<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 September 30, 1999
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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 0-6533
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BOSTON LIFE SCIENCES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 87-0277826
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
137 Newbury Street, 8th Floor, Boston, Massachusetts 02116
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(Address of principal executive offices) (Zip code)
(617) 425-0200
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed
since last report)
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.
(X) Yes ( ) No
As of November 11, 1999 there were 15,327,950 shares of Common Stock
outstanding.
<PAGE>
BOSTON LIFE SCIENCES, INC.
INDEX TO FORM 10-Q
Page (s)
--------
Part I - Financial Information:
Item 1 - Financial Statements (unaudited)
Condensed Consolidated Balance Sheet as of 1
September 30, 1999 and December 31, 1998
Condensed Consolidated Statement of Operations for 2
the three and nine months ended September 30, 1999 and
1998, and for the period from inception (October 16, 1992)
to September 30, 1999
Condensed Consolidated Statement of Cash Flows 3
for the nine months ended September 30, 1999 and 1998,
and for the period from inception (October 16, 1992) to
September 30, 1999
Notes to Condensed Consolidated Financial Statements 4 - 6
Item 2 - Management's Discussion and Analysis of 7 - 11
Financial Condition and Results of Operations
Part II - Other Information
Item 1 - Legal Proceedings 12
Item 2 - Changes in Securities 12
Item 3 - Defaults Upon Senior Securities 12
Item 4 - Submission of Matters to a Vote of 12
Security Holders
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 13
Signature (s) 14
<PAGE>
Part I--Financial Information
Item 1--Financial Statements
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Consolidated Balance Sheets
---------------------------
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 8,014,920 $ 71,834
Short-term investments 10,322,846 7,837,992
Other current assets 258,460 568,599
------------------ -----------------
Total current assets 18,596,226 8,478,425
Fixed assets, net 12,465 14,417
Technology acquired 3,500,000 3,500,000
Other assets 456,402 276,206
------------------ -----------------
Total assets $ 22,565,093 $ 12,269,048
================== =================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 1,697,072 $ 1,734,199
8% Convertible Redeemable Debentures,
due September 2003 4,339,063 --
Series C Convertible Redeemable Preferred Stock,
$.01 par value; 475,000 shares authorized
197,621 shares outstanding on September 30, 1999 3,853,610 --
Stockholders' equity:
Series A Convertible Preferred stock, $.01 par value
13,404 shares authorized as of September 30, 1999,
5,233 shares outstanding on September 30, 1999 and
16,996 shares outstanding on December 31, 1998 52 170
Common Stock, $0.01 par value;
30,000,000 shares authorized
15,247,210 shares outstanding on September 30, 1999 and
13,276,978 shares outstanding on December 31, 1998 152,472 132,770
Additional paid-in capital 60,870,956 50,489,202
Unrealized gains (losses) on investments (393,174) 76,203
Deficit accumulated during development stage (47,954,958) (40,163,496)
------------------ -----------------
Total stockholders' equity 12,675,348 10,534,849
------------------ -----------------
Total liabilities and stockholders' equity $ 22,565,093 $ 12,269,048
================== =================
</TABLE>
See notes to consolidated financial statements.
1
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<TABLE>
<CAPTION>
Boston Life Sciences, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Operations
-------------------------------------
(Unaudited)
Three Months Ended Nine Months Ended From inception
September 30, September 30, (October 16, 1992)
------------------------- ------------------------ to September 30,
1999 1998 1999 1998 1999
---------- ---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues $ 200,000 - $ 200,000 - $ 900,000
Operating Expenses
Research and development expenses 1,843,481 $ 1,169,010 3,522,274 $ 3,414,362 20,301,276
Licensing fees - - - 55,000 733,683
Therafectin(R) related expenses 1,777 31,339 1,083,398 292,121 5,243,457
General and administrative expenses 682,872 587,831 2,001,897 1,854,909 12,467,147
Purchased research and development
in-process 1,725,000 - 1,725,000 - 12,146,544
---------- ---------- ---------- ---------- ----------
Total operating expenses 4,253,130 1,788,180 8,332,569 5,616,392 50,892,107
---------- ---------- ---------- ---------- ----------
Loss from operations (4,053,130) (1,788,180) (8,132,569) (5,616,392) (49,992,107)
Interest expense (214,063) - (214,063) - (1,675,892)
Interest income 190,558 191,802 555,170 636,661 3,713,041
---------- ---------- ---------- ---------- ----------
Net loss $(4,076,635) $(1,596,378) $ (7,791,462) $(4,979,731) $(47,954,958)
========== ========== ========== ========== ==========
Calculation of net loss available to
common stockholders:
Net loss $(4,076,635) $(1,596,378) $ (7,791,462) $(4,979,731)
Preferred stock preferences
(Note 5) - - $ (4,240,000) -
---------- ---------- ---------- ----------
Net loss available to common
shareholders $(4,076,635) $(1,596,378) $(12,031,462) $(4,979,731)
========== ========== ========== ==========
Calculation of basic and diluted
net loss per share available
to common stockholders:
Net loss per share $ (0.27) $ (0.12) $ (0.84) $ (0.38)
Preferred stock preferences
per share (Note 5) - - $ (0.30) -
---------- ---------- ---------- ----------
Basic and diluted net loss
available to common
stockholders: $ (0.27) $ (0.12) $ (1.14) $ (0.38)
========== ========== ========== ==========
Weighted average shares
outstanding 14,894,266 13,221,610 14,253,961 13,094,321
========== ========== ========== ==========
See notes to consolidated financial statements.
</TABLE>
2
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BOSTON LIFE SCIENCES, INC.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Period from
Nine Months Ended September 30, Inception (October
------------------------------ 16, 1992) through
1999 1998 September 30, 1999
------------- ----------- -----------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($7,791,462) ($4,979,731) ($47,954,958)
Adjustments to reconcile net loss to net cash
used for operating activities:
Purchased research and development in-process 1,725,000 0 12,146,544
Compensation charge related to options and warrants granted 115,000 555,000 1,708,765
Amortization and depreciation 11,185 60,000 1,463,001
Accretion of discount on convertible debentures 214,063 0 214,063
Changes in assets and liabilities:
Other current assets 310,139 379,875 237,068
Accounts payable and accrued expenses (37,127) (495,179) 749,407
----------- ----------- ------------
Net cash used for operating activities (5,453,202) (4,480,035) (31,436,110)
----------- ----------- ------------
Cash flows from investing activities:
Cash acquired through the merger with
Greenwich Pharmaceuticals 0 1,758,037
Increase in fixed assets (9,233) (4,415) (265,934)
Increase in other assets (180,196) (12,824) (446,602)
Short term investments:
Purchases (7,318,466) (8,850,358) (52,216,696)
Sales and Maturities 4,364,235 14,277,309 41,500,676
----------- ----------- ------------
Net cash provided by (used in) investing activities (3,143,660) 5,409,712 (9,670,519)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock 3,574,709 156,458 16,732,763
Proceeds from issuance of convertible preferred stock 6,150,000 0 27,022,170
Proceeds from issuance of notes payable 0 0 2,585,000
Proceeds from issuance of convertible debt and warrants 8,000,000 0 9,000,000
Principal payments of notes payable 0 0 (2,796,467)
Payment of note issuance costs 0 0 (399,702)
Payment of stock issuance and merger transaction costs (1,184,761) 0 (3,022,215)
----------- ----------- ------------
Net cash provided by financing activities 16,539,948 156,458 49,121,549
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents 7,943,086 1,086,135 8,014,920
Cash and cash equivalents at beginning of period 71,834 1,713,975 0
----------- ----------- ------------
Cash and cash equivalents at end of period $8,014,920 $2,800,110 $8,014,920
=========== =========== ============
</TABLE>
Supplemental disclosure of non-cash transactions:
Conversion of preferred stock to common (Notes 3 and 5)
Purchase of research and development option (Note 7)
See notes to consolidated financial statements.
3
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BOSTON LIFE SCIENCES, INC.
(a development stage enterprise)
Notes to Unaudited Consolidated Financial Statements
(September 30, 1999)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, these financial
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
The interim unaudited consolidated financial statements contained herein
include, in management's opinion, all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the financial
position, results of operations, and cash flows for the periods presented.
The results of operations for the interim period shown on this report are not
necessarily indicative of results for a full year. These financial statements
should be read in conjunction with the Company's consolidated financial
statements and notes for the year ended December 31, 1998, appearing in the
Company's Annual Report on Form 10-K, as amended, for such year.
2. NET LOSS PER SHARE
Basic and diluted net loss per share available to common stockholders has
been calculated by dividing net loss, adjusted for preferred stock
preferences, by the weighted average number of common shares outstanding
during the period. All potential common shares have been excluded from the
calculation of weighted average common shares outstanding since their
inclusion would be anti-dilutive.
Stock options and warrants to purchase approximately 6.3 million and
approximately 3.2 million shares of common stock were outstanding at
September 30, 1999 and 1998, respectively, but were not included in the
computation of diluted net loss per common share because they were
anti-dilutive. Also excluded were approximately 92,000 and approximately
298,000 shares of common stock issuable upon the conversion of Series A
preferred stock outstanding at September 30, 1999 and 1998, respectively.
Also excluded from the computation were approximately 988,000 and
approximately 1.5 million shares of common stock issuable upon the conversion
of Series C preferred stock and convertible debentures, respectively,
outstanding at September 30, 1999. The exercise of these stock options and
warrants, or the conversion of the preferred stock or convertible debentures,
could potentially dilute earnings per share in the future.
3. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the nine months ended September 30, 1999, the Company issued 206,296
and 588,975 shares of common stock resulting from the conversion of 11,763
and 117,795 shares of Series A and Series C preferred stock, respectively.
During the nine months ended September 30, 1998, the Company issued 1,501,246
shares of common stock resulting from the conversion of 85,601 shares of
Series A preferred stock.
4
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BOSTON LIFE SCIENCES, INC.
(a development stage enterprise)
Notes to Unaudited Consolidated Financial Statements
(September 30, 1999)
4. COMPREHENSIVE NET LOSS
Comprehensive net loss for the nine months ended September 30, 1999 and
1998, and for the period from inception to date, was as follows:
<TABLE>
<CAPTION>
FROM INCEPTION
(OCTOBER 16,
1992) TO
SEPTEMBER 30,
1999 1998 1999
--------------- ---------------- -----------------
<S> <C> <C> <C>
Net loss............................................... $ (7,791,462) $(4,979,731) $(47,954,958)
Preferred stock preferences (Note 5).................. (4,240,000) -- (38,627,953)
Unrealized gains (losses) on securities
Unrealized holding gains (losses) arising during
the period........................................ (469,377) 89,769 (392,390)
Investment gains (losses) included in net loss..... 21,487 81,139 20,203
------------ ----------- ------------
Comprehensive loss..................................... $(12,479,352) $(4,808,823) $(86,955,098)
============ =========== ============
</TABLE>
Comprehensive net loss for the three months ended September 30, 1999 and 1998
was $4,140,597 and $1,451,158, respectively.
