SEC SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the Quarterly Period Ended June 30, 2003
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ____________ to ____________
DOR BIOPHARMA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1505029
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
28101 BALLARD DRIVE, SUITE F, LAKE FOREST, IL 60045
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (847) 573-8990
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(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act during the past 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 [ ]
At August 1, 2003, 27,622,379 shares of the registrant's common stock (par value, $.001 per share) were outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
PART I. - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
DOR BIOPHARMA, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2003 2002
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 1,567,026 $ 4,147,164
Prepaid expenses 61,313 104,333
------------ ------------
Total current assets 1,628,339 4,251,497
Leasehold improvements and equipment, net of
accumulated amortization of $264,039 and $1,162,247 192,725 262,921
Patent issuance costs, net of
accumulated amortization
of $72,860 and $46,100 1,362,520 1,097,341
Intangible assets, net of accumulated amortization
of $189,376 and $137,710 174,775 226,441
------------ ------------
TOTAL ASSETS $ 3,358,359 $ 5,838,200
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY/(DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 568,487 $ 698,120
Accrued compensation 27,720 124,480
Current portion of long-term debt 306,291 382,122
------------ ------------
Total current liabilities 902,498 1,204,722
Long-term liabilities:
Long-term portion of note payable 115,948 347,845
------------ ------------
Total long-term liabilities 115,948 347,845
------------ ------------
Total Liabilities 1,018,446 1,552,567
Stockholders' equity/(deficit):
Preferred stock, $.001 par value. Authorized
4,600,000 shares; none issued and outstanding -- --
Series B convertible preferred stock,
$.05 par value. Authorized 200,000 shares;
119,428 issued & outstanding at liquidation value 12,176,446 11,711,822
Common stock, $.001 par value. Authorized
50,000,000 shares; 27,622,379 issued,
and 27,450,037 outstanding 27,622 26,795
Additional paid-in capital 62,276,679 61,315,985
Common stock held in escrow, 0 and
375,498 shares 436,812
Unearned compensation (3,199) (50,148)
Deficit accumulated during the development stage (71,669,368) (68,687,366)
------------ ------------
2,808,180 4,753,900
Less:
Treasury stock, at cost, 172,342 shares (468,267) (468,267)
------------ ------------
Total Stockholders' Equity 2,339,913 4,285,633
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,358,359 $ 5,838,200
============ ============
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See accompanying condensed notes to financial statements
DOR BIOPHARMA, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Cumulative from
Six Months February 15, 1985
Ended June 30, (date of inception)
2003 2002 to June 30, 2003
Revenue:
SBIR contract revenue $ -- $ -- $ 100,000
Expenses:
SBIR contract
research and development -- -- 86,168
Proprietary research
and development 1,136,668 2,243,989 21,383,967
General and
administrative (includes
$880,414 in non cash
stock compensation in 2003) 1,725,944 2,058,646 19,759,463
Write-off of acquired in-process
research and development -- -- 10,181,000
Severance Costs 130,712 -- 130,712
------------ ------------ ------------
Total operating expenses 2,993,324 4,302,635 51,541,310
------------ ------------ ------------
Loss from operations (2,993,324) (4,302,635) (51,441,310)
Equity gains/(losses)in
joint ventures 767,234 (22,179,091)
Other income 5,433 -- 268,323
Interest income 9,997 66,344 3,581,293
Interest expense (4,108) (7,823) (362,361)
------------ ------------ ------------
Net loss (2,982,002) (3,476,880) (70,133,146)
Preferred stock dividends (464,624) (792,725) (6,788,310)
------------ ------------ ------------
Net loss applicable to common
stockholders $ (3,446,626) $ (4,269,605) $(76,921,456)
============ ============ ============
Basic and diluted
net loss per share
available to common
stockholders $ (0.13) $ (0.20)
Basic and diluted
weighted average common
shares outstanding 27,176,773 21,179,037
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See accompanying condensed notes to financial statements.
DOR BIOPHARMA, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months
Ended June 30,
2003 2002
Revenue:
SBIR contract revenue $ -- $ --
Expenses:
SBIR contract
research and development -- --
Proprietary research
and development 748,767 1,105,188
General and
administrative (includes
$599,165 non-cash in
stock comp. reversed in 2003) (177,221) 1,301,493
Write-off of acquired in-process
research and development -- --
Severance Costs -- --
----------- -----------
Total operating expenses 571,546 2,406,681
----------- -----------
Loss from operations (571,546) (2,406,681)
Equity gains/(losses)in
joint ventures 854,177
Other income 5,433 --
Interest income 3,325 28,176
Interest expense (1,096) (925)
----------- -----------
Net loss (563,884) (1,525,253)
Preferred stock dividends (233,596) (398,552)
----------- -----------
Net loss applicable to common
stockholders $ (797,480) $(1,923,806)
=========== ===========
Basic and diluted
net loss per share
available to common
stockholders $ (0.03) $ (0.09)
Basic and diluted
weighted average common
shares outstanding 27,282,768 21,520,812
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see accompanying condensed notes to financial statements.
DOR BIOPHARMA, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Cumulative Period
Six Months February 15, 1985
Ended June 30, (Inception) to
2003 2002 June 30, 2003
------------ ------------ -----------------
OPERATING ACTIVITIES:
Net Loss: .................................... $ (2,982,002) $ (3,476,880) $(70,133,146)
Adjustments to reconcile net loss in
cash used in operating activities:
Depreciation and amortization .............. 164,340 149,257 2,072,941
Gain on the sale of market securities ........ -- -- (110,244)
Non-cash stock compensation ................ 880,414 -- 1,998,970
Non-cash stock payments to Vendors ......... 130,000 130,000
Equity (gains)/losses in joint ventures .... -- (767,234) 22,179,091
Amortization of fair value of warrants ..... -- -- 3,307,546
Gain on sale of assets ..................... (5,433) -- (9,963)
Write off patent issuance costs ............ -- -- 439,725
Write off of acquired research
and development .......................... -- -- 10,181,000
Changes in operating assets and liabilities:
Receivable from third party ............... -- 9,462 --
Prepaid expenses .......................... 43,020 (40,131) (57,291)
Accounts payable and accrued expenses ..... (129,633) 239,941 513,531
Accrued compensation ...................... (96,760) 255,827 27,720
Due to joint ventures ..................... -- (695,857) (1,635,466)
------------ ------------ ------------
Net cash used in operating activities ........ (1,996,054) (4,325,615) (31,095,586)
INVESTING ACTIVITIES:
Cash received in acquisition of CTD, net ..... -- -- 1,392,108
Patent issuance cost ......................... (302,224) (125,858) (1,690,215)
Investment in joint ventures ................. -- -- (3,638,171)
Organizational costs incurred ................ -- (135)
Purchases of leasehold improvements and
equipment .................................. -- (83,793) (1,870,198)
Proceeds from assets sold .................... -- -- 4,790
Purchases of marketable securities ........... -- -- (11,004,080)
Proceeds from sale of marketable
securities ................................. -- -- 11,114,324
------------ ------------ ------------
Net cash provided by (used in)
investing activities ......................... (302,224) (212,651) (5,691,577)
FINANCING ACTIVITIES:
Net proceeds from issuance (costs incurred
related to issuance) common stock ......... (114,626) -- 38,636,842
Proceeds from exercise of options ............ 140,494 -- 557,586
Proceeds from borrowings under
line of credit ............................ -- 52,290 1,150,913
Repayment of amounts under line of credit ... (307,728) (18,190) (1,371,232)
Proceeds from refinancing of due to
joint venture payable ..................... -- -- --
Repayment of long-term note receivable ...... -- -- 50,315
Repayment of note payable issued in
exchange for legal service ................ -- (71,968)
Purchase and retirement of common stock ..... -- -- (130,000)
Purchase of common stock for
treasury stock ............................ -- -- (468,267)
------------ ------------ ------------
Net cash provided by (used in)
financing activities ....................... (281,860) 34,100 38,354,189
------------ ------------ ------------
Net increase (decrease) in cash and
Cash equivalents ........................... (2,580,138) (4,504,166) 1,567,026
Cash and cash equivalents at beginning
of period .................................. 4,147,164 9,942,053 --
------------ ------------ ------------
Cash and cash equivalents at end
of period .................................. $ 1,567,026 $ 5,437,887 $ 1,567,026
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW:
Cash paid for interest................ $ 4,108 $ 7,823
NON-CASH TRANSACTIONS
Issuance of preferred stock
Dividends in kind.................... $ 464,624 $ 792,725
Issuance of note payable to
Settle joint venture liabilities.... $ 579,742
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The accompanying notes are an integral part of the consolidated financial statements
DOR BIOPHARMA, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED NOTES TO FINANCIAL STATEMENTS
These unaudited interim consolidated financial statements of DOR BioPharma, Inc. ( "we" or "us") were prepared under the rules and regulations for reporting on Form 10-QSB. Accordingly, we omitted some information and footnote disclosures normally accompanying the annual financial statements. You should read these interim financial statements and notes in conjunction with our audited consolidated financial statements and their notes included in our annual report on Form 10-KSB for the year ending December 31, 2002. It is our opinion that the consolidated financial statements include all adjustments necessary for a fair statement of the results of operations, financial position and cash flows for the interim periods. All adjustments were of a normal recurring nature. The results of operations for interim periods are not necessarily indicative of the results for the full fiscal year.
