<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 20, 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
[CHECK BOX] Pre-Effective Amendment No. 1
[ ] 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 $0.001....... 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) $ 7.20 $ 720,000 $ 190.08
- --------------------------------------------------------------------------------------------------------------
Total: .............................................................................. $ 2,011.68
==============================================================================================================
</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 MARCH 20, 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 should 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 underwriter. Our common stock will
be listed on the Nasdaq SmallCap Market under the symbol [UTEX].
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>
- ------------
(1) Does not include a three-year financial consulting agreement for a total
fee of $120,000 (all of which is payable to the underwriter upon the
closing of this offering). We have also agreed to indemnify the
underwriter against certain civil liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses of the offering, other than the underwriter's
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 underwriter a 45-day option to purchase an additional
150,000 shares of common stock to cover over-allotments. The underwriter is
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.
The date of this prospectus is , .
<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.
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 underwriter 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 plan on page 32.
<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 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, 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.
As of the date of this prospectus we have controlling interests in the
following portfolio companies:
o Digital Personnel, Inc., which has exercised an option agreement with
Caltech/JPL and acquired a license for a patent pending technology for
the creation of photo-realistic, synthetic individuals for e-commerce
applications;
o Zorax, Inc., which is seeking to acquire a license to a patent pending
technology for the separation of cystic parasite forms from drinking
water;
1
<PAGE>
o Technology Development, Inc., which is seeking to acquire new computer
hardware and software technologies;
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 following is a list of our portfolio companies sales to
date:
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 600,000 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 984,000 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.
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 sold Cancer Diagnostics, Inc., one of our portfolio
companies, to Lexon, Inc. for $50,000 cash and a six-month note for
$150,000.
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.
2
<PAGE>
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
reserved for issuance upon exercise of the
underwriter's 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.
Proposed Nasdaq SmallCap Market symbol ......... [UTEX]
</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 $ .056
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 they have no control.
Our portfolio companies depend upon the research activities of
universities and government research facilities. Neither our company, nor our
portfolio companies, has 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
Federal 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 Federal
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 they have funded regardless if 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 underwriter 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 seven
transactions, including six 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 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 seven 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.
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 seven 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 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
9
<PAGE>
independent valuation specialist. As a general matter, restricted securities
and securities without an active trading market are more difficult to
accurately value than unrestricted, public actively traded securities. 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.
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 SEC.
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
10
<PAGE>
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.
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 in 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
of directors 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.
11
<PAGE>
Investors in this offering will experience immediate and substantial dilution
in the book value of their investment.
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 and substantial dilution. (See
"Dilution").
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 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.
12
<PAGE>
DILUTION
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, 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 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>
<CAPTION>
<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 underwriter's over-allotment option or the
shares of common stock reserved for issuance upon exercise of warrants
issued to Gersten, Savage & Kaplowitz, LLP.
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 reserved for issuance upon exercise of
the underwriter's 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 underwriter
exercises in full its 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 underwriter does not exercise its 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 the earlier of two years from the closing of this offering or two and
one-half years from the effective date of this prospectus. 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 underwriter's over-allotment option is exercised,
the net proceeds therefrom 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 Balance Sheet Data at December 31, 1999 is also
presented as adjusted to reflect the sale of shares of common stock offered
hereby and the application of the net proceeds therefrom. 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
========== ========== ===========
December 31,
-------------------------------
1998 1999
-------------- --------------
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.
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<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 was due to 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. The Company took appropriate action to address the potential impact
of the Year 2000 problem. The Company has 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 did not have a material adverse impact
on the Company's business, its financial condition or the results of its
operations.
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BUSINESS
General Information and History
We are a non-diversified, closed-end management investment company that
intends to elect 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 vested
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 useable 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. 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.
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
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.
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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 underwriter that for the 12 month period following this offering, we will
not, without the prior written consent of the underwriter:
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
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. Using our 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:
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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 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.
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<PAGE>
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 MRI's 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 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
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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.
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
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Name Title Expertise
---- ----- ---------
<S> <C> <C>
Albert J. Anthony, D.M.D. Retired Dentistry and dental equipment.
Alain M. Boudet, Ph.D. Professor, University of Paul Cell and molecular plant
Sabatier biology.
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
</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 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
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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 $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.
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.
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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.
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. 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. Uwe Reischl is the sole director of Microsphere
Technologies.
Digital Personnel, Inc. is a development stage company that has acquired
the exclusive license to technology developed at the California Institute of
Technology for new software that is designed to produce human likenesses that
should be able to simulate conversation for e-commerce applications. These
"digital personnel" are realistic and, when and if refined, may be able to
speak text presented to them. NASA's Jet Propulsion Laboratory is the inventor
and proposed development partner for this technology. Significant additional
funding will be needed to bring this technology to market. The California
Institute of Technology will own 30% of Digital Personnel, Inc. common stock,
upon the completion of certain research milestones, and we will own 70%.
Clifford M. Gross is the sole director and president of Digital Personnel.
27
<PAGE>
Zorax, Inc. is a development stage company that is seeking to acquire the
license to a technology for the separation of cystic parasitic forms from
water. We own 100% of the common stock of Zorax, Inc. 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, and Clifford Gross is the sole
director and president.
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 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 own 100% of the common stock of Doppler Technology. Uwe Reischl is
the sole director and president.
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 are not currently a party to any 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.
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.
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<PAGE>
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.
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.
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
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<PAGE>
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.
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<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.
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<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.
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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 $126,400 -- -- --
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.
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<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 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.
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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
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.
36
<PAGE>
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 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.
37
<PAGE>
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 upon exercise of the underwriter's warrant.
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
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.
