UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended June 30, 1996
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: 033-78252
AMERICAN DRUG COMPANY
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3729186
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 West 57th Street, New York, NY 10019
(Address of principal executive offices) (Zip code)
(212) 230-9500
(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______
Number of shares outstanding of each of issuer's classes of
common stock as of August 9, 1996:
Common Stock 13,020,155 shares
AMERICAN DRUG COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Consolidated Condensed Balance Sheets -
June 30, 1996 and December 31, 1995 1
Consolidated Condensed Statements of Operations-
Three Months and Six Months Ended June 30,
1996 and 1995 3
Consolidated Condensed Statements of Cash Flows -
Six Months Ended June 30, 1996 and 1995 4
Notes to Consolidated Condensed Financial
Statements 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Qualification Relating to Financial Information 9
Part II. Other Information 10
Signatures 11
PART I. FINANCIAL INFORMATION
AMERICAN DRUG COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
June 30, December 31,
1996 1995
ASSETS (unaudited) *
Current assets
Cash and cash equivalents $ 61 $ 66
Accounts receivable, trade 146 104
Inventory (finished goods) 239 329
Prepaid expenses and other current assets 32 51
Total current assets 478 550
Machinery and equipment, at cost 111 108
Less accumulated depreciation (101) (86)
10 22
Organization costs (net of accumulated
amortization of $29 and $21,
respectively) 21 29
Other assets 1
$ 509 $ 602
* The Consolidated Condensed Balance Sheet as of December 31,
1995 has been summarized from the Company's audited Consolidated
Balance Sheet as of that date.
See accompanying notes to the consolidated condensed financial statements.
AMERICAN DRUG COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(in thousands)
June 30, December 31,
1996 1995
LIABILITIES AND STOCKHOLDERS' DEFICIENCY (unaudited) *
Current liabilities
Customers' deposits $ - $ 236
Accounts payable and accrued expenses 39 120
Total current liabilities 39 356
Long-term debt to National Patent 3,484 2,633
Stockholders' deficiency
Common stock 130 130
Capital in excess of par value 1,682 1,682
Deficit (4,786) (4,117)
Deferred compensation (40) (82)
Total stockholders' deficiency (3,014) (2,387)
$ 509 $ 602
* The Consolidated Condensed Balance Sheet as of December 31,
1995 has been summarized from the Company's audited Consolidated
Balance sheet as of that date
See accompanying notes to the consolidated condensed financial statements.
AMERICAN DRUG COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three months ended Six Months ended
June 30, June 30,
1996 1995 1996 1995
Revenues
Sales $ 109 $ 11 $ 612 $ 36
Consulting fees and commissions 103 32 124 87
Total revenues 212 43 736 123
Expenses
Cost of goods sold 83 5 449 20
General and administrative
expenses 352 392 762 764
Management fee to National Patent 30 30 60 60
Interest expense to National
Patent 78 36 134 61
Total expenses 543 463 1,405 905
Net loss $ (331) $ (420) $ (669) $ (782)
Net loss per share $ (.03) $ (.03) $ (.05) $ (.06)
See accompanying notes to the consolidated condensed financial statements.
AMERICAN DRUG COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six months
ended June 30,
1996 1995
Cash flows from operations:
Net loss $ (669) $ (782)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 23 20
Deferred compensation 42 42
Changes in other operating items (250) (146)
Net cash used in operations (854) (866)
Cash flows from investing activities:
Additions to machinery and equipment (3) (4)
Reduction of other assets 1 1
Net cash used in investing activities (2) (3)
Cash flows from financing activities:
Loans from National Patent 851 870
Net cash provided by financing activities 851 870
Net (decrease) increase in cash (5) 1
Cash at beginning of period 66 60
Cash at end of period $ 61 $ 61
See accompanying notes to the consolidated condensed financial statements.
AMERICAN DRUG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Subsequent Event
In July 1996, the Company issued a convertible note
(the "Note") in the principal amount of $1,000,000 in a private
offering (the "Offering"). The Company received net proceeds of
$950,000 from the Offering. The Note matures on June 30, 2001,
bears interest at the rate of 7% per annum, and is convertible
into shares of common stock of the Company at a conversion price
of $.25 per share. In connection with the Offering, National
Patent Development Corporation (National Patent), issued warrants
to purchase an aggregate of 82,306 shares of National Patent
common stock, exercisable at a price of $12.15 per share,
provided that the warrants may only be exercised utilizing the
Note. In the event that the closing price of the common stock of
the Company is at least $1.00 per share for at least 20
consecutive trading days, the Notes shall be subject to
redemption at the election of the Company, at a redemption price
of 100% of the principal amount called for redemption, together
with accrued interest.
The Company and National Patent have agreed that (i) if
the Notes are used to exercise the warrants prior to a default on
the Notes, National Patent will receive from the Company, in
exchange for the Notes shares of the Company's common stock at a
price equal to 60% of its then current market value, and (ii) if
the Notes are used to exercise the warrants after a default on
the Notes, National Patent will receive from the Company, in
exchange for the Notes shares of the Company's common stock at a
price equal to 25% of its then current market value.
AMERICAN DRUG COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Overview
The Company commenced operations in January 1990 as NPD
Trading (USA), Inc., which is now its wholly-owned subsidiary.
Since its inception, the Company has focused on assisting western
business to develop trade, manufacturing and investment
opportunities in Russia, the Czech and Slovak Republics and to a
lesser extent, other countries of the CIS. In late 1993, the
Company began the implementation of its plan for the export of
American-made generic prescription drugs and over-the-counter
healthcare products in both Russia and the CIS. The Company
received certain regulatory approvals in 1994 and 1995 to market
its products. The Company's strategy is to focus its efforts and
resources, in 1996 and thereafter, on marketing and distribution
in the generic pharmaceutical business, over the counter
pharmaceuticals and the sale of medical equipment.
Liquidity and Capital Resources
At June 30, 1996, the Company had cash of $61,000 and the
Company had borrowed the full $2.5 million under its loan
agreement from National Patent. These proceeds were to be used as
part of the Company's working capital. Such borrowings bear
interest at the prime rate, with principal and accrued interest
due on August 5, 1999.
National Patent had agreed to continue funding the Company
through June 30, 1996 pursuant to the same terms and conditions
as the existing loan agreement. As of June 30, 1996, the Company
had borrowed $3,167,000 from National Patent and had incurred
interest of $317,000.
Based upon the proceeds from the $1,000,000 Convertible Note
(See Note 1) and cash expected to be generated from operations,
the Company believes that it will have sufficient cash and cash
equivalents to satisfy its cash requirements through December 31,
1996. There can be no assurance that the Company will be able to
raise additional capital or that the terms of such transactions
will be favorable.
The Company does not manufacture, and does not anticipate
manufacturing, any of its products. As a consequence, the
Company has not made, and does not anticipate making, any major
capital expenditures.
