<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-21130
ENERGY BIOSYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-3078857
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4200 Research Forest Drive
The Woodlands, Texas 77381
(address of principal executive offices) (zip code)
281-419-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of August 11, 1999, there were outstanding 6,569,557 shares of
Common Stock, par value $.01 per share, of the registrant.
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Factors Affecting Forward-Looking Statements 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 4
Balance Sheets as of June 30, 1999 (Unaudited)
and December 31, 1998 5
Statements of Operations for the Three and Six Months
Ended June 30, 1999 and 1998 (Unaudited) 6
Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998 (Unaudited) 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
2
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FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. The words "anticipate", "believe", "expect", "estimate", "project"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks, uncertainties and assumptions.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially
from those anticipated, believed, expected, estimated or projected. These
risks and uncertainties include technological uncertainty and risks
associated with the commercialization of the Company's technology, the
Company's history of operating losses and uncertainty of future
profitability, manufacturing risks and uncertainties, uncertainty of market
acceptance of the Company's technology, the Company's reliance on
environmental regulations, uncertainties as to the protection offered by the
Company's patents and proprietary technology, the Company's dependence on
collaborations, the Company's need for additional funds, limited marketing
experience and dependence on key personnel, government regulation,
competition and other risks and uncertainties described in the Company's
filings with the Securities and Exchange Commission. For additional
discussion of such risks, uncertainties and assumptions ("Cautionary
Statements"), see "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources"
included elsewhere in this report and "Item 1. Business - Risk Factors" in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998
(the "1998 Form 10-K"). All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made herein are adequate to make the
information presented not misleading. These financial statements should be read
in conjunction with the 1998 Form 10-K.
The information presented in the accompanying financial statements is
unaudited, but in the opinion of management, reflects all adjustments (which
include only normal recurring adjustments) necessary to present fairly such
information.
4
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ENERGY BIOSYSTEMS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 7,441,888 $ 2,795,429
Prepaid expenses and other current assets 616,118 512,487
------------- -------------
Total current assets 8,058,006 3,307,916
Furniture, equipment and leasehold improvements, net 1,315,660 1,675,992
Intangible and other assets, net 1,237,218 1,142,837
------------- -------------
Total assets $ 10,610,884 $ 6,126,745
============= =============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 153,322 $ 513,673
Deferred revenue 180,000 180,000
Note payable 42,204 126,613
------------- -------------
Total current liabilities 375,526 820,286
Stockholders' equity:
Series B Convertible Preferred Stock, $0.01 par value
(liquidation value $35,105,000; 760,000 shares
authorized, 519,400 and 696,400 shares,
respectively, issued and outstanding) 26,762,065 33,955,166
Common Stock, $0.01 par value (30,000,000 shares
authorized, 6,569,557 and 2,179,142 shares,
respectively, issued and outstanding) 65,696 21,791
Additional paid-in capital 54,669,182 38,529,097
Accumulated deficit (71,261,585) (67,199,595)
------------- -------------
Total stockholders' equity 10,235,358 5,306,459
------------- -------------
Total liabilities and stockholders' equity $ 10,610,884 $ 6,126,745
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Sponsored research revenues $ 514,063 $ 88,474 $ 1,024,936 $ 257,067
Interest and investment income 20,197 64,795 41,343 158,508
--------------- --------------- --------------- ---------------
Total revenues 534,260 153,269 1,066,279 415,575
COSTS AND EXPENSES:
Research and development 1,067,728 1,888,038 2,669,104 4,412,232
General and administrative 465,549 505,954 1,012,597 1,052,698
--------------- --------------- --------------- ---------------
Total costs and expenses 1,533,277 2,393,992 3,681,701 5,464,930
--------------- --------------- --------------- ---------------
NET LOSS $ (999,017) $ (2,240,723) $ (2,615,422) $ (5,049,355)
=============== =============== =============== ===============
NET LOSS PER COMMON SHARE -
BASIC AND DILUTED $ (0.56) $ (1.67) $ (1.60) $ (3.71)
=============== =============== =============== ===============
SHARES USED IN COMPUTING
NET LOSS PER COMMON SHARE
3,153,783 1,819,898 2,669,523 1,785,244
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,615,422) $ (5,049,355)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 405,623 704,111
Issuance of warrants -- 404,500
Changes in assets and liabilities:
Decrease (increase) in prepaid expenses and other
current assets (103,631) 601,706
Increase in intangible and other assets and notes
receivable (112,380) (144,179)
Decrease in accounts payable and accrued
liabilities (360,351) (562,872)
Increase in deferred revenues -- 200,000
--------------- ---------------
Net cash used in operating activities (2,786,161) (3,846,089)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (27,292) (160,542)
Net sale of investments -- 693,279
--------------- ---------------
Net cash provided by (used in) investing activities (27,292) 532,737
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on capital lease obligations -- (3,556)
Payments on notes payable, net (84,409) (156,995)
Issuance of stock, net 7,544,321 35,463
--------------- ---------------
Net cash provided by (used in) financing activities 7,459,912 (125,088)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 4,646,459 (3,438,440)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 2,795,429 9,661,310
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,441,888 $ 6,222,870
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
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ENERGY BIOSYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Energy BioSystems Corporation (the "Company") was incorporated in the
State of Delaware on December 20, 1989. Since inception, the Company has devoted
substantially all of its resources to research and development. To date, all of
the Company's revenues resulted from sponsored research payments from
collaborative agreements and interest and investment income. The Company has
incurred cumulative losses since inception and expects to incur substantial
losses for at least the next several years, due primarily to its research and
development activities and the development of its biocatalyst, fermentation and
bioreactor programs. The Company expects that losses will fluctuate from quarter
to quarter and that such fluctuations may be substantial.
Effective March 30, 1999, EBC implemented a restructuring, including a
substantial employee reduction, in order to reduce expenses and focus its
limited resources on the critical elements leading to commercialization of its
patented BDS process. EBC retained certain key technical and administrative
personnel.
EBC's BDS process will require substantial research, development and
testing in order to determine its commercial viability. EBC has proven its BDS
technology only to a limited extent in laboratory, bench-scale and pilot plant
trials, which is not yet sufficient for full commercialization. If EBC
successfully field tests its BDS technology, the commercialization of the BDS
technology will depend on, among other things, EBC's success in achieving
improvement of its biocataylst and success in developing fermentation processes,
as well as EBC's ability to manufacture or contract for the manufacture of
sufficient biocatalyst for use in commercial BDS units; to apply process
engineering to design bioreactor systems capable of accomplishing the BDS
process on a commercial scale; and to market its BDS systems effectively. The
accomplishment of some or all of these objectives may be delayed or may never
occur. EBC will require additional capital to continue the development and
commercialization of its BDS technology, and there can be no assurance that such
capital will be available or that EBC will be able to successfully commercialize
its BDS technology.
The accompanying unaudited interim financial statements reflect all
adjustments which, in the opinion of management, are necessary for a fair
presentation of the results for the interim periods presented. These financial
statements should be read in conjunction with the Company's 1998 Form 10-K.
Net Loss Per Common Share
Net loss per share has been computed by dividing the net loss, which
has been increased for periodic accretion and accrued dividends on the Series B
Convertible Preferred Stock issued in February and March 1997, by the weighted
average number of shares of common stock outstanding during the period.
8
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
In December 1998, the Company declared a one-for-seven reverse stock
split which was effective December 18, 1998. All references to earnings per
share, number of shares and share amounts prior to December 18, 1998 have
been retroactively restated to reflect the reverse stock split.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2. COMMON STOCK OFFERING
The Company completed a private placement of its common stock during
June 1999. The Company offered and sold 2,600,223 and 1,614,597 shares at
$1.80 and $2.00 per share, respectively. Those shares sold at $2.00 per share
included one warrant to purchase one share of the Company's common stock for
five shares purchased in the private placement. Those shares sold at $1.80
per share included no such warrants. Net proceeds from the offering were
approximately $7.5 million. In connection with the closing, warrants to
purchase 646,623 shares of the Company's common stock were issued at an
exercise price of $2.40. Such number of warrants includes both those warrants
issued to investors, as described above, and warrants issued to the placement
agent, SAMCO Capital Markets, Inc., in partial payment of its fee. The
warrants have been recorded at an estimated fair value of $1,201,389, which
was computed using the Black-Scholes option pricing model and the following
assumptions: risk free interest rate of 6.01 percent; expected dividend yield
of zero; expected life of three years and with respect to the warrants issued
to the placement agent five years; and an expected volatility at an average
weight of 118 percent.
NOTE 3. SERIES B CONVERTIBLE PREFERRED STOCK
In February and March 1997, the Company sold an aggregate of 224,100
shares of Series B Convertible Preferred Stock ("Series B Preferred Stock")
at $50.00 per share in a private placement. The net proceeds from the
offering were approximately $10.2 million. Concurrently with the private
placement, the Company conducted an exchange offering and consent
solicitation pursuant to which 478,000 shares of its Series A Convertible
Preferred Stock were exchanged for the same number of shares of Series B
Preferred Stock. The placement agent for the Series B Preferred Stock
received warrants to purchase an aggregate of 20,319 shares of Series B
Preferred Stock at an exercise price of $50.00 per share of Series B
Preferred Stock, in addition to customary commissions. The warrants have been
recorded at an estimated fair value of $466,000, which was computed using the
Black-Scholes option pricing model and the following assumptions: risk free
interest rate of 6.51 percent; expected dividend yield of zero; expected life
of three years, and an expected volatility of 68 percent.
