<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 2000
REGISTRATION NO.
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
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.
5655 PEACHTREE PARKWAY
NORCROSS, GEORGIA 30092
(770) 246-2000
(Address and telephone number of principal
executive offices and principal place of business)
TIMOTHY C. MOSES
BIOSHIELD TECHNOLOGIES, INC.
5655 PEACHTREE PARKWAY
NORCROSS, GEORGIA 30092
(770) 246-2000
(Name, address and telephone number of agent for service)
COPIES OF ALL COMMUNICATIONS TO:
RAYMOND L. MOSS, ESQ.
SIMS MOSS KLINE & DAVIS LLP
400 NORTHPARK TOWN CENTER, SUITE 310
1000 ABERNATHY ROAD, N.E.
ATLANTA, GEORGIA 30328
(770) 481-7200
(770) 481-7210 FAX
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: From time to time after
the effective date of the Registration Statement until January 14, 2002, or
until such earlier time that all the shares registered hereunder have been sold.
<PAGE> 2
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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Amount Proposed maximum offering Proposed maximum
Title of each class of to be price aggregate Amount of
securities to be registered registered(1) per share(2) offering price(2) registration fee
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par value 1,375,000 shares $7.75 $10,656,250 $2,813.25
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The shares of Common Stock which may be offered by the selling shareholder
pursuant to this Registration Statement consist of (a) shares issuable upon
conversion of $4,000,000 principal amount of Series A Convertible Preferred
Stock and (b) up to 375,000 shares that may be issuable pursuant to the exercise
of warrants issued or to be issued pursuant to warrant agreements entered into
on August 1, 1999 and September 29, 1999. In connection with the sale of the
Series A Convertible Preferred Stock, Bioshield Technologies, Inc. agreed to
file a registration statement covering at least 1,000,000 shares of Common Stock
issuable upon conversion of the Series A Convertible Preferred Stock. If all the
Series A Convertible Preferred Stock had been converted as of January 21, 2000,
the conversion price would have been approximately $8.39 per share of Common
Stock, and approximately 476,758 shares of Common Stock would have been issuable
as a result of such conversion. This registration statement includes additional
shares of Common Stock in the event the actual number of shares issuable upon
conversion of the Series A Preferred Stock increases as a result of adjustments
in the conversion formula. In addition to the shares set forth in the table
above, the amount to be registered includes an indeterminate number of shares of
Common Stock issuable upon conversion of the Series A Convertible Preferred
Stock or exercise of the warrants as a result of stock splits, stock dividends
and similar transactions in accordance with Rule 416 of Regulation C under the
Securities Act of 1933, but not including additional shares that may be issuable
due to the operation of the conversion formulas applicable to the Series A
Convertible Preferred Stock. Rule 416 does not apply to any additional shares
that would be issuable to holders of the Series A Convertible Preferred Stock as
a result of changes in the market price of the Common Stock, and Bioshield
Technologies, Inc. is not relying on Rule 416 to register any additional shares
issuable as a result of the operation of the conversion formula applicable to
the Series A Convertible Preferred Stock.
(2) Estimated solely for the purpose of computing the amount of the
registration fee, based on the average of the high and low prices for the
Company's common stock as reported on the Nasdaq SmallCap Market(TM) on
January 24, 2000 in accordance with Rule 457 under the Securities Act of 1933.
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> 3
PROSPECTUS
BIOSHIELD TECHNOLOGIES, INC.
1,375,000 Shares of Common Stock
These shares of common stock are being offered by the selling shareholders
identified on page 48 of this prospectus in the section entitled "Selling
Shareholders." The selling shareholders may sell these shares from time to time:
- - on the NASDAQ SmallCap Market(TM);
- - on the over-the-counter market;
- - in transactions directly with market makers; or
- - in privately negotiated transactions.
We will not receive any portion of the proceeds from the sale of these shares.
Our common stock is traded on the Nasdaq SmallCap Market under the symbol BSTI.
On January 25, 2000, the closing sale price of our common stock on the Nasdaq
SmallCap Market was $8.375.
Our principal executive offices are located at 5655 Peachtree Parkway,
Norcross, Georgia 30092, and our telephone number is (770) 246-2000.
THE SECURITIES OFFERED BY THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK. YOU
SHOULD CAREFULLY CONSIDER THE FACTORS DESCRIBED UNDER THE HEADING "RISK
FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
The date of this prospectus is January 26, 2000
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and consolidated financial statements appearing elsewhere
in this prospectus. Investment in our common stock involves a high degree of
risk. Investors should carefully consider the information set forth under "Risk
Factors" beginning on page 5.
THE COMPANY
BioShield Technologies, Inc. is a development stage company that has
not yet generated enough sales to support its operations. We have been engaged
since our organization in 1995 in the development, marketing, and sale of
surface modifying antimicrobials and biostatic products. Our primary focus in
this area is to exploit our 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.
We have also filed applications for patents with the United States
Patent and Trademark Office with respect to our proprietary technology and one
such patent has been granted. Specifically, we have discovered and claimed a
variety of new compositions and methods of making and using our 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 our 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 for these products is in the
mass-market retail outlets such as supermarkets, mass volume retailers, drug
stores, and home improvement superstores. Sales through these customers began
in January 1998 and continue through the date of this prospectus. In April of
1999, Bioshield launched its OdorFree(TM) product, an odor remover and fabric
freshener in a number of food retailers located in the largest Texas markets.
Shipments of this product have been made to several major supermarket chains in
the Dallas, Houston, and San Antonio markets.
On April 7, 1999, we created a subsidiary to develop electronic
commerce via the Internet. This subsidiary will provide managed care solutions
to physicians and consumers over the internet. This business unit will seek to
integrate three product offerings for providers (point of care medication
management, electronic charting system, and pharmaceutical care services) with
a comprehensive healthcare web site. The subsidiary, currently named Electronic
Medical Distribution, Inc. (eMD.com), has not as yet commenced operations and
from its formation to date has been in the development stage, which means that
its primary focus has been organizational activities, raising capital,
regulatory approvals, research and development, and further investigation into
new markets.
As a result, we currently operate in two distinct business segments,
antimicrobial and biostatic products for use within the retail and
institutional markets through BioShield and pharmaceutical healthcare via the
internet through eMD.com.
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<PAGE> 5
THE OFFERING
The Series A Convertible Preferred Stock
On January 13, 2000, we completed a private placement for cash of $4,000,000
principal amount of our series A convertible preferred stock and warrants to
purchase 200,000 shares of common stock of eMD.com, our majority-owned
subsidiary. Under the terms of the private placement agreements, we agreed to
file the registration statement of which this prospectus forms a part covering
the resale of up to 1,000,000 shares of Common Stock issuable upon conversion of
the series A preferred stock. If all the shares of series A preferred stock were
converted as of January 21, 2000, we would be required to issue approximately
476,758 shares of common stock, or approximately 7% of the number of shares of
common stock that would then be outstanding after the conversion. The total
number of shares of common stock issuable upon such conversion and exercise will
vary, based upon the closing bid prices of our common stock. The terms of the
series A preferred stock and the warrants, including the conversion rights of
the series A preferred stock, are more fully described in this prospectus under
"Description of Securities" on page 49.
Warrant Agreements
We entered into a financial advisory and consulting agreement with CLR
Associates, Inc. on April 1, 1999. In connection with that agreement, we issued
warrants to CLR Associates on August 1, 1999. The warrants are exercisable for
up to 240,000 shares of common stock at an exercise price of $5.00 per share,
and expire on March 31, 2003, unless exercised sooner. The number of shares
issuable pursuant to the exercise of the warrants is subject to adjustment for
stock splits, stock combinations and similar events.
We have also entered into a financial advisory and consulting agreement dated
August 1, 1999 with White Capital Group, Ltd. Under that agreement, as amended,
we are required to issue warrants to White Capital Group exercisable for up to
135,000 shares of common stock of the Company. The warrants are to be issued in
equal installments of 16,875 warrants over eight months, and are exercisable for
a period of five years following issuance at an exercise price as follows:
25,000 shares at $5 per share; 30,000 shares at $8 per share; 30,000 shares at
$12.50 per share, and 50,000 shares at $17 per share. The number of shares
issuable pursuant to the warrants is subject to proportional adjustment in the
event of a stock split.
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<PAGE> 6
SELECTED FINANCIAL INFORMATION
The following selected financial data has been derived from our audited
balance sheets as of June 30, 1998 and 1999 and audited income statements for
the fiscal periods ended June 30, 1997, 1998, and 1999 and unaudited financial
statements as of and for the three month periods ended September 30, 1999 and
1998. This selected financial data should be read together with the our
financial statements and related notes included in this prospectus. See
"Financial Statements."
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL PERIODS ENDED JUNE 30, ENDED SEPTEMBER 30,
--------------------------------------------- ----------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales ...................... $ 775,315 $ 462,471 $ 305,336 $ 87,854 $ 144,445
Cost of sales .................. 315,822 154,658 188,913 33,736 90,488
Gross profit ................... 459,493 307,813 116,423 54,118 53,957
Operating expenses ............. 987,353 1,764,909 3,566,213 412,163 4,463,105
Operating loss ................. (527,860) (1,457,096) (3,449,790) (358,045) (4,409,148)
Net loss ....................... (514,459) (1,471,929) (3,289,616) (373,562) (4,347,177)
Basic net loss per common
share .......................... $ (0.12) $ (0.33) $ (0.57) $ (0.08) $ (0.69)
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, AT SEPTEMBER 30,
1998 1999 1999
----------- ----------- ----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) .............. $(1,026,275) $ 6,975,205 $ 4,308,771
Current assets ......................... 272,001 7,827,050 5,616,012
Total assets ........................... 437,623 8,223,743 6,770,182
Total liabilities and minority
interest ............................... 1,298,276 5,650,595 7,431,991
Accumulated deficit .................... (2,342,704) (5,632,320) (9,979,497)
Shareholder's equity (deficit) ......... (860,653) 2,573,148 (661,809)
Common shares outstanding .............. 4,395,040 6,322,315 6,325,915
</TABLE>
RISK FACTORS
An investment in our securities involves a high degree of risk.
Prospective investors should consider the following factors in addition to the
other information set forth in this prospectus before purchasing our securities.
FORWARD LOOKING STATEMENTS
We make statements in this prospectus and in the documents we file
with the Commission that are considered "forward-looking statements" within the
meaning of the Securities Act and the Exchange Act. Sometimes these statements
contain words such as "will likely result," "are expected to," "will continue,"
"is anticipated," "estimate," "project," or similar expressions or other
similar words. These statements are not guarantees of our future performance
and are subject to risks, uncertainties, and other factors that could cause our
actual performance or achievements to be materially different from those we
project. The following factors, among others, could cause materially different
results from those anticipated or projects:
- failure to obtain EPA or FDA approvals for antimicrobial and
biostatic products;
- inability to commercialize Bioshield's antimicrobial and
biostatic technology in a cost-effective manner;
- the introduction of equally or more effective antimicrobial
and biostatic products by competitors, especially larger
competitors with established distribution systems and
substantially greater financial resources;
- failure to obtain new customers or retain existing customers;
- inability to carry out marketing and sales plans or to
establish Electronic Medical Distribution as a widely-used
internet resource;
- inability to obtain capital for future growth;
4
<PAGE> 7
- loss of key executives; and
- general economic and business conditions.
We do not have a policy of updating or revising forward-looking
statements and thus it should not be assumed that silence by us over time means
that actual events are bearing out as estimated in such forward-looking
statements.
WE ARE A DEVELOPMENT STAGE COMPANY ENGAGED IN PRODUCT DEVELOPMENT AND WITH
LIMITED OPERATING HISTORY
Bioshield was organized in June 1995 and is a development stage
company. Bioshield's long-term viability, profitability and growth will depend
upon successful commercialization of products resulting from our research and
product development activities. We may not be able to sell significant
quantities of any product, outside of retail distribution channels until such
time, if ever, as we receive regulatory approval to commercially market our
products in the industrial and medical markets. Any such approvals may however
be limited in scope. Many of our 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. No FDA applications or
registrations have been filed to date and none are anticipated to be filed in
the near future. Moreover, with respect to the FDA, adverse or inconclusive
results in clinical trials could significantly delay or ultimately preclude any
such approvals. Even if we obtain approvals there can be no assurance that any
product approval will lead to the successful commercialization of such product.
Further, as a development stage company, we have limited relevant
operating history upon which you can evaluate our prospects. Our prospects must
be considered in light of the risks, expenses and difficulties frequently
encountered in establishing a new business in the evolving, heavily regulated
healthcare, drug, and medical device industry, which is characterized by an
increasing number of market entrants, intense competition and a high failure
rate. In addition, significant challenges are often encountered in shifting from
development to commercialization of new products. See "Business."
WE HAVE GENERATED LIMITED REVENUES TO DATE, HAVE A HISTORY OF SIGNIFICANT
LOSSES AND EXPECT CONTINUED LOSS
Through September 30, 1999, although we have recorded contract
revenues, we have generated only limited revenues from product sales and
consulting of $1,727,475 since 1995. Moreover, we have incurred significant
losses, including losses of $356,316, $514,459, $1,471,929, and $3,289,616 for
the years ended June 30, 1996, 1997, 1998 and 1999, respectively. For the years
ended June 30, 1996, 1997, 1998 and 1999, we recorded product sale revenues of
$0, $775,315, $462,471 and $305,336. Our net sales during the three months
ended September 30, 1998 and 1999 were $87,854 and $144,445, respectively,
while net losses increased from $373,562 to $4,347,177 as we used the proceeds
of our initial public offering to increase marketing efforts.
Because we 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, we anticipate continued
greater net losses until such time, if ever, as we are able to generate
sufficient revenues to support our operations.
LOSSES WILL PROBABLY CONTINUE FOR AN INDEFINITE PERIOD
We believe that our ability to generate sufficient revenues, aside
from the retail market, may depend on the success of the obtaining regulatory
registrations for the commercial sale of products, including approval of any
manufacturing facilities established or maintained by us or our suppliers that
produce such products. There can be no assurance that any of such events will
occur, that we
5
<PAGE> 8
will attain revenues from commercialization of our products or that we will
ever achieve profitable operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business" and Financial
Statements.
CONTINUED EXISTENCE AS A GOING CONCERN IS ULTIMATELY DEPENDENT UPON THE SUCCESS
OF FUTURE OPERATIONS AND OUR ABILITY TO OBTAIN ADDITIONAL FINANCING
Our capital requirements have been and will continue to be
significant. To fund our capital requirements to date, we have been dependent
primarily on:
- sales revenues generated primarily from the sale of products;
- the net cash proceeds of private placements of Bioshield
securities; and
- the aggregate net proceeds of our initial public offering of
approximately $5.1 million.
We anticipate, based on our currently proposed plans and assumptions relating to
our operations, that current working capital and projected revenues, together
with the anticipated proceeds of this offering and of a $10 million private
equity facility entered into in June, 1999, will be sufficient to satisfy
our estimated cash requirements for up to twelve months. We expect to incur
substantial costs over approximately the next three years to complete our
primary development of products for the medical and industrial markets.
Therefore, unless we generate significant revenues during such period, we will
need additional financing to fully fund such development. We have no current
sources of additional financing and it is not anticipated that any of the
officers, directors or shareholders of Bioshield will provide any portion of our
future financing requirements. We cannot assure you that additional financing
will be available on commercially reasonable terms, or at all. Any inability to
obtain additional financing when needed could require us to significantly
curtail or possibly cease operations.
We may also need to raise additional funds to respond to business
contingencies, which may include the need to:
- fund more rapid expansion;
- fund additional marketing expenditures;
- develop new or enhance existing editorial content, features
or services;
- enhance our operating infrastructure;
- respond to competitive pressures; or
- acquire complementary businesses or necessary technologies.
If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders will
be reduced, and these newly-issued securities may have rights, preferences or
privileges senior to those of existing stockholders, including those acquiring
shares in this offering. We cannot assure you that additional financing will be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, our ability to fund our
operations, take advantage of unanticipated opportunities, develop or enhance
editorial content, features or services, or otherwise respond to competitive
pressures would be significantly limited. Please see "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
A NEW VENTURE WILL DEPLETE OUR CAPITAL MORE QUICKLY
We have recently organized a subsidiary, eMD.com, which will engage in
the sale of drug and healthcare related products over the Internet. We
anticipate requiring substantial capital well in excess of what we now have
available in order to complete the development and implement the operation of
eMD.com.
6
<PAGE> 9
BIOSHIELD WILL NOT BE ABLE TO GROW IF OUR PRODUCTS ARE NOT APPROVED, AND WE
BEAR SUBSTANTIAL REGULATORY COSTS
The development, manufacture, testing and marketing of all of our
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. Delays in
obtaining regulatory approvals may adversely affect the development, testing or
marketing of our products and our ability to generate revenues from the sale or
licensing of such products. There can be no assurance that we will obtain
regulatory approvals in the United States or any other country to sell our
products for such purposes.
WE ARE AT A COMPETITIVE DISADVANTAGE TO LARGE, WELL-ESTABLISHED COMPANIES
The markets for our 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 our products. We are aware of several other companies that manufacture
products that compete directly with our 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 we do. We compete on
the basis of technological suitability, quality, performance characteristics
and price of our products, our ability to meet customer specifications, and the
quality of technical assistance and service furnished to our customers. There
can be no assurance that we will be able to compete successfully, that
competitors will not develop technologies or products that render our products
obsolete or less marketable or that we will be able to successfully enhance our
existing products or develop or acquire new products. See "Business --
Competition."
OUR PRODUCTS MAY BECOME OBSOLETE
The antimicrobial industry is subject to rapid and significant
technological change, and our ability to compete is dependent in large part on
continued improvements to our products and technologies. In order to do so, we
must effectively utilize and expand our research and development capabilities,
and, once developed, expeditiously convert new technology into products and
processes that we can commercialize. Our competitors may succeed in developing
technologies, products and processes that render our 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 ours. The scope and viability of these patents, the extent
to which we 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 our ability to market our products. See "Business
- -- Competition."
OUR BUSINESS EXPOSES US TO POTENTIAL PRODUCT LIABILITY RISKS THAT ARE INHERENT
IN THE TESTING, MANUFACTURING, MARKETING AND SALE OF THERAPEUTIC PRODUCTS
While we will take precautions we deem appropriate; there can be no
assurance that we will be able to avoid significant product liability exposure.
We have obtained general liability insurance in the amount of $1,000,000, which
includes aggregate product coverage of $1,000,000. We also have an umbrella
liability policy with aggregate limits of $5,000,000. There can be no assurance
that we 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 us in excess of any insurance coverage could
have a material adverse effect upon us.
THE MARKET MAY NOT ACCEPT OUR PRODUCTS
To date, we have generated limited revenues from sales of our
products. We have not yet commenced significant marketing activities, and we
have limited marketing experience and limited resources to independently
undertake extensive marketing activities. As is typically the case, the demand
and market acceptance for our newly introduced, innovative products is highly
uncertain. Achieving market acceptance for our products will require
substantial marketing efforts and expenditure of significant funds to inform
customers of the distinctive characteristics and benefits of using our
products. There can be no assurance that our efforts will result in successful
product commercialization or initial or continued market acceptance for our
products.
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<PAGE> 10
WE ARE VERY DEPENDENT ON KEY PERSONNEL
Our success will be largely dependent on the abilities and continued
personal efforts of Timothy C. Moses, one of Bioshield's founders, Co-Chairman
of the Board, President, and Chief Executive Officer; and Jacques Elfersy,
founder, Co-Chairman of the Board, Senior Vice President, Secretary, Treasurer,
and Director. We employ Messrs. Moses and Elfersy under an employment agreement
expiring January 1, 2003. The loss of the services of either Mr. Moses or Mr.
Elfersy would have a material adverse effect on us. We are a beneficiary of key
man life insurance policies, each in the amount of $1,000,000, on each of Mr.
Moses and Mr. Elfersy. We do not currently own policies covering any other
officer or employee. See "Management."
BIOSHIELD IS CONTROLLED BY MESSRS. MOSES AND ELFERSY, WHOSE INTERESTS DO NOT
ALWAYS COINCIDE WITH YOURS
Mr. Moses, Co-Chairman, President, and Chief Executive Officer of
Bioshield, and Mr. Elfersy, Co-Chairman of the Board, Senior Vice President,
Treasurer, Secretary and Director, beneficially own approximately 22.7%, and
approximately 24.9%, respectively, of the shares of common stock outstanding. In
the likely event that Mr. Moses and Mr. Elfersy were to act in concert, they
could generally control the affairs of Bioshield. 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 Bioshield's Articles of
Incorporation or Bylaws and the approval of certain mergers and other
significant corporate transactions, including a sale of substantially all of our
assets. Their control could also have the effect of delaying, deferring or
preventing a change in control of Bioshield that you would prefer to occur. See
"Risk Factors -- Anti-Takeover Provisions," "Principal Shareholders," and
"Description of Common Stock."
THERE IS NO ASSURANCE OF A CONTINUED PUBLIC MARKET
The market prices for securities of biotechnology companies have been
volatile. Announcements of technological innovations or new products by us or
our competitors, developments concerning proprietary rights (including patents
and litigation matters), publicity regarding actual or potential clinical
testing relating to products under development by us 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.
The common stock of small and emerging growth companies such as ours that trade
in the over-the-counter market have experienced particularly wide price
fluctuations not necessarily related to the operating performance.
SHARES ELIGIBLE FOR FUTURE SALE
As of November 11, 1999, there were 4,505,092 shares of common stock
that were restricted securities that became eligible for resale under Rule 144
under the Securities Act of 1933, after expiration of a "lock-up" agreement in
September 1999. Sales of significant amounts of those shares in the public
market could adversely affect the market price of the common stock. See "Shares
Eligible for Future Sale," "Principal Shareholders," "Management's Discussion
and Analysis of Financial Condition and Operating Results," and "Liquidity and
Capital Resources."
EFFECT OF OUTSTANDING WARRANTS
We have filed a registration statement covering 1,300,000 shares of
common stock issuable upon exercise of our publicly-traded redeemable warrants.
On January 20, 2000, we announced that we have elected to call all of the
warrants, representing a total of approximately 1,158,810 publicly-traded
redeemable warrants and 130,000 underwriter warrants. We have established a
redemption date of February 21, 2000. Prior to the redemption date, holders of
the warrants may exercise each warrant for a common share at a price of $6.00
per share. On February 21, 2000, we will pay $0.05 for each warrant not so
exercised. Sales of significant amounts of those shares in the public market
could adversely affect the market price of the common stock.
The shares of common stock underlying the warrants issued in our
February and March 1998 private placements have certain registration rights and
anti-dilution provisions. The terms on which we might obtain additional
financing may be adversely affected by the existence of those warrants.
Bioshield has agreed that, under certain circumstances, it will register under
federal and state
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securities laws the common stock underlying the 1998 warrants, and/or related
securities. Those registrations could involve substantial expense and may
adversely affect the terms on which we may obtain financing. See "Description
of Securities."
EFFECT OF EMD.COM PRIVATE PLACEMENT FINANCING
The shares of common stock which were sold by eMD.com to a group of
investors in connection with eMD.com's $6,000,000 private placement of common
stock in June and July 1999 may enable the holders of the shares, in the event
that eMD.com has not become a reporting company under the Securities and
Exchange Act of 1934, as amended, by May 31, 2000, to exchange the shares for
freely tradeable registered shares of Bioshield over a minimum period of six
months thereafter at a pre-agreed discount to the then current market price of
Bioshield common stock. The effect of such exchanges, if triggered, may have a
negative impact on the trading prices of Bioshield's common stock, may enable
these investors to acquire a substantial ownership position in Bioshield and
may significantly dilute the interest of existing Bioshield shareholders.
SUBSTANTIAL SHARES OF COMMON STOCK RESERVED
We have reserved 1,200,000 shares of common stock for issuance to key
employees, officers, directors and consultants pursuant to our 1997 stock
incentive plan and 1,000,000 shares of common stock for issuance to directors
pursuant to our 1996 directors' stock option plan. To date, 758,000 options
have been granted under the Incentive Plan, of which 355,000 are immediately
exercisable and 250,000 options have been granted under the Director Plan, of
which 210,000 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 Bioshield and may result in sales of common stock to officers and
directors at prices well below the market price at the time of option exercise.
See "Management -- Stock Option Plan."
AUTHORIZATION OF PREFERRED STOCK
Bioshield'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, our 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 used
to discourage, delay, or prevent a change in control of Bioshield. Although
management has no present intention of issuing any shares of its authorized
preferred stock, Bioshield may do so in the future. We 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
Our articles of incorporation and bylaws contain numerous
anti-takeover provisions intended to encourage any potential acquiror of
Bioshield to deal directly with Bioshield's Board of Directors. Among the
features of Bioshield'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 Bioshield's capital stock entitled
to vote generally in the election of directors 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 such
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;
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- adoption of the requirements of Part 3 of Article 11 of the
Georgia Business Corporation Code regarding business
combinations;
- express authorization of the board of directors to consider
the effects of a proposed acquisition on Bioshield employees,
customers and suppliers and the communities where Bioshield
operates;
- requiring cause and a greater than majority vote of
shareholders to approve removal of directors and amendments
to Bioshield's articles of incorporation or bylaws and
providing for a greater than majority vote of shareholders in
certain circumstances relating to an acquisition of Bioshield
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 Bioshield even if shareholders support the
acquisition, and could also serve to entrench incumbent management.
In connection with its initial public offering in the State of
California, Bioshield agreed to submit to its shareholders at its next annual
meeting a proposal to amend Bioshield's Articles and Bylaws to (i) provide that
holders of ten percent (10%) or more of the outstanding shares of Bioshield's
capital stock can call a special shareholders meeting and (ii) eliminate the
"Fair Price" requirements enacted by Bioshield 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 Bioshield's outstanding common stock
to seek approval of Bioshield'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
Bioshield's shareholders. In the event that these proposals are adopted,
Bioshield may be more vulnerable to, among other things, a hostile takeover or
other business combination or transaction that is not approved by Bioshield's
board of directors.
BIOSHIELD HAS NOT PAID DIVIDENDS AND IS NOT LIKELY TO PAY DIVIDENDS FOR AT
LEAST SEVERAL YEARS
To date, Bioshield 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 common stock has met the current initial listing
requirements for inclusion in the Nasdaq SmallCap Market, there can be no
assurance that they will meet continued listing requirements. Under current
criteria for continued inclusion on the SmallCap Market:
- Bioshield 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,
- the minimum bid price of the common stock will have to be
$1.00 per share,
- there must be at least 500,000 shares in the public float
valued at $1,000,000 or more,
- the common stock must have at least two active market makers,
and
- the common stock must be held by at least 300 holders.
If Bioshield is unable to satisfy the SmallCap Market's maintenance
requirements, its securities may be delisted. The common stock and warrants
would then be traded only in the over-the-counter market in the so-called "pink
sheets" or the NASD's OTC Bulletin Board. Consequently, the liquidity of
Bioshield'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, reduced numbers of security analysts' and the news media's
coverage of Bioshield, and lower prices for our securities than might otherwise
be attained.
In addition, if the common stock is delisted from trading on the
SmallCap Market and the trading price of the common stock falls below $5.00 per
share, trading in the common stock would be subject to the requirements of
certain rules promulgated under the
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Securities Exchange Act of 1934, 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 associated risks 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 or $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's 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 on
broker-dealers by these 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.
RISKS PARTICULAR TO EMD.COM
eMD.com is still in the initial stages of its internet and related
operations and is still in the process of developing the site and related
business. We launched the consumer and physician portions of our website in
December 1999. Accordingly, we have an extremely limited operating history. An
investor must consider the risks, uncertainties, expenses and difficulties
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets, including the
Internet market. These risks and difficulties include our ability with respect
to eMD.com to:
- attract a larger audience of users to our Internet-based
consumer healthcare network;
- increase awareness of our brand;
- strengthen user loyalty and increase the number of registered
users;
- offer compelling on-line content, services and e-commerce
opportunities;
- maintain our current, and develop new, affiliate
relationships;
- attract a large number of advertisers who desire to reach our
users;
- respond effectively to the offerings of competitive providers
of healthcare information on the Internet;
- continue to develop and upgrade our technology; and
- attract, retain and motivate qualified personnel.
We also depend on the growing use of the Internet for advertising,
commerce and communication, and on general economic conditions. We cannot
assure you that our business strategy will be successful or that we will
successfully address these risks or difficulties. If we fail to address
adequately any of these risks or difficulties our business would likely suffer.
Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our financial statements for detailed information on
our extremely limited operating history and limited financial resources.
OUR BUSINESS IS CHANGING RAPIDLY, WHICH COULD CAUSE OUR QUARTERLY
OPERATING RESULTS TO VARY AND OUR STOCK PRICE TO FLUCTUATE.
Our revenues and operating results may vary significantly from quarter
to quarter due to a number of factors, not all of which are in our control. If
we have a shortfall in revenue in relation to our expenses, or if our expenses
precede increased revenues, then our business would be materially adversely
affected. This would likely affect the market price of our common stock in a
manner which may be unrelated to our long-term operating performance.
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Important factors which could cause eMD.com's results to fluctuate
materially include:
- - our ability to attract and retain users;
- - our ability to attract and retain advertisers and sponsors and
maintain advertiser and sponsor satisfaction;
- - traffic levels on our Internet site;
- - our ability to attract and retain customers and maintain customer
satisfaction for our existing and future e-commerce offerings;
- - new internet sites, services or products introduced by us or our
competitors;
- - the level of internet and other on-line services usage;
- - our ability to upgrade and develop our systems and infrastructure and
attract new personnel in a timely and effective manner;
- - our ability to successfully integrate operations and technologies from
any acquisitions, joint ventures or other business combinations or
investments; and
- - technical difficulties or system downtime affecting the operation of
our website.
eMD.com revenues for the foreseeable future will remain dependent on
user traffic levels, advertising and e-commerce activity on eMD.com and the
level of physician participation. Such future revenues are difficult to
forecast. In addition, we plan to increase our sales and marketing operations,
expand and develop content and upgrade and enhance our technology and
infrastructure development in order to support our growth. Many of the expenses
associated with these activities--for example, personnel costs and technology
and infrastructure costs--are relatively fixed in the short-term. We may be
unable to adjust spending quickly enough to offset any unexpected revenue
shortfall, in which case our results of operations would suffer. However, we
cannot assure you that we will ever achieve profitable operations for eMD.com.
Market prices of emerging Internet companies have been highly
volatile, and the market for our stock may exhibit volatility as well.
WE MUST ESTABLISH, MAINTAIN AND STRENGTHEN OUR BRAND IN ORDER TO
ATTRACT USERS TO OUR NETWORK AND GENERATE ADVERTISING, SPONSORSHIP AND
E-COMMERCE REVENUE.
In order to expand our audience of users and increase our on-line
traffic, we must establish, maintain and strengthen our brand. For us to be
successful in establishing our brand, healthcare consumers must perceive us as
a trusted source of healthcare information, products and services, and
advertisers, merchants and manufacturers must perceive us as an effective
marketing and sales channel for their products and services. We expect that we
will need to increase substantially our marketing budget in our efforts to
establish brand recognition and brand loyalty. Our business could be materially
adversely affected if our marketing efforts are not productive or if we cannot
strengthen our brand.
WE HAVE COMMITTED AND WILL REQUIRE SIGNIFICANT FINANCIAL AND MARKETING
RESOURCES TO EXPAND OUR NETWORK; IF WE ARE UNABLE TO EARN REVENUES IN EXCESS OF
THESE COMMITMENTS, OUR BUSINESS WILL SUFFER.
In order to expand our network, we intend on entering into a number of
strategic partnerships which will involve the payment of significant funds for
prominent or exclusive carriage of our healthcare information and services.
These transactions are premised on the assumption that the traffic we obtain
from these arrangements will permit us to earn revenues in excess of the
payments made to partners. This assumption is not yet proven, and if we are
unsuccessful in generating sufficient resources to offset these expenditures,
we will likely be unable to operate our business.
IN ORDER TO ATTRACT AND RETAIN OUR AUDIENCE OF USERS, WE MUST PROVIDE
HEALTHCARE CONTENT, TOOLS AND OTHER FEATURES WHICH MEET THE CHANGING DEMANDS OF
THOSE USERS.
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One of our fundamental business objectives is for eMD.com to be a
trusted source for healthcare information, products, and services. As with any
form of consumer-oriented media, we have to provide editorial content,
interactive tools and other features that consumers demand in order to continue
to attract and retain our audience of users. We expect that competitive factors
will create a continuing need for us to retain, improve and add to our
editorial content, interactive tools and other features. We will not only have
to expend significant funds and other resources to continue to improve our
network, but we must also properly anticipate and respond to consumer
preferences and demands. Competition for content will likely increase the fees
charged by high quality content providers. The addition of new features will
also require that we continue to improve the technology underlying our website.
These requirements are significant, and we may fail to execute on them quickly
and efficiently. If we fail to expand the breadth of our offerings quickly, or
these offerings fail to achieve market acceptance, our business will suffer
significantly.
OUR BUSINESS MODEL RELIES ON INTERNET ADVERTISING AND SPONSORSHIP
ACTIVITIES WHICH MAY NOT BE EFFECTIVE OR PROFITABLE MARKETING MEDIA.
Our future is highly dependent on increased use of the internet as an
advertising medium. We expect to derive a portion of our revenues from
advertising and sponsorships. The internet advertising market is new and
rapidly evolving, and we cannot yet predict its effectiveness as compared to
traditional media advertising. As a result, demand and market acceptance for
internet advertising solutions are uncertain. Most of our current or potential
advertising customers have little or no experience advertising over the
internet and have allocated only a limited portion of their advertising budgets
to internet advertising. The adoption of internet advertising, particularly by
those entities that have historically relied upon traditional media for
advertising, requires the acceptance of a new way of conducting business,
exchanging information and advertising products and services. Such customers
may find internet advertising to be less effective for promoting their products
and services relative to traditional advertising media. We cannot assure you
that the market for internet advertising will continue to emerge or become
sustainable. If the market for internet advertising fails to develop or
develops more slowly than we expect, then our ability to generate advertising
revenue would be materially adversely affected.
Various pricing models are used to sell advertising on the internet.
It is difficult to predict which, if any, will emerge as the industry standard,
thereby making it difficult to project our future advertising rates and
revenues. Our advertising revenues could be adversely affected if we are unable
to adapt to new forms of internet advertising. Moreover, "filter" software
programs are available that limit or prevent advertising from being delivered
to an Internet user's computer. Widespread adoption of this software could
adversely affect the commercial viability of Internet advertising.
In order to execute our growth plan we must attract, retain and
motivate highly skilled employees, and we face significant competition from
other Internet and new media companies in doing so.
In addition, as our market develops, seasonal and cyclical patterns
may emerge. These patterns may affect our revenues. We cannot yet predict to
what extent our operations will prove to be seasonal.
WE DEPEND ON THIRD-PARTY RELATIONSHIPS, MANY OF WHICH ARE SHORT-TERM
OR TERMINABLE, TO GENERATE ADVERTISING AND PROVIDE US WITH CONTENT.
We will depend, on a number of third-party relationships to increase
traffic on eMD.com and thereby generate advertising and other revenues. Outside
parties on which we depend include unrelated website operators that provide
links to eMD.com, providers of healthcare content and the on-line property
representation company which provides us with advertising sales services. Many
of our arrangements with third-party internet sites and other third-party
service providers are not exclusive and are short-term or may be terminated at
the convenience of either party. We cannot assure you that third parties regard
our relationship with them as important to their own respective businesses and
operations. They may reassess their commitment to us at any time in the future
and may develop their own competitive services or products.
We intend to produce only a portion of the healthcare content that
will be found on the eMD.com network. We will rely on third-party organizations
that have the appropriate expertise, technical capability, name recognition,
reputation for integrity, and willingness to syndicate product content for
branding and distribution by others. As health-related content grows on the
Internet, we believe that there will be increasing competition for the best
product suppliers, which may result in a competitor acquiring a key supplier on
an exclusive basis, or in significantly higher content prices. Such an outcome
could make the eMD.com network less attractive or useful for an end user which
could reduce our advertising and e-commerce revenues.
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We cannot assure you that we will be able to maintain relationships
with third parties that supply us with content, software or related products or
services that are crucial to our success, or that such content, software,
products or services will be able to sustain any third-party claims or rights
against their use. Also, we cannot assure you that the content, software,
products or services of those companies that provide access or links to our
website will achieve market acceptance or commercial success. Accordingly, we
cannot assure you that our existing relationships will result in sustained
business partnerships, successful product or service offerings or the
generation of significant revenues for us.
WE HAVE RECENTLY EXPERIENCED AND ARE CURRENTLY EXPERIENCING RAPID
GROWTH IN OUR BUSINESS, AND OUR INABILITY TO MANAGE THIS GROWTH COULD HARM OUR
BUSINESS.
We have experienced and are currently experiencing a period of
significant growth. This growth has placed, and the future growth we anticipate
in our operations will continue to place, a significant strain on our
resources. As part of this growth, we will have to implement new operational
and financial systems and procedures and controls, expand, train and manage our
employee base, and maintain close coordination among our technical, accounting,
finance, marketing, sales and editorial staffs. If we are unable to manage our
growth effectively, our business, results of operations and financial condition
could be adversely affected.
Several members of our senior management joined us 1999, including
Sharon Allred, Senior Vice President and Timothy S. Heyerdahl, Chief Financial
Officer. These individuals are currently becoming integrated with the other
members of our management team. We cannot assure you that our management team
will be able to work together effectively or successfully manage our growth. We
believe that the successful integration of our management team is critical to
our ability to effectively manage our operations and support our anticipated
future growth.
ANY FUTURE ACQUISITIONS WE MAKE OF COMPANIES OR TECHNOLOGIES MAY
RESULT IN DISRUPTIONS TO OUR BUSINESS AND/OR THE DISTRACTION OF OUR MANAGEMENT,
DUE TO DIFFICULTIES IN ASSIMILATING ACQUIRED PERSONNEL AND OPERATIONS.
We may acquire or make investments in complementary businesses,
technologies, services or products if appropriate opportunities arise. From
time to time we engage in discussions and negotiations with companies regarding
our acquiring or investing in such companies' businesses, products, services or
technologies, and we regularly engage in such discussions and negotiations in
the ordinary course of our business. Some of those discussions contemplate the
other party making an investment in Bioshield. However, no assurance can be
given in this regard. We cannot assure you that we will be able to identify
future suitable acquisition or investment candidates, or if we do identify
suitable candidates, that we will be able to make such acquisitions or
investments on commercially acceptable terms or at all. If we acquire or invest
in another company, we could have difficulty in assimilating that company's
personnel, operations, technology and software. In addition, the key personnel
of the acquired company may decide not to work for us. If we make other types
of acquisitions, we could have difficulty in integrating the acquired products,
services or technologies into our operations. These difficulties could disrupt
our ongoing business, distract our management and employees, increase our
expenses and adversely affect our results of operations. Furthermore, we may
incur indebtedness or issue equity securities to pay for any future
acquisitions. The issuance of equity securities would be dilutive to our
existing stockholders. As of the date of this prospectus, we have no agreement
to enter into any material investment or acquisition transaction.
IF OUR ABILITY TO EXPAND OUR NETWORK INFRASTRUCTURE IS CONSTRAINED IN
ANY WAY WE COULD LOSE CUSTOMERS AND SUFFER DAMAGE TO OUR OPERATING RESULTS.
Presently, our website is not yet operational. We must continue to
expand and adapt our network infrastructure to accommodate additional users,
increase transaction volumes and changing consumer and customer requirements.
We may not be able to accurately project the rate or timing of increases, if
any, in the use of our website or to expand and upgrade our systems and
infrastructure to accommodate such increases. Our systems may not accommodate
increased use while maintaining acceptable overall performance. Service lapses
could cause our users to instead use the on-line services of our competitors.
WE MAY HAVE LIABILITY FOR INFORMATION WE PROVIDE ON OUR WEBSITE OR
WHICH IS ACCESSED FROM OUR WEBSITE.
Because users of our website access health content and services
relating to a condition they may have or may distribute our content to others,
third parties may sue us for defamation, negligence, copyright or trademark
infringement, personal injury or other matters. We could also become liable if
confidential information is disclosed inappropriately. These types of claims
have been brought, sometimes successfully, against on-line services in the
past. Others could also sue us for the content and services that are accessible
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from our website through links to other websites or through content and
materials that may be posted by our users in chat rooms or bulletin boards.
While our agreements, including those with content providers, in some cases
provide that we will be indemnified against such liabilities, such
indemnification, if available, may not be adequate. Our insurance may not
adequately protect us against these types of claims. Further, our business is
based on establishing the eMD.com network as a trustworthy and dependable
provider of healthcare information and services. Allegations of impropriety,
even if unfounded, could therefore have a material adverse effect on our
reputation and our business.
ANY FAILURE OR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS
COULD ADVERSELY AFFECT OUR ABILITY TO ESTABLISH OUR BRAND.
Our intellectual property is important to our business. We rely on a
combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions to protect our intellectual property.
Federal registrations are pending for eMD.com as well as other service and
trademarks. If we lose our right to use the eMD.com name, we would be forced to
change our corporate name and adopt a new domain name. These changes could
confuse current and potential customers and would adversely impact our
business. We also rely on a variety of technologies that are licensed from
third parties, including our database and internet server software, which is
used in the eMD.com website to perform key functions. These third-party
licenses may not be available to us on commercially reasonable terms in the
future.
YEAR 2000 PROBLEMS MAY DISRUPT OUR OPERATIONS WHICH COULD RESULT IN
LOST REVENUES AND INCREASED OPERATING COSTS.
Because our business depends on computer software, we have begun to
assess the Year 2000 readiness of our systems. We are also in the process of
contacting certain third-party vendors, licensors and providers of hardware,
software and services regarding their Year 2000 readiness. Following our Year
2000 assessment and after contacting these third parties, we will be able to
make a final evaluation of potential risks and costs. Third-party software,
hardware or services incorporated into our systems may need to be revised or
replaced, which could be time consuming and expensive, potentially resulting in
lost revenues and increased costs for us. For a preliminary evaluation of the
potential impact of these Year 2000-related issues on us, please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Impact of the Year 2000."
OUR BUSINESS MAY FACE ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY
KNOWN TO US WHICH COULD CAUSE OUR BUSINESS TO SUFFER.
In addition to the risks specifically identified in this Risk Factors
section or elsewhere in this prospectus, we may face additional risks and
uncertainties not presently known to us or that we currently deem immaterial
which ultimately impair our business, results of operations and financial
condition.
RISKS RELATED TO OUR INDUSTRY
CONSUMERS AND THE HEALTHCARE INDUSTRY MUST ACCEPT THE INTERNET AS A
SOURCE OF HEALTHCARE CONTENT AND SERVICES FOR OUR BUSINESS MODEL TO BE
SUCCESSFUL.
To be successful, we must attract to our network a significant number
of consumers as well as other participants in the healthcare industry. To date,
consumers have generally looked to healthcare professionals as their principal
source for health and wellness information. Our business model assumes that
both physicians and consumers will use healthcare information and purchase
goods and services, including prescriptions drugs available on our network,
that consumers will access important healthcare needs through electronic
commerce using our website, and that local healthcare organizations will
affiliate with us. This business model is not yet proven, and if we are unable
to successfully implement our business model, our business will be materially
adversely affected.
THE INTERNET INDUSTRY IS HIGHLY COMPETITIVE AND CHANGING RAPIDLY, AND
WE MAY NOT HAVE THE RESOURCES TO COMPETE ADEQUATELY.
The number of internet websites offering users healthcare content,
products and services is vast and increasing at a rapid rate. These companies
compete with us for users, advertisers, e-commerce transactions and other
sources of on-line revenue. In addition, traditional media and healthcare
providers compete for consumers' attention both through traditional means as
well as through new
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Internet initiatives. We believe that competition for healthcare consumers will
continue to increase as the Internet develops as a communication and commercial
medium.
We compete directly for users, advertisers, e-commerce merchants,
syndication partners and other affiliates with numerous internet and
non-Internet businesses, including:
- health-related on-line services or websites targeted at
consumers, such as accesshealth.com, ahn.com,
betterhealth.com, drkoop.com, drweil.com, healthcentral.com,
healthgate.com, intelihealth.com, mayohealth.org;
mediconsult.com, onhealth.com, thriveonline.com and
webmd.com;
- on-line and Internet portal companies, such as America
Online, Inc.; Microsoft Network; Yahoo! Inc.; Excite, Inc.;
Lycos Corporation and Infoseek Corporation;
- electronic merchants and conventional retailers that provide
healthcare goods and services competitive to those available
from links on our website;
- hospitals, HMOs, managed care organizations, insurance
companies and other healthcare providers and payors which
offer healthcare information through the internet; and
- other consumer affinity groups, such as the American
Association of Retired Persons, SeniorNet and ThirdAge Media,
Inc. which offer healthcare-related content to specific
demographic groups.
Many of these potential competitors are likely to enjoy substantial
competitive advantages compared to Bioshield, including:
- the ability to offer a wider array of on-line products and
services;
- larger production and technical staffs;
- greater name recognition and larger marketing budgets and
resources;
- larger customer and user bases; and
- substantially greater financial, technical and other
resources.
To be competitive, we must respond promptly and effectively to the
challenges of technological change, evolving standards and our competitors'
innovations by continuing to enhance our products and services, as well as our
sales and marketing channels. Increased competition could result in a loss of
our market share or a reduction in our prices or margins. Competition is likely
to increase significantly as new companies enter the market and current
competitors expand their services.
OUR BUSINESS IS SUBJECT TO GOVERNMENT REGULATION RELATING TO THE
INTERNET WHICH COULD IMPAIR OUR OPERATIONS.
Because of the increasing use of the Internet as a communication and
commercial medium, the government has adopted and may adopt additional laws and
regulations with respect to the internet covering such areas as user privacy,
pricing, content, taxation, copyright protection, distribution and
characteristics and quality of production and services.
Since we operate a healthcare network over the internet, our business
is subject to government regulation specifically relating to medical devices,
the practice of medicine and pharmacology, healthcare regulation, insurance and
other matters unique to the healthcare area.
Laws and regulations have been or may be adopted with respect to the
provision of healthcare-related products and services on-line, covering areas
such as:
- the regulation of medical devices;
- the practice of medicine and pharmacology and the sale of
controlled products such as pharmaceuticals on-line;
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- the regulation of government and third-party cost
reimbursement; and
- the regulation of insurance sales.
FDA REGULATION OF MEDICAL DEVICES. Some computer applications and
software are considered medical devices and are subject to regulation by the
United States Food and Drug Administration. We do not believe that our current
applications or services will be regulated by the FDA; however, our
applications and services may become subject to FDA regulation. Additionally,
we may expand our application and service offerings into areas that subject us
to FDA regulation. We have no experience in complying with FDA regulations. We
believe that complying with FDA regulations would be time consuming, burdensome
and expensive and could delay or prevent our introduction of new applications
or services.
REGULATION OF THE PRACTICE OF MEDICINE AND PHARMACOLOGY. The practice
of medicine and pharmacology requires licensing under applicable state law. We
have endeavored to structure our website and affiliate relationships to avoid
violation of state licensing requirements, but a state regulatory authority may
at some point allege that some portion of our business violates these statutes.
Any such allegation could result in a material adverse effect on our business.
Further, any liability based on a determination that we engaged in the practice
of medicine without a license may be excluded from coverage under the terms of
our current general liability insurance policy.
FEDERAL AND STATE HEALTHCARE REGULATION. We earn a service fee when
users on our website purchase prescription pharmacy products from certain of
our e-commerce partners. The fee is not based on the value of the sales
transaction. Federal and state "anti-kickback" laws prohibit granting or
receiving referral fees in connection with sales of pharmacy products that are
reimbursable under federal Medicare and Medicaid programs and other
reimbursement programs. Although there is uncertainty regarding the
applicability of these regulations to our e-commerce revenue strategy, we
believe that the service fees we receive from our e-commerce partners are for
the primary purpose of marketing and do not constitute payments that would
violate federal or state "anti-kickback" laws. However, if our program were
deemed to be inconsistent with federal or state law, we could face criminal or
civil penalties. Further, we would be required either not to accept any
transactions which are subject to reimbursement under federal or state
healthcare programs or to restructure our compensation to comply with any
applicable anti-kickback laws or regulations. In addition, similar laws in
several states apply not only to government reimbursement but also to
reimbursement by private insurers. If our activities were deemed to violate any
of these laws or regulations, it could cause a material adverse affect on our
business, results of operations and financial condition.
STATE INSURANCE REGULATION. In addition, we market insurance on-line,
offered by unrelated third parties, and receive referral fees from those
providers in connection with this activity. The use of the Internet in the
marketing of insurance products is a relatively new practice. It is not clear
whether or to what extent state insurance licensing laws apply to our
activities. If we were required to comply with such licensing laws, compliance
could be costly or not possible. This could have a material adverse effect on
our business.
THERE IS NO ESTABLISHED MARKET FOR THE CONSUMER HEALTHCARE E-COMMERCE
TRANSACTIONS WE FACILITATE.
We plan to develop relationships with retailers, manufacturers and
other providers to offer healthcare products and services through direct links
from our website to their website. Such a strategy involves numerous risks and
uncertainties. There is no established business model for the sale of
healthcare products or services over the Internet. Accordingly, we have limited
experience in the sale of products and services on-line and the development of
relationships with retailers, manufacturers or other providers of such products
and services, and we cannot predict the rate at which consumers will elect to
engage in this form of commerce or the compensation that we will receive for
enabling these transactions.
Consumers may sue us if any of the products or services that are sold
through our website are defective, fail to perform properly or injure the user,
even if such goods and services are provided by unrelated third parties. Some
of our agreements with manufacturers, retailers and other providers contain
provisions intended to limit our exposure to liability claims. These
limitations may not however prevent all potential claims, and our insurance may
not adequately protect us from these types of claims. Liability claims could
require us to spend significant time and money in litigation or to pay
significant damages. As a result, any such claims, whether or not successful,
could seriously damage our reputation and our business.
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INTERNET CAPACITY CONSTRAINTS MAY IMPAIR THE ABILITY OF CONSUMERS TO
ACCESS OUR WEBSITE, WHICH COULD HINDER OUR ABILITY TO GENERATE ADVERTISING
REVENUE.
Our success will depend, in large part, upon a robust communications
industry and infrastructure for providing Internet access and carrying internet
traffic. The Internet may not prove to be a viable commercial medium because
of:
- inadequate development of the necessary infrastructure such
as a reliable network backbone;
- lack of timely development of complementary products such as
high speed modems;
- delays in the development or adoption of new standards and
protocols required to handle increased levels of Internet
activity; or
- increased government regulation.
If the internet continues to experience significant growth in the
number of users and the level of use, then the internet infrastructure may not
be able to continue to support the demands placed on it.
OUR BUSINESS IS DEPENDENT ON THE CONTINUOUS, RELIABLE AND SECURE
OPERATION OF OUR WEBSITE AND RELATED TOOLS AND FUNCTIONS WE PROVIDE.
We rely on the internet and, accordingly, depend upon the continuous,
reliable and secure operation of internet servers and related hardware and
software. Recently, several large Internet commerce companies have suffered
highly publicized system failures which resulted in adverse reactions to their
stock prices, significant negative publicity and, in certain instances,
litigation. We have also suffered service outages from time to time, although
to date none of these interruptions has materially adversely effected our
business operations or financial condition. To the extent that our service is
interrupted, our users will be inconvenienced, our commercial customers will
suffer from a loss in advertising or transaction delivery and our reputation
may be diminished. Some of these outcomes could directly result in a reduction
in our stock price, significant negative publicity and litigation. Our computer
and communications hardware are protected through physical and software
safeguards. However, they are still vulnerable to fire, storm, flood, power
loss, telecommunications failures, physical or software break-ins and similar
events. We do not have full redundancy for all of our computer and
telecommunications facilities and do not maintain a back-up data facility. Our
business interruption insurance may be inadequate to protect us in the event of
a catastrophe. We also depend upon third parties to provide potential users
with web browsers and Internet and on-line services necessary for access to our
website. In the past, our users have occasionally experienced difficulties with
Internet and other on-line services due to system failures, including failures
unrelated to our systems. Any sustained disruption in Internet access provided
by third parties could adversely impact our business.