5. PREFERRED STOCK ISSUANCE
In February 1999, the Company completed a private placement of Series C
Convertible Preferred Stock, $.01 par value, ("Series C Stock") which raised
proceeds of approximately $5.7 million, net of approximately $0.5 million of
issuance costs. In connection with the financing, the Company issued (i)
315,416 shares of Series C Stock and (ii) 569,248 warrants to purchase common
stock at $5.06 per share and 219,238 warrants to purchase common stock at
$6.09 per share. In connection with this financing, the Company paid $372,725
to the placement agent and issued 162,307 warrants to purchase common stock
at $5.06 per share and 54,808 warrants to purchase common stock at $6.09 per
share to the placement agent.
Each share of the Series C Stock is convertible at any time at the option of
the holder into shares of common stock pursuant to a ratio of five shares of
common stock for each share of Series C Stock. The Series C Stock provides
for a minimum return of 25% whereby the Company may be required to issue up
to one additional share of common stock for each share of common stock
underlying Series C Stock still held by an investor on the date that is 270
days after the closing, if the market price of the common stock is below a
specified level on such date. However, the investor's right to receive
additional shares terminates if the market price of the common stock is above
a specified level for a certain period, as defined. The initial conversion
price of the Series C Stock was at a discount to the market price on the date
of issuance. The intrinsic value of this beneficial conversion feature
totaled approximately $1.9 million. The net proceeds of approximately $5.7
million has been allocated between the warrants (approximately $1.9 million)
and the Series C Stock (approximately $3.8 million) based on their relative
fair values. The value attributable to the beneficial conversion feature
($1.9 million) and the warrants ($1.9 million) has been included in the
amount recognized as a preferred stock preference in the statement of
operations for the nine months ended September 30, 1999. These amounts
represent a non-cash charge in the determination of net loss available to
common shareholders.
5
<PAGE>
Under certain circumstances, the Company may be required to redeem any shares
of Series C Stock then outstanding. Because the redemption of the Series C
Stock is not completely within the control of the Company, the required
redemption amount has been reflected outside of stockholders' equity as
"mezzanine" financing.
As of September 30, 1999, a total of 117,795 shares of Series C stock has
been converted into 588,975 shares of common stock, resulting in a decrease
in the amount reported as Series C Preferred Stock of approximately $2.3
million with a corresponding increase in stockholders' equity.
6. CONVERTIBLE DEBENTURE FINANCING
In September 1999, the Company issued $8 million in convertible debentures
due September 2003 and warrants to purchase a total of 1,680,000 shares of
the Company's common stock to two institutional investment funds, both
managed by the same institutional investment firm. The warrants were issued
in two classes, the first, or "class A" warrants, are exercisable to purchase
960,000 shares of common stock at an exercise price of $5.75 per share. The
second, or "class B" warrants, are exercisable to purchase 720,000 shares of
common stock at an exercise price of $8.25 per share.
The debentures accrue interest at 8% per annum, payable semi-annually, and
are convertible by the holders into common stock at a conversion price of
$5.25 per share, subject to certain anti-dilution adjustments. The conversion
price will be adjusted to the then market price of the Company's common stock
on the first and second anniversary dates, provided however that such
adjustments can only reduce the conversion price subject to certain maximum
adjustments. The Company may elect to pay interest accrued on the debentures
in shares of common stock, subject to certain limitations.
The net proceeds of $7.5 million has been allocated between the warrants
(approximately $3.4 million) and the convertible debentures (approximately
$4.1 million) based on their relative fair values. The initial carrying value
of the debentures will be accreted ratably, over the term of the debenture,
to the $8 million amount due at maturity, with the quarterly accretion amount
of approximately $242,000 also recognized as non-cash interest expense in the
statement of operations.
7. ACQUISITION OF FUSION TOXIN TECHNOLOGY
In September 1999, the Company finalized an agreement with MTR Technologies,
Inc. ("MTR") under which it acquired an option to acquire the licensing
rights to certain technology covering fusion toxins for the treatment of a
wide variety of solid tumors, as well as multiple sclerosis and allergies.
The technology was invented by scientists at Hadassah Medical School of the
Hebrew University in Jerusalem, and was initially licensed to MTR by Yissum
Research Development Company of the Hebrew University in Jerusalem
("Yissum").
The option expires in May 2000, during which period the Company will complete
certain pre-clinical studies to determine whether it wants to acquire the
licensed rights to the technology. The Company issued 232,000 shares of
common stock and 216,000 warrants exercisable to purchase the Company's
common stock at an exercise price of $4.25 per share as consideration for the
option. The fair value of such consideration of $1,725,000 has been
recognized in the statement of operations as purchased research and
development in-process. If the Company elects to exercise its option to
acquire the licensing rights to the technology, it will pay additional
consideration to MTR (in the form of cash or additional shares, equal to $1.4
million less the fair value of the 232,000 shares originally issued), as well
as milestone payments upon the completion of clinical trials and royalties on
any future product sales related to the technology.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(September 30, 1999)
This Quarterly Report on Form 10-Q containS forward-looking statements.
Specifically, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects," and
similar expressions are intended to identify forward-looking statements. There
are a number of meaningful factors that could cause the Company's actual results
to differ materially from those indicated by any such forward-looking
statements. These factors include, without limitation, the duration and results
of clinical trials and their effect on the FDA regulatory process, uncertainties
regarding receipt of approvals for any possible products and any commercial
acceptance of such products, possible difficulties with obtaining necessary
patent protection, and uncertainties regarding the outcome of any of the
Company's collaborations or alliances with third parties. Other factors include
those set forth under the caption "Forward-Looking Statements" in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998 and the
documents referred to under such caption.
RESULTS OF OPERATIONS
Overview
The Company is a biotechnology company engaged in the research and
development of novel therapeutic and diagnostic products to treat chronic
debilitating diseases such as cancer, central nervous system disorders and
autoimmune diseases. The Company expects that its research and development costs
will continue to increase as the Company attempts to gain regulatory approval
for commercial introduction of its proposed products. At September 30, 1999, the
Company is considered a "development stage enterprise" as defined in Statement
of Financial Accounting Standards No. 7.
Three Months Ended September 30, 1999 and 1998
Revenues were $200,000 for the three months ended September 30, 1999 as
compared with zero for the three months ended September 30, 1998. In September
1999, the Company announced that it had entered into a development and licensing
agreement with a major pharmaceutical company to further develop a major sector
of the Company's transcription factor technology. Under the terms of the
agreement, the pharmaceutical company will screen its small molecule collection
for potential inhibitors of the transcription factor, with the goal of
developing a small molecule therapeutic drug for the treatment of a wide range
of allergies and asthma. The Company will also receive royalties on eventual
sales of any product derived from the development effort.
The Company's net loss was $4,076,635 during the three months ended September
30, 1999 as compared with $1,596,378 during the three months ended September 30,
1998. The higher net loss in the 1999 period was primarily due to higher
research and development expenses including a purchased research and development
charge of $1,725,000 related to the acquisition of an option to acquire the
rights to certain new technologies. Net loss per common share equaled $.27 per
share for the 1999 period as compared to $.12 per share for the 1998 period. The
number of weighted average shares outstanding increased by approximately 13%
primarily resulting from the private placement of common stock completed in the
first quarter of 1999.
Research and development expenses were $1,843,481 during the three months
ended September 30, 1999 as compared with $1,169,010 during the three months
ended September 30, 1998. The increase was primarily attributable to increased
expenditures related to the Phase III clinical trial for Altropane and the
initiation of pre-clinical activities for two new technologies. The majority of
the Company's research and development expenses were sponsored research
obligations paid to Harvard University and
7
<PAGE>
its affiliated hospitals. The Company expects to incur total research and
development costs between $5 million and $6 million during 1999, and between $6
and $7 million in 2000.
Licensing fees were zero during both the three months ended September 30,
1999 and during the three months ended September 30, 1998. The Company did not
execute any new licensing agreements during either period or incur any
obligations under its existing licensing agreements. In addition to an initial
licensing fee payment, the Company is obligated to pay additional amounts upon
the attainment of development milestones, as defined in each respective
licensing agreement, as well as royalties upon the sales of any resulting
products. The Company expects to pay future licensing fees, the timing and
amounts of which will depend upon the progress attained in developing existing
technologies and the terms of agreements which may be executed for technologies
currently being developed or which may be developed in the future. There can be
no assurance regarding the likelihood or materiality of any such future
licensing agreements.
Therafectin(R) related expenses were $1,777 during the three months ended
September 30, 1999 as compared with $31,339 during the three months ended
September 30, 1998. The Company is presently awaiting a decision from the Food
and Drug Administration ("FDA") related to its amended NDA ("New Drug
Application") for Therafectin filed with the FDA in June 1998. Before any
commercially viable product from Therafectin may be developed, and any revenue
generated therefrom, the Company currently expects that at least $0.5 million of
additional future expense will be necessary. There can be no assurance, however,
that the expenditure of these additional amounts will result in the regulatory
approval of any compounds or that such approval will ever be able to be obtained
by the Company. Moreover, if the Company is ultimately unsuccessful in obtaining
regulatory approval for Therafectin, the Company would be required to write off
the $3.5 million asset value attributable to Therafectin as reflected on the
Company's balance sheet.
General and administrative expenses were $682,872 during the three months
ended September 30, 1999 as compared with $587,831 during the three months ended
September 30, 1998. An increase in professional service costs during the 1999
period was partially offset by the absence of a non-recurring, non-cash charge
related to certain changes in the provisions of the Company's stock option plans
during the 1998 period.
Interest income was $190,558 during the three months ended September 30,
1999 as compared with interest income of $191,802 during the three months ended
September 30, 1998. Interest expense was $214,063 during the three months ended
September 30, 1999 as compared with zero during the three months ended September
30, 1998. The 1999 expense represents a non-cash charge associated with the
accretion of the carrying amount of the convertible debentures to their maturity
value over the term of the debentures.
