UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ x ] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1999
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ___to___
Commission File Number 0-27282
ATLANTIC TECHNOLOGY VENTURES, INC.
(Exact name of issuer as specified in its charter)
Delaware 36-3898269
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
150 Broadway Avenue, Suite 1009, New York, New York 10038 (Address
of principal executive offices, including zip code)
(212) 267-2503
(Issuer's telephone number)
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Units, each consisting of one share of Common Stock and one Redeemable Warrant
Common Stock, $.001 par value
Redeemable Warrants
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the issuer was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ended December 31, 1999 were
$1,159,579
As of March 22, 2000 there were 5,054,539 outstanding shares of common stock,
par value $.001 per share.
The aggregate market value of the voting common stock of the issuer held by
non-affiliates of the issuer on March 22, 2000 based on the closing price of the
common stock as quoted by the Nasdaq SmallCap Market on such date was
$32,381,292.
Transitional Small Business Disclosure Format: Yes |_| No X
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PART I.......................................................................1
ITEM 1. DESCRIPTION OF BUSINESS............................................1
GENERAL..................................................................1
CORPORATE STRUCTURE......................................................1
ATLANTIC AND ITS SUBSIDIARIES............................................1
Optex and the Catarex Technology.......................................1
Background.............................................................1
The CatarexDevice and its Applications.................................2
Research and Development Activities....................................3
Competition............................................................4
Proprietary Rights.....................................................4
CT-3 Technology........................................................4
Background.............................................................4
The CT-3 Technology and its Application................................4
Research and Development Activities....................................5
Competition............................................................5
Proprietary Right......................................................5
Gemini and the 2-5A Antisense Technology...............................6
Background.............................................................6
Research and Development Activities....................................6
Competition............................................................7
Proprietary Right......................................................7
Channel Therapeutics, Inc..............................................8
Our Diversification Strategy...........................................8
EMPLOYEES................................................................9
FORWARD-LOOKING STATEMENTS...............................................9
RISK FACTORS.............................................................9
Our Financial Condition and Need for Substantial Additional Funding....9
Our Operations........................................................10
Our Securities........................................................12
ITEM 2. DESCRIPTION OF PROPERTY...........................................15
ITEM 3. LEGAL PROCEEDINGS.................................................15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS..................................................16
PART II.....................................................................17
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.......................................17
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................17
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OVERVIEW................................................................17
RESULTS OF OPERATIONS...................................................17
LIQUIDITY, CAPITAL RESOURCES AND PLAN OF OPERATIONS.....................19
RECENTLY ISSUED ACCOUNTING STANDARS.....................................20
ITEM 7. FINANCIAL STATEMENTS..............................................20
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE............................20
PART III....................................................................21
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT.................................21
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS.................21
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934....22
ITEM 10. EXECUTIVE COMPENSATION............................................22
DIRECTOR COMPENSATION...................................................22
COMPENSATION OF EXECUTIVE OFFICERS......................................22
OPTIONS AND STOCK APPRECIATION RIGHTS...................................23
OPTION EXERCISE AND HOLDINGS............................................24
LONG TERM INCENTIVE PLAN AWARDS.........................................25
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT
AND CHANGE OF CONTROL AGREEMENTS........................................25
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.............................................25
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................27
ITEM 13. EXHIBITS LIST, AND REPORTS ON FORM 8-K............................28
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
We are engaged in the business of developing and commercializing
early-stage technologies. Specifically, we aim to do the following:
o identify early biomedical, pharmaceutical, electronic infrastructure,
software, communications or other technologies that we believe could be
commercially viable;
o acquire proprietary rights to these technologies, either by license or by
acquiring an ownership interest;
o fund research and development of these technologies; and
o bring these technologies to market, either directly or by selling or
licensing these technologies to other companies willing to make the
necessary investment to conduct the next level of research or seek
required regulatory approvals.
We have in the past focused on biomedical and pharmaceutical technologies.
We are currently developing three such technologies that we believe may be
useful in treating a variety of diseases, including cancer, infectious disease,
ophthalmic disorders, pain and inflammation.
We have, however, recently expanded our focus, and now seek to develop and
commercialize a diverse portfolio of patented technologies. (Consistent with
this, we recently changed our name from "Atlantic Pharmaceuticals, Inc." to our
current name, "Atlantic Technology Ventures, Inc." Our letter of intent to
acquire a 35% ownership interest in a company that is currently developing the
next generation of high speed fiber optic communication technologies represents
our first investment in an electronic infrastructure technology.
CORPORATE STRUCTURE
We were incorporated in Delaware on May 18, 1993. Each of our technologies
is held either by Atlantic or by our subsidiaries Optex Ophthalmologics, Inc.,
or "Optex," and Gemini Technologies, Inc., or "Gemini."
We seek to minimize administrative costs, thereby maximizing the capital
available for research and development. We do so by providing a centralized
management team that oversees the transition of products and technologies from
the early development stage to commercialization. In addition, we budget and
monitor funds and other resources among Atlantic and our subsidiaries, thereby
providing flexibility to allocate resources among technologies based on the
progress of individual technologies. Optex and Gemini each have a separate
Scientific Advisory Board composed of eminent scientists who provide us with
advice and expertise on our research and development activities.
ATLANTIC AND ITS SUBSIDIARIES
Optex and the Catarex Technology
Background
One of the most common vision disorders is cataracts, or the clouding of
the normally clear lens inside the eye. This results in increased glare,
decreased vision, or both. Cataracts progressively degrade visual acuity, and
restoring vision eventually requires that the affected lens be surgically
extracted. Cataracts may exist at birth, may result from aging or may be caused
by injury or disease. Cataract surgery is currently the most frequently
performed therapeutic surgical procedure in the U.S. among persons over 65 years
of age. Medicare pays $3.4 billion a year for 1 million of the 1.3 million
cataract procedures performed annually in the U.S. Each year approximately 3.6
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million cataract surgeries are performed worldwide. According to the American
Academy of Ophthalmology, the chances are 50% that a person between the ages of
52 and 64 will develop a cataract, and by age 75 almost everyone will develop a
cataract. We anticipate that given the aging of the world population, the number
of cataract removal procedures performed each year will increase in the near
future.
Currently, there are two principal technologies that are widely used for
cataract removal: extracapsular cataract extraction, or "ECCE," and
phacoemulsification, or "phaco." Until relatively recently, most cataract
procedures were done by means of ECCE, which is generally a simple and reliable
procedure that can be used with cataracts of any density. The ECCE procedure
requires direct surgical extraction of the entire lens nucleus in one step
through an approximately 11 millimeter, or "mm," incision in the eye and an
approximately 6mm opening in the lens capsule inside the eye. The residual
cortical material (the softer material that surrounds the lens nucleus) is then
removed using a mechanical irrigation/aspiration device. Once the lens is
completely removed, an intraocular synthetic polymer lens is inserted into the
eye and placed in the remaining portion of the lens capsule.
Although it is an effective procedure, ECCE has a number of disadvantages,
including the time required for surgery, post-operative recovery and visual
rehabilitation.
In a phaco procedure, the surgeon uses an ultrasound-emitting handpiece to
sculpt or carve the lens nucleus. An incision of approximately 3mm to 5mm is
made in the eye and an opening of approximately 5mm is made in the lens capsule.
As these incisions are smaller than those required in ECCE procedures, patients
generally recover faster, and also experience better post-operative results, due
to a reduction in astigmatism induced by wound healing. Phaco, however, also has
disadvantages. For one, performing a phaco procedure successfully requires
considerable skill and much training. Also, the ultrasound energy used in, and
stray fragments of the lens nucleus resulting from, a phaco procedure can damage
the cells that line the inner layer of the cornea, which in turn can cause them
to degenerate.
The Catarex Device and its Applications
Our majority-owned subsidiary, Optex, is developing the Catarex technology
to overcome the limitations and deficiencies of traditional ECCE and phaco
cataract extraction techniques. The Catarex device removes the lens nucleus and
cortex in a single step through a small incision in the eye while leaving the
lens capsule functionally intact. The Catarex device is inserted into the eye
through an incision of less than 3mm and advanced into the lens capsule through
a less than 1.5mm incision. Once positioned within the lens capsule, the device
is activated and the lens nucleus and cortex are removed in a matter of minutes
through the action of fluid vortex forces drawing the lens material to the
device, where it is mechanically emulsified and aspirated. A synthetic lens
would then be placed in the capsule; given the limitations of currently
available intraocular lenses, the incision in the lens capsule would need to be
slightly enlarged.
We believe that the Catarex device has several advantages over existing
technologies that should facilitate it being accepted by the ophthalmic
community:
o If successfully developed, Catarex would allow the entire cataract,
including the lens nucleus and cortex, to be removed through incisions in
the eye and lens capsule that would be smaller than the incisions required
in either ECCE or phaco procedures. We anticipate that this would reduce
operating time and the trauma associated with operating, which in turn
would speed recovery.
o Speedier patient recovery would reduce the costs involved in cataract
surgery, an important consideration in this era of managed care and cost
containment.
o We expect that cataract extraction using the Catarex device will leave the
anterior lens capsule of the lens functionally intact, which would shield
from damage the cells that line the inner surface of the cornea.
o We expect that surgeons will find the Catarex device easier to master than
phaco extraction, as the operating principles of the device eliminate the
need for the skill-intensive sculpting required in the phaco procedure.
o Studies have indicated that the Catarex device can be used on cataracts of
all degrees of hardness.
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o Leaving the lens capsule functionally intact would permit the insertion of
liquid polymer lenses, once they are developed. Liquid polymer lenses are
lenses made of injectable substances that can be used to refill the
original lens capsule. The use of injectable lenses in conjunction with
lens extraction using the Catarex device could result in the Catarex
device being used not only in cataract surgery, but also to treat all
refractive errors, including myopia (nearsightedness), hyperopia
(farsightedness) and presbyopia (the loss of near vision that occurs with
age).
Research and Development Activities
The feasibility of cataract extraction using the Catarex device has been
demonstrated in ex vivo bovine, porcine and human cataract preparations using a
laboratory prototype of the device. In ex vivo studies using porcine eyes the
eye was left intact and the lens nucleus and cortical material were removed
through a less than 1.5mm capsulorexis (opening) in the anterior lens capsule.
This prototype device was also demonstrated to be effective in removing the
ocular lens in an in vivo study conducted in a model of a pig eye. The in vivo
study demonstrated that the Catarex device was able to remove the lens rapidly
and completely, and a pathology study found that there were no observed adverse
effects on the structure of the eye. Optex has completed work on a functional
clinical prototype of the Catarex device. This prototype has been tested in vivo
in a porcine model and in a human cataract model developed by the scientific
founders of Optex. In this model, the human cataract lens and lens capsule are
removed intact and embedded in gelatin. The studies demonstrated the ability of
the Catarex device to remove cataract lenses of a wide range of hardness while
leaving the lens capsule functionally intact.
In May 1998, Optex entered into a development and licensing agreement
pursuant to which it granted to Bausch & Lomb Surgical Incorporated, an
affiliate of Bausch & Lomb which is a multinational ophthalmics company, a
worldwide license to its rights to the Catarex device. Under this agreement,
Bausch & Lomb is responsible for clinical testing, obtaining regulatory approval
worldwide, and manufacturing and commercializing the Catarex device. In
addition, Bausch & Lomb undertook to make up-front and milestone payments to
Optex, as well as royalty payments on sales of the Catarex device, and is
required to reimburse Optex for all of its costs, up to $2.5 million, related to
the initial phase of development of the Catarex device. As of December 31, 1999,
Optex had received an up-front payment of $2.5 million and more than $2 million
as reimbursement of costs related to this initial phase.
In September 1999, Optex and Bausch & Lomb Surgical amended this
agreement. This amendment expanded Optex's role in development of the Catarex
surgical device. In addition to the basic design work provided for in the
original agreement, Optex is required to deliver to Bausch & Lomb within a
stated period of time a number of Catarex devices for use in clinical trials,
and is required to assist Bausch & Lomb in developing manufacturing processes
for scale-up of manufacture of the Catarex device. Bausch & Lomb will reimburse
Optex for all costs, including labor, professional services and materials,
incurred by Optex in delivering these Catarex devices and performing
manufacturing services, and will pay Optex a profit component based upon certain
of those costs. Optex has budgeted at $8 million its costs for the work to be
performed by it under this amendment to the development and licensing agreement.
This would result in Optex receiving a total of $9.6 million from Bausch & Lomb
pursuant to the amendment, $1.6 million of which would be profit.
In November 1999, Optex was issued U.S. Patent No. 5,957,921, "Devices and
Methods Usable for Forming Small Openings in the Lens Capsules of Mammalian
Eyes." The new patent covers a device and system for creating small (less than
3mm, and preferably about 1mm in cross dimensions) openings in the anterior lens
capsule of a mammalian eye to facilitate the removal of the lens nucleus and
cortex. This device would work in tandem with the Catarex device, and would
facilitate the use of liquid injectable replacement lenses, since it makes
possible consistent reproducible small openings in the anterior lens capsule.
Bausch & Lomb is preparing to file a 510(k) with the U.S. Food and Drug
Administration, or the "FDA," for the Catarex device. In a 510(k) filing, a
company requests that the FDA treat a given technology as substantially
equivalent to an already approved technology, the aim being to greatly speed up
the approval process. We anticipate that in the second quarter of 2000 Bausch &
Lomb will meet with the FDA to discuss this filing.
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Competition
There are several large companies that have made significant investments
in traditional cataract extraction technology, including phaco and ECCE
equipment. Also, we are aware of several other companies that are developing
cataract removal devices based on other technologies. We do not currently
anticipate that these devices will offer any advantages over those foreseen for
the Catarex device.
Proprietary Rights
Optex owns two U.S. patents and corresponding foreign applications
covering the Catarex device and the method of using it for cataract removal, as
well as a U.S. patent application and corresponding foreign applications
covering a capsulorexis device to be used in conjunction with the Catarex
device.
CT-3 Technology
Background
Agents for the treatment of pain and inflammation are among the most
widely prescribed pharmaceutical products. Currently available analgesic
(anti-pain) and anti-inflammatory drugs include narcotics, non-narcotic
analgesics, corticosteroids and nonsteroidal anti-inflammatory drugs, or
"NSAIDs." Although highly effective as analgesics, the usefulness of narcotics
is limited by significant adverse effects, including their potential to cause
addiction. In contrast, non-narcotic analgesics are safer but, due to their low
potency, have limited usefulness in cases of severe chronic pain. Use of
corticosteroids, which are highly effective as anti-inflammatory agents, is
limited by their potentially significant side effects. Traditional NSAIDs, such
as aspirin, ibuprofen and indomethacin, are generally safer than corticosteroids
for long-term use, but they too can cause significant side effects when used
chronically. While the newer NSAIDs categorized as COX-2 inhibitors, for example
Celebrex (developed by G.D. Searle & Co.) and Vioxx (developed by Merck & Co.),
are potentially less prone to cause ulcers than are than traditional NSAIDs,
they do not appear to be more effective for the relief of pain or inflammation.
Although a major focus of pharmaceutical research for many years has been
the development of safe, powerful anti-inflammatory and analgesic drugs with
minimal adverse side effects, no such universally safe and efficacious drug has
been developed. A variety of compounds are in preclinical and early clinical
development, but it is not evident that an acceptable combination of efficacy
and safety has yet been achieved.
The CT-3 Technology and its Applications
We have proprietary rights to a group of compounds, one of which is
currently designated "CT-3." Based upon the anti-inflammatory and analgesic
properties exhibited in preclinical studies, we believe that this group of
compounds may be potentially useful in the treatment of inflammation and pain.
We also believe, based on preclinical studies, that this group of compounds has
a reduced potential for side effects.
Of these compounds, we are currently developing CT-3, a synthetic
derivative of a metabolite of tetrahydrocannabinol, or "THC." Animal studies
have shown that CT-3 lacks the ulcer-causing side effects of NSAIDs. Animal
studies using dosages significantly higher than the anticipated therapeutic dose
of CT-3 have indicated a lack of central nervous system side effects
(psychoactivity), and we believe that CT-3 provides anti-inflammatory and
analgesic effects without the psychoactive effects of THC. Several in vitro
studies have indicated that CT-3 acts by inhibiting a number of cytokines
(mediators of inflammation) and we believe this mechanism of action is
potentially useful for treating inflammation. We also believe that it is not yet
known whether this compound is more clinically effective than traditional
NSAIDs, corticosteroids, COX-2 inhibitors and the variety of potential
competitor compounds in late preclinical and early clinical development. Several
in vivo studies have tested the analgesic activity of CT-3 and the data
available, to date, indicate that CT-3 could be as potent an analgesic as
morphine. Furthermore, we believe the pain relief provided by CT-3 would not be
accompanied by the adverse effects associated with morphine, such as
constipation and the risk of becoming addicted. In addition, tests in an in vivo
model of rheumatoid arthritis have shown CT-3 to have significant
anti-inflammatory effects, including the potential to reduce the amount of joint
destruction caused by rheumatism. The preliminary data on CT-3 makes
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it an attractive candidate for development as an anti-inflammatory agent and an
analgesic agent that potentially lacks the major side effects of traditional
NSAIDs, corticosteroids and narcotics. Initially, we plan to develop an oral
formulation of CT-3 as a treatment for acute pain and possibly acute
inflammation. Later in the development process, we will study the long-term use
of CT-3 for pain and inflammation.
Research and Development Activities
Atlantic is developing CT-3 as the lead compound in the series of patented
compounds. CT-3 has been tested in many pre-clinical in vitro and in vivo
studies to profile its potential activity and to evaluate its usefulness in
treating medical conditions. This evaluation process is continuing with a focus
on analgesic and anti-inflammatory processes. The results of these studies have
been promising thus far. CT-3 was tested in an animal model of addiction in 1999
and did not demonstrate addictive properties.
We completed in 1999 a toxicology program required for entry into clinical
trials. The results of the toxicity studies indicate that CT-3 poses a very low
risk of unwanted effects in humans. We therefore plan to hold the first clinical
trial in Europe during the second quarter of 2000. We believe it is important
that we conduct Phase I studies to determine CT-3's potential for detrimental
central nervous system effects. The first trial will specifically address CT-3's
potential to produce central nervous system effects resembling those of THC.
In addition to pursuing clinical trials in Europe, Atlantic will file an
Investigational New Drug application, or "IND," with the FDA for CT-3 by early
in the second quarter of 2000. The design of the complete clinical program will
require additional toxicology testing and formulation development prior to
beginning large-scale clinical trials.
Competition
The market for the treatment of pain and inflammation is large and highly
competitive. Several multinational pharmaceutical companies currently have many
popular products in this market and many companies have active research programs
to identify and develop more potent and safer anti-inflammatory and analgesic
agents. One notable area of research is in the development of "COX-2 inhibitors"
that are claimed to be safer to the stomach than available NSAIDs. (COX-2
inhibition is not considered a significant contributor to the mechanism of
action of CT-3; in vitro studies have shown very weak COX-2 inhibition.) Two
COX-2 inhibitor compounds have recently received FDA approval and several others
are in various stages of clinical development. We believe that the potential
advantages of CT-3 make it worth developing, and that if we succeed, CT-3 could
become a significant new agent in the treatment of pain and inflammation.
We are in the process of identifying one or more strategic partners to
assist in clinical development, regulatory approval filing, manufacturing and/or
marketing of CT-3. We anticipate signing a contract by early in the second
quarter of 2000 to begin Phase I clinical trials.
Proprietary Rights
We have an exclusive worldwide license to three U.S. patents, a
provisional U.S. patent application and corresponding foreign applications
covering a group of compounds, including CT-3. The licensor is Dr. Sumner
Burstein, a professor at the University of Massachusetts. This license extends
until the expiration of the underlying patent rights. The primary U.S. patent
expires in 2012. We have the right under this license to sublicense our rights
under the license. The license requires that we pay royalties to Dr. Burstein
based on sales of products and processes incorporating technology licensed under
the license, as well as a percentage of any income derived from any sublicense
of the licensed technology. Furthermore, pursuant to the terms of the license,
we must satisfy certain other terms and conditions in order to retain the
license rights. If we fail to comply with certain terms of the license, our
license rights under the license could be terminated.
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Gemini and the 2-5A Antisense Technology
Gemini is developing a novel antisense technology that combines the 2'-5'
oligoadenylate (2-5A) complex with standard antisense compounds to form a
chimeric molecule (the "2-5A Chimeric Antisense Technology"). Two of the key
components of the 2-5A system are 2-5A, a short oligoadenylate, and 2-5A
dependent ribonuclease L (RNaseL), an enzyme found in most human cells. RNaseL
becomes selectively activated after interacting with a 2-5A antisense chimerain
the target cell. RNaseL then rapidly and selectively degrades the target RNA in
the target cell.
The catalytic properties of the 2-5A Chimeric Antisense Technology
increase the rate at which a targeted RNA molecule is degraded. We believe that
the specificity and the catalytic properties of the 2-5A Chimeric Antisense
Technology represent an improvement over existing antisense therapeutics under
development by other companies. In addition, we believe that our 2-5A Chimeric
Antisense Technology may be useful when combined with selected antisense
therapeutics under development by third parties.
Background
Proteins carry out physiological functions of humans and microorganisms.
For example, in infectious diseases, proteins of invading organisms mediate the
infectious process, and in many malignancies, it is the presence of a
defective/abnormal protein that causes a cell's abnormal growth. The
instructions to produce all of the proteins in the human body are stored in the
cell nuclei in the form of deoxyribonucleic acid ("DNA"). DNA contains the
information that is the blueprint for protein molecules. In order to produce a
protein, a cell must first copy the relevant information in the DNA into a
messenger ribonucleic acid ("mRNA") molecule (a process known as transcription).
Such information is conveyed by the precise sequence of the nucleotide chain
comprising the mRNA molecule. Once the information is transcribed into a mRNA
molecule, it is transported out of the cell's nucleus into the cytoplasm, where
a process known as translation uses the information encoded by the mRNA to
synthesize a protein. Like cells in the human body, viruses use DNA and RNA as
their genetic material. Therefore, viruses could theoretically be stopped by
targeting their genetic material with the use of specific antisense therapeutic
agents.
One of the key properties of short nucleotide chains ("oligonucleotides")
is the ability of complementary sequences ("sense" and "antisense") to bind to
each other. This process is highly specific, with the specificity largely being
determined by the sequence of the oligonucleotides involved.
The use of antisense molecules as therapeutics is a relatively new and
experimental concept. Generally, antisense therapeutics alter the production of
disease-causing proteins. They do so by binding specifically to targeted strands
of mRNA or viral genomic RNA (the "sense"). In many pathological conditions, it
is the information encoded by the mRNA (or genomic RNA) that is utilized to
synthesize proteins involved in the causation and even the perpetuation of a
disease. By utilizing the sequence of the target RNA, an antisense molecule (an
"antisense oligonucleotide") capable of binding to the target RNA can be
designed. The effect of this binding is to block the ability of the RNA to
produce disease-causing proteins. The antisense that is bound to the RNA may
directly impair the translation of the RNA into protein, or it may promote RNA
degradation by attracting cellular enzymes known as ribonucleases (RNases) that
cleave RNA. To date, only one such therapeutic has been approved by the FDA but
several dozen antisense compounds are being utilized in human clinical trials by
other companies and we expect that one or more of those companies will apply to
the FDA for marketing approval within the next several years.
Research and Development Activities
We are currently considering strategies to maximize the potential of the
2-5A Chimeric Antisense Technology. We have conducted research at our own
laboratory facilities and have sponsored research at the National Institutes of
Health (the "NIH") focusing on two main objectives: (1) to advance basic
research with the 2-5A Chimeric Antisense Technology in order to improve the
knowledge base of the technology, efficiency of synthesis and to potentially
increase its broad-potential ("platform") clinical utility and (2) to develop a
potential lead product candidate for the treatment of Respiratory Syncytial
Virus ("RSV") infection. Research to date has been conducted primarily in in
vitro systems and has included studies of infectious diseases (RSV, herpes,
human
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immunodeficiency virus), certain cancers (chronic myelogenous leukemia,
glioblastoma), conditions modulated by 5-alpha reductase and dihydrotestosterone
receptors (acne and androgenic alopecia) and aspects of the interferon pathway
that are mediated by PKR (a protein kinase enzyme).
Based on these data, we decided to initially focus more of our efforts on
studies of RSV and telomerase, an enzyme believed to be critical for the growth
and survival of some cancers. Data collected to date indicate that the molecule
to be tested has greater in vitro potency than Ribavarin, one of two
FDA-approved treatments for RSV infections (the other treatment is a monoclonal
antibody recommended for use in high-risk infants only) and were published in
The Proceedings of the National Academy of Sciences, a peer-reviewed research
journal. The current molecule has also been shown to be stable against
degradative enzymes and is capable of being absorbed into lung tissue when
administered in a droplet formulation. The next step in development would be to
conduct an in vivo proof-of-principle study, preferably in primates. We are
currently exploring optimal manufacturing processes to produce sufficient
quantities needed in an in vivo study. We anticipate, but we can give no
assurance, that such a study would establish proof-of-efficacy in primates.
Further in vivo studies will likely be necessary to firmly establish optimal
dosing regimens. The lead compound against telomerase demonstrated convincing
proof-of-concept in a limited in vivo (nude mice) model where human glioblastoma
(the most common form of primary brain cancer) cells were transplanted into the
animals. The data were subsequently published in Oncogene, a peer-reviewed
journal dedicated to cancer research.
We believe that the current focus of our antisense program on
primate-oriented RSV will allow us to more effectively pursue corporate
partnerships to further the development of the 2-5A antisense technology. If we
can complete such a partnership, the research and development of the technology
may be expanded into some of the aforementioned and additional areas of
potential clinical use.
Competition
Several biotechnology companies focus primarily on antisense technology
and a number of multinational pharmaceutical companies have active research
programs and/or collaborations in the area of antisense technology. We believe
that these companies are potential partners rather than competitors, as data
generated to date show that the 2-5A Chimeric Antisense Technology could, within
collaborative arrangements, be used to boost the effectiveness of products from
other companies. The 2-5A antisense technology acts to destroy targeted proteins
by recruiting the natural enzyme RNase L. Other companies are developing
products that recruit a related, but less adaptable enzyme, RNase H. We believe
that the use of the RNase L enzyme will lead to greater effectiveness in a wide
range of applications and will be easier to adapt to current and future
scientific developments.
Antisense technology is still an experimental treatment and, to date, only
one antisense product has been approved by the FDA or other regulatory agencies
for clinical use.
Proprietary Rights
We have an exclusive worldwide sublicense from the Cleveland Clinic
Foundation (the "Cleveland License") to a U.S. patent and related patent
applications as well as corresponding foreign applications relating to 2-5A
Chimeric Antisense Technology and its use for selective degradation of targeted
RNA. The rights exclusively licensed to Gemini include rights obtained by the
Cleveland Clinic through an interinstitutional agreement with the NIH, the
co-owner of the patent rights. The Cleveland License extends until the
expiration of the underlying patent rights. The Cleveland License provides for
payment of royalties by Gemini to the Cleveland Clinic based on sales of
products and processes incorporating technology licensed under the Cleveland
License. A percentage of any income derived from any sublicense of the licensed
technology will be paid to the Cleveland Clinic. Pursuant to the terms of the
Cleveland License, Gemini must satisfy other terms and conditions in order to
retain its license rights thereunder. A failure by the Cleveland Clinic to
discharge its obligations to the NIH under the interinstitutional agreement,
including an obligation by the Cleveland Clinic and Gemini to take effective
steps to achieve practical application of the licensed technology, could cause
the termination of the Cleveland License and, in turn, our access to the
technology.
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Channel Therapeutics, Inc.
Channel Therapeutics, Inc., a wholly-owned subsidiary of Atlantic, was the
licensee under several patents and related patent applications covering the use
of polyanionic cyclodextrins and their derivatives for the treatment and
prevention of restenosis and late vein graft failure, two pathological
conditions involving smooth muscle cell proliferation and migration. After an
extensive review, we decided that while this technology had advanced under our
direction, moving the technology to a clinical stage would have cost more money
than we were willing to commit. Consequently, we have, pursuant to an agreement
dated August 25, 1999, among Atlantic, Channel and the Trustees of the
University of Pennsylvania, terminated the license agreement granting us rights
to this technology. Pursuant to this termination agreement, Atlantic and
Channel, on the one hand, and the University of Pennsylvania, on the other hand,
released each other from any further obligations under the license agreement,
and we paid the University of Pennsylvania a portion of the patent costs for
which it was seeking reimbursement under the license agreement. Our terminating
this license agreement has allowed us to focus our resources on technologies
that offer significantly greater potential for near-term development and
corporate partnerships.
Our Diversification Strategy
After considerable deliberation, our board of directors determined early
in 2000 that it would be in the best interest of Atlantic and its stockholders
to adopt a broader approach in selecting technologies to develop, and to
consider investing in electronic infrastructure, software and communication
technologies.
Consistent with this approach, effective March 21, 2000, Atlantic's name
was changed from "Atlantic Pharmaceuticals, Inc." to its current name.
This broader approach is reflected in our entry into a letter of intent
dated March 17, 2000, to acquire preferred stock representing a 35% ownership
interest in a privately-held company that is currently developing
next-generation high-speed fiber optic communications technologies.
This company is developing what Atlantic believes would be the world's
fastest fiber optic transceiver. This groundbreaking technology is theoretically
capable of time division multiplexing, or "TDM," digital data transmission
speeds exceeding a Terabit, or a million million bits, per second on a single
fiber optic channel, and is expected to be fully compatible with
state-of-the-art dense wave division multiplexing methods, or "DWDM." By
contrast, the newest state-of-the-art transceivers being introduced this year
are capable of TDM digital data transmission speeds of 40 Gigabits, or one
thousand million bits, per second on a single fiber optic channel, which is
close to their theoretical electronic switching limit and 25 times slower than
the proposed Terabit-per-second transceiver. This technology is protected by two
issued U.S. patents, and several pending U.S.
and international patent applications.
The purchase price for our ownership interest is $5 million in cash,
200,000 shares of our common stock and a warrant to purchase 200,000 shares of
our common stock. Taking into account the cash purchase price and the value of
the common stock at the signing of the letter of intent, we value this deal at
$6,795,000. The closing of this transaction, which is scheduled to occur in May
2000, is subject to our being satisfied with the results of our due diligence
investigation, and is also subject to waiver by certain stockholders of the
company of their right to have their shares represent a fixed ownership
interest, regardless of future issuances of capital stock.
Of the $5 million cash portion of the purchase price, we have paid
$250,000 into escrow, to be released once we have received the stockholder
waivers referred to above. A further $750,000 is payable at closing, with the
remainder payable in four quarterly installments of $1 million. If after closing
we elect not to pay the balance of the cash purchase price, our ownership
interest in the company would be reduced proportionately. The warrant would have
a term of three years, and would be exercisable at $8.975 per share of common
stock, but only if the market price per share of our common stock is $30 or
more.
We do not currently have the full amount of the cash purchase price. We
could raise the necessary amount through exercise of warrants, debt or equity
financing, or any combination thereof. It is, however, possible that we will not
be able to raise the entire amount, which would result in a reduction in our
ownership interest.
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EMPLOYEES
Atlantic currently has one employee, Dr. A. Joseph Rudick, our
President. Optex has 12 full-time employees and two part time consultants;
as it moves to fulfill its obligations under its agreement with Bausch &
Lomb, it expects to increase the number of full-time employees to 24. Gemini
currently has three full time employees.
FORWARD-LOOKING STATEMENTS
The statements contained in this Annual Report on Form 10-KBS that are not
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements regarding the
expectations, beliefs, intentions or strategies regarding the future. We intend
that all forward-looking statements be subject to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements reflect our views as of the date they are made with respect to future
events and financial performance, but are subject to many risks and
uncertainties, which could cause actual results to differ materially from any
future results expressed or implied by such forward-looking statements. Examples
of such risks and uncertainties include the risks detailed below. We do not
undertake to update any forward-looking statements.
RISK FACTORS
Investing in our common stock is very risky, and you should be able to
bear losing your entire investment. You should carefully consider the risks
presented by the following factors.
Our Financial Condition and Need for Substantial Additional Funding
Our future profitability is uncertain.
We were incorporated in 1993, and we have incurred significant operating
losses in each of our fiscal years since then. As of December 31, 1999, our
accumulated deficit was $18,790,099. We have not completed developing any of our
products or generated any product sales. All of our technologies are in the
research and development stage, which requires substantial expenditures. Our
operating revenue of $3,759,511 from inception through December 31, 1999
consists of up-front and milestone payments and development revenue, including a
profit component, by Bausch & Lomb in connection with development of the Catarex
device, and a government grant. Except for additional milestone payments, which
we do not anticipate receiving until 2001 at the earliest, and further
development revenue from Bausch & Lomb, we do not expect to generate any
additional revenues in the near future. It is possible that we may not receive
any additional payments from Bausch & Lomb. We expect to incur significant
operating losses over the next several years, primarily due to continued and
expanded research and development programs, including preclinical studies and
clinical trials for our products and technologies under development, as well as
costs incurred in identifying and, possibly, acquiring, additional technologies.
We will need additional funding, and it may not be available.
As of December 31, 1999, we had cash, cash equivalents and short-term
investment balances of approximately $3,473,321. We will require substantial
additional resources to continue to develop and test our potential products, to
obtain regulatory approvals, to manufacture and commercialize any products that
we may develop, and to license new technologies.
We will need to obtain additional funding through public or private equity
or debt financings, through collaborative arrangements or from other sources
(including exercise of the warrants we have issued giving the holder the right
to purchase shares of our capital stock for a stated exercise price). Additional
financing sources may not be available on acceptable terms, if at all. If
adequate funds are not available, we may need to reduce significantly our
spending and delay, scale back or eliminate one or more of our research,
discovery or development programs.
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Our Operations
We depend on others to conduct clinical development, obtain regulatory
approvals, and manufacture and commercialize our technologies.
We do not have the resources to directly conduct full clinical
development, obtain regulatory approvals, manufacture or commercialize any of
our proposed products and we have no current plans to acquire such resources.
Our subsidiary, Optex, is party to a license and development agreement with
Bausch & Lomb, and we anticipate that we may enter into additional collaborative
agreements for the research and development, clinical testing, seeking of
regulatory approval, manufacturing or commercialization of our proposed
products. In addition, collaborative agreements we do enter into could limit our
control over the resources devoted to these activities as well as our
flexibility in considering alternatives for the commercialization of the
products involved.
We may not succeed in developing commercially viable products.
To be profitable, we must, alone or with others, successfully
commercialize our technologies. They are, however, in early stages of
development, will require significant further research, development and testing,
and are subject to the risks of failure inherent in the development of products
based on innovative or novel technologies. Each of the following is possible
with respect to any one of our products:
o that we will not be able to maintain our current research and development
schedules;
o that, in the case of one of our pharmaceutical technologies or the Catarex
device, we will not be able to enter into human clinical trials because of
scientific, governmental or financial reasons, or encounter problems in
clinical trials that will cause us to delay or suspend development of one
of;
o that it will be found to be ineffective or unsafe;
o that it will fail to meet applicable regulatory standards; or
o that it will fail to obtain required regulatory approvals.
Similarly, it is possible that, for the following reasons, we may be
unable to commercialize any given technology, even if it is shown to be
effective:
o it is uneconomical;
o in the case of one of our pharmaceutical technologies or the Catarex
device, its is not eligible for third-party reimbursement from government
or private insurers;
o others hold proprietary rights that preclude us from commercializing it;
o others have brought to market equivalent or superior products;
o others have superior resources to market similar products or technologies;
or
o it has undesirable or unintended side effects that prevent or limit their
commercial use.
Our ability to compete will suffer if we are unable to protect our patent rights
and trade secrets or if we infringe the proprietary rights of third parties.
Our success will depend to a large extent on our ability to obtain U.S.
and foreign patent protection for drug candidates and processes, preserve trade
secrets and operate without infringing the proprietary rights of third parties.
To obtain a patent on an invention, one must be the first to invent it or
the first to file a patent application for it. We cannot be sure that the
inventors of subject matter covered by patents and patent applications that we
own or license were the first to invent, or the first to file patent
applications for, those inventions. Furthermore, patents we own or license may
be challenged, infringed upon, invalidated, found to be unenforceable, or
circumvented by others, and our rights under any issued patents may not provide
sufficient protection against competing drugs or otherwise cover commercially
valuable drugs or processes.
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We seek to protect trade secrets and other unpatented proprietary
information, in part by means of confidentiality agreements with our
collaborators, employees, and consultants. If any of these agreements is
breached, we may be without adequate remedies. Also, our trade secrets may
become known or be independently developed by competitors.
Government regulations may prevent us from commercializing one or more of our
technologies, or may delay commercialization or make it more expensive.
The federal government, principally the FDA, and comparable agencies in
state and local jurisdictions and in foreign countries extensively and
rigorously regulates all new drugs and medical devices, including our products
and technologies under development. These authorities, particularly the FDA,
impose substantial requirements upon preclinical and clinical testing,
manufacturing and commercialization of pharmaceutical and medical device
products.
There are many costly and time-consuming procedures required for approval
of a new drug, including lengthy and detailed preclinical and clinical testing
and validation of manufacturing and quality control processes. Several years may
be needed to satisfy these requirements, and this time period may vary
substantially depending on the type, complexity and novelty of the product
candidate. Government regulation can delay or prevent marketing of potential
products for a considerable period of time and impose costly procedures upon our
activities. Moreover, the FDA or other regulatory agency may not grant approval
for any products developed or not grant approval on a timely basis, and success
in preclinical or early stage clinical trials does not assure success in later
stage clinical trials.
Data obtained from preclinical and clinical activities are susceptible to
varying interpretations. This could delay, limit or prevent regulatory approval.
Even if regulatory approval of a product is granted, limitations may be imposed
on the indicated uses of a product. Further, later discovery of previously
unknown problems with a product may result in added restrictions on the product,
including withdrawal of the product from the market. Any delay or failure in
obtaining regulatory approvals would materially and adversely affect our
business, financial condition and results of operations.