We retain confidential customer information in our database.
Therefore, it is critical that our facilities and infrastructure remain secure
and are perceived by consumers to be secure. Despite the implementation of
security measures, our infrastructure may be vulnerable to physical break-ins,
computer viruses, programming errors or similar disruptive problems. A material
security breach could damage our reputation or result in liability to us.
RISKS RELATED TO PRIVATE EQUITY OFFERING
In June 1999, we entered into a private equity credit agreement, under
which we can require a private investor to purchase up to $10,000,000 of our
common stock at a 20% discount to the average market price of our common stock.
There are conditions to any drawdown under the private equity credit agreement,
including that a registration statement covering the resale of the shares sold
to the investor be effective with the Securities and Exchange Commission. We
have filed a registration statement covering 2,500,000 shares of common stock
issuable pursuant to the private equity credit agreement, and that registration
statement is now effective. While our business plans rely in part upon the
receipt of the $10,000,000 in financing provided for under the private equity
credit agreement, there are certain circumstances under which we may not receive
all or any part of that financing, including the following:
- if we do not maintain the effectiveness of the registration
statement with the Securities and Exchange Commission, or any
of the other conditions to drawdown contained in the private
equity credit agreement are not satisfied or waived, we will
be unable to cause the investor to purchase any of the shares
under the private equity credit agreement;
- if the average market price of our shares is less than $5.00
per share at the time of drawdown under the private equity
credit agreement, the sale to the investor of all of the
2,500,000 shares we have including in the registration
statement would result in gross proceeds to us of less than
$10,000,000, unless we determine to file an additional
registration statement and have it declared effective;
- under the rules of the NASDAQ Stock Market Inc., we cannot
issue more than 1,263,831 shares under the private equity
credit agreement, unless we secure shareholder approval of the
issuance of the shares. Accordingly, if we do not secure
shareholder approval, and the average market price of our
shares is less than approximately $9.9375 per share at the
time of drawdown under the private equity credit agreement, we
will receive gross proceeds of less than $10,000,000; and
- the obligations of the private investor under the private
equity credit agreement are not secured or guaranteed, and if
the investor does not have available funds or otherwise refuse
to honor its obligations to us, we may not be able to force it
to do so.
Further, if we are successful in selling shares under the private
equity credit agreement, the existing shareholders of Bioshield may experience
significant dilution.
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As the market price for our common stock decreases, the number of shares which
may be sold to the investor will increase. If we were to require the investor
to purchase our shares at a time when our stock price is depressed, our existing
shareholders' interest in our company will be significantly reduced.
The resale by the investor of the common stock that it purchases from
us will increase the number of our publicly traded shares, which could lower the
market price of our common stock. Further, the shares that we sell to the
investor will be available for immediate resale, and the mere prospect of this
transaction also could lower the market price for our common stock.
USE OF PROCEEDS
We will not receive any proceeds from the resale of our common stock
issuable pursuant to the conversion of our Series A preferred stock. If
all or any part of the warrants issued to CLR Associates, Inc. or White Capital
Group, Ltd. are exercised, we will receive proceeds equal to the number of
warrants exercised multiplied by the applicable exercise price. Those funds will
be used for the funding of operating losses and for general corporate purposes
of both Bioshield and eMD.com, including expansion of our eMD.com network,
advertising, brand promotion, content development and working capital.
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DIVIDEND POLICY
We do not anticipate paying dividends on the common stock at any time
in the foreseeable future. The board of directors plans to retain earnings for
the development and expansion of our business. The board of directors also
plans to regularly review our dividend policy. Any future determination as to
the payment of dividends will be at the discretion of the board of directors
and will depend on a number of factors, including future earnings, capital
requirements, financial condition and such other factors the board of directors
deems relevant.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL INFORMATION
BioShield was initially organized in Georgia in June 1995 to research,
develop, and implement the use of our antimicrobial and biostatic products into
multiple industries. In April 1999, we created a new subsidiary, eMD.com to
provide medical managed care solutions to physicians and consumers over the
Internet. This business unit will seek to integrate three product offerings for
providers (point of care medication management, electronic charting system, and
pharmaceutical care services) with a comprehensive healthcare web site. Our web
site and business unit is currently under development, and operations commenced
during the end of the fourth calendar quarter of 1999. We are a development
stage company engaged primarily in research and development, patent filings,
regulatory approvals and related activities geared towards the sale of products
using its core anti-viral chemical agent in multiple business divisions.
Revenues generated from operations to date have primarily been limited
to test marketing of our antimicrobial products in all division areas.
In April, 1999, we successfully processed the initial shipments of our
new OdorFree(TM) product line. This brand will compete in the multi-million
dollar odor elimination packaged goods category. The initial rollout was
limited to the Texas marketplace with shipments made to H. E. Butt Grocery,
Grocers Supply, Albertsons, Kroger and Randalls Food & Drugs during the fourth
quarter. The initial shipment of our private label odor elimination product was
also shipped during the quarter to Ingle's Markets.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Comparison of quarter ended September 30, 1999 to September 30, 1998
Net sales for the three month period ended September 30, 1999
were $144,445, an increase of $56,591, or 64% over the same period last year.
The increase was due primarily to the expanded marketing of the OdorFree
product line in the retail markets.
Gross profit of $53,957 for the quarter ended September 30,
1999 represents 37% of net sales as compared to $54,118, or 62% of net sales,
for the quarter ended September 30, 1998. This decrease was due primarily to
the shift in product mix weighted more toward the retail market, which has a
lower profit margin than the industrial and institutional market.
Marketing and selling expenses were $805,467 for the quarter
ended September 30, 1999, an increase of $691,088 from $114,379 incurred during
the quarter ended September 30, 1998. This increase relates principally to the
rollout of the OdorFree product line. The increase consists of approximately
$400,000 in advertising and promotion activities, as well as $50,000 in
slotting fees for the OdorFree product line. Other cost increases consisted of
investments made in additional staff and the inception of branding promotions
for eMD.com.
Research and development expenses in the quarter ending
September 30, 1999 were $633,984, compared to $37,802 during the quarter ending
September 30, 1998. This represents an increase of $596,182 and was due
primarily to additional staff and costs associated with new product development
as well as testing and costs associated with EPA filings and registrations of
current products.
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General and administrative expenses for the quarter ending
September 30, 1999 were $3,023,654, or an increase of $2,763,672 over the same
period ending September 30, 1998. These higher costs were primarily due to (1)
an increase in staff and expenses of approximately $651,000 associated with
building Bioshield's infrastructure, (2) the start-up and organization costs of
approximately 340,000 directly related the web site development of eMD.com and
(3) expenses in the amount of $1,772,400 recorded pursuant to FAS 123 related
to the issuance of common shares of eMD stock to iXL for professional services
rendered and stock warrants in BioShield granted to CLR & Associates for
professional services rendered. Please refer to Note E - Commitments and
Contingencies for additional information related to the accounting treatment.
Bioshield's accounting policy for capitalization of internally developed
software is conservative, and all associated costs related to internal website
development have been expensed in the period incurred.
Interest dividend and income during the quarter ended
September 30, 1999 was $61,971 as compared to $818 in the quarter ended
September 30, 1998. The increase was due to larger invested cash balances as a
result of the proceeds from private equity placements in the eMD.com
subsidiary.
Interest expense of $16,335 in the quarter ended September
30, 1998 represented interest paid to private note holders who loaned Bioshield
an aggregate of $450,000. All such monies were repaid from the proceeds of the
initial public offering during the second quarter of 1999. There were no
borrowings, or interest expense incurred for the quarter ending September 30,
1999.
As a result of the reasons set forth above, Bioshield's
operations generated a net loss of $4,347,177 or ($ 0.69) per common share for
the quarter ending September 30, 1999 compared to a net loss of $373,562 or ($
0.08) per common share for the quarter ended September 30, 1998. Cumulative
losses from the inception of Bioshield to September 30, 1999 totaled $9,996,997
or ($2.12) per common share.
Comparison of year ended June 30, 1999 to June 30, 1998
Fiscal year 1999 net sales of $305,336 were 34% lower than fiscal year
1998 net sales of $462,471. This decrease was caused primarily by initial
shipments of certain new products to chain store customers during 1998, which
created an initial surge in sales to fill the pipeline in fiscal 1998 and due
to the slow down in certain product sales due to the EPA's interpretation that
the labeling for certain products were outside of prior EPA approvals received.
Bioshield also made initial shipments to certain industrial customers in fiscal
1998. In fiscal 1999, Bioshield reduced its marketing efforts for certain of
the products, which were sold in fiscal 1998 in order to analyze the market
acceptance of these products and to launch new products in test markets.
Bioshield's objective has been to identify the proper product mix at retail
before launching larger advertising programs to boost sales.
Gross profit was $116,423 in fiscal year 1999, or 38% of net sales as
compared to $307,813 for fiscal year 1998, which was 67% of net sales. This
decrease was due primarily to the recall and relabeling of certain products as
required by the EPA and to a shift in product mix weighted more toward the
retail market, which traditionally has a lower profit margin than the
industrial market. Gross profit also declined as a result of inventory
adjustments recorded to write-off obsolete product.
Marketing and selling expenses were $780,566 in fiscal year 1999
compared to $472,945 in fiscal year 1998. This change represents an increase of
$307,621 or 39% over fiscal 1998. The increase reflects the investment made in
additional staff and related expenses to support the retail and private label
sales program as well as an increase in advertising and media production costs
associated with the initial phases of the OdorFree(TM) product line rollout.
General and administrative expenses for fiscal 1999 were $2,067,669; a
95% increase over fiscal 1998 expenses $1,060,417. These higher costs were
primarily due to an increase in staff and expenses associated with building
Bioshield's corporate infrastructure and the start-up and organization costs
directly related to eMD.com Included in eMD.com start-up expenses was
approximately $165,000 related to web site development and $300,000 related to
increased staffing and legal costs of organization.
Research and development expenses in fiscal year 1999 were $717,978
compared to $231,547 in fiscal 1998. The $486,431 increase was due to
additional staff and costs associated with ongoing projects and testing related
to future EPA filings and applications.
Other income (expense) increased from $(14,833) in fiscal 1998 to
$160,174 in fiscal 1999. During fiscal 1999, Bioshield recognized royalty fees
of $75,000 and income from the sale of certain research and development of
$16,667. This income was the
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result of an exclusive sales and distribution agreement with a third party
entered into during 1998.
Interest and dividend income in fiscal 1999 was $102,134. This
represents a $98,590 increase over fiscal 1998 interest income of $3,544. The
increase was due to a larger invested cash balance as a result of proceeds from
the initial public offering completed in September, 1998.
Interest expense was $16,960 in fiscal year 1999 compared to $18,377
in fiscal year 1998. The interest expense relates mainly to interest paid to
private note holders who loaned an aggregate of $450,000 to Bioshield in the
third and fourth quarters of 1998. All such notes were repaid from proceeds of
the initial public offering during the second quarter of fiscal 1999.
As a result of the reasons set forth above, Bioshield's operations
generated a net loss of $3,289,616 or ($ 0.57) per common share for the year
ended June 30, 1999 compared to a net loss of $1,471,929 or ($0.33) for the
year ended June 30, 1998. Bioshield's operations have generated a cumulative
net loss from inception to June 30, 1999 of $5,632,320 or ($1.22) per common
share.
LIQUIDITY
Bioshield's cash and cash equivalents totaled $5,074,266 at
September 30, 1999 and $2,500,561 at June 30, 1999. The higher cash position is
due to the receipt of net proceeds of $5,458,750 from the sale of 1,284,797
common shares of eMD.com at a price of $4.67 per share. The placement is to
fund the initial costs of the eMD.com website and was sold under a securities
purchase agreement eMD.com entered into on June 30, 1999. The agreement
provides for the sale of up to 3,218,884 shares of eMD common stock to
investors at a price of $4.67 per share. At September 30, 1999, there were
29,670,664 issued and outstanding shares of eMD.com. In addition, during the
quarter Bioshield entered into the private equity credit agreement with Jackson
LLC.
Bioshield believes that it has sufficient resources to meet
its short term operating needs. However, Bioshield expects to continue to have
a substantial need to fund operating losses and the purchases of additional
capital equipment for an indefinite period. Accordingly, Bioshield will be
required to obtain additional capital in the very near future. The development
of eMD.com, as well as commercialization of the parent companies products will
require additional capital in order to successfully launch the site and related
business. Bioshield is actively seeking to obtain additional funds through
public or private equity or debt funding, strategic collaborative agreements,
or from other sources. The failure to raise the necessary additional capital in
the very near future will cause substantial delay or reduction of the scope of
business. No assurance can be given that either Bioshield or eMD.com will be
successful in its efforts to obtain additional capital, that capital will be
available on terms acceptable to Bioshield or eMD.com or on terms that will not
significantly dilute the interests of existing shareholders.
FORWARD-LOOKING STATEMENTS
When used in this Prospectus, the words or phrases "will likely
result", "are expected to," "will continue," "is anticipated," "estimate,"
"project," or similar expressions are intended to identify "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties
including changes in economic conditions in Bioshield's market area, changes in
policies by regulatory agencies, fluctuations in interest rates, demand for
loans in Bioshield's market area and competition, that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. Bioshield wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as to
the date made. Bioshield wishes to advise readers that the factors listed above
could affect Bioshield's financial performance and could cause Bioshield's
actual results for future periods to differ materially from any opinions or
statements expressed with respect to future periods in any current statements.
Bioshield does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
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MANAGEMENT CHANGES
During the month of August 1999, two key employees left Bioshield. Dr.
Joachim Berkner, Bioshield's Director of Research and Development, Organic
Chemistry, resigned to take a position with another company. Bioshield is
actively seeking a replacement for Dr. Berkner. Jeffrey A. Parker, Bioshield's
Chief Operating Officer and Vice President of Marketing and Sales, also
resigned and his duties have been distributed to others. Bioshield also reached
an agreement with Mr. Parker which allows him to exercise certain of his
options and also continues his salary and benefits through December 31, 1999.
SUBSEQUENT EVENTS
In addition to its development and marketing of proprietary
antimicrobials, Bioshield is engaged in the sale and distribution of cleaning
and deodorizing products in the retail and industrial segments. These products
are exempt from regulation as "pesticides" under the Federal Insecticide,
Fungicide and Rodenticide Act, as amended ("FIFRA"). Like many other companies
engaged in the sale of these products, Bioshield has experienced regulatory
scrutiny from the United States Environmental Protection Agency ("EPA"), which
implements federal regulations under FIFRA regarding the labeling of these
products. The EPA alleged that certain claims on the labels were inappropriate
for these products in the absence of an EPA pesticide registration and required
Bioshield to revise the labels to remove alleged pesticidal claims. While
Bioshield did not agree with the EPA interpretation that the claims were
pesticidal, Bioshield voluntarily agreed to revise the labels for these
products. The EPA then authorized the sale of the products with the revised
labels. On September 27, 1999, the EPA filed an administrative complaint against
Bioshield seeking the assessment of a civil penalty in the amount of $97,340
relating to these alleged violations as well as an allegation that Bioshield
refused an EPA inspection in 1998. Bioshield maintains that these allegations
are without merit. However, in a demonstration of good faith and cooperation,
Bioshield, while denying the alleged violations, agreed to the payment of a
substantially reduced penalty on October 30, 1999 in the amount of $72,840.
Bioshield had previously accrued for the potential penalty in fiscal 1999.
In the month of October 1999, Bioshield continued to develop its
eMD.com business infrastructure. Significant contractual payment commitments of
approximately $4,000,000 have been made by Bioshield to several equipment,
software and consulting business partners to complete the initial versions of
the internet products by December 1999. Total cash payment commitments of
approximately $3,000,000 are due by the end of December 1999. We are currently
seeking to raise additional capital to meet these commitments and to fund
operational deficits that are anticipated throughout the early operational
stages of the eMD.com strategy. No assurances can be given that we will be
successful in raising additional capital.
RECENTLY ISSUED ACCOUNTING STANDARDS
Recently Adopted Pronouncements
Bioshield adopted Statement of Financial Accounting Standards (SFAS)
No. 130, Reporting Comprehensive Income, for its fiscal year ended June 30,
1999. The statement establishes standards for reporting and presentation of
comprehensive earnings and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. The statement
requires retroactive application for all periods presented in the financial
statements. The adoption of SFAS No. 130 did not have a material effect on
Bioshield's results of operations or its financial position.
Bioshield adopted Statement of Financial Accounting Standards (SFAS)
No. 131, Disclosure About Segments of An Enterprise and Related Information,
for its fiscal year ended June 30, 1999. SFAS No. 131 establishes standards for
the way in which information about operating segments is reported. SFAS No. 131
also establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of SFAS No. 131 did not have
a material effect on Bioshield's results of operations or its financial
position.
During 1999, Bioshield adopted Statement of Positions (SOP) No. 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use, which requires certain costs incurred in connection with
developing or obtaining internal-use software to be capitalized and other costs
to be expensed. During 1999, Bioshield expensed $166,000 related to the
development of internet software.
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Recently Issued Pronouncements
In April 1998, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee (AcSEC) issued Statement of Position
No. SOP 98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5
establishes standards on accounting for start-up and organization costs and, in
general, requires such costs to be expensed as incurred. This standard is
required to be adopted on July 1, 1999.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, which must be adopted by July 1,
1999, with early adoption permitted. SFAS No. 133 requires that all derivative
financial instruments be recorded as either assets or liabilities on the
balance sheet and measure those instruments at their fair value. Changes in the
fair value of derivatives will be recorded each period in earnings or other
comprehensive income, depending on whether a derivative as part of a hedge
transaction and, if it is, the type of hedge transactions.
The adoption of these two pronouncements is not expected to have a
material effect on Bioshield's results of operations or financial position.
BUSINESS
GENERAL
BioShield Technologies, Inc. is a Georgia corporation formed
in 1995, that is a development stage company. We currently operate in two
distinct business segments, antimicrobial and biostatic products for use within
the retail, industrial and institutional markets through BioShield and
pharmaceutical healthcare via the Internet through eMD.com.
BIOSHIELD
Bioshield is engaged in the development, marketing, and sale
of surface modifying antimicrobials and biostatic products sold primarily
through third party licensing arrangements. Our primary focus in this area is
to exploit our 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-inflammation, lubricity and drug delivery
onto many surfaces without changing the dimensions or physical properties of
the modified surfaces. Bioshield 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.
Bioshield believes that certain manufacturers who utilize our technologies are
able to significantly improve the performance of their products and, in many
cases, differentiate their products in a highly competitive marketplace.
Bioshield focuses on providing value added and unique
antimicrobial solutions to variety of industries and product categories.
Examples of products in the market or under development that utilize 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, several 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. Bioshield 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 Bioshield will be
successful in commercializing any such applications or obtaining the required
regulatory approvals.
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Bioshield's objective is to exploit its proprietary technology
patents, technical and marketing property, and future regulatory approval from
the EPA and FDA to become the leader in topical antimicrobial and biocide
products for the consumer, industrial and institutional markets, environmental
services, and medical device markets. Bioshield believes that its antimicrobial
technologies have revolutionary properties that make its products significantly
more durable, effective, and safer than currently available conventional
antimicrobials, non-antibiotics, preservatives or biocides. No objectives can
be given that Bioshield will be successful in meeting its objective.
On April 7, 1999, we created a subsidiary to develop electronic
commerce via the Internet. The subsidiary, currently named Electronic Medical
Distribution, Inc. (emd.com), is in the development stage, which means that its
primary focus has been organizational activities, raising capital, regulatory
approvals, research and development, and further investigation into new markets.
EMD.COM
eMD.com's goal is to provide an Internet-based point of care
medication management service to providers that will allow it to capture the
patient and their prescription during the encounter with the physician. This
provider service will be integrated with our fulfillment services such that the
prescription will be "in the mail" when the patient leaves the provider's
office; requiring no further action by the patient. Additionally, we will
integrate a medical call center service that will seek to manage the patient's
use of their prescription medication. Our solution will be rounded out with a
healthcare Web site that offers health information and services to the patient
and the provider. All the information gathered throughout our solution will be
captured and made generally available to both the provider and the patient.
Our ultimate goal is to be the largest provider of information,
services and products (prescription drugs, OTC medications, nutraceuticals, and
ancillary medical supplies) for consumers with chronic medical conditions and
their providers. We will seek to achieve this goal by building chronic
condition-specific Internet solutions that exceed the needs of target customer
segments. No assurances can be given that we will be successful in implementing
one or more of these products and services.
Initially, our focus will be on allergy, asthma, and upper respiratory
conditions in order to lever BioShield's allergy/respiratory knowledge base and
relationships with leading medical experts in these specialties. We will soon
integrate these individual chronic condition solutions into a comprehensive
health offering that creates scale advantages in systems, infrastructure and
contractual relationships. Underlying our consumer Web site will be a
personalization capability that will allow us to tailor our solution to the
unique needs of each individual.
eMD.com will seek to distinguish itself from other healthcare sites by
simultaneously providing consumers with access to content, community, and
commerce areas that specifically target the needs of people who deal with
chronic medical conditions. Peer reviewed content from reputable sources will
be provided to ensure that a high level of quality content is included on the
site. This content will be consistently maintained and updated to guarantee
that the site is the most current and comprehensive source for
condition-specific information. Community areas will provide consumers with the
ability to interact with other sufferers and experts in the field to learn more
about managing their medical conditions. Through targeted e-commerce offerings,
the site will also provide access to products and services that will seek to
help consumers more effectively cope with their health issues.
eMD.com will seek to generate revenue from several key sources:
- Prescription sales through the point of
care medication management service and the
healthcare Web site
- Sales of OTC, nutraceutical, and ancillary
products and services on the healthcare Web
site
- Advertising and sponsorships on the
healthcare Web site
- Data mining
- Subscriptions from the online doctor
service (to be offered free initially and
as a subscription service later)
The bulk of revenues will be driven by sales of pharmaceutical products through
the point of care medication management service. Thus, our efforts will focus
heavily on recruiting physicians into this network to drive revenues and
profitability. No assurances can be given that we will be successful in these
efforts. eMD also expects to generate revenue from the
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healthcare Web site and will focus on promoting the site heavily to increase
awareness, drive traffic, enroll subscribers, and increase sales.
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 antimicrostatic 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. More
than 70 million workers might suffer from health problems caused by faulty
buildings. Bioshield believes that there has been a significant increase in
demand for environmental services.
ADVANTAGES
Bioshield 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.
Bioshield'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.
Bioshield 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, Bioshield's key active ingredient has, to date, not been shown to
cause genetic mutation or to be teratogenic (causing physical defects in
developing embryos). Bioshield has filed certain applications for patents with
the United States Patent and Trademark Office with respect to its proprietary
technology. To date, it has had one patent issued. Specifically, Bioshield 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. Bioshield intends to continue to pursue
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.
Bioshield's technology provides 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 Bioshield'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.
Bioshield's technology can potentially be used to provide
manufacturers with the following surface properties.
Non-Mutation. Bioshield's 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 Bioshield'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 everyday cleaning is to remove visible soil
and invisible organisms from surfaces. Beginning shortly after the disinfection
and sanitation step, new bacteria and other microorganisms can reinfect most
surfaces. Bioshield'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 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. Bioshield'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.
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VERSATILITY
Bioshield's surface conversion technology is an integrated
technology. It combines the chemistry and action of several individual
molecules into one application system. Bioshield's integrated technology can be
modified, providing a versatility to design new coatings with a variety of
properties based on the original technology.
Bioshield's long-term viability, profitability and growth
will depend upon successful commercialization of the products resulting from
its research and product development activities. Bioshield will attempt to gain
market share by forming alliances with strong marketing partners. Bioshield'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 use BioShield technology include surface-borne and air-borne
products which remove or eliminate certain allergens which may cause
respiratory discomfort or asthma, a number of 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, artificial synthetic skins, cardiology and urinary catheters, and
control of food-borne contaminates. However, no assurances can be given that
Bioshield will be successful in commercializing any such applications or
obtaining the required regulatory approvals.
Bioshield'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
Bioshield's retail antimicrobial products is generally not needed for up to six
months to a year in some instances. Certain products provide protection to a
wide variety of disposable products as the treated surface continues to kill
microorganisms for the life of the product.
REVENUE MODEL
OVERVIEW
Bioshield'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 for the lifetime of the
treated article. The original system has found many applications over the
years, and extensive data has 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.
Bioshield'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.
Bioshield has filed four patents pertaining to the
stabilization of the silane integrated system in different systems, including
water. Based on the water-stabilized, integrated antimicrobial silane system,
Bioshield has developed numerous end-use products, and more products are under
development. On September 21, 1999, we were granted our first patent - number
5,954,869 - for water-stable organosilane compounds, products, and compositions
for treating various substrates, articles treated with the compounds, products,
and compositions, and methods of treatment using the compounds, products, and
compositions.
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 that is 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
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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 Bioshield
will be successful in commercializing any such applications or obtaining the
required regulatory approvals.
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 Bioshield for commercialization. However,
no assurances can be given that Bioshield will obtain the required regulatory
approvals or will be successful in bringing any of these products to market.
In summary, Bioshield 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 FOR BIOSHIELD
There are numerous product, process and service uses for
Bioshield'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.
Bioshield intends to initially concentrate its efforts
towards the marketing and sale of products for the retail consumer and
industrial markets.
Bioshield 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 Bioshield in
the retail consumer market and institutional and industrial marketplaces as
described below.
MARKETING AND SALES FOR EMD.COM
The eMD.com sales organization will be focused on recruiting
physicians into the eMD.com network. Sales will also focus on strategic
alliances and business partner relationships that create additional content and
revenue value.
The sales organization will initially consist of four major functions:
- Field Support - responsible for
implementation, training, and
maintaining the point of care
medication management services for
eMD.com network physicians.
- Inside Sales - responsible for
making outbound calls to
physicians.
- Outside Sales - responsible for
making sales calls to physicians.
- Special Unit - responsible for
handling specialized sales tasks
on an ad-hoc basis and for working
to identify and recruit potential
strategic alliances and business
partners interested in increasing
revenue and content to the point
of care medication management
service.
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PRODUCT MARKET SEGMENTS FOR EMD.COM
PATIENT CHARTING
As a natural extension of the development of the prescription
drug record and of the eMD.com-provider relationship, we have an opportunity to
migrate into offering a limited web-based patient charting capability for
physicians. By focusing initially on provider types and prescription
information, eMD.com hopes in the future to be able to design a path to a
complete chart that adds value from day one. We currently anticipate that
patient charting will be available in 2000.
As an integral part of this service, eMD.com will seek to
provide a mechanism for physicians to chart the patient encounter and capture
related medical information electronically. Drug information will automatically
be entered into the system when drugs are prescribed using the eMD.com point of
care medication management service. In addition, with a web based architecture
we will seek to store the chart at the eMD.com Data Center. Certain electronic
based information can be included in the eMD.com medical records for both the
patient and their physicians subject to applicable law.
Recognizing the patient and provider concerns regarding
confidentiality, the system designed or selected will seek to incorporate
encryption and security to ensure confidential operations and will seek to
adhere to HIPPA guidelines.
PHARMACEUTICAL CARE SERVICES
eMD.com will offer pharmaceutical care services for the
patient's of providers and insurance companies choosing to utilize this
service. Initially, the pharmaceutical care services will be focused on
prescription medications, we currently anticipate that usage, side effects,
reactions, etc.
Typically, providers of pharmaceutical care services will
need to demonstrate a track record of improved outcomes to obtain reimbursement
from a payor. Based on the performance of other medical call centers, it will
take a minimum of at least 12 months or more before a successful track record
can be demonstrated and reimbursement can be obtained. The exact timing of this
reimbursement approval process cannot be predicted.
CONDITION-SPECIFIC CONSUMER WEB SITE
eMD.com is developing an Internet solution for consumers
suffering from specific disease conditions or caregivers wanting information to
better care for those sufferers. Our Web site will have "sub Web sites" that
provide a consumer with a specific condition with disease specific information.
We will start with "sub Web sites" focused on allergy, asthma, upper
respiratory conditions. We will continue to develop new sub Web sites dedicated
to the needs of target consumer segments as physician acceptance of our
solution grows. We anticipate adding at least one "sub Web site" periodically,
focusing on conditions requiring expensive chronic medications, involving large
populations, and not covered well by other sites.
Each sub Web site will seek to provide high quality
information, a community of like interests and needs, an online store for
purchasing products and services specifically relevant to the condition, and a
record of purchasing patterns (password protected). Products are expected to
include prescription drugs, OTC medications, nutraceuticals, and home/life
support products and devices (i.e., disinfectants, allergy pillows, etc.). We
believe that this approach will differentiate eMD.com by providing more depth
than other online sites and creating a holistic solution for consumers wanting
to focus on a specific disease condition. In addition, we believe that our
solution will use strong personalization capabilities and deep healthcare
knowledge to tailor each sub Web site to meet the complete healthcare needs of
the individual consumer.
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POINT OF CARE MEDICATION MANAGEMENT
We believe that our Internet-based point of care medication management
service, provided free of charge, will enhance the prescribing process by
- eliminating handwritten
prescriptions,
- performing real-time drug
interaction and allergy reviews to
confirm the patient can more
safely take the medication
prescribed, and
- validating the medication approved
for reimbursement by the patient's
insurance plan.
The database underlying this system will seek to capture and
retain the prescribing history for each patient, and when our fulfillment
services are used, will maintain a compliance record for each therapy
prescribed. The ready access to information during the prescribing process
reduces the time physicians spend clarifying and changing prescriptions and
enables them to better manage financial risk. The follow up on refill patterns
is anticipated to improve the patient's ability to be compliant and will allow
the provider greater information to understand and influence their compliance.
We believe that the point of care medication management
solution also has the potential to provide the physician's patient with a new
level of convenience. If desired by the patient, the system will link with the
eMD.com fulfillment center to direct ship the patient's medication to their
home. A three-day supply of medication may be provided from the physician's
office until their mail order medication arrives. Insurance interfacing will be
done through the eMD.com point of care medication management system, including
patient eligibility verification and product formulary match.
We believe that these features of the point of care
medication management service may create significant benefit for patients who
receive medication at the physician's office and who wish to receive the
balance of their medication with no further action on their part. Refills can
automatically be provided as their prescription is used or the patient can
place a refill request through the consumer Web site. The system will also be
able to print or email a prescription for the patient to deliver to a pharmacy
of their choice subject to applicable law.
PRODUCTS MARKET SEGMENT FOR BIOSHIELD
Retail-Household Care Market. Bioshield believes that its
largest near-term opportunities for revenue generation exist in the mass-market
retail outlets including supermarkets mass merchandisers, drug outlets, home
improvement centers, and selected chain specialty retailers. Household cleaners
and odor eliminator products represent a retail market value in supermarkets
alone of over $l.5 billion per year.
To capitalize on this opportunity, Bioshield is aggressively
seeking to acquire additional retail product lines with the mass food and drug
categories and is also developing a network of manufacturers' representative
firms to assist in the marketing of its own retail products as well as all
brand additions acquired from future acquisition of existing consumer brands.
Bioshield has made no such acquisition to date.
Bioshield is also currently marketing its unique odor
eliminator products primarily under the OdorFree(TM) brand in most outlets and
under the DuraLast(TM) brand within selected channels and outlets. New consumer
products are being developed for use in virtually all mass-market channels and
outlets.
In April 1999, Bioshield began shipping its OdorFree(TM)
product, an odor eliminator and fabric refresher, into its initial test markets
within Texas. OdorFree(TM) products are now available in all major Supermarket
customers in Texas, Oklahoma and Louisiana. In addition, OdorFree(TM) products
are available in Kmart Stores in most of Texas.
Bioshield is aggressively pursuing the opportunity to provide
a private label fabric refresher to selected retailer customers. Private label
fabric refresher produced by Bioshield is currently available in over 1000
outlets operated by two customers, Ingle's Supermarkets and the A&P Company.
Product testing and introductory discussions are currently underway with a
number of other North American food retailers.
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Bioshield will initially be required to expend a significant
percentage of revenues from these retail outlets towards slotting fees and
trade promotions. The creative plan that is now being executed features a
digitally animated television commercial message supporting the OdorFree(TM)
product. The advertising plan incorporates both cable and local spot television
as well as in-store trade promotion to give the product added value.
Bioshield has entered into an agreement with Fritz-Firestone
Advertising Agency in Atlanta, Georgia, to support all creative activities
required for the introduction of the OdorFree(TM) product, including creative
development, graphic design, and media solution and buying.
INDUSTRIAL AND INSTITUTIONAL MARKETS
Bioshield 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. Bioshield does not anticipate generating significant revenues until
EPA approval has been obtained for these products.
The following products have been developed for sale to the
industrial and institutional markets but have not received regulatory approval
(see "Government Regulation"). No assurances can be given that EPA approvals
will be obtained and in what time frame.
BioShield AM500
- molecular bonding additive for
formulating institutional and
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
- 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
- higher strength than BioShield
AM500
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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 products
TECHNOLOGY LICENSING ACTIVITIES
Bioshield will seek private label agreements with certain
manufacturers in the janitorial and sanitary supply industry.
Initial discussions have occurred 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 and future EPA
registration.
THE ENVIRONMENTAL SERVICES MARKET
The environmental services market describes the treatment of
materials in-place. Bioshield will seek to exploit opportunities in the
after-care 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
Bioshield 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. Bioshield 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 Bioshield will be successful in commercializing any of these
products or will receive EPA or other required regulatory approvals.
The Indoor Environmental Quality market includes all enclosed space
that is occupied by people, animals, plants, and valuable and perishable items.
Microbial problems within these structures are the prime focus of Bioshield in
this segment of the antimicrobials marketplace. Within the large array of
indoor pollutants and mitigating factors, 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.
MANUFACTURING
Bioshield currently uses a contractor to manufacture its
products. Should sales warrant increased production, Bioshield may enter into
additional manufacturing relationships or, perhaps, develop its own
manufacturing facility. No decision in this regard has been made as yet.
COMPETITION
ANTIMICROBIAL INDUSTRY. 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 U.S. 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.
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Bioshield believes that its ability to compete in the
antimicrobial industry will be dependent in large part upon its ability to
continually enhance and improve its products and technologies and to build a
trade name presence that obviates the nature of the technologies. In order to
do so, Bioshield 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.
Bioshield's ability to compete is based primarily upon
scientific and technological superiority, technical support, availability of
patent protection, access to adequate capital, the ability to develop, acquire
and market products sand processes successfully, the ability to obtain further
governmental approvals and the ability to serve the particular needs of
commercial customers with service, products, and trade names. Corporations and
institutions with greater resources than Bioshield may, therefore, have a
significant competitive advantage. Bioshield'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 Bioshield.
Bioshield's competitors may succeed in developing products or processes that
are more effective or less costly than any that may be developed by Bioshield
or that gain regulatory approval prior to Bioshield's products. Bioshield 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 Bioshield in manufacturing, marketing
and distributing its products. There can be no assurance that Bioshield will be
able to compete successfully.
INTERNET OFFERINGS. We face competition from players pursuing
each individual business model and potentially from some players attempting to
imitate our vertically integrated strategy. eMD.com's competitors fall into
several categories:
- Traditional Healthcare Information
Technology Companies (HIT)
- Healthcare Portals (consumer and
professional)
- On-line Retail Players (dot.coms
and PBMs)
- Professional Transaction Portals
The traditional HIT segment represents significant competition for
eMD.com because of their existing portfolio of physician solutions and their
installed base of clients. This provides a foundation for expanding into the
markets served by eMD.com. The HIT competitors that pose the greatest threat to
eMD.com are actually comprised of three sub-segments:
- Hospital Information System (HIS)
vendors
- Physician Practice Management
(PPM) vendors
- Niche ambulatory Electronic
Medical Record (EMR) competitors
Many of the competitors are well funded and may, in certain
instances, offer more comprehensive healthcare solutions.
PATENTS AND PROPRIETARY RIGHTS
Bioshield 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. Bioshield files foreign patent applications on some of its
technology and products in countries where, in Bioshield's opinion, business
considerations warrant such filings. The foreign countries in which Bioshield
files patent applications usually include Japan, Canada, Australia, and
countries of the European Economic Community.
Bioshield has applied for four United States patents on its
core technology of novel composition and one joint patent with Emory University
with respect to methods for producing water-stable organosilanes and methods of
using these compositions. On September 21, 1999, we were granted our first
patent - number 5,954,869 - for water-stable organosilane compounds, products,
and compositions for treating various substrates, articles treated with the
compounds, products and compositions, and methods of treatment using the
compounds, products, and compositions.
In addition, Bioshield 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
Bioshield's patent applications will mature into issued patents, or, if issued,
that such patents will be adequate to protect Bioshield's products or
processes. In addition, there can be no assurance that Bioshield will be able
to obtain any necessary or desired additional licenses to patents or
technologies of others or that Bioshield will be able to develop its own
additional patentable technologies.
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Bioshield 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 Bioshield. The Emory application discloses and claims
technologies developed in conjunction with Bioshield that are different from,
but similar to, only one of the three technologies developed solely by
Bioshield and on which Bioshield is actively pursuing its own patents. If
patents ultimately issue out of the Emory application, Emory may in the future
seek to assert to Bioshield that the manufacture, sale, and use of certain
antimicrobial products may infringe certain claims of their Emory application
patent and/or foreign counterparts thereof.
Bioshield 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 Bioshield products infringe in the
Emory application patent could have a material adverse effect on the business
and operations of Bioshield.
In addition, there can be no assurance that Bioshield is
aware of all patents or patent applications that may materially affect
Bioshield'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, 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 Bioshield and limit
the ability of Bioshield to obtain meaningful patent protection. If patents are
issued to other companies that contain competitive or conflicting claims,
Bioshield may be required to obtain licenses to these patents or to develop or
obtain alternative technology. There can be no assurance that Bioshield will be
able to obtain any such license on acceptable terms, or at all. If such
licenses are not obtained, Bioshield could be delayed in or prevented from the
development or commercialization of its product candidates, which would have a
material adverse effect on Bioshield. See "Business - Patents" and "Proprietary
Rights" and "Certain Transactions."
Bioshield has currently received one U.S. Patent and one
foreign patent covering its core technology of water soluble organosilane
antimicrobial compounds. Bioshield 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 Bioshield will provide it with
competitive advantages or that Bioshield'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 Bioshield 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 Bioshield's existing or future
patents or proprietary rights. In the event that Bioshield's technology were
deemed to be infringing upon the rights of others, Bioshield could be subject
to damages or enjoined from using such technology or Bioshield 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
Bioshield, or at all. If Bioshield 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
Bioshield's development, manufacture and sale of products requiring such
licenses could be foreclosed. In addition, Bioshield 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.
Bioshield 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.
Bioshield filed trademark applications for DuraLast and
BioShield with the United States Patent and Trademark Office and has received a
federal registration for the DuraLast trademark. Bioshield is presently aware
of a prior trademark filing for the name "BioShield," which Bioshield believes
has not been used in interstate commerce and has been abandoned. Bioshield 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
Bioshield will be successful in such cancellation proceeding or in securing a
trademark for the name BioShield. Also, Bioshield has been contacted by a
manufacturer which claims that it owns the Bioshield trademark. We are seeking
more information about the use of the BioShield name by this company. Finally,
in October 1999, Bioshield filed a trademark application for eMD.com and logo.
Bioshield 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 Bioshield will be able to protect adequately its trade secrets or that
other companies will not acquire information that Bioshield considers
proprietary. Bioshield will be materially adversely affected if it cannot
maintain its proprietary technologies.
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GOVERNMENT REGULATION
ENVIRONMENTAL PROTECTION AGENCY. Bioshield'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. Bioshield'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 and Federal Food, Drug, and Cosmetic Act (FFDCA) as amended
by the Food Quality Protection Act of August 3, 1996, and other federal statutes
and regulations, and certain state, local and tribal regulations. These statutes
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, Bioshield and its
strategic partners, if any, must submit proof of safety, efficacy, purity, and
stability, and Bioshield 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
Bioshield 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 Bioshield to be adequate.
Bioshield'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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - General
information." Also, the reorganization may cause EPA to review and revise its
policies and practices related to the need for registration and the process of
registration for certain products.
FOOD AND DRUG ADMINISTRATION. Bioshield's research and development
activities are subject to comprehensive regulation by numerous governmental
authorities in the United States and other countries. If Bioshield is able to
produce and market products, such production and marketing will place Bioshield
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. Bioshield has no
current plans to make any such application to the FDA or to any agency or other
governmental entity for any products for human application.
For foreign markets, Bioshield 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 future applications that may 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
Bioshield can fully capitalize on the use of its active ingredient or its
formulations in the personal care industry.
HEALTHCARE LAWS. The Health Insurance Portability and Accountability
Act of 1996 mandates the use of standard transactions and identifiers, security
and other provisions regarding healthcare issues on the internet by the end of
the year 2000. It
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will be necessary for eMD.com's platform and for the applications that eMD.com
provides to be in compliance with the proposed regulations. The proposed Health
Information Modernization and Security Act would provide for establishing
standards and requirements for the electronic transmission of health
information. Both federal and state laws prohibit the offer, payment or receipt
of remuneration to induce referrals to entities providing healthcare services
or goods. Although the applicability of these laws to eMD.com's services is
unclear, a state or federal regulatory agency may allege that eMD.com's
relationship with one or more of its strategic partners that sponsor eMD.com
subscriptions and that deliver healthcare services or goods violate any of
these laws. In the event that this determination is made, eMD.com could be
subjected to fines and other costs and could be required to revise or terminate
that portion of its business. Privacy and confidentiality related regulation.
Internet user privacy has become an issue both in the United States and abroad.
The Federal Trade Commission is considering adopting regulations regarding the
collection and use of personal identifying information obtained from
individuals when accessing web sites. Any legislation or regulations of this
nature could affect the way eMD.com conducts its business, especially its
collection or use of personal information, and could harm its business.
Numerous state and federal laws govern the collection, dissemination use and
confidentiality of patient identifiable health information. Many states have
laws and regulations that protect the confidentiality of medical records or
medical information. In addition, the Health Insurance Portability and
Accountability Act of 1996 mandates the Secretary of the Department of Health
and Human Services to promulgate federal regulations addressing the online
collection, dissemination, use and confidentiality of patient identifiable
health information. The application of these laws to the personal information
eMD.com collects could create potential liability under such laws.
REGULATION OF THE PRACTICE OF MEDICINE. The practice of
medicine requires licensing under applicable state law. eMD.com attempted to
structure its web site and strategic relationships to avoid violating state
licensing requirements. A state regulatory authority may, however, allege that
some portion of eMD.com's business violates these statutes and seek to have us
discontinue those portions or cause us to suffer financial damage. Further,
eMD.com's insurance may not cover any liability based on a determination that
we engaged in the practice of medicine without a license.
INTERNET LAWS. There are currently few laws or regulations
that specifically regulate communications or commerce on the Internet. However,
laws and regulations may be adopted in the future that address issues such as
online content, user privacy, pricing and quality of products and services. For
example, local exchange carriers have petitioned the Federal Communications
Commission to regulate internet service providers and online service providers
in a manner similar to long distance telephone carriers. The local exchange
carriers want the Federal Communications Commission to impose access fees on
those providers because the growing popularity and use of the Internet has
burdened the existing telecommunications infrastructure. In addition, it may
take years to determine the extent to which existing laws governing issues such
as property ownership, libel, negligence and personal privacy are applicable to
the Internet. The requirement that eMD.com comply with any new legislation or
regulation, or any unanticipated application or interpretation of existing
laws, could harm eMD.com's business. The tax treatment of the Internet and
e-commerce is currently unsettled. A number of proposals have been made at the
federal, state and local level and by certain foreign governments that could
impose taxes on the sale of goods and services and certain other Internet
activities. A recently passed law places a temporary moratorium on certain
types of taxation on Internet commerce. eMD.com cannot predict the effect of
current attempts to tax or regulate commerce over the Internet. Any legislation
that substantially impairs the growth of e-commerce could harm eMD.com's
business.
FILINGS MADE WITH THE EPA TO DATE AND CURRENT APPLICATIONS AND FUTURE FILINGS
In October 1998, the EPA conditionally registered certain
uses for AM500 and AM500I. The EPA approved AM500I for use in formulating for
laundry additives, carpet treatment products, upholstery and drapery treatment
products to impart bacteriostatic/fungistatic activity in many of the foregoing
products and others. The EPA also approved the use of AM500 against fungi
(including mold and mildew) as a static agent. EPA approved AM500 and AM500I to
be used to impart durable, bacteriostatic and fungistatic 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; 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.
Bioshield has also requested EPA approval for three products
with the same active ingredient as AM500. These products are
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water-based products and are called BST RTU Concentrate C15, BST RTU 75 and BST
RTU 50. These products provide bacteriostatic and fungistatic protection to
substrates noted above.
Bioshield has submitted, for EPA registration, its
concentrated active ingredient, AMS 1860. This active ingredient is highly
concentrated and is solvent based. It can be used to formulate microbiostatic
agents and will be Bioshield's own source of active ingredient for formulated
BioShield products. It will be manufactured by Bioshield and eliminate the need
to obtain this active ingredient from other registered sources.
FUTURE FILINGS
Bioshield 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 or microbiostatic properties of the products. Bioshield
believes AM36.OI and AM3651 are unique products. Whereas both are formulations
of the silane-integrated system, neither product is water based. However,
AM36.OI and AM3651P provide stable aqueous solutions.
The intended use to be included in the application for AM36.OI is to
give a surface durable microbiostatic treatment. The primary use claims,
intended to be included in the application for AM3651P, are as an active
ingredient for formulating disinfectants and sanitizers for use on hard
non-porous surfaces, and as a microbiocide for use in laundry additives, carpet
treatment products, upholstery and drapery treatment products, and treatment
products, and to give surface microbiostatic treatment effective against a wide
variety of bacteria, fungi, algae and yeast.
Whereas AM36.OI is a concentrate designed for ease of application and
durability, the strength of AM3651P lies in its intended use in sanitizers and
disinfectants. 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. Bioshield 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 and as active components of sanitizers and
disinfectants.
Materials treated with formulations containing the microbiostatic
agent AM36.OI or antimicrobial agent AM3651P are preserved by the
bacteriostatic, fungistatic and action imparted by the active ingredient.
AM36.OI and AM3651P inhibit the growth of microorganisms that are responsible
for causing odor, discoloration and deterioration. They also provide 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
microbiostatic action is exhibited on contact.
Bioshield intends to seek approval that AM36.OI and AM36.51P can be
used to impart durable, microbiostatic 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; 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.
Bioshield also intends to seek approval on AM3651P as a disinfectant
and sanitizer on hard non-porous surfaces or to be incorporated into
formulations. AM3651 can be used to disinfect and sanitize hard surfaces in
areas such as homes, offices, hospitals, institutions, schools, restaurants,
locker rooms, medical facilities and other like areas that are prone to
bacteria and odors. AM3651P disinfects and sanitizes hard surfaces such as:
sinks; tiles; tubs; toilets: countertops: bathroom fixtures; stoves; exercise
equipment; walls; doorknobs; telephones; garbage cans; floors; cabinets; and
shower stalls.
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It is also planned to seek approval for use of BioShield products as
preservatives 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, concrete materials,
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 Bioshield will be successful in commercializing any of these
products or will receive any of the required regulatory approvals.
RESEARCH AND DEVELOPMENT
Until his resignation in August 1999, research and development
activities were performed principally by Dr. Joachim Berkner who was Director
of Research and Development, Organic Chemistry, for Bioshield. Bioshield is
actively seeking a successor for Dr. Berkner. Researchers employed by Bioshield
and certain of Bioshield's strategic partners continue limited research and
development activities.
Bioshield'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. Bioshield's new
product releases in the near future will be based on these core technologies.
Research on silane based and non-silane based antimicrobials will expand
application of antimicrobial Bioshield 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 surfaces new desired
properties.
Subject to adequate funding, future development efforts are currently
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. Products range from antimicrobial absorbents
to cleaning solutions and disinfectants and household 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 Bioshield's
products are anticipated. There can be no assurance that Bioshield will be
successful in developing these or other products.
During the fiscal years ended June 30, 1998, and 1999, Bioshield
incurred expenses of approximately $232,000 and $718,000, respectively,
resulting from Bioshield-sponsored research and development activities.
Research and development is expected to remain a significant component of
Bioshield's business. However, Bioshield 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. Bioshield has contracted out a substantial part of its research and
intends to continue to do so while utilizing its staff for monitoring such
research.
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, Bioshield believes that its technology may, under certain
conditions, be appropriate for application to skin grafts, either manufactured
or harvested 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 our antimicrobial products and the graft may
be possible. Bioshield believes that the unique properties of our 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.
Integration of Bioshield's products and research may lead to new skin
treatment products that Bioshield believes may provide effective skin condition
treatment. Adverse skin conditions caused by microbes may be susceptible to
treatment by Bioshield's products. However, no assurances can be given that
Bioshield will be successful in commercializing any of these products or will
receive any of the required regulatory approvals.
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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 durable or
temporary. One approach may be to chemically bond currently available
anti-rejection medication to the silane. This application will require FDA
approval prior to clinical testing and commercial introduction. However, no
assurances can be given that Bioshield will be successful in commercializing
any of these products or will receive any of the required regulatory approvals.
CLEANING AND MAINTENANCE
PRODUCTS. The residual activity of Bioshield products provides
protection to many surfaces. Application of the products is primarily to clean
surfaces. Integration of Bioshield products into new cleaning products may lead
to new products providing protection to surfaces and equipment while cleaning.
These new cleaning and maintenance products will be developed for industrial
and institutional applications, for example, hospitals, food processing plants
and commercial cleaning and consumer applications, for example, bathroom,
carpet and kitchen cleaning. However, no assurances can be given that Bioshield
will be successful in commercializing any of these products or will receive any
of the required regulatory approvals. OdorFree(TM) is a new odor eliminator
product that was recently developed which does not require regulatory approval.
The product incorporates one of BioShield's proprietary chemical additives and
is available for household use on upholstery, rugs and clothing. OdorFree(TM)
is effective in eliminating odors, which include odors associated with food,
cigarette smoke, tobacco and fire smoke; mold or mildew (musty), certain human
body odors (on fabrics) and garbage odors, among others. OdorFree(TM) is
available in regular and extra strength. OdorFree(TM) has been clinically
tested and is hypoallergenic.
PROPERTY
In July 1999, Bioshield entered into a contract to lease 55,300 square
feet in a free standing building in a high-tech executive office park. The
facility is located at 5655 Peachtree Parkway, Atlanta, Georgia. This building
contains offices, meeting rooms, computer facilities and an area for a pharmacy.
The executive officers and staff of Bioshield and eMD.com have moved into the
facility. Bioshield believes that these facilities are adequate for its present
and anticipated needs.
Bioshield also maintains sales, marketing and research offices at 4405
International Blvd., Suite B109, Norcross, Georgia in a 6,900 square foot leased
facility. The building contains offices, meeting rooms and an organic chemistry
lab with a biological storage area. In addition, Bioshield currently leases a
6,000 square foot manufacturing facility in Atlanta, Georgia, but is not
currently using the building.
EMPLOYEES
Bioshield and its subsidiary on November 1, 1999, had forty-eight
full-time equivalent employees.