AMERICAN DRUG COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations
Quarter Ended June 30, 1996 Compared to Quarter Ended June 30,
1995
Revenues. In the quarter ended June 30, 1996, the Company
had revenues of approximately $212,000 as compared to revenues of
approximately $43,000 for the quarter ended June 30, 1995. The
increase in revenues of $169,000 was due to increased consulting
revenues from ICF Kaiser and sales of generic drugs.
General and Administrative Expenses. General and
administrative expenses consist primarily of office rent,
salaries, travel and related costs and legal expenses. Direct
costs relating to consulting revenues are included in general and
administrative expenses. The Company's general and
administrative expenses decreased from $392,000 in the second
quarter of 1995 to $352,000 in the second quarter of 1996. This
decrease in general and administrative expenses from 1995 was due
principally to the start up expenses incurred in 1995 for the
implementation of the Company's plan to export American-made
generic pharmaceutical products.
AMERICAN DRUG COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Net Loss. The Company's net loss decreased to $331,000 for
the second quarter of 1996 from $420,000 in the second quarter of
1995. The decrease in general and administrative expenses as
well as increased revenue, partially offset by increased interest
expense incurred under the loan agreement with National Patent
accounted for this reduced net loss.
Six Months Ended June 30, 1996 Compared to Six Months Ended June
30, 1995
Revenues. For the six months ended June 30, 1996, the
Company had revenues of approximately $736,000, compared to
revenues of approximately $123,000 for the six months ended June
30, 1995. The increase in revenues of $613,000 was due to the
sale of medical equipment and generic drugs in the Commonwealth
of Independent States.
General and Administrative Expenses. General and
administrative expenses consist primarily of office rent,
salaries, travel and related costs and legal expenses. Direct
costs relating to consulting revenues are included in general and
administrative expenses. The Company's general and
administrative expenses decreased from $764,000 for the six
months ended June 30, 1995 to $762,000 for the six months ended
June 30, 1996.
Net Loss. The Company's net loss decreased to $669,000 for
the six months of 1996 from $782,000 for the six months of 1995
due to the increased revenues partially offset by increased
interest expense.
AMERICAN DRUG COMPANY AND SUBSIDIARIES
QUALIFICATION RELATING TO FINANCIAL INFORMATION
June 30, 1996
The financial information included herein is unaudited. In
addition, the financial information does not include all
disclosures required under generally accepted accounting
principles because certain note information included in the
Company's Annual Report has been omitted; however, such
information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management,
necessary to a fair statement of the results for the interim
periods. The results for the 1996 interim period are not
necessarily indicative of results to be expected for the entire
year.
AMERICAN DRUG COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
4.1. Form of 7% Convertible Note due 2001 of American Drug
Company.
4.2. Form of Warrant of National Patent Development Corporation.
b. Reports on Form 8-K
None
AMERICAN DRUG COMPANY AND SUBSIDIARIES
June 30, 1996
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed in
its behalf by the undersigned thereunto duly authorized.
AMERICAN DRUG COMPANY
DATE: August 13, 1996 BY: Martin M. Pollak
Vice President &
Chief Executive Officer
DATE: August 13, 1996 BY: Scott N. Greenberg
Chief Financial Officer
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<NAME> AMERICAN DRUG COMPANY
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 61,000
<SECURITIES> 0
<RECEIVABLES> 146,000
<ALLOWANCES> (20,000)
<INVENTORY> 239,000
<CURRENT-ASSETS> 478,000
<PP&E> 111,000
<DEPRECIATION> 101,000
<TOTAL-ASSETS> 509,000
<CURRENT-LIABILITIES> 40,000
<BONDS> 0
0
0
<COMMON> 130,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 509,000
<SALES> 612,000
<TOTAL-REVENUES> 736,000
<CGS> 449,000
<TOTAL-COSTS> 1,405,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 134,000
<INCOME-PRETAX> (669,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (669,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY FOREIGN OR STATE SECURITIES LAWS
AND MAY NOT BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED
IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED IN REGULATION S UNDER
THE ACT) OR OTHERWISE UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT
THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE FOREIGN OR STATE
SECURITIES LAWS OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE
HOLDER OF THIS NOTE, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY
TO THE COMPANY, THAT THIS NOTE MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED,
OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR APPLICABLE FOREIGN AND STATE SECURITIES LAWS.
American Drug Company
7% Convertible Note Due 2001
$500,000 June 30, 1996
American Drug Company, a Delaware corporation (the "Company"), for
value received, hereby promises to pay to ___________________,
with an address at ______________________, or registered assigns (the
"Holder" ), the principal amount of Five Hundred Thousand Dollars ($500,000)
together with accrued and unpaid interest thereon on the Maturity Date
(as defined below). The unpaid principal balance of this Note shall bear
interest at the rate of 7% per annum.
In no event shall any interest to be paid hereunder exceed
the maximum rate permitted by law. In any such event, this Note
shall automatically be deemed amended to permit interest charges at an
amount equal to, but no greater than, the maximum rate permitted by law.
Section 1. Definitions.
As used in this Note, the following terms, unless the context
otherwise requires, have the following meaning:
(a) "Act" means the Securities Act of 1933, as
amended.
(b) "Board of Directors" means the Board of Directors of
the Company or any committee of the Board authorized to act for
it hereunder.
(c) "Business Day" means any day which is not a Saturday
or Sunday and is not a day on which banking institutions are generally
authorized or obligated to close in the City of New York, New York, United
States of America.
(d) "Closing Price" for any day means (i) the last
reported sales price regular way on such day, or, in case no such
reported sale takes place on such day, the closing bid price regular way,
of the Common Stock, in either case on the principal national securities
exchange (including, for purposes hereof, the Nasdaq National Market or
Small Cap System if such system is then generally reporting last sale
prices) on which the Common Stock is listed or admitted to trading, (ii) if
the Common Stock is not listed or admitted to trading on any national
securities exchange, the highest reported bid price for the Common Stock as
furnished by the National Association of Securities Dealers, Inc. through
Nasdaq or a similar organization if Nasdaq is no longer reporting such
information, or (iii) if on any such date the Common Stock is not listed
or admitted to trading on any national securities exchange and is not quoted
by Nasdaq or any similar organization, the fair value of a share of Common
Stock on such date, as determined in good faith by the Board of Directors.
(e) "Common Stock" means the common stock, par value
$ .01 per share, of the Company.
(f) "Conversion Price" has the meaning set forth in Section 6.01.
(g) "Conversion Shares" has the meaning set forth in Section 6.01.
(h) "Current Market Price" on any date means the average
of the Closing Prices for the 20 consecutive trading days immediately
preceding the date in question.
(i) "Event of Default" has the meaning set forth in
Section 4 hereof.
(j) "Holder" means a Person in whose name this Note is
registered.
(k) "Interest Payment Date" means the last day of each
June commencing June, 1997.
(l) "Issuance Date" means June 30, 1996.
(m) "Maturity Date" means June 30, 2001.
(n) "Person" means any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
(o) "Principal Payment Date" means the Maturity Date or
such other date as principal of this Note shall be payable hereunder.
