AMENDMENT NO.2
FORM SB-2
REGISTRATION STATEMENT
under the
SECURITIES ACT OF 1933
BIOSHIELD TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
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<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)
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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 Renaissance Tower
1201 Elm Street
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.
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Calculation of Registration Fee
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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)
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Units 862,500 $11.00 $9,487,500 $2,799
Common Stock, no
par value (2) 1,725,000 (2) (2) (2)
Redeemable Common Stock
Purchase Warrants (2) 1,725,000 (2) (2) (2)
Common Stock, no
par value (3) 1,725,000 $13.20 $22,770,000 $6,717
Underwriters' Warrants (4) $75,000 $0.01 $100 $1
Units Underlying the
Underwriters' Warrants $75,000 $13.20 $990,000 $292
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 (3)(6) $ 75,000 $13.20 $990,000 $292
Total $27,007,575 $10,101
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(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.
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SUBJECT TO COMPLETION, DATED SEPTEMBER 14, 1998
PROSPECTUS
BioShield Technologies, Inc.
750,000 Units
Consisting of 1,500,000 Shares of Common Stock and
1,500,000 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 two Redeemable Common Stock Purchase
Warrants (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, Inc. to the Company. Each Warrant entitles
the holder thereof to purchase one share of Common Stock at an exercise price
per share of 120% of the Initial Public Offering price 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 6 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 for the Common Stock has equalled or exceeded
[200% of the offering price]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 $10.00-$11.00 per Unit. See "Underwriting" for information relating to the
factors considered in determining the initial public offering price. The Company
has applied 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.
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 Units 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 $423,540 payable by the Company,
including the Representative's 2.00% nonaccountable expense allowance. The
Selling Shareholders will pay a pro-rata portion of the selling expenses if the
over-allotment option is exercised. 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 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 225,000 Warrants 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 Tejas Securities Group, Inc. in
Dallas, Texas
on or about September , 1998.
Tejas Securities Group, Inc.
Redstone Securities, Inc.
Seaboard Securities, Inc.
The date of this Prospectus is September ,1998
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 The 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."
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
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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 48.
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 in the early stages of 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 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. See
"Business Agreements."
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
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The Offering
Securities offered hereby............................ 750,000 Units, each
Unit consisting of two shares of Common Stock and two Warrants, each Warrant
entitling the holder to purchase one share of Common Stock at a price per share
of 120% of the initial public offering price until (September ____), 2003. See
"Description of Securities."
Description of the Warrants.......................... The Warrants are not
immediately exercisable and are not transferable separately from the Shares
until (September ____), 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)(5)................... 6,344,125 Shares
Warrants to be outstanding
after the Offering (1)(2)(3)(4)...................... 1,500,000
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."
Proposed Nasdaq Symbols
Units................................................ "BSTI.U"
Common Stock......................................... "BSTI"
Warrants............................................. "BSTI.W"
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(1) Does not include an aggregate of (i)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, of which 30,000 options have been issued
and 30,000 of such options are currently exercisable,and the Company's 1996
Directors Stock Option Plan (the "Directors Plan"), of which 240,000 options
have been issued and 120,000 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 1,725,000 shares issuable upon
exercise of (i) the Warrants, and (ii) the over-allotment option and (iii) the
Underwriters' Warrants.
(3) Does not include up to 75,000 Units underlying the Underwriters' Warrants
consisting of 150,000 shares, of Common Stock and 75,000 Warrants.
(4) Does not include an aggregate of 199,167 shares of Common Stock reserved for
issuance upon exercise of outstanding warrants at a weighted average price of
$0.50 per share, 90 warrants to purchase a total of 450,000 shares of Common
Stock at an exercise price per share equal to the initial public offering price,
one (1) warrant to purchase 40,000 shares of Common Stock at an exercise price
per share equal to 110% of the initial public offering price, options to
purchase 30,000 shares issued to employees pursuant to the Company's 1997 Stock
Incentive Plan at a price of $1.00 per share, and options to purchase 240,000
shares issued under the Director Plan of which 120,000 are exercisable at $2.00
per share and 120,000 are exercisable at $5.00 per share. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
(5) Includes subsequent exercise of warrants for the purchase of 449,085 shares.
4
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Selected Financial Information
The following selected financial data has been derived from the audited
balance sheets of the Company as of June 30, 1997 and 1998, audited income
statements for the fiscal periods ended June 30, 1998, 1997 and 1996. 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."
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Fiscal Periods Ended June 30,
1996 1997 1998
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Operating Data:
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sales $ 0 $775,315 $462,471
Cost of sales 0 315,822 154,658
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Gross profit 0 459,493 307,813
Operating expenses 386,217 987,353 1,764,909
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Operating loss (386,217) (527,860) (1,457,096)
Net loss (356,316) (514,459) (1,471,929)
Basic net loss per common share $ (0.09) $ (0.12) $ (0.33)
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June 30,
June 30,1997 1998 1998
------------ ----------- -------
As Adjusted (1)
Balance Sheet Data:
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Working capital (deficit) $ 114,665 $(1,026,275) $5,639,819
Current assets 590,477 272,001 6,045,962
Current liabilities 475,812 1,298,276 406,143
Total assets 692,938 437,623 6,211,584
Total liabilities 475,812 1,298,276 406,143
Accumulated deficit (870,775) (2,342,704) (2,342,704)
Shareholder's equity (deficit) 217,126 (860,653) 5,805,441
Common shares outstanding 4,364,421 4,395,040 5,895,040
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(1) Adjusted to reflect the sale of the Units offered by this prospectus at an
offering price of $ 10.50 per $6,666,094. These amounts do not reflect a capital
contribution of $325,000 and the exercise of warrants for the purchase of
449,085 shares at an exercise price of $0.50 per share. Both transactions
occurred subsequent to June 30, 1998.
5
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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 hereby. Except for
historical information contained herein, this Prospectus may contain
forward-looking statements within the meaning of ss.27A of the Securities Act of
1934, as amended.
Development Stage Company; Uncertainty of Product Development; Limited Operating
History; Substantial Accumulated Earnings Deficit; Negative Working Capital;
Negative Net Worth; Negative Net Tangible Book Value.
The Company was organized in June 1995 and is 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. No assurances can be given that any such approvals will be
obtained. 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 As of
June 30, 1998, the Company had a substantial accumulated earnings deficit of
($2,342,704), a negative working capital of ($1,026,275), a negative net worth
of ($860,653) and a negative net tangible book value of ($860,653).
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
$1,277,694 since 1995. Moreover, the Company has incurred significant losses,
including losses of $356,316, $514,459, and $1,471,929 for the years ended June
30, 1996, 1997, and 1998, respectively. For the years ended June 30,1996, and
1997, and 1998, the Company recorded product sale revenues of $0, $775,315, and
$462,471. 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 last 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 Statements.nd Results of
Operations," "Business" and Financial
Business Concentration.
The Company is dependent upon a small base of customers for the
majority of its net sales. Sales to two customers totaled approximately $151,000
or 33% of total sales for the period ended June 30, 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
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Ability to Continue as a Going Concern; Significant Capital Requirements;
Dependence on Proceeds of This Offering; Need for Additional Capital.
Note J of the Company's Financial Statements included herein state that
the Company's continued existence as a going concern is ultimately dependent
upon the success of the future operations and its ability to obtain additional
financing. 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 $1,153,001.
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, combined with
projected revenues, will only be sufficient to satisfy the Company's estimated
cash requirements for approximately twelve (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. The FDA has
recently increased its scrutiny and regulation of antimicrobial and antiviral
agents, and accordingly, no assurance can be given that the FDA will act
favorably or quickly review any such application by the Company or otherwise
find any submission by the Company to be adequate. 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.
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.
7
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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
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
The Company will be able to successfully enhance its existing products or
develop or acquire new products. See "Business--Competition."
8
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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."
Product Liability Exposure; Uncertainty of Availability of Insurance.
The Company's business exposes it to potential product liability risks
that 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 has obtained general liability
insurance, which includes 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; No Chief Financial Officer.
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 is 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 does not have and is seeking the services of an
experienced Chief Financial Officer. The inability to retain a qualified Chief
Financial Officer may have a material adverse effect on the Company's future
business operations. See "Management."
Broad Discretion by Management in Application of Proceeds.
Although the Company currently intends to use approximately $528,961 (7.9%) for
regulatory consultants; 1,000,000 (15%) for retail and advertising campaign;
$250,000 (3.8 %) for leasehold improvements and laboratory equipment; $892,133
(13.4 %) to repay certain promissory notes and accrued and unpaid salaries to
Timothy C. Moses and Jacques Elfersy for the years 1995-1998; $900,000 (13.5%)
of the net proceeds of this Offering to fund EPA testing; approximately $300,000
(4.5%) of the net proceeds to fund FDA update of master file; $960,000 (14.4%)
of the net proceeds of this Offering to fund marketing; and approximately
$870,000 (13%)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 $965,000 (14.5%) 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."
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Application of Proceeds to Benefit Messrs. Moses and Elfersy.
The Company intends to use $387,133 of the proceeds of this Offering to
(i) repay accrued and unpaid salary of Messrs. Moses and Elfersy from June 1995
through June 30, 1998, in the amount of $307,133 and (ii) to repay a loan to the
Company in the amount of $80,000 in 1998 by Judith B. Turner, the mother-in-law
of Mr. Moses. See "Certain Transactions." In the event that the over-allotment
option is exercised by the Underwriters, Messrs. Moses and Elfersy will be
permitted to sell up to 225,000 shares of common stock and receive gross
proceeds of up to $1,181,250 (prior to payment of their pro-rata share of
selling expenses). See "Principal and Selling Shareholders."
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 19.6%,
and 21.9%, 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 "Risk
Factors--Anti-Takeover Provisions," "Principal and Selling Shareholders," and
"Description of Common Stock."
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 $4.27
(81%) between the pro forma net tangible book value per share of Common Stock
after the Offering and the proposed initial public offering price of $5.25 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 $1.18 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 $10.50 initial public offering price (of which there can be no
assurance) or $5.25 per share of common stock giving no value to the warrant
each shareholder would realize a gain of $4.91 per share on the sale of their
existing shares. See "Use of Proceeds" and "Dilution."
Shares Eligible for Future Sale.
Upon completion of this Offering, the Company's current shareholders
will own 4,844,125 shares of Common Stock, which will represent 76.3% of the
then issued and outstanding shares of Common Stock (72.8% if the over-allotment
option is exercised in full). 4,270,045 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 ninety (90) days after the date of this Prospectus, and
subject to a twelve (12) month lock-up agreement which may be released at the
discretion of the Underwriters (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's Discussion and
Analysis of Financial Condition and Operating Results," and "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 Warrants issued in the February and March 1998 private placement
(the "1998 Warrants") and Underwriters' Warrants have certain registration
rights and anti-dilution provisions. 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 Common Stock underlying the
1998 Warrants, Underwriters' Warrants, and/or the securities issuable
thereunder. However, the 1998 Warrants are subject to a one-year lock-up from
the first trading day of this Offering, which prevents a holder of the 1998
Warrants from exercising such warrants or otherwise transferring, conveying, or
assigning such warrants for such one-year period. 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."
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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
1997 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, 30,000 options have been granted under the
Incentive Plan, of which 30,000 are immediately exercisable and 240,000 options
have been granted under the Director Plan, of which 120,000 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. The
Company will not offer preferred stock to promoters except on the same terms as
it is offered to all other existing shareholders or to new shareholders.
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's capital stock entitled to vote generally in the election of directors
("Voting Stock") not held by an "Interested Shareholder" (generally, a
shareholder that, 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.
In connection with the qualifications of the sale of the Units in the
State of California, the Company has agreed to submit to the Company's
shareholders, at its next annual meeting, a proposal to amend the Company's
Articles and Bylaws to (i) provide that holders of ten percent (10%) or more of
the outstanding shares of the Company's capital stock can call a special
shareholders meeting and (ii) eliminate the "Fair Price" requirements enacted by
the Company pursuant to O.C.G.A. ss.ss.14-2-1110 - 1133, which are designed to
encourage any person before acquiring fifteen percent (15%) or more of the
Company's outstanding common stock to seek approval of the Company's Board of
Directors for the terms of any contemplated business combination. The effect of
these existing provisions is to prohibit, among other things, a business
combination with an interested shareholder for five (5) years, subject to
certain exceptions, which include obtaining Board of Directors' approval of the
proposed transaction and in certain cases shareholder approval. Messrs. Moses
and Elfersy have agreed to vote their shares in favor of the proposals at the
next annual shareholders meeting. Approval of these proposals will require a
majority vote of the Company's shareholders. In the event that these proposals
are adopted, the Company may be more vulnerable to, among other things, a
hostile takeover or other business combination or transaction that is not
approved by the Company's Board of Directors.
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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 The Nasdaq Stock Market; Risks of
Low-Priced Stocks.
While the Company's Common Stock and Warrants are expected to meet the
current initial listing requirements for inclusion in The Nasdaq SmallCap
Market, there can be no assurance that such securities will meet the continued
listing requirements. Under current criteria for continued inclusion on the 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 from 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 OTC 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 The Nasdaq Stock Market 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.
Blue Sky Registration.
The Company's securities have not been approved for sale in all of the
fifty states. Accordingly, the Company has not obtained or may otherwise be able
to maintain current registrations for its securities in all states in which
security holders may reside from time to time during the term of the warrants.
As a result, the foregoing limitations could preclude a stockholder`s sale of
Common Stock or a warrant holder's ability to exercise and/or sell the warrants
in those states where approval for sale has not been obtained.
12
<PAGE>
USE OF PROCEEDS
The net proceeds of this Offering to the Company, with an assumed initial
public offering price of $10.50 per Unit, will be $6,666,094 after deducting
$421,406 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) 892,133 13.4%
EPA testing 900,000 13.5%
FDA Update for Master File 300,000 4.5%
Marketing (2) 960,000 14.4%
Leasehold Improvements & Lab Equipment 250,000 3.8%
Advertising Campaign (Retail) 1,000,000 15.0%
Regulatory Consulting 528,961 7.9%
Research and Development (3) 870,000 13.0%
Working Capital and general corporate purposes (4) 965,000 14.5%
-
Total $6,666,094 (5) 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 $307,133 to
Timothy C. Moses and Jacques Elfersy of the Company for the years
1995-1998; $55,000 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 repayment of 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 three principal executive officers, Timothy C.
Moses, Jacques Elfersy and Jeffrey A. Parker, which salaries are
anticipated to aggregate approximately $400,000 for the twelve (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."
(5) The Company presently anticipates using the net proceeds of the
Offering in the following priority: Debt and liabilities retirement, EPA
testing, advertising campaign, marketing, leasehold improvements, research
and development FDA update, working capital, and regulatory consulting.
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.
13
<PAGE>
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, 1998, the net tangible book value of the Company was
$(860,653) or $(0.20) 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 $10.50 per Unit or $5.25 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 $(0.20) to $0.98.
