AMENDMENT NO.3
FORM SB-2
REGISTRATION STATEMENT
under the
SECURITIES ACT OF 1933
BIOSHIELD TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
Georgia 2842 58-2181628
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
BioShield Technologies, Inc.
4405 International Boulevard
Suite B-109
Norcross, Georgia 30093
(770) 925-3432
(Address and telephone number of principal
executive offices and principal place of business)
Timothy C. Moses
BioShield Technologies, Inc.
4405 International Boulevard, Suite B-109
Norcross, Georgia 30093
(770) 925-3432
(Name, address and telephone number of agent for service)
Copies of all communications to:
Raymond L. Moss, Esq.
Sims Moss Kline & Davis LLP Bruce A. Cheatham, Esq.
400 Northpark Town Center, Suite 310 Winstead, Sechrest & Minick P.C.
1000 Abernathy Road, N.E. 5400 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.
<PAGE>
Calculation of Registration Fee
<TABLE>
<CAPTION>
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price per Share Aggregate Offering Price Registration Fee
(1) (1) (1)
<S> <C> <C> <C> <C>
Units 862,500 $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
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee. (2)
Included in the Units. No additional registration fee is required. (3) Issuable
upon the exercise of Redeemable Common Stock Purchase Warrants. Pursuant to Rule
416 there are also registered an indeterminate number of shares of Common Stock,
which may be issued pursuant to the antidlution provisions applicable to the
Redeemable Common Stock Purchase Warrants, the Underwriters' Warrants and the
Redeemable Common Stock Purchase Warrants issuable under the Underwriters
Warrants. (4) Underwriters' Warrants to purchase up to 75,000 Units, consisting
of an aggregate of 150,000 shares of Common Stock and 75,000 Warrants. (5)
Included in the Units underlying the Underwriters' Warrants. No additional
registration fee is required. (6) Issuable upon exercise of Redeemable Common
Stock Purchase Warrants
underlying the Underwriters' Units.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 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 60% 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 150% 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 approximately $421,406 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
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements (included notes thereto)
appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information herein is presented on the basis that the over-allotment option and
underwriters' warrants are not exercised. The securities offered hereby involve
a high degree of risk. Investors should carefully consider the information set
forth under "Risk Factors."
The Company
BioShield Technologies, Inc. (the "Company") is a development stage company
engaged in the development, marketing, and sale of surface modifying
antimicrobials and biostatic products, primarily through third party licensing
arrangements. The Company's primary focus is to exploit its proprietary
technology to become the leader in topical antimicrobials and biocides for
consumer, industrial and institutional markets, environmental services, and
medical device markets. BioShield products are an easily applied reactive
coating technology that modifies surfaces of all types, by creating an invisible
covalent bond between surfaces and a variety of chemical agents. The italicized
terms used in this Prospectus are defined in the Glossary beginning on page 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
<PAGE>
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"
- --------
(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
<PAGE>
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."
<TABLE>
<CAPTION>
Fiscal Periods Ended June 30,
1996 1997 1998
------------------ ----
Operating Data:
<S> <C> <C> <C>
sales $ 0 $775,315 $462,471
Cost of sales 0 315,822 154,658
--------- ------- -------
Gross profit 0 459,493 307,813
Operating expenses 386,217 987,353 1,764,909
------- ------- ---------
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)
</TABLE>
<TABLE>
<CAPTION>
June 30,
June 30,1997 1998 1998
------------ ----------- -------
As Adjusted (1)
Balance Sheet Data:
<S> <C> <C> <C>
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
</TABLE>
- ------------
(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
<PAGE>
RISK FACTORS
An investment in the Securities offered hereby involves a high degree
of risk. Prospective investors should consider the following factors in addition
to other information set forth in the prospectus before hereby.
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
<PAGE>
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
<PAGE>
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
<PAGE>
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."
9
<PAGE>
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."
10
<PAGE>
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.
11
<PAGE>
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.
21
<PAGE>
Although there has been an enormous interest in silane chemistry,
historically, product development has not been focused on end-use products
containing reactive silane, possibly because of the difficulty associated with
providing safe means of application, for example from aqueous solutions. By
providing water stable solutions of reactive silanes, a whole field of chemistry
research with many useful molecules synthesized and characterized is readily
available to the Company for commercialization. However, no assurances can be
given that the Company will obtain the required regulatory approvals or will be
successful in bringing any of these products to market.
In summary, the Company has developed new technologies for the
stabilization of reactive silanes or silane integrated systems in user friendly
solvents, primarily water. This new technology allows the utilization of a
well-known antimicrobial system into medical and consumer products providing
durable treatments possibly otherwise unavailable.
Marketing and Sales.
There are numerous product, process, and service uses for the Company's
unique antimicrobial technologies. Viewed collectively, they form the basis of a
mini-industry built around a single key active ingredient chemistry that, like
penicillin, might change the way microbes are controlled in the future.
The largest number of opportunities require additional development
activities. In some, much of the technical work has been completed and generally
only regulatory work is required. In others, significant technical development
is still required.
The Company intends to initially concentrate its efforts towards the
marketing and sales of products for the retail consumer and industrial markets.
The Company believes that product market is comprised of four primary
segments as described below: Retail-Household Care products,
Industrial-Institutional products, Healthcare products, and Environmental
Services.
Technical development has been completed on several products, and many
are ready for commercialization in areas where regulatory requirements permit.
Initially, however, products are being commercialized by the Company in the
retail consumer market and institutional and industrial (I & I) marketplaces as
described below.
Products Market Segment.
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.
22
<PAGE>
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.
23
<PAGE>
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.
24
<PAGE>
Pursuant to an agreement dated November 1997, the Company has entered
into a marketing and distribution agreement to build brand equity with QVC (the
"QVC Agreement") to promote its products on an exclusive basis via direct
response television. The Agreement is renewable on an approval basis. However,
the Agreement will be automatically renewed in the event that net purchases by
QVC equal $1,500,000 during the first year and 110% of such amount each year
thereafter. QVC has also agreed to work with the Company to help it introduce
six (6) new consumer products on QVC's television shopping program during the
term of the Agreement. The Company has also granted QVC certain option rights to
purchase shares of the Company's Common Stock upon exceeding $2,000,000 in 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.
25
<PAGE>
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.
26
<PAGE>
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.
27
<PAGE>
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.
28
<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.
29
<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.
32
<PAGE>
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.
33
<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.
34
<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 an employment agreement, dated as of September 18,
1998, with Mr. Parker. The agreement has an initial term commencing upon the
closing of the initial public offering of the Company, and expiring on the third
anniversary thereof. Under the agreement, Mr. Parker is required to devote his
substantially full time and attention 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. The agreement
provides for a base salary at the rate of $150,000. In addition, the agreement
provides a severance package in the event Mr. Parker is terminated other than
for cause (as defined) or the executive terminates his agreement for good reason
(as defined) an amount equal to the lessor of (i) the remaining unexpired term
of the agreement or (ii) one year from the date of termination. He shall also be
entitled to medical insurance, benefits provided to other executives, and the
issuance by the Company, upon each of the first three anniversary dates of his
employment, of options to acquire 50,000 shares of the Company's Common Stock.
Such options shall be exercisable at the initial public offering price and which
will also be subject to certain additional terms, conditions, and restrictions.
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.
37
<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.
38
<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.
39
<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.
40
<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.
Pursuant to these Sections, the Company represents that (i) all future material
affiliated transactions and loans will be made or entered into on terms that are
no less favorable to the Company than those that could be obtained from
unaffliated third parties and (ii) all future material affiliated transactions
and loans, and any forgiveness of loans, will be approved by a majority of the
Company's independent directors who do not have an interest in the transactions
and 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.
42
<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
statements of operations, stockholders' equity (deficit), and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits in accordance
with generally accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the financial statements
referred to above present fairly, in all material respects, the financial
position of BioShield Technologies, Inc. as of June 30, 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. /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 (1)
Exhibit 1.2 Form of Underwriters' Warrant (1)
Exhibit 3.1 Amended and Restated Articles of Incorporation of the Company,
dated February 13, 1998 (2)
Exhibit 3.2 Bylaws of the Company (2)
Exhibit 4.1 Form of Stock Certificate (2)
Exhibit 4.2 Form of Unit Certificate (2)
Exhibit 4.3 Form of Unit Warrant Certificate (2)
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 (1)
Exhibit 4.7 Form of November 1996 and December 1996 - April 1996 Private
Placement Warrant (2)
Exhibit 4.8 Form of July 1997 Private Placement Warrant (2)
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 (2)
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 (2) (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 17, 1998 (1)(3)
Exhibit 10.20 Transfer Agent Agreement between the Company and American
Securities Transfer & Trust, Inc.,
dated August 27, 1998 (2)
Exhibit 23.1 Form of Consent by Grant Thornton, LLP (1)
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 ___17, 1998
- ---------------------------
Timothy C. Moses Director
/s/ Jacques Elfersy* Chairman of the Board; September __17, 1998
Jacques Elfersy Vice President of Operations
and Director of Regulatory Affairs;
Chief Financial Officer
/s/ Carl T. Garner* Director September _17, 1998
- ---------------------------------------------------
Carl T. Garner
/s/ Michel Azran* Director September 17_, 1998
Michel Azran
</TABLE>
II-5
* By Power of Attorney /s/ Timothy C. Moses
Timothy C. Moses
750,000 UNITS
BIOSHIELD TECHNOLOGIES, INC.
(a Georgia corporation)
Each Unit Consisting of
Two Shares of Common Stock and
Two Redeemable Common Stock Purchase Warrants
September ___, 1998
UNDERWRITING AGREEMENT
TEJAS SECURITIES GROUP, INC.
REDSTONE SECURITIES, INC.
SEABOARD SECURITIES, INC.
As Representatives of the Several Underwriters
c/o Tejas Securities Group, Inc.
8214 Westchester
Suite 500
Dallas, Texas 75225
Gentlemen:
<PAGE>
-1-
1. INTRODUCTION. BioShield Technologies, Inc., a Georgia corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule A attached hereto (the "Underwriters") for whom you are acting as
representatives (the "Representatives") pursuant to this Underwriting Agreement
(this "Agreement") an aggregate of Seven Hundred Fifty Thousand (750,000) Units
(the "Units") consisting of (i) two shares (the "Shares") of common stock, no
par value (the "Common Stock"), and (ii) two redeemable Common Stock purchase
warrants to purchase one share of Common Stock (the "Redeemable Warrants") at a
price of __________ Dollars ($_____) per Unit. The Redeemable Warrants are
subject to redemption, in certain instances, commencing one (1) year from the
date of the Prospectus (as hereinafter defined). The Units and the Shares and
Redeemable Warrants included in the Units are herein collectively called the
"Firm Securities." In addition, the Selling Shareholders (as hereinafter
defined) and the Company propose to grant to the Underwriters an option to
purchase all or any part of an aggregate of One Hundred Twelve Thousand Five
Hundred (112,500) additional Units (the "Option Securities") consisting of
225,000 shares (the "Option 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 Redeemable Warrants (the "Option Warrants")
to be issued by the Company, at a price of ___________ Dollars ($_____) per
Unit, solely for covering over-allotments, if any. The Firm Securities and the
Option Securities are hereinafter sometimes referred to as the "Offered
Securities." The 862,500 shares of Common Stock issuable upon exercise of the
Redeemable Warrants included as part of the Offered Securities are hereinafter
referred to as the "Public Warrant Shares."
The Shares and Redeemable Warrants may not be separately traded until
six (6) months after the date of the Prospectus (as hereinafter defined) unless
earlier separated upon ten (10) days' prior written notice from Tejas Securities
Group, Inc. to the Company. Each Redeemable Warrant shall be exercisable after
the Redeemable Warrants become separately tradeable and until five (5) years
from the date of the Prospectus, and shall entitle the holder to purchase one
share of Common Stock at a price equal to $____ per share, which price is
subject to adjustment in certain circumstances to prevent dilution. Commencing
six (6) months from the date of the Prospectus, the Company shall have the
right, at any time, to call each of the Redeemable Warrants for redemption upon
not less than thirty (30) days' prior written notice at any time at a redemption
price of $.05 per Redeemable Warrant, subject to adjustment, provided that the
closing bid quotation of the Common Stock as reported on The Nasdaq Stock Market
or the last sales price if quoted on a national securities exchange for a period
of ten (10) consecutive trading days, exceeds $________ per share, subject to
adjustment in certain circumstances to prevent dilution. The Redeemable Warrants
will be issued pursuant to a warrant agreement dated the date hereof between the
Company and American Securities Transfer & Trust, Inc. (the "Public Warrant
Agreement"), a form of which has been filed as Exhibit 4.6 to the Registration
Statement.
The Company also proposes to issue and sell to the Representatives,
pursuant to the terms of a warrant agreement, dated as of the First Closing Date
(as defined in Section 4(c) below), between you and the Company (the
"Underwriters' Warrant Agreement"), warrants (the "Underwriters' Warrants") to
purchase up to 75,000 Units for One Hundred Dollars ($100). The Underwriters'
Warrants shall be exercisable during the four-year period commencing twelve (12)
months from the Effective Date (as defined in Section 2(a) below), at a price
per unit of 120% of the initial public offering price, subject to adjustment in
certain events to protect against dilution. The 75,000 Units issuable upon
exercise of the Underwriters' Warrants are hereinafter referred to as the
"Underwriters' Units"; the 75,000 shares of Common Stock underlying the
Underwriters' Units are hereinafter referred to as the "Underwriters' Shares";
the 75,000 Redeemable Warrants underlying the Underwriters' Units are
hereinafter referred to as the "Underwriters' Redeemable Warrants"; the 75,000
shares of Common Stock issuable upon exercise of the Underwriters' Redeemable
Warrants are hereinafter referred to as the "Underwriters' Warrant Shares"; and
the Underwriters' Warrants, the Underwriters' Units, the Underwriters' Shares,
the Underwriters' Redeemable Warrants and the Underwriters' Warrant Shares are
sometimes hereinafter referred to collectively as the "Underwriters'
Securities." The Offered Securities and the Underwriters' Securities are
sometimes hereinafter referred to collectively as the "Registered Securities."
The Registered Securities are more fully described in the Registration
Statement and the Prospectus referred to below.
The several Underwriters have advised the Company that they desire to
purchase the Units. The Company confirms the agreements made by it with respect
to the purchase of the Units by the Underwriters as follows:
<PAGE>
-1-
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to each Underwriter as of the date hereof, as of the First Closing Date
(as defined in Section 4(c) below), and as of the Option Closing Date (as
defined in Section 4(c) below), if any, and agrees with each Underwriter, as
follows:
<PAGE>
-1-
(a) The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (No. 333-57767) covering the
registration of the Registered Securities under the Securities Act of 1933, as
amended (the "Act"), including the related preliminary prospectus or
prospectuses. Promptly after execution and delivery of this Agreement, the
Company will either (i) prepare and file a prospectus in accordance with the
provisions of Rule 430A ("Rule 430A") of the rules and regulations of the
Commission under the Act (the "Rules and Regulations") and paragraph (b) of Rule
424 ("Rule 424(b)") of the Rules and Regulations or (ii) if the Company has
elected to rely upon Rule 434 ("Rule 434") of the Rules and Regulations, prepare
and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule
434 and Rule 424(b). The information included in such prospectus or in such Term
Sheet, as the case may be, that was omitted from such registration statement at
the time it became effective but that is deemed to be part of such registration
statement at the time it became effective (i) pursuant to paragraph (b) of Rule
430A is referred to as "Rule 430A Information" or (ii) pursuant to paragraph (d)
of Rule 434 is referred to as "Rule 434 Information." Each prospectus used
before such registration statement became effective, and any prospectus that
omitted, as applicable, the Rule 430A Information or the Rule 434 Information
that was used after such effectiveness and prior to the execution and delivery
of this Agreement, is herein called a "Preliminary Prospectus." Such
registration statement, including the exhibits thereto and schedules thereto, at
the time it became effective (the "Effective Date") and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the Rules and Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final prospectus in
the form first furnished to the Underwriters for use in connection with the
offering of the Registered Securities is herein called the "Prospectus." If Rule
434 is relied on, the term "Prospectus" shall refer to the preliminary
prospectus dated September ____, 1998, together with the Term Sheet, and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. For purposes of this Agreement, all references to the
Registration Statement, any Preliminary Prospectus, the Prospectus or any Term
Sheet or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR"). The Company will not, so
long as any Redeemable Warrants, Underwriters' Warrants or Underwriters'
Redeemable Warrants remain outstanding and exercisable, file any amendment to
the Registration Statement or any amendment or supplement to any Preliminary
Prospectus or the Prospectus unless the Company has given reasonable and prior
notice thereof to the Representatives and counsel for the Underwriters and none
of which shall have reasonably objected within a reasonable period of time prior
to the filing thereof.
The terms used herein shall have the same meaning as in the Prospectus
unless the context hereof otherwise requires.
<PAGE>
-1-
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary
Prospectus, nor has the Commission or any such authority instituted or, to the
best knowledge of the Company, threatened to institute any proceedings with
respect to such an order. At the
times the Registration Statement, any 462(b) Registration Statement and any
post-effective amendments thereto becomes effective and at all times
subsequent thereto up to and on the First Closing Date (as defined in
Section 4(c) below) or the Option Closing Date (as defined in Section 4(c)
below), as the case may be, (i) the Registration Statement, the 462(b)
Registration Statement, the Prospectus, and any amendments or supplements to
any thereof, complied and will comply in all material respects to the
requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, the 462(b) Registration
Statement, the Prospectus, and any amendments or supplements to any thereof,
did not and will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make statements therein not misleading; provided, however, that the
Company makes no representations, warranties or agreements as to
information contained in or omitted from the Registration Statement or
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of the Underwriters specifically
for use in the preparation thereof; and (iii) if Rule 434 is used, the Company
will comply with the requirements of Rule 434 and the Prospectus shall not be
"materially different," as such term is used in Rule 434, from the
prospectus included in the Registration Statement.
Each Preliminary Prospectus and each Prospectus filed as a part of
the Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Rules and
Regulations, complied when so filed in all material respects with the Rules and
Regulations, and each Preliminary Prospectus and each Prospectus delivered
to the Underwriters for use in connection with the offering of the
Registered Securities were identical to the electronically
transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
<PAGE>
-1-
(c) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority (corporate and other) to own its
properties and conduct its business as described in the Registration Statement
and Prospectus and is duly qualified to do business as a foreign corporation and
is in good standing in all other jurisdictions in which the nature of its
business or the character or location of its properties requires such
qualification, except where failure to so qualify will not have a material
adverse effect on the Company's business, properties, assets, condition
(financial or other) or results of operations (a "Material Adverse Effect"). The
Company holds all authorizations, approvals, licenses, certificates, franchises
and permits from state, federal or other regulatory authorities necessary for
the conduct of its business as presently conducted and as described in or
contemplated by the Registration Statement and is in compliance with all laws
and regulations and all orders and decrees applicable to it or to such business
or assets except where the absence of such authorizations, approvals, licenses,
certificates, franchises and permits will not have a Material Adverse Effect,
and there are no proceedings pending or, to the best knowledge of the Company,
threatened, seeking to cancel, terminate or limit such authorizations,
approvals, licenses, certificates, franchises or permits.
<PAGE>
-1-
(d) The authorized, issued and outstanding capital stock of the Company as of
__________, 1998 is as set forth in the Prospectus under "Capitalization"; all
shares of issued and outstanding capital stock of the Company set forth
thereunder have been duly authorized, validly issued and are fully paid and
non-assessable; except as set forth in the Prospectus, no options, warrants, or
other rights to purchase, agreements or other obligations to issue, or
agreements or other rights to convert any obligation into, any shares of capital
stock of the Company have been granted or entered into by the Company; and the
capital stock conforms to all statements relating thereto contained in the
Registration Statement and Prospectus. The issuances and sales of all such
capital stock complied in all respects with applicable federal and state
securities laws; the holders thereof have no rights of rescission with respect
thereto, and are not subject to personal liability by reason of being such
holders; and none of such securities were issued in violation of the preemptive
rights of any holders of any security of the Company or similar contractual
rights granted by the Company.
<PAGE>
-1-
(e) This Agreement, the Public Warrant Agreement and the Underwriters' Warrant
Agreement have been duly and validly authorized by the Company, and this
Agreement constitutes, and the Public Warrant Agreement and the Underwriters'
Warrant Agreement, when executed and delivered pursuant to this Agreement
(assuming due execution by the Underwriters and/or the appropriate parties to
such agreements), will each constitute, a valid and binding agreement of the
Company, enforceable against the Company in accordance with their respective
terms, except (i) as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or similar laws
affecting creditors' rights generally, (ii) as enforceability of any
indemnification, contribution or exculpation provision may be limited under
applicable federal and state securities laws, and (iii) that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought ((i), (ii) and (iii) are hereinafter
referred to as the "Enforceability Exceptions").
<PAGE>
-1-
(f) The Company has full power and lawful authority to authorize, issue and sell
the Registered Securities to be sold by it hereunder on the terms and conditions
set forth herein, and no consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or agency
is required in connection with such authorization, execution and delivery or
with the authorization, issue and sale of the Registered Securities, except such
as may be required and have been obtained under the Act, state securities or
blue sky laws and from the National Association of Securities Dealers, Inc.
("NASD").
<PAGE>
-1-
(g) The Units and the Shares have been duly authorized and, when issued and
delivered pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable. The Redeemable Warrants have been duly authorized
and, when issued and delivered pursuant to this Agreement, will constitute valid
and legally binding obligations of the Company enforceable in accordance with
their terms, subject to the Enforceability Exceptions, and will be entitled to
the benefits provided by the Public Warrant Agreement. The Public Warrant Shares
have been reserved for issuance upon exercise of the Redeemable Warrants and,
when issued in accordance with the terms of the Redeemable Warrants and Public
Warrant Agreement, will be duly authorized, validly issued, fully paid and
non-assessable. The Underwriters' Warrants have been duly authorized and, when
issued and delivered pursuant to this Agreement and the Underwriters' Warrant
Agreement, will constitute valid and legally binding obligations of the Company
enforceable in accordance with their terms, subject to the Enforceability
Exceptions, and will be entitled to the benefits provided by the Underwriters'
Warrant Agreement. The Underwriters' Shares have been reserved for issuance upon
exercise of the Underwriters' Warrants and, when issued in accordance with the
terms of the Underwriters' Warrants and Underwriters' Warrant Agreement, will be
duly authorized, validly issued, fully paid and non-assessable. The
Underwriters' Redeemable Warrants, when issued in accordance with the terms of
the Underwriters' Warrants and Underwriters' Warrant Agreement, will be duly
authorized and will constitute valid and legally binding obligations of the
Company enforceable in accordance with their terms, subject to the
Enforceability Exceptions, and will be entitled to the benefits provided by the
Public Warrant Agreement. The Underwriters' Warrant Shares have been reserved
for issuance upon exercise of the Underwriters' Redeemable Warrants and, when
issued in accordance with the terms of the Underwriters' Redeemable Warrants and
the Public Warrant Agreement, will be duly authorized, validly issued, fully
paid and non-assessable. The issuance of any of the Registered Securities will
not violate or otherwise be subject to the preemptive rights of any holders of
any security of the Company or similar contractual rights granted by the
Company, and none of the holders of any of the Registered Securities will be
subject to personal liability by reason of being such holders.
<PAGE>
-1-
(h) The Company is not in violation of any term or provision of its Amended and
Restated Articles of Incorporation or Bylaws or of any contract or agreement or
of any statute or any order, rule or regulation or of any other regulatory
authority or other governmental body having jurisdiction over the Company, which
violation may have a Material Adverse Effect on the Company. Neither the
execution and delivery of this Agreement, nor the issuance and/or sale of any of
the Registered Securities, nor the consummation of any of the transactions
contemplated herein, nor the compliance by the Company with the terms and
provisions hereof, has conflicted with or will conflict with, or has resulted in
or will result in a breach of, any of the terms and provisions, or has
constituted or will constitute a default under, or has resulted in or will
result in the creation or imposition of any lien, charge or encumbrance upon the
property or assets of the Company pursuant to the terms of, any indenture,
mortgage, deed of trust, note, loan or credit agreement or any other agreement
or instrument evidencing an obligation for borrowed money, or any other
agreement or instrument to which the Company is a party, or by which the Company
may be bound, or to which any of the property or assets of the Company is
subject; nor will such actions result in any violation of the provisions of the
Amended and Restated Articles of Incorporation or the Bylaws of the Company or
of any contract or agreement, or of any statute or any order, rule or regulation
applicable to the Company or of any other regulatory authority or other
governmental body having jurisdiction over the Company, which conflict, breach,
default or violation would have a Material Adverse Effect on the Company.