Nine Months Ended September 30, 1999 and 1998
Revenues were $200,000 for the nine months ended September 30, 1999 as
compared with zero for the nine months ended September 30, 1998. In September
1999, the Company announced that it had entered into a development and licensing
agreement with a major pharmaceutical company to further develop a major sector
of the Company's transcription factor technology. Under the terms of the
agreement, the pharmaceutical company will screen its small molecule collection
for potential inhibitors of the transcription factor, with the goal of
developing a small molecule therapeutic drug for the treatment of a wide range
of allergies and asthma. The Company will also receive royalties on eventual
sales of any product derived from the development effort.
The Company's net loss, excluding preferred stock preferences, was
$7,791,462 during the nine months ended September 30, 1999 as compared with
$4,979,731 during the nine months ended September 30, 1998. Net loss per common
share, excluding preferred stock preferences, equaled $.84
8
<PAGE>
per share for the 1999 period as compared to $.38 per share for the 1998 period.
The higher net loss in the 1999 period was primarily due to higher
Therafectin/R/ related expenses and a purchased research and development charge
of $1,725,000 related to the acquisition of an option to acquire the rights to
certain new technologies.
The net loss available to common stockholders for the 1999 period,
including preferred stock preferences of $4,240,000, totaled $12,031,462. Net
loss per common share available to common stockholders for the nine months ended
September 30, 1999 including $0.30 attributable to preferred stock preferences,
totaled $1.14. In February 1999, the Company completed a private placement of
Series C Convertible Preferred Stock and warrants. Based on the market price of
the Company's stock on the date of issuance, the preferred stock had a
beneficial conversion feature with an intrinsic value of approximately $1.9
million and the warrants had a fair value of approximately $1.9 million, which
amounts are included in the preferred stock preferences.
Research and development expenses were $3,522,274 during the nine months
ended September 30, 1999 as compared with $3,414,362 during the nine months
ended September 30, 1998. The increase was primarily attributable to increased
expenditures related to the Phase III clinical trial for Altropane, partially
offset by lower expenditures for four of the technologies currently under pre-
clinical development. Expenditure levels for a specific technology can fluctuate
significantly from period to period depending upon the nature of the pre-
clinical and clinical activities in process during each respective period. The
majority of the Company's research and development expenses were sponsored
research obligations paid to Harvard University and its affiliated hospitals.
The Company expects to incur total research and development costs between $5
million and $6 million during 1999, and between $6 and $7 million in 2000.
Licensing fees were zero during the nine months ended September 30, 1999 as
compared with $55,000 during the nine months ended September 30, 1998. During
the 1998 period, the Company paid $15,000 to license one new technology as
compared to no new licensing agreements during the 1999 period. In addition to
an initial licensing fee payment, the Company is obligated to pay additional
amounts upon the attainment of development milestones, as defined in each
respective licensing agreement, as well as royalties upon the sales of any
resulting products. During the 1998 period, the Company made a milestone payment
of $40,000 related to the development of one of its technologies. The Company
expects to pay future licensing fees, the timing and amounts of which will
depend upon the progress attained in developing existing technologies and the
terms of agreements which may be executed for technologies currently being
developed or which may be developed in the future. There can be no assurance
regarding the likelihood or materiality of any such future licensing agreements.
Therafectin(R) related expenses were $1,083,398 during the nine months
ended September 30, 1999 as compared with $292,121 during the nine months ended
September 30, 1998. This increase reflects differences in the development status
of Therafectin(R) during each respective period. Expenses during the 1999 period
primarily related to manufacturing costs related to the production of three lots
of GMP ("Good Manufacturing Practices") material as required under applicable
law and regulations for the Company's amended NDA filing with the FDA. Expenses
during the 1998 period primarily related to patients enrolled in the extension
phase of the Phase III trial. Before any commercially viable product from
Therafectin(R) may be developed, and any revenue generated therefrom, the
Company currently expects that at least $0.5 million of additional future
expense will be necessary. There can be no assurance, however, that the
expenditure of these additional amounts will result in the regulatory approval
of any compounds or that such approval will ever be able to be obtained by the
Company. Moreover, if the Company is ultimately unsuccessful in obtaining
regulatory approval for Therafectin, the Company would be required to write off
the $3.5 million asset value attributable to Therafectin as reflected on the
Company's balance sheet.
9
<PAGE>
General and administrative expenses were $2,001,897 during the nine months
ended September 30, 1999 as compared with $1,854,909 during the nine months
ended September 30, 1998. An increase in professional service costs during the
1999 period was offset by the absence of a non-recurring, non-cash charge
related to certain changes in the provisions of the Company's stock option plans
during the 1998 period.
Interest income was $555,170 during the nine months ended September 30,
1999 as compared with interest income of $636,661 during the nine months ended
September 30, 1998. The higher level of interest income recognized during the
1998 period primarily related to higher average short-term investment, cash and
cash equivalent balances. Interest expense was $214,063 during the nine months
ended September 30, 1999 as compared with zero during the nine months ended
September 30, 1998. The 1999 expense represents a non-cash charge associated
with the accretion of the carrying amount of the convertible debentures to their
maturity value over the term of the debentures.
YEAR 2000 READINESS DISCLOSURE
The Company continues to address issues related to the upcoming new millenium.
These issues derive from the use of software and hardware with embedded chips or
processors that use two digits to refer to a year and do not properly recognize
a year that begins with "20" instead of the familiar "19." The Company's efforts
to address these issues and to enhance the Company's readiness for the Year 2000
has primarily focused on (1) network and facility infrastructure, (2) business
applications and software, and (3) external partners. Within each area, the Year
2000 program involves (a) the identification of systems that may be susceptible
to Year 2000 issues, (b) the assessment of the degree of readiness of those
systems for the Year 2000 and an assessment of the risks to the Company's
business, (c) the remediation of problems that are identified, and (d)
contingency planning.
The Company's network and facility infrastructure, located at its Boston
headquarters, includes personal computers and other network equipment, together
with general facility systems such as telephone and security systems. The
Company has completed the identification and assessment phases, and does not
believe that significant remediation and contingency actions need to be
initiated. The Company primarily operates its business applications software
using the Microsoft Office suite of products. For its software applications, the
Company plans to rely on the software developer's representations regarding Year
2000 compliance of their software. There can be no assurance, however, that
software applications represented by developers as being Year 2000 compliant
will be free from Year 2000 errors and defects.
The Company continues to assess the possible effects on its operations of the
Year 2000 compliance of certain relevant third parties, primarily its service
providers, by requesting confirmation from such parties regarding their Year
2000 readiness. In the event the Company identifies a problem with respect to a
particular vendor, then the Company may be forced to identify alternative
sources of supply or services. However, the Company's ability to seek
alternative sources of supply is subject to FDA restrictions and may involve
extensive validation processes. The failure to timely identify and validate an
alternative supplier could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company does not expect to incur costs in its Year 2000 program that will
be material to its business, financial condition or results of operations. The
Company may utilize both internal and external resources, such as consultants
and professional advisors, in implementing the Year 2000 program and the Company
currently estimates that the external resources required during the
identification and assessment phases of the Year 2000 program will not cost more
than approximately $15,000. Because the Year 2000 program is an ongoing process,
all cost estimates are subject to change.
10
<PAGE>
Although the Company intends to complete all phases of its Year 2000 program
by December 31, 1999, there can be no assurance, even if this program is
successfully completed on schedule, that disruptions in the Company's business
will be avoided. Year 2000 issues are pervasive in nature and involve highly
technical issues, not all of which are under the Company's control. Possible
consequences of Year 2000 issues that the Company is unable to adequately
identify, assess or remediate include but are not limited to: delays in
obtaining supplies from vendors, errors in processing transactions and diversion
of management time and effort to address difficulties that emerge. The goal of
the Company's Year 2000 program is to plan for and reduce the risk of such
difficulties. There can be no assurance that the Year 2000 program will be
completed in a timely manner or will be successful.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has satisfied its working capital
requirements from the sale of the Company's securities through private
placements. In January and February 1996, the Company raised approximately $20.7
million of net proceeds by completing a private placement of Series A
Convertible Preferred Stock. In June 1996, the Company raised approximately $5
million of net proceeds by completing a private placement of common stock. In
February 1999, the Company received approximately $8.2 million of net proceeds
by completing two separate private placements, one consisting of shares of
Series C Convertible Preferred Stock and a second private placement consisting
of common stock (See Notes 8 and 9 of Notes to the Consolidated Financial
Statements in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998). In September 1999, the Company raised approximately $7.5
million of net proceeds by completing a private placement of convertible
debentures. In the future, the Company's ability to meet, and the level of, its
working capital and capital requirements will depend on numerous factors,
including the progress of the Company's research and development activities, the
level of resources that the Company devotes to the developmental, clinical, and
regulatory aspects of its products, and the extent to which the Company enters
into collaborative relationships with pharmaceutical and biotechnology
companies.
At September 30, 1999, the Company had available cash, cash equivalents and
short term investments of approximately $18.3 million and working capital of
approximately $16.9 million. The Company believes that the level of financial
resources available at September 30, 1999 will provide sufficient working
capital to meet its anticipated expenditures for at least the next twelve
months. The Company may raise additional capital in the future through
collaborative agreements with other pharmaceutical or biotechnology companies,
debt financings and equity offerings. There can be no assurance, however, that
the Company will be successful in such efforts or that additional funds will be
available on acceptable terms, if at all.
11
<PAGE>
PART II -- OTHER INFORMATION
----------------------------
ITEM 1: LEGAL PROCEEDINGS.
-----------------
None.
ITEM 2: CHANGES IN SECURITIES.
---------------------
During the three months ended September 30, 1999, the Company issued, in
transactions qualifying as transactions not involving public offerings
under Section 4(2) of the Securities Act of 1933, as amended (a "private
placement"), 140,529 shares of common stock related to the exercise of
options and warrants outstanding for which the Company received
consideration in the amount of $355,965.
In September 1999, the Company issued $8 million in convertible
debentures due September 2003 and warrants to purchase a total of
1,680,000 shares of the Company's common stock to two institutional
investment funds, both managed by the same institutional investment firm.
The warrants were issued in two classes, the first, or "class A"
warrants, are exercisable to purchase 960,000 shares of common stock at
an exercise price of $5.75 per share. The second, or "class B" warrants,
are exercisable to purchase 720,000 shares of common stock at an exercise
price of $8.25 per share.
In September 1999, the Company finalized an agreement under which it
acquired an option to acquire the licensing rights to certain technology.
The Company issued 232,000 shares of common stock and 216,000 warrants
exercisable to purchase the Company's common stock at an exercisable
price of $4.25 per share as consideration for the option.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES.
-------------------------------
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
ITEM 5: OTHER INFORMATION.