This represents an immediate increase in net tangible book value of $1.18 per
share to current shareholders and an immediate dilution of $4.27 (81%) per share
to new investors or, as illustrated in the following table:
<TABLE>
<CAPTION>
Amount Percent
<S> <C> <C> <C>
Public offering price per share $5.25 100%
----- ----
Deficit in net tangible
book value per Share before this Offering $(0.20) (3%)
Increase per share attributable
to new investors 1.18 22%
---
Adjusted net tangible book value
per share after this Offering $0.98 19%
----- ---
Dilution per share to new investors $4.27 81%
===== ===
</TABLE>
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 $10.50 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Avg. Price
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C>
(2) holders 4,395,040 74.6% $ 1,482,051 15.8% $0.34
New investors 1,500,000(2) 25.4% 7,875,000(2) 84.2% 5.25(3)
--------- ------ ------------ --------
Total 5,895,040(1) 100.0% $9,357,051(2) 100.0%
========= ====== ========== ======
</TABLE>
- --------
(1) Does not include an aggregate of 2,909,167 shares of Common Stock issuable
upon the exercise of: (i) the Warrants, (ii) the Underwriters' Units, (iii) the
over-allotment option, (iv) employee and director stock options, and (v) 90
warrants issued to investors in a private placement to purchase 450,000 shares
of Common Stock at an exercise price equal to the initial public offering price
or $5.25 per share, (vi) one (1) warrant to purchase 40,000 shares of Common
Stock at an exercise price of $5.78 per share or 110% of the initial public
offering, and (vii) 199,167 shares of Common Stock reserved for issuance upon
the exercise of outstanding warrants at weighted average price of $0.50 per
share. Also does not include warrants for the purchase of 449,085 shares which
were exercised subsequent to June 30, 1998. 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 29.3% of the total number of shares to
be outstanding after the Offering and the total consideration paid by new
investors would increase to $ 9,056,250. 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>
SHORT-TERM DEBT AND CAPITALIZATION
The following table sets forth the short-term debt and capitalization
of the Company as of June 30, 1998, 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>
June 30, 1998
As Adjusted
<S> <C> <C>
Short-term debt:
Notes payable $ 655,000 $ 0
----------- ----------------
$ 655,000 $ 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) (5) $ 1,153,001 $ 1,153,001
Additional paid in capital 329,050 6,995,144
Deficit accumulated
during the Development stage (2,342,704) (2,342,704)
---------- ----------
Total shareholder's equity (deficit) (860,653) 5,805,441
----------- -----------
Total short-term debt and capitalization (deficit) $ (205,653) $ 5,805,441
=========== ===========
</TABLE>
- -----------
(1) Does not include an aggregate of 1,400,000 shares of Common Stock
reserved for issuance upon the exercise of stock options to be outstanding
under the Company's 1997 Stock Incentive Plan, of which 30,000 options have
been issued and 30,000 of which options are currently exercisable, and the
Company's 1996 Directors Stock Option Plan (the "Director Plan"), of which
240,000 options have been issued and 120,000 of which 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 to1,875,000 shares issuable upon
exercise of the Warrants.
(3) Does not include up to 225,000 Warrants issuable upon exercise of the
over-allotment option or the 75,000 Warrants underlying the Underwriters'
Warrants.
(4) Does not include an aggregate of 199,167 shares of Common Stock reserved for
issuance upon exercise of outstanding warrants at a weighted average price of
$0.50 per share, options to purchase 30,000 shares issued to employees pursuant
to the Company's 1997 Stock Incentive Plan at a price of $1.00 per share, 90
warrants to purchase 450,000 shares of Common Stock at an exercise price equal
to the initial public offering price, one (1) warrant to purchase 40,000 shares
of Common Stock at an exercise price of 110% of the initial public offering
price per share, and option to purchase 240,000 shares issued under the Director
Plan of which 120,000 are exercisable at $2.00 per share and 120,000 are
exercisable at $5,00 per share.. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
(5) Does not include a capital contribution of $325,000 made by principal
stockholders and the exercise of warrants for the purchase of 449,085
shares at an exercise price of $0.50 per share totaling $224,542.50, which
occurred subsequent to June 30, 1998.
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 the year ended June 30, 1997 compared to June 30, 1998 and June
30, 1996 compared to June 30, 1997. The Company's net sales were
$462,471 compared to $775,315 during the period ending June 30, 1998,
and
June 30, 1997, respectively. 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 June 30, 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 June 30, 1998, was $307,813 compared
to $459,493 for the same period ending in 1997. There was no gross profit in
fiscal year ended June 1996 due to the absence of sales. Total operating
expenses increased to $1,764,909 for the period ended June 30, 1998, compared to
$987,353 for the period ended June 30, 1997, primarily due to a significant
increase in regulatory applications, testing, and patent filings, representing
$987,353 in 1997 compared to $386,217 in 1996. Marketing and selling expenses
increased 3,705% to $213,387 in 1997 from $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 June 30, 1998, of
$472,945 compared to $213,387 during the period ended June 30, 1997, increased
due to the launch in Georgia of two retail consumer products. General and
administrative expenses increased from June 30, 1998, of $1,134,712 compared to
$700,184 for June 30, 1997, as a direct result of the Company filing additional
patent applications, costs associated with the initial public offering, and
Regulatory applications. In addition, general and administrative expenses during
the fiscal year ended June 30, 1997, increased to $700,184 from $195,515 in 1996
to support growth of research and development and a build up of support
personnel.
Operating loss was $1,457,096 compared to $527,860 for the periods
ending June 30, 1998, and June 30, 1997, respectively, versus $386,217 in year
ended June 30, 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 in 1997 and $29,901 in 1996
and ($14,833) for the period ended June 30, 1998. The 1997 income was derived
from consulting services by the senior officers of the Company, and the 1998 net
expense resulted from interest. Interest expense 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 $1,471,929 for the period of June
30, 1998 compared to $514,459 for the period ended June 30, 1997 and $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. Cash at June
30, 1997, was $398,921 versus $25,066 for the fiscal year ended June 30, 1996,
compared to June 30, 1998, of $1,636. The increase in cash for fiscal 1997 was
due to cash percentage in cash for the year ended June 30, 1998, is
significantly lower due to increased expenses associated with testing, patents,
and legal.
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, and
($1,213,305) for the period ended June 30, 1998. The increase in cash used in
operations was primarily due to the increase in net loss and changes in current
assets and current liabilities, and additional patent, testing, and legal costs.
17
<PAGE>
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 initial public offering 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 initial public offering price.
In July 1997, the Company received $187,500 in proceeds from
the sale of 30,619 shares in a private placement offering. 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 annum. The Company also received $125,000 in proceeds from a note
payable to an individual at an interest rate of 10%. The note matures the
earlier of a successful initial public offering or six months.
In June 1998, a priciple stockholder made a capital contribution of
$50,000 for no further consideration. Subsequent to June 30, 1998, two
principal stockholders made a capital contribution totaling $325,000 for no
further consideration.
In November 1996, the Company sold an aggregate of 149,723 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 cash proceeds of $275,001.
In April 1997, the Company sold an aggregate of 245,000 common shares and two
warrants at a strike price of $2.00 (50% convertible in two years and the
remaining 50% in three years), generating cash proceeds of $600,000. 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 and a reduction of the exercise price to
$0.50 per share.
Prior to June 30, 1996, the Company sold an aggregate of 62,612 common
shares in a private placement for net cash proceeds of $115,000 to four
shareholders.
During the three periods ended June 30, 1998, the Company has invested
an aggregate of $122,072 of cash in capital expenditures.
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 48.
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, biocides. No objectives can be given that
the Company will be successful in meeting its objective.
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.
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.
19
<PAGE>
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.
20
<PAGE>
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.
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.
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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.
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 a regional food
trade brokerage firm, Budd Mayer Company, which has 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 what the Company estimates to be approximately 550 retail
outlets.
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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.
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 at least
$1,000,000 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 launched additional products BioShield KleenAire Healthy
Home Systems (to reduce airborne allergens) and BioShield Antimicrobial stain
guard (for fabrics) in the 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.
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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.
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.
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.
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 has not, among other things, achieved the required minimum
purchase 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.
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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 net
purchases.
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 what the Company estimates to be
approximately 5,000 linear feet of sewer pipe using BioShield. To date, CMT is
in default of the terms of the licensing agreement and has not, among other
things, achieved the required minimum purchase amounts. The Company is currently
in negotiations with CMT to enter into a new licensing agreement with CMT
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.
Manufacturing.
The only manufacturing contemplated by the Company is the production of
its antimicrobial concentrates. No special equipment is required other than
typical chemical manufacturing vessels, which 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
markets.
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.
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.
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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 the future 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 prevented 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.
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 proprietary. The Company
will be materially adversely affected if it cannot maintain its proprietary
technologies.
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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.
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. The FDA has recently increased its scrutiny
and regulation of antimicrobial and antiviral agents. There is no assurance that
the regulatory agencies will find present or future submissions of the Company
to be adequate.
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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 thirty (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 that such persons and institutions will conduct studies
properly. There also can 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
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.
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<PAGE>
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 With the EPA to Date and 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.
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<PAGE>
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 AM500I products, as requested by the EPA. The EPA
is currently reviewing the newly submitted information. The Company has not
responded to the request for additional information for the remaining products.
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 diapers;
non-woven polyester; outerwear apparel; disposable polyurethane foam cushions
for Lapidus Airfloat Systems; polyurethane foam polyethylene foam, polyurethane
foam used as a growth 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 any of these products or will
receive any of 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
30
<PAGE>
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.
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, 1997, and 1998, the Company
incurred expenses of $74,000 and $157,000, 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 $870,000 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 any of these
products or will receive any of 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
31
<PAGE>
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 any of these products or will
receive any of the required regulatory approvals.
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 any of these products or will
receive any of 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.
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MANAGEMENT
Directors, Executive Officers, and Significant Employees.
The following table sets forth certain information regarding the
directors, executive officers, and significant employees of the Company:
<TABLE>
<S> <C> <C>
Name Age Position
Timothy C. Moses 42 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
Jeffrey A. Parker 41 Chief Operating Officer and Vice President of
Marketing and Sales
Douglas Moore 62 Vice President, National Sales
Dr. Joachim Berkner 32 Director of Research and Development, Organic
Chemistry
Carl T. Garner 51 Director
Michel Azran 52 Director
</TABLE>
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.
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<PAGE>
Mr. Jeffrey A. Parker has agreed to become the Chief Operating Officer
and Vice President of Marketing and Sales for the Company upon completion of the
proposed Initial Public Offering. Mr. Parker began his career in 1981 at Oscar
Mayer Foods Corporation where he was promoted through a variety of positions
from Sales Representative, Corporate Recruiting Manager, Assistant Product
Manager, and Product Manager in just three and one-half years. In 1985, he
joined Schering-Plough Corporation for approximately one year as Product Manager
for Seasonal Products. In 1986, he was recruited and joined Con Agra
Incorporation to become General Manager, Frozen Convenience Foods. In his three
years with Con Agra, Mr. Parker was promoted to Division General Manager. In
1989, Mr. Parker joined Sara Lee Corporation, Bryan Foods Grocery Division where
he became President and Chief Executive Officer of Sweet Sue Kitchens after its
acquisition by Sara Lee. Additionally, he assumed presidency at Bryan Grocery
Products in January 1991. In 1992, Mr. Parker joined Foster Farmer as the
President and General Manager, Food Service, Processed Meats and Turkey
Products. In 1995, Mr. Parker became president and Chief Executive Officer of
Crider Incorporation and Crider Poultry Incorporation where he was instrumental
in improving product mix and profitability. Mr. Parker received his Bachelors'
degree in Business Administration in 1980 and his Masters in Public
Administration in 1981 from Jacksonville State University.
Mr. Douglas Moore is a significant employee and 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 is a significant employee and 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
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 initial public offering, 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.
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<PAGE>
The Company maintains an audit committee that consists of its two
independent directors, Michel M. Azran and Carl T. Garner. The Company will
maintain at least two independent directors on the Board of Directors.
Officers are elected annually by the Board of Directors and serve at
the discretion of the Board.
The Company currently maintains $1,000,000 key man life insurance
policies on the lives of each of Mr.
Moses and Mr. Elfersy
Executive Compensation.
The following table sets forth for the three years ended June 30, 1998,
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 any of the three years ended June 30,
1998, 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, 1998 120,000 - -
Co- Chairman of the Board, 1997 120,000 - -
President, Chief Executive 1996 120,000 - -
Officer and Director.
Jacques Elfersy, 1998 120,000 - -
o-Chairman of the Board, 1997 120,000 - -
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 (3)
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 affairs of the Company. 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.
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.
35
<PAGE>
The Company has entered into a non-binding letter of intent (the
"Letter of Intent") for the employment of Jeffrey A. Parker as Chief Operating
Officer of the Company effective upon the closing of the Offering. At present,
the Company is in negotiations with Mr. Parker regarding the preparation and
execution of an employment agreement. The Letter of Intent provides, among other
things, for a three-year employment agreement with a salary of $150,000 per
annum, subject to termination with or without cause; medical insurance, and
benefits provided to other employees and the issuance by the Company of up to
50,000 stock options per annum exercisable at the initial public offering price,
which options will be subject to certain additional terms, conditions, and
restrictions. However, the exact terms and conditions of such an employment
agreement are subject to change and will only be finalized upon the execution by
the parties of a definitive employment agreement.
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 that 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 42, 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 University, School of Law in Lexington, Virginia in 1984 and
his B.A. from University of Virginia in 1980.
Advisors receive reimbursement of travel expenses, connected with
Company business, and stock options, for consultation services, which 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.
36
<PAGE>
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 30,000 shares of Common Stock were granted
under the Incentive Plan to key employees in March of 1998 of which 30,000
options are currently exercisable at a price of $1.00 per share.
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:
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.
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<PAGE>
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. 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.
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.
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<PAGE>
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 relationship
between participants' rewards and shareholder gains. The Company has reserved
1,000,000 shares of Common Stock pursuant to awards that may be made under the
Director Plan. 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 Advisors. Pursuant to the Director Plan,
options vest in three stages, 20,000 shares at agreement. 120,000 of such
options are currently exercisable pursuant to the Director Plan. option
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 initial public offering.
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 formulation of strategic marketing
and business plans, and the retention of key employees. Pursuant to the terms of
the Agreement, Moran Marketing receives a monthly consulting fee of $7,500 for
the months of September, October, and November, which fee shall increase to
$12,500 per month no sooner than December 1, 1998, and such agreement may be
terminated by either party upon ninety (90) days' prior written notice. In
addition, Maran Marketing is entitled to certain commissions and licensing fees
on sales, licensing, and marketing of the Company's products.
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<PAGE>
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 (4)
405 North Errol Court, N.W.
Atlanta, Georgia 30327 1,357,927 28.0% 112,500 1,245,427 19.6%
Jacques Elfersy (4)
1771 East Clifton Road
Atlanta, Georgia 30307 1,505,117 31.1% 112,500 1,392,617 21.9%
Carl T. Garner
4473 Chattahoochee Plantation
Marietta, Georgia 30067 40,000 * -0- 40,000 *
All officers and directors
as a group (5 persons) 2,903,044 59.9% 225,000 2,678,044 42.2%
</TABLE>
* Less than 1%
- -------
(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." Messrs. Moses and Elfersy have agreed to pay a pro-rata share of
the selling expenses of the Offering if the over-allotment option is exercised
by the Underwriters.