A drug and medical device manufacturer (either us or one of our
third-party manufacturers) must conform to Good Manufacturing Practices, or
"GMP," regulations, which the FDA enforces strictly through their facilities
inspection programs. Contract manufacturing facilities must pass a pre-approval
inspection of their manufacturing facilities before the FDA will approve a New
Drug Application, or "NDA." Certain material manufacturing changes that occur
after approval are also subject to FDA review and clearance or approval. FDA or
other regulatory agencies may not approve the process or the facilities by which
any of our products may be manufactured. Our dependence on others to manufacture
our products may adversely affect our ability to develop and deliver products on
a timely and competitive basis. If we are required to manufacture our own
products we will be required to build or purchase a manufacturing facility, will
be subject to the regulatory requirements described above, to similar risks
regarding delays or difficulties encountered in manufacturing any such products
and will require substantial additional capital. We may be unable to manufacture
any such products successfully or in a cost-effective manner.
The FDA's policies may change and additional government regulations and
policies may be instituted, both of which could prevent or delay regulatory
approval of our potential products. Moreover, increased attention to the
containment of health care costs in the U.S. could result in new government
regulations that could materially and adversely affect our business. We are
unable to predict the likelihood of adverse governmental regulations that could
arise from future legislative or administrative action, either in the U.S. or
abroad.
We will also be subject to a variety of foreign regulations governing
clinical trials, registration and sales of our products. Regardless of whether
FDA approval is obtained, approval of a product by comparable regulatory
authorities of foreign countries must be obtained prior to marketing the product
in those countries. The approval process varies from country to country and the
time needed to secure approval may be longer or shorter than that required for
FDA approval. Delays in the approval process or failure to obtain such foreign
approvals would materially and adversely affect our business, financial
condition and results of operations.
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We depend upon our key license agreements.
With the exception of the Catarex technology, we have licensed our
proprietary technology from others. If we do not meet our financial, development
or other obligations under our license agreements in a timely manner, we could
lose the rights to some or all of our proprietary technologies, which could
materially and adversely affect our business and financial condition and results
of operations. In addition, our rights to 2-5A are contingent on the Cleveland
Clinic upholding its obligations to the National Institutes of Health with
respect to 2-5A. We could lose our rights to 2-5A if the Cleveland Clinic fails
to properly discharge its obligations to the National Institutes of Health.
We carry only a limited amount of product liability insurance.
If we develop and commercialize any products, through third-party
arrangements or otherwise, we may be exposed to product liability claims. We
intend to carry product liability insurance when we initiate the Phase I study
of CT-3. Some of our license agreements require us to obtain product liability
insurance when we begin clinical testing or commercialization of our proposed
products and to indemnify our licensors against product liability claims brought
against them as a result of the products developed by us. We may not be able to
obtain such insurance at all, in sufficient amounts to protect us against such
liability or at a reasonable cost. None of our licensors has made, nor is
expected to make, any representations to us as to the safety or efficacy of the
inventions covered by the license agreements or as to any products which may be
made or used under rights granted therein. In addition, Optex is required to
indemnify Bausch & Lomb for certain matters under the terms of their development
and license agreement. Product liability claims brought against us or a party
that we are obligated to indemnify could materially and adversely affect our
business, financial condition and results of operations.
Any breach by us of environmental regulations could result in our incurring
significant costs.
Federal, state and local laws, rules, regulations and policies govern our
use, generation, manufacture, storage, air emission, effluent discharge,
handling and disposal of certain materials and wastes. Although we believe that
we have complied with these laws and regulations in all material respects and
have not been required to take any action to correct any noncompliance, we may
be required to incur significant costs to comply with environmental and health
and safety regulations in the future. In addition, our research and development
activities involve the controlled use of hazardous materials and we cannot
eliminate the risk of accidental contamination or injury from these materials,
although we believe that our safety procedures for handling and disposing of
such materials comply with the standards prescribed by state and federal
regulations. In the event of an accident, we could be held liable for any
resulting damages and we do not have insurance to cover this contingency.
We may ultimately not consummate our proposed acquisition, or may end up
acquiring a reduced ownership interest.
We have signed a letter of intent to acquire preferred stock representing
a 35% ownership interest of a privately-held company that is developing certain
fiber optic technology. See "Business--Atlantic and Its Subsidiaries--Our
Diversification Strategy." This acquisition is, however, subject to our being
satisfied with the results of our due diligence investigation, and is also
subject to waiver by certain stockholders of the company of their right to have
their shares represent a fixed ownership interest, regardless of future
issuances of capital stock. Also, we do not currently have the full amount of
the cash purchase price. We intend to raise the necessary capital through debt
or equity financing, or a combination of both. It is, however, possible that we
will not be able to raise the required amount. If the acquisition closes, and we
are unable to raise the full amount of the cash purchase price, our ownership
interest would be proportionately reduced.
Our Securities
Holders of our Series A preferred stock have rights superior to those of the
holders of our common stock.
Holders of shares of our outstanding Series A preferred stock can convert
each share into 3.27 shares of our common stock without paying any cash to us.
The conversion price of the Series A preferred stock is $3.06 per
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share. Both the conversion rate and the conversion price may be adjusted in
favor of the holders of the Series A preferred stock upon certain triggering
events. Accordingly, the number of shares of common stock that holders of the
Series A preferred stock receive upon conversion may increase, which could
adversely affect the prevailing market price of our other securities.
In addition, each February 7th and August 7th we are obligated to pay
dividends, in arrears, to the holders of the Series A preferred stock, and the
dividends consist of 0.065 additional shares of Series A preferred stock for
each outstanding share of Series A preferred stock. Our obligation to issue
additional shares of Series A preferred stock without payment of any cash to us
could adversely affect the prevailing market price of our other securities.
If we are liquidated, sold to or merged with another entity (and we are
not the surviving entity after the merger), we will be obligated to pay the
holders of the Series A preferred stock a liquidation preference of $13.00 per
share before any payment is made to the holders of the common stock. After
payment of the liquidation preference, we might not have any assets remaining to
pay the holders of the common stock. The liquidation preference could adversely
affect the market price of our other securities.
We need to obtain the approval of a supermajority (66.67%) of the
outstanding shares of the Series A preferred stock, voting separately as a
class, to approve certain actions that we may wish to take. Accordingly, if we
are unable to obtain the required approval on a timely basis from the holders of
the Series A preferred stock, our ability to conduct business may be impaired.
The holders of the Series A preferred stock have rights in addition to
those summarily described above. A complete description of the rights of the
Series A preferred stock is contained in the Certificate of Designations for the
Series A preferred stock filed with the Secretary of State of the State of
Delaware and attached hereto as an exhibit.
Our capitalization structure may adversely affect the price of our common stock
and impede our ability to obtain additional funding.
As of December 31, 1999, our outstanding convertible securities (other
than those relating to the Series A preferred stock), both vested and unvested,
were convertible into 4,017,950 shares of common stock at prices ranging from
$1.00 to $10.00 per share. As of December 31, 1999, there were outstanding
610,088 shares of Series A preferred stock and warrants to purchase 117,195
shares of Series A preferred stock, which may be converted into shares of common
stock at a conversion rate of 3.27 shares of common stock for each share of
Series A preferred stock. Exercise of these convertible securities or conversion
of the Series A preferred stock into shares of common stock may adversely affect
the market price of the common stock as well as the market price of our
publicly-traded warrants.
The Certificate of Designations of the Series A preferred stock provides
that we may not issue securities that have superior rights to the Series A
preferred stock without the consent of the holders of the Series A preferred
stock. Accordingly, so long as these convertible securities remain unexercised
and shares of the Series A preferred stock remain unconverted, the terms under
which we could obtain additional funding, if at all, may be adversely affected.
Our redeeming the redeemable warrants could cause holders to exercise their
warrants at an inopportune time, or result in holders forfeiting their right to
exercise their warrants.
Under certain conditions, we may redeem our redeemable warrants. If we
state our intention to do so, that could encourage holders to exercise their
redeemable warrants and pay the exercise price at a time when it may be
disadvantageous for them to do so, to sell their redeemable warrants at the
current market price when they might otherwise wish to hold their redeemable
warrants, or to accept the redemption price, which may be substantially less
than the market value of the redeemable warrants at the time of redemption.
Holders of redeemable warrants will automatically forfeit their rights to
purchase the shares of common stock issuable upon exercise of the redeemable
warrants unless the redeemable warrants are exercised before they are redeemed.
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The value of our redeemable warrants may suffer if a prospectus covering the
underlying shares of common stock is not kept effective and current or if the
underlying shares are not registered in those states in which the securities are
to be offered.
A holder of any of our redeemable warrants has the right to exercise them
for the purchase of shares of common stock only if we have filed with the
Commission a current prospectus covering the resale of the shares of common
stock issuable upon exercise of the redeemable warrants and only if the resale
of the shares of common stock has been registered or qualified, or is deemed to
be exempt from registration or qualification under the securities laws of the
state of residence of the holder of the redeemable warrant. We have filed and
have undertaken to keep effective and current a prospectus permitting the
purchase and sale of the common stock underlying the redeemable warrants, but we
cannot assure you that we will be able to keep the prospectus effective and
current. Although we intend to seek to qualify for sale the resale of the shares
of common stock underlying the redeemable warrants in those states in which the
securities are to be offered, no assurance can be given that this qualification
will occur. The redeemable warrants may be deprived of any value if a prospectus
covering the shares of common stock issuable upon the exercise thereof is not
kept effective and current or if the underlying shares are not, or cannot be,
registered in the applicable states.
Delisting from Nasdaq and the resulting market illiquidity could adversely
affect our ability to raise funds.
Although our common stock, redeemable warrants and the units offered in
our initial public offering are quoted on the Nasdaq SmallCap Market, continued
inclusion of those securities on Nasdaq will require the following:
o that we maintain at least $2,000,000 in net tangible assets;
o that the minimum bid price for the common stock be at least $1.00 per
share;
o that the public float consist of at least 500,000 shares of common stock,
valued in the aggregate at more than $1,000,000;
o that the common stock have at least two active market makers;
o that the common stock be held by at least 300 holders; and
o that we adhere to certain corporate governance requirements.
If we are unable to satisfy these maintenance requirements, our securities
may be delisted from Nasdaq. The risk of our being delisted will increase in the
event we close our proposed acquisition of a 35% ownership interest in a
privately-held company that is currently developing next-generation high-speed
fiber optic communications technologies. See "Business--Atlantic and Its
Subsidiaries--Our Diversification Strategy."
If we were to be delisted, trading, if any, in the securities would
thereafter be conducted in the over-the-counter market in the "pink sheets" or
the National Association of Securities Dealers' "Electronic Bulletin Board."
Consequently, the liquidity of our securities could be materially impaired, not
only in the number of securities that could be bought and sold at a given price,
but also through delays in the timing of transactions and reduction in security
analysts' and the media's coverage of us, which could result in lower prices for
our securities than might otherwise be attained and could also result in a
larger spread between the bid and asked prices for our securities. In addition,
if our securities were delisted it could materially and adversely affect our
ability to raise funding.
In addition, if our securities are delisted from trading on Nasdaq and the
trading price of our common stock is less than $5.00 per share, our common stock
would be a "penny stock." Broker-dealers who sell penny stocks must provide
purchasers of these stocks with a standardized risk-disclosure document prepared
by the Commission. It provides information about penny stocks and the nature and
level of risks involved in investing in the penny-stock market. A broker must
also give a purchaser, orally or in writing, bid and offer quotations and
information regarding broker and salesperson compensation, make a written
determination that the penny stock is a suitable investment for the purchaser,
and obtain the purchaser's written agreement to the purchase. In the event our
securities are delisted, the penny stock rules may make it difficult for you to
sell your shares of our stock. Because
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of the rules, there is less trading in penny stocks. Also, many brokers choose
not to participate in penny stock transactions.
Our securities are relatively illiquid compared to securities traded on the
principal trading markets.
Our securities are traded on the Nasdaq SmallCap Market and lack the
liquidity of securities traded on the principal trading markets. Accordingly, an
investor may be unable to promptly liquidate an investment in our securities.
Similarly, the sale of a larger block of our securities could depress the price
of our securities to a greater degree than a company that typically has a higher
volume of trading in its securities.
Our stock price has been and may continue to be volatile.
The securities markets have, from time to time, experienced significant
price and volume fluctuations that may be unrelated to the operating performance
of particular companies or industries. Thus, the market price of our securities,
like the stock prices of many publicly traded biotechnology and smaller
companies, has been and may continue to be especially volatile. Announcements
regarding technological innovations, regulatory matters, new commercial products
by us or our competitors, developments or disputes concerning patent or
proprietary rights, publicity regarding actual or potential medical results
relating to products under development by us or our competitors, regulatory
developments in both the U.S. and foreign countries, public concern as to the
safety of pharmaceutical products and economic and other external factors, as
well as continued operating losses by us and period-to-period fluctuations in
our financial results may have a significant impact on the market price of our
securities.
Item 2. Description of Property
During 1999, Atlantic's executive offices were relocated from Raleigh,
North Carolina to New York City. On February 1, 2000, we moved into new offices
at 150 Broadway Avenue, Suite 1009, New York, New York 10038. The lease for this
space is for a term of two years with a monthly lease payment of $967.
Optex leases space at 27452 Calle Arroyo, San Juan Capistrano, California
92675. The lease, which commenced August 1999, is for a term of three years with
a monthly lease payment of $5,598. Optex has also leased space at the same
location commencing November 2000 for a term of one year, with a monthly lease
payment of $7,623.
Gemini leases space at 11000 Cedar Avenue, Cleveland, Ohio 44106. The
lease, which commenced October 1, 1997, is for a term of three years with a
monthly lease payment of $1,871.
We believe that our existing facilities are adequate to meet its current
requirements and that our existing insurance coverage adequately covers its
interest in its leased spaces. We do not own any real property.
ITEM 3. LEGAL PROCEEDINGS
There are no current or pending legal proceedings to which Atlantic or any
of its subsidiaries is a party or to which any of their properties is subject
other than the following.
Litigation Brought by Christopher R. Richied
On May 13, 1999, Christopher R. Richied filed suit against a group of
defendants, including Atlantic, in the U.S. District Court for the Southern
District of New York. This lawsuit is described in our Quarterly Report on Form
10-QSB for the quarterly period ended June 30, 1999 and September 30, 1999.
The parties are currently engaged in factual and expert-related discovery.
Atlantic and all other defendants in this action are being jointly represented
by the Wilmington, Delaware office of the law firm Skadden, Arps, Slate,
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Meagher & Flom LLP. We believe that the asserted claims are without merit and
intend to defend vigorously the action instituted by the plaintiff. We further
believe that the outcome of this suit will not be material to us.
Settlement of Litigation Brought by Stephen R. Miller and Margaret A. Schalk
Pursuant to a settlement agreement dated January 22, 2000, we settled the
litigation brought against us by Stephen R. Miller and Margaret A. Schalk. This
lawsuit is more fully described in Atlantic's Quarterly Reports on Form 10-QSB
for the quarterly periods ended June 30, 1999 and September 30, 1999. In
exchange for a full release, we made a lump-sum settlement payment of $77,083.30
and $56,250 to Dr. Miller and Ms. Schalk, respectively, plus an aggregate of
$26,000 in payment of their legal fees. These amounts equal less than the
severance payments provided for in Dr. Muller's and Ms. Schalk's offer letters,
which in the aggregate would have amounted to $138,750, in the case of Dr.
Miller, and $101,250, in the case of Ms. Schalk. In the lawsuit we maintained
that we would, in connection with our closing of the Raleigh, North Carolina
office, have made the severance payments required under the offer letters if Dr.
Miller and Ms. Schalk had not, in our view, terminated their employment
voluntary.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Our common stock listed on the Nasdaq SmallCap Market. The following table
sets forth the high and low closing price for our common stock as quoted, in
U.S. dollars, by Nasdaq during each quarter within the last two fiscal years:
===========================================
Quarter Ended High Low
===========================================
March 31, 1998 $6.75 $4.875
-------------------------------------------
June 30, 1998 $7.81 $3.813
-------------------------------------------
September 30,1998 $4.813 $1.438
-------------------------------------------
December 31, 1998 $1.969 $1.25
-------------------------------------------
March 31, 1999 $2.625 $1.375
-------------------------------------------
June 30, 1999 $1.75 $1.125
-------------------------------------------
September 30, 1999 $2.25 $1.188
-------------------------------------------
December 31, 1999 $1.875 $1.313
==========================================
The number of holders of record of our common stock as of March 22, 2000
was 117. The number of beneficial stockholders of our common stock as of January
21, 2000 was 1,236.
We have not paid or declared any dividends on our common stock and we do
not anticipate paying dividends on our common stock in the foreseeable future.
The Certificate of Designations for our Series A preferred stock provides that
we may not pay dividends on our common stock unless a special dividend is paid
on our Series A preferred stock.
Item 6. Management's Discussion and Analysis OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
We were incorporated in Delaware on May 18, 1993 and commenced operations
on July 13, 1993. We are engaged in the development of biomedical and
pharmaceutical products and technologies. We have rights to three technologies
which we believe may be useful in the treatment of a variety of diseases,
including cancer, infectious disease, ophthalmic disorders, pain and
inflammation. Our existing products and technologies under development are each
held either by us or our subsidiaries. We have been unprofitable since inception
and expect to incur substantial additional operating losses over the next
several years. The following discussion and analysis should be read in
conjunction with the financial statements and notes thereto appearing elsewhere
in this Form 10-KSB.
RESULTS OF OPERATIONS
1999 Versus 1998
From the commencement of operations through December 31, 1999, we have
generated $3,759,511 of revenue.
During 1999, Optex's agreement with Bausch & Lomb was amended to include a
profit component. Fees earned from the date of the amendment, are presented in
our financial statements as development revenue. Prior to the date of the
amendment in September 1999, reimbursements from Bausch & Lomb were treated as a
reduction of
-17-
<PAGE>
expenses and totaled $2,276,579 since the inception of the Bausch & Lomb
agreement. Reimbursements made under the Bausch & Lomb agreement in 1999 reduced
our research and development expenses by $1,044,708 and general and
administrative expenses by $184, 360. Net general and administrative expenses
for the year ended December 31, 1999 were $1,823,915 as compared to $2,668,508
for the corresponding period in 1998, and consisted primarily of expenses
associated with corporate operations, legal, finance and accounting, human
resources and other general operating costs. The primary reason for this
decrease in 1999 was attributable to a general reduction in corporate overhead
associated with reduced corporate staffing, patent prosecution fees, advertising
and travel expenses.
Research and development expenditures consist primarily of costs
associated with research and development personnel; the costs to operate our
research and development laboratories; payments made under our license
agreements, sponsored research agreements, research agreements with institutes
and consultants' agreements to its licensors, its scientific collaborators,
research institutes and its consultants; and costs related to patent filings and
maintenance. Research and development expenses, inclusive of license fees, were
$1,957,299 for the year ended December 31, 1999 as compared to $3,036,355 for
the corresponding period in 1998. These amounts are net of reimbursements from
Bausch & Lomb of $1,044,708 in 1999 and $899,936 in 1998. The decrease in
research and development expenses in 1999 was attributable to reduced research
and development activities for all of our technologies except for the Catarex
technology being developed by Optex, with respect to which increased development
work was offset by higher reimbursement from Bausch & Lomb. The reduction in
activity also included the termination of the license agreement between Channel
and the Trustees of the University of Pennsylvania. We anticipate initiating a
clinical Phase I study by early in the second quarter of 2000 for the further
development of our CT-3 compound. Additionally, development activity at Optex
will continue as planned during the year 2000.
Interest income in 1999 was $292,630 compared to $451,335 in 1998. The
decrease was attributable to less investment amounts.
1998 Versus 1997
In accordance with the Bausch & Lomb Agreement, Bausch & Lomb reimbursed
Optex in the amount of $1,047,511 for Optex's costs related to the development
of the Catarex technology and incurred since the date of the Agreement. This
reimbursement reduced our research and development expenses by $899,936 and
general and administrative expenses by $147,575.
General and administrative expenses for the year ended December 31, 1998
were $2,816,083 (net general and administrative expense was $2,668,508 after
deduction of the Bausch & Lomb reimbursement in the amount of $147,575) as
compared to $2,838,331 for the corresponding period in 1997, and consisted
primarily of expenses associated with corporate operations, legal, finance and
accounting, human resources and other general operating costs. In connection
with the resignation of the former Chief Executive Officer and President, Jon D.
Lindjord, we recognized an expense for fiscal 1998 of $140,833 for severance pay
in the form of six months of salary continuation during fiscal 1999.
Research and development expenditures consist primarily of the costs of
research and development personnel; the costs to operate our research and
development laboratories; payments made under our license agreements, sponsored
research agreements, research agreements with institutes and consultants'
agreements to our licensors, our scientific collaborators, research institutes
and our consultants; and costs related to patent filings and maintenance.
Research and development expenses, inclusive of license fees, were $3,936,291
(net research and development expense was $3,036,355 after deduction of the
Bausch & Lomb reimbursement in the amount of $899,936) for the year ended
December 31, 1998, as compared to $2,560,584 for the corresponding period in
1997.
Our cumulative net loss since inception through December 31, 1999, was
$18,790,099.
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<PAGE>
LIQUIDITY, CAPITAL RESOURCES AND PLAN OF OPERATIONS
Our available working capital and capital requirements will depend upon
numerous factors, including progress of our research and development programs;
progress and cost of ongoing and planned preclinical and clinical testing;
timing and cost of obtaining regulatory approvals; the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights; competing technological and market developments; changes in our
existing collaborative and licensing relationships; levels of resources that we
devote to the development of manufacturing and commercializing capabilities;
technological advances; status of competitors; our ability to establish
collaborative arrangements with other organizations; our need to purchase
additional capital equipment.
We anticipate that our current resources, together with proceeds from the
Bausch & Lomb agreement, will be sufficient to finance our currently anticipated
needs for operating and capital expenditures for at least the next twelve
months. In addition, we will attempt to generate additional capital through a
combination of collaborative agreements, strategic alliances and equity and debt
financing. However, we can give no assurance that we will be able to obtain
additional capital through these sources or upon terms acceptable to us.
In September 1999, the Bausch & Lomb agreement was amended to provide for
an expanded role for Optex in development of the Catarex surgical device. Under
the agreement as amended, Optex, in addition to the basic design work provided
for in the original agreement, is required to deliver to Bausch & Lomb within a
stated period Catarex devices for use in clinical trials, and is required to
assist Bausch & Lomb in connection with development of manufacturing processes
for scale-up of manufacture of the Catarex device. This increased role in the
development of the Catarex device will expedite introduction of this innovative
product in the marketplace.
Additionally, Bausch & Lomb will reimburse Optex for all costs, including
labor, professional services and materials, incurred by Optex in delivering
those Catarex devices and performing manufacturing services, and will pay Optex
a profit component based upon certain of those costs. Optex has budgeted at $8
million its costs for the work to be performed by it under the amendment; this
would result in it receiving a total of $9.6 million from Bausch & Lomb pursuant
to the amendment, $1.6 million of which would be profit.
During 1999, we recorded development revenue from the amended agreement in
the amount of $1,082,510.
Until required for operations, our policy is to keep our cash reserves in
bank deposits, certificates of deposit, commercial paper, corporate notes, U.S.
government instruments and other investment-grade quality instruments.
At December 31, 1999, we had $3,402,809 in cash and cash equivalents and
working capital of $3,285,299. We are also obligated, and contingently
obligated, under consulting and lease agreements to pay certain amounts in the
future. See Note 12 of Notes to Consolidated Financial Statements.
We are party to a letter of intent dated March 17, 2000, to acquire
preferred stock representing a 35% ownership interest in a privately-held
company that is currently developing next-generation high-speed fiber optic
communications technologies. The purchase price for our ownership interest is $5
million in cash, 200,000 shares of our common stock and a warrant to purchase
200,000 shares of our common stock. The closing of this transaction, which is
scheduled to occur in May 2000, is subject to our being satisfied with the
results of our due diligence investigation, and is also subject to waiver by
certain stockholders of the company of their right to have their shares
represent a fixed ownership interest, regardless of future issuances of capital
stock.
Of the $5 million cash portion of the purchase price, we have paid
$250,000 into escrow, to be released once we have received the stockholder
waivers referred to above. A further $750,000 is payable at closing, with the
remainder payable in four quarterly installments of $1 million. If after closing
we elect to not to pay the balance of the cash purchase price, our ownership
interest in the company would be reduced proportionately. The warrant would have
a term of three years, and would be exercisable at $8.975 per share of common
stock, but only if the market price of our common stock is $30 or more.
-19-
<PAGE>
We do not currently have the full amount of the cash purchase price. If
the market price of our common stock permits it, we intend to redeem our
redeemable warrants, which would encourage the holders to exercise the warrants,
thereby providing us with capital that we could apply towards the cash purchase
price. Alternatively, we could raise the necessary amount through debt or equity
financing, or a combination of both. It is, however, possible that we will not
be able to raise the required amount.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the staff of the Commission issued Staff Accounting
Bulletin or "SAB" No. 101, Revenue Recognition in Financial Statements. SAB No.
101 summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements, including
the recognition of non-refundable fees received upon entering into arrangements.
We are in the process of evaluating this SAB and the effect it will have on our
consolidated financial statements and current revenue recognition policy.
Item 7. Financial Statements
For a list of the financial statements filed as part of this report,
see the Index to Financial Statements at page F-1.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
-20-
<PAGE>
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
A. Joseph Rudick, M.D., 43, has been a Director of Atlantic since May
1999. He has also been the President of Atlantic and a founder of Atlantic and
two of its majority-owned subsidiaries, Optex and Channel, since May 1999. Dr.
Rudick served as a business consultant to Atlantic from January 1997 until
November 1998. From June, 1994 until November 1998, Dr. Rudick was a Vice
President of Paramount Capital, Inc. ("Paramount"), an investment bank
specializing in the biotechnology and biopharmaceutical industries. Since 1988,
he has been a Partner of Associate Ophthalmologists P.C., a private
ophthalmology practice located in New York, and from 1993 to 1998 he served as a
director of Healthdesk Corporation, a publicly-traded medical information
company of which he was a co-founder. Dr. Rudick earned a B.A. in Chemistry from
Williams College in 1979 and an M.D. from the University of Pennsylvania in
1983.
Steve H. Kanzer, C.P.A., Esq., 36, has been a Director of Atlantic since
its inception in 1993. Mr. Kanzer currently is a member of the Audit Committee
and the Compensation Committee. Since December 1997, Mr. Kanzer has been
President, Chief Executive Officer and a member of the board of directors of
Corporate Technology Development, Inc., a private pharmaceutical research and
development company based in New York. From 1992 until December 1998, Mr. Kanzer
was a founder and Senior Managing Director of Paramount, and Senior Managing
Director--Head of Venture Capital of Paramount Capital Investments, LLC
("Paramount Investments"), a biotechnology and biopharmaceutical venture capital
and merchant banking firm that is associated with Paramount. From 1993 until
June 1998, Mr. Kanzer was a founder and a member of the Board of Directors of
Boston Life Sciences, Inc., a publicly-traded pharmaceutical research and
development company. Mr. Kanzer is a founder and Chairman of the Board of
Discovery Laboratories, Inc., and a member of the Board of Directors of Endorex
Corp., two publicly-traded pharmaceutical research and development companies.
Prior to joining Paramount, Mr. Kanzer was an attorney with Skadden, Arps,
Slate, Meagher & Flom LLP in New York, New York from September 1988 to October
1991. He received his J.D. from New York University School of Law in 1988 and a
B.B.A. in Accounting from Baruch College in 1985. In his capacity as employee
and Director of other companies in the venture capital field, Mr. Kanzer is not
required to present to Atlantic opportunities that arise outside the scope of
his duties as a Director of Atlantic.
Frederic P. Zotos, Esq., 34, has been a Director of Atlantic since May
1999. Mr. Zotos is Director of Due Diligence and Internal Legal Counsel of
Licent Capital, LLC, an intellectual property royalty finance company located in
Jericho, New York. From September 1998 until June 1999, Mr. Zotos practiced as
an independent patent attorney and technology licensing consultant in Cohasset,
Massachusetts. From December 1996 until August 1998, Mr. Zotos was Assistant to
the President and Patent Counsel of Competitive Technologies, Inc., a
publicly-traded technology licensing agency located in Fairfield, Connecticut.
From July 1994 until November 1996, Mr. Zotos was an Intellectual Property
Associate of Pepe & Hazard, a general practice law firm located in Hartford,
Connecticut. He is Co-Chair of the Fairfield-Westchester and Chair of the New
York City Chapters of the Licensing Executive Society, and a member of its
Financial Markets Committee. Mr. Zotos is a registered patent attorney with the
United States Patent and Trademark Office, and is also registered to practice
law in Massachusetts and Connecticut. He earned a B.S. in Mechanical Engineering
from Northeastern University in 1987, a joint J.D. and M.B.A. degree from
Northeastern University in 1993, and successfully completed an M.S. in
Electrical Engineering Prerequisite Program from Northeastern University in
1994.
Peter O. Kliem, 61, has been a Director of Atlantic since March 21, 2000
and is a member of the Compensation Committee. Mr. Kliem is a co-founder,
President and CEO of Enanta Pharmaceuticals, a Boston based biotechnology
start-up. Prior to this start-up, he worked with Polaroid Corporation for 36
years, most recently in the positions of Senior Vice President, Business
Development, Senior VP, Electronic Imaging and Senior VP and Director of
Research & Development. During his tenure with Polaroid, he initiated and
executed major strategic alliances with corporations in the U.S., Europe, and
the Far East. Mr. Kliem also introduced a broad range of innovative products
such as printers, lasers, CCD and CID imaging, fiber optics, flat panel display,
magnetic/optical
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<PAGE>
storage and medical diagnostic products in complex technological environments.
He serves as trustee and vice president of the Boston Biomedical Research
Institute and served as Chairman of PB Diagnostics. He is a member of the Board
of Directors of the privately held company, Corporate Technology Development,
Inc. In addition, he serves as Industry Advisor to TVM-Techno Venture
Management. Mr. Kliem earned his M.S. in chemistry from Northeastern University.
There are no family relationships among the executive officers or
directors of Atlantic.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Atlantic's officers, directors and persons who are the beneficial owners of more
than 10% of the Common Stock to file initial reports of ownership and reports of
changes in ownership of the Common Stock with the Securities and Exchange
Commission (the "Commission"). Officers, directors and beneficial owners of more
than 10% of the Common Stock are required by Commission regulations to furnish
Atlantic with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms furnished to
Atlantic and certain written representations that no other reports were
required, Atlantic believes that, during the period from January 1, 1999 to
December 31, 1999, all officers, directors and beneficial owners of more than
10% of Atlantic's Common Stock complied with all Section 16(a) requirements.
Item 10. Executive Compensation
DIRECTOR COMPENSATION
Non-employee board members are eligible to participate in an automatic
stock option grant program pursuant to the 1995 Stock Option Plan. Non-employee
directors are granted an option for 10,000 shares of common stock upon their
initial election or appointment to the board and an option for 2,000 shares of
common stock on the date of each annual meeting of Atlantic stockholders for
those non-employee directors continuing to serve after that meeting. Pursuant to
the automatic stock option grant program, Atlantic granted each of Dr. Rudick
and Messrs. Zotos and Kanzer an option on September 23, 1999 for 2,000 shares of
common stock at an exercise price of $1.75 per share, the fair market value of
our common stock on the date of grant. Additionally, each of Dr. Rudick and
Messrs. Zotos and Kanzer were granted options for 25,000 shares of common stock
on October 21, 1999 at an exercise price of $1.50. In partial consideration for
his service as President of Atlantic, on October 21, 1999, Dr. Rudick was
granted an option for 50,000 shares of common stock at an exercise price of
$1.313. On October 21, 1999, Dr. Rudick was also granted an option for an
additional 50,000 shares of common stock at an exercise price of $1.313, only
exercisable in the event of the sale of Optex.
The board agreed that effective October 21, 1999, each non-employee member
of the board is to receive $6,000 per year for his services as a director,
payable semi-annually in arrears, plus $1,500 for each board meeting attended in
person, $750 for each board meeting attended via telephone conference call and
$500 for each meeting of a committee of the board attended.
Board members are reimbursed for reasonable expenses incurred in
connection with attending meetings of the board and of committees of the board.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth, for the last three fiscal years, the
compensation earned for services rendered in all capacities by Atlantic's chief
executive officer and the other highest-paid executive officers serving as such
at the end of 1999 whose compensation for that fiscal year was in excess of
$100,000. The individuals named in the table will be hereinafter referred to as
the "Named Officers." No other executive officer of Atlantic received
compensation in excess of $100,000 during fiscal year 1999. No executive officer
who would otherwise have been included in this table on the basis of 1999 salary
and bonus resigned or terminated employment during the year.
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<PAGE>
SUMMARY COMPENSATION TABLE
- - --------------------------------------------------------------------------------
Long-Term
Annual Compensation Compensation
Awards
----------------------------------------------
Name and Principal Year Salary($)(1)(Bonus($) Other Annual Securities
Position Compensation($) Underlying
Options/
SARs(#)
- - --------------------------------------------------------------------------------
A. Joseph Rudick, M.D.(2) 1999 0 23,502 50,516 137,000
President and 1998 0 0 0 10,000
Chairman of the Board 1997 0 0 0 0
- - --------------------------------------------------------------------------------
Shimshon Mizrachi (3) 1999 135,000 25,000 10,000 20,000
Chief Financial 1998 146,667 15,000 9,500 20,000
Officer, 1997 122,000 0 5,900 20,000
Treasurer and
Assistant Secretary
- - --------------------------------------------------------------------------------
Stephen R. Miller, 1999 106,506 0 10,000 0
M.D.(4) 1998 163,833 20,000 9,500 20,000
Senior Vice President 1997 164,200 0 9,500 30,000
and Chief Scientific
and Medical Officer
- - --------------------------------------------------------------------------------
(1) Does not include amounts deferred under Atlantic's SAR-SEP retirement plan
pursuant to payroll deductions and matching contributions of Atlantic.
(2) Dr. Rudick became President of Atlantic on May 28, 1999. He initially
acted as a non-employee consultant but became a an employee
effective January 1, 2000.
(3) Mr. Mizrachi's employment was terminated by Atlantic effective January 7,
2000.
(4) Dr. Miller's employment was terminated by Atlantic effective July 1, 1999.
OPTIONS AND STOCK APPRECIATION RIGHTS
The following table contains information concerning the grant of stock
options under the 1995 Stock Option Plan to the Named Officers during the 1999
fiscal year. Except as described in footnote (1) below, no stock appreciation
rights were granted during the 1999 fiscal year.
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<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- - -------------------------------------------------------------------------------
Individual Grants
- - -------------------------------------------------------------------------------
Name Number of % of Underlying Exercise Expiration
Securities Options/SARs Price Date
Underlying Granted to ($/Share)(3)
Options/ Employees in
SARs Fiscal Year(2)
Granted(#)(1)
- - -------------------------------------------------------------------------------
A. Joseph Rudick M.D. 50,000 32% 1.313 08/09/09
50,000 32% 1.313 08/09/09
10,000 6% 1.375 05/28/09
25,000 16% 1.5 10/21/09
2,000 1% 1.75 09/23/09
- - -------------------------------------------------------------------------------
Shimshon Mizrachi 20,000 13% $1.313 04/07/00
- - -------------------------------------------------------------------------------
- - ------------------------
(1) Each option has a maximum term of ten years, subject to earlier
termination in the event of the optionee's cessation of service with
Atlantic. Dr. Rudick's options became exercisable as follows: (1) the
first option for 50,000 shares, 25% upon granting and 25% each of the
first three anniversaries of the date of granting; (2) the second option
for 50,000 shares will vest only in the event of the sale of Optex, (3)
the option for 10,000 shares, 33 1/3% each of the first three
anniversaries of the date of granting, (4) the option for 25,000 shares is
immediately exercisable, and (5) the option for 2,000 shares, on the first
anniversary of the date of granting. Of the option granted to Mr.
Mizrachi, 25% became exercisable upon granting. Because Mr. Mizrachi's
employment was terminated by Atlantic on January 7, 2000, the remaining
options in that grant expired before becoming exercisable. Each option
will become immediately exercisable in full upon an acquisition of
Atlantic by merger or asset sale, unless the option is assumed by the
successor entity. Each option includes a limited stock appreciation right
pursuant to which the optionee may surrender the option, to the extent
exercisable for vested shares, upon the successful completion of a hostile
tender for securities possessing more than 50% of the combined voting
power of Atlantic's outstanding voting securities. In return for the
surrendered option, the optionee will receive a cash distribution per
surrendered option share equal to the excess of (i) the highest price paid
per share of common stock in that hostile tender offer over (ii) the
exercise price payable per share under the cancelled option.
(2) Calculated based on total option grants to employees of 157,000 shares of
common stock during the 1999 fiscal year.
(3) The exercise price may be paid in cash or in shares of common stock
(valued at fair market value on the exercise date) or through a cashless
exercise procedure involving a same-day sale of the purchased shares.
Atlantic may also finance the option exercise by loaning the optionee
sufficient funds to pay the exercise price for the purchased shares and
the federal and state income tax liability incurred by the optionee in
connection with such exercise. The optionee may be permitted, subject to
the approval of the Plan Administrator, to apply a portion of the shares
purchased under the option (or to deliver existing shares of common stock)
in satisfaction of such tax liability.
OPTION EXERCISE AND HOLDINGS
The following table provides information with respect to the Named
Officers concerning the exercisability of options during fiscal year 1999 and
unexercisable options held as of the end of fiscal year 1999. No stock
appreciation rights were exercised during fiscal year 1999, and, except for the
limited rights described in footnote (1) to the preceding table, no stock
appreciation rights were outstanding at the end of that fiscal year.