-----------------
(a) Exhibits.
None.
Item 6: EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
(a) Exhibits.
3.1 Amended and Restated Certificate of Incorporation, dated March 29,
1996, as amended on June 9, 1997, and by the Certificate of
Designations, Rights and Preferences of Series B Convertible
Preferred Stock filed on February 5, 1999, the Certificate of
Decrease of Series B Convertible Preferred Stock filed on February
18, 1999, and the Certificate of Designations, Rights and
Preferences of Series C Convertible Preferred Stock filed on
February 18, 1999. (1)
3.2 Certificate of Decrease and Elimination of Series B Convertible
Preferred Stock filed on June 29, 1999. (3)
3.3 Certificate of Decrease of Series A Convertible Preferred Stock
filed on June 29, 1999. (3)
3.4 Certificate of Correction filed on February 18, 1999. (3)
3.5 Certificate of Amendment of Amended and Restated Certificate of
Incorporation filed on June 29, 1999. (3)
3.6 Securities Purchase Agreement among the Company and the purchasers
listed therein dated as of September 22, 1999, Form of 8%
Convertible Debenture dated as of September 22, 1999, Form of Class
A Warrant dated as of September 22, 1999, Form of Class B Warrant
dated as of September 22, 1999, Registration Rights Agreement among
the Company and the purchasers dated as of September 22, 1999. (2)
27.1 Financial Data Schedule
(1) Incorporated by reference to BLSI's Annual Report on Form 10-K/A
for the year ended December 31, 1998.
(2) Incorporated by reference to BLSI's Report on Form 8-K dated
September 23, 1999.
(3) Filed herewith.
12
<PAGE>
(b) Reports on Form 8-K: The Registrant filed the following reports on
Form 8-K during the quarter ended September 30, 1999 and through
November 10, 1999.
Date of Report Item Reported
-------------------------------- ---------------------------
July 7, 1999 5, 7
August 6, 1999 5, 7
August 20, 1999 5, 7
September 23, 1999 5, 7
September 30, 1999 5, 7
13
<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.
BOSTON LIFE SCIENCES, INC.
--------------------------
(Registrant)
DATE: November 15, 1999 /s/ S. David Hillson
--------------------
S. David Hillson
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Joseph Hernon
------------------
Joseph Hernon
Chief Financial Officer
(Principal Financial and Accounting
Officer)
14
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF DECREASE AND ELIMINATION
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
BOSTON LIFE SCIENCES, INC.
(PURSUANT TO SECTION 151 OF THE DELAWARE GENERAL CORPORATION LAW)
BOSTON LIFE SCIENCES, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies that,
pursuant to Sections 141 and 151 of the Delaware General Corporation Law and the
authority vested in the Board of Directors of the Corporation by Article Fourth
of the Amended and Restated Certificate of Incorporation, the Board of Directors
of the Corporation, by resolution dated February 17, 1999, at a telephonic
meeting, did authorize and direct that the number of authorized shares of
Preferred Stock designated as Series B Convertible Preferred Stock be reduced
from 227,719 to 0, and by resolution dated June 28, 1999, at a meeting, did
authorize and direct that because none of the shares of such series are
outstanding and none will be issued subject to the Series B Certificate of
Designations, Preferences and Rights, that such designation of Series B
Convertible Preferred Stock shall be eliminated pursuant to the authority
granted to them under Section 151(g) of the Delaware General Corporation Law.
IN WITNESS WHEREOF, this Certificate of Decrease and Elimination has
been executed and filed as of this 29th day of June, 1999.
BOSTON LIFE SCIENCES, INC.
By: /s/ Joseph P. Hernon
--------------------
Joseph P. Hernon
Secretary, Vice President and
Chief Financial Officer
1
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF DECREASE
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
BOSTON LIFE SCIENCES, INC.
(PURSUANT TO SECTION 151 OF THE DELAWARE GENERAL CORPORATION LAW)
BOSTON LIFE SCIENCES, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies that,
pursuant to Sections 141 and 151 of the Delaware General Corporation Law and the
authority vested in the Board of Directors of the Corporation by Article Fourth
of the Amended and Restated Certificate of Incorporation, the Board of Directors
of the Corporation, by resolution dated June 28, 1999, at a meeting, did
authorize and direct that the number of authorized shares of Preferred Stock
designated as Series A Convertible Preferred Stock be reduced from 264,000 to
13,404.
IN WITNESS WHEREOF, this Certificate of Decrease has been executed and
filed as of this 29th day of June, 1999.
BOSTON LIFE SCIENCES, INC.
By: /s/ Joseph P. Hernon
--------------------
Joseph P. Hernon
Secretary, Vice President and
Chief Financial Officer
1
<PAGE>
EXHIBIT 3.4
CERTIFICATE OF CORRECTION
FILED TO CORRECT A CERTAIN ERROR IN
THE CERTIFICATE OF DESIGNATIONS PREFERENCES AND RIGHTS OF SERIES C CONVERTIBLE
PREFERRED STOCK OF
BOSTON LIFE SCIENCES, INC.
FILED IN THE OFFICE OF
THE SECRETARY OF STATE OF DELAWARE
ON FEBRUARY 18, 1999
Boston Life Sciences, Inc. is a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
1. The name of the corporation is Boston Life Sciences, Inc.
2. That a Certificate of Designation, Preferences and rights for Series
C Convertible Preferred Stock (the "Certificate") was filed by the
Secretary of State of Delaware on February 18, 1999 and that the
Certificate requires correction as permitted by Section 103(f) of the
General Corporation Law of the State of Delaware.
3. The inaccuracy or defect of the Certificate to be corrected is as
follows:
Exhibit A to the Certificate, the Form of Redemption Warrant, was not
attached and filed with the Certificate.
4. Attached hereto for filing is the Certificate of Designation of Series
C Convertible Preferred Stock, with Exhibit A attached.
IN WITNESS WHEREOF, said Boston Life Sciences, Inc. has caused this
Certificate to be signed by Joseph P. Hernon, its Vice-President and Chief
Financial Officer, this 18th day of February, 1999.
Boston Life Sciences, Inc.
By: /s/ Joseph P. Hernon
--------------------
Joseph P. Hernon
Vice-President and Chief Financial Officer
-1-
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
BOSTON LIFE SCIENCES, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
_________________________________________
BOSTON LIFE SCIENCES, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies
that, pursuant to authority vested in the Board of Directors of the Corporation
by Article Fourth of the Amended and Restated Certificate of Incorporation of
the Corporation, the following resolution was adopted as of February 17, 1999
by the Board of Directors of the Corporation pursuant to Section 141 of the
Delaware General Corporation Law:
"RESOLVED that, pursuant to authority vested in the Board of
Directors of the Corporation by Article Fourth of the Corporation's Amended and
Restated Certificate of Incorporation, of the total authorized number of
1,000,000 shares of Preferred Stock, par value $0.01 per share, of the
Corporation, there shall be designated a series of 475,000 shares that shall be
issued in and constitute a single series to be known as "Series C Convertible
Preferred Stock" (hereinafter called the "Series C Convertible Preferred
Stock"). The shares of Series C Convertible Preferred Stock shares have the
voting powers, designations, preferences and other special rights, and
qualifications, limitations and restrictions thereof set forth below:
1. Dividends. The holder of each share of Series C Convertible Preferred
---------
Stock shall not be entitled to receive dividends in any fixed amount;
provided, however, the holder of each share of Series C Convertible
-----------------
Preferred Stock shall be entitled to receive such dividends thereon as the
Board of Directors may declare, if, as and when so declared. Such dividends
on the Series C Convertible Preferred Stock shall not be cumulative and no
right to such dividends shall accrue to holders of the Series C Convertible
Preferred Stock unless and until declared by the Board of Directors. The
holders of shares of the Series C Convertible Preferred Stock are entitled
to share equally in any dividend, when, as and if declared by the Board on
the Common Stock.
2. Liquidation. In the event of any liquidation, dissolution or winding
-----------
up of the Corporation, whether voluntary or involuntary, after payment or
provision for payment of debts and other liabilities of the Corporation,
the holders of the shares of Series A Convertible Preferred Stock , the
holders of shares of Series B Convertible Preferred Stock, and the holders
of shares of Series C Convertible Preferred Stock, before any distribution
or payment is made upon any Common Stock, shall be entitled to receive on a
pari-passu basis in accordance with their respective Preference Amounts (as
----------
hereinafter
2
<PAGE>
defined), (i) with respect to each share of Series A Convertible Preferred
Stock an amount ("Series A Preference Amount") equal to the sum of (A)
$130.00 (subject to equitable adjustment to reflect stock splits, stock
combinations, stock dividends, recapitalizations, and like occurrences) and
(B) all declared but unpaid dividends (if any) payable with respect to such
shares, and (ii) with respect to each share of Series B Convertible
Preferred Stock ("Series B Preference Amount") equal to the sum of (A)
$19.50 (subject to equitable adjustment to reflect stock splits, stock
dividends, stock combinations, recapitalizations, and like occurrences) and
(B) all declared but unpaid dividends (if any) payable with respect to such
shares, and (iii) with respect to each share of Series C Convertible
Preferred ("Series C Preference Amount", and collectively the Series A
Preference Amount, the Series B Preference Amount, and the Series C
Preference Amount are sometimes hereinafter collectively referred to as the
"Preference Amount") equal to the sum of (A) the "Original Issuance Price"
per share, which shall mean $19.50 (subject to equitable adjustment to
reflect stock splits, stock dividends, stock combinations,
recapitalizations, and like occurrences) and (B) all declared but unpaid
dividends (if any) payable with respect to such shares.
If upon such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of the Series A Convertible Preferred Stock, the Series B
Convertible Preferred Stock and the Series C Convertible Preferred Stock of
the Corporation shall be insufficient to permit payment to the holders of
the full respective Preference Amount to which they shall be entitled, then
the entire assets of the Corporation to be so distributed shall be
distributed ratably among the holders of the Series A Convertible Preferred
Stock, the Series B Convertible Preferred Stock and the Series C
Convertible Preferred Stock based on the respective amounts that would be
payable to them on or with respect to the shares of Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock and Series C
Preferred Convertible Stock held by them upon such distribution pursuant to
this Section. Upon any such liquidation, dissolution or winding up of the
Corporation after the holders of the Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock, and Series C Convertible Preferred
Stock shall have been paid in full in accordance with the rights and
preferences to which they are entitled, the remaining net assets of the
Corporation shall be distributed ratably and exclusively to the holders of
the Common Stock.