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. is acting as representative, the
following respective numbers of shares of common stock:
Underwriters Number of Number of
- ------------ ----------- ----------
Shares Warrants
----------- ----------
May Davis Group ......... 1,000,000 100,000
One World Trade Center
New York, NY 10038
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.
We have granted to the underwriter a 45-day option to purchase up to
150,000 additional shares at the initial public offering price less the
underwriting discounts and commissions. The underwriter may exercise the option
only to cover any over-allotments of common stock.
38
<PAGE>
The underwriter proposes 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 $ per share. The underwriter
and selling group members may allow a discount of $ 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
underwriter. Purchasers of our common stock pursuant to this offering must
provide payment for such securities by no later than .
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 ......... $ $ $ $
Expenses payable by us .......... $ $ $ $
</TABLE>
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 underwriter
$180,000 for its expenses (excluding the sale of any over-allotment shares),
which includes $50,000 we have already paid.
We have agreed to indemnify the underwriter 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 into
shares of common stock and securities that are exchangeable or exercisable for
shares of common stock.
We will grant to May Davis a three (3) year right of first refusal to have
May Davis sell securities under future public and private offerings of any
non-bank debt or equity securities of ours or our subsidiaries, by us and our
subsidiaries, except for issuances or sales to employees pursuant to our stock
option plan.
In addition, for a two year period we will not sell securities to raise
money below the then current market price without May Davis' consent.
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, 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 May Davis, for
nominal consideration, warrants to purchase up to 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 underwriter's 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.
39
<PAGE>
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>
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 Event (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, and also excludes 90,000 shares reserved for
issuance upon exercise of warrants issued to Gersten, Savage and Kaplowitz,
LLP.
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.
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
================================================================================
<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>
<CAPTION>
<S> <C>
1.1 Form of Underwriting Agreement*
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.**
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 .................................... $ 2,012
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* .......................................... 5,476
--------
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.
Digital Personnel, Inc., a Delaware corporation, is a 70%-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.
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, $.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 March 17, 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 March 17, 2000
- ------------------------------------------- of the Board of Directors
Clifford M. Gross
* President March __, 2000
- -------------------------------------------
Uwe Reischl
* Chief Financial Officer March __, 2000
- -------------------------------------------
Carole R. Mason
* General Counsel and Director March __, 2000
- -------------------------------------------
Sam Reiber
* Director of Scientific Advisory Board March __, 2000
- ------------------------------------------- and Director
Stuart M. Brooks
* Director March __, 2000
- -------------------------------------------
Kwabena Gyimah-Brempong
* Director March __, 2000
- -------------------------------------------
Arthur Chapnik
* Director March __, 2000
- -------------------------------------------
Carl Nisser
/s/ David Michael Director March 17, 2000
- -------------------------------------------
David Michael
*By: /s/ Clifford M. Gross
----------------------------------------
Clifford M. Gross
(attorney-in-fact)
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
1.1 Form of Underwriting Agreement*
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.**
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>
Exhibit 10.2
UTEK CORPORATION
INCENTIVE STOCK OPTION PLAN
July 12, 1999
<PAGE>
UTEK CORPORATION
EMPLOYEE STOCK OPTION PLAN
TABLE OF CONTENTS
PAGE
1. PURPOSE OF PLAN........................................ ............2
2. DEFINITIONS.........................................................2
3. LIMITS ON OPTIONS...................................................3
4. GRANTING OF OPTIONS.................................................4
5. TERMS OF STOCK OPTIONS..............................................4
6. EFFECT OF CHANGES IN CAPITALIZATION.................................6
7. DELIVERY AND PAYMENT FOR SHARES; REPLACEMENT OPTIONS................7
8. NO CONTINUATION OF EMPLOYMENT AND DISCLAIMER OF RIGHTS..............8
9. ADMINISTRATION......................................................9
10. NO OBLIGATION TO RESERVE OR RETAIN SHARES...........................9
11. AMENDMENT OF PLAN..................................................10
12. TERMINATION OF PLAN................................................10
13. EFFECTIVE DATE.....................................................10
<PAGE>
UTEK CORPORATION
EMPLOYEE STOCK OPTION PLAN
1. PURPOSE OF PLAN
The purpose of this Plan is to enable UTEK CORPORATION (the "Company")
and its Subsidiaries to compete successfully in attracting, motivating and
retaining Employees with outstanding abilities by making it possible for them to
purchase Shares on terms that will give them a direct and continuing interest in
the future success of the businesses of the Company and encourage them to remain
in the employ of the Company. Each Option is intended to be an Incentive Stock
Option, except to the extent that (a) any such Option would exceed the
limitations set forth in Section 3.(c) hereof and (b) for Options specifically
designated at the time of grant as not being Incentive Stock Options.
2. DEFINITIONS
For purposes of the Plan, except where the context clearly indicates
otherwise, the following terms shall have the meanings set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the United States Internal Revenue Code of
1986, as amended.
(c) "Committee" means the Committee described in Section 9
hereof.
(d) "Effective Date" means the later of (i) the effective date
of any registration statement with respect to the Shares under the Securities
Exchange Act of 1934, as amended, and (ii) the time the underwriting agreement
has been executed and delivered by all parties thereto, where the "underwriting
agreement" is that underwriting agreement referred to in the prospectus included
in such registration statement when it first became effective. Such execution
and delivery shall be definitively evidenced by any certificate to such effect
by any officer of the Company.
(e) "Employee" means a person who is regularly employed on a
salaried basis by the Company, including an officer or director of the Company
who is also an employee of the Company.