LEGAL PROCEEDINGS
Bioshield is not a party to any material legal proceedings.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS, AND SIGNIFICANT EMPLOYEES
The following table sets forth certain information regarding the
directors, executive officers, and significant employees of Bioshield:
<TABLE>
<CAPTION>
NAME AGE POSITION
---
<S> <C> <C>
Timothy C. Moses 43 Co-Chairman of the Board, Chief Executive Officer
and Director
Jacques Elfersy 50 Co-Chairman of the Board, Senior Vice President,
Secretary, Treasurer and Director
Timothy S. Heyerdahl 38 Executive Vice President and Chief Financial Officer
Carl T. Garner 51 Director
Michel Azran 54 Director
</TABLE>
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Mr. Timothy C. Moses, a Director and Founder, is Bioshield'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 Bioshield. 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 European Economic Community
countries to the United States. 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 Bioshield'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 Bioshield's core antimicrobial technology. In addition to
his duties, Mr. Elfersy continues to oversee Bioshield's research and
development activities and objectives. Mr. Elfersy is a graduate of 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.
Timothy S. Heyerdahl was hired in October 1999 as Executive Vice
President and Chief Financial Officer of Bioshield. For the prior eleven years
Mr. Heyerdahl held a number of positions with HBO & Company, most recently as
Senior Vice President of Finance and Treasury. His responsibilities included
mergers and acquisitions, treasury management, strategic budgeting and
forecasting and facility management. Prior to joining HBOC Mr. Heyerdahl spent
five years with Hattori Seiko Corporation. He received his BA degree in
Business Administration from Indiana University. Mr. Heyerdahl is a Certified
Public Accountant.
Carl T. Garner has been a Director of Bioshield 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
Bioshield.
Mr. Michel M. Azran has been a Director of Bioshield 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.
Bioshield'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 Bioshield's 1999 annual meeting of shareholders, Carl T. Garner is serving
in Class II with a term expiring at Bioshield'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.
Bioshield currently pays directors who are not employees of Bioshield 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. Bioshield also reimburses all directors for their
expenses in connection with their attendance at such meetings.
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<PAGE> 43
Bioshield maintains an audit committee that consists of its two
independent directors, Michel M. Azran and Carl T. Garner. Messrs. Azran and
Garner are also member of the Board's Compensation Committee, which administers
the stock option and incentive plans as well as other executive compensation
matters. Bioshield 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.
Bioshield 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 fiscal years ended June
30, 1999, compensation paid by Bioshield to its Co-Chairman of the Board, Chief
Executive Officer, and Director, and Mr. Elfersy, its Co-Chairman of the Board,
Senior Vice President, Secretary, Treasurer and Director. Mr. Heyerdahl joined
Bioshield in October 1999. None of Bioshield's other executive officers had
annual compensation in excess of $100,000 for services rendered during any of
the three years ended June 30, 1999, 1998 or 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------------------ -----------------------------------------
NAME AND OTHER ANNUAL SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
- ------------------------ ------ ---------- ---------- -------------- ----------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Timothy C. Moses, 1999 $ 140,000 -- $ 10,000 150,000 --
Co-Chairman of the 1998 120,000 -- -- -- --
Board, President, Chief 1997 120,000 -- -- -- --
Executive Officer and
Director
Jacques Elfersy, 1999 140,000 -- 10,200 150,000 --
Co-Chairman of the 1998 120,000 -- -- -- --
Board, Executive Vice 1997 120,000 -- -- -- --
President, Director of
Regulatory Affairs,
Secretary, Treasurer,
and Director
Jeff Parker 1999 102,000 -- -- 150,000 --
Chief Operating Officer
</TABLE>
OPTION/SAR GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES IN OR BASE EXPIRATION
NAME OPTIONS/SARS FISCAL YEAR PRICE DATE
---- ------------ ------------ --------- ----------
<S> <C> <C> <C> <C>
Timothy C. Moses.......... 150,000 20% $ 2.94 2/1/03
Jacques Elfersy........... 150,000 20% $ 2.94 2/1/03
Jeff Parker............... 150,000 20% $ 5.00 10/8/03
</TABLE>
EMPLOYMENT AGREEMENTS
Bioshield 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
41
<PAGE> 44
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 Bioshield. 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 currently provides for a base salary at the rate of
$250,000. 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 Bioshield'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.
Bioshield entered into an employment agreement, dated as of September
18, 1998, with Jeffrey A. Parker. The agreement had an initial term commencing
upon the closing of the initial public offering of Bioshield, and expiring on
the third anniversary thereof. Under the agreement, Mr. Parker was required to
devote his substantially full time and attention to the affairs of Bioshield.
The agreements also contained 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 lesser of (i) the remaining
unexpired term of the agreement or (ii) one year from the date of termination.
In August 1999 Mr. Parker resigned from Bioshield and Bioshield has reached a
settlement with Mr. Parker as to its future obligations. Mr. Parker has also
exercised an employee stock option for 50,000 shares of stock with an exercise
of $5.00 per share. Mr. Parker chose to have shares of stock withheld to pay for
the exercise price and the withholding taxes and he was issued 14,142 shares of
stock.
Finally, eMD.com has entered into an employment agreement, dated
November 17, 1999, with Timothy S. Heyerdahl as the Chief Financial Officer.
Mr. Heyerdahl's employment agreement has an initial term commencing on October
11, 1999, and expiring on the third anniversary thereof. Under the agreement,
Mr. Heyerdahl is required to devote his substantially full time and attention
to the affairs of Bioshield. The agreement also contains certain non-compete
provisions, which provisions a state court may determine not to
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<PAGE> 45
enforce or only to partially enforce. The agreement provides for a base salary
at the rate of $240,000 per year. The agreement also calls for Mr. Heyerdahl to
be eligible for bonuses in an amount up to 100% of his annual salary. He is
also entitled to medical insurance and other benefits provided to executives.
In connection with his employment Bioshield will recommend Mr. Heyerdahl be
granted an option to purchase 50,000 shares of Bioshield's stock and another
option to purchase 200,000 shares of eMD.com stock. The exercise prices will be
fair value of the time of grant. One third of the stock under each option vests
on each of the first, second and third anniversaries of the date of his
agreement. The options are subject to certain additional terms, conditions, and
restrictions. Finally, the agreement provides a severance package in the event
Mr. Heyerdahl is terminated other than for cause (as defined) or the executive
terminates his agreement for good reason (as defined).
ADVISORY BOARD
Bioshield's advisory board was organized to review and evaluate
Bioshield's research and development programs and to advise Bioshield generally
in addressing various scientific and business issues. Bioshield generally
selects for membership persons who have experience in finance, marketing and
science. Members of the advisory board may meet as a group or individually with
management of Bioshield. They are not employed by Bioshield and may have
commitments to, or consulting or advisory agreements with, other entities that
may limit their availability to Bioshield. These entities may also be
competitors of Bioshield. Bioshield is not aware of any conflict of interest
between work performed by advisors on behalf of Bioshield and work performed by
them on behalf of other parties. Bioshield requires each advisor to execute a
confidentiality agreement upon the commencement of his or her relationship with
Bioshield. The agreements generally provide that all confidential information
made known to the individual during the term of the relationship is the
exclusive property of Bioshield 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 60, is currently President of Savarick
Consulting Group, a marketing and management consulting firm. From 1994 through
1998, he was 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 46, 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.
Advisors receive reimbursement of travel expenses, connected with
company business, and stock options, for consultation services, which include
assisting Bioshield in the development of a marketing plan as well as research
plan to elucidate the biological effects, safety and efficacy of Bioshield's
products and assisting Bioshield in analyzing data from research trials and
other studies concerning Bioshield's products. Bioshield anticipates that each
advisor will devote approximately six days per year to the affairs of Bioshield
in his capacity as an advisor, consisting of approximately three one-day
meetings of the advisory board to be held each year and preparation for such
meetings.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Bioshield's bylaws provide for Bioshield to indemnify each director
and officer of Bioshield 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 Bioshield. Bioshield has also entered into indemnification
agreements with each officer and director pursuant to which Bioshield will, in
general, indemnify such persons to the maximum extent permitted by Bioshield'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 Bioshield. The
foregoing provisions may reduce the likelihood of derivative litigation
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<PAGE> 46
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 Bioshield and its shareholders.
Insofar as indemnification of liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, or persons controlling
Bioshield pursuant to the foregoing provisions, or otherwise, Bioshield 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 Bioshield 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, Bioshield 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 Bioshield approved the 1997 Stock Incentive Plan. The board of directors and
shareholders approved the 1996 Directors Stock Option Plan in 1996 and amended
on the plan in December 1998. The incentive plan was amended by the board of
directors in December 1998 to increase the number of shares which could be
issued thereunder to 1,200,000. In May 1999, Bioshield registered the shares
subject to the incentive plan with the Commission on Form S-8.
TERMS OF INCENTIVE PLAN
The incentive plan provides Bioshield with increased flexibility to
grant equity-based compensation to key employees, officers and consultants of
Bioshield. The purpose of the incentive plan is to: (i) provide incentives to
stimulate individual efforts toward Bioshield'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 Bioshield 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. Bioshield has reserved
1,200,000 shares of common stock for issuance pursuant to awards that may be
made under the incentive plan. As of May 21, 1999, awards of 645,000 shares of
common stock have been granted under the incentive plan to key employees of
which 55,000 options are currently exercisable at a price of $1.00 per share
and 300,000 are currently exercisable at $2.94 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
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 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. Each stock incentive will either be
evidenced by a stock incentive agreement or stock incentive program, in each
case containing such terms, conditions and restrictions as the committee may
deem appropriate. Stock incentives are not transferable or assignable except by
will or by the laws of descent and distribution and are exercisable only by the
recipient during his or her lifetime or by the recipient's legal representative
in the event of the recipient's death or disability.
Stock Awards. The number of shares of common stock, subject to a stock
award and restrictions or conditions on such shares, if any, will be determined
by the committee. The committee may require a cash payment from the recipient
in an amount no greater than the aggregate fair market value of the shares of
common stock awarded, as determined at the date of grant.
Options. Options may be either incentive stock options, as described
in Section 422 of the Code, or non-qualified stock options. The exercise price
of each option will be determined by the committee and set forth in a stock
incentive agreement but may not be less than the fair market value of the
common stock on the date the option is granted. The exercise price for an
incentive stock option 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
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<PAGE> 47
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. The incentive plan was amended by the board in December
of 1998, to increase the total number of shares that may be issued to 1,200,000
and to permit 10% or more shareholders/officers to participate in the plan.
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 Bioshield. In the event of a merger, consolidation or other
reorganization of Bioshield 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, 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 Bioshield. Further, a recipient will not
recognize income for federal income tax purposes and Bioshield 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. Bioshield normally would
be entitled to a federal income tax deduction equal to any ordinary income
recognized by the recipient, provided Bioshield 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. Bioshield will
not be entitled to a federal income tax deduction as a result of a disposition
of such shares after these holding periods have been satisfied.
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<PAGE> 48
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 Bioshield 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 Bioshield.
DIRECTOR PLAN
The purpose of the director plan is to provide an incentive to outside
directors and members of Bioshield's advisory board for continuous association
with Bioshield and to reinforce the relationship between participants' rewards
and shareholder gains. Bioshield has reserved 1,000,000 shares of common stock
pursuant to awards that may be made under the director plan. Awards of options
for 10,000 shares of common stock have been issued by Bioshield in fiscal 1999;
options for 120,000 shares of common stock were issued by Bioshield in fiscal
1998; and options for 120,000 shares of common stock were issued by Bioshield
in 1996. Pursuant to the director plan, options vest in three stages, 20,000
shares at date of grant and 20,000 shares on the first and second anniversary
of the date of the stock option agreement. 210,000 of such options are
currently exercisable pursuant to the director plan.
CONSULTANTS
Bioshield has entered into a consulting agreement in November 1997
with R.T. Consulting, Inc., to provide Bioshield 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 Bioshield, R.T.
receives $3,000 per calendar month for a period of four (4) calendar years
commencing on September 29, 1998.
In May 1998, Bioshield entered into an agreement with Revere Financial
Group, Inc. 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 the initial public offering.
On October 21 1998, Bioshield entered into a consulting agreement with
C.L.R. Associates to provide financial public relations assistance. C.L.R.
receives a monthly retainer of $1,000 plus expenses. The agreement is for a
term of one year, commencing December 31, 1998, and is terminable upon thirty
days written notice by either party.
On April 1, 1999, Bioshield entered into a consulting agreement with
John T. Adams to provide advice relating to the development of business and
marketing plans as well as strategic planning. The agreement has a term of
three months and is automatically renewable by either party unless terminated
for cause on thirty (30) days written notice. Mr. Adams receives a cash fee of
$3,000 per month, plus $17,000 worth of five year options valued based upon the
closing price of Bioshield's common stock on Nasdaq SmallCap Market(TM) at the
end of each month of service.
On April 1, 1999, Bioshield entered into a financial advisory and
consulting agreement with Grayson Financial, LLC. Pursuant to the Agreement,
Grayson has been retained to (i) provide sponsorship and exposure in connection
with the dissemination of corporate information regarding Bioshield to the
investment community at large, (ii) assist in Bioshield's public relations, and
(iii) provide financial advice to Bioshield. The term of the agreement is three
months, and Grayson is entitled to receive a monthly fee of $5,000 payable in
arrears.
On April 1, 1999, Bioshield entered into a financial advisory and
consulting agreement with C.L.R. Associates. Pursuant to the Agreement, C.L.R.
has been retained to (i) provide sponsorship and exposure in connection with the
dissemination of corporate information regarding Bioshield to the investment
community at large, (ii) assist in Bioshield's public relations, and (iii)
provide financial advice to Bioshield. The term of the agreement is three months
and C.L.R. is entitled to receive a monthly fee of $5,000 payable in arrears. At
the end of the engagement period, Bioshield determined to award, as additional
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<PAGE> 49
compensation, a warrant to purchase up to 240,000 shares of common stock. The
warrant is exercisable for a period of five years at an exercise price of $5.00
per share, subject to proportional adjustment in the event of a stock split. See
"Issuance of Shares to Selling Shareholders."
PRINCIPAL SHAREHOLDERS
The following table sets forth information as of December 9, 1999
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
Bioshield to own five percent or more of the outstanding common stock, (ii)
each director of Bioshield, and (iii) all officers and directors of Bioshield
as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES PERCENT OWNED OF CLASS
--------------------------------------- ------ ----------------------
<S> <C> <C>
Timothy C. Moses(2)
405 North Errol Court, N.W
Atlanta, Georgia 30327............................. 1,512,930 22.7%
Jacques Elfersy(2)
1771 East Clifton Road
Atlanta, Georgia 30307............................. 1,655,117 24.9
Carl T. Garner..................................... 60,000 *
Michel Azran....................................... 10,000 *
All officers and directors as a group(6 persons)... 3,233,947 48.6
</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) Does not include 138,834 shares of common stock owned by each of the
wives of Messrs. Moses and Elfersy as to which each of them disclaim
beneficial ownership.
CERTAIN TRANSACTIONS
In June 1998, Timothy C. Moses and Jacques Elfersy contributed
approximately $50,000 of capital to Bioshield. Subsequent to June 30, 1998,
Messrs. Moses and Elfersy contributed an additional $325,000 of capital to
Bioshield. Such contributions were funded by the private sale to accredited
investors of 124,995 shares of common stock of Bioshield 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 Bioshield $30,000, $25,000, and $25,000,
respectively. Bioshield 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 were paid off by Bioshield from the proceeds of the initial
public offering.
Upon consummation of the initial public offering, Messrs. Moses and
Elfersy received $307,133 in the aggregate from Bioshield representing
repayment of accrued and unpaid salary due and payable by Bioshield to such
persons for their employment for the period June 1995 through June 30, 1998.
In May of 1999, the board of directors granted to each of Messrs.
Moses and Elfersy five year fully vested options to purchase 1,500,000 shares
of its subsidiary EMD.com at a price of $2.00 per share.
Although Bioshield believes that the foregoing transactions were on
terms no less favorable to Bioshield than would have been available from
unaffiliated third parties in arm's length transactions, there can be no
assurance that this is the case. Bioshield 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, Bioshield represents that
(i) all future material affiliated transactions and loans will be made or
entered into on terms that are no less favorable to Bioshield than those that
could be obtained from unaffiliated third parties and (ii) all future material
affiliated transactions and loans, and any forgiveness of loans, will be
approved by a majority of Bioshield's independent directors who do not have an
interest in the
47
<PAGE> 50
transactions and who will have access, at Bioshield's expense, to Bioshield's
counsel or to independent legal counsel. There can be no assurance, however,
that future transactions or arrangements between Bioshield 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
Bioshield.
In January 2000, in connection with the issuance and sale of the series
A preferred stock, Jacques Elfersy and Timothy Moses pledged an aggregate of
500,000 shares of common stock to secure Bioshield's obligation to issue shares
pursuant to the conversion rights of the Series A Preferred Stock, so long as
neither the registration statement of which this prospectus forms a part, or the
registration statement filed in connection with the private equity credit
agreement, were declared effective under the Securities Act of 1933. In
connection with that pledge agreement, Bioshield agreed to issue replacement
shares to Mr. Elfersy and Mr. Moses if and to the extent that the secured party
took possession of any of the pledged shares under the agreement. That pledge
agreement terminated in January 2000 as a consequence of the effectiveness of
the registration statement filed in connection with the private equity credit
agreement, and Bioshield was not required to issue any shares to Mr. Elfersy or
Mr. Moses in connection with that agreement.
ISSUANCE OF SHARES TO SELLING SHAREHOLDERS
The Series A Convertible Preferred Stock
On January 13, 2000, we completed a private placement of $4,000,000
principal amount of our series A convertible preferred stock and related
warrants to purchase 200,000 shares of common stock of eMD.com, our
majority-owned subsidiary. The series A preferred stock and warrants were sold
in a private placement in reliance on Rule 506 of the Securities Act of 1933,
which provides an exemption from registration for sales to accredited investors,
as defined by Rule 501 under Regulation D of the Securities Act.
The series A preferred stock has an initial stated value of $20,000 per
share, which increases at the rate of 4% per year. Each series A preferred share
is convertible, beginning 100 days following the date of issuance, at the option
of the holder, into a number of shares of common stock determined by dividing
the stated value by 80% of the average of the closing bid prices for the twenty
trading days prior to the date of conversion.
We may, at our option at any time after the 90(th) day following the
issuance of the series A preferred stock through January 14, 2001, prohibit the
holder of the series A preferred stock from exercising any conversion rights for
up to 90 days, provided that specified conditions are met. If we exercise that
right, we are required to compensate the holders of the series A preferred stock
in cash in an amount equal to 3% of the principal amount of the series A
preferred stock held by each holder for each thirty days that the prohibition is
in effect, pro-rated for partial months, or, at our option, deliver common stock
in payment of such amount, based on the average closing bid prices for the
common stock for the twenty trading days preceding the end of each calendar
month during the period conversion is prohibited.
The right of the holder of the series A preferred stock to convert its
shares is also subject to the following restrictions: (i) during the period
beginning on the issuance date through the following 90 days, the holder may not
convert more than 25% of the series A preferred stock purchased by the holder;
(ii) during the period beginning on the issuance date through the following 120
days, the holder may not convert more than 50% of the series A preferred stock
purchased by the holder; and (iii) during the period beginning on the issuance
date through the following 150 days, each holder may not convert more than 75%
of the series A preferred stock purchased by the holder.
At any time after the issuance date of the Series A preferred stock, we
have the right, in our sole discretion, to redeem, from time to time, any or all
of the series A preferred stock; provided that specified conditions are met,
including that we have cash, credit or standby underwriting facilities available
to fund the redemption. The redemption price is calculated as (i) 105% of the
original purchase price for the first 30 days following the issuance date; (ii)
110% of the original purchase price for the next 90 days and (iii) 120% of the
original purchase price after 120 days from the issuance date. All series A
preferred stock outstanding as of January 14, 2003 will be automatically
converted in accordance with the conversion provisions of the Series A preferred
stock.
Under the terms of the private placement agreements, we agree to file
the registration statement of which this prospectus forms a part. We have also
filed a registration statement covering shares issuable pursuant to a
$10,000,000 private equity credit agreement, which registration statement is now
effective. The private placement agreements provided that if neither
registration statement was declared effective within 100 days following the
issuance of the series A preferred stock, the holder had certain rights under a
related pledge agreement to exercise the conversion rights of the Series A
preferred stock for shares of common stock that had been pledged by Messrs.
Elfersy and Moses. That pledge terminated in January 2000 as a consequence of
the effectiveness of the registration statement filed in connection with the
private equity credit agreement.
The warrants for shares of eMD.com expire on January 14, 2005 and have
an exercise price of $5.126 per share, subject to adjustment under specified
circumstances.
Warrant Agreements
We entered into a financial advisory and consulting agreement with CLR
Associates, Inc. on April 1, 1999. In connection with that agreement, we issued
warrants to CLR Associates on August 1, 1999. The warrants are exercisable for
up to 240,000 shares of common stock at an exercise price of $5.00 per share,
and expire on March 31, 2003, unless exercised sooner. The number of shares
issuable pursuant to the exercise of the warrants is subject to adjustment for
stock splits, stock combinations and similar events.
We have also entered into a financial advisory and consulting agreement dated
August 1, 1999 with White Capital Group, Ltd. Under that agreement, we are
required to issue warrants to White Capital Group exercisable for up to 135,000
shares of common stock of the Company. The warrants are to be issued in equal
installments of 16,875 warrants over eight months, and are exercisable for a
period of five years following issuance at an exercise price as follows: 25,000
shares at $5 per share; 30,000 shares at $8 per share; 30,000 shares at $12.50
per share, and 50,000 shares at $17 per share. The number of shares issuable
pursuant to the warrants is subject to proportional adjustments in the event of
a stock split.
SELLING SHAREHOLDERS
The selling shareholder for the shares of common stock that may be
issuable upon conversion of the series A preferred stock is Wilson LLC, a Cayman
Islands limited liability company. The address of Wilson LLC is c/o Citco
Trustees (Cayman) Ltd., Corporate Centre, Windwood One, West Bay Road, Grand
Cayman, Cayman Islands. The director of Wilson LLC is Navigator Management Ltd.,
Harbour House, 2nd Floor, Waterfront Drive, P.O. Box 972, Road Town, Tortola,
British Virgin Islands, and the President of Navigator Management Ltd. is David
Sims.
The selling shareholder for the shares issuable pursuant to the
warrants are CLR Associates, Inc., a Florida corporation, and White Capital
Group, Ltd., a New York corporation. The sole stockholder of CLR Associates is
Carole L. Rhodes. The sole stockholder of White Capital Group is Susan A.
Mirman.
We have agreed to pay all the expenses we incur in connection with the
registration of the shares. The selling shareholders will pay all broker
commissions and other selling expenses they incur, as well as any legal and
other expenses they may incur in the registration or sale of its shares.
The following table sets forth information about the ownership of our
common stock by the selling shareholders as of January 21, 2000. The number of
shares in the table represents an estimate of the number of shares of common
stock to be offered by the selling shareholders, if each selling shareholder
were to fully convert the series A preferred stock as of January 21, 2000,
exercise the warrants and offer all the resulting shares of common stock for
sale. If converted as of January 21, 2000, the series A preferred stock would
convert at a conversion price of approximately $8.39 per share into
approximately 476,758 shares of common stock. The actual number of shares of
common stock issuable upon conversion of the series A preferred stock is
indeterminate, and could be materially less or more than the amount estimated
due to the conversion price adjustments explained in the section of this
prospectus entitled "Description of Securities" on page 49. We agreed to
register at least 1,000,000 shares in connection with the issuance of the series
A preferred shares; the additional shares covered by this prospectus for sale by
the selling shareholder are to accommodate the possibility that the actual
number of shares issuable upon conversion of the preferred stock increases as a
result of adjustments in the conversion price. This table, however, assumes no
adjustments to the conversion prices. We cannot assure you that the selling
shareholder will sell any or all of the shares that it may acquire upon their
conversion of series A preferred stock. The selling shareholder's determination
whether to hold or convert the series A preferred stock and sell the resulting
shares, will depend upon many factors, including Bioshield's prospects, general
market conditions and the prevailing price of the common stock.
<TABLE>
<CAPTION>
SHARES OF COMMON
SHARES OF COMMON STOCK STOCK TO BE
NAME OF SELLING SHAREHOLDER BENEFICIALLY OWNED SHARES OF COMMON BENEFICIALLY OWNED
PRIOR TO THE OFFERING STOCK BEING OFFERED(1) AFTER THE OFFERING(1)
- --------------------------- ---------------------- ------------------- ---------------------
<S> <C> <C> <C>
Wilson LLC(2) 476,758 476,758 0
CLR Associates, Inc. 240,000 240,000 0
White Capital Group, Ltd. 135,000 135,000 0
- -----------------------
</TABLE>
(1) Assumes the sale of all the shares of common stock which are being
offered pursuant to this prospectus.
(2) Excludes an indeterminate number of shares of common stock that may be
issuable in connection with the conversion of shares of eMD.com, our
majority owned subsidiary, in the event that eMD.com has not become a
reporting company under the Securities Exchange Act of 1934, as
amended, by May 31, 2000. Also excludes an indeterminate number of
shares of common stock that may be issuable under a private equity
credit agreement to Jackson LLC, a Cayman Islands limited liability
company that is affiliated with Wilson LLC.
PLAN OF DISTRIBUTION
Shares covered by this prospectus may be offered and sold from time to
time by the selling shareholders. The selling shareholders will act
independently of Bioshield in making decisions with respect to the timing,
manner and size of each sale. The selling shareholders may sell the shares on
the Nasdaq SmallCap Market(TM) at prices and at terms then prevailing or at
prices related to the then current market price; or in private sales at
negotiated prices directly or through brokers.
The selling shareholders and any underwriter, dealer or agent who
participates in the distribution of the shares may be deemed to be underwriters
under the Securities Act, and any discount, commission or concession received by
these persons might be deemed to be an underwriting discount or commission under
the Securities Act. We have agreed to indemnify the selling shareholders against
some liabilities arising under the Securities Act.
Any broker-dealer participating in transactions as agent may receive
commissions from the selling shareholders, and, if acting as agent for the
purchaser of the shares, from the purchaser. Usual and customary brokerage fees
will be paid by the selling shareholders. Broker-dealers may agree with the
selling shareholders to sell a specified number of shares at a stipulated price
per share, and, to the extent the broker-dealer is unable to do so acting as
agent for the selling shareholders, to purchase as principal any unsold shares
at the price required to fulfill the broker-dealer commitment to the selling
shareholders. Broker-dealers who acquire shares as principal may then resell the
shares from time to time in transactions in the over-the-counter market, in
negotiated transactions or by a combination of these methods of sale, at market
prices prevailing at the time of sale or at negotiated prices, and in connection
with resales may pay to or receive from the purchasers of the shares commissions
as described above.
We have advised the selling shareholders that the anti-manipulation
rules under the Exchange Act may apply to sales of shares in the market and to
the activities of the selling shareholders and any affiliate. The selling
shareholders have advised Bioshield that during the time as the selling
shareholders may be engaged in the attempt to sell shares registered under this
prospectus, they will:
- - not engage in any stabilization activity in connection with any of the shares;
- - not bid for or purchase any of the shares or any rights to acquire the
shares, or attempt to induce any person to purchase any of the shares or
rights to acquire the shares other than as permitted under the Securities
Exchange Act;
- - not effect any sale or distribution of the shares until after the prospectus
shall have been appropriately amended or supplemented, if required, to
describe the terms of the sale or distribution; and
- - effect all sales of shares in broker's transactions through broker-dealers
acting as agents, in transactions directly with market makers, or in privately
negotiated transactions where no broker or other third party, other than the
purchaser, is involved.
The selling shareholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against some
liabilities, including liabilities arising under the Securities Act. Any
commissions paid or any discounts or concessions allowed to any broker-dealers,
and any profits received on the resale of shares, may be deemed to be
underwriting discounts and commissions under the Securities Act if the
broker-dealers purchase shares as principal.
In order to comply with the securities laws of some states, if
applicable, the shares will be sold in some jurisdictions only through
registered or licensed brokers or dealers. In some states, the shares may not be
sold unless the shares have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Bioshield has agreed to use its best efforts to maintain the
effectiveness of the registration statement of which this prospectus forms a
part with respect to the shares issuable pursuant to the conversion of the
series A preferred stock until the earlier of the sale of the shares or two
years from the date of this prospectus. No sales may be made under this
prospectus after that date unless we amend or supplement this prospectus to
indicate that we have agreed to extend the period of effectiveness. There can be
no assurance that the selling shareholders will sell all or any of the shares
offered under this prospectus.
48
<PAGE> 51
DESCRIPTION OF SECURITIES
COMMON STOCK
Bioshield 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
November 11, 1999, there were 6,359,457 shares of common stock issued and held
by approximately 68 holders of record.
49
<PAGE> 52
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
Bioshield, 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.
50
<PAGE> 53
SERIES A CONVERTIBLE PREFERRED STOCK
Pursuant to our certificate of incorporation, the board has classified
200 shares of preferred stock as series A convertible preferred stock with the
rights, preferences, privileges and terms set forth in the amendment to our
certificate of incorporation filed with the State of Georgia. Of the 200 shares
authorized by the board, all are currently outstanding. The stated value per
share of the series A preferred stock is $20,000. All shares of common stock are
of junior rank to all series A preferred shares in respect to the preferences as
to distributions and payments upon the liquidation, dissolution, and winding up.
The rights of the shares of common stock are subject to the preferences and
relative rights of the series A preferred shares. The series A preferred shares
will be of greater rank than any series of common or preferred stock issued by
us in the future. Without the prior express written consent of the holders of at
least a majority of the then outstanding series A preferred shares, we will not
authorize or issue capital stock that is of senior or equal rank to the series A
preferred shares regarding the preferences as to distributions and payments upon
the liquidation, dissolution and winding up of Bioshield. Without the prior
express written consent of the holders of not less than a majority of the then
outstanding series A preferred shares, we will not hereafter authorize or make
any amendment to our certificate of incorporation or bylaws, or make any
resolution of the board of directors with the Georgia Secretary of State
containing any provisions which would materially and adversely affect or impair
the rights or relative priority of the holders of the series A preferred shares
relative to the holders of the common stock or the holders of any other class of
capital stock. In the event of our merger or consolidation with or into another
corporation, the series A preferred shares shall maintain their relative powers,
designations, and preferences, and no merger may result that is inconsistent
with this provision.
Holders of the series A preferred stock are not entitled to receive
dividends. If any series A preferred shares are outstanding, we may not, without
the prior express written consent of the holders of a majority of the then
outstanding series A preferred shares, directly or indirectly declare, pay or
make any dividends or other distributions upon any of the common stock (other
than a dividend of shares of eMD.com) unless written notice thereof has been
given to holders of the series A preferred shares at least thirty days prior to
the earlier of (a) the record date taken for or (b) the payment of the dividend
or other distribution. We may declare and pay a dividend in cash with respect to
the common stock so long as we pay simultaneously to each holder of series A
preferred shares an amount in cash equal to the amount the holder would have
received had all of the holder's series A preferred shares been converted to
common stock one business day before the record date for the dividend, and after
giving effect to the payment of any dividend and any other required payments,
including required payments to the holders of the series A preferred shares, we
have in cash or cash equivalents an amount equal to the aggregate of:
-all of our liabilities reflected on our most recently available balance
sheet;
-the amount of any indebtedness incurred by us or any of our subsidiaries
since our most recent balance sheet; and
-120% of the amount payable to all holders of any shares of any class of
preferred stock assuming a liquidation as the date of our most recently
available balance sheet.
In the event of any voluntary or involuntary liquidation, dissolution,
or winding up, the holders of the series A preferred shares will be entitled to
receive in cash out of our assets, whether from capital or from earnings
available for distribution to our stockholders, before any amount shall be paid
to the holders of any of our capital stock of any class junior in rank to the
series A preferred shares in respect of the preferences as to the distributions
and payments on the liquidation, dissolution and winding up, an amount per
series A preferred share equal to the sum of (i) $20,000 and (ii) a premium of
4% per year of the stated value from the date of issuance of the series A
preferred stock; provided that, if the funds are insufficient to pay the full
amount due to the holders of series A preferred shares and holders of shares of
other classes or series of preferred stock that are of equal rank with the
series A preferred shares as to payments of this type, then each holder of
series A preferred shares and other preferred shares will share equally in the
available funds in accordance with their respective liquidation preferences. The
purchase or redemption by us of stock of any class in any manner permitted by
law will not be regarded as a liquidation, dissolution or winding up. Neither
our consolidation or merger with or into any other person, nor the sale or
transfer by us of less than substantially all of our assets will be deemed to be
a liquidation, dissolution or winding up.
The holders of series A preferred shares have no voting rights, except
as required by law, including the Corporation Law of the State of Georgia. Each
share of series A preferred stock is convertible into the number of shares of
our common stock, equal to the stated value ($20,000) plus a premium of 4% per
year of the stated value from the date of issuance of the series A preferred
stock, divided by the conversion price. The conversion price is equal to 80% of
the average closing bid prices of the common stock for the twenty consecutive
trading days ending on the day prior to the conversion. If all the outstanding
shares of series A preferred stock were converted as of January 21, 2000,
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<PAGE> 54
based upon the closing bid prices of the shares prior to that date, under the
conversion formula of the series A preferred stock the conversion price for the
shares would be set at a price of approximately $8.39 per share, and the 200
outstanding shares of series A preferred stock would be convertible into
approximately 476,758 shares of common stock, or approximately 7% of the shares
that would then be outstanding (based on the number of shares outstanding as of
November 10, 1999). The following table includes the total number of shares that
would be issued upon conversion of all the series A preferred stock, and the
percentage of the issued and outstanding shares (based on the number of shares
outstanding as of November 10, 1999) that such number of shares would then
represent, under the following assumptions:
(a) assuming the current conversion price of $8.39 per share;
(b) assuming a conversion price 25% below a conversion price based upon the
closing sale price as of January 21, 2000 of $8.1875 per share, or $5.03 per
share;
(c) assuming a conversion price 50% below a conversion price based upon the
closing sale price as of January 21, 2000 of $8.1875 per share, or $3.36 per
share; and
(d) assuming a conversion price 75% below a conversion price based upon the
closing sale price as of January 21, 2000 of $8.1875 per share, or $1.68 per
share.
THE SERIES A PREFERRED
SHARES WOULD CONVERT INTO:
NUMBER OF PERCENT OF
SHARES OUTSTANDING
--------- -----------
At the Current Conversion Price . . . . . . . . 476,758 6.97%
At 25% below the Current Market Price . . . . . 794,597 11.11%
At 50% below the Current Market Price . . . . . 1,191,895 15.78%
At 75% below the Current Market Price . . . . . 2,383,790 27.26%
Under the conversion price formula, there is no ceiling on the number
of shares of common stock into which the outstanding shares of series A
preferred stock can be converted. As a result, as the price of the common stock
decreases, the number of shares of common stock underlying the outstanding
shares of series A preferred stock continues to increase. Under the conversion
price formula, the series A preferred stock is likely to be convertible at a
rate at or below the common stock's market price. The lower the common stock's
market price at the time the holder converts his outstanding shares of series A
preferred stock, the more shares of common stock the holder will get in the
conversion. To the extent the holder of shares of series A preferred stock
converts and then sells the shares of common stock, the common stock's market
price may decrease due to the additional shares in the market, allowing the
selling holder to convert other shares of series A preferred stock into greater
amounts of common stock, the sale of which could further depress the market
price for the common stock. The downward pressure on the market price of the
common stock as a holder of the series A preferred stock converts and sells
material amounts of common stock could encourage short sales by other holders
or others, placing further downward pressure on the market price of the common
stock. The conversion of the outstanding shares of series A preferred stock may
result in substantial dilution to the interest of other common stockholders,
since the
52
<PAGE> 55
holder of the outstanding shares of series A preferred stock may ultimately
convert and sell the full amount of common stock issuable upon conversion.
The holders of the series A preferred shares are limited with respect
to the number of shares that they can convert at any one time. In particular,
they are not entitled to convert shares that would result in their owning in
excess of 4.9% of the outstanding common stock following conversion.
The issuance of the series A preferred stock is also subject to the
NASDAQ National Market's Market Place Rule 4460(i). Pursuant to the terms of
this rule, we have agreed with the holder of the series A preferred stock that
so long as we are subject to this rule or any rule substantially similar to this
rule, we will not issue more than 19.99% of the common stock outstanding on the
date the series A preferred stock was issued upon conversion of the series A
preferred stock in the absence of:
-the approval of the issuance by our stockholders; or
-a waiver by NASDAQ of the provisions of that rule.
We may, at our option at any time after the 90(th) day following the
issuance of the series A preferred stock through January 12, 2001, prohibit the
holder of the series A preferred stock from exercising any conversion rights
for up to 90 days, provided that specified conditions are met. If we exercise
that right, we are required to compensate the holders of the series A preferred
stock in cash in an amount equal to 3% of the principal amount of the series A
preferred stock held by each holder for each thirty days that the prohibition
is in effect, pro-rated for partial months, or, at our option, deliver common
stock in payment of such amount, based on the average closing bid prices for
the common stock for the twenty trading days preceding the end of each calendar
month during the period conversion is prohibited.
The right of the holder of the series A preferred stock to convert
their shares is also subject to the following restrictions: (i) during the
period beginning on the issuance date through the following 90 days, the holder
may not convert more than 25% of the series A preferred stock purchased by the
holder; (ii) during the period beginning on the issuance date through the
following 120 days, the holder may not convert more than 50% of the series A
preferred stock purchased by the holder; and (iii) during the period beginning
on the issuance date through the following 150 days, each holder may not convert
more than 75% of the series A preferred stock purchased by the holder.
At any time after the issuance date of the Series A preferred stock, we
have the right, in our sole discretion, to redeem, from time to time, any or all
of the series A preferred stock; provided that specified conditions are met,
including that we have cash, credit or standby underwriting facilities available
to fund the redemption. The redemption price is calculated as (i) 105% of the
original purchase price for the first 30 days following the issuance date; (ii)
110% of the original purchase price for the next 90 days and (iii) 120% of the
original purchase price after 120 days from the issuance date. All series A
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<PAGE> 56
preferred stock outstanding as of January 11, 2003 will be automatically
converted in accordance with the conversion provisions of the Series A
preferred stock.
Under the terms of the private placement agreements, we agreed to file
the registration statement of which this prospectus forms a part. We have also
filed a registration statement covering shares issuable pursuant to a
$10,000,000 private equity credit agreement, which registration statement is now
effective. The private placement agreements provided that if neither
registration statement was declared effective within 100 days following the
issuance of the series A preferred stock, the holder had certain rights under a
related pledge agreement to exercise the conversion rights of the Series A
preferred stock for shares of common stock that had been pledged by Messrs.
Elfersy and Moses. That pledge terminated in January 2000 as a consequence of
the effectiveness of the registration statement filed in connection with the
private equity credit agreement.
Prior to this financing, the board of directors of Bioshield considered
a variety of financing proposals. The Board determined that the financing
proposal by the selling shareholder represented the most favorable proposal
offered to the Company based upon, among other things, the timing of the
transaction, the quality of the investor, and the terms and limitations of the
financing.
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<PAGE> 57
PUBLICLY-TRADED REDEEMABLE WARRANTS
We have filed a registration statement covering 1,300,000 shares of
common stock issuable upon exercise of our publicly-traded redeemable warrants.
That registration statement also covers up to 130,000 shares of common stock
and 65,000 redeemable underwriters' warrants that may be purchased by the
underwriters of Bioshield's initial public offering and their assignees, and up
to 65,000 shares that may be purchased upon exercise of those redeemable
underwriters' warrants. The publicly-traded warrants have been issued in
registered form under and are governed by and subject to the terms of a warrant
agreement between Bioshield and the American Transfer & Trust Co. as warrant
agent. The following statements are brief summaries of certain provisions of
the warrant agreement. Copies of the warrant agreement may be obtained from
Bioshield or the warrant agent and have been filed with the Commission as an
exhibit to the registration statement covering those securities.
Each warrant entitles the holder thereof to purchase at any time one
share of common stock at an exercise price per share of $6.00 at any time until
September 29, 2003. The right to exercise the warrants will terminate at the
close of business on September 29, 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 does not possess any
rights as a shareholder of Bioshield. 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.
Bioshield 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 $10.00 per share for ten (10) consecutive days. Bioshield may
determine, in its sole discretion, to call the warrants for redemption at any
time after meeting that price requirement.
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, Bioshield 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. Bioshield
may amend the terms of the warrants, but only by extending the termination date
or lowering the exercise price thereof. Bioshield has no present intention of
amending such terms. However, there can be no assurances that Bioshield will
not alter its position in the future with respect to this matter.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar, for Bioshield's common stock and the
warrants, is American Stock Transfer & Trust Co., 40 Wall Street, New York, New
York 10005.
UNDERWRITERS' WARRANTS
In connection with its initial public offering, Bioshield sold to the
underwriters, for nominal consideration, underwriters' unit warrants to
purchase up to 65,000 redeemable underwriters' warrants and 130,000 shares in
units. These units are substantially similar to the units sold in the initial
public offering and are now exercisable for warrants and shares rather than
units. 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 initial public offering and/or
their partners or officers. The underwriters' warrants are exercisable at
$15.00 per unit, subject to adjustment in certain events to protect against
dilution, for a four-year period commencing one year from September 29, 1998.
The redeemable warrants issuable pursuant to the terms of the unit warrants
have an exercise price of $7.50 per share rather than $6.00, and are subject to
redemption on the same terms as the publicly-traded warrants.
55
<PAGE> 58
SHARES ELIGIBLE FOR FUTURE SALE
As of November 10, 1999, Bioshield had 6,359,457 shares of common
stock outstanding. Of these shares, the 1,300,000 shares sold in the initial
public offering are 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 Bioshield. The remaining 4,978,411 shares are
or were "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 Bioshield or any affiliate of Bioshield. 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 Bioshield's common stock
(approximately 63,000 shares as of November 10, 1999) or the average weekly
trading volume in Bioshield'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
Bioshield 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 Bioshield or any affiliate of Bioshield. Shares held
by persons who are deemed to be affiliated with Bioshield 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 4,505,092 shares of common stock, representing 70.8% of the
outstanding shares of the common stock, are eligible for sale in the public
market pursuant to Rule 144. Bioshield 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.
Executive officers, directors and senior management own 3,233,947
shares of the common stock. Bioshield's shareholders and directors entered into
an agreement with the underwriters providing that they would not sell or
otherwise dispose of any shares of common stock held by them that were issued
prior to the initial public offering until September 29, 1999. The 1998 warrants
were subject to an unconditional one-year lock-up until September 29, 1999,
which prevented a holder of the 1998 warrants from exercising such warrants or
otherwise transferring, conveying, or assigning such warrants for such one-year
period.
Bioshield 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 Bioshield to raise capital through the issuance of
additional equity securities.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document we file at the Securities and Exchange Commission's public
reference rooms in Washington, DC, New York, New York, and Chicago, Illinois.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms. Our Securities and Exchange
Commission filings are also available to the public from the Securities and
Exchange Commission's website at "http://www.sec.gov."
We have filed a registration statement on Form SB-2 with the
Securities and Exchange Commission to register the offering of the shares of
common stock offered pursuant to this prospectus. This prospectus is part of
that registration statement and, as permitted by the Securities and Exchange
Commission's rules, does not contain all of the information included in the
registration statement. For further information about us, this offering and our
securities, you may refer to the registration statement and its exhibits and
schedules as well as the documents described below. You can review and copy
these documents at the public reference facilities maintained by the Securities
and Exchange Commission or on the Securities and Exchange Commission's website
as described above.
This prospectus may contain summaries of contracts or other documents.
Because they are summaries, they will not contain all of the information that
may be important to you. If you would like complete information about a
contract or other document, you should read the copy filed as an exhibit to the
registration statement or incorporated in the registration statement by
reference.
56
<PAGE> 59
You may request a copy of these filings, at no cost, by writing to or
calling Wayne Roberts, BioShield Technologies, Inc., 5655 Peachtree Parkway,
Norcross, Georgia 30092, (770) 246-2000.
LEGAL MATTERS
The validity of the issuance of the common stock upon exercises of the
redeemable warrants has been passed upon for Bioshield 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 25,000 shares of common stock of
Bioshield and owns 225,000 shares of eMD.com. Other partners of the firm own
75,000 shares in the aggregate of eMD.com.
EXPERTS
The financial statements for each of the three fiscal years in the
period ended June 30, 1999, 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.
57
<PAGE> 60
CONSOLIDATED FINANCIAL STATEMENTS
BIOSHIELD TECHNOLOGIES, INC.
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
September 30, 1999 and June 30, 1999
F-1
<PAGE> 61
C O N T E N T S
<TABLE>
<S> <C>
CONSOLIDATED BALANCE SHEETS - SEPTEMBER 30, 1999
AND JUNE 30, 1999 (UNAUDITED) F-4
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE EARNINGS (UNAUDITED) F-5
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT) (UNAUDITED) F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9
INTERIM FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1999
(UNAUDITED) AND JUNE 30, 1999 F-19
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE EARNINGS FOR THE THREE MONTH
PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED) AND (UNAUDITED) JUNE 1, 1995
(INCEPTION) TO SEPTEMBER 30, 1999
AND 1998 F-20
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(UNAUDITED) F-21
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE
MONTH PERIOD ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED) AND JUNE 1, 1995 (INCEPTION) TO
SEPTEMBER 30, 1999 AND 1998 (UNAUDITED) F-23
NOTES TO (INTERIM) FINANCIAL STATEMENTS, SEPTEMBER 30, 1999 F-25
</TABLE>
F-2
<PAGE> 62
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
BioShield Technologies, Inc.
We have audited the accompanying consolidated balance sheets of BioShield
Technologies, Inc. and Subsidiary as of June 30, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the years then ended and for the period June 1, 1995 (inception) to
June 30, 1999. 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 consolidated financial position of BioShield
Technologies, Inc. and Subsidiary as of June 30, 1998 and 1999, and the
consolidated results of their operations and their cash flows for the years then
ended and for the period June 1, 1995 (inception) to June 30, 1999, in
conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Atlanta, Georgia
August 19, 1999 (except for Note N for
which the date is September 2, 1999)
F-3
<PAGE> 63
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ............................ $ 1,636 $ 2,500,561
Marketable securities ................................ -- 103,250
Accounts receivable .................................. 110,081 102,013
Stockholders' subscription receivable ................ -- 4,798,750
Inventories .......................................... 157,784 151,403
Prepaid expenses and other current assets ............ 2,500 171,073
----------- -----------
Total current assets ......................... 272,001 7,827,050
PROPERTY AND EQUIPMENT, NET ............................ 104,711 202,400
DEPOSITS AND OTHER LONG-TERM ASSETS .................... 60,911 194,293
----------- -----------
$ 437,623 $ 8,223,743
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable ........................................ $ 450,000 $ --
Notes payable - other ................................ 205,000 --
Accounts payable ..................................... 309,538 597,877
Accrued liabilities .................................. -- 195,044
Accrued payroll ...................................... 315,361 58,085
Accrued interest payable ............................. 18,377 839
----------- -----------
Total current liabilities .................... 1,298,276 851,845
MINORITY INTEREST ...................................... -- 4,798,750
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - no par value; 50,000,000 shares
authorized; 4,395,040 and 6,322,315 issued and
outstanding at June 30, 1998 and 1999, respectively 1,153,001 7,336,318
Additional paid-in capital ........................... 329,050 870,900
Accumulated other comprehensive earnings (loss) ...... -- (1,750)
Deficit accumulated during the development stage ..... (2,342,704) (5,632,320)
----------- -----------
(860,653) 2,573,148
$ 437,623 $ 8,223,743
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 64
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
<TABLE>
<CAPTION>
JUNE 1, 1995 YEAR ENDED YEAR ENDED
(INCEPTION) TO JUNE 30, JUNE 30,
JUNE 30, 1999 1998 1999
-------------- ----------- -----------
<S> <C> <C> <C>
Net sales ................................ $ 1,543,122 $ 462,471 $ 305,336
Cost of sales ............................ 659,393 154,658 188,913
----------- ----------- -----------
Gross profit ................... 883,729 307,813 116,423
Operating expenses
Marketing and selling .................. 1,472,506 472,945 780,566
General and administrative ............. 4,023,785 1,060,417 2,067,669
Research and development ............... 1,208,401 231,547 717,978
----------- ----------- -----------
6,704,692 1,764,909 3,566,213
----------- ----------- -----------
Loss from operations ........... (5,820,963) (1,457,096) (3,449,790)
Other income (expense)
Royalty fees ........................... 75,000 -- 75,000
Consulting income, net of consulting
expenses of $19,474 for the period
ended June 30, 1997 ................... 39,908 -- --
Interest and dividend income ........... 109,072 3,544 102,134
Interest expense ....................... (35,337) (18,377) (16,960)
----------- ----------- -----------
188,643 (14,833) 160,174
----------- ----------- -----------
Net loss before income taxes ... (5,632,320) (1,471,929) (3,289,616)
Income tax (expense) benefit ............. -- -- --
NET LOSS ....................... (5,632,320) (1,471,929) (3,289,616)
Other comprehensive earnings (loss)
Unrealized holding loss on securities .. (1,750) -- (1,750)
----------- ----------- -----------
COMPREHENSIVE LOSS ............. $(5,634,070) $(1,471,929) $(3,291,366)
=========== =========== ===========
Net loss per common share
Basic .................................. $ (1.22) $ (0.33) $ (0.57)
=========== =========== ===========
Weighted average common shares outstanding 4,617,751 4,395,040 5,814,191
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 65
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ACCUMULATED DEFICIT
OTHER ACCUMULATED
COMMON STOCK ADDITIONAL COMPREHENSIVE DURING THE
NO PAR VALUE PAID-IN EARNINGS DEVELOPMENT
-------------------------
SHARES AMOUNT CAPITAL (LOSS) STAGE TOTAL
------------ ----------- --------- ------------- ----------- -----------
<S> <C> <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 private placement offering ......... 62,612 115,000 -- -- -- 115,000
Stock warrants issued for
services rendered......................... -- -- 60,000 -- -- 60,000
Net loss - June 1, 1995
(inception) through June 30,.............. -- -- -- -- (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 private placement offering ......... 149,723 275,001 -- -- -- 275,001
Proceeds from issuance of shares
under private placement offering ......... 245,000 600,000 -- -- -- 600,000
Stock issuance costs related to
private placement offerings .............. -- (25,000) -- -- -- (25,000)
Stock warrants issued 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
Stock options issued for
services rendered ........................ -- -- 156,650 -- -- 156,650
Contribution to capital .................. -- -- 50,000 -- -- 50,000
Net loss for the year 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)
Proceeds from issuance of
shares under initial public
offering ................................. 1,300,000 5,102,794 -- -- -- 5,102,794
Proceeds from exercise of stock
warrants ................................. 612,275 1,065,523 -- -- -- 1,065,523
Proceeds from exercise of stock
options .................................. 15,000 15,000 -- -- -- 15,000
Stock options issued for
services rendered ........................ -- -- 95,250 -- -- 95,250
Compensation related to
previously issued options ................ -- -- 121,600 -- -- 121,600
Contribution to capital .................. -- -- 325,000 -- -- 325,000
Unrealized loss on securities ............ -- -- -- (1,750) -- (1,750)
Net loss for the year ended June
30, 1999 ................................. -- -- -- -- (3,289,616) (3,289,616)
----------- ----------- --------- ----------- ----------- -----------
Balance at June 30, 1999 ................. 6,322,315 $ 7,336,318 $ 870,900 $ (1,750) $(5,632,320) $ 2,573,148
=========== =========== ========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 66
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JUNE 1, 1995 YEAR ENDED YEAR ENDED
(INCEPTION) TO JUNE 30, JUNE 30,
JUNE 30, 1999 1998 1999
-------------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ......................................... $(5,632,320) $(1,471,929) $(3,289,616)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization ................. 60,681 14,426 28,215
Issuance of stock and stock options for
services rendered ............................ 495,900 156,650 216,850
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable ...................... (102,013) (80,787) 8,068
Inventory ................................ (151,403) (15,590) 6,381
Prepaid expenses and other current
assets .................................. (185,315) 17,568 (168,573)
Deposits and other assets ................ (195,156) (1,107) (133,382)
Increase in:
Accounts payable ......................... 597,877 140,658 288,339
Accrued liabilities and payroll .......... 253,968 26,806 (79,770)
----------- ----------- -----------
Net cash used in operating activities..... (4,857,781) (1,213,305) (3,123,488)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures ............................. (247,976) (76,480) (125,904)
Purchase of marketable securities ................ (105,000) -- (105,000)
----------- ----------- -----------
Net cash used by investing activities..... $ (352,976) $ (76,480) $ (230,904)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from debt ............................... $ 655,000 $ 655,000 $ --
Repayment of debt ................................ (655,000) -- (655,000)
Contribution to capital .......................... 375,000 50,000 325,000
Proceeds from stock warrants exercised ........... 1,065,523 -- 1,065,523
Stock issued under stock option plan ............. 15,000 -- 15,000
Proceeds from stock issuances, net ............... 6,255,795 187,500 5,102,794
----------- ----------- -----------
Net cash provided by financing
activities .............................. 7,711,318 892,500 5,853,317
----------- ----------- -----------
Net increase (decrease) in cash .......... 2,500,561 (397,285) 2,498,925
Cash at beginning of period ........................ -- 398,921 1,636
----------- ----------- -----------
Cash at end of period .............................. $ 2,500,561 $ 1,636 $ 2,500,561
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ......... $ 34,498 $ -- $ 34,498
</TABLE>
The accompanying notes are an integral part of these statements.