Dividends on the Series B Preferred Stock are cumulative from
February 27, 1997 and payable semi-annually commencing May 1, 1997, at an
annual rate equal to (i) $4.00 per share of
9
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Series B Preferred Stock to the extent the dividend is paid in cash and (ii)
$4.50 per share of Series B Preferred Stock to the extent the dividend is
paid in common stock. Dividends on shares of Series B Preferred Stock are
payable in cash or common stock of the Company, or a combination thereof, at
the Company's option. The Company elected to defer payment of the May 1, 1999
dividend in accordance with the Series B Preferred Stock Agreement.
Shares of Series B Preferred Stock are convertible into shares of
common stock at a conversion price equal to $20.06 per share, subject to
certain adjustments. The Series B Preferred Stock may be redeemed by the
Company under certain circumstances after February 26, 1999 and is required
to be redeemed, subject to certain limitations, on February 26, 2002 at a
redemption price of $50.00 per share, plus accrued and unpaid dividends. It
is the Company's intent, however, to redeem the Series B Preferred Stock for
common stock. Accordingly, the Series B Preferred Stock is included in
stockholders' equity. In April and July 1998, 4,000 and 1,700 shares of the
Series B Preferred Stock were converted to 3,940 and 1,674 shares of common
stock, respectively. In May 1999, 177,000 shares of the Series B Preferred
Stock were converted to 174,379 shares of common stock.
The carrying amount of the Series B Preferred Stock is increased for
accrued and unpaid dividends plus periodic accretion, using the effective
interest method, such that the carrying amount will equal the redemption
amount on the Series B Preferred Stock on February 26, 2002.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Since its inception in December 1989, the Company has devoted
substantially all resources to its research and development. To date, all of
the Company's revenues have resulted from interest and investment income and
sponsored research payments from collaborative agreements. The Company has
incurred cumulative net losses since inception and expects to incur
substantial losses for at least the next several years, due primarily to its
research and development activities and the development of its biocatalyst,
fermentation and bioreactor programs. The Company expects that losses will
fluctuate from quarter to quarter and that such fluctuations may be
substantial. As of June 30, 1999, the Company's accumulated deficit was
$71,261,585.
RESULTS OF OPERATIONS
The Company had total revenues for the three months ended June 30,
1999 and 1998 of $534,260 and $153,269, respectively. The increase in total
revenues was attributable to increases in sponsored research revenues offset
in part by decreases in interest and investment income. The Company had
sponsored research revenues of $514,063 during the second quarter of 1999 as
compared to $88,474 during the second quarter of 1998. The increase of
$425,589 in sponsored research revenues resulted from increased sponsored
research revenue received under a DOE grant.
The Company had total revenues for the six months ended June 30,
1999 and 1998 of $1,066,279 and $415,575, respectively. The increase in total
revenues was attributable to increases in sponsored research revenues offset
in part by decreases in interest and investment income. The Company had
sponsored research revenues of $1,024,936 during the first six months of 1999
as compared to $257,067 during the first six months of 1998. The increase of
$767,869 in sponsored research revenues resulted primarily from the increase
in sponsored research revenues from a Department of Energy ("DOE") grant of
$1,024,936 in the first six months of 1999 compared to $225,331 in the first
six months of 1998.
The Company had interest and investment income of $20,197 in the
second quarter of 1999 as compared to 64,795 in the second quarter of 1998.
The decrease of $44,598 in interest and investment income resulted primarily
because the Company's average balances of cash, cash equivalents and
short-term investments during the second quarter of 1999 were less than those
during the corresponding period of 1998.
The Company had interest and investment income of $41,343 for the
first six months of 1999 compared to $158,508 for the first six months of
1998. The decrease of $117,165 in interest and investment income resulted
primarily from a decrease in the available cash from which interest and other
investment income are generated.
The Company had research and development expenses for the three
months ended June 30, 1999 and 1998 of $1,067,728 and $1,888,038,
respectively, and for the six months ended June 30, 1999 and 1998 of
$2,669,104 and $4,412,232, respectively. The decrease in research and
development expenses of $820,310 and $1,743,128, respectively, for the three
and six
11
<PAGE>
months ended June 30, 1999 as compared to the corresponding prior year
periods resulted primarily from a reduction in research and development
personnel, offset in part by a charge to research and development expense in
the first quarter of 1998 for warrants issued to Petro Star in the amount of
$404,500. See "-Liquidity and Capital Resources" below. The Company expects
its research and development expenses to remain below 1998 levels for the
remainder of 1999, reflecting a reduction in the workforce at the end of the
first quarter of 1999.
The Company had general and administrative expenses for the three
months ended June 30, 1999 and 1998 of $465,549 and $505,954, respectively,
and for the six months ended June 30, 1999 and 1998 of $1,012,597 and
$1,052,698, respectively. The decrease of $40,405 and $40,101 for the three
and six months ended June 30, 1999, respectively, as compared to the
corresponding periods of 1998 resulted from the reduction of the general and
administrative personnel at the end of the first quarter of 1999. The Company
expects a slight decrease from 1998 levels in its general and administrative
expenses during the remainder of 1999, reflecting a reduction in
administrative personnel at the end of the first quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company completed a private placement of its common stock during
June 1999. The Company offered and sold 2,600,223 and 1,614,597 shares at
$1.80 and $2.00 per share, respectively. Those shares sold at $2.00 per share
included one warrant to purchase one share of the Company's common stock for
five shares purchased in the private placement. Those shares sold at $1.80
per share included no such warrants. Net proceeds from the offering were
approximately $7.5 million. In connection with the closing, warrants to
purchase 646,623 shares of the Company's common stock were issued at an
exercise price of $2.40. Such number of warrants includes both those warrants
issued to investors, as described above, and warrants issued to the placement
agent, SAMCO Capital Markets, Inc., in partial payment of its fee. The
warrants have been recorded at an estimated fair value of $1,201,389, which
was computed using the Black-Scholes option pricing model and the following
assumptions: risk free interest rate of 6.01 percent; expected dividend yield
of zero; expected life of three years and with respect to the warrants issued
to the placement agent five years; and an expected volatility at an average
weight of 118 percent.
In February and March 1997, the Company sold an aggregate of 224,100
shares of Series B Preferred Stock in a private placement, resulting in net
cash proceeds of approximately $10.2 million. Concurrently with the private
placement, the Company conducted an exchange offering and consent
solicitation pursuant to which 478,000 shares of its Series A Convertible
Preferred Stock were exchanged for the same number of shares of Series B
Preferred Stock. In April and July 1998, 4,000 and 1,700 shares of the Series
B Preferred Stock were converted to 3,940 and 1,674 shares of common stock,
respectively. In May 1999, 177,000 shares of the Series B Preferred Stock
were converted to 174,379 shares of common stock. Dividends on the Series B
Preferred Stock are cumulative from the date of the initial closing, February
27, 1997, and are payable in cash or common stock of the Company, or a
combination thereof, at an annual rate equal to (i) $4.00 per share to the
extent the dividend is paid in cash and (ii) $4.50 per share to the extent
the dividend is paid in common stock. The Company elected to defer payment of
the May 1, 1999 dividend in accordance with the Series B Preferred Stock
Agreement.
For the six months ended June 30, 1999, the Company used $2,786,161
of net cash in operating activities, incurred $27,292 in capital expenditures
and provided $7,459,912 in
12
<PAGE>
financing activities. At June 30, 1999, the Company had cash and cash
equivalents totaling $7,441,888 and working capital of $7,682,480.
The Company intends to spend approximately $400,000 during the
remainder of 1999 for the purchase of laboratory and analytical
instrumentation. The Company also expects to incur substantial additional
research and development expenses, including expenses associated with
biocatalyst, fermentation and bioreactor development. In addition, the
Company is subject to cost sharing arrangements under various collaboration
agreements.
To supplement its research and development budgets, the Company
intends to seek additional collaborative research and development agreements
with corporate partners. In this regard, the Company has entered into
collaborative agreements with, the Exploration and Production Technology
Division of Texaco, Inc., Total Raffinage Distribution S.A. ("Total"), The M.
W. Kellogg Company and Koch Refining Company, among others, as more fully
described in the 1998 Form 10-K.
In March 1998, the Company entered into a site license agreement
with Petro Star regarding the design and installation of a biocatalytic
desulfurization ("BDS") unit at Petro Star's refinery in Valdez, Alaska. The
agreement involves several stages of work, the first of which, involving the
completion of scoping economics, is currently underway. In addition, the
agreement provides the Company with certain rights to conduct development
work and demonstrations of its BDS technology at Petro Star's refinery. The
agreement calls for the payment of staged site license fees and royalties to
the Company, including a $200,000 initial site license fee which was paid
upon execution of the agreement and has been recorded as deferred revenue.
The revenue will be recognized ratably over the completion of the initial
phase of the agreement. As is customary in such agreements in the petroleum
refining industry, the agreement provides certain approval and termination
rights to Petro Star at the completion of each stage prior to
commercialization. In connection with the execution of the agreement, the
Company issued a four-year warrant entitling Petro Star to purchase 28,571
shares of its common stock at an exercise price of $21.77 per share. The
warrants have been recorded at an estimated fair value of $404,500, which was
computed using the Black-Scholes option pricing model and the following
assumptions: risk free interest rate of 5.37 percent; expected dividend yield
of zero; expected life of four years, and expected volatility of 75.43
percent.