(f) "Fair Market Value" means, with respect to a Share, if the
Shares are then listed and traded on a registered national or regional
securities exchange, or quoted on The National Association of Securities
Dealers' Automated Quotation System (including The Nasdaq Small cap Market), the
closing price of a Share on such exchange or quotation system on the trading day
immediately preceding the date of grant of an Option, or, if Fair Market Value
is used herein in connection with any event other than the grant of an Option,
then such closing price for the trading day immediately preceding the date of
such event. If the Shares are not traded on a registered securities exchange or
quoted in such a quotation system, the Committee shall determine the Fair Market
Value of a Share which shall not be less than the current net asset value of a
share or such lesser amount as may then be permitted pursuant to Section 6.1 of
the Investment Company Act of 1940 or any successor thereto ("40 Act") if the
Company is then subject to said act.
<PAGE>
(g) "Incentive Stock Option" means an option granted under
this Plan and which is an incentive stock option within the meaning of section
422 of the Code, or the corresponding provision of any subsequently enacted tax
statute.
(h) "Option" means an option granted under this Plan, whether
or not such option is an Incentive Stock Option.
(i) "Optionee" means any person who has been granted an Option
which Option has not expired or been fully exercised or surrendered.
(j) "Plan" means the Company's Employee Stock Option Plan.
(k) "Rule 16b-3" means Rule 16b-3 promulgated pursuant to
Section 16(b) of the Securities Exchange Act of 1934, as amended, or any
successor rule.
(l) "Share" means one share of voting common stock, par value
$.01 per share, of the Company, and such other stock or securities that may be
substituted therefore pursuant to Section 6 hereof.
(m) "Subsidiary" means any corporation, limited liability
company, partnership or other entity of which a majority of the outstanding
voting stock or voting power is beneficially owned directly or indirectly by the
Corporation. For Incentive Stock Options, the term shall have the meaning set
forth in Section 424(f) of the Code.
3. LIMITS ON OPTIONS
(a) The total number of Shares with respect to which Options
may be granted under the Plan shall not exceed in the aggregate 500,000 Shares,
subject to adjustment as provided in Section 6 hereof. If any Option expires,
terminates or is terminated for any reason prior to its exercise in full, the
Shares that were subject to the unexercised portion of such Option shall be
available for future grants under the Plan.
(b) No Incentive Stock Option shall be granted to any Employee
who at the time such option is granted, owns capital stock of the Company
possessing more than 10% of the total combined voting power or value of all
classes of capital stock of the Company or any Subsidiary, determined in
accordance with the provisions of Section 422(b)(6) and 424(d) of the Code,
unless the option price at the time such Incentive Stock Option is granted is at
least 110 percent (110%) of the Fair Market Value of the Shares subject to the
Incentive Stock Option and such Incentive Stock Option is not exercisable by its
terms after the expiration of five (5) years from the date of grant.
(c) An Incentive Stock Option shall be granted hereunder only
to the extent that the aggregate Fair Market Value (determined at the time the
Incentive Stock Option is granted) of the Shares with respect to which such
Incentive Stock Option and any other "incentive stock option" (within the
meaning of Section 422 of the Code) are exercisable for the first time by any
Optionee during any calendar year (under the Plan and all other plans of the
Optionee's employer corporation and its parent and subsidiary corporations
within the meaning of Section 422(d) of the Code) does not exceed $100,000. This
limitation shall be applied by taking Incentive Stock Options and any such other
"incentive stock options" into account in the order in which such Incentive
Stock Options and any such other "incentive stock options" were granted.
<PAGE>
(d) No Optionee shall, in any calendar year, be granted
Options to purchase more than 100,000 Shares. Options granted to the Optionee
and cancelled during the same calendar year shall be counted against such
maximum number of Shares. In the event that the number of Options which may be
granted is adjusted as provided in the Plan, the above limit shall automatically
be adjusted in the same ratio.
4. GRANTING OF OPTIONS
The Committee is authorized to grant Options to selected Employees pursuant to
the Plan beginning on the Effective Date. Subject to the provisions of the
Plan and the 40 Act, for so long as the Company shall be subject thereto, the
Committee shall have exclusive authority to select the Employees to whom
Options will be awarded under the Plan, to determine the number of Shares to
be included in such Options, and to determine such other terms and conditions
of Options, including terms and conditions which may be necessary to qualify
Incentive Stock Options as "incentive stock options" under Section 422 of the
Code. The date on which the Committee approves the grant of an Option shall be
considered the date on which such Option is granted, unless the Committee
provides for a specific date of grant which is subsequent to the date of such
approval.
5. TERMS OF STOCK OPTIONS
Subject to Section 3 hereof, the terms of Options granted under this Plan shall
be as follows:
(a) The exercise price of each Share subject to an Option
shall be fixed by the Committee. Notwithstanding the prior sentence, the option
exercise price of an Incentive Stock Option shall be fixed by the Committee but
shall in no event be less than 100% of the Fair Market Value of the Shares
subject to such Option.
(b) Options shall not be assignable or transferable by the
Optionee other than by will or by the laws of descent and distribution except
that the Optionee may, with the consent of the Committee, transfer without
consideration Options that do not constitute Incentive Stock Options to the
Optionee's spouse, children or grandchildren (or to one or more trusts for the
benefit of any such family members or to one or more partnerships in which any
such family members are the only partners).
(c) Each Option shall expire and all rights thereunder shall
end at the expiration of such period (which shall not be more than ten (10)
years) after the date on which it was granted as shall be fixed by the
Committee, subject in all cases to earlier expiration as provided in subsections
(d) and (e) of this Section 5.
