<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 25, 2000
Registration Statement No. 333-93913
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM N-2
/X/ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/X/ Pre-Effective Amendment No. 2
/ / Post-Effective Amendment No. ____________
---------------------
UTEK CORPORATION
(Exact name of registrant as specified in its charter)
---------------------
202 South Wheeler Street
Plant City, Florida 33566
Address of principal executive offices
(Number, Street, City, State and Zip Code)
(813) 754-4330
Registrant's telephone number, including area code
---------------------
Sam I. Reiber, Esq., General Counsel
601 E. Twiggs Street
Tampa, Florida 35602
(813) 223-7509
(Name, address and telephone number of agent for service)
---------------------
Copies to:
Jay M. Kaplowitz, Esq. Steven W. Schuster, Esq.
GERSTEN, SAVAGE & KAPLOWITZ, LLP MCLAUGHLIN & STERN, LLP
101 East 52nd Street, 9th Floor 260 Madison Avenue
New York, New York 10022 New York, New York 10016
(212) 752-9700 (212) 448-1100
(212) 752-9713 (fax) (212) 448-0066 (fax)
---------------------
Approximate date of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered in connection with a dividend
reinvestment plan, check the following box: / /
---------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8 (a) of
the Securities Act of 1933, as amended (the "Securities Act") or until the
Registration Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said Section 8(a), may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
===========================================================================================================
Proposed
Proposed Maximum
Maximum Aggregate Amount of
Title of Each Class of Amount Being Offering Price Offering Registration
Securities Being Registered Registered Per Security(1) Price Fee
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Common Stock, par value $0.01........ 1,150,000(2) $ 6.00 $6,900,000 $ 1,821.60
- -----------------------------------------------------------------------------------------------------------
Underwriters' Warrants .............. 100,000 $.0001 $ 10 (4)
- -----------------------------------------------------------------------------------------------------------
Common Stock Issuable on Exercise
of Underwriters' Warrants .......... 100,000(3) $ 9.90 $ 990,000 $ 261.36
- -----------------------------------------------------------------------------------------------------------
Total: .............................................................................. $ 2,082.96
===========================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933, as
amended.
(2) Includes up to 150,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option. Does not include up to 90,000 shares
of Common Stock issuable upon exercise of warrants granted to Gersten,
Savage & Kaplowitz, LLP.
(3) Pursuant to Rule 416, this Registration Statement also covers an
indeterminable number of additional shares of Common Stock issuable as a
result of any future anti-dilution adjustments in accordance with the
terms of the Warrants.
(4) No fee due pursuant to Rule 457(g)
<PAGE>
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item number and heading Location in prospectus
- ----------------------- ----------------------
<S> <C>
Part A
- --------
Item 1. Outside Front Cover Outside Front Cover Page
Item 2. Inside Front and Outside Back Cover Page Inside Front and Outside Back Cover Page
Item 3. Fee Table and Synopsis Fee Table; Prospectus Summary
Item 4. Financial Highlights Financial Highlights
Item 5. Plan of Distribution Underwriting
Item 6. Selling Shareholders Not applicable
Item 7. Use of Proceeds Use of Proceeds
Item 8. General Description of the Registrant Prospectus Summary; Risk Factors; Business
Item 9. Management Management
Item 10. Capital Stock, Long-Term Debt, and Other Description of Securities
Securities
Item 11. Defaults and Arrears on Senior Securities Not applicable
Item 12. Legal Proceedings Legal Proceedings
Item 13. Table of Contents of the Statement of Not applicable
Additional Information
Part B
- --------
Item 14. Cover Page Not applicable
Item 15. Table of Contents Not applicable
Item 16. General Information and History Business -- General Information and History
Item 17. Investment Objectives and Policies Investment Objectives and Policies
Item 18. Management Management
Item 19. Control Persons and Principal Holders of Control Persons and Principal Holders of
Securities Securities
Item 20. Investment Advisory and Other Services Investment Advisory and Other Services
Item 21. Brokerage Allocation and Other Practices Brokerage Allocation and Other Practices
Item 22. Tax Status Tax Status
Item 23. Financial Statements
</TABLE>
Pursuant to General Instruction on Form N-2, all information required to
be set forth in Part B: Statement of Additional Information has been included
in Part A: The Prospectus. All items required to be set forth in Part C are set
forth in Part C.
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 25, 2000
1,000,000 Shares
UTEK CORPORATION
Common Stock
------------
UTEK Corporation is offering 1,000,000 shares of its common stock at $6.00
per share. This is our initial public offering and there currently is no public
market for our common stock.
We are an internally managed closed-end management investment company that
operates as a business development company under the Investment Company Act of
1940, as amended. Our primary investment objective is to convert the stock and
other non-cash consideration which we receive in exchange or consideration for
our portfolio companies or technologies into cash and other assets in order to
acquire rights to additional technologies. We seek to achieve our investment
objective by developing our portfolio companies through the identification,
location, development and acquisition of licenses to and marketing of new
technologies and then merging our portfolio companies with companies in related
fields.
This prospectus sets forth concisely the information about our company
that a prospective investor ought to know before investing in our securities.
Please read this prospectus before investing in our securities and retain a
copy for future reference. Additional information about us has been filed with
the Securities and Exchange Commission and is available upon written or oral
request without charge. See "Additional Information."
Investors in this offering should be aware that upon the closing of this
offering, they will experience immediate, significant and substantial dilution
of $3.88 or 65% per share. Investors should also be aware that shares of
closed-end investment companies, like our company, have a tendency to trade at
a discount from their net asset value. The initial public offering price is
$6.00 per share, which was determined based upon negotiations with the
underwriters. Our common stock will be listed on the Nasdaq SmallCap Market
under the symbol UTOB.
Investing in our common stock involves risks, including, but not limited
to, the risks associated with our portfolio companies, which are development
stage companies with little or no operating histories. See "Business --
Portfolio Companies". See "Risk Factors" beginning on page 6.
<TABLE>
<CAPTION>
Sales Load(1)
------------------------------------
Underwriting
Price to Discounts and Nonaccountable Proceeds to
Public Commissions Expense Allowance UTEK(2)
-------------- --------------- ------------------- --------------
<S> <C> <C> <C> <C>
Per Share ......... $ 6.00 $ 0.60 $ 0.18 $ 5.22
Total ............. $6,000,000 $600,000 $180,000 $5,220,000
</TABLE>
- ------------
<PAGE>
(1) Does not include a three-year financial consulting agreement for a total
fee of $120,000 (all of which is payable to May Davis Group, Inc. upon the
closing of this offering). We have also agreed to indemnify the
underwriters against certain civil liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses of the offering, other than the underwriters'
three (3%) percent non-accountable expense allowance, payable by us of
approximately $180,000 (approximately $.18 per share).
(3) Does not include 190,000 shares of common stock reserved for issuance upon
exercise of warrants.
Delivery of the shares of common stock will be made on or about April ,
2000.
We have granted the underwriters a 45-day option to purchase in the
aggregate an additional 150,000 shares of common stock to cover over-allotments.
The underwriters are offering the shares on a firm commitment basis.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
May Davis Group, Inc. Artesia Securities S.A./NV
The date of this prospectus is April 25, 2000.
<PAGE>
---------------------
TABLE OF CONTENTS
Page
-----
Available Information .................................. ii
Reports to Stockholders ................................ ii
Fee Table .............................................. iii
Prospectus Summary ..................................... 1
Financial Highlights ................................... 5
Risk Factors ........................................... 6
Dilution ............................................... 12
Dividends and Future Distributions ..................... 13
Capitalization ......................................... 13
Use of Proceeds ........................................ 14
Selected Financial Data ................................ 15
Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
Business ............................................... 20
Page
---
Investment Objectives and Policies ..................... 19
Management ............................................. 30
Control Persons and Principal Holders of
Securities .......................................... 34
Conflicts of Interest .................................. 34
Investment Advisory Services ........................... 34
Brokerage Allocation and Other Practices ............... 34
Federal Income Tax Matters ............................. 35
Description of Securities .............................. 35
Underwriting ........................................... 37
Legal Matters .......................................... 38
Experts ................................................ 38
Indemnification of Securities Act Liabilities .......... 38
Index to Financial Statements .......................... F-1
You should rely only on the information contained in this document or to
that which we have referred you. We have not authorized anyone to provide you
with information that is different. This document may only be used where it is
legal to sell these securities. The information in this document may only be
accurate on the date of this document.
AVAILABLE INFORMATION
We have filed a Registration Statement on Form N-2 regarding this offering
with the Securities and Exchange Commission. This prospectus, which is a part
of the registration statement, sets forth concisely the information about our
company that a prospective investor should know before investing, and this
prospectus should be read and retained for future reference. This prospectus
does not contain all of the information included in the registration statement,
and you should refer to the registration statement and its exhibits to read
that information. References in this prospectus to any of our contracts or
other documents are not necessarily complete, and you should refer to the
exhibits attached to the registration statement for copies of the actual
contract or document. You may read and copy the registration statement, the
related exhibits and the other materials we file with the Commission at the
Commission's public reference room at 450 Fifth Street N.W., Washington, D.C.
20549 and at the Commission's regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. You can also request copies of those documents, upon
payment of a duplicating fee, by writing to the Commission. Please call the
Commission at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. The Commission also maintains an Internet site that
contains reports, proxy and information statements and other information
regarding issuers that file with the Commission; the site's address is
www.sec.gov. Our Internet address is www.utekcorp.com.
<PAGE>
REPORTS TO STOCKHOLDERS
As a result of this offering, we will be subject to the informational
requirements of the Securities Exchange Act. So long as we are subject to the
periodic reporting requirements of the Exchange Act, we will furnish reports
and other information required thereby to the Securities and Exchange
Commission. We intend to furnish our stockholders with annual reports
containing, among other information, audited financial statements certified by
an independent accounting firm and quarterly reports containing unaudited
financial statements. We also intend to file such other reports as we may
determine or as may be required by law.
In connection with this offering, the underwriters may over-allot or
effect transactions which stabilize or maintain the market price of our common
stock offered hereby at levels above that which might otherwise prevail in the
open market. Such stabilizing, if commenced, may be discontinued at any time.
ii
<PAGE>
FEE TABLE
Shareholder Transaction Expenses
Sales load (as a percentage of offering price)
Underwriting discounts and commissions ......... 10.0%
Non-accountable expense allowance .............. 3.0%
Annual Expenses (as a percentage of net assets)
Other expenses
Salaries and wages ............................. 3.3%
Professional fees .............................. 3.4%
Sales and marketing ............................ 2.4%
Management fees ................................ 0.7%
General administrative ......................... 3.4%
Total annual expenses ................................ 13.2%
Other expenses are based upon estimated amounts for the current fiscal year, as
a percentage of net assets, including estimated net proceeds from the offering.
For additional information on management compensation, please refer to the
discussion of our stock option plans beginning on page 34.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Example 1 year 3 years 5 years 10 years
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming a 5% annual return ............. $255 $90 $76 $50
- -------------------------------------------------------------------------------------------------
</TABLE>
The purpose of the above table is to assist investors in understanding the
various costs and expenses that an investor in our company will bear directly
or indirectly.
The foregoing should not be considered a representation of past or future
expenses or rates of return. The actual expenses and rates of return may be
greater or lesser than those shown in the example.
iii
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some of the information in this prospectus. It may
not contain all of the information that is important to you. To understand this
offering fully, you should read the entire prospectus carefully, including the
risk factors and the financial statements. Unless we tell you otherwise, the
information in this prospectus assumes that the underwriter will not exercise
its over-allotment option.
UTEK Corporation
General
We are a non-diversified, closed-end management investment company that
has elected to be treated as a special type of investment company known as a
business development company, or BDC. Our primary investment objective is to
convert the stock and other non-cash consideration which we receive in exchange
or consideration for our portfolio companies or technologies into cash and
other assets in order to acquire rights to additional technologies. We intend
to achieve this objective through our U2B(TM) investment model which consists
of:
o making controlling investments in and forming development stage
companies, which we refer to as portfolio companies;
o developing our portfolio companies through the acquisition of new
technologies and, when appropriate, the funding of further research and
development;
o realizing value primarily through the sale of our portfolio companies to
companies in related industries in non-taxable transactions in which we
receive common stock of the acquiring company; and
o selling the common stock we receive in exchange for our portfolio
companies and investing the proceeds therefrom in additional portfolio
companies.
Investment Strategy
We form and make investments in our portfolio companies for the purpose of
assisting the portfolio companies in obtaining licenses to new technologies in
a variety of industries, including e-commerce, nanotechnology, computer
sciences, environmental engineering and healthcare, developed at universities
and research laboratories. We also seek acquisition partners that will purchase
our portfolio companies, and their technology rights, primarily in stock for
stock exchanges. We may also make additional investments to fund continued
research and development of the acquired technologies.
We also provide our portfolio companies with significant managerial
assistance including having members of our management serve as directors and
executive officers of our portfolio companies. Our management has experience
identifying and acquiring licensing rights to technologies developed at
universities and research laboratories and selling those rights to other
entities for commercialization, a process referred to as technology transfer.
We also provide assistance to portfolio companies in connection with setting up
and funding sponsored research programs for the development of new
technologies. Our portfolio companies are formed with the objective of
completing a technology transfer. Our U2B(TM) investment model is designed to
bring technologies from their inception at universities to the private sector;
hence, we engage in university-to-business technology transfer.
As of the date of this prospectus we have controlling interests in the
following portfolio companies:
o Zorax, Inc., which has acquired a license to a patent pending technology
for the separation of cystic parasite forms from drinking
water;
o Technology Development, Inc., which is seeking to acquire new computer
hardware and software technologies;
1
<PAGE>
o Advanced Desalination Technologies, Inc., which is seeking to acquire a
water desalination technology;
o Doppler Technology International, Inc, which is seeking to acquire new
technologies for non-invasive analysis of body tissue; and
o Microsphere Technology, Inc., which is seeking to acquire licenses to
novel materials science technologies.
When we identify a new technology that we believe has commercial
potential, it is our practice to have a portfolio company enter into an
agreement with the developers to license the technology. We intend that
substantially all research and marketing will be conducted by our portfolio
companies. However, we do not intend to have a portfolio company invest
substantial sums in a new technology or a licensing arrangement until such time
as we or the portfolio company has identified a suitable purchaser and we have
entered into an agreement to sell the portfolio company to the purchaser. The
sales are structured such that we exchange all the shares we own of the
portfolio company for common stock or other securities of the purchaser in a
tax-free exchange. The sales of our portfolio companies to date are as follows:
o In May 1998, we received 1,000,000 shares of common stock of Lexon, Inc.
in connection with the sale of Gentest, Inc. a portfolio company, to
Lexon. Lexon is a development stage public company whose shares are traded
on the over-the-counter bulletin board under the symbol LXXN.
o In June 1999, we received 791,957 shares of common stock of NuElectric,
Inc. in connection with the sale of our portfolio company, Clean Water
Technologies, Inc. to NuElectric. On November 12, 1999, we exchanged
300,000 shares of our NuElectric common stock for common stock in another
company. We own 491,957 of NuElectric common stock. NuElectric is a
development stage public company whose shares are traded on the
over-the-counter bulletin board under the symbol NRGE.
o In May 1999, we received 900,000 shares of common stock of Centrex, Inc.
in connection with the sale of our portfolio company, E. Coli Measurement
Systems, Inc., to Centrex. In September 1999, we received 684,000 shares
of common stock of Centrex in connection with the sale of another
portfolio company, Safe Water Technologies, Inc., to Centrex. Centrex is a
development stage private company and we own 1,584,000 shares of Centrex
common stock.
o In January 1999, we received 879,300 shares of common stock of Image
Analysis, Inc., an Oklahoma corporation in connection with the sale of our
portfolio company, Image Analysis Corporation, to Image Analysis, Inc.
Image Analysis, Inc. is a development stage private company and we own
879,300 shares of common stock of Image Analysis, Inc.
o In May 1999, we received 900,000 of common stock of Nucor Enterprises,
Inc., an Oklahoma corporation in connection with the sale of our portfolio
company, Advanced Reinforcing Technologies, Inc. to Nucor. Nucor is a
development stage private company and we own 900,000 shares of common
stock of Nucor.
o In January 2000, we received $50,000 cash and a six-month note for
$150,000 in connection with the sale of our portfolio company, Cancer
Diagnostics, Inc., to Lexon, Inc.
o In March 2000 we received 100,799 shares of common stock of Graphco
Technologies, Inc. in connection with the sale of our portfolio company,
Digital Personnel, Inc., to Graphco-DPI Holding Company, Inc., a
wholly owned subsidiary of Graphco Technologies, Inc. Graphco is a private
company.
2
<PAGE>
Our objective is to hold the securities that we receive in exchange for
our portfolio companies until such time that we can sell the securities for
cash or other assets. The proceeds of these sales are to be used primarily to
acquire additional rights in technologies.
We also provide consulting services relating to technology transfer to
university research departments and to public and private companies.
UTEK Corporation was incorporated under the laws of the State of Delaware
in July 1999. Our principal executive offices are located at 202 South Wheeler
Street, Plant City, Florida 33566, and our telephone number is (813) 754-4330.
Our website is located at www.utekcorp.com.
Management Fees and Compensation
Clifford M. Gross, our Chairman, will receive $150,000 per year. The
compensation of our President, Uwe Reischl, will be $100,000 per year. In
addition, we granted stock options to certain of our officers and other
compensation for their management assistance in portfolio companies. See
"Management -- Executive Compensation."
3
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered .................... 1,000,000 shares.
Public offering price ................... $6.00 per share.
Common stock to be outstanding after this
offering .............................. 3,782,226 shares. This does not include 100,000 shares
in the aggregate reserved for issuance upon exercise
of the underwriters' warrants and does not include
90,000 shares reserved for issuance upon exercise of
warrants issued to Gersten, Savage and Kaplowitz, LLP.
Risk factors ............................ Investing in our common stock involves a high degree
of risk including, but not limited to, the highly
speculative nature of our investments in our portfolio
companies and the illiquidity and lack of
diversification of our investments.
Use of Proceeds ......................... We intend to use the net proceeds of this offering for
o investments in portfolio companies and additional
investments for research and development of
licensed technologies; and
o general corporate purposes, including working
capital.
Nasdaq SmallCap Market symbol ........... UTOB
</TABLE>
4
<PAGE>
Financial Highlights
The following table sets forth per share income, capital changes and
certain other operating information for us. The financial and other data has
been derived from our audited financial statements for the year ended December
31, 1997, 1998 and 1999, all of which are included in another section of this
prospectus. The information below should be read in conjunction with "Selected
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
notes thereto, each of which is included in another section of this prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1997 1998 1999
-------------- -------------- --------------
<S> <C> <C> <C>
PER SHARE INFORMATION
Net asset value, beginning of year .................. $ -- $ 0.02 $ 0.56
Net increase from operations (1) .................. -- 0.05 0.10
Net change in unrealized appreciation on
investments (after taxes) (1) .................... -- 0.23 (0.04)
Net increase from stock transactions (1) .......... 0.02 0.26 0.56
--------- --------- ----------
Net asset value, end of year ........................ $ 0.02 $ 0.56 $ 1.18
========= ========= ==========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ............................. $ 31,708 $1,365,647 $3,284,453
Ratio of expenses to average net assets (2) ......... 32% 31% 31%
Ratio of net income to average net assets ........... (32%) 15% 12%
Portfolio turnover rate ............................. -- -- 7%
Weighted average number of shares
outstanding during the year ....................... 2,070,494 2,304,691 2,682,420
</TABLE>
- -------------
(1) Calculated based on weighted average number of shares outstanding during
the year.
(2) Excluding income taxes.
5
<PAGE>
RISK FACTORS
An investment in our common stock is speculative and involves a high
degree of risk. In addition to the other information in this prospectus, you
should carefully consider the following risk factors before making an
investment decision.
Our investment model is speculative in nature and our history of investments
using the model is limited.
Our investment model is highly speculative since it involves making
investments in new development stage companies and having those companies
invest in new, untested technology. Furthermore, we have only been using our
investment model for a relatively short period of time and have little or no
historical information upon which to judge whether or not the model is
successful. We cannot assure you that our investment model will be successful
or that any of our investments will be successful.
Our portfolio companies are development stage companies dependent upon the
successful commercialization of new technologies. Each of our investments in
portfolio companies is subject to a high degree of risk and we may lose all of
our investment in a portfolio company if it is not successful.
We invest in development stage companies that our management believes can
benefit from our expertise in technology transfer. Development stage companies
are subject to all of the risks associated with new businesses. In addition,
our portfolio companies are also subject to the risks associated with research
and development of new technologies. These risks include the risk that new
technologies cannot be identified, developed or commercialized, may not work,
or are obsolete. Our portfolio companies must successfully acquire licenses to
new technologies, and in some cases further develop new technologies, and then
complete a merger transaction for our investments to be successful. We cannot
assure you that any of our investments in our portfolio companies will be
successful. Our portfolio companies will be competing with larger, established
companies, with greater access to, and resources for, further development of
these new technologies. In addition, for an investment to be successful, our
portfolio companies often must develop the technology and identify buyers who
are willing to acquire the technology, in exchange for their common stock or
other consideration. We cannot assure you that any of our portfolio companies
will be successful or that we will successfully sell our portfolio companies or
sell or relicense the technology rights held by our portfolio companies. We may
lose our entire investment in any or all of our portfolio companies.
Our portfolio companies depend upon the research and development activities of
universities, over which neither we nor our portfolio companies have any
control.
Our portfolio companies depend upon the research activities of
universities and government research facilities. Neither we, nor our portfolio
companies, have any control over the research activities of universities and
research laboratories. In addition, we have no control over what types of
research are presented to us by universities and government research facilities
for evaluation and commercial development. Further, the licenses to
technologies that our portfolio companies obtain may be non-exclusive. In the
event that we make an investment in a portfolio company, and we are unable to
locate a new technology to be acquired by the portfolio company, we could lose
our entire investment.
Technologies acquired by our portfolio companies may become obsolete before we
can sell the portfolio companies.
Neither we nor our portfolio companies have any control over the pace of
technology development. There is a significant risk that a portfolio company
could acquire the rights to a technology that is currently or is subsequently
made obsolete by other technological developments. We cannot assure you that
any of our portfolio companies will successfully acquire, develop and transfer
any new technology.
The patents on the technologies that our portfolio companies license may
infringe upon the rights of others and patent applications that the
universities have submitted may not be granted.
Many of our portfolio companies rely upon patents to protect the
technologies that they license. If the patents on technologies that they
license are found to infringe upon the rights of others, or are held to be
6
<PAGE>
invalid, then the licenses to such technologies will have little or no value to
our portfolio companies. In addition, if a patent licensed by a portfolio
company is found to infringe upon the rights of others, the portfolio company
may be liable for monetary damages. Our portfolio companies are dependent upon
the universities or government research facilities to file, secure and protect
patents on licensed technologies. In the event that a patent is challenged or
violated, our portfolio companies may not have the financial resources to
defend the patent either in the preliminary stages of litigation or in court.
In addition, if our portfolio companies acquire licenses to technologies with
patents pending, we cannot assure you that such patents will be granted.
Technologies that have been developed with funding from the United States
Government may have limits on their use which could affect the value of the
technology to a portfolio company.
Technologies developed with funds provided by the United States Government
have restrictions regarding where they may be sold and have limits on
exclusivity. A portfolio company that acquires a technology developed with
federal funding may be limited as to where it can sell the technology. The
technology may only be allowed to be sold or manufactured within the United
States. In addition, under Section 23 of the United States Code, the Government
has the right to use technologies that it has funded regardless of whether the
technology has been licensed to a third party. Such regulations may limit the
marketability of a technology and therefore reduce the value of the technology
to our portfolio companies.
We may need to make additional investments in our portfolio companies to
provide them with capital to further develop technologies they license.
We may have to make additional investments in portfolio companies to
protect our initial investments. We retain the discretion to make any
additional investments as our management determines. The failure to make such
additional investments may jeopardize the continued viability of a portfolio
company and our initial (and subsequent) investments. Moreover, additional
investments may limit the number of companies in which we can make initial
investments. We have no established criteria in determining whether to make an
additional investment except that our management will exercise its business
judgment and apply criteria similar to those used when making the initial
investment. We cannot assure you that we will have sufficient funds to make any
necessary additional investments which could adversely affect our success and
result in the loss of a substantial portion or all of our investment in a
portfolio company.
We may be unable or decide not to make additional investments in our portfolio
companies which could result in our losing our initial investment if the
portfolio company fails or having our ownership and control diluted if a
portfolio company seeks additional funds from third party investors.
Our agreement with the underwriters restricts the size of our investment
in any single portfolio company and, as a result, could prohibit an additional
investment in a portfolio company in the event that our initial investment
represented 10% or more of our assets. Even if we are able to make an
additional investment in a portfolio company within the prescribed limits, we
may elect not to make an additional investment in a portfolio company in order
to limit the size of our investment which is at risk. Therefore, if a portfolio
company requires additional funds to continue operating, and we cannot or
choose not to make an additional investment, our investment in the portfolio
company may decline in value. In addition, to the extent that a portfolio
company seeks additional financing from third parties, our ownership interest
and control of the portfolio company may be diluted.
The securities we hold in our portfolio companies are illiquid and we may not
be able to sell the portfolio company securities we hold for amounts equal to
their recorded value, if at all.
Our portfolio companies are all private entities and we acquire securities
in our portfolio company in private transactions. As a result, all of the
securities we hold in our portfolio companies are restricted securities, as
defined under the Securities Act and are subject to restrictions on resale.
Furthermore, we do not anticipate that a public market will exist for any of
the securities we hold in our portfolio companies.
7
<PAGE>
Therefore, any sale or other transfer of the securities we hold in portfolio
companies will be made in private transactions and we cannot assure you that we
will be able to sell our portfolio company securities for amounts equal to the
values that we have ascribed to them.
We are dependent on merger transactions, structured as tax-free exchanges to
sell our portfolio companies. A change in the Internal Revenue Code affecting
tax-free exchanges could reduce our ability to sell our portfolio companies.
We do not anticipate selling any of our portfolio companies, except in
connection with merger transactions. We anticipate that most, if not all, of
such merger transactions will be structured as tax free exchanges under Section
368 of the Internal Revenue Code. If Section 368 were to be amended so that we
were no longer able to structure our merger transactions as tax free exchanges,
we may not be able to sell our portfolio companies on commercially reasonable
terms. If we are unable to successfully sell a portfolio company in a merger
transaction, we may lose our investment.
We have been dependent on a small number of companies controlled by the same
investor group for the purchase of our portfolio companies. We have only
limited experience selling our portfolio companies and of the seven
transactions that we have completed, six have been to companies controlled by
the same group of investors.
As of the date of this prospectus we have completed only eight
transactions, including seven mergers and one stock sale, wherein we sold
portfolio companies to other companies and six of these sales have been made to
companies that are controlled by the same investor group. As a result, we have
only had the benefit and experience of negotiating such agreements with a small
number of investors. We cannot assure you that we will be able to successfully
negotiate merger transactions for the sales of our portfolio companies in the
future.
The agreements we have with universities do not guarantee that the universities
will grant licenses to our portfolio companies.
The agreements that we have entered into with universities provide us with
the ability to evaluate the commercial potential for technologies at an early
stage of development. These agreements however, do not provide us with any
guarantee that following our evaluation, a university will grant us a license.
As a result, we may expend time and resources evaluating a technology and not
be able to secure a license to such technology for one of our portfolio
companies.
We are exposed to significant asset concentration risk.
To date, six out of the eight consummated transactions have been with
"merger parties" controlled by a similar group of investors. The value of these
investments represents 65% of our total net assets as of December 31, 1999.
We are dependent upon our management's ability to identify acquirers for our
portfolio companies.
Our investment strategy is based upon selling our portfolio companies in
stock for stock exchanges to public companies that wish to acquire the
technologies owned by our portfolio companies but which themselves may be
neither operating nor established. We do not expect to sell any portfolio
company securities to the public. Therefore, if we fail to identify an acquirer
for a portfolio company, we do not expect that we will be able to sell the
portfolio company securities to the public. Therefore, our entire investment in
the portfolio company could be lost.
We are dependent upon and have little or no control over the efforts of
companies that acquire our portfolio companies to successfully commercialize
the technologies they acquire.
When we sell a portfolio company, we receive common stock from the
acquiring company based upon the mutually agreed upon values of the portfolio
company, its licensed technology and the acquiring company. We then intend to
sell the securities that we acquire in exchange for our portfolio companies at
some time in
8
<PAGE>
the future. Therefore, our ability to profit from an investment in a portfolio
company is ultimately dependent upon the price we receive for the shares of the
acquiring company. In most cases, the companies that acquire our portfolio
companies will be dependent upon successfully commercializing the technologies
they acquire. We do not have control over the companies that acquire our
portfolio companies and we do not intend to provide them with managerial
assistance. These operating companies may face intense competition, including
competition from companies with greater financial resources, more extensive
research and development, manufacturing, marketing and service capabilities and
a greater number of qualified and experienced managerial and technical
personnel. They may face additional risks of product and technological
obsolescence and government regulation over which we will have little or no
control. They may need additional financing which they are unable to secure and
we are unable or unwilling to provide or they may be subject to adverse
developments unrelated to the technologies they acquire. We cannot assure you
that any of the companies that acquire our portfolio companies will be
successful or that we will be able to sell the securities we receive at a
profit or for sufficient amounts to even recover our initial investment in the
portfolio company.
The companies that merge with our portfolio companies are development stage
companies and, as a result, the value of the securities that we receive in such
merger transactions are subject to significant fluctuations.
Historically we have merged, and we intend to continue to merge, our
portfolio companies with companies in related fields that are development stage
companies. As a result, the securities that we receive when we merge a
portfolio company are subject to all of the risks associated with securities of
development stage companies. The values of these securities may be subject to
significant fluctuations. We cannot assure you that when we sell these
securities, we will receive the value ascribed to the securities either at the
time of acquisition or during subsequent valuation periods.
Our investments in our portfolio companies are not made on a multi-tiered basis
and are subject to loss.
Substantially all of our portfolio companies are early stage companies. We
may make substantial investments in our portfolio companies to enable them to
conduct initial research, development and acquisition activities. These
investments are not made in companies at different stages of development and,
accordingly, our investments do not benefit from any advantages which might be
obtained by making investments on a multi-tiered basis. We cannot assure you
that any or all of our portfolio companies will find or acquire new
technologies. If any or all of them do find or acquire new technologies, we
cannot give you any assurance that the portfolio companies will be able to find
suitable merger partners or other suitable purchasers of the technologies. As a
result, any or all of our portfolio companies may use the proceeds of our
investments to pay the costs and expenses of researching, developing or
acquiring technologies.
The securities that we receive in exchange for our portfolio companies will be
subject to restrictions on resale which will limit our ability to sell these
securities.
To date, all of the securities we have received in exchange for our
portfolio companies are "restricted securities," as such term is defined under
Rule 144. These shares are restricted securities because they were issued in
private transactions not involving a public offering and may not be sold in the
absence of registration other than in accordance with Rule 144 or Rule 701
under the Securities Act or another exemption from registration. As a result of
such restrictions, our ability to sell or otherwise transfer the securities we
hold in our portfolio companies will be limited. We cannot assure you that we
will be able to receive the recorded value of our portfolio company securities
in merger transactions.
We may not be able to merge our portfolio companies with publicly traded
entities and so we may receive non-publicly traded securities in exchange for
our portfolio companies. We may be required to sell the securities we receive
at a substantial discount to their appraised value if no public market exists.
To date, we have completed eight sales of portfolio companies. Of these
sales, two have been to public companies, and the remainder have been to
non-public companies. We are substantially dependent upon the
9
<PAGE>
ability of non-public acquirers of our portfolio companies to implement a plan
which would facilitate a trading market for their securities or other strategy
which would allow for the potential sale of our ownership interest. In
addition, to the extent that we own more than 10% of an acquiror's shares, we
may be deemed to be an affiliate of the acquiror which would limit our ability
to dispose of securities we receive for our portfolio companies. Further, our
ability to sell the securities we receive for our portfolio companies may be
limited by, and subject to, the lack of or limited nature of a trading market
for the securities and the volatility of the stock market as a whole. Such
limitations could prevent or delay any sale of our investments or significantly
reduce the amount of proceeds, if any, that might otherwise be realized
therefrom.
The values we place on our investments may not accurately reflect their future
value or the value that we will receive for them when we sell them.
At December 31, 1999 and December 31, 1998, equity securities amounting to
$2,594,931 or 79% of net assets and $1,300,000 or 95% of net assets,
respectively, have been valued at fair value as estimated by an independent
valuation specialist. As a general matter, restricted securities and securities
without an active trading market are more difficult to accurately value than
unrestricted, actively traded securities of public companies. We are required
by the 1940 Act to determine the value of our illiquid securities on a
quarterly basis and make a good faith determination that fair value has been
ascribed to the aforementioned investments. See "Valuation of Portfolio
Securities" and our financial statements. Generally, such investments are
valued on a "going concern" basis without giving effect to any disposition
costs. If we were required to sell any of such investments, there is no
assurance that the fair value, as determined by management, would be obtained.
If we were unable to obtain fair value for such investments, there would be an
adverse effect on our net asset value and on the price of our common stock.
One of the companies that we own shares in is involved in an investigation by
the Securities and Exchange Commission.
We have received a subpoena from the Commission's Division of Enforcement
in connection with an investigation that involves Lexon, Inc. We own 1,000,000
shares of Lexon. We have received no further information regarding the nature
of this investigation. As a result we cannot presently assess the materiality
or significance of any potential legal proceedings, liabilities of Lexon or
other risks or uncertainties, including any adverse effect on the trading price
of Lexon common stock.
The book value of the shares of common stock purchased in this offering will be
immediately, significantly and substantially diluted.
The public offering price at which our common stock is to be sold in this
offering is significantly higher than the net asset value per share of our
common stock. Assuming all of the shares of our common stock offered hereby are
sold, each share will experience immediate, significant and substantial
dilution of $3.88 or 65%.
Your ownership interest and the value of the shares of our common stock
purchased in this offering may be diluted by the exercise of stock options and
warrants we have granted or may grant in the future.
We have adopted employee stock option plans under which certain of our
employees and directors have been granted options to purchase up to 388,000
shares of our common stock. We have also reserved an additional 362,000 shares
of our common stock for issuance under our employee stock option plans to key
employees and directors. In addition, we have granted warrants to the
underwriters to purchase shares of common stock equal to ten percent of the
shares sold in this offering, and warrants to purchase up to 90,000 shares of
common stock to Gersten, Savage & Kaplowitz, LLP. The issuance and sale of
these shares of common stock will dilute the ownership interest of investors in
this offering and may have an adverse effect on the price of our common stock.
10
<PAGE>
We depend upon Clifford M. Gross and Uwe Reischl for our investment decisions
in portfolio companies.
We rely, and will continue to be substantially dependent upon, the
continued services of our management, principally our Chief Executive Officer
and Chairman of the Board, Clifford M. Gross, and our President Uwe Reischl.
Our management is responsible for the review of potential investments by and
the provision of advice to our portfolio companies regarding the acquisition of
technologies and additional research and development. We also depend upon our
management's key contacts with universities, to maintain our access to new
technologies, and their relationships with companies in the private sector in
order to effectuate the sale of our portfolio companies.
Any transactions we engage in with affiliates may involve conflicts of
interest.
The 1940 Act restricts transactions between us and any of our affiliates,
including our officers, directors or employees and principal stockholders. In
many cases, the 1940 Act prohibits transactions between such persons and
ourselves unless we first apply for and obtain an exemptive order from the
Securities and Exchange Commission. Delays and costs in obtaining necessary
approvals may decrease or even eliminate any profitability of such transactions
or make it impracticable or impossible to consummate such transactions. These
affiliations could cause circumstances which would require the Commission's
approval in advance of proposed transactions by us in portfolio companies.
Further, depending upon the extent of our management's influence and
control with respect to such portfolio companies, the selection of the
affiliates of management to perform such services may not be a disinterested
decision, and the terms and conditions for the performance of such services and
the amount and terms of such compensation may not be determined in arm's-length
negotiations.
We have a limited amount of funds available for investment in portfolio
companies and as a result, our investments will lack diversification.
Based on the amount of our existing available funds, together with the
funds being realized from this offering, it is unlikely that we will be able to
commit our funds to investments in, and the acquisition of, securities of a
large number of companies. We intend to continue to operate as a
non-diversified investment company within the meaning of the 1940 Act.
Prospective investors should understand that our current investments are not,
and in the future may not be, substantially diversified. We will not be able to
achieve the same level of diversification as larger entities engaged in similar
venture capital activities. Therefore, our assets may be subject to greater
risk of loss than if they were more widely diversified, because the failure of
one or more of our limited number of investments could have a material adverse
effect on our financial condition.
We are subject to government regulations because of our status as a business
development company.
We have elected to be treated as a BDC under the Small Business Investment
Incentive Act of 1980, which modified the 1940 Act. Although the Incentive Act
relieves BDCs from compliance with many of the provisions of the 1940 Act, the
Incentive Act imposes on BDCs greater restrictions on permitted types of
investments. Moreover, the applicable provisions of the 1940 Act impose
numerous restrictions on our activities, including restrictions on the nature
of our investments and transactions with affiliates. We cannot assure you that
this legislation will be interpreted or administratively implemented in a
manner consistent with our objectives and manner of operations. Upon approval
of a majority of our stockholders, we may elect to withdraw our status as a
BDC. If we elect to withdraw our election, or if our election to operate as a
BDC is rejected, or if we otherwise fail to qualify as a BDC, we may be subject
to the substantially greater regulation under the 1940 Act. Compliance with
such regulations would significantly increase our costs of doing business.
11
<PAGE>
We have a limited operating history upon which you can assess our prospects and
we are subject to the risks associated with any new business.
As a result of our short history of operations, we have only consummated
transactions with a very small number of companies. Therefore, there is little
historical information regarding our operations upon which you can base your
investment decision. In addition, we are subject to all of the business risks
and uncertainties associated with any new business enterprise. We cannot assure
you that our investment objective will be attained.
Our management has limited experience operating a business, has had no
experience in managing and operating a business development company, and has
little or no experience in corporate finance and corporate mergers.
The members of our management have been engaged in the operation of our
business for a short period of time and so have limited experience. Some of our
directors and executive officers only have experience in science and research.
Furthermore, we commenced operations as a business development company in
October 1999 and so our directors and executive officers have only had
experience operating a business development company since October 1999. In
addition, our management has had limited experience in the areas of corporate
finance and corporate mergers.
Our management has broad discretion in investing the proceeds of this offering.
Except as set forth in "Use of Proceeds" and subject to our fundamental
policies, our management has broad discretion in the application of the
proceeds of this offering. We have not identified any particular use for the
net proceeds of this offering other than to make investments on the basis of
opportunities as they may arise. Accordingly, purchasers of our securities must
rely on the ability of management in making portfolio investments consistent
with our objectives. Investors will not have the opportunity to evaluate
personally the relevant economic, financial and other information which will be
utilized by management in deciding whether or not to make a particular
investment.
There are no significant barriers to entry to our business and we expect to
face significant competition as new competitors enter the market.
We expect that if our investment model proves to be successful, our
current competitors in the technology transfer market may duplicate our
strategy and new competitors may enter the market. We compete against other
technology transfer companies, some of which are much larger and have
significantly greater financial resources than we do. In addition, these
companies will be competing with our portfolio companies to acquire
technologies from universities and government research laboratories. We cannot
assure you that we will be able to successfully compete against these
competitors in the acquisition of technology licenses, funding of technology
development or marketing of portfolio companies.
One of our current stockholders has significant influence over our management
and affairs and will continue to have significant control over us after the
completion of this offering.
Clifford M. Gross, our Chief Executive Officer and Chairman of the Board,
beneficially owns approximately 70% of our common stock and upon completion of
this offering will beneficially own approximately 51% of our common stock. As a
result, following the completion of this offering, Dr. Gross will be able,
among other things, to elect directors, change our investment policies, and
withdraw our election to operate as a BDC.