(4) Does not include138,834 shares of Common Stock owned by each of the wives of
Messrs. Moses and Elfersy for which each of them disclaim beneficial ownership.
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<PAGE>
CERTAIN TRANSACTIONS
In June 1998, Timothy C. Moses and Jacques Elfersy contributed
approximately $50,000 of capital to the Company. Subsequent to June 30, 1998,
Messrs. Moses and Elfersy contributed an additional $325,000 of capital to the
Company. Such contributions were funded by the private sale to accredited
investors of 124,995 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 initial public offering and
bear interest at the rate of 8% per annum.
Upon consummation of this Offering, Messrs. Moses and Elfersy will receive
$307,133 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. The Company will comply with Sections VII A and
B of the NASAA Statement of Policy Regarding Loans and Other Material Affiliated
Transactions, amended November 18, 1997, regarding future material affiliated
transactions. 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. Affiliated
transactions will be approved by a majority of the independent and disinterested
directors, who will have access, at the Company's expense, to the Company's
counsel or to independent legal counsel. 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.
41
<PAGE>
DESCRIPTION OF SECURITIES
Units.
Each Unit consists of two shares of Common Stock and two Warrants. The
Shares and the Warrants included in the Units may not be separately traded until
March ____, 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
September 9, 1998 there were 4,844,125 shares of Common Stock issued.
There were 63 holders of record of Common Stock, as of September 9, 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.
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 Securities Transfer & Trust, Inc. 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 per share of 120% of the initial
public offering price, at any time after the Common Stock and Warrants become
separately tradable until September ____, 2003. The right to exercise the
Warrants will terminate at the close of business on September ____, 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 200% of the
initial public offering price for ten (10) consecutive days.
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<PAGE>
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 Securities Transfer & Trust, Inc., 1825 Lawrence
Street, suite 144, Denver, Colorado 80202.
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. 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."
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 6,344,125
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 4,844,125 shares (the "Restricted
Shares") (4,619,125 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 4,844,125 shares of Common Stock, representing 76.4% of the
outstanding shares of the Common Stock, or 4,619,125 shares representing 72.8%
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 2,923,044 shares of the Common Stock (2,698,044 if the
Underwriters' over-allotment option is exercised). The Company's shareholders
and directors (excluding the 225,000 shares of Common Stock offered by Messrs.
Moses and Elfersy pursuant to the over-allotment option described herein) 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 option. The 1998 Warrants are subject
to an unconditional one-year lock-up from the first trading day of this Offering
which prevents a holder of the 1998 Warrants from exercising such warrants or
otherwise transferring, conveying, or assigning such warrants for such one-year
period.
The Company can make no prediction as to the effect, if any, that
offers or sales 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.
44
<PAGE>
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.
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 4,844,125 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. 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.
45
<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 in
the open market.nts at a level above that which might otherwise prevail
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 ($157,500 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
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 anti-dilution provisions providing for
appropriate adjustment of the price per share 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.
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.
46
<PAGE>
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.
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.
The 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's obtaining
300 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 35,209 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 three fiscal years in the period ended
June 30, 1998, 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.
47
<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.
48
<PAGE>
C O N T E N T S
Page
Report of Independent Certified Public Accountants F-1
Financial Statements
Balance Sheets as of June 30, 1996, 1997, and 1998 F-2
Statements of Operations for the year
ended June 30, 1996, 1997, and 1998 F-3
Statement of Stockholders Equity (deficit) for
the year ended June 30, 1996, 1997, and 1998 F-4
Statements of Cash Flows for
the year ended June 30, 1996, 1997, and 1998 F-5
Notes to Financial Statements F-6
49
<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, 1996, 1997 and 1998, and the related , 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, 1996, 1997 and 1998, 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
August 5, 1998
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
August 5, 1998
F-1
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
BALANCE SHEETS
As of June 30, 1996, 1997 and 1998
ASSETS
<TABLE>
<CAPTION>
June 30,
1996 1997 1998
----------------- ---------------- ---------
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 25,066 $ 398,921 $ 1,636
Accounts receivable - 29,294 110,081
Inventories 38,034 142,194 157,784
Prepaid expenses and other current assets 11,791 20,068 2,500
-------------- -------------- ---------------
Total current assets 74,891 590,477 272,001
PROPERTY AND EQUIPMENT, NET - 42,657 104,711
DEPOSITS AND OTHER LONG-TERM
ASSETS 2,847 59,804 60,911
$ 77,738 $ 692,938 $ 437,623
============== ============== ===============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CURRENT LIABILITIES
<S> <C> <C> <C>
Notes payable $ - $ - $ 450,000
- - No-es 205,000 - other
Accounts payable 44,951 168,880 309,538
Accrued payroll 213,603 306,932 315,361
Accrued interest payable - - 18,377
-------------- -------------- ---------------
Total current liabilities 258,554 475,812 1,298,276
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - no par value; 50,000,000
shares authorized, 3,969,698, 4,364,421 and
4,395,040 issued and outstanding at
June 30, 1996, 1997 and 1998, respectively 115,500 965,501 1,153,001
Additional paid-in capital 60,000 122,400 329,050
Deficit accumulated during the development
stage (356,316) (870,775) (2,342,704)
- -------- -------------- --------------
(180,816) 217,126 (860,653)
-------------- -------------- ---------------
$ 77,738 $ 692,938 $ 437,623
============== ============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Years ended June 30, 1996, 1997 and 1998
<TABLE>
<CAPTION>
June 1, 1995 (inception) Year ended Year ended
to June 30, June 30, June 30,
1996 1997 1998 1997 1998
-------------- ------------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $ - $ 775,315 $ 1,237,786 $ 775,315 $ 462,471
Cost of sales - 315,822 470,480 315,822 154,658
----------- ----------- ------------ ----------- --------------
Gross profit - 459,493 767,306 459,493 307,813
Operating expenses
Marketing and selling 5,608 218,995 691,940 213,387 472,945
General and administrative 195,515 895,699 2,030,411 700,184 1,134,712
Research and development 185,094 258,876 416,128 73,782 157,252
----------- ----------- ------------ ----------- --------------
386,217 1,373,570 3,138,479 987,353 1,764,909
----------- --------- ------------ ----------- --------------
Loss from operations (386,217) (914,077) (2,371,173) (527,860) (1,457,096)
Other income (expense)
Consulting income, net of consulting
expenses of $19,474 and $62,227
for the periods ended June 30,
1997 and 1996, respectively 29,901 39,908 39,908 10,007 -
- - In3,394t income 6,938 3,394 3,544
Interest expense - - (18,377) - (18,377)
----------- ----------- ------------ ----------- -------------
29,901 43,302 28,469 13,401 (14,833)
----------- ----------- ------------ ----------- -------------
Net loss before income taxes (356,316) (870,775) (2,342,704) (514,459) (1,471,929)
Income tax (expense) benefit - - - - -
----------- ----------- ------------ ----------- -------------
Net loss $ (356,316)$ (870,775) $ (2,342,704) $ (514,459) $ (1,471,929)
=========== =========== ============ =========== =============
Net loss per common share
Basic $ (0.09) $ (0.21) (0.53) $(0.12)$ (0.33)
========== ====== ====== ===== ===========
Weighted average common
shares outstanding 3,917,177 4,150,720 4,395,040 4,150,720 4,395,040
=========== =========== ============ =========== =============
</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)
Years ended June 30, 1996, 1997 and 1998
<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 30,619 187,500 - - 187,500
Issuance of stock options for
services rendered - - 156,650 - 156,650
Contribution to capital - - 50,000 - 50,000
Net loss for the period ended
June 30, 1998 - - - (1,471,929) (1,471,929)
------------ ----------- ----------- ------------ ------------
Balance at June 30, 1998 4,395,040 $ 1,153,001 $ 329,050 $ (2,342,704) $ (860,653)
============ =========== =========== ============ ============
</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
Years ended June 30, 1996, 1997 and 1998
<TABLE>
<CAPTION>
June 1, 1995 (inception) Year ended Year ended
to June 30, June 30, June 30,
1996 1997 1998 1997 1998
-------------- ------------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (356,316) $ (870,775) $ (2,342,704) $ (514,459) $ (1,471,929)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization
expense 1,504 18,040 32,466 16,536 14,426
Issuance of stock and stock
options for services rendered 60,000 122,400 279,050 62,400 156,650
Changes in operating assets
and liabilities:
(Increase) decrease in:
Accounts receivable - (29,294) (110,081) (29,294) (80,787)
Inventory (38,034) (142,194)` (157,784) (104,160) (15,590)
Prepaid expenses and
other current assets (12,862) (34,310) (16,742) (21,448) 17,568
Stock issuance costs - 42,000 (42,000) (42,000) -
Deposits and other
Assets (3,280) (18,667) (19,774) (15,387) (1,107)
Increase in:
Accounts payable 44,951 168,880 309,538 123,929 140,658
Accrued liabilities and
payroll 213,603 306,932 333,738 93,329 26,806
----------- ---------- ----------- ------------ -------------
Net cash used in operating
activities (90,434) (520,988) (1,734,293) (430,554) (1,213,305)
------- -------- ----------- ---------- -----------
Cash flows from investing activities:
Capital enditures - (45,592) (122,072) (45,592) (76,480)
------- -------- ---------- ----------- --------
Cash flows from financing activities:
Proceeds from debt - - 655,000 - 655,000
Contribution to capital 50,000 50,000
Private offering of stock, net 115,500 965,501 1,153,001 850,001 187,500
----------- ---------- ----------- ------------ -------------
Net cash provided by
financing activities 115,500 965,501 1,858,001 850,001 892,500
----------- ---------- ----------- ------------ -------------
Net increase (decrease) in
cash 25,066 398,921 1,636 383,855 (397,285)
Cash at beginning of period - - - 25,066 398,921
----------- ---------- ----------- ------------ -------------
Cash at end of period $ 25,066 $ 398,921 $ 1,636 $ 398,921 $ 1,636
=========== ========== =========== ============ =============
</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
Years ended June 30, 1996, 1997 and 1998
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 June 30, 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. The carrying value of cash and
cash equivalents approximates fair value due to the relatively short-term
nature of the instruments.
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 $0, $3,000 and $14 000 for the periods ended 1996, 1997 and 1998,
respectively.
F-6
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended June 30, 1996, 1997 and 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
4. Property, Equipment and Depreciation - Continued
Estimated service lives are as follows:
Office Equipment 3 years
Machinery, leasehold improvements,
furniture and equipment 5-10 years
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 $185,094,
$73,782 and $157,252 for the periods ending June 30, 1996, 1997 and 1998,
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.
F-7
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended June 30, 1996, 1997 and 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
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 $0, $69,932 and $228,192 for the periods ended June 30, 1996,
1997 and 1998, respectively.
9. General and Administrative Costs
General and administrative costs include, among 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.
10. Reverse Stock Split
Effective December 11, 1997, the Company's shareholders 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.
11. 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 B-10. Diluted loss per common
share is not disclosed because the effect of the exchange or exercise of
common stock equivalents would be anti-dilutive.
F-8
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended June 30, 1996, 1997 and 1998
NOTE C - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1996 1997 1998
<S> <C> <C> <C>
Raw Materials $ 27,155 $ 100,146 $ 83,482
Work in Progress 10,879 30,828 42,893
Finished Goods - 11,220 31,409
----------- ----------- ----------
$ 38,034 $ 142,194 $ 157,784
=========== =========== ==========
</TABLE>
NOTE D - PROPERTY AND EQUIPMENT
Property and Equipment consists of the following:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1996 1997 1998
<S> <C> <C> <C>
Leasehold improvements $ - $ - $ 33,385
Office furniture and equipment - 23,890 28,433
Machinery and equipment - 21,702 60,254
----------- ----------- ----------
Total property and equipment - 45,592 122,072
Less accumulated depreciation - (2,935) (17,361)
----------- ----------- ----------
$ - $ 42,657 $ 104,711
=========== =========== ==========
</TABLE>
NOTE E - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain office and operating facilities and certain equipment
under operating lease agreements that expire on various dates through 2000 and
require the Company to pay all maintenance costs. Rent expense under these
leases was $0, $16,133 and $64,835 for the years ended June 30, 1996, 1997 and
1998, respectively.
F-9
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended June 30, 1996, 1997 and 1998
NOTE E - COMMITMENTS AND CONTINGENCIES - Continued
Commitments under noncancelable operating leases are summarized as follows:
Fiscal Year:
1999 $ 67,833
2000 61,770
2001 and Thereafter 4,860
------------
Total $ 134,463
============
NOTE F - STOCKHOLDERS' EQUITY
Warrants
At June 30, 1997, warrants for the purchase of 959,004 shares had been issued in
connection with various private placement offerings. In connection with the
reverse split discussed in Note B-10, the restated number of warrants
outstanding at June 30, 1997 was 479,502, with an exercise price of $0.50. The
expiration date was also restated to reflect a five-year term expiring in April
2003. In connection with a private placement offering during the year ended June
30, 1998, warrants for the purchase of 490,000 shares were issued with an
exercise price ranging from $5.25 (Initial Public Offering Price) to $5.78 (110%
of Initial Public Offering Price) expiring April 2003. Also, during the year
ended June 30, 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 $0.50.