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR ("FY")
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
Name Shares Value No. of Securities Value of Unexercised
Acquired Realized Underlying In-the-Money
on (1) Unexercised Options/SARs at FY-End
Exercise Options/SARs at (Market price of shares
FY-End (#) at FY-End less exercise
price) ($)(1)
------------------------------------------------
ExercisablUnexercisablExercisable Unexercisable
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen R. Miller, 1 0(2) 0 0 0 0
M.D.
- - ------------------------------------------------------------------------------------------
A. Joseph Rudick, 0 - 41,945 105,045 1,588 13,013
M.D.
- - ------------------------------------------------------------------------------------------
Shimshon Mizrachi 0 - 61,389 48,611 625 0
- - ------------------------------------------------------------------------------------------
</TABLE>
- - ------------------
(1) Equal to the fair market value of the purchased shares at the time of the
option exercise over the exercise price paid for those shares.
(2) Based on the fair market value of Atlantic's common stock on July 29, 1999
of $1.28 per share, the closing sales price per share on that date on the
Nasdaq SmallCap Market.
LONG TERM INCENTIVE PLAN AWARDS
No long term incentive plan awards were made to a Named Officer during the
last fiscal year.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
AGREEMENTS
Effective November 15, 1995, Mr. Mizrachi became Controller of Atlantic
and of each of Atlantic's subsidiaries pursuant to a letter Agreement dated
November 6, 1995. Mr. Mizrachi and his dependents were also eligible to receive
paid medical and long-term disability insurance and such other health benefits
as Atlantic made available to its other senior officers and directors. Effective
January 7, 2000, Atlantic terminated the employment of Mr. Mizrachi and is
obligated, pursuant to the letter agreement, to pay his salary for six months
thereafter, subject to Mr. Mizrachi's duty to mitigate damages by seeking
alternative employment.
The Compensation Committee has the discretion under the 1995 Stock Option
Plan to accelerate options granted to any Named Officers in connection with a
change in control of Atlantic or upon the subsequent termination of the Named
Officer's employment following the change of control.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information known to us with
respect to the beneficial ownership of common stock as of March 22, 2000, by (i)
all persons who are beneficial owners of 5% or more of our common stock, (ii)
each director and nominee, (iii) the Named Officers in the Summary Compensation
Table above and (iv) all directors and executive officers as a group. We do not
know of any person who beneficially owns more than 5% of the Series A preferred
stock and none of Atlantic's directors or the Named Officers owns any shares of
Series A preferred stock. Consequently, the following table does not contain
information with respect to the Series A preferred stock.
The number of shares beneficially owned is determined under rules by the
Commission, and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under those rules, beneficial ownership
includes any shares as to which the individual has sole or shared voting power
or investment power and also any shares that the individual has the right to
acquire within 60 days of March 22, 2000, through the exercise or conversion of
any stock option, convertible security, warrant or other right. Including those
shares in the tables does not, however, constitute an admission that the named
stockholder is a direct or indirect beneficial owner of those shares. Unless
otherwise indicated, each person or entity named in the table has sole voting
power and investment power (or shares that power with that person's spouse) with
respect to all shares of capital stock listed as
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<PAGE>
owned by that person or entity. The common stock represented here includes the
common stock that the beneficial holders would directly possess if they
converted all shares of Series A preferred stock held by them.
NUMBER OF % OF TOTAL SHARES
NAME AND ADDRESS SHARES OUTSTANDING (1)
- - ---------------- ------ ---------------
CERTAIN BENEFICIAL HOLDERS:
Lindsay A. Rosenwald, M.D.(2) 499,238 12.5%
787 Seventh Avenue
New York, NY 10019
VentureTek, L.P.(3) 438,492 8.7%
40 Exchange Place 20th Floor
New York, NY 10005
Joseph Stevens & Company, Inc.(4) 480,000 8.7%
33 Maiden Lane, 8th floor
New York, NY 10038
MANAGEMENT:
Stephen R. Miller, M.D.(5) 1 *
A. Joseph Rudick, M.D.(6) 56,250 1.1%
Frederic P. Zotos, Esq.(7) 87,500 1.1%
Steve H. Kanzer, C.P.A., Esq.(8) 37,121 *
Peter O. Kliem(9) 35,000 *
All current executive
officers and directors as
a group (4 persons) 215,871 4.1%
- - ------------------------
* Less than 1.0%
(1) Percentage of beneficial ownership is calculated assuming 5,054,539 shares
of common stock were outstanding on March 22, 2000.
(2) Includes 344,507 shares of common stock and 154,351 shares of common stock
issuable upon conversion of 47,202 shares of Series A preferred stock
issuable pursuant to a warrant exercisable within 60 days of March 22,
2000. Also includes 190 shares of common stock held by June Street
Corporation and 190 shares of common stock held by Huntington Street
Corporation. Dr. Rosenwald is the sole proprietor of both June Street
Corporation and Huntington Street Corporation.
(3) The general partner of VentureTek, L.P. is Mr. C. David Selengut. Mr.
Selengut may be considered a beneficial owner of shares owned by
VentureTek, L.P. by virtue of his authority as general partner to vote and
dispose of those shares. VentureTek, L.P. is a limited partnership, the
limited partners of which
-26-
<PAGE>
include Dr. Rosenwald's wife and children, and sisters of Dr. Rosenwald's
wife and children. Dr. Rosenwald disclaims beneficial ownership of those
shares.
(4) Represents two warrants each exercisable within 60 days of March 22, 2000.
One warrant is a warrant to purchase 165,000 units, each unit consisting
of one share of Common Stock and one redeemable common stock purchase
warrant, each redeemable warrant entitling the holder to purchase an
additional share of common stock. The second warrant is a warrant to
purchase 150,000 shares of common stock at a purchase price of $2.50 per
share it was immediately exercisable on the date of granting, except that
it may only be exercised if the last sale price of a share of common stock
on NASDAQ (or the principal stock exchange on which the common stock is
then listed or admitted to trading) on the immediately preceding business
day is equal or greater than $1.00 plus the exercise price then in effect.
Does not include two additional warrants, each entitles the holder to
purchase 150,000 shares of common stock, which are not exercisable until
January 4, 2001 and January 4, 2002 respectively.
Does not include any units, shares of common stock or redeemable warrants
that may be held in the Joseph Stevens market-making account. Mr. Joseph
Sorbara and Mr. Steven Markowitz, each of whom is a controlling
shareholder, director and officer of Joseph Stevens, own beneficially the
shares of common stock owned beneficially by Joseph Stevens.
(6) Represents options exercisable within 60 days of March 22, 2000. 25,000
shares are exercisable pursuant to stock options granted October 21, 1999
which are immediately exercisable; an additional 25,000 shares are
exercisable pursuant to stock options granted under the plan on March 21,
2000 for 100,000 of which 25% or 25,000 shares are exercisable on
issuance, then an additional 25% annually thereafter; an additional 6,250
shares are exercisable pursuant to stock options granted March 21, 2000
for 25,000 of which 25% or 6,250 shares are exercisable on issuance, then
an additional 25% annually thereafter.
Does not include an option to purchase 50,000 shares of common stock,
which is only exercisable in the event of the sale of Optex.
(7) Represents options exercisable within 60 days of March 22, 2000. 25,000
shares are exercisable pursuant to stock options granted October 21, 1999
which are immediately exercisable; an additional 25,000 shares are
exercisable pursuant to stock options granted under the plan on March 21,
2000 for 100,000 of which 25% or 25,000 shares are exercisable on
issuance, then an additional 25% annually thereafter; an additional 37,500
shares are exercisable pursuant to stock options granted March 21, 2000
for 150,000 of which 25% or 37,500 shares are exercisable on issuance,
then an additional 25% annually thereafter.
(8) Includes 31,000 shares of common stock underlying options exercisable
within 60 days of March 22, 2000.
(9) Includes 35,000 shares of common stock underlying options exercisable
within 60 days of March 22, 2000.
Item 12. Certain Relationships and Related Transactions
In recognition of his role in negotiating an amendment to Optex's contract
with Bausch & Lomb (see "Business--Optex Ophthalmologics, Inc."), Atlantic
agreed to pay to Dr. Rudick, Atlantic's President, an amount equal to $141,012.
This amount will be paid in 18 monthly installments ($7834 per month), which
commenced October 1999, out of the profit component of Bausch & Lomb's payments
to Optex. Under this arrangement, Dr. Rudick received in 1999 a total of
$23,502. We felt it was appropriate to enter into this arrangement, given that
the deal struck with Bausch & Lomb was considerably more advantageous to
Atlantic than the deal tentatively agreed to by Atlantic prior to Dr. Rudick's
joining the board and becoming President, and given also that in 1999 Dr. Rudick
spent more time on Atlantic matters than Atlantic had any right to expect, given
that Dr. Rudick's compensation was initially limited to consulting fees of
$6,000 a month.
-27-
<PAGE>
In June 1999, Mr. Zotos performed consulting services for Channel for
which he received $2,500. In the months of July, August, November and December
of 1999, Mr. Zotos performed consulting services for Atlantic for which he
received $2,600, and he may perform further such services from time to time in
the future. On November 17, 1999, Channel Therapeutics, Inc., paid Mr. Zotos
$8,261 in recognition of his role in negotiating the termination of Channel's
license agreement with the Trustees of the University of Pennsylvania. See
"Business--Channel Therapeutics, Inc." On January 12, 2000, Atlantic paid Mr.
Zotos $2,600 for miscellaneous consulting services.
On January 4, 2000, we entered into a Financial Advisory and Consulting
Agreement with Joseph Stevens & Company, Inc. In this agreement, we engaged
Joseph Stevens to provide us with investment banking services from January 4,
2000 until January 4, 2001. As partial compensation for the services to be
rendered by Joseph Stevens, we issued them three warrants to purchase an
aggregate of 450,000 shares of our common stock. The exercise price and exercise
period of each warrant is as follows:
================================================================================
Warrant No. of Exercise
Number Shares Price Exercise Period
================================================================================
No.1 150,000 $2.50 1/4/00 through 1/4/05
- - --------------------------------------------------------------------------------
1/4/01 through 1/4/06 (subject to
vesting in equal monthly increments
No.2 150,000 $3.50 from 1/4/00-1/4/01)
- - --------------------------------------------------------------------------------
1/4/02 through 1/4/07 (subject to
vesting in equal monthly increments
No.3 150,000 $4.50 from 1/4/00-1/4/01)
- - --------------------------------------------------------------------------------
In addition, each warrant may only be exercised when the market price of a
share of common stock is at least $1.00 greater than the exercise price of that
warrant. In connection with issuance of the warrants, Atlantic and Joseph
Stevens entered into a letter agreement granting Joseph Stevens registration
rights in respect of the shares of common stock issuable upon exercise of the
warrants.
Pursuant to Atlantic's restated certificate of incorporation and bylaws,
Atlantic enters into indemnification agreements with each of its directors and
executive officers.
All transactions between Atlantic and its officers, directors, principal
stockholders and their affiliates are approved by a majority of the board of
directors, including a majority of the independent and disinterested outside
directors on the Board of Directors. Atlantic believes that all of the
transactions set forth above were made on terms no less favorable to Atlantic
than could have been obtained from unaffiliated third parties.
Item 13. Exhibits List, and Reports on Form 8-K
(a) Exhibits
The Following documents are referenced or included in this report.
Exhibit No. Description
3.1(1) Certificate of Incorporation of Atlantic, as amended to date.
3.2(1) Bylaws of Atlantic, as amended to date.
3.3(5) Certificate of Designations of Series A Convertible Preferred
Stock.
3.4(6) Certificate of Increase of Series A Convertible Preferred Stock.
-28-
<PAGE>
4.2(1) Form of Unit certificate.
4.3(1) Specimen Common Stock certificate.
4.4(1) Form of Redeemable Warrant certificate.
4.5(1) Form of Redeemable Warrant Agreement by and between Atlantic and
Continental Stock Transfer & Trust Company.
4.6(1) Form of Underwriter's Warrant certificate.
4.7(1) Form of Underwriter's Warrant Agreement by and between Atlantic and
Joseph Stevens & Company, L.P.
4.8(1) Form of Subscription Agreement by and between Atlantic and the
Selling Stockholders.
4.9(1) Form of Bridge Note.
4.10(1) Form of Bridge Warrant.
4.11(2) Investors' Rights Agreement by and among Atlantic, Dreyfus Growth
and Value Funds, Inc. and Premier Strategic Growth Fund.
4.12(2) Common Stock Purchase Agreement by and among Atlantic, Dreyfus
Growth and Value Funds, Inc. and Premier Strategic Growth Fund.
10.2(1) Employment Agreement dated July 7, 1995, between Atlantic and Jon
D. Lindjord.
10.3(1) Employment Agreement dated September 21, 1995, between Atlantic
and Dr. Stephen R. Miller.
10.4(1) Employment Agreement dated September 21, 1995, between Atlantic
and Margaret A. Schalk.
10.5(1) Letter Agreement dated August 31, 1995, between Atlantic and Dr.
H. Lawrence Shaw.
10.6(1) Consulting Agreement dated January 1, 1994, between Atlantic and
John K.A. Prendergast.
10.8(1) Investors' Rights Agreement dated July 1995, between Atlantic, Dr.
Lindsay A. Rosenwald and VentureTek, L.P.
10.9(1) License and Assignment Agreement dated March 25, 1994, between Optex
Ophthalmologics, Inc., certain inventors and NeoMedix Corporation,
as amended.
10.10(1) License Agreement dated May 5, 1994, between Gemini Gene
Therapies, Inc. and the Cleveland Clinic Foundation.
10.11(1)+ License Agreement dated June 16, 1994, between Channel Therapeutics,
Inc., the University of Pennsylvania and certain inventors, as
amended.
10.12(1)+ License Agreement dated March 28, 1994, between Channel
Therapeutics, Inc. and Dr. Sumner Burstein.
10.13(1) Form of Financial Advisory and Consulting Agreement by and between
Atlantic and Joseph Stevens & Company, L.P.
10.14(1) Employment Agreement dated November 3, 1995, between Atlantic and
Shimshon Mizrachi.
-29-
<PAGE>
10.15(3) Financial Advisory Agreement between Atlantic and Paramount dated
September 4, 1996 (effective date of April 15, 1996).
10.16(3) Financial agreement between Atlantic, Paramount and UI USA dated
June 23, 1996.
10.17(3) Consultancy agreement between Atlantic and Dr. Yuichi Iwaki dated
July 31, 1996.
10.18(3) 1995 Stock Option Plan, as amended.
10.19(3) Warrant issued to an employee of Paramount Capital, LLC to purchase
25,000 shares of Common Stock of Atlantic.
10.20(3) Warrant issued to an employee of Paramount Capital, LLC to purchase
25,000 shares of Common Stock of Atlantic.
10.21(3) Warrant issued to an employee of Paramount Capital, LLC to purchase
12,500 shares of Common Stock of Atlantic.
10.22(4) Letter Agreement between Atlantic and Paramount Capital, Inc.
dated February 26,1997.
10.23(4) Agreement and Plan of Reorganization by and among Atlantic,
Channel Therapeutics, Inc. and New Channel, Inc. dated February
20, 1997.
10.24(4) Warrant issued to John Prendergast to purchase 37,500 shares of
Atlantic's Common Stock.
10.25(4) Warrant issued to Dian Griesel to purchase 24,000 shares of
Atlantic's Common Stock.
10.26(7) Amendment No.1 to Development & License Agreement by and between
Optex and Bausch & Lomb Surgical, Inc. dated September 16, 1999.
10.27 Financial Advisory and Consulting Agreement by and between
Atlantic and Joseph Stevens & Company, Inc. dated January 4, 2000.
10.28 Warrant No.1 issued to Joseph Stevens & Company, Inc. to purchase
150,000 shares of Atlantic's Common Stock exercisable January 4,
2000.
10.29 Warrant No.2 issued to Joseph Stevens & Company, Inc. to purchase
150,000 shares of Atlantic's Common Stock exercisable January 4,
2001.
10.30 Warrant No.3 issued to Joseph Stevens & Company, Inc. to purchase
150,000 shares of Atlantic's Common Stock exercisable January 4,
2002.
21.1(1) Subsidiaries of Atlantic
23.1 Consent of KPMG LLP.
24.1 Power of Attorney (included in part II of this Report under the
caption "Signatures")
27.1 Financial Data Schedule
- - ------
+ Confidential treatment has been granted as to certain portions of these
exhibits.
-30-
<PAGE>
(1) Incorporated by reference to exhibits of Atlantic's Registration Statement
on Form SB-2, Registration #33-98478, as filed with the Securities and
Exchange Commission (the "Commission") on October 24, 1995 and as amended
by Amendment No. 1, Amendment No. 2, Amendment No.3, Amendment No. 4 and
Amendment No. 5, as filed with the Commission on November 9, 1995,
December 5, 1995, December 12, 1995, December 13, 1995 and December 14,
1995, respectively.
(2) Incorporated by reference to exhibits of Atlantic's Current Report on Form
8-KSB, as filed with the Commission on August 30, 1996.
(3) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for the
period ended September 30, 1996.
(4) Incorporated by reference to exhibits of Atlantic's Form 10-QSB for the
period ended March 31, 1996.
(5) Incorporated by reference to exhibits of Atlantic's Current Report on Form
8-KSB, as filed with the Commission on June 9, 1997.
(6) Incorporated by reference to exhibits of Atlantic's Registration Statement
on Form S-3 (Registration No.333-34379), as filed with the Commission on
August 26, 1997, and as amended by Amendment No. 1 as filed with the
Commission on August 28, 1997.
(7) Incorporated by reference to exhibits of Atlantic Form 10-QSB for the
period ended September 30, 1999.
(b) Reports on Form 8-K
None.
-31-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Atlantic has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on March 29,
2000.
Atlantic Ventures Technology, Inc.
/s/ A. Joseph Rudick
-----------------------------------
A. Joseph Rudick
President and Director
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Atlantic Ventures
Technology, Inc., hereby severally constitute and appoint A. Joseph Rudick our
true and lawful attorney, with full power to him, to sign for us in our names in
the capacities indicated below, all amendments to this Annual Report on Form
10-KSB, and generally to do all things in our names and on our behalf in such
capacities to enable Atlantic Ventures Technology, Inc. to comply with the
provisions of the Securities Exchange Act of 1934, as amended, and all
requirements of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
Atlantic and in the capacities and on the dates indicated.
Signatures Titles Date
- - ---------- ------ ----
/s/ A. Joseph Rudick President and Director March 30, 2000
- - ------------------------
A. Joseph Rudick
/s/ Steve H. Kanzer Director March 30, 2000
- - ------------------------
Steve H. Kanzer
/s/ Frederic P. Zotos Director March 30, 2000
- - ------------------------
Frederic P. Zotos
/s/ Peter O. Kliem Director March 30, 2000
- - ------------------------
Peter O. Kliem
-32-
<PAGE>
ATLANTIC TECHNOLOGY VENTURES, INC.
AND SUBSIDIARIES
(formerly Atlantic Pharmaceuticals, Inc.)
(A Development Stage Company)
Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(With Independent Auditors' Report Thereon)
<PAGE>
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(formerly Atlantic Pharmaceuticals, Inc.)
(A Development Stage Company)
Index to Consolidated Financial Statements
Page
Independent Auditors' Report F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-2
Consolidated Statements of Operations for the Years ended
December 31, 1999, 1998 and 1997 and for the Period
from July 13, 1993 (inception) to December 31, 1999 F-3
Consolidated Statements of Stockholders' Equity for the Years
ended December 31, 1999, 1998 and 1997 and for the Period
from July 13, 1993 (inception) to December 31, 1999 F-4
Consolidated Statements of Cash Flows for the Years ended
December 31, 1999, 1998 and 1997 and for the Period from
July 13, 1993 (inception) to December 31, 1999 F-5
Notes to Consolidated Financial Statements F-6
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Atlantic Technology Ventures, Inc. (formerly Atlantic Pharmaceuticals, Inc.):
We have audited the accompanying consolidated balance sheets of Atlantic
Technology Ventures, Inc. (formerly Atlantic Pharmaceuticals, Inc.) and
subsidiaries (a development stage company) as of December 31, 1999 and 1998, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1999 and for the period from July 13, 1993 (inception) to December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Atlantic Technology
Ventures, Inc. (formerly Atlantic Pharmaceuticals, Inc.) and subsidiaries (a
development stage company) as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, and for the period from July 13, 1993
(inception) to December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
KPMG LLP
Short Hills, New Jersey
March 15, 2000
F-1
<PAGE>
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(formerly Atlantic Pharmaceuticals, Inc.)
(A Development Stage Company)
Consolidated Statements of Operations
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(formerly Atlantic Pharmaceuticals, Inc.)
(A Development Stage Company)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
----------------------------
Assets 1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,473,321 5,835,669
Accounts receivable 337,323 381,015
Prepaid expenses 17,414 42,108
------------ ------------
Total current assets 3,828,058 6,258,792
Property and equipment, net 131,832 262,173
------------ ------------
Total assets $ 3,959,890 6,520,965
============ ============
Liabilities and Stockholders' Equity
Current liabilities - accounts payable and accrued expenses $ 542,759 657,001
------------ ------------
Stockholders' equity:
Preferred stock, $.001 par value. Authorized 10,000,000
shares; 1,375,000 shares designated as Series A
convertible preferred stock -- --
Series A convertible preferred stock, $.001 par value
Authorized 1,375,000 shares; 610,088 and 632,468 shares issued and
outstanding at December 31, 1999 and 1998, respectively (liquidation
preference aggregating $7,931,144 and $8,222,084 in 1999
and 1998, respectively) 610 632
Convertible preferred stock warrants, 117,195 issued
and outstanding at December 31, 1999 and 1998 540,074 540,074
Common stock, $.001 par value. Authorized 50,000,000
shares; 4,815,990 and 4,503,388 shares issued and
outstanding at December 31, 1999 and 1998, respectively 4,816 4,503
Common stock subscribed. 182 shares at December 31, 1999
and 1998 -- --
Additional paid-in capital 21,662,272 21,662,881
Deficit accumulated during development stage (18,790,099) (16,343,584)
------------ ------------
3,417,673 5,864,506
Less common stock subscriptions receivable (218) (218)
Less treasury stock, at cost (324) (324)
------------ ------------
Total stockholders' equity 3,417,131 5,863,964
------------ ------------
Total liabilities and stockholders' equity $ 3,959,890 6,520,965
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
Cumulative
period from
July 13, 1993
(inception) to
Year ended December 31 December 31,
--------------------------------------------------------
1999 1998 1997 1999
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Development revenue $ 1,082,510 -- -- 1,082,510
License revenue -- 2,500,000 -- 2,500,000
Grant revenue 77,069 -- 2,288 177,001
----------------- ----------------- ----------------- -----------------
Total revenue 1,159,579 2,500,000 2,288 3,759,511
----------------- ----------------- ----------------- -----------------
Costs and expenses:
Cost of development revenue 866,008 -- -- 866,008
Research and development 1,091,291 3,036,355 2,560,584 8,374,565
General and administrative 1,941,425 2,668,508 2,838,331 13,668,428
License fees -- -- -- 173,500
----------------- ----------------- ----------------- -----------------
Total operating expenses 3,898,724 5,704,863 5,398,915 23,082,501
----------------- ----------------- ----------------- -----------------
Other (income) expense:
Interest and other income (292,630) (451,335) (245,231) (1,158,466)
Interest expense -- -- -- 625,575
----------------- ----------------- ----------------- -----------------
Total other (income) expense (292,630) (451,335) (245,231) (532,891)
----------------- ----------------- ----------------- -----------------
Net loss (2,446,515) (2,753,528) (5,151,396) (18,790,099)
Imputed convertible preferred stock
dividend -- 1,628,251 3,703,304 5,331,555
Preferred stock dividend issued in
preferred shares 314,366 -- -- 314,366
----------------- ----------------- ----------------- -----------------
Net loss applicable to common shares $ (2,760,881) (4,381,779) (8,854,700) (24,436,020)
================= ================= ================= =================
Net loss per common share -
basic and diluted $ (0.59) (1.13) (2.97)
================= ================= =================
Shares used in calculation of net
loss per common share - basic
and diluted 4,692,912 3,883,412 2,979,664
================= ================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(formerly Atlantic Pharmaceuticals, Inc.)
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Series A Convertible
Convertible Preferred
Preferred Stock Stock Warrants Common Stock
-----------------------------------------------------------------------------
Shares Amount Number Amount Shares Amount
------------ --------- ----------------------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Common stock subscribed at $.001 per shares
July-November 1993 (note 6) -- $ -- -- $ -- -- $ --
Issued common stock at $.001 per share,
June 1994 (note 6) -- -- -- -- 84 --
Issued and subscribed common stock at $.05
per share, August 1994 (note 6) -- -- -- -- 860 1
Payments of common stock subscriptions (note 6) -- -- -- -- 5,061 5
Issuance of warrants, September 1995 (note 5) -- -- -- -- -- --
Issued common stock and warrants at $4 per unit,
December 1995 (net of costs of issuance
of $1,454,300) (note 8) -- -- -- -- 1,872,750 1,873
Conversion of demand notes payable and
the related accrued interest to common stock,
December 1995 (note 4) -- -- -- -- 785,234 785
Repurchase of common stock -- -- -- -- (269) --
Compensation related to grant of stock
options (note 7) -- -- -- -- -- --
Amortization of deferred compensation (note 7) -- -- -- -- -- --
Net loss -- -- -- -- -- --
------------ --------- ---------- ---------- ------------ ---------
Balance at December 31, 1995 -- -- -- -- 2,663,720 2,664
Issuance of warrants, April 1996 (note 8) -- -- -- -- -- --
Issued common stock and warrants at $6.73
per share, August 1996 (net of costs of
issuance of $76,438) (note 6) -- -- -- -- 250,000 250
Amortization of deferred compensation (note 7) -- -- -- -- -- --
Net loss -- -- -- -- -- --
------------ --------- ----------------------- ------------ ---------
Balance at December 31, 1996 -- -- -- -- 2,913,720 2,914
Issued convertible preferred stock at $10 per unit,
May and August 1997 (net of costs of issuance
of $1,758,816) (note 6) 1,237,200 1,237 -- -- -- --
Channel merger (note 6) -- -- -- -- 103,200 103
Conversion of preferred to common stock (22,477) (22) -- -- 47,651 48
Issuance of convertible preferred stock
warrants (note 8) -- -- 123,720 570,143 -- --
Issuance of warrants (note 8) -- -- -- -- -- --
Amortization of deferred compensation (note 7) -- -- -- -- -- --
Imputed convertible preferred stock dividend -- -- -- -- -- --
Imputed convertible preferred stock dividend -- -- -- -- -- --
Net loss -- -- -- -- -- --
------------ --------- ---------- ---------- ------------ ---------
Balance at December 31, 1997 1,214,723 1,215 123,720 570,143 3,064,571 3,065
Conversion of preferred to common stock (584,265) (585) -- -- 1,367,817 1,367
Cashless exercise of preferred warrants (note 8) 2,010 2 (6,525) (30,069) -- --
Exercise of options -- -- -- -- 70,000 70
Exercise of warrants (note 8) -- -- -- -- 1,000 1
Expense related to grant of stock options (note 7) -- -- -- -- -- --
Amortization of deferred compensation (note 7) -- -- -- -- -- --
Imputed convertible preferred stock dividend -- -- -- -- -- --
Imputed convertible preferred stock dividend -- -- -- -- -- --
Net loss -- -- -- -- -- --
------------ --------- ---------- ---------- ------------ ---------
Balance at December 31, 1998 632,468 632 117,195 540,074 4,503,388 4,503
Conversion of preferred to common stock (95,599) (95) -- -- 312,602 313
Preferred stock dividend 73,219 73 -- -- -- --
Net loss -- -- -- -- -- --
------------ --------- ---------- ---------- ------------ ---------
Balance at December 31, 1999 610,088 $ 610 117,195 $ 540,074 4,815,990 $ 4,816
============ ========= ========== ========== ============ =========
<CAPTION>
Deficit
Common Stock accumulated
Subscribed Additional during Deferred
-------------------- paid-in development compen-
Number Amount capital stage sation
--------- --------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Common stock subscribed at $.001 per shares
July-November 1993 (note 6) 5,231 $ 5 6,272 -- --
Issued common stock at $.001 per share,
June 1994 (note 6) -- -- 101 -- --
Issued and subscribed common stock at $.05
per share, August 1994 (note 6) 12 -- 52,374 -- --
Payments of common stock subscriptions (note 6) (5,061) (5) -- -- --
Issuance of warrants, September 1995 (note 5) -- -- 300,000 -- --
Issued common stock and warrants at $4 per unit,
December 1995 (net of costs of issuance
of $1,454,300) (note 8) -- -- 6,034,827 -- --
Conversion of demand notes payable and
the related accrued interest to common stock,
December 1995 (note 4) -- -- 2,441,519 -- --
Repurchase of common stock -- -- -- -- --
Compensation related to grant of stock
options (note 7) -- -- 208,782 -- (144,000)
Amortization of deferred compensation (note 7) -- -- -- -- 12,000
Net loss -- -- -- (8,438,660) --
--------- --------- ------------ ------------- ----------
Balance at December 31, 1995 182 -- 9,043,875 (8,438,660) (132,000)
Issuance of warrants, April 1996 (note 8) -- -- 139,000 -- --
Issued common stock and warrants at $6.73
per share, August 1996 (net of costs of
issuance of $76,438) (note 6) -- -- 1,452,063 -- --
Amortization of deferred compensation (note 7) -- -- -- -- 28,800
Net loss -- -- -- (3,557,692) --
--------- --------- ------------ ------------- ----------
Balance at December 31, 1996 182 -- 10,634,938 (8,438,660) (103,200)
Issued convertible preferred stock at $10 per uni
May and August 1997 (net of costs of issuance
of $1,758,816) (note 6) -- -- 10,611,947 -- --
Channel merger (note 6) -- -- 657,797 -- --
Conversion of preferred to common stock -- -- (26) -- --
Issuance of convertible preferred stock
warrants (note 8) -- -- (570,143) -- --
Issuance of warrants (note 8) -- -- 159,202 -- --
Amortization of deferred compensation (note 7) -- -- -- -- 28,800
Imputed convertible preferred stock dividend -- -- (3,703,304) -- --
Imputed convertible preferred stock dividend -- -- 3,703,304 -- --
Net loss -- -- -- (5,151,396) --
--------- --------- ------------ ------------- ----------
Balance at December 31, 1997 182 -- 21,493,715 (13,590,056) (74,400)
Conversion of preferred to common stock -- -- (782) -- --
Cashless exercise of preferred warrants (note 8) -- -- 30,067 -- --
Exercise of options -- -- 52,430 -- --
Exercise of warrants (note 8) -- -- 5,499 -- --
Expense related to grant of stock options (note 7 -- -- 81,952 -- --
Amortization of deferred compensation (note 7) -- -- -- -- 74,400
Imputed convertible preferred stock dividend -- -- (1,628,251) -- --
Imputed convertible preferred stock dividend -- -- 1,628,251 -- --
Net loss -- -- -- (2,753,528) --
--------- --------- ------------ ------------- ----------
Balance at December 31, 1998 182 -- 21,662,881 (16,343,584) --
Conversion of preferred to common stock -- -- (218) -- --
Preferred stock dividend -- -- (391) -- --
Net loss -- -- -- (2,446,515) --
--------- --------- ------------ ------------- ----------
Balance at December 31, 1999 182 $ -- 21,662,272 (18,790,099) --
========= ========= ============ ============= ==========
<CAPTION>
Common Total
stock stock-
subscrip- holders'
tions Treasury equity
receivable stock (deficit)
---------- ---------- -------------
<S> <C> <C> <C>
Common stock subscribed at $.001 per shares
July-November 1993 (note 6) (6,277) -- --
Issued common stock at $.001 per share,
June 1994 (note 6) -- -- 101
Issued and subscribed common stock at $.05
per share, August 1994 (note 6) (750) -- 51,625
Payments of common stock subscriptions (note 6) 6,809 -- 6,809
Issuance of warrants, September 1995 (note 5) -- -- 300,000
Issued common stock and warrants at $4 per unit,
December 1995 (net of costs of issuance
of $1,454,300) (note 8) -- -- 6,036,700
Conversion of demand notes payable and
the related accrued interest to common stock,
December 1995 (note 4) -- -- 2,442,304
Repurchase of common stock -- (324) (324)
Compensation related to grant of stock
options (note 7) -- -- 64,782
Amortization of deferred compensation (note 7) -- -- 12,000
Net loss -- -- (8,438,660)
---------- ---------- -------------
Balance at December 31, 1995 (218) (324) 475,337
Issuance of warrants, April 1996 (note 8) -- -- 139,000
Issued common stock and warrants at $6.73
per share, August 1996 (net of costs of
issuance of $76,438) (note 6) -- -- 1,452,313
Amortization of deferred compensation (note 7) -- -- 28,800
Net loss -- -- (3,557,692)
---------- ---------- -------------
Balance at December 31, 1996 (218) (324) 2,095,450
Issued convertible preferred stock at $10 per unit,
May and August 1997 (net of costs of issuance
of $1,758,816) (note 6) -- -- 10,613,184
Channel merger (note 6) -- -- 657,900
Conversion of preferred to common stock -- -- --
Issuance of convertible preferred stock
warrants (note 8) -- -- --
Issuance of warrants (note 8) -- -- 159,202
Amortization of deferred compensation (note 7) -- -- 28,800
Imputed convertible preferred stock dividend -- -- (3,703,304)
Imputed convertible preferred stock dividend -- -- 3,703,304
Net loss -- -- (5,151,396)
---------- ---------- -------------
Balance at December 31, 1997 (218) (324) 8,403,140
Conversion of preferred to common stock -- -- --
Cashless exercise of preferred warrants (note 8) -- -- --
Exercise of options -- -- 52,500
Exercise of warrants (note 8) -- -- 5,500
Expense related to grant of stock options (note 7) -- -- 81,952
Amortization of deferred compensation (note 7) -- -- 74,400
Imputed convertible preferred stock dividend -- -- (1,628,251)
Imputed convertible preferred stock dividend -- -- 1,628,251
Net loss -- -- (2,753,528)
---------- ---------- -------------
Balance at December 31, 1998 (218) (324) 5,863,964
Conversion of preferred to common stock -- -- --
Preferred stock dividend -- -- (318)
Net loss -- -- (2,446,515)
---------- ---------- -------------
Balance at December 31, 1999 (218) (324) 3,417,131
========== ========== =============
</TABLE>
F-4
<PAGE>
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(formerly Atlantic Pharmaceuticals, Inc.)
(A Development Stage Company)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Cumulative
period from
July 13, 1993
(inception) to
Year ended December 31 December 31,
----------------------------------------------
1999 1998 1997 1999
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,446,515) (2,753,528) (5,151,396) (18,790,099)
Adjustments to reconcile net loss to
net cash used in operating activities:
Expense relating to issuance of warrants -- -- 159,202 298,202
Expense relating to the issuance of options -- 81,952 -- 81,952
Expense related to Channel merger -- -- 657,900 657,900
Compensation expense relating to
stock options -- 74,400 28,800 208,782
Discount on notes payable - bridge financing -- -- -- 300,000
Depreciation 113,771 166,553 74,953 430,410
Loss on disposal of furniture and equipment 73,387 -- -- 73,387
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 43,692 (381,015) -- (337,323)
(Increase) decrease in prepaid expenses 24,694 (40,858) 23,699 (17,414)
Increase (decrease) in accrued expenses (114,242) 264,435 110,774 542,759
Increase (decrease) in accrued interest -- -- -- 172,305
------------- ------------- -------------- --------------
Net cash used in operating activities (2,305,213) (2,588,061) (4,096,068) (16,379,139)
------------- ------------- -------------- --------------
Cash flows from investing activities:
Purchase of furniture and equipment (62,917) (177,765) (243,153) (641,730)
Proceeds from sale of furniture and equipment 6,100 -- -- 6,100
------------- ------------- -------------- --------------
Net cash used in investing activities (56,817) (177,765) (243,153) (635,630)
------------- ------------- -------------- --------------
Cash flows from financing activities:
Proceeds from exercise of warrants -- 5,500 -- 5,500
Proceeds from exercise of stock options -- 52,500 -- 52,500
Proceeds from issuance of demand notes payable -- -- -- 2,395,000
Repayment of demand notes payable -- -- -- (125,000)
Proceeds from the issuance of notes payable -
bridge financing -- -- -- 1,200,000
Proceeds from issuance of warrants -- -- -- 300,000
Repayment of notes payable - bridge financing -- -- -- (1,500,000)
Repurchase of common stock -- -- -- (324)
Preferred stock dividend paid (318) -- -- (318)
Proceeds from the issuance of common stock -- -- -- 7,547,548
Proceeds from issuance of convertible preferred stock -- -- 10,613,184 10,613,184
------------- ------------- -------------- --------------
Net cash provided by (used in) financing
activities (318) 58,000 10,613,184 20,488,090
------------- ------------- -------------- --------------
Net increase (decrease) in cash and cash
equivalents (2,362,348) (2,707,826) 6,273,963 3,473,321
Cash and cash equivalents at beginning of period 5,835,669 8,543,495 2,269,532 --
------------- ------------- -------------- --------------
Cash and cash equivalents at end of period $ 3,473,321 5,835,669 8,543,495 3,473,321
============= ============= ============== ==============
Supplemental disclosure of noncash financing
activities:
Issuance of common stock in exchange for
common stock subscriptions $ -- -- -- 7,027
Conversion of demand notes payable and the
related accrued interest to common stock -- -- -- 2,442,304
Cashless exercise of preferred warrants -- 30,069 -- 30,069
Conversion of preferred to common stock 313 1,367 48 1,415
Preferred stock dividend issued in shares 314,366 -- -- 314,366
============= ============= ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(formerly Atlantic Pharmaceuticals, Inc.)