12
<PAGE>
DILUTION
The public offering price at which our common stock is to be sold in this
offering is significantly and substantially higher than the net asset value per
share of our common stock. At December 31, 1999, we had a net asset value of
$3,284,453 or $1.18 per share. After giving effect to the sale of 1,000,000
shares of common stock being offered, and after deducting estimated
underwriting discounts and expenses of this offering of $1,255,000, our
adjusted net asset value at December 31, 1999 would have been $8,029,453 or
$2.12 per share, representing an immediate increase in net asset value of $0.94
per share to the existing stockholders and an immediate, significant and
substantial dilution of $3.88 or 65% per share to new investors. Please also
refer to the Fee Table on page iii.
The following table illustrates the above information with respect to
dilution to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Initial public offering price per share of common stock ......... $ 6.00
Net asset value per share before the offering ................... $ 1.18
Increase attributable to new investors .......................... 0.94
-------
Adjusted net asset value per share after the Offering ........... 2.12
-------
Dilution to new investors ....................................... $ 3.88
=======
</TABLE>
The following table sets forth, with respect to existing stockholders and
the investors in the offering, a comparison of the number of shares of common
stock purchased from our company, the percentage ownership of such shares, the
aggregate consideration paid, the percentage of total consideration paid and
the average price paid per share.
<TABLE>
<CAPTION>
Shares Owned Total Consideration Average
--------------------------- ------------------------- Price per
Number Percent Amount Percent Share
--------------- --------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Existing shareholders .............. 2,782,226 73.6% $2,163,832 26.5% $ .78
Investors in this offering ......... 1,000,000* 26.4% $6,000,000 73.5% $ 6.00
</TABLE>
- ------------
* These shares do not include the shares of common stock reserved for issuance
upon exercise of warrants issued to Gersten, Savage & Kaplowitz, LLP which,
if exercised, would result in additional dilution to new investors of $0.02
per share. These shares also do not include the underwriters' over-allotment
option.
13
<PAGE>
DIVIDENDS AND FUTURE DISTRIBUTIONS
We have never declared or paid any dividends to the holders of our common
stock and we do not anticipate paying dividends in the foreseeable future. We
currently intend to retain all earnings for use in connection with the
expansion of our business and for general corporate purposes. Our board of
directors will have sole discretion in determining whether to declare and pay
dividends in the future. The declaration of dividends will depend on our
profitability, financial condition, cash requirements, future prospects and
other factors deemed relevant by our board of directors. Our ability to pay
dividends in the future could be limited or prohibited by regulatory
requirements and the terms of financing agreements that we may enter into or by
the terms of any preferred stock that we may authorize and issue.
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1998
and 1999 on an actual basis and adjusted to give effect to our sale of 1,000,000
shares of the common stock being offered. The pro forma and as adjusted number
of shares issued and outstanding presented in the following table do not include
the 100,000 shares in the aggregate reserved for issuance upon exercise of the
underwriters' warrants, and 90,000 shares reserved for issuance upon exercise of
warrants issued to Gersten Savage & Kaplowitz, LLP.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1998 1999 1999
------------ ------------ --------------
(as adjusted)
(unaudited)
<S> <C> <C> <C>
Shareholders' equity
Common stock, $.01 par value, 19,000,000
shares authorized; 2,454,402 and 2,782,226
shares issued and outstanding at December 31,
1998 and 1999, respectively ....................... $ 24,544 $ 27,822 $ 37,822
Preferred stock, $.01 par value, 1,000,000
shares authorized and none issued and
outstanding at December 31, 1998 and
1999 .............................................. -- -- --
Additional paid-in capital ......................... 629,262 2,136,010 6,871,010
Accumulated net operating income ................... 100,841 386,702 386,702
Net unrealized appreciation, net of deferred
income taxes ...................................... 611,000 733,919 733,919
Net assets ......................................... 1,365,647 3,284,453 8,029,453
Total liabilities and stockholders' equity ......... 1,805,795 4,205,345 8,950,345
</TABLE>
14
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of our common stock, after
deducting the estimated discounts, commissions and offering expenses payable by
us, will be approximately $4,745,000. We estimate that, if the underwriters
exercise in full their over-allotment option, the net proceeds from the sale of
our common stock, after similar deductions, will be approximately $5,528,000.
Based upon our projections, we intend to apply the estimated net proceeds,
assuming the underwriters do not exercise their over-allotment option, as
follows:
<TABLE>
<CAPTION>
Approximate Percentage of
Application of Proceeds Amount Net Proceeds
- ----------------------- ------------- --------------
<S> <C> <C>
Investments in portfolio companies ........................... $3,913,486 83%
Salaries and professional fees ............................... 582,000 12
General corporate purposes including working capital ......... 249,514 5
---------- --
Total ..................................................... $4,745,000 100%
========== ===
</TABLE>
We reserve the right to reallocate proceeds to different uses if, in
management's view, the needs of the business so require.
We intend to invest approximately 83%, or $3,913,486 of the estimated net
proceeds in portfolio companies, either as initial or additional investments,
within two years from the closing of this offering. We provide funding and
managerial assistance to portfolio companies to assist in research and other
activities necessary to identify and develop emerging technologies and to
identify and market these to potential end-users. However, we do not in most
cases intend to provide funding to actually acquire rights in or to any
emerging technology until an acquiror has been identified and the portfolio
company or we have entered into an agreement to dispose of the asset or the
portfolio company, respectively. We believe that the net proceeds of this
offering will be sufficient to make approximately 10 initial investments. Our
estimated use of the net proceeds for salaries and professional fees are based
upon our projected expenses for the 12 month period following this offering. We
intend to use the remaining net proceeds for general corporate purposes
including working capital.
In the event that the underwriters' over-allotment option is exercised,
the net proceeds from the exercise of the over-allotment option will be used to
make investments in portfolio companies and for general corporate purposes
including working capital.
Pending investment in portfolio companies, we intend to invest the net
proceeds of any offering of shares in time deposits, income-producing
securities with maturities of three months or less that are issued or
guaranteed by the federal government or an agency of the federal government,
high quality debt securities maturing in one year or less from the time of
investment or high quality money market funds. Our ability to achieve our
investment objective may be limited to the extent that the net proceeds of any
offering, pending full investment, are held in time deposits and other
short-term instruments.
15
<PAGE>
Selected Financial Data
The following table presents our summary consolidated financial and other
data and has been derived from our audited financial statements for the years
ended December 31, 1997, 1998 and 1999, all of which are included in another
section of this prospectus. The information below should be read in conjunction
with "Financial Highlights," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and the notes to our consolidated financial statements, each of which is
included in another section of this prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1997 1998 1999
------------- ------------ --------------
<S> <C> <C> <C>
Statement of Operations Data:
Income from operations .................................. $ -- $ 381,843 $ 1,315,373
Expenses ................................................ 5,115 213,437 728,322
---------- ---------- -----------
Income (loss) before income taxes ....................... (5,115) 168,406 587,051
Provision for income taxes .............................. -- (62,450) (301,190)
---------- ---------- -----------
Net income (loss) from operations ....................... (5,115) 105,956 285,861
Net realized and unrealized gains ....................... -- 611,000 122,919
---------- ---------- -----------
Net increase (decrease) in net assets ................... $ (5,115) $ 716,956 $ 408,780
========== ========== ===========
Per share net increase (decrease) in net assets ......... $ (0.00) $ 0.31 $ 0.15
Weighted average number of shares used in per-share
computations ........................................... 2,070,494 2,304,691 2,682,420
Unaudited pro forma information:
Net increase (decrease) in net assets before pro forma
effect of change in Company's tax structure ............ $ (5,115) $ 716,956 $ 408,780
Pro forma effect of change in tax structure ............. -- -- 78,794
---------- ---------- -----------
Pro forma increase in net assets ........................ $ (5,115) $ 716,956 $ 487,574
========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------
1998 1999
-------------- --------------
<S> <C> <C> <C>
Balance Sheet Data:
Investments at market value ......... $ 1,300,000 $ 2,594,931
Cash and cash equivalents ........... 418,178 1,007,229
Total assets ........................ 1,805,795 4,205,345
Total liabilities ................... 440,148 920,892
Net assets .......................... 1,365,647 3,284,453
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and the notes thereto included elsewhere in this prospectus. This
prospectus contains forward-looking statements regarding the plans and
objectives of management for future operations. The forward-looking statements
included herein are based on current expectations and assumptions that involve
numerous risks and uncertainties. Although management believes that the
assumptions underlying the forward-looking statements are reasonable, any of
the assumptions could prove inaccurate and, therefore, there can be no
assurance that the forward-looking statements included herein will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by us or any other person that our
objectives and plans will be achieved.
General
Our primary business is to make investments in companies that possess or
will likely identify emerging and established technologies and markets for
those technologies. Our primary investment objective is to convert the stock
and other non-cash consideration which we receive in exchange or consideration
for our portfolio companies or technologies into cash and other assets in order
to acquire rights to additional technologies. We believe that we will be able
to achieve our objectives by concentrating on investments in companies which we
believe are likely to benefit from our management's expertise in technology
transfer.
The income that we derive from our investments in our portfolio companies
consists of both cash and equity securities that we receive upon disposition of
our portfolio companies. The appraised dollar value of the equities that we
receive makes up a portion of our revenues. An independent appraiser assesses
the value of our investments in portfolio companies.
Our expenses include salaries and wages, professional fees, sales and
marketing costs as well as general and administrative costs. Sales and
marketing costs include advertising, travel and other expenses that vary with
revenues. General and administrative costs include rent, depreciation,
telecommunications and other overhead costs.
We used an equity-based method of compensating certain outside service
providers during 1998 and 1999. Those costs are reflected in the general and
administrative costs of the statement of operations. Some service agreements
were for periods in excess of one year and any remaining value is recorded as a
prepaid expense for the period.
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Income from operations. Income from operations increased 244% to
$1,315,373 for the year ended December 31, 1999 from $381,843 for the year
ended December 31, 1998. This increase was due to the completion of
transactions with four companies in 1999 versus one transaction during the year
ended December 31, 1998. In each transaction we received restricted shares in a
tax-free exchange for a portfolio company. An independent consultant valued the
shares received in each transaction. In our transactions with:
o Image Analysis, Inc., we received 879,300 shares of common stock of Image
Analysis, Inc. The shares were valued at time of sale at $0.25 per share;
o Nucor Enterprises, Inc., we received 900,000 shares of common stock of
Nucor, Inc. The shares were valued at time of sale at $0.14 per share;
o Centrex, Inc., we received 1,584,000 shares of common stock of Centrex,
Inc. The shares were at time of sale valued at $0.33, and
17
<PAGE>
o NuElectric, Inc., we received 791,957 shares of common stock of
NuElectric. The shares were valued at time of sale at $0.29 per share.
Subsequent to this transaction, we exchanged 300,000 NuElectric, Inc.
shares for 150 shares of Rosbon, Inc. in a private transaction of equal
value. We currently own 491,957 shares in NuElectric, Inc.
We also entered into several consulting agreements that generated revenues
of $165,000 in total for the year ended December 31, 1999 as compared to
$55,000 for the year ended December 31, 1998.
Expenses. Total expenses increased 241% to $728,322 for the year ended
December 31, 1999 from $213,437 for the year ended December 31, 1998. Salaries
and wages increased 623% to $197,125 for the year ended December 31, 1999 from
$27,275 for the year ended December 31, 1998. Professional fees increased as
well by 4,595% to $184,697 for the year ended December 31, 1999 from $3,934 for
the year ended December 31, 1998. Sales and marketing costs increased 21% to
$79,544 from $65,649. General and administrative expenses increased by 129% to
$266,956 for the year ended December 31, 1999 from $116,579 for the year ended
December 31, 1998. These increases were the result of not being fully
operational until May 1998, as well as increases in staff and salaries, the
engagement of auditors and other professional service providers necessary to
grow the business. We anticipate that these will be reoccurring expenses.
Net Realized and Unrealized Gains and Income Taxes. Unrealized
appreciation of investments decreased 80% to $122,919 for the year ended
December 31, 1999 versus $611,000 for the year ended December 31, 1998. The
decrease in appreciation relates to our investment in Lexon, Inc. While there
were increases in appreciation related to our investments in Image Analysis,
Inc. and NuElectric, Inc., the overall effect yielded a net decrease.
Our effective tax rate was a provision of 51% for the year ended December
31, 1999 compared with a provision of 37% for the year ended December 31, 1998.
The provision recorded in 1999 is higher primarily as a result of the tax
losses generated by UTEK LLC (UTEK LLC was formed on December 31, 1998) which
is passed through to its members.
Year ended December 31, 1998 compared to year ended December 31, 1997
Income from operations. Income from operations was $381,843 for the year
ended December 31, 1998. We did not have any income from operations for the
year ended December 31, 1997. The increase in income from operations was the
result of completing our first full year of operations in 1998. During 1998, we
completed one technology transfer transaction which generated income of
$320,000. In addition, we received a $55,000 consulting fee.
Expenses. Total expenses increased to $213,437 for the year ended December
31, 1998 from $5,115 for the year ended December 31, 1997. There were no
salaries and wages, professional fees, or sales and marketing costs in 1997.
General and administrative costs increased 2,179% to $116,579 for the year
ended December 31, 1998 from $5,115 for the year ended December 31, 1997. In
1997 there were only general and administrative start up costs, and for 1998
the business was not fully operational until May 1998. Some of the 1998 sales
and marketing costs were related to transactions that took place in 1999.
Net Realized and Unrealized Gains and Income Taxes. Unrealized
appreciation of investments amounted to $611,000 for the year ended December
31, 1998. The appreciation relates to our investment in Lexon, Inc. We did not
hold any investments during 1997.
Our effective tax rate was 37% for the year ended December 31, 1998. We
did not record a benefit or provision for the year ended December 31, 1997
since we did not have any significant operations during that year.
Liquidity and Capital Resources
Net assets increased 141% to $3,284,453 for the year ended December 31,
1999 from $1,365,647 for the year ended December 31, 1998. This increase was a
result of net income from operations, appreciation of investments and
additional capital contributions to the Company.
18
<PAGE>
Our primary source for liquidity and capital was issuance of common stock.
In total, we completed three private placement transactions resulting in
proceeds of $530,433 in 1998 and $1,305,807 in 1999. On December 31, 1999 we
had $1,007,229 in cash and no debt. Based upon our anticipated capital needs
for operations, general corporate purposes, and future research and development
agreements with universities to complete technology transfer transactions,
management believes that the net proceeds received from this offering will be
sufficient to meet our funding requirements for the next twelve months.
We believe that, upon consummation of this offering, we will have
sufficient capital to implement our current investment objectives. However, our
ability to meet our future investment objectives may be dependent upon our
ability to raise capital from time to time through the sale of equity
securities. There can be no assurance that we will be able to raise the
anticipated funds, if any. We currently have no material commitments for
capital expenditures, except as set forth herein under "Use of Proceeds" and to
finance the working capital needs of our principal portfolio companies.
Year 2000 Compliance
The "Year 2000" problem arose from the fact that many computer programs
were written using two digits rather than four to define the applicable year.
As a result of this problem, date-sensitive computer programs that use a two
digit dating system may recognize a date using "00" as the year 1900 rather
than 2000. We believe we took appropriate action to address the potential
impact of the Year 2000 problem. We have not experienced any system failures or
other losses as a result of the Year 2000 problem and, addressing the potential
impact related to this matter, the Year 2000 problem did not have a material
adverse impact on our business, financial condition or the results of our
operations.
19
<PAGE>
BUSINESS
General Information and History
We are a non-diversified, closed-end management investment company that
has elected to be treated as a BDC under the 1940 Act.
We commenced operations in 1997 as UTEK Corporation ("UTEK Florida"),
which was incorporated under the laws of the State of Florida in August 1996.
UTEK Florida was engaged in the business of technology transfer. On December
31, 1998, we formed UTEK, LLC, a limited liability company organized under the
laws of the State of Florida. Subsequent thereto, the shareholders of UTEK
Florida exchanged their shares of common stock for membership units in UTEK,
LLC. In July 1999, we formed UTEK Corporation under the laws of the State of
Delaware and in October 1999, UTEK LLC was merged into UTEK Corporation.
Prior to our election to operate as a closed end investment company
treated as a BDC, we were engaged in the business of technology transfer as an
operating company.
INVESTMENT OBJECTIVES AND POLICIES
Objectives
Our primary investment objective is to convert the stock and other
non-cash consideration which we receive in exchange or consideration for our
portfolio companies or technologies into cash and other assets in order to
acquire rights to additional technologies. We intend to achieve our objective
by encouraging our portfolio companies to make investments in new technologies
which our management believes are usable by publicly traded companies. We
intend to merge our portfolio companies into the publicly traded companies in
tax free stock for stock exchanges. Shares received in those exchanges will, in
the course of our business, be converted to cash and other assets to permit us
to invest in additional portfolio companies. As a BDC, we generally may change
our non-fundamental investment objectives and policies without stockholder
approval but we require stockholder approval to change our fundamental
investment objectives. We do not have a registered investment adviser and our
management, under the supervision of our board of directors, makes our
management decisions.
Since our election to operate as a BDC, we have concentrated our efforts
on making controlling equity investments in portfolio companies in private
transactions. Our investments consist of funding to be used to identify,
research and market new technologies and for the acquisition of licenses to
those new technologies and when appropriate the support of sponsored research
programs to further the development of licensed technology. In return for our
investments, we receive common stock in our portfolio companies. We also
provide these portfolio companies with significant managerial assistance by
having one or more members of our management serve as directors and officers of
our portfolio companies. After we have made an investment, we help our
portfolio companies in their business of researching, identifying and
developing new technologies and markets. We also assist them in acquiring the
licenses to new technologies developed at universities and government research
facilities. Our management provides portfolio companies with significant
assistance in locating and acquiring these technologies and markets for them.
We then find merger partners for our portfolio companies who will acquire the
portfolio company from us in exchange for common stock. Our investments are
concentrated in development stage companies that license and develop new
technologies for commercial applications. We do not contemplate permitting our
portfolio companies to expend significant sums on a new venture, which cannot
be recovered in due course, absent the execution letters of intent or
definitive merger agreements for the resale of the technology or the merger of
the portfolio company. However, we intend to make initial investments in our
portfolio companies in amounts sufficient to permit them to conduct initial
research and, in some cases, to fund additional development of new technologies
and markets. Since substantially all of our portfolio companies are early stage
companies, our portfolio company investments do not benefit from any reduction
in risk which may result from spreading investments among companies at various
stages of development. Furthermore, a portfolio company may spend all of the
money which we have invested without finding, acquiring or locating a new
technology or suitable market for a new technology, in which case we would
likely lose our entire investment in the portfolio company.
20
<PAGE>
We intend to take advantage of our experience in the field of technology
transfer to maximize the return on our investments in portfolio companies.
Technology transfer refers to the process by which new technologies, developed
in universities, government research facilities, or similar research settings,
are acquired and licensed to companies for commercial development and use. Our
management and certain members of our board of directors have experience in
technology transfer. Our investments in our portfolio companies are structured,
through our U2B(TM) investment model, to allow us to take advantage of our
management's expertise and to give us control of the portfolio company. In
addition, we intend to capitalize on relationships that members of our
management and board of directors have developed with universities and
government research laboratories.
Subject to any limitations imposed by the 1940 Act, our investment
objectives, policies and investment diversification status may change at any
time and from time to time without stockholder approval.
In addition to the fundamental policies listed above, we have agreed with
the underwriters that for the 12 month period following this offering, we will
not, without the prior written consent of the underwriters:
o invest more than $500,000 of our net assets in any single portfolio
company;
o permit a portfolio company to commit significant amounts of the funds we
have invested towards payment to third parties for the acquisition of the
rights to a technology or the further development of the technology, until
we have an agreement in place to resell the technology or to merge the
portfolio company with an acquiring company or at least an executed letter
of intent; and
o invest more than 10% of the proceeds of this offering in portfolio
companies which will merge with privately owned companies.
In the future we will limit the number of new portfolio companies that we
will merge with private companies such that our total investment in our
portfolio companies that have merged with private companies does not exceed 10%
of our total net assets.
We anticipate that a substantial portion of our investment opportunities
will continue to be presented to us as a result of management's contacts with
universities, research laboratories and in private industry.
Fundamental Policies
We do not have a policy regarding the issuance of senior securities and we
do not contemplate issuing such securities. However, if we determine that the
issuance of senior securities would be appropriate in the future, restrictions
imposed by Section 61 of the 1940 Act require, among other things, asset
coverage in the amount of at least 200% of our net assets. Further, we may
issue more than one class of senior securities and warrants, options or other
profit sharing arrangements, subject to the provisions set forth in Section 61.
We will not sell securities short or on margin, write puts or calls or purchase
or sell commodities or commodity contracts. We also do not contemplate
purchasing or selling real estate mortgage loans. We may from time to time sell
some of our securities in exchange for real estate and we did, on one occasion,
exchange a portion of securities we received for a portfolio company for common
stock in a company whose only asset was real estate. We will not underwrite the
issuance of securities of other companies, and we do not currently intend to
borrow money. Where necessary, we may make loans to or additional investments
in portfolio companies to protect our initial investment and we will continue
to invest in restricted securities of portfolio companies. We do not have a
policy concerning concentration of investments in a particular industry or
group.
Our board of directors has adopted the following policies regarding
investments in portfolio companies:
o we will limit the amount of our total investment in any single portfolio
company to $500,000 or 10% of our net assets, whichever is less.
o we will not permit a portfolio company to commit significant amounts of
the funds we have invested towards payment to third parties for the
acquisition of the rights to a technology or the further development of
the technology, until we have an agreement in place to resell the
technology or to merge the portfolio company with an acquiring company or
at least an executed letter of intent; and
21
<PAGE>
o in the future we will limit the number of new portfolio companies that we
will merge with private companies such that our total investment in our
portfolio companies that have merged with private companies does not
exceed 10% of our total net assets.
We contemplate that, based on existing federal tax law, most sales of our
portfolio companies will be structured as merger transactions where we will
receive common stock in the acquiror in exchange for all our shares in our
portfolio company.
Our Investment Model
Our investments in portfolio companies generally follow a specific series
of steps which our management believes provide the greatest opportunity for
long term appreciation of our assets. As our investments are designed to bring
and develop technologies from their inception at universities to the private
sector, we refer to our investment model as "U2B"(TM). Using our U2B(TM)
investment model, we intend to acquire securities in portfolio companies and
eventually exchange those securities for securities in public companies that
acquire our portfolio companies. The following is a list of the steps that we
take when we make an investment in a portfolio company using our investment
model:
1. Evaluate potential technology growth fields.
2. Form and make a controlling equity investment in the portfolio company.
3. Assist the portfolio company in the identification and evaluation of new
technologies and markets that offer the portfolio company a significant
opportunity for growth.
4. When appropriate, advise and assist the portfolio company in negotiating
a sponsored research agreement to further develop the technology.
5. Identify and contact potential "merger partners" to merge with the
portfolio company.
6. Advise and assist the portfolio company in completing the technology
transfer with the research institution and acquiring the license to the
technology.
7. Complete the sale of the portfolio company to the "merger partners" and
receive compensation for the sale of all the stock we hold in the
portfolio company.
8. Sell any securities received in exchange for the portfolio company and
use the proceeds to make additional initial investments.
Investment Evaluation Process
New technology opportunities may come to our attention from many sources.
The primary source to date has been from our management's contacts with
universities and in the private sector. We believe that the ability of our
management to maintain and develop relationships with university and government
research centers is a key factor in our ability to identify new potential
investment opportunities.
Prior to a portfolio company committing funds to an investment
opportunity, we will assist the portfolio company by conducting research
regarding the prospects and risks of the potential investment. Our board of
directors' and management's experience is essential in evaluating new
technologies, products, markets, industry trends, financial requirements,
competition any operating record and quality of the entrepreneurial group
associated with a prospective investment. Although our management has
scientific and professional experience, they may have limited or no experience
in the specific areas of business in which potential merger candidates are
engaged.
Investments in Portfolio Companies
Our initial investments will be made in transactions which will normally
be negotiated directly by our management with the portfolio company or an
affiliate thereof. In most cases, we form our portfolio companies as
subsidiaries. Our management will seek to structure the terms of the investment
so as to provide for the capital needs and success of the portfolio company and
at the same time to maximize our opportunity
22
<PAGE>
for long-term capital appreciation. An important factor in successful investing
is proper structuring of the transaction in terms of price, type of security,
restrictions on use of funds, commitments or rights to provide additional
financing, control and involvement in the issuer's business and liquidity as
well as a viable plan to realize liquidity and capital appreciation on the
investment.
We intend to limit our total cash investments in any individual portfolio
company to the lesser of $500,000 or an amount equal to ten percent of our net
assets at the time of investment. To date, our initial investments have been
less than that amount. By limiting the size of our total investment in any one
portfolio company, we hope to reduce and diversify our risks. In exchange for
our investment, we will receive such number of shares of common stock in the
portfolio company to give us a controlling interest. To date, all of our
portfolio company securities have been common stock and we anticipate that we
will continue to acquire common stock in portfolio companies. Use of the funds
that we provide to portfolio companies will be restricted to obtaining licenses
to new technologies and developing and marketing those technologies. Our
management's involvement with the portfolio companies will primarily be
directed towards helping them acquire technology licenses and, when
appropriate, establishing sponsored research programs to further develop the
technology. We then plan to achieve some form of liquidity for our portfolio
investments by selling our portfolio companies to public companies.
Identifying New Technologies
We have developed relationships with a number of research universities in
the United States. In order to allow us to have early access to new
technologies, we have entered into alliances, licensing or option agreements
with the following institutions:
Agreement with the University of South Florida.
In January 1998, we entered into an agreement with the University of South
Florida pursuant to which we have agreed to review and evaluate the commercial
potential of certain new technologies developed at the university that are
presented to us. In return, we have the ability, if we deem it appropriate, to
enter into option agreements with the university providing our company with the
exclusive right to seek a licensee or other commercial opportunity for the
technology, provided mutually agreeable terms are reached, for a limited period
of time. We have reviewed and negotiated licenses on the following
technologies:
o a new diagnostic test for colon, testicular and ovarian cancer,
o a new software technology for digitally coloring MRIs to facilitate their
reading and the rendering of diagnoses, and
o a new technique to identify cryptosporidium (a water-borne parasite) in
water.
The term of the agreement is for three years, however either party may
terminate the agreement on 60 days written notice.
Agreement with the University of Memphis.
In May 1998, we entered into an agreement with the University of Memphis
pursuant to which we have agreed to evaluate the commercial potential of select
technologies developed at the university that are presented to us for review.
The university has agreed that upon our request, it will file patents to
protect technologies that we wish to have protected. In addition, under the
agreement, the university may grant to us option agreements which will give us
the exclusive rights to license a particular technology, provided mutually
agreeable terms are reached, for a period of twelve months.
The term of the agreement is five years, but may be terminated by either
party on 60 days written notice.
Agreement with Johns Hopkins University.
In June 1999, we entered into an agreement with Johns Hopkins University
pursuant to which we have agreed to evaluate the commercial potential of
certain technologies developed at the university, that are presented to us for
review. The university has agreed that upon our request, it will file patents
to protect
23
<PAGE>
technologies that we wish to have protected. In addition, under the agreement,
the university may grant to us option agreements which will give us the
exclusive rights to license the technology, provided mutually agreeable terms
are reached, for a period of twelve months.
The term of the agreement is five years, but may be terminated by either
party on 60 days written notice.
Agreement with the University of Florida.
In October 1999, we entered into an agreement with the University of
Florida pursuant to which we have agreed to evaluate the commercial potential
of certain technologies developed at the university, that are presented to us
for evaluation. Under the agreement, the university may grant us option
agreements which will give us the exclusive rights to license the technology,
provided mutually agreeable terms are reached, for a period of twelve months.
The term of the agreement is five years, but may be terminated by either
party on 60 days written notice.
Agreement with Fraunhofer Institute of Germany for Interfacial Engineering and
Biotechnology IGB
In November 1999, we entered into a strategic alliance with Fraunhofer
pursuant to which we have agreed to review certain technologies developed at
Fraunhofer to gauge their potential for successful commercialization in the
United States. Pursuant to the agreement, Fraunhofer will grant to us a twelve
month, exclusive, royalty free license option for the technologies reviewed, if
we so request. We may then license these technologies, provided mutually
agreeable terms are reached.
The term of the agreement is five years, but may be terminated by either
party on 60 days written notice.
Agreement with Virginia Tech Intellectual Properties.
In December 1999, we entered into an agreement with Virginia Tech
Intellectual Properties pursuant to which we have agreed to evaluate the
commercial potential of certain technologies developed at Virginia Tech
Intellectual Properties, that are presented to us for evaluation. Under the
agreement, Virginia Tech Intellectual Properties may grant us option agreements
which will give us the exclusive rights to license the technology, provided
mutually agreeable terms are reached, for a period of twelve months.
The term of the agreement is five years, but may be terminated by either
party on 30 days written notice.
Evaluation and Acquisition of Technology
With few exceptions, all technologies developed by university faculty are
the property of the universities we work with and are licensed by the
university's research foundations or similar organizations to our portfolio
companies for commercialization. To help facilitate the identification of and
access to new technology, we have created a Scientific Advisory Council to
review technologies developed at universities and government laboratories.
When we assist a new portfolio company to evaluate a new technology for a
portfolio company we review the technology to make sure that it meets three
criteria:
o The technology must represent a significant advance over existing
technologies;
o There must be an existing global market for the technology once it is
commercialized; and
o The technology must be socially responsible (i.e., not intended for
destructive or harmful purposes).
If, in our management's view, a technology meets these criteria, then they
will assist the portfolio company in commencing negotiations with the
technology developer to arrange for a license. Our management will review
license agreements and advise portfolio companies as to terms and requirements.
In addition, when we require assistance in evaluating a technology, our
management will have the technology reviewed by members of our Scientific
Advisory Council.
24
<PAGE>
Our Scientific Advisory Council currently consists of the following members:
<TABLE>
<CAPTION>
Name Title Expertise
---- ----- ---------
<S> <C> <C>
Stuart Brooks, M.D. Professor, University of South Florida Lung disease/Allergies.
Chairman Scientific Advisory Council Respiratory Illness. Occupational
medicine.
Uwe Reischl, Ph.D., M.D. President, UTEK Corporation Architectural engineering.
Executive Director Scientific Industrial health and safety.
Advisory Council Occupational medicine.
Dean Sheppard, M.D. Professor, University of California Molecular biology.
- San Francisco
O. Norman Nesheim, Ph.D. Professor, University of Florida Pesticide regulation and safety
management. Food and water
safety with pesticide use.
Russell Brantman, Ph.D. Consultant Mechanical engineering/Systems
Engineering. Vehicle safety
systems/Crash Simulations.
Charles Proctor, Ph.D., P.E. Research Associate Professor, Orthopedic implants and devices.
University of Florida
Brian B. Schwartz, Ph.D. Professor, Graduate School of the Physics and material science.
City University of New York
Albert J. Anthony, D.M.D. Retired Dentistry and dental equipment.
Alain M. Boudet, Ph.D. Professor, University of Paul Cell and molecular plant biology.
Sabatier
George Newkome, Ph.D. Vice President of Research, Molecular chemistry.
University of South Florida
Gerald Krueger, Ph.D., CPE Principal Scientist/Ergonomist, Human performance
Col. U.S. Army (retired) enhancement.
Human systems design.
Jui-Sung Hung, M.D., F.A.C.C. Professor, China Medical College Cardiology.
Hospital
Yun-Fan Liaw, M.D. Professor, Chang Gung Medical Gastroenterology/Hepatology.
College
Tzann T. Fang, M.D. Physician, Midwestern Regional Medical oncology/internal
Medical Center medicine/hematology
Peter Reischl, Ph.D. Professor, San Jose State University Electrical engineering;
high frequency energy conversion.
Jean-Marie Lehn, Ph.D. Professor, College de France, Nanotechnologies; Nobel
Strasbourg, France Prize winner, Chemistry (1987).
</TABLE>
Identifying Acquisition Candidates
In order to realize a return on our investments in our portfolio
companies, we must sell our portfolio companies or the technology and
development rights they hold. Based on current tax law and industry conditions,
it is our policy to sell our portfolio companies to acquirors in merger
transactions where we receive shares in the acquiring company in a tax-free
exchange for all of our shares in our portfolio company. In this manner, all
rights to technologies held by our portfolio companies transfer to the acquirer
and the acquirer assumes all obligations under the license agreements. Most of
our merger transactions to date, have been with private companies whose common
stock is not publicly traded. We intend to engage in merger transactions
primarily with public companies whose common stock is listed for public trading
either on a national exchange or on the Nasdaq Stock Market.
Our management has primary responsibility for locating suitable merger
partners. However, we have formed a network of independent marketing
representatives with diverse backgrounds offering varied expertise for the
purpose of assisting us in locating promising prospects for mergers. These
representatives are located in Plant City and Tampa, Fla., New York, Boston,
Baltimore and Washington, D.C. as well as in Germany and Belgium. We have
entered into agreements with our independent marketing representatives. Most of
the
25
<PAGE>
agreements provide that a marketing representative will receive 10% of any cash
or stock we receive in connection with the sale of a portfolio company to a
company that the representative has introduced to us. In certain cases, we have
issued marketing representatives shares of our common stock as a flat fee for
their services.
Some recent transactions that we have completed include the following:
In May 1998, Gentest, Inc. a portfolio company, merged with Lexon, Inc.,
an Oklahoma corporation. In connection with the merger, we received 1,000,000
shares of Lexon common stock and Lexon acquired ownership of Gentest, Inc.
which had acquired the exclusive license to develop, manufacture and market a
blood test that will potentially allow for the early screening of colon cancer
and certain types of ovarian and testicular cancers. Lexon is developing this
blood test for general laboratory use. The prototype blood test kit requires
additional evaluation and testing and cannot be sold in the United States. The
blood test kit requires FDA approval before it can be sold in the United
States.
Lexon is a public company whose shares are traded on the over-the-counter
bulletin board under the symbol LXXN. We currently own 1,000,000 shares of
Lexon common stock which represents approximately 15% of the 6,802,013 shares
of Lexon issued and outstanding as of December 31, 1999.
In June 1999, our portfolio company Clean Water Technologies, Inc., merged
with NuElectric Inc., a Delaware corporation. NuElectric is in the business of
acquiring, developing and marketing new technologies for conserving energy and
protecting the environment. In connection with the merger, we received 791,957
shares of NuElectric common stock. As a result of the merger, NuElectric
acquired the exclusive license to a new technology for removing arsenic from
water. NuElectric is a public company whose shares are traded on the
over-the-counter bulletin board under the symbol NRGE.
We currently own 491,957 shares of NuElectric common stock, which
represents approximately 12% of the issued and outstanding common stock of
NuElectric.
In May 1999 Centrex, Inc. acquired E. Coli Measurement Systems, Inc., one
of our portfolio companies, in a merger transaction. Centrex has acquired the
exclusive license to a new technology for the detection of E Coli bacteria in
food and water. In July 1999, E. Coli Measurement Systems, Inc. entered into a
licensing and sponsored research agreement with the University of California
regarding an E. coli detection technology. The technology was developed at the
Los Alamos National Laboratory and Centrex is providing funding to develop a
prototype system for the rapid detection of E Coli in food and water. Centrex
also holds an exclusive license to a new technology developed at the University
of South Florida for the automated detection of Cryptosporidium and Giardia in
water. Centrex is a privately held company. We own 1,584,000 shares of Centrex
common stock.
In January 1999, Image Analysis Corporation, a portfolio company, merged
with Image Analysis, Inc., an Oklahoma corporation. As a result of the merger,
Image Analysis, Inc. holds the exclusive license, patented in the United
States, and other countries, to a new technology for producing color magnetic
resonance images, or MRI, from existing MRI scanners. Image Analysis, Inc. is
currently funding research and development of this new technology. The research
is being conducted at Brenau University in Georgia under the direction of Dr.
Keith Brown, the inventor of the technology. Image Analysis, Inc. is a
privately held company. We currently own 879,300 shares of common stock of
Image Analysis, Inc.
In May 1999, Advanced Reinforcing Technologies, Inc., a portfolio company,
merged with Nucor, Inc., an Oklahoma corporation. Nucor is involved with the
development of new materials for rebuilding and enhancing the infrastructure of
roads and bridges. Pursuant to the merger, Nucor acquired the exclusive license
for a new carbon fiber composite rebar building technology developed at Cornell
University. In addition, Advanced Reinforcing Technologies established a
sponsored research program for further development of its technology. Nucor is
a privately held company. We own 900,000 shares of common stock of Nucor.
In January 2000, Lexon, Inc. purchased all of the issued and outstanding
stock of Cancer Diagnostics, Inc., one of our portfolio companies, for
$200,000. The purchase price is payable as follows: $50,000 in cash and a note
for $150,000 payable in three equal installments on each of April 30, May 30
and June 30, 2000.
26
<PAGE>
In March 2000, Digital Personnel, Inc., a portfolio company, merged with
and into Graphco-DPI Holding Company, a wholly-owned subsidiary of Graphco
Technologies, Inc., a New Jersey corporation. Graphco Technologies is involved
with the development of personal identification technology and software
solutions for computer aided maintenance and support. As a result of the merger
Graphco acquired the exclusive worldwide license to technology for new software
designed to produce human likenesses that should be able to simulate
conversation for e-commerce applications. Graphco Technologies is a privately
held company. We own 100,799 shares of common stock of Graphco Technologies.
Investment Advisory Services
The value of the securities that we receive in exchange for our portfolio
companies is determined by an outside financial advisor. We have retained
Bolten Financial Consulting, Inc., 6605 Mid Place, Temple Terrace, Florida
33617 to provide us with valuations of the securities we receive in exchange
for portfolio companies, updated to each quarterly valuation date. We pay
Bolten a fee each time they value our investments. In 1999, we paid a total of
$25,166 for valuations.
Advisory Committees
In addition to our Scientific Advisory Council, we have assembled a
European Advisory Council for the purpose of developing business in Europe for
our company. It is our intention to expand both Councils, as and when
appropriate, to more completely represent our interests and needs in the near
future.
Our European Advisory Council consists of the following members:
Carl Nisser, LL.M., D.E.S. (Chairman European Advisory Council and one of our
directors). Mr. Nisser was educated at the universities of Uppsala, Strassbourg
and Coimbra. He is a member of the Swedish Bar Association, Former Assistant
Judge of the Appellate Court of Stockholm, Former Director of Corporate and
Legal Affairs for AB Volvo, Former Director of Corporate Affairs for Goodyear
International Corporation, VP of Intermatrix Group, Currently Principal of
Advokatfirman Nisser (Law firm with offices in Brussels and London). Mr. Nisser
is Chairman and CEO of Ecom Enterprises and is on the board of directors of
several companies in the United States and Europe. He has authored several
articles on legal and economic issues.
Bo Hjelt. Mr. Hjelt was educated at Indiana University, Geneva University
(HEC), and IMI Geneva (MBA). He is the Chairman of Corporate Development
International, which he founded in 1973. Mr. Hjelt is also the member of
several Boards of Directors, and serves on the Board of the International
Federation for Hydrocephalus and Spina Bifida.
Lord Chesham. Lord Chesham was educated at Eton College, Qualified Chartered
Accountant. He was the Former Finance Director Bowater Corporation of
Australia. He was appointed Deputy Chief Whip House of Lords, 1995-97.
Professor Marcel Crochet, PhD. Professor Crochet was educated at the University
of Louvain and the University of California at Berkeley. He was appointed
Rector of the Catholic University of Louvain in 1995. Prior to this he served
as Chairman of the Department of Mechanical Engineering and Dean of Engineering
at the University of Louvain. Professor Crochet is the author of 140 scientific
publications in the field of fluid mechanics and is on the editorial board of
several scientific journals. Dr. Crochet has also served as the CEO of POLYFLOW
Corporation. He has received numerous international awards recognizing his work
in technology innovation.