Warrants Issued for Services in Lieu of Cash
During the year ended June 30, 1997, warrants to purchase 150,000 shares were
issued to consultants at an exercise price of $0.50. The Company recorded
$62,400 of expense during the year 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
Years ended June 30, 1996, 1997 and 1998
NOTE F - STOCKHOLDERS' EQUITY - Continued
Options - Continued
During the year ended June 30, 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 Company also issued options to employees for 30,000 shares of common
stock at an exercise price of $1.00 per share. The Company uses the intrinsic
value method in accounting for its stock option plan. In applying this
method, compensation cost of $156,650 has been recognized in the accompanying
financial statements for the year ended June 30, 1998. No compensation cost
was recognized for the period ended June 30, 1997. Had compensation cost for
the Company's stock options 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>
June 30, 1996 June 30, 1997 June 30,1998
------------- ---------------------------------
<S> <C> <C> <C> <C>
Net loss As reported $ (356,316) $ (514,459) $ (1,471,929)
Pro forma (371,616) (527,847) (1,471,929)
Net loss per
common share As reported $ (0.09) $ (0.12) $(0.33)
Pro forma (0.09) (0.12) (0.33)
</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-10
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended June 30, 1996, 1997 and 1998
NOTE F - STOCKHOLDERS' EQUITY - Continued
Stock option and warrant transactions are summarized as follows:
<TABLE>
<CAPTION>
Year ended Year ended Year ended
June 30, 1996 June 30, 1997 June 30, 1998
------------------ ----------------- -----------------
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 period - $ - 120,000 $ 2.00 749,502 $ 0.74
Issued in connection with private
placement offerings - - 479,502 0.50 450,000 5.25
Issued in connection with
private placement offering - - - - 40,000 5.78
Issued in connection with
private placement offering - - - - 18,750 0.50
Issued to non-employees for
services rendered - - 150,000 0.50 - -
Issued to employees - - - - 30,000 1.00
Issued to advisory board 120,000 2.00 - - 120,000 5.00
Exercised - - - - - -
Canceled - - - - - -
------- ------- ---------- ------ ----------- ------
Outstanding, end of period 120,000 $ 2.00 749,502 $ 0.74 1,408,252 $ 2.69
======= ======== ======= ====== ========= =====
</TABLE>
The weighted average remaining contractual life of options and warrants
outstanding is approximately 4.5 years as of June 30, 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>
June 30, June 30, June 30,
1996 1997 1998
Deferred income tax assets:
<S> <C> <C> <C>
Operating loss carryforwards $ 30,767 $ 163,918 $ 658,883
Payroll accruals 81,169 116,634 119,837
Options for services 22,800 46,512 106,039
---------- ----------- ----------
Gross deferred tax assets 134,736 327,064 884,759
Deferred tax asset valuation allowance (134,736) (327,064) (884,759)
---------- ----------- ----------
Net deferred income tax asset $ - $ - $ -
========== =========== ==========
</TABLE>
F-11
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended June 30, 1996, 1997 and 1998
NOTE G - INCOME TAXES - Continued
The income tax provisions for the years ended June 30, 1996, June 30, 1997
and 1998, 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 years ended June 30, 1996, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1996 1997 1998
<S> <C> <C> <C>
Income tax benefit at applicable Federal rate of 34% $ 121,147 $ 174,916 $ 500,456
State tax benefit, net of Federal income tax effect 14,253 20,578 58,877
Other (664) (3,166) (1,638)
134,736 192,328 557,695
Increase in deferred income tax asset valuation allowance (134,736) (192,328) (557,695)
----------- ----------- -----------
Net income tax benefit $ - $ - $ -
=========== =========== ===========
</TABLE>
At June 30, 1998, the Company had operating loss carryforwards for U.S.
income tax purposes of approximately $1,700,000 available to reduce future
taxable income. These loss carryforwards will expire in fiscal years 2011
through 2013.
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 two customers totaled approximately $151,000 or
33% of total sales for the year ended June 30, 1998. No other customer
represented more than 10% of sales during this period.
F-12
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended June 30, 1996, 1997 and 1998
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 its
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 $356,316, $514,459 and $1,471,929 for the periods ended June 30, 1996,
1997 and 1998, 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 June 30, 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, 90 warrants for the purchase of 450,000 shares at an exercise
price of $5.25 (Initial Public Offering) were issued (see Note F). 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 consists of a $80,000 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. Other notes payable also
includes 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.
The carrying value of notes payable approximates fair value due to the
relatively short maturities of the notes.
F-13
<PAGE>
BioShield Technologies, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years ended June 30, 1996, 1997 and 1998
NOTE L - RELATED PARTY TRANSACTIONS AND SUBSEQUENT EVENT
In June 1998, a principal stockholder contributed $50,000 to additional
paid-in capital of the Company without further consideration.
Subsequent to June 30, 1998, two principal stockholders contributed $325,000
to additional paid-in capital of the Company without further consideration.
Subsequent to June 30,1998, warrants for the purchase of 449,085 shares were
exercised at an exercise price of $0.50 per share generating additional
equity of $224,542.
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 TWO SHARES OF COMMON STOCK
PAGE AND TWO
REDEEMABLE COMMON
Additional Information.................... 2 STOCK
PURCHASE WARRANTS
Prospectus Summary........................ 3
Risk Factors.............................. 6
Use of Proceeds........................... 13
Dividend Policy........................... 14 BIOSHEILD
Dilution.................................. 15 TECNOLOGIES
Short term Debt and Capitalization........ 16
Management's Discussion and............... OFFERING PRICE
Analysis of Financial Condition $ PER UNIT
and Results of Operation................. 17
Business.................................. 19
Management................................ 33
Principal Shareholders.................... 40
Certain Relationships
and Related Transactions............... 41 PROSPECTUS
Description of Securities................. 42
Shares Eligible For Future Sale........... 44 ,1998
Underwriting.............................. 45 Tejas Securities
Group, Inc.
Legal Matters............................. 47 Redstone Securities, Inc.
Experts................................... 47 Seaboard Securities , Inc.
Glossary.................................. 48
Index to Financial Statements............. 49
.........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.
<PAGE>
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:
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 45,000*
Legal Fees and expenses 145,000*
Registrar and transfer agent fees 5,000*
Accounting fees and expenses 30,000*
Non-Accountable expense allowance 157,500
Blue sky fees and expenses 15,000*
Miscellaneous 5,000*
---------
Total $ 421,406 *
*Estimated.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In November 1996, the Company sold 10 units to accredited investors,
pursuant to the exemption from the registration requirements of the Securities
Act afforded by ss.4(2) of the Act, each unit consisting of 16,667 shares, and
two warrants, each warrant consisted of a right to purchase 16,667 shares of
Common Stock at a purchase price of $1.50, totaling $250,001, pursuant to a
private placement memorandum.
From December 1996 to April 1997, the Company sold 24 units to
accredited investors, pursuant to the exemption from the registration
requirements of the Securities Act afforded by ss.4(2) of the Act, totaling
$600,000. Each unit consisted of 12,500 common shares and two warrants, each
warrant consisted of a right to purchase 12,500 shares of Common Stock at a
purchase price of $2.00 per share, pursuant to a private placement memorandum.
In July 1997, the Company sold 7 1/2 units to accredited investors
pursuant to the exemption from the registration requirements of the Securities
Act afforded by ss.4(2) of the Act. Each unit consisted of 5,000 shares of
Common Stock and one warrant to purchase 5,000 shares at $5.00 per share
totaling $187,500, pursuant to a private placement memorandum.
Prior to June 30, 1996, the Company sold an aggregate of 62,612 common shares to
accredited investors pursuant to the exemption from the registration
requirements of the securities Act afforded by S4(2) of the Act for cash of
$115,000.
On December 11, 1997, the Company effected a 2.45-for-3 reverse stock
split of its Common Stock and each outstanding warrant was adjusted
1 for 2 and to reduce the exercise price to $.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 (for a total of 90 warrants exercisable into 450,000 shares of
Common Stock) (the "1998 Warrants"). 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 connection with the Company's proposed offering, the 1998 Warrants are
subject to an unconditional one-year lock-up from the first trading day of this
Offering which prevents a holder of the 1998 Warrants from exercising such
warrants or otherwise transferring, conveying, or assigning such warrants for
such one-year period.
II-2
<PAGE>
ITEM 27. EXHIBITS
Number Description
Exhibit 1.1 Form of Underwriting Agreement (2)
Exhibit 1.2 Form of Underwriters' Warrant (2)
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 (2)
Exhibit 4.2 Form of Unit Certificate (2)
Exhibit 4.3 Form of Unit Warrant Certificate (1)
Exhibit 4.4 Form of February/March 1998 Private Placement Investor
Warrant (2)
Exhibit 4.5 First Atlanta Warrant (2)
Exhibit 4.6 Form of Public Investor Warrant Agreement (2)
Exhibit 4.7 Form of November 1996 and December 1996 - April 1996 Private
Placement Warrant (1)
Exhibit 4.8 Form of July 1997 Private Placement Warrant (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 (2)
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 (2)
Exhibit 10.8 Sales Agreement between the Company and HealthSafe
Environmental Products, Inc., dated February 6, 1997 (2)
Exhibit 10.9 Sales and Distribution Agreement between the Company and
Concrete MicroTech, Inc., dated February 7, 1997 (2)
Exhibit 10.10 Sales Agreement between the Company and Sanitary Coating
Systems, Inc., dated November 13, 1997
(2)
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 (1) (4)
Exhibit 10.18 Letter Agreement with Moran Marketing Company, Inc., dated
September 8, 1998 (1)
Exhibit 10.19 Employment Agreement between the Company and Jeffrey A.
Parker, dated September _____, 1998 (3)
Exhibit 10.20 Transfer Agent Agreement between the Company and American
Securities Transfer & Trust, Inc.,
dated August 27, 1998 (1)
Exhibit 23.1 Form of Consent by Grant Thornton, LLP (2)
Exhibit 23.2 Consent of Sims Moss Kline & Davis LLP
(included in Exhibit 5.1) (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 September 9, 1998.
BIOSHIELD TECHNOLOGIES, INC.
By: /s/ Timothy C. Moses*
Timothy C. Moses, President
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; September _____, 1998
- ---------------------------
Timothy C. Moses Director
/s/ Jacques Elfersy* Chairman of the Board; September _____, 1998
Jacques Elfersy Vice President of Operations
and Director of Regulatory Affairs;
Chief Financial Officer
/s/ Carl T. Garner* Director September _____, 1998
- ---------------------------------------------------
Carl T. Garner
/s/ Michel Azran* Director September _____, 1998
Michel Azran
</TABLE>
II-5
* By Power of Attorney /s/ Timothy C. Moses
Timothy C. Moses
No. _____ For the Purchase of One Share
of Common Stock
__________, 1998
BIOSHIELD TECHNOLOGIES, INC.
REDEEMABLE SERIES A COMMON STOCK PURCHASE WARRANT
EXERCISABLE ON OR BEFORE 5: 00 P. M. , New York City Time ______, 2002
This Warrant Certifies that ________________________________, or
registered assigns, is the holder of __________________Warrants expiring
___________, 2002, to purchase Common Stock, no par value per share (the "Common
Stock"), of BioShield Technologies, Inc. a Georgia corporation (the "Company").
Each Warrant entitles the holder to purchase from the Company on or before 5:00
P.M. New York City time, on _________2002, (subject to extensions in the sole
discretion of the Company, the "Expiration Date") one fully-paid and
non-assessable share of Common Stock of the Company at the exercise price (the
"Exercise Price") of 120% of the initial public offering price per share upon
surrender of this Warrant Certificate and payment of the Exercise Price at the
office or agency of the Warrant Agent in New York, New York, but only subject to
the conditions set forth herein and in the Warrant Agreement. Payment of the
Exercise Price may be made in cash or by certified check payable to the order of
the Company. As used herein "shares" refers to the Common Stock of the Company
and, where appropriate, to the other securities or property issuable upon
exercise of a Warrant as provided for in the Warrant Agreement upon the
happening of certain events set forth in the Warrant Agreement.
No Warrant may be exercised after 5:00 P. M., New York City time, on
the Expiration Date. To the extent not exercised by such time, the Warrants
shall be cancelled and retired notwithstanding delivery of the related Warrant
Certificate. All Warrants evidenced hereby shall thereafter be void.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse in hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent
Dated: BioShield Technologies, Inc.
By:
President
Dated: American Securities Transfer & Trust, Inc.
By:
Warrant Agent Secretary
By:
Authorized Officer
[ FORM OF ]
ELECTION TO PURCHASE
BioShield Technologies, Inc.
c/o American Securities Trust & Transfer, Inc.
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.
[ 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.
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF
HAVE BEEN ISSUED AND SOLD WITHOUT REGISTRATION IN RELIANCE UPON EXEMPTIONS FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT") AND SIMILAR LAWS
IF THE STATE WHEREIN THE HOLDER RESIDES (THE "STATE ACT"). SUCH SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, OR TRANSFERRED OTHER THAN (i) PURSUANT TO AN
EFFECTIVE REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE 1933 ACT AND THE
STATE ACT AND (ii) UPON RECEIPT BY THE ISSUER OF EVIDENCE SATISFACTORY TO IT OF
COMPLIANCE WITH THE 1933 ACT, THE STATE ACT AND THE APPLICABLE SECURITIES LAWS
OF ANY OTHER JURISDICTION. THE ISSUER SHALL BE ENTITLED TO REQUIRE AN OPINION OF
COUNSEL SATISFACTORY TO IT WITH RESPECT TO COMPLIANCE WITH THE ABOVE LAWS.
WARRANT TO PURCHASE UP TO ____________ SHARES OF
COMMON STOCK
OF
BIOSHIELD TECHNOLOGIES, INC.
(a Georgia corporation)
Not Transferable or Exercisable Except
upon Conditions Herein Specified
Void after 5:00 O'clock p.m.,
Atlanta, Georgia Time, on ______________, 2000
BIOSHIELD TECHNOLOGIES INC., a Georgia corporation (the "Company"),
hereby certifies that _____________________________, a resident of the State of
_________________ his registered successors and permitted assigns registered on
the books of the Company maintained for such purposes as the registered holder
hereof (the "Holder"), for value received, is entitled to purchase from the
Company the number of fully paid and nonassessable shares of common stock of the
Company ( the "Common Stock"), stated above ( the "Shares") at the purchase
price of $ ________ per Share (the "Exercise Price") (the number of Shares and
Exercise Price subject to adjustment as hereinafter provided) upon the terms and
conditions herein provided.
1. Exercise of Warrant.
(a) Subject to subsection (b) of this Section 1, upon presentation and
surrender of this Warrant Certificate, with an approved purchase form duly
executed, at the principal office of the Company at 4405 International Blvd.,
Suite B 109, Norcross, Georgia 30093, or at such other place as the Company may
designate by notice to the Holder hereof, together with a certified or bank
cashier's check payable to the order of the Company in the amount of the
Exercise Price times the number of Shares being purchased, the Company shall
deliver to the Holder hereof, as promptly as the Company shall deliver to the
Holder hereof, as promptly as practicable, certificates representing the Share
being purchased. This Warrant may be exercised in whole or in part; and, in case
of exercise hereof in part only, the Company, upon surrender hereof, will
deliver to the Holder a new Warrant Certificate or Warrant Certificates of like
tenor entitling the Holder to purchase the number of Shares as to which this
Warrant has not been exercised.
(b) This Warrant may be exercised in whole or in part any time prior to
5:00 o'clock p.m., Atlanta, Georgia time, on _______________ 1999 (the time
period from the date of this Warrant through 5:00 o'clock p.m., Atlanta, Georgia
time, on _____________, 1999 being referred to herein as the "Initial Term") ;
provided, however, that this Warrant shall thereafter be exercisable at any time
prior to 5:00 o'clock p.m., Atlanta, Georgia time, on ______________, 2000, in
whole or in part with respect to the number of fully paid and nonassessable
shares of Common Stock equal to the lesser of (i) 50% of the Shares which were
originally subject to this Warrant, or (ii) the Shares remaining subject to
exercise hereunder after expiration of the Initial Tenn (such number of shares
being referred to as the "Shares" after the expiration of the Initial Term).
2. Exchange and Transfer of Warrant. This Warrant Certificate (a) at any time
prior to the exercise hereof, upon presentation and surrender to the Company,
may be exchanged, alone or with other Warrant Certificates of like tenor
registered in the name of the Holder, for another Warrant Certificate or Warrant
Certificates of like tenor in the name of such Holder exercisable for the same
aggregate number of Shares as the Warrant Certificate or Warrant Certificates
surrendered, (b) may not be sold, transferred, hypothecated or assigned, in
whole or in part, without the prior written consent of the Company, with the
exception of any direct family member.
