AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1996
REGISTRATION STATEMENT NO. 333-10323
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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OCUREST LABORATORIES, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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FLORIDA 2834 65-0259441
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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4400 PGA BLVD., SUITE 300 4400 PGA BLVD., SUITE 300
PALM BEACH GARDENS, FLORIDA 33410 PALM BEACH GARDENS, FLORIDA 33410
561-627-8121 (ADDRESS OF PRINCIPAL PLACE OF BUSINESS
(ADDRESS AND TELEPHONE NUMBER OR INTENDED PRINCIPAL PLACE OF BUSINESS)
OF PRINCIPAL EXECUTIVE OFFICES)
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COPIES TO:
JONATHAN B. REISMAN, ESQ. THOMAS S. SMITH, ESQ.
REISMAN & ASSOCIATES, P.A. SMITH, MCCULLOUGH & FERGUSON, P.C.
5100 TOWN CENTER CIRCLE 1610 WYNKOOP STREET
BOCA RATON, FL 33486 SUITE 300
561-361-9300 DENVER, CO 80202
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
---------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the Registration Statement becomes effective.
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. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
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Comon Stock, $.008 par value(1) ... 1,380,000 shares -- -- --
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Class A Redeemable Common Stock
Purchase Warrants(1) ........... 1,380,000 warrants -- -- --
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Units(3) .......................... 1,380,000 Units $ 4.00 $ 5,520,000 1,903.45(3)
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Common Stock, $.008 par value(4) .. 1,380,000 shares $ 4.80 $ 6,624,000 $2,284.14
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Common Stock Purchase
Warrants(5) ...................... 120,000 warrants $.00042 $ 50 $ .02
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Common Stock
Purchase Warrants(5).............. 120,000 warrants $.00042 $ 50 $ .02
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Common Stock, $.008 par value(6) .... 120,000 shares $ 6.60 $ 792,000(6) $ 273.11
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Common Stock, $.008 par value(6)..... 120,000 shares $ 7.92 $ 950,400 $ 327.73
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TOTALS ........................................................................$13,886,500 $4,788.47(7)
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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(1) To be sold in Units, each of which consists of one share of Common Stock
$.008 par value, and one Class A Redeemable Common Stock Purchase Warrant.
Includes 180,000 shares of Common Stock, $.008 par value, and 180,000
Class A Redeemable Common Stock Purchase Warrants covered by an
over-allotment option.
(2) Estimated solely for purpose of calculating the registration fee pursuant
to Rules 457(a) and (g).
(3) The Units consist of the 1,380,000 shares of Common Stock and the
1,380,000 Class A Redeemable Common Stock Purchase Warrants referred to
above. Accordingly, no separate filing fee is payable for the registration
of such shares and Class A Redeemable Common Stock Purchase Warrants.
(4) Issuable upon exercise of the Class A Redeemable Common Stock Purchase
Warrants referred to in Note (1) above.
(5) To be sold to the Representative of the Underwriters and its designees.
(6) Issuable upon exercise of the warrants which are the subject of Note(5)
above.
(7) $9,372.33 has previously been paid.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 5, 1996
PROSPECTUS
OCUREST LABORATORIES, INC.
1,200,000 UNITS
EACH CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANT
This Prospectus relates to the offering (the "Offering") by Ocurest
Laboratories, Inc. (the "Company") of 1,200,000 Units (the "Units"). Each of the
Units consists of one share of Common Stock, $.008 par value (the "Common
Stock"), and one Class A Redeemable Common Stock Purchase Warrant (a "Warrant"
and collectively, the "Warrants"). The Common Stock and Warrants must be
purchased together as Units. The Common Stock and the Warrants comprising the
Units will not be separately tradeable or transferable for a period of six
months commencing on the date of this Prospectus or earlier at the discretion of
RAF Financial Corporation (the "Representative"). See "Description of
Securities--The Units."
Prior to the Offering, there has not been any public market for the
securities of the Company. The initial public offering price of the Units and
the initial exercise price and other terms of the Warrants have been arbitrarily
determined by negotiation between the Company and the Representative, as
representative of the underwriting group (the "Underwriters"). Application has
been made to approve the Units for quotation on the NASDAQ Small-Cap Market
("NASDAQ") under the trading symbol OCULU. Only the Units will be listed for
quotation on NASDAQ until the Common Stock and Warrants become separately
tradeable and transferable. Thereafter, subject to the Company then meeting the
NASDAQ maintenance requirements, the Units will be delisted for quotation on
NASDAQ and only the Common Stock and Warrants will be listed for quotation on
NASDAQ.
Each Warrant entitles the registered holder thereof to purchase one share
of Common Stock at an exercise price of $4.80 per share, subject to adjustment
in certain circumstances, at any time commencing on the date the Warrants are
separately tradeable and transferable and ending on , 1999. Commencing on the
date the Warrants are separately tradeable and transferable, the Warrants are
subject to redemption by the Company at $.55 per Warrant at any time until the
end of the second year after the date of this Prospectus and thereafter at $.75
per Warrant at any time until the end of the third year after the date of this
Prospectus and prior to their expiration, on 30 days' prior written notice to
the holders of Warrants, provided that the daily trading price per share (as
defined on page 39) of Common Stock has been at least $6.72, subject to
adjustment in certain circumstances, for a period of at least 20 consecutive
trading days ending within 10 days prior to the date upon which the notice of
redemption is given. Once exercisable, the Warrants shall be exercisable until
the close of the business day preceding the date fixed for redemption, if any.
See "Description of Securities--Warrants."
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION TO INVESTORS. POTENTIAL PURCHASERS SHOULD NOT
INVEST IN THESE SECURITIES UNLESS THEY CAN AFFORD THE RISK OF LOSING THEIR
ENTIRE INVESTMENT. SEE "RISK FACTORS" ON PAGE 6 OF THIS PROSPECTUS AND
"DILUTION" ON PAGE 15 OF THIS PROSPECTUS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
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Per Unit $ 4.00 $ .40 $ 3.60
Total(3) $4,800,000 $ 480,000 $4,320,000
(FOOTNOTES ON NEXT PAGE)
It is expected that delivery of the certificates representing the Units
will be made at the offices of the Representative on or about , 1996
against payment therefor.
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RAF
FINANCIAL CORPORATION
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(1) The Company and certain shareholders of the Company (the "Selling
Shareholders") have also agreed to pay the Representative a
non-accountable expense allowance equal to 3% of the total Price to Public
of the Units and Common Stock sold by them. The Company has not allocated
any portion of the Price to Public to the sale by the Company of the
Warrants. The Company has also agreed to issue to the Representative and its
designees for a nominal consideration (i) warrants to purchase 120,000
shares of Common Stock at an exercise price of $6.40 per share and (ii)
warrants to purchase 120,000 shares of Common Stock at an exercise price of
$7.68 per share. The warrants to be issued to the Representative and the
shares of Common Stock underlying such warrants have been registered under
the Securities Act of 1933, as amended (the "Securities Act)") by means of
the Registration Statement of which this Prospectus is a part. Subject to
certain limitations upon exercise of the Warrants, the Company has also
agreed to pay the Representative a solicitation fee equal to 10% of the
exercise price of the Warrants. The Representative has a three year right of
first refusal with respect to future public or private offerings for cash by
the Company or any parent or subsidiaries of the Company. In addition, the
Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. See
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company
estimated at $300,000, excluding the non-accountable expense allowance
described in Note (1) above, and assumes no exercise of the Underwriters'
over-allotment option. See "Use of Proceeds" and "Description of Securities
--Warrants."
(3) The Selling Shareholders have granted to the Underwriters a 30-day option to
purchase up to 180,000, additional shares of Common Stock AT $4.00
per share less the Underwriting Discounts solely to cover over-allotments,
if any (the "Over-Allotment Option"). The Company has agreed, for no
additional consideration, to contribute a like number of Warrants toward the
Over-Allotment Option. The Company will not receive any proceeds from the
sale of securities by the Selling Shareholders. If the Over-Allotment Option
is exercised in full, the total Price to Public, Underwriting Discounts, and
Proceeds to Company will be $5,520,000, $552,000 and $4,320,000,
respectively. See "Security Ownership of Certain Beneficial Owners and
Management," "Selling Shareholders" and "Underwriting."
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE SUBJECT TO PRIOR SALE. THE
UNDERWRITERS RESERVE THE RIGHT TO WITHDRAW, CANCEL OR MODIFY SUCH OFFER
(WHICH MAY BE DONE ONLY BY FILING AN AMENDMENT TO THE REGISTRATION STATEMENT)
AND TO REJECT ORDERS IN WHOLE OR IN PART FOR THE PURCHASE OF ANY OF THE
COMPANY'S SECURITIES AND TO CANCEL ANY SALE EVEN AFTER THE PURCHASE PRICE HAS
BEEN PAID IF SUCH SALE, IN THE OPINION OF THE UNDERWRITERS, WOULD VIOLATE
FEDERAL OR STATE SECURITIES LAWS OR A RULE OR POLICY OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. ("NASD").
IN CONNECTION WITH THE OFFERING, THE REPRESENTATIVE MAY OVERALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE
UNITS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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PHOTOGRAPH
Picture of the Company's products. Ocurest Redness Reliever Lubricant and
Ocurest Tears Formula Lubricant. Caption in Picture reads:
Ocurest
Eyecare Made Easy
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PHOTOGRAPH (Photo storyboard consisting of nine small photographs with captions)
Picture of a photo storyboard of one of the Company's 30 second television
commercials. Commercial shows woman using conventional eyedrop dispenser and
then using the Ocurest Delivery System on the bridge of her nose and explaining
how easy the Ocurest Delivery System is to use.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. ALL INFORMATION RELATING TO
SHARES OF COMMON STOCK AND PER SHARE AMOUNTS IN THIS PROSPECTUS HAVE BEEN
ADJUSTED FOR A 1-FOR-4 REVERSE STOCK SPLIT EFFECTED IN MARCH 1994 AND A
1-FOR-2 REVERSE STOCK SPLIT EFFECTED IN JULY 1996.
THE COMPANY
Ocurest Laboratories, Inc. (the "Company") is a marketing company
organized to develop and commercialize new health and personal care products
for the consumer market. The Company's first products consist of two
Ocurest/registered trademark/ eye care products utilizing a patented delivery
system for dispensing ophthalmic drug solutions into the eye (the "Ocurest
Delivery System").
The Company acquired the exclusive worldwide licensing rights to the
Ocurest Delivery System from a then affiliate of the Company in 1991. After
three years of product development, the Company began limited marketing in
late 1994 of two over-the-counter ("OTC") eye drop products packaged in the
delivery system. The products consist of Ocurest Redness Reliever Lubricant
and Ocurest Tears Formula Lubricant (collectively, "Ocurest Eye Drops").
Ocurest Eye Drops utilize ophthalmic drug formulations owned by Bausch & Lomb
Pharmaceutical, Inc. ("Bausch & Lomb") and are manufactured under a supply
agreement with Bausch & Lomb at its pharmaceutical facility in Tampa,
Florida. The Company owns the molds used to produce parts for the Ocurest
Delivery System and the manufacturing equipment which Bausch & Lomb operates
to produce all Ocurest eye care products.
The management of the Company believes that almost all of the worldwide
sales of ophthalmic drug solutions are sold in generic eyedropper dispensers
which can be difficult and messy to use. The Ocurest Delivery System was
designed to rest on the bridge of the nose, thereby stabilizing the dropper
tip directly above the eye so that drops can be applied directly into the
eye, accurately and with no spillage.
The OTC eye care products manufactured for the Company by Bausch & Lomb
contain active ingredients as to which Bausch & Lomb has advised the Company
are recognized as safe and effective by the United States Food & Drug
Administration (the "FDA"). Ocurest Redness Reliever Lubricant contains the
same active ingredients as Visine Moisturizing, a redness reliever lubricant
brand, and Ocurest Tears Formula Lubricant contains the same active
ingredient as Tears Naturale, an artificial tears brand.
Certain aspects of the Ocurest Delivery System are covered by a U.S.
utility patent issued in March 1990 and the shape of the Ocurest Delivery
System is covered by a U.S. design trademark registration issued in July 1995
and a design patent issued in September 1991, all of which have been licensed
to the Company. The Company is also the licensee of patents issued or pending
in a number of other countries.
Ocurest Eye Drops were introduced in Florida with television and magazine
advertising starting in September 1994. In mid-1995, the marketing of Ocurest
Eye Drops was expanded to ten additional southern states with television
advertising starting in July 1995 in the Southeast and September 1995 in the
Southwest.
The Company believes the initial consumer response to Ocurest Eye Drops has
been encouraging and the Company has a planned national marketing program
underway for its product line with television advertising which began in October
1996. As of the date of this Prospectus, retail chains such as Wal-Mart, Target,
Kmart, Walgreens, Revco, Rite Aid, Eckerd, CVS, Osco, Sav-on, Kroger,
Winn-Dixie, Albertson's, A&P, Publix, Grand Union, Pathmark, Stop & Shop, Giant
Food and Fred Meyer
3
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have ordered Ocurest Eye Drops for retail distribution. The Company intends to
utilize a substantial portion of the net proceeds of the Offering for
advertising and promotion expenses in support of the national marketing of
Ocurest Eye Drops.
The Company was organized under the laws of the State of Florida on April
29, 1991. The Company's office is located at 4400 PGA Boulevard, Palm Beach
Gardens, FL 33410 and its telephone number is (561)-627-8121.
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THE OFFERING
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Securities offered ..............1,200,000 Units. Each Unit consists of one
share of Common Stock and one Warrant.
Each Warrant entitles the holder thereof to
purchase one share of Common Stock. The
Common Stock and the Warrants must be
purchased together as Units. The Common Stock
and the Warrants comprising the Units will not
be separately tradeable or transferable for a
period of six months commencing on the date of
this Prospectus or earlier at the discretion
of the Representative. See "Description of
Securities" and "Underwriting."(1)
Offering price .................. $4.00 per Unit.
Common Stock to be outstanding
after the Offering ............3,122,674 shares (1,922,674 shares are
outstanding as of the date of this
Prospectus)(2)
Warrants--Number to be outstanding
after the offering ............1,200,000 Warrants (no Warrants are
outstanding as of the date of this
Prospectus)(3)
Exercise price ................ $4.80 per share of Common Stock, subject to
adjustment in certain circumstances. See
"Description of Securities."
Expiration date ............... , 1999
Redemption .................... Commencing on the date the Warrants are
separately tradeable and transferable, the
Warrants are redeemable by the Company at $.55
per Warrant at any time until the end of the
second year after the date of this Prospectus
and thereafter at $.75 at any time until the end
of the third year after the date of this
Prospectus and prior to their expiration, on 30
days' prior written notice to the holders of
Warrants, provided that the daily trading price
per share of Common Stock (as defined on page 39),
has been at least $6.72, subject to adjustment in
certain circumstances, for a period of at least
20 consecutive trading days ending within 10 days
prior to the date of the notice of redemption.
See "Description of Securities--Warrants."
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4
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Use of Proceeds ................. The Company intends to apply the net proceeds of
the Offering to pay for inventory acquisition
and production equipment, to pay for expenses
relating to national advertising and promotion
of the Company's products, to repay certain
indebtedness and accrued interest and for
general corporate purposes, including working
capital. See "Use of Proceeds."
Risk Factors .................... The securities offered hereby involve a high
degree of risk and immediate substantial
dilution and should not be purchased by
investors who cannot afford the loss of their
entire investment. See "Risk Factors."
Proposed NASDAQ Small-Cap
Symbol ........................Units: OCULU(4)(5)
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(1) Does not include up to 180,000 additional Warrants that may be sold by the
Company pursuant to the Over-Allotment Option. See "Underwriting."
(2) Does not include a maximum of (a) 1,257,585 shares issuable upon exercise
of outstanding warrants and options, (b) 1,200,000 shares issuable upon
exercise of the Warrants, (c) 240,000 shares issuable upon exercise of
the warrants to be issued to the Representative, (d) 180,000 shares issuable
upon exercise of the Warrants included in the Over-Allotment Option. See
"Management," "Certain Relationships and Transactions" and "Underwriting."
(3) Represents the Warrants and does not include any other options or
warrants referred to in Notes (1) and (2) above.
(4) The Common Stock and the Warrants will not be separately tradeable or
transferable for a period of six months commencing on the date of this
Prospectus or earlier at the discretion of the Representative. Until such
time, it is unlikely that any trading market will develop for such
securities. See "Risk Factors."
(5) Subject to the Company then meeting the NASDAQ maintenance requirements,
the Company intends to delist the Units from NASDAQ and to list the
Common Stock and the Warrants on NASDAQ on or about the date the Common
Stock and the Warrants are separately tradeable and transferable.
5
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RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK, INCLUDING, BUT NOT NECESSARILY LIMITED TO THE RISK FACTORS
DESCRIBED BELOW. PROSPECTIVE PURCHASERS SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS, AMONG OTHERS, AS WELL AS THE REMAINDER OF THIS
PROSPECTUS, PRIOR TO MAKING AN INVESTMENT IN THE COMPANY.
RISKS RELATING TO THE BUSINESS OF THE COMPANY
LIMITED OPERATING HISTORY; LACK OF PROFITABILITY; WORKING CAPITAL DEFICIENCY
The Company has recently commenced operations, has a limited operating
history, has never earned a profit and at June 30, 1996, its current
liabilities exceeded its current assets by approximately $2 million. During
the six months ended June 30, 1996, the Company incurred a net loss of
approximately $1 million. Although the Company believes that its estimates of
the capital and resources required for its continued operations are
reasonable, until the Company has a more meaningful operating history, it
will not be possible to determine the accuracy of such estimates. In
formulating its business plan, the Company has relied on its in-market sales
experience since September 1994, results of independent market studies and
the judgment of Management. There can be no assurance that the Company's past
operating history nor the results of the market studies will accurately
reflect the demand for the Company's eye care products or that the Company
will ever be profitable. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and "Management."
NEED FOR FINANCING TO CONTINUE AS A GOING CONCERN; REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
Since the Company's inception, the Company's operations have been
primarily funded through the private placement of equity securities of the
Company. The Company's ability to continue as a going concern is dependent
upon, among other things, the Company's receipt of the net proceeds of the
Offering. On June 30, 1996, the Company had an accumulated deficit and a
negative net worth of approximately $6 million and $2.3 million,
respectively. In addition, as of the date hereof the Company is in default on
the repayment of approximately $650,000 of loans, including interest thereon.
Although the Company's financial statements were prepared on a going concern
basis, in the Report of Independent Certified Public Accountants dated March
29, 1996, such accountants expressed substantial doubt about the Company's
ability to continue as a going concern. Furthermore, although the Company
believes that the receipt of the net proceeds of the Offering will satisfy
its capital requirements for a period of at least one year, there can be no
assurance that the Company will not require additional capital or be able to
continue as a going concern. The Company has not obtained any commitments
with respect to any such additional capital and there can be no assurance
that any additional capital will become available to the Company on terms not
unfavorable to the Company, if at all. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Experts" and Report of Independent Certified Public Accountants.
CERTAIN RISKS RELATED TO THE OPHTHALMIC DRUG BUSINESS
In addition to being subject to all the risks associated with the creation
of a new business, the Company is subject to certain factors affecting the
OTC ophthalmic drug business generally such as intense competition, necessity
to purchase specialized equipment and varying consumer preferences. There can
be no assurance that the Company will ever be able to operate profitably. See
Note L of Notes to Financial Statements.
REVERSION OF PATENT AND TRADEMARK RIGHTS
The patent and trademark rights of the Company were granted to the Company
by Acorn Laboratories, Inc. ("Acorn"), a then affiliate of the Company. Under
certain circumstances, including a
6
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failure by the Company to make requisite payments to Acorn, the patent and
trademark rights will revert to Acorn. In any such event, the Company will no
longer be able to use the Ocurest Delivery System or market any products
under the name "Ocurest" and, in such event, investors can expect to lose
their entire investment in the Company. See "Business--Patents and
Trademarks" and "Certain Relationships and Transactions."
DEPENDENCE ON A LIMITED NUMBER OF SIGNIFICANT CUSTOMERS
In 1995, three customers accounted for approximately 43%, 13% and 11% of
the Company's net sales, respectively. During the six months ended June 30.
1996, four customers accounted for approximately 13%, 11%, 10% and 9% of the
Company's net sales, respectively. The loss of any of such customers would
have a material adverse effect upon the Company. In the event that the
Company is not successful in marketing its OTC products, investors can expect
to lose their entire investment in the Company.
DEPENDENCE ON CONTRACT MANUFACTURER
Ocurest/registered trademark/ eye care products are formulated, filled and
packaged under contract by Bausch & Lomb Pharmaceutical, Inc. ("Bausch &
Lomb") pursuant to a contract in which Bausch & Lomb agreed to manufacture
the Company's OTC ophthalmic drug solutions in accordance with the Company's
manufacturing specifications. The contract runs until 1999, although it may
be terminated by either party on one year's notice. The contract provides for
minimum annual purchases by the Company. Although, as of the date of this
Prospectus, the Company is in compliance with the purchase requirements,
there can be no assurance that the Company will continue to be in compliance.
If the Company fails to so comply with such requirements and such failure is
not cured during the following six months, Bausch & Lomb may terminate the
contract as of the immediately succeeding March 31. The Company believes that
if Bausch & Lomb were to terminate or not agree to renew the contract, other
contract manufacturers are available to manufacture the Company's eye care
products on substantially similar terms, although there can be no assurance
of the foregoing. In any such event, however, the Company could incur a
significant delay in the production of its products. see "Business--Contract
Manufacturer."
DEPENDENCE ON SINGLE PRODUCT CATEGORY
The Company's future profitability initially depends primarily on the
successful marketing of ophthalmic drug solutions in the Ocurest Delivery
System as an alternative to currently available OTC ophthalmic drug solutions
sold in conventional eye drop dispensers. Should the Company's future
marketing of eye care products be unsuccessful for any reason, investors can
expect to lose their entire investment in the Company. Although the Company
plans to diversify its business through the introduction of new products in
selected health and personal care markets, there can be no assurance that the
Company will be able to discover, develop or successfully commercialize any
such products.
UNCERTAINTY OF CONSUMER ACCEPTANCE FOR OCUREST EYE CARE PRODUCTS
Unless Ocurest OTC eye care products marketed in the Ocurest Delivery
System gain significant consumer acceptance in the national market, the
Company will not be successful and investors can expect to lose their entire
investment in the Company. Although the Company has gained limited in-market
sales experience since September 1994, the Company has encountered and will
continue to encounter strong brand name and price competition in introducing
its products. The Company will be required to incur substantial advertising
and promotion expenses to introduce Ocurest eye care products to consumers,
and there can be no assurance that such products will gain sufficient
consumer acceptance to enable the Company to operate profitably.
DEPENDENCE UPON MANAGEMENT
The success of the Company will, to a significant extent, depend upon the
efforts and availability of its management. The loss of the services of the
Company's Chief Executive Officer may materially
7
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adversely affect the Company's business and prospects unless or until a
suitable successor is retained. The Company's employment agreement with its
Chief Executive Officer permits him to terminate his employment by the
Company for any reason. The Company has no key man life insurance. See
"Management."
BROAD DISCRETION IN ALLOCATION OF A SUBSTANTIAL PORTION OF THE NET PROCEEDS
A significant portion of the net proceeds of the Offering will be
allocated for general corporate purposes at the discretion of the Company's
management. Investors, therefore, will be required to rely on the judgment of
the Company's management in the actual allocation of such portion. See "Use
of Proceeds" and "Management."
MAJORITY PORTION OF NET PROCEEDS TO BE UTILIZED FOR THE PAYMENT OF
EXISTING INDEBTEDNESS
The Company intends to utilize approximately $2,100,000 (approximately 54%)
of the net proceeds of the Offering for the payment of existing indebtedness.
Included in such indebtedness in an aggregate of $85,000 plus accrued interest
payable to Eric R. Schwarz, an employee and beneficial owner of approximately 6%
of the Company's outstanding Common Stock, and to the spouse of Edmund G.
Vimond, Jr., the Company's Chief Executive Officer, $200,000 payable to Robert
M. Kassenbrock, a beneficial owner of approximately 9% of the Company's
outstanding Common Stock and $200,000, the repayment of which has been
guaranteed by the Company's three executive officers. See "Use of Proceeds,"
"Management," "Security Ownership of Certain Beneficial Owners and Management,"
"Certain Relationships and Transactions" and "Selling Shareholders."
REQUIRED ROYALTY PAYMENTS
Pursuant to an agreement with Acorn, the Company has agreed, contingent
upon the Company achieving certain net income levels, to pay royalties to
Acorn until $9,800,000 has been paid to Acorn. The royalty payments consist
of (a) 4% of (i) net sales of eye drops sold by the Company in the Ocurest
Delivery System; (ii) royalties received by the Company from sales by others
of Rx products; and (iii) the proceeds of licensing and similar arrangements
received by the Company from licensing or similar arrangements in connection
with Rx products and (b) 25% of (i) royalties received by the Company with
respect to sales by others of OTC eye drops in the Ocurest Delivery System
and (ii) the proceeds of any licensing or similar arrangements received by
the Company in connection with OTC products. Furthermore, in the event that
the Company disposes of all or substantially all of its business including
the licenses granted by Acorn, other than through one or more licenses, the
Company must pay to Acorn the greater of $1,250,000 or 10% of the gross
proceeds of such disposition, in which case the Company shall have no further
obligation to Acorn. Other than as set forth in the preceding sentence, the
Company's obligation to Acorn will terminate upon the payment to Acorn of an
aggregate of $10,000,000. Payments required to be made to Acorn could
adversely affect the cash flow of the Company. See "Business--Patents and
Trademarks" and "Certain Relationships and Transactions."
CONFLICT OF INTEREST
All of the equity interest of Acorn is owned by an individual who was the
Chairman of the Company's Board of Directors at the time the original
arrangements between the Company and Acorn were made, his spouse and
daughters. One such daughter, having a 16% equity interest in Acorn, is the
spouse of Larry M. Reid, one of the Company's executive officers. Acorn has
assigned 25% and 15% of its rights to receive royalties from the Company to
Edmund G. Vimond, Jr. and Mr. Reid, two of the Company's executive officers
and directors. Subject to the Company achieving certain minimum levels of net
income, any activity taken to increase the Company's sales at the expense of
profits would benefit those persons having an interest in Acorn. See
"Business--Patents and Trademarks" and "Certain Relationships and
Transactions."
8
<PAGE>
LIMITED PRODUCT LIABILITY INSURANCE
There can be no assurance that the Company will not be named as a
defendant in any litigation arising from the use of the Company's products.
Although the Company's contract supplier has agreed to include the Company as
a named insured on its product liability insurance policy and although the
Company has its own product liability insurance policy with a limit of $2
million, should such litigation ensue and the Company is held liable for
amounts in excess of such insurance coverage, the Company could be rendered
insolvent. In addition, there can be no assurance that product liability
insurance will continue to be available to the Company or that the premiums
therefor will not become prohibitively expensive.
FORMULATIONS ARE NOT UNIQUE
The formulations utilized for the Company's eye care products are not
patented or otherwise protected from duplication by others and are
substantially identical to formulations currently being sold by certain other
companies, many of which are sold under well established brand names.
Accordingly, the Company has no competitive advantage on the basis of the
quality or efficacy of its formulations and therefore, the Company's ability
to effectively compete with such other companies will be dependent upon,
among other things, whether or not consumers accept the characteristics of
the Ocurest Delivery System.
DEPENDENCE UPON TRADEMARKS AND PATENTS
The Company's success is, in part, dependent upon any protection that may
be afforded by the patents issued in connection with the Ocurest Delivery
System and the trademarks relating thereto and the name "Ocurest." There can
be no assurance that such patents or trademarks will actually provide the
Company with any protection from its competitors or that such patents or
trademarks do not infringe upon the rights of others. In the event of such
infringement, the Company would lose any protection otherwise afforded by
such patents or trademarks. In addition, in order for the Company to protect
its patents and trademarks, the Company must identify, contain and prosecute
infringement by others. Trademark and patent litigation entails substantial
legal and other costs. There can be no assurance that the Company will have
the necessary financial resources to defend or prosecute its rights in
connection with any such litigation.
NECESSITY OF COMPLIANCE WITH GOVERNMENTAL REGULATION
The manufacture, contents and labeling of the Company's products must
comply with rules, regulations and standards of the United States Food and
Drug Administration. Although the Company believes that its eye care products
are in compliance with all applicable current FDA requirements, a failure of
the Company or those that manufacture its products to comply with any of the
foregoing could have a material adverse effect on the Company.
INTENSE COMPETITION
Competition in the OTC ophthalmic drug industry is intense. The Company
competes with large, established and well financed companies, including major
corporations which are actively engaged in the manufacture and sale of
products designed to perform the same function as those of the Company. The
brand names of many of such competitors' ophthalmic drug products are well
recognized and established in the marketplace. All of such companies possess
greater financial and human resources than does the Company. Although the
Company is not aware of any technological advances or developments by others
with respect to OTC eye drops or eye drop dispensers, in the event that any
such advances or developments occur, if the Company is not then able to
develop or otherwise acquire technology to produce competitive products, the
Company would be materially adversely affected. See "Business."
9
<PAGE>
GENERAL RISK FACTORS
ABSENCE OF TRADING MARKET
There is not now nor has there ever been any public market for the Units,
the Common Stock or the Warrants. There can be no assurance that any such
market will exist in the future. Should such a market develop, there can be
no assurance that it will remain active or otherwise be sustained. The Common
Stock and the Warrants comprising the Units will not be separately tradeable
or transferable for a period of six months commencing on the date of this
Prospectus or earlier at the discretion of the Representative.
ARBITRARY DETERMINATION OF OFFERING PRICE
Because there has never been a public market for the Units, Common Stock
or Warrants, the public offering price of the Units and the exercise price of
the Warrants have been arbitrarily determined by negotiation between the
Representative and the Company. Such prices bear no relationship to book value,
projected earnings, results of operations, net asset value or any other
objective criteria of value. Purchasers of the Units, Common Stock and Warrants
may therefore be exposed to the extraordinary risk of a decline in the market
price of the securities offered hereby subsequent to the completion of the
Offering should a market develop therefor. See "Underwriting."
NO PRESENT INTENT TO PAY DIVIDENDS
The Company has never declared or paid and does not anticipate declaring
or paying any dividends to its shareholders in the foreseeable future.
Accordingly, any investor who anticipates the need for current dividends from
an investment in the Company should not purchase any of the securities being
offered hereby. See "Description of Securities."
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price of the Common Stock included in the
Units of $4.00 per share substantially exceeds its book value. Purchasers of
the Common Stock will experience an immediate dilution in the net tangible
book value per share after the offering of $3.10 (approximately 78% of such
initial public offering price). The Company has not allocated any portion of
the initial public offering price of the Units to the Warrants. See "Dilution."
VOTING CONTROL BY PRESENT SHAREHOLDERS BEFORE AND AFTER OFFERING AND CONTROL
BY MANAGEMENT
Following the completion of the Offering, the present shareholders of the
Company will own approximately 62% of the Company's outstanding Common Stock
and, therefore, will be in a position to elect all of the Company's directors
and control the policies and operation of the Company. Accordingly, it can be
anticipated that the Company's present directors will continue to be elected and
thus continue to control the Company for the foreseeable future. Such directors
who are also officers of the Company constitute 50% of the members of the Board
of Directors. Furthermore, during at least the foreseeable future, investors in
the Offering will be unable to elect any non-officer "outside" directors. See
"Management" and "Security Ownership of Certain Beneficial Owners."
ADDITIONAL SECURITIES AVAILABLE FOR ISSUANCE
The Company's Articles of Incorporation, as amended, authorize the issuance
of 25 million shares of Common Stock and five million shares of Preferred Stock
(the "Preferred Stock"). The Common Stock and the Preferred Stock can be issued
by, and the terms of the Preferred Stock, including dividend rights, voting
rights, liquidation preference and conversion rights can generally be determined
by, the Company's Board of Directors without shareholder approval. Any issuance
of the Preferred Stock could adversely affect the rights of the holders of
Common Stock by, among other things, establishing preferential dividends,
liquidation rights or voting powers. Accordingly, shareholders, including those
purchasing the securities offered hereby, will be dependent upon the judgment of
10
<PAGE>
management in connection with the future issuance and sale of shares of the
Company's Common Stock and Preferred Stock, in the event that buyers can be
found therefor. Any future issuances of Common Stock or Preferred Stock would
further dilute the percentage ownership of the Company held by the public
shareholders. Furthermore, the issuance of Preferred Stock could be used to
discourage or prevent efforts to acquire control of the Company through
acquisition of shares of Common Stock. See "Management," "Description of
Securities" and Notes to Financial Statements.
MARKET OVERHANG FROM OPTIONS AND WARRANTS
As of the date of this Prospectus, the Company had outstanding options and
warrants for the purchase of up to 1,257,585 shares of Common Stock at prices
ranging from $.01 to $5.00 per share. The options and warrants expire at
various times until June 2000. In addition, the warrants to be issued to the
Representative will permit the holders thereof to purchase a maximum of
240,000 shares of Common Stock. The holders of such warrants have certain
registration rights under the Securities Act of 1933 (the "Securities Act").
For the life of the outstanding options and warrants and the warrants to be
issued to the Representative, the holders thereof will have the opportunity
to profit from a rise in the market price of the Common Stock. The existence
of such securities may adversely affect the terms on which the Company can
obtain additional financing, and the holders hereof can be expected to
exercise the securities at a time when the Company would, in all likelihood,
be able to obtain additional capital by an offering of its Common Stock on
terms more favorable to the Company than those provided by such warrants. See
"Underwriting" and "Description of Securities."
RESTRICTIONS ON EXERCISE OF THE WARRANTS.
During the period the Warrants are exercisable, holders of the Warrants
will not be permitted to exercise such Warrants unless at the time of the
exercise the registration statement under the Securities Act of which this
Prospectus is a part or a new registration statement is both effective and
current. Although the Company has undertaken to maintain a current and
effective registration statement during the life of the Warrants, there can
be no assurance that it either can or will do so. In addition, a holder of
the Warrants residing in a state in which the underlying Common Stock is
neither registered nor exempt from registration, will not be permitted to
exercise that holder's Warrants. The Company does not intend to advise
holders of the Warrants of their inability to exercise the Warrants other
than in response to a specific written inquiry to the Company. The value of
the Warrants may be greatly reduced if a current registration statement
covering the shares of Common Stock underlying the Warrants is not effective
and current or if such Common Stock is not registered or exempt from
registration in the states in which the holders of the Warrants reside. See
"Description of Securities Warrants."
WARRANTS SUBJECT TO REDEMPTION
Commencing on the date the Warrants are separately tradeable and
transferable, the Warrants are subject to redemption by the Company at $.55
per Warrant at any time until the end of the second year after the date of
this Prospectus and thereafter at $.75 per Warrant at any time until the end
of the third year after the date of this Prospectus and prior to their
expiration, on 30 days' prior written notice to the holders of the Warrants,
provided that the daily trading price per share (as defined on page 39) has been
at least $6.72, subject to adjustment in certain circumstances, for a at least
20 consecutive trading days ending within 10 days prior to the date of the
notice of redemption. Redemption of the Warrants could force the holders to
exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for the holders to do so, to sell the Warrants at the then
current market price when they might otherwise wish to hold the Warrants, or to
accept the redemption price, which is likely to be substantially less than the
market value of the Warrants at the time of redemption. See "Description of
Securities--Warrants."
SHARES ELIGIBLE FOR PUBLIC SALE
All of the shares of Common Stock outstanding as of the date hereof are
"restricted securities," as that term is defined in Rule 144 promulgated under
the Securities Act. Without regard to the volume limitations described below,
approximately 320,000 of such shares are currently eligible for resale under
Rule 144 and
11
<PAGE>
approximately 580,000 of such shares will be eligible for resale under Rule 144
commencing ninety days subsequent to the date of this Prospectus. The remaining
shares will become so eligible at various times between November 1996 and June
1998. In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions specified in such Rule, sales of
"restricted securities" may be made if a minimum of two years has elapsed
between the later of the date of the acquisition of such securities from the
Company or from an affiliate of the Company and any resale thereof in reliance
on Rule 144 for the account of either the initial acquiror or any subsequent
holder. If sales can be made under Rule 144, a seller, including persons whose
securities are required to be aggregated, is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the total number of outstanding shares of the same class or, if the shares are
then quoted on NASDAQ, the average weekly trading volume during the four
calendar weeks preceding the filing of a notice with the Securities and Exchange
Commission (the "Commission"). Where a minimum of three years has elapsed
between the later of the date of the acquisition of restricted securities from
the Company or from an affiliate of the Company and any resale thereof in
reliance on Rule 144 for the account of either the initial acquiror or any
subsequent holder, a person who has not been an affiliate of the Company for at
least the three months immediately preceding the sale is entitled to sell such
securities under Rule 144 without regard to any of the limitations described
above. No prediction can be made as to the effect, if any, that sales of shares
of Common Stock or the availability of such shares for sale will have on the
market prices, if any, prevailing from time to time. Nevertheless, the
possibility that substantial amounts of Common Stock may be sold in the public
market may adversely affect prevailing market prices, if any, for the Common
Stock and Warrants and could impair the Company's ability to raise capital
through the sale of its equity securities. Certain of the Company's shareholders
owning an aggregate of 731,926 shares of Common Stock have agreed not to sell
any of such shares without the consent of the Representative for a period of one
year commencing on the date of this Prospectus. In addition, the Company has
granted certain future registration rights under the Securities Act to the
holders of an aggregate of 133,920 shares of Common Stock and to the holders of
warrants for the purchase of 375,000 shares of Common Stock. See "Selling
Shareholders," "Certain Relationships and Transactions," "Underwriting" and
"Shares Eligible for Future Sale."
NASDAQ MAINTENANCE REQUIREMENTS AND EFFECTS OF POSSIBLE DELISTING; PENNY
STOCK RULES.
Although the Company's Units have been approved for initial listing on
NASDAQ upon notice of issuance of such securities, the Company must continue
to meet certain maintenance requirements in order for such securities to
continue to be listed on NASDAQ. Further, the Company must meet such
maintenance requirements for the Company to be able to list the Company's
Common Stock and Warrants on NASDAQ at such time as they are separately
tradeable and transferable. If the Company's securities are delisted from
NASDAQ, such delisting could restrict investors' interest in the Company's
securities and could materially and adversely affect any trading market and
prices for such securities. In addition, if the Company's securities are
delisted from NASDAQ, and if the Company's net tangible assets do not exceed
$2 million, and if the Company's Common Stock is trading for less than $5.00
per share, then the Company's Common Stock and Warrants would each be
considered a "penny stock" under federal securities law. Additional
regulatory requirements apply to trading by broker-dealers of penny stocks
which could result in the loss of effective trading markets, if any, for the
Company's Common Stock and Warrants.
RESTRICTIONS ON ISSUANCE OF ADDITIONAL SECURITIES
Although the Company's Articles of Incorporation, as amended, authorize the
issuance of additional equity securities, other than with respect to securities
to be sold in connection with the Offering, substantially all of such authorized
securities may not be issued by the Company for a period of three years
subsequent to the date of this Prospectus without the consent of the
Representative. That restriction may preclude the Company from issuing
additional shares of Common Stock or Preferred Stock or securities convertible
or exercisable into Common Stock or Preferred Stock at times when the Company
may believe that it would be advantageous to do so. See "Underwriting."
12
<PAGE>
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act") and the
Company intends that such forward-looking statements be subject to the safe
harbors for such statements under such sections. The Company's
forward-looking statements include the plans and objectives of management for
future operations, including plans and objectives relating to the Company's
planned national marketing campaign and future economic performance of the
Company. The forward-looking statements and associated risks set forth in
this Prospectus include or relate to: (i) the ability of the Company to
obtain a meaningful degree of consumer acceptance for its products and
proposed products, (ii) the ability of the Company to market its products and
proposed products on a national basis at competitive prices, (iii) the
ability of the Company to develop brand-name recognition for its products and
proposed products, (iv) the ability of the Company to develop and maintain an
effective sales network, (v) success of the Company in forecasting demand for
its products and proposed products, (vi) the ability of the Company to
maintain pricing and thereby maintain adequate profit margins, (vii) the
ability of the Company to achieve adequate intellectual property protection
for the Company's products and proposed products and (viii) the ability of
the Company to obtain and retain sufficient capital for its future
operations.
The forward-looking statements herein are based on current expectations
that involve a number of risks and uncertainties. Such forward-looking
statements are based on assumptions that the Company will market and provide
products on a timely basis, that there will be no material adverse
competitive or technological change in conditions in the Company's business,
that demand for the Company's products will significantly increase, that the
Company's Chief Executive Officer will remain employed as such by the
Company, that the Company's forecasts accurately anticipate market demand,
and that there will be no material adverse change in the Company's operations
or business or in governmental regulations affecting the Company or its
suppliers. The foregoing assumptions are based on judgments with respect to,
among other things, future economic, competitive and market conditions, and
future business decisions, all of which are difficult or impossible to
predict accurately and many of which are beyond the Company's control.
Accordingly, although the Company believes that the assumptions underlying
the forward-looking statements are reasonable, any such assumption could
prove to be inaccurate and therefore there can be no assurance that the
results contemplated in forward-looking statements will be realized. In
addition, as disclosed elsewhere in the "Risk Factors" section of this
Prospectus, there are a number of other risks inherent in the Company's
business and operations which could cause the Company's operating results to
vary markedly and adversely from prior results or the results contemplated by
the forward-looking statements. Growth in absolute and relative amounts of
cost of goods sold and selling, general and administrative expenses or the
occurrence of extraordinary events could cause actual results to vary
materially from the results contemplated by the forward-looking statements.
Management decisions, including budgeting, are subjective in many respects
and periodic revisions must be made to reflect actual conditions and business
developments, the impact of which may cause the Company to alter its
marketing, capital investment and other expenditures, which may also
materially adversely affect the Company's results of operations. In light of
significant uncertainties inherent in the forward-looking information
included in this Prospectus, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
Company's objectives or plans will be achieved. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock included
in the Units offered hereby are estimated to be approximately $6,666,000
(approximately $3,876,000.
The Company intends to use the net proceeds as follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE
USE APPROXIMATE AMOUNT OF NET PROCEEDS
--- ------------------- -----------------------
<S> <C> <C>
Purchase of production equipment .......... $ 433,000 11%
National advertising and promotion activities ........... $1,100,000 29%
Repayment of indebtedness and accrued interest .......... $2,100,000 54%
General corporate purposes, including working capital,
payment of accounts payable and possible future
acquisition or licensing of products or technologies
that complement the Company's business ................. $ 243,000 6%
</TABLE>
The indebtedness which the Company intends to repay from the net proceeds was
incurred at various times between October 1994 and October 1996, bears interest
at rates ranging from approximately 10% to 15% per annum and has maturity dates
from November 30, 1995 to the time the Company receives the net proceeds of the
Offering. Included in such indebtedness is an aggregate of $85,000 plus accrued
interest payable to Eric R. Schwarz, an employee and beneficial owner of
approximately 6% of the Company's outstanding Common Stock, and to the spouse of
Edmund G. Vimond, Jr., the Company's Chief Executive Officer and $200,000 plus
accrued interest payable to Robert M. Kassenbrock, a beneficial owner of
approximately 9% of the Company's outstanding Common Stock. The proceeds of the
indebtedness were utilized by the Company for general corporate purposes,
including working capital and advertising and promotion. Included in the
indebtedness to be repaid is $200,000 payable to an advertising agency for
advertising and promotion activities. The repayment of such amount has been
guaranteed by the Company's three executive officers. On the date of this
Prospectus, the Company is in default in the repayment of approximately $650,000
of loans, including interest thereon. See "Security Ownership of Certain
Beneficial Owners and Management," "Certain Relationships and Transactions" and
"Selling Shareholders." The Company believes that the receipt of such net
proceeds will satisfy its capital requirements for a period of at least one
year.