In addition, the Company is continuing to develop its BDS technology
in collaboration with Total, and is continuing to conduct process simulations
at the Company's pilot plant using deeply desulfurized diesel fuel provided
by Total. Accordingly, the Company and Total have extended the term of their
collaboration agreement and are evaluating the conditions under which the
technology can be implemented.
The Company's ability to reach agreements with Petro Star, Total or
other parties with respect to commercial applications of its BDS technology,
and its ability to commercialize such technology generally, will depend upon
its ability to achieve additional improvements in the productivity of the
biocatalyst (e.g., specific activity, production and longevity) and process
engineering (e.g., bioreactor design, separations technology and byproduct
disposition), and is subject to numerous risks and uncertainties. Although
the Company has made substantial progress to date in improving the
productivity of the biocatalyst and the process engineering used in its pilot
BDS unit, no assurance can be made that the Company will be able to achieve
the improvements necessary for its BDS technology to become commercially
viable or to reach
13
<PAGE>
agreements with respect to the commercial application of its technology
within the time anticipated or at all. See "Factors Affecting Forward-Looking
Statements".
In August 1997, the Company was awarded funding by the DOE for a
$2.4 million, three year program dedicated to the development of a BDS
application for gasoline. Through June 30, 1999 the Company had recognized
approximately $1.6 million in sponsored research revenue from the grant, of
which $514,063 was receivable at June 30, 1999.
The Company has experienced negative cash flow from operations since
its inception and has funded its activities to date primarily from equity
financings and sponsored research revenues. The Company will continue to
require substantial funds to continue its research and development activities
and to market, sell and commercialize its technology. The Company believes
that its available cash, investments and interest income will be adequate to
fund its operations through early 2001. The Company will need to raise
substantial additional capital to fund its operations thereafter. The
Company's capital requirements will depend on many factors, including the
problems, delays, expenses and complications frequently encountered by
companies developing and commercializing new technologies; the progress of
the Company's research and development activities; timing of environmental
regulations; the rate of technological advances; determinations as to the
commercial potential of the Company's technology under development; the
status of competitive technology; the establishment of biocatalyst
manufacturing capacity or third-party manufacturing arrangements; the
establishment of collaborative relationships; the success of the Company's
sales and marketing programs; the cost of filing, prosecuting and defending
and enforcing patents and intellectual property rights; and other changes in
economic, regulatory or competitive conditions in the Company's planned
business. Estimates about the adequacy of funding for the Company's
activities are based upon certain assumptions, including assumptions that the
research and development programs relating to the Company's technology can be
conducted at projected costs and that progress towards the commercialization
of its technology will be timely and successful. There can be no assurance
that changes in the Company's research and development plans, acquisitions or
other events will not result in accelerated or unexpected expenditures. To
satisfy its capital requirements, the Company may seek additional funding
through public or private financings, including equity financings, and
through collaborative arrangements. There can be no assurance that any such
funding will be available to the Company on favorable terms or at all. If
adequate funds are not available when needed, the Company may be required to
delay, scale back or eliminate some or all of its research and product
development programs. If the Company is successful in obtaining additional
financing, the terms of such financing may have the effect of diluting or
adversely affecting the holdings or the rights of the holders of the
Company's Common Stock.
YEAR 2000 ISSUES
Certain computer programs or computerized equipment are unable to
accurately calculate, store or use dates subsequent to December 31, 1999. The
erroneous date can be interpreted in a number of different ways; typically
the year 2000 is represented as the year 1900. Year 2000 problems may result
in system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business transactions.
The Company is in the process of assessing all financial and
operational systems and equipment to ensure year 2000 compliance, and plans
to complete the assessment by December
14
<PAGE>
1999. Based on reviews to date and preliminary information, the Company does
not anticipate that it will incur any significant costs relating to the
assessment and remediation of year 2000 issues. The Company believes that the
potential impact, if any, of its systems not being year 2000 compliant should
not impact the Company's ability to continue its research and development
activities. However, there can be no assurance that the Company, its business
partners, vendors or customers will successfully be able to identify and
remedy all potential year 2000 problems or that a system failure resulting
from a failure to identify any such problems would not have a material
adverse effect on the Company.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Proposal 1: The Election of Directors
At the Company's 1999 Annual Meeting of Stockholders held on May 26, 1999,
the following individuals were elected as directors to hold office until the
next annual meeting of the stockholders of the Company or until their successors
have been duly elected and qualified.
<TABLE>
<CAPTION>
FOR WITHHELD
<S> <C> <C>
Ramon Lopez 1,676,634 22,873
R. James Comeaux 1,676,634 22,873
Edward B. Lurier 1,676,648 22,859
Thomas E. Messmore 1,675,364 24,143
Daniel J. Monticello, Ph.D. 1,676,648 22,859
William E. Nasser 1,676,648 22,859
John S. Patton 1,676,648 22,859
William D. Young 1,676,648 22,859
</TABLE>
Proposal 2: The approval of an amendment to the Company's
1997 Stock Option Plan to increase the number of shares available for grant
to 1,200,000 shares, and to eliminate the maximum number of shares that may
be issued to any one individual thereunder.
For 658,793 Against 316,816 Abstain 29,084 Non-Vote 694,814
Proposal 3: The approval of an amendment to the Company's
Non-Employee Director Option Plan to (i) increase the number of shares
available for grant to 200,000 shares, (ii) increase the number of shares to
be granted to directors on their election to the Board to 4,000 shares and
(iii) eliminate the provision which prohibits a grant under such plan to any
director who has received stock options to purchase such amount in the prior
twelve month period.
For 841,968 Against 158,553 Abstain 4,072 Non-Vote 694,914
Proposal 4: The approval of the issuance in a private
placement of Common Stock of the Company (and securities exercisable for such
Common Stock) representing 20% or more of the number of issued and
outstanding shares of such Common Stock.
For 958,106 Against 39,225 Abstain 7,362 Non-Vote 694,814
Proposal 5: The approval of the appointment of Arthur Andersen LLP
as the Company's independent public accountants for the1999 fiscal year.
For 1,694,487 Against 2,941 Abstain 2,079
16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
<TABLE>
<S> <C>
10.1 Subscription Agreement dated June 11 and June 22, 1999
among the Company and certain investors parties thereto.
11.1 Statement regarding Computation of Per Share Earnings.
27.1 Financial Data Schedule.
</TABLE>
b. Reports on Form 8-K
None.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Energy BioSystems Corporation
By: /s/ Peter P. Policastro
---------------------------------------
Peter P. Policastro
Chief Executive Officer and President
Date: August 13, 1999
By: /s/ Paul G. Brown III
---------------------------------------
Paul G. Brown III
Vice President, Finance and Administration
Date: August 13, 1999
18
<PAGE>
SUBSCRIPTION AGREEMENT
-------------------------------
ENERGY BIOSYSTEMS CORPORATION
-------------------------------
7,500,000 SHARES OF COMMON STOCK
-------------------------------
To: Energy BioSystems Corporation
This Subscription Agreement (this "Subscription Agreement" or the "Agreement")
is made between Energy BioSystems Corporation, a Delaware corporation in the
development stage, (the "Company"), and the undersigned prospective purchaser
who is subscribing hereby for shares (the "Shares") of the Company's Common
Stock, $.001 par value ("Common Stock"). This subscription is submitted to you
in accordance with and subject to the terms and conditions described in this
Subscription Agreement and the Confidential Private Placement Memorandum dated
April 16, 1999, as amended by Supplement dated May 26, 1999 to Confidential
Private Placement Memorandum (as it may be supplemented or updated from time to
time, the "Memorandum"), relating to the offering (the "Offering") of 7,500,000
Shares. The closing of the Offering is subject to stockholder approval. The
purchase price per Share is as set forth in the Memorandum.
In consideration of the Company's agreement to sell Shares to the undersigned
upon the terms and conditions summarized in the Memorandum, the undersigned
agrees and represents as follows:
A. SUBSCRIPTION
(1) The undersigned hereby irrevocably subscribes for and agrees to
purchase the number of Shares indicated on the signature page hereto
at a purchase price per Share as set forth in the Memorandum. The
minimum subscription is $100,000, provided that the Company may, in
its sole discretion, accept subscriptions for less than such amount.
The undersigned encloses herewith a check payable to "Energy
BioSystems Corporation--Escrow Account" for the full amount of the
purchase price of the Shares for which the undersigned is subscribing
(the "Payment"). The undersigned hereby acknowledges that the actual
number of Shares which the undersigned will receive will be equal to
the amount of the undersigned's subscription divided by the Purchase
Price for the Shares as defined in the Memorandum.
(2) The undersigned understands that all payments by check of the
subscription amount provided in Paragraph (1) above shall be delivered
to SAMCO Capital Markets, Inc. (the "Placement Agent") and,
thereafter, such payment will be deposited as soon as practicable for
the undersigned's benefit in a non-interest bearing escrow account.