3. Rights and Obligations of Warrant Holder.
(a) The Holder of this Warrant Certificate shall not, by virtue hereof,
be entitled to any rights of a shareholder in the Company, either at law or in
equity- provided, however, in the event that any certificate representing the
Shares is issued to the Holder hereof upon exercise of this Warrant, such Holder
shall, for all purposes, be deemed to have become the holder of record of such
Shares on the date on which this Warrant Certificate, together with a duly
executed Purchase Form, was surrendered and payment of the Exercise Price was
made, irrespective of the date of delivery of such Share certificate. The rights
of the Holder of this Warrant are limited to those expressed herein and the
Holder of this Warrant, by its acceptance hereof, consents to and agrees to be
bound by and to comply with all the provisions of this Warrant Certificate,
including, without limitation, all the obligations imposed upon the Holder
hereof by Sections 2 and 5 hereof. In addition, the Holder of this Warrant
Certificate, by accepting the same, agrees that the Company may deem and treat
the person in whose name this Warrant Certificate is registered on the books of
the Company maintained for such purpose as the absolute, true and lawful owner
for all purposes whatsoever, notwithstanding any notation of ownership or other
writing hereon, and the Company shall not be affected by any notice to the
contrary.
(b) The Holder of this Warrant Certificate, as such. shall not be
entitled to vote or receive dividends or to be deemed the holder of Shares for
any purpose, nor shall anything contained in this Warrant Certificate be
construed to confer upon the Holder of this Warrant Certificate, as such, any of
the rights of a shareholder of the Company including but not limited to any
right to vote, give or withhold consent to any action by the Company, whether
upon any recapitalization, issue of stock, reclassification otherwise, receive
notice of meetings or other action affecting shareholders (except for the
notices provided for herein), receive dividends, receive subscription rights, or
any other right, until this Warrant shall have been exercised and the Shares
purchasable upon the exercise hereof shall have become deliverable as provided
herein; provided, however, that any such exercise on any date when the stock
transfer books of the Company shall be closed shall constitute the person or
persons in whose name or names the certificate or certificates for those Shares
are to be issued as the record holder or holders thereof for all purposes at the
opening of business on the next succeeding day on which such stock transfer
books are open, and the Warrant surrendered shall not be deemed to have been
exercised, in whole or in part as the case may be, until the next succeeding day
on which stock transfer books are open for the purpose of determining
entitlement to dividends on the Company's common stock.
4. Shares Underlying Warrant. The Company covenants and agrees that all Shares
delivered upon exercise of this Warrant shall, upon delivery and payment
therefor, be duly and validly authorized and issued, fully paid and
nonassessable, and free from all liens and charges with respect to the purchase
thereof.
5. Disposition of Warrants or Shares.
(a) The Holder of this Warrant Certificate and any transferee hereof or
of the Shares issuable upon the exercise of this Warrant, by their acceptance
hereof or thereof, hereby understand and agree that this Warrant, and the Shares
issuable upon the exercise hereof, have not been registered under either the
Securities Act of 1933 (the "1933 Act") or applicable state securities laws (the
"Sate Acts") and shall not be sold, pledged, hypothecated, donated or otherwise
transferred (whether or not for consideration) except upon the issuance to the
Company of a favorable opinion of counsel or submission to the Company of such
evidence as may be satisfactory to counsel to the Company, in each such case, to
the effect that any such transfer shall not be in violation of the Act and the
State Acts. It shall be a condition to the transfer of this Warrant that any
transferee hereof deliver to the Company its written agreement to accept and be
bound by all of the terms and conditions of this Warrant Certificate.
(b) The stock certificates of the Company that will evidence the Shares
issuable upon the exercise hereof may be imprinted with a conspicuous legend in
substantially the following form:
The securities represented by this certificate have not been registered
under either the Securities Act of 1933 (the "Act") or applicable state
securities laws (the "State Acts") and shall not be sold, pledged, hypothecated,
donated or otherwise transferred (whether or not for consideration) by the
holder except upon the issuance to the Company of a favorable opinion of its
counsel or submission to the Company of such other evidence as may be
satisfactory to counsel to the Company, in each case, to the effect that any
such transfer shall not be in violation of the Act and the State Acts.
The Company does not file, and does not in the foreseeable future contemplate
filing, periodic reports with the Securities and Exchange Commission ("SEC")
pursuant to the provisions of the Securities Exchange Act of 1934, as amended.
The Company has not agreed to register any of the Shares issuable upon the
exercise hereof for distribution in accordance with the provisions of the Act or
the State Acts, and the Company has not agreed to comply with any exemption from
registration under the Act or the State Acts for the resale of such Shares.
Hence, it is the understanding of the Holder of this Warrant that by virtue of
the provisions of certain rules respecting "restricted securities" promulgated
by the SEC, the Shares issuable upon the exercise hereof may be required to be
held indefinitely, unless and until registered under the Act and the State Acts,
unless an exemption from such registration is available, in which case the
Holder may still be limited as to the number of such Shares that may sold.
6. Adjustments. The number of Shares purchasable upon the exercise of this
Warrant is subject to adjustment from time to time upon the occurrence of any of
the events enumerated below.
(a) In case the Company shall: (i) subdivide its outstanding shares of
Common Stock into a greater number of shares of Common Stock, or (ii) combine
its outstanding shares of Common Stock into a smaller number of shares of Common
Stock, the amount of Shares purchasable upon the exercise of this Warrant
immediately prior thereto shall be adjusted so that the Holder shall be entitled
to receive upon exercise of this Warrant that number of Shares which such Holder
would have owned or would have been entitled to receive after the happening of
such event had such Holder exercised this Warrant immediately prior to the
effective date. An adjustment made pursuant to this subsection (a) shall be made
whenever any of such events shall occur, but shall become effective
retroactively after such record date or such effective date, as the case may be,
as to any portion of this Warrant exercised between such record date or
effective date and date of happening of any such event.
(b) No adjustment shall be required unless such adjustment would
require an increase or decrease of at least I percent in the number of Shares
purchasable hereunder; provided, however, that any adjustments which by reason
of this subsection (b) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 6 shall be made to the nearest one-hundredth of a Share.
(c) Whenever the number of Shares purchasable hereunder is adjusted as
herein provided, the Company shall cause to be mailed to the Holder in
accordance with the provisions of this Section 6 a notice (i) stating that the
number of Shares purchasable upon exercise of this Warrant have been adjusted,
(ii) setting forth the adjusted number of Shares purchasable upon the exercise
of this Warrant, and (iii) showing in reasonable detail the computations and the
facts, including the amount of consideration received or deemed to have been
received by the Company, upon which such adjustments are based.
7. Fractional Shares. The Company shall not be required to issue any fraction of
a Share upon the exercise of this Warrant or any portion hereof. If more than
one Warrant Certificate (each such Warrant Certificate representing a portion of
this Warrant) shall be surrendered for exercise at one time by the same Holder,
the number of full Shares which shall be issuable upon exercise thereof shall be
computed on the basis of the aggregate number of Shares represented by the
Warrant Certificates surrendered. If any fractional interest in a Share shall be
issuable upon exercise thereof shall be computed on the basis of the aggregate
number of Shares represented by the Warrant Certificates surrendered. If any
fractional interest in a Share shall be deliverable upon the exercise of this
Warrant, the Company shall make an adjustment therefor in cash equal to such
fraction multiplied by the Current Market Pr-ice of the Shares on the business
day next preceding the day of exercise.
8. [Intentionally omitted.]
9. [Intentionally omitted.]
10. Loss or Destruction. Upon receipt of evidence satisfactory to the Company of
the loss, theft, destruction or mutilation of this Warrant Certificate and, in
the case of any such loss, theft or destruction, upon delivery of an indemnity
agreement or bond satisfactory in form, substance and amount to the Company or,
in the case of any such mutilation, upon surrender and cancellation of this
Warrant Certificate, the Company at its expense will execute and deliver, in
lieu thereof, a new Warrant Certificate of like tenor.
11. Survival. The various rights and obligations of the Holder hereof as set
forth herein shall survive the exercise of this Warrant at any time or from time
to time and the surrender of this Warrant Certificate.
12. Notices. Whenever any notice, payment of any purchase price or other
communication is required to be given or delivered under the terms of this
Warrant, it shall be in writing and delivered by hand delivery or registered or
certified United States mail, postage prepaid, and will be deemed to have been
given or delivered on the date such notice, purchase price or other
communication is so delivered or posted, as the case may be, and, if to the
Company, it will be addressed to the address specified in Section I hereof, and
if to the Holder, it will be addressed to the registered Holder at his address
as it appears on the books of the Company.
BIOSHIELD TECHNOLOGIES, INC.
By: ________________________________
Title: ___________________________
Date: ______________________________
[CORPORATE SEAL]
ATTEST:
By: _______________________________
ASSISTANT SECRETARY
HOLDER:
Name: _____________________________
Address: ____________________________
============================
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF
HAVE BEEN ISSUED AND SOLD WITHOUT REGISTRATION IN RELIANCE UPON EXEMPTIONS FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT") AND SIMILAR LAWS
IF THE STATE WHEREIN THE HOLDER RE-SIDES (THE "STATE ACT"). SUCH SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, OR TRANSFERRED OTHER THAN (i) PURSUANT TO AN
EFFECTIVE REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE 1933 ACT AND Tf [E
STATE ACT AND (ii) UPON RECEIPT BY THE ISSUER OF EVIDENCE SATISFACTORY TO IT OF
COMPLIANCE WITH THE 1933 ACT, THE STATE ACT AND THE APPLICABLE SECURITIES LAWS
OF ANY OTHER JURISDICTION. THE ISSUER SHALL BE ENTITLED TO REQUIRE AN OPINION OF
COUNSEL SATISFACTORY TO IT WITH RESPECT OT COMPLIANCE WITH THE ABOVE LAWS.
WARRANT TO PURCHASE UP TO __________SHARES OF
COMMON STOCK
OF
BIOSHIELD TECHNOLOGIES, INC.
(a Georgia corporation)
Not Transferable or Exercisable Except
upon Conditions Herein Specified
Void after 5:00 O'clock p.m.,
Atlanta, Georgia Time, on _______, 2000
BIOSHIELD TECHNOLOGIES, INC., a Georgia corporation (the "Company"), hereby
certifies that ______________________ a resident of the State of
___________________ his registered successors and permitted assigns registered
on the books of the Company maintained for such purposes as the registered
holder hereof (the "Holder"), for value received, is entitled to purchase from
the Company the number of fully paid and nonassessable shares of common stock of
the Company ( the "Common Stock"), stated above ( the "Shares") at the purchase
price of $_________ per Share (the "Exercise Price") (the number of Shares and
Exercise Price subject to adjustment as hereinafter provided) upon the terms and
conditions herein provided.
Exercise of Warrant.
(a) Subject to subsection (b) of this Section 1, upon presentation and
surrender of this Warrant Certificate, with an approved purchase form duly
executed, at the principal office of the Company at 4405 International Blvd.,
Suite B 109, Norcross, Georgia 30093, or at such other place as the Company may
designate by notice to the Holder hereof, together with a certified or bank
cashier's check payable to the order of the Company in the amount of the
Exercise Price times the number of Shares being purchased, the Company shall
deliver to the Holder hereof, as promptly as the Company shall deliver to the
Holder hereof, as promptly as practicable, certificates representing the Share
being purchased. This Warrant may be exercised in whole or in part; and, in case
of exercise hereof in part only, the Company, upon surrender hereof, will
deliver to the Holder a new Warrant Certificate or Warrant Certificates of like
tenor entitling the Holder to purchase the number of Shares as to which this
Warrant has not been exercised.
(b) This Warrant may be exercised in whole or in part any time prior to
5:00 o'clock p.m., Atlanta, Georgia time, on _____________, 1999 (the time
period from the date of this Warrant through 5:00 o'clock p.m., Atlanta, Georgia
time, on _________________ , 1999 being referred to herein as the "Initial
Term") ; provided, however, that this Warrant shall thereafter be exercisable at
any time prior to 5:00 o'clock p.m., Atlanta, Georgia time, on 2000, in whole or
in part with respect to the number of fully paid and nonassessable shares of
Common Stock equal to the lesser of (i) 50% of the Shares which were originally
subject to this Warrant, or (ii) the Shares remaining subject to exercise
hereunder after expiration of the Initial Term (such number of shares being
referred to as the "Shares" after the expiration of the Initial Term).
2. Exchange and Transfer of Warrant. This Warrant Certificate (a) at any time
prior to the exercise hereof, upon presentation and surrender to the Company,
may be exchanged, alone or with other Warrant Certificates of like tenor
registered in the name of the Holder, for another Warrant Certificate or Warrant
Certificates of like tenor in the name of such Holder exercisable for the same
aggregate number of Shares as the Warrant Certificate or Warrant Certificates
surrendered, (b) may not be sold, transferred, hypothecated or assigned, in
whole or in part, without the prior written consent of the Company, with the
exception of any direct family member.
Rights and Obligations of Warrant Holder.
(a) The Holder of this Warrant Certificate shall not, by virtue hereof,
be entitled to any rights of a shareholder in the Company, either at law or in
equity-, provided, however, in the event that any certificate representing the
Shares is issued to the Holder hereof upon exercise of this Warrant, such Holder
shall, for all purposes, be deemed to have become the holder of record of such
Shares on the date on which this Warrant Certificate, together with a duly
executed Purchase Form, was surrendered and payment of the Exercise Price was
made, irrespective of the date of delivery of such Share certificate. The rights
of the Holder of this Warrant are limited to those expressed herein and the
Holder of this Warrant, by its acceptance hereof, consents to and agrees to be
bound by and to comply with all the provisions of this Warrant Certificate,
including, without limitation, all the obligations imposed upon the Holder
hereof by Sections 2 and 5 hereof. In addition, the Holder of this Warrant
Certificate, by accepting the same, agrees that the Company may deem and treat
the person in whose name this Warrant Certificate is registered on the books of
the Company maintained for such purpose as the absolute, true and lawful owner
for all purposes whatsoever, notwithstanding any notation of ownership or other
writing hereon, and the Company shall not be affected by any notice to the
contrary.
(b) The Holder of this Warrant Certificate, as such, shall not be
entitled to vote or receive dividends or to be deemed the holder of Shares for
any purpose, nor shall anything contained in this Warrant Certificate be
construed to confer upon the Holder of this Warrant Certificate, as such, any of
the rights of a shareholder of the Company including but not limited to any
right to vote, give or withhold consent to any action by the Company, whether
upon any recapitalization, issue of stock, reclassification otherwise, receive
notice of meetings or other action affecting shareholders (except for the
notices provided for herein), receive dividends, receive subscription rights, or
any other right, until this Warrant shall have been exercised and the Shares
purchasable upon the exercise hereof shall have become deliverable as provided
herein; provided, however, that any such exercise on any date when the stock
transfer books of the Company shall be closed shall constitute the person or
persons in whose name or names the certificate or certificates for those Shares
are to be issued as the record holder or holders thereof for all purposes at the
opening of business on the next succeeding day on which such stock transfer
books are open, and the Warrant surrendered shall not be deemed to have been
exercised, in whole or in part as the case may be, until the next succeeding day
on which stock transfer books are open for the purpose of determining
entitlement to dividends on the Company's common stock.