Pending utilization of the net proceeds of the Offering, the Company will
invest such net proceeds in short-term government securities in a
non-discretionary account of the Company with the Representative.
The allocation of the net proceeds of the Offering as set forth above
represents the Company's current estimates based on its proposed plan of
operations and certain assumptions with regard to the Company's proposed plan
of operations as well as certain assumptions regarding industry and general
economic conditions. In the event that the Company's plans change, its
assumptions change or prove to be inaccurate, or the proceeds of the Offering
prove to be insufficient, the Company may find it necessary or advisable to
reallocate proceeds within the above-described categories or to use proceeds
for other purposes or to seek additional financing or curtail or cease its
activities.
14
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock nor does the Company anticipate that any such dividends will be paid in
the foreseeable future. The Company intends to apply any earnings it may
realize to the expansion of its business.
DILUTION
The Company had a deficiency in net tangible book value of $1,139,109 or $.59
per share of the Company's Common Stock on June 30, 1996. Net tangible book
value per share is determined by dividing the tangible net worth of the Company
(tangible assets less total liabilities) by the total number of outstanding
shares of Common Stock. After giving effect to the sale of the Units offered
hereby and the receipt of the estimated net proceeds to the Company from the
sale of the Common Stock included in the Units, and assuming no exercise of the
Over-Allotment Option, the Warrants, the warrants to be issued to the
Representative or outstanding options and warrants, the pro forma net tangible
book value of the Company at June 30, 1996 would have been $.90 per share,
representing an immediate increase in the net tangible book value of $1.49 per
share to existing shareholders and an immediate dilution to new investors of
$3.10 per share (approximately 78% of the allocated $4.00 price per share of
Common Stock). The following table illustrates the dilution per share of Common
Stock to new investors purchasing Units in the Offering.
<TABLE>
<CAPTION>
<S> <C> <C>
INITIAL PUBLIC OFFERING PRICE PER SHARE OF COMMON STOCK ...................... $4.00
Net tangible book value per share of Common Stock at June 30, 1996 .......... $(.59)
Increase per share of Common Stock attributable to new investors ............ $1.49
---------
Pro forma net tangible book value per share of Common Stock after the
Offering ..................................................................... $ .90
--------
Dilution per share to new investors .......................................... $3.10
========
</TABLE>
The following table sets forth on a pro forma basis as of June 30, 1996 the
differences between existing stockholders and new investors with respect to the
number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share assuming
no exercise of the Over-Allotment Option.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders 1,922,674 62.0% $ 5,084,224 51% $2.64
New Investors ........ 1,200,000 38.0% 4,800,000 49% $4.00
------------ ---------- ------------- ---------- -------------
Total: ............... 3,122,674 100.0% 9,884,224 100.0%
============ ========== ============= ==========
</TABLE>
15
<PAGE>
CAPITALIZATION
The following table sets forth the Company's capitalization as of June 30,
1996 and as of June 30, 1996 as adjusted to reflect the sale by the Company
of 1,200,000 Units and the application of the net proceeds from the sale of
the 1,200,000 shares of Common Stock included therein. See "Use of Proceeds."
<TABLE>
<CAPTION>
AS
ACTUAL(1) ADJUSTED(2)(3)
-------------- ----------------
<S> <C> <C>
Current Liabilities .............................................. $ 3,265,616 $ 1,765,616
Stockholders' Equity
Preferred Stock, $.001 par value, 5,000,000 shares authorized,
no shares issued and outstanding (actual or adjusted) ......... -- --
Common Stock, $.008 par value, 25,000,000 shares authorized;
1,922,674 issued and outstanding (actual) and 3,122,674 shares
issued and outstanding (as adjusted) ......................... 15,381 24,981
Paid-in Capital .................................................. 5,068,843 8,935,243
Accumulated deficit .............................................. (6,008,941) (6,008,941)
Total stockholders' equity (deficit) ............................. (924,717) 2,951,283
</TABLE>
- -------------
(1) Par value and number of shares have been adjusted for a 1 for 2 reverse
stock split that occurred in July 1996.
(2) Adjusted to include the 1,200,000 shares of Common Stock offered hereby
by the Company and application of the net proceeds therefrom. See "Use of
Proceeds."
(3) Adjusted for current liabilities to be paid from the net proceeds of the
Offering. See "Use of Proceeds."
16
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data of the Company for the periods set forth below
have been derived from the Company's financial statements included elsewhere
in this Prospectus. The selected financial data should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results
of Operations and the Financial Statements and the related Notes thereto
included elsewhere in this Prospectus. The data for the six months ended June
30, 1995 and 1996 and as of June 30, 1996, is unaudited. In the opinion of
management, all adjustments (consisting of only normal recurring adjustments)
necessary for the fair presentation of financial position, results of
operations and cash flows for the unaudited periods have been made.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30
------------------------------- -----------------------------
1994 1995 1995 1996
--------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales ................................... $ 96,830 $ 687,122 $ 200,384 $ 734,281
Cost of Goods Sold .......................... 139,733 545,175 160,206 443,579
Selling & Marketing Expense ................. 676,079 1,784,102 462,835 639,052
General & Administrative expense ............ 948,458 964,426 466,548 484,648
Royalty Expense ............................. 3,875 27,885 8,015 29,380
Other Income (Expense) ...................... (18,005) (102,326) (32,552) (148,082)
--------------- --------------- ------------- ---------------
Net Loss .................................... $(1,689,320) $(2,736,792) $(929,778) $(1,010,450)
=============== =============== ============= ===============
Net Loss Per Share .......................... $ (1.16) $ (1.55) $ (.54) $ (.50)
=============== =============== ============= ===============
Supplemental Pro Forma Net Loss(1) .......... $(2,670,192) $ (977,150)
=============== ===============
Supplemental Pro Forma Net Loss Per Share(1) $ (1.40) $ (.37)
=============== ===============
</TABLE>
- -------------
(1) The supplemental pro forma net loss and net loss per share reflect the
issuance of shares necessary to repay certain indebtedness and the
related reduction in interest expense and the net loss. See Note A of
Notes to the Financial Statements.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
--------------- --------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA
Total Assets .................. $ 1,245,314 $ 1,562,271 $ 2,340,899
Total Liabilities ............. 1,064,007 3,306,311 3,265,616
Common Stock & Paid-in Capital 2,443,006 3,254,451 5,084,224
Accumulated Deficit ........... (2,261,699) (4,998,491) (6,008,941)
Stockholders' Equity (deficit) $ (181,307) $(1,744,040) $ (924,717)
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise indicated, all dollar amounts included in this section of
the Prospectus have been rounded to the nearest thousand.
OVERVIEW
The Company was organized in 1991 to commercialize new consumer products
in the health and personal care industry. For the period from inception
though December 31, 1993, the Company was in a development stage and
accumulated a deficit of $572,000, attributable to developing manufacturing
and marketing plans and paying the cost of professional services. The Company
sells ophthalmic drug solutions in an ophthalmic delivery system in the
non-prescription eye drop market. The Company believes that a similar
delivery system has not been and is not now being marketed by any other
entity. The products sold with the delivery system are the Company's sterile
eye drops in a line of two OTC formulations. The following table sets forth,
for the periods indicated, a review of certain items included in the
Company's statement of operations. Amounts are in thousands (000's).
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED SIX MONTHS ENDED
------------------------ ----------------------
12/31/94 12/31/95 6/30/95 6/30/96
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales ................. $ 97 $ 687 $ 200 $ 734
Costs & Expenses
Cost of Goods Sold ....... 140 545 160 444
Selling & Marketing ..... 676 1,784 462 639
General & Administrative 948 964 467 484
Other Expenses ........... 22 130 41 177
Net Loss .................. $(1,689) $(2,736) $(930) $(1,010)
</TABLE>
In late 1994, the Company began limited marketing of two OTC eye drop
products in the Ocurest Delivery System. In late 1995, the Company expanded
its marketing efforts to ten southern states. In early 1996, the Company
began the process of expanding its brand nationally. For the years ended
December 31, 1994 and 1995, the Company had net losses of $1,689,000 and
$2,737,000, respectively, on net sales of $97,000 in 1994 and $687,000 in
1995. Net sales for the six months ended June 30, 1996 were approximately
$734,000 compared with $200,000 for the six months ended June 30, 1995 and,
during such periods, the respective net losses were approximately $1,010,000
and $930,000. While the Company continues its national expansion of its
product line, the Company anticipates that its operations will result in
continuing losses for a minimum of six months following the completion of the
Offering. There can be no assurance that the Company will ever be profitable.
COST OF GOODS SOLD
Cost of goods sold was 144% of net sales in 1994 and 79% of net sales in
1995. The increase of $405,000 in cost of goods sold in 1995 is primarily
attributable to twelve months' of sales in 1995 as compared to six months' of
sales in 1994. For the six months ended June 30, 1996, cost of goods sold was
60% of net sales as compared with 79% of net sales for the six months ended
June 30, 1995. The decrease was primarily attributable to lower per unit
production costs because of an increase in sales of $534,000 during the
latter period. The Company anticipates that product costs and expenses will
continue to decline as a percentage of net sales if the Company gains larger
national distribution.
SELLING AND MARKETING EXPENSES
The Company believes that consumer demand for its products can be
generated through advertising and sales promotion. As a result, the Company
intends to expend substantial amounts of funds in advertising and sales
promotion in 1996 and future years. Selling and marketing expenses in 1994
and 1995 reflect start-up costs associated with the introduction of the
Company's products in Florida, the Company's lead market. Spot TV and
magazine advertising are primarily attributable for
18
<PAGE>
the year to year increase of $1,108,000. The Company also continued to incur
marketing and advertising research costs in 1995 as it monitored the Florida
market. Distribution costs increased in 1995 as sales expanded nationally
from Florida. For the six months ended June 30, 1996 selling and marketing
expenses of $639,000 represented 87% of net sales as compared with $462,000
and 231%, respectively, for the six months ended June 30, 1995. The
percentage decrease was primarily attributable to a substantial reduction in
advertising expenditures per sales dollar due to unavailability of funds.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses include professional services and
administrative expenses associated with legal, accounting and consulting fees
and other expenses incurred in raising capital to finance operations. Such
expenses also include support services for three full time employees and the
related compensation and benefits cost.
General and administrative expenses for 1995 were $964,000 as compared to
$948,000 in 1994 and for the six months ended June 30, 1996, general and
administrative expenses were $485,000 as compared to $467,000 for the same
period in 1995. The Company believes general and administrative expenses will
be substantially higher for the balance of 1996 and all of 1997 as the
Company hires additional personnel necessary to provide the infrastructure to
support the Company's planned continued national distribution of the
Company's product line.
DEPRECIATION
The increase in depreciation reflects the Company's increased investment
in molds, plates, dies and packaging and filling equipment.
INTEREST EXPENSE
Interest expense was nominal through December 1994 as the Company relied
heavily on equity investments to fund operations. Interest expense increased
for 1995 and the first six months of 1996 because the Company increased its
indebtedness as discussed below under "Liquidity and Capital Resources."
Interest expense for the six months ended June 30, 1996 was $148,000.
Management estimates the interest expense for 1996 will be substantially
higher due to increased indebtedness and higher rates of interest.
The Company obtained various loans in 1995 and 1996 and in August 1995 the
Company entered into a factoring and financing agreement to sell its accounts
receivable and its finished goods inventory. The factor has agreed not to
terminate its present arrangements with the Company prior to December 1997. The
Company intends to renegotiate the terms of the factoring arrangements shortly
after its receipt of the net proceeds of the Offering. In the event that the
Company is not able to negotiate more favorable terms, the Company will seek to
obtain financing from other sources, including other factors. There can be no
assurance that the Company will be successful in renegotiating the terms of its
factoring arrangements or secure financing from any other source on terms not
unfavorable to the Company or at all. Certain indebtedness, including accrued
interest thereon, will be repaid from the net proceeds of the Offering. See "Use
of Proceeds."
RESEARCH AND PRODUCT DEVELOPMENT
At such time as the Company deems necessary, the Company intends to make
expenditures for product research and development, including testing and, if
necessary, technical modification to the Ocurest Delivery System. As new
formulas become available to the Company, the Company intends to conduct
appropriate testing.
LIQUIDITY AND CAPITAL RESOURCES
The Company's need for funds has increased from period to period as it has
incurred expenses for, among other things, test marketing, market and
advertising research, engineering and design of manufacturing systems,
applications for domestic and international patent protection and domestic
trademark protection. Since inception, the Company has funded these needs
primarily through private placements of its equity.
19
<PAGE>
On June 30, 1996, the Company was delinquent in the payment of certain of
its indebtedness including promissory notes issued by the Company in the
aggregate amount of $250,000. The Company intends to repay such promissory
notes and accrued interest thereon from the net proceeds of the Offering. See
"Use of Proceeds."
The Company's working capital and capital requirements will depend on
numerous factors, including growth, if any, of the Company's sales. The Company
currently has a factoring and financing agreement pursuant to which the Company
sells its accounts receivable and finished goods inventory, subject to the right
of the Company to repurchase such accounts receivable and inventory, and pledges
its machinery and equipment to secure a loan. In addition to interest and fees,
the financing agreement requires the Company to pay the factor a management fee
of $5,000 per month. Such agreement may be terminated by the Company at any time
or by the factor commencing in December 1997. In the event that the Company is
not able to negotiate more favorable terms, the Company will seek to obtain
financing from other sources, including other factors. There can be no assurance
that the Company will be successful in renegotiating the terms of its factoring
arrangements or secure financing from any other source on terms not unfavorable
to the Company or at all. The Company has recently borrowed $200,000 from Robert
M. Kassenbrock. See "Certain Relationships and Transactions."
Finished goods inventory increased by $281,000 (56%) at June 30, 1996 as
compared to finished goods inventory at December 31, 1995. The increase was a
result of the Company's planned national marketing program for its product line
with television and magazine advertising which it had scheduled to begin in
national media in June 1996 but did not begin until October 1996. The Company
now intends to commence such program in October 1996. It is the Company's policy
to maintain levels of finished goods inventory sufficient to meet sixty days' of
anticipated sales. The Company believes that such policy is consistent with
industry practice. The Company's products bear an expiration date of two years
from the date of manufacture.
The Company has invested $1,051,000 in property and equipment through June
30, 1996. The equipment is specifically suited to the manufacture and
packaging of the Company products. Ownership of the machinery and equipment
allows the Company to directly affect production costs. The Company has
contractual obligations for the acquisition of additional machinery and
equipment amounting to $433,000 to be paid from the net proceeds of the
Offering. The Company believes that the financial resources available to it,
including the net proceeds from the Offering, will be sufficient to finance
its planned operations for at least one year.
The Company believes that the level of financial resources available to it
is an important factor in its ability to achieve the marketing and
distribution objectives for its products as well as in its ability to compete
effectively. Consequently, the Company may seek to raise additional capital
through public or private equity or debt financing in the future. The Company
has made no arrangements to obtain such additional capital and there can be
no assurance that any additional capital will be available to the Company on
terms not unfavorable to the Company, if at all.
The Company's net operating losses for income tax purposes are subject to
certain restrictions on their utilization. The Company has experienced in
1994, and will experience in 1996, changes in ownership under Internal
Revenue Service regulations that will limit the amount of net operating
losses that can be utilized in any given year. If the Company's future
pre-tax profits (if any) in any given year exceed such limitation, cash
payments for such income tax liabilities will have to be made. See Note I of
Notes to Financial Statements.
20
<PAGE>
BUSINESS
GENERAL
Ocurest Laboratories, Inc. (the "Company") is a marketing company
organized to develop and commercialize new health and personal care products
for the consumer market. The Company's products consist of two
Ocurest/registered trademark/ eye care products utilizing a patented delivery
system for dispensing ophthalmic drug solutions into the eye (the "Ocurest
Delivery System").
The Company acquired the exclusive worldwide licensing rights to the
Ocurest Delivery System from Acorn, a then affiliate of the Company. After
three years of product development, the Company began limited marketing in
late 1994 of two over-the-counter ("OTC") eye drop products packaged in the
delivery system. See "Business--Patents and Trademarks" and "Certain
Relationships and Transactions."
The Company's initial product development related primarily to
improvements in the Ocurest Delivery System and the development of prototype
models, development of a protocol for testing the stability of product
formulations, and development of various production techniques and operating
standards.
The Company's products consist of Ocurest Redness Reliever Lubricant and
Ocurest Tears Formula Lubricant (collectively, "Ocurest Eye Drops"). Ocurest
Eye Drops utilize ophthalmic drug formulations owned by Bausch & Lomb and are
manufactured under a supply agreement with Bausch & Lomb at its
pharmaceutical facility in Tampa, Florida. The Company owns the molds used to
produce parts for the Ocurest Delivery System and the manufacturing equipment
which Bausch & Lomb operates to produce all Ocurest eye care products.
The management of the Company believes that almost all of the worldwide
sales of ophthalmic drug solutions are sold in generic eyedropper dispensers
which can be difficult and messy to use. The Ocurest Delivery System was
designed to rest on the bridge of the nose, thereby stabilizing the dropper
tip directly above the eye so that drops can be applied directly into the
eye, accurately and with no spillage.
The OTC eye care products manufactured for the Company by Bausch & Lomb
contain active ingredients as to which Bausch & Lomb has advised the Company
are recognized as safe and effective by the FDA. Ocurest Redness Reliever
Lubricant contains the same active ingredients as Visine Moisturizing, a
redness reliever lubricant brand, and Ocurest Tears Formula Lubricant
contains the same active ingredient as Tears Naturale, an artificial tears
brand.
Certain aspects of the Ocurest Delivery System are covered by a U. S.
utility patent issued in March 1990 and the shape of the Ocurest Delivery
System is covered by a U.S. design trademark registration issued in July 1995
and a design patent issued in September 1991, all of which have been licensed
to the Company. The Company is also the licensee of patents issued or pending
in a number of other countries.
Ocurest Eye Drops were introduced in Florida with television and magazine
advertising starting in September 1994. In mid-1995, the marketing of Ocurest
Eye Drops was expanded to ten additional southern states with television
advertising starting in July 1995 in the Southeast and September 1995 in the
Southwest.
The Company believes the initial consumer response to Ocurest Eye Drops has
been encouraging and the Company has a planned national marketing program
underway for its product line with television advertising which began in October
1996. As of the date of this Prospectus, retail chains such as Wal-Mart, Target,
Kmart, Walgreens, Revco, Rite Aid, Eckerd, CVS, Osco, Sav-on, Kroger,
Winn-Dixie, Albertson's, A&P, Publix, Grand Union, Pathmark, Stop & Shop, Giant
Food and Fred Meyer
21
<PAGE>
have ordered Ocurest Eye Drops for retail distribution. The Company intends to
utilize a substantial portion of the net proceeds of the Offering for
advertising and promotion expenses in support of the national marketing of
Ocurest Eye Drops.
In the future, the Company plans to extend marketing of the Ocurest
Delivery System into the prescription drug market. In 1995 the Company
granted Bausch & Lomb an option for an exclusive license to market
prescription ("Rx") ophthalmic drug products in the Ocurest Delivery System.
Bausch & Lomb did not exercise the option prior to its expiration and the
Company extended the option until December 31, 1996 for no additional
consideration. See "Business--Rx Marketing."
The Company has utilized a factor for the financing of its accounts
receivable and inventory. The Company intends to terminate the factoring
arrangements shortly after its receipt of the net proceeds of the Offering. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note G of Notes to Financial Statements.
OCUREST DELIVERY SYSTEM
The management of the Company believes that conventional eyedropper
dispensers for OTC and Rx ophthalmic drug solutions are cumbersome devices
that are not easy to use. Because it is often hard to keep an eyedropper
dispenser centered above the eye, it is often difficult to apply drops
directly into the eye and, consequently, the solution often misses the eye
and runs down the cheek of the user. In addition to being messy, drops that
miss the eye in this manner raise a potential drug compliance problem, since
consumers may under-medicate when the prescribed number of drops are not
applied (or over-medicate if too many drops are applied to compensate for
those that miss the eye).
The Ocurest Delivery System was designed to attempt to solve the in-use
problems the management of the Company believes are associated with existing
eyedropper dispensers. The Company believes that the Ocurest Delivery System
is an alternative to conventional eyedropper devices. The Ocurest Delivery
System is shaped like an egg which enables the user to rest it on the bridge
of the nose and angle it 45/degree/ inward toward the eye. In this position,
the dropper tip is stabilized and centered directly above the eye and should
make it easier for the user to apply drops with no messy spillage or waste.
In addition, the Company believes that accurate drug compliance is more
likely to be achieved with the Ocurest Delivery System because it has been
designed to permit metered application of one drop at a time directly into
the eye.
The Ocurest Delivery System is a molded three-piece plastic assembly which
is designed to contain and dispense a maximum of 0.5 fluid ounce of any
liquid ophthalmic drug solution. The three parts consist of a squeeze-bottom
container that holds the solution, a snap-on dropper tip shield that seals
the container to form a unitized dispenser and a single-thread screw-on cap
to protect the contents. All of the parts are made from resins that are
approved by the FDA for pharmaceutical packaging.
OCUREST OTC PRODUCTS
The Company markets two OTC formulations in the Ocurest Delivery System,
consisting of a redness reliever lubricant and an artificial tears lubricant.
The Company's current products consist of Ocurest Redness Reliever Lubricant
and Ocurest Tears Formula Lubricant, both of which use formulations that are
manufactured and owned by Bausch & Lomb. In the future, the Company intends
to expand its product line with the national introduction of two additional
OTC formulations, Ocurest Allergy Relief Formula and Ocurest Lens Rewetting
Agent, that it is planned will use formulations manufactured, but not
necessarily owned, by Bausch & Lomb. There can be no assurance that the
Company will expand its product line or that the Company's existing or
proposed products can be marketed profitably.
The Company's eye care products are packaged in tamper-resistant cartons
that prominently feature the Ocurest brand name and a picture of the product
being used on the front carton panel. The cartons also feature a riser card
that prominently displays a side-by-side comparison of a competitive
dispenser next to the Ocurest Delivery System, accompanied by the following
message:
22
<PAGE>
"Nobody likes pointy things near their eyes. That's why you may find
pointy eyedroppers difficult to use. Ocurest's new egg-shaped dispenser puts
an end to hit-or-miss, pointy-tip eyedroppers. Just rest it comfortably
across the bridge of your nose. The Ocurest dispenser puts the drops where
you want them. In your eye...not down your cheek."
Each of the Company's eye care products is a sterile, buffered, isotonic
solution formulated to match the natural fluid in the eye. Each formula
contains ingredients generally recognized as safe and effective by the FDA as
published in the Final Monograph for Ophthalmic Drug Products, March 4, 1988.
Ocurest Redness Reliever Lubricant contains tetrahydrozoline Hcl, a
decongestant that relieves redness of the eye, and polyethylene glycol 400, a
demulcent that relieves and protects the eye from minor irritation. The
active ingredients in Ocurest Redness Reliever Lubricant are the same as
those used in the formulations of certain major eye drop manufacturers.
Ocurest Tears Formula Lubricant contains hydroxypropyl methylcellulose, an
active ingredient that moisturizes the eye to relieve dry-eye syndrome and
relieve and protect the eye from minor irritation. The active ingredient in
Ocurest Tears Formula Lubricant is the same as that used in the formulations
of certain major eye drop manufacturers. Although the Company believes that
its products are as effective for their intended purposes as those presently
marketed by the Company's competitors, the successful marketing of its
products is dependent upon widespread acceptance of the Ocurest Delivery
System. There can be no assurance of such acceptance or that any such
potential competitor or others will not develop products or dispensers that
are superior to or are perceived to be superior to or can be manufactured and
sold a at lower cost than those of the Company.
Ocurest Eye Drops were introduced in Florida with the start of advertising
in September 1994. This in-market test was supported by two 13-week flights
of television commercials in 10 TV markets, magazine advertisements in
selected consumer publications and distribution of coupons on three separate
occasions.
Based on market research conducted by the Company, certain adjustments
were made in the Ocurest marketing program, primarily in the areas of
television commercial production, advertising media selection and pricing.
These adjustments were incorporated in the marketing program used to launch
Ocurest Eye Drops in ten additional southern states in mid-1995 and that are
now incorporated in the marketing program being used to launch Ocurest eye
care products nationally.
MANUFACTURING PLAN
OCUREST DELIVERY SYSTEM--The Company utilizes Wheaton Plastic Products,
Inc. ("Wheaton"), a manufacturer of pharmaceutical packaging, to produce all
parts for the Ocurest Delivery System. The Company has agreed to purchase all
of its parts exclusively from Wheaton and Wheaton has agreed to fulfill the
Company's supply requirements at agreed upon prices for each component. Such
prices will be adjusted for price changes in raw materials and other actual
cost increases. The agreement with Wheaton terminates on December 31, 1998
and is subject to the Company's commitment to pay for certain molds and mold
upgrades. The Company believes that if the need arises, the Company can
obtain parts for the Ocurest Delivery System in quantities necessary to
satisfy the Company's needs on terms and conditions not unfavorable to the
Company from other sources.
CONTRACT MANUFACTURING--Parts for the Ocurest Delivery System are
assembled at the time Ocurest eye care products are formulated, filled and
packaged under contract by Bausch & Lomb at its pharmaceutical manufacturing
facility in Tampa, Florida. The Company has purchased, at a cost of
approximately $526,000, specially designed equipment consisting of a
dispenser parts unscrambler, 80-per-minute sterile filling and capping
machine and a dual-head pressure sensitive labeler. In 1994, the equipment
was installed and validated on behalf of the Company at Bausch & Lomb's
manufacturing facility in Tampa where it is maintained and operated
exclusively in the manufacture of eye care
23
<PAGE>
products in the Ocurest Delivery System. The Company is identified on its
product labels as the distributor of the products. Bausch & Lomb is not
identified.
The Company plans to utilize approximately $433,000 of the net proceeds of
the Offering for additional equipment for its packaging line at the Bausch &
Lomb manufacturing facility and to make final payment on certain multi-cavity
molds. Dependent upon the availability to the Company of an additional amount of
$240.00. The Company's packaging line will be improved to consist of an
automatic neck bander, 100 per minute cartoner, tamper-evident tab sealer,
automatic collator and shrink wrapper and automatic case sealer, at which time
Bausch & Lomb will have the capacity to manufacture approximately 16 million
units a year of eye care products produced in the Ocurest Delivery System. There
can be no assurance that such funds will become available to the Company on
terms not unfavorable to the Company or at all. In 1994, the Company entered
into a Contract Supply Agreement with Bausch & Lomb (the "Supply Agreement")
pursuant to which Bausch & Lomb agreed to manufacture the Company's OTC
ophthalmic drug solutions in accordance with the Company's manufacturing
specifications. The Supply Agreement runs for a period of five years, although
either party may terminate the Supply Agreement on one year's notice. The
Company believes that if Bausch & Lomb were to terminate the Supply Agreement or
not agree to renew the Supply Agreement, other contract manufacturers will be
available to manufacture the Company's eye care products on substantially
similar terms, although there can be no assurance of the foregoing. In any such
event, however, the Company could incur a significant delay in the production of
its products. The Supply Agreement provides for minimum annual purchases by the
Company ranging from 500,000 to 4,000,000 units during the five year term at
designated prices which increase approximately 4% per annum in addition to any
actual cost increases incurred by Bausch & Lomb in excess of the annual
percentage increases. As of the date of this Prospectus, the Company is in
compliance with the purchase requirements. If the Company fails to so comply
with such requirements and such failure is not cured during the following six
months, Bausch & Lomb may terminate the Supply Agreement as of the immediately
succeeding March 31.
WAREHOUSING AND SHIPPING--The Company uses a bonded public warehouse in
Lakeland, Florida, to store its finished goods inventory, fill customer
orders and arrange for shipment by United Parcel Service or other carriers.
The Company believes that, should the need arise, other bonded public
warehouses will be readily available on terms not unfavorable to the Company.
NATIONAL MARKETING PLAN
OTC SELLING AND DISTRIBUTION--The Company began marketing its products to
most of its wholesalers and retailers on a national basis in early 1996 in
anticipation of the start of national advertising. The Company believes that
trade acceptance has been encouraging as indicated by the retailers who have
purchased Ocurest Eye Drops for chainwide distribution, including such chains
as Wal-Mart, Target, Kmart, Walgreens, Revco, Rite Aid, Eckerd, CVS, Osco,
Sav-on, Kroger, Winn-Dixie, Albertson's, A&P, Publix, Grand Union, Pathmark,
Stop & Shop, Giant Food, and Fred Meyer.
The Company sells its products through manufacturer representatives who
call on wholesalers and retail chain customers. These customers represent
drug stores, supermarkets and mass merchants. The balance of annual market
sales are transacted through small grocery stores, convenience stores,
wholesale clubs, military exchanges and optical centers.
The Company distributes its OTC eye care products at trade selling prices
that the Company believes are competitive with the leading brands in the
redness reliever and artificial tears segments of the OTC eye drop market.
The Company believes that its selling and distribution policies are also
competitive with those of other companies in the industry relating to credit
terms, shipping terms, returned and damaged goods and co-operative
promotional programs.
OTC ADVERTISING AND PROMOTION--It is planned that the Company's national
advertising will consist primarily of TV commercials that convey the Ocurest
message in 30, 15 and 10 second lengths. In October 1996, the Company began to
place its TV advertising in programs that the
24
<PAGE>
Company believes reach heavy users of OTC eye drops, skewed toward men and women
50 and under in the case of redness reliever users and women over 50 with
respect to artificial tears. It is planned that the Company's introductory TV
campaign will be reinforced by the use of magazine advertisements in selected
publications that the Company believes will reach heavy eye drop users
effectively. The Company also plans to promote its product line periodically via
the use of coupons distributed in magazine advertisements and free-standing
Sunday newspaper inserts.
RX MARKETING--In 1995, the Company granted Bausch & Lomb an option for an
exclusive license to market Rx ophthalmic drug products in the Ocurest
Delivery System. Bausch & Lomb paid the Company $10,000 for the option which
expired on December 31, 1995. The Company subsequently extended the option
until December 31, 1996 for no further consideration. Bausch & Lomb requested
the extension to allow sufficient time for Bausch & Lomb to evaluate the
potential for marketing selected ophthalmic pharmaceutical products utilizing
the Ocurest Delivery System. In the event Bausch & Lomb exercises its option
to license the Ocurest Delivery System for the domestic market, the parties
have agreed in principal to the structure of royalty payments that will be
made to the Company on Rx products marketed in the Ocurest Delivery System.
There can be no assurance that Bausch & Lomb or any other entity will seek to
utilize the Ocurest Delivery system for Rx preparations.
PRODUCT LIABILITY AND INSURANCE
Users of the Company's products could suffer, or claim to suffer, adverse
effects from the Company's products. The Company carries product liability
insurance of $2 million and, in addition, Bausch & Lomb has agreed to name
the Company as an insured on the product liability insurance policy of Bausch
& Lomb. Such insurance, however, will be subject to deductibles payable by
the Company, and it is possible that it may not apply to or be adequate to
cover all claims. There can be no assurance that any such insurance acquired
directly by the Company will not become prohibitively expensive or otherwise
be unavailable to the Company. Any recovery by a claimant in excess of the
product liability insurance limits could have a material adverse affect on
the Company.
PATENTS AND TRADEMARKS
In October 1991, pursuant to an agreement between the Company and Acorn,
as subsequently amended (the "Acorn Agreement"), Acorn granted to the Company
the exclusive worldwide license to make, use and sell eye drop solutions
contained in the Ocurest Delivery System and claimed in a United States
utility patent held by Acorn (the "Acorn Patent") and certain foreign patents
and patent applications. The Acorn Patent relates to a generally egg-shaped
eye drop dispenser with a nozzle on top of a squeezable hollow body with a
smooth, generally dome-shaped top surface substantially surrounding the
nozzle. The Company is responsible for the prosecution and protection of the
intellectual property licensed to it under the Acorn Agreement, including all
legal fees and other expenses that may be incurred in connection with any
litigation concerning patent or trademark infringement.
Certain aspects of the Ocurest Delivery System are covered in the United
States by utility patent 4,909,801 issued in March 1990 and design patent
D320,083 issued in September 1991 which will remain in force until 2007 and
2005, respectively. The shape of the Ocurest Delivery System represents a
trade dress which is also covered in the United States by a trademark
registration issued in July 1995 that is effective for ten years and is
renewable for successive ten year periods for as long as the mark is in use.
Patents corresponding to the United States utility patent have either
eventuated or are pending in a number of foreign countries.
Under the Acorn Agreement, Acorn also assigned to the Company its rights
in the United States and throughout the rest of the world for the trademark
and trade name "Ocurest." The "Ocurest" trademark was registered in the
United States in June 1988. The registration is effective for ten years and
is renewable for successive ten year periods for as long as the mark is in
use. The Company has no trademark registrations in foreign countries.
25
<PAGE>
Pursuant to the Acorn Agreement, the Company has paid $200,000 to Acorn to
acquire the worldwide licensing rights to the patents and trademarks and has
agreed to pay royalties with respect to ophthalmic solutions packaged in the
Ocurest Dispenser of (a) 4% of (i) net sales of eye drops sold by the Company
in the Ocurest Delivery System; (ii) royalties received by the Company from
sales by others of Rx products; and (iii) the proceeds of licensing and
similar arrangements received by the Company from licensing or similar
arrangements in connection with Rx products and (b) 25% of (i) royalties
received by the Company with respect to sales by others of OTC eye drops in
the Ocurest Delivery System and (ii) the proceeds of any licensing or similar
arrangements received by the Company in connection with OTC products.
Furthermore, in the event that the Company disposes of all or substantially
all of its business including the licenses granted pursuant to the Acorn
Agreement, other than through one or more licenses, the Company must pay to
Acorn the greater of $1,250,000 or 10% of the gross proceeds of such
disposition, in which case the Company shall have no further obligation to
Acorn. Other than as set forth in the preceding sentence, the Company's
obligation to Acorn will terminate upon the payment to Acorn of an aggregate
of $10,000,000
Acorn has agreed to permit the Company to defer accrued royalty payments
until such time, if any, as the Company realizes net income of at least
$1,000,000 during any four consecutive calendar quarters. The Company is also
permitted to defer 66.7% of accrued royalty payments and 33.3% of accrued
royalty payments until such time, if any, as the Company realizes net income
of at least $1,000,000 and less than $3,000,000 or at least $3,000,000 and
less than $5,000,000, respectively, during any four consecutive calendar
quarters. Notwithstanding the foregoing, the Company is required to pay Acorn
$4,000 per month as advances against accrued and deferred royalties (the
"Acorn Advances").
The Acorn Agreement further provides that the licenses granted under the
Acorn Agreement shall terminate and the Company shall have no further
interest therein upon the (a) filing by the Company of a voluntary petition
of bankruptcy; (b) filing of an involuntary petition of bankruptcy against
the Company provided that such petition is not discharged within 45 days of
the filing thereof; (c) appointment of a receiver or a trustee for all or
substantially all of the assets of the Company; (d) general assignment by the
Company of its assets for the benefit of its creditors; (e) payments due to
Acorn under the Acorn Agreement remaining unpaid subsequent to an applicable
grace period of 45 or 120 days, as the case may be or (f) default by the
Company or its successor or licensees in the performance of any other
material obligation under the Acorn Agreement, which obligation primarily
relates to the Company's requirement to protect the patents and trademarks,
including bearing of the cost thereof, and any such default remains uncured
subsequent to a grace period of 120 days. In the event that the licenses
granted by Acorn are so terminated, investors can expect to lose their entire
investment in the Company.
In order for the Company to protect any of its patents and trademarks, the
Company must identify, contain and prosecute infringement by others. Such
efforts would entail substantial legal and other costs. There can be no
assurance that under such circumstances that the Company would have the
necessary financial resources to prosecute any such infringement.
Acorn has assigned 25% and 15% of its rights to receive royalties from the
Company to the Company's President and Senior Vice President, respectively.
See "Certain Relationships and Transactions."
GOVERNMENTAL REGULATION
OTC ophthalmic drugs are generally recognized as safe and effective, and
not misbranded, if they meet certain conditions set forth by the FDA as
published in the Final Monograph for Ophthalmic Drug Products, March 4, 1988
with regard to active and inactive ingredients, dosage, permitted
combinations of ingredients and labeling, including statement of identity,
indications, warnings and directions for use. Ophthalmic drugs must be
manufactured in accordance with the FDA's Good Manufacturing Practice ("GMP")
regulations. If all of the requirements are met, the formulation may be
marketed without obtaining any specific FDA approval. The Company believes
that compliance with such requirements will not materially adversely affect
the Company's OTC ophthalmic drug business.
26
<PAGE>
No specific FDA approval is necessary for the Ocurest Delivery System if
the dispenser and its contents meet GMP requirements. The requirements
include regulations to the effect that the Ocurest Delivery System be tested
to show that it is not reactive, additive or absorptive, that stability and
sterility is suitable for the product, that appropriate testing procedures
are developed and followed and that the manufacturing establishment and the
ophthalmic drug products being manufactured are registered with the FDA. The
Company believes that Ocurest Eye Drops packaged in the Ocurest Delivery
System are in compliance with the foregoing.
DEPENDENCY UPON SIGNIFICANT CUSTOMERS
In 1995, three customers accounted for approximately 43%, 13% and 11% of
the Company's net sales, respectively. During the six months ended June 30,
1996, four customers accounted for approximately 13%, 11%, 10% and 9% of the
Company's net sales, respectively. The loss of any of such customers would
have a material adverse effect upon the Company. In the event that the
Company is not successful in marketing its OTC products, investors can expect
to lose their entire investment in the Company. There can be no assurance
that the Company will ever be able to operate profitably. See Note L of Notes
of Financial Statement.
COMPETITION
The Company competes with large and well financed manufacturers of
ophthalmic drugs, all of which have substantially greater resources than does
the Company. The Company's principal competitors are Allergan, Inc., Alcon
Laboratories, Inc., Bausch & Lomb, CibaVision, Inc., Ross Laboratories, Inc.
and Pfizer, Inc. Such companies accounted for approximately 89% of the volume
of OTC eye drop retail sales in the United States in 1995 according to
Information Resources, Inc. These competitors produce such brands as Visine,
Murine Plus and Clear Eyes in the redness reliever segment of the OTC market
and Tears Naturale, Hypotears, Refresh and Moisture Drops in the artificial
tears segment. Because the Company's eye drop formulations contain the same
or similar active ingredients as those used in certain currently available
nationally distributed eye drops, the Company expects to compete primarily on
the basis of the Ocurest Delivery System.
PROPERTY
The Company leases office space in Palm Beach Gardens, Florida. The
Company does not consider such office space material to its business. The
Company believes that other suitable office space is readily available on
terms not unfavorable to the Company.
EMPLOYEES
The Company has four full-time employees, inclusive of its three executive
officers.
27
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company. Each director holds such
position until the next annual meeting of the Company's shareholders and
until his respective successor has been elected and qualifies. Any of the
Company's directors may be removed with or without cause at any time by the
vote of the holders of not less than a majority of the Company's then
outstanding Common Stock. Other than as otherwise provided in an employment
agreement, officers are elected annually by the Board of Directors. Any of
the Company's officers may be removed with or without cause at any time by
the Company's Board of Directors although, in such event, the Company may
incur certain liabilities under an applicable employment agreement.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C> <C>
Edmund G. Vimond, Jr. . 61 Chairman of the Board of Directors, President,
Chief Executive Officer and Director
John F. Carlson ....... 57 Senior Vice President, Chief Financial Officer,
Treasurer and Director
Larry M. Reid ......... 51 Senior Vice President, Chief Administrative Officer,
Secretary and Director
Ralph H. Laffler ...... 76 Director
Robert S. Marker ...... 74 Director
Fred E. Ahlbin ........ 83 Director
</TABLE>
Edmund G. Vimond, Jr., a co-founder of the Company, has been the President
and Chief Executive Officer of the Company since April 1991 and Chairman of
the Board of Directors since September 1994. From 1983 until 1994, Mr. Vimond
was the principal of Edmund Vimond Associates, a business development and
acquisition consulting firm. Mr. Vimond has a marketing and general
management background in the consumer products industry, including previous
positions as President of the Consumer Products Division at Warner-Lambert
Company; Group Vice President of the Domestic Operating Company at Johnson &
Johnson; Group Vice President for Worldwide Consumer Products of American
Cyanamid Company; and President and Chief Executive Officer of R. J. Reynolds
International Tobacco.
John F. Carlson has been a Senior Vice President and the Chief Financial
Officer, the Treasurer and a director of the Company since July 1, 1996. Mr.
Carlson has held management positions in the automotive accessories
industries as President and Chief Executive Officer of Allied Plastics, Inc.
("Allied") from November 1992 to January 1995 and from June 1995 until
joining the Company as General Manager of InterScept Products Corporation. In
April, 1995, Allied filed a petition seeking protection under Chapter 11 of
the Bankruptcy Act. From 1986 to March 1992, Mr. Carlson was the President
and Chief Executive Officer of JWT & Associates, a financial consultant. From
1964 through 1986, Mr. Carlson held senior financial positions with Polygram
Records, Inc., Viacom International, Inc., Worldwide Consumer Products Group
of American Cyanamid Co. and The Mennen Company. In 1989, Mr. Carlson filed a
petition for bankruptcy under Chapter 7 of the Bankruptcy Act. Mr. Carlson is
a member of the Board of Directors of Repro-Med Systems, Inc., a medical
specialties company, the securities of which are publicly traded.
Larry M. Reid, a co-founder of the Company, has been a Senior Vice
President of the Company since July 1, 1996 and the Company's Secretary and a
director of the Company since May 1991. From May 1991 to July 1996, Mr. Reid
was the Company's Executive Vice President, Treasurer and Chief Financial
Officer. Prior thereto, Mr. Reid was a financial consultant.
28
<PAGE>
Fred E. Ahlbin has been a director of the Company since January 1996 and
is the Chairman of the Company's Compensation Committee, Mr. Ahlbin is the
former co-owner and principal of two New England manufacturing companies,
John Ahlbin & Sons and Powerwinch Corporation. Mr. Ahlbin has been retired
since 1976. Mr. Ahlbin currently is Chairman of the Board of Trustees of the
Jupiter Medical Center Foundation and a Trustee of the Jupiter Medical
Center, positions he has held since 1990.
Ralph H. Laffler has been a director of the Company since July 1994 and is
Chairman of the Company's Audit Committee and since April 1979 has been the
Chief Executive Officer of Graphics Illustrated, Inc., a company founded and
owned by Mr. Laffler which is engaged in printing, graphic design, marketing
and digital communications. Mr. Laffler has spent his entire career in the
graphics industry.
Robert S. Marker has been a director of the Company since April 1994 and
is a member of the Company's Compensation Committee. From 1970 to 1975, Mr.
Marker was the Chairman of the Board of Directors and Chief Executive Officer
of McCann-Erickson Worldwide, Inc., an advertising agency. Since 1983, Mr.
Marker has been an advertising management consultant.
Ralph H. Laffler is a member of the Audit Committee, Fred E. Ahlbin and
Robert S. Marker are members of the Compensation Committee and Robert Marker
is a member of the Nominating Committee of the Board of Directors of the
Company. There are no family relationships among any of the officers or
directors of the Company.
EXECUTIVE COMPENSATION
The following table (the "Summary Table") sets forth certain information
with respect to all compensation paid by the Company during the years
indicated to (i) the Company's chief executive officer and (ii) the Company's
four most highly compensated executive officers other than the chief
executive officer who served as such on December 31, 1995 and whose total
annual salary exceeded $100,000 (the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------------
SHARES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY OPTIONS GRANTED
- ----------------------------- ------- ----------- ------------------
<S> <C> <C> <C>
Edmund G. Vimond, Jr. 1995 $150,000 31,250
Chief Executive Officer 1994 100,000 -0-
1993 -0- 12,500
Larry M. Reid, 1995 $115,000 23,438
Executive Vice President and 1994 76,800 -0-
Chief Financial Officer 1993 29,000 6,250
</TABLE>
During 1993, 1994 and 1995, no other compensation not otherwise referred
to herein was paid or awarded by the Company to the Named Officers, the
aggregate amount of which compensation, with respect to any such person,
exceeded the lesser of $50,000 or 10% of the annual salary reported in the
Summary Compensation Table for such person.