(d) During the life of an Optionee, an Option shall be
exercisable only by such Optionee (or Optionee's permitted assignee in the case
of Options that do not constitute Incentive Stock Options) and only prior to the
end of one (1) month after the termination of the Optionee's employment with the
Company, other than by reason of the Optionee's death, permanent disability or
retirement with the consent of the Company as provided in subsection (e) of this
Section 5, but only if and to the extent the Option was exercisable immediately
prior to such termination, and subject to the provisions of subsection (c) of
this Section 5. If the Optionee's employment is terminated for cause, or the
Optionee terminates his employment with the Company, all Options granted to date
by the Company to the Optionee (including any Options that have become
exercisable)
<PAGE>
shall terminate immediately on the date of termination of employment. Cause
shall have the meaning set forth in any employment agreement then in effect
between the Optionee and the Company or any of its Subsidiaries, or if the
Optionee does not have any employment agreement, cause shall mean (i) if the
Optionee engages in conduct which has caused, or is reasonably likely to cause,
demonstrable and serious injury to the Company, or (ii) if the Optionee is
convicted of a felony, as evidenced by a binding and final judgment, order or
decree of a court of competent jurisdiction, which, in the opinion of the Board,
substantially impairs the Optionee's ability to perform his or her duties to the
Company.
(e) If an Optionee: (i) dies while employed by the Company or
within the period when an Option could have otherwise been exercised by the
Optionee; (ii) terminates employment with, or has his employment terminated by,
the Company by reason of the "permanent and total disability" (within the
meaning of Section 22(e)(3) of the Code) of such Optionee; or (iii) terminates
employment with the Company as a result of such Optionee's retirement, provided
that the Company or such Subsidiary has consented in writing to such Optionee's
retirement, then, in each such case, such Optionee, or the duly authorized
representatives of such Optionee (or Optionee's permitted assignee in the case
of Options that do not constitute Incentive Stock Options), shall have the
right, at any time within three (3) months after the death, disability or
retirement of the Optionee, as the case may be, and prior to the termination of
the Option pursuant to subsection (c) of this Section 5, to exercise any Option
to the extent such Option was exercisable by the Optionee immediately prior to
such Optionee's death, disability or retirement. In the discretion of the
Committee, the three-month period referenced in the immediately preceding
sentence may be extended for a period of up to one year.
(f) Subject to the foregoing terms and to such additional
terms regarding the exercise of an Option as the Committee may fix at the time
of grant, an Option may be exercised in whole at one time or in part from time
to time.
(g) Options granted pursuant to the Plan shall be evidenced by
an agreement in writing setting forth the material terms and conditions of the
grant, including, but not limited to, the number of Shares subject to options.
Option agreements covering Options need not contain similar provisions;
provided, however, that all such option agreements shall comply with the terms
of the Plan.
(h) The Committee is authorized to modify, amend or waive any
conditions or other restrictions with respect to Options, including conditions
regarding the exercise of Options.
6. EFFECT OF CHANGES IN CAPITALIZATION
(a) If the number of outstanding Shares is increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of any recapitalization,
reclassification, stock split, combination of shares, exchange of shares, stock
dividend or other distribution payable in capital stock, or other increase or
decrease in such shares effected, in each case without receipt of consideration
by the Company, a proportionate and appropriate adjustment shall be made by the
Committee
<PAGE>
in (i) the aggregate number of Shares subject to the Plan, (ii) the maximum
number of Shares for which Options may be granted to any Employee during any
calendar year, and (iii) the number and kind of shares for which Options are
outstanding, so that the proportionate interest of the Optionee immediately
following such event shall, to the extent practicable, be the same as
immediately prior to such event. Any such adjustment in outstanding Options
shall not change the aggregate option price payable with respect to Shares
subject to the unexercised portion of the Options outstanding but shall include
a corresponding proportionate adjustment in the option price per Share.
(b) Subject to Section 6(c) hereof, if the Company shall be
the surviving corporation in any reorganization, merger, share exchange or
consolidation of the Company with one or more other corporations or other
entities, any Option theretofore granted shall pertain to and apply to the
securities to which a holder of the number of Shares subject to such Option
would have been entitled immediately following such reorganization, merger,
share exchange or consolidation, with a corresponding proportionate adjustment
of the option price per Share so that the aggregate option price thereafter
shall be the same as the aggregate option price of the Shares remaining subject
to the Option immediately prior to such reorganization, merger, share exchange
or consolidation.
(c) In the event of: (i) the adoption of a plan of
reorganization, merger, share exchange or consolidation of the Company with one
or more other corporations or other entities as a result of which the holders of
the Shares as a group would receive less than fifty percent (50%) of the voting
power of the capital stock or other interests of the surviving or resulting
corporation or entity; (ii) the adoption of a plan of liquidation or the
approval of the dissolution of the Company; (iii) the approval by the Board of
an agreement providing for the sale or transfer (other than as a security for
obligations of the Company or any Subsidiary) of substantially all of the assets
of the Company; or (iv) the acquisition of more than twenty percent (20%) of the
outstanding Shares by any person within the meaning of Rule 13(d)(3) under the
Securities Exchange Act of 1934, as amended, if such acquisition is not preceded
by a prior expression of approval by the Board, then, in each such case any
Option granted hereunder shall become immediately exercisable in full, subject
to any appropriate adjustments in the number of Shares subject to such Option
and the option price, regardless of any provision contained in the Plan or any
stock option agreement with respect thereto limiting the exercisability of the
Option for any length of time. Notwithstanding the foregoing, if a successor
corporation or other entity as contemplated in clause (i) or (iii) of the
preceding sentence agrees to assume the outstanding Options or to substitute
substantially equivalent options, then the outstanding Options issued hereunder
shall not be immediately exercisable, but shall remain exercisable in accordance
with the terms of the Plan and the applicable stock option agreements.
(d) Adjustments under this Section 6 relating to Shares or
securities of the Company shall be made by the Committee, whose determination in
that respect shall be final and conclusive. Options subject to grant or
previously granted under the Plan at the time of any event described in this
Section 6 shall be subject to only such
<PAGE>
adjustments as shall be necessary to maintain the proportionate interest of the
options and preserve, without exceeding, the value of such options. No
fractional Shares or units of other securities shall be issued pursuant to any
such adjustment, and any fractions resulting from any such adjustment shall be
eliminated in each case by rounding upward to the nearest whole Share or unit.