<PAGE>
(i) Except as described in the Prospectus, no default exists in the due
performance and observance of any term, covenant or condition of any license,
contract, indenture, mortgage, deed of trust, note, loan or credit agreement, or
any other agreement or instrument to which the Company is a party or by which
the Company may be bound or to which any of the property or assets of the
Company are subject, which default would have a Material Adverse Effect on the
Company.
(j) Except as described in the Prospectus, the Company has good and marketable
title to all properties and assets described in the Prospectus as owned by it,
free and clear of all liens, charges, encumbrances or restrictions, except such
as are not materially significant or important in relation to its business; all
of the leases and subleases under which the Company is the lessor or sublessor
of properties or assets or under which the Company holds properties or assets as
lessee or sublessee as described in the Prospectus are in full force and effect,
and, except as described in the Prospectus, the Company is not in default with
respect to any of the terms or provisions of any of such leases or subleases,
and no claim has been asserted by anyone adverse to rights of the Company as
lessor, sublessor, lessee or sublessee under any of the leases or subleases
mentioned above, or affecting or questioning the right of the Company to
continued possession of the leased or subleased premises or assets under any
such lease or sublease except as described or referred to in the Prospectus; and
the Company owns or leases all such properties described in the Prospectus as
are necessary to its operations as now conducted and, except as otherwise stated
in the Prospectus, as proposed to be conducted as set forth in the Prospectus.
(k) Grant Thornton LLP, who have audited and given their reports on certain
financial statements filed and to be filed with the Commission as a part of the
Registration Statement, which are incorporated in the Prospectus, are, with
respect to the Company, independent public accountants as required by the Act
and the Rules and Regulations.
<PAGE>
(l) The financial statements, together with related notes, set forth in the
Prospectus or the Registration Statement present fairly the financial position
and results of operations and changes in cash flow position of the Company on
the basis stated in the Registration Statement, at the respective dates and for
the respective periods to which they apply. Said statements and related notes
have been prepared in accordance with generally accepted accounting principles
applied on a basis which is consistent during the periods involved, except as
otherwise stated therein, and all adjustments necessary for a fair presentation
of results for such periods have been made. The information set forth under the
captions "Dilution," "Capitalization," and "Selected Financial Information" in
the Prospectus fairly present, on the basis stated in the Prospectus in all
material respects, the information included therein.
<PAGE>
(m) Subsequent to the respective dates as of which information is given in the
Registration Statement and Prospectus, (i) the Company has not incurred any
material liabilities or obligations, direct or contingent, or entered into any
material transactions other than in the ordinary course of business; (ii) there
has not been any change in the capital stock, funded debt (other than regular
repayments of principal and interest on existing indebtedness) or other
securities of the Company; (iii) there has not been any adverse change in the
condition (financial or otherwise), business, operations, income, net worth or
properties, including any loss or damage to the properties, of the Company
(whether or not such loss is insured against); (iv) the Company has not paid or
declared any dividend or other distribution on its Common Stock or its other
securities or redeemed or repurchased any of its Common Stock or other
securities; and (v) the Company has not become a party to, and neither the
business nor the property of the Company has become the subject of, any material
litigation whether or not in the ordinary course of business.
(n) Except as set forth in the Prospectus, there is not now pending or, to the
knowledge of the Company, threatened, any action, suit or proceeding to which
the Company or any of the respective officers, directors or securityholders
thereof is a party before or by any court or governmental agency or body, which
might result in a Material Adverse Effect or prevent consummation of the
transactions contemplated hereby; nor are there any actions, suits or
proceedings related to environmental matters or related to discrimination on the
basis of age, sex, religion or race; and there are no labor disputes involving
the employees of the Company that exist or are imminent which might result in a
Material Adverse Effect.
(o) There is no contract or other document which is required by the Act or by
the Rules and Regulations to be filed as an exhibit to the Registration
Statement which has not been so filed. Each contract which is filed as an
exhibit to the Registration Statement is and shall be in full force and effect
at each Closing Date (as defined in Section 4(c) below) or shall have been
terminated in accordance with its terms or as set forth in the Registration
Statement and Prospectus. No party to any such contract has given notice to the
Company of the cancellation of or, to the best knowledge of the Company, shall
have threatened to cancel, any such contract, and, except as set forth in the
Prospectus, the Company is not or shall not be in default thereunder, which
termination, cancellation or default would have a Material Adverse Effect on the
Company.
<PAGE>
- -1- (p) Except as set forth in the Prospectus, the Company has filed all
necessary federal, state, local and foreign income and franchise tax returns and
has paid all taxes shown as due thereon; there is no tax deficiency which has
been or to the best knowledge of the Company might be asserted against the
Company; and the Company has established adequate reserves for such taxes which
are not yet due and payable.
(q) To the best knowledge of the Company, none of the activities or business of
the Company are in violation of, or cause the Company to violate, any law, rule,
regulation or order of the United States, any state, county or locality, or of
any agency or body of the United States or of any state, county or locality, the
violation of which would result in a Material Adverse Effect.
(r) The Company maintains insurance, which is in full force and effect, of the
types and in the amounts currently adequate for its business, including but not
limited to personal injury and product liability insurance, insurance covering
all personal property owned or leased by the Company against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against.
The Company has not (i) failed to give notice or present any insurance claim
with respect to any matter, including but not limited to the Company's business,
property or employees, under any insurance policy or surety bond in a due and
timely manner, (ii) had any disputes or claims against any underwriter of such
insurance policies or surety bonds or has failed to pay any premiums due and
payable thereunder, or (iii) failed to comply with all conditions contained in
such insurance policies and surety bonds. To the best knowledge of the Company,
there are no facts or circumstances under any such insurance policy or surety
bond which would relieve any insurer of its obligation to satisfy in full any
valid claim of the Company.
(s) The Company owns or possesses adequate rights to use all patents, patent
rights, inventions, trademarks, service marks, trade names, copyrights, know-how
(including all other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), technology, trade secrets, designs,
processes, works of authorship, computer programs and technical data and
information (collectively, "Intellectual Property") necessary for the conduct of
its business as described in the Prospectus or that are material to the
development, manufacture, operation and sale of all products and services sold
or proposed to be sold by the Company, and the Company has not received any
notice of infringement of or conflict with, and the Company, to the best of the
Company's knowledge, is not infringing or in conflict with asserted rights of
others with respect to, any Intellectual Property.
(t) Except as set forth in the Prospectus, the Company is not obligated or under
any liability whatsoever to make any payment by way of royalties, fees or
otherwise to any owner or licensee of, or other claimant to, any Intellectual
Property, with respect to the use thereof or in connection with the conduct of
its business or otherwise. In addition, the Company owns and has the
unrestricted right to use all Intellectual Property free and clear of and
without violating any right, lien, or claim of others, including without
limitation, former employers of its employees. The Company is not aware of any
development by any other person or entity of trade secrets or items of technical
information similar to those of the Company. The Company has taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
its Intellectual Property in all material aspects.
(u) The Company is not obligated to pay and has not paid within the past twelve
(12) months, and has not obligated, and will not obligate, the Underwriters to
pay, any finder's fee in connection with the underwriting contemplated hereby or
any other fee (cash, securities or otherwise) in consideration of financial,
consulting or investment banking services.
(v) No officer or director of the Company or any "affiliate" or "associate" (as
such terms are defined in Rule 405 promulgated under the Rules and Regulations)
of the Company or any such officer or director has taken, and each officer or
director has agreed that he will not take, directly or indirectly, any action
designed to or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of any security issued by the
Company.
(w) No officer, director or greater than 5% stockholder of the Company, or any
affiliate or associate of any of the foregoing persons or entities has or has
had, either directly or indirectly, (i) an interest (other than ownership of an
immaterial number of shares of capital stock of an entity whose securities are
publicly traded) in any person or entity which (A) furnishes or sells products
or services which are furnished or sold or are proposed to be furnished or sold
by the Company, or (B) purchases from or sells or furnishes to the Company any
goods or services, or (ii) a beneficial interest in any contract or agreement to
which the Company is a party or by which it may be bound or affected. Except as
set forth in the Prospectus under "Certain Transactions," there are no existing
agreements, arrangements, or transactions, between or among the Company and any
officer or director of the Company, or any partner, affiliate or associate of
any of the foregoing persons or entities.
(x) The minute books of the Company have been made available to the
Representatives and contain a complete summary of all meetings and actions of
the directors and shareholders of the Company since the time of its date of
organization, and reflect all transactions referred to in such minutes
accurately in all respects.
(y) The Company is not aware of any bankruptcy, labor disturbance or other event
affecting any of its principal suppliers or customers which is reasonably likely
to result in a Material Adverse Effect.
(z) The Registered Securities and all the other securities of the Company
conform to all statements in relation thereto in the Registration Statement.
(aa) Except for the registration rights granted under the Underwriters' Warrant
Agreement, no holder of any securities of the Company has the right to require
that the Company include such securities in the Registration Statement or any
registration statement to be filed by the Company.
<PAGE>
(bb) The Units, Shares and Redeemable Warrants are eligible for quotation on The
Nasdaq SmallCap Market. The Company has filed a registration statement with the
Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and has used its best efforts to have same
declared effective by the Commission on an accelerated basis on the Effective
Date.
(cc) Neither the Company nor any officer, director or other agent thereof has,
acting on behalf of the Company, at any time (i) made any contributions to any
candidate for political office in violation of law, or failed to disclose fully
any such contributions in violation of law, (ii) made any payment to any state,
federal or foreign governmental officer or official, or any other person charged
with similar public or quasi-public duties, other than payments required or not
prohibited by law or (iii) made any payment of funds of the Company or received
or retained any funds in violation of any law, rule or regulation and under
circumstances requiring the disclosure of such payment, receipt or retention of
funds in the Prospectus. The Company's internal accounting controls and
procedures are sufficient to cause the Company to comply in all material
respects with
the Foreign Corrupt Practices Act of 1977, as amended.
(dd) On each Closing Date (as defined in Section 4(c) below) all transfer or
other taxes, (including franchise, capital stock or other tax, other than income
taxes, imposed by any jurisdiction) if any, which are required to be paid in
connection with the sale and transfer of the Units to the Underwriters hereunder
will have been fully paid or provided for by the Company and all laws imposing
such taxes will have been fully complied
with.
(ee) The Company has no subsidiaries.
(ff) Except as previously disclosed in writing by the Company to the
Representatives, no officer, director or stockholder of the Company has any
affiliation or association with any member of the NASD.
(gg) The Company is not, and upon receipt of the proceeds from the sale of the
Units will not be, an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder.
(hh) The Company has not distributed and will not distribute prior to the First
Closing Date (as defined in Section 4(c) below) any offering material in
connection with the offering and sale of the Units other than the Preliminary
Prospectus, Prospectus, the Registration Statement or the other materials
permitted by the Act, if any.
(ii) The employment agreements between the Company and its respective officers,
as disclosed in the Registration Statement, are or will be on or before the
First Closing Date (as defined in Section 4(c) below) binding and enforceable
obligations upon the respective parties thereto in accordance with their
respective terms, subject to the Enforceability Exceptions.
-
(jj) Except as set forth in the Prospectus, the Company has no employee benefit
plans (including, without limitation, profit sharing and welfare benefit plans)
or deferred compensation arrangements that are subject to the provisions of the
Employee Retirement Income Security Act of 1974.
(kk) There are no voting or other shareholder agreements between the Company and
any stockholders of the Company or between or by and among any stockholders of
the Company.
(ll) The Company has generally enjoyed a satisfactory employer-employee
relationship with its employees and is in compliance with all federal, state,
local, and foreign laws and regulations respecting employment and employment
practices, terms and conditions of employment and wages and hours. There are no
pending investigations involving the Company by the U.S. Department of Labor or
any other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor practice
charge or complaint against the Company pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or, to the Company's best knowledge, threatened against or involving the
Company, and none has ever occurred. No representation question exists
respecting the employees of the Company, and no collective bargaining agreement
or modification thereof is currently being negotiated by the Company. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements to which the Company is or was a party. No
labor dispute with the employees of the Company exists, or is imminent.
(mm) The statements in the Prospectus under "Risk Factors," "Business," "Certain
Transactions," "Management" and "Description of Securities," insofar as they
refer to statements of law, descriptions of statutes, licenses, regulations or
legal conclusions are correct in all material respects.
(nn) The conditions for use of Form SB-2, as set forth in the General
Instructions thereto, have been satisfied.
(oo) There are no business relationships or related-party transactions of the
nature described in Item 404 of Regulation S-B involving the Company and any
person described in such Item that are required to be disclosed in the
Prospectus and that have not been so disclosed.
(pp) Neither the Company nor any of its affiliates does business with the
government of Cuba or with any person or affiliate located in Cuba within the
meaning of Section 517.075, Florida Statutes.
(qq) Any certificate signed by an officer of the Company in his capacity as such
and delivered to the Representatives or counsel for the Underwriters shall be
deemed a representation and warranty by the Company to the Representatives as to
the matters covered thereby.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. Each Selling
Shareholder represents, warrants and covenants to each Underwriter as follows:
(a) This Agreement has been duly and validly authorized by or on behalf of such
Selling Shareholder and when executed and delivered will constitute a valid and
binding agreement of such Selling Shareholder, enforceable against such Selling
Shareholder in accordance with its terms, except as such enforceability may be
limited by the Enforceability Exceptions.
(b) Each of the (i) Custody Agreement signed by such Selling Shareholder and
Winstead Sechrest & Minick P.C., as custodian (the "Custodian"), relating to the
deposit of the Option Shares to be sold by such Selling Shareholder (the
"Custody Agreement") and (ii) Power of Attorney appointing certain individuals
named therein as such Selling Shareholder's attorneys-in-fact (each, an
"Attorney-in-Fact") to the extent set forth therein relating to the transactions
contemplated hereby and by the Prospectus (the "Power of Attorney"), of such
Selling Shareholder has been duly and validly authorized, executed and delivered
by such Selling Shareholder and isa valid and binding agreement of such Selling
Shareholder, enforceable against such Selling Shareholder in accordance with its
terms, except as such enforceability may be limited by the Enforceability
Exceptions.
(c) Such Selling Shareholder has, and on the Option Closing Date (as defined in
Section 4(c) below) will have, good and valid title to all of the Option Shares
that may be sold by such Selling Shareholder pursuant to this Agreement on such
date and the legal right and power, and all authorizations and approvals
required by law to enter into this Agreement and such Selling Shareholder's
Custody Agreement and Power of Attorney, to sell, transfer and deliver all of
the Option Shares that may be sold by such Selling Shareholder pursuant to this
Agreement and to comply with its other obligations hereunder and thereunder.
(d) Delivery of the Option Shares that are sold by such Selling Shareholder
pursuant to this Agreement will pass good and valid title to such Option Shares,
free and clear of any security interest, mortgage, pledge, lien, encumbrance or
other claim.
(e) The execution and delivery by such Selling Shareholder of, and the
performance by such Selling Shareholder of its obligations under, this
Agreement, the Custody Agreement and the Power of Attorney will not contravene
or conflict with, result in a breach of, or constitute a default under, or
require the consent of any other party to any agreement or instrument to which
such Selling Shareholder is a party or by which it is bound or under which it is
entitled to any right or benefit, any provision of applicable law or any
judgment, order, decree or regulation applicable to such Selling Shareholder of
any court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over such Selling Shareholder. No consent,
approval, authorization or other order of, or registration or filing with, any
court or other governmental authority or agency, is required for the
consummation by such Selling Shareholder of the transactions contemplated in
this Agreement, except as may be required and as have been obtained under the
Act, applicable state securities or blue sky laws and from the NASD.
<PAGE>
- -1- (f) Such Selling Shareholder does not have any registration or other similar
rights to have any equity or debt securities registered for sale by the Company
under the Registration Statement or included in the offering contemplated by
this Agreement, except for such rights as are being exercised in the offering
contemplated by this Agreement or such rights as have been duly waived.
<PAGE>
(g) No consent, approval or waiver is required under any instrument or agreement
to which such Selling Shareholder is a party or by which it is bound or under
which it is entitled to any right or benefit, in connection with the offering,
sale or purchase by the Underwriters of any of the Option Shares which may be
sold by such Selling Shareholder under this Agreement or the consummation by
such Selling Shareholder of any of the other transactions contemplated hereby.
<PAGE>
-1-
(h) All information furnished by or on behalf of such Selling
Shareholder in writing expressly for use in the Registration Statement and
Prospectus is, and on each Closing Date (as defined in Section 4(c) below) will
be, true, correct, and complete in all material respects, and does not, and on
each Closing Date (as defined
in Section 4(c) below) will not, contain any untrue statement of a material
fact or omit to state any material fact necessary to make such information not
misleading. Such Selling Shareholder confirms as accurate the number of shares
of Common Stock set forth opposite such Selling Shareholder's name in the
Prospectus under the caption
"Principal and Selling Shareholders" (both prior to and after giving
effect to the sale of the Shares).
(i) Such Selling Shareholder has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(j) Such Selling Shareholder has no reason to believe that the representations
and warranties of the Company contained in Section 2 hereof are not true and
correct, is familiar with the Registration Statement and the Prospectus and has
no knowledge of any material fact, condition or information not disclosed in the
Registration Statement or the Prospectus that has had or may have a material
adverse effect on the business, properties, financial condition or operations of
the Company and is not prompted to sell shares of Common Stock by any
information concerning the Company that is not set forth in the Registration
Statement and the Prospectus.
<PAGE>
-1-
(k) Such Selling Shareholder has not at any time (i) made any
contributions to any candidate for political office in violation of law, or
failed to disclose fully any such contributions in violation of law, (ii)
made any payment to any state, federal or foreign governmental officer or
official, or any other person charged with similar public or quasi-public
duties, other than payments required or not prohibited by law or
(iii) made any payment of funds or received or retained any funds in violation
of any law, rule or regulation and under circumstances requiring the
disclosure of such payment, receipt or retention of funds in the Prospectus.
Any certificate signed by or on behalf of any Selling Shareholder and
delivered to the Underwriters or to counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Shareholder
to each Underwriter as to the matters covered thereby.
4. PURCHASE, DELIVERY AND SALE OF THE UNITS.
< -
(a) Subject to the terms and conditions of this Agreement,
and upon the basis of the representations, warranties, and agreements
herein contained, the Company agrees to issue and sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to buy
from the Company at $_____ per Unit, at the place and time hereinafter
specified, the number of Firm Securities set forth opposite the name of such
Underwriter in Schedule A attached hereto plus any additional Firm Securities
which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 13
hereof. No value shall be attributable to the
Redeemable Warrants constituting a part of the Firm
Securities.
(b) In addition, subject to the terms and conditions of this Agreement, and upon
the basis of the representations, warranties and agreements herein contained,
the Company, with respect to the Option Warrants, and the Selling Shareholders,
with respect to the Option Shares, hereby grant an option (the "Over-Allotment
Option") to the Underwriters to purchase all or any part of the Option
Securities at $______ per Unit. No value shall be attributable to the Option
Warrants constituting a part of the Option Securities. The Over-Allotment Option
may be exercised within forty-five (45) days after the Effective Date upon
notice by the Representatives to the Company advising as to the amount of Option
Securities as to which the option is being exercised, the names and
denominations in which the certificates for such Option Securities are to be
registered and the time and date when such certificates are to be delivered.
Such time and date shall be determined by the Representatives, but shall not be
earlier than two (2) nor later than ten (10) full business days after the
exercise of said option, nor in any event prior to the First Closing Date (as
defined in Section 4(c) below). The number of Option Securities to be purchased
by each Underwriter, if any, shall bear the same percentage to the total number
of Option Securities being purchased by the several Underwriters pursuant to
this Section 4(b) as the number of Firm Securities such Underwriter is
purchasing bears to the total number of the Firm Securities being purchased
pursuant to Section 4(a), as adjusted, in each case by the Representatives in
such manner as the Representatives may deem appropriate. The Over-Allotment
Option granted hereunder may be exercised only to cover over-allotments in the
sale by the Underwriters of Firm Securities referred to in Section 4(a), and the
Underwriters shall have no obligation to make any over-allotments. No Option
Securities shall be delivered and paid for unless the Firm Securities shall be
simultaneously delivered or shall theretofore have been delivered and paid for
as herein provided. In the event the Company declares or pays a dividend or
distribution on its Common Stock, whether in the form of cash, shares of Common
Stock or any other consideration, prior to the Option Closing Date (as defined
in Section 4(c) below), such dividend or distribution shall also be paid on the
Option Shares on such Option Closing Date (as defined in Section 4(c) below).
(c) The Offered Securities to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Tejas Securities Group, Inc. may request upon forty-eight (48) hours'
prior notice to the Company, shall be delivered by or on behalf of the Company
or, in the case of the Option Shares, the Selling Shareholders, to Tejas
Securities Group, Inc., through the facilities of the Depository Trust Company
("DTC"), for the account of such Underwriter, against payment by or on behalf of
such Underwriter of the purchase price therefor by certified or official bank
check or checks drawn on or by a Dallas Clearinghouse Bank and payable in next
day funds to the order of the Company, or, with respect to the Option Shares, to
the order of the respective Selling Shareholders, or, at the sole option of
Tejas Securities Group, Inc., by wire transfer of immediately available funds to
an account designated by the Company, or, with respect to the Option Shares, the
respective Selling Shareholders. The Company, and with respect to the Option
Securities, the Selling Shareholders and the Company, will cause the
certificates for the Offered Securities to be purchased by the Underwriters
hereunder to be made available for checking and packaging at least twenty-four
(24) hours prior to each Closing Date (as defined in Section 4(c) below) with
respect thereto at the office of DTC or its designated custodian (the
"Designated Office"). The time and date of such delivery and payment shall be,
with respect to the Firm Securities, 8:30 a.m., City of Dallas time, on
September ____, 1998, or such other time and date as Tejas Securities Group,
Inc. and the Company may agree upon in writing, and, with respect to the Option
Securities, 8:30 a.m., City of Dallas time, on the date specified by Tejas
Securities Group, Inc. in the Underwriters' election to purchase such Option
Securities, or such other time and date as Tejas Securities Group, Inc., the
Company and the Selling Shareholders may agree upon in writing. Such time and
date for delivery of the Firm Securities is herein called the "First Closing
Date," such time and date for delivery for the Option Securities, if not the
First Closing Date, is herein called the "Option Closing Date," and each such
time and date for delivery is herein called a "Closing Date." The documents to
be delivered on each Closing Date by or on behalf of the parties hereto pursuant
to the terms and provisions of this Agreement, including the cross receipt for
the Offered Securities and any additional documents requested by the
Representatives pursuant to the terms and provisions hereof, will be delivered
at the offices of Winstead Sechrest & Minick P.C., 5400 Renaissance Tower, 1201
Elm Street, Dallas, Texas 75270 (the "Closing Location"), and the Offered
Securities will be delivered at the Designated Office, all on each such Closing
Date. A meeting will be held at the Closing Location at 9:00 a.m., City of
Dallas time, on the New York Business Day next preceding such Closing Date, at
which meeting the final drafts of the documents to be delivered pursuant to the
preceding sentence will be available for review by the parties hereto. For the
purposes of this Section 4(c), "New York Business Day" shall mean each Monday,
Tuesday, Wednesday, Thursday and Friday which is not a day on which banking
institutions in New York are generally authorized or obligated by law or
executive order to close. Time shall be of the essence and delivery at the time
and place specified in this Agreement is a further condition to the obligations
of the Underwriters. It is understood that each of the Representatives, each
individually and not as representatives of the several Underwriters, may (but
shall not be obligated to) make any and all payments required pursuant to this
Section 4 on behalf of any Underwriters whose check or checks shall not have
been received by the Representatives at the time of delivery of the Offered
Securities to be purchased by such Underwriter or Underwriters. Any such payment
by you shall not relieve any such Underwriter or Underwriters of any of its or
their obligations hereunder. It is understood that the Underwriters propose to
offer the Offered Securities to be purchased hereunder to the public upon the
terms and conditions set forth in the Registration Statement, after the
Registration Statement becomes effective.
(d) On the First Closing Date, the Company shall issue and sell to the
Underwriters the Underwriters' Warrants. The total purchase price of the
Underwriters' Warrants shall be $100.00. The Underwriters' Warrants shall be
exercisable for a period of four (4) years commencing twelve (12) months from
the Effective Date, to purchase 75,000 Units at $______ per Unit. The
Underwriters' Warrant Agreement, including the forms of Underwriters' Warrant
Certificates, shall be substantially in the form filed as Exhibit 1.2 to the
Registration Statement. Payment for the Underwriters' Warrants shall be made to
the Company on the First Closing Date.
