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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD
Commission file number 0-6533
BOSTON LIFE SCIENCES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 87-0277826
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification no.)
31 NEWBURY STREET, SUITE 300
BOSTON, MASSACHUSETTS 02116
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 425-0200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
WARRANTS TO PURCHASE COMMON STOCK, PAR VALUE $.01 PER SHARE
SERIES A PREFERRED STOCK PURCHASE RIGHTS
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (((S)) 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Based on the last sales price of the Registrant's Common Stock as reported on
the Nasdaq Small Cap Market on March 9, 1999, the aggregate market value of the
13,918,934 outstanding shares of voting stock held by nonaffiliates of the
Registrant was $98,267,674.
As of March 5, 1999, there were 14,103,005 shares of the Registrant's Common
Stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the following document are
incorporated by reference in this report on Form 10-K: The Company's Definitive
Proxy Statement for the Company's Annual Meeting of Stockholders to be held on
Thursday, May 20, 1999 (Part III).
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PART I
Item 1. Business.
FORWARD-LOOKING STATEMENTS
The description of the business of Boston Life Sciences, Inc. ("BLSI" or the
"Company" or "We") that follows contains certain forward-looking statements on
the prospects for our pharmaceutical development activities and results of
operations based on our current expectations, including, but not limited to
statements regarding certain milestones with respect to the Company's
technologies and product candidates. Statements that are not historical facts,
including statements about the Company's beliefs and expectations, are forward-
looking statements. Forward-looking statements can be identified by, among other
things, the use of forward-looking language, such as "believe," "expects,"
"may," "will", "should," "seeks," "plans," "scheduled to," "anticipates" or
"intends" or the negative of those terms, or other variations of those terms or
comparable language, or by discussions of strategy or intentions. Forward-
looking statements speak only as of the date they are made and the Company
undertakes no obligation to update them. For a description of meaningful factors
which could cause future results to differ significantly from our current
expectations, see "Business - Products under FDA Review", "Business - Products
in Clinical Trials", "Business - Principal Preclinical Development Programs",
"Business - Other Information", "Business-Business Risks", and "Business-Market
Risks" in Part I of this Annual Report and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" in Part II of this Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.
OVERVIEW
We are a development stage 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 (CNS) disorders and
autoimmune diseases. The Company was incorporated in Delaware in 1972 under the
name Greenwich Pharmaceuticals Incorporated ("Greenwich"). Effective June 15,
1995, Greenwich merged with a privately-held company named Boston Life Sciences,
Inc. (the "Merger"). Greenwich survived the Merger and changed its name to
Boston Life Sciences, Inc. On June 6, 1997 the Company's stockholders approved
a one-for-ten reverse split of the common stock effective as of June 9, 1997.
Our principal executive offices are located at 31 Newbury Street, Suite 300,
Boston, Massachusetts, and the telephone number is (617) 425-0200.
In general, our corporate strategy is to seek to (i) fund the early
development of our compounds in preclinical development and (ii) enter into
corporate partnering arrangements with established pharmaceutical or
biotechnology companies to support the continued development of our compounds
and the marketing of any products as and to the extent they receive government
approval. Additionally, since We do not currently own any laboratory or
manufacturing facilities, We contract for such services and intend to continue
to do so.
The Company currently has eight technologies in its product portfolio.
Therafectin, a potential treatment for rheumatoid arthritis, was acquired as a
result of the Merger. The balance of our technologies currently under
development were invented or discovered by researchers working at Harvard
University and its affiliated hospitals ("Harvard and its Affiliates") and have
been licensed to us.
PRODUCTS UNDER FDA REVIEW
1. Therafectin(R)
Therafectin is a synthetic molecule developed for the treatment of Rheumatoid
Arthritis which affects approximately 2.5 million individuals in the U.S. It is
estimated that the total U.S. market for Rheumatoid Arthritis drug sales is
approximately $2.5 billion per year. Therafectin has undergone extensive
preclinical and clinical testing in which the molecule has been demonstrated to
be safe and well-tolerated. A New Drug Application ("NDA") was initially filed
with the Food and Drug Administration ("FDA") in 1993 by Greenwich.
The Company's (BLSI) 20 week, double-blind, placebo-controlled Phase III trial
included approximately 220 patients, and was conducted at 25 centers across the
United States. The trial was designed to closely resemble Greenwich's 200
patient Phase III RA-9 trial which demonstrated that Therafectin was more
effective than placebo and reached positive statistical significance. The BLSI
trial was completed in August 1997, and on September 30, 1997, the Company
announced preliminary results which were based on primary efficacy called
"Therapeutic Success."
In the preliminary analysis of results, Therafectin fell short of statistical
significance although 40% of patients receiving Therafactin and 33% of patients
receiving placebo achieved "Therapeutic Success". However, in centers that
enrolled at least ten patients (about half of the patient population), 48% of
Therafactin patients achieved "Therapeutic Success" as compared to 29% of
placebo patients. Further, among the pre-defined secondary efficacy variables,
the improvement in the number of swollen joints in patients receiving
Therafectin was highly statistically significantly better than in those patients
receiving placebo (p is less than 0.007). Further, in a group of patients with
higher levels of swollen joints (approximately half of those completing the
trial), there was a statistically significant difference between Therafectin and
placebo in achieving success as measured by the primary efficiency variable
(Therapeutic Success). Additionally, utilizing the most recent MIRA
("Minocycline in Rheumatoid Arthritis") criteria for meaningful improvement",
defined as at least a 50% improvement in joint swelling compared to baseline,
Therafectin showed a statistically significant improvement compared to placebo.
Consistent with the previously established excellent safety profile of
Therafectin, there were no significant adverse events attributable to
Therafectin during the course of the study. In view of the excellent safety
profile of Therafectin, and the previous statistically significant successful
trial combined with at least three supportive trials (previously completed by
Greenwich), the Company convened an advisory panel of clinical rheumatologists
to seek input and advice regarding whether to proceed with the submission of an
amendment to the pending NDA seeking approval for the drug.
In January 1998, We announced our plans to seek marketing approval for
Therafectin based upon the cumulative data obtained from the trial and the input
provided by our special outside advisory panel of clinical rheumatologists. The
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overall opinion of the advisory panel was that the cumulative safety and
efficacy data on Therafectin justified its use by clinicians looking for a safe
alternative to other more toxic drugs now being used to treat Rheumatoid
Arthritis. The Company also reported that analysis of the trial data strongly
suggested the therapeutic efficacy of Therafectin. Applying the widely-accepted
"Paulus" criteria of therapeutic efficacy (at least a 20% improvement in 4 of 6
measures: joint tenderness scores, joint swelling scores, physician's and
patient's global assessment, erythrocyte sedimentation rate (ESR), and morning
stiffness), there was a highly statistically significant difference in the
percentage of Therafectin patients meeting the Paulus criteria for therapeutic
efficacy as compared to the percentage of placebo patients meeting the Paulus
criteria (p greater than 0.02). Among the predefined secondary efficacy
variables, the reduction in the number of swollen joints, the ESR results,
Functional Class scores, and the CLINHAQ (a quality of life measurement) were
statistically significant in favor of Therafectin. In addition, after
withdrawing non-steroidal medication, clinical secondary variables returned to
baseline or better in the Therafectin group, while remaining statistically
significantly worse than baseline in the placebo group. Applying the American
College of Rheumatology (ACR) "50% improvement" criteria to the number of
swollen joints, 36% of Therafectin patients experienced at least a 50% decrease
in the number of swollen joints compared to 23% of placebo patients resulting in
a statistically significant difference (p greater than 0.04). Finally, in the
subgroup of patients (about half the total number) entering the study with
greater than the median number of swollen joints (ten), the primary and
secondary variables specified in the trial protocol were statistically
significant. The Company believes that statistically significant improvement in
the important clinical variables related to joint swelling, functional class,
and "quality of life" experienced by the Therafectin patients demonstrates the
clinical efficacy of Therafectin. Because the beneficial effect is most obvious
on joint swelling, the Company believes that the other improvements are
secondary to Therafectin's apparent ability to favorably impact the underlying
disease.
In 1998, the Company concluded agreements for drug substance and tablet
manufacturing with FDA compliant Good Manufacturing Practices ("GMP")
manufacturers (replacing its previous relationship with Boehringer which was
adversely impacted by the closing of the latter's Connecticut facility, which
had been expected to produce Therafectin launch supplies). Commercial quantities
of drug substance have been manufactured and transferred to the tablet
manufacturer, and commercial quantities of finished tablets were manufactured
during the first quarter of 1999. Manufacturing data reflecting this production
are expected to be submitted to the FDA during the first half of 1999, however
there can be no assurance that the Company will meet such expectations. The
Company filed an amendment to the NDA for Therafectin in 1998, and intends to
make a follow-up request for a meeting with the FDA's Arthritis Advisory
Committee along with submission of the manufacturing data. However, there can be
no assurance that a decision will be rendered or that Therafectin will
ultimately be approved. The Company's strategy is to enter into a marketing
agreement with a well established pharmaceutical company, but there can be no
assurance that the Company will be able to successfully manufacture, market, and
distribute Therafectin, or to enter into a licensing and strategic alliance on
acceptable terms.
PRODUCTS IN CLINICAL TRIALS
1. Altropane(TM)
Parkinson's Disease is a chronic, irreversible, neurodegenerative disease
which generally affects people over 50 years old. It is caused by a significant
decrease in the number of dopamine terminals in specific areas of the brain.
Inadequate production of dopamine causes the classic PD symptoms of resting
tremor, muscle retardation, and rigidity. Altropane is an 123I-based nuclear
medicine imaging agent that We believe may be useful in the diagnosis of PD in
its early stages. Since administration of currently available therapies at an
early stage of PD may delay the progression of the disease, early definitive
diagnosis may be of substantial benefit. PD afflicts about 250,000-500,000
Americans and about 4 million individuals worldwide (developed nations). The
number of individuals having PD is expected to grow substantially as people
continue to live longer and the overall population ages.
We filed an IND application in November 1996 asking for permission to
conduct full scale clinical trials of Altropane. We started our Phase I clinical
trial in the second quarter of 1997 and completed the Phase I trial in February
1998. We started our Phase II studies in April 1998 and completed the Phase II
trial in February 1999. We believe that results of the Phase II study provide
clear evidence that Altropane is useful in telling the difference between normal
individuals from those individuals with early PD. The interim results thus far
analyzed, based upon half the total number of enrolled patients in the Phase II
trial indicate that patients with early or mild PD can be reliably and easily
differentiated from normal patients based on the Altropane scan results. Normal
patients had a mean striatal binding potential of 1.07 + 0.17 vs 0.44 + 0.19 for
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patients with early/mild PD (p greater than 0.00007). The highest binding
potential for a PD patient (0.66) was still well below the lowest binding
potential seen in the normal patients (0.9). Qualitative assessment of the scans
revealed moderate to marked decrease in at least one quadrant of the striatum in
the brain of PD patients compared to the normal patients. The Company plans to
initiate its Phase III study in March of 1999. Our 1997 Annual Report indicated
that we had expected to complete our Phase III trial by the end of 1998 although
we noted that there were no assurances that this timing would be met. Due to the
functional impairment associated with PD, and the resulting physical inability
of many patients to complete their clinical visits when scheduled, the
completion of Phase II enrollment took longer than originally expected. We are
implementing measures to assist Phase III patients in completing their clinical
visits as originally scheduled. While we believe that these and other supportive
measures will have a beneficial effect, the completion of Phase III by the end
of 1999 should be regarded as a goal rather than as well-assured.
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In December 1998, the Company announced that it had started preclinical
development on a "second generation" technetium-based compound for the diagnosis
of PD. This compound differs from Altropane in structure and in the
advantageous substitution of technetium for iodine as the radio-ligand.
Subsequent research has shown that this agent can differentiate PD from normal,
but comprehensive data on its performance as compared to Altropane is not yet
available. Human clinical trials with this new agent, which the Company hopes
to commence in 2000, although there can be no assurance that the Company will
meet such expectations, will establish the ultimate clinical usefulness for this
technetium-based compound. The Company believes that the ability to eventually
follow Altropane to market with a second-generation technetium product would
give BLSI a long-term competitive advantage in this rapidly emerging diagnostic
area.
PRINCIPAL PRECLINICAL DEVELOPMENT PROGRAMS
1. Troponin
It is now generally accepted that angiogenesis (the formation of new blood
vessels) plays an important role in the growth and spread of cancer throughout
the body. Increasing experimental and clinical evidence strongly suggests that
the inhibition of angiogenesis could potentially offer a general therapeutic
approach to the prevention or treatment of all solid tumor metastases. This
approach is independent of tumor type, since it targets only proliferating blood
vessel cells, and if the anti-angiogenic agent is specific to endothelial (blood
vessel) cells, it is also theoretically nontoxic since angiogenesis does not
take place under normal circumstances.
Our anti-angiogenic agent, Troponin I was discovered to be present in
cartilage (a tissue devoid of blood vessels) by scientists at Children's
Hospital in Boston, and found to have extremely strong anti-angiogenic activity,
both in vitro and in vivo. Recombinant Troponin I has been shown to inhibit lung
metastases in animals at doses that by extrapolation to the human equivalent
appears to yield a convenient clinical dosing regimen. The Company's goal is,
therefore, to complete its clinical formulation effort enabling the subcutaneous
administration of Troponin in human trials. The scientific basis for the
Company's development of Troponin was published in the March 16, 1999 edition of
the Proceedings of the National Academy of Sciences, and summarized in a Company
Press Release of the same date. The Company's goal is to file an IND and
initiate human clinical trials of Troponin in the second half of 1999, but there
can be no assurance that the Company will be able to meet such expectations, or
that it will be able to successfully manufacture, market and distribute
Troponin. In our 1997 Annual Report, we had indicated that our objective was to
file an IND for Troponin around the end of 1998. More extensive pre-clinical
development work than originally planned was necessary in order to (1) further
define desirable parameters for the manufacturing process prior to initiating
the required toxicology, teratogenicity, and wound healing studies for
regulatory compliance, and (2) generate additional information on dosing for use
in establishing clinical protocols.
In addition to the treatment of cancer, the anti-angiogenic approach appears
to have significant potential for the treatment of eye diseases that are
associated with abnormal retinal angiogenesis. Two of these diseases, Macular
Degeneration and Diabetic Retinopathy, are the major causes of blindness in
developed countries. Preliminary experiments in animal models of these diseases
suggest that Troponin can effectively inhibit retinal angiogenesis. The Company
is, therefore, developing Troponin for these indications, and hopes to file an
IND for ophthalmic indications in the year 2000, although there can be no
assurance that the Company will meet such expectations.
BLSI owns the exclusive license to the recently issued (November 1998) U.S.
patent for the use of Troponin I to treat a broad spectrum of angiogenic
diseases including solid tumors, eye diseases, atherosclerosis, hypertrophic
scarring (including in the spinal cord), arthritis and psoriasis.
2. Axogenesis Factor 1 (AF-1)
Axogenesis Factor 1 (AF-1) is a nerve growth factor which specifically
promotes axon outgrowth in central nervous system (CNS) cells. Since axons form
the connections between cells of the CNS (brain and spinal cord), We believe
that AF-1 could provide a means to regenerate those connections following CNS
damage suffered in stroke or spinal cord injury. In addition, chronic
degenerative diseases of the CNS such as Parkinson's Disease or Alzheimer's
Disease, may be amenable to AF-1 or similar treatment.
Results obtained by BLSI scientists in animals appear to demonstrate the
feasibility of regenerating the injured optic nerve and spinal cord by treating
these tissues with AF-1 or related compounds. Further experiments are presently
being conducted to expand upon these results, with the aim of achieving
substantial functional recovery after such injuries. If these ongoing studies
are successful, the Company will proceed toward human clinical studies.
Some of the important new findings concerning the regulation of axon growth in
CNS nerve cells that were generated by BLSI researchers were announced in 1998.
The discoveries were presented at the annual meeting of the Society for
Neuroscience and were published in The Journal of Biological Chemistry. The
paper describes the intracellular pathway that may control axon growth in all
nerve cells.
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The annual incidence of stroke in the U.S. is approximately 500,000 with
more than 3,000,000 stroke survivors currently alive. The incidence of traumatic
brain injury is approximately 50,000 annually. The incidence of spinal cord
injury is approximately 10,000 cases annually. Treatment for these conditions is
presently limited to hemodynamic support, steroids to reduce inflammation, and,
in the case of stroke, the correction of predisposing hematological
abnormalities.
3. C-MAF
In June 1996, the Company acquired the rights to a transcription factor called
C-MAF which has been shown, in preclinical in vitro tests, to regulate the
switching of T helper 1 (Th1) cells into T helper 2 (Th2) cells. The Company
believes that the ability to switch Th1 cells into Th2 cells (and vice versa)
may be significant in the treatment of autoimmune diseases and allergies.
The discovery of and potential role for this factor was the subject of a lead
article in the June 28, 1996 edition of Cell. When C-MAF was inserted into Th1
cells, they transformed themselves into Th2 cells. The Company's collaborating
scientists have since accomplished the stable transfection of a large proportion
of T cells in culture, which is the first step in creating a gene therapy
product for clinical use. In a "Proof of Principle" experiment, C-MAF was
inserted into a fertilized mouse egg. The T cells of the fully developed animal
all appeared to be of the Th2 subtype, thereby providing evidence that one can
transform an animal's T cells in vivo. Animal experiments are currently underway
in an attempt to demonstrate that autoimmune disease might be successfully
treated using this approach. In addition, the Company's scientists believe that
they have identified the C-MAF promoter, which could represent an ideal target
for the development for small molecule inhibition of the allergic/autoimmune
response. A product based upon a successful program in this area would
potentially address a large cross-section of autoimmune and allergic diseases.
In addition to C-MAF, a second factor, called NIP-45, has been discovered
which appears to synergize with C-MAF and other factors to significantly boost
transcription of the IL4 gene in Th2 cells. Thus, a gene therapy strategy
focused on either inserting C-MAF alone, or C-MAF together with NIP-45, could
potentially lead to the development of therapeutic product for the treatment of
severe autoimmune diseases, although results to date are preliminary.
The approach to the treatment for allergies requires the development of an
inhibitor to C-MAF, NIP-45, or both, in order to decrease the number of Th2
cells and to restore the proper balance between the numbers of Th1 and Th2 cells
at the site of inflammation. In the case of asthma and hay fever, the optimal
formulation would be a small molecule that could be delivered via aerosol to the
lung where it would be incorporated into the Th2 cells surrounding the bronchi.
The Company's strategy for the commercialization of this technology is to
collaborate with a corporate partner in the discovery and clinical development
of such a small molecule inhibitor utilizing the basic research and screening
techniques developed by the BLSI research program.
OTHER INFORMATION
SCIENTIFIC ADVISORY BOARD
We have organized a Scientific Advisory Board, which currently consists of six
members (the "Scientific Advisors"). The Scientific Advisors have extensive
experience in fields related to our fields of research. The Scientific Advisors
may be asked to review and evaluate our research programs, to provide advice on
technical matters in fields in which they have experience, and to recommend
personnel to us.
The Scientific Advisors are employed by or have consulting agreements with
other organizations, some of which may or may not conflict or compete with us,
and the Scientific Advisors are expected to spend only a minor portion of their
time working for us. Except for members of the Scientific Advisory Board who are
also consultants to the Company or its subsidiaries, the Scientific Advisors are
not expected to participate actively in our activities or in the development of
our technologies. Some of the organizations that the Scientific Advisors are
affiliated with may have regulations or policies which limit their ability to
act as consultants to us. Any new regulations or policies adopted in the future
might limit the ability of the Scientific Advisors to consult with the Company.
Inventions or processes discovered by the Scientific Advisors do not become
our property but remain the property of an Advisors' full-time employer, other
than those inventions or processes that may be covered by consulting agreements
between us and such advisors. In addition, the institutions with which the
Scientific Advisors are affiliated may make available the research services of
their scientific and other skilled personnel, including the Scientific Advisors,
to organizations other than us under sponsored research agreements with others.
Under such agreements, such organizations
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may be obligated to assign or license patents and other proprietary information
which may result from research sponsored by an entity other than us, including
research performed by a Scientific Advisor for a competitor of the Company.
The members of the Scientific Advisory Board and a composite of their
professional background and affiliations is as follows:
HENRY BREM, M.D. Dr. Brem is Professor of Neurosurgery, Ophthalmology, and
Oncology at Johns Hopkins University, and Director of Neurosurgical Oncology at
Johns Hopkins Hospital.
JOSEPH P. VACANTI, M.D. Dr. Vacanti is Associate Professor of Surgery, Harvard
Medical School, and Director of the Laboratory for Transplantation and Tissue
Engineering at the Children's Hospital, Boston.
ALEXANDER M. KLIBANOV, PH.D. Dr. Klibanov is Professor of Chemistry at
Massachusetts Institute of Technology.
MICHAEL A. MOSKOWITZ, M.D. Dr. Moskowitz is Professor of Neurology, Harvard
Medical School, and Associate Neurologist at Massachusetts General Hospital.
VLADIMIR TORCHILIN, PH.D. Dr. Torchilin is the Head of the Chemistry Program
at the Center for Imaging and Pharmaceutical Research, and Associate Professor
of Radiology at the Harvard Medical School.
LICENSING AGREEMENTS
We have entered into a number of exclusive worldwide licenses of patent
applications covering our technologies. These licenses are obtained from the
collaborating institutions where such technologies were invented or discovered
(generally Harvard and its Affiliates), and generally include the right to
sublicense, to make, use or sell, products or processes resulting from the
development of these technologies. The licensing agreements generally require
the payment of an initial licensing fee as well as additional payments upon
reaching development milestones, as defined in each respective agreement. The
licensing agreements also provide for the payment of a royalty to the
collaborating institution based upon the sales of any products developed by us
or our sublicensees. We usually have a first option to license additional
technologies invented or discovered during the course of related research
programs funded by us. There can be no assurance that such research will lead to
the discovery of new technologies or that We will be able to obtain a license
for any newly discovered technologies on acceptable terms, if at all.
BUSINESS RISKS
THE COMPANY IS UNCERTAIN REGARDING THE PATENTS AND PROPRIETARY RIGHTS OF ITS
PRODUCT CANDIDATES
Our patent strategy has been to aggressively pursue patent protection, in the
U.S. and in most developed countries, for our compounds and technologies. Our
goal is to obtain broad patent protection for our compounds under development
and their related medical indications. Although We will seek patent protection
for our technologies, the patent application and issuance process generally
takes several years and is usually very expensive without any guarantee that a
patent will be issued. In many cases, the Company's know-how and technology may
not be patentable. If We do not obtain patent protection for our technologies,
our ability to compete and business prospects may be significantly and
negatively affected. Further, even if patents can be obtained, there can be no
guarantee that these patents will provide us with any competitive advantage.
Risks associated with protecting our patent and proprietary rights include the
following:
. Our ability to protect our technologies could be delayed or negatively
affected if the United States Patent and Trademark Office (the "USPTO")
requires clinical evidence that our technologies work.
. Our competitors may develop similar technologies or products, or duplicate
any technology developed by us.
. If patents are issued to us, our competitors may develop products which are
similar to ours but which do not infringe on our patents or products, or a
third party may successfully challenge one or more of our patents.
. Our patents may infringe on the patents or rights of other parties which may
decide not to grant a license to us.
. We may have to change our products or processes, pay licensing fees or stop
certain activities because of the patent rights of third parties which could
cause additional unexpected costs and delays.
Patent law in the fields of healthcare and biotechnology is still evolving. As
a result, future changes in patent laws might conflict with the existing or
future patent rights of others. For the same reasons, the products of others
could infringe on our patent rights. The defense and prosecution of patent
claims is both expensive and time-consuming, even if We receive a favorable
outcome. If any existing or future patent owned by or licensed to us or our
collaborators fails to protect us against competitors, it could:
. Subject us to significant liabilities to third parties,
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. Require us to license rights from third parties,
. Require us to alter our products or processes or
. Require us to cease developing and/or selling certain of our technologies.
We also rely on trade secrets and proprietary know-how. We seek to protect
this information primarily through confidentiality agreements with our
collaborators, employees and consultants. There can be no guarantee that these
agreements will not be breached or that We will have adequate remedies for such
breach. In addition, our trade secrets may become known or be developed
independently by competitors.
If consultants, key employees or other third parties apply technological
information which they have developed separate from the Company to our
technologies, there may be disputes as to the ownership of such information
which may not be resolved in our favor. Our scientific advisors and other
consultants are employed by and may have consulting agreements with third
parties. Therefore, any inventions discovered by such individuals are not
likely to become our property.
THE COMPANY HAS ALWAYS HAD LOSSES FROM ITS OPERATIONS AND EXPECTS FUTURE LOSSES
We are a development stage company. We have never generated revenues from
product sales, and We do not currently expect to generate revenues from product
sales for at least the next eighteen months. As of December 31, 1998, We have
incurred total net losses since inception of approximately $40 million. To
date, We have dedicated most of our financial resources to the research and
development of our product candidates, preclinical compounds, and other
technologies (collectively referred to herein as our "technologies"), general
and administrative expenses and costs related to obtaining and protecting
patents. We expect to incur significant operating losses for at least the next
twenty-four months, and possibly longer, primarily due to the continued progress
of our research and development programs, including preclinical studies and
clinical trials, and costs associated with making and selling our products. Our
ability to earn profits will depend on many things including:
. Successfully completing the research and development of our technologies;
. The time, cost and effort required to obtain regulatory approvals;
. Establishing collaborative arrangements for manufacturing, sales and
marketing capabilities;
. Protecting our patent and other intellectual rights;
. The ability of our licensors or collaborators to protect their patent and
other intellectual rights;
. Competing technology and market developments;
. Manufacturing costs and the costs of commercializing our products; and
. Raising enough money to finance our business.
There can be no guarantee that the Company will become profitable or that
if it becomes profitable, it will remain profitable.
THE COMPANY DEPENDS HEAVILY ON HARVARD UNIVERSITY AND ITS AFFILIATES
Most of our research and development is completed through Harvard
University and its affiliated hospitals ("Harvard and its Affiliates") under
sponsored research agreements. Researchers working at Harvard and its
Affiliates invented or discovered virtually all of our current technologies.
Therefore, most of the Company's business depends upon:
. Harvard and its Affiliates continuing to perform research and development
work under sponsored research agreements with us; and
. Our ability to maintain the licenses that We received from Harvard and its
affiliates for our current technologies.
THERE CAN BE NO GUARANTEE THAT HARVARD AND ITS AFFILIATES WILL CONTINUE TO
WORK WITH US.
Each of our collaborative research agreements is managed by a sponsoring
scientist and/or researcher who has his or her own independent affiliation with
Harvard and its Affiliates. In addition, We may enter into consulting, advisory,
and related arrangements with other scientific, research and development
professionals whom We believe can assist us in the development of our
technologies. A summary of the principal scientific, research and development
professionals associated with the Company, and a composite of their professional
background and affiliations is as follows:
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LARRY I. BENOWITZ, PH.D., Director, Laboratories for Neuroscience Research in
Neurosurgery, Children's Hospital, Boston; Associate Professor of Neuroscience,
Department of Surgery, Harvard Medical School
ALAN J. FISCHMAN, M.D., PH.D., Chief, Department of Nuclear Medicine,
Massachusetts General Hospital; Professor of Radiology, Harvard Medical School
LAURIE H. GLIMCHER, M.D., Irene Heinz Given Professor of Immunology, Harvard
School of Public Health; Professor of Medicine, Harvard Medical School
ALEXANDER M. KLIBANOV, PH.D., Professor of Chemistry, Massachusetts Institute
of Technology
ROBERT S. LANGER, SC.D. Germeshausen Professor of Chemical and Biomedical
Engineering, Massachusetts Institute of Technology
BERTHA K. MADRAS, PH.D., Associate Professor of Psychobiology, Harvard Medical
School
PETER MELTZER, PH.D., President, Organix, Inc., Woburn, MA
VLADIMIR TORCHILIN, PH.D., Head of the Chemistry Program, Center for Imaging
and Pharmaceutical Research and Associate Professor of Radiology, Harvard
Medical School
THE COMPANY WILL NEED TO RELY ON FUTURE AND CERTAIN PRIOR RELATIONSHIPS IN
ORDER TO BE SUCCESSFUL
We expect that developing, clinical testing, manufacturing and commercializing
our technologies will require working with various corporate partners, joint
venturers, licensors, sub-licensees and others. There can be no guarantee that:
. We will be able to enter into such collaborations on acceptable terms and
conditions,
. That such collaborations will be successful or,
. The parties will not dispute the ownership rights to any technology
developed under such collaborations.
If any of our collaborators breach or terminate their agreement with us or
otherwise fail to conduct their activities on time, it could delay the
development or commercialization of the technology for which the parties are
collaborating. Further, We may need to undertake additional responsibilities or
to devote additional resources. The termination or cancellation of any working
arrangements could also negatively affect our patent and intellectual property
rights, as well as our financial condition and operations.
If We are not able to establish or maintain collaborative arrangements, We
will need more money to research and develop technologies on our own and may
encounter delays in introducing our products. We may also find that not
collaborating with others may negatively affect our development and
manufacturing efforts, as well as the sales of any products. We also expect to
rely on third parties to manufacture our products. There can be no assurance
that We will be able to contract with manufacturers who can fulfill our
requirements for quality, quantity and timeliness, or that We would be able to
find substitute manufacturers, if necessary. If We are unable to contract with
manufacturers on acceptable terms, it could negatively affect our ability to
conduct preclinical and clinical testing and may delay our efforts to obtain
regulatory approvals. In addition, manufacturing of our products on a commercial
scale will require us to incur significant start-up expenses and to expand our
facilities and personnel. No guarantee can be given that We can develop such
manufacturing capability or hire and train qualified personnel.
THE COMPANY DEPENDS HEAVILY ON ITS KEY PERSONNEL AND MAY NEED ADDITIONAL KEY
PERSONNEL
Our success depends significantly upon our ability to attract and retain
highly qualified scientific and management personnel. There is significant
competition for such personnel from other companies, research and academic
institutions, government entities and other organizations. We can not guarantee
that We will be successful in hiring or retaining key personnel.
If We decide to undertake internally the research and development of any of
our technologies, We may need to hire additional key management and scientific
personnel to assist the limited number of employees that We currently employ.
If We fail to attract such personnel, it could have a significant negative
effect on our ability to develop our technologies. There is significant
competition for such personnel from other companies, research and academic
institutions, government
7
<PAGE>
entities and other organizations. There can be no guarantee that We will be
successful in hiring or retaining the personnel required for such activities.