Written notice of such liquidation, dissolution or winding up, stating
a payment date, the amount of the Preference Amounts and the place where
said sums shall be payable shall be given by mail, postage prepaid, not
less than 30 or more than 60 days prior to the payment date stated therein,
to the holders of record of the Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock and Series C Convertible Preferred
Stock and the Common Stock, such notice to be addressed to each stockholder
at his post office address as shown by the records of the Corporation.
Notwithstanding Section 3 below, holders of record of the Series C
Convertible Preferred Stock shall have the right to convert their shares of
Series C Convertible Preferred Stock into Common Stock at the then
applicable Conversion Price prior to liquidation pursuant to the formula
set forth in the first paragraph of Section 3A; holders shall comply with
the procedures set forth in the fourth paragraph of Section 3A.
For purposes of this Section with respect to the Series C Convertible
Preferred Stock, a liquidation, dissolution or winding up of the
Corporation shall be deemed to be
3
<PAGE>
occasioned by, or to include, (A) the acquisition of the Corporation by
another entity by means of any transaction or series of related
transactions (including, without limitation, any reorganization, merger or
consolidation, but excluding any merger effected exclusively for the
purpose of changing the domicile of the Corporation) in which outstanding
shares of the Corporation are exchanged for securities or other
consideration issued, or caused to be issued by the acquiring corporation
or its subsidiary, or (B) a sale, lease, exchange or other transfer (in one
transaction or a series of transactions) of all or substantially all of the
assets of the Corporation, unless in each case the Corporation's
------
stockholders of record as constituted immediately prior to such acquisition
or sale will, immediately after such acquisition or sale (by virtue of
securities issued as consideration for the Corporation's acquisition or
sale or otherwise) hold at least 50% of the voting power of the surviving
or acquiring entity.
Whenever the distribution provided for in this Section shall be
payable in property other than cash, the value of such property shall be
the fair market value thereof as determined in good faith by not less than
a majority of the Directors then serving on the Board of Directors of the
Corporation.
3. Conversion.
----------
3A. Right to Convert. Subject to the terms and conditions of this
----------------
Section 3, the holder of any share or shares of Series C Convertible
Preferred Stock shall have the right, at its option, to convert any such
shares of Series C Convertible Preferred Stock into fully paid and
nonassessable whole shares of Common Stock in accordance with this Section
3. The holder may convert each share of Series C Convertible Preferred
Stock into such number of shares of Common Stock as is obtained by dividing
the Original Issuance Price by the Conversion Price (as hereinafter
defined). The initial Conversion Price shall be $3.90 (such price defined
as the "Initial Conversion Price"). The Initial Conversion Price shall be
subject to adjustment pursuant to Sections 3D and 3E below, with such price
as last adjusted referred to herein as the "Conversion Price."
In addition to the conversion rights of the holder outlined above, at
any time commencing 270 days after the issuance of the Series C Convertible
Preferred Stock, the holder has the option to convert Series C Convertible
Preferred Stock at a conversion rate that produces a minimum rate of return
to the holder of twenty-five percent (25%) in accordance with the formula
("Guaranteed Return Formula") set forth below.
Under the Guaranteed Return Formula, each share of Series C
Convertible Preferred Stock may be converted into such number of shares of
Common Stock that produces a total value of Common Stock equal to one
hundred and twenty five percent (125%) of the Original Issuance Price;
provided, however, that no share of Series C Convertible Preferred Stock
-------- -------
shall be convertible into less than five (5) or more than ten (10) shares
of Common Stock. The price per share to be used in determining such
additional issuances of Common Stock (if any) will be the average Closing
Bid Price for the five Trading Days (as defined below) ending on the
Trading Day that is one Trading Day prior to the date of conversion. If
the Corporation determines that the issuance of shares pursuant to this
paragraph or pursuant to the first paragraph of this Section 3A, or
pursuant to the first or third paragraph of Section 3A in the Certificate
of Designations, Rights and Preferences for the Series B Convertible
Preferred Stock of the Company,
4
<PAGE>
under applicable NASDAQ Stock Market requirements with respect to certain
issues of Corporation securities convertible into 20% or more of the
Corporation's Common Stock, requires stockholder approval, then, prior to
any such issuance, the Corporation at its option may either (a) redeem the
Series C Convertible Preferred Stock in accordance with the redemption
procedures contained in Section 4 herein within fifteen (15) days after
receipt of the conversion notice relating to the Series C Convertible
Preferred Stock; or (b) may solicit and obtain within ninety (90) days
after receipt of the conversion notice relating to the Series C Convertible
Preferred Stock the necessary stockholder consent before any such shares
are required to be issued. In the event that the Corporation is unable to
obtain the necessary stockholder consent pursuant to (b) above within the
time period allotted, after recommending and seeking such approval in good
faith, then the corporation shall redeem the Series C Convertible Preferred
Stock in accordance with the preceding sentence. Following the date on
which the Securities and Exchange Commission declares effective a
registration statement that permits the resale of the shares of Common
Stock underlying the Series C Convertible Preferred Stock and while such
registration statement remains in effect, in the event the Closing Bid
Price for the Corporation's Common Stock is at or above $7.00 per share
(subject to equitable adjustment to reflect stock splits, stock dividends,
stock combinations, recapitalizations, and like occurrences) for five
consecutive Trading Days (as defined below), the holder's right to receive
additional shares of Common Stock upon conversion pursuant to this
paragraph shall terminate thereafter.
The rights of conversion in this Section 3 shall be exercised by the
holder thereof by giving written notice that the holder elects to convert a
stated number of shares of Series C Convertible Preferred Stock into Common
Stock and by surrender of a certificate or certificates for the shares so
to be converted to the Corporation at its principal office (or such other
office or agency of the Corporation as the Corporation may designate by
notice in writing to the holder or holders of the Series C Convertible
Preferred Stock) at any time during its usual business hours on the date
set forth in such notice, together with a statement of the name or names
(with address), subject to compliance with applicable laws to the extent
such designation shall involve a transfer, in which the certificate or
certificates for shares of Common Stock shall be issued.
The "Closing Bid Price" for each trading day shall be the reported
closing bid price on the NASDAQ Small-Cap Market or the NASDAQ National
Market System (collectively referred to as, "NASDAQ") or, if the Common
Stock is not quoted on NASDAQ, on the principal national securities
exchange on which the Common Stock is listed or admitted to trading (based
on the aggregate dollar value of all securities listed or admitted to
trading) or, if not listed or admitted to trading on any national
securities exchange or quoted on NASDAQ, the closing bid price in the over-
the counter market as furnished by any NASD member firm selected from time
to time by the Corporation for that purpose, or, if such prices are not
available, the fair market value set by, or in a manner established by, the
Board of Directors of the Corporation in good faith. "Trading day" shall
mean a day on which the national securities exchange or NASDAQ used to
determine the Closing Bid Price is open for the transaction of business or
the reporting of trades or, if the Closing Bid Price is not so determined,
a day on which NASDAQ is open for the transaction of business.
5
<PAGE>
3B. Issuance of Certificates; Time Conversion Effected. Subject to
--------------------------------------------------
the limitation on conversion set forth in first sentence of the third
paragraph of Section 3A, promptly after the receipt by the Corporation of
the written notice referred to in Subsection 3A and surrender of the
certificate or certificates for the share or shares of the Series C
Convertible Preferred Stock to be converted, the Corporation shall issue
and deliver, or cause to be issued and delivered, to the holder, within
three (3) business days, registered in such name or names as such holder
may direct, subject to compliance with applicable laws to the extent such
designation shall involve a transfer, a certificate or certificates for the
number of whole shares of Common Stock issuable upon the conversion of such
share or shares of Series C Convertible Preferred Stock. To the extent
permitted by law, such conversion shall be deemed to have been effected and
the Conversion Price shall be determined as of the close of business on the
date on which such written notice shall have been received by the
Corporation and the certificate or certificates for such share or shares
shall have been surrendered as aforesaid, and at such time the rights of
the holder of such share or shares of Series C Convertible Preferred Stock
shall cease, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become the holder or holders
of record of the shares represented thereby.
3C. Fractional Shares; Dividends; Partial Conversion. No fractional
------------------------------------------------
shares shall be issued upon conversion of the Series C Convertible
Preferred Stock into Common Stock and the number of shares of Common Stock
to be issued shall be rounded to the nearest whole share. In case the
number of shares of Series C Convertible Preferred Stock represented by the
certificate or certificates surrendered pursuant to Subsection 3A exceeds
the number of shares converted, the Corporation shall upon such conversion,
execute and deliver to the holder thereof, at the expense of the
Corporation, a new certificate or certificates for the number of shares of
Series C Convertible Preferred Stock represented by the certificate or
certificates surrendered which are not to be converted.
3D. Adjustments to Conversion Price for Stock Dividends and
-------------------------------------------------------
Combinations or Subdivisions of Common Stock. If the Company at any time
--------------------------------------------
or from time to time while shares of Series C Convertible Preferred Stock
are issued and outstanding shall declare or pay, without consideration, any
dividend on Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number
of shares of Common Stock (by stock split, reclassification or otherwise
than by payment of a dividend in Common Stock or in any right to acquire
Common Stock), or if the outstanding shares of Common Stock shall be
combined or consolidated, by reclassification or otherwise, into a lesser
number of shares of Common Stock, then the Conversion Price for the Series
C Convertible Preferred Stock in effect immediately before such event
shall, concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate. If the Company
shall declare or pay, without consideration, any dividend on Common Stock
payable in any right to acquire Common Stock for no consideration, then the
Company shall be deemed to have made a dividend payable in Common Stock in
an amount of shares equal to the maximum number of shares issuable upon
exercise of such rights to acquire Common Stock.
3E. Adjustments for Reclassification and Reorganization. If Common
---------------------------------------------------
Stock issuable upon conversion of the Series C Convertible Preferred Stock
shall be changed into
6
<PAGE>
the same or a different number of shares of any other class or classes of
stock, whether by capital reorganization, reclassification or otherwise
(other than a subdivision or combination of shares provided for in the
preceding paragraph), the Conversion Price then in effect shall,
concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted so that the Series C
Convertible Preferred Stock shall be convertible into, in lieu of the
number of shares of Common Stock which the holders would otherwise have
been entitled to receive, a number of shares of such other class or classes
of stock equivalent to the number of shares of Common Stock that would have
been subject to receipt by the holders upon conversion of the Series C
Convertible Preferred Stock immediately before that change.
3F. Record Date. In the event of any taking by the Corporation of a
-----------
record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend) or other distribution, any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right, the
Corporation shall send by mail or courier against receipt to each holder of
Series C Convertible Preferred Stock, at least ten (10) days prior to the
date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or
right.