Dr. Jonas Lonnroth. Dr. Lonnroth was educated at Davidson College, N.C. and at
the medical facility of the University of Uppsala, Sweden. He completed studies
in Russian and law, and is a specialist in ear, nose and throat surgery. Dr.
Lonnroth speaks eight languages, is an avid hi-tech multihull sailor with a
patent in compass technology, and has a keen interest in electronic
communication technologies
Lupold von Wedel. Mr. von Wedel was educated in Paris at the Institut des
Hautes Etudes Internationales and studied law at Freiburg University. He began
his business career with Hoechst AG as Regional Manager. In 1992, Mr. von Wedel
assisted the German Ministry of Finance in the conversion and restructuring of
East German industry. Currently Mr. von Wedel is Managing Director of Logika AG
a diversified services firm which provides senior management support to
industry.
27
<PAGE>
Properties
Our executive offices are located at 202 South Wheeler Street, Plant City,
Florida, where we lease approximately 2,700 sq. feet of space with an annual
rent of $18,993. We have negotiated an extension of the term of the lease for
two additional years at the current rate. The extended lease will expire March
31, 2002. We anticipate that this space will be sufficient for the forseeable
future.
Portfolio Companies
As of the date of this prospectus, each of our investments in our
portfolio companies were for amounts less than 5% of our total assets. We have
controlling interests in each of our portfolio companies and members of our
management also serve as officers and directors of each portfolio company. The
principal place of business of each portfolio company is located at our
executive offices at 202 South Wheeler Street, Plant City, Florida. In addition
to our investment, we provide portfolio companies with managerial assistance in
completing technology transfers. The following is a list of our current
portfolio companies with a brief description of their business:
Microsphere Technologies, Inc. is a development stage company that is
currently seeking to acquire licenses to new materials science technologies. We
own 100% of the issued and outstanding common stock of Microsphere
Technologies, Inc., which we acquired for $5,000. Uwe Reischl is the sole
director of Microsphere Technologies.
Zorax, Inc. is a development stage company that has acquired the
license to a technology for the separation of cystic parasitic forms from
water. We have invested approximately $56,000 in Zorax to date. We own 100% of
the common stock of Zorax. Uwe Reischl is the sole director and president of
Zorax.
Technology Development, Inc. is a development stage company that is
seeking to acquire new computer modeling and related technologies. We own 100%
of the common stock of Technology Development, Inc., for which we paid $150 and
Clifford Gross is the sole director and president of TDI.
Advanced Desalination Technologies, Inc. is a development stage company
that is seeking to acquire a water desalination technology. We own 100% of the
common stock of Advanced Desalination, Inc., for which we paid $150 and Uwe
Reischl is the sole director and president.
Doppler Technology International, Inc. is a development stage company that
is seeking to acquire new technologies for the non-invasive analysis of body
tissue. We have invested $5,000 in Doppler Technology to date. We own 100% of
the common stock of Doppler Technology. Uwe Reischl is the sole director and
president of Doppler Technology.
Employees
As of December 31, 1999, we had four full-time employees and 26 part-time
associates. Of these employees and associates, three were senior executives.
Our employees and associates are not represented by a labor union. We consider
relations with our employees and associates to be good.
Legal Proceedings
We have received a subpoena from the Securities and Exchange Commission's
Division of Enforcement in connection with an investigation that involves
Lexon, Inc. We own 1,000,000 shares of Lexon. We have received no further
information regarding the nature of this investigation. As a result we cannot
presently assess the marketability or significance of any potential legal
proceedings, liabilities of Lexon or other risks or uncertainties that may
result, including any adverse effect on the trading price of Lexon common stock
that we own.
We are not currently a party to any other material legal proceedings.
DETERMINATION OF NET ASSET VALUE
We determine the net asset value per share of our common stock quarterly.
The net asset value per common share is equal to the value of our total assets
minus total liabilities and preferred stock divided by the total number of
common shares outstanding.
28
<PAGE>
Both public and private equity securities that we receive from companies
are valued at their appraised values as determined by our independent
appraiser. With respect to private equity securities, each investment is valued
using industry valuation benchmarks, and then the value is assigned a discount
reflecting the illiquid nature of the investment as well as our minority,
non-control position. When an external event such as a purchase transaction,
public offering, or subsequent equity sale occurs, the pricing indicated by the
external event is used to corroborate our private equity valuation. Equity
securities in public companies that carry certain restrictions on sale are
generally valued at a discount from the public market value of the securities.
Restricted and unrestricted publicly traded stocks may also be valued at
discounts due to the size of our investment or market liquidity concerns.
Determination of fair value involves subjective judgments that cannot be
substantiated by auditing procedures. Accordingly, under current standards, the
accountants' opinion on our financial statements in our annual report refers to
the uncertainty with respect to the possible effect on the financial statements
of such valuation.
PORTFOLIO TRANSACTIONS
The capital stock we receive from portfolio companies is expected to be
acquired primarily in private transactions negotiated directly with the
portfolio company or with an affiliate thereof. Our management will continue to
be principally responsible for conducting negotiations with respect to our
investments.
In addition to securities of public companies which we receive as a result
of mergers by our portfolio companies, we may invest a portion of our other
assets in the publicly traded securities of public companies. Such investments
and other investments which are not "qualifying assets" may not exceed 30% of
the value of our total assets at the time of any such investment.
Based on the amount of existing available funds together with the proceeds
from this offering, it is not likely that we will be able to acquire securities
in a large number of companies. As a result, our investments will not be
substantially diversified. Furthermore, the technologies which our portfolio
companies acquire have been, and are expected to be sold primarily to early
stage and other smaller public companies. Accordingly, the securities we
receive upon the merger of our portfolio companies will not be diversified
among companies at various stages of development and we will not derive the
benefits which may arise from making multi-tiered investments.
REGULATION
We have elected to be regulated as a business development company, or BDC,
under the Investment Company Act of 1940, which we refer to as the 1940 Act. A
BDC is a special type of closed-end, non-diversified investment company
registered under and regulated by the 1940 Act. The Small Business Investment
Incentive Act of 1980 (which we refer to as the Incentive Act) modified the
provisions of the 1940 Act applicable to a BDC. After filing its election to be
treated as a BDC, a company may not withdraw its election without first
obtaining the approval of holders of a majority of its outstanding voting
securities (as defined under the 1940 Act). The following is a brief
description of certain provisions of the 1940 Act, as modified by the Incentive
Act, and which is qualified in its entirety by reference to the full text of
the 1940 Act, the Incentive Act and the rules thereunder.
Generally, to be eligible to elect BDC status, a company must engage in
the business of furnishing capital and significant managerial assistance to
companies which do not have ready access to capital through conventional
financial channels. Such portfolio companies are termed "eligible portfolio
companies." More specifically, in order to qualify as a BDC, a company must (i)
be a domestic company; (ii) have registered a class of its equity securities or
have filed a registration statement with the Commission pursuant to Section 12
of the Exchange Act; (iii) operate for the purpose of investing in the
securities of certain types of portfolio companies, namely, development stage
or emerging companies and businesses suffering or just recovering from
financial distress; (iv) extend significant managerial assistance generally to
such portfolio companies; (v) have a majority of directors who are not
"interested persons" (as defined in the 1940 Act), and (vi) file (or, under
certain circumstances, intend to file) a proper notice of election with the
Commission.
29
<PAGE>
An eligible portfolio company is generally a company in the United States
that is not an investment company and that (i) does not have a class of
securities registered on an exchange or included in the Federal Reserve Board's
over-the-counter margin list; (ii) is actively controlled by a BDC and has an
affiliate of a BDC on its board of directors; or (iii) meets such other
criteria as may be established by the Commission. Control under the 1940 Act is
presumed to exist where a BDC beneficially owns more than 25% of the
outstanding voting securities of the portfolio company.
The 1940 Act prohibits or restricts companies subject to the 1940 Act from
investing in certain types of companies, such as brokerage firms, insurance
companies, investment banking firms and investment companies. Moreover, the
1940 Act limits the type of assets that BDCs may acquire to certain prescribed
qualifying assets and certain assets necessary for its operations (such as
office furniture, equipment and facilities) if, at the time of acquisition,
less than 70% of the value of the BDC's assets consists of qualifying assets.
Qualifying assets include: (i) privately acquired securities of companies that
were eligible portfolio companies at the time such BDC acquired their
securities; (ii) securities of bankrupt or insolvent companies; (iii)
securities of eligible portfolio companies controlled by a BDC; (iv) securities
received in exchange for or distributed in or with respect to any of the
foregoing, and (v) cash items, government securities and high-quality
short-term debt. The 1940 Act also places restrictions on the nature of the
transactions in which, and the persons from whom, securities can be purchased
in order for the securities to be considered qualifying assets. Such
restrictions include limiting purchases to transactions not involving a public
offering and acquiring securities directly from either the portfolio company or
their officers, directors or affiliates.
We are permitted by the 1940 Act, under specified conditions, to issue
multiple classes of senior debt and a single class of preferred stock if our
asset coverage, as defined in the 1940 Act, is at least 200% after the issuance
of the debt or the preferred stock (i.e., such senior securities may not be in
excess of 50% of our net assets). If the value of our net assets, as defined,
were to increase through the issuance of additional capital stock or otherwise,
we would be permitted under the 1940 Act to issue additional senior securities.
We have no senior securities outstanding and have no current intention of
issuing any senior securities although we may do so in the future.
We may sell our securities at a price that is below the net asset value
per share only (i) after a majority of our disinterested directors has
determined that such a sale would be in our best interests and our stockholders
and (ii) upon the approval by the holders of a majority of our outstanding
voting securities, including a majority of the voting securities held by
non-affiliated persons, of such a policy or practice within one year prior to
such sale. If the offering of the securities is underwritten, a majority of the
disinterested directors must determine in good faith that the price of the
securities being sold is not less than a price which closely approximates the
market value of the securities, less any distribution discounts or commissions.
As defined in the 1940 Act, the phrase "majority of our outstanding voting
securities" means the vote of (i) 67% or more of our common stock present at a
meeting, if the holders of more than 50% of our outstanding common stock are
present or represented by proxy, or (ii) more than 50% of our outstanding
common stock, whichever is less.
Many of our transactions with our affiliates (as well as affiliates of
those affiliates) which were prohibited without the prior approval of the
Securities and Exchange Commission under the 1940 Act prior to its amendment by
the Incentive Act are now permissible upon the prior approval of a majority of
our disinterested directors and a majority of the directors having no financial
interest in the transactions. However, certain transactions involving certain
persons with whom we are associated, including our directors, officers, and
employees, may still require the prior approval of the Securities and Exchange
Commission. In general (i) any person who owns, controls or holds power to vote
more than 5% of our outstanding common stock; (ii) any director, executive
officer or general partner of that person; and (iii) any person who directly or
indirectly controls, is controlled by, or is under common control with, that
person, must obtain the prior approval of a majority of our disinterested
directors and, in some situations, the prior approval of the Securities and
Exchange Commission, before engaging in certain transactions involving us or
any company under our control. The 1940 Act generally does not restrict
transactions between a company and its portfolio companies.
While a BDC may change the nature of its business so as to cease being a
BDC or, under certain circumstances, to change its business purpose, it may do
so only if authorized by a majority vote (as defined in the 1940 Act) of its
outstanding voting securities; stockholder approval of changes in other
fundamental investment policies of a BDC is not required (in contrast to the
general 1940 Act requirement, which requires stockholder approval for a change
in any fundamental investment policy). We are entitled to change our
non-diversification status without stockholder approval. In addition, should we
lose our status as a BDC, we would become subject to more stringent regulation
under the 1940 Act if we did not become exempt from 1940 Act regulation.
30
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our board of directors supervises the management of our company. The
responsibilities of each director include, among other things, the oversight of
the investment process and oversight of our quarterly valuations of our assets
and our financing arrangements.
The following table contains certain information concerning our directors,
director nominees, officers and other key employees and their ages.
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name, Address and Age* With Registrant During Past Five Years**
- ---------------------- --------------- ------------------------
<S> <C> <C>
Clifford M. Gross, age 42 Chief Executive Officer, Chief Executive Officer and
Chairman of the Board of Professor
Directors
Uwe Reischl, age 53 President Scientific advisor, Professor
Carole Mason, age 38 Chief Financial Officer Certified public accountant
Sam Reiber, age 52 General Counsel and Director Attorney
Stuart Brooks, age 63 Director of Scientific Advisory Professor
Board and Director
Kwabena Gyimah-Brempong, age 50 Director Professor
Arthur Chapnik, age 60 Director President of apparel design and
marketing company
Carl Nisser, age 59 Director Attorney
David Michael, age 62 Director Certified public accountant
</TABLE>
* The address for all named individuals is c/o UTEK Corporation, 202 South
Wheeler Street, Plant City, Florida 33566.
** Such occupations are in addition to the individuals' positions with us.
Directors and Executive Officers
Clifford M. Gross, Ph.D. has served as our Chief Executive Officer and
Chairman of the Board of Directors since 1997. Dr. Gross received his Ph.D.
from New York University in 1981, from 1982 to 1984 Dr. Gross served as the
Acting Director of the Graduate Program in Ergonomics and Biomechanics at New
York University. From 1984 to 1985 Dr. Gross served as the Chairman of the
Department of Biomechanics at New York Institute of Technology. In 1985, Dr.
Gross founded and served as CEO of the Biomechanics Corp. of America until
1995. From 1996 to 1997, Dr. Gross served as a research professor and Director
of the Center for Product Ergonomics at University of South Florida. Dr. Gross
holds eighteen patents and has produced numerous publications. His book,
entitled The Right Fit, published in October 1996, describes how companies can
increase market-share and profitability using a biomechanics technology
strategy. A portion of his laboratory was replicated in the Cooper Hewitt
National Museum of Design -- Smithsonian Institution in March 1997 as part of a
new exhibit on Henry Dryfuss and ergonomics.
Uwe Reischl, Ph.D., M.D. has served as our President since June 1999 and
had been our Executive Vice President since September 1998. Dr. Reischl
received a Masters degree in Architecture from the University of California at
Berkeley, he received a Ph.D. degree in Environmental Health Sciences from the
University of California at Berkeley, and both a second Ph.D. in Occupational
Medicine and an M.D. in General Medicine from the University of Ulm (Ulm,
Germany). Prior to joining UTEK, Dr. Reischl served as a Scientific Advisor at
the World Health Organization (WHO) Center at the University of Ulm. Dr.
Reischl was an Assistant Professor at the University of California, Director of
the Program in Industrial Health and Safety at Oakland University, and he was
an Associate Professor at the College of Public Health, University of South
Florida. Dr. Reischl has fifteen years experience in university teaching and
research.
31
<PAGE>
Carole R. Mason, C.P.A., has served as our Chief Financial Officer,
Secretary and Treasurer since June 1999. From 1987 to the present, Ms. Mason
has also been a partner of Myers, Mason & Co. Ms. Mason has conducted a
diversified accounting practice in Tampa, Florida for 15 years. She received
her Bachelor of Science degree in accounting from the University of Tampa.
Sam Reiber, J.D., has served as our General Counsel since 1997 and has
been a Director since May 1998. Mr. Reiber was a founding partner of Linsky and
Reiber, a law firm located in Tampa, Florida. Mr. Reiber has conducted a
diversified practice of law in Tampa for 25 years. Mr. Reiber's practice
includes all types of real property, corporate matters, litigation and estate
planning. He received a Bachelor's degree in economics from the University of
Minnesota in 1969 and a Juris Doctorate from the William Mitchell College of
Law in 1974.
Stuart M. Brooks, M.D. has served as a director since 1998 and has been
the director of our Scientific Advisory Board since 1998. He is a Professor of
Medicine and Public Health and Director of the NIOSH Educational and Research
Center at USF.
Kwabena Gyimah-Brempong, Ph.D. has served as a director since May 1998.
Since May 1998, Dr. Gyimah-Brempong has also served as our Director of
University Partnerships, and as such is responsible for helping us to build
relationships with American universities. Since 1994, Dr. Gyimah-Brempong has
been a Professor of Economics at University of South Florida School of
Business. Dr. Gyimah-Brempong recently completed a comprehensive report on how
American universities market their technology.
Arthur Chapnik has served as a director since May 1998. Mr. Chapnik is
also the President of Harrison McJade & Co., Ltd., an apparel design and
marketing company. Mr. Chapnik served as president of Samsung USA's women's
apparel division from 1988 to 1990. Mr. Chapnik is Dr. Gross' father-in-law.
Carl Nisser, LL.M., D.E.S., has served as a director and chairman of our
European Advisory Counsel since May 1998. Mr. Nisser is a principal of
Advokatfirman Nisser, with offices in Brussels, London and New York. He has
served as Director of Corporate and Legal Affairs for both Volvo and Goodyear
International Corporation in the US, Europe and the Far East. Mr. Nisser also
serves in an of counsel capacity with our counsel, Gersten, Savage & Kaplowitz,
LLP. Mr. Nisser was educated at the universities of Uppsala, Strassbourg and
Coimbra. Mr. Nisser is chairman and CEO of E.com Enterprises, Inc. and a member
of several boards of directors. He is also an author of several articles on
legal and economic issues.
David Michael, CPA has served as a director since February 2000. Since
1983, Mr. Michael has served as the president of David Michael & Co., P.C., an
accounting firm. He also serves on the board of directors of Del Global
Technologies Corp. (NASDAQ:DGTC). Mr. Michael received a BBA in accounting from
City College in New York in 1959.
Committees of the Board
Our board of directors has established an Audit Committee and a
Compensation Committee. The members of the Audit Committee are David Michael,
Kwabena Gyimah-Brempong and Arthur Chapnik. The functions of the Audit
Committee will be to annually recommend to the board of directors the
appointment of our independent public accountants, discuss and review the scope
and fees of the prospective annual audit, review the results thereof with the
independent public accountants, review and approve non-audit services of the
independent public accountants, review compliance with existing major
accounting and financial policies relative to the adequacy of our internal
accounting controls, review compliance with federal and state laws relating to
accounting practices and review and approve transactions, if any, with
affiliated parties.
The members of the Compensation Committee are Stuart Brooks, Sam Reiber
and Arthur Chapnik. The functions of the Compensation Committee will be to
review and approve annual salaries and bonuses for all officers, review,
approve, and recommend to the board of directors the terms and conditions of
any employee benefit plans or changes thereto, administer our stock option
plan, and carry out the responsibilities required by rules of the Securities
and Exchange Commission.
32
<PAGE>
Compensation of Directors
We have issued shares of our common stock to our directors as compensation
for acting in such capacity and we intend to grant our directors options to
purchase shares of our common stock in compensation for their services. We have
not paid any cash compensation to any of our directors. We are currently
reviewing our policy on compensation of outside directors and may pay outside
directors in the future.
Consulting Agreements with Directors
We have retained certain of our directors to serve as independent
contractors pursuant to consulting agreements under which these persons were
generally paid in shares, which vest over a two-year period, rather than
salaries. The directors with whom we have consulting relationships are listed
below:
Stuart Brooks, M.D. has been retained to serve as Director of the
Scientific Advisory Board. Pursuant to the agreement, we have issued to Dr.
Brooks, in consideration for his services, 5,000 shares of our common stock.
Arthur Chapnik has previously served as Director of Public Relations.
Pursuant to the agreement, we have issued to Mr. Chapnik, in consideration for
his services, 5,000 shares of our common stock.
Kwabena Gyimah-Brempong, Ph.D. has previously served as Director of
University Partnerships. Pursuant to the agreement, we have issued to Dr.
Gyimah-Brempong, in consideration for his services, 5,000 shares of our common
stock.
Carl Nisser has previously served as Director of European Licensing.
Pursuant to the agreement, Mr. Nisser will represent us in Europe, and in
consideration for his services we issued to Mr. Nisser 10,000 shares of our
common stock in two equal installments, 5,000 shares in 1998 and 5,000 shares
in 1999. In addition, we paid Mr. Nisser in cash for legal services rendered to
us as director of our European Advisory Council.
Executive Compensation
The following table sets forth certain information regarding compensation
paid by us during each of the last three fiscal years to our Chief Executive
Officer who was our sole executive officer to have earned in excess of $60,000
for any year.
Summary Compensation Table
<TABLE>
<CAPTION>
Aggregate Annual Pension or Estimated Total Compensation
Compensation Retirement Benefits Annual From Fund and
------------------- Accrued as Part of Benefits Upon Fund Complex
Name and Principal Position Year Total Fund Expenses Retirement Paid to Investors
- ----------------------------- ------ ----------- --------------------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
Clifford M. Gross, 1999 $120,400 -- -- --
Chief Executive Officer 1998 $ 18,000 -- -- --
1997 -- -- -- --
</TABLE>
Employment Agreements
We have entered into five-year employment agreements, effective September
1, 1999, with Dr. Clifford M. Gross and Dr. Uwe Reischl. Drs. Gross and Reischl
have agreed to serve as our Chief Executive Officer and President,
respectively. Dr. Gross will receive an annual base salary of $150,000 and Dr.
Reischl will receive an annual base salary of $100,000. Upon completion of this
offering, we will grant to Drs. Gross and Reischl incentive stock options to
purchase up to 100,000 and 50,000 shares, of our common stock, respectively. In
addition, both Drs. Gross and Reischl will receive an automobile allowance.
Pursuant to their employment agreements with us, Dr. Gross and Dr. Reischl have
agreed to devote substantially all of their time and attention to the business
and affairs of our company. Each employment agreement contains a covenant not
to compete with us for a one-year period immediately following termination of
employment.
We have engaged Carole Mason, C.P.A. to serve as our Chief Financial
Officer. However, we will not have the benefit of her services on a full time
basis as she has other duties at Myers, Mason & Co., P.A.
33
<PAGE>
Key Man Life Insurance
We have obtained "key man" life insurance policies in the amount of
$500,000 on the life of each of Clifford M. Gross, our Chief Executive Officer
and Uwe Reischl, our President.
Stock Option Plans
Our stockholders have adopted two employee stock option plans, an
incentive stock option plan adopted in September 1999 (the "1999 Plan") and a
non-qualified stock option plan adopted in February 2000 (the "2000 Plan").
The purpose of the 1999 Plan is to enable us to compete successfully in
attracting, motivating and retaining employees with outstanding abilities. The
options are intended to be Incentive Stock Options within the meaning of
section 422 of the Internal Revenue Code of 1996, as amended, or the
corresponding provision of any subsequently enacted statute. Following the
consummation of this offering, the Compensation Committee will administer the
1999 Plan.
The 1999 Plan. Under the 1999 Plan, we are authorized to issue options to
purchase up to 500,000 shares of our common stock. All officers and other
employees who perform significant services for or on behalf of us are eligible
to participate in the 1999 Plan.
We may grant under the 1999 Plan both incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and
stock options that do not qualify for incentive treatment under the Code.
The exercise price of each incentive stock option under the plan will be
determined by the Compensation Committee, but will be not less than 100% of the
current market value of the common stock on the date of grant (or 110% in the
case of an employee who at the time owns more than 10% of the total combined
voting power of all classes of capital stock). The non-qualified option
exercise price will be determined by the Compensation Committee, but will not
be less than 100% of the current market value of the common stock on the date
of grant.
The 2000 Plan. Under the 2000 Plan, we are authorized to issue options to
purchase up to 250,000 shares of our common stock. All officers and other
employees as well as other persons who perform significant services for or on
behalf of us are eligible to participate in the 2000 Plan.
We may grant under the 2000 Plan only stock options that do not qualify
for incentive treatment under Section 422 of the Internal Revenue code.
The exercise price for 2000 Plan options will be determined by the
Compensation Committee, but will not be less than 100% of the current market
value of the common stock on the date of grant.
General. In the discretion of the Compensation Committee and upon receipt
of all regulatory approvals, an option holder may be permitted to utilize a
cashless exercise as payment in whole or in part of the exercise price
certificates for shares of common stock (valued for this purpose at its fair
market value on the day of exercise) or other property.
An incentive stock option granted under either plan shall expire ten years
from the date it is granted. The Compensation Committee may provide in the
stock option agreement that the option subject thereto expires 30 days
following the termination of employment for any reason other than death or
disability or twelve months following a termination of employment for death or
disability; provided, however, that in no event shall any option granted under
the plan be exercised after the expiration date of such option set forth in the
applicable stock option agreement.
If the outstanding shares of common stock are changed into, or under the
plan exchanged for, cash or a different number or kind of our shares or
securities or another corporation through reorganization, merger,
recapitalization, stock split-up, reverse-stock split, stock dividend, stock
consolidation, stock combination, or similar transaction, an appropriate
adjustment will be made by the Compensation Committee in the number and kind of
shares as to which options may be granted. In the event of such change or
exchange, other than
34
<PAGE>
for shares or securities of another corporation or by reason of reorganization,
the Compensation Committee will also make a corresponding adjustment in the
number or kind of shares and the exercise price per share allocated to
unexercised options or portions thereof, of options which have been granted
prior to such change. Any such adjustment, however, will be made without change
in the total price applicable to the unexercised portion of the option but with
a corresponding adjustment in the price for each share (except for any change
in the aggregate price resulting from rounding off of share quantities or
prices).
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
The following table sets forth certain information, as of the date hereof,
and as adjusted to give effect to the Offering and the transactions
contemplated thereby, with respect to the beneficial ownership of the Common
Stock by (i) each person known to the Company to beneficially own more than 5%
of the outstanding shares of Common Stock, (ii) each executive officer and
director of the Company and (iii) all executive officers and directors of the
Company as a group:
<TABLE>
<CAPTION>
Percentage
Number of Shares Beneficially Owned
of -------------------------
Name and Address of Common Stock Before After
Beneficial Owner(1) Beneficially Owned Offering Offering(4)
- ------------------------------------ -------------------- ---------- ------------
<S> <C> <C> <C>
Clifford M. Gross .................. 1,937,254(2) 69.6 51.2
Carl Nisser ........................ 60,000 2.2 1.6
Uwe Reischl ........................ 43,000 1.6 1.1
Carole R. Mason .................... 22,000(3) 0.8 0.6
Stuart Brooks ...................... 12,500 0.4 0.3
Kwabena Gyimah-Brempong ............ 12,500 0.4 0.3
Arthur Chapnik ..................... 12,500 0.4 0.3
Sam Reiber ......................... 8,000 0.3 0.2
----------- ---- ----
All directors and executive officers
as a group consisting of (8)
persons ........................... 2,107,754 75.7 55.6
=========== ==== ====
</TABLE>
- ------------
(1) Unless otherwise indicated, the address of each beneficial owner is c/o the
Company.
(2) The shares of common stock are held by Clifford M. Gross and his wife
jointly.
(3) The shares of common stock are held in the name of Myers, Mason & Co., P.A.
(4) The percentages of shares beneficially owned after the offering have been
calculated assuming that the underwriter has not exercised its
over-allotment option.
CONFLICTS OF INTEREST
Transactions with UTEK
Carl Nisser, one of our directors, is also associated with our counsel,
Gersten, Savage & Kaplowitz, LLP, with whom he serves in an of counsel
capacity. In addition, in connection with this offering, Mr. Nisser will
receive approximately 30% of the fees payable to Gersten, Savage & Kaplowitz,
LLP.
INVESTMENT ADVISORY SERVICES
We are internally managed by our officers under the supervision of our
board of directors. We therefore have no investment advisory, administrative or
similar agreements with any person or entity.
We serve as our own custodian in accordance with the provisions of the
Investment Company Act of 1940, as amended. We intend to store the certificates
representing the common stock we receive from
35
<PAGE>
acquirers of our portfolio companies in a safety deposit box at Southtrust
Bank, located at 202 S. Wheeler St., Plant City, Florida. Securities in our
portfolio companies are held in the custody and control of Linsky & Reiber,
Attorneys at Law, 601 E. Twiggs Street, Tampa, Florida.
Decisions regarding investments in our portfolio companies are made
primarily by Clifford M. Gross, our Chief Executive Officer and Chairman of the
Board of Directors, Uwe Reischl, our President, and Carole Mason, our Chief
Financial Officer, subject to approval by our Board of Directors. Dr. Gross has
been responsible for the Company's investments for approximately two years, Dr.
Reischl for approximately one and one-half years and Ms. Mason for
approximately nine months. See "Management -- Directors and Executive Officers"
for a summary of the business experience of Drs. Gross and Reischl and Ms.
Mason during the past five years. The firm of Linsky & Reiber, attorneys at
law, of which Sam Reiber, our General Counsel and a Director of the Company, is
a partner, currently serves as our custodian, transfer agent and dividend
paying agent. Linsky & Reiber is located at 601 E. Twiggs Street, Tampa,
Florida 33602. Following the offering, we expect those services to be conducted
by our transfer agent, Continental Stock Transfer & Trust Company, 2 Broadway,
New York, New York 10004.
We expect that expenses relating to our formation and costs relating to
the portfolio companies that we formed will be amortized on a straight line
basis over a period of 60 months. The costs associated with the initial
formation and operation of our portfolio companies may include obligations of
the portfolio companies to us, including management and administrative fees.
The transfer agent for our common stock is Continental Stock Transfer &
Trust Company, 2 Broadway, New York, New York 10004.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Since the Company generally acquires and disposes of its investments in
portfolio companies in privately negotiated transactions, it infrequently uses
brokers in the normal course of business.
When we sell the securities we receive in exchange for portfolio
companies, our management will arrange for the execution of such transactions
and the allocation of brokerage services and commissions. In executing
transactions in the securities we receive for portfolio companies, our
management will seek to obtain the most favorable execution, that is, the best
combination of net price and prompt reliable execution. In management's opinion
it is not possible to determine in advance that any particular broker will
actually be able to effect the most favorable execution because, in the context
of an often changing market, order execution involves judgments as to the
price, volume, trend and breadth of the market, possibility of a block
transaction, and the broker's activity in the security as well as its general
record for prompt, competent and reliable service in all aspects of order
processing, execution and settlement as well as anticipated commission rates.
A substantial portion of the securities which we receive in exchange for
our portfolio companies may be traded in the over-the-counter markets, and we
intend to deal directly with the dealers who make markets in the securities
involved, except in those circumstances where better prices and execution are
otherwise available. Under the 1940 Act, persons affiliated with our company
are prohibited from dealing with us as principal in the purchase and sale of
securities. Transactions in the over-the-counter markets usually involve
transactions with dealers acting as principal for their own account. We will
not deal with affiliated persons as principal; however, affiliated persons of
our company may serve as our broker in over-the-counter markets and other
transactions conducted on an agency basis in accordance with the 1940 Act,
except that if an affiliated person is a market maker in the securities of a
company then the affiliated person will not serve as our broker in the purchase
of such securities.
Our management has no obligation to deal with any broker or group of
brokers in the execution of transactions.
FEDERAL INCOME TAX MATTERS
For Federal and state income tax purposes, we are taxed at regular
corporate rates on ordinary income and recognized gains on distributions of
appreciated property. We are not entitled to the special tax treatment
36
<PAGE>
available to most regulated investment companies because, among other reasons,
we do not distribute at least 90% of "investment company taxable income" as
required by the IRS Code for such treatment. Distributions of cash or property
by us to our stockholders, if any, will be taxable as dividends only to the
extent that we have current or accumulated earnings and profits. Distributions
in excess of current or accumulated earnings and profits will be treated first
as a return of capital to the extent of the holder's tax basis and then as gain
from the sale or exchange of property.
Each investor is urged to consult with his tax advisor concerning the
United States Federal, state and local, and foreign tax consequences of his
investment in our company.
DESCRIPTION OF SECURITIES
Our total authorized capital stock consists of 19,000,000 shares of common
stock, par value $0.01 per share, and 1,000,000 shares of preferred stock, par
value $0.01 per share. The following descriptions of capital stock are
qualified in all respects by reference to our Certificate of Incorporation and
by-laws, which were filed as exhibits to the Registration Statement of which
this prospectus is a part.
Common Stock
The holders of common stock elect all directors and are entitled to one
vote for each share held of record on all matters to be voted upon by
stockholders. As of the date of this prospectus, 2,782,226 shares of common
stock were issued and outstanding. Upon successful completion of this offering,
3,782,226 shares of common stock will be issued and outstanding. Subject to
preferences that may be applicable to any outstanding preferred stock, all
shares of common stock participate equally in dividends, when and as declared
by the Board of Directors and in net assets on liquidation. The shares of
common stock have no preference, conversion, exchange, preemptive or cumulative
voting rights.
Preferred Stock
Our Certificate of Incorporation authorizes the issuance of shares of
preferred stock in one or more series. As of the date of the prospectus there
are no issued and outstanding shares of preferred stock, and no shares of
preferred stock will be issued and outstanding as a result of the offering. Our
Board of Directors has the authority, without any vote or action by our
stockholders, to create one or more series of preferred stock up to the limit
of our authorized but unissued shares of preferred stock and to fix the number
of shares constituting such series and the designation of such series, the
voting powers (if any) of the shares of such series and the relative,
participatory, option or other rights (if any), and any qualifications,
preferences, limitations or restrictions thereof, including, without
limitation, the dividend rate (and whether dividends are cumulative),
conversion rights, rights and terms of redemption (including sinking fund
provisions), and redemption price and liquidation preferences, and any other
rights, preferences and limitations pertaining to such series which may be
fixed by our Board of Directors pursuant to the Delaware General Corporate Law.
For so long as we are subject to the 40 Act, we are subject to
restrictions relating to the issuance of senior securities, including preferred
stock. We would generally be restricted from issuing preferred stock if,
immediately after issuance or sale, the preferred stock did not have an asset
coverage of at least 200 percent. For this purpose, the term "asset coverage,"
when applied to the preferred stock, generally means the ratio that the value
of our total assets, less liabilities and indebtedness not represented by the
preferred stock, bears to the involuntary liquidation preference of the
preferred stock (and certain other of our debt obligations). In addition, the
preferred stock would generally have the right to elect at least two directors
to the board and to elect a majority of the board in certain circumstances. The
preferred stock would have certain other voting and priority payment rights as
required by the 40 Act.
Anti-Takeover Provisions Affecting Our Common Stock
Blank Check Preferred Stock
The existence of authorized but unissued preferred stock may enable our
Board of Directors to render more difficult or discourage an attempt to obtain
control of us by means of a merger, tender offer, proxy
37
<PAGE>
contest or otherwise. For example, if in the due exercise of its fiduciary
obligations, our Board of Directors were to determine that a takeover proposal
is not in our best interests, our Board of Directors could cause us to issue
shares of preferred stock without stockholder approval in one or more private
offerings or other transactions that might dilute the voting or other rights of
the proposed acquirer or insurgent stockholder or stockholder group. In this
regard, our Certificate of Incorporation grants the Board of Directors broad
power to establish the rights and preferences of authorized and unissued
preferred stock. The issuance of shares of preferred stock pursuant to the
Board of Directors' authority described above could decrease the amount of
earnings and assets available for distribution to holders of our common stock
and adversely affect the rights of such holders, including voting rights in the
event a particular series of preferred stock is given a disproportionately
large number of votes per share, and may have the effect of delaying, deferring
or preventing a change in control of us that may be favored by certain
stockholders. In addition, the use of preferred stock to prevent a takeover
could have the effect of depriving shareholders of an opportunity to sell their
common stock at a premium over the then-current market price.
Outstanding Securities
The following table lists our authorized and outstanding securities as of
December 31, 1999:
<TABLE>
<CAPTION>
Amount held by UTEK
Title of class Amount authorized or for its own account Amount outstanding(1)
- ----------------- ------------------- ------------------------ ----------------------
<S> <C> <C> <C>
common stock 19,000,000 shares -- 2,782,226
preferred stock 1,000,000 shares -- --
</TABLE>
- ------------
(1) Does not include 90,000 shares of common stock issuable upon exercise of
warrants issued to Gersten, Savage & Kaplowitz, or 100,000 shares of
common stock issuable in the aggregate upon exercise of the underwriters'
warrants.
The shares of our common stock outstanding as of December 31, 1999 were
issued in private transactions. On August 27, 1997, we issued a total of
1,950,000 shares, at a price of $.0146 per share, for net proceeds of $28,506.
On May 14, 1998, we completed a private placement transaction by issuing
207,068 shares at a price of $1.50 per share for aggregate net proceeds of
$310,602. On July 25, 1998, we completed another private placement transaction
and issued 96,400 shares at a price of $2.28 per share for aggregate net
proceeds of $219,831. On April 12, 1999, we completed a private placement
transaction whereby we issued 281,424 shares at a price of $4.64 per share for
aggregate net proceeds of $1,305,807. Stock issued for services includes:
Shares Value
--------- ----------
Year ended December 31, 1997 166,334 $ 8,317
Year ended December 31, 1998 34,600 86,550
Year ended December 31, 1999 46,400 204,219
<PAGE>
Following the closing of this offering, there will be outstanding warrants to
purchase an aggregate of 190,000 shares of our common stock. One warrant issued
to Gersten Savage & Kaplowitz LLP, is exercisable for an aggregate of 90,000
shares of our common stock for a four year period beginning one year after the
effective date of this offering at $3.00 per share. Warrants will also be
issued upon the closing of the offering to May Davis Group, Inc., and Artesia
Securities S.A./NV, underwriters of our offering. The underwriters' warrants
may be exercised for shares of common stock in an aggregate amount equal to up
to ten percent of the shares issued in this offering. The underwriters' warrants
will be exercisable for a four year period beginning one year after the
effective date of this offering, at $9.90 per share which is 165% of the
offering price of our common stock. The exercise prices and the number of shares
issuable upon exercise of these warrants are subject to change if certain
dilutive events occur and the holders of these warrants have certain rights to
have shares acquired on exercise of the warrants registered under the Securities
Act at our expense.
Transfer Agent and Registrar
The transfer agent, registrar and warrant agent for our common stock is
Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York
10004.
38
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we have agreed to sell to the underwriters named
below, for whom May Davis Group, Inc. and Artesia Securities S.A./NV are
acting as representatives, the following respective amounts of shares of common
stock and underwriters' warrants:
Underwriters Number of Number of
- ------------ ----------- ----------
Shares Warrants
----------- ----------
May Davis Group, Inc. ................ 500,000 50,000
One World Trade Center
New York, NY 10038
Artesia Securities S.A./NV............ 500,000 50,000
WTC-Tower I Boulevard
du Rui Albert II, 30-B18 B-1000
Brussels, Belgium
Total ................................ 1,000,000 100,000
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
May Davis will act as underwriter for the shares of common stock offered in
the United States. Artesia Securities will act as underwriter for the shares of
common stock offered outside the United States.
We have granted to the underwriters a 45-day option to purchase up to
75,000 additional shares each, and in the aggregate 150,000 additional shares,
at the initial public offering price less the underwriting discounts and
commissions. The underwriters may exercise the option only to cover any
over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $.15 per share. The
underwriters and selling group members may allow a discount of $.30 per share on
sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the underwriters. Purchasers of our common stock pursuant to this offering must
provide payment for such securities by no later than , 2000.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
----------------------------------- ----------------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Underwriting discounts and
commissions paid by us ......... $ 0.60 $ 0.60 $600,000 $690,000
Expenses payable by us .......... $ 0.18 $ 0.18 $180,000 $207,000
</TABLE>
<PAGE>
We will pay all of the total expenses of the offering, which we estimate
will be approximately $475,000. In addition we will pay to the underwriters
$180,000 for their expenses (excluding the sale of any over-allotment shares),
which includes $50,000 we have already paid to May Davis.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.
We, our officers and directors and certain other stockholders have agreed
to a 24-month "lock up" with all the shares of common stock and certain other
securities beneficially owned, including securities that are convertible or
exchangeable into or exercisable for shares of common stock.
In addition, for a two year period we will not issue any securities without
the consent of May Davis, not including any shares of common stock issuable upon
exercise of any securities currently outstanding or which may be issued under
the 1999 stock option plan or the 2000 stock option plan. May Davis has agreed
to not unreasonably withhold or unduly delay its consent to the issuance of
securities as part of the purchase price of our acquisition of assets.