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(1) Organization, Liquidity and Basis of Presentation
Organization
Atlantic Technology Ventures, Inc. (formerly Atlantic Pharmaceuticals,
Inc.) (the Company) was incorporated on May 18, 1993, began operations on
July 13, 1993, and is the majority owner of two operating companies -
Gemini Technologies, Inc. (Gemini), Optex Opthalmologics, Inc. (Optex),
and has one wholly-owned subsidiary - Channel Therapeutics, Inc. (Channel)
(collectively, the Operating Companies).
Gemini (an 85%-owned subsidiary) was incorporated on May 18, 1993 to
exploit a new proprietary technology which combines 2'-5' oligoadenylate
(2-5A), with standard antisense compounds to alter the production of
disease-causing proteins. Optex (an 82%-owned subsidiary) was incorporated
on October 19, 1993 to develop its principal product, a novel cataract
removal device. Channel was incorporated on May 18, 1993 to develop
pharmaceutical products in the fields of cardiovascular disease, pain and
inflammatory disorders. Prior to 1997, Channel was an 88%-owned
subsidiary. The Company purchased the remaining 12% of Channel in 1997 for
$657,900 through the issuance of common stock. See note 6 for further
discussion.
The Company and each of its operating companies are in the development
stage, devoting substantially all efforts to obtaining financing and
performing research and development activities.
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Significant intercompany accounts and transactions
have been eliminated in consolidation.
Liquidity
The Company anticipates that their current resources, together with
proceeds from an agreement between the Company and Bausch & Lomb Surgical
(Bausch & Lomb) (see note 11), will be sufficient to finance their
currently anticipated needs for operating and capital expenditures for at
least the next 12 months. In addition, the Company will attempt to
generate additional capital through a combination of collaborative
agreements, strategic alliances and equity and debt financing. However,
the Company can give no assurance that they will be able to obtain
additional capital through these sources or upon terms acceptable to them.
F-6
<PAGE>
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(formerly Atlantic Pharmaceuticals, Inc.)
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Basis of Presentation
The consolidated financial statements have been prepared in accordance
with the provisions of Statement of Financial Accounting Standards (SFAS)
No. 7, "Accounting and Reporting by Development Stage Enterprises," which
requires development stage enterprises to employ the same accounting
principles as operating companies.
(2) Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of 90 days or less to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated
principally using straight-line methods over their useful lives,
generally five years, except for leasehold improvements which are
depreciated over the lesser of five years or the term of the lease.
Minority Interest
The Company has recorded 100% of the losses of the Operating Companies in
its consolidated statements of operations as the minority shareholders
are not required to and have not funded their pro rata share of losses.
Minority interest losses recorded by the Company since inception total
$621,665 as of December 31, 1999 and will only be recovered if and when
the Operating Companies generate income to the extent of those losses
recorded by the Company.
Research and Development
All research and development costs are expensed as incurred and include
costs of consultants who conduct research and development on behalf of
the Company and the Operating Companies. Costs related to the acquisition
of technology rights and patents, for which development work is still in
process, are expensed as incurred and considered a component of research
and development costs.
F-7
<PAGE>
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(formerly Atlantic Pharmaceuticals, Inc.)
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Revenue Recognition
Revenue from development fees are earned in accordance with the terms of
the contract (see note 11) as the work is performed. Revenue from
achievement of milestones is recognized when all parties concur that the
requirements of the milestone have been met. Revenue under these
contracts is not subject to repayment.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between financial statement
carrying amounts of existing assets and liabilities, and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
Comprehensive Income
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components. The
adoption of SFAS No. 130 had no impact on the Company's results of
operations for the years ended December 31, 1999, 1998 or 1997. The net
loss is equal to the comprehensive loss for all periods presented.
Computation of Net Loss per Common Share
Basic net loss per common share is calculated by dividing net loss
applicable to common shares by the weighted-average number of common
shares outstanding for the period. Diluted net loss per common share is
the same as basic net loss per common share, as common equivalent shares
from stock options, stock warrants, stock subscriptions, and convertible
preferred stock would have an antidilutive effect because the Company
incurred a net loss during each period presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-8
<PAGE>
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(formerly Atlantic Pharmaceuticals, Inc.)
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but
does not require companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has chosen to
continue to account for stock-based compensation using the method
prescribed in Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
Accordingly, compensation cost for stock options granted to employees and
directors is measured as the excess, if any, of the quoted market price
of the Company's common stock at the date of the grant over the exercise
price.
(3) Property and Equipment
Property and equipment consists of the following at December 31,:
1999 1998
--------- ---------
Furniture and equipment $ 269,142 530,024
Leasehold improvements 83,861 48,788
--------- ---------
353,003 578,812
Less accumulated depreciation (221,171) (316,639)
--------- ---------
Net property and equipment $ 131,832 262,173
========= =========
(4) Demand Notes Payable to Related Parties
Demand notes payable at December 31, 1994 consisted of advances from one
of the founders of the Company who served as a director and was, at that
time, the controlling shareholder of the Company (Controlling
Shareholder) totaling $485,000, advances from a partnership including
certain family members of the Controlling Shareholder (the Partnership)
totaling $400,000, and advances under a line of credit agreement with the
Controlling Shareholder totaling $500,000. All unpaid principal and
accrued interest through June 30, 1995, including a note payable of
$1,010,000 issued in 1995, was converted into 785,234 shares of common
stock of the Company upon the consummation of the initial public offering
(IPO).
F-9
<PAGE>
Demand notes payable at December 31, 1995 totaling $125,000 consisted of
a loan provided to the Company by the Partnership in July 1995. This loan
had an interest rate of 10% annually. Terms of the loan required the
Company to repay the principal amount of such loan, together with the
interest accrued thereon, with a portion of the proceeds received by the
Company in the IPO. This loan and the related accrued interest was fully
repaid in January 1996.
(5) Notes Payable - Bridge Financing
On September 12, 1995, the Company closed the sale of thirty units with
each unit consisting of an unsecured 10% promissory note of the Company
in the principal amount of $50,000 and 50,000 warrants, each exercisable
to purchase one share of common stock of the Company at an initial
exercise price of $1.50 per share. The total proceeds received of
$1,500,000 were allocated to the notes payable and warrants based on the
estimated fair value as determined by the Board of Directors of the
Company of $1,200,000 and $300,000, respectively. The warrants were
reflected as additional paid-in capital.
Proceeds from the IPO were used to pay these notes payable with $75,000
remaining unpaid at December 31, 1995. This remaining obligation was paid
in January 1996.
(6) Stockholders' Equity
Common Stock
In 1993, the Company received common stock subscriptions for 5,231 shares
of common stock from various individuals, including the Controlling
Shareholder and the Partnership, in exchange for common stock
subscriptions receivable of $6,277. In December 1994, the Company issued
2,606 shares of common stock upon receipt of payment of $3,127
representing a portion of these common stock subscriptions receivable.
In June 1994, the Company received common stock subscriptions for 84
shares of common stock from various individuals including directors and
employees. Payment of the related common stock subscriptions receivable
in the amount of $101 was received in December 1994 which resulted in the
issuance of 84 shares of common stock.
In August 1994, the Company received common stock subscriptions for 872
shares of common stock from certain investors. Payment of the related
common stock subscriptions receivable in the amount of $33,000 and
$18,625 was received in August 1994 and December 1994, respectively,
which resulted in the issuance of 860 shares of common stock.
F-10
<PAGE>
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(formerly Atlantic Pharmaceuticals, Inc.)
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
In March 1995, June 1995, and August 1995, the Company repurchased 62,
20, and 187 shares of common stock, respectively, for an aggregate total
of $324.
In March 1995, May 1995, and June 1995, the Company issued 2,170, 125,
and 160 shares of common stock, respectively, upon receipt of payment of
$3,682 representing subscriptions receivable.
In December 1995, the Company issued 1,872,750 shares of common stock
through a public offering, resulting in net proceeds, after deducting
applicable expenses, of $6,036,700. Concurrent with this offering 785,234
shares of common stock were issued upon the conversion of certain demand
notes payable and accrued interest totaling $2,442,304 (see note 4).
In August 1996, the Company sold in a private placement 250,000 shares of
common stock to certain investors resulting in net proceeds of
$1,452,313. In connection with this private placement, the Company paid
Paramount Capital, Incorporated (Paramount) a finders fee of $76,438 and
issued an employee of Paramount a warrant to purchase 12,500 shares of
the Company's common stock at $6.73 per share, which expires August 16,
2001. Paramount is owned by the Controlling Shareholder.
Pursuant to an Agreement and Plan of Reorganization by and among the
Company, Channel, and New Channel, Inc., a Delaware corporation, dated
February 20, 1997, all of the stockholders of Channel (except for the
Company) agreed to receive an aggregate of 103,200 shares of common stock
of the Company in exchange for their shares of common stock, par values
$0.001 per share, of Channel. On February 20, 1997, Channel became a
wholly-owned subsidiary of the Company. Subsequent to this transaction,
Channel issued a dividend to the Company consisting of all of Channel's
rights to the CT-3 technology, which is in the field of pain and
inflammation. On May 16, 1997, the Company issued 103,200 shares of
common stock of the Company to stockholders of Channel. In connection
with the issuance of these shares, the Company recognized an expense in
the amount of $657,900. This expense is included in research and
development expense in the accompanying 1997 consolidated statement of
operations.
Convertible Preferred Stock
In May and August, 1997, the Company sold in a private placement
1,237,200 shares of Series A convertible preferred stock (Series A
Preferred) to certain investors resulting in net proceeds of $10,613,184.
Prior to August 7, 1998 (the Reset Date), each share of Series A
Preferred was convertible into 2.12 shares of common stock initially at a
conversion price of $4.72 per share of common stock. Pursuant to the
Certificate of Designations for the Series A Preferred, the conversion
price was adjusted on the
F-11
<PAGE>
Reset Date such that now each share is convertible into 3.27 shares of
common stock at a conversion price of $3.06. This conversion price is
subject to adjustment upon the occurrence of certain events, including
the issuance of common stock at a per share price less than the
conversion price, or the occurrence of a merger, reorganization,
consolidation, reclassification, stock dividend or stock split which will
result in an increase or decrease in the number of common stock shares
outstanding.
Holders of Series A Preferred will be entitled to receive dividends, as,
when, and if declared by the Board of Directors. Commencing on the Reset
Date, the holders of the Series A Preferred are entitled to
payment-in-kind dividends, payable semi-annually in arrears, on their
respective shares of Series A Preferred at the annual rate of 0.13 shares
of Series A Preferred for each outstanding share of Series A Preferred.
The Company did not make the February 7, 1999 dividend payment. On August
9, 1999, the Company issued a payment-in-kind dividend of 0.13325 of a
share of Series A Preferred per share of Series A Preferred to holders of
shares of Series A Preferred as of the record date of August 2, 1999,
amounting to an aggregate of 73,219 shares. This dividend included the
dividend payment of 0.065 of a share of Series A Preferred per share of
Series A Preferred that had not been made on February 7, 1999, and the
portion of the dividend payment due August 9, 1999, was increased from
0.065 of a share to 0.06825 of a share to reflect non-payment of the
February 7, 1999 dividend. The estimated fair value of the dividend was
included in the Company's calculation of the 1999 net loss per common
share.
The holders of shares of Series A Preferred have the right at all
meetings of stockholders of the Company to that number of votes equal to
the number of shares of common stock issuable upon conversion of the
Series A Preferred at the record or vote date for determination of the
stockholders entitled to vote on such matters.
In connection with the issuance of the convertible preferred stock, the
Company recognized $1,628,251 and $3,703,304 in 1998 and 1997,
respectively, as an imputed preferred stock dividend in the calculation
of net loss per common share to record the difference between the
conversion price of the preferred stock and the market price of the
common stock on the effective date of the private placement.
Upon liquidation, the holders of shares of Series A Preferred then
outstanding will first be entitled to receive, pro rata, and in
preference to the holders of common stock and any capital stock of the
Company, an amount per share equal to $13.00 plus any accrued but unpaid
dividends, if any.
The Certificate of Designations of Series A Preferred provides that we
may not issue securities that have superior rights to Series A Preferred
without the consent of the holders of Series A Preferred. Accordingly, so
long as these convertible securities remain unexercised and shares of
Series A Preferred remain uncovered, the terms under which we could
obtain additional funding, if at all, may be adversely affected.
F-12
<PAGE>
ATLANTIC TECHNOLOGY VENTURES, INC. AND SUBSIDIARIES
(formerly Atlantic Pharmaceuticals, Inc.)
(A Development Stage Company)
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(7) Stock Options
In August 1995, in connection with a severance agreement entered into
between the Company and a former CEO, the Company granted options (not
pursuant to the 1995 Stock Option Plan) to purchase 23,557 shares of
common stock at an exercise price of $1.00 per share with immediate
vesting. Total compensation expense recorded at the date of grant with
regards to those options was $64,782 with the offset recorded as
additional paid-in capital.
Stock Option Plan
In July 1995, the Company established the 1995 Stock Option Plan (the
Plan), which provided for the granting of up to 650,000 options to
officers, directors, employees and consultants for the purchase of stock.
In July 1996, the Plan was amended to increase the total number of shares
authorized for issuance by 300,000 shares to a total of 950,000 shares
and beginning with the 1997 calendar year, by an amount equal to one
percent (1%) of the shares of common stock outstanding on December 31 of
the immediately preceding calendar year. At December 31, 1999, 1,054,817
shares were authorized for issuance. The options have a maximum term of
10 years and vest over a period determined by the Company's Board of
Directors (generally 4 years).
The Company applies APB Opinion No. 25 in accounting for its plan.
Accordingly, compensation cost has been recognized for stock options
granted to employees and directors only to the extent that the quoted
market price of the Company's stock at the date of grant exceeded the
exercise price of the option.
During 1995, the Company granted options to purchase 246,598 shares of
the Company's common stock at exercise prices below the quoted market
prices of its common stock. Deferred compensation expense in the amount
of $144,000 was recorded at the date of grant with the offset recorded as
an increase to additional paid in capital. Compensation expense in the
amount of $74,400, $28,800 and $28,800 was recognized in 1998, 1997 and
1996, respectively.
In November 1997, the Company granted options to purchase 24,000 shares
of the Company's common stock at $9.50 per share to Investor Relations
Group (Investor). These options expire November 10, 2002. The Company
recognized expense of $81,952, which is included in general and
administrative expense in the consolidated statement of operations for
the year ended December 31, 1998. The expense represents the estimated
fair market value of the options, in accordance with SFAS No. 123.
F-13
<PAGE>
During 1999, the Company granted its President options to purchase 50,000
shares of the Company's common stock which will be exercisable at such
date that Optex is sold while he is still serving as President.
All stock options granted in 1999 were granted at the quoted market
price.
Had compensation costs been determined in accordance with the fair value
method prescribed by SFAS No. 123, the Company's net loss applicable to
common shares and net loss per common share (basic and diluted) would
have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net loss applicable to common shares:
As reported $ 2,760,881 4,381,779 8,854,700
Pro forma 3,623,177 5,038,676 9,537,916
Net loss per common share - basic and diluted:
As reported 0.59 1.13 2.97
Pro forma 0.77 1.30 3.20
============= ============= =============
</TABLE>
The fair value of each option granted is estimated on the date of the
grant using the Black-Scholes option pricing model with the following
assumptions used for the grants in 1999, 1998, and 1997; dividend yield
of 0%; expected volatility of 94% for 1999, 95% for 1998 and 46% for
1997; risk-free interest rate of 6.5% for 1999, 5.0% for 1998 and 1997;
and expected lives of eight years for each year.
F-14
<PAGE>
A summary of the status of the Company's stock plan as of December 1999,
1998, and 1997 and changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
average average average
1999 exercise 1998 exercise 1997 exercise
shares price shares price shares price
------------- ------------ ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
At the beginning
of the year 837,798 $ 5.06 715,598 $ 5.16 560,598 $ 4.57
Granted 221,000 1.39 192,200 3.19 155,000 7.29
Exercised -- -- (70,000) 0.75 -- --
Cancelled (662,598) 4.93 -- -- -- --
------------- ------------ ---------- ----------- ---------- ------------
At the end of
the year 396,200 $ 3.25 837,798 $ 5.06 715,598 $ 5.16
============ =========== ============
Options exercisable
at year-end 211,869 574,660 375,461
============= ============== ==========
Weighted-average
fair value of
options granted
during the year $ 1.20 $ 2.84 $ 3.74
============= ========== ==========
</TABLE>
F-15
<PAGE>
The following table summarizes the information about stock options
outstanding at December 31, 1999:
Remaining Number of
Exercise Number contractual options
price outstanding life exercisable
- - ------------ ---------------- ---------------- ---------------
1.313 20,000 0.25 years 5,000
1.313 100,000 9.75 years 12,500
1.375 20,000 9.60 years --
1.500 75,000 9.80 years 75,000
1.750 6,000 9.75 years --
2.313 4,000 8.67 years 4,000
3.250 20,000 0.25 years 8,889
3.250 40,000 8.67 years 17,780
5.810 50,000 0.25 years 37,500
6.625 20,000 0.25 years 10,000
6.813 1,200 3.25 years 1,200
7.000 2,000 0.25 years 2,000
7.000 2,000 7.50 years 2,000
7.250 10,000 0.25 years 10,000
7.500 2,000 6.50 years 2,000
9.500 24,000 2.86 years 24,000
---------------- --------------
396,200 211,869
================ ===============
F-16
<PAGE>
(8) Stock Warrants
In connection with notes payable - bridge financing, the Company issued
warrants to purchase 1,500,000 shares of common stock at an initial
exercise price of $1.50 per share; subject to an upward adjustment upon
consummation of the IPO. Simultaneously with the consummation of the IPO,
these warrants were converted into redeemable warrants at an exercise
price of $5.50 per share on a one-for-one basis (see note 5). These
redeemable warrants expire on December 13, 2000.
As of December 14, 1996, the redeemable warrants are subject to
redemption by the Company at a redemption price of $0.05 per redeemable
warrant on 30 days prior written notice, provided that the average
closing bid price of the common stock as reported on Nasdaq equals or
exceeds $8.25 per share, subject to adjustment, for any 20 trading days
within a period of 30 consecutive trading days ending on the fifth
trading day prior to the date of notice of the redemption.
In December 1995, in connection with the IPO, the Company issued
redeemable warrants to purchase 1,872,750 shares of common stock at an
exercise price of $5.50 per share. These redeemable warrants expire on
December 13, 2000. Commencing December 14, 1996, these redeemable
warrants are subject to redemption by the Company at its option, at a
redemption price of $.05 per warrant provided that the average closing
bid price of the common stock equals or exceeds $8.25 per share for a
specified period of time, and the Company has obtained the required
approvals from the Underwriters of the Company's IPO. In January 1998,
1,000 warrants were exercised.
In connection with the IPO, the Company granted to Joseph Stevens & Co.,
L.P. (the Underwriter) warrants to purchase from the Company 165,000
units, each unit consisting of one share of common stock and one
redeemable warrant at an initial exercise price of $6.60 per unit. Such
warrants are exercisable during the four-year period commencing December
13, 1996. The redeemable warrants issuable upon exercise of these
warrants have an exercise price of $6.05 per share. As long as the
warrants remain unexercised, the terms under which the Company could
obtain additional capital may be adversely affected.
The Company entered into an agreement with Paramount effective April 15,
1996 pursuant to which Paramount will, on a non-exclusive basis, render
financial advisory services to the Company. Two warrants exercisable for
shares of the Company's common stock were issued to Paramount in
connection with this agreement. These included a warrant to purchase
25,000 shares of the Company's common stock at $10 per share, which
warrant expires on April 16, 2001 and a warrant to purchase 25,000 shares
of the Company's common stock at $8.05 per share, which warrant expires
on June 16, 2001. In connection with the issuance of these warrants, the
Company recognized an expense in the amount of $139,000 for the fair
value of the warrants, in accordance with SFAS No. 123. This expense is
included in general and administrative expenses in the consolidated
statements of operations for the year ended December 31, 1996.
In connection with the Channel merger discussed in note 6, the Company
issued a warrant to a director of the Company to purchase 37,500 shares
of the Company's common stock at $5.33 per share, which warrant expires
on July 14, 2006. The Company recognized expense of $48,562, which is
included in research and development expenses in the consolidated
statements of operations for the year ended December 31, 1997.
The Company entered into an agreement with Investor pursuant to which
Investor will render investor relations and corporate communication
services to the Company. A warrant to purchase 24,000 shares of Company's
common stock at $7.00 per share, which warrant expires on November 22,
2001, was issued in 1996. The Company recognized expense of $110,640,
which is included in general and administrative expense in the
consolidated statements of operations for the year ended December 31,
1997. The expense represents the fair value of the warrants, in
accordance with SFAS No. 123.
F-17
<PAGE>
Concurrent with the private placement offering of Series A Preferred in
1997, the Company issued 123,720 warrants to designees of Paramount, the
placement agent. These warrants are initially exercisable at a price
equal to $11.00 per share and may be exercised at any time during the 10
year period commenced February 17, 1998. The rights, preferences and
privileges of the shares of Series A Preferred issuable upon exercise of
these warrants are identical to those offered to the participants in the
private placement. The warrants contain anti-dilution provisions
providing for adjustment of the number of securities underlying the
Series A Preferred issuable upon exercise of the warrants and the
exercise price of the warrants under certain circumstances. The warrants
are not redeemable and will remain outstanding, to the extent not
exercised, notwithstanding any mandatory redemption or conversion of the
Series A Preferred underlying the warrants. In accordance with SFAS No.
123, the Company determined the fair value of the warrants using the
Black Scholes Model and allocated this value of $570,143, to convertible
preferred stock warrants with a corresponding reduction in additional
paid-in capital. In June 1998, 6,525 warrants were exercised via a
cashless method for 2,010 shares of Series A Preferred.
On January 4, 2000, the Company entered into a Financial Advisory and
Consulting Agreement with the Underwriters. In this agreement, the
Company engaged the Underwriters to provide investment banking services
from January 4, 2000 until January 4, 2001. As partial compensation for
the services to be rendered by the Underwriters, the Company issued the
Underwriters three warrants to purchase an aggregate of 450,000 shares of
its common stock. The exercise price ranges between $2.50 and $4.50 and
the exercise period of each warrant is at various times through 2007. In
addition, each warrant may only be exercised when the market price of
share of common stock is at least $1.00 greater than exercise price of
that warrant. In connection with the issuance of the warrants, the
Company and the Underwriters entered into a letter agreement granting
registration rights in respect of the shares of common stock issuable
upon exercise of the warrants. The Company intends to record the fair
value of the warrants as general and administrative expense over the
vesting period through January 4, 2001.
(9) Related-Party Transactions
During 1999, the Company entered into consulting agreements with certain
members of its Board of Directors. Prior to 1999, the Company had several
consulting agreements with directors of the Company. These agreements,
all of which have been terminated, required either monthly consulting
fees or project-based fees. Consulting expense under these agreements was
$99,000, $96,000 and $60,000 for the years ended December 31, 1999, 1998
and 1997, respectively.
F-18
<PAGE>
One of the three members of the Board of Directors of the Company was a
full-time officer of Paramount. In the regular course of its business,
Paramount identifies, evaluates and pursues investment opportunities in
biomedical and pharmaceutical products, technologies and companies. The
Company had several agreements with Paramount as well as with employees
of Paramount pursuant to which Paramount and such employees of Paramount
provide financial advisory services to the Company. Consulting expense
under these agreements was $18,000, $36,000 and $28,000 for the years
ended December 31, 1999, 1998 and 1997, respectively.
(10) Income Taxes
There was no current or deferred tax expense for the years ended December
31, 1999, 1998 and 1997 because of the Company's operating losses.
The components of deferred tax assets and deferred tax liabilities as of
December 31, 1999 and 1998 are as follows:
1999 1998
---------- ----------
Deferred tax assets:
Tax loss carryforwards $7,003,948 6,542,380
Research and development credit 495,555 421,217
Fixed assets 9,651 18,924
---------- ----------
Gross deferred tax assets 7,509,154 6,982,521
Less valuation allowance 7,509,154 6,982,521
---------- ----------
Net deferred tax assets -- --
Deferred tax liabilities -- --
---------- ----------
Net deferred tax asset (liability) $ -- --
========== ==========
F-19
<PAGE>
The reasons for the difference between actual income tax expense
(benefit) for the years ended December 31, 1999, 1998 and 1997 and the
amount computed by applying the statutory federal income tax rate to
losses before income tax (benefit) are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------ ----------------------------- ---------------------------
% of % of % of
pretax pretax pretax
Amount earnings Amount earnings Amount earnings
------------- -------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income tax expense
at statutory rate $ (832,000) (34.0%)$ (936,000) (34.0%)$ (1,752,000) (34.0%)
State income taxes,
net of Federal
tax benefit (147,000) (6.0%) (165,000) (6.0%) (309,000) (6.0%)
Change in valuation
reserve 527,000 21.5% 1,255,000 45.6% 2,239,000 43.4%
Credits generated
in current year (74,000) (3.0%) (183,000) (6.6%) (171,000) (3.3%)
Adjustment to prior
estimated income
tax expense 529,000 21.6% -- -- % -- -- %
Other, net (3,000) (0.1%) 29,000 1.0% (7,000) (0.1%)
------------- -------------- ------------- ------------- ------------- -----------
Income tax benefit $ -- -- % $ -- -- % $ -- -- %
============= ============== ============= ============= ============= ===========
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The net change
in the total valuation allowance for the years ended December 31, 1999, 1998 and
1997 was an increase of $527,000, $1,255,000 and $2,239,000, respectively. The
tax benefit assumed using the federal statutory tax rate of 34% has been reduced
to an actual benefit of zero due principally to the aforementioned valuation
allowance.
At December 31, 1999, the Company had federal and state net operating loss tax
carryforwards of approximately $17,400,000. The net operating loss carryforwards
expire in various amounts starting in 2008 and 2000 for federal and state tax
purposes, respectively. The Tax Reform Act of 1986 contains provisions which
limit the ability to utilize net operating loss carryforwards in the case of
certain events including significant changes in ownership interests. If the
Company's net operating loss carryforwards are limited, and the Company has
taxable income which exceeds the permissible yearly net operating loss
carryforward, the Company would incur a federal income tax liability even though
net operating loss carryforwards would be available in future years.
F-20
<PAGE>
(11) License Agreement
On May 14, 1998, Optex entered into a Development and License Agreement
(the Agreement) with Bausch & Lomb to complete the development of
Catarex, a cataract-removal technology owned by Optex. Under the terms of
the Agreement, Optex and Bausch & Lomb intend jointly to complete the
final design and development of the Catarex System. Bausch & Lomb was
granted an exclusive worldwide license to the Catarex technology for
human ophthalmic surgery and will assume responsibility for
commercializing Catarex globally. The Agreement is cancellable by Bausch
& Lomb at any time upon six months written notice.
The Agreement provides that Bausch & Lomb will pay Optex milestone
payments of (a) $2,500,000 upon the signing of the Agreement, (b)
$4,000,000 upon the successful completion of certain clinical trials, (c)
$2,000,000 upon receipt of regulatory approval to market the Catarex
device in the United States (this payment is creditable in full against
royalties), and (d) $1,000,000 upon receipt of regulatory approval to
market the Catarex device in Japan. Pursuant to the Agreement, Bausch &
Lomb shall reimburse Optex for its research and development expenses not
to exceed $2,500,000. Bausch & Lomb shall pay Optex a royalty of 7% of
net sales and an additional 3% royalty when certain conditions involving
liquid polymer lenses are met.
During 1998, the Company received the first milestone payment of
$2,500,000, which is nonrefundable, and recorded this amount as license
revenue. In addition, the Company recorded $1,047,511 in 1998 as a
reduction of expenses related to the research and development of the
Catarex device. Of this amount, $381,015 is recorded as an account
receivable at December 31, 1998.
On September 16, 1999, the Company and Bausch & Lomb amended the
Agreement to provide for an expanded role for Optex in development of the
Caterex surgical device.
Under the amended Agreement, Optex, in addition to the basic design work
provided for in the original agreement, is responsible for providing
Bausch & Lomb within a stated period Caterex devices for use in clinical
trials, and assisting Bausch & Lomb in connection with development of
manufacturing processes for scale-up of manufacture of the Caterex
device.
Additionally, Bausch & Lomb will reimburse Optex for all costs, including
labor, professional services and materials, incurred by Optex in
delivering those Caterex devices and performing manufacturing services,
and will pay Optex a profit component of 25% on the first $6.4 million of
such costs and just cost reimbursement on the remaining $1.6 million
of estimated costs.
During 1999, Optex recorded revenue pursuant to the amended Agreement of
$1,082,510. Of this amount, $304,752 is recorded as an account receivable
at December 31, 1999. In addition, through September 16, 1999, the date
of the amendment, the Company recorded $1,229,068 as a reduction of
expenses related to the research and development of the Catarex device.
F-21
<PAGE>
In connection with the revised agreement, the Company agreed to pay a
bonus to its President totaling $141,000, payable monthly through
September 2001. At December 31, 1999, $117,500 is still due and is
included in accounts payable and accrued expenses in the accompanying
1999 consolidated balance sheet.
(12) Commitments and Contingencies
Consulting and Research Agreements
The Company has entered into consulting agreements, under which stock
options may be issued in the foreseeable future. The agreements are
cancellable with no firm financial commitments.
Operating Leases
The Company rents certain office space under operating leases which
expire in various years through 2002.
Aggregate annual lease payments for noncancelable operating leases are as
follows:
Year ending
December 31
--------------------
2000 $ 112,000
2001 155,000
2002 40,000
=============
$ 307,000
=============
Rent expense related to operating leases for the years ended December 31,
1999, 1998, and 1997 was $118,264, $97,756, and $62,683, respectively.
Resignation of CEO
In July 1998, the CEO of the Company resigned. The Company recorded
$211,250 of expense for salary continuation through April 1999. Of this
amount, $140,833 is recorded in accrued expenses at December 31, 1998.
Pursuant to the resignation, all unvested stock options held by the CEO
vested immediately and expired in July 1999.
F-22
<PAGE>
Termination of Agreement with the Trustees of the University of
Pennsylvania
On October 12, 1999, the Company and Channel announced the termination of
the license agreement dated as of June 16, 1994, between the Trustees of
the University of Pennsylvania (Penn) and Channel pursuant to which
Channel received the rights to use cyclodextrin technology. The Company
and Channel, on the one hand, and Penn, on the other hand, released each
other from any further obligations under the license agreement. The
Company paid Penn a portion of the patent costs for which Penn was
seeking reimbursement under the agreement.
F-23
<PAGE>
Exhibit 10.27
FINANCIAL ADVISORY AND CONSULTING AGREEMENT
This Agreement is made and entered into as of this 4th day of
January, 2000, by and between ATLANTIC PHARMACEUTICALS, INC., a Delaware
corporation (the "Company"), and JOSEPH STEVENS & COMPANY, INC. (the
"Consultant").
In consideration of and for the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Purpose. The Company hereby retains the Consultant during
the term specified in Section 2 hereof to render consulting advice to the
Company as an investment banker relating to financial and similar matters, upon
the terms and conditions as set forth herein.
2. Term. Other than the provisions of Sections 8, 9, 10 and 12
hereof, which shall survive any termination of this Agreement, this Agreement
shall be effective for a period (the "Term") beginning on the date hereof and
ending on January 4, 2001, unless earlier terminated pursuant to Section 14
hereof.
3. Duties of Consultant. During the term of this Agreement,
the Consultant will provide the Company with such regular and customary
consulting advice as is reasonably requested by the Company, provided that the
Consultant shall not be required to undertake duties not reasonably within the
scope of the consulting advisory service contemplated by this Agreement. In
performance of these duties, the Consultant shall provide the Company with the
benefits of its best judgment and efforts. It is understood and acknowledged by
the parties that the value of the Consultant's advice is not measurable in any
quantitative manner, and that the Consultant shall be obligated to render
advice, upon the request of the Company, in good faith, but shall not be
obligated to spend any specific amount of time in doing so. The Consultant's
duties may include, but will not necessarily be limited to:
A. Providing sponsorship and exposure in connection with the
dissemination of corporate information regarding the Company to the investment
community at large under a systematic planned approach.
B. Rendering advice and assistance in connection with the
preparation of annual and interim reports and press releases.
C. Arranging, on behalf of the Company and its
representatives, at appropriate times, meetings with securities analysts of
major regional investment banking firms.
<PAGE>
D. Assisting the Company's financial public relations,
including discussions between the Company and the financial community.
E. Rendering advice with regard to internal operations,
including:
(1) advice regarding formation of corporate goals and
their implementation;
(2) advice regarding the financial structure of the
Company and its divisions or subsidiaries or any
programs and projects;
(3) advice concerning the securing, when necessary and,
if possible, of additional financing through banks
and/or insurance companies; and
(4) advice regarding corporate organization and
personnel.
F. Rendering advice with respect to acquisitions by the
Company and/or mergers of the Company with other companies, joint ventures by
the Company with any third parties, license and royalty agreements and any other
financing (other than the private or public sale of the Company's securities for
cash) including, without limitation, the sale of the Company itself or any
significant percentage, subsidiaries or affiliates thereof (each of the
foregoing being referred to herein as a "Transaction") such advice to include,
without limitation, identifying potential acquisition targets or merger
candidates, and assisting the Company with analyzing, structuring, negotiating
and effecting acquisition and merger opportunities.
G. Rendering advice regarding a future public or private
offering of securities of the Company or of any subsidiary.
4. Relationships with Others. The Company acknowledges that
the Consultant and its affiliates are in the business of providing financial
services and consulting advice (of all types contemplated by this Agreement) to
others. Nothing herein contained shall be construed to limit or restrict the
Consultant or its affiliates from rendering such services or advice to others.
It is clearly understood that the Consultant, for services rendered under this
Agreement, makes no commitment whatsoever to make a market in the securities of
the Company or to recommend or advise its clients to purchase the securities of
the Company. Research reports or corporate finance reports that may be prepared
by the Consultant will, when and if prepared, be done solely on the merits or
judgment of analysts of the Consultant or senior corporate finance personnel of
the Consultant. The Company and the Consultant shall follow reasonable
procedures, to be mutually agreed, to eliminate the sharing of information
between employees of Consultant who are engaged in providing advisory services
to the Company and those who are engaged in such market-making and reporting
activities, if any.
5. Consultant's Liability. In the absence of gross negligence
or willful misconduct on the part of the Consultant, or the Consultant's breach
of this Agreement, the
2
<PAGE>
Consultant shall not be liable to the Company, or to any officer, director,
employee, shareholder or creditor of the Company, for any act or omission in the
course of or in connection with the rendering or providing of advice or services
hereunder.
6. Expenses. The Company, upon receipt of appropriate
supporting documentation, shall reimburse the Consultant for any and all
reasonable out-of-pocket expenses incurred by the Consultant in connection with
services rendered by the Consultant to the Company pursuant to this Agreement,
including, but not limited to, hotel, food and associated expenses, all charges
for travel and long-distance telephone calls, reasonable attorneys' fees and all
other expenses incurred by the Consultant in connection with services rendered
by the Consultant to the Company pursuant to this Agreement. Notwithstanding the
foregoing, the Company shall not be obligated to reimburse the Consultant for
expenses in excess of $1000 individually or $10,000 in the aggregate, unless
such expenses were incurred with the Company's prior written consent. Expenses
payable under this Section 6 shall not include allocable overhead expenses of
the Consultant, including, but not limited to, secretarial charges and rent.
7. Compensation. As partial compensation for the services to
be rendered by the Consultant to the Company pursuant to Section 3 hereof, the
Company shall issue on the date hereof to the Consultant, or to such person as
the Consultant shall designate in writing subject to the approval of the
Company, warrants in the form of Exhibit A hereto ("Warrants") to purchase an
aggregate of 450,000 shares of common stock, par value $.001 per share of the
Company ("Common Stock"), with an exercise price and term of exercisability as
follows:
# Shares Exercise Price Exercise Period
-------- -------------- ---------------
150,000 $2.50 1/4/00 through 1/4/05
150,000 $3.50 1/4/01 through 1/4/06,
(subject to vesting in
equal monthly increments
during the Term)
150,000 $4.50 1/4/02 through 1/4/07,
(subject to vesting in
equal monthly increments
during the Term)
In addition, each Warrant shall only be exercisable when the
market price of a share of Common Stock is at least $1.00 greater than the
relevant Exercise Price, as provided in the Warrant. In connection with the
issuance of the Warrants, the Company shall execute a letter agreement in the
form of Exhibit B hereto, which shall provide for
3
<PAGE>
registration rights in respect of the shares of Common Stock issuable upon
exercise of the Warrants.
8. Success Fee. In addition to the compensation described in
Section 7 hereof, the Company agrees to pay to Consultant a success fee as
described below upon the closing of any Transaction with one or more parties
introduced to the Company by Consultant during the Term for which definitive
documentation is signed during the Term or within twelve (12) months after the
termination or non-renewal of the Term. The success fee described in this
Section 8 will not become payable in connection with any Transaction unless the
aggregate legal consideration (as defined below) payable to the Company in
connection with such Transaction is equal to or greater than $10 million.
Legal Consideration Fee
------------------- ---
1. $-0- - $3,000,000 5% of legal consideration
2. $3,000,000.01 - $4,000,000 Amount calculated pursuant to
line 1 of this computation,
plus 4% of excess over
$3,000,000
3. $4,000,000.01 - $5,000,000 Amount calculated pursuant to
lines 1 and 2 of this
computation, plus 3% of excess
over $4,000,000
4. above $5,000,000 Amount calculated pursuant to
lines 1, 2 and 3 of this
computation, plus 2% of excess
over $5,000,000.
Legal consideration is defined, for purposes of this Agreement, as the total of
stock (valued at market on the day of closing, or if there is no public market,
valued as set forth herein for other property), cash and assets and property or
other benefits received by the Company or its shareholders in the Transaction
(all valued at fair market value as agreed or, if not, by any independent
appraiser), irrespective of period of payment or terms.
9. Sales or Distributions of Securities. If the Consultant
assists the Company in the sale or distribution
a private transaction, the Consultant shall receive fees in the amount and form
to be arranged separately at the time of such transaction.