Section 2. Payments; Redemption.
2.01 Principal and Interest. Principal of, and accrued and
unpaid interest on, this Note shall be due and payable in full on
the Maturity Date. Interest on this Note shall accrue from the Issuance
Date and shall be payable annually on each Interest Payment Date. If any
Principal Payment Date or any Interest Payment Date would fall on a day
that is not a Business Day, the payment due on such Principal Payment Date
or such Interest Payment Date shall be made on the next succeeding Business
Day with the same force and effect as if made on such Principal Payment Date
or such Interest Payment Date, as the case may be.
2.02 Optional Redemption. This Note is subject to redemption, on
or after the date hereof, as a whole or in part, at the election of the
Company, at a redemption price of 100% of the principal amount called for
redemption, together with accrued interest to the redemption date on the
principal amount called for redemption, provided that the Closing Price shall
have equalled or exceeded 400% of the Conversion Price for at least 20
consecutive trading days ending within 20 days prior to the notice of
redemption referred to in the next sentence. Notice of redemption will be
mailed at least 20 but not more than 40 days before the redemption date to the
Holder in accordance with Section 8.01, at which time the Company's obligation
to redeem the portion of this Note called for redemption shall be absolute and
unconditional. This Note may be redeemed in part but only in integral
multiples of $1,000 principal amount. On and after the redemption date
interest will cease to accrue on this Note or portion hereof called for
redemption.
2.03 Method of Payment. Payments of principal and interest on
this Note shall be made by check sent to the Holder's address set
forth above or to such other address as the Holder may designate for such
purpose from time to time by written notice to the Company, in such coin or
currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts.
2.04 Waiver of Demand, etc. The obligations to make the payments
provided for in this Note are absolute and unconditional and not subject to
any defense, set-off, counterclaim, rescission, recoupment, or adjustment
whatsoever. The Company hereby expressly waives demand and presentment for
payment, notice of nonpayment, notice of dishonor, protest, notice of protest,
bringing of suit, and diligence in taking any action to collect any amount
called for hereunder, and shall be directly and primarily liable for the
payment of all sums owing and to be owing hereon, regardless of and without
any notice, diligence, act, or omission with respect to the collection of any
amount called for hereunder.
Section 3. Covenants.
From and after the Issuance Date, the Company shall comply with
the covenants and agreements contained in this Section 3 so long as any
amount remains unpaid on this Note.
3.01 Payment of Note. The Company shall duly and punctually pay
the principal of and interest on this Note at the respective times and in the
manner provided herein.
3.02 SEC Reports. Promptly (but in any event within 10 days)
after such filing, the Company will furnish to the Holder copies of any
reports filed by the Company with the United States Securities and Exchange
Commission.
3.03 Use of Proceeds. The Company shall not use the net cash
proceeds from the sale of this Note for the purpose of repaying indebtedness
of the Company to National Patent Development Corporation outstanding on the
Issuance Date.
Section 4. Events of Default.
The occurrence of any of the following events shall constitute an
event of default (an Event of Default ):
(a) A default in the payment of the principal of this Note, when
and as the same shall become due and payable, whether at maturity,
upon redemption, by acceleration or otherwise.
(b) A default in the payment of any interest on this Note,
when and as the same shall become due and payable, and continuance of such
default for a period of 30 days.
(c) A default in the performance, or a breach, in any
material respect, of any covenant or agreement of the Company in this Note,
and continuance of such default or breach for a period of 30 days after
receipt of notice from the Holder as to such default or breach.
(d) The entry of a decree or order by a court having
jurisdiction adjudging the Company a bankrupt or insolvent, or approving a
petition seeking reorganization, arrangement, adjustment or composition of or
in respect of the Company, under United States federal bankruptcy law, as now
or hereafter constituted, or any other applicable United States federal or
state bankruptcy, insolvency or other similar law, and the continuance of any
such decree or order unstayed and in effect for a period of 90 days; or the
commencement by the Company of a voluntary case under United States federal
bankruptcy law, as now or hereafter constituted, or any other applicable
United States federal or state bankruptcy, insolvency, or other similar law,
or the consent by it to the institution of bankruptcy or insolvency
proceedings against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under United States federal bankruptcy law or
any other applicable United States federal or state law, or the consent by it
to the filing of such petition or to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator or similar official of the Company
or of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due.
Section 5. Remedies Upon Default.
5.01 Acceleration. Upon the occurrence of an Event of Default
referred to in Section 4(d), the principal amount then outstanding of, and
the accrued interest on, this Note shall automatically become immediately
due and payable without presentment, demand, protest or other formalities
of any kind, all of which are hereby expressly waived by the Company. Upon
the occurrence and continuance of any Event of Default other than one referred
to in Section 4(d), the Holder, by notice in writing given to the Company, may
declare the entire principal amount then outstanding of, and the accrued
interest on, this Note to be due and payable immediately, and upon any such
declaration the same shall become and be due and payable immediately, without
presentation, demand, protest or other formalities of any kind, all of which are
expressly waived by the Company.
5.02 Institution of Actions. Upon the occurrence and continuance
of any Event of Default, the Holder may institute such actions or proceedings
in law or equity as it shall deem expedient for the protection of its rights
and may prosecute and enforce its claims against all assets of the Company,
and in connection with any such action or proceeding shall be entitled to
receive from the Company payment of the principal amount of this Note plus
accrued interest to the date of payment.
Section 6. Conversion.
6.01 Conversion; Procedure. Subject to and upon compliance with
the provisions of this Section 6, the then outstanding principal amount of
this Note, or any portion of such outstanding principal amount that is an
integral multiple of $1,000, may, at the Holder's option, be converted into
Common Stock at the initial conversion price of $.25 per share (the Conver-
sion Price ), subject to adjustment as provided herein. The number of shares
of Common Stock issuable upon conversion of this Note pursuant to this Section
6.01 (the Conversion Shares ) shall be determined by dividing the principal
amount of this Note to be converted by the Conversion Price in effect on the
conversion date and rounding the result to the nearest 1/100th of a share. To
convert, the Holder must, on or prior to the Maturity Date (or if this Note,
or the portion of this Note being converted, has been called for redemption,
then with respect to this Note or such portion, as the case may be, on or
prior to the date fixed for redemption) (a) complete and sign the conversion
notice at the end of this Note, (b) surrender this Note to the Company, (c)
furnish appropriate endorsements and transfer documents if required by the
Company, and (d) pay any transfer or similar tax if required. No accrued
interest shall be payable with respect to the principal amount of this Note
surrendered for conversion. Upon surrender of this Note for conversion, the
Company shall execute and deliver to the Holder, without service charge, a new
Note in the aggregate principal amount equal to the unconverted portion of the
principal of this Note so surrendered.
6.02 Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of this Note, such number
of shares of Common Stock as shall, from time to time, be sufficient therefor.