Each of the Named Officers has accepted shares of common stock as payment
for a portion of the Company's cash indebtedness to him arising from unpaid
salary. The value of such shares has been included as salary in the Summary
Compensation table. See "Certain Relationships and Transactions." Neither of
the Named Officers received any bonus during the three years referred to in
the table.
29
<PAGE>
The following table sets forth certain information with respect to
individual grants of options to each of the Named Officers during the fiscal
year ended December 31, 1995:
<TABLE>
<CAPTION>
PERCENT
OF TOTAL
NUMBER OF OPTIONS
SHARES GRANTED TO
UNDERLYING EMPLOYEES
NAME OPTIONS FISCAL YEAR EXERCISE PRICE EXPIRATION DATE
- ---- ------------ ------------ -------------- ---------------
<S> <C> <C> <C> <C>
Edmund G.Vimond, Jr. . 31,250 52% $4.80 October 5, 2005
Larry M. Reid ........ 23,438 39% $4.80 October 5, 2005
</TABLE>
The options referred to in the table will not become exercisable unless
the Company achieves net sales of not less than $20 million in any
consecutive twelve month period prior to January 1, 1999.
During the year ended December 31, 1995, none of the Named Officers
exercised any options issued by the Company. At that date, none of the
options issued by the Company to the Named Officers was in-the-money.
There are no standard or other arrangements pursuant to which any director
of the Company is or was compensated during the Company's last fiscal year
for services as a director, for committee participation or special
assignments.
Other than as set forth under "Management--Employment Agreements," the
Company does not have any compensatory plan or arrangement, including
payments to be received from the Company, with respect to a Named Officer,
which plan or arrangement results or will result from the resignation,
retirement or any other termination of such person's employment with the
Company or from a change in control of the Company or a change in such
person's responsibilities following a change in control and the amount
involved, including all periodic payments or installments, exceeds $100,000.
EMPLOYMENT AGREEMENTS
Messrs. Vimond and Reid have each entered into employment agreements with
the Company for a three-year period which commenced on January 1, 1994. Mr.
Carlson has entered into an employment agreement with the Company for an
eighteen-month period which commenced July 1, 1996. Each of such employment
agreements continues thereafter for successive one year terms except upon
notice to the contrary given by the Company or the respective executive
officer at least ninety days prior to the end of the then current term. Each
of Messrs. Vimond and Reid were initially entitled to receive a base salary
of $75,000 and $57,500 per annum, respectively. The foregoing salaries were
increased to $150,000 and $115,000, respectively, effective January 1, 1995.
Mr. Carlson receives a salary of $125,000 per annum.
The Company's respective employment agreements with its executive officers
permits each of them to terminate his employment by the Company for any
reason without incurring any liability to the Company. Such employment
agreements may also be terminated by the Company for any reason. If any such
employment agreement is terminated by the Company without cause, the
terminated executive officer is entitled to receive a lump sum payment equal
to the greater of one year's salary or the balance of the salary which would
otherwise have been paid to him during the remaining term of such employment
agreement. In the event of the death or permanent incapacity of an executive
officer during the term of his employment agreement, he or his estate, as the
case may be, is entitled to receive, in addition to his salary through the
date of determination of permanent incapacity or death, an additional six
months' salary. For purposes of such employment agreements, permanent
incapacity is deemed to occur at the conclusion of 90 days of continuous
incapacity or 120 days of intermittent incapacity in any twelve month period.
Each of the Company's executive officers is eligible to receive salary
increases as well as incentive compensation pursuant to the 1992 Stock Option
Plan or other incentive compensation plan which may
30
<PAGE>
be established by the Company. Any such eligibility must be determined by the
vote of Company's Board of Directors, including a majority of the directors
who are not executive officers.
1992 STOCK OPTION PLAN
In 1992, the Company adopted a Stock Option Plan (the "1992 Stock Option
Plan") in order to induce certain individuals to remain in the employ or
service of the Company; to attract new individuals to enter into such
employment and service; and to encourage such individuals to secure or
increase on reasonable terms their equity ownership in the Company. Options
granted under the 1992 Stock Option Plan may be "incentive stock options," as
that term is defined in the Internal Revenue Code of 1986, as amended or
"non-incentive stock options" as described below. An aggregate of 72,000
shares of the Company's Common Stock are available for issuance upon exercise
of options that have been granted under the 1992 Stock Option Plan. Such
options have exercise prices ranging from $4.00 to $4.80 per share and expire
from 2002 to 2006. To the extent that any such options expire or terminate
without having been exercised, they may be reissued under the 1992 Stock
Option Plan. The 1992 Stock Option Plan is administered by a committee
consisting of Messrs. Reid and Vimond, who are not eligible to participate in
the 1992 Stock Option Plan because of such duties. Incentive stock options
may be granted only to employees of the Company. Non-incentive stock options
may be granted only to (a) employees of the Company, (b) directors of the
Company who are not employees, certain independent contractors hired by the
Company, and (d) certain employees of a corporation which is acquired by the
Company. The exercise price of incentive stock options shall not be less than
the fair market value of a share of the Common Stock on the date of the
grant. The exercise price of non-incentive stock options shall not be less
than 85% of the fair market value of a share of the Common Stock on the date
of the grant. In the event that the fair market value of a share of the
Company's Common Stock declines below the exercise price of an option, the
committee may at any time reduce such exercise price with the prior approval
of the Company's Board of Directors.
31
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of the date hereof
with respect to any person who is known to the Company to be the beneficial
owner of more than 5% of any class of its voting securities and as to each
class of the Company's equity securities beneficially owned by its directors
and executive officers as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES APPROXIMATE
NAME OF BENEFICIAL OWNER(1)(2) BENEFICIALLY OWNED PERCENT OF CLASS
- ------------------------------ ------------------ ----------------
<S> <C> <C>
Ralph H. Laffler ....................................... 450,846(3) 23%
Edmund G. Vimond, Jr. .................................. 183,271(4) 9%
Fred E. Ahlbin ......................................... 160,760(5) 8%
Larry M. Reid .......................................... 68,602(6) 4%
Robert S. Marker ....................................... 52,550(7) 3%
John F. Carlson ........................................ -0-(8) --
Executive Officers and Directors as a group (6 persons) 916,029(9) 44%
Maurice Porter ......................................... 242,398(10) 12%
Robert M. Kassenbrock .................................. 180,000(11) 9%
Eric R. Schwarz ........................................ 113,038(12) 6%
</TABLE>
- -------------
(1) Unless otherwise noted below, the Company believes that all persons
named in the table have sole voting and investment power with respect to
all shares of Common Stock beneficially owned by them. For purposes
hereof, a person is deemed to be the beneficial owner of securities that
can be acquired by such person within 60 days from the date hereof upon
the exercise of warrants or options or the conversion of convertible
securities. Each beneficial owner's percentage ownership is determined
by assuming that any such warrants, options or convertible securities
that are held by such person (but not those held by any other person)
and which are exercisable within 60 days from the date hereof have been
exercised.
(2) Each of the persons named in the above table may receive correspondence
addressed to him c/o Ocurest Laboratories, Inc., 4400 PGA Boulevard,
Palm Beach Gardens, FL 33410.
(3) Includes 218,173 shares held by Mr. Laffler's spouse, as to which shares
Mr. Laffler disclaims any beneficial ownership, and 4,500 shares which
may be purchased upon exercise of options.
(4) Includes 11,560 shares which may be purchased upon exercise of warrants
and 25,000 shares which may be purchased upon exercise of options and
25,000 shares which may be purchased upon exercise of warrants held by
Mr. Vimond's spouse in which shares Mr. Vimond disclaims any beneficial
ownership. Does not include 31,250 shares underlying options which may
not be exercised during the 60 day period subsequent to the date of this
Prospectus.
(5) Includes 41,528 shares which may be purchased upon exercise of warrants
and 4,500 shares which may be purchased upon exercise of options.
(6) Includes 51,713 shares which are held jointly with Mr. Reid's spouse,
4,389 shares which may be purchased upon exercise of warrants and 12,500
shares which may be purchased upon exercise of options. Does not include
23,438 shares underlying options which may not be exercised during the
60 day period subsequent to the date of this Prospectus.
(7) Includes 20,625 shares which may be purchased upon exercise of warrants
and 4,500 shares which may be purchased upon exercise of options.
(8) Does not include 75,000 shares underlying an option which may not be
exercised during the 60 day period subsequent to the date of this
Prospectus.
(9) See Notes above.
(10) Includes 135,209 shares which may be purchased upon exercise of warrants
and 4,500 shares which may be purchased upon exercise of options.
Includes 10,000 shares held jointly with two children.
(11) Includes 10,000 shares owned by Mr. Kassenbrock's spouse as to which
shares Mr. Kassenbrock disclaims any beneficial ownership. Does not
include 100,000 shares which may be purchased upon exercise of a warrant
which may not be exercised during the 60 day period subsequent to the
date of this Prospectus. See "Selling Shareholders" and "Certain
Relationships and Transactions."
(12) Includes 45,991 shares which may be purchased upon exercise of warrants
and 11,250 shares which may be purchased upon exercise of options. Does
not include 1,563 shares underlying options which may not be exercised
during the 60 day period subsequent to the date of this Prospectus.
32
<PAGE>
SELLING SHAREHOLDERS
If the Over-Allotment Option is exercised, the Selling Shareholders will
sell certain shares of their Common Stock in the Offering. The following
table sets forth certain information regarding the ownership of Common Stock
by each of the Selling Shareholders as of the date of this Prospectus and
after giving effect to the shares of Common Stock offered hereby, assuming
that the Over-Allotment Option is exercised in full. Substantially all
offering expenses, other than the underwriting discount and non accountable
expense allowance applicable to sales of shares of Common Stock by the
Selling Shareholders, will be borne by the Company. See "Management" and
"Certain Relationships and Transactions" for a description of certain
relationships between certain of the Selling Shareholders and the Company.
<TABLE>
<CAPTION>
SHARES TO BE OWNED
AFTER SALES IN
THE OFFERING (1)
-----------------------------
NUMBER OF APPROXIMATE
SHARES OWNED PERCENTAGE OF
PRIOR TO SHARES TO BE SOLD OUTSTANDING
SELLING SHAREHOLDER OFFERING(1) IN THE OFFERING NUMBER COMMON STOCK(2)
- ------------------- ------------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C>
American Growth Fund I L.P. . 50,000 25,000 25,000 *
Jose Azel ................... 10,000 5,000 5,000 *
William Boyd ................ 53,334 10,000 43,334 1%
Robert & Nancy Cousins ..... 4,000 2,000 2,000 *
Cousins Trust ............... 4,000 2,000 2,000 *
Paul Engel .................. 2,000 1,000 1,000 *
William J. Hart ............. 10,000 5,000 5,000 *
Hideaway Partners ........... 40,000 20,000 20,000 *
Marcia G. Kassenbrock ....... 10,000 5,000 5,000 *
Robert M. Kassenbrock ....... 170,000 75,000 95,000 3%
Carl Teutch ................. 2,000 1,000 1,000 *
Thomas L. Schroeder Trust .. 3,000 1,500 1,500 *
William Roberts ............. 5,000 2,500 2,500 *
Ardis Schwarz ............... 98,243(3) 5,000 83,243(3) 3%(3)
E.J. Sylvester Trust ........ 10,000 5,000 5,000 *
Duane Wilder ................ 10,000 5,000 5,000 *
</TABLE>
- -------------
Less than 1%.
(1) For purposes hereof, a person is deemed to be the owner of securities
that can be acquired by such person within 60 days from the date hereof
upon the exercise of warrants or options or the conversion of convertible
securities. Each owner's percentage ownership is determined by assuming
that any such warrants, options or convertible securities that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from the date hereof, have been exercised.
(2) Computed without regard to a maximum of (a) 832,328 shares of Common
Stock issuable upon exercise of outstanding warrants and options, (b)
1,200,000 shares issuable upon exercise of the Warrants, (c) 240,000
shares issuable upon exercise of warrants to be issued to the
Representative, and (d) 180,000 shares issuable upon exercise of
the Warrants included in the Over-Allotment Option.
(3) Includes 5,303 shares issuable upon exercise of warrants.
On April 1, 1996 the Company borrowed $260,000 from American Growth Fund I
L.P. ("AGF"). The Company intends to repay such amount, plus accrued interest
thereon, from the net proceeds of the Offering. In connection with the
transaction with AGF, the Company issued warrants to AGF for the purchase of
25,000 shares of the Company's Common Stock at $.01 per share and warrants
for the purchase of 25,000 shares of the Company's Common Stock at $2.50 per
share. 30,000 shares underlying the warrants are being offered by AGF
pursuant to this Prospectus. The exercise prices of the warrants were
determined by negotiation between the Company and AGF. Among the factors
considered in such negotiation were the Company's working capital deficit and
the unavailability of funds on terms more favorable to the Company. Between
April 1, 1996 and August 1, 1996, AGF agreed to provide certain management
consulting and investment banking services to the Company. In addition,
during such
33
<PAGE>
period, the Company had agreed to grant a right of first refusal to AGF in
connection with subsequent public offerings of debt or equity. The offers and
sales of the shares and warrants to AGF were not registered under the Securities
Act in reliance upon the exemption from registration provided by Section 4(2) of
the Securities Act for "transactions by an issuer not involving any public
offering." The principals of AGF are E.G. Marchi and Donna Snyder. See "Use of
Proceeds."
The shares being offered by the Selling Shareholders were purchased from
the Company from February to June 1996.
Other than as set forth above or, in the case of Mr. Kassenbrock under the
caption "Certain Relationships and Transactions," none of the Selling
Shareholders has had any position, office or other material relationship with
the Company during the past three years.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Eric R. Schwarz, an employee and beneficial owner of approximately 6% of
the Company's outstanding Common Stock, has entered into an employment
agreement with the Company for a three-year period which commenced on January
1, 1994 and continues thereafter for successive one year terms except upon
notice to the contrary given by either party. Mr. Schwarz initially received
a base annual salary of $33,000 which increased to $55,000 when the Company
began shipments of its products to Florida and to $66,000 seven months
subsequent to the commencement of shipments to a designated area of Florida.
In addition, Mr. Schwarz is eligible to receive incentive compensation
pursuant to the 1992 Stock Option Plan or other incentive compensation plan
which may be established by the Company as well as increases in salary.
In July 1994, Fred E. Ahlbin, Ralph H. Laffler, Eric R. Schwarz and
Maurice Porter, a former director of the Company and beneficial owner of
approximately 12% of the Company's outstanding Common Stock, purchased 15,625
shares, 75,000 shares, 16,125 shares and 20,834 shares of Common Stock and a
like number of warrants (the "$5.00 Warrants"), respectively. The purchase
price consisted of $4.80 for a combination of one such share and one $5.00
Warrant. Each of the $5.00 Warrants entitles its holder to purchase one share
of Common Stock at $5.00 per share on or before May 31, 1998. The original
exercise price of the $5.00 Warrants was $8.00 per share. Such exercise price
was subsequently lowered to $5.00.
In July 1994, Messrs. Laffler and Porter converted promissory notes
previously issued to them by the Company in the respective amounts of $25,000
and $150,000 into units consisting of one share of Common Stock and one $5.00
Warrant at a price of $4.80 per unit.
In November 1994, Eric R. Schwarz, Mr. Laffler, Berthold and Ardis Schwarz
and Mr. Ahlbin purchased 7,340 shares, 15,469 shares, 10,605 shares and
15,469 shares of Common Stock, respectively, upon the exercise of warrants
previously issued to them at an exercise price of $4.60 per share.
In December 1994, Robert S. Marker was issued 1,000 shares of Common Stock
for services rendered to the Company having an aggregate value of $4,500.
In January 1995, for no additional consideration, the Company issued $5.00
Warrants, to Mr. Laffler, Mr. Ahlbin, Eric R. Schwarz and Berthold and Ardis
Schwarz in the respective amounts of 22,735, 7,735, 3,421 and 5,303 $5.00
Warrants.
In January 1995, Mr. Laffler loaned $300,000 to the Company for which he
received a one year promissory note bearing interest at the rate of 12% per
annum and 15,000 $5.00 Warrants.
In April 1995, Mr. Ahlbin purchased 18,169 shares of Common Stock and a
like number of $5.00 Warrants for $73,584. During the same month, Mr. Laffler
converted a promissory note in the amount of
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$100,000 previously issued to him by the Company into 22,223 shares of Common
Stock and Mr. Marker received 4,000 shares of Common Stock for services rendered
to the Company valued at $18,000.
In May 1995, Mr. Laffler received 1,645 shares of Common Stock as payment
for interest of approximately $7,400 owed to him by the Company.
In June 1995, Mr. Laffler loaned the Company $75,000 for which he received
a one year promissory note bearing interest at the rate of 12% per annum and
warrants for the purchase of 25,000 shares of Common Stock at an exercise
price of $4.00 per share on or before June 30, 2000. During the same month
Mr. Marker received 1,800 shares of Common Stock for services rendered to the
Company valued at $9,000 and Eric R. Schwarz purchased 3,422 shares of Common
Stock for $15,741 upon the exercise of warrants previously issued to him.
In November 1995, Mr. Porter loaned the Company $50,000 for which he
received a ninety day promissory note bearing interest at the rate of 12% per
annum and warrants to purchase 25,000 shares of Common Stock on the same
terms as those issued to Mr. Laffler in June 1995.
During 1995, Edmund G. Vimond, Jr., Larry M. Reid and Eric R. Schwarz,
accepted 37,336 shares of Common Stock, 14,957 shares of Common Stock and
22,388 shares of Common Stock, respectively, at values ranging from $5.00 per
share in February 1995 to $2.32 per share in December 1995 as payment for a
portion of their respective salaries.
In January 1996, Mr. Laffler purchased 75,000 shares of Common Stock for
$130,000 upon exercise of warrants previously issued to him by the Company.
During the same month Messrs. Laffler, Porter and Eric R. Schwarz converted
the Company's indebtedness to them of approximately $525,000, $52,000 and
$19,500, respectively, into 226,334 shares, 22,480 shares and 8,417 shares of
Common Stock, respectively.
In January 1996, Mr. Ahlbin and Berthold and Ardis Schwarz purchased
40,000 and 20,000 shares of Common Stock, respectively, at $2.50 a share.
In February 1996, Robert M. Kassenbrock and his spouse purchased an
aggregate of 180,000 shares of Common Stock at $2.50 per share. 127,262 of
such shares have been registered under the Securities Act by means of the
registration statement of which this Prospectus is a part. See "Selling
Shareholders."
In March 1996, the spouse of Mr. Vimond loaned $50,000 to the Company for
which she received a ninety day promissory note bearing interest at the rate
of 12% per annum and 25,000 warrants. Each of the warrants entitles its
holder to purchase one share of Common Stock at an exercise price of $2.50 a
share on or before June 30, 2000 (the "$2.50 Warrants"). During the same
month Mr. Laffler and Eric R. Schwarz received 5,000 $2.50 Warrants and
22,500 $2.50 Warrants, respectively in connection with loans made by them to
the Company in the respective amounts of $10,000 and $35,000. In connection
with such loans Messrs. Laffler and Schwarz each received ninety day
promissory notes bearing interest at the rate of 12% per annum. During the
same month, Mr. Porter received 7,500 shares of Common Stock for services
rendered to the Company valued at $18,750.
The exercise prices of the warrants described above were determined by the
Company.
In March 1996, Mr. Reid accepted 3,256 shares of Common Stock as payment
for $8,140 of salary owed to him by the Company.
In May 1996 Messrs. Ahlbin and Laffler each purchased 10,000 shares of
Common Stock at $2.50 per share.
In September 1996, the Company borrowed $200,000 from Mr. Kassenbrock. The
Company intends to repay such amount, plus accrued interest thereon at the
annual rate of 12%, from the net proceeds of
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the Offering. In connection with the transaction with Mr. Kassenbrock, the
Company issued a warrant to him for the purchase of 100,000 shares of the
Company's Common Stock at $2.40 per share (60% of the initial public offering
price). The Company has granted piggy back registration rights with respect to
such shares. The exercise price of the warrants was determined by negotiation
between the Company and Mr. Kassenbrock. Among the factors considered in such
negotiation were the Company's working capital deficit and the unavailability of
funds on terms more favorable to the Company. See "Use of Proceeds," "Security
Ownership of Certain Beneficial Owners and Management" and "Selling
Shareholders."
The offers and sales of the securities referred to hereunder were not
registered under the Securities Act in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act for "transactions
by an issuer not involving any public offering."
In October 1996, the Company's three executive officers guaranteed the
repayment by the Company of $200,000 to an advertising agency. See "Use of
Proceeds."
From November 1994 to January 1996, the Company issued an aggregate of
214,340 shares of its Common Stock to officers, directors and beneficial owners
of more than 5% of the Company's outstanding Common Stock upon exercise of
warrants previously issued to them at exercise prices ranging from $1.60 to
$4.60 per share.
All of the equity interest of Acorn is owned by William J. Casey, his
spouse and daughters. Mr. Casey is a former director of the Company and
beneficially owns approximately 4% of the Company's outstanding Common Stock.
One such daughter, having a 16% equity interest in Acorn, is the spouse of
Larry M. Reid. Acorn has assigned 25% and 15% of its rights to receive
payments from the Company to Edmund G. Vimond, Jr. and Larry M. Reid,
respectively. Notwithstanding the foregoing, in the event that the Company
disposes of all or substantially all of its business including the licenses
granted pursuant to the Acorn Agreement, Messrs. Vimond and Reid will not be
entitled to receive any amounts from Acorn from the first $2,500,000 of
proceeds therefrom. Should, however, such proceeds exceed that amount,
Messrs. Vimond and Reid shall be entitled to receive from Acorn 25% and 15%,
respectively, of the proceeds above such amount and not in excess of
$8,133,333 and 62.5% and 37.5%, respectively, of such proceeds between such
latter amount and $9,800,000 less any payments made to them by Acorn from
royalties paid to Acorn by the Company, respectively. Because royalty
payments to Acorn are based on the Company's sales, subject to the Company
achieving the minimum levels of net income as described earlier, any activity
taken thereafter to increase the Company's sales at the expense of profits
would benefit those persons having an interest in Acorn, including Messrs.
Vimond and Reid. Both Messrs. Vimond and Reid, as officers and directors of
the Company, owe a fiduciary duty to the Company and have advised the Company
that they will act in the best interests of the Company, irrespective of their
personal interests in Acorn. See "Business--Patents and Trademarks."
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The terms of the Acorn Agreement were determined through negotiation
between Messrs. Casey and Vimond. Among the factors considered in such
negotiation were the obligations of the Company under the Acorn Agreement,
the scope of the license granted to the Company and the nature of the Ocurest
Delivery System. Mr. Casey has advised the Company that Acorn's cost of the
assets which are the subject of the Acorn Agreement was in excess of
$200,000. The Company does not know whether the terms of the Acorn Agreement
are as favorable to the Company as could have been obtained from an
unaffiliated third party in a similar transaction at the time of the
execution of the Acorn Agreement. The Company believes that if the Acorn
Agreement were to be negotiated as of the date of this Prospectus, the
Company would not be able to secure more favorable terms from an unaffiliated
party in a similar transaction. The Company's belief is based upon, among
other things, the initial consumer response to the marketing of Ocurest Eye
Drops, the retail chains which have ordered Ocurest Eye Drops for retail
distribution, the deferral of certain accrued royalty payments and the
Company's manufacturing arrangements with Bausch & Lomb. Because the Company
believes that the Ocurest Delivery System is unique, it is not possible to
verify the Company's belief. Under the Acorn Agreement, the Company has made
payments to Acorn and is obligated to make additional payments thereto,
including royalties. See "Business--Patents and Trademarks."
The Board of Directors of the Company has adopted a resolution to the
effect that all future transactions between the Company and its officers,
directors, or the beneficial owners of more than 5% of any class of the
Company's voting securities, or any affiliate of any of such person, must be
approved or ratified by a majority of the disinterested directors of the
Company, and the terms of such transaction must be no less favorable to the
Company than could have been realized by the Company in an arms-length
transaction with an unaffiliated person.
The Board of Directors of the Company has also adopted a resolution that
provides that the area in which the Company shall be interested for the
purpose of the doctrine of corporate opportunities shall be the business of
marketing eye care products for the consumer market. Pursuant to the
resolution, any business opportunity which falls within such area of interest
must be brought to the attention of the Company for acceptance or rejection
prior to any officer or director of the Company taking advantage of such
opportunity. Any business opportunity outside such area of interest may be
entered into by any officer of director of the Company without the officer or
director first offering the business opportunity to the Company.
Subsequent to the receipt of the net proceeds of the Offering, the Company
does not intend to borrow any funds from or make loans to its officers and
directors.
DESCRIPTION OF SECURITIES
THE UNITS
Each Unit consists of one share of Common Stock and one Warrant. The Common
Stock and Warrants must be purchased together. The Common Stock and the Warrants
will not be separately tradeable or transferable for a period of six months from
the date of this Prospectus or earlier at the discretion of the Representative.
COMMON STOCK
The holders of the Common Stock are entitled to one vote per share on all
matters submitted to a vote of shareholders. Subject to preferential rights
that may be applicable to any Preferred Stock which may be issued, holders of
the Common Stock are entitled to receive dividends, if and when declared by
the Company's Board of Directors from funds legally available for that
purpose. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of the Company, holders of the Common Stock are entitled to share
ratably in the assets available of the Company, if any, remaining after the
payment
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<PAGE>
of all liabilities of the Company and the liquidation preferences
applicable to any outstanding Preferred Stock. Holders of the Common Stock
have no cumulative voting rights, no preemptive rights and no conversion
rights and there are no redemption or sinking fund provisions with respect to
the Common Stock. The outstanding Common Stock is fully paid, validly issued
and non-assessable.
On July 30, 1996, the Company's 1,922,674 shares of outstanding Common
Stock were held by 118 holders of record.
PREFERRED STOCK
The Company's Board of Directors has the authority to issue the authorized
shares of Preferred Stock in one or more series and to fix the designations,
relative powers, preferences, rights, qualifications, limitations and
restrictions of all shares of each such series, including without limitation
dividend rates, conversion rights, voting rights, redemption and sinking fund
provisions, liquidation preferences and the number of shares constituting
each such series, without any further vote or action by the stockholders. The
issuance of Preferred Stock could decrease the amount of earnings and assets
available for distribution to holders of Common Stock or adversely affect the
rights and powers, including voting rights, of the holders of Common Stock.
The issuance of Preferred Stock also could have the effect of delaying,
deterring or preventing a change in control of the Company without further
action by the shareholders.
THE WARRANTS
The Warrants will be issued in registered form under, governed by and
subject to the terms of a Warrant Agent Agreement (the "Warrant Agreement")
between the Company and the Warrant Agent. The following statements are
qualified in their entirety by reference to the Warrant Agreement and also
the detailed provisions of the form of Warrant attached to the Warrant
Agreement. Copies of the Warrant Agreement may be obtained from the Company
or the Warrant Agent and have been filed with the Securities and Exchange
Commission as an exhibit to the Registration Statement of which this
Prospectus is a part. See "Additional Information." Commencing on the date
the Warrants are separately tradeable and transferable, the Warrants may be
presented to the Warrant Agent for transfer, exchange or exercise at any time
prior to their redemption or expiration date, at which time the Warrants
become wholly void and of no value. If a market for the Warrants develops,
the holder may sell the Warrants instead of exercising them. There can be no
assurance, however, that a market for the Warrants will develop or continue.
Each Warrant entitles its holder to purchase, at any time commencing on the
date the Warrants are separately tradeable and transferable and until the third
anniversary of the date of this Prospectus, one share of Common Stock at a price
of $4.80 per share, subject to adjustment in certain events. The right to
exercise the Warrants will terminate at the close of business on the third
anniversary of the date of this Prospectus. The Warrants contain provisions that
protect the Warrantholders against dilution by adjustment of the exercise price
in certain events including, but not limited to, stock dividends, stock splits,
reclassifications or mergers. In the event of liquidation, dissolution or
winding up of the Company, holders of the Warrants, unless exercised, will not
be entitled to participate in the assets of the Company. Holders of the Warrants
will have no voting, preemptive, liquidation or other rights of a shareholder by
virtue of holding the Warrants, and no dividends will be declared on the
Warrants. The Company has authorized and reserved for issuance a sufficient
number of shares of Common Stock to accommodate the exercise of all Warrants to
be issued in the Offering. The shares of Common Stock, when issued upon the
exercise of the Warrants in accordance with the terms thereof, will be fully
paid and non-assessable.
Commencing on the date the Warrants are separately tradeable and
transferable, the holder of any Warrant may exercise such Warrant by
surrendering the certificate representing the Warrant to the Warrant Agent, with
the subscription form on the reverse side of such certificate properly completed
and executed, together with payment of the exercise price. Unless they have been
redeemed by the
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<PAGE>
Company, the Warrants may be exercised at any time in whole or in part at the
applicable exercise price commencing on the date the Warrants are separately
tradeable and transferable and until expiration of the Warrants three years from
the date of this Prospectus. In lieu of fractional shares which would otherwise
be issuable upon the exercise of the Warrants, the Company will round up or down
to the nearest whole share.
Commencing on the date the warrants are separately tradeable and
transferable, the Warrants may be redeemed by the Company at a redemption
price of $0.55 per Warrant until the end of the second year after the date of
this Prospectus, and at $0.75 per Warrant until the end of the third year
after the date of this Prospectus and prior to their expiration, on 30 days'
prior written given at any time that the Common Stock has traded above $6.72
(or 140% of the exercise price of the Warrants if the exercise price is adjusted
as earlier described) per share for a at least 20 consecutive trading days
ending within 10 days prior to the date of the notice of redemption. For
purposes of determining the daily trading price of the Common Stock, if the
Common Stock is listed on a national securities exchange, is admitted to
unlisted trading privileges on a national securities exchange, or is listed for
trading on a trading system of the NASD such as the NASDAQ Small-Cap Market or
the NASDAQ National Market System, then the last reported sale price of the
Common Stock on such exchange or system each day shall be used or if the Common
Stock is not so listed on such exchange or system or admitted to unlisted
trading privileges, then the average of the last reported high bid prices
reported by the National Quotation Bureau, Inc. each day shall be used to
determine such daily trading price. Holders of Warrants shall have exercise
rights until the close of the business day preceding the date fixed for
redemption. If any Warrant called for redemption is not exercised by such time,
it will cease to be exercisable and the holder will be entitled only to the
redemption price. Redemption of the Warrants could force Warrantholders either
to (i) exercise the Warrants and pay the exercise price thereof at a time when
it may be less advantageous economically to do so, or (ii) accept the redemption
price in consideration for cancellation of the Warrant, which could be
substantially less than the market value thereof at the time of redemption.
At any time when the Warrants are exercisable, the Company is required to
have a current registration statement on file with the Commission and to
effect appropriate qualifications under the laws and regulations of the
states in which the holders of Warrants reside in order to comply with
applicable laws in connection with the exercise of the Warrants and the
resale of the Common Stock issued upon such exercise. So long as the Warrants
are outstanding, the Company has undertaken to file all post-effective
amendments to the Registration Statement required to be filed under the
Securities Act, and to take appropriate action under federal and state
securities laws to permit the issuance and resale of Common Stock issuable
upon exercise of the Warrants. There can be no assurance, however, that the
Company will be in a position to effect such action under the federal and
applicable state securities laws, and the failure of the Company to effect
such action may cause the exercise of the Warrants and the resale or other
disposition of the Common Stock issued upon such exercise to become unlawful.
The Company may amend the terms of the Warrants but only by extending the
termination date or lowering the exercise price thereof. The Company has no
present intention of amending such terms.
If the Representative, at its election, solicits the exercise of the
Warrants, the Company will be obligated, subject to certain conditions, to
pay the Representative a solicitation fee equal to 10% of the aggregate
proceeds received by the Company as a result of the solicitation. The
Representative may reallow a portion of the fee to soliciting broker-dealers.
Because the Representative is a member of the National Association of
Securities Dealers, Inc. ("NASD"), any such solicitation by the
Representative must comply with the requirements of Section 2710(c)(6)(B)(ix)
of the NASD Corporate Financing Rules.
TRANSFER AGENT AND WARRANT AGENT
The transfer agent for the Common Stock and the Warrant Agent is American
Securities Transfer & Trust, Inc.
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<PAGE>
CONTROL-SHARE ACQUISITIONS
The Florida Business Corporation Act (the "FBCA") provides that "control
shares" of an "issuing public corporation" acquired in a "control-share
acquisition" have the same voting rights as accorded the shares before the
control-share acquisition only to the extent granted by resolution approved
by the shareholders. Such resolution must be approved by: (a) a majority of
the votes of the shareholders entitled to vote thereon, and if the proposed
control-share acquisition would, if fully carried out, result in any action
which would require a vote as a class or series, by a majority of the votes
of the shareholders of each such class or series entitled to vote thereon;
and (b) a majority of the votes by the shareholders of each class or series
entitled to vote as a class or series, excluding all shares owned by the
acquiror (or member of a group), officers and directors who are employees of
the corporation.
An "issuing public corporation" is a corporation that has: (a) 100 or more
shareholders; (b) its principal place of business, its principal office or
substantial assets within Florida; and (c) one or more of the following: (i)
more than 10% of its shareholders reside in Florida; (ii) more than 10% of
its shares are owned by Florida residents; (iii) 1,000 of its shareholders
reside in Florida. A "control-share acquisition" is the acquisition by any
person of ownership of, or the power to direct the exercise of voting power
with respect to, issued and outstanding control shares. "Control shares" are
voting shares which, if aggregated with all other shares owned by such
person, would entitle the acquiror, directly or indirectly, alone or as part
of a group, to exercise voting power in electing directors within one of the
following ranges of voting power: (a) one-fifth or more but less than
one-third, (b) one-third or more but less than a majority, or (c) a majority
of all voting power.
A person who has made or proposes to make a control-share acquisition,
upon satisfaction of certain conditions (including an undertaking to pay
expenses), may compel the Board of Directors to call a special meeting of
shareholders to be held within 50 days of the receipt of the demand to
consider the voting rights of the shares. If the acquiring person's statement
has been filed but no request for a meeting is made, the corporation must
present the question at the next special or annual shareholders' meeting.
If authorized in an issuing public corporation's articles of incorporation
or bylaws before a control-share acquisition has occurred, control shares
acquired in a control-share acquisition where no acquiring person's statement
has been filed, may be subject to redemption by the corporation at the fair
value of the shares at any time during the period ending 60 days after the
last acquisition of control shares. Control shares acquired in a
control-share acquisition are not subject to such redemption after an
acquiring person's statement has been filed and after the meeting at which
the voting rights of the control shares acquired in a control-share
acquisition are submitted to the shareholders unless the shares are not
accorded full voting rights by the shareholders.
Unless otherwise provided in an issuing public corporation's articles of
incorporation or bylaws before a control-share acquisition has occurred, if
voting rights for control shares are approved at a shareholders' meeting and the
acquiror becomes entitled to vote a majority of all of the corporation's shares
entitled to vote, all other shareholders may exercise dissenters' rights to
receive the fair value of their shares. Neither the Company's Bylaws nor its
Articles of Incorporation makes any provision with respect to control-share
acquisitions.
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The control-share acquisition provisions of the FBCA could have the effect
of discouraging offers to acquire the Company and of increasing the
difficulty of consummating any such offer.
SHARES ELIGIBLE FOR FUTURE SALE
All of the shares of Common Stock outstanding as of the date hereof are
"restricted securities," as that term is defined in Rule 144 promulgated under
the Securities Act. Without regard to the volume limitations described below,
approximately 320,000 of such shares are currently eligible for resale under
Rule 144 and approximately 580,000 of such shares will be eligible for resale
under Rule 144 commencing ninety days subsequent to the date of this Prospectus.
The remaining shares will become so eligible at various times between October
1996 and June 1998. See "Underwriting" with respect to an agreement by certain
shareholders restricting their ability to sell their Common Stock without the
consent of the Representative.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions specified in such Rule, sales of
restricted securities may be made if a minimum of two years has elapsed
between the later of the date of the acquisition of such securities from the
issuer or from an affiliate of the issuer and any resale thereof in reliance
on Rule 144 for the account of either the initial acquiror or any subsequent
holder. If sales can be made under Rule 144, a seller, including persons
whose securities are required to be aggregated, is entitled to sell, within
any three-month period, a number of shares that does not exceed the greater
of 1% of the total number of outstanding shares of the same class or, if the
shares are quoted on NASDAQ, the average weekly trading volume during the
four calendar weeks preceding the filing of a notice with the Securities and
Exchange Commission. Where a minimum of three years has elapsed between the
later of the date of the acquisition of restricted securities from the issuer
or from an affiliate of the issuer and any resale thereof in reliance on Rule
144 for the account of either the initial acquiror or any subsequent holder,
a person who has not been an affiliate of the Company for at least the three
months immediately preceding the sale is entitled to sell such securities
under Rule 144 without regard to any of the limitations described above.
The Company has granted piggyback registration rights to the holders of an
aggregate of 133,920 shares of the Company's outstanding Common Stock should
the Company file a registration statement under the Securities Act which
includes shares of Common Stock of certain of the Company's officers and
directors. The Company has granted piggyback registration rights with respect
to 100,000 shares of Common Stock which may be obtained by Robert M.
Kassenbrock upon exercise of a warrant issued to him by the Company. The
Company has granted similar rights to holders of warrants for the purchase of
an aggregate of 250,000 shares of Common Stock. The Company has also granted
future demand and piggyback registration rights to AGF with respect to 25,000
shares of Common Stock underlying a warrant held by AGF. Such registration
rights terminate seven years subsequent to the Company's receipt of the net
proceeds of the Offering. See "Security Ownership of Certain Beneficial
Owners and Management," "Selling Shareholders" and "Certain Relationships and
Transactions."
No meaningful prediction can be made as to the effect, if any, that market
sales of shares of Common Stock or the availability of such shares for sale will
have on the market prices, if any, of the Units, Common Stock and Warrants
prevailing from time to time. Nevertheless, the possibility that substantial
amounts of Common Stock may be sold in the public market may adversely affect
any prevailing market prices for the Units, Common Stock and Warrants and could
impair the Company's ability to raise capital through the sale of its equity
securities.
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UNDERWRITING
The Underwriters named below, acting through the Representative, have
jointly and severally agreed, subject to the terms and conditions of the
Underwriting Agreement, to purchase from the Company and the Company has
agreed to sell to the Underwriters, the respective number of Units set forth
opposite their names below at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF UNITS
- ----------- ---------------
<S> <C>
RAF Financial Corporation ....
----------------
TOTAL ......................... 1,200,000
================
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the Units offered hereby are
subject to the approval of certain legal matters by their counsel and to
certain other conditions. The Underwriters are obligated to purchase
2,000,000 Units, if any are purchased.
The Underwriters propose to offer part of the Units offered hereby
directly to the public at the initial offering price and part of such Units
to certain dealers at a price that represents a concession within the
discretion of the Representative. The Underwriters do not intend to confirm
sales to accounts over which they exercise discretionary authority. The
Underwriters may allow, and such dealers may re-allow, a concession within
the discretion of the Representative. After the initial offering, the
offering price and the selling terms may be changed by the Underwriters.
The Units offered by the Underwriters are subject to prior sale. The
Underwriters reserve the right to withdraw, cancel or modify such offer
(which may be done only by filing an amendment to the Registration Statement)
and to reject orders in whole or in part for the purchase of any of the Units
and to cancel any sale even after the purchase price has been paid if such
sale, in the opinion of the Underwriters, would violate federal or state
securities laws or a rule or policy of the NASD.
The Company and the Underwriters have agreed to indemnity each other and
related persons against certain liabilities, including liabilities under the
Securities Act, and, if such indemnifications are unavailable or are
insufficient, the Company and the Underwriters have agreed to damage
contribution arrangements between them based upon the relative benefits
received from the Offering and the relative fault resulting in such damages.
Such relative benefits and relative fault would be determined in legal
actions among the parties. Under such contribution arrangements, the maximum
amount payable by any Underwriter would be the public offering price of the
Units underwritten and distributed by such Underwriter.
Except for the outstanding securities described herein and except upon the
exercise of the options and warrants described herein, the Company has agreed
not to sell any additional securities (other than debt securities to
financial institutions) for three years after the date of this Prospectus
without the Representative's prior written consent. Also excepted are
securities issued to officers, directors, holders of more than 5% of the
Company's outstanding Common Stock and their affiliates two years after the
date of this Prospectus. The officers and directors of the Company, holders
of more than 5% of the Company's outstanding Common Stock prior to the
Offering and their affiliates have entered into agreements which provide that
such persons, who own an aggregate of 731,926 shares of Common
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<PAGE>
Stock, may not sell any of such shares without the consent of the Representative
for a period of one year commencing on the date of this Prospectus. The
agreements also provide that any sales of Common Stock by such persons pursuant
to Rule 144 will be executed through the Representative. The provisions of this
paragraph do not apply to any securities held by Maurice Porter. See "Shares
Eligible for Future Sale."
The Selling Shareholders have granted to the Underwriters an option excersisable
for 30 days from the date of this Prospectus to purchase up to 180,000
additional shares of Common Stock at $4.00 per share less the underwriting
discounts solely to cover over-allotments, if any. The Company has agreed, for
no additional consideration, to contribute a like number of Warrants toward the
Over-Allotment Option. In addition, the Company and the Selling Shareholders
have agreed to pay to the Representative at the closing of the Offering, a
non-accountable expense allowance equal to 3% of the aggregate allocated public
offering prices of the Units and Common Stock sold by them. Such expense
allowance is to cover expenses incurred by the Representative in connection with
the Offering, reduced by amounts advanced by the Company which, as of the date
of this Prospectus, are $30,000.
The Company has agreed to issue for $50.00, warrants to the Representative
to purchase 120,000 shares of Common Stock. These warrants are exercisable at
any time during the five year period after the date of this Prospectus at
$6.40 per share. These warrants are not transferable for one year from the
date of this Prospectus except (i) to an Underwriter or a partner or officer
of an Underwriter or (ii) by will or operation of law. Any profit realized on
the sale of these warrants or the underlying shares may be deemed additional
underwriting compensation. Commencing one year from the date hereof, holders
of these warrants and the shares underlying these warrants will have demand
and piggyback registration rights for periods of four years and six years,
respectively, with respect to these warrants and the underlying shares. These
warrants and the shares of Common Stock underlying these warrants have been
registered under the Securities Act by means of the Registration Statement of
which this Prospectus is a part.
In addition to the aforementioned warrants, the Company has agreed upon
completion of the Offering to issue to the Representative, for $50.00,
additional warrants to purchase 120,000 shares of Common Stock. These
warrants contain the same terms and conditions as the Warrants except that
(i) the exercise price of these warrants will be $7.68 (ii) these warrants
will be exercisable immediately but will not be transferable for a period of
one year after the date of this Prospectus except to an Underwriter or a
partner or officer of an Underwriter, or by will or operation of law and
(iii) these warrants are not redeemable. These warrants and the shares of
Common Stock underlying these warrants have been registered under the
Securities Act by means of the Registration Statement of which this
Prospectus is a part.
If any warrants issued to the Representative are exercised during the
first year after the date of this Prospectus, then any Common Stock acquired
as a result of any such exercise may not be transferred or assigned until
after the expiration of such one year period.
For a period of three years from the date hereof, the Representative has a
preferential right to purchase for its account or to sell for the account of the
Company, or any parent or subsidiaries of the Company, any securities with
respect to which any of them may seek to sell, publicly or privately, for cash.
The price to the public of the Units has been determined by negotiations
between the Company and the Representative, with consideration being given to
the current status of the Company's business, its financial condition, its
present and prospective operations, the general status of the securities
market, and the market conditions for new offerings of securities. The price
bears no relationship to the assets, net worth, book value, sales price of
securities issued to shareholders of the Company, or any other criteria of
value.