3G. Notice of Adjustment. Upon any adjustment of the Conversion
--------------------
Price, then and in each such case the Corporation shall give written notice
thereof by first class mail, postage prepaid, addressed to each holder of
shares of Series C Convertible Preferred Stock at the address of such
holder as shown on the books of the Corporation, which notice shall be
signed by the principal financial officer (or independent public
accountant(s) of national standing) and shall state the Conversion Price
resulting from such adjustment, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.
3H. Other Notices. In case at any time:
-------------
(1) the Corporation shall declare any dividend upon its Common Stock
payable in cash or stock or make any other distribution to the holders of
its Common Stock;
(2) the Corporation shall offer for subscription pro rata to the
--- ----
holders of its Common Stock any additional shares of stock of any class or
other rights;
(3) there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, or a consolidation or merger of the
Corporation with, or a sale of all or substantially all its assets to,
another corporation; or
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by
first class mail, postage prepaid, addressed to each holder of any shares
of Series C Convertible Preferred
7
<PAGE>
Stock at the address of such holder as shown on the books of the
Corporation, (a) at least 15 days prior written notice of the date on which
the books of the Corporation shall close or a record shall be taken for
such dividend, distribution or subscription rights or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, and
(b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at
least 15 days prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause (a) shall also
specify, in the case of any such dividend, distribution or subscription
rights, the date on which the holders of Common Stock shall be entitled
thereto, and such notice in accordance with the foregoing clause (b) shall
also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification consolidation,
merger, sale, dissolution, liquidation or winding up, as the case may be.
3I. Stock to be Reserved. The Corporation will at all times reserve
--------------------
and keep available out of its authorized but unissued Common Stock solely
for the purpose of issuance upon the conversion of the Series C Convertible
Preferred Stock as herein provided, such number of shares of Common Stock
as shall then be issuable upon the conversion of all outstanding shares of
Series C Convertible Preferred Stock, including shares issuable pursuant to
Section 3A above. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of
all then outstanding shares of the Series C Convertible Preferred Stock,
the Corporation will take such corporate action as may, in the opinion of
counsel, be necessary to increase its authorized but unissued shares of the
Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain
the requisite stockholder approval of any necessary amendment to these
provisions. All shares of Common Stock which shall be so issued shall be
duly and validly issued and fully paid and nonassessable and free from all
taxes, liens and charges arising out of or by reason of the issue thereof
and, without limiting the generality of the foregoing, the Corporation
covenants that it will from time to time take all such action as may be
requisite to assure that the par value per share of the Common Stock is at
all times equal to or less than the effective Conversion Price. The
Corporation will take all such action within its control as may be
necessary on its part to assure that all such shares of Common Stock may be
so issued without violation of any applicable law or regulation, or of any
requirements of any national securities exchange upon which the Common
Stock of the Corporation may be listed. The Corporation will not take any
action which results in any adjustment of the Conversion Price if after
such action the total number of shares of Common Stock issued and
outstanding and thereafter issuable upon exercise of all options and
conversion of Convertible Securities, including upon conversion of the
Series C Convertible Preferred Stock, would exceed the total number of
shares of Common Stock then authorized by the Corporation's Amended and
Restated Certificate of Incorporation.
3J. No Reissuance of Series C Convertible Preferred Stock. Shares of
-----------------------------------------------------
Series C Preferred Stock that are converted into shares of Common Stock as
provided herein shall be permanently retired and shall not under any
circumstances be reissued; and the Corporation may from time to time take
such appropriate corporate action as may be
8
<PAGE>
necessary to reduce the number of authorized shares of Series C Convertible
Preferred Stock accordingly.
3K. Issue Tax. The issuance of certificates for shares of Common
---------
Stock upon conversion of the Series C Convertible Preferred Stock shall be
made without charge to the holders thereof for any issuance tax in respect
thereof, provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance
and delivery of any certificate in a name other than that of the holder of
the Series C Convertible Preferred Stock which is being converted.
3L. Definition of Common Stock. As used in this Section 3, the term
--------------------------
"Common Stock" shall mean and include the Corporation's authorized Common
Stock as constituted on the date of filing of this Certificate of
Designations; provided, however, that such term, when used to describe the
-------- -------
securities receivable upon conversion of shares of the Series C Convertible
Preferred Stock of the Corporation, shall include only shares designated as
Common Stock of the Corporation on the date of filing of this Certificate
of Designations, any shares resulting from any combination or subdivision
thereof referred to in this Section 3, or in case of any reorganization or
reclassification of the outstanding shares thereof, the stock, securities
or assets provided for in this Section 3.
4. Redemption. The Series C Convertible Preferred Stock may be redeemed
----------
by the Corporation at any time in exchange for a cash payment for each
share of Series C Convertible Preferred Stock equal to the Original
Issuance Price multiplied by one hundred and ten percent (110%). In
addition to the foregoing cash payment, the Corporation will issue a number
of warrants to purchase Common Stock (each, a "Redemption Warrant") equal
to 2.5 multiplied by the number of shares of Series C Convertible Preferred
Stock then held by the holder. Each Redemption Warrant will be
substantially in the form of Exhibit A attached hereto. The cash payment
---------
and additional warrant to be issued upon redemption are collectively
referred to as the "Redemption Price." Redemption Warrants issued shall be
exercisable at a price equal to the sum of (a) the Closing Bid Price
(subject to adjustment under the same circumstances as which the Conversion
Price would be adjusted) of the Common Stock for the Trading Day prior to
the date on which the Corporation redeems shares of Series C Convertible
Preferred Stock (the "Redemption Date), (b) plus $.25. Such Redemption
Warrants shall be exercisable for a period of thirty six (36) months
subsequent to their issuance and will contain all customary provisions. The
Corporation will file a registration statement with the Securities and
Exchange Commission within sixty (60) days of the issuance of the
Redemption Warrants so as to permit a resale of the shares of Common Stock
underlying the Redemption Warrants.
Not fewer than fifteen (15) days before the Redemption Date, written
notice shall be given by registered or certified first class mail, return
receipt requested, by a nationally recognized courier service, postage
prepaid, or by personal delivery, addressed to the holders of record of the
Series C Convertible Preferred Stock, such notice to be addressed to each
such stockholder at his post office address as shown by the records of the
Corporation, specifying the number of shares to be redeemed, the Redemption
Price and the place and date of such redemption, which date shall not be a
day on which banks in New York City are required or authorized to close. If
such notice of redemption shall have been duly given and if on or before
such Redemption Date the funds and securities
9
<PAGE>
necessary for redemption shall have been set aside so as to be and continue
to be available therefor, then, notwithstanding that any certificate for
shares of Series C Convertible Preferred Stock to be redeemed shall not
have been surrendered for cancellation, after the close of business on such
Redemption Date, the shares so called for redemption shall no longer be
deemed outstanding, the dividends thereon shall cease to accrue, and all
rights with respect to such shares shall forthwith after the close of
business on the Redemption Date, cease, except only the right of the
holders thereof to receive, upon presentation of the certificate
representing shares so called for redemption, the Redemption Price
therefor.
Any shares of the Series C Convertible Preferred Stock redeemed pursuant
to this Section 4 or otherwise acquired by the Corporation in any manner
whatsoever shall be permanently retired and shall not under any
circumstances be reissued; and the Corporation may from time to time take
such appropriate corporate action as may be necessary to reduce the number
of authorized shares of Series C Convertible Preferred Stock accordingly.
5. Voting - Series C Convertible Preferred Stock. Except as required by
---------------------------------------------
law or in Section 6 herein, all shares of Series C Convertible Preferred
Stock shall be non-voting, and the holders thereof shall not be entitled to
vote on any matters until such shares of Series C Convertible Stock are
converted into shares of Common Stock. In addition, any shares of Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock or Series
C Convertible Preferred Stock held by the Corporation or any entity
controlled by the Corporation shall not have voting rights hereunder and
shall not be counted in determining the presence of quorum.
6. Restrictions. At any time when shares of Series C Convertible
------------
Preferred Stock are outstanding, and in addition to any other vote of
stockholders required by law or by the Amended and Restated Certificate of
Incorporation, without the prior consent of the holders of a majority of
the outstanding Series C Convertible Preferred Stock, given in person or by
proxy, either in writing or at a special meeting called for that purpose,
at which meeting the holders of the shares of such Series C Convertible
Preferred Stock shall vote together as a class, the Corporation will not:
(i) issue any class or series of equity security ranking senior to the
Series C Convertible Preferred Stock as to payments on liquidation or
dividends of the Company; or (ii) amend the Amended and Restated
Certificate of Incorporation or Bylaws in any manner that would impair or
reduce the rights of the holders of the Series C Convertible Preferred
Stock.
7. No Waiver. Except as otherwise modified or provided for herein, the
---------
holders of Series C Convertible Preferred Stock shall also be entitled to,
and shall not be deemed to have waived, any other applicable rights granted
to such holders under the Delaware General Corporation Law.
8. No Impairment. The Corporation will not, by amendment of its Amended
-------------
and Restated Certificate of Incorporation or this Certificate of
Designations through any reorganization, transfer of assets, merger,
dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to
be observed or performed hereunder by the Corporation but will at all times
in good faith assist in the carrying out of all the provisions of this
Certificate of
10
<PAGE>
Designations and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights and liquidation
preferences granted hereunder of the holders of the Series C Convertible
Preferred Stock against impairment.
9. Automatic Conversion. Subject to the limitations on conversion set
---------------------
forth herein, each share of Series C Convertible Preferred Stock issued and
outstanding on February 18, 2002 automatically shall be converted into
shares of Common Stock at the then effective Conversion Price in accordance
with, and subject to, the provisions of Section 3A hereof.
11
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations has been executed
by the Corporation by its President as of this 18th day of February, 1999.
BOSTON LIFE SCIENCES, INC.
By: /s/ Joseph P. Hernon
---------------------------------
Joseph P. Hernon
Secretary, Vice President and
Chief Financial Officer
12
<PAGE>
EXHIBIT A to 3.4
FORM OF REDEMPTION WARRANT
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR
TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT WHICH
HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii)
PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY UPON A
HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE
COMPANY, OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, THAT THE
PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE ACT AS
WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR STATE SECURITIES LAW.
BOSTON LIFE SCIENCES, INC.