The Company covenants that all shares of Common Stock issuable upon conversion
of this Note, upon receipt by the Company of the full Conversion Price
therefor, shall be validly issued, fully paid, nonassessable, and free of
preemptive rights.
6.03 Adjustment for Change in Capital Stock. In case the Company
shall at any time after the Issuance Date (i) declare a dividend on the
outstanding Common Stock payable in shares of its capital stock,(ii)
subdivide the outstanding Common Stock into a greater number of shares, or
(iii) combine the outstanding Common Stock into a smaller number of shares,
then, in each case, the Conversion Price, and the number of Conversion Shares
issuable upon conversion of this Note, in effect at the time of the record
date for such dividend or of the effective date of such subdivision or
combination, shall be proportionately adjusted so that the Holder after such
time shall be entitled to receive the aggregate number and kind of shares
which, if such Holder had converted this Note immediately prior to such time,
such Holder would have owned upon such conversion and been entitled to receive
by virtue of such dividend, subdivision or combination. Such adjustment shall
be made successively whenever any event listed above shall occur.
6.04 Adjustment on a Record Date. In any case in which this
Section 6 shall require that an adjustment in the Conversion Price be made
effective as of a record date for a specified event, the Company may elect to
defer, until the occurrence of such event, issuing to the Holder, if the
Holder converts this Note after such record date, the shares of Common Stock,
if any, issuable upon such exercise over and above the shares of Common Stock,
if any, issuable upon such exercise on the basis of the Conversion Price in
effect prior to such adjustment; provided, however, that the Company shall
deliver to the Holder a due bill or other appropriate instrument evidencing
the Holder's right to receive such additional shares upon the occurrence of
the event requiring such adjustment.
6.05 Notice of Adjustment. Whenever there shall be an adjustment
as provided in this Section 6, the Company shall promptly cause written notice
thereof to be sent to the Holder, which notice shall be accompanied by an
officer's certificate setting forth the number of Conversion Shares
purchasable upon the conversion of this Note and the Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring
such adjustment and the computation thereof, which officer's certificate shall
be conclusive evidence of the correctness of any such adjustment absent
manifest error.
6.06 Fractional Shares. The Company shall not be required to
issue fractions of shares of Common Stock or other capital stock of the
Company upon the conversion of this Note. If any fraction of a share would be
issuable on the conversion of this Note (or any portion hereof), the Company
shall purchase such fraction for an amount in cash equal to the same fraction
of the Current Market Price of such share of Common Stock on the date of
conversion of this Note.
6.07 Consolidation; Merger; Reclassification.
(a) In case of any consolidation with or merger of the
Company with or into another corporation (other than a merger or consolidation
in which the Company is the surviving or continuing corporation), or in case
of any sale, lease, or conveyance to another corporation of the property and
assets of any nature of the Company as an entirety or substantially as an
entirety, such successor, leasing, or purchasing corporation, as the case may
be, shall (i) execute with the Holder an agreement providing that the Holder
shall have the right thereafter to receive upon conversion of this Note solely
the kind and amount of shares of stock and other securities, property, cash,
or any combination thereof receivable upon such consolidation, merger, sale,
lease, or conveyance by a holder of the number of shares of Common Stock into
which this Note might have been converted immediately prior to such consoli-
dation, merger, sale, lease, or conveyance and (ii) make effective provision
in its certificate of incorporation or otherwise, if necessary, to effect such
agreement. Such agreement shall provide for adjustments which shall be as
nearly equivalent as practicable to the adjustments in this Section 6.
(b) In case of any reclassification or change of the shares of
Common Stock issuable upon conversion of this Note (other than a
change in par value or from no par value to a specified par value, or as a
result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), or in case of any consolidation
or merger of another corporation into the Company in which the Company is the
continuing corporation and in which there is a reclassification or change
(including a change to the right to receive cash or other property)
of the shares of Common Stock (other than a change in par value, or from no
par value to a specified par value, or as a result of a subdivision or
combination, but including any change in the shares into two or more classes
or series of shares), the Holder shall have the right thereafter to receive
upon conversion of this Note solely the kind and amount of shares of stock and
other securities, property, cash, or any combination thereof receivable upon
such reclassification, change, consolidation, or merger by a holder of the
number of shares of Common Stock into which this Note might have been convert-
ed immediately prior to such reclassification, change, consolidation, or
merger. Thereafter, appropriate provision shall be made for adjustments which
shall be as nearly equivalent as practicable to the adjustments in Section
6.03.
(c) The above provisions of this Section 6.07 shall similarly apply
to successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
6.08 Notice of Certain Transactions. In case at any time the
Company shall propose:
(a) to pay any dividend or make any distribution on shares
of Common Stock in shares of Common Stock or make any other distribution
(other than regularly scheduled cash dividends which are not in a greater
amount per share than the most recent such cash dividend) to all holders of
Common Stock; or
(b) to issue any rights, warrants, or other securities to
all holders of Common Stock entitling them to purchase any additional shares
of Common Stock or any other rights, warrants, or other securities; or
(c) to effect any reclassification or change of outstanding
shares of Common Stock, or any consolidation, merger, sale, lease, or
conveyance of property, described in Section 6.07; or
(d) to effect any liquidation, dissolution, or winding-up
of the Company; or
(e) to take any other action which would cause an adjustment to
the Conversion Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, at least 10 days prior to (i) the date as of which the holders
of record of shares of Common Stock to be entitled to receive any such
dividend, distribution, rights, warrants, or other securities are to be deter-
mined, (ii) the date on which any such reclassification, change of outstanding
shares of Common Stock, consolidation, merger, sale, lease, conveyance of
property, liquidation, dissolution, or winding-up is expected to become
effective, and the date as of which it is expected that holders of record of
shares of Common Stock shall be entitled to exchange their shares for
securities or other property, if any, deliverable upon such reclassification,
change of outstanding shares, consolidation, merger, sale, lease, conveyance
of property, liquidation, dissolution, or winding-up, or (iii) the date of
such action which would require an adjustment to the Conversion Price.
6.09 Taxes. The issuance of any shares or other securities upon
the conversion of this Note, and the delivery of certificates or other
instruments representing such shares or other securities, shall
be made without charge to the Holder for any tax or other charge in
respect of such issuance. The Company shall not, however, be required to
pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of any certificate in a name other than that of the Holder
and the Company shall not be required to issue or deliver any such certificate
unless and until the person or persons requesting the issue thereof shall
have paid to the Company the amount of such tax or shall have established to
the satisfaction of the Company that such tax has been paid.
Section 7. Transfer.
7.01 Transfer of Note. Any Note issued upon the transfer or
conversion in part of this Note shall be registered in a note register as it
is issued. The Company shall be entitled to treat the registered holder of
any Note on the note register as the owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim to or inter-
est in such note on the part of any other Person, and shall not be liable for
any registration or transfer of Notes which are registered or to be registered
in the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust
in requesting such registration or transfer, or with the knowledge of such
facts that its participation therein amounts to bad faith. This Note shall be
transferable only on the books of the Company upon delivery thereof duly
endorsed by the Holder or by his duly authorized attorney or representative,
or accompanied by proper evidence of succession, assignment, or authority to
transfer. In all cases of transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his or
its authority shall be produced. Upon any registration of transfer, the
Company shall deliver a new Note or Notes to the person entitled thereto.