<PAGE>
-1-
5. PUBLIC OFFERING BY THE UNDERWRITER. The Representatives agree to cause the
Firm Securities to be offered to the public initially at the prices and under
the terms set forth in the Prospectus as soon, on or after the effective date of
this Agreement, as the Representatives deem advisable. The Representatives may
allow such concessions and discounts upon sales to other dealers as set forth in
the Prospectus.
6. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration Statement to
become effective as promptly as possible. If required, the Company will file the
Prospectus and any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rules 434 and 424(b) under the
Act. Upon notification from the Commission that the Registration Statement has
become effective, the Company will so advise you and will not at any time,
whether before or after the Effective Date, file the Prospectus or any amendment
to the Registration Statement or supplement to the Prospectus of which you shall
not previously have been advised and furnished with a copy or to which the
Representatives or counsel to the Underwriters shall have objected in writing or
which is not in compliance with the Act and the Rules and Regulations. At any
time prior to the later of (i) the completion by all of the Underwriters of the
distribution of the Units contemplated hereby (but in no event more than nine
(9) months after the Effective Date) and (ii) twenty-five (25) days after the
Effective Date, the Company will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration Statement
or Prospectus which, in your opinion, may be necessary or advisable in
connection with the distribution of the Units. As soon as the Company is advised
thereof, the Company will advise you, and confirm the advice in writing, of the
receipt of any comments of the Commission, of the effectiveness of any
post-effective amendment to the Registration Statement, of the filing of any
supplement to the Prospectus or any amended Prospectus, of any request made by
the Commission for amendment of the Registration Statement or for supplementing
of the Prospectus or for additional information with respect thereto, of the
issuance by the Commission or any state or regulatory body of any stop order or
other order or threat thereof suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of any Preliminary
Prospectus, or of the suspension of the qualification of any of the Offered
Securities for offering in any jurisdiction, or of the institution of any
proceedings for any of such purposes, and will use its best efforts to prevent
the issuance of any such order, and, if issued, to obtain as soon as possible
the lifting thereof. The Company has caused to be delivered to you copies of
each Preliminary Prospectus, and the Company has consented and hereby consents
to the use of such copies for the purposes permitted by the Act. The Company
authorizes the Underwriters and dealers to use the Prospectus in connection with
the sale of the Units for such period as in the opinion of counsel to the
Underwriters the use thereof is required to comply with the applicable
provisions of the Act and the Rules and Regulations. In case of the happening,
at any time within such period as a Prospectus is required under the Act to be
delivered in connection with sales by an underwriter or dealer of any event of
which the Company has knowledge and which materially affects the Company or the
securities of the Company, or which in the opinion of counsel for the Company or
counsel for the Underwriters should be set forth in an amendment of the
Registration Statement or a supplement to the Prospectus in order to make the
statements therein not then misleading, in light of the circumstances existing
at the time the Prospectus is required to be delivered to a purchaser of the
Units or in case it shall be necessary to amend or supplement the Prospectus to
comply with law or with the Rules and Regulations, the Company will notify you
promptly and forthwith prepare and furnish to you copies of such amended
Prospectus or of such supplement to be attached to the Prospectus, in such
quantities as you may reasonably request, in order that the Prospectus, as so
amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material facts necessary in order to make the
statements in the Prospectus, in the light of the circumstances under which they
are made, not misleading. The preparation and furnishing of any such amendment
or supplement to the Registration Statement or amended Prospectus or supplement
to be attached to the Prospectus shall be without expense to the Underwriters,
except that in case any Underwriter is required, in connection with the sale of
the Units to deliver a Prospectus nine (9) months or more after the Effective
Date, the Company will upon request of and at the expense of the applicable
Underwriter, amend or supplement the Registration Statement and Prospectus and
furnish the applicable Underwriter with reasonable quantities of prospectuses
complying with Section 10(a)(3) of the Act. The Company will comply with the
Act, the Rules and Regulations and the Exchange Act and the rules and
regulations thereunder in connection with the offering and issuance of the
Units. Within the time during which the Prospectus is required to be delivered
under the Act, or pursuant to the undertakings of the Company in the
Registration Statement, the Company will comply, at its own expense, with all
requirements imposed upon it by the Act, the Rules and Regulations, the Exchange
Act or the rules and regulations of the Commission promulgated under the
Exchange Act, each as now or hereafter amended or supplemented, and by any order
of the Commission so far as necessary to permit the continuance of sales of, or
dealings in, the Registered
Securities.
<PAGE>
(b) The Company will use its best efforts to qualify to register the Units for
sale under the securities or "blue sky" laws of such jurisdictions as the
Representatives may designate and will make such applications and furnish such
information as may be required for that purpose and to comply with such laws,
provided the Company shall not be required to qualify as a foreign corporation
or a dealer in securities or to execute a general consent of service of process
in any jurisdiction in any action other than one arising out of the offering or
sale of the Units. The Company will, from time to time, prepare and file such
statements and reports as are or may be required to continue such qualification
in effect for so long a period as the Representatives may reasonably request.
(c) Prior to the completion of this offering, the Company will make all filings
required to (i) cause a registration statement under the Exchange Act to be
declared effective concurrently with the completion of this offering and will
notify the Representative in writing immediately upon the effectiveness of such
registration statement, (ii) obtain a listing of the Units, Common Stock and
Redeemable Warrants on The Nasdaq SmallCap Market and will use its best efforts
to maintain such listing for at least five (5) years from the date of this
Agreement, and (iii) if requested by the Representatives, to obtain and keep
current a listing in the Standard & Poors or Moody's Industrial OTC Manual.
(d) For so long as the Company is a reporting company under either Section 12(g)
or 15(d) of the Exchange Act, the Company, at its expense, will furnish to its
shareholders an annual report (including financial statements audited by
independent public accountants), in reasonable detail and at its expense, and
will furnish tothe Representatives during the period ending five (5) years from
the date hereof, (i) copies of each annual report of the Company; (ii) a copy of
any Schedule 13D, 13G, 14D-1, 13E-3 or 13E-4 received or filed by the Company
from time to time; (iii) a copy of any annual, quarterly or current report filed
by the Company pursuant to the Exchange Act; (iv) copies of all statements,
documents or other information which the Company shall mail or otherwise make
available to any class of its security holders, or shall file with the
Commission or with any exchange upon which the securities issued by the Company
shall then be listed or registered; and (v) such other publicly available
information as the Representatives may from time to time request.
(e) The Company will deliver to the Representatives at or before the First
Closing Date two (2) manually signed copies of the Registration Statement
including all financial statements and exhibits filed therewith, and of all
amendments thereto, and will deliver to the Underwriters such number of
conformed copies of the Registration Statement, including such financial
statements but without exhibits, and of all amendments thereto, as the
Underwriters may reasonably request. The copies of the Registration Statement
and each amendment thereto furnished to the Underwriters will be identical to
the electronically transmitted copies thereof filed with the Commission pursuant
to EDGAR, except to the extent permitted by Regulation S-T. The signed copies of
the Registration Statement so furnished to the Representatives will include
signed copies of any and all consents and reports of the independent public
auditors as to the financial statements included in the Registration Statement
and Prospectus, and signed copies of any and all consents and certificates of
any other person whose profession gives authority to statements made by them and
who are named in the Registration Statement or Prospectus as having prepared,
certified or reviewed any parts thereof.
The Company will deliver to or upon the order of the Underwriters, from time to
time until the Effective Date, as many copies of any Preliminary Prospectus
filed with the Commission prior to the Effective Date as the Underwriters may
reasonably request. The Company will deliver to the Underwriters on the
Effective Date and thereafter for so long as a Prospectus is required to be
delivered under the Act, from time to time, as many copies of the Prospectus, in
final form, or as thereafter amended or supplemented, as the Underwriters may
from time to time reasonably request. The Company, not later than (i) 5:00 p.m.,
New York City time, on the date of determination of the public offering price,
if such determination occurred at or prior to 12:00 noon, New York City time, on
such date or (ii) 6:00 p.m., New York City time, on the business day following
the date of determination of the public offering price, if such determination
occurred after 12:00 noon, New York City time, on such date, will deliver to the
Underwriters, without charge, as many copies of the Prospectus and any amendment
or supplement thereto as the Underwriters may reasonably request for purposes of
confirming orders that are expected to settle on the First Closing Date. The
Prospectus and each Preliminary Prospectus and any amendments or supplements
thereto furnished to the Underwriters will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T.
(f) The Company will make generally available to its security holders and to the
registered holders of its Redeemable Warrants and deliver to the Representatives
as soon as it is practicable to do so but in no event later than ninety (90)
days after the end of twelve (12) months after its current fiscal quarter, an
earnings statement (which need not be audited) covering a period of at least
twelve (12) consecutive months beginning after the Effective Date, which shall
satisfy the requirements of Section 11(a) of the Act.
(g) The Company will apply the net proceeds from the sale of the Units for the
purposes set forth under "Use of Proceeds" in the Prospectus, and will file such
reports with the Commission with respect to the sale of the Units and the
application of the proceeds therefrom as may be required pursuant to Rule 463
under the Act.
(h) The Company on the First Closing Date will sell to the Underwriter the
Underwriters' Warrants according to the terms specified in Section 4(c) hereof.
The Company has reserved and shall continue to reserve a sufficient number of
shares of Common Stock for issuance upon exercise of the Underwriters' Warrants
and the Redeemable Warrants.
(i) For the five (5) year period following the First Closing Date, the Company
agrees that the Representatives shall have the right to designate for
nomination, and the Company shall use its best efforts to cause the election of,
one member of the Company's Board of Directors (the "Board"), who shall be
reasonably acceptable to the Company; alternatively, the Representatives may
designate an observer, who shall be entitled to attend all meetings of the Board
and to receive all copies of all notices and other documents distributed to the
members of the Board (including, but not limited to, any unanimous consents
prepared and advance notices of all proposed Board actions or consents), as if
such observer were a member of the Board. To the extent permitted by law, the
Company agrees to indemnify and hold the designee (as a director or advisor) and
the Representatives harmless against any and all claims, actions, awards and
judgments arising out of such designee's service. The Company shall immediately
after the First Closing Date use its reasonable best efforts to obtain
directors' and officers' liability insurance in amounts reasonable and customary
for similarly situated companies, at a premium that the Company can reasonably
afford. In the event the Company maintains a liability insurance policy
affording coverage for the acts of its officers and directors, it will, if
possible, include the Representatives and their designee (as a director) as
insureds under such policy. The rights and benefits of such indemnification and
the benefits of such insurance shall, to the extent possible, extend to the
Representatives insofar as they may be, or be alleged to be, responsible for
such advisor. The Company will deliver, on or before the date hereof, the
agreements of each of its officers, directors and holders of 5% or more of its
Common Stock to vote, during the five (5) year period commencing on the First
Closing Date, for the election of the Representatives' designee for director, if
any.
(j) The Company will maintain insurance in full force and effect of the types
and in the amounts adequate for its business and in line with insurance
maintained by similar companies and businesses, including but not limited to,
personal injury and product liability insurance and insurance covering all
personal property owned or leased by the Company against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against.
<PAGE>
(k) During the course of the distribution of the Offered Securities, the Company
will not take, directly or indirectly, any action designed to or which might, in
the future, reasonably be expected to cause or result in stabilization or
manipulation of the prices of the Units, Common Stock and/or Redeemable
Warrants. During the so-called "quiet period" in which delivery of a prospectus
is required, if applicable, the Company will not issue press releases or engage
in any other publicity regarding the Company, its business or any terms of the
offering contemplated hereby, without the prior written consent of the
Representatives. During such period, copies of all documents which the Company
or its public relations advisors intend to distribute will be provided to the
Representatives for review prior to such distribution.
(l) The Company will, promptly upon your request, prepare and file with the
Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
reasonable opinion of counsel to the Underwriters, may be reasonably necessary
or advisable in connection with the distribution of the Offered Securities, and
will use its best efforts to cause the same to become effective as promptly as
possible.
(m) On each Closing Date, all transfer or other taxes (other than income taxes)
which are required to be paid in connection with the sale and transfer of the
Registered Securities will have been fully paid by the Company and all laws
imposing such taxes will have been fully complied with.
(n) Subsequent to the dates as of which information is given in the Registration
Statement and Prospectus and prior to each Closing Date, except as disclosed in
or contemplated by the Registration Statement and Prospectus, (i) the Company
will not have incurred any liabilities or obligations, direct or contingent, or
entered into any material transactions other than in the ordinary course of
business; (ii) there shall not have been any change in the capital stock, funded
debt (other than regular repayments of principal and interest on existing
indebtedness) or other securities of the Company, any adverse change in the
condition (financial or otherwise), business, operations, income, net worth or
properties, including any loss or damage to the properties of the Company
(whether or not such loss is insured against), which would or could be
reasonably expected to result in a Material Adverse Effect; and (iii) the
Company shall not have paid or declared any dividend or other distribution on
its Common Stock or its other securities or redeemed or repurchased any of its
Common Stock or other securities. The Company shall furnish to the Underwriter
as early as practicable prior to each of the date hereof, the First Closing Date
and each Option Closing Date, if any, but no later than two (2) full business
days prior thereto, a copy of the latest available unaudited interim financial
statements of the Company (which in no event shall be as of a date more than
sixty (60) days prior to the date of the Registration Statement) which have been
reviewed by the Company's independent public accountants, as stated in their
letters to be furnished pursuant to Section 8(g) hereof
(o) Timothy C. Moses shall be Co-Chairman of the Board and Chief Executive
Officer of the Company on each Closing Date, and Jacques Elfersy shall be
Co-Chairman of the Board and Executive Vice President of the Company on each
Closing Date. The Company will obtain key person life insurance on the lives of
Messrs. Moses and Elfersy in an amount of not less than One Million Dollars
($1,000,000) for each of them and will use its best efforts to maintain such
insurance during the five (5) year period commencing with the First Closing Date
unless his employment with the Company is earlier terminated. In such event, the
Company will obtain a comparable policy on the life of his successor for the
balance of the five (5) year period. For a period of twelve(12) months from the
First Closing Date, the compensation of the executive officers of the Company
shall not be increased from the compensation levels disclosed in the Prospectus.
<PAGE>
(p) So long as any Redeemable Warrants are outstanding, the Company shall use
its best efforts to cause post-effective amendments to the Registration
Statement to become effective in compliance with the Act and without any lapse
of time between the effectiveness of any such post-effective amendments and
cause a copy of each Prospectus, as then amended, to be delivered to each holder
of record of a Redeemable Warrant and to furnish to each Underwriter and dealer
as many copies of each such Prospectus as such Underwriter or dealer may
reasonably request. The Company shall not call for redemption any of the
Redeemable Warrants unless a registration statement covering the securities
underlying the Redeemable Warrants has been declared effective by the Commission
and remains current at least until the date fixed for redemption. In addition,
for so long as any Redeemable Warrant is outstanding, the Company will promptly
notify the Representative of any material change in the business, financial
condition or prospects of the Company.
(q) Upon the exercise of any Redeemable Warrants after one (1) year from the
Effective Date, the Company will pay the Representatives, each individually and
not as representatives of the Underwriters, a fee of 5% of the aggregate
exercise price of the Redeemable Warrants, of which a portion may be reallowed
to the dealer who solicited the exercise (which may also be a Representative) if
(i) the market price of the Company's Common Stock is greater than or equal to
the exercise price of the Redeemable Warrants on the date of exercise; (ii) the
exercise of the Redeemable Warrants was solicited by a member of the NASD, (iii)
the holder of the Redeemable Warrants so exercised designates in writing that
the exercise of the Redeemable Warrant was solicited by a member of the NASD and
designates in writing the Representative or other broker-dealer to receive
compensation for such exercise; (iv) the Redeemable Warrants are not held in a
discretionary account (except where prior specific approval for exercise is
received from the customer exercising the Redeemable Warrants); (v) the
disclosure of compensation arrangements has been made in documents provided to
customers, both as part of the original offering and at the time of exercise,
and (vi) the solicitation of exercise of the Redeemable Warrants was not in
violation of Regulation M promulgated under the Exchange Act. The Company agrees
not to solicit the exercise of any Redeemable Warrants other than through the
Representatives and will not authorize any other dealer to engage in such
solicitation without the prior written consent of the Representatives.
(r) For a period of five (5) years from the Effective Date the Company, at its
expense, shall cause its regularly engaged independent certified public
accountants to review (but not audit) the Company's financial statements for
each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's 10-Q quarterly
report and the mailing of quarterly financial information to shareholders.
(s) The Company maintains and will continue to maintain a system of internal
accounting controls sufficient to provide reasonable assurances that: (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary in order to permit
preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(t) The Company agrees that for so long as the Common Stock is registered under
the Exchange Act, the Company will hold an annual meeting of shareholders for
the election of directors within 180 days after the end of each of the Company's
fiscal years and, within 150 days after the end of each of the Company's fiscal
years, will provide the Company's shareholders with the audited financial
statements of the Company as of the end of the fiscal year just completed prior
thereto. Such financial statements shall be those required by applicable rules
under the Exchange Act and shall be included in an annual report pursuant to the
requirements thereof.
(u) The Company shall cause each director and officer of the Company and certain
other stockholders, including the Selling Shareholders, to enter into an
agreement with the Underwriter pursuant to which he, she or it will agree not to
sell or otherwise transfer any securities of the Company for a period of one (1)
year following the Effective Date without the prior consent of the
Representatives.
(v) As promptly as practicable after the Closing Date, the Company will prepare,
at its own expense, hard cover "bound volumes" relating to the offering, and
will distribute at least four (4) of such volumes to the individuals designated
by the Representatives or counsel to the Underwriters.
(w) The Company shall, for a period of six (6) years after date of this
Agreement, submit such reports to the Secretary of the Treasury and to
shareholders, as the Secretary may require, pursuant to Section 1202 of the
Internal Revenue Code, as amended, or regulations promulgated thereunder, in
order for the Company to qualify as a "small business" so that stockholders may
realize special tax treatment with respect to their investment in the Company.
7. COVENANTS OF THE SELLING SHAREHOLDERS. Each Selling Shareholder further
covenants and agrees with each Underwriter:
(a) Such Selling Shareholder will not, without the prior written consent of the
Representatives (which consent may be withheld in their sole discretion),
directly or indirectly, sell, offer, contract or grant any option to sell
(including without limitation any short sale), pledge, transfer, establish an
open "put equivalent position" within the meaning of Rule 16a-1(h) under the
Exchange Act, or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock, or securities exchangeable or
exercisable for or convertible into shares of Common Stock currently or
hereafter owned either of record or beneficially (as defined in Rule 13d-3 under
the Exchange Act) by such Selling Shareholder, or publicly announce suchSelling
Shareholder's intention to do any of the foregoing, for a period commencing on
the date hereof and continuing through the close of trading on the date ninety
(90) days after the date of the Prospectus.
(b) Such Selling Shareholder will deliver to the Underwriters prior to the First
Closing Date a properly completed and executed United States Treasury Department
Form W-8 (if the Selling Shareholder is a non-United States person) or Form W-9
(if the Selling Shareholder is a United States Person). The Representatives may,
in their sole discretion, waive in writing the performance by the Company or any
Selling Shareholder of any one or more of the foregoing covenants or extend the
time for their performance.
<PAGE>
- -1- 8. CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITERS. The obligations of the
Underwriters to purchase and pay for the Units which it has agreed to purchase
hereunder, are subject to the accuracy (as of the date hereof, and as of each
Closing Date) of and compliance with the representations and warranties of the
Company herein, to the performance by the Company of its obligations hereunder,
and to the following conditions:
(a) The Registration Statement, including any 462(b) Registration Statement,
shall have become effective and you shall have received notice thereof not later
than 10:00 A.M., Dallas time, on the date on which the amendment to the
registration statement originally filed with respect to the Offered Securities
or to the Registration Statement, as the case may be, containing information
regarding the initial public offering price of the Units has been filed with the
Commission, or such later time and date as shall have been agreed to by the
Representatives; if required, the Prospectus and any amendment or supplement
thereto shall have been filed with the Commission in the manner and within the
time period required by Rule 434 and 424(b) under the Act; on or prior to each
Closing Date no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that or a similar
purpose shall have been instituted or shall be pending or, to the best knowledge
of the Representatives and the Company, shall be contemplated by the Commission;
qualification under the securities laws of such states as the Representatives
may designate of the issue and sale of the Offered Securities upon the terms and
conditions herein set forth or contemplated and containing no provision
unacceptable to the Representatives shall have been secured; and no stop order
shall be in effect denying or suspending effectiveness of such qualifications,
nor shall any stop order proceedings with respect thereto be instituted or
pending or, to the best knowledge of the Company and the Representatives,
threatened under such laws. If the Company has elected to rely upon Rule 430A of
the Rules and Regulations, the price of the Units and any price-related
information previously omitted from the effective Registration Statement
pursuant to such Rule 430A shall have been transmitted to the Commission for
filing pursuant to Rule 424(b) of the Rules and Regulations within the
prescribed time period, and prior to the First Closing Date the Company shall
have provided evidence satisfactory to the Representatives of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations; any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the Underwriters;
- -1- (b) No amendments to the Registration Statement, any Preliminary Prospectus
or the Prospectus to which the Representatives or counsel for the Underwriters
shall have objected, after having received reasonable notice of a proposal to
file the same, shall have been filed.
(c) The Representatives shall not have discovered and disclosed to the
Company prior to the respective Closing Dates that the Registration Statement or
the Prospectus, or any amendment or supplement thereto, contains an untrue
statement of fact which, in the reasonable opinion of counsel for the
Underwriters, is material, or omits to state a fact which, in the opinion of
such counsel, is material and is required to be stated therein or is necessary
to make the statements therein not misleading.
