforesaid, the Company shall not find or shall not elect
to seek another underwriter or underwriters for such First Units as
aforesaid, then this Agreement shall terminate.
If, following exercise of the Over-Allotment Option, any Underwriter or
Underwriters shall for any reason not permitted hereunder cancel their
obligations to purchase Option Units at the Option Closing Date, or shall
fail to take up and pay for the number of Option Units, which they become
obligated to purchase at the Option Closing Date upon tender of such Option
Units in accordance with the terms hereof, then the remaining Underwriters
or substituted Underwriters may take up and pay for the Option Units of the
defaulting Underwriters in the manner provided in Section 13(b) hereof. If
the remaining Underwriters or substituted Underwriters shall not take up
and pay for all such Option Units, the Underwriters shall be entitled to
purchase the number of Option Units for which there is no default or, at
their election, the option shall terminate, the exercise thereof shall be
of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section 13. In the event of
termination, there shall be no liability on the part of any nondefaulting
Underwriter to the Company, provided that the provisions of this Section 13
shall to in any event affect the liability of any defaulting Underwriter to
the Company arising out of such default.
-1-
14. EFFECTIVE DATE. This Agreement shall become effective upon its
execution except that the Representatives may, at their option, delay its
effectiveness until 11:00 A.M., New York time on the first full business
day following the Effective Date, or at such earlier time after the
Effective Date of as the Representatives in their discretion shall first
commence the initial public offering by the Underwriters of any of the
Units. The time of the initial public offering shall mean the time of
release by the Representatives of the first newspaper advertisement with
respect to the Units, or the time when the Units are first generally
offered by the Representatives to dealers by letter or telegram, whichever
shall first occur. This Agreement may be terminated by the Representatives
at any time before it becomes effective as provided above, except that
Sections 10, 11, 12, 17, 18 and 19 shall remain in effect notwithstanding
such termination.
-1-
15. TERMINATION.
<PAGE>
-1-
(a) This Agreement, except for Sections 10, 11, 12, 16, 17, 18 and 19, may
be terminated at any time prior to the First Closing Date, and the
Over-Allotment Option, if exercised, may be canceled at any time prior to
the Option Closing Date, by the Representatives if in their judgment it is
impracticable to offer for sale or to enforce contracts made by the
Underwriters for the resale of the Units agreed to be purchased hereunder
by reason of (i) the Company having sustained a material loss, whether or
not insured, by reason of fire, earthquake, flood, accident or other
calamity, or from any labor dispute or court or government action, order or
decree; (ii) trading in securities on the New York Stock Exchange, the
American Stock Exchange, the Nasdaq SmallCap Market or the Nasdaq National
Market having been suspended or limited; (iii) material governmental
restrictions having been imposed on trading in securities generally (not in
force and effect on the date hereof); (iv) a banking moratorium having been
declared by federal or New York state authorities; (v) an outbreak of
international hostilities or other national or international calamity or
crisis or change in economic or political conditions having occurred; (vi)
a pending or threatened legal or governmental proceeding or action relating
generally to the Company's business, or a notification having been received
by the Company of the threat of any such proceeding or action, which could
materially adversely affect the Company; (vii) except as contemplated by
the Prospectus, the Company is merged or consolidated into or acquired by
another company or group or there exists a binding legal commitment for the
foregoing or any other material change of ownership or control occurs;
(viii) the passage by the Congress of the United States or by any state
legislative body or federal or state agency or other authority of any act,
rule or regulation, measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative accounting
institute or board, or any governmental executive, which is reasonably
believed likely by the Representative to have a material impact on the
business, financial condition or financial statements of the Company or the
market for the securities offered pursuant to the Prospectus; (ix) any
adverse change in the financial or securities markets beyond normal market
fluctuations having occurred since the date of this Agreement, or (x) any
material adverse change having occurred, since the respective dates of
which information is given in the Registration Statement and Prospectus, in
the earnings, business prospects or general condition of the Company,
financial or otherwise, whether or not arising in the ordinary course of
business.
-1-
(b) If the Representatives elect to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section
15 or in Section 14 hereof, the Company shall be promptly notified by
the Representatives, by telephone or telegram, confirmed by letter, in
accordance with Section 17 hereof.
-1-
16. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company or its officers, directors, stockholders and the
Selling Shareholders and the undertakings set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of the Underwriters, the Company or any
of its officers or directors or any controlling person or any of the
Selling Shareholders and will survive delivery of and payment of the Units
and the termination of this Agreement.
-1-
17. NOTICE. Any communications specifically required hereunder to be in
writing, if sent to the Underwriters, will be mailed, delivered and
confirmed to the Representatives at ____________________________, with a
copy sent to Winstead Sechrest & Minick P.C., 5400 Renaissance Tower, 1201
Elm Street, Dallas, Texas 75270; or if sent to the Company, will be mailed,
delivered and confirmed to it at BioShield Technologies, Inc., 4405
International Boulevard, Suite B-109, Norcross, Georgia 30093, with a copy
sent to Sims Moss Kline & Davis LLP, 400 Northpark Town Center, Suite 310,
1000 Abernathy Road, N.E., Atlanta, Georgia 30328; or if sent to the
Timothy C. Moses, as a Selling Shareholder, will be mailed, delivered and
confirmed to it c/o BioShield Technologies, Inc., 4405 International
Boulevard, Suite B-109, Norcross, Georgia 30093, with a copy sent to
_________________________, ________________________________; or if sent to
Jacques Elfersy, as a Selling Shareholder, will be mailed, delivered and
confirmed to it c/o BioShield Technologies, Inc., 4405 International
Boulevard, Suite B-109, Norcross, Georgia 30093, with a copy sent to
_________________________, --------------------------------.
-1-
18. PARTIES IN INTEREST. This Agreement is made solely for the benefit of
the Underwriters, the Representatives, each on an individual basis, the
Company, the Selling Shareholders, any person controlling the Company or
the Underwriters, directors of the Company, nominees for directors of the
Company (if any) named in the Prospectus, officers of the Company who have
signed the Registration Statement and each of their respective executors,
administrators, successors and assigns and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "Successors
and Assigns" shall not include any purchaser, as such purchaser, from the
Underwriters of the Units. All of the obligations of the Underwriters
hereunder are several and not joint.
-1-
19. APPLICABLE LAW. This Agreement will be governed by, and
construed in accordance with, the laws of the State of Texas
applicable to agreements made and to be entirely performed within
Texas.
G:\TEJASC~1\DEALS\SB2\BIOSHI~1\AMENDM~1\1T9_308!.WPD0871998
192:18662-5
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it will become a
binding agreement among the Company, the Selling Shareholders and the
Underwriters in accordance with its terms.
Very truly yours,
BIOSHIELD TECHNOLOGIES, INC.
By:
Name:
Title:
As to the Selling Shareholders Solely to Sections 3 and 7 Hereof
Timothy C. Moses
Jacques Elfersy
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
TEJAS SECURITIES GROUP, INC.
By:
Name:
Title:
REDSTONE SECURITIES, INC.
By:
Name:
Title:
<PAGE>
SEABOARD SECURITIES, INC.
By:
Name:
Title:
SCHEDULE A
UNDERWRITERS
Number of
Underwriters First Units
to be Purchased
Tejas Securities Group, Inc.
Redstone Securities, Inc.
Seaboard Securities, Inc.
-------
750,000
BIOSHIELD TECHNOLOGIES, INC.
and
AMERICAN STOCK TRANSFER & TRUST COMPANY
Warrant Agent
WARRANT AGREEMENT
Dated as of _______________, 1998
---------------------------------
<PAGE>
-1-
WARRANT AGREEMENT, dated as of_________, 1998, between BioShield
Technologies, Inc., a Georgia corporation (hereinafter called the "Company"),
and American Stock Transfer & Trust Company, as warrant agent
(hereinafter called the "Warrant Agent");
WHEREAS, the Company proposes to issue 750,000 Redeemable Common
Stock Purchase Warrants (hereinafter called the "Warrants"), entitling the
holders thereof to purchase one share of Common Stock, no par value
(hereinafter called the "Common Stock") for each Warrant, in connection with
the proposed issuance by the Company of 750,000 Units, each Unit consisting
of two shares of Common Stock and one Warrant, and the Company also
proposes to issue up to 112,500 Warrants underlying the Underwriters'
over-allotment option and 75,000 Warrants underlying a warrant to
purchase Units to be granted to the Representatives of the Underwriters;
and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
registration, transfer, exchange and exercise of Warrants; NOW, THEREFORE, in
consideration of the premises and the mutual agreements herein set forth, the
parties hereto agree as follows:
Section
<PAGE>
-1-
1. Appointment of Warrant Agent. The Company hereby appoints the Warrant
Agent to act as agent for the Company in accordance with the instructions
hereinafter in this Agreement set forth, and the Warrant Agent hereby
accepts such appointment.
<PAGE>
-1-
Section 2. Form of Warrant. The text of the Warrant and of the form of
election to purchase shares to be printed on the reverse thereof shall be
substantially as set forth in Exhibit A attached hereto. The Warrant Price
to purchase one share of Common Stock shall be as provided and defined in
Section 8. The Warrants shall be executed on behalf of the Company by the
manual or facsimile signature of the present or any future Chairman of the
Board or President or Vice President of the Company, under its corporate
seal, affixed or in facsimile, attested by the manual or facsimile
signature of the present or any future Secretary or Assistant Secretary of
the Company.
Warrants shall be dated as of the date of issuance thereof by the Warrant
Agent either upon initial issuance or upon transfer or exchange.
<PAGE>
-1-
Section 3. Countersignature and Registration. The Warrant Agent shall
maintain books for the transfer and registration of the Warrants. The
Warrants shall be countersigned by the Warrant Agent (or by any successor
to the Warrant Agent then acting as warrant agent under this Agreement) and
shall not be valid for any purpose unless so countersigned. Warrants may be
so countersigned, however, by the Warrant Agent (or by its successor as
warrant agent) and be delivered by the Warrant Agent, notwithstanding that
the persons whose manual or facsimile signatures appear thereon as proper
officers of the Company shall have ceased to be such officers at the time
of such countersignature or delivery.
<PAGE>
-1-
Section 4. Transfers and Exchanges. The Warrant Agent shall transfer, from
time to time after the sale of the Units, any outstanding Warrants upon the
books to be maintained by the Warrant Agent for that purpose, upon
surrender thereof for transfer properly endorsed or accompanied by
appropriate instructions for transfer. Upon any such transfer, a new
Warrant shall be issued to the transferee and the surrendered Warrant shall
be canceled by the Warrant Agent. Warrants so canceled shall be delivered
by the Warrant Agent to the Company from time to time. The Warrants may be
exchanged at the option of the holder thereof, when surrendered at the
office of the Warrant Agent, for another Warrant, or other Warrants of
different denominations, of like tenor and representing in the aggregate
the right to purchase a like number of shares of Common Stock. The Warrant
Agent is hereby irrevocably authorized to countersign in accordance with
Section 3 of this Agreement the new Warrants required pursuant to the
provisions of this Section, and the Company, whenever required by the
Warrant Agent, will supply the Warrant Agent with Warrants duly executed on
behalf of the Company for such purpose.
<PAGE>
-1-
Section 5. Exercise of Warrants. Subject to the provisions of this
Agreement, each registered holder of Warrants shall have the right, which
may be exercised as in such Warrants expressed, to purchase from theCompany
(and the Company shall issue and sell to such registered holder of
Warrants) the number of fully paid and nonassessable shares of Common Stock
specified in such Warrants, upon surrender of such Warrants to the Company
at the office of the Warrant Agent, with the form of election to purchase
on the reverse thereof duly filled in and signed, and upon payment to the
Warrant Agent for the account of the Company of the Warrant Price for the
number of shares of Common Stock in respect of which such Warrants are then
exercised. Payment of such Warrant Price may be made in cash, or by
certified or official bank check payable in New York Clearing House Funds,
payable in United States dollars, to the order of the Warrant Agent. No
adjustment shall be made for any dividends on any shares of Common Stock
issuable upon exercise of a Warrant. Upon such surrender of Warrants, and
payment of the Warrant Price as aforesaid subject to collection, the
Company shall issue and cause to be delivered with all reasonable dispatch
to or upon the written order of the registered holder of such Warrants and
in such name or names as such registered holder may designate, a
certificate or certificates for the number of full shares of Common Stock
so purchased upon the exercise of such Warrants. Such certificate or
certificates shall be deemed to have been issued and any person so
designated to be named therein shall be deemed to have become a holder of
record of such shares as of the date of the surrender of such Warrants and
payment of the Warrant Price as aforesaid; provided, however, that if, at
the date of surrender of such Warrants and payment of the Warrant Price,
the transfer books for the Common Stock or other class of stock purchasable
upon the exercise of such Warrants shall be closed, the certificates for
the shares in respect of which such Warrants are then exercised shall be
issuable as of the date on which such books shall next be opened and until
such date the Company shall be under no duty to deliver any certificate for
such shares; provided further, however, that the transfer books aforesaid,
unless otherwise required by law, shall not be closed at any one time for a
period longer than 20 days. The rights of purchase represented by the
Warrants shall be exercisable, at the election of the registered holders
thereof, either as an entirety or from time to time for part only of the
shares specified therein, and in the event that any Warrant is exercised in
respect of less than all of the shares specified therein, a new Warrant or
Warrants will be issued for the remaining number of shares specified in the
Warrant so surrendered, and the Warrant Agent is hereby irrevocably
authorized to countersign and to deliver the required new Warrants pursuant
to the provisions of this Section and of Section 3 of this Agreement and
the Company, whenever required by the Warrant Agent, will supply the
Warrant Agent with Warrants duly executed on behalf of the Company for such
purpose.
<PAGE>
-1-
Section 6. Mutilated or Missing Warrants. In case any of the Warrants shall
be mutilated, lost, stolen or destroyed, the Company will issue and the
Warrant Agent will countersign and deliver in exchange and substitution for
and upon cancellation of the mutilated Warrant, or in lieu of and
substitution for the Warrant lost, stolen or destroyed, a new Warrant of
like tenor and representing an equivalent right or interest; but only upon
receipt of evidence satisfactory to the Company and the Warrant Agent of
such loss, theft or destruction of such Warrant and indemnity, if
requested, also satisfactory to them. Applicants for such substitute
Warrants shall also comply with such other reasonable regulations and pay
such other reasonable charges as the Company or the Warrant Agent may
prescribe.
Section 7. Reservation and Registration of Common Stock.
-1-
(a) There have been reserved, and the Company shall at all times keep
reserved, out of the authorized and unissued shares of Common Stock, a
number of shares sufficient to provide for the exercise of the rights
of purchase represented by the Warrants, and the Transfer Agent for the
Common Stock and every subsequent Transfer Agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights
of purchase aforesaid are hereby irrevocably authorized and directed at
all times to reserve such number of authorized and unissued shares as
shall be requisite for such purpose. The Company will keep a copy of
this Agreement on file with the Transfer Agent for the Common Stock and
with every subsequent Transfer Agent for any shares of the Company's
capital stock issuable upon the exercise of the rights of purchase
represented by the Warrants. The Warrant Agent is hereby irrevocably
authorized to requisition from time to time such Transfer Agent for
stock certificates required to honor outstanding Warrants. The Company
will supply such Transfer Agents with duty executed stock certificates
for such purpose and will itself provide or otherwise make available
any cash which may be issuable as provided in Section 9 of this
Agreement. All Warrants surrendered in the exercise of the rights
thereby evidenced shall be canceled by the Warrant Agent and shall
thereafter be delivered to the Company, and such canceled Warrants
shall constitute sufficient evidence of the number of shares of stock
which have been issued upon the exercise of such Warrants.
<PAGE>
-1-
(b) The Company represents that it has registered under the
Securities Act of 1933, as amended, the shares of Common Stock issuable
upon exercise of the Warrants and will use its best reasonable efforts
to maintain the effectiveness of such registration by post-effective
amendment during the entire period in which the Warrants are
exercisable, and that it will use its best reasonable efforts to
qualify such Common Stock for sale under the securities laws of such
states of the United States as may be necessary to permit the exercise
of the Warrants in the states in which the Units are initially
qualified and to maintain such qualifications during the entire period
in which the Warrants are exercisable.
-1-
Section 8. Warrant Price; Adjustments.
-1-
(a) The price at which Common Stock shall be purchasable upon
exercise of Warrants at any time after the Common Stock and Warrants
become separately tradable until _______________, 2003 shall be $7.80
per share of Common Stock (hereinafter called the "Warrant Price") or,
if adjusted as provided in this Section, shall be such price as so
adjusted. The Common Stock and Warrants shall become separately
tradable on _______________, 1999, unless earlier separated upon ten
days prior written notice from Tejas Securities Group, Inc., a
Representative of the Underwriters, to the Company.
-1-
(b) The Warrant Price shall be subject to adjustment from time
to time as follows:
(i) Except as hereafter provided, in case the Company shall at
any time or from time to time after the date hereof until
__________, 2003 issue any additional shares of Common Stock
for a consideration per share less than the Warrant Price in
effect immediately prior to the issuance of such additional
shares, or without consideration, then, upon each such
issuance, the Warrant Price in effect immediately prior to the
issuance of such additional shares shall forthwith be reduced
to a price (calculated to the nearest full cent) determined by
dividing:
(1) An amount equal to (i) the total number of shares
of Common Stock outstanding immediately prior to such
issuance multiplied by the Warrant Price in effect
immediately prior to such issuance, plus (ii) the
consideration, if any, received by the Company upon
such issuance, by
(2) The total number of shares of Common
Stock outstanding immediately after the issuance of
such additional shares.
(ii) Company shall not be required to make any such
adjustment of the Warrant Price in accordance with the
foregoing if the amount of such adjustment shall be less than
$0.25 (adjustment will be made when cumulative adjustment
equals or exceeds $0.25) but in such case the Company shall
maintain a cumulative record of the Warrant Price as it would
have been in the absence of this provision (the "Constructive
Warrant Price"), and for the purpose of computing a new
Warrant Price after the next subsequent issuance of additional
shares (but not for the purpose of determining whether an
adjustment thereof is required under the terms of this
paragraph) the constructive Warrant Price shall be deemed to
be the Warrant Price in effect immediately prior to such
issuance.
(iii) For the purpose of this Section 8 the following
provisions shall also be applicable:
(1) In the case of the issuance of
additional shares of Common Stock for cash, the
consideration received by the Company therefor shall
be deemed to be the net cash proceeds received by the
Company for such shares before deducting any
commissions or other expenses paid or incurred by the
Company for any underwriting of, or otherwise in
connection with, the issuance of such shares.
(2) In case of the issuance (otherwise than
upon conversion or exchange of shares of Common
Stock) of additional shares of Common Stock for a
consideration other than cash or a consideration a
part of which shall be other than cash, the amount of
the consideration other than cash received by the
Company for such shares shall be deemed to be the
value of such consideration as determined in good
faith by the Board of Directors of the Company, as of
the date of the adoption of the resolution of said
Board, providing for the issuance of such shares for
consideration other than cash or for consideration a
part of which shall be other than cash, such fair
value to include goodwill and other intangibles to
the extent determined in good faith by the Board.
(3) In case of the issuance by the Company
after the date hereof of any security (other than the
Warrants) that is convertible into shares of Common
Stock or of any warrants, rights or options to
purchase shares of Common Stock (except the options
and warrants referred to in subsection (h) of this
Section 8), (i) the Company shall be deemed (as
provided in subparagraph (5) below) to have issued
the maximum number of shares of Common Stock
deliverable upon the exercise of such conversion
privileges or warrants, rights or options, and (ii)
the consideration therefor shall be deemed to be the
consideration received by the Company for such
convertible securities or for such warrants, rights
or options, as the case may be, before deducting
therefrom any expenses or commissions incurred or
paid by the Company for any underwriting of, or
otherwise in connection with, the issuance of such
convertible security or warrants, rights or options,
plus (A) the minimum consideration or adjustment
payment to be received by the Company in connection
with such conversion, or (B) the minimum price at
which shares of Common Stock are to be delivered upon
exercise of such warrants, rights or options or, if
no minimum price is specified and such shares are to
be delivered at an option price related to the market
value of the subject shares, an option price bearing
the same relation to the market value of the subject
shares at the time such warrants, rights or options
were granted; provided that as to such options such
further adjustment as shall be necessary on the basis
of the actual option price at the time of exercise
shall be made at such time if the actual option price
is less than the aforesaid assumed option price. No
further adjustment of the Warrant Price shall be made
as a result of the actual issuance of the shares of
Common Stock referred to in this subparagraph (3). On
the expiration of such warrants, rights or options,
or the termination of such right to convert, the
Warrant Price shall be readjusted to such Warrant
Price as would have pertained had the adjustments
made upon the issuance of such warrants, rights,
options or convertible securities been made upon the
basis of the delivery of only the number of shares of
Common Stock actually delivered upon the exercise of
such warrants, rights or options or upon the
conversion of such securities.
(4) For the purposes hereof, any additional
shares of Common Stock issued as a stock dividend
shall be deemed to have been issued for no
consideration.
(5) The number of shares of Common Stock at
any time outstanding shall include the aggregate
number of shares deliverable in respect of the
convertible securities, rights and options referred
to in subparagraph (3) of this paragraph; provided
that with respect to shares referred to in clause (i)
of subparagraph (3), to the extent that such
warrants, options, rights or conversion privileges
are not exercised, such shares shall be deemed to be
outstanding only until the expiration dates of the
warrants, rights, options or conversion privileges or
the prior cancellation thereof.
(c) In case the Company shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares, the
Warrant Price in effect immediately prior to such subdivision shall be
proportionately reduced and, in case the outstanding shares of the
Common Stock of the Company shall be combined into a smaller number of
shares, the Warrant Price in effect immediately prior to such
combination shall be proportionately increased.
(d) Upon adjustment of the Warrant Price pursuant to the
provisions of subsection (c) of this Section 8, the number of shares
issuable upon the exercise of each Warrant shall be adjusted by
multiplying the Warrant Price in effect prior to the adjustment by the
number of shares of Common Stock covered by the Warrant and dividing
the product so obtained by the adjusted Warrant Price.
(e) Except upon consolidation or reclassification of the
shares of Common Stock of the Company as provided for in subsection (c)
hereof and except for readjustment of the Warrant Price upon expiration
of warrants, rights or options as provided for in subparagraph (3) of
paragraph (iii) of subsection (b) hereof, the Warrant Price in effect
at any time may not be adjusted upward or increased in any manner
whatsoever.
(f) Irrespective of any adjustment or change in the Warrant
Price or the number of shares of Common Stock actually purchasable
under the several Warrants, the Warrants theretofore and thereafter
issued may continue to express the Warrant Price per share and the
number of shares purchasable thereunder as the Warrant Price per share
and the number of shares purchasable were expressed in the Warrants
when initially issued.
(g) If any capital reorganization or reclassification of the
capital stock of the Company (other than a distribution of stock in
accordance with Section 10(b)) or consolidation or merger of the
Company with another corporation or the sale of all or substantially
all of its assets to another corporation shall be effected, then, as a
condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provision shall be made whereby the
holder of each Warrant then outstanding shall thereafter have the right
to purchase and receive upon the basis and upon the terms and
conditions specified herein and in the Warrants and in lieu of the
shares of the Common Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented
by each such Warrant, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares
of such Common stock immediately theretofore purchasable and receivable
upon the exercise of the rights represented by each such Warrant had
such reorganization, reclassification, consolidation, merger or sale
not taken place, and in any such case appropriate provisions shall be
made with respect to the rights and interest of the holder of each
Warrant then outstanding to the end that the provisions thereof
(including without limitation provisions for adjustment of the Warrant
Price and of the number of shares purchasable upon the exercise of each
Warrant then outstanding) shall thereafter be applicable as nearly as
may be in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of each Warrant.
(h) No adjustment of the Warrant Price shall be made in
connection with the issuance or sale of shares of Common Stock issuable
pursuant to currently outstanding options and warrants granted to
officers, directors, employees, advisory directors, or affiliates of
the Company.
(i) Whenever the Warrant Price is adjusted as herein provided,
the Company shall (a) forthwith file with the Warrant Agent a
certificate signed by the Chairman of the Board or a President or a
Vice President of the Company and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Company,
showing in detail the facts requiring such adjustment and the Warrant
Price and the number of shares of Common Stock purchasable upon
exercise of the Warrants after such adjustment and (b) cause a notice
stating that such adjustment has been effected and stating the adjusted
Warrant Price and the number of shares of Common Stock purchasable upon
exercise of the Warrants to be published at least once a week for two
consecutive weeks in a newspaper of general circulation in Dallas,
Texas and in New York, New York. The Company, at its option, may cause
a copy of such notice to be sent by first class mail, postage prepaid,
to each registered holder of Warrants at his address appearing on the
Warrant register. The Warrant Agent shall have no duty with respect to
any such certificate filed with it except to keep the same on file and
available for inspection by holders of Warrants during reasonable
business hours. The Warrant Agent shall not at any time be under any
duty or responsibility to any holder of a Warrant to determine whether
any facts exist which may require any adjustment of the Warrant Price,
or with respect to the nature or extent of any adjustment of the
Warrant Price when made, or with respect to the method employed in
making such adjustment.
(j) The Company may retain a firm of independent certified
public accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company) selected by
the Board of Directors of the Company or the Executive Committee, of
said Board and approved by the Warrant Agent, to make any computation
required under this Section 8, and a certificate signed by such firm
shall be conclusive evidence of the correctness of any computation made
under this Section 8.
(k) In case at any time conditions shall arise by reason of
action taken by the Company which, in the opinion of the Board of
Directors of the Company, are not adequately covered by the other
provisions of this Agreement and which might materially and adversely
affect the rights of the holders of the Warrants, or in case at any
time any such conditions are expected to arise by reason of any action
contemplated by the Company, the Board of Directors of the Company
shall appoint a firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the
financial statements of the Company), who shall give their opinion as
to the adjustment, if any (not inconsistent with the standards
established in this Section 8), of the Warrant Price and the number of
shares of Common Stock purchasable pursuant hereto (including, if
necessary, any adjustment as to the property which may be purchasable
in lieu thereof upon exercise of the Warrants) which is, or would be,
required to preserve without dilution the rights of the holders of the
Warrants. The Board of Directors of the Company shall make the
adjustment recommended forthwith upon the receipt of such opinion or
the taking of any such action contemplated, as the case may be;
provided, however, that no adjustment of the Warrant Price shall be
made which in the opinion of the accountant or firm of accountants
giving the aforesaid opinion would result in an increase of the Warrant
Price to more than the Warrant Price then in effect except as otherwise
provided in subsection (e) of this Section 8.
Section 9. No Fractional Interests. The Company shall not be required
to issue fractions of shares of Common Stock on the exercise of Warrants. If
any fraction of a share of Common Stock would, except for the provisions of
this Section, be issuable on the exercise of any Warrant (or specified
portions thereof), the Company shall purchase such fraction for an amount in
cash equal to the current value of such fraction (a) computed, if the Common
Stock shall be listed or admitted to unlisted trading privileges on any
national or
regional securities exchange, on the basis of the last reported sale price of
the Common Stock on such exchange on the last business day prior to the date
of exercise upon which such a sale shall have been effected (or, if the Common
Stock shall be listed or admitted to unlisted trading privileges on more than
one such exchange, on the basis of such price on the exchange designated from
time to time for such purpose by the Board of Directors
of the Company) or (b) computed, if the Common Stock shall not be listed or
admitted to unlisted trading privileges, on the basis of the average of the
high and low bid prices of the Common Stock in the Nasdaq Small
Cap Market, on the last business day prior to the date
of exercise.
Special 10. Notice to Warrantholders.
(a) Nothing contained in this Agreement or in any of the
Warrants shall be construed as conferring upon the holders thereof the
right to vote or to consent or to receive notice as stockholders in
respect of the meetings of stockholders for the election of directors
of the Company or any other matters, or any rights whatsoever as
stockholders of the Company; provided, however, that in the event that
a meeting of stockholders shall be called to consider and take action
on a proposal for the voluntary dissolution of the Company, other than
in connection with a consolidation, merger or sale of all, or
substantially all, of its property, assets, business and goodwill as an
entirety, then and in that event the Company shall cause a notice
thereof to be published at least once a week for two consecutive weeks
in a newspaper of general circulation in Dallas, Texas and New York,
New York, such publication to be completed at least 20 days prior to
the date fixed as a record date or the date of closing the transfer
books for the determination of the stock holders entitled to vote at
such meeting. The Company shall also cause a copy of such notice to be
sent by first class mail, postage prepaid, at least 20 days prior to
said date fixed as a record date or said date of closing the transfer
books, to each registered holder of Warrants at his address appearing
on the Warrant register; but failure to mail or receive such notice or
any defect therein or in the mailing thereof shall not affect the
validity of any action taken in connection with such voluntary
dissolution. If such notice shall have been so given and if such a
voluntary dissolution shall be authorized at such meeting or any
adjournment thereof, then for and after the date on which such
voluntary dissolution shall have been duly authorized by the
stockholders, the purchase rights represented by the Warrants and other
rights with respect thereto shall cease and terminate.
(b) If the Company shall make any distribution on, or to
holders of, its Common Stock (or other property which may be
purchasable in lieu thereof upon the exercise of Warrants) of any
property (other than a cash dividend), the Company shall cause a notice
of its intention to make such distribution to be published at least
once a week for two consecutive weeks in a newspaper of general
circulation in Dallas, Texas and New York, New York, such publication
to be completed at least 20 days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of
the stockholders entitled to receive such distribution. The Company
shall also cause a copy of such notice to be sent by first class mail,
postage prepaid at least 20 days prior to said date fixed as a record
date or said date of closing the transfer books, to each registered
holder of Warrants at his address appearing on the Warrant register;
but failure to mail or to receive such notice or any defect therein or
in the mailing thereof shall not affect the validity of any action
taken in connection with such distribution.
Section 11. Disposition of Proceeds on Exercise of Warrants.
(a) The Warrant Agent shall account promptly to the Company
with respect to Warrants exercised and concurrently pay to the Company
all monies received by the Warrant Agent for the purchase of shares of
the Company's stock through the exercise of such Warrants.
(b) The Warrant Agent shall keep copies of this Agreement
available for inspection by holders of Warrants during normal business
hours at its principal office.
Section 12. Redemption of Warrants.
(a) At any time on or after _____________, 1998, the Company
may, at its option, redeem some or all of the outstanding Warrants at
$0.05 per Warrant, upon thirty (30) days prior written notice, if the
closing sale price of the Common Stock on any national securities
exchange, or the closing bid quotation on the Nasdaq Small Cap Market,
has equaled or exceeded $13.00 for ten (10) consecutive trading days
within the 30 day period immediately preceding the date notice of
redemption is given (the "Redemption Price"). In the event of an
adjustment in the Warrant Price pursuant to Section 8, the Redemption
Price shall also be automatically adjusted.
(b) The election of the Company to redeem some or all of the
Warrants shall be evidenced by a resolution of the Board of Directors
of the Company.
(c) Warrants may be exercised at any time on or before the
date fixed for redemption (the "Redemption Date").
(d) Notice of redemption shall be given by first class mail,
postage prepaid, mailed not less than 30 nor more than 60 days prior to
the Redemption Date, to each holder of Warrants, at his address
appearing in the Warrant register.
All notices of redemption shall state:
(i) The Redemption Date;
(ii) That on the Redemption Date the Redemption Price
will become due and payable upon each Warrant;
- -
(iii) The place where such Warrants are to be
surrendered for redemption and payment of the Redemption
Price; and
(iv) The current Warrant Price of the Warrants, the
place or places where such Warrants may be surrendered for
exercise, and the time at which the right to exercise the
Warrants will terminate in accordance with this Agreement.
(e) Notice of redemption of Warrants at the election of the
Company shall be given by the Company or, at the Company's request, by
the Warrant Agent in the name and at the expense of the Company.
(f) Prior to any Redemption Date, the Company shall deposit
with the Warrant Agent an amount of money sufficient to pay the
Redemption Price of all the Warrants which are to be redeemed on that
date. If any Warrant is exercised pursuant to Section 5, any money so
deposited with the Warrant Agent for the redemption of such Warrant
shall be paid to the Company.
(g) Notice of redemption having been given as aforesaid, the
Warrants so to be redeemed shall, on the Redemption Date, become
redeemable at the Redemption Price therein specified and on such date
(unless the Company shall default in the payment of the Redemption
Price), such Warrants shall cease to be exercisable and thereafter
represent only the right to receive the Redemption Price. Upon
surrender of such Warrants for redemption in accordance with said
notice, such Warrants shall be redeemed by the Company for the
Redemption Price.