This Note may be exchanged, at the option of the Holder thereof, for another
Note, or other Notes of different denominations, of like tenor and
representing in the aggregate a like principal amount, upon surrender to the
Company or its duly authorized agent, provided that Notes shall only be issued
in integral multiples of $1,000 principal amount. Notwithstanding anything to
the contrary herein, the Company shall have no obligation to cause this Note
to be transferred on its books to any Person if, in the opinion of counsel to
the Company, such transfer does not comply with the provisions of the Act and
the rules and regulations thereunder or any state or foreign securities law.
7.02 Acknowledgement. The Holder, by accepting this Note, acknowledges
that he has been advised by the Company that this Note has not been registered
under the Act, that this Note is being or has been issued on the basis of the
statutory exemption provided by Regulation S (Regulation S ) promulgated under
the Act relating to offers and sales made outside of the United States, and
that the Company's reliance thereon is based in part upon
the representations made by the original Holder in the original Holder's
subscription agreement. The Holder acknowledges that he has been informed by
the Company of, or is otherwise familiar with, the nature of the limitations
imposed by the Act and the rules and regulations thereunder on the transfer of
securities. In particular, the Holder agrees that no offer, sale, pledge,
assignment or other transfer of this Note or the Conversion Shares in the
United States or to U.S. Persons (as defined in Regulation S) or otherwise
shall be valid or effective, and the Company shall not be required to give any
effect to any such offer, sale, pledge, assignment or other transfer, unless
(i) the offer, sale, pledge, assignment or other transfer of this Note or the
Conversion Shares is registered under the Act, it being understood that
neither this Note nor the Conversion Shares are currently registered for sale
and that the Company has no obligation or intention to so register this Note
or the Conversion Shares, or (ii) such offer, sale, pledge, assignment, or
other transfer is otherwise exempt from registration under the Act. The
Holder of this Note and each transferee hereof further agrees that if any
offer, sale, pledge, assignment or other transfer of this Note or the
Conversion Shares is proposed to be made by them otherwise than by delivery of
a prospectus meeting the requirements of Section 10 of the Act, such action
shall be taken only after submission to the Company of a written opinion of
counsel, which counsel and opinion are reasonably satisfactory to the Company,
to the effect that the proposed distribution will not be in violation of the
Act or of applicable foreign or state law. Any transferee, by accepting this
Note on transfer hereof, shall be deemed to have agreed to the provisions
hereof. Unless registered pursuant to the Act, the Conversion Shares shall
be subject to a stop transfer order and the certificate or certificates
evidencing such Conversion Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
ACT"), OR ANY FOREIGN OR STATE SECURITIES LAWS AND MAY NOT BE
OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE TRANSFERRED IN
THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED IN REGULATION S
UNDER THE ACT) OR OTHERWISE UNLESS (1) A REGISTRATION STATEMENT WITH
RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE
FOREIGN OR STATE SECURITIES LAWS OR (2) THE COMPANY RECEIVES AN
OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH
COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT
SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR
TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR APPLICABLE FOREIGN AND STATE SECURITIES LAWS.
Section 8. Miscellaneous.
8.01 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or by Federal Express, Express Mail
or similar overnight delivery or courier service or delivered (in person or by
telecopy, telex or similar telecommunications equipment) against receipt to
the party to whom it is to be given, (i) if to the Company, at its address at
9 West 57th Street, Suite 4170, New York, New York 10019, United States of
America, Attn: President, (ii) if to the Holder, at its address set forth on
the first page hereof, or (iii) in either case, to such other address as the
party shall have furnished in writing in accordance with the provisions of
this Section 8.01. Notice to the estate of any party shall be sufficient if
addressed to the party as provided in this Section 8.01. Any notice or other
communication given by certified mail shall be deemed given at the time of
certification thereof, except for a notice changing a party's address which
shall be deemed given at the time of receipt thereof. Any notice given by
other means permitted by this Section 8.01 shall be deemed given at the time
of receipt thereof.
8.02 Replacement Note. Upon receipt of evidence satisfactory to
the Company of the loss, theft, destruction or mutilation of this
Note and such indemnity agreement as may be necessary to hold the Company
harmless (and upon surrender of this Note if mutilated), and upon reimbursement
of the Company's reasonable incidental expenses, the Company shall
execute and deliver to the Holder a new Note of like date, tenor and
denomination.
8.03 Choice of Law. This Note has been negotiated and consummated in
the State of New York and shall be governed by and construed in
accordance with the laws of the State of New York, without giving
effect to conflict of laws.
8.04 Jurisdiction. Any action or proceeding arising, directly,
indirectly, or otherwise, in connection with, out of or from this Note, any
breach hereof or any transaction covered hereby shall be brought in the United
States federal or state courts located within the City of New York, State of
New York, United States of America.
IN WITNESS WHEREOF, the Company has caused this Note to be executed and
dated the day and year first above written.
AMERICAN DRUG COMPANY
By:
Name:
Title:
Election to Convert
To American Drug Company
The undersigned owner of this Note hereby irrevocably exercises
the option to convert the portion of this Note below designated, into shares
of Common Stock of American Drug Company in accordance with the terms of this
Note, and directs that the shares issuable and deliverable upon conversion,
together with any check in payment for fractional shares, be issued in the
name of and delivered to the undersigned registered Holder hereof, unless a
different name has been indicated in the assignment below. If shares are to
be issued in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto.
Dated:
Principal Amount of Note
to be converted: _______________________
_______________________________
Signature (for conversion only)
If shares of Common Stock are to be issued
and registered otherwise than to the registered
Holder named above, please print or typewrite
name and address, including zip code, and social
security or other taxpayer identification number.
__________________________________
__________________________________
__________________________________
Signature Guarantee (if shares of Common Stock are to be issued
and registered otherwise than to the registered Holder):
______________________________
Assignment
For value received, the undersigned owner hereby sells, assigns
and transfers this Note unto
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
[Please print or typewrite name and address including zip code of
assignee.]
and does hereby irrevocably constitute and appoint
_____________________________________________________________
Attorney to transfer this Note on the books of the Company with
full power of substitution in the premises.