10. Form of Payment. All fees due to the Consultant pursuant
to Section 8 hereof are due and payable to the Consultant, in cash or by
certified check, at the closing or closings of the Transaction, whether during
or after the Term, or as otherwise agreed between the parties hereto; provided,
however, that in the case of license and royalty agreements specified in Section
8 hereof, the fees due the Consultant in receipt of such license and royalty
agreements shall be paid as and when license and/or royalty payments are
received by the Company.
4
<PAGE>
11. Limitation Upon the Use of Advice and Services.
A. No person or entity, other than the Company or any of its
subsidiaries, shall be entitled to make use of or rely upon the advice of the
Consultant to be given hereunder, and the Company shall not transmit such advice
to others, or encourage or facilitate the use of or reliance upon such advice by
others, without the prior written consent of the Consultant.
B. The use of the Consultant's name in any annual report or
other report of the Company, or any release or similar document prepared by or
on behalf of the Company, must have the prior written approval of the Consultant
unless the Company is required by law to include the Consultant's name in such
annual report, other report or release, in which event the Consultant will be
furnished with a copy of such annual report, other report or release using the
Consultant's name in advance of publication by or on behalf of the Company.
C. Should any purchases of securities be requested to be
effected through the Consultant by the Company, its officers, directors,
employees or other affiliates, or by any person on behalf of any profit sharing,
pension or similar plan of the Company, for the account of the Company or the
individuals or entities involved, such orders shall be taken by a registered
account executive of the Consultant, shall not be subject to the terms of this
Agreement, and the normal brokerage commission as charged by the Consultant will
apply in conformity with all rules and regulations of the New York Stock
Exchange, the National Association of Securities Dealers, Inc. or other
regulatory bodies. Where no regulatory body sets the fee, the normal established
fee as used by the Consultant shall apply.
D. The Consultant shall not disclose confidential information
which it learns about the Company as a result of its engagement hereunder, and
which is not available from any other source not subject to a confidentiality
obligation, except for such disclosure as may be required for Consultant to
perform its duties hereunder.
12. Indemnification. Since the Consultant will be acting on
behalf of the Company in connection with its engagement hereunder, the Company
and Consultant have entered into a separate indemnification agreement
substantially in the form attached hereto as Exhibit C and dated the date
hereof, providing for the indemnification of Consultant by the Company. The
Consultant has entered into this Agreement in reliance on the indemnities set
forth in such indemnification agreement.
13. Severability. Every provision of this Agreement is
intended to be severable. If any term or provision hereof is deemed unlawful or
invalid for any reason whatsoever, such unlawfulness or invalidity shall not
affect the validity of the remainder of this Agreement.
5
<PAGE>
14. Termination. This Agreement may be terminated by either
party at any time for any reason, provided that 30 days written notice of
termination has been given to the other party.
15. Miscellaneous.
A. Any notice or other communication between the parties
hereto shall be sent by certified or registered mail, postage prepaid, if to the
Company, addressed to it at 150 Broadway, Suite 1100, New York, NY 10038,
Attention: A. Joseph Rudick, with a copy to Kramer Levin Naftalis & Frankel, 919
Third Avenue, New York, NY 10022, Attention: Ezra G. Levin, Esq., or, if to the
Consultant, addressed to it at 33 Maiden Lane, 8th Floor, New York, New York
10038, Attention: Joseph Sorbara, Chief Executive Officer, with a copy to Weil,
Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153, Attention:
Carl Lobell, Esq., or to such address as may hereafter be designated in writing
by one party to the other. Such notice or other communication shall be deemed to
be given on the date of receipt.
B. If, during the term hereof, the Consultant shall cease to
do business, the provisions hereof relating to the duties of the Consultant and
the compensation by the Company as it applies to the Consultant shall thereupon
cease to be in effect, except for the Company's obligation of payment for
services rendered prior thereto. This Agreement shall survive any merger of,
acquisition of, or acquisition by the Consultant and, after any such merger or
acquisition, shall be binding upon the Company and the corporation surviving
such merger or acquisition.
C. This Agreement embodies the entire agreement and
understanding between the Company and the Consultant and supersedes any and all
negotiations, prior discussions and preliminary and prior agreements and
understandings related to the central subject matter hereof.
D. This Agreement has been duly authorized, executed and
delivered by and on behalf of the Company and the Consultant.
E. This Agreement shall be governed by and construed in all
respects under the laws of the State of New York, without reference to its
conflict of laws rules or principles. Any suit, action, proceeding or litigation
arising out of or relating to this Agreement shall be brought and prosecuted in
such federal or state court or courts located within the State of New York as
provided by law. The parties hereby irrevocably and unconditionally consent to
the jurisdiction of each such court or courts located within the State of New
York and to service of process by registered or certified mail, return receipt
requested, or by any other manner provided by applicable law, and hereby
irrevocably and unconditionally waive any right to claim that any suit, action,
proceeding or litigation so commenced has been commenced in an inconvenient
forum.
6
<PAGE>
F. This Agreement and the rights hereunder may not be assigned
by either party (except by operation of law) and shall be binding upon and inure
to the benefit of the parties and their respective successors, assigns and legal
representatives.
[SIGNATURES BEGIN ON NEXT PAGE]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date hereof.
ATLANTIC PHARMACEUTICALS, INC.
By: /s/ A. Joseph Rudick
----------------------------
Name: A. Joseph Rudick
Title: President
JOSEPH STEVENS & COMPANY, INC.
By: /s/ Steven Markowitz
----------------------------
Name: Steven Markowitz
Title: Chairman
8
<PAGE>
EXHIBIT A
FORM OF WARRANT
- - --------------------------------------------------------------------------------
WARRANT
To Purchase Common Stock of
ATLANTIC PHARMACEUTICALS, INC.
Warrant No. ____
No. of Shares of Common Stock: _____
- - --------------------------------------------------------------------------------
B-1
<PAGE>
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN
VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR THE PROVISIONS OF
THIS WARRANT.
No. of Shares of Common Stock: _________ Warrant No. _____
WARRANT
To Purchase Common Stock of
ATLANTIC PHARMACEUTICALS, INC.
THIS IS TO CERTIFY THAT Joseph Stevens & Company, Inc., or
registered assigns, is entitled, at any time during the Exercise Period (as
hereinafter defined), to purchase from Atlantic Pharmaceuticals, Inc., a
Delaware corporation ("Company"), _______ shares of Common Stock (as hereinafter
defined and subject to adjustment as provided herein), in whole or in part,
including fractional parts, at a purchase price of $_________ 1per share
(subject to adjustment as provided herein) all on the terms and conditions and
pursuant to the provisions hereinafter set forth.
1. DEFINITIONS
Capitalized terms used in this Warrant but not defined have
the meaning set forth in the Warrant Agreement (as defined below). The following
terms have the respective meanings set forth below:
"Additional Shares of Common Stock" means all shares of Common
Stock issued by the Company after the Closing Date, other than Warrant Stock.
"Business Day" means any day that is not a Saturday or Sunday
or a day on which banks are required or permitted to be closed in the State of
New York.
"Commission" means the Securities and Exchange Commission or
any other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" means (except where the context otherwise
indicates) the Common Stock, par value $.001 per share, of Company as
constituted on the Closing Date, and any capital stock into which such Common
Stock may thereafter be changed, and shall also include (i) capital stock of
Company of any other class (regardless of how denominated) issued to the holders
of shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of Company and
which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation (as defined in Section 4.8) received by or
- - ----------------------
1 See Section 7 of the Financial Advisory Agreement.
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distributed to the holders of Common Stock of Company in the circumstances
contemplated by Section 4.8.
"Convertible Securities" means evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
Additional Shares of Common Stock, either immediately or upon the occurrence of
a specified date or a specified event.
"Current Market Price" means, in respect of a share of Common
Stock on any date, either (a) if there shall not then be a public market for the
Common Stock, the Fair Market Value per share of Common Stock as at such date or
(b) if there shall then be a public market for the Common Stock, the average of
the daily market prices for 20 consecutive Business Days commencing 30 days
before such date. The daily market price for each such Business Day shall be (i)
the last sale price on such day on the principal stock exchange or NASDAQ Small
Cap Market ("NASDAQ") on which such Common Stock is then listed or admitted to
trading, (ii) if no sale takes place on such day on any such exchange or NASDAQ,
the average of the last reported closing bid and asked prices on such day as
officially quoted on any such exchange or NASDAQ, (iii) if the Common Stock is
not then listed or admitted to trading on any stock exchange or NASDAQ, the
average of the last reported closing bid and asked prices on such day in the
over-the-counter market, as furnished by the National Association of Securities
Dealers Automatic Quotation System or the National Quotation Bureau, Inc., (iv)
if neither such corporation at the time is engaged in the business of reporting
such prices, as furnished by any similar firm then engaged in such business, or
(v) if there is no such firm, as furnished by any member of the NASD selected
mutually by the Majority Holders and Company or, if they cannot agree upon such
selection, as selected by two such members of the NASD, one of which shall be
selected by the Majority Holders and one of which shall be selected by Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" means the period during which this Warrant
is exercisable pursuant to Section 2.1.
"Expiration Date" means January 4, 200___2.
"Financial Advisory Agreement" means the Financial Advisory
and Consulting Agreement, dated January 4, 2000, by and between the Company and
the Consultant.
"Fully Diluted Outstanding" means, on any date, all shares of
Common Stock Outstanding on such date and all shares of Common Stock issuable in
respect of this Warrant outstanding on such date, and other options or warrants
to purchase, or
- - ------------------------
2 See Section 7 of the Financial Advisory Agreement.
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securities convertible into or exchangeable for, shares of Common Stock
outstanding on such date, regardless of whether such options, warrants or other
securities are then exercisable or convertible.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time.
"Holder" means the Person in whose name the Warrant set forth
herein is registered on the books of Company maintained for such purpose.
"Majority Holders" means the holders of Warrants exercisable
for in excess of 50% of the aggregate number of shares of Warrant Stock then
purchasable upon exercise of all Warrants.
"NASD" means the National Association of Securities Dealers,
Inc., or any successor corporation thereto.
"Other Property" has the meaning set forth in Section 4.8.
"Outstanding" means, when used with reference to Common Stock,
on any date, all issued shares of Common Stock on such date, except shares then
owned or held by or for the account of Company or any subsidiary thereof, and
shall include all shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in shares of Common Stock.
"Permitted Issuances" means the issuance of shares of Common
Stock upon the exercise or conversion of Company's presently outstanding
convertible preferred stock, warrants and employee incentive options.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, incorporated
organization, association, corporation, institution, public benefit corporation,
entity or government (whether federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Transfer" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would constitute a
sale thereof within the meaning of the Securities Act.
"Transfer Notice" has the meaning set forth in Section 9.2.
"Warrant" means this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, this Warrant. All
Warrants shall at all
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times be identical as to terms and conditions and date, except as to the number
of shares of Common Stock for which they may be exercised.
"Warrant Price" means an amount equal to (i) the number of
shares of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) $________, as adjusted from time to time
pursuant to Section 4 of this Warrant.
"Warrant Stock" means the shares of Common Stock issued or
issuable upon the exercise of this Warrant.
2. EXERCISE OF WARRANT
2.1 EXERCISE PERIOD. (a) From and after January 4, 200 __3 and until 5:00
P.M., New York time, on the Expiration Date (the "Exercise Period"), Holder may
exercise this Warrant, on any Business Day on which the condition set forth in
Section 2.1(b) hereof is met, for all or any part of the Warrant Stock [which is
then purchasable in accordance with the vesting schedule set forth below:
Shares purchasable
Date upon exercise
---- -----------------
January 4, 2000 12,500
February 4, 2000 25,000
March 4, 2000 37,500
April 4, 2000 50,000
May 4, 2000 62,500
June 4, 2000 75,000
July 4, 2000 87,500
August 4, 2000 100,000
September 4, 2000 112,500
October 4, 2000 125,000
November 4, 2000 137,500
December 4, 2000 150,000
Upon any termination of the Financial Advisory Agreement
pursuant to Section 14 thereof, the Warrant shall cease to vest and shall
continue to be exercisable, in accordance with the terms set forth herein, for
the number of shares of Warrant Stock which were purchasable on such date of
termination.]4
(b) The Warrant may be exercised on any Business Day, except
that it may only be exercised if the last sale price of a share of Common Stock
on NASDAQ (or the principal stock exchange on which the Common Stock is then
listed or admitted to
- - -----------------------
3 See Section 7 of the Financial Advisory Agreement.
4 This vesting schedule will only apply to the $3.50 and $4.50 exercise price
warrants.
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trading) on the immediately preceding Business Day was equal to or greater than
$1.00 plus the Exercise Price then in effect.
2.2 EXERCISE NOTICE; DELIVERY OF CERTIFICATES. In order to exercise this
Warrant, Holder shall deliver to Company at its principal office at 150
Broadway, Suite 1100, New York, New York 10038, or at the office or agency
designated by Company pursuant to Section 13.2, (i) a written notice of Holder's
election to exercise this Warrant, specifying the number of shares of Common
Stock to be purchased, (ii) payment of the Warrant Price and (iii) this Warrant.
Such notice shall be substantially in the form of the subscription form
appearing at the end of this Warrant as Exhibit A, duly executed by Holder or
its agent or attorney. Upon receipt thereof, Company shall, as promptly as
practicable, and in any event within five (5) Business Days thereafter, deliver
to Holder a duly executed certificate or certificates representing the aggregate
number of full shares of Common Stock issuable upon such exercise, together with
cash in lieu of any fraction of a share, as hereinafter provided. Such stock
certificate or certificates shall be in such denominations and registered in the
name designated in the subscription form, subject to Section 9. Holder or any
other Person so designated to be named therein shall be deemed to have become a
holder of record of such shares of Warrant Stock for all purposes, as of the
date on which all items in clauses (i)-(iii) above have been received by Company
and all taxes required to be paid by Holder, if any, pursuant to Section 2.4
have been paid. If this Warrant shall have been exercised in part, Company shall
deliver to Holder a new Warrant evidencing the rights of Holder to purchase the
remaining shares of Common Stock issuable upon exercise of this Warrant, which
new Warrant shall in all other respects be identical with this Warrant, or
appropriate notation may be made on this Warrant and the same returned to
Holder.
2.3 PAYMENT OF WARRANT PRICE. Payment of the Warrant Price shall be made
at the option of the Holder by:
(i) certified or official bank check;
(ii) The surrender to Company of that number of shares of
Warrant Stock (or the right to receive such number of shares) or shares of
Common Stock having an aggregate Current Market Price equal to or greater than
the Current Warrant Price for all shares then being purchased (including those
being surrendered); or
(iii) any combination thereof, duly endorsed by or
accompanied by appropriate duly executed instruments of transfer.
2.4 PAYMENT OF TAXES. All shares of Warrant Stock shall be validly
issued, fully paid and nonassessable and without any preemptive rights. Company
shall pay all expenses, taxes and other governmental charges with respect to the
issue or delivery thereof, unless such tax or charge is imposed by law upon
Holder. Company shall not be required, however, to pay any transfer tax or other
similar charge imposed in connection with any transfer involved in the issue of
any certificate for shares of Common Stock issuable upon exercise of this
Warrant in any name other than that of Holder, and in such case Company shall
not be required to issue or deliver any stock
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certificate until such tax or other charge has been paid or it has been
established to the satisfaction of Company that no such tax or other charge is
due.
2.5 FRACTIONAL SHARES. Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which the Holder of one or more Warrants would otherwise be
entitled to purchase upon such exercise, except as otherwise provided in Section
2.1, Company shall pay a cash adjustment in respect of such final fraction in an
amount equal to the same fraction of the Current Market Price per share of
Common Stock on the date of exercise.
3. TRANSFER, DIVISION AND COMBINATION
3.1 TRANSFER. Subject to compliance with Section 9 hereof, transfer of
this Warrant and all rights hereunder, in whole or in part, shall be registered
on the books of Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of Company referred to in Section 2.1 or
the office or agency designated by Company pursuant to Section 13.2, together
with a duly executed written assignment of this Warrant substantially in the
form of Exhibit B hereto and funds sufficient to pay any transfer taxes payable
upon the making of such transfer. Upon such surrender and, if required, such
payment, Company shall, subject to Section 9, execute and deliver a new Warrant
or Warrants in the name of the assignee or assignees and in the denomination
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled. A Warrant, if properly assigned in
compliance with Section 9, may be exercised by a new Holder for the purchase of
shares of Common Stock without having a new Warrant issued.
3.2 DIVISION AND COMBINATION. Subject to Section 9, this Warrant may be
divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of Company, together with a duly executed written
notice specifying the names and denominations in which new Warrants are to be
issued. Subject to compliance with Section 3.1 and with Section 9, as to any
transfer which may be involved in such division or combination, Company shall
execute and deliver a new Warrant or Warrants in exchange for the Warrant or
Warrants to be divided or combined in accordance with such notice.
3.3 EXPENSES. Company shall prepare, issue and deliver at its own expense
(other than transfer taxes) the new Warrant or Warrants under this Section 3.
3.4 MAINTENANCE OF BOOKS. Company agrees to maintain, at its aforesaid
office or agency, books for the registration and the registration of transfer of
the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this
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Warrant, shall be subject to adjustment from time to time as set forth in this
Section 4. Company shall give each Holder notice of any event described below
which requires an adjustment pursuant to this Section 4 at the time of such
event.
4.1 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time
Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Common Stock,
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Warrant Price shall be
adjusted to equal (A) the Warrant Price multiplied by the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to the
adjustment divided by (B) the number of shares for which this Warrant is
exercisable immediately after such adjustment.
4.2 CERTAIN OTHER DISTRIBUTIONS AND ADJUSTMENTS.
(a) If at any time Company shall take a record of the holders
of its Common Stock for the purpose of entitling them to receive any dividend or
other distribution of:
(i) cash in excess of earned surplus,
(ii) any evidences of its indebtedness, any shares of its
stock or any other securities or property of any nature whatsoever (other than
cash, Convertible Securities or Additional Shares of Common Stock), or
(iii) any warrants or other rights to subscribe for or
purchase any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash, Convertible
Securities or Additional Shares of Common Stock),
then the Exercise Price shall be reduced, without any further action by the
parties hereto, by the Per Share Value (as hereinafter defined) of the dividend.
For purposes of this Section 4.2 the "Per Share Value" of cash dividend or other
distribution shall be the dollar amount of the distribution on each share of
Common Stock and the "Per Share Value" of any dividend or distribution other
than cash shall be equal to the fair market
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value of such non-cash distribution on each share of Common Stock, as determined
in good faith by the Board of Directors of the Company.
(b) A reclassification of the Common Stock (other than a
change in par value) into shares of Common Stock and shares of any other class
of stock shall be deemed a distribution by Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of
paragraph (a) above, and if the outstanding shares of Common Stock shall be
changed into a larger or smaller number of shares of Common Stock as a part of
such reclassification, such change shall be deemed a subdivision or combination,
as the case may be, of the outstanding shares of Common Stock within the meaning
of Section 4.1.
4.3 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK.
(a) If at any time Company shall (except as hereinafter
provided) issue or sell any Additional Shares of Common Stock, other than
Permitted Issuances, in exchange for consideration in an amount per Additional
Share of Common Stock less than the Current Market Price, then
(i) the Warrant Price as to the number of shares for
which this Warrant is exercisable prior to such adjustment shall be reduced to a
price determined by dividing (A) an amount equal to the sum of (x) the number of
shares of Common Stock Outstanding immediately prior to such issue or sale
multiplied by the Current Market Price plus (y) the consideration, if any,
received by Company upon such issue or sale as determined pursuant to Section
4.7(a), by (B) the total number of shares of Common Stock Outstanding
immediately after such issue or sale; and (ii) the number of shares of Common
Stock for which this Warrant is exercisable shall be adjusted to equal the
product obtained by multiplying the Warrant Price in effect immediately prior to
such issue or sale by the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such issue or sale and dividing the
product thereof by the Warrant Price resulting from the adjustment made pursuant
to clause (i) above.
(b) The provision of paragraph (a) shall not apply to any
issuance of Additional Shares of Common Stock for which an adjustment is
provided under Section 4.1 or 4.2. No adjustment of the number of shares of
Common Stock for which this Warrant shall be exercisable shall be made under
paragraph (a) upon the issuance of any Additional Shares of Common Stock which
are issued pursuant to the exercise of any warrants or other subscription or
purchase rights or pursuant to the exercise of any conversion or exchange rights
in any Convertible Securities, if any such adjustment shall previously have been
made upon the issuance of such warrants or other rights or upon the issuance of
such Convertible Securities (or upon the issuance of any warrant or other rights
therefor) pursuant to Sections 4.4 or 4.5 hereof.
4.4 ISSUANCE OF WARRANTS OR OTHER RIGHTS. If at any time Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a distribution of, or shall in any manner (whether directly or
by assumption in a merger in which Company is the surviving corporation) issue
or sell, any warrants or
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other rights to subscribe for or purchase any Additional Shares of Common Stock
or any Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share for which Common
Stock is issuable upon the exercise of such warrants or other rights or upon
conversion or exchange of such Convertible Securities shall be less than the
Current Market Price in effect immediately prior to the time of such issue or
sale, then the number of shares for which this Warrant is exercisable and the
Current Warrant Price shall be adjusted as provided in Section 4.3 on the basis
that the maximum number of Additional Shares of Common Stock issuable pursuant
to all such warrants or other rights or necessary to effect the conversion or
exchange of all such Convertible Securities shall be deemed to have been issued
and outstanding and Company shall be deemed to have received all of the
consideration payable therefor, if any, as of the date of the issuance of such
warrants or other rights.
4.5 ISSUANCE OF CONVERTIBLE SECURITIES. If at any time Company shall take
a record of the holders of its Common Stock for the purpose of entitling them to
receive a distribution of, or shall in any manner (whether directly or by
assumption in a merger in which Company is the surviving corporation) issue or
sell, any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange shall be less
than the Current Market Price in effect immediately prior to the time of such
issue or sale, then the number of Shares for which this Warrant is exercisable
and the Warrant Price shall be adjusted as provided in Section 4.3 on the basis
that the maximum number of Additional Shares of Common Stock necessary to effect
the conversion or exchange of all such Convertible Securities shall be deemed to
have been issued and outstanding and Company shall have received all of the
consideration payable therefor, if any, as of the date of issuance of such
Convertible Securities. No adjustment of the number of Shares for which this
Warrant is exercisable and the Warrant Price shall be made under this Section
4.5 upon the issuance of any Convertible Securities which are issued pursuant to
the exercise of any warrants or other subscription or purchase rights therefor,
if any such adjustment shall previously have been made upon the issuance of such
warrants or other rights pursuant to Section 4.4. If any issue or sale of
Convertible Securities is made upon exercise of any warrant or other right to
subscribe for or to purchase any such Convertible Securities for which
adjustments of the number of Shares for which this Warrant is exercisable and
the Warrant Price have been or are to be made pursuant to Section 4.4, no
further adjustments of the number of Shares for which this Warrant is
exercisable and the Warrant Price shall be made by reason of such issue or sale.
4.6 SUPERSEDING ADJUSTMENT. If, at any time after any adjustment of the
number of shares of Common Stock for which this Warrant is exercisable and the
Warrant Price shall have been made pursuant to Section 4.4 or Section 4.5 as the
result of any issuance of warrants, rights or Convertible Securities,
(a) such warrants or rights, or the right of conversion or
exchange in such other Convertible Securities, shall expire, and all or a
portion of such warrants or rights,
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or the right of conversion or exchange with respect to all or a portion of such
other Convertible Securities, as the case may be, shall not have been exercised,
or
(b) the consideration per share for which shares of Common
Stock are issuable pursuant to such warrants or rights, or the terms of such
other Convertible Securities, shall be increased solely by virtue of provisions
therein contained for an automatic increase in such consideration per share upon
the occurrence of a specified date or event,
then for each outstanding Warrant such previous adjustment shall be rescinded
and annulled and the Additional Shares of Common Stock which were deemed to have
been issued by virtue of the computation made in connection with the adjustment
so rescinded and annulled shall no longer be deemed to have been issued by
virtue of such computation. Thereupon, a recomputation shall be made of the
effect of such rights or options or other Convertible Securities on the basis of
(c) treating the number of Additional Shares of Common Stock
or other property, if any, theretofore actually issued or issuable pursuant to
the previous exercise of any such warrants or rights or any such right of
conversion or exchange, as having been issued on the date or dates of any such
exercise and for the consideration actually received and receivable therefor,
and
(d) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been granted or
issued immediately after the time of such increase of the consideration per
share for which shares of Common Stock or other property are issuable under such
warrants or rights or other Convertible Securities; whereupon a new adjustment
of the number of shares of Common Stock for which this Warrant is exercisable
and the Warrant Price shall be made, which new adjustment shall supersede the
previous adjustment so rescinded and annulled.
4.7 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Warrant Price provided for in this Section 4:
(a) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any warrants
or other rights to subscribe for or purchase any Additional Shares of Common
Stock or any Convertible Securities shall be issued for cash consideration, the
consideration received by Company therefor shall be the amount of the cash
received by Company therefor, or, if such Additional Shares of Common Stock or
Convertible Securities are offered by Company for subscription, the subscription
price, or, if such Additional Shares of Common Stock or Convertible Securities
are sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price (in any such case subtracting any
amounts paid or receivable for accrued interest or accrued dividends and without
taking into account any compensation, discounts or expenses paid or incurred by
Company for and in the underwriting of, or otherwise in connection with, the
issuance thereof). To the
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extent that such issuance shall be for a consideration other than cash, then,
except as herein otherwise expressly provided, the amount of such consideration
shall be deemed to be the fair market value of such consideration at the time of
such issuance as determined in good faith by the Board of Directors of Company.
In case any Additional Shares of Common Stock or any Convertible Securities or
any warrants or other rights to subscribe for or purchase such Additional Shares
of Common Stock or Convertible Securities shall be issued in connection with any
merger in which Company issues any securities, the amount of consideration
therefor shall be deemed to be the fair value, as determined in good faith by
the Board of Directors of Company, of such portion of the assets and business of
the nonsurviving corporation as such Board in good faith shall determine to be
attributable to such Additional Shares of Common Stock, Convertible Securities,
warrants or other rights, as the case may be. The consideration for any
Additional Shares of Common Stock issuable pursuant to any warrants or other
rights to subscribe for or purchase the same shall be the consideration received
by Company for issuing such warrants or other rights plus the additional
consideration payable to Company upon exercise of such warrants or other rights.
The consideration for any Additional Shares of Common Stock issuable pursuant to
the terms of any Convertible Securities shall be the consideration received by
Company for issuing warrants or other rights to subscribe for or purchase such
Convertible Securities, plus the consideration paid or payable to Company in
respect of the subscription for or purchase of such Convertible Securities, plus
the additional consideration, if any, payable to Company upon the exercise of
the right of conversion or exchange in such Convertible Securities. In case of
the issuance at any time of any Additional Shares of Common Stock or Convertible
Securities in payment or satisfaction of any dividends upon any class of stock
other than Common Stock, Company shall be deemed to have received for such
Additional Shares of Common Stock or Convertible Securities a consideration
equal to the amount of such dividend so paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by
this Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that any adjustment of the number of
shares of Common Stock for which this Warrant is exercisable that would
otherwise be required may be postponed (except in the case of a subdivision or
combination of shares of Common Stock, as provided for in Section 4.1) up to,
but not beyond the date of exercise if such adjustment either by itself or with
other adjustments not previously made adds or subtracts less than 1% of the
shares of Common Stock for which this Warrant is exercisable immediately prior
to the making of such adjustment. Any adjustment representing a change of less
than such minimum amount (except as aforesaid) which is postponed shall be
carried forward and made as soon as such adjustment, together with other
adjustments required by this Section 4 and not previously made, would result in
a minimum adjustment or on the date of exercise. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the close of
business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into account to
the nearest 1/10th of a share.
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(d) When Adjustment Not Required. If Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
(e) Escrow of Warrant Stock. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of any record
of the holders of Common Stock, but prior to the occurrence of the event for
which such record is taken, and Holder exercises this Warrant, any Additional
Shares of Common Stock issuable upon exercise by reason of such adjustment shall
be deemed the last shares of Common Stock for which this Warrant is exercised
(notwithstanding any other provision to the contrary herein) and such shares or
other property shall be held in escrow for Holder by Company to be issued to
Holder upon and to the extent that the event actually takes place, upon payment
of the Warrant Price. Notwithstanding any other provision to the contrary
herein, if the event for which such record was taken fails to occur or is
rescinded, then such escrowed shares shall be cancelled by Company and escrowed
property returned to Company.
(f) Challenge to Good Faith Determination. Whenever the Board
of Directors of Company shall be required to make a determination in good faith
of the fair market value of any item under this Section 4, such determination
may be challenged in good faith by the Majority Holders, and any dispute shall
be resolved by an investment banking or valuation firm of recognized national
standing selected by Company and acceptable to the Majority Holders.
4.8 REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. In case Company shall reorganize its capital, reclassify
its capital stock, consolidate or merge with or into another corporation (where
Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of Company), or sell, transfer or
otherwise dispose of all or substantially all its property, assets or business
to another corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares of
common stock of the successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation ("Other Property"), are
to be received by or distributed to the holders of Common Stock of Company, then
each Holder shall have the right thereafter to receive, upon exercise of such
Warrant, the number of shares of common stock of the successor or acquiring
corporation or of Company, if it is the surviving corporation, and Other
Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than Company) shall expressly assume the due
and punctual observance and
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performance of each and every covenant and condition of this Warrant to be
performed and observed by Company and all the obligations and liabilities
hereunder, subject to such modifications as may be deemed appropriate (as
determined by resolution of the Board of Directors of Company) in order to
provide for adjustments of shares of Common Stock for which this Warrant is
exercisable which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 4. For purposes of this Section 4.8,
"common stock of the successor or acquiring corporation" shall include stock of
such corporation of any class which is not preferred as to dividends or assets
over any other class of stock of such corporation and which is not subject to
redemption and shall also include any evidences of indebtedness, shares of stock
or other securities which are convertible into or exchangeable for any such
stock, either immediately or upon the arrival of a specified date or the
happening of a specified event and any warrants or other rights to subscribe for
or purchase any such stock. The foregoing provisions of this Section 4.8 shall
similarly apply to successive reorganizations, reclassifications, mergers,
consolidations or disposition of assets.
4.9 OTHER ACTION AFFECTING COMMON STOCK. In case at any time or from time
to time Company shall take any action in respect of its Common Stock, other than
any action described in this Section 4, then, unless such action will not have a
materially adverse effect upon the rights of the Holders, the number of shares
of Common Stock or other stock for which this Warrant is exercisable and/or the
purchase price thereof shall be adjusted in such manner as may be equitable in
the circumstances.
5. NOTICES TO WARRANT HOLDERS
5.1 NOTICE OF ADJUSTMENTS. Whenever an adjustment to this Warrant is made
pursuant to Section 4, Company shall prepare a certificate to be executed by the
chief financial officer of Company setting forth, in reasonable detail, the
event requiring the adjustment and the method by which such adjustment was
calculated, specifying the number of shares of Common Stock for which this
Warrant is exercisable and (if such adjustment was made pursuant to Section 4.8
or 4.9) describing the number and kind of any other shares of stock or Other
Property for which this Warrant is exercisable, and any change in the purchase
price or prices thereof, after giving effect to such adjustment or change.
Company shall promptly cause a signed copy of such certificate to be delivered
to each Holder. Company shall keep at its office or agency designated pursuant
to Section 15 copies of all such certificates and cause the same to be available
for inspection at said office during normal business hours by any Holder or any
prospective purchaser of a Warrant designated by a Holder thereof.
5.2 NOTICE OF CORPORATE ACTION. If at any time
(a) Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
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(b) there shall be any capital reorganization of Company, any
reclassification or recapitalization of the capital stock of Company or any
consolidation or merger of Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of
Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of Company;
then, in any one or more of such cases, Company shall give to Holder (i) at
least 30 days' prior written notice of the date on which a record date shall be
selected in respect of such event and (ii) in the case of any such event, at
least 30 days' prior written notice of the date when the same shall take place.
Such notice in accordance with the foregoing clause also shall specify (i) the
date on which the holders of Common Stock shall be entitled to any such
dividend, distribution or right, and the amount and character thereof and (ii)
the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up is to take place and the time, if any such time is to be fixed, as of which
the holders of Common Stock shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up.
6. NO IMPAIRMENT
Company shall not by any action, including, without
limitation, amending its articles of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, Company will take all such action as may be necessary or appropriate
in order that Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant, including taking such
action as is necessary for the Warrant Price to be not less than the par value
of the shares of Common Stock issuable upon exercise of this Warrant. The
Company will use its best efforts to obtain all such authorizations, exemptions
or consents from any public regulatory body having jurisdiction thereof as may
be necessary to enable Company to perform its obligations under this Warrant.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Closing Date, Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of all outstanding Warrants. All shares of Common
Stock which shall be so issuable, when issued upon exercise of any Warrant and
payment therefor in accordance with the terms
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of such Warrant, shall be duly and validly issued and fully paid and
nonassessable, and not subject to preemptive rights.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by Company
to the holders of its Common Stock with respect to which any provision of
Section 4 refers to the taking of a record of such holders, Company will in each
such case take such a record and will take such record as of the close of
business on a Business Day. Company will not at any time, except upon
dissolution, liquidation or winding up of Company, close its stock transfer
books or Warrant transfer books so as to result in preventing or delaying the
exercise or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1 RESTRICTIVE LEGEND. 1. Except as otherwise provided in this Section
9, each certificate for Warrant Stock initially issued upon the exercise of this
Warrant, and each certificate for Warrant Stock issued to any subsequent
transferee of any such certificate, shall be stamped or otherwise imprinted with
a legend in substantially the following form:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as amended,
and may not be transferred in violation of such Act or the
rules and regulations thereunder."
(b) Except as otherwise provided in this Section 9, each
Warrant shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"This Warrant and the securities represented hereby
have not been registered under the Securities Act of 1933, as
amended, and may not be transferred in violation of such Act,
the rules and regulations thereunder or the provisions of this
Warrant."
9.2 NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION. Prior to or
promptly following any Transfer of any Warrants or any shares of Restricted
Common Stock, the holder of such Warrants or Restricted Common Stock shall give
written notice (a "Transfer Notice") to Company of such Transfer. Each
certificate, if any, evidencing such shares of Restricted Common Stock issued
upon such Transfer shall bear the restrictive legend set forth in Section
9.1(a), and each Warrant issued upon such Transfer
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shall bear the restrictive legend set forth in Section 9.1(b), unless in the
opinion of counsel to such holder which is reasonably acceptable to Company such
legend is not required in order to ensure compliance with the Securities Act.
9.3 TERMINATION OF RESTRICTIONS. Notwithstanding the foregoing provisions
of Section 9, the restrictions imposed by this Section upon the transferability
of the Warrants and the Warrant Stock, and the legend requirements of Section
9.1, shall terminate as to any particular Warrant or share of Warrant Stock (i)
when and so long as such security shall have been effectively registered under
the Securities Act and disposed of pursuant thereto or (ii) when Company shall
have received an opinion of counsel reasonably satisfactory to it that such
security may be transferred without registration thereof under the Securities
Act. Whenever the restrictions imposed by Section 9 shall terminate as to this
Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive
from Company, at the expense of Company, a new Warrant without the restrictive
legend set forth in Section 9.1(b). Whenever the restrictions imposed by this
Section shall terminate as to any share of Warrant Stock, as hereinabove
provided, the holder thereof shall be entitled to receive from Company, at
Company's expense, a new certificate representing such Warrant Stock not bearing
the restrictive legend set forth in Section 9.1(a).
10. SUPPLYING INFORMATION
Company shall cooperate with each Holder of a Warrant or
Warrant Stock in supplying such information as may be reasonably necessary for
such holder to complete and file any information reporting forms presently or
hereafter required by the Commission as a condition to the availability of an
exemption from the Securities Act for the sale of any Warrant or Warrant Stock.
11. LOSS OR MUTILATION
Upon receipt by Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of Holder shall be sufficient indemnity),
and in case of mutilation upon surrender and cancellation hereof, Company will
execute and deliver in lieu hereof a new Warrant of like tenor to such Holder;
provided, in the case of mutilation, no indemnity shall be required if this
Warrant in identifiable form is surrendered to Company for cancellation.
12. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of Holder hereof, shall give rise to any liability of such
Holder for the purchase price of any Common Stock or as a stockholder of
Company, whether such liability is asserted by Company or by creditors of
Company.
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13. MISCELLANEOUS
13.1 NONWAIVER AND EXPENSES. No course of dealing or any delay or failure
to exercise any right hereunder on the part of Holder shall operate as a waiver
of such right or otherwise prejudice Holder's rights, powers or remedies. If
Company fails to make, when due, any payments provided for hereunder, or fails
to comply with any other provision of this Warrant, Company shall pay to Holder
such amounts as shall be sufficient to cover any costs and expenses including,
but not limited to, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto or
in otherwise enforcing any of its rights, powers or remedies hereunder.
13.2 NOTICE GENERALLY. Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made pursuant to
the provisions of this Warrant shall be sufficiently given or made if in writing
and either delivered in person with receipt acknowledged or sent by registered
or certified mail, return receipt requested, postage prepaid, or by telecopy and
confirmed by telecopy answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last
known address appearing on the books of Company maintained for such purpose.
(b) If to Company at:
Atlantic Pharmaceuticals, Inc.
150 Broadway
Suite 1100
New York, NY 10038
Attn: A. Joseph Rudick
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback, or three (3) Business Days after the same shall have been deposited
in the United States mail. Failure or delay in delivering copies of any notice,
demand, request, approval, declaration, delivery or other communication to the
person designated above to receive a copy shall in no way adversely affect the
effectiveness of such notice, demand, request, approval, declaration, delivery
or other communication.
13.3 SUCCESSORS AND ASSIGNS. Subject to the provisions of Sections 3.1
and 9, this Warrant and the rights evidenced hereby shall inure to the benefit
of and be binding upon the successors of Company and the successors and assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of
all Holders from time to time of this Warrant and shall be enforceable by any
such Holder.