The Company has agreed to give the Representative notice of meetings of
its Board of Directors and to grant access to such meetings to a
representative of the Representative. Any such representative will have no
official status or voting rights at any such meeting.
43
<PAGE>
For a period of five years after the date of this Prospectus, the Company
has agreed to pay the Representative a consulting fee in connection with any
merger, consolidation, stock exchange or acquisition or sale of all or a
material part of the assets or business of any entity, if such transaction
involves the Company, its parent company, or any of its subsidiaries, if such
transaction was initiated by the Representative. The total fee will be from
1% to 5% of the value of the transaction. In connection with any such
transaction, the Representative has agreed to provide consulting services
which are customary in the industry. If the Company, its parent company, or
any of its subsidiaries, proposes to engage in any such type of transaction
which is not initiated by the Representative, but in connection with which
the Company, its parent company, or any of its subsidiaries, proposes to
obtain services from an investment banker, the Company has agreed that the
Representative will have the first opportunity to provide consulting services
which are customary in the industry in connection therewith. In such event,
the fee to be paid to the Representative will be 50% of the total fee
described above.
If the Representative, at its election, at any time one year after the
date of this Prospectus, solicits the exercise of the Warrants, the Company
will be obligated, subject to certain conditions, to pay the Representative a
solicitation fee equal to 10% of the aggregate proceeds received by the
Company as a result of the solicitation. No warrant solicitation fees will be
paid within one year after the date of this Prospectus. The Representative
may reallow a portion of the fee to soliciting broker-dealers. Because the
Representative is a member of the NASD, any such solicitation by the
Representative must comply with the requirements of Section 2710(c)(6)(B)(xi)
of the NASD Corporate Financing Rules.
LEGAL PROCEEDINGS
There are no material pending or threatened legal proceedings to which the
Company or any of its subsidiaries is a party or of which any of their
property is the subject or, to the knowledge of the Company, any proceedings
contemplated by governmental authorities.
EXPERTS
The audited financial statements included in this Prospectus have been
audited by Grant Thornton L.L.P., independent certified public accountants,
to the extent and for the periods set forth in their report thereon which
contains an explanatory paragraph expressing substantial doubt about the
Company's ability to continue as a going concern which is attributed to
recurring operating losses, working capital deficiencies and delinquencies
and defaults on its accounts payable and other matters and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
LEGAL MATTERS
The legality of the securities offered hereby has been passed upon for the
Company by Reisman & Associates, P.A., Boca Raton, Florida. An affiliate of
Reisman & Associates, P.A. is a beneficial owner of options to acquire an
aggregate of 15,000 shares of the Company's Common Stock at prices of $4.00
and $4.50 per share. Smith, McCullough & Ferguson, P.C., Denver, Colorado,
has acted as legal counsel to the Representative in connection with certain
legal matters relating to the Offering.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Under the Florida Business Corporation Act, the Company has the power and
authority to indemnify any person who is or was a director, officer, employee
or agent of the Company (or of the affiliates of the Company) for liability
incurred in connection with any action brought against such
44
<PAGE>
person (other than an action by, or in the right of, the Company) if such person
acted in good faith and in a manner reasonably believed to be in, or not opposed
to, the best interests of the Company, and with respect to any criminal action
or proceeding, had no reasonable cause to believe that his conduct was unlawful.
The Company's Articles of Incorporation and Bylaws require the Company to
indemnify any such person who has complied with the foregoing standard. Under
the Florida Business Corporation Act, the Company also currently has the power
and authority to indemnify any such person for liability incurred in any action
by, or in the right of, the Company against the expenses and amounts paid in
settlement not exceeding, in the judgment of the Board of Directors, the
estimated expense of litigating the proceeding described above to its
conclusion, provided such expenses and amounts are actually and reasonably
incurred in connection with the defense or settlement of such proceeding,
including any appeal thereof. The Company's Articles of Incorporation and Bylaws
require the Company to indemnify any such person against the expenses and
amounts paid in settlement as described in the foregoing sentence. The
Underwriting Agreement provides that, in certain cases, the Underwriters shall
indemnify each officer and director and controlling person of the Company
against certain costs, expenses and liabilities which he may incur in his
capacity as such. The indemnification provisions described under this caption
include indemnification for breaches of fiduciary duties. Insofar as
indemnification arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Company pursuant to such provisions, or
otherwise, the Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement under the Securities Act
with respect to the securities offered hereby with the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. This Prospectus, which is a part of the
Registration Statement, does not contain all of the information contained in
the Registration Statement and the exhibits and schedules thereto, certain
items of which are omitted in accordance with the rules and regulations of
the Commission. For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement,
including all exhibits and schedules thereto, which may be examined at the
Commission's Washington, D.C. office, 450 Fifth Street, N.W., Washington,
D.C. 20549 without charge, or copies of which may be obtained from the
Commission upon request and payment of the prescribed fee. Statements made in
this Prospectus as to the contents of any contract, agreement or document are
not necessarily complete and in each instance reference is made to the copy
of such contract, agreement or other document filed as an exhibit to the
Registration Statement, and each such statement is qualified in its entirety
by such reference.
As of the date of this Prospectus, the Company became a reporting company
under the Exchange Act and in accordance therewith in the future will file
reports and other information with the Commission. All of such reports and
other information may be inspected and copied in Washington, D.C. and at
regional offices of the Commission located at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York,
New York 10048. The Commission maintains a web site that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the Commission. The address of such site is
http://www.sec.gov. In addition, the Company intends to provide its
shareholders with annual reports, including audited financial statements,
unaudited semi-annual reports and such other reports as the Company may
determine.
45
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Certified Public Accountants ........................................... F-2
FINANCIAL STATEMENTS
Balance Sheets at December 31, 1994 and 1995 and June 30, 1996 (Unaudited) .................. F-3
Statements of Operations for the years ended December 31, 1994 and 1995 and the six months
ended June 30, 1995 and 1996 (Unaudited) ................................................... F-4
Statement of Stockholders' Equity (Deficit) for the years ended December 31, 1994 and 1995
and the six months ended June 30, 1996 (Unaudited) ......................................... F-5
Statements of Cash Flows for the years ended December 31, 1994 and 1995 and the six months
ended June 30, 1995 and 1996 (Unaudited) ................................................... F-6
Notes to Financial Statements ................................................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Ocurest Laboratories, Inc.
We have audited the accompanying balance sheets of Ocurest Laboratories,
Inc. (a Florida corporation) as of December 31, 1994 and 1995, and the
related statements of operations, stockholders' equity (deficit) and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by managment, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ocurest Laboratories,
Inc. as of December 31, 1994 and 1995, and the results of its operations and
its cash flows for the years then ended, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial
statments, the Company incurred a net loss of $2,736,792 for the year ended
December 31, 1995, and, as of that date, the Company's current liabilities
exceeded its current assets by $1,975,824. These factors, among others, as
discussed in Note B to the financial statements, raise substantial doubt
about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note B. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
GRANT THORNTON LLP
Fort Lauderdale, Florida
March 29, 1996
F-2
<PAGE>
OCUREST LABORATORIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
--------------- --------------- --------------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Current Assets ........................................
Cash ................................................. $ 84,836 $ 1,607 $ 5,138
Accounts receivable-customers ........................ 22,066 65,140 240,643
Inventories .......................................... 325,854 542,071 847,183
Prepaid expenses ..................................... 21,056 64,412 133,100
--------------- --------------- --------------
Total current assets ............................... 453,812 673,230 1,226,064
Property and Equipment, at cost, net .................. 618,602 543,301 888,443
Other Assets ..........................................
Patent and trademark licensing rights, net .......... 164,300 141,600 130,250
Deposits ............................................. 7,000 198,340 12,000
Deferred offering costs .............................. -- 5,000 83,742
Organizational costs, net ............................ 1,600 800 400
--------------- --------------- --------------
Total Other Assets ................................. 172,900 345,740 226,392
--------------- --------------- --------------
Total assets ....................................... $ 1,245,314 $ 1,562,271 $ 2,340,899
=============== =============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable ..................................... $ 548,854 $ 1,889,113 $ 1,626,865
Accrued advertising .................................. 114,436 155,276 --
Accrued salaries and taxes ........................... 116,649 47,362 60,202
Accrued expenses ..................................... 55,531 144,620 259,298
Accrued interest ..................................... -- 16,770 98,530
Notes payable-stockholders ........................... 198,537 238,774 295,000
Advances payable-factor ............................. -- 127,139 665,721
Notes payable-other .................................. -- -- 260,000
Patent and trademark licensing rights payable ....... 30,000 30,000 --
--------------- --------------- --------------
Total current liabilities ......................... 1,064,007 2,649,054 3,265,616
Notes Payable Stockholders ............................ -- 657,257 --
Commitments ........................................... -- -- --
Stockholders' Equity (deficit) ........................
Preferred stock - $.01 par value, 5,000,000 shares
authorized - none issued ........................... -- -- --
Common stock, $.008 par value, 25,000,000 shares
authorized, 897,811, 1,123,341 and 1,922,674 shares
issued and outstanding at December 31, 1994,
December 31, 1995 and June 30, 1996, respectively .. 7,183 8,989 15,381
Paid-in capital ...................................... 2,435,823 3,245,462 5,068,843
Accumulated deficit .................................. (2,261,699) (4,998,491) (6,008,941)
--------------- --------------- --------------
Total stockholders' equity (deficit) .............. 181,307 (1,744,040) (924,717)
--------------- --------------- --------------
Total liabilities and stockholders' equity
(deficit) ............................................. $ 1,245,314 $ 1,562,271 $ 2,340,899
=============== =============== ==============
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
OCUREST LABORATORIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------- ------------------------------
1994 1995 1995 1996
--------------- --------------- -------------- ---------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales ........................... $ 96,830 $ 687,122 $ 200,384 $ 734,291
Cost of goods sold .................. 139,733 545,175 160,206 443,579
--------------- --------------- -------------- ---------------
Gross profit (loss) .............. (42,903) 141,947 40,178 290,712
Selling and marketing expenses ..... 676,079 1,784,102 462,835 639,052
General and administrative expenses 948,458 964,426 466,548 484,648
Royalty expense ..................... 3,875 27,885 8,015 29,380
--------------- --------------- -------------- ---------------
Operating loss ................... (1,671,315) (2,634,466) (897,220) (862,368)
Other income (expense) ..............
Interest expense ................... (20,626) (112,326) (32,558) (148,082)
Interest income .................... 2,621 -- -- --
Royalty income ..................... -- 10,000 -- --
--------------- --------------- -------------- ---------------
Net loss before
provision for taxes ............. (1,689,320) (2,736,792) (929,778) (1,010,450)
Provision for taxes ................. -- -- -- --
--------------- --------------- -------------- ---------------
Net loss ......................... $(1,689,320) $(2,736,792) $ (929,778) $(1,010,450)
=============== =============== ============== ===============
Net loss per share .................. $ (1.16) $ (1.55) $ (.54) $ (.40)
=============== =============== ============== ===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
OCUREST LABORATORIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON
COMMON STOCK ADDITIONAL STOCK
------------------------- PAID-IN SUBSCRIPTION ACCUMULATED
SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT TOTAL
------------ ----------- -------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 579,698 $ 4,638 $ 940,602 $ (50,000) $ (572,379) $322,861
Issuance of stock, net of placement
costs of $98,520 ................... 268,375 2,147 1,252,219 -- -- 1,254,366
Common stock subscription received .. -- -- -- 50,000 -- 50,000
Issuance of stock upon conversion of
notes .............................. 48,738 390 237,610 -- -- 238,000
Issuance of stock in lieu of cash to
stockholders who provide
professional services .............. 1,000 8 5,392 -- -- 5,400
Net loss for the year ................ -- -- -- -- (1,689,320) (1,689,320)
------------ ----------- -------------- -------------- ---------------- -------------
Balance at December 31, 1994 ......... 897,811 7,183 2,435,823 -- (2,261,699) 181,307
Issuance of stock for cash, net of
placement costs of $6,548 .......... 57,031 457 248,452 -- -- 248,909
Issuance of stock upon conversion of
notes .............................. 23,865 191 107,204 -- -- 107,395
Issuance of stock for cash upon
exercised warrants ................. 35,730 286 124,767 -- -- 125,053
Issuance of stock in lieu of cash to
directors/stockholders who provide
professional services .............. 30,203 242 86,063 -- -- 86,305
Issuance of stock in lieu of cash to
employees for accrued salaries ..... 78,701 630 243,153 -- -- 243,783
Net loss for the year ................ -- -- -- -- (2,736,792) (2,736,792)
------------ ----------- -------------- -------------- ---------------- -------------
Balance at December 31, 1995 ......... 1,123,341 8,989 3,245,462 -- (4,998,491) (1,744,040)
Balance at December 31, 1995 ......... 1,123,341 $ 8,989 $ 3,245,462 $ -- $ (4,998,491) $ (1,744,040)
Issuance of stock, net ............... 400,000 3,200 931,800 -- -- 935,000
Issuance of stock upon conversion of
notes and accrued interest ......... 300,327 2,402 693,081 -- -- 695,483
Issuance of stock for cash upon
exercised warrants ................. 88,250 705 171,695 -- -- 172,400
Issuance of stock in lieu of cash to
stockholders who provide
professional services .............. 7,500 60 18,690 -- -- 18,750
Issuance of stock in lieu of cash to
employees for accrued salaries ..... 3,256 25 8,115 -- -- 8,140
Net loss for the six months ended
June 30, 1996 ...................... -- -- -- -- (1,010,450) (1,010,450)
------------ ----------- -------------- -------------- ---------------- -------------
Balance at June 30, 1996 (Unaudited) . 1,922,674 $ 15,381 $ 5,068,843 $ -- $ (6,008,941) $ (924,717)
============ =========== ============== ============== ================ =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
OCUREST LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------- --------------------------------
1994 1995 1995 1996
---------------- ---------------- -------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss ................................... $ (1,689,320) $ (2,736,792) $ (929,778) $ (1,010,450)
Adjustments to reconcile net loss to net cash
used in operating activities: ..............
Professional services paid with stock ...... 5,400 86,305 27,000 18,750
Accrued salaries paid with stock ............ -- 243,783 118,848 8,140
Interest expense paid with stock ............ -- -- 7,394 53,425
Depreciation and amortization ............... 63,128 102,986 51,264 65,098
Changes in assets and liabilities ...........
Increase in accounts receivable ............ (22,066) (43,074) (65,508) (175,503)
Increase in inventories .................... (325,854) (216,217) (24,009) (305,112)
Increase in prepaid expenses ............... (21,056) (43,356) (2,944) (65,688)
Increase (decrease) in accounts payable ... 524,646 1,340,259 (451,275) (262,248)
Increase in accrued expenses ............... 251,786 108,748 194,737 54,002
---------------- ---------------- -------------- ----------------
Net cash used in operating activities .... (1,213,336) (1,157,358) (1,074,271) (1,622,586)
Cash flows from investing activities ........
Purchase of property and equipment ......... (606,420) (4,185) (47,744) (398,490)
Deposits on fixed assets ................... -- (186,340) -- 186,340
Increase in deposits ....................... (6,600) (5,000) -- --
---------------- ---------------- -------------- ----------------
Net cash used in investing activities .... (613,020) (195,525) (47,744) (212,150)
Cash flows from financing activities ........
Proceeds from issuance of common stock, net 1,304,366 373,962 363,109 1,107,400
Proceeds from new borrowings ............... 277,498 900,692 713,439 1,079,609
Principal repayments on indebtedness ....... (5,000) -- -- (270,000)
(Increase) decrease in deferred offering
costs ..................................... 25,000 (5,000) (16,500) (78,742)
---------------- ---------------- -------------- ----------------
Net cash provided by financing activities 1,601,864 1,269,654 1,060,048 1,838,267
---------------- ---------------- -------------- ----------------
Net increase (decrease) in cash .............. (224,492) (83,229) (61,967) 3,531
Cash at beginning of period .................. 309,328 84,836 84,836 1,607
---------------- ---------------- -------------- ----------------
Cash at end of period ........................ $ 84,836 $ 1,607 $ 22,869 $ 5,138
================ ================ ============== ================
Supplemental disclosure of cash flow
information: ...............................
Cash paid during the period for: .............
Interest ................................... $ 17,767 $ 32,340 $ 8,920 $ 12,896
================ ================ ============== ================
Noncash transactions: ........................
Conversion of notes payable to common stock $ 238,000 $ 107,395 $ 100,000 $ 642,058
================ ================ ============== ================
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
OCUREST LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
AND JUNE 30, 1996 (UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
PRESENTATION
The interim financial statements as of June 30, 1995 and 1996 and the six
months then ended as included herein are unaudited. However, in the opinion
of management, such information reflects all adjustments, consisting only of
normal recurring accruals necessary for a fair presentation of the
information shown. The interim financial statements for the periods stated
and notes presented herein do not contain certain information included in the
Company's annual financial statements and notes as also herein presented.
Results for interim periods are not necessarily indicative of results
expected for the full year.
OPERATIONS
Ocurest Laboratories, Inc. (the "Company") was incorporated in the State
of Florida on April 29, 1991. In July 1994, the Company began selling Ocurest
Sterile Eyedrops, a line of non-prescription eye medications featuring a
patented new dispenser for delivering ophthalmic drugs into the eye.
CASH
Cash and cash equivalents include cash on deposit in checking and money
market accounts with maturities of three months or less.
INVENTORIES
Inventories are principally raw materials and finished goods held for
resale and are stated at the lower of cost (first in, first out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the related assets which range from 5 to 10 years.
ORGANIZATIONAL COSTS
Organizational costs were capitalized and are being amortized using the
straight-line method over five years. Accumulated amortization was $2,400,
$3,200 and $3,600 at December 31, 1994, December 31, 1995 and June 30, 1996,
respectively.
PATENT AND TRADEMARK LICENSING RIGHTS
The Company has acquired the exclusive worldwide licensing rights to
certain patents and trademarks from a previously related party (see Note E)
and is capitalizing additional costs to maintain and protect these patents
and trademarks as they are incurred. These costs are being amortized over ten
years, the estimated economic life of the patent, using the straight line
method.
F-7
<PAGE>
OCUREST LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
AND JUNE 30, 1996 (UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER
INFORMATION--(CONTINUED)
ADVERTISING
The Company expenses the cost of advertising, which includes production
costs, media time and space as costs are incurred. Total advertising expense
for the years ended December 31, 1994, December 31, 1995 and the six months
ended June 30, 1996, amounted to approximately $567,000, $1,528,000 and
$301,000, respectively.
INCOME TAXES
The Company accounts for income taxes under the provisions of FAS 109,
"Accounting for Income Taxes." This pronouncement requires accounting for
deferred taxes utilizing the liability method, which applies the enacted
statutory rates in effect at the balance sheet date to differences between
the book and tax basis of assets and liabilities. The resulting deferred tax
liabilities and assets are adjusted to reflect changes in tax laws.
FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, trade receivables,
accounts payable and notes payable approximate fair value due to the
short-term maturities of these instruments.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual
results could differ from those estimates.
STOCK OPTIONS
Options granted under the Company's Stock Option Plans are accounted for
under APB 25, "Accounting for Stock Issued to Employees," and related
interpretations. In November 1995, the Financial Accounting Standards Board
issued Statement 123, "Accounting for Stock-Based Compensation," which will
require additional proforma disclosures for companies that will continue to
account for employee stock options under the intrinsic value method specified
in APB 25. The Company plans to continue to apply APB 25 and the only effect
of Statement 123 in 1996 is the new disclosure requirement.
NET LOSS PER SHARE
Net loss per share has been computed by dividing net loss by the weighted
average number of shares of common stock and common stock equivalents
outstanding during each period. The weighted average number of shares of
common stock and common stock equivalents used for computing net loss per
share was 1,459,059 and 1,767,562 for the years ended December 31, 1994 and
1995, respectively,
F-8
<PAGE>
OCUREST LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
AND JUNE 30, 1996 (UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER
INFORMATION--(CONTINUED)
and 1,725,825 and 2,527,613 for the six months ended June 30, 1995 and 1996,
respectively. The weighted average includes the effect of common stock,
options and warrants issued within one year of the proposed Initial Public
Offering ("IPO") at prices below the IPO price, as calculated under the
treasury stock method, and have been retroactively restated for a 1 for 2
reverse stock split that was approved on July 15, 1996 (See Note P). The
weighted average number of shares of common stock and common stock
equivalents was not computed utilizing the modified treasury stock method as
this method is antidilutive.
SUPPLEMENTAL PRO FORMA NET LOSS AND NET LOSS PER SHARE
The Company's supplemental pro forma net loss and net loss per share for
the year ended December 31, 1995 and the six months ended June 30, 1996 are
$2,670,192 and $977,150 and $1.40 and $0.37, respectively.
The supplemental pro forma net loss and net loss per share reflect the
issuance of shares necessary to retire $555,000 of notes payable and the
resulting decrease in net loss in the amount of $66,600 and $33,300 for the
year ended December 31, 1995 and the six months ended June 30, 1996,
respectively, as of the beginning of 1995. The calculation is based on the
weighted average shares outstanding used in the calculation of net loss per
share, adjusted for the estimated shares that would be issued by the Company,
i.e. 138,750 shares at $4.00 per share, to retire these obligations.
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
requires that long-lived assets and certain intangibles held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. This
statement had no impact on the Company's results of operations or financial
position upon adoption in 1996.
NOTE B - GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. However, the Company has sustained substantial
losses from operations since the date of inception, and such losses have
continued through the year ended December 31, 1995. In addition, the Company has
used more cash than capital raised and provided through its operations which
resulted in the working capital deficit of $1,975,824 as of December 31, 1995.
Loans and accrued interest in the amount of $250,000 and $650,000 were
delinquent as of January 31, 1996 and June 30, 1996, respectively.
In view of the matters described in the preceding paragraph,
recoverability of a major portion of the recorded asset amounts shown in the
accompanying balance sheet is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to raise funds
to continue to fund its operations and planned expansion. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and classification of
liabilities that might be necessary should the Company be unable to continue
in existence.
F-9
<PAGE>
OCUREST LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
AND JUNE 30, 1996 (UNAUDITED)
NOTE B - GOING CONCERN--(CONTINUED)
In addition to the debt conversion, debt issuance and the private
placement of its common stock described in Note P, the Company has entered
into a Letter of Intent (Note O) with RAF Financial Corporation relating to a
proposed IPO of its common stock and warrants. This offering is intended to
generate net proceeds to the Company of approximately $3,876,000.
NOTE C -INVENTORIES
Inventories consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
--------------- --------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials $ 68,406 $ 44,646 $ 68,742
Finished goods 257,448 497,425 778,441
--------------- --------------- ------------
$325,854 $542,071 $847,183
=============== =============== ============
</TABLE>
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
--------------- --------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Manufacturing equipment ..... $648,565 $ 652,295 $1,050,784
Furniture and fixtures ....... 2,268 2,723 2,723
Computer equipment ........... 7,111 7,111 7,111
--------------- --------------- -------------
657,944 662,129 1,060,618
Less accumulated depreciation (39,342) (118,828) (172,175)
--------------- --------------- -------------
$ 618,602 $ 543,301 $ 888,443
=============== =============== =============
</TABLE>
At December 31, 1995, the Company had placed a $310,000 order for certain
product specific molds to be used in its manufacturing process, of which
approximately $152,000 had been billed and is reflected in deposits and
accounts payable in the accompanying financial statements.
As of December 31, 1995, the Company has also paid a $34,000 deposit
towards the purchase of specialized machinery with an acquisition price of
$370,000. The deposit is subject to the risk of forfeiture in the event the
purchase is not consummated.
NOTE E - PATENT AND TRADEMARK LICENSING RIGHTS
The Company has acquired the exclusive worldwide licensing rights to
certain patents and trademarks for the newly developed eye drop dispenser
from a related party, Acorn Laboratories, Inc. ("Acorn"), owned by William J.
Casey, past Chairman of the Company. The Company has paid to Acorn $170,000
and accrued for an additional $30,000 through December 31, 1995, both of
which represent an initial payment on the purchase from Acorn.
F-10
<PAGE>
OCUREST LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
AND JUNE 30, 1996 (UNAUDITED)
NOTE E - PATENT AND TRADEMARK LICENSING RIGHTS--(CONTINUED)
Further, the Company has agreed to pay Acorn a royalty of 4% of future net
sales up to a maximum royalty of $9,800,000. The Company has capitalized the
initial payment and other related patent costs and is amortizing them using
the straight line method over a ten year life. Upon payment of the maximum
royalty of $9,800,000, Acorn has agreed to assign the patent and trademark to
the Company. Acorn has also agreed to allow the Company to defer payment of
certain royalties until certain earnings levels are attained. The agreement
also provides for a payment to Acorn in the event of a change in control of
the Company.
Patent and trademark licensing rights consist of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
--------------- --------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Patent and trademark licensing rights $227,000 $227,000 $227,000
Less accumulated amortization ....... (62,700) (85,400) (96,750)
--------------- --------------- ------------
$164,300 $141,600 $130,250
=============== =============== ============
</TABLE>
F-11
<PAGE>
OCUREST LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
AND JUNE 30, 1996 (UNAUDITED)
NOTE F - NOTES PAYABLE - STOCKHOLDERS
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996
--------------- --------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable, minority stockholders, fixed interest
at 10%, maturing June 1994 .......................... $ 5,000 $ 5,000 $ 5,000
Notes payable, minority stockholders, fixed interest
at 10%, maturing February 1995 ...................... 10,000 10,000 10,000
Notes payable, minority stockholders, fixed interest
at 12%, maturing June 1994 .......................... 50,000 -- --
Note payable, minority stockholders, fixed interest at
12%, maturing January 1995 .......................... 123,537 50,000 50,000
Note payable, minority stockholders, fixed interest at
15%, maturing June 1994 ............................. 10,000 10,000 10,000
Note payable, minority stockholders, fixed interest at
12%, maturing October 1995 .......................... -- 73,966 --
Note payable, minority stockholder, fixed interest at
12%, maturing April 1995 ............................ -- 50,000 50,000
Note payable, Director, fixed interest at 12%,
maturing November 1996 .............................. -- 200,000 --
Note payable, Director, fixed interest at 12%,
maturing January 1996 ............................... -- 91,906 --
Note payable, minority stockholders, interest at 12%,
maturing January 1996 ............................... -- 135,000 85,000
Note payable, Director, interest at prime plus 1.5%,
maturing December 31, 1995 .......................... -- 238,823 --
Note payable, individual, interest at 12%, maturing
June 1996 ........................................... -- -- 50,000
Note payable, corporation, interest at prime plus 2%,
maturing September 1996 ............................. -- -- 260,000
Note payable, minority shareholder, interest at 12%,
maturing June 1996 .................................. -- -- 35,000
--------------- --------------- ------------
$198,537 $864,695 $555,000
=============== =============== ============
</TABLE>
Principal and interest is due at maturity for all notes. Accrued interest
due during 1994 on these notes was paid. The accrued and unpaid interest as
of December 31, 1995 amounted to $48,106 of which $31,336 was converted into
common stock during January 1996 and is classified in the long-term portion
of notes payable stockholders in the 1995 financial statements. Interest
expense was $20,626 and $112,326 for the years ended December 31, 1994 and
1995 and $148,082 for the six months ended June 30, 1996, respectively.
Subsequent to December 31, 1995, the Company converted $625,921 of notes
payable to common stock. This portion of the notes payable has been
classified as long-term in the 1995 financial statements.
F-12
<PAGE>
OCUREST LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
AND JUNE 30, 1996 (UNAUDITED)
NOTE G - ADVANCES PAYABLE - FACTOR
During 1995, the Company entered into an agreement with a factor for the
financing of accounts receivable and inventory. Under the terms of the accounts
receivable agreement, the Company sells its accounts receivable to the factor
and the factor advances the Company an amount equal to 70% of the accounts
receivable sold. The factor's initial fee for this service is equal to 3% of
the amount advanced. Under certain circumstances, such fee may increase by
an additional 3%. However, the Company can avoid the additional fees by
replacing an unpaid invoice with a new invoice of equal value within 30 days.
Under the terms of the inventory agreement, the factor will finance 50% of the
finished goods inventory cost. Financings are made in the form of a "sale"
whereby the factor buys the inventory and then re-sells it to the Company when
the sale is made to the end customer. The factor charges a fee ranging from 3%
to 6% of the inventory amounts financed. The factor also makes advances against
the Company's machinery and equipment up to a maximum of $524,000. The agreement
calls for an associated management fee of $5,000 per month which the factor has
pro-rated based upon the actual amounts of such advances as compared to the
$524,000 maximum. Based upon the escalating fee schedule and the Company's
ability to substitute sales invoices, all rights and obligations associated with
a sale have not occurred and therefore this transaction has been accounted for
as a financing transaction in the financial statements.
The total amounts financed under this agreement, including advances relating
to receivable, inventory, and machinery and equipment, amounted to $127,539 and
$665,721 as of December 31, 1995 and June 30, 1996, respectively.
NOTE H - COMMITMENTS AND CONTINGENCY
LEASES
The Company is obligated under noncancelable leases which are classified
as operating leases. The Company conducts operations in a facility under a
three year lease that expires on June 30, 1997. The rent expense for real
property was $17,530, $21,530 and $6,446 for the years ended December 31,
1994 and 1995, and for the six months ended June 30, 1996, respectively.
Total rent expense for the years ended December 31, 1994 and 1995 and for the
six months ended June 30, 1996, amounted to approximately $19,200, $25,221
and $13,005, respectively.
At December 31, 1995, the following are the minimum rental payments under
such operating leases which expire at various dates through 1997:
<TABLE>
<CAPTION>
OFFICE OFFICE
YEAR TOTAL RENTAL EQUIPMENT
- ---- --------- --------- ------------
<S> <C> <C> <C>
1996 24,834 22,806 $2,028
1997 13,021 11,669 1,352
--------- --------- ------------
37,855 34,475 $3,380
========= ========= ============
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with three key
executives which provide for base salaries ranging from $66,000 to $150,000.
Total compensation paid under these agreements amounted to approximately
$221,000 and $326,000 for the years ended December 31, 1994 and 1995,
respectively. The employment agreements expire on December 31, 1996, and are
extended automatically for successive one-year terms of employment. The
Company's remaining aggregate commitments at December 31, 1995, under such
contracts, total approximately $331,000.
F-13
<PAGE>
OCUREST LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
AND JUNE 30, 1996 (UNAUDITED)
NOTE I - INCOME TAXES
The Company has a net operating loss carryforward for tax purposes of
approximately $3,821,000, which will expire during the years 2006 through
2011. As a result of certain cumulative changes in the Company's stock
ownership over the past three years, future use of the net operating loss
carryforwards may be substantially limited by the change in ownership rules.
The Company has deductible temporary differences which consists of the
following at:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
------------ ----------
<S> <C> <C>
Allowance for doubtful accounts -- 5,000
Start up and organization costs 741,000 577,000
Depreciation and amortization . 144,000 67,000
Accrued salaries ............... 117,000 47,000
Inventory capitalization ...... 56,000 90,000
------------ ----------
1,058,000 786,000
============ ==========
</TABLE>
The following tax benefit was recorded for the net operating loss
carryforwards and the deductible temporary differences at:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
------------ --------------
<S> <C> <C>
Current assets:
Deferred tax benefit ..................... $ 127,000 $ 135,000
Less valuation allowance ................. (127,000) (135,000)
------------ --------------
Deferred tax benefit - net of allowance $ -- $ --
============ ==============
Other assets:
Deferred tax benefit ..................... $ 716,000 $ 1,598,000
Less valuation allowance ................. (716,000) (1,598,000)
------------ --------------
Deferred tax benefit - net of allowance $ -- $ --
============ ==============
</TABLE>
NOTE J - STOCK OPTIONS
In July 1994, the Board of Directors amended the 1992 Stock Option Plan
(the "Plan") which reserves 143,750 shares of common stock for issuance under
the Plan. Options may be granted as qualified options under Section 422 of
the Internal Revenue Code, or as non-qualified options, as deemed
appropriate. Qualified options must have exercise prices equal to at least
100% of the fair market value of the stock at the date of grant. The term of
the options is generally ten years and they are exercisable in one-third
installments annually from the date of grant.
In addition, the Company has granted other non-qualified options. The term
of these options is for a period of 10 years and they remain exercisable
throughout their term. Options granted and outstanding are as follows at:
F-14
<PAGE>
OCUREST LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
AND JUNE 30, 1996 (UNAUDITED)
NOTE J - STOCK OPTIONS--(CONTINUED)
<TABLE>
<CAPTION>
GRANTED UNDER THE PLAN
----------------------------------------
QUALIFIED NON-QUALIFIED OTHER NON-QUALIFIED
------------------- ------------------- --------------------
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1992 9,375 $4.00 18,750 $4.00 5,125 $4.00
December 31, 1993 3,125 $4.00 18,750 $4.50 1,875 $4.00
3,125 $4.50
December 31, 1994 3,125 $4.50 -- $ -- 18,000 $4.50
December 31, 1995 5,000 $4.50 56,250 $4.80 22,750 $4.50
--------- --------- ---------
23,750 93,750 47,750
========= ========= =========
</TABLE>
Non-qualified options are currently exercisable, and no compensation
expense has been recognized under any of these grants. As of December 31,
1995, no options have been exercised.
NOTE K - WARRANTS
During the years ended December 31, 1994 and 1995, the Company issued
warrants to acquire common stock of the Company. Each warrant represents the
right to purchase one share of common stock for prices ranging from $4.00 to
$12.00 per warrant. Warrants unexercised as of December 31, 1995 are as
follows (exercise prices are retroactively restated to reflect 1 for 2
reverse stock split - see Note P):
<TABLE>
<CAPTION>
NUMBER OF WARRANTS EXERCISE PRICE EXPIRATION DATE
- ------------------ -------------- ---------------
<S> <C> <C>
463,545 $ 8.00 January 1997
9,750 $12.00 January 1997
43,750 $11.00 January 2000
10,784 $ 7.20 November 1997
27,000 $ 5.00 January 1996
50,000 $ 4.50 June 1997
50,000 $ 4.00 June 2000
</TABLE>
In January 1996, the Company allowed warrant holders to exercise their
warrants at 40% of their exercise price provided that they exercised on or
before January 31, 1996. Pursuant to this agreement, 88,250 warrants were
exercised for $172,400. The incremental value of the modified warrants is not
significantly different than the value of the previous warrants.
In February 1996, the Company agreed to permanently reduce the exercise
price of all warrants with an exercise price above $5.00 per share to $5.00
share (see Note P).
NOTE L - SIGNIFICANT CUSTOMERS
For the year ended December 31, 1994, the Company's three largest
customers accounted for 25%, 23% and 23%, respectively, of the Company's
gross sales. For the year ended December 31, 1995, the Company's three
largest customers accounted for 43%, 13% and 11%, respectively, of the
Company's gross sales. For the six months ended June 30, 1996, the Company's
three largest customers accounted for 13%, 11% and 10%, respectively, of the
Company's gross sales.
F-15
<PAGE>
OCUREST LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
AND JUNE 30, 1996 (UNAUDITED)
NOTE M - SIGNIFICANT VENDORS
The Company has purchases from two vendors which represent 97% of net
purchases in 1995. The Company does not anticipate any interruption in
supplies from its vendors. In the event supplies were disrupted for any
reason, management believes alternative sources for these purchases are
available.
NOTE N - AFFILIATED TRANSACTIONS
During 1994, the Company entered into consulting agreements with each of
the previous Chairman of the Board of Directors and a director to provide
certain advertising consulting activities. Total consulting expense during
the years ended December 31, 1994 and 1995 was $28,000 and $27,000,
respectively, and the amount accrued and unpaid as of December 31, 1994 and
1995 was $5,600 and $-0-, respectively.
NOTE O - INITIAL PUBLIC OFFERING
The Board of Directors has authorized the filing of a registration
statement relating to an IPO for Units consisting of 1,200,000 shares of
common stock and 1,200,000 Class A warrants. In connection with the offering,
during February 1996 the Company entered into a Letter of Intent with RAF
Financial Corporation (RAF). RAF individually or as the representative of a
group of underwriters intends to underwrite the shares and the warrants being
offered on a "firm commitment basis." The underwriters will be paid 10% of the
IPO proceeds and a non-accountable expense allowance (of which $30,000 has
been paid), will be given the right to purchase warrants for 10% of the
shares and will be given the right to purchase 10% of the warrants sold
exclusive of over-allotment shares.
The Letter of Intent, among other things, provides for certain
anti-dilution and registration rights to RAF in the warrant for 10% of the
shares and allows designees of RAF to observe all Board of Directors meetings
for three years.
NOTE P - SUBSEQUENT EVENTS
In January 1996, the Company converted $657,257 of its debt to common
stock. This conversion reduces long-term debt to $-0-and decreases total
stockholders' deficit to $1,086,783.
In addition to the warrant exercise described in Note K, between January
1, 1996 and June 30, 1996 the Company sold and issued 400,000 shares of its
common stock for approximately $935,000.
During April 1996, the Company issued a $260,000 promissory note which is
to be repaid at the earlier of September 1996 or the closing of the IPO. In
connection with this note, the Company issued warrants to purchase 50,000
shares of the Company's common stock.
On April 19, 1996, the Company's Board of Directors approved a 1 for 2
reverse-split of its issued and outstanding shares of common stock, warrants
and options. The Company will issue new certificates to shareholders
following the closing of the Company's forthcoming IPO. All per share and
weighted average share amounts, for all periods presented, have been restated
to reflect the effect of the 1 for 2 reverse stock split. The Company amended
its Article of Incorporation by increasing the authorized shares of common
stock from 3 million to 25 million shares and preferred stock from 1 million
to 5
F-16
<PAGE>
OCUREST LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
AND JUNE 30, 1996 (UNAUDITED)
NOTE P - SUBSEQUENT EVENTS--(Continued)
million shares. The Company also approved the post-split warrants with an
exercise price greater than $5.00 to be $5.00 and all warrants with
expiration dates falling in calendar year 1997 to a common expiration date of
May 31, 1998.
In September and October 1996, the Company borrowed an additional $700,000
from certain individuals, including a shareholder, at 12% interest. The loans
and accrued interest mature upon the earlier of 10 days after the closing of
the initial public offering or 6 months from the date of the loans. In
connection with the loans, the Company issued warrants to purchase an
aggregate of 350,000 shares of its common stock at $2.40 per share. The
warrant holders have certain piggyback registration rights.
F-17
<PAGE>
PHOTOGRAPH #2 (Photo storyboard consisting of nine small photographs with
captions)
Picture of a photo storyboard of one of the Company's 30 second television
commercials. Commercial shows woman using conventional eyedrop dispenser and
then using the Ocurest Delivery System on the bridge of her nose and explaining
how easy the Ocurest Delivery System is to use.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
-------------------
TABLE OF CONTENTS
-------------------
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary ................................ 3
Risk Factors ...................................... 6
Use of Proceeds ................................... 14
Dividend Policy ................................... 15
Dilution .......................................... 15
Capitalization .................................... 16
Selected Financial Data ........................... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ................................... 18
Business .......................................... 21
Management ........................................ 28
Security Ownership of Certain Beneficial Owners
and Management .................................. 32
Selling Shareholders .............................. 33
Certain Relationships and Transactions ............ 34
Description of Securities ......................... 37
Shares Eligible for Future Sale ................... 40
Underwriting ...................................... 42
Legal Proceedings ................................. 44
Experts ........................................... 44
Legal Matters ..................................... 44
Indemnification for Securities Act Liabilities ... 44
Additional Information ............................ 45
Index to Financial Statements ..................... F-1
</TABLE>
-------------------
UNTIL , 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE UNITS, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
OCUREST LABORATORIES, INC.
1,200,000 UNITS
EACH CONSISTING OF
ONE SHARE OF
COMMON STOCK
AND ONE CLASS A
REDEEMABLE COMMON STOCK
PURCHASE WARRANT
-------------------
PROSPECTUS
-------------------
RAF
FINANCIAL CORPORATION
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Florida Business Corporation Act, the small business issuer has
the power and authority to indemnify any person who is or was a director,
officer, employee or agent of the small business issuer (or the affiliates of
the small business issuer) for liability incurred in connection with any
action brought against such person (other than an action by, or in the right
of, the small business issuer) if such person acted in good faith and in a
manner reasonably believed to be in, or not opposed to, the best interests of
the small business issuer, and with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
The small business issuer, pursuant to its Articles of Incorporation and
By-Laws, is required to indemnify any such person who has complied with the
foregoing standard. Under the Florida Business Corporation Act, the small
business issuer also currently has the power and authority to indemnify any
such person for liability incurred in any action by, or in the right of, the
small business issuer against the expense and amounts paid in settlement not
exceeding, in the judgment of the Board of Directors, the estimated expense
of litigating the proceeding described above to its conclusion, provided such
expenses and amounts are actually and reasonably incurred in connection with
the defense or settlement of such proceeding, including any appeal thereof.
The small business issuer's Articles of Incorporation and By-Laws require the
small business issuer to indemnify any such person against the expenses and
amounts paid in settlement as described in the foregoing sentence. The
Underwriting Agreement provides that, in certain cases, the Underwriters
shall indemnify each officer and director and controlling person of the small
business issuer against certain costs, expenses and liabilities which he may
incur in his capacity as such.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the expenses (other than underwriting discounts) of the
offering, all of which are to be paid by the small business issuer. Other
than the Securities and Exchange Commission Registration Fee, the NASD filing
fee and the NASDAQ Small-Cap fees, all expenses are estimated.
Securities and Exchange Commission Registration Fee $ 9,372
NASD Filing Fee ................................... 3,218
NASDAQ Small-Cap Fees ............................. 13,105
Blue Sky Fees and Expeses ......................... 25,000
Transfer Agent Fees and Expenses .................. 10,000
Representative's Non-Accountable Expense Allowance 144,000*
Legal Fees ........................................ 75,000
Accounting Fees ................................... 55,000
Printing and engraving ............................ 60,000
Miscellaneous ..................................... 49,305
-----------
Total ........................................... $444,000
===========
- -------------
* Assumes no exercise of the Over-Allotment Option.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
(a) Between August 1993 and October 1996, the small business issuer sold
1,303,768 shares of its Common Stock, promissory notes in the aggregate
principal amount of $1,926,770 and warrants for the purchase of an aggregate
of 1,017,084 shares of Common Stock.
(b) The securities were sold to private investors.
II-1
<PAGE>
(c) Shares of Common Stock were sold for an aggregate price of $4,265,759,
including the conversion of certain promissory notes. Promissory notes were
sold for an aggregate amount representing their respective principal amounts.
No additional consideration was received for the warrants.