THE COMPANY'S INDUSTRY IS VERY COMPETITIVE AND SUBJECT TO CHANGES IN TECHNOLOGY
The pharmaceutical industry is highly competitive. Research on the causes of,
and possible treatments for diseases for which We are trying to develop
products, including rheumatoid arthritis, cancer, Parkinson's Disease, central
nervous system disorders and autoimmune diseases are developing rapidly.
Competition from larger, more experienced and better capitalized companies will
be intense. We are pursuing areas of product development in which there is a
potential for extensive technological innovation in relatively short periods of
time. There can be no assurance that We will be able to keep pace with any new
technological developments. Factors affecting our ability to successfully
manage the technological changes occurring in the biotechnology industry as well
as our ability to successfully compete include:
. We have no sales force or marketing experience;
. We compete with a number of pharmaceutical and biotechnology companies
which have financial, technical and marketing resources significantly
greater than ours;
. Companies with established positions in the pharmaceutical industry may be
better able to develop and market products for the treatment of those
diseases for which We are trying to develop products;
. Many of our competitors have significantly greater experience than us in
completing preclinical and clinical testing of new pharmaceutical products
and obtaining Food and Drug Administration ("FDA") and other regulatory
approvals of products;
. Our competitors may succeed in developing products that are more effective
than ours;
. Rapid technological change or developments by others may result in our
potential products becoming obsolete or uncompetitive; and
. Universities and other not-for-profit research organizations are
responsible for a significant amount of research in the field. These
institutions are becoming increasingly aware of the commercial value of
their findings and are becoming more active in seeking patent protection
and licensing arrangements to collect royalties for the use of technology
that they have developed. These institutions may also market competitive
products on their own or through joint ventures and may compete with us in
recruiting qualified personnel.
A substantial number of patents have been issued to other pharmaceutical and
biotechnology companies, and other companies may have applied for patents, been
issued patents or obtained additional patents and proprietary rights relating to
products or processes competitive with ours. Patent applications in the United
States are kept secret until the patents are issued, and since publication of
discoveries in the scientific or patent literature occurs after the actual
discoveries, We cannot be certain that We, or our licensors or collaborators,
were the first creator of inventions covered by pending patent applications or
the first to file patent applications for such inventions. Consequently, there
can be no assurance that our existing patents or any patents that may be issued
to us or our licensors or collaborators in the future will provide protection
against competitive products or otherwise be commercially valuable.
IT MAY BE DIFFICULT FOR THE COMPANY TO OBTAIN FDA AND OTHER GOVERNMENTAL
APPROVALS
Our activities are regulated by a number of government authorities in the
United States and other countries, including the FDA pursuant to the Federal
Food, Drug and Cosmetic Act. The FDA regulates pharmaceutical products,
including their manufacture and labeling. Any product developed by us must
undergo an extensive regulatory approval process which includes preclinical and
clinical testing of such product to demonstrate its safety and efficacy before
it can be marketed. This regulatory process can require many years and
substantial cost. Data obtained from testing is subject to varying
interpretations, which can delay, limit or prevent FDA approval.
None of our technologies have been approved for marketing by the FDA or any of
the FDA's international equivalents. We cannot accurately predict all relevant
regulatory requirements or issues. Changes in existing regulatory requirements
could prevent or affect the timing of our ability to achieve regulatory
compliance. Federal and state laws, regulations and policies may be changed
with possible retroactive effect, and depend heavily on administrative policies
and interpretations. There can be no guarantee that any changes with respect to
Federal and state laws, regulations and policies, and, particularly, with
respect to FDA and other such regulatory bodies, will not have a significant,
negative effect on the Company. Obtaining FDA clearances can be time-consuming
and expensive, and there is no guarantee that such clearances will be granted or
that the FDA review process will not involve delays that significantly and
negatively affect our products. We may encounter similar delays in foreign
countries.
Also, regulatory clearances may have significant limitations on the uses
for which such products may be marketed. In addition, even if regulatory
approval is obtained, any marketed product and its manufacturer are subject to
8
<PAGE>
periodic review and any discovery of previously unrecognized problems with a
product or manufacturer could result in suspension or limitation of approvals.
If We obtain any required clearances, there can be no assurance that the
regulatory authority will not withdraw such clearance or that We will continue
to comply with other regulatory requirements.
NONE OF THE COMPANY'S PRODUCT CANDIDATES HAVE BEEN APPROVED AND THE COMPANY
HAS NO MARKETING EXPERIENCE
Neither the FDA nor any of the FDA's international equivalents has approved
any of our technologies for marketing. The research and development of our
technologies will require extensive additional laboratory and clinical testing
prior to regulatory approval. There can be no guarantee that:
. Our product development efforts will be successfully completed
. We will obtain required regulatory approvals
. Our technologies will be capable of being manufactured in commercial
quantities at reasonable cost or;
. New products, if introduced, will achieve market acceptance.
We do not have any experience in marketing pharmaceutical products. In order to
earn a profit on any future product, We will be required to either enter into
arrangements with third parties with respect to marketing the products or
develop internally such marketing capability. There can be no assurance that We
will be able to enter into marketing agreements with others on acceptable terms
or that We can successfully develop such capability, on our own.
THERE IS UNCERTAINTY IN THE PHARMACEUTICAL INDUSTRY REGARDING PRICING, HEALTH
CARE REIMBURSEMENT AND RELATED MATTERS
The continuing efforts of government and third party payers to contain or
reduce health care costs may negatively affect our business. For example,
certain foreign governments control pricing or profitability of prescription
pharmaceuticals. In the United States, there have been a number of federal and
state proposals to implement similar government control. In recent years,
several bills proposing comprehensive health care reform have been introduced in
Congress. In general, such proposals are designed to reform the health care
system to, among other things;
. control or reduce public and private spending on health care;
. provide for uniform health insurance benefits packages and administrative
efficiency in the health care system; and
. provide universal access to health care within the next several years.
Some of the proposals introduced in Congress would potentially limit
pharmaceutical prices and establish mandatory or voluntary refunds. Such
proposals could decrease the price that We receive for any products that We may
sell in the future. There can be no guarantee that such proposals will not
negatively affect us. In addition, there have been a number of federal and
state proposals for the government to control the prices of health care products
and services. It is uncertain if any legislative proposals will be adopted and
how federal, state or private payers for health care goods and services will
respond to any health care reforms. Such reforms may have a significant effect
on us. If such proposals have a significant negative effect on the business,
financial condition and profitability of other pharmaceutical companies which
work with us, our ability to commercialize our technologies may be negatively
affected.
Our ability to commercialize our products may depend, in part, on the extent
to which government health administration authorities, private health insurers
and others provide reimbursement for the costs of our products. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products, and third-party payers are increasingly challenging the prices charged
for medical products and services. There can be no guarantee that adequate
insurance coverage will be available to allow us to charge prices for products
which are adequate for us to realize an appropriate return on our cost for
developing these technologies. If adequate coverage and reimbursement are not
provided for use of our products, the market acceptance of these products will
be negatively affected. In addition, many health maintenance organizations and
other managed care companies are seeking to negotiate substantial volume
discounts for the sale of pharmaceutical products to their members thereby
reducing profit margins for manufacturers. Competitive pressures are causing
many manufacturers to accept such discount arrangements.
THE COMPANY HAS NO MANUFACTURING EXPERIENCE
We currently have no manufacturing facilities for either clinical trial or
commercial quantities of any of our technologies. To date, We have obtained the
limited amount of quantities required for clinical trials from contract
manufacturing companies. We intend to continue using contract manufacturing
arrangements with experienced firms for the supply of material for both clinical
trials and commercial sale. As a result of these arrangements, We will depend
upon
9
<PAGE>
third parties to produce and deliver products in accordance with all FDA and
other governmental regulations. There can be no guarantee that such parties will
constantly perform their obligations in a timely fashion, and, in accordance
with the applicable regulations. The failure by any third party to perform their
obligations may delay clinical trials, the commercialization of products, and
the ability to supply product for sale.
THE COMPANY MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS AND INSURANCE TO COVER
SUCH CLAIMS MAY BE UNAVAILABLE OR INADEQUATE
The use of our product candidates in clinical trials and the future sale of
any resulting products may subject us to liability claims. There can be no
guarantee that any product liability claims will not significantly and
negatively affect our business or financial condition. These claims might be
made directly by consumers or by pharmaceutical companies or other sellers of
such products. While We currently have product liability insurance, there can
be no guarantee that such insurance will be sufficient to meet any liabilities
that may arise. In addition, such coverage is expensive and may be difficult to
obtain. Our existing coverage may not be adequate as our product development
activities progress. There can be no guarantee that adequate insurance coverage
will be available in the future at an acceptable cost, if at all. If We are
unable to obtain sufficient insurance coverage at an acceptable cost to protect
against potential product liability claims, it could prevent or limit our
ability to commercialize our products.
MARKET RISKS
THE COMPANY MAY NEED ADDITIONAL CAPITAL IN THE FUTURE AND IS NOT CERTAIN
ADDITIONAL CAPITAL WILL BE AVAILABLE
We have experienced negative cash flows from operations since the company
began operating. To date, We have funded our business operations primarily from
equity financings. We spend a significant amount for research and development,
including preclinical studies and clinical trials of our technologies. We expect
that our current cash, cash equivalents and investment balances will be
sufficient to fund our capital requirements through at least the next twelve
months. Thereafter, We may need to raise substantial additional capital to fund
our operations. Our capital requirements will depend on many factors,
including:
. Potential problems, delays, expenses and complications frequently
encountered by development stage companies;
. The progress of our research and development activities and our clinical
trials;
. Our ability to meet the terms of any current and future collaborative
research, manufacturing, marketing or other agreements;
. Our ability to obtain regulatory approvals from the FDA and other
government agencies;
. The costs and timing of obtaining regulatory approvals of our products;
. The costs of protecting our patent claims and other intellectual property
rights; and
. Changes in economic, regulatory or competitive conditions of the
pharmaceutical and biotechnology industry.
Estimates about how much funding will be required are based on a number of
assumptions, all of which are subject to change based on the results and
progress of our research and development activities. To satisfy our capital
requirements, We may raise additional funds in the public or private capital
markets. If the results of our current or future clinical trials are not
favorable, it may negatively affect our ability to raise additional funds. We
may also seek additional funding through corporate collaborations and other
financing methods. There can be no guarantee that any such funding will be
available on favorable terms, if at all. If adequate funds are not available,
We may need to significantly reduce one or more of our research or development
programs, or We may be required to obtain funds through arrangements with others
that may require us to surrender rights to some or all of our technologies. If
We are successful in obtaining additional financing, the terms of such financing
may have the effect of diluting or adversely affecting the holdings or the
rights of our common stockholders.
THERE ARE OPTIONS AND WARRANTS OUTSTANDING WHICH MAY CAUSE DILUTION TO THE
STOCKHOLDERS OF THE COMPANY
As of March 9, 1999, We had granted stock options and warrants to purchase
approximately five million shares of our Common Stock at exercise prices ranging
from $0.63 - $15.00 per share. Many of these previously granted options and
warrants were issued at exercise prices below the market price of the Common
Stock. If the holders exercise these stock options and warrants, it will dilute
the percentage ownership interest of our current stockholders. In addition, the
terms upon which We would be able to obtain additional money through the sale of
our stock may be negatively affected because the holders of such outstanding
options and warrants would probably exercise them at a time when We would most
likely be able to obtain capital on terms more favorable to us than those
provided by the exercise of outstanding options and warrants.
10
<PAGE>
As of March 9, 1999, We also had 14,296 and 315,416 shares of Series A and
Series C Convertible Preferred Stock outstanding, respectively, which are
currently convertible into 250,719 and 1,577,080 shares of common stock,
respectively. If the holders convert their shares of preferred stock into
common stock, it will dilute the percentage ownership interest of our current
stockholders.
THERE HAS BEEN A LIMITED PUBLIC MARKET FOR THE COMPANY'S COMMON STOCK, THE
PRICES HAVE BEEN VOLATILE AND THE COMPANY HAS NEVER PAID DIVIDENDS TO ITS
STOCKHOLDERS
Historically, the trading volume of our Common Stock has fluctuated
significantly. At times our trading volume has been significant while at other
times our trading volume has been relatively low. The market price of our
Common Stock has been highly volatile and it may continue to be highly volatile
similar to the securities of other public biotechnology companies. Factors
which may have a significant effect on the market price of our common stock
include:
. the discovery of new technologies in fields in which We are developing
products
. the results of clinical trials
. FDA approval of new products
. Proposed government regulations and
. Issues relating to patents or proprietary rights.
The securities markets have experienced volatility that affects prices of
equity securities of biotechnology companies which is often unrelated to the
performance of such companies. Thus, changes in the market price of our common
stock may not be consistent with our actual operations or financial results. We
do not expect to pay any dividends for the foreseeable future.
YEAR 2000 COMPLIANCE
The Company has initiated planning for 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."
Our plan to address these issues and to enhance our readiness for the Year
2000 is primarily focused on:
. Network and facility infrastructure,
. Business applications and software, and
. External partners
Within each area, our efforts will involve:
. The identification of systems that may be susceptible to Year 2000 issues,
. An assessment of the risks to the Company's business of Year 2000 issues,
. Fixing problems that are identified, and
. Contingency planning.
We expect that the identification and assessment phases will be completed
during the second quarter of 1999, at which time remediation and contingency
planning will be initiated as appropriate. The Company primarily operates its
business applications software using the Microsoft Office suite of products. As
a result, We will primarily rely on the software developer's representations
regarding Year 2000 compliance of their software.
We intend to assess the possible effects on our operations of the Year 2000
compliance of certain relevant third parties, primarily our service providers,
by requesting confirmation from the parties regarding their Year 2000 readiness.
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.
Although We intend to complete all phases of our Year 2000 program by December
31, 1999, there can be no assurance We will complete our program by then, and
even if this program is successfully completed on schedule, that disruptions in
our business will be avoided.
Possible consequences of Year 2000 issues that We are unable to adequately
identify, assess or fix include but are not limited to:
. Delays in supplies from vendors,
11
<PAGE>
. Errors in processing transactions and
. Diversion of management time and effort to addressing difficulties that
emerge
. Loss of clinical and research data
The goal of our Year 2000 program is to plan for and reduce the risk of such
difficulties. There can be no assurance that our Year 2000 program will be
completed in a timely manner or will be successful.
EMPLOYEES
As of March 9, 1999, the Company employed 10 individuals full-time, of whom
four hold Ph.D. or M.D. degrees. None of the Company's employees is covered by a
collective bargaining agreement.
ITEM 2. PROPERTIES.
The Company's administrative offices are located in Boston, Massachusetts. The
lease on this 3,500 square foot facility expires on June 30, 1999 and can be
renewed by the Company for additional three year periods. In addition, the
Company has 4,000 square feet of warehouse space in Horsham, Pennsylvania. This
lease will terminate on March 31, 2000. The Company believes that its existing
facilities are adequate for its present and anticipated purposes, except that
additional facilities will be needed if the Company builds its own laboratory
space or undertakes manufacturing operations. The Company, however, has no
present intention to develop such capabilities for its technologies.
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to legal proceedings in the normal course of business.
Management believes that these proceedings will not have a material adverse
effect on the consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT.
The following is a list of the executive officers of the Company and their
principal positions with the Company. Except for S. David Hillson, Esq. and Marc
E. Lanser, M.D., who are employed pursuant to employment agreements, each
individual officer serves at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
S. David Hillson, Esq. ................ 58 Chairman of the Board of Directors, President
And Chief Executive Officer
Marc E. Lanser, M.D. .................. 50 Executive Vice President and Chief Scientific Officer
Joseph Hernon, CPA .................... 39 Chief Financial Officer, Secretary
</TABLE>
S. DAVID HILLSON, ESQ. Mr. Hillson has been President and Chief Executive
Officer and a member of the Board since the Merger with Greenwich in June 1995.
He also has served as Chairman of the Board of Directors since September 1996.
Prior to the Merger, Mr. Hillson served as President, Chief Executive Officer
and a member of the Board of Directors of Old BLSI from November 1994. Prior to
his responsibilities at Old BLSI, from January to November 1994, Mr. Hillson was
Senior Vice President of Josephthal, Lyon & Ross, Incorporated in the research
and investment banking divisions and from November 1992 to January 1994, Mr.
Hillson was the Senior Managing Director, investment banking, at The Stamford
Company in New York City. From October 1990 until October 1992, Mr. Hillson was
an Executive Vice President of the asset management division of Mabon
Securities. Earlier in his career as an investment manager, Mr. Hillson was a
Senior Vice President with Shearson, Lehman, Hutton from 1983 to 1990, where he
managed three mutual funds, primarily in the emerging growth area, for the SLH
Asset Management division. Prior to his fund management responsibilities, he was
the Chairman of the Equity Committee for Hutton Investment Management (1976-
1982). He started his business career as an attorney in New York City, having
received his Juris Doctorate from New York University School of Law. He also
attended the Columbia University School of Business Administration and received
a Bachelor of Arts degree from Columbia College.
MARC E. LANSER, M.D. Dr. Lanser has been Executive Vice President and Chief
Scientific Officer and a member of the Board since June 1995. Prior to the
Merger, Dr. Lanser held the same position with Old BLSI from November 1994. From
October 1992 until November 1994, Dr. Lanser was President and Chief Executive
Officer of Old BLSI. Prior to assuming the position of President and Chief
Executive Officer of Old BLSI, Dr. Lanser was an Assistant Professor of
12
<PAGE>
Surgery at Harvard Medical School and member of the full-time academic faculty,
where he directed an NIH funded research project in immunology and received an
NIH Research Career Development Award. Dr. Lanser has published more than 30
scientific articles in his field in peer-reviewed journals. Dr. Lanser received
his M.D. from Albany Medical College.
JOSEPH P. HERNON, CPA. Mr. Hernon has been Chief Financial Officer since
August 1996. Prior to joining the Company, Mr. Hernon was a Business Assurance
Manager at Coopers & Lybrand where he was employed from January 1987 to August
1996. Mr. Hernon holds a Masters of Science in Accountancy from Bentley College
and a Bachelor of Science in Business Administration from the University of
Lowell.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock is traded on The Nasdaq SmallCap Market under the
symbol BLSI. The following table sets forth the high and low sale prices for
the Company's Common Stock by quarter for 1997 and 1998, as reported by Nasdaq.
These prices reflect inter-dealer quotation, without retail mark-up, mark-downs
or other fees or commissions, and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
High LOW
----------- ----------
<S> <C> <C>
1998
First Quarter ............................................................... $ 2 7/16 $1 11/16
Second Quarter .............................................................. 8 15/16 1 31/32
Third Quarter ............................................................... 4 5/8 1 3/4
Fourth Quarter .............................................................. 4 1/32 4 25/32
1997
First Quarter ............................................................... $ 10 $ 6 1/4
Second Quarter .............................................................. 7 1/2 4 13/16
Third Quarter ............................................................... 9 4 3/8
Fourth Quarter .............................................................. 4 1/8 1 31/32
</TABLE>
On March 9, 1999 the closing sales price for the Common Stock was $7 1/16 per
share. The number of stockholders of record of Common Stock on March 9, 1999 was
approximately 6,700. The Company has not paid any dividends and does not expect
to pay dividends in the foreseeable future.
Recent sales of unregistered securities: During the year ended December 31,
1998, the Company issued 48,043 shares of common stock related to sale of common
stock and the exercise of warrants outstanding for which the Company received
consideration in the amount of $ 136,618. In addition, the Company issued 15,686
shares of common stock related to the exercise of 18,883 warrants, of which
3,197 warrants were surrendered to finance the exercise price of the warrants.
In January 1998, the Company issued 225,000 warrants to a financial advisor
which represented a substantial portion of the compensation paid by the Company
for the advisor's services. The Company recorded a non-cash charge of
approximately $290,000 representing the fair value of the warrants at the date
of issuance.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial information presented below has been
derived from the audited consolidated financial statements of the Company. This
data is qualified in its entirety by reference to, and should be read in
conjunction with the Company's Consolidated Financial Statements and notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations, included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
December 31, December 31,
1994 1995
------------------- --------------------
<S> <C> <C>
Statement of Operations Data
Revenues .......................................... $ 0 $ 416,940
Operating expenses ................................ 2,609,068 13,462,322
Net loss .......................................... (2,596,872) (14,149,151)
Basic and diluted Net loss per share .............. $ (0.66) $ (2.23)
Weighted average number of shares outstanding ..... 3,933,921 6,347,993
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------------------------
December 31, December 31, December 31, Period from
1996 1997 1998 Inception
------------- ------------- ------------- (October 16, 1992)
Through
December 31, 1998
--------------------
<S> <C> <C> <C> <C>
Statement of Operations Data
Revenues .......................................... $ 200,000 $ 83,060 $ $ 700,000
--
Operating expenses ................................ 7,047,399 9,202,664 7,682,406 42,559,538
Net loss .......................................... (5,996,147) (7,974,016) (6,897,024) (40,163,496)
Preferred stock preferences......................... (34,387,953) -- --
Net loss available to common shareholders........... (40,384,100) (7,974,016) (6,897,024)
Basic and diluted net loss per share .............. $ (0.61) $ (0.64) $ (0.52)
Per share effect of preferred stock preferences.... (3.48) -- --
Basic and diluted net loss available to
common shareholders............................. $ (4.09) $ (0.64) $ (0.52)
Weighted average number of shares outstanding ..... 9,880,222 12,378,219 13,138,862
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
----------------- ---------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Total assets .................... $ 806,502 $6,585,101 $26,153,130 $18,578,969 $12,269,048
Working capital ................. (1,518,571) (297,303) 20,383,735 12,718,875 6,744,226
Long-term debt .................. 0 658,735 0 0 0
Stockholders' equity (deficit) .. (906,100) 1,185,802 24,100,406 16,587,165 10,534,849
</TABLE>
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Management's Discussion and Analysis of Financial Condition and Results of
Operations that follows contains forward looking statements based on current
management expectations. Meaningful factors which could cause future results to
differ materially from such expectations include, without limitation, the
following: (i) the results from the Phase III clinical trials for Altropane,
(ii) scientific data collected on the Company's technologies currently in
preclinical research and development, (iii) decisions made by the Food and Drug
Administration ("FDA") or other regulatory bodies with respect to the initiation
of human clinical trials, (iv) decisions made by the FDA or other regulatory
bodies with respect to approval of the amendment to the NDA for Therafectin, and
to the commercial sale of any of the Company's proposed products, including
Therafectin, (v) the commercial acceptance of any products approved for sale and
the ability of the Company to manufacture, distribute and sell for a profit any
products approved for sale, (vi) the Company's ability to obtain the necessary
patents and proprietary rights to effectively protect its proposed products and
technologies, and (vii) the outcome of any collaborations or alliances currently
entered into by the Company or to be entered into by the Company in the future
with pharmaceutical or other biotechnology companies.
RESULTS OF OPERATIONS
OVERVIEW
On June 15, 1995, Greenwich Pharmaceuticals Incorporated ("Greenwich")
acquired all of the outstanding common stock of Boston Life Sciences, Inc. ("Old
BLSI") and merged with and into Old BLSI. Effective June 15, 1995, the merged
company was renamed "Boston Life Sciences, Inc." (the "Company") and the
management and Board of Directors of Old BLSI assumed management of the Company.
The acquisition of Old BLSI by Greenwich has been treated as a recapitalization
of Old BLSI with Old BLSI as the acquiror (reverse acquisition). The historical
financial statements prior to June 15, 1995 are those of Old BLSI.
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 rheumatoid arthritis, cancer, central nervous system disorders
and autoimmune diseases. The Company anticipates that its (i) research and
development and (ii) general and administrative costs will continue to increase
as the Company attempts to gain regulatory approval for the commercial
introduction of its proposed products. At December 31, 1998, the Company is
considered a development stage enterprise as defined in Statement of Financial
Accounting Standards No. 7.
YEAR ENDED DECEMBER 31, 1998 AND 1997
The Company's net loss was $6,897,024 during the year ended December 31, 1998
as compared with $7,974,016 during the year ended December 31, 1997. Net loss
per common share totaled $0.52 per share during 1998 as compared with $0.64 per
share during 1997. The lower net loss in 1998 was primarily due to reduced costs
associated with Therafectin. The Phase III clinical trial for Therafactin,
which began in March 1996, ended in August 1997. The effect of these lower
costs were partially offset by (i) higher licensing fees, (ii) an increase in
general and administrative expenses and (iii) a decrease in interest income.
Revenue was zero during the year ended December 31, 1998 as compared with
$83,060 during the year ended December 31, 1997. Revenue during 1997 was
attributable to an agreement with Zeneca which provided funds to support the
research and development of certain technology. Such funds were recognized
ratably over the original term of the Agreement which expired in June 1997.
Research and development expenses were $4,881,889 during the year ended
December 31, 1998 as compared with $4,874,233 during the year ended December 31,
1997. The majority of the Company's research and development expenses were, and
will continue to be in 1999, sponsored research obligations paid to Harvard
University and its affiliated hospitals.
Licensing fees were $80,000 during the year ended December 31, 1998 as
compared with $20,000 during the year ended December 31, 1997. The increase is
primarily related to an increase in the number of new technologies licensed to
the Company in 1998 as compared to 1997. During 1998, the Company paid $40,000
to license two new technologies as compared to $20,000 paid in 1997 for the
right to one new technology. 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 1998, the
Company incurred a milestone obligation 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
15
<PAGE>
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 related expenses were $423,228 during the year ended December 31,
1998 as compared with $2,190,040 during the year ended December 31, 1997. The
level of expenses in 1997 related to the Company's Phase III clinical trial for
Therafactin which was completed in August 1997. Expenses incurred during 1998
were primarily associated with the preparation of the amendment to the
previously filed NDA for Therafectin.
In January 1998, the Company announced its intention to seek marketing
approval for Therafectin based upon the cumulative data obtained from the trial
and the input provided by its special panel of clinical rheumatologists. The
consensus of this special advisory panel was that the cumulative safety and
efficacy data on Therafectin justified its use by clinicians looking for a safe
alternative to other more toxic drugs now being used to treat Rheumatoid
Arthritis. The Company also reported that further analysis of the trial data
strongly suggested the therapeutic efficacy of Therafectin. Applying the widely-
accepted "Paulus" criteria of therapeutic efficacy (at least a 20% improvement
in 4 of 6 measures: joint tenderness scores, joint swelling scores, physician's
and patient's global assessment, erythrocyte sedimentation rate (ESR), and
morning stiffness), there was a highly statistically significant difference in
the percentage of Therafectin patients meeting the Paulus criteria for
therapeutic efficacy as compared to the percentage of placebo patients meeting
the Paulus criteria (p greater than 0.02). Among the predefined secondary
efficacy variables, the reduction in the number of swollen joints, the ESR
results, Functional Class scores, and the CLINHAQ (a quality of life
measurement) were statistically significant in favor of Therafectin. In
addition, after withdrawing non-steroidal medication, clinical secondary
variables returned to baseline or better in the Therafectin group, while
remaining statistically significantly worse than baseline in the placebo group.
Applying the American College of Rheumatology (ACR) "50% improvement" criteria
to the number of swollen joints, 36% of Therafectin patients experienced at
least a 50% decrease in the number of swollen joints compared to 23% of placebo
patients resulting in a statistically significant difference (p greater than
0.04). Finally, in the subgroup of patients (about half the total number)
entering the study with greater than the median number of swollen joints (ten),
the primary and secondary variables specified in the trial protocol were
statistically significant. The Company believes that statistically significant
improvement in the important clinical variables related to joint swelling,
functional class, and "quality of life" experienced by the Therafectin patients
demonstrates the clinical efficacy of Therafectin. Because the beneficial effect
is most obvious on joint swelling, the Company believes that the other
improvements are secondary to Therafectin's apparent ability to favorably impact
the underlying disease.
Before any commercially viable product from Therafectin may be developed, and
any revenue generated therefrom, the Company currently expects that between
$500,000 and $1,000,000 of additional future expense will be necessary. There
can be no assurance, however, that the Company will not need to spend more than
the range indicated, or that the expenditure of these additional amounts will
result in the regulatory approval of any compounds or that such approval will
ever 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 $2,297,289 during the year ended
December 31, 1998 as compared with $2,118,391 during the year ended December 31,
1997. This increase was primarily due to non-cash charges related to certain
changes in the provisions of the Company's stock option plans and the issuance
of warrants to a financial advisor. .
Interest income was $785,382 during the year ended December 31, 1998 as
compared with interest income of $1,148,025 during the year ended December 31,
1997. Average cash and investment balances during 1998 were lower as compared
to 1997.
At December 31, 1998, the Company had net deferred tax assets of approximately
$22 million for which a full valuation allowance has been established. As a
result of its concentrated efforts on research and development and Therafectin
related expenses, the Company has a history of incurring net operating losses
and expects to incur additional net operating losses for the foreseeable future.
Accordingly, management believes that, at the present time, it is appropriate to
conclude that it is more likely than not that the future benefits related to the
deferred tax assets will not be realized and, therefore, has provided a full
valuation allowance for these assets. In the event the Company achieves
profitability, these deferred tax assets may be available to offset future
income tax liabilities and expense.
16
<PAGE>
YEAR ENDED DECEMBER 31, 1997 AND 1996
The Company's net loss, excluding preferred stock preferences, was $7,974,016
during the year ended December 31, 1997 as compared with $5,996,147 during the
year ended December 31, 1996. Net loss per common share, excluding the effect of
preferred stock preferences, totaled $.64 per share during 1997 as compared with
$.61 per share during 1996. The higher loss in 1997 was primarily due to (i)
lower revenues, (ii) increased research and development expenses, and (iii)
higher costs associated with the completion of the Phase III clinical trial for
Therafectin which began in March 1996 and ended in August 1997. The effect of
these items were partially offset by (i) lower licensing fees, (ii) decreased
general and administrative expenses and (iii) a reduction in interest expense.
The net loss available to common shareholders for the 1996 period, including
preferred stock preferences of $34,387,953, totaled $40,384,100. Net loss per
common share for 1996, including $3.48 attributable to preferred stock
preferences, totaled $4.09. In January and February 1996, the Company completed
a private placement of Series A 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 of $28,389,846 and the
warrants had a fair value of $5,998,107.
Revenue was $83,060 during the year ended December 31, 1997 as compared with
$200,000 during the year ended December 31, 1996. Revenue for both periods was
attributable to a research and development agreement under which a certain
pharmaceutical company provided funds to support the research and development of
certain technology. The research agreement expired in 1997.