(d) At the First Closing Date, the Representatives shall have
received the opinion, together with copies of such opinion for each of the
other Underwriters, dated as of the First Closing Date, of Sims Moss Kline &
Davis LLP, counsel for the Company, in form and substance satisfactory to
counsel for the Underwriters, to the
effect that:
(i) the Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Georgia, with full
corporate power and authority to own its properties and conduct its business as
described in the Registration Statement and Prospectus and is duly qualified to
do business as a foreign corporation and is in good standing in all other
jurisdictions in which the nature of its business or the character or location
of its properties requires such qualification, except where the failure to so
qualify will not have a Material Adverse Effect;
(ii) the authorized capitalization of the Company as of __________________, 1998
is as set forth in the Prospectus under "Capitalization"; all shares of issued
and outstanding capital stock of the Company set forth thereunder have been duly
authorized, validly issued, and are fully paid and non-assessable and conform to
the description thereof contained in the Prospectus; to the best of such
counsel's knowledge, the outstanding shares of Common Stock of the Company have
not been issued in violation of the preemptive rights of any shareholder and the
shareholders of the Company do not have any statutory preemptive rights to
subscribe for or to purchase, nor are there any restrictions upon the voting or
transfer of any of the Common Stock; the Registered Securities, the Public
Warrant Agreement and the Underwriters' Warrant Agreement conform as to legal
matters in all material respects to the respective descriptions thereof
contained in the Prospectus; the Shares have been, and the Public Warrant Shares
and Underwriters' Warrant Shares upon issuance in accordance with the terms of
the Public Warrants and the Public Warrant Agreement and the Underwriters'
Warrants and the Underwriters' Warrant Agreement, respectively, have been duly
authorized and, when issued and delivered, will be duly and validly issued,
fully paid, non-assessable, free of preemptive rights and no personal liability
will attach to the ownership thereof; a sufficient number of shares of Common
Stock has been reserved for issuance upon exercise of the Redeemable Warrants,
Underwriters' Warrants and Underwriters' Redeemable Warrants, and to the best of
such counsel's knowledge, neither the filing of the Registration Statement nor
the offering or sale of the Registered Securities as contemplated by this
Agreement gives rise to, any registration rights or other rights, other than
those which have been waived or satisfied, for or relating to the registration
of any shares of Common Stock;
(iii) this Agreement, the Public Warrant Agreement and the Underwriters' Warrant
Agreement have been duly and validly authorized, executed and delivered by the
Company and, assuming due execution by each other party hereto or thereto, each
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law;
(iv) the certificates evidencing the shares of Common Stock are in valid and
proper legal form; the Public Warrants and the Underwriters' Warrants will be
exercisable for shares of Common Stock in accordance with their terms and at the
prices therein provided for;
(v) delivery of certificates for the Shares and Redeemable Warrants underlying
the Units, upon payment therefor by the Underwriters as provided in this
Agreement, will transfer valid title to such securities to the Underwriters;
and, upon payment for such securities, the Underwriters will acquire such
securities free and clear of any liens;
(vi) such counsel knows of no pending or threatened legal or governmental
proceedings to which the Company is a party which could materially adversely
affect the business, property, financial condition or operations of the Company;
or which question the validity of the Registered Securities, this Agreement, the
Public Warrant Agreement or the Underwriters' Warrant Agreement, or of any
action taken or to be taken by the Company pursuant to such agreements; and no
such proceedings are known to such counsel to be contemplated against the
Company;
(vii) to such counsel's knowledge there are no governmental proceedings or
regulations required to be described or referred to in the Registration
Statement which are not so described or referred to;
(viii) the execution and delivery of this Agreement, the Public Warrant
Agreement and the Underwriters' Warrant Agreement, and the incurrence of the
obligations herein and therein set forth and the consummation of the
transactions herein or therein contemplated, will not result in a breach or
violation of, or constitute a default under, the Amended and Restated Articles
of Incorporation or Bylaws, any bond, debenture, note or other evidence of
indebtedness or in any contract, indenture, mortgage, loan agreement, lease,
joint venture or other agreement or instrument which is filed as an exhibit to
the Registration Statement, or of any material order, writ, injunction, or
decree of any government, governmental instrumentality or court, domestic or
foreign applicable to the Company;
(ix) the Registration Statement has become effective under the Act, and to the
best of such counsel's knowledge, no stop order suspending the effectiveness of
the Registration Statement is in effect, and no proceedings for that purpose
have been instituted or are pending before, or threatened by, the Commission;
the Registration Statement and the Prospectus (except for the financial
statements and other financial data contained therein, or omitted therefrom, as
to which such counsel need express no opinion) comply as to form in all material
respects with the applicable requirements of the Act and the Rules and
Regulations;
(x) such counsel has participated in the preparation of the Registration
Statement and the Prospectus and, although such counsel did not independently
verify and is not passing upon and does not assume any responsibility for, the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus, based upon such participation,
nothing has come to the attention of such counsel to cause such counsel to have
reason to believe that the Registration Statement or any amendment thereto at
the time it became effective contained any untrue statement of a material fact
required to be stated therein or omitted to state any material fact required to
be stated therein or necessary to make the statements therein not misleading or
that the Prospectus or any supplement thereto contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make
statements therein, in light of the circumstances under which they were made,
not misleading (except, in the case of both the Registration Statement and any
amendment thereto and the Prospectus and any supplement thereto, for the
financial statements, notes thereto and other financial information and
schedules contained therein as to which such counsel need express no opinion);
-1-
(xi) all descriptions in the Registration Statement and the Prospectus, and any
amendment or supplement thereto, of contracts and other documents are accurate
and fairly summarize in all material respects the information required to be
disclosed, and such counsel is familiar with all contracts and other documents
referred to in the Registration Statement and the Prospectus and any such
amendment or supplement or filed as exhibits to the Registration Statement, and
such counsel does not know of any contracts or documents of a character required
to be summarized or described therein or to be filed as exhibits thereto which
are not so summarized, described or filed;
(xii) no authorization, approval, consent, or license of any governmental or
regulatory authority or agency is necessary in connection with the
authorization, issuance, transfer, sale or delivery of the Registered Securities
by the Company, in connection with the execution, delivery and performance of
this Agreement by the Company or in connection with the taking of any action
contemplated herein, other than registrations or qualifications of the
Registered Securities under applicable state or foreign securities or blue sky
laws and registration under the Act all of which have been obtained;
(xiii) the statements in the Registration Statement under the captions
"Business," "Management," "Shares Eligible for Future Sale," "Certain
Transactions," Securities" and in Part II, Item 26, have been reviewed by such
counsel and, insofar as they refer to descriptions of agreements, statements of
law, descriptions of statutes, licenses, rules or regulations or legal
conclusions, are correct in all material respects;
(xiv) the offers and sales of the Company's Common Stock by the Selling
Shareholders referred to under the caption "Certain Transactions" were exempt
from the registration requirements of the Securities Act and were exempt from
the registration or qualification requirements of the securities laws of each
state in which such offers and sales were made, and such offers and sales do not
have to be integrated with the offer and sale of the Units pursuant to the
Registration Statement; and
(xv) based solely upon advice of representatives of Nasdaq, the Units, the
Common Stock and the Warrants have been duly authorized for quotation on The
Nasdaq SmallCap Market. Such counsel need express no opinion with respect to the
financial statements and other financial data included in or omitted from the
Registration Statement or Prospectus. Such opinion shall also cover such matters
incident to the transactions contemplated hereby as the Representatives or
counsel for the Underwriters shall reasonably request. In rendering such
opinion, such counsel may rely upon certificates of any officer of the Company
or public officials as to matters of fact original copies of which shall be
delivered to the Representatives at the First Closing and the Option Closing as
the case may be; and may rely as to all matters of law other than the law of the
United States or of the State of Georgia upon opinions of counsel satisfactory
to you, in which case the opinion shall state that they have no reason to
believe that you and they are not entitled to so rely.
(e) All corporate proceedings and other legal matters relating to this
Agreement, the Registration Statement, the Prospectus and other related matters
shall be satisfactory to or approved by counsel to the Underwriters.
(f) The Representatives shall have received a letter from Grant Thornton LLP,
independent public accounts for the Company, prior to the execution and delivery
of this Agreement, and dated the date of this Agreement, substantially in the
form attached as Annex I hereto and satisfactory to the Representatives,
together with signed or reproduced copies of such letter for each of the other
Underwriters, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
<PAGE>
-1-
(g) At the First Closing Date, the Representatives shall have
received from Grant Thornton LLP a letter, dated as of the First Closing Date,
to the effect that they reaffirm the statements made in the letter furnished
pursuant to paragraph (f) of this Section, except that the specified date
referred to shall be a date
not more than five days prior to the First Closing Date.
<PAGE>
-1-
(h) The Representatives shall have received a certificate, dated
and delivered as of the date of the First Closing Date, of the Chief
Executive Officer and Secretary of the Company stating that:
<PAGE>
-1-
(i) The Company has complied with all the agreements and
satisfied all the conditions on
their respective part to be performed or satisfied hereunder at or
prior to such date, including but not limited to the
agreements and covenants of the Company set forth in Section
6 hereof.
<PAGE>
-1-
(ii) No stop order suspending the effectiveness of the Registration Statement
has been issued, and no proceedings for that purpose have been instituted or are
pending, contemplated or threatened under the Act.
<PAGE>
-1-
(iii) Such officers have carefully examined the Registration Statement and the
Prospectus and any supplement or amendment thereto, each contains all statements
required to be stated therein or necessary to make the statements therein not
misleading and does not contain any untrue statement of a material fact, and
since the Effective Date there has occurred no event required to be set forth in
the amended or supplemented prospectus which has not been set forth.
<PAGE>
-1-
(iv) As of the date of such certificate, the
representations and warranties contained in Section 2 hereof are true and
correct as if such representations and warranties were made in their entirety
on
the date of such certificate, and
the Company has complied with
all its agreements herein
contained as of the date
hereof.
<PAGE>
-1-
(v) Subsequent to the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as contemplated in the
Prospectus, the Company has not incurred any liabilities or obligations, direct
or contingent, or entered into any material transactions and there has not been
any change in the Common Stock or funded debt of the Company or any adverse
change in the condition (financial or otherwise), business, operations, income,
net worth, properties or prospects of the Company.
<PAGE>
-1-
(vi) Subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus, the Company has not sustained any
material loss of or damage to its properties, whether or not insured, and since
such respective dates, no dividends or distributions whatever shall have been
declared or paid, or both, on or with respect to any security (except interest
in respect of loans) of the Company.
-1-
(vii) Neither the Company nor any of its officers or affiliates has taken any
action designed to, or which might reasonably be expected to, cause or result in
the stabilization or manipulation of the price of the Company's securities to
facilitate the sale or resale of the Offered Securities.
-1-
(viii) No action, suit or proceeding, at law or in equity, is pending or, to the
knowledge of such officers, threatened against the Company, or affecting any of
its properties, before or by any commission, board or other administrative
agency, except as otherwise set forth in the Registration Statement.
<
-1-
(i) All of the Units shall have been
tendered for delivery in accordance
with the terms and provisions of this
Agreement.
-1-
(j) On the date hereof, but prior to the execution and delivery
hereof, the Company and the Selling Shareholders shall have furnished for
review by the Representatives copies of the Powers of Attorney and Custody
Agreements executed by each of the Selling Shareholders and such further
information, certificates and documents
as the Representatives may reasonably request.
-1-
(k) The Underwriter shall have
received each of the lock-up
agreements referred to in
Section 6(bb) hereof.
<PAGE>
-1-
(l) At each Closing Date, (i) the representations and warranties
of the Company (and the Selling Shareholders at the Option Closing Date)
contained in this Agreement shall be true and correct with the same
effect as if made on and as each Closing Date and the Company shall have
performed all its obligations due to be performed prior thereto; (ii) the
Registration Statement and the Prospectus and any amendment or supplement
thereto shall contain all statements which are required to be stated therein
in accordance with the Act and the Rules and Regulations and conform in
all material respects to the requirements thereof, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto shall contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading; (iii) there shall have been, since
the date as of which information is given, no material adverse change in the
condition, business, operations, properties, business prospects,
securities, long-term or short-term debt or general affairs of the
Company from that set forth in the Registration Statement or the Prospectus,
except changes which the Registration Statement and the Prospectus
indicate will occur after the Effective Date and prior to such Closing Date,
and the Company shall not have incurred any material liabilities or
obligations, direct or contingent, or entered into any material transaction,
contract or agreement not in the ordinary course of business other than as
referred to in the Registration Statement and the Prospectus; and (iv) except
as set forth in the Prospectus, no action, suit or proceeding, at law or in
equity, shall be pending or threatened against the Company which might be
required to be set forth in the Registration Statement, and no proceedings
shall be pending or threatened against the Company before or by
any commission, board or administrative agency in the United States or
elsewhere, wherein an unfavorable decision, ruling or finding might adversely
affect the condition, business, operations, properties, prospects or
general affairs of the Company.
<PAGE>
-1-
(m) Upon exercise of the Over-Allotment Option provided for in
Section 4(b) hereof, the obligations of the Underwriter to purchase and pay
for the Option Shares and/or the Redeemable Warrants will be subject to
the following additional conditions:
<PAGE>
- -1- (i) The Registration Statement shall remain effective at the Option Closing
Date, and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending, or, to the best knowledge of the Underwriter or the Company, shall
be contemplated by the Commission, and any request on the part of the Commission
for additional information shall have been complied with to the satisfaction of
counsel for the Underwriters.
<PAGE>
-1-
(ii) At the Option Closing Date there shall have been
delivered to the Representatives the signed opinion of Sims Moss Kline &
Davis LLP, counsel for the Company, in form and substance reasonably
satisfactory to counsel for the Underwriters, which opinion shall be
substantially the same in scope and
substance as the opinions furnished to
the Representatives by such
counsel at the First Closing
Date pursuant to Section
8(d).
(iii) At the Option Closing Date the Representatives
shall have received the opinion,
together with copies of such opinion for each of the other Underwriters, dated
as of the Option Closing Date, of Sims Moss Kline & Davis LLP, counsel for
the Selling Shareholders in form and substance satisfactory to the
counsel for the Underwriters.
(iv) At the Option Closing Date there shall have been
delivered to the Representatives a certificate of the Chief Executive Officer
and the Secretary of the Company dated the Option Closing Date, in
form and substance satisfactory to counsel for the Underwriters, substantially
the same in scope and substance as the certificates furnished to the
Representatives at the First Closing Date pursuant to Section 8(h).
<PAGE>
-1-
(v) At the Option Closing Date there shall have been
delivered to the Representatives a letter, in form and substance satisfactory
to the Representatives, from Grant Thornton LLP, dated the Option Closing
Date and addressed to the Representatives, substantially in the same form and
substance as the letter
furnished to the Representatives pursuant to Section 8(h) hereof, except that
the "specified date" in the letter furnished pursuant to this paragraph shall
be a date not more than five days prior to the Option Closing Date.
<PAGE>
-1-
(vi) At the Option Closing Date there shall have been
delivered to the Representatives a
certificate executed by the
Attorney-in-Fact of each
Selling Shareholder, dated as
of the Option Closing Date, to
the effect that:
(A) the representations, warranties and covenants of
such Selling Shareholder set forth in Section 3 of this Agreement are
true and correct with the same force and effect as though expressly
made by such Selling Shareholder on and as of the Option Closing Date;
and
(B) such Selling Shareholder has complied with all
the agreements and satisfied all the conditions on its part to be
performed or satisfied under this Agreement at or prior to the Option
Closing Date.
<PAGE>
-1-
(vii) All proceedings taken at or prior to the Option
Closing Date in connection with the sale and transfer of the Option Securities
shall be satisfactory in form and substance to the Representatives,
and the Representatives and counsel for the Underwriters, shall have been
furnished with all such documents, certificates, affidavits and opinions as
the Representatives and counsel for the Underwriters may reasonably request
in connection with this transaction in order to evidence the accuracy and
completeness of any of the
representations, warranties or statements of the Company or the Selling
Shareholders or compliance by the Company or the Selling
Shareholders with any of the covenants or conditions contained
herein.
<PAGE>
-1-
(n) The Company shall have executed and delivered the Public
Warrant Agreement and the Underwriters' Warrant Agreement, and
shall have issued the Underwriters' Warrants.
<PAGE>
-1-
(o) The Company and the Selling Shareholders shall have furnished to
the Representatives such other certificates, documents, and opinions as
the Representatives may have reasonably requested (including
certificates from officers of the Company and from the Selling Shareholders) as
to the accuracy, at each Closing Date, of the representations and
warranties of the Company and the Selling Shareholders herein, as to the
performance by the Company and the Selling Shareholders of their respective
obligations hereunder and as to other conditions concurrent and
precedent to the obligations of the Underwriters hereunder.
The opinions and certificates mentioned above or elsewhere in this
Agreement will be deemed to be in compliance with the provisions hereof only
if they are reasonably satisfactory to the Representatives and to
counsel for the Underwriters.
Any certificate signed by an officer of the Company delivered to the
Representatives or to counsel for the Underwriters, will be deemed a
representation and warranty by the Company to the Representatives as to the
statements made therein.
-1-
(p) No action shall have been taken by the Commission or the NASD the effect of
which would make it improper, at any time prior to each Closing Date, for
members of the NASD to execute transactions (as principal or agent) in the
Registered Securities and no proceedings for the taking of such action shall
have been instituted or shall be pending, or, to the knowledge of the
Underwriters or the Company, shall be contemplated by the Commission or the
NASD. The Company represents that at the date hereof it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD. The
Company shall have advised the Representatives of any NASD affiliation of any of
its officers, directors, stockholders or their affiliates.
(q) If any of the conditions herein provided for in this Section 8
shall not have been fulfilled as of the date indicated, this Agreement and
all obligations of the Underwriters under this Agreement may be
canceled at, or at any time prior to, each Closing Date by
the Representatives. Any such cancellation shall
be without liability of the Underwriters to the
Company.
-1-
9. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligation
of the Company to sell and deliver the Units, the Shares, the Redeemable
Warrants and the Underwriters' Warrants, is subject to the
condition that at each Closing Date, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued under the
Act or any proceedings therefor initiated or threatened by the Commission. If
the condition to the obligations of the Company provided for in this Section 9
have been fulfilled on the First Closing Date but are not fulfilled after the
First Closing Date and prior to the Option Closing Date, then only
the obligation of the Company to
sell and deliver the Option
Securities on exercise of the
Over-Allotment Option shall be
10. INDEMNIFICATION.
-1-
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of the
Act against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all attorneys' fees), to which
such Underwriter or such controlling person may become subject, under the Act or
otherwise, and will reimburse, as incurred, such Underwriter and such
controlling persons for any legal or other expenses reasonably incurred in
connection with investigating, defending against or appearing as a third party
witness in connection with any losses, claims, damages or liabilities, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in (A) the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
(B) any blue sky application or other document executed by the Company
specifically for that purpose or based upon written information furnished by the
Company filed in any state or other jurisdiction in order to qualify any or all
of the Units under the securities laws thereof (any such application, document
or information being hereinafter called a "Blue Sky Application"), or arise out
of or are based upon the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, Prospectus, or any amendment
or supplement thereto, or in any Blue Sky Application, a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any such case to the
extent, but only to the extent, that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the Underwriters
specifically for use in the preparation of the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
or any such Blue Sky Application. This indemnity will be in addition to any
liability which the Company may otherwise have.
<PAGE>
-1-
(b) Each Underwriter, severally, but not jointly, will indemnify
and hold harmless the Company, each of its directors, each nominee (if any) for
director named in the Prospectus, each of its officers who have
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages
or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and
all attorneys' fees) to which the Company or any such director, nominee,
officer or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the
Registration Statement,
anyPreliminary Prospectus, the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto (i) in reliance upon and in conformity with written
information furnished to the Company any Underwriter specifically for use in
the preparation thereof and (ii) relates to the transactions effected by the
Underwriters in connection with the offer and sale of the Public Securities
contemplated hereby. This indemnity agreement will be in addition to any
liability which the Underwriters may otherwise have.
<PAGE>
-1-
(c) Promptly after receipt by an indemnified party under this Section 10 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 10, notify in writing the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section 10. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, subject to the provisions herein
stated, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 10 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. The indemnified
party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party ifthe indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls an Underwriter within the meaning of the Act, the fees
and expenses of such counsel shall be at the expense of the indemnifying party
if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the Underwriter or such
controlling person and the indemnifying party and in the judgment of the
applicable Underwriter, it is advisable for the applicable Underwriter or
controlling persons to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the applicable Underwriter or such controlling person, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action or separate but substantially similar or related actions in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for the applicable Underwriter and controlling
persons, which firm shall be designated in writing by the applicable
Underwriter). No settlement of any action against an indemnified party shall be
made without the consent of the indemnifying party, which shall not be
unreasonably withheld in light of all factors of importance to such indemnifying
party.
11. CONTRIBUTION. In order to provide for just and equitable contribution under
the Act in any case in which (i) an Underwriter makes claim for indemnification
pursuant to Section 10 hereof but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case, notwithstanding the fact that
the express provisions of Section 10 provide for indemnification in such case,
or (ii) contribution under the Act may be required on the part of any
Underwriter, then the Company and each person who controls the Company, in the
aggregate, and any such Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) in either
such case (after contribution from others) in such proportions that all such
Underwriters are only responsible for that portion of such losses, claims,
damages or liabilities represented by the percentage that the underwriting
discount per Unit appearing on the cover page of the Prospectus bears to the
public offering price appearing thereon, and the Company shall be responsible
for the remaining portion, provided, however, that (a) if such allocation is not
permitted by applicable law then the relative fault of the Company and the
applicable Underwriter and controlling persons, in the aggregate, in connection
with the statements or omissions which resulted in such damages and other
relevant equitable considerations shall also be considered. The relative fault
shall be determined by reference to, among other things, whether in the case of
an untrue statement of a material fact or the omission to state a material fact,
such statement or omission relates to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
Company and the Underwriters agree (a) that it would not be just and equitable
if the respective obligations of the Company and the Underwriters to contribute
pursuant to this Section 11 were to be determined by pro rata or per capita
allocation of the aggregate damages or by any other method of allocation that
does not take account of the equitable considerations referred to in the first
sentence of this Section 11 and (b) that the contribution of each contributing
Underwriter shall not be in excess of its proportionate share (based on the
ratio of the number of Units purchased by such Underwriter to the number of
Units purchased by all contributing Underwriters) of the portion of such losses,
claims, damages or liabilities for which the Underwriters are responsible. No
person guilty of a fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. As used in this Section 11, the
word "Company" includes any officer, director, or person who controls the
Company within the meaning of Section 15 of the Act. If the full amount of the
contribution specified in this Section 11 is not permitted by law, then the
applicable Underwriter and each person who controls the applicable Underwriter
shall be entitled to contribution from the Company, its officers, directors and
controlling persons to the full extent permitted by law. The foregoing
contribution agreement shall in no way affect the contribution liabilities of
any persons having liability under Section 11 of the Act other than the Company
and the Underwriters. No contribution shall be requested with regard to the
settlement of any matter from any party who did not consent to the settlement;
provided, however, that such consent shall not be unreasonably withheld in light
of all factors of importance to such party.
12. COSTS AND EXPENSES.
(a) Whether or not this Agreement becomes effective or the sale of the
Units to the Underwriters is consummated, the Company will pay all costs and
expenses incident to the performance of this Agreement by the Company,
including, but not limited to, the fees and expenses of counsel to the Company
and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement (including the financial statements therein and all amendments and
exhibits thereto), Preliminary Prospectus and the Prospectus, as amended or
supplemented; the fee of the NASD in connection with the filing required by the
NASD relating to the offering of the Units contemplated hereby; all expenses,
including the reasonable fees, not to exceed $25,000, and disbursements of
counsel to the Underwriters, in connection with the qualification of the Units
under the state securities or blue sky laws which the Representatives shall
designate; the cost of printing and furnishing to the Underwriters copies of the
Registration Statement, each Preliminary Prospectus, the Prospectus, this
Agreement, the Public Warrant Agreement, the Underwriters' Warrant Agreement,
the Agreement Among Underwriters, Selling Agreement, Underwriters'
Questionnaire, and the Blue Sky Memorandum and any supplements thereto; any fees
relating to the listing of the Units, Common Stock and Redeemable Warrants on
The Nasdaq SmallCap Market or any other securities exchange; the cost of
printing the certificates representing the securities comprising the Units; the
fees of the transfer agent and warrant agent the cost of publication of at least
three (3) "tombstones" of the offering (at least one of which shall be in
national business newspaper and one of which shall be in a major New York
newspaper); and the cost of preparing at least four (4) hard cover "bound
volumes" relating to the offering, in accordance with the Representatives'
request. The Company shall pay any and all taxes (including any transfer,
franchise, capital stock or other tax imposed by any jurisdiction) on sales to
the Underwriters hereunder. The Company will also pay all costs and expenses
incident to the furnishing of any amended Prospectus or of any supplement to be
attached to the Prospectus as called for in Section 6(a) of this Agreement
except as otherwise set forth in said Section 6(a).
(b) In addition to the foregoing expenses, the Company shall at the First
Closing Date pay to Tejas Securities Group, Inc., individually and not as a
representative of the Underwriters, a non-accountable expense allowance equal to
two percent (2%) of the gross proceeds derived from the sale of Units offered
hereby, of which $75,000 has been paid. In the event the Over-Allotment Option
is exercised, the Company shall pay to Tejas Securities Group, Inc.,
individually and not as a representative of the Underwriters, at the Option
Closing Date an additional amount non-accountable expense allowance equal to two
percent (2%) of the gross proceeds received upon exercise of the Over-Allotment
Option.
<PAGE>
(c) In the event the transactions contemplated hereby are not consummated by
reason of any action by the Underwriters (except if such prevention is based
upon a breach by the Company of any covenant, representation or warranty
contained herein or because any other condition to the Underwriters' obligations
hereunder required to be fulfilled by the Company is not fulfilled) the Company
shall only be liable for the out-of-pocket accountable expenses actually
incurred by the Underwriters, including "blue sky" legal fees up to a maximum of
$25,000. In the event the transactions contemplated hereby are not consummated
by reason of any action of the Company or because of a breach by the Company of
any covenant, representation or warranty herein, the Company shall be liable
only for the out-of-pocket accountable expenses actually incurred by the
Underwriters. In the event the out-of-pocket accountable expenses actually
incurred by the Underwriters are less than the amounts paid pursuant to Section
12(b) hereof, Tejas Securities Group, Inc., individually and not as a
representative of the Underwriters, shall refund the difference to the Company.
(d)If the Over-Allotment Option is exercised, the Selling Shareholders shall pay
a pro rata portion of all expenses incurred by the Company pursuant to this
Section 12.
<PAGE>
13. SUBSTITUTION OF UNDERWRITERS. If any Underwriters shall for any reason not
permitted hereunder cancel their obligations to purchase the Firm Securities
hereunder, or shall fail to take up and pay for the number of Firm Securities
set forth opposite their respective names in Schedule A hereto upon tender of
such Firm Securities in accordance with the terms hereof, then:
(a) If the aggregate number of Firm Securities which such
Underwriter or Underwriters agreed but failed to purchase does not exceed
ten percent (10%) of the total number of Firm Securities, the other
Underwriters shall be obligated severally, in proportion to their respective
commitments hereunder, to purchase the Firm Securities which such
defaulting Underwriter or Underwriters agreed but failed to purchase.