Warrant for the Purchase of Shares of
--------------------------------------
Common Stock
------------
NO. BLSI - [NUMBER] [SHARES] SHARES
FOR VALUE RECEIVED, BOSTON LIFE SCIENCES, INC., A Delaware corporation (the
"COMPANY"), hereby certifies that [NAME] or his permitted assigns, is entitled
to purchase from the Company, at any time or from time to time commencing on the
date hereof (the "Initial Exercise Date") and prior to 5:00 P. M., New York City
time, on the date hereof (the "Termination Date", such date to be 3 years
subsequent to the Initial Exercise Date), [SHARES] fully paid and non-assessable
shares of the Common Stock, $.01 par value per share, of the Company for an
aggregate purchase price of $<DollarTotal> computed on the basis of a
$<PricePerShare> per share [equal to the sum of (a) the Closing Bid Price
(subject to adjustment under the same circumstances as which the Series B
Convertible Preferred Stock Conversion Price would be adjusted) of the Common
Stock for the Trading Day prior to the date on which the Company redeems shares
of Series B Convertible Preferred Stock, plus (b) $.25]. (Hereinafter, (i) said
Common Stock, together with any other equity securities which may be issued by
the Company with respect thereto or in substitution therefor, is referred to as
the "COMMON STOCK", (ii) the shares of the Common Stock purchasable hereunder or
under any other Warrant (as hereinafter defined) are referred to as the "WARRANT
SHARES", (iii) the aggregate purchase price payable for the Warrant Shares
hereunder is referred to as the "AGGREGATE WARRANT PRICE", (iv) the price
payable for each of the Warrant Shares hereunder is referred to as the "PER
SHARE WARRANT PRICE", (v) this Warrant, all similar Warrants issued on the date
hereof and all warrants hereafter issued in exchange or substitution for this
Warrant or such similar Warrants are referred to as the "WARRANTS" and (vi) the
holder of this Warrant is referred to as the "HOLDER" and the holder of this
Warrant and all other Warrants or Warrant Shares issued upon the exercise of any
Warrant are referred to as the "HOLDERS"). The Aggregate Warrant Price is not
subject to adjustment. The Per Share Warrant Price is subject to adjustment as
hereinafter provided; in the
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<PAGE>
event of any such adjustment, the number of Warrant Shares shall be adjusted by
dividing the Aggregate Warrant Price by the Per Share Warrant Price in effect
immediately after such adjustment.
1. EXERCISE OF WARRANT
-------------------
(a) This Warrant may be exercised, in whole at any time or in part
from time to time, commencing on the Initial Exercise Date and prior to 5:00 P.
M. New York City time, on the Termination Date by the holder by the surrender of
this Warrant (with the subscription form at the end hereof duly executed) at the
address set forth in Subsection 10(a) hereof, together with proper payment of
the Aggregate Warrant Price, or the proportionate part thereof if this Warrant
is exercised in part, with payment for Warrant Shares made by certified or
official bank check payable to the order of the Company.
(b) If this Warrant is exercised in part, this Warrant must be
exercised for a number of whole shares of the Common Stock and the Holder is
entitled to receive a new Warrant covering the Warrant Shares which have not
been exercised and setting forth the proportionate part of the Aggregate Warrant
Price applicable to such Warrant Shares. Upon surrender of this Warrant, the
Company will, within five (5) business days (i) issue a certificate or
certificates in the name of the Holder for the largest number of whole shares of
the Common Stock to which the Holder shall be entitled and, if this Warrant is
exercised in whole, in lieu of any fractional share of the Common Stock to which
the Holder shall be entitled, pay to the Holder cash in an amount equal to the
fair value of such fractional share (determined in such reasonable manner as the
Board of Directors of the Company shall determine), and (ii) deliver the other
securities and properties receivable upon the exercise of this Warrant, if any,
or the proportionate part thereof if this Warrant is exercised in part, pursuant
to the provisions of this Warrant.
2. RESERVATION OF WARRANT SHARES; LISTING. The Company agrees that,
--------------------------------------
prior to the expiration of this Warrant, the Company will at all times (a) have
authorized and in reserve, and will keep available, solely for issuance or
delivery upon the exercise of this Warrant, the shares of the Common Stock and
other securities and properties as from time to time shall be receivable upon
the exercise of this Warrant, free and clear of all restrictions on sale or
transfer, except for the restrictions on sale or transfer set forth in the
Securities Act of 1933, as amended (the "ACT"), and free and clear of all
preemptive rights and rights of first refusal; and (b) if the Company prepares
and files a registration statement covering the shares of Common Stock issued or
issuable upon exercise of this Warrant with the Securities and Exchange
Commission (the "SEC") which registration statement is declared effective by the
SEC under the Act and the Company lists its Common Stock on any national
securities exchange, it will use its best efforts to cause the shares of Common
Stock subject to this Warrant to be listed on such exchange.
3. RESTRICTION ON TRANSFER; REGISTRATION UNDER THE SECURITIES ACT OF
------------------------------------------------------------------
1933, AS AMENDED.
- -----------------
(a) Neither this Warrant nor any Shares issuable upon exercise hereof
has been registered under the Securities Act of 1933, as amended (the "Act"),
and none of such securities may be offered, sold, pledged, hypothecated,
assigned or transferred except (i) pursuant to a registration statement under
the Act which has become effective and is current with respect to such
securities, or (ii) pursuant to a specific exemption from registration under the
Act but only upon a Holder hereof first having obtained the written opinion of
counsel to the Company, or other counsel reasonably acceptable to the Company,
that the proposed disposition is consistent with all applicable provisions of
the Act as well as any applicable "Blue Sky" or similar state securities law.
Upon exercise, in part or in whole, of this Warrant, each certificate issued
representing the Shares underlying this Warrant shall bear a legend to the
foregoing effect.
14
<PAGE>
(b) Within sixty (60) days following the issuance of this Warrant, the
Company shall prepare and file with the SEC, a registration statement and such
other documents, including a prospectus, as may be necessary in the opinion of
both counsel for the Company and counsel for the Placement Agent in order to
comply with the provisions of the Act so as to permit a public offering and sale
of the Warrant Shares by the Holder(s) for a consecutive period of two years or
until the distribution described in the registration statement has been
completed, whichever is shorter, provided that, for not more than thirty (30)
consecutive Trading Days (or not more than sixty (60) consecutive Trading Days
if the event giving rise thereto is an acquisition required to be reported in a
Current Report on Form 8-K pursuant to Item 2 thereof) or for a total of not
more than ninety (90) Trading Days in any twelve (12) month period, the Company
may delay the disclosure of material non-public information concerning the
Company (as well as prospectus or registration statement updating) the
disclosure of which at the time is not, in the good faith opinion of the
Company, in the best interests of the Company (an "Allowed Delay"); provided,
further, that the Company shall promptly (i) notify the undersigned in writing
of the existence of (but in no event, without the prior written consent of the
undersigned, shall the Company disclose to such undersigned any of the facts or
circumstances regarding) material non-public information giving rise to an
Allowed Delay and (ii) advise the undersigned in writing to cease all sales
under such registration statement until the end of the Allowed Delay. The
Company shall use its best efforts to cause the registration statement to become
effective at the earliest possible time. "Trading Day" shall mean a day on which
the national securities exchange or NASDAQ used to determine the Closing Bid
Price is open for the transaction of business or the reporting of trades or, if
the Closing Bid Price is not so determined, a day on which NASDAQ is open for
the transaction of business.
(c) In connection with any registration under Section 3.b hereof, the
Company covenants and agrees as follows:
(i) The Company shall furnish each Holder desiring to sell its
securities such number of prospectuses as shall reasonably be requested.
(ii) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions or other charges
of any broker-dealer acting on behalf of Holder(s)), fees and expenses in
connection with all registration statements filed pursuant to Sections 3(b)
hereof including, without limitation, the Company's legal and accounting fees,
printing expenses, and blue sky fees and expenses.
(iii) The Company will take all necessary action which may be required
in qualifying or registering the Warrant Shares and any other securities
issuable upon exercise of the Warrants included in a registration statement for
offering and sale under the securities or blue sky laws of such states as are
reasonably requested by the Placement Agent or the Holder(s), provided that the
Company shall not be obligated to qualify as a foreign corporation to do
business under the laws of any such jurisdiction.
(iv) The Company shall indemnify the Holder(s) of the Warrant Shares
to be sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Act or Section
20(a) of the Securities and Exchange Act of 1934, as amended ("Exchange Act"),
against all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or any other statute, common law or otherwise, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained
(x) in such registration statement (as from time to time amended or
15
<PAGE>
supplemented); (y) in any post-effective amendment or amendments; or (z) in any
application or other document or written communication (in this Section 3
collectively called an application) executed by the Company or based upon
written information furnished by the Company filed in any jurisdiction in order
to qualify the Warrant Shares under the securities laws thereof or filed with
the Commission, any state securities commission or agency, the American Stock
Exchange, the National Association of Securities Dealers, Inc., The Nasdaq Stock
Market or any securities exchange, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements contained therein not misleading, unless such statement or omission
was made in reliance upon and in conformity with written information furnished
to the Company by the Holder(s) expressly for use in such registration
statement, any amendment or supplement thereto or any application, as the case
may be. If any action is brought against the Holder(s) or any controlling person
of the Holder(s) in respect of which indemnity may be sought against the Company
pursuant to this Section 3.c.(iv), the Holder(s) or such controlling person
shall within thirty (30) days after the receipt thereby of a summons or
complaint notify the Company in writing of the institution of such action and
the Company shall assume the defense of such action, including the employment
and payment of reasonable fees and expenses of counsel (which counsel shall be
reasonably satisfactory to the Holder(s) or such controlling person), but the
failure to give such notice shall not affect such indemnified person's right to
indemnification hereunder except to the extent that the Company's defense of
such action was materially adversely affected thereby. The Holder(s) or such
controlling person shall have the right to employ its or their own counsel in
any such case, but the fees and expenses shall be at the expense of the
Holder(s) or such controlling person unless the employment of such counsel shall
have been authorized in writing by the Company in connection with the defense of
such action as required in the previous sentence or such indemnified party or
parties shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to the
Company (in which case the Company shall not have the right to direct the
defense of such action on behalf of the indemnified party or parties), in any of
which events the fees and expenses of not more than one additional firm of
attorneys for the Holder(s) and/or such controlling person shall be borne by the
Company. Except as expressly provided above, in the event that the Company shall
not previously have assumed the defense of any such action or claim, the Company
shall not thereafter be liable to the Holder(s) or such controlling person in
investigating, preparing or defending any such action or claim. The Company
agrees promptly to notify the Holder(s) of the commencement of any litigation or
proceedings against the Company or any of its officers, directors or controlling
persons in connection with the resale of the Warrant Securities or in connection
with such registration statement.