Research and development expenses were $4,874,233 during the year ended
December 31, 1997 as compared with $2,408,734 during the year ended December 31,
1996. This increase was primarily due to the Company incurring a higher level of
research and development expenses for its existing technologies in 1997 as
compared to 1996 related to the continued advancement of its clinical efforts,
and, to a lesser degree, to an increase in the number of personnel supporting
the Company's research and development activities. The majority of the Company's
research and development expenses were sponsored research obligations paid to
Harvard University and its affiliated hospitals.
Licensing fees were $20,000 during the year ended December 31, 1997 as
compared with $390,000 during the year ended December 31, 1996. The decrease was
primarily related to a decrease in the number of new technologies licensed to
the Company in 1997 as compared to 1996, as well as lower costs to obtain such
licenses. During 1997, the Company paid $20,000 to license one new technology as
compared to $360,000 paid in 1996 for the rights to four new technologies. 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 1996, the Company made a milestone payment of $30,000
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 related expenses were $2,190,040 during the year ended December
31, 1997 as compared with $1,546,791 during the year ended December 31, 1996.
The increased level of expenses in 1997 related to the higher average number of
patients enrolled in the Company's Phase III clinical trial for Therafectin in
1997 as compared to 1996. The Company commenced its Phase III clinical trial in
March 1996 and completed the trial in August 1997. On September 30, 1997, the
Company announced the preliminary results of the trial. An analysis of the
trial data indicated that a statistically significant difference between
Therafectin and placebo in the percentage of patients achieving the overall
composite efficacy index had not been realized. However, in an important
secondary efficacy variable, there was a highly statistically significant
difference between Therafectin and placebo in reducing the number of swollen
joints in patients. Further, in a group of patients with higher levels of
swollen joints (approximately half of those completing the trial), there was a
statistically significant difference between Therafectin and placebo in
achieving success as measured by the overall composite efficacy index.
Additionally, utilizing the most recent MIRA ("Minocycline in Rheumatoid
Arthritis") criteria for "meaningful improvement", defined as at least a 50%
improvement in joint swelling compared to baseline, Therafectin showed a
statistically significant improvement compared to placebo. Consistent with the
previously established excellent safety profile of Therafectin, there were no
significant adverse events attributable to Therafectin during the course of the
study. In view of the excellent safety profile of Therafectin, and the previous
statistically significant successful trial combined with at least three
supportive trials (previously completed by Greenwich), the Company initiated
plans to convene an advisory panel of rheumatologists in early 1998 to seek
input and advice regarding whether to proceed with the submission of an
amendment to the pending NDA seeking approval for the drug.
17
<PAGE>
General and administrative expenses were $2,118,391 during the year ended
December 31, 1997 as compared with $2,701,874 during the year ended December 31,
1996. This decrease was primarily due to lower professional services expenses.
Interest income was $1,148,025 during the year ended December 31, 1997 as
compared with interest income of $1,151,810 during the year ended December 31,
1996. Average cash and investment balances during 1997 were comparable to 1996.
The interest income realized during both periods related to the Company raising
net proceeds of approximately $25.6 million from two private placements
completed in 1996. Interest expense totaled $2,437 during the year ended
December 31, 1997 as compared to $300,558 during the year ended December 31,
1996. Interest expense incurred in 1996 included amounts related to (i) $2.175
million of notes payable, which were fully repaid on April 1, 1996, (ii) $1.0
million of convertible debentures, which were converted to common stock in the
first quarter of 1996, and (iii) the amortization of the discount and debt
issuance costs on both debt instruments during the period outstanding in 1996.
At December 31, 1997, the Company had net deferred tax assets of approximately
$19.5 million for which a full valuation allowance has been established. As a
result of its concentrated efforts on research and development and Therafectin
related expenses, the Company has a history of incurring net operating losses
and expects to incur additional net operating losses for the foreseeable future.
Accordingly, management believes that, at the present time, it is appropriate to
conclude that it is more likely than not that the future benefits related to the
deferred tax assets will not be realized and, therefore, has provided a full
valuation allowance for these assets. In the event the Company achieves
profitability, these deferred tax assets may be available to offset future
income tax liabilities and expense.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has primarily satisfied its working capital
requirements from the sale of the Company's securities through private
placements. In February 1999, the Company raised approximately $8.2 million in
net proceeds by completing two private placements. The first transaction, which
consisted of shares of common stock and warrants to purchase shares of the
Company's common stock, raised approximately $2.5 million in net proceeds. The
second transaction, which consisted of shares of its Series C Convertible
Preferred Stock and warrants to purchase shares of the Company's common stock,
raised approximately $5.7 million in net proceeds. In January and February
1996, the Company raised approximately $20.6 million of net proceeds by
completing a private placement of units consisting of (i) shares of its Series A
Convertible Preferred Stock and (ii) warrants to purchase shares of the
Company's common stock. In June 1996, the Company raised approximately $5.0
million of net proceeds by completing a private placement of common stock. For
additional information related to the private placements, see Notes 8 and 9 of
the Notes to the Consolidated Financial Statements included in this Form 10-K.
In addition, the Company has raised working capital through the issuance of
notes payable and convertible debentures. In March 1995, Old BLSI issued
$2,175,000 of units consisting of notes payable, common stock and warrants to
purchase shares of Old BLSI's Series B Preferred Stock. The $2,175,000 of notes
payable became obligations of the Company and the warrants exercisable for
shares of Old BLSI Series B Preferred Stock were exchanged for warrants
exercisable for shares of the Company's common stock. In the second quarter of
1996, the Company repaid all accrued interest plus the remaining principal of
$1,525,000 of the notes payable. In December 1995, the Company also issued
$1,000,000 of convertible subordinated debentures. During the first quarter of
1996, the entire $1,000,000 of convertible subordinated debentures were
converted into 156,605 shares of common stock.
In the future, the Company's 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 December 31, 1998, the Company had available cash, cash equivalents, and
investments of approximately $7.9 million and working capital of approximately
$6.7 million. In February 1999, the Company completed two separate private
placements from which the Company received approximately $8.2 million in net
proceeds. The Company believes that the level of financial resources available
at December 31, 1998, as well as the additional capital received in 1999, will
provide sufficient working capital to meet its anticipated expenditures for more
than the next twelve months. The Company may raise additional capital in the
future through collaboration agreements with other pharmaceutical or
biotechnology companies, debt financing and equity offerings. There can be no
assurance, however, that the Company will be successful or that additional funds
will be available on acceptable terms, if at all.
18
<PAGE>
YEAR 2000 COMPLIANCE
The Company has initiated planning for 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 plan to address these issues and to enhance the Company's
readiness for the Year 2000 is primarily focused on (1) network and facility
infrastructure, (2) business applications and software, and (3) external
partners. Within each area, the Year 2000 program will involve (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 expects that the identification and assessment phases will be completed
during the second quarter of 1999, at which time remediation and contingency
planning will be initiated as appropriate. The Company primarily operates its
business applications software using the Microsoft Office suite of products.
For many software applications, the Company will, in the assessment phase, 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 intends 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 and, if required, site visits and interviews to solicit information
from these parties. 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.
However, until the Company completes the identification and assessment phases of
its program, the full extent of the remediation costs will not be known and
there can be no assurance that such costs will not be material. The Company
will 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. Specific contingency plans
will be developed upon completion of the assessment phases.
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 supplies
from vendors, errors in processing transactions and diversion of management time
and effort to addressing 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company, to date, has not engaged in
derivative and hedging activities, and accordingly does not believe that the
adoption of SFAS No. 133 will have a material impact on the financial reporting
and related disclosures of the Company. The Company will adopt SFAS No. 133 as
required for its first quarterly filing of 2000.
19
<PAGE>
income, as presented on the accompanying consolidated balance sheets, consists
of the net unrealized gains on available-for-sale securities.
ITEM 7 A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Boston Life Sciences, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity, cash flows and
comprehensive loss present fairly, in all material respects, the financial
position of Boston Life Sciences, Inc. (a development stage enterprise) and its
subsidiaries (the "Company") at December 31, 1998 and 1997, and the results of
their operations and of their cash flows for each of the three years in the
period ended December 31, 1998 and for the period from inception (October 16,
1992) through December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 11, 1999
21
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................................... $ 71,834 $ 1,713,975
Short-term investments ........................................................ 7,837,992 12,338,496
Other current assets .......................................................... 568,599 658,208
------------ ------------
Total current assets ....................................................... 8,478,425 14,710,679
Fixed assets, net ............................................................... 14,417 95,061
Acquired technology ............................................................. 3,500,000 3,500,000
Other assets .................................................................... 276,206 273,229
------------ ------------
Total assets ............................................................... $ 12,269,048 $ 18,578,969
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ......................................... $ 1,734,199 $ 1,991,804
Commitments and contingencies (Note 12)
Stockholders' equity:
Series A convertible preferred stock, $.01 par value, 1,000,000 shares
authorized; 16,996 and 28,372 shares issued and outstanding at
December 31, 1998 and 1997, respectively .................................... 170 284
Common stock, $.01 par value; 25,000,000 shares authorized; 13,276,978
and 12,993,838 shares issued and outstanding at December 31, 1998 and
1997, respectively .......................................................... 132,770 129,938
Additional paid-in capital ...................................................... 50,489,202 49,624,386
Accumulated other comprehensive income .......................................... 76,203 99,029
Deficit accumulated during development stage .................................... (40,163,496) (33,266,472)
------------ ------------
Total stockholders' equity ................................................. 10,534,849 16,587,165
------------ ------------
Total liabilities and stockholders' equity ................................. $ 12,269,048 $ 18,578,969
============ ============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
22
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------------------------
From inception
(October 16,
1992) to
1998 1997 1996 December 31, 1998
----------------- ----------------- ------------------ --------------------
<S> <C> <C> <C> <C>
Revenues .................................. $ -- $ 83,060 $ 200,000 $ 700,000
Operating Expenses:
Research and development ................. 4,881,889 4,874,233 2,408,734 16,779,002
Licensing fees ........................... 80,000 20,000 390,000 733,683
Therafectin related ...................... 423,228 2,190,040 1,546,791 4,160,059
General and administrative ............... 2,297,289 2,118,391 2,701,874 10,465,250
Purchased in-process research and
development .............................. -- -- -- 10,421,544
----------- ----------- ------------ ------------
7,682,406 9,202,664 7,047,399 (42,559,538)
----------- ----------- ------------ ------------
Loss from operations ..................... (7,682,406) (9,119,604) (6,847,399) (41,859,538)
Interest expense ........................... -- (2,437) (300,558) (1,461,829)
Interest income ............................ 785,382 1,148,025 1,151,810 3,157,871
----------- ----------- ------------ ------------
Net loss ................................. $(6,897,024) $(7,974,016) $ (5,996,147) $(40,163,496)
=========== =========== ============ ============
Calculation of net loss available to common
shareholders:
Net loss.................................... $(6,897,024) $(7,974,016) $ (5,996,147)
Preferred stock preferences (Note 9)........ -- -- (34,387,953)
----------- ----------- ------------
Net loss available to common
shareholders................................ $(6,897,024) $(7,974,016) $(40,384,100)
=========== =========== ============
Calculation of basic and diluted net loss
available to common shareholders:
Net loss.................................... $(0.52) $(0.64) $ (0.61)
Preferred stock preferences (Note 9) ..... -- -- (3.48)
----------- ----------- ------------
Basic and diluted net loss available to
$(0.52) $(0.64) $ (4.09)
common shareholders......................... =========== =========== ============
Weighted average shares outstanding ......... 13,138,862 12,378,219 9,880,222
=========== =========== ============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
23
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (OCTOBER 16, 1992) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Series A
Preferred Stock
-----------------------------
Number of Par
Shares Value
------------- ---------------
<S> <C> <C>
Issuance of common stock to founders .......................................................
Net loss ..................................................................................
Balance at December 31, 1992 ...............................................................
Issuance of option to purchase common stock to a licensor ..................................
Issuance of common stock to a consultant ...................................................
Issuance of common stock, net issuance costs of $500,988 ...................................
Net loss ..................................................................................
Balance at December 31, 1993 ...............................................................
Issuance of common stock, net issuance costs of $406,916 ...................................
Issuance of common stock upon exercise of option ...........................................
Net loss ..................................................................................
Balance at December 31, 1994 ...............................................................
Issuance of common stock and warrants related to bridge financing ..........................
Issuance of common stock and warrants upon merger ..........................................
Issuance of common stock in exchange for minority interest in certain subsidiaries .........
Issuance of common stock upon exercise of options ..........................................
Issuance of common stock subject to redemption .............................................
Expiration of valuation periods for common stock subject to redemption .....................
Issuance of convertible debt ...............................................................
Deferred compensation related to stock options and warrants granted ........................
Compensation expense related to stock options and warrants .................................
Net loss .................................................................................. -- --
-------------- -----------
Balance at December 31, 1995 ...............................................................
Issuance of preferred stock, net issuance costs of $3,397,158 .............................. 239,911 $ 2,399
Conversion of preferred stock into common stock ............................................ (106,301) (1,063)
Issuance of common stock, net issuance costs of $42,537 ....................................
Issuance of common stock upon conversion of convertible debentures .........................
Issuance of common stock upon exercise of warrants and options .............................
Expiration of valuation periods for common stock subject to redemption .....................
Deferred compensation related to stock options granted .....................................
Compensation expense related to stock options ..............................................
Net loss .................................................................................. -- --
-------------- -----------
Balance at December 31, 1996 ............................................................... 133,610 1,336
Conversion of preferred stock into common stock ............................................ (105,238) (1,052)
Issuance of common stock upon exercise of warrants and options .............................
Expirationof valuation periods for common stock subject to redemption.......................
Deferred compensation related to stock options granted .....................................
Compensation expense related to stock options ..............................................
Unrealized gains on investments ............................................................
Net loss .................................................................................. -- --
-------------- -----------
Balance at December 31, 1997 ............................................................... 28,372 284
Conversion of preferred stock into common stock ............................................ (11,376) (114)
Issuance of common stock upon exercise of warrants and options .............................
Compensation expense related to stock options and warrants .................................
Unrealized loss on investments .............................................................
Net loss .................................................................................. -- --
-------------- -----------
Balance at December 31, 1998 ............................................................... 16,996 $ 170
============== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated Total
Common Stock Additional Other During Stockholders'
Number of Paid-in Deferred Comprehensive Development Equity
Shares Par Value Capital Compensation Income Stage (Deficit)
- --------------- --------- ------------- ------------- ------------------ ---------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1,520,044 $ 15,200 $ 33,525 $ -- $ 48,725
-- -- -- -- -- (295,388) (295,388)
--------- -------- ----------- ------------ ----------------- ------------ ------------
1,520,044 15,200 33,525 (295,388) (246,663)
-- -- 62,433 -- 62,433
3,913 40 7,460 -- 7,500
1,545,713 15,457 2,458,545 -- 2,474,002
-- -- -- -- -- (2,254,898) (2,254,898)
---------- -------- ----------- ------------ ----------------- ------------ ------------
3,069,670 30,697 2,561,963 (2,550,286) 42,374
987,355 9,873 1,638,211 -- 1,648,084
95,378 954 (640) -- 314
-- -- -- -- -- (2,596,872) (2,596,872)
---------- -------- ----------- ------------ ----------------- ------------ ------------
4,152,403 41,524 4,199,534 (5,147,158) (906,100)
198,366 1,984 797,409 799,393
3,519,736 35,197 14,568,751 14,603,948
100,000 1,000 (1,000) --
37,567 375 184,952 185,327
324,675 3,247 (3,247) --
180,600 180,600
411,002 411,002
327,146 $(327,146) --
-- 60,783 60,783
-- -- -- -- -- (14,149,151) (14,149,151)
---------- -------- ----------- ------------ ----------------- ------------ ------------
8,332,747 83,327 20,665,147 (266,363) (19,296,309) 1,185,802
-- -- 20,591,443 -- -- 20,593,842
1,864,276 18,643 (17,580) --
547,274 5,473 5,001,490 5,006,963
156,605 1,566 576,023 577,589
203,952 2,040 499,765 501,805
1,764,872 1,764,872
439,607 (439,607) --
465,680 465,680
-- -- -- -- -- (5,996,147) (5,996,147)
---------- -------- ----------- ------------ ----------------- ------------ ------------
11,104,854 111,049 49,520,767 (240,290) (25,292,456) 24,100,406
1,845,634 18,456 (17,404) --
43,350 433 54,283 54,716
28,886 28,886
37,854 (37,854) --
278,144 278,144
$ 99,029 99,029
-- -- -- -- -- (7,974,016) (7,974,016)
---------- -------- ----------- ------------ ----------------- ------------ ------------
12,993,838 129,938 49,624,386 -- 99,029 (33,266,472) 16,587,165
199,509 1,995 (1,881) --
83,631 837 147,472 148,309
719,225 719,225
(22,826) (22,826)
-- -- -- -- -- (6,897,024) (6,897,024)
---------- -------- ----------- ------------ ----------------- ------------ ------------
13,276,978 $132,770 $50,489,202 $ -- $ 76,203 $(40,163,496) $ 10,534,849
========== ======== =========== ============ ================= ============ ============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
25
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------
From Inception
(October 16,
1992) to
December 31,
1998 1997 1996 1998
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss .................................................. $(6,897,024) $(7,974,016) $ (5,996,147) $(40,163,496)
Adjustments to reconcile net loss to net cash used
for operating activities:
Purchased research and development in-process ............ -- -- -- 10,421,544
Compensation charge related to options and warrants ...... 719,225 278,144 465,680 1,593,765
Amortization and depreciation ............................ 80,644 79,946 297,839 1,451,816
Changes in current assets and liabilities:
Decrease (increase) in other current assets ............. 89,609 371,408 (590,513) (73,071)
(Decrease) increase in accounts payable and accrued
expenses ............................................... (257,605) 83,892 396,741 786,534
(Decrease) increase in deferred revenue ................. -- (83,060) -- --
------------ ----------- ------------ ------------
Net cash used for operating activities .................... (6,265,151) (7,243,686) (5,426,400) (25,982,908)
------------ ----------- ------------ ------------
Cash flows from investing activities:
Cash acquired through the merger with
Greenwich Pharmaceuticals, Inc. .......................... -- -- -- 1,758,037
Purchase of fixed assets .................................. -- (74,010) (107,384) (256,701)
Other....................................................... (2,977) (157,555) (107,674) (266,406)
Short term investments:
Purchases ................................................ (13,340,276) (8,984,893) (22,324,741) (44,898,230)
Sales and maturities ..................................... 17,817,954 9,740,448 9,578,039 37,136,441
------------ ----------- ------------ ------------
Net cash provided by (used for) investing activities ...... 4,474,701 523,990 (12,961,760) (6,526,859)
------------ ----------- ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock .................... 148,309 83,602 5,686,177 13,158,054
Proceeds from issuance of preferred stock ................. -- -- 20,872,170 20,872,170
Proceeds from issuance of notes payable ................... -- -- -- 2,585,000
Proceeds from issuance of convertible debt ................ -- -- -- 1,000,000
Principal payments of notes payable ....................... -- (61,752) (1,628,062) (2,796,467)
Payment of note issuance costs ............................ -- -- -- (399,702)
Payment of stock issuance and merger transaction costs .... -- -- (256,142) (1,837,454)
------------ ----------- ------------ ------------
Net cash provided by financing activities ................. 148,309 21,850 24,674,143 32,581,601
------------ ----------- ------------ ------------
Net increase (decrease) in cash and cash equivalents ....... (1,642,141) (6,697,846) 6,285,983 71,834
Cash and cash equivalents, beginning of period ............. 1,713,975 8,411,821 2,125,838 --
------------ ----------- ------------ ------------
Cash and cash equivalents, end of period ................... $ 71,834 $ 1,713,975 $ 8,411,821 $ 71,834
============ =========== ============ ============
Supplemental cash flow disclosures:
Interest paid ............................................. $ -- $ 2,437 $ 198,739
Non cash transactions (see notes 8, 9 and 10)
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
26
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
From inception
(October 16,
1992) to
1998 1997 1996 December 31, 1998
------------- ------------ ------------- ------------------
<S> <C> <C> <C> <C>
Net loss............................................. $(6,897,024) $(7,974,016) $ (5,996,147) $(40,163,496)
Preferred stock preferences (Note 9)............... -- -- (34,387,953) (34,387,953)
Unrealized gains on securities.....................
Unrealized holding gains arising during the period (25,310) 102,797 -- 76,987
Investment gains (losses) included in Net Loss.... 2,484 (3,768) -- (1,284)
------------ ------------ ------------- --------------
Comprehensive loss ................................. $ (6,919,850) $(7,874,987) $(40,384,100) $(74,475,746)
============ ============ ============= ==============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
27
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
Boston Life Sciences, Inc. (the "Company"), founded in October 1992, 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. On June 15,
1995, Greenwich Pharmaceutical Incorporated ("Greenwich") acquired (the
"Merger") all of the outstanding capital stock of Boston Life Sciences, Inc.
("Old BLSI"). Effective June 15, 1995, the merged company was renamed "Boston
Life Sciences, Inc." (the "Company") and the management and Board of Directors
of Old BLSI assumed management of the Company.
During the period from inception through December 31, 1998, the Company has
devoted substantially all of its efforts to business planning, raising
financing, consummating the merger with Greenwich, furthering the research and
development of its technologies, Therafectin related activities and corporate
partnering efforts. Accordingly, the Company is considered to be in the
development stage as defined in Statement of Financial Accounting Standards No.
7.
A summary of the Company's significant accounting policies is as follows:
Basis of Consolidation
The Company's consolidated financial statements include the accounts of its
six subsidiaries where a majority of the operations are conducted. Five of these
subsidiaries, Ara Pharmaceutical, Inc., Acumed Pharmaceutical, Inc., Boston Life
Sciences International, Inc., Coda Pharmaceutical, Inc. and NeuroBiologics,
Inc., are wholly-owned. A minority shareholder owns 10% of the sixth subsidiary,
Procell Pharmaceutical, Inc. For the period from inception (October 16, 1992)
through December 31, 1998, each subsidiary has incurred losses, all of which are
included in the Company's consolidated statement of operations. All significant
intercompany transactions and balances have been eliminated.
Cash, Cash Equivalents and Investments
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. The Company invests its
cash equivalents primarily in overnight repurchase agreements, money market
funds, and United States treasury and agency obligations. At December 31, 1998
and periodically throughout the year, the Company had cash balances at certain
financial institutions in excess of federally insured limits. However, the
Company does not believe that it is subject to any unusual credit risk beyond
the normal credit risk associated with commercial banking relationships.
Investments, which are classified as available-for-sale, are recorded at fair
value. Unrealized gains or losses are not immediately recognized in the
statement of operations but are reflected in the statement of comprehensive loss
and as a component of stockholders' equity until realized. Investments consist
of United States treasury and agency bonds, and domestic and foreign corporate
bonds (Note 2). These investments are classified as a current asset because they
are highly liquid and are available, as required, to meet working capital and
other operating requirements.
Other assets include approximately $160,000 invested in a certificate of
deposit. In April 1997, the Company's primary banking institution loaned
$150,000 to an officer of the Company (the "Loan"). As a condition to and as
security for the Loan, the Bank requested that the Company pledge an amount
equal to the Loan to the Bank. Such funds, including the accumulated interest
thereon, will be held by the Bank in a restricted escrow account until the Loan
is repaid.
28
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Financial Instruments
Financial instruments which potentially subject the Company to concentrations
of credit risk consist of cash equivalents and short term investments. The
Company places its excess cash in marketable investment grade securities. There
are no significant concentrations in any one issuer of debt securities. The
Company places its cash, cash equivalents, and investments with financial
institutions with high credit standing.
Revenue Recognition and Concentration of Customers
In June 1995, the Company entered into a research and development
collaboration agreement for a certain specified technology with a pharmaceutical
company. Under the terms of the agreement, which expired in June 1997, the
pharmaceutical company provided funds to support the research and development of
the specified technology. Payments received were recognized as revenue ratably
over the original term of the agreement which the Company believes corresponded
with the manner in which the work was performed.
Fixed Assets
Furniture and equipment are stated at cost. Depreciation is provided using the
straight-line method based on the estimated useful lives of the assets, and
further adjusted, as required, to their estimated net realizable value.
Licensing Fees, Research and Development Expenses, Concentration of Outside
Researchers, and Therafectin-related expenses
The Company has entered into licensing agreements with certain institutions
that provide the Company with the rights to certain patents and technologies,
and the right to market and distribute any products developed. Obligations
initially incurred to acquire these rights are recognized and expensed on the
date that the Company acquires the rights.
The Company has entered into sponsored research agreements with certain
institutions for the research and development of its licensed technologies.
Payments made under these sponsored research agreements are expensed ratably
over the term of the agreement which the Company believes corresponds with the
manner in which the work is performed.
The Company currently conducts a substantial portion of its research and
development through a certain University and its affiliates pursuant to
sponsored research agreements. The majority of the Company's technologies
currently under development were invented or discovered by researchers working
for this University and its affiliates. A substantial portion of the Company's
research is thus dependent upon a continuing business relationship with this
University.
Research and development activities cease when developmental work is
substantially complete and when the Company believes appropriate efficacy has
been demonstrated. In connection with its merger with Greenwich, the Company
acquired technology related to Therafectin, a treatment for rheumatoid
arthritis. Greenwich had previously conducted clinical trials which management
believes demonstrated the efficacy of the technology. Accordingly, costs related
to Therafectin have been separately stated in the consolidated statement of
operations.
Acquired Technology
In connection with the Merger, $3,500,000 of the purchase price was ascribed
to acquired technology. The Company assesses whether there has been impairment
whenever events or changes in circumstances indicate that any portion of the
carrying amount of the technology may not be recoverable. The Company evaluates
potential impairment by comparing anticipated undiscounted future net cash
flows from expected product sales of the technology with its carrying value. The
factors considered by management in performing this assessment include the
expected cost to obtain product approval as well as the effects on expected
product sales of competition, demand, and other economic factors. At December
31, 1998, management believes that there has been no impairment in the value of
the technology.
29
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are recorded for the expected
future tax consequences of temporary differences between the financial statement
and tax bases of assets and liabilities. A valuation allowance is established to
reduce net deferred tax assets to the amount expected to be realized.
Reverse Stock Split
On June 6, 1997, the Company's stockholders approved a one-for-ten reverse
split of the common stock effective as of June 9, 1997. All share and per share
amounts were retroactively restated to reflect the terms of the split.
Net Loss Per Share
Basic and diluted net loss per share available to common shareholders 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 antidilutive.
Stock options, preferred stock, and warrants to purchase 3,499,119, 3,304,489,
and 4,842,524 shares of common stock at prices ranging from $0.63 to $15.00 per
share were outstanding at December 31, 1998, 1997, and 1996, respectively, but
were not included in the computation of diluted net loss per common share
because they were antidilutive. The aforementioned stock options, preferred
stock and warrants could potentially dilute earnings per share in the future.
Accounting for Stock-Based Compensation
The Company has elected to adopt the disclosure-only alternative permitted
under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation" (Note 10). The Company applies APB Opinion No. 25
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans and related equity issuances.
Options and warrants issued to non-employees are subject to a fair value based
method of accounting under which compensation cost is generally recognized over
the vesting period based on the value of the award. The value is determined
using the Black-Scholes pricing model and the resulting expense is recognized
over the vesting period.
Preferred Stock
The Company has, at certain times, issued preferred stock which was
convertible into common stock at a discount from the common stock market price
at the date of issuance. The discounted amount associated with such conversion
rights represents an incremental yield, i.e. a "beneficial conversion feature,"
which is recognized as a return to the preferred shareholders. Such amounts are
reported as preferred stock preferences in the statement of operations, and
represent a non-cash charge in the determination of net loss available to common
shareholders.
30
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses for the periods presented. Actual
results could differ from those estimates.
Risks and Uncertainties
The Company is subject to risks and uncertainties common to the biotechnology
industry. Such risks and uncertainties include, but are not limited to: (i)
results from current and planned clinical trials, (ii) scientific data collected
on technologies currently in preclinical research and development, (iii)
decisions made by the Food and Drug Administration ("FDA") or other regulatory
bodies with respect to the initiation of human clinical trials and the
commercial sale of any proposed products, (iv) the Company's ability to obtain
the necessary patents and proprietary rights to effectively protect its
technologies, (v) the outcome of any current or future collaborations or
alliances with pharmaceutical or other biotechnology companies and universities,
and (vi) dependence on key personnel.
Reclassifications
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation.
Recent Accounting Pronoucements
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company, to date, has not engaged in
derivative and hedging activities, and accordingly does not believe that the
adoption of SFAS No. 133 will have a material impact on the financial reporting
and related disclosures of the Company. The Company will adopt SFAS No. 133 as
required for its first quarterly filing of 2000.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which was adopted by the Company in the first quarter of fiscal 1998. SFAS 130
establishes standards for reporting comprehensive income and its components in a
financial statement. Comprehensive income as defined includes all changes in
equity (net assets) during a period from non-owner sources. Examples of items
to be included in comprehensive income, which are excluded from net income,
include unrealized gains and losses on available-for-sale securities.
Accumulated other comprehensive income, as presented on the accompanying
consolidated balance sheets, consists of the net unrealized gains on available-
for-sale securities.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("Statement No. 131"), effective for fiscal
years beginning after December 15, 1997. Statement No. 131 establishes
standards for reporting information about operating segments in annual financial
statements and selected information about operating segments in interim
financial reports issued to stockholders. The Company currently operates in
only one business segment.
31
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. INVESTMENTS CONSIST OF THE FOLLOWING AT DECEMBER 31:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
U.S. Treasury obligations........................................... $ 3,515,469
U.S. Agency obligations............................................. $7,084,374 6,002,267
Corporate debt obligations.......................................... 753,618 2,820,760
---------- -----------
$7,837,992 $12,338,496
========== ===========
</TABLE>
The contractual maturities of the Company's investments at December 31, 1998 are
as follows: less than one year--$1,433,242; one to five years--$1,683,599; six
to ten years--$4,013,120; ten to fifteen years--$708,031. Actual maturities may
differ from contractual maturities because the issuers of these securities may
have the right to prepay obligations without penalty. Gross unrealized gains and
(losses) at December 31, 1998 totaled $113,097 and ($36,894), respectively. Net
realized gains (losses), based on the specific identification method, totaled
$2,484 and ($3,768) in 1998 and 1997, respectively, and are included in interest
income in the statement of operations.
3. FIXED ASSETS CONSIST OF THE FOLLOWING AT DECEMBER 31:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE
(YEARS) 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Office furniture and equipment.......................... 3-5 $112,006 $112,006
Leasehold improvements.................................. 3 59,424 59,424
Computer equipment...................................... 3-5 58,510 58,510
Laboratory equipment.................................... 3-5 33,018 33,018
-------- --------
262,958 262,958
Less accumulated depreciation and amortization.......... 248,541 167,897
-------- --------
$ 14,417 $ 95,061
======== ========
</TABLE>
Depreciation expense on fixed assets for the years ended December 31, 1998,
1997 and 1996 was approximately $81,000 , $80,000, and $58,000, respectively,
and $249,000 for the period from inception (October 16, 1992) through December
31, 1998.