<PAGE>
-1-
(b) If any Underwriter or Underwriters so default and the agreed number of Firm
Securities with respect to which such default or defaults occurs is more than
ten percent (10%) of the total number of Firm Securities, the remaining
Underwriters shall have the right to take up and pay for (in such proportion as
may be agreed upon among them) the Firm Securities which the defaulting
Underwriter or Underwriters agreed but failed to purchase. If such remaining
Underwriters do not, at the First Closing Date, take up and pay for the Firm
Securities which the defaulting Underwriter or Underwriters agreed but failed to
purchase, the time for delivery of the Firm Securities shall be extended to the
next business day to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters satisfactory to the Company. If no such
underwriter or underwriters shall have been substituted as aforesaid, within
such twenty-four (24) hour period, the time of delivery of the Firm Securities
may, at the option of the Company, be again extended to the next following
business day, if necessary, to allow the Company the privilege of finding within
twenty-four (24) hours (including non-business hours) another underwriter or
underwriters to purchase the Firm Securities which the defaulting Underwriter or
Underwriters agreed but failed to purchase. If it shall be arranged for the
remaining Underwriters or substituted Underwriters to take up the Firm
Securities of the defaulting Underwriter or Underwriters as provided in this
Section 13, (i) the Company or the Representatives shall have the right to
postpone the time of delivery for the period of not more than seven (7) business
days, in order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which may thereby be
made necessary, and (ii) the respective numbers of Firm Securities to be
purchased by the remaining Underwriters or substituted Underwriters shall be
taken at the basis of the underwriting obligation for all purposes of this
Agreement. If in the event of a default by one or more Underwriters and the
remaining Underwriters shall not take up and pay for all the Firm Securities
agreed to be purchased by the defaulting Underwriters or substitute another
underwriter or underwriters as aforesaid, the Company shall not find or shall
not elect to seek another underwriter or underwriters for such Firm Securities
as aforesaid, then this Agreement shall terminate. If, following exercise of the
Over-Allotment Option, any Underwriter or Underwriters shall for any reason not
permitted hereunder cancel their obligations to purchase Option Securities at
the Option Closing Date, or shall fail to take up and pay for the number of
Option Securities, which they become obligated to purchase at the Option Closing
Date upon tender of such Option Securities in accordance with the terms hereof,
then the remaining Underwriters or substituted Underwriters may take up and pay
for the Option Securities of the defaulting Underwriters in the manner provided
in Section 13(b) hereof. If the remaining Underwriters or substituted
Underwriters shall not take up and pay for all such Option Securities, the
Underwriters shall be entitled to purchase the number of Option Securities for
which there is no default or, at their election, the option shall terminate and
the exercise thereof shall be of no effect. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 13. In the event of termination, there shall be no liability on the part
of any nondefaulting Underwriter to the Company, provided that the provisions of
this Section 13 shall to in any event affect the liability of any defaulting
Underwriter to the Company arising out of such default.
14. TERMINATION.
(a) This Agreement, except for Sections 10, 11, 12, 15, 16, 17 and 18,
may be terminated at any time prior to the First Closing Date, and the
Over-Allotment Option, if exercised, may be canceled at any time prior to the
Option Closing Date, by the Representatives if in their judgment it is
impracticable to offer for sale or to enforce contracts made by the Underwriters
for the resale of the Units agreed to be purchased hereunder by reason of (i)
the Company having sustained a material loss, whether or not insured, by reason
of fire, earthquake, flood, accident or other calamity, or from any labor
dispute or court or government action, order or decree; (ii) trading in
securities on the New York Stock Exchange, the American Stock Exchange, the
Nasdaq SmallCap Market or the Nasdaq National Market having been suspended or
limited; (iii) material governmental restrictions having been imposed on trading
in securities generally (not in force and effect on the date hereof); (iv) a
banking moratorium having been declared by federal or New York state
authorities; (v) an outbreak of international hostilities or other national or
international calamity or crisis or change in economic or political conditions
having occurred; (vi) a pending or threatened legal or governmental proceeding
or action relating generally to the Company's business, or a notification having
been received by the Company of the threat of any such proceeding or action,
which could materially adversely affect the Company; (vii) except as
contemplated by the Prospectus, the Company is merged or consolidated into or
acquired by another company or group or there exists a binding legal commitment
for the foregoing or any other material change of ownership or control occurs;
(viii) the passage by the Congress of the United States or by any state
legislative body or federal or state agency or other authority of any act, rule
or regulation, measure, or the adoption of any orders, rules or regulations by
any governmental body or any authoritative accounting institute or board, or any
governmental executive, which is reasonably believed likely by the
Representative to have a material impact on the business, financial condition or
financial statements of the Company or the market for the securities offered
pursuant to the Prospectus; (ix) any adverse change in the financial or
securities markets beyond normal market fluctuations having occurred since the
date of this Agreement, or (x) any material adverse change having occurred,
since the respective dates of which information is given in the Registration
Statement and Prospectus, in the earnings, business prospects or general
condition of the Company, financial or otherwise, whether or not arising in the
ordinary course of business.
<PAGE>
-1-
(b) If the Representatives elect to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this Section
15 or in Section 14 hereof, the Company shall be promptly notified by
the Representatives, by telephone or telegram, confirmed by letter, in
accordance with Section 17 hereof.
15. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company or its officers, directors, stockholders and the
Selling Shareholders and the undertakings set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Underwriters, the Company or any of its officers or
directors or any controlling person or any of the Selling Shareholders and will
survive delivery of and payment of the Units and the termination of this
Agreement.
16. NOTICE. Any communications specifically required hereunder to
be in writing, if sent to the Underwriters, will be mailed, delivered and
confirmed to the Representatives at 8214 Westchester, Suite 500,
Dallas, Texas 75225, with a copy sent to Winstead Sechrest & Minick P.C.,
5400 Renaissance Tower, 1201 Elm Street, Dallas, Texas 75270; or if sent to
the Company, will be mailed, delivered and confirmed to it at
BioShield Technologies, Inc., 4405 International Boulevard, Suite B-109,
Norcross, Georgia 30093, with a copy sent to Sims Moss Kline & Davis LLP, 400
Northpark Town Center, Suite 310, 100 Abernathy Road, N.E., Atlanta,
Georgia 30328; or if sent to the Timothy C. Moses, as a Selling Shareholder,
will be mailed, delivered and confirmed to it c/o BioShield Technologies,
Inc., 4405 International Boulevard, Suite B-109, Norcross, Georgia
30093, with a copy sent to Sims Moss Kline & Davis LLP, 400 Northpark Town
Center, Suite 310, 100 Abernathy Road, N.E., Atlanta, Georgia 30328; or if sent
to Jacques Elfersy, as a Selling Shareholder, will be mailed, delivered
and confirmed to it c/o BioShield Technologies, Inc., 4405 International
Boulevard, Suite B-109, Norcross, Georgia 30093, with a copy sent to Sims
Moss Kline & Davis LLP, 400 Northpark Town Center, Suite 310, 100
Abernathy Road, N.E., Atlanta, Georgia 30328.
17. PARTIES IN INTEREST. This Agreement is made solely for the benefit of the
Underwriters, the Representatives, each on an individual basis, the Company, the
Selling Shareholders, any person controlling the Company or the Underwriters,
directors of the Company, nominees for directors of the Company (if any) named
in the Prospectus, officers of the Company who have signed the Registration
Statement and each of their respective executors, administrators, successors and
assigns and no other person shall acquire or have any right under or by virtue
of this Agreement. The term "Successors and Assigns" shall not include any
purchaser, as such purchaser, from the Underwriters of the Units. All of the
obligations of the Underwriters hereunder are several and not joint.
18. APPLICABLE LAW. This Agreement will be governed by, and
construed in accordance with, the laws of the State of Texas
applicable to agreements made and to be entirely performed within
Texas.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it will become a
binding agreement among the Company, the Selling Shareholders and the
Underwriters in accordance with its terms.
Very truly yours, BIOSHIELD TECHNOLOGIES, INC.
By:
Name:
Title:
As to the Selling Shareholders Solely to Sections 3, 7, 16
and 17 Hereof
Timothy C. Moses
Jacques Elfersy
The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.
TEJAS SECURITIES GROUP, INC.
By:
Name:
Title:
REDSTONE SECURITIES, INC.
By:
Name:
Title:
SEABOARD SECURITIES, INC.
By:
Name:
Title:
<PAGE>
SCHEDULE A
UNDERWRITERS
Number of
Underwriters Firm Securities
to be Purchased
Tejas Securities Group, Inc.
Redstone Securities, Inc.
Seaboard Securities, Inc.
-------
750,000
WARRANT AGREEMENT - Page 1
WARRANT AGREEMENT
_____________, 1998
TEJAS SECURITIES GROUP, INC.
REDSTONE SECURITIES, INC.
SEABOARD SECURITIES, INC.
As Representatives of the Several Underwriters
8214 Westchester
Suite 500
Dallas, Texas 75225
Gentlemen:
BioShield Technologies, Inc., a Georgia corporation (the "Company"),
hereby agrees to sell to you, the several underwriters, and you hereby agree to
purchase from the Company at a purchase price of $100.00, unit purchase warrants
(the "Underwriter Warrants") covering 75,000 of the Company's units (the
"Units"), each Unit consisting of two shares of the Company's Common Stock and
one Redeemable Common Stock Purchase Warrant (the "Warrants") issued in
accordance with the terms of a warrant agreement (the "Warrant Agreement") dated
as of _____, 1998, between the Company and American Securities Transfer & Trust,
Inc., as warrant agent (the "Warrant Agent"). The Underwriter Warrants will be
exercisable by you as to all or any lesser number of Units covered thereby, at
the Purchase Price per Unit as defined below, at any time and from time to time
on and after the first anniversary of the date hereof and ending at 5:00 p.m. on
the fifth anniversary of the date hereof.
<PAGE>
WARRANT AGREEMENT - Page 1 1.ab Definitions.
3.ab As used herein the following terms, unless the context otherwise
requires, shall have for all purposes hereof the following meanings:
5.ab The term "Common Stock" refers to all stock of any class or
classes (however designated) of the Company, now or hereafter authorized, the
holders of which shall have the right without limitation as to amount, either to
all or to a part of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any shares entitled to
preference, and the holders of which shall ordinarily, in the absence of
contingency, be entitled to vote for the election of a majority of the directors
of the Company (even though the right so to vote has been suspended by the
occurrence of such a contingency).
<PAGE>
6.ab WARRANT AGREEMENT - Page 1 WARRANT AGREEMENT - Page 1
7.ab The term "Underlying Common Stock" refers to the shares of Common
Stock (or Other Securities) issuable under this Agreement pursuant to the
exercise, in whole or in part, of the Warrants or the Underwriter Warrants.
9.ab The term "Other Securities" refers to any securities of the
Company or any other person (corporate or otherwise) which the holders of the
Underwriter Warrants at any time shall be entitled to receive, or shall have
received, upon the exercise of the Underwriter Warrants, in lieu of or in
addition to Common Stock and Warrants, or which at any time shall be issuable or
shall have been issued in exchange for or in replacement of Common Stock,
Warrants or Other Securities pursuant to Section 7 below or otherwise.
11.ab The term "Registration Statement" refers, collectively, to the
Registration Statements relating to the registration of the Units, Common Stock
and Warrants with the Securities and Exchange Commission (the "Commission")
pursuant to the Rules and Regulations of the Commission under the Securities Act
of 1933, as amended (the "Act").
13.ab The term "Purchase Price" refers to the purchase price of the
Units subject to this Agreement. The initial Purchase Price shall equal _____%
of the offering price per Unit as set forth in the Registration Statement. If
the Purchase Price per Share (as hereinafter defined) is adjusted as provided in
Section 7 below, the Purchase Price shall thereafter equal the Purchase Price
per Share multiplied by two (2).
15.ab The term "Purchase Price per Share" shall initially refer to the
amount obtained by dividing the initial Purchase Price by two (2). The Purchase
Price per Share is subject to adjustment as provided in Section 7 below.
17.ab The purchase and sale of the Underwriter Warrants shall take
place, and the purchase price therefore shall be paid by delivery of your check,
simultaneously with the purchase of and payment for any Units of the Company as
provided in that certain Underwriting Agreement relating to the public offering
covered by the Registration Statement.
19.ab Representations and Warranties.
21.ab The Company represents and warrants to you as follows:
(a)ab Corporate Action. The Company has all requisite corporate power
and authority, and has taken all necessary corporate action, to execute and
deliver this Agreement, to issue and deliver the Underwriter Warrants and
certificates evidencing same ("Underwriter Warrant Certificates"), and to
authorize and reserve for issuance, and upon payment from time to time of the
Purchase Price to issue and deliver, the Units, including the Common Stock and
the Warrants and shares of Common Stock underlying the Warrants.
(c)ab No Violation. Neither the execution nor delivery of this
Agreement, the consummation of the actions herein contemplated nor compliance
with the terms and provisions hereof will conflict with, or result in a breach
of, or constitute a default or an event permitting acceleration under, any of
the terms, provisions or conditions of the Amended and Restated Articles of
Incorporation or Bylaws of the Company or any indenture, mortgage, deed of
trust, note, bank loan, credit agreement, franchise, license, lease, permit,
judgment, decree, order, statute, rule or regulation or any other agreement,
understanding or instrument to which the Company is a party or by which it is
bound.
23.ab Compliance with the Act.
(a)ab Transferability of Underwriter Warrants. You agree that the
Underwriter Warrants may not be transferred, sold, assigned or hypothecated
prior to the first anniversary date of the effective date of the Registration
Statement, except to (i) persons who are officers of you; (ii) a successor to
you in a merger or consolidation; (iii) a purchaser of all or substantially all
of your assets; (iv) your shareholders in the event you are liquidated or
dissolved; (v) persons who are partners or officers of participating
broker-dealers.
(b)ab Registration of Underlying Common Stock. The Underlying Common
Stock has not been registered for resale under the Act. You agree not to make
any sale or other disposition of the Underlying Common Stock except pursuant to
a new registration statement which has become effective under the Act, setting
forth the terms of such offering, the underwriting discount and the commissions
and any other pertinent data with respect thereto, unless you have provided the
Company with an opinion of counsel reasonably acceptable to the Company that
such registration is not required.
25.ab Exercise of Underwriter Warrants; Partial Exercise.
(a)ab Exercise in Full. Each Underwriter Warrant may be exercised in
full by the holder thereof by surrender of the Underwriter Warrant Certificate,
with the form of subscription at the end thereof duly executed by such holder,
to the Company at its principal office, accompanied by payment, in cash or by
certified or bank cashiers check payable to the order of the Company, in the
respective amount obtained by multiplying the number of Units represented by the
Underwriter Warrant Certificate (after giving effect to any adjustment therein
as provided in Section 7 below) by the Purchase Price.
(b)ab Partial Exercise. Each Underwriter Warrant may be exercised in
part by surrender of the Underwriter Warrant Certificate in the manner and at
the place provided in Subsection 4(a) above, accompanied by payment, in cash or
by certified or bank cashiers check payable to the order of the Company, in the
respective amount obtained by multiplying the number of Units designated by the
holder in the form of subscription attached to the Underwriter Warrant
Certificate by the Purchase Price (after giving effect to any adjustment therein
as provided in Section 7 below). Upon any such partial exercise, the Company at
its expense will forthwith issue and deliver to or upon the order of the
purchasing holder, a new Underwriter Warrant Certificate or Certificates of like
tenor, in the name of the holder thereof or as such holder (upon payment by such
holder of any applicable transfer taxes) may request calling in the aggregate
for the purchase of the number of Units equal to the number of Units called for
on the face of the Underwriter Warrant Certificate (after giving effect to any
adjustment therein as provided in Section 7 below) minus the number of Units
(after giving effect to such adjustment) designated by the holder in the
aforementioned form of subscription.
(d)ab Company to Reaffirm Obligations. The Company will, at the time of
any exercise of any Underwriter Warrant, upon the request of the holder thereof,
acknowledge in writing its continuing obligation to afford to such holder any
rights to which such holder shall continue to be entitled after such exercise in
accordance with the provisions of this Agreement provided, however, that if the
holder of an Underwriter Warrant shall fail to make any such request, such
failure shall not affect the continuing obligation of the Company to afford to
such holder any such rights.
27.ab Redemption of Warrants.
29.ab All terms applicable to the redemption of the Warrants underlying
Underwriter Warrants shall be identical to the redemption provisions of the
Warrants set forth in Section 12 of the Warrant Agreement.
31.ab Delivery of Certificates, etc, on Exercise.
33.ab As soon as practicable after the exercise of any Underwriter
Warrant in full or in part, and in any event within twenty days thereafter, the
Company at its expense (including the payment by it of any applicable issue
taxes) will cause to be issued in the name of and delivered to the purchasing
holder thereof, a certificate or certificates for the number of Units, Warrants
and fully paid and nonassessable shares of the Underlying Common Stock to which
such holder shall be entitled upon such exercise, plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash in an
amount determined pursuant to Section 8(g), together with any Other Securities
and property (including cash, where applicable) to which such holder is entitled
upon such exercise pursuant to Section 7 below or otherwise.
34.ab Anti-dilution Provisions.
36.ab The Underwriter Warrants are subject to the following terms and
conditions during the term thereof:
(a)ab Stock Distributions and Splits. In case (i) the outstanding
shares of the Common Stock (or Other Securities) shall be subdivided into a
greater number of shares or (ii) a dividend in Common Stock (or Other
Securities) shall be paid in respect of Common Stock (or Other Securities), the
Purchase Price per Share in effect immediately prior to such subdivision or at
the record date of such dividend or distribution shall simultaneously with the
effectiveness of such subdivision or immediately after the record date of such
dividend or distribution be proportionately reduced; and if outstanding shares
of Common Stock (or Other Securities) shall be combined into a smaller number of
shares thereof, the Purchase Price per Share in effect immediately prior to such
combination shall simultaneously with the effectiveness of such combination be
proportionately increased. Any dividend paid or distributed on the Common Stock
(or Other Securities) in stock or any other securities convertible into shares
of Common Stock (or Other Securities) shall be treated as a dividend paid in
Common Stock (or Other Securities) to the extent that shares of Common Stock (or
Other Securities) are issuable upon the conversion thereof.
(b)ab Adjustments. Whenever the Purchase Price per Share is adjusted as
provided in Subsection 7(a) above, the number of shares of the Underlying Common
Stock purchasable upon exercise of the Underwriter Warrants immediately prior to
such Purchase Price per Share adjustment shall be adjusted, effective
simultaneously with such Purchase Price per Share adjustment, to equal the
product obtained (calculated to the nearest full share) by multiplying such
number of shares of the Underlying Common Stock by a fraction, the numerator of
which is the Purchase Price per Share in effect immediately prior to such
Purchase Price per Share adjustment and the denominator of which is the Purchase
Price per Share in effect upon such Purchase Price per Share adjustment, which
adjusted number of shares of the Underlying Common Stock shall thereupon be the
number of shares of the Underlying Common Stock purchasable upon exercise of the
Underwriter Warrants until further adjusted as provided herein.
(d)ab Reorganizations. In case the Company shall be recapitalized by
reclassifying its outstanding Common Stock (or Other Securities) into a stock
with a different par value or by changing its outstanding Common Stock (or Other
Securities) with par value to stock without par value, then, as a condition of
such recapitalization, lawful and adequate provision shall be made whereby each
holder of an Underwriter Warrant shall thereafter have the right to purchase,
upon the terms and conditions specified herein, in lieu of the Units theretofore
purchasable upon the exercise of the Underwriter Warrants, the kind and amount
of shares of stock and other securities receivable upon such recapitalization by
a holder of the number of shares of Common Stock (or Other Securities) which the
holder of an Underwriter Warrant might have purchased immediately prior to such
recapitalization. If any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation, shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such consolidation, merger or
sale, lawful and adequate provisions shall be made whereby the holder hereof
shall thereafter have the right to purchase and receive upon the basis and upon
the terms and conditions specified in this Agreement and in lieu of the Units
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby had such consolidation, merger or sale not taken
place, and in any such case, appropriate provision shall be made with respect to
the rights and interests of the holders of Underwriter Warrants to the end that
the provisions hereof (including without limitation provisions for adjustments
of the Purchase Price per Share and of the number of shares purchasable and
receivable upon the exercise of the Underwriter Warrants) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise hereof (including an
immediate adjustment, by reason of such consolidation or merger, of the Purchase
Price per Share to the value for the Common Stock reflected by the terms of such
consolidation or merger if the value so reflected is less than the Purchase
Price per Share in effect immediately prior to such consolidation or merger). In
the event of a merger or consolidation of the Company with or into another
corporation as a result of which a number of shares of common stock of the
surviving corporation greater or lesser than the number of shares of Common
Stock of the Company outstanding immediately prior to such merger or
consolidation are issuable to holders of Common Stock of the Company, then the
Purchase Price per Share in effect immediately prior to such merger or
consolidation shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of Common Stock of the
Company. The Company will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if other
than the Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and mailed or
delivered to the registered holder hereof at the last address of such holder
appearing on the books of the Company, the obligation to deliver to such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to purchase.
(f)ab Effect of Dissolution or Liquidation. In case the Company shall
dissolve or liquidate all or substantially all of its assets, all rights under
this Agreement shall terminate as of the date upon which a certificate of
dissolution or liquidation shall be filed with the Secretary of the State of
Georgia (or, if the Company theretofore shall have been merged or consolidated
with a corporation incorporated under the laws of another state, the date upon
which action of equivalent effect shall have been taken); provided, however,
that (i) no dissolution or liquidation shall affect the rights under Subsection
7(c) of any holder of an Underwriter Warrant and (ii) if the Company's Board of
Directors shall propose to dissolve or liquidate the Company, each holder of an
Underwriter Warrant shall be given written notice of such proposal at the
earlier of (A) the time when the Company's shareholders are first given notice
of the proposal or (B) the time when notice to the Company's shareholders is
first required.
(h)ab Notice of Change of Purchase Price. Whenever the Purchase Price
per Share or the kind or amount of securities purchasable under the Underwriter
Warrants shall be adjusted pursuant to any of the provisions of this Agreement,
the Company shall forthwith thereafter cause to be sent to each holder of an
Underwriter Warrant, a certificate setting forth the adjustments in the Purchase
Price per Share and the Purchase Price and/or in such number of shares, and also
setting forth in detail the facts requiring, such adjustments, including without
limitation a statement of the consideration received or deemed to have been
received by the Company for any additional shares of stock issued by it
requiring such adjustment. In addition, the Company at its expense shall within
90 days following the end of each of its fiscal years during the term of this
Agreement, and promptly upon the reasonable request of any holder of an
Underwriter Warrant in connection with the exercise from time to time of all or
any portion of any Underwriter Warrant, cause independent certified public
accountants of recognized standing selected by the Company to compute any such
adjustment in accordance with the terms of the Underwriter Warrants and prepare
a certificate setting forth such adjustment and showing in detail the facts upon
which such adjustment is based.
(j)ab Notice of a Record Date. In the event of (i) any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend payable out of earned surplus of the Company) or other
distribution, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, (ii) any capital reorganization of the Company, or any
reclassification or recapitalization of the capital stock of the Company, or any
transfer of all or substantially all of the assets of the Company to, or
consolidation or merger of the Company with or into, any other person or (iii)
any voluntary or involuntary dissolution or liquidation of the Company, then and
in each such event the Company will mail or cause to be mailed to each holder of
an Underwriter Warrant a notice specifying not only the date on which any such
record is to be taken for the purpose of such dividend, distribution or right
and stating the amount and character of such dividend, distribution or right,
but also the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up. Such
notice shall be mailed at least 20 days prior to the proposed record date
therein specified.
38.ab Further Covenants of the Company.
(a)ab Reservation of Stock. The Company shall at all times reserve and
keep available, solely for issuance and delivery upon the exercise of the
Underwriter Warrants, all shares of the Underlying Common Stock from time to
time issuable upon the exercise of the Warrants and the Underwriter Warrants and
shall take all necessary actions to ensure that the par value per share, if any,
of the Underlying Common Stock is, at all times equal to or less than the then
effective Purchase Price per Share.
(c)ab Title to Units. All Units and shares of the Underlying Common
Stock and Warrants delivered upon the exercise of the Underwriter Warrants shall
be validly issued, fully paid and nonassessable; each holder of an Underwriter
Warrant shall receive good and marketable title to the Units and Underlying
Common Stock and Warrants, free and clear of all voting and other trust
arrangements, liens, encumbrances, equities and claims whatsoever; and the
Company shall have paid all taxes, if any, in respect of the issuance thereof.
(e)ab Listing on Securities Exchanges; Registration. If the Company at
any time shall list any Units, Underlying Common Stock or Warrants on any
national securities exchange, the Company will, at its expense, use its best
reasonable efforts to simultaneously list on such exchange, upon official notice
of issuance upon the exercise of the Underwriter Warrants, and maintain such
listing of, all Units, Warrants and shares of the Underlying Common Stock from
time to time issuable upon the exercise of the Underwriter Warrants; and the
Company will so list on any national securities exchange, will so register and
will maintain such listing of, any Other Securities if and at the time that any
securities of like class or similar type shall be listed on such national
securities exchange by the Company.