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<PAGE>
13.4 AMENDMENT. This Warrant and all other Warrants may be modified or
amended or the provisions hereof waived with the written consent of Company and
the Majority Holders, provided that no such Warrant may be modified or amended
to reduce the number of shares of Common Stock for which such Warrant is
exercisable or to increase the price at which such shares may be purchased upon
exercise of such Warrant (before giving effect to any adjustment as provided
therein) without the prior written consent of the Holder thereof.
13.5 SEVERABILITY. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
13.6 HEADINGS. The headings used in this Warrant are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
13.7 GOVERNING LAW. This Warrant shall be governed by the laws of the
State of Delaware, without regard to the provisions thereof relating to conflict
of laws.
[SIGNATURES BEGIN ON NEXT PAGE]
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<PAGE>
IN WITNESS WHEREOF, Company has caused this Warrant to be duly
executed and attested by its Secretary or an Assistant Secretary.
Dated:
ATLANTIC PHARMACEUTICALS, INC.
By:_____________________________
Name:
Title:
Attest:
By:___________________________
Name:
Title:
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EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of ______ Shares of Common Stock of
Atlantic Pharmaceuticals, Inc. and herewith makes payment therefor, all at the
price and on the terms and conditions specified in this Warrant and requests
that certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the name
of and delivered to _____________ whose address is _________________ and, if
such shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, that a new Warrant of like tenor and date
for the balance of the shares of Common Stock issuable hereunder be delivered to
the undersigned.
-------------------------------
(Name of Registered Owner)
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
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<PAGE>
EXHIBIT B TO WARRANT
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
- - ---------------------------- -----------------------------
and does hereby irrevocably constitute and appoint ___________________________
attorney-in-fact to register such transfer on the books of Atlantic
Pharmaceuticals, Inc. maintained for the purpose, with full power of
substitution in the premises.
Dated:__________________ Print Name:___________________
Signature:____________________
Witness:______________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
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<PAGE>
EXHIBIT B
FORM OF LETTER AGREEMENT
Atlantic Pharmaceuticals, Inc.
1017 Main Campus Drive
Suite 3900
Raleigh, NC 27607
Joseph Stevens & Company, Inc.
33 Maiden Lane
8th Floor
New York, New York 10038
Re: Amendment to Underwriters Warrant Agreement
-------------------------------------------
Ladies and Gentlemen:
With reference to that certain Underwriter's Warrant
Agreement, dated as of _______, 1995, between Atlantic Pharmaceuticals, Inc.
("Company") and Joseph Stevens & Company, L.P. (the "Original Warrant
Agreement"), we wish to provide that the shares of common stock, par value $.001
per share, of the Company ("Common Stock") issuable upon exercise of the
warrants to be issued to you ("Warrants") pursuant to that certain Financial
Advisory and Consulting Agreement, dated as of the date hereof, shall be subject
to Sections 7.2 through 7.5 of the Original Warrant Agreement. Notwithstanding
anything to the contrary in the Original Warrant Agreement, (i) the piggyback
registration rights granted pursuant to Section 7.2 shall be effective for seven
years from the date hereof and (ii) the demand registration rights granted
pursuant to section 7.3 shall be effective for five years from the date hereof,
in each case with respect to all shares of Common Stock issuable upon the
exercise of Warrants held by Joseph Stevens & Company, Inc. and its affiliates,
and all shares of Common Stock issuable upon the exercise of warrants issued
pursuant to the Original Warrant Agreement.
Very truly yours,
ATLANTIC PHARMACEUTICALS INC.
By: _________________________
Name:
Title:
Agreed and Acknowledged
JOSEPH STEVENS & COMPANY, INC.
By: ________________________________
Name:
Title:
B-1
<PAGE>
EXHIBIT C
FORM OF INDEMNIFICATION AGREEMENT
Atlantic Pharmaceuticals, Inc.
1017 Main Campus Drive
Suite 3900
Raleigh, NC 27607
January 4, 2000
JOSEPH STEVENS & COMPANY, INC.
33 Maiden Lane
8th Floor
New York, New York 10038
Ladies and Gentlemen:
In connection with the engagement by Atlantic Pharmaceuticals,
Inc. (the "Company") of JOSEPH STEVENS & COMPANY, INC. (the "Consultant") as the
Company's financial advisor and investment banker, the Company hereby agrees to
indemnify and hold the Consultant and its affiliates, and the directors,
officers, partners, shareholders, agents and employees of the Consultant
(collectively the "Indemnified Persons"), harmless from and against any and all
claims, actions, suits, proceedings (including those of shareholders), damages,
liabilities and expenses incurred by any of them (including, but not limited to,
fees and expenses of counsel) which are (A) related to or arise out of (i) any
actions taken or omitted to be taken (including any untrue statements made or
any statements omitted to be made) by the Company, or (ii) any actions taken or
omitted to be taken by any Indemnified Person in connection with our engagement
of the Consultant pursuant to the Financial Advisory and Consulting Agreement,
of even date herewith, between the Consultant and the Company (the "Consulting
Agreement"), or (B) otherwise related to or arising out of the Consultant's
activities on the Company's behalf pursuant to the Consultant's engagement under
the Consulting Agreement, and the Company shall reimburse any Indemnified Person
for all expenses (including, but not limited to, fees and expenses of counsel)
incurred by such Indemnified Person in connection with investigating, preparing
or defending any such claim, action, suit or proceeding (collectively a
"Claim"), whether or not in connection with pending or threatened litigation in
which any Indemnified Person is a party. The Company will not, however, be
responsible for any Claim which is finally judicially determined to have
resulted exclusively from the gross negligence or willful misconduct of any
person seeking indemnification hereunder. The Company further agrees that no
Indemnified Person shall have any liability to the Company for or in connection
with the Consultant's engagement under the Consulting Agreement except for any
Claim incurred by the Company solely as a direct result of any Indemnified
Person's gross negligence or willful misconduct.
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<PAGE>
The Company further agrees that the Company will not, without
the prior written consent of the Consultant, settle, compromise or consent to
the entry of any judgment in any pending or threatened Claim in respect of which
indemnification may be sought hereunder (whether or not any Indemnified Person
is an actual or potential party to such Claim), unless such settlement,
compromise or consent includes a legally binding, unconditional, and irrevocable
release of each Indemnified Person hereunder from any and all liability arising
out of such Claim.
Promptly upon receipt by an Indemnified Person of notice of
any complaint or the assertion or institution of any Claim with respect to which
indemnification is being sought hereunder, such Indemnified Person shall notify
the Company in writing of such complaint or of such assertion or institution,
but failure to so notify the Company shall not relieve the Company from any
obligation the Company may have hereunder, unless, and only to the extent that,
such failure results in the forfeiture by the Company of substantial rights and
defenses, and such failure to so notify the Company will not in any event
relieve the Company from any other obligation or liability the Company may have
to any Indemnified Person otherwise than under this Agreement. If the Company so
elects or is requested by such Indemnified Person, the Company will assume the
defense of such Claim, including the employment of counsel reasonably
satisfactory to such Indemnified Person and the payment of the fees and expenses
of such counsel. In the event, however, that such Indemnified Person reasonably
determines in its sole judgment that having common counsel would present such
counsel with a conflict of interest or such Indemnified Person concludes that
there may be legal defenses available to it or other Indemnified Persons that
are different from or in addition to those available to the Company, then such
Indemnified Person may employ its own separate counsel to represent or defend it
in any such Claim and the Company shall pay the reasonable fees and expenses of
such counsel. Notwithstanding anything herein to the contrary, if the Company
fails timely or diligently to defend, contest, or otherwise protect against any
Claim, the relevant Indemnified Party shall have the right, but not the
obligation, to defend, contest, compromise, settle, assert crossclaims or
counterclaims, or otherwise protect against the same, and shall be fully
indemnified by the Company therefor, including, but not limited to, for the fees
and expenses of its counsel and all amounts paid as a result of such Claim or
the compromise or settlement thereof. In any Claim in which the Company assumes
the defense, the Indemnified Person shall have the right to participate in such
defense and to retain its own counsel therefor at its own expense.
The Company agrees that if any indemnity sought by an
Indemnified Person hereunder is held by a court to be unavailable for any
reason, then (whether or not the Consultant is the Indemnified Person) the
Company and the Consultant shall contribute to the Claim for which such
indemnity is held unavailable in such proportion as is appropriate to reflect
the relative benefits to the Company, on the one hand, and the Consultant, on
the other, in connection with the Consultant's engagement by the Company under
the Consulting Agreement, subject to the limitation that in no event shall the
amount of the Consultant's contribution to such Claim exceed the amount of fees
actually received by the Consultant from the Company pursuant to the
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<PAGE>
Consultant's engagement under the Consulting Agreement. The Company hereby
agrees that the relative benefits to the Company, on the one hand, and the
Consultant, on the other, with respect to the Consultant's engagement under the
Consulting Agreement shall be deemed to be in the same proportion as (a) the
total value paid or proposed to be paid or received by the Company or the
Company's shareholders as the case may be, pursuant to the transaction (whether
or not consummated) for which the Consultant is engaged to render services bears
to (b) the fee paid or proposed to be paid to the Consultant in connection with
such engagement.
Our indemnity, reimbursement and contribution obligations
under this Agreement shall be in addition to, and shall in no way limit or
otherwise adversely affect any rights that any Indemnified Party may have at law
or at equity.
Should the Consultant, or any of its directors, officers,
partners, shareholders, agents or employees, be required or be requested by us
to provide documentary evidence or testimony in connection with any proceeding
arising from or relating to the Consultant's engagement under the Consulting
Agreement, the Company agrees to pay all reasonable expenses (including, but not
limited to, fees and expenses of counsel) in complying therewith and one
thousand dollars ($1,000) per day for any sworn testimony or preparation
therefor, payable in advance.
The Company hereby consents to personal jurisdiction and
service of process and venue in any court in which any claim for indemnity is
brought by any Indemnified Person.
It is understood that, in connection with the Consultant's
engagement under the Consulting Agreement, the Consultant may be engaged to act
in one or more additional capacities and that the terms of the original
engagement or any such additional engagement may be embodied in one or more
separate written agreements. The provisions of this Agreement shall apply to the
original engagement and any such additional engagement and shall remain in full
force and effect following the completion or termination of the Consultant's
engagement(s).
Very truly yours,
ATLANTIC PHARMACEUTICALS, INC.
By:___________________________________
Name:
Title:
CONFIRMED AND AGREED TO:
JOSEPH STEVENS & COMPANY, INC.
By: ________________________________
Name:
Title:
C-3
Exhibit 10.28
- - --------------------------------------------------------------------------------
WARRANT
To Purchase Common Stock of
ATLANTIC PHARMACEUTICALS, INC.
Warrant No. 1
No. of Shares of Common Stock: 150,000
- - --------------------------------------------------------------------------------
<PAGE>
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN
VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR THE PROVISIONS OF
THIS WARRANT.
No. of Shares of Common Stock: 150,000 Warrant No. 1
WARRANT
To Purchase Common Stock of
ATLANTIC PHARMACEUTICALS, INC.
THIS IS TO CERTIFY THAT Joseph Stevens & Company, Inc., or
registered assigns, is entitled, at any time during the Exercise Period (as
hereinafter defined), to purchase from Atlantic Pharmaceuticals, Inc., a
Delaware corporation ("Company"), 150,000 shares of Common Stock (as hereinafter
defined and subject to adjustment as provided herein), in whole or in part,
including fractional parts, at a purchase price of $2.50 per share (subject to
adjustment as provided herein) all on the terms and conditions and pursuant to
the provisions hereinafter set forth.
1. DEFINITIONS
Capitalized terms used in this Warrant but not defined have
the meaning set forth in the Warrant Agreement (as defined below). The following
terms have the respective meanings set forth below:
"Additional Shares of Common Stock" means all shares of Common
Stock issued by the Company after the Closing Date, other than Warrant Stock.
"Business Day" means any day that is not a Saturday or Sunday
or a day on which banks are required or permitted to be closed in the State of
New York.
"Commission" means the Securities and Exchange Commission or
any other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" means (except where the context otherwise
indicates) the Common Stock, par value $.001 per share, of Company as
constituted on the Closing Date, and any capital stock into which such Common
Stock may thereafter be changed, and shall also include (i) capital stock of
Company of any other class (regardless of how denominated) issued to the holders
of shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of Company and
which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation (as defined in Section 4.8) received by or
distributed to the holders of Common Stock of Company in the circumstances
contemplated by Section 4.8.
2
<PAGE>
"Convertible Securities" means evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
Additional Shares of Common Stock, either immediately or upon the occurrence of
a specified date or a specified event.
"Current Market Price" means, in respect of a share of Common
Stock on any date, either (a) if there shall not then be a public market for the
Common Stock, the Fair Market Value per share of Common Stock as at such date or
(b) if there shall then be a public market for the Common Stock, the average of
the daily market prices for 20 consecutive Business Days commencing 30 days
before such date. The daily market price for each such Business Day shall be (i)
the last sale price on such day on the principal stock exchange or NASDAQ Small
Cap Market ("NASDAQ") on which such Common Stock is then listed or admitted to
trading, (ii) if no sale takes place on such day on any such exchange or NASDAQ,
the average of the last reported closing bid and asked prices on such day as
officially quoted on any such exchange or NASDAQ, (iii) if the Common Stock is
not then listed or admitted to trading on any stock exchange or NASDAQ, the
average of the last reported closing bid and asked prices on such day in the
over-the-counter market, as furnished by the National Association of Securities
Dealers Automatic Quotation System or the National Quotation Bureau, Inc., (iv)
if neither such corporation at the time is engaged in the business of reporting
such prices, as furnished by any similar firm then engaged in such business, or
(v) if there is no such firm, as furnished by any member of the NASD selected
mutually by the Majority Holders and Company or, if they cannot agree upon such
selection, as selected by two such members of the NASD, one of which shall be
selected by the Majority Holders and one of which shall be selected by Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" means the period during which this Warrant
is exercisable pursuant to Section 2.1.
"Expiration Date" means January 4, 2005.
"Financial Advisory Agreement" means the Financial Advisory
and Consulting Agreement, dated January 4, 2000, by and between the Company and
the Consultant.
"Fully Diluted Outstanding" means, on any date, all shares of
Common Stock Outstanding on such date and all shares of Common Stock issuable in
respect of this Warrant outstanding on such date, and other options or warrants
to purchase, or securities convertible into or exchangeable for, shares of
Common Stock outstanding on such date, regardless of whether such options,
warrants or other securities are then exercisable or convertible.
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"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time.
"Holder" means the Person in whose name the Warrant set forth
herein is registered on the books of Company maintained for such purpose.
"Majority Holders" means the holders of Warrants exercisable
for in excess of 50% of the aggregate number of shares of Warrant Stock then
purchasable upon exercise of all Warrants.
"NASD" means the National Association of Securities Dealers,
Inc., or any successor corporation thereto.
"Other Property" has the meaning set forth in Section 4.8.
"Outstanding" means, when used with reference to Common Stock,
on any date, all issued shares of Common Stock on such date, except shares then
owned or held by or for the account of Company or any subsidiary thereof, and
shall include all shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in shares of Common Stock.
"Permitted Issuances" means the issuance of shares of Common
Stock upon the exercise or conversion of Company's presently outstanding
convertible preferred stock, warrants and employee incentive options.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, incorporated
organization, association, corporation, institution, public benefit corporation,
entity or government (whether federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Transfer" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would constitute a
sale thereof within the meaning of the Securities Act.
"Transfer Notice" has the meaning set forth in Section 9.2.
"Warrant" means this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, this Warrant. All
Warrants shall at all times be identical as to terms and conditions and date,
except as to the number of shares of Common Stock for which they may be
exercised.
"Warrant Price" means an amount equal to (i) the number of
shares of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1,
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multiplied by (ii) $2.50, as adjusted from time to time pursuant to Section 4 of
this Warrant.
"Warrant Stock" means the shares of Common Stock issued or
issuable upon the exercise of this Warrant.
2. EXERCISE OF WARRANT
2.1 EXERCISE PERIOD. (a) From and after January 4, 2000 and until 5:00
P.M., New York time, on the Expiration Date (the "Exercise Period"), Holder may
exercise this Warrant, on any Business Day on which the condition set forth in
Section 2.1(b) hereof is met, for all or any part of the Warrant Stock.
(b) The Warrant may be exercised on any Business Day, except
that it may only be exercised if the last sale price of a share of Common Stock
on NASDAQ (or the principal stock exchange on which the Common Stock is then
listed or admitted to trading) on the immediately preceding Business Day was
equal to or greater than $1.00 plus the Exercise Price then in effect.
2.2 EXERCISE NOTICE; DELIVERY OF CERTIFICATES. In order to exercise this
Warrant, Holder shall deliver to Company at its principal office at 150
Broadway, Suite 1100, New York, New York 10038, or at the office or agency
designated by Company pursuant to Section 13.2, (i) a written notice of Holder's
election to exercise this Warrant, specifying the number of shares of Common
Stock to be purchased, (ii) payment of the Warrant Price and (iii) this Warrant.
Such notice shall be substantially in the form of the subscription form
appearing at the end of this Warrant as Exhibit A, duly executed by Holder or
its agent or attorney. Upon receipt thereof, Company shall, as promptly as
practicable, and in any event within five (5) Business Days thereafter, deliver
to Holder a duly executed certificate or certificates representing the aggregate
number of full shares of Common Stock issuable upon such exercise, together with
cash in lieu of any fraction of a share, as hereinafter provided. Such stock
certificate or certificates shall be in such denominations and registered in the
name designated in the subscription form, subject to Section 9. Holder or any
other Person so designated to be named therein shall be deemed to have become a
holder of record of such shares of Warrant Stock for all purposes, as of the
date on which all items in clauses (i)-(iii) above have been received by Company
and all taxes required to be paid by Holder, if any, pursuant to Section 2.4
have been paid. If this Warrant shall have been exercised in part, Company shall
deliver to Holder a new Warrant evidencing the rights of Holder to purchase the
remaining shares of Common Stock issuable upon exercise of this Warrant, which
new Warrant shall in all other respects be identical with this Warrant, or
appropriate notation may be made on this Warrant and the same returned to
Holder.
2.3 PAYMENT OF WARRANT PRICE. Payment of the Warrant Price shall be made
at the option of the Holder by:
(i) certified or official bank check;
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(ii) The surrender to Company of that number of shares of
Warrant Stock (or the right to receive such number of shares) or shares of
Common Stock having an aggregate Current Market Price equal to or greater than
the Current Warrant Price for all shares then being purchased (including those
being surrendered); or
(iii) any combination thereof, duly endorsed by or accompanied
by appropriate duly executed instruments of transfer.
2.4 PAYMENT OF TAXES. All shares of Warrant Stock shall be validly
issued, fully paid and nonassessable and without any preemptive rights. Company
shall pay all expenses, taxes and other governmental charges with respect to the
issue or delivery thereof, unless such tax or charge is imposed by law upon
Holder. Company shall not be required, however, to pay any transfer tax or other
similar charge imposed in connection with any transfer involved in the issue of
any certificate for shares of Common Stock issuable upon exercise of this
Warrant in any name other than that of Holder, and in such case Company shall
not be required to issue or deliver any stock certificate until such tax or
other charge has been paid or it has been established to the satisfaction of
Company that no such tax or other charge is due.
2.5 FRACTIONAL SHARES. Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which the Holder of one or more Warrants would otherwise be
entitled to purchase upon such exercise, except as otherwise provided in Section
2.1, Company shall pay a cash adjustment in respect of such final fraction in an
amount equal to the same fraction of the Current Market Price per share of
Common Stock on the date of exercise.
3. TRANSFER, DIVISION AND COMBINATION
3.1 TRANSFER. Subject to compliance with Section 9 hereof, transfer of
this Warrant and all rights hereunder, in whole or in part, shall be registered
on the books of Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of Company referred to in Section 2.1 or
the office or agency designated by Company pursuant to Section 13.2, together
with a duly executed written assignment of this Warrant substantially in the
form of Exhibit B hereto and funds sufficient to pay any transfer taxes payable
upon the making of such transfer. Upon such surrender and, if required, such
payment, Company shall, subject to Section 9, execute and deliver a new Warrant
or Warrants in the name of the assignee or assignees and in the denomination
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled. A Warrant, if properly assigned in
compliance with Section 9, may be exercised by a new Holder for the purchase of
shares of Common Stock without having a new Warrant issued.
3.2 DIVISION AND COMBINATION. Subject to Section 9, this Warrant may be
divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of Company, together with a duly executed written
notice specifying the names and denominations in which new Warrants are to be
issued. Subject to compliance with
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Section 3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3 EXPENSES. Company shall prepare, issue and deliver at its own expense
(other than transfer taxes) the new Warrant or Warrants under this Section 3.
3.4 MAINTENANCE OF BOOKS. Company agrees to maintain, at its aforesaid
office or agency, books for the registration and the registration of transfer of
the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. Company shall give each Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
4.1 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time
Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Common Stock,
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Warrant Price shall be
adjusted to equal (A) the Warrant Price multiplied by the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to the
adjustment divided by (B) the number of shares for which this Warrant is
exercisable immediately after such adjustment.
4.2 CERTAIN OTHER DISTRIBUTIONS AND ADJUSTMENTS.
(a) If at any time Company shall take a record of the holders
of its Common Stock for the purpose of entitling them to receive any dividend or
other distribution of:
(i) cash in excess of earned surplus,
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(ii) any evidences of its indebtedness, any shares of its
stock or any other securities or property of any nature whatsoever (other than
cash, Convertible Securities or Additional Shares of Common Stock), or
(iii) any warrants or other rights to subscribe for or
purchase any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash, Convertible
Securities or Additional Shares of Common Stock),
then the Exercise Price shall be reduced, without any further action by the
parties hereto, by the Per Share Value (as hereinafter defined) of the dividend.
For purposes of this Section 4.2 the "Per Share Value" of cash dividend or other
distribution shall be the dollar amount of the distribution on each share of
Common Stock and the "Per Share Value" of any dividend or distribution other
than cash shall be equal to the fair market value of such non-cash distribution
on each share of Common Stock, as determined in good faith by the Board of
Directors of the Company.
(b) A reclassification of the Common Stock (other than a
change in par value) into shares of Common Stock and shares of any other class
of stock shall be deemed a distribution by Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of
paragraph (a) above, and if the outstanding shares of Common Stock shall be
changed into a larger or smaller number of shares of Common Stock as a part of
such reclassification, such change shall be deemed a subdivision or combination,
as the case may be, of the outstanding shares of Common Stock within the meaning
of Section 4.1.
4.3 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK.
(a) If at any time Company shall (except as hereinafter
provided) issue or sell any Additional Shares of Common Stock, other than
Permitted Issuances, in exchange for consideration in an amount per Additional
Share of Common Stock less than the Current Market Price, then
(i) the Warrant Price as to the number of shares for
which this Warrant is exercisable prior to such adjustment shall be reduced to a
price determined by dividing (A) an amount equal to the sum of (x) the number of
shares of Common Stock Outstanding immediately prior to such issue or sale
multiplied by the Current Market Price plus (y) the consideration, if any,
received by Company upon such issue or sale as determined pursuant to Section
4.7(a), by (B) the total number of shares of Common Stock Outstanding
immediately after such issue or sale; and (ii) the number of shares of Common
Stock for which this Warrant is exercisable shall be adjusted to equal the
product obtained by multiplying the Warrant Price in effect immediately prior to
such issue or sale by the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such issue or sale and dividing the
product thereof by the Warrant Price resulting from the adjustment made pursuant
to clause (i) above.
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(b) The provision of paragraph (a) shall not apply to any
issuance of Additional Shares of Common Stock for which an adjustment is
provided under Section 4.1 or 4.2. No adjustment of the number of shares of
Common Stock for which this Warrant shall be exercisable shall be made under
paragraph (a) upon the issuance of any Additional Shares of Common Stock which
are issued pursuant to the exercise of any warrants or other subscription or
purchase rights or pursuant to the exercise of any conversion or exchange rights
in any Convertible Securities, if any such adjustment shall previously have been
made upon the issuance of such warrants or other rights or upon the issuance of
such Convertible Securities (or upon the issuance of any warrant or other rights
therefor) pursuant to Sections 4.4 or 4.5 hereof.
4.4 ISSUANCE OF WARRANTS OR OTHER RIGHTS. If at any time
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which Company is the surviving
corporation) issue or sell, any warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible Securities,
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such warrants or other rights or upon conversion or exchange of such
Convertible Securities shall be less than the Current Market Price in effect
immediately prior to the time of such issue or sale, then the number of shares
for which this Warrant is exercisable and the Current Warrant Price shall be
adjusted as provided in Section 4.3 on the basis that the maximum number of
Additional Shares of Common Stock issuable pursuant to all such warrants or
other rights or necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued and outstanding and
Company shall be deemed to have received all of the consideration payable
therefor, if any, as of the date of the issuance of such warrants or other
rights.
4.5 ISSUANCE OF CONVERTIBLE SECURITIES. If at any time Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which Company is the surviving
corporation) issue or sell, any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange shall be less than the Current Market Price in effect immediately prior
to the time of such issue or sale, then the number of Shares for which this
Warrant is exercisable and the Warrant Price shall be adjusted as provided in
Section 4.3 on the basis that the maximum number of Additional Shares of Common
Stock necessary to effect the conversion or exchange of all such Convertible
Securities shall be deemed to have been issued and outstanding and Company shall
have received all of the consideration payable therefor, if any, as of the date
of issuance of such Convertible Securities. No adjustment of the number of
Shares for which this Warrant is exercisable and the Warrant Price shall be made
under this Section 4.5 upon the issuance of any Convertible Securities which are
issued pursuant to the exercise of any warrants or other subscription or
purchase rights therefor, if any such adjustment shall previously have been made
upon the issuance of such warrants or other rights pursuant to Section 4.4. If
any issue or sale of Convertible Securities is made upon exercise of any warrant
or other
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right to subscribe for or to purchase any such Convertible Securities for which
adjustments of the number of Shares for which this Warrant is exercisable and
the Warrant Price have been or are to be made pursuant to Section 4.4, no
further adjustments of the number of Shares for which this Warrant is
exercisable and the Warrant Price shall be made by reason of such issue or sale.
4.6 SUPERSEDING ADJUSTMENT. If, at any time after any adjustment of the
number of shares of Common Stock for which this Warrant is exercisable and the
Warrant Price shall have been made pursuant to Section 4.4 or Section 4.5 as the
result of any issuance of warrants, rights or Convertible Securities,
(a) such warrants or rights, or the right of conversion or
exchange in such other Convertible Securities, shall expire, and all or a
portion of such warrants or rights, or the right of conversion or exchange with
respect to all or a portion of such other Convertible Securities, as the case
may be, shall not have been exercised, or
(b) the consideration per share for which shares of Common
Stock are issuable pursuant to such warrants or rights, or the terms of such
other Convertible Securities, shall be increased solely by virtue of provisions
therein contained for an automatic increase in such consideration per share upon
the occurrence of a specified date or event,
then for each outstanding Warrant such previous adjustment shall be rescinded
and annulled and the Additional Shares of Common Stock which were deemed to have
been issued by virtue of the computation made in connection with the adjustment
so rescinded and annulled shall no longer be deemed to have been issued by
virtue of such computation. Thereupon, a recomputation shall be made of the
effect of such rights or options or other Convertible Securities on the basis of
(c) treating the number of Additional Shares of Common Stock
or other property, if any, theretofore actually issued or issuable pursuant to
the previous exercise of any such warrants or rights or any such right of
conversion or exchange, as having been issued on the date or dates of any such
exercise and for the consideration actually received and receivable therefor,
and
(d) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been granted or
issued immediately after the time of such increase of the consideration per
share for which shares of Common Stock or other property are issuable under such
warrants or rights or other Convertible Securities; whereupon a new adjustment
of the number of shares of Common Stock for which this Warrant is exercisable
and the Warrant Price shall be made, which new adjustment shall supersede the
previous adjustment so rescinded and annulled.
4.7 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Warrant Price provided for in this Section 4:
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(a) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any warrants
or other rights to subscribe for or purchase any Additional Shares of Common
Stock or any Convertible Securities shall be issued for cash consideration, the
consideration received by Company therefor shall be the amount of the cash
received by Company therefor, or, if such Additional Shares of Common Stock or
Convertible Securities are offered by Company for subscription, the subscription
price, or, if such Additional Shares of Common Stock or Convertible Securities
are sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price (in any such case subtracting any
amounts paid or receivable for accrued interest or accrued dividends and without
taking into account any compensation, discounts or expenses paid or incurred by
Company for and in the underwriting of, or otherwise in connection with, the
issuance thereof). To the extent that such issuance shall be for a consideration
other than cash, then, except as herein otherwise expressly provided, the amount
of such consideration shall be deemed to be the fair market value of such
consideration at the time of such issuance as determined in good faith by the
Board of Directors of Company. In case any Additional Shares of Common Stock or
any Convertible Securities or any warrants or other rights to subscribe for or
purchase such Additional Shares of Common Stock or Convertible Securities shall
be issued in connection with any merger in which Company issues any securities,
the amount of consideration therefor shall be deemed to be the fair value, as
determined in good faith by the Board of Directors of Company, of such portion
of the assets and business of the nonsurviving corporation as such Board in good
faith shall determine to be attributable to such Additional Shares of Common
Stock, Convertible Securities, warrants or other rights, as the case may be. The
consideration for any Additional Shares of Common Stock issuable pursuant to any
warrants or other rights to subscribe for or purchase the same shall be the
consideration received by Company for issuing such warrants or other rights plus
the additional consideration payable to Company upon exercise of such warrants
or other rights. The consideration for any Additional Shares of Common Stock
issuable pursuant to the terms of any Convertible Securities shall be the
consideration received by Company for issuing warrants or other rights to
subscribe for or purchase such Convertible Securities, plus the consideration
paid or payable to Company in respect of the subscription for or purchase of
such Convertible Securities, plus the additional consideration, if any, payable
to Company upon the exercise of the right of conversion or exchange in such
Convertible Securities. In case of the issuance at any time of any Additional
Shares of Common Stock or Convertible Securities in payment or satisfaction of
any dividends upon any class of stock other than Common Stock, Company shall be
deemed to have received for such Additional Shares of Common Stock or
Convertible Securities a consideration equal to the amount of such dividend so
paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by
this Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that any adjustment of the number of
shares of Common Stock for which this Warrant is exercisable that would
otherwise be required may be postponed (except in the case of a subdivision or
combination of shares of Common Stock, as provided for in Section 4.1) up to,
but not beyond the date of exercise if such adjustment either by itself or with
other adjustments not previously made adds or
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subtracts less than 1% of the shares of Common Stock for which this Warrant is
exercisable immediately prior to the making of such adjustment. Any adjustment
representing a change of less than such minimum amount (except as aforesaid)
which is postponed shall be carried forward and made as soon as such adjustment,
together with other adjustments required by this Section 4 and not previously
made, would result in a minimum adjustment or on the date of exercise. For the
purpose of any adjustment, any specified event shall be deemed to have occurred
at the close of business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into account to
the nearest 1/10th of a share.
(d) When Adjustment Not Required. If Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
(e) Escrow of Warrant Stock. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of any record
of the holders of Common Stock, but prior to the occurrence of the event for
which such record is taken, and Holder exercises this Warrant, any Additional
Shares of Common Stock issuable upon exercise by reason of such adjustment shall
be deemed the last shares of Common Stock for which this Warrant is exercised
(notwithstanding any other provision to the contrary herein) and such shares or
other property shall be held in escrow for Holder by Company to be issued to
Holder upon and to the extent that the event actually takes place, upon payment
of the Warrant Price. Notwithstanding any other provision to the contrary
herein, if the event for which such record was taken fails to occur or is
rescinded, then such escrowed shares shall be cancelled by Company and escrowed
property returned to Company.
(f) Challenge to Good Faith Determination. Whenever the Board
of Directors of Company shall be required to make a determination in good faith
of the fair market value of any item under this Section 4, such determination
may be challenged in good faith by the Majority Holders, and any dispute shall
be resolved by an investment banking or valuation firm of recognized national
standing selected by Company and acceptable to the Majority Holders.
4.8 REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. In case Company shall reorganize its capital, reclassify
its capital stock, consolidate or merge with or into another corporation (where
Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of Company), or sell, transfer or
otherwise dispose of all or substantially all its property, assets or business
to another corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets,
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shares of common stock of the successor or acquiring corporation, or any cash,
shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of Company, then each Holder shall have the right thereafter to receive, upon
exercise of such Warrant, the number of shares of common stock of the successor
or acquiring corporation or of Company, if it is the surviving corporation, and
Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than Company) shall expressly assume the due
and punctual observance and performance of each and every covenant and condition
of this Warrant to be performed and observed by Company and all the obligations
and liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined by resolution of the Board of Directors of Company)
in order to provide for adjustments of shares of Common Stock for which this
Warrant is exercisable which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 4. For purposes of this Section 4.8,
"common stock of the successor or acquiring corporation" shall include stock of
such corporation of any class which is not preferred as to dividends or assets
over any other class of stock of such corporation and which is not subject to
redemption and shall also include any evidences of indebtedness, shares of stock
or other securities which are convertible into or exchangeable for any such
stock, either immediately or upon the arrival of a specified date or the
happening of a specified event and any warrants or other rights to subscribe for
or purchase any such stock. The foregoing provisions of this Section 4.8 shall
similarly apply to successive reorganizations, reclassifications, mergers,
consolidations or disposition of assets.
4.9 OTHER ACTION AFFECTING COMMON STOCK. In case at any time or from time
to time Company shall take any action in respect of its Common Stock, other than
any action described in this Section 4, then, unless such action will not have a
materially adverse effect upon the rights of the Holders, the number of shares
of Common Stock or other stock for which this Warrant is exercisable and/or the
purchase price thereof shall be adjusted in such manner as may be equitable in
the circumstances.
5. NOTICES TO WARRANT HOLDERS
5.1 NOTICE OF ADJUSTMENTS. Whenever an adjustment to this Warrant is made
pursuant to Section 4, Company shall prepare a certificate to be executed by the
chief financial officer of Company setting forth, in reasonable detail, the
event requiring the adjustment and the method by which such adjustment was
calculated, specifying the number of shares of Common Stock for which this
Warrant is exercisable and (if such adjustment was made pursuant to Section 4.8
or 4.9) describing the number and kind of any other shares of stock or Other
Property for which this Warrant is exercisable, and any change in the purchase
price or prices thereof, after giving effect to such adjustment or
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change. Company shall promptly cause a signed copy of such certificate to be
delivered to each Holder. Company shall keep at its office or agency designated
pursuant to Section 15 copies of all such certificates and cause the same to be
available for inspection at said office during normal business hours by any
Holder or any prospective purchaser of a Warrant designated by a Holder thereof.
5.2 NOTICE OF CORPORATE ACTION. If at any time
(a) Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of Company, any
reclassification or recapitalization of the capital stock of Company or any
consolidation or merger of Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of
Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of Company;
then, in any one or more of such cases, Company shall give to Holder (i) at
least 30 days' prior written notice of the date on which a record date shall be
selected in respect of such event and (ii) in the case of any such event, at
least 30 days' prior written notice of the date when the same shall take place.
Such notice in accordance with the foregoing clause also shall specify (i) the
date on which the holders of Common Stock shall be entitled to any such
dividend, distribution or right, and the amount and character thereof and (ii)
the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up is to take place and the time, if any such time is to be fixed, as of which
the holders of Common Stock shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up.
6. NO IMPAIRMENT
Company shall not by any action, including, without
limitation, amending its articles of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, Company will take all such action as may be necessary or appropriate
in order that Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant, including taking such
action as is necessary for the Warrant Price to be not less than the par value
of the shares of Common Stock issuable upon
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exercise of this Warrant. The Company will use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable Company to perform its
obligations under this Warrant.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Closing Date, Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of all outstanding Warrants. All shares of Common
Stock which shall be so issuable, when issued upon exercise of any Warrant and
payment therefor in accordance with the terms of such Warrant, shall be duly and
validly issued and fully paid and nonassessable, and not subject to preemptive
rights.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by Company
to the holders of its Common Stock with respect to which any provision of
Section 4 refers to the taking of a record of such holders, Company will in each
such case take such a record and will take such record as of the close of
business on a Business Day. Company will not at any time, except upon
dissolution, liquidation or winding up of Company, close its stock transfer
books or Warrant transfer books so as to result in preventing or delaying the
exercise or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1 RESTRICTIVE LEGEND. 1. Except as otherwise provided in this Section
9, each certificate for Warrant Stock initially issued upon the exercise of this
Warrant, and each certificate for Warrant Stock issued to any subsequent
transferee of any such certificate, shall be stamped or otherwise imprinted with
a legend in substantially the following form:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as amended,
and may not be transferred in violation of such Act or the
rules and regulations thereunder."
(b) Except as otherwise provided in this Section 9, each
Warrant shall be stamped or otherwise imprinted with a legend in substantially
the following form:
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"This Warrant and the securities represented hereby
have not been registered under the Securities Act of 1933, as
amended, and may not be transferred in violation of such Act,
the rules and regulations thereunder or the provisions of this
Warrant."
9.2 NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION.
Prior to or promptly following any Transfer of any Warrants or any shares of
Restricted Common Stock, the holder of such Warrants or Restricted Common Stock
shall give written notice (a "Transfer Notice") to Company of such Transfer.
Each certificate, if any, evidencing such shares of Restricted Common Stock
issued upon such Transfer shall bear the restrictive legend set forth in Section
9.1(a), and each Warrant issued upon such Transfer shall bear the restrictive
legend set forth in Section 9.1(b), unless in the opinion of counsel to such
holder which is reasonably acceptable to Company such legend is not required in
order to ensure compliance with the Securities Act.