4. Shares Underlying Warrant. The Company covenants and agrees that all Shares
delivered upon exercise of this Warrant shall, upon delivery and payment
therefor, be duly and validly authorized and issued, fully paid and
nonassessable, and free from all liens and charges with respect to the purchase
thereof.
5. Disposition of Warrants or Shares.
(a) The Holder of this Warrant Certificate and any transferee hereof or
of the Shares issuable upon the exercise of this Warrant, by their acceptance
hereof or thereof, hereby understand and agree that this Warrant, and the Shares
issuable upon the exercise hereof, have not been registered under either the
Securities Act of 1933 (the "1933 Act") or applicable state securities laws (the
"Sate Acts") and shall not be sold, pledged, hypothecated, donated or otherwise
transferred (whether or not for consideration) except upon the issuance to the
Company of a favorable opinion of counsel or submission to the Company of such
evidence as may be satisfactory to counsel to the Company, in each such case, to
the effect that any such transfer shall not be in violation of the Act and the
State Acts. It shall be a condition to the transfer of this Warrant that any
transferee hereof deliver to the Company its written agreement to accept and be
bound by all of the terms and conditions of this Warrant Certificate.
(b) The stock certificates of the Company that will evidence the Shares
issuable upon the exercise hereof may be imprinted with a conspicuous legend in
substantially the following form:
The securities represented by this certificate have not been registered
under either the Securities Act of 1933 (the "Act") or applicable state
securities laws (the "State Acts") and shall not be sold, pledged, hypothecated,
donated or otherwise transferred (whether or not for consideration) by the
holder except upon the issuance to the Company of a favorable opinion of its
counsel or submission to the Company of such other evidence as may be
satisfactory to counsel to the Company, in each case, to the effect that any
such transfer shall not be in violation of the Act and the State Acts.
The Company does not file, and does not in the foreseeable future
contemplate filing, periodic reports with the Securities and Exchange Commission
("SEC") pursuant to the provisions of the Securities Exchange Act of 1934, as
amended. The Company has not agreed to register any of the Shares issuable upon
the exercise hereof for distribution in accordance with the provisions of the
Act or the State Acts, and the Company has not agreed to comply with any
exemption from registration under the Act or the State Acts for the resale of
such Shares. Hence, it is the understanding of the Holder of this Warrant that
by virtue of the provisions of certain rules respecting "restricted securities"
promulgated by the SEC, the Shares issuable upon the exercise hereof may be
required to be held indefinitely, unless and until registered under the Act and
the State Acts, unless an exemption from such registration is available, in
which case the Holder may still be limited as to the number of such Shares that
may sold.
6. Adjustments. The number of Shares purchasable upon the exercise of this
Warrant is subject to adjustment from time to time upon the occurrence of any of
the events enumerated below.
(a) In case the Company shall: (i) subdivide its outstanding shares of
Common Stock into a greater number of shares of Common Stock, or (ii) combine
its outstanding shares of Common Stock into a smaller number of shares of Common
Stock, the amount of Shares purchasable upon the exercise of this Warrant
immediately prior thereto shall be adjusted so that the Holder shall be entitled
to receive upon exercise of this Warrant that number of Shares which such Holder
would have owned or would have been entitled to receive after the happening of
such event had such Holder exercised this Warrant immediately prior to the
effective date. An adjustment made pursuant to this subsection (a) shall be made
whenever any of such events shall occur, but shall become effective
retroactively after such record date or such effective date, as the case may be,
as to any portion of this Warrant exercised between such record date or
effective date and date of happening of any such event.
(b) No adjustment shall be required unless such adjustment would
require an increase or decrease of at least I percent in the number of Shares
purchasable hereunder; provided, however, that any adjustments which by reason
of this subsection (b) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 6 shall be made to the nearest one-hundredth of a Share.
(c) Whenever the number of Shares purchasable hereunder is adjusted as
herein provided, the Company shall cause to be mailed to the Holder in
accordance with the provisions of this Section 6 a notice (i) stating that the
number of Shares purchasable upon exercise of this Warrant have been adjusted,
(ii) setting forth the adjusted number of Shares purchasable upon the exercise
of this Warrant, and (iii) showing in reasonable detail the computations and the
facts, including the amount of consideration received or deemed to have been
received by the Company, upon which such adjustments are based.
7. Fractional Shares. The Company shall not be required to issue any fraction of
a Share upon the exercise of this Warrant or any portion hereof. If more than
one Warrant Certificate (each such Warrant Certificate representing a portion of
this Warrant) shall be surrendered for exercise at one time by the same Holder,
the number of full Shares which shall be issuable upon exercise thereof shall be
computed on the basis of the aggregate number of Shares represented by the
Warrant Certificates surrendered. If any fractional interest in a Share shall be
issuable upon exercise thereof shall be computed on the basis of the aggregate
number of Shares represented by the Warrant Certificates surrendered. If any
fractional interest in a Share shall be deliverable upon the exercise of this
Warrant, the Company shall make an adjustment therefor in cash equal to such
fraction multiplied by the Current Market Price of the Shares on the business
day next preceding the day of exercise.
8. [Intentionally omitted.]
9. [Intentionally omitted.]
10. Loss or Destruction. Upon receipt of evidence satisfactory to the Company of
the loss, theft, destruction or mutilation of this Warrant Certificate and, in
the case of any such loss, theft or destruction, upon delivery of an indemnity
agreement or bond satisfactory in form, substance and amount to the Company or,
in the case of any such mutilation, upon surrender and cancellation of this
Warrant Certificate, the Company at its expense will execute and deliver, in
lieu thereof, a new Warrant Certificate of like tenor.
11. Survival. The various rights and obligations of the Holder hereof as set
forth herein shall survive the exercise of this Warrant at any time or from time
to time and the surrender of this Warrant Certificate.
12. Notices. Whenever any notice, payment of any purchase price or other
communication is required to be given or delivered under the terms of this
Warrant, it shall be in writing and delivered by hand delivery or registered or
certified United States mail, postage prepaid, and will be deemed to have been
given or delivered on the date such notice, purchase price or other
communication is so delivered or posted, as the case may be, and, if to the
Company, it will be addressed to the address specified in Section I hereof, and
if to the Holder, it will be addressed to the registered Holder at his address
as it appears on the books of the Company.
BIOSHIELD TECHNOLOGIES, INC.
By: __________________________
Title: _______________________
Date: __________ _____________
[CORPORATE SEAL]
ATTEST:
By: _______________________________
ASSISTANT SECRETARY
HOLDER:
Name: _____________________________
Address: ____________________________
============================
BIOSHIELD TECHNOLOGIES, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made this 1st day of January, 1998, between Bioshield
Technologies, Inc., a Georgia corporation, having an address of 4405
International Boulevard, Suite B-109, Norcross, Georgia 30093, its successors
and assigns, ("Bioshield" or "Company") and JOACHIM E. BERKNER ("Employee")
having an address of 4304 Millside Court, 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 1 - GENERAL PROVISIONS
A. General Covenants and Representations - Bioshield
1. Bioshield agrees to compensate Employee for a base salary of
$55,000.00 per annum with an automatic increase in base salary to $75,000.00 per
annum effective September 1, 1998. Thereafter, the base salary shall be reviewed
annually during the term of this Agreement. The Employee shall also be entitled
to such bonus and incentive based compensation as shall be determined from time
to time by the compensation committee of the Board of Directors. Employee will
receive his compensation in accordance with the Company's regular practices.
2. 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.
3. Employee shall be entitled to vacations and holidays as generally
available to the employees of BioShield.
4. Employee shall receive option to acquire 5,000 shares of the
Company's common stock for each quarter that Employee remains in the employ of
the Company during the initial year of this Agreement, at an exercise price of
$1.00 per share. Such options shall be granted under and in accordance with the
Company's existing employee stock option plan. After the first year, the Company
shall annually review performance and make such further awards as the Company's
compensation committee deems appropriate.
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.
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 of 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 possibly
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 Form 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.
________(Initial)
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.
________(Initial)
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:
(i) engage in any business activity as an antimicrobial chemist
for or provide any antimicrobial 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
(ii) 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.
________(Initial)
(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.
________(Initial)
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 antimicrobial chemist for or provide consulting services to any
person, corporation, partnership or other entity, directly or 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.
________(Initial)
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 attorneys' 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 three (3) years from the date of its
execution. This Agreement shall automatically renew thereafter on a year-to-year
basis until it is terminated as hereinafter provided.
2. The Employee's employment hereunder and this Agreement shall be, or
may be, as the case may be, terminated under the following circumstances:
(a) Death. This Agreement and the Employee's employment
hereunder shall terminate upon his death.
(b) Disability. This Agreement and the Employee's employment
hereunder shall terminate on the Employee's physical or mental disability or
infirmity which, in the opinion of a competent physician selected by the Board,
renders the Employee unable to perform his duties under this Agreement for more
than 120 days during any 180-day period.
(c) Cause. The Company may terminate the Employee's employment
hereunder for "Cause." Cause shall mean (i) Employee's conviction of a crime
involving moral turpitude or constituting a felony under the laws of any state,
the District of Columbia or of the United States, or (ii) his gross negligence,
willful misconduct or fraud in the performance of his duties hereunder.
(d) Employment-At-Will/Termination for Any Reason.
Notwithstanding the term of this Agreement having a duration of three years,
nothing in this Agreement should be construed as to confer any right of the
Employee to be employed by the Company for a fixed or definite term. Subject to
Section III.3 hereof, the Employee hereby agrees that the Company may dismiss
him under this paragraph without regard (i) to any general or specific policies
(whether written or oral) of the Company relating to the employment or
termination of its employees, or (ii) to any statements made to the Employee,
whether made orally or contained in any document, pertaining to the Employee's
relationship with the Company. Notwithstanding anything to the contrary
contained herein, the Employee's employment with the Company is not for any
specified term, is at will and may be terminated by the Company at any time by
delivery of a notice of termination to the Employee, for any reason, with or
without cause, without liability except with respect to the payments provided
for by Section III.3.
(e) Voluntary Resignation. The Employee may voluntarily resign
his position and terminate his employment with the Company at any time by
delivery of a written notice of resignation to the Company (the "Notice of
Resignation"). The Notice of Resignation shall set forth the date such
resignation shall become effective (the "Date of Resignation"), which date shall
be four (4) weeks from the date the Notice of Resignation is delivered to the
Company. At its option, the Company may reduce such notice period to any length,
and may require the Employee to use any accrued vacation as a portion of such
four-week period.
(f) Notice. Any termination of the Employee's employment by
the Company shall be communicated by written Notice of Termination to the
Employee. For purposes of this Agreement, a "Notice of Termination" shall mean 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 Employee's employment under
the provision so indicated.
(g) "Date of Termination" shall mean (i) if the Employee's
employment is terminated by his death, the date of his death, (ii) if the
Employee's employment is terminated by reason of his disability, the date of the
opinion of the physician referred to in paragraph 2(b), above, (iii) if the
Employee's employment is terminated by the Company for Cause pursuant to Section
III.2(c) above, or without Cause by the Company pursuant to Section III.2(d)
above, the date specified in the Notice of Termination and (iv) if the Employee
voluntarily resigns pursuant to Section III.2(e) above, the Date of Resignation.
(h) Termination Obligations.
(ix) The Employee hereby acknowledges and agrees that
all personal property and equipment furnished to or prepared by the
Employee in the course of or incident to his employment, belongs to the
Company and shall be promptly returned to the Company upon termination
of this Agreement. "Personal property" includes, without limitation,
all books, manuals, records, reports, notes, contracts, lists,
blueprints, and other documents, or materials, or copies thereof
(including computer files), and all other proprietary information
relating to the business of the Company. Following termination, the
Employee will not retain any written or other tangible material
containing any proprietary information of the Company.
(x) Upon termination of this Agreement, the Employee
shall be deemed to have resigned from all offices and directorships
then held with the Company or any affiliate.
(xi) The representations and warranties contained
herein and the Employee's obligations under Section III.2(h), Article
II and Article IV shall survive termination of this Agreement and the
expiration of this Agreement.
(i) Release. In exchange for the Company entering into the
Agreement, the Employee agrees that, at the time of his resignation or
termination from the Company, he will execute a release acceptable to the
Company of all liability of the Company and its officers, shareholders,
employees and directors to the Employee in connection with or arising out of his
employment with the Company, except with respect to any Severance Payments which
may be payable to him under the terms of the Agreement.
3. Compensation Upon Termination.
(a) Death. If the Employee's employment shall be terminated
pursuant to Section III.2(a), the Company shall pay the Employee his base salary
and any bonus payable through the Date of Termination. At the Employee's own
expense, the Employee's dependents shall also be entitled to any continuation of
health insurance coverage rights under any applicable law.
(b) Disability. If the Employee's employment shall be
terminated by reason of disability pursuant to Section III.2(b), the Employee
shall receive his base salary and any bonus payable up to the Date of
Termination and for the Severance Period; provided that payments so made to the
Employee during the disability shall be reduced by the sum of the amounts, if
any, payable to the Employee at or prior to the time of any such payment under
any disability benefit plan of the Company. At the Employee's own expense, the
Employee and his dependents shall also be entitled to any continuation of health
insurance coverage rights under any applicable law.
(c) Cause. If the Employee's employment shall be terminated
for Cause pursuant to Section III.2(c) hereof, the Company shall pay the
Employee his base salary and any bonus then payable through the Date of
Termination. At the Employee's own expense, the Employee and his dependents
shall also be entitled to any continuation of health insurance coverage rights
under any applicable law.
(d) Other Terminations by the Company. If the Company shall
terminate the Employee's employment without cause pursuant to Section III.2(d)
hereof, or if the Employee terminates his employment with the Company pursuant
to Section III.2(e) hereof for "Good Cause", the Company shall pay the Employee
his base salary and bonus payable through the Date of Termination and for the
Severance Period. If the Employee terminates his employment with the Company
pursuant to Section III.2(e) hereof without "Good Cause," the Company shall have
no obligation to compensate the Employee following the Date of Termination. In
any event, at the Employee's own expense, the Employee and his dependents shall
be entitled to any continuation of health insurance coverage rights under any
applicable law.
For purposes of this Agreement, "Good Cause" shall mean,
without the express written consent of Employee, the occurrence of any of the
following events unless such events are substantially corrected within 30 days
following written notification by Employee to the Company that he intends to
terminate his employment due to a material reduction or diminution in the
duties, responsibilities and status of Employee's position.
(e) Severance Period. The "Severance Period" shall initially
be three (3) months, and shall increase by one (1) additional month for each
full year of employment, up to a maximum Severance Period of six (6) months.
(f) Any Severance Payment made pursuant to this Section III.3
shall be payable in accordance with the Company's regular payment practices over
the required duration set forth herein.
(g) The continuing obligation of the Company to make the
Severance Payment to the Employee is expressly conditioned upon the Employee
complying and continuing to comply with his obligations and covenants under
Article II of this Agreement following termination of employment with the
Company.
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.
<PAGE>
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.
6. The Company will not use the name or likeness of the Employee
without the Employee's approval, except where required by law.