Section 13. Merger or Consolidation or Change of Name of Warrant Agent. Any
corporation into which the Warrant Agent may be merged or with which it may
be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant
Agent, shall be the successor to the Warrant Agent hereunder without the
execution or filing of any paper or any further act on the part of any of
the parties hereto, provided that such corporation would be eligible for
appointment as a successor warrant agent under the provisions of Section 15
of this Agreement. In case at the time such successor to the Warrant Agent
shall succeed to the agency created by this Agreement and at such time any
of the Warrants shall have been countersigned but not delivered, any such
successor to the Warrant Agent may adopt the countersignature of the
Warrant Agent and deliver such Warrants so countersigned; and in case at
the time any of the Warrants shall not have been countersigned, any
successor to the Warrant Agent may countersign such Warrants either in the
name of the predecessor Warrant Agent or in the name of the successor
warrant agent; and in all such cases such Warrants shall have the full
force provided in
the Warrant and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrants shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior
name and deliver Warrants so countersigned; and in case at that time any of
the Warrants shall not have been countersigned, the Warrant Agent may
countersign such Warrants whether in its prior name or in its changed name;
and in all such cases such Warrants shall have the full force provided in the
Warrants and in this Agreement.
Section 14. Duties of Warrant Agent. The Warrant Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms
and conditions, by all of which the Company and the holders of Warrants, by
their acceptance thereof, shall be bound:
(a) The statements contained herein and in the Warrants shall
be taken as statements of the Company, and the Warrant Agent assumes no
responsibility for the correctness of any of the same except such as
describe the Warrant Agent or action taken or to be taken by it. The
Warrant Agent assumes no responsibility with respect to the
distribution of the Warrants except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any failure
of the Company to comply with any of the covenants contained in this
Agreement or in the Warrants to be complied with by the Company.
(c) The Warrant Agent may execute and exercise any of the
rights or powers hereby vested in it to perform any duty hereunder
either itself or by or through its attorneys, agents or employees.
(d) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant
Agent shall incur no liability or responsibility to the Company or to
any holder of any Warrant in respect of any action taken, suffered or
omitted by it hereunder in good faith and in accordance with the
opinion or the advice of such counsel, provided the Warrant Agent shall
have exercised reasonable care in the selection and continued
employment of such counsel.
(e) The Warrant Agent shall incur no liability or
responsibility to the Company or to any holder of any Warrant for any
action taken in reliance on any notice, resolution, waiver, consent,
order, certificate, or other paper, document or instrument believed by
it to be genuine and to have been signed, sent or presented by the
proper party or parties.
(f) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the
execution of this Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind
and nature incurred by the Warrant Agent in the execution of this
Agreement and to indemnify the Warrant Agent and save it harmless
against any and all liabilities, including judgments, costs and
reasonable counsel fees, for anything done or omitted by the Warrant
Agent in the execution of this Agreement except as a result of the
Warrant Agent's negligence or bad faith.
(g) The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any other
action likely to involve expense unless the Company or one or more
registered holders of Warrants shall furnish the Warrant Agent with
reasonable security and indemnity for any cost and expense which may be
incurred, but this provision shall not affect the power of the Warrant
Agent to take such action as the Warrant Agent may consider proper,
whether with or without any such security or indemnity. All rights of
action under this Agreement or under any of the Warrants may be
enforced by the Warrant Agent without the possession of any of the
Warrants or the production thereof at any trial or other proceeding
relative thereto, and any such action, suit or proceeding instituted by
the Warrant Agent shall be brought in its name as Warrant Agent, and
any recovery of judgment shall be for the ratable benefit of the
registered holders of the Warrants, as their respective rights or
interests may appear.
(h) The Warrant Agent and any stockholder, director, officer
or employee of the Warrant Agent may buy, sell, or deal in any of the
Warrants or other securities of the Company or become peculiarly
interested in any transaction in which the Company may be interested,
or contract with or lend money to or otherwise act as fully and freely
as though it were not Warrant Agent under this Agreement. Nothing
herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(i) The Warrant Agent shall act hereunder solely as agent and
not in a ministerial capacity, and its duties shall be determined
solely by the provisions hereof. The Warrant Agent shall not be liable
for anything which it may do or refrain from doing in connection with
this Agreement except for its own negligence or bad faith.
Section 15. Change of Warrant Agent. The Warrant Agent may resign and be
discharged from its duties under this Agreement by giving to the Company
notice in writing, and to the holders of the Warrants notice by
publication, of such resignation, specifying a date when such resignation
shall take effect, which notice shall be published at least once a week for
two consecutive weeks in a newspaper of general circulation in Dallas,
Texas and New York, New York, prior to the date so specified. The Warrant
Agent may be removed by like notice to the Warrant Agent from the Company
and by like publication. If the Warrant Agent shall resign or be removed or
shall otherwise become incapable of acting, the Company shall appoint a
successor to the Warrant Agent. If the Company shall fail to make such
appointment within a period of 30 days after such removal or after it has
been notified in writing of such resignation or incapacity by the resigning
or incapacitated Warrant Agent or by the registered holder of a Warrant
(who shall, with such notice, submit his Warrant for inspection by the
Company), then the registered holder of a Warrant may apply to any court of
competent jurisdiction for the appointment of a successor to the Warrant
Agent. Any successor warrant agent, whether appointed by the Company or by
such a court, shall be a bank or trust company having its principal office,
and having capital and surplus as shown by its last published report to its
stockholders, of at least $1,000,000. After appointment, the successor
warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent
without further act or deed; but the former Warrant Agent shall deliver and
transfer to the successor warrant agent any property at the time held by it
hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Failure to file or publish any notice
provided for in this Section, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the
Warrant Agent or the appointment of the successor warrant agent, as the
case may be.
Section 16. Identity of Transfer Agent. Forthwith upon the appointment of
any Transfer Agent for the Common Stock or of any subsequent Transfer Agent
for shares of the Common Stock or other shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by
the Warrants, the Company will file with the Warrant Agent a statement
setting forth the name and address of such Transfer Agent.
Section 17. Notices. Any notice pursuant to this Agreement to be given or
made by the Warrant Agent or the registered holder of any Warrant to or on
the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing
by the Company with the Warrant Agent) as follows:
BioShield Technologies, Inc.
4405 International Boulevard
Suite B-109
Norcross, Georgia 30093
Attention: Timothy C. Moses
with a copy to:
Sims Moss Kline & Davis LLP
400 Northpark Town Center, Suite 310
1000 Abernathy Road, N.E.
Atlanta, Georgia 30328
Attention: Raymond L. Moss, Esq.
Any notice pursuant to this Agreement to be given or made by the Company or the
registered holder of any Warrant to or on the Warrant Agent shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing by the Warrant Agent with
the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street, 46th floor
New York, New York 10005
Attention: _______________
Section 18. Supplements and Amendments. The Company and the
Warrant Agent may from time to time supplement or amend this Agreement without
the approval of any holders of Warrants in order to cure any ambiguity or to
correct or supplement any provision contained herein which may be defective or
inconsistent with any other
provision herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Warrant Agent may
deem necessary or desirable and which shall not be inconsistent with the
provisions of the Warrants and which shall not adversely affect the
interests of the holders of Warrants.
Section 19. Successors. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Warrant Agent shall bind and
inure to the benefit of their respective successors and assigns hereunder.
Section 20. Merger or Consolidation of the Company. The Company shall
not effect any consolidation or merger with, or sale of substantially all its
property to, any other corporation unless the corporation resulting
from such merger (if not the Company) or consolidation or the corporation
purchasing such property shall expressly assume, by supplemental agreement
satisfactory in form to the Warrant Agent and executed and delivered to the
Warrant Agent, the due and punctual performance and observance of each and
every covenant and condition of this Agreement to be performed and observed
by the Company.
Section 21. Georgia Contract. This Agreement and each Warrant issued
hereunder shall be deemed to be a contract made under the laws of the State
of Georgia and for all purposes shall be construed in accordance with the
laws of said State.
Section 22. Benefit of This Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrants any legal or
equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the Warrant
Agent and the registered holders of the Warrants.
Section 23. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes by deemed
to be an original, and all such counterparts shall together constitute but
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
BIOSHIELD TECHNOLOGIES, INC.
By:
Timothy C. Moses
Co-Chairman of the Board, President and
Chief Executive Officer
AMERICAN STOCK TRANSFER & TRUST
COMPANY
By:
Name:
G:\TEJASC~1\DEALS\SB2\BIOSHI~1\AMENDM~1\1T#7C03!.WPD0871998
349:18662-5
EXHIBIT A
[FORM OF WARRANT]
No. _____ For the Purchase of ____ Shares
of Common Stock
_______________, 1998
BIOSHIELD TECHNOLOGIES, INC.
REDEEMABLE COMMON STOCK PURCHASE WARRANT
EXERCISABLE ON OR BEFORE 5:00 P.M., New York City Time , 2003
This Warrant certifies that, for value received, _______________, or
registered assigns, is the holder of the number of Redeemable Common Stock
Purchase Warrants (the "Warrants") specified above. Each Warrant entities the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Certificate and the Warrant Agreement (as hereinafter defined), one fully
paid and nonassessable share of Common Stock, no par value (the "Common Stock"),
of BioShield Technologies, Inc., a Georgia corporation (the "Company") at any
time between _______________, 1998 and the Expiration Date (as hereinafter
defined), upon the presentation and surrender of the Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the corporate
office of American Stock Transfer & Trust Company as Warrant Agent, or its
successor (the "Warrant Agent"), accompanied by payment of $7.80 (the "Purchase
Price") in lawful money of the United States of America in cash or by official
bank or certified check made payable to the Warrant Agent.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and subject in all respects to the term and conditions set forth in
the Warrant Agreement (the "Warrant Agreement"), dated as of _____________,
1998, by and among the Company and the Warrant Agent.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel the Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign for the balance of the
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York City time) on
_______________, 2003, or such earlier date as the Warrants may be redeemed. If
such date shall in the State of New York be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall be 5:00 p.m. (New
York City time) the next day which in the State of New York is not a holiday or
a day in which the banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of the Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding. This Warrant shall not be exercisable by a Registered
Holder in any state where the exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment, together with any tax or other
governmental charges imposed in connection therewith, for registration or
transfer of this Warrant Certificate at such office, the new Warrant Certificate
or Warrant Certificates, representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including without limitation, the right to vote or to receive dividends or other
distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Commencing _______________, 1999, this Warrant may be redeemed at the
option of the Company at the redemption price of $.05 per Warrant, provided the
closing price of the Company's Common Stock, as reported by the Nasdaq Small Cap
Market or other national trading market on which the Common Stock may then be
listed is at least $13.00 for at least 10 consecutive trading days ending within
30 days of the date of notice of redemption. Notice of redemption shall be given
not later than the thirtieth (30th) day before the date fixed for redemption,
all as provided in the Warrant Agreement. On and after the date fixed for
redemption, the Registered Holder shall have no rights with respect to this
Warrant except to receive the $.05 per Warrant upon surrender of this
Certificate.
Prior to due presentment for registration or transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Texas.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two (2) of its officers thereunto
duly authorized and a facsimile of the corporate seal imprinted hereon.
Dated:_______________________
BIOSHIELD TECHNOLOGIES, INC.
Countersigned:
By:
Timothy C. Moses
AMERICAN STOCK TRANSFER
Co-Chairman of the Board and
& TRUST COMPANY, Chief
Executive Officer
Warrant Agent
By:
By:
Name:
Name:
Secretary
Title:
G:\TEJASC~1\DEALS\SB2\BIOSHI~1\AMENDM~1\1T#7C03!.WPD
<PAGE>
[FORM OF]
ELECTION TO PURCHASE
BioShield Technologies, Inc.
c/o _________________________
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
_______________ shares of the stock provided for therein, and requests that
certificates for such shares shall be issued in the name of
( Please Print )
and be delivered to
at
and, if said number of shares shall not be all of the shares purchasable
thereunder, that a new Warrant for the balance remaining of the shares
purchasable under the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
Dated:
Name of Warrantholder:
(Please Print)
Address:
Signature:
Note: The above signature must correspond with the name
as written upon the face of this Warrant in every
particular, without alteration or enlargement or
any change whatsoever.
Taxpayer ID No.:
Warrant Certificate No.:
G:\TEJASC~1\DEALS\SB2\BIOSHI~1\AMENDM~1\1T#7C03!.WPD
<PAGE>
[FORM OF]
ASSIGNMENT
For value received
does hereby sell, assign and transfer unto
the within Warrant, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint attorney, to transfer said
Warrant on the books of the within-named Corporation, with full power of
substitution in the premises.
Date:
Signature:
Note: The above signature must correspond with the name
as written upon the face of this Warrant in every
particular, without alteration or enlargement or
any change whatsoever.
Taxpayer ID No.:
Warrant Certificate No.:
G:\TEJASC~1\DEALS\SB2\BIOSHI~1\AMENDM~1\1T#7C03!.WPD
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
-1-
TABLE OF CONTENTS
Page
Section 1. Appointment of Warrant Agent. 1
Section 2. Form of Warrant. 1
Section 3. Countersignature and Registration. 1
Section 4. Transfers and Exchanges. 2
Section 5. Exercise of Warrants. 2
Section 6. Mutilated or Missing Warrants. 3
Section 7. Reservation and Registration of Common Stock. 3
Section 8. Warrant Price; Adjustments. 4
Section 9. No Fractional Interests. 8
Special 10. Notice to Warrantholders. 9
Section 11. Disposition of Proceeds on Exercise of Warrants.
10
Section 12. Redemption of Warrants. 10
Section 13. Merger or Consolidation or Change of Name of
Warrant Agent. 11
Section 14. Duties of Warrant Agent. 12
Section 15. Change of Warrant Agent. 13
Section 16. Identity of Transfer Agent. 14
Section 17. Notices. 14
Section 18. Supplements and Amendments. 14
Section 19. Successors. 15
Section 20. Merger or Consolidation of the Company. 15
Section 21. Texas Contract. 15
Section 22. Benefit of This Agreement. 15
Section 23. Counterparts. 15
Exhibit 4.1
Form of Stock Certificate
BIOSHIELD TECHNOLOGIES, INC.
Incorporated Under The Laws Of The State Of Georgia
NUMBER SHARES
C ________________ ________
Common Stock
No Par Value
CUSIP______________
See Reverse For Certain Definitions
This Certifies that ____________________________ is the owner of
_______________ fully paid and non-assessable shares of the Common Stock of
BIOSHIELD TECHNOLOGIES, INC., a corporation organized under the laws of the
State of Georgia, 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 and the shares represented
hereby are subject to all the terms, conditions and limitations of the
Certificate of Incorporation and the By-laws of the Corporation and amendments
thereto, copies of which are on file with the Corporation and the Transfer
Agent, to all of which the holder, by acceptance hereof, assents.
This Certificate is not valid unless countersigned by the Transfer
Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated SEAL BIOSHIELD TECHNOLOGIES, INC.
Countersigned and Registered:
American Stock Transfer & Trust Company
New York, New York
Transfer Agent and Registrar
By ____________________ ____________________ _______________________
Authorized Signature Jacques Elfersy Timothy C. Moses
Secretary Co-Chairman and
Chief Executive Officer
Form of Reverse Side Of Unit Certificate
BIOSHIELD TECHNOLOGIES, INC.
The Corporation will furnish upon request and without charge
to each stockholder the powers, designations, preferences and relative,
participating, optional and other special rights of each class of stock
and series within a class of stock of the Corporation, as well as the
qualifications, limitations and restrictions relating to those
preferences and/or rights. A Stockholder may make the request to the
Corporation or to its Transfer Agent and Registrar.
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 UNIF GIFT ACT______Custodian_______
TEN ENT - as tenants by the entireties (Cust)
(Minor)
JT TEN - - as joint tenants with right of under Uniform Gifts to Minors
Survivorship and not as tenants Act ___________________
In common (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)
______________________________________________________________________Units
represented by the within Certificate, and do hereby irrevocably constitute and
appoint _________________ Attorney to transfer the said stock on the books of
the within-named Corporation with the full power of substitution in the
premises.
Dated, ______________________________________-
X__________________________________
(Signature)
X__________________________________
(Signature)
NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
The Signature(s) Should Be Guaranteed By An "Eligible Guarantor Institution" As
Defined In Rule 17Ad-15 Under The Securities And Exchange Act Of 1934 As
Amended.
Signature(s) Guaranteed By: _________________________________________
Exhibit 4.2
Form of Unit Certificate
BIOSHIELD TECHNOLOGIES, INC.
A Georgia Corporation
Authorized Capitalization
10,000,000 shares of Common Stock, no par value
No. U___________ __________Units
See Reverse For
Certain Definitions CUSIP ______________
Units Consisting Of One Share of Common Stock And One Warrant Each Warrant
To Purchase One Share Of Common Stock
This certifies that _____________________ is the owner of ________
Units as described above, transferable only on the books of the Corporation by
the holder thereof in person or by his or her duly authorized attorney, on
surrender of the Certificate properly endorsed.
Each Unit consists of one (1) share of BIOSHIELD TECHNOLOGIES, INC.
stock, no par value (the "Common Stock") and one (1) Warrant (each individual
warrant, the "Warrant"), each Warrant to purchase one (1) share of Common Stock
for $9.00 per share at any time on or after the Warrants become separately
tradable but no later than _________ 1998 and before 5:00 P.M. Eastern Standard
Time on __________ 2002 (the "Expiration Date"). The terms of the Warrants are
governed by a Warrant Agreement dated as of __________ 1998 (the "Warrant
Agreement") between the Company and American Stock Transfer & Trust Company, as
Warrant Agent (the "Warrant Agent"), and are subject to the terms and provisions
contained therein, to all of which terms and provisions the holder of this Unit
Certificate consents by acceptance hereof. Copies of the Warrant Agreement are
on file at the office of the Warrant Agent at 40 Wall Street, New York, New York
10005, and are available to any Warrant holder on written request and without
cost. The Warrant shall be void unless exercised before 5:00 P.M., Eastern
Standard Time, on the Expiration Date.
This Certificate is not valid unless countersigned and registered by
the Transfer Agent and the Registrar of the Company.
The Warrants and the shares of Common Stock of BIOSHIELD TECHNOLOGIES,
INC. represented by this Unit Certificate shall be nondetachable and not
separately tradable until the earlier of __________ 1998 or such earlier date as
shall be determined by ____________________, as the representatives of the
several underwriters (the "Separation Date").
<PAGE>
Dated SEAL BIOSHIELD TECHNOLOGIES, INC.
Countersigned and Registered
American Stock Transfer & Trust Company
New York, New York
Transfer Agent and Registrar
By ____________________ ____________________ ____________________
Authorized Signature Jacques Elfersy Timothy C.Moses
Secretary Co-Chairman and
Chief Executive Officer
Form of Reverse Side Of Unit Certificate
BIOSHIELD TECHNOLOGIES, INC.
The Corporation will furnish upon request and without charge to each
stockholder the powers, designations, preferences and relative, participating,
optional and other special rights of each class of stock and series within a
class of stock of the Corporation, as well as the qualifications, limitations
and restrictions relating to those preferences and/or rights. A Stockholder may
make the request to the Corporation or to its Transfer Agent and Registrar.
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 UNIF GIFT ACT______Custodian_______
TEN ENT - as tenants by the entireties (Cust)
(Minor)
JT TEN - - as joint tenants with right of under Uniform Gifts to Minors
Survivorship and not as tenants Act ___________________
In common (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) ______________________________________________________________________
Units represented by the within Certificate, and do hereby irrevocably
constitute and appoint _________________ Attorney to transfer the said stock on
the books of the within-named Corporation with the full power of substitution in
the premises.
Dated, ______________________________________
X__________________________________
(Signature)
X__________________________________
(Signature)
NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
The Signature(s) Should Be Guaranteed By An "Eligible Guarantor Institution" As
Defined In Rule 17Ad-15 Under The Securities And Exchange Act Of 1934 As
Amended.
Signature(s) Guaranteed By: _________________________________________
WARRANT AND
REGISTRATION RIGHTS AGREEMENT - Page 1
WARRANT AND REGISTRATION RIGHTS AGREEMENT
_____________, 1998
TEJAS SECURITIES GROUP, INC.
REDSTONE SECURITIES, INC.
SEABOARD SECURITIES, INC.
As Representatives of the Several Underwriters
8214 Westchester
Suite 500
Dallas, Texas 75225
Gentlemen:
BioShield Technologies, Inc., a Georgia corporation (the "Company"),
hereby agrees to sell to you, the several underwriters, and you hereby agree to
purchase from the Company at a purchase price of $100.00, unit purchase warrants
(the "Underwriter Warrants") covering 75,000 of the Company's units (the
"Units"), each Unit consisting of two shares of the Company's Common Stock (the
"Shares") and one Redeemable Common Stock Purchase Warrant (the "Warrants")
issued in accordance with the terms of a warrant agreement (the "Warrant
Agreement") dated as of _____, 1998, between the Company and American Stock
Transfer & Trust Company, as warrant agent (the "Warrant Agent"). The
Underwriter Warrants will be exercisable by you as to all or any lesser number
of Units covered thereby, at the Purchase Price per Unit as defined below, at
any time and from time to time on and after the first anniversary of the date
hereof and ending at 5:00 pm. on the fifth anniversary of the date hereof.
2.ab Definitions.
As used herein the following terms, unless the context otherwise
requires, shall have for all purposes hereof the following meanings:
The term "Common Stock" refers to all stock of any class or classes
(however designated) of the Company, now or hereafter authorized, the holders of
which shall have the right without limitation as to amount, either to all or to
a part of the balance of current dividends and liquidating dividends after the
payment of dividends and distributions on any shares entitled to preference, and
the holders of which shall ordinarily, in the absence of contingency, be
entitled to vote for the election of a majority of the directors of the Company
(even though the right so to vote has been suspended by the occurrence of such a
contingency).
The term "Underlying Common Stock" refers to the shares of Common Stock
(or Other Securities) issuable under this Warrant Agreement pursuant to the
exercise, in whole or in part, of the Warrants or the Underwriter Warrants.
The term "Other Securities" refers to any stock (other than Units) and
other securities of the Company or any other person (corporate or otherwise)
which the holders of the Underwriter Warrants at any time shall be entitled to
receive, or shall have received, upon the exercise of the Underwriter Warrants,
in lieu of or in addition to Common Stock and Warrants, or which at any time
shall be issuable or shall have been issued in exchange for or in replacement of
Units or Other Securities pursuant to Section 7 below or otherwise.
The term "Registration Statement" refers, collectively, to the
Registration Statements relating to the Prospectus in the form first filed with
the Securities and Exchange Commission (the "Commission") pursuant to the Rules
and Regulations of the Commission under the Securities Act of 1933, as amended
(the "Act").
The term "Purchase Price" refers to the purchase price of the Units
subject to this Agreement. The Purchase Price shall equal 120% of the offering
price per Unit as set forth in the Registration Statement. The Purchase Price is
subject to adjustment as provided in Section 7 below.
The term "Warrant Stock" refers to shares of Common Stock issued upon
the exercise of the Warrants or the Underwriter's Underwriter Warrants.
The purchase and sale of the Underwriter Warrants shall take place, and the
purchase price therefore shall be paid by delivery of your check, simultaneously
with the purchase of and payment for any Units of the Company as provided in
that certain Underwriting Agreement relating to the public offering covered by
the Registration Statement.
4.ab Representations and Warranties.
The Company represents and warrants to you as follows:
(b)ab Corporate Action. The Company has all requisite corporate power
and authority, and has taken all necessary corporate action, to execute and
deliver this Agreement, to issue and deliver the Underwriter Warrants and
certificates evidencing same, and to authorize and reserve for issuance, and
upon payment from time to time of the Purchase Price to issue and deliver, the
Units, including the Common Stock and the Warrants and shares of Common Stock
underlying the Warrants.
(d)ab No Violation. Neither the execution nor delivery of this
Agreement, the consummation of the actions herein contemplated nor compliance
with the terms and provisions hereof will conflict with, or result in a breach
of, or constitute a default or an event permitting acceleration under, any of
the terms, provisions or conditions of the Amended and Restated Articles of
Incorporation or Bylaws of the Company or any indenture, mortgage, deed of
trust, note, bank loan, credit agreement, franchise, license, lease, permit,
judgment, decree, order, statute, rule or regulation or any other agreement,
understanding or instrument to which the Company is a party or by which it is
bound.
6.ab Compliance with the Act.
(b)ab Transferability of Underwriter Warrants. You agree that the
Underwriter Warrants may not be transferred, sold, assigned or hypothecated
prior to the first anniversary date hereof, except to (i) persons who are
officers of you; (ii) a successor to you in a merger or consolidation; (iii) a
purchaser of all or substantially all of your assets; (iv) your shareholders in
the event you are liquidated or dissolved; (v) persons who are partners or
officers of participating broker-dealers.
(d)ab Registration of Underlying Common Stock. The Underlying Common
Stock issuable upon the exercise of the Underwriter Warrants has not been
registered under the Act. You agree not to make any sale or other disposition of
the Underlying Common Stock except pursuant to a new registration statement
which has become effective under the Act, setting forth the terms of such
offering, the underwriting discount and the commissions and any other pertinent
data with respect thereto, unless you have provided the Company with an opinion
of counsel reasonably acceptable to the Company that such registration is not
required.
(f)ab Inclusion in Registration of Other Securities. If at any time
after the first anniversary of the effective date hereof but prior to the fifth
anniversary of the effective date hereof, the Company shall propose the
registration on an appropriate form under the Act of any shares of Common Stock
or Other Securities (other than pursuant to Forms S-8 or S-4, or any successor
form in connection with employee benefit plans, mergers and acquisitions), the
Company shall at least 30 days prior to the filing of such registration
statement give you written notice, or telegraphic or telephonic notice followed
as soon as practicable by written confirmation thereof, of such proposed
registration and, upon written notice, or telegraphic or telephonic notice
followed as soon as practicable by written confirmation thereof, given to the
Company within five business days after the giving of such notice by the
Company, shall include or cause to be included in any such registration
statement all or such portion of the Underwriter Warrants, the Underlying Common
Stock and the Warrant Stock as you may request, provided, however, that the
Company may at any time withdraw or cease proceeding with any such registration
if it shall at the same time withdraw or cease proceeding with the registration
of such Common Stock or such Other Securities originally proposed to be
registered.
Notwithstanding any provision of this Agreement to the
contrary, if any holder of any of the Underwriter Warrants exercises his
Underwriter Warrants but shall not have included all the Underlying Common Stock
in a registration statement containing a Registration Statement which complies
with Section 10(a)(3) of the Act, which has been effective for at least 30
calendar days following the exercise of the Underwriter Warrants, the
registration rights set forth in this Subsection 3(c) shall be extended until
such time as (i)the registration statement containing such a Registration
Statement has been effective for at least 30 calendar days or (ii) in the
opinion of counsel satisfactory to you and the Company, registration is not
required under the Act or under applicable state laws for resale of the
Underlying Common Stock in the manner proposed.
(i)ab Company's Obligations in Registration. In the event you timely
elect to participate in an offering by including your Underwriter Warrants, the
Underlying Common Stock or the Warrant Stock in a registration statement
pursuant to Subsection 3(c) above, the Company shall:
(ii)ab Notify you as to the filing thereof and of all amendments or
supplements thereto filed prior to the effective date thereof;
(iv)ab Comply with all applicable rules and regulations of the Commission;
(vi)ab Notify you immediately, and confirm the notice in
writing, (1) when the registration statement becomes effective, (2) of
the issuance by the Commission of any stop order or of the initiation,
or the threatening, of any proceedings for that purpose, (3) of the
receipt by the Company of any notification with respect to the
suspension of qualification of the Underlying Common Stock for sale in
any jurisdiction or of the initiation, or the threatening, of any
proceedings for that purpose and (4) of the receipt of any comments, or
requests for additional information, from the Commission or any state
regulatory authority. If the Commission or any state regulatory
authority shall enter such a stop order or order suspending
qualification at any time, the Company will make every reasonable
effort to obtain the lifting of such order as promptly as is reasonably
practicable;
(viii)ab During the time when a Registration Statement is
required to be delivered under the Act during the period required for
the distribution of the Underlying Common Stock, comply so far as it is
able with all requirements imposed upon it by the Act, as hereafter
amended, and by the rules and regulations promulgated thereunder, as
from time to time in force, so far as necessary to permit the
continuance of sales of or dealings in the Underlying Common Stock. If
at any time when a Registration Statement relating to the Underlying
Common Stock 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 your counsel, the Registration Statement relating to the
Underlying Common Stock as then amended or supplemented includes an
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 such
Registration Statement to comply with the Act, the Company will
promptly prepare and file with the Commission an appropriate amendment
or supplement (in form reasonably satisfactory to you);
(x)ab Endeavor in good faith, in cooperation with you, at or
prior to the time the registration statement becomes effective, to
qualify the Underlying Common Stock for offering and sale under the
securities laws relating to the offering or sale of the Underlying
Common Stock of such jurisdictions as you may reasonably designate and
to continue the qualifications in effect so long as required for
purposes of the sale of the Underlying Common Stock; provided that no
such qualification shall be required in any jurisdiction where, as a
result thereof, the Company would be subject to service of general
process, or to taxation as a foreign corporation doing business in such
jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless you agree that such action is not at
the time necessary or advisable, file and make such statements or
reports at such times as are or may reasonably be required by the laws
of such jurisdiction. For the purposes of this paragraph, "good faith"
is defined as the same standard of care and degree of effort as the
Company will use to qualify its securities other than the Underlying
Common Stock;
(xii)ab Make generally available to its security holders as
soon as practicable, but not later than the first day of the eighteenth
full calendar month following the effective date of the registration
statement, an earnings statement (which need not be certified by
independent public or independent certified public accountants unless
required by the Act or the rules and regulations promulgated
thereunder, but which shall satisfy the provisions of Section 11(a) of
the Act) covering a period of at least twelve months beginning after
the effective date of the registration statement;
(xiv)ab After the effective date of such registration
statement, prepare, and promptly notify you of the proposed filing of,
and promptly file with the Commission, each and every amendment or
supplement thereto or to any Registration Statement forming a part
thereof as may be necessary to make any statements therein not
misleading in any material respect; provided that no such amendment or
supplement shall be filed if you shall object thereto in writing
promptly after being furnished a copy thereof;
(xvi)ab Furnish to you, as soon as available, copies of any
such registration statement and each preliminary or final Registration
Statement, or supplement or amendment prepared pursuant thereto, all in
such quantities as you may from time to time reasonably request;
(xviii)ab Make such representations and warranties to any
underwriter of the Underlying Common Stock, and use your best efforts
to cause Company counsel to render such opinions to such underwriter,
as such underwriter may reasonably request; and
(xx)ab Pay all costs and expenses incident to the performance
of the Company's obligations under Subsection 3(c) above and under this
Subsection 3(d), including without limitation the fees and
disbursements of Company auditors, engineers and legal counsel, of
legal counsel for you and of legal counsel responsible for qualifying
the Underlying Common Stock under blue sky laws, all filing fees and
printing expenses, all expenses in connection with the transfer and
delivery of the Underlying Common Stock, and all expenses in connection
with the qualification of the Underlying Common Stock under blue sky
laws provided, however, that the Company shall not be responsible for
compensation and reimbursement of expenses to underwriters or selling
agents for the included Underlying Common Stock.
(k)ab Agreements by Warrant Holder. In connection with the filing of a
registration statement pursuant to Subsection 3(c) above, if you participate in
the offering of the Underlying Common Stock by including shares owned by you,
you agree:
(ii)ab To furnish the Company all material information
requested by the Company concerning yourself and your holdings of
securities of the Company and the proposed method of sale or other
disposition of the Underlying Common Stock and such other information
and undertakings as shall be reasonably required in connection with the
preparation and filing of any such registration statement covering all
or a part of the Underlying Common Stock and in order to ensure full
compliance with the Act; and
(iv)ab To cooperate in good faith with the Company and its
underwriters, if any, in connection with such registration, including
placing the shares of Underlying Common Stock to be included in such
registration statement in escrow or custody to facilitate the sale and
distribution thereof.