NET LOSS PER SHARE
Net loss per share is presented in the Consolidated Statements of Operations in accordance with SFAS No. 128 for the current and prior periods. We had a net loss for all periods presented, which resulted in diluted and basic earnings per share being the same for all of those periods presented. The potential impact of warrants and stock options outstanding was not included in the calculation because their inclusion would have been anti-dilutive.
STOCK BASED COMPENSATION
We have stock-based employee compensation plans. Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. We have chosen to continue using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, in accounting for our stock option plans.
Had compensation cost been determined based upon the fair value at the grant date for awards under the plans based on the provisions of SFAS No. 123, our pro forma net loss and net loss per share would have been as follows:
SIX MONTHS ENDED JUNE 30, 2003 2002
Net loss applicable to common stockholders:
as reported $(3,446,626) $(4,269,605)
Stock-based employee compensation
expense determined under fair value based method (460,714) (31,692)
Stock-based compensation as reported 880,414 --
----------- -----------
Pro forma net loss $(3,026,926) $(4,301,297)
=========== ===========
Net loss per share:
as reported, basic and diluted $ (0.13) $ (0.20)
pro forma, basic and diluted $ (0.11) $ (0.20)
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The fair value of options in accordance with SFAS 123 was estimated using the Black-Scholes option-pricing model and the following weighted-average assumptions: dividend yield 0%, expected life of four years, volatility of 148% and 105% in 2003 and 2002, respectively, and average risk-free interest rates of 4.0% and 4.5% in 2003 and 2002, respectively. Stock compensation expense for options granted to non-employees has
been determined in accordance with SFAS 123 and Emerging Issues Task Force (EITF) 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services," and represents the fair value of the consideration received, or the fair value of the equity instruments issued, whichever may be more reliably measured. For options that vest over future periods, the fair value of options granted to non-employees that vest over future periods is periodically remeasured over the vesting period.
We have also granted options to employees and directors that are conditional upon stockholder approval of an amendment to our 1995 omnibus option plan. Accordingly, a measurement date does not yet exist, and on a quarterly basis we record expense or reversal of expense based on the difference between the exercise price and the current market price. We will continue to record such expense until the amendment to the plan is approved.
SEVERANCE COSTS
In June 2002, the Board of Directors authorized management to restructure the Company and implement a cost reduction program to reduce future operating costs and preserve the Company's existing working capital. As a result, we reduced headcount from 22 to 5 employees. The Company communicated all severance benefits to employees before June 30, 2002.
Severance charges recorded in the statement of operations during the year ended December 31, 2002 totaled $781,248, which was based on management's best estimate of probable costs to be incurred under severance agreements with the terminated employees. During the six months ended June 30, 2003, our total estimate was increased to $812,053 with the increase being recorded as an expense. As of June 30, 2003, severance payments of $784,333 have been made and $27,720 is currently recorded on our balance sheet as accrued compensation.
LICENSES AND PATENT COSTS
Patent costs, principally legal fees, are capitalized and, upon issuance of the patent, are amortized on a straight-line basis over the shorter of the estimated useful life of the patent or the regulatory life. Licenses of technology with alternative future use are capitalized and are amortized on a straight-line basis over the shorter of the estimated useful life or the regulatory life. Licenses of technology with no alternative future use are expensed as incurred. The useful lives of licenses and patent costs at June 30, 2003 ranged from 15 to 17 years.
IMPAIRMENT OF LONG-LIVED ASSETS
Equipment, leasehold improvements, licenses and patent costs, and amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and the carrying value of the related asset or group of assets. Such analyses necessarily involve significant judgment.
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis provides information to explain our results of operations and financial condition. You should also read our unaudited consolidated interim financial statements and their notes included in this Form 10-QSB, and the Company's audited consolidated financial statements and their notes and other information included in our Annual Report on Form 10-KSB for the year ended December 31, 2002. This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the safe-harbor created by that Section. Forward-looking statements within this Form 10-QSB are identified by words such as "believes," "anticipates," "expects," "intends," "may," "will" "plans" and other similar expressions. However, these words are not the exclusive means of identifying such statements. In addition, any statements that refer to expectations projections, or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements are subject to significant risks, uncertainties and other factors, including those identified in Exhibit 99.1 "Risk Factors" filed with this Form 10-QSB, which may cause actual results to differ materially from those expressed in, or implied by, these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances occurring subsequent to the filing of this Form 10-QSB with the SEC. You should carefully review and consider the various disclosures the Company makes in this report and our other reports filed with the SEC that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business.
OVERVIEW:
We are a pharmaceutical company specializing in the clinical development of drugs for niche indications. In addition we have a biodefense program focused on the development of vaccines against potential bioterror agents. Currently we are working on vaccines against Ricin Toxin and Botulinum Toxin. As part of this initiative we are developing a proprietary oral and nasal vaccine delivery technology called the Microvax(TM) system.
Our lead pharmaceutical product is orBec(R), an oral locally acting steroid, that is currently in a pivotal Phase III clinical trial for the treatment of intestinal graft-vs.-host disease (GvHD), a life threatening complication of bone marrow transplantation. Also, using orBec(R), we are planning a Phase II program to extend the indications beyond GvHD into such areas as Crohn's Disease and irritable bowel syndrome. We have developed oral drug delivery systems, named LPM(TM), PLP(TM), and LPE(TM) systems, for the delivery of proteins and water insoluble drugs. We have preclinical animal data demonstrating the oral delivery of the drug leuprolide, an FDA approved injectable anticancer product. We also have preclinical animal data demonstrating the oral delivery of the drug Paclitaxel, an FDA approved injectable anticancer product.
PLAN OF OPERATION:
Our business strategy is to (1) enhance the value of in-licensed technologies through research and development, specifically preclinical and clinical testing towards regulatory approval; (2) identify and, acquire rights to new therapeutic compounds; (3) market biodefense vaccine products directly to the U.S. and European military and governmental agencies and; (4) sell or out-license therapeutic products that have reached an advanced state of development or no longer meet our strategic criteria.
We have assembled an experienced management team that oversees the human clinical trials necessary to establish preliminary evidence of effectiveness and seeks partnerships with pharmaceutical and biotechnology companies for late-stage development and marketing of our product candidates. We supplement our management team through a network of consultants and contractors. By operating in this manner, we believe we can efficiently utilize our capital resources to advance our drug and vaccine products to market. We operate through various subsidiary companies: DOR Vaccines, Inc., which is the successor in interest to InnoVaccines Corporation, our former joint venture, and forms the basis of our biodefense business initiative; and Enteron Pharmaceuticals, Inc. and Oradel Systems, Inc., which together form the
basis of our biotherapeutics initiative. Enteron is a subsidiary which holds the intellectual property relating to orBec(R). Oradel is a subsidiary which holds the intellectual property relating to the LPM(TM) drug delivery system. We plan to continue to develop our later stage product opportunities while seeking to manage our earlier stage product pipeline through collaborative licensing arrangements.
We entered into Subscription Agreements dated as of July 18, 2003, to sell an aggregate of (i) 6,796,919 shares of our Common Stock and (ii) warrants exercisable for 6,796,919 shares of our Common Stock at an exercise price of $0.8756, to selected institutional and accredited investors. The net proceeds from this private placement will, upon satisfaction of all the requirements of the private placement, including stockholder approval of this private placement and of an amendment to our certificate of incorporation to increase the authorized shares of our common stock, be approximately $4,900,000. After the satisfaction of all the requirements of the private placement and the issuance of the shares of Common Stock, we would have 34,451,621 shares of Common Stock outstanding. The receipt of the net proceeds from this placement will bring us back into compliance with the minimum listing requirements of the AMEX. As more fully described in exhibit 99.1 (risk factors), however, our stock may not remain listed on the American Stock Exchange. The shares of Common Stock and warrants have been offered in transactions exempt from registration under the Securities Act of 1933 in reliance upon Rule 506 of Regulation D under Section 4(2) of the Securities Act, as transactions not involving a public offering. Each of the subscribers represented to us that it was an "accredited investor" under Rule 501(a) of Regulation D.