We and May Davis will enter into a financial consulting agreement
providing for May Davis to act as management and financial consultant to us for
a three year period for a fee of $120,000 payable at the closing of this
offering.
We have granted May Davis for a period ending on , 2002 the right to
have May Davis' designee present at meetings of the Board of Directors and each
of its committees subject to our right to exclude such designee under certain
circumstances. The designee will be entitled to the same notices and
communications sent by us as we give to our directors and will attend directors'
and committees' meetings,
39
<PAGE>
but will not be entitled to vote thereat. Such designee will also be entitled
to receive the same compensation payable to directors as members of the Board
of Directors and its committees and all reasonable expenses in attending such
meetings. As of the date of this prospectus no designee has been selected.
In connection with this offering, we have agreed to sell to the
underwriters, for nominal consideration, warrants to purchase up to 50,000
shares of common stock each, and an aggregate of 100,000 shares of common stock
exercisable initially at $9.90 per share of common stock for a period of four
years beginning one year from the date hereof. These warrants contain
antidilution provisions providing for adjustment of the exercise price upon the
occurrence of certain events, including (i) the issuance of common stock, or
securities exercisable or convertible into common stock, at a price less than
the exercise price and (ii) any recapitalization, reclassification, stock
dividend, stock split, stock combination or similar transaction. In addition,
the warrants grant to the holders rights, commencing one year from the date of
this prospectus, to have common stock be issued upon exercise of the warrants
registered under the Securities Act. These rights include the right to require
us to register these shares for a four year period and the right to include
these shares for a five year period in any registration statement filed by us.
The underwriters' warrants will be restricted from sale, transfer,
assignment or hypothecation for a period of one year from the effective date of
the offering except to officers or partners (not directors) of the underwriter
and members of the selling group and/or their officers or partners.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and "passive" market making in
accordance with Regulation M under the Exchange Act.
o Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
o Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
o Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
o Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the shares of common stock originally sold by
such syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions.
o In "passive" market making, market makers of the common stock who are
underwriters or prospective underwriters may, subject to certain
limitations, make bids for or purchases of the common stock until the
time, if any, at which a stabilizing bid is made.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq SmallCap Market or otherwise and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the shares offered will be passed upon for us by Gersten,
Savage & Kaplowitz, LLP, 101 East 52nd Street, New York, New York 10022. We
issued to Gersten, Savage & Kaplowitz warrants to purchase up to 90,000 shares
of our common stock. Certain legal matters in connection with the offering will
be passed upon for the underwriters by McLaughlin & Stern, LLP, 260 Madison
Avenue, New York, New York 10016.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1999 and for each of the three years in
the period ended December 31, 1999, as set forth in their report. We have
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given their
authority as experts in accounting and auditing.
CUSTODIAN
We will act as a self-custodian of our portfolio securities in compliance
with applicable regulations under the 1940 Act.
40
<PAGE>
UTEK Corporation
Index to Consolidated Financial Statements and Schedules
Contents
Report of Independent Auditors ........................... F-2
Consolidated Balance Sheets .............................. F-3
Consolidated Statements of Operations .................... F-4
Consolidated Statements of Cash Flows .................... F-5
Consolidated Statements of Changes in Net Assets ......... F-6
Financial Highlights ..................................... F-7
Schedule of Investments .................................. F-8
Notes to Consolidated Financial Statements ............... F-10
F-1
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
UTEK Corporation
We have audited the accompanying consolidated balance sheets of UTEK
Corporation, including the schedules of investments, as of December 31, 1999
and 1998 and the related consolidated statements of operations, cash flows, and
changes in net assets, and financial highlights for each of the three years in
the period ended December 31, 1999. These consolidated financial statements and
financial highlights are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 and the financial highlights. Our procedures included the physical
inspection of securities owned as of December 31, 1999 and 1998. 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 and financial highlights
referred to above present fairly, in all material respects, the consolidated
financial position of UTEK Corporation at December 31, 1999 and 1998, and the
consolidated results of its operations, its cash flows and changes in its net
assets and financial highlights for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Tampa, Florida
February 8, 2000
F-2
<PAGE>
UTEK Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
1999
December 31 December 31 Proforma
1998 1999 (Note 4)
---------------- ---------------- ----------------
<S> <C> <C> <C>
ASSETS
Investments in non-controlled affiliates (cost
$320,000 and $1,496,212 at December 31, 1998
and 1999, respectively) ............................ $ 1,300,000 $ 2,594,931 $ 2,594,931
Cash and cash equivalents ........................... 418,178 1,007,229 1,007,229
Prepaid expenses and other assets ................... 22,760 522,447 522,447
Fixed assets, net ................................... 64,857 80,738 80,738
------------ ------------ ------------
TOTAL ASSETS .................................... 1,805,795 4,205,345 4,205,345
------------ ------------ ------------
LIABILITIES
Accrued expenses .................................... 8,698 114,453 114,453
Deferred income taxes ............................... 431,450 806,439 727,645(a)
------------ ------------ -------------
TOTAL LIABILITIES ............................... 440,148 920,892 842,098
------------ ------------ -------------
NET ASSETS ...................................... $ 1,365,647 $ 3,284,453 $ 3,363,247
============ ============ =============
Commitments and Contingencies
Composition of net assets
Common stock, $.01 par value, 19,000,000 shares
authorized; 2,454,402 and 2,782,226 shares
issued and outstanding at December 31, 1998 and
1999, respectively ................................. $ 24,544 $ 27,822 $ 27,822
Preferred stock, $.01 par value, 1,000,000 shares
authorized and none issued and outstanding at
December 31, 1998 and 1999 ......................... -- -- --
Additional paid-in capital .......................... 629,262 2,136,010 2,136,010
Accumulated income:
Accumulated net operating income ................... 100,841 386,702 514,145(a)
Net unrealized appreciation of investments, net of
deferred income taxes (Note 4) ................... 611,000 733,919 685,270(a)
------------ ------------ -------------
Net assets .......................................... $ 1,365,647 $ 3,284,453 $ 3,363,247
============ ============ =============
Net asset value per share ........................... $ 0.56 $ 1.18 $ 1.21
============ ============ =============
</TABLE>
- ------------
(a) Reflects the unaudited pro forma impact on the Company's financial position
had it been taxable as a "C Corporation" (see Note 4).
See accompanying notes.
F-3
<PAGE>
UTEK Corporation
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
1997 1998 1999
------------- ------------ -------------
<S> <C> <C> <C>
Income from operations: .............................
Sale of technology rights .......................... $ -- $ 320,000 $1,098,212
Consulting fees .................................... 55,000 165,000
Interest income, net ............................... -- 6,843 52,161
--------- --------- ----------
-- 381,843 1,315,373
--------- --------- ----------
Expenses:
Salaries and wages ................................. -- 27,275 197,125
Professional fees .................................. -- 3,934 184,697
Sales and marketing ................................ -- 65,649 79,544
General and administrative ......................... 5,115 116,579 266,956
--------- --------- ----------
5,115 213,437 728,322
--------- --------- ----------
Income (loss) before income taxes ................... (5,115) 168,406 587,051
Provision for income taxes (Note 4) ................. -- (62,450) (301,190)
--------- --------- ----------
Net income (loss) from operations ................ (5,115) 105,956 285,861
Net realized and unrealized gains:
Increase in unrealized appreciation of
non-controlled affiliate investments, net of
deferred income tax expense of $369,000, and
$73,799, at December 31, 1998 and 1999,
respectively (Note 4) ............................ -- 611,000 122,919
--------- --------- ----------
Net increase (decrease) in net assets. .............. $ (5,115) $ 716,956 $ 408,780
========= ========= ==========
Unaudited pro forma information:
Net increase (decrease) in net assets before pro
forma effect of change in Company's tax
structure. ......................................... $ (5,115) $ 716,956 $ 408,780
Pro forma effect of change in tax structure ......... -- -- 78,794
--------- --------- ----------
Pro forma increase in net assets. ................... $ (5,115) $ 716,956 $ 487,574
========= ========= ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
UTEK Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------
1997 1998 1999
------------- ------------ ---------------
<S> <C> <C> <C>
Operating activities:
Net increase (decrease) in net assets ................... $ (5,115) $ 716,956 $ 408,780
Adjustments to reconcile net increase (decrease) in
net assets to net cash provided by (used in)
operating activities:
Increase in net unrealized appreciation of
investments .......................................... -- (980,000) (196,719)
Deferred income taxes .................................. -- 431,450 374,989
Services received for common stock ..................... 8,317 86,550 204,219
Depreciation and amortization .......................... 197 4,181 14,046
Changes in operating assets and liabilities: ...........
Prepaid expenses and other assets ..................... (31,766) 8,809 (499,687)
Accrued expenses ...................................... -- 8,698 105,755
--------- ---------- ------------
Net cash provided by (used in) operating activities ..... (28,367) 276,644 411,383
--------- ---------- ------------
Investing activities:
Investment securities received for sale of
portfolio companies .................................... -- (320,000) (1,098,212)
Purchases of fixed assets ............................... -- (69,038) (29,927)
--------- ---------- ------------
Net cash used in investing activities ................... -- (389,038) (1,128,139)
--------- ---------- ------------
Financing activities:
Proceeds from issuances of common stock ................. 28,506 530,433 1,305,807
--------- ---------- ------------
Net cash provided by financing activities ............... 28,506 530,433 1,305,807
--------- ---------- ------------
Increase in cash and cash equivalents ................... 139 418,039 589,051
Cash and cash equivalents at beginning of year .......... -- 139 418,178
--------- ---------- ------------
Cash and cash equivalents at end of year ................ $ 139 $ 418,178 $ 1,007,229
========= ========== ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
UTEK Corporation
Consolidated Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
1997 1998 1999
------------- ------------ -------------
<S> <C> <C> <C>
Changes in net assets from operations:
Net income (loss) from operations ......................... $ (5,115) $ 105,956 $ 285,861
Change in net unrealized appreciation of
investments ............................................. -- 611,000 122,919
--------- ---------- ----------
Net increase (decrease) in net assets from operations (5,115) 716,956 408,780
Capital stock transactions:
Common stock issued for cash .............................. 28,506 530,433 1,305,807
Common stock issued for services .......................... 8,317 86,550 204,219
--------- ---------- ----------
Net increase in net assets from stock transactions ......... 36,823 616,983 1,510,026
--------- ---------- ----------
Net increase in net assets ................................. 31,708 1,333,939 1,918,806
Net assets at beginning of year ............................ -- 31,708 1,365,647
--------- ---------- ----------
Net assets at end of year .................................. $ 31,708 $1,365,647 $3,284,453
========= ========== ==========
</TABLE>
See accompanying notes.
F-6
<PAGE>
UTEK Corporation
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------
1997 1998 1999
-------------- -------------- --------------
<S> <C> <C> <C>
PER SHARE INFORMATION
Net asset value, beginning of year .................. $ -- $ 0.02 $ 0.56
Net increase from operations(1) .................... -- 0.05 0.10
Net change in unrealized appreciation on
investments (after taxes)(1) ..................... -- 0.23 (0.04)
Net increase from stock transactions(1) ............ 0.02 0.26 0.56
--------- --------- ---------
Net asset value, end of year ........................ $ 0.02 $ 0.56 $ 1.18
========= ========= =========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ............................. $ 31,708 $1,365,647 $3,284,453
Ratio of expenses to average net assets (2) ......... 32% 31% 31%
Ratio of net income to average net assets ........... (32)% 15% 12%
Portfolio turnover rate ............................. -- -- 7%
Weighted average number of shares outstanding
during the year .................................... 2,070,494 2,304,691 2,682,420
</TABLE>
- ------------
1 Calculated based on weighted average number of shares outstanding during the
year.
2 Excluding income taxes.
See accompanying notes.
F-7
<PAGE>
UTEK Corporation
Schedule of Investments
December 31, 1998
<TABLE>
<CAPTION>
Date of Original
Shares Acquisition Cost Value
- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Common Stock in non-controlled affiliate - 95.2%
1,000,000 5/98 Lexon, Inc., publicly traded over the counter development
stage enterprise; developer of health care technology $ 320,000 $1,300,000
--------- ----------
TOTAL INVESTMENTS - 95.2% $ 320,000 1,300,000
=========
Cash and other assets, less liabilities - 4.8% 65,647
----------
Net Assets - 100% $1,365,647
==========
</TABLE>
Notes to Schedule of Investments:
o The above investment is non-income producing. Equity investments that have
not paid dividends within the last twelve months are considered non-income
producing.
o Original cost approximates tax basis of investment.
o Value of Lexon, Inc. is determined by appraisers (Notes 1 and 2).
o Lexon, Inc. shares are restricted as to disposition for a two year period
commencing on the date of acquisition.
o As a greater than 10% holder, the Company is considered to be an affiliate of
the above company and as a result, its ability to sell the securities will
be limited under the Securities Act.
See accompanying notes.
F-8
<PAGE>
UTEK Corporation
Schedule of Investments
December 31, 1999
<TABLE>
<CAPTION>
Date of Original
Shares Acquisition Cost Value
- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Common Stock in non-controlled affiliates - 79.0%
1,000,000 5/98 Lexon, Inc., publicly traded over the counter development
stage enterprise - 21.9%, developer of health care technology $ 320,000 $ 720,000
879,300 1/99 Image Analysis, Inc., privately held - 23.1%; medical and
hospital equipment developer 219,825 756,198
1,584,000 5/99 Centrex, Inc., privately held - 15.9%; developer of water
purification methodologies 522,720 522,720
900,000 5/99 Nucor Enterprises, Inc., privately held - 3.8%, developer of
construction materials 126,000 126,000
491,957 6/99 NuElectric, Inc., publicly traded over the counter - 9.3%
environmental services 142,667 305,013
150 11/99 Rosbon, Inc. - privately held - 5.0%, real estate development 165,000 165,000
---------- ----------
TOTAL INVESTMENTS - 79.0% $1,496,212 2,594,931
========== ==========
Cash and other assets, less liabilities - 21.0% 689,522
----------
Net Assets at December 31, 1999 - 100% $3,284,453
==========
</TABLE>
Notes to Schedule of Investments:
o The above investments are non-income producing. Equity investments that have
not paid dividends within the last twelve months are considered non-income
producing.
o Original cost approximates tax basis of investments.
o Values of investments determined by appraisal (Notes 1 and 2).
o Lexon, Inc., Image Analysis, Inc., Centrex, Inc., Nucor Enterprises, Inc. and
395,978 NuElectric, Inc. shares are restricted as to disposition for a two
year period commencing on the date of acquisition.
o The Company owns more than 10% of the outstanding common stock of each of the
above investments. As such, the Company is deemed to be an affiliate of the
above companies.
See accompanying notes.
F-9
<PAGE>
UTEK Corporation
Notes to Consolidated Financial Statements
1. Nature of Business and Significant Accounting Policies
The Company
We are a non-diversified, closed-end management investment company that
has filed a notification of election to be treated as a Business Development
Company ("BDC") under the Investment Company Act of 1940 Act.
We commenced operations in 1997 as UTEK Corporation ("UTEK Florida"),
which was incorporated under the laws of the State of Florida in August 1996.
UTEK Florida was engaged in the business of technology transfer. On December
31, 1998, we formed UTEK, LLC, a limited liability company organized under the
laws of the State of Florida. Subsequent thereto, the shareholders of UTEK
Florida exchanged their shares of common stock for membership units in UTEK,
LLC. In July 1999, we formed UTEK Corporation under the laws of the State of
Delaware and in October 1999, UTEK LLC was merged into UTEK Corporation.
As a BDC, we must be primarily engaged in the business of furnishing
capital and managerial expertise to companies that do not have ready access to
capital through conventional financial channels. Such companies are termed
"portfolio" companies.
The Company invests in portfolio companies that management believes are
positioned to benefit from the acquisition of new technology. The Company's
investments in portfolio companies are used by the portfolio companies to
acquire the license rights to new technologies developed at universities and
/or government research facilities. The Company provides portfolio companies
with managerial assistance in technology transfer. Technology transfer is the
process by which technologies developed by universities or research
laboratories are licensed to companies for commercial use. The Company also may
make additional investments to fund continued research and development of the
acquired technologies.
The Company seeks "merger partners" for portfolio companies, whereby the
Company receives common stock in the merger partner in a non-taxable exchange
for shares of the portfolio company. The Company seeks merger partners that are
in the early stages of development. The merger partners normally have little or
no prior operating history.
Principles of Consolidation
The consolidated financial statements include the results of operations of
UTEK Corporation and its wholly owned subsidiary UTEK Holdings, Inc. All
intercompany transactions are eliminated in consolidation. Portfolio companies
are consolidated with the Company prior to the exchange of their shares with a
merger partner.
Segment Disclosures
Management considers the Company as operating in only one segment,
transfer of new technologies through the sale of portfolio companies. The
Company has no assets or significant operations established outside the United
States.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-10
<PAGE>
UTEK Corporation
Notes to Consolidated Financial Statements -- (Continued)
1. Nature of Business and Significant Accounting Policies -- (Continued)
Investments
Investments are stated at value. Securities traded on the over-the-counter
market are valued at the closing price on the valuation date. Illiquid
securities may be subject to a discount from the closing price. Restricted
securities and other securities for which prices are not readily available, or
for which market quotations are considered not to reflect fair value, are
valued by independent appraisers based on applicable quantitative and
qualitative factors. These factors may include, but are not limited to, type of
securities, nature of business, marketability, market price of unrestricted
securities of the same issue, (if any), comparative valuation of securities of
publicly-traded companies in the same or similar industries, current financial
conditions and operating results, sales and earnings growth, operating
revenues, competitive conditions and current and prospective conditions in the
overall stock market.
Cash and Cash Equivalents
The Company considers all highly liquid fixed income investments with
maturities of three months or less to be cash equivalents.
Income Taxes
The Company does not qualify as a Regulated Investment Company for income
tax purposes. Therefore, the Company is taxed as a regular corporation for
federal and state income tax purposes. The Company accounts for income taxes in
accordance with FASB Statement No. 109, "Accounting for Income Taxes". Deferred
tax liabilities are related principally to unrealized appreciation of
investments.
Revenue Recognition
The Company recognizes revenue from the sale of technology rights upon the
exchange of the shares of portfolio companies with unrelated merger partners.
The Company records revenue based on the value of the consideration received.
In most cases, the consideration received for the Rights is the common stock of
the purchaser. The common stock received is recorded as an investment at value.
Revenue derived from consulting services is recognized as earned, over the life
of the underlying consulting agreements. In some cases, the Company is paid a
fee for negotiating a successful technology transfer. In these instances,
revenue is recognized upon consummation of the transaction.
Fixed Assets
Fixed assets are stated at cost, less accumulated depreciation.
Depreciation is recorded using the straight-line method over the estimated
useful lives of the respective assets (generally two to five years). Leasehold
improvements are amortized over the shorter of the estimated useful life of the
assets or lease term.
Deferred Revenue
Deferred revenue represents amounts received but not yet earned for
consulting services to be provided under contractual obligations.
Concentrations of Credit Risk
Cash and cash equivalents are financial instruments that potentially
subject the company to concentrations of credit risk. The estimated fair value
of financial instruments approximates the carrying value based on available
market information. The Company invests its excess available funds primarily in
U.S. Government backed securities. The Company's customers are typically
located in the United States.
F-11
<PAGE>
UTEK Corporation
Notes to Consolidated Financial Statements -- (Continued)
1. Nature of Business and Significant Accounting Policies -- (Continued)
Research and Development
Research and development costs consist of expenditures incurred during the
course of planned search and investigation aimed at discovery of new knowledge
that will be useful in developing new products or processes. The Company
expenses all research and development costs as they are incurred. As of
December 31, 1998 and 1999, the Company had incurred no such costs.
2. Investments
Equity securities at December 31, 1998 and 1999 (95% and 79% of net
assets, respectively) were valued at fair value as estimated by independent
third party appraisers hired by the Company, in the absence of readily
ascertainable fair values.
The values assigned to these securities are based upon available
information and do not reflect amounts that could be realized upon immediate
sale, nor amounts that ultimately may be realized. Accordingly, the fair values
included in the schedule of investments may differ from the values that would
have been used had a ready market existed for these securities and such
differences could be significant.
As of December 31, 1999, the Company had established seven portfolio
companies with net assets of $133,000, which are excluded in other assets.
3. Fixed Assets
Fixed assets consist of the following:
December 31
-------------------------
1998 1999
---------- ------------
Computer Equipment .................... $ 37,084 $ 54,741
Furniture and Fixtures ................ 19,125 26,268
Leasehold improvements ................ 12,829 17,955
-------- ---------
69,038 98,964
Less accumulated depreciation ......... (4,181) (18,226)
-------- ---------
$ 64,857 $ 80,738
======== =========
4. Income Taxes
Prior to October 14, 1999, the Company's business was structured as a
limited liability company ("LLC"). The LLC elected to be treated as a
partnership under the provisions of Subchapter K of the Internal Revenue Code.
Under those provisions, the LLC did not pay corporate income taxes on its
taxable income. Instead, the owners of the LLC were individually liable for
income taxes on the LLC's taxable income. The LLC's subsidiaries, including
UTEK Holdings and UTEK Corporation, were all taxed as C corporations. The tax
provisions for the years ended December 31, 1997 and 1998, respectively, are
determined based on the earnings of UTEK Holdings, since the LLC and its other
subsidiaries did not begin operations until January 1, 1999.
On October 14, 1999, the Company restructured its business, whereby the
members of the LLC contributed their membership interests to the Company, a
newly created corporation. As a result, all of the LLC's assets, including the
stock of its subsidiaries, were transferred to the Company. The LLC ceased to
exist. In addition, UTEK Holdings and UTEK Corporation were liquidated into the
Company. As of October 14, 1999, the Company is taxable as a C Corporation.
F-12
<PAGE>
UTEK Corporation
Notes to Consolidated Financial Statements -- (Continued)
4. Income Taxes -- (Continued)
The Company accounts for income taxes under FASB No. 109, Accounting for
Income Taxes. Deferred income tax assets and liabilities are determined based
upon differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
The components of the income tax provision (benefit) on operations,
excluding deferred income taxes on unrealized apprecation of investments, are
as follows:
Year Ended December 31
-------------------------------
1997 1998 1999
------ --------- ----------
Current:
Federal $-- $ -- $ --
State -- -- --
--- ------- --------
-- -- --
Deferred:
Federal -- 53,322 257,168
State -- 9,128 44,022
--- ------- --------
-- 62,450 301,190
--- ------- --------
$-- $62,450 $301,190
=== ======= ========
A reconciliation of the differences between the effective income tax rate
and the statutory federal tax rate follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------
1997 1998 1999
------------ ---------- -----------
<S> <C> <C> <C>
Tax at U.S. statutory rate $ (1,739) $ 57,258 $199,597
State taxes, net of federal benefit (186) 6,210 29,057
Valuation allowance 1,925 (1,925) --
LLC loss deductible by members -- -- 71,193
Other -- 907 1,343
-------- -------- --------
$ -- $ 62,450 $301,190
======== ======== ========
</TABLE>
<PAGE>
Significant components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------
1997 1998 1999
----------- ------------- -------------
<S> <C> <C> <C>
Noncurrent deferred tax asset:
Net operating loss carryforward $ 1,925 $ 57,740 $ 107,741
Other 203
Less: Valuation allowance (1,925) -- --
-------- ---------- ----------
-- 57,740 107,944
Current deferred tax liability:
Investments in non-controlled affiliates -- (489,190) (914,383)
-------- ---------- ----------
Net deferred tax asset (liability) $ -- $ (431,450) $ (806,439)
======== ========== ==========
</TABLE>
SFAS No. 109 requires a valuation allowance to reduce the deferred tax
assets reported if, based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
After consideration of all the evidence, both positive and negative, management
has determined that a valuation allowance is not necessary as of December 31,
1999.
F-13
<PAGE>
UTEK Corporation
Notes to Consolidated Financial Statements -- (Continued)
4. Income Taxes -- (Continued)
At December 31, 1999, the Company has available net operating loss
carryforwards of approximately $286,000, which expire in 2012, 2018, and 2019.
On a pro forma basis, if the Company were a taxable entity for all
periods, the Company would recognize the benefit of additional taxable losses
of approximately $209,000. The unaudited pro forma tax provision on operations,
presented as if the Company were a taxable entity for all periods presented and
calculated in accordance with SFAS NO. 109, are as follows:
Year Ended December 31
-------------------------------
1997 1998 1999
------ --------- ----------
Current income tax provision $-- $ -- $ --
Deferred income tax provision -- 62,450 222,396
--- ------- --------
$-- $62,450 $222,396
=== ======= ========
A reconciliation of the differences between the pro forma effective income
tax rate and the pro forma statutory federal tax rate follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------
1997 1998 1999
------------ ---------- -----------
<S> <C> <C> <C>
Tax at U.S. statutory rate $ (1,739) $ 57,258 $199,597
State taxes, net of federal benefit (186) 6,210 21,456
Valuation allowance 1,925 (1,925) --
Other -- 907 1,343
-------- -------- --------
$ -- $ 62,450 $222,396
======== ======== ========
</TABLE>
5. Stockholders' Equity
Transactions in common stock for the three years ended December 31, 1999
were as follows:
<TABLE>
<CAPTION>
Additional
Common Stock Shares Par value paid-in capital
- ------------------------------------- ------------ ----------- ----------------
<S> <C> <C> <C>
Balance at January 1, 1997 $ -- $ -- $ --
Initial funding-August 27, 1997 1,950,000 19,500 9,006
Issued for services 166,334 1,664 6,653
---------- ------- ----------
Balance at December 31, 1997 2,116,334 21,164 15,659
Private placement -- May 14, 1998 207,068 2,070 308,532
Private placement -- July 25, 1998 96,400 964 218,867
---------- ------- ----------
303,468 3,034 527,399
Issued for services 34,600 346 86,204
---------- ------- ----------
Balance at December 31, 1998 2,454,402 24,544 629,262
Private placement--April 12, 1999 281,424 2,814 1,302,993
Issued for services 46,400 464 203,755
---------- ------- ----------
Balance at December 31, 1999 $2,782,226 $27,822 $2,136,010
========== ======= ==========
</TABLE>
In September 1999, the Company's stockholders approved the establishment
of an employee stock option plan. Under the Plan, the Company is authorized to
grant options to purchase up to 500,000 shares of Common Stock. At December 31,
1999, no options had been granted.
F-14
<PAGE>
UTEK Corporation
Notes to Consolidated Financial Statements -- (Continued)
6. Stock Compensation and Employment Agreements
Stock grants to employees and non-employees in exchange for services have
a vesting period of two years. The Company accounts for stock grants to
employees in exchange for services in accordance with APB No 25, Accounting for
Stock Issued to Employees. Stock grants to non-employees in exchange for
services are accounted for in accordance with FAS 123, Accounting for
Stock-Based Compensation. Expenses related to stock grants to employees and
non-employees during fiscal 1997, 1998, and 1999, amounted to $4,900, $78,700,
and $204,000, respectively.
Effective September 1, 1999, the Company entered into five-year employment
agreements with its CEO and President providing for an annual base salary of
$150,000 and $100,000, respectively for their services.
7. Commitments and Contingencies
The Company's commitments are limited to an operating lease for the
corporate office. During fiscal 1997, 1998, and 1999, rental expense related to
this lease was $-0-, $6,932, and $16,937, respectively.
At December 31, 1999, future minimum payments under operating leases are
as follows:
2000 $18,993
2001 18,993
2002 4,748
-------
Total $42,734
=======
8. Subsequent Events (unaudited)
The Board of Directors of UTEK Corporation authorized management of the
Company to file a registration statement with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock. The
Company contemplates using the proceeds from the proposed public offering to
finance its growth plans.
In conjunction with the proposed public offering discussed above, the
Company intends to issue approximately 1,150,000 shares, including the
underwriter's over-allotment option. This amount excludes 100,000 shares
reserved for issuance upon exercise of the underwriter's warrants exercisable
over a period of four years at $9.90 per share, and also excludes 90,000 shares
reserved for issuance upon exercise of warrants issued to Gersten, Savage and
Kaplowitz, LLP at $3.00 per share.
Additionally, upon completion of the above mentioned offering, the Company
intends to grant to its CEO and President incentive stock options to purchase
up to 100,000 and 50,000 shares of its common stock, respectively.
On January 28, 2000, the Company sold its Cancer Diagnostics portfolio
company to Lexon, Inc. for $200,000. Under the terms of the agreement, the
Company received $50,000 on the date of the transaction, with the remaining
$150,000 to be received in three installments of $50,000 during April, May and
June 2000.
On March 21, 2000, the Company sold its 70% interest in Digital Personnel,
Inc., a portfolio company, to a subsidiary of Graphco Technologies, Inc.
("GTC") for 100,799 shares of GTC common stock in a non-taxable exchange.
F-15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No underwriter, dealer, salesman or other person has been authorized to
give any information or to make any representations other than those contained
in this prospectus, and, if given or made, such information or representation
must not be relied upon as having been authorized by us. This prospectus does
not constitute an offer or solicitation to any person in any jurisdiction where
such offer or solicitation would be unlawful. Neither delivery of this
prospectus nor any common stock sale hereunder shall, under any circumstances,
create any implication that there has been no change in our affairs since the
date hereof.
---------------------
TABLE OF CONTENTS
Page
-----
Prospectus Summary .....................................
The Offering ...........................................
Financial Highlights ...................................
Risk Factors ...........................................
Dilution ...............................................
Dividends and Future Distributions .....................
Capitalization .........................................
Use of Proceeds ........................................
Selected Financial Data ................................
Dividend Policy ........................................
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ..........................................
Business ...............................................
Investment Objectives and Policies .....................
Management .............................................
Control Persons and Principal Holders of
Securities ..........................................
Conflicts of Interest ..................................
Investment Advisory Services ...........................
Brokerage Allocation and Other Practices ...............
Federal Income Tax Matters .............................
Description of Securities ..............................
Underwriting ...........................................
Legal Matters ..........................................
Experts ................................................
Additional Information .................................
Indemnification of Securities Act Liabilities ..........
Financial Statements ................................... F-1
-------------------
Until , 2000 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Company's securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus with
respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,000,000
Shares
of Common Stock
UTEK CORPORATION
-------------------
PROSPECTUS
-------------------
MAY DAVIS GROUP, INC.
ARTESIA SECURITIES S.A./NV
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
See "Index to Financial Statements" on page F-1 of the prospectus
(2) Exhibits
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Agreement Among Underwriters
3.1 Certificate of Incorporation, dated July 6, 1999, as filed and recorded with the Secretary of State of
the State of Delaware on July 13, 1999**
3.2 Certificate of Amendment to Certificate of Incorporation, dated October 14, 1999, as filed and
recorded with the Secretary of State of the State of Delaware on October 15, 1999.**
3.3 By-Laws of UTEK Corporation**
4.1 Form of Underwriters' Warrant
4.2 Certificate of Merger of UTEK Corporation and UTEK LLC, dated October 18, 1999,
as filed and recorded with the Secretary of State of the State of Delaware on October 25, 1999.**
4.3 Specimen Common Stock Certificate**
5.1 Opinion of Gersten, Savage & Kaplowitz, LLP*
10.1 Form of Financial Consulting Agreement between UTEK Corporation and May Davis Group
10.2 1999 Incentive Stock Option Plan**
10.3 2000 Non-Qualified Stock Option Plan**
10.4 Employment Agreement with Clifford M. Gross**
10.5 Employment Agreement with Uwe Reischl**
10.6 Agreement dated January 30, 1998 between UTEK Corporation and the University of South
Florida**
10.7 Master Agreement dated June 18, 1999 between UTEK Corporation and Johns Hopkins
University**
10.8 Strategic Alliance dated November 3, 1999 between UTEK Corporation and Fraunhofer Institute
for Interfacial Engineering and Biotechnology IGB**
10.9 Strategic Alliance dated October 18, 1999 between UTEK Corporation and University of Florida**
10.10 Services Agreement dated May 18, 1998 between UTEK Corporation and the University of
Memphis.**
10.11 Consulting Agreement between UTEK Corporation and NuElectric Corporation, dated
November 16, 1998.**
10.12 Consulting Agreement between UTEK Corporation and Darby Group Companies, dated
May 3, 1999.**
10.13 License Agreement dated July 13, 1999 between The Regents of the University of California and
E. Coli Measurement Systems, Inc.*
10.14 License Agreement dated January 1, 1999 between Clean Water Technologies, Inc. and the
University of South Florida Research Foundation, Inc.**
10.15 Sponsored Research Agreement dated February 12, 1999 between Advanced Reinforcing
Technologies, Inc. and Cornell University*
10.16 License Agreement between Cornell Research Foundation, Inc. and Advanced Reinforcing
Technologies, Inc. dated March 1, 1999.*
10.17 License Agreement dated December 15, 1999 between the California Institute of Technology and
Digital Personnel, Inc.*
10.18 License Agreement dated September 1999 between Safe Water Technologies, Inc. and University of
South Florida Research Foundation, Inc.**
10.19 Strategic Alliance dated December 13, 1999 between UTEK Corporation and Virginia Tech
Intellectual Properties, Inc.**
10.20 Agreement and Plan of Merger dated March 21, 2000 between UTEK Corporation, Digital
Personnel, Inc. and Graphco-DPI Holding Company, Inc.
10.21 License Agreement dated as of March 28, 2000 between Johns Hopkins University and
Zorax, Inc.*
10.22 Sponsored Research Agreement dated March 31, 2000 between Johns Hopkins University
and Zorax, Inc.*
23.1 Consent of Ernst & Young, LLP, independent auditors
23.2 Consent of Gersten, Savage & Kaplowitz, LLP (incorporated into Exhibit 5.1)*
24.1 Powers of Attorney (included on signature page)
27 Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment
** Previously filed
II-1
<PAGE>
ITEM 25. MARKETING ARRANGEMENTS
The information contained under the heading "Underwriting" on pages 38 and
39 of the prospectus is incorporated herein by this reference.
See the form of Underwriting Agreement filed as exhibit 1.1 hereto.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of the estimated expenses to be paid by the
Company in connection with the issuance and distribution of the securities
being registered:
SEC Registration Fee .................................... $ 2,083
NASD Filing Fee ......................................... 1,262
Nasdaq Listing Fees* .................................... 6,250
Printing Engraving Expenses* ............................ 90,000
Legal Fees and Expenses* ................................ 175,000
Accounting Fees and Expenses* ........................... 150,000
Blue Sky Fees and Expenses* ............................. 35,000
Transfer Agent and Registrar Fees and Expenses* ......... 10,000
Miscellaneous* .......................................... 5,405
--------
Total ................................................ $475,000
========
- ------------
* estimate
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL
Microsphere Technologies, Inc., a Delaware corporation, is a 90%-owned
subsidiary of the Company.
Zorax, Inc., a Delaware corporation, is a wholly-owned subsidiary of the
Company.
Technology Development, Inc., a Delaware corporation, is a wholly-owned
subsidiary of the Company.
Advanced Desalination, Inc., a Delaware corporation, is a wholly-owned
subsidiary of the Company.
Doppler Technology International, Inc., a Delaware corporation, is a
wholly-owned subsidiary of the Company.
<PAGE>
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
The following table sets forth the number of record holders of the
Company's common stock as of the date hereof:
Title of Class Number of Record Holders
- -------------- -------------------------
Common Stock, $0.01 par value ........... 107
ITEM 29. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
provides for the indemnification of officers and directors under certain
circumstances against expenses incurred in successfully defending against a
claim and authorizes Delaware corporations to indemnify their officers and
directors under certain circumstances against expenses and liabilities incurred
in legal proceedings involving such persons because of their being or having
been an officer or director.
Section 102(b) of the Delaware General Corporation Law permits a
corporation, by so providing in its Certificate of Incorporation, to eliminate
or limit a director's liability to the corporation and its stockholders
II-2
<PAGE>
for monetary damages arising out of certain alleged breaches of their fiduciary
duty. Section 102(b)(7) provides that no such limitation of liability may
affect a director's liability with respect to any of the following: (i)
breaches of the director's duty of loyalty to the corporation or its
stockholders; (ii) acts or omissions not made in good faith or which involve
intentional misconduct of knowing violations of law; (iii) liability for
dividends paid or stock repurchased or redeemed in violation of the Delaware
General Corporation law; or (iv) any transaction from which the director
derived an improper personal benefit. Section 102(b)(7) does not authorize any
limitation on the ability of the company or its stockholders to obtain
injunctive relief, specific performance or other equitable relief against
directors.
Article Ten of our Certificate of Incorporation provides that the personal
liability of our directors be eliminated to the fullest extent permitted under
the Delaware General Corporation law.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of the issue.
We refer to the Underwriting Agreement, the proposed form of which is
filed as Exhibit 1.1, pursuant to which the underwriter agrees to indemnify our
directors and certain of our officers and certain other persons against certain
civil liabilities.
ITEM 30. BUSINESS AND OTHER FUNCTIONS OF INVESTMENT ADVISOR
Not applicable.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
Our accounts and records are and will be maintained at the address set
forth below:
UTEK Corporation
202 South Wheeler Street
Plant City, Florida 33566
ITEM 32. MANAGEMENT SERVICES
Except as described in the prospectus under "Management", we are not a
party to any management services transaction.
ITEM 33. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the 1933 Act may
be available to directors, officers and controlling persons of the registrant
pursuant to any charter provision, By-law, contract arrangement, statute, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer
II-3
<PAGE>
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes:
(1) to suspend the offering of shares until the prospectus is amended if
(i) subsequent to the effective date of its registration statement, the net
asset value declines more than ten percent from its net asset value as of
the effective date of the registration statement or (ii) the net asset
value increases to an amount greater than its net proceeds as stated in the
prospectus; and
(2) that, for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or Rule 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective; and
(3) that, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant certifies that it
has reasonable grounds to believe that it meets all of the requirement for
filing on Form N-2 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the State of
Florida on April 25, 2000.
UTEK Corporation
By: /s/ Clifford M. Gross
------------------------------------------
Clifford M. Gross
Chief Executive Officer
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Clifford M. Gross Chief Executive Officer and Chairman April 25, 2000
----------------------- of the Board of Directors
Clifford M. Gross
*
----------------------- President April 25, 2000
Uwe Reischl
*
----------------------- Chief Financial Officer April 25, 2000
Carole R. Mason
*
----------------------- General Counsel and Director April 25, 2000
Sam Reiber
* Director of Scientific Advisory Board April 25, 2000
----------------------- and Director
Stuart M. Brooks
*
----------------------- Director April 25, 2000
Kwabena Gyimah-Brempong
*
----------------------- Director April 25, 2000
Arthur Chapnik
*
----------------------- Director April 25, 2000
Carl Nisser
/s/ David Michael
----------------------- Director April 25, 2000
David Michael
*By: /s/ Clifford M. Gross
---------------------
Clifford M. Gross
(attorney-in-fact)
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Agreement Among Underwriters
3.1 Certificate of Incorporation, dated July 6, 1999, as filed and recorded with the Secretary of State
of the State of Delaware on July 13, 1999**
3.2 Certificate of Amendment to Certificate of Incorporation, dated October 14, 1999, as filed and
recorded with the Secretary of State of the State of Delaware on October 15, 1999.**
3.3 By-Laws of UTEK Corporation**
4.1 Form of Underwriters' Warrant
4.2 Certificate of Merger of UTEK Corporation and UTEK LLC, dated October 18, 1999,
as filed and recorded with the Secretary of State of the State of Delaware on October 25,
1999.**
4.3 Specimen Common Stock Certificate*
5.1 Opinion of Gersten, Savage & Kaplowitz, LLP*
10.1 Form of Financial Consulting Agreement between UTEK Corporation and May Davis Group
10.2 1999 Incentive Stock Option Plan**
10.3 2000 Non-Qualified Stock Option Plan**
10.4 Employment Agreement with Clifford M. Gross**
10.5 Employment Agreement with Uwe Reischl**
10.6 Agreement dated January 30, 1998 between UTEK Corporation and the University of South
Florida**
10.7 Master Agreement dated June 18, 1999 between UTEK Corporation and Johns Hopkins
University**
10.8 Strategic Alliance dated November 3, 1999 between UTEK Corporation and Fraunhofer Institute
for Interfacial Engineering and Biotechnology IGB**
10.9 Strategic Alliance dated October 18, 1999 between UTEK Corporation and University of
Florida**
10.10 Services Agreement dated May 18, 1998 between UTEK Corporation and the University of
Memphis.**
10.11 Consulting Agreement between UTEK Corporation and NuElectric Corporation, dated
November 16, 1998.**
10.12 Consulting Agreement between UTEK Corporation and Darby Group Companies, dated
May 3, 1999.**
10.13 License Agreement dated July 13, 1999 between The Regents of the University of California
and E. Coli Measurement Systems, Inc.*
10.14 License Agreement dated January 1, 1999 between Clean Water Technologies, Inc. and the
University of South Florida Research Foundation, Inc.**
10.15 Sponsored Research Agreement dated February 12, 1999 between Advanced Reinforcing
Technologies, Inc. and Cornell University*
10.16 License Agreement between Cornell Research Foundation, Inc. and Advanced Reinforcing
Technologies, Inc. dated March 1, 1999.*
10.17 License Agreement dated December 15, 1999 between the California Institute of Technology
and Digital Personnel, Inc.*
10.18 License Agreement dated September 1999 between Safe Water Technologies, Inc. and University
of South Florida Research Foundation, Inc.**
10.19 Strategic Alliance dated December 13, 1999 between UTEK Corporation and Virginia Tech
Intellectual Properties, Inc.**
10.20 Agreement and Plan of Merger dated March 21, 2000 between UTEK Corporation, Digital
Personnel, Inc. and Graphco-DPI Holding Company, Inc.