9.3 TERMINATION OF RESTRICTIONS. Notwithstanding the foregoing provisions
of Section 9, the restrictions imposed by this Section upon the transferability
of the Warrants and the Warrant Stock, and the legend requirements of Section
9.1, shall terminate as to any particular Warrant or share of Warrant Stock (i)
when and so long as such security shall have been effectively registered under
the Securities Act and disposed of pursuant thereto or (ii) when Company shall
have received an opinion of counsel reasonably satisfactory to it that such
security may be transferred without registration thereof under the Securities
Act. Whenever the restrictions imposed by Section 9 shall terminate as to this
Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive
from Company, at the expense of Company, a new Warrant without the restrictive
legend set forth in Section 9.1(b). Whenever the restrictions imposed by this
Section shall terminate as to any share of Warrant Stock, as hereinabove
provided, the holder thereof shall be entitled to receive from Company, at
Company's expense, a new certificate representing such Warrant Stock not bearing
the restrictive legend set forth in Section 9.1(a).
10. SUPPLYING INFORMATION
Company shall cooperate with each Holder of a Warrant or
Warrant Stock in supplying such information as may be reasonably necessary for
such holder to complete and file any information reporting forms presently or
hereafter required by the Commission as a condition to the availability of an
exemption from the Securities Act for the sale of any Warrant or Warrant Stock.
11. LOSS OR MUTILATION
Upon receipt by Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of Holder shall be sufficient indemnity),
and in case of mutilation upon
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surrender and cancellation hereof, Company will execute and deliver in lieu
hereof a new Warrant of like tenor to such Holder; provided, in the case of
mutilation, no indemnity shall be required if this Warrant in identifiable form
is surrendered to Company for cancellation.
12. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of Holder hereof, shall give rise to any liability of such
Holder for the purchase price of any Common Stock or as a stockholder of
Company, whether such liability is asserted by Company or by creditors of
Company.
13. MISCELLANEOUS
13.1 NONWAIVER AND EXPENSES. No course of dealing or any delay or failure
to exercise any right hereunder on the part of Holder shall operate as a waiver
of such right or otherwise prejudice Holder's rights, powers or remedies. If
Company fails to make, when due, any payments provided for hereunder, or fails
to comply with any other provision of this Warrant, Company shall pay to Holder
such amounts as shall be sufficient to cover any costs and expenses including,
but not limited to, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto or
in otherwise enforcing any of its rights, powers or remedies hereunder.
13.2 NOTICE GENERALLY. Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made pursuant to
the provisions of this Warrant shall be sufficiently given or made if in writing
and either delivered in person with receipt acknowledged or sent by registered
or certified mail, return receipt requested, postage prepaid, or by telecopy and
confirmed by telecopy answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last
known address appearing on the books of Company maintained for such purpose.
(b) If to Company at:
Atlantic Pharmaceuticals, Inc.
150 Broadway
Suite 1100
New York, NY 10038
Attn: A. Joseph Rudick
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or
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served on the date on which personally delivered, with receipt acknowledged,
telecopied and confirmed by telecopy answerback, or three (3) Business Days
after the same shall have been deposited in the United States mail. Failure or
delay in delivering copies of any notice, demand, request, approval,
declaration, delivery or other communication to the person designated above to
receive a copy shall in no way adversely affect the effectiveness of such
notice, demand, request, approval, declaration, delivery or other communication.
13.3 SUCCESSORS AND ASSIGNS. Subject to the provisions of Sections 3.1
and 9, this Warrant and the rights evidenced hereby shall inure to the benefit
of and be binding upon the successors of Company and the successors and assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of
all Holders from time to time of this Warrant and shall be enforceable by any
such Holder.
13.4 AMENDMENT. This Warrant and all other Warrants may be modified or
amended or the provisions hereof waived with the written consent of Company and
the Majority Holders, provided that no such Warrant may be modified or amended
to reduce the number of shares of Common Stock for which such Warrant is
exercisable or to increase the price at which such shares may be purchased upon
exercise of such Warrant (before giving effect to any adjustment as provided
therein) without the prior written consent of the Holder thereof.
13.5 SEVERABILITY. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
13.6 HEADINGS. The headings used in this Warrant are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
13.7 GOVERNING LAW. This Warrant shall be governed by the laws of the
State of Delaware, without regard to the provisions thereof relating to conflict
of laws.
[SIGNATURES BEGIN ON NEXT PAGE]
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IN WITNESS WHEREOF, Company has caused this Warrant to be duly
executed and attested by its Secretary or an Assistant Secretary.
Dated: January 4, 2000
ATLANTIC PHARMACEUTICALS, INC.
By: /s/ A. Joseph Rudick
----------------------------
Name: A. Joseph Rudick
Title: President
Attest:
By: /s/ John Brancaccio
------------------------
Name: John Brancaccio
Title: CFO
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<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of ______ Shares of Common Stock of
Atlantic Pharmaceuticals, Inc. and herewith makes payment therefor, all at the
price and on the terms and conditions specified in this Warrant and requests
that certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the name
of and delivered to _____________ whose address is _________________ and, if
such shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, that a new Warrant of like tenor and date
for the balance of the shares of Common Stock issuable hereunder be delivered to
the undersigned.
-------------------------------
(Name of Registered Owner)
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
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EXHIBIT B TO WARRANT
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
- - ---------------------------- -----------------------------
and does hereby irrevocably constitute and appoint ___________________________
attorney-in-fact to register such transfer on the books of Atlantic
Pharmaceuticals, Inc. maintained for the purpose, with full power of
substitution in the premises.
Dated:__________________ Print Name:___________________
Signature:____________________
Witness:______________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
21
Exhibit 10.29
- - --------------------------------------------------------------------------------
WARRANT
To Purchase Common Stock of
ATLANTIC PHARMACEUTICALS, INC.
Warrant No. 2
No. of Shares of Common Stock: 150,000
- - --------------------------------------------------------------------------------
<PAGE>
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED IN
VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR THE PROVISIONS OF
THIS WARRANT.
No. of Shares of Common Stock: 150,000 Warrant No. 2
WARRANT
To Purchase Common Stock of
ATLANTIC PHARMACEUTICALS, INC.
THIS IS TO CERTIFY THAT Joseph Stevens & Company, Inc., or
registered assigns, is entitled, at any time during the Exercise Period (as
hereinafter defined), to purchase from Atlantic Pharmaceuticals, Inc., a
Delaware corporation ("Company"), 150,000 shares of Common Stock (as hereinafter
defined and subject to adjustment as provided herein), in whole or in part,
including fractional parts, at a purchase price of $3.50 per share (subject to
adjustment as provided herein) all on the terms and conditions and pursuant to
the provisions hereinafter set forth.
1. DEFINITIONS
Capitalized terms used in this Warrant but not defined have
the meaning set forth in the Warrant Agreement (as defined below). The following
terms have the respective meanings set forth below:
"Additional Shares of Common Stock" means all shares of Common
Stock issued by the Company after the Closing Date, other than Warrant Stock.
"Business Day" means any day that is not a Saturday or Sunday
or a day on which banks are required or permitted to be closed in the State of
New York.
"Commission" means the Securities and Exchange Commission or
any other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" means (except where the context otherwise
indicates) the Common Stock, par value $.001 per share, of Company as
constituted on the Closing Date, and any capital stock into which such Common
Stock may thereafter be changed, and shall also include (i) capital stock of
Company of any other class (regardless of how denominated) issued to the holders
of shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of Company and
which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation (as defined in Section 4.8) received by or
distributed to the holders of Common Stock of Company in the circumstances
contemplated by Section 4.8.
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"Convertible Securities" means evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
Additional Shares of Common Stock, either immediately or upon the occurrence of
a specified date or a specified event.
"Current Market Price" means, in respect of a share of Common
Stock on any date, either (a) if there shall not then be a public market for the
Common Stock, the Fair Market Value per share of Common Stock as at such date or
(b) if there shall then be a public market for the Common Stock, the average of
the daily market prices for 20 consecutive Business Days commencing 30 days
before such date. The daily market price for each such Business Day shall be (i)
the last sale price on such day on the principal stock exchange or NASDAQ Small
Cap Market ("NASDAQ") on which such Common Stock is then listed or admitted to
trading, (ii) if no sale takes place on such day on any such exchange or NASDAQ,
the average of the last reported closing bid and asked prices on such day as
officially quoted on any such exchange or NASDAQ, (iii) if the Common Stock is
not then listed or admitted to trading on any stock exchange or NASDAQ, the
average of the last reported closing bid and asked prices on such day in the
over-the-counter market, as furnished by the National Association of Securities
Dealers Automatic Quotation System or the National Quotation Bureau, Inc., (iv)
if neither such corporation at the time is engaged in the business of reporting
such prices, as furnished by any similar firm then engaged in such business, or
(v) if there is no such firm, as furnished by any member of the NASD selected
mutually by the Majority Holders and Company or, if they cannot agree upon such
selection, as selected by two such members of the NASD, one of which shall be
selected by the Majority Holders and one of which shall be selected by Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" means the period during which this Warrant
is exercisable pursuant to Section 2.1.
"Expiration Date" means January 4, 2006.
"Financial Advisory Agreement" means the Financial Advisory
and Consulting Agreement, dated January 4, 2000, by and between the Company and
the Consultant.
"Fully Diluted Outstanding" means, on any date, all shares of
Common Stock Outstanding on such date and all shares of Common Stock issuable in
respect of this Warrant outstanding on such date, and other options or warrants
to purchase, or securities convertible into or exchangeable for, shares of
Common Stock outstanding on such date, regardless of whether such options,
warrants or other securities are then exercisable or convertible.
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<PAGE>
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time.
"Holder" means the Person in whose name the Warrant set forth
herein is registered on the books of Company maintained for such purpose.
"Majority Holders" means the holders of Warrants exercisable
for in excess of 50% of the aggregate number of shares of Warrant Stock then
purchasable upon exercise of all Warrants.
"NASD" means the National Association of Securities Dealers,
Inc., or any successor corporation thereto.
"Other Property" has the meaning set forth in Section 4.8.
"Outstanding" means, when used with reference to Common Stock,
on any date, all issued shares of Common Stock on such date, except shares then
owned or held by or for the account of Company or any subsidiary thereof, and
shall include all shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in shares of Common Stock.
"Permitted Issuances" means the issuance of shares of Common
Stock upon the exercise or conversion of Company's presently outstanding
convertible preferred stock, warrants and employee incentive options.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, incorporated
organization, association, corporation, institution, public benefit corporation,
entity or government (whether federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Transfer" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would constitute a
sale thereof within the meaning of the Securities Act.
"Transfer Notice" has the meaning set forth in Section 9.2.
"Warrant" means this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, this Warrant. All
Warrants shall at all times be identical as to terms and conditions and date,
except as to the number of shares of Common Stock for which they may be
exercised.
"Warrant Price" means an amount equal to (i) the number of
shares of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1,
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<PAGE>
multiplied by (ii) $3.50, as adjusted from time to time pursuant to Section 4 of
this Warrant.
"Warrant Stock" means the shares of Common Stock issued or
issuable upon the exercise of this Warrant.
2. EXERCISE OF WARRANT
2.1 EXERCISE PERIOD. (a) From and after January 4, 2001 and until 5:00
P.M., New York time, on the Expiration Date (the "Exercise Period"), Holder may
exercise this Warrant, on any Business Day on which the condition set forth in
Section 2.1(b) hereof is met, for all or any part of the Warrant Stock which is
then purchasable in accordance with the vesting schedule set forth below:
Shares purchasable
Date upon exercise
---- -----------------
January 4, 2000 12,500
February 4, 2000 25,000
March 4, 2000 37,500
April 4, 2000 50,000
May 4, 2000 62,500
June 4, 2000 75,000
July 4, 2000 87,500
August 4, 2000 100,000
September 4, 2000 112,500
October 4, 2000 125,000
November 4, 2000 137,500
December 4, 2000 150,000
Upon any termination of the Financial Advisory Agreement
pursuant to Section 14 thereof, the Warrant shall cease to vest and shall
continue to be exercisable, in accordance with the terms set forth herein, for
the number of shares of Warrant Stock which were purchasable on such date of
termination.
(b) The Warrant may be exercised on any Business Day, except
that it may only be exercised if the last sale price of a share of Common Stock
on NASDAQ (or the principal stock exchange on which the Common Stock is then
listed or admitted to trading) on the immediately preceding Business Day was
equal to or greater than $1.00 plus the Exercise Price then in effect.
2.2 EXERCISE NOTICE; DELIVERY OF CERTIFICATES. In order to exercise this
Warrant, Holder shall deliver to Company at its principal office at 150
Broadway, Suite 1100, New York, New York 10038, or at the office or agency
designated by Company pursuant to Section 13.2, (i) a written notice of Holder's
election to exercise this Warrant, specifying the number of shares of Common
Stock to be purchased, (ii) payment of the Warrant Price and (iii) this Warrant.
Such notice shall be substantially in the form of the
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<PAGE>
subscription form appearing at the end of this Warrant as Exhibit A, duly
executed by Holder or its agent or attorney. Upon receipt thereof, Company
shall, as promptly as practicable, and in any event within five (5) Business
Days thereafter, deliver to Holder a duly executed certificate or certificates
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. Such stock certificate or certificates shall be in such
denominations and registered in the name designated in the subscription form,
subject to Section 9. Holder or any other Person so designated to be named
therein shall be deemed to have become a holder of record of such shares of
Warrant Stock for all purposes, as of the date on which all items in clauses
(i)-(iii) above have been received by Company and all taxes required to be paid
by Holder, if any, pursuant to Section 2.4 have been paid. If this Warrant shall
have been exercised in part, Company shall deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the remaining shares of Common Stock
issuable upon exercise of this Warrant, which new Warrant shall in all other
respects be identical with this Warrant, or appropriate notation may be made on
this Warrant and the same returned to Holder.
2.3 PAYMENT OF WARRANT PRICE. Payment of the Warrant Price shall be made
at the option of the Holder by:
(i) certified or official bank check;
(ii) The surrender to Company of that number of shares of
Warrant Stock (or the right to receive such number of shares) or shares of
Common Stock having an aggregate Current Market Price equal to or greater than
the Current Warrant Price for all shares then being purchased (including those
being surrendered); or
(iii) any combination thereof, duly endorsed by or
accompanied by appropriate duly executed instruments of transfer.
2.4 PAYMENT OF TAXES. All shares of Warrant Stock shall be validly
issued, fully paid and nonassessable and without any preemptive rights. Company
shall pay all expenses, taxes and other governmental charges with respect to the
issue or delivery thereof, unless such tax or charge is imposed by law upon
Holder. Company shall not be required, however, to pay any transfer tax or other
similar charge imposed in connection with any transfer involved in the issue of
any certificate for shares of Common Stock issuable upon exercise of this
Warrant in any name other than that of Holder, and in such case Company shall
not be required to issue or deliver any stock certificate until such tax or
other charge has been paid or it has been established to the satisfaction of
Company that no such tax or other charge is due.
2.5 FRACTIONAL SHARES. Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which the Holder of one or more Warrants would otherwise be
entitled to purchase upon such exercise, except as otherwise provided in Section
2.1, Company shall pay a cash adjustment in respect of such final fraction in an
amount equal to the same fraction of the Current Market Price per share of
Common Stock on the date of exercise.
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3. TRANSFER, DIVISION AND COMBINATION
3.1 TRANSFER. Subject to compliance with Section 9 hereof, transfer of
this Warrant and all rights hereunder, in whole or in part, shall be registered
on the books of Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of Company referred to in Section 2.1 or
the office or agency designated by Company pursuant to Section 13.2, together
with a duly executed written assignment of this Warrant substantially in the
form of Exhibit B hereto and funds sufficient to pay any transfer taxes payable
upon the making of such transfer. Upon such surrender and, if required, such
payment, Company shall, subject to Section 9, execute and deliver a new Warrant
or Warrants in the name of the assignee or assignees and in the denomination
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled. A Warrant, if properly assigned in
compliance with Section 9, may be exercised by a new Holder for the purchase of
shares of Common Stock without having a new Warrant issued.
3.2 DIVISION AND COMBINATION. Subject to Section 9, this Warrant may be
divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of Company, together with a duly executed written
notice specifying the names and denominations in which new Warrants are to be
issued. Subject to compliance with Section 3.1 and with Section 9, as to any
transfer which may be involved in such division or combination, Company shall
execute and deliver a new Warrant or Warrants in exchange for the Warrant or
Warrants to be divided or combined in accordance with such notice.
3.3 EXPENSES. Company shall prepare, issue and deliver at its own expense
(other than transfer taxes) the new Warrant or Warrants under this Section 3.
3.4 MAINTENANCE OF BOOKS. Company agrees to maintain, at its aforesaid
office or agency, books for the registration and the registration of transfer of
the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. Company shall give each Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
4.1 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time
Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Common Stock,
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<PAGE>
(b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Warrant Price shall be
adjusted to equal (A) the Warrant Price multiplied by the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to the
adjustment divided by (B) the number of shares for which this Warrant is
exercisable immediately after such adjustment.
4.2 CERTAIN OTHER DISTRIBUTIONS AND ADJUSTMENTS.
(a) If at any time Company shall take a record of the holders
of its Common Stock for the purpose of entitling them to receive any dividend or
other distribution of:
(i) cash in excess of earned surplus,
(ii) any evidences of its indebtedness, any shares of its
stock or any other securities or property of any nature whatsoever (other than
cash, Convertible Securities or Additional Shares of Common Stock), or
(iii) any warrants or other rights to subscribe for or
purchase any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash, Convertible
Securities or Additional Shares of Common Stock),
then the Exercise Price shall be reduced, without any further action by the
parties hereto, by the Per Share Value (as hereinafter defined) of the dividend.
For purposes of this Section 4.2 the "Per Share Value" of cash dividend or other
distribution shall be the dollar amount of the distribution on each share of
Common Stock and the "Per Share Value" of any dividend or distribution other
than cash shall be equal to the fair market value of such non-cash distribution
on each share of Common Stock, as determined in good faith by the Board of
Directors of the Company.
(b) A reclassification of the Common Stock (other than a
change in par value) into shares of Common Stock and shares of any other class
of stock shall be deemed a distribution by Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of
paragraph (a) above, and if the outstanding shares of Common Stock shall be
changed into a larger or smaller number of shares of Common Stock as a part of
such reclassification, such change shall be deemed a
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subdivision or combination, as the case may be, of the outstanding shares of
Common Stock within the meaning of Section 4.1.
4.3 ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK.
(a) If at any time Company shall (except as hereinafter
provided) issue or sell any Additional Shares of Common Stock, other than
Permitted Issuances, in exchange for consideration in an amount per Additional
Share of Common Stock less than the Current Market Price, then
(i) the Warrant Price as to the number of shares for
which this Warrant is exercisable prior to such adjustment shall be reduced to a
price determined by dividing (A) an amount equal to the sum of (x) the number of
shares of Common Stock Outstanding immediately prior to such issue or sale
multiplied by the Current Market Price plus (y) the consideration, if any,
received by Company upon such issue or sale as determined pursuant to Section
4.7(a), by (B) the total number of shares of Common Stock Outstanding
immediately after such issue or sale; and (ii) the number of shares of Common
Stock for which this Warrant is exercisable shall be adjusted to equal the
product obtained by multiplying the Warrant Price in effect immediately prior to
such issue or sale by the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such issue or sale and dividing the
product thereof by the Warrant Price resulting from the adjustment made pursuant
to clause (i) above.
(b) The provision of paragraph (a) shall not apply to any
issuance of Additional Shares of Common Stock for which an adjustment is
provided under Section 4.1 or 4.2. No adjustment of the number of shares of
Common Stock for which this Warrant shall be exercisable shall be made under
paragraph (a) upon the issuance of any Additional Shares of Common Stock which
are issued pursuant to the exercise of any warrants or other subscription or
purchase rights or pursuant to the exercise of any conversion or exchange rights
in any Convertible Securities, if any such adjustment shall previously have been
made upon the issuance of such warrants or other rights or upon the issuance of
such Convertible Securities (or upon the issuance of any warrant or other rights
therefor) pursuant to Sections 4.4 or 4.5 hereof.
4.4 ISSUANCE OF WARRANTS OR OTHER RIGHTS. If at any time Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a distribution of, or shall in any manner (whether directly or
by assumption in a merger in which Company is the surviving corporation) issue
or sell, any warrants or other rights to subscribe for or purchase any
Additional Shares of Common Stock or any Convertible Securities, whether or not
the rights to exchange or convert thereunder are immediately exercisable, and
the price per share for which Common Stock is issuable upon the exercise of such
warrants or other rights or upon conversion or exchange of such Convertible
Securities shall be less than the Current Market Price in effect immediately
prior to the time of such issue or sale, then the number of shares for which
this Warrant is exercisable and the Current Warrant Price shall be adjusted as
provided in Section 4.3 on the basis that the maximum number of Additional
Shares of Common Stock issuable pursuant to all such warrants or other rights or
necessary to effect the conversion or
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exchange of all such Convertible Securities shall be deemed to have been issued
and outstanding and Company shall be deemed to have received all of the
consideration payable therefor, if any, as of the date of the issuance of such
warrants or other rights.
4.5 ISSUANCE OF CONVERTIBLE SECURITIES. If at any time Company shall take
a record of the holders of its Common Stock for the purpose of entitling them to
receive a distribution of, or shall in any manner (whether directly or by
assumption in a merger in which Company is the surviving corporation) issue or
sell, any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange shall be less
than the Current Market Price in effect immediately prior to the time of such
issue or sale, then the number of Shares for which this Warrant is exercisable
and the Warrant Price shall be adjusted as provided in Section 4.3 on the basis
that the maximum number of Additional Shares of Common Stock necessary to effect
the conversion or exchange of all such Convertible Securities shall be deemed to
have been issued and outstanding and Company shall have received all of the
consideration payable therefor, if any, as of the date of issuance of such
Convertible Securities. No adjustment of the number of Shares for which this
Warrant is exercisable and the Warrant Price shall be made under this Section
4.5 upon the issuance of any Convertible Securities which are issued pursuant to
the exercise of any warrants or other subscription or purchase rights therefor,
if any such adjustment shall previously have been made upon the issuance of such
warrants or other rights pursuant to Section 4.4. If any issue or sale of
Convertible Securities is made upon exercise of any warrant or other right to
subscribe for or to purchase any such Convertible Securities for which
adjustments of the number of Shares for which this Warrant is exercisable and
the Warrant Price have been or are to be made pursuant to Section 4.4, no
further adjustments of the number of Shares for which this Warrant is
exercisable and the Warrant Price shall be made by reason of such issue or sale.
4.6 SUPERSEDING ADJUSTMENT. If, at any time after any adjustment of the
number of shares of Common Stock for which this Warrant is exercisable and the
Warrant Price shall have been made pursuant to Section 4.4 or Section 4.5 as the
result of any issuance of warrants, rights or Convertible Securities,
(a) such warrants or rights, or the right of conversion or
exchange in such other Convertible Securities, shall expire, and all or a
portion of such warrants or rights, or the right of conversion or exchange with
respect to all or a portion of such other Convertible Securities, as the case
may be, shall not have been exercised, or
(b) the consideration per share for which shares of Common
Stock are issuable pursuant to such warrants or rights, or the terms of such
other Convertible Securities, shall be increased solely by virtue of provisions
therein contained for an automatic increase in such consideration per share upon
the occurrence of a specified date or event,
then for each outstanding Warrant such previous adjustment shall be rescinded
and annulled and the Additional Shares of Common Stock which were deemed to have
been
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issued by virtue of the computation made in connection with the adjustment so
rescinded and annulled shall no longer be deemed to have been issued by virtue
of such computation. Thereupon, a recomputation shall be made of the effect of
such rights or options or other Convertible Securities on the basis of
(c) treating the number of Additional Shares of Common Stock
or other property, if any, theretofore actually issued or issuable pursuant to
the previous exercise of any such warrants or rights or any such right of
conversion or exchange, as having been issued on the date or dates of any such
exercise and for the consideration actually received and receivable therefor,
and
(d) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been granted or
issued immediately after the time of such increase of the consideration per
share for which shares of Common Stock or other property are issuable under such
warrants or rights or other Convertible Securities; whereupon a new adjustment
of the number of shares of Common Stock for which this Warrant is exercisable
and the Warrant Price shall be made, which new adjustment shall supersede the
previous adjustment so rescinded and annulled.
4.7 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Warrant Price provided for in this Section 4:
(a) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any warrants
or other rights to subscribe for or purchase any Additional Shares of Common
Stock or any Convertible Securities shall be issued for cash consideration, the
consideration received by Company therefor shall be the amount of the cash
received by Company therefor, or, if such Additional Shares of Common Stock or
Convertible Securities are offered by Company for subscription, the subscription
price, or, if such Additional Shares of Common Stock or Convertible Securities
are sold to underwriters or dealers for public offering without a subscription
offering, the initial public offering price (in any such case subtracting any
amounts paid or receivable for accrued interest or accrued dividends and without
taking into account any compensation, discounts or expenses paid or incurred by
Company for and in the underwriting of, or otherwise in connection with, the
issuance thereof). To the extent that such issuance shall be for a consideration
other than cash, then, except as herein otherwise expressly provided, the amount
of such consideration shall be deemed to be the fair market value of such
consideration at the time of such issuance as determined in good faith by the
Board of Directors of Company. In case any Additional Shares of Common Stock or
any Convertible Securities or any warrants or other rights to subscribe for or
purchase such Additional Shares of Common Stock or Convertible Securities shall
be issued in connection with any merger in which Company issues any securities,
the amount of consideration therefor shall be deemed to be the fair value, as
determined in good faith by the Board of Directors of Company, of such portion
of the assets and business of the nonsurviving corporation as such Board in good
faith shall determine to be attributable to such Additional Shares of Common
Stock, Convertible Securities,
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warrants or other rights, as the case may be. The consideration for any
Additional Shares of Common Stock issuable pursuant to any warrants or other
rights to subscribe for or purchase the same shall be the consideration received
by Company for issuing such warrants or other rights plus the additional
consideration payable to Company upon exercise of such warrants or other rights.
The consideration for any Additional Shares of Common Stock issuable pursuant to
the terms of any Convertible Securities shall be the consideration received by
Company for issuing warrants or other rights to subscribe for or purchase such
Convertible Securities, plus the consideration paid or payable to Company in
respect of the subscription for or purchase of such Convertible Securities, plus
the additional consideration, if any, payable to Company upon the exercise of
the right of conversion or exchange in such Convertible Securities. In case of
the issuance at any time of any Additional Shares of Common Stock or Convertible
Securities in payment or satisfaction of any dividends upon any class of stock
other than Common Stock, Company shall be deemed to have received for such
Additional Shares of Common Stock or Convertible Securities a consideration
equal to the amount of such dividend so paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by
this Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that any adjustment of the number of
shares of Common Stock for which this Warrant is exercisable that would
otherwise be required may be postponed (except in the case of a subdivision or
combination of shares of Common Stock, as provided for in Section 4.1) up to,
but not beyond the date of exercise if such adjustment either by itself or with
other adjustments not previously made adds or subtracts less than 1% of the
shares of Common Stock for which this Warrant is exercisable immediately prior
to the making of such adjustment. Any adjustment representing a change of less
than such minimum amount (except as aforesaid) which is postponed shall be
carried forward and made as soon as such adjustment, together with other
adjustments required by this Section 4 and not previously made, would result in
a minimum adjustment or on the date of exercise. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the close of
business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into account to
the nearest 1/10th of a share.
(d) When Adjustment Not Required. If Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
(e) Escrow of Warrant Stock. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of any record
of the holders of Common
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Stock, but prior to the occurrence of the event for which such record is taken,
and Holder exercises this Warrant, any Additional Shares of Common Stock
issuable upon exercise by reason of such adjustment shall be deemed the last
shares of Common Stock for which this Warrant is exercised (notwithstanding any
other provision to the contrary herein) and such shares or other property shall
be held in escrow for Holder by Company to be issued to Holder upon and to the
extent that the event actually takes place, upon payment of the Warrant Price.
Notwithstanding any other provision to the contrary herein, if the event for
which such record was taken fails to occur or is rescinded, then such escrowed
shares shall be cancelled by Company and escrowed property returned to Company.
(f) Challenge to Good Faith Determination. Whenever the Board
of Directors of Company shall be required to make a determination in good faith
of the fair market value of any item under this Section 4, such determination
may be challenged in good faith by the Majority Holders, and any dispute shall
be resolved by an investment banking or valuation firm of recognized national
standing selected by Company and acceptable to the Majority Holders.
4.8 REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. In case Company shall reorganize its capital, reclassify
its capital stock, consolidate or merge with or into another corporation (where
Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of Company), or sell, transfer or
otherwise dispose of all or substantially all its property, assets or business
to another corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares of
common stock of the successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation ("Other Property"), are
to be received by or distributed to the holders of Common Stock of Company, then
each Holder shall have the right thereafter to receive, upon exercise of such
Warrant, the number of shares of common stock of the successor or acquiring
corporation or of Company, if it is the surviving corporation, and Other
Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than Company) shall expressly assume the due
and punctual observance and performance of each and every covenant and condition
of this Warrant to be performed and observed by Company and all the obligations
and liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined by resolution of the Board of Directors of Company)
in order to provide for adjustments of shares of Common Stock for which this
Warrant is exercisable which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 4. For purposes of this Section 4.8,
"common stock of the successor or acquiring corporation" shall include stock of
such corporation of any class which is not preferred as to dividends or assets
over any other class of stock of such corporation and which is not subject to
redemption and shall also include any evidences of indebtedness, shares of stock
or other securities
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which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 4.8 shall similarly
apply to successive reorganizations, reclassifications, mergers, consolidations
or disposition of assets.
4.9 OTHER ACTION AFFECTING COMMON STOCK. In case at any time or from time
to time Company shall take any action in respect of its Common Stock, other than
any action described in this Section 4, then, unless such action will not have a
materially adverse effect upon the rights of the Holders, the number of shares
of Common Stock or other stock for which this Warrant is exercisable and/or the
purchase price thereof shall be adjusted in such manner as may be equitable in
the circumstances.
5. NOTICES TO WARRANT HOLDERS
5.1 NOTICE OF ADJUSTMENTS. Whenever an adjustment to this Warrant is made
pursuant to Section 4, Company shall prepare a certificate to be executed by the
chief financial officer of Company setting forth, in reasonable detail, the
event requiring the adjustment and the method by which such adjustment was
calculated, specifying the number of shares of Common Stock for which this
Warrant is exercisable and (if such adjustment was made pursuant to Section 4.8
or 4.9) describing the number and kind of any other shares of stock or Other
Property for which this Warrant is exercisable, and any change in the purchase
price or prices thereof, after giving effect to such adjustment or change.
Company shall promptly cause a signed copy of such certificate to be delivered
to each Holder. Company shall keep at its office or agency designated pursuant
to Section 15 copies of all such certificates and cause the same to be available
for inspection at said office during normal business hours by any Holder or any
prospective purchaser of a Warrant designated by a Holder thereof.
5.2 NOTICE OF CORPORATE ACTION. If at any time
(a) Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) there shall be any capital reorganization of Company, any
reclassification or recapitalization of the capital stock of Company or any
consolidation or merger of Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of
Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of Company;
then, in any one or more of such cases, Company shall give to Holder (i) at
least 30 days' prior written notice of the date on which a record date shall be
selected in respect of such event and (ii) in the case of any such event, at
least 30 days' prior written notice of the
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date when the same shall take place. Such notice in accordance with the
foregoing clause also shall specify (i) the date on which the holders of Common
Stock shall be entitled to any such dividend, distribution or right, and the
amount and character thereof and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up.
6. NO IMPAIRMENT
Company shall not by any action, including, without
limitation, amending its articles of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, Company will take all such action as may be necessary or appropriate
in order that Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant, including taking such
action as is necessary for the Warrant Price to be not less than the par value
of the shares of Common Stock issuable upon exercise of this Warrant. The
Company will use its best efforts to obtain all such authorizations, exemptions
or consents from any public regulatory body having jurisdiction thereof as may
be necessary to enable Company to perform its obligations under this Warrant.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Closing Date, Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of all outstanding Warrants. All shares of Common
Stock which shall be so issuable, when issued upon exercise of any Warrant and
payment therefor in accordance with the terms of such Warrant, shall be duly and
validly issued and fully paid and nonassessable, and not subject to preemptive
rights.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by Company
to the holders of its Common Stock with respect to which any provision of
Section 4 refers to the taking of a record of such holders, Company will in each
such case take such a record and will take such record as of the close of
business on a Business Day. Company will not at any time, except upon
dissolution, liquidation or winding up of Company, close its
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stock transfer books or Warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1 RESTRICTIVE LEGEND. 1. Except as otherwise provided in this Section
9, each certificate for Warrant Stock initially issued upon the exercise of this
Warrant, and each certificate for Warrant Stock issued to any subsequent
transferee of any such certificate, shall be stamped or otherwise imprinted with
a legend in substantially the following form:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as amended,
and may not be transferred in violation of such Act or the
rules and regulations thereunder."
(b) Except as otherwise provided in this Section 9, each
Warrant shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"This Warrant and the securities represented hereby
have not been registered under the Securities Act of 1933, as
amended, and may not be transferred in violation of such Act,
the rules and regulations thereunder or the provisions of this
Warrant."
9.2 NOTICE OF PROPOSED TRANSFERS; REQUESTS FOR REGISTRATION. Prior to or
promptly following any Transfer of any Warrants or any shares of Restricted
Common Stock, the holder of such Warrants or Restricted Common Stock shall give
written notice (a "Transfer Notice") to Company of such Transfer. Each
certificate, if any, evidencing such shares of Restricted Common Stock issued
upon such Transfer shall bear the restrictive legend set forth in Section
9.1(a), and each Warrant issued upon such Transfer shall bear the restrictive
legend set forth in Section 9.1(b), unless in the opinion of counsel to such
holder which is reasonably acceptable to Company such legend is not required in
order to ensure compliance with the Securities Act.
9.3 TERMINATION OF RESTRICTIONS. Notwithstanding the foregoing provisions
of Section 9, the restrictions imposed by this Section upon the transferability
of the Warrants and the Warrant Stock, and the legend requirements of Section
9.1, shall terminate as to any particular Warrant or share of Warrant Stock (i)
when and so long as such security shall have been effectively registered under
the Securities Act and disposed of pursuant thereto or (ii) when Company shall
have received an opinion of counsel
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reasonably satisfactory to it that such security may be transferred without
registration thereof under the Securities Act. Whenever the restrictions imposed
by Section 9 shall terminate as to this Warrant, as hereinabove provided, the
Holder hereof shall be entitled to receive from Company, at the expense of
Company, a new Warrant without the restrictive legend set forth in Section
9.1(b). Whenever the restrictions imposed by this Section shall terminate as to
any share of Warrant Stock, as hereinabove provided, the holder thereof shall be
entitled to receive from Company, at Company's expense, a new certificate
representing such Warrant Stock not bearing the restrictive legend set forth in
Section 9.1(a).
10. SUPPLYING INFORMATION
Company shall cooperate with each Holder of a Warrant or
Warrant Stock in supplying such information as may be reasonably necessary for
such holder to complete and file any information reporting forms presently or
hereafter required by the Commission as a condition to the availability of an
exemption from the Securities Act for the sale of any Warrant or Warrant Stock.
11. LOSS OR MUTILATION
Upon receipt by Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of Holder shall be sufficient indemnity),
and in case of mutilation upon surrender and cancellation hereof, Company will
execute and deliver in lieu hereof a new Warrant of like tenor to such Holder;
provided, in the case of mutilation, no indemnity shall be required if this
Warrant in identifiable form is surrendered to Company for cancellation.
12. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of Holder hereof, shall give rise to any liability of such
Holder for the purchase price of any Common Stock or as a stockholder of
Company, whether such liability is asserted by Company or by creditors of
Company.
13. MISCELLANEOUS
13.1 NONWAIVER AND EXPENSES. No course of dealing or any delay or failure
to exercise any right hereunder on the part of Holder shall operate as a waiver
of such right or otherwise prejudice Holder's rights, powers or remedies. If
Company fails to make, when due, any payments provided for hereunder, or fails
to comply with any other provision of this Warrant, Company shall pay to Holder
such amounts as shall be sufficient to cover any costs and expenses including,
but not limited to, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting
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any amounts due pursuant hereto or in otherwise enforcing any of its rights,
powers or remedies hereunder.
13.2 NOTICE GENERALLY. Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made pursuant to
the provisions of this Warrant shall be sufficiently given or made if in writing
and either delivered in person with receipt acknowledged or sent by registered
or certified mail, return receipt requested, postage prepaid, or by telecopy and
confirmed by telecopy answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last
known address appearing on the books of Company maintained for such purpose.
(b) If to Company at:
Atlantic Pharmaceuticals, Inc.
150 Broadway
Suite 1100
New York, NY 10038
Attn: A. Joseph Rudick
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback, or three (3) Business Days after the same shall have been deposited
in the United States mail. Failure or delay in delivering copies of any notice,
demand, request, approval, declaration, delivery or other communication to the
person designated above to receive a copy shall in no way adversely affect the
effectiveness of such notice, demand, request, approval, declaration, delivery
or other communication.
13.3 SUCCESSORS AND ASSIGNS. Subject to the provisions of Sections 3.1
and 9, this Warrant and the rights evidenced hereby shall inure to the benefit
of and be binding upon the successors of Company and the successors and assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of
all Holders from time to time of this Warrant and shall be enforceable by any
such Holder.
13.4 AMENDMENT. This Warrant and all other Warrants may be modified or
amended or the provisions hereof waived with the written consent of Company and
the Majority Holders, provided that no such Warrant may be modified or amended
to reduce the number of shares of Common Stock for which such Warrant is
exercisable or to increase the price at which such shares may be purchased upon
exercise of such Warrant (before giving effect to any adjustment as provided
therein) without the prior written consent of the Holder thereof.
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13.5 SEVERABILITY. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
13.6 HEADINGS. The headings used in this Warrant are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
13.7 GOVERNING LAW. This Warrant shall be governed by the laws of the
State of Delaware, without regard to the provisions thereof relating to conflict
of laws.