(d) Exemption from registration was claimed pursuant to Section 4(2) of
the Securities Act of 1933 on the basis that all offers and sales of
securities by the small business issuer were conducted privately and no
public offering was involved.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
1.1 Amended Form of Underwriting Agreement.****
3.1 Articles of Incorporation.*
3.2 Amendment to Articles of Incorporation dated May 20, 1991.**
3.3 Amendment to Articles of Incorporation dated March 9, 1994.*
3.4 Amendment to Articles of Incorporation dated July 15, 1996.*
3.5 Amendment to Articles of Incorporation dated August 7, 1996.**
3.6 Statement of Designation of the Series A, 9% Cumulative Preferred Stock dated April 30, 1991.**
3.7 Articles of Amendment to the Statement of Designation of the Series A, 9% Cumulative Preferred Stock
dated May 30, 1991.**
3.8 By-Laws.**
4.1 Amended Form of Representative's Warrants to Purchase Common Stock.****
4.2 1992 Key Employee Stock Option Plan, as amended.**
4.3 Amended Form of Class A Redeemable Common Stock Purchase Warrant.****
4.4 Form of certificate representing Common Stock.*
4.5 Amended Form of certificate representing Units.****
5.1 Amended Opinion re legality.****
10.1 Lease of June 24, 1994 for premises located at 4400 PGA Blvd., Palm Beach Gardens, Florida by and
between Rimco XII, Inc. and the small business issuer.*
10.2 Master Broker Agreement as of December 1, 1993 by and between the small business issuer and Morano
Associates, Inc.*
10.3 Employment Agreement as of December 1, 1993 by and between the small business issuer and Edmund
G. Vimond, Jr.*
10.4 Employment Agreement as of December 1, 1993 by and between the small business issuer and Larry M.
Reid.*
10.5 Addendum of June 19, 1996 to Employment Agreement as of December 1, 1993 by and between the small
business issuer and Larry M. Reid.*
10.6 Employment Agreement as of December 1, 1993 by and between the small business issuer and Eric Schwarz.*
10.7 Addendum of June 19, 1996 to Employment Agreement as of December 1, 1993 by and between the small
business issuer and Eric Schwarz.*
10.8 Employment Agreement as of June 19, 1996 by and between the small business issuer and John F. Carlson.*
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
10.9 Agreement of October 30, 1991 by and between Acorn Laboratories, Inc. and the small business issuer.*
10.10 First Amendment to Agreement by and between Acorn Laboratories, Inc. and the small business issuer
dated March 31, 1995.*
10.11 Second Amendment to Agreement by and between Acorn Laboratories, Inc. and the small business issuer
dated January 29, 1996.*
10.12 Letter dated June 17, 1996 from Acorn Laboratories, Inc. to the small business issuer.**
10.13 Contract Supply Agreement as of March 1, 1994 by and between the small business issuer and Bausch
& Lomb Pharmaceutical, Inc.**
10.14 Letter Agreement of October 4, 1995 by and between the small business issuer and Bausch & Lomb.**
10.15 Letter Agreement of March 27, 1996 by and between the small business issuer and Bausch & Lomb.**
10.16 Letter Agreement effective January 1, 1996 between Wheaton Plastic Products and the small business
issuer.**
10.17 Amended Form of Warrant Agent Agreement.****
10.18 Form of Escrow Agreement by and between the small business issuer and Tri-State Bank.***
10.19 Consulting Agreement as of February 20, 1995 by and between the small business issuer and Joseph
Morano.**
10.20 Consulting Agreement, as amended, as of February 17, 1992 by and between the small business issuer
and Leonard L. Kaplan.**
10.21 Loan Agreement of April 1, 1996, as amended on August 1, 1996, by and between the small business
issuer and American Growth Fund I.L.P. and Common Stock Purchase Warrants issued thereto on April
1, 1996.**
10.22 Promissory Note dated April 1, 1996 from the small business issuer to American Growth Fund I.L.P.
and N Note Modification Agreement dated August 1, 1996 between the small business issuer and American
Growth Fund I.L.P.**
10.23 Security Agreement of April 1, 1996 by and between the small business issuer and American Growth
Capital Corporation.**
10.24 Agreement effective November 15, 1995 between JMR Funding, Inc. and the small business issuer.***
10.25 $524,000 Note dated June 28, 1996 from the small business issuer to JMR Funding, Inc.**
10.26 Security Agreements dated June 28, 1996 and November 15, 1995 between the small business issuer
and JMR Funding, Inc.**
10.27 Agreement, Promissory Note and Security Agreement dated May 3, 1995 between the small business issuer
and Ralph H. Laffler.**
10.28 Promissory Note dated November 6, 1995 from the small business issuer to Maurice Porter.**
10.29 Agreement, as amended, dated April 30, 1993 between Acorn Laboratories, Inc. and Edmund J. Vimond,
Jr.**
10.30 Agreement, as amended, dated April 30, 1993 between Acorn Laboratories, Inc. and Larry M. Reid.**
10.31 Subscription Agreement of September 6, 1996 between the small business issuer and Robert M. Kassenbrock,
including form of promissory note and warrant.*
10.32 Letter of November 4, 1996 from JMR Funding, Inc. to the small business issuer.****
11 Statement Regarding Computation of Per Share Earnings.**
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
23.1 Consent of Grant Thornton L.L.P.****
23.2 The consent of Reisman & Associates, P.A. is contained in Exhibit 5.1 filed herewith.
27.1 Financial Data Schedule.**
</TABLE>
- -------------
* Previously filed as an exhibit to Amendment No. 1 to Registration
Statement No. 333-10303 on Form SB-2.
** Previously filed as an exhibit to Registration Statement No. 333-10303 on
Form SB-2.
*** Previously filed as an exhibit to Amendment No. 2 to Registration Statement
No. 333-10303 on Form SB-2.
**** Filed herewith.
ITEM 28. UNDERTAKINGS
The undersigned small business issuer hereby undertakes to:
(1) File, during any period in which it offers or sells securities being
registered hereby, a post-effective amendment to this registration statement
to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in
the registration statement;
(iii) Include any additional or changed material information on the plan
of distribution.
(2) For the purpose of determining liability under the Securities Act of
1933, 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.
(4) Provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification arising under the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of the small
business issuer pursuant to any of 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 such Act and is, therefore, unenforceable.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Sarasota, State of Florida on November 4, 1996.
Ocurest Laboratories, Inc.
By: /s/ EDMUND G. VIMOND, JR.
---------------------------------
Edmund G. Vimond, Jr.
President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and on the dates stated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ EDMUND G. VIMOND, JR. Principal Executive Officer November 4, 1996
- --------------------------- and Director
Edmund G. Vimond, Jr.,
/s/ JOHN F. CARLSON Principal Financial and Accounting November 4, 1996
- --------------------------- Officer and Director
John F. Carlson
/s/ LARRY M. REID Director November 4, 1996
- ---------------------------
Larry M. Reid
Director , 1996
- ---------------------------
Fred Ahlbin
/s/ RALPH LAFFLER Director November 4, 1996
- ---------------------------
Ralph Laffler
Director , 1996
- ---------------------------
Robert S. Marker
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE
EXHIBIT NO. DESCRIPTION NUMBER
- ----------- ----------- ----------
<S> <C>
1.1 Amended Form of Underwriting Agreement.
4.1 Amended Form of Representative's Warrants to Purchase Common Stock.****
4.3 Amended Form of Class A Redeemable Common Stock Purchase Warrant
4.5 Amended Form of certificate representing Units.
5.1 Amended Opinion re legality.
10.17 Amended Form of Warrant Agent Agreement.
10.32 Letter of November 4, 1996 from JMR Funding, Inc. to the small
business issuer.
23.1 Consent of Grant Thornton L.L.P.
</TABLE>
UA/CS/WTS
11/1/96
OCUREST LABORATORIES, INC.
UNDERWRITING AGREEMENT
_______________, 1996
RAF Financial Corporation
One Norwest Center
1700 Lincoln Street, 32nd Floor
Denver, Colorado 80203
Gentlemen:
OCUREST LABORATORIES, INC. ("Company"), a Florida corporation, and the
selling shareholders named in Schedule II hereto ("Selling Shareholders") hereby
confirm their agreement with you, as Representative, and with the other members
of the Underwriting Group as follows:
SECTION 1
DESCRIPTION OF OFFERING AND SECURITIES
The Underwriting Group proposes to purchase from the Company a total of
1,200,000 Units ("Firm Units"), each Unit consisting of one share of Common
Stock of the Company ("Share") and one Class A Common Stock Purchase Warrant.
The Class A Common Stock Purchase Warrants will be referred to as "Class A
Warrants" in this Agreement and in the Agreement Among Underwriters. The
Representative, either on its own behalf or on behalf of the members of the
Underwriting Group, will have an overallotment option to purchase up to an
additional 180,000 Units ("Overallotment Units"), consisting of up to 180,000
Shares ("Overallotment Shares") and up to 180,000 Class A Warrants
("Overallotment Class A Warrants") to cover overallotments. Such Overallotment
Units, Shares, and Overallotment Class A Warrants are collectively referred to
herein as the "Overallotment Securities." Except as otherwise stated herein, the
Firm Units and the Overallotment Securities are collectively referred to herein
as the "Securities." The Company agrees to sell to the Underwriting Group all of
the Firm Units, and the Company agrees to sell to the Representative all of the
Overallotment Securities except for the Overallotment Shares which are sold to
the Representative by Selling Shareholders. The Selling Shareholders have the
right to sell to the
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<PAGE>
Representative up to the first 180,000 of the Overallotment Shares. The Units
will be initially offered for sale to the public at a price of $4.00 per Unit.
Such price is referred to herein as the "Public Offering Price." The Company's
authorized and outstanding capitalization when the offering of the Firm
Securities is permitted to commence and at the Closing Date (hereinafter
defined) and at the Option Closing Date (hereinafter defined) will be as set
forth in the Registration Statement (hereinafter defined) and the Prospectus
(hereinafter defined) included therein. Any Overallotment Shares sold to the
Representative by the Selling Shareholders will be referred to herein as the
"Selling Shareholders Shares."
The Shares and Class A Warrants comprising the Units will not be
separately tradeable or transferable for a period of six months after the
effective date (hereinafter defined) or earlier at the discretion of the
Representative. The date upon which the Shares and Class A Warrants become
separately tradeable and transferable will be referred to herein as the
"Detachment Date."
One Class A Warrant entitles the holder to purchase one share of the
Company's Common Stock ("Warrant Share") at $4.80 per share ("Exercise Price")
at any time after the Detachment Date and until ___________, 1999. Commencing on
the Detachment Date, the Company has the right to call all of the Class A
Warrants for redemption at a price $.55 per Class A Warrant at any time until
the end of the second year after the date of the Prospectus (hereinafter
defined) and thereafter at a price of $.75 per Class A Warrant at any time until
the end of the third year after the date of the Prospectus (hereinafter defined)
and thereafter prior to the expiration of the Class A Warrants. The Class A
Warrants may be redeemed upon 30 days prior written notice given at any time
after the Common Stock of the Company has traded for at least $6.72 for at least
20 consecutive trading days ending within 10 days prior to the date of the
notice of redemption. For purposes of determining the daily trading price of the
Company's Common Stock: (i) if the Common Stock is listed on a national stock
exchange or admitted to unlisted trading privileges on any such exchange or
quoted on a trading system of the National Association of Securities Dealers,
Inc. ("NASD") such as the NASDAQ Small Cap Market or the NASDAQ National Market
System ("NASDAQ/ NMS"), then the last reported sale price of the Common Stock
each day shall be used, but if no such sale has occurred on any of such days or
if the last sale price is not reported, then the average of the closing bid
prices for the Common Stock for such day on such exchange or system shall be
used; or (ii) if the Common Stock is not then traded on any such exchange or
system then the average of the daily bid prices for the Company's Common Stock
reported by the National Quotation Bureau, Inc. shall be used if the Company's
Common Stock is included in the National Quotation System.
On the effective date, only the Units will be listed for quotation on
the NASDAQ Small Cap Market. The Company will use its best efforts to have the
Shares and Class A Warrants listed for quotation on the NASDAQ Small Cap Market
on the Detachment Date and thereafter, and the Company will use its best efforts
to delist the Units from quotation on the NASDAQ Small Cap Market at the same
time as the Shares and Class A Warrants become listed for quotation on the
NASDAQ Small Cap Market. The foregoing agreements by the Company are
- 2 -
<PAGE>
subject to the Company's ability to meet the NASDAQ Small Cap Market maintenance
requirements on the Detachment Date.
The Class A Warrants contain adjustment provisions protecting the
holders thereof against dilution of their interests represented by the Warrant
Shares upon the occurrence of certain events. Holders of the Class A Warrants,
as such, have no voting power; are not en titled to dividends; and in the event
of liquidation, dissolution, or winding up of the Company, are not be entitled
to participate in the Company's assets. The Company agrees to take what ever
actions are necessary so that during the period that the Class A Warrants are
exercisable, a registration statement relating to the Warrant Shares will be
effective and current with the Securities and Exchange Commission ("Commission")
and the Company agrees to use its best efforts so that during such period the
Class A Warrants may be exercised by the holders thereof under the securities
laws in those states in which any of the Securities are sold in the public
offering under the Registration Statement and in those states in which
registered holders reside who in the aggregate own at least 2% of the Class A
Warrants outstanding during the period that such Class A Warrants are
exercisable. The Company agrees that its obligations set forth in the preceding
sentence shall remain in full force and effect regardless of whether or not the
"market price" of the Company's Common Stock is less than the Exercise Price
under the Class A Warrants. The Company agrees not to call the Class A Warrants
for redemption at any time that such registration statement is not effective and
current with the Commission and the states described in the previous sentence.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
In order to induce the members of the Underwriting Group to enter into
this Agreement, the Company hereby represents and warrants to and agrees with
the members of the Underwriting Group as follows:
2.01. REGISTRATION STATEMENT AND PROSPECTUS. A registration statement
on Form SB- 2 (File No. 333-10323) ("Registration Statement") with respect to
the Securities, the Warrant Shares, and the Representative's Warrants and
Representative's Class A Warrants (hereinafter defined), including the related
Prospectus, copies of which have heretofore been delivered by the Company to the
Representative, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended ("Act"), and the rules
and regulations ("Rules and Regulations") of the Commission thereunder, and said
Registration Statement has been filed with the Commission under the Act; one or
more amendments to said Registration Statement, copies of which have heretofore
been delivered to the Representative, has or have heretofore been filed with the
Commission; and the Company may file with the Commission on or prior to the
effective date additional amendments to said Registration Statement, including
the final Prospectus. As used in this Agreement, the term "Registration
Statement" refers to and means said Registration Statement and all amendments
thereto, including the Prospectus, all
- 3 -
<PAGE>
exhibits and all financial statements, as it becomes effective; the term
"Prospectus" refers to and means the Prospectus included in the Registration
Statement when it becomes effective; and the term "Preliminary Prospectus"
refers to and means any Prospectus included in said Registration Statement
before it becomes effective. The terms "effective date" and "effective" refer to
the date the Commission declares effective, pursuant to Section 8 of the Act,
the Registration Statement.
2.02. ACCURACY OF REGISTRATION STATEMENT AND PROSPECTUS. The Commission
has not issued any order preventing or suspending the use of any Preliminary
Prospectus with respect to the Securities and each Preliminary Prospectus has
conformed in all material respects with the requirements of the Act and the
applicable Rules and Regulations of the Commission thereunder and to the best of
the Company's knowledge has not included at the time of filing any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein not misleading. When the Registration Statement
becomes effective and on the Closing Date and on the Option Closing Date, the
Registration Statement and Prospectus and any further amendments or supplements
thereto will contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations thereunder for the
purposes of the proposed public offering of the Securities, all statements of
material fact contained in the Registration Statement and Prospectus will be
true and correct and neither the Registration Statement nor the Prospectus will
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; provided, however, the Company does not make any representations
or warranties as to information contained in or omitted from the Registration
Statement or the Prospectus in reliance upon written information furnished on
behalf of the members of the Underwriting Group specifically for use therein.
2.03. FINANCIAL STATEMENTS. The financial statements of the Company
together with related schedules and notes as set forth in the Registration
Statement and Prospectus present fairly the financial position of the Company
and the results of its operations and the changes in its financial position at
the respective dates and for the respective periods for which they apply. Such
financial statements have been prepared in accordance with generally accepted
principles of accounting consistently applied throughout the periods concerned
except as otherwise stated therein.
2.04. INDEPENDENT PUBLIC ACCOUNTANTS. The accountants which have
audited the financial statements filed or to be filed with the Commission as
part of the Registration
Statement and Prospectus, are independent certified public accountants with
respect to the Company within the meaning of the Act and the Rules and
Regulations thereunder.
2.05. NO CONTINGENT LIABILITIES AND NO MATERIAL ADVERSE CHANGE.
Except as disclosed in the Registration Statement and Prospectus, neither the
Company nor any of its subsidiaries, if any, have any material contingent
liabilities, obligations or claims nor have they received threats of claims or
regulatory action. Except as may be reflected in or contemplated
- 4 -
<PAGE>
by the Registration Statement or the Prospectus, subsequent to the dates as of
which information is given in the Registration Statement and Prospectus and
prior to the Closing Date and the Option Closing Date, (i) there shall not have
been any material adverse change in the condition, financial or otherwise, of
the Company or its subsidiaries, if any, or in the business of the Company or
its subsidiaries; (ii) there shall not have been any material adverse transac
tion entered into by the Company or any of its subsidiaries, if any; (iii)
neither the Company nor any of its subsidiaries, if any, shall have incurred any
material obligations, contingent or otherwise, which are not disclosed in the
Prospectus; (iv) there shall not have been any change in the outstanding
securities or long term debt (except current payments) of the Company or any of
its subsidiaries, if any; (v) the Company has not and will not have paid or
declared any dividends or other distributions on its Common Stock or other
securities; and (vi) there shall not have been any change in the officers or
directors of the Company.
2.06. NO DEFAULTS. Neither the Company nor any of its subsidiaries, if
any, is in default under any of the contracts, leases, subleases, licenses or
agreements to which they are a party. Except as disclosed in the Prospectus,
neither the Company nor any of its subsidiaries, if any, is in default, which
has not been waived, in the performance of any material obligation, agreement or
condition contained in any debenture, note or other evidence of indebtedness or
any indenture or loan agreement. The execution and delivery of this Agreement,
the consummation of the transactions herein contemplated and the compliance with
the terms of this Agreement will not conflict with or result in a breach of any
of the terms, conditions or provisions of, or constitute a default under, the
articles of incorporation, as amended, or bylaws of the Company or any of its
subsidiaries, if any, any note, indenture, mortgage, deed of trust or other
material agreement or instrument to which the Company or any of its
subsidiaries, if any, is a party or by which it, its subsidiaries, if any, or
any of their property is bound, or any existing law, order, rule, regulation,
writ, injunction or decree of any government, governmental instrumentality,
agency or body, arbitration tribunal or court, domestic or foreign, having
jurisdiction over the Company, its subsidiaries, if any, or their property. The
consent, approval, authorization or order of any court or governmental
instrumentality, agency or body is not required for the consummation of the
transactions herein contemplated except such as may be required under the Act or
under the blue sky or securities laws of any state or jurisdiction.
2.07. INCORPORATION AND STANDING. The Company is and at the Closing
Date and at the Option Closing Date will be duly incorporated and validly
existing in good standing as a corporation under state law with authorized and
outstanding capital stock as set forth in the Registration Statement and the
Prospectus and with full power and authority (corporate and other) to own its
property and conduct its business, present and proposed, as described in the
Registration Statement and Prospectus; 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 corporation in each jurisdiction, if any, in which it owns
or leases real property or transacts business requiring such qualification. All
of the Company's subsidiaries, if any, are identified and described in the
Registration Statement. Each of the Company's subsidiaries, if any, is and
- 5 -
<PAGE>
at the Closing Date and at the Option Closing Date will be duly incorporated and
validly existing in good standing as a corporation under state law with
authorized and outstanding capital stock as set forth in the Registration
Statement and the Prospectus and with full power and authority (corporate and
other) to own its property and conduct its business, present and proposed, as
described in the Registration Statement and Prospectus, and is duly qualified
and in good standing as a foreign corporation in each jurisdiction in which it
owns or leases real property or transacts business requiring such qualification,
except where the failure to so qualify would not be materially adverse to the
Company's business taken as a whole.
2.08. LEGALITY OF OUTSTANDING SECURITIES. The outstanding shares of
Common Stock of the Company and each of its subsidiaries, if any, have been duly
and validly authorized and issued, are fully paid and nonassessable and conform
to all statements with regard thereto contained in the Registration Statement
and Prospectus. No sales of securities have been made by the Company in
violation of the registration provisions of the Act or in violation of any other
federal or state laws.
2.09. LEGALITY OF SECURITIES. The Securities, the Warrant Shares, the
Representative's Warrants (described in Section 3.04 hereof) and the
Representative's Class A Warrants (described in Section 3.04 hereof) have been
duly and validly authorized and, when issued and delivered against payment as
provided in this Agreement, will be validly issued, fully paid and
nonassessable. The Securities, the Warrant Shares, the Representative's Warrants
and the Representative's Class A Warrants, upon issuance, will not be subject to
the preemptive rights of any shareholders of the Company. The Class A Warrants,
the Representative's Warrants, and the Representative's Class A Warrants, when
sold and delivered, will constitute valid and binding obligations of the Company
enforceable in accordance with their terms. A sufficient number of shares of
Common Stock have been reserved for issuance upon exercise of the Class A
Warrants, the Representative's Warrants, and the Representative's Class A
Warrants. The Securities, the Warrant Shares, the Representative's Warrants and
the Representative's Class A Warrants will conform to all statements in the
Registration Statement and Prospectus made with respect thereto. Upon delivery
of and payment for the Securities, the Representative's Warrants and the
Representative's Class A Warrants to be sold by the Company as set forth in this
Agreement, the persons paying therefor will receive good and marketable title
thereto, free and clear of all liens, encumbrances, charges and claims. The
Company will have on the effective date of the Registration Statement and at the
time of delivery of the Securities, the Representative's Warrants and the
Representative's Class A Warrants full legal right and power and all
authorizations and approvals required by law to sell and deliver the Securities,
Representative's Warrants and Representative's Class A Warrants in the manner
provided here under.
2.10. OUTSTANDING SECURITIES AND LONG TERM DEBT ON EFFECTIVE DATE.
Immediately prior to the effective date, the only shares of capital stock,
warrants, options, or other convertible securities which have been issued by the
Company and which will be outstanding on the effective date will be as described
in the Prospectus, and the Company will not be
- 6 -
<PAGE>
obligated on any long term debt, whether or not recorded on the books, records,
or accounts of the Company and will not be obligated to issue any capital stock,
warrants, options, or other convertible securities except as described in the
Prospectus. Immediately prior to the effective date of the Registration
Statement, the number of shares of Common Stock of the Company outstanding will
not exceed _________ shares on a fully diluted basis unless the Representative
has approved in writing a different maximum number of fully diluted shares. For
purposes of this Underwriting Agreement, the term "fully diluted basis" shall
mean the number of shares of Common Stock actually issued and outstanding plus
the number of shares of Common Stock underlying all issued and outstanding
convertible or excisable securities.
2.11. CUSIP NUMBER. The Company has obtained a CUSIP number for the
Units, Common Stock, and Class A Warrants.
2.12. OPTIONS AND TREASURY SHARES. There are no outstanding options,
warrants or other rights to purchase securities of the Company, however
characterized, except as described in the Registration Statement. Except as
described in the Registration Statement, there are no securities of the Company,
however characterized, held in its treasury. Except as described in the
Registration Statement, the Company has not offered or agreed to purchase or
issue any shares of Common Stock or any convertible securities in the future.
2.13. SUBSIDIARIES. Except as described herein and in the Registration
Statement, the Company has no subsidiaries and does not currently intend to
acquire any subsidiaries or engage in mergers with or the acquisition of any
entity.
2.14. PRIOR SALES. No securities of the Company, or of a predecessor of
the Company, have been sold except as described in the Registration Statement or
as disclosed in writing to the Representative.
2.15. LITIGATION. Except as set forth in the Registration Statement or
except for nonmaterial actions, suits, or proceedings disclosed in writing to
the Representative, there is and at the Closing Date and at the Option 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 against the Company or any of its subsidiaries.
2.16. FINDER. Except as set forth in the Registration Statement, the
Company knows of no outstanding claims against it for compensation for services
in the nature of a finder's fee, origination fee, or financial consulting fee
with respect to the offer and sale of the Securities and Warrant Shares
hereunder.
2.17. EXHIBITS. There are no contracts or other documents which are
required to be filed as exhibits to the Registration Statement by the Act or by
the Rules and Regulations thereunder, which have not been so filed and each
contract to which the Company or any of its subsidiaries, if any, is a party and
to which reference is made in the Prospectus has been duly
- 7 -
<PAGE>
and validly executed, is in full force and effect in all material respects in
accordance with its terms, and none of such contracts has been assigned and the
Company knows of no present situation or condition or fact which would prevent
compliance with the terms of such contracts. Except for amendments or
modifications of such contracts in the ordinary course of business, the Company
has not been advised that any party to any such contract intends to exercise any
right which it may have to cancel any of its obligations under any of such
contracts and has no knowledge that any other party to any such contracts has
any intention not to render full performance under such contracts.
2.18. TAX RETURNS. Except as described in the Registration Statement,
the Company has filed all tax returns which are required to be filed by it and
has paid all taxes shown on such returns and on all assessments received by it
to the extent such taxes have become due. All taxes with respect to which the
Company is obligated have been paid or adequate accruals have been set up to
cover any such unpaid taxes.
2.19. NO PREEMPTIVE RIGHTS. The Company's securities, however
characterized, are not subject to preemptive rights.
2.20. USE OF FORM SB-2. The Company is eligible to use Form SB-2 for
the offering of the Securities, the Warrant Shares, the Representative's
Warrants, and the Representative's Class A Warrants.
2.21. NO SECURITIES BEING OFFERED. Except as described in the
Registration Statement, neither the Company nor any of its subsidiaries, if any,
is currently offering any securities of which it is the issuer.
2.22. CERTIFICATES, PERMITS, LICENSES, APPROVALS, PATENTS AND
TRADEMARKS. The Company and each of its subsidiaries, if any, possess adequate
certificates, permits, licenses, or approvals, issued by the appropriate
federal, state and local regulatory authorities necessary to conduct its
business and to retain possession of its properties. The Company and its sub
sidiaries, if any, have not received any notice of any proceeding relating to
the revocation or modification of any of these certificates, permits, licenses,
or approvals. The Company and each of its subsidiaries, if any, has sufficient
trademarks, patent rights and copyright protection to conduct its business as
now being conducted; and except as described in the Prospectus, the Company has
no knowledge of any use by it or any of its subsidiaries, if any, of the trade
secrets of others, of infringement by it or them of trademarks, patent rights or
copyrights of others, or of any claim being made against the Company or any of
its subsidiaries, if any, regarding trademark, patent or copyright infringement
or use of trade secrets of others.
2.23. TITLE TO PROPERTIES. The Company and each of its subsidiaries, if
any, has marketable title to all properties, including patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, copyrights, equipment, and technology, described in the
Registration Statement as owned by it or them. The properties are free and
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clear of all liens, charges, encumbrances or restrictions, however
characterized, except as described in the Registration Statement. All of the
contracts, leases, subleases, patents, patent applications, trademarks,
trademark applications, service marks, service mark applications, copyrights,
licenses and agreements, however characterized, under which the Company and each
of its subsidiaries, if any, holds its properties, as described in the
Registration Statement, are in full force and effect.
2.24. NO DIRECTED SALES. The Company has not made any representation,
whether oral or in writing, to any person, whether an existing shareholder or
not, that any of the Securities will be reserved or directed to such person
during the proposed public offering.
2.25. RESTRICTED SECURITIES. Except for shareholders who meet the
requirements of Rule 144(k), the Company has caused each of its current
shareholders who holds "restricted securities" as such term is defined in Rule
144 under the Act to acknowledge that they hold "restricted securities" as
defined in Rule 144.
2.26. NEGOTIATIONS. During the period from the effective date to the
Closing Date or the Option Closing Date, the Company will notify the
Representative in writing from time to time of the status of any negotiations
involving the Company or any of its subsidiaries, if any, relating to any
transaction which would, if consummated, have a material effect upon the Company
or any of its subsidiaries, if any. Also, the Company will consult with its
legal counsel concerning the need to disclose any such negotiations.
2.27. AUTHORITY. The execution and delivery by the Company of this
Agreement has been duly authorized by all necessary corporate action and this
Agreement is the valid, binding and legally enforceable obligation of the
Company.
2.28. 1940 ACT. The Company has been advised of the Investment Company
Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" within the meaning of the 1940 Act and such rules and regulations.
2.29. CAMPAIGN CONTRIBUTIONS. The Company has not at any time during
the last five years made any unlawful contribution to any candidate for foreign
office, or failed to disclose fully any contribution in violation of law, or
made any payment to any federal or state governmental officer or official, or
other person charged with similar public or quasipublic duties, other than
payments required or permitted by the laws of the United States of any
jurisdiction thereof.
2.30. SECURITIES ACTIVITIES. The Company has not taken and will not
take, directly or indirectly, any action designed to, or that might be
reasonably expected to, cause or result in
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stabilization or manipulation of the price of any security to facilitate the
sale or resale of the Securities.
2.31. ENVIRONMENTAL. Except as specifically described in the
Prospectus, the Company is in compliance with all federal, state, and local
rules, regulations, and policies relating to the use, treatment, storage,
transportation, discharge, emission, or disposal of, or exposure of others to,
toxic substances and protection of health, safety or the environment
("Environmental Laws") which are applicable to its business; there is no pending
or asserted claim, liability, or investigation by any third party or
governmental authority against the Company under Environmental Laws; no
substances which are prohibited or regulated by any Environmental Law or
designated to be radioactive, toxic, hazardous or otherwise a danger to health
or the environment by any governmental agency ("Hazardous Material") are present
or likely to become present on any property which is owned, leased, or occupied
by the Company and no such property has been designated as a SuperFund site,
pursuant to the Comprehensive Response, Compensation, and Liability Act of 1980,
as amended, or otherwise designated as a contaminated site under applicable
federal, state or local law; and the Company has received all permits, licenses,
or other approvals required of it under Environmental Laws to conduct its
business as presently conducted and is in compliance with all terms and
conditions of such permits, licenses, or approvals.
2.32. FOOD AND DRUG COMPLIANCE. The Company's products and the
manufacture and labeling thereof comply with all applicable laws, rules and
regulations relating to or adopted by the United States Food and Drug
Administration ("FDA") and any state and state agency in which such products are
being marketed or sold.
REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS
In order to induce the members of the Underwriting Group to enter into
this Agreement, each of the Selling Shareholders, severally and not jointly,
represents and warrants to and agrees with the members of the Underwriting Group
as follows:
2.33. CUSTODY AGREEMENT. The Selling Shareholder has duly executed and
delivered the custody agreement ("Custody Agreement"), in the form heretofore
delivered to the Representative. The person designated by the Selling
Shareholder in the Custody Agreement as custodian will be referred to herein as
the "Custodian." Certificates in negotiable form representing the Selling
Shareholder's Shares to be sold by the Selling Shareholder hereunder have been
deposited with the Custodian pursuant to the Custody Agreement for the purpose
of delivery pursuant to this Agreement. All authorizations, orders and consents
necessary for the execution and delivery by the Selling Shareholder of this
Agreement and the Custody Agreement have been duly and validly given, and the
Selling Shareholder has full legal right, power and authority to enter into this
Agreement and the Custody Agreement and to sell, assign, transfer and deliver to
the Underwriters the Selling Shareholder's Shares. The Selling Shareholder
agrees that the Common Stock represented by the certificates he has deposited
with
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the Custodian are subject to the interests of the Underwriters hereunder, that
the arrangements made for such custody are to that extent irrevocable, and that
the obligations of the Selling Shareholder hereunder shall not be terminated,
except as provided in this Agreement and the Custody Agreement, by any act of
such Selling Shareholder, by operation of law, whether by the death or
incapacity of the Selling Shareholder, or by the occurrence of any other event.
If any such death or incapacity should occur, or if any other event should
occur, before the delivery of the Selling Shareholder's Shares hereunder, to the
extent not prohibited by law, the certificates for such Common Stock deposited
with the Custodian shall be delivered by the Custodian in accordance with the
terms and conditions of this Agreement and the Custody Agreement as if such
death, incapacity or other event had not occurred, regardless of whether or not
the Custodian shall have received notice thereof.
2.34. TITLE. The Selling Shareholder has, and on the Closing Date and
Option Closing Date will continue to have, valid and marketable title to the
Selling Shareholder's Shares deposited with the Custodian, free and clear of all
liens, encumbrances, equities and claims, and upon delivery of and payment for
the aforesaid shares as herein provided, valid and marketable title thereto,
free and clear of all liens, encumbrances, equities and claims, will be
transferred by the Selling Shareholder to the Underwriters.
2.35. NO BREACH OR DEFAULT. The performance of this Agreement by the
Selling Shareholder and the consummation of the transactions contemplated hereby
and by the Custody Agreement and compliance with the terms of this Agreement and
the Custody Agreement do not and will not conflict with or result in a breach of
any of the terms or provisions of, or constitute a default under any indenture,
mortgage or other agreement or instrument to which the Selling Shareholder is a
party, or by which the Selling Shareholder is bound, or any existing law, rule,
regulation, judgment, order or decree applicable to the Selling Shareholder of
any court or other governmental body.
2.36. SECURITIES ACTIVITIES. The Selling Shareholder has not taken and
will not take, directly or indirectly, any action designed to, which has
constituted or might constitute, or which might reasonably be expected to cause
or result in any stabilization or manipulation of the price of any security to
facilitate the sale or resale of the Shares.
2.37. ACCURACY OF THE REGISTRATION STATEMENT AND PROSPECTUS AS TO THE
SELLING SHAREHOLDER. To the extent that any statements are made in or any
omissions occur as to the Registration Statement, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by the Selling
Shareholder specifically for use therein, such Preliminary Prospectus did
conform, and the Registration Statement and the Prospectus and any amendments or
supplements thereto, when they become effective or are filed with the
Commission, as the case may be, will conform, in all material respects to the
requirements of the Act and the regulations and did not and will not contain any
untrue statement of a material fact or omit to state any fact required to be
stated therein or necessary to make the statements therein not misleading.
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2.38. TRANSFER TAXES. No transfer taxes are required to be paid in
connection with the sale, transfer and/or delivery of any of the Shares being
sold to the Underwriters by the Selling Shareholder pursuant to this Agreement.
2.39. COMPANY REPRESENTATIONS. The Selling Shareholder is not aware
that any of the representations and warranties of the Company set forth in this
Agreement are untrue or inaccurate in any material respect.
All of the above representations and warranties shall survive the
performance or termination of this Agreement.
SECTION 3
PURCHASE AND SALE OF THE SECURITIES
3.01. PURCHASE OF SECURITIES. The Company hereby agrees to sell to the
members of the Underwriting Group named in Schedule I hereto (for all of whom
the Representative is acting), severally and not jointly, and each member of the
Underwriting Group, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees to purchase
from the Company, severally and not jointly, the number of Firm Units set forth
opposite the name of each member of the Underwriting Group as set forth in
Schedule I hereto at a purchase price of $3.60 per Unit. The Company and each
Selling Shareholder to the extent described in Section 1 of this Agreement
hereby grants to the Representative and the members of the Underwriting Group an
option for a period of 30 days after the effective date to purchase Units,
Shares, or Class A Warrants in order to cover overallotments. Any Overallotment
Securities purchased shall be purchased for the account of the Representative
and/or for the accounts of the members of the Underwriting Group as determined
by the Representative. The purchase price of Overallotment Units is $3.60 per
Unit.
3.01.01. DEFAULT BY MEMBER OF UNDERWRITING GROUP. If for any
reason one or more of the Underwriters shall fail or refuse (otherwise
than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 9 hereof) to purchase and pay
for the number of Firm Units agreed to be purchased by such
Underwriter, the Company shall immediately give notice thereof to the
Representative, and the nondefaulting Underwriters shall have the right
within 24 hours after the receipt by the Representative of such notice,
to purchase or procure one or more other Underwriters to purchase, in
such proportions as may be agreed upon among the Representative and
such purchasing Underwriter or Underwriters and upon the terms herein
set forth, the Firm Units which such defaulting Underwriter or
Underwriters agreed to purchase. If the nondefaulting Underwriters fail
so to make such arrangements with respect to all such Firm Units, the
number of Firm Units which each nondefaulting
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Underwriter is otherwise obligated to purchase under this Agreement
shall be automati cally increased pro rata to absorb the remaining Firm
Units which the defaulting Under writer or Underwriters agreed to
purchase; provided, however, that the nondefaulting Underwriters shall
not be obligated to purchase any of the Firm Units if the aggregate
Public Offering Price of the Firm Units which the defaulting
Underwriter or Underwriters agreed to purchase exceeds 10% of the
Public Offering Price of the total Firm Units which all Underwriters
agreed to purchase hereunder. If the total number of Firm Units which
the defaulting Underwriter or Underwriters agreed to purchase shall not
be purchased or absorbed in accordance with this subsection 3.01.01,
then the Company shall have the right, within 24 hours next succeeding
the 24 hour period above referred to, to make arrangements with other
underwriters or purchasers satisfactory to the Representative for the
purchase of all of the Firm Units which the defaulting Underwriter or
Underwriters agreed to purchase hereunder on the terms herein set
forth. In any such case, either the Representative or the Company shall
have the right to postpone the Closing Date determined as provided in
subsection 3.02.02. hereof for not more than seven business days after
the date originally fixed as the Closing Date pursuant to said
subsection 3.02.02. in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or
arrangements may be made. If neither the nondefaulting Underwriters nor
the Company shall make arrangements within the 24 hour periods stated
above for the purchase of all the Firm Units which the defaulting
Underwriter or Underwriters agreed to purchase hereunder, this
Agreement shall be terminated without further act or deed and without
any liability on the part of the Company or the Selling Shareholders to
any nondefaulting Underwriter and without any liability on the part of
any nondefaulting Underwriter to the Company or the Selling
Shareholders.
3.01.02. LIABILITY OF DEFAULTING MEMBERS OF THE UNDERWRITING
GROUP. Nothing contained in this Section 3.01 shall relieve any
defaulting member of the Underwriting Group of its liability, if any,
to the Company or to the remaining members of the Underwriting Group
for damages occasioned by its default hereunder.
3.02. PUBLIC OFFERING PRICE. After the Commission notifies the Company
that the Registration Statement has become effective and after this Agreement
becomes effective, the members of the Underwriting Group propose to initially
offer the Units for sale to the public at a Public Offering Price of $4.00 per
Unit. The members of the Underwriting Group may allow such concessions and
discounts upon sales to selected dealers as may be determined from time to time
by the Representative.
3.02.01. PAYMENT FOR FIRM UNITS. Payment for the Firm Units
shall be made to the Company by regular check or checks at the offices
of the Representative set forth above in Denver, Colorado, upon
delivery to the Representative of certificates for the Firm Units in
definitive form in such numbers and registered in such names as the
Representative requests in writing at least two full business days
prior to such delivery.
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The Company agrees not to seek to obtain (i) certification of the
Representative's closing check or checks from the Representative's bank
or banks or (ii) a cashier's check or checks from the Representative's
bank or banks in substitution for the Representative's closing check or
checks. The Company agrees to deposit the Representative's closing
check or checks into the Company's bank account and to allow such check
or checks to clear through the banking system on a "regular way" basis.
Nothing contained in this Section 3.02.01 shall be construed to relieve
the Representative from its obligations created as a result of the
issuance of the Representative's regular check or checks at the
Closing.
3.02.02. CLOSING. The time and date of delivery and payment
hereunder for the Firm Units is herein called the "Closing Date" and
shall take place at the office of the Representative at the address set
forth above in Denver, Colorado, at 10:00 A.M. on the third business
day following the effective date of this Agreement; provided, however,
the Company and the Representative may agree, on the date that this
Agreement becomes legally effective, to an alternative Closing Date and
such alternative Closing Date shall become the Closing Date under this
Agreement. Should the Representative elect to exercise any part of the
overallotment option pursuant to Section 3.01 hereof, the time, date of
delivery and payment for the Overallotment Securities being purchased
shall be as mutually agreed between the Company and the Representative,
but not later than the thirtieth calendar day after the effective date.
Said date is hereinafter referred to as the "Option Closing Date."
3.02.03. INSPECTION OF CERTIFICATES. For the purpose of
expediting the checking and packaging of the certificates for the
Units, Shares, and Class A Warrants, the Company agrees to make the
certificates available for inspection by the Representa tive at the
place designated by the Representative at least one full business day
prior to the proposed delivery date.
3.02.04. PAYMENT TO SELLING SHAREHOLDERS. The Company, the
Selling Shareholders, and the Representative agree that the amount
payable by the Representative to the Custodian on the Option Closing
Date shall be $3.48 for each Selling Shareholder Share which amount
equals the Public Offering Price of each Overallotment Unit of $4.00
less $.40 for the Underwriting Group discount per Unit and less $.12
for the nonaccountable expense allowance per Share payable to the
Representative.
3.03. REPRESENTATIVE'S NONACCOUNTABLE EXPENSE ALLOWANCE. It is
understood that the Company and the Selling Shareholders shall, severally and
not jointly, reimburse the Representative for its expenses on a nonaccountable
basis in the amount of 3% of the Public Offering Price of the Firm Units and
Overallotment Units purchased by the Underwriters. The Representative
acknowledges that it has received $30,000 of the nonaccountable expense
allowance, which amount will be credited against the unpaid balance of such
nonaccountable
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expense allowance payable by the Company. On the Closing Date and the Option
Closing Date, the Company and the Selling Shareholders shall pay to the
Representative the unpaid balance of such nonaccountable expense allowance then
due.
3.04. REPRESENTATIVE'S WARRANTS AND REPRESENTATIVE'S CLASS A WARRANTS.
On the Closing Date, the Company will sell warrants to the Representative
("Representative's Warrants") entitling the Representative to purchase a total
of 120,000 shares of the Company's Common Stock. The Representative's Warrants
will be in the form of the Representative's Warrants to Purchase Common Stock
filed as an exhibit to the Registration Statement. In addition, on the Closing
Date, the Company will sell to the Representative a total of 120,000
Representative's Class A Common Stock Purchase Warrants ("Representative's Class
A Warrants") which shall be exactly the same as the Class A Warrants except that
the exercise price for the Representative's Class A Warrants will be ____% of
the exercise price of the Class A Warrants and except as otherwise specified in
this Section 3.04 or in the Prospectus. The total amount that the Representative
shall pay the Company for the Representative's Warrants and the Representative's
Class A Warrants is $100. The Company and the Representative agree that the
Representative's Warrants and the Representative's Class A Warrants may not be
sold, transferred, assigned, pledged, or hypothecated for a period of one year
after the effective date of the Registration Statement except to officers of the
Representative, to members of the Underwriting Group, and to officers of members
of the Underwriting Group and except by will or operation of law. After such one
year period, the Representative's Warrants and the Representative's Class A
Warrants may be sold, transferred, assigned, pledged, or hypothecated provided
that any such transaction is in accordance with the registration or exemption
from registration provisions of the Act and any applicable state securities
laws. If the Representative's Warrants or the Representative's Class A Warrants
are exercised during the first year after the effective date of the Registration
Statement, then any shares of Common Stock of the Company acquired as a result
of any such exercise may not be sold, transferred, assigned, pledged, or
hypothecated until after expiration of such one year period. The
Representative's Class A Warrants shall not be subject to redemption.
3.05. REPRESENTATIONS OF THE PARTIES. The parties hereto respectively
represent that as of the Closing Date and as of the Option Closing Date the
representations herein contained and the statements contained in all the
certificates theretofore or simultaneously delivered by any party to another,
pursuant to this Agreement, shall in all material respects be true and correct.
3.06. POSTCLOSING INFORMATION. The Representative covenants that
reasonably promptly after the Closing Date and after the Option Closing date,
the Representative will
supply the Company with all information that the Company may reasonably request
which must be supplied to the Commission or securities authorities of states in
which the Securities have been qualified for sale.
3.07. REOFFERS BY SELECTED DEALERS. On each sale by the members of
the Underwriting Group of any of the Securities to selected dealers, the
members of the
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Underwriting Group shall require the selected dealers purchasing any such
Securities to agree in writing to reoffer such Securities on the terms and
conditions of the offering set forth in the Registration Statement and
Prospectus.
SECTION 4
REGISTRATION STATEMENT AND PROSPECTUS
4.01. DELIVERY OF REGISTRATION STATEMENT. The Company has delivered to
the Representative without charge two signed printed copies of the Registration
Statement, including all financial statements and exhibits filed therewith and
any amendments or supple ments thereto, and shall deliver without charge to the
Representative such number of conformed printed copies of the Registration
Statement as the Representative shall request, including all financial
statements and exhibits filed therewith and any amendments or supplements
thereto. The signed copies of the Registration Statement furnished to the
Representative include signed copies of any and all opinions and consents of the
independent public accountants certifying to the financial statements included
in the Registration Statement and Prospectus and signed copies of any and all
opinions, consents and certificates of any other persons whose profession gives
authority to statements made by them and who are named in the Registration
Statement or Prospectus as having prepared, certified or reviewed any part
thereof.