(m)ab Indemnification. The Company shall indemnify and hold harmless
you and any underwriter (as defined in the Act) for you, and each person, if
any, who respectively controls you or such 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 any loss, liability, claim, damage and
expense whatsoever (including but not limited to any and all expense whatsoever
reasonably incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever), joint or several,
to which any of you or such underwriter or such controlling person becomes
subject, under the Act or otherwise, insofar as such loss, liability, claim,
damage and expense (or actions in respect thereof arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in (i) a registration statement covering the Underlying Common Stock, in the
Registration Statement contained therein, or in an amendment or supplement
thereto, or (ii) any application or other document or communication (in this
Subsection collectively called "application") executed by or on behalf of the
Company or based upon written information furnished by or on behalf of the
Company filed in any jurisdiction in order to qualify the Underlying Common
Stock under the securities laws thereof or filed with the Commission, or arise
out of or based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading provided, however, that the Company shall not be
obligated to indemnify in any such case to the extent that any such loss, claim,
damage, expense or liability arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in reliance
upon, and in conformity with, written information respectively furnished by you
or such underwriter or such controlling person for use in the registration
statement, or any amendment or supplement thereto, or any application, as the
case may be.
If any action is brought against a person in respect of which
indemnity may be sought against the Company pursuant to the foregoing paragraph,
such person shall promptly notify the Company in writing of the institution of
such action and the Company shall assume the defense of the action, including
the employment of counsel (satisfactory to the indemnified person in its
reasonable judgment) and payment of expenses. The indemnified person 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 person or
unless the employment of such counsel shall have been authorized in writing by
the Company in connection with the defense of the action or the Company shall
not have employed counsel to have charge of the defense of the action or the
indemnified person shall have reasonably concluded that there may be defenses
available to it or them which are different from or additional to those
available to the Company (in which case the Company shall not have the right to
direct the defense of the action on behalf of the indemnified person), in any of
which events these fees and expenses shall be borne by the Company. Anything in
this paragraph to the contrary notwithstanding, the Company shall not be liable
for any settlement of any claim or action effected without its written consent.
The Company's indemnity agreements contained in this Subsection shall remain in
full force and effect regardless of any investigation made by or on behalf of
any indemnified person, and shall survive any termination of this Agreement. The
Company agrees promptly to notify you of the commencement of any litigation or
proceedings against the Company or any of its officers or directors in
connection with the registration statement pursuant to Subsection 3(c) above.
If you choose to include all or a part of the Underlying
Common Stock in a public offering pursuant to Subsection 3(c), then you agree to
indemnify and hold harmless the Company and each of its directors and officers
who have signed any such registration statement, and any underwriter for the
Company (as defined in the Act), and each person, if any, who controls the
Company or such underwriter within the meaning of the Act, to the same extent as
the indemnity by the Company in this Subsection 3(f) but only with respect to
statements or omissions, if any, made in such registration statement, or any
amendment or supplement thereto, or in any application in reliance upon, and in
conformity with, written information furnished by you to the Company for use in
the registration statement, or any amendment or supplement thereto, or any
application, as the case may be. In case any action shall be brought in respect
of which indemnity may be sought against you, you shall have the rights and
duties given to the Company, and the persons so indemnified shall have the
rights and duties given to you by the provisions of the first paragraph of this
Subsection.
The Company further agrees that, if the indemnity provisions
of the foregoing paragraphs are held to be unenforceable, any holder of a
Warrant or controlling person of such a holder may recover contribution from the
Company in an amount which, when added to contributions such holder or
controlling person has theretofore received or concurrently receives from
officers and directors of the Company or controlling persons of the Company,
will reimburse such holder or controlling person for all losses, claims, damages
or liabilities and legal or other expenses; provided, however, that if the full
amount of the contribution specified in this Subsection 3(f) is not permitted by
law, then such holder or controlling person shall be entitled to contribution
from the Company and its officers, directors and controlling persons to the full
extent permitted by law.
8.ab Exercise of Underwriter Warrants; Partial Exercise.
(b)ab Exercise in Full. Each Warrant may be exercised in full by the
holder thereof by surrender of the Warrant Certificate, with the form of
subscription at the end thereof duly executed by such holder, to the Company at
its principal office, accompanied by payment, in cash or by certified or bank
cashiers check payable to the order of the Company, in the respective amount
obtained by multiplying the number of shares of the Underlying Common Stock
represented by the Warrant Certificate (after giving effect to any adjustment
therein as provided in Section 7 below) by the Purchase Price per share.
(d)ab Partial Exercise. Each Warrant may be exercised in part by
surrender of the Warrant Certificate in the manner and at the place provided in
Subsection 4(a) above, accompanied by payment, in cash or by certified or bank
cashiers check payable to the order of the Company, in the respective amount
obtained by multiplying the number of shares of the Underlying Common Stock
designated by the holder in the form of subscription attached to the Warrant
Certificate by the Purchase Price per share (after giving effect to any
adjustment therein as provided in Section 7 below). Upon any such partial
exercise, the Company at its expense will forthwith issue and deliver to or upon
the order of the purchasing holder, a new Warrant Certificate or Certificates of
like tenor, in the name of the holder thereof or as such holder (upon payment by
such holder of any applicable transfer taxes) may request calling in the
aggregate for the purchase of the number of shares of the Underlying Common
Stock equal to the number of such shares called for on the face of the Warrant
Certificate (after giving effect to any adjustment therein as provided in
Section 7 below) minus the number of such shares (after giving effect to such
adjustment) designated by the holder in the aforementioned form of subscription.
(g)ab Company to Reaffirm Obligations. The Company will, at the time of
any exercise of any Warrant, upon the request of the holder thereof, acknowledge
in writing its continuing obligation to afford to such holder any rights
(including without limitation any right to registration of the shares of the
Underlying Common Stock issued upon such exercise) to which such holder shall
continue to be entitled after such exercise in accordance with the provisions of
this Agreement provided, however, that if the holder of a Warrant shall fail to
make any such request, such failure shall not affect the continuing obligation
of the Company to afford to such holder any such rights.
10.ab Redemption of Warrants.
All terms applicable to the redemption of the Warrants underlying
Underwriter Warrants shall be identical to the redemption provisions of the
Warrants set forth in Section 12 of the Warrant Agreement.
12.ab Delivery of Certificates, etc, on Exercise.
As soon as practicable after the exercise of any Warrant in full or in
part, and in any event within twenty days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the purchasing holder thereof, a
certificate or certificates for the number of Units, Warrants and fully paid and
nonassessable shares of the Underlying Common Stock to which such holder shall
be entitled upon such exercise, plus in lieu of any fractional share to which
such holder would otherwise be entitled, cash in an amount determined pursuant
to Section 8(g), together with any other stock or other securities and property
(including cash, where applicable) to which such holder is entitled upon such
exercise pursuant to Section 7 below or otherwise. 14.ab Anti-dilution
Provisions.
The Underwriter Warrants are subject to the following terms and
conditions during the term thereof:
(b)ab Stock Distributions and Splits. In case (i) the outstanding
shares of the Common Stock (or Other Securities) shall be subdivided into a
greater number of shares or (ii) a dividend in Common Stock (or Other
Securities) shall be paid in respect of Common Stock (or Other Securities), the
Purchase Price per share in effect immediately prior to such subdivision or at
the record date of such dividend or distribution shall simultaneously with the
effectiveness of such subdivision or immediately after the record date of such
dividend or distribution be proportionately reduced; and if outstanding shares
of Common Stock (or Other Securities) shall be combined into a smaller number of
shares thereof, the Purchase Price per share in effect immediately prior to such
combination shall simultaneously with the effectiveness of such combination be
proportionately increased. Any dividend paid or distributed on the Common Stock
(or Other Securities) in stock or any other securities convertible into shares
of Common Stock (or Other Securities) shall be treated as a dividend paid in
Common Stock (or Other Securities) to the extent that shares of Common Stock (or
Other Securities) are issuable upon the conversion thereof.
(d)ab Adjustments. Whenever the Purchase Price per share is adjusted as
provided in Subsection 6(a) above, the number of shares of the Underlying Common
Stock purchasable upon exercise of the Underwriter Warrants immediately prior to
such Purchase Price adjustment shall be adjusted, effective simultaneously with
such Purchase Price adjustment, to equal the product obtained (calculated to the
nearest full share) by multiplying such number of shares of the Underlying
Common Stock by a fraction, the numerator of which is the Purchase Price per
share in effect immediately prior to such Purchase Price adjustment and the
denominator of which is the Purchase Price per share in effect upon such
Purchase Price adjustment, which adjusted number of shares of the Underlying
Common stock shall thereupon be the number of shares of the Underlying Common
Stock purchasable upon exercise of the Underwriter Warrants until further
adjusted as provided herein.
(f)ab Reorganizations. In case the Company shall be recapitalized by
reclassifying its outstanding Common Stock (or Other Securities) into a stock
with a different par value or by changing its outstanding Common Stock (or Other
Securities) with par value to stock without par value, then, as a condition of
such reorganization, lawful and adequate provision shall be made whereby each
holder of a Warrant shall thereafter have the right to purchase, upon the terms
and conditions specified herein, in lieu of the shares of Common Stock (or Other
Securities) theretofore purchasable upon the exercise of the Underwriter
Warrants, the kind and amount of shares of stock and other securities receivable
upon such recapitalization by a holder of the number of shares of Common Stock
(or Other Securities) which the holder of an Underwriter Warrant might have
purchased immediately prior to such recapitalization. If any consolidation or
merger of the Company with another corporation, or the sale of all or
substantially all of its assets to another corporation, shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as a
condition of such consolidation, merger or sale, lawful and adequate provisions
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive upon the basis and upon the terms and conditions specified
in this Warrant Agreement and in lieu of the shares of the Common Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby had such consolidation, merger or sale not taken
place, and in any such case, appropriate provision shall be made with respect to
the rights and interests of the holders of Underwriter Warrants to the end that
the provisions hereof (including without limitation provisions for adjustments
of the Purchase Price and of the number of shares purchasable and receivable
upon the exercise of the Underwriter Warrants) shall thereafter be applicable,
as nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof (including an immediate
adjustment, by reason of such consolidation or merger, of the Purchase Price to
the value for the Common Stock reflected by the terms of such consolidation or
merger if the value so reflected is less than the Purchase Price in effect
immediately prior to such consolidation or merger). In the event of a merger or
consolidation of the Company with or into another corporation as a result of
which a number of shares of common stock of the surviving corporation greater or
lesser than the number of shares of Common Stock of the Company outstanding
immediately prior to such merger or consolidation are issuable to holders of
Common Stock of the Company, then the Purchase Price in effect immediately prior
to such merger or consolidation shall be adjusted in the same manner as though
there were a subdivision or combination of the outstanding shares of Common
Stock of the Company. The Company will not effect any such consolidation, merger
or sale, unless prior to the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instrument executed
and mailed or delivered to the registered holder hereof at the last address of
such holder appearing on the books of the Company, the obligation to deliver to
such holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to purchase. If a
purchase, tender or exchange offer is made to and accepted by the holders of
more than of the outstanding shares of Common Stock of the Company, the Company
shall not effect any consolidation, merger or sale with the Person having made
such offer or with any Affiliate of such Person, unless prior to the
consummation of such consolidation, merger or sale the holders of Underwriter
Warrants shall have been given a reasonable opportunity to then elect to receive
upon the exercise of Underwriter Warrants either the stock, securities or assets
then issuable with respect to the Common Stock of the Company or the stock,
securities or assets, or the equivalent issued to previous holders of the Common
Stock in accordance with such offer. The term "Person" as used in this
subparagraph shall mean and include an individual, a partnership, a corporation,
a trust, a joint venture, an unincorporated organization and a government or any
department or agency thereof. For the purposes of this subparagraph, an
"Affiliate" of any Person shall mean any Person directly or indirectly
controlling, controlled by or under direct or indirect common control with, such
other Person. A Person shall be deemed to control a corporation if such Person
possesses, directly or indirectly, the power to direct or cause the direction of
the management and policies of such corporation, whether through the ownership
of voting securities, by contract or otherwise.
(h)ab Effect of Dissolution or Liquidation. In case the Company shall
dissolve or liquidate all or substantially all of its assets, all rights under
this Agreement shall terminate as of the date upon which a certificate of
dissolution or liquidation shall be filed with the Secretary of the State of
Georgia (or, if the Company theretofore shall have been merged or consolidated
with a corporation incorporated under the laws of another state, the date upon
which action of equivalent effect shall have been taken); provided, however,
that (i) no dissolution or liquidation shall affect the rights under Subsection
7(c) of any holder of a Warrant and (ii) if the Company's Board of Directors
shall propose to dissolve or liquidate the Company, each holder of a Warrant
shall be given written notice of such proposal at the earlier of (A) the time
when the Company's shareholders are first given notice of the proposal or (B)
the time when notice to the Company's shareholders is first required.
(j)ab Notice of Change of Purchase Price. Whenever the Purchase Price
per share or the kind or amount of securities purchasable under the Underwriter
Warrants shall be adjusted pursuant to any of the provisions of this Agreement,
the Company shall forthwith thereafter cause to be sent to each holder of a
Warrant, a certificate setting forth the adjustments in the Purchase Price per
share and/or in such number of shares, and also setting forth in detail the
facts requiring, such adjustments, including without limitation a statement of
the consideration received or deemed to have been received by the Company for
any additional shares of stock issued by it requiring such adjustment. In
addition, the Company at its expense shall within 90 days following the end of
each of its fiscal years during the term of this Agreement, and promptly upon
the reasonable request of any holder of a Warrant in connection with the
exercise from time to time of all or any portion of any Warrant, cause
independent certified public accountants of recognized standing selected by the
Company to compute any such adjustment in accordance with the terms of the
Underwriter Warrants and prepare a certificate setting forth such adjustment and
showing in detail the facts upon which such adjustment is based.
(l)ab Notice of a Record Date. In the event of (i) any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend payable out of earned surplus of the Company) or other
distribution, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, (ii) any capital reorganization of the Company, or any
reclassification or recapitalization of the capital stock of the Company, or any
transfer of all or substantially all of the assets of the Company to, or
consolidation or merger of the Company with or into, any other person or (iii)
any voluntary or involuntary dissolution or liquidation of the Company, then and
in each such event the Company will mail or cause to be mailed to each holder of
a Warrant a notice specifying not only the date on which any such record is to
be taken for the purpose of such dividend, distribution or right and stating the
amount and character of such dividend, distribution or right, but also the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any, as of which the holders of record of Common Stock (or
Other Securities) shall be entitled to exchange their shares of Common Stock (or
Other Securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up. Such notice shall be mailed at
least 20 days prior to the proposed record date therein specified.
16.ab Further Covenants of the Company.
(b)ab Reservation of Stock. The Company shall at all times reserve and
keep available, solely for issuance and delivery upon the exercise of the
Underwriter Warrants, all shares of the Underlying Common Stock from time to
time issuable upon the exercise of the Warrants and the Underwriter Warrants and
shall take all necessary actions to ensure that the par value per share, if any,
of the Underlying Common Stock is, at all times equal to or less than the then
effective Purchase Price per share.
(d)ab Title to Units. All Units and shares of the Underlying Common
Stock delivered upon the exercise of the Underwriter Warrants shall be validly
issued, fully paid and nonassessable; each holder of an Underwriter Warrant
shall receive good and marketable title to the Units and Underlying Common
Stock, free and clear of all voting and other trust arrangements, liens,
encumbrances, equities and claims whatsoever; and the Company shall have paid
all taxes, if any, in respect of the issuance thereof.
(f)ab Listing on Securities Exchanges; Registration. If the Company at
any time shall list any Units, Common Stock or Warrants on any national
securities exchange, the Company will, at its expense, use its best reasonable
efforts to simultaneously list on such exchange, upon official notice of
issuance upon the exercise of the Underwriter Warrants, and maintain such
listing of, all Units, Warrants and shares of the Underlying Common Stock from
time to time issuable upon the exercise of the Underwriter Warrants; and the
Company will so list on any national securities exchange, will so register and
will maintain such listing of, any Other Securities if and at the time that any
securities of like class or similar type shall be listed on such national
securities exchange by the Company.
(h)ab Exchange of Underwriter Warrants. Subject to Subsection 3(a)
hereof, upon surrender for exchange of any Warrant Certificate to the Company,
the Company at its expense will promptly issue and deliver to or upon the order
of the holder thereof a new Warrant Certificate or certificates of like tenor,
in the name of such holder or as such holder (upon payment by such holder of any
applicable transfer taxes) may direct, calling in the aggregate for the purchase
of the number of shares of the Underlying Common Stock called for on the face or
faces of the Warrant Certificate or Certificates so surrendered.
(j)ab Replacement of Underwriter Warrants. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant Certificate and, in the case of any such loss, theft
or destruction, upon delivery of an indemnity agreement reasonably satisfactory
in form and amount to the Company or, in the case of any such mutilation, upon
surrender and cancellation of such Warrant Certificate, the Company, at the
expense of the Warrant holder will execute and deliver, in lieu thereof, a new
Warrant Certificate of like tenor.
(l)ab Reporting by the Company. The Company agrees that, if it files a
Registration Statement during the term of the Underwriter Warrants, it will use
its best reasonable efforts to keep current in the filing of all forms and other
materials which it may be required to file with the appropriate regulatory
authority pursuant to the Exchange Act, and all other forms and reports required
to be filed with any regulatory authority having jurisdiction over the Company.
(n)ab Fractional Shares. No fractional shares of Underlying Common
Stock are to be issued upon the exercise of any Warrant, but the Company shall
pay a cash adjustment in respect of any fraction of a share which would
otherwise be issuable in an amount equal to the same fraction of the highest
market price per share of Underlying Common Stock on the day of exercise, as
determined by the Company.
18.ab Other Holders.
The Underwriter Warrants are issued upon the following terms, to all of
which each holder or owner thereof by the taking thereof consents and agrees as
follows: (a) any person who shall become a transferee, within the limitations on
transfer imposed by Subsection 3(a) hereof, of a Warrant properly endorsed shall
take such Warrant subject to the provisions of Subsection 3(a) hereof and
thereupon shall be authorized to represent himself as absolute owner thereof
and, subject to the restrictions contained in this Agreement, shall be empowered
to transfer absolute title by endorsement and delivery thereof to a permitted
bona fide purchaser for value; (b) each prior taker or owner waives and
renounces all of his equities or rights in such Warrant in favor of each such
permitted bona fide purchaser, and each such permitted bona fide purchaser shall
acquire absolute title thereto and to all rights presented thereby; (c) until
such time as the respective Warrant is transferred on the books of the Company,
the Company may treat the registered holder thereof as the absolute owner
thereof for all purposes, notwithstanding any notice to the contrary and (d) all
references to the word "you" in this Warrant Agreement shall be deemed to apply
with equal effect to any person to whom a Warrant Certificate or Certificates
have been transferred in accordance with the terms hereof, and where
appropriate, to any person holding Units, Warrants or shares of the Underlying
Common Stock.
20.ab Miscellaneous.
All notices, certificates and other communications from or at the
request of the Company to the holder of any Warrant shall be mailed by first
class, registered or certified mail, postage prepaid, to such address as may
have been furnished to the Company in writing by such holder, or, until an
address is so furnished, to the address of the last holder of such Warrant who
has so furnished an address to the Company, except as otherwise provided herein.
This Agreement and any of the terms hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. This
Agreement shall be construed and enforced in accordance with and governed by the
laws of the State of Georgia. The headings in this Agreement are for reference
only and shall not limit or otherwise affect any of the terms hereof. This
Agreement, together with the forms of instruments annexed hereto as Schedule I,
constitutes the full and complete agreement of the parties hereto with respect
to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on this _____ day of _________, 1998, by its proper corporate officers
thereunto duly authorized.
<PAGE>
WARRANT AND
REGISTRATION RIGHTS AGREEMENT - Page 1
BIOSHIELD TECHNOLOGIES, INC.
By:
Timothy C. Moses
Co-Chairman of the Board, President and
Chief Executive Officer
<PAGE>
WARRANT AND
REGISTRATION RIGHTS AGREEMENT - Page 1
The above Warrant and Registration Rights Agreement is confirmed this
___ day of _____, 1998.
TEJAS SECURITIES GROUP, INC.
Representative of the Several Underwriters Listed on
Schedule A to the Underwriting Agreement
By:
Robert A. Shuey, III
REDSTONE SECURITIES, INC.
Representative of the Several Underwriters Listed on
Schedule A to the Underwriting Agreement
By:
Name:
SEABOARD SECURITIES, INC.
Representative of the Several Underwriters Listed on
Schedule A to the Underwriting Agreement
By:
Name:
G:\TEJASC~1\DEALS\SB2\BIOSHI~1\AMENDM~1\1T#6T02!.WPD0871998
349:18662-5
<PAGE>
SCHEDULE A
BIOSHIELD TECHNOLOGIES, INC.
Unit Purchase Warrant
Certificate Evidencing Right to Purchase
__________ Units
This is to certify that ___________________ ("_______") or assigns, is
entitled to purchase at any time or from time to time after 9 A.M., Central
Standard time, on __________, 1999 and until 9 A.M., Central Standard time, on
__________, 2003 up to the above referenced number of Units consisting of two
shares of the Company's Common Stock (the "Shares") and one Redeemable Common
Stock Purchase Warrant (the "Warrants"), of BioShield Technologies, Inc., a
Georgia corporation (the "Company"), for the consideration specified in Section
1 of the Warrant and Registration Rights Agreement dated __________, 1998
between the Company and Tejas Securities Group, Inc., Redstone Securities, Inc.
and Seaboard Securities, Inc. (collectively, the "Representatives"), as
representatives of the several underwriters listed in Schedule A to that certain
Underwriting Agreement dated _________, 1998 by and among the Company, the
Representatives and certain Selling Shareholders of the Company (the "Warrant
Agreement"), pursuant to which this Warrant is issued. All rights of the holder
of this Warrant Certificate are subject to the terms and provisions of the
Warrant Agreement, copies of which are available for inspection at the office of
the Company.
The Units issuable upon the exercise of this Warrant have not been
registered under the Securities Act of 1933, as amended (the "Act"), and no
distribution of the Shares or Warrants issuable upon exercise of this Warrant
may be made until the effectiveness of a registration statement under the Act
covering such Units. Transfer of this Warrant Certificate is restricted as
provided in Subsection 3(a) of the Warrant Agreement.
This Warrant has been issued to the registered owner in reliance upon
written representations necessary to ensure that this Warrant was issued in
accordance with an appropriate exemption from registration under any applicable
state and federal securities laws, rules and regulations. This Warrant may not
be sold, transferred, or assigned unless, in the opinion of the Company and its
legal counsel, such sale, transfer or assignment will not be in violation of the
Act, applicable rules and regulations of the Securities and Exchange Commission,
and any applicable state securities laws.
Subject to the provisions of the Act and of the Warrant Agreement, this
Warrant Certificate and all rights hereunder are transferable, in whole or in
part, at the offices of the Company, by the holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant Certificate, together with
the Assignment hereof duly endorsed. Until transfer of this Warrant Certificate
on the books of the Company, the Company may treat the registered holder hereof
as the owner hereof for all purposes.
Any Units, Warrants or Common Stock which is acquired pursuant to the
exercise of this Warrant shall be acquired in accordance with the Warrant
Agreement and certificates representing all securities so acquired shall bear a
restrictive legend reading substantially as follows:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER THE SECURITIES ACT OF
1933 AND ANY APPLICABLE STATE LAW, OR (2) AN OPINION OF COUNSEL
(SATISFACTORY TO THE COMPANY) THAT REGISTRATION IS NOT REQUIRED.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
executed on this ____ day of _________, 1998, by its proper corporate officer's
thereunto duly authorized.
<PAGE>
BIOSHIELD TECHNOLOGIES, INC.
By:
Timothy C. Moses
Co-Chairman of the Board, President and
Chief Executive Officer
Attest:
Name:
<PAGE>
SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: BioShield Technologies, Inc.
The undersigned, the holder of the enclosed Warrant Certificate, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
Certificate for, and to purchase thereunder, _________________ Units (as defined
in the Warrant and Registration Rights Agreement to which the form of this
Subscription was attached) and herewith makes payment of $______________
therefor by cash, certified check or official bank check, and requests that the
certificate or certificates for such shares be issued in the name of and
delivered to the undersigned.
Date:
Taxpayer ID No.:
<PAGE>
(Signature must conform in all respects to name of holder
as specified on the face of the Warrant Certificate)
(Address)
<PAGE>
Insert the number of shares called for on the face of the Warrant
Certificate (or, in the case of a partial exercise, the portion thereof as to
which the Warrant is being exercised), in either case without making any
adjustment for additional Units or other securities or property or cash which,
pursuant to the adjustment provisions of the Warrant, may be deliverable upon
exercise.
<PAGE>
ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto _______________________________ the right represented by the enclosed
Warrant Certificate to purchase ________ Units with full power of substitution
in the premises.
The undersigned represents and warrants that the transfer, in whole in
or in part, of such right to purchase represented by the enclosed Warrant
Certificate is permitted by the terms of the Warrant and Registration Rights
Agreement pursuant to which the enclosed Warrant has been issued, and the
transferee hereof, by his acceptance of this Assignment, represents and warrants
that he is familiar with the terms of such Warrant and Registration Rights
Agreement and agrees to be bound by the terms thereof with the same force and
effect as if a signatory thereto.
Date:
Taxpayer ID No.:
Warrant Certificate No.:
<PAGE>
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant Certificate)
(Address)
Signed in the presence of:
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
as of the 1st day of January, 1998, by and between BIOSHIELD TECHNOLOGIES, INC.,
a Georgia corporation (hereinafter called the "Company") and Jacques Elfersy,
Senior Vice President (hereinafter called the "Executive").
W I T N E S S E T H:
WHEREAS, the Company and the Executive desire to enter into an
employment agreement to establish the rights and obligations of the Executive
and the Company in such employment relationship;
WHEREAS, the terms of this Agreement have been approved by the
Compensation Committee of the Board of Directors of the Company;
NOW, THEREFORE, and in consideration of the mutual covenants herein
contained, the Company and the Executive hereby mutually agree as follows:
1. Employment and Duties. The Company hereby employs the Executive, and
the Executive hereby accepts employment with the Company upon the terms and
conditions hereinafter set forth. The Executive shall serve the Company as its
Senior Vice President. In such capacity, the Executive shall have all powers,
duties, and obligations as are normally associated with such position. The
Executive shall further perform such other duties related to the business of the
Company, including travel, as may from time to time be reasonably requested of
him by the Company's Board of Directors. The Executive shall devote all of his
skills, time, and attention solely and exclusively to said position and in
furtherance of the business and interests of the Company except for:
(a) time spent in managing his personal, financial and legal
affairs and serving on corporate, civic or charitable boards or committees, in
each case only if and to the extent not substantially interfering with the
performance of such responsibilities, and
(b) periods of vacation to which he is entitled.
Executive shall promptly notify the Company of his election or appointment to
any corporate, civic or charitable boards or committees on or after the date of
this Agreement.
2. Term of Employment. The term of employment shall begin, or be deemed
to have begun, on January 1, 1998 (the "Effective Date") and shall expire on
January 1, 2003, (the "Expiration Date") subject, however, to prior termination
or to extension, as herein provided. On each January 1st while this Agreement is
in force beginning January 1, 2001, the term of this Agreement shall
automatically be extended so that new term of the Agreement expires three years
from such date, unless either party notifies the other party in writing of an
intent not to renew at least ninety (90) days prior to the applicable July 1.
<PAGE>
3. Base Salary. For such services, the Executive shall receive an
annual base salary of $125,000 (the "Base Salary"), which Base Salary shall be
reviewed annually by the Compensation Committee of the Board of Directors and
which may be increased, but not decreased, by the Company during the term of
this Agreement. In the event that the Company increases the Executive's Base
Salary, the amount of the prior Base Salary, together with any increase(s),
shall be his new Base Salary. The Base Salary shall be payable in equal
installments, no less frequently than semi-monthly, in accordance with the
Company's regular payroll practices.
4. Bonus. For each fiscal year of the Company during which he is
employed by the Company on the last day of the fiscal year, the Executive shall
be eligible to receive an annual bonus ("Annual Bonus") under the bonus plan
established by the Compensation Committee of the Board for the Executive. Such
Annual Bonus shall be determined by the Compensation Committee of the Board and
shall not exceed $50,000. Each Annual Bonus shall be paid in cash as soon as
practical after the year for which the Annual Bonus is earned or awarded, unless
electively deferred by the Executive pursuant to any deferral programs or
arrangements that the Company may make available to the Executive.
5. Fringe Benefits. The Company shall further provide the Executive
with all health and life insurance coverages, sick leave and disability
programs, tax-qualified retirement plans, stock option plans, paid holidays and
vacations, expense reimbursement policies, moving and relocation policies,
perquisites, and such other fringe benefits of employment as the Company may
provide from time to time to actively employed senior executives of the Company
who are similarly situated. Notwithstanding the preceding provisions of this
Paragraph 5, during the term of this Agreement (including extensions thereof)
the Company shall provide the Executive;
(a) reimbursement for all reasonable expenses incurred by the
Executive in connection with the conduct of the Company's business on
presentation of reasonable and appropriate receipts and in accordance with the
Company's regular reimbursement policy applicable to senior executives;
(b) an individual disability insurance policy, at the
Company's expense, in addition to the long-term disability plan maintained by
the Company generally for its employees, which provides long-term disability
insurance which replaces at least $6,000 of the Executive's monthly Base Salary;
(c) a minimum of four (4) weeks of paid vacation per year; and
(d) an automobile allowance of up to $1,200 per month for
automobile lease payments, maintenance, insurance and fuel.
<PAGE>
6. Termination of Employment.
(a) Termination of Employment Other Than by Executive. The
Executive's employment hereunder may be terminated by the Company without any
breach of this Agreement under the following circumstances:
(1) Death or Disability. The Executive's employment hereunder shall terminate
upon his death, and may be terminated by the Company in the event of his
Disability for a continuous period of at least one hundred eighty (180) days,
provided that the Executive does not return to work on a substantially full-time
basis within thirty (30) days after Notice of Termination is given by the
Company pursuant to
the provisions of Paragraphs 6(c) and 6(d)(2). A return to work of less than
thirty (30) days shall not interrupt a continuous period of Disability.
(2) Cause. The Company may terminate the Executive's
employment hereunder for Cause.
(3) Without Cause. The Company may terminate the Executive's employment
hereunder without Cause.
(b) Termination of Employment by Executive. The Executive may
terminate his employment at any time with or without Good Reason.
(c) Notice of Termination. Any termination of the Executive's
employment by the Company, or by the Executive other than termination upon the
Executive's death, shall be communicated by written Notice of Termination to the
other party. For purposes of this Agreement, a "Notice of Termination" means a
notice that shall indicate the specific termination provision in this Agreement
relied upon, and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated. The failure by the Executive to set
forth in the Notice of Termination any fact or circumstance which contributes to
a showing of Good Reason shall not waive any right of the Executive hereunder or
preclude the Executive from asserting such fact or circumstance in enforcing his
rights hereunder.
(d) Date of Termination. "Date of Termination" means:
(1) If the Executive's employment is terminated by
his death, the date of his death.
(2) If the Executive's employment is terminated by
the Company as a result of
Disability pursuant to Paragraph 6(a)(1), the date that is thirty (30) days
after Notice of Termination is given; provided the Executive shall not have
returned to the performance of his duties on a full-time basis during such
thirty (30) day period.
<PAGE>
(3) If the Executive terminates his employment for
Good Reason pursuant to Paragraph
6(b), the date that is ten (10) days after Notice of Termination is given
(provided that the Company does not cure such event during the ten (10) day
period).
(4) If the Executive terminates his employment other
than for Good Reason, the date
that is two (2) weeks after Notice of Termination is given; provided, in the
sole discretion of the Company, such date may be any earlier date after Notice
of Termination is given.
(5) If the Executive's employment is terminated by
the Company without Cause pursuant
to Section 6(a)(3), the date that is two (2) weeks after Notice of Termination
is given.
(6) If the Executive's employment is terminated by
the Company for Cause pursuant to
Paragraph 6(a)(2), the date on which the Notice of Termination is given.