10.21 License Agreement dated as of March 28, 2000 between Johns Hopkins University and
Zorax, Inc.*
10.22 Sponsored Research Agreement dated March 31, 2000 between Johns Hopkins University
and Zorax, Inc.*
23.1 Consent of Ernst & Young, LLP, independent auditors
23.2 Consent of Gersten, Savage & Kaplowitz, LLP (incorporated into Exhibit 5.1)*
24.1 Powers of Attorney (included on signature page)
27 Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment
** Previously filed
<PAGE>
UNDERWRITING AGREEMENT
Dated: 2000
MAY DAVIS GROUP, INC.
One World Trade Center
New York, New York 10038
ARTESIA SECURITIES S.A./NV
WTC- Tower I
Boulevard du Rui Albert II, 30 -B18
B-1000 Brussels, Belgium
Ladies and Gentlemen:
Pursuant to this Underwriting Agreement (this "Agreement"), Utek
Corporation, a Delaware corporation (the "Company"), proposes to issue and sell
to May Davis Group, Inc. ("May Davis") and Artesia Securities S.A./NV
("Artesia", May Davis and Artesia are collectively known as the "Underwriters"
or "you"), an aggregate of 1,000,000 shares (the "Firm Securities") of the
common stock, par value $.001 per share, of the Company (the "Common Stock").
In addition, the Company proposes to grant to the Underwriters the
Over-Allotment Option, referred to and defined in Section 2(c) hereof, to
purchase all or any part of an aggregate of 150,000 additional shares of Common
Stock (the "Option Securities").
The Firm Securities and the Option Securities are herein collectively
called the "Shares." The Firm Securities are collectively referred herein as the
"Firm Securities" and the Option Securities are collectively referred to herein
as the "Option Securities." The Firm Securities and the Option Securities are
collectively referred to herein as the "Securities". Additionally, the Company
proposes to issue to each of you the Underwriters Warrant, referred to and
defined in Section 12 hereof, to purchase additional shares of Common Stock. The
term "Underwriters' Counsel" shall mean the firm of McLaughlin & Stern, LLP,
counsel to the Underwriters, and the term "Company Counsel" shall mean the firm
of Gersten, Savage & Kaplowitz, LLP,, counsel to the Company. Unless the context
otherwise requires, all references herein to a "Section" shall mean the
appropriate Section of this Agreement.
<PAGE>
You have advised the Company that the Underwriters desire to purchase
the Firm Securities as herein provided. The Company confirms the agreement made
by it with respect to the purchase of the Firm Securities as well as the Option
Securities by the Underwriters, as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to, and agrees with, the
Underwriters that:
(i) Registration Statement; Prospectus. A
registration statement (File No. 333-93913 ) on Form N-2 relating to the public
offering of the Securities (the "Offering"), including a preliminary form of
prospectus, copies of which have heretofore been delivered to you, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933 (the "Act"), and the rules and regulations of the Securities and
Exchange Commission (the "Commission") promulgated thereunder (the "Rules and
Regulations"), and has been filed with the Commission under the Act. As used
herein, the term "Preliminary Prospectus" shall mean each prospectus filed
pursuant to Rule 430 or Rule 424(a) of the Rules and Regulations. The
Preliminary Prospectus bore the legend required by Item 501 of Regulation S-K
under the Act and the Rules and Regulations. Such registration statement
(including all financial statements, schedules and exhibits) as amended at the
time it becomes effective and the final prospectus included therein are herein
respectively called the "Registration Statement" and the "Prospectus," except
that (i) if the prospectus filed by the Company pursuant to Rule 424(b) or Rule
430A of the Rules and Regulations shall differ from such final prospectus as
then amended, then the term "Prospectus" shall instead mean the prospectus first
filed pursuant to said Rule 424(b) or Rule 430A, and (ii) if such registration
statement is amended or such prospectus is amended or supplemented after the
effective date of such registration statement and prior to the Option Closing
Date (as defined in Section 2(c) hereto) then (unless the context necessarily
requires otherwise) the term "Registration Statement" shall include such
registration statement as so amended, and the term "Prospectus" shall include
such prospectus as so amended or supplemented, as the case may be.
(ii) Contents of Registration Statement. On the
Effective Date, and at all times subsequent thereto for so long as the delivery
of a prospectus is required in connection with the offering or sale of any of
the Securities, (a) the Registration Statement and the Prospectus shall in all
material respects conform to the requirements of the Act and the Rules and
Regulations, and (b) neither the Registration Statement nor the Prospectus shall
include any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make statements therein in
light of the circumstances in which they were made, not misleading; provided,
however, that the Company, makes no representations, warranties or agreements as
to information contained in or omitted from the Registration Statement or
Prospectus in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of the Underwriters specifically for
use in the preparation thereof. It is understood that the statements set forth
in the Prospectus with respect to stabilization, the material set forth under
the caption "UNDERWRITING," the information on the cover page of the Prospectus
regarding the underwriting arrangements and the identity of the Underwriters'
Counsel under the caption "LEGAL MATTERS," which information the Underwriters
hereby represents and warrants to the Company is true and correct in all
material respects and does not omit to state any material fact required to be
stated therein or necessary to make statements therein, in light of the
circumstances in which they were made, not misleading, constitute the only
information furnished in writing by or on behalf of the Underwriters for
inclusion in the Registration Statement and Prospectus, as the case may be.
2
<PAGE>
(iii) Organization, Standing, Etc. The Company and each of its
subsidiaries (the "Subsidiaries") have been duly incorporated and are validly
existing as corporations in good standing under the laws of their respective
jurisdictions of incorporation, with full power and corporate authority to own
their properties and conduct their business as described in the Prospectus, and
are duly qualified or licensed to do business as foreign corporations and are in
good standing in each other jurisdiction in which the nature of their businesses
or the character or location of their properties requires such qualification,
except where failure so to qualify will not have a material adverse effect on
the business, properties or financial condition of the Company or its
Subsidiaries.
(iv) Capitalization. The authorized, issued and outstanding capital
stock of the Company as of the date of the Prospectus is as set forth in the
Prospectus under the caption "CAPITALIZATION." The shares of Common Stock issued
and outstanding on the Effective Date have been duly authorized, validly issued
and are fully paid and non-assessable. No options, warrants or other rights to
purchase, agreements or other obligations to issue, or agreements or other
rights to convert any obligation into, any shares of capital stock of the
Company have been granted or entered into by the Company, except as expressly
described in the Prospectus. The Securities conform to all statements relating
thereto contained in the Registration Statement or the Prospectus.
(v) Securities. The Securities and the Underwriters' Warrant have been
duly authorized and, when issued and delivered against payment therefor pursuant
to this Agreement, or the Underwriters' Warrant, as the case may be, will be
duly authorized, validly issued, fully paid and non-assessable and free of
preemptive rights of any security holder of the Company. Neither the filing of
the Registration Statement nor the offering or sale of any of the Securities or
the Underwriters' Warrant as contemplated by this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or relating to
the registration of any securities of the Company, except as described in the
Registration Statement.
(vi) Authority, Etc. This Agreement, the Underwriters' Warrant and the
Financial Consulting Agreement (as hereinafter defined), have been duly and
validly authorized, executed and delivered by the Company and, assuming due
execution of this Agreement and such other agreements by the other party or
parties hereto and thereto, constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms. The Company has full right, power and lawful authority to authorize,
issue and sell the Securities and the Underwriters' Warrant on the terms and
conditions set forth herein. All consents, approvals, authorizations and orders
of any court or governmental authority which are required in connection with the
authorization, execution and delivery of such agreements, the authorization,
issue and sale of the Securities and the Underwriters' Warrant, and the
consummation of the transactions contemplated hereby have been obtained.
(vii) No Conflict. Except as described in the Prospectus, the Company
is not in violation, breach or default of or under, and consummation of the
transactions hereby contemplated and fulfillment of the terms of this Agreement
3
<PAGE>
will not conflict with or result in a breach of, any of the terms or provisions
of, or constitute a default under, or result in the creation or imposition of
any lien, charge or encumbrance pursuant to the terms of, any contract,
indenture, mortgage, deed of trust, loan agreement or other material agreement
or instrument to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary may be bound or to which any of the property or assets
of the Company or any Subsidiary is subject, nor will such action result in any
violation of the provisions of the Articles of Incorporation or the By-laws of
the Company or any Subsidiary, as amended to date, or any statute or any order,
rule or regulation applicable to the Company or any Subsidiary, or of any court
or of any regulatory authority or other governmental body having jurisdiction
over the Company or any Subsidiary.
(viii) Assets. Subject to the qualifications stated in the Prospectus:
(a) the Company and each Subsidiary have good and marketable title to all
properties and assets described in the Prospectus as owned by them, including
without limitation intellectual property, free and clear of all liens, charges,
encumbrances or restrictions, except such as do not materially affect the value
of such properties or assets and do not materially interfere with the use made
or proposed to be made of such assets or properties by the Company and/or the
Subsidiaries or are not materially significant or important in relation to the
business of the Company or the Subsidiaries; (b) all of the material leases and
subleases under which the Company and/or the Subsidiaries is the lessor or
sublessor of properties or assets or under which the Company and/or the
Subsidiaries holds properties or assets as lessee or sublessee, as described in
the Prospectus, are in full force and effect and, except as described in the
Prospectus, the Company and/or the Subsidiaries are not in default in any
material respect with respect to any of the terms or provisions of any of such
leases or subleases, and no claim has been asserted by any party adverse to the
rights of the Company and/or the Subsidiaries as lessor, sublessor, lessee or
sublessee under any such lease or sublease, or affecting or questioning the
right of the Company and/or the Subsidiaries to continued possession of the
leased or subleased premises or assets under any such lease or sublease, except
as described or referred to in the Prospectus; and (c) the Company and each
Subsidiary, owns or leases all such assets and properties, described in the
Prospectus, as are necessary to their operations as now conducted and, except as
otherwise stated in the Prospectus, as proposed to be conducted as set forth in
the Prospectus.
(ix) Independent Accountants. Ernst & Young, LLP, who have given their
report on certain financial statements filed or to be filed with the Commission
as a part of the Registration Statement, and which are included in the
Prospectus, are with respect to the Company and its Subsidiaries, independent
public accountants as required by the Act and the Rules and Regulations.
(x) Financial Statements. The financial statements, together with
related notes, set forth in the Registration Statement and the Prospectus
present fairly the financial position, results of operations, changes in
stockholders' equity and cash flows of the Company and the Subsidiaries on the
basis stated in the Registration Statement, at the respective dates and for the
respective periods to which they apply. Such financial statements and related
notes have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the entire period involved,
except to the extent disclosed therein. The Selected Financial Data included in
4
<PAGE>
the Registration Statement and the Prospectus present fairly the information
shown therein and have been prepared on a basis consistent with that of the
financial statements included in the Registration Statement and the Prospectus.
(xi) No Material Change. Except as otherwise set forth in the
Prospectus, subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, neither the Company nor any
Subsidiary have: (i) incurred any material liability or obligation, direct or
contingent, or entered into any material transaction other than in the ordinary
course of business; (ii) effected or experienced any change in its capital stock
or incurred any long-term debt, (iii) issued any options, warrants or other
rights to acquire its capital stock; (iv) declared, paid or made any dividend or
distribution of any kind on its capital stock; or (v) effected or experienced
any material adverse change, or development involving a prospective material
adverse change, in its financial position, net worth, results of operations,
business or business prospects, assets or properties or key personnel.
(xii) Litigation. Except as set forth in the Prospectus, there is not
now pending nor, to the knowledge of the Company or any Subsidiary, threatened,
any action, suit or proceeding (including any related to environmental matters
or discrimination on the basis of age, sex, religion or race), whether or not in
the ordinary course of business, to which the Company or any Subsidiary is a
party or its business or property is subject, before or by any court or
governmental authority, which, if determined adversely to the Company or any
Subsidiary, would have a material adverse effect on the financial position, net
worth, or results of operations, business or business prospects, assets or
property of the Company or any Subsidiary; and no labor disputes involving the
employees of the Company or any Subsidiary exist which would materially
adversely affect the business, property, financial position or results of
operations of the Company or any Subsidiary.
(xiii) No Unlawful Prospectuses. The Company has not distributed any
prospectus or other offering material in connection with the Offering
contemplated herein, other than any Preliminary Prospectus, the Prospectus or
other material permitted by the Act and the Rules and Regulations.
(xiv) Taxes. Except as disclosed in the Prospectus, the Company and
each Subsidiary have filed all necessary federal, state, local and foreign
income and franchise tax returns and have paid all taxes shown as due thereon on
or before the date such taxes are due to be paid; and there is no tax deficiency
which has been or, to the knowledge of the Company or any Subsidiary, might be
asserted against the Company or any Subsidiary.
(xv) Licenses, Etc. The Company and each Subsidiary have in effect
all necessary licenses, permits and other governmental authorizations currently
required for the conduct of their businesses or the ownership of their property,
as described in the Prospectus, and are in all material respects in compliance
therewith. The Company and each Subsidiary own or possess adequate rights to use
all material patents, patent applications, trademarks, mark registrations,
copyrights and licenses disclosed in the Prospectus and/or which are necessary
for the conduct of such business, and except as disclosed in the Prospectus
neither the Company nor any Subsidiary have received any notice of conflict with
the asserted rights of others in respect thereof. To the knowledge of the
5
<PAGE>
Company, none of the activities or business of the Company and its Subsidiaries
is in violation of, or would cause the Company or any Subsidiary to violate, any
law, rule, regulation or order of the United States, any country, state, county
or locality, the violation of which would have a material adverse effect upon
the financial position, net worth, results of operations, business or business
prospects, assets or property of the Company.
(xvi) No Prohibited Payments. The Company has not, directly or
indirectly at any time: (i) made any contribution to any candidate for political
office, or failed to disclose fully any such contribution in violation of law;
or (ii) made any payment to any federal, state, local or foreign governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments or contributions required or allowed by applicable
law. The internal accounting controls and procedures of the Company are
sufficient to cause the Company to comply in all material respects with the
Foreign Corrupt Practices Act of 1977, as amended.
(xvii) Transfer Taxes. On the Closing Dates (as defined in Section
2(d) hereof), all transfer and other taxes (including franchise, capital stock
and other taxes, other than income taxes, imposed by any jurisdiction), if any,
which are required to be paid in connection with the sale and transfer of the
Shares to the Underwriters hereunder shall have been fully paid or provided for
by the Company, and all laws imposing such taxes shall have been fully complied
with.
(xviii) Exhibits. All contracts and other documents of the Company
which are, under the Rules and Regulations, required to be filed as exhibits to
the Registration Statement have been so filed.
(xix) Stockholder Agreements, Registration Rights. Except as described
in the Prospectus, no security holder of the Company has any rights with respect
to the purchase, sale or registration of any Securities, and all registration
rights with respect to the Offering have been waived or complied with.
(xx) No Stabilization or Manipulation. The Company has not taken and
will not take, directly or indirectly, any action designed to cause or result
in, or which has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the Common Stock
to facilitate the sale or resale of the Securities hereunder.
(xxi) No Finders. Except for this Agreement and any other agreements
with the Underwriters, the Company has not entered into any agreement pursuant
to which any person is entitled either directly or indirectly to compensation
from the Company for services as a finder in connection with the proposed public
offering.
6
<PAGE>
2. PURCHASE, DELIVERY AND SALE OF THE SECURITIES.
Purchase Price for the Firm Securities.
The Firm Securities shall be sold to and purchased by the Underwriters
hereunder at the purchase price of $5.40 per Share (that being the public
offering price of $6.00 per Share less an underwriting discount of 10 percent)
(the "Purchase Price").
(b) Firm Securities.
(i) Subject to the terms and conditions of this Agreement, and
on the basis of the representations, warranties and agreements herein contained
the Company agrees to issue and sell to the Underwriters, and the Underwriters
agree to buy from the Company at the Purchase Price, the Firm Securities. Each
of the Underwriters shall be responsible to purchase 500,000 Firm Securities.
The obligations of the Underwriters in the agreement are several and not joint
and are undertaken on the basis of the representations and are subject to the
conditions of this Agreement.
(ii) Delivery of the Firm Securities against payment therefor
shall take place at the offices of the Underwriters (or at such other place as
may be designated by agreement between you and the Company) at 10:00 a.m.,
Eastern Daylight Time, on _______ , 2000, or at such later time and date, not
later than five (5) business days after the Effective Date, as you may designate
(such time and date of payment and delivery for the Firm Securities being herein
called the "First Closing Date"). Time shall be of the essence and delivery of
the Firm Securities at the time and place specified in this Section 2(b)(ii) is
a further condition to the obligations of the Underwriters hereunder.
(c) Option Securities.
(i) In addition, subject to the terms and conditions of this
Agreement, and on the basis of the representations, warranties and agreements
herein contained, the Company hereby grants to the Underwriters an option (the
"Over-Allotment Option"), to purchase from the Company all or any part of
150,000 Option Securities at the Purchase Price, including 75,000 which may be
purchased by each Underwriter.
(ii) The Over-Allotment Option may be exercised by the
Underwriters, in whole or in part, within 45 calendar days after the Effective
Date, upon written notice by you to the Company, advising the Company of the
number of Option Securities as to which the Over-Allotment Option is being
exercised, the names and denominations in which the certificates for the Option
Securities are to be registered, and the time and date when such certificates
are to be delivered. Such time and date shall be determined by you but shall not
be less than two nor more than 10 business days after exercise of the
Over-Allotment Option, nor in any event prior to the First Closing Date (such
time and date being herein called the "Option Closing Date"). Delivery of the
Option Securities against payment therefor shall take place at the Underwriters'
Offices. Time shall be of the essence and delivery at the time and
7
<PAGE>
place specified in this Section 2(c)(ii) is a further condition to the
obligations of the Underwriters hereunder.
(iii) The Over-Allotment may be exercised only to cover
over-allotments in the sale by the Underwriters of Firm Securities.
(d) Delivery of Certificates; Payment.
(i) The Company shall make the certificates for the Securities
to be purchased hereunder available to you for checking at least one full
business day prior to the First Closing Date or the Option Closing Date (each, a
"Closing Date"), as the case may be. The certificates shall be in such names and
denominations as you may request at least two business days prior to the
relevant Closing Date. Time shall be of the essence and the availability of the
certificates at the time and place specified in this Section 2(d)(1) is a
further condition to the obligations of the Underwriters hereunder.
(ii) On the First Closing Date, the Company shall deliver to
you for the account of the Underwriters definitive engraved certificates in
negotiable form representing all of the Securities comprising the Firm
Securities to be sold by the Company against payment of the Purchase Price
therefor by you, for your account, by certified or bank cashier's checks payable
in New York Clearing House funds to the order of the Company in the appropriate
amount.
(iii) In addition, if and to the extent that the Underwriters
exercise the Over-Allotment Option, then on the Option Closing Date the Company
shall deliver to you for your account, definitive engraved certificates in
negotiable form representing the Securities comprising the Option Securities to
be sold by the Company, against payment of the Purchase Prices therefor by you
for your account, by certified or bank cashier's checks payable in next day
funds to the order of the Company.
(iv) It is understood that the Underwriters propose to offer
the Firm Securities to be purchased hereunder to the public, upon the terms and
conditions set forth in the Registration Statement, after the Registration
Statement becomes effective.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
Underwriters that:
(a) Registration.
(i) The Company shall use its best efforts to cause the
Registration Statement to become effective and, upon notification from the
Commission that the Registration Statement has become effective, shall so advise
you and shall not at any time, whether before or after the Effective Date, file
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus of which you shall not previously have been advised and furnished
8
<PAGE>
with a copy, or to which you or Underwriters' Counsel shall have objected in
writing, or which is not in compliance with the Act and the Rules and
Regulations.
(ii) Promptly after you or the Company shall have been advised
thereof, you shall advise the Company or the Company shall advise you, as the
case may be, and confirm such advice in writing, of (A) the receipt of any
comments of the Commission, (B) the effectiveness of any post-effective
amendment to the Registration Statement, (C) the filing of any supplement to the
Prospectus or any amended Prospectus, (D) any request made by the Commission for
amendment of the Registration Statement or amendment or supplementing of the
Prospectus, or for additional information with respect thereto, or (E) the
issuance by the Commission or any state or regulatory body of any stop order or
other order denying or suspending the effectiveness of the Registration
Statement, or preventing or suspending the use of any Preliminary Prospectus, or
suspending the qualification of the Securities for offering in any jurisdiction,
or otherwise preventing or impairing the Offering, or the institution or threat
of any proceeding for any of such purposes. The Company and you shall not
acquiesce in such order or proceeding, and shall instead actively defend such
order or proceeding, unless the Company and you agree in writing to such
acquiescence.
(iii) The Company has caused to be delivered to you copies of
each Preliminary Prospectus, and the Company has consented and hereby consents
to the use of such copies for the purposes permitted by the Act. The Company
authorizes the Underwriters and selected dealers to use the Prospectus in
connection with the sale of the Securities for such period as in the opinion of
Underwriters' Counsel the use thereof is required to comply with the applicable
provisions of the Act and the Rules and Regulations. In case of the happening,
at any time within such period as a prospectus is required under the Act to be
delivered in connection with sales by the Underwriters or a dealer, of any event
of which the Company has knowledge and which materially affects the Company or
the Securities, or which in the opinion of Company Counsel or of Underwriters'
Counsel should be set forth in an amendment to the Registration Statement or an
amendment or supplement to the Prospectus in order to make the statement made
therein not then misleading, in light of the circumstances existing at the time
the Prospectus is required to be delivered to a purchaser of the Securities, or
in case it shall be necessary to amend or supplement the Prospectus to comply
with the Act or the Rules and Regulations, the Company shall notify you promptly
and forthwith prepare and furnish to the Underwriters copies of such amended
Prospectus or of such supplement to be attached to the Prospectus, in such
quantities as you may reasonably request, in order that the Prospectus, as so
amended or supplemented, shall not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements in the Prospectus, in the light of the circumstances under which they
are made, not misleading. The preparation and furnishing of each such amendment
to the Registration Statement, amended Prospectus or supplement to be attached
to the Prospectus shall be without expense to the Underwriters. If the
Underwriters are required, in connection with the sale of the Securities, to
deliver a prospectus nine months or more after the Effective Date, the Company
shall upon your request, amend the Registration Statement and amend or
supplement the Prospectus, or file a new registration statement, if necessary,
and furnish the Underwriters with reasonable quantities of prospectuses
complying with section 10(a)(3) of the Act.
9
<PAGE>
(iv) The Company will deliver to you at or before the First
Closing Date two signed copies of the Registration Statement including all
financial statements and exhibits filed therewith, and of all amendments
thereto. The Company will deliver to or upon your order, from time to time until
the Effective Date as many copies of any Preliminary Prospectus filed with the
commission prior to the Effective Date as you may reasonably request. The
Company will deliver to you on the Effective Date and thereafter for so long as
a Prospectus is required to be delivered under the Act, from time to time, as
many copies of the Prospectus, in final form, or as thereafter amended or
supplemented, as the Underwriters may from time to time reasonably request.
(v) The Company shall comply with the Act, the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder in connection with
the offering and issuance of the Securities in all material respects.
(b) Blue Sky. The Company shall, at its own expense, use its
best efforts to qualify or register the Securities for sale (or obtain an
exemption from registration) under the securities or "blue sky" laws of such
jurisdictions as you may designate, and shall make such applications and furnish
such information to Underwriters' Counsel as may be required for that purpose,
and shall comply with such laws; provided, however, that the Company shall not
be required to qualify as a foreign corporation or a dealer in securities or to
execute a general consent to service of process in any jurisdiction in any
action other than one arising out of the offering or sale of the Securities. The
Company shall bear all of the expense of such qualifications and registrations,
including without limitation the legal fees and disbursements of Underwriters'
Counsel, which fees, exclusive of disbursements, shall not exceed $35,000
(unless otherwise agreed). After each Closing Date the Company shall, at its own
expense, from time to time prepare and file such statements and reports as may
be required to continue each such qualification (or maintain such exemption from
registration) in effect for so long a period as required by law, regulation or
administrative policy in connection with the offering of the Securities. In
addition, the Company shall engage Underwriters' Counsel to provide the
Underwriters, at the Closing and quarterly thereafter, until such time as the
Common Stock is listed on the New York Stock Exchange or the American Stock
Exchange or quoted on NASDAQ/NMS, with a memorandum, setting forth those states
in which the Common Stock may be traded in non-issuer transactions under the
Blue Sky laws of the 50 states. The Company shall pay such counsel a one-time
fee of $7,500 at the Closing for such opinions.
(c) Prospectus Copies. The Company shall deliver to you on or before
the First Closing Date a copy of the Registration Statement including all
financial statements, schedules and exhibits filed therewith, and of all
amendments thereto. The Company shall deliver to or on the order of the
Underwriters, from time to time until the Effective Date, as many copies of any
10
<PAGE>
Preliminary Prospectus filed with the Commission prior to the Effective Date as
the Underwriters may reasonably request. The Company shall deliver to the
Underwriters on the Effective Date, and thereafter for so long as a prospectus
is required to be delivered under the Act, from time to time, as many copies of
the Prospectus, in final form, or as thereafter amended or supplemented, as the
Underwriters may from time to time reasonably request.
(d) Amendments and Supplements. The Company shall, promptly upon your
request, prepare and file with the Commission any amendments to the Registration
Statement, and any amendments or supplements to the Preliminary Prospectus or
the Prospectus, and take any other action which in the reasonable opinion of
Underwriters' Counsel and Company Counsel may be reasonably necessary or
advisable in connection with the distribution of the Securities, and shall use
its best efforts to cause the same to become effective as promptly as possible.
(e) Certain Market Practices. The Company has not taken, and shall not
take, directly or indirectly, any action designed, or which might reasonably be
expected, to cause or result in, or which has constituted, the stabilization or
manipulation of the price of the Securities to facilitate the sale or resale
thereof.
(f) Certain Representations. Neither the Company nor any representative
of the Company has made or shall make any written or oral representation in
connection with the Offering and sale of the Securities or the Underwriters'
Warrant that is not contained in the Prospectus, which is otherwise inconsistent
with or in contravention of anything contained in the Prospectus, or which shall
constitute a violation of the Act, the Rules and Regulations, the Exchange Act
or the rules and regulations promulgated under the Exchange Act.
(g) Use of Proceeds. The Company shall apply the net proceeds from the
sale of the Securities substantially for the purposes set forth in the
Prospectus under the caption "USE OF PROCEEDS," and shall file such reports with
the Commission with respect to the sale of the Securities and the application of
the proceeds therefrom as may be required pursuant to Rule 463 of the Rules and
Regulations.
(h) Twelve Months' Earnings Statement. The Company shall make generally
available to its security holders and deliver to you as soon as it is
practicable so to do, but in no event later than 90 days after the end of twelve
months after the close of its Current fiscal quarter, an earnings statement
(which need not be audited) covering a period of at least 12 consecutive months
beginning after the Effective Date, which shall satisfy the requirements of
section 11 (a) of the Act.
(i) NASDAQ Exchange Listings, Etc. The Company shall immediately make
all filings required to seek approval for the quotation of the Securities on the
NASDAQ Small Cap Market ("NASDAQ") and shall use its best efforts to effect and
maintain such approval for at least five years from the Effective Date. Within
10 days after the Effective Date, the Company shall also use its best efforts to
list itself in Moody's OTC Industrial Manual, Standard & Poor's or other
recognized securities manual acceptable to the Underwriters and to cause such
listing to be maintained for five years from the Effective Date.
11
<PAGE>
(j) Board of Directors. For a period of three (3) years from the
Effective Date, the Company shall allow an observer designated by May Davis to
receive notice of and to attend all meetings of the Board of Directors of the
Company or, during the three (3) years after the Effective Date, require the
Company to use its best efforts to elect May Davis' nominee to the Company's
Board of Directors, and shall be compensated in the same manner as are other
directors of the Company.
(k) Periodic Reports. For so long as the Company is a reporting company
under section 12(g) or section 15(d) of the Exchange Act, the Company shall, at
its own expense, furnish to its stockholders an annual report (including
financial statements audited by certified public accountants) in reasonable
detail. In addition, during the period ending five years from the date hereof,
the Company shall, at its own expense, furnish to you: (i) within 90 days of the
end of each fiscal year, a balance sheet of the Company and its Subsidiaries as
at the end of such fiscal year, together with statements of income,
stockholders' equity and cash flows of the Company and its Subsidiaries as at
the end of such fiscal year, all in reasonable detail and accompanied by a copy
of the certificate or report thereon of certified public accountants; (ii) as
soon as they are available, a copy of all reports (financial or otherwise)
distributed to security holders; (iii) as soon as they are available, a copy of
all non-confidential reports and financial statements furnished to or filed with
the Commission; and (iv) such other information as you may from time to time
reasonably request. The financial statements referred to herein shall be on a
consolidated basis to the extent the accounts of the Company and its
Subsidiaries are consolidated in reports furnished to its stockholders
generally.
(l) Future Sales. For a period of two (2) years following the First
Closing Date, the Company shall not issue, sell or otherwise dispose of any
securities of the Company without May Davis' prior written consent, which
consent shall not be unreasonably withheld; provided, however, that the Company
may at any time issue shares of Common Stock pursuant to the exercise of the
Underwriters' Warrant, and options, warrants or conversion rights issued and
outstanding on the Effective Date and described in the Prospectus. May Davis
agrees to not unreasonably withhold or unduly delay its consent to the issuance
of securities as part of the purchase price of the Company's acquisition of
assets.
(m) Available Shares. The Company shall reserve and at all times keep
available that maximum number of its authorized but unissued Securities which
are issuable upon exercise of the Underwriters' Warrant, in each case taking
into account the anti-dilution provisions thereof.
(n) Financial Consulting Agreement. On the First Closing Date and
simultaneously with the delivery of the Firm Securities, the Company shall
execute and deliver to May Davis an agreement with May Davis, in the form
previously delivered to the Company by May Davis, regarding its services as a
financial consultant to the Company (the "Financial Consulting Agreement").
(o) Stock Transfer Sheets. The Company shall instruct its transfer
agent to deliver to you copies of all advance sheets showing the daily transfer
of the outstanding shares of Common Stock sold by the Company in the public
offering and shall, at its own expense, furnish you with Depository Trust
Company stock transfer sheets on a weekly basis for the period ending three (3)
years from the First Closing Date.
12
<PAGE>
(p) Bound Volumes. Within 120 days from the First Closing Date, the
Company shall deliver to each Underwriter, at the Company's expense, two bound
volumes, and two bound volumes to Underwriters' Counsel, in form and content
acceptable to you, containing the Registration Statement and all exhibits filed
therewith and all amendments thereto, and all other agreements, correspondence,
filings, certificates and other documents filed and/or delivered in connection
with the Offering.
(q) In addition to the fundamental policies listed above, we have
agreed with the Underwriters, that for the 12 month period following this
offering, we will not, without the prior written consent of May Davis:
o invest more than $500,000 of our net assets in any single
portfolio company;
o permit a portfolio company to commit significant amounts of
the funds we have invested towards payment to third parties
for the acquisition of the rights to a technology or the
further development of the technology, until we have an
agreement in place to resell the technology or to merge the
technology with an acquiring company or at least an executed
letter of intent; or
o invest more than 10% of the proceeds of this offering in
portfolio companies which will merge with privately owned
companies.
4. CONDITIONS TO UNDERWRITERS' OBLIGATIONS. The obligations of the Underwriters
to purchase and pay for the Securities which they have agreed to purchase
hereunder are subject to the accuracy (as of the date hereof and as of each
Closing Date) of and compliance with the representations and warranties of the
Company contained herein, the performance by the Company of all of its
respective obligations hereunder and the following further conditions:
(a) Effective Registration Statement; No Stop Order. The Registration
Statement shall have become effective and you shall have received notice thereof
not later than 6:00 p.m., New York time, on the date of this Agreement, or at
such later time or on such later date as to which you may agree in writing. In
addition, on each Closing Date (i) no stop order denying or suspending the
effectiveness of the Registration Statement shall be in effect, and no
proceedings for that or any similar purpose shall have been instituted or shall
be pending or, to your knowledge or to the knowledge of the Company, shall be
contemplated by the Commission, and (ii) all requests on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel.
(b) Opinion of Company Counsel. On the First Closing Date, you shall
have received the opinion, dated as of the First Closing Date, of Company
Counsel, in form and substance satisfactory to the Underwriters' Counsel, to the
effect that:
13
<PAGE>
(i) the Company and its Subsidiaries have been duly
incorporated and are validly existing as corporations in good standing
under the laws of their respective jurisdictions of incorporation, with
full corporate power and authority to own their properties and conduct
their business as described in the Prospectus, and are duly qualified
or licensed to do business as foreign corporations and are in good
standing in each other jurisdiction in which the nature of their
business or the character or location of their properties requires such
qualification, except where failure to so qualify will not have a
material adverse effect on the business, properties or financial
condition of the Company or its Subsidiaries;
(ii) (A) the authorized capitalization of the Company
as of the date of the Prospectus was as is set forth in the Prospectus
under the caption "CAPITALIZATION;" (B) all of the shares of capital
stock now outstanding have been duly authorized and validly issued, are
fully paid and non-assessable, conform in all material respects to the
description thereof contained in the Prospectus, have not been issued
in violation of the preemptive rights of any stockholder and, except as
described in the Prospectus, are not subject to any restrictions upon
the voting or transfer thereof; (C) all have been duly authorized and,
when issued and delivered to the Underwriters against payment therefor
as provided herein, shall be validly issued, fully paid and
non-assessable, shall not have been issued in violation of the
preemptive rights of any stockholder, and no personal liability shall
attach to the ownership thereof; (D) the stockholders of the Company do
not have any preemptive rights or other rights to subscribe for or
purchase, and except for the transfer restrictions imposed by Rule 144
of the Rules and Regulations promulgated under the Act, there are no
restrictions upon the voting or transfer of, any of the Securities; (E)
the Securities and the Underwriters' Warrant conform in all material
respects to the respective descriptions thereof contained in the
Prospectus; (F) all issuances of the Company's securities have been
made in compliance with, or under an exemption from, the Act and
applicable state securities laws; (G) a sufficient number of shares of
Common Stock has been reserved, for all times when the Underwriters'
Warrant is outstanding, for issuance upon exercise of the Underwriters'
Warrant; and (H) to the knowledge of such counsel, neither the filing
of the Registration Statement nor the offering or sale of the
Securities as contemplated by this Agreement gives rise to any
registration rights or other rights, other than those which have been
effectively waived or satisfied or described in the Prospectus, for or
relating to the registration of any securities of the Company;
(iii) the certificates evidencing the Securities are each in
valid and proper legal form;
(iv) this Agreement, the Underwriters' Warrant and the
Financial Consulting Agreement have been duly and validly authorized,
executed and delivered by the Company and assuming due execution and
delivery thereof by the Underwriters all of such agreements are, or
when duly executed shall be, the valid and legally binding obligations
of the Company, enforceable in accordance with their respective terms
14
<PAGE>
(except as enforceability may be limited by bankruptcy, insolvency or
other laws affecting the rights of creditors generally); provided,
however, that no opinion need to be expressed as to the enforceability
of the indemnity provisions contained in Section 6 or the contribution
provisions contained in Section 7;
(v) to the knowledge of such counsel, other than as described
in the Prospectus (A) there is no pending, threatened or contemplated
legal or governmental proceeding affecting the Company which could
materially and adversely affect the business, property, operations,
condition (financial or otherwise) or earnings of the Company, or which
questions the validity of the Offering, the Securities, this Agreement,
the Underwriters' Warrant or the Financial Consulting Agreement or of
any action taken or to be taken by the Company pursuant thereto; and
(B) there is no legal or governmental regulatory proceeding required to
be described or referred to in the Registration Statement which is not
so described or referred to;
(vi) to the knowledge of such counsel, (A) the Company is not
in violation of or in default under this Agreement, the Underwriters'
Warrant or the Financial Consulting Agreement; and (B) to the knowledge
of such counsel, the execution and delivery hereof and thereof and
consummation of the transactions herein or therein contemplated shall
not result in a material violation of, or constitute a default under,
the Certificate of Incorporation or By-laws of the Company, both as
amended to date, or any material obligation, agreement, covenant or
condition contained in any bond, debenture, note or other evidence of
indebtedness, or in any material contract, indenture, mortgage, loan
agreement, lease, joint venture or other agreement or instrument to
which the Company is a party or by which the assets of the Company is
bound, or any material order, rule, regulation, writ, injunction or
decree of any government, governmental instrumentality or court
applicable to the Company;
(vii) to the knowledge of such counsel, (a) the Company and
each Subsidiary has obtained, or is in the process of obtaining, all
licenses, permits and other governmental authorizations necessary to
the conduct of their business as described in the Prospectus, (b) such
obtained licenses, permits and other governmental authorizations are in
full force and effect, and (c) the Company and each Subsidiary is in
all material respects complying therewith;
(viii) the Registration Statement has become effective under
the Act, and to the knowledge of such counsel, no stop order denying or
suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for that or any similar purpose have been
instituted or are pending before or threatened by the Commission;
(ix) the Registration Statement and the Prospectus (except for
the financial statements, notes thereto and other financial information
and statistical data contained therein, as to which counsel need not
express an opinion) comply as to form in all material respects with the
Act and the Rules and Regulations;
15
<PAGE>
(x) all descriptions contained in the Registration Statement
and the Prospectus, and any amendments or supplements thereto, of
contracts and other documents are accurate and fairly present the
information required to be described, and such counsel is familiar with
all contracts and other documents referred to in the Registration
Statement and the Prospectus, and any such amendment or supplement, or
filed as exhibits to the Registration Statement and, to the knowledge
of such counsel, no contract, document, license or permit of a
character required to be summarized or described therein or to be filed
as an exhibit thereto is not so summarized, described or filed.