4. ACQUIRED TECHNOLOGY
In connection with the Merger, a $3.5 million asset was established
representing the appraised value assigned to Therafectin technology acquired
from Greenwich Pharmaceuticals. The Company completed a Phase III clinical
trial for Therafectin in August 1997. Based upon evaluation of all of the trial
data on Therafectin, including data from previous Greenwich trials, and the
advice obtained from a special panel of clinical rheumatologists, the Company
filed an amendment, on June 30, 1998, to the previously filed New Drug
Application ("NDA") with the FDA seeking marketing approval for Therafectin. If
the Company is ultimately unsuccessful in obtaining regulatory approval for
Therafectin, the Company will be required to write off the $3.5 million asset
value attributable to Therafectin as reflected on the Company's balance sheet.
5. RESEARCH AND DEVELOPMENT AGREEMENT
In June 1995, the Company entered into a research and development agreement
with a pharmaceutical company. Under the terms of the agreement, which expired
in June 1997, the pharmaceutical company provided funds to support the research
and development of one of the Company's technologies. These funds were
recognized as revenue ratably over the term of the Agreement and totaled $83,060
and $200,000 during 1997 and 1996, respectively.
32
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES CONSIST OF THE FOLLOWING AT
DECEMBER 31:
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Accrued research and development............................. $ 600,000 $ 449,000
Accounts payable and other operating expenses................ 448,558 613,897
Accrued professional fees.................................... 442,961 668,620
Accrued Therafectin related.................................. 210,000 203,293
Accrued payroll related...................................... 32,680 56,994
---------- ----------
1,734,199 $1,991,804
========== ==========
</TABLE>
7. NOTES PAYABLE AND DEBT
7% Convertible Subordinated Debentures
In December 1995, the Company issued, pursuant to an investment agreement
(the "Subscription Agreement") under Regulation S of the Securities Act of 1933,
an aggregate of $1 million of 7% convertible subordinated debentures maturing in
December 1997. The debentures were convertible, at the option of the holder,
into shares of common stock at sixty-five percent of the market price of the
common stock at the time of conversion. In addition, the Subscription Agreement
contained certain restrictions on the sale of common stock issued upon
conversion of the debentures. Because of the significant discount associated
with the conversion feature, an estimated value of approximately $411,000 was
ascribed to such feature and was recorded as a debt discount and additional
paid-in capital. The debt discount was initially being amortized over the period
the debentures were expected to be outstanding. In February 1996, the holder
elected to convert all of the 7% convertible debentures into 156,605 shares of
common stock. Approximately $70,000 of the debt discount was amortized and
recognized as interest expense in 1996 prior to the conversion. The remaining
unamortized discount and related deferred financing fees were included in the
carrying amount of the debt which upon conversion was credited to additional
paid-in capital.
8. COMMON STOCK
Common Stock Subject to Redemption
In September and November 1995, the Company sold, pursuant to investment
agreements (each, individually, the "September Investment Agreements" and the
"November Investment Agreements") under Regulation S of the Securities Act of
1933, an aggregate of approximately 320,000 shares of common stock resulting in
net proceeds of approximately $1.8 million. Both agreements provided that, based
upon the average price of the Company's common stock through June 1996 and July
1996 for the September Investment Agreements and the November Investment
Agreements, respectively, (i) the Company was contingently obligated to issue
additional shares of common stock to the investors, (ii) such investors were
contingently obligated to make additional payments to the Company for shares
purchased, and (iii) the Company was contingently obligated to make repayment to
such investors for certain amounts of the investment. Until the circumstances
providing for the possible repayment by the Company of certain amounts of the
equity investment no longer existed, the portion of the net proceeds which the
Company was contingently obligated to repay was classified as common stock
subject to redemption on the Company's balance sheet. The portion of the equity
investment that was no longer subject to possible repayment was reclassified to
stockholders' equity upon the expiration of the valuation periods as defined in
the investment agreements.
33
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In December 1995, $175,000 of the net proceeds subject to redemption was
reclassified to equity concurrent with the expiration of the first valuation
period. During 1997 and 1996, the Company received approximately $29,000 and
$135,000, respectively, in additional payments from the investors based upon the
average price of the Company's common stock for certain periods specified in the
agreements. Also in 1996, the amount of $1,630,000 previously classified as
common stock subject to redemption was reclassified to stockholders' equity.
Common Stock Issuances
In June 1996, the Company completed a private placement of 500,000 shares of
common stock which raised approximately $5 million in net proceeds. In
connection with this financing, the Company issued to the placement agent, as
payment for its services, 47,274 shares of common stock and warrants to purchase
54,727 shares at a price of $11.00 per share (Note 10).
In February 1999, the Company completed a private placement of 647,668 shares
of common stock which raised approximately $2.5 million in gross proceeds. The
investor also received warrants to purchase 97,150 shares of common stock at a
price of $4.81 per share. The Company is obligated to issue additional shares
to the investor if the Company issues common stock in a capital raising
transaction at a price per share less than that paid by the investor. Certain
issuances, including those related to the exercise of outstanding warrants and
options, are not subject to this provision which expires in October 2002.
9. PREFERRED STOCK
The Company has authorized 1,000,000 shares of preferred stock of which
264,000 shares have been designated as Series A Convertible Preferred Stock. In
February 1999, the Company designated 475,000 shares as Series B Convertible
Preferred Stock, which it subsequently decreased to 227,719 shares. In February
1999, the Company designated 475,000 shares as Series C Convertible Preferred
Stock. The remaining authorized shares have not been designated.
1996 Issuance
In January and February 1996, the Company raised, through a private placement
of its securities, net proceeds of approximately $20.6 million, net of
approximately $3.4 million of issuance costs. In connection with the private
placement, the Company issued (i) 239,910 shares of Series A Convertible
Preferred Stock and (ii) granted warrants to purchase 599,775 shares of common
stock at $6.71 per share (Note 10). The warrants may be redeemed at the election
of the Company, in whole but not in part, under certain conditions as defined in
the warrant agreements. In connection with this financing, the Company granted
to the placement agent, a related party (Note 13), options to acquire 23.991
units with each unit consisting of 1,000 shares of Series A Convertible
Preferred stock and warrants to purchase 2,500 shares of common stock at a unit
exercise price of $110,000.
Each share of the Series A Convertible Preferred Stock is convertible at any
time at the option of the holder into shares of common stock pursuant to a ratio
of 17.53771 shares of common stock for each share of Series A Convertible
Preferred Stock. The Company may, under certain conditions defined in the
preferred stock agreement, cause the conversion of the preferred stock, in whole
or in part, into common stock. The Company issued 199,509, 1,845,634 and
1,864,276 shares of common stock during 1998, 1997 and 1996, respectively,
related to the conversion of 11,376, 105,238 and 106,301 shares of preferred
stock, respectively. The preferred stock had a beneficial conversion feature
which allowed the holders to convert their shares into common stock at a
discount to the market price. The intrinsic value of the beneficial conversion
feature totaled $34,387,953 which was included in calculating the net loss
available to common shareholders for the year ended December 31, 1996.
34
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1999 Issuance
In February 1999, the Company completed a private placement of Series C
Convertible Preferred Stock ("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 219,234 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 166,948 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.
Subsequent to an initial closing of the private placement, which consisted of
Series B Convertible Preferred Stock, ("Series B Stock"), it was determined that
a certain agreed upon provision had not been included in the Certificate of
Designation defining the rights, preferences and other provisions of the Series
B Stock. As a result, the investors participating in the initial closing
exchanged their shares of Series B Stock for an equal number of shares of Series
C Stock whose Certificate of Designation includes the previously omitted
provision. Investors participating in the second and final closing were
directly issued Series C Stock.
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 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 and the
terms provide for a minimum return of 25%. The intrinsic value of this
beneficial conversion of approximately $1.9 million will be recognized as a
preferred stock preference in the statement of operations in 1999, and will
represent a non-cash charge in the determination of net loss available to common
shareholders. The net proceeds of $5.7 million will be allocated between the
warrants and the Series C Stock based on their relative fair values. Because
the redemption of the Series C Stock is not within the control of the Company,
the amount allocated to the Series C Stock will be reflected outside of
stockholders' equity as "mezzanine" financing. The amount allocated to the
warrants will be credited to additional paid-in capital.
10. STOCK OPTIONS AND WARRANTS
Omnibus Plans
The Amended and Restated Omnibus Stock Option Plan allows for the issuance of
options to purchase up to 1,200,000 shares of the Company's common stock through
April 2005. The 1998 Omnibus Plan, which was approved at the 1998 Annual
Meeting, provides for the issuance of options to purchase up to 500,000 shares
of the Company's common stock through April 2008. Both plans provide for the
issuance of both nonqualified stock options and incentive stock options to
employees, officers, consultants and scientific advisors of the Company. The
Company's Board of Directors determines the term of each option, vesting
provisions, option price, number of shares for which each option is granted and
the rate at which each option is exercisable. The term of each option cannot
exceed ten years. The exercise price of incentive stock options shall not be
less than the fair market value of the Company's common stock on the date of
grant. Nonqualified stock options may be issued under the Omnibus Plan at an
option price determined by the Board of Directors which shall not be less than
50% of the fair market value of the Company's common stock on the date of grant.
In 1996, the Company granted, in recognition of services to be performed by
certain employees, consultants and scientific advisors, non-qualified stock
options under the Omnibus Plan. The total fair value of approximately $274,000
and $236,000 ascribed to the options granted in 1996 and 1995, respectively, was
recorded as deferred compensation and was charged to operations over the vesting
period of the options which management believed fairly approximates the service
period. The charge to operations for the years ended December 31, 1997 and 1996
totaled approximately $182,000 and $292,000, respectively.
35
<PAGE>
Directors' Plan
The Directors' Plan allows for the issuance of up to 450,000 shares of the
Company's common stock through April 2005. The Director's Plan provides for an
automatic yearly grant of options to all non-employee directors of up to 2,500
options. Non-qualified stock options granted under the Directors' Plan generally
vest 75% six months from the grant date and the remaining 25% on the later of
six months from the date of grant or December 31st of the year of grant, and
have an exercise price equivalent to 20% of the quoted market price of the
Company's common stock on the date of grant. For new non-employee Directors, the
Directors' Plan also provides for the one-time issuance of options to purchase
7,500 shares of the Company's common stock at fair market value at the time of
grant with such options vesting over a period of four years. During 1996, the
Directors' Plan was amended to provide for the granting of additional options at
the discretion of the Board of Directors. During 1998, the Directors' Plan was
amended to provide for the granting of options to employees of the Company. All
options granted under the Directors' Plan have a term of ten years. Compensation
expense related to the intrinsic value of options issued in 1998, 1997 and 1996
totaled approximately $19,000, $18,000 and $98,000, respectively.
Stock-Based Compensation
If the Company had valued awards to qualified employees using the fair value
methodology prescribed by SFAS 123, the Company's net loss and basic and
diluted net loss per share would have equaled the pro forma amounts indicated
below. Net loss and net loss per share for 1996 (as reported and pro forma)
include preferred stock preferences.
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -------------------
<S> <C> <C> <C>
Net loss available to common shareholders....................
As reported................................................. $(6,897,024) $(7,974,016) $(40,384,100)
Pro forma................................................... $(7,900,270) $(8,711,431) $(40,895,329)
Basic and diluted loss per share available to common
shareholders................................................
As reported................................................. $ (0.52) $ (0.64) $ (4.09)
Pro forma................................................... $ (0.60) $ (0.70) $ (4.14)
</TABLE>
The fair value of each option grant was estimated on the date of the grant
using the Black-Scholes option-pricing model with the following assumptions:
dividend yield of zero percent; expected volatility of 80 percent; risk-free
interest rates, based on the date of grant, ranging from 4.61% to 6.46%; and
expected lives of 5 years.
A summary of the status of the Company's stock option plans as of December 31,
1998, 1997, and 1996 and changes during the years ending on those dates is
presented below. In January 1998, the Company issued 372,000 options to
employees and directors at a price that was $0.13 less than the market price of
the Company's stock on the date of grant, for which the Company recorded a
non-cash charge of approximately $48,000. During 1998, the Company amended its
Stock Option Plans to provide employees and directors with extended exercise
rights upon termination subject to the option holder meeting certain
requirements, including minimum terms of employment. In connection with these
changes, the Company recorded a non-cash charge of approximately $410,000.
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ ------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ---------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year............. 1,039,668 $4.33 716,008 $4.30 661,260 $ 2.30
Granted...................................... 503,204 2.13 409,640 4.43 174,368 6.70
Exercised.................................... (10,770) 1.10 (28,280) 0.82 (92,830) 2.10
Forfeited and expired........................ (163,574) 2.69 (57,700) 7.03 (26,790) 19.10
--------- --------- -------
Outstanding at end of year................... 1,368,528 3.74 1,039,668 4.33 716,008 4.30
========= ========= =======
Options exercisable at year-end.............. 1,077,212 3.72 690,720 4.12 475,577 3.70
========= ========= =======
Weighted-average fair value of options granted
during the year............................ $1.46 $3.07 $ 5.70
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- --------------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Number Average
Range of Number Contractual Exercise Exercisable Exercise
Exercise Prices Outstanding Life Price at 12/31/98 Price
- --------------------------------------------- ----------- --------------- ------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
$.63--$2.20.................................. 672,053 7.8 years $1.60 574,428 $1.50
$4.47........................................ 380,400 8.6 years 4.47 201,934 4.47
$6.30--$9.40................................. 316,075 7.3 years 7.41 300,850 7.44
--------- ---------
1,368,528 7.9 years 3.74 1,077,212 3.72
========= =========
</TABLE>
At December 31, 1998, 612,025 shares are available for grant under the
Company's Option Plans.
36
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Warrants
In January and February 1996, the Company granted 659,955 warrants in
connection with a private placement of its Series A Preferred Stock (Notes 9 and
13). In June 1996, the Company granted 54,727 warrants in connection with a
private placement of its common stock (Note 8). In September 1996, the Company
issued 5,000 warrants to its public relations advisor as partial compensation
for its services.
In January 1997, the Company issued 20,000 warrants pursuant to a letter
agreement between the Company and a shareholder.
In January 1998, the Company issued 225,000 warrants to a financial advisor
which represented a substantial portion of the compensation paid by the Company
for the advisor's services. The Company recorded a non-cash charge of
approximately $290,000 representing the fair value of the warrants at the date
of issuance.
At December 31, 1998, warrants outstanding were as follows:
<TABLE>
<CAPTION>
Exercise Warrants
Date Price Outstanding Expiration
of Issue per Share at 12/31/98 Date
- -------- --------- ----------- ----
<S> <C> <C> <C>
January 1998.......................... $2.13 - $4.00 225,000 January 2003
January 1997.......................... 15.00 20,000 January 2007
September 1996........................ 6.30 5,000 September 2006
June 1996............................. 11.00 54,727 June 2006
February 1996......................... 6.70 639,603 February 2006
December 1995......................... 3.50 23,175 December 2000
August 1995........................... 6.81 25,226 July 2005
June 1995............................. .13 - 9.41 94,590 March 2000
June 1995............................. 2.29 47,674 July 1999
June 1995............................. 1.50 - 8.78 697,535 March 2000
---------
1,832,530
=========
</TABLE>
Each warrant is exercisable into one share of common stock. The Company has
reserved sufficient shares of common stock to meet its stock option and warrant
obligations. A total of 54,917 warrants were exercised in 1998.
37
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stockholder Rights Plan
On September 29, 1991, the Board of Directors of Greenwich adopted a
Stockholder Rights Plan (the "Rights Plan"), which was amended during 1994 and
1993 and adopted by the Company in connection with the Merger. Under the Rights
Plan, stockholders received as a dividend, for each share of common stock owned
by them, one right (the "Right") to purchase a fractional share of a new class
of preferred stock. With certain exceptions, if a person or group (the
"Acquirer") acquires 15 percent (the "trigger point") or more of the outstanding
shares of the Company's common stock, the Rights will separate from the shares
of common stock and become exercisable. Once the Rights are exercised, and in
certain circumstances if additional conditions are met, the Rights Plan allows
holders of the Rights (other than the Acquirer) to buy common stock of the
Company or the Acquirer at a substantial discount. The Rights dividend was
issued to stockholders of record on October 7, 1991. The Rights will expire in
ten years unless exercised by the holders or redeemed or exchanged by the
Company.
11. INCOME TAXES
Income tax benefit consists of the following for the years ended December
31:
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- ------------------
<S> <C> <C> <C>
Federal................................................... $ 2,326,000 $ 2,543,000 $ 2,139,000
State..................................................... 794,000 1,346,000 680,000
----------- ----------- -----------
3,120,000 3,889,000 2,819,000
Valuation allowance....................................... (3,120,000) (3,889,000) (2,819,000)
-----------
$ -- $ -- $ --
=========== =========== ===========
</TABLE>
Deferred tax assets (liabilities) consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
<S> <C> <C>
Net operating loss carryforwards.............................. $ 19,676,000 $ 15,817,000
Capitalized research and development expenses................. 2,812,000 3,637,000
Research and development credit carryforwards................. 961,000 717,000
Other......................................................... 616,000 774,000
------------ ------------
Gross deferred tax assets..................................... 24,065,000 20,945,000
Acquired technology........................................... (1,435,000) (1,435,000)
------------ ------------
Net deferred tax assets....................................... 22,630,000 19,510,000
Valuation allowance........................................... (22,630,000) (19,510,000)
------------ ------------
$ -- $ --
============ ============
</TABLE>
The Company has provided a full valuation allowance for its deferred tax
assets since it is more likely than not that the future benefits related to
these assets will not be realized. In the event the Company achieves
profitability, these deferred tax assets will be available to offset future
income tax liabilities and expense. Approximately $7 million of the valuation
allowance at December 31, 1998 relates to deferred tax assets acquired in the
merger with Greenwich. If the valuation allowance related to these assets is
released, the credits will first be recorded to reduce the carrying value, if
any, of acquired technology purchased in the Merger.
38
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation between the amount of reported tax benefit and the amount
computed using the U.S. Federal statutory rate of 35% for the year ended
December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Benefit at statutory rate.................................... $(2,417,000) $(2,825,000) $(2,099,000)
State taxes, net of federal benefit.......................... (504,000) (587,000) (420,000)
Research and development credit.............................. (180,000) (206,000) (72,000)
Other........................................................ (19,000) (271,000) (228,000)
----------- ----------- -----------
(3,120,000) (3,889,000) (2,819,000)
Benefit of loss not recognized, increase in valuation
allowance.................................................. 3,120,000 3,889,000 2,819,000
----------- ----------- -----------
$ -- $ -- $ --
=========== =========== ===========
</TABLE>
As of December 31, 1998, the Company has federal net operating loss
carryforwards of $47,907,000 which expire beginning in 2007 and ending in 2019.
In addition, the Company has federal and state research and development credits
of $656,000 and $445,000, respectively, which expire beginning in 2007 and 1999,
respectively, and ending in 2019 and 2004, respectively. These net operating
loss carryforwards and research and development credits may be used to offset
future federal and state taxable income and tax liabilities. A portion of the
net operating loss carryforwards totaling approximately $864,000 relates to
deductions for the exercise of non-qualified options and will be credited to
additional paid-in capital upon realization.
In connection with the Merger, the Company acquired approximately $90 million
of net operating loss carryforwards of which approximately $11.6 million can be
utilized by the Company under the ownership change provisions of the Internal
Revenue Code. These net operating losses, which expire in 2009 and 2010, cannot
offset the taxable income of any of the subsidiaries of the Company. In
addition, ownership changes resulting from the Company's issuance of common
stock may limit the amount of net operating loss and tax credit carryforwards
that can be utilized annually to offset future taxable income. The amount of the
annual limitation is determined based upon the Company's value immediately prior
to the ownership change. Subsequent significant changes in ownership could
further affect the limitation in future years.
12. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain office equipment and its office space and warehouse
facilities under noncancelable operating leases. Terms of the lease for office
space include a renewal option of three years. Approximate future minimum lease
commitments at December 31, 1998 are as follows: 1999--$62,000 and 2000--$5,000.
Total rent expense under noncancelable operating leases was approximately
$124,000, $131,000, and $100,000 during the years ended December 31, 1998, 1997,
and 1996, respectively, and approximately $481,000 for the period from inception
(October 16, 1992) through December 31, 1998.
Sponsored Research and Development, and Consulting Agreements
Pursuant to noncancellable sponsored research and development agreements and
consulting agreements, the Company is committed to make payments totaling
approximately $1.2 million in 1999.
Litigation
The Company is subject to legal proceedings in the normal course of business.
Management believes that these proceedings will not have a material adverse
effect on the consolidated financial statements.
39
<PAGE>
BOSTON LIFE SCIENCES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. RELATED PARTY TRANSACTIONS
Placement Agent Fees and Service Agreements
The Chief Executive Officer and sole stockholder of the placement agent
("Principal Agent") involved with a significant portion of the Company's equity
and debt financings through December 31, 1998 was previously a significant
common stockholder of the Company.
In connection with the Company's 1996 private placement of Series A
Convertible Preferred Stock (Note 9), the Principal Agent received options to
acquire 23.991 units. Each unit consists of 1,000 shares of Series A
Convertible Preferred Stock and warrants to purchase 2,500 shares of common
stock at a unit exercise price of $110,000.
In August 1995, the Company entered into a two-year financial advisory
services agreement with the Principal Agent. In connection with the agreement,
the Company issued warrants to the Principal Agent for the purchase of 25,000
shares of the Company's common stock (Note 10). This agreement expired in 1997.
In February 1996, the Company entered into a two-year agreement under which
the Principal Agent received a monthly retainer fee of $2,500 per month. This
agreement expired in January 1998.
Loan to Officer
In April 1997, the Bank loaned $150,000 to Dr. Lanser, the Company's Executive
Vice President and Chief Scientific Officer (the "Loan"). The Loan bears
interest at prime and matures in its entirety in September 1999. As a condition
to and as security for the Loan, the Bank requested that the Company pledge to
the Bank a certificate of deposit in the amount of $155,000 (the "Company
Pledge"). In recognition of Dr. Lanser's past and expected future contributions
to the Company and as an additional motivation and incentive to Dr. Lanser,
which the Company's Board of Directors determined would reasonably benefit the
Company, the Company agreed to provide the Company Pledge. As security for the
Company, however, in the event Dr. Lanser defaults on the Loan and the Bank
forecloses on the Company Pledge, Dr. Lanser has executed and delivered to the
Company his contingent note in the amount of $150,000, bearing interest
identical to the Loan (the "Contingent Note") and a perfected pledge of 50,000
shares of Common Stock of the Company which he beneficially owns. The Company
will demand payment of the Contingent Note only in the event that the Bank
forecloses on the Company Pledge as a result of Dr. Lanser's defaulting on his
payment of the Loan.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
40
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item 10, with respect to executive officers,
is hereby incorporated by reference to the text appearing under Part 1, Item 4A
under the caption "Executive Officers of the Registrant" in this Report, and,
with respect to directors, by reference to the information included under the
headings "Information Regarding Directors", "Executive Officers", and "Section
16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive
Proxy Statement for the 1999 Annual Meeting of Stockholders to be filed by the
Company with the Securities and Exchange Commission within 120 days after the
close of the Company's fiscal year.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item 11 is hereby incorporated by reference
to the information under the heading "Executive Compensation" and "Report of
Compensation Committee on Executive Compensation" in the Company's definitive
Proxy Statement for the 1999 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission within 120 days after the close of its fiscal
year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item 12 is hereby incorporated by reference
to the information under the heading "Security Ownership of Principal
Stockholders and Management" in the Company's definitive Proxy Statement for the
1999 Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission within 120 days after the close of its fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item 13 is hereby incorporated by reference
to the information under the heading "Certain Relationships and Related
Transactions" in the Company's definitive Proxy Statement for the 1999 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission
within 120 days after the close of its fiscal year.
41
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Consolidated Financial Statements of the Company
Financial Statements of the Registrant and Report of Independent
Accountants thereon
Consolidated Balance Sheets at December 31, 1998 and 1997
Consolidated Statements of Operations for the fiscal years ended
December 31, 1998, 1997 and 1996 and for the period from inception
(October 16, 1992) through December 31, 1998
Consolidated Statements of Stockholders' Equity (Deficit) for the
fiscal years ended December 31, 1998, 1997 and 1996 and for the period
from inception (October 16, 1992) through December 31, 1998
Consolidated Statements of Cash Flows for the fiscal years ended
December 31, 1998, 1997 and 1996, and for the period from inception
(October 16, 1992) through December 31, 1998
Consolidated Statements of Comprehensive Loss for the fiscal years ended
December 31, 1998, 1997 and 1996, and for the period from inception
(October 16, 1992) through December 31, 1998
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
Schedules are omitted since the required information is not applicable
or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the
Consolidated Financial Statements or Notes thereto.
(a)(3) Exhibits.
The following exhibits are incorporated in this report by reference or
included and submitted with this report, as indicated.
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION AND METHOD OF FILING
- ---------------- -----------------------------------------------------------------------------------------------------
<C> <S>
2.1 Amended and Restated Agreement of Merger, dated as of December 29, 1994,
by and between the Company and Greenwich Pharmaceuticals Incorporated (1)
2.2 Amendment No. 1 to Amended and Restated Agreement of Merger, dated as
of April 6, 1995, by and between the Company and Greenwich
Pharmaceuticals Incorporated (4)
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. (7)
3.2 Amended and Restated By Laws, effective as of June 26, 1995 (5)
4.1 Rights Agreement between the Company and Chemical Trust Group (formerly
Manufacturers Hanover Trust Company) as Rights Agent dated September 26,
1991 (2)
10.1 Form of Indemnity Agreement to be entered into by the Company and its directors and officers (3)
10.2 Boston Life Sciences, Inc. Amended and Restated Omnibus Stock Option Plan (6)
10.3 Boston Life Sciences, Inc. Amended and Restated 1990 Non-Employee Directors' Non Qualified Stock
Option Plan (6)
10.5 Purchase Agreement dated February 5, 1999 between the Tail Wind Fund, Ltd. ("Tail Wind") and the
Company. (7)
10.6 The Registration Rights Agreement dated February 5, 1999 between Tail Wind and the Company. (7)
10.7 Form of Subscription Agreement for Series B Preferred Stock. (7)
10.8 Form of Exchange Agreement between the Company and Holders of Series B Preferred Stock (7)
10.9 Supplement to Subscription Agreement for Series B Preferred Stock. (7)
21.1 Subsidiaries of the Registrant (7)
23.1 Consent of Independent Accountants (7)
27.1 Financial Data Schedule (7)
</TABLE>
42
<PAGE>
(1) Incorporated by reference to Greenwich's Annual Report on Form 10-K for the
year ended December 31, 1994
(2) Incorporated by reference to Greenwich's Current Report on Form 8-K dated
September 26, 1991
(3) Incorporated by reference to Greenwich's proxy statement in connection with
its 1987 Annual Meeting of Stockholders
(4) Incorporated by reference to the Registration Statement of Greenwich
Pharmaceuticals Incorporated on Form S-4, Registration No. 33-91106
(5) Incorporated by reference to BLSI's Annual Report on Form 10-K for the year
ended December 31, 1995
(6) Incorporated by reference to BLSI's proxy statement in connection with its
1998 Annual Meeting of Stockholders
(7) Filed herewith
(b) REPORTS ON FORM 8-K: The Registrant filed the following Reports on Form
8-K during the fourth quarter of 1998 and through March 11, 1999:
<TABLE>
<CAPTION>
Item
Date of Report Reported
- ----------------------------------------------------------------------------------------- ------------
<S> <C>
November 3, 1998 5,7
December 14, 1998 5,7
January 26, 1999 5,7
February 5, 1999 5,7
February 16, 1999 5,7
</TABLE>
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
March 17, 1999 By /s/ s. David Hillson
---------------------------------------
S. DAVID HILLSON
Chairman, President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------------------- ------------------------------------ ---------------------
<S> <C> <C>
/s/ S. David Hillson Chairman, President & Chief March 17, 1999
- --------------------------------------- Executive Officer
S. DAVID HILLSON (Principal Executive
Officer)
/s/ Marc E. Lanser, M.D. Executive Vice President & March 17, 1999
- --------------------------------------- Chief Scientific Officer
MARC E. LANSER, M.D.
/s/ Joseph P. Hernon Chief Financial Officer March 17, 1999
- --------------------------------------- (Principal Financial and
JOSEPH P. HERNON Accounting Officer)
/s/ Colin B. Bier, M.D. Director March 17, 1999
- ---------------------------------------
COLIN B. BIER, M.D.
/s/ Edson D. de Castro Director March 17, 1999
- ---------------------------------------
EDSON D. DE CASTRO
/s/ Ira W. Lieberman, Ph.D. Director March 17, 1999
- ---------------------------------------
IRA W. LIEBERMAN, PH.D.
/s/ E. Christopher Palmer Director March 17, 1999
- ---------------------------------------
E. CHRISTOPHER PALMER
/s/ Adrian M. Gerber Director March 17, 1999
- ---------------------------------------
ADRIAN GERBER
</TABLE>
44
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING PAGE NUMBER
- -------------------- ------------------------------------------------------------------------------------------------ ------------
<C> <S> <C>
2.1 Amended and Restated Agreement of Merger, dated as of December 29, 1994,
by and between the Company and Greenwich Pharmaceuticals Incorporated (1)
2.2 Amendment No. 1 to Amended and Restated Agreement of Merger, dated as
of April 6, 1995, by and between the Company and Greenwich
Pharmaceuticals Incorporated (4)
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. (7)
3.2 Amended and Restated By Laws, effective as of June 26, 1995 (5)
4.1 Rights Agreement between the Company and Chemical Trust Group (formerly
Manufacturers Hanover Trust Company) as Rights Agent dated September 26, 1991 (2)
10.1 Form of Indemnity Agreement to be entered into by the Company and its directors and officers (3)
10.2 Boston Life Sciences, Inc. Amended and Restated Omnibus Stock Option Plan (6)
10.3 Boston Life Sciences, Inc. Amended and Restated 1990 Non-Employee Directors' Non Qualified Stock
Option Plan (6)
10.5 Purchase Agreement dated February 5, 1999 between the Tail Wind Fund, Ltd. ("Tail Wind") and the
Company. (7)
10.6 The Registration Rights Agreement dated February 5, 1999 between Tail Wind and the Company. (7)
10.7 Form of Subscription Agreement for Series B Preferred Stock. (7)
10.8 Form of Exchange Agreement between the Company and Holders of Series B Preferred Stock (7)
10.9 Supplement to Subscription Agreement for Series B Preferred Stock. (7)
21.1 Subsidiaries of the Registrant (7)
23.1 Consent of Independent Accountants (7)
27.1 Financial Data Schedule (7)
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</TABLE>
(1) Incorporated by reference to Greenwich's Annual Report on Form 10-K for the
year ended December 31, 1994
(2) Incorporated by reference to Greenwich's Current Report on Form 8-K dated
September 26, 1991
(3) Incorporated by reference to Greenwich's proxy statement in connection with
its 1987 Annual Meeting of Stockholders
(4) Incorporated by reference to the Registration Statement of Greenwich
Pharmaceuticals Incorporated on Form S-4, Registration No. 33-91106
(5) Incorporated by reference to BLSI's Annual Report on Form 10-K for the year
ended December 31, 1995
(6) Incorporated by reference to BLSI's proxy statement in connection with its
1998 Annual Meeting of Stockholders
(7) Filed herewith
45
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
BOSTON LIFE SCIENCES, INC.