(g)ab Exchange of Underwriter Warrants. Subject to Subsection 3(a)
hereof, upon surrender for exchange of any Underwriter Warrant Certificate to
the Company, the Company at its expense will promptly issue and deliver to or
upon the order of the holder thereof a new Underwriter Warrant Certificate or
Certificates of like tenor, in the name of such holder or as such holder (upon
payment by such holder of any applicable transfer taxes) may direct, calling in
the aggregate for the purchase of the number of shares of the Underlying Common
Stock called for on the face or faces of the Underwriter Warrant Certificate or
Certificates so surrendered.
(i)ab Replacement of Underwriter Warrants. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of any Underwriter Warrant Certificate and, in the case of any such
loss, theft or destruction, upon delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, upon surrender and cancellation of such Underwriter Warrant
Certificate, the Company, at the expense of the Underwriter Warrant holder will
execute and deliver, in lieu thereof, a new Underwriter Warrant Certificate of
like tenor.
(k)ab Reporting by the Company. The Company agrees that, if it files a
Registration Statement during the term of the Underwriter Warrants, it will use
its best reasonable efforts to keep current in the filing of all forms and other
materials which it may be required to file with the appropriate regulatory
authority pursuant to the Exchange Act, and all other forms and reports required
to be filed with any regulatory authority having jurisdiction over the Company.
(m)ab Fractional Shares. No fractional shares of Underlying Common
Stock are to be issued upon the exercise of any Underwriter Warrant, but the
Company shall pay a cash adjustment in respect of any fraction of a share which
would otherwise be issuable in an amount equal to the same fraction of the
highest market price per share of Underlying Common Stock on the day of
exercise, as determined by the Company.
40.ab Other Holders.
42.ab The Underwriter Warrants are issued upon the following terms, to
all of which each holder or owner thereof by the taking thereof consents and
agrees as follows: (a) any person who shall become a transferee, within the
limitations on transfer imposed by Subsection 3(a) hereof, of an Underwriter
Warrant properly endorsed shall take such Underwriter Warrant subject to the
provisions of Subsection 3(a) hereof and thereupon shall be authorized to
represent himself as absolute owner thereof and, subject to the restrictions
contained in this Agreement, shall be empowered to transfer absolute title by
endorsement and delivery thereof to a permitted bona fide purchaser for value;
(b) each prior taker or owner waives and renounces all of his equities or rights
in such Underwriter Warrant in favor of each such permitted bona fide purchaser,
and each such permitted bona fide purchaser shall acquire absolute title thereto
and to all rights presented thereby; (c) until such time as the respective
Underwriter Warrant is transferred on the books of the Company, the Company may
treat the registered holder thereof as the absolute owner thereof for all
purposes, notwithstanding any notice to the contrary and (d) all references to
the word "you" in this Agreement shall be deemed to apply with equal effect to
any person to whom an Underwriter Warrant Certificate or Certificates have been
transferred in accordance with the terms hereof, and where appropriate, to any
person holding Units, Warrants or shares of the Underlying Common Stock.
44.ab Miscellaneous.
46.ab All notices, certificates and other communications from or at the
request of the Company to the holder of any Underwriter Warrant shall be mailed
by first class, registered or certified mail, postage prepaid, to such address
as may have been furnished to the Company in writing by such holder, or, until
an address is so furnished, to the address of the last holder of such
Underwriter Warrant who has so furnished an address to the Company, except as
otherwise provided herein. This Agreement and any of the terms hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Georgia. The headings
in this Agreement are for reference only and shall not limit or otherwise affect
any of the terms hereof. This Agreement, together with the forms of instruments
annexed hereto as Schedule A, constitutes the full and complete agreement of the
parties hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on this _____ day of _________, 1998, by its proper corporate officers
thereunto duly authorized.
<PAGE>
WARRANT AGREEMENT - Page 1 WARRANT AGREEMENT - Page 1 BIOSHIELD TECHNOLOGIES,
INC.
By:
Timothy C. Moses
Co-Chairman of the Board, President and
Chief Executive Officer
<PAGE>
WARRANT AGREEMENT - Page 1
WARRANT AGREEMENT - Page 1
<PAGE>
WARRANT AGREEMENT - Page 1
The above Warrant Agreement is confirmed this ___ day of _____, 1998.
TEJAS SECURITIES GROUP, INC.
Representative of the Several Underwriters Listed on
Schedule A to the Underwriting Agreement
By:
Robert
A. Shuey, III
REDSTONE SECURITIES, INC.
Representative of the Several Underwriters Listed on
Schedule A to the Underwriting Agreement
By:
Name:
SEABOARD SECURITIES, INC.
Representative of the Several Underwriters Listed on
Schedule A to the Underwriting Agreement
By:
Name:
G:\TEJASC~1\DEALS\SB2\BIOSHI~1\AMENDM~3\EDGAR\12.WPD09151998
349:18662-5
<PAGE>
WARRANT AGREEMENT - Page 1
SCHEDULE A
BIOSHIELD TECHNOLOGIES, INC.
Unit Purchase Warrant
Certificate Evidencing Right to Purchase
__________ Units
This Warrant (the "Warrant") is to certify that ___________________
("_______") or assigns, is entitled to purchase at any time or from time to time
after 9 A.M., Central Standard time, on __________, 1999 and until 9 A.M.,
Central Standard time, on __________, 2003 up to the above referenced number of
Units consisting of two shares of the Company's Common Stock (the "Shares") and
one Redeemable Common Stock Purchase Warrant (the "Redeemable Warrants"), of
BioShield Technologies, Inc., a Georgia corporation (the "Company"), for the
consideration specified in Section 1 of the Warrant Agreement (the "Warrant
Agreement") dated __________, 1998 between the Company and Tejas Securities
Group, Inc., Redstone Securities, Inc. and Seaboard Securities, Inc.
(collectively, the "Representatives"), as representatives of the several
underwriters listed in Schedule A to that certain Underwriting Agreement dated
_________, 1998 by and among the Company, the Representatives and certain
Selling Shareholders of the Company (the "Warrant Agreement"), pursuant to which
this Warrant is issued. All rights of the holder of this Warrant Certificate are
subject to the terms and provisions of the Warrant Agreement, copies of which
are available for inspection at the office of the Company.
The Units issuable upon the exercise of this Warrant have not been
registered under the Securities Act of 1933, as amended (the "Act"), and no
distribution of the Shares or Redeemable Warrants issuable upon exercise of this
Warrant may be made until the effectiveness of a registration statement under
the Act covering such Units. Transfer of this Warrant Certificate is restricted
as provided in Subsection 3(a) of the Warrant Agreement.
This Warrant has been issued to the registered owner in reliance upon
written representations necessary to ensure that this Warrant was issued in
accordance with an appropriate exemption from registration under any applicable
state and federal securities laws, rules and regulations. This Warrant may not
be sold, transferred, or assigned unless, in the opinion of the Company and its
legal counsel, such sale, transfer or assignment will not be in violation of the
Act, applicable rules and regulations of the Securities and Exchange Commission,
and any applicable state securities laws.
Subject to the provisions of the Act and of the Warrant Agreement, this
Warrant Certificate and all rights hereunder are transferable, in whole or in
part, at the offices of the Company, by the holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant Certificate, together with
the Assignment hereof duly endorsed. Until transfer of this Warrant Certificate
on the books of the Company, the Company may treat the registered holder hereof
as the owner hereof for all purposes.
Any Units, Redeemable Warrants or Shares which are acquired pursuant to
the exercise of this Warrant shall be acquired in accordance with the Warrant
Agreement and certificates representing all securities so acquired shall bear a
restrictive legend reading substantially as follows:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER THE
SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE LAW, OR (2) AN OPINION
OF COUNSEL (SATISFACTORY TO THE COMPANY) THAT REGISTRATION IS NOT
REQUIRED.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be executed on this ____ day of _________, 1998, by its proper corporate
officer's thereunto duly authorized.
<PAGE>
WARRANT AGREEMENT - Page 1
BIOSHIELD TECHNOLOGIES, INC.
By:
Timothy C. Moses
Co-Chairman of the Board, President and
Chief Executive Officer
Attest:
Name:
<PAGE>
WARRANT AGREEMENT - Page 1
SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To: BioShield Technologies, Inc.
The undersigned, the holder of the enclosed Warrant Certificate, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
Certificate for, and to purchase thereunder, _________________ Units (as defined
in the Warrant Agreement to which the form of this Subscription was attached)
and herewith makes payment of $______________ therefor by cash, certified check
or official bank check, and requests that the certificate or certificates for
such shares be issued in the name of and delivered to the undersigned.
Date:
Taxpayer ID No.:
<PAGE>
WARRANT AGREEMENT - Page 1
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant Certificate)
(Address)
<PAGE>
WARRANT AGREEMENT - Page 1
Insert the number of shares called for on the face of the Warrant
Certificate (or, in the case of a partial exercise, the portion thereof as to
which the Warrant is being exercised), in either case without making any
adjustment for additional Units or other securities or property or cash which,
pursuant to the adjustment provisions of the Warrant, may be deliverable upon
exercise.
<PAGE>
ASSIGNMENT
(To be signed only upon transfer of Warrant)
For value received, the undersigned hereby sells, assigns and transfers
unto _______________________________ the right represented by the enclosed
Warrant Certificate to purchase ________ Units with full power of substitution
in the premises.
The undersigned represents and warrants that the transfer, in whole in
or in part, of such right to purchase represented by the enclosed Warrant
Certificate is permitted by the terms of the Warrant Agreement pursuant to which
the enclosed Warrant has been issued, and the transferee hereof, by his
acceptance of this Assignment, represents and warrants that he is familiar with
the terms of such Warrant Agreement and agrees to be bound by the terms thereof
with the same force and effect as if a signatory thereto.
Date:
Taxpayer ID No.:
Warrant Certificate No.:
<PAGE>
WARRANT AGREEMENT - Page 1
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant Certificate)
(Address)
Signed in the presence of:
<PAGE>
WARRANT AGREEMENT
between
BIOSHIELD TECHNOLOGIES, INC.
and
AMERICAN SECURITIES TRANSFER & TRUST, INC.
Warrant Agent
Dated as of _______________, 1998
<PAGE>
WARRANT AGREEMENT, dated as of_________________, 1998, between
BioShield Technologies, Inc., a Georgia corporation (hereinafter called the
"Company"), and American Securities Transfer & Trust, Inc., as warrant agent
(hereinafter called the "Warrant Agent");
WHEREAS, the Company proposes to issue 1,500,000 Redeemable Common
Stock Purchase Warrants (hereinafter called the "Warrants"), entitling the
holders thereof to purchase one share of Common Stock, no par value (hereinafter
called the "Common Stock") for each Warrant, in connection with the proposed
issuance by the Company of 750,000 Units, each Unit consisting of two shares of
Common Stock and two Warrants, and the Company also proposes to issue up to
225,000 Warrants underlying the Underwriters' over-allotment option and 75,000
Warrants underlying a warrant to purchase Units to be granted to the
Representatives of the Underwriters;
WHEREAS, the Warrants and Common Stock may not be separately traded
until six months after the date of the public offering; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
registration, transfer, exchange and exercise of Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
Section 1. Appointment of Warrant Agent. The Company hereby appoints the Warrant
Agent to act as agent for the Company in accordance with the instructions
hereinafter in this Agreement set forth, and the Warrant Agent hereby accepts
such appointment.
Section 2. Form of Warrant. The text of the Warrant and of the form of
election to purchase shares to be printed on the reverse thereof shall be
substantially as set forth in Exhibit A attached hereto. The Warrant Price to
purchase one share of Common Stock shall be as provided and defined in Section
8. The Warrants shall be executed on behalf of the Company by the manual or
facsimile signature of the present or any future Chairman of the Board or
President or Vice President of the Company, under its corporate seal, affixed or
in facsimile, attested by the manual or facsimile signature of the present or
any future Secretary or Assistant Secretary of the Company.
Warrants shall be dated as of the date of issuance thereof by the
Warrant Agent either upon initial issuance or upon transfer or exchange.
Section 3. Countersignature and Registration. The Warrant Agent shall
maintain books for the transfer and registration of the Warrants. The Warrants
shall be countersigned by the Warrant Agent (or by any successor to the Warrant
Agent then acting as warrant agent under this Agreement) and shall not be valid
for any purpose unless so countersigned. Warrants may be so countersigned,
however, by the Warrant Agent (or by its successor as warrant agent) and be
delivered by the Warrant Agent, notwithstanding that the persons whose manual or
facsimile signatures appear thereon as proper officers of the Company shall have
ceased to be such officers at the time of such countersignature or delivery.
Section 4. Transfers and Exchanges. The Warrant Agent shall transfer,
from time to time after the sale of the Units, any outstanding Warrants upon the
books to be maintained by the Warrant Agent for that purpose, upon surrender
thereof for transfer properly endorsed or accompanied by appropriate
instructions for transfer. Upon any such transfer, a new Warrant shall be issued
to the transferee and the surrendered Warrant shall be canceled by the Warrant
Agent. Warrants so canceled shall be delivered by the Warrant Agent to the
Company from time to time. The Warrants may be exchanged at the option of the
holder thereof, when surrendered at the office of the Warrant Agent, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of shares of
Common Stock. The Warrant Agent is hereby irrevocably authorized to countersign
in accordance with Section 3 of this Agreement the new Warrants required
pursuant to the provisions of this Section, and the Company, whenever required
by the Warrant Agent, will supply the Warrant Agent with Warrants duly executed
on behalf of the Company for such purpose.
Section 5. Exercise of Warrants. Subject to the provisions of this
Agreement, each registered holder of Warrants shall have the right, which may be
exercised as in such Warrants expressed, to purchase from the Company (and the
Company shall issue and sell to such registered holder of Warrants) the number
of fully paid and nonassessable shares of Common Stock specified in such
Warrants, upon surrender of such Warrants to the Company at the office of the
Warrant Agent, with the form of election to purchase on the reverse thereof duly
filled in and signed, and upon payment to the Warrant Agent for the account of
the Company of the Warrant Price for the number of shares of Common Stock in
respect of which such Warrants are then exercised. Payment of such Warrant Price
may be made in cash, or by certified or official bank check payable in New York
Clearing House Funds, payable in United States dollars, to the order of the
Warrant Agent. No adjustment shall be made for any dividends on any shares of
Common Stock issuable upon exercise of a Warrant. Upon such surrender of
Warrants, and payment of the Warrant Price as aforesaid subject to collection,
the Company shall issue and cause to be delivered with all reasonable dispatch
to or upon the written order of the registered holder of such Warrants and in
such name or names as such registered holder may designate, a certificate or
certificates for the number of full shares of Common Stock so purchased upon the
exercise of such Warrants. Such certificate or certificates shall be deemed to
have been issued and any person so designated to be named therein shall be
deemed to have become a holder of record of such shares as of the date of the
surrender of such Warrants and payment of the Warrant Price as aforesaid;
provided, however, that if, at the date of surrender of such Warrants and
payment of the Warrant Price, the transfer books for the Common Stock or other
class of stock purchasable upon the exercise of such Warrants shall be closed,
the certificates for the shares in respect of which such Warrants are then
exercised shall be issuable as of the date on which such books shall next be
opened and until such date the Company shall be under no duty to deliver any
certificate for such shares; provided further, however, that the transfer books
aforesaid, unless otherwise required by law, shall not be closed at any one time
for a period longer than 20 days. The rights of purchase represented by the
Warrants shall be exercisable, at the election of the registered holders
thereof, either as an entirety or from time to time for part only of the shares
specified therein, and in the event that any Warrant is exercised in respect of
less than all of the shares specified therein, a new Warrant or Warrants will be
issued for the remaining number of shares specified in the Warrant so
surrendered, and the Warrant Agent is hereby irrevocably authorized to
countersign and to deliver the required new Warrants pursuant to the provisions
of this Section and of Section 3 of this Agreement and the Company, whenever
required by the Warrant Agent, will supply the Warrant Agent with Warrants duly
executed on behalf of the Company for such purpose.
Section 6. Mutilated or Missing Warrants. In case any of the Warrants
shall be mutilated, lost, stolen or destroyed, the Company will issue and the
Warrant Agent will countersign and deliver in exchange and substitution for and
upon cancellation of the mutilated Warrant, or in lieu of and substitution for
the Warrant lost, stolen or destroyed, a new Warrant of like tenor and
representing an equivalent right or interest; but only upon receipt of evidence
satisfactory to the Company and the Warrant Agent of such loss, theft or
destruction of such Warrant and an indemnity bond from an approved surety
bonding company, if requested, also satisfactory to them. Applicants for such
substitute Warrants shall also comply with such other reasonable regulations and
pay such other reasonable charges as the Company or the Warrant Agent may
prescribe.
Section 7. Reservation and Registration of Common Stock.
(a) There have been reserved, and the Company shall at all times keep
reserved, out of the authorized and unissued shares of Common Stock, a
number of shares sufficient to provide for the exercise of the rights
of purchase represented by the Warrants, and the Transfer Agent for the
Common Stock and every subsequent Transfer Agent for any shares of the
Company's capital stock issuable upon the exercise of any of the rights
of purchase aforesaid are hereby irrevocably authorized and directed a
all times to reserve such number of authorized and unissued shares as
shall be requisite for such purpose. The Company will keep a copy of
this Agreement on file with the Transfer Agent for the Common Stock and
with every subsequent Transfer Agent for any shares of the Company's
capital stock issuable upon the exercise of the rights of purchase
represented by the Warrants. The Warrant Agent is hereby irrevocably
authorized to requisition from time to time such Transfer Agent for
stock certificate required to honor outstanding Warrants. The Company
will supply such Transfer Agents with duty executed stock certificates
for such purpose and will itself provide or otherwise make available
any cash which may be issuable as provided in Section 9 of this
Agreement. All Warrants surrendered in the exercise of the rights
thereby evidenced shall be canceled by the Warrant Agent and shall
thereafter be delivered to the Company, and such canceled Warrants
shall constitute sufficient evidence of the number of shares of stock
which have been issued upon the exercise of such Warrants.
(b) The Company represents that it has registered under the
Securities Act of 1933, as amended, the shares of Common Stock issuable
upon exercise of the Warrants and will use its best reasonable efforts
to maintain the effectiveness of such registration by post-effective
amendment during the entire period in which the Warrants are
exercisable, and that it will use its best reasonable efforts to
qualify such Common Stock for sale under the securities laws of such
states of the United States as may be necessary to permit the exercise
of the Warrants in the states in which the Units are initially
qualified and to maintain such qualifications during the entire period
in which the Warrants are exercisable.
Section 8. Warrant Price; Adjustments.
(a) The price at which Common Stock shall be purchasable upon
exercise of Warrants at any time after the Common Stock and Warrants
become separately tradable until _______________, 2003 shall be $____
per share of Common Stock (hereinafter called the "Warrant Price") or,
if adjusted as provided in this Section, shall be such price as so
adjusted. The Common Stock and Warrants shall become separately
tradable on _______________, 1999, unless earlier separated upon ten
days prior written notice from Tejas Securities Group, Inc., a
Representative of the Underwriters, to the Company.
(b) The Warrant Price shall be subject to adjustment from time
to time as follows:
(i) Except as hereafter provided, in case the Company shall at
any time or from time to time after the date hereof until
__________, 2003 issue any additional shares of Common Stock,
for a consideration per share less than the Warrant Price in
effect immediately prior to the issuance of such additional
shares, or without consideration, then, upon each such
issuance, the Warrant Price in effect immediately prior to the
issuance of such additional shares shall forthwith be reduced
to price (calculated to the nearest full cent) determined by
dividing:
(1) An amount equal to (i) the total number of shares of Common Stock
outstanding immediately prior to such issuance multiplied by the Warrant Price
in effect immediately prior to such issuance, plus (ii) the consideration, if
any, received by the Company upon such issuance, by
(2) The total number of shares of Common Stock outstanding immediately after the
issuance of such additional shares;
(ii) Company shall not be required to make any such
adjustment of the Warrant Price in accordance with the
foregoing if the amount of such adjustment shall be less than
$0.25 (adjustment will be made when cumulative adjustment
equals or exceeds $0.25) but in such case the Company shall
maintain a cumulative record of the Warrant Price as it would
have been in the absence of this provision (the "Constructive
Warrant Price"), and for the purpose of computing a new
Warrant Pric after the next subsequent issuance of additional
shares (but not for the purpose of determining whether an
adjustment thereof is required under the terms of this
paragraph) the constructive Warrant Price shall be deemed to
be the Warrant Price in effect immediately prior to such
issuance.
(iii) For the purpose of this Section 8 the following
provisions shall also be applicable:
(1) In the case of the issuance of additional shares of Common Stock for cash,
the consideration received by the Company therefor shall be deemed to be the net
cash proceeds received by the Company for such shares before deducting any
commissions or other expenses paid or incurred by the Company for any
underwriting of, or otherwise in connection with, the issuance of such shares.
(2) In case of the issuance (otherwise than
upon conversion or exchange of shares of Common
Stock) of additional shares of Common Stock for a
consideration other than cash or a consideration a
part of which shall be other than cash, the amount of
the consideration other than cash received by the
Company for such shares shall be deemed to be the
value of such consideration as determined in good
faith by the Board of Directors of the Company, as of
the date of the adoption of the resolution of said
Board, providing for the issuance of such shares for
consideration other than cash or for consideration a
part of which shall be other than cash, such fair
value to include goodwill and other intangibles to
the extent determined in good faith by the Board.
(3) In case of the issuance by the Company
after the date hereof of any security (other than the
Warrants) that is convertible into shares of Common
Stock or of any warrants, rights or options to
purchase shares of Common Stock (except the options
and warrants referred to in subsection (h) of this
Section 8), (i) the Company shall be deemed (as
provided in subparagraph (5) below) to have issued
the maximum number of shares of Common Stock
deliverable upon the exercise of such conversion
privileges or warrants, rights or options, and (ii)
the consideration therefor shall be deemed to be the
consideration received by the Company for such
convertible securities or for such warrants, rights
or options, as the case may be, before deducting
therefrom any expenses or commissions incurred or
paid by the Company for any underwriting of, or
otherwise in connection with, the issuance of such
convertible security or warrants, rights or options,
plus (A) the minimum consideration or adjustment
payment to be received by the Company in connection
with such conversion, or (B) the minimum price at
which shares of Common Stock are to be delivered upon
exercise of such warrants, rights or options or, if
no minimum price is specified and such shares are to
be delivered at an option price related to the market
value of the subject shares, an option price bearing
the same relation to the market value of the subject
shares at the time such warrants, rights or options
were granted; provided that as to such options such
further adjustment as shall be necessary on the basis
of the actual option price at the time of exercise
shall be made at such time if the actual option price
is less than the aforesaid assumed option price. No
further adjustment of the Warrant Price shall be made
as a result of the actual issuance of the shares of
Common Stock referred to in this subparagraph (3). On
the expiration of such warrants, rights or options,
or the termination of such right to convert, the
Warrant Price shall be readjusted to such Warrant
Price as would have pertained had the adjustments
made upon the issuance of such warrants, rights,
options or convertible securities been made upon the
basis of the delivery of only the number of shares of
Common Stock actually delivered upon the exercise of
such warrants, rights or options or upon the
conversion of such securities.
(4) For the purposes hereof, any additional shares of Common Stock issued as a
stock dividend shall be deemed to have been issued for no consideration.
(5) The number of shares of Common Stock at
any time outstanding shall include the aggregate
number of shares deliverable in respect of the
convertible securities, rights and options referred
to in subparagraph (3) of this paragraph; provided
that with respect to shares referred to in clause (i)
of subparagraph (3), to the extent that such
warrants, options, rights or conversion privileges
are not exercised, such shares shall be deemed to be
outstanding only until the expiration dates of the
warrants, rights, options or conversion privileges or
the prior cancellation thereof.
(c) In case the Company shall at any time subdivide its outstanding shares of
Common Stock into a greater number of shares, the Warrant Price in effect
immediately prior to such subdivision shall be proportionately reduced and, in
case the outstanding shares of the Common Stock of the Company shall be combined
into a smaller number of shares, the Warrant Price in effect immediately prior
to such combination shall be proportionately increased.
(d) Upon adjustment of the Warrant Price pursuant to the provisions of
subsection (c) of this Section 8, the number of shares issuable upon the
exercise of each Warrant shall be adjusted by multiplying the Warrant Price in
effect prior to the adjustment by the number of shares of Common Stock covered
by the Warrant and dividing the product so obtained by the adjusted Warrant
Price.