(e) The grant of an Option pursuant to the Plan shall not
affect or limit in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge, consolidate, dissolve or liquidate, or to sell
or transfer all or any part of its business or assets.
7. DELIVERY AND PAYMENT FOR SHARES; REPLACEMENT OPTIONS
(a) No Shares shall be delivered upon the exercise of an
Option until the option price for the Shares acquired has been paid in full. No
Shares shall be issued or transferred under the Plan unless and until all legal
requirements applicable to the issuance or transfer of such Shares have been
complied with to the satisfaction of the Committee and adequate provision has
been made by the Optionee for satisfying any applicable federal, state or local
income or other taxes incurred by reason of the exercise of the Option. Any
Shares issued by the Company to an Optionee upon exercise of an Option may be
made only in strict compliance with and in accordance with applicable state and
federal securities laws.
(b) Payment of the option price for the Shares purchased
pursuant to the exercise of an Option and of any applicable withholding taxes
shall be made, as determined by the Committee and set forth in the option
agreement pertaining to such Option: (i) in cash or by check payable to the
order of the Company; (ii) through the tender to the Company of Shares, which
Shares shall be valued, for purposes of determining the extent to which the
option price has been paid thereby, at their Fair Market Value on the date of
exercise; or (iii) by a combination of the methods described in (a) and (b)
hereof; provided, however, that the Committee may in its discretion impose and
set forth in the option agreement pertaining to an Option such limitations or
prohibitions on the use of Shares to exercise Options as it deems appropriate.
The Committee also may authorize payment in accordance with a cashless exercise
program under which, if so instructed by the Optionee, Shares may be issued
directly to the Optionee's broker upon receipt of the option price in cash from
the broker.
(c) To the extent that the payment of the exercise price for
the Shares purchased pursuant to the exercise of an Option is made with Shares
as provided in Section 7.(b) hereof, then, at the discretion of the Committee,
the Optionee may be granted a replacement Option under the Plan to purchase a
number of Shares equal to the number of Shares tendered as permitted in Section
7.(b) hereof, with an exercise price per Share equal to the Fair Market Value on
the date of grant of such replacement Option and with a term extending to the
expiration date of the original Option.
8. NO CONTINUATION OF EMPLOYMENT AND DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or option agreement entered
into pursuant to the Plan shall be construed to
<PAGE>
confer upon any individual the right to remain a director or in the employ of
either the Company or any Subsidiary, or to interfere in any way with the right
and authority of the Company or any Subsidiary either to increase or decrease
the compensation of any individual at any time, or to terminate any employment
or other relationship between any individual and the Company or any Subsidiary.
The Plan shall in no way be interpreted to require the Company to transfer any
amounts to a third party trustee or otherwise hold any amounts in trust or
escrow for payment to any Optionee or beneficiary under the terms of the Plan.
An Optionee shall have none of the rights of a shareholder of the Company until
and to the extent all or some of the Shares covered by an Option are fully paid
and issued to such Optionee.
9. ADMINISTRATION
(a) Subject to the provisions of subsection (b) of this
Section 9, the Plan shall be administered by the Committee which shall interpret
the Plan and make all other determinations necessary or advisable for its
administration, including such rules and regulations and procedures as it deems
appropriate. The Committee shall consist of not fewer than two members of the
Board each of whom shall qualify (at the time of appointment to the Committee
and during all periods of service on the Committee) in all respects as a
"non-employee director" as defined in Rule 16b-3 and as an "outside director" as
defined in Section 162(m) of the Code and regulations thereunder. The deduction
limits of Section 162(m) of the Code and the regulations thereunder do not apply
to the Company until such time, if any, as any class of the Company's common
equity securities is registered under Section 12 of the Securities and Exchange
Act of 1934, as amended, or the Company otherwise meets the definition of a
"publicly held corporation" under Treasury Regulation 1.162-27(c) or any
successor provision. Upon becoming a publicly held corporation, the deduction
limits of Section 162(m) of the Code and the regulations thereunder shall not
apply to compensation payable under this Plan until the expiration of the
reliance period described in Treasury Regulation 1.162-27(f) or any successor
regulation. Subject to the provisions of subsection (b) of this Section 9, in
the event of a disagreement as to the interpretation of the Plan or any
amendment hereto or any rule, regulation or procedure hereunder or as to any
right or obligation arising from or related to the Plan, the decision of the
Committee shall be final and binding upon all persons in interest, including the
Company, the Optionee and the Company's shareholders.
(b) Notwithstanding any provision of the Plan to the contrary,
any determination or interpretation to be made by the Committee with regard to
any question arising under the Plan or any option agreement entered into
hereunder may be made by the Board (excluding any Optionee whose Options or the
grant to whom is at issue) and shall be final and binding upon all persons in
interest, including the Company, the Optionee and the Company's shareholders.
(c) No member of the Committee or the Board shall be liable
for any action taken or decision made, or any failure to take any action, in
good faith with respect to the Plan or any Option granted or option agreement
entered into hereunder.
10. NO OBLIGATION TO RESERVE OR RETAIN SHARES
Subject to the provision of the 40 Act, if said act shall than be applicable to
the Company, the Board adopted, as of the Effective Date, a resolution initially
reserving authorized but unissued Shares for the Plan. The Company will be under
no further obligation to reserve, or to retain in its treasury, any particular
number of Shares in connection with its obligations hereunder.