7. Amounts Payable Upon Termination of Employment or During Disability.
Upon the termination of the Executive's employment with the Company, the Company
shall have the following obligations (including the obligation to pay the cost
of all benefits provided by the applicable benefit plan to the Executive and the
Executive's family under this Section 7, except normal employee contributions
required by the applicable benefit plan of other participating executives with
comparable responsibilities); provided, however, that any item paid or payable
under this Agreement shall be reduced by any amount paid or payable to the
Executive and the Executive's family with respect to the same type of payment
under any severance plan or policy now maintained or at any time in the future
maintained by the Company. For this purpose, any payment under this Agreement or
any severance plan or policy made over time shall be discounted to present value
at the Interest Rate before reducing any payment under this Agreement by any
amount paid or payable to the Executive under such severance plan or policy.
(a) Death. If the Executive's employment is terminated by his
death, the Executive's beneficiary (as designated by the Executive in writing
with the Company prior to his death) shall
be entitled to payment of all Accrued Obligations. Unless otherwise directed by
the Executive all Accrued Obligations shall be paid to the Executive's
beneficiaries in a lump sum in cash within thirty (30) days of the Date of
Termination. In the absence of a beneficiary designation by the Executive, or,
if the Executive's designated beneficiary does not survive the Executive,
benefits described in this Paragraph 7(a) shall be paid to the Executive's
estate. In addition, all stock options that have been granted to the Executive
at least six months prior to the date of his death (measured from the date of
grant of each such stock option), if any, shall be and become fully vested and
may be executed by the estate of the Executive for a period equal to the earlier
to occur of five (5) years from the date of the death of the Executive or the
date the option would have otherwise expired without regard to the Executive's
death or other termination of employment. If the Executive dies after the date
of grant of any stock options, the Executive's estate may exercise any stock
options which were then vested for a period equal to the earlier to occur of
five (5) years from the date of the death of the Executive or the date the
option would have expired without regard to the Executive's death or other
termination of employment.
(b) Disability.
(1) During any period that the Executive fails to perform his duties hereunder
as a result of incapacity due to physical or mental illness ("Disability
Period"),
the Executive shall continue to receive his base salary at the rate then in
effect for such period until his employment is terminated pursuant to Paragraph
6(a)(1); provided, however, that payments of Base Salary so made to the
Executive shall be reduced by the sum of the amounts, if any, that were payable
to the Executive at or before the time of any such salary payment under any
disability benefit plan or plans of the Company and that were not previously
applied to reduce any payment of Base Salary.
(2) Upon his termination of employment because of
Disability (as described in
Paragraph 6(a)(1)), the Executive shall be entitled to the payments and benefits
described in Paragraph 7(a) as if the Executive had died on his Date of
Termination. In the event of the Executive's death prior to the time that all
payments described in Paragraph 7(a) have been completed, such payments and
benefits shall be paid to the Executive's beneficiary (as designated pursuant to
Paragraph 7(a)), or, in the absence of a beneficiary designation of the
designated beneficiary does not survive the Executive, to the Executive's
estate.
(3) The Executive and the Executive's family shall be
entitled to receive disability
and other welfare plan benefits (other than continued group long-term disability
coverage) generally available to executives with comparable responsibilities or
positions for a period of two (2) years from the Date of Termination at the same
cost to the Executive as is charged to such executives from time to time for
comparable coverage.
(c) Termination by Company Without Cause or Termination by
Executive for Good Reason. In the event that the Company terminates the
Executive's employment without Cause or the Executive terminates his employment
for Good Reason before the expiration of the term of this Agreement, including
any extension thereof, the Executive shall be entitled to the following
payments and benefits:
(1) Those described in Paragraph 7(a) as if the Executive had died on his Date
of Termination.
(2) Payment of an amount equal to the sum of the Base
Salary (assuming no increases)
payable to the Executive for remaining term of this Agreement assuming no
termination, plus (B) two (2) times the average of the Annual Bonuses paid or
payable to the Executive during the term of this Agreement, payable in twelve
(12) equal, consecutive monthly installments commencing no later than thirty
(30) days after the Date of Termination.
(3) All outstanding options, stock grants, share of restricted stock or any
other equity, incentive compensation shall be and become fully vested and
nonforfeitable.
<PAGE>
(4) The Executive and the Executive's family shall be
entitled to receive welfare
plan benefits (other than continued group long-term disability coverage)
generally available to executives with comparable responsibilities or positions
for a period of the lessor of two (2) years from the Date of Termination or
until the Expiration Date of this Agreement at the same cost to the Executive as
is charged to such executives from time to time for comparable coverage.
(d) Termination by Executive Other Than for Good Reason, or
Termination by Company for Cause. In the event that the Executive terminates his
employment other than for Good Reason or the Company terminates his employment
for Cause, the Executive shall not be entitled to any compensation except as set
forth below:
(1) Any Base Salary that is accrued but unpaid, any
vacation that is accrued but
unused, and any business expenses that are unreimbursed, all as of the Date of
Termination.
(2) Any other rights and benefits (if any) provided
under plans and programs of the
Company (excluding any bonus program), determined in accordance with the
applicable terms and provisions of such plans and programs.
8. Restrictive Covenants. The Executive agrees that, during
the term of this Agreement, including an extension thereof, and for a period of
one year thereafter, he shall not, directly or indirectly:
(a) on Executive's own behalf or on behalf of any other person
or entity, solicit, contact, call upon, communicate with, or attempt to
communicate with any person or entity who was a customer of the Company at any
time within the one-year period ending on the Date of Termination or any
representative of any such customer of the Company, with the intent or purpose
of selling or providing of any product or service competitive with any product
or service sold or provided or under development by the Company during the
period of one year immediately preceding termination of Executive's employment
and which is still being offered by or is still under development by the
Company; and
(b) employ or attempt to employ or assist anyone else in
employing in any Competing Business any person who, at any time within the
period commencing one year prior to the Date of Termination and ending one year
after the Date of Termination, was, is or shall be an employee of the Company
(whether or not such employment is full-time or is pursuant to a written
contract with the Company).
9. Confidential Information. The Executive agrees that:
(a) during the term of this Agreement and, with respect to
Confidential Information, for a period of five (5) years following his Date of
Termination, or with respect to Trade Secrets, for so long as the respective
information qualifies as a trade secret under applicable law, he will receive
and hold all Company Information in trust and in strictest confidence;
(b) he will use his best effort to protect the Company
Information from disclosure and will in no event take any action causing any
Company Information to lose its character as Company Information; and
(c) except as required by Executive's duties in the course of
employment by the Company, he will not, directly or indirectly, use, publish,
disseminate or otherwise disclose any Company Information to any third party
without the prior written consent of the Company, which may be withheld in the
Company's absolute discretion.
All documents or tangible or intangible materials, including computer data,
provided to or obtained by Executive during the course of employment by the
Company which contain Company Information are the property of the
Company(collectively, the "Materials"). Executive will not remove from the
Company's premises or copy or reproduce any Materials (except as Executive's
employment by the Company shall require), and at the termination of Executive's
employment, regardless of the reason for such termination, Executive will leave
with the Company, or immediately return to the Company, all Materials or copies
or reproductions thereof in Executive's possession, power or control.
10. Acknowledgment; Remedies.
(a) Executive has carefully considered the nature and extent
of the restrictions upon him and the rights and remedies conferred to the
Company under Sections 8 and 9 of this Agreement, and hereby acknowledges and
agrees that the same are reasonable in time, necessary to protect the business,
interests and properties of the Company, are designed to eliminate competition
which would be unfair to the Company, do not stifle the inherent skill and
experience of Executive, would not operate as a bar to Executive's sole means of
support, are fully required to protect the legitimate interests of the Company
and do not confer a benefit upon the Company disproportionate to the detriment
of Executive.
(b) In the event of any violation of the provisions of
Sections 8 or 9 of this Agreement by Executive, the parties hereby recognize and
acknowledge that remedy at law will be inadequate and the Company may suffer
irreparable injury. Accordingly, Executive consents to injunctive and other
appropriate equitable relief upon the institution of proceedings therefor by the
Company in order to protect the Company's rights under such Sections. Such
relief shall be in addition to any other relief to which the Company may be
entitled at law or in equity. Covenants contained in Sections 8 or 9 hereof
shall be treated the same as a termination by the Company for Cause and shall
entitle the Company to cease the provision of any welfare plan benefits being
afforded to the Executive or his family after the termination of his employment
with the Company, cease any payments to be made to the Executive pursuant to
this Agreement in connection with such termination (other than accrued and
unpaid Base Salary and vacation) or recover from the Executive any payments made
to the Executive under this Agreement in respect of such termination (other than
accrued Base Salary and vacation). In no event shall such actions preclude the
Company from any equitable relief to which it may otherwise be entitled and such
remedies shall be cumulative.
11. Certain Further Payments by the Company.
(a) Tax Reimbursement Payment. In the event that any amount or
benefit paid or distributed to the Executive by the Company or any Affiliated
Company, whether pursuant to this Agreement or otherwise (collectively, the
"Covered Payments"), is or becomes subject to the tax (the "Excise Tax") imposed
under Section 4999 of the Code or any similar tax that may hereafter be imposed,
the Company shall pay to the Executive, at the time specified in Section 11(e)
below, the Tax Reimbursement Payment (as defined below). The Tax Reimbursement
Payment is defined as an amount, which when added to the Covered Payments and
reduced by any Excise Tax on the Covered Payments and any federal, state and
local income tax and Excise Tax on the Tax Reimbursement Payment provided for by
this Agreement (but without reduction for any federal, state or local income or
employment tax on such Covered Payments), shall be equal to the sum of (i) the
amount of the Covered Payments, and (ii) an amount equal to the product of any
deductions disallowed for federal, state or local income tax purposes because of
the inclusion of the Tax Reimbursement Payment in the Executive's adjusted gross
income and the highest applicable marginal rate of federal, state or local
income taxation, respectively, for the calendar year in which the Tax
Reimbursement Payment is to be made.
(b) Determining Excise Tax. For purposes of determining
whether any of the Covered Payments will be subject to the Excise Tax and the
amount of such Excise Tax,
(1) such Covered Payments will be treated as
"parachute payments" within the meaning
of Section 280G of the Code, and all "parachute payments" in excess of the "base
amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as
subject to the Excise Tax, unless, and except to the extent that, in the opinion
of the Company's independent certified public accountants, which, in the case of
Covered Payments made after the Change of Control Date, shall be the Company's
independent certified public accountants appointed prior to the Change of
Control Date, or tax counsel selected by such accountants (the "Accountants"),
such Covered Payments (in whole or in part) either do not constitute "parachute
payments" or represent reasonable compensation for services actually rendered
(within the meaning of Section 280G(b)(4) of the Code) in excess of the "base
amount", or such "parachute payments" are otherwise not subject to such Excise
Tax, and
(2) the value of any non-cash benefits or any deferred payment or benefit shall
be determined by the Accountants in accordance with the principles of Section
280G of the Code.
(c) Applicable Tax Rates and Deductions. For purposes of
determining the amount of the Tax Reimbursement Payment, the Executive shall be
deemed:
(1) to pay federal income taxes at the highest applicable marginal rate of
federal income taxation for the calendar year in which the Tax Reimbursement
Payment is to be made,
(2) to pay any applicable state and local income
taxes at the highest applicable
marginal rate of taxation for the calendar year in which the Tax Reimbursement
Payment is to be made, net of the maximum reduction in federal income taxes
which could be obtained from the deduction of such state or local taxes if paid
in such year (determined without regard to limitations on deductions based upon
the amount of the Executive's adjusted gross income), and
(3) to have otherwise allowable deductions for
federal, state and local income tax
purposes at least equal to those disallowed because of the inclusion of the Tax
Reimbursement Payment in the Executive's adjusted gross income.
(d) Subsequent Events. In the event that the Excise Tax is
subsequently determined by the Accountants to be less than the amount taken into
account hereunder in calculating the Tax Reimbursement Payment made, the
Executive shall repay to the Company, at the time that the amount of such
reduction in the Excise Tax is finally determined, the portion of such prior Tax
Reimbursement Payment that has been paid to the Executive or to federal, state
or local tax authorities on the Executive's behalf and that would not have been
paid if such Excise Tax had been applied in initially calculating such Tax
Reimbursement Payment, plus interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in
the event any portion of the Tax Reimbursement Payment to be refunded to the
Company has been paid to any federal, state or local tax authority, repayment
thereof shall not be required until actual refund or credit of such portion has
been made to the Executive, and interest payable to the Company shall not exceed
interest received or credited to the Executive by such tax authority for the
period it held such portion. The Executive and the Company shall mutually agree
upon the course of action to be pursued (and the method of allocating the
expenses thereof) if the Executive's good faith claim for refund or credit is
denied. In the event that the Excise Tax is later determined by the Accountants
to exceed the amount taken into account hereunder at the time the Tax
Reimbursement Payment is made (including, but not limited to, by reason of any
payment the existence or amount of which cannot be determined at the time of the
Tax Reimbursement Payment), the Company shall make an additional Tax
Reimbursement Payment in respect of such excess (which Tax Reimbursement Payment
shall include any interest or penalty payable with respect to such excess) at
the time that the amount of such excess is finally determined.
(e) Date of Payment. The portion of the Tax Reimbursement
Payment attributable to a Covered Payment shall be paid to the Executive within
ten business days following the payment of the Covered Payment. If the amount of
such Tax Reimbursement Payment (or portion thereof) cannot be finally determined
on or before the date on which payment is due, the Company shall pay to the
Executive an amount estimated in good faith by the Accountants to be the minimum
amount of such Tax Reimbursement Payment and shall pay the remainder of such Tax
Reimbursement Payment (which Tax Reimbursement Payment shall include interest at
the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined, but in no event later than 45 calendar days after
payment of the related Covered Payment. In the event that the amount of the
estimated Tax Reimbursement Payment exceeds the amount subsequently determined
to have been due, such excess shall be repaid or refunded pursuant to the
provisions of Section 11(d) above.
12. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Company or any of its
Affiliated Companies and for which the Executive may qualify, nor shall anything
herein limit or otherwise prejudice such rights as the Executive may have under
any other agreements with the Company or any Affiliated Companies, including,
but not limited to stock option or restricted stock agreements. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan or program of the Company or any Affiliated Companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan or program.
13. Notice of Termination for Good Cause. In the event that the
Executive shall in good faith give a Notice of Termination for Good Reason and
it shall thereafter be determined that Good Reason did not take place, the
employment of the Executive shall, unless the Company and the Executive shall
otherwise mutually agree, be deemed to have terminated, at the date of giving
such purported Notice of Termination, by mutual consent of the Company and the
Executive and, except as provided in the last preceding sentence, the Executive
shall be entitled to receive only those payments and benefits which he would
have been entitled to receive at such date had he terminated his employment
voluntarily at such date under this Agreement.
14. Definitions.
(a) "Accountants" shall have the meaning set forth in Section
11(b).
(b) "Accrued Obligations" shall mean (i) the Executive's full
Base Salary through the Date of Termination, (ii) the product of the Annual
Bonus paid to the Executive for the last full fiscal year of the Company and a
fraction, the numerator of which is the number of days in the current fiscal
year of the Company through the Date of Termination, and the denominator of
which is 365, (iii) any compensation previously deferred by the Executive
(together with any accrued earnings thereon) and not yet paid by the Company and
any accrued vacation pay for the current year not yet paid by the Company, (iv)
any amounts or benefits owing to the Executive or to the Executive's
beneficiaries under the then applicable employee benefit plans or policies of
the Company and (v) any amounts owing to the Executive for reimbursement of
expenses properly incurred by the Executive prior to the Date of Termination and
which are reimbursable in accordance with the reimbursement policy of the
Company described in Section 5(a).
(c) "Affiliated Company" shall mean any company controlling,
controlled by or under common control with the Company.
(d) "Annual Bonus" shall have the meaning set forth in Section
4.
(e) "Base Salary" shall have the meaning set forth in Section
3.
(f) "Board" shall mean the Board of Directors of the Company.
<PAGE>
(g) "Cause" shall mean either:
(1) any act that constitutes, on the part of the Executive, (A) fraud,
dishonesty, or a felony and (B) that directly results in material injury to the
Company;
(2) Executive's conduct as the Senior Vice President of the Company is grossly
inappropriate and demonstrably likely to lead to material injury to the Company;
or
(3) the Executive otherwise materially breaches this
Agreement; provided, however,
that in the case of Clause (2) or (3) above, such conduct shall not constitute
Cause unless the Board shall have delivered to the Executive notice setting
forth with specificity (A) the conduct deemed to qualify as Cause, (B)
reasonable action that would remedy such objection, and (C) a reasonable time
(not less than thirty (30) days) within which the Executive may take such
remedial action, and the Executive shall not have taken such specified remedial
action within such specified reasonable time.
(h) A "Change of Control" means:
(1) the acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of voting securities of the
corporation where such acquisition causes such person to own thirty-five percent
(35%) or more of the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this Subsection (A), the following acquisitions shall not be
deemed to result in a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company, or (iv) any acquisition by any
corporation pursuant to a transaction that complies with clauses (i), (ii) and
(iii) of Subsection (3) below; and provided further, that if any Person's
beneficial ownership of the Outstanding Company Voting Securities reaches or
exceeds thirty-five percent (35%) as a result of a transaction described in
clause (i) or (ii) above, and such Person subsequently acquires beneficial
ownership of additional voting securities of the Company, such subsequent
acquisition shall be treated as an acquisition that causes such Person to own
thirty-five percent (35%) or more of the Outstanding Company Voting Securities;
or
(2) individuals who as of the date hereof, constitute
the Board (the "Incumbent
Board") cease for any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least two-thirds of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(3) the approval by the shareholders of the Company
of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company ("Business Combination") or, if consummation of such
Business Combination is subject, at the time of such approval by shareholders,
to the consent of any government or governmental agency, the obtaining of such
consent (either explicitly or implicitly by consummation); excluding, however,
such a Business Combination pursuant to which (i) all or substantially all of
the individuals and entities who were the beneficial owners of the Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation that as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Voting Securities, (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, thirty-five percent (35%) or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
(4) approval by the shareholders of the Company of a
complete liquidation or
dissolution of the Company.
Notwithstanding the foregoing, no Change of Control shall be deemed to have
occurred for purposes of this Agreement by reason of any actions or events in
which the Executive participates in a capacity other than in his capacity as
executive (or as a director of the Company or a Subsidiary, where applicable).
(i) "Change of Control Date" shall mean the date on which a
Change of Control shall be deemed to have occurred.
(j) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(k) "Company Information" means Confidential Information and
Trade Secrets.
(l) "Competing Business" means any business engaging in the
exploitation or development of antimicrobial products.
(m) "Confidential Information" means confidential data and
confidential information relating to the business of the Company (which does not
rise to the status of a trade secret under
applicable law) which is or has been disclosed to Executive or of which
Executive became aware as a consequence of or through his employment with the
Company and which has value to the Company and is not generally known to its
competitors and which is designated by the Company as confidential. Confidential
Information shall not include any data or information that (i) has been
voluntarily disclosed to the general public by the Company, (ii) has been
independently developed and disclosed to the general public by others, or (iii)
otherwise enters the public domain through lawful means.
(n) "Date of Termination" shall have the meaning set forth in
Section 6(d).
(o) "Disability" shall mean disability which would entitle the
Executive to receive full long-term disability benefits under the Company's
long-term disability plan on terms substantially similar to those of the
long-term disability plan as in effect on the date of this Agreement.
(p) "Excise Tax" shall have the meaning as set forth in
Section 11(a).
(q) "Good Reason" shall mean the occurrence of one of the
following events (provided the Company does not cure such event on a retroactive
basis to the extent possible within thirty days following its receipt of the
Executive's Notice of Termination):
(1) The Executive's title is changed in a materially
adverse manner.
(2) The Executive's base salary is reduced for any
reason other than in connection
with the termination of his employment.
(3) For any reason other than in connection with the
termination of the Executive's
employment, the Company materially reduces any fringe benefit provided to the
Executive under Section 5 below the level of such fringe benefit provided
generally other actively employed similarly situated executives of the Company.
Notwithstanding the foregoing, if the Company agrees to fully compensate the
Executive for any such material reduction for a period ending on the earlier to
occur of (i) the date such fringe benefit is no longer provided to other
actively employed similarly situated executives of the Company or (ii) four (4)
years, then such event shall not constitute Good Reason.
(4) A change of over fifty (50) miles in the Executive's principal place of
employment in Atlanta, Georgia.
(5) The Company otherwise materially breaches, or is
unable to perform its
obligations under this Agreement.
(6) The occurrence of a Change of Control.
Notwithstanding the foregoing, the occurrence of one of the event in Paragraphs
(1) through (6) hereof shall not be considered Good Reason for the Executive's
termination, unless the Executive delivers a Notice of Termination pursuant to
Paragraphs 6(c) and 6(d)(3) hereof, within one hundred eighty (180) days after
the Executive has actual notice of the occurrence of any of the events listed in
Paragraphs (1) through (6) hereof.
<PAGE>
(r) "Interest Rate" shall mean the interest rate payable on
one year Treasury Bills in effect on the day that is 30 business days (days
other than Saturday, Sunday or legal holidays in the City of New York) prior to
the Date of Termination.
(s) "Notice of Termination" shall have the meaning as set
forth in Section 6(c).
(t) "Subsidiary" shall mean any majority owned subsidiary of
the Company.
(u) "Tax Reimbursement Payment" shall have the meaning set
forth in Section 11(a).
(v) "Trade Secrets" means information of the Company, without
regard to form, including, but not limited to, technical or nontechnical data,
formulas, patterns, compilations, programs, devices, methods, techniques,
drawings, processes, financial data, financial plans, product or service plans
or lists of actual or potential customers or suppliers which is not commonly
known by or available to the public and which information (1) derives economic
value, actual or potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use; and (2) is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy.
15. Assignment and Survivorship of Benefits. The rights and obligations
of the Company under this Agreement shall inure to the benefit of, and shall be
binding upon, the successors and assigns of the Company. If the Company shall at
any time be merged or consolidated into, or with, any other company, or if
substantially all of the assets of the Company are transferred to another
company, then the provisions of this Agreement shall be binding upon and inure
to the benefit of the company resulting from such merger or consolidation or to
which such assets have been transferred, and this provision shall apply in the
event of any subsequent merger, consolidation, or transfer.
16. Notices. Any notice given to either party to this Agreement shall
be in writing, and shall be deemed to have been given when delivered personally
or sent by certified mail, postage prepaid, return receipt requested, duly
addressed to the party concerned, at the address indicated below or to such
changed address as such party may subsequently give notice of:
If to the Company: BioShield Technologies, Inc.
4405 International Boulevard
Suite B109
Norcross, Georgia 30093
Attn: Board of Directors
<PAGE>
with a copy to: Sims Moss Kline & Davis LLP
400 Northpark Town Center, Suite 310
1000 Abernathy Road, N.E.
Atlanta, Georgia 30328
Attn: Raymond L. Moss, Esq.
If to the Executive: Jacques Elfersy
1171 East Clifton Road
Atlanta, Georgia 30307
17. Indemnification. The Executive shall be indemnified by the Company,
to the extent provided in the case of officers under the Company's Articles of
Incorporation or Bylaws, to the maximum extent permitted under applicable law.
18. Taxes. Anything in this Agreement to the contrary notwithstanding,
all payments required to be made hereunder by the Company to the Executive shall
be subject to withholding of such amounts relating to taxes as the Company may
reasonably determine that it should withhold pursuant to any applicable law or
regulations. In lieu of withholding such amounts, in whole or in part, however,
the Company may, in its sole discretion, accept other provision for payment of
taxes, provided that is satisfied that all requirements of the law affecting its
responsibilities to withhold such taxes have been satisfied.
19. Enforcement of Rights. All legal and other fees and expenses,
including, without limitation, any arbitration expenses, incurred by the
Executive in connection with seeking to obtain or enforce any right or benefit
provided for in this Agreement, or in otherwise pursuing any right or claim,
shall be paid by the Company, to the extent permitted by law, provided that the
Executive is successful in whole or in part as to such claims as the result of
litigation, arbitration, or settlement. In the event that the Company refuses or
otherwise fails to make a payment when due and it is ultimately decided that the
Executive is entitled to such payment, such payment shall increased to reflect
an interest equivalent for the period of delay, compounded annually, equal to
four (4) percentage points over the Interest Rate in effect as of the date the
payment was first due.
20. Governing Law/Captions/Severance. This Agreement shall be construed
in accordance with, and pursuant to, the laws of the State of Georgia. The
captions of this Agreement shall not be part of the provisions hereof, and shall
have no force or effect. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. Except as otherwise specifically provided in this
paragraph, the failure of either party to insist in any instance on the strict
performance of any provision of this Agreement or to exercise any right
hereunder shall not constitute a waiver of such provision or right in any other
instance. The parties hereto consent to the jurisdiction of the state and
federal courts of the State of Georgia located in Fulton County, Georgia, with
respect to any action arising or relating to this Agreement and said courts of
the State of Georgia shall have sole and exclusive jurisdiction with respect to
any such action or related action.
21. Entire Agreement/Amendment. This instrument contains the entire
agreement of the parties relating to the subject matter hereof, and the parties
have made no agreement, representations, or warranties relating to the subject
matter of this Agreement that are not set forth herein. This Agreement may be
amended at any time by written agreement of both parties, but it shall not be
amended by oral agreement.
IN WITNESSETH WHEREOF, the parties have executed this Agreement on the
date first above written.
BIOSHIELD TECHNOLOGIES, INC. EXECUTIVE:
By: By: Jacques Elfersy
BIOSHIELD TECHNOLOGIES, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made this 6th day of January, 1997, between BioShield
Technologies, Inc., a Georgia corporation, having an address of 1380 W. Marietta
Street, N.W., Atlanta, Georgia 30318, its successors and assigns, ("BioShield"
or "Company") and JOACHIM E. BERKNER ("Employee") having an address of 522
Calibre Brooke Way, Smyrna, Georgia 30080.
WITNESSETH
WHEREAS, BioShield is engaged in the business of the development,
manufacture, marketing, distribution and sale of antimicrobial and biostatic
products; and
WHEREAS, BioShield is desirous of obtaining the services of Employee in the
capacity of Director of Research and development; and
WHEREAS, Employee is desirous of entering into employment as a Director
of Research and Development of BioShield for compensation on a base salary and
possible incentive basis;
NOW THEREFORE, for the mutual covenants set forth herein and other
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, it is mutually agreed as follows:
ARTICLE I - GENERAL PROVISIONS
General Covenants and Representations - BioShield
1. The attached letter of offer and these terms and conditions become
an agreement only when accepted and signed by both parties.
2. BioShield agrees to compensate Employee for a base salary of
$55,000.00 per annum. The incentive based portion of compensation, if any, shall
be computed and payable pursuant to the provisions of Addendum 1, or as
subsequently revised. Employee will receive his compensation in accordance with
the Company's regular practices.
3. BioShield shall provide to Employee any medical or dental insurance
otherwise available to the employees of BioShield in general, on the same terms
and conditions as such insurance is provided, if at all, to other employees of
BioShield. Employee acknowledges that all benefits are subject to change.
4. Employee shall be entitled to vacations and holidays as generally
available to the employees of BioShield.
<PAGE>
B. General Covenants and Representations - Employee
1. During the Term of this Agreement, Employee shall use his best
efforts to perform as a Director of Research and Development for BioShield
including all duties required in furtherance of his position or as are assigned
to him from time to time by an officer of BioShield. Employee shall make his
best efforts to meet the goals identified in Addendum Number 1 attached hereto
or as subsequently modified.
2. Employee shall diligently and faithfully devote his entire time,
energy, skill, and best efforts during usual business hours to promote
BioShield's business and affairs and perform his duties under this Agreement.
Employee shall at all times act so as to advance the best interests of
BioShield, and shall not undertake or engage in any other business activity or
continue or assume any other business affiliations which conflict or interfere
with the performance of his services hereunder without the prior written consent
of BioShield.
3. During the Term of this Agreement, Employee shall be governed by and
be subject to all BioShield's rules and regulations whether written or oral,
which are applicable to BioShield employees in general, and agrees to render his
duties at such place and at such times as BioShield shall in good faith require.
4. Employee agrees to domestic and foreign travel as required in
pursuit of the Employee's responsibilities. Employee acknowledges that in
performance of his duties he will be required to work with existing clients,
contact potential clients, and present workshops or informational exchanges.
Employee further acknowledges that he may be required to travel to and possible
spend significant periods of time at clients' facilities.
5. It is expressly agreed that Employee in performing services pursuant
to this Agreement is not one of BioShield?s officers and has no authority to
commit or to bind BioShield under any contract, obligation or liability, or to
obligate BioShield for any expenses, including without limitation, expenses for
materials and services.
6. Employee acknowledges and understands that BioShield shall withhold
federal and state income taxes and FICA from Employee?s salary hereunder, and
BioShield shall issue to Employee a federal and state W-2 with respect to such
fees and withholdings at the end of each calendar year during which Employee is
employed.
7. Employee agrees not to discuss his fees for service, or the fee
BioShield charges its clients, with any persons other than designated BioShield
management personnel.
ARTICLE II - PROPRIETARY INFORMATION AND RESTRICTIVE COVENANTS
Necessity of Restrictive Covenants. Employee agrees that while working
under this Agreement, he will learn and come in contact with certain Trade
Secrets and other Proprietary Information and will develop certain relationships
with BioShield's clients and employees which BioShield has expended significant
time and funds to create, perfect, maintain and protect. Employee acknowledges
that his agreement not to solicit BioShield's clients or employees is necessary
to protect BioShield's investment in its Trade Secrets, Proprietary Information,
client base and goodwill.
A. Nondisclosure of proprietary Information and Trade Secrets
1. All information relating to BioShield's business shall be
safeguarded and treated as confidential by Employee, in compliance with
paragraphs 2-4 hereunder. To the extent, however, that such information is
publicly available or has theretofore been made public by BioShield, Employee
shall bear no responsibility for its disclosure, inadvertent or otherwise.
2. Trade Secrets and Proprietary Information. "Trade Secrets" means
information related to BioShield or its affiliates (1) which derives economic
value, actual or potential, from not being generally known to or readily
ascertainable by other persons who can obtain economic value from its disclosure
or use; and (2) which is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy. Assuming the foregoing criteria are met.
Trade Secrets include, but are not limited to, technical and nontechnical data
related to computer programming methods and procedure, application development
and enablement, in-house developed protocols, company rules and regulations, the
formulas, patterns, designs, compilations, programs, methods, techniques,
drawings, processes, finances, lists of actual or potential customers, and
suppliers, and existing and future products of BioShield or its affiliates.
Proprietary Information includes the foregoing, as well as methods of doing
business, sales, service, or distribution techniques, selling prices, and the
names and addresses of present or prospective customers. Proprietary Information
also includes information which has been disclosed to BioShield or its
affiliates by a client or other third party and which BioShield or its
affiliates are obligated to treat as confidential.
3. All Trade Secrets and Proprietary Information and all physical
embodiments thereof received or developed by the Employee while employed by
BioShield are confidential to and will remain the sole and exclusive property of
BioShield. Except to the extent necessary to perform the duties assigned to him
by BioShield, Employee will hold such Trade Secrets or Proprietary Information
in trust and strictest confidence. Employee may in no event take any action
causing or fail to take the action necessary in order to prevent any Trade
Secrets or Proprietary Information disclosed to or developed by Employee to lose
its character or cease to qualify as a Trade Secret or Proprietary Information.
Employee will not, either during or for two (2) years subsequent to Employee's
employment with BioShield, use, reproduce, distribute, disclose or otherwise
disseminate the any Proprietary Information or any physical embodiments thereof.
4. Upon request by BioShield, and in any event upon termination of the
employment of Employee with BioShield for any reason, Employee will promptly
deliver to BioShield all property belonging to BioShield, including, without
limitation, all Trade Secrets or Proprietary Information (and all physical
embodiments thereof) then in his custody, control or possession.
B. Restrictive Covenants
1. Non-disparagement. Employee recognizes and acknowledges that the
success of BioShield's business is largely dependent upon and attributable to
the goodwill which BioShield has, at great expense, established over a period of
years. Therefore, Employee will not, during the term of his employment, and for
one (1) year thereafter, disparage BioShield , its officers, employees,
products, or methods and techniques of doing business. Employee hereby agrees to
indemnify and hold BioShield harmless from and against any and all losses,
claims, damages, or expenses, including attorneys' fees, arising from or growing
out of disparagement in violation of this paragraph.