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: 4304 Millside Court Date:
Smyrna, Georgia 30080
Telephone:
Soc. Sec. #: AGREEMENT NO.:
3
1871\1\employee.ag5
Docket No.______________
ASSIGNMENT
WHEREAS, I, the undersigned, residing at the indicated address given
below, have invented certain new and useful improvements in
___________________________________ Compounds and Methods for Using the Same,
for which an application for United States Letters Patent was
? signed by me as dated below.
- --------------------------------------------
X
- -----------------------------------------
filed , Serial No. ; and
WHEREAS, Bioshield Technologies, Inc., existing by virtue of the laws
of the State of Georgia, and having an office at 4405 International Boulevard,
Suite B109, Norcross, GA 30093, is desirous of acquiring the entire right, title
and interest in and to said invention and in and to any Letters Patent which may
be granted therefor in the United States and in any and all foreign countries;
NOW, THEREFORE, in view of my prior employment with
Bioshield-Technologies, Inc., and other valuable consideration, I, the
undersigned, have sold, assigned, and transferred, and by these presents do
sell, assign, and transfer, unto said Bioshield-Technologies, Inc., its
successors and assigns, the full and exclusive right to the said invention in
the United States and its territorial possessions and in all foreign countries
and the entire right, title, and interest in and to any and all Letters Patent
which may be granted therefor in the United States and its territorial
possessions and in any and all foreign countries and in and to any and all
divisions, reissues, continuations, and extensions thereof.
I hereby authorize and request the Patent Office Officials in the
United States and in any and all foreign countries to issue any and all of said
Letters Patent, when granted, to said Bioshield-Technologies, Inc., as the
assignee of the entire right, title and interest in and to the same, for the
sole use and behoof of said Bioshield-Technologies, Inc., its successors and
assigns.
FURTHER, I agree that I will communicate to said
Bioshield-Technologies, Inc., or its representatives, any facts known to me
respecting said invention; testify in any legal proceedings; sign all lawful
papers; execute all divisional, continuation, substitution, renewal, and reissue
applications; execute all necessary assignment papers to cause any and all of
said Letters Patent to be issued to said Bioshield-Technologies, Inc.; make all
rightful oaths; and generally do everything possible to aid the said
Bioshield-Technologies, Inc., its successors and assigns, to obtain and enforce
proper protection for said invention in the United States and in any and all
foreign countries.
I further, hereby, provide my authorization that my attorney may insert
the filing date and serial number for this application, upon receipt, where
indicated above prior to recordation.
Page One of Two Pages
<PAGE>
Docket No. ____________
Assignment
IN TESTIMONY WHEREOF, I have hereunto set my hand this day of , 1998:
Signed
Jacques E. Elfersy
Address:
IN TESTIMONY WHEREOF, I have hereunto set my hand this day of , 1998:
Signed
Joachim Berkner
Address:
IN TESTIMONY WHEREOF, I have hereunto set my hand this day of , 1998:
--- --- -
Signed
Timothy C. Moses
Address:
State of Georgia )
)
County of Carroll )
On this day of , 1998, personally appeared before me the above-named
JACQUES E. ELFERSY, JOACHIM BERKNER and TIMOTHY C. MOSES, to me known and known
to me to be the persons described in the foregoing instrument, who executed the
foregoing instrument, and who acknowledged the same to be their free act and
deed in and for the purposes set forth in said instrument.
Notary Public
My Commission Expires:
SEAL
Page Two of Two Pages
<PAGE>
Docket No. _________
ASSIGNMENT
WHEREAS, I, the undersigned, residing at the indicated address given
below, have invented certain new and useful improvements in
_____________________________________ Compounds and Methods for Using the Same,
for which an application for United States Letters Patent was
? signed by me as dated below.
- --------------------------------- ---------------
X
- ----------------------------- ------------------------
filed , Serial No. ; and
WHEREAS, Bioshield Technologies, Inc., existing by virtue of the laws
of the State of Georgia, and having an office at 4405 International Boulevard,
Suite B109, Norcross, GA 30093, is desirous of acquiring the entire right, title
and interest in and to said invention and in and to any Letters Patent which may
be granted therefor in the United States and in any and all foreign countries;
NOW, THEREFORE, in view of my prior employment with
Bioshield-Technologies, Inc., and other valuable consideration, I, the
undersigned, have sold, assigned, and transferred, and by these presents do
sell, assign, and transfer, unto said Bioshield-Technologies, Inc., its
successors and assigns, the full and exclusive right to the said invention in
the United States and its territorial possessions and in all foreign countries
and the entire right, title, and interest in and to any and all Letters Patent
which may be granted therefor in the United States and its territorial
possessions and in any and all foreign countries and in and to any and all
divisions, reissues, continuations, and extensions thereof.
I hereby authorize and request the Patent Office Officials in the
United States and in any and all foreign countries to issue any and all of said
Letters Patent, when granted, to said Bioshield-Technologies, Inc., as the
assignee of the entire right, title and interest in and to the same, for the
sole use and behoof of said Bioshield-Technologies, Inc., its successors and
assigns.
FURTHER, I agree that I will communicate to said
Bioshield-Technologies, Inc., or its representatives, any facts known to me
respecting said invention; testify in any legal proceedings; sign all lawful
papers; execute all divisional, continuation, substitution, renewal, and reissue
applications; execute all necessary assignment papers to cause any and all of
said Letters Patent to be issued to said Bioshield-Technologies, Inc.; make all
rightful oaths; and generally do everything possible to aid the said
Bioshield-Technologies, Inc., its successors and assigns, to obtain and enforce
proper protection for said invention in the United States and in any and all
foreign countries.
I further, hereby, provide my authorization that my attorney may insert
the filing date and serial number for this application, upon receipt, where
indicated above prior to recordation.
Page One of Two Pages
<PAGE>
Docket No. _________________
Assignment
IN TESTIMONY WHEREOF, I have hereunto set my hand this day of , 1998:
-- -- --
Signed
Jacques E. Elfersy
Address:
IN TESTIMONY WHEREOF, I have hereunto set my hand this day of , 1998:
------ ----
Signed
Joachim Berkner
Address:
IN TESTIMONY WHEREOF, I have hereunto set my hand this day of , 1998:
------ --- -- -
Signed
Timothy C. Moses
Address:
State of Georgia )
)
County of Carroll )
On this day of , 1998, personally appeared before me the above-named
JACQUES E. ELFERSY, JOACHIM BERKNER and TIMOTHY C. MOSES, to me known and known
to me to be the persons described in the foregoing instrument, who executed the
foregoing instrument, and who acknowledged the same to be their free act and
deed in and for the purposes set forth in said instrument.
Notary Public
My Commission Expires:
SEAL
Page Two of Two Pages
<PAGE>
Docket No. _________________
ASSIGNMENT
WHEREAS, I, the undersigned, residing at the indicated address given
below, have invented certain new and useful improvements in
_____________________________________ Compounds and Methods for Using the Same,
for which an application for United States Letters Patent was
? signed by me as dated below.
- ----------------- ---------------------
X
- ---------------------- ------- ------
filed , Serial No. ; and
WHEREAS, Bioshield Technologies, Inc., existing by virtue of the laws
of the State of Georgia, and having an office at 4405 International Boulevard,
Suite B109, Norcross, GA 30093, is desirous of acquiring the entire right, title
and interest in and to said invention and in and to any Letters Patent which may
be granted therefor in the United States and in any and all foreign countries;
NOW, THEREFORE, in view of my prior employment with
Bioshield-Technologies, Inc., and other valuable consideration, I, the
undersigned, have sold, assigned, and transferred, and by these presents do
sell, assign, and transfer, unto said Bioshield-Technologies, Inc., its
successors and assigns, the full and exclusive right to the said invention in
the United States and its territorial possessions and in all foreign countries
and the entire right, title, and interest in and to any and all Letters Patent
which may be granted therefor in the United States and its territorial
possessions and in any and all foreign countries and in and to any and all
divisions, reissues, continuations, and extensions thereof.
I hereby authorize and request the Patent Office Officials in the
United States and in any and all foreign countries to issue any and all of said
Letters Patent, when granted, to said Bioshield-Technologies, Inc., as the
assignee of the entire right, title and interest in and to the same, for the
sole use and behoof of said Bioshield-Technologies, Inc., its successors and
assigns.
FURTHER, I agree that I will communicate to said
Bioshield-Technologies, Inc., or its representatives, any facts known to me
respecting said invention; testify in any legal proceedings; sign all lawful
papers; execute all divisional, continuation, substitution, renewal, and reissue
applications; execute all necessary assignment papers to cause any and all of
said Letters Patent to be issued to said Bioshield-Technologies, Inc.; make all
rightful oaths; and generally do everything possible to aid the said
Bioshield-Technologies, Inc., its successors and assigns, to obtain and enforce
proper protection for said invention in the United States and in any and all
foreign countries.
I further, hereby, provide my authorization that my attorney may insert
the filing date and serial number for this application, upon receipt, where
indicated above prior to recordation.
Page One of Two Pages
<PAGE>
Docket No. ___________________
Assignment
IN TESTIMONY WHEREOF, I have hereunto set my hand this day of , 1998:
------ ----
Signed
Jacques E. Elfersy
Address:
IN TESTIMONY WHEREOF, I have hereunto set my hand this day of , 1998:
------ ---- -
Signed
Joachim Berkner
Address:
IN TESTIMONY WHEREOF, I have hereunto set my hand this day of , 1998:
------ ----
Signed
Timothy C. Moses
Address:
State of Georgia )
)
County of Carroll )
On this day of , 1998, personally appeared before me the above-named
JACQUES E. ELFERSY, JOACHIM BERKNER and TIMOTHY C. MOSES, to me known and known
to me to be the persons described in the foregoing instrument, who executed the
foregoing instrument, and who acknowledged the same to be their free act and
deed in and for the purposes set forth in said instrument.
Notary Public
My Commission Expires:
SEAL
Page Two of Two Pages
<PAGE>
Docket No.__________________
ASSIGNMENT
WHEREAS, I, the undersigned, residing at the indicated address given
below, have invented certain new and useful improvements in
___________________________________ Compounds and Methods for Using the Same,
for which an application for United States Letters Patent was
? signed by me as dated below.
- ------------------------------ -----------
X
- ------------------------ -----------
filed , Serial
No. ; and
WHEREAS, Bioshield Technologies, Inc., existing by virtue of the laws
of the State of Georgia, and having an office at 4405 International Boulevard,
Suite B109, Norcross, GA 30093, is desirous of acquiring the entire right, title
and interest in and to said invention and in and to any Letters Patent which may
be granted therefor in the United States and in any and all foreign countries;
NOW, THEREFORE, in view of my prior employment with
Bioshield-Technologies, Inc., and other valuable consideration, I, the
undersigned, have sold, assigned, and transferred, and by these presents do
sell, assign, and transfer, unto said Bioshield-Technologies, Inc., its
successors and assigns, the full and exclusive right to the said invention in
the United States and its territorial possessions and in all foreign countries
and the entire right, title, and interest in and to any and all Letters Patent
which may be granted therefor in the United States and its territorial
possessions and in any and all foreign countries and in and to any and all
divisions, reissues, continuations, and extensions thereof.
I hereby authorize and request the Patent Office Officials in the
United States and in any and all foreign countries to issue any and all of said
Letters Patent, when granted, to said Bioshield-Technologies, Inc., as the
assignee of the entire right, title and interest in and to the same, for the
sole use and behoof of said Bioshield-Technologies, Inc., its successors and
assigns.
FURTHER, I agree that I will communicate to said
Bioshield-Technologies, Inc., or its representatives, any facts known to me
respecting said invention; testify in any legal proceedings; sign all lawful
papers; execute all divisional, continuation, substitution, renewal, and reissue
applications; execute all necessary assignment papers to cause any and all of
said Letters Patent to be issued to said Bioshield-Technologies, Inc.; make all
rightful oaths; and generally do everything possible to aid the said
Bioshield-Technologies, Inc., its successors and assigns, to obtain and enforce
proper protection for said invention in the United States and in any and all
foreign countries.
I further, hereby, provide my authorization that my attorney may insert
the filing date and serial number for this application, upon receipt, where
indicated above prior to recordation.
Page One of Two Pages
<PAGE>
Docket No. ___________
Assignment
IN TESTIMONY WHEREOF, I have hereunto set my hand this day of , 1998:
------ -----
Signed
Jacques E. Elfersy
Address:
IN TESTIMONY WHEREOF, I have hereunto set my hand this day of , 1998:
------ ---- -
Signed
Joachim Berkner
Address:
IN TESTIMONY WHEREOF, I have hereunto set my hand this day of , 1998:
------ - --
Signed
Timothy C. Moses
Address:
State of Georgia )
)
County of Carroll )
On this day of , 1998, personally appeared before me the above-named
JACQUES E. ELFERSY, JOACHIM BERKNER and TIMOTHY C. MOSES, to me known and known
to me to be the persons described in the foregoing instrument, who executed the
foregoing instrument, and who acknowledged the same to be their free act and
deed in and for the purposes set forth in said instrument.
Notary Public
My Commission Expires:
SEAL
Page Two of Two Pages
September 8, 1998
VIA FACSIMILE (508) 325-8959
Mr. Jerry Gelula
Maran Marketing Company, Inc.
535 East 86th Street
New York, NY 10028
Re: BioShield Technologies, Inc. ("BioShield" or the "Company")
Dear Jerry:
This will confirm our discussion and conversations concerning the Company's
consulting with Maran Marketing.
BioShield Technologies, Inc. has hired Maran Marketing ("MM") on a
quarter-to-quarter basis at a rate of $7,500 per month for the first quarter
(for the months of September, October, and November) and thereafter if renewed
prior to the end of such quarter (beginning not sooner than December 1, 1998)
the rate shall be increased to $12,500 per month. You, as the President of Maran
Marketing, and your employees have no authority to act as employee, officer, or
director of the Company.
Services to be rendered by MM are for the creation of sales and manufacturing
relationships in the OEM and I&I markets. Either party may terminate this
agreement upon ninety (90) days notice. Commission will be paid to MM for all
sales approved in advance by BioShield in its sole discretion as follows:
(A) 10% commission on all revenues actually received by the
Company from sales of concentrate for as long as MM
coordinates and handles said account, initiated and signed by
MM on behalf of BioShield.
(B) Licensing Fees actually received from clients brought directly
through the efforts of MM to BioShield will be paid on a
commission basis as followed in accordance with a Lehman
Formula (i.e., 5% of the first 1,000,000; 4% of 2nd; 3% of 3rd
to 1% of 5th).
(C) Any one time, up front marketing rights or fees actually
received by BioShield from clients contracted by MM on behalf
of BioShield will also be paid in accordance with the Lehman
Formula as stated in item (B).
<PAGE>
Mr. Mr. Jerry Gelula
Maran Marketing Company, Inc.
September 8, 1998
Page 2
This agreement is to be intended as a performance based marketing and sales
agreement between MM and BioShield Technologies, Inc. All expenses are to be
approved in advance prior to preceding with travel, etc. Maran Marketing will
make itself available at least eighty (80) hours per month and for travel as
agreed upon. This memorandum constitutes the complete understanding between the
parties regarding any and all business dealings and supercedes any past
communications, both verbal and written.