In May 2003, we contracted to exclusively license, from Thomas Jefferson University, issued U.S. Patent No. 6,051,239 and corresponding international patent applications broadly claiming the oral administration of nontoxic modified botulinum toxins as vaccines. The intellectual property also includes patent applications covering the inhaled and nasal routes of delivery of the vaccine. Upon execution in May 2003 of the license agreement, we paid a license fee of $160,000, payable in $130,000 of our common stock and $30,000 in cash. We have also entered into a sponsored research agreement with Thomas Jefferson University for one year of sponsored research in exchange for $300,000, payable quarterly beginning in July 2003. We also intend to enter into a consulting agreement with Dr. Lance Simpson, the inventor of the botulinum toxin vaccine, for a period of three years under which Dr. Simpson would receive options to purchase 100,000 shares of our common stock, vesting over three years.
In July 2003, we executed a worldwide exclusive license for patent applications with the University of Texas Southwestern Medical Center for the injectable rights to the ricin vaccine, for $200,000 of our common stock. Additionally we have an option agreement with the University of Texas Southwestern Medical Center for the exclusive rights to nasal, pulmonary and oral uses of a non-toxic ricin vaccine.
CRITICAL ACCOUNTING POLICIES:
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, expense, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates and judgments. Currently, the most significant estimate or judgment that we make is whether or not to capitalize or expense patent and license costs. We make this judgment based on whether the technology has alternative future uses, as defined in SFAS 2, "Accounting for Research and Development Costs". Based on this consideration, we capitalized all outside legal and filing costs incurred in the procurement and defense of patents, as well as amounts paid allowing us to license additional routs of administration through the Southern Research patents, and amounts paid to University of Texas Southwestern Medical Center allowing us the ability to license certain patents related to a vaccine protecting against ricin toxin.
MATERIAL CHANGES IN RESULTS OF OPERATIONS:
We are a development stage company and to date have not generated any material revenues from operating activities. Although our product portfolio includes a phase III drug that we believe may be attractive to potential pharmaceutical partners, we have no active discussions under way with any such potential partners.
For the three months ended June 30 2003, we had a net loss of $563,884 which was a decrease of $961,369, or 63%, as compared to $1,525,253 for the same period in 2002. For the six month period ended June 30, 2003, had a net loss, of $2,982,002, which was a decrease of $494,878, or 14%, as compared to a net loss of $3,476,880 for the six months ended June 30, 2002. After giving effect to dividends on preferred stock, which are paid-in-kind in the form of additional shares of preferred stock, net loss available to common stockholders decreased $822,979 or 19%, to $3,446,626, or $0.13 per share, for the first six months of 2003 compared with $4,269,605, or $0.20 per share, for the prior year period.
Research and development expenditures decreased $356,421, or 32%, to $748,767, for the three months ended June 30, 2003, compared with $1,105,188 for the corresponding period ended June 30, 2002. Research and development expenditures decreased $1,107,321, or 49%, to $1,136,668, for the six months ended June 30, 2003, compared with $2,243,989 for the corresponding period ended June 30, 2002. These decreases reflected our planned reduction of expenditures associated with earlier stage programs, which were the exclusive subject of research and development expenditures during the first half of 2002, offset in part by an increase in the cost and enrollment of phase III clinical trials of orBec(R) during the first half of 2003.
General and administrative expenses decreased $1,478,714, or 136%, to $(177,221) for the first three months of 2003 as compared to $1,301,493 for the three months ended June 30, 2002. The credit balance was mainly caused by stock compensation expense reversed for our stock option plan that are variable until Stockholder approval of the amendment to our amended and restated stock option plan. General and administrative expenses decreased $332,702, or 16%, to $1,725,944 for the first six months of 2003 as compared to $2,058,646 for the six months ended June 30, 2002. These decreases were due primarily to the extensive cost cutting measures we implemented in 2002, including cutting headcount from nine administrative employees down to two. This cost reduction was partially offset by non-cash stock compensation of $(599,165) for the three months ended June 30, 2003 and $880,414 for the first six months of 2003. This expense resulted from non-cash expenses associated with options granted to employees, directors, and consultants that have not yet reached their record date, as described in the footnotes to the financial statements included in this quarterly report.
Interest income for the three months ending June 30, 2003 was $3,325, a decrease of $24,851, or 88%, compared to $28,176 for the same period in 2002. Interest income for the six months ending June 30, 2003 was $9,997, a decrease of $56,347, or 85%, compared to $66,344 for the same period in 2002. These decreases were due to decreases in interest rates on investment instruments versus the prior year, as well as lower cash balances in 2003.
FINANCIAL CONDITION:
On June 30, 2003, We had cash, cash equivalents and marketable securities of $1,567,026, compared to $4,147,164 at December 31,2002. Working capital was $725,841 at June 30, 2003, compared to $3,046,775 at December 31, 2002.
For the first six months of 2003, we lowered our rate of cash expenditures, our cash burn rate, by $1,924,028, or 43%, to $2,580,138 compared to $4,504,166 for the same period in 2002. We had an operating loss of $2,982,002, of which $880,414 represented non-cash stock compensation. The overall reduction in our cash burn was attributable to a substantial reduction in payroll and operating expenses, coupled with the granting of options as opposed to cash to attract and retain qualified personnel.
Based on our current cash burn rate, which we intend to maintain, our cash, cash equivalents and marketable securities of $1,567,026 at June 30, 2003 would not be sufficient to meet our anticipated cash needs for working capital and capital expenditures for the next 12 months. However, we expect to receive approximately $4.9 million in net proceeds from our July 2003 private placement, upon stockholder approval of an amendment to our certificate of incorporation and of the financing at our annual meeting scheduled for September 15, 2003. The financing is currently closed to subscriptions, and all proceeds are being held in escrow and will be released when the required stockholder approval is received. We believe that our current cash position as supplemented by the private placement funds will be sufficient to meet our anticipated cash needs for at least the next 18 months. However, within this period we may decide to seek additional capital in the private and/or public equity markets to support a higher level of growth, to respond to competitive pressures, to develop new products and services and to support new strategic partnership expenditures. After that 18 month period, if any cash generated from operations are insufficient to satisfy our liquidity requirements, we may need to raise additional funds through public or private financing, strategic relationships or other arrangements. If we receive additional funds through the issuance of equity or equity-linked securities, stockholders may experience significant dilution and these equity securities may have rights, preferences or privileges senior to those of our common stock. Further, we may not be able to obtain additional financing when needed or on terms favorable to our stockholders or us. If we are unable to obtain additional financing when needed, or to do so on acceptable terms, we may be unable to develop our products, take advantage of business opportunities or respond to competitive pressures.
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Controller (our principal executive officer and principal financial officer, respectively) have concluded, based on an evaluation of our disclosures controls and procedures performed by our management with participation of our Chief Executive Officer and Controller, that as of June 30, 2003 our disclosures, controls, and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports we filed or submit by under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.
Any control system, no matter how well designed and operated, can provide only reasonable (not absolute) assurance that its objectives will be met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
PART II. - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) 3.1 Amended and Restated By-Laws
31.1 Certification of Chief Executive Officer pursuant to
Exchange Act rule 13(a)-14(a) (under Section 302 of the
Sarbanes-Oxley Act of 2002).
31.2 Certification of Chief Executive Officer pursuant to
Exchange Act rule 13(a)-14(a) (under Section 302 of the
Sarbanes-Oxley Act of 2002).
32.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Principal Financial Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
99.1 Risk Factors
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REPORTS ON FORM 8-K:
We did not file any reports on Form 8-K during the second quarter of 2003.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DOR BIOPHARMA, INC.
August 14, 2003 /s/ Ralph M. Ellison
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Ralph M. Ellison
Chief Executive Officer and President
August 14, 2003 /s/ William D. Milling
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William D. Milling
Controller
(principal financial and accounting officer)
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EXHIBIT 3.1
AMENDED AND RESTATED BY-LAWS
OF
DOR BIOPHARMA, INC.
AMENDED AND RESTATED AS OF JUNE 5, 2003
ARTICLE I
OFFICES
SECTION 1.1. REGISTERED OFFICE. The registered office of DOR BioPharma, Inc. (the "CORPORATION") shall be in the City of Wilmington, County of New Castle, State of Delaware.
SECTION 1.2. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors of the Corporation (the "BOARD OF DIRECTORS") may from time to time determine or the business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. PLACE OF MEETING. All meetings of the stockholders for the election of directors shall be held at such place, within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated by the Chairman of the Board, the President or Chief Executive Officer, or the Board of Directors in the notice of the meeting or in a duly executed waiver of notice thereof.