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE __________________
Dated: _________________ Signed: ________________________
Signature Guarantee
________________________
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES
ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY FOREIGN OR
STATE SECURITIES LAWS AND NEITHER SUCH SECURITIES NOR ANY
INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED, OR OTHERWISE
TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED IN
REGULATION S UNDER THE ACT) OR OTHERWISE UNLESS (1) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY
APPLICABLE FOREIGN OR STATE SECURITIES LAWS OR (2) THE COMPANY
RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES,
WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED, OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE
FOREIGN AND STATE SECURITIES LAWS. THIS WARRANT MAY NOT BE
EXERCISED BY OR ON BEHALF OF ANY U.S. PERSON UNLESS REGISTERED
UNDER THE ACT OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
NATIONAL PATENT DEVELOPMENT CORPORATION
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
No. 1 41,153 Shares
THIS CERTIFIES that, for value received, ___________________,
with an address at _______________ (together with any transferee,
the Holder ), is entitled to subscribe for and purchase from
National Patent Development Corporation, a Delaware corporation
(the "Company"), upon the terms and conditions set forth herein,
41,153 shares of common stock, par value $.01 per share, of the
Company (the "Common Stock"), initially at a price of $12.15 per
share (as adjusted as provided herein, the "Exercise Price").
This Warrant is the warrant or one of the warrants (collectively,
including any warrants issued upon the exercise or transfer of
any such warrants in whole or in part, the "Warrants") to
purchase an aggregate of up to 82,306 shares of Common Stock
issued on or about June 30, 1996. As used herein the term this
Warrant shall mean and include this Warrant and any Warrant or
Warrants hereafter issued as a consequence of the exercise or
transfer of this Warrant in whole or in part.
The number of shares of Common Stock issuable upon exercise of
the Warrants (the "Warrant Shares") and the Exercise Price may be
adjusted from time to time as hereinafter set forth.
1. This Warrant may be exercised, in whole or in part, by
the surrender to the Company at its office as set forth in the
form of election attached hereto, or at such other place as is
designated in writing by the Company, of (a) this Warrant (with
the election at the end hereof duly executed) and (b) 7%
Convertible Notes Due 2001 (the "Notes") of American Drug
Company, a Delaware corporation ("ADC"), duly endorsed for
transfer. Upon such surrender, the Company shall issue to the
Holder a number of Warrant Shares equal to the principal amount
of Notes so surrendered (plus the amount of interest, if any, on
the Notes surrendered with respect to which a Payment Default (as
hereinafter defined) exists on the date of exercise) divided by
the Exercise Price. The Notes must be so surrendered on or prior
to the Maturity Date (as defined in the Note) or, if the Notes,
or a portion of the Notes, have been called for redemption by
ADC, then with respect to the Notes or such portion, as the case
may be, on or prior to the date fixed for redemption. THE
EXERCISE PRICE MAY NOT BE PAID WITH CASH OR ANY OTHER
CONSIDERATION OTHER THAN THE NOTES. No adjustment shall be made
with respect to any accrued interest payable with respect to
Notes surrendered in payment of the Exercise Price.
2. Upon each exercise of the Holder's rights to purchase
Warrant Shares, the Holder shall be deemed to be the holder of
record of the Warrant Shares issuable upon such exercise,
notwithstanding that the transfer books of the Company shall then
be closed or certificates representing such Warrant Shares shall
not then have been actually delivered to the Holder. As soon as
practicable after each such exercise of this Warrant, the Company
shall issue and deliver to the Holder a certificate or
certificates for the Warrant Shares issuable upon such exercise,
registered in the name of the Holder or its designee. If this
Warrant should be exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, execute and deliver a
new Warrant evidencing the right of the Holder to purchase the
balance of the Warrant Shares (or portions thereof) subject to
purchase hereunder.
3. (a) Any Warrant issued upon the transfer or exercise in
part of this Warrant shall be numbered and shall be registered in
a Warrant Register as it is issued. The Company shall be
entitled to treat the registered holder of any Warrant on the
Warrant Register as the owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim
to or interest in such Warrant on the part of any other person,
and shall not be liable for any registration or transfer of
Warrants which are registered or to be registered in the name of
a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a
breach of trust in requesting such registration or transfer, or
with the knowledge of such facts that its participation therein
amounts to bad faith. This Warrant shall be transferable only on
the books of the Company upon delivery thereof duly endorsed by
the Holder or by his duly authorized attorney or representative,
or accompanied by proper evidence of succession, assignment, or
authority to transfer. In all cases of transfer by an attorney,
executor, administrator, guardian, or other legal representative,
duly authenticated evidence of his or its authority shall be
produced. Upon any registration of transfer, the Company shall
deliver a new Warrant or Warrants to the person entitled thereto.
This Warrant may be exchanged, at the option of the Holder
thereof, for another Warrant, or other Warrants of different
denominations, of like tenor and representing in the aggregate
the right to purchase a like number of Warrant Shares (or
portions thereof), upon surrender to the Company or its duly
authorized agent. Notwithstanding anything to the contrary
herein, the Company shall have no obligation to cause Warrants to
be transferred on its books to any person if, in the opinion of
counsel to the Company, such transfer does not comply with the
provisions of the Securities Act of 1933, as amended (the Act ),
and the rules and regulations thereunder or any state or foreign
securities law.
(b) The Holder, by accepting this Warrant, acknowledges
that it has been advised by the Company that neither this Warrant
nor the Warrant Shares have been registered under the Act, that
this Warrant is being or has been issued and the Warrant Shares
will be issued on the basis of the statutory exemption provided
by Regulation S ("Regulation S") promulgated under the Act
relating to offers and sales made outside of the United States,
and that the Company's reliance thereon is based in part upon the
representations made by the original Holder in the original
Holder's subscription agreement. The Holder acknowledges that it
has been informed by the Company of, or is otherwise familiar
with, the nature of the limitations imposed by the Act and the
rules and regulations thereunder on the transfer and exercise of
securities. In particular, the Holder agrees that no offer, sale,
pledge, assignment, or other transfer of this Warrant or any
Warrant Shares, and no exercise of this Warrant, in the United
States or to or by or on behalf of U.S. Persons (as defined in
Regulation S) or otherwise shall be valid or effective, and the
Company shall not be required to give any effect to any such
offer, sale, pledge, assignment, other transfer, or exercise, or
to deliver Warrant Shares within the United States upon exercise,
unless (i) the offer, sale, pledge, assignment, or other transfer
of this Warrant or such Warrant Shares, or the exercise of this
Warrant, is registered under the Act, it being understood that
neither this Warrant nor the Warrant Shares are currently
registered for sale and that the Company has no obligation or
intention to so register this Warrant or the Warrant Shares, or
(ii) such offer, sale, pledge, assignment, other transfer, or
exercise is otherwise exempt from registration under the Act.
The Holder of this Warrant and each transferee hereof further
agrees that if any offer, sale, pledge, assignment, or other
transfer of this Warrant or any Warrant Shares is proposed to be
made by them otherwise than by delivery of a prospectus meeting
the requirements of Section 10 of the Act, such action shall be
taken only after submission to the Company of a written opinion
of counsel, which counsel and opinion are reasonably satisfactory
to the Company, to the effect that the proposed offer, sale,
pledge, assignment, other transfer, or exercise will not be in
violation of the Act or of applicable foreign or state law. Each
person exercising a Warrant shall give (i) written certification
that it is not a U.S. Person and the Warrant is not being
exercised on behalf of a U.S. Person; or (ii) a written opinion
of counsel, which counsel and opinion are reasonably satisfactory
to the Company, to the effect that the Warrant and Warrant Shares
have been registered under the Act or are exempt from
registration thereunder. Any transferee, by accepting a Warrant
on transfer hereof, shall be deemed to have agreed to the
provisions hereof.