(xi) the statements in the Registration Statement and
the Prospectus under the captions "Risk Factors," "Use of Proceeds,"
"Business," "Management," and "Description of Securities," which
purport to summarize the provisions of agreements, licenses, statutes
or rules and regulations, have been reviewed by such counsel and are
accurate summaries in all material respects;
(xii) except for registration under the Act and the Investment
Company Act of 1940 (the "40 Act") and registration or qualification of
the Securities under applicable state or foreign securities or blue sky
laws, no authorization, approval, consent or license of any
governmental or regulatory authority or agency is necessary in
connection with: (A) the authorization, issuance, sale, transfer or
delivery of the Securities by the Company in accordance with this
Agreement; (B) the execution, delivery and performance of this
Agreement by the Company or the taking of any action contemplated
herein; (C) the issuance of the Underwriters' Warrant in accordance
with this Agreement or the Securities issuable upon exercise thereof;
or the taking of any action contemplated herein.
(xiii) the Company is an investment company registered under
the Investment Company Act of 1940.
Such opinion shall also state that Company Counsel's examination of the
Registration Statement and its discussions with the Company and its independent
auditors did not disclose any information which gives Company Counsel reason to
believe that the Registration Statement (other than the financial statements and
other financial and statistical information as to which counsel need not express
an opinion) at the time it became effective contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, or that the
Prospectus (other than the schedules, financial statements and other financial
and statistical information as to which no view is expressed) at the time it
became effective contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus (other than the
financial statements and other financial and statistical information as to which
counsel need not express an opinion) contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
16
<PAGE>
misleading. In addition, such opinion shall also cover such matters incident to
the transactions contemplated hereby as you or Underwriters' Counsel shall
reasonably request. In rendering such opinion, Company Counsel may rely as to
matters of fact upon certificates of officers of the Company, and of public
officials, and may rely as to all matters of law other than the law of the
United States and the General Corporation law of the State of Delaware upon
opinions of counsel satisfactory to you, in which case the opinion shall state
that they have no reason to believe that you and they are not entitled so to
rely.
(e) Corporate Proceedings. All corporate proceedings and other legal
matters relating to this Agreement, the Registration Statement, the Prospectus
and other related matters shall be reasonably satisfactory to or approved by
Underwriters' Counsel.
(f) Comfort Letters. Prior to the Effective Date, and again on and as
of the First Closing Date, you shall have received letters from Ernst & Young,
LLP, certified public accountants for the Company in form and substance
satisfactory to Underwriters' Counsel.
(g) Bring Down. At each of the Closing Dates, (i) the representations
and warranties of the Company contained in this Agreement shall be true and
correct with the same effect as if made on and as of such Closing Date, and the
Company shall have performed all of its obligations hereunder and satisfied all
the conditions to be satisfied at or prior to such Closing Date; (ii) the
Registration Statement and the Prospectus shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and shall in all material respects conform to the requirements of
the Act and the Rules and Regulations, and neither the Registration Statement
nor the Prospectus shall contain any untrue statement of a material fact or omit
to state any material fact required to be stated or which they were made, not
misleading; (iii) there shall have been, since the respective dates as of which
information is given, no material adverse change in the business, property,
operations, condition (financial or otherwise), earnings, capital stock,
long-term or short-term debt or general affairs of the Company from that set
forth in the Registration Statement and the Prospectus, except changes which the
Registration Statement and Prospectus indicate might occur after the Effective
Date, and the Company shall not have incurred any material liabilities or
entered into any material agreement other than as referred to in the
Registration Statement and Prospectus other than in the ordinary course of
business; and (iv) except as set forth in the Prospectus, no action, suit or
proceeding shall be pending or threatened against the Company before or by any
commission, board or administrative agency in the United States or elsewhere,
wherein an unfavorable decision, ruling or finding would materially adversely
affect the business, property, operations, condition (financial or otherwise),
earnings or general affairs of the Company. In addition, you shall have
received, at the First Closing Date, certificates signed by the respective
principal executive officers and principal financial officers of the Company,
dated as of the First Closing Date, evidencing compliance with the provisions of
this Section 4(g).
(h) Transfer and Warrant Agent. On or before the Effective Date, the
Company shall have appointed Continental Stock Transfer & Trust Company (or
17
<PAGE>
other agent mutually acceptable to the Company and you), as its transfer agent
and warrant agent to transfer all of the Securities issued and sold by the
Company in the Offering, as well as to transfer other shares of the Common Stock
and Warrants outstanding from time to time.
(i) Certain Further Matters. On each Closing Date, Underwriters'
Counsel shall have been furnished with all such other documents and certificates
as they may reasonably request for the purpose of enabling them to render their
legal opinion to the Underwriters and in order to evidence the accuracy and
completeness of any of the representations, warranties or statements, the
performance of any of the covenants, or the fulfillment of any of the
conditions, herein contained.
(j) Additional Conditions. Upon exercise of the Over-Allotment Option,
the Underwriters' obligations to purchase and pay for the Option Securities
shall be subject (as of the date hereof and as of the Option Closing Date) to
the following conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, no stop order denying or suspending the effectiveness
thereof shall have been issued, and no proceedings for that or any similar
purpose shall have been instituted or shall be pending or, to your knowledge or
the knowledge of the Company, shall be contemplated by the Commission, and all
reasonable requests on the part of the Commission for additional information
shall have been complied with to the satisfaction of Underwriters' Counsel.
(ii) On the Option Closing Date there shall have been
delivered to you the signed opinion of Company Counsel, dated as of the Option
Closing Date, in form and substance satisfactory to Underwriters' Counsel, which
opinion shall be substantially the same in scope and substance as the opinion
furnished to you on the First Closing Date pursuant to Section 4(b), except that
such opinion, where appropriate, shall cover the Option Securities rather than
the Firm Securities. If the First Closing Date is the same as the Option Closing
Date, such opinions may be combined.
(iii) All proceedings taken at or prior to the Option Closing
Date in connection with the same and issuance of the Option Securities shall be
satisfactory in form and substance to you and you and Underwriters' Counsel
shall have been furnished with all such documents, certificates and opinions as
you may reasonably request in connection with this transaction in order to
evidence the accuracy and completeness of any of the representations, warranties
or statements of the Company or its compliance with any of the covenants or
conditions contained herein.
(iv) On the Option Closing Date there shall have been
delivered to you letters in form and substance satisfactory to May Davis from
Ernst & Young, LLP dated the Option Closing Date and addressed to you,
confirming the information in their letters referred to in Section 4(f) as of
the date thereof and stating that, without any additional investigation
required, nothing has come to their attention during the period from the ending
18
<PAGE>
date of their review referred to in such letters to a date not more than five
(5) banking days prior to the Option Closing Date which would require any change
in such letters if they were required to be dated the Option Closing Date.
If any of the conditions herein provided for in this Section shall not
have been completely fulfilled as of the date indicated, this Agreement and all
obligations of the Underwriters under this Agreement may be canceled at, or at
any time prior to, each Closing Date by your notifying the Company of such
cancellation in writing or by telecopy at or prior to the applicable Closing
Date. Any such cancellation shall be without liability of the Underwriters,
except as otherwise provided herein.
5. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations of the Company
to sell and deliver the Securities are subject to the following conditions:
(a) Effective Registration Statement. The Registration Statement shall
have become effective not later than 6:00 p.m. Eastern time, on the date of this
Agreement, or at such later time or on such later date as the Company and you
may agree in writing.
(b) No Stop Order. On the applicable Closing Date, no stop order
denying or suspending the effectiveness of the Registration Statement shall have
been issued under the Act or any proceedings therefor initiated or threatened by
the Commission.
(c) Payment for Securities. On the applicable Closing Date, you shall
have made payment, for the account of the Underwriters, of the aggregate
Purchase Price for the Securities then being purchased by certified or bank
cashier's checks payable in next day funds to the order of the Company.
If the conditions to the obligations of the Company provided by this
Section 5 have been fulfilled on the First Closing Date but are not fulfilled
after the First Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Option Securities upon
exercise of the Over-Allotment Option shall be affected.
6. INDEMNIFICATION.
(a) Indemnification by the Company. As used in this Agreement, the term
"Liabilities" shall mean any and all losses, claims, damages and liabilities,
and actions and proceedings in respect thereof (including without limitation all
reasonable costs of defense and investigation and all attorneys' fees) including
without limitation those asserted by any party to this Agreement against any
other party to this Agreement. The Company hereby indemnifies and holds harmless
the Underwriters and each person, if any, who controls the Underwriters within
the meaning of the Act, from and against all Liabilities, joint or several, to
which the Underwriters or such controlling person may become subject, under the
Act or otherwise, insofar as such Liabilities arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material fact, in
light of the circumstances in which it was made, contained in (A) the
19
<PAGE>
Registration Statement or any amendment thereto, or the Prospectus or any
Preliminary Prospectus, or any amendment or supplement thereto, or (B) any "blue
sky" application or other document executed by the Company specifically for that
purpose, or based upon written information furnished by the Company, filed in
any state or other jurisdiction in order to qualify any or all of the Securities
under the securities laws thereof (any such application, document or information
being herein called a "Blue Sky Application"); or (ii) the omission or alleged
omission to state in the Registration Statement or any amendment thereto, or the
Prospectus or any Preliminary Prospectus, or any amendment or supplement
thereto, or in any Blue Sky Application, a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which it was made, not misleading; provided, however, that the
Company shall not be liable in any such case to the extent, but only to the
extent, that any such Liabilities arise out of or are based upon an untrue
statement or alleged untrue statement or omission or alleged omission (x) made
in reliance upon and in conformity with written information furnished to the
Company through you by or on behalf of the Underwriters specifically for use in
the preparation of the Registration Statement or any such amendment thereto, or
the Prospectus or any such Preliminary Prospectus, or any such amendment or
supplement thereto, or any such Blue Sky Application or (y) corrected by the
final Prospectus and the failure of the Underwriters to deliver the final
Prospectus. The foregoing indemnity shall be in addition to any other liability,
which the Company may otherwise have.
(b) Indemnification by Underwriters. Each Underwriter hereby
indemnifies and holds harmless the Company, each of its directors, each nominee
(if any) for director named in the Prospectus, each of its officers who have
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of the Act, from and against all Liabilities to which
the Company or any such director, nominee, officer or controlling person may
become subject under the Act or otherwise, insofar as such Liabilities arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment thereto,
or the Prospectus or any Preliminary Prospectus, or any amendment or supplement
thereto, or (ii) the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
any such Liabilities arise out of or are based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement or any amendment thereto, or the Prospectus or any
Preliminary Prospectus, or any amendment or supplement thereto, in reliance upon
and in conformity with written information furnished to the Company through you,
by or on behalf of the Underwriters, specifically for use in the preparation
thereof. In no event shall the Underwriters be liable under this Section 6(b)
for any amount in excess of the compensation received by such Underwriters, in
the form of underwriting discounts or otherwise, pursuant to this Agreement or
any other agreement contemplated hereby. The foregoing indemnity shall be in
addition to any other liability, which any Underwriters may otherwise have.
(c) Procedure. Promptly after receipt by an indemnified party under
this Section 6 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 6, notify in writing the indemnifying
20
<PAGE>
party of the commencement thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 6 unless the rights of
the indemnifying party have been prejudiced by such omission or delay. In case
any, such action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
subject to the provisions hereof, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided,
however, that the fees and expenses of such counsel shall be at the expense of
the indemnifying party if (i) the employment of such counsel has been
specifically authorized in writing by the indemnifying party, or (ii) the named
parties to any such action (including any impleaded parties) include both such
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it which
are different from or in addition to those available to the indemnifying party
or that the indemnified and indemnifying party have conflicting interests which
would make it inappropriate for the same counsel to represent both of them (in
which case the indemnifying party shall have the right to assume the defense of
such action on behalf of the indemnified party, it being understood, however,
that the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys). No
settlement of any action against an indemnified party shall be made without the
consent of the indemnified party, which shall not be unreasonably withheld in
light of all factors of importance to such indemnified party.
7. CONTRIBUTION. In order to provide for just and equitable contribution under
the Act in any case in which (a) any indemnified party makes claims for
indemnification pursuant to Section 6 but it is judicially determined (by the
entry of a final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case, notwithstanding the fact
that the express provisions of Section 6 provide for indemnification in such
case, or (b) contribution under the Act may be required on the part of any
indemnified party, then such indemnified party and each indemnifying party (if
more than one) shall contribute to the aggregate Liabilities to which it may be
subject, in either such case (after contribution from others) in such
proportions that the Underwriters is responsible for the portion of such
Liabilities represented by the percentage that the underwriting discount per
Share and per Warrant appearing on the cover page of the Prospectus bears to the
public offering price per Share and per Warrant, appearing thereon, and the
Company shall be responsible for the remaining portion; provided, however, that
if such allocation is not permitted by applicable law, then the relative fault
of the Company and the Underwriters in connection with the statements or
21
<PAGE>
omissions which resulted in such Liabilities and other relevant equitable
considerations shall also be considered. The relative fault shall be determined
by reference to, among other things, whether in the case of an untrue statement
of material fact or the omission to state a material fact, such statement or
omission relates to information supplied by the Company, or the Underwriters,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The Company
and the Underwriters agree that it would not be just and equitable if the
respective obligations of the Company, and the Underwriters to contribute
pursuant to this Section 7 were to be determined by pro rata or per capita
allocation of the aggregate Liabilities or by any other method of allocation
that does not take account of the equitable considerations referred to in the
first sentence of this Section 7. However, the contribution of the Underwriters
shall not be in excess of the cash compensation received by the Underwriters, in
the form of underwriting discounts or otherwise, pursuant to this Agreement or
any other agreement contemplated hereby. No person guilty of a fraudulent
misrepresentation (within the meaning of section 11 (f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. As used in this Section 7, the term "Company" shall include
any officer, director or person who controls the Company within the meaning of
section 15 of the Act. If the full amount of the contribution specified in this
Section 7 is not permitted by law, then each indemnified party and each person
who controls an indemnified party shall be entitled to contribution from each
indemnifying party to the fullest extent permitted by law. The foregoing
contribution agreement shall in no way affect the contribution liabilities of
any persons having liability under section 11 of the Act other than the Company
and the Underwriters. No contribution shall be requested with regard to the
settlement of any matter from any party who did not consent to the settlement
provided, however, that such consent shall not be unreasonably withheld in light
of all factors of importance to such party.
8. COSTS AND EXPENSES.
(a) Certain Costs and Expenses. Whether or not this Agreement becomes
effective or the sale of the Securities to the Underwriters is consummated, the
Company shall pay all costs and expenses incident to the issuance, offering,
sale and delivery of the Securities and the performance of its obligations under
this Agreement, including without limitation: (i) all fees and expenses of the
Company's legal counsel and accountants; (ii) all costs and expenses incident to
the preparation, printing, filing, distribution and mailing of the Registration
Statement (including the financial statements contained therein and all exhibits
and amendments thereto), each Preliminary Prospectus and the Prospectus, each as
amended or supplemented, this Agreement and the other underwriting documents, as
well as the other agreements and documents referred to herein and the Blue Sky
Memorandum; each in such quantities as you shall deem necessary; (iii) all fees
of NASD required in connection with the filing required by NASD to be made by
the Underwriters with respect to the Offering; (iv) all expenses, including fees
(but not in excess of the amount set forth in Section 3(b) and disbursements of
Underwriters' Counsel in connection with the qualification of the Securities
under the "blue sky" laws which you shall designate; (v) all costs and expenses
22
<PAGE>
of printing the respective certificates representing the Securities; (vi) the
expense of placing one or more "tombstone" advertisements or promotional
materials as directed by you and of Offering memorabilia; (vii) all costs and
expenses associated with due diligence meetings and presentations (including the
payment for road show conference centers); (viii) any and all taxes (including
without limitation any transfer, franchise, capital stock or another tax imposed
by any jurisdiction) on sales of the Securities to the Underwriters hereunder;
and (ix) all costs and expenses incident to the furnishing of any amended
Prospectus or any supplement to be attached to the Prospectus as required by
Sections 3(a) and 3(d), except as otherwise provided by said Sections.
(b) Underwriters' Expense Allowance. In addition to the expenses
described in Section 8(a), the Company shall on the First Closing Date pay to
the Underwriters, based on the number of Firm Securities to be sold by the
Company, the balance of a non-accountable expense allowance (which shall include
fees of Underwriters' Counsel exclusive of the fees referred to in Section 3(b)
of an aggregate of $180,000 (that being an amount equal to three percent (3%) of
the gross proceeds received upon sale of the Firm Securities), of which $50,000
has been paid to May Davis prior to the date hereof. In the event that the
Over-Allotment Option is exercised, then the Company shall on the Option Closing
Date pay to May Davis, based on the number of Option Securities sold by the
Company, an additional amount equal to three percent (3%) of the gross proceeds
received upon sale of any of the Option Securities sold to the Underwriters by
the Company. In the event that the transactions contemplated hereby fail to be
consummated for any reason, then you shall return to the Company that portion of
$50,000 heretofore paid by the Company to the extent that it has not been
utilized by you in connection with the Offering for accountable out-of-pocket
expenses; provided, however, that if such failure is due to a breach by the
Company of any covenant, representation or warranty contained herein or because
any other condition to the Underwriters' obligations hereunder required to be
fulfilled by the Company is not fulfilled, then the Company shall be liable for
your accountable out-of-pocket expenses to the full extent thereof (with credit
given to the $50,000 paid).
(c) No Finders. No person is entitled either directly or indirectly to
compensation from the Company, the Underwriters or any other person for services
as a finder in connection with the Offering, and the Company hereby indemnifies
and holds harmless the Underwriters, and the Underwriters hereby indemnifies and
holds harmless the Company from and against all Liabilities, joint or several,
to which the indemnified party may become subject insofar as such Liabilities
arise out of or are based upon the claim of any person (other than an employee
of the party claiming indemnity) or entity that he or it is entitled to a
finder's fee in connection with the Offering by reason of such person's or
entity's influence or prior contact with the indemnifying party.
9. [RESERVED].
10. EFFECTIVE DATE. The Agreement shall become effective upon its execution,
except that you may, at your option, delay its effectiveness until 10:00 a.m.,
23
<PAGE>
Eastern time, on the first full business day following the Effective Date, or at
such earlier time after the Effective Date as you in your discretion shall first
commence the Public Offering by the Underwriters of any of the Securities. The
time of the Public Offering shall mean the time of release by you of the first
newspaper advertisement with respect to the Securities, or the time when the
Securities are first generally offered by you to dealers by letter or telegram,
whichever shall first occur. This Agreement may be terminated by you at any time
before it becomes effective as provided above, except that the provisions of
Sections 6, 7, 8, 13, 14, 15, 16 and 17 shall remain in effect notwithstanding
such termination.
11. TERMINATION.
(a) Grounds for Termination. This Agreement, except for Sections 6,
7, 8, 13, 14, 15, 16 and 17, may be terminated at any time prior to the First
Closing Date, and the Over-Allotment Option, if exercised, may be canceled at
any time prior to the Option Closing Date, by you if it is impracticable to
offer for sale or to enforce contracts made by the Underwriters for the resale
of the Securities agreed to be purchased hereunder, by reason of: (i) the
Company having sustained a material loss, whether or not insured, by reason of
fire, earthquake, flood, accident or other calamity, or from any labor dispute
or court or government action, order or decree; (ii) trading in securities on
the Nasdaq Stock Market having been suspended or limited; (iii) material
governmental restrictions having been imposed on trading in securities generally
which are not in force and effect on the date hereof; (iv) a banking moratorium
having been declared by federal or New York State authorities; (v) an outbreak
or significant escalation of major international hostilities or other national
or international calamity having occurred; (vi) the passage by the Congress of
the United States or by any state legislative body of similar impact, of any act
or measure, or the adoption of any orders, rules or regulations by any
governmental body or any authoritative accounting institute or board, or any
governmental executive, which is reasonably believed likely by you to have a
material adverse impact on the business, financial condition or financial
statements of the Company; (vii) any material adverse change in the financial or
securities markets beyond normal fluctuations in the United States having
occurred since the date of this Agreement; or (viii) any material adverse change
having occurred, since the respective dates for which information is given in
the Registration Statement and Prospectus, in the earnings, business, prospects
or condition (financial or otherwise) of the Company, whether or not arising in
the ordinary course of business.
(b) Notification. If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided by this Section 11 or by
Section 10, the Company shall be promptly notified by you, by telephone or
telegram, confirmed by letter.
12. UNDERWRITERS' WARRANT. On the First Closing Date, the Company shall issue
and sell to each of you, for a total purchase price of $10.00, and upon the
terms and conditions set forth in the form of Underwriters' Warrant filed as an
exhibit to the Registration Statement, a warrant entitling you to purchase up to
50,000 Shares and/or 50,000 Warrants (the "Underwriters' Warrants"), for an
aggregate of 100,000 Shares and Warrants. The 100,000 shares of Common Stock in
24
<PAGE>
the aggregate underlying the Underwriters' Warrant received by the Underwriters
will be restricted from sale, transfer, assignment or hypothecation for a period
of one year from the effective date of the offering except to officers or
partners (not directors) of the Underwriters' and members of the selling group
and/or their officers or partners in accordance with Rule 2710(C)(7)(A) of the
NASD Conduct Rules. In the event of conflict in the terms of this Agreement and
the Underwriters' Warrant, the terms and conditions of the Underwriters' Warrant
shall control.
13. DEFAULT BY AN UNDERWRITER. If either of the Underwriters shall fail or
refuse to purchase any of the Firm Securities that it has severally agreed to
purchase and arrangements satisfactory to the non-defaulting Underwriter and the
Company for the purchase of such amount of Firm Securities are not made within
48 hours after such default, this Agreement will terminate without liability on
the part of the non-defaulting Underwriter for the purchase or sale of any of
the Firm Securities under this Agreement. In any such case, either the
non-defaulting Underwriter or the Company shall have the right to postpone
Closing Date I but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or in
any other documents or arrangements may be effected. Any action taken under this
section shall not relieve the defaulting Underwriter from liability in respect
of its default under this Agreement.
14. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties, covenants and
other statements of the Company, and the Underwriters set forth in Sections 3,
6, 7 and 8 of this Agreement shall remain in full force and effect regardless of
any investigation made by or on behalf of any other party, and shall survive
delivery of and payment for the Securities and the termination of this
Agreement. The Company hereby indemnifies and holds harmless the Underwriters
from and against all Liabilities, joint or several, to which the Underwriters
may become subject insofar as such Liabilities arise out of or are based upon
the breach or failure of any of the provisions of Sections 3, 6, 7 and 8.
15. NOTICES. All communications hereunder shall be in writing and, except as
otherwise expressly provided herein, if sent to you, shall be mailed, delivered
or telegraphed and confirmed to you at the address first set forth above, to the
attention of the President, with a copy sent to Jay M. Kaplowitz, Esq., Gersten,
Savage & Kaplowitz, LLP, 101 East 52nd Street, New York, New York 10022; or if
sent to the Company, shall be mailed, delivered, or telegraphed and confirmed to
it at Utek Corporation, 202 South Wheeler Street, Plant City, Florida 33566,
with a copy sent to McLaughlin & Stern, LLP, Attention: Steven W. Schuster, 260
Madison Avenue, New York, New York 10016.
16. PARTIES IN INTEREST. This Agreement is made solely for the benefit of the
Underwriters, the Company, and, to the extent expressed, any person controlling
the Company or the Underwriters, as the case may be, and the directors of the
Company, nominees for directors of the Company (if any) named in the Prospectus,
officers of the Company who have signed the Registration Statement, and their
respective executors, administrators, successors and assigns; and no other
person shall acquire or have any right under or by virtue of this Agreement. The
term "successors and assigns" shall not include any purchaser, as such, from the
Underwriters of the Securities.
25
<PAGE>
17. APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to agreements made
and to be performed entirely within such State. Any actions brought with respect
to any disputes arising under this Agreement shall be brought in the Southern
District of New York or the state courts of the State of New York. The parties
hereto consent to the jurisdiction of the Southern District of New York or the
courts of the State of New York with respect to all disputes arising out of this
Agreement.
18. COUNTERPARTS. This Agreement may be executed in two or more counterpart
copies, each of which shall be deemed an original but all of which together
shall constitute one and the same instrument.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return this Agreement, whereupon it will become a
binding agreement between the parties in accordance with its terms.
Very truly yours,
UTEK CORPORATION
By:______________________________
Name:
Title:
Accepted as of the date first above written:
MAY DAVIS GROUP, INC.
By: ____________________________
Name:
Title:
ARTESIA SECURITIES S.A./N.A.
By:__________________________
Name:
Title:
26
<PAGE>
Exhibit 1.2
UTEK CORPORATION
1,000,000 Shares of Common Stock
AGREEMENT BETWEEN UNDERWRITERS
New York, New York
, 2000
To: Artesia Securities S.A./NV
WTC Tower 1
Boulevard de Roi Albert, 30-B18
B-1000 Brussels, Belgium
Dear Sirs:
Utek Corporation (the "Company") proposes to enter into an
underwriting agreement, substantially in the form attached hereto as Exhibit A
(the "Underwriting Agreement"), with May Davis Group, Inc. ("May Davis") and
Artesia Securities S.A./NV ("Artesia", May Davis and Artesia are collectively
referred to as the "Underwriters"), acting severally and not jointly, with
respect to the purchase from the Company of an aggregate of 1,000,000 shares
(the "Offered Shares"), $.001 par value (the "Common Shares"). The Underwriting
Agreement also provides for the grant to the Underwriters, individually, and not
as Underwriters of the Underwriters, of up to an additional 150,000 Shares (the
"Optional Shares"), at their option, for the sole purpose of covering
over-allotments in the sale of the Offered Shares. The Offered Shares are
described in the Registration Statement and Prospectus (as defined in the
Underwriting Agreement).
The Underwriters hereby confirm our agreement with respect to
the proposed purchase by the Underwriters severally of the Offered Shares and
the Optional Shares, and the proposed offering of the Offered Shares and the
Optional Shares, as follows:
<PAGE>
1. Authority of the Underwriters. Each Underwriter hereby severally authorizes
the Underwriters on such Underwriter's behalf to (a) enter into an Underwriting
Agreement with the Company substantially in the form attached hereto as Exhibit
A; (b) determine, with each other's consent, the date specified by which the
Registration Statement is to become effective and fix and extend, to not later
than 10:00 a.m., New York City time, on the third full business day after the
Registration Statement shall have become effective (or any postponed date
pursuant to the Underwriting Agreement), the Closing Date (referred to in the
Underwriting Agreement) for the purchase of Offered Shares, unless such date and
(c) exercise the authority and discretion vested in the Underwriters by the
Underwriting Agreement.
With respect to the 1,000,000 Offered Shares, each of May
Davis and Artesia agree to purchase 500,000 Offered Shares from the Company.
With respect to the Underwriters' Warrants, each of May Davis and Artesia shall
purchase 50,000 warrants. In the event that the Underwriter's Over-Allotment
Option is exercised, each shall purchase an amount of Underwriters' Warrants
equal to 10% of the Over-Allotment Shares purchased by or for the account of
each Underwriter. With respect to the three percent (3%) non-accountable expense
allowance payable under the Underwriting Agreement ($180,000 with respect to an
offering of $6,000,0000 and $217,000 with respect to an offering of $6,900,000
if the Over-Allotment Option is exercised in full), May Davis and Artesia shall
each receive one and one-half percent (1.5%) of the gross proceeds of the
offering. Each of May Davis and Artesia shall bear their own expenses in
connection with the offering of the Offered Shares, including fifty percent of
the fees and expenses of McLaughlin & Stern LLP, counsel to the underwriters.
The obligations of the Underwriters with respect to the purchase of the Offered
Shares and the Underwriters' Warrants are several and not joint.
2
<PAGE>
The Underwriters agree that the payments of the advisory fee
payable under the Financial Advisory Agreement shall be paid to May Davis.
The initial public offering of the Offered Shares is to be
made on the date and at the public offering price fixed by the Underwriters. The
Underwriters may vary such price and the dealers' concession and reallowance
from time to time after the initial public offering.
The initial public advertisement will appear on the date of
the public offering of the Shares or the day following and will be over the
Underwriters's name and the names of such other Underwriters as the Underwriters
may determine. After such advertisement has appeared, but not before, any
Underwriter may advertise at its own risk and expense.
2. Compliance with NASD Conduct Rules Artesia represents that
it is a foreign dealer not eligible for membership in the National Association
of Securities Dealers Inc. ("NASD") and that it is not affiliated with any
member of the NASD. Artesia agrees to comply, as if it were a member of the
NASD, with the provisions of Rules 2730 and 2750 of the Conduct Rules of the
NASD and to comply with Rule 2420 as such Rules apply to a non-member
broker/dealer in a foreign country and to make no sales within the United States
or to persons who are citizens thereof or residents therein.
3. Sales to Institutions, Dealers, Etc. Each Underwriter may
sell the Offered Shares to securities dealers selected by the Underwriter making
such sale (the "Dealers"), who may include any of the several Underwriters, in
such proportion as the Underwriters may determine. Each Dealer will be a member
of the NASD or, if a foreign dealer not eligible for membership in the NASD,
will agree to conform to the provisions of the Conduct Rules of the NASD in
making sales outside the United States and to make no sales within the United
States or to persons who are citizens thereof or residents therein. Sales to
Dealers will be made less such Dealers' selling concession and other terms and
conditions as the Underwriters will determine.
3
<PAGE>
4. Sales by Underwriters. Each Underwriter agrees that for 25
days after the initial public offering of the Offered Shares or until
notification by May Davis terminating this provision, whichever is earlier, all
sales of the Common Shares by it or on its behalf will be made in all respects
in compliance with and subject to the provisions of a selected dealer agreement,
if any, provided that May Davis and Artesia may make sales for its account
pursuant to this Agreement
Artesia agrees to advise May Davis, upon May Davis' request,
of the number of Offered Shares purchased pursuant to the Underwriting Agreement
remaining unsold by it.
5. Payment and Delivery. At or before 9:00 a.m., New York City
time, on the Closing Date, Artesia agrees to deliver to May Davis at its offices
at One World Trade Center, New York, New York, a certified or official bank
check payable to May Davis Group Inc. in New York Clearing House funds, in an
amount equal to the full purchase price of the Offered Shares which Artesia is
to purchase on such date pursuant to the Underwriting Agreement. Artesia
authorizes May Davis(a) to deliver Artesia's check or checks in payment for the
Offered Shares which Artesia is to purchase, and (b) to receive the certificates
for the Common Shares comprising the Offered Shares registered in the name of
Artesia or in any other name or form as Artesia deems desirable.
4
<PAGE>
6 Stabilization.
(a) To enable May Davis to effect transactions for
the purpose of stabilizing the market in the Common Shares, Artesia authorizes
May Davis for Artesia's account, prior to the termination of this Agreement, or
for such longer period as may be necessary to cover any short position incurred
for the accounts of the Underwriters under this authority, (i) to buy and sell
the Common Shares in the open market or otherwise on a when-issued or
when-delivered basis or otherwise, at such price or prices as May Davis may
determine, (ii) in arranging for such sales of the Common Shares to Dealers and
others, to over-allot and (iii) in order to cover any such over-allotments, to
exercise in whole or in part the over-allotment option granted to the
Underwriters pursuant to the provisions of the Underwriting Agreement and to
purchase Common Shares pursuant to such exercise. It is understood that such
purchases and sales, over-allotments and exercises shall be made for the
respective accounts of the Underwriters as nearly as practicable equally between
May Davis and Artesia. Artesia authorizes May Davis to charge Artesia's account
with the cost of any Common Share so purchased for Artesia's account and agrees
to deliver to May Davis on demand Common Shares to the extent thereof so sold
for Artesia's account. This provision is not an assurance that the price of the
Common Shares will be stabilized or that stabilization, if commenced, may not be
discontinued at any time. If pursuant to the provisions of this section and
prior to the termination of this Agreement (or, prior to such earlier date as
May Davis may have determined) May Davis purchases or contracts to purchase for
Artesia's account in the open market or otherwise any Common Shares which were
retained by or released to Artesia for direct sale, or on Common Shares which
may have been issued in exchange for such Common Shares, Artesia authorizes May
Davis either to charge Artesia's account with an amount equal to the concession
to Dealers with respect thereto, which amount shall be credited against the cost
of such Common Shares, or to require Artesia to repurchase such Common Shares,
at a price equal to the total cost of such purchase, including broker's
commissions or dealer's mark-up, if any. In lieu of such action May Davis may,
in its discretion, sell for Artesia's account the Common Shares so purchased and
debit or credit Artesia's account for the loss or profit resulting from such
sale.
5
<PAGE>
May Davis will have authority to pay on
behalf of Artesia such commissions, taxes and other expenses as May Davis may
deem proper in connection with such purchases and sales and to charge the
account of Artesia with commissions, taxes and appropriate expenses on purchases
and sales effected by May Davis. This provision is not an assurance that the
price of the Offered Shares will be stabilized or that stabilization, if
commenced, will not be discontinued at any time.
(b) Artesia authorizes May Davis to file with
the Commission any and all reports required by Rule 17a-2 under the Securities
Act of 1934, as amended (the "Exchange Act"), or any other applicable rule of
the commission, in connection with any purchases or sales made by May Davis for
the account of Artesia pursuant to the foregoing authorization. May Davis will
advise Artesia promptly of the dates on which May Davis commences and terminates
any such transactions. Each Underwriter has, and assumes for itself, the
responsibility for making the reports required by such rules with respect to its
own transactions which are subject thereto. Each Underwriter shall retain the
records required by such rules with respect to its own transactions which are
subject thereto.
(c) Until the termination of this Agreement or
prior notification by May Davis, May Davis will have the sole right to effect
stabilizing transactions in the Shares. Each Underwriter agrees that until such
time it will not make any purchases or sales of the Common Shares of the Company
except (i) pursuant to the Underwriting Agreement or this Agreement, (ii)
pursuant to authorization received from the Underwriters, or (iii) in the
ordinary course of business as broker or agent for a customer pursuant to an
unsolicited order.
6
<PAGE>
7. Indemnification. Each Underwriter, severally, will
indemnify and hold harmless the other Underwriter, any person who may be deemed
to control any other Underwriter within the meaning of Section 15 of the
Securities Act of 1933, as amended (the "Securities Act"), and each officer,
director, partner, employee and agent of any other Underwriter, to the extent
and upon the terms set forth in the Underwriting Agreement. Such indemnity will
survive the termination of this Agreement and will remain in full force and
effect regardless of any investigation made by, or on behalf of, such other
Underwriter or such persons.
8. Termination of Agreement. Except as to accrued obligations
and except as otherwise provided herein, this Agreement will terminate (a) at
the close of business on the 20th day following the effective date of the
Registration Statement, or (b) at such other date, but in no event more than 40
days following such effective date, as May Davis may fix by notice to Artesia,
or (c) if the Underwriting Agreement will be terminated, in accordance with its
terms. Such termination, however, will not relieve any Underwriter from its
proportionate share of any charges, liabilities or expenses incurred prior
thereto.
9. Settlement of Accounts. Accounts will be closed and settled
under this Agreement as soon as practicable after termination. At such time any
Common Shares held by May Davis for the account of Artesia shall be distributed
by May Davis to Artesia, and the net credit or debit balance of Artesia will be
paid to it or collected from Artesia by May Davis, but the May Davis may
establish reasonable reserves against any claims and expenses not then
ascertained. Notwithstanding any distribution or settlement on the termination
of accounts, each Underwriter will remain liable for its proper proportion of
any tax or other liability which may be asserted against any one or more of the
Underwriters in respect of this Agreement or the Underwriting Agreement based
upon the claim that the Underwriters constitute a partnership, an association,
an unincorporated business or other separate entity, and each Underwriter agrees
to pay its proper proportion of the expenses of resisting any such claim. The
provisions of this Section 9 will survive the termination of this Agreement.
7
<PAGE>
9. Compliance with Exchange Act, Etc. Each Underwriter will
comply with any applicable provisions of the Exchange Act or regulations of the
Securities and Exchange Commission.
10. Registration Statement; Prospectus. Each Underwriter
confirms (a) that it has examined each Preliminary Prospectus, the Registration
Statement and the form of Prospectus (and any amendments or supplements thereto)
referred to in the Underwriting Agreement; (b) that the information therein is
correct and not misleading insofar as such information relates to such
Underwriter; and (c)that it is willing to accept the responsibilities under the
Securities Act of an underwriter named in the Registration Statement and is
willing to proceed with the underwriting in the manner contemplated thereby.
Artesia authorizes May Davis, on behalf of Artesia, to consent to the filing of
any further amendments or supplements to any Preliminary Prospectus, the
Registration Statement or the Prospectus.
8
<PAGE>
10. Status of Underwriters and Underwriters. Nothing contained
herein shall constitute the Underwriters, or any of them, partners or render any
of them liable to make payments otherwise than as herein provided, or impair the
several nature of their obligations under this Agreement and the Underwriting
Agreement.
11. Default by an Underwriter. If any Underwriter shall fail
or refuse to purchase any of the Offered Shares that it has severally agreed to
purchase and arrangements satisfactory to the non-defaulting Underwriter and the
Company for the purchase of such amount of Offered Shares are not made within 48
hours after such default, this Agreement will terminate without liability on the
part of the non-defaulting Underwriters for the purchase or sale of any of the
Offered Shares under the Underwriting Agreement. In any such case, either the
non-defaulting Underwriter or the Company shall have the right to postpone the
Closing Date but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or in
any other documents or arrangements may be effected. Any action taken under this
section shall not relieve the defaulting Underwriter from liability in respect
of its default under this Agreement.
12. Liability of Underwriters. Except as expressly stated
herein, or as may arise under the Securities Act, the Underwriters will not be
under any liability for, or in respect of: the validity or value of the Common
Shares; the form of, or the statements contained in, the Registration Statement,
any Preliminary Prospectus, the Prospectus (or any amendments or supplements
thereto), or any supplemental sales data or other letters or instruments
executed by, or obtained from, the Company; the form or validity of the
Underwriting Agreement or this Agreement; the eligibility of the Common Shares
for sale under the laws of any state or jurisdiction; the delivery of the
Shares; the performance by the Company or others of any agreement on its or
their part; or any matter in connection with any of the foregoing, except the
Underwriters's own lack of good faith.
9
<PAGE>
13. Notices. Any notice to any Underwriter will be deemed
to have been duly given if mailed, telecopied or delivered to such Underwriter
at the address set forth in the Underwriter's Agreement.
14. Construction of Agreement. This Agreement will be governed
by, and construed and enforced in accordance with, the laws of the State of New
York applicable to contracts made and to be wholly performed in such State. Any
actions brought with respect to any disputes arising under this Agreement shall
be brought in the Southern District of New York or the state courts of the State
of New York. The parties hereto consent to the jurisdiction of the Southern
District of New York or the courts of the State of New York with respect to all
disputes arising out of this Agreement.
15. Headings. The headings in this Agreement are for purposes
of reference only and will not limit or otherwise affect any of the terms or
provisions hereof.
16. Counterparts. This Agreement may be signed in any number
of counterparts which, taken together, will constitute one and the same
instrument.
10
<PAGE>
Very truly yours,
MAY DAVIS GROUP, INC.
By:/s/
------------------------------
Confirmed as of the date
first above written:
ARTESIA SECURITIES, S.A./NV
_____________________________________
By:__________________________________
Authorized Signature
11
<PAGE>
UTEK CORPORATION
AND
[Underwriter]
UNDERWRITER'S
WARRANT AGREEMENT
<PAGE>
UNDERWRITER'S WARRANT AGREEMENT dated as of __________, 2000
by and between UTEK CORPORATION, a Delaware corporation (the "Company"), and
[Underwriter] (hereinafter referred to variously as the "Holder" or the
"Underwriter").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Under writer
warrants ("Warrants") to purchase up to 50,000 shares of common stock, $.0001
par value, of the Company (the "Shares"); and
WHEREAS, the Underwriter has agreed pursuant to the
underwriting agreement (the "Underwriting Agreement") dated _____________, 2000
by and between the Underwriter and the Company to act as the underwriter in
connection with the Company's public offering of up to 1,000,000 shares; and
WHEREAS, the Warrants to be issued pursuant to this Agreement
will be issued on the Closing Date (said term used herein as defined in the
Underwriting Agreement) by the Company to the Underwriter in consideration for,
and as part of the Under writer's compensation in connection with, the
Underwriter's acting as the underwriter pursuant to the Underwriting Agreement;
1
<PAGE>
NOW, THEREFORE, in consideration of the premises, the payment
by the Underwriter to the Company of ten dollars ($10.00), the agreements herein
set forth and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
1. Grant. The Holder is hereby granted the right to purchase,
at any time from the first anniversary of the the effective date of the Public
Offering (the "Effective Date"), until 5:00 p.m., New York time, on the fifth
anniversary of the Effective Date, up to ten percent (10%) of the Shares sold by
the Underwriter in the Public Offering at an initial exercise price (subject to
adjustment as provided in Article 8 hereof) of $9.90 per Share (165% of the
Public Offering price per Share, subject to the terms and conditions of this
Agreement.