BIOSHIELD TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1999
NOTE A - NATURE OF OPERATIONS
BioShield Technologies, Inc. ("BSTI"), was incorporated on June 1, 1995.
BSTI was formed to develop, manufacture and distribute certain antimicrobial
agents and products. Patents for these new agents and products are currently
pending. BSTI is in the process of developing distribution channels for these
products throughout the United States and internationally. On April 27, 1999,
BSTI formed a subsidiary, Electronic Medical Distribution, Inc. (formerly known
as Allergy Superstore.com, Inc.) ("eMD.com") to develop electronic commerce in
the medical industry (see Note M).
F-7
<PAGE> 67
BSTI and eMD.com are in the development stage and their efforts though June
30, 1999, have been principally devoted to organizational activities, raising
capital, regulatory approvals, research and development and further
investigation into new markets.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Basis of Presentation
The consolidated financial statements include the accounts of BSTI, and its
majority owned (95%) subsidiary, EMD.com, from the date of its formation
(collectively, the "company"). All material intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
2. 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.
3. Marketable securities
The company categorizes marketable securities as available-for-sale
securities, as defined by the Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities." A
separate component of stockholders' equity reports the net amount of unrealized
holding gains and losses until realized.
4. 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.
5. 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 $14,000 and $28,000 for the years ended June 30, 1998 and 1999,
respectively.
Estimated service lives are as follows:
<TABLE>
<S> <C>
Office equipment................ 3 years
Machinery, leasehold improvements,
furniture and equipment......... 5-10 years
</TABLE>
6. 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.
7. 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.
8. 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
F-8
<PAGE> 68
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.
9. Research and development costs
The costs of research and development include, among other things,
consumable supplies and materials to be used for the development of the
company's intended products, and the cost of testing and consulting related to
filing with the Environmental Protection Agency (EPA) and patent filings.
Research and development costs are expensed when incurred and amounted to
$231,547 and $717,978 for the years ending June 30, 1998 and 1999, respectively.
10. 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 $228,192 and $597,550 for the years ended June 30, 1998 and 1999,
respectively. Advertising expense for the year ended June 30, 1999 included the
creation of media advertising materials of $158,000.
11. Reverse stock split
Effective December 11, 1997, the company's shareholders approved a reverse
split, which had the following effect on all outstanding securities:
<TABLE>
<S> <C>
Common stock..... 2.45 for 3.00
Warrants......... 1 for 2
</TABLE>
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 warrant amounts have been restated
retroactively to reflect these reverse splits.
12. Loss per common share
Basic loss per common share has been calculated using the weighted average
number of shares of common stock outstanding during each period as adjusted for
the reverse split as discussed in Note B-11. Diluted loss per common share is
not disclosed because the effect of the exchange or exercise of common stock
equivalents would be antidilutive.
13. Stock-Based Compensation
Financial Accounting Statement No. 123, Accounting for Stock Based
Compensation, encourages, but does not require companies to record compensation
cost for stock-based employee compensation plans at fair value. The company has
chosen to continue to account for stock-based compensation using the intrinsic
method prescribed in Accounting Principles Board Opinion No. 25, Accounting for
Stock issued to Employees, and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the company's stock at the date of the grant over the
amount an employee must pay to acquire the stock (see Note F).
14. Reclassifications
Certain reclassifications have been made to the 1998 financial statements to
conform to the 1999 presentation.
NOTE C - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1999
------------- -------------
<S> <C> <C>
Raw Materials..... $ 83,482 $ 60,273
Work in Process... 42,893 47,993
Finished Goods.... 31,409 43,137
--------- ---------
$ 157,784 $ 151,403
========= =========
</TABLE>
F-9
<PAGE> 69
NOTE D - PROPERTY AND EQUIPMENT
Property and Equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1999
------------- -------------
<S> <C> <C>
Leasehold improvements........... $ 33,385 $ 33,385
Office furniture and equipment... 28,433 125,891
Machinery and equipment.......... 60,254 88,700
--------- ---------
Total property and equipment..... 122,072 247,976
Less accumulated depreciation.... (17,361) (45,576)
--------- ---------
$ 104,711 $ 202,400
========= =========
</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
2009 and require the company to pay all maintenance costs. Rent expense under
these leases was $64,835 and $72,082 for the years ended June 30, 1998 and 1999,
respectively.
Commitments under noncancelable operating leases including leases entered
into after June 30, 1999 are summarized as follows:
<TABLE>
<CAPTION>
BSTI EMD.COM TOTAL
--------- ---------- ----------
<S> <C> <C> <C>
Fiscal Year:
2000......... $ 143,106 $ 359,606 $ 502,712
2001......... 60,798 733,596 794,394
2002......... -- 748,534 748,534
2003......... -- 763,471 763,471
2004......... -- 778,962 778,962
Thereafter... -- 4,134,363 4,134,363
---------- ----------
Total... $ 203,904 $7,518,532 $7,722,436
========= ========== ==========
</TABLE>
NOTE F - STOCK OPTIONS AND WARRANTS
The company's Board of Directors has approved two stock options plans. Under
the 1997 Stock Incentive Plan, the company may grant options to officers and key
employees for up to 1,200,000 shares of common stock. This plan provides for the
expiration of options ten years from the date of grant, with the exception of
options issued to an over 10% owner, for which expiration is five years from the
date of grant. The exercise price of options granted must equal at least 100% of
the market value, or 110% of the market value for over 10% owners, on the date
granted. Under the 1996 Directors' Stock Option Plan, the company may grant
options to directors of the company for up to 1,000,000 shares of common stock.
This plan provides for options to be immediately exercisable and provides for
the expiration of options five years from the date of grant. The plan requires
initial options to be granted at an exercise price of $2.00 per share.
Subsequent options are issued at market value.
Employee stock option transactions for the years ended June 30, 1999 and
1998 are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1999
---------------------- -------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of period ........... 60,000 $ 2.00 90,000 $ 1.67
Granted .................................... 30,000 1.00 745,000 6.27
Exercised .................................. -- -- (15,000) 1.00
Forfeited .................................. -- -- -- --
-- -- -- --
Outstanding, end of year ................... 90,000 $ 1.67 820,000 $ 5.87
======== ======== ======== ========
Options exercisable at year end............. 90,000 410,000
Weighted average fair value of options
granted during the year..................... $ 3.88 $ 3.15
</TABLE>
F-10
<PAGE> 70
The following table summarizes information about employee stock options
outstanding at June 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- ----------------------------------
WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE NUMBER WEIGHTED
OUTSTANDING AT CONTRACTUAL EXERCISE EXERCISABLE AT AVERAGE
RANGE OF EXERCISE PRICE JUNE 30, 1999 LIFE (YEARS) PRICE JUNE 30, 1999 EXERCISE PRICE
- ----------------------------- -------------- ------------ -------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$1.00........................ 40,000 4.25 $ 1.00 40,000 $ 1.00
2.00-3.00.................... 360,000 3.94 2.78 360,000 2.78
5.00......................... 267,000 4.30 5.00 -- --
5.75-6.00.................... 20,000 4.75 5.88 10,000 5.75
12.25-19.06.................. 133,000 4.94 17.41 -- --
------- ---- -------
820,000 4.25 $ 5.87 410,000 $ 2.68
======= ==== ======= ======= ======
</TABLE>
The company follows the practice of recording amounts received upon the
exercise of certain options by crediting common stock. No charges are reflected
in the statements of operations as a result of the grant or exercise of options
to or by employees. The company realizes an income tax benefit from the exercise
of certain stock options and the exercise and early disposition of the shares
acquired via certain other stock options. This benefit results in a reduction to
income taxes payable and an increase to additional paid-in capital.
The company uses the intrinsic value method in accounting for stock options
issued to employees and directors. In applying this method, compensation cost of
$116,250 and $61,250 has been recognized for the years ended June 30, 1998 and
1999, respectively. Had compensation cost for the company's option plans been
determined based on the fair value at the grant dates for awards under those
plans, the company's net loss and loss per share would have resulted in the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30,1999
------------- -------------
<S> <C> <C> <C>
Net loss .................... As reported $ (1,471,929) $ (3,291,366)
Pro forma (1,471,929) (4,045,637)
Basic net loss per
common share ................ As reported $ (0.33) $ (0.57)
Pro forma (0.33) (0.70)
</TABLE>
The fair values were estimated using the Black Scholes options-pricing model
with the following weighted average assumptions for 1998 and 1999: expected
dividend yield of 0.0%, expected price volatility of 84.96%, risk-free rate of
return of 6.5%, and expected life of options of 3.0 years.
Stock Options Issued to Non-Employees
As of the beginning of fiscal 1998, options to purchase 60,000 shares of
common stock were outstanding related to options issued to a member of the
company's advisory board during 1996. These options vest over a three-year
period allowing the optionee to acquire 20,000 shares beginning on each
anniversary date of the grant date and expiring five years from the date of
grant.
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. Compensation
cost of $121,600 and $40,400 has been recognized in the accompanying financial
statements for the years ended June 30, 1998 and June 30, 1999.
During the year ended June 30, 1999, the company issued options to purchase
4,000 shares of common stock at an exercise price of $8.94 per share and 4,000
shares of common stock at an exercise price of $14.81 per share to a
non-employee for consulting
F-11
<PAGE> 71
services. These options vest one year from the grant date and expire five years
from the grant date. Compensation cost of $34,000 has been recognized for the
year ended June 30, 1999 related to these options.
Warrants
At June 30, 1997, warrants for the purchase of 959,004 shares were issued in
connection with various private placement offerings. In connection with the
reverse split discussed in Note B-11, 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 $5.00 to $5.25 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.
In connection with its initial public offering during the year ended June
30, 1999, warrants for the purchase of 1,365,000 shares were issued with an
exercise price ranging from $6.00 to $7.50 expiring September 2003. Also during
the year ended June 30, 1999, warrants for the purchase of 612,275 shares were
exercised. The number of warrants outstanding as of June 30, 1999, including
150,000 issued for services in lieu of cash, was 1,890,977.
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 are summarized as
follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1999
--------- -----------
<S> <C> <C>
Deferred income tax assets:
Operating loss carryforwards $ 658,883 $ 1,867,560
Payroll tax accruals ........ 119,837 121,080
Options for services ........ 106,039 142,234
--------- -----------
Gross deferred tax assets ... 884,759 2,130,874
Deferred tax asset valuation
allowance ................... (884,759) (2,130,874)
--------- -----------
Net deferred income tax asset $ -- $ --
========= ===========
</TABLE>
The income tax provisions for the years ended June 30, 1998 and 1999, differ
from the amounts determined by applying the applicable U.S. statutory federal
income tax rate to pretax results of operations. These differences are the
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, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1998 1999
----------- -----------
<S> <C> <C>
Income tax benefit at applicable Federal rate of 34% ... $ 500,456 $ 1,118,469
State tax benefit, net of Federal income tax effect..... 58,877 131,585
Other .................................................. (1,638) (3,939)
----------- -----------
557,695 1,246,115
Increase in deferred income tax asset valuation
allowance .............................................. 557,695) (1,246,115)
----------- -----------
Net income tax benefit ................................. $ -- $ --
=========== ===========
</TABLE>
At June 30, 1999, the company had operating loss carryforwards for U.S.
income tax purposes of approximately $4,400,000 available to reduce future
taxable income. These loss carryforwards will expire in fiscal years 2004
through 2019.
The company has experienced a change in control, as defined under Section
382 of the Internal Revenue Code, during 1999. As a result, the utilization of
the net operating losses that expire in 2019 and prior will be limited to a
maximum amount annually as defined by the Internal Revenue Code. As a result of
these limitations, a significant portion of the tax loss carryforwards could
expire unused.
F-12
<PAGE> 72
NOTE H - SIGNIFICANT CUSTOMERS
During 1997, the company entered into sales agreements with two customers
that included provision for certain exclusive marketing rights and preferential
payment terms. The customers terminated these agreements during 1999. Sales to
two customers totaled approximately $151,000 or 33% of total sales for the year
ended June 30, 1998. Sales to four customers totaled approximately $185,000 or
61% of total sales during the year ended June 30, 1999. No other customer
represented more than 10% of sales during the periods presented.
NOTE I - NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Pronouncements
The company adopted Statement of Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income, for its fiscal year ended June 30, 1999.
The statement establishes standards for reporting and presentation of
comprehensive earnings and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. The statement requires
retroactive application for all periods presented in the financial statements.
The adoption of SFAS No. 130 did not have a material effect on the company's
results of operations or its financial position.
The company adopted Statement of Financial Accounting Standards (SFAS) No.
131, Disclosure About Segments of An Enterprise and Related Information, for its
fiscal year ended June 30, 1999. SFAS No. 131 establishes standards for the way
in which information about operating segments is reported. SFAS No. 131 also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of SFAS No. 131 did not have
a material effect on the company's results of operations or its financial
position.
During 1999, the company adopted Statement of Positions (SOP) No. 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use, which requires certain costs incurred in connection with developing or
obtaining internal-use software to be capitalized and other costs to be
expensed. During 1999, the company expensed $166,000 related to the development
of internet software.
Recently Issued Pronouncements
In April 1998, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee (AcSEC) issued Statement of Position
No. SOP 98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5
establishes standards on accounting for start-up and organization costs and, in
general, requires such costs to be expensed as incurred. This standard is
required to be adopted on July 1, 1999.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, which must be adopted by July 1,
1999, with early adoption permitted. SFAS No. 133 requires that all derivative
financial instruments be recorded as either assets or liabilities on the balance
sheet and measure those instruments at their fair value. Changes in the fair
value of derivatives will be recorded each period in earnings or other
comprehensive income, depending on whether a derivative as part of a hedge
transaction and, if it is, the type of hedge transactions.
The adoption of these two pronouncements is not expected to have a material
effect on the company's results of operations or financial position.
NOTE J - NOTES PAYABLE
Notes payable consisted of ninety $5,000 notes payable to individuals
totaling $450,000 at June 30, 1998. The notes bear interest at 10% per annual
during the first twelve months, 13% per annum during the second twelve months,
and 15% per annum during the third twelve months. In connection with these
notes, warrants for the purchase of 450,000 shares at an exercise price of $5.00
per share (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.
F-13
<PAGE> 73
Other notes payable consisted of a $80,000 note payable to a relative of a
principle stockholder bearing interest at 8% and a $125,000 note payable to an
individual bearing interest at prime plus 2%.
The company repaid all notes payable that were outstanding as of June 30,
1998 upon receiving the proceeds of the initial public offering.
NOTE K - SEGMENT INFORMATION
The following information is presented in accordance with SFAS No. 131,
which was adopted by the company during 1999.
The company operates primarily in the antimicrobial and biostatic products
segment. During 1999, the company established a subsidiary, EMD.com which will
operate in the pharmaceutical distribution segment via the internet.
The company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The company evaluates
performance based on gross profit.
See Note H regarding sales to significant customers. Sales reported in Note
H relate to the antimicrobial and biostatic products segment only.
The following table provides summarized information concerning the company's
reportable segments.
<TABLE>
<CAPTION>
ANTIMICROBIAL
AND BIOSTATIC PHARMACEUTICAL
PRODUCTS DISTRIBUTION TOTAL
------------- -------------- -----------
<S> <C> <C> <C>
Revenues from products/services... $ 305,336 $ - $ 305,336
Gross profit...................... 116,423 - 116,423
Segment profit (loss)............. (2,824,391) (465,225) (3,289,616)
Interest income................... 102,134 - 102,134
Interest expense.................. 16,960 - 16,960
Depreciation and amortization..... 26,857 1,358 28,215
Segment assets.................... 3,239,449 4,984,294 8,223,743
</TABLE>
For the years ended June 30, 1998, all operations and assets related to the
antimicrobial and biostatic products segment.
NOTE L - RELATED PARTY TRANSACTIONS AND SUBSEQUENT EVENT
During 1998, the company entered an exclusive sales and distributorship
agreement with a related party. Under this agreement, the company receives
royalty payments based on the level of sales of its products made by the
distributor. Royalty payments are subject to an annual minimum amount. In
addition, the distributor has agreed to pay the company $50,000 in monthly
installments over two years to be used by the company to continue its research
and development of products, product improvement and patent execution. Payments
related to this agreement did not begin until 1999. The company recorded $75,000
related to royalties which is reported as royalty fees in the financial
statements. The company recorded income of $16,667 related to research and
development under this agreement and has been netted against research and
development expense in the accompanying financial statements.
At June 30, 1999, the company had $79,667 due from related parties included
in accounts receivable.
During 1999, two principal stockholders contributed $325,000 to additional
paid-in capital of the company without further consideration. In June 1998, a
principal stockholder contributed $50,000 to additional paid-in capital of the
company without further consideration.
F-14
<PAGE> 74
NOTE M - FORMATION OF EMD.COM
On April 27, 1999, the company acquired 99% of the outstanding common stock
of a newly formed entity, Allergy Superstore.com, Inc. The corporate name of the
newly acquired subsidiary was subsequently changed to eMD.com. On June 30, 1999,
eMD.com, BSTI, and certain investors entered into a securities purchase
agreement whereby eMD.com would sell up to an aggregate of 3,218,884 shares of
common stock to the investors at a price of $4.67 per share. As of June 30,
1999, investors had purchased 1,070,664 shares for an aggregate purchase price
of $5,000,000 under this agreement. The net proceeds of $4,798,750, which was
received from escrow on July 6, 1999, was included in current assets under the
caption Stockholder subscription receivable at June 30, 1999. In connection with
the purchase of stock, the investors also received warrants for the purchase of
100,000 shares of eMD.com common stock at an exercise price of $5.126 per share.
These warrants have a five year term. At June 30, 1999, there were 29,070,664 of
issued and outstanding shares of eMD.com.
The securities purchase agreement provides for a conversion feature which
allows the holder of eMD.com common stock to exchange their shares for BSTI
common stock at a predetermined exchange rate provided eMD.com has not
consummated an initial public offering within twelve months of the purchase of
stock under this agreement. BioShield has agreed to reserve the number of shares
of common stock needed in connection with the conversion right and warrants
issued by eMD.com.
eMD.com has also granted options for the purchase of 4,740,000 shares of
common stock pursuant to various stock options plans to members of its board of
directors and members of its advisory board. All options have a 5 year term and
an exercise price of $2.00 per share.
NOTE N - SUBSEQUENT EVENTS
As of September 2, 1999, investors had purchased an additional 214,133
shares of eMD.com common stock for an aggregate purchase price of $1,000,000
under the aforementioned securities purchase agreement (Note M). Warrants for
the purchase of 60,000 shares of eMD.com common stock at an exercise price of
$5.126 per share were issued in connection with the eMD.com securities purchase
agreements.
On July 9, 1999, eMD.com entered into an agreement with iXL Enterprises,
Inc. (iXL), a subsidiary of iXL, Inc. Under the agreement, iXL will provide
strategic planning and marketing advice in exchange for 600,000 shares of
eMD.com common stock. The company also entered into a separate agreement with
iXL, Inc for the design and development of an internet website. Under the
agreement, eMD.com will pay iXL a total of approximately $1,890,700 as work
progresses on the development of the website.
On July 6, 1999, the company entered into a lease agreement with an unrelated
party to lease an office building for a term of ten years (see Note E for future
minimum lease payments).
F-15
<PAGE> 75
INTERIM FINANCIAL STATEMENTS
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, JUNE 30,
1999 1999
------------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................. $ 5,074,266 $ 2,500,561
Marketable securities...................................................... 87,500 103,250
Accounts receivable........................................................ 107,492 102,013
Stockholders' subscription receivable...................................... -- 4,798,750
Inventories................................................................ 165,743 151,403
Prepaid expenses and other current assets.................................. 181,011 171,073
----------- -----------
Total current assets................................................. 5,616,012 7,827,050
PROPERTY AND EQUIPMENT, NET................................................... 523,928 202,400
DEPOSITS AND OTHER LONG-TERM ASSETS........................................... 630,242 194,293
----------- -----------
$ 6,770,182 $ 8,223,743
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable........................................................... $ 723,736 $ 597,877
Accrued liabilities........................................................ 514,377 195,044
Accrued payroll............................................................ 68,289 58,085
Accrued interest payable................................................... 839 839
----------- -----------
Total current liabilities............................................ 1,307,241 851,845
MINORITY INTEREST............................................................. 6,124,750 4,798,750
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock - no par value; 50,000,000
shares authorized; 6,325,915 and 6,322,315
issued and outstanding at September 30, 1999
and June 30, 1999, respectively.......................................... 7,357,888 7,336,318
Additional paid-in capital................................................. 1,977,300 870,900
Accumulated other comprehensive earnings (loss)............................ (17,500) (1,750)
Deficit accumulated during the development stage........................... (9,979,497) (5,632,320)
----------- -----------
(661,809) 2,573,148
$ 6,770,182 $ 8,223,743
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-16
<PAGE> 76
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED JUNE 1, 1995 (INCEPTION)
SEPTEMBER 30, TO SEPTEMBER 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales ........................................ $ 144,445 $ 87,854 $ 1,687,567 $ 1,325,640
Cost of sales .................................... 90,488 33,736 749,881 504,216
------------- ------------- ------------- -------------
Gross profit ................................ 53,957 54,118 937,686 821,424
Operating expenses
Marketing and selling ......................... 805,467 114,379 2,282,741 806,319
General and administrative .................... 3,023,654 259,982 7,010,058 2,290,393
Research and development ...................... 633,984 37,802 1,874,998 453,930
------------- ------------- ------------- -------------
4,463,105 412,163 11,167,797 3,550,642
------------- ------------- ------------- -------------
Loss from operations ...................... (4,409,148) (358,045) (10,230,111) (2,729,218)
Other income (expense)
Royalty fees .................................. -- -- 75,000 --
Consulting income, net of consulting
expenses of $19,474 for the period
ended June 30, 1998 ......................... -- -- 39,908 39,908
Interest and dividend income .................. 61,971 818 171,043 7,756
Interest expense .............................. -- (16,335) (35,337) (34,712)
------------- ------------- ------------- -------------
Net loss before income taxes ............ (4,347,177) (373,562) (9,979,497) (2,716,266)
Income tax (expense) benefit ..................... -- -- -- --
------------- ------------- ------------- -------------
Net loss ................................ (4,347,177) (373,562) (9,979,497) (2,716,266)
Other comprehensive earnings (loss)
Unrealized holding loss on securities ......... (15,750) -- (17,500) --
------------- ------------- ------------- -------------
COMPREHENSIVE LOSS ...................... $ (4,362,927) $ (373,562) $ (9,996,997) $ (2,716,266)
============= ============= ============= =============
Net loss per common share
Basic ......................................... $ (0.69) $ (0.08) $ (2.12) $ (0.64)
============= ============= ============= =============
Weighted average common
shares outstanding ............................ 6,325,915 4,747,021 4,717,026 4,268,977
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-17
<PAGE> 77
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ACCUMULATED DEFICIT
COMMON STOCK OTHER ACCUMULATED
NO PAR VALUE ADDITIONAL COMPREHENSIVE DURING THE
------------------------- PAID-IN EARNINGS DEVELOPMENT
SHARES AMOUNT CAPITAL (LOSS) STAGE TOTAL
--------- ------------ ----------- ------------- ----------- -----------
<S> <C> <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
private placement offering .......... 62,612 115,000 -- -- -- 115,000
Stock warrants issued 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 private placement offering .... 149,723 275,001 -- -- -- 275,001
Proceeds from issuance of shares
under private placement offering .... 245,000 600,000 -- -- -- 600,000
Stock issuance costs related to
private placement offerings ......... -- (25,000) -- -- -- (25,000)
Stock warrants issued 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
Stock options issued for services
rendered .............................. -- -- 156,650 -- -- 156,650
Contribution to capital ................ -- -- 50,000 -- -- 50,000
Net loss for the year 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)
Proceeds from issuance of shares
under initial public offering ....... 1,300,000 5,102,794 -- -- -- 5,102,794
Proceeds from exercise of stock
warrants ............................ 612,275 1,065,523 -- -- -- 1,065,523
Proceeds from exercise of stock
options ............................. 15,000 15,000 -- -- -- 15,000
Stock options issued for services
rendered ............................ -- -- 95,250 -- -- 95,250
Compensation related to previously
issued options ...................... -- -- 121,600 -- -- 121,600
Contribution to capital ................ -- -- 325,000 -- -- 325,000
Unrealized loss on securities .......... -- -- -- (1,750) -- (1,750)
Net loss for the year ended
June 30, 1999 ....................... -- -- -- -- (3,289,616) (3,289,616)
--------- ------------ ---------- ---------- ----------- -----------
Balance at June 30, 1999 ............... 6,322,315 7,336,318 870,900 (1,750) (5,632,320) 2,573,148
</TABLE>
F-18
<PAGE> 78
<TABLE>
<CAPTION>
ACCUMULATED DEFICIT
COMMON STOCK OTHER ACCUMULATED
NO PAR VALUE ADDITIONAL COMPREHENSIVE DURING THE
------------------------- PAID-IN EARNINGS DEVELOPMENT
SHARES AMOUNT CAPITAL (LOSS) STAGE TOTAL
--------- ------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Proceeds from exercise of warrants ..... 3,600 21,570 -- -- -- 21,570
Stock warrants issued for services
rendered ....................... -- -- 1,106,400 -- -- 1,106,400
--------- ------------ ---------- ---------- ----------- -----------
Unrealized loss on securities .......... -- -- -- (15,750) -- (15,750)
Net loss for the quarter ended
September 30, 1999 .................. -- -- -- -- -- (4,347,177)
--------- ------------ ---------- ---------- ----------- -----------
6,325,915 $ 7,357,888 $1,977,300 $ (17,500) $(9,979,497) $ (661,809)
========= ============ ========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE> 79
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED JUNE 1, 1995 (INCEPTION)
SEPTEMBER 30, TO SEPTEMBER 30,
----------------------------------- -----------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (4,347,177) $ (373,562) $ (9,979,497) $ (2,716,266)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 15,884 5,078 76,565 37,544
Issuance of stock and stock
warrants for services rendered 1,772,400 48,750 2,268,300 327,800
Changes in operating assets and
liabilities:
(Increase) decrease in:
Accounts receivable (5,479) (15,827) (107,492) (125,908)
Inventory (14,340) (14,935) (165,743) (172,719)
Prepaid expenses and
other current assets (9,938) -- (195,253) --
Deposits and other assets (435,949) 42,000 (631,105) (36,516)
Increase in:
Accounts payable 125,859 36,554 723,736 346,092
Accrued liabilities and payroll 329,537 31,269 583,505 365,007
------------- ------------- ------------- -------------
Net cash used in operating activities (2,569,203) (240,673) (7,426,984) (1,974,966)
Cash flows from investing activities:
Capital expenditures (337,412) -- (585,388) (122,072)
Purchase of marketable securities -- -- (105,000) --
------------- ------------- ------------- -------------
Net cash used by investing activities (337,412) -- (690,388) (122,072)
------------- ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from debt -- -- 655,000 655,000
Repayment of debt -- (62,500) (655,000) (62,500)
Contribution to capital -- 325,000 375,000 375,000
Proceeds from stock warrants exercised 21,570 224,542 1,087,093 224,542
Stock issued under stock option plan -- -- 15,000 --
Proceeds from stock issuances, net 5,458,750 5,491,056 11,714,545 6,644,057
------------- ------------- ------------- -------------
Net cash provided by
financing activities 5,480,320 5,978,098 13,191,638 7,836,099
------------- ------------- ------------- -------------
Net increase (decrease) in cash 2,573,705 5,737,425 5,074,266 5,739,061
Cash at beginning of period 2,500,561 1,636 -- --
------------- ------------- ------------- -------------
Cash at end of period $ 5,074,266 $ 5,739,061 $ 5,074,266 $ 5,739,061
============= ============= ============= =============
Supplemental disclosure of cash flow
information:
Cash paid during the period
for interest $ 34,498 $ -- $ 34,498 $ --
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE> 80
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
NOTE A - BASIS OF PRESENTATION
The interim financial statements included herein have been prepared by the
Company without audit. These statements reflect all adjustments, which are,
in the opinion of management, necessary to present fairly the financial
position as of September 30, 1999 and the results of operations and cash
flows for the period then ended. All such adjustments are of a normal
recurring nature. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes for the fiscal year ended June 30, 1999.
NOTE B - INVENTORIES
Inventories consist primarily of raw materials, work in progress and
finished goods, which are stated at the lower of cost or market. Cost is
determined under the first-in, first-out (FIFO) valuation method.
NOTE C - LOSS PER COMMON SHARE
The Company has adopted Statement of Financial Accounting Standards No. 128
(SFAS 128), Earnings Per Share. Basic loss per common share is based upon
the weighted average number of common shares outstanding during the period.
Diluted loss per common share is not disclosed because the effect of the
exchange or exercise of common stock equivalents would be antidilutive.
NOTE D - STOCK OPTIONS AND WARRANTS
During the three months ended September 30, 1999, the following changes
occurred in outstanding stock options and warrants.
<TABLE>
<S> <C>
Options outstanding at June 30, 1999 1,008,000
Options granted --
Options cancelled --
Options exercised --
---------
Options outstanding at September 30, 1999 1,008,000
=========
</TABLE>
F-21
<PAGE> 81
BioShield Technologies, Inc. and Subsidiary
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
NOTE D - STOCK OPTIONS AND WARRANTS - Continued
<TABLE>
<S> <C>
Warrants outstanding at June 30, 1999 1,890,977
Warrants granted 240,000
Warrants cancelled --
Warrants exercised (3,600)
---------
Warrants outstanding at September 30, 1999 2,127,377
=========
</TABLE>
NOTE E - COMMITMENTS AND CONTINGENCIES
On July 9, 1999, eMD.com, a subsidiary of the Company, entered into an
agreement with iXL Enterprises, Inc. (iXL), a subsidiary of iXL, Inc. Under
the agreement, iXL will provide strategic planning, and marketing advice in
exchange for 600,000 shares of eMD.com common stock. The Company recorded a
charge of $666,000 based on the fair market value of the eMD.com common
stock issued to iXL. Fair market value was determined based on recent sales
of eMD.com common stock in private placement offerings. On September 29,
1999, the Company recorded a charge of $1,106,400 based on the fair market
value of the eMD.com common stock issued to CLR & Associates. Fair market
value was determined based on the Black Scholes model. The total for the
non-stock charges related to issuance of both stock and warrants was
$1,772,400. The iXL common stock issuance increased Minority Interests by
$666,000 and the CLR warrant issuance increased Paid-in-Capital by
1,106,400.
The Company also entered into a separate agreement with iXL for the design
and development of an internet website. Under the agreement, eMD.com will
pay iXL a total of approximately $1,890,700 as work progresses on the
development of the website. Through September 30, 1999, the Company had
paid and expensed approximately $520,000 related to this agreement.
On July 6, 1999, the Company entered into a lease agreement with an
unrelated party to lease an office building for a term of ten years.
Required minimum lease payments under this lease is approximately $45,000
per month for the year ending June 30, 2000.
NOTE F - SUBSEQUENT EVENTS
In addition to its development and marketing of proprietary antimicrobials, the
Company is engaged in the sale and distribution of cleaning and deodorizing
products in the retail and industrial segments. These products are exempt from
regulation as "pesticides" under the Federal Insecticide, Fungicide and
Rodenticide Act, as amended ("FIFRA"). Like many other companies engaged in the
sale of these products, the Company has experienced regulatory scrutiny from
the United States Environmental Protection Agency ("EPA"), which implements
federal regulations under FIFRA regarding the labeling of these products. The
EPA alleged that certain claims on the labels were inappropriate for these
products in the absence of an EPA pesticide registration and required the
Company to revise the labels to remove alleged pesticidal claims. While the
Company did not agree with the EPA interpretation that the claims were
pesticidal, the Company voluntarily agreed to revise the labels for these
products. The EPA then authorized the sale of the products with the revised
labels. On September 27, 1999, the EPA filed an administrative complaint
against the Company seeking the assessment of a civil penalty in the amount of
$97,340 relating to these alleged violations as well as an allegation that the
Company refused an EPA inspection in 1998. The Company maintains that these
allegations are without merit. However, in a demonstration of good faith and
cooperation, the Company, while denying the alleged violations, agreed to the
payment of a substantially reduced penalty on October 30, 1999 in the amount of
$72,840. The company had previously accrued for the potential penalty in fiscal
1999.
In the month of October 1999, the company continued to develop its eMD.com
business infrastructure. Significant contractual payment commitments of
approximately $4,000,000 have been made by the company to several equipment,
software and consulting business partners to complete the initial versions of
the internet products by December 1999. Total cash payment commitments of
approximately $3,000,000 are due by the end of December 1999. Management is
currently raising additional investment capital to meet these commitments and
to fund operational deficits that are anticipated throughout the early
operational stages of the eMD.com strategy.
F-22
<PAGE> 82
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 has
incurred cumulative comprehensive losses of $9,996,997 from June 1, 1995
(inception) to September 30, 1999. The Company is a development stage
company primarily engaged in research and development, patent filings,
regulatory approvals and related activities. Through September 30, 1999,
the Company had raised $15,459,938 of capital, including $6,124,750
classified as minority interest, through its initial public offering and
other private offerings of its securities. The Company is actively seeking
to obtain additional funds through public and private equity, debt funding,
strategic collaborative agreements, or from other sources. The failure to
raise the necessary additional capital in the future may cause substantial
delays or reduction of the scope of the Company's business plan. The
Company's continuation as a going concern is dependent upon its ability to
generate or raise sufficient cash flow to meet its obligations on a timely
basis, and ultimately to attain profitability. No assurances can be given
that the Company will be successful in raising additional finances.
F-23
<PAGE> 83
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:
<TABLE>
<S> <C>
Securities and Exchange Commission filing...................... $ 2,813.25
NASDAQ fee .................................................... 7,500 *
Printing and engraving expenses................................ 5,000 *
Legal Fees and expenses........................................ 40,000 *
Accounting fees and expenses................................... 15,000 *
Blue sky fees and expenses..................................... 5,000 *
Miscellaneous.................................................. 2,500 *
Total................................................ $77,813.25
</TABLE>
- ----------
* Estimated.
II-1
<PAGE> 84
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 Section 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 Section 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). 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.
On January 13, 2000, we completed a private placement for cash of $4,000,000
principal amount of our series A convertible preferred stock and warrants to
purchase 200,000 shares of common stock of eMD.com. The series A preferred stock
and warrants were sold in a private placement in reliance on Rule 506 of the
Securities Act of 1933, which provides an exemption from registration for sales
to accredited investors, as defined by Rule 501 under Regulation D of the
Securities Act. Corpfin.com, Inc. acted as placement agent for the company and
received a fee of $250,000 in cash (of which $90,000 was paid to Greenfield
Capital Partners, as sub-agent). Greenfield Capital Partners also received
warrants to purchase 26,666 shares of common stock of Electronic Medical
Distribution, Inc., at an exercise price of $5.126 per share. Those warrants
expire on January 12, 2005.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement (2)
1.2 -- Form of Underwriters' Warrants (2)
3.1 -- Amended and Restated Articles of Incorporation of the company, dated
February 13, 1998 (2)
3.2 -- Bylaws of the company (2)
3.3 -- Articles of Amendment to the Articles of Incorporation of the Company (1)
4.1 -- Form of Stock Certificate (2)
4.2 -- Form of Unit Certificate (2)
4.3 -- Form of Unit Warrant Certificate (2)
4.4 -- Form of February/March 1998 Private Placement Investor Warrant (2)
4.5 -- First Atlanta Warrant (2)
4.6 -- Form of Public Investor Warrant Agreement (2)
</TABLE>
II-2
<PAGE> 85
<TABLE>
<S> <C> <C>
4.7 -- Form of November 1996 and December 1996 -- April 1996 Private Placement
Warrant (2)
4.8 -- Form of July 1997 Private Placement Warrant (2)
5.1 -- Opinion of Sims Moss Kline & Davis (1)
10.1 -- Employment Agreement between the company and Timothy C. Moses, dated
January 1, 1998 (2).
10.2 -- Employment Agreement between the company and Jacques Elfersy, dated
January 1, 1998 (2)
10.3 -- Employment Agreement between the company and Joachim Berkner, dated
January 1, 1998 (2)
10.4 -- Employment Agreement between the company and William O. Hitt, dated
March 11, 1998 (2)
10.5 -- Material Lease between the company and Weeks Realty for Property in Norcross,
Georgia, dated April 24, 1997 (2)
10.6 -- Material Lease between the company and Selig Enterprises for Property in
Norcross, Georgia, dated April 24, 1997 (2)
10.7 -- Marketing and Distribution Agreement between the company and QVC, Inc., dated
November 5, 1997 (2)
10.8 -- Sales Agreement between the company and HealthSafe Environmental Products, Inc.,
dated February 6, 1997 (2)
10.9 -- Sales and Distribution Agreement between the company and Concrete MicroTech,
Inc., dated February 7, 1997 (2)
10.10 -- Sales Agreement between the company and Sanitary Coating Systems, Inc., dated
November 13, 1997 (2)
10.11 -- Consulting Agreement between the company and R.T.Consulting, Dated
December 5, 1997 (2)
10.12 -- Promissory Note between the company and Stephen M. Dale, Dated May 12, 1998 (2)
10.13 -- Agreement to provide edgarization services between the company and Revere
Financial Group, Inc., dated May 28, 1998 (2)
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)
10.15 -- Option Agreement Pursuant to 1996 Director's Stock Option Plan (2)
10.16 -- 1997 Stock Incentive Plan (2)
10.17 -- Patent Assignment Agreements by and among Jacques Elfersy, Joachim Berkner,
Timothy C. Moses, and the company, dated February 5, 1998 (2)(3)
10.18 -- Letter Agreement with Moran Marketing company, Inc., dated September 8, 1998 (2)
10.19 -- Employment Agreement between the company and Jeffrey A. Parker, dated September
17, 1998 (2)
10.20 -- Transfer Agent Agreement between the company and American Securities Transfer &
Trust, Inc., dated August 27, 1998 (2)
10.21 -- Employment Agreement between the company and Daniel E. Swaye, dated October
8, 1998 (2)
10.22 -- Amendment to Exclusive Sales and Distribution Agreement between the company
and Sanitary Coating Systems, LLP, dated as of February 12, 1999 (2)
10.23 -- Agreement between the company and John T. Adams, dated April 1, 1999 (2)
10.24 -- Financial Advisory and Consulting Agreement between the company and Grayson
Financial Services, LLP, dated as of April 1, 1999 (2)
</TABLE>
II-3
<PAGE> 86
<TABLE>
<S> <C> <C>
10.25 -- Financial Advisory and Consulting Agreement between the company and C.L.R.
Associates, dated as of April 1, 1999 (2)
10.26 -- Certificate of Incorporation of Electronic Medical Distribution, Inc. (2)
10.27 -- Bylaws of Electronic Medical Distribution, Inc. (2)
10.28 -- 1999 Directors Stock Option Plan of Electronic Medical Distribution, Inc. (2)
10.29 -- Form of Directors Nonqualified Initial Stock Option Grant of Electronic
Medical Distribution, Inc. (2)
10.30 -- Form of Directors Nonqualified Succeeding Stock Option Grant of Electronic
Medical Distribution, Inc. (2)
10.31 -- 1997 Stock Incentive Plan, as amended (2)
10.31a -- Amended 1999 Directors Stock Option Plan of Allergy Superstore.com, Inc. (4)
10.32 -- Amended Form of Directors Non-Qualified Initial Stock Option Grant of Allergy
Superstore.com, Inc. (4)
10.33 -- Allergy Superstore.com, Inc. Initial Directors Non-Qualified Stock Option Grant to
Carl T. Garner (4)
10.34 -- Allergy Superstore.com, Inc. Initial Directors Non-Qualified Stock Option Grant to
Michel M. Azran (4)
10.35 -- Allergy Superstore.com, Inc. Initial Directors Non-Qualified Stock Option Grant to Kevin
Smith (4)
10.36 -- Allergy Superstore.com, Inc. Initial Directors Non-Qualified Stock Option Grant to Chip
Howes (4)
10.37 -- Allergy Superstore.com, Inc. Initial Directors Non-Qualified Stock Option Grant to
U. Bertram Ellis, Jr. (4)
10.38 -- Allergy Superstore.com, Inc. Initial Directors Non-Qualified Stock Option Grant to
Duncan James (4)
10.39 -- Allergy Superstore.com, Inc. Initial Directors Non-Qualified Stock Option Grant to
Mark Spargo (4)
10.40 -- Amended 1999 Medical Advisory Directors Stock Option Plan for Allergy Superstore.com,
Inc. (4)
10.41 -- Form of Medical Advisory Directors Non-Qualified Initial Stock Option Grant for Allergy
Superstore.com, Inc. (4)
10.42 -- Form of Non-Qualified Succeeding Stock Option Grant for Allergy Superstore.com, Inc. (4)
10.43 -- Allergy Superstore.com, Inc. Initial Medical Advisory Directors Non-Qualified Stock
Option Grant for Gerald Vanderpool (4)
10.44 -- Allergy Superstore.com, Inc. Initial Medical Advisory Directors Non-Qualified Stock
Option Grant for Scott Carroll (4)
10.45 -- Allergy Superstore.com, Inc. Initial Medical Advisory Directors Non-Qualified Stock
Option Grant for Richard Stout (4)
10.46 -- Allergy Superstore.com, Inc. Form of 1999 Equity Incentive Plan (4)
10.47 -- Allergy Superstore.com, Inc. Form of 1999 Equity Incentive Plan Stock Option Agreement
(4)
10.48 -- Allergy Superstore.com, Inc. Stock Option Agreement, dated as of May 6, 1999, to
Jacques Elfersy for 2,250,000 Option Shares of Allergy Superstore.com, Inc. (4)
10.49 -- Allergy Superstore.com, Inc. Stock Option Agreement, dated as of May 6, 1999, to Timothy
C. Moses for 2,250,000 Option Shares of Allergy Superstore.com, Inc. (4)
10.50 -- Allergy Superstore.com, Inc. 1999 Employee Stock Purchase Plan (4)
10.51 -- BioShield Technologies, Inc. Directors Stock Option Agreement for the grant to
Michel M. Azran of 10,000 shares of common stock, dated as of April 1, 1999 (4)
10.52 -- BioShield Technologies, Inc. Stock Incentive Agreement, dated as of December 1, 1998 for an
option to purchase 150,000 shares for Jacques Elfersy (4)
</TABLE>
II-4
<PAGE> 87
<TABLE>
<S> <C> <C>
10.53 -- BioShield Technologies, Inc. Stock Incentive Agreement, dated as of December 1, 1998 for an
option to purchase 150,000 shares for Timothy C. Moses (4)
10.54 -- Employment letter for Maggie M. Perritt, dated as of May 20, 1999 (4)
10.55 -- Employment Agreement for John T. Adams, dated as of June 14, 1999 (4)
10.56 -- iXL Master Service Agreement between iXL, Inc. and BioShield Technologies, Inc., dated as of
June 7, 1999 (4)
10.57 -- Strategic Alliance Agreement between iXL Enterprises, Inc. and Allergy Superstore.com, Inc.,
dated as of July 9, 1999 (4)
10.58 -- Securities Purchase Agreement, dated as of June 30, 1999 by and among Allergy
Superstore.com, Inc. and Jackson, LLC (4)
10.59 -- Registration Rights Agreement, dated as of June 30, 1999 by and among BioShield Technologies
and Jackson, LLC (4)
10.60 -- Registration Rights Agreement, dated as of June 30, 1999 by and among Allergy
Superstore.com, Inc. and Jackson, LLC (4)
10.61 -- Transfer Agent Instructions, dated as of June 30, 1999 (4)
10.62 -- Warrant Agreement, dated as of June 30, 1999 by and among Allergy Superstore.com, Inc. and
Jackon, LLC (4)
10.63 -- Securities Purchase Agreement, dated as of August 25, 1999 by and among Allergy
Superstore.com, Inc. and Cache Capital (USA) L.P. (4)
10.64 -- Registration Rights Agreement, dated as of August 25, 1999 by and among BioShield
Technologies and Cache Capital (USA) L.P. (4)
10.65 -- Registration Rights Agreement, dated as of August 25, 1999 by and among Allergy
Superstore.com, Inc. and Cache Capital (USA) L.P. (4)
10.66 -- Transfer Agent Instructions, dated as of August 25, 1999 (4)
10.67 -- Warrant Agreement, dated as of August 25, 1999 by and among Allergy Superstore.com, Inc.
and Cache Capital (USA) L.P. (4)
10.68 -- Securities Purchase Agreement, dated as of August 25, 1999 by and among Allergy
Superstore.com, Inc. and GPS America Fund Ltd (4)
10.69 -- Registration Rights Agreement, dated as of August 25, 1999 by and among BioShield
Technologies and GPS America Fund Ltd (4)
10.70 -- Registration Rights Agreement, dated as of August 25, 1999 by and among Allergy
Superstore.com, Inc. and GPS America Fund Ltd (4)
10.71 -- Transfer Agent Instructions, dated as of August 25, 1999 (4)
10.72 -- Warrant Agreement, dated as of August 25, 1999 by and among Allergy Superstore.com, Inc.
and GPS America Fund Ltd (4)
10.73 -- Securities Purchase Agreement, dated as of September 2, 1999 by and among Allergy
Superstore.com, Inc. and Atlantis Capital Fund Limited (4)
10.74 -- Registration Rights Agreement, dated as of September 2, 1999 by and among BioShield
Technologies and Atlantis Capital Fund Limited (4)
10.75 -- Registration Rights Agreement, dated as of September 2, 1999 by and among Allergy
Superstore.com, Inc. and Atlantis Capital Fund Limited (4)
10.76 -- Transfer Agent Instructions, dated as of September 2, 1999 (4)
10.77 -- Warrant Agreement, dated as of September 2, 1999 by and among Allergy Superstore.com, Inc.
and Atlantis Capital Fund Limited (4)
10.78 -- Warrant Agreement, dated as of September 2, 1999 by and among Allergy Superstore.com,
Inc. and J.P. Carey Securities, Inc. (4)
10.79 -- Warrant Agreement, dated as of September 2, 1999 by and among Allergy Superstore.com, Inc.
and Greenfield Capital Partners, LLC (4)
</TABLE>
II-5
<PAGE> 88
<TABLE>
<S> <C> <C>
10.80 -- Legal Opinion of Sims Moss Kline & Davis LLP, dated as of June 30, 1999 (4)
10.81 -- Placement Agent Agreement, dated as of June 30, 1999 between Allergy Superstore.com, Inc.
and J.P. Carey Securities, Inc. (4)
10.82 -- Private Equity Credit Agreement by and between Jackson, LLC and BioShield Technologies,
Inc., dated as of June 30, 1999 (4)
10.83 -- Registration Rights Agreement, dated as of June 30, 1999 between BioShield Technologies, Inc. (4)
10.84 -- Transfer Agent Letter, dated as of June 30, 1999 (4)
10.85 -- Lease Agreement with Technology Park, dated as of July 6, 1999 (4)
10.86 -- Guaranty of BioShield Technologies, Inc. to Lease Agreement, dated as of July 7, 1999 (4)
10.87 -- Financial Advisory and Consulting Agreement, dated as of August 1, 1999 between BioShield
Technologies, Inc. and White Capital Group, Ltd. (4)
10.88 -- Harwood House Contract for Interior Design, dated as of August 18, 1999 (4)
10.89 -- Summit Marketing Group, Inc. Marketing Proposal, dated as of August 19, 1999 (4)
10.90 -- Employment Agreement dated as of August 30, 1999 between eMD.com, Inc. and Sharon Kay Allred (4)
10.91 -- Contract for Purchase of NDC Managed Care Mail Order Pharmacy System, dated as of
September 7, 1999 (4)
10.92 -- Offer of Employment to Eric B. Adams, dated as of June 12, 1999 (4)
10.93 -- Employment agreement, dated as of September 10, 1999 between eMD.com, Inc. and
Wayne A. Roberts (4)
10.94 -- Construction Agreement between Beers Construction Company and eMD.com, Inc., dated as of
September 13, 1999 (4)
10.95 -- Employment Agreement between the Company and Timothy S. Heyerdahl dated October 11, 1999 (5)
10.96 -- Employee Stock Option Agreement between the Company and Timothy S. Heyerdahl dated
October 11, 1999 for BioShield Technologies, Inc. common stock. (5)
10.97 -- Employee Stock Option Agreement between the Company and Timothy S. Heyerdahl dated
October 11, 1999 for Electronic Medical Distribution, Inc. common stock. (5)
10.98 -- Warrant Agreement between the Company and CLR & Associates dated September 29, 1999. (5)
10.99 -- Employment Agreement between Electronic Medical Distribution, Inc. and Timothy S. Heyerdahl dated
November 17, 1999 (2)
10.100 -- Amendment dated January 6, 2000 to Private Equity Credit Agreement by and between Jackson LLC and
Bioshield Technologies, Inc. (6)
10.101 -- Financial Advisory and Consulting Agreement dated January 1, 2000 between Electronic Medical
Distribution, Inc. and J. P. Carey Securities, Inc. (6)
10.102 -- Securities Purchase Agreement dated as of January 13, 2000 by and among Bioshield Technologies, Inc.
and Wilson LLC. (1)
10.103 -- Escrow Agreement dated as of January 6, 2000 by and among Bioshield Technologies, Inc., Corpfin.com,
Inc., and The Bank of New York. (1)
10.104 -- Warrant Agreement, dated as of January 13, 2000, by and among Electronic Medical Distribution, Inc. and
Wilson LLC. (1)
10.105 -- Registration Rights Agreement dated as of January 13, 2000 by and among Bioshield Technologies, Inc.
and Wilson LLC. (1)
10.106 -- Pledge Agreement as of January 13, 2000 by and among Jacques Elfersy, Timothy Moses and Wilson LLC. (1)
10.107 -- Escrow Agreement dated as of January 13, 2000 by and among Jacques Elfersy, Timothy Moses, Wilson LLC
and Sims Moss Kline & Davis LLP. (1)
10.108 -- Placement Agency Agreement dated as of January 13, 2000 by and among Bioshield Technologies, Inc.
and Corpfin.com, Inc. (1)
10.109 -- Warrant Agreement dated as of January 13, 2000 by and among Bioshield Technologies, Inc. and Greenfield
Capital Partners (1)
23.1 -- Form of Consent by Grant Thornton, LLP (1)
23.2 -- Consent of Sims Moss Kline & Davis LLP (included in Exhibit 5.1)
</TABLE>
- ------------
(1) Filed herewith
(2) Filed as the corresponding exhibit to the Company's Registration
Statement on Form SB-2 (Registration number 333-57767).