(v) The Holder(s) of the Warrant Shares to be sold pursuant to a
registration statement, and their successors and assigns, shall severally, and
not jointly, indemnify the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished in writing by or on behalf of such Holders, or their successors or
assigns, for specific inclusion in such registration statement. The Holder(s)
further agree(s) that upon demand by an indemnified person, at any time or from
time to time, they will promptly reimburse such indemnified person for any loss,
claim, damage, liability, cost or expense actually and reasonably paid by the
indemnified person as to which the Holder(s) have indemnified such person
pursuant hereto. Notwithstanding the foregoing provisions of this Section
3.c.(v), any such payment or reimbursement by the Holder(s) of fees, expenses or
disbursements incurred by an indemnified person in any proceeding in which a
final
16
<PAGE>
judgment by a court of competent jurisdiction (after all appeals or the
expiration of time to appeal) is entered against the Company or such indemnified
person as a direct result of the Company or such person's gross negligence or
willful misfeasance will be promptly repaid to the Holder(s).
(vi) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial filing
of any registration statement or the effectiveness thereof.
(vii) If the offering in which these securities were acquired is an
underwritten public offering, and the underwriter so requests, the Company shall
furnish to each holder of shares participating in the offering and to each
underwriter, if any, and the Placement Agent, a signed counterpart, addressed to
such holder or underwriter, if any, and the Placement Agent, of (i) an opinion
of counsel to the Company, an opinion dated the date of the closing under the
underwriting agreement, and (ii) a "cold comfort" letter dated the date of the
closing under the underwriting agreement signed by the independent public
accountants who have issued a report on the company's financial statements
included in such registration statement, in each case covering substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, in the case of such accountants' letter with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities.
4. FULLY PAID STOCK; TAXES. The Company agrees that the shares of the
-----------------------
Common Stock represented by each and every certificate of Warrant Shares
delivered on the exercise of this Warrant be validly issued and outstanding,
fully paid and nonassessable, and not subject to preemptive rights or rights of
first refusal, and the Company will take all such actions as may be necessary to
assure that the par value or stated value, if any, per share of the Common Stock
is at all times equal to or less than the then Per Share Warrant Price. The
Company further covenants and agrees that it will pay, when due and payable, any
and all Federal and State stamp, original issue or similar taxes which may be
payable in respect of the issue of any Warrant Share or any certificate thereof.
5. ADJUSTMENTS FOR PURCHASE PRICE AND NUMBER OF SHARES.
---------------------------------------------------
In the event that, prior to the issuance by the Company of all the Warrant
Shares issuable upon exercise of this Warrant, there shall be any change in the
outstanding common stock of the Company by reason of the declaration of stock
dividends, or through stock splits or combinations, the remaining Warrant Shares
still subject to this Warrant and the purchase price thereof (i.e. per Share
Warrant Price) shall be appropriately adjusted (but without regard to fractions)
by the Board of Directors of the Company to reflect such change.
6. MERGER OR CONSOLIDATION.
------------------------
In case of any consolidation of the Company with, or merger of the Company
with, or merger of the Company into, another corporation (other than a
consolidation or merger which does not result in any reclassification or change
of the outstanding common stock of the Company), the corporation formed by such
consolidation or merger shall execute and deliver to the Holder a supplemental
warrant agreement providing that the Holder shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of his Warrant,
the kind and amount of shares of stock and other securities and property
receivable upon such consolidation or merger by a holder of the number of shares
of common stock of the Company for which his Warrant might have been exercised
immediately prior to such consolidation,
17
<PAGE>
merger, sale or transfer. Such supplemental warrant agreement shall provide for
adjustments which shall be identical to the adjustments provided in Section 5.
The above provisions of this Section 6 shall similarly apply to successive
consolidations or mergers.
7. LIMITED TRANSFERABILITY; SUCCESSORS. This Warrant may not be sold,
------------------------------------
transferred, assigned or hypothecated by the Holder except in compliance with
the provisions of the Act and the applicable state securities "blue sky" laws.
The Company may treat the registered Holder of this Warrant as he or it appears
on the Company's books at any time as the Holder for all purposes. All warrants
issued upon the transfer or assignment of this Warrant will be dated the same
date as this Warrant, and all rights of the holder thereof shall be identical to
those of the Holder. All the covenants, agreements, representations and
warranties contained in this Warrant shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
8. LOSS, ETC., OF WARRANT. Upon receipt of evidence satisfactory to the
----------------------
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
9. WARRANT HOLDER NOT SHAREHOLDER. Except as otherwise provided herein,
------------------------------
this Warrant does not confer upon the Holder any right to vote or to consent to
or receive notice as a stockholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a stockholder, prior
to the exercise hereof.
10. COMMUNICATION. No notice or other communication under this Warrant
-------------
shall be effective unless, but any notice or other communication shall be
effective and shall be deemed to have been given if, the same is in writing and
is delivered personally, mailed by certified or registered first-class mail,
postage prepaid, or sent via overnight courier addressed to:
(a) The Company at 31 Newbury Street, Suite 300, Boston, MA 02116
or other address as the Company has designated in writing to the Holder, or
(b) the Holder at <Address> Attn: [NAME] or other such address as
the Holder has designated in writing to the Company.
11. HEADINGS. The headings of this Warrant have been inserted as a
--------
matter of convenience and shall not affect the construction hereof.
12. APPLICABLE LAW. This Warrant shall be governed by and construed in
--------------
accordance with the law of the State of Delaware without giving effect to the
principles of conflicts of law thereof.
18
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
President and attested by its Secretary on the date indicated below.
BOSTON LIFE SCIENCES, INC.
By: ______________________
David Hillson
President
Date: ____________________
ATTEST:
_______________________
Secretary
Date: ____________________
19
<PAGE>
SUBSCRIPTION
------------
The undersigned, _______________________, pursuant to the provisions
of the foregoing Warrant, hereby agrees to Subscribe for and purchase
________________ shares of the Common Stock, par value $.01 per share, of Boston
Life Sciences, Inc. covered by said Warrant, and makes payment therefor in full
at the price per share provided by said Warrant.
Dated:__________________ Signature:__________________
Address: __________________
__________________
ASSIGNMENT
----------
FOR VALUE RECEIVED______________ hereby sells, assigns and transfers
unto ______________________the foregoing Warrant and all right evidenced
thereby, and does irrevocably constitute and appoint
____________________________, attorney, to transfer said Warrant on the books of
Boston Life Sciences, Inc.
Dated:__________________ Signature:__________________
Address: __________________
__________________
PARTIAL ASSIGNMENT
------------------
FOR VALUE RECEIVED __________________ hereby assigns and transfers
unto ________________________ the right to purchase ___________ shares of the
Common Stock, par value $.01 per share, of Boston Life Sciences, Inc. covered by
the foregoing Warrant, and a proportionate part of said Warrant and the rights
evidenced thereby, and does irrevocably constitute and appoint
____________________________, attorney, to transfer that part of said Warrant on
the books of Boston Life Sciences, Inc.
Dated:__________________ Signature:__________________
Address: __________________
__________________
20
<PAGE>
EXHIBIT 3.5
CERTIFICATE OF AMENDMENT
OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF BOSTON LIFE SCIENCES, INC
PURSUANT TO SECTION 242 OF THE DELAWARE GENERAL CORPORATION LAW
BOSTON LIFE SCIENCES, INC. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, DOES HEREBY CERTIFY:
1. The Amended and Restated Certificate of Incorporation of the
Corporation was filed in the office of the Secretary of State of Delaware on
March 29, 1996 and amendments thereto were subsequently duly filed and recorded
(the Amended and Restated Certificate of Incorporation together with such
amendments shall be hereinafter referred to as the "Certificate").
2. That the Board of Directors of the Corporation duly adopted
resolutions proposing and declaring advisable the following amendment (the
"Amendment") to the Certificate:
RESOLVED, that the Board of Directors hereby approves and recommends to the
Company's stockholders that the first sentence of Article FOURTH of the
Certificate be, and it hereby is, subject to stockholder approval at the
1999 Annual Meeting of Stockholders of the Corporation, amended and
restated in its entirety to read as follows:
"FOURTH: The aggregate number of shares which the Corporation shall have
authority to issue is 31,000,000 to be divided into (a) 30,000,000 shares
of Common Stock, par value $.01 per share, (b) 1,000,000 shares of
Preferred Stock, par value $.01 per share, of which 13,404 shares are
designated as Series A Convertible Preferred Stock, par value $.01 per
share, with the powers, preferences and other rights as described on
Exhibit A attached hereto and made a part hereof."
FURTHER RESOLVED, that all other provisions of the Certificate, as
heretofore amended, and all exhibits, attachments and certificates to the
Certificate shall remain unchanged and in full force and effect, including
but not limited to, all Certificates of Designation, Decrease and
Elimination relating to the Corporation's Preferred Stock.
3. That thereafter a majority of the holders of the stock of the
Corporation entitled to vote thereon voted in favor of the Amendment at a
meeting of the stockholders duly held on June 28, 1999.
4. That the foregoing amendment to the Certificate of Incorporation
was duly adopted in accordance with the provisions of Section 242 of the General
Corporation Law.
IN WITNESS WHEREOF, said Boston Life Sciences, Inc. has caused this
Certificate to be executed by its duly authorized officers this 28th day of
June, 1999.
BOSTON LIFE SCIENCES, INC.
By: /s/ S. David Hillson
--------------------
Name: S. David Hillson
Title: Chief Executive Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS
AS REPORTED ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,014,920
<SECURITIES> 10,322,846
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 18,596,226
<PP&E> 279,646
<DEPRECIATION> 267,181
<TOTAL-ASSETS> 22,565,093
<CURRENT-LIABILITIES> 1,697,072
<BONDS> 4,339,063
0
3,853,610
<COMMON> 152,472
<OTHER-SE> 8,219,266
<TOTAL-LIABILITY-AND-EQUITY> 22,565,093
<SALES> 0
<TOTAL-REVENUES> 200,000
<CGS> 0
<TOTAL-COSTS> 8,332,569
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (214,063)
<INCOME-PRETAX> (7,791,462)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,791,462)
<DISCONTINUED> 0
<EXTRAORDINARY> (4,240,000)<F1>
<CHANGES> 0
<NET-INCOME> (12,031,462)
<EPS-BASIC> (0.84)
<EPS-DILUTED> (1.14)<F2>
<FN>
<F1>REPRESENTS PREFERRED STOCK PREFERENCES.
<F2>INCLUDES EFFECT OF PREFERRED STOCK PREFERENCES.
</FN>
</TABLE>