SECTION 2.2. TIME OF ANNUAL MEETING. Annual meetings of stockholders shall be held at 10:00 A.M., Central time, on the third Thursday in May, if not a legal holiday, or if a legal holiday, then on the next day that is not a Saturday, Sunday or legal holiday, or at such other time and date as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting, at which stockholders shall elect directors to hold office for the term provided in Article III, Section 3.2 of these By-laws and conduct such other business as shall be considered.
SECTION 2.3. NOTICE OF ANNUAL MEETINGS. Except as otherwise required by law, written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not fewer than ten (10) nor more than sixty (60) days before the date of the meeting.
SECTION 2.4. STOCKHOLDER PROPOSALS AND NOMINATIONS FOR ANNUAL MEETINGS.
Nominations of persons for election to the Board of Directors and the proposal
of business to be transacted by the stockholders at an annual meeting of
stockholders may be made (i) pursuant to the Corporation's notice with respect
to such meeting, (ii) by, or at the direction of, the Board of Directors or
(iii) by any stockholder of record of the Corporation who was a stockholder of
record at the time of the giving of the notice provided for in the following
paragraph, who is entitled to vote at the meeting and who has complied with the
notice procedures set forth in this Article II, Section 2.4.
For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (iii) of the foregoing
paragraph, (a) the stockholder must have given timely notice thereof in writing
to the Secretary of the Corporation at the principal executive offices of the
Corporation, (b) such business must be a proper matter for stockholder action
under the General Corporation Law of the State of Delaware, as amended (the
"DGCL"), (c) if the stockholder, or the beneficial owner on whose behalf any
such proposal or nomination is made, has provided the Corporation with a
Solicitation Notice, as that term is defined in this Article II, Section 2.4,
such stockholder or beneficial owner must, in the case of a proposal, have
delivered a proxy statement and form of proxy to holders of at least the
percentage of the Corporation's voting shares required under applicable law to
carry any such proposal, or, in the case of a nomination or nominations, have
delivered a proxy statement and form of proxy to holders of a percentage of the
Corporation's voting shares reasonably believed by such stockholder or
beneficial holder to be sufficient to elect the nominee or nominees proposed to
be nominated by such stockholder, and must, in either case, have included in
such materials the Solicitation Notice and (d) if no Solicitation Notice
relating thereto has been timely provided pursuant to this Article II, Section
2.4, the stockholder or beneficial owner proposing such business or nomination
must not have solicited a number of proxies sufficient to have required the
delivery of such a Solicitation Notice under this Article II, Section 2.4. To be
timely, a stockholder's notice shall be delivered to the Secretary of the
Corporation at the principal executive offices of the Corporation not less than
forty-five (45) nor more than seventy-five (75) days prior to the first
anniversary (the "ANNIVERSARY") of the date on which the Corporation first
mailed its proxy materials for the preceding year's annual meeting of
stockholders; provided, however, that if the date of the annual meeting is
advanced more than thirty (30) days prior to, or delayed by more than thirty
(30) days after, the anniversary of the preceding year's annual meeting, notice
by the stockholder to be timely must be so delivered not later than the close of
business on the later of (i) the 90th day prior to such annual meeting or (ii)
the 10th day following the day on which public announcement of the date of such
annual meeting is first made. Such stockholder's notice shall set forth (a) as
to each person whom the stockholder proposes to nominate for election or
reelection as a director, all information relating to such person as would be
required to be disclosed in solicitations of proxies for the election of such
nominee as a director pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT"), and such person's written consent
to serve as a director if elected; (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of such
business, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial owner,
if any, on whose behalf the proposal is made; and (c) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made (i) the name and address of such stockholder, as
they appear on the Corporation's books, and of such beneficial owner, (ii) the
class and number of shares of the Corporation that are owned beneficially and of record by such stockholder and such beneficial owner, and (iii) whether either such stockholder or such beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of a proposal, at least the percentage of the Corporation's voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the Corporation's voting shares to elect such nominee or nominees (an affirmative statement of such intent being referred to as a "SOLICITATION NOTICE").
Notwithstanding anything in the second sentence of the second paragraph of this Article II, Section 2.4 to the contrary, in the event that the number of directors to be elected to the Board of Directors is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least fifty-five (55) days prior to the Anniversary, a stockholder's notice required by these Amended and Restated By-laws (these "BY-LAWS") shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation.
Only persons nominated in accordance with the procedures set forth in this Article II, Section 2.4 shall be eligible to serve as directors, and only such business shall be conducted at an annual meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Article II, Section 2.4. The chair of the meeting shall have the power and the duty to determine whether a nomination or any business proposed to be brought before the meeting has been made in accordance with the procedures set forth in these By-laws and, if any proposed nomination or business is not in compliance with these By-laws, to declare that such defectively proposed business or nomination shall not be presented for stockholder action at the meeting and shall be disregarded.
Notwithstanding the foregoing provisions of this Article II, Section 2.4, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to matters set forth in this Article II, Section 2.4. Nothing in this Article II shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
For purposes of these By-laws, "PUBLIC ANNOUNCEMENT" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press, PR Newswire, Business Wire or a comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
SECTION 2.5. SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of the
stockholders of the Corporation may be called at any time only by (i) the
Chairman of the Board, (ii) the Chief Executive Officer, (iii) the President or
(iv) the Board of Directors pursuant to a resolution approved by a majority of
the Board of Directors.
SECTION 2.6. NOTICE OF SPECIAL MEETINGS. Written notice of a special meeting of stockholders, stating the place, date and hour of the meeting, the purpose or purposes for which the meeting is called and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, shall be given by the Secretary of the Corporation on behalf of the Chairman of the Board, the President, the Chief Executive Officer or the Board of Directors not fewer than ten (10) nor more than sixty (60) days before the date of the meeting, to each stockholder entitled to vote at such meeting, except as otherwise required by law.
SECTION 2.7. BUSINESS AT SPECIAL MEETINGS. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the notice of meeting described in Section 2.6.
SECTION 2.8. STOCKHOLDER NOMINATIONS FOR SPECIAL MEETINGS. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of record of the Corporation who is a stockholder of record at the time of giving notice provided for in this paragraph, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in Article II, Section 2.4. Nominations by stockholders of persons for election to the Board of Directors may be made at such a special meeting of stockholders if the stockholder's notice required by the second paragraph of Article II, Section 2.4 shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting.
Notwithstanding the foregoing provisions of this Article II, Section 2.8, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to matters set forth in this Article II, Section 2.8.
SECTION 2.9. FIXING OF RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of, or to vote at, any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for such other action as hereinbefore described; provided, however, that if no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of rights or to exercise any rights of change, conversion or exchange of stock or for any other purpose, the record date shall be at the close of business on the day on which the Board of Directors adopts a resolution relating thereto. A determination of stockholders
of record entitled to notice of, or to vote at, a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 2.10. WRITTEN CONSENT. Any action required or permitted to be
taken at any annual or special meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, unless otherwise provided in
the Certificate of Incorporation of the Corporation (the "CERTIFICATE OF
INCORPORATION").
SECTION 2.11. RECORD DATE FOR ACTION BY WRITTEN CONSENT. In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its principal place of business, or any officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action.
SECTION 2.12. VOTING LISTS. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting (i) during ordinary business hours, at the principal place of business of the Corporation, or (ii) as otherwise permitted by law. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present.
SECTION 2.13. QUORUM AND ADJOURNMENTS. At any meeting of stockholders, the presence in person or by proxy of the holders of shares entitled to cast a majority of all the votes which could be cast at such meeting by the holders of all of the outstanding shares of stock of the Corporation entitled to vote on every matter that is to be voted on without regard to class at such meeting shall constitute a quorum for purposes of such vote, except as otherwise provided by the law of the State of Delaware or by the Certificate of Incorporation. If, however, such quorum
shall not be present or represented at any such meeting of the stockholders, the officer presiding over the meeting shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented; provided that if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed by the directors for the adjourned meeting, a new notice shall be transmitted to the stockholders of record entitled to vote at the adjourned meeting. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified.
SECTION 2.14. VOTE REQUIRED. At any meeting of stockholders duly called and held at which a quorum is present, (i) in all matters other than the election of directors, the affirmative vote of the majority of shares present in person or represented by proxy at such meeting and entitled to vote on the subject matter and (ii) in the case of the election of directors, a plurality of the votes of the shares present in person or represented by proxy at such meeting, in each case by such holders who are present in person or by proxy, shall be necessary, in addition to any vote or other action that may be expressly required by the provisions of the Certificate of Incorporation or the law of the State of Delaware, to decide such question or election, and shall decide such question or election if no such additional vote or other action is so required.
SECTION 2.15. VOTING RIGHTS. Unless otherwise provided in the Certificate of Incorporation, each stockholder having voting power shall at every meeting of the stockholders be entitled to one (1) vote in person or by proxy for each share of the capital stock having voting power held by such stockholder. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no proxy shall be voted on after three (3) years from its date, unless the proxy provides for a longer period. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used; provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. The Corporation may, and to the extent required by law shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting, count the votes, decide the results and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by law shall, appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to faithfully execute the duties of inspector with strict impartiality and according to the best of his or her ability.