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 name of the Corporation is Boston Life Sciences, Inc. (the
"Corporation"). The Corporation is the entity resulting from the merger of
Boston Life Sciences, Inc., a Massachusetts corporation, with and into Greenwich
Pharmaceuticals Incorporation, a Delaware corporation, on June 15, 1995. A
Certificate of Merger was filed with the Secretary of State of Delaware on that
date. The Corporation was originally incorporated on May 18, 1972 under the name
"Strategic Medical Research Corp."
2. This Amended and Restated Certificate of Incorporation amends and
restates the Restated Certificate of Incorporation to restate the certificate of
incorporation of the Corporation in its entirety in a single document.
3. The text of the Restated Certificate of Incorporation is further
amended and restated hereby to read as herein set forth in full:
"FIRST: The name of the corporation is Boston Life
Sciences, Inc. (the "Corporation");
SECOND: Its registered office in the State of Delaware
is to be located at 1209 Orange Street, Wilmington, Delaware
19801, County of New Castle. The registered agent at such address
is The Corporation Trust Company.
THIRD: The nature of the business and objects and
purposes for which the Corporation is organized are:
(a) To engage in research, exploration, laboratory,
and development work relating to any material, substance,
compound, or mixture now known or which may hereafter be
known, discovered, or developed, and to perfect, develop,
manufacture, use, apply, and generally to deal in and with
any such material, substance, compound, or mixture, and to
undertake, conduct, manage, assist, promote, and engage or
participate in every
<PAGE>
kind of research or scientific experimental, design, or
development work, including pure or basic research.
(b) To engage in the general business of purchasing,
selling, licensing, distributing, developing, manufacturing
or marketing of medical and pharmaceutical products of any
kind whatsoever.
(c) To purchase, acquire, own, hold, lease, mortgage,
encumber, sell and dispose of any and all kinds and
character of property, real, personal and mixed (the
foregoing particular enumeration in no sense being used by
way of exclusion or limitation) and while the owner thereof,
to exercise all the rights, powers and privileges of
ownership, including in the case of stocks and shares, the
rights to vote thereon.
(d) To borrow and lend money, with or without
security, and to endorse or otherwise guarantee the
obligations of others.
(e) To act as principal or agent for others and
receive compensation for all services which it may render in
the performance of its duties of an agency character.
(f) To engage in any and all business activities and
pursuits as may be reasonably related to the foregoing.
(g) As provided in Section 102(a)(3) of the General
Corporation Law of Delaware, to engage in any lawful act or
activity for which corporations may be organized under the
General Corporation Law of Delaware.
FOURTH: The aggregate number of shares which the
Corporation shall have authority to issue is 176,000,000 to be
divided into (a) 175,000,000 shares of Common Stock, par value
$.01 per share, (b) 1,000,000 shares of Preferred Stock, par
value $.01 per share, of which 264,000 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.
2
<PAGE>
The Board of Directors is hereby empowered to cause the
Preferred Stock to be issued from time to time for such
consideration as it may from time to time fix, and to cause such
Preferred Stock to be issued in series with such voting powers,
designations, preferences and relative, participating, optional
or other special rights, if any, or the qualifications,
limitations or restrictions thereof, as designated by the Board
of Directors in the resolution providing for the issue of such
series. Shares of Preferred Stock of any one series shall be
identical in all respects.
FIFTH: In furtherance and not in limitation of the power
conferred by statute, the Board of Directors is expressly authorized
to make, repeal, alter, amend and rescind the By-laws of the
Corporation.
3
<PAGE>
SIXTH: No director of the Corporation shall be personally
liable to the Corporation or any of its stockholders for monetary
damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, as the same exists or hereafter may be amended, or
(iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law hereafter is
amended to authorize the further elimination or limitation of the
liability of directors, then the liability of a director of the
Corporation, in addition to the limitation on personal liability
provided herein, shall be limited to the fullest extent permitted by
the amended Delaware General Corporation Law. Any repeal or
modification of this paragraph by the stockholders of the Corporation
shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the Corporation
existing at the time of such repeal or modification.
SEVENTH: Any action required or permitted to be taken at
any annual or special meeting of stockholders may be taken only upon
the vote of the stockholders at an annual or special meeting duly
called and may not be taken by written consent of the stockholders.
Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by the Board of
Directors, the Chairman of the Board of Directors or the President of
the Corporation. Special meetings of the stockholders of the
Corporation may not be called by any other person or persons.
EIGHTH: This Amended and Restated Certificate of
Incorporation may be amended by the affirmative vote of the majority
of the shares entitled to vote on each such amendment."
4. This Amended and Restated Certificate of Incorporation was duly
adopted by the board of directors and by the stockholders in accordance with the
provisions of Sections 242 and 245 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, Boston Life Sciences, Inc. has caused this Amended
and Restated Certificate of Incorporation to be signed by the authorized officer
this 28th of March 1996.
ATTEST: BOSTON LIFE SCIENCES, INC.
4
<PAGE>
By: /s/ Philip M. Shapiro By: /s/ George Eldridge
---------------------- --------------------
Vice-President, Corporate
Development and Finance
5
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
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 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 January 25, 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 B Convertible Preferred
Stock" (hereinafter called the "Series B Convertible Preferred Stock"). The
shares of Series B 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 B Convertible Preferred
---------
Stock shall not be entitled to receive dividends in any fixed amount;
provided, however, the holder of each share of Series B 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 B Convertible Preferred Stock shall not be cumulative and no
right to such dividends shall accrue to holders of the Series B Convertible
Preferred Stock unless and until declared by the Board of Directors. The
holders of shares of the Series B 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 B Convertible Preferred Stock and the
holders of shares of Series A 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 defined), (i) with respect to each share
of Series A Convertible
1
<PAGE>
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 ("Series B Preference Amount", and collectively the
Series A Preference Amount and the Series B 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 and the
Series B 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 and the Series B
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 Convertible Stock and Series B 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 B Convertible Preferred Stock and Series A 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 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 B Convertible Preferred Stock shall have the right to
convert their shares of Series B 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 third paragraph of
Section 3A.
For purposes of this Section with respect to the Series B Convertible
Preferred Stock, a liquidation, dissolution or winding up of the
Corporation shall be deemed to be 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,
2
<PAGE>
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 B Convertible
Preferred Stock shall have the right, at its option, to convert any such
shares of Series B 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 B 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 eighty percent (80%) of the
average Closing Bid Price of the Common Stock for the five Trading Days (as
defined below) ending on the Trading Day that is one Trading Day prior to
February 5, 1999; provided, however, that the initial Conversion Price
-------- -------
may not be less than $3.50 nor greater than $4.00 (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 B Convertible
Preferred Stock, the holder has the option to convert Series B 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 B
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 B 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 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, 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
shareholder approval, then, prior to any such issuance, the Corporation at
its option may either (a) redeem the Series B Convertible Preferred Stock
in accordance with the
3
<PAGE>
redemption procedures contained in Section 4 herein within fifteen (15)
days after receipt of the conversion notice relating to the Series B
Convertible Preferred Stock; or (b) may solicit and obtain within ninety
(90) days after receipt of the conversion notice relating to the Series B
Convertible Preferred Stock the necessary shareholder consent before any
such shares are required to be issued. In the event that the Corporation is
unable to obtain the necessary shareholder 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 B
Convertible Preferred Stock in accordance with the preceding sentence. In
the event the Closing Bid Price for the Corporation's Common Stock is at
any time from the date of issuance 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 the 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 B 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 B 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.
3B. Issuance of Certificates; Time Conversion Effected. Subject to
--------------------------------------------------
the limitation on conversion set forth in second 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 B
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
4
<PAGE>
certificates for the number of whole shares of Common Stock issuable upon
the conversion of such share or shares of Series B 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 B 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 B 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 B 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 B 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 B 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
B 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 B Convertible Preferred Stock
shall be changed into 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 B
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
5
<PAGE>
receipt by the holders upon conversion of the Series B 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 B 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 B 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 B Convertible Preferred 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
6
<PAGE>
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 B 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 B 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 B 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 B 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 B Convertible Preferred Stock. Shares of
-----------------------------------------------------
Series B 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 necessary to reduce the number
of authorized shares of Series B Convertible Preferred Stock accordingly.
3K. Issue Tax. The issuance of certificates for shares of Common
---------
Stock upon conversion of the Series B 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 B Convertible Preferred Stock which is being converted.
7
<PAGE>
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 B 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 B Convertible Preferred Stock may be
----------
redeemed by the Corporation at any time in exchange for a cash payment for
each share of Series B 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 B 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 B 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
Company will file a registration statement 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 B 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 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 B
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.
8
<PAGE>
Any shares of the Series B 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 B Convertible Preferred Stock accordingly.
5. Voting - Series B Convertible Preferred Stock. Except as required by
---------------------------------------------
law or in Section 6 herein, all shares of Series B 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 B Convertible Stock are
converted into shares of Common Stock. In addition, any shares of Series A
Convertible Preferred Stock or Series B 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 B 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 B 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 B 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 B 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 B Convertible Preferred
Stock.
7. No Waiver. Except as otherwise modified or provided for herein, the
---------
holders of Series B 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 time
in good faith assist in the carrying out of all the provisions of this
Certificate of 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 B
Convertible Preferred Stock against impairment.
9. Automatic Conversion. Subject to the limitations on conversion set
---------------------
forth herein, each share of Series B Convertible Preferred Stock issued and
outstanding on February 5 , 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.
9
<PAGE>
IN WITNESS WHERFOF, this Certificate of Designations has been executed
by the Corporation by its President as of this 5th day of February, 1999.
BOSTON LIFE SCIENCES, INC.
By: _____________________
S. David Hillson
President and Chief Executive Officer
10
<PAGE>
CERTIFICATE OF DECREASE
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 475,000 to 227,719, pursuant to the authority granted to them under Section
151(g) of the Delaware General Corporation Law.
IN WITNESS WHEREOF, this Certificate of Designations has been executed
and filed as of this 18/th/ day of February, 1999.
BOSTON LIFE SCIENCES, INC.
By: /s/ Joseph P. Hernon
-----------------------------
Joseph P. Hernon
Secretary, Vice President and
Chief Financial Officer
<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
1
<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
2
<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,
3
<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.
4
<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
5
<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
6
<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
7
<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
8
<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
9
<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.
10
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations has been executed
by the Corporation by its President as of this __th day of February, 1999.
BOSTON LIFE SCIENCES, INC.
By: _________________________
Joseph P. Hernon
Secretary, Vice President and
Chief Financial Officer
11
<PAGE>
EXHIBIT 10.5
PURCHASE AGREEMENT
------------------
THIS PURCHASE AGREEMENT ("Agreement") is made as of the 5th day of
February, 1999 by and between Boston Life Sciences Inc. a Delaware corporation
(the "Company"), and the Investor set forth on the signature page affixed hereto
(the "Investor").
RECITALS
A. The Company and the Investor are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the U.S.
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended;
B. The Investor wishes to purchase, and the Company wishes to sell
and issue to the Investor, upon the terms and conditions stated in this
Agreement, such number of shares of the common stock of the Company, $0.01 par
value per share (the "Common Stock") and that number of warrants to purchase
Common Stock at an exercise price equal to the per share purchase price for the
Common Stock being purchased hereunder (the "Purchase Price") upon such other
terms and subject to the limitations and conditions set forth in the form
attached hereto as EXHIBIT A (the "Warrants") as is set forth on the signature
---------
page attached hereto and executed by the Investor; and
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as EXHIBIT B (the "Registration Rights Agreement"),
---------
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act of 1933, as amended and the rules and regulations
promulgated thereunder, and applicable state securities laws;
In consideration of the mutual promises made herein and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. In addition to those terms defined above and elsewhere
-----------
in this Agreement, for the purposes of this Agreement, the following terms shall
have the meanings here set forth:
1.1 "Affiliate" means, with respect to any person, any other person
---------
which directly or indirectly controls, is controlled by, or is under common
control with, such person.
1.2 "Agreements" means this Agreement, the Registration Rights
----------
Agreement, and the Warrants.
1.3 "Closing" means the consummation of the transactions contemplated
-------
by this Agreement, and "Closing Date" means the date of such Closing.
------------
<PAGE>
1.4 "Control" means the possession , direct or indirect, of the
-------
power to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by contract or
otherwise.
1.5 "Material Adverse Effect" means a material adverse effect on the
-----------------------
(i) condition (financial or otherwise), business, assets, or results of
operations of the Company and its subsidiaries, taken as a whole; (ii) ability
of the Company to perform any of its material obligations under the terms of
this Agreement; or (iii) rights and remedies of the Investor under the terms of
this Agreement.
1.6 "Person" means an individual, corporation, partnership, trust,
------
business trust, association, joint stock company, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
1.7 "SEC Filings" has the meaning set forth in Section 4.6.
-----------
1.8 "Securities" means the Shares, the Warrants and the Warrant
----------
Shares (defined below).
1.9 "Shares" means the shares of Common Stock being purchased by the
------
Investor hereunder.
1.10 "Warrant Shares" means the shares of Common Stock issuable upon
--------------
exercise of or otherwise pursuant to the Warrants.
1.11 "1933 Act" means the Securities Act of 1933, as amended, and the
--------
rules and regulations promulgated thereunder.
1.12 "1934 Act" means the Securities Exchange Act of 1934, as amended,
--------
and the rules and regulations promulgated thereunder.
2. Purchase and Sale of the Shares and Warrants. Subject to the terms and
--------------------------------------------
conditions of this Agreement, the Investor hereby agrees to purchase and the
Company hereby agrees to sell and issue to the Investor, the Warrants and that
number of Shares determined by dividing the aggregate purchase price of Two
Million Five Hundred Thousand Dollars ($2,500,000), by the per share Purchase
Price for the Shares, which shall equal the "Market Price" defined as 80% of the
average closing bid price of the Company's Common Stock on the five (5) trading
days immediately preceding the date hereof, subject to a maximum of $4.00 and a
minimum of $3.50.
3. Closing. On the date of this Agreement, the per share Purchase Price
-------
shall be established. The Company shall promptly deliver to Investor's counsel,
in trust, a certificate or certificates, registered in such name or names as
Investor may designate, representing all of the Shares and all of the Warrants,
with instructions that such certificates are to be held for release to the
Investor only upon payment of the purchase price to the Company. Upon receipt
by counsel
2
<PAGE>
to the Investor of the certificates, the Investor shall promptly cause a wire
transfer in same day funds to be sent to the account of the Company as
instructed in writing by the Company, in an amount representing the entire
purchase price. On the date the Company receives such funds, the certificates
evidencing the Shares and the Warrants shall be released to the Investor (and
such date shall be deemed the "Closing Date").
4. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to the Investor that:
4.1 Organization, Good Standing and Qualification. The Company and
---------------------------------------------
each of its subsidiaries is a corporation duly incorporated, validly existing
and in good standing under the laws of its organization and has all requisite
power and authority to carry on its business and own its properties as now
conducted and owned. The Company and each of its subsidiaries is duly qualified
or licensed to do business as a foreign corporation and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property makes such qualification or licensing necessary unless the
failure to so qualify or be licensed would not have a Material Adverse Effect.
4.2 Authorization. The Company has full power and authority and has
-------------
taken all requisite action on the part of the Company, its officers, directors
and stockholders necessary for (i) the authorization, execution and delivery of
the Agreements, (ii) the performance of all obligations of the Company hereunder
or thereunder, and (iii) the authorization, issuance (or reservation for
issuance) and delivery of the Securities. The Agreements constitute the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability,
relating to or affecting creditors' rights generally.
4.3 Capitalization. Set forth on Schedule 4.3 hereto is (a) the
-------------- ------------
authorized capital of the Company on the date hereof; (b) the number of shares
of capital stock issued and outstanding; (c) the number of shares of capital
stock issuable pursuant to the Company's stock plans; (d) the number of shares
of capital stock issuable and reserved for issuance pursuant to securities
(other than the Shares and the Warrants) exercisable for, or convertible into or
exchangeable for any shares of capital stock. All of the issued and outstanding
shares of the Company's capital stock have been duly authorized and validly
issued and are fully paid, nonassessable and free of preemptive rights, except
to the extent that the failure of the foregoing to be true and correct would not
have a Material Adverse Effect. Except as set forth on Schedule 4.3, no Person
------------
is entitled to preemptive or similar statutory or contractual rights with
respect to any securities of the Company. Except set forth on Schedule 4.3,
------------
there are no outstanding warrants, options, convertible securities or other
rights, agreements or arrangements of any character under which the Company is
or may be obligated to issue any equity securities of any kind, or to transfer
any equity securities of any kind, and except as contemplated by this Agreement,
the Company and its subsidiaries do not have any present plan or intention to
issue any equity securities of any kind, or to transfer any equity securities of
any kind owned by them. Except as set forth on Schedule 4.3, the Company does
------------
not know of any voting agreements, buy-sell agreements, option or right of first
purchase agreements or other agreements of any kind
3
<PAGE>
among any of the securityholders of the Company relating to the securities held
by them. Except as set forth on Schedule 4.3, the Company has not granted any
------------
Person the right to require the Company to register any securities of the
Company under the 1933 Act, whether on a demand basis or in connection with the
registration of securities of the Company for its own account or for the account
of any other Person. The Company will not issue equity-type securities the value
of which exceeds an aggregate of $8,500,000 during the first fiscal quarter of
1999.
4.4 Valid Issuance. The Company has reserved a sufficient number of
--------------
shares of Common Stock for issuance pursuant to this Agreement and upon exercise
of the Warrants. The Company will take such steps as may be necessary to reserve
sufficient shares for issuance pursuant to Section 7 below when such issuance is
determinable. The Shares and Warrants are duly authorized, and such securities,
along with the Warrant Shares when issued in accordance herewith and with the
terms of the Warrants, will be duly authorized, validly issued, fully paid, non-
assessable and free and clear of all encumbrances and restrictions, except for
restrictions on transfer imposed by applicable securities laws.
4.5 Consents. The execution, delivery and performance by the
--------
Company of the Agreements and the offer, issue and sale of the Securities
require no consent of, action by or in respect of, or filing with, any Person,
governmental body, agency, or official other than filings that have been made
pursuant to applicable state securities laws and post-sale filings pursuant to
applicable state and federal securities laws and the requirements of the Nasdaq
Stock Market, which the Company undertakes to file within the applicable time
periods.
4.6 Delivery of SEC Filings; Business. The Investor has reviewed the
---------------------------------
Company's most recent Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, and all other reports filed by the Company pursuant to the
1934 Act since the filing of the Annual Report on Form 10-K (collectively, the
"SEC Filings"). The Company and its subsidiaries are engaged only in the
business described in the SEC Filings and the SEC Filings contain a complete and
accurate description of the business of the Company and its subsidiaries.
4.7 Use of Proceeds. The proceeds of the sale of the Securities
---------------
hereunder shall be used by the Company for working capital for general corporate
purposes.
4.8 No Material Adverse Change. Since the filing of the Company's
--------------------------
most recent Annual Report on Form 10-K or as otherwise identified and described
in subsequent reports filed by the Company pursuant to the 1934 Act, there has
not been:
(i) any change in the consolidated assets, liabilities,
financial condition or operating results of the Company from that reflected in
the financial statements included in the Company's most recent Quarterly Report
on Form 10-Q, except changes in the ordinary course of business which have not
had, in the aggregate, a Material Adverse Effect;
(ii) any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock of the
Company, or any redemption or repurchase of any securities of the Company;
4
<PAGE>
(iii) any material damage, destruction or loss, whether or not
covered by insurance to any assets or properties of the Company or any of its
subsidiaries;
(iv) any waiver by the Company or any of its subsidiaries of a
valuable right or of a material debt owed to it;
(v) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or any of its
subsidiaries, except in the ordinary course of business and which is not
material to the assets, properties, financial condition, operating results or
business of the Company and its subsidiaries taken as a whole (as such business
is presently conducted and as it is proposed to be conducted);
(vi) any material change or amendment to a material contract or
arrangement by which the Company or any of their subsidiaries or any of its
assets or properties is bound or subject;
(vii) any labor difficulties or labor union organizing
activities with respect to employees of the Company or any of its subsidiaries;
(viii) any transaction entered into by the Company or any of its
subsidiaries other than in the ordinary course of business; or
(ix) any other event or condition of any character that might
have a Material Adverse Effect.
4.9 SEC Filings; Material Contracts.
-------------------------------
(a) As of its filing date, each report filed by the Company with
the SEC pursuant to the 1934 Act, complied as to form in all material respects
with the requirements of the 1934 Act and did not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading.
(b) Each registration statement and any amendment thereto filed
by the Company pursuant to the 1933 Act and the rules and regulations
thereunder, as of the date such statement or amendment became effective,
complied as to form in all material respects with the 1933 Act and did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; and each prospectus filed pursuant to Rule 424(b) under the 1933
Act, as of its issue date and as of the closing of any sale of securities
pursuant thereto did not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(c) Except as set forth on Schedule 4.3 hereto, there are no
------------
agreements or instruments currently in force and effect that constitute a
warrant, option, convertible security or other right, agreement or arrangement
of any character under which the Company is or may be
5
<PAGE>
obligated to issue any material amounts of any equity security of any kind, or
to transfer any material amounts of any equity security of any kind.
4.10 Registration Rights. The Company is currently eligible to
-------------------
register the resale of its Common Stock on a registration statement on Form S-3
under the 1933 Act.
4.11 No Conflict, Breach, Violation or Default. The execution,
-----------------------------------------
delivery and performance of the Agreements and the issuance and sale of the
Securities will not conflict with or result in a breach or violation of any of
the terms and provisions of, or constitute a default under (i) the Company's
Amended and Restated Certificate of Incorporation dated March 29, 1996, as
amended on June 9, 1997 ("Articles") or Amended and Restated Bylaws as in effect
on the date hereof, or (ii) except where it would not have a Material Adverse
Effect, any statute, rule, regulation or order of any governmental agency or
body or any court, domestic or foreign, having jurisdiction over the Company or
any subsidiary of the Company or any of their properties, or any agreement or
instrument to which the Company or any such subsidiary is a party or by which
the Company or any such subsidiary is bound or to which any of the properties of
the Company or any such subsidiary is subject. With respect to the matters set
forth in subsection (ii) of this Section 4.11, the Company has made diligent
inquiry and is aware of no conflict with or breach or violation of any such
rule, regulation or order or any agreement or instrument by reason of the
execution, delivery or performance of the Agreements and the issuance and sale
of the Securities.
4.12 Tax Matters. The Company and its subsidiaries have correctly
-----------
and timely prepared and filed all tax returns required to have been filed by it
with all appropriate governmental agencies and timely paid all taxes owed by
them. The charges, accruals and reserves on the books of the Company and its
subsidiaries in respect of taxes for all fiscal periods are adequate in all
material respects, and there are no material unpaid assessments of the Company
or any subsidiary nor, to the knowledge of the Company, any basis for the
assessment of any additional taxes, penalties or interest for any fiscal period
or audits by any federal, state or local taxing authority except such as which
are not material. All material taxes and other assessments and levies that the
Company or any subsidiary is required to withhold or to collect for payment have
been duly withheld and collected and paid to the proper governmental entity or
third party. There are no tax liens or claims pending or threatened against the
Company or any subsidiary or any of their respective assets or property. There
are no outstanding tax sharing agreements or other such arrangements between the
Company or any subsidiary and any other corporation or entity.
4.13 Title to Properties. Except as disclosed in the SEC Filings,
-------------------
the Company and its subsidiaries have good and marketable title to all real
properties and all other properties and assets owned by them, in each case free
from liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or currently planned to be
made thereof by them; and except as disclosed in the SEC Filings, the Company
and its subsidiaries hold any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.
6
<PAGE>
4.14 Certificates, Authorities and Permits. The Company and its
-------------------------------------
subsidiaries possess adequate certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct the business
now operated by them and have not received any notice of proceedings relating to
the revocation or modification of any such certificate, authority or permit
that, if determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect.
4.15 No Labor Disputes. No labor dispute with the employees of the
-----------------
Company or any subsidiary exists or, to the knowledge of the Company, is
imminent.
4.16 Intellectual Property. Except for sponsored research and
---------------------
license agreements between the Company and Harvard Medical School and its
affiliated institutions (the "Sponsored Agreements"), the Company and its
subsidiaries own or possess adequate trademarks and trade names and have all
other rights to inventions, know-how, patents, copyrights, trademarks, trade
names, confidential information and other intellectual property (collectively,
"Intellectual Property Rights"), free and clear of all liens, security
interests, charges, encumbrances, equities and other adverse claims, necessary
to conduct the business now operated by them, or presently employed by them, and
presently contemplated to be operated by them, and have not received any notice
of infringement of or conflict with asserted rights of others with respect to
any Intellectual Property Rights. Schedule 4.16 sets forth a list by serial
-------------
number and title of the six patents and/or patent applications most material to
the Company's business, owned or possessed by the Company or any of its
subsidiaries. Except for the Sponsored Agreements, no proprietary technology of
any Person was used in the design or development by the Company of (or otherwise
with respect to) any of the Intellectual Property Rights, which technology was
not properly acquired by the Company from such Person.
4.17 Environmental Matters. Neither the Company nor any of its
---------------------
subsidiaries is in violation of any statute, rule, regulation, decision or order
of any governmental agency or body or any court, domestic or foreign, relating
to the use, disposal or release of hazardous or toxic substances or relating to
the protection or restoration of the environment or human exposure to hazardous
or toxic substances (collectively, "Environmental Laws"), owns or operates any
real property contaminated with any substance that is subject to any
Environmental Laws, is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, or is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim would
individually or in the aggregate have a Material Adverse Effect; and the Company
is not aware of any pending investigation that might lead to such a claim.
4.18 Litigation. Except as disclosed in the SEC Filings, there are
----------
no pending actions, suits or proceedings against or affecting the Company, any
of its subsidiaries or any of their respective properties that, if determined
adversely to the Company or any of its subsidiaries, would individually or in
the aggregate have a Material Adverse Effect or would materially and adversely
affect the ability of the Company to perform its obligations under this
Agreement, or which are otherwise material in the context of the sale of the
Securities; and to the Company's knowledge, no such actions, suits or
proceedings are threatened or contemplated.
7
<PAGE>
4.19 Financial Statements. The financial statements included in
--------------------
each SEC Filing present fairly and accurately the consolidated financial
position of the Company and its subsidiaries as of the dates shown and their
consolidated results of operations and cash flows for the periods shown, and
such financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis. Except as set
forth on Schedule 4.19 or in the financial statements of the Company included
-------------
in the SEC Filings filed prior to the date hereof, the Company has no
liabilities, contingent or otherwise, except those which individually or in the
aggregate are not material to the financial condition or operating results of
the Company.
4.20 Insurance Coverage. The Company and its subsidiaries maintain
------------------
in full force and effect insurance coverage that is customary for comparably
situated companies for the business being conducted, and properties owned or
leased, by the Company and its subsidiaries, and the Company reasonably believes
such insurance coverage to be adequate against all liabilities, claims and risks
against which it is customary for comparably situated companies to insure.
4.21 Compliance with Nasdaq Continued Listing Requirements. The
-----------------------------------------------------
Company is in compliance with all applicable Nasdaq Small Cap Market ("NSCM")
continued listing requirements. There are no proceedings pending or to the
Company's knowledge threatened against the Company relating to the continued
listing of the Company's Common Stock on the NSCM, and the Company has not
received any notice of, nor to the knowledge of the Company is there any basis
for, the delisting of the Common Stock from the NSCM.
4.22 Acknowledgement of Dilution. The number of shares of Common
----------------------------
Stock issuable pursuant to this Agreement may increase substantially. The
Company's executive officers and directors have studied and fully understand the
nature of the Securities being sold hereunder and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded
in its good faith business judgment that such issuance is in the best interests
of the Company. The Company acknowledges that its obligations to issue shares of
Common Stock and Warrants pursuant to this Agreement are binding upon it and
enforceable regardless of the dilution that such issuance may have on the
ownership interest of the other stockholders of the Company.
4.23 Brokers and Finders. The Investor shall have no liability or
-------------------
responsibility for a finder's fee.
4.24 No Directed Selling Efforts or General Solicitation. Neither
---------------------------------------------------
the Company nor any Person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation D) in
connection with the offer or sale of any of the Securities.
4.25 No Integrated Offering. Neither the Company nor any of its
----------------------
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Securities under the 1933 Act.
8
<PAGE>
4.26 Disclosures. No representation or warranty made under any
-----------
Section hereof and no information furnished by the Company pursuant hereto, or
in any other document, certificate or statement furnished by the Company to the
Investor or any authorized representative of the Investor, pursuant to the
Agreements or in connection therewith, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the respective
statements contained herein or therein, in light of the circumstances under
which the statements were made, not misleading.
5. Representations and Warranties of the Investor. The Investor hereby
----------------------------------------------
represents and warrants to the Company that:
5.1 Organization and Existence. The Investor is a validly existing
--------------------------
limited liability company under the laws of the British Virgin Islands and has
all requisite limited liability company power and authority to invest in the
Securities pursuant to this Agreement.
5.2 Authorization. The execution, delivery and performance by the
-------------
Investor of the Agreements have been duly authorized and the Agreements will
each constitute the valid and legally binding obligation of the Investor,
enforceable against the Investor in accordance with their terms.
5.3 Purchase Entirely for Own Account. The Securities to be
---------------------------------
received by the Investor hereunder will be acquired for investment for the
Investor's own account, not as nominee or agent, and not with a view to the
resale or distribution of any part thereof, and the Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. The Investor is not a registered broker dealer or an entity engaged in
the business of being a broker dealer.