The payment (or, in the case of rejection of a portion of the
undersigned's subscription, the part of the payment relating to such
rejected portion) will be returned promptly, without interest, if the
undersigned's subscription is rejected in whole or in part. The
Placement Agent and the
<PAGE>
Company expect to hold a closing of the Offering (the "Closing") at
any time after subscriptions for 1,000,000 Shares have been accepted
and the stockholders of the Company have approved the Offering at a
duly called meeting. Upon receipt by the Company of the requisite
payment for all Shares to be purchased by the subscribers whose
subscriptions are accepted (each, a "Purchaser" and, collectively,
the "Purchasers") at the Closing, the Shares so purchased will be
issued in the name of each Purchaser, and the name of such Purchaser
will be registered on the books of the Company as the record owner
of such Shares. The Company will issue to each Purchaser the stock
certificates representing the Shares purchased. The Shares may not
be transferred prior to the Closing.
(3) The undersigned hereby acknowledges receipt of a copy of the
Memorandum, and hereby agrees to be bound thereby upon the (i)
execution and delivery to the Company, in care of the Placement Agent,
of the signature page to this Subscription Agreement, and (ii)
acceptance at the Closing by the Company of the undersigned's
subscription (the "Subscription").
(4) The undersigned agrees that the Company may, in its sole and absolute
discretion, reduce the undersigned's subscription to any amount of
Shares that in the aggregate does not exceed the amount of Shares
hereby applied for without any prior notice to or further consent by
the undersigned. The undersigned hereby irrevocably constitutes and
appoints the Placement Agent and each officer of the Placement Agent,
each of the foregoing acting singly, in each case with full power of
substitution, the true and lawful agent and attorney-in-fact of the
undersigned, with full power and authority in the undersigned's name,
place and stead, to amend this Subscription Agreement and the
Questionnaire, including in each case the undersigned's signature page
thereto, to effect any of the foregoing provisions of this Paragraph
(4).
(5) The undersigned acknowledges that (i) the issuance of the Shares is
subject to the approval of the stockholders of the Company at a duly
called meeting; (ii) the Company cannot assure the undersigned that it
will be able to obtain favorable votes from the required number of
stockholders at the meeting; and (iii) in the event that the Company
does not obtain the required stockholder approval, the Company will
refund the undersigned's subscription without interest. The Company
agrees that it will submit the Offering to its stockholders for
approval at the 1999 Meeting of Stockholders of the Company which is
anticipated to be held on or before May 31, 1999. Upon approval of
the Offering by stockholders owning a majority of the outstanding
shares entitled to vote at the meeting, and assuming that subscription
for the minimum amount required have been received, the Company may
conduct a closing on the Offering.
B. REPRESENTATIONS, WARRANTIES AND VOTING AGREEMENT
The undersigned hereby represents and warrants to, and agrees with, the Company
and the Placement Agent as follows:
(1) The undersigned has been furnished with and has carefully read the
Memorandum (including the Attachments thereto) and this Agreement and
is familiar with and understands the terms of the Offering. The
undersigned has carefully considered and has, to the extent the
undersigned believes such discussion necessary, discussed with the
undersigned's
-2-
<PAGE>
professional legal, tax, accounting and financial advisors the
suitability of an investment in the Shares for the undersigned's
particular tax and financial situation and has determined that the
Shares being subscribed for by the undersigned are a suitable
investment for the undersigned.
(2) The undersigned acknowledges that (i) the undersigned has had the
right to request copies of any documents, records, and books
pertaining to this investment and (ii) any such documents, records and
books which the undersigned requested have been made available for
inspection by the undersigned, the undersigned's attorney, accountant
or adviser(s).
(3) The undersigned and/or the undersigned's adviser(s) has/have had a
reasonable opportunity to ask questions of and receive answers from a
person or persons acting on behalf of the Company concerning the
Offering and all such questions have been answered to the full
satisfaction of the undersigned.
(4) The undersigned is not subscribing for Shares as a result of or
subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or
meeting.
(5) If the undersigned is a natural person, the undersigned has reached
the age of majority in the state in which the undersigned resides, has
adequate means of providing for the undersigned's current financial
needs and contingencies, is able to bear the substantial economic
risks of an investment in the Shares for an indefinite period of time,
has no need for liquidity in such investment and, at the present time,
could afford a complete loss of such investment.
(6) The undersigned or the undersigned's purchaser representative, as the
case may be, has had such knowledge and experience in financial, tax
and business matters so as to enable the undersigned to utilize the
information made available to the undersigned in connection with the
Offering to evaluate the merits and risks of an investment in the
Shares and to make an informed investment decision with respect
thereto.
(7) The undersigned will not sell or otherwise transfer the Shares without
registration under the Securities Act of 1933, as amended (the
"Securities Act"), or applicable state securities laws or an exemption
therefrom. None of the Shares have been registered under the
Securities Act or under the securities laws of any state. The
undersigned represents that the undersigned is purchasing the Shares
for the undersigned's own account, for investment and not with a view
toward resale or distribution. The undersigned has not offered or
sold the Shares being acquired nor does the undersigned have any
present intention of selling, distributing or otherwise disposing of
such Shares either currently or after the passage of a fixed or
determinable period of time or upon the occurrence or non-occurrence
of any predetermined event or circumstances in violation of the
Securities Act. The undersigned is aware that there is currently no
market for the Shares. The undersigned is aware that an exemption
from the registration requirements of the Securities Act pursuant to
Rule 144 promulgated thereunder is not presently available; and the
Company has no obligation to register the Shares subscribed for
hereunder, except as provided in Paragraph D hereof, or to make
available an exemption from the registration requirements pursuant to
such Rule 144 or any successor rule for resale of the Shares.
-3-
<PAGE>
(8) The undersigned recognizes that investment in the Shares involves
substantial risks, including loss of the entire amount of such
investment. Further, the undersigned has carefully read and
considered the matters set forth under the caption "Risk Factors" in
the Memorandum, and has taken full cognizance of and understands all
of the risks related to the purchase of the Shares.
(9) The undersigned acknowledges that the certificate representing the
Shares shall be stamped or otherwise imprinted with a legend
substantially in the following form:
"The Shares represented hereby have not been registered under the
Securities Act of 1933, as amended, or any state securities laws and
neither the Shares nor any interest therein may be offered, sold,
transferred, pledged or otherwise disposed of except pursuant to an
effective registration under such act and such laws, which, in the
opinion of counsel for the holder, which counsel and opinion are
reasonably satisfactory to counsel for this corporation, is
available."
(10) If this Subscription Agreement is executed and delivered on behalf of
a partnership, corporation, trust or estate: (i) such partnership,
corporation, trust or estate has the full legal right and power and
all authority and approval required (a) to execute and deliver, or
authorize execution and delivery of, this Subscription Agreement and
all other instruments executed and delivered by or on behalf of such
partnership, corporation, trust or estate in connection with the
purchase of its Shares, (b) to delegate authority pursuant to power of
attorney and (c) to purchase and hold such Shares; (ii) the signature
of the party signing on behalf of such partnership, corporation, trust
or estate is binding upon such partnership, corporation, trust or
estate; and (iii) such partnership, corporation or trust has not been
formed for the specific purpose of acquiring such Shares, unless each
beneficial owner of such entity is qualified as an accredited investor
within the meaning of Rule 501(a) of Regulation D promulgated under
the Securities Act and has submitted information substantiating such
individual qualification.
(11) If the undersigned is a retirement plan or is investing on behalf of a
retirement plan, the undersigned acknowledges that investment in the
Shares poses additional risks including the inability to use losses
generated by an investment in the Shares to offset taxable income.
(12) The information contained in the Questionnaire delivered by the
undersigned in connection with this Agreement (the "Questionnaire") is
complete and accurate in all respects. The undersigned shall
indemnify and hold harmless the Company, the Placement Agent and each
officer, director or control person of any such entity, who is or may
be a party or is or may be threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of or
arising from any actual or alleged misrepresentation or misstatement
of facts or omission to represent or state facts made or alleged to
have been made by the undersigned to the Company, the Placement Agent
(or any agent or representative of any of them) or omitted or alleged
to have been omitted by the undersigned, concerning the undersigned or
the undersigned's authority to invest or financial position in
connection with the Offering, including, without limitation, any such
misrepresentation, misstatement of omission contained in the
Subscription Agreement or any other document submitted by the
undersigned, against losses, liabilities and expenses for which the
Company, the Placement Agent, or any officer, director or control
person of any such entity has not otherwise been
-4-
<PAGE>
reimbursed (including attorney's fees, judgments, fines and amounts
paid in settlement) actually and reasonably incurred by the Company,
the Placement Agent, or such officer, director or control person in
connection with such action, suit or proceeding.
(13) The undersigned agrees that it will vote all of its shares of voting
capital stock of the Company owned by it in favor of the Offering and
the issuance of Company Common Stock in connection with the Offering
at the 1999 Meeting of Stockholders of the Company anticipated to be
held on or before May 31, 1999, as described.
C. UNDERSTANDINGS.
The undersigned understands, acknowledges and agrees with the Company and
the Placement Agent as follows:
(1) This Subscription may be rejected, in whole or in part, by the Company
or the Placement Agent, in the sole and absolute discretion of either
of them, at any time before the Closing, notwithstanding prior receipt
by the undersigned of notice of acceptance of the undersigned's
Subscription. The Company may terminate this Offering at any time in
its sole discretion. The execution of this Agreement or solicitation
of the investment contemplated hereby shall create no obligation of
the Company to accept any subscription or complete the Offering.