SECTION 2.16. PRESIDING OVER MEETINGS. The Chairman of the Board of Directors shall preside at all meetings of the stockholders. In the absence or inability to act of the Chairman, the Vice Chairman (if one shall have been chosen by the Board of Directors), the Chief Executive Officer or the President (in that order) shall preside, and in their absence or inability to act,
another person designated by one of them shall preside. The Secretary of the Corporation shall act as secretary of each meeting of the stockholders. In the event of his or her absence or inability to act, the officer presiding at the meeting shall appoint a person who need not be a stockholder to act as secretary of the meeting.
SECTION 2.17. CONDUCTING MEETINGS. Meetings of the stockholders shall be conducted in a fair manner but need not be governed by any prescribed rules of order. The officer presiding at the meeting shall establish an agenda for the meeting. The presiding officer's rulings on procedural matters shall be final. The presiding officer is authorized to impose reasonable time limits on the remarks of individual stockholders and may take such steps as such officer may deem necessary or appropriate to assure that the business of the meeting is conducted in a fair and orderly manner. The presiding officer shall have the power to adjourn the meeting to another place, if any, date and time. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting.
ARTICLE III
DIRECTORS
SECTION 3.1. GENERAL POWERS. The business and affairs of the
Corporation shall be under the direction of, and managed by, a board comprised
of directors, which may exercise all such powers of the Corporation and do all
such lawful acts and things as are not required by law, the Certificate of
Incorporation or these By-laws to be done by the stockholders. Directors need
not be residents of the State of Delaware or stockholders of the Corporation.
The number of directors shall be not less than three (3) nor more than thirteen
(13), the exact number to be determined from time to time by resolution adopted
by the affirmative vote of a majority of the directors in office at the time of
such resolution.
SECTION 3.2. ELECTION. Directors shall be elected at the annual meeting of stockholders, except as provided in Section 3.4 of these By-laws, and each director elected shall hold office until his or her successor is elected and qualified or until such director's earlier resignation or removal.
SECTION 3.3. REMOVAL. Except as otherwise provided by law or in the Certificate of Incorporation, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the voting power of the shares then entitled to vote at an election of directors.
SECTION 3.4. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Any vacancies occurring in the Board of Directors and newly-created directorships shall be filled by a majority vote of the Board of Directors. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his or her predecessor.
SECTION 3.5. PLACE OF MEETINGS. The Board of Directors of the Corporation may hold meetings, both regular and special, within or without the State of Delaware. The first meeting of each newly elected Board of Directors shall be held immediately following the adjournment of
the annual meeting of the stockholders at the same place as such annual meeting, and no notice of such meeting shall be necessary to the newly elected directors in order to legally constitute the meeting, provided a quorum shall be present. In the event such meeting is not held at such time and place, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors.
SECTION 3.6. PARTICIPATION BY CONFERENCE TELEPHONE. Unless otherwise restricted by the Certificate of Incorporation or these By-laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation by such means shall constitute presence in person at such meeting.
SECTION 3.7. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held, without notice, at such time and at such place as shall from time to time be determined by the Board of Directors and publicized among all directors.
SECTION 3.8. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman of the Board, the Chief Executive Officer or the President of the Corporation on at least one (1) day's notice to each director, either personally, or by courier, telephone, facsimile, telegram or e-mail. Special meetings shall be called by the Chairman, the Chief Executive Officer or the President in like manner and on like notice at the written request of a majority of the Board of Directors stating the purpose or purposes for which such meeting is requested. Notice of any meeting of the Board of Directors for which a notice is required may be waived in writing signed by the person or persons entitled to such notice, whether before or after the time of such meeting, and such waiver shall be equivalent to the giving of such notice. Attendance of a director at any such meeting shall constitute a waiver of notice thereof, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because such meeting is not lawfully convened. Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors for which a notice is required need be specified in the notice, or waiver of notice, of such meeting. The Chairman shall preside at all meetings of the Board of Directors. In the absence or inability to act of the Chairman, then the Vice Chairman (if one shall have been chosen by the Board) or the Chief Executive Officer shall preside, and in their absence or inability to act, another director designated by one of them shall preside.
SECTION 3.9. QUORUM; NO ACTION ON CERTAIN MATTERS. At all meetings of the Board of Directors, a majority of the then duly elected directors shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law or the Certificate of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
SECTION 3.10. RESIGNATIONS. Any director of the Corporation may resign at any time by giving written notice to the Board of Directors, the Chairman, the Chief Executive Officer or the President. Such resignation shall take effect at the time specified therein and, unless tendered to take effect upon acceptance thereof, the acceptance of such resignation shall not be necessary to make it effective.
SECTION 3.11. INFORMAL ACTION. Unless otherwise restricted by the Certificate of Incorporation or these By-laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee. Such filings shall be in paper form if the minutes are maintained in paper form and in electronic form if the minutes are maintained in electronic form.
SECTION 3.12. PRESUMPTION OF ASSENT. A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be conclusively presumed to have assented to the action taken unless his or her dissent shall be entered in the minutes of the meeting or unless he or she shall file his or her written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action.
SECTION 3.13. COMPENSATION OF DIRECTORS. In the discretion of the Board of Directors, the directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors or a committee thereof, may be paid a stated salary or a fixed sum for attendance at each meeting of the Board of Directors or a committee thereof and may be awarded other compensation for their service as directors. No such payment or award shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.
ARTICLE IV
COMMITTEES OF DIRECTORS
SECTION 4.1. APPOINTMENT AND POWERS. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The resolution of the Board of Directors appointing the members of any such committee shall be adopted by a majority of the Board of Directors. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place
of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors and permitted by law, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (a) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval or (b) adopting, amending or repealing any of these By-laws.
SECTION 4.2. REMOVAL. Any member of any committee appointed by the Board of Directors, or the entire membership of such committee, may be removed, with or without cause, by the vote of a majority of the Board of Directors.
SECTION 4.3. CONDUCT OF BUSINESS. Each committee shall keep regular minutes of its meetings and shall file such minutes and all consents in writing or by electronic transmission by its members with the Secretary of the Corporation. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; a majority of the members shall constitute a quorum unless the committee shall consist of one (1) or two (2) members, in which event one (1) member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of the proceedings of such committee. Such filings shall be in paper form if the minutes are maintained in paper form and in electronic form if the minutes are maintained in electronic form.
ARTICLE V
NOTICES
SECTION 5.1. MANNER OF NOTICE. Whenever, under applicable law or the Certificate of Incorporation or these By-laws, notice is required to be given to any director or stockholder, unless otherwise provided in the Certificate of Incorporation or these By-laws, such notice may be given in writing, by courier or mail, addressed to such director or stockholder, at such director's or stockholder's address as it appears on the records of the Corporation, with freight or postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall have been deposited with such courier or in the United States mail. Notice may be given orally if such notice is confirmed in writing or by electronic transmission in a manner provided therein. Notice to directors may also be given by facsimile or e-mail.
Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders by the Corporation under any provision of these By-laws, the Certificate of Incorporation or applicable law shall be effective if given by a form of electronic transmission in accordance with applicable law.
SECTION 5.2. WAIVER. Whenever any notice is required to be given under applicable law or the provisions of the Certificate of Incorporation or these By-laws, a written waiver, signed by the person or persons entitled to said notice, or waiver by electronic transmission by the person or persons entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice.
ARTICLE VI
OFFICERS
SECTION 6.1. NUMBER AND QUALIFICATIONS. The officers of the Corporation shall be chosen by the Board of Directors and shall be a Chairman of the Board, a Chief Executive Officer, a President, a Controller, one or more Vice Presidents, a Secretary and a Treasurer. The Board of Directors may also choose a Vice Chairman of the Board, one or more Assistant Secretaries and Assistant Treasurers and such additional officers as the Board of Directors may deem necessary or appropriate from time to time. Membership on the Board of Directors shall not be a prerequisite to the holding of any other office. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these By-laws otherwise provide.
SECTION 6.2. ELECTION. The Board of Directors at its first meeting after each annual meeting of stockholders shall elect a Chairman of the Board, a Chief Executive Officer, a President, a Controller, one or more Vice Presidents, a Secretary and a Treasurer, and may choose a Vice Chairman of the Board, one or more Assistant Secretaries and Assistant Treasurers and such other officers as the Board of Directors shall deem desirable.
SECTION 6.3. OTHER OFFICERS AND AGENTS. The Board of Directors may choose such other officers and agents as it shall deem necessary, which officers and agents shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors.