(e) Except upon consolidation or reclassification of the shares of Common Stock
of the Company as provided for in subsection (c) hereof and except for
readjustment of the Warrant Price upon expiration of warrants, rights or options
as provided for in subparagraph (3) of paragraph (iii) of subsection (b) hereof,
the Warrant Price in effect at any time may not be adjusted upward or increased
in any manner whatsoever.
(f) Irrespective of any adjustment or change in the Warrant Price or the number
of shares of Common Stock actually purchasable under the several Warrants, the
Warrants theretofore and thereafter issued may continue to express the Warrant
Price per share and the number of shares purchasable thereunder as the Warrant
Price per share and the number of shares purchasable were expressed in the
Warrants when initially issued.
(g) If any capital reorganization or reclassification of the
capital stock of the Company (other than a distribution of stock in
accordance with Section 10(b)) or consolidation or merger of the
Company with another corporation or the sale of all or substantially
all of its assets to another corporation shall be effected, then, as a
condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provision shall be made whereby the
holder of each Warrant then outstanding shall thereafter have the right
to purchase and receive upon the basis and upon the terms and
conditions specified herein and in the Warrants and in lieu of the
shares of the Common Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented
by each such Warrant, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stoc equal to the number of shares of
such Common stock immediately theretofore purchasable and receivable
upon the exercise of the rights represented by each such Warrant had
such reorganization, reclassification, consolidation, merger or sale
not taken place, and in any such case appropriate provisions shall be
made with respect to the rights and interest of the holder of each
Warrant then outstanding to the end that the provisions thereof
(including without limitation provisions for adjustment of the Warrant
Price and of the number of shares purchasable upon the exercise of each
Warrant then outstanding) shall thereafter be applicable as nearly as
may be in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of each Warrant.
(h) No adjustment of the Warrant Price shall be made in
connection with the issuance or sale of shares of Common Stock issuable
pursuant to (i) currently outstanding options and warrants of the
Company or (ii) options granted to officers, directors, employees or
advisory directors of the Company pursuant to the Company's 1997 Stock
Incentive Plan or 1996 Directors' Stock Option Plan (each, a "Plan"),
as each Plan may be amended from time to time, provided that the
aggregate number o such options granted by the Company pursuant to each
Plan does not exceed the number of unissued options authorized under
each Plan as of the date hereof.
(i) Whenever the Warrant Price is adjusted as herein provided,
the Company shall forthwith file with the Warrant Agent a certificate
signed by the Chairman of the Board or a President or a Vice President
of the Company and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Company, showing in detail
the facts requiring such adjustment and the Warrant Price and the
number of shares of Common Stock purchasable upon exercise of the
Warrants after such adjustment. The Company, at its option, may cause a
copy of such notice to be sent by first class mail, postage prepaid, to
each registered holder of Warrants at his address appearing on the
Warrant register. The Warrant Agent shall have no duty with respect to
any such certificate filed with it except to keep the same on file and
available for inspection by holders of Warrants during reasonable
business hours. The Warrant Agent shall not at any time be under any
duty or responsibilit to any holder of a Warrant to determine whether
any facts exist which may require any adjustment of the Warrant Price,
or with respect to the nature or extent of any adjustment of the
Warrant Price when made, or with respect to the method employed in
making such adjustment.
(j) The Company may retain a firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the financial
statements of the Company) selected by the Board of Directors of the Company or
the Executive Committee, of said Board and approved by the Warrant Agent, to
make any computation required under this Section 8, and a certificate signed by
such firm shall be conclusive evidence of the correctness of any computation
made under this Section 8.
(k) In case at any time conditions shall arise by reason of
action taken by the Company which, in the opinion of the Board of
Directors of the Company, are not adequately covered by the other
provisions of this Agreement and which might materially and adversely
affect the rights of the holders of the Warrants, or in case at any
time any such conditions are expected to arise by reason of any action
contemplated by the Company, the Board of Directors of the Company
shall appoint a fir of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the
financial statements of the Company), who shall give their opinion as
to the adjustment, if any (not inconsistent with the standards
established in this Section 8), of the Warrant Price and the number of
shares of Common Stock purchasable pursuant hereto (including, if
necessary, any adjustment as to the property which may be purchasable
in lieu thereof upon exercise of the Warrants) which is, or would be,
required to preserve without dilution the rights of the holders of the
Warrants. The Board of Directors of the Company shall make the
adjustment recommended forthwith upon the receipt of such opinion or
the taking of any such action contemplated, as the case may be;
provided, however, that no adjustment of the Warrant Price shall be
made which in the opinion of the accountant or firm of accountants
giving the aforesaid opinion would result in an increase of the Warrant
Price to more than the Warrant Price then in effect except as otherwise
provided in subsection (e) of this Section 8.
Section 9. No Fractional Interests. The Company shall not be required
to issue fractions of shares of Common Stock on the exercise of Warrants. If any
fraction of a share of Common Stock would, except for the provisions of this
Section, be issuable on the exercise of any Warrant (or specified portions
thereof), the Company shall purchase such fraction for an amount in cash equal
to the current value of such fraction (a) computed, if the Common Stock shall be
listed or admitted to unlisted trading privileges on any national or regional
securities exchange, on the basis of the last reported sale price of the Common
Stock on such exchange on the last business day prior to the date of exercise
upon which such a sale shall have been effected (or, if the Common Stock shall
be listed or admitted to unlisted trading privileges on more than one such
exchange, on the basis of such price on the exchange designated from time to
time for such purpose by the Board of Directors of the Company) or (b) computed,
if the Common Stock shall not be listed or admitted to unlisted trading
privileges, on the basis of the average of the high and low bid prices of the
Common Stock in the Nasdaq Small Cap Market, on the last business day prior to
the date of exercise.
Section 10. Notice to Warrantholders.
(a) Nothing contained in this Agreement or in any of the
Warrants shall be construed as conferring upon the holders thereof the
right to vote or to consent or to receive notice as stockholders in
respect of the meetings of stockholders for the election of directors
of the Company or any other matters, or any rights whatsoever as
stockholders of the Company; provided, however, that in the event that
a meeting of stockholders shall be called to consider and take action
on a proposal for the voluntary dissolution of the Company, other than
in connection with a consolidation, merger or sale of all, or
substantially all, of its property, assets, business and goodwill as an
entirety, then and in that event the Company shall cause a notice
thereof to be published at least once a week for two consecutive weeks
in a newspaper of general circulation in Dallas, Texas and New York,
New York, such publication to be completed at least 20 days prior to
the date fixed as a record date or the date of closing the transfer
books for the determination of the stock holders entitled to vote at
such meeting. The Company shall also cause a copy of such notice to be
sent by first class mail, postage prepaid, at least 20 days prior to
said date fixed as a record date or said date of closing the transfer
books, to each registered holder of Warrants at his address appearing
on the Warrant register; but failure to mail or receive such notice or
any defect therein or in the mailing thereof shall not affect the
validity of any action taken in connection with such voluntary
dissolution. If such notice shall have been so given and if such a
voluntary dissolution shall be authorized at such meeting or any
adjournment thereof, then for and after the date on which such
voluntary dissolution shall have been duly authorized by the
stockholders, the purchase rights represented by the Warrants and other
rights with respect thereto shall cease and terminate.
(b) If the Company shall make any distribution on, or to
holders of, its Common Stock (or other property which may be
purchasable in lieu thereof upon the exercise of Warrants) of any
property (other than a cash dividend), the Company shall cause a notice
of its intention to make such distribution to be published at least
once a week for two consecutive weeks in a newspaper of general
circulation in Dallas, Texas and New York, New York, such publication
to be completed at least 20 days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of
the stockholders entitled to receive such distribution. The Company
shall also cause a copy of such notice to be sent by first class mail,
postage prepaid at least 20 days prior to said date fixed as a record
date or said date of closing the transfer books, to each registered
holder of Warrants at his address appearing on the Warrant register;
but failure to mail or to receive such notice or any defect therein or
in the mailing thereof shall not affect the validity of any action
taken in connection with such distribution.
Section 11. Disposition of Proceeds on Exercise of Warrants.
(a) The Warrant Agent shall account promptly to the Company with respect to
Warrants exercised and concurrently pay to the Company, on a weekly basis, all
cleared funds received by the Warrant Agent for the purchase of shares of the
Company's stock through the exercise of such Warrants.
(b) The Warrant Agent shall keep copies of this Agreement available for
inspection by holders of Warrants during normal business hours at its principal
office.
Section 12. Redemption of Warrants.
(a) At any time on or after _____________, 1998, the Company
may, at its option, redeem some or all of the outstanding Warrants at
$0.05 per Warrant, upon thirty (30) days prior written notice, if the
closing sale price of the Common Stock on any national securities
exchange, or Closing Bid Price (as hereinafter defined), has equaled or
exceeded $____ for ten (10) consecutive trading days within the 30 day
period immediately preceding the date notice of redemption is given
(the " Redemption Price"). "Closing Bid Price" shall mean the closing
bid quotation on The Nasdaq SmallCap Market (the "NSCM") as reported by
Bloomberg Financial Markets ("Bloomberg"), or, if the NSCM is not the
principal trading market for such security, the last closing bid price
of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price of such security
in the over-the-counter market on the pink sheets or bulletin board for
such security as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, the last closing trade price
of such security as reported by Bloomberg. If the Closing Bid Price
cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date
shall be the fair market value as reasonably determined in good faith
by the Board of Directors of the Company. In the event of an adjustment
in the Warrant Price pursuant to Section 8, the Redemption Price shall
also be automatically adjusted.
(b) The election of the Company to redeem some or all of the Warrants shall be
evidenced by a resolution of the Board of Directors of the Company.
(c) Warrants may be exercised at any time on or before the
date fixed for redemption (the "Redemption Date").
(d) Notice of redemption shall be given by first class mail, postage prepaid,
mailed not less than 30 nor more than 60 days prior to the Redemption Date, to
each holder of Warrants, at his address appearing in the Warrant register.
All notices of redemption shall state:
(i) The Redemption Date;
(ii) That on the Redemption Date the Redemption Price
will become due and payable upon each Warrant;
(iii) The place where such Warrants are to be
surrendered for redemption and payment of the Redemption Price; and
(iv) The current Warrant Price of the Warrants, the place or places where such
Warrants may be surrendered for exercise, and the time at which the right to
exercise the Warrants will terminate in accordance with this Agreement.
(e) Notice of redemption of Warrants at the election of the Company shall be
given by the Company or, at the Company's request, by the Warrant Agent in the
name and at the expense of the Company.
(f) Prior to any Redemption Date, the Company shall deposit with the Warrant
Agent an amount of money sufficient to pay the Redemption Price of all the
Warrants which are to be redeemed on that date. If any Warrant is exercised
pursuant to Section 5, any money so deposited with the Warrant Agent for the
redemption of such Warrant shall be paid to the Company.
(g) Notice of redemption having been given as aforesaid, the
Warrants so to be redeemed shall, on the Redemption Date, become
redeemable at the Redemption Price therein specified and on such date
(unless the Company shall default in the payment of the Redemption
Price), such Warrants shall cease to be exercisable and thereafter
represent only the right to receive the Redemption Price. Upon
surrender of such Warrants for redemption in accordance with said
notice, such Warrants shall be redeemed by the Company for the
Redemption Price.
Section 13. Merger or Consolidation or Change of Name of Warrant Agent.
Any corporation into which the Warrant Agent may be merged or with which it may
be consolidated, or any corporation resulting from any merger or consolidation
to which the Warrant Agent shall be a party, or any corporation succeeding to
the corporate trust business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor warrant agent under
the provisions of Section 15 of this Agreement. In case at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Agreement and at such time any of the Warrants shall have been countersigned but
not delivered, any such successor to the Warrant Agent may adopt the
countersignature of the Warrant Agent and deliver such Warrants so
countersigned; and in cas at the time any of the Warrants shall not have been
countersigned, any successor to the Warrant Agent may countersign such Warrants
either in the name of the predecessor Warrant Agent or in the name of the
successor warrant agent; and in all such cases such Warrants shall have the full
force provided in the Warrant and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrants shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver Warrants so countersigned; and in case at that time any of the
Warrants shall not have been countersigned, the Warrant Agent may countersign
such Warrants whether in its prior name or in its changed name; and in all such
cases such Warrants shall have the full force provided in the Warrants and in
this Agreement.
Section 14. Duties of Warrant Agent. The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Warrants, by their acceptance
thereof, shall be bound:
(a) The statements contained herein and in the Warrants shall be taken as
statements of the Company, and the Warrant Agent assumes no responsibility for
the correctness of any of the same except such as describe the Warrant Agent or
action taken or to be taken by it. The Warrant Agent assumes no responsibility
with respect to the distribution of the Warrants except as herein otherwise
provided. (b) The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrants to be complied with by the Company.
(c) The Warrant Agent may execute and exercise any of the rights or powers
hereby vested in it to perform any duty hereunder either itself or by or through
its attorneys, agents or employees.
(d) The Warrant Agent may consult at any time with counsel satisfactory to it
(who may be counsel for the Company) and the Warrant Agent shall incur no
liability or responsibility to the Company or to any holder of any Warrant in
respect of any action taken, suffered or omitted by it hereunder in good faith
and in accordance with the opinion or the advice of such counsel, provided the
Warrant Agent shall have exercised reasonable care in the selection and
continued employment of suc counsel.
(e) The Warrant Agent shall incur no liability or responsibility to the Company
or to any holder of any Warrant for any action taken in reliance on any notice,
resolution, waiver, consent, order, certificate, or other paper, document or
instrument believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties.
(f) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the
execution of this Agreement, to reimburse the Warrant Agent for all
expenses, taxes and governmental charges and other charges of any kind
and nature incurred by the Warrant Agent in the execution of this
Agreement and to indemnify the Warrant Agent and save it harmless
against any and all liabilities, including judgments, costs and
reasonable counsel fees for anything done or omitted by the Warrant
Agent in the execution of this Agreement except as a result of the
Warrant Agent's negligence or bad faith.
(g) The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any other
action likely to involve expense unless the Company or one or more
registered holders of Warrants shall furnish the Warrant Agent with
reasonable security and indemnity for any cost and expense which may be
incurred, but this provision shall not affect the power of the Warrant
Agent to take such action as the Warrant Agent may consider proper,
whether with or without any such security or indemnity. All rights of
action under this Agreement or under any of the Warrants may be
enforced by the Warrant Agent without the possession of any of the
Warrants or the production thereof at any trial or other proceeding
relative thereto, and any such action, suit or proceeding instituted by
the Warrant Agent shall be brought in its name as Warrant Agent, and
any recovery of judgment shall be for the ratable benefit of the
registered holders of the Warrants, as their respective rights or
interests may appear.
(h) The Warrant Agent and any stockholder, director, officer
or employee of the Warrant Agent may buy, sell, or deal in any of the
Warrants or other securities of the Company or become peculiarly
interested in any transaction in which the Company may be interested,
or contract with or lend money to or otherwise act as fully and freely
as though it were not Warrant Agent under this Agreement. Nothing
herein shall preclude the Warrant Agent from acting in any other
capacity for the Company or for any other legal entity.
(i) The Warrant Agent shall act hereunder solely as agent and not in a
ministerial capacity, and its duties shall be determined solely by the
provisions hereof. The Warrant Agent shall not be liable for anything which it
may do or refrain from doing in connection with this Agreement except for its
own negligence or bad faith.
Section 15. Change of Warrant Agent. The Warrant Agent may resign and
be discharged from its duties under this Agreement by giving to the Company
notice in writing of such resignation, specifying a date when such resignation
shall take effect, and such notice shall be given prior to the date so
specified. The Warrant Agent may be removed by like notice to the Warrant Agent
from the Company. If the Warrant Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Warrant Agent. If the Company shall fail to make such appointment within a
period of 30 days after such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Warrant Agent
or by the registered holder of a Warrant (who shall, with such notice, submit
his Warrant for inspection by the Company), then the registered holder of a
Warrant may apply to any court of competent jurisdiction for the appointment of
successor to the Warrant Agent. Any successor warrant agent, whether appointed
by the Company or by such a court, shall be a bank or trust company having
capital and surplus as shown by its last published report to its stockholders,
of at least $10,000,000. After appointment, the successor warrant agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Warrant Agent without further act or deed; but the
former Warrant Agent shall deliver and
transfer to the successor warrant agent any property at the time held by it
hereunder, and execute and deliver any further assurance, conveyance, act or
deed necessary for the purpose. Failure to file or publish any notice provided
for in this Section, however, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the Warrant Agent or the
appointment of the successor warrant agent, as the case may be.
Section 16. Identity of Transfer Agent. Forthwith upon the appointment of any
Transfer Agent for the Common Stock or of any subsequent Transfer Agent for
shares of the Common Stock or other shares of the Company's capital stock
issuable upon the exercise of the rights of purchase represented by the
Warrants, the Company will file with the Warrant Agent a statement setting forth
the name and address of such Transfer Agent.
Section 17. Notices. Any notice pursuant to this Agreement to be given or made
by the Warrant Agent or the registered holder of any Warrant to or on the
Company shall be sufficiently given or made if sent by first-class mail, postage
prepaid, addressed (until another address is filed in writing by the Company
with the Warrant Agent) as follows:
BioShield Technologies, Inc.
4405 International Boulevard
Suite B-109
Norcross, Georgia 30093
Attention: Timothy C. Moses
with a copy to:
Sims Moss Kline & Davis LLP
400 Northpark Town Center, Suite 310
1000 Abernathy Road, N.E.
Atlanta, Georgia 30328
Attention: Raymond L. Moss, Esq.
Any notice pursuant to this Agreement to be given or made by the Company or the
registered holder of any Warrant to or on the Warrant Agent shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing by the Warrant Agent with
the Company) as follows:
American Securities Transfer & Trust, Inc.
1825 Lawrence Street, Suite 444
Denver, Colorado 80202
Attention: Jo Peterson
Section 18. Supplements and Amendments. The Company and the Warrant
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Warrants in order to cure any ambiguity or to correct
or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable an which shall not be inconsistent
with the provisions of the Warrants and which shall not adversely affect the
interests of the holders of Warrants.
Section 19. Successors. All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Warrant Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
Section 20. Merger or Consolidation of the Company. The Company shall
not effect any consolidation or merger with, or sale of substantially all its
property to, any other corporation unless the corporation resulting from such
merger (if not the Company) or consolidation or the corporation purchasing such
property shall expressly assume, by supplemental agreement satisfactory in form
to the Warrant Agent and executed and delivered to the Warrant Agent, the due
and punctual performance and observance of each and every covenant and condition
of this Agreement to be performed and observed by the Company.
Section 21. Colorado Contract. This Agreement and each Warrant issued hereunder
shall be deemed to be a contract made under the laws of the State of Colorado
and for all purposes shall be construed in accordance with the laws of said
State.
Section 22. Benefit of This Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrants any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Warrant Agent and the registered
holders of the Warrants.
Section 23. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes by
deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument. IN WITNESS WHEREOF, the
parties hereto have caused this Agreement to be duly executed, all as
of the day and year first above written.
BIOSHIELD TECHNOLOGIES, INC.
By:
Timothy C. Moses
Co-Chairman of the Board, President and
Chief Executive Officer
<PAGE>
AMERICAN SECURITIES TRANSFER & TRUST, INC.
By:
Name:
G:\TEJASC~1\DEALS\SB2\BIOSHI~1\AMENDM~3\PUBWARRA.WPD
0871998
349:18662-5
<PAGE>
EXHIBIT A
[FORM OF WARRANT]
No. _____ For the Purchase of ____ Shares
of Common Stock
_______________, 1998
BIOSHIELD TECHNOLOGIES, INC.
REDEEMABLE COMMON STOCK PURCHASE WARRANT
EXERCISABLE ON OR BEFORE 5:00 P.M., Mountain Time , 2003
This Warrant certifies that, for value received, _______________, or
registered assigns, is the holder of the number of Redeemable Common Stock
Purchase Warrants (the "Warrants") specified above. Each Warrant entitles the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Certificate and the Warrant Agreement (as hereinafter defined), one fully
paid and nonassessable share of Common Stock, no par value (the "Common Stock"),
of BioShield Technologies, Inc., a Georgia corporation (the "Company"), at any
time between _______________, 1998 and the Expiration Date (as hereinafter
defined), upon the presentation and surrender of the Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the corporate
office of American Securities Transfer & Trust, Inc. as Warrant Agent, or its
successor (the "Warrant Agent"), accompanied by payment of $________ (the
"Purchase Price") in lawful money of the United States of America in cash or by
official bank or certified check made payable to the Warrant Agent.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and subject in all respects to the term and conditions set forth in
the Warrant Agreement (the "Warrant Agreement"), dated as of _____________,
1998, by and among the Company and the Warrant Agent.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel the Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign for the balance of the
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (Mountain time) on
_______________, 2003, or such earlier date as the Warrants may be redeemed. If
such date shall in the State of Colorado be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall be 5:00 p.m.
(Mountain time) the next day which in the State of Colorado is not a holiday or
a day in which the banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of the Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding. This Warrant shall not be exercisabl by a Registered
Holder in any state where the exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment, together with any tax or other
governmental charges imposed in connection therewith, for registration or
transfer of this Warrant Certificate at such office, the new Warrant Certificate
or Warrant Certificates, representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including without limitation, the right to vote or to receive dividends or other
distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Commencing _______________, 1999, this Warrant may be redeemed at the
option of the Company at the redemption price of $.05 per Warrant, provided that
the closing sale price of the Common Stock on any national securities exchange,
or Closing Bid Price (as hereinafter defined), has equaled or exceeded $____ for
ten (10) consecutive trading days within the 30 day period immediately preceding
the date notice of redemption is given (the "Redemption Price"). "Closing Bid
Price" shall mean the closing bid quotation on The Nasdaq SmallCap Market (the
"NSCM") as reported by Bloomberg Financial Markets ("Bloomberg"), or, if the
NSCM is not the principal trading market for such security, the last closing bid
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last closing bid price of such security in the
over-the-counter market on the pink sheets or bulletin board for such security
as reported by Bloomberg, or, if no closing bid price is reported for such
security by Bloomberg, the last closing trade price of such security as reported
by Bloomberg. If the Closing Bid Price cannot be calculated for such security on
such date on any of the foregoing bases, the Closing Bid Price of such security
on such date shall be the fair market value as reasonably determined in good
faith by the Board of Directors of the Company. In the event of an adjustment in
the Warrant Price pursuan to Section 8, the Redemption Price shall also be
automatically adjusted. Notice of redemption shall be given not later than the
thirtieth (30th) day before the date fixed for redemption, all as provided in
the Warrant Agreement. On and after the date fixed for redemption, the
Registered Holder shall have no rights with respect to this Warrant except to
receive the $.05 per Warrant upon surrender of this Certificate.
Prior to due presentment for registration or transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Colorado.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two (2) of its officers thereunto
duly authorized and a facsimile of the corporate seal imprinted hereon.
Dated:_______________________ BIOSHIELD TECHNOLOGIES, INC.
Countersigned:
By:
Timothy C. Moses
AMERICAN SECURITIES TRANSFER Co-Chairman of the Board and
& TRUST, INC. Chief Executive Officer
Warrant Agent
By:
By: Name:
Name: Secretary
Title:
<PAGE>
[FORM OF]
ELECTION TO PURCHASE
BioShield Technologies, Inc.
c/o _________________________
The undersigned hereby irrevocably
elects to exercise the right of
purchase represented by the
within Warrant for, and to
purchase thereunder,
_______________ shares of the
stock provided for therein, and
requests that certificates for
such shares shall be issued in
the name of ( Please Print )
and be delivered to
at
and, if said number of shares shall not be all of the shares purchasable
thereunder, that a new Warrant for the balance remaining of the shares
purchasable under the within Warrant be registered in the name of, and delivered
to, the undersigned at the address stated below.
Dated:
Name of Warrantholder:
(Please Print)
Address:
Signature: Note: The above signature must correspond with the name as written
upon the face of this Warrant in every particular, without alteration or
enlargement or any change whatsoever.
Taxpayer ID No.:
Warrant Certificate No.:
G:\TEJASC~1\DEALS\SB2\BIOSHI~1\AMENDM~3\PUBWARRA.WPD
<PAGE>
[FORM OF]
ASSIGNMENT
For value received
does hereby sell, assign and transfer unto
the within Warrant, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint attorney, to transfer said
Warrant on the books of the within-named Corporation, with full power of
substitution in the premises.
Date:
Signature: Note: The above signature must correspond with the name as written
upon the face of this Warrant in every particular, without alteration or
enlargement or any change whatsoever.