(2) Except as set forth in Section C(1) above, the undersigned hereby
acknowledges and agrees that the subscription hereunder is irrevocable
by the undersigned, that, except as required by law, the undersigned
is not entitled to cancel, terminate or revoke this Agreement or any
agreements of the undersigned hereunder and that this Agreement and
such other agreements shall survive the death or disability of the
undersigned and shall be binding upon and inure to the benefit of the
parties and their heirs, executors, administrators, successors, legal
representatives and permitted assigns; provided, however, that the
Company has received commitment and funds for the minimum amount
required for closing as described in the Memorandum. If the
undersigned is more than one person, the obligations of the
undersigned hereunder shall be joint and several and the agreements,
representations, warranties and acknowledges herein contained shall be
deemed to be made by and be binding upon each such person and his/her
heirs, executors, administrators, successors, legal representatives
and permitted assigns.
(3) No federal or state agency has made any finding or determination as to
the accuracy or adequacy of the Memorandum or as to the fairness of
the terms of this offering for investment nor any recommendation or
endorsement of the Shares.
(4) The Offering is intended to be exempt from registration under the
Securities Act by virtue of Section 4(2) of the Securities Act and the
provisions of Regulation D thereunder, which is in part dependent upon
the truth, completeness and accuracy of the statements made by the
undersigned herein and in the Questionnaire.
(5) There is no public or other market for the Shares and no such public
or other market may ever develop. There can be no assurance that the
undersigned will be able to sell or dispose of the Shares. It is
understood that in order not to jeopardize the Offering's exempt
status
-5-
<PAGE>
under Section 4(2) of the Securities Act and Regulation D, any
transferee may, at a minimum, be required to fulfill the investor
suitability requirements thereunder.
(6) The undersigned acknowledges that the information contained in the
Memorandum is confidential and non-public and agrees that all such
information shall be kept in confidence by the undersigned and neither
used for the undersigned's personal benefit (other than in connection
with this subscription) nor disclosed to any third party for any
reason; provided, however, that this confidentiality obligation shall
not apply to any such information that (i) is part of the public
knowledge or literature and readily accessible at the date hereof,
(ii) becomes part of the public knowledge or literature and readily
accessible by publication (except as a result of a breach of this
provision) or (iii) is received from third parties (except third
parties who disclose such information in violation of any
confidentiality agreements or obligations, including, without
limitation, any Subscription Agreement entered into with the Company).
(7) The undersigned acknowledges that the foregoing restrictions on the
undersigned's use and disclosure of any such confidential, non-public
information contained in the Memorandum restricts the undersigned from
trading in the Company's securities to the extent such trading is
based on such confidential, non-public information.
(8) The representations, warranties and agreements of the undersigned
contained herein and in any other writing delivered in connection with
the transactions contemplated hereby shall be true and correct in all
respects on and as of the sale of the Shares as if made on and as of
such date and shall survive the execution and delivery of this
agreement and the purchase of the Shares.
(9) Insofar as indemnification for liabilities under the Securities Act
may be permitted to directors, officers or controlling persons of the
Company, the Company has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in such Act and is therefore unenforceable
to such extent.
(10) IN MAKING AN INVESTMENT DECISION PURCHASERS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING
THE MERITS AND RISKS INVOLVED. THE SHARES OFFERED HEREBY HAVE NOT
BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR
REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT
CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THE MEMORANDUM OR
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
(11) THE SHARES OFFERED HEREBY MAY NOT BE TRANSFERRED, RESOLD OR OTHERWISE
DISPOSED OF EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. PURCHASERS SHOULD BE AWARE THAT THEY WILL BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
-6-
<PAGE>
(12) For Residents of Arkansas:
THE SHARES OFFERED HEREBY ARE OFFERED PURSUANT TO A CLAIM OF EXEMPTION
UNDER SECTION 23-42-504(a)(14) OF THE ARKANSAS SECURITIES ACT AND
SECTION 4(2) OF THE SECURITIES ACT OF 1933. A REGISTRATION STATEMENT
RELATING TO THESE SHARES HAS NOT BEEN FILED WITH THE ARKANSAS
SECURITIES DEPARTMENT OR WITH THE SECURITIES AND EXCHANGE COMMISSION.
NEITHER THE DEPARTMENT NOR THE COMMISSION HAS PASSED UPON THE VALUE OF
THE SHARES OFFERED HEREBY, MADE ANY RECOMMENDATIONS AS TO THEIR
PURCHASE, APPROVED OR DISAPPROVED THE OFFERING, OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS MEMORANDUM. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
(13) For Residents of California:
THE SALE OF THE SHARES WHICH ARE THE SUBJECT OF THIS SUBSCRIPTION
AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SHARES OR THE
PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SHARES IS EXEMPT
FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE
CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS
SUBSCRIPTION AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH
QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
(14) For Residents of Connecticut:
THESE SHARES HAVE NOT BEEN REGISTERED UNDER SECTION 36-485 OF THE
CONNECTICUT UNIFORM SECURITIES ACT AND THEREFORE CANNOT BE RESOLD
UNLESS THEY ARE REGISTERED UNDER SUCH ACT OR UNLESS AN EXEMPTION FROM
REGISTRATION IS AVAILABLE. THE SHARES OFFERED HEREBY HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE BANKING COMMISSIONER OF THE STATE OF
CONNECTICUT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
(15) For Residents of Florida:
THE SHARES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE FLORIDA
SECURITIES ACT (THE "FLORIDA ACT") AND WILL BE OFFERED AND SOLD
PURSUANT TO AN EXEMPTION UNDER SECTION 517.061 OF THE FLORIDA ACT.
ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF VOIDING THE PURCHASE
OF ANY OF THE SHARES WITHIN THREE DAYS AFTER THE FIRST TENDER OF
CONSIDERATION IS MADE BY SUCH PURCHASER TO THE COMPANIES, AN AGENT OF
THE COMPANIES, OR AN ESCROW AGENT OR WITHIN THREE DAYS AFTER THE
AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER,
WHICHEVER OCCURS LATER.
-7-
<PAGE>
(16) For Residents of Georgia:
THE UNDERSIGNED ACKNOWLEDGES AND UNDERSTANDS (I) THAT THE SHARES
SUBSCRIBED FOR HEREBY WILL BE ISSUED OR SOLD IN RELIANCE ON PARAGRAPH
13 OF CODE SECTION 10-5-9 OF THE GEORGIA SECURITIES ACT OF 1973, AND
MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION WHICH IS EXEMPT
UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT AND (II) THAT THE CERTIFICATES REPRESENTING THE SHARES
SUBSCRIBED FOR HEREBY WILL CONTAIN A LEGEND TO SUCH EFFECT.
(17) For Residents of Missouri:
THE UNDERSIGNED ACKNOWLEDGES AND UNDERSTANDS (I) THAT THE SHARES
SUBSCRIBED FOR HEREBY ARE NOT REGISTERED UNDER THE MISSOURI UNIFORM
SECURITIES ACT AND MAY BE DISPOSED OF ONLY THROUGH A LICENSED
BROKER-DEALER AND (II) THAT IT IS A FELONY TO SELL SHARES IN VIOLATION
OF THE MISSOURI SECURITIES ACT.
(18) For Residents of New York:
THIS PRIVATE OFFERING MEMORANDUM HAS NOT BEEN REVIEWED BY THE ATTORNEY
GENERAL PRIOR TO ITS ISSUANCE AND USE. THE ATTORNEY GENERAL OF THE
STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE MERITS OF THIS
OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
(19) For Residents of Pennsylvania:
EACH PENNSYLVANIA RESIDENT WHO SUBSCRIBES FOR THE SHARES BEING OFFERED
HEREBY AGREES NOT TO SELL THESE SHARES FOR A PERIOD OF TWELVE MONTHS
AFTER THE DATE OF PURCHASE. UNDER PROVISION OF THE PENNSYLVANIA
SECURITIES ACT OF 1972, EACH PENNSYLVANIA RESIDENT SHALL HAVE THE
RIGHT TO WITHDRAW HIS OR HER ACCEPTANCE WITHOUT INCURRING ANY
LIABILITY TO THE ISSUER WITHIN TWO BUSINESS DAYS FROM THE DATE OF
RECEIPT BY THE COMPANY OF THIS SUBSCRIPTION AGREEMENT. TO ACCOMPLISH
THIS WITHDRAWAL A SUBSCRIBER NEED ONLY SEND A LETTER OR TELEGRAM TO
THE ISSUER AT THE ADDRESS SET FORTH IN THE TEXT HEREOF, INDICATING HIS
OR HER INTENTION TO WITHDRAW. SUCH LETTER OR TELEGRAM SHOULD BE SENT
AND POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED SECOND BUSINESS
DAY. IT IS PRUDENT TO SEND SUCH LETTER BY CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, TO ENSURE THAT IT IS RECEIVED AND ALSO TO EVIDENCE
THE TIME WHEN IT WAS MAILED. IF THE REQUEST IS MADE ORALLY (IN PERSON
OR BY TELEPHONE, TO THE ISSUER AT THE NUMBER LISTED IN THE TEXT
HEREOF), A WRITTEN CONFIRMATION THAT THE REQUEST HAS BEEN RECEIVED
SHOULD BE REQUESTED.
-8-
<PAGE>
D. REGISTRATION RIGHTS.
(1) REGISTRATION OF COMMON SHARES. Within sixty days from the Closing
Date, the Company shall use its reasonable best efforts to prepare for
filing with the Commission, and cause to be declared effective, a
"shelf" registration statement (the "Shelf Registration") pursuant to
Rule 415 under the Securities Act providing for the sale by the
Purchasers of the shares of Common Stock included in the Offering.