SECTION 6.4. SALARIES. The salaries or other compensation of the officers and agents of the Corporation shall be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving such salary or other compensation by reason of the fact that such officer is also a director of the Corporation.
SECTION 6.5. TERM OF OFFICE. The officers of the Corporation shall hold office until their successors are chosen and qualified or until their earlier resignation, removal or death. Any officer elected or appointed by the Board of Directors may be removed at any time, either with or without cause, by the affirmative vote of a majority of the directors then in office at any meeting of the Board of Directors. If a vacancy shall exist in any office of the Corporation, the Board of Directors may elect any person to fill such vacancy, such person to hold office as provided in Article VI, Section 6.1.
SECTION 6.6. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors and shall see that orders and resolutions of the Board of Directors are carried into effect. The Chairman of the Board shall perform such other duties as the Board of Directors may from time to time prescribe.
SECTION 6.7. THE CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be the principal executive officer of the Corporation and shall, in general, supervise and control all of the business and affairs of the Corporation, unless otherwise provided by the Board of Directors. In the absence of the Chairman of the Board and the Vice Chairman of the Board, if any, the Chief Executive Officer shall preside at all meetings of the stockholders and of the Board of Directors and shall see that orders and resolutions of the Board of Directors are carried into effect. The Chief Executive Officer may sign bonds, mortgages, certificates for shares and all other contracts and documents, whether or not under the seal of the Corporation, except in cases where the signing and execution thereof shall be expressly delegated by law, the Board of Directors or these By-laws to some other officer or agent of the Corporation. The Chief Executive Officer shall have general powers of supervision and shall be the final arbiter of all differences between officers of the Corporation, and the Chief Executive Officer's decision as to any matter affecting the Corporation shall be final and binding as between the officers of the Corporation, subject only to the Board of Directors. The Chief Executive Officer shall perform such other duties as the Board of Directors may from time to time prescribe.
SECTION 6.8. THE PRESIDENT. Unless another party has been designated as Chief Operating Officer, the President shall be the Chief Operating Officer of the Corporation responsible for the day-to-day active management of the business of the Corporation, under the general supervision of the Chief Executive Officer. In the absence of the Chief Executive Officer, the President shall perform the duties of the Chief Executive Officer and, when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer. The President shall have concurrent power with the Chief Executive Officer to sign bonds, mortgages, certificates for shares and other contracts and documents, whether or not under the seal of the Corporation, except in cases where the signing and execution thereof shall be expressly delegated by law, the Board of Directors or these By-laws to some other officer or agent of the Corporation. In general, the President shall perform all duties incident to the office of the President and such other duties as the Chief Executive Officer or the Board of Directors may from time to time prescribe.
SECTION 6.9. THE CONTROLLER. The Controller shall be the principal financial and accounting officer of the Corporation. The Controller shall: (a) have charge of, and be responsible for, the maintenance of adequate books of account for the Corporation; (b) have charge and custody of all funds and securities of the Corporation, and be responsible therefor and for the receipt and disbursement thereof; and (c) perform all the duties incident to the office of the Controller and such other duties as the Chief Executive Officer, the President or the Board of Directors may from time to time prescribe.
SECTION 6.10. THE VICE PRESIDENTS. In the absence of the President or in the event of the President's inability or refusal to act, the Vice Presidents (in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the President and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall perform such other duties and have such other powers as the Chief Executive Officer, the President or the Board of Directors may from time to time prescribe.
SECTION 6.11. THE SECRETARY. The Secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the committees of the Board of Directors when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors and shall perform such other duties as the Chief Executive Officer, the President or the Board of Directors may from time to time prescribe. The Secretary shall have custody of the corporate seal of the Corporation, and the Secretary or an Assistant Secretary shall have authority to affix the same to any instrument requiring it, and when so affixed, it may be attested by the Secretary's signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by such officer's signature.
SECTION 6.12. THE TREASURER. In the absence of the Controller or in the event of the Controller's inability or refusal to act, the Treasurer shall perform the duties of the Controller, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Controller. The Treasurer shall perform such other duties and have such other powers as the Chief Executive Officer, the President or the Board of Directors may from time to time prescribe.
SECTION 6.13. THE ASSISTANT SECRETARY. The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of the Secretary's inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Chief Executive Officer, the President or the Board of Directors may from time to time prescribe.
SECTION 6.14. THE ASSISTANT TREASURER. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of the Treasurer's inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Chief Executive Officer, the President, the Controller or the Board of Directors may from time to time prescribe.
ARTICLE VII
CERTIFICATES OF STOCK, TRANSFERS AND RECORD DATES
SECTION 7.1. FORM OF CERTIFICATES. Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of, the Corporation by (a) the Chairman of the Board, the Vice-Chairman of the Board (if one shall have been chosen by the Board) or the President of the Corporation, and (b) the Secretary, the Treasurer, an Assistant Secretary or an Assistant Treasurer of the Corporation, certifying the number of shares owned by such holder in the Corporation. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock; provided that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements, there may be set forth, on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Subject to the foregoing, certificates of stock of the Corporation shall be in such form as the Board of Directors may from time to time prescribe.
SECTION 7.2. FACSIMILE SIGNATURES. Where a certificate is countersigned
(i) by a transfer agent other than the Corporation or its employee or (ii) by a
registrar other than the Corporation or its employee, any other signatures on
the certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed, or whose facsimile signature has been placed upon, a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent or registrar at
the date of issue.
SECTION 7.3. LOST CERTIFICATES. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or such owner's legal representative, to advertise the same in such manner as the Corporation shall require and/or give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation or its transfer agent or registrar with respect to the certificate alleged to have been lost, stolen or destroyed.
SECTION 7.4. TRANSFERS OF SHARES. All transfers of shares of the stock of the Corporation are subject to the terms, conditions and restrictions, if any, of the Certificate of Incorporation. Transfers of shares of the capital stock of the Corporation shall be made on the books of the Corporation by the registered holder thereof, or by such holder's attorney thereunder authorized by power of attorney duly executed and filed with the Secretary of the Corporation, or with a transfer agent appointed as provided in Article VII, Section 7.5, and, if certificated shares, on surrender of the certificate or certificates for the shares properly endorsed and the payment of all taxes thereon. The person in whose names shares of stock are registered on the books of the Corporation shall be considered the owner thereof for all purposes as regards the Corporation; but whenever any transfer of shares is made for collateral security, and not absolutely, that fact, if known to the Secretary, shall be stated in the entry of transfer. The Board of Directors may, from time to time, make any additional rules and regulations as it may deem expedient, not inconsistent with these By-laws, concerning the issue, transfer and registration of certificates for shares of the stock of the Corporation.
SECTION 7.5. TRANSFER AGENTS AND REGISTRANTS. The Board of Directors may appoint one or more transfer agents and one or more registrars for the stock of the Corporation.
SECTION 7.6. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to, or interest in, such share or shares on the part of any other person, whether or not the Corporation shall have express or other notice thereof, except as otherwise provided by the law of the State of Delaware.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 8.1. RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "PROCEEDING"), by reason of the fact that he or she is or was a director or an officer of the Corporation or is or was serving at the request of the Corporation as a director, officer or trustee of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "INDEMNITEE"), whether the basis of such proceeding is alleged action in an official capacity as a director, officer or trustee or in any other capacity while serving as a director, officer or trustee, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in Article VIII, Section 8.3, with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.
SECTION 8.2. RIGHT TO ADVANCEMENT OF EXPENSES. In addition to the right
to indemnification conferred in Article VIII, Section 8.1, an indemnitee shall
also have the right to be paid by the Corporation the expenses (including
attorney's fees) incurred in defending any such proceeding in advance of its
final disposition (hereinafter an "ADVANCEMENT OF EXPENSES"); provided, however,
that, if the DGCL requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "UNDERTAKING"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "FINAL ADJUDICATION") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section 8.2 or otherwise.
SECTION 8.3. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Sections 8.1 or 8.2 of this Article VIII is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (a) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (b) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the DGCL. Neither the failure of the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its directors who are not parties to such action, a committee of such directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article VIII or otherwise shall be on the Corporation.
SECTION 8.4. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and to the advancement of expenses conferred in this Article VIII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Certificate of Incorporation, these By-laws, agreement, vote of stockholders or directors or otherwise.
SECTION 8.5. INSURANCE. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL.
SECTION 8.6. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article with respect to the indemnification and advancement of expenses of directors and officers of the Corporation.
SECTION 8.7. NATURE OF RIGHTS. The rights conferred upon indemnitees in this Article VIII shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director, officer or trustee and shall inure to the benefit of the indemnitee's heirs, executors and
administrators. Any amendment, alteration or repeal of this Article VIII that adversely affects any right of an indemnitee or its successors shall be prospective only and shall not limit or eliminate any such right with respect to any proceeding involving any occurrence or alleged occurrence of any action or omission to act that took place prior to such amendment or repeal.