Taxpayer ID No.:
Warrant Certificate No.:
G:\TEJASC~1\DEALS\SB2\BIOSHI~1\AMENDM~3\PUBWARRA.WPD
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
TABLE OF CONTENTS
Page
Section 1. Appointment of Warrant Agent. 1
Section 2. Form of Warrant. 1
Section 3. Countersignature and Registration. 1
Section 4. Transfers and Exchanges. 2
Section 5. Exercise of Warrants. 2
Section 6. Mutilated or Missing Warrants. 3
Section 7. Reservation and Registration of Common Stock. 3
Section 8. Warrant Price; Adjustments. 4
Section 9. No Fractional Interests. 8
Section 10. Notice to Warrantholders. 9
Section 11. Disposition of Proceeds on Exercise of Warrants. 10
Section 12. Redemption of Warrants. 10
Section 13. Merger or Consolidation or Change of Name of Warrant Agent. 11
Section 14. Duties of Warrant Agent. 12
Section 15. Change of Warrant Agent. 13
Section 16. Identity of Transfer Agent. 14
Section 17. Notices. 14
Section 18. Supplements and Amendments. 15
Section 19. Successors. 15
Section 20. Merger or Consolidation of the Company. 15
Section 21. Colorado Contract. 15
Section 22. Benefit of This Agreement. 15
Section 23. Counterparts. 15
EXHIBIT 10.19
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as
of this 17th day of September, 1998, between BIOSHIELD TECHNOLOGIES, INC., a
Georgia corporation (the "Company"), and JEFFREY A. PARKER, a Florida resident
(the "Executive").
1. Employment. The Company hereby agrees to employ the Executive, and the
Executive hereby agrees to be employed by the Company, on the terms and
conditions set forth herein.
2. Term. The employment of the Executive by the Company as provided in
Section 1 will commence on the second Monday following the closing of the
initial public offering of the Company (the "Commencement Date") as provided by
its registration statement first filed with the Securities and Exchange
Commission on June 26, 1998 (the "IPO") and will terminate at 12:01 a.m. on the
third anniversary of the Commencement Date (the "Expiration Date") unless
extended or sooner terminated as hereinafter provided (such period, the
"Employment Period"). If the IPO does not close by November 30, 1998, either
party may at any time beginning on December 1, 1998 and ending on the day prior
to the closing of the IPO, elect to cancel this Agreement prior to the
Commencement Date without any liability to any party, it being acknowledged that
no representation is being made with respect to whether or when the IPO may
close.
3. Position, Duties and Responsibilities.
(a) Position. The Executive hereby agrees to serve as Chief
Operating Officer and Vice President for Sales and Marketing of the Company. The
Executive shall devote his best efforts and substantially full time and
attention to the performance of services to the Business of the Company in his
capacity as an officer thereof and as may reasonably be requested by the Board.
The Company shall retain full direction and control of the means and methods by
which the Executive performs the above services. For purposes of this Agreement,
"Business" shall mean development, marketing, and sale of surface modifying
antimicrobials and biostatic products.
(b) Place of Employment. During the term of this Agreement,
the Executive shall perform the services required by this Agreement at the
Company's principal place of business in Atlanta, Georgia; provided, however,
that should the Company relocate its principal place of business to another city
or state, either party may terminate this Agreement in accordance with Section
5(e) below.
(c) Other Activities. Except with the prior written approval
of the Board (which the Board may grant or withhold in its sole and absolute
discretion), the Executive, during the Employment Period, will not (i) accept
any other employment, (ii) serve as an officer or on the board of directors or
similar body of any other business entity (except as otherwise set forth below)
that is or may be competitive with, or that might place him in a competing
position to, the Business of the Company or any of its affiliates, or (iii)
engage, directly or indirectly, in any other business activity (whether or not
pursued for pecuniary advantage) that is or may be competitive with, or that
might place him in a competing position to, the Business of the Company or any
of its affiliates. Notwithstanding the foregoing, the Company agrees that the
Executive (or affiliates of the Executive) shall be permitted (i) to undertake
the activities set forth in Section 8, (ii) to make any other passive personal
investment that is not in a business activity that is directly or indirectly
competitive with the Business of the Company, (iii) to participate in industry
organizations, and (iv) to participate in charitable or educational activities.
4. Compensation and Related Matters.
(a) Salary. During the Employment Period, the Company shall
pay the Executive a salary of not less than $150,000 annually during the
Employment Period. All salary is to be paid consistent with the standard payroll
practices of the Company (e.g., timing of payments and standard employee
deductions, such as income tax withholdings, social security), but not less
frequently than monthly with each payment being no less than 1/12th of the
annual salary.
(b) Business Expenses. The Company shall reimburse the
Executive in connection with the conduct of the Company's business upon
presentation of sufficient tangible evidence of such expenditures consistent
with the Company's policies as in place from time to time.
(c) Stock Option Benefits. The Company agrees to grant the
Executive a non-qualified stock option to acquire up to 150,000 shares of the
Company's common stock at an exercise price equal to the offering price of the
Company's common stock in its IPO under the Company's 1997 Stock Incentive Plan
(the "Option Plan"). The option shall vest in three (3) equal installments of
50,000 each beginning on the first anniversary of the Commencement Date. In the
event the Executive is terminated without cause pursuant to Section 5(d) below
or the Executive terminates this Agreement for Good Cause pursuant to Section
5(e) below, then the vesting period shall be accelerated such that any option
shares that would have vested at the end of the year in which the Date of
Termination occurs (the "Termination Year") shall become immediately vested;
provided, however, that the Executive shall exercise all options vested upon
termination no later than 120 days following the last day of the Termination
Year. The Company agrees that within a reasonable time following the execution
of this Agreement it will execute an option agreement with the Executive (the
"Option Agreement") on these terms. Except as otherwise set forth in this
Section 4 and except with respect to the Company's obligations under this
Agreement with respect to the Option Agreement and the Option Plan, nothing
herein is intended, or shall be construed to require the Company to institute or
continue any, or any particular, plan or benefits.
(d) Health and Similar Benefits. The Executive shall be
entitled to participate in or receive health, welfare, life insurance, long-term
disability insurance and similar benefits as the Company provides generally from
time to time to its executives. In the event that the Company does not provide
health benefits to its executives as of the Commencement Date, then the Company
shall pay the medical insurance premiums of the Executive as currently provided
under his COBRA benefits for a period of ninety (90) days from the Commencement
Date.
(d) Fringe Benefits. The Executive will be entitled to fringe benefits as may be
determined or granted from time-to-time by the Board.
(e) Vacation. The Executive shall be entitled to three
vacation weeks (15 business days) in each calendar year on a pro-rated basis.
The Executive will be entitled to all Company holidays.
(g) Relocation Benefits. The Company shall reimburse the
Executive for the reasonable costs or relocating his principal residence and
transferring his household from his present domicile in Florida to Georgia. The
Company shall reimburse the Executive for any real estate commission incurred by
the Executive for the sale of his principal residence in Florida up to a maximum
of six percent (6%). The Company shall reimburse the Executive for temporary
living expenses in Atlanta, Georgia for a period not to exceed sixty (60) days
from the Commencement Date and not to exceed an amount of $6,000.00.
5. Termination. The Executive's employment hereunder shall be, or may
be, as the case may be, terminated under the following circumstances:
(a) Death. The Executive's employment hereunder shall
terminate upon his death.
(b) Disability. The Executive's employment hereunder shall
terminate on the Executive's physical or mental disability or infirmity which,
in the opinion of a competent physician selected by the Board, renders the
Executive 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 Executive's
employment hereunder for Cause. "Cause" shall mean (i) Employee's material
breach of any of the terms of this Agreement, (ii) his 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 (iii) 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 and
the annual salary to be paid to the Executive during each of the first three
full years of his employment with the Company, nothing in this Agreement should
be construed as to confer any right of the Executive to be employed by the
Company for a fixed or definite term. Subject to Section 6 hereof, the Executive
hereby agrees that the Company may dismiss him under this Section 5(d) 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 Executive, whether made orally or contained in any
document, pertaining to the Executive's relationship with the Company.
Notwithstanding anything to the contrary contained herein, including Sections 2
and 4, the Executive'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 Executive, for any reason, with or without cause,
without liability except with respect to the payments provided for by Section 6.
(e) Voluntary Resignation. The Executive may voluntarily
resign his position and terminate his employment with the Company at any time
for any reason or for Good Cause. For purposes of this Agreement, "Good Cause"
shall mean, without the express written consent of Executive, the occurrence of
any of the following events unless such events are substantially corrected
within thirty (30) days following written notification by Executive to the
Company that he intends to terminate his employment hereunder for one of the
following reasons: (i) any material reduction or diminution in the duties,
responsibilities and status of Executive's position; (ii) a material breach by
the Company of any provision of this Agreement; and (iii) the occurrence of a
Change in Control. The Executive understands, acknowledges and agrees that any
voluntary resignation by him as a result of any personal or family reasons not
otherwise set forth in this Section 5(e) shall not constitute Good Cause. As
used in this Agreement, "Change of Control" means the occurrence of any of the
following: (i) the adoption of a plan relating to the liquidation or dissolution
of the Company, (ii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any person
or group, other than Jacques Elfersy or Timothy C. Moses or their affiliates
(the "Principals"), becomes the "beneficial owner" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Securities Exchange Act of 1934), directly
or indirectly, of more than eighty percent (80%) of the total voting power of
the total outstanding voting stock of the Company on a fully diluted basis or
(iii) the consummation of the first transaction (including, without limitation,
any merger or consolidation) the result of which is that any person or group,
other than the Principals, becomes the beneficial owner, directly or indirectly,
of more than eighty percent (80%) of the total voting power of the total
outstanding voting stock of the Company. If the Executive elects to resign for
any reason or for Good Cause, the Executive shall deliver 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, in any event, be at least thirty
(30) days and no more than sixty (60) days 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, upon ten (10) days written notice to the
Executive.
(f) Notice. Any termination of the Executive's employment by
the Company shall be communicated by written Notice of Termination to the
Executive. 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 Executive's
employment under the provision so indicated.
(g) "Date of Termination" shall mean (i) if the Executive's
employment is terminated by his death, the date of his death, (ii) if the
Executive's employment is terminated by reason of his disability, the date of
the opinion of the physician referred to in Section 5(b), above, (iii) if the
Executive's employment is terminated by the Company for Cause pursuant to
subsection 5(c) above, or without Cause by the Company pursuant to subsection
5(d) above, the date specified in the Notice of Termination and (iv) if the
Executive voluntarily resigns pursuant to subsection 5(e) above, the date of the
Notice of Resignation.
(h) Termination Obligations.
(i) The Executive hereby acknowledges and agrees that
all Personal Property and equipment furnished to or prepared by the
Executive in the course of or incident to his employment, belongs to
the Company and shall be promptly returned to the Company upon
termination of the Employment Period. "Personal property" includes,
without limitation, all books, manuals, records, reports, notes,
contracts, lists, formulae, 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 Executive will not retain any written or
other tangible material containing any proprietary information of the
Company.
(ii) Upon termination of the Employment Period, the
Executive shall be deemed to have resigned from all offices then held
with the Company or any affiliate.
(iii) The representations and warranties contained
herein and the Executive's obligations under Sections 5(h), 6, 7, 8, 9
and 15 through 18 shall survive termination of the Employment Period
and the expiration of this Agreement.
(i) Release. In exchange for the Company entering into the
Agreement, the Executive 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 Executive in connection with or arising out of
his employment with the Company, except with respect to any then-vested rights
under the Company's Option Plan and except with respect to any Severance
Payments which may be payable to him under the terms of the Agreement.
6. Compensation Upon Termination.
(a) Death. If the Executive's employment shall be terminated
pursuant to Section 5(a), the Company shall pay the estate of the Executive (the
"Estate") his base salary payable pursuant to Section 4(a) and benefits
described in Sections 4.1(d) and 4(e) through the Date of Termination. At the
Estate's expense, the Executive's dependents shall also be entitled to any
continuation of health insurance coverage rights under any applicable law.
(b) Disability. If the Executive's employment shall be
terminated by reason of disability pursuant to Section 5(c), the Executive shall
receive his base salary payable pursuant to Section 4(a) and benefits described
in Sections 4(d) and 4(e) up to the Date of Termination and for 90 days
thereafter; provided, however, that payments so made to the Executive during the
disability shall be reduced by the sum of the amounts, if any, payable to the
Executive at or prior to the time of any such payment under any disability
benefit plan of the Company. At the Executive's own expense, the Executive and
his dependents shall also be entitled to any continuation of health insurance
coverage rights under any applicable law.
(c) Cause. If the Executive's employment shall be terminated
for Cause pursuant to Section 5(c) hereof, the Company shall pay the Executive
his base salary pursuant to Section 4(a) through the Date of Termination. At the
Executive's own expense, the Executive 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 Executive's employment without cause pursuant to Section 5(d)
hereof, the Company shall pay the Executive his then current base salary at the
Date of Termination pursuant to Section 4(a) for a period of the lesser of (i)
the remaining unexpired term of this Agreement or (ii) one (1) year from the
Date of Termination (the "Severance Payment"). The Company shall pay on behalf
of the Executive the cost of any continuation of the then existing health
insurance coverage of the Executive for a period of the lesser of (i) the
remaining unexpired term of this Agreement, (ii) one (1) year from the Date of
Termination or (iii) until the Executive obtains Full Time Employment (the
"Severance Benefit"). For purposes of this Agreement, "Full Time Employment"
shall mean employment at a subsequent full time employer or in connection with a
full time consulting practice or other self-employment or any full time venture
founded by the Executive.
(e) Voluntary Resignation. If the Executive terminates his
employment with the Company pursuant to Section 5(e) hereof for Good Cause, the
Company shall pay the Executive his Severance Payment and Severance Benefit.
(f) If the Executive terminates his employment with the
Company pursuant to Section 5(e) hereof without Good Cause, the Company shall
have no obligation to pay the Severance Payment or Severance Benefit or
otherwise compensate the Executive following the Date of Resignation.
(g) In the event of any Termination pursuant to Section 5, the
Executive shall be entitled to retain any and all options to purchase capital
stock of the Company granted to the Executive pursuant to the terms and
conditions of the Option Agreement that have vested, either by passage of time
or by virtue of acceleration pursuant to Section 4(c), as of the Date of
Termination.
(h) Any Severance Payment made pursuant to this Section 6
shall be payable in equal bi-monthly installments over the required duration set
forth in Sections 6(a) through 6(e).
(i) The continuing obligation of the Company to make the
Severance Payment to the Executive is expressly conditioned upon the Executive
complying and continuing to comply with his obligations and covenants under
Sections 7 and 8 of this Agreement following termination of employment with the
Company.
7. Confidentiality and Non-Solicitation Covenants.
(a) Confidentiality. In addition to the agreements set forth
in Section 5(h)(i), the Executive hereby agrees that the Executive will not,
during the Employment Period or at any time thereafter directly or indirectly
disclose or make available to any person, firm, corporation, association or
other entity for any reason or purpose whatsoever, any Confidential Information
(as defined below). The Executive agrees that, upon termination of his
employment with the Company, all Confidential Information in his possession that
is in written or other tangible form (together with all copies or duplicates
thereof, including computer files) shall be returned to the Company and shall
not be retained by the Executive or furnished to any third party, in any form
except as provided herein; provided, however, that the Executive shall not be
obligated to treat as confidential, or return to the Company copies of any
Confidential Information that (i) was publicly known at the time of disclosure
to the Executive, (ii) becomes publicly known or available thereafter other than
by any means in violation of this Agreement or any other duty owed to the
Company by any person or entity or (iii) is lawfully disclosed to the Executive
by a third party. As used in this Agreement the term "Confidential Information"
means: information disclosed to the Executive or known by the Executive as a
consequence of or through his relationship with the Company, about the owners,
customers, employees, business methods, public relations methods, organization,
procedures or finances, including, without limitation, information of or
relating to owner or customer lists of the Company and its affiliates.
(b) Non-Solicitation. In the event of termination for any
reason other than pursuant to Section 5(e) or Section 5(e), the Executive agrees
that during the Employment Period and for one (1) year thereafter the Executive
will not, either on his own account or jointly with or as a manager, agent,
officer, employee, consultant, partner, joint venturer, owner or shareholder or
otherwise on behalf of any other person, firm or corporation, (i) carry on or be
engaged or interested directly or indirectly in, or solicit, the manufacture or
sale of goods or provision of services to any person, firm or corporation which,
at any time during the Employment Period has been or is a customer of or in the
habit of dealing with the Company in its Business, (ii) endeavor directly or
indirectly to canvas or solicit in competition with Company or to interfere with
the supply of orders for goods or services from or by any person, firm or
corporation which during the Employment Period has been or is a supplier of
goods or services to Company or (iii) directly or indirectly solicit or attempt
to solicit away from Company any of its officers or employees or offer
employment to any person who, on or during the six (6) months immediately
preceding the date of such solicitation or offer, is or was an officer or
employee of Company.
8. Covenant Not to Compete.
(a) The Executive agrees that during the Employment Period he
will devote substantially full-time to the Business of the Company and not
engage in any type of business in competition with the Business of the Company.
Subject to such full-time requirement and the restrictions set forth below in
this Section 8 and Section 3(c) above, the Executive shall be permitted to
continue his existing business investments and activities and may pursue
additional business investments; provided, however, that the Executive shall not
serve as officer or director of any public company resulting from such business
investments. The Executive agrees that he shall not (i) invest in, manage,
consult or participate in any way in any other business in competition with the
Business (in either an active or passive manner), (ii) participate in or advise
any business wherein activities similar to the Business are a relevant business
segment or (iii) act for or on behalf of any business that intends to enter or
participate in the activities similar to the Business, in each case unless the
independent members of the Company's Board of Directors determine that such
action is in the best interest of the Company. Notwithstanding the foregoing,
the Executive may purchase stock as a stockholder in any publicly traded
company, including any company which is involved in activities similar to the
Business; provided, however, that the Executive does not own (together or
separately or through his affiliates) more than 5% of any company (other than
the Company) in such business.
(b) The provisions of this Section 8 shall survive for one (1)
year following any termination of employment, except in the event of termination
pursuant to Section 5(d) or Section 5(e) herein.
9. Injunctive Relief and Enforcement. In the event of breach by the
Executive of the terms of Sections 5(h), 5(i), 7 or 8, and only following
mediation or attempted mediation as set forth in Section 16 below (unless the
Company is suffering irreparable injury, in which case Section 16 will not
prevent the Company from seeking injunctive relief against the Executive in any
court or forum), the Company shall be entitled to institute legal proceedings to
enforce the specific performance of this Agreement by the Executive and to
enjoin the Executive from any further violation of Sections 5(h), 5(i), 7 or 8
and to exercise such remedies cumulatively or in conjunction with all other
rights and remedies provided by law and not otherwise limited by this Agreement.
The Executive acknowledges, however, that the remedies at law for any breach by
him of the provisions of Sections 5(h), 5(i), 7 or 8 may be inadequate. In
addition, in the event the agreements set forth in Sections 5(h), 5(i), 7 or 8
shall be determined by any court of competent jurisdiction to be unenforceable
by reason of extending for too great a period of time or over too great a
geographical area or by reason of being too extensive in any other respect, each
such agreement shall be interpreted to extend over the maximum period of time
for which it may be enforceable and to the maximum extent in all other respects
as to which it may be enforceable, and enforced as so interpreted, all as
determined by such court in such action.
10. Notice. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered when
transmitted by telecopy with receipt confirmed, or one day after delivery to an
overnight air courier guaranteeing next day delivery, addressed as follows:
If to the Executive: Jeffrey A. Parker
===========================================
With a copy to: Capers, Dunbar, Sanders & Bruckner
1500 First Union Bank Building
699 Broad Street
Augusta, GA 30901-1454
Attention: Ziva P. Bruckner, Esq.
If to the Company: BioShield Technologies, Inc.
4405 International Boulevard
Suite B-109
Norcross, Georgia 30093
Attention: Timothy C. Moses
With a copy to: Schreeder, Wheeler & Flint, LLP
127 Peachtree Street, N.E.
Suite 1600
Atlanta, Georgia 30303
Attention: Edward H. Brown, Esq.
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. Severability. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect; provided, however, that if any one or more of the terms contained in
Sections 5(h), 7 or 8 hereto shall for any reason be held to be excessively
broad with regard to time, duration, geographic scope or activity, that term
shall not be deleted but shall be reformed and constructed in a manner to enable
it to be enforced to the extent compatible with applicable law.
12. Assignment. This Agreement may not be assigned by the Executive,
but may be assigned by the Company to any successor to its Business and will
inure to the benefit and be binding upon any such successor.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Headings. The headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
15. Choice of Law. This Agreement shall be construed, interpreted and
the rights of the parties determined in accordance with the laws of the State of
Georgia, except with respect to matters of law concerning the internal corporate
affairs of any corporate entity which is a party to or the subject of this
Agreement, and as to those matters the law of the jurisdiction under which the
respective entity derives its powers shall govern.
16. Mediation. Subject to any irreparable injury being suffered by the
Company giving rise to the right of the Company to seek injunctive relief
against the Executive pursuant to Section 9 hereof, in the event that there
shall be a dispute among the parties arising out of or relating to this
Agreement, or the breach thereof, the parties agree that such dispute shall be
resolved by mediation in Atlanta, Georgia, before a mediator and on terms and
conditions mutually acceptable to the parties; provided, however, that if the
parties cannot agree on the terms and conditions of such mediation, such terms
and conditions shall be established by the mediator. The fees and expenses
relating to such mediation, including reasonable attorneys' fees, shall be borne
equally by the parties. If mediation fails or is not accomplished within 180
days of the dispute, the parties shall be free to pursue all legal and equitable
remedies available.
17. LIMITATION ON LIABILITIES. IF EITHER THE EXECUTIVE OR THE COMPANY
IS AWARDED ANY DAMAGES AS COMPENSATION FOR ANY BREACH OR ACTION RELATED TO THIS
AGREEMENT, A BREACH OF ANY COVENANT CONTAINED IN THIS AGREEMENT (WHETHER EXPRESS
OR IMPLIED BY EITHER LAW OR FACT), OR ANY OTHER CAUSE OF ACTION BASED IN WHOLE
OR IN PART ON ANY BREACH OF ANY PROVISION OF THIS AGREEMENT, SUCH DAMAGES SHALL
BE LIMITED TO CONTRACTUAL DAMAGES AND SHALL EXCLUDE (I) PUNITIVE DAMAGES, AND
(II) CONSEQUENTIAL AND/OR INCIDENTAL DAMAGES (E.G., LOST PROFITS AND OTHER
INDIRECT OR SPECULATIVE DAMAGES). THE MAXIMUM AMOUNT OF DAMAGES THAT THE
EXECUTIVE MAY RECOVER FOR ANY REASON SHALL BE THE AMOUNT EQUAL TO ALL AMOUNTS
OWED (BUT NOT YET PAID) TO THE EXECUTIVE PURSUANT TO THIS AGREEMENT THROUGH ITS
NATURAL TERM OR THROUGH ANY SEVERANCE PERIOD, PLUS INTEREST ON ANY DELAYED
PAYMENT AT THE MAXIMUM RATE PER ANNUM ALLOWABLE BY APPLICABLE LAW FROM AND AFTER
THE DATE(S) THAT SUCH PAYMENTS WERE DUE.
18. WAIVER OF JURY TRIAL. TO THE EXTENT APPLICABLE, EACH OF THE PARTIES
TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR
ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT.
19. Entire Agreement. This Agreement contains the entire agreement and
understanding between the Company and the Executive with respect to the
employment of the Executive by the Company as contemplated hereby, and no
representations, promises, agreements or understandings, written or oral, not
herein contained shall be of any force or effect. This Agreement shall not be
changed unless in writing and signed by both the Executive and the Company (by
duly adopted resolution of its Board of Directors).
20. The Executive's Acknowledgment. The Executive acknowledges (a) that
he has had the opportunity to consult with independent counsel of his own choice
concerning this Agreement, and (b) that he has read and understands the
Agreement, is fully aware of its legal effect, and has entered into it freely
based on his own judgment.
21. Condition Precedent. This Agreement is conditioned upon the closing
of the IPO on or before November 15, 1998. In the event the IPO is not
consummated on or before November 30, 1998, then either party shall have the
option to cancel this Agreement pursuant to Section 2 herein and this Agreement
shall be void and of no further force or effect.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the date and year first above written.
"COMPANY"
BIOSHIELD TECHNOLOGIES, INC.
By: /s/ Timothy C. Moses
Timothy C. Moses
Title: President and Chief Executive Officer
"EXECUTIVE"
/s/ Jeffrey A.
Parker
Jeffrey A. Parker
We have issued our report dated August 5, 1998, accompanying the financial
statements and schedules of BioShield Technologies, Inc. contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts."
/s/ Grant Thornton LLP
Atlanta, Georgia
September 17, 1998