2. Nonsolicitation Agreement.
(A) Nonsolicitation of Customers. Employee agrees that while working
pursuant to this Agreement and for a period of one (1) year following the
termination or expiration of this Agreement ("Nonsolicitation Period"), Employee
will not, for any reason, directly or indirectly, for himself or on behalf of
any person, partnership, corporation or other entity, either as an employee,
officer, director, partner, shareholder, agent, consultant, or independent
contractor:
(1) engage in any business activity as an antimicrobial chemist
for or provide any consulting service to any person or entity
who was a client or actively sought prospective client of
BioShield during the term of this Agreement; and
(2) for whom Employee provided services pursuant to this Agreement or with whom
Employee had regular, meaningful contact.
Employee further agrees that with respect to such clients identified
herein he will not request or advise any such customers of BioShield to withdraw
from or cancel any of their business with BioShield.
(B) Nonsolicitation of Employees. Employee agrees that during the
Nonsolicitation Period he will not, directly or indirectly,
for himself or on behalf of any other person, partnership,
corporation, or other entity: hire, solicit, interfere with or
endeavor to entice away from BioShield any employee of
BioShield.
3. Noncompetition Agreement. Employee agrees that while working
pursuant to this Agreement and for a period of one (1) year following the
termination or expiration of this Agreement ("Noncompetition Period"), Employee
will not, for any reason, directly or indirectly, for himself or on behalf of
any person, partnership, corporation or other entity, engage in any business
activity as a _______________ Chemist for or provide consulting services to any
person, corporation, partnership or other entity, directly of indirectly, which
is in competition with BioShield in the specific geographic territory in which
Employee actually performed services for BioShield during the term of this
Agreement. At the time of the execution of this Agreement, such specific
geographic territory included: U.S.A. and Europe. The parties acknowledge that
such geographic location is subject to change and will include all territory in
which Employee actually performed services for BioShield. For the purposes of
this paragraph "competition" shall mean providing software services to
businesses, governmental agencies, academic institutions and health care
facilities.
4. Tolling of Nondisparagement, Noncompetition and Nonsolicitation
Period. If BioShield or its successors in interest shall make application to a
court of competent jurisdiction for injunctive relief, then the one year periods
specified herein shall be tolled from the time of application for injunctive
relief until the date of final injunctive relief, including all periods of
appeal.
5. Irreparable Injury/Injunctive Relief. Employee acknowledges that a
breach of any of the restrictive covenants provided in Article II of this
Agreement will harm BioShield?s client base and goodwill and will inhibit the
operation of its business thereby, giving rise to irreparable injury to
BioShield which is not adequately compensable in damages or at law. Accordingly,
Employee agrees that BioShield, its successor and assigns may obtain injunctive
relief against the breach or threatened breach of the foregoing provisions, in
addition to any other legal remedies which may be available to it under this
agreement. Employee further acknowledges that in the event of termination or
expiration of this Agreement, his knowledge, experience and capabilities are
such that he can obtain contracts and work in business activities which are of a
different or noncompeting nature than those performed in the course of this
Agreement and that the enforcement of a remedy hereunder by way of injunction
will not prevent Employee from earning a reasonable livelihood.
6. Accounting for Profits. Employee covenants and agrees that if he
violates the provisions of Article II of this Agreement, BioShield shall be
entitled to an accounting and repayment of all profits, compensation,
commissions, remuneration or other benefits that he has realized and /or may
realize as a result of or in connection with any such violation. These remedies
shall be in addition and not in limitation of any other rights or remedies to
which BioShield is or may be entitled at law, in equity or under this Agreement.
7. Severability and Scope of Restrictive Covenants. If in any judicial
proceeding, a court shall refuse to enforce any of the Restrictive Covenants
provided in Article II of this Agreement, whether because the time limit is too
long or because the restrictions contained herein are more extensive (whether as
to geographic area, scope of business or otherwise) than is necessary to protect
the business and goodwill of BioShield, it is expressly understood and agreed
between the parties hereto that this Agreement is deemed modified to the extent
necessary to permit this Agreement to be enforced in any such proceedings, as
long as such modifications shall not be unreasonable, arbitrary or against
public policy. Alternatively, if any provision of this Agreement is found to be
unenforceable as written, or so modified, then, and in that event, such
provision shall be automatically deleted from this Agreement, and the balance of
this Agreement shall remain in full force and effect.
8. Costs of Enforcement. In the event either party initiates action to
enforce his or its rights hereunder, the substantially prevailing party shall
recover from the substantially nonprevailing party its reasonable expenses,
court costs and reasonable attorneys' fees, whether suit be brought or not. As
used herein, expenses, court costs and attorney's fees include expenses, court
costs and attorneys' fees incurred in any appellate proceeding. All such
expenses shall bear interest at the rate of Twelve Percent (12%) per annum from
the date the prevailing party pays such expenses until the date the
nonprevailing party repays such expenses. Expenses incurred in enforcing this
paragraph shall be covered by this paragraph.
ARTICLE III - DURATION AND TERMINATION
1. The term of this Agreement is one (1) year from the date of its
execution. This Agreement shall automatically renew at the end of each one (1)
year period until it is terminated by one or both of the parties hereto.
2. Either party may terminate this Agreement for any or no reason
whatsoever by giving two weeks notice in writing. Termination is effective two
weeks from receipt of such notice by either party. In the event of termination
by either party, BioShield at its sole option, may require the Employee to use
any accrued vacation as a portion of the two week notice period.
ARTICLE IV - MISCELLANEOUS
1. Copyrights and Patents. Employee agrees that all property rights,
including but not limited to trademarks, copyrights and patents, in respect of
every invention, product, method, system, program or any intellectual property
or trade secret created by him during the course of or related to his employment
shall belong to BioShield and all such rights are hereby assigned to BioShield
which shall be exclusively entitled to the property therein.
2. This Agreement shall be governed by the laws of the State of Georgia.
3. This Agreement sets forth the entire agreement between the parties
and supersedes all contracts, proposals, oral or written, and all other
communications between the parties with respect to the subject matter hereof.
4. This Agreement can only be modified, amended or supplemented by the
express written agreement of both parties.
5. The obligations of Employee which arise under this Agreement shall
survive the termination of this Agreement, regardless of the manner, fashion or
circumstance surrounding the termination of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Employee: BIOSHIELD TECHNOLOGIES , INC.,
a Georgia corporation
Signed:__________________________ Signed___________________________
Timothy C. Moses
Printed Name: Joachim Berkner Title: President
Address: 522 Calibre Brooke Way Date: 1/6/97
---------------------------------- ------
Smyrna, Georgia 30080
Telephone: 770-984-0457
Soc. Sec.#: ###-##-#### AGREEMENT NO.: 3
---------------------------- ---------
<PAGE>
December 10, 1996
Mr. Joachim Berkner
522 Caliber Brook Way
Smyrna, Georgia 30080
Reference: Director of Research & Development
Employment Position
Dear Mr. Berkner:
Tim and I would like to thank you for your interesting presentation and for
discussing your background and qualifications with us.
We are very impressed with your accomplishments and experience to date, and
believe that you possess the necessary skills and knowledge required to help
BioShield maintain its technological edge in the field of antimicrobial agents
and surface treatments. Therefore, it is my pleasure to offer you the position
of Director of Research & Development of BioShield starting January 6, 1997, and
hope that you will accept this great and challenging employment opportunity.
As discussed during our meeting, as a Director of R&D, you will perform, among
other things, the following functions:
Develop, evaluate and laboratory test existing and new antimicrobial compound
products.
4. provide chemical manufacturing processes, scale up, quality assurance, and
raw chemical material procurement. Also, provide procedures and instructions for
making chemical compounds and formulated products.
5. Work and assist with sales, marketing, and regulatory departments in the
introduction, formulation and registration of existing and new antimicrobial
products.
6. Write and implement standard laboratory test methods, quality control and
laboratory research and development procedures. Maintain laboratory records and
documentation.
7. Work and assist with patent applications and executions.
8. Conduct studies for presentations and discussions.
9. Attend meeting with clients, suppliers and scientists.
10. Fulfill the Company's governmental regulatory duties EPA &FDA, and submit
all the necessary reporting. provide and assist in health, environmental affairs
including EPA, FDA & USDA regulations.
11. Develop and prepare technical bulletins, assays and material
safety data sheets.
As discussed, your starting salary will be $55,000 plus all other company
benefits such as health, stock options and bonuses.
We trust the above is satisfactory to you, and look forward to hearing from you
soon. Please do not hesitate to contact me should you have any questions.
Sincerely yours,
Jacques Elfersy
Timothy C. Moses, President
November 5, 1997
Page 8
Via Fax (#770-921-3637) & Regular Mail
November 5, 1997
Timothy C. Moses, President
BioShield Technologies, Inc.
4405 International Blvd., Suite 8109
Norcross, GA 30093
Re: Marketing and Distribution Letter
Dear Mr. Moses:
Congratulations on your successful debut on The `97 Quest For America's Best -
QVC's 50 in 50 Tour. We are excited about the prospects for the continued
success of the retail Duralast Molecular Bonding Protectant and for the success
of all other retail consumer products produced and/or sold by you or your
company, including, but not limited to, products under the "Duralast" and
"BioShield" names (each a "Consumer Product" and collectively the "Consumer
Products" or "Merchandise").
In addition to the terms of any consignment order issued to you or your company
(collectively "you") by QVC, this Marketing and Distribution Letter ("Letter")
shall apply to all future purchases of Consumer Products made by QVC, which
shall be subject to the following terms and conditions:
1. (a) You grant to QVC the exclusive right (both itself and through any
Affiliate) during the term of this Letter, to market, promote, build brand
equity, distribute, offer for sale and/or sell (collectively "Promote" or
"Promotion") all Consumer Products (including the non-exclusive right to use the
names "BioShield" and "Duralast" and any other applicable trademarks, trade
dress, copyrights, and any promotional, advertising or similar materials
relating to the Consumer Products, during the term of this Letter subject to
paragraph 4(b) below, in connection with such Promotions), via Direct Response
Television, in all geographic areas where QVC or any Affiliate now televises its
shopping programs, as listed on attached Schedule 1, and in all geographic areas
where QVC or any Affiliate hereafter televises its shopping programs, provided
you are not then selling Consumer Products via Direct Response Television in
such applicable geographic area (collectively, the "Territory"). As used herein,
"Direct Response Television" shall mean all electronic transmissions (including,
but not limited to, television, radio and computer) through which a consumer is
requested to respond by mail, telephone, computer, or other electronic means, to
an individual or entity offering a product or service for sale; and "Affiliate"
shall mean any person or entity that, directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, QVC.
(b) Notwithstanding the foregoing, you may continue to sell your
products via the marine and recreation vehicle, other end-use manufacturers
("OEM"), industrial and institutional, and medical Internet Web sites within
these categories.
2. Timothy C. Moses and Alan Lingo each grants to QVC the right, in the
Territory, during the term of this Letter, to publish, broadcast, reproduce and
otherwise use his endorsement, name, likeness, voice, performance, signature,
picture, photograph and any footage of him for any lawful purpose in connection
with the Promotion of the Consumer Products and/or QVC.
3. (a) The parties agree to work together in good faith to package and Promote
the selected Consumer Products, and to build the brand names and equity
"BioShield" and "Duralast". You shall have the right to introduce a minimum of
six (6) new Consumer Products on QVC's televised shopping programming service
during the Initial Term (as defined in paragraph 4(a) below), provided that (i)
notwithstanding paragraph 1 of this Letter, the exclusive rights granted to QVC
with respect to each new Consumer Product shall include Promotion via all means
and media until such new Consumer Product has received a minimum of six (6)
airings on QVC's televised shopping programming service, after which such
exclusivity shall be limited to Direct Response Television as described in and
pursuant to paragraph 1 of this Letter, and that (ii) each new Consumer Product
is approved by QVC's Quality Assurance Department and supplied by you on a
consignment basis. The timing, length and nature of the Promotion of each
Consumer Product shall be within the sole discretion of QVC.
(b) A copy of QVC's current consignment order terms and conditions is
attached to this Letter, and such terms and conditions are incorporated herein
by reference. The time of payment for each Consumer Product shall be as
indicated on the applicable consignment order issued to you by QVC. Except as
expressly set forth herein, QVC makes no representations regarding the number of
times that Consumer Products will be featured on QVC or the amount of Consumer
Products that will be ordered by QVC.
4. (a) The initial term ("Initial Term") of this Letter shall begin as of the
date of signing by both parties and shall end one (1) year later, subject to the
following: Upon the expiration of the Initial Term, or any renewal term, this
Letter shall automatically, continually renew for additional one (1) year terms
unless, (i) either party notifies the other party in writing, at least thirty
(30) days prior to the end of the Initial Term, or any renewal term, of its
intent to terminate this Letter, and (ii) Net Purchases (as hereafter defined)
of Consumer Products by QVC, during the Initial Term, or any renewal term, do
not equal or exceed the Minimum Renewal Amount (as hereafter defined); provided,
however, that in the event you are the party providing the 30 days' notice of
termination, QVC shall have the right to cancel such termination by issuing a
purchase order in an amount equal to the difference between Net Purchases and
the Minimum Renewal Amount within such 30-day period, which is followed by
payment in accordance with QVC's normal payment procedures. The "Minimum Renewal
Amount" shall mean One Million Five Hundred Thousand Dollars ($1,500,000) with
respect to the Initial Term, and one hundred and ten percent (110%) of the
Minimum Renewal Amount during the immediately preceding term for each renewal
term thereafter. As used herein, "Net Purchases" shall mean the aggregate sum
total of all net cash proceeds received by you from consignment orders and
purchase orders issued by QVC (orders less returns) for Consumer Products during
the applicable term; however, the aggregate sum total of all net cash proceeds
received by you from purchase orders and consignment orders issued by QVC for
Consumer Products prior to the execution of this Letter shall be included in the
calculation of the Minimum Renewal Amount for the Initial Term.
(b) In the event of the expiration or termination of this Letter, QVC
shall have the right for as long a period as is necessary, (i) to Promote, on a
non-exclusive basis, its then existing inventories of Consumer Products as set
forth in paragraphs 1 and 2 of this Letter, and (ii) to fulfill all orders from
QVC's customers (on a non-exclusive basis, and at the same or comparable prices
and terms) for as long as QVC's customers wish to order Consumer Products.
Notwithstanding the foregoing, you shall have the right at any time following
termination of this Letter, upon reasonable prior written notice to QVC, to take
back any remaining consignment inventory (or convert such inventory to purchase
order inventory), in which event any subsequent orders for Consumer Products by
QVC's customers shall be satisfied pursuant to purchase orders issued by QVC (on
prices and terms mutually agreed upon by the parties). This paragraph 4(b) shall
survive the expiration or termination of this Letter.
5. (a) (i) If, upon the expiration of the Initial Term, this Letter renews for a
second year pursuant to paragraph 4(a) above, you agree to pay QVC a royalty of
five percent (5%) (the "Royalty") on all Net Sales per annum of retail consumer
products produced and/or sold by you (or by any parent, subsidiary, affiliate or
licensee of you), but expressly excluding any such products of subsidiaries or
affiliates or other companies acquired by you or your subsidiaries and
affiliates (provided such products are not distributed under the "Duralast" and
"BioShield" names), via means or media other than QVC (but expressly excluding
sales of industrial and institutional, environmental and medical products, and
OEM commercial products) in all geographic areas where QVC or any Affiliate has
Promoted any Consumer Products. As used herein, "Net Sales" shall mean the gross
dollars received from sales of retail consumer products by you (or by any
parent, subsidiary, affiliate or licensee of you), less returns and retail trade
allowances (i.e., warehousing and distribution fees, promotional and advertising
allowances, sales and broker commissions, license and sublicensing fees), and
not including insurance, taxes, shipping and handling charges.
(ii) You further agree to pay QVC the Royalty on all Imputed
Net Sales (as hereafter defined) per annum of retail consumer products produced
by means of the technology used in the production of Consumer Products and sold
(whether intact or incorporated into other products) by third parties under your
"BioShield" or "Duralast" name (or any derivative of either name) via means or
media other than QVC (but expressly excluding sales of industrial and
institutional, environmental and medical products, and OEM commercial products)
in all geographic areas where QVC or any Affiliate has Promoted any Consumer
Products. As used herein, "Imputed Net Sales" shall mean the gross dollars you
would have received from your sales of retail consumer products, less returns
and allowances, and not including shipping and handling charges, had such
products been sold by you.
(iii) Net Sales shall expressly exclude all sales of retail
consumer products by you (or by any parent, subsidiary, affiliate or licensee of
you) to any customer accounts opened prior to the execution of this Letter,
which accounts are listed on attached Schedule 2.
(b) Your Royalty payment obligation will commence and shall be
calculated beginning as of the first day of the first renewal term (so long as
the Minimum Renewal Amount has been satisfied) and will end upon the expiration
of four (4) years from the termination of this Letter ("Royalty Term");
provided, however, that, with each renewal of the term of this Letter
(commencing with the first renewal term), the Royalty Term shall be
automatically extended for an additional one-half (1/2) year (to be added to the
four years following termination of this Letter).
(c) The Royalty shall be payable quarterly, in arrears, by no later
than the sixtieth (60th) day following the last day of each quarter of each
year. Each Royalty payment shall be accompanied by a true and correct
accounting, certified by an officer of your company, setting forth separately
all retail sales of retail consumer products via means or media other than QVC
(but excluding pre-existing retail distribution) that occurred during the
previous quarter and your calculations determining the amount of each such
royalty payment. Royalty payments are to be made to QVC, Inc., and sent to the
following address: QVC, Inc., Attn: Inventory Accounting, 1365 Enterprise Drive,
West Chester, PA 19380. For the purpose of verifying such amounts, you grant to
QVC (or its designee) the right, from time to time, with prior written notice
and during regular business hours, to audit and inspect your books and records
to the extent they apply to the Royalty.
(d) Your obligations under this paragraph 5 shall survive the
expiration or termination of this Letter for so long as a Royalty payment is due
to QVC. QVC's right to audit under subparagraph (c) of this paragraph 5 shall
survive six months after the final Royalty payment is made.
6. In the event Net Purchases of Consumer Products by QVC, during the Initial
Term or any renewal term, equal or exceed Two Million Dollars ($2,000,000), with
respect to each such term, as long as this Letter remains in effect, you agree
to issue and sell to QVC, in consideration of entering into this Letter and at
no additional cost, a non-transferable common stock purchase warrant (in a form
mutually satisfactory to both parties) to purchase shares of common stock of
your company in an aggregate amount equivalent in value to ten percent (10%) of
Net Purchases in excess of Two Million Dollars ($2,000,000) during the
applicable term, with each such warrant being issued promptly upon the
commencement of each renewal term.
7. During the term of this Letter, you shall not Promote or endorse any Consumer
Products via Direct Response Television, in the Territory. In the event that you
wish to Promote any Consumer Products via Live Television Shopping Programs (as
hereafter defined) in any geographic area outside the Territory (the
"Non-Territory"), for the purpose of helping your company in such Promotion, (a)
QVC agrees that you may (i) use the name "QVC" when Promoting Consumer Products
via Live Television Shopping Programs in the Non-Territory, provided such use is
limited to only verbal and truthful disclosures regarding the fact of the sale
of such Consumer Products through QVC, the success of the sales of such Consumer
Products through QVC, and the quantities of such Consumer Products sold through
QVC, and (ii) use the selling techniques developed or acquired through your
relationship with QVC in your Promotion of Consumer Products via Live Television
Shopping Programs in the Non-Territory; and (b) you agree to pay QVC a royalty
of 7-1/2% of the net purchase price (defined as invoice or sale price) paid by
any third party for Consumer Products in connection with their Promotion via
Live Television Shopping Programs in the Non-Territory. The royalties due to QVC
for each calendar quarter will be paid within sixty (60) days after the end of
the quarter. QVC and its accountants will have the right to audit your books and
records to verify the accruing of the royalty payment at QVC's expense. As used
herein, "Live Television Shopping Programs" shall mean all live or predominantly
live televised shopping programs on which products and/or services are presented
for sale. You acknowledge QVC's exclusive right, title and interest in and to
the trademark and service mark "QVC" (as well as QVC's additional tradenames,
trademarks, service marks, slogans, other intellectual property and titles).
8. This Letter supersedes all prior communications between the parties, whether
oral or written, and constitutes the entire understanding of the parties
concerning the subject matter hereof. This Letter may not be varied, modified,
or waived unless in writing signed by the parties. This Letter and the rights
and obligations hereunder are not assignable by you, and any such attempted
assignment shall be null and void.
Please execute this Letter on the two lines indicated below, and promptly return
a signed copy via fax and mail directly to Wei-Wei Chiu (# 610-701-1021) at QVC.
Her phone number is (610) 701-8381.
Very truly yours,
G. Robert Ayd
Vice President, Merchandising
Accepted & Agreed:
BIOSHIELD TECHNOLOGIES, INC.
By:____________________________ _______________________________________
Timothy C. Moses, President Alan Lingo (Guest), as to only Paras. 2,
7 (first sentence) and 8
-----------------------------------------
Timothy C. Moses (Guest), as to only Paras. 2,
7 (first sentence) and 8
cc: Doug Briggs
Wei-Wei Chiu
Judy Grishaver
# 9121 v.11
<PAGE>
Schedule 1
Pursuant to Paragraph 1(a) of the foregoing letter agreement, the following are
all geographic areas where QVC or any Affiliate now televises its shopping
programs (as of October 30, 1997):
United States, Europe, Mexico, Japan,
and the Caribbean
- -------------------------------------------------------------------------------
<PAGE>
Schedule 2
Pursuant to Paragraph 5(a)(iii) of the foregoing letter agreement, the following
are all BioShield customer accounts opened prior to the execution of such
agreement (as of November 5, 1997):
______In Georgia - Kroger, Winn Dixie, A&P, Cub Foods, Supervalue______________
______In New Orleans - Winn Dixie, A&P________________________________________
____In Florida - Winn Dixie (Jacksonville and Miami)__________________________
<PAGE>
THIS CONSIGNMENT ORDER ("Order") IS EXPRESSLY CONDITIONED ON ACCEPTANCE OF THE
TERMS AND CONDITIONS HEREOF. Oral or written notice of acceptance by Consignor,
preparation to perform by Consignor and/or shipment of all or any part of the
merchandise specified in this Order ("Merchandise") shall constitute acceptance
by Consignor of the terms and conditions contained herein. BY ACCEPTANCE OF THIS
ORDER, CONSIGNOR REPRESENTS AND AGREES AS FOLLOWS:
1. Consignor will ship to a warehouse designated by Consignee (the "Warehouse")
the Merchandise on the terms specified herein. All Merchandise shall be held on
consignment at the Warehouse at Consignor's risk. From time to time, Consignee
may withdraw Merchandise from consigned stock at the Warehouse and take delivery
thereof by packaging Merchandise for delivery to Consignee's identified
customers. Upon each such withdrawal, title to the Merchandise so withdrawn
shall pass to Consignee at the prices and on the terms and conditions herein.
2. Consignor hereby grants to Consignee the irrevocable right, by all means now
or hereafter existing, to: (a) market, promote the sale of and sell the
Merchandise; (b) use the trademarks, trade names, service marks, patents and
copyrights (collectively the "Marks") registered, owned, licensed to or used by
Consignor in connection with the Merchandise; (c) use, perform, play,
synchronize and/or demonstrate, as applicable, the Merchandise, its contents,
and/or any promotional, advertising or similar material supplied by Consignor
for use in connection with such Merchandise ("Promotional Material"); and (d)
use the names, photographs, likenesses, voices and/or biographies of any
individuals performing in or otherwise associated with the production of the
Merchandise as contained in the Merchandise, its contents and/or any Promotional
Material. Consignee makes no representations with regard to the number of times,
if any, that Merchandise will be marketed, promoted or sold by Consignee.
3. In addition to and without prejudice to any and all other warranties, express
or implied by law, Consignor represents, warrants and covenants to Consignee
that: (a) Consignor possesses all licenses, permits, rights, powers and consents
required to enter into and perform this Order, to sell to Consignee the
Merchandise referenced herein and to grant to Consignee the rights granted
herein; (b) Consignor's performance hereunder does not violate any agreement,
instrument, judgment, order or award of any court or arbitrator; (c) all
Merchandise furnished hereunder, including the production, sale, packaging,
labeling, safety, testing, importation and transportation thereof, and all
representations, advertising, prices, and allowances, discounts or other
benefits made, offered or authorized by Consignor in connection therewith, shall
at all times comply with all applicable federal, state, local, industry and
foreign statutes, laws, rules, regulations, orders, standards and guidelines
(collectively, "Laws"); (d) where applicable, reasonable and representative
tests as prescribed by Laws or governmental authorities have been performed or
will be performed before shipment from Consignor to the Warehouse; (e) all
Merchandise furnished hereunder shall be new, first quality merchandise and
conform to all representations by Consignor, instructions, specifications, and
samples, shall be free from all defects (including latent defects) in
workmanship, material and design, and shall not be reworked, rebuilt or
refurbished merchandise; (f) all manufacturers' warranties are effective and
enforceable by both Consignee and its customers; (g) all Marks which are part of
or appear in connection with the Merchandise and/or Promotional Material, and/or
any component thereof, are valid and genuine, and the sale, promotion of the
sale and performance of the Merchandise and/or Promotional Material, and/or any
component thereof, will not infringe upon any domestic or foreign Marks, rights
of privacy or publicity and/or any other third party rights, or cause Consignee
to be liable to Consignor or any third party for any additional fees, costs or
expenses; (h) the title of Consignor to the Merchandise is good and free and
clear of all encumbrances and liens, and its transfer hereunder rightful; (i)
neither the Merchandise nor any component part thereof is subject to any import
quota restriction, rule or regulation preventing or forbidding the importation,
use, promotion for sale or sale of the Merchandise or any component part
thereof, or any duty, tariff, or penalty in connection therewith, except as
previously disclosed in writing by Consignor to Consignee; (j) the Merchandise
and similar goods are not and have not been subject to product liability or
infringement claims, except as disclosed on the face hereof; (k) Consignor shall
maintain for the life of the Merchandise general liability insurance coverage on
the Merchandise, including full product liability, infringement and advertising
injury, in amounts no less than One Million Dollars per occurrence, unless
otherwise specified on the face hereof, with carriers acceptable to Consignee,
and which shall include broad form vendor's coverage in favor of Consignee, and
Consignor will promptly provide Consignee with a certificate of insurance naming
Consignee as an additional insured; and (l) the same or similar merchandise is
not being and will not be offered to any other consignee or purchaser at a
lesser cost or under more favorable terms than appear herein. Consignor agrees
to provide Consignee with any and all documents requested or required by
Consignee at any time and from time to time to support the representations,
warranties and covenants herein contained.
4. Consignor hereby agrees to protect, defend, hold harmless and indemnify
Consignee, its subsidiaries and affiliates, and each of their respective
customers, programming and other distributors, employees, agents, officers,
directors, successors and assigns, from and against any and all claims, actions,
suits, costs, liabilities, damages and expenses (including, but not limited to,
reasonable attorneys' fees) based upon or resulting from: (a) any alleged or
actual infringement of any Marks, rights of publicity or privacy and/or any
other third party rights arising from the sale, promotion of the sale and/or
performance of the Merchandise, its contents and/or the Promotional Material;
(b) any alleged or actual defect in any of the Merchandise; (c) any alleged or
actual injury or death to person or damage to property arising out of the
furnishing, use or performance of the Merchandise; (d) breach by Consignor of
any representations, warranties or covenants; and (e) any alleged or actual
violation by Consignor and/or the Merchandise of any applicable Laws. In the
event Consignee notifies Consignor in writing of a claim, demand, action, suit
or other matter ("Claim") to which the foregoing indemnity applies, Consignor
shall provide prompt assurance of its ability to so indemnify Consignee, to
Consignee's reasonable satisfaction, and Consignor shall commence to defend such
Claim, at its sole cost and expense, within five (5) days after receiving
Consignee's written notice. If Consignor fails to provide such assurance or
fails to commence such defense within such five (5)-day period, Consignee may,
at its option, assume the defense or settlement of such Claim in its own name
and all recoveries from such Claim shall belong to Consignee. In the latter
event, which shall be in addition to any and all other rights Consignee may have
at law or in equity, Consignee may elect counsel to represent it, and Consignor
shall be solely responsible for the payment or reimbursement, at Consignee's
option, of counsel fees and all other fees and costs incurred in defending such
Claim, for any and all damages arising thereunder, and for any and all amounts
paid by Consignee in settlement thereof.
5. Time is of the essence. Consignee reserves the right to cancel this Order or
any part hereof, with no liability or obligation to Consignor, in the event: (a)
Consignee is notified that any Merchandise or Mark infringes or is alleged to
infringe upon any third party rights; (b) Consignor breaches or is anticipated
to breach this Order; (c) Merchandise conforming to specifications will not be
delivered or arrive at the Warehouse on the dates and in the quantities
specified on the face hereof; (d) fire, flood, windstorm, earthquake, war,
strike, or any other casualty or occurrence of a similar nature substantially
and adversely affects Consignee's premises or business; or (e) any substantial
change to Consignee's business (for whatever reason) occurs.
6. Merchandise shipped or delivered to the Warehouse prior to the first
permitted ship or delivery date specified on the face hereof, may, at
Consignee's option be returned to Consignor, at Consignor's risk and expense,
and upon such return, shall be held by Consignor for Consignee until shipment or
delivery on the specified date. Merchandise shipped or delivered to the
Warehouse after the last permitted ship or delivery date specified on the face
hereof may, at Consignee's option, be returned to Consignor, at Consignor's risk
and expense, and upon such return, Consignee may cancel this Order, in whole or
in part, without liability or the Merchandise may be held by Consignee on
consignment hereunder. Unless otherwise stated on the face hereof, Consignor
shall ship the Merchandise in one shipment. In the event of shipment or receipt
of an unauthorized quantity, Consignee may, at its option, either reject or
accept the entire shipment unless partial shipments are authorized on the face
hereof. Additional freight charges resulting from partial shipments shall be
borne by Consignor. Partial shipments shall not cause Consignor's obligations to
become severable. Unless otherwise stated on the face hereof, Consignor shall
pay or reimburse Consignee, at the direction of Consignee, for all freight,
packing and insurance incident to the shipment of the Merchandise, including,
but not limited to, loading and unloading charges, mileage charges, taxes, tolls
and other fees. Consignor agrees to follow Consignee's instructions with respect
to shipment, routing and packaging. Consignor's failure to comply with the terms
and conditions set forth in this Section or in Consignee's shipping regulations
(including chargeback program) ("Regulations") or in any applicable standards
provided by Consignee to Consignor ("Standards"), in effect as of the date of
this Order, and which are incorporated herein by reference, may, at Consignee's
option, result in the imposition of charges as set forth in such documents. Any
such charges assessed may be deducted from any amounts due or which may become
due to Consignor. Copies of the Regulations and the Standards are available to
Consignor upon written request to Consignee.
7. Merchandise furnished hereunder which is not in compliance with this Order,
the Regulations or the Standards, which is returned by any of Consignee's
customers for any reason, which fails to meet Consignee's quality control tests,
which fails to meet Consignee's carrier's quality, drop or other tests, or which
is or may be used in conjunction with merchandise furnished and rejected (or
acceptance thereof revoked) under this Order or another order, may be rejected
(or acceptance thereof by Consignee revoked) at Consignee's option and returned
to Consignor. All expense of unpacking, examining, repacking, storing, returning
and reshipping any Merchandise rejected (or acceptance of which has been
revoked) as aforesaid shall be at Consignor's expense and risk. With respect to
such returned Merchandise, Consignee shall, at its option, receive a credit or
refund of all amounts paid by Consignee for such Merchandise, including, without
limitation, in-bound freight charges (notwithstanding contrary Freight Terms, if
any, set forth on the face hereof). In the event that Consignee shall opt to
receive a refund, Consignor shall pay Consignee in immediately available funds
within fifteen (15) days of Consignee's request. In the event that Consignee
shall opt to receive a credit, Consignee may apply such a credit toward any
amounts due or which may become due to Consignor. Upon receipt by Consignee of
returns from its customers, title and risk of loss to such returned Merchandise
shall immediately revert to Consignor. Consignor agrees that Merchandise
rejected or returned for any reason pursuant to the terms of this Order, whether
or not such rejection is disputed by Consignor, will not be resold or otherwise
distributed by Consignor unless all labels and other characteristics identifying
Consignee and/or displaying any trade name or trademark of Consignee have been
first removed. Authorization is granted to Consignee to return Merchandise
without additional authorization, and Consignor hereby agrees to accept such
returns even without Consignee's request for return authorization labels.