The Company shall use its reasonable best efforts to cause the
registration statement to be declared effective as soon as practicable
after it has been filed with the Commission. The Company agrees to
use its reasonable best efforts to keep such Shelf Registration
continuously effective for a period ending on the earliest of (a) the
fifth anniversary of the effective date of such Shelf Registration,
(b) the date on which all such Common Stock covered thereby have been
sold thereunder, or (c) the date upon which all such Common Stock are
freely transferable without restriction under the Securities Act. For
the purpose of this Agreement, "reasonable best efforts" shall mean
the best efforts of the Company consistent with sound and reasonable
business practices and judgment.
(2) REGISTRATION PROCEDURES. In connection with the Company's obligations
with respect to the Shelf Registration, the Company shall use its
reasonable best efforts to effect the registration in furtherance of
the sale of the Common Stock by the holders thereof in accordance with
the intended method or methods of distribution thereof described in
the Shelf Registration. In connection therewith, the Company shall,
as promptly as may be practicable:
(a) prepare and file with the Commission a registration
statement with respect to the Common Stock on any form for which the
Company then qualifies or which counsel for the Company shall deem
appropriate and which form shall be available for the disposition of
the Common Stock in accordance with the intended method or methods of
disposition thereof;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for the applicable period specified in Paragraph
(1) above;
(c) furnish to each Purchaser which is selling Common Stock a
copy of such registration statement, each amendment and supplement
thereto (in each case including all exhibits thereto but excluding all
documents incorporated by reference therein unless specifically so
requested by such Purchaser) and such reasonable number of copies of
the prospectus included in such registration statement (including each
preliminary prospectus) as such Purchaser may reasonably request;
(d) use reasonable best efforts to register or qualify the
Common Stock under such other securities laws or blue sky laws of such
jurisdictions as the Purchasers shall reasonably request, and take any
and all such actions as may be reasonably necessary or advisable to
enable the Purchasers to consummate the disposition in such
jurisdictions of such Common Stock;
-9-
<PAGE>
(e) notify each Purchaser, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act
within the period that the Company is required to keep the
registration statement effective, of the happening of any event as a
result of which the prospectus included in such registration statement
(as then in effect) contains an untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. As promptly
as practicable following any such occurrence, the Company shall
prepare and furnish to each Purchaser a reasonable number of copies of
a supplement or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to subsequent purchasers of the
Securities, such prospectus shall meet the requirements of the
Securities Act and relevant state securities laws, provided that such
obligation on the part of the Company shall be suspended for such
period of time as the Company considers reasonably necessary and in
its best interest due to circumstances then existing (but not more
than 30 days in any 180-day period). Each Purchaser shall furnish to
the Company such information regarding each such Purchaser and its
proposed method of distribution of the Securities as the Company may
from time to time request and as shall be required by law to effect
and maintain the registration of such Securities under the Securities
Act and any state securities laws;
(f) advise each Purchaser, promptly after receiving notice
thereof, of any stop order issued or threatened by the Commission and
use its reasonable best efforts to take all actions required to
prevent the entry of such stop order, or to remove it if entered;
(g) use its reasonable best efforts to cause all Common Stock
including in such registration statement to be listed, by the date of
the first sale of Common Stock pursuant to such registration
statement, on each securities exchange on which the Common Stock of
the Company is then listed or proposed to be listed;
(h) furnish to each Purchaser on the effective date of such
registration statement a signed counterpart, addressed to the
Purchasers, of (i) an opinion of counsel representing the Company and
reasonably satisfactory to such Purchasers that the registration
statement (including each amendment or supplement thereto and
prospectus included therein) complies as to form in all material
respects with the requirements of the Securities Act and the
applicable rules and regulations thereunder, and (ii) a "comfort"
letter from the independent public accountants retained by the
Company, stating that they are independent public accountants within
the meaning of the Securities Act and that, in the opinion of such
accountants, the financial statements of the Company included or
incorporated by reference in the registration statement or the
prospectus, or any amendment or supplement thereof, comply as to form
in all material respects with the applicable accounting requirements
of the Securities Act and the published rules and regulations
thereunder, and covering such other financial matters of the type
customarily covered by such letters;
(i) otherwise use its reasonable best efforts to comply with the
provisions of the Securities Act with respect to the disposition of
all of the Common Stock covered by such registration statement in
accordance with the intended methods of disposition by the Purchasers
thereof set forth in such registration statement and to make generally
available to its security holders, as soon as reasonably practicable,
an earnings statement satisfying the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder.
-10-
<PAGE>
(3) EXPENSES. All expenses incident to the Company's performance of or
compliance with the provisions of this Section D (including, without
limitation, all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws, fees and expenses
incurred in connection with the listing of the Common Stock to be
registered on each securities exchange on which similar securities
issued by the Company are then listed, printing expenses, fees and
disbursements of counsel for the Company, reasonable fees and
disbursements of one counsel for the Purchasers and fees and
disbursements of all independent certified public accountants and
other persons retained by the Company) will be borne by the Company.
Notwithstanding the foregoing, the Purchasers shall pay any and all
underwriting fees, discounts or commissions attributable to the sale
of Common Stock.
(4) INDEMNIFICATION.
(a) Upon the registration of Common Stock pursuant to Section D(1) of
this Agreement, and in consideration of the agreements of the
Purchasers contained herein, the Company shall, and it hereby
agrees to, indemnify and hold harmless, to the extent permitted
by law, each of the Purchasers which holds Common Stock to be
included in such registration, its officers and directors, each
underwriter of such Common Stock, if any, and each person who
controls such person (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses
(including reasonable attorneys' fees and expenses) to which such
Purchaser, its officers, directors, each underwriter, or such
controlling persons may become subject, insofar as such losses,
claims, damages, liabilities and expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of material fact contained in any such
registration statement, any prospectus or preliminary prospectus
contained therein or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each such Purchaser,
each such underwriter and each such controlling person for any
legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage,
liability or action; except (i) insofar as the same arise out of
or are based upon an untrue statement or omission or alleged
omission so made based upon information furnished by such
Purchaser, underwriter or controlling person in writing
specifically for use in such registration statement or prospectus
or (ii) insofar as the same are caused by such Purchaser's or
such underwriter's failure to deliver a copy of such registration
statement or prospectus or any amendments or supplements thereto
after the Company has furnished such Purchaser or such
underwriter with a sufficient number of copies of the same; and
provided, however, that the foregoing indemnity and reimbursement
obligation shall not be applicable to the extent that any such
loss, claim, damage, liability or action arises out of or is
based on any untrue statement or omission made in: (i) a
preliminary prospectus, which untrue statement or omission is
corrected in the final prospectus and such final prospectus is
made available to such Purchaser in accordance with the
requirements of Rule 424 under the Securities Act; or (ii) any
prospectus, which untrue statement or omission is corrected in a
prospectus supplement or amended prospectus and such prospectus
supplement or amended prospectus is made available to such
Purchaser prior to the sale of Common Stock which gave rise to
such loss, claim, damage, liability or expense.
-11-
<PAGE>
(b) In connection with any registration statement under which Common
Stock are registered under the Securities Act and pursuant to
which a Purchaser offers and sells Common Stock, each such
Purchaser shall, and it hereby agrees to, indemnify and hold
harmless, to the extent permitted by law, each of the Company,
its officers and directors, and each person who controls the
Company (within the meaning of the Securities Act) and, if the
offering is an underwritten offering, the underwriters, against
all losses, claims, damages, liabilities and expenses (including
reasonable attorneys' fees and expenses) to which the Company,
its officers and directors, underwriters, or controlling persons
may become subject, insofar as such losses, claims, damages,
liabilities and expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue
statement of material fact contained in any such registration
statement, any prospectus or preliminary prospectus contained
therein or any amendment or supplement thereto, or any omission
or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading and will reimburse the Company and each such officer,
director, underwriter and controlling person for any legal or
other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage,
liability or action, insofar as (i) the same arise out of or are
based upon any untrue statement or omission or alleged omission
so made based upon information furnished by such Purchaser or
controlling person of such Purchaser, in writing specifically for
use in such registration statement or prospectus or (ii) the same
are caused by such Purchaser's failure to deliver a copy of such
registration statement or prospectus or any amendments or
supplements thereto after the Company has furnished such
Purchaser with a sufficient number of copies of the same and
provided, further, that the liability of each Purchaser under
this Paragraph 4(b) shall be limited to the proportion of any
such loss, claim, damage, liability or expense which is equal to
the proportion that the public offering price of Common Stock
sold by such Purchaser under such registration statement bears to
the total public offering price of all securities sold
thereunder, but not to exceed the amount of the proceeds received
by such Purchaser from the sale of the Common Stock covered by
such registration statement.