5.4 Investment Experience. The Investor acknowledges that it can
---------------------
bear the economic risk and complete loss of its investment in the Securities and
has such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment contemplated
hereby.
5.5 Disclosure of Information. The Investor has had an opportunity
-------------------------
to receive any documents related to the Company and to ask questions of and
receive answers from the Company regarding the Company, its business and the
terms and conditions of the offering of the Securities. Neither such inquiries
nor any other due diligence investigation conducted by the Investor shall
modify, amend or affect the Investor's right to rely on the Company's
representations and warranties contained in this Agreement or made pursuant to
this Agreement.
5.6 Restricted Securities. The Investor understands that the
---------------------
Securities are characterized as "restricted securities" under the U.S. federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances.
9
<PAGE>
5.7 Legends. It is understood that, until registration for resale
-------
pursuant to the Registration Rights Agreement, certificates evidencing the
Securities may bear one or all of the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933, as amended (the "Act"), and 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 Corporation, or other counsel reasonably
acceptable to the Corporation, that the proposed disposition is consistent with
all applicable provisions of the Act as well as any applicable "blue sky" or
similar securities laws."
(b) If required by the authorities of any state in connection
with the issuance of sale of the Securities, the legend required by such state
authority.
Upon registration for resale pursuant to the Registration Rights
Agreement, the Company shall use its best efforts to promptly cause certificates
evidencing the Shares previously issued hereunder to be replaced with
certificates which do not bear such restrictive legends.
5.8 Accredited Investor. The Investor is an accredited investor as
-------------------
defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act.
5.9 No General Solicitation. The Investor did not learn of the
-----------------------
investment in the Securities as a result of any public advertising or general
solicitation.
6. Registration Rights Agreement. The parties acknowledge and agree that
-----------------------------
part of the inducement for the Investor to enter into this Agreement is the
Company's execution and delivery of the Registration Rights Agreement. The
parties acknowledge and agree that simultaneously with the execution hereof, the
Registration Rights Agreement is being duly executed and delivered by the
parties thereto.
7. Covenants and Agreements of the Company.
---------------------------------------
7.1 Subsequent Sale at Lower Price.
------------------------------
(a) Required Adjustment. Subject to the exclusions contained in
-------------------
Section 7.1(e) below, if during the period ending thirty two months and fifteen
days following the Closing Date (the "Restricted Period"), the Company sells any
shares of its Common Stock in a capital raising transaction at a selling price
lower than the purchase price per share set forth in Section 2 hereof, the
purchase price per share of the Shares sold to Investor hereunder shall be
adjusted downward to equal such lower selling price and Investor shall be
entitled to receive the additional shares as provided by Section 7.1(b);
provided, however, that in the event Investor then owns less than 70% of the
Shares acquired hereunder, Investor shall be entitled to additional shares only
with respect to the number of Shares then owned by the Investor as provided in
10
<PAGE>
Section 7.1(b). The Company shall give to the Investor prompt written notice of
any such sale. The Investor is required to provide notice to the Company
promptly when it owns less than 70% of the Shares acquired hereunder.
(b) Adjustment Mechanism. If an adjustment of the purchase price
--------------------
is required pursuant to this Section the Company shall promptly deliver to
Investor such number of additional shares of Common Stock equal to (i)
$2,250,000, divided by the adjusted per share purchase price as required under
Section 7.1(a), minus (ii) the total number of shares of Common Stock previously
delivered to Investor hereunder; provided however, that the Company shall effect
----------------
such adjustment in cash, in whole or in part, to the extent required by the
following subsection.
(c) Limitation on Number of Shares. Investor shall not be
------------------------------
required to accept, by way of any such adjustment a number of shares of the
Company such that the total number of such shares held by Investor, which were
held by it as of the date of such adjustment or acquired by it pursuant to this
Agreement or agreements of like tenor, would exceed 9.90% of the total
outstanding Common Stock of the Company. The Company shall effect the adjustment
required by this Section by cash refund to the extent necessary to avoid causing
the aforesaid limitation to be exceeded. Only shares acquired pursuant to this
Agreement will be included in determining whether the 9.90% limitation would be
exceeded for purposes of this Section 7.1(c).
(d) Capital Adjustments. In case of any stock split or reverse
-------------------
stock split, stock dividend, reclassification of the common stock,
recapitalization, merger or consolidation, or like capital adjustment affecting
the Common Stock of the Company, the provisions of Section 7.1 shall be applied
in a fair, equitable and reasonable manner so as to give effect, as nearly as
may be, to the purposes hereof.
(e) Exclusions. Section 7.1(a) shall not apply to (i) a sale of
----------
fewer than 50,000 shares of Common Stock in any one transaction or series of
related transactions, subject to a maximum of an aggregate 100,000 shares
pursuant to this exclusion during the Restricted Period; (ii) sales of shares of
Common Stock by the Company upon conversion or exercise of any convertible
securities, options or warrants outstanding prior to the date hereof; (iii)
sales of shares of Common Stock by the Company pursuant to the provisions of any
shareholder-approved option or similar plan heretofore or hereafter adopted by
the Company; (iv) sales of shares of Common Stock by the Company made during the
months of January and February 1999; or (v) shares of Common Stock pursuant to
the provisions of any shareholder rights plan or similar poison pill mechanism.
(f) Definitions. For purposes of Section 7.1 hereof, a sale in a
-----------
capital raising transaction of shares of Common Stock shall include the sale or
issuance of rights, options, warrants or convertible securities under which the
Company is or may become obligated to issue shares of Common Stock, and the
selling price (the "Selling Price") of the Common Stock covered thereby shall be
the exercise or conversion price thereof plus the consideration (if any)
received by the Company upon such sale or issuance. In case of any such security
issued within thirty two months and fifteen days after the Closing Date, if the
conversion or exercise price is variable, the Selling Price shall be deemed to
be the lowest conversion or exercise price
11
<PAGE>
at which such securities are converted or exercised or might have been converted
or exercised during the forty eight months following the Closing Date. If shares
are issued for a consideration other than cash, the Selling Price shall be the
fair value of such consideration as determined in good faith by the Board of
Directors of the Company. The term "Shares" as used in this Agreement shall
include shares issued pursuant to this Section.
7.2 Limitation on Similar Transactions. Until the earlier of (i) the
----------------------------------
expiration of the Restricted Period, and (ii) the date on which the Investor
owns less than 15% of the Shares acquired hereunder, without the prior written
consent of the Investor (which consent may be withheld in the Investor's sole
discretion), the Company shall not issue or sell or agree to issue or sell for
cash in a non-public offering any equity securities in a capital raising
transaction (the "New Offering") which grants to an investor (the "New
Investor") the right to receive additional shares based upon future equity
raising transactions of the Company on terms more favorable than those granted
to the New Investor in the New Offering.
7.3 Opinion of Counsel. On or prior to the Closing Date, the Company
------------------
will deliver to the Investor the opinion of legal counsel to the Company, in
form and substance reasonably acceptable to the Investor.
7.4 Reservation of Common Stock Pursuant to Section 7.1 and Exercise
----------------------------------------------------------------
of Warrants. The Company hereby agrees to, at all times with respect to shares
- -----------
issuable upon exercise of the Warrants and at all appropriate times with respect
to shares issuable pursuant to Section 7.1, to reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
providing for the additional issuance(s) of Common Stock pursuant to Section 7.1
and exercise of the Warrants, such number of shares of Common Stock as shall
from time to time equal the number of shares sufficient to permit the issuance,
if any, required pursuant to Section 7.1 plus the number of shares of Common
Stock as shall be necessary to permit the exercise of the Warrants in accordance
with the terms of the Warrants.
7.5 Reports. The Company will furnish to the Investor the following
-------
reports, each of which shall be provided to the Investor by air mail:
(a) Quarterly Reports. As soon as available and in any event
-----------------
within 45 days after the end of each fiscal quarter of the Company, the
Company's quarterly report on Form 10-Q or, in the absence of such report,
consolidated balance sheets of the Company and its subsidiaries as at the end of
such period and the related consolidated statements of operations, stockholders'
equity and cash flows for such period and for the portion of the Company's
fiscal year ended on the last day of such quarter, all in reasonable detail and
certified by a principal financial officer of the Company to have been prepared
in accordance with generally accepted accounting principles, subject to year-end
and audit adjustments.
(b) Annual Reports. As soon as available and in any event within
--------------
90 days after the end of each fiscal year of the Company, the Company's Form 10-
K or, in the absence of a Form 10-K, consolidated balance sheets of the Company
and its subsidiaries as at the end of such year and the related consolidated
statements of earnings, stockholders' equity and cash flows for such year, all
in reasonable detail and accompanied by the report on such
12
<PAGE>
consolidated financial statements of an independent certified public accountant
selected by the Company and reasonably satisfactory to the Investor.
(c) Securities Filings. As promptly as practicable and in any
------------------
event within five days after the same are issued or filed, copies of (i) all
notices, proxy statements, financial statements, reports and documents as the
Company or any subsidiary shall send or make available generally to its
stockholders or to financial analysts, and (ii) all periodic and special
reports, documents and registration statements (other than on Form S-8) which
the Company or any subsidiary furnishes or files, or any officer or director of
the Company or any of its subsidiaries (in such person's capacity as such)
furnishes or files with the SEC.
(d) Other Information. Such other information relating to the
-----------------
Company or its subsidiaries as from time to time may reasonably be requested by
the Investor provided the Company produces such information in its ordinary
course of business, and further provided that the Company, solely in its own
discretion, determines that such information is not confidential in nature and
disclosure to the Investor would not be harmful to the Company.
7.6 Press Releases. Any press release or other publicity concerning
--------------
this Agreement or the transactions contemplated by this Agreement shall be
submitted to the Investor for comment at least two (2) business days prior to
issuance, unless the release is required to be issued within a shorter period of
time by law or pursuant to the rules of a national securities exchange.
7.7 No Conflicting Agreements. The Company will not, and will not
-------------------------
permit its subsidiaries to, take any action, enter into any agreement or make
any commitment that would conflict or interfere in any material respect with the
obligations to the Investor under the Agreements.
7.8 Insurance. The Company shall, and shall cause each subsidiary to,
---------
have in full force and effect (a) insurance reasonably believed to be adequate
on all assets and activities of a type customarily insured, covering property
damage and loss of income by fire or other casualty, and (b) insurance
reasonably believed to be adequate protection against all liabilities, claims
and risks against which it is customary for companies similarly situated as the
Company and the subsidiaries to insure.
7.9 Compliance with Laws. The Company will use reasonable efforts,
--------------------
and will cause each of its subsidiaries to use reasonable efforts, to comply
with all applicable laws, rules, regulations, orders and decrees of all
governmental authorities, except to the extent non-compliance (in one instance
or in the aggregate) would not have a Material Adverse Effect.
7.10 Listing of Underlying Shares and Related Matters. The Company
------------------------------------------------
hereby agrees, promptly following the Closing of the transactions contemplated
by this Agreement, to take such action to cause the Shares and the Warrant
Shares to be listed on the Nasdaq Small Cap Market as promptly as possible but
no later than the effective date of the registration contemplated by the
Registration Rights Agreement. The Company further agrees that if the Company
applies to have its Common Stock or other securities traded on any other
principal
13
<PAGE>
stock exchange or market, it will include in such application the Common Stock
underlying the Warrants, and will take such other action as is necessary to
cause such Common Stock to be so listed. The Company will take all action
necessary to continue the listing and trading of its Common Stock on the Nasdaq
Small Cap Market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of such exchange, as
applicable, to ensure the continued eligibility for trading of the Shares and
the Warrant Shares thereon. So long as the Investor beneficially owns any of the
Shares, the Company shall provide promptly to the Investor copies of any notice
it receives regarding the continued eligibility of the Common Stock for trading
on any securities exchange (including the Nasdaq) on which the securities of the
same class or series issued by the Company are then listed or quoted, if any.
In the event it is determined that the issuance of the Shares would or
does constitute an issuance which, pursuant to the rules or regulations of the
Nasdaq Small Cap Market (or any other national securities exchange upon which
the Common Stock is or becomes traded), renders the Shares ineligible for
inclusion on the Nasdaq (or any other national securities exchange upon which
the Common Stock is then traded) within six months of the Closing Date, then the
Company shall promptly redeem such number of Shares held by the Investor which
are so ineligible at a per share redemption price equal to 110% of the per share
Purchase Price for those Shares as set forth in Section 2 hereof, and shall
issue to the Investor warrants to purchase 25,000 shares of Common Stock at an
exercise price equal to the closing bid price of the Common Stock on the date of
redemption which shall expire five years from the date of issuance and shall
otherwise be in form and substance of the Warrants acquired hereunder.
7.11 Corporate Existence. So long as the Investor beneficially owns
-------------------
any of the Shares or Warrants, the Company shall maintain its corporate
existence, except in the event of a merger, consolidation or sale of all or
substantially all of the Company's assets, as long as the surviving or successor
entity in such transaction (a) assumes the Company's obligations hereunder and
under the agreements and instruments entered into in connection herewith,
regardless of whether or not the Company would have had a sufficient number of
shares of Common Stock authorized and available for issuance in order to fulfill
its obligations hereunder and effect the exercise in full of all Warrants
outstanding as of the date of such transaction; (b) has no legal, contractual or
other restrictions on its ability to perform the obligations of the Company
hereunder and under the agreements and instruments entered into in connection
herewith; and (c) is a publicly traded corporation whose common stock and the
shares of capital stock issuable upon exercise of the Warrants are (or would be
upon issuance thereof) listed for trading on the Nasdaq National Market, New
York Stock Exchange or AMEX.
8. Survival. All representations, warranties, covenants and agreements
--------
contained in this Agreement shall be deemed to be representations, warranties,
covenants and agreements as of the date hereof and shall survive the execution
and delivery of this Agreement for a period of three years from the date of this
Agreement; provided, however, that the provisions contained in Section 7 hereof
shall survive in accordance therewith.
14
<PAGE>
9. Arbitration.
-----------
9.1 Scope. Resolution of any and all disputes arising from or in
-----
connection with the Agreements, whether based on contract, tort, common law,
equity, statute, regulation, order or otherwise ("Disputes"), including disputes
arising in connection with claims by third persons, shall be exclusively
governed by and settled in accordance with the provisions of this Section 9;
provided, that the foregoing shall not preclude equitable or other judicial
relief to enforce the provisions hereof or to preserve the status quo pending
resolution of Disputes hereunder.
9.2. Binding Arbitration. The parties hereby agree to submit all
-------------------
Disputes to arbitration for final and binding resolution. Either party may
initiate such arbitration by delivery of a demand therefor (the "Arbitration
Demand") to the other party. The arbitration shall be conducted in New York, New
York by a sole arbitrator selected by agreement of the parties not later than 10
days after delivery of the Arbitration Demand, or, failing such agreement,
appointed pursuant to the Commercial Arbitration Rules of the America
Arbitration Association, as amended from time to time (the "AAA Rules"). If the
arbitrator becomes unable to serve, his successor(s) shall be similarly selected
or appointed.
9.3. Procedure. The arbitration shall be conducted pursuant to the
---------
Federal Arbitration Act and such procedures as the parties may agree or, in the
absence of or failing such agreement, pursuant to the AAA Rules. Notwithstanding
the foregoing, (a) each party shall have the right to audit the books and
records of the other party that are reasonably related to the Dispute; (b) each
party shall provide to the other, reasonably in advance of any hearing, copies
of all documents that a party intends to present in such hearing; (c) all
hearings shall be conducted on an expedited schedule; and (d) all proceedings
shall be confidential, except that either party may at its expense make a
stenographic record thereof.
9.4. Timing. The arbitrator shall complete all hearings not later than
------
90 days after his or her selection or appointment, and shall make a final award
not later than 30 days thereafter. The arbitrator shall apportion all costs and
expenses of the arbitration, including the arbitrator's fees and expenses, and
fees and expenses of experts ("Arbitration Costs") between the prevailing and
non-prevailing party as the arbitrator shall deem fair and reasonable. In
circumstances where a Dispute has been asserted or defended against on grounds
that the arbitrator deems manifestly unreasonable, the arbitrator may assess all
Arbitration Costs against the non-prevailing party and may include in the award
the prevailing party's attorney's fees and expenses in connection with any and
all proceedings under this Section 9. Notwithstanding the foregoing, in no event
may the arbitrator award multiple or punitive damages.
10. Miscellaneous.
-------------
10.1 Successors and Assigns. This Agreement may not be assigned by a
----------------------
party hereto without the prior written consent of the other party hereto, except
that without the prior written consent of the Company, but after notice duly
given, an Investor may assign its rights and delegate its duties hereunder to an
Affiliate, and without the prior written consent of the Investor, but after
notice duly given and in compliance with this Agreement, the Company may assign
its
15
<PAGE>
rights and delegate its duties hereunder to any successor-in-interest
corporation in the event of a merger or consolidation of the Company with or
into another corporation, or any merger or consolidation of another corporation
with or into the Company that results directly or indirectly in an aggregate
change in the ownership or control of more than 50% of the voting rights of the
equity securities of the Company, or the sale of all or substantially all of the
Company's assets. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective permitted successors and assigns
of the parties. Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
10.2 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.3 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
10.4 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given only upon delivery to each party to be notified by (i)
personal delivery, (ii) telex or telecopier, upon receipt of the correct answer
back, or (iii) an internationally recognized overnight air courier, addressed to
the party to be notified at the address as follows, or at such other address as
such party may designate by ten days' advance written notice to the other party:
If to the Company:
Boston Life Sciences, Inc.
31 Newbury Street, Suite 300
Boston, MA 02116
Attn: Joseph P. Hernon
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103
Attn: Raymond D. Agran
If to the Investor, to the addresses set forth on the
signature page hereto.
16
<PAGE>
10.5 Fees and Expenses. The parties hereto shall pay their own costs
-----------------
and expenses in connection herewith, except that the Company shall pay to Tail
Wind, Inc. the sum of $18,000 as and for expenses incurred by The Tail Wind Fund
Ltd. in connection herewith.
10.6 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Investor.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each holder of any Securities purchased under this Agreement at the
time outstanding, each future holder of all such securities, and the Company.
10.7 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
10.8 Entire Agreement. This Agreement, including the Exhibits and
----------------
Schedules hereto, and the Registration Rights Agreement constitute the entire
agreement among the parties hereof with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof.
10.9 Further Assurances. The parties shall execute and deliver all
------------------
such further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
10.10 Applicable Law. This Agreement shall be governed by, and
--------------
construed in accordance with, the laws of the State of New York without regard
to principles of conflicts of laws.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
The Company:
BOSTON LIFE SCIENCES , INC.
By:_________________________
Name:
Title:
17
<PAGE>
The Investor: THE TAIL WIND FUND, LTD.
By:_________________________
Name:
Title:
By:_________________________
Name:
Title:
Aggregate Purchase Price: $2,500,000.00
Number of Shares of Common Stock: ____________
Number of Warrants: _______________ (equal to 15% of total number of Shares)
Effective per share Purchase Price of Shares: $__________
Exercise price of Warrants: $__________
Address for Notice:
The Tail Wind Fund, Ltd.
Windermere House
404 East Bay Street
P.O. Box SS-5539
Nassau, Bahamas
Attn: J. McCarroll
Telephone: 242/393-8777
Facsimile: 242/393-9021
with a copy to:
The Tail Wind Fund, Ltd.
c/o European American Securities, Inc.
One Regent Street, 4th Floor
London SW1Y 4NS
England
Attn: David Crook
Telephone: 44-171-468-7660
Facsimile: 44-171-468-7657
18
<PAGE>
and with a copy to:
Bryan Cave LLP
700 Thirteenth Street, N.W.
Washington, D.C. 20005
Attn: LaDawn Naegle
Telephone: 202/508-6046
Facsimile: 202/508-6200
19
<PAGE>
EXHIBIT 10.6
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (the "Agreement") is made and
entered into as of this 5th day of February, 1999 by and between Boston Life
Sciences, Inc., a Delaware corporation (the "Company"), and the "Investor" named
in that Purchase Agreement of even date herewith by and between the Company and
the Investor (the "Purchase Agreement").
The parties hereby agree as follows:
1. Certain Definitions
-------------------
As used in this Agreement, the following terms shall have the
following meanings:
"Additional Registrable Securities" shall mean (a) the shares of
---------------------------------
Common Stock, if any, issued to the Investor pursuant to Section 7.1 of the
Purchase Agreement, and (b) shares of Common Stock issuable or issued as a
dividend or other distribution with respect to, or in exchange for or in
replacement of, such Common Stock.
"Common Stock" shall mean the Company's Common Stock, par value
------------
$0.01 per share.
"Investor" shall mean the purchaser identified in the Purchase
--------
Agreement and any affiliate of the Investor who is a subsequent holder of any
Warrants, Registrable Securities or Additional Registrable Securities.
"Prospectus" shall mean the prospectus included in any
----------
Registration Statement, as amended or supplemented by any prospectus supplement,
with respect to the terms of the offering of any portion of the Registrable
Securities or Additional Registrable Securities covered by such Registration
Statement and by all other amendments and supplements to the prospectus,
including post-effective amendments and all material incorporated by reference
in such prospectus.
"Register," "registered" and "registration" refer to a
-------- ---------- ------------
registration made by preparing and filing a registration statement or similar
document in compliance with the 1933 Act (as defined below), and the declaration
or ordering of effectiveness of such registration statement or document.
"Registrable Securities" shall mean (a) the shares of Common
----------------------
Stock issued and issuable to the Investor pursuant to the Purchase Agreement
(other than additional shares of Common Stock issuable pursuant to Section 7.1
of the Purchase Agreement) and issuable upon the exercise of the Warrants, and
(b) shares of Common Stock issuable or issued as a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
Common Stock.
<PAGE>
"Registration Statement" shall mean any registration statement
----------------------
filed under the 1933 Act of the Company that covers the resale of any of the
Registrable Securities or Additional Registrable Securities pursuant to the
provisions of this Agreement, amendments and supplements to such Registration
Statement, including post-effective amendments, all exhibits and all material
incorporated by reference in such Registration Statement.
"SEC" means the U.S. Securities and Exchange Commission.
---
"1933 Act" means the Securities Act of 1933, as amended, and the
--------
rules and regulations promulgated thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended,
--------
and the rules and regulations promulgated thereunder.
"Warrants" mean the warrants to purchase shares of Common Stock
--------
issued to the Investor pursuant to the Purchase Agreement, the form of which is
attached to the Purchase Agreement as Exhibit A.
2. Registration.
------------
(a) Registration Statements.
-----------------------
(i) Registrable Securities. Promptly following the closing
----------------------
of the purchase and sale of Common Stock and Warrants contemplated by the
Purchase Agreement (the "Closing Date") (but no later than thirty (30) days
after the Closing Date), the Company shall prepare and file with the SEC one
Registration Statement on Form S-3 (or, if Form S-3 is not then available to the
Company, on such form of registration statement as is then available to effect a
registration for resale of the Registrable Securities, subject to the Investor's
consent) covering the resale of the Registrable Securities in an amount equal to
the number of shares of Common Stock issued to the Investor on the Closing Date
plus the number of shares of Common Stock necessary to permit the exercise in
full of the Warrants. Such Registration Statement also shall cover, to the
extent allowable under the 1933 Act and the Rules promulgated thereunder
(including Rule 416), such indeterminate number of additional shares of Common
Stock resulting from stock splits, stock dividends or similar transactions with
respect to the Registrable Securities. With the exception of securities
underlying warrants issued by the Company before the date hereof which contain
provisions granting the holder registration rights in the event of a
registration as contemplated by this Section 2(a)(i), no securities shall be
included in the Registration Statement without the consent of the Investor other
than the Registrable Securities. The Registration Statement (and each amendment
or supplement thereto, and each request for acceleration of effectiveness
thereof) shall be provided in accordance with Section 3(c) to the Investor and
its counsel prior to its filing or other submission.
(ii) Additional Registrable Securities. Upon the written
---------------------------------
demand of the Investor and following the issuance of any additional shares of
Common Stock to the Investor pursuant to Section 7.1 of the Purchase Agreement,
the Company shall prepare and file with the SEC one Registration Statement on
Form S-3 (or, if Form S-3 is not then available
2
<PAGE>
to the Company, on such form of registration statement as is then available to
effect a registration for resale of the Additional Registrable Securities,
subject to the Investor's consent) covering the resale of the Additional
Registrable Securities in an amount equal to the number of shares of Common
Stock issued to and designated in the demand by the Investor. Such Registration
Statement also shall cover, to the extent allowable under the 1933 Act and the
Rules promulgated thereunder (including Rule 416), such indeterminate number of
additional shares of Common Stock resulting from stock splits, stock dividends
or similar transactions with respect to the Additional Registrable Securities.
With the exception of securities underlying warrants issued by the Company
before the date hereof which contain provisions granting the holder registration
rights in the event of a registration as contemplated by this Section 2(a)(ii),
no securities shall be included in the Registration Statement without the
consent of the Investor other than the Registrable Securities. The Registration
Statement (and each amendment or supplement thereto, and each request for
acceleration of effectiveness thereof) shall be provided in accordance with
Section 3(c) to the Investor and its counsel prior to its filing or other
submission.
(b) Expenses. The Company will pay all expenses associated with
--------
each registration, excluding discounts, commissions, fees of underwriters,
selling brokers, dealer managers or similar securities industry professionals.
(c) Effectiveness.
-------------
(i) The Company shall use its best efforts to have each
Registration Statement declared effective as soon as practicable. If (A) the
Registration Statement covering Registrable Securities is not declared effective
by the SEC within ninety (90) days following the Closing Date, or the
Registration Statement covering Additional Registrable Securities is not
declared effective by the SEC within ninety (90) days following the demand of
the Investor relating to the Additional Registrable Securities covered thereby,
or with respect to either Registration Statement which is subject to review by
the SEC staff, within one hundred thirty-four (134) days following the Closing
Date or demand, as the case may be (each, a "Registration Date"), (B) after a
Registration Statement has been declared effective by the SEC, sales cannot be
made pursuant to such Registration Statement (by reason of a stop order, or the
Company's failure to update the Registration Statement) but except as excused
pursuant to subparagraph (ii) below, or (C) the Common Stock generally or the
Registrable Securities specifically is not listed or included for quotation on
the Nasdaq National Market System, the Nasdaq Small Cap Market, the New York
Stock Exchange or the American Stock Exchange, then the Company will make pro-
rata payments to the Investor, as liquidated damages and not as a penalty, in an
amount equal to 2% of the aggregate amount paid by the Investor on the Closing
Date to the Company for any month or pro rata for any portion thereof following
the Registration Date during which any of the events described in (A) or (B) or
(C) above occurs and is continuing (the "Blackout Period"). The Blackout Period
shall terminate upon (x) the effectiveness of the applicable Registration
Statement in the case of (A) and (B) above; (y) listing or inclusion of the
Common Stock on the Nasdaq National Market System, the Nasdaq Small Cap Market,
the New York Stock Exchange or the American Stock Exchange in the case of (C)
above; and (z) in the case of the events described in (A) or (B) above, the
earlier termination of the Registration Period (as defined in Section 3(a)
below). If the Blackout Period should continue for three (3) months, then, at
the option of the Investor, the Company shall issue
3
<PAGE>
to the Investor Warrants to purchase a number of shares equal to 20% of the
number of shares of Common Stock then owned by the Investor, at an exercise
price equal to the lesser of the then Market Price (as that term is defined in
the Purchase Agreement) and the Warrant Price (as that term is defined in the
Warrants) and otherwise in form and substance as the Warrants issued pursuant to
the Purchase Agreement). The Warrant issuance shall not be exclusive of any
other remedies available at law or in equity. The amounts payable as liquidated
damages pursuant to this paragraph shall be payable, at the option of the
Company, in lawful money of the United States or in shares of Common Stock at
the Market Price (as that term is defined in the Purchase Agreement), and
amounts payable as liquidated damages shall be paid monthly on the last day of
each month following the commencement of the Blackout Period until the
termination of the Blackout Period. Amounts payable as liquidated damages
hereunder shall cease when an Investor no longer holds Warrants or Registrable
Securities, or Additional Registrable Securities, as applicable.
(ii) For not more than thirty (30) consecutive trading days
(or not more than forty five (45) consecutive trading days if the event giving
rise thereto is an acquisition valued at in excess of $10,000,000 and the
consummation of which is 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 sixty (60) trading
days in any twelve (12) month period, the Company may delay the disclosure of
material non-public information concerning the Company, by terminating or
suspending effectiveness of any registration contemplated by this Section
containing such information, 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, that the Company shall promptly (a) notify the
Investor in writing of the existence of (but in no event, without the prior
written consent of the Investor, shall the Company disclose to the Investor any
of the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay, and (b) advise the Investor in writing to cease all
sales under the Registration Statement until the end of the Allowed Delay. The
duration of the Restricted Period will be extended by the number of days of any
and all Allowed Delays.
(d) Underwritten Offering. If any offering pursuant to a
---------------------
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Company shall have the right to select an investment banker and
manager to administer the offering, which investment banker or manager shall be
reasonably satisfactory to the Investor.