(3) Confidential treatment has been requested with respect to portions of
this document. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(4) Filed as the corresponding exhibit to the Company's Annual Report on
Form 10-KSB for the year ended June 30, 1999 and incorporated herein
by reference.
(5) Filed as the corresponding exhibit to the Company's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1999 and
incorporated herein by reference.
(6) Filed as the corresponding exhibit to the Company's Registration
Statement on Form SB-2 (Registration number 333-94395).
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:
II-6
<PAGE> 89
(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.
II-7
<PAGE> 90
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 registration
statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Atlanta, State of Georgia, on January 25, 2000.
BIOSHIELD TECHNOLOGIES, INC.
By: /s/ TIMOTHY C. MOSES
----------------------------------------
Timothy C. Moses
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Timothy C. Moses and Jacques Elfersy,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each of said
attorney-in-fact or his substitute or substitutes, January lawfully do or cause
to be done by virtue hereof.
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; January 25, 2000
------------------- Director (Principal Executive Officer)
Timothy C. Moses
/s/ Jacques Elfersy Chairman of the Board; Vice President of January 25, 2000
------------------------ Operations and Director of Regulatory
Jacques Elfersy Affairs
/s/ Timothy S. Heyerdahl Executive Vice President and Chief January 25, 2000
------------------------ Financial Officer (Principal Financial
Timothy S. Heyerdahl and Accounting Officer)
/s/ Carl T. Garner Director January 25, 2000
------------------------
Carl T. Garner
/s/ Michel Azran Director January 25, 2000
------------------------
Michel Azran
</TABLE>
II-8
<PAGE> 1
EXHIBIT 3.3
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
BIOSHIELD TECHNOLOGIES, INC.
I.
The name of the corporation is BioShield Technologies, Inc. (the
"Corporation").
II.
Effective as of the date hereof, Article[II] of the Articles of
Incorporation, as amended is amended to read in full as follows: The Corporation
hereby designates that the total number of shares of capital stock which the
Corporation has authority to issue is 50,000,000, divided into 40,000,000 shares
of "Common Stock," no par value, and 10,000,000 shares of capital stock, no par
value, to be designated as "Preferred Stock."
III.
The Corporation hereby designates 200 of the 10,000,000 authorized
shares of its Preferred Stock as "Series A Convertible Preferred Stock," no par
value (the "Preferred Stock") and shall possess the rights and privileges set
forth below:
(1) Dividends. The Series A Preferred Shares shall not
bear any dividends.
(2) Holder's Conversion of Series A Preferred Shares. A
holder of Series A Preferred Shares shall have the right, at such
holder's option, to convert the Series A Preferred Shares into shares
of the Company's common stock, no par value per share (the "COMMON
STOCK"), on the following terms and conditions:
(a) Conversion Right. Subject to the provisions
of Sections 2(j) and 3(a) below, at any time or times on or
after 100 days after the Issuance Date (as defined herein),
any holder of Series A Preferred Shares shall be entitled to
convert any Series A Preferred Shares into fully paid and
nonassessable shares (rounded to the nearest whole share in
accordance with Section 2(h) below) of Common Stock, at the
Conversion Rate (as defined below); provided, however, that in
no event other than upon a Mandatory Conversion pursuant to
Section 2(f) hereof, shall any holder be entitled to convert
Series A Preferred Shares in excess of that number of Series A
Preferred Shares which, upon giving effect to such conversion,
would cause the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates to exceed
4.9% of the outstanding shares of the Common Stock following
such conversion. For purposes of the foregoing proviso, the
aggregate number of shares of Common Stock beneficially owned
by the holder and its affiliates shall include the number of
shares of Common Stock issuable upon
<PAGE> 2
conversion of the Series A Preferred Shares with respect to
which the determination of such proviso is being made, but
shall exclude the number of shares of Common Stock which would
be issuable upon conversion of the remaining, nonconverted
Series A Preferred Shares beneficially owned by the holder and
its affiliates. Except as set forth in the preceding sentence,
for purposes of this paragraph, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended.
(b) Conversion Rate. The number of shares of
Common Stock issuable upon conversion of each of the Series A
Preferred Shares pursuant to Section (2)(a) shall be
determined according to the following formula (the "CONVERSION
RATE");
(.04)(N/365)(20,000) + 20,000
-----------------------------
CONVERSION PRICE
For purposes of this Amendment, the following terms shall have
the following meanings:
(i) "CONVERSION PRICE" means as, of any
Conversion Date (as defined below), the Floating
Conversion Price, as in effect as of such date and
subject to adjustment as provided herein.
(ii) "FLOATING CONVERSION PRICE" means, as
of any date of determination, the amount obtained by
multiplying the Conversion Percentage in effect as of
such date by the Average Market Price for the Common
Stock for the twenty (20) consecutive Trading Days
immediately preceding such date;
(iv) "CONVERSION PERCENTAGE" means 80%;
(v) "AVERAGE MARKET PRICE" means, with
respect to any security for any period, that price
which shall be computed as the arithmetic average of
the Closing Bid Prices (as defined below) for such
security for each trading day in such period;
(vi) "CLOSING BID PRICE" means, for any
security as of any date, the last closing bid price
on the Nasdaq SmallCap Market(TM) (THE "NASDAQ-SM")
as reported by Bloomberg Financial Markets
("BLOOMBERG"), or, if the Nasdaq-SM 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
(the "Trading Market"), or if the foregoing do not
apply, the last closing bid price of such security in
the over-the-counter market on the pink
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<PAGE> 3
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 (all as appropriately
adjusted for any stock dividend, stock split or other
similar transaction during such period); and
(vii) "N" means the number of days from, but
excluding, the Issuance Date through and including
the Conversion Date for the Series A Preferred Shares
for which conversion is being elected.
(viii) "ISSUANCE DATE" means the date of
issuance of the Series A Preferred Shares.
(ix) "TRADING DAY" means any day on which
the Company's Common Stock is traded on the Principal
Trading Market.
(c) Adjustment to Conversion Price - Dilution
and Other Events. In order to prevent dilution of the rights
granted under this Amendment, the Conversion Price will be
subject to adjustment from time to time as provided in this
Section 2(d).
(i) Reorganization, Reclassification,
Consolidation, Merger, or Sale. Any recapitalization,
reorganization reclassification, consolidation.
merger, sale of a or substantially all of the
Company's assets to another Person (as defined below)
or other similar transaction which is effected in
such a way that holders of Common Stock are entitled
to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect
to or in exchange for Common Stock is referred to
herein as in "Organic Change." Prior to the
consummation of any Organic Change, the Company will
make appropriate provision to insure that each of the
holders of the Series A Preferred Shares will
thereafter have the right to acquire and receive in
lieu of or in addition to (as the case may be) the
shares of Common Stock immediately theretofore
acquirable and receivable upon the conversion of such
holder's Series A Preferred Shares, such shares of
stock, securities or assets as may be issued or
payable with respect to or in exchange for the number
of shares of Common Stock immediately theretofore
acquirable and receivable upon the conversion of such
holder's Series A Preferred Shares had such Organic
Change not taken place. In any such case, the Company
will make appropriate provision (in form and
substance satisfactory to the holders of a majority
of the Series A Preferred Shares then outstanding)
with respect to such holders' rights and interests to
insure that the provisions of
-3-
<PAGE> 4
this Section 2(c) will thereafter be applicable to
the Series A Preferred Shares. The Company will not
effect any such consolidation, merger or sale, unless
prior to the consummation thereof the successor
entity (if other than the Company) resulting from
consolidation or merger or the entity purchasing such
assets assumes, by written instrument (in form and
substance satisfactory to the holders of a majority
of the Series A Preferred Shares then outstanding),
the obligation to deliver to each holder of Series A
Preferred Shares such shares of stock, securities or
assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
For purposes of this Agreement, "PERSON" shall mean
an individual, a limited liability company, a
partnership, a joint venture, a corporation, a trust,
an unincorporated organization and a government or
any department or agency thereof.
(ii) Notices.
(A) Immediately upon any adjustment
of the Conversion Price, the Company will
give written notice thereof to each holder
of Series A Preferred Shares, setting forth
in reasonable detail and certifying the
calculation of such adjustment.
(B) The Company will give written
notice to each holder of Series A Preferred
Shares at least twenty (20) days prior to
the date on which the Company closes its
books or takes a record (I) with respect to
any dividend or distribution upon the Common
Stock, (II) with respect to any pro rata
subscription offer to holders of Common
Stock or (III) for determining rights to
vote with respect to any Organic Change,
dissolution or liquidation.
(C) The Company will also give
written notice to each holder of Series A
Preferred Shares at least twenty (20) days
prior to the date on which any Organic
Change (as defined below), dissolution or
liquidation will take place.
(d) Mechanics of Conversion. Subject to the
Company's inability to fully satisfy its obligations under a
Conversion Notice (as defined below) as provided for in
Section 5 below:
(i) Holder's Delivery Requirements. To
convert Series A Preferred Shares into full shares of
Common Stock on any date (the "CONVERSION DATE"), the
holder thereof shall (A) deliver or transmit by
facsimile, for receipt on or prior to 11:59 p.m.,
Eastern Standard Time, on such date, a copy of a
fully executed notice of conversion in the form
-4-
<PAGE> 5
attached hereto as Exhibit I (the "CONVERSION
NOTICE") to the Company or its designated transfer
agent (the "TRANSFER AGENT"), and (B) surrender to a
common carrier for delivery to the Company or the
Transfer Agent as soon as practicable following such
date, the original certificates representing the
Series A Preferred Shares being converted (or an
indemnification undertaking with respect to such
shares in the case of their loss, theft or
destruction) (the "PREFERRED STOCK CERTIFICATES") and
the originally executed Conversion Notice.
(ii) Company's Response. Upon receipt by
the Company of a facsimile copy of a Conversion
Notice, the Company shall immediately send, via
Facsimile, a confirmation of receipt of such
Conversion Notice to such holder. Upon receipt by the
Company or the Transfer Agent of the Preferred Stock
Certificates to be converted pursuant to a Conversion
Notice, together with the originally executed
Conversion Notice, the Company or the Transfer Agent
(as applicable) shall, within five (5) business days
following the date of receipt, (A) issue and
surrender to a common carrier for overnight delivery
to the address as specified in the Conversion Notice,
a certificate, registered in the name of the holder
or its designee, for the number of shares of Common
Stock to which the holder shall be entitled or (B)
credit the aggregate number of shares of Common Stock
to which the holder shall be entitled to the holder's
or its designee's balance account at The Depository
Trust Company.
(iii) Dispute Resolution. In the case of
a dispute as to the determination of the Average
Market Price or the arithmetic calculation of the
Conversion Rate, the Company shall promptly issue to
the holder the number of shares of Common Stock that
is not disputed and shall submit the disputed
determinations or arithmetic calculations to the
holder via facsimile within three (3) business days
of receipt of such holder's Conversion Notice. If
such holder and the Company are unable to agree upon
the determination of the Average Market Price or
arithmetic calculation of the Conversion Rate within
three (3) business days of such disputed
determination or arithmetic calculation being
submitted to the holder, then the Company shall
within one (1) business day submit via facsimile (A)
the disputed determination of the Average Market
Price to an independent, reputable investment bank or
(B) the disputed arithmetic calculation of the
Conversion Rate to its independent, outside
accountant. The Company shall cause the investment
bank or the accountant, as the case may be, to
perform the determinations or calculations and notify
the Company and the holder of the results no later
than forty-eight (48) hours from the time it receives
the disputed determinations or calculations. Such
investment bank's or accountant's determination or
-5-
<PAGE> 6
calculation, as the case may be, shall be binding
upon all parties absent manifest error.
(iv) Record Holder. The person or
persons entitled to receive the shares of Common
Stock issuable upon a conversion of Series A
Preferred Shares shall be treated for all purposes as
the record holder or holders of such shares of Common
Stock on the Conversion Date.
(e) NASDAQ Listing. So long as the Common Stock
is listed for trading on Nasdaq-SM or an exchange or quotation
system with a rule substantially similar to Rule 4460(i) then,
notwithstanding anything to the contrary contained herein if,
at any time, the aggregate number of shares of Common Stock
then issued upon conversion of the Series A Preferred Shares
(including any shares of capital stock or rights to acquire
shares of capital stock issued by the Corporation which are
aggregated or integrated with the Common Stock issued or
issuable upon conversion of the Series A Preferred Shares for
purposes of such rule) equals 19.99% of the "Outstanding
Common Amount" (as hereinafter defined), the Series A
Preferred Shares shall, from that time forward, cease to be
convertible into Common Stock in accordance with the terms
hereof, unless the Corporation (i) has obtained approval of
the issuance of the Common Stock upon conversion of the Series
A Preferred Shares by a majority of the total votes cast on
such proposal, in person or by proxy, by the holders of the
then-outstanding Common Stock (not including any shares of
Common Stock held by present or former holders of Series A
Preferred Shares that were issued upon conversion of Series A
Preferred Shares (the "STOCKHOLDER APPROVAL"), or (ii) shall
have otherwise obtained permission to allow such issuances
from Nasdaq in accordance with Nasdaq Rule 4460(i). If the
Corporation's Common Stock is not then listed on Nasdaq or an
exchange or quotation system that has a rule substantially
similar to Rule 4460(i) then the limitations set forth herein
shall be inapplicable and of no force and effect. For purposes
of this paragraph, "OUTSTANDING COMMON AMOUNT" means (i) the
number of shares of the Common Stock outstanding on the date
of issuance of the Series A Preferred Shares pursuant to the
Purchase Agreement plus (ii) any additional shares of Common
Stock issued thereafter in respect of such shares pursuant to
a stock dividend, stock split or similar event. The maximum
number of shares of Common Stock issuable as a result of the
19.99% limitation set forth herein is hereinafter referred to
as the "MAXIMUM SHARE AMOUNT." With respect to each holder of
Series A Preferred Shares, the Maximum Share Amount shall
refer to such holder's pro rata share thereof. In the event
that Corporation obtains Stockholder Approval or the approval
of Nasdaq, or by reason of the inapplicability of the rules of
Nasdaq or otherwise, the Corporation concludes that it is able
to increase the number of shares to be issued above the
Maximum Share Amount (such increased number being the "NEW
MAXIMUM SHARE AMOUNT"), the references to Maximum Share
Amount, above, shall be deemed to be, instead, references to
the greater New Maximum Share Amount. In the event that
-6-
<PAGE> 7
Stockholder Approval is obtained and there are insufficient
reserved or authorized shares, or a registration statement
covering the additional shares of Common Stock which
constitute the New Maximum Share Amount is not effective prior
to the Maximum Share Amount being issued (if such registration
statement is necessary to allow for the public resale of such
securities), the Maximum Share Amount shall remain unchanged;
provided, however, that the holders of Series A Preferred
Shares may grant an extension to obtain a sufficient reserved
or authorized amount of shares or of the effective date of
such registration statement. In the event that (a) the
aggregate number of shares of Common Stock actually issued
upon conversion of the outstanding Series A Preferred Shares
represents at least twenty percent (20%) of the Maximum Share
Amount and (b) the sum of (x) the aggregate number of shares
of Common Stock issued upon conversion of Series A Preferred
Shares plus (y) the aggregate number of shares of Common Stock
that remain issuable upon conversion of Series A Preferred
Shares and based on the Conversion Price then in effect),
represents at least one hundred percent (100%) of the Maximum
Share Amount, the Corporation will use its best reasonable
efforts to seek and obtain Stockholder Approval (or obtain
such other relief as will allow conversions hereunder in
excess of the Maximum Share Amount) as soon as practicable
following the Triggering Event and before the Mandatory
Redemption Date.
(f) Mandatory Conversion. If any Series A
Preferred Shares remain outstanding on January 11, 2003, then
all such Series A Preferred Shares shall be converted as of
such date in accordance with this Section 2 as if the holders
of such Series A Preferred Shares had given the Conversion
Notice on January 11, 2003, and the Conversion Date had been
fixed as of January 11, 2003, (the "MANDATORY CONVERSION
DATE") for all purposes of this Section 2, and all holders of
Series A Preferred Shares shall thereupon and within two (2)
business days thereafter surrender all Preferred Stock
Certificates, duly endorsed for cancellation, to the Company
or the Transfer Agent. No person shall thereafter have any
rights in respect of Series A Preferred Shares, except the
right to receive shares of Common Stock on conversion thereof
as provided in this Section 2.
(g) Fractional Shares. The Company shall not
issue any fraction of a share of Common Stock upon any
conversion. All shares of Common Stock (including fractions
thereof) issuable upon conversion of more than one share of
the Series A Preferred Shares by a holder thereof shall be
aggregated for purposes of determining whether the conversion
would result in the issuance of a fraction of a share of
Common Stock. lf, after the aforementioned aggregation, the
issuance would result in the issuance of a fraction of a share
of Common Stock, the Company shall round such fraction of a
share of Common Stock up or down to the nearest whole share.
-7-
<PAGE> 8
(h) Taxes. The Company shall pay any and all
taxes which may be imposed upon it with respect to the
issuance and delivery of Common Stock upon the conversion of
the Series A Preferred Shares.
(i) Lock-Up. If the Lock-Up Conditions (as
defined below) are satisfied, but only for that period of time
that the Lock-Up Conditions are satisfied, the Company may at
its option at any time after the 90th day following the
Issuance Date through January 12, 2001 (the "LOCK-UP EXERCISE
PERIOD"), prohibit holders of the Series A Preferred Shares
from exercising any conversion rights granted pursuant to
Section (2) (a) (the "LOCK-UP") for a period (the "LOCK-UP
PERIOD") beginning on the Lock-Up Notice Delivery Date (as
defined below) until the earlier of (Y) ninety (90) days after
the Lock-Up Notice Delivery Date and (Z) such time as the
Lock-Up Conditions (as defined below) are no longer satisfied;
provided, however, that if the Lock-Up Notice Delivery Date is
on or after the 646st day following the Issuance Date, the
Lock-Up Period shall terminate on the 725th day following the
Issuance Date.
(i) Lock-Up Conditions. The "LOCK-UP
CONDITIONS" shall be deemed satisfied only for such
period of time as the Board of Directors of the
Company is in possession of material, non-public
information relating to a business transaction
involving the Company which would be required to be
disclosed to the public before any member of the
Board of Directors would be able to sell any equity
securities of the Company in compliance with the
anti-fraud provisions of the Securities Act of 1933.
The Company shall give prompt notice to each of the
holders of the Series A Preferred Shares if at any
time during the Lock-Up period such condition is not
properly satisfied.
(ii) Consideration for Lock-Up. In
consideration for the Company's exercise of the
Lock-Up, the Company shall within five (5) Trading
Days of the end of each calendar month during the
Lock-Up Period deliver to the holder of Series A
Preferred Shares at the Company's election (i) a cash
payment equal to 3% of the principal amount of the
Series A Preferred Shares then held by each such
holder for each thirty (30) days of the Lock-Up
Period (the "LOCK-UP PERIOD PRINCIPAL") (pro rated
for partial months) or (ii) deliver Common Stock to
such holder of Series A Preferred Shares in an amount
equal to the Lock-Up Period Principal divided by the
Average Market Price for the Common Stock for the
twenty Trading Days immediately preceding the end of
each calendar month during the Lock-Up Period.
(ii) Mechanics of Lock-Up. To effect the
Lock-Up, the Company shall (x) deliver or transmit by
facsimile, for receipt on or prior to 11:59 p.m.,
Eastern Standard Time on any date (the "LOCK-UP
NOTICE DELIVERY DATE")
-8-
<PAGE> 9
during the Lock-Up Exercise Period, to each holder of
Series A Preferred Shares (I) a copy of a fully
executed notice in the form of Exhibit II hereto (the
"LOCK-UP NOTICE") and (II) executed agreements
("LOCK-UP AGREEMENTS"), in the form attached hereto
as Exhibit III, from each officer or director of the
Company or any subsidiary of the Company who
beneficially owns, or has any disposition power with
respect to 5% or more of the total outstanding shares
of Common Stock as of the Lock-Up Notice Delivery
Date which, for the benefit of the holders of the
Series A Preferred Shares, obligates such persons not
to sell or otherwise dispose of any shares of Common
Stock until one day after each of the holders of the
Series A Preferred Shares has received written notice
form the Company that the Lock-Up Period has ended,
and (y) surrender to a common carrier for delivery to
each Series A Preferred Share holder as soon as
practicable following such date, an originally
executed Lock-Up Notice, originally executed Lock-Up
Agreements; provided, however, that such Lock-Up
Notice shall not be effective with respect to the
conversion of any shares of Series A Preferred Shares
for which a holder of such shares has, prior to
receipt of the Lock-Up Notice, properly delivered a
Conversion Notice pursuant to Section (2)(d)(i).
(j) Conversion Restriction. The right of a
holder of Series A Preferred Shares to convert Series A
Preferred Shares pursuant to this Section 2 shall be subject
to the following limitations (which shall be applied
independently):
(i) During the period beginning on the
Issuance Date and ending on the 90th day following
the Issuance Date, each Buyer and all of their
respective successors shall be entitled to convert no
more than 25% of the number of Series A Preferred
Shares purchased by such Buyer;
(ii) During the period beginning on the
Issuance Date and ending on the 120th day following
the Issuance Date, each Buyer and all of their
respective successors shall be entitled to convert no
more than 50% of the number of Series A Preferred
Shares purchased by such Buyer; and
(iii) During the period beginning on the
Issuance Date and ending on the 150th day following
the Issuance Date, each Buyer and all of their
respective successors shall be entitled to convert no
more than 75% of the number of Series A Preferred
Shares purchased by such Buyer.
Each holder of the Series A Preferred Shares shall provide the
Company a weekly record of its trading activity.
-9-
<PAGE> 10
(3) Company's Right to Redeem at its Election.
(a) At any time after the Issuance Date, the
Company shall have the right, in its sole discretion, to
redeem ("REDEMPTION AT COMPANY'S ELECTION"), from time to
time, any or all of the Series A Preferred Shares; provided
(i) Company shall first provide ten (10) days advance written
notice as provided in subparagraph 3(a)(ii) below, and (ii)
that the Company shall only be entitled to redeem Series A
Preferred Shares having an aggregate Stated Value (as defined
below) of at least Five Hundred Thousand Dollars ($500,000).
If the Company elects to redeem some, but not all, of the
Series A Preferred Shares, the Company shall redeem a pro-rata
amount from each holder of the Series A Preferred Shares.
(i) Redemption Price At Company's
Election. The "REDEMPTION PRICE AT COMPANY'S
ELECTION" shall be calculated as (1) 105% of the
Stated Value for the first 30 days following the
Issuance Date, as defined below; (2) 110% of the
Stated Value for the next 90 days thereafter and (3)
120% of Stated Value following 120 days from the
Issuance Date of the Series A Preferred Shares. For
purposes hereof, "STATED VALUE" shall mean the
original purchase price of Preferred Stock being
redeemed.
(ii) Mechanics of Redemption at
Company's Election. The Company shall effect each
such redemption by giving at least ten (10) days
prior written notice ("NOTICE OF REDEMPTION AT
COMPANY'S ELECTION") to (A) the holders of the Series
A Preferred Shares selected for redemption at the
address and facsimile number of such holder appearing
in the Company's Series A Preferred Shares register
and (B) the Transfer Agent, which Notice of
Redemption At Company's Election shall be deemed to
have been delivered three (3) business days after the
Company's mailing (by overnight or two (2) day
courier, with a copy by facsimile) of such Notice of
Redemption at Company's Election. Such Notice of
Redemption At Company's Election shall indicate (i)
the number of shares of Series A Preferred Shares
that have been selected for redemption, (ii) the date
which such redemption is to become effective (the
"DATE OF REDEMPTION AT COMPANY'S ELECTION") and (iii)
the applicable Redemption Price At Company's
Election, as defined in subsection (a)(i) above.
Notwithstanding the above, the holder may convert
into Common Stock, prior to the close of business on
the Date of Redemption at Company's Election, any
Series A Preferred Shares which it is otherwise
entitled to convert, including Series A Preferred
Shares that has been selected for redemption at
Company's election pursuant to this subsection 3(a).
-10-
<PAGE> 11
(b) Company Must Have Immediately Available
Funds or Credit Facilities. The Company shall not be entitled
to send any Redemption Notice and begin the redemption
procedure under Section 3(a) unless it has:
(i) the full amount of the redemption
price to cash, available in a demand or other
immediately available account in a bank or similar
financial institution; or
(ii) immediately available credit
facilities, in the full amount of the redemption
price with a bank or similar financial institution,
or
(iii) an agreement with a standby
underwriter willing to purchase from the Company a
sufficient number of shares of stock to provide
proceeds necessary to redeem any stock that is not
converted prior to redemptions; or
(iv) a combination of the items set
forth in (i), (ii), and (iii) above, aggregating the
full amount of the redemption price.
(c) Payment of Redemption Price. Each holder
submitting Series A Preferred Shares being redeemed under this
Section 3 shall send their Preferred Stock Certificates to
redeemed to the Company or its Transfer Agent, and the Company
shall pay the applicable redemption price to that Holder
within five (5) business days of the Date of Redemption at
Company's Election.
(4) Reissuance of Certificates. In the event of a
conversion or redemption pursuant to this Amendment of less than all of
the Series A Preferred Shares represented by a particular Preferred
Stock Certificate, the Company shall promptly cause to be issued and
delivered to the holder of such Series A Preferred Shares a Preferred
Stock Certificate representing the remaining Series A Preferred Shares
which have not been so converted or redeemed.
(5) Reservation of Shares. The Company shall, so long as
any of the Series A Preferred Shares are outstanding reserve and keep
available out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Series A Preferred
Shares, such number of shares of Common Stock as shall from time to
time be sufficient to affect the conversion of all of the Series A
Preferred Shares then outstanding; provided that the number of shares
of Common Stock so reserved shall at no time be less than 100% of the
number of shares of Common Stock for which the Series A Preferred
Shares are at any time convertible,
(6) Voting Rights. Holders of Series A Preferred Shares
shall have no voting rights, except as required by law, including but
not limited to the Corporation Law of the State of Georgia and as
expressly provided in this Amendment.
-11-
<PAGE> 12
(7) Liquidation, Dissolution, Winding-Up. In the event of
any voluntary or involuntary liquidation, dissolution, or winding up of
the Company, the holders of the Series A Preferred Shares shall be
entitled to receive in cash out of the assets of the Company, whether
from capital or from earnings available for distribution to its
stockholders (the "PREFERRED FUNDS"), before any amount shall be paid
to the holders of any of the capital stock of the Company of any class
junior in rank to the Series A Preferred Shares in respect of the
preferences as to the distributions and payments on the liquidation,
dissolution and winding up of the Company, an amount per Series A
Preferred Share equal to the sum of (i) $20,000 and (ii) an amount
equal to the product of (.04) (N/365) ($20,000) (where "N" has the
meaning specified in Section 2(b)(viii); (such sum being referred to as
the "LIQUIDATION VALUE"); provided that, if the Preferred Funds are
insufficient to pay the full amount due to the holders of Series A
Preferred Shares and holders of shares of other classes or series of
preferred stock of the Company that are of equal rank with the Series A
Preferred Shares as to payments of Preferred Funds (the "PARI PASSU
SHARES"), then each holder of Series A Preferred Shares and Pari Passu
Shares shall receive a percentage of the Preferred Funds equal to the
full amount of Preferred Funds payable to such holder as a liquidation
preference, in accordance with their respective preferences and rights,
as a percentage of the full amount of Preferred Funds payable to all
holders of Series A Preferred Shares and Pari Passu Shares. The
purchase or redemption by the Company of stock of any class in any
manner permitted by law, shall not for the purposes hereof, be regarded
as a liquidation, dissolution or winding up of the Company. Neither the
consolidation or merger of the Company with or into any other Person,
nor the sale or transfer by the Company of less than substantially all
of its assets, shall, for the purposes hereof, be deemed to be a
liquidation, dissolution or winding up of the Company. No holder of
Series A Preferred Shares shall be entitled to receive any amounts with
respect thereto upon any liquidation, dissolution or winding up of the
Company other than the amounts provided for herein.
(8) Preferred Rate. All shares of Common Stock shall be
of junior rank to all Series A Preferred Shares in respect to the
preferences as to distributions and payments upon the liquidation,
dissolution, and winding up of the Company. The Series A Preferred
Shares shall be of greater than any Series of Common or Preferred Stock
hereinafter issued by the Company. Without the prior express written
consent of the holders of not less than a majority of the then
outstanding Series A Preferred Shares, the Company shall not hereafter
authorize or issue additional or other capital stock that is of senior
or equal rank to the Series A Preferred Shares in respect of the
preferences as to distributions and payments upon the liquidation,
dissolution and winding up of the Company. Without the prior express
written consent of the holders of not less than a majority of the then
outstanding Series A Preferred Shares, the Company shall not hereafter
authorize or make any amendment to the Company's Articles of
Incorporation or bylaws, or make any resolution of the board of
directors with the Georgia Secretary of State containing any
provisions, which would materially and adversely affect or otherwise
impair the rights or relative priority of the holders of the Series A
Preferred Shares relative to the holders of the Common Stock or the
holders of any other class of capital stock. In the event of the merger
or consolidation of the Company with or
-12-
<PAGE> 13
into another corporation, the Series A Preferred Shares shall maintain
their relative powers, designations, and preferences provided for
herein and no merger shall result inconsistent therewith.
(9) Restriction on Dividends. Other than the distribution
of the securities of Electromagnetic Distribution, Inc. to the
Company's shareholders, if any Series A Preferred Shares are
outstanding, without the prior express written consent of the holders
of not less than a majority of the then outstanding Series A Preferred
Shares, the Company shall not directly or indirectly declare, pay or
make any dividends or other distributions upon any of the Common Stock
so long as written notice thereof has been given to holders of the
Series A Preferred Shares at least 30 days prior to the earlier of (a)
the record date taken for or (b) the payment of any such dividend or
other distribution. Notwithstanding the foregoing, this Section 9 shall
not prohibit the Company from declaring and paying a dividend in cash
with respect to the Common Stock so long as the Company: (i) pays
simultaneously to each holder of Series A Preferred Shares an amount in
cash equal to the amount such holder would have received had all of
such holder's Series A Preferred Shares been converted to Common Stock
pursuant to Section 2 hereof one business day prior to the record date
for any such dividend, and (ii) after giving effect to the payment of
any dividend and any other payments required in connection therewith
including to the holders of the Series A Preferred Shares, the Company
has in cash or cash equivalents an amount equal to the aggregate of:
(A) all of its liabilities reflected on its most recently available
balance sheet, (B) the amount of any indebtedness incurred by the
Company or any of its subsidiaries since its most recent balance sheet
and (C) 120% of the amount payable to all holders of any shares of any
class of preferred stock of the Company assuming a liquidation of the
Company as the date of its most recently available balance sheet.
(10) Vote to Change the Terms of Series A Preferred
Shares. The affirmative vote at a meeting duly called for such purpose,
or the written consent without a meeting of the holders of not less
than a majority of the then outstanding Series A Preferred Shares,
shall be required for any change to this Amendment or the Company's
Articles of Incorporation which would amend, alter, change or repeal
any of the powers, designations, preferences and rights of the Series A
Preferred Shares.
(11) Lost or Stolen Certificates. Upon receipt by the
Company of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of any Preferred Stock Certificates
representing the Series A Preferred Shares, and, in the case of loss,
theft or destruction, of any indemnification undertaking by the holder
to the Company and, in the case of mutilation, upon surrender and
cancellation of the Preferred Stock Certificate(s), the Company shall
execute and deliver new preferred stock certificate(s) of like tenor
and date; provided, however, the Company shall not be obligated to
re-issue preferred stock certificates if the holder contemporaneously
requests the Company to convert such Series A Preferred Shares into
Common Stock.
-13-
<PAGE> 14
(12) Withholding Tax Obligations. Notwithstanding anything
herein to the contrary, to the extent that the Company receives advice
in writing from its counsel that there is a reasonable basis to believe
that the Company is required by applicable federal laws or regulations
and delivers a copy of such written advice to the holders of the Series
A Preferred Shares so effected, the Company may reasonably condition
the making of any distribution (as such term is defined under
applicable federal tax law and regulations) in respect of any Series A
Preferred Share on the holder of such Series A Preferred Shares
depositing with the Company an amount of cash sufficient to enable the
Company to satisfy its withholding tax obligations (the "WITHHOLDING
TAX") with respect to such distribution. Notwithstanding the foregoing
or anything to the contrary, if any holder of the Series A Preferred
Shares so effected receives advice in writing from its counsel that
there is a reasonable basis to believe that the Company is not so
required by applicable federal laws or regulations and delivers a copy
of such written advice to the Company, the Company shall not be
permitted to condition the making of any such distribution in respect
of any Series A Preferred Share on the holder of such Series A
Preferred Shares depositing with the Company any Withholding Tax with
respect to such distribution, provided, however, the Company may
reasonably condition the making of any such distribution in respect of
any Series A Preferred Share on the holder of such Series A Preferred
Shares executing and delivering to the Company, at the election of the
holder, either: (i) if applicable, a properly completed Internal
Revenue Service Form 4224, or (a) an indemnification agreement in
reasonably acceptable form, with respect to any federal tax liability,
penalties and interest that may be imposed upon the Company by the
Internal Revenue Service as a result of the Company's failure to
withhold in connection with such distribution to such holder.
IV.
All other provisions of the Articles of Incorporation, as amended shall
remain in full force and effect.
V.
Each amendment set forth above was duly approved by the Board of
Directors of the Corporation with shareholder approval in accordance with the
provisions of Section 14-2-821 of the Georgia Business Corporation Code on
January 6, 2000.
IN WITNESS WHEREOF, the Company has caused this Amendment to the
Articles of Incorporation to be signed by Timothy C. Moses, its Chief Executive
Officer, as of this ___ day of January, 2000.
BIOSHIELD TECHNOLOGIES, INC.
By:
---------------------------------
Timothy C. Moses
Chief Executive Officer
ATTEST:
By:
----------------------------
Secretary
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<PAGE> 15
EXHIBIT I
BIOSHIELD TECHNOLOGIES, INC.
CONVERSION NOTICE
Reference is made to the Amendments to the Articles of Incorporation of
BioShield Technologies, Inc.. (the "AMENDMENT"). In accordance with and pursuant
to the Amendment, the undersigned hereby elects to convert the number of shares
of Series A Convertible Preferred Stock, no par value per share (the "SERIES A
PREFERRED SHARES"), of BioShield Technologies, Inc., a Georgia corporation (the
"COMPANY"), indicated below into shares of Common Stock, no par value per share
(the "COMMON STOCK"), of the Company, by tendering the stock certificate(s)
representing the share(s) of Series A Preferred Shares specified below as of the
date specified below.
The undersigned acknowledges that any sales by the undersigned of the
securities issuable to the undersigned upon conversion of the Series A Preferred
Shares shall be made only pursuant to (i) a registration statement effective
under the Securities Act of 1933, as amended (the "ACT"), or (ii) advice of
counsel that such sale is exempt from registration required by Section 5 of the
Act.
Date of Conversion:
--------------------------------------
Number of Series A
Preferred Shares to be converted
--------------------------------------
Stock certificate no(s). of Series A
Preferred Shares to be converted:
--------------------------------------
Please confirm the following information:
Conversion Price:
--------------------------------------
Twenty Consecutive Days Comprising
Pricing Period and Prices:
--------------------------------------
Number of shares of Common
Stock to be issued:
--------------------------------------
<PAGE> 16
please issue the Common Stock into which the Series A Preferred Shares are being
converted in the following name and to the following address:
Issue to:(1)
-------------------------------------
-------------------------------------
Facsimile Number:
-------------------------------------
Authorization:
-------------------------------------
By:
----------------------------------
Title:
-------------------------------
Dated:
-------------------------------------
ACKNOWLEDGED AND AGREED:
BIOSHIELD TECHNOLOGIES, INC.
By:
------------------------------
Name:
-----------------------------
Title:
----------------------------
Date:
-----------------------------
- ----------------------------
(1)If other than to the record holder of the Series A Preferred Shares,
any applicable transfer tax must be paid by the undersigned.
<PAGE> 17
EXHIBIT II
BIOSHIELD TECHNOLOGIES, INC.
LOCK-UP NOTICE
Reference is made to the Amendments to the Articles of Incorporation
(the "AMENDMENT") of BioShield Technologies, Inc. (the "COMPANY"). In accordance
with and pursuant to Section (2)(i) of the Amendment, the Company hereby elects
to exercise its Lock-Up rights (as set forth in the Amendment), effective as of
the date hereof. Consequently, the Company shall not be required to convert any
Series A Preferred Shares which have a Conversion Date (as defined in the
Amendment) during the period beginning on the date hereof and ending on the
earlier of (i) that date which is ninety (90) days from the date hereof and (ii)
the 725th day following the Issuance Date (as defined in the Amendment).
Authorization:
------------------------------
By:
------------------------------
Title:
-----------------------------
Dated:
------------------------------
<PAGE> 18
EXHIBIT III
BIOSHIELD TECHNOLOGIES, INC.
FORM OF LOCK-UP AGREEMENT
Reference is made to the Amendments to the Articles of Incorporation
(the "AMENDMENT") of BioShield Technologies, Inc. (the "COMPANY"). The
undersigned has been advised that in accordance with and pursuant to Section
(2)(i) of the Amendment, effective as of ____________________________ (the
"LOCK-UP COMMENCEMENT DATE"), the Company has elected to exercise its Lock-Up
rights (as set forth in the Amendment) with respect to shares of Series A
Convertible Preferred Stock (the "SERIES A PREFERRED SHARES"), no par value per
share. Consequently, the Company shall not be required to convert any Series A
Preferred Shares which have a Conversion Date (as defined in the Amendment)
during the period (the "LOCK-UP PERIOD") beginning on the Lock-Up Commencement
Date and ending on the earlier of (i) that date which is ninety (90) days from
the Lock-Up Commencement Date and (ii) the 725th day following the Issuance Date
(as defined in the Amendment).
In consideration of the agreement by the holders of the Series A
Preferred Shares not to convert any Series A Preferred Share pursuant to the
Lock-Up rights, and for other good and valuable consideration, the undersigned
hereby irrevocably agrees that, until one day after each of the holders of the
Series A Preferred Shares has received written notice form the Company that the
Lock-Up Period has ended, the undersigned will not, directly or indirectly,
without the prior written consent of the holders representing a majority of the
outstanding Series A Preferred Shares, sell, contact to sell, pledge, grant any
option for the sale of or otherwise dispose or cause the disposition of any
shares of the Company's common stock, no par value per share (the "COMMON
STOCK"), or an securities convertible into or exchangeable or exercisable for
any shares of Common Stock owned by the undersigned. Notwithstanding the
foregoing, the undersigned shall not need to obtain such written consent with
respect to (1) a transfer (not involving a sale in the public market) of shares
of Common Stock by the undersigned in a bona fide charitable or other donative
transaction or in any estate planning transaction so long as in each case the
transferee of such agreement to holders of the Series A Preferred Shares prior
to effecting any such transfer and (2) a transfer (not involving a sale in the
public market) of shares of Common Stock, if the undersigned is a natural
person, due to the death or disability of the undersigned so long as the
transferee of such shares agrees in writing to be bound by the terms of this
agreement and furnishes a copy of such agreement to holders of the Series A
Preferred Shares prior to effecting any such transfer.
In furtherance of the foregoing, the Company and the Company's transfer
agent and registrar are hereby authorized to decline to make any transfer or
securities if such transfer would constitute a violation or breach of this
agreement.
Very truly yours,
------------------------------------------
Signature
------------------------------------------
Print Name
<PAGE> 1
EXHIBIT 5.1
January 26, 2000
BioShield Technologies, Inc.
Suite B-109
4405 International Boulevard
Norcross, Georgia 30083
Gentlemen:
At your request, we have examined the Registration Statement on Form SB-2
under the Securities Act of 1933, as amended (the "Securities Act"), by
BioShield Technologies, Inc., a Georgia corporation (the "Company"), with the
Securities and Exchange Commission on January 26, 2000 (the "Registration
Statement"), relating to the registration under the Securities Act of 1,375,000
shares of common stock, no par value.
As counsel to the Company, we have examined such corporate records,
documents, instruments, certificates of public officials and of the Company and
such questions of law as we have deemed necessary for the purpose of rendering
the opinions set forth herein. In our examination of such materials, we have
assumed the genuineness of all signatures and the authenticity of all
agreements, documents, signatures, and instruments submitted to us as originals
and the conformity with the originals of all agreements, instruments,
documents, and certificates submitted to us as copies.
We are of the opinion that the securities to be offered and sold pursuant
to the Registration Statement have been duly authorized and, when issued and
sold by the selling shareholders in the manner described in the Registration
Statement, will be legally and validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement and any amendment thereto.
Very truly yours,
/s/ SIMS MOSS KLINE & DAVIS LLP
<PAGE> 1
EXHIBIT 10.102
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of January
13, 2000, by and among BioShield Technologies, Inc., a Georgia corporation,
with headquarters located at 5655 Peachtree Parkway, Georgia 30092 (the
"COMPANY"), and the investor listed on the Schedule of Buyers (the "SCHEDULE OF
BUYERS") attached hereto (individually, a "BUYER" or collectively "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration pursuant
to Section 4(2) and/or Regulation D ("REGULATION D") at the sole election of
Buyer in the event that a registration statement filed by the Company pursuant
to Section 2(a) of the Registration Rights Agreement (described below) is not
declared effective by the Registration Deadline (as defined therein) as
promulgated by the U.S. Securities and Exchange Commission (the "SEC") under
the Securities Act of 1933, as amended (the "1933 ACT");
B. The Company has authorized the following new series of its
Preferred Stock, no par value per share (the "PREFERRED STOCK"): the Company's
Series A Convertible Preferred Stock (the "SERIES A PREFERRED SHARES"), which
shall be convertible into shares of the Company's Common Stock, no par value
per share (the "COMMON STOCK") (as converted, the "CONVERSION SHARES"), in
accordance with the terms of the Company's Amendments to its Articles of
Incorporation, substantially in the form attached hereto as Exhibit "A" (the
"AMENDMENT");
C. The Buyer wishes to purchase, upon the terms and conditions
stated in this Agreement, an aggregate of 200 shares of Series A Preferred
Shares in the respective amounts set forth opposite each Buyer's name on the
Schedule of Buyers;
D. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration
Rights Agreement substantially in the form attached hereto as Exhibit "B" (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws; and
E. The holders of Series A Preferred Shares shall receive stock
purchase warrants to acquire shares of common stock, par value $.0001, of
Electronic Medical Distribution, Inc. ("EMD") at an exercise price of 5.126 per
share the form attached as Exhibit "C" (the "WARRANTS").
1
<PAGE> 2
NOW THEREFORE, the Company and the Buyer hereby agree as
follows:
1. PURCHASE AND SALE OF SERIES A PREFERRED STOCK.
a. Purchase of Series A Preferred Stock. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and
7 below, the Company shall issue and sell to the Buyers and the Buyers
shall purchase from the Company an aggregate of 200 shares of Series A
Preferred Stock, in the respective amounts set forth opposite each
Buyer's name on the Schedule of Buyers (the "CLOSING").
b. Closing Date. The date and time of the Closing (the
"CLOSING DATE") shall be 10:00 a.m. Eastern Standard Time, within five
(5) business days following the date hereof, subject to notification
of satisfaction (or waiver) of the conditions to the Closing set forth
in Sections 6 and 7 below (or such later date as is mutually agreed to
by the Company and the Buyer). The Closing shall occur on the Closing
Date at the offices of Sims Moss Kline & Davis LLP, 400 Northpark Town
Center, Suite 310, 1000 Abernathy Road, N.E., Atlanta, Georgia 30328.
c. Form of Payment. On the Closing Date, (i) each Buyer shall
pay the purchase price to the Company for the Series A Preferred
Shares to be issued and sold to such Buyer at the Closing, by wire
transfer of immediately available funds in accordance with the Escrow
Agreement between the parties, dated as of January 6, 2000 and (ii)
the Company shall deliver to each Buyer, certificates representing
such Series A Preferred Shares which such Buyer is then purchasing (as
indicated opposite such Buyer's name on the Schedule of Buyers), duly
executed on behalf of the Company and registered in the name of such
Buyer or its designee (the "CERTIFICATES") and the Warrants.
2. BUYER'S REPRESENTATIONS AND WARRANTEES.
Each Buyer represents and warrants with respect to only itself that:
a. Investment Purpose. Such Buyer (i) is acquiring the Series
A Preferred Shares, (ii) upon conversion of the Series A Preferred
Shares, will acquire the Conversion Shares then issuable, (iii) will
acquire any Warrants issuable, and (iv) upon exercise of the Warrants,
will acquire the shares of common stock of EMD issuable upon exercise
thereof (the "WARRANT SHARES") for its own account for investment only
and not with a view towards, or for resale in connection with, the
public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by
making the representations herein, such Buyer does not agree to hold
any Series A Preferred Shares, Conversion Shares, Warrants, or Warrant
Shares for any minimum or other specific term and reserves the right
to dispose of Series A Preferred Shares, Conversion Shares,
2
<PAGE> 3
Warrants, or Warrant Shares at any time in accordance with or pursuant
to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
Series A Preferred Shares, the Conversion Shares, the Warrants, and
the Warrant Shares are being offered and sold to it in reliance on
specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is
relying in part upon the truth and accuracy of, and such Buyer's
compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in
order to determine the availability of such exemptions and the
eligibility of such Buyer to acquire such securities.
d. Information. Such Buyer and its advisors, if any, have
been furnished with all materials relating to the business, finances
and operations of the Company and materials relating to the offer and
sale of the Series A Preferred Shares, the Conversion Shares, the
Warrants, and the Warrant Shares, which have been requested by such
Buyer. Such Buyer and its advisors, if any, have been afforded the
opportunity to ask questions of the Company. Neither such inquiries
nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or
affect such Buyer's right to rely on the Company's representations and
warranties contained in Section 3 below. Such Buyer understands that
its investment in the Series A Preferred Shares, the Conversion
Shares, the Warrants, and the Warrant Shares involves a high degree of
risk. Such Buyer has sought such accounting, legal and tax advice as
it has considered necessary to make an informed investment decision
with respect to its acquisition of the Series A Preferred Shares, the
Conversion Shares, the Warrants, and the Warrant Shares.
e. No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or
endorsement of the Series A Preferred Shares, the Conversion Shares,
the Warrants, and the Warrant Shares or the fairness or suitability of
the investment in the Series A Preferred Shares, the Conversion
Shares, the Warrants, or the Warrant Shares nor have such authorities
passed upon or endorsed the merits of the offering of the Series A
Preferred Shares, the Conversion Shares, the Warrants, or the Warrant
Shares.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Series A
Preferred Shares, the Conversion Shares, the Warrants, and the Warrant
Shares have not been and are not being registered under the 1933 Act
or any state securities laws, and may not be offered for sale, sold,
assigned or transferred unless (a) subsequently registered thereunder,
(b) such Buyer shall have delivered to the Company an opinion of
counsel, in a generally acceptable form, to the effect that such
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<PAGE> 4
securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (c)
such Buyer provides the Company with reasonable assurance that such
securities can be sold, assigned or transferred pursuant to Rule 144
promulgated under the 1933 Act, (ii) any sale of such securities made
in reliance on Rule 144 (or a successor rule thereto) ("RULE 144") may
be made only in accordance with the terms of Rule 144 and further, if
Rule 144 is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale
is made) may be deemed to be an underwriter (as that term is defined
in the 1933 Act) may require compliance with some other exemption
under the 1933 Act or the rules and regulations of the SEC thereunder;
and (iii) neither the Company nor any other person is under any
obligation to register such securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any
exemption thereunder.
g. Legends. Such Buyer understands that the certificates or
other instruments representing the Series A Preferred Shares, the
Warrants and, until such time as the sale of the Conversion Shares
have been registered under the 1933 Act as contemplated by the
Registration Rights Agreement, the stock certificates representing the
Conversion Shares, and the Warrant Shares shall bear a restrictive
legend in substantially the following form (and a stop transfer order
may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR
AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT.
The legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of the Series A
Preferred Shares, the Conversion Shares, the Warrants, or the Warrant
Shares upon which it is stamped, if, unless otherwise required by
state securities laws, (i) the sale of the Conversion Shares or the
Warrant Shares is registered under the 1933 Act, (ii) in connection
with a sale transaction, such holder provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that
a public sale, assignment or transfer of the Series A Preferred
Shares, the Conversion Shares, the Warrants, or the Warrant Shares may
be made without registration
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<PAGE> 5
under the 1933 Act, or (iii) such holder provides the Company with
reasonable assurances that the Series A Preferred Shares, the
Conversion Shares, the Warrants, or the Warrant Shares can be sold
pursuant to Rule 144 without any restriction as to the number of
securities acquired as of a particular date that can then be
immediately sold.
h. Authorization, Enforcement. This Agreement has been duly
and validly authorized, executed and delivered on behalf of such Buyer
and is a valid and binding agreement of such Buyer enforceable in
accordance with its terms, subject as enforceability to general
principles of equity and to applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation and other similar laws
relating to, or affecting generally, the enforcement of applicable
creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that country
specified in its address on the Schedule of Buyers.
j. No Scheme to Evade Registration. Buyer represents and
warrants to the Company that the acquisition of the Series A Preferred
Shares and the Conversion Shares is not a transaction (or any element
of a series of transactions) that is part of a plan or scheme by the
Buyer to evade the registration provisions of the 1933 Act.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
a. Organization and Qualification. The Company and EMD are
corporations duly organized and validly existing in good standing
under the laws of the jurisdiction in which they are incorporated, and
have the requisite corporate power to own their properties and to
carry on their business as now being conducted. Each of the Company
and EMD is duly qualified as a foreign corporation to do business and
is in good standing in every jurisdiction in which the nature of the
business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Company and EMD taken
as a whole.
b. Authorization, Enforcement, Compliance with Other
Instruments. (i) The Company has the requisite corporate power and
authority to enter into and perform this Agreement, the Registration
Rights Agreement and any related agreements, and to issue the Series A
Preferred Shares, the Conversion Shares, and cause to be issued the
Warrants, and the Warrant Shares in accordance with the terms hereof
and thereof, (ii) the execution and delivery of this Agreement, the
Registration Rights Agreement and any related agreements by the
Company and the consummation by it of the transactions contemplated
hereby and thereby, including without limitation the issuance of the
Series A Preferred Shares and the Warrants and the reservation for
issuance and the issuance of the Conversion Shares and the Warrant
Shares issuable upon conversion or exercise thereof, have been duly
authorized by
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<PAGE> 6
the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or
its stockholders, (iii) this Agreement and the Registration Rights
Agreement and any related agreements have been duly executed and
delivered by the Company, (iv) this Agreement, the Registration Rights
Agreement and any related agreements constitute the valid and binding
obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors'
rights and remedies, and (v) prior to the Closing Date, the
Certificate of Designations has been filed with the Secretary of State
of the State of Delaware and will be in full force and effect,
enforceable against the Company in accordance with its terms.
c. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of 50,000,000 shares of Common
Stock, of which as of the date hereof 6,495,828 shares were issued and
outstanding, and 10,000,000 shares of Preferred Stock of which no
shares of preferred stock were issued and outstanding. All of such
outstanding shares have been validly issued and are fully paid and
nonassessable. Except as disclosed in Schedule 3(c), no shares of
Common Stock or preferred stock are subject to preemptive rights or
any other similar rights or any liens or encumbrances suffered or
permitted by the Company. Except as disclosed in Schedule 3(c), as of
the effective date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments
of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company, or
contracts, commitments, understandings or arrangements by which the
Company is or may become bound to issue additional shares of capital
stock of the Company or options, warrants, scrip, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of
the Company, (ii) there are no outstanding debt securities and (iii)
there are no agreements or arrangements under which the Company is
obligated to register the sale of any of their securities under the
1933 Act (except the Registration Rights Agreement). There are no
securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Series A
Preferred Shares, the Conversion Shares, the Warrants, or the Warrant
Shares as described in this Agreement. The Company has furnished to
the Buyer true and correct copies of the Company's Articles of
Incorporation, as amended and as in effect on the date hereof (the
"ARTICLES OF INCORPORATION"), and the Company's By-laws, as in effect
on the date hereof (the "BY-LAWS"), and the terms of all securities
convertible into or exercisable for Common Stock and the material
rights of the holders thereof in respect thereto.
d. Issuance of Securities. The Series A Preferred Shares are
duly authorized and, upon issuance in accordance with the terms
hereof, shall be (i) validly issued, fully paid and nonassessable, are
free from all taxes, liens and charges with respect to the issue
thereof and are entitled to the rights and preferences set forth in
the Series A Preferred Shares. The Conversion Shares issuable upon
conversion of the Series A Preferred Shares have been duly
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<PAGE> 7
authorized and reserved for issuance. Upon conversion or exercise in
accordance with the Series A Preferred Shares or the Warrants, the
Conversion Shares and the Warrant Shares will be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof, with the holders being entitled to all
rights accorded to a holder of Common Stock.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of this Agreement by the Company
and the consummation by the Company of the transactions contemplated
hereby will not (i) result in a material violation of the Articles of
Incorporation, any preferences and rights of any outstanding series of
preferred stock of the Company or By-laws or (ii) conflict with or
constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or EMD is a
party, or result in a violation of any law, rule, regulation, order,
judgment or decree (including federal and state securities laws and
regulations and the rules and regulations of the principal market or
exchange on which the Common Stock is traded or listed) applicable to
the Company or EMD or by which any property or asset of the Company or
EMD is bound or affected. Except as disclosed in Schedule 3(e),
neither the Company nor EMD is in violation of any term of or in
default under its Articles of Incorporation or Bylaws or their
organizational charter or by-laws, respectively, or any material
contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree or order or any statute, rule or regulation
applicable to the Company or EMD. To the knowledge of the Company, the
business of the Company and EMD are not being conducted, and shall not
be conducted in violation of any law, ordinance, or regulation of any
governmental entity. Except as specifically contemplated by this
Agreement and as required under the 1933 Act and any applicable state
securities laws, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with,
any court or governmental agency in order for it to execute, deliver
or perform any of its obligations under or contemplated by this
Agreement or the Registration Rights Agreement in accordance with the
terms hereof or thereof except as disclosed in Schedule 3(e). All
consents, authorizations, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have
been obtained or effected on or prior to the date hereof.
f. SEC Documents: Financial Statements. Since January 1,
1999, the Company has filed all reports, schedules, forms, statements
and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the "1934 ACT") (all of the foregoing filed prior to the
date hereof and all exhibits included therein and financial statements
and schedules thereto and documents incorporated by reference therein,
being hereinafter referred to as the "SEC DOCUMENTS"). The Company has
delivered to the Buyer or its representative true and complete copies
of the SEC Documents. As of their respective dates, the financial
statements of the Company attached as Schedule 3(f) hereto (the
"FINANCIAL STATEMENTS") complied as to form in all
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<PAGE> 8
material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with generally
accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such
financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may exclude footnotes
or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the
dates thereof and the results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments).
g. Absence of Certain Changes. Except as disclosed in Schedule
3(g), since January 1, 1999, there has been no material adverse change
and no material adverse development in the business, properties,
operations, financial condition, results of operations or prospects of
the Company or EMD. The Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to any
bankruptcy law nor does the Company or EMD have any knowledge or
reason to believe that its creditors intend to initiate involuntary
bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public
board, government agency, self-regulatory organization or body pending
or, to the knowledge of the Company or any of its EMD against or
affecting the Company, the Common Stock or EMD, wherein an unfavorable
decision, ruling or finding would (i) have a material adverse effect
on the transactions contemplated hereby (ii) adversely affect the
validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, this Agreement or any of the
documents contemplated herein or (iii), except as expressly set forth
in Schedule 3(h), have a material adverse effect on the business,
operations, properties, financial condition or results of operation of
the Company and EMD taken as a whole.
i. Acknowledgment Regarding Buyer's Purchase of Series A
Preferred Shares. The Company acknowledges and agrees that the Buyer
is acting solely in the capacity of an arm's length purchaser with
respect to this Agreement and the transactions contemplated hereby.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has
occurred or exists, or is contemplated to occur, with respect to the
Company or EMD's respective business, properties, prospects,
operations or financial condition, which could be material but which
has not been publicly announced or disclosed in writing to the Buyer.
k. No General Solicitation. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the 1933 Act) in connection
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<PAGE> 9
with the offer or sale of the Series A Preferred Shares, the
Conversion Shares, the Warrants, or the Warrant Shares.
1. No Integrated Offering. Neither the Company, nor any of
its affiliates, nor any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that
would require registration of the Series A Preferred Shares, the
Conversion Shares, the Warrants, and the Warrant Shares under the 1933
Act or cause this offering of Series A Preferred Shares, the
Conversion Shares, the Warrants, or the Warrant Shares to be
integrated with prior offerings by the Company for purposes of the
1933 Act or any applicable stockholder approval provisions.
m. Employee Relations. Neither the Company nor EMD is involved
in any labor dispute nor, to the knowledge of the Company or EMD in
any such dispute threatened. Neither the Company nor EMD's employees
is a member of a union and the Company and EMD believe that their
relations with their employees are good.
n. Title. The Company and EMD have good and marketable title
in fee simple to all real property and good and marketable title to
all personal property owned by them which is material to the business
of the Company and EMD, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(n)
or such as do not materially affect the value of such property and do
not interfere with the use made and proposed to be made of such
property by the Company and EMD. Any real property and facilities held
under lease by the Company and EMD are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be
made of such property and buildings by the Company and EMD.
o. Regulatory Permits. The Company and EMD possess all
material certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary
to conduct their respective businesses, and neither the Company nor
any such subsidiary has received any notice of proceedings relating to
the revocation or modification of any such certificate, authorization
or permit.
p. Tax Status. Except as set forth on Schedule 3(p), the
Company and EMD has made or filed all federal and state income and all
other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent
that the Company and EMD has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on
such returns, reports and declarations, except those being contested
in good faith and has set aside on its books provision reasonably
adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There
are no
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<PAGE> 10
unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of
no basis for any such claim.
q. Fees and Rights of First Refusal. The Company is not
obligated to offer the securities offered hereunder on a right of
first refusal basis or otherwise to any third parties including, but
not limited to, current or former shareholders of the Company,
underwriters, brokers, agents or other third parties.
r. Shareholder Approval. The Company covenants to submit to
its shareholders at its next shareholder meeting a proposal for
ratification of the issuance of the Series A Preferred Shares and the
Conversion Shares, if and as required by the rules of the National
Association of Securities Dealers, Inc. (the "NASD") applicable to the
transaction.
s. Dilution. The Company acknowledges that issuance of the
Conversion Shares upon conversion of the Series A Preferred Shares
will result in dilution of the outstanding shares of Common Stock ,
which dilution may be substantial under certain market conditions. The
Company further acknowledges that its obligation to issue the
Conversion Shares upon conversion of the Series A Preferred Shares in
accordance with the terms of the Amendment is unconditional and
absolute, subject to the limitations set forth herein and in the
Amendment, regardless of the effect of any such dilution.
4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely
to satisfy each of the conditions to be satisfied by it as provided in
Sections 6 and 7 of this Agreement.
b. Form D. The Company agrees to file a Form D with respect to
the Series A Preferred Shares and the Conversion Shares as required
under Regulation D and to provide a copy thereof to each Buyer
promptly after such filing. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Series A Preferred Shares and
the Conversion Shares for, or obtain exemption for the Series A
Preferred Shares and the Conversion Shares for, sale to the Buyers at
the Closing pursuant to this Agreement under applicable securities or
"Blue Sky" laws of the states of the United States, and shall provide
evidence of any such action so taken to the Buyers on or prior to the
Closing Date.
c. Reporting Status. Until the earlier of (i) the date as of
which the Investors (as that term is defined in the Registration
Rights Agreement) may sell all of the Conversion Shares without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto), or (ii) the date on which (A) the Investors shall
have sold all the Conversion Shares and (B) none of the Series A
Preferred Shares is outstanding (the "REGISTRATION PERIOD"), the
Company shall file all reports required to be filed with the SEC
pursuant to the 1934 Act, and the Company shall not terminate its
status as an issuer required
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to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would otherwise permit such termination.
d. Use of Proceeds. The Company will use the proceeds from
the sale of the Series A Preferred Shares for substantially the same
purposes and in substantially the same amounts as indicated in
Schedule 4(d).
e. Financial Information. The Company agrees to send the
following to each Buyer during the Registration Period: (i) within
five (5) days after the filing thereof with the SEC, a copy of its
Annual Reports on Form 10-KSB, its Quarterly Reports on Form 10-QSB,
any Current Reports on Form 8-KSB and any registration statements or
amendments filed pursuant to the 1933 Act; (ii) within one (1) day
after release thereof, copies of all press releases issued by the
Company or any of its subsidiaries and (ii) copies of the same notices
and other information given to the stockholders of the Company
generally, contemporaneously with the giving thereof to the
stockholders.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the
purpose of issuance, no less than 100% of the number of shares of
Common Stock needed to provide for the issuance of the Conversion
Shares and Warrant Shares; provided that all shares of the Common
Stock authorized and not otherwise reserved for other purposes as of
the date hereof shall be reserved for the purpose of issuance of the
Conversion Shares.
g. Listings. The Company shall promptly secure the listing of
all Registrable Securities (as defined in the Registration Rights
Agreement) upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so
long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares from time to time issuable under the
terms of this Agreement and the Registration Rights Agreement. The
Company shall maintain the Common Stock's authorization for quotation
in the over-the counter market. The Company shall promptly provide to
each Buyer copies of any notices it receives regarding the continued
eligibility of the Common Stock for trading on the Nasdaq SmallCap
Market.
h. Expenses. Each of the Company and the Buyer shall pay all
costs and expenses incurred by such party in connection with the
negotiation, investigation, preparation, execution and delivery of
this Agreement and the Registration Rights Agreement.
i. Warrant Issuances. At Closing, the Company shall cause to
be issued to each Buyer warrants to acquire 50,000 shares of common
stock, par value $.001 of its majority owned subsidiary Electronic
Medical Distribution, Inc. for each one million dollars ($1,000,000)
invested in the form as attached as Exhibit "C" hereto (the "EMD
WARRANTS").
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The Company shall, in addition to the EMD Warrants otherwise issuable
hereunder, issue to each Buyer such Warrants (the "LOCK-UP WARRANTS")
as may be issuable to a Buyer pursuant to Section 2(i) of the
Amendment. Each Warrant issued hereunder (including pursuant to
Section 2(i) of the Amendment) shall be immediately exercisable and
shall expire (to the extent not exercised) on the fifth (5th)
anniversary of its issuance date.
j. No Short Sales of the Common Stock. So long as (i) a Buyer
or any of its affiliates beneficially owns any of Series A Preferred
Shares, (ii) the Company has not issued any publicly traded
convertible securities and (iii) the Issuer is not in material default
under the terms of the Series A Preferred Shares, each Buyer and its
affiliates shall not directly or indirectly engage in any short sales
or third party short sales of the Company's Common Stock or hold a
"put equivalent position" with respect to the Common Stock (as defined
in Rule 16a-1 under the 1934 Act).
k. Right of First Refusal. The Company agrees to provide the
Buyer with a right of first refusal with respect to subsequent
financings, as follows: The Company shall not, without the prior
written consent of the Buyer, offer or sell any of its equity
securities in a transaction intended to be exempt or not subject to
registration under the Securities Act (a "Subsequent Placement") until
the earlier of (i) the termination of the Pledge Agreement dated of
even date herewith by and among certain shareholders of the Company
and the Buyer, or (ii) the Registration Deadline, as such term is
defined in the Registration Rights Agreement, other than (x) the
granting of options or warrants to employees, officers and directors,
and the issuance of shares upon exercise of options granted, under any
stock option plan heretofore or hereinafter duly adopted by the
Company, (y) shares of Common Stock issuable upon exercise of
currently outstanding options and warrants and upon conversion of any
currently outstanding convertible securities of the Company, and (z)
shares of Common Stock issuable upon conversion of the Series A
Preferred Shares, unless (A) the Company delivers to the Buyer a
written notice (the "Subsequent Placement Notice") of its intention to
effect such Subsequent Placement, which Subsequent Placement Notice
shall describe in reasonable detail the proposed terms of such
Subsequent Placement, the amount of proceeds intended to be raised
thereunder, the entity with which such Subsequent Placement shall be
effected, and attached to which shall be a term sheet or similar
document relating thereto and (B) the Buyer shall not have notified
the Company by 5:30 p.m. (New York City time) on the third business
day after the delivery of the Subsequent Placement Notice of its
willingness to provide financing to the Company on the same terms set
forth in the Subsequent Placement Notice. If the Buyer shall notify
the Company of its willingness to so provide financing on such terms,
the Buyer shall provide such financing, but the Company shall not be
required in any event to accept financing from the Buyer in an amount
less than or in excess of the amount set forth in the Subsequent
Placement Notice. If the Buyer shall fail to notify the Company of its
intention to provide such financing, the Company may effect the
Subsequent Placement substantially upon the terms and to the entity or
entities (or affiliates thereof) set forth in the Subsequent Placement
Notice;
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provided, that the Company shall provide the Buyer with a second
Subsequent Placement Notice, and the Buyer shall again have the right
of first refusal as herein set forth, if the Subsequent Placement
subject to the initial Subsequent Placement Notice shall not have been
consummated for any reason on the terms set forth in such Subsequent
Placement Notice within sixty business days after the date of the
initial Subsequent Placement Notice .
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer agent
to issue certificates, registered in the name of the Buyer or its respective
nominee(s), for the Conversion Shares and Warrant Shares in such amounts as
specified from time to time by the Buyer to the Company upon conversion of the
Series A Preferred Shares or exercise of the Warrants (the "IRREVOCABLE
TRANSFER AGENT INSTRUCTIONS"). Prior to registration of the Conversion Shares
and Warrant Shares under the 1933 Act, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(g) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of such shares under the 1933 Act) will
be given by the Company to its transfer agent and that the Series A Preferred
Shares, the Conversion Shares, the Warrants, and the Warrant Shares shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights Agreement.
Nothing in this Section 5 shall affect in any way the Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of the
Series A Preferred Shares, the Conversion Shares, the Warrants, and the Warrant
Shares. If the Buyer provides the Company with an opinion of counsel,
satisfactory in form and substance to the Company, that registration of a
resale by the Buyer of any of the Series A Preferred Shares, the Conversion
Shares, the Warrants, or the Warrant Shares is not required under the 1933 Act,
the Company shall permit the transfer, and, in the case of the Conversion
Shares or the Warrant Shares, promptly instruct its transfer agent to issue one
or more certificates in such name and in such denominations as specified by the
Buyer.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Series A
Preferred Shares to the Buyer at the Closing is subject to the satisfaction, at
or before the Closing Date, of each of the following conditions, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
a. The Buyer shall have executed this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
b. The Amendment shall have been filed with the Secretary of
State of the State of Georgia.
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c. The Buyer shall have delivered to the Company the Purchase
Price for the Series A Preferred Shares being purchased by the Buyer
at the Closing by wire transfer of immediately available funds
pursuant to the wire instructions provided by the Company.
d. The representations and warranties of the Buyer shall be
true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and
the Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the
Buyer at or prior to the Closing Date.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The obligation of the Buyer hereunder to purchase the Series A
Preferred Shares at the Closing is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions, provided that these
conditions are for the Buyer's sole benefit and may be waived by the Buyer at
any time in its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
b. The Common Stock shall be authorized for quotation on the
Nasdaq SmallCap Market and trading in the Common Stock shall not have
been suspended for any reason and all of the Conversion Shares
issuable upon conversion of the Series A Preferred Shares shall be
approved for listing.
c. The representations and warranties of the Company shall be
true and correct in all material respects (except to the extent that
any of such representations and warranties is already qualified as to
materiality in Section 3 above, in which case, such representations
and warranties shall be true and correct without further
qualification) as of the date when made and as of the Closing Date as
though made at that time (except for representations and warranties
that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to
the Closing Date. The Buyer shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of
the Closing Date, to the foregoing effect and as to such other matters
as may be reasonably requested by the Buyer including, without
limitation an update as of the Closing Date regarding the
representation contained in Section 3(c) above.
14
<PAGE> 15
d. The Buyer shall have received the opinion of the Company's
counsel dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer and in substantially the form of
Exhibit "D" attached hereto.
e. The Company shall have executed and delivered to the Buyer
the Certificates (in such denominations as the Buyer shall request)
for the Series A Preferred Shares being purchased by the Buyer at the
Closing.
f. The Board of Directors of the Company shall have adopted
the resolutions in substantially the form of Exhibit "E" attached
hereto.
g. As of the Closing Date, the Company shall as of the
Closing Date have reserved out of its authorized and unissued Common
Stock, solely for the purpose of effecting the conversion of the
Series A Preferred Shares, such number of shares of Common Stock equal
to or greater than 100% of the number of shares of Common Stock for
which are issuable upon conversion of all of the Series A Preferred
Shares, and the Warrant Shares could be issued at any time under this
Agreement.
h. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to the Buyer, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
15
<PAGE> 16
8. INDEMNIFICATION.
In consideration of the Buyer's execution and delivery of this
Agreement and acquiring the Series A Preferred Shares, the Conversion Shares,
and the Warrants, and the Warrant Shares hereunder and in addition to all of
the Company's other obligations under this Agreement, the Company shall defend,
protect, indemnify and hold harmless the Buyer and each other holder of the
Series A Preferred Shares, the Conversion Shares, and the Warrants, and the
Warrant Shares and all of their officers, directors, employees and agents
(including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "INDEMNITEES")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by
the Indemnitees or any of them as a result of, or arising out of, or relating
to (a) any misrepresentation or breach of any representation or warranty made
by the Company in this Agreement, the Series A Preferred Shares, the Warrants,
or the Registration Rights Agreement or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in this Agreement, the
Certificate of Designations, the Warrants, or the Registration Rights Agreement
or any other certificate, instrument or document contemplated hereby or
thereby, or (c) any cause of action, suit or claim brought or made against such
Indemnitee and arising out of or resulting from the execution, delivery,
performance or enforcement of this Agreement or any other instrument, document
or agreement executed pursuant hereto by any of the Indemnities, any
transaction financed or to be financed in whole or in part, directly or
indirectly, with the proceeds of the issuance of the Series A Preferred Shares
or the status of the Buyer or holder of the Series A Preferred Shares, the
Warrants, or the Conversion Shares or the Warrant Shares, as an investor in the
Company, except for any Indemnified Liability which directly or primarily
results from the particular Indemnitee's gross negligence or willful misconduct
for which such holder shall indemnify the Company in the same manner as
provided in this Section 8. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
9. GOVERNING LAW: MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Georgia
without regard to the principles of conflict of laws. Any dispute or
controversy between the parties arising in connection with this
agreement or the subject matter contemplated by this agreement shall
be resolved by arbitration before a three-member panel of the American
Arbitration Association in accordance with the commercial arbitration
rules of said forum and the Federal Arbitration Act, 9 U.S.C. 1 et
seq., with the resulting award being final and conclusive. Said
arbitrators shall be empowered to award all forms of relief and
damages claimed, including, but not limited to, attorney's fees,
expenses of litigation and arbitration, exemplary damages, and
16
<PAGE> 17
prejudgment interest. Notwithstanding the foregoing, Buyer may at any
time and at its option, whether or not an arbitration action is then
pending, initiate a civil action for temporary and permanent
injunctive and other equitable relief against Company. Company
acknowledges that upon any breach of Buyer's conversion rights
hereunder, Buyer's resulting injury may not be adequately compensated
by a remedy at law. Accordingly, upon such breach, Buyer, at its
election and without limitation of its other remedies, shall be
entitled to pursue a claim for specific performance of this Agreement,
and Company hereby waives the right to assert any defense thereto that
Purchaser has an adequate remedy at law. The parties further agree
that any arbitration action between them shall be heard in Atlanta,
Georgia, and expressly consent to the jurisdiction and venue of the
Superior Court of Fulton County, Georgia, and the United States
District Court for the Northern District of Georgia, Atlanta Division
for the adjudication of any civil action asserted pursuant to this
Paragraph.
b. Counterparts. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party. In the event
any signature page is delivered by facsimile transmission, the party
using such means of delivery shall cause four (4) additional original
executed signature pages to be physically delivered to the other party
within five (5) days of the execution and delivery hereof
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of
the remainder of this Agreement in that jurisdiction or the validity
or enforceability of any provision of this Agreement in any other
jurisdiction.
e. Entire Agreement, Amendments. This Agreement supersedes
all other prior oral or written agreements between the Buyer, the
Company, their affiliates and persons acting on their behalf with
respect to the matters discussed herein, and this Agreement and the
instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and,
except as specifically set forth herein or therein, neither the
Company nor any Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in
writing signed by the party to be charged with enforcement.
f. Notices. Any notices, consents, waivers, or other
communications required or permitted to be given under the terms of
this Agreement must be in writing and will be deemed to have been
delivered (i) upon receipt, when delivered personally; (ii) upon
receipt, when sent by facsimile, provided a copy is mailed by U.S.
certified mail, return receipt requested; (iii) three (3) days after
being sent by U.S. certified mail, return receipt requested, or (iv)
one (1) day after deposit with a nationally recognized overnight
delivery service, in
17
<PAGE> 18
each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
18
<PAGE> 19
If to the Company:
5655 Peachtree Parkway
Atlanta, Georgia 30092
Attn: Chief Financial Officer
Telephone: (770) 246-2000
Facsimile: (770) 368-0784
With a copy to (which shall not constitute notice):
Raymond L. Moss, Esq.
SIMS MOSS KLINE & DAVIS LLP
400 Northpark Town Center, Suite 310
1000 Abernathy Road, N.E.
Atlanta, Georgia 30328
Telephone: (770) 481-7201
Facsimile: (770) 481-7210
If to the Transfer Agent:
American Stock Transfer
40 Wall Street
New York, New York 10005
Attn: Wallace Chun
Telephone: (718) 921-8206
Facsimile: (718) 921-8336
If to the Buyer, to its address and facsimile number on the Schedule
of Buyers, with copies to the Buyer's counsel as set forth on the
Schedule of Buyers. Each party shall provide five (5) days' prior
written notice to the other party of any change in address or
facsimile number.
g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective
successors and assigns. The Company shall not assign this Agreement or
any rights or obligations hereunder without the prior written consent
of the Buyer. The Buyer may assign its rights hereunder without the
consent of the Company, provided, however, that the Company is given
written notice by such holder at the time of such transfer, stating
the name and address of such transferee and any such assignment shall
not release the Buyer from its obligations hereunder unless such
obligations are assumed by such assignee and the Company has consented
to such assignment and assumption.
19
<PAGE> 20
h. No Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
i. Survival. The representations and warranties of the Company
and the Buyer contained in Sections 2 and 3, the agreements and
covenants set forth in Sections 4, 5 and 9, and the indemnification
provisions set forth in Section 8 shall survive for a period of one
year following the Closing. The Buyer shall be responsible only for
its own representations, warranties, agreements and covenants
hereunder.
j. Publicity. The Company and the Buyer shall have the right
to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the
prior approval of the Buyer, to make any press release or other public
disclosure with respect to such transactions as is required by
applicable law and regulations (although the Buyer shall be consulted
by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a
copy thereof).
k. Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and
shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request
in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.
1. Termination. In the event that the Closing shall not have
occurred with respect to the Buyer on or before five (5) business days
from the date hereof due to the Company's or the Buyer's failure to
satisfy the conditions set forth in Sections 6 and 7 above (and the
nonbreaching party's failure to waive such unsatisfied condition(s)),
the nonbreaching party shall have the option to terminate this
Agreement with respect to such breaching party at the close of
business on such date without liability of any party to any other
party.
m. Placement Agent. The Company acknowledges that it has
engaged Corpfin.com, Inc. as an agent in connection with the sale of
the Series A Preferred Shares. The Company shall be responsible for
the payment of any finder's fees (which includes cash and warrants to
purchase Common Stock) relating to or arising out of the transactions
contemplated hereby.
n. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be
applied against any party.
o. Independent Counsel. The parties to this Agreement
acknowledge that the Company has received independent counsel form the
law firm of Sims Moss Kline & Davis LLP which is acting as its
counsel. Buyers have been advised by Sims Moss Kline & Davis
20
<PAGE> 21
LLP to seek independent advice with respect to the terms and
conditions of this Agreement and any related agreements before signing
them.
10. CONFIDENTIALITY.
(a) As much of the information and other material furnished
under or in connection with this Agreement (whether furnished before,
on or after the date hereof) as constitutes or contains confidential
business, financial or other information of the Company or its
subsidiaries, each Buyer covenants for itself, and, as applicable, for
its directors, officers, affiliates and partners, that it will use due
care to prevent its officers, directors, partners, employees, counsel,
accountants and other representatives from disclosing such information
to persons other than their respective authorized employees, counsel,
accountants, shareholders, partners, limited partners and other
authorized representatives. Notwithstanding the foregoing, if a Buyer
is advised by such counsel that such disclosure or delivery is
required by law, regulation or judicial or administrative order, then
they may disclose or deliver such information or other after giving
written notice to the Company of such requirements.
For purposes of this Section 10(a), "due care" means at least
the same level of care that a Buyer would use to protect the
confidentiality of its own sensitive or proprietary information, and
this obligation shall survive termination of this Agreement.
(b) To the extent that any of the information furnished by
the Company to the Buyers hereof would constitute material, nonpublic
information for purposes of the Exchange Act, Buyers agree not to
engage in any purchase or sale of securities while in possession of
such information and prior to the time that such information is made
generally known to the public and Buyers agree to use due care to
prevent their officers, directors, partners, employees, counsel and
other representatives, who have been given access to such material,
nonpublic information, from engaging in any such purchase or sale
during such period.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
21
<PAGE> 22
IN WITNESS WHEREOF, the Buyer and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
"COMPANY"
BIOSHIELD TECHNOLOGIES, INC.
By: /s/ Timothy C. Moses
--------------------------------------------
Name: Timothy C. Moses
Its: Chairman of the Board and Chief Executive
Officer
By: /s/ Jacques Elfersy
--------------------------------------------
Name: Jacques Elfersy
Its: Executive Vice President
"BUYER"
WILSON LLC
By: Navigator Management Ltd.
--------------------------------------------
Name: By: David K. Sims
------------------------------------------
Title: Director
-----------------------------------------
22
<PAGE> 23
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
NUMBER OF SERIES
A PREFERRED
BUYER'S NAME ADDRESS/FACSIMILE NUMBER OF BUYER SHARES
- ------------------------------------------------------------------------------
<S> <C> <C>
WILSON LLC c/o Citco Trustees (Cayman) Ltd. 200
Attn: David Sims
Corporate Centre, Windwood One
West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
284-494-4771
- ------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
SCHEDULE 3(c)
Capitalization
None.
24
<PAGE> 25
SCHEDULE 3(e)
Conflicts
None.
25
<PAGE> 26
SCHEDULE 3(f)
Financial Statements
Reference is made to all public filings made by the Company with the SEC
available at http://www.sec.gov/.
26
<PAGE> 27
SCHEDULE 3(h)
Litigation
None.
27
<PAGE> 28
SCHEDULE 3(n)
Intellectual Property
None.
28
<PAGE> 29
SCHEDULE 3(n)
Liens
None.
29
<PAGE> 30
SCHEDULE 3(p)
Tax Status
None.
30
<PAGE> 31
SCHEDULE 4(d)
Use of Proceeds
Working capital.
31
<PAGE> 1
EXHIBIT 10.103
ESCROW AGREEMENT
THIS AGREEMENT is made and entered into as of this 6th day of January,
2000, by and among THE BANK OF NEW YORK (the "ESCROW AGENT"), Corpfin.com, Inc.
(the "AGENT") and BioShield Technologies, Inc. (the "Company").
RECITALS
The Company proposes to offer for sale to investors through the Agent
up to $4,000,000 in Series A Convertible Preferred Stock of (the "SECURITIES")
in one tranche of $4,000,000 (the "MINIMUM") resulting in gross proceeds to the
Company of $4,000,000 (the "PROCEEDS").
The Agent intends to sell the Securities as the Company's agent on a
best efforts all-or-none (the "OFFERING").
The Company and Agent desire to establish an escrow account in which
funds received from subscribers will be deposited pending completion of the
Escrow Period. The Bank of New York agrees to serve as Escrow Agent in
accordance with the terms and conditions set forth herein.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing, it is hereby agreed
as follows:
1. ESTABLISHMENT OF ESCROW ACCOUNT. On or prior to the date of the
commencement of the offering, the parties shall establish an escrow account with
the Escrow Agent, which escrow account shall be entitled, BioShield Series A
Preferred Stock Account (the "ESCROW ACCOUNT"). The Agent will instruct
subscribers to wire funds to the account of the Escrow Agent as follows:
The Bank of New York
ABA #021000018
GLA 111565
Re: TAS#_______________, Corpfin & BSTI Escrow
Attn: Peggy McWhorter 770-698-5186
Only wire transfers shall be accepted.
2. ESCROW PERIOD. The Escrow period shall begin with the commencement of
the Offering and shall terminate upon the earlier to occur of the following
dates:
A. The date upon which the Escrow Agent confirms that its has
received in the Escrow Account gross proceeds of $4,000,000 in
deposited, funds (the "MAXIMUM");
B. The expiration of thirty (30) days from the date of
commencement of the Offering (unless extended by mutual
written agreement between the Company and the Agent with a
copy of such extension to the Escrow Agent); or
<PAGE> 2
C. The date upon which a determination is made by the Company and
the Agent to terminate the offering prior to the sale of the
Maximum.
During the Escrow Period, the Company is aware and understands that it is not
entitled to any funds received into escrow and no amounts deposited in the
Escrow Account shall become the property of the Company or any other entity, or
be subject to the debts of the Company or any other entity.
3. DEPOSITS INTO THE ESCROW ACCOUNT. The Agent agrees that it
shall instruct all subscribers to make payment for the Securities to the Escrow
Agent for deposit in the Escrow Account.
4. DISBURSEMENTS FROM THE ESCROW ACCOUNT. At such time as Escrow
Agent has collected and deposited instruments of payment in the total amount of
the Minimum and any amounts up to the Maximum, Escrow Agent shall notify the
Company and the Agent. The Escrow Agent will continue to hold such funds until
Agent and Company jointly notify Escrow Agent in writing as to the disbursement
of funds pursuant to a closing statement signed by each of the Agent and the
Company (the "CLOSING STATEMENT"). In disbursing such funds, Escrow Agent is
authorized to rely upon such Closing Statement from Company and Agent.
In the event the Escrow Agent does not receive the minimum deposits
totaling $4,000,000 prior to the expiration of the Escrow Period (the "MINIMUM
DEPOSITS"), the Escrow Agent shall notify the Company and the Agent. Upon
receipt of payment instructions from the Company, the Escrow Agent shall refund
to each subscriber with interest the amount received from each subscriber,
without deduction, penalty, or expense to the subscriber. The purchase money
returned to each subscriber shall be free and clear of any and all claims of the
Company or any of its creditors.
In the event the Escrow Agent does receive deposits totaling the
Minimum prior to expiration of the Escrow Period, in no event will the Escrow
Amount be released to the Company until such amount is received by the Escrow
Agent in collected funds. For purposes of this Agreement, the term "collected
funds" shall mean all funds received by the Escrow Agent which have cleared
normal banking channels and are in the form of cash.
5. COLLECTION PROCEDURE. The Escrow Agent is hereby authorized to
forward each wire for collection and, upon collection of the proceeds of each
wire deposit the collected proceeds in the Escrow Account.
Any wires returned unpaid to the Escrow Agent shall be returned to the
Agent. In such cases, the Escrow Agent will promptly notify the Company for such
return.
If the Company rejects any subscription for which the Escrow Agent has
already collected funds, the Escrow Agent shall promptly issue a refund check or
wire to the rejected subscriber. If the Company rejects any subscription for
which the Escrow Agent has not yet collected funds but
-2-
<PAGE> 3
has submitted the subscriber's wire for collection, the Escrow Agent shall
promptly issue a check or wire the amount of the subscriber's wire to the
rejected subscriber after the Escrow Agent has cleared such funds. If the Escrow
Agent has not yet submitted a rejected subscriber's wire for collection, the
Escrow Agent shall promptly remit the subscriber's wire directly to the
subscriber. The Company shall provide payment instructions to the Escrow Agent.
6. INVESTMENT OF ESCROW AMOUNT. The Escrow Agent may invest the
Escrow Amount only in such accounts or investments as the Company may specify by
written notice. The Company may only specify investment in money market
instruments.
7. COMPENSATION OF ESCROW AGENT. The Company shall, pay the
Escrow Agent a fee for its escrow services as set forth on Exhibit "A" to this
Escrow Agreement. If it is necessary for the Escrow Agent to return funds to the
subscribers, the Company shall pay to the Escrow Agent an additional amount
sufficient to reimburse it for its fees and actual cost in disbursing such
funds. However, if funds are refunded to subscribers, no such fee, reimbursement
for costs and expenses, indemnification for any damages incurred by the Escrow
Agent, or any monies whatsoever shall be paid out of or chargeable to the
principal amount of funds on deposit in the Escrow Account.
8. GENERAL PROVISIONS.
(a) (i) Escrow Agent shall not be liable to anyone for any
damages, losses, or expense which they may incur as a
result of any act or omission of Escrow Agent, unless
such damages, losses, or expenses are caused by
Escrow Agent's willful misconduct or gross
negligence. Accordingly, Escrow Agent shall not incur
any such liability with respect to (i) any action
taken or omitted in good faith upon the advice of
Escrow Agent's counsel or counsel for any other party
hereto, given with respect to any question relating
to the duties and responsibilities of Escrow Agent
under this Agreement or (ii) any action taken or
omitted in reliance upon any instrument, including
execution, or the identity or authority of any person
executing such instrument, its validity and
effectiveness, but also as to the truth and accuracy
of any information contained therein which Escrow
Agent shall, in good faith, believe to be genuine, to
have been signed by a proper person or persons and to
conform to the provisions of this Escrow Agreement.
(ii) Escrow Agent shall not be bound in any way by any
contract or agreement between other parties hereto,
whether or not it has knowledge of any such contract
or agreement or of its terms or conditions.
(iii) The parties hereto, jointly and severally, hereby
agree to indemnify and, hold harmless Escrow Agent
against any and all costs, losses, claims, damages,
liabilities, expenses, including reasonable costs of
investigation, court costs, and attorney's fees, and
disbursements, which may be imposed upon Escrow
-3-
<PAGE> 4
Agent in connection with its acceptance of
appointment as Escrow Agent hereunder, including any
litigation arising from this Escrow Agreement or
involving the subject matter hereof, and all such
costs, expenses and disbursements shall be deducted
from the income (if sufficient) or paid by the
parties hereto, except for matters arising from the
gross negligence or willful misconduct of Escrow
Agent.
(iv) As security for such fees and expenses of Escrow
Agent and any and all losses, claims, damages,
liabilities and expenses incurred by Escrow Agent in
connection with its acceptance of appointment
hereunder, and with performance of the agreements
herein contained, the Escrow Agent is hereby given a
lien upon all assets held by Escrow Agent hereunder,
which lien shall be prior to all other liens upon or
claims against such assets, except for claims of
subscribers in the event the Minimum is not raised.
(b) (i) In the event of any disagreement among any of the
parties to this Agreement, or among them or any other
person resulting in adverse claims and demands being
made in connection with or from any property involved
herein or affected hereby, Escrow Agent shall be
entitled to refuse to comply with any such claims or
demands as long as such disagreement may continue,
and in so refusing, shall make no delivery or other
disposition of any property then held by it under
this Escrow Agreement , and in so doing the Escrow
Agent shall be entitled to continue to refrain from
acting until (a) the right of adverse claimants shall
have been finally settled by binding arbitration. or
finally adjudicated in a court assuming and having
jurisdiction. of the property involved herein or
affected hereby or (b) all differences shall have
been adjusted by agreement and Escrow Agent shall
have been notified in writing of such agreement
signed by the parties hereto.
(ii) In the event of such disagreement (or resignation
under the terms of this Agreement), Escrow Agent may,
but need not, tender into the registry or custody of
any court of competent jurisdiction all, money or
property in its hands under the terms of this
Agreement, together with such legal proceedings as it
deems appropriate and thereupon to be discharged from
all further duties under this Escrow Agreement. The
filing of any such legal proceeding shall not deprive
Escrow Agent of its compensation earned prior to such
filing.
(iii) Escrow Agent shall have no obligation to take any
legal, action in connection with this Escrow
Agreement or towards its enforcement, or to appear
in, prosecute or defend any action or legal
proceeding which would or might involve it in any
cost, expense, loss or liability unless security and
indemnity shall be furnished.
-4-
<PAGE> 5
(c) This Agreement contains the entire understanding between and
among the parties hereto, and shall be binding upon and inure
to the benefit of such parties, and subject to its terms,
their respective successors, heirs, assigns and legal
representatives. Any corporation into which Escrow Agent may
be merged or converted or with which it may be consolidated,
or any corporation resulting from any merger, conversion or
consolidation to which Escrow Agent shall be a party, or any
corporation to which substantially all the corporate trust
business of Escrow Agent may be transferred, shall., subject
to the terms of the Escrow Agreement, be Escrow Agent under
this Escrow Agreement without further act.
(d) This Escrow Agreement is being delivered in and shall be
governed by and construed and enforced in accordance with the
laws of the State of Georgia without giving effect to the
principals or rules governing conflicts of laws.
(e) Notices, requests, demands or other communications required or
permitted under this Escrow Agreement will be in writing and
will be deemed given when actually delivered, received via
facsimile notice for which a confirmation is received, or the
third business day after said notice has been sent by
certified mail, postage prepaid, return receipt requested to:
If to Escrow Agent: The Bank of New York
Suite 520
100 Ashford Center, North
Atlanta, Georgia 30338
If to Agent: Corpfin.com, Inc.
3353 Peachtree Road
Suite 942
Atlanta, Georgia 30326
Attn: John C. Canouse
If to Company: BioShield Technologies, Inc.
5655 Peachtree Parkway
Atlanta, Georgia 30092
Attn: Chief Financial Officer
or such other address as a party may specify in writing to
other parties pursuant hereto.
(f) This Escrow Agreement shall not be modified, revoked, released
or terminated except in writing and signed by parties hereto.
-5-
<PAGE> 6
(g) Should, at any time, any attempt be made to modify this Escrow
Agreement in a manner that would increase the duties and
responsibilities of Escrow Agent, or to modify this Escrow
Agreement in any matter which Escrow Agent shall deem
undesirable, or at any other time, Escrow Agent may resign by
notifying the parties in writing, by certified mail to their
respective addresses here and above set forth. Until (i) the
acceptance by such successor Escrow Agent as shall be
appointment by such parties; or (ii) 60 days following the
date upon which notice was mailed, whichever occurs sooner,
Escrow Agent's only remaining obligation shall be to perform
its duties hereunder in accordance with the terms of this
Escrow Agreement. If said 60 days have passed without the
acceptance by such successor Escrow Agent as shall have been
appointed by such parties, then the Escrow Agent may exercise
its rights under item 8(c) (ii) of this Agreement.
(h) No Implied Duties. The Escrow Agent undertakes to perform only
such duties as are expressly set forth herein and no
additional duties or obligations shall be implied hereunder.
The parties hereby acknowledge that the Escrow Agency is
serving as the Escrow Agent of the offering for the limited
purposes set forth herein, and hereby agree that they will not
represent or imply that the Escrow Agent, by serving as the
escrow agent hereunder or otherwise, has investigated the
desirability or advisability of this investment, or has
approved, endorsed or passed upon the merits of this offering
or any related, offering. It is further agreed that no party
shall in any way use the name "The Bank of New York" in any
sales presentation or literature except in, the context of the
duties of the Escrow Agent as escrow agent of the Offering in
the strictest sense. Any breach or violation of this paragraph
(i) shall be grounds for the immediate resignation by the
Escrow Agent. This Escrow Agreement may be executed in two (2)
or more counterparts, each of which shall be deemed to be an
original, but all of which together shall constitute one and
the same instrument.
[REMAINDER OF DOCUMENT LEFT INTENTIONALLY BLANK]
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
the day and year above set forth.
ESCROW AGENT: THE BANK OF NEW YORK
By:
----------------------------------------
AGENT: CORPFIN.COM, INC.
By:
----------------------------------------
COMPANY: BIOSHIELD TECHNOLOGIES, INC.
By: /s/ Timothy C. Moses
----------------------------------------
Timothy C. Moses
Chairman of the Board and Chief Executive
Officer
By: /s/ Jacques Elfersy
----------------------------------------
Jacques Elfersy
Executive Vice President
-7-
<PAGE> 1
EXHIBIT 10.104
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of January 13, 2000, between Electronic
Medical Distribution, Inc., formerly known as Allergy Superstore.com, Inc., a
Delaware corporation (the "COMPANY"), and Wilson LLC, a Cayman Island limited
liability company (hereinafter referred to as "INVESTOR").
W I T N E S S E T H:
WHEREAS, Investor has participated as an Investor in connection with
the offering (the "OFFERING") of up to $4,000,000 in aggregate amount of
BioShield Technologies, Inc. Series A Convertible Preferred Stock, no par value
per share (the "PREFERRED STOCK") for an aggregate purchase price of $4,000,000;
and
WHEREAS, the Warrants issued pursuant to this Agreement are being
issued by the Company to Investor and/or its designees, in consideration for,
and as part of the investment by Investor in connection with the Offering;
NOW, THEREFORE, in consideration of the premises, the agreements herein
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Grant.
Investor and/or its designees are hereby granted the right to purchase,
at any time from the date of issuance of the aforementioned Preferred Stock
until 5:00 P.M., Eastern Standard Time, on January 12, 2005 (the "WARRANT
EXERCISE TERM"), 200,000 Shares of common stock, par value $0.0001 per share of
the Company (the "COMMON STOCK") at an exercise price (subject to adjustment as
provided in Article 7 hereof) of $5.126 per share (the "INITIAL EXERCISE
PRICE").
2. Warrant Certificates.
The warrant certificates (the "WARRANT CERTIFICATES") delivered and to
be delivered pursuant to this Agreement shall be in the form set forth as
Exhibit A, attached hereto and made a part hereof, with such appropriate
insertions, omissions, substitutions and other variations as required or
permitted by this Agreement.
3. Exercise of Warrants.
3.1 Cash Exercise. The Exercise Price may be paid in cash or
by check to the order of the Company, or any combination of cash or check,
subject to adjustment as provided in Article 7 hereof. Upon surrender of the
Warrant Certificate with the annexed Form of Election to
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<PAGE> 2
Purchase duly executed, together with payment of the Exercise Price (as
hereinafter defined) for the Shares purchased, at the Company's executive
offices currently located at 5655 Peachtree Parkway Atlanta, Georgia 30092, the
registered holder of a Warrant Certificate ("HOLDER" or "HOLDERS") shall be
entitled to receive a certificate or certificates for the Shares so purchased.
The purchase rights represented by each Warrant Certificate are exercisable at
the option of the Holder hereof, in whole or in part (but not as to fractional
shares of the Common Stock). In the case of the purchase of less than all the
Shares purchasable under any Warrant Certificate, the Company shall cancel said
Warrant Certificate upon the surrender thereof and shall execute and deliver a
new Warrant Certificate of like tenor for the balance of the Shares purchasable
thereunder.
3.2 Cashless Exercise. At any time during the Warrant Exercise
Term, the Holder may, at its option, exchange this Warrant, in whole or in part
(a "WARRANT EXCHANGE"), into the number of Shares determined in accordance with
this Section 3.2, by surrendering this Warrant at the principal office of the
company or at the office of its transfer agent, accompanied by a notice stating
such Holder's intent to effect such exchange, the number of Shares to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "NOTICE OF EXCHANGE"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "EXCHANGE Date"). Certificates for the
Shares issuable upon such Warrant Exchange and, if applicable, a new warrant of
like tenor evidencing the balance of the Shares remaining subject to this
Warrant, shall be issued as of the Exchange Date and delivered to the Holder
within seven (7) business days following the Exchange Date. In connection with
any Warrant Exchange, this Warrant shall represent the right to subscribe for
and acquire the number of Shares (rounded to the next highest integer) equal to
(i) the number of Shares specified by the Holder in its Notice of Exchange (the
"TOTAL NUMBER") less (ii) the number of Shares equal to the quotient obtained by
dividing (A) the product of the Total Number and the then existing Exercise
Price by (B) the current market value of a share of Common Stock.
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of certificates for the
Shares shall be made forthwith (and in any event within five business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such
certificates shall be issued in the name of, or in such names as may be directed
by, the Holder thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any such certificates in a name other than that
of the Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
shall be executed on behalf of the Company by the manual or facsimile signature
of the present or any future Chairman or Vice Chairman of the Board of
Directors, Chief Executive officer or President or Vice President
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<PAGE> 3
of the Company under its corporate seal reproduced thereon, attested to by the
manual or facsimile signature of the present or any future Secretary or
Assistant Secretary of the Company. Warrant Certificates shall be dated the date
of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
The Warrant Certificates and, upon exercise of the Warrants, in part or
in whole, certificates representing the Shares shall bear a legend substantially
similar to the following:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "ACT"), and may not
be offered or sold except (i) pursuant to an effective registration
statement under the Act, (ii) to the extent applicable, pursuant to
Rule 144 under the Act (or any similar rule under such Act relating to
the disposition of securities), or (iii) upon the delivery by the
holder to the Company of an opinion of counsel, satisfactory to counsel
to the issuer, stating that an exemption from registration under such
Act is available.
5. Price.
5.1 Adjusted Exercise Price. The adjusted Exercise Price shall
be the price which shall result from time to time from any and all adjustments
of the Initial Exercise Price in accordance with the provisions of Article 7
hereof.
5.2 Exercise Price. The term "EXERCISE PRICE" herein shall
mean the Initial Exercise Price or the adjusted Exercise Price, depending upon
the context.
6. Registration Rights.
6.1 Registration Under the Securities Act of 1933.
The Warrants and the Shares have not been registered for purposes of public
distribution under the Securities Act of 1933, as amended ("THE ACT").
6.2 Registrable Securities. As used herein the term
"REGISTRABLE SECURITY" means each of the Warrants, the Shares and any shares of
Common Stock issued upon any stock split or stock dividend in respect of such
Shares; provided, however, that with respect to any particular Registrable
Security, such security shall cease to be a Registrable Security when, as of the
date of determination, (i) it has been effectively registered under the
Securities Act and disposed of pursuant thereto, (ii) registration under the
Securities Act is no longer required for the immediate public distribution of
such security or (iii) it has ceased to be outstanding. The term "REGISTRABLE
SECURITIES" means any and/or all of the securities falling within the foregoing
definition of a "Registrable Security." In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be made
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<PAGE> 4
in the definition of "Registrable Security" as is appropriate in order to
prevent any dilution or enlargement of the rights granted pursuant to this
Article 6.
6.3 Piggyback Registration. If, at any time during the five
years following the date of this Agreement, the Company proposes to prepare and
file any registration statement or post-effective amendments (other than in
connection with an underwritten initial public offering or initial registration
of the Company or the Company's securities with the U.S. Securities & Exchange
Commission) thereto covering equity or debt securities of the Company, or any
such securities of the Company held by its shareholders (in any such case, other
than in connection with a merger, acquisition or pursuant to Form S-8 or
successor form), (for purposes of this Article 6, collectively, a "REGISTRATION
STATEMENT"), it will give written notice of its intention to do so by registered
mail ("NOTICE"), at ten (10) business days prior to the filing of each such
Registration Statement, to all holders of the Registrable Securities. Upon the
written request of such a holder (a "REQUESTING HOLDER"), made within ten (10)
business days after receipt of the Notice, that the Company include any of the
Requesting Holder's Registrable Securities in the proposed Registration
Statement, the Company shall, as to each such Requesting Holder, use its best
efforts to effect the registration under the Securities Act of the Registrable
Securities which it has been so requested to register ("PIGGYBACK
REGISTRATION"), at the Company's sole cost and expense and at no cost or expense
to the Requesting Holders. Notwithstanding the provisions of this Section 6.3,
the Company shall have the right at any time after it shall have given written
notice pursuant to this Section 6.3 (irrespective of whether any written request
for inclusion of such securities shall have already been made) to elect not to
file any such proposed Registration Statement, or to withdraw the same after the
filing but prior to the effective date thereof.
7. Adjustments of Exercise Price and Number of Shares.
7.1 Subdivision and Combination. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
7.2 Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Article 7, the number of
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full Share by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of Shares issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
7.3 Reclassification, Consolidation, Merger, etc. In case of
any reclassification or change of the outstanding shares of Common Stock (other
than a change in par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding shares of Common Stock, except
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<PAGE> 5
a change as a result of a subdivision or combination of such shares or a change
in par value, as aforesaid), or in the case of a sale or conveyance to another
corporation of the property of the Company as an entirety, the Holders shall
thereafter have the right to purchase the kind and number of shares of stock and
other securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance as if the Holders were the owners of
the shares of Common Stock underlying the Warrants immediately prior to any such
events at a price equal to the product of (x) the number of shares issuable upon
exercise of the Warrants and (y) the Exercise Price in effect immediately prior
to the record date for such reclassification, change, consolidation, merger,
sale or conveyance as if such Holders had exercised the Warrants.
7.4 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall for example be made:
(a) Upon the issuance or sale of shares of Common
Stock upon the exercise of the Warrants; or
(b) Upon (i) the issuance of options pursuant to the
Company's employee stock option plans in effect or the
issuance or sale by the Company of any shares of Common Stock
pursuant to the exercise of any such options, or (ii) the
issuance or sale by the Company of any shares of Common Stock
pursuant to the exercise of any options or warrants; or
(c) Upon the issuance of shares of Common Stock
pursuant to contractual obligations; or
(d) If the amount of said adjustment shall be less
than 2 cents (24) per Share, provided, however, that in such
case any adjustment that would otherwise be required then to
be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which,
together with any adjustment so carried forward, shall amount
to at least 2 cents (24) per Share.
7.5 Dividends and Other Distributions with Respect to
Outstanding Securities. In the event that the Company shall at any time prior to
the exercise of all Warrants declare a dividend (other than a dividend
consisting solely of shares of Common Stock or a cash dividend or distribution
payable out of current or retained earnings) or otherwise distribute to its
shareholders any monies, assets, property, rights, evidences of indebtedness,
securities (other than shares of Common Stock), whether issued by the Company or
by another person or entity, or any other thing of value, the Holder or Holders
of the unexercised Warrants shall thereafter be entitled, in addition to the
shares of Common Stock or other securities receivable upon the exercise thereof,
to receive, upon the exercise of such Warrants, the same monies, property,
assets, rights, evidences of indebtedness, securities or any other thing of
value that they would have been entitled to receive at the time of such dividend
or distribution. At the time of any such dividend or distribution, the
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<PAGE> 6
Company shall make appropriate reserves to ensure the timely performance of the
provisions of this Subsection 7.5.
8. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the
surrender hereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of like tenor and date representing
in the aggregate the right to purchase the same number of Shares in such
denominations as shall be designated by the Holder thereof at the time of such
surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
9. Elimination of Fractional Interests.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock and shall not be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock.
10. Reservation and Listing of Securities.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants, such number of shares of Common Stock as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid, nonassessable and not subject to the preemptive rights of any
shareholder. As long as the Warrants shall be outstanding, the Company shall use
its best efforts, once it has become a public company, to cause all shares of
Common Stock issuable upon the exercise of the Warrants to be listed on or
quoted on the electronic bulletin board, by NASDAQ or listed on such national
securities exchanges.
11. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring
upon the Holder or Holders the right to vote or to consent or to receive notice
as a shareholder in respect of any meetings of shareholders for the election of
directors or any other matter, or as having any rights whatsoever as a
shareholder of the Company. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:
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<PAGE> 7
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
(b) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of
all or substantially all of its property, assets and business as an
entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or any proposed dissolution,
liquidation, winding up or sale.
12. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to a registered Holder of the Warrants, to the address
of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3
of this Agreement or to such other address as the Company may designate
by notice to the Holders.
13. Supplements and Amendments.
The Company may from time to time supplement or amend this Agreement
without the approval of any Holders of Warrant Certificates in order to cure any
ambiguity, to correct or supplement any provision contained herein which may be
defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
may deem necessary or desirable and which the Company deems not to adversely
affect the interests of the Holders of Warrant Certificates.
14. Successors.
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<PAGE> 8
All the covenants and provisions of this Agreement by or for the
benefit of the Company and the Holders inure to the benefit of their respective
successors and assigns hereunder.
15. Termination.
This Agreement shall terminate at the close of business on January 12,
2005. Notwithstanding the foregoing, this Agreement will terminate on any
earlier date when all Warrants have been exercised and all the Shares issuable
upon exercise of the Warrants have been resold to the public; provided, however,
that the provisions of Article 6 shall survive such termination until the close
of business on January 12, 2005.
16. Governing Law.
This Agreement and each Warrant Certificate hereunder shall be governed
by and interpreted in accordance with the laws of the State of Georgia without
regard to the principles of conflict of laws. The parties further agree that any
action between them shall be heard in Atlanta, Georgia, and expressly consent to
the jurisdiction and venue of the Superior Court of Fulton County, Georgia, and
the United States District Court for the Northern District of Georgia, Atlanta
Division for the adjudication of any civil action asserted pursuant to this
Paragraph.
17. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Investor and any other registered
holder or holders of the Warrant Certificates, Warrants or the Shares any legal
or equitable right, remedy or claim under this Agreement; and this Agreement
shall be for the sole and exclusive benefit of the Company and the Investor and
any other holder or holders of the Warrant Certificates, Warrants or the Shares.
18. Counterparts.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and
such counterparts shall together constitute but one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
ELECTRONIC MEDICAL DISTRIBUTION, INC.
By: /s/ Timothy C. Moses
-------------------------------------
Name: Timothy C. Moses
Title: Chairman of the Board and
Chief Executive Officer
Attest:
---------------------------
Name:
-----------------------------
Title:
----------------------------
INVESTOR: WILSON, LLC
By: Navigator Management, Ltd
-------------------------------------
Name: By: David K. Sims
Title: Director
Attest:
---------------------------
Name:
-----------------------------
Title:
----------------------------
9
<PAGE> 10
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., EASTERN STANDARD TIME, JANUARY 12, 2005
No. 2000-A-1 200,000 Shares
WARRANT CERTIFICATE
This Warrant Certificate certifies that Wilson LLC ("INVESTOR") or
registered assigns, is the registered holder of 100,000 Warrants to purchase, at
any time from January 13, 2000, until 5:00 P.M. Eastern Standard Time on January
12, 2005 ("EXPIRATION DATE"), up to 200,000 shares ("SHARES") of fully-paid and
non-assessable common stock, no par value ("COMMON STOCK"), of Electronic
Medical Distribution, Inc., a Delaware corporation (the "COMPANY"), at the
Initial Exercise Price, subject to adjustment in certain events (the "EXERCISE
PRICE"), of $5.126 per Share upon surrender of this Warrant Certificate and
payment of the Exercise Price at an office or agency of the Company, but subject
to the conditions set forth herein and in the warrant agreement dated as of
January 13, 2000, between the Company and Investor (the "WARRANT AGREEMENT").
Payment of the Exercise Price may be made in cash, or by certified or official
bank check in New York Clearing House funds payable to the order of the Company,
or any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., Eastern Standard Time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated
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by reference in and made a part of this instrument and is hereby referred to in
a description of the rights, limitation of rights, obligations, duties and
immunities thereunder of the Company and the holders (the words "HOLDERS" or
"HOLDER" meaning the registered holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events, the Exercise Price and/or number of the Company's securities issuable
thereupon may, subject to certain conditions, be adjusted. In such event, the
Company will, at the, request of the holder, issue a new Warrant Certificate
evidencing the adjustment in the Exercise Price and the number and/or type of
securities issuable upon the exercise of the Warrants; provided, however, that
the failure of the Company to issue such new Warrant Certificates shall not in
any way change, alter, or otherwise impair, the rights of the holder as set
forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferees) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated: As of January 13, 2000 ELECTRONIC MEDICAL DISTRIBUTION, INC.
By:
----------------------------------
Name: Timothy C. Moses
Title: Chairman of the Board and CEO
Attest:
---------------------------
Name:
-----------------------------
Title:
----------------------------
2
<PAGE> 12
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____________ Shares and
herewith tenders in payment for such Shares cash or a certified or official bank
check payable in New York Clearing House Funds to the order of
_____________________ in the amount of $_______________, all in accordance with
the terms hereof. The undersigned requests that a certificate for such Shares be
registered in the name of ___________________________________ whose address
is_____________________________, and that such Certificate be delivered to
___________________________________________, whose address is________________.
Dated: Signature:
------------------ ---------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
- ------------------------------------
- ------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
3
<PAGE> 13
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ___________________________________________ hereby
sells, assigns and transfers unto
- -------------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ___________________________,
Attorney, to transfer the within Warrant Certificate on the books of the within-
named Company, with full power of substitution.
Dated: Signature:
------------------ ---------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
- ------------------------------------
- ------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
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<PAGE> 1
EXHIBIT 10.105
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of January
13, 2000, by and among BioShield Technologies, Inc., a Georgia corporation, with
headquarters at 5655 Peachtree Parkway, Atlanta, Georgia 30092 (the "COMPANY"),
and the undersigned buyer (the "BUYER" OR "BUYERS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and
among the parties of even date herewith (the "SECURITIES PURCHASE AGREEMENT"),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Buyer 200 shares of the
Company's Series A Convertible Preferred Stock (the "PREFERRED STOCK"), which
will be convertible into shares of the Company's common stock, no par value per
share (the "COMMON STOCK") (as converted, the "CONVERSION SHARES") in accordance
with the terms of (i) the Company's Amendments to its Articles of Incorporation
(the "ARTICLES"); and
B. To induce the Buyers to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 ACT"), and applicable state securities laws:
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
a. "INVESTOR" means the Buyer and any transferee or assignee
thereof to whom the Buyer assigns its rights under this Agreement and
who agrees to become bound by the provisions of this Agreement in
accordance with Section 9.
b. "PERSON" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an
individual, a governmental or political subdivision thereof or a
governmental agency.
c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements in compliance with the 1933 Act and pursuant to Rule 415
under the 1933 Act or any successor rule providing for offering
securities on a continuous basis ("RULE 415"), and the declaration or
ordering of
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effectiveness of such Registration Statement(s) by the United States
Securities and Exchange Commission (the "SEC").
d. REGISTRABLE SECURITIES" means the Conversion Shares issued
or issuable upon conversion of the Preferred Stock, and any shares of
capital stock issued or issuable with respect to the Conversion Shares
or the Preferred Stock as a result of any stock split, stock dividend,
recapitalization, exchange or similar event, excluding any dividend or
distribution of the securities of Electronic Medical Distribution, Inc.
e. "REGISTRATION STATEMENT" means a registration statement of
the Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set for-the in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on
or prior to February 13, 2000 file (the "FILING DEADLINE") with the SEC
a Registration Statement or Registration Statements (as is necessary)
on Form S-3 or SB-2 (or, if such form is unavailable for such a
registration, on such other form as is available for such a
registration, subject to the consent of each Buyer and the provisions
of Section 2(e), which consent will not be unreasonably withheld),
covering the resale of all of the Registrable Securities, which
Registration Statement(s) shall state that, in accordance with Rule 416
promulgated under the 1933 Act, such Registration Statement(s) also
covers such indeterminate number of additional shares of Common Stock
as may become issuable upon conversion of the Preferred Stock to
prevent dilution resulting from stock splits, stock dividends or
similar transactions. Such Registration Statement shall initially
register for resale at least 1,000,000 shares of Common Stock, subject
to adjustment as provided in Section 3(b), and such registered shares
of Common Stock shall be allocated among the Investors pro rata based
on the total number of Registrable Securities issued or issuable as of
each date that a Registration Statement, as amended, relating to the
resale of the Registrable Securities is declared effective by the SEC.
The Company shall use its best efforts to have the Registration
Statement declared effective by the SEC within one hundred (100) days
after the issuance of the Preferred Stock (the "REGISTRATION
DEADLINE"). The Company shall permit the registration statement to
become effective within five (5) business days after receipt of a "no
review" notice from the SEC. If the Registration Statement has not been
declared effective by the Registration Deadline, under the Pledge
Agreement dated as of even date herewith between certain shareholders
of the Company and the Buyer, the Buyer has certain rights to convert
some or all of the Preferred Stock and foreclose upon shares of Common
Stock of the Company pledged pursuant to that Pledge Agreement.
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<PAGE> 3
b. Underwritten Offering. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) involves an
underwritten offering, the Buyers shall have the right to select one
legal counsel and an investment banker or bankers and manager or
managers to administer their interest in the offering, which investment
banker or bankers or manager or managers shall be reasonably
satisfactory to the Company.
c. Piggy-Back Registrations. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the
Company proposes to file with the SEC a Registration Statement relating
to an offering for its own account or the account of others under the
1933 Act of any of its securities (other than on Form S-4 or Form S-8
or their then equivalents relating to securities to be issued solely in
connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee
benefit plans) the Company shall promptly send to each Investor who is
entitled to registration rights under this Section 2(c) written notice
of the Company's intention to file a Registration Statement and of such
Investor's rights under this Section 2(c) and, if within twenty (20)
days after receipt of such notice, such Investor shall so request in
writing, the Company shall include in such Registration Statement all
or any part of the Registrable Securities such Investor requests to be
registered, subject to the priorities set forth in Section 2(d) below.
No right to registration of Registrable Securities under this Section
2(c) shall be construed to limit any registration required under
Section 2(a). The obligations of the Company under this Section 2(c)
may be waived by Investors holding a majority of the Registrable
Securities. If an offering in connection with which an Investor is
entitled to registration under this Section 2(c) is an underwritten
offering, then each Investor whose Registrable Securities are included
in such Registration Statement shall, unless otherwise agreed by the
Company, offer and sell such Registrable Securities in an underwritten
offering using the same underwriter or underwriters and, subject to the
provisions of this Agreement, on the same terms and conditions as other
shares of Common Stock included in such underwritten offering.
d. Priority in Piggy-Back Registration Rights in connection
with Registrations or Company Account. If the registration referred to
in Section 2(c) is to be an underwritten public offering for the
account of the Company and the managing underwriter(s) advise the
Company in writing, that in their reasonable good faith opinion,
marketing or other factors dictate that a limitation on the number of
shares of Common Stock which may be included in the Registration
Statement is necessary to facilitate and not adversely affect the
proposed offering, then the Company shall include in such registration:
(1) first, all securities the Company proposes to sell for its own
account, (2) second, up to the full number of securities proposed to be
registered for the account of the holders of securities entitled to
inclusion of their securities in the Registration Statement by reason
of demand registration rights, and (3) third, the securities requested
to be registered by the Investors and other holders of securities
entitled to participate in the registration, drawn from them pro rata
based on the number each has requested to be included in such
registration.
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<PAGE> 4
3. RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(c) or at such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Section 2(a), the
Company will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on
or prior to the thirtieth (30th) day following the date of issuance of
any Preferred Stock, for the registration of Registrable Securities
pursuant to Section 2(a)) and use its best efforts to cause such
Registration Statement(s) relating to Registrable Securities to become
effective as soon as possible after such filing (by the one hundredth
(100th) day following the issuance of the relevant Preferred Stock for
the registration of Registrable Securities pursuant to Section 2(a),
and keep the Registration Statement(s) effective pursuant to Rule 415
at all times until the earlier of (i) the date as of which the
Investors may sell all of the Registrable Securities without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto) or (ii) the date on which (A) the Investors shall
have sold all the Registrable Securities and (B) none of the Preferred
Stock is outstanding the period ending on such earlier date being
referred to herein as (the "REGISTRATION PERIOD"), which Registration
Statement(s) (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein, in light
of the circumstances in which they were made, not misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement(s) and the prospectus(es) used in connection
with the Registration Statement(s), which prospectus(es) are to be
filed pursuant to Rule 424 promulgated under the 1933 Act, as may be
necessary to keep the Registration Statement(s) effective at all times
during the Registration Period, and, during such period, comply with
the provisions of the 1933 Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration
Statement(s) until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in the
Registration Statement(s). In the event the number of shares available
under a Registration Statement filed pursuant to this Agreement is
insufficient to cover all of the Registrable Securities, the Company
shall amend the Registration Statement, or file a new Registration
Statement (on the short form available therefor, if applicable), or
both, so as to cover all of the Registrable Securities, in each case,
as soon as practicable, but in any event within fifteen (15) days after
the necessity therefor arises (based on the market price of the Common
Stock and other relevant factors on which the Company reasonably elects
to rely). The Company shall use its best efforts to cause such
amendment and/or new
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<PAGE> 5
Registration Statement to become effective as soon as practicable
following the filing thereof. For purposes of the foregoing provision,
the number of shares available under a Registration Statement shall be
deemed "insufficient to cover all of the Registrable Securities" if at
any time the number of Registrable Securities issued or issuable upon
conversion of the Preferred Stock is greater than the quotient
determined by dividing (i) the number of shares of Common Stock
available for resale under such Registration Statement by (ii) 1.0. For
purposes of the calculation set forth in the foregoing sentence, any
restrictions on the convertibility of the Preferred Stock shall be
disregarded and such calculation shall assume that the Preferred Stock
are then convertible into shares of Common Stock at the then prevailing
Conversion Rate (as defined in the Preferred Stock).
c. The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statement(s)
and its legal counsel without charge (i) promptly after the same is
prepared and filed with the SEC at least one copy of the Registration
Statement and any amendment thereto, including financial statements and
schedules, all documents incorporated therein by reference and all
exhibits, the prospectus(es) included in such Registration Statement(s)
(including each preliminary prospectus ) and, with regards to the
Registration Statement, any correspondence by or on behalf of the
Company to the SEC or the staff of the SEC and any correspondence from
the SEC or the staff of the SEC to the Company or its representatives,
(ii) upon the effectiveness of any Registration Statement, ten (10)
copies of the prospectus included in such Registration Statement and
all amendments and supplements thereto (or such other number of copies
as such Investor may reasonably request) and (iii) such other
documents, including any preliminary prospectus, as such Investor may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Investor.
d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration
Statement(s) under such other securities or "blue sky" laws of such
jurisdictions in the United States as any Investor reasonably requests,
(ii) prepare and file in those jurisdictions, such amendments
(including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such
other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period,
and (iv) take all other actions reasonably necessary or advisable to
quality the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (a) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (b) subject itself to general taxation in
any such jurisdiction, or (c) file a general consent to service of
process in any such jurisdiction. The Company shall promptly notify
each Investor who holds Registrable Securities of the receipt by the
Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for
sale under the
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<PAGE> 6
securities or "blue sky" laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.
e. In the event Investors who hold a majority of the
Registrable Securities being offered in the offering select
underwriters for the offering, the Company shall enter into and perform
its obligations under an underwriting agreement, in usual and customary
form, including, without limitation, customary indemnification and
contribution obligations, with the underwriters of such offering.
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<PAGE> 7
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor in writing of the
happening of any event, of which the Company has knowledge, as a result
of which the prospectus included in a Registration Statement, as then
in effect, includes an untrue statement of a material fact or omission
to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading, and promptly prepare a supplement or
amendment to the Registration Statement to correct such untrue
statement or omission, and deliver ten (10) copies of such supplement
or amendment to each Investor (or such other number of copies as such
Investor may reasonably request). The Company shall also promptly
notify each Investor in writing (i) when a prospectus or any prospectus
supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become
effective (notification of such effectiveness shall be delivered to
each Investor by facsimile on the same day of such effectiveness and by
overnight mail) (ii) of any request by the SEC for amendments or
supplements to a Registration Statement or related prospectus or
related information, (iii) of the Company's reasonable determination
that a post-effective amendment to a Registration Statement would be
appropriate.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any
of the Registrable Securities for sale in any jurisdiction and, if such
an order or suspension is issued, to obtain the withdrawal of such
order or suspension at the earliest possible moment and to notify each
Investor who holds Registrable Securities being sold (and, in the event
of an underwritten offering, the managing underwriters) of the issuance
of such order and the resolution thereof or its receipt of actual
notice of the initiation or threat of any proceeding for such purpose.
h. The Company shall permit each Investor a single firm of
counsel or such other counsel as thereafter designated as selling
stockholders' counsel by the Investors who hold a majority of the
Registrable Securities being sold, to review and comment upon the
Registration Statement(s) and all amendments and supplements thereto at
least five (5) days prior to their filing with the SEC, and not file
any document in a form to which such counsel reasonably objects. The
Company shall not submit a request for acceleration of the
effectiveness of a Registration Statement(s) or any amendment or
supplement thereto without the prior approval of such counsel, which
consent shall not be unreasonably withheld.
i. At the request of the Investors who hold a majority of the
Registrable Securities being sold, the Company shall furnish, on the
date that Registrable Securities are delivered to an underwriter, if
any, for sale in connection with the Registration Statement (i) if
required by an underwriter, a letter, dated such date, from the
Company's independent certified public accountants in form and
substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering,
addressed to the underwriters, and (ii) an opinion, dated as of such
date, of counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is
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<PAGE> 8
customarily given in an underwritten public offering, addressed to the
underwriters and the Investors.
j. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition
pursuant to a Registration Statement, (iii) one firm of attorneys and
one firm of accountants or other agents retained by the Investors, and
(iv) one firm of attorneys retained by all such underwriters
(collectively, the "INSPECTORS") all pertinent financial and other
records, and pertinent corporate documents and properties of the
Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its
due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector
may reasonably request for purposes of such due diligence provided,
however, that each Inspector shall hold in strict confidence and shall
not make any disclosure (except to an Investor) or use of any Record or
other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so
notified, unless (a) the disclosure of such Records is necessary to
avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the 1933 Act, (b) the release
of such Records is ordered pursuant to a final, non-appealable subpoena
or order from a court or government body of competent jurisdiction, or
(c) the information in such Records has been made generally available
to the public other than by disclosure in violation of this or any
other agreement. Each Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental
body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential.
k. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the
Company unless (i) disclosure of such information is necessary to
comply with federal or state securities laws, (ii) the disclosure of
such information is necessary to avoid or correct a misstatement or
omission in any Registration Statement, (iii) the release of such
information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally
available to the public other than by disclosure in violation of this
or any other agreement. The Company agrees that it shall, upon learning
that disclosure of such information concerning an Investor is sought in
or by a court or governmental body of competent jurisdiction or through
other means, give prompt written notice to such Investor and allow such
Investor, at the Investor's expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, such
information.
l. The Company shall use its best efforts either to (i) cause
all the Registrable Securities covered by a Registration Statement to
be listed on each national securities exchange on which securities of
the same class or series issued by the Company are then listed, if any,
if the listing of such Registrable Securities is then permitted under
the rules of such exchange, (ii) to secure designation and quotation of
all the Registrable Securities
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<PAGE> 9
covered by the Registration Statement on the Nasdaq National Market
System, (iii) if, despite the Company's best efforts to satisfy the
preceding clause (i) or (ii), the Company is unsuccessful in satisfying
the preceding clause (i) or (ii) to secure the inclusion for quotation
on the Nasdaq SmallCap Market for such Registrable Securities or, (iv)
if, despite the Company's best efforts to satisfy the preceding clause
(iii), the Company is unsuccessful in satisfying the preceding clause
(iii), to secure the inclusion for quotation on the over-the-counter
market for such Registrable Securities, and, without limiting the
generality of the foregoing, in the case of clause (iii) or (iv), to
arrange for at least two market makers to register with the National
Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities. The Company shall pay all fees and
expenses in connection with satisfying its obligation under this
Section 3(l).
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any
managing underwriter or underwriters, to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive
legend) representing the Registrable Securities to be offered pursuant
to a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the managing
underwriter or underwriters, if any, or, if there is no managing
underwriter or underwriters, the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters,
if any, or the Investors may request. Not later than the date on which
any Registration Statement registering the resale of Registrable
Securities is declared effective, the Company shall deliver to its
transfer agent instructions, accompanied by any reasonably required
opinion of counsel, that permit sales of unlegended securities in a
timely fashion that complies with then mandated securities settlement
procedures for regular way market transactions.
n. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of
Registrable Securities pursuant to a Registration Statement.
o. The Company shall provide a transfer agent and registrar of
all such Registrable Securities not later than the effective date of
such Registration Statement.
p. If requested by the managing underwriters or an Investor,
the Company shall immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters
and the Investors agree should be included therein relating to the sale
and distribution of Registrable Securities, including, without
limitation, information with respect to the number of Registrable
Securities being sold to such underwriters, the purchase price being
paid therefor by such underwriters and with respect to any other terms
of the underwritten (or best efforts underwritten) offering of the
Registrable Securities to be sold in such offering; make all required
filings of such prospectus supplement or post-effective amendment as
soon as notified of the matters to be incorporated in such prospectus
supplement or post-effective amendment; and supplement or make
amendments to any Registration Statement if requested by a shareholder
or any underwriter of such Registrable Securities.
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q. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement
to be registered with or approved by such other governmental agencies
or authorities as may be necessary to consummate the disposition of
such Registrable Securities.
r. The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with
any registration hereunder.
4. OBLIGATIONS OF THE INVESTORS.
a. At least five (5) days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify
each Investor in writing of the information the Company requires from
each such Investor if such Investor elects to have any of such
Investor's Registrable Securities included in the Registration
Statement. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with
respect to the Registrable Securities of a particular Investor that
such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method
of disposition of the Registrable Securities held by it as shall be
reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such
registration as the Company may reasonably request.
b. Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as
reasonably requested by the Company in connection with the preparation
and filing of the Registration Statement(s) hereunder, unless such
Investor has notified the Company in writing of such Investor's
election to exclude all of such Investor's Registrable Securities from
the Registration Statement.
c. In the event Investors holding a majority of the
Registrable Securities being registered determine to engage the
services of an underwriter, each Investor agrees to enter into and
perform such Investor's obligations under an underwriting agreement, in
usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing
underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition
of the Registrable Securities, unless such Investor notifies the
Company in writing of such Investor's election to exclude all of such
Investor's Registrable Securities from the Registration Statement(s).
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in
Section 3(g) or the first sentence of 3(f), such Investor will
immediately discontinue disposition of Registrable Securities pursuant
to the Registration Statement(s) covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(g) or the first sentence
of 3(f) and, if so directed by the Company, such Investor shall deliver
to the Company (at the expense of the Company) or destroy all copies in
such
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Investor's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such
Investor's Registrable Securities on the basis provided in any
underwriting arrangements approved by the Investors entitled hereunder
to approve such arrangements, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of
such underwriting arrangements, and (iii) agrees to pay its pro rata
share of all underwriting discounts and commissions.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company shall be borne by the Company.
The Investors shall bear the fees and disbursements of their counsel.
6. INDEMNIFICATION
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor who
holds such Registrable Securities, the directors, officers, partners,
employees, agents and each Person, if any, who controls any Investor
within the meaning of the 1933 Act or the Securities Exchange Act of
1934, as amended (the "1934 ACT"), and any underwriter (as defined in
the 1933 Act) for the Investors, and the directors and officers of, and
each Person, if any, who controls, any such underwriter within the
meaning of the 1933 Act or the 1934 Act (each, an "INDEMNIFIED
PERSON"), against any losses, claims, damages, liabilities, judgments,
fines, penalties, charges, costs, attorneys' fees, amounts paid in
settlement or expenses, joint or several, (collectively, "CLAIMS")
incurred in investigating, preparing or defending any action, claim,
suit, inquiry, proceeding, investigation or appeal taken from the
foregoing by or before any court or governmental, administrative or
other regulatory agency, body or the SEC, whether pending or
threatened, whether or not an indemnified party is or may be a party
thereto ("INDEMNIFIED DAMAGES"), to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based
upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or any post-effective
amendment thereto or in any filing made in connection with the
qualification of the offering under the securities or other "blue sky"
laws of any jurisdiction in which Registrable Securities are offered
("BLUE SKY FILING"), or the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which
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<PAGE> 12
the statements therein were made, not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in
any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the SEC) or the omission or alleged omission to
state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements
therein were made, not misleading, or (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement (the matters in the
foregoing clauses (i) through (iii) being, collectively, "VIOLATIONS").
Subject to the restrictions set forth in Section 6(d) with respect to
the number of legal counsel, the Company shall reimburse the Investors
and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any legal fees or
other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to
the contrary contained herein, the indemnification agreement contained
in this Section 6(a): (i) shall not apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified
Person or underwriter for such Indemnified Person expressly for use in
connection with the preparation of the Registration Statement or any
such amendment thereof or supplement thereto, if such prospectus was
timely made available by the Company pursuant to Section 3(c); (ii)
with respect to any preliminary prospectus, shall not inure to the
benefit of any such person from whom the person asserting any such
Claim purchased the Registrable Securities that are the subject thereof
(or to the benefit of any person controlling such person) if the untrue
statement or mission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the
Company pursuant to Section 3(c), and the Indemnified Person was
promptly advised in writing not to use the incorrect prospectus prior
to the use giving rise to a violation and such Indemnified Person,
notwithstanding such advice, used it; (iii) shall not be available to
the extent such Claim is based on a failure of the Investor to deliver
or to cause to be delivered the prospectus made available by the
Company (i) and (iv) shall not apply to amounts paid in settlement of
any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably
withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by
the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and
not jointly indemnify, hold harmless and defend, to the same extent and
in the same manner as is set forth in Section 6(a), the Company, each
of its directors, each of its officers who signs the Registration
Statement, each Person, if any, who controls the Company within the
meaning of the 1933 Act or the 1934 Act (collectively and together with
an Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim or
Indemnified Damages to which any of them may become subject, under
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<PAGE> 13
the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are based upon any Violation, in
each case to the extent, and only to the extent, that such Violation
occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in
connection with such Registration Statement; and, subject to Section
6(d), such Investor will reimburse any legal or other expenses
reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity
agreement contained in this Section 6(b) and Section 7 shall not apply
to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on
behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect
to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely
basis in the prospectus, as then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in any distribution, to the same
extent as provided above, with respect to information such persons so
furnished in writing expressly for inclusion in the Registration
Statement.
d. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of
any action or proceeding (including any governmental action or
proceeding) involving a Claim such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying
party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense
thereof with counsel mutually satisfactory to the indemnifying party
and the Indemnified Person or the Indemnified Party, as the case may
be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and
expenses to be paid by the indemnifying party, if, in the reasonable
opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified
Party and the indemnifying party would be inappropriate due to actual
or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in
such proceeding. The Company shall pay reasonable fees for only one
separate legal counsel for the Investors, which counsel shall be
acceptable to the Company and such legal counsel shall be selected by
the Investors holding a majority in interest of the Registrable
Securities included in the Registration Statement to which the Claim
relates. The Indemnified Party or Indemnified Person shall cooperate
fully with the indemnifying party in connection with any negotiation or
defense of any such action or claim by the indemnifying party and shall
furnish to the indemnifying party all information reasonably
13
<PAGE> 14
available to the Indemnified Party or Indemnified Person which relates
to such action or claim. The indemnifying party shall keep the
Indemnified Party or Indemnified Person fully apprised at all times as
to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any
settlement of any action, claim or proceeding effected without its
written consent, provided, however, that the indemnifying party shall
not unreasonably withhold, delay or condition its consent. No
indemnifying party shall, without the consent of the Indemnified Party
or Indemnified Person, consent to entry of any judgment or enter into
any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Party or Indemnified Person of a release from all
liability in respect to such claim or litigation. Following
indemnification as provided for hereunder, the indemnifying party shall
be subrogated to all rights of the Indemnified Party or Indemnified
Person with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been made. The
failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action shall relieve
such indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6.
e. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified
Party or Indemnified Person against the indemnifying party or others,
and (ii) any liabilities the indemnifying party may be subject to
pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6; (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (iii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
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<PAGE> 15
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act
so long as the Company remains subject to such requirements (it being
understood that nothing herein shall limit the Company's obligations
under Section 4(c) of the Securities Purchase Agreement) and the filing
of such reports and other documents is required for the applicable
provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement
by the Company that it has complied with the reporting requirements of
Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as
may be reasonably requested to permit the investors to sell such
securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights to have the Company register Registrable Securities pursuant
to this Agreement shall be automatically assignable by the Investors to any
transferee of all or any portion of Registrable Securities if: (i) the Investor
agrees in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company within a reasonable time
after such assignment; (ii) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned; (iii)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the 1933 Act
and applicable state securities laws; (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein; (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement; (vi) such transferee shall be an "ACCREDITED INVESTOR" as that term
is defined in Rule 501 of Regulation D promulgated under the 1933 Act; and (vii)
in the event the assignment occurs subsequent to the date of effectiveness of
the Registration Statement required to be filed pursuant to Section 2(a), the
transferee agrees to pay all reasonable expenses of amending or supplementing
such Registration Statement to reflect such assignment.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who hold a majority of the Registrable Securities. Any amendment
or waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
11. MISCELLANEOUS.
15
<PAGE> 16
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting
instructions, notices or elections from two or more persons or entities
with respect to the same Registrable Securities, the Company shall act
upon the basis of instructions, notice or election received from the
registered owner of such Registrable Securities.
b. Any notices consents, waivers or other communications
required or permitted to be given under the terms of this Agreement
must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by
facsimile, provided a copy is mailed by U.S. certified mail, return
receipt requested; (iii) three (3) days after being sent by U.S.
certified mail, return receipt requested, or (d) one (1) day after
deposit with a nationally recognized overnight delivery service, in
each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
16
<PAGE> 17
If to the Company: BioShield Technologies, Inc.
5655 Peachtree Parkway
Atlanta, Georgia 30092
Facsimile: (770) 368-0784
Attention: Chief Financial Officer
With a copy to: Raymond L. Moss, Esq.
Sims Moss Kline & Davis LLP
400 Northpark Town Center, Suite 310
1000 Abernathy Road, N.E.
Atlanta, Georgia 30328
Facsimile: (770) 481-7210
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to such Buyer's counsel as set forth on the Schedule of
Buyers. Each party shall provide five (5) days' prior written notice to the
other party of any change in address or facsimile number.
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, delay by a party in exercising such right
or remedy, shall not operate as a waiver thereof.
d. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Georgia without regard to the
principles of conflict of laws. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity
or unenforceability shall not affect the validity or enforceability of
the remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other
jurisdiction.
e. This Agreement and the Securities Purchase Agreement
constitute the entire agreement among the parties hereto with respect
to the subject matter hereof and thereof. There are no restrictions,
promises, warranties or undertakings, other than those set forth or
referred to herein and therein. This Agreement and the Securities
Purchase Agreement supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and
thereof.
f. Subject to the requirements of Section 9, this Agreement
shall inure to the benefit and of and be binding upon the permitted
successors and assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
hereof.
h. This Agreement may be executed in two or more identical
counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same agreement. This Agreement, once
executed by a party, may be delivered to the other party
17
<PAGE> 18
hereto by facsimile transmission of a copy of this Agreement bearing
the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry
out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 19
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYER:
BIOSHIELD TECHNOLOGIES, INC. WILSON LLC
By: /s/ Timothy C. Moses By: Navigator Management Ltd.
------------------------------ ----------------------------
Name: Timothy C. Moses Name: By: David K. Sims
Its: Chairman of the Board and --------------------------
Chief Executive Officer Its: Director
---------------------------
By: /s/ Jacques Elfersy
------------------------------
Name: Jacques Elfersy
Its: Executive Vice President
19
<PAGE> 20
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
NUMBER OF SERIES A
PREFERRED
BUYER'S NAME ADDRESS/FACSIMILE NUMBER OF BUYER SHARES
- -------------------------------------------------------------------------------
<S> <C> <C>
WILSON LLC c/o Citco Trustees (Cayman) Ltd. 200
Attn: David Sims
Corporate Centre, Windwood One
West Bay Road
P.O. Box 31106 SMB
Grand Cayman, Cayman Islands
284-494-4771
- -------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 1
EXHIBIT 10.106
PLEDGE AGREEMENT
This PLEDGE AGREEMENT is by and among Timothy S. Moses and Jacques
Elfersy (the "PLEDGORS") and WILSON, LLC (the "PLEDGEE").
The Pledgee and Bioshield Technologies, Inc., a Georgia corporation
("BSTI") have entered into a series of agreements (the "SERIES A PURCHASE
AGREEMENTS") pursuant to which BSTI has agreed to sell to Pledgee, and Pledgee
has agreed to purchase, $4,000,000 of Series A Preferred Stock of BSTI (the
"SERIES A PREFERRED STOCK"), which is convertible into shares of common stock of
BSTI, no par value ("COMMON STOCK"). Pursuant to the Series A Purchase
Agreements, BSTI is required to have a registration statement covering the
Common Stock issuable upon conversion of the Series A Preferred Stock (the
"REGISTRATION STATEMENT") declared effective by the Securities and Exchange
Commission (the "SEC") by the date 100 days from the closing under the Series A
Purchase Agreements (the "DEFAULT DATE"). The Pledgee and BSTI have also entered
into a Private Equity Credit Agreement dated as of June 30, 1999, as amended
(the "EQUITY LINE AGREEMENT") and a related Registration Rights Agreement (the
"EQUITY REGISTRATION RIGHTS AGREEMENT"). Pursuant to the Equity Registration
Rights Agreement, BSTI is required to file a registration statement covering the
shares of Common Stock that may be issued pursuant to the Equity Line Agreement
(the "EQUITY LINE REGISTRATION STATEMENT"). As an inducement to the Pledgee to
purchase the Series A Preferred Stock, the Pledgors have agreed to deposit into
escrow shares of Common Stock owned by them, to serve as collateral for BSTI's
obligation to issue shares pursuant to the conversion rights of the Series A
Preferred Stock if neither the Registration Statement nor the Equity Line
Registration Statement has been declared effective by the SEC on or prior to the
Default Date (the "REGISTRATION OBLIGATION").
Accordingly, the Pledgors hereby agree with the Pledgee as follows:
SECTION 1. Pledge. As collateral security for performance of the
Registration Obligation, the Pledgors hereby pledge, hypothecate, assign,
transfer, set over and deliver unto the Pledgee, and grant to the Pledgee a
security interest in (i) an aggregate of 500,000 shares of Common Stock, (ii)
any additional Common Stock hereafter at any time delivered to the Pledgee,
including under Section 3 hereof, and (iii) any cash, additional shares or
securities or other property at any time and from time to time receivable or
otherwise distributable in respect of, in exchange for, or in substitution of,
any and all such stock, together with the proceeds thereof (all such shares,
capital stock, securities, cash, property and other proceeds thereof being
hereinafter collectively called the "PLEDGED COLLATERAL"). Upon delivery to the
Pledgee, (a) any securities now or hereafter included in the Pledged Collateral
(hereinafter called the "PLEDGED SECURITIES") shall be accompanied by duly
executed stock powers in blank and by such other instruments or documents as the
Pledgee or its counsel may reasonably request, and (b) all other property
comprising part of the Pledged Collateral shall be accompanied by proper
instruments of assignment duly executed by the Pledgors and by such other
instruments or documents as the Pledgee or its counsel may reasonably request.
Each delivery of certificates for such Pledged Securities shall be accompanied
by a schedule showing the
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<PAGE> 2
number of shares and the numbers of the certificates therefor, theretofore and
then being pledged hereunder, which schedules shall be attached hereto as
Schedule I and made a part hereof. Each schedule so delivered shall supersede
any prior schedules so delivered. The Pledged Collateral is pledged,
hypothecated, assigned, transferred, sets over, and delivered to the Pledgee,
and the Pledgee is granted a security interest therein, together with all
rights, titles, interests, powers, privileges and preferences pertaining or
incidental thereto, subject only to the terms, covenants and conditions
hereinafter set forth.
SECTION 2. Termination of Pledge. This Pledge Agreement shall
terminate, and all Pledged Collateral remaining in pledge hereunder shall be
returned to the Pledgors, immediately upon the effectiveness under the
Securities Act of 1933, as amended, of either (a) the Registration Statement, as
required pursuant to the Series A Purchase Agreements, or (b) the Equity Line
Registration Statement, as required pursuant to the Equity Registration Rights
Agreement.
SECTION 3. Additional or Excess Collateral. On the Default Date, and
provided that this Agreement shall not have theretofore terminated pursuant to
Section 2 hereof, the Pledgee may, by written notice to each Pledgor, require
that the Pledgors immediately pledge hereunder additional shares of Common Stock
so that the total number of shares held in pledge hereunder shall be equal to
(i) the sum of $4,000,000 divided by (ii) the average of the Closing Bid Prices,
as hereinafter defined, for a share of Common Stock for the twenty consecutive
trading days ending on and including the trading day immediately prior to the
Default Date (such number of shares if Common Stock being referred to herein as
the "REQUIRED COLLATERAL"). "CLOSING BID PRICE" means, for any date, the last
closing bid price on the Nasdaq SmallCap Market(TM) (tHe "NASDAQ-SM") as
reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if the Nasdaq-SM 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 (the "TRADING
MARKET"), 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 BSTI (all as appropriately
adjusted for any stock dividend, stock split or other similar transaction during
such period). On the Default Date, if the number of shares of Common Stock held
in pledge hereunder shall exceed the Required Collateral, the Pledgee shall
immediately cause the excess number of shares of Common Stock to be released to
the Pledgors, including, without limitation, instructing the Escrow Agent
referred to in Section 9 hereof to effect such release. From time to time
following the Default Date, and provided that this Pledge Agreement shall not
have theretofore terminated, if the Pledgee shall duly execute and deliver a
valid notice of exercise of conversion of some or all the shares of Series A
Preferred Stock, and there shall be insufficient shares of Common Stock in the
Pledged Collateral to deliver all the shares of Common Stock deliverable
pursuant to such notice of conversion, the Pledgee may, at its option, by
written notice require the Pledgors to deposit additional shares of Common Stock
so that there are sufficient
2
<PAGE> 3
number of shares of Common Stock in the Pledged Collateral as are equal to the
number of shares of Common Stock deliverable pursuant to such valid notice of
conversion.
SECTION 4. Representations and Warranties. The Pledgors hereby
represent and warrant that, (i) except for the security interest granted to the
Pledgee, the Pledgors are the legal and equitable owner of the Pledged
Collateral and hold the same free and clear of all liens, charges, encumbrances
and security interests of every kind and nature; (ii) the Pledgors will make no
voluntary assignment, pledge, mortgage, hypothecation or transfer of the Pledged
Collateral so long as the Pledged Collateral is subject to this Pledge
Agreement; (iii) the Pledgors have good right and legal authority to pledge the
Pledged Collateral as provided herein; (iv) the Pledgors will defend their title
to the Pledged Collateral against the claims of all persons whomsoever except
those claiming hereunder; (v) no consent or approval of any governmental body or
regulatory authority, or of any securities exchange, was or is necessary to the
validity of the pledge provided herein which has not been obtained; (vi) the
pledge of the Pledged Collateral provided herein is effective to vest in the
Pledgee a valid, binding security interest in the Pledged Collateral as set
forth herein; and (vii) the capital stock of BSTI, including all of the Pledged
Collateral, has been duly and validly issued and is fully paid and
nonassessable.
SECTION 5. Voting Rights; Dividends, etc:
(A) The Pledgors shall be entitled to exercise any and all voting
and/or consensual rights and powers accruing to an owner of the Pledged
Securities or any part thereof for any purpose not inconsistent with the terms
of this Pledge Agreement.
(B) The Pledgors shall be entitled to retain and use any and all cash
dividends paid on Pledged Securities, but any and all stock and/or liquidating
dividends, other distributions in property, return of capital or other
distributions made on or in respect of Pledged Securities, whether resulting
from a subdivision, combination or reclassification of outstanding capital stock
of any corporation the capital stock of which is pledged hereunder or received
in exchange for Pledged Securities or any part thereof or as a result of any
merger, consolidation, acquisition or other exchange of assets or on the
liquidation, whether voluntary or involuntary, of any issuer of the Pledged
Securities, or otherwise, shall be and become part of the Pledged Collateral
pledged hereunder and, if received by the Pledgors, shall forthwith be delivered
to the Escrow Agent, as provided in Section 9 hereof to be held as collateral
subject to the terms of this Pledge Agreement.
(C) The Pledgee shall execute and deliver to the Pledgors, or cause to
be executed and delivered to the Pledgors, as appropriate, all such proxies,
powers of attorney, dividend orders and other instruments as the Pledgors may
reasonably request for the purpose of enabling the Pledgors to exercise the
voting and/or consensual rights and powers which the Pledgors are entitled to
exercise pursuant to paragraph (i) above and/or to receive the dividends which
the Pledgors are authorized to retain pursuant to paragraph (ii) above.
3
<PAGE> 4
SECTION 6. Remedies upon Default. If an Event of Default shall occur
and be continuing, and if the Pledgee shall duly execute and deliver a valid
notice of exercise of conversion of some or all the shares of Series A Preferred
Stock, the Pledgee may, at its option, in lieu of requiring BSTI to deliver
shares of Common Stock in connection with such notice of conversion, take
possession of the number of shares of Common Stock from the Pledged Collateral
as are equal to the number of shares of Common Stock deliverable pursuant to
such valid notice of conversion. If the Pledgee shall so opt to take possession
of a portion of the Pledged Collateral, the Pledgee may deliver such Pledged
Collateral at public or private sale or on any securities exchange, for cash,
upon credit or for other property, for immediate or future delivery, and for
such price or prices and on such terms as the Pledgee in its sole discretion
shall deem appropriate. Each such purchaser at any such sale shall hold the
property sold absolutely free from any claim or right on the part of the
Pledgors, and the Pledgors hereby waive (to the extent permitted by law) all
rights of redemption, stay and/or appraisal which the Pledgors now have or may
at any time in the future have under any rule of law or statute now existing or
hereafter enacted. The Pledgee shall give the Pledgors five days' written notice
(which the Pledgors agree is reasonable notification within the meaning of
Section 9-504(3) of the Uniform Commercial Code as in effect in the State of
Georgia) of the Pledgee's intention to make any such public or private sale or
sale on any such securities exchange. Such notice, in case of public sale, shall
state the time and place for such sale, and, in the case of sale on a securities
exchange, shall state the exchange at which such sale is to be made and the day
on which the Pledged Collateral, or portion thereof, will first be offered for
sale at such exchange. Any such public sale shall be held at such time or times
within ordinary business hours and at such place or places as the Pledgee may
fix and shall state in the notice or publication (if any) of such sale. At any
such sale, the Pledged Collateral, or portion thereof to be sold, may be sold in
one lot as an entirety or in separate parts, as the Pledgee may (in its sole and
absolute discretion) determine. The Pledgee shall not be obligated to make any
sale of the Pledged Collateral if it shall determine not to do so, regardless of
the fact that notice of sale of the Pledged Collateral may have been given. The
Pledgee may, without notice or publication, adjourn any public or private sale
or cause the same to be adjourned from time to time by announcement at the time
and place fixed for sale, and such sale may, without further notice, be made at
the time and place to which the same was so adjourned without further notice. In
case sale of all or any part of the Pledged Collateral is made on credit or for
future delivery, the Pledged Collateral so sold may be retained by the Pledgee
until the sale price is paid by the purchaser or purchasers thereof, but the
Pledgee shall not incur any liability in case any such purchaser or purchasers
shall fail to take up and pay for the Pledged Collateral so sold and, in case of
any such failure, such Pledged Collateral may be sold again upon like notice. At
any public sale made pursuant to this Pledge Agreement, the Pledgee may bid for
or purchase, free from any right of redemption, stay and/or appraisal on the
part of the Pledgors (all said rights being also hereby waived and released to
the extent permitted by law), any part of or all the Pledged Collateral offered
for sale, and thereafter, the Pledgee may, upon compliance with the terms of
sale, hold, retain and dispose of such property without further accountability
to the Pledgors therefor.
SECTION 7. Pledgee Appointed Attorney-in-Fact. The Pledgors hereby
constitute and appoint the Pledgee as their due and lawful attorney-in-fact for
the purpose of (i) carrying out the provisions of this Pledge Agreement and all
of the rights and powers granted to the secured party
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<PAGE> 5
hereunder and (ii) taking any action and executing any instrument which the
Pledgee may deem necessary or appropriate to accomplish the purposes hereof
and\or carry out the rights and powers of the secured party hereunder. The
appointment of the Pledgee as attorney-in-fact of the Pledgors is irrevocable
and is coupled with an interest. Without limiting the generality of the
foregoing, the Pledgee shall have the right, after the occurrence of an Event of
Default, with full power of substitution either in the Pledgee's name or in the
name of the Pledgors, to (i) ask for, demand, sue for, collect, receive, receipt
and give acquittance for any and all moneys due or to become due under and by
virtue of any Pledged Collateral, (ii) endorse checks, drafts, orders and other
instruments for the payment of money payable to the Pledgors, representing any
interest or dividend or other distribution payable in respect of the Pledged
Collateral or any part thereof or on account thereof, (iii) give full discharge
for the same, to settle, compromise, prosecute, or defend any action, claim or
proceeding with respect to the Pledged Collateral and to execute any release,
settlement agreement, or other document or instrument reasonably necessary or
appropriate in connection therewith, (iv) sell, assign, endorse, pledge,
transfer and make any agreement respecting, or otherwise deal with, the Pledged
Collateral and to execute any agreement, bill of sale, stock power, stock
transfer or other document or instrument reasonably necessary or appropriate in
connection therewith, (v) execute any Uniform Commercial Code financing
statement (UCC-1) and continuation statement to perfect and continue the
perfection of any security interest granted hereunder, and (vi) give any
instructions, advice, certificates, affidavits or the like to the Escrow Agent.
Notwithstanding anything contained in the foregoing to the contrary, the Pledgee
shall have no obligation to take any action, make any commitment or make any
inquiry with respect to the Pledged Collateral or any rights, dividends or
distributions with respect thereto, including without limitation any inquiry as
to the nature or sufficiency of any payment received by it, or to present or
file any claim or notice, or to take any action to assert or perfect a claim
with respect to the Pledged Collateral or any part thereof or any monies due or
to become due in respect thereof or any property included therein, and no action
taken by the Pledgee or omitted to be taken with respect to the Pledged
Collateral or any part thereof shall give rise to any defense, counterclaim or
offset in favor of the Pledgors or to any claim or action against the Pledgee.
SECTION 8. Event of Default Defined. For purposes of this Pledge
Agreement, an "Event of Default" shall exist hereunder upon the happening of any
of the following events:
(a) The SEC shall not have declared either the Registration
Statement or the Equity Registration Rights Agreement effective by the
Default Date;
(b) any written representation or warranty made in connection
with this Pledge Agreement shall prove false and misleading in any
material respect;
(c) the Pledgors shall fail to deliver to Pledgee any
dividend, distribution or property with respect to the Pledged
Collateral which the Pledgors are obligated to so deliver under the
terms hereof; or
(d) the Pledgors shall fail to comply with any provision of
this Pledge Agreement.
5
<PAGE> 6
SECTION 9. Escrow Agreement. An escrow agent (the "ESCROW AGENT") shall
hold the Pledged Collateral pursuant to the terms of an Escrow Agreement of even
date herewith between the Escrow Agent, the Pledgors, and the Pledgee. The
Pledgee shall deliver the Pledged Collateral to the escrow agent simultaneously
with the execution of this document. The Escrow Agreement shall be in the form
annexed hereto as Exhibit "A" and incorporated herein by this reference.
SECTION 10. Notice. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
by hand, by facsimile transmission, by registered or certified mail, postage
prepaid, or by courier or overnight carrier, to the persons at the addresses set
forth below (or at such other address as may be provided hereunder), and shall
be deemed to have been delivered on the date receipt is confirmed by telefax
confirmation, return receipt, or otherwise, or if delivered by regular mail
three (3) days after mailing:
As to Pledgee: Sovereign Partners, L.P.
Executive Pavilion
90 Grove Street
Ridgefield, Connecticut 06877
Attn: Steve Hicks
As to Pledgors: Bioshield Technologies, Inc.
5655 Peachtree Parkway
Norcross, Georgia 30092
Copy to Pledgor's Counsel: Sims Moss Kline & Davis LLP
400 Northpark Town Center, Suite 310
1000 Abernathy Road, N.E.
Atlanta, Georgia 30328
ATTN: Raymond L. Moss, Esq.
Rejection or other refusal of delivery to a party or to any officer, partner,
agent, or employee of such party at its address herein shall constitute receipt.
Rejection or other refusal to accept or inability to deliver because of a
changed address for which no notice has been properly given also shall
constitute receipt. Notwithstanding the foregoing, no notice of change of
address shall be effective until ten (10) days after the date of receipt
thereof.
SECTION 11. Further Assurances. The Pledgors agree that they will join
with the Pledgee in executing and will file or record such notices, financing
statements or other documents as may be necessary to the perfection of the
security interest of the Pledgee hereunder, and as the Pledgee or its counsel
may reasonably request, such instruments to be in form and substance
satisfactory to the Pledgee and its counsel, and that Pledgors will do such
further acts and things and execute and
6
<PAGE> 7
deliver to the Pledgee such additional conveyances, assignments, agreements and
instruments as the Pledgee may at any time reasonably request in connection with
the administration and enforcement of this Pledge Agreement or relative to the
Pledged Collateral or any part thereof or in order to assure and confirm unto
the Pledgee its rights, powers and remedies hereunder.
SECTION 12. No Waiver. No failure on the part of the Pledgee to
exercise, and no delay on its part in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power, or remedy preclude any other or the further
exercise thereof or the exercise of any other right, power or remedy. All
remedies hereunder are cumulative and are not exclusive of any other remedies
provided by law.
SECTION 13. Governing Law; Amendments. This Pledge Agreement has been
executed and delivered in the State of Georgia and shall in all respects be
construed in accordance with and governed by the laws of said State. Venue shall
lie in the state or federal courts located in Fulton County, Georgia. This
Pledge Agreement may not be amended or modified nor may any of the Pledged
Collateral be released or the security interest granted hereby extended, except
in writing signed by the parties hereto.
SECTION 14. Binding Agreement; Assignment. This Pledge Agreement, and
the terms, covenants and conditions hereof, shall be binding upon and inure to
the benefit of the Pledgee and to all holders of the indebtedness secured hereby
and their respective successors and assigns and to the Pledgors and their
successors, legal representatives and assigns, except that the Pledgors shall
not be permitted to assign this Pledge Agreement or any interest herein or in
the Pledged Collateral, or any part thereof, or any cash or property held by the
Pledgee as collateral under this Pledge Agreement.