4.02. DELIVERY OF PRELIMINARY PROSPECTUS AND AGREEMENTS. The Company
will have caused to be delivered, at its expense, to the members of the
Underwriting Group and to other broker dealers specified by the Representative
prior to the effective date of the Registration Statement as many printed copies
of (i) each Preliminary Prospectus filed with the Commission bearing in red ink
the statements required by Item 501 of Regulation S-B, and (ii) each Agreement
Among Underwriters, Underwriting Agreement, and Selected Dealer Agreement, all
as may have been requested by the Representative. The Company consents to the
use of such documents by the members of the Underwriting Group and by
prospective dealers prior to the effective date of the Registration Statement,
so long as such use is in accordance with the applicable provisions of the Act,
the applicable Rules and Regulations thereunder and the applicable state blue
sky or securities laws.
4.03. DELIVERY OF PROSPECTUS. The Company will deliver, at its expense,
to the members of the Underwriting Group and to other broker dealers specified
by the Representative, as many printed copies of the Prospectus as the
Representative may request and will deliver said printed copies of the
Prospectus to the members of the Underwriting Group and such other persons on
the effective date and for such period of time thereafter as the Prospectus is
required by law to be delivered in connection with offers and sales of the
Securities.
4.04. FURTHER AMENDMENTS AND SUPPLEMENTS. If during the period of time
that the Company's Prospectus is required to be delivered under the Act, any
event occurs or any event
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known to the Company relating to or affecting the Company shall occur, as a
result of which the Prospectus 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 made therein, in light of the circumstances
under which they were made, not misleading or if it is necessary at any time
after the effective date to amend or supplement the Prospectus to comply with
the Act, the Company agrees to immediately notify the Representative thereof and
prepare and file with the Commission such further amendment to the Registration
Statement or supplemental or amended Prospectus as may be required and furnish
and deliver to the Representative and to others designated by the
Representative, all at the Company's expense, a reasonable number of copies of
the amended or supplemented Prospectus which as so amended or supplemented will
not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading when it is delivered to
a purchaser or prospective purchaser, and which will comply in all respects with
the Act; and in the event the Representative is required to deliver a Prospectus
after the date specified in Rule 174 of the Rules and Regulations, the Company
upon request will prepare promptly such Prospectus or Prospectuses as may be
necessary to permit compliance with the requirements of Section 10 of the Act.
4.05. USE OF PROSPECTUS. The Company authorizes the members of the
Underwriting Group in connection with the distribution of the Securities and all
dealers who may distribute any of the Securities to use the Prospectus, as from
time to time amended or supplemented, in connection with the offering and sale
of the Securities so long as such use is in accordance with the applicable
provisions of the Act, the applicable Rules and Regulations thereunder and
applicable state blue sky or securities laws.
SECTION 5
COVENANTS OF THE COMPANY
The Company covenants and agrees with the members of the Underwriting
Group that:
5.01. OBJECTION OF REPRESENTATIVE TO AMENDMENTS OR SUPPLEMENTS. After
the date hereof, the Company will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment or supplement
to the Registration Statement or Prospectus (i) unless and until a copy of such
amendment or supplement has been previously furnished to the Representative
within a reasonable time period prior to the proposed filing thereof or (ii) to
which the Representative or legal counsel to the Representative has reasonably
objected, in writing, on the ground that such amendment or supplement is not in
compliance with the Act or the Rules and Regulations.
5.02. COMPANY'S BEST EFFORTS TO CAUSE REGISTRATION STATEMENT TO
BECOME EFFECTIVE. The Company agrees to use its best efforts to cause the
Registration Statement and any amendment thereto to become effective as promptly
as reasonably practicable and will
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promptly advise the Representative and will confirm such advice in writing (i)
when the Registration Statement shall have become effective and when any
amendment thereto shall have become effective and when any amendment of or
supplement to the Prospectus shall be filed with the Commission, (ii) when the
Commission shall make, either orally or in writing, a request or suggestion for
any amendment to the Registration Statement or the Prospectus or for any
additional information and the nature and substance thereof, (iii) of the
issuance by the Commission of an order suspending the effectiveness of the
Registration Statement pursuant to Section 8 of the Act or of the initiation of
any proceedings for that purpose, (iv) of the happening of any event which in
the judgment of the Company makes any material statement in the Registration
Statement or Prospectus untrue or which requires the making of any changes in
the Registration Statement or Prospectus in order to make the statements therein
not mis leading, and (v) of the refusal to qualify or the suspension of the
qualification of the Securities for offering or sale in any jurisdiction or of
the institution of any proceedings for any of such purposes. The Company will
use every reasonable effort to prevent the issuance of any such order or of any
order preventing or suspending such use, to prevent any such refusal to qualify
or any such suspension, and to obtain as soon as possible a lifting of any such
order, the reversal of any such refusal and the termination of any such
suspension.
5.03. PREPARATION AND FILING OF AMENDMENTS AND SUPPLEMENTS. The Company
agrees to prepare and file promptly with the Commission, upon request of the
Representative, such amendments or supplements to the Registration Statement or
Prospectus, in form satisfactory to legal counsel to the Representative, as in
the opinion of the Representative and of legal counsel to the Company, may be
necessary in connection with the offering or distribution of the Securities and
will use its best efforts to cause the same to become effective as promptly as
possible.
5.04. BLUE SKY QUALIFICATION. The Company agrees to use its best
efforts to register or qualify the Securities or such part thereof as the
Representative may determine for sale under the blue sky laws of such states as
are requested by the Representative. The Company will be assisted by legal
counsel for the Representative in registering or qualifying the Securities for
sale under such blue sky laws. The Company will pay all of the filing fees and
legal fees, costs and expenses incurred by such legal counsel in so registering
or qualifying such Securities within 30 days after receipt of a reasonably
itemized statement. Although legal counsel for the Representative will be
assisting the Company in registering and qualifying the Securities with the
states and foreign jurisdictions selected by the Representative and although
legal counsel for the Representative will be compensated by the Company for such
services, such Representative's legal counsel will not have an attorney/client
relationship with the Company and it is understood that all legal advice
concerning such registrations and qualifications will be provided to the Company
by legal counsel for the Company. The Representative's legal counsel will
forward to legal counsel for the Company copies of all documents and
correspondence sent to or received from such states in connection with such
registrations and qualifications at the time such documents and correspondence
are sent or received by legal counsel for the Representative.
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5.05. FINANCIAL STATEMENTS. The Company at its own expense agrees to
prepare and give and will continue to give such financial statements and other
information and reports to and as may be required by the Commission or the
proper public bodies of the states in which the Securities may be registered or
qualified.
5.06. REPORTS AND FINANCIAL STATEMENTS TO THE REPRESENTATIVE. For a
period of five years from the Closing Date, the Company agrees to deliver to the
Representative copies of each annual report of the Company and copies of all
reports it is required to file or make available pursuant to the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and will deliver to the
Representative: (i) within 90 days (plus any extensions of time that the
Commission grants to the Company to file its annual report on the appropriate
Form) after the close of each fiscal year of the Company, a financial report of
the Company and its subsidiaries, if any, on a consolidated basis, and a similar
financial report of all of the Company's material unconsolidated subsidiaries,
if any, all such reports to include a balance sheet as of the end of the
preceding fiscal year, a statement of operations, a statement of stockholders'
equity and statement of cash flows covering such fiscal year, and all to be in
reasonable detail and certified by independent public accountants for the
Company; (ii) within 45 days (plus any extensions of time that the Commission
grants to the Company to file its quarterly report on the appropriate Form)
after the end of each quarterly fiscal period of the Company other than the last
quarterly fiscal period in any fiscal year, copies of the consolidated
statements of operations, stockholders' equity and cash flows for the quarterly
fiscal period and the fiscal year to the end of such quarterly fiscal period,
and the balance sheet as of the end of that period of the Company and its
subsidiaries, if any, and the equivalent financial statements of all of the
Company's material unconsolidated subsidiaries, if any, for that period, all
subject to year end adjustment, certified by the principal financial or
accounting officer of the Company; (iii) copies of all other statements,
documents or other information which the Company mails or otherwise makes
available to any class of its security holders or files with the Commission;
(vi) copies of all news, press or public information releases when made; (v)
copies of all letters to the Company from its independent certified public
accountants concerning actual or potential deficiencies in the Company's
accounting procedures or internal control of funds; and (vi) upon request in
writing from the Representative, such other information as may reasonably be
requested and which may be properly disclosed to the Representative with
reference to the property, business and affairs of the Company and its sub
sidiaries, if any. If the Company fails to furnish the Representative with
financial statements as herein provided, within the times specified herein, upon
notice to the Company the Representa tive shall have the right to have such
financial statements prepared by independent public ac countants of such
Representative's own choosing and the Company agrees to furnish such independent
public accountants such data and assistance and access to such records as they
may reasonably require to enable them to prepare such statements and to pay
their reasonable fees and expenses in preparing the same; provided, however, the
Company shall have the right to furnish the financial statements to the
Representative at any time after the Representative retains independent public
accountants to prepare the financial statements in which event the amount of
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fees that the Company shall be obligated to pay to the independent public
accountants selected by the Representative will be limited to those fees
(including any retainer paid) actually incurred to the point in time that the
Company furnishes the required financial statements.
5.07. EXPENSES PAID BY THE COMPANY. The Company agrees to 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, issuance, and delivery of the
Securities, Representative's Warrants, and the Representative's Class A
Warrants, any original issue taxes in connection therewith, all transfer taxes,
if any, incident to the initial sale of the Securities to the public, the fees
and expenses of the Company's personnel in connection with the offering, the
costs, fees, and expenses incident to the preparation, printing and filing under
the Act and with the NASD of the Registration Statement, or supplements thereto,
the cost of printing, reproducing and filing all exhibits to the Registration
Statement, the Agreement Among Underwriters, this Agreement, the Selected Dealer
Agree ment and any other underwriting documents, the cost of printing and
delivering to the Representative, the members of the Underwriting Group, and
selected dealers copies of the Registration Statement and copies of the
Agreement Among Underwriters, this Agreement and the Selected Dealer Agreement,
and any other underwriting documents, the Preliminary Prospectus and the
Prospectus as herein provided, the costs and legal counsel fees of qualifying
the Securities and Warrant Shares under the state securities or blue sky laws as
provided in Section 5.04 herein, the cost of providing the Representative with
two bound volumes of the Registration Statement, as amended, all exhibits
thereto, all state filings and all correspondence relating to the Registration
Statement and all state filings and the expenses of Company representatives in
attending a reasonable number of "due diligence" meetings (which shall include
all presentations specified by the Representative) held by the Representative.
5.08. REPORTS TO SHAREHOLDERS. For so long as the Company's Common
Stock is registered under the Exchange Act, the Company agrees to hold an annual
meeting of shareholders for the election of directors within 180 days after the
end of each of the Company's fiscal years and, within 180 days after the end of
each of the Company's fiscal years to send to each of the Company's shareholders
the audited financial statements of the Company as of the end of the fiscal year
just completed prior thereto. Such financial statements shall be those required
by Rule 14a-3 under the Exchange Act and shall be included in an annual report
meeting the requirements of such Rule. Further, the Company agrees, so long as
such Common Stock is so registered:
(i) to send, within 30 days after the Closing Date, a letter to
shareholders of the Company which welcomes them as
shareholders and discusses the business conducted by the
Company since the effective date.
(ii) to send, at least every sixty days for a period of three years
after the effective date, a letter or report to shareholders
of the Company and to broker dealers
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which are then market markers of Securities of the Company on
NASDAQ ("market makers"), which contains a narrative
discussion of the Company's financial status and results of
operations and a narrative discussion of the business
conducted by the Company since the last report or letter to
shareholders and market makers.
(iii) during the period after three years from the effective date,
to send to each of the Company's shareholders and market
makers in printed form within 60 days after the end of each
fiscal quarter, reasonably itemized financial statements of
the Company for the quarter just ended and a narrative
discussion of such financial statements and the business
conducted by the Company during such quarter.
If the Company materially breaches any of its agreements set forth in this
Section 5.08, the parties agree that any such breach will result in irreparable
harm to the Representative for which an adequate remedy for damages will not
exist and therefor the Representative shall be entitled to seek and obtain a
court injunction in equity which orders the Company to comply with its
agreements set forth in this Section 5.08 and which requires the Company to
reimburse the Representative for its costs, including reasonable attorney fees,
incurred in obtained such injunctive order.
5.09. SECTION 11(A) FINANCIALS. The Company agrees to send to each
holder of its securities and agrees to deliver to the Representative, as soon as
practicable, but in no event later than the first day of the sixteenth full
calendar month following the effective date, an earnings statement (as to which
no opinion need be rendered but which will satisfy the provisions of Section
11(a) of the Act) covering a period of at least 12 months beginning after the
effective date.
5.10. POSTEFFECTIVE AVAILABILITY OF PROSPECTUS. Within the time during
which the Prospectus is required to be delivered under the Act, the Company
agrees to comply, at its own expense, with all requirements imposed upon it by
the Act, as now or hereafter amended, by the Rules and Regulations, as from time
to time may be in force, and by any order of the Commission, so far as necessary
to permit the continuance of sales of the Securities.
5.11. APPLICATION OF PROCEEDS. The Company intends to apply the net
proceeds from the sale of the Securities substantially in the manner set forth
in the Registration Statement. Except for cumulative changes of less than
$100,000 in each specific item set forth in the "Use of Proceeds" section of the
definitive Prospectus, the Company will not deviate from such use without giving
written notice of such proposed deviation to the Representative at least 10
business days prior to any such deviation. Pending utilization of the net
proceeds by the Company for business purposes, all of the unused net proceeds
from the sale of the Securities will be invested in short term United States
government securities in a nondiscretionary account of the Company with the
Representative.
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5.12. DELIVERY OF DOCUMENTS. Prior to the Closing Date, the Company
agrees to deliver to the Representative true and correct copies of the articles
of incorporation of the Company and all amendments thereto, all such copies to
be certified by the secretary of state of the state of incorporation of the
Company; true and correct copies of the bylaws of the Company and of the minutes
of all meetings of the directors and shareholders of the Company held prior to
the Closing Date; and true and correct copies of all material contracts to which
the Company or any of its subsidiaries, if any, is a party.
5.13. COOPERATION WITH REPRESENTATIVE'S DUE DILIGENCE. At all times
prior to the Closing Date, the Company agrees to cooperate with the
Representative, legal counsel to the Representative, and the Representative's
consultants in such investigation as the Representative may make or cause to be
made of the Company and its affiliates and the Company agrees to make available
to the Representative in connection therewith such information and documents
relating to the Company and its affiliates as the Representative may reasonably
request.
5.14. [INTENTIONALLY BLANK]
5.15. LIMITATIONS ON COMPANY. Except with the Representative's prior
written consent, the Company agrees that the Company will not do the following
until (a) the termination of this Agreement or (b) the number of days after the
effective date for which the Prospectus is required to be used pursuant to Rule
174 of the Rules and Regulations, whichever occurs later:
(i) Undertake or authorize any change in its capital
structure;
(ii) Borrow any funds other than in the ordinary course of
business or as otherwise contemplated by the Prospectus;
(iii) Consolidate or merge with or into any other corporation;
or
(iv) Create any mortgage or any lien upon any of its properties
or assets other than in the ordinary course of business or
as otherwise contemplated by the Prospectus.
5.16. APPOINTMENT OF TRANSFER AGENT AND WARRANT AGENT. Prior to the
effective date, the Company will have appointed American Securities Transfer &
Trust, Inc., Denver,
Colorado, as transfer agent for the Company's Units and Common Stock and as
warrant agent for the Company's Class A Warrants.
5.17. CERTIFICATES. The Company agrees to make arrangements to have
available at the office of the transfer agent sufficient quantities of the
Company's Units and Common Stock certificates as may be needed for the quick and
efficient transfer of such securities. The Company agrees to make arrangements
to have available at the office of the warrant agent
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sufficient quantities of the Company's Class A Warrant Certificates has may be
needed for quick and efficient transfer of Class A Warrants.
5.18. COMPLIANCE WITH CONDITIONS PRECEDENT. The Company agrees to use
all reasonable efforts to comply or cause to be complied with the conditions
precedent to the obligations of the members of the Underwriting Group in Section
8 hereof.
5.19. FILINGS OF FORMS. The Company agrees to file with the Commission
all required reports on Form SR in accordance with the provisions of Rule 463 of
the Rules and Regulations and will file with the appropriate state securities
authorities any sales and other reports required by the rules and regulations of
such agencies and will provide copies of such reports to the Representative and
to the legal counsel to the members of the Underwriting Group.
5.20. REGISTRATION UNDER THE EXCHANGE ACT. Prior to the effective date
of the Registration Statement, the Company will have made a filing under Section
12(g) of the Exchange Act with respect to the Company's Units, Common Stock and
Class A Warrants. The Company agrees to deliver a copy of such filing to the
Representative and to legal counsel for the Representative when filed. On the
effective date of the Registration Statement, the Company will cause the
Company's filing under Section 12(g) of the Exchange Act to become effective
with the Commission.
5.21. LISTING IN MANUALS. As soon as possible prior to the effective
date, the Company agrees to use its best efforts to have the Company listed in
Moody's Over-the-Counter Manual and Standard & Poor's Standard Corporation
Records and such other Manuals as are reasonably requested by the
Representative.
5.22. NASDAQ/NMS. The Company agrees to have the Units listed and
available for quotation on the NASDAQ Small Cap Market on the effective date of
the Registration Statement. Subject to the Company's ability to meet the
maintenance requirements of the NASDAQ Small Cap Market on the Detachment Date,
the Company agrees to have its Shares and the Class A Warrants listed and
available for quotation on the NASDAQ Small Cap Market
on the Detachment Date and to delist the Units from quotation on the NASDAQ
Small Cap Market at the same time as the Shares and Class A Warrants become
listed for quotation on the NASDAQ Small Cap Market. The trading symbols shall
be mutually agreeable to the Company and the Representative. As soon as the
Company meets the qualifications required with respect thereto, the Company will
designate its securities for inclusion on the NASDAQ/NMS or, in the alternative,
such national stock exchange as is agreed to between the Company and the
Representative.
5.23. SECONDARY TRADING QUALIFICATION. The Company agrees to qualify
its securities for secondary trading, as soon as legally possible, in California
and such other states as are reasonably requested by the Representative from
time to time.
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5.24. LEGENDS ON STOCK CERTIFICATES. The Company agrees to cause the
stock certificates of its current shareholders that represent "restricted
securities" who have not met the requirements of Rule 144(k), and the stock and
warrant certificates held by officers, directors, or controlling persons of the
Company to be clearly legended as being restricted against transfer without
compliance with the Act and to cause the Company's transfer agent and warrant
agent to put stop transfer instructions against such certificates.
5.25. UNITHOLDERS, STOCKHOLDERS, AND CLASS A WARRANTHOLDERS LISTS AND
TRANSFER SUMMARY. Within 10 business days after the Closing Date and within 10
business days after the Option Closing Date, the Company will deliver to the
Representative complete lists of all holders of the Units, Common Stock, and
Class A Warrants of the Company as of the Closing Date and as of the Option
Closing Date. Each such list shall include the name and address of each such
holder and the number of Units, Shares, or Class A Warrants owned by each such
person as of such date. Within 10 business days after the end of each of the
first 24 calendar months after the Closing Date, the Company will provide the
Representative with a new list containing the information described above as the
end of each such month and a list which shows each transaction involving a
transfer of Units, Shares, or Class A Warrant certificates during such month.
This transfer list shall include the name and address of the transferor and the
transferee and the number of Units, Shares, or Class A Warrants transferred.
5.26. DIRECTORS, OFFICERS AND COMMITTEES. The Company agrees that the
persons comprising the board of directors and officers of the Company on the
effective date must be acceptable to the Representative. Such acceptance will
only be withheld by the Representative if material adverse information is
discovered by the Representative. The Company agrees that for a period of three
years after the effective date, at the request of the Representative, the
Company will permit a representative of the Representative to be present at all
meetings of the board of directors of the Company. The Representative shall be
provided with the same notice of each meeting of the board of directors as is
provided to the board of directors. No compensation shall be paid to such
observer. However, the Company will reimburse out of pocket expenses incurred by
such observer to attend meetings. Such observer shall have no vote at such
meetings; such observer shall be required, prior to attending any such meeting,
to represent in writing to the Company that such observer is familiar with and
will comply with all requirements of the federal securities laws applicable to a
person who comes into possession of material nonpublic information concerning
the Company; and such observer may be excluded from attendance at any such
meeting during the discussion of information which is subject to the attorney
client or accountant client privilege. The board of directors of the Company
will establish an audit and a management compensation committee and will
maintain such committees so long as the Common Stock of the Company is
registered under the Exchange Act.
5.27. RIGHT OF INSPECTION. The Company agrees that for a period of five
years after the effective date, the Representative, at the Representative's
expense, will have the right to have a person or persons selected by the
Representative review the books and records of the
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Company if at any time the audited or unaudited financial statements of the
Company indicate that the Company has realized a net loss after taxes or if a
material adverse change occurs in the Company, provided that the Representative
may cause such review no more than once in any 12 month period.
5.28. PUBLIC RELATIONS FIRM. For a period of at least 24 months after
the effective date, the Company will use a public relations firm which is
mutually acceptable to the
Company and the Representative. The Company shall have sole authority to
determine the compensation and the utilization of such public relations firm.
5.29. MANAGEMENT REFERRALS. Persons whom management of the Company
believe may be interested in purchasing Securities in the public offering will
be referred only to Representative and management of the Company will purchase
Securities in the public offering only through the Representative. The
Representative will have complete control of the distribution of the Securities
in the public offering.
5.30. TAKEOVER PROVISIONS. During the period of three years after the
effective date of the Registration Statement, the Company will not, without the
unanimous consent of those members of the board of directors of the Company who
are not affiliated with either the Company or the Representative, or if there
are no such nonaffiliated directors, without the approval of a majority of a
three person panel, one of whom is to be chosen by directors who are affiliated
with the Company, one of whom is to be chosen by the Representative, and the
third of whom is to be chosen by the two so selected, amend its Articles of
Incorporation or bylaws or enter into any contract or agreement with its
officers, directors, or employees or any other person, for the purpose of
preventing a corporate takeover of the Company; provided, however, only the vote
of approval of a majority of the board of directors of the Company shall be
required for an amendment of the Company's Articles of Incorporation or bylaws
designed to prevent a "two step" takeover of the Company involving a second step
which includes unfair provisions for minority shareholders of the Company or in
similar exigent circumstances in which such action is necessary to carry out the
fiduciary duty of the Company's directors.
5.31. FUTURE SALES.
5.31.01. COMPANY SALES TO AFFILIATES. During the period of two
years after the effective date of the Registration Statement, the
Company will not issue any options, warrants, Common Stock, preferred
stock, or other securities to any officer, director, principal
shareholder of the Company, or affiliate of any such person, without
the prior written consent of the Representative. The term "principal
shareholder" shall mean a person who owns of record or beneficially
more than 5% of the outstanding Common Stock of the Company. Also
excepted from this provision shall be warrants and options, and Common
Stock issued thereunder, which are described in the Registration
Statement and are outstanding on the effective date of the Registration
Statement or which are issued pursuant to a plan which has been
approved in writing by the board of
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directors of the Company and the Representative. Such excluded
securities shall be referred to herein as the "Excluded Securities."
5.31.02. COMPANY SALES TO OTHERS. During the period of three
years after the effective date of the Registration Statement, the
Company will not sell any securities (other than debt securities issued
to financial institutions) not covered by the Registration Statement
without the Representative's prior written consent. Excepted from this
provision shall be sales of securities permitted under Section 5.31.01
and sales of Excluded Securities.
5.31.03. COVERED PERSONS. Prior to the effective date of the
Registration Statement, the Company will cause each of its officers,
directors, 5% or more shareholders, and their affiliates ("Covered
Persons) to agree in writing with the Representative that, without the
prior written consent of the Representative, each such Covered Person
who is an officer, director, or an affiliate of an officer or director,
will not sell for a period of one year after the effective date of the
Registration Statement any of the Company's shares of Common Stock
owned by him or it prior to such effective date. The Company and the
Representative agree that Maurice Porter shall be deemed not be a
Covered Person. Such agreement will also provide that if a Covered
Person who is an officer or director of the Company on the effective
date of the Registration Statement ceases to be an officer or director
of the Company during the period of one year after the effective date
of the Registration Statement, then such Covered Person and the
affiliates of such Covered Person will agree not to sell any of the
Company's shares of Common Stock owned by such Covered Person and such
Covered Person's affiliates prior to the effective date of such
Registration Statement until the expiration of one year after the
effective date of the Registration Statement. For purposes of this
Underwriting Agreement, the term "affiliate" shall have the meaning
ascribed to it in Rule 405 under the Act. Such agreements between the
Representative and the Covered Persons will also provide that any sales
of shares of Common Stock of the Company by such persons during the
three year period after the effective date of the Registration
Statement under Rule 144 promulgated by the SEC under the Act ("Rule
144 Sales"), will be executed only through the Representative acting as
a broker or dealer. In such agreement the Representative will agree to
execute such Rule 144 Sales on a competitive basis. If any person
required to execute an agreement under this subsection 5.31.03. has
pledged, or during the applicable period pledges, any of the Company's
shares of Common Stock which are covered by such agreement; such person
shall cause his pledgee to also agree in writing to comply with the
pledgor's agreement with the Representative. A copy of any such written
agreement from the pledgee shall be promptly delivered by the pledgor
to the Representative after execution thereof by the pledgee.
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SECTION 6
INDEMNIFICATION
6.01. INDEMNIFICATION BY COMPANY. The Company agrees to indemnify and
hold harmless the members of the Underwriting Group and each person who controls
any member of the Underwriting Group within the meaning of Section 15 of the Act
against any and all losses, claims, damages or liabilities, joint or several, to
which they or any of them may become subject under the Act or any other statute
or at common law and to reimburse the persons indemnified for any legal or other
expenses (including the cost 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 or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereto or any application or other document filed in order to qualify
the Securities under the blue sky or securities laws of the states where filings
were made, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, all as of the date when the Registration Statement or such
amendment, as the case may be, becomes effective, or any untrue statement or
alleged untrue statement of a material fact contained in the Prospectus (as
amended or supplemented if the Company shall have filed with the Commission any
amendments thereof or supplements thereto), or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that the indemnity agreement contained in this
subsection 6.01 shall not apply to the members of the Underwriting Group or any
person controlling a member of the Underwriting Group in respect of any such
losses, claims, damages, liabilities or actions 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 peculiarly within the knowledge of a member of the Underwriting
Group and furnished in writing to the Company by a member of the Underwriting
Group specifically for use in connection with the preparation of the
Registration Statement and Prospectus or any such amendment or supplement
thereto. This indemnity agreement is in addition to any other liability which
the Company may otherwise have to the members of the Underwriting Group or to
any person controlling a member of the Underwriting Group. Each member of the
Underwriting Group agrees within 10 days after the receipt by it of written
notice of the commencement of any action against it or against any per son
controlling it as aforesaid, in respect of which indemnity may be sought from
the Company on account of the indemnity agreement contained in this subsection
6.01 to notify the Company in writing of the commencement thereof. The failure
of such a member of the Underwriting Group so to notify the Company of any such
action shall relieve the person to whom such notice was not given from any
liability which it may have to that member of the Underwriting Group or any
person controlling it as aforesaid on account of the indemnity agreement
contained in this subsection 6.01, but shall not relieve the Company from any
other liability
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which it may have to that member of the Underwriting Group or such controlling
person. In case any such action shall be brought against a member of the
Underwriting Group or any such controlling person and the member of the
Underwriting Group shall notify the Company of the commencement thereof, the
Company shall be entitled to participate in (and, to the extent that it shall
wish, to direct) the defense thereof at its own expense, but such defense shall
be conducted by legal counsel of recognized standing and reasonably satisfactory
to such member of the Underwriting Group or such controlling person or persons,
which is a defendant or which are defendants in such litigation. The Company
shall not be liable for amounts paid in settlement of any such litigation if
such settlement was effected without the written consent of the Company. If the
Company elects to direct such defense, the Company agrees to furnish to the
involved member of the Underwriting Group at its request, copies of all
pleadings therein and to apprise the involved member of the Underwriting Group
of all developments therein, all at the Company's expense, and to permit the
member of the Underwriting Group to be an observer therein.
6.02. INDEMNIFICATION BY THE MEMBERS OF THE UNDERWRITING GROUP. The
members of the Underwriting Group agree, in the same manner as set forth in
subsection 6.01. above, to indemnify and hold harmless the Company, the
directors and officers of the Company and each person, if any, who controls the
Company within the meaning of Section 15 of the Act, with respect to any
statement in or omission from the Registration Statement or any amendment
thereto, or the Prospectus (as amended or as supplemented, if amended or
supplemented as aforesaid) 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 subsection
3.06 hereof, if such statement or omission was made in reliance upon information
peculiarly within the knowledge of a member of the Underwriting Group and
furnished in writing to the Company by a member of the Underwriting Group or on
its behalf specifically for use in connection with the preparation thereof or
supplement thereto. No member of the Underwriting Group shall be liable for
amounts paid in settlement of any such litigation if such settlement was
effected without the written consent of the member of the Underwriting Group. In
case of commencement of any action in respect of which indemnity may be sought
from a member of the Underwriting Group on account of the indemnity agreement
contained in this subsection 6.02., each person to be indemnified by the member
of the Underwriting Group shall have the same obligation to notify the member of
the Under writing Group as the members of the Underwriting Group have toward the
Company in subsection 6.01. above, subject to the same loss of indemnity in the
event such notice is not given, and the member of the Underwriting Group shall
have the same right to participate in (and, to the extent that the member of the
Underwriting Group shall wish, to direct) the defense of such action at the
expense of the member of the Underwriting Group, but such defense shall be
conducted by legal counsel of recognized standing and reasonably satisfactory to
the Company. If the member of the Underwriting Group elects to direct such
defense, the member of the Underwriting Group agrees to furnish to the Company
at its request copies of all pleadings therein and apprise it of all the
developments therein, all at the expense of the member of the Underwriting
Group, and permit the Company to be an observer therein.
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6.03. CONTRIBUTION. If the indemnification provided for in this Section
6 is unavailable to or insufficient to hold harmless an indemnified party under
subsections 6.01. and 6.02. above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall in lieu of indemnifying such indemnified party
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect not only (i) the relative
benefits received by the Company on the one hand and the member of the
Underwriting Group on the other from the offering of the Securities, but also
(ii) the relative fault of the Company and the member of the Underwriting Group
in connection with the statements or omissions which resulted in such losses,
claims, damages, or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the member of the Under writing Group on the other
shall be deemed to be in the same proportion as the total net proceeds from the
public offering of the Securities (before deducting expenses) received by the
Company bears to the total underwriting discount received by the members of the
Underwriting Group, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company or the member of the Underwriting Group and
the person's relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company and the members of
the Underwriting Group agree that it would not be just and equitable if
contribution pursuant to this subsection 6.03. were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this subsection. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection 6.03. shall be deemed to include any legal or other expenses to which
such indemnified party would be entitled if subsections 6.01. and 6.02. hereof
were applied. Notwithstanding the provisions of this subsection 6.03., no member
of the Underwriting Group shall be required to contribute any amount in excess
of the amount equal to the total price of the Securities underwritten and
distributed by it to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11 of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
6.04. THREAT OF REGULATORY ACTION. The Company and the Representative
agree to advise each other immediately and confirm in writing the receipt of any
threat of or the initiation of any steps or procedures which would impair or
prevent the right to offer the Securities or the issuance of any "suspension
orders" or other prohibitions preventing or impairing the proposed offering of
the Securities. In the case of the happening of any such event, neither the
Company nor the members of the Underwriting Group will acquiesce in such steps,
procedures or suspension orders and each party agrees to actively defend any
such actions or orders unless all parties agree in writing to acquiesce in such
actions or orders.
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SECTION 7
EFFECTIVENESS OF AGREEMENT
After this Agreement has been executed by the Company, the Selling
Shareholders, and the Representative, this Agreement shall become effective (i)
at 10:00 A.M., Denver, Colorado Time, on the first full business day after the
effective date of the Registration Statement or (ii) upon release by the
Representative of the Securities for offering after the effective date,
whichever shall first occur. The time of the release by the Representative of
the Securities for offering, for the purposes of this Section 7, shall mean the
time of release by the Representative for publication of the first newspaper
advertisement which is subsequently published relating to the Securities or the
time of the first mailing of copies of the Prospectus relating to the Securities
in connection with a confirmation of a sale of Securities by an Underwriter or
Dealer whichever shall first occur.
SECTION 8
CONDITIONS OF THE OBLIGATIONS OF THE
MEMBERS OF THE UNDERWRITING GROUP
After execution of this Agreement by the Company, the Selling
Shareholders, and the Representative, the obligations of the members of the
Underwriting Group to purchase the Securities and to make payment therefor on
the Closing Date and on the Option Closing Date shall be subject to the
accuracy, as of the Closing Date and as of the Option Closing Date, of the
representations and warranties on the part of the Company and the Selling
Shareholders herein contained, to the performance by the Company and the Selling
Shareholders of all of their agreements and obligations herein contained, to the
fulfillment of or compliance by the Company and the Selling Shareholders with
all covenants and conditions hereof, and to the following additional conditions,
any of which may be waived or modified by the Representative:
8.01. EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement shall have become effective and no order suspending the effectiveness
of the Registration Statement shall have been issued and no proceeding for that
purpose shall have been initiated or threatened by the Commission or be pending;
any request for additional information on the part of the Commission (to be
included in the Registration Statement or Prospectus or otherwise) shall have
been complied with to the satisfaction of the Commission; and neither the
Registration Statement nor the Prospectus nor any amendment thereto shall have
been filed to which legal counsel to the members of the Underwriting Group shall
have reasonably objected in writing or have not given its consent.
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8.02. ACCURACY OF REGISTRATION STATEMENT. The Representative shall not
have disclosed in writing to the Company that the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto contains an untrue
statement of a fact which, in the opinion of legal counsel to the members of the
Underwriting Group is material, or omits to state a fact which, in the opinion
of such legal counsel, is material and is required to be stated therein, or is
necessary to make the statements therein not misleading.
8.03. NO MATERIAL ADVERSE CHANGES. No material adverse changes shall
have occurred in or with respect to the officers or directors of the Company. No
material adverse changes shall have occurred in or with respect to the business,
properties, financial condition or credit of the Company or in or with respect
to any conditions affecting the prospects of its business.
8.04. CASUALTY AND OTHER CALAMITY. The Company shall not have sustained
any loss on account of fire, explosion, flood, accident, calamity or any other
cause, of such character as materially adversely affects its business or
property considered as an entire entity, whether or not such loss is covered by
insurance, and no officer or director of the Company shall have suffered any
injury, sickness or disability of a nature which would materially adversely
affect his or her ability to properly function as an officer or director of the
Company.
8.05. LITIGATION AND OTHER PROCEEDINGS. Except as disclosed in the
Prospectus or except as disclosed in writing by the Company to the
Representative prior to the effective date of the Registration Statement, there
shall be no litigation instituted or threatened against the Company and there
shall be no proceeding instituted or threatened against the Company before or by
any federal or state commission, regulatory body or administrative agency or
other governmental body, domestic or foreign.
8.06. LACK OF MATERIAL CHANGE. Except as contemplated herein or as set
forth in the Registration Statement and Prospectus, during the period subsequent
to the date of the last audited balance sheet included in the Registration
Statement, the Company (i) shall have conducted its business in the usual and
ordinary manner as the same was being conducted on the date of the last audited
balance sheet included in the Registration Statement, and (ii) except in the
ordinary course of its business, the Company shall not have incurred any
liabilities or obligations (direct or contingent) or disposed of any of its
assets, or entered into any material transaction or suffered or experienced any
materially adverse change in its condition, financial or otherwise. The capital
stock and surplus accounts of the Company shall be substantially the same as at
the date of the last balance sheet included in the Registration Statement,
without considering the proceeds from the sale of the Securities, other than as
may be set forth in the Prospectus.
8.07. REVIEW BY LEGAL COUNSEL TO THE MEMBERS OF THE UNDERWRITING GROUP.
The authorization of the Securities, Representative's Warrants, Representative's
Class A Warrants, Warrant Shares, Registration Statement, Prospectus and all
corporate proceedings and other
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legal matters incident thereto and to this Agreement shall be reasonably
satisfactory in all respects to legal counsel to the members of the Underwriting
Group.
8.08. OPINIONS OF LEGAL COUNSEL.
8.08.01. REISMAN & ASSOCIATES, P.A., LEGAL OPINION. The
Company shall have furnished to the members of the Underwriting Group
an opinion, dated the Closing Date, addressed to the members of the
Underwriting Group, from Reisman & Associates, P.A., legal counsel to
the Company, to the effect that based upon a review by them of the
Registration Statement, Prospectus, the Company's articles of
incorporation, bylaws and relevant corporate proceedings and contracts,
an examination of such statutes they deem necessary and based upon such
other investigation by such legal counsel as they deem necessary to
express such opinion:
(i) The Company and each of its subsidiaries, if any,
have been duly incorporated and are validly existing
corporations in good corporate standing under the laws of the
state in which it was incorporated, with full corporate power
and authority to own and operate its properties and to carry
on its business as set forth in the Registration Statement and
Prospectus.
(ii) The Company has authorized and outstanding
securities as set forth in the Registration Statement and
Prospectus; the outstanding securities of the Company and each
of its subsidiaries, if any, and the Securities conform to the
statements concerning them in the Registration Statement and
Prospectus; the outstanding securities of the Company and each
of its subsidiaries, if any, have been duly and validly issued
and are fully paid and nonassessable and contain no preemptive
rights; the Securities being sold by the Company to the
Underwriting Group, the Representative's Warrants and the
Representative's Class A Warrants have been duly and validly
authorized and, upon issuance thereof and payment therefor in
accordance with this Agreement and the Representative's
Warrants and Representative's Class A Warrants will be duly
and validly issued, fully paid and nonassessable and will not
be subject to the preemptive rights of any shareholder of the
Company.
(iii) To legal counsel's knowledge, no consents,
approvals, authorizations or orders of agencies, officers or
other regulatory authorities are known to such legal counsel
which are necessary for the valid authorization, issue or sale
of the Securities being sold by the Company to the
Underwriting Group hereunder, except as required under the Act
or the securities laws of the states in which the Securities
are qualified or except as required by the NASD.
(iv) To legal counsel's knowledge, the issuance and sale
of the Securities being sold by the Company to the
Underwriting Group and the consummation of
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the transactions herein contemplated and compliance with the
terms of this Agreement will not conflict with or result in a
breach of any of the terms, conditions, or provisions of or
constitute a default under the articles of incorporation or
bylaws of the Company, or any note, indenture, mortgage, deed
of trust, or other material agreement or material instrument
known to such counsel to which the Company is a party or by
which the Company or any of its property is bound or any
existing law (provided this Section 8.08 (iv) shall not relate
to federal or state securities laws), order, rule, regulation,
writ, injunction, or decree of any government, governmental
instrumentality, agency, body, arbitration tribunal, or court,
domestic or foreign, having jurisdiction over the Company or
its property and which is known to such counsel.
(v) No preemptive rights exist with respect to the
Company's securities.
(vi) The Company has authorized capitalization as
described in the Registration Statement.
(vii) Based upon written or oral communications from the
Commission, the Registration Statement has become effective
under the Act and, to the knowledge of such legal counsel, no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose
has been instituted or is pending or contemplated; legal
counsel has participated in the preparation of the
Registration Statement and Prospectus and each amend ment and
supplement thereto, and no facts have come to the attention of
legal counsel to lead counsel to believe that either the
Registration Statement or the Prospectus or any amendment or
supplement thereto contains any untrue statement of a material
fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading in light of the circumstances under which made
(except for the financial statements and other financial data
included therein, as to which legal counsel expresses no
opinion); and such counsel is familiar with all contracts
referred to in the Registration Statement or Prospectus and
such contracts are sufficiently summarized or disclosed
therein or filed as exhibits thereto as required, and such
legal counsel does not know of any other contracts that are
required to be summarized or disclosed or filed, and such
legal counsel does not know of any legal or governmental
proceedings pending or threatened to which the Company is
subject of such a character required to be disclosed in the
Registration Statement or the Prospectus which are not
disclosed and properly described therein.
(viii) This Agreement has been duly authorized by the
Company and is a valid and binding agreement of the Company
enforceable according to its terms subject to equitable
principles and to applicable bankruptcy, insolvency and other
laws concerning the enforceability of creditors' rights
generally; provided
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that such counsel need express no opinion as to the
enforceability of any indemnification or contribution
provisions contained in this Agreement. A sufficient number of
shares of the Company's Common Stock have been duly reserved
for issuance upon exercise of the Class A Warrants, the
Representative's Warrants, and the Representatives Class A
Warrants.
(ix) Except as disclosed in the Registration Statement
and Prospectus, to the knowledge of legal counsel, the Company
is not in default under any of the contracts, licenses, leases
or agreements to which it is a party and which are described
in the Registration Statement or attached thereto as exhibits
and the offering of the Securities being sold by the Company
to the Underwriting Group will not cause the Company to become
in default of any of such contracts, licenses, leases or
agreements.
(x) Except as disclosed in the Registration Statement and
Prospectus and subject to equitable principles, to the
knowledge of legal counsel, the properties owned by the
Company and its subsidiaries, if any, described in the
Registration Statement are free and clear of all liens,
charges, encumbrances or restrictions; all of the leases,
subleases and other agreements known to such counsel under
which the Company and each of its subsidiaries, if any, holds
its properties and conducts its business are in full force and
effect; neither the Company nor any of its subsidiaries, if
any, is in default under any of the material terms or
provisions of any of such leases, subleases or other
agreements known to such counsel; and there are no claims
against the Company or any of its subsidiaries, if any,
concerning its rights under such leases, subleases and other
agreements and concerning its right to continued possession of
its properties.
(xi) Legal counsel is unaware of any affiliate, parent,
or subsidiaries of the Company except as are described in the
Registration Statement and Prospectus.
(xii) To such counsel's knowledge, except as set forth in
the Registration Statement and Prospectus, no holders of
Common Stock or other securities of the Company have
registration rights with respect to securities of the Company
and, except as set forth in the Registration Statement and
Prospectus, all holders of securities of the Company having
rights to registration of such Common Stock, or other
securities, because of the filing of the Registration
Statement by the Company have, with respect to the offering
contemplated thereby, waived such rights or such rights have
expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement, or
have included securities in the Registration Statement
pursuant to the exercise of such rights.
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In rendering such opinions, such legal counsel shall be
entitled to rely upon Public Authority Documents and upon information
provided by client officials in written Certificates provided that
copies of such Public Authority Documents and Certificates are attached
as exhibits to the written opinion of legal counsel. The term "Public
Authority Documents" shall have the meaning ascribed to it in the Legal
Opinion Accord of the ABA Section of Business Law (1991). Such opinions
may be subject to such qualifications, exceptions, definitions,
limitations as are normally included in similar opinions.
8.08.02. The Company shall furnish to the members of the
Underwriting Group an opinion, dated the Closing Date, addressed to the
members of the Underwriting Group, from ________________________ to the
effect that:
(i) To the knowledge of such counsel, the eye drop
products described in the Prospectus as being marketed by the
Company are in compliance with all laws applicable to the FDA,
all applicable rules and regulations of the FDA and all laws
and regulations of any states in which such products are
marketed.
(ii) Such counsel has not received and is not aware of
the Company having received any notice of any claim by the FDA
or any other governmental agency that the eye drop products
being marketed by the Company are not in compliance with all
applicable rules and regulations of the FDA and any laws and
regulations of any states in which such products are marketed.