<PAGE>
11. AMENDMENT OF PLAN
Subject to the provisions of the 40 Act, if said Act shall then be applicable to
the Company the Board may, without further action by the shareholders, amend
this Plan from time to time as it deems desirable and shall make any amendments
which may be required so that Options intended to be Incentive Stock Options
shall at all times continue to be Incentive Stock Options for purposes of the
Code; provided, however, that the Board or Committee may condition any amendment
or modification on the approval of stockholders of the Company if such approval
is necessary or deemed advisable with respect to tax, securities or other
applicable laws, policies or regulations.
12. TERMINATION OF PLAN
This Plan shall terminate ten (10) years from the Effective Date. The Board may,
in its discretion, suspend or terminate the Plan at any time prior to such date,
but such termination or suspension shall not adversely affect any right or
obligation with respect to any outstanding Option.
13. EFFECTIVE DATE
The Plan shall become effective on the Effective Date and Options hereunder may
be granted at any time on or after that date. If the shareholders of the Company
fail to approve the Plan prior to, or within one year after, the Effective Date,
any Incentive Stock Option granted hereunder shall be automatically converted to
non-qualified stock options without any further act.
<PAGE>
2000 NON-QUALIFIED STOCK OPTION PLAN
OF
UTEK CORPORATION
- --------------------------------------------------------------------------------
1. PURPOSES OF THE PLAN
The purposes of the 2000 Non-Qualified Stock Option Plan (the "Plan") of
UTEK Corporation, a Delaware corporation (the "Company"), are to:
(a) Encourage selected employees and directors to improve operations and
increase profits of the Company;
(b) Encourage selected employees and directors to accept or continue
employment or association with the Company or its Affiliates; and
(c) Increase the interest of selected employees and directors in the
Company's welfare through participation in the growth in value of the common
stock of the Company (the "Common Stock").
Options granted under this Plan ("Options") are "nonqualified options"
("NQOs").
2. ELIGIBLE PERSONS
Every person who at the date of grant of an Option is an employee of the
Company is eligible to receive NQOs under this Plan. The term "employee"
includes an officer or director who is an employee of the Company. The foregoing
notwithstanding, no Options shall be issued hereunder to any member of the Board
of Directors who is not an officer or director of the Company except pursuant to
the provisions of Section 61(a)(3)(B)(i)(II) of the Investment Company Act of
1940, as from time to time amended ("40 Act").
3. STOCK SUBJECT TO THIS PLAN; MAXIMUM NUMBER OF GRANTS
Subject to the provisions of Section 6.1.1 of the Plan, the total number of
shares of stock which may be issued under Options granted pursuant to this Plan
shall not exceed 250,000 shares of Common Stock. The shares covered by the
portion of any grant under the Plan which expires unexercised shall become
available again for grants under the Plan.
Page 1 of 7
<PAGE>
4. ADMINISTRATION
(a) The Plan shall be administered by the Board of Directors of the Company
(the "Board") or by a committee (the "Committee") to which administration of the
Plan, or of part of the Plan, is delegated by the Board (in either case, the
"Administrator"). The Board shall appoint and remove members of the Committee in
its discretion in accordance with applicable laws. If necessary in order to
comply with Rule 16b-3 under the Exchange Act and Section 162(m) of the Code,
the Committee shall, in the Board's discretion, be comprised solely of
"non-employee directors" within the meaning of said Rule 16b-3 and "outside
directors" within the meaning of Section 162(m) of the Code. The foregoing
notwithstanding, the Administrator may delegate nondiscretionary administrative
duties to such employees of the Company as it deems proper and the Board, in its
absolute discretion, may at any time and from time to time exercise any and all
rights and duties of the Administrator under the Plan. The foregoing
notwithstanding, each issuance of Options hereunder shall be approved by a
majority of the members of the Board of Directors who have no financial interest
in the proposed issuance and by a majority of the Board of Directors as a whole.
(b) Subject to the other provisions of this Plan, the Administrator shall
have the authority, in its discretion and subject to the provisions of Section
3(a) of this Plan: (i) to grant Options; (ii) to determine the fair market value
of the Common Stock subject to Options; (iii) to calculate the fair market value
of Common Stock subject to Options solely in accordance with the provisions of
Section 6.1.10 of this Plan; (iv) to determine the exercise prices of Options
granted, which exercise prices shall in no event be less than the fair market
value of the Common Stock as determined in accordance with the provisions of
this Plan; (v) to determine the persons to whom, and the time or times at which,
Options shall be granted, and the number of shares subject to each Option; (vi)
to interpret this Plan; (vii) to determine the terms and provisions of each
Option granted (which need not be identical), including but not limited to, the
time or times at which Options shall be exercisable which term shall not, in the
aggregate, exceed ten (10) years; (viii) with the consent of the optionee, to
modify or amend any Option; (ix) to defer (with the consent of the optionee) the
exercise date of any Option within the term of the Option; (x) to authorize any
person to execute on behalf of the Company any instrument evidencing the grant
of an Option; and (xi) to make all other determinations deemed necessary or
advisable for the administration of this Plan not specifically reserved to the
Board of Directors or shareholders of the Company pursuant to Section
61(a)(3)(B) of the 40 Act. The Administrator may delegate nondiscretionary
administrative duties to such employees of the Company as it deems proper.
(c) All questions of interpretation, implementation, and application of this
Plan shall be determined by the Administrator. Such determinations shall be
final and binding on all persons.
5. GRANTING OF OPTIONS; OPTION AGREEMENT
(a) No Options shall be granted under this Plan after 10 years from the date
of adoption of this Plan by the Board.
(b) Each Option shall be evidenced by a written stock option agreement, in
form satisfactory to the Administrator, executed by the Company and the person
to whom such Option is granted.
(c) The stock option agreement shall specify that each Option it evidences
is an NQO.