ARTICLE IX
CONFLICT OF INTERESTS
SECTION 9.1. CONTRACT OR RELATIONSHIP NOT VOID. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers or have a financial interest shall be void or voidable solely for this reason, or solely because such director or officer is present at, or participates in, the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because such director's or officer's vote is counted for such purpose, if:
(a) the material facts as to such director's or officer's relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or
(b) the material facts as to such director's or officer's relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or
(c) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof, or the stockholders.
SECTION 9.2. QUORUM. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1. DIVIDENDS. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of the capital stock or rights to acquire the same, subject to the provisions of the Certificate of Incorporation. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.
SECTION 10.2. CHECKS. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
SECTION 10.3. FISCAL YEAR. The fiscal year of the Corporation shall be the twelve (12) months ending December 31 unless determined otherwise by resolution of the Board of Directors.
SECTION 10.4. TIME PERIODS. In applying any provision of these By-laws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included.
SECTION 10.5. SEAL. The corporate seal shall have inscribed thereon the name of the Corporation and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 10.6. STOCK IN OTHER CORPORATIONS. Shares of any other corporation which may from time to time be held by this Corporation may be represented and voted at any meeting of stockholders of such corporation by the Chairman, the Chief Executive Officer, the President, the Controller or a Vice President of the Corporation, or by any proxy appointed in writing by the Chairman, the Chief Executive Officer, the President, the Controller or a Vice President of the Corporation, or by any other person or persons thereunto authorized by the Board of Directors. Shares represented by certificates standing in the name of the Corporation may be endorsed for sale or transfer in the name of the Corporation by the Chairman, the Chief Executive Officer, the President, the Controller or any Vice President of the Corporation or by any other officer or officers thereunto authorized by the Board of Directors. Shares belonging to the Corporation need not stand in the name of the Corporation, but may be held for the benefit of the Corporation in the individual name of the Controller or of any other nominee designated for the purpose of the Board of Directors.
ARTICLE XI
AMENDMENTS
These By-laws may be altered, amended or repealed, and new by-laws may be adopted, only in the manner provided in the Certificate of Incorporation.
EXHIBIT 31.1
CERTIFICATION
I, Ralph M. Ellison, certify that:
1. I have reviewed this quarterly report on Form 10-Q of DOR BioPharma, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 14, 2003 By: /s/ Ralph M. Ellison
Ralph M. Ellison
Chief Executive Officer
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EXHIBIT 31.2
CERTIFICATION
I, William D. Milling, certify that:
1. I have reviewed this quarterly report on Form 10-Q of DOR BioPharma, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 14, 2003 By: /s/ William D. Milling
William D. Milling
Controller (principal financial
officer)
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of DOR BioPharma, Inc. (the "Company") on Form 10-Q for the period that ended June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ralph M. Ellison, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: August 14, 2003 By: /s/ Ralph M. Ellison
Ralph M. Ellison
Chief Executive Officer
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EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of DOR BioPharma, Inc. (the "Company") on Form 10-Q for the period that ended June 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Charles R. Whitchurch, Controller of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: August 14, 2003 By: /s/ William D. Milling
William D. Milling
Controller (principal financial officer)
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EXHIBIT 99.1
RISK FACTORS
You should carefully consider the risks, uncertainties and other factors described below because they could materially affect our business, financial condition and/or operating results and could negatively impact the market price of our common stock. Also, you should be aware that the risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we do not yet know of, or that we currently think are immaterial, may also impair our business operations. You should also refer to the other information contained in and incorporated by reference into this quarterly report on Form 10-QSB including our financial statements and the related notes.
RISKS RELATED TO OUR BUSINESS AND OUR INDUSTRY
WE HAVE HAD SIGNIFICANT LOSSES AND ANTICIPATE FUTURE LOSSES; IF ADDITIONAL FUNDING CANNOT BE OBTAINED, WE MAY REDUCE OR DISCONTINUE OUR PRODUCT DEVELOPMENT AND COMMERCIALIZATION EFFORTS AND WE MAY BE UNABLE TO CONTINUE OUR OPERATIONS.
We are a development stage company that has experienced significant losses since inception and have a significant accumulated deficit. We expect to incur additional operating losses in the future and expect our cumulative losses to increase. All of our products are currently in development, preclinical studies or clinical trials, and we have not generated any revenues from sales or licensing of these products. Through June 30, 2003, we have expended approximately $1.9 million developing our current product candidates and for our clinical trials, and we currently have commitments to spend approximately $1.3 million over the next two years in connection with our current clinical trials. Additional funds will need to be spent on development of our oral delivery systems, biodefense vaccine products and licenses. Unless and until we are able to generate licensing revenue from orBec(R), our leading product candidate, or another one of our product candidates, we will require additional funding to meet these commitments, sustain our research and development efforts, provide for future clinical trials, and continue our operations. We may not be able to obtain additional required funding on terms satisfactory to our requirements, if at all. If we are unable to raise additional funds when necessary, we may have to reduce or discontinue development, commercialization or clinical testing of some or all of our product candidates or take other cost-cutting steps that could adversely affect our ability to achieve our business objectives. If additional funds are raised by our issuing equity or equity-linked securities, stockholders may experience dilution of their ownership interests, and the newly issued securities may have rights superior to those of the common stock. If additional funds are raised by our issuing debt, we may be subject to limitations on our operations.
IF WE ARE UNSUCCESSFUL IN DEVELOPING OUR PRODUCTS, OUR ABILITY TO GENERATE REVENUES WILL BE SIGNIFICANTLY IMPAIRED.
To be profitable, our organization must, along with corporate partners and collaborators, successfully research, develop and commercialize our technologies or product candidates. Our current product candidates are in various stages of clinical and pre-clinical development and will require significant further funding, research, development, preclinical and/or clinical testing, regulatory approval and commercialization testing, and are subject to the risks of failure inherent in the development of products based on innovative or novel technologies. Specifically, each of the following is possible with respect to orBec(R) or any of our other product candidates:
o that we will not be able to maintain our current research and development schedules;
o that we will encounter problems in clinical trials; or
o that the technology or product will be found to be ineffective or unsafe.
If any of the risks set forth above occurs, or if we are unable to obtain the necessary regulatory approvals as discussed below, we may not be able to successfully develop our technologies and product candidates and our business will be seriously harmed. Furthermore, for reasons including those set forth below, we may be unable to commercialize or receive royalties from the sale of orBec(R) or any other technology we develop, even if it is shown to be effective, if:
o it is uneconomical or the market for the product does not develop or diminishes;
o we are not able to enter into arrangements or collaborations to manufacture and/or market the product;
o the product is not eligible for third-party reimbursement from government or private insurers;
o others hold proprietary rights that preclude us from commercializing the product;
o others have brought to market similar or superior products; or
o the product has undesirable or unintended side effects that prevent or limit its commercial use.
OUR BUSINESS IS SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION, WHICH CAN BE COSTLY, TIME CONSUMING AND SUBJECT US TO UNANTICIPATED DELAYS.
All of our product offerings, as well as the processes and facilities by which they are manufactured, are subject to very stringent United States, federal, foreign, state and local government laws and regulations, including the Federal Food, Drug and Cosmetic Act, the Environmental Protection Act, the Occupational Safety and Health Act, and state and local counterparts to these acts. These laws and regulations may be amended, additional laws and regulations may be enacted, and the policies of the FDA and other regulatory agencies may change.
The regulatory process applicable to our products requires pre-clinical and clinical testing of any product to establish its safety and efficacy. This testing can take many years and require the expenditure of substantial capital and other resources. For example, clinical trials of orBec(R) began in 2001 and are expected to continue for at least nine more months. We may be unable to obtain, or we may experience difficulties and delays in obtaining, necessary domestic and foreign governmental clearances and approvals to market a product. Also, even if regulatory approval of a product is granted, that approval may entail limitations on the indicated uses for which the product may be marketed. We do not expect to complete clinical testing of any of our product candidates within the next 6 months.
Following any regulatory approval, a marketed product and its manufacturer are subject to continual regulatory review. Later discovery of problems with a product or manufacturer may
result in restrictions on such product or manufacturer. These restrictions may include withdrawal of the marketing approval for the product. Furthermore, the advertising, promotion and export of a product are subject to extensive regulation by governmental authorities in the United States and other countries. If we fail to comply with applicable regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and/or criminal prosecution.
WE WILL BE DEPENDENT ON GOVERNMENT FUNDING, WHICH IS INHERENTLY UNCERTAIN, FOR THE SUCCESS OF OUR BIODEFENSE OPERATIONS.