2. Warrant Certificates. The warrant certificates (the
"Warrant Certificates") delivered and to be delivered pursuant to this Agreement
shall be in the form set forth in Exhibit A, attached hereto and made a part
hereof, with such appropriate insertions, omissions, substitutions, and other
variations as required or permitted by this Agreement.
3. Exercise of Warrants. The Warrants are exercisable during
the term set forth in Section 1 hereof at the Exercise Price per share set forth
in Section 6 hereof payable by certified or cashier's check or money order
2
<PAGE>
payable in lawful money of the United States, subject to adjustment as provided
in Article 8 hereof. Upon surrender of a Warrant Certificate with the annexed
Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the Shares (and such other amounts,
if any, arising pursuant to Section 4 hereof) at the Company's principal offices
located at 202 South Wheeler Street, Plant City, Florida 33566, the registered
holder of a Warrant Certificate ("Holder" or "Holders") shall be entitled to
receive a certificate or certificates for the securities comprising the Shares
so purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holder thereof, in whole or in part (but not as
to fractional Shares). The Warrants may be exercised to purchase all or part of
the Shares represented thereby. In the case of the purchase of less than all the
Shares purchasable on the exercise of Warrants represented by a Warrant
Certificate, the Company shall cancel the Warrant Certificate represented
thereby upon the surrender thereof and shall execute and deliver a new Warrant
Certificate of like tenor for the balance of the Shares purchasable thereunder.
4. Issuance of Certificates. Upon the exercise of the Warrants
and payment of the Exercise Price therefor, the issuance of certificates for the
shares shall be made forthwith (and in any event within three (3) business days
thereafter) without further charge to the Holder thereof, and such certificates
shall (subject to the provisions of Sections 5 and 7 hereof) be issued in the
3
<PAGE>
name of, or in such names as may be directed by, the Holder thereof; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificates in a name other than that of the Holder, and the Company shall
not be required to issue or deliver such certificates unless or until the person
or persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid. The Warrant certificates and the certificates
representing the Shares shall be executed on behalf of the Company by the manual
or facsimile signature of the then present Chairman or Vice Chairman of the
Board of Directors or President or Vice President of the Company under its
corporate seal reproduced thereon, attested to by the manual or facsimile
signature of the then present Secretary or Assistant Secretary or Treasurer or
Assistant Treasurer of the Company. Warrant Certificates shall be dated the date
of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
5. Restriction On Transfer of Warrants. The Holder of a
Warrant Certificate (and its Permitted Transferee, as defined below), by its
acceptance thereof, covenants and agrees that the Warrants are being acquired as
an investment and not with a view to the distribution thereof; that the Warrants
may be sold, transferred, assigned, hypothecated or otherwise disposed of, in
whole or in part, to any person (a "Permitted Transferee"), provided such
4
<PAGE>
transfer, assignment, hypothecation or other deposition is made in accordance
with the provisions of the Securities Act of 1933, as amended (the "Act"); and
provided, further, that until ______________, 2001 only officers and directors
of the Underwriter, and any co-underwriter, selling group member and their
respective officers and directors shall be Permitted Transferees.
6. Exercise Price.
a. Initial and Adjusted Exercise Price. Except as
otherwise provided in Section 8 hereof, the initial exercise price of each
Warrant shall be $9.90 per Share. The adjusted exercise price shall be the price
which shall result from time to time from any and all adjustments of the initial
exercise price in accordance with the provisions of Section 8 hereof.
b. Exercise Price. The term "Exercise Price" herein
shall mean the initial exercise price or the adjusted exercise price, depending
upon the context.
7. Registration Rights.
a. Registration Under the Securities Act of 1933.
The Warrants have not been registered under the Act. The Warrant certificates
shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), and may not be offered for sale or sold except
pursuant to (i) an effective registration statement under the
Act, or (ii) an opinion of counsel, if such opinion shall be
reasonably satisfactory to counsel to the issuer, that an
exemption from registration under such Act is available.
b. Demand Registration. (1) At any time commencing
one (1) year and expiring five (5) years after the effective date of the
Company's Registration Statement relating to the Public Offering (the
5
<PAGE>
"Effective Date"), the Underwriter, or the then Holder(s) of at least a majority
of the Warrants, shall have the right, exercisable by written notice to the
Company, to have the Company prepare and file with the Securities and Exchange
Commission (the "Commission"), on one (1) occasion, a registration or offering
statement on Form S-1 and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for the
Underwriter and the Holders, in order to comply with the provisions of the Act,
so as to permit a public offering and sale, for a period of nine (9) months, of
the shares underlying the Warrants ("Warrant Securities") by such Holders and
any other Holders of the Warrants and/or Warrant Securities who notify the
Company within fifteen (15) business days after receipt of the notice described
above. The Underwriter may demand registration on behalf of the Holders without
exercising the Underwriter's Warrants, and are never required to exercise same.
(2) The Company covenants and agrees to give written
notice of any registration request under this Section 7(b) by the Underwriter to
all other registered Holders of the Warrants and the Warrant Securities within
ten (10) days from the date of the receipt of any such registration request.
c. Piggyback Registration. If, at any time within the
four (4) year period commencing one (1) year and expiring five (5) years after
the Effective Date, the Company should file a registration statement with the
Commission under the
6
<PAGE>
Act (other than in connection with a merger or pursuant to Forms S-4 or S-8) it
will give written notice by registered mail, at least thirty (30) days prior to
the filing of each such registration statement, to the Underwriter and to all
other Holders of the Warrants and/or the Warrant Securities of its intention to
do so. If the Underwriter or other Holders of the Warrants and/or the Warrant
Securities notify the Company within twenty (20) days after receipt of any such
notice of its or their desire to include any such securities in such proposed
registration statement, the Company shall afford the Underwriter and such
Holders of the Warrants and/or the Warrant Securities the opportunity to have
any such Warrant Securities registered under such registration statement.
Notwithstanding the provisions of this Section 7(c), the Company shall have the
right at any time after it shall have given written notice pursuant to this
Section 7(c) (irrespective of whether a written request for inclusion of any
such securities have shall have been made) to elect not to file any such
proposed registration statement, or to withdraw the same after the filing but
prior to the effective date thereof. If a subsequent underwriter objects to the
above piggy-back rights, such objection would preclude such inclusion. However,
in such event, the Company will, within six (6) months of completion of such
subsequent underwriting, file at its sole expense a registration statement
relating to such excluded securities, which shall be in addition to any
registration statement required to be filed pursuant to Section 7(b).
7
<PAGE>
d. Covenants of the Company With Respect to
Registration. In connection with any registration under Sections 7(b) and 7(c)
hereof, the Company covenants and agrees as follows:
(1) The Company shall use its best efforts
to file a registration statement within thirty (30) days of receipt of any
demand therefor, shall use its best efforts to have any registration statements
declared effective at the earliest possible time, and shall furnish each Holder
desiring to sell the Warrant Securities such number of prospectuses as shall
reasonably be requested.
(2) The Company shall pay all costs
(excluding fees and expenses of Holder(s)' counsel and any underwriting
discounts or selling fees, expenses or commissions), fees and expenses in
connection with the first registration statement filed pursuant to Section 7(b)
and any registration statement filed pursuant to Section 7(c) hereof including,
without limitation, the Company's legal and accounting fees, printing expenses,
blue sky fees and expenses. If the Company shall fail to comply with the
provisions of Section 7(d)(1), the Company shall, in addition to any other
equitable or other relief available to the Holder(s), be liable for any or all
incidental, special and consequential damages and damages due to loss of profit
sustained by the Holder(s) requesting registration of their Warrant Securities.
(3) The Company will take all necessary
action which may be required to qualify or register the Warrant Securities
8
<PAGE>
included in a registration statement for offering and sale under the securities
or blue sky laws of such states as reasonably are requested by the Holder(s),
provided that the Company shall not be obligated to execute or file any general
consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(4) The Company shall indemnify the
Holder(s) of the Warrant Securities to be sold pursuant to any registration
statement and each person, if any, who controls such Holders within the meaning
of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of
1934, as amended ("Exchange Act"), against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Act, the Exchange Act or otherwise, arising from such
registration statement but only to the same extent and with the same effect as
the provisions pursuant to which the Company has agreed to indemnify the
Underwriter contained in Section 8 of the Underwriting Agreement, and the
Holder(s) shall indemnify the Company to the same extent and with the same
effect as the provisions pursuant to which the Underwriter has agreed to
indemnify the Company contained in Section 8 of the Underwriting Agreement.
(5) The Holder(s) of the Warrant Securities
to be sold pursuant to a registration statement, and their successors and
9
<PAGE>
assigns, shall severally, and not jointly, indemnify the Company, its officers
and directors and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against
all loss, claim, damage or expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which they may become subject under the Act, the Exchange Act or
otherwise, arising from information furnished by or on behalf of such Holders,
or their successors or assigns, for specific inclusion in such registration
statement to the same extent and with the same effect as the provisions
contained in Section 8 of the Underwriting Agreement pursuant to which the
Underwriter has agreed to indemnify the Company.
(6) Nothing contained in this Agreement
shall be construed as requiring the Holder(s) to exercise their Warrants prior
to the initial filing of any registration statement or the effectiveness
thereof.
(7) The Company shall not be entitled to
include any securities other than the Warrant Securities in any registration
statement filed pursuant to Section 7(b) hereof without the prior written
consent of the Underwriter and the Holders of the Warrant and the Warrant
Securities representing a Majority of such securities (assuming exercise of all
of the Warrants).
10
<PAGE>
(8) The Company shall furnish to each Holder
participating in the offering and to each underwriter, if any, a signed
counterpart, addressed to such Holder or underwriter of (i) an opinion of
counsel to the Company, dated the effective date of such registration statement
(and if such registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement), and (ii) a
"cold comfort" letter dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a letter
dated the date of the closing under the underwriting agreement) signed by the
independent public accounts who have issued a report on the Company's financial
statements included in such registration statement, in each case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) and, in the case of such accountants' letter,
with respect to events subsequent to the date of such financial statements, as
are customarily covered in opinions of issuer's counsel and in accountants'
letter, with respects to events subsequent to the date of such financial
statements, as are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public offerings
of securities.
(9) The Company shall as soon as practicable
after the effective date of the registration statement, and in any event within
15 months thereafter, make "generally available to its security holders" (within
the meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of at
least 12 consecutive months beginning after the effective date of the
registration statement.
11
<PAGE>
(10) The Company shall deliver promptly to
each Holder participating in the offering requesting the correspondence
described below and any managing underwriter copies of all correspondence
between the Commission and the Company, its counsel or auditors with respect to
the registration statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems reasonably
necessary to comply with applicable securities laws or rules of the National
Association of Securities Dealers, Inc. ("NASD"). Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such Holder
shall reasonably request.
(11) The Company shall enter into an
underwriting agreement with the managing underwriter selected for such
underwriting by Holders holding a Majority of the Warrant Securities requested
to be included in such underwriting, except that in connection with an offering
for which the Holders have piggyback rights, the Company shall have the sole
right to select the managing underwriter. Such underwriting agreement shall be
satisfactory in form and substance to the Company, a Majority of
12
<PAGE>
such Holders and such managing underwriters, and shall contain such
representations, warranties and covenants by the Company and such other terms as
are customarily contained in agreements of that type used by the managing
underwriter. The Holders shall be parties to any underwriting agreement relating
to an underwritten sale of their Warrant Securities and may, at their option,
require that any or all the representations, warranties and covenants of the
Company to or for the benefit of such underwriters shall also be made to and for
the benefit of such Holders. Such Holders shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such Holders and their intended
methods of distribution.
(12) For purposes of this Agreement, the
term "Majority" in reference to the Holders of the Warrants or Warrant
Securities, shall mean in excess of fifty percent (50%) of the then outstanding
Warrants or Warrant Securities that (i) are not held by the Company, an
affiliate, officer, creditor, employee or agent thereof or any of their
respective affiliates, members of their family, persons acting as nominees or in
conjunction therewith, or (ii) have not been resold to the public pursuant to a
registration statement filed with the Commission under the Act.
e. Repurchase of Warrants. In the event the Company
shall fail to file the registration statement required by Section 7(b), or such
registration statement shall not be declared effective within 150 days of the
written request, then the Underwriter may require the Company to purchase, on
the 151st day, the Underwriter's Warrants at a price equal to the difference
13
<PAGE>
between the Exercise Price and the market price per share of Common Stock as
averaged over the mean between the "bid and "asked" price as of the close of
each business day during the two-week period immediately preceding the 151st
day; provided, however, that at the time of such purchase the average market
price shall be more than $9.90 further provided that the Company's net worth, at
such time, is at least three (3) times the amount of the aggregate purchase
price for such Underwriter's Warrants to be purchased.
f. Further Registrations. The Company will cooperate
with the Holder(s) of the Warrants in preparing and signing any registration
statement, in addition to the registration statements discussed above, required
in order to sell or transfer the Warrants and will supply all information
required therefor, but such additional registration statement expenses or
offering statement expenses will be prorated between the Company and the Holders
of the Warrants according to the aggregate sales price of the securities being
issued. The provision of Section 7(d) other than subsection (2) shall apply to
any such registration statement.
8. Adjustments to Exercise Price and Number of Securities.
a. Subdivision and Combination. In case the Company
shall at any time subdivide or combine the outstanding shares of Common Stock,
the Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
14
<PAGE>
b. Adjustment in Number of Securities. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Section 8,
the number of Securities issuable upon the exercise of each Warrant shall be
adjusted to the nearest full amount by multiplying a number equal to the
Exercise Price in effect immediately prior to such adjustment by the number of
Securities issuable upon exercise of the Warrants immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.
c. Definition of Common Stock. For the purpose of
this Agreement, the term "Common Stock" shall mean (i) the class of stock
designated as Common Stock in the Certificate of Incorporation of the Company as
it may be amended as of the date hereof, or (ii) any other class of stock
resulting from successive changes or reclassification of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value. In the event that the Company shall after the
date hereof issue securities with greater or superior voting rights than those
of the shares of Common Stock outstanding as of the date hereof, the Holder, at
its option, may receive upon exercise of any Warrant either shares of Common
Stock or a like number of such securities with greater or superior voting
rights.
d. Reclassification, Merger or Consolidation. The
Company will not merge, reorganize or take any other action which would
15
<PAGE>
terminate the Underwriter's Warrants without first making adequate provision for
the Underwriter's Warrants. In case of any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination), or in case of any consolidation of the Company with, or merger of
the Company with, or merger of the Company into, another corporation (other than
a merger with a subsidiary in which merger the Company is the continuing
corporation and other than a consolidation or merger which does not result in
any reclassification or change of the outstanding Common Stock except a change
as a result of a subdivision or combination of such shares or a change in par
value, as aforesaid), the Holder of each Warrant then outstanding or to be
outstanding shall have the right thereafter (until the expiration of such
Warrant) to receive, upon exercise of such Warrant, the kind and amount of
shares of stock and other securities and property receivable upon such
consolidation or merger, by a holder of the number of shares of
Common Stock of the Company for which such Warrant might have been exercised
immediately prior to such reclassification, consolidation, merger, sale or
transfer, and in the event of a consolidation, merger or sale of property, the
corporation formed by such consolidation or merger or acquired such property
shall execute and deliver to the Holder a supplemental warrant agreement to such
effect. Such supplemental warrant agreement shall provide for adjustments which
shall be identical to the adjustment to those provided in Section 8. The
provisions of this Section 8(d) shall similarly apply to successive
consolidations or mergers.
16
<PAGE>
e. No Adjustment of Exercise Price in Certain Cases.
No adjustment of the Exercise Price shall be made:
(1) Upon the issuance or sale of the
Warrants or the shares of Common Stock issuable upon the exercise of (i) the
Warrants, or (ii) the options, warrants, stock purchase agreements and
convertible or exchangeable securities outstanding or in effect on the date
hereof as described in the prospectus relating to the Public Offering; or
(2) If the amount of said adjustment shall
be less than five (5) cents per Share, provided, however, that in such case any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment which, together with any adjustment so carried forward, shall amount
to at least five (5) cents per Share.
f. Dividends and Other Distributions. In the event
that the Company shall at any time prior to the exercise of all the Warrants
declare a dividend (other than a cash dividend or otherwise distribute to its
stockholders any assets, property, rights, evidences of indebtedness, securities
(other than shares of Common Stock), whether issued by the Company or by
another, or any other thing of value, the Holders of the unexercised Warrants
17
<PAGE>
shall thereafter be entitled, in addition to the shares of Common Stock, to
receive, upon the exercise of such Warrants, the same property, assets, rights,
evidences of indebtedness, securities or any other thing of value that they
would have been entitled to receive at the time of such dividend or distribution
as if the Warrants had been exercised immediately prior to such dividend or
distribution. At the time of any such dividend or distribution, the Company
shall make appropriate reserves to ensure the timely performance of the
provisions of this Section 8(f).
9. Exchange and Replacement of Warrant Certificates. Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for a
new Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Shares in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not
be required to issue certificates representing fractions of shares of Common
Stock or public warrants upon the exercise of the Warrant, nor shall it be
required to issue script or pay cash in lieu of fractional interests, it being
18
<PAGE>
the intent of the parties that all fractional interests; provided, however, that
if a Holder exercises all Warrants held of record by such Holder the fractional
interests shall be eliminated by rounding any fraction up to the nearest whole
number of shares of Common Stock.
11. Reservation and Listing of Securities. The Company shall
at all times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the Warrants,
such number of shares of Common Stock, as shall be issuable upon the exercise
thereof. The Company covenants and agrees that, upon exercise of
the Warrants and payment of the Exercise Price therefor, all shares of Common
Stock, issuable upon such exercise shall be duly and validly issued, fully paid,
non-assessable and not subject to the preemptive rights of any stockholder. As
long as the Warrants shall be outstanding, the Company shall use its best
efforts to cause the Common Stock to be listed (subject to official notice of
issuance) on all securities exchanges on which the Common Stock issued to the
public in connection herewith may then be listed or quoted.
12. Notices to Warrant Holders. Nothing contained in this
Agreement shall be construed as conferring upon the Holders the right to vote or
to consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
19
<PAGE>
a. the Company shall take a record of the holders of
its shares of Common Stock for the purpose of entitling them to receive
a dividend or distribution payable otherwise than in cash, or a cash
dividend or distribution payable otherwise than out of current or
retained earnings, as indicated by the accounting treatment of such
dividend or distribution on the books of the Company; or
b. the Company shall offer to all the holders of its
Common Stock, any additional shares of capital stock of the Company or
securities convertible into or exchangeable for shares of capital stock
of the Company, or any option, right or warrant to subscribe therefor;
or
c. a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation or merger) or a
sale of all or substantially all of its property, assets and business
as an entirety shall be proposed; then, in any one or more of said
events, the Company shall give written notice of such event at least
fifteen (15) days prior to the date fixed as a record date or the date
of closing the transfer books for the determination of the
20
<PAGE>
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on
such proposed dissolution, liquidation, winding up or sale. Such notice
shall specify such record date or the date of closing the transfer
books, as the case may be. Failure to give such notice or any defect
therein shall not affect the validity of any action taken in connection
with the declaration or payment of any such dividend, or the issuance
of any convertible or exchangeable securities, or subscription
rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
13. Notices. All notices, requests, consents and
other communications hereunder shall be in writing and shall be
deemed to have been duly made when delivered, or mailed by
registered or certified mail, return receipt requested:
a. If to the registered Holder of the Warrants,
to the address of such Holder as shown on the books of the
Company; or
b. If to the Company to the address set forth in
Section 3 hereof or to such other address as the Company may designate
by notice to the Holders.
14. Supplements and Amendments. The Company and the
Underwriter may from time to time supplement or amend this Agreement without the
approval of any Holders of Warrant Certificates (other than the Underwriter) in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Underwriter may deem necessary or desirable and which
the Company and the Underwriter deem shall not adversely affect the interests of
the Holders of Warrant Certificates.
21
<PAGE>
15. Successors. All the covenants and provisions of this
Agreement shall be binding upon and inure to the benefit of the Company, the
Underwriter, the Holders and their respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate at the close
of business on the fifth anniversary of the Effective Date. Notwithstanding the
foregoing, the indemnification provisions of Section 7 shall survive such
termination until the close of business on the date of the expiration of any
applicable statue of limitations.
17. Governing Law; Submission to Jurisdiction. This Agreement
and each Warrant Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State without giving effect to the
rules of said State governing the conflicts of laws. The Company, the
22
<PAGE>
Underwriter and the Holders hereby agree that any action, proceeding or claim
against it arising out of, or relating in any way to, this Agreement shall be
brought and enforced in the courts of the State of New York or of the United
States of America for the Southern District of New York, and irrevocably submits
to such jurisdiction, which jurisdiction shall be exclusive. The Company, the
Underwriter and the Holders hereby irrevocably waive any objection to such
exclusive jurisdiction or inconvenient forum. Any such process or summons to be
served upon any of the Company, the Underwriter and the Holders (at the option
of the party bringing such action, proceeding or claim) may be served by
transmitting a copy thereof, by registered or certified mail, return receipt
requested, postage prepaid, addressed to it at the address set forth in Section
13 hereof. Such mailing shall be deemed personal service and shall be legal and
binding upon the party so served in any action, proceeding or claim.
18. Entire Agreement; Modification. This Agreement (including
the Underwriting Agreement to the extent portions thereof are referred to
herein) contains the entire understanding between the parties hereto with
respect to the subject matter hereof. Subject to Section 14, this Agreement may
not be modified or amended except by a writing duly signed by the party against
whom enforcement of the modification or amendment is sought.
19. Severability. If any provision of this Agreement shall be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this
Agreement are for convenience of reference only and are not intended, nor should
they be construed as, a part of this Agreement and shall be given no substantive
effect.
23
<PAGE>
21. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company
and the Underwriter and any other registered Holder(s) of the Warrant
Certificates or Warrant Securities any legal or equitable right, remedy or claim
under this Agreement; and this Agreement shall be for the sole and exclusive
benefit of the Company and the Underwriter and any other Holder(s) of the
Warrant Certificates or Warrant Securities.
22. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one and
the same instrument.
23. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company, the Underwriter and their respective
successors and assigns and the Holders from time to time of the Warrant
Certificate or any of them.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
UTEK CORPORATION
By:__________________________
[Underwriter]
By:__________________________
25
<PAGE>
EXHIBIT A
---------
WARRANT CERTIFICATE
THE SECURITIES ISSUABLE UPON EXERCISE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT
APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may not
be offered for sale or sold except pursuant to (i) an effective
registration statement under the Act, or (ii) an opinion of counsel, if
such opinion shall be reasonably satisfactory to counsel to the issuer,
that an exemption from registration under such Act is available.
THE TRANSFER OR EXCHANGE OF THE WARRANT REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE COMMENCING _______________, 2001 THROUGH
5:00 P.M., NEW YORK __________, 2005
No. W-1 ______ Warrants
This Warrant Certificate certifies that [Underwriter] (the
"Underwriter") or registered assigns, is the registered holder of ______
Warrants to purchase initially, at any time from _______, 2001, until 5:00 p.m.,
New York time on _________, 2005 ("Expiration Date"), up to ______ shares of the
Common Stock $.0001 par value (the "Shares") of the Utek Corporation, a
____________ corporation (the "Company") at the exercise price of $9.90 per
Share (the "Exercise Price"), and upon the surrender of this Warrant Certificate
and payment of the Exercise Price at an office or agency of the Company, but
subject to the conditions set forth herein and in the warrant agreement dated as
of ____________, 2000 by and between the Company and the Underwriter (the
"Warrant Agreement"). Payment of the Exercise Price shall be made by certified
or cashier's check or money order payable to the order of the Company.
No Warrant may be exercised after 5:00 p.m., New York time, on
the Expiration Date, at which time all Warrants evidenced hereby, unless
exercised prior thereto, hereby shall thereafter be void.
<PAGE>
The Warrants evidenced by this Warrant Certificate are part
Underwriter's of a duly authorized issue of Warrants issued pursuant to the
Warrant Agreement between the Company and the Underwriter (the "Warrant
Agreement"), which Warrant Agreement is hereby incorporated by reference in and
made a part of this instrument and is hereby referred to for a description of
the rights, limitation of rights, obligations, duties and immunities thereunder
of the Company and the holders (the words "holders" or "holder" meaning the
registered holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price and the type and/or number of the Company's
securities issuable thereupon may, subject to certain conditions, be adjusted.
In such event, the Company will, at the request of the holder, issue a new
Warrant Certificate evidencing the adjustment in the Exercise Price and the
number and/or type of securities issuable upon the exercise of the Warrants;
provided, however, that the failure of the Company to issue such new Warrant
Certificates shall not in any way change, alter, or otherwise impair, the rights
of the holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange as provided herein, without any charge except for any tax or other
governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such numbered unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
certificate this __ day of ____________, 2000.
UTEK CORPORATION
By:__________________________
ATTEST:
By:_________________
Secretary
<PAGE>
[FORM OF ELECTION OF ASSIGNMENT]
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificate.)
FOR VALUE RECEIVED___________________________
hereby sells, assigns and transfers unto _____________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________________
Attorney, to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Dated:
Signature_____________________
(Signature must conform in
all respects to the name of
holder as specified on the
face of the Warrant
Certificate.)
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right, represented by
this Warrant Certificate, to purchase:
________ Shares
and herewith tenders in payment for such securities a certified or cashier's
check or money order payable to the order of Utek Corporation in the amount of
$______, all in accordance with the terms hereof. The undersigned requests that
a certificate for such securities be registered in the name of
___________________________ whose address is _____________________ and that such
Certificate be delivered to _____________________________________ whose address
is
- --------------------------------------------------------------------------------
Dated:
Signature_______________________
(Signature must conform in
all respects to the name of
holder as specified on the
face of the Warrant
Certificate.)
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
FINANCIAL CONSULTING AGREEMENT
This Agreement is made and entered into as of the __ day of _______,
2000 by and between May Davis Group, Inc., a Maryland corporation ("May Davis")
and Utek Corporation, a Delaware corporation (the "Company").
WHEREAS, pursuant to that certain underwriting agreement dated __, 2000
between May Davis and the Company (the "Underwriting Agreement"), May Davis
agreed, inter alia, to purchase an aggregate of 1,000,000 shares (the "Firm
Securities") of the common stock, par value $.001 per share, of the Company (the
"Common Stock").
WHEREAS, under the terms of the Underwriting Agreement, on the First
Closing Date (as defined therein) the Company agreed to execute and deliver to
May Davis an agreement to employ the services of May Davis as a financial
consultant to the Company;
WHEREAS, the First Closing Date is the date hereof;
NOW, THEREFORE, in consideration of the mutual promises made in the
Underwriting Agreement and herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. Purpose. The Company hereby engages May Davis for the term specified in
Paragraph 2 hereof to render consulting advice to the Company as an investment
banker relating to financial and similar matters upon the terms and conditions
set forth herein.
2. Term. Except as otherwise specified in paragraph 4 hereof, this Agreement
shall be effective from _________, 2000 to ___________, 2003.
3. Duties of May Davis. During the term of this Agreement, May Davis shall
seek out Transactions (as hereinafter defined) on behalf of the Company and
shall furnish advice to the Company in connection with any such Transactions.
4. Compensation. In consideration for the services rendered by May Davis to
the Company pursuant to this Agreement (and in addition to the expenses provided
for in Paragraph 5 hereof), the Company shall compensate May Davis as follows:
a. Contemporaneous with the execution and delivery of this Agreement,
the Company shall pay May Davis a fee equal to $120,000.
<PAGE>
b. In the event that any Transaction (as hereinafter defined) occurs
during the term of this Agreement or one year thereafter, the Company
shall pay fees to May Davis as follows:
i. if the Consideration is $500,000 or less-- $25,000;
ii. if the Consideration is greater than $500,000 but not greater
than $5,000,000-- 5% of Consideration
iii. If the Consideration is in excess of $5,000,000-- $250,000
plus 1% of the Consideration in excess of $5,000,000.
c. For the purposes of this Agreement,"Consideration" shall mean the
total market value on the day of the closing of stock, cash, assets
and all other property (real or personal) exchanged or received,
directly or indirectly by the Company or any of its security holders
in connection with any Transaction. Any co-broker retained by May
Davis shall be paid by May Davis.
d. For the purposes of the Agreement, a "Transaction" shall mean:
i. any transaction originated by May Davis, other than in the
ordinary course of trade or business of the Company, whereby,
directly or indirectly, control of or a material interest in the
Company or any of its businesses or any of their respective
assets, is transferred for Consideration; or
ii. any transaction originated by May Davis whereby the Company
acquires any other company or the assets of any other company or
an interest in any other company (an "Acquisition").
e. In the event May Davis originates a line of credit with a lender,
the Company and May Davis will mutually agree on a satisfactory fee
and the terms of payment of such fee; provided, however, that in the
event the Company is introduced to a corporate partner by May Davis in
connection with a merger, acquisition or financing and a credit line
develops directly as a result of the introduction, the appropriate fee
shall be the amount set forth in the schedule above.
f. In the event May Davis introduces the Company to a joint venture
partner or customer and sales develop as a result of the introduction,
the Company agrees to pay a fee of five percent (5%), or such mutually
agreed upon amount, of total sales generated directly from this
introduction during the first two years following the date of the
first sale. Total sales shall mean cash receipts less any applicable
refunds, returns, allowances, credits and shipping charges and monies
paid by the Company by way of settlement or judgment arising out of
claims made by or threatened against the Company.
<PAGE>
g. Commission payments shall be paid on the 15th day of each month
following the receipt of customers' payment. In the event any
adjustments are made to the total sales after the commission has been
paid, the Company shall be entitled to an appropriate refund or credit
against future payments under this Agreement.
h. All fees to be paid pursuant to this Agreement, except as otherwise
specified, are due and payable to May Davis in cash at the closing or
closings of any transaction specified in Paragraph 4 hereof.
5. Expenses of May Davis. In addition to the fees payable hereunder, and
regardless of whether any transaction set forth in Paragraph 4 hereof is
proposed or consummated, the Company shall reimburse May Davis for all
reasonable fees and disbursements of May Davis's counsel and May Davis's
reasonable travel and out-of-pocket expenses incurred in connection with the
services performed by May Davis pursuant to this Agreement, including without
limitation, hotels, food and associated expenses and long-distance telephone
calls.
6. Obligation after Termination. In the event that this Agreement shall not
be renewed or if terminated for any reason, notwithstanding any such non-renewal
or termination, May Davis shall be entitled to a full fee as provided under
Paragraph 4 hereof and expenses as provided under Paragraph 5 hereof, for any
transaction for which the discussions were initiated during the term of this
Agreement and which is consummated within a period of twelve months after
non-renewal or termination of this Agreement.
7. Liability of May Davis.
a. The Company acknowledges that all opinions and advice (written or
oral) given by May Davis to the Company in connection with May Davis's
engagement are intended solely for the benefit and use of the Company
in considering the transaction to which they relate, and the Company
agrees that no person or entity other than the Company shall be
entitled to make use of or rely upon the advice of May Davis to be
given hereunder, and no such opinion or advice shall be used for any
other purpose or reproduced, disseminated, quoted or referred to at
any time, in any manner or for any purpose, nor may the Company make
any public references to May Davis, or use May Davis's name in any
annual reports or any other reports or releases of the Company without
May Davis's prior written consent.
b. The Company acknowledges that May Davis makes no commitment
whatsoever as to making a market in the Company's securities or to
recommending or advising its clients to purchase the Company's
securities. Research reports or corporate finance reports that may be
prepared by May Davis will, when and if prepared, be done solely on
the merits or judgment of analysis of May Davis or any senior
<PAGE>
corporate finance personnel of May Davis.
8. May Davis's Services to Others. The Company acknowledges that May Davis's
or its affiliates are in the business of providing financial services and
consulting advice to others. Nothing herein contained shall be construed to
limit or restrict May Davis in conducting such business with respect to others,
or in rendering such advice to others.
9. Company Information.
a. The Company recognizes and confirms that, in advising the
Company and in fulfilling its engagement hereunder, May Davis
will use and rely on data, material and other information
furnished to May Davis by the Company. The Company acknowledges
and agrees that in performing its services under this engagement,
May Davis may rely upon the data, material and other information
supplied by the Company without independently verifying the
accuracy, completeness or veracity of same.
b. Except as contemplated by the terms hereof or as required by
applicable law, May Davis shall keep confidential all material
non-public information provided to it by the Company, and shall
not disclose such information to any third party, other than such
of its employees and advisors as May Davis determines to have a
need to know and who agree to keep such information confidential.
10. Indemnification.
a. The Company shall indemnify and hold May Davis harmless
against any and all liabilities, claims, lawsuits, including any
and all awards and/or judgments to which it may become subject
under the Securities Act of 1933, as amended (the "1933 Act"),
the Securities Exchange Act of 1934, as amended (the "Act") or
any other federal or state statute, at common law or otherwise,
insofar as said liabilities, claims and lawsuits (including
awards and/or judgments) arise out of or are in connection with
the services rendered by May Davis hereunder or any transactions
in connection with this Agreement, except for any liabilities,
claims and lawsuits (including awards and/or judgments), arising
out of acts or omissions of May Davis. In addition, the Company
shall also indemnify and hold May Davis harmless against any and
all costs and expenses, including reasonable counsel fees,
incurred or relating to the foregoing. May Davis shall give the
Company prompt notice of any such liability, claim or lawsuit
which May Davis contends is the subject matter of the Company's
indemnification hereunder and the Company thereupon shall be
granted the right to take any and all necessary and proper
action, at its sole cost and expense, with respect to such
liability, claim and lawsuit, including the right to settle,
compromise and dispose of such
<PAGE>
liability, claim or lawsuit, excepting therefrom any and all
proceedings or hearings before any regulatory bodies and/or
authorities.
b. May Davis shall indemnify and hold the Company harmless
against any and all liabilities, claims and lawsuits, including
any and all awards and/or judgments to which it may become
subject under the 1933 Act, the Act or any other federal or state
statute, at common law or otherwise, insofar as said liabilities,
claims and lawsuits (including awards and/or judgments) arise out
of or are based upon (i) any act or omission of May Davis or (ii)
any untrue statement or alleged untrue statement of a material
fact required to be stated or necessary to make the statement
therein, not misleading, which statement or omission was made in
reliance upon information furnished in writing to the Company by
or on behalf of May Davis for inclusion in any registration
statement or prospectus or any amendment or supplement thereto in
connection with any transaction to which this Agreement applies.
In addition, May Davis shall also indemnify and hold the Company
harmless against any and all costs and expenses, including
reasonable counsel fees, incurred or relating to the foregoing.
The Company shall give to May Davis prompt notice of any such
liability, claim or lawsuit which the Company contends is the
subject matter of May Davis's indemnification and May Davis
thereupon shall be granted the right to a take any and all
necessary and proper action, at its sole cost and expense, with
respect to such liability, claim and lawsuit, including the right
to settle, compromise or dispose of such liability, claim or
lawsuit, excepting therefrom any and all proceedings or hearings
before any regulatory bodies and/or authorities.
c. In order to provide for just and equitable contribution under
the Act in any case in which (x) any person entitled to
indemnification under this Section 10 makes claim for
indemnification pursuant hereto but it is judicially determined
(by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or
the denial of the last right of appeal) that such indemnification
may not be enforced in such case notwithstanding the fact that
this Section 10 provides for indemnification in such case, or (y)
contribution under the Act may be required on the part of any
such person in circumstances for which indemnification is
provided under this Section 10, then, and in each such case, the
Company and May Davis shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject
(after any contribution from others) in such proportion taking
into consideration the relative benefits received by each party
from the offering covered by the prospectus with respect to any
transactions in connection with this Agreement (taking into
account the portion of the proceeds of the offering realized by
each), the parties' relative knowledge and access to information
<PAGE>
concerning the matter with respect to which the claim was
assessed, the opportunity to correct and prevent any statement or
omission and other equitable considerations appropriate under the
circumstances; provided, however, that notwithstanding the above
in no event shall May Davis be required to contribute any amount
in excess of 10% of the public offering price of any securities
to which such Prospectus applies; and provided, that, in any such
case, no person guilty of a fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such
fraudulent misrepresentation.
d. Within fifteen (15) days after receipt by any party to this
Agreement (or its representative) of notice of the commencement
of any action, suit or proceeding, such party will, if a claim
for contribution in respect thereof is to be made against another
party (the "Contributing Party"), notify the Contributing Party
of the commencement thereof, but the omission so to notify the
Contributing Party will not relieve it from any liability which
it may have to any other party other than for contribution
hereunder. In case any such action, suit or proceeding is brought
against any party, and such party notifies a Contributing Party
or his or its representative of the commencement thereof within
the aforesaid fifteen (15) days, the Contributing Party will be
entitled to participate therein with the notifying party and any
other Contributing Party similarly notified. Any such
Contributing Party shall not be liable to any party seeking
contribution on account of any settlement of any claim, action or
proceeding effected by such party seeking contribution without
the written consent of the Contributing Party. The
indemnification provisions contained in this Section 10 are in
addition to any other rights or remedies which either party
hereto may have with respect to the other or hereunder.
11. May Davis an Independent Contractor. May Davis shall perform its services
hereunder as an independent contractor and not as an employee of the Company or
an affiliate thereof. It is expressly understood and agreed to by the parties
hereto that May Davis shall have no authority to act for, represent or bind the
Company or any affiliate thereof in any manner, except as may be agreed to
expressly by the Company in writing from time to time.
12. Miscellaneous.
a. This Agreement between the Company and May Davis constitutes
the entire agreement and understanding of the parties hereto, and
supersedes any and all previous agreements and understandings,
whether oral or written, between the parties with respect to the
matters set forth herein.
<PAGE>
b. Any notice or communication permitted or required hereunder
shall be in writing and shall be deemed sufficiently given if
hand-delivered or sent (i) postage prepaid by registered mail,
return receipt requested, or (ii) by facsimile, to the respective
parties as set forth below, or to such other address as either
party may notify the other in writing:
If to the Company, to: Utek Corporation
202 South Wheeler Street
Plant City, FL 33566
with a copy to: Gersten, Savage & Kaplowitz, LLP
101 East 52nd Street
New York, New York 10022
If to May Davis, to: May Davis Group, Inc.
One World Trade Center
New York, New York 10038
with a copy to: Steven W. Schuster
McLaughlin & Stern, LLP
260 Madison Avenue
New York, New York 10016
c. This Agreement shall be binding upon and inure to the benefit
of each of the parties hereto and their respective successors,
legal representatives and assigns.
d. This Agreement may be executed in any number of counterparts,
each of which together shall constitute one and the same original
document.
e. No provision of this Agreement may be amended, modified or
waived, except in a writing signed by all of the parties hereto.
f. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York, without giving
effect to conflict of law principles. The parties hereby agree
that any dispute which may arise between them arising out of or
in connection with this Agreement (except for disputes relating
to any Transactions covered by this Agreement or fees relating
thereto for which a suit may be brought in the appropriate
jurisdiction) shall be adjudicated before a court located in New
York City, and they hereby submit to the exclusive jurisdiction
of the courts of the State of New York located in New York, New
York and of the federal courts in the Southern District of New
York with respect to any action or legal proceeding commenced by
any party, and irrevocably waive any objection they now or
<PAGE>
hereafter may have respecting the venue of any such action or
proceeding brought in such a court or respecting the fact that
such court is an inconvenient forum, relating to or arising out
of this Agreement, and consent to the service of process in any
such action or legal proceeding by means of registered or
certified mail, return receipt requested, in care of the address
set forth in Paragraph 12(b) hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
MAY DAVIS GROUP INC.