Page 2 of 7
<PAGE>
6. TERMS AND CONDITIONS OF OPTIONS
Each Option granted under this Plan shall be subject to the terms and
conditions set forth in Section 6.1 and Section 6.2.
6.1 Terms and Conditions to Which All Options Are Subject. All Options
granted under this Plan shall be subject to the following terms and conditions:
6.1.1 Changes in Capital Structure. Subject to Section 6.1.2, if the
stock of the Company is changed by reason of a stock split, reverse stock split,
stock dividend, or recapitalization, combination or reclassification,
appropriate adjustments shall be made by the Board in (a) the number and class
of shares of stock subject to this Plan and each Option outstanding under this
Plan, and (b) the exercise price of each outstanding Option; provided, however,
that the Company shall not be required to issue fractional shares as a result of
any such adjustments. Each such adjustment shall be subject to approval by the
Board in its sole discretion.
6.1.2 Corporate Transactions. In the event of the proposed dissolution
or liquidation of the Company, the Administrator shall notify each optionee at
least 30 days prior to such proposed action. To the extent not previously
exercised, all Options will terminate immediately prior to the consummation of
such proposed action; provided, however, that the Board of Directors in its sole
discretion may permit, subject to the applicable provisions of the 40 Act, the
exercise of any Options prior to their termination, even if such Options were
not otherwise exercisable. In the event of a merger or consolidation of the
Company with or into another corporation or entity in which the Company does not
survive, or in the event of a sale of all or substantially all of the assets of
the Company in which the shareholders of the Company receive securities of the
acquiring entity or an affiliate thereof, all Options shall be assumed or
equivalent options shall be substituted by the successor corporation (or other
entity) or a parent or subsidiary of such successor corporation (or other
entity); provided, however, that if such successor does not agree to assume the
Options or to substitute equivalent options therefor, the Administrator, in the
exercise of its sole discretion, may permit the exercise of any of the Options
prior to consummation of such event, even if such Options were not otherwise
exercisable.
6.1.3 Time of Option Exercise. Subject to Section 5, Options granted
under this Plan shall be exercisable (a) immediately as of the effective date of
the stock option agreement granting the Option, or (b) in accordance with a
schedule as may be set by the Administrator (each such date on such schedule,
the "Vesting Base Date") and specified in the written stock option agreement
relating to such Option. In any case, no Option shall be exercisable until a
written stock option agreement in form satisfactory to the Company is executed
by the Company and the optionee.
6.1.4 Option Grant Date. The date of grant of an Option under this Plan
shall be the date as of which the Administrator approves the grant.
Page 3 of 7
<PAGE>
6.1.5 Nontransferability of Option Rights. No Option granted under this
Plan shall be assignable or otherwise transferable by the optionee except by
will, by the laws of descent and distribution or pursuant to a qualified
domestic relations order. During the life of the optionee, an Option shall be
exercisable only by the optionee.
6.1.6 Payment. Except as provided below, payment in full, in cash,
shall be made for all stock purchased at the time written notice of exercise of
an Option is given to the Company, and proceeds of any payment shall constitute
general funds of the Company. The Administrator, in the exercise of its absolute
discretion, may authorize any one or more of the following additional methods of
payment:
(a) Subject to the discretion of the Administrator and solely to
the extent permitted pursuant to the 40 Act and those rules and regulations
promulgated thereunder which are applicable to the Company or the Plan and the
terms of the stock option agreement granting the Option, delivery by the
optionee of shares of Common Stock already owned by the optionee for all or part
of the Option price, provided the fair market value (determined as set forth in
Section 6.1.10) of such shares of Common Stock is equal on the date of exercise
to the Option price, or such portion thereof as the optionee is authorized to
pay by delivery of such stock; and
(b) Subject to the discretion of the Administrator and solely to
the extent permitted pursuant to the 40 Act and those rules and regulations
promulgated thereunder which are applicable to the Company or the Plan, through
the surrender of shares of Common Stock then issuable upon exercise of the
Option, provided the fair market value (determined as set forth in Section
6.1.10) of such shares of Common Stock is equal on the date of exercise to the
Option price, or such portion thereof as the optionee is authorized to pay by
surrender of such stock.
6.1.7 Termination of Employment. If for any reason other than death or
permanent and total disability, an optionee ceases to be employed by the Company
or any of its Affiliates (such event being called a "Termination"), Options held
at the date of Termination (to the extent then exercisable) may be exercised in
whole or in part at any time within three months of the date of such
Termination, or such other period of not less than 30 days after the date of
such Termination as is specified in the Option Agreement or by amendment thereof
(but in no event after the Expiration Date); provided, however, that if such
exercise of the Option would result in liability for the optionee under Section
16(b) of the Exchange Act, then such three-month period automatically shall be
extended until the tenth day following the last date upon which optionee has any
liability under Section 16(b) (but in no event after the Expiration Date). If an
optionee dies or becomes permanently and totally disabled (within the meaning of
Section 22(e)(3) of the Code) while employed by the Company or an Affiliate or
within the period that the Option remains exercisable after Termination, Options
then held (to the extent then exercisable) may be exercised, in whole or in
part, by the optionee, by the optionee's personal representative or by the
person to whom the Option is transferred by devise or the laws of descent and
distribution, at any time within twelve months after the death or twelve months
after the permanent and total disability of the optionee or any longer period
specified in the Option Agreement or by amendment thereof (but in no event after
the Expiration Date). For purposes of this Section 6.1.7, "employment" includes
service as a director. For purposes of this Section 6.1.7, an optionee's
employment shall not be deemed to terminate by reason of sick leave, military
leave or other leave of absence approved by the Administrator, if the period of
any such leave does not exceed 90 days or, if longer, if the optionee's right to
reemployment by the Company is guaranteed either contractually or by statute.