[SIGNATURES BEGIN ON NEXT PAGE]
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IN WITNESS WHEREOF, Company has caused this Warrant to be duly
executed and attested by its Secretary or an Assistant Secretary.
Dated: January 4, 2000
ATLANTIC PHARMACEUTICALS, INC.
By: /s/ A. Joseph Rudick
----------------------------
Name: A. Joseph Rudick
Title: President
Attest:
By: /s/ John Brancaccio
--------------------------
Name: John Brancaccio
Title: CFO
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EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of ______ Shares of Common Stock of
Atlantic Pharmaceuticals, Inc. and herewith makes payment therefor, all at the
price and on the terms and conditions specified in this Warrant and requests
that certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the name
of and delivered to _____________ whose address is _________________ and, if
such shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, that a new Warrant of like tenor and date
for the balance of the shares of Common Stock issuable hereunder be delivered to
the undersigned.
-------------------------------
(Name of Registered Owner)
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
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<PAGE>
EXHIBIT B TO WARRANT
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
- - ---------------------------- -----------------------------
and does hereby irrevocably constitute and appoint ___________________________
attorney-in-fact to register such transfer on the books of Atlantic
Pharmaceuticals, Inc. maintained for the purpose, with full power of
substitution in the premises.
Dated:__________________ Print Name:___________________
Signature:____________________
Witness:______________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
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<PAGE>
================================================================================
WARRANT
To Purchase Common Stock of
ATLANTIC PHARMACEUTICALS, INC.
Warrant No. 3
No. of Shares of Common Stock: 150,000
================================================================================
<PAGE>
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER
OR THE PROVISIONS OF THIS WARRANT.
No. of Shares of Common Stock: 150,000 Warrant No. 3
WARRANT
To Purchase Common Stock of
ATLANTIC PHARMACEUTICALS, INC.
THIS IS TO CERTIFY THAT Joseph Stevens & Company, Inc., or
registered assigns, is entitled, at any time during the Exercise Period (as
hereinafter defined), to purchase from Atlantic Pharmaceuticals, Inc., a
Delaware corporation ("Company"), 150,000 shares of Common Stock (as hereinafter
defined and subject to adjustment as provided herein), in whole or in part,
including fractional parts, at a purchase price of $4.50 per share (subject to
adjustment as provided herein) all on the terms and conditions and pursuant to
the provisions hereinafter set forth.
1. DEFINITIONS
Capitalized terms used in this Warrant but not defined have
the meaning set forth in the Warrant Agreement (as defined below). The following
terms have the respective meanings set forth below:
"Additional Shares of Common Stock" means all shares of Common
Stock issued by the Company after the Closing Date, other than Warrant Stock.
"Business Day" means any day that is not a Saturday or Sunday
or a day on which banks are required or permitted to be closed in the State of
New York.
"Commission" means the Securities and Exchange Commission or
any other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" means (except where the context otherwise
indicates) the Common Stock, par value $.001 per share, of Company as
constituted on the Closing Date, and any capital stock into which such Common
Stock may thereafter be changed, and shall also include (i) capital stock of
Company of any other class (regardless of how denominated) issued to the holders
of shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of Company and
which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation (as defined in Section 4.8) received by or
distributed to the holders of Common Stock of Company in the circumstances
contemplated by Section 4.8.
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<PAGE>
"Convertible Securities" means evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
Additional Shares of Common Stock, either immediately or upon the occurrence of
a specified date or a specified event.
"Current Market Price" means, in respect of a share of Common
Stock on any date, either (a) if there shall not then be a public market for the
Common Stock, the Fair Market Value per share of Common Stock as at such date or
(b) if there shall then be a public market for the Common Stock, the average of
the daily market prices for 20 consecutive Business Days commencing 30 days
before such date. The daily market price for each such Business Day shall be (i)
the last sale price on such day on the principal stock exchange or NASDAQ Small
Cap Market ("NASDAQ") on which such Common Stock is then listed or admitted to
trading, (ii) if no sale takes place on such day on any such exchange or NASDAQ,
the average of the last reported closing bid and asked prices on such day as
officially quoted on any such exchange or NASDAQ, (iii) if the Common Stock is
not then listed or admitted to trading on any stock exchange or NASDAQ, the
average of the last reported closing bid and asked prices on such day in the
over-the-counter market, as furnished by the National Association of Securities
Dealers Automatic Quotation System or the National Quotation Bureau, Inc., (iv)
if neither such corporation at the time is engaged in the business of reporting
such prices, as furnished by any similar firm then engaged in such business, or
(v) if there is no such firm, as furnished by any member of the NASD selected
mutually by the Majority Holders and Company or, if they cannot agree upon such
selection, as selected by two such members of the NASD, one of which shall be
selected by the Majority Holders and one of which shall be selected by Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" means the period during which this Warrant
is exercisable pursuant to Section 2.1.
"Expiration Date" means January 4, 2007.
"Financial Advisory Agreement" means the Financial Advisory
and Consulting Agreement, dated January 4, 2000, by and between the Company and
the Consultant.
"Fully Diluted Outstanding" means, on any date, all shares of
Common Stock Outstanding on such date and all shares of Common Stock issuable in
respect of this Warrant outstanding on such date, and other options or warrants
to purchase, or securities convertible into or exchangeable for, shares of
Common Stock outstanding on such date, regardless of whether such options,
warrants or other securities are then exercisable or convertible.
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<PAGE>
"GAAP" means generally accepted accounting principles in the
United States of America as in effect from time to time.
"Holder" means the Person in whose name the Warrant set forth
herein is registered on the books of Company maintained for such purpose.
"Majority Holders" means the holders of Warrants exercisable
for in excess of 50% of the aggregate number of shares of Warrant Stock then
purchasable upon exercise of all Warrants.
"NASD" means the National Association of Securities Dealers,
Inc., or any successor corporation thereto.
"Other Property" has the meaning set forth in Section 4.8.
"Outstanding" means, when used with reference to Common Stock,
on any date, all issued shares of Common Stock on such date, except shares then
owned or held by or for the account of Company or any subsidiary thereof, and
shall include all shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in shares of Common Stock.
"Permitted Issuances" means the issuance of (a) shares of
Common Stock (i) upon exercise of currently outstanding warrants or (ii) upon
exercise of currently outstanding options and (b) up to 100,000 shares of Common
Stock after the date hereof in connection with any duly authorized employee
stock option plan, stock purchase plan or restricted stock award plan of the
Company.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, incorporated
organization, association, corporation, institution, public benefit corporation,
entity or government (whether federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Transfer" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would constitute a
sale thereof within the meaning of the Securities Act.
"Transfer Notice" has the meaning set forth in Section 9.2.
"Warrant" means this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, this Warrant. All
Warrants shall at all times be identical as to terms and conditions and date,
except as to the number of shares of Common Stock for which they may be
exercised.
"Warrant Price" means an amount equal to (i) the number of
shares of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1,
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<PAGE>
multiplied by (ii) $4.50, as adjusted from time to time pursuant to Section 4 of
this Warrant.
"Warrant Stock" means the shares of Common Stock issued or
issuable upon the exercise of this Warrant.
2. EXERCISE OF WARRANT
2.1. Exercise Period. (a) From and after January 4, 2002 and until 5:00 P.M.,
New York time, on the Expiration Date (the "Exercise Period"), Holder may
exercise this Warrant, on any Business Day on which the condition set forth in
Section 2.1(b) hereof is met, for all or any part of the Warrant Stock which is
then purchasable in accordance with the vesting schedule set forth below:
Shares purchasable
Date upon exercise
---- -------------
January 4, 2000 12,500
February 4, 2000 25,000
March 4, 2000 37,500
April 4, 2000 50,000
May 4, 2000 62,500
June 4, 2000 75,000
July 4, 2000 87,500
August 4, 2000 100,000
September 4, 2000 112,500
October 4, 2000 125,000
November 4, 2000 137,500
December 4, 2000 150,000
Upon any termination of the Financial Advisory Agreement
pursuant to Section 14 thereof, the Warrant shall cease to vest and shall
continue to be exercisable, in accordance with the terms set forth herein, for
the number of shares of Warrant Stock which were purchasable on such date of
termination.
(b) The Warrant may be exercised on any Business Day, except
that it may only be exercised if the last sale price of a share of Common Stock
on NASDAQ (or the principal stock exchange on which the Common Stock is then
listed or admitted to trading) on the immediately preceding Business Day was
equal to or greater than $1.00 plus the Exercise Price then in effect.
2.2. Exercise Notice; Delivery of Certificates. In order to exercise this
Warrant, Holder shall deliver to Company at its principal office at 150
Broadway, Suite 1100, New York, New York 10038, or at the office or agency
designated by Company pursuant to Section 13.2, (i) a written notice of Holder's
election to exercise this Warrant, specifying the number of shares of Common
Stock to be purchased, (ii) payment of the Warrant Price and (iii) this Warrant.
Such notice shall be substantially in the form of the
5
<PAGE>
subscription form appearing at the end of this Warrant as Exhibit A, duly
executed by Holder or its agent or attorney. Upon receipt thereof, Company
shall, as promptly as practicable, and in any event within five (5) Business
Days thereafter, deliver to Holder a duly executed certificate or certificates
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. Such stock certificate or certificates shall be in such
denominations and registered in the name designated in the subscription form,
subject to Section 9. Holder or any other Person so designated to be named
therein shall be deemed to have become a holder of record of such shares of
Warrant Stock for all purposes, as of the date on which all items in clauses
(i)-(iii) above have been received by Company and all taxes required to be paid
by Holder, if any, pursuant to Section 2.4 have been paid. If this Warrant shall
have been exercised in part, Company shall deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the remaining shares of Common Stock
issuable upon exercise of this Warrant, which new Warrant shall in all other
respects be identical with this Warrant, or appropriate notation may be made on
this Warrant and the same returned to Holder.
2.3. Payment of Warrant Price. Payment of the Warrant Price shall be made
at the option of the Holder by:
(i) certified or official bank check;
(ii) The surrender to Company of that number of shares of
Warrant Stock (or the right to receive such number of shares) or shares of
Common Stock having an aggregate Current Market Price equal to or greater than
the Current Warrant Price for all shares then being purchased (including those
being surrendered); or
(iii) any combination thereof, duly endorsed by or accompanied
by appropriate duly executed instruments of transfer.
2.4. Payment of Taxes. All shares of Warrant Stock shall be validly
issued, fully paid and nonassessable and without any preemptive rights. Company
shall pay all expenses, taxes and other governmental charges with respect to the
issue or delivery thereof, unless such tax or charge is imposed by law upon
Holder. Company shall not be required, however, to pay any transfer tax or other
similar charge imposed in connection with any transfer involved in the issue of
any certificate for shares of Common Stock issuable upon exercise of this
Warrant in any name other than that of Holder, and in such case Company shall
not be required to issue or deliver any stock certificate until such tax or
other charge has been paid or it has been established to the satisfaction of
Company that no such tax or other charge is due.
2.5. Fractional Shares. Company shall not be required to issue a
fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which the Holder of one or more Warrants would otherwise be
entitled to purchase upon such exercise, except as otherwise provided in Section
2.1, Company shall pay a cash adjustment in respect of such final fraction in an
amount equal to the same fraction of the Current Market Price per share of
Common Stock on the date of exercise.
6
<PAGE>
3. TRANSFER, DIVISION AND COMBINATION
3.1. Transfer. Subject to compliance with Section 9 hereof, transfer of
this Warrant and all rights hereunder, in whole or in part, shall be registered
on the books of Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of Company referred to in Section 2.1 or
the office or agency designated by Company pursuant to Section 13.2, together
with a duly executed written assignment of this Warrant substantially in the
form of Exhibit B hereto and funds sufficient to pay any transfer taxes payable
upon the making of such transfer. Upon such surrender and, if required, such
payment, Company shall, subject to Section 9, execute and deliver a new Warrant
or Warrants in the name of the assignee or assignees and in the denomination
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled. A Warrant, if properly assigned in
compliance with Section 9, may be exercised by a new Holder for the purchase of
shares of Common Stock without having a new Warrant issued.
3.2. Division and Combination. Subject to Section 9, this Warrant may be
divided or combined with other Warrants upon presentation hereof at the
aforesaid office or agency of Company, together with a duly executed written
notice specifying the names and denominations in which new Warrants are to be
issued. Subject to compliance with Section 3.1 and with Section 9, as to any
transfer which may be involved in such division or combination, Company shall
execute and deliver a new Warrant or Warrants in exchange for the Warrant or
Warrants to be divided or combined in accordance with such notice.
3.3. Expenses. Company shall prepare, issue and deliver at its own expense
(other than transfer taxes) the new Warrant or Warrants under this Section 3.
3.4. Maintenance of Books. Company agrees to maintain, at its aforesaid
office or agency, books for the registration and the registration of transfer of
the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. Company shall give each Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
4.1. Stock Dividends, Subdivisions and Combinations. If at any time
Company shall:
(a) take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend payable in, or other distribution of,
Common Stock,
7
<PAGE>
(b) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Warrant Price shall be
adjusted to equal (A) the Warrant Price multiplied by the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to the
adjustment divided by (B) the number of shares for which this Warrant is
exercisable immediately after such adjustment.
4.2. Certain Other Distributions and Adjustments.
(a) If at any time Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive any dividend or other
distribution of:
(i) cash in excess of earned surplus,
(ii) any evidences of its indebtedness, any shares of its
stock or any other securities or property of any nature whatsoever (other than
cash, Convertible Securities or Additional Shares of Common Stock), or
(iii) any warrants or other rights to subscribe for or
purchase any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash, Convertible
Securities or Additional Shares of Common Stock),
then the Exercise Price shall be reduced, without any further action by the
parties hereto, by the Per Share Value (as hereinafter defined) of the dividend.
For purposes of this Section 4.2 the "Per Share Value" of cash dividend or other
distribution shall be the dollar amount of the distribution on each share of
Common Stock and the "Per Share Value" of any dividend or distribution other
than cash shall be equal to the fair market value of such non-cash distribution
on each share of Common Stock, as determined in good faith by the Board of
Directors of the Company.
(b) A reclassification of the Common Stock (other than a change in
par value) into shares of Common Stock and shares of any other class of stock
shall be deemed a distribution by Company to the holders of its Common Stock of
such shares of such other class of stock within the meaning of paragraph (a)
above, and if the outstanding shares of Common Stock shall be changed into a
larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a
8
<PAGE>
subdivision or combination, as the case may be, of the outstanding shares of
Common Stock within the meaning of Section 4.1.
4.3. Issuance of Additional Shares of Common Stock.
(a) If at any time Company shall (except as hereinafter provided)
issue or sell any Additional Shares of Common Stock, other than Permitted
Issuances, in exchange for consideration in an amount per Additional Share of
Common Stock less than the Current Market Price, then
(i) the Warrant Price as to the number of shares for which
this Warrant is exercisable prior to such adjustment shall be reduced to a price
determined by dividing (A) an amount equal to the sum of (x) the number of
shares of Common Stock Outstanding immediately prior to such issue or sale
multiplied by the Current Market Price plus (y) the consideration, if any,
received by Company upon such issue or sale as determined pursuant to Section
4.7(a), by (B) the total number of shares of Common Stock Outstanding
immediately after such issue or sale; and (ii) the number of shares of Common
Stock for which this Warrant is exercisable shall be adjusted to equal the
product obtained by multiplying the Warrant Price in effect immediately prior to
such issue or sale by the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such issue or sale and dividing the
product thereof by the Warrant Price resulting from the adjustment made pursuant
to clause (i) above.
(b) The provision of paragraph (a) shall not apply to any issuance
of Additional Shares of Common Stock for which an adjustment is provided under
Section 4.1 or 4.2. No adjustment of the number of shares of Common Stock for
which this Warrant shall be exercisable shall be made under paragraph (a) upon
the issuance of any Additional Shares of Common Stock which are issued pursuant
to the exercise of any warrants or other subscription or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any Convertible
Securities, if any such adjustment shall previously have been made upon the
issuance of such warrants or other rights or upon the issuance of such
Convertible Securities (or upon the issuance of any warrant or other rights
therefor) pursuant to Sections 4.4 or 4.5 hereof.
4.4. Issuance of Warrants or Other Rights. If at any time Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a distribution of, or shall in any manner (whether directly or
by assumption in a merger in which Company is the surviving corporation) issue
or sell, any warrants or other rights to subscribe for or purchase any
Additional Shares of Common Stock or any Convertible Securities, whether or not
the rights to exchange or convert thereunder are immediately exercisable, and
the price per share for which Common Stock is issuable upon the exercise of such
warrants or other rights or upon conversion or exchange of such Convertible
Securities shall be less than the Current Market Price in effect immediately
prior to the time of such issue or sale, then the number of shares for which
this Warrant is exercisable and the Current Warrant Price shall be adjusted as
provided in Section 4.3 on the basis that the maximum number of Additional
Shares of Common Stock issuable pursuant to all such warrants or other rights or
necessary to effect the conversion or
9
<PAGE>
exchange of all such Convertible Securities shall be deemed to have been issued
and outstanding and Company shall be deemed to have received all of the
consideration payable therefor, if any, as of the date of the issuance of such
warrants or other rights.
4.5. Issuance of Convertible Securities. If at any time Company shall take
a record of the holders of its Common Stock for the purpose of entitling them to
receive a distribution of, or shall in any manner (whether directly or by
assumption in a merger in which Company is the surviving corporation) issue or
sell, any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange shall be less
than the Current Market Price in effect immediately prior to the time of such
issue or sale, then the number of Shares for which this Warrant is exercisable
and the Warrant Price shall be adjusted as provided in Section 4.3 on the basis
that the maximum number of Additional Shares of Common Stock necessary to effect
the conversion or exchange of all such Convertible Securities shall be deemed to
have been issued and outstanding and Company shall have received all of the
consideration payable therefor, if any, as of the date of issuance of such
Convertible Securities. No adjustment of the number of Shares for which this
Warrant is exercisable and the Warrant Price shall be made under this Section
4.5 upon the issuance of any Convertible Securities which are issued pursuant to
the exercise of any warrants or other subscription or purchase rights therefor,
if any such adjustment shall previously have been made upon the issuance of such
warrants or other rights pursuant to Section 4.4. If any issue or sale of
Convertible Securities is made upon exercise of any warrant or other right to
subscribe for or to purchase any such Convertible Securities for which
adjustments of the number of Shares for which this Warrant is exercisable and
the Warrant Price have been or are to be made pursuant to Section 4.4, no
further adjustments of the number of Shares for which this Warrant is
exercisable and the Warrant Price shall be made by reason of such issue or sale.
4.6. Superseding Adjustment. If, at any time after any adjustment of the
number of shares of Common Stock for which this Warrant is exercisable and the
Warrant Price shall have been made pursuant to Section 4.4 or Section 4.5 as the
result of any issuance of warrants, rights or Convertible Securities,
(a) such warrants or rights, or the right of conversion or exchange
in such other Convertible Securities, shall expire, and all or a portion of such
warrants or rights, or the right of conversion or exchange with respect to all
or a portion of such other Convertible Securities, as the case may be, shall not
have been exercised, or
(b) the consideration per share for which shares of Common Stock are
issuable pursuant to such warrants or rights, or the terms of such other
Convertible Securities, shall be increased solely by virtue of provisions
therein contained for an automatic increase in such consideration per share upon
the occurrence of a specified date or event,
then for each outstanding Warrant such previous adjustment shall be rescinded
and annulled and the Additional Shares of Common Stock which were deemed to have
been
10
<PAGE>
issued by virtue of the computation made in connection with the adjustment so
rescinded and annulled shall no longer be deemed to have been issued by virtue
of such computation. Thereupon, a recomputation shall be made of the effect of
such rights or options or other Convertible Securities on the basis of
(c) treating the number of Additional Shares of Common Stock or
other property, if any, theretofore actually issued or issuable pursuant to the
previous exercise of any such warrants or rights or any such right of conversion
or exchange, as having been issued on the date or dates of any such exercise and
for the consideration actually received and receivable therefor, and
(d) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been granted or
issued immediately after the time of such increase of the consideration per
share for which shares of Common Stock or other property are issuable under such
warrants or rights or other Convertible Securities; whereupon a new adjustment
of the number of shares of Common Stock for which this Warrant is exercisable
and the Warrant Price shall be made, which new adjustment shall supersede the
previous adjustment so rescinded and annulled.
4.7. Other Provisions Applicable to Adjustments under This Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Warrant Price provided for in this Section 4:
(a) Computation of Consideration. To the extent that any Additional
Shares of Common Stock or any Convertible Securities or any warrants or other
rights to subscribe for or purchase any Additional Shares of Common Stock or any
Convertible Securities shall be issued for cash consideration, the consideration
received by Company therefor shall be the amount of the cash received by Company
therefor, or, if such Additional Shares of Common Stock or Convertible
Securities are offered by Company for subscription, the subscription price, or,
if such Additional Shares of Common Stock or Convertible Securities are sold to
underwriters or dealers for public offering without a subscription offering, the
initial public offering price (in any such case subtracting any amounts paid or
receivable for accrued interest or accrued dividends and without taking into
account any compensation, discounts or expenses paid or incurred by Company for
and in the underwriting of, or otherwise in connection with, the issuance
thereof). To the extent that such issuance shall be for a consideration other
than cash, then, except as herein otherwise expressly provided, the amount of
such consideration shall be deemed to be the fair market value of such
consideration at the time of such issuance as determined in good faith by the
Board of Directors of Company. In case any Additional Shares of Common Stock or
any Convertible Securities or any warrants or other rights to subscribe for or
purchase such Additional Shares of Common Stock or Convertible Securities shall
be issued in connection with any merger in which Company issues any securities,
the amount of consideration therefor shall be deemed to be the fair value, as
determined in good faith by the Board of Directors of Company, of such portion
of the assets and business of the nonsurviving corporation as such Board in good
faith shall determine to be attributable to such Additional Shares of Common
Stock, Convertible Securities,
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<PAGE>
warrants or other rights, as the case may be. The consideration for any
Additional Shares of Common Stock issuable pursuant to any warrants or other
rights to subscribe for or purchase the same shall be the consideration received
by Company for issuing such warrants or other rights plus the additional
consideration payable to Company upon exercise of such warrants or other rights.
The consideration for any Additional Shares of Common Stock issuable pursuant to
the terms of any Convertible Securities shall be the consideration received by
Company for issuing warrants or other rights to subscribe for or purchase such
Convertible Securities, plus the consideration paid or payable to Company in
respect of the subscription for or purchase of such Convertible Securities, plus
the additional consideration, if any, payable to Company upon the exercise of
the right of conversion or exchange in such Convertible Securities. In case of
the issuance at any time of any Additional Shares of Common Stock or Convertible
Securities in payment or satisfaction of any dividends upon any class of stock
other than Common Stock, Company shall be deemed to have received for such
Additional Shares of Common Stock or Convertible Securities a consideration
equal to the amount of such dividend so paid or satisfied.
(b) When Adjustments to Be Made. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event requiring
an adjustment shall occur, except that any adjustment of the number of shares of
Common Stock for which this Warrant is exercisable that would otherwise be
required may be postponed (except in the case of a subdivision or combination of
shares of Common Stock, as provided for in Section 4.1) up to, but not beyond
the date of exercise if such adjustment either by itself or with other
adjustments not previously made adds or subtracts less than 1% of the shares of
Common Stock for which this Warrant is exercisable immediately prior to the
making of such adjustment. Any adjustment representing a change of less than
such minimum amount (except as aforesaid) which is postponed shall be carried
forward and made as soon as such adjustment, together with other adjustments
required by this Section 4 and not previously made, would result in a minimum
adjustment or on the date of exercise. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on the
date of its occurrence.
(c) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into account to
the nearest 1/10th of a share.
(d) When Adjustment Not Required. If Company shall take a record of
the holders of its Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
(e) Escrow of Warrant Stock. If after any property becomes
distributable pursuant to this Section 4 by reason of the taking of any record
of the holders of Common
12
<PAGE>
Stock, but prior to the occurrence of the event for which such record is taken,
and Holder exercises this Warrant, any Additional Shares of Common Stock
issuable upon exercise by reason of such adjustment shall be deemed the last
shares of Common Stock for which this Warrant is exercised (notwithstanding any
other provision to the contrary herein) and such shares or other property shall
be held in escrow for Holder by Company to be issued to Holder upon and to the
extent that the event actually takes place, upon payment of the Warrant Price.
Notwithstanding any other provision to the contrary herein, if the event for
which such record was taken fails to occur or is rescinded, then such escrowed
shares shall be cancelled by Company and escrowed property returned to Company.
(f) Challenge to Good Faith Determination. Whenever the Board of
Directors of Company shall be required to make a determination in good faith of
the fair market value of any item under this Section 4, such determination may
be challenged in good faith by the Majority Holders, and any dispute shall be
resolved by an investment banking or valuation firm of recognized national
standing selected by Company and acceptable to the Majority Holders.
4.8. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case Company shall reorganize its capital, reclassify
its capital stock, consolidate or merge with or into another corporation (where
Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of Company), or sell, transfer or
otherwise dispose of all or substantially all its property, assets or business
to another corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares of
common stock of the successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation ("Other Property"), are
to be received by or distributed to the holders of Common Stock of Company, then
each Holder shall have the right thereafter to receive, upon exercise of such
Warrant, the number of shares of common stock of the successor or acquiring
corporation or of Company, if it is the surviving corporation, and Other
Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than Company) shall expressly assume the due
and punctual observance and performance of each and every covenant and condition
of this Warrant to be performed and observed by Company and all the obligations
and liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined by resolution of the Board of Directors of Company)
in order to provide for adjustments of shares of Common Stock for which this
Warrant is exercisable which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section 4. For purposes of this Section 4.8,
"common stock of the successor or acquiring corporation" shall include stock of
such corporation of any class which is not preferred as to dividends or assets
over any other class of stock of such corporation and which is not subject to
redemption and shall also include any evidences of indebtedness, shares of stock
or other securities
13
<PAGE>
which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 4.8 shall similarly
apply to successive reorganizations, reclassifications, mergers, consolidations
or disposition of assets.
4.9. Other Action Affecting Common Stock. In case at any time or from time
to time Company shall take any action in respect of its Common Stock, other than
any action described in this Section 4, then, unless such action will not have a
materially adverse effect upon the rights of the Holders, the number of shares
of Common Stock or other stock for which this Warrant is exercisable and/or the
purchase price thereof shall be adjusted in such manner as may be equitable in
the circumstances.
5. NOTICES TO WARRANT HOLDERS
5.1. Notice of Adjustments. Whenever an adjustment to this Warrant is made
pursuant to Section 4, Company shall prepare a certificate to be executed by the
chief financial officer of Company setting forth, in reasonable detail, the
event requiring the adjustment and the method by which such adjustment was
calculated, specifying the number of shares of Common Stock for which this
Warrant is exercisable and (if such adjustment was made pursuant to Section 4.8
or 4.9) describing the number and kind of any other shares of stock or Other
Property for which this Warrant is exercisable, and any change in the purchase
price or prices thereof, after giving effect to such adjustment or change.
Company shall promptly cause a signed copy of such certificate to be delivered
to each Holder. Company shall keep at its office or agency designated pursuant
to Section 15 copies of all such certificates and cause the same to be available
for inspection at said office during normal business hours by any Holder or any
prospective purchaser of a Warrant designated by a Holder thereof.
5.2. Notice of Corporate Action. If at any time
(a) Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or other distribution,
or any right to subscribe for or purchase any evidences of its indebtedness, any
shares of stock of any class or any other securities or property, or to receive
any other right, or
(b) there shall be any capital reorganization of Company, any
reclassification or recapitalization of the capital stock of Company or any
consolidation or merger of Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of
Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of Company;
then, in any one or more of such cases, Company shall give to Holder (i) at
least 30 days' prior written notice of the date on which a record date shall be
selected in respect of such event and (ii) in the case of any such event, at
least 30 days' prior written notice of the
14
<PAGE>
date when the same shall take place. Such notice in accordance with the
foregoing clause also shall specify (i) the date on which the holders of Common
Stock shall be entitled to any such dividend, distribution or right, and the
amount and character thereof and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up.
6. NO IMPAIRMENT
Company shall not by any action, including, without
limitation, amending its articles of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, Company will take all such action as may be necessary or appropriate
in order that Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant, including taking such
action as is necessary for the Warrant Price to be not less than the par value
of the shares of Common Stock issuable upon exercise of this Warrant. The
Company will use its best efforts to obtain all such authorizations, exemptions
or consents from any public regulatory body having jurisdiction thereof as may
be necessary to enable Company to perform its obligations under this Warrant.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Closing Date, Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of all outstanding Warrants. All shares of Common
Stock which shall be so issuable, when issued upon exercise of any Warrant and
payment therefor in accordance with the terms of such Warrant, shall be duly and
validly issued and fully paid and nonassessable, and not subject to preemptive
rights.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by Company
to the holders of its Common Stock with respect to which any provision of
Section 4 refers to the taking of a record of such holders, Company will in each
such case take such a record and will take such record as of the close of
business on a Business Day. Company will not at any time, except upon
dissolution, liquidation or winding up of Company, close its
15
<PAGE>
stock transfer books or Warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1. Restrictive Legend. (a) Except as otherwise provided in this Section
9, each certificate for Warrant Stock initially issued upon the exercise of this
Warrant, and each certificate for Warrant Stock issued to any subsequent
transferee of any such certificate, shall be stamped or otherwise imprinted with
a legend in substantially the following form:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as amended,
and may not be transferred in violation of such Act or the
rules and regulations thereunder."
(b) Except as otherwise provided in this Section 9, each Warrant shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"This Warrant and the securities represented hereby have
not been registered under the Securities Act of 1933, as
amended, and may not be transferred in violation of such Act,
the rules and regulations thereunder or the provisions of this
Warrant."
9.2. Notice of Proposed Transfers; Requests for Registration. Prior to or
promptly following any Transfer of any Warrants or any shares of Restricted
Common Stock, the holder of such Warrants or Restricted Common Stock shall give
written notice (a "Transfer Notice") to Company of such Transfer. Each
certificate, if any, evidencing such shares of Restricted Common Stock issued
upon such Transfer shall bear the restrictive legend set forth in Section
9.1(a), and each Warrant issued upon such Transfer shall bear the restrictive
legend set forth in Section 9.1(b), unless in the opinion of counsel to such
holder which is reasonably acceptable to Company such legend is not required in
order to ensure compliance with the Securities Act.
9.3. Termination of Restrictions. Notwithstanding the foregoing provisions
of Section 9, the restrictions imposed by this Section upon the transferability
of the Warrants and the Warrant Stock, and the legend requirements of Section
9.1, shall terminate as to any particular Warrant or share of Warrant Stock (i)
when and so long as such security shall have been effectively registered under
the Securities Act and disposed of pursuant thereto or (ii) when Company shall
have received an opinion of counsel
16
<PAGE>
reasonably satisfactory to it that such security may be transferred without
registration thereof under the Securities Act. Whenever the restrictions imposed
by Section 9 shall terminate as to this Warrant, as hereinabove provided, the
Holder hereof shall be entitled to receive from Company, at the expense of
Company, a new Warrant without the restrictive legend set forth in Section
9.1(b). Whenever the restrictions imposed by this Section shall terminate as to
any share of Warrant Stock, as hereinabove provided, the holder thereof shall be
entitled to receive from Company, at Company's expense, a new certificate
representing such Warrant Stock not bearing the restrictive legend set forth in
Section 9.1(a).
10. SUPPLYING INFORMATION
Company shall cooperate with each Holder of a Warrant or Warrant
Stock in supplying such information as may be reasonably necessary for such
holder to complete and file any information reporting forms presently or
hereafter required by the Commission as a condition to the availability of an
exemption from the Securities Act for the sale of any Warrant or Warrant Stock.
11. LOSS OR MUTILATION
Upon receipt by Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of Holder shall be sufficient indemnity),
and in case of mutilation upon surrender and cancellation hereof, Company will
execute and deliver in lieu hereof a new Warrant of like tenor to such Holder;
provided, in the case of mutilation, no indemnity shall be required if this
Warrant in identifiable form is surrendered to Company for cancellation.
12. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by Holder
to purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of Holder hereof, shall give rise to any liability of such Holder for
the purchase price of any Common Stock or as a stockholder of Company, whether
such liability is asserted by Company or by creditors of Company.
13. MISCELLANEOUS
13.1. Nonwaiver and Expenses. No course of dealing or any delay or failure
to exercise any right hereunder on the part of Holder shall operate as a waiver
of such right or otherwise prejudice Holder's rights, powers or remedies. If
Company fails to make, when due, any payments provided for hereunder, or fails
to comply with any other provision of this Warrant, Company shall pay to Holder
such amounts as shall be sufficient to cover any costs and expenses including,
but not limited to, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting
17
<PAGE>
any amounts due pursuant hereto or in otherwise enforcing any of its rights,
powers or remedies hereunder.
13.2. Notice Generally. Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made pursuant to
the provisions of this Warrant shall be sufficiently given or made if in writing
and either delivered in person with receipt acknowledged or sent by registered
or certified mail, return receipt requested, postage prepaid, or by telecopy and
confirmed by telecopy answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last known
address appearing on the books of Company maintained for such purpose.
(b) If to Company at:
Atlantic Pharmaceuticals, Inc.
150 Broadway
Suite 1100
New York, NY 10038
Attn: A. Joseph Rudick
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback, or three (3) Business Days after the same shall have been deposited
in the United States mail. Failure or delay in delivering copies of any notice,
demand, request, approval, declaration, delivery or other communication to the
person designated above to receive a copy shall in no way adversely affect the
effectiveness of such notice, demand, request, approval, declaration, delivery
or other communication.
13.3. Successors and Assigns. Subject to the provisions of Sections 3.1
and 9, this Warrant and the rights evidenced hereby shall inure to the benefit
of and be binding upon the successors of Company and the successors and assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of
all Holders from time to time of this Warrant and shall be enforceable by any
such Holder.
13.4. Amendment. This Warrant and all other Warrants may be modified or
amended or the provisions hereof waived with the written consent of Company and
the Majority Holders, provided that no such Warrant may be modified or amended
to reduce the number of shares of Common Stock for which such Warrant is
exercisable or to increase the price at which such shares may be purchased upon
exercise of such Warrant (before giving effect to any adjustment as provided
therein) without the prior written consent of the Holder thereof.
18
<PAGE>
13.5. Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
13.6. Headings. The headings used in this Warrant are for the convenience
of reference only and shall not, for any purpose, be deemed a part of this
Warrant.
13.7. Governing Law. This Warrant shall be governed by the laws of the
State of Delaware, without regard to the provisions thereof relating to conflict
of laws.
[SIGNATURES BEGIN ON NEXT PAGE]
19
<PAGE>
IN WITNESS WHEREOF, Company has caused this Warrant to be duly
executed and attested by its Secretary or an Assistant Secretary.
Dated: January 4, 2000
ATLANTIC PHARMACEUTICALS, INC.
By:/s/ A. Joseph Rudick
-----------------------
Name:A. Joseph Rudick
Title:President
Attest:
By:/s/ John Brancaccio
- - ----------------------
Name:John Brancaccio
Title:CFO
<PAGE>
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of ______ Shares of Common Stock of
Atlantic Pharmaceuticals, Inc. and herewith makes payment therefor, all at the
price and on the terms and conditions specified in this Warrant and requests
that certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the name
of and delivered to _____________ whose address is _________________ and, if
such shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, that a new Warrant of like tenor and date
for the balance of the shares of Common Stock issuable hereunder be delivered to
the undersigned.
-------------------------------
(Name of Registered Owner)
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
21
<PAGE>
EXHIBIT B TO WARRANT
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
- - ---------------------------- -----------------------------
and does hereby irrevocably constitute and appoint ___________________________
attorney-in-fact to register such transfer on the books of Atlantic
Pharmaceuticals, Inc. maintained for the purpose, with full power of
substitution in the premises.
Dated:__________________ Print Name:___________________
Signature:____________________
Witness:______________________
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
22
Exhibit 23.1
Accountants' Consent
The Board of Directors
Atlantic Technology Ventures, Inc. (formerly Atlantic Pharmaceuticals, Inc.):
We consent to incorporation by reference in the registration statements (No.
333-34379, 333-35079 and 333-65393) on Form S-3 and (No. 333-15807 and
333-48531) on Form S-8 of Atlantic Technology Ventures, Inc. (formerly Atlantic
Pharmaceuticals, Inc.) (a development stage company) of our report dated March
15, 2000, relating to the consolidated balance sheets of Atlantic Technology
Ventures, Inc. (formerly Atlantic Pharmaceuticals, Inc.) and subsidiaries as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1999, and for the period from
July 13, 1993 (inception) to December 31, 1999, which report appears in the
December 31, 1999 annual report on Form 10-K of Atlantic Technology Ventures,
Inc. (formerly Atlantic Pharmaceuticals, Inc.).
/s/ KPMG LLP
KPMG LLP
Short Hills, New Jersey
March 30, 2000
KPMG LLP
Short Hills, New Jersey
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0001001316
<NAME> ATLANTIC TECHNOLOGY VENTURES INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,473,321
<SECURITIES> 0
<RECEIVABLES> 337,323
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,828,058
<PP&E> 131,832
<DEPRECIATION> 221,171
<TOTAL-ASSETS> 3,959,890
<CURRENT-LIABILITIES> 542,759
<BONDS> 0
0
610
<COMMON> 4,816
<OTHER-SE> 3,411,705
<TOTAL-LIABILITY-AND-EQUITY> 3,959,890
<SALES> 0
<TOTAL-REVENUES> 1,159,579
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,898,725
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (292,630)
<INCOME-PRETAX> (2,446,515)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,446,515)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,446,515)
<EPS-BASIC> (.59)
<EPS-DILUTED> (.59)
<FN>
Amounts inapplicable or not disclose as a separate line on the Statement of
Financial or Results of Operations are reported as 0 herein.
</FN>
</TABLE>