- --------------------------------------------
Timothy C. Moses, President/CEO
- --------------------------------------------
Jerome D. Gelula Maran Marketing Company, Inc.
1
A M E R I C A N S E C U R I T I E S T R A N S F E R & T R
U S T, I N C.
AGREEMENT APPOINTING TRANSFER AGENT AND REGISTRAR
THIS AGREEMENT is made and entered into this 27th day of August, 1998 ,
by and between the following:
(a) AMERICAN SECURITIES TRANSFER & TRUST, INC. ("AST"), a Colorado
corporation, whose address is 1825 Lawrence Street, Suite 444, Denver, Colorado
80202; and
(b) BioShield Technologies, Inc. (the "Company"), a corporation
organized under the laws of the State of Georgia , whose business address is
4405 International Boulevard, Suite B-109, Norcross, Georgia 30093.
IN CONSIDERATION of the covenants and agreements set forth herein, the
parties agree as follows:
1. Appointment of Transfer Agent and Registrar. The Company hereby
appoints AST as transfer agent and registrar of all of the shares of the
Company's capital stock as described below:
Shares Authorized by the
Stock Class Articles or Certificate of
Shares Issued
(Par Value) Incorporation and Outstanding
common (no par value) 50,000,000 4,819,125
By special resolution adopted by the Company's Board of Directors, AST may, from
time to time, be appointed as transfer agent for additional classes of the
Company's stock and may be appointed to act in the capacity of dividend
disbursing agent, warrant agent, exchange agent, redemption agent, escrow agent
or any other similar capacity as may be agreed upon by AST and the Company.
2. Fees. The Company shall pay to AST such fees for AST's services as
are set forth in the Fee Schedule (as presented in AST's proposal or attached
hereto as Exhibit A) incorporated herein, and shall reimburse AST for all
extraordinary out-of-pocket expenses incurred in the performance of its duties
hereunder. Such Fee Schedule may be amended by AST from time to time upon thirty
(30) days advance written notice from AST to the Company.
<PAGE>
3. Instructions. At any time AST may apply to the Company or its
counsel for instructions or information, and may consult with its own counsel,
with respect to any matter arising in connection with the agency created hereby
and AST shall not be liable for any action taken or omitted in accordance with
such instructions, information or the advice or opinion of such officer or
counsel. AST shall not be liable for acting upon any paper or document believed
by it to be genuine and to have been signed by the proper person(s) and shall
not be held to have notice of any change of authority of any person, until
receipt of written notice thereof from the Company. AST shall also not be liable
for recognizing stock certificates which it reasonably believes bear the proper
manual or facsimile signatures of the officers of the Company and the proper
counter-signature of a transfer agent or registrar, or of a co-transfer agent or
co-registrar. AST, if it so elects, may rely conclusively, for any and all
purposes, upon any advices of transfer or transfers made in the course of
transferring or registering original issuances, retirements or cancellation of
shares; upon advices of stop transfer orders placed, released or in effect
against outstanding certificates; and upon any certification or notification as
to the number of shares issued, the certificates representing such shares and
other information which AST may receive from time to time from any co-transfer
agent or co-registrar. AST shall further not be liable for relying upon all
information contained in Certification of Corporate Secretary or otherwise
supplied to AST by the Company in accordance with the terms of this Agreement.
4. Term. This Agreement shall be effective, subject to receipt of
documents referenced in Section 17 of this Agreement, commencing on the date of
this Agreement as set forth above and shall continue in effect until terminated
in accordance with the terms hereof.
5. Other Provisions. The additional terms and conditions on the
attachment hereto entitled "Other Conditions and Agreements" (Sections 6 through
22) are incorporated herein by this reference and made a part of this Agreement.
EXECUTED as of the date and year first written above.
AMERICAN SECURITIES TRANSFER BioShield Technologies, Inc.
& TRUST, INC.
By /s/ Margo Ankele By /s/Timothy C. Moses
Margo Ankele Timothy C. Moses
Its Marketing Officer President/Chief Operating
Officer
<PAGE>
OTHER CONDITIONS AND AGREEMENTS
6. Originally Issued Shares. AST is hereby authorized to originally
issue, register and countersign certificates of the Company's stock covered by
this Agreement upon being furnished with an appropriate written request signed
by an officer of the Company, a certified copy of a resolution of the Board of
Directors or a copy of the Board of Directors minutes authorizing such original
issue and, if specifically requested by AST, an opinion of counsel concerning
the status of such stock, including shares which are reserved for specific
purposes, under the Securities Act of 1933 and other applicable Federal or State
statute (i.e., if registration is necessary, the effective date of the
registration statement or, if exempt, the specific basis therefor).
7. Transfer of Outstanding Shares. AST is hereby authorized to accept
for transfer any outstanding certificates representing the Company's stock
covered by this Agreement, and to issue and countersign new certificates in
place thereof, except that AST may refuse to transfer such certificate if it in
good faith believes that the certificate, when surrendered for transfer, is not
validly or genuinely endorsed or is otherwise not valid. AST incurs no liability
and assumes no responsibility with respect to the transfer of restricted
securities when Company's counsel advised AST that such transfer may be properly
effected. AST reserves the right to refuse to transfer shares until it is
satisfied that the requested transfer is legally authorized and it shall incur
no liability for the refusal in good faith to make transfers which it, in its
judgment, believes may be improper, unauthorized or for any other reason not
permitted by law. AST may, in effecting transfers, rely upon the Securities Act
of 1933, the Securities Exchange Act of 1934, any state securities law, and
rules and regulations promulgated pursuant to such laws, the Simplification Acts
or the Uniform Commercial Code in transferring or refusing the transfer of any
securities, included but not limited to provisions relating to adverse claims.
In cases in which AST is not directed or otherwise required to maintain the
primary records of stockholders' accounts (i.e., co-transfer agent), AST shall
not be liable for any loss which may arise by reason of not having such records
where AST has exercised ordinary diligence. AST shall be under no duty to use a
greater degree of diligence by reason of not having such records.
8. Transfer or Cancellation of Treasury Shares. AST is hereby
authorized to transfer or cancel certificates of the Company's stock covered by
this Agreement in the name of or belonging to the Treasury of the Company, upon
receipt of the certificate(s) endorsed by an officer of the Company, a certified
copy of a resolution of the Board of Directors authorizing such endorsement and
such transfer or cancellation, and, in the case of a transfer only, an opinion
of counsel as described in paragraph 6 above.
9. Lost or Destroyed Certificates. In accordance with the Board of
Directors' resolution contained in the Certification of Corporate Secretary, AST
may issue or register new certificates to replace certificates represented to
have been lost, stolen or destroyed upon receiving an open penalty bond issued
by a surety company satisfactory to AST. AST is further authorized in its
discretion to issue or register a new certificate in exchange for, and upon
surrender of, an identifiable but mutilated stock certificate.
10. Delivery of Certificates by Mail. AST is hereby authorized to
forward stock certificates, warrants and other securities of the Company by mail
in accordance with the terms of a blanket bond or other satisfactory indemnity
covering nonreceipt of such mailed instruments. Said bond shall name, directly
or indirectly, the Company and AST as obligees. In the event of the nonreceipt
of such certificates mailed by AST, the Company hereby authorizes the issuance
of new certificates for a like amount in place thereof upon receipt of a
properly executed affidavit and proof of loss or non-receipt provided for under
said blanket bond and the issuance by the surety company of an assumption of the
loss under said blanket bond, all without further action or approval of the
Board of Directors or the officers of the Company.
<PAGE>
11. Unclaimed or Undelivered Stock Certificates. Where a stock
certificate, for any reason, is in the possession of AST and has not been
claimed by the registered holder or cannot be delivered to the registered holder
through usual channels, AST shall continue to hold said certificate for the
registered holder subject to applicable escheat or other laws.
12. Books and Records. AST is hereby authorized to establish and
maintain such books and records as may be required for the performance of its
agency duties and responsibilities, and to establish and maintain ledgers for
the Company and to make entries therein of all certificates issued, canceled and
transferred. AST may deliver to the Company from time to time at its discretion,
for safekeeping or disposition by the Company in accordance with law, such
records, papers, stock certificates which have been cancelled in transfer or
exchanges and other documents accumulated in the execution of its duties
hereunder as AST may deem expedient, other than those which AST is itself
required to maintain pursuant to applicable laws and regulations. Upon delivery
of such records, the Company shall assume all responsibility for any failure
thereafter to produce any record, paper, cancelled stock certificate or other
document so returned, if and when required. AST will endeavor to notify the
Company of, and will follow instructions received from the Company with respect
to, any request or demand for the inspection of the Company's stock books.
However, AST reserves the right to exhibit the records to any person if it is
advised by its counsel that it may be held liable for the failure to exhibit
such records to such person.
13. Stock Certificates and Signatures. The Company shall furnish AST
with a sufficient supply of blank stock certificates and from time to time will
renew such supply upon the request of AST. Such blank stock certificates shall
be properly signed by the officers of the Company authorized by law or by the
Company's Bylaws to sign stock certificates and, if requested, shall bear the
corporate seal or facsimile thereof.
The Company shall promptly file with AST written notice of any change
in the officers authorized to sign stock certificates, written instructions or
requests, together with specimen signature of each newly authorized officer. In
case any officer of the Company who has properly signed blank stock certificates
shall die, resign or be removed prior to the issuance of such certificates, AST
as transfer agent and/or as registrar may issue or register such stock
certificates as the stock certificates of the Company notwithstanding such
death, resignation or removal; and the Company shall file promptly with AST such
approval, adoption or ratification as may be required by law.
14. Indemnification. AST shall not be liable for any act or omission in
connection with this agency or the performance of its duties as transfer agent
taken in good faith, with due diligence and without gross negligence or willful
misconduct. The Company assumes full responsibility and shall indemnify AST and
save it harmless from and against any and all actions or suits, whether
groundless or otherwise, and from and against any and all losses, damages,
costs, charges, counsel fees, payments, expenses and liabilities arising out of
the agency relationship or the performance of AST's duties as transfer agent,
where AST has acted without gross negligence or willful misconduct. AST shall
not be under any obligation to prosecute or defend any action or suit in respect
to any agency relationship or its duties as transfer agent which, in its sole
judgment, may subject it to expense or liability. In any action or suit, the
Company shall, as often as requested, furnish AST with satisfactory indemnity
and security against any expense or liability growing out of such action or suit
by or against AST. In addition, the Company shall provide AST with any books,
records, memoranda or other documents required by AST to prosecute or defend any
claim or action.
<PAGE>
15. Previous Transfer Agent. The Company shall indemnify, protect and
hold AST harmless from any liability arising from any actions, or failures to
act, on the part of any previous stock transfer agent(s) used by the Company,
specifically including, but not limited to, liability arising from lack of
completeness or validity of the records maintained by any such previous transfer
agents or provided to AST by such previous stock transfer agents.
AST agrees to exercise reasonable diligence in converting the records
and information of any such previous stock transfer agent to AST's system, and
in researching the records of any such previous stock transfer agent to identify
and resolve errors and discrepancies contained therein.
16. Compliance with Law. AST may, without liability to the Company,
refuse to perform any act in connection with this agency where, in good faith
reliance upon opinion of counsel, it believes that such act may subject it or
its officers or employees to civil or criminal liability under any law of any
state or of the United States and, in particular, under the Securities Act of
1933 and the Securities Exchange Act of 1934.
17. Necessary Documentation. Prior to the effective date of this
Agreement, the Company shall furnish AST with the following documents:
(a) A Certification of the Secretary of the Company which
Certification shall be in the form of the Certification of Corporate Secretary
and shall have attached thereto copies of the following documents:
(i) Specimen stock certificates for each class of stock (outstanding or to
be outstanding) of the Company for which AST is being appointed transfer agent
and registrar.
(ii) A copy of the Company's Articles and Certificate of Incorporation, and
all amendments thereto, certified by the Secretary of State of the State of the
Company's incorporation.
(iii) A copy of the Bylaws of the Company and all
amendments thereto certified by the
Secretary of the Company.
(vi) If applicable, a shareholder list, certified by the Secretary of the
Company or the previous transfer agent which AST is succeeding, showing the
number and the date of each outstanding certificate, the name in which issued,
the number of shares represented thereby, the address and taxpayer
identification number of the stockholder, all restricted or legended
certificates, all stop transfer orders in respect to such certificate and the
reason for such order and, finally, all certificates issued as replacements for
those reported lost, stolen, or destroyed.
(b) Any additional information or documents as may be
specifically requested by AST in connection with this Agreement or the
performance of its duties including, without limitation, an opinion of counsel
concerning the status of the Company's stock under the Securities Act of 1933
and any other applicable Federal or State statute (i.e., if registration
occurred, the effective date of such registration statement or, if exempt, the
specific basis therefor).
18. Future Amendments of Charter and Bylaws. The Company shall file
with AST certified copies of all amendments to its articles of incorporation or
bylaws made after the date of creation of the agency.
<PAGE>
19. Termination. The Company may terminate this Agreement by providing
written notice to AST which notice shall be effective as of the first calendar
month-end thirty (30) days after AST's receipt of the Company's termination
notice. At AST's election, however, the Company shall not be entitled to
terminate AST services under this Agreement until the Company has paid to AST
all amounts due it under this Agreement. AST further reserves the right to
terminate this Agreement as of such month-end by similar thirty (30) days'
notice to the Company, or on notice to the Company in the event of a
disagreement concerning the lawfulness of any transfer or other action requested
by the Company, failure to timely pay fees due AST or other cause, whether or
not similar to the foregoing. Upon termination of this Agreement by either
party, the Company shall pay AST such fees and expenses established in the then
effective Fee Schedule, and the Company shall reimburse AST for all costs and
expenses incurred in connection with termination including, without limitation,
charges for the shipment of records and other similar charges.
20. Security Interest. AST shall have a security interest in all
records of the Company which it maintains pursuant to this agency, and all
canceled and blank certificates of the Company, to secure payment of any fees,
charges or other amounts due AST from the Company pursuant to this Agreement.
21. Attorneys Fees. If either party commences legal action against the
other for damages or breach hereof or to otherwise enforce any remedy hereunder,
the prevailing party shall be entitled to recovery from the other party any and
all of its costs and expenses, including reasonable attorney's fees, as may be
incurred.
22. General Provisions. This Agreement shall be construed and governed
by the laws of the State of Colorado and shall be binding upon the parties
hereto and their successors and assigns. This Agreement embodies the entire
agreement and understanding between the parties and supersedes all prior
agreements and understandings relating to the subject matter hereof, and this
Agreement (except for any amendments made by AST pursuant to Section 2 above)
may not be modified or amended or any term or provisions hereof waived or
discharged except in writing signed by the party against whom such amendment,
modification, waiver or discharge is sought to be enforced. The headings of this
Agreement are for convenience in reference only and shall not limit or otherwise
affect the meaning hereof. In the event of any controversy arising out of this
Agreement, the parties hereto consent to the jurisdiction of the District Court
of the City and County of Denver, Colorado. This Agreement may be executed in
counterparts and facsimile signatures of any party shall be binding and
enforceable.
