Amendment to General Statement of Beneficial Ownership — Schedule 13D
Filing Table of Contents
Document/Exhibit Description Pages Size
1: SC 13D/A Amendment to General Statement of Beneficial 7 29K
Ownership
2: EX-1 Underwriting Agreement 4 18K
3: EX-2 Plan of Acquisition, Reorganization, Arrangement, 33 28K
Liquidation or Succession
4: EX-3 Articles of Incorporation/Organization or By-Laws 15 38K
EX-1 — Underwriting Agreement
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EXHIBIT 1
LETTER FROM BRENCOURT ADVISORS, LLC TO THE BOARD OF DIRECTORS OF ULURU INC.,
DATED APRIL 29, 2009.
[GRAPHIC]
The Board of Directors
Uluru Inc.
4452 Beltway Drive
Addison, TX 75001
April 29, 2009
Gentleman:
Brencourt Advisors, LLC, a Delaware limited liability company ("Brencourt"
or "we" or "us" or "our") acts as investment manager to multiple Delaware
limited partnerships, Bermuda corporations and managed accounts (together, the
"Funds") who, collectively, are significant shareholders in Uluru, Inc. (the
"Company").
On August 20, 2008, Brencourt filed a Schedule 13D announcing our
intention to engage in discussions with the Company, its shareholders, officers
and/or directors regarding potential changes in the operations of the Company.
Based upon our discussions with the Company, it is clear to us that the Company
has been grossly mismanaged to the extent that it is currently in dire financial
straits. We believe that the Board of Directors (the "Board" or "you"), having
no personal investment in the Company, has consistently acted against the best
interests of shareholders and in favor of its members' own personal
relationships and agenda.
The Board currently consists of four members: (1) Kerry Gray, (2) William
Crouse (Chairman of the Board), (3) Jeff Davis (CEO of Access Pharmaceuticals
Inc.), and (4) Anthony Vernon. Mr. Crouse and Mr. Davis were appointed by Mr.
Gray. Mr. Vernon was appointed by Mr. Crouse. Due to these close relationships
among management and the Board, the Company has continued to decline in value
and failed to meet its potential. As the Board is aware, Nevada Revised Statute
Section 78.138 requires the Board to exercise their powers in good faith and
with a view to the interests of the corporation. A director may be individually
liable where his act or failure to act constitutes a breach of fiduciary duty or
where the breach of fiduciary duties involves intentional misconduct, fraud or
knowing violation of law. We are filing this letter as evidence of the gross and
intentional mismanagement of the affairs of the Company and the failure by the
Board to hold management responsible. We believe that this is primarily as a
result of the Board's close associations with management, resulting in self
dealing, conflicts of interest and destruction of Company value. We call on the
Board to immediately appoint representatives of shareholders to fill vacancies
to the Board. The current four (4) member Board has no personal investment in
the Company and has repeatedly failed to uphold its fiduciary obligations to the
shareholders of the Company.
I. HISTORY
On December 6, 2006, the Funds participated in a private placement
offering for the purchase of a significant block of common shares of the
Company. In the accompanying announcement, then CEO, Kerry P. Gray stated,
"[T]his funding gives the company the necessary financial resources to execute
[our] business plan. It is anticipated that this transaction will enable the
company to generate positive cash flow in 2007. We have an exciting product
development pipeline in wound care, oral care and aesthetic augmentation, which
we now, expect to be able to rapidly advance through development to the market."
In reality, in the two years following the private placement, under the
stewardship of Kerry Gray, the Company continued to run through cash while
consistently failing to meet any meaningful achievements. For example,
throughout 2007 and 2008, Mr. Gray set forth milestones that the Company would
achieve and then repeatedly failed to achieve them (see attached Exhibit 2). Not
one of the milestones set forth by Mr. Gray was ever completed. Throughout 2008
the Company refused repeated requests by shareholders for transparency; thereby
destroying any confidence shareholders may have had in the Company's management
and its ability to successfully develop its products. As a result, the common
stock of the Company has declined from a price per share of $5.25 during March
2007 to $0.24 at the time this letter was written. This is a direct result of
management's failure to meet any of its stated objectives and the Board's
failure to take any action to hold management responsible. Quite the contrary,
the Board awarded inappropriate cash compensation and Company stock grants given
the financial position and market capitalization of the Company.
Following our repeated requests to meet to discuss the troubled status of
the Company, Mr. Crouse agreed to meet in the first quarter of 2008. We took
this opportunity to present Mr. Crouse, as Chairman of the Board, with a full
account of the projections made by Kerry Gray in 2006 and the subsequent failed
performance. In response, Mr. Crouse told Brencourt that there was nothing new
presented in our complaints and he did not have a problem with differences
between what was projected when selling securities and actual Company
performance under Mr. Gray's management. Given the clear failures in management
up to this point, Brencourt urged a change in management. Mr. Crouse said he was
not in favor of such a change.