SECTION 15. Headings. Section headings used herein are for convenience
only and are not to affect the construction of or be taken into consideration in
interpreting this Pledge Agreement.
SECTION 16. Counterparts. This Pledge Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which when taken together shall constitute but one and the same instrument.
7
<PAGE> 8
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be executed as of this 13th day of January, 2000.
TIMOTHY C. MOSES ("Pledgor")
/s/ Timothy C. Moses
--------------------------------------------
JACQUES ELFERSY ("Pledgor")
/s/ Jacques Elfersy
--------------------------------------------
WILSON LLC ("Pledgee")
By: Navigator Management Ltd.
---------------------------------------------
Name: By: David K. Sims
--------------------------------------------
Title: Director
-------------------------------------------
9
<PAGE> 10
SCHEDULE I
TO PLEDGE AGREEMENT
<TABLE>
<CAPTION>
NUMBER OF SHARES CERTIFICATE NUMBERS
<S> <C>
250,000 0306
250,000 0309
</TABLE>
10
<PAGE> 1
EXHIBIT 10.107
ESCROW AGREEMENT
THIS AGREEMENT is made as of January 13th, 2000, by and among Timothy
S. Moses and Jacques Elfersy (the "PLEDGORS"), WILSON LLC (the "PLEDGEE") and
SIMS MOSS KLINE & DAVIS LLP, a Georgia limited liability partnership
(hereinafter referred to as "ESCROW AGENT").
WHEREAS, Pledgors and Pledgee are parties to that certain Pledge
Agreement, dated of even date herewith (the "PLEDGE AGREEMENT"), pursuant to
which Pledgors have agreed to pledge 500,000 shares of common stock (the
"PLEDGED SHARES") of Bioshield Technologies, Inc., a Georgia corporation
("BSTI") to secure certain obligations (the "OBLIGATIONS") of BSTI described in
the Pledge Agreement; and
WHEREAS, pursuant to the Pledge Agreement, Pledgee is required to
deliver to Escrow Agent the Pledged Shares to be held by Escrow Agent until the
Obligations are met by BSTI or upon an Event of Default (as defined in the
Pledge Agreement) (such Pledged Shares, together with all dividends and other
distributions paid thereon and any other funds from time to time deposited with
the Escrow Agent pursuant to the Pledge Agreement being hereinafter referred to
as the "ESCROWED PROPERTY"), to be held by Escrow Agent and applied as set forth
herein;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt, sufficiency and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. Pledgee has deposited the Escrowed Property with Escrow Agent, the
receipt of which is hereby acknowledged by Escrow Agent. Escrow Agent shall hold
the Escrowed Property and shall release the Escrowed Property either (i) to the
Pledgors upon satisfaction by BSTI of the Obligations, or (ii) to Pledgee upon
the occurrence of an Event of Default, if and to the extent required by the
Pledge Agreement. Escrow Agent may (but shall not be required to) require as a
condition to any release of the Escrowed Property that it be presented with
satisfactory evidence of the satisfaction of such conditions, which may include
a certificate signed by both Pledgee and Pledgors to the effect that such
conditions have been fulfilled.
2. In the event Escrow Agent is notified or becomes aware of any
disagreement between Pledgee and Pledgors with respect to the Escrowed Property,
Escrow Agent shall be entitled (but not required), at its option, to refuse to
comply with any notice, demand or other requirement of paragraph 1 hereof and
may continue to hold the Escrowed Property in escrow so long as such
disagreement shall continue; and, in so doing, Escrow Agent shall not become
liable in any way to any person for its failure or refusal to comply with any
such notice or demand until (i) either (A) Pledgee and Pledgors have settled or
compromised their disagreements, or (B) such disagreements have been fully
adjudicated, and (ii) Escrow Agent shall have been so notified in a writing
signed by Pledgors and Pledgee. It shall be the responsibility of Pledgors and
Pledgee to notify the Escrow Agent immediately of an Event of Default,
satisfaction by BSTI of the Obligations or any dispute or disagreement between
Pledgee and Pledgors with respect to the Escrowed Property.
3. In the event that the Escrow Agent has not been notified in writing
that all disagreements between Pledgee and Pledgors shall have been settled,
compromised or finally
<PAGE> 2
adjudicated within ten (10) days following receipt by Escrow Agent of knowledge
of the existence of such disagreement, Escrow Agent may, but shall not be
obligated to, interplead all the Escrowed Property then held in escrow into a
court of proper jurisdiction, and thereupon Escrow Agent shall be fully and
completely discharged of its duties as Escrow Agent hereunder.
4. Pledgee agrees to pay Escrow Agent's reasonable and customary
fees (if any) for its services hereunder and to reimburse the Escrow Agent for
its reasonable expenses and disbursements incurred in the performance of such
services.
5. The acceptance by the Escrow Agent of its duties hereunder is
subject to the following terms and conditions, which Pledgee and Pledgors agree
shall govern and control with respect to the Escrow Agent's rights, duties,
liabilities and immunities:
A. The Escrow Agent shall be fully protected, and shall incur no
liability, in acting in reliance upon any notice, request, waiver,
consent, receipt or other paper or document furnished to it by Pledgee
or Pledgors which Escrow Agent reasonably believes to be genuine and
what it purports to be and Escrow Agent shall be entitled to
conclusively rely on the due execution thereof and the truth and
accuracy of its contents. The Escrow Agent is also relieved from the
necessity of satisfying itself as to the authority of any person
executing this Agreement in a representative capacity.
B. The Escrow Agent shall not be liable for any error of
judgment, or for any act done or step taken or omitted by it in good
faith, or for any mistake of fact or law, or for anything which it may
do or refrain from doing in connection herewith, except for its own
gross negligence or willful misconduct.
C. The Escrow Agent shall have no duties except those which are
specifically set forth herein and the Escrow Agent shall not be bound
by any notice of a claim or demand with respect thereto. No waiver,
modification, amendment, termination or rescission of this Escrow
Agreement shall be effective or binding upon the Escrow Agent unless
Escrow Agent shall have specifically consented thereto in writing.
D. Pledgee acknowledges, understands and agrees that (i) Escrow
Agent is Pledgors' counsel, and notwithstanding its role as Escrow
Agent hereunder, Escrow Agent may, in the event of a dispute between
Pledgors and Pledgee act as Pledgors' counsel and represent Pledgors in
any dispute or litigation, whether or not Escrow Agent resigns and
appoints a successor or substitute escrow agent, which Pledgors and
Pledgee specifically agree Escrow Agent may do.
E. Pledgee and Pledgors jointly and severally agree to indemnify,
defend and hold harmless Escrow Agent against any and all losses,
claims, damages, liabilities, costs and expenses (including court costs
and attorneys' fees) which may be imposed upon or incurred by Escrow
Agent in connection with the subject matter of this Agreement and
Escrow Agent's performance of its obligations hereunder, and all such
losses, claims, damages, liabilities, costs and expenses shall be for
the account of and shall be borne and paid by
-2-
<PAGE> 3
Pledgee and Pledgors; provided such losses, claims, damages,
liabilities, costs and expenses are not the result of Escrow Agent's
gross negligence or willful misconduct.
F. Escrow Agent shall act as a depository only and shall not,
except as expressly stated herein, be required to take notice of any
default or breach of warranty, representation, covenant or agreement of
any party contained in the Loan Agreement, the Pledge Agreement or any
other agreement between Pledgee and Pledgors with respect to the
Obligations.
7. This Escrow Agreement may be amended, modified or canceled
only by the written consent of all parties hereto. The Escrow Agent (and any
successor Escrow Agent) may resign by notifying Pledgee and Pledgors in writing
and, until a successor escrow agent is appointed by Pledgee and Pledgors and
accepts such appointment, the Escrow Agent's only duty hereunder shall be to
hold any then-remaining Escrowed Property in accordance with the provisions of
this Agreement.
8. Any notices or other communications required or permitted
hereunder shall be in writing and either delivered personally or sent by
registered or certified mail, postage prepaid as follows:
If to Pledgors: Bioshield Technologies, Inc.
5655 Peachtree Parkway
Norcross, Georgia 30092
If to Pledgee: Sovereign Partners, L.P.
Executive Pavilion
90 Grove Street
Ridgefield, Connecticut 06877
Attn: Steve Hicks
If to Escrow Agent: Sims Moss Kline & Davis LLP
400 Northpark Town Center, Suite 310
1000 Abernathy Road, N.E.
Atlanta, Georgia 30328
Attention: Raymond L. Moss, Esq.
or at any such other address as shall be furnished in writing by any such party
to the other parties hereto. Such notices or other communications so given shall
be deemed effectively given three days after being mailed, except that notices
and communications to the Escrow Agent shall be effective only when actually
received by the Escrow Agent.
9. This Escrow Agreement shall be governed by the laws of the
State of Georgia. Venue for any dispute arising from or relating to this
Agreement shall lie in the state and federal courts of Fulton County, Georgia.
Whenever possible each provision of this Escrow Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited or invalid under such law, such
provision shall be deemed
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<PAGE> 4
severed herefrom and ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
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<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have duly caused this Escrow
Agreement to be duly executed as of the date first above written.
PLEDGEE:
WILSON LLC
By: Navigator Management Ltd.
---------------------------------------
David K. Sims, Director
PLEDGORS:
TIMOTHY C. MOSES
/s/ TIMOTHY C. MOSES
-------------------------------------------
JACQUES ELFERSY
/s/ JACQUES ELFERSY
-------------------------------------------
SIMS MOSS KLINE & DAVIS LLP
By: /s/ Raymond L. Moss
---------------------------------------
Name: Raymond L. Moss , Partner
----------------------------
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<PAGE> 1
EXHIBIT 10.108
PLACEMENT AGENCY AGREEMENT
THIS AGREEMENT ("AGREEMENT"), made as of the 13th day of January, 2000,
by and between BioShield Technologies, Inc., a Georgia corporation ("COMPANY"),
and Corpfin.com, Inc., a Delaware corporation (the "AGENT").
WITNESSETH:
WHEREAS, the Company proposes to issue and sell to certain investors
(the "INVESTORS") shares of Series A Preferred Stock, par value $0.001 per share
("PREFERRED STOCK") and Warrants resulting in gross proceeds up to $4,000,000
(the Preferred Stock and Warrants to be sold, hereinafter referred to as the
"SECURITIES") (the "OFFERING") not involving a public offering without
registration under the Securities Act of 1933, as amended (the "'33 ACT"),
pursuant to exemptions from the registration requirements of the Act under
Regulation D promulgated under the Act ("REGULATION D"), as described below; and
WHEREAS, the Agent has offered to assist the Company in placing the
Securities on a "best efforts basis", and the Company desires to secure the
services of the Agent on the terms and conditions hereinafter set forth;
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual
promises, conditions and covenants herein contained, the parties hereto do
hereby agree as follows:
1. Engagement of Agent. The Company hereby appoints the Agent, as
its non-exclusive placement agent for the Offering, to sell up to $4,000,000 of
securities (the "MAXIMUM SECURITIES") on a "best efforts basis," resulting in
gross proceeds to the Company of up to $4,000,000. The Offering shall be made in
one tranche (the "TRANCHE"). The Agent, subject to the terms and conditions
herein set forth, accepts such appointment and agrees to use its best efforts to
find purchasers for the Securities.
2. Representations and Warranties of the Company. In order to
induce the Agent to enter into this Agreement, the Company hereby represents and
warrants to and agrees with the Agent as follows:
2.1 Offering Documents. The Company and the Investors have
prepared a Securities Purchase Agreements, Registration Rights Agreement and
certain exhibits thereto in connection with the sale of the Securities, which
documents have been or will be sent to the Investors. As used in this Agreement,
the term "Offering Documents" refers to and means the Securities Purchase
Agreement, Registration Rights Agreements, and certain exhibits thereto and all
amendments, exhibits and supplements thereto, together with any other documents
which are provided to the Agent by, or approved for Agent's use by, the Company
for the purpose of this Offering.
<PAGE> 2
2.2 Provision of Offering Documents. The Company shall deliver to
the Agent, without charge, as many copies of the Offering Documents as the Agent
may reasonably require for the purposes contemplated by this Agreement. The
Company authorizes the Agent, in connection with the Offering of the Securities,
to use the Offering Documents as from time to time amended or supplemented in
connection with the offering and sale of the Securities and in accordance with
the applicable provisions of the `33 Act and Regulation D. The Company consents
to the Agent's distribution of the Offering Documents to the Investor as a
disclosure document about the Company, its business, prospects, financial
condition and other matters.
2.3 Accuracy of Offering Documents. The Offering Documents, at the
time of filing, conformed in all material respects with the requirements, to the
extent applicable, of the `34 Act and the applicable Rules and Regulations and
did not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. On each Closing Date (as hereinafter defined), the Offering
Documents will contain all statements which are required to be stated therein in
accordance with the `34 Act and the Rules and Regulations for the purposes of
the proposed Offering, and all statements of material fact contained in the
Offering Documents will be true and correct, and the Offering Documents will not
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
provided, however, that the Company does not make any representations or
warranties as to the information contained in or omitted from the Offering
Documents in reliance upon written information furnished on behalf of the Agent
or the Investors specifically for use therein.
2.4 Duty to Amend. If during such period of time as in the opinion
of the Agent or its counsel any Offering Documents relating to this offering are
required to be delivered under the `34 Act, any event occurs or any event known
to the Company relating to or affecting the Company shall occur as a result of
which the Offering Documents as then amended or supplemented would include an
untrue statement of a material fact, or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or if it is necessary at any time after
the date hereof to amend or supplement the Offering Documents to comply with the
`34 Act or the applicable Rules and Regulations, the Company shall forthwith
notify the Agent thereof and shall prepare such further amendment or supplement
to the Offering Documents as may be required and shall furnish and deliver to
the Agent and to others, whose names and addresses are designated by the Agent,
all at the cost of the Company, a reasonable number of copies of the amendment
or supplement or of the amended or supplemented Offering Documents which, as so
amended or supplemented, will not contain an untrue statement of a material fact
or omit to state any material fact necessary in order to make the Offering
Documents not misleading in the light of the circumstances when it is delivered
to the Investor and which will comply in all respects with the requirements (to
the extent applicable) of the `34 Act and the applicable Rules and Regulations.
-2-
<PAGE> 3
2.5 Incorporation and Standing. The Company is, and at each
Closing Date will be, duly formed and validly existing in good standing as a
corporation under the laws of the State of Delaware and with full power and
authority (corporate and other) to own its properties and conduct its business,
present and proposed, as described in the Offering Documents; the Company, has
full power and authority to enter into this Agreement; and the Company is duly
qualified and in good standing as a foreign entity in each jurisdiction in which
the failure to so qualify would have a material adverse effect on the Company or
its properties.
2.6 Legality of Outstanding Securities. Prior to each Closing
Date, the outstanding securities of the Company have been duly and validly
authorized and issued, fully paid and nonassessable and conform in all material
respects to the statements with regard thereto contained in the Offering
Documents.
2.7 Legality of Securities. The Securities, when sold and
delivered, will constitute legal, valid and binding obligations of the Company,
enforceable in accordance with the terms thereof, and shall be duly and validly
issued and outstanding, fully paid and nonassessable. The Securities, when
issued, shall be duly and validly issued and outstanding, fully paid and
non-assessable.
2.8 Litigation. Except as set forth in the Offering Documents,
there is now, and at each Closing Date there will be, no action, suit or
proceeding before any court or governmental agency, authority or body pending
or, to the knowledge of the Company, threatened, which might result in
judgements against the Company not adequately covered by insurance or which
collectively might result in any material adverse change in the condition
(financial or otherwise) or business of the Company or which would materially
adversely affect the properties or assets of the Company.
2.9 Finders. The Company does not know of any outstanding claims
for services in the nature of a finder's fee or origination fees with respect to
the sale of the Securities hereunder for which the Agent may be responsible, and
the Company will indemnify the Agent from any liability for such fees by any
party who has a claim for such compensation from the Company and for which
person the Agent is not legally responsible.
2.10 Authority. The execution and delivery by the Company of this
Agreement have been duly authorized by all necessary action, and this Agreement
is the valid, binding and legally enforceable obligation of the Company subject
to standard qualifications as to the availability of equitable remedies, the
effect of bankruptcy and other laws relating to the protection of debtors and
public policy opinions promulgated by the Commission with respect to
indemnification against liabilities under the `33 Act.
3. Issue, Sale and Delivery of the Securities.
3.1 Deliveries of Securities. Certificates in such form that,
subject to applicable transfer restrictions as described in the Securities
Purchase Agreement, they can be negotiated by the Investor for the Securities,
and warrants representing the Agent's warrant compensation described in Section
-3-
<PAGE> 4
3.4 below ("WARRANTS"), shall be delivered by the Company to the Escrow Agent,
with copies made available to the Agent for checking at least one (1) full
business day prior to the first Closing Date. The certificates for the
Securities and the Warrants shall be delivered at the Closing (as defined
hereinafter).
3.2 Escrow of Funds. Pursuant to the Escrow Agreement, a copy of
which is attached hereto as Exhibit "B" (the "ESCROW AGREEMENT"), executed by
the Company, the Agent and the escrow agent (the "ESCROW AGENT"), the Investor
shall place all funds for purchase of Securities and the Company will place the
Securities for each Closing in an escrow account set up by the Escrow Agent.
Upon each Closing, Escrow Agent shall release the subscription funds to the
Company and the certificates representing the Securities shall be released by
the Company to the Investor (the "CLOSING").
3.3 Closing Date. Each Closing shall take place at the offices of
Sims Moss Kline & Davis LLP, 400 Northpark Town Center, Suite 310, 1000
Abernathy Road, NE, Atlanta, Georgia 30328 at such time and date ("CLOSING
DATE") as mutually agreed by the Company and the Agent. The Closing Date may be
changed by mutual agreement of the Investor and the Company.
3.4 Agent's Compensation. The Company shall pay the Agent:
(a) A commission of six and one-quarter percent (6 1/4%)
of the gross subscription proceeds (the "AGENT FEE") of the Tranche
(the "GROSS PROCEEDS") to be paid upon Closing on the Closing Date; and
(b) In addition to the fees and reimbursement of costs
set forth in Sections 3.4 and 3.5 of this Agreement, the Company shall
cause its subsidiary, Electronic Medical Distribution, Inc. ("eMD.com")
to issue to the Sub-Agent (as defined below) warrants ("WARRANTS") to
purchase shares of the common stock of eMD.com, in an amount equal to
Warrants to purchase 6,666 shares of common stock of eMD.com for each
$1,000,000 of Gross Proceeds, which shall be exercisable for the
Company's Preferred Stock on a one-for-one basis at a price per share
$5.126 per share, subject to adjustment for stock splits,
recapitalizations and similar transactions. The Warrants shall have
cashless exercise provisions. The term of the Warrants shall be five
years. The Agent agrees to enter into any contractual lock-up
agreements which may be required by the Company's underwriters in
connection with an underwritten public offering of the Company's
Securities or other securities. Of the six and one-quarter percent (6
1/4%) paid to the Agent, two and one-quarter percent (2 1/4%) shall be
paid to Greenfield Capital Partners, LLC as sub-agent ("SUB-AGENT").
3.5 Payment of Fees. The Escrow Agent shall be instructed to pay
all fees and cost reimbursements and Warrants pursuant to section 3.4 of this
Agreement, directly to the Agent from the Gross Proceeds of the Closing,
simultaneously with the transfer of Gross Proceeds to the Company.
-4-
<PAGE> 5
4. Offering of the Securities on Behalf of the Company.
4.1 In offering the Securities for sale, the Agent shall offer
them solely as an agent for the Company, and such offer shall be made upon the
terms and subject to the conditions set forth in the Offering Documents. The
Agent shall commence making such offer as an agent for the Company as soon as
possible following delivery of the Offering Documents or in any manner
inconsistent with federal or state securities laws.
4.2 The Agent will not make offers to sell the Securities to, or
solicit offers to subscribe for any Securities from, persons or entities that
are not "accredited investors" as defined in Regulation D.
5. Confidentiality/Protection of Clients.
5.1 The Company agrees to maintain the confidentiality of the
Agent's clients, except as required by applicable law. Such clients shall be
those entities which invest or have been offered an opportunity to invest by the
Agent in the Offering (the "CLIENTS"). For a period of two years from the
Closing, the Company will not solicit or enter into any financing transaction
with the Clients without the written consent of Agent and payment to Agent
compensation no less than the compensation to be paid to Agent hereunder for
raising a like amount. The restrictions on the Company and Agent's right to
compensation described in the preceding sentence shall not apply to any Clients
included in a financing transaction as the result of the efforts of an agent or
other intermediary other than Agent.
5.2 In the event that Company breaches Section 5.1 of this
Agreement, Agent shall be entitled to receive compensation in the same
proportion to the financing done without Agent's participation as the
compensation to Agent under this Agreement bears to the financing raised in this
Offering.
6. Covenants of the Company. The Company covenants and agrees
with the Agent that:
6.1 After the date hereof, the Company will not at any time,
prepare and distribute any amendment or supplement to the Offering Documents, of
which amendment or supplement the Agent shall not previously have been advised
and the Agent and its counsel furnished with a copy within a reasonable time
period prior to the proposed adoption thereof, or to which the Agent shall have
reasonably objected in writing on the ground that it is not in compliance with
the `34 Act or the Rules and Regulations (if applicable).
6.2 The Company will pay, whether or not the transactions
contemplated hereunder are consummated or this Agreement is prevented from
becoming effective or is terminated, all costs and expenses incident to the
performance of its obligations under this Agreement, including all expenses
incident to the authorization of the Securities and their issue and delivery to
the Agent, any original issue taxes in connection therewith, all transfer taxes,
if any, incident to the initial sale of the
-5-
<PAGE> 6
Securities, the fees and expenses of the Company's counsel (except as provided
below) and accountants, the cost of reproduction and furnishing to the Agent
copies of the Offering Documents as herein provided; provided, however, that the
Company shall not be responsible for the payment of fees and costs incurred by
Agent, including attorney's fees of or any costs incurred by the Agent's
counsel.
6.3 The Company shall be responsible for making any and all
filings required by the Blue Sky authorities and filings required by the laws of
the jurisdictions in which Investor is located, if any.
7. Indemnification.
7.1 The Company agrees to indemnify and hold harmless the Agent,
each person who controls the Agent within the meaning of Section 15 of the `33
Act and the Agent's employees, accountants, attorneys and agents (the "AGENT'S
INDEMNITEES") against any and all losses, claims, damages or liabilities, joint
or several, to which they or any of them may become subject under the '33Act or
any other statute or at common law for any legal or other expenses (including
the costs of any investigation and preparation) incurred by them in connection
with any litigation, whether or not resulting in any liability, but only insofar
as such losses, claims, damages, liabilities and litigation arise out of or are
based upon any untrue statement of material fact contained in the Offering
Documents or any amendment or supplement thereto or any application or other
document filed in any state or jurisdiction in order to qualify the Securities
under the Blue Sky or securities laws thereof, or the omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, under the circumstances under which they were made, not
misleading, all as of the date of the Offering Documents or of such amendment as
the case may be; provided, however, that the indemnity agreement contained in
this Section 7.1 shall not apply to amount paid in settlement of any such
litigation, if such settlements are made without the consent of the Company, nor
shall it apply to the Agent's Indemnitees in respect to any such losses, claims,
damages or liabilities arising out of or based upon any such untrue statement or
alleged untrue statement or any such omission or alleged omission, if such
statement or omission was made in reliance upon information furnished in writing
to the Company by the Agent specifically for use in connection with the
preparation of the Offering Documents or any such amendment or supplement
thereto or any application or other document filed in any state or jurisdiction
in order to qualify the Securities under the Blue Sky or securities law thereof.
This indemnity agreement is in addition to any other liability which the Company
may otherwise have to the Agent's Indemnitees. The Agent's Indemnitees agree,
within ten (10) days after the receipt by them of written notice of the
commencement of any action against them in respect to which indemnity may be
sought from the Company under this Section 7.1, to notify the Company in writing
of the commencement of such action; provided, however, that the failure of the
Agent's Indemnitees to notify the Company of any such action shall not relieve
the Company from any liability which it may have to the Agent's Indemnitees on
account of the indemnity agreement contained in this Section 7.1, and further
shall not relieve the Company from any other liability which it may have to the
Agent's Indemnitees, and if the Agent's Indemnitees shall notify the Company of
the commencement thereof, the Company
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<PAGE> 7
shall be entitled to participate in (and, to the extent that the Company shall
wish, to direct) the defense thereof at its own expense, but such defense shall
be conducted by counsel of recognized standing and reasonably satisfactory to
the Agent's Indemnitees, defendant or defendants, in such litigation. The
Company agrees to notify the Agent's Indemnitees promptly of the commencement of
any litigation or proceedings against the Company or any of the Company's
officers or directors of which the Company may be advised in connection with the
issue and sale of any of the Securities and to furnish to the Agent's
Indemnitees, at their request, to provide copies of all pleadings therein and to
permit the Company's Indemnitees to be observers therein and apprise the Agent's
Indemnitees of all developments therein, all at the Company's expense.
7.2 The Agent agrees, in the same manner and to the same extent as
set forth in Section 7.1 above, to indemnify and hold harmless the Company, each
person who controls the Company within the meaning of Section 15 of the `33 Act
and the COmpany's and Company's employees, accountants, attorneys and agents
(the "COMPANY'S INDEMNITEES") with respect to (i) any statement in or omission
from the Offering Documents or any amendment or supplement thereto or any
application or other document filed in any state or jurisdiction in order to
qualify the Securities under the Blue Sky or securities laws thereof, or any
information furnished pursuant to this Agreement, if such statement or omission
was made in reliance upon information furnished in writing to the Company by the
Agent on its behalf specifically for use in connection with the preparation
thereof or supplement thereto, or (ii) any untrue statement of a material fact
made by the Agent or its agents not based on statements in the Offering
Documents or authorized in writing by the Company, or with respect to any
misleading statement made by the Agent or its agents resulting from the omission
of material facts which misleading statement is not based upon the Offering
Documents, or information furnished in writing by the Company or, (iii) any
breach of any representation, warranty or covenant made by the Agent in this
Agreement. The Agent shall not be liable for amounts paid in settlement of any
such litigation if such settlement was effected without its consent. In case of
the commencement of any action in respect of which indemnity may be sought from
the Agent, the Company's Indemnitees shall have the same obligation to give
notice as set forth in Section 7.1 above, subject to the same loss of indemnity
in the event such notice is not given, and the Agent shall have the same right
to participate in (and, to the extent that it shall wish, to direct) the defense
of such action at its own expense, but such defense shall be conducted by
counsel of recognized standing reasonably satisfactory to the Company. The Agent
agrees to notify the Company's Indemnitees and, at their request, to provide
copies of all pleadings therein and to permit the Company's Indemnitees to be
observers therein and apprise them of all the developments therein, all at the
Agent's expense.
8. Effectiveness of Agreement. This Agreement shall become
effective (i) at 9:00 a.m., New York City time, on the date hereof or (ii) upon
release by the Escrow Agent of the Securities for offering after the date
hereof, whichever shall last occur.
9. Termination.
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9.1 This Agreement may be terminated by the Agent by notice to the
Company in the event that the Company shall have failed or been unable to comply
with any of the terms, conditions or provisions of this Agreement on the part of
the Company to be performed, complied with or fulfilled within the respective
times, if any, herein provided for, unless compliance therewith or performance
or satisfaction thereof shall have been expressly waived by the Agent in
writing.
9.2 This Agreement may be terminated by the Company by notice to
the Agent in the event that the Agent shall have failed or been unable to comply
with any of the terms, conditions or provisions of this Agreement on the part of
the Agent to be performed, complied with or fulfilled within the respective
times, if any, herein provided for, unless compliance therewith or performance
or satisfaction thereof shall have been expressly waived by the Company in
writing.
9.3 Any termination of this Agreement pursuant to this Section
shall be without liability of any character (including, but not limited to, loss
of anticipated profits or consequential damages) on the part of any party
thereto, except that the Company shall remain obligated to pay the costs and
expenses provided to be paid by it specified in Sections 3, 5, and 6; and the
Company and the Agent shall be obligated to pay, respectively, all losses,
claims, damages or liabilities, joint or several, under Section 7.1 in the case
of the Company and Section 7.2 in the case of the Agent.
10. Agent's Representations, Warranties, and Covenants. The Agent
represents and warrants to and agrees with the Company that:
10.1 Agent is a corporation duly incorporated and existing under
the laws of the state of Georgia Agent is registered with the Securities
Exchange Commission and the NASD.
10.2 There is not now pending or threatened against the Agent any
action or proceeding of which the Agent has been advised, either in any court of
competent jurisdiction, before the Commission or before any state securities
commission or the NASD, concerning the Agent's activities which would impair the
ability of the Agent to conduct the Offering as contemplated by this Agreement.
10.3 All corporate actions by Agent required for the execution,
delivery and performance of this Agreement have been taken. The execution and
delivery of this Agreement by the Agent, the observance and performance thereof,
and the consummation of the transactions contemplated herein or in the Offering
Documents do not and will not constitute a material breach of, or a material
default under, any instrument or agreement by which the Agent is bound, and does
not and will not, to the best of the Agent's knowledge, contravene any existing
law, decree or order applicable to it. This Agreement constitutes a valid and
binding agreement of Agent, enforceable in accordance with its terms.
10.4 Agent understands and acknowledges that the Securities are not
being registered under the 1933 Act, and that the Offering is to be conducted
pursuant to Regulation D. Accordingly,
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<PAGE> 9
in conducting its activities under this Agreement Agent shall offer Securities
only to "accredited investors," as defined in Regulation D.
10.5 Agent's representations and warranties under this Section
shall be true and correct as of the Closing, and shall survive the Closing for a
period of one year.
11. Notices. Except as otherwise expressly provided in this
Agreement:
11.1 Whenever notice is required by the provisions of this
Agreement to be given to the Company, such notice shall be in writing, addressed
to the Company, at:
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<PAGE> 10
If to the Company:
BioShield Technologies, Inc.
5655 Peachtree Parkway
Norcross, Georgia 30092
Telephone: (770) 246-2000
Facsimile: (770) 368-0784
With a copy to:
Sims Moss Kline & Davis LLP
400 Northpark Town Center, Suite 310
1000 Abernathy Road
Atlanta, Georgia 30328
Attn: Raymond L. Moss, Esq.
Telephone: (770) 481-7201
Facsimile: (770) 481-7210
11.2 Whenever notice is required by the provisions of this
Agreement to be given to the Agent, such notice shall be given in writing,
addressed to the Agent, at:
If to the Agent: Corpfin.com, Inc
Atlanta Financial Center, East Tower
3343 Peachtree Road, Suite 500
Atlanta, Georgia 30326
Attn: John Canouse
11.3 Any notice instructing the Escrow Agent to distribute monies
or Securities held in Escrow must be signed by authorized agents of both the
Company and the Agent in order to be valid.
12. Miscellaneous.
12.1 Benefit. This Agreement is made solely for the benefit of the
Agent and the Company, their respective officers and directors and any
controlling person referred to in Section 15 of the `33 Act and their respective
successors and assigns, and no other person may acquire or have any right under
or by virtue of this Agreement, including, without limitation, the holders of
any Securities. The term "successor" or the term"successors and assigns" as used
in this Agreement shall not include any purchasers, as such, of any of the
Securities.
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<PAGE> 11
12.2 Survival. The respective indemnities, agreements,
representations, warranties, covenants and other statements of the Company and
the Agent, or the officers, directors or controlling persons of the Company and
the Agent as set forth in or made pursuant to this Agreement and the indemnity
agreements of the Company and the Agent contained in Section 7 hereof shall
survive and remain in full force and effect for a period of three (3) years from
the date hereof, regardless of (i) any investigation made by or on behalf of the
Company or the Agent or any such officer, director or controlling person of the
Company or of the Agent; (ii) delivery of or payment for the Securities; or
(iii) the Closing Date, and any successor of the Company or the Agent or any
controlling person, officer or director thereof, as the case may be, shall be
entitled to the benefits hereof.
12.3 Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Georgia without regard
to the principles of conflict of laws. Any dispute or controversy between the
parties arising in connection with this agreement or the subject matter
contemplated by this agreement shall be resolved by arbitration before a
three-member panel of the American Arbitration Association in accordance with
the commercial arbitration rules of said forum and the Federal Arbitration Act,
9 U.S.C. 1 et seq., with the resulting award being final and conclusive. Said
arbitrators shall be empowered to award all forms of relief and damages claimed,
including, but not limited to, attorney's fees, expenses of litigation and
arbitration, exemplary damages, and prejudgment interest. Notwithstanding the
foregoing, Agent may at any time and at its option, whether or not an
arbitration action is then pending, initiate a civil action for temporary and
permanent injunctive and other equitable relief against Company. Company
acknowledges that upon any breach of Agent's rights to Warrants or other
compensation hereunder, Agent's resulting injury may not be adequately
compensated by a remedy at law. Accordingly, upon such breach, Agent, at its
election and without limitation of its other remedies, shall be entitled to
pursue a claim for specific performance of this Agreement, and Company hereby
waives the right to assert any defense thereto that Agent has an adequate remedy
at law. The parties further agree that any arbitration action between them shall
be heard in Wilmington, Delaware.
12.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
12.5 Confidential Information. All confidential financial or
business information (except publicly available or freely usable material
otherwise obtained from another source) respecting either party will be used
solely by the other party in connection with the within transactions, be
revealed only to employees or contractors of such other party who are necessary
to the conduct of such transactions, and be otherwise held in strict confidence.
12.6 Public Announcements. Prior to the Closing Date, neither party
hereto will issue any public announcement concerning the within transactions
without the approval of the other party.
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<PAGE> 12
12.7 Finders. The parties acknowledge that no person has acted as a
finder in connection with the transactions contemplated herein and each will
agree to indemnify the other with respect to any other claim for a finder's fee
in connection with the offering.
12.8 Recitals. The recitals to this Agreement are a material part
hereof, and each recital is incorporated into this Agreement by reference and
made a part of this Agreement.
12.9 Independent Counsel. The parties to this Agreement acknowledge
that Company and BSTI have received independent counsel from the law firm of
Sims Moss Kline & Davis LLP which is acting as their counsel. Agent has been
advised by Sims Moss Kline & Davis LLP to seek independent advice with respect
to the terms and conditions of this Agreement and any related agreements before
signing them.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have duly caused this Agreement
to be executed as of the day and year first above written.
"THE COMPANY"
BIOSHIELD TECHNOLOGIES, INC.
By: /s/ Timothy C. Moses
---------------------------------------
Name: Timothy C. Moses
Title: President
"THE AGENT"
CORPFIN.COM, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
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<PAGE> 1
EXHIBIT 10.109
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of January 13, 2000, between Electronic
Medical Distribution, Inc., a Delaware corporation (the "COMPANY"), and
Greenfield Capital Partners, LLC (hereinafter referred to as "AGENT").
W I T N E S S E T H:
WHEREAS, Agent has acted as a placement agent in connection with the
Company's offering (the "OFFERING") of up to $4,000,000 in aggregate amount of
Series A Preferred Stock, no par value, (the "PREFERRED STOCK") for an aggregate
purchase price of $4,000,000; and
WHEREAS, the Warrants issued pursuant to this Agreement are being
issued by the Company to Agent and/or its designees, in consideration for, and
as part of its role in connection with the Offering;
NOW, THEREFORE, in consideration of the premises, the agreements herein
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Grant.
Agent and/or its designees are hereby granted the right to purchase, at
any time from the date of issuance of the aforementioned Preferred Stock until
5:00 P.M., Eastern Standard Time, on January 12, 2005 (the "WARRANT EXERCISE
TERM"), 26,666 Shares of the common stock of the Company, par value $0.0001 per
share (the "COMMON STOCK") at an exercise price (subject to adjustment as
provided in Article 7 hereof) of $5.126 per share (the "INITIAL EXERCISE
PRICE").
2. Warrant Certificates.
The warrant certificates (the "WARRANT CERTIFICATES") delivered and to
be delivered pursuant to this Agreement shall be in the form set forth as
Exhibit A, attached hereto and made a part hereof, with such appropriate
insertions, omissions, substitutions and other variations as required or
permitted by this Agreement.
3. Exercise of Warrants.
3.1 Cash Exercise. The Exercise Price may be paid in cash
or by check to the order of the Company, or any combination of cash or check,
subject to adjustment as provided in Article 7 hereof. Upon surrender of the
Warrant Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
Shares purchased, at the Company's executive offices currently located at 5655
Peachtree Parkway, Norcross, Georgia 30092, the registered holder of a Warrant
Certificate ("HOLDER" or "HOLDERS") shall be entitled to receive a certificate
or certificates for the Shares so purchased. The purchase rights represented by
each Warrant Certificate are exercisable at the option of the Holder hereof, in
<PAGE> 2
whole or in part (but not as to fractional shares of the Common Stock). In the
case of the purchase of less than all the Shares purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the Shares purchasable thereunder.
3.2 Cashless Exercise. At any time during the Warrant
Exercise Term, the Holder may, at its option, exchange this Warrant, in whole or
in part (a "WARRANT EXCHANGE"), into the number of Shares determined in
accordance with this Section 3.2, by surrendering this Warrant at the principal
office of the company or at the office of its transfer agent, accompanied by a
notice stating such Holder's intent to effect such exchange, the number of
Shares to be exchanged and the date on which the Holder requests that such
Warrant Exchange occur (the "NOTICE OF EXCHANGE"). The Warrant Exchange shall
take place on the date specified in the Notice of Exchange or, if later, the
date the Notice of Exchange is received by the Company (the "EXCHANGE DATE").
Certificates for the Shares issuable upon such Warrant Exchange and, if
applicable, a new warrant of like tenor evidencing the balance of the Shares
remaining subject to this Warrant, shall be issued as of the Exchange Date and
delivered to the Holder within seven (7) business days following the Exchange
Date. In connection with any Warrant Exchange, this Warrant shall represent the
right to subscribe for and acquire the number of Shares (rounded to the next
highest integer) equal to (i) the number of Shares specified by the Holder in
its Notice of Exchange (the "TOTAL NUMBER") less (ii) the number of Shares equal
to the quotient obtained by dividing (A) the product of the Total Number and the
then existing Exercise Price by (B) the current market value of a share of
Common Stock.
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of certificates for the
Shares shall be made forthwith (and in any event within five business days
thereafter) without charge to the Holder thereof including, without limitation,
any tax which may be payable in respect of the issuance thereof, and such
certificates shall be issued in the name of, or in such names as may be directed
by, the Holder thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any such certificates in a name other than that
of the Holder and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the Shares
shall be executed on behalf of the Company by the manual or facsimile signature
of the present or any future Chairman or Vice Chairman of the Board of
Directors, Chief Executive officer or President or Vice President of the Company
under its corporate seal reproduced thereon, attested to by the manual or
facsimile signature of the present or any future Secretary or Assistant
Secretary of the Company. Warrant Certificates shall be dated the date of
execution by the Company upon initial issuance, division, exchange, substitution
or transfer.
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<PAGE> 3
The Warrant Certificates and, upon exercise of the Warrants, in part or
in whole, certificates representing the Shares shall bear a legend substantially
similar to the following:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "ACT"), and may not
be offered or sold except (i) pursuant to an effective registration
statement under the Act, (ii) to the extent applicable, pursuant to
Rule 144 under the Act (or any similar rule under such Act relating to
the disposition of securities), or (iii) upon the delivery by the
holder to the Company of an opinion of counsel, satisfactory to counsel
to the issuer, stating that an exemption from registration under such
Act is available.
5. Price.
5.1 Adjusted Exercise Price. The adjusted Exercise Price
shall be the price which shall result from time to time from any and all
adjustments of the Initial Exercise Price in accordance with the provisions of
Article 7 hereof.
5.2 Exercise Price. The term "EXERCISE PRICE" herein
shall mean the Initial Exercise Price or the adjusted Exercise Price, depending
upon the context.
6. Registration Rights.
6.1 Registration Under the Securities Act of 1993.
The Warrants and the Shares have not been registered for purposes of public
distribution under the Securities Act of 1933, as amended ("THE ACT").
6.2 Registrable Securities. As used herein the term
"REGISTRABLE SECURITY" means each of the Warrants, the Shares and any shares of
Common Stock issued upon any stock split or stock dividend in respect of such
Shares; provided, however, that with respect to any particular Registrable
Security, such security shall cease to be a Registrable Security when, as of the
date of determination, (i) it has been effectively registered under the
Securities Act and disposed of pursuant thereto, (ii) registration under the
Securities Act is no longer required for the immediate public distribution of
such security or (iii) it has ceased to be outstanding. The term "REGISTRABLE
SECURITIES" means any and/or all of the securities falling within the foregoing
definition of a "Registrable Security." In the event of any merger,
reorganization, consolidation, recapitalization or other change in corporate
structure affecting the Common Stock, such adjustment shall be made in the
definition of "Registrable Security" as is appropriate in order to prevent any
dilution or enlargement of the rights granted pursuant to this Article 6.
6.3 Piggyback Registration. If, at any time during the
five years following the date of this Agreement, the Company proposes to prepare
and file any registration statement or post-effective amendments (other than in
connection with an underwritten initial public offering or initial
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<PAGE> 4
registration of the Company or the Company's securities with the U.S. Securities
& Exchange Commission) thereto covering equity or debt securities of the
Company, or any such securities of the Company held by its shareholders (in any
such case, other than in connection with a merger, acquisition or pursuant to
Form S-8 or successor form), (for purposes of this Article 6, collectively, a
"REGISTRATION STATEMENT"), it will give written notice of its intention to do so
by registered mail ("NOTICE"), at ten (10) business days prior to the filing of
each such Registration Statement, to all holders of the Registrable Securities.
Upon the written request of such a holder (a "REQUESTING HOLDER"), made within
ten (10) business days after receipt of the Notice, that the Company include any
of the Requesting Holder's Registrable Securities in the proposed Registration
Statement, the Company shall, as to each such Requesting Holder, use its best
efforts to effect the registration under the Securities Act of the Registrable
Securities which it has been so requested to register ("PIGGYBACK
REGISTRATION"), at the Company's sole cost and expense and at no cost or expense
to the Requesting Holders. Notwithstanding the provisions of this Section 6.3,
the Company shall have the right at any time after it shall have given written
notice pursuant to this Section 6.3 (irrespective of whether any written request
for inclusion of such securities shall have already been made) to elect not to
file any such proposed Registration Statement, or to withdraw the same after the
filing but prior to the effective date thereof.
7. Adjustments of Exercise Price and Number of Shares.
7.1 Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Common Stock,
the Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
7.2 Adjustment in Number of Shares. Upon each adjustment
of the Exercise Price pursuant to the provisions of this Article 7, the number
of Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full Share by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of Shares issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
7.3 Reclassification, Consolidation, Merger, etc. In case
of any reclassification or change of the outstanding shares of Common Stock
(other than a change in par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holders shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holders were the owners of the shares of
Common Stock underlying the Warrants immediately prior to any such events at a
price equal to the
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<PAGE> 5
product of (x) the number of shares issuable upon exercise of the Warrants and
(y) the Exercise Price in effect immediately prior to the record date for such
reclassification, change, consolidation, merger, sale or conveyance as if such
Holders had exercised the Warrants.
7.4 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall for example be made:
(a) Upon the issuance or sale of shares of
Common Stock upon the exercise of the Warrants; or
(b) Upon (i) the issuance of options pursuant to
the Company's employee stock option plans in effect or the
issuance or sale by the Company of any shares of Common Stock
pursuant to the exercise of any such options, or (ii) the
issuance or sale by the Company of any shares of Common Stock
pursuant to the exercise of any options or warrants; or
(c) Upon the issuance of shares of Common Stock
pursuant to contractual obligations; or
(d) If the amount of said adjustment shall be
less than 2 cents (2(cent)) per Share, provided, however, that
in such case any adjustment that would otherwise be required
then to be made shall be carried forward and shall be made at
the time of and together with the next subsequent adjustment
which, together with any adjustment so carried forward, shall
amount to at least 2 cents (2(cent)) per Share.
7.5 Dividends and Other Distributions with Respect to
Outstanding Securities. In the event that the Company shall at any time prior to
the exercise of all Warrants declare a dividend (other than a dividend
consisting solely of shares of Common Stock or a cash dividend or distribution
payable out of current or retained earnings) or otherwise distribute to its
shareholders any monies, assets, property, rights, evidences of indebtedness,
securities (other than shares of Common Stock), whether issued by the Company or
by another person or entity, or any other thing of value, the Holder or Holders
of the unexercised Warrants shall thereafter be entitled, in addition to the
shares of Common Stock or other securities receivable upon the exercise thereof,
to receive, upon the exercise of such Warrants, the same monies, property,
assets, rights, evidences of indebtedness, securities or any other thing of
value that they would have been entitled to receive at the time of such dividend
or distribution. At the time of any such dividend or distribution, the Company
shall make appropriate reserves to ensure the timely performance of the
provisions of this Subsection 7.5.
8. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon the
surrender hereof by the registered Holder at the principal executive office of
the Company, for a new Warrant Certificate of
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<PAGE> 6
like tenor and date representing in the aggregate the right to purchase the same
number of Shares in such denominations as shall be designated by the Holder
thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
9. Elimination of Fractional Interests.
The Company shall not be required to issue certificates representing
fractions of shares of Common Stock and shall not be required to issue scrip or
pay cash in lieu of fractional interests, it being the intent of the parties
that all fractional interests shall be eliminated by rounding any fraction up to
the nearest whole number of shares of Common Stock.
10. Reservation and Listing of Securities.
The Company shall at all times reserve and keep available out of its
authorized shares of Common Stock, solely for the purpose of issuance upon the
exercise of the Warrants, such number of shares of Common Stock as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid, nonassessable and not subject to the preemptive rights of any
shareholder. As long as the Warrants shall be outstanding, the Company shall use
its best efforts, once it has become a public company, to cause all shares of
Common Stock issuable upon the exercise of the Warrants to be listed on or
quoted on the electronic bulletin board, by NASDAQ or listed on such national
securities exchanges.
11. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as conferring
upon the Holder or Holders the right to vote or to consent or to receive notice
as a shareholder in respect of any meetings of shareholders for the election of
directors or any other matter, or as having any rights whatsoever as a
shareholder of the Company. If, however, at any time prior to the expiration of
the Warrants and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its
shares of Common Stock for the purpose of entitling them to receive a
dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
-6-
<PAGE> 7
(b) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger) or a
sale of all or substantially all of its property, assets and business
as an entirety shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or any proposed dissolution,
liquidation, winding up or sale.
12. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made when delivered,
or mailed by registered or certified mail, return receipt requested:
(a) If to a registered Holder of the Warrants, to the
address of such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in
Section 3 of this Agreement or to such other address as the Company may
designate by notice to the Holders.
13. Supplements and Amendments.
The Company may from time to time supplement or amend this Agreement
without the approval of any Holders of Warrant Certificates in order to cure any
ambiguity, to correct or supplement any provision contained herein which may be
defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
may deem necessary or desirable and which the Company deems not to adversely
affect the interests of the Holders of Warrant Certificates.
14. Successors.
All the covenants and provisions of this Agreement by or for the
benefit of the Company and the Holders inure to the benefit of their respective
successors and assigns hereunder.
15. Termination.
This Agreement shall terminate at the close of business on January 12,
2005. Notwithstanding the foregoing, this Agreement will terminate on any
earlier date when all Warrants
-7-
<PAGE> 8
have been exercised and all the Shares issuable upon exercise of the Warrants
have been resold to the public; provided, however, that the provisions of
Article 6 shall survive such termination until the close of business on January
12, 2005.
16. Governing Law.
This Agreement and each Warrant Certificate hereunder shall be governed
by and interpreted in accordance with the laws of the State of Georgia without
regard to the principles of conflict of laws. The parties further agree that any
action between them shall be heard in Atlanta, Georgia, and expressly consent to
the jurisdiction and venue of the Superior Court of Fulton County, Georgia, and
the United States District Court for the Northern District of Georgia, Atlanta
Division for the adjudication of any civil action asserted pursuant to this
Paragraph.
-8-
<PAGE> 9
17. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to any person or
corporation other than the Company and the Agent and any other registered holder
or holders of the Warrant Certificates, Warrants or the Shares any legal or
equitable right, remedy or claim under this Agreement; and this Agreement shall
be for the sole and exclusive benefit of the Company and the Agent and any other
holder or holders of the Warrant Certificates, Warrants or the Shares.
18. Counterparts.
This Agreement may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and
such counterparts shall together constitute but one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
ELECTRONIC MEDICAL DISTRIBUTION, INC.
By: /s/ Timothy C. Moses
----------------------------------
Name: Timothy C. Moses
Title: President
Attest:
----------------------------
Name:
------------------------------
Title:
-----------------------------
AGENT:
GREENFIELD CAPITAL PARTNERS, LLC
By:
----------------------------------
Name:
Title:
Attest:
----------------------------
Name:
------------------------------
Title:
-----------------------------
-10-
<PAGE> 11
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., EASTERN STANDARD TIME, JANUARY 12, 2005
No. ___________ 26,666 Shares
WARRANT CERTIFICATE
This Warrant Certificate certifies that Greenfield Capital Partners,
LLC ("AGENT") or registered assigns, is the registered holder of Warrants to
purchase, at any time from January 13, 2000, until 5:00 P.M. Eastern Standard
Time on January 12, 2005 ("EXPIRATION DATE"), up to 26,666 shares ("SHARES") of
fully-paid and non-assessable common stock, par value $0.0001 per share ("COMMON
STOCK"), of Electronic Medical Distribution, Inc., a Delaware corporation (the
"COMPANY"), at the Initial Exercise Price, subject to adjustment in certain
events (the "EXERCISE PRICE"), of $5.126 per Share upon surrender of this
Warrant Certificate and payment of the Exercise Price at an office or agency of
the Company, but subject to the conditions set forth herein and in the warrant
agreement dated as of January 13, 2000, between the Company and Agent (the
"WARRANT AGREEMENT"). Payment of the Exercise Price may be made in cash, or by
certified or official bank check in New York Clearing House funds payable to the
order of the Company, or any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., Eastern Standard Time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to in a description of
<PAGE> 12
the rights, limitation of rights, obligations, duties and immunities thereunder
of the Company and the holders (the words "HOLDERS" or "HOLDER" meaning the
registered holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events, the Exercise Price and/or number of the Company's securities issuable
thereupon may, subject to certain conditions, be adjusted. In such event, the
Company will, at the, request of the holder, issue a new Warrant Certificate
evidencing the adjustment in the Exercise Price and the number and/or type of
securities issuable upon the exercise of the Warrants; provided, however, that
the failure of the Company to issue such new Warrant Certificates shall not in
any way change, alter, or otherwise impair, the rights of the holder as set
forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferees) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated: As of January 13, 2000 ELECTRONIC MEDICAL DISTRIBUTION, INC.
By:
-----------------------------------
Name: Timothy C. Moses
Title: President
Attest:
----------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 13
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____________ Shares and
herewith tenders in payment for such Shares cash or a certified or official bank
check payable in New York Clearing House Funds to the order of ________________
in the amount of $_______________, all in accordance with the terms hereof. The
undersigned requests that a certificate for such Shares be registered in the
name of ___________________________________ whose address is___________________,
and that such Certificate be delivered to _____________________________________,
whose address is _______________________________________________________________
Dated: _____________________ Signature:__________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
___________________________________
___________________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE> 14
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ___________________________________________ hereby
sells, assigns and transfers unto
________________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ___________________________,
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Dated: _____________________ Signature:__________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
___________________________________
___________________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BioShield Technologies, Inc.
Atlanta, Georgia
We have issued our report dated August 19, 1999, accompanying the financial
statements and schedules of BioShield Technologies, Inc. and Subsidiary
contained in the Registration Statement and Prospectus on Form SB-2. We hereby
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
January 24, 2000