Page 4 of 7
<PAGE>
6.1.8 Withholding and Employment Taxes. At the time of exercise of an
Option and as a condition thereto, or at such other time as the amount of such
obligations becomes determinable (the "Tax Date"), the optionee shall remit to
the Company in cash all applicable federal and state withholding and employment
taxes. Such obligation to remit may be satisfied, if authorized by the
Administrator in its sole discretion, after considering any tax, accounting and
financial consequences, by the optionee's (i) delivery of a promissory note in
the required amount on such terms as the Administrator deems appropriate, (ii)
tendering to the Company previously owned shares of Stock or other securities of
the Company with a fair market value equal to the required amount, or (iii)
agreeing to have shares of Common Stock (with a fair market value equal to the
required amount) which are acquired upon exercise of the Option withheld by the
Company.
6.1.9 Other Provisions. Each Option granted under this Plan may contain
such other terms, provisions, and conditions not inconsistent with this Plan and
the 40 Act as may be determined by the Administrator.
6.1.10 Determination of Value. For purposes of the Plan, the fair market
value of Common Stock or other securities of the Company shall be determined as
follows:
(a) Fair market value shall be the closing price of such stock on
the date before the date the value is to be determined on the principal
recognized securities exchange or recognized securities market on which such
stock is reported, but if selling prices are not reported, its fair market value
shall be the mean between the high bid and low asked prices for such stock on
the date before the date the value is to be determined (or if there are no
quoted prices for such date, then for the last preceding business day on which
there were quoted prices).
(b) In the absence of an established market for the stock, the
fair market value thereof shall be the current net asset value of the common
stock underlying the Option or such other valuation as may hereafter be
permitted pursuant to the 40 Act.
6.1.11 Option Term. Subject to Section 6.3.4, no Option shall be
exercisable more than 10 years after the date of grant, or such lesser period of
time as is set forth in the stock option agreement (the end of the maximum
exercise period stated in the stock option agreement is referred to in this Plan
as the "Expiration Date").
Page 5 of 7
<PAGE>
6.2 Terms and Conditions to Which NQOs Are Subject. Options granted under
this Plan are designated as NQOs and shall be subject to the following terms and
conditions:
6.2.1 Exercise Price.
(a) Except as set forth in Section 6.2.1(b), the exercise price
of a NQO shall be not less than 100 % of the fair market value (determined in
accordance with Section 6.1.10) of the stock subject to the Option on the date
of grant.
(b) To the extent required by applicable laws, rules and
regulations, the exercise price of a NQO granted to any person who owns,
directly or by attribution under the Code (currently Section 424(d)), stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company or of any Affiliate (a "Ten Percent
Shareholder") shall in no event be less than 110% of the fair market value
(determined in accordance with Section 6.1.10) of the stock covered by the
Option at the time the Option is granted.
7. MANNER OF EXERCISE
(a) An optionee wishing to exercise an Option shall give written notice to
the Company at its principal executive office, to the attention of the officer
of the Company designated by the Administrator, accompanied by payment of the
exercise price and withholding taxes as provided in Sections 6.1.6 and 6.1.8.
The date the Company receives written notice of an exercise hereunder
accompanied by payment of the exercise price will be considered as the date such
Option was exercised.
(b) Promptly after receipt of written notice of exercise of an Option and
the payments called for by Section 7(a), the Company shall, without stock issue
or transfer taxes to the optionee or other person entitled to exercise the
Option, deliver to the optionee or such other person a certificate or
certificates for the requisite number of shares of stock. An optionee or
permitted transferee of the Option shall not have any privileges as a
shareholder with respect to any shares of stock covered by the Option until the
date of issuance (as evidenced by the appropriate entry on the books of the
Company or a duly authorized transfer agent) of such shares.
8. EMPLOYMENT OR CONSULTING RELATIONSHIP
Nothing in this Plan or any Option granted hereunder shall interfere with or
limit in any way the right of the Company or of any of its Affiliates to
terminate any optionee's employment or consulting at any time, nor confer upon
any optionee any right to continue in the employ of, or consult with, the
Company or any of its Affiliates.
Page 6 of 7
<PAGE>
9. CONDITIONS UPON ISSUANCE OF SHARES
Shares of Common Stock shall not be issued pursuant to the exercise of an
Option unless the exercise of such Option and the issuance and delivery of such
shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended (the
"Securities Act") and the 40 Act.
10. NONEXCLUSIVITY OF THE PLAN
The adoption of the Plan shall not be construed as creating any limitations
on the power of the Company to adopt such other incentive arrangements as it may
deem desirable, including, without limitation, the granting of stock options
other than under the Plan.
11. AMENDMENTS TO PLAN
The Board may at any time amend, alter, suspend or discontinue this Plan.
Without the consent of an optionee, no amendment, alteration, suspension or
discontinuance may adversely affect outstanding Options except to conform this
Plan and options granted under this Plan to the requirements of federal or other
tax laws relating to incentive stock options. No amendment, alteration,
suspension or discontinuance shall require shareholder approval unless the Board
concludes that shareholder approval is advisable or required, whether pursuant
to the terms of the 40 Act or otherwise.
12. EFFECTIVE DATE OF PLAN; TERMINATION
This Plan shall become effective upon adoption by the Board; provided,
however, that no Option shall be exercisable unless and until written consent of
the shareholders of the Company, or approval of shareholders of the Company
voting at a validly called shareholders' meeting, is obtained within twelve
months after adoption by the Board. Options may be granted and exercised under
this Plan only in compliance with all applicable federal and state securities
laws. This Plan shall terminate within ten years from the date of its adoption
by the Board.
Adopted by the Board of Directors: February 2, 2000
Page 7 of 7
<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
March 9, 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>