By:________________________________
UTEK CORPORATION
By:________________________________
<PAGE>
Graphco-DPI Holding Company, Inc. and Digital Personnel Inc.
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") is entered into by and
among Graphco-DPI Holding Company, Inc. ("Subsidiary"), a Delaware
Corporation, which is a wholly owned subsidiary of Graphco Technologies,
Inc., a New Jersey Corporation ("GTC"), GTC, UTEK Corporation, a Delaware
Corporation ("UTEK") and Digital Personnel, Inc. ("DPI"), a Florida
Corporation and subsidiary of UTEK.
WHEREAS, UTEK owns 70% of the outstanding shares of the capital stock of
DPI and Caltech owns 30% of the outstanding shares of capital stock of DPI;
and
WHEREAS, DPI has acquired the exclusive worldwide license to make and
market a proprietary technology for producing photo-realistic animation of
a person speaking ("Technology"), together with certain patent rights,
know-how and software related thereto, including without limitation, the US
patent application entitled "Method and Apparatus for Synthesizing
Realistic Animations of Human Speaking Using a Computer" Inventors: Scott
et al. US Patent Application Number 09/074768 (Caltech Number 3209) and the
allowance of claim issued by the United States Patent and Trademark Office
with respect thereto ("Patent Application"); and
WHEREAS, the parties desire to provide for the terms and conditions upon
which DPI will merge into Subsidiary in a statutory merger ("Merger") in
accordance with the Delaware General Corporation Law, as amended ("Delaware
Act") and the Florida General Corporation Act, as amended ("Florida Act"),
upon consummation of which the assets and business of DPI will be owned by
Subsidiary, and all issued and outstanding shares of capital stock of DPI
will be exchanged for common stock of GTC, which terms and conditions are
set forth more fully herein; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a tax-free reorganization within the meaning of Section 368
(a)(1)(A) of the Internal Revenue Code of 1986, as amended ("Code").
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, the parties agree as follows:
<PAGE>
ARTICLE 1
THE MERGER
1.01 The Merger
(a) Agreement to Merge. Subject to the terms and conditions of this
Agreement, at the Effective Time, as defined below, DPI shall be merged
with and into Subsidiary in accordance with the provisions of this
Agreement and the Delaware Act and Florida Act (the "Merger"); the separate
corporate existence of DPI shall cease; and Subsidiary shall continue as
the surviving corporation ("Surviving Corporation"). The constituent
corporations ("Constituent Corporations") to the Merger are Subsidiary and
DPI. The name of the Surviving Corporation, "Graphco-DPI Holding Company,
Inc.", shall not be changed by reason of the Merger.
(b) Effective Time. The Merger shall become effective ("Effective
Time") upon filing of a Certificate of Merger ("Certificate of Merger")
with the Secretary of State of the State of Delaware in accordance with the
applicable provisions of the Delaware Act and the filing of the Articles of
Merger with the Secretary of State of the State of Florida in accordance
with the applicable provisions of the Florida Act.
(c) Effect of the Merger. At the Effective Time the effect of the
Merger shall be as provided herein and as set forth in Section 259 of the
Delaware Act and Section 607.231 of the Florida Act. Without limiting the
generality of the foregoing and subject thereto, as of the Effective Time,
all rights, powers, privileges, franchises, licenses and permits of the
Constituent Corporations and all property, real, personal and mixed, shall
be vested in the Surviving Corporation; and all debts, duties, liabilities
and claims of every kind, character and description of the Constituent
Corporations shall be debts, duties, liabilities and claims of the
Surviving Corporation and may be enforced against the Surviving Corporation
to the same extent as if such debts, duties, liabilities and claims had
been incurred by it originally. All rights of creditors of the Constituent
Corporations and all liens upon property of any Constituent Corporation
shall be preserved unimpaired and shall not be altered in any way by reason
of the Merger.
(d) Tax Consequences. It is intended that the Merger shall constitute a
reorganization within the meaning of Section 368 (a) (1) (A) of the Code
and that the Agreement shall constitute a "Plan of Reorganization" within
the meaning of Treasury Regulation Section 1.350-2(g).
(e) Waiver of Notice. Notwithstanding any portion of this Agreement to
the contrary, the shareholders of DPI hereby wave any and all notice,
presentment or demand for appraisal rights, if any, under applicable law.
1.02 Conversion of Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of the shareholders of the
Constituent Corporations:
(i) All of the 10,000,000 shares of DPI Stock (as defined in Section
2.01(c) hereof) that are issued and outstanding immediately prior to
the Effective Time shall be converted into 143,999 unregistered shares
of common stock of GTC, which by agreement of the shareholders of DPI
shall be issued to (i) UTEK (100,799 shares); and (ii) Caltech (43,200
shares).
2
<PAGE>
1.03 Effect of Merger
(a) Rights in DPI Cease. At and after the Effective Time, UTEK and
Caltech, as holders of each certificate of DPI Stock immediately prior to
the Merger, shall cease to have any rights as a shareholder of DPI.
(b) Closure of DPI Stock Records. From and after the Effective Time,
the stock transfer books of DPI shall be closed, and there shall be no
further registration of stock transfers on the records of DPI.
1.04 Certificate of Incorporation of the Surviving Corporation. The
certificate of Incorporation of the Surviving Corporation shall not be
changed by reason of the Merger.
1.05 Bylaws of the Surviving Corporation. The Bylaws of the Surviving
Corporation shall not be changed by reason of the Merger.
1.06 Closing. Subject to the terms and conditions of this Agreement,
the Closing of the Merger shall take place via facsimile on the date so
designated by the parties, but in no event later than 5PM EST on March 22,
2000 ("Closing Date").
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.01 General Representations and Warranties of UTEK and DPI. UTEK and
DPI represent and warrant to GTC and Subsidiary that the facts set forth
below are true and correct:
(a) Organization. DPI and UTEK are corporations duly organized, validly
existing and in good standing under the laws of their respective states,
and they have the requisite power and authority to conduct their businesses
as presently being conducted and consummate the transactions contemplated
by this Agreement. True, correct and complete copies of the Article of
Incorporation, By-laws and all minutes of DPI and the Articles of
Incorporation, By-laws and the resolutions of the Directors of UTEK
approving the Merger have been provided to GTC or Subsidiary and such
documents are presently in effect and have not been amended or modified.
3
<PAGE>
(b) Authorization. The execution of this Agreement and the consummation
of the Merger and the other transactions contemplated hereby have been duly
authorized by the Board of Directors and shareholders of DPI and UTEK; no
other corporate action by the respective parties is necessary in order to
execute, deliver, consummate and perform their respective obligations
hereunder; and DPI and UTEK have all requisite corporate and other
authority to execute and deliver this Agreement and consummate the
transactions contemplated hereby.
(c) Capitalization. The authorized capital of DPI consists of
10,000,000 shares of common stock, par value $.001 per share; at the date
hereof, 10,000,000 shares of common stock of DPI were issued and
outstanding ("DPI Stock") and no shares were held in its treasury. UTEK
owns 7,000,000 shares of DPI Stock and Caltech owns 3,000,000 shares of DPI
Stock. All issued and outstanding shares of DPI Stock have been duly and
validly issued and are fully paid and non-assessable shares and have not
been issued in violation of any preemptive or other rights of any other
person or any applicable laws. DPI is not authorized to issue any preferred
stock. All dividends on DPI Stock which have been declared prior to the
date of this Agreement have been paid in full. There are no outstanding
options, warrants, commitments, calls or other rights or agreements
requiring it to issue any shares of DPI common stock or securities
convertible into shares of DPI's common stock to anyone for any reason
whatsoever. None of the DPI Stock is subject to any charge, claim,
condition, interest, lien, pledge, option, security interest or other
encumbrance or restriction, including any restriction on use, voting,
transfer, receipt of income or exercise of any other attribute of
ownership.
(d) Binding Effect. The execution, delivery, performance and
consummation of this Agreement, the Merger and the transactions
contemplated hereby and thereby will not violate any obligation to which
DPI or UTEK is a party and will not create a default hereunder; and this
Agreement constitutes a legal, valid and binding obligation of DPI and
UTEK, enforceable in accordance with its terms, except as the enforcement
may be limited by bankruptcy, insolvency, moratorium, or similar laws
affecting creditor's rights generally and by the availability of injunctive
relief, specific performance or other equitable remedies.
(e) Litigation Relating to this Agreement. There are no suits, actions
or proceedings pending or to the best knowledge of DPI or UTEK threatened
which seek to enjoin the Merger or the transactions contemplated by this
Agreement or which, if adversely decided, would have a materially adverse
effect on the business, results of operations, assets, prospects, the
Patent Application, the License Agreement (as defined below), or the
results of the operations of DPI.
4
<PAGE>
(f) No Conflicting Agreements. Neither the execution and delivery of
this Agreement nor the fulfillment of or compliance by DPI or UTEK with the
terms or provisions hereof nor all other documents or agreements
contemplated hereby and the consummation of the transaction contemplated by
this Agreement will result in a breach of the terms, conditions or
provisions of, or constitute a default under, or result in a violation of,
DPI's or UTEK's corporate charter or bylaws, the Patent Application, the
License Agreement (as defined below) or any agreement, contract,
instrument, order, judgment or decree to which DPI is a party or by which
DPI or any of its assets is bound, or violate any provision of any
applicable law, rule or regulation or any order, decree, writ or injunction
of any court or government entity which materially affects its assets or
business.
(g) Consents. No consent from or approval of any court, governmental
entity or any other person is necessary in connection with execution and
delivery of this Agreement by DPI and UTEK or performance of the
obligations of DPI and UTEK hereunder or under any other agreement to which
DPI or UTEK is a party; and the consummation of the transactions
contemplated by this Agreement will not require the approval of any entity
or person in order to prevent the termination of the Patent Application,
the License Agreement, or any other material right, privilege, license or
agreement relating to DPI or its assets or business.
(h) Title to Assets. Exhibit A set forth a true and complete list of
all assets whether real personal, tangible or intangible owned by DPI. DPI
has or will by Closing have good and marketable title to its assets, free
and clear of all liens, claims, charges, mortgages, options, security
agreements and other encumbrances of every kind or nature whatsoever. All
of the tangible assets of DPI have been operated in accordance with
customary operating practices generally acceptable in its industry and have
been maintained and are in good working order and repair in the ordinary
course of business, subject only to reasonable and ordinary wear and tear.
(i) Intellectual Property.
a) The Technology is owned by Caltech. Caltech has all right, power,
authority and ownership and entitlement to file, prosecute and maintain in
effect all patents and patent applications (including without limitation
the Patent Application) with respect to the Technology;
b) The Technology was invented by Mr. Scott et al. while they were
employed at the Jet Propulsion Laboratory, and they have assigned all of
their interests in the Technology (including without limitation their
interests in the Patent Application and any patent issued with respect to
such Technology) to Caltech;
5
<PAGE>
c) Exhibit B sets forth a brief description of all of DPI's right,
title and interest in and to all intellectual property rights, including
but not limited to, inventions (whether patentable or not), discoveries,
trade secrets, technology, technical information, proprietary information,
processes, know-how, designs, United States and foreign patents and patent
applications (and all reissues, divisions, renewals, extensions,
provisionals, continuations, and continuations-in-part thereof), trade
names, logos, trademarks, service marks, trademark and service marks
registrations, copyrights, copyright registrations, and all computer
software, data and databases owned by or licensed to DPI (collectively
"Intellectual Property"). DPI has good and exclusive licensee interests to
the Intellectual Property free and clear of all liens, claims, conditions,
charges, equitable interests, or other encumbrances or restrictions. To the
best of DPI's knowledge, DPI has not infringed nor is infringing, nor has
DPI contributed to or is contributing to the infringement of any
Intellectual Property owned or used by another person or entity. However,
DPI has not conducted an infringement investigation and provides no
warrantees or assurances that the Intellectual Property licensed pursuant
to the License Agreement does not or will not infringe any other parties'
Intellectual Property. There are no pending or threatened actions against
DPI for infringement of any such Intellectual Property. To the best of
DPI's knowledge, DPI does not require any rights under any Intellectual
Property which it does not either have or have the lawful right to use. The
only license which DPI has is that certain license pursuant to the License
Agreement dated December 15, 1999 from Caltech to DPI licensing certain
Intellectual Property which is more particularly described in Exhibit B
("License Agreement") for the use of certain Intellectual Property. The
License Agreement and any other Intellectual Property owned by or licensed
by third parties to DPI are (i) in full force and effect and following the
consummation of the transactions contemplated by this Agreement shall
remain in full force and effect and (ii) legal, valid, binding and
enforceable in accordance with their respective terms. Except as disclosed
in Exhibit B, DPI is not a party to any license (in or out) with respect to
the Intellectual Property. Except as set forth in Exhibit B, DPI is not a
party to any agreements which imparts or has imparted an obligation of
non-competition, secrecy, confidentiality or non-disclosure upon DPI. DPI
is or was not under any obligation of non-competition, secrecy,
confidentiality or non-disclosure to any third party.
(d) To the best knowledge of UTEK and DPI, Caltech is prosecuting the
Patent Application in good faith with diligence.
(e) Except as otherwise expressly set forth in this Agreement, DPI and
UTEK make no representations and extend no warranties of any kind, either
express or implied, including but not limited to warranties of
merchantability, fitness for a particular purpose, non-infringement and
validity of patent rights in the Patents.
6
<PAGE>
(j) Liabilities of DPI. DPI has no assets, no liabilities or
obligations of any kind, character or description except those created by
the License Agreement with Caltech and the Sponsored Research Agreement
(Technology Affiliates Program 80-5682), final copies of which have been
provided to GTC or Subsidiary and are attached as Exhibit B.
(k) Financial Statements. The unaudited financial statements of DPI,
including a Balance Sheet dated as of the Closing attached as Exhibit C and
in all respects is complete and correct and present fairly its financial
position and the results of its operations on the dates and for the periods
shown therein; provided, however, that interim financial statements are
subject to customary year-end adjustments and accruals that, in the
aggregate, will not have a material adverse effect on the overall financial
condition or results of its operations. DPI has not engaged in any business
not reflected in its financial statements. There have been no material
adverse changes in the nature of its business, prospects, the value of
assets or the financial condition since the date of its financial
statements. There are no outstanding obligations or liabilities of DPI
except as specifically set forth in the DPI financial statements and
Licensing and/or Sponsored Research Agreements with Caltech and NASA's Jet
Propulsion Laboratory that is operated by Caltech.
(l) Taxes. All returns, reports, statements and other similar filings
required to be filed by DPI with respect to any federal, state, local or
foreign taxes, assessments, interests, penalties, deficiencies, fees and
other governmental charges or impositions have been timely filed with the
appropriate governmental agencies in all jurisdictions in which such tax
returns and other related filings are required to be filed; all such tax
returns properly reflect all liabilities of DPI for taxes for the periods,
property or events covered thereby; and all taxes, whether or not reflected
on those tax returns, and all taxes claimed to be due from DPI by any
taxing authority, have been properly paid, except to the extent reflected
on Exhibit D where DPI has contested in good faith by appropriate
proceedings and reserves have been established on its financial statements
to the full extent if the contest is adversely decided against it. DPI has
not received any notice of assessment or proposed assessment in connection
with any tax returns, nor is DPI a party to or to the best of its
knowledge, expected to become a party to any pending or threatened action
or proceeding, assessment or collection of taxes. DPI has not extended or
waived the application of any statute of limitations of any jurisdiction
regarding the assessment or collection of any taxes. There are no tax liens
(other than any lien which arises by operation of law for current taxes not
yet due and payable) on any of its assets. There is no basis for any
additional assessment of taxes, interest or penalties. DPI has made all
deposits required by law to be made with respect to employees' withholding
and other employment taxes, including without limitation the portion of
such deposits relating to taxes imposed upon DPI. DPI is not and has never
been a party to any tax sharing agreements with any other person or entity.
7
<PAGE>
(m) Absence of Certain Changes or Events. From January 1, 1999 to the
Closing Date, DPI has not, and without the written consent of GTC or
Subsidiary, it will not have:
(i) Sold, encumbered, assigned, let lapse, or transferred any of
its material assets including without limitation its Intellectual Property
(including its interest in the Patent Application and the License Agreement)
or any other material asset; or
(ii) Amended or terminated the License Agreement or other material
contract or done any act or omitted to do any act which would cause the breach
of the License Agreement or any other material contract; or
(iii) Suffered any damage, destruction or loss whether or not in
control of DPI; or
(iv) Made any commitments or agreements for capital expenditures or
otherwise; or
(v) Entered into any transaction or made any commitment not
disclosed to GTC; or
(vi) Incurred any material obligation or liability for borrowed
money; or
(vii) Suffered any other event of any character, which is
reasonable to expect, would adversely affect the future condition (financial
or otherwise), assets or liabilities or business of DPI.
(n) Material Contracts. Exhibit E contains a true and complete list of
all contracts, material agreements, and commitments of the following types,
whether written or oral to which it is a party or is bound ("Contracts"),
has been provided to GTC or Subsidiary and such agreements are in full
force and effect without modification or amendment and constitute the
legally valid and binding obligations of DPI in accordance with their
respective terms and will continue to be valid and enforceable following
the Merger. DPI is not in default of any of the Contracts. Except as set
forth on Exhibit E, no consent or approval by or notification from or
filing with any party is required in connection with this Agreement or
transactions contemplated hereby in respect of such Contracts. In addition:
(i) There are no outstanding unpaid promissory notes, mortgages,
indentures, deed of trust, security agreements and other agreements and
instruments relating to the borrowing of money by or any extension of credit
to DPI; and
8
<PAGE>
(ii) There are no outstanding operating agreements, lease
agreements or similar agreements by which DPI is bound; and
(iii) The complete final drafts of the License Agreement, and the
Patent Applications with all schedules, exhibits and amendments relating
thereto have been provided to GTC; and
(iv) Except as set forth in Subsection n(iii), above, there are no
outstanding licenses to or from others of any Intellectual Property; and
(v) There are not outstanding contracts or commitments to sell,
lease or otherwise dispose of any of DPI's property; and
(vi) There are no breaches of any Contract.
(o) Compliance with Laws. DPI is in compliance with all applicable
laws, rules, regulations and orders promulgated by any federal, state or
local government body or agency relating to its business and operations.
DPI owns all franchises, licenses, permits, easements, rights,
applications, filings, registration and other authorizations which are
necessary for it to conduct business, all of which are valid and in full
force and effect and DPI is in full compliance therewith.
(p) Litigation. There is no suit, action or any arbitration,
administrative, legal or other proceeding of any kind or character, or any
governmental investigation pending or threatened against DPI or the
Patents, the Patent Applications, the License Agreement or the Sponsored
Research Agreement (Technology Affiliates Program) affecting its assets or
business (financial or otherwise), and there is no factual basis therefore
and DPI is not in violation of or in default with respect to any judgment,
order, decree or other finding of any court or government authority. There
are no pending or threatened actions or proceedings before any court,
arbitrator or administrative agency, which would, if adversely determined,
individually or in the aggregate, materially and adversely affect its
assets or business.
(q) Employees. DPI has no and never had any employees. DPI is not a
party to or bound by any employment agreement or any collective bargaining
agreement with respect to any employees. DPI is not in violation of any
law, regulation or requirement relating to employment of employees.
(r) Neither DPI or UTEK has any knowledge of any existing or threatened
occurrence, action or development which could cause a material adverse
effect on DPI or its business, assets or condition (financial or otherwise)
or prospects.
9
<PAGE>
(s) Employee Benefit Plans. There are no and have never been, and there
are no commitments to create any employee benefit plans, including without
limitation, as such term is defined in the Employee Retirement Income
Security Act of 1974, as amended, and there are no outstanding or unfunded
liabilities nor will the execution of this Agreement and the actions
contemplated herein result in any obligation or liability to any present or
former employee.
(t) Books and Records. The books and records of DPI are complete and
accurate in all material respects, fairly present its business and
operations, have been maintained in accordance with good business
practices, and applicable legal requirements, and accurately reflect in all
material respects its business, financial condition and liabilities.
(u) No Broker's Fees. Neither UTEK nor DPI has incurred any finder's,
broker's, investment banking, financial, advisory or other similar fees or
obligations in connection with this Agreement or the transactions
contemplated hereby.
(v) Full Disclosure. All representations or warranties of UTEK and DPI
are true, correct and complete in all material respects to the best of our
knowledge on the date hereof and shall be true, correct and complete in all
material respects as of the Closing as if they were made on such date.
2.02 General Representations and Warranties of GTC and Subsidiary. GTC
and Subsidiary represents and warrants to UTEK and DPI that the facts set
forth are true and correct.
(a) Organization. GTC and Subsidiary are corporations duly organized,
validly existing and in good standing under the laws of their respective
States, are qualified to do business as a foreign corporation in each other
jurisdiction in which the conduct of its business or the ownership of its
properties require such qualification, and have all requisite power and
authority to conduct their business and operate properties.
(b) Authorization. The execution of this Agreement and the consummation
of the Merger and the other transactions contemplated hereby have been duly
authorized by the Board of Directors of GTC and the Board of Directors and
Shareholders of Subsidiary; no other corporate action on their respective
parts is necessary in order to execute, deliver, consummate and perform
their obligations hereunder; and they have all requisite corporate and
other authority to execute and deliver this Agreement and consummate the
transactions contemplated hereby.
(c) Capitalization. The authorized capital stock of GTC being issued to
UTEK and Caltech pursuant to the terms of this Agreement consists of
10
<PAGE>
143,999 shares of common stock, par value _______ per share ("GTC Stock").
All GTC Stock have been duly and validly issued and are fully paid and
non-assessable and have not been issued in violation of any preemptive or
other rights of any other person or any applicable laws.
(d) Binding Effect. The execution, delivery, performance and
consummation of the Merger and the transactions contemplated hereby will
not violate any obligation to which GTC or Subsidiary is a party and will
not create a default hereunder, and this Agreement constitutes a legal,
valid and binding obligation of GTC and Subsidiary, enforceable in
accordance with its terms, except as the enforcement may be limited by
bankruptcy, insolvency, moratorium, or similar laws affecting creditor's
rights generally and by the availability of injunctive relief, specific
performance or other equitable remedies.
(e) Litigation Relating to this Agreement. There are no suits, actions
or proceedings pending or to its knowledge threatened which seek to enjoin
the Merger or the transactions contemplated by this Agreement or which, if
adversely decided, would have a materially adverse effect on its business,
results of operations, assets, prospects or the results of its operations
of GTC or Subsidiary.
(f) No Conflicting Agreements. Neither the execution and delivery of
this Agreement nor the fulfillment of or compliance by GTC and Subsidiary
with the terms or provisions thereof will result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in a
violation of, their respective corporate charters or bylaws, or any
agreement, contract, instrument, order, judgment or decree to which they
are a party or by which they or any of their assets are bound, or violate
any provision of any applicable law, rule or regulation or any order,
decree, writ or injunction of any court or governmental entity which
materially affects their assets or business.
(g) Consents. Assuming the correctness of UTEK's and DPI's
representations, no consent from or approval of any court, governmental
entity or any other person is necessary in connection with its execution
and delivery of this Agreement and performance of the obligations of GTC
and Subsidiary hereunder or under any other agreement to which GTC or
Subsidiary is a party; and the consummation of the transactions
contemplated by this Agreement will not require the approval of any entity
or person in order to prevent the termination of any material right,
privilege, license or agreement relating to GTC and Subsiaiary or their
assets or business.
(h) Financial Statements. The unaudited financial statements of
GTC attached as Exhibit F present fairly its financial position and the
results of its operations on the dates and for the periods shown therein;
11
<PAGE>
provided, however, that interim financial statements are subject to
customary year-end adjustments and accruals that, in the aggregate, will
not have a material adverse effect on the overall financial condition or
results of its operations. GTC has not engaged in any business not
reflected in its financial statements. There have been no material adverse
changes in the nature of its business, prospects, the value of assets or
the financial condition since the date of its financial statements. There
are no outstanding obligations or liabilities of GTC except as specifically
set forth in the GTC financial statements.
(i) Full Disclosure. All representations or warranties of GTC and
Subsidiary are true, correct and complete in all material respects on the
date hereof and shall be true, correct and complete in all material
respects as of the Closing as if they were made on such date. No statement
made by them herein or in the exhibits hereto or any document delivered by
them or on their behalf pursuant to this Agreement contains an untrue
statement of material fact or omits to state all material facts necessary
to make the statements therein not misleading in any material respect in
light of the circumstances in which they were made.
(j) No Broker's Fees. Except as set forth on Exhibit G, neither GTC nor
Subsidiary has incurred any finder's, broker's, investment banking,
financial advisory or other similar fees or obligations in connection with
this Agreement or the transactions contemplated hereby.
2.03 Investment Representations of UTEK. UTEK represents and warrant
to GTC that::
(a) General. It has such knowledge and experience in financial and
business matters as to be capable of evaluating the risks and merits of an
investment in the GTC Stock pursuant to the Merger. It is able to bear the
economic risk of the investment in the GTC Stock, including the risk of a
total loss of the investment in the GTC Stock. The acquisition of the GTC
Stock is for its own account and is for investment and not with a view to
the distribution thereof. Except a permitted by law, it has a no present
intention of selling, transferring or otherwise disposing in any way of all
or any portion of the shares. All information that it has supplied to GTC
is true and correct. It has conducted all investigations and due diligence
concerning GTC to evaluate the risks inherent in accepting and holding the
GTC Stock which it deems appropriate, and it has found all such information
obtained fully acceptable. It has had an opportunity to ask questions of
the officer and directors of GTC concerning the GTC Stock and the business
and financial condition of and prospects for GTC, and the officers and
directors of GTC have adequately answered all questions asked and made all
relevant information available to them. UTEK is an "accredited investor,"
as the term is defined in Regulation D, promulgated under the Securities
Act of 1933, as amended.
12
<PAGE>
(b) Stock Transfer Restrictions.
UTEK acknowledges that the GTC Stock will not be registered
and UTEK will not be permitted to sell or otherwise transfer the GTC Stock
in any transaction in contravention of the following legend, which will be
imprinted in substantially the follow form on the GTC Stock:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE SOLD, OFFERED FOR
SALE, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED
PURSUANT TO THE PROVISION OF THE ACT AND THE LAWS OF SUCH STATES UNDER
WHOSE LAWS A TRANSFER OF SECURITIES WOULD BE SUBJECT TO A REGISTRATION
REQUIREMENT OR AN OPINION OF COUNSEL TO GRAPHCO TECHNOLOGIES, INC. IS
OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE
EXEMPTION FROM SUCH REGISTRATION.
ARTICLE III
TRANSACTIONS PRIOR TO CLOSING
3.01.Corporate Approvals. Prior to Closing, each of the parties shall
submit this Agreement to its Board of Directors and shareholders and obtain
approval thereof. Copies of corporate actions taken shall be provided to
each party.
3.02 Access to Information. Each party agrees to permit upon reasonable
notice the attorneys, accountants, and other representatives of the other
parties reasonable access during normal business hours to its properties
and its books and records to make reasonable investigations with respect to
its affairs, and to make its officers and employees available to answer
questions and provide additional information as reasonably requested.
3.03 Expenses. Each party agrees to bear its own expenses in connection
with the negotiation and consummation of the Merger and the transactions
contemplated hereby.
3.04 Covenants. Except as permitted in writing, each party agrees that
it will:
13
<PAGE>
(i) Use its good faith efforts to obtain all requisite licenses,
permits, consents, approvals and authorizations necessary in order to
consummate the Merger; and
(ii) Notify the other parties upon the occurrence of any event which
would have a materially adverse effect upon the Merger or the
transactions contemplated hereby or upon the business, assets or
results of operations; and
(iii) Not modify its corporate structure, except as necessary or
advisable in order to consummate the Merger and the transactions
contemplated hereby.
ARTICLE IV
CONDITIONS PRECEDENT
The obligation of the parties to consummate the Merger and the transactions
contemplated hereby are subject to the following conditions that may be
waived to the extent permitted by law:
(a) Each party must obtain the approval of its Board of Directors and
DPI and Subsidiary must obtain approval of their respective shareholders in
accordance with applicable law, and such approval shall not have been
rescinded or restricted; and
(b) Each party shall obtain all requisite licenses, permits, consents,
authorizations and approvals required to complete the Merger and the
transactions contemplated hereby; and
(c) There shall be no claim or litigation instituted or threatened in
writing by any person or governmental authority seeking to restrain or
prohibit any of the transactions contemplated hereby or challenge the
right, title and interest of UTEK in the DPI Stock or the right of DPI or
UTEK to consummate the Merger contemplated hereunder; and
(d) The representations and warranties of the parties shall be true and
correct in all material respects at the Effective Time; and
(e) The Patent Application has been prosecuted in good faith with
reasonable diligence.
(f) The License Agreement is valid and in full force and effect without
any default therein and consent to the transfer of the License Agreement to
Subsidiary shall have been given in writing by Caltech.
14
<PAGE>
(g) Immediately prior to the execution of this Agreement, DPI will pay
$200,000 to Caltech to cover fifty percent (50%) of the required sponsored
research program for refinement of the technology pursuant to the terms of
the Sponsorship Agreement ("Research Payment"). GTC agrees to pay the
remaining portion of the Research Payment to Caltech on or before December
1st, 2000.
(h) GTC or Subsidiary shall have received at or prior to closing each
of the following:
i. the stock certificates representing the DPI Stock, duly endorsed
(or accompanied by duly executed stock powers) by UTEK and Caltech for
cancellation;
ii. all technical data, literature and other documentation relating to
the DPI's business, all in form and substance satisfactory to GTC
and/or the Subsidiary;
iii. such contracts, files and other data and documents pertaining to
DPI's business as GTC or the Subsidiary may reasonably request;
iv. copies of the general ledgers and books of account of DPI, and all
federal, state and local income, franchise, property and other tax
returns filed by DPI since inception of DPI;
v. certificates of (i) the Secretary of State of the State of Florida
as to the legal existence and good standing, as applicable, (including
tax) of DPI in Florida; and (ii) the Secretary of State of the State
of Delaware as to the legal existence and good standing, as
applicable, (including tax) of UTEK in Delaware;
vi. certificates of the Secretary of DPI and UTEK, respectively,
attesting to the incumbency of respectively, DPI's and UTEK's
officers, the authenticity of the resolutions authorizing the
transactions contemplated by the Agreement, and the authenticity and
continuing validity of their charter documents and accompanied by
certified copies of such charter documents;
vii. the original minute books of DPI, including the articles or
certificate of incorporation and bylaws of DPI, and all other
documents filed therein;
viii. a certificate executed by DPI and UTEK to the effect that all
representations and warranties made by DPI and UTEK under this
Agreement are true and correct as of the Closing, as though originally
given to GTC and Subsidiary on said date;
15
<PAGE>
ix. all consents, assignments or related documents of conveyance to
give Subsidiary the benefit of the transactions contemplated
hereunder;
x. an opinion of Linsky & Reiber, counsel to DPI and UTEK, dated as of
the Closing in form customary for a transaction of this nature and
reasonably satisfactory to GTC and Subsidiary and their counsel, as to
the consummation of the transactions contemplated by this Agreement;
xi. such documents as may be needed to accomplish the Closing under
the corporate laws of the states of incorporation of Subsidiary and
DPI, and
xii. such other documents, instruments or certificates as GTC,
Subsidiary or their counsel may reasonably request.
(i) GTC and Subsidiary shall have completed due diligence investigation to
GTC and Subsidiary satisfaction in their sole discretion.
(j) GTS or Subsidiary shall receive the resignation effective the date of
Closing of each Director and officer of DPI.
ARTICLE IV
LIMITATIONS
(A) Survival of Representations and Warranties.
(1) The representations and warranties made by UTEK and DPI
shall survive for a period of 3 years after Closing, and thereafter all
such representation and warranties shall be extinguished, except with
respect to claims then pending for which specific notice has been given
during such 3 year period. UTEK shall have liability and responsibility
for the surviving representations and warranties made by it herein,
notwithstanding any due diligence investigation or examination by GTC
or Subsidiary.
(2) The representations and warranties made by GTC and
Subsidiary shall survive for a period of 3 years after Closing, and
thereafter all such representations and warranties shall be
extinguished, except with respect to claims then pending for which
specific notice has been given during such 3 year period. GTC and
Subsidiary shall have liability and responsibility for the surviving
representations and warranties made to GTC or Subsidiary,
notwithstanding any due diligence investigation or examination by UTEK.
16
<PAGE>
(B) Limitations on Liability. Notwithstanding any other
provision hereto the contrary, neither party hereto shall be liable to
the other party for any cost, damage, expense, liability or loss under
this indemnification provision until after the sum of all amounts
individually when added to all other such amounts in the aggregate
exceeds $500, and then such liability shall apply only to matters in
excess of $500.
(C) Indemnification. Indemnification by UTEK. UTEK agrees to
defend, indemnify and hold GTC and the Subsidiary harmless from and
against any and all claims, actions, damages, obligations, losses,
liabilities, costs, and expenses (including attorneys' fees and
expenses) (collectively, "Losses") arising out of or resulting from a
misrepresentation, breach or warranty, or breach or non-fulfillment of
any covenant of DPI or UTEK contained herein or in the Schedules or
Exhibits annexed hereto or in any other documents or instruments
furnished or to be furnished by DPI or UTEK pursuant hereto or in
connection with the transaction contemplated hereby or thereby, whether
asserted by GTC or Subsidiary in its own right or asserted against by
any third-party, or any allegation which, if true, would constitute a
misrepresentation or breach or non-fulfillment of any such covenant of
DPI or UTEK.
Indemnification by GTC and Subsidiary. GTC and Subsidiary
shall indemnify, defend and hold harmless UTEK from and against any and all
Losses incurred by UTEK which arise out of or result from misrepresentation,
breach of warranty or breach or non-fulfillment of any covenant of GTC or
Subsidiary contained herein or in the Exhibits or Schedules annexed hereto
or in any other documents or instruments furnished by GTC or Subsidiary
pursuant hereto or in connection with the transactions contemplated hereby
or thereby.
ARTICLE V
REMEDIES
6.01 Specific Performance. Each party's obligations under this
agreement is unique. If any party should default in its obligations under
this agreement, the parties each acknowledge that it would be extremely
impracticable to measure the resulting damages; accordingly, the
non-defaulting party, in addition to any other available rights or
remedies, may sue in equity for specific performance, and the parties each
expressly waive the defense that a remedy in damages will be adequate.
6.02 Costs. If any legal action or any arbitration or other
proceeding is brought for the enforcement of this agreement or because of
an alleged dispute, breach, default, or misrepresentation in connection
with any of the provisions of this agreement, the successful or prevailing
party or parties shall be entitled to recover reasonable attorneys' fees
and other costs incurred in that action or proceeding, in addition to any
other relief to which it or they may be entitled.
17
<PAGE>
ARTICLE VI
ARBITRATION
In the event a dispute arises with respect to the interpretation or effect
of this Agreement or concerning the rights or obligations of the parties
hereto, the parties agree to negotiate in good faith with reasonable
diligence in an effort to resolve the dispute in a mutually acceptable
manner. Failing to reach a resolution thereof, either party shall have the
right to submit the dispute to be settled by arbitration under the
Commercial Rules of Arbitration of the American Arbitration Association.
The parties agree that all arbitration shall be conducted in Philadelphia,
Pennsylvania, unless the parties mutually agree to the contrary. The cost
of arbitration shall be borne by the party against whom the award is
rendered or, if in the interest of fairness, as allocated in accordance
with the judgment of the arbitrators. All awards in arbitration made in
good faith and not infected with fraud or other misconduct shall be final
and binding. The arbitrators shall be selected as follows: one by GTC , one
by UTEK and a third by the two selected arbitrators. The third arbitrator
shall be the chairman of the panel.
ARTICLE VII
MISCELLANEOUS
No party may assign this Agreement or any right or obligation of it
hereunder without the prior written consent of the other parties hereto. No
permitted assignment shall relieve a party of its obligations under this
Agreement without the separate written consent of the other parties. This
Agreement shall be binding upon and enure to the benefit of the parties and
their respective permitted successors and assigns. Each party agrees that
it will comply with all applicable laws, rules and regulations in the
execution and performance of its obligations under this Agreement. This
Agreement shall be governed by and construct in accordance with the laws of
the State of Delaware without regard to principles of conflicts of law.
This document constitutes a complete and entire agreement among the parties
with
[space intentionally left blank]
18
<PAGE>
reference to the subject matters set forth herein. No statement or
agreement, oral or written, made prior to or at the execution hereof and no
prior course of dealing or practice by either party shall vary or modify
the terms set forth herein without the prior consent of the other parties
hereto. This Agreement may be amended only by a written document signed by
the parties. Notices or other communications required to be made in
connection with this Agreement shall be delivered to the parties at the
address set forth below or at such other address as may be changed from
time to time by giving written notice to the other parties. The invalidity
or unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement. This
Agreement may be executed in multiple counterparts, each of which shall
constitute one and a single Agreement. Any facsimile signature of any part
hereto or to any other agreement or document executed in connection hereof
should constitute a legal, valid and binding execution by such parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by a duly authorized officer this ____day of March 2000.
DIGITAL PERSONNEL, INC.
By:___________________________
Clifford M. Gross, Ph.D. President
UTEK Corporation
By:________________________
Clifford M. Gross, Ph.D.
Chief Executive Officer
Graphco-DPI Holding Company, Inc.
By:___________________________
Name:
Title:
Graphco Technologies, Inc.
By:___________________________
Cristan Ivanescu
Chief Executive Officer
19
<PAGE>
EXHIBIT A
Assets
See attached.
20
<PAGE>
Exhibit B
Intellectual Property
(1) License Agreement Between DPI and Caltech - see attached.
(2) Outline of Sponsored Research Plan Between DPI and Caltech - see attached.
21
<PAGE>
EXHIBIT C
Financial Statements of UTEK
See attached.
22
<PAGE>
EXHIBIT D
Taxes
None.
23
<PAGE>
EXHIBIT E
Material Contracts
See Exhibit C.
24
<PAGE>
EXHIBIT F
Financial Statement of GTC
See attached.
25
<PAGE>
EXHIBIT G
Brokerage Fees
GTC has entered into an agreement with the investment banking firm of May Davis
in connection with this Agreement and the transactions contemplated hereby
("Investment Agreement"), a copy of which is attached hereto. Pursuant to the
Investment Agreement, GTC agreed to pay as consideration for the services
rendered by May Davis 16,001 shares of GTC Stock, which GTC will issue directly
to May Davis on or after the Effective Time of the Merger.
26
<PAGE>
Exhibit H
Consent from Caltech to the transfer of the License to
Graphco-DPI Holding Company, Inc.
See attached.
27
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 8, 2000, in the Registration Statement
(Form N-2) and related Prospectus of UTEK Corporation for the registration of
1,000,000 shares of its common stock.
/s/ Ernst & Young LLP
Tampa, Florida
April 20, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001098482
<NAME> UTEK CORPORATION
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<EXCHANGE-RATE> 1
<CASH> 1,007,229
<SECURITIES> 2,594,931
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,529,676
<PP&E> 98,964
<DEPRECIATION> 18,226
<TOTAL-ASSETS> 4,205,345
<CURRENT-LIABILITIES> 920,892
<BONDS> 0
0
0
<COMMON> 27,822
<OTHER-SE> 3,256,631
<TOTAL-LIABILITY-AND-EQUITY> 4,205,345
<SALES> 1,098,212
<TOTAL-REVENUES> 1,315,373
<CGS> 0
<TOTAL-COSTS> (728,322)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 587,051
<INCOME-TAX> 301,190
<INCOME-CONTINUING> 285,861
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 285,861
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