(c) Any person entitled to indemnification hereunder will (i) give
prompt notice to the indemnifying party of any claim with respect
to which it seeks indemnification (but the failure to give such
notice will not affect the right to indemnification hereunder,
unless the indemnifying party is materially prejudiced by such
failure) and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest may exist between such
indemnified and indemnifying parties with respect to such claim,
permit such indemnifying party to assume the defense of such
claim with counsel selected by the indemnifying party and
reasonably satisfactory to the indemnified party. If such
defense is not assumed by the indemnifying party or if the
indemnifying party is not permitted to assume such defense then
(x) the indemnified party shall select counsel, which counsel
must be reasonably satisfactory to the indemnifying party and (y)
the indemnifying party will not be subject to any liability for
any settlement made without its consent (which consent will not
be unreasonably withheld). No indemnifying party will consent to
entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the
claimant or plaintiff to such
-12-
<PAGE>
indemnified party of a release from all liability in respect of
such claim or litigation. An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim
will not be obligated to pay the fees and expenses of more than
one counsel for all parties indemnified by such indemnifying
party with respect to such claim, unless in the reasonably
judgment of any indemnified party a conflict of interest may
exist between such indemnified party and any other of such
indemnified parties with respect to such claim, in which case
the indemnifying party shall be obligated to pay the fees and
expenses of one additional counsel, who must be reasonably
satisfactory to the indemnifying party.
(d) Each party hereto agrees that, if for any reason the
indemnification provisions contemplated by Paragraph 4(a) or
Paragraph 4(b) are unavailable or are insufficient to hold
harmless an indemnified party in respect of any losses, claims,
damages, liabilities or expenses (or actions in respect thereof)
referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative fault of the indemnifying
party and the indemnified party as well as any other relevant
equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied
by such indemnifying party or indemnified party, and the parties'
relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The parties
hereto agree that it would not be just and equitable if
contribution pursuant to this Paragraph 4(d) were determined by
pro rata allocation (even if the Purchasers or any underwriters
or all of them were treated as one entity for such purpose) or by
any other method of allocation which does not take into account
the equitable considerations referred to in this Paragraph 4(d).
No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) The indemnification and contribution obligations and each other
provision set forth in this Paragraph 4 shall remain in full
force and effect regardless of any investigation made by or on
behalf of the Company, any Purchaser, any officer or employee of
the Company or such Purchaser, any underwriter, any officer or
employee of such underwriter, or any controlling person of any of
the foregoing and shall survive the transfer and registration of
Common Stock by such Purchaser.
(5) RULE 144 REPORTING. With a view to making available to Purchasers the
benefits of Rule 144 promulgated by the Commission under the
Securities Act, the Company agrees to use its reasonable best efforts
to:
(a) make and keep adequate current public information with respect to
the Company available, as those terms are used in Rule 144 under
the Securities Act, at all times after the Final Closing Date;
-13-
<PAGE>
(b) file with the Commission in a timely manner all reports and other
documents required of the Company under the Exchange Act; and
(c) furnish to Purchasers promptly upon request a written statement
by the Company as to its compliance with the reporting
requirements of Rule 144 and the Exchange Act, a copy of the most
recent annual or quarterly report of the Company, and such other
reports and documents of the Company as any Purchaser may
reasonably request in order to permit such Purchaser to avail
itself of any rule or regulation of the Commission allowing such
Purchaser to sell its Common Stock without registration.
(6) AMENDMENTS AND WAIVERS. Any provision of this Section D may be
amended or waived if, but only if, in the case of an amendment, such
amendment is in writing and is signed by the Company and the
Purchasers who are the holders of a majority of the Common Stock or,
in the case of a waiver, such waiver is in writing and is signed by
the party to be charged with having granted such waiver. No failure
or delay by the Company or any Purchaser in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege.
E. MISCELLANEOUS
(1) All pronouns and any variations thereof used herein shall be deemed to
refer to the masculine, feminine, singular or plural, as the identity
of the person or persons may require.
(2) Except as set forth in Section A(4) herein, neither this Agreement nor
any provision hereof shall be waived, modified, changed, discharged,
terminated, revoked or canceled except by an instrument in writing
signed by the party effecting the same against whom any change,
discharge or termination is sought.
(3) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally
delivered or sent by registered mail, return receipt requested,
addressed: (i) if to the Company, to Energy BioSystems Corporation,
4200 Research Forest Drive, The Woodlands, Texas 77381, Attention:
Paul G. Brown, III, or (ii) if to the undersigned, to the address for
correspondence set forth in the Subscription Agreement, or at such
other address as may have been specified by written notice given in
accordance with this Paragraph (3).
(4) Failure of the Company to exercise any right or remedy under this
Agreement or any other agreement between the Company and the
undersigned, or otherwise, or delay by the Company in exercising such
right or remedy, will not operate as a waiver thereof. No waiver by
the Company will be effective unless and until it is in writing and
signed by the Company.
(5) This Agreement shall be enforced, governed and construed in all
respects in accordance with the laws of the State of Texas, as such
laws are applied by the Texas courts to agreements entered into and to
be performed in Texas by and between residents of Texas, and shall be
binding upon the undersigned, the undersigned's heirs, estate, legal
representatives, successors and assigns and shall inure to the benefit
of the Company, its
-14-
<PAGE>
successors and assigns. If any provision of this Subscription
Agreement is invalid or unenforceable under any applicable statute
or rule of law, then such provision shall be deemed modified to
conform with such statute or rule of law. Any provision hereof
that may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provisions hereof.
(6) This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and may be amended
only by writing executed by both parties hereto.
(7) Each party hereto has had the opportunity to review this Agreement
with its separate legal counsel.
F. SIGNATURE
The signature of this Agreement is contained as part of the applicable
subscription package, entitled "Signature Page".
-15-
<PAGE>
ENERGY BIOSYSTEMS CORPORATION
REVISED SIGNATURE PAGE
The undersigned hereby subscribes for the number of Shares as set forth below.
1. Dated: ____________________, 19___
2. Number of Shares subscribed for: ____________________
3. Fill in A if you elect to purchase the Shares at $2.00 per Share with the
Warrants.
Fill in B if you elect to purchase the Shares at $1.80 per Share without
any Warrants.
A. Aggregate purchase price for number of Shares (with
Warrants) subscribed for, at $2.00 per Share
$____________________
B. Aggregate purchase price for number of Shares (without Warrants)
subscribed for, at $1.80 per Share
$____________________
- ----------------------------------- --------------------------------------
Signature of Subscriber Taxpayer Identification or Social
(and title, if applicable) Security Number
- ----------------------------------- --------------------------------------
Signature of Joint Purchaser Taxpayer Identification or Social
(if any) Security Number
- ----------------------------------- --------------------------------------
Name and Residence Address Mailing Address
(Post Office Address Not Acceptable) (if different from Residence Address)
- ----------------------------------- --------------------------------------
Name (please print as name will appear Name (please print)
on certificate)
- ----------------------------------- --------------------------------------
Number and Street Number and Street
- ----------------------------------- --------------------------------------
City State Zip Code City State Zip Code
ACCEPTED BY: ENERGY BIOSYSTEMS CORPORATION
Dated: By:
- ----------------------------------- -----------------------------------
President and CEO
<PAGE>
PURCHASER QUESTIONNAIRE
Energy BioSystems
4200 Research Forest Drive
The Woodlands, Texas 77381
Attention: President
Re: Purchase of Shares of Common Stock
Ladies & Gentlemen:
The information contained herein is being furnished to Energy
BioSystems Corporation, a Delaware corporation, (the "Company") in connection
with the purchase of Common Stock of the Company by the undersigned to assure
the Company that the undersigned will meet the suitability standards for
potential investors for purposes of federal and state securities laws, and to
assure that the offer and sale of such securities by the Company may be made to
the undersigned without registration under the Securities Act of 1933, as
amended (the "Act"), and applicable state securities laws.
The undersigned represents to the Company that (i) the information and
representations contained herein are complete and accurate and may be relied
upon by the Company and (ii) the undersigned will notify the Company immediately
of any material change in any of such information occurring prior to the closing
of the purchase of the Securities by the undersigned. All information furnished
is for the sole use of the Company and their counsel and will be held in
confidence, except that this Questionnaire may be furnished to such parties as
is necessary to establish compliance with federal or state securities laws.
PLEASE COMPLETE ALL OF THE FOLLOWING QUESTIONS (1-10), SIGN AND DATE AND RETURN
TO THE CORPORATION.
-2-
<PAGE>
ALL INFORMATION WILL BE TREATED CONFIDENTIALLY
1. Name of Entity or Individual:____________________________________________
Business Address: _______________________________________________________
City:_________________________ State:__________________ Zip:____________
Telephone:____________________
Taxpayer Identification No. or Social Security No.:______________________
2. (ANSWER ONLY IF AN INDIVIDUAL)
(a) Principal Residence Address:________________________________________
City:____________________ State:___________________ Zip:___________
Telephone:_______________
Communications should be sent to (check one)
___________________ business address or________________ home address.
(b) Date of Birth:________________ U.S. Citizen: Yes_______ No ________
College:___________________ Degree:_________________ Year:___________
Graduate School:______________ Degree:______________ Year:___________
Other Education:_____________________________________________________
(c) Employment and Nature of Business:___________________________________
_____________________________________________________________________
Position and Duties:_________________________________________________
_____________________________________________________________________
Any other Prior Occupations or Duties during Past Five Years:
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
-3-
<PAGE>
(d) Income from all sources before this investment is in excess of
$_____________ (exclusive of any income attributable to your spouse)
for each of the undersigned's two previous tax years and estimated to
be in excess of $_______________ (exclusive of any income attributable
to your spouse) for the undersigned's current tax year.
(e) The undersigned's personal net worth (excluding the proposed
investment in the Shares) is in excess of $_______________.
(f) The undersigned understands the full nature and risk of this
investment.