3. Company Obligations. The Company will use its best efforts to
-------------------
effect the registration of the Registrable Securities and Additional Registrable
Securities in accordance with the terms hereof, and pursuant thereto the Company
will, as expeditiously as possible:
(a) use its best efforts to cause such Registration Statement to
become effective and to remain continuously effective for a period that will
terminate upon the earlier of the date on which (i) all Registrable Securities
or Additional Registrable Securities, as the case may be, covered by such
Registration Statement, as amended from time to time, have been sold (the
"Registration Period") or (ii) the Investor owns Common Stock having a market
value of less than $100,000;
4
<PAGE>
(b) prepare and file with the SEC such amendments and post-
effective amendments to the Registration Statement and the Prospectus as may be
necessary to keep the Registration Statement effective for the period specified
in Section 3(a) and to comply with the provisions of the 1933 Act and the 1934
Act with respect to the distribution of all Registrable Securities and
Additional Registrable Securities; provided that, at least three (3) days prior
to the filing of a Registration Statement or Prospectus, or any amendments or
supplements thereto, the Company will furnish to the Investor copies of all
documents proposed to be filed, which documents will be subject to the comments
of the Investor;
(c) permit of counsel designated by the Investor to review each
Registration Statement and all amendments and supplements thereto no fewer than
three (3) days prior to their filing with the SEC and not file any document to
which such counsel reasonably objects on the basis that such document contains a
material misstatement or omission;
(d) furnish to the Investor and its legal counsel (i) promptly
after the same is prepared and publicly distributed, filed with the SEC, or
received by the Company, one copy of any Registration Statement and any
amendment thereto, each preliminary prospectus and Prospectus and each amendment
or supplement thereto, and each letter written by or on behalf of the Company to
the SEC or the staff of the SEC, and each item of correspondence from the SEC or
the staff of the SEC, in each case relating to such Registration Statement
(other than any portion of any thereof which contains information for which the
Company has sought confidential treatment), and (ii) such number of copies of a
Prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities and
Additional Registrable Securities owned by such Investor;
(e) in the event the Company selects an underwriter for the
offering, the Company shall enter into and perform its reasonable obligations
under an underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriter of such offering;
(f) if required by the underwriter, at the request of the
Investor, the Company shall furnish, on the date that Registrable Securities or
Additional Registrable Securities, as applicable, are delivered to an
underwriter, if any, for sale in connection with the Registration Statement (i)
an opinion, dated as of such date, from counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
underwriter and the Investor and (ii) a letter, dated such date, from the
Company's independent certified public accountants in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriter and the Investor;
(g) make reasonable effort to prevent the issuance of any stop
order or other suspension of effectiveness and, if such order is issued, obtain
the withdrawal of any such order at the earliest possible moment;
5
<PAGE>
(h) furnish to the Investor at least five copies of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules by courier pursuant to the notice
requirements of Section 10.4 of the Purchase Agreement;
(i) prior to any public offering of Registrable Securities or
Additional Registrable Securities, use its reasonable best efforts to register
or qualify or cooperate with the Investor and its counsel in connection with the
registration or qualification of such Registrable Securities or Additional
Registrable Securities, as applicable, for offer and sale under the securities
or blue sky laws of such jurisdictions as the Investor reasonably requests in
writing and do any and all other reasonable acts or things necessary or
advisable to enable the distribution in such jurisdictions of the Registrable
Securities or Additional Registrable Securities covered by the Registration
Statement;
(j) cause all Registrable Securities or Additional Registrable
Securities covered by a Registration Statement to be listed on each securities
exchange, interdealer quotation system or other market on which similar
securities issued by the Company are then listed;
(k) immediately notify the Investor, at any time when a
Prospectus relating to the Registrable Securities or Additional Registrable
Securities is required to be delivered under the Securities Act, upon discovery
that, or upon the happening of any event as a result of which, the Prospectus
included in such Registration Statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing, and at the request of any such holder,
promptly prepare and furnish to such holder a reasonable number of copies of a
supplement to or an amendment of such Prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Registrable Securities or
Additional Registrable Securities, as applicable, such Prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing; and
(l) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC under the 1933 Act and the 1934 Act, take such
other actions as may be reasonably necessary to facilitate the registration of
the Registrable Securities and Additional Registrable Securities, if applicable,
hereunder; and make available to its security holders, as soon as reasonably
practicable, but not later than the Availability Date (as defined below), an
earnings statement covering a period of at least twelve months, beginning after
the effective date of each Registration Statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the 1933 Act (for the purpose
of this subsection 3(m), "Availability Date" means the 45th day following the
end of the fourth fiscal quarter that includes the effective date of such
Registration Statement, except that, if such fourth fiscal quarter is the last
quarter of the Company's fiscal year, "Availability Date" means the 90th day
after the end of such fourth fiscal quarter).
6
<PAGE>
4. Obligations of the Investor.
---------------------------
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities or Additional Registrable Securities, as applicable,
that the Investor shall furnish in writing to the Company such information
regarding itself, the Registrable Securities or Additional Registrable
Securities, as applicable, held by it and the intended method of disposition of
the Registrable Securities or Additional Registrable Securities, as applicable,
held by it, as shall be reasonably required to effect the registration of such
Registrable Securities or Additional Registrable Securities, as applicable, and
shall execute such documents in connection with such registration as the Company
may reasonably request. At least fifteen (15) business days prior to the first
anticipated filing date of any Registration Statement, the Company shall notify
the Investor of the information the Company requires from the Investor if the
Investor elects to have any of the Registrable Securities or Additional
Registrable Securities included in the Registration Statement. The Investor
shall provide such information to the Company at least ten (10) business days
prior to the first anticipated filing date of such Registration Statement if the
Investor elects to have any of the Registrable Securities or Additional
Registrable Securities included in the Registration Statement.
(b) The Investor, by its acceptance of the Registrable
Securities and Additional Registrable Securities, if any, agrees to cooperate
with the Company as reasonably requested by the Company in connection with the
preparation and filing of a Registration Statement hereunder, unless such
Investor has notified the Company in writing of its election to exclude all of
its Registrable Securities or Additional Registrable Securities, as applicable,
from the Registration Statement, in which case the Investor shall be deemed to
have waived its rights to have Registrable Securities or Additional Registrable
Securities, as the case may be, registered under this Agreement, unless the
Investor has good cause for such an election.
(c) In the event the Company determines to engage the services
of an underwriter, the Investor agrees to enter into and perform its obligations
under an underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the dispositions of the
Registrable Securities or Additional Registrable Securities, as applicable.
(d) The Investor agrees that, upon receipt of any notice from
the Company of the happening of any event rendering a Registration Statement no
longer effective, the Investor will immediately discontinue disposition of
Registrable Securities or Additional Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities or Additional
Registrable Securities, until the Investor's receipt of the copies of the
supplemented or amended prospectus filed with the SEC and declared effective
and, if so directed by the Company, the Investor shall deliver to the Company
(at the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in the Investor's possession of the
prospectus covering the Registrable Securities or Additional Registrable
Securities, as applicable, current at the time of receipt of such notice.
7
<PAGE>
(e) The Investor may not participate in any underwritten
registration hereunder unless it (i) agrees to sell the Registrable Securities
or Additional Registrable Securities, as applicable, on the basis provided in
any underwriting arrangements in usual and customary form entered into by the
Company, (ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements, and (iii) agrees to pay its
pro rata share of all underwriting discounts and commissions and any expenses in
excess of those payable by the Company pursuant to the terms of this Agreement.
5. Indemnification.
---------------
(a) Indemnification by Company. The Company agrees to indemnify
--------------------------
and hold harmless, to the fullest extent permitted by law the Investor, its
officers, directors, partners and employees and each person who controls such
Investor (within the meaning of the 1933 Act) against all losses, claims,
damages, liabilities, costs (including, without limitation, reasonable
attorney's fees) and expenses imposed on such person caused by (i) any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus or any preliminary prospectus or any amendment or
supplement thereto or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same are based upon any
information furnished in writing to the Company by such Investor, expressly for
use therein, or (ii) any violation by the Company of any federal, state or
common law, rule or regulation applicable to the Company in connection with any
Registration Statement, Prospectus or any preliminary prospectus, or any
amendment or supplement thereto, and shall reimburse in accordance with
subparagraph (c) below, each of the foregoing persons for any legal and any
other expenses reasonably incurred in connection with investigating or defending
any such claims. The foregoing is subject to the condition that, insofar as the
foregoing indemnities relate to any untrue statement, alleged untrue statement,
omission or alleged omission made in any preliminary prospectus or Prospectus
that is eliminated or remedied in any Prospectus or amendment or supplement
thereto, the above indemnity obligations of the Company shall not inure to the
benefit of any indemnified party if a copy of such corrected Prospectus or
amendment or supplement thereto had been made available to such indemnified
party and was not sent or given by such indemnified party at or prior to the
time such action was required of such indemnified party by the 1933 Act and if
delivery of such Prospectus or amendment or supplement thereto would have
eliminated (or been a sufficient defense to) any liability of such indemnified
party with respect to such statement or omission. Indemnity under this Section
5(a) shall remain in full force and effect regardless of any investigation made
by or on behalf of any indemnified party and shall survive the permitted
transfer of the Registrable Securities and Additional Registrable Securities.
(b) Indemnification by Holder. In connection with any
-------------------------
registration the terms of this Agreement, the Investor will furnish to the
Company in writing such information as the Company reasonably requests
concerning the holders of Registrable Securities and Additional Registrable
Securities or the proposed manner of distribution for use in connection with any
Registration Statement or Prospectus and agrees to indemnify and hold harmless,
to the fullest extent permitted by law, the Company, its directors, officers,
employees,
8
<PAGE>
stockholders and each person who controls the Company (within the meaning of the
1933 Act) against any losses, claims, damages, liabilities and expense
(including reasonable attorney's fees) resulting from any untrue statement of a
material fact or any omission of a material fact required to be stated in the
Registration Statement or Prospectus or preliminary prospectus or amendment or
supplement thereto or necessary to make the statements therein not misleading,
to the extent, but only to the extent that such untrue statement or omission is
contained in any information furnished in writing by such Investor to the
Company specifically for inclusion in such Registration Statement or Prospectus
or amendment or supplement thereto and that such information was substantially
relied upon by the Company in preparation of the Registration Statement or
Prospectus or any amendment or supplement thereto. In no event shall the
liability of an Investor be greater in amount than the dollar amount of the
proceeds (net of all expense paid by such Investor and the amount of any damages
such holder has otherwise been required to pay by reason of such untrue
statement or omission) received by such Investor upon the sale of the
Registrable Securities or Additional Registrable Securities included in the
Registration Statement giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. Any person entitled
--------------------------------------
to indemnification hereunder shall (i) give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnification and (ii)
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party; provided that any person
--------
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such person unless (a) the
indemnifying party has agreed to pay such fees or expenses, or (b) the
indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such person or (c) in the reasonable
judgment of any such person, based upon written advice of its counsel, a
conflict of interest exists between such person and the indemnifying party with
respect to such claims (in which case, if the person notifies the indemnifying
party in writing that such person elects to employ separate counsel at the
expense of the indemnifying party, the indemnifying party shall not have the
right to assume the defense of such claim on behalf of such person); and
provided, further, that the failure of any indemnified party to give notice as
- -------- -------
provided herein shall not relieve the indemnifying party of its obligations
hereunder, except to the extent that such failure to give notice shall
materially adversely affect the indemnifying party in the defense of any such
claim or litigation. It is understood that the indemnifying party shall not, in
connection with any proceeding in the same jurisdiction, be liable for fees or
expenses of more than one separate firm of attorneys at any time for all such
indemnified parties. No indemnifying party will, except with the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all liability
in respect of such claim or litigation.
(d) Contribution. If for any reason the indemnification
------------
provided for in the preceding paragraphs (a) and (b) is unavailable to an
indemnified party or insufficient to hold it harmless, other than as expressly
specified therein, then the indemnifying party shall contribute to the amount
paid or payable by the indemnified party as a result of such loss, claim, damage
or liability in such proportion as is appropriate to reflect the relative fault
of the indemnified party
9
<PAGE>
and the indemnifying party, as well as any other relevant equitable
considerations. No person guilty of fraudulent misrepresentation within the
meaning of Section 11(f) of the 1933 Act shall be entitled to contribution from
any person not guilty of such fraudulent misrepresentation. In no event shall
the contribution obligation of a holder of Registrable Securities or Additional
Registrable Securities be greater in amount than the dollar amount of the
proceeds (net of all expenses paid by such holder and the amount of any damages
such holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission) received by it upon
the sale of the Registrable Securities or Additional Registrable Securities
giving rise to such contribution obligation.
6. Miscellaneous.
-------------
(a) Amendments and Waivers. This Agreement may be amended only
----------------------
by a writing signed by the parties hereto. The Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company shall have obtained the written consent to such
amendment, action or omission to act, of the Investor.
(b) Notices. All notices and other communications provided for
-------
or permitted hereunder shall be made as set forth in Section 10.4 of the
Purchase Agreement.
(c) Assignments and Transfers by Investor. This Agreement and
-------------------------------------
all the rights and obligations of the Investor hereunder may not be assigned or
transferred to any transferee or assignee except to an affiliate of the Investor
who is a subsequent holder of any Warrants, Registrable Securities or Additional
Registrable Securities.
(d) Assignments and Transfers by the Company. This Agreement
----------------------------------------
may not be assigned by the Company without the prior written consent of
Investor, except that without the prior written consent of the Investor, but
after notice duly given, the Company shall assign its rights and delegate its
duties hereunder to any successor-in-interest corporation, and such successor
- -in-interest shall assume such rights and duties, in the event of a merger or
consolidation of the Company with or into another corporation or the sale of all
or substantially all of the Company's assets.
(e) Benefits of the Agreement. The terms and conditions of this
-------------------------
Agreement shall inure to the benefit of and be binding upon the respective
permitted successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
(f) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10
<PAGE>
(g) Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(h) Severability. If one or more provisions of this Agreement
------------
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms to the fullest extent permitted by law.
(i) Further Assurances. The parties shall execute and deliver
------------------
all such further instruments and documents and take all such other actions as
may reasonably be required to carry out the transactions contemplated hereby and
to evidence the fulfillment of the agreements herein contained.
(j) Entire Agreement. This Agreement is intended by the parties
----------------
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
(k) Applicable Law. This Agreement shall be governed by, and
--------------
construed in accordance with, the laws of the State of New York without regard
to principles of conflicts of law.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
The Company: Boston Life Sciences, Inc.
By:_________________________
Name:
Title:
The Investor: The Tail Wind Fund, Ltd.
By:_________________________
Name:
Title:
By:_________________________
Name:
Title:
12
<PAGE>
EXHIBIT 10.7
NAME OF SUBSCRIBER: __________________________________
To: BOSTON LIFE SCIENCES, INC.
c/o Josephthal & Co. Inc.
200 Park Avenue
New York, New York 10166
BOSTON LIFE SCIENCES, INC.
SUBSCRIPTION AGREEMENT AND INVESTMENT REPRESENTATION
SECTION 1.
----------
1.1. Subscription. The undersigned, intending to be legally bound, hereby
------------
irrevocably subscribes for and agrees to purchase, as indicated on page 17
hereof, the amount of shares ("Shares") of convertible preferred stock, par
value $0.01 per share ("Series B Convertible Preferred Stock") and common stock
purchase warrants ("Warrants", and collectively the Shares and Warrants are
sometimes hereinafter referred to as the "Securities") of Boston Life Sciences,
Inc., a Delaware corporation (the "Company"), on the terms and conditions
described herein and in the Confidential Private Placement Memorandum, dated
January 1999 (such memorandum, together with all amendments thereof and
supplements and exhibits thereto, the "Memorandum"), a copy of which has been
received by the undersigned. The undersigned herewith tenders to the Company
the entire subscription amount by wire transfer of immediately available funds
or by check made payable to the order of Continental Stock Transfer & Trust
Company F/B/O Boston Life Sciences, Inc., to be delivered to Continental Stock
Transfer & Trust Company at 2 Broadway, New York, New York 10004.
The undersigned shall have the right, at its option, to convert any
shares of Series B Convertible Preferred Stock into fully paid and nonassessable
whole shares of common stock of the Company ("Common Stock") in accordance with
the Certificate of Designations, the form of which is attached hereto as Exhibit
-------
A ("Certificate of Designations"). The description of the terms and conditions
- -
of the Series B Convertible Preferred Stock as set forth herein are subject in
all respects to the terms and conditions set forth in the Certificate of
Designations. In addition, the holders of the Series B Convertible Preferred
Stock will be provided certain "mandatory" registration rights, as set out more
fully in Section 4 herein.
-------
Each Warrant shall entitle the holder thereof to purchase one share of
Common Stock at an initial exercise price equal to the sum of (a) the closing
bid price for the Common Stock on the NASDAQ Stock Market on the trading day (as
defined in the Warrant) that is the trading day prior to the Closing Date (as
defined below), plus (b) $.25. The Warrants shall be exercisable for a period
of thirty-six (36) months from the date of issuance and shall not be redeemable
by the Company at any time. Each Warrant also provides to its holder certain
"mandatory" registration rights, as set out more fully in the Warrant, the form
of which is attached hereto as Exhibit B.
---------
Josephthal & Co. Inc. (the "Placement Agent") has been retained by the
Company as exclusive placement agent for the offer and sale of up to $8,000,000
in Securities (with an additional $500,000 solely to cover over-allotments) to
"accredited investors" as that term is defined pursuant to Regulation D
promulgated under the Securities Act of 1933, as amended (the
1
<PAGE>
"Securities Act"). The minimum purchase price is $100,000. Lesser subscription
amounts may be accepted at the discretion of the Placement Agent or the Company.
Unless otherwise indicated all capitalized terms not defined herein shall have
the same meanings and definitions as set forth in the Memorandum.
1.2 Purchase of Securities.
----------------------
Payment for the Securities shall be by wire transfer or check, in
accordance with the instructions on page 1 of this Subscription Agreement,
together with an executed copy of this Agreement and any other required
documents.
SECTION 2.
----------
2.1. Acceptance or Rejection.
-----------------------
(a) The undersigned understands and agrees that the Company reserves
the right to reject this subscription for the Securities in whole or part, if,
in its reasonable judgment, it deems such action in the best interest of the
Company, at any time prior to Closing, notwithstanding prior receipt by the
undersigned of notice of acceptance of the undersigned's subscription.
(b) The undersigned understands and agrees that subscriptions may be
revoked by the undersigned provided that written notice of revocation is sent by
certified or registered mail, return receipt requested, and is received by the
Placement Agent at least two (2) business days prior to the applicable closing.
(c) In the event of rejection of this subscription, or in the event
the sale of the Securities subscribed for by the undersigned is not consummated
by the Company for any reason (in which event this Subscription Agreement shall
be deemed to be rejected), this Subscription Agreement and any other agreement
entered into between the undersigned and the Company relating to this
subscription shall thereafter have no force or effect and the Company shall
promptly return or cause to be returned to the undersigned the purchase price
remitted to the Company by the undersigned, without interest thereon or
deduction therefrom.
2.2. Closing; Closing Date.
---------------------
Each closing (the "Closing") of the purchase and sale of the
Securities following the acceptance by the Company of the undersigned's
subscription, as evidenced by the Company's execution of this Subscription
Agreement, shall take place at the offices of Josephthal & Co. Inc. at 200 Park
Avenue, New York, New York 10166, or such other place as determined by the
Placement Agent, on such date or dates as is mutually agreed to by the Company
and the Placement Agent. At each Closing of the purchase and sale of the
Securities subscribed to by the undersigned, the Company shall prepare for
delivery to the undersigned the certificates for the Series B Convertible
Preferred Stock and Warrants to be issued and sold to the undersigned, duly
registered in the undersigned's name against payment in full by the undersigned
of the aggregate purchase price of the Securities.
SECTION 3.
----------
3.1. Investor Representations and Warranties.
---------------------------------------
The undersigned hereby acknowledges, represents and warrants to, and
agrees with, the Company and its affiliates as follows:
2
<PAGE>
(a) The undersigned is acquiring the Securities for his own account
as principal, not as a nominee or agent, for investment purposes only, and not
with a view to, or for, resale, distribution or fractionalization thereof in
whole or in part and no other person has a direct or indirect beneficial
interest in such Securities. Further, the undersigned does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Securities for which the undersigned is subscribing.
(b) The undersigned has full power and authority to enter into this
Agreement, the execution and delivery of this Agreement has been duly
authorized, if applicable, and this Agreement constitutes a valid and legally
binding obligation of the undersigned.
(c) The undersigned acknowledges his understanding that the offering
and sale of the Securities is intended to be exempt from registration under the
Securities Act by virtue of Section 4(2) of the Securities Act and the
provisions of Regulation D promulgated thereunder ("Regulation D"). In
furtherance thereof, the undersigned represents and warrants to and agrees with
the Company and its affiliates as follows:
(i) The undersigned realizes that the basis for the exemption
may not be present if, notwithstanding such
representations, the undersigned has in mind merely
acquiring Securities for a fixed or determinable period in
the future, or for a market rise, or for sale if the market
does not rise. The undersigned does not have any such
intention.
(ii) The undersigned is an "accredited investor" as that term is
defined pursuant to Regulation D promulgated under the
Securities Act and has the financial ability to bear the
economic risk of his investment, has adequate means for
providing for his current needs and personal contingencies
and has no need for liquidity with respect to his
investment in the Company;
(iii) _________________ (insert name of Purchaser Representative:
if none, leave blank) has acted as the undersigned's
-----------------
Purchaser Representative for purposes of the private
placement exemption under the Securities Act. If the
undersigned has appointed a Purchaser Representative (which
term is used herein with the same meaning as given in Rule
501(h) of Regulation D), the undersigned has been advised
by his Purchaser Representative as to the merits and risks
of an investment in the Company in general and the
suitability of an investment in the Securities for the
undersigned in particular; and
(iv) The undersigned (together with his Purchaser
Representative(s), if any) has such knowledge and
experience in financial and business matters as to be
capable of evaluating the merits and risks of the
prospective investment in the Securities. If other than an
individual, the undersigned also represents it has not been
organized for the purpose of acquiring the Securities.
(d) The information in the Accredited Investor Questionnaire
completed and executed by the undersigned is substantially in the form of the
Accredited Investor Questionnaire
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<PAGE>
included as an exhibit to the Memorandum (the "Accredited Investor
Questionnaire") and is accurate and true in all respects and the undersigned is
an "accredited investor," as that term is defined in Rule 501 of Regulation D.
(e) The undersigned and his Purchaser Representative, if any:
(i) Have been furnished with the Memorandum, including all
exhibits thereto and any documents which may have been made
available upon request for a reasonable time prior to the
date hereof and the undersigned or his Purchaser
Representative(s) have carefully read the Memorandum and
understands and have evaluated the risks set forth under
"Risk Factors" and the considerations described in the
Memorandum and have relied solely (except as indicated in
subsections (ii) and (iii) below) on the information
contained in the Memorandum (including all exhibits
thereto);
(ii) Have been provided an opportunity for a reasonable time
prior to the date hereof to obtain additional information
concerning the offering of the Securities, the Company and
all other information to the extent the Company possesses
such information or can acquire it without unreasonable
effort or expense;
(iii) Have been given the opportunity for a reasonable time prior
to the date hereof to ask questions of, and receive answers
from, the Company or its representatives concerning the
terms and conditions of the offering of the Securities and
other matters pertaining to this investment, and have been
given the opportunity for a reasonable time prior to the
date hereof to obtain such additional information necessary
to verify the accuracy of the information contained in the
Memorandum or that which was otherwise provided in order
for him to evaluate the merits and risks of purchase of the
Securities to the extent the Company possesses such
information or can acquire it without unreasonable effort
or expense;
(iv) Have not been furnished with any oral representation or
oral information in connection with the offering of the
Securities which is not contained in the Memorandum; and
(v) Have determined that the Securities are a suitable
investment for the undersigned and that at this time the
undersigned could bear a complete loss of such investment.
(f) The undersigned is not relying on the Company, or its affiliates
with respect to economic considerations involved in this investment. The
Undersigned has relied on the advice of, or has consulted with only those
persons, if any, named as Purchaser Representative(s) herein and in the
Accredited Investor Questionnaire and such other advisors and counsel as the
undersigned may have chosen. The undersigned and each Purchaser Representative
is capable of evaluating the merits and risks of an investment in the Securities
on the terms and conditions set forth in the Memorandum and each Purchaser
Representative has disclosed to the undersigned in writing (a copy of which is
annexed to this Agreement) the
4
<PAGE>
specific details of any and all past, present or future relationships, actual or
contemplated, between himself and the Company or any affiliate or subsidiary
thereof.
(g) The undersigned represents, warrants and agrees that he will not
sell or otherwise transfer the Securities without registration under the
Securities Act or an exemption therefrom and fully understands and agrees that
he must bear the economic risk of his purchase because, among other reasons, the
Securities have not been registered under the Securities Act or under the
securities laws of any state and, therefore, cannot be resold, pledged, assigned
or otherwise disposed of unless they are subsequently registered under the
Securities Act and under the applicable securities laws of such states or an
exemption from such registration is available. In particular, the undersigned is
aware that the Securities are "restricted securities," as such term is defined
in Rule 144 promulgated under the Securities Act ("Rule 144"), and they may not
be sold pursuant to Rule 144 unless all of the conditions of Rule 144 are met.
The undersigned also understands that, except as otherwise provided herein and
in the certificates for the Warrants, the Company is under no obligation to
register the Securities on his behalf or to assist him in complying with any
exemption from registration under the Securities Act or applicable state
securities laws. The undersigned further understands that sales or transfers of
the Securities are further restricted by state securities laws and the
provisions of this Agreement.
(h) No representations or warranties have been made to the
undersigned by the Company, or any officer, employee, agent, affiliate or
subsidiary of the Company, other than the representations of the Company
contained herein and in the Memorandum, and in subscribing for Securities the
undersigned is not relying upon any representations other than those contained
herein or in the Memorandum.
(i) Any information which the undersigned has heretofore furnished to
the Company with respect to his financial position and business experience is
correct and complete as of the date of this Agreement and if there should be any
material change in such information he will immediately furnish such revised or
corrected information to the Company.
(j) The undersigned understands and agrees that the certificates for
the Securities shall bear the following legend until (i) such securities shall
have been registered under the Securities Act and effectively been disposed of
in accordance with the registration statement; or (ii) in the opinion of counsel
for the Company or other counsel reasonably acceptable to the Company, such
securities may be sold without registration under the Securities Act as well as
any applicable "Blue Sky" or state securities laws:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT
WITH RESPECT TO THESE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING
OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE CORPORATION, OR OTHER COUNSEL
REASONABLY ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION IS
CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY
APPLICABLE "BLUE SKY" OR SIMILAR SECURITIES LAW."
5
<PAGE>
(k) The undersigned understands that an investment in the Securities
is a speculative investment which involves a high degree of risk and could
result in the loss of his entire investment.
(l) The undersigned's overall commitment to investments which are not
readily marketable is not disproportionate to the undersigned's net worth, and
an investment in the Securities will not cause such overall commitment to become
excessive.
(m) The undersigned understands that no federal or state agency has
made any finding or determination regarding the fairness of the offering of the
Securities or any recommendation or endorsement of the offering of the
Securities.
(n) The undersigned is not subscribing for the Securities as a result
of or subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine, or similar media or broadcast over
television or radio, any seminar or meeting, or any solicitation of a
subscription by a person or entity not previously known to the undersigned in
connection with investments in securities generally.
(o) The undersigned has not engaged any broker or other person or
entity that is entitled to a commission, fee or other remuneration as a result
of the execution, delivery or performance of this Agreement or any other
required documents.
(p) Neither the execution, delivery nor performance of this Agreement
or any other required documents by the undersigned violates or conflicts with or
creates (with or without the giving of notice or the lapse of time, or both) a
default under, or a lien or encumbrance upon, any of the undersigned's assets or
properties pursuant to or requires the consent, approval, or order of any
government or governmental agency or other person or entity under (x) any note,
indenture, lease, license or other material agreement to which the undersigned
is a party or by which it or any of its assets or properties is bound or (y) any
statute, law, rule, regulation or court decree binding upon or applicable to the
undersigned or its assets or properties. If the undersigned is not a person, the
execution and delivery by the undersigned of this Agreement or any other
required documents have been duly authorized by all necessary corporate or other
action on behalf of the undersigned and such investment will not constitute a
breach or violation of, or default under, the charter or by-laws or equivalent
governing documents of the undersigned.
(q) The undersigned has no knowledge that the statements of the
Company contained in the Memorandum are not true and correct in all material
respects. The undersigned has consulted its own financial, legal and tax
advisors with respect to the economic, legal and tax consequences of an
investment in the Securities and has not relied on the Memorandum, this
Agreement, the Company or the Company's officers, directors, affiliates or
professional advisors for advice as to such consequences.
(r) The undersigned, if an individual, is at least 21 years of age
and has full legal capacity to enter into and perform his obligations under this
Agreement and any other required documents.
(s) THE UNDERSIGNED HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR
PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN
TORT, CONTRACT, FRAUD OR OTHERWISE) IN ANY WAY ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT AND ANY OTHER
6
<PAGE>
REQUIRED DOCUMENTS OR THE UNDERSIGNED'S PURCHASE OF THE SECURITIES.
(t) The undersigned acknowledges and agrees that all information,
written and oral, concerning the Company furnished from time to time to the
undersigned, including this Agreement and any other required documents, is
provided on a confidential basis. The undersigned further acknowledges and
agrees that it shall not disclose such information, other than where such
disclosure is required by law or where such information is already available to
the public other than as a result of disclosure by the undersigned, to anyone
other than the undersigned's officers, directors, employees, legal counsel,
accountants, or authorized agents or advisors, who shall agree in writing to be
bound by the provisions of this paragraph.
(u) The undersigned consents to the placing of legends and stop-
transfer orders with the transfer agent of the Company's securities with respect
to any of such securities registered in the name of the undersigned or
beneficially owned by the undersigned.
(v) The foregoing representations, warranties and agreements shall
survive the execution and delivery of this Agreement and each Closing.
SECTION 4.
----------
4.1. Mandatory Registration.
----------------------
Within twenty-one (21) days following the issuance of the Series B
Convertible Preferred Stock, the Company shall prepare and file with the
Securities and Exchange Commission ("Commission"), 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 Securities Act so as to permit a resale of the
shares of Common Stock underlying the Series B Convertible Preferred Stock
("Registrable Shares") by the holders ("Holders") 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. In the event the registration statement
for the shares of Common Stock underlying the Series B Convertible Preferred
Stock is not effective by the date that is one hundred and twenty (120) days
from the date of issuance of the Series B Convertible Preferred Stock, the
Company shall issue shares of Common Stock ("Penalty Shares") to each Holder,
for the consecutive thirty (30) day period following the one hundred and twenty
(120) days, equal to the number obtained by multiplying three percent (3%) by
the Holder's initial subscription amount divided by the Initial Conversion Price
(as defined in the Certificate of Designations) (such shares to be reduced pro
rata for any period less than a full thirty (30) day period). In addition,
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<PAGE>
for each consecutive thirty (30) day period beyond the initial one hundred and
fifty (150) day period that the Registrable Shares are not the subject of an
effective registration statement, the Company agrees to issue additional shares
of Common Stock (also "Penalty Shares") to each Holder equal to the number
obtained by multiplying five percent (5%) by the Holder's initial subscription
amount divided by the Initial Conversion Price (such additional shares to be
reduced pro rata for any period less than a full thirty (30) day period).
In addition to the registration rights detailed above, within 270 days
after the issuance of the Series B Convertible Preferred Stock, the Company
shall prepare and file with the Commission 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 Securities Act so as to permit a resale of any
shares of Common Stock issued to produce the Guaranteed Return specified in the
Certificate of Designations and any Penalty Shares, such registration to be on
the same terms as the Registrable Shares (except no Penalty Shares shall be
issued).