Merchandise returned or rejected by Consignee is not to be replaced by Consignor
without the prior written approval of Consignee. Consignor acknowledges that the
Consignee does not inspect each item at receipt of Merchandise and that defects,
imperfections or nonconformity with any representations, warranties or covenants
set forth herein may not be discovered by Consignee until Merchandise shall have
been purchased by its customers and returned to Consignee. Consignee's
inspection, discovery of a breach of warranty, failure to make an inspection or
failure to discover a breach of warranty shall not constitute a waiver of any of
Consignee's rights or remedies whatsoever.
8. Consignee may, at any time, elect to return to Consignor all or any portion
of the Merchandise held on consignment hereunder. Consignee shall give notice to
Consignor of Consignee's election to make such return, and Consignee shall,
without the requirement of any return authorization, return such Merchandise or
portion thereof to Consignor at Consignee's expense and Consignor shall accept
such Merchandise.
9. Consignor shall not assign this Order, or any part hereof, without the prior
written consent of Consignee, and any such attempted assignment shall be void at
the election of Consignee. All claims for money due or to become due from
Consignee shall be subject to deduction by Consignee for any set-off or
counterclaim arising out of this Order or any other of Consignee's orders or
agreements with Consignor, whether such set-off or counterclaim arose before or
after any assignment by Consignor.
10. Until date of purchase by Consignee, Consignor shall meet its lower prices
and the lower prices of legitimate competition, or accept cancellation at
Consignee's option. Consignee, in its sole discretion, shall determine the price
at which Merchandise shall be offered for sale to its customers and shall retain
all handling and shipping charges collected from its customers.
11. Prior to the thirtieth (30th) day of each month, Consignee shall remit
payment to Consignor for Merchandise sold and shipped by Consignee to its
customers during the previous month, less the Reserve (as defined below), and
adjusted for any credits, debits, customer returns, refunds, and allowances. If
a percentage greater than zero is indicated in the "Payment Reserve" designation
on the face hereof, then Consignee will withhold an amount equal to such
percentage of the gross monthly sales (the "Reserve") from each such monthly
payment to Consignor. The amount so withheld shall be applied toward actual
Consignee customer returns occurring during the succeeding calendar month. In
the event that actual returns during such period exceed the Reserve deducted in
the prior month, such excess amount shall, at Consignee's option, be immediately
debited against Consignor's account with Consignee or paid by Consignor to
Consignee within fifteen (15) days of receipt of Consignee's request for such
payment. In the event that actual returns during such period are less than the
Reserve deducted in the prior month for such returns, the balance of the Reserve
remaining at the conclusion of such period shall, at Consignee's option, be
credited to Consignor's account or paid to Consignor. Neither the arrival of the
Merchandise at the Warehouse, nor payment hereunder, shall constitute acceptance
of Merchandise, and such arrival or payment is without prejudice to any and all
claims of Consignee against Consignor.
12. At Consignee's request, Consignor agrees to meet with Consignee or its
agents at a location determined by Consignee to reconcile Consignor and
Consignee records regarding Merchandise. In the event that Consignor fails for
any reason to attend such meeting, or in the event that Consignee shall not
request that a meeting be held, Consignee shall submit its reconciliation report
to Consignor. Any discrepancy must be reconciled within thirty (30) days from
the date of the reconciliation meeting or within thirty (30) days from the date
of Consignor's receipt of Consignee's reconciliation report (whichever shall
apply) and a reconciliation statement must be signed within such thirty (30) day
period. Should the parties fail to sign a reconciliation statement within such
period of time, Consignee's records shall be binding on the parties.
13. For purposes of this Order, "Confidential Information" means any agreement
between Consignee and Consignor, all information in whatever form transmitted
relating to the past, present or future business affairs, including without
limitation, the sale of Merchandise, customer lists and other customer
information, research, development, operations, security, broadcasting,
merchandising, marketing, distribution, financial, programming and data
processing information of Consignee or another party whose information Consignee
has in its possession under obligations of confidentiality, which is disclosed
by Consignee, its subsidiaries, affiliates, employees, agents, officers or
directors to Consignor or which is produced or developed during the working
relationship between the parties. Confidential Information shall not include any
information of Consignee that is lawfully required to be disclosed by Consignor
to any governmental agency or is otherwise required to be disclosed by law,
provided that before making such disclosure Consignor shall give Consignee an
adequate opportunity to interpose an objection or take action to assure
confidential handling of such information. Consignor shall not disclose any
Confidential Information to any person or entity except employees of Consignor
as required in the performance of their employment-related duties in connection
with this Order, nor will Consignor use the Confidential Information for any
purpose other than those purposes expressly contemplated herein. Consignor shall
not use any information obtained from Consignee's customers (e.g., through
warranty cards or otherwise) to offer for sale to such customers any goods or
services. Consignor shall not include with any Merchandise, any information that
would enable Consignee's customers to acquire, either directly or indirectly,
any additional merchandise from persons other than Consignee, without first
obtaining Consignee's written consent. In the event of a breach or threatened
breach of this Section by Consignor, Consignee shall be entitled to obtain from
any court of competent jurisdiction, preliminary and permanent injunctive
relief, including, but not limited to, temporary restraining orders, which
remedy shall be cumulative and in addition to any other rights and remedies to
which Consignee may be entitled. Consignor agrees that the Confidential
Information referred to in this Section is valuable and unique and that
disclosure or use thereof in breach of this Section will result in immediate
irreparable injury to Consignee. Consignor shall inform those persons or
entities having access or exposure to Confidential Information hereunder, of
Consignor's obligations under this Section.
14. This Order shall be governed by the laws of the Commonwealth of Pennsylvania
applicable to contracts to be performed wholly therein, regardless of place of
acceptance. Consignor and Consignee expressly exclude the application of the
United Nations Convention on Contracts for the International Sale of Goods, if
applicable. Consignor hereby consents to the exclusive jurisdiction of the state
courts of the Commonwealth of Pennsylvania for the County of Chester and the
federal courts for the Eastern District of Pennsylvania in all matters arising
hereunder. Consignor hereby irrevocably agrees to service of process by
certified mail, return receipt requested, to its address as set forth on the
face of this Order or to such other address as Consignor may deliver to
Consignee in writing.
15. Consignor shall include the value of all consigned stock in any tax return
of personal property required to be filed with the local taxing authority and
Consignor shall pay the taxes applicable thereto.
16. No waiver by Consignee of any term, provision or condition hereof shall be
deemed to constitute a waiver of any other term, provision or condition of this
Order, or a waiver of the same or of any other term, provision or condition with
regard to subsequent transactions or subsequent parts of the same transaction,
including without limitation, subsequent shipments under this Order.
17. If any provision contained in this Order shall be determined to be
unenforceable or prohibited by law, then such provision shall be void, and the
remaining provisions herein shall not in any way be affected or impaired
thereby.
18. Consignor shall not issue any publicity or press release regarding Consignee
or Consignee's activities hereunder without first obtaining Consignee's prior
written approval and consent to such release.
19. This Order and any other written warranties and specifications, the
Regulations and Standards, and the terms, conditions and agreements herein and
therein, constitute the full understanding of the parties hereto and a complete
and exclusive statement of the terms of the parties' agreement concerning the
Merchandise furnished hereunder.
20. No condition, understanding or agreement purporting to modify or vary the
terms of this Order shall be binding unless hereafter made in writing and duly
executed by the party to be bound, and no modification shall be effected by the
acknowledgment or acceptance of this Order or of invoices, shipping documents or
other documents containing terms or conditions at variance with or in addition
to those set forth herein.
21. Notwithstanding any legal presumption to the contrary, the covenants,
conditions, representations, indemnities and warranties contained in this Order,
including, but not limited to Sections 3, 4, 7 and 13 hereof, shall survive
inspection, delivery, acceptance and payment, shall be binding upon Consignor
and its successors and permitted assigns, and shall run in favor of Consignee
and its successors and assigns.
HEALTHSAFE AGREEMENT
Between
BIOSHIELD TECHNOLOGIES, INC., a Georgia Corporation having a place of
business at 1380 W. Marietta Street, N.W., Atlanta, Georgia 30318 (herein called
"BioShield");
and
HEALTHSAFE ENVIRONMENTAL PRODUCTS, INC., a South Carolina Corporation
having a place of business at 10 Wildhorse Road, Building 8, Hilton Head Island,
South Carolina 29926 (herein called "HealthSafe").
1. Appointment of HealthSafe, Products.
BioShield hereby grants HealthSafe the exclusive and worldwide rights
for the sale of the Product for the end use designated in paragraph 3 of
Attachment II "Product Supplement" (hereinafter called "Product").
2. Obligations of BioShield.
BioShield agrees:
a. To supply HealthSafe with HealthSafe's annual requirements of
Product as set forth in paragraph 1 of Attachment II, "Product
Supplement", and such additional quantities as HealthSafe
desires to purchase and BioShield agrees to deliver.
b. To cooperate in a reasonable manner with HealthSafe's
representatives with regard to sales and service. HealthSafe
will reimburse BioShield for direct expenses incurred to
provide such assistance.
c. To make deliveries to HealthSafe or to HealthSafe's customers
from various shipping locations maintained by BioShield. All
shipping costs will be charged to your account.
d. The product shall be a finished product including all
packing in accordance with Paragraph IV of Attachment II. The
labeling and packaging shall be in accordance with all state,
federal and D.O.T. shipping requirements. HealthSafe shall
supply all necessary packaging and labeling at its cost.
3. Obligations of HealthSafe.
HealthSafe agrees:
a. To purchase from BioShield Product in the quantities as shown
as its Annual Requirements in paragraph 1 of Attachment II,
"Product Supplement." If less than 7500 pounds per order is
purchased BioShield shall have the right to adjust the price.
b. To use its best efforts in promoting the sale of Products, to
expand the markets, to maintain adequate inventories and
effective sales force and to provide prompt delivery service.
After the expiration of the third year and each year
thereafter, the annual requirement shall be 110% of the
previous year's purchases or the previous year's requirement,
whichever is greater.
c. To provide semi-annual sales forecasts and such other reports
as BioShield may reasonably request from time to time.
4. Representation and Warranties.
BioShield represents and warrants that it has applied for patents for
its antimicrobial technology and the product and is in the process of applying
for EPA Registrations and that it will prosecute such patents and registration
applications for the Product for the Restricted End Use with due diligence and
any failure to obtain such registrations shall not give rise to any claims
against BioShield for damages. The Products produced by BioShield shall be
produced in compliance with all applicable federal, state or local laws,
regulations and ordinances pertaining to their production and HealthSafe shall
sell products in accordance with federal, state and local laws.
BioShield represents that it has the production capacity to meet the
annual requirements set out in Attachment II.
The execution of this Agreement by BioShield has been duly authorized
by all necessary corporate action of BioShield and constitutes the valid and
binding obligation of BioShield. The execution of this Agreement by HealthSafe
has been duly authorized by all necessary corporate action of HealthSafe and
constitutes the valid and binding obligation of HealthSafe. BioShield represents
and warrants that it has the right to offer HealthSafe the exclusive rights set
out in Paragraph 1.
5. Insurance and Indemnification
HealthSafe shall at all times maintain in full force and effect, for
the benefit of itself and BioShield, general liability insurance coverage on its
operations, including broad form vendor's coverage and product liability
insurance. Said insurance shall be in the amount of not less than Two Million
Dollars ($2,000,000.00) for each accident or occurrence. At the inception of
this Agreement and annually thereafter, HealthSafe shall furnish BioShield with
a certificate of insurance evidencing that it has such insurance coverage in
force. Such insurance policy shall provide the insurance will not be canceled or
materially modified except upon thirty (30) days prior written notice to
BioShield.
BioShield shall at times maintain in full force and effect, for the
benefit of BioShield and HealthSafe, general liability insurance coverage on
BioShield's operations, including broad form vendor's coverage. Such insurance
shall be for an amount of not less than Two Million Dollars ($2,000,000,00) for
each accident or occurrence. At the inception of this Agreement and annually
thereafter, BioShield shall furnish HealthSafe with a certificate of insurance
evidencing that BioShield has such insurance coverage in force. Such insurance
policy shall provide that insurance will not be canceled or materially modified
except upon thirty (30) days prior written notice to HealthSafe.
HealthSafe shall defend and hold harmless against and from any and all
claims made against BioShield based upon, arising out of or in any way related
to, (1) the operation or condition of any part of any of HealthSafe's equipment,
(2) HealthSafe's conduct of its business, including representations and
warranties beyond those approved by BioShield, (3) HealthSafe's ownership or
possession of property, (4) any negligent act, misfeasance or nonfeasance by
HealthSafe or any of its agents, contractors, servants or employees and (5) any
and all reasonable fees, costs and expenses incurred by or on behalf of
BioShield in the investigation of or defense against any and all of the
foregoing claims. However, upon HealthSafe's notice to BioShield that HealthSafe
has assumed the defense of any legal action or proceeding, HealthSafe shall not
be liable to BioShield for any legal or other expense subsequently incurred by
BioShield in connection with the defense thereof. BioShield shall provide
HealthSafe with prompt written notice upon receipt of any such claim and
BioShield shall not settle any such claim without HealthSafe's prior knowledge
and consent.
BioShield shall indemnify and hold HealthSafe harmless against and from
any and all claims made against HealthSafe based upon, arising out of, or in any
way related to (1) defects in the product formula, processes, or specifications
and ingredients furnished by BioShield to HealthSafe, (2) the conduct of
BioShield's business, (3) BioShield's ownership or possession of property, (4)
any negligent act, misfeasance or nonfeasance by BioShield or any of its agents,
servants, or employees, (5) BioShield's breach of any of its representations,
warranties or covenants made herein, and (6) any and all reasonable fees, costs
and expenses, including without limitation, attorneys' fees incurred by or on
behalf of HealthSafe in the investigation of or defense against any and all the
foregoing claims. However, upon notice to HealthSafe that BioShield has assumed
the defense of any legal action or proceeding, BioShield shall not be liable to
HealthSafe for any legal or other expense subsequently incurred by HealthSafe in
connection with the defense thereof. HealthSafe shall provide BioShield prompt
notice of receipt of any such claim and HealthSafe shall not settle any such
claim without BioShield's prior knowledge and consent.
6. Shipments and Payment.
Times and amounts of individual shipments will be established by
HealthSafe's purchase orders. HealthSafe agrees to order in approximately equal
monthly quantities with an initial stock order of 7500 pounds to be placed by
_______________, 1997. BioShield will make shipment as requested by HealthSafe.
Title to and risk of loss of Product shall pass to HealthSafe at point of
shipment.
BioShield shall promptly fill purchase orders upon deposit of
Fifty (50%) of the purchase price with BioShield, the balance to be
payable within thirty days of receipt of goods. BioShield will drop
ship the order to HealthSafe's or HealthSafe's customers. All handling
and shipping charges shall be billed to HealthSafe and be payable in
fifteen (15) days.
7. Price.
HealthSafe agrees to pay for all Product shipped by BioShield hereunder
the prices shown in Attachment II, "Product Supplement." The parties agree to
negotiate a quantity price reduction when purchases exceed 30,000 pounds
annually. BioShield shall have the right to raise prices in an amount equal to a
direct increase of BioShield's Cost of Goods Sold, on the first day of any month
upon written notice, mailed no less than fifteen (15) days prior to the
effective date. All sales terms are FOB (as defined in INCOTERMS 1990, ICC
Publication No. 460) BioShield's manufacturing facility unless otherwise noted.
For shipments outside of the United States, title to Product will pass to
HealthSafe immediately upon entering the foreign country of destination.
8. End use.
Determination of the suitability of BioShield Products purchased under
this Agreement for the uses contemplated by HealthSafe for the Products is the
sole responsibility of HealthSafe and BioShield will have no responsibility in
that connection. HealthSafe acknowledges that it has tested BioShield Products
to its full satisfaction and has independently determined their suitability for
the uses intended by HealthSafe.
9. Term.
The Agreement shall continue in effect for a period of three (3) years
from the date hereof and thereafter for successive three (3) year terms, unless
terminated for cause as set out herein, up to a maximum of twenty years.
10. Termination by HealthSafe.
If HealthSafe at any time determines that BioShield has failed to
perform any of its obligations hereunder, HealthSafe may notify BioShield in
writing, specifying the nature of such failure and the section of this Agreement
imposing the obligations, whereupon BioShield shall have sixty (60) days within
which to remedy the failure. If BioShield fails to remedy the failure,
HealthSafe may give further notice to BioShield terminating this Agreement
effective as of the date indicated in such further notice.
11. Termination By BioShield.
BioShield may terminate this Agreement upon the occurrence of one or more of the
following events, by giving written notice to HealthSafe that the Agreement is
terminated as of the date of such notice.
a. In the event HealthSafe shall but for an event constituting
force majeure, fail to purchase the annual quantities set out
in Attachment II.
b. HealthSafe shall fail materially to perform any of its
obligations under this Agreement, and such material failure is
not corrected within sixty (60) days after HealthSafe's
receipt of written notice specifying (1) the nature of such
material failure, (2) the particular numbered Section of this
Agreement setting forth the obligation, and (3) the specific
act or acts BioShield contends would, if undertaken by
HealthSafe, correct such failure.
12. Termination By Either Party.
This Agreement shall terminate at the option of and upon written notice
by either party (who shall not be the party with respect to whom the event has
occurred) effective as of the date of the occurrence of any of the following
events:
a. The insolvency of either party; the voluntary filing by or, if
not dismissed within sixty (60) days, the filing against
either party of a petition in bankruptcy or a petition for
reorganization; any assignment by either party for the benefit
of creditors; the appointment of a receiver or a trustee for
either party; or the placement of either party's assets in the
hands of a trustee or receiver; or
b. The permanent discontinuance of all of either party's business for
any reason.
13. Events Following Termination.
The following shall occur upon the expiration or termination by either
party of this Agreement:
a. All rights, licenses and privileges granted to HealthSafe
under this Agreement shall immediately cease and terminate,
except as specifically preserved, extended or imposed by a
provision of this Agreement.
b. The exclusive right and license to market the product under
this Agreement shall terminate, provided, however, that
HealthSafe shall continue to have the right to purchase the
Product on a non-exclusive basis for the same price and terms
of other like customers.
c. Any indebtedness of either party to the other not already due
shall become immediately due and payable as of the effective
date of termination of this Agreement for any reason. In no
event shall either party be liable for any debts of
the other party to its customers or its other creditors,
except as otherwise provided in this Agreement.
14. Non-Disclosure and Non-Competition.
HealthSafe is, or will be, in the business of selling and distributing
the product under the terms of this Agreement. BioShield is in a position of
trust and confidence and has been entrusted with considerable knowledge,
information, contacts, procedures, trade secrets, and techniques of a private,
valuable and confidential nature by HealthSafe, all of which are acknowledged by
both parties to be of such material and valuable nature that any breach of any
single term of this agreement to anyone not an employee or subcontractor of
HealthSafe shall be deemed a material breach hereof.
BioShield agrees that for the duration of this Agreement with
HealthSafe and for three (3) years from the date of termination of this
Agreement, BioShield shall not disclose or divulge to anyone any such
information or matters affecting or relating to the business of HealthSafe which
may adversely affect its conduct, operation and goodwill, including, but not
limited to customer names, addresses and their particular needs and
requirements, and any information relative to business plans and procedures,
prices charged for products or services, and commissions or salary structure.
This Agreement shall not prevent BioShield from disclosing such matters which
further and benefit the business of HealthSafe, but which in no way functions to
benefit actual or potential competition of HealthSafe.
During the period of this Agreement, BioShield agrees that it shall
not, directly or indirectly
a) sell or distribute the Product to any entity which markets,
distributes, and/or solicits orders for any of the same
products or services as HealthSafe sells from any of
HealthSafe's former, current, or prospective customers,
provided, however, that BioShield is not prohibited from
soliciting customers for the sale of goods or services other
than the Product for the Restricted End Use, or;
b) induce or influence, or seek to influence any other person
employed by HealthSafe to terminate his employment or to
otherwise participate in a business activity which is
competitive to HealthSafe's business.
HealthSafe agrees that for the duration of this Agreement with
BioShield and for three (3) years from the date of termination of this
Agreement, HealthSafe shall not disclose or divulge to anyone any such
information or matters affecting or relating to the business of the BioShield
which may adversely affect its conduct, operation and goodwill, including, but
not limited to customer names, addresses and their particular needs and
requirements, and any information relative to business plans and procedures,
prices charged for products or services, and commissions or salary structure.
This Agreement shall not prevent HealthSafe from disclosing such matters which
further and benefit the business of the BioShield, but which in no way functions
to benefit actual or potential competition of the BioShield.
During the period of this Agreement, HealthSafe acrees that it shall
not, directly or indirectly
a. sell or distribute any antimicrobial product or service
itself, or to any entity which markets, distributes, and/or
solicits orders for any antimircrobial products or services as
BioShield sells from any of BioShield's former, current, or
prospective customers, provided, however, that BioShield
continues to use its best efforts to research and develop
antimicrobial products associated with the control of
microbes, or;
b. induce or influence, or seek to influence any other person
employed by the BioShield to terminate his employment or to
otherwise participate in a business activity which is
competitive to the BioShield's business.
The same products and services that HealthSafe sells shall be defined
as the Product for the Restricted End Use. These provisions do not prohibit the
sale of the Product pursuant to the terms of this Agreement.
In the event this Agreement is terminated, for any reason, BioShield
agrees to deliver up all models, samples, vendor promotional or pricing
information, equipment, documents, and customer lists, or any other thing,
document, or information obtained on behalf of HealthSafe's business, which may
be in BioShield's actual or constructive possession and control.
In the event this Agreement is terminated, for any reason, HealthSafe
agrees to deliver up all models, samples, vendor promotional or pricing
information, equipment, documents, and customer lists, or any other thing,
document, or information obtained on behalf of BioShield's business, which may
be in HealthSafe's actual or constructive possession and control.
15. General.
The General Terms and Conditions set forth in Attachment I attached are
incorporated herein by reference.
16. Tradename.
BioShield grants HealthSafe the right to distribute the products under
HealthSafe's tradename "GermArrest Microbe Defensive System" or any other
tradenames established by HealthSafe which are approved by BioShield for the
sale of the product and further agrees that such tradenames shall be exclusively
owned and used by HealthSafe.
<PAGE>
ATTACHMENT I
General Terms and Conditions of HealthSafe Agreement
A. Nothing in this Agreement shall be construed as conferring a
right to use in advertising, publicity, or otherwise any
trademark, trade name, trade dress, or trade designation of
BioShield.
B. HealthSafe shall be for all purposes an independent
contractor, and not an employee or agent of BioShield.
HealthSafe may not bind on any matter. HealthSafe assumes full
responsibility for, and will hold BioShield harmless against,
all payments required by any authority for, to or on behalf of
HealthSafe's employees or agents. HealthSafe is not authorized
or empowered in any manner to accept service or other notice
addressed to in any manner upon BioShield or submitting
BioShield to the jurisdiction of any court or government
agency whatever.
C. Failure of HealthSafe to order or to take, or of BioShield to make, any one
or more deliveries, if occasioned by any cause beyond the reasonable control of
either of said parties of any nature, character, or kind whatsoever, shall not
affect the remainder of this Agreement, nor subject the one so failing to any
liability to the other because thereof and, HealthSafe may purchase else where
the product required by it during the period or periods of BioShield's failure
to make deliveries if occasioned by any such cause or causes. Without limiting
the liability of the foregoing languages, such causes shall include: fire,
storm, flood, act of God, war, explosion, sabotage, strike or other labor
trouble, shortage of labor and/or raw materials, utilities, fuel and/or energy,
embargo, car shortage, accident, expropriation of plant, Product and/or raw
materials in whole or part by Federal or State authority, inability to secure
machinery and/or other equipment for the manufacture of Product, acts of the
Federal Government, any State or local Government, or any agency thereof and,
any other like cause interfering with the production, transportation or
consumption of Product.
D. In the event of a shortage or anticipated shortage of Product and/or delay in
shipment or delivery occasioned by any of the causes before mentioned or any
like causes, BioShield will endeavor to allocate equitably the available Product
among its customers and HealthSafe's, to BioShield's own internal use and to the
use of its affiliates. In the case of a shortage or anticipated shortage of
labor, raw materials, utilities, fuel or energy. BioShield will endeavor to
allocate equitably the available labor, raw materials, utilities, fuel and
energy to use in the product covered by this contract to BioShield's own
internal use, to the use of its affiliates and to the use in other products. The
equity of any such allocations made by BioShield in the exercise of its
discretion shall be conclusive and binding upon HealthSafe. BioShield shall not
be obligated to make up any deficiencies hereunder due to any such cause except
by written mutual agreement of the parties hereto.
<PAGE>
E. HealthSafe agrees that it will supply to all of its customers Product
information which impacts upon the medical, safety, and environmental aspects of
handling, storing and using such Products. Such information includes material
safety data sheets, product specification bulletins and other information
appropriate to the customer's specific operations. HealthSafe further agrees to
place proper BioShield, or BioShield approved, labels on drums filled by
HealthSafe, on HealthSafe's storage tanks and to recommend that its customers
for Products use such labels on all of their drums and storage vessels.
HealthSafe will also supply additional information for safe and legal shipping
as needed by his customers for Product.
F. If shipment is made in tank cars or tank trucks furnished by
BioShield, HealthSafe will unload said shipments promptly
after placement by carrier and no reconsignment of BioShield's
tank cars or tank trucks shall be made by HealthSafe without
the written consent of BioShield. Tank cars or tank trucks
held by HealthSafe in excess of BioShield's published schedule
of demurrage free time will be subject to demurrage at rates
in Attachment II hereto.
G. BIOSHIELD MAKES NO WARRANTY OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING NO WARRANTY OF MERCHANTABILITY, EXCEPT THAT THE
PRODUCT SOLD HEREUNDER SHALL BE FROM BIOSHIELD'S STANDARD
PRODUCTION THEREOF AND MEET BIOSHIELD'S PUBLISHED
SPECIFICATION; AND, HEALTHSAFE ASSUMES ALL RISK AND LIABILITY
FOR RESULTS OBTAINED BY THE USE OF THE PRODUCTS COVERED BY
TFHS AGREEMENT, WHETHER USED SINGLY OR IN CONJUNCTION WITH
OTHER MATERIALS.
H. NO CLAIM OR ANY KIND, WHETHER AS TO THE PRODUCT DELIVERED OR
FOR NON-DELIVERY OF THE PRODUCT, OR OTHERWISE, SHALL BE
GREATER IN AMOUNT THAN THE PURCHASE PRICE OF THE PRODUCT IN
RESPECT OF WMCH SUCH DAMAGES ARE CLAIMED; AND, FAILURE TO GIVE
NOTICE OF CLAIM WITHN THRTY (30) DAYS FROM DATE OF DELIVERY,
OR THE DATE FIXED FOR DELIVERY, RESPECTIVELY, SHALL CONSTITUTE
A WARVER BY HEALTHSAFE OF ALL CLAIMS WITH RESPECT THERETO. IN
NO EVENT WILL BIOSHIELD BE LIABLE FOR LOSS OF PROFITS OR
INCIDENTAL OR CONSEQLTENTIAL DAMAGES OF HEALTHSAFE OR
HEALTHSAFE'S CUSTOMERS.
I. Any increase of the costs to manufacture, or to store, transport or handle at
BioShield's or its affiliates' facilities, either the products sold hereunder or
materials used in the manufacture of products sold hereunder, whether paid by
BioShield or an affiliate and caused by any increase in existing, or the
imposition of any new taxes, excises, duties, environmental, superfund (excise),
or other governmental charges of any kind (imposed by any national, state or
municipal Government or any agency or political subdivision thereof shall be
added to the sales price and paid by HealthSafe. Further, any taxes, excises,
duties, environmental, superfund (excise), or other governmental charges of any
kind imposed upon the sale or purchase, transportation loading or off-loading,
storage, importation or use of products sold hereunder, or any services rendered
in connection thereof, shall be paid by HealthSafe. Each party shall, however,
be responsible for income, franchise, gross receipts, occupational, ad valorem
property, AMT superfund, and other similar levies imposed on its income or fixed
assets, as well as any interest, penalties or fines incurred in connection with
a tax or other levy that is for that party's account hereunder, unless such
interest, penalty or fine is the result of the fault or neglect of the other
party. HealthSafe shall furnish to BioShield all exemption certificates for
which it is entitled or authorized to issue with respect to any tax imposed on
the manufacture, sales, purchase, transportation, handling or use of the product
sold hereunder.
J. Failure or delay by either party to insist on the strict
performance of any covenant, term, provision or condition
hereunder, or to exercise any option herein contained, or to
pursue any claim arising herefrom, will not constitute or be
construed as a waiver of such covenant, term, provision,
condition, option, claim or right. Any waiver by either party
will not constitute or be construed as a waiver of such
covenant, term, provision, condition, option, claim or right.
Any waiver by either party will not constitute or be construed
a continuing waiver of any subsequent default.
K. This Agreement shall not be transferred or assigned by either
party without the written consent of the other party, except
that the parties may transfer or assign this Agreement to a
subsidiary or affiliate, or to a successor to the portion of
the business covered by this Agreement.
L. Notice to either party under any provision of this Agreement
shall be deemed good and sufficient if sent by registered or
certified mail to the last known post office address of such
party, and shall be effective upon the date of such mailing,
otherwise on receipt.
M. This Agreement shall be construed in accordance with the laws of the
State of Georgia.
N. This Agreement constitutes the entire contract between the parties concerning
sale or purchasing of Product. Any previous agreements or representations
including those covering credit terms, freight allowances and waivers of any
other standard charges, are hereby declared void. Any modification of or
addition to this Agreement must be expressly agreed to by the parties in
writing, and may not be effected by purchase order, sales confirmation,
acknowledgment or similar forms; provided, however, that BioShield may from time
to time modify Attachments I, II and/or III, which Attachments are incorporated
into this Agreement by reference, and the modified terms and conditions of said
Attachments will apply to this Agreement, from and after the date set forth in
the notice of modification.
<PAGE>
O. This Agreement maybe terminated at anytime if BioShield is
effectively prevented from utilizing or selling its products
including the Product any action of federal, state or local
law, statute, ordinance or regulation, including restriction
or withdrawal of registration of BioShield products by any
government agency, EPA in particular. Such action shall not
give rise to any claims against BioShield for damages
whatsoever.
<PAGE>
ATTACHMENT II
PRODUCT SUPPLEMENT
Annual Quantities and Prices.
Price: $44.00 per pound
1st year: 30,000 pounds
2nd year: 60,000 pounds
3rd year: 90,000 pounds
2. Product.
BioShield AM36.01 and any formula that has not been diluted to a 1%
solution or greater for the Restricted End Use set out in Paragraph 3
below. The Product shall also include any antimicrobial concentrate
that is produced by BioShield now or in the future, that may be
applicable to the Restricted End Use, including any improvements to the
current product, regardless of the formula or patents for such new or
improved product.
3. Restricted End Use of BioShield Products.
Commercial/Residential Building Restoration Industry.
Product use: Applied before or after building disasters (floods, fire,
water damage, etc.) on exterior and interior surfaces (walls, ceilings, carpets,
furnishings, ducts, HVAC's for the prevention and control of microbial
contaminant (bacteria, fungi, molds, mildew, algae, etc.). Exclusive rights to
cover applications for large volume coverage utilizing the concentrate product.
Medical Markets
Product use: Applied to large interior surface areas of the prevention
and control of health related illnesses (breathing disorders, dizziness,
congestion, headaches, eyewatering, etc.), caused from exposure to microbial
germs. Marketing will be focused toward individuals (20% of the World
Population) that suffer from exposure to these contaminants. Sales for the
product will be recommended by physicians and sold by companies operating in the
indoor environmental arena. Target markets will include residential homes,
hospitals, schools, government buildings, etc.
Application: Same as above.
<PAGE>
4. Packing/Labeling.
Packaging Sample by: Bottle specs: 8oz. - white round
Item #04230CKS
Inmark, Inc. HDPE - (24-410) - 405/cs.
220 Fisk Drive
P.O. Box 43309 Cap: Black - Lined
(404) 349-4432 No specs. yet
Label: 3 options
Black Lettering/White Label
Black Lettering/Clear Label
White Lettering/Black Label
<PAGE>
ATTACHMENT III
BioShield's Limited Warranty
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands and seals this 27th
day of February, 1997.