________ Yes_______ No
(g) The undersigned believes the undersigned can afford the complete loss
of the investment.________ Yes_______ No
(h) This investment constitutes less than ten percent (10%) of the
undersigned's net worth.________ Yes_______ No
3. (ANSWER ONLY IF A CORPORATION, PARTNERSHIP, TRUST OR OTHER ENTITY)
(a) Form of Organization:________________________________________________
(b) Jurisdiction of Incorporation or Formation:__________________________
(c) Address of principal place of business:
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
(d) Date of Incorporation or Formation:__________________________________
(e) Nature of Business:__________________________________________________
_____________________________________________________________________
(f) Names of Directors if a Corporation, of Partners (together with the
address of each Partner) if a Partnership, of Trustees if a Trust, of
Joint Venturers if a Joint Venture:
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
-4-
<PAGE>
(g) The persons named in Section 3(f) above understand the full nature and
risk of this investment.________ Yes_______ No
(h) The undersigned can afford the complete loss of the investment.
________ Yes_______ No
(i) The undersigned's net income before this investment is in excess of
$ __________________ for the undersigned's two previous tax years and
estimated to be in excess of $_________________ for the undersigned's
current tax year.
(j) The undersigned's total assets (excluding the proposed investment in
the Shares) is in excess of $_________________ .
(k) Was the undersigned formed or organized for the specific purpose of
acquiring the Shares?________ Yes_______ No
4. The undersigned is an experienced and sophisticated investor.________ Yes
________ No
5. The undersigned has invested in excess of $________________ over the past
five years.
6. Please state below the types of investments the undersigned has made in the
past five years, with particular attention to investments in nonmarketable
investments. Include amount invested in each type of investment.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
7. Please state below any additional information which the undersigned thinks
qualifies the undersigned to evaluate the merits and risks of this
investment.
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
8. The undersigned will have an attorney, accountant, or other consultant
review this investment as the undersigned may require for a full
understanding of the investment and the risk involved.
_______ Yes _______ No
9. The undersigned will have a representative, who has such knowledge and
experience in business and financial matters and is capable of evaluating
the merits and risks of this investment, make the investment decision on
behalf of the undersigned with respect to the Shares.
_______ Yes _______ No
10. The undersigned (or in the case of a corporation, partnership, trust or
other entity, either such entity or each person named in Section 3(f)
hereof) is an "accredited investor", as such term is defined by Regulation
D ("Regulation D") promulgated under the Act within the meaning of one of
the categories described in Schedule I attached thereto.
_______ Yes _______ No
-5-
<PAGE>
Please specify the category or categories of qualification:
__________________________________________________________________________
Name:________________________________
Dated:_____________________ , 1999 By:__________________________________
Title:_______________________________
_____________________________________
(Please Type or Print Name)
NAME OF PARTNERSHIP, CORPORATION,
TRUST, ESTATE OR OTHER ENTITY
(IF APPLICABLE):
___________________________________
TITLE OF PERSON SIGNING ON
BEHALF OF SUCH ENTITY:
___________________________________
-6-
<PAGE>
SCHEDULE I
An "accredited investor" includes ANY of the following:
(a) An individual with net worth (including principal residence) or,
together with his or her spouse, JOINT net worth in EXCESS of $1,000,000;
(b) An individual who had an income in EXCESS of $200,000 for each of
the two most recent years or joint income with such individual's spouse in
excess of $300,000 in each of those years AND who reasonably expects to
reach the same income level in the current year;
(c) Any of certain institutional investors, including:
(1) a state or national bank as defined in 3(a)(2) of the Act,
or savings and loan association or other institution defined in
section 3(a)(5) of the Act (whether acting in an individual or
fiduciary capacity);
(2) an insurance company as defined in section 2(13) of the Act;
(3) an investment company registered under the Investment
Company Act of 1940;
(4) a business development company as defined in section 2(a)48
of the Act;
(5) a Small Business Investment Company licensed by the U.S.
Small Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958;
(6) an ERISA employee benefit plan where (i) the investment
decision is made by a plan fiduciary which is a bank, insurance
company or registered investment advisor, OR (ii) the employee benefit
plan has total assets IN EXCESS OF $5,000,000 or, if a self-directed
plan, with investment decisions made solely by persons that are
accredited investors;
(7) an Internal Revenue Code 501(c)(3) organization, a
corporation, a Massachusetts or similar business trust or partnership,
not formed for the specific purpose of purchasing the Shares, with
total assets IN EXCESS OF $5,000,000;
(d) Any director, executive officer or general partner of the issuer
of the Shares being offered or sold or any director, executive
officer, or general partner of a general partner of that issuer;
(e) Any legal entity (corporation, partnership, etc.) WHOLLY owned by
persons or entities who are themselves accredited investors.
(f) A trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the Shares offered, whose purchase is
directed by a "sophisticated person" as defined by Regulation D.
-7-
<PAGE>
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
The following schedules reflect the information used in calculating the
number of shares in the computation of net loss per share for each of the
periods set forth in the Statements of Operations.
<PAGE>
BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION
THREE MONTHS ENDED JUNE 30, 1998
Weighted Average Shares Outstanding:
<TABLE>
<CAPTION>
TOTAL # DAYS
SHARES OUTSTANDING
<S> <C> <C> <C>
1,750,205 x 29 = 50,755,945
1,754,513 x 1 = 1,754,513
1,852,873 x 40 = 74,114,920
1,856,445 x 21 = 38,985,345
------------- ----------------
91 = 165,610,723
============= ================
165,610,723 / 91 = 1,819,898
=========
</TABLE>
<TABLE>
<CAPTION>
Loss Per Share:
<S> <C> <C>
Net Loss plus dividend accrual
plus accretion of offering costs $ (3,033,285) = $ (1.67)
- --------------------------------- ------------- =========
Weighted Avg. Shares 1,819,898
</TABLE>
<PAGE>
BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION
THREE MONTHS ENDED JUNE 30, 1999
Weighted Average Shares Outstanding:
<TABLE>
<CAPTION>
TOTAL # DAYS
SHARES OUTSTANDING
<S> <C> <C> <C>
2,180,358 x 33 = 71,951,814
2,182,328 x 3 = 6,546,984
2,315,330 x 13 = 30,099,290
2,328,334 x 7 = 16,298,338
2,354,737 x 15 = 35,321,055
6,150,068 x 11 = 67,650,748
6,569,557 x 9 = 59,126,013
-------------- ----------
91 286,994,242
============= ===========
286,994,242 /91 = 3,153,783
=========
</TABLE>
<TABLE>
<CAPTION>
Loss Per Share:
<S> <C> <C>
Net Loss plus dividend accrual
plus accretion of offering costs $ (1,768,478) = $ (0.56)
- --------------------------------- ------------- =========
Weighted Avg. Shares 3,153,783
</TABLE>
<PAGE>
BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION
SIX MONTHS ENDED JUNE 30, 1998
Weighted Average Shares Outstanding:
<TABLE>
<CAPTION>
TOTAL # DAYS
SHARES OUTSTANDING
<S> <C> <C> <C>
1,750,205 x 119 = 208,274,395
1,754,513 x 1 = 1,754,513
1,852,873 x 40 = 74,114,920
1,856,445 x 21 = 38,985,345
----------- -----------
181 323,129,173
=========== ===========
323,129,173 /181 = 1,785,244
=========
</TABLE>
<TABLE>
<CAPTION>
Loss Per Share:
<S> <C> <C>
Net Loss plus dividend accrual
plus accretion of offering costs $ (6,631,780) = $ (3.71)
- --------------------------------- ------------- =========
Weighted Avg. Shares 1,785,244
</TABLE>
<PAGE>
BASIC AND DILUTED EARNINGS PER SHARE COMPUTATION
SIX MONTHS ENDED JUNE 30, 1999
Weighted Average Shares Outstanding:
<TABLE>
<CAPTION>
TOTAL # DAYS
SHARES OUTSTANDING
<S> <C> <C> <C>
2,179,124 x 19 = 41,403,356
2,179,713 x 30 = 65,391,390
2,180,358 x 74 = 161,346,492
2,182,328 x 3 = 6,546,984
2,315,330 x 13 = 30,099,290
2,328,334 x 7 = 16,298,338
2,354,737 x 15 = 35,321,055
6,150,068 x 11 = 67,650,748
6,569,557 x 9 = 59,126,013
--------------- -----------
181 483,183,666
=============== ===========
483,183,666 /181 = 2,669,523
=========
</TABLE>
<TABLE>
<CAPTION>
Loss Per Share:
<S> <C> <C>
Net Loss plus dividend accrual
plus accretion of offering costs $ (4,272,321) = $ (1.60)
- --------------------------------- ------------- =========
Weighted Avg. Shares 2,669,523
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THE REGISTRANT'S QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,441,888
<SECURITIES> 0
<RECEIVABLES> 514,064
<ALLOWANCES> 0
<INVENTORY> 17,737
<CURRENT-ASSETS> 8,058,006
<PP&E> 6,825,108
<DEPRECIATION> 5,509,448
<TOTAL-ASSETS> 10,610,884
<CURRENT-LIABILITIES> 375,526
<BONDS> 0
0
26,762,065
<COMMON> 65,696
<OTHER-SE> 54,669,182
<TOTAL-LIABILITY-AND-EQUITY> 10,610,884
<SALES> 0
<TOTAL-REVENUES> 1,066,279
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,681,701
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,615,422)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,615,422)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,615,422)
<EPS-BASIC> (1.60)
<EPS-DILUTED> (1.60)
</TABLE>