4.2. Covenants of the Company With Respect to Registration.
-----------------------------------------------------
In connection with any registration under Section 4.1 hereof, the
-------
Company covenants and agrees as follows:
(a) The Company shall furnish each Holder desiring to sell its
securities such number of prospectuses as shall reasonably be requested.
(b) 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 Section 4.1 hereof
-------
including, without limitation, the Company's legal and accounting fees, printing
expenses and blue sky fees and expenses.
(c) The Company will take all necessary action which may be required
in qualifying or registering the securities included in the registration
statement for resale under the securities or blue sky laws of such states as are
requested by the Placement Agent or 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.
(d) The Company shall indemnify the Holder(s) of the securities to be
sold pursuant to any registration statement and each person, if any, who
controls such Holders within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended (the "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
Securities 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 and supplemented); (y) in any post-effective amendment or
amendments; or (z) in any application or other document or written communication
(in this Section 4 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 securities 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
8
<PAGE>
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 undersigned or the Placement Agent on behalf of
the Holders 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 undersigned or any controlling person of the undersigned in
respect of which indemnity may be sought against the Company pursuant to this
Section 4, the undersigned 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
undersigned 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 undersigned or such controlling person shall
have the right to employ its or their own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of the undersigned 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, the Company shall not have employed counsel to have charge of the
defense of such action 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
undersigned and/or such controlling person shall be borne by the Company. Except
as expressly provided in the previous sentence, 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 undersigned or such controlling
person in investigating, preparing or defending any such action or claim. The
Company agrees promptly to notify the undersigned of the commencement of any
litigation or proceedings against the Company or any of its officers, directors
or controlling persons in connection with the offering and sale of the
securities or in connection with such registration statement.
(e) The Holder(s) of the securities 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
Securities 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 Securities Act, the Exchange Act or otherwise,
arising from written information furnished by or on behalf of such Holders or
the Placement Agent on behalf of the 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
-------
4.2(e), 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 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).
9
<PAGE>
(f) If the offering described herein is an underwritten public
offering and the underwriter so requests, the Company shall furnish to each
Holder 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,
dated the 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.
(g) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to convert any securities for Common Stock prior to the
initial filing of any registration statement or the effectiveness thereof.
SECTION 5.
---------
5.1 Certain Covenants and Agreements of the Holder(s). Holder(s) of
-------------------------------------------------
the securities hereby covenant that they will conduct all purchases or sales of
Common Stock in compliance with all existing agreements with the Company, and
all relevant securities laws and regulations. Holder(s) further covenant that
they will not engage in any short sales, option transaction, or other hedging
transactions relating to the Common Stock; provided, however, that such holders
-------- -------
may engage in any short sales at any time prior to two hundred and seventy (270)
days after the date of Closing by converting shares of the Series B Convertible
Preferred Stock, so long as a registration statement covering the underlying
Common Stock has been declared effective and remains in effect, and thereafter
may engage in such sales, with the prior consent of the Company.
SECTION 6
---------
6.1 Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants, as of the date hereof and as of the date of Closing,
the following:
(i) The execution, delivery and performance of each of this
Subscription Agreement, the placement agent's warrant agreement ("Placement
Agent's Warrant Agreement") and the escrow agreement ("Escrow Agreement") has
been or will be duly and validly authorized by the Company and is, or with
respect to the Subscription Agreement and Placement Agent's Warrant Agreement
will be, a valid and binding agreement of the Company, enforceable in accordance
with their respective terms, except to the extent that (a) the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws from time to time in effect and affecting the rights of creditors
generally, (b) the enforceability thereof is subject to general principles of
equity or (c) the indemnification provisions thereof may be held to be violative
of public policy. The warrants issued to the Placement Agent ("Placement Agent's
Warrants") and the Warrants constitute valid and binding obligations of the
Company to issue and sell, upon exercise thereof and payment therefor in
accordance with their respective terms, the number and type of securities of the
Company called for thereby. The Securities have been duly authorized and, when
issued and paid for in accordance with the Memorandum, the Escrow Agreement, the
Placement Agent's Warrant Agreement and this Subscription Agreement, the
certificates representing each of such securities, will be valid and binding
obligations of the Company, enforceable in accordance with their respective
terms, except to the
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extent that (a) the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect and affecting the rights of creditors generally, and (b) the
enforceability thereof is subject to general principles of equity. All corporate
action required to be taken for the authorization, issuance and sale of the
Securities has been duly and validly taken by the Company.
(ii) The Securities have been duly authorized and, when issued, will
be validly issued, fully-paid and non-assessable; the holders thereof will not
be subject to personal liability solely by reason of being such holders; such
securities are not and will not be subject to the preemptive rights of any
holder of any security of the Company.
(iii) To the best of the Company's knowledge, all issued and
outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and non-assessable. The Company has 25,000,000 shares
of authorized Common Stock. Immediately prior to the Closing there were
approximately 13,300,000 shares of Common Stock issued and outstanding.
(iv) There is no litigation or governmental proceeding pending or,
to the best of the Company's knowledge, threatened against, or involving the
properties or business of the Company, except as set forth in the Memorandum.
(v) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the State of Delaware. The
Company does not own or control, directly or indirectly, an interest in any
other corporation, partnership, trust, joint venture or other business entity,
except for its wholly owned subsidiaries as reflected in the Company's SEC
filing. The Company is duly qualified or licensed and in good standing as a
foreign corporation in each jurisdiction in which the Company presently conducts
its business and where failure to so qualify would have a material adverse
effect on the Company. The Company has all requisite corporate power and
authority, and all material and necessary authorizations, approvals, orders,
licenses, certificates and permits of and from all governmental regulatory
officials and bodies (domestic and foreign) to conduct its businesses (and
proposed business) as described in the Memorandum, and the Company is doing
business in compliance with all such authorizations, approvals, orders,
licenses, certificates and permits and all foreign, federal, state and local
laws, rules and regulations concerning the business in which it is engaged. Any
disclosures in the Memorandum concerning the effects of foreign, federal, state
and local regulation on the Company's businesses as currently conducted and as
contemplated are correct in all material respects and do not omit to state a
material fact. The Company has all corporate power and authority to enter into
the Escrow Agreement, the Placement Agent's Warrant Agreement and this
Subscription Agreement and to carry out the provisions and conditions hereof,
and all consents, authorizations, approvals and orders required in connection
therewith have been obtained or will have been obtained prior to the date of
Closing. No consent, authorization or order of, and no filing with, any court,
government agency or other body is required by the Company for the issuance of
the Securities pursuant to the Memorandum, the Placement Agent's Warrant
Agreement or this Subscription Agreement, except for applicable federal and
state securities laws. The Company, since its inception, has not incurred any
penalty for violation of the application of any of the provisions of the
Securities Act, the Exchange Act, or the respective rules and regulations
promulgated thereunder ("Rules and Regulations").
(vi) There has been no material adverse change in the condition or
prospects of the Company, financial or otherwise, from that on the latest dates
as of which such condition or prospects, respectively, are set forth in the
Memorandum, and the outstanding debt, the property
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<PAGE>
and the business of the Company conforms in all material respects to the
descriptions thereof contained in the Memorandum.
(vii) Except as set forth in the Memorandum, the Company is not in
breach of, or in default under, any term or provision of any material indenture,
mortgage, deed of trust, lease, note, loan or credit agreement or any other
material agreement or instrument evidencing an obligation for borrowed money, or
to the Company's knowledge, any other material agreement or instrument to which
it is a party or by which it or any of its properties may be bound or affected.
The Company is not in violation of any provision of its charter or Bylaws or in
violation of any franchise, license, permit, judgment, decree or order, or in
violation of any statute, rule or regulation. Neither the execution and delivery
of the Escrow Agreement, this Subscription Agreement or the Placement Agent's
Warrant Agreement nor the issuance and sale or delivery of the Securities nor
the consummation of any of the transactions contemplated in this Subscription
Agreement, the Escrow Agreement or the Placement Agent's Warrant Agreement, nor
the compliance by the Company with the terms and provisions thereof, has
conflicted with or will conflict with, or has resulted in or will result in a
breach of, any of the terms and provisions of, or has constituted or will
constitute a default under, or has resulted in or will result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or pursuant to the terms of any indenture, mortgage, deed of trust,
note, loan or credit agreement or any other agreement or instrument evidencing
an obligation for borrowed money, or any other agreement or instrument to which
the Company may be bound or to which any of the property or assets of the
Company is subject except (a) where such default, lien, charge or encumbrance
would not have a material adverse effect on the Company and (b) as described in
the Memorandum; nor will such action result in any violation of the provisions
of the charter or the Bylaws of the Company or, assuming the due performance by
the Placement Agent of its obligations hereunder, any statute or any order, rule
or regulation applicable to the Company of any court or of any foreign, federal,
state or other regulatory authority or other government body having jurisdiction
over the Company.
(viii) Except for sponsored research and license agreements between
the Company and Harvard Medical School and its affiliated institutions (the
"Sponsored Agreements"), the Company owns or possesses, free and clear of all
liens or encumbrances and rights thereto or therein by third parties, the
requisite licenses or other rights to use all trademarks, service marks,
copyrights, service names, trade names, patents, patent applications and
licenses necessary to conduct its business (including, without limitation, any
such licenses or rights described in the Memorandum as being owned or possessed
by the Company) and there is no claim or action by any person pertaining to, or
proceeding, pending or to the Company's knowledge threatened, which challenges
the exclusive rights of the Company with respect to any trademarks, service
marks, copyrights, service names, trade names, patents, patent applications and
licenses used in the conduct of the Company's businesses (including, without
limitation, any such licenses or rights described in the Memorandum as being
owned or possessed by the Company) except any claim or action that would not
have a material adverse effect on the Company; the Company's current products,
services or processes do not infringe or will not infringe on the patents
currently held by any third party.
(ix) Except as described in the Memorandum, pursuant to the
Sponsored Agreements and to its professional and scientific consultants, the
Company is not under any obligation to pay royalties or fees of any kind
whatsoever to any third party with respect to any trademarks, service marks,
copyrights, service names, trade names, patents, patent applications, licenses
or technology it has developed, uses, employs or intends to use or employ, other
than to their respective licensors.
12
<PAGE>
(x) To the Company's knowledge, subject to the performance by the
Placement Agent of its obligations hereunder, the Memorandum and the offer and
sale of the Securities comply, and will continue to comply, up to the date of
Closing in all material respects with the requirements of Rule 506 of Regulation
D promulgated by the Commission pursuant to the Securities Act and any other
applicable federal and state laws, rules, regulations and executive orders.
Neither the Memorandum nor any amendment or supplement thereto nor any documents
prepared by the Company in connection with the purchase and sale of the
Securities will contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. All statements of material facts in the Memorandum are true and
correct as of the date of the Memorandum and will be true and correct on the
date of Closing.
(xi) All taxes which are due and payable from the Company have been
paid in full and the Company does not have any tax deficiency or claim
outstanding assessed or proposed against it.
(xii) The financial statements of the Company included or
incorporated by reference in the Memorandum fairly present the financial
position of the Company at the respective dates of such financial statements;
and such financial statements have been prepared in conformity with generally
accepted accounting principles, consistently applied throughout the periods
involved.
(xiii) The Common Stock of the Company is registered pursuant to
Section 12(g) of the Exchange Act and the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the Commission pursuant to the reporting requirements of the Exchange Act,
including material filed pursuant to Section 13(a) or 15(d) (all of the
foregoing including filings incorporated by reference therein being referred to
herein as the "SEC Documents"). The Company has not provided to any purchaser
any information which, according to applicable law, rule or regulation, should
have been disclosed publicly by the Company but which has not been so disclosed.
To the best of the Company's knowledge, as of their respective dates, the SEC
Documents (as amended by any amendments filed prior to the date hereof and the
date of Closing and provided to each purchaser) complied in all material
respects with the requirements of the Exchange Act and the Rules and Regulations
and other federal, state and local laws, rules and regulations applicable to
such SEC Documents, and none of the SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. To the best of the
Company's knowledge, the financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission or other
applicable rules and regulations with respect thereto. Such financial
statements have be prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of operations and cash flows the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
13
<PAGE>
SECTION 7
---------
7.1 Conditions of each Closing. At each Closing, the purchasers
--------------------------
shall receive the opinion of Ballard Spahr Andrews & Ingersoll, LLP, counsel to
the Company, dated as of the date of Closing, which opinion shall be in form and
substance reasonably satisfactory to counsel for the Placement Agent.
SECTION 8.
---------
8.1 Indemnity. In addition to the indemnification set forth in
---------
Section 4.2, the undersigned agrees to indemnify and hold harmless the Company,
its officers and directors, employees and its affiliates and each other person,
if any, who controls any thereof, against any loss, liability, claim, damage and
expense whatsoever (including, but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation commenced or threatened or any claim whatsoever) arising out of
or based upon any false representation or warranty or breach or failure by the
undersigned to comply with any covenant or agreement made by the undersigned
herein or in any other document furnished by the undersigned to any of the
foregoing in connection with this transaction.
8.2 Modification. Neither this Agreement nor any provisions hereof
------------
shall be modified, discharged or terminated except by an instrument in writing
signed by the party against whom any waiver, change, discharge or termination is
sought.
8.3 Notices. Any notice, demand or other communication which any
-------
party hereto may be required, or may elect, to give to anyone interested
hereunder shall be sufficiently given if (a) deposited, postage prepaid, in a
United States mail letter box, registered or certified mail, return receipt
requested, addressed to such address as may be given herein, or (b) delivered
personally at such address.
8.4 Counterparts. This Agreement may be executed through the use of
------------
separate signature pages or in any number of counterparts, and each of such
counterparts shall, for all purposes, constitute one agreement binding on all
parties, notwithstanding that all parties are not signatories to the same
counterpart.
8.5 Binding Effect. Except as otherwise provided herein, this
--------------
Agreement shall be binding upon and inure to the benefit of the parties and
their heirs, executors, administrators, successors, legal representatives and
assigns. If the undersigned is more than one person, the obligation of the
undersigned shall be joint and several and the agreements, representations,
warranties and acknowledgments herein contained shall be deemed to be made by
and be binding upon each such person and his heirs, executors, administrators
and successors.
8.6 Entire Agreement. This Agreement and the documents referenced
----------------
herein contain the entire agreement of the parties and there are no
representations, covenants or other agreements except as stated or referred to
herein and therein.
8.7 Assignability. This Agreement is not transferable or assignable
-------------
by the undersigned.
8.8 Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of New York, without giving
effect to conflicts of law principles.
14
<PAGE>
8.9 Pronouns. The use herein of the masculine pronouns "him" or
--------
"his" or similar terms shall be deemed to include the feminine and neuter
genders as well and the use herein of the singular pronoun shall be deemed to
include the plural as well.
15
<PAGE>
ALL SUBSCRIBERS MUST COMPLETE THIS PAGE
IN WITNESS WHEREOF, the undersigned has executed this Agreement on the ______
day of , 199_.
<TABLE>
<CAPTION>
<S> <C>
____________________________ X $____ PER SECURITY = $___________________________
Securities Subscribed for Purchase Price
Manner in which Title is to be held (Please Check One):
---
1. [_] Individual 7. [_] Trust/Estate/Pension or Profit
Sharing Plan
Date
Opened: ______________________
2. [_] Joint Tenants with Right of 8. [_] As a Custodian for
Survivorship
-------------------------------------
Under the Uniform Gift to
Minors Act of the State of
-------------------------------------
3. [_] Community Property 9. [_] Married with Separate
Property
4. [_] Tenants in Common 10. [_] Keogh
5. [_] Corporation/Partnership/ 11. [_] Tenants by the Entirety
Limited Liability Company
6. [_] IRA
</TABLE>
________________________________________________________________________________
IF MORE THAN ONE SUBSCRIBER, EACH SUBSCRIBER MUST SIGN.
INDIVIDUAL SUBSCRIBERS MUST COMPLETE PAGE 18 AND 20
SUBSCRIBERS WHICH ARE ENTITIES MUST COMPLETE PAGES 19 AND 21
16
<PAGE>
EXECUTION BY NATURAL PERSONS
----------------------------
________________________________________________________________________________
EXACT NAME IN WHICH TITLE IS TO BE HELD
________________________________ ____________________________________
Name (Please Print) Name of Additional Purchaser
________________________________ ____________________________________
Residence: Number and Street Address of Additional Purchaser
________________________________ ____________________________________
City, State and Zip Code City, State and Zip Code
________________________________ ____________________________________
Social Security Number Social Security Number
________________________________ ____________________________________
(Signature) (Signature of Additional Purchaser)
ACCEPTED this _____ day of _________, 199_ on behalf of the Company.
BY:__________________________________
Name:
Title:
17
<PAGE>
EXECUTION BY SUBSCRIBER WHICH IS AN ENTITY
------------------------------------------
(Corporation, Partnership, Trust, Etc.)
________________________________________________________________________________
Name of Entity (Please Print)
Date of Incorporation or Organization:__________________________________________
State of Principal Offices:_____________________________________________________
Federal Taxpayer Identification_________________________________________________
BY:_____________________________________
Name:
Title:
[seal]
____________________________________ _____________________________________
(If Entity is a Corporation)
_____________________________________
Address
_____________________________________
Taxpayer Identification Number
ACCEPTED this ____ day of _________, 199_ on behalf of the Company.
BY:_____________________________________
Name:
Title:
18
<PAGE>
ACKNOWLEDGMENT FOR INDIVIDUAL
STATE OF____________________)
) ss.:
COUNTY OF___________________)
The foregoing instrument was acknowledged before me this __ day of _____,
199_, by _____________.
_____________________________________
(SEAL) Notary Public
My Commission expires: Residing at:
___________________________ _____________________________________
*IF SUBSCRIBER IS A REGISTERED REPRESENTATIVE
WITH AN NASD MEMBER FIRM, HAVE THE FOLLOWING
ACKNOWLEDGEMENT SIGNED BY THE APPROPRIATE PARTY:
The undersigned NASD member firm
acknowledges receipt of the notice
required by Section 3050 of the NASD's
Rules of Conduct (or any successor rules
or regulations)
______________________________
Name of NASD Member Firm
By: _________________________
Authorized Officer
19
<PAGE>
ACKNOWLEDGMENT FOR CORPORATION OR OTHER ENTITY
STATE OF__________________)
) ss.:
COUNTY OF_________________)
The foregoing instrument was acknowledged before me this ______ day of
________, 199_, by ___________________________, a ______________________ of
_____________________, a ______________________.
_______________________________
(SEAL) Notary Public
My Commission expires: Residing at:
___________________________ _______________________________
20
<PAGE>
EXHIBIT 10.8
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT (this "AGREEMENT"), dated as of February ____, 1999, by
and among Boston Life Sciences, Inc., a Delaware corporation (the "COMPANY"),
and ________________________ _____________________________ (the "HOLDER").
WHEREAS:
A. The Company and the Holder are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Section
3(a)(9) of the Securities Act of 1933, as amended (the "1933 ACT");
B. The Company and the Holder entered into a Subscription Agreement,
dated as of February 5, 1999 (the "SUBSCRIPTION AGREEMENT"), pursuant to which
the Holder purchased shares of the Company's Series B Convertible Preferred
Stock (the "SERIES B PREFERRED SHARES") which are convertible into shares of
common stock, $.01 par value per share, of the Company (the "COMMON STOCK"),
upon the terms and subject to the limitations and conditions set forth in the
Certificate of Designations, Preferences and Rights of the Series B Convertible
Preferred Stock, (the "SERIES B CERTIFICATE OF DESIGNATION");
C. The Subscription Agreements contemplate that the shares of Common
Stock underlying the Series B Preferred Shares are to be registered with the
Securities and Exchange Commission for public sale within 120 days following
closing, otherwise certain penalty provisions may apply. The designation also
provides for receipt of additional shares of Common Stock commencing 270 days
after issuance of the Series B Preferred Shares to guarantee a minimum rate of
return (the "ADDITIONAL SHARES"). If the closing bid price of the Company's
Common Stock is equal to or greater than $7.00 for five consecutive trading days
(the "MARKET OUT"), however, Additional Shares are not required to be issued.
The Market Out clause contemplates that the holder would have the opportunity to
liquidate his or her shares of Common Stock in the open market at a favorable
price. As currently in effect, however, the designation does not provide for a
delay of the commencement of the period of time for the Market Out until the
effective date of the registration statement covering the shares of Common
Stock.
D. The Company has authorized a new series of preferred stock, designated
as Series C Convertible Preferred Stock (the "SERIES C PREFERRED SHARES"),
having the rights, preferences and privileges set forth in the Certificate of
Designations, Preferences and Rights of the Series C Convertible Preferred Stock
attached hereto as EXHIBIT "A" (the "SERIES C CERTIFICATE OF DESIGNATION"),
which are convertible into shares of Common Stock upon the terms and subject to
the limitations and conditions set forth in the Series C Certificate of
Designation;
E. The Company desires to have the Holder exchange the outstanding Series
B Preferred Shares held by such Holder as of the Closing Date (as defined below)
for Series C Preferred Shares;
F. The Holder wishes to exchange all of the outstanding Series B
Preferred Shares held by such Holder as of the Closing Date (as defined below)
for Series C Preferred Shares;
<PAGE>
G. All capitalized terms used but not defined in this Agreement shall
have the meanings ascribed to them in either the Subscription Agreements and the
Series C Certificate of Designation.
NOW THEREFORE, the Company and the Holder, intending to be legally bound, hereby
agree as follows:
1. EXCHANGE OF SERIES B PREFERRED SHARES FOR SERIES C PREFERRED SHARES.
-------------------------------------------------------------------
a. EXCHANGE OF SERIES B PREFERRED SHARES FOR SERIES C PREFERRED
------------------------------------------------------------
SHARES. On the Closing Date (as defined below), (i) the Company shall issue to
- ------
the Holder a number of Series C Preferred Shares equal to the number of
outstanding Series B Preferred Shares then held by such holder and (ii) the
Holder shall deliver all of the outstanding Series B Preferred Shares then held
by such Holder to the Company in exchange for such number of Series C Preferred
Shares.
b. CLOSING DATE. Subject to the satisfaction (or waiver) of the
------------
conditions thereto set forth in Section 5 and Section 6 below, the date and time
of the exchange of the Series B Preferred Shares and issuance of the Series C
Preferred Shares pursuant to this Agreement (the "CLOSING DATE") shall be on or
before February 19, 1999. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall occur on the Closing Date at the offices of
Orrick, Herrington & Sutcliffe LLP or at such other location as may be agreed to
by the parties.
2. HOLDER'S REPRESENTATIONS AND WARRANTIES. The Holder's representations and
---------------------------------------
warranties as set forth in the Subscription Agreements are hereby fully
incorporated herein by reference. The Holder also represents and warrants that
none of the shares of Series B Preferred Stock owned by the Holder have been
converted.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The representations and
---------------------------------------------
warranties of the Company as set forth in the Subscription Agreements are hereby
fully incorporated herein by reference.
4. INCORPORATION OF AGREEMENT AND COVENANTS.
----------------------------------------
a. INCORPORATION OF CERTAIN AGREEMENTS AND COVENANTS OF THE
--------------------------------------------------------
SUBSCRIPTION AGREEMENT. The agreements and covenants set forth in Sections 4,
- -----------------------
5, and 8 of the Subscription Agreement shall be incorporated herein by
reference.
b. NO CONVERSIONS OR TRANSFERS. The Holder shall not convert, sell
---------------------------
or otherwise transfer any of the Series B Preferred Shares.
5. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of the
----------------------------------------------
Company hereunder to exchange the Series B Preferred Shares for the Series C
Preferred Shares at the Closing is subject to the satisfaction, at or before the
Closing Date, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
2
<PAGE>
a. The Holder shall have executed this Agreement and delivered the
same to the Company.
b. The Holder shall have delivered the Series B Preferred Shares in
accordance with Section 1 above.
c. The Series C Certificate of Designation shall have been accepted
for filing with the Secretary of State of the State of Delaware.
d. The representations and warranties of the Holder as set forth in
this Agreement and the Subscription Agreement shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date), and the Holder shall have performed, satisfied and complied in
all material respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the Holder at or
prior to the Closing Date.
e. No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by or in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
6. CONDITIONS TO HOLDER'S OBLIGATION TO EXCHANGE OR PURCHASE. The obligation
---------------------------------------------------------
of the Holder hereunder to exchange the Series B Preferred Shares for the Series
C Preferred Shares at the Closing is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions, provided that these
conditions are for the Holder's sole benefit and may be waived by the Holder at
any time in its sole discretion:
a. The Company shall have executed this Agreement and delivered the
same to the Josephthal & Co., Inc. (the "Placement Agent"), on behalf of Holder.
b. The Company shall have delivered to the Placement Agent, on
behalf of Holder, duly executed certificates (in such denominations as the
Holder shall request) representing the Series C Preferred Shares in accordance
with Section 1 above.
c. The Series C Certificate of Designation shall have been accepted
for filing with the Secretary of State of the State of Delaware, and a copy
thereof certified by such Secretary of State shall have been delivered to the
Placement Agent, on behalf of the Holder.
d. The representations and warranties of the Company set forth in
this Agreement (including those incorporated herein by reference) shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a particular date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and
3
<PAGE>
conditions (including those incorporated herein by reference to the Subscription
Agreement) required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date. The Placement Agent, on
behalf of the Holder, shall have received a certificate or certificates,
executed by an executive officer of the Company, dated as of the Closing Date,
to the foregoing effect and as to such other matters as may be reasonably
requested by the Placement Agent, on behalf of the Holder including, but not
limited to certificates with respect to the Company's Certificate of
Incorporation, By-laws and Board of Directors' resolutions relating to the
transactions contemplated hereby.
e. The Placement Agent, on behalf of the Holder, shall have received
an opinion of counsel to the Company substantially similar to the opinion
rendered in connection with the issuance of the Series B Preferred Shares.
f. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
7. MISCELLANEOUS
a. The Company and the Holder acknowledge and agree that:
(i) the Subscription Agreement executed by Holder and the
Company shall now apply to the Series C Preferred Shares received by Holder
pursuant to this Agreement and all references herein to the Subscription
Agreement shall therefore be deemed to include such Subscription Agreement as it
is so acknowledged and agreed to by Holder and the Company to apply to the
Series C Preferred Shares;
(ii) the deadline for the Company to prepare and file a
registration statement with the Securities and Exchange Commission pursuant to
the terms of the Subscription Agreement and warrants held by Holder shall be
extended to be twenty-one (21) days from the date of the last issuance of the
Series C Preferred Shares;
(iii) no commission or other remuneration was or is to be paid or
given directly or indirectly for soliciting the exchange contemplated hereby;
b. GOVERNING LAW. This Agreement shall be governed by and
-------------
interpreted in accordance with the laws of the State of New York without regard
to the principles of conflict of laws.
c. COUNTERPARTS; SIGNATURES BY FACSIMILE. This Agreement may be
-------------------------------------
executed in one or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party. This Agreement, once executed
by a party, may be delivered to the other party hereto by facsimile
4
<PAGE>
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
d. HEADINGS. The headings of this Agreement are for convenience of
--------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
e. SEVERABILITY. If any provision of this Agreement shall be invalid
------------
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.
f. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the instruments
----------------------------
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Holder makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
IN WITNESS WHEREOF, the undersigned Holder and the Company have caused this
Agreement to be duly executed as of the date first above written.
BOSTON LIFE SCIENCES, INC.
By:____________________________________________
Joseph P. Hernon
Vice President, Chief Financial Officer
INVESTOR
By:____________________________________________
5
<PAGE>
EXHIBIT 10.9
FIRST SUPPLEMENT TO THE
SUBSCRIPTION AGREEMENT AND
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM, DATED JANUARY 1999,
OF BOSTON LIFE SCIENCES, INC.
Offering of shares of convertible preferred stock, par value $0.01 per share,
and common stock purchase warrants (collectively, the "Securities") of Boston
Life Sciences, Inc. (the "Company").
______________________
This supplement constitutes an essential part of the Subscription Agreement and
Confidential Private Placement Memorandum, dated January 1999 (collectively, the
"Offering Documents"), of the Company and this supplement should be read in
conjunction with the Offering Documents.
The purpose of this supplement is to inform prospective investors that the
Company hereby offers Series C Convertible Preferred Stock in lieu of Series B
Convertible Preferred Stock. The Series C Convertible Preferred Stock will have
the identical designations, preferences and rights as the Series B Convertible
Preferred Stock including, but not limited to, an Original Issuance Price of
$19.50 and an Initial Conversion Price of $3.90, except that the last sentence
of the third paragraph of Section 3A of the Certificate of Designations,
Preferences and Rights for the Series C Convertible Preferred Stock
("Certificate of Designations"), the form of which is attached hereto, will
read:
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.
Section 2 of the Certificate of Designations will also be amended to reflect the
liquidation rights of any outstanding Series B Convertible Preferred Stock. In
addition, attached hereto are press releases dated February 5, 1999 and February
16, 1999 issued by the Company. Such press releases are incorporated by
reference herein and the foregoing information as well as the press releases
constitute a part of the Offering Documents. In all other respects, the offering
will remain unchanged.
Should you have any questions or require additional information regarding any of
the above, please contact the placement agent, Josephthal & Co. Inc., 200 Park
Avenue, New York, New York 10166.
The undersigned acknowledges having read and understood the foregoing first
supplement as well as all information contained in documents incorporated by
reference herein and in the Subscription Agreement and Confidential Private
Placement Memorandum dated January, 1999 and all documents incorporated by
reference therein. The undersigned also hereby reaffirms
1
<PAGE>
each representation, warranty and agreement made in the Subscription Agreement
and Investment Representation booklet for purchase of the Securities as of the
date hereof and as of the date of the closing of the undersigned's subscription.
NAME OF SUBSCRIBER
_______________________
PRINT NAME:
Dated: February __, 1999
2
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Name of Subsidiary State of Incorporation
- -------------------------------------------------------------------------------------------- -----------------------
<S> <C>
Acumed Pharmaceuticals, Inc................................................................. Delaware
Ara Pharmaceuticals, Inc.................................................................... Delaware
Boston Life Sciences International, Inc..................................................... Delaware
Coda Pharmaceuticals, Inc................................................................... Delaware
Neurobiologics, Inc......................................................................... Delaware
ProCell Pharmaceuticals, Inc................................................................ Delaware
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (File Nos. 33-98104 and 33-98138) and in the Prospectus
constituting part of the Registration Statements on Forms S-3 (SEC File Nos.
333-02730 and 333-08993) of Boston Life Sciences, Inc. and its subsidiaries (the
"Company") of our report dated March 11, 1999 appearing on page 21 of the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 15, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements as reported on Form 10-K and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 71,834
<SECURITIES> 7,837,992
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
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0
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