WITNESS: BIOSHIELD TECHNOLOGIES, INC., a
Georgia Corporation
\s\ Judy M. Jones By: \s\ Timothy C.
Moses
\s\ Judy M. Jones Attest: \s\ Jacques
Elfersy
HEALTHSAFE ENVIRONMENTAL PRODUCTS, INC. a South Carolina Corporation
\s\ Robert W. Howard By: \s\Roger D. Smith
Roger, D. Smith, CEO
\s\ Robert W. Howard By: \s\ Roger D. Smith
Roger D. Smith, Assistant Secretary
EXCLUSIVE SALES
AND DISTRIBUTORSHIP AGREEMENT
THIS EXCLUSIVE SALES AND DISTRIBUTORSHIP AGREEMENT ("Agreement") is
made as of the 7th day of February, 1997, by and between BIOSHIELD TECHNOLOGIES,
INC., a Georgia corporation having a place of business at 1380 West Marietta
Street, N.W., Atlanta, Georgia 30318 ("Supplier"), and CONCRETE MICROTECH, INC.,
a Georgia Corporation having a place of business at 5622 Asheforde Lane,
Marietta, Georgia 30068. ("Purchaser").
W I T N E S S E T H:
WHEREAS, Supplier has developed significant know-how and proprietary
technology in connection with antimicrobial and biostatic products; and
WHEREAS, Supplier desires to appoint Purchaser as its sole and
exclusive Purchaser for sales of the product designated in para: 1 attachment II
and distributor for the use, sale and marketing of said products in the concrete
industry, and Purchaser is willing to accept such appointment from Supplier on
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, and other good and valuable consideration, the receipt
and adequacy of which hereby are acknowledged, the parties hereto agree as
follows:
DEFINITIONS.
(1) The following terms shall have the following meanings:
"Affiliate" shall mean, with respect to any Person (defined below), a Person
directly or indirectly controlling, controlled by or under common control with,
such Person. For this purpose, control of a corporation or other business entity
shall mean direct or indirect beneficial ownership of thirty percent (%30) or
more of the voting or equity interest in such entity.
"Confidential Information" shall mean all non-public trade secrets, proprietary
technology, know-how, or other proprietary business or technical information of
a party hereto or an Affiliate of it heretofore or hereafter disclosed to any
party or its Affiliates, but shall not include any information or document that
(i) is or becomes in the public domain other than as a result of a disclosure by
a party or an Affiliate of it to whom such information was supplied pursuant to
this Agreement or any other agreement restricting the use or disclosure of such
information or documents (other than a disclosure approved in writing by the
party who, or whose Affiliate, supplied the information), (ii) was or becomes
lawfully available to the party of its Affiliate to whom such information was
supplied otherwise than by another party hereto, or (iii) was generated
independently by the party or its Affiliate to whom such information was
supplied without reference to non-public information furnished by another party
hereto or an Affiliate of it.
"Field of Use" shall mean the use of the Property in the concrete industry.
"Products" shall mean Supplier's total line of antimicrobial
products which uses Supplier's Property, or at any time during the Term (as
defined below) of this Agreement, formulated, conceived, processed, sold,
offered for sale, treated, promoted, blended, manufactured or otherwise handled
by Supplier for the designated end use in accordance with Attachment II, and
such additions or deletions thereto as the parties may hereafter mutually agree.
"Property" shall mean the Supplier's antimicrobial technology
disclosed in any of its U.S. Patent Applications and related foreign patent
applications, together with Supplier's antimicrobial technology being developed
for which no patent application has been filed or for which no patent has
issued, and all of Supplier's technical know-how and all enhancements,
improvements and modifications to such antimicrobial technology that are
developed or otherwise acquired by the Supplier before and during the Term of
this Agreement for the exclusive end use application in accordance with
Attachment II.
"Person" shall mean a natural person, corporation, business
trust, estate, trust, partnership, association, joint venture, government,
governmental subdivision or agency, or other legal or commercial entity.
"Territory" shall mean the entire world.
(2) Other Terms. Other capitalized terms shall have the meanings
ascribed to them elsewhere in this Agreement.
EXCLUSIVE SALES AGREEMENT.
(1) Grant of Right. Supplier hereby grants to Purchaser and its
Affiliates an exclusive right to use, sell and market Products using the
Property, now and hereinafter developed by the Supplier, in the Field of Use in
the Territory during the Term of this Agreement as long as reasonable efforts
and volume minimums are maintained in accordance with Attachment II.
(2) Notification. Purchaser shall notify Supplier promptly of the
circumstances of any unauthorized possession, manufacture, sale, or use or
knowledge of any part of the Property.
(3) Implementation by Purchaser.
Information. Supplier agrees to cooperate with Purchaser to provide Purchaser
and its Affiliates with such information necessary to utilize the Property.
Start Up and Marketing Assistance. Supplier will in accordance with Article
(4)(A) herein assist Purchaser as necessary to effectively carry out its
obligations under this Agreement. Supplier will, upon Purchaser's request and on
terms and conditions mutually satisfactory to Supplier and Purchaser, from time
to time
provide Purchaser with technical support, as may be necessary for Purchaser to
effectively market the Products (such assistance including, but not limited to,
assistance in the creation of brochures, assistance in sales presentations, and
like matters).
(4) Marketing Assistance.
(a) Marketing Assistance Fee. In consideration of the rights
granted in Section B(3)(b) hereof, Purchaser agrees to pay Supplier marketing
fee of $50,000.00, payable over twelve (12) months of the execution date hereof.
(b) Royalties. Supplier shall develop a Property Price List
which shall set for the sales price of the Products to be purchased by
Purchaser. An initial Property Price List is contained in Attachment II. Such
prices include all royalty fees to be paid by Purchaser, and no additional
royalty fee shall be paid by Purchaser at any time. Supplier may increase or
decrease its prices on the Property Price List, upon reasonable notice to
Purchaser.
(5) Disclosure of Information.
(a) Sharing of Information. The parties agree to disclose such
information to one another to the extent necessary to carry out the purposes of
this Agreement; provided, however, that no party shall be required to make any
disclosure of any information in contravention of any legal obligation.
Purchaser shall provide to Supplier, upon Supplier's written request, copies of
any and all data and written reports relating to the Property, in reasonable
detail to permit Supplier to continue research and development of the Property.
(b) Confidentiality. For the Term of this Agreement and a
period of ten (10) years from the date of termination or expiration of this
Agreement for any reason whatsoever, and with respect to Confidential
Information which may be deemed a trade secret, for so long as such Confidential
Information remains a trade secret, each party hereto shall maintain as
confidential all Confidential Information heretofore or hereafter disclosed by
the other party, and shall not, directly or indirectly, disclose any such
Confidential Information to any Person, corporation or entity other than those
employees, agents, advisers, suppliers or consultants of such party whose duties
justify the need to know such Confidential Information and then only on the
basis of a clear understanding by such employee, agent, supplier, or consultant
of their obligation to protect the confidentiality of such Confidential
Information and to restrict the use of such Confidential Information. The
recipient party shall be liable hereunder for any unauthorized disclosure by
such employees, agents, advisers, suppliers or consultants. Moreover, neither
party shall use, directly or indirectly, for its benefit or the benefit of any
Affiliate or other person, corporation or entity any such Confidential
Information except for the purpose specified herein. If a party hereto
determines that a disclosure is required by law, that party shall give the other
party supplying such Confidential Information prior written notice in order to
provide such party an opportunity to seek an injunction or otherwise attempt to
keep such information confidential. Except as provided otherwise herein, at the
written request of the party supplying Confidential Information, the other party
shall destroy or return any and all such data and information without retaining
copies when this Agreement expires or terminates.
Disclosure. Marketing the Property in the Field of Use within the Territory
during the Term of this Agreement by Supplier without the express written
consent of the Purchaser is prohibited.
(6) Representation and Warranties: Indemnification.
(a) Representations and Warranties. Supplier represents and
warrants that (a) possesses the right to grant the rights hereunder.
(b) Indemnification. Supplier agrees to indemnify Purchaser
and its Affiliates against liabilities, losses, costs, damages and expenses
(including, without limitation, court costs and attorneys' fees) relating to any
action against Purchaser arising from a breach of the warranty in Section
B(5)(d) below, provided, however, such infringement was not caused by
Purchaser's or its Affiliates' enhancements, improvements, or modifications to
the Property or by Purchaser's or its Affiliates' acting in a manner
inconsistent with this Agreement, and provided Purchaser or its Affiliates, as
applicable, has promptly notified Supplier with respect to such claim. Failure
of Purchaser or its Affiliates to so notify Supplier promptly of any such claim
shall not relieve Supplier of its indemnification obligation hereunder, except
to the extent such failure has prejudiced or impeded Purchaser's ability to
defend or settle such claims.
(c) Infringement Action. If any notice is given to Purchaser,
or any suit is brought against Purchaser by a third party, charging infringement
of a patent due to the using or selling of the Property, Purchaser shall give
Supplier prompt written notice thereof. The parties shall promptly thereafter
discuss the course of action to be followed and shall attempt to decide by
written agreement to either (i) make modifications which will avoid infringement
of such patent without significantly affecting the economics of Purchaser's
operations, or (ii) accept a license for Purchaser under such patent, or (iii)
contest the alleged infringement. If the alleged infringement is contested,
Supplier shall have control of any such litigation through counsel of its
choice. Purchaser shall cooperate with Supplier in any litigation arising out of
such alleged infringement, and shall, upon reasonable notice, make available its
employees, officers, directors or managers to testify when requested by Supplier
and shall make available to Supplier all relevant papers, records, information,
data and the like.
Limitations on Liability Relating to Property. EXCEPT FOR THE EXPRESS WARRANTIES
CONTAINED IN THIS AGREEMENT, SUPPLIER MAKES NO REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, IN FACT OR IN LAW, RELATING TO THE PROPERTY, ALL OF WHICH
HEREBY ARE EXPRESSLY DISCLAIMED.
Prior Disclosure. Except for pilot study information and information in any
issued patent, Supplier has not disclosed the Property to any other party in the
Field of Use.
EXCLUSIVE DISTRIBUTORSHIP AGREEMENT.
Appointment of Distributor: Products. Supplier hereby appoints
Purchaser, for the Term hereof, as sole and exclusive distributor for the use,
sales and marketing of Supplier's Products in the Field of Use in the Territory.
Supplier shall not sell or cause to be sold, directly or indirectly, or appoint
any other distributor or agent for the sale of such Products in the Territory as
long as reasonable efforts are maintained and volume projections are met in
accordance with Attachment II.
(2) Obligations of Supplier. Supplier agrees:
(a) In addition to ss. (B)(4)(b) above, to assist Purchaser in
the performance of this Agreement by providing technical support and information
for the training of salesmen and the development of advertising and marketing
literature, and otherwise cooperating fully with Purchaser's representatives
with regard to sales and marketing.
(b) To make deliveries to Purchaser or to Purchaser's
customers in the Territory from various manufacturing and/or shipping locations
maintained by Supplier.
Obligations of Purchaser. Purchaser agrees:
(a) To use best efforts in promoting the sale of Products, to
maintain an effective sales force, and to provide prompt delivery service.
Purchaser shall annually agree with Supplier on sales goals for Purchaser, which
are to be used in part to evaluate Purchaser's performance.
(b) Not to make any representations or warranties concerning
Products, except with the express prior written authorization of Supplier.
(c) To provide semi-annual sales forecasts and such other
reports as Supplier may reasonably request form time to time.
Shipments. Times and amounts of individual shipments will be
established by Purchaser's purchase orders. Supplier will make shipment in steel
or plastic drums or containers or in tank truck or tank cars, as requested by
Purchaser and agreed by Supplier, in accordance with Supplier's packaging and
transportation terms in effect at time of shipment. Title to and risk of loss of
Products shall pass to Purchaser at point of shipment.
(5) Price. Purchaser agrees to pay for all Products shipped by Supplier
hereunder the prices shown on Supplier's price lists in effect at the time of
shipment, and in accordance with Attachment II, at the terms and less volume or
other discounts as agreed to by the parities. Price reductions, including, but
not limited to, volume and other discounts, shall be effective immediately upon
announcement. All sales terms are FOB (as defined in INCOTERMS 1990, ICC
Publication No. 460) Supplier's manufacturing facility unless otherwise noted.
For shipments outside of the United States, title to Products will pass to
Purchaser immediately upon entering the foreign country of destination.
(6) Payment Terms. Purchaser agrees to pay Supplier's invoices within
forty-five (45) days from the date thereof. If Supplier shall reasonably be
concerned with respect to the Purchaser's financial responsibility, Supplier
shall first provide written notice of such concerns to Purchaser, together with
a request for assurances by Purchaser that invoices shall be paid in accordance
with this Agreement. Should Purchaser fail to provide such assurances to
Supplier within fifteen (15) days after receipt of the request, Supplier shall
have the right, apart form any other legal remedy, to require Purchaser to pay
for Products in advance as ordered, and to cancel orders or delay shipments to
Purchaser or its customers for which no payment has been made, until payment is
made.
(7) Representations and Warranties: Indemnification.
(a) Supplier warrants to Purchaser that the Products delivered
by it pursuant to this Agreement shall be in accordance with the Supplier's
product specifications and other technical information as published from time to
time.
(b) Supplier shall indemnify and hold harmless Purchaser for
any and all costs, liabilities, obligations and expenses (including attorneys'
fees) incurred by Purchaser as a result of Supplier's breach of any warranty in
respect of the Products.
(8) Limitations on Liability Relating to Products. EXCEPT FOR THE
EXPRESS WARRANTIES CONTAINED IN THIS AGREEMENT, SUPPLIER MAKES NO
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, IN FACT OR IN LAW, RELATING
TO THE PRODUCTS, ALL OF WHICH ARE EXPRESSLY DISCLAIMED.
(9) General Terms and Conditions.
Term. This Agreement shall be perpetual (the "Term"). This
Agreement may be terminated by each party hereto in the event the other party
fails in any material respect to perform its obligations hereunder, and such
failure is not corrected within thirty (30) days of receiving written notice of
such failure from the terminating party. Upon termination for any reason, this
Agreement shall continue in force and effect as necessary for the parties hereto
to perform their respective obligations to third parties (existing at the time
of such termination) relating to this Agreement. If either party shall become
insolvent or make an arrangement with creditors or have
bankruptcy proceedings instituted by or against it (to the extent permitted by
applicable laws) this Agreement shall terminate immediately.
(b) Advertising, Etc.Nothing in this Agreement shall be
construed as conferring to Purchaser a right to use in advertising, publicity,
or otherwise any trademark, trade name, trade dress, or trade designation of
Supplier without Supplier's prior written consent.
(c) No Partnership, Etc. Purchaser shall be for all purposes
an independent contractor, and not an employee or agent of Supplier. Purchaser
assumes full responsibility for, and will hold Supplier harmless against, all
payments required by any authority for, to, or on or behalf of Purchaser's
employees or agents. Purchaser is not authorized or empowered in any manner to
accept service or other notice addressed to it in any manner upon Supplier or to
submit Supplier to the jurisdiction of any court or government agency whatever.
(d) Force Majeure. Failure of Supplier or Purchaser to order,
to take, or to make any one or more deliveries, if occasioned by any cause
beyond the reasonable control of either of said parties of any nature,
character, or kind whatsoever, shall not affect the remainder of this Agreement,
nor subject the one so failing to any liability to the other because thereof.
Without limiting the liability of the foregoing language, such causes shall
include fire, storm, flood, acts of God, war, explosion, sabotage, strikes or
other labor trouble, embargo, expropriation of plant, Product and/or raw
materials in whole or in part by Federal or State authorities, acts of the
Federal Government, any State or local Government, or any agency thereof, and
any other like occurrence causing extreme interference with the production or
transportation of Products.
(e) Information. Purchaser agrees that it will supply to all
of its customers Product information as provided by Supplier. Purchaser will
rely solely on Supplier's representations regarding the safety, strength,
storage, environmental and other aspects of the Products. Such information
includes material safety data sheets, product specification bulletins and other
information appropriate to the customer's specific operations. Purchaser agrees
to place Supplier-approved labels on drums filled by Purchaser on Purchaser's
storage tanks and to recommend that its customers for Products use such labels
on all of their drums and storage vessels. Supplier will also supply additional
information for safe and legal shipping as needed by the Purchaser's customers.
(f) Reconsignment. If shipment is made in tank cars or tank
trucks furnished by Supplier, Purchaser will unload said shipments promptly
after placement by carrier, and no reconsignment of Supplier's tank cars or tank
trucks shall be made by Purchaser without the written consent of Supplier.
(g) Insurance. Supplier shall maintain appropriate general and
product liability insurance in respect of the sale of the Products in North
America and Mexico in an amount to be agreed upon by the Parties. Supplier shall
cause Purchaser to be named a co-insured on such
insurance policy and shall, at the request of Purchaser, provide certificates of
insurance to such effect.
(h) Taxes. Each party shall be responsible for income,
franchise, gross receipts, occupational, ad valorem property, and other similar
levies imposed on its income or fixed assets, as well as any interest,
penalties, or fines incurred in connection with a tax or other levy that is for
that party's account hereunder, unless such interest, penalty or fine is the
result of the fault or neglect of the other party.
(i) No Waiver. Failure or delay by either party to insist on
the strict performance of any covenant, term, provision or condition hereunder,
or to exercise any right herein contained, or to pursue any claim arising
herefrom, will not constitute or be construed as a waiver of such covenant,
term, provision, condition, claim or right. Any waiver by either party will not
constitute or be construed as a waiver of such covenant, term, provision,
condition, claim or right. Any waiver by either party will not constitute or be
construed a continuing waiver of any subsequent default.
(j) Assignment. Neither Supplier nor Purchaser shall assign
this Agreement nor any rights or interests hereunder to any Person, firm or
corporation without the prior written consent of the other party, except that,
without such consent, Purchaser may assign this Agreement to any parent or
subsidiary of Purchaser or any subsidiary of its parent entity or to any
corporation that succeeds substantially to all of its business with respect to
the Products by merger, sale of assets, or otherwise. All of the terms and
provisions of this Agreement, whether so expressed or not, shall be binding
upon, inure to the benefit of, and be enforceable by the parities and their
respective representatives, successors and permitted assigns.
(k) Sub-Distributors.Purchaser shall be entitled, without
Supplier's prior consent, to appoint sub-distributors or agents in respect of
the Products anywhere in the Territory so long as sub-distributors comply with
the provisions of this Agreement.
(l) Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Georgia.
(m) Arbitration. Any controversy or claim (whether such claim
sounds in contract, tort, discrimination, or otherwise) arising out of or
relating to this Agreement, or the breach thereof, or the commercial or economic
relationship of the parties hereto, shall be settled by binding arbitration in
Atlanta, Georgia in accordance with the Expedited Procedures (Rules 53-57) of
the Commercial Arbitration Rules of the American Arbitration Association
("AAA"). The arbitration shall be governed by the U.S. Arbitration Act, 9 U.S.C.
ss.ss.1-16, to the exclusion of any provisions of state law inconsistent
therewith or which would produce a different result. A proceeding shall be
commenced upon written demand by Purchaser or Supplier to the other. The
arbitrator(s) shall enter a judgment by default against any party which fails or
refuses to appear in any properly noticed arbitration proceeding. The proceeding
shall be conducted by one (1) arbitrator, unless the amount alleged to be in
dispute exceeds two hundred fifty thousand dollars ($250,000), in which case
three (3) arbitrators shall preside. The arbitrator(s) will be chosen by the
parties from a list provided by the AAA, and if they are unable to agree within
ten (10) days, the AAA shall select the arbitrator(s). The arbitrators must be
experts in licensing and distributorship law. The arbitrators shall assess costs
and expenses of the arbitration, including all attorneys' and experts' fees, as
the arbitrators believe is appropriate in light of the merits of the parties'
respective positions in the issues in dispute. Each party submits irrevocably to
the jurisdiction of any state court sitting in Cobb County, Georgia or to the
United States District Court for the Northern District of Georgia for the
purposes of enforcement of any discovery order, judgment or award in connection
with such arbitration. The award of the arbitrator(s) shall be final and binding
upon the parties and may be enforced in any court having jurisdiction. The
arbitration shall be held in such places as set by the arbitrator(s) in
accordance with Rule 55.
(n) Entire Agreement: Modification. This Agreement constitutes
the entire agreement between the parties (including attachment I & II) relating
to the subject matter hereof. Any previous agreements or representations,
including those covering credit terms, freight allowances and waivers of any
standard charges, are hereby declared void. Any modification of, or addition to
this Agreement must be expressly agreed to by the parties in writing, and may
not be effected by purchase order, sales confirmation, acknowledgment or similar
forms.
(o) Invalidity. In the event any provision of this Agreement
shall be declared unenforceable, such provision shall be deemed severed from
this Agreement and the parities shall meet and negotiate in good faith to
replace such unenforceable provision with another provision intending to carry
out the intent of the unenforceable provision to the extent permitted by
applicable law.
(p) Notices. All notices, requests and other communications
hereunder shall be in writing and shall be deemed given and effective five (5)
business days after being mailed first class, certified or registered mail,
postage prepaid, return receipt requested, addressed as set forth below, or two
(2) days after being sent by overnight courier, telex, or telecopy (a machine
that indicates the telex or telecopy number of the machine to whom such
communication is sent and the receipt by such machine of such communication) to
the address or telecopy number first above written, or, in each case, at such
other address or to such other person as the party may specify in writing.
(q) Headings: Counterparts. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. This Agreement may be executed in
counterparts, each of which shall be deemed original but all of which together
shall constitute the same agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
EXCLUSIVE SALES AND DISTRIBUTORSHIP AGREEMENT as of the date first
above written.
SUPPLIER: PURCHASER:
BIOSHIELD TECHNOLOGIES, CONCRETE MICROTECH, INC.,
INC., a Georgia corporation a Georgia corporation
By:__/s/ Timothy C. Moses _____________
By:_____/s/ _____________________
Title:___[president]_________________
Title:_________________________
[CORPORATE SEAL] [CORPORATE SEAL]
<PAGE>
ATTACHMENT I
General Terms and Conditions of Distributorship Agreement
A. Nothing in this Agreement shall be construed as conferring a right to
use in advertising, publicity, or otherwise, any trademark, trade name,
trade dress, or trade designation of BioShield.
B. Distributor shall be for all purposes an independent contractor, and
not an employee or agent of BioShield. Distributor may not bind on any
matter. Distributor assumes full responsibility for, and will hold
BioShield harmless against, all payments required by any authority for,
to or on behalf of Distributor's employees or agents. Distributor is
not authorized or empowered in any manner to accept service or other
notice addressed to it in any manner upon BioShield or submitting
BioShield to the jurisdiction of any court or government agency
whatever.
C. Failure of Distributor to order or to take, or of BioShield to make, any one
or more deliveries, if occasioned by any cause beyond the reasonable control of
either of said parties of any nature, character, or kind whatsoever, shall not
affect the remainder of this Agreement, nor subject the one so failing to any
liability to the other because thereof and, Distributor may purchase else where
the product required by it during the period or periods of Bioshield's failure
to make deliveries if occasioned by any such cause or causes. Without limiting
the liability of the foregoing languages, such causes shall include: fire,
storm, flood, act of God, war, explosion, sabotage, strike or other labor
trouble, shortage of labor and/or raw materials, utilities, fuel and/or energy,
embargo, car shortage, accident, expropriation of plant, Product and/or raw
materials in whole or in part by Federal or State authority, inability to secure
machinery and/or other equipment for the manufacture of Product, acts of the
Federal Government, any State or local Government, or any agency thereof and,
any other like cause interfering with the production, transportation or
consumption of Product.
D. In the event of a shortage or anticipated shortage of Product and/or delay in
shipment or delivery occasioned by any of the causes before mentioned or any
like causes, BioShield will endeavor to allocate equitably the available Product
among its customers and distributors, to BioShield's own internal use and to the
use of its affiliates. In the case of a shortage or anticipated shortage of
labor, raw materials, utilities, fuel or energy. BioShield will endeavor to
allocate equitably the available labor, raw materials, utilities, fuel and
energy to use in the product covered by this contract to BioShield's own
internal use, to the use of its affiliates and to the use in other products. The
equity of any such allocations made by BioShield in the exercise of its
discretion shall be conclusive and binding upon Distributor. BioShield shall not
be obligated to make up any deficiencies hereunder due to an such cause except
by written mutual agreement of the parties hereto.
E. Distributor agrees that it will supply to all of its customers Product
information which impacts upon the medical, safety, and environmental aspects of
handling, storing and using such Products. Such information includes material
safety data sheets, product specification bulletins and other information
appropriate to the customer?s specific operations. Distributor further agrees to
place proper BioShield, or BioShield approved, labels on drums filled by
Distributor, on Distributor?s storage tanks and to recommend that its customers
for Products use such labels on all of their drums and storage vessels.
Distributor will also supply additional information for safe and legal shipping
as needed by his customers for Product.
F. If shipment is made in tank cars or tank trucks furnished by BioShield,
Distributor will unload said shipments promptly after placement by
carrier and no reconsignment of BioShield's tank cars or tank trucks
shall be made by Distributor without the written consent of BioShield.
Tank cars or tank trucks held by Distributor in excess of BioSheild's
published schedule of demurrage free time will be subject to demurrage
at rates in Attachment III hereto.
G. BIOSHIELD MAKES NO WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING
NO WARRANTY OF MERCHANTABILITY, EXCEPT THAT THE PRODUCT SOLD HEREUNDER
SHALL BE FROM BIOSHIELD?S STANDARD PRODUCTION THEREOF AND MEET
BIOSHIELD?S PUBLISHED SPECIFICATION.
H. NO CLAIM OF ANY KIND, WHETHER AS TO THE PRODUCT DELIVERED OR FOR
NON-DELIVERY OF THE PRODUCT, OR OTHERWISE, SHALL BE GREATER IN AMOUNT
THAN THE PURCHASE PRICE OF THE PRODUCT IN RESPECT OF WHICH SUCH DAMAGES
ARE CLAIMED; AND, FAILURE TO GIVE NOTICE OF CLAIM WITHIN THIRTY (30)
DAYS FROM DATE OF DELIVERY, OR THE DATE FIXED FOR DELIVERY,
RESPECTIVELY, SHALL CONSTITUTE A WAIVER BY THE DISTRIBUTOR OF ALL
CLAIMS WITH RESPECT THERETO. IN NO EVENT WILL BIOSHIELD BE LIABLE FOR
LOSS OF PROFITS OR INCIDENTAL OR CONSEQUENTIAL DAMAGES OF DISTRIBUTOR
OR DISTRIBUTOR?S CUSTOMERS.
I. Any increase of the costs to manufacture, or to store, transport or handle at
BioShield's or its affiliates' facilities, either the products sold hereunder or
materials used in the manufacture of products sold hereunder, whether paid by
BioShield or an affiliate and caused by an increase in existing or the
imposition of any new taxes, excises, duties, environmental, superfund (excise),
or other governmental charges of any kind (imposed by any national, state or
municipal government or any agency or political subdivision thereof) shall be
added to the sales price and paid by Distributor. Further, any taxes, excises,
duties, environmental, superfund (excise), or other governmental charges of any
kind imposed upon the sale or purchaser, transportation, loading, or
off-loading, storage, importation or use of products sold hereunder, or any
services rendered in connection thereof, shall be paid by Distributor. Each
party shall, however, be responsible for income, franchise, gross receipts,
occupation, ad valorem property, AMT superfund, and other similar levies imposed
on its income or fixed assets, as well as any interest, penalties or fines
incurred in connection with a tax or other levy that is for that party's account
hereunder, unless such interest, penalty or fine is the result of the fault or
neglect of the other party.
Distributor shall furnish to BioShield all exemption certificates for
which it is entitled or authorized to issue with respect to any tax
imposed on the manufacture, sales, purchase, transportation, handling,
or use of the product sold hereunder.
J. Failure or delay by either party to insist on the strict performance of
any covenant, term, provision or condition hereunder, or to exercise
any option herein contained, or to pursue any claim arising herefrom,
will not constitute or be construed as a waiver of such covenant, term,
provision, condition, option, claim or right. Any waiver by either
party will not constitute or be construed as a waiver of such covenant,
term, provision, condition, option, claim or right. Any waiver by
either party will not constitute or be construed a continuing waiver of
any subsequent default.
K. This Agreement shall not be transferred or assigned by either party
without the written consent of the other party, except that BioShield
may transfer or assign this Agreement to a subsidiary or affiliate of
BioShield, or to a successor to the portion of BioShield's business
covered by this Agreement.
L. Notice to either party under any provision of this Agreement shall be
deemed good and sufficient if sent by registered or certified mail to
the last known post office address of such party, and shall be
effective upon the date of such mailing, otherwise on receipt.
M. This Agreement shall be construed in accordance with the laws of the state of
Georgia.
N. This Agreement constitutes the entire contract between the parties
concerning the sale or purchase of Product. Any previous agreements or
representations including those covering credit terms, freight
allowances and waivers of any other standard charges, are hereby
declared void. Any modification of or addition to this Agreement must
be expressly agreed to by the parties in writing, and may not be
effected by purchase order, sales confirmation, acknowledgment or
similar forms; provided, however, that BioShield may from time to time
modify Attachments I, II, and/or III, which Attachments are
incorporated into this Agreement by reference, and the modified terms
and conditions of said Attachments will apply to this Agreement, from
and after the date set forth in the notice of modification.
<PAGE>
ATTACHMENT II
PRODUCT SUPPLEMENT
Distributor: Date of this Supplement: 02/07/97
Superseded Supplement Date: 12/11/96
Date of Distributor Agreement: 02/07/97
1. Products
AM 500
SB 3651 P
AM 36.01
Estimated Annual Requirements
1997 - $ 500,000.00
1998 - $2,000,000.00
2. Distributor's "Territory for the above products are "The World."
3. Distributor may resell Products into the following markets:
Concrete and Sewer Pipes
4. The following customers are Excluded Customers: Precision Fabrics.
5. Distributor's discounts from list price are as follows: 10% List Price
(all 5 gallon pales add $5.00)
<TABLE>
<S> <C> <C> <C> <C> <C>
AM500 SB3651 P AM 36.01
5 Gallon Pale $6.50/LB 5 Gallon Pale $24.00/LB 5 Gallon Pale $21.00/LB
1-4 Drums $6.00/LB 1-4 Drums $22.00/LB 1-5 Drums $18.00/LB
5-49 Drums $5.50/LB 5-49 Drums $21.00/LB 5-49 Drums $17.00/LB
50-80 Drums $5.00/LB 50-80 Drums $20.50/LB 50-80 Drums $16.00/LB
</TABLE>
Received on: 2/7/97 Distributor: \s\ Edward Schwartz
By:__________________________________
ATLLIB01 434895.1
EXCLUSIVE SALES
AND DISTRIBUTORSHIP AGREEMENT
THIS EXCLUSIVE SALES AND DISTRIBUTORSHIP AGREEMENT ("Agreement") is
made as of the ____ day of October, 1997, by and between BIOSHIELD TECHNOLOGIES,
INC., a Georgia corporation having a place of business at 4405 International
Blvd., Suite B109, Norcross, Georgia 30093 ("Supplier"), and SANITARY COATING
SYSTEMS, LLP., a Florida corporation having a place of business at 5030 Champion
Blvd., Suite G6-264, Boca Raton, Florida 33496 ("Purchaser").
W I T N E S S E T H:
WHEREAS, Supplier has developed significant know-how and proprietary
technology in connection with antimicrobial and biostatic products; and
WHEREAS, Supplier desires to appoint Purchaser as its sole and
exclusive Purchaser for sales of the products and distributor for the use, sale
and marketing of said products in the coatings industry and Purchaser is willing
to accept such appointment from Supplier on the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, and other good and valuable consideration, the receipt
and adequacy of which hereby are acknowledged, the parties hereto agree as
follows:
(A) DEFINITIONS.
(1) The following terms shall have the following meanings:
"Affiliate" shall mean, with respect to any corporation or
non-corporate business entity which controls is controlled by, or is under
common control with a party to this Agreement.
"Agreement" shall mean this Agreement, including all Attachments hereto.
"Alliance Partner(s)" shall mean any third party including, but not
limited to strategic partners, sublicenses, distributors, co-promotion or
co-marketing partners: (1) to which Purchaser grants rights to make,
incorporate, have made, use, import, offer for sale, distribute or sell Products
or (ii) with which Purchaser enters into any supply contracts or service
agreements pertaining to any Products.