4. The Company shall at all times reserve and keep available
out of its authorized and unissued Common Stock, solely for the
purpose of providing for the exercise of the rights to purchase
all Warrant Shares granted pursuant to the Warrants, such number
of shares of Common Stock as shall, from time to time, be
sufficient therefor. The Company covenants that all Warrant
Shares, when issued upon receipt by the Company of the full
Exercise Price therefor, shall be validly issued, fully paid,
nonassessable, and free of preemptive rights.
5. (a) In case the Company shall at any time after the date
the Warrants were first issued (i) declare a dividend on the
outstanding Common Stock payable in shares of its capital stock,
(ii) subdivide the outstanding Common Stock into a greater number
of shares, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then, in each case, the Exercise Price,
and the number of Warrant Shares issuable upon exercise of this
Warrant, in effect at the time of the record date for such
dividend or of the effective date of such subdivision or
combination, shall be proportionately adjusted so that the Holder
after such time shall be entitled to receive the aggregate number
and kind of shares which, if such Holder had exercised this
Warrant immediately prior to such time, such Holder would have
owned upon such exercise and been entitled to receive by virtue
of such dividend, subdivision or combination. Such adjustment
shall be made successively whenever any event listed above shall
occur.
(b) In any case in which Section 5(a) shall require that an
adjustment in the Exercise Price be made effective as of a record
date for a specified event, the Company may elect to defer, until
the occurrence of such event, issuing to the Holder, if the
Holder exercised this Warrant after such record date, the shares
of Common Stock, if any, issuable upon such exercise over and
above the shares of Common Stock, if any, issuable upon such
exercise on the basis of the Exercise Price in effect prior to
such adjustment;provided, however, that the Company shall deliver
to the Holder a due bill or other appropriate instrument
evidencing the Holder's right to receive such additional shares
upon the occurrence of the event requiring such adjustment.
(c) Whenever there shall be an adjustment as provided in
Section 5(a), the Company shall promptly cause written notice
thereof to be sent to the Holder, which notice shall be
accompanied by an officer's certificate setting forth the number
of Warrant Shares purchasable upon the exercise of this Warrant
and the Exercise Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment and the
computation thereof, which officer s certificate shall be
conclusive evidence of the correctness of any such adjustment
absent manifest error.
(d) The Company shall not be required to issue fractions of
shares of Common Stock or other capital stock of the Company upon
the exercise of this Warrant. If any fraction of a share would
be issuable on the exercise of this Warrant (or portion hereof),
the Company shall purchase such fraction for an amount in cash
equal to the same fraction of the Current Market Price (as
hereinafter defined) of such share of Common Stock on the date of
exercise of this Warrant.
(e) If, on the date of exercise of this Warrant in whole (but
not in part), there exists an Event of Default (as defined in the
Notes) with respect to the payment of principal of or interest on
the Notes surrendered in payment of the Exercise Price (a
"Payment Default"), and if (i) the Exercise Price is greater than
the Default Exercise Price (as hereinafter defined) on such date,
the Exercise Price shall be adjusted to equal the Default
Exercise Price, and the number of Warrant Shares issuable upon
such exercise shall be adjusted to equal the number determined by
dividing (A)the sum of (I) the number determined by multiplying
the number of Warrant Shares that would have been issuable upon
such exercise immediately prior to such adjustment by the
Exercise Price in effect immediately prior to such adjustment and
(II) the amount of interest on the Notes surrendered in payment
of the Exercise Price with respect to which a Payment Default
exists on the date of exercise by (B) the Default Exercise Price
or (ii) the Exercise Price is not greater than the Default
Exercise Price on such date, the Exercise Price shall not be
adjusted, and the number of Warrant Shares issuable upon such
exercise shall be adjusted to equal the sum of (A) the number of
Warrant Shares that would have been issuable upon such exercise
immediately prior to such adjustment and (B) the number
determined by dividing the amount of interest on the Notes
surrendered in payment of the Exercise Price with respect
to which a Payment Default exists on the exercise date by the
Exercise Price. The Default Exercise Price on any date of
exercise of this Warrant shall equal the Current Market Price per
share of Common Stock on the earliest date on which a Payment
Default occurred (other than a Payment Default which has been
cured as of such date of exercise), subject to the adjustments
set forth in Sections 5(a) and 6 for the period from the date of
such Payment Default to such date of exercise.
(f) The Current Market Price per share of Common Stock on
any date shall be the average of the daily closing prices for the
20 consecutive trading days immediately preceding the date in
question. The closing price for each day shall be the last
reported sales price regular way or, in case no such reported
sale takes place on such day, the closing bid price regular way,
in either case on the principal national securities exchange
(including, for purposes hereof, the Nasdaq National Market or
Small Cap System if such system is then generally reporting last
sale prices) on which the Common Stock is listed or admitted to
trading or, if the Common Stock is not listed or admitted to
trading on any national securities exchange, the highest reported
bid price for the Common Stock as furnished by the National
Association of Securities Dealers, Inc. through Nasdaq or a
similar organization if Nasdaq is no longer reporting such
information. If on any such date the Common Stock is not listed
or admitted to trading on any national securities exchange and is
not quoted by Nasdaq or any similar organization, the fair value
of a share of Common Stock on such date, as determined in good
faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error, shall be
used.
6. (a) In case of any consolidation with or merger of the
Company with or into another corporation (other than a merger or
consolidation in which the Company is the surviving or continuing
corporation), or in case of any sale, lease, or conveyance to
another corporation of the property and assets of any nature of
the Company as an entirety or substantially as an entirety, such
successor, leasing, or purchasing corporation, as the case may
be, shall (i) execute with the Holder an agreement providing that
the Holder shall have the right thereafter to receive upon
exercise of this Warrant solely the kind and amount of shares of
stock and other securities, property, cash, or any combination
thereof receivable upon such consolidation, merger, sale, lease,
or conveyance by a holder of the number of shares of Common Stock
for which this Warrant might have been exercised immediately
prior to such consolidation, merger, sale, lease, or conveyance
and (ii) make effective provision in its certificate of
incorporation or otherwise, if necessary, to effect such
agreement. Such agreement shall provide for adjustments which
shall be as nearly equivalent as practicable to the adjustments
in Section 5.