In rendering such opinion, such legal counsel shall be
entitled to rely upon Public Authority Documents and upon information
provided by client officials in written Certificates provided that
copies of such Public Authority Documents and Certificates are attached
as exhibits to the written opinion of legal counsel. The term "Public
Authority Documents" shall have the meaning ascribed to it in the Legal
Opinion Accord of the ABA Section of Business Law (1991). Such opinions
may be subject to such qualifications, exceptions, definitions,
limitations as are normally included in similar opinions.
8.08.03. The Company shall furnish to the members of the
Underwriting Group an opinion, dated the Closing Date, addressed to the
members of the Underwriting Group, from Nolte, Nolte & Hunter, P.C., to
the effect that:
(i) To the knowledge of such counsel, the Company is
the owner of the exclusive worldwide license to make use, and
sell eye drop solutions contained in the Ocurest Delivery
System claimed in United States Patent Nos. 4,909,801 issued
March 20, 1990, and D320,083 issued September 17, 1991 ("U.S.
Patents") held by Acorn Laboratories, Inc. ("Acorn").
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(ii) To the knowledge of such counsel, the Company is
the owner of all rights to United States Trademark
Registration Nos. 1,903,891 and is the owner of the exclusive
worldwide license from Acorn to use United States Trademark
Registration 1,492,900 ("U.S. Trademarks") protecting the
shape of the Ocurest Delivery System and the name "Ocurest,"
respectively.
(iii) Such counsel has not received and is not aware of
the Company having received any notice of any claim from any
third party which notice would cause such counsel to conclude
that the Company does not own or possess adequate rights with
respect to the U.S. Patents, the U.S. Trademarks, or other
material patents, patent rights, trademarks, service marks,
trade names, copyrights described or referred to in the
Prospectus as owned or used by the Company or which are
necessary for the conduct of the Company's business or
proposed business as described in the Prospectus.
In rendering such opinion, such legal counsel shall be
entitled to rely upon Public Authority Documents and upon information
provided by client officials in written Certificates provided that
copies of such Public Authority Documents and Certificates are attached
as exhibits to the written opinion of legal counsel. The term "Public
Authority Documents" shall have the meaning ascribed to it in the Legal
Opinion Accord of the ABA Section of Business Law (1991). Such opinions
may be subject to such qualifications, exceptions, definitions,
limitations as are normally included in similar opinions.
8.09. ACCOUNTANT'S LETTER. The Representative shall have received a
letter addressed to the Representative and dated the Closing Date from Grant
Thornton, independent public accountants for the Company, stating that with
respect to the Company they are independent public accountants within the
meaning of the Act and the applicable published Rules and Regulations
thereunder; in their opinion, the financial statements audited by them of the
Company at all dates and for all periods referred to in their opinion and
included in the Registration Statement and Prospectus, comply in all material
respects with the applicable accounting requirements of the Act and the
published Rules and Regulations thereunder with respect to registration
statements on Form SB-2; on the basis of certain indicated procedures (but not
an audit in accordance with generally accepted accounting principles), including
reading of the instruments of the Company set forth in the Prospectus, a reading
of the latest available interim unaudited financial statements of the Company,
whether or not appearing in the Prospectus, inquiries of the officers of the
Company or other persons responsible for its financial and accounting matters
regarding the specific items for which representations are requested below and a
reading of the minute book of the Company, nothing has come to their attention,
except as disclosed in their letter, which would cause them to believe that
during the period from the last audited balance sheet included in the
Registration Statement to a specified date not more than two days prior to the
date of such letter:
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(i) there has been any material change in the
financial position of the Company other than as contemplated
by disclosures contained in the Prospectus;
(ii) there has been any material change in the capital
stock or surplus accounts of the Company or any payment or
declaration of any dividend or other distribution in respect
thereof or exchange therefor or in the debt of the Company
from that shown in the Company's last audited balance sheet
included in the Prospectus, other than as contemplated by
disclosures contained in the Prospectus;
(iii) there have been any material decreases in working
capital or net worth as compared with amounts shown in the
Company's last audited balance sheet included in the
Prospectus other than as contemplated by disclosures contained
in the Prospectus; and
(iv) the dollar amounts, percentages and other financial
information set forth in the Registration Statement and
Prospectus under the captions "Prospectus Summary," "Risk
Factors," "Capitalization," "Dilution," "Use of Proceeds,"
"Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
"Business," and "Certain Relationships and Transactions" are
not in agreement with the Company's general ledger, financial
records or computations made by the Company therefrom.
Such letter shall also cover such other matters incident to
the transactions contemplated by this Agreement in form satisfactory to the
Representative as the Representative reasonably requests.
8.10. CONFORMED COPIES OF ACCOUNTANT'S LETTER. The Representative shall
be furnished without charge, in addition to the original signed copies, such
number of signed or photostatic or conformed copies of such letters as the
Representative shall reasonably request.
8.11. OFFICER'S CERTIFICATES. The Company shall have furnished to the
Representative two certificates each signed by the president and by the chief
financial officer of the Company, one dated the date of this Agreement and one
dated as of the Closing Date, to the effect that:
(i) The representations and warranties of the Company in
this Agreement are true and correct at and as of the date of
the certificate and the Company has complied with all the
agreements and has satisfied all the conditions on its part to
be performed or satisfied at or prior to the date of the
certificate.
(ii) The Registration Statement has become effective
and no order suspending the effectiveness of the Registration
Statement has been issued and to
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the best of the knowledge of the respective signers, after
such respective signers have made inquiry, no proceeding for
that purpose has been initiated or is threatened by the
Commission.
(iii) The respective signers have each carefully examined
the Registration Statement and Prospectus and any amendments
and supplements thereto, and the Registration Statement and
the Prospectus and any amendments and supplements thereto
contain all statements required to be stated therein, and all
statements contained therein are true and correct, and neither
the Registration Statement nor Prospectus nor any amendment or
supplement thereto includes any untrue statement of a material
fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading and, since the effective date of the Registration
Statement, there has occurred no event required to be set
forth in an amended or a supplemented Prospectus which has not
been so set forth.
(iv) This Agreement has been, and, as of the Closing
Date, the Representatives Warrants and the Representative's
Class A Warrants will have been, duly authorized and executed
by the Company.
(v) The respective signers have each reviewed the
questionnaires provided to the Representative by each officer,
director, and 5% shareholder of the Company and, to the best
of their knowledge, the statements made in such questionnaires
are true and correct.
(vi) Except as set forth in the Registration Statement
and Prospectus, since the respective dates as of which
information is given in the Registration Statement and
Prospectus and prior to the date of such certificate, (i)
there has not been any material adverse change in the officers
or directors of the Company or any substantially adverse
change, financial or otherwise, in the affairs or condition of
the Company, and (ii) the Company has not incurred any
liabilities, direct or contingent, or entered into any
transactions, otherwise than in the ordinary course of
business.
(vii) Subsequent to the respective dates as of which
information is given in the Registration Statement and
Prospectus, no dividends or distributions whatever have been
declared and/or paid on or with respect to the securities of
the Company.
8.12. TENDER FOR DELIVERY. All of the Securities being offered by the
Company which are sold in the offering shall be tendered for delivery in
accordance with the terms and provi sions of this Agreement.
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8.13. BLUE SKY QUALIFICATION. The Securities shall be qualified in such
states as are reasonably designated by the Representative as set forth in
Section 5.04 hereof and each such qualification shall be in effect and not
subject to any stop order or other proceeding on the Closing Date or Option
Closing Date. On both the effective date of the Registration Statement and on
the Closing Date, the Company and the Representative shall receive from Smith,
McCullough & Ferguson, P.C., written information which contains the following:
(i) The names of the states in which applications
to register or qualify the Securities have been filed;
(ii) The status of such registrations or
qualifications in such states as of the date thereof;
(iii) A list containing the name of each such state in
which the Securities may be legally offered and sold by a
dealer licensed in such state and the number of each which may
be legally offered and sold in each such state as of the date
thereof;
(iv) With respect to the written information dated on the
effective date, a representation that such legal counsel will
continuously update such written information if any changes
occur in the information provided therein between the
effective date and the Closing Date and Option Closing Date;
and
(v) A statement that the Company, the members of the
Underwriting Group and selected dealers in the offering may
rely upon the information contained therein.
8.14. APPROVAL OF LEGAL COUNSEL TO THE REPRESENTATIVE. All opinions,
letters, certificates and evidence mentioned above or elsewhere in this
Agreement shall be deemed to be in compliance with the provisions hereof only if
they are in form and substance satisfactory to legal counsel to the
Representative. The suggested form of such documents shall be provided to the
legal counsel to the Representative at least three business days before the
Closing Date.
8.15. OFFICER'S CERTIFICATE AS A COMPANY REPRESENTATIVE. Any
certificate signed by an officer of the Company and delivered to the
Representative or to legal counsel to the members of the Underwriting Group will
be deemed a representation and warranty by the Company to the members of the
Underwriting Group as to the statements made therein.
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SECTION 9
TERMINATION
9.01. TERMINATION BECAUSE OF NONCOMPLIANCE. This Agreement may be
terminated by the members of the Underwriting Group 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
herein provided for, unless compliance therewith or performance or satisfaction
thereof shall have been expressly waived by the Representative in writing. This
Agreement may be terminated by the Company by notice to the Representative in
the event the members of the Underwriting Group shall have failed or been unable
to comply with any of the terms, conditions or provisions of this Agreement on
the part of the members of the Underwriting Group to be performed, complied with
or fulfilled within the respective times herein provided for, unless compliance
therewith or performance or satisfaction thereof shall have been expressly
waived by the Company in writing.
9.02. TERMINATION BECAUSE OF CHANGES. This Agreement may be terminated
by the members of the Underwriting Group by notice to the Company if the
Representative believes in its sole judgment that any changes have occurred in
or with respect to the management of the Company, that material adverse changes
have occurred in or with respect to the condition or obligations of the Company,
or if the Company shall have sustained a loss or anticipated loss as a result of
a strike, governmental action, fire, flood, accident, contract termination, or
other calamity of such a character as, in the sole judgment of the
Representative, may interfere materially with the conduct of the Company's
business and operations regardless of whether or not such loss or anticipated
loss shall have been insured.
9.03. MARKET OUT TERMINATION. This Agreement may be terminated by the
members of the Underwriting Group by notice to the Company at any time if, in
the judgment of the Representative, payment for and delivery of the Securities
is rendered impracticable or inadvisable because (i) additional material
governmental restrictions not in force and effect on the date hereof shall have
been imposed upon the trading in securities generally, or minimum or maximum
prices shall have been generally established on the New York or American Stock
Exchange, or trading in securities generally on either such Exchange shall have
been suspended, or a general moratorium shall have been established by federal
or state authorities, or (ii) a war or other national calamity or emergency
shall have occurred, or (iii) of any suspension of trading of the Common Stock
of the Company in the over the counter market, or (iv) the occurrence of a
material adverse event affecting the Company which materially impairs the
investment quality of the Securities, or (v) substantial and material adverse
changes in the condition of the securities markets beyond normal fluctuations
have occurred.
9.04. EFFECT OF TERMINATION HEREUNDER. If the members of the
Underwriting Group decide to terminate this Agreement pursuant to this Section 9
or the Company decides to
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terminate this Agreement pursuant to Section 10 hereof, such party shall provide
notice of such determination to the other party. In such event, the
Representative shall provide the Company with a statement of the Underwriting
Group's actual accountable out of pocket expenses, which shall include but are
not limited to, fees of legal counsel to the members of the Underwriting Group
and the fees of independent consultants who are not directly or indirectly
affiliated or associated with a member of the NASD and who are retained by the
Underwriting Group to provide a service in connection with the due diligence
investigation of the proposed offering, entertainment expenses, travel expenses,
postage expenses, advertising costs, duplication expenses, long distance
telephone expenses, and any other actual out of pocket accountable expense
incurred by the Underwriting Group in connection with the proposed offering. The
Representative shall not be required to include in such accountable expenses any
of the expenses to be paid by the Company under Section 5.07 hereof, and, if the
Underwriting Group has paid any of such expenses on behalf of the Company, the
Company shall separately reimburse the Underwriting Group for such advances
immediately upon receipt of a statement therefor from the Representative. If
such actual accountable out of pocket expenses are more than the amount of the
nonaccountable expense payments the Company has made to the Underwriting Group,
the Underwriting Group will be entitled to keep the amount of the nonaccountable
expense payments the Company has made to the Underwriting Group and, within 10
days after receipt by the Company of such statement, the Company will pay to the
Representative the excess expenses the Underwriting Group has incurred, but if
the actual accountable out of pocket expenses are less than the amount of
nonaccountable expense payments the Underwriting Group has received from the
Company, the Underwriting Group will return the difference to the Company. The
Company, the members of the Underwriting Group, and the Selling Shareholders
shall not have any liabilities to each other if the Company or the members of
the Underwriting Group decide not to proceed with the proposed offering for any
reason set forth in this Section 9 or in Section 10 hereof, except that the
Company shall remain obligated to pay the costs and expenses provided to be paid
by it as specified in Sections 5.07 and 9.04 hereof; and the Company, and the
members of the Underwriting Group shall be obligated to pay, respectively, all
losses, claims, damages or liabilities, joint or several, under Section 6
hereof.
SECTION 10
REPRESENTATIONS AND WARRANTIES OF
THE MEMBERS OF THE UNDERWRITING GROUP
The members of the Underwriting Group represent and warrant to and
agree with the Company that:
10.01. REGISTRATION AS BROKER DEALER AND MEMBER OF NASD. The members of
the Underwriting Group are registered as broker dealers with the Commission and
are members in good standing of the NASD and are licensed as a dealer in all
states in which they will offer or sell the Securities.
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10.02. NO PENDING PROCEEDINGS. There is not now pending against the
Representative any action or proceeding of which it has been advised, either in
any court of competent jurisdiction, before the Commission or any state
securities commission, concerning its activities as a broker or dealer that, in
the opinion of the Representative, would prevent it from acting as such under
federal securities laws or under the laws of the states in which it intends to
offer the Securities.
10.03. COMPANY'S RIGHT TO TERMINATE. In the event any action or
proceeding of the type referred to in Section 10.02 above shall be instituted
against the Representative at any time prior to the Closing Date hereunder, or
in the event there shall be filed by or against the Representative in any court
pursuant to any federal, state, local or municipal statute, a petition in
bankruptcy or insolvency or for reorganization or for the appointment of a
receiver or trustee of assets of the Representative or if the Representative
makes an assignment for the benefit of creditors, the Company shall have the
right on written notice to the Representative to terminate this Agreement
without any liability to the members of the Underwriting Group of any kind
except for the payment of expenses as provided in Section 5.07 hereof.
10.4. FINDER. The members of the Underwriting Group know of no
outstanding claims against them for compensation for services in the nature of a
finder's fee, origination fee or financial consulting fee with respect to the
offer and sale of the Securities hereunder.
10.5 COMPLIANCE. The members of the Underwriting Group, severally and
not jointly, agree to offer and sell the Securities being purchased hereunder in
accordance with the requirements of federal and state securities laws and the
rules of the NASD.
SECTION 11
RIGHT OF FIRST REFUSAL
For a period of three years after the effective date of the
Registration Statement, the Representative shall have a preferential right to
purchase for its account or to sell for any account of the Company, its parent
company, if any, or the Company's subsidiaries, if any, any securities with
respect to which the Company, its parent company, or its subsidiaries may seek a
public or private offering within the United States for cash. The Company will
consult the Representative with regard to any such covered offering for cash and
will offer the Representative the opportunity to purchase or sell any such
securities on terms not less favorable to the Company, its parent company, or
its subsidiaries than it or they can secure elsewhere. The Representative will
have 30 days in which to accept such offer. If the Representative rejects such
offer, the Company, its parent company, or its subsidiaries may sell such
securities on terms not less favorable than those offered to the Representative.
If such securities are not sold within a period of 180 days, the Representative
will once again have the rights specified herein with respect to the sale or
purchase of such securities. The Company has
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<PAGE>
informed the Representative that it has not previously granted a similar right
of first refusal to any other person.
SECTION 12
FEE PAYABLE ON OCCURRENCE OF CERTAIN EVENTS
12.01 MERGERS AND ACQUISITIONS. Subject to the purchase of the Firm
Units by the members of the Underwriting Group, for a period of five years after
the effective date, the Representative will provide consulting services which
are customary in the industry in con nection with, and the Representative will
be paid a consulting fee in connection with any transaction initiated by the
Representative involving, a merger, consolidation, stock exchange, or the
acquisition or sale of all or a material part of the assets or business of any
entity, if such transaction involves the Company, its parent company, or its
subsidiaries. A transaction will be deemed initiated by the Representative if it
is suggested by the Representative to either party to the transaction. The
consulting fee will be computed as follows:
AMOUNT OF THE TRANSACTION FEE
- --------------------------------------- -------
$1.00 - $1,000,000 5% plus
$1,000,001 - $2,000,000 4% plus
$2,000,001 - $3,000,000 3% plus
$3,000,001 - $4,000,000 2% plus
$4,000,001 and over 1%
Amount of the transaction includes:
(i) the total proceeds and other consideration being
received by the Company, its parent company, or its
subsidiaries and/or any of their stockholders upon the
consummation of the transaction (including payments made in
installments) inclusive of cash, securities, notes,
liabilities assumed, consulting agreements and agreements not
to compete;
(ii) if a portion of such consideration includes
contingent payments (whether or not related to future earnings
or operations), 50% of the maximum amount of such payments;
and
(iii) in the event that the aggregate consideration for a
transaction consists in whole or in part of securities, for
the purposes of calculating the amount of the consideration,
the value of such securities will be, in the case of the
existence of a public trading market thereof, the average of
the closing sale prices for the five days preceding the
consummation of the transaction or, in the absence of a public
trading market thereof, the fair market value thereof as
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<PAGE>
agreed to by the parties on the day preceding the
consummation of the transaction.
If the Company, its parent company, or any of its subsidiaries proposes
to engage in any such type of transaction which was not initiated by the
Representative, but in connection with which the Company, its parent company, or
any of its subsidiaries proposes to obtain services from an investment banker,
the Company, its parent company, or such Subsidiary shall provide the
Representative with the first opportunity to provide consulting services which
are customary in the industry in connection therewith. If the Representative
accepts such offer, the fee for such services shall be determined by using 50%
of the full 5% to 1% scale set forth above.
12.02 WARRANT EXERCISE FEE. If the Representative provides written
notice to the Company, at any time after 12 months from the effective date of
the Registration Statement, that the Representative is electing to solicit the
exercise of the Class A Warrants by the holders thereof, the Company will pay to
the Representative a fee of 10% of the aggregate exercise price received by the
Company as a result of the Representatives's solicitation of such holders, if
(i) the market price of the Company's Common Stock on the date a Class A Warrant
is exercised is greater than the exercise price under the Class A Warrants, (ii)
the Class A Warrant is not held in a discretionary account, and (iii) the
solicitation of the exercise of the Class A Warrant is not in violation of Rule
10b-6 promulgated under the Exchange Act.
SECTION 13
NOTICE
Except as otherwise expressly provided in this Agreement:
13.01. NOTICE TO THE COMPANY. Whenever notice is required by the
provisions of this Agreement to be given to the Company or the Selling
Shareholders, such notice shall be in writing addressed as follows:
Ocurest Laboratories, Inc.
4400 PGA Boulevard, Suite 300
Palm Beach Gardens, Florida 33410
13.02. NOTICES. Whenever notice is required by the provisions of this
Agreement to be given to the members of the Underwriting Group, such notice
shall be given in writing addressed to the Representative at the address set out
at the beginning of this Agreement.
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<PAGE>
SECTION 14
MISCELLANEOUS
14.01. BENEFIT. This Agreement is made solely for the benefit of the
members of the Underwriting Group, the Company, their respective officers and
directors and any controlling person referred to in Section 15 of the Act, and
their respective successors and assigns and the Selling Shareholders, and no
other person shall acquire or have any right under or by virtue of this
Agreement. 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. In addition, the indemnity, defense and contribution obligations of
the Company included in Section 6 of this Agreement also inure to the benefit of
the selected dealers and any person who controls the selected dealers within the
meaning of Section 15 of the Act.
14.02. SURVIVAL. The respective indemnities, agreements,
representations, warranties, covenants and other statements as set forth in or
made pursuant to this Agreement and the indemnity and contribution agreements
contained in Section 6 hereof shall survive and remain in full force and effect,
regardless of (i) any investigation made by or on behalf of the Company, or the
members of the Underwriting Group or any such officer or director thereof or any
controlling person of the Company or of any member of the Underwriting Group,
(ii) delivery of or payment for the Securities, and (iii) the occurrence of
Closing Date and the Option Closing Date; and any successor of the Company, any
member of the Underwriting Group or any controlling person, officer or director
thereof, and any Selling Shareholder, as the case may be, shall be entitled to
the benefits hereof.
14.03. GOVERNING LAW. The validity, interpretation and construction of
this Agreement and of each part hereof will be governed by the laws of the state
of Colorado.
14.04. THE INFORMATION OF THE MEMBERS OF THE UNDERWRITING GROUP.
Notwithstand ing any participation by the legal counsel of the members of the
Underwriting Group in the reorganization and/or revision of the Prospectus, the
statements with respect to the public offering of the Securities on the cover
page of the Prospectus and the Notes thereto and under the caption
"Underwriting" in the Prospectus constitute the only written information
furnished by or on behalf of the members of the Underwriting Group referred to
in Sections 2.02, 6.01 and 6.02 hereof.
14.05. 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.
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<PAGE>
Please confirm that the foregoing correctly sets forth the Agreement
between the members of the Underwriting Group and the Company.
Very truly yours,
OCUREST LABORATORIES, INC.
By:_________________________________________________
EDMUND G. VIMOND, JR., PRESIDENT AND CHIEF EXECUTIVE
OFFICER
____________________________________________________
LARRY M. REID, SECRETARY
THE SELLING SHAREHOLDERS NAMED ON
SCHEDULE II
By:_________________________________________________
_________________________________, Attorney-in-Fact
THE REPRESENTATIVE, ON BEHALF OF THE UNDERWRITING GROUP, HEREBY CONFIRMS AS
OF THE DATE HEREOF THAT THE ABOVE LETTER SETS FORTH THE AGREEMENT BETWEEN THE
COMPANY AND THE UNDERWRITING GROUP.
RAF FINANCIAL CORPORATION
By:_______________________________________
Robert L. Long, Senior Vice President
of RAF Financial Corporation, as
Attorney in Fact for the several
Underwriters named in Schedule I to the
Underwriting Agreement
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<PAGE>
SCHEDULE I
UNDERWRITERS
NUMBER OF
UNDERWRITER UNITS PURCHASED
- -------------------------------------------------------------------------------
RAF Financial Corporation
Total _____________
- 47 -
<PAGE>
SCHEDULE II
SELLING SHAREHOLDERS
NAME NUMBER OF SHARES
- ---- ----------------
- 48 -
RW-1 RW/CS
11/1//96
VOID AFTER 3:30 P.M., MOUNTAIN TIME, ON ______________________, 2001
REPRESENTATIVE'S WARRANTS TO PURCHASE COMMON SHARES
OCUREST LABORATORIES, INC.
This is to Certify That, FOR VALUE RECEIVED, RAF FINANCIAL CORPORATION,
1700 Lincoln Street, 32nd Floor, Denver, Colorado 80203 ("Holder") is entitled
to purchase, subject to the provisions of this Warrant, from OCUREST
LABORATORIES, INC. ("Company"), at any time until 3:30 P.M., Mountain Time, on
_______________, 2001 ("Expiration Date"), ____________ Common Shares of the
Company at a purchase price per share of $_________ during the period this
Warrant is exercisable. The number of Common Shares to be received upon the
exercise of this Warrant and the price to be paid for a Common Share may be
adjusted from time to time as hereinafter set forth. The purchase price of a
Common Share in effect at any time and as adjusted from time to time is
hereinafter sometimes referred to as the "Exercise Price." This Warrant is or
may be one of a series of warrants identical in form issued by the Company to
purchase an aggregate of 120,000 Common Shares of the Company and the term
"Warrants" as used herein means all such Warrants (including this Warrant). The
Common Shares, as adjusted from time to time, under lying the Warrants are
hereinafter sometimes referred to as "Warrant Shares" and include all Common
Shares that have been issued upon the exercise of the Warrants and all unissued
Common Shares underlying the Warrants.
(A) EXERCISE OF WARRANT. This Warrant may be exercised in whole or in
part at any time or from time to time until the Expiration Date or if the
Expiration Date is a day on which banking institutions are authorized by law to
close, then on the next succeeding day which shall not be such a day, by
presentation and surrender hereof to the Company or at the office of its stock
transfer agent, if any, with the Purchase Form annexed hereto duly executed and
accompanied by payment of the Exercise Price for the number of shares specified
in such Form, together with all federal and state taxes applicable upon such
exercise. The Company agrees not to merge, reorganize or take any action that
would terminate this Warrant unless provisions are made as part of such merger,
reorganization or other action which would provide the holders of this Warrant
with an equivalent of this Warrant as specified in Section (i) hereof. The
Company agrees to provide notice to the Holder that any tender offer is being
made for the Company's Common Shares no later than three business days after the
day the Company becomes aware that any tender offer is being made for
outstanding Common Shares of the Company. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the
<PAGE>
right of the Holder to purchase the balance of the Common Shares purchasable
hereunder. Upon receipt by the Company of this Warrant at the office of the
Company or at the office of the Company's stock transfer agent, in proper form
for exercise and accompanied by the Exercise Price, the Holder shall be deemed
to be the holder of record of the Common Shares issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such Common Shares shall not then be
actually delivered to the Holder.
(B) RESERVATION OF SHARES. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of Common Shares as shall be required for issuance or
delivery upon exercise of this Warrant.
(C) FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a Common Share called for upon any exercise hereof,
the Company shall, upon receipt by the Company or the Company's stock transfer
agent of the Exercise Price on such fractional share, pay to the Holder an
amount in cash equal to such fraction multiplied by the current market value of
such fractional share, determined as follows:
(1) If the Common Shares are listed on a national securities
exchange, are admitted to unlisted trading privileges on such an
exchange, or are listed for trading on a trading system of the National
Association of Securities Dealers, Inc. ("NASD") such as the NASDAQ
Small Cap Market or NASDAQ National Market System ("NMS"), then the
current value shall be the last reported sale price of the Common
Shares on such an exchange or system on the last business day prior to
the date of exercise of this Warrant or if no such sale is made on such
day, the average of the closing bid prices for the Common Shares for
such day on such exchange or such system shall be used; or
(2) If the Common Shares are not so listed on such exchange or
system or admitted to unlisted trading privileges, the current value
shall be the average of the last reported bid prices reported by the
National Quotation Bureau, Inc. on the last business day prior to the
date of the exercise of this Warrant; or
(3) If the Common Shares are not so listed or admitted to
unlisted trading privileges and if bid and asked prices are not so
reported, the current value shall be an amount, not less than book
value, determined in such reasonable manner as may be prescribed by the
board of directors of the Company.
(D) EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other Warrants of different denominations entitling the
Holder thereof to purchase (under the same terms and conditions as
2
<PAGE>
provided by this Warrant) in the aggregate the same number of Common Shares
purchasable hereunder. This Warrant may not be sold, transferred, assigned, or
hypothecated on or before __________________, 1997, except that it may be
transferred or assigned in whole or in part prior to __________________, 1997,
to the officers of RAF Financial Corporation, to other securities brokers and
dealers who participated in the offering of securities of the Company with
respect to which this Warrant was issued ("Offering"), to the officers of such
other securities brokers and dealers, or by will or operation of law. Any such
transfer or assignment shall be made by surrender of this Warrant to the Company
or at the office of its stock transfer agent, if any, with the Assignment Form
annexed hereto duly executed and with funds sufficient to pay any transfer tax;
whereupon the Company shall, without charge, execute and deliver a new Warrant
in the name of the assignee named in such instrument of assignment and this
Warrant shall promptly be cancelled. This Warrant may be divided or combined
with other Warrants which carry the same rights upon presentation hereof at the
office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any warrants issued in substitution for or
replacement of this Warrant, or into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indem nification, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Subject to such right
of indemnification, any such new Warrant executed and delivered shall constitute
an additional contractual obligation on the part of the Company, whether or not
this Warrant so lost, stolen, destroyed, or mutilated shall be at any time
enforceable by anyone.
(E) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(F) ADJUSTMENT PROVISIONS.
(1) ADJUSTMENTS OF THE EXERCISE PRICE.
(A) If the Company subdivides its outstanding Common
Shares into a greater number of Common Shares, the Exercise
Price in effect immediately prior to such subdivision shall be
proportionately reduced. Conversely, if the Company combines
its outstanding Common Shares into a lesser number of Common
Shares, the Exercise Price in effect immediately prior to such
combination shall be proportionally increased. In case of a
subdivision or combination, the adjustment of the Exercise
Price shall be made as of the effective date of the applicable
event. A distribution on Common Shares,
3
<PAGE>
including a distribution of Convertible Securities, to
shareholders of the Company on a pro rata basis shall be
considered a subdivision of Common Shares for the purposes of
this subsection (1)(A) of this Section, except that the
adjustment will be made as of the record date for such
distribution and any such distribution of Convertible
Securities shall be deemed to be a distribution of the Common
Shares underlying such Convertible Securities.
(B) If the Company shall at any time distribute or
cause to be distributed to its shareholders, on a pro rata
basis, cash, assets, or securities of any entity other than
the Company, then the Exercise Price in effect immediately
prior to such distribution shall automatically be reduced by
an amount determined by dividing (x) the amount (if cash) or
the value (if assets or securities) of the holders' of
Warrants (as such term is defined in the first paragraph
hereof) pro rata share of such distribution determined
assuming that all holders of Warrants had exercised their
Warrants on the day prior to such distribution, by (y) the
number of Common Shares issuable upon the exercise of this
Warrant by the Holder on the day prior to such distribution.
(3) NO ADJUSTMENT FOR SMALL AMOUNTS. Anything in this Section
(f) to the contrary notwithstanding, the Company shall not be required
to give effect to any ad justment in the Exercise Price unless and
until the net effect of one or more adjust ments, determined as above
provided, shall have required a change of the Exercise Price by at
least one cent, but when the cumulative net effect of more than one
adjust ment so determined shall be to change the actual Exercise Price
by at least one cent, such change in the Exercise Price shall thereupon
be given effect.
(4) NUMBER OF SHARES ADJUSTED. Upon any adjustment of the
Exercise Price, the Holder of this Warrant shall thereafter (until
another such adjustment) be entitled to purchase, at the new Exercise
Price, the number of Common Shares, calculated to the nearest full
share, obtained by multiplying the number of Common Shares initially
issuable upon exercise of this Warrant by the Exercise Price specified
in the first paragraph hereof and dividing the product so obtained by
the new Exercise Price.
(5) DEFINITIONS.
(A) Whenever reference is made in this Section (f) to
the distribution of Common Shares, the term "Common Shares"
shall mean the Common Shares of the Company authorized as of
the date hereof and any other class of stock ranking on a
parity with such Common Shares. However, subject to the
provisions of Section (i) hereof, Common Shares issuable upon
exercise hereof shall include only Common Shares of the class
designated as Common Shares of the Company as of the date
hereof.
4
<PAGE>
(B) Whenever reference is made in this Section (f) to
the distribution of Convertible Securities, the term
"Convertible Securities" shall mean options or warrants or
rights for the purchase of Common Shares of the Company or for
the purchase of any stock or other securities convertible into
or exchangeable for Common Shares of the Company.
(G) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of Section (f) hereof, the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office, and with its stock transfer and warrant agent, if any, an
officer's certificate showing the adjusted Exercise Price determined as herein
provided and setting forth in reasonable detail the facts requiring such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the Holder and the Company shall, forthwith
after each such adjustment, deliver a copy of such certificate to the Holder.
(H) NOTICES TO HOLDERS. So long as this Warrant shall be outstanding
and unexercised (i) if the Company shall pay any dividend or make any
distribution upon the Common Shares or (ii) if the Company shall offer to the
holders of Common Shares for subscription or purchase by them any shares of
stock of any class or any other rights or (iii) if any capital reorganization of
the Company, reclassification of the capital stock of the Company, consolidation
or merger of the Company with or into another corporation, sale, lease or
transfer of all or substantially all of the property and assets of the Company
to another corporation, or voluntary or involuntary dissolution, liquidation or
winding up of the Company shall be effected, then, in any such case, the Company
shall cause to be delivered to the Holder, at least 10 days prior to the date
specified in (x) or (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (x) a record is
to be taken for the purpose of such dividend, distribution or rights, or (y)
such reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Common Shares of record shall be
entitled to exchange their Common Shares for securities or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up.
(I) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding Common
Shares of the Company (other than a change in par value, or from par value to no
par value, or from no par value to par value, or as a result of an issuance of
Common Shares by way of dividend or other distribution or of a subdivision or
combination), or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with a subsidiary in which merger
the Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding Common
Shares of the class issuable upon
5
<PAGE>
exercise of this Warrant) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, the Company shall cause effective provision to be made so that the
Holder shall have the right thereafter, by exercising this Warrant, to purchase
the kind and amount of shares of stock and other securities and property which
the Holder would have received upon such reclassification, capital
reorganization or other change, consolidation, merger, sale or conveyance had
this Warrant been exercised prior to the consummation of such transaction. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of Common
Shares and to successive consolidations, mergers, sales or conveyances. In the
event the Company spins off a subsidiary by distributing to the shareholders of
the Company as a dividend or otherwise the stock of the subsidiary, the Company
shall reserve for the life of this Warrant, shares of the subsidiary to be
delivered to the Holders of the Warrants upon exercise to the same extent as if
they were owners of record of the Warrant Shares on the record date for payment
of the shares of the subsidiary.
(J) REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(1) Within 45 days after receipt of a written request by the
then Holder(s) of Warrants or Warrant Shares representing at least 51%
of the total Warrant Shares made at any time within the period
commencing ________________, 1997, and ending __________________, 2001,
the Company will file, no more than once, a registration statement
under the Securities Act of 1933, as amended, registering the Warrants
and the Warrant Shares. The Company will use its best efforts to cause
such registration statement to become effective. As an alternative to
filing such registration statement, the Company may file a
posteffective amendment to Registration Statement No. 333- 10323 which
contains the information required in order to permit the offer and sale
of the Warrants and Warrant Shares under Registration Statement No.
333-10323. The Company will use its best efforts to cause such
amendment to become effective.
(2) In addition, if at any time during the period commencing
_________________, 1997, and ending _________________, 2003, the
Company should file a registration statement under the Securities Act
of 1933, as amended (the "Act"), which relates to a current offering of
securities of the Company (except in connection with an offering (i) of
the Company's securities on a Form S-8 Registration Statement or (ii)
of the Company's securities solely in exchange for properties, assets
or stock of other individuals or corporations), such registration
statement and the prospectus included therein shall also, at the
written request to the Company by any of the Holder(s) of the Warrants
and Warrant Shares, relate to, and meet the requirements of the Act
with respect to any public offering of the Warrants and Warrant Shares
so as to permit the public sale thereof in compliance with the Act. The
Company shall give
6
<PAGE>
written notice to the Holder(s) of its intention to file a registration
statement under the Act relating to a current offering of the aforesaid
securities of the Company 30 or more days prior to the filing of such
registration statement, and the written request provided for in the
first sentence of this subsection shall be made by the Holder(s) 10 or
more days prior to the date specified in the notice as the date on
which it is intended to file such registration statement. Neither the
delivery of such notice by the Company nor of such request by the
Holder(s) shall in any way obligate the Company to file such
registration statement and notwithstanding the filing of such
registration statement, the Company may, at any time prior to the
effective date thereof, determine not to proceed to effectiveness with
such registration statement, without liability to the Holder(s). The
Company shall pay all expenses (with the exception of any selling
commissions and expense allowances payable to broker dealers which
relate to the sale of the Warrants and Warrant Shares which shall be
paid by the sellers thereof) of any such registration statement.
(3) In addition, the Company will cooperate with the then
Holder(s) of the Warrants and Warrant Shares in preparing and signing
any registration statement, in addition to the registration statements
discussed above, required in order to sell or transfer the Warrants and
Warrant Shares and will sign and supply all information required
therefor, but such additional registration shall be at the then
Holder(s) cost and expense.
(4) When, pursuant to subsection (1), (2), or (3) of this
Section, the Company shall take any action to permit a public offering
or sale or other distribution of the Warrants and Warrant Shares, the
Company shall:
(A) Supply to each selling Holder a reasonable number
of copies of the preliminary, final and other prospectus in
conformity with the requirements of the Act and the Rules and
Regulations promulgated thereunder and such other documents as
the Holders shall reasonably request.
(B) Use its best efforts to register or qualify for
sale the Warrants and Warrant Shares in those states in which
any of the securities were sold in the Offering. The Company
shall bear the complete cost and expense (other than any
selling commissions and expense allowances payable to broker
dealers which relate to the sale of the Warrants and Warrant
Shares, which shall be paid by the sellers thereof) of such
registrations or qualifications except those filed under
subsection (j)(3) which shall be at the Holder(s)' cost and
expense.
(C) Keep effective such registration statement
until the first of the following events occur: (i) 36 months
have elapsed after the effective date of such registration
statement or (ii) all of the registered Warrant Shares
issued by
7
<PAGE>
the Company either before or after the effective date of such
registration statement have been publicly sold under such
registration statement.
(D) Indemnify and hold harmless each such Holder and
each underwriter, within the meaning of the Act, who may
purchase from or sell for any such Holder, any Warrants or
Warrant Shares, from and against any and all losses, claims,
damages, and liabilities (including but not limited to, any
and all expenses whatsoever reasonably incurred in
investigating, preparing, defending or settling any claim)
arising from (i) any untrue or alleged untrue statement of a
material fact contained in any registration statement
furnished pursuant to clause (A) of this subsection, or any
prospectus included therein or (ii) any omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading (unless such untrue statement or omission or such
alleged untrue statement or omission was based upon
information furnished or required to be furnished in writing
to the Company by such Holder or underwriter expressly for use
therein), which indemnification shall include each person, if
any, who controls any such Holder or underwriter within the
meaning of the Act; provided, however, that the Com pany shall
not be so obligated to indemnify any such Holder or
underwriter or controlling person unless such Holder and
underwriter shall at the same time indemnify the Company, its
directors, each officer signing any registration statement or
any amendment to any registration statement and each person,
if any, who controls the Company within the meaning of the
Act, from and against any and all losses, claims, damages and
liabilities (including, but not limited to, any and all
expenses whatsoever reasonably incurred in investigating,
preparing, defending or settling any claim) arising from (iii)
any untrue or alleged untrue statement of a material fact
contained in any registration statement or prospectus
furnished pursuant to Clause (A) of this subsection, or (iv)
any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, but the indemnity of such
Holder, underwriter or controlling person shall be limited to
liability based upon information furnished, or required to be
furnished, in writing to the Company by such Holder or
underwriter or controlling person expressly for use therein.
The Company shall not be liable for amounts paid in settlement
of any such litigation if such settlement was effected without
the consent of the Company. The indemnity agreement of the
Company herein shall not inure to the benefit of any such
underwriter (or to the benefit of any person who controls such
underwriter) on account of any losses, claims, damages,
liabilities (or actions or proceedings in respect thereof)
arising from the sale of any of such Warrants or Warrant
Shares by such underwriter to a person if such underwriter
failed to send or give a copy of the prospectus furnished
pursuant to Clause (A) of this subsection, as the same may
then be supplemented or amended (if such
8
<PAGE>
supplement or amendment shall have been furnished to the
Holders pursuant to said Clause (A)), to such person with or
prior to the written confirmation of the sale involved.
(5) Each Holder shall supply such information as the Company
may reasonably require from such Holder, or any underwriter for such
Holder, for inclusion in such registration statement or posteffective
amendment.
(6) The Company's agreements with respect to the Warrants and
Warrant Shares in this Section will continue in effect regardless of
the exercise or surrender of this Warrant.
(7) Any notices or certificates by the Company to the Holder
and by the Holder to the Company shall be deemed delivered if in
writing and delivered personally or sent by certified mail, return
receipt requested, to the Holder, addressed to the Holder at the
Holder's address as set forth on the Warrant or stockholder register of
the Company, or, if the Holder has designated, by notice in writing to
the Company, any other address, to such other address, and, if to the
Company, addressed to it at 4400 PGA Boulevard, Suite 800, Palm Beach
Gardens, Florida 33410. The Company may change its address by written
notice to Holders.
(K) TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. The Company may
cause the following legend, or one similar thereto, to be set forth on the
Warrants and on each certificate representing Warrant Shares or any other
security issued or issuable upon exercise of this Warrant not theretofore
distributed to the public or sold to underwriters for distribution to the public
pursuant to Section (j) hereof; unless legal counsel for the Company is of the
opinion as to any such certificate that such legend, or one similar thereto, is
unnecessary:
"The securities represented by this certificate may not be offered for
sale, sold or otherwise transferred except pursuant to an effective
registration statement made under the Securities Act of 1933 (the
"Act") and under any applicable state securities law, or pursuant to an
exemption from registration under the Act and under any applicable
state securities law, the availability of which is to be established to
the satisfaction of the Company."
(L) ADDITIONAL LEGEND. In the event this Warrant is exercised prior to
_________________, 1997, the following legend shall be set forth on the
certificate representing the Warrant Shares so acquired:
"The securities representing this Certificate are subject to
restrictions on transfer set forth in the Representative's Warrants to
Purchase Common Shares (the
9
<PAGE>
"Warrant") issued by the Company. A copy of the Warrant is available
for inspection without charge at the principal office of the Company."
(M) APPLICABLE LAW. This Warrant shall be governed by, and
construed in accordance with, the laws of the state of Colorado.
(N) EXCHANGE PROVISIONS.
(1) For purposes of this Section (n), this Warrant shall be
deemed to represent the same number of Warrants as there are Warrant
Shares underlying this Warrant. For example, if there are 10,000
Warrant Shares underlying this Warrant, then for purposes of this
Section (n) the Holder shall be deemed to hold 10,000 Warrants.
(2) For purposes of this Section (n), the following
terms shall have the following meanings:
(A) "Current Market Value of a Warrant Share" shall
be the value as determined under Section (c)(1) or (2) hereof
except that the time of the determination thereunder shall be
the last business day prior to the day the Company receives a
notice from the Holder under this Section (n).
(B) "Warrant Value" shall mean the Current Market
Value of a Warrant Share underlying each Warrant minus or less
the Exercise Price of such Warrant as of the close of business
on the last business day prior to the day the Company receives
a notice from the Holder under this Section (n).
(3) The Holder shall have the right to exchange, in a cashless
transaction, all or part of the Holder's Warrants for Common Shares
issued by the Company at anytime prior to the Expiration Date of such
Warrants by providing written notice ("Notice") to the Company. Such
Notice may only be provided after _______________, 1997 and only at a
time when the Company's Common Shares are listed or approved for
trading or quotation on an exchange, interdealer communications system,
or national quotation bureau. Such Notice shall set forth the number of
Warrants which the Holder elects to exchange for Common Shares.
(4) Within 10 days after receipt of such Notice by the
Company, the Company shall issue the number of Common Shares of the
Company to the Holder which is determined by dividing the Warrant Value
of the Warrants being exchanged by the Current Market Value of a
Warrant Share as of the date the Notice is received by the Company.
10
<PAGE>
(5) The Holder shall surrender the Warrant which the Holder is
exchanging for Common Shares upon receipt of such Common Shares. If the
entire Warrant is being exchanged by the Holder for Common Shares, the
Company shall cancel the entire Warrant. If less than the entire
Warrant is being exchanged for Common Shares, the Company shall issue a
new Warrant to the Holder representing the portion of this Warrant
which was not exchanged for Common shares.
Dated: _________________, 1996.
OCUREST LABORATORIES, INC.