"Confidential Information" shall mean all non-public trade secrets,
proprietary technology, know-how, or other proprietary business or technical
information of a party hereto or an Affiliate of it heretofore or hereafter
disclosed to any party or its Affiliates, but shall not include any information
or document that (i) is or becomes in the public domain other than as a result
of a disclosure by a party or an Affiliate of it to whom such information was
supplied pursuant to this Agreement or any other agreement restricting the use
or disclosure of such information or documents (other than a disclosure approved
in writing by the party who, or whose Affiliate, supplied the information), (ii)
was or becomes lawfully available to the party of its Affiliate to whom such
information was supplied otherwise than by another party hereto, or (iii) was
generated independently by the party or its Affiliate to whom such information
was supplied without reference to non-public information furnished by another
party hereto or an Affiliate of it.
"Field of Use" shall mean the use of the Property in the coatings
industry, including residential latex indoor/outdoor paints and stains;
architectural and industrial paints, lacquer and maintenance coatings and
finishes including alkyd, eurathane, enamel, epoxy, siloxaline and novalac
products and systems, except textile coatings, anti-corrosion coatings,
fire-resistant coatings, and seacoast and under water coatings.
"Products" shall mean Supplier's total line of antimicrobial products
which uses Supplier's Property, or at any time during the Term of this
Agreement, formulated, conceived, processed, sold, offered for sale, treated,
promoted, blended, manufactured or otherwise handled by Supplier for the
designated end use in accordance with the Attachments hereto and such additions
or deletions thereto as the parties may hereafter mutually agree.
"Property" shall mean the Supplier's antimicrobial technology disclosed
in any of its U.S. Patent Applications and related foreign patent applications,
together with Supplier's antimicrobial technology being developed for which no
patent application has been filed or for which no patent has issued, and all of
Supplier's technical know-how and all enhancements, improvements and
modifications to such antimicrobial technology that are developed or otherwise
acquired by the Supplier before and during the Term of this Agreement for the
exclusive end use application in accordance with the Attachments hereto and such
additions or deletions thereto as the parties may hereafter mutually agree.
"Person" shall mean a natural person, corporation, business trust,
estate, trust, partnership, association, joint venture, government, governmental
subdivision or agency, or other legal or commercial entity.
"Sale" or "Sold" shall mean the sale, transfer, exchange or other
dispositions of Products whether by gift or otherwise.
"Territory" shall mean the entire world.
(2) Other Terms. Other capitalized terms shall have the
meanings ascribed to them elsewhere in this Agreement.
(B) EXCLUSIVE SALES AGREEMENT.
(1) Grant of Right. Supplier hereby grants to Purchaser and
its Affiliates an exclusive right to use, sell and market Products using the
Property, now and hereinafter developed by the Supplier, in the Field of Use in
the Territory during the Term of this Agreement as long as the conditions of
C(6)(a) below are satisfied and reasonable efforts and volume minimums are
maintained in accordance with Attachments II and III, as applicable.
(2) Notification. Purchaser shall notify Supplier promptly of
the circumstances of any unauthorized possession, manufacture, sale, use or
knowledge of any part of the Property.
(3) Implementation by Supplier.
a) Information. Supplier agrees to cooperate with
Purchaser to provide Purchaser and its Affiliates
with such information necessary to utilize the
Property and to provide Purchaser with technical
support as may be necessary for Purchaser to
effectively market the Products.
b) Pricing. Supplier shall develop a Property Price
List which shall set forth the sales price of the
Products to be purchased by Purchaser. An initial
Property Price List is contained in Attachments
II and III. Such prices include all royalty fees
to be paid by Purchaser, and no additional
royalty fee shall be paid by Purchaser, except as
provided in Section C(4) below. Supplier may
increase or decrease its prices on the Property
Price List, upon reasonable notice to Purchaser.
(4) Disclosure of Information.
(a) Sharing of Information. The parties agree to
disclose such information to one another to the
extent necessary to carry out the purposes of
this Agreement; provided, however that no party
shall be required to make any disclosure of any
information in contravention of any legal
obligation. Purchaser shall provide to Supplier,
upon Supplier's written request, copies of any
and all data and written reports relating to the
Property, in reasonable detail to permit
Supplier to continue research and development of
the Property.
(b) Confidentiality. For the Term of this Agreement and a period of ten (10)
years --------------- from the date of termination or expiration of this
Agreement for any reason whatsoever, and with respect to Confidential
Information which may be deemed a trade secret, for so long as such Confidential
Information remains a trade secret, each party hereto shall maintain as
confidential all Confidential Information heretofore or hereafter disclosed by
the other party, and shall not, directly or indirectly, disclose any such
Confidential Information to any Person, corporation or entity other than those
employees, agents, advisers, suppliers or consultants of such party whose duties
justify the need to know such Confidential Information and then only on the
basis of a clear understanding by such employees, agents, advisers, suppliers or
consultants of their obligation to protect the confidentiality of such
Confidential Information and to restrict the use of such Confidential
Information. The recipient party shall be liable hereunder for any unauthorized
disclosure by such employees, agents, advisers, suppliers or consultants.
Moreover, neither party shall use, directly or indirectly, for its benefit or
the benefit of any Affiliate or other person, corporation or entity any such
Confidential Information except for the purpose specified herein. If a party
hereto determines that a disclosure is required by law, that party shall give
the other party supplying such Confidential Information prior written notice in
order to provide such party an opportunity to seek an injunction or otherwise
attempt to keep such information confidential. Except as provided otherwise
herein, at the written request of the party supplying Confidential Information,
the other party shall destroy or return any and all such data and information
without retaining copies when this Agreement expires or terminates.
(c) Disclosure. Marketing the Property in the Field
of Use within the Territory during the Term of
this Agreement by Supplier without the express
written consent of the Purchaser is prohibited.
(5) Representation and Warranties; Indemnification.
(a) Representations and Warranties. Supplier
represents and warrants that (i) it possesses
the right to grant the rights hereunder and
that the exercise of rights hereunder and the
use of the Property in the Field of Use does
not infringe upon the rights of third parties;
and (ii) the Products delivered by it pursuant
to this Agreement shall be in accordance with
the Supplier's product specifications and other
technical information as published from time to
time.
(b) Indemnification. Supplier agrees to indemnify Purchaser and its Affiliates
- --------------- against liabilities, losses, costs, damages and expenses
(including, without limitation, court costs and attorneys' fees) relating to any
action against Purchaser arising from a breach of the warranty above, provided,
however, such -------- ------- liabilities, losses, costs, damages and expenses
were not caused by Purchaser's or its Affiliates' enhancements, improvements, or
modifications to the Property or by Purchaser's or its Affiliates' acting in a
manner inconsistent with this Agreement, and provided Purchaser or its
Affiliates, as applicable, has promptly notified Supplier with respect to such
claim. Failure of Purchaser or its Affiliates to so notify Supplier promptly of
any such claim shall not relieve Supplier of its indemnification obligation
hereunder, except to the extent such failure has prejudiced or impeded
Purchaser's ability to defend or settle such claims.
(c) Infringement Action. If any notice is given to Purchaser, or any suit is
- -------------------- brought against Purchaser by a third party, charging
infringement of a patent due to the using or selling of the Property, Purchaser
shall give Supplier prompt written notice thereof. The parties shall promptly
thereafter discuss the course of action to be followed and shall attempt to
decide by written agreement to either (i) make modifications which will avoid
infringement of such patent without significantly affecting the economics of
Purchaser's operations, or (ii) accept a license for Purchaser under such
patent, or (iii) contest the alleged infringement. If the alleged infringement
is contested, Supplier shall have control of any such litigation through counsel
of its choice. Purchaser shall cooperate with Supplier in any litigation arising
out of such alleged infringement, and shall, upon reasonable notice, make
available its employees, officers, directors or managers to testify when
requested by Supplier and shall make available to Supplier all relevant papers,
records, information, data and the like.
(d) Limitations on Liability Relating to
Property. EXCEPT FOR THE EXPRESS WARRANTIES
CONTAINED IN THIS AGREEMENT, SUPPLIER MAKES
NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR
IMPLIED, IN FACT OR IN LAW, RELATING TO THE
PROPERTY, ALL OF WHICH HEREBY ARE EXPRESSLY
DISCLAIMED.
(e) Prior Disclosure. Except for pilot study
information and information in any issued
patent, Supplier has not disclosed the
Property to any other party in the Field of
Use.
(C) EXCLUSIVE DISTRIBUTORSHIP AGREEMENT.
(1) Appointment of Distributor of Products. Supplier hereby
appoints Purchaser, for the Term hereof, as sole and exclusive distributor for
the use, sale and marketing of Supplier's Products in the Field of Use in the
Territory. Supplier shall not sell or cause to be sold, directly or indirectly,
or appoint any other distributor or agent for the sale of such Products in the
Territory, as long as the conditions in C(4) below are satisfied and reasonable
efforts are maintained and volume projections are met in accordance with
Attachments II and III, as applicable.
(2) Obligations of Purchaser. Purchaser agrees:
(a) To use best efforts in the sale of Products
in the Field of Use, maintain an effective
sales force and to provide professional
service to its customers. For purposes of
this Agreement, "best efforts" shall mean
that the Purchaser shall use efforts
consistent with those used by other
comparable companies in the United States;
(b) Not to make any representations or
warranties concerning Products, except with
the express prior written authorization of
Supplier;
(c) To provide annual sales forecasts and such
other reports as Supplier may reasonably
request from time to time;
(d) To use best efforts to promote and sell
Supplier's cleaning and maintenance products
to its customers;
(e) To have the Supplier's name and trademarks
included in all product labeling and advertising;
and
(f) To timely make all payments for product purchases and royalty fees due under
the provisions of Section 4 below.
(3) Shipments. Times and amounts of individual shipments will
be established by Purchaser's purchase orders. Supplier will make shipment in
steel or plastic drums or containers or in tank truck or tank cars, as requested
by Purchaser and agreed by Supplier, in accordance with Supplier's packaging and
transportation terms in effect at time of shipment. Title to and risk of loss of
Products shall pass to Purchaser at point of shipment.
(4) Payments by Purchaser.
(a) Price. Purchaser agrees to pay for all Products shipped by Supplier
hereunder ------ the prices shown on Supplier's price lists in effect at the
time of shipment, and in accordance with Attachments II and III, at the terms
and less volume or other discounts as agreed to by the parties. Price
reductions, including, but not limited to, volume and other discounts, shall be
effective immediately upon announcement. All sales terms are FOB (as defined in
INCOTERMS 1990, ICC Publication No. 460) Supplier's manufacturing facility
unless otherwise noted. For shipments outside of the United States, title to
Products will pass to Purchaser immediately upon entering the foreign country of
destination.
(b) Royalties.
(1) Signing Fee. Purchaser agrees to pay
Supplier a signing fee in the amount of
$50,000 within thirty (30) days of execution
of this Agreement.
(2) Running Royalty. Purchaser agrees to pay
to the Supplier a royalty equal to ten
percent (10%) of the net Selling Price of
any Product, Services, and Consulting Fees
earned by the Purchaser, less the cost of
the Products, on any all Products sold by
the Purchaser. The royalty payments will be
due at the conclusion of each quarter of the
fiscal year of the Purchaser commencing at
the conclusion of the first quarter of 1998.
(3) Annual Minimum Royalty. Commencing on
January 1, 1998 and for each calendar year during the
term of this Agreement, Purchaser agrees to make a
payment to Supplier together with its quarterly
report activities as required herein, equal to the
difference between the Annual Minimum Payment
indicated below, and the total of the running royalty
and other fees paid to Supplier during the Calendar
year. The payments will be made within forty-five
(45) days of the close of each quarterly period.
Calendar Year Annual Minimum
1/1/98 - 12/31/98 $75,000
1/1/99 - 12/31/99 $150,000
1/1/2000 - 12/31/2000 $200,000
1/1/2001 - 12/31/2001 $250,000
1/1/2002 - 12/31/2002 $300,000
1/1/2003 - 12/31/2003 $400,000
1/1/2004 - 12/31/2004 $500,000
1/1/2005 - 12/31/2004 $600,000
1/1/2006 - 12/31/2006 $700,000
1/1/2007 - 12/31/2007 $800,000
1/1/2008 - 12/31/2008 $1,000,000
(c) Other Payments.
Research and Development Fee. Purchaser
agrees to pay Supplier the sum of $50,000 over a
period of twenty-four (24) months from the date of
this Agreement, in equal payments per month, to be
used by the Supplier for research and development of
products, product improvement and patent execution
for the Purchaser.
(5) Payment Terms.
(a) Invoices. Purchaser agrees to pay Supplier's
invoices within thirty (30) days from the
date thereof.
(b) Royalties. Purchaser agrees to pay all
royalties under this Agreement with the
Fiscal Report, within forty-five (45) days
of the close of the quarterly period in
which the royalty payment is due.
(6) Financial Responsibility. Should the Supplier reasonably
be concerned with respect to the Purchaser's financial responsibility, Supplier
shall first provide written notice of such concerns to Purchaser, together with
a request for assurances by Purchaser that invoices shall be paid in accordance
with this Agreement. Should Purchaser fail to provide such assurances to
Supplier within fifteen (15) days after receipt of the request, Supplier shall
have the right, apart from any other legal remedy, to require Purchaser to pay
for Products in advance as ordered, and to cancel orders or delay shipments to
Purchaser or its customers for which no payment has been made, until payment is
made.
(7) Fiscal Reports. During the term of this Agreement,
Purchaser shall furnish, or cause to be furnished, to Supplier, written fiscal
reports on a quarterly basis showing (a) the gross selling price of all Products
sold by Purchaser during the reporting period and the net Selling Price less the
cost of the Products; and (b) royalties in Dollars, which have been accrued
hereunder in respect to such sales. Quarterly reports shall be due within
forty-five (45) days of the close of each quarter, except for quarterly reports
which close a calendar year which shall be due within ninety (90) days after
year end.
(8) Patent Execution. Supplier shall be primarily responsible
for all patent execution activities pertaining to the Product and the Field of
Uses. Supplier shall select counsel, maintain and handle any litigation,
interference, or any action pertaining to the validity, enforceability,
allowability or subsistence of all such patents.
(9) General Terms and Conditions.
(a) Term. Unless sooner terminated as otherwise provided in this Agreement, the
- ----- term of this Agreement shall commence the date of this Agreement and shall
continue in full force and effect for ten (10) years (the "Term"), and shall be
renewable for additional 10 year periods as agreed by the parties. This
Agreement may be automatically terminated by the Supplier upon the occurrence of
any one or more of the following events, provided that the Supplier has given
Purchaser written notice of the event within fourteen (14) days of the event's
occurrence and Purchaser has failed to cure the breach described in such notice
within sixty (60) days of receipt of such notice: (i) failure of the Purchaser
to make any payment required pursuant to this Agreement; (ii) failure of the
Purchaser to render reports to Supplier as required by this Agreement; and (iii)
the institution of any proceedings by the Purchaser under any bankruptcy,
insolvency, or moratorium law, or any assignment by Purchaser of substantially
all of its assets for the benefit of creditors. Upon termination for any reason,
this Agreement shall continue in force and effect as necessary for the parties
hereto to perform their respective obligations to third parties (existing at the
time of such termination) relating to this Agreement.
(b) Advertising. Nothing in this Agreement shall
be construed as conferring to Purchaser a
right to use in advertising, publicity, or
otherwise any trademark, trade name, trade
dress, or trade designation of Supplier
without Supplier's prior written consent.
(c) No Partnership. Purchaser shall be for all
purposes an independent, contractor, and not
an employee or agent of Supplier. Purchaser
assumes full responsibility for, and will
hold Supplier harmless against, all payments
required by any authority for, to or on
behalf of Purchaser's employees or agents.
Purchaser is not authorized or empowered in
any manner to accept service or other notice
addressed to it in any manner upon Supplier
or to submit Supplier to the jurisdiction of
any court or government agency whatever.
(d) Force Majeure. Failure of Supplier or Purchaser to order, to take, or to
make -------------- any one or more deliveries, if occasioned by any cause
beyond the reasonable control of either of said parties of any nature,
character, or kind whatsoever, shall not affect the remainder of this Agreement,
nor subject the one so failing to any liability to the other because thereof.
Without limiting the liability of the foregoing language, such causes shall
include fire, storm, flood, acts of God, war, explosion, sabotage, strikes or
other labor trouble, embargo, expropriation of plant, Product and/or raw
materials in whole or in part by Federal or State authorities, acts of the
Federal Government, any State or local Government, or any agency thereof, and
any other like occurrence causing extreme interference with the production or
transportation of Products.
(e) Information. Purchaser agrees that it will supply to all of its customers
- ----------- Product information as provided by Supplier. Purchaser will rely
solely on Supplier's representations regarding the safety, strength, storage,
environmental and other aspects of the Products. Such information includes
material safety data sheets, product specification bulletins and other
information appropriate to the customer's specific operations. Purchaser agrees
to place Supplier-approved labels on drums filled by Purchaser on Purchaser's
storage tanks and to recommend that its customers for Products use such labels
on all of their drums and storage vessels. Supplier will also supply additional
information for safe and legal shipping as needed by the Purchaser's customers.
(f) Reconsignment. If shipment is made in tank
cars or tank trucks furnished by Supplier,
Purchaser will unload said shipments
promptly after placement by carrier, and no
reconsignment of Supplier's tank cars or
tank trucks shall be made by Purchaser
without the written consent of Supplier.
(g) Insurance. Supplier shall maintain
appropriate general and product liability
insurance in respect of the sale of the
Products in North America and Mexico in an
amount to be agreed upon by the parties.
Supplier shall cause Purchaser to be named a
co-insured on such insurance policy and
shall, at the request of Purchaser, provide
certificates of insurance to such effect.
(h) Taxes. Each party shall be responsible for
income, franchise, gross receipts,
occupational, ad valorem property, and other
similar levies imposed on its income or
fixed assets, as well as any interest,
penalties or fines incurred in connection
with a tax or other levy that is for that
party's account hereunder, unless such
interest, penalty or fine is the result of
the fault or neglect of the other party.
(i) No Waiver. Failure or delay by either party to insist on the strict
- ---------- performance of any covenant, term, provision or condition hereunder,
or to exercise any right herein contained, or to pursue any claim arising
herefrom, will not constitute or be construed as a waiver of such covenant,
term, provision, condition, claim or right. Any waiver by either party will not
constitute or be construed as a waiver of such covenant, term, provision,
condition, claim or right. Any waiver by either party will not constitute or be
construed a continuing waiver of any subsequent default.
(j) Assignment. Neither Supplier nor Purchaser shall assign this Agreement nor
any ---------- rights or interests hereunder to any Person, firm or corporation
without the prior written consent of the other party, except that, without such
consent, Purchaser may assign this Agreement to any parent or subsidiary of
Purchaser or any subsidiary of its parent entity or to any corporation that
succeeds substantially to all of its business with respect to the Products by
merger, sale of assets, or otherwise. All of the terms and provisions of this
Agreement, whether so expressed or not, shall be binding upon, inure to the
benefit of, and be enforceable by the parties and their respective
representatives, successors and permitted assigns.
(k) Sub-Distributors. Purchaser shall be
entitled, without Supplier's prior consent,
to appoint sub-distributors or agents in
respect of the Products anywhere in the
Territory so long as sub-distributors comply
with the provisions of this Agreement.
(1) Governing Law. This Agreement shall be construed in accordance with the laws
of the State of Georgia.
(m) Arbitration. Any controversy or claim (whether such claim sounds in
contract, ----------- tort, discrimination, or otherwise) arising out of or
relating to this Agreement, or the breach thereof, or the commercial or economic
relationship of the parties hereto, shall be settled by binding arbitration in
Atlanta, Georgia in accordance with the Expedited Procedures (Rules 53-57) of
the Commercial Arbitration Rules of the American Arbitration Association
("AAA"). The arbitration shall be governed by the U.S. Arbitration Act, 9
U.S.C.ss.ss.1-16, to the exclusion of any provisions of state law inconsistent
therewith or which would produce a different result. A proceeding shall be
commenced upon written demand by Purchaser or Supplier to the other. The
arbitrator(s) shall enter a judgment by default against any party which fails or
refuses to appear in any properly noticed arbitration proceeding. The proceeding
shall be conducted by one (1) arbitrator, unless the amount alleged to be in
dispute exceeds two hundred fifty thousand dollars ($250,000), in which case
three (3) arbitrators shall preside. The arbitrator(s) will be chosen by the
parties from a list provided by the AAA, and if they are unable to agree within
ten (10) days, the AAA shall select the arbitrator(s). The arbitrators must be
experts in licensing and distributorship law. The arbitrators shall assess costs
and expenses of the arbitration, including all attorneys' and experts' fees, as
the arbitrators believe is appropriate in light of the merits of the parties'
respective positions in the issues in dispute. Each party submits irrevocably to
the jurisdiction of any state court sitting in Gwinnett County, Georgia or to
the United States District Court for the Northern District of Georgia for the
purposes of enforcement of any discovery order, judgment or award in connection
with such arbitration. The award of the arbitrator(s) shall be final and binding
upon the parties and may be enforced in any court having jurisdiction. The
arbitration shall be held in such place as set by the arbitrator(s) in
accordance with Rule 55.
(n) Entire Agreement; Modification. This Agreement constitutes the entire
- ---------------------------------- agreement between the parties (including
Attachments II and III) relating to the subject matter hereof. Any previous
agreements or representations, including those covering credit terms, freight
allowances and waivers of any other standard charges, are hereby declared void.
Any modification of or addition to this Agreement must be expressly agreed to by
the parties in writing, and may not be effected by purchase order, sales
confirmation, acknowledgment or similar forms.
(o) Enforceability. In the event any provision
of this Agreement shall be declared
unenforceable, such provision shall be
deemed severed from this Agreement and the
parties shall meet and negotiate in good
faith to replace such unenforceable
provision with another provision intending
to carry out the intent of the unenforceable
provision to the extent permitted by
applicable law.
(p) Notices. All notices, requests and other communications hereunder shall be
in ------- writing and shall be deemed given and effective five (5) business
days after being mailed first class, certified or registered mail, postage
prepaid, return receipt requested, addressed as set forth below, or two (2) days
after being sent by overnight courier, telex, or telecopy (by a machine that
indicates the telex or telecopy number of the machine to whom such communication
is sent and the receipt by such machine of such communication) to the address or
telecopy number first above written, or, in each case, at such other address or
to such other person as the party may specify in writing.
(q) Headings; Counterparts. The headings
contained in this Agreement are for
reference purposes only and shall not affect
in any way the meaning or interpretation of
this Agreement. This Agreement may be
executed in counterparts, each of which
shall be deemed an original but all of which
together shall constitute the same
agreement.
IN WITNESS WHEREOF, the parties hereto have executed this EXCLUSIVE
SALES AND DISTRIBUTORSHIP AGREEMENT as of the date first above written.
SUPPLIER: PURCHASER:
BIOSHIELD TECHNOLOGIES, Sanitary Coating Systems, LLP
INC., a Georgia corporation a Florida corporation
By: __________________________________ By: ___________________________________
Title: _________________________________Title: _________________________________
[CORPORATE SEAL] [CORPORATE SEAL]
<PAGE>
ATTACHMENT I
General Terms and Conditions of Distributorship Agreement
A. Nothing in this Agreement shall be construed as conferring a right to
use in advertising, publicity, or otherwise any trademark, trade name,
trade dress, or trade designation of BioShield.
B. Purchaser shall be for all purposes an independent contractor, and not
an employee or agent of BioShield. Purchaser may not bind BioShield on
any matter. Purchaser assumes full responsibility for, and will hold
BioShield harmless against, all payments required by any authority for,
to or on behalf of Purchaser's employees or agents. Purchaser is not
authorized or empowered in any manner to accept service or other notice
addressed to it in any manner upon BioShield or submitting BioShield to
the jurisdiction of any court or government agency whatever.
C. Failure of Purchaser to order or to take, or of BioShield to make, any one or
more deliveries, if occasioned by any cause beyond the reasonable control of
either of said parties of any nature, character, or kind whatsoever, shall not
affect the remainder of this Agreement, nor subject the one so failing to any
liability to the other because thereof and, Purchaser may purchase else where
the product required by it during the period or periods of BioShield's failure
to make deliveries if occasioned by any such cause or causes. Without limiting
the liability of the foregoing languages, such causes shall include: fire,
storm, flood, act of God, war, explosion, sabotage, strike or other labor
trouble, shortage of labor and/or raw materials, utilities, fuel and/or energy,
embargo, car shortage, accident, expropriation of plant, Product and/or raw
materials in whole or in part by Federal or State authority, inability to secure
machinery and/or other equipment for the manufacture of Product, acts of the
Federal Government, any State or local Government, or any agency thereof and,
any other like cause interfering with the production, transportation or
consumption of Product.
D. In the event of a shortage or anticipated shortage of Product and/or delay in
shipment or delivery occasioned by any of the causes before mentioned or any
like causes, BioShield will endeavor to allocate equitably the available Product
among its customers and distributors, to BioShield's own internal use and to the
use of its affiliates. In the case of a shortage or anticipated shortage of
labor, raw materials, utilities, fuel or energy. BioShield will endeavor to
allocate equitably the available labor, raw materials, utilities, fuel and
energy to use in the product covered by this contract to BioShield's own
internal use, to the use of its affiliates and to the use in other products. The
equity of any such allocations made by BioShield in the exercise of its
discretion shall be conclusive and binding upon Purchaser. BioShield shall not
be obligated to make up any deficiencies hereunder due to any such cause except
by written mutual agreement of the parties hereto.
E. Purchaser agrees that it will supply to all of its customers Product
information which impacts upon the medical, safety, and environmental
aspects of handling, storing and using such Products. Such information
includes material safety data sheets, product specification bulletins
and other information appropriate to the customer's specific
operations. Purchaser further agrees to place proper BioShield, or
BioShield approved, labels on drums filled by Purchaser, on Purchaser's
storage tanks and to recommend that its customers for Products use such
labels on all of their drums and storage vessels. Purchaser will also
supply additional information for safe and legal shipping as needed by
his customers for Product.
F. If shipment is made in tank cars or tank trucks furnished by BioShield,
Purchaser will unload said shipments promptly after placement by
carrier and no reconsignment of BioShield's tank cars or tank trucks
shall be made by Purchaser without the written consent of BioShield.
Tank cars or tank trucks held by Purchaser in excess of BioShield's
published schedule of demurrage free time will be subject to demurrage
at rates in Attachment II and III hereto.
G. BIOSHIELD MAKES NO WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING
NO WARRANTY OF MERCHANTABILITY, EXCEPT THAT THE PRODUCT SOLD HEREUNDER
SHALL BE FROM BIOSHIELD'S STANDARD PRODUCTION THEREOF AND MEET
BIOSHIELD'S PUBLISHED SPECIFICATION; AND, PURCHASER ASSUMES ALL RISK
AND LIABILITY FOR RESULTS OBTAINED BY THE USE OF THE PRODUCTS COVERED
BY THIS AGREEMENT, WHETHER USED SINGLY OR IN CONJUNCTION WITH OTHER
MATERIALS EXCEPT AS PROVIDED IN SECTION B(6) OF THIS AGREEMENT..
H. NO CLAIM OF ANY KIND, WHETHER AS TO THE PRODUCT DELIVERED OR FOR
NON-DELIVERY OF THE PRODUCT, OR OTHERWISE, SHALL BE GREATER IN AMOUNT
THAN THE PURCHASE PRICE OF THE PRODUCT IN RESPECT OF WHICH SUCH DAMAGES
ARE CLAIMED; AND, FAILURE TO GIVE NOTICE OF CLAIM WITHIN THIRTY (30)
DAYS FROM DATE OF DELIVERY, OR THE DATE FIXED FOR DELIVERY,
RESPECTIVELY, SHALL CONSTITUTE A WAIVER BY THE PURCHASER OF ALL CLAIMS
WITH RESPECT THERETO. IN NO EVENT WILL BIOSHIELD BE LIABLE FOR LOSS OF
PROFITS OR INCIDENTAL OR CONSEQUENTIAL DAMAGES OF PURCHASER OR
PURCHASER'S CUSTOMERS EXCEPT AS PROVIDED IN SECTION B(6) OF THIS
AGREEMENT.
I. Any increase of the costs to manufacture, or to store, transport or handle at
BioShield's or its affiliates' facilities, either the products sold hereunder or
materials used in the manufacture of products sold hereunder, whether paid by
BioShield or an affiliate and caused by any increase in existing or the
imposition of any new taxes, excises, duties, environmental, superfund (excise),
or other governmental charges of any kind (imposed by any national, state or
municipal government or any agency or political subdivision thereof) shall be
added to the sales price and paid by Purchaser. Further, any taxes, excises,
duties, environmental, superfund (excise), or other governmental charges of any
kind imposed upon the sale or purchase, transportation, loading or off-loading,
storage, importation or use of products sold hereunder, or any services rendered
in connection thereof, shall be paid by Purchaser. Each party shall, however, be
responsible for income, franchise, gross receipts, occupational, ad valorem
property, AMT superfund, and other similar levies imposed on its income or fixed
assets, as well as any interest, penalties or fines incurred in connection with
a tax or other levy that is for that party's account hereunder, unless such
interest, penalty or fine is the result of the fault or neglect of the
other party.
Purchaser shall furnish to BioShield all exemption certificates for
which it is entitled or authorized to issue with respect to any tax
imposed on the manufacture, sales, purchase, transportation, handling
or use of the product sold hereunder.
J. Failure or delay by either party to insist on the strict performance of
any covenant, term, provision or condition hereunder, or to exercise
any option herein contained, or to pursue any claim arising herefrom,
will not constitute or be construed as a waiver of such covenant, term,
provision, condition, option, claim or right. Any waiver by either
party will not constitute or be construed as a waiver of such covenant,
term, provision, condition, option, claim or right. Any waiver by
either party will not constitute or be construed a continuing waiver of
any subsequent default.
K. This Agreement shall not be transferred or assigned by either party
without the written consent of the other party, except that BioShield
may transfer or assign this Agreement to a subsidiary or affiliate of
BioShield, or to a successor to the portion of BioShield's business
covered by this Agreement.
L. Notice to either party under any provision of this Agreement shall be
deemed good and sufficient if sent by registered or certified mail to
the last known post office address of such party, and shall be
effective upon the date of such mailing, otherwise on receipt.
M. This Agreement shall be construed in accordance with the laws of the state of
Georgia.
N. This Agreement constitutes the entire contract between the parties concerning
sale or purchase of Product. Any previous agreements or representations
including those covering credit terms, freight allowances and waivers of any
other standard charges, are hereby declared void. Any modification of or
addition to this Agreement must be expressly agreed to by the parties in
writing, and may not be effected by purchase order, sales confirmation,
acknowledgment or similar forms; provided, however, that BioShield may from time
to time modify Attachments I, II and/or III, which Attachments are incorporated
into this Agreement by reference, and the modified terms and conditions of said
Attachments will apply to this Agreement, from and after the date set forth in
the notice of modification.
<PAGE>
Attachment II
PRODUCT SUPPLEMENT
Purchaser: Date of this Supplement: 10/00/97
Superseded Supplement Date: 00/00/00
Date of Purchaser Agreement: 10/00/97
1. Products
AM 500
SB 3651 P
AM 36.01
SP8260L
Estimated Annual Requirements
1998 - 2008 See Agreement
2. Purchaser's "Territory for the above products are "The World".
3 Purchaser may resell Products into the following markets: Coatings Industry
4. List Price (all 5 gallon pales add $6.00)
<TABLE>
<S> <C> <C> <C> <C> <C>
AM500 SB 3651 P AM 36.01
- -----
5 Gallon Pale $6.50/LB 5 Gallon Pale $24.00LB 5 Gallon Pale $21.00/LB
1-4 Drums $6.00/LB 1-4 Drums $22.00/LB 1-5 Drums $18.00/LB
5-49 Drums $5.50/LB 5-49 Drums $21.00/LB 5-49 Drums $17.00/LB
50-80 Drums $5.00/LB 50-80 Drums $20.50/LB 50-80 Drums $16.00/LB
SP8260C
0-20 drums $35.00/LB.
21 + drums $33.00/LB.
</TABLE>
5. Purchaser's volume discounts from list price are as follows:
1-48 drums - 10% Discount
49 + drums - 35 % Discount
Received on: _________________________ Purchaser:_________________________
By:_________________________________