(b) In case of any reclassification or change of the shares
of Common Stock issuable upon exercise of this Warrant (other
than a change in par value or from no par value to a specified
par value, or as a result of a subdivision or combination, but
including any change in the shares into two or more classes or
series of shares), or in case of any consolidation or merger of
another corporation into the Company in which the Company is the
continuing corporation and in which there is a reclassification
or change (including a change to the right to receive cash or
other property) of the shares of Common Stock (other than a
change in par value, or from no par value to a specified par
value, or as a result of a subdivision or combination, but
including any change in the shares into two or more classes or
series of shares), the Holder shall have the right thereafter to
receive upon exercise of this Warrant solely the kind and amount
of shares of stock and other securities, property, cash, or any
combination thereof receivable upon such reclassification,
change, consolidation, or merger by a holder of the number of
shares of Common Stock for which this Warrant might have been
exercised immediately prior to such reclassification, change,
consolidation, or merger. Thereafter, appropriate provision shall
be made for adjustments which shall be as nearly equivalent as
practicable to the adjustments in Section 5.
(c) The above provisions of this Section 6 shall similarly
apply to successive reclassifications and changes of shares of
Common Stock and to successive consolidations, mergers, sales,
leases, or conveyances.
7. In case at any time the Company shall propose
(a) to pay any dividend or make any distribution on
shares of Common Stock in shares of Common Stock or make any
other distribution (other than regularly scheduled cash
dividends which are not in a greater amount per share than the
most recent such cash dividend) to all holders of Common
Stock; or
(b) to issue any rights, warrants, or other securities
to all holders of Common Stock entitling them to purchase any
additional shares of Common Stock or any other rights,
warrants, or other securities; or
(c) to effect any reclassification or change of
outstanding shares of Common Stock, or any consolidation,
merger, sale, lease, or conveyance of property, described in
Section 6; or
(d) to effect any liquidation, dissolution, or
winding-up of the Company; or
(e) to take any other action which would cause an
adjustment to the Exercise Price;
then, and in any one or more of such cases, the Company shall
give written notice thereof, at least 10 days prior to (i) the
date as of which the holders of record of shares of Common Stock
to be entitled to receive any such dividend, distribution,
rights, warrants, or other securities are to be determined, (ii)
the date on which any such reclassification, change of
outstanding shares of Common Stock, consolidation, merger, sale,
lease, conveyance of property, liquidation, dissolution, or
winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common
Stock shall be entitled to exchange their shares for securities
or other property, if any, deliverable upon such
reclassification, change of outstanding shares, consolidation,
merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up, or (iii) the date of such
action which would require an adjustment to the Exercise Price.
8. The issuance of any shares or other securities upon the
exercise of this Warrant, and the delivery of certificates or
other instruments representing such shares or other securities,
shall be made without charge to the Holder for any tax or other
charge in respect of such issuance. The Company shall not,
however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of any
certificate in a name other than that of the Holder and the
Company shall not be required to issue or deliver any such
certificate unless and until the person or persons requesting the
issue thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company
that such tax has been paid.
9. Unless registered pursuant to the Act, the Warrant Shares
issued upon exercise of the Warrants shall be subject to a stop
transfer order and the certificate or certificates evidencing
such Warrant Shares shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY FOREIGN OR STATE SECURITIES LAWS AND
NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE
OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED
IN THE UNITED STATES OR TO U.S. PERSONS (AS DEFINED IN
REGULATION S UNDER THE ACT) OR OTHERWISE UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE
UNDER THE ACT AND ANY APPLICABLE FOREIGN OR STATE
SECURITIES LAWS OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL
AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY,
THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED,
ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
OR APPLICABLE FOREIGN AND STATE SECURITIES LAWS.
10. Upon receipt of evidence satisfactory to the Company of
the loss, theft, destruction, or mutilation of any Warrant and
such indemnity agreement as may be necessary to hold the Company
harmless (and upon surrender of any Warrant if mutilated), and
upon reimbursement of the Company s reasonable incidental
expenses, the Company shall execute and deliver to the Holder
thereof a new Warrant of like date, tenor, and denomination.
11. The Holder of any Warrant shall not have, solely on
account of such status, any rights of a stockholder of the
Company, either at law or in equity, or to any notice of meetings
of stockholders or of any other proceedings of the Company,
except as provided in this Warrant.
12. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or by Federal Express,
Express Mail or similar overnight delivery or courier service or
delivered (in person or by telecopy, telex or similar
telecommunications equipment) against receipt to the party to
whom it is to be given, (i) if to the Company, at its address at
9 West 57th Street, Suite 4170, New York, New York 10019, United
States of America, Attn: President, (ii) if to the Holder, at its
address set forth on the first page hereof, or (iii) in either
case, to such other address as the party shall have furnished in
writing in accordance with the provisions of this Section 12.
Notice to the estate of any party shall be sufficient if
addressed to the party as provided in this Section 12. Any
notice or other communication given by certified mail shall be
deemed given at the time of certification thereof, except for a
notice changing a party's address which shall be deemed given at
the time of receipt thereof. Any notice given by other means
permitted by this Section 12 shall be deemed given at the time of
receipt thereof.
13. This Warrant has been negotiated and consummated in the
State of New York and shall be governed by and construed in
accordance with the laws of the State of New York, without giving
effect to conflict of laws.
14. Any action or proceeding arising, directly, indirectly,
or otherwise, in connection with, out of or from this Warrant,
any breach hereof or any transaction covered hereby shall be
brought in the United States federal or state courts located
within the City of New York, State of New York, United States of
America.
Dated: June 30, 1996
NATIONAL PATENT DEVELOPMENT
CORPORATION
By:_____________________________
Jerome I. Feldman
President and Chief
Executive
Officer
______________________________
Andrea D. Kantor
Assistant Secretary
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires
to transfer the attached Warrant.)
FOR VALUE RECEIVED, ________________________________ hereby
sells, assigns, and transfers unto __________________ a Warrant
to purchase __________ shares of Common Stock, $.01 par value per
share, of National Patent Development Corporation (the "Company"), together
with all right, title, and interest therein, and does hereby irrevocably
constitute and appoint _________________________________ attorney to
transfer such Warrant on the books of the Company, with full power of
substitution.
Dated: ________________________
Signature
NOTICE
The signature on the foregoing Assignment must correspond to
the name as written upon the face of this Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
To: National Patent Development Corporation
Suite 4170
9 West 57th Street
New York, New York 10019
United States of America
ELECTION TO EXERCISE
The undersigned hereby exercises his or its rights to
purchase _______ Warrant Shares covered by the within Warrant in
accordance with the terms thereof and tenders 7% Convertible
Notes Due 2001 (the "Notes") of American Drug Company, a Delaware
corporation,duly endorsed, in the principal amount (which shall
be an integral multiple of $1,000) of $_________ , which equals
the Exercise Price multiplied by the number of Warrant Shares for
which this Warrant is being exercised, and requests that
certificates for such securities, together with any check in
payment for fractional shares, be issued in the name of, and
delivered to:
(Print Name, Address, and Social Security
or Tax Identification Number)
and, if such number of Warrant Shares shall not be all the
Warrant Shares covered by the within Warrant, that a new Warrant
for the balance of the Warrant Shares covered by the within
Warrant be registered in the name of, and delivered to, the
undersigned at the address stated below.
Dated:_________________ Name________________________
(Print)
Address:__________________________________________________
___________________________
(Signature)