By:
-----------------------------------
EDMUND G. VIMOND, JR., PRESIDENT AND
CHIEF EXECUTIVE OFFICER
11
<PAGE>
PURCHASE FORM
DATED:_________, 19__
The undersigned hereby irrevocably elects to exercise the Warrant to the
extent of purchasing ____________ shares of Common Shares and hereby makes
payment of $_______________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF SHARES
Name:_______________________________________________________________________
(Please typewrite or print in block letters)
Address:_____________________________________________________________________
Signature:___________________________________________________________________
ASSIGNMENT FORM
DATED:__________, 19__
FOR VALUE RECEIVED,_________________________________________________________
hereby sells, assigns and transfers unto______________________________________
Name:_________________________________________________________________________
(Please typewrite or print in block letters)
Address:______________________________________________________________________
the right to purchase Common Shares represented by this Warrant to the extent
of____________________________________ Common Shares as to which such right
is exercisable and does hereby irrevocably constitute and appoint______________
____________________________________, attorney, to transfer the same on the
books of the Company with full power of substitution in the premises.
Signature:________________________
12
NUMBER VOID AFTER _________, 1999
WARRANTS
[ ] CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANT [ ]
OCUREST LABORATORIES, INC.
CUSIP _________
THIS CERTIFIES THAT for value received, ________________ or registered
assigns is the owner of the number of Class A Redeemable Common Stock Purchase
Warrants (the "Warrants") to purchase, subject to the terms and conditions set
forth in this Warrant Certificate and the Warrant Agreement (as hereinafter
defined), a like number of fully paid and nonassessable shares of Common Stock,
$.008 par value (the "Common Stock"), of Ocurest Laboratories, Inc., a Florida
corporation (the "Company") at any time until 3 P.M. Denver Colorado time on
______________, 1999 upon the presentation and surrender of this Warrant
Certificate with the Purchase Form on the reverse hereof duly executed, at the
corporate office of American Securities Transfer & Trust, Inc. as Warrant Agent,
or its successor (the "Warrant Agent"), or in the absence of a Warrant Agent, at
the corporate office of the Company, accompanied by the exercise price of $4.80
per share of common stock (the "Purchase Price"). The payment of the Purchase
Price shall be in lawful money of the United States of America in cash or by
check made payable to the Warrant Agent for the account of the Company.
This Warrant Certificate and each Warrant evidenced hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agent Agreement (the "Warrant Agreement"), dated
__________, 1996 by and between the Company and American Securities Transfer &
Trust, Inc., the Warrant Agent. The Warrant Agreement provides, among other
things, for adjustments to the Purchase Price and the number of shares of Common
Stock which may be purchased upon exercise of the Warrants under certain
circumstances.
This Warrant Certificate with or without other Warrant Certificates, upon
surrender to the Warrant Agent or any successor
<PAGE>
Warrant Agent, or in the absence of a Warrant Agent, the Company, may be
exchanged for another Warrant Certificate or Warrant Certificates evidencing a
like aggregate number of Warrants. If this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Warrant Certificates evidencing the number
of Warrants not exercised.
The Company shall not be required to issue fractions of Warrants upon the
reissue of Warrants, any adjustments as described above or otherwise; but the
Company in lieu of issuing any such fractional interest, shall round up or down
to the nearest full Warrant. If the total Warrants surrendered for exercise
would otherwise result in the issuance of a fractional share, in lieu thereof,
the aggregate number of shares issuable will be rounded up or down to the
nearest full share.
Notwithstanding anything herein or in the Warrant Agreement to the
contrary, the Warrants shall not be exercisable with respect to the purchase of
any securities (a) unless a registration statement under the Securities Act of
1933, as amended, with respect to such securities is then current and effective
or an exemption from the registration provisions thereof is available and (b) by
any person residing or domiciled in any state or other jurisdiction where
registration or qualification of such securities is required in the absence of
such registration.
The Warrants shall be redeemable by the Company (a) at any time until 3:00
P.M., Denver, Colorado time on _____, 1998, at a price of $.55 per Warrant, and
(b) at any time during the period commencing after 3:00 P.M., Denver, Colorado
time, on ______, 1998, and ending at 3:00 P.M., Denver, Colorado time, on
_______, 1999, at a price of $.75 per Warrant provided that shares of the Common
Stock have traded above 140% of the then Purchase Price, as determined pursuant
to the provisions of the Warrant Agreement, for at least twenty consecutive
trading days ending within ten days prior to the date the notice of redemption
is given by the Company.
No holder of the Warrants, as such, shall have any rights of a stockholder
of the Company, either at law or in equity, and the rights of any such holder,
as such, are limited as expressly provided in the Warrant Agreement or in the
Warrant Certificates. The Company and the Warrant Agent may treat the registered
holder in respect of any Warrant Certificate as the absolute owner thereof for
all purposes notwithstanding any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of Florida, without regard to the principles of
conflicts of laws.
This Warrant Certificate is not valid unless countersigned by
<PAGE>
the Warrant Agent.
WITNESS the facsimile signatures of the officers of the Company and its
corporate seal.
OCUREST LABORATORIES, INC.
------------------------------- -----------------------------
President Secretary
Dated:
Countersigned:
American Securities Transfer & Trust, Inc.
By ----------------------------------------------
Authorized Officer
<PAGE>
PURCHASE FORM
Ocurest Laboratories, Inc.
c/o American Securities Transfer & Trust, Inc.
1825 Lawrence Street
Suite 444
Denver, CO 80202-1817
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder; ________ shares of Common Stock provided for therein, and requests
that certificates for such shares be issued in the name of:
_______________________________________________________________________________
and, if said number of shares shall not be all of the shares purchasable
thereunder, that a new Warrant Certificate for the balance of the shares
purchasable under the within Warrant Certificate be registered in the name of
the undersigned holder or such holder's assignee, as indicated below, and
delivered to the address stated below.
DATED: ________, 199__
Name of Warrantholder or
Assignee:
_____________________________________
(Please Print)
Address: _____________________________________
_____________________________________
State of Residence: _____________________________________
Signature: _____________________________________
(NOTE: the above signature must
correspond with the name as written
upon the face of this Warrant
Certificate in every particular,
without alteration or enlargement or
any change whatever, unless the
Warrants have been assigned.)
<PAGE>
ASSIGNMENT
(To be signed only upon assignment of the Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
___________________________________________________________
(Name and Address of Assignee must be Printed)
___________________________________________________________
Warrants represented by this Warrant Certificate, hereby irrevocably
constituting and appointing __________________, as attorney to transfer said
Warrants on the books and records of the Company, with full power of
substitution in the premises.
Dated: ________, 199__ _______________________________________________
(Signature of Record Holder)
(NOTE: the above signature must
correspond with the name as
written upon the face of this
Warrant Certificate in every
particular, without alteration
or enlargement or any change
whatever.)
Signature Guaranteed:
EXHIBIT 4.5
UNIT CERTIFICATE
EACH UNIT CONSISTS OF ONE SHARE OF COMMON STOCK AND ONE
CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANT
OCUREST LABORATORIES, INC.
UNIT NUMBER UNITS
[ ] [ ]
Incorporated under the laws of the State of Florida CUSIP 67574P307
THIS CERTIFIES that, for value received
or registered assignor (the "Registered Holder"), is the owner of the number of
units (the "Units") specified above, each of which consists of one (1) share of
Common Stock, par value $.008 per share (the "Common Stock"), of Ocurest
Laboratories, Inc., a Florida corporation (the "Company"), and one (1) Class A
Redeemable Common Stock Purchase Warrant (a" Warrant" or, collectively, the
"Warrants"). The Warrants are issued pursuant to and are subject in all respects
to the terms and conditions set forth in the Warrant Agent Agreement (the
"Warrant Agreement"), dated __________, 1996 by and between the Company and
American Securities Transfer & Trust, Inc., the Warrant Agent and the Transfer
Agent and Registrar. The Warrant Agreement provides, among other things, for
adjustments to the Purchase Price, as that term is hereinafter defined, and the
number of shares of Common Stock which may be purchased upon exercise of the
Warrants under certain circumstances. Each Warrant entitles the Registered
Holder to purchase one (1) fully paid and nonassessable share of Common Stock at
any time until 3 P.M. Denver Colorado time on ______________, 1999 for $4.80
(the "Purchase Price"). Notwithstanding anything herein to the contrary, the
Warrants shall not be exercisable or transferable prior to ________, 1997 or
earlier at the discretion of RAF Financial Corporation (the "Separation Date").
Commencing on the Separation Date, the Warrants shall be redeemable by the
Company (a) at any time until 3:00 P.M., Denver, Colorado time on _____, 1998,
at a price of $.55 per Warrant, and (b) at any time during the period commencing
after 3:00 P.M., Denver, Colorado time, on ______, 1998, and ending at 3:00
P.M., Denver, Colorado time, on _______, 1999, at a price of $.75 per Warrant
provided that shares of the Common Stock have traded above 140% of the then
Purchase Price, as determined pursuant to the provisions of the Warrant
Agreement, for at least twenty consecutive trading days ending within ten days
prior to the date the notice of redemption is given by the Company.
Prior to the Separation Date, the Company will not recognize any separate
transfer or exchange of the Warrants and Common Stock which comprise the Units
represented by this Unit Certificate. Commencing on the Separation Date, the
Registered Holder is entitled to exchange this Unit
<PAGE>
Certificate for separate certificates representing the number of shares of
Common Stock and the Warrants comprising the Units represented by this Unit
Certificate upon surrender of this Unit Certificate to the Transfer Agent and
Registrar at the office of the Transfer Agent and Registrar, together with any
documentation required by the Transfer Agent and Registrar. This Unit
Certificate is exchangeable upon surrender hereof by the Registered Holder to
the Transfer Agent and Registrar for a new Unit Certificate(s) of like tenor
representing an equal aggregate number of Units. Each of such new Unit
Certificates shall represent the number of Units as shall be designated by such
Registered Holder at the time of such surrender. This Unit Certificate shall be
transferable at the office of the Transfer Agent and Registrar by the Registered
Holder in person or by attorney duly authorized in writing upon surrender of
this Unit Certificate. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incidental thereto for registration of
transfer of this Unit Certificate at such office, a new Unit Certificate(s)
representing an equal aggregate number of Units will be issued to the transferee
in exchange for this Unit Certificate.
Prior to due presentment for registration of transfer hereof, the Company and
the Transfer Agent and Registrar may deem and treat the Registered Holder as the
absolute owner hereof and of each Unit represented hereby (notwithstanding any
notations of ownership or writing hereof made by anyone other than a duly
authorized officer of the Company or the Transfer Agent and Registrar) for all
purposes and shall not be affected by any notice to the contrary.
A full statement of the designations, relative rights, preferences, and
limitations applicable to each class of shares or different series within a
class which the Company is authorized to issue and the variations in rights,
preferences, and limitations determined for each series (and the authority of
the Board of Directors to determine variations for future series) will be
furnished to the shareholder on request and without charge by the Company.
This Unit Certificate shall be governed by and construed in accordance with the
laws of the State of Florida without giving effect to conflicts of laws.
This Unit Certificate is not valid unless countersigned by the Transfer Agent
and Registrar of the Company.
WITNESS the facsimile signatures of the officers of the Company and its
corporate seal.
OCUREST LABORATORIES, INC.
________________________ _________________________
President Secretary
Dated:
<PAGE>
Countersigned:
American Securities Transfer & Trust, Inc.
By ________________________________
Authorized Officer
<PAGE>
OCUREST LABORATORIES, INC.
The following abbreviations when used in the inscription on the face of the
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -as tenants in common UNIF GIFT MIN ACT ____Custodian_____
TEN ENT -as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right of under Uniform to Minors
survivorship and not as tenants Act __________________
in common (State)
Additional abbreviations may also be used though not in the above list.
SUBSCRIPTION FORM
To Be Executed by the Holder
In Order to Exercise Warrants
The undersigned Registered Holder hereby irravocably elects to exercise _______
Warrants represented by this Unit Certificate and to
purchase the shares of Common Stock Issuable Upon the exercise of such
Warrants, and requests that certificates for such shares be issued in the name
of:
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
PLEASE PRINT OR TYPE NAME AND ADDRESS
and be delivered to
_______________________________________________________________________________
_______________________________________________________________________________
PLEASE PRINT OR TYPE NAME AND ADDRESS
and, if such number of Warrants shall not be all the Warrants evidenced by this
Unit Certificate, that a new certificate for the balance of such Warrants as
well as the shares of Common Stock represented hereby be registered in the name
of, and delivered to the Registered Holder at the address listed below.
Dated: ________________________________ X________________________________
X________________________________
Address: ________________________________
________________________________
Signature Guaranteed; ________________________________
ASSIGNMENT
(Form of Assignment to be Executed If the Warrant Holder
Desires to Transfer Warrants evidenced hereby)
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER FOR VALUE RECEIVED,
__________________________________________________________________hereby sells,
assign and transfers to _______________________________________________________
_______________________________________________________________________________
(Please Print Name and Address Including Zip Code)
_______________________________________________________________________________
Warrants represented by this Warrant certificate and does hereby irrevocably
constitute and appoint
_______________________________________________________________________________
Attorney to
transfer said Warrants on the books of the Warrant Agent with full power of
substitution in the premises.
Signature: X_______________________________________
Signature(s) Guaranteed: X_______________________________________
_______________________________________
The signature(s) should be guaranteed by an eligible guarantor institution
(Banks, Stockbrookers, Savings and Loan Associations and credit Unions with
membership in an approved signature guarantee Medallon Program), pursuant to
S.E.C. Rule 17Ad-15.
EXHIBIT 5.1
LAW OFFICES
REISMAN & ASSOCIATES, P.A.
[LETTERHEAD]
November 5, 1996
Ocurest Laboratories, Inc.
4400 PGA Boulevard
Palm Beach Gardens, FL 33410
Gentlemen:
We have acted as your counsel in connection with a Registration Statement, as
amended, on Form SB-2, file No. 333-10323 filed with Securities and Exchange
Commission under the Securities Act of 1933 (the "Registration Statement") with
respect to (a) 3,000,000 shares of Common Stock, $.008 par value, (b) 1,380,000
Units, (c) 1,380,000 Class A Redeemable Common Stock Purchase Warrants, and (d)
240,000 Common Stock Purchase Warrants, all as described in the Registration
Statement. An aggregate of 1,380,000 shares of Common Stock, $.008 par value,
and 1,380,000 Class A Redeemable Common Stock Purchase Warrants comprise the
Units.
We have examined such originals or certified, conformed or photostatic copies,
the authenticity of which we have assumed, of certificates of public officials,
and your corporate officers and other documents, certificates, records,
authorizations and proceedings as we have deemed relevant and necessary as the
basis for the opinion expressed herein. In all such examinations, we have
assumed the genuineness of all signatures on original and certified documents
and all copies submitted to us as conformed or photostatic copies.
Based on the foregoing, we are of the opinion that the securities referred
to herein when sold as set forth in the Registration Statement will be legally
issued, fully paid and non-assessable.
We hereby consent to the filing of our opinion as an exhibit to the Registration
Statement and consent to the use of our name as it appears under the Caption
"Legal Matters" therein.
Sincerely,
/s/ REISMAN & ASSOCIATES, P.A.
Reisman & Associates, P.A.
WARRANT AGENT AGREEMENT
Ocurest Laboratories, Inc., a Florida corporation (the "Company"), and
American Securities Transfer & Trust, Inc., 1825 Lawrence Street, Suite 444,
Denver, Colorado 80202-1817, a Colorado corporation (the "Warrant Agent"), agree
as follows:
1. PURPOSE. The Company proposes to publicly offer and issue certain
shares of the Company's Common Stock, $.008 par value, (the "Common Stock") and
up to 1,380,000 Class A Redeemable Common Stock Purchase Warrants (the "Public
Warrants"), each permitting the purchase of one share of Common Stock (a "Share"
and collectively, the "Shares"). All of the Common Stock and Public Warrants
will be issued as part of certain units (the "Units"). The Company further
proposes to issue up to 120,000 Warrants (the "RAF Warrants") to RAF Financial
Corporation ("RAF") or its designees. Unless the context indicates otherwise, as
used herein the word "Warrants" will mean both the Public Warrants and the RAF
Warrants.
Notwithstanding anything to the contrary contained herein, the RAF
Warrants may not be sold, transferred, assigned, pledged, or hypothecated until
*________*, 1997 except to officers of RAF, except to the underwriters of the
Company's initial public offering pursuant to Registration No. 333-10323, and
except by will or operation of law. After such date, the RAF Warrants may be
sold, transferred, assigned, pledged, or hypothecated provided that any such
transaction is in accordance with the registration or exemption from
registration provisions of the Securities Act of 1933, as amended, and any
applicable state securities laws. If the RAF Warrants are exercised by
*________*, 1997, then any shares of Common Stock acquired as a result of any
such exercise may not be sold, transferred, assigned, pledged, or hypothecated
until *________*, 1997. Further, notwithstanding anything to the contrary
herein, the RAF Warrants are not redeemable.
2. WARRANT. Commencing on *________*, 1996 or earlier if so determined
by RAF (the "Separation Date"), each Public Warrant will entitle the registered
holder of such Warrant (the "Public Warrant Holder") to purchase from the
Company one Share at $4.80 per Share (the "Public Exercise Price"). Commencing
on the date of the issuance of the RAF Warrants, each RAF Warrant will entitle
the registered holder of such Warrant an ("RAF Warrant Holder") to purchase from
the Company one Share at $____ per Share (the "RAF Exercise Price"). Unless the
context indicates otherwise, as used herein the words "Warrant Holder" will mean
both the Public
<PAGE>
and the RAF Warrant Holders. A Warrant Holder may exercise all or any number of
Warrants resulting in the purchase of a whole number of Shares.
3. EXERCISE PERIOD. Commencing on the Separation Date, the Warrants,
unless sooner redeemed, may be exercised at any time until 3:00 P.M., Denver
Colorado time on *________*, 1999. Unless the context indicates otherwise, as
used herein the words "Expiration Date" will mean the ending date of such
period. After 3:00 P.M., Denver Colorado time on the Expiration Date, any
unexercised Warrants will be void and all rights of Warrant Holders as such
shall cease.
4. DETACHABILITY. Notwithstanding anything herein to the contrary,
prior to the Separation Date the Warrants and Common Stock comprising the Units
will not be separable and detachable.
5. CERTIFICATES. The Warrant Certificates shall be in registered form
only and, except for changes to the RAF Warrants as provided for herein, shall
be substantially in the form set forth in Exhibit "A" attached to this
Agreement. Warrant Certificates shall be signed by, or shall bear the facsimile
signature of, the President or a Vice President of the Company and the Secretary
or an Assistant Secretary of the Company and shall bear a facsimile of the
Company's corporate seal. If any person, whose facsimile signature has been
placed upon any Warrant Certificate as the signature of an officer of the
Company, shall cease to be such officer before such Warrant Certificate shall be
countersigned, issued and delivered, such Warrant Certificate may be
countersigned, issued and delivered with the same effect as if such person had
not ceased to be such officer. Any Warrant Certificate may be signed by, or made
to bear the facsimile signature of, any person who at the actual date of the
preparation of such Warrant Certificate shall be a proper officer of the Company
to sign such Warrant Certificate even though such person was not such an officer
upon the date of the Agreement.
6. COUNTERSIGNING. Warrant Certificates shall be manually countersigned
by the Warrant Agent and shall not be valid for any purpose unless so
countersigned. The Warrant Agent hereby is authorized to countersign and deliver
to, or in accordance with the instructions of, any Warrant Holder any Warrant
Certificate which is properly issued.
7. REGISTRATION OF TRANSFER AND EXCHANGES. The Warrant Agent shall from
time to time register the transfer of any outstanding Warrant Certificate upon
records maintained by the Warrant Agent for such purpose upon surrender of such
Warrant Certificate to the Warrant Agent for transfer, accompanied by
appropriate instruments of transfer in form satisfactory to the Company and the
Warrant Agent and duly executed by the Warrant
2
<PAGE>
Holder or a duly authorized attorney in fact. Upon any such registration of
transfer, a new Warrant Certificate shall be issued in the name of and to the
transferee and the surrendered Warrant Certificate shall be cancelled.
8. TRANSFER OF WARRANTS. The Warrant Agent shall not effect any
transfer of any outstanding Warrant Certificate unless such transfer is in
compliance with all applicable federal and state securities law requirements,
and all applicable requirements of NASDAQ, which compliance shall be to the sole
satisfaction of the Company and its counsel.
9. REDEMPTION OF WARRANTS.
(a) Commencing on the Separation Date, subject to the provisions of
this Agreement, the Warrants shall be redeemable by the Company (i) at any time
until 3:00 P.M., Denver, Colorado time on *_____*, 1998, at a price of $.55 per
Warrant, and (ii) at any time during the period commencing after 3:00 P.M.,
Denver, Colorado time, on *______*, 1998, and ending at 3:00 P.M., Denver,
Colorado time, on *_______*, 1999, at a price of $.75 per Warrant. The Warrants
shall be redeemable as provided in this Section 9 upon not less than thirty
days' prior written notice from the Company to the Warrant Holders, provided
that the Shares have traded above 140% of the then Public Exercise Price for at
least twenty consecutive trading days ending within ten days prior to the date
the notice of redemption is given by the Company. For purposes of determining
the daily trading price of the Shares, if the Shares are listed on a national
securities exchange, are admitted to unlisted trading privileges on a national
securities exchange, or are listed for trading on a trading system of the
National Association of Securities Dealers, Inc. such as the NASDAQ Small-Cap
Market or the NASDAQ National Market System, then the last reported sale price
of the Shares on such exchange or system each day shall be used or if the Shares
are not so listed on such exchange or system or admitted to unlisted trading
privileges, then the average of the last reported high bid prices reported by
the National Quotation Bureau, Inc. each day shall be used to determine such
daily trading price.
(b) Notwithstanding any other provision of this Agreement, from and
after the redemption date, all rights of the affected Warrant Holders (except
the right to receive the redemption price) shall terminate, but only if (i) on
or prior to the redemption date the Company shall have irrevocably deposited
with the Warrant Agent, as paying agent, a sufficient amount to pay on the
redemption date the redemption price for all Warrants called for redemption and
(ii) the notice of redemption shall have stated the name and address of the
Warrant Agent and the intention of the Company to deposit such amount with the
Warrant Agent on or before the redemption date.
(c) The Warrant Agent shall pay to the Warrant Holders of
3
<PAGE>
record of redeemed Warrants all monies received by the Warrant Agent for the
redemption of Warrants to which the Warrant Holders of record of such redeemed
Warrants are entitled under the provisions of this Agreement.
(d) Any amounts deposited with Warrant Agent which are not required for
redemption of the Warrants may be withdrawn by the Company. Any amounts
deposited with the Warrant Agent which shall be unclaimed after six months after
the redemption date may be withdrawn by the Company, and thereafter the Warrant
Holders of the Warrants called for redemption for which such funds were
deposited shall look solely to the Company for payment. The Company shall be
entitled to the interest, if any, on funds deposited with the Warrant Agent, and
the Warrant Holders of redeemed Warrants shall have no right to any such
interest.
(e) If the Company fails to make a sufficient deposit with the Warrant
Agent as provided above or pay the redemption price to the Warrant Holders, the
Warrant Holder of any Warrants called for redemption may at the option of the
Warrant Holder (i) by notice to the Company declare the notice of redemption a
nullity, or (ii) maintain an action against the Company for the redemption
price. If the Warrant Holder brings such an action, the Company will pay
reasonable attorneys' fees of the Warrant Holder. If the Warrant Holder fails to
bring an action against the Company for the redemption price within ninety days
after the redemption date, the Warrant Holder shall be deemed to have elected to
declare the notice of redemption to be a nullity and such notice shall be
without any force or effect.
10. EXERCISE OF WARRANTS.
(a) Any one Warrant or any multiple of one Warrant evidenced
by any Warrant Certificate may be exercised upon any single occasion on or after
the Separation Date and on or before the Expiration Date. A Warrant shall be
exercised by the Warrant Holder by surrendering to the Warrant Agent the Warrant
Certificate evidencing such Warrant with the exercise form on the reverse of
such Warrant Certificate duly completed and executed and delivering to the
Warrant Agent the Exercise Price for each Share to be purchased, payable as
follows: for the Public Warrants $4.80, by good check or bank draft payable
to the order of the Company,
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or for the RAF Warrants, $____ by good check or bank draft payable to the order
of the Company.
(b) Upon receipt of a Warrant Certificate with the exercise
form thereon duly executed together with payment in full of the Exercise Price
for the Shares for which Warrants are to be exercised, the Warrant Agent shall
requisition from any transfer agent for the Shares, and upon receipt shall make
delivery of, Shares representing the total number of whole Shares for which
Warrants have been so surrendered and for which the Exercise Price has been so
paid. Any person to whom such Shares are issued of record shall be deemed to
have become a holder of record of such Shares as of the date of the surrender of
such Warrant Certificate and payment of the Exercise Price, whichever shall last
occur, provided that if the books of the Company with respect to the Shares
shall be closed for issuance of Shares, the person to whom such Shares are
issued of record shall be deemed to have become a record holder of such Shares
as of the date on which such books shall next be so open (whether before, on or
after the Expiration Date) but at the Exercise Price.
(c) If less than all the Warrants evidenced by a Warrant
Certificate are exercised upon a single occasion, a new Warrant Certificate for
the balance of the Warrants not so exercised shall be issued and delivered to,
or in accordance with, transfer instructions properly given by the Warrant
Holder until the Expiration Date.
(d) All Warrant Certificates surrendered upon exercise of the
Warrants shall be cancelled.
(e) Upon the exercise of any Warrant, the Warrant Agent shall
promptly deposit the payment into an escrow account established by mutual
agreement of the Company and the Warrant Agent at a federally insured commercial
bank. All funds deposited in the escrow account will be disbursed on a weekly
basis to the Company once they have been determined by the Warrant Agent to be
collected funds. Once the funds are determined to be collected, the Warrant
Agent shall cause the share certificate(s) representing the exercised warrants
to be issued.
(f) Reasonable expenses incurred by the Warrant Agent while
acting in the capacity as Warrant Agent will be paid by the Company. These
expenses, including delivery of certificates representing the Shares issued upon
exercise of the Warrants, will be deducted from the Exercise Price received by
the Warrant Agent prior to distribution of funds to the Company. A detailed
accounting statement relating to the number of Warrants exercised, names of
registered Warrant Holders and the net amount of exercised funds remitted will
be given to the Company with the payment of each exercise amount.
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(g) At the time of exercise of the Warrant(s), any transfer
fee shall be paid by the Company.
11. TAXES. The Company will pay all taxes attributable to the initial
issuance of Shares upon exercise of Warrants. The Company shall not, however, be
required to pay any taxes which may be payable in respect to any transfer
involved in any issuance of Warrant Certificates or in the issuance of any
certificate in a name other than that of the Warrant Holder upon the exercise of
any Warrant.
12. MUTILATED OR MISSING WARRANT CERTIFICATES. If any Warrant
Certificate is mutilated, lost, stolen or destroyed, the Company and the Warrant
Agent may, on such terms as to indemnity or otherwise as they may in their
discretion impose (which shall, in the case of a mutilated Warrant Certificate,
include the surrender thereof), and upon receipt of evidence satisfactory to the
Company and the Warrant Agent of such mutilation, loss, theft or destruction,
issue a substitute Warrant Certificate of like denomination or tenor as the
Warrant Certificate so mutilated, lost, stolen or destroyed. Applicants for
substitute Warrant Certificates shall comply with such other reasonable
regulations and pay any reasonable charges as the Company or the Warrant Agent
may prescribe.
13. RESERVATION OF SHARES. For the purpose of enabling the Company to
satisfy its obligation to issue Shares upon exercise of Warrants, the Company
will at all times reserve and keep available free from preemptive rights, out of
the aggregate of its authorized but unissued Shares, the full number of Shares
which may be issued upon the exercise of Warrants. The Company covenants that
all shares which may be issued upon exercise of Warrants will upon issue be
fully paid and nonassessable by the Company and free from all taxes, liens,
charges and security interests with respect to the issue thereof.
14. GOVERNMENTAL RESTRICTIONS. If any Shares issuable upon the exercise
of Warrants require registration with or approval by any governmental authority,
the Company will, to the extent set forth in the Company's Prospectus and in
Section 1 of the Underwriting Agreement entered into in connection with the
above described public offering, endeavor to secure such registration or
approval; provided that in no event shall such Shares be issued, and the Company
shall have the authority to suspend the exercise of all Warrants, until such
registration or approval shall have been obtained; but all Warrants, the
exercise of which are requested during any such suspension, shall be exercisable
at the Exercise Price. If any such period of suspension continues past the
Expiration Date, all Warrants, the exercise of which have been requested on or
prior to the Expiration Date, shall be exercisable upon the removal of such
suspension until the close of the business day immediately following the
expiration of such
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suspension.
15. ADJUSTMENT PROVISIONS.
(a) Adjustment of the Exercise Price. If the Company
subdivides its outstanding Shares into a greater number of Shares, the Exercise
Price in effect immediately prior to such subdivision shall be proportionately
reduced. Conversely, if the Company combines its outstanding Shares into a
lesser number of Shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased. In case of a subdivision or
combination, the adjustment of the Exercise Price shall be made as of the event.
A distribution of shares of Common Stock, including a distribution of
Convertible Securities, to stockholders of the Company on a pro rata basis shall
be considered as a subdivision of outstanding Shares for the purposes of this
subsection, except that the adjustment will be made as of the record date of
such distribution and any such distribution of Convertible Securities shall be
deemed to be a distribution of the Shares underlying such Convertible
Securities.
(b) No Adjustment for Small Amounts. Anything in this Section
to the contrary notwithstanding, the Company shall not be required to give
effect to any adjustment in the Exercise Price unless and until the net effect
of one or more adjustments, determined as above provided, shall have required a
change of the Exercise Price by at least one cent, but when the cumulative net
effect of more than one adjustment so determined shall be to change the actual
Exercise Price by at least one cent, such change in the Exercise Price shall
thereupon be given effect.
(c) Number of Shares Adjusted Upon Any Adjustment of the
Exercise Price. Upon the date of any adjustment in the Exercise Price, the
Warrant Holders shall thereafter (until another such adjustment shall have
occurred) be entitled to purchase, at the new Exercise Price, the number of
shares, calculated to the nearest full share, obtained by multiplying the number
of shares of Common Stock initially issuable upon exercise of this Warrant by
the Exercise Price specified in the first paragraph hereof and dividing the
product so obtained by the new Exercise Price.
(d) Definitions.
(1) Whenever reference is made in this Section 15
to the distribution of shares of Common Stock, the term "Common Stock" shall
mean the Common Stock of the Company authorized as of the date hereof and any
other class of stock ranking on a parity with such Common Stock. However,
shares issuable upon exercise of Warrants shall include the class designated
as Common Stock of the Company as of the date hereof.
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(2) Whenever reference is made in this Section 15
to the distribution of Convertible Securities, the term "Convertible
Securities" shall mean options or warrants or rights for the purchase of Common
Stock of the Company or for the purchase of any stock or other securities
convertible into or exchangeable for Common Stock of the Company.
16. NOTICE TO WARRANT HOLDERS. Upon any adjustment as described in
Section 15 hereof, the Company, within twenty days thereafter shall (a) cause to
be filed with the Warrant Agent a certificate signed by a Company officer
setting forth the details of such adjustment, the method of calculation and the
facts upon which such calculation is based shall be conclusive evidence of the
correctness of the matters set forth therein, and (b) cause written notice of
such adjustments to be given to each Warrant Holder as of the record date
applicable to such adjustment. In case of any reclassification or change of
outstanding shares of Common Stock issuable upon exercise of the Warrants (other
than a change in par value or from 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 case
of any consolidation or merger of the Company with or into another corporation
(other than a merger with a subsidiary of the Company in which merger the
Company is the continuing corporation and which does not result in any
reclassification or change of the then outstanding shares of Common Stock or
other capital stock issuable upon exercise of the Warrants other than a change
in par value or from par value to no par value or from no par value to par
value) or in the case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, then, as
a condition of such reclassification, change, consolidation, merger, sale or
conveyance, the Company, or such successor or purchasing corporation, as the
case may be, shall make lawful and adequate provision whereby each holder of a
Warrant then outstanding shall have the right thereafter to receive on exercise
of such Warrant the kind and amount of shares of stock and other securities and
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance by a holder of the number of shares of Common Stock issuable
upon exercise of such Warrant immediately prior to such reclassification,
change, consolidation, merger, sale or conveyance and the Company or its
successors shall forthwith file at the corporate office of the Warrant Agent a
statement setting forth such provisions signed by (1) its Chairman of the Board
of Directors or Vice Chairman of such Board or President or a Vice President and
(2) by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant
Secretary evidencing such provisions. Such provisions shall include provision
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in Section 15 hereof. The above provisions of this
Section 16 shall similarly apply to successive reclassifications and changes of
shares of Common Stock and to successive consolidations, mergers, sales or
conveyances. Without limiting the obligation of the Company
8
<PAGE>
hereunder to provide such notice to each Warrant Holder, failure of the Company
to give notice shall not invalidate corporate action taken by the Company.
17. NO FRACTIONAL WARRANTS OR SHARES. The Company shall not be required
to issue fractions of Warrants upon the reissue of Warrants, any adjustments as
described in Section 15 hereof or otherwise; but the Company in lieu of issuing
any such fractional interest, shall round up or down to the nearest full
Warrant. If the total Warrants surrendered for exercise would otherwise result
in the issuance of a fractional share, in lieu thereof, the aggregate number of
shares issuable will be rounded up or down to the nearest full share.
18. RIGHTS OF WARRANT HOLDERS. No Warrant Holder, as such, shall have
any rights of a stockholder of the Company, either at law or in equity, and the
rights of the Warrant Holders, as such, are limited as expressly provided in
this Agreement or in the Warrant Certificates. The Company and the Warrant Agent
may treat the registered Warrant Holder in respect of any Warrant Certificates
as the absolute owner thereof for all purposes notwithstanding any notice to the
contrary.
19. WARRANT AGENT. The Company hereby appoints the Warrant Agent to act
as the agent of the Company and the Warrant Agent hereby accepts such
appointment upon the following terms and conditions by all of which the Company
and every Warrant Holder, by acceptance of his Warrants, shall be bound:
(a) Statements contained in this Agreement and in the Warrant
Certificates shall be taken as statements of the Company. The Warrant Agent
assumes no responsibility for the correctness of any of the same except such as
describe the Warrant Agent or for action taken or to be taken by the Warrant
Agent.
(b) The Warrant Agent shall not be responsible for any failure
of the Company to comply with any of the Company's covenants contained in this
Agreement or in the Warrant Certificate. The Warrant Agent may consult at any
time with counsel satisfactory to it (who may be counsel for the Company) and
the Warrant Agent shall incur no liability or responsibility to the Company or
to any Warrant Holder in respect of any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or the advice of such
counsel, provided the Warrant Agent shall have exercised reasonable care in the
selection and continued employment of such counsel.
(d) The Warrant Agent shall incur no liability or
responsibility to the Company or to any Warrant Holder for any action taken in
reliance upon any notice, resolution, waiver, consent, order, certificate or
other paper, document or instrument reasonably believed by it to be genuine and
to have been signed,
9
<PAGE>
sent or presented by the proper party or parties.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent as provided in this
Agreement, to reimburse the Warrant Agent for all out-of-pocket expenses, taxes
and governmental charges and all other charges of any kind in nature incurred by
the Warrant Agent in the execution of this Agreement and to indemnify the
Warrant Agent and save it harmless against any and all liabilities, including
judgments, costs and counsel fees, for this Agreement except as a result of the
Warrant Agent's negligence or bad faith.
(f) The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any action likely to
involve significant expense unless the Company or one or more Warrant Holders
shall furnish the Warrant Agent with reasonable security and indemnity for any
costs and expenses which may be incurred in connection with such action, suit or
legal proceeding, but this provision shall not affect the power of the Warrant
Agent to take such action as the Warrant Agent may consider proper, whether with
or without any such security or indemnity. All rights of action under this
Agreement or under any of the Warrants may be enforced by the Warrant Agent
without the possession of any of the Warrant Certificates or the production
thereof at any trial or other proceeding relative thereto, and any such action,
suit or proceeding instituted by the Warrant Agent shall be brought in its name
as Warrant Agent, and any recovery of judgment shall be for the ratable benefit
of the Warrant Holders as their respective rights or interest may appear.
(g) The Warrant Agent and any stockholder, director, officer
or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant
Agent from acting in any other legal capacity for the Company or for any other
legal entity.
20. SUCCESSOR WARRANT AGENT. Any corporation into which the Warrant
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 the
Warrant Agent shall be a party, or any corporation succeeding to the corporation
trust business of the Warrant Agent, shall be the successor to the Warrant Agent
hereunder without the execution or filing of any paper or any further act of a
party or the parties hereto. In any such event or if the name of the Warrant
Agent is changed, the Warrant Agent or such successor may adopt the
countersignature of the original Warrant Agent and may countersign such Warrant
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<PAGE>
Certificates either in the name of the predecessor Warrant Agent or in the name
of the successor Warrant Agent.
21. CHANGE OF WARRANT AGENT. The Warrant Agent may resign or be
discharged by the Company from its duties under this Agreement by the Warrant
Agent or the Company, as the case may be, giving notice in writing to the other,
and by giving a date when such resignation or discharge shall take effect, which
notice shall be sent at least thirty days prior to the date so specified. If the
Warrant Age be discharged or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Warrant Agent. If the Company shall
fail to make such appointment within a period of thirty days after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Warrant Agent or by any Warrant Holder or after discharging the
Warrant Agent, then any Warrant Holder may apply to the District Court for the
City and County of Denver, Colorado for the appointment of a successor to the
Warrant Agent. Pending appointment of a successor to the Warrant Agent, either
by the Company or by such Court, the duties of the Warrant Agent shall be
carried out by the Company. Any successor Warrant Agent, whether appointed by
the Company or by such Court, shall be a bank or a trust company, in good
standing, organized under the laws of the of the United States of America or any
State therein and having at the time of its appointment as Warrant Agent, a
combined capital and surplus of at least four million dollars. After any such
appointment, the successor Warrant Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as
Warrant Agent without further act or deed and the former Warrant Agent shall
deliver and transfer to the successor Warrant Agent any property at the time
held by it hereunder, and execute and deliver any further assurance, conveyance,
act or deed necessary for effecting the delivery or transfer. Failure to give
any notice provided for in this section, however, shall not affect the legality
or validity of the resignation or removal of the Warrant Agent or the
appointment of the successor Warrant Agent, as the case may be.
22. NOTICES. Any notice or demand authorized by this Agreement to be
given or made by the Warrant Agent or by any Warrant Holder to or on the Company
shall be sufficiently given or made if sent by mail, first class, certified or
registered, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent), as follows:
Ocurest Laboratories, Inc.
4400 PGA Boulevard
Palm Beach Gardens, FL 33410
Any notice or demand authorized by this Agreement to be given
or made by any Warrant Holder or by the Company to or on the Warrant Agent shall
be sufficiently given or made if sent by
11
<PAGE>
mail, first class, certified or registered, postage prepaid, addressed (until
another address is filed in writing by the Warrant Agent with the Company), as
follows:
American Securities Transfer & Trust, Inc.
1825 Lawrence Street
Suite 444
Denver, Colorado 80202-1817
Any distribution, notice or demand required or authorized by
this Agreement to be given or made by the Company or the Warrant Agent to or on
the Warrant Holders shall be sufficiently given or made if sent by mail, first
class, certified or registered, postage prepaid, addressed to the Warrant
Holders at their last known addresses as they shall appear on the registration
books for the Warrant Certificates maintained by the Warrant Agent.
23. SUPPLEMENTS AND AMENDMENTS.
(a) The Company and the Warrant Agent may from time to time supplement or
amend this Agreement without the approval of any Warrant Holder in order to cure
any ambiguity or to correct or supplement any provision contained herein which
may be defective or inconsistent with any other 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 shall not adversely affect
the interests of the Warrant Holders, including, but not limited to, any
extension of the Expiration Date for such period or periods as the Board of
Directors of the Company may determine, and any conditional or unconditional
reduction in the Exercise Price.
(b) With the consent of the Warrant Holders of at least two-thirds of all
then outstanding Warrants, given as set forth in this subsection (b) of this
Section 24, the Warrant Agent and the Company may make any other amendment in
this Agreement provided that no such change may shorten the time of exercise of
any Warrant or increase the Exercise Price of any Warrant without the consent of
all Warrant Holders. Consent of the Warrant Holders under this subsection (b)
shall be evidenced by either (i) a consent in writing to the amendment, which
consent need not set forth the specific form of amendment but shall be
sufficient if it consents to the general substance thereof and which shall be
executed by the Warrant Holders and notarized or acknowledged (any consent so
given in respect of a particular Warrant shall be binding upon any subsequent
owner thereof) or (ii) by the affirmative vote of the requisite Warrant Holders
at a meeting of Warrant Holders called by the Company or the Warrant Agent and
held at such time and place as may be specified in a written notice of the
meeting to be mailed to each Warrant Holder not less than ten days nor more than
sixty days prior to the date set for the meeting. The Company or the Warrant
Agent may establish a record date for the determination of Warrant
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<PAGE>
Holders entitled to vote at any meeting of Warrant Holders, which record date
shall be not more than sixty days prior to the date of mailing notice thereof.
The Company and the Warrant Agent may make reasonable regulations for the
conduct of such meeting and for the appointment of a chairman and a secretary
thereof and of inspectors of votes. Proxies may be used at any such meeting in
the same manner as is provided in the Company's bylaws with respect to proxies
for meetings of its stockholders.
24. SUCCESSORS. All the covenants and provisions of this Agreement by
or for the benefit of the Company or the Warrant Agent shall bind and inure to
the benefit of their respective successors and assigns hereunder.
25. TERMINATION. This Agreement shall terminate thirty days after the
earlier of the last Expiration Date to occur or such earlier date upon which all
Warrants have been exercised; provided, however, that if exercise of the
Warrants is suspended pursuant to Section 15 hereof and such suspension
continues past the Expiration Date, this Agreement shall terminate at the close
of business on the business day immediately following expiration of such
suspension. The provisions of Section 20 hereof shall survive such termination.
26. GOVERNING LAW. This Agreement and each Warrant Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
Florida and for all purposes shall be construed in accordance with the laws of
said State.
27. BENEFIT OF AGREEMENT. Nothing in this Agreement shall be construed
to give any person or corporation other than the Company, the Warrant Agent and
the Warrant Holders any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of the
Company, the Warrant Agent and the Warrant Holders.
28. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of such counterparts shall for all
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purposes be deemed to be an original and all such counterparts shall together
constitute but one and the same instrument. This Agreement may be executed by
facsimile with original signature regular mail or overnight courier.
Date: ______________, 1996
OCUREST LABORATORIES, INC.,
a Florida corporation
By:_____________________________________
Edmund G. Vimond, Jr., President
AMERICAN SECURITIES TRANSFER & TRUST, INC.,
a Colorado corporation
By:_____________________________________
14
EXHIBIT 10.32
JMR Funding, Inc.
2455 E. Sunrise Blvd.
Suite 700
Ft. Lauderdale, FL 33304
November 4, 1996
Ocurest Laboratories, Inc.
4400 PGA Blvd., Suite 300
Palm Beach Gardens, FL 33410
Gentlemen:
Reference is made to that certain Agreement made and entered into effective
November 15, 1995 which was executed on June 28, 1996 with respect to our
purchase and sale of your accounts receivable and finished goods inventory and a
loan to you of $524,000 (the "Agreement").
This confirms that for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, notwithstanding the provisions to
the contrary in Section 14 of the Agreement, JMR Funding, Inc. hereby agrees not
to terminate the Agreement on or before November 30, 1997.
Sincerely,
JMR Funding, Inc.
By: /s/ Irving H. Bowen
----------------------------------
Irving H. Bowen, Managing Director
IHB:lw
EXHIBIT 23.1
We have issued our report dated March 29, 1996, accompanying the financial
statements of Ocurest Laboratories, Inc. contained in Amendment No. 3 of the
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in Amendment No. 3 of the Registration Statement and
Prospectus, and to the use of our name as it appears under the Caption
"Experts."
GRANT THORNTON LLP
Fort Lauderdale, Florida
November 4, 1996