As mentioned above, in August 2008 we filed a Schedule 13D as notice of
our intention to engage Company management and the Board to determine a means of
turning the Company around. Since this time, we have been met by the Board and
management with refusals to effectively respond, lack of transparency, stalling,
excuses, and possible bad faith dealing. By late 2008, it had become clear to us
that the Company would fail if Mr. Gray continued in the role as CEO and
director. In December 2008, Brencourt addressed the Board with our concern for
the continuing deterioration of the Company's operational performance and
financial condition, since, by this time, it was clear the Company was already
having serious financial difficulties. Brencourt outlined its concerns (see
attached Exhibit 3) and asked the Board to allow for Board representation by
shareholders and change of Company management. Mr. Crouse responded that he had
heard nothing new in Brencourt's address to the board.
Perhaps the Board's failure to hold management accountable is to be
expected given that not one member of the Board has ever invested any money in
the Company. Despite the fact that not one Board member has bought a single
share of Company stock, the Board has granted Mr. Gray over 15% of the Company's
outstanding shares through various stock grants. This is in addition to the
exorbitant executive cash compensation paid to Mr. Gray equal to a $380,000 base
salary in 2008 for a Company with a market capitalization that declined from
under $50million to under $20 million. In fact, we believe that Mr. Gray stepped
down as CEO earlier this year in anticipation of the Company running out of
cash. We believe that with the help of the Board, Kerry Gray took the
opportunity to extract cash and benefits out of the Company's dwindling assets
before it is forced into bankruptcy. More specifically, at a time when the
Company was under extreme financial stress, the Board accepted Mr. Gray's
resignation and granted him exorbitant severance, including (i) $400,000 during
the initial twelve (12) months, (ii) $12,500 per month the following forty-eight
(48) months, (iii) full acceleration of all vesting schedules, and (iv)
twenty-four (24) months full health care benefits (see the Company's Form 8-K
filed with the SEC on March 10, 2009). Moreover, Mr. Gray was permitted to
remain on the Board and, from our understanding, continues to occupy the same
office at Company headquarters in Texas that he occupied while CEO. Perhaps most
distressing of all, the severance agreement provides that "[c]ertain of such
payments are secured by a security interest in favor of Mr. Gray in [the
Company's] intellectual property relating to Zindaclin." (See the Company's Form
10-K filed with the SEC on March 30, 2009). This is especially unjustifiable
given the Company's stressed financial position. Up until this time, we had not
fully understood the extent to which the Board was acting in the best interest
of Mr. Gray rather than the Company. In the past we have seen the Board
willfully ignore the mismanagement of the Company's assets and what we believe
is the severe incompetence of Mr. Gray. We are not aware of any milestones or
goals set for Mr. Gray during his tenure and surely if they were set, none were
achieved. In this instance, however, it is clear that the Board would not have
granted a lien on Company assets in addition to such generous severance terms
while allowing Mr. Gray to continue to act as a director and de facto CEO but
for the close personal relationship between Mr. Gray and at the least, Mr.
Crouse. It should also be noted that despite repeated requests to see the full
separation agreement between the company and Mr. Gray, the Board and the Company
have failed to provide it to shareholders or file it with the Securities and
Exchange Commission ("SEC").
II. CURRENT STATUS OF THE COMPANY
As an example of why shareholders are angry, in July 2008, in response to
questions from Brencourt. Mr. Gray, then CEO, said that Altrazeal would achieve
at least $5,000,000 in sales in the fourth quarter of 2008 and possibly as high
as $10,000,000. According to the Company's SEC filings, 2008 fourth quarter
sales for the entire Company was approximately $250,000! We believe that 2009
first quarter sales for the Company may be less than even this paltry some. Yet,
this Board has responded by granting Mr. Gray an inappropriately generous
severance terms.
It is our belief from analyzing the Company's financial statements filed
with the SEC that the Company has approximately four months of available
operating capital before being functionally bankrupt. Despite acknowledging the
Company's financial position in December 2008, the Board has taken no action to
preserve its remaining cash. Rather, the Company continues to burn cash at a
rate of approximately $1,000,000 per month.
As stated above, the mismanagement coupled with a lack of accountability
is part of a long standing pattern of abuses by management and the Board dating
back to the inception of the Company. This may only be alleviated by granting
shareholders a minimum of two representatives to the Board. Please be advised
that if the Company refuses to provide shareholders with the requested
representation, we will evaluate all available options, including without
limitation, potential commencement of legal proceedings and action against the
Board for its gross negligence and breach of fiduciary duty.
Respectfully submitted,
/s/ William L. Collins
Brencourt Advisors, LLC
Dates Referenced Herein and Documents Incorporated by Reference
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