We are subject to risks specifically associated with operating in the biodefense industry, which is a new and unproven business area. We do not anticipate that a significant commercial market will develop for our biodefense products. Because we anticipate that the principal potential purchasers of our products, as well as potential sources of research and development funds, will be the U.S. government and governmental agencies, the success of our biodefense division will be dependent in large part upon government spending decisions. The funding of government programs is dependent on budgetary limitations, congressional appropriations and administrative allotment of funds, all of which are inherently uncertain and may be affected by changes in U.S. government policies resulting from various political and military developments.
OUR PRODUCTS, IF APPROVED, MAY NOT BE COMMERCIALLY VIABLE DUE TO HEALTH CARE CHANGES AND THIRD PARTY REIMBURSEMENT LIMITATIONS.
Recent initiatives to reduce the federal deficit and to change health care delivery are increasing cost-containment efforts. We anticipate that Congress, state legislatures and the private sector will continue to review and assess alternative benefits, controls on health care spending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, price controls on pharmaceuticals, and other fundamental changes to the health care delivery system. Any changes of this type could negatively impact the commercial viability of our products, if approved. Our ability to successfully commercialize our product candidates, if they are approved, will depend in part on the extent to which appropriate reimbursement codes and authorized cost reimbursement levels of these products and related treatment are obtained from governmental authorities, private health insurers and other organizations, such as health maintenance organizations. In the absence of national Medicare coverage determination, local contractors that administer the Medicare program may make their own coverage decisions. Any of our product candidates, if approved and when commercially available, may not be included within the then current Medicare coverage determination or the coverage determination of state Medicaid programs, private insurance companies or other health care providers. In addition, third-party payers are increasingly challenging the necessity and prices charged for medical products, treatments and services.
WE MAY NOT BE ABLE TO RETAIN RIGHTS LICENSED TO US BY THIRD PARTIES TO COMMERCIALIZE KEY PRODUCTS OR TO DEVELOP THE THIRD PARTY RELATIONSHIPS WE, NEED TO DEVELOP, MANUFACTURE AND MARKET OUR PRODUCTS.
We currently rely on license agreements from Southern Research Institute, the University of Alabama Research Foundation, Thomas Jefferson University, The University of Texas Southwestern Medical Center, and George B. McDonald for the rights to commercialize key product candidates. These agreements require that we use our best efforts to commercialize at least two products in the next 5 years. Our failure to meet the requirement would allow the
licensors to terminate the licenses, whereas our meeting this milestone would trigger payment obligations on our part. We may not be able to retain the rights granted under these agreements or negotiate additional agreements on reasonable terms, or at all. We have also entered into letters of intent or option agreements with the Ministry of Defense of the United Kingdom, the University of Texas Southwestern Medical Center and the University of Texas Medical Branch at Galveston, under which we plan to license issued patent and pending patent applications for technologies relating to botulinum toxin, intranasal anthrax and ricin vaccines. Although these letters of intent and option agreements provide for defined business terms, we may not be able to come to definitive agreements with the institutions and, as a result, may not obtain critical intellectual property rights on which we expect to rely.
Furthermore, we currently have very limited product development capabilities and no manufacturing, marketing or sales capabilities. For us to research, develop and test our product candidates, we need to contract with outside researches, in most cases with or through those parties that did the original research and from whom we have licensed the technologies. If products are successfully developed and approved for commercialization, then we will need to enter into collaboration and other agreements with third parties to manufacture and market our products. We may not be able to induce the third parties to enter into these agreements, and, even if we are able to do so, the terms of these agreements may not be favorable to us. Our inability to enter into these agreements could delay or preclude the development, manufacture and/or marketing of some of our product candidates or could significantly increase the costs of doing so. In the future, we may grant to our development partners rights to license and commercialize pharmaceutical and related products developed under the agreements with them, and these rights might limit our flexibility in considering alternatives for the commercialization of these products. Furthermore, third-party manufacturers or suppliers may not be able to meet our needs with respect to timing, quantity and quality for the products.
Additionally, if we do not enter into relationships with third parties for the marketing of our products, if and when they are approved and ready for commercialization, we would have to build our own sales force. Such a marketing and sales force would be particularly relevant to our biotherapeutic products, which we intend to market to a broad customer base. Development of an effective sales force would require significant financial resources, time and expertise. We may not be able to obtain the financing necessary to establish a sales force in a timely or cost effective manner, if at all, and any sales force we are able to establish may not be capable of generating demand for our product candidates, if they are approved.
WE MAY SUFFER PRODUCT AND OTHER LIABILITY CLAIMS; WE MAINTAIN ONLY LIMITED PRODUCT LIABILITY INSURANCE, WHICH MAY NOT BE SUFFICIENT.
The clinical testing, manufacture and sale of our products involves an inherent risk that human subjects in clinical testing or consumers of our products may suffer serious bodily injury or death due to side effects, allergic reactions or other unintended negative reactions to our products. As a result, product and other liability claims may be brought against us. We currently have clinical trial and product liability insurance with limits of liability of $5 million, which may not be sufficient to cover our potential liabilities. Because liability insurance is expensive and difficult to obtain, we may not be able to maintain existing insurance or obtain additional liability insurance on acceptable terms or with adequate coverage against potential liabilities. Furthermore, if any claims are brought against us, even if we are fully covered by insurance, we may suffer harm such as adverse publicity.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY WITH OUR COMPETITORS IN THE BIOTECHNOLOGY INDUSTRY.
The biotechnology industry is intensely competitive, subject to rapid change and sensitive to new product introductions or enhancements. Virtually all of our existing competitors have greater financial resources, larger technical staffs, and larger research budgets than we have, as well as greater experience in developing products and conducting clinical trials. Our competition is particularly intense in the gastroenterology and transplant areas and is also intense in the therapeutic area of inflammatory bowel disease. We face intense competition in the area of biodefense from various public and private companies and universities, as well as governmental agencies, such as the U.S. Army, which may have their own proprietary technologies that may directly compete with our technologies. In addition, there may be other companies that are currently developing competitive technologies and products or that may in the future develop technologies and products that are comparable or superior to our technologies and products. We may not be able to compete successfully with our existing and future competitors.
WE MAY BE UNABLE TO COMMERCIALIZE OUR PRODUCTS IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS AND WE MAY BE LIABLE FOR SIGNIFICANT COSTS AND DAMAGES IF WE FACE A CLAIM OF INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD PARTY.
Our success depends in part on our ability to obtain and maintain patents, protect trade secrets and operate without infringing upon the proprietary rights of others. For example, we currently hold the rights to a patent for our Microvax(TM) technology in the field of mucosally and orally administered vaccines. In the absence of patent and trade secret protection, competitors may adversely affect our business by independently developing and marketing substantially equivalent or superior products and technology, possibly at lower prices. We could also incur substantial costs in litigation and suffer diversion of attention of technical and management personnel if we are required to defend ourselves in intellectual property infringement suits brought by third parties, with or without merit, or if we are required to initiate litigation against others to protect or assert our intellectual property rights. Moreover, any such litigation may not be resolved in our favor.
Although we have filed various patent applications covering the uses of our product candidates, we may not be issued patents from the patent applications already filed or from applications we may file in the future. Moreover, the patent position of companies in the pharmaceutical industry generally involves complex legal and factual questions, and recently has been the subject of much litigation. Any patents we have obtained, or may obtain in the future, may be challenged, invalidated or circumvented. To date, no consistent policy has been developed in the United States Patent and Trademark Office regarding the breadth of claims allowed in biotechnology patents.
In addition, because patent applications in the United States are maintained in secrecy until patents issue, and because publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we and our licensors are the first creators of inventions covered by any licensed patent applications or patents or that we or they are the first to file. The Patent and Trademark Office may commence interference proceedings involving patents or patent applications, in which the question of first inventorship is contested. Accordingly, the patents owned or licensed to us may not be valid or may not afford us protection against competitors with similar technology, and the patent applications licensed to us may not result in the issuance of patents.
It is also possible that our patented technologies may infringe on patents or other rights owned by others, licenses to which may not be available to us. We are aware of at least one issued U.S. patent assigned to the U.S. Government relating to one component of one of our vaccine candidates that we may be required to license in order to commercialize those vaccine candidates. We may not be successful in our efforts to obtain a license under such patent on terms favorable to us, if at all. We may have to alter our products or processes, pay licensing fees or cease activities altogether because of patent rights of third parties.
In addition to the products for which we have patents or have filed patent applications, we rely upon unpatented proprietary technology and may not be able to meaningfully protect our rights with regard to that unpatented proprietary technology. Furthermore, to the extent that consultants, key employees or other third parties apply technological information developed by them or by others to any of our proposed projects, disputes may arise as to the proprietary rights to this information, which may not be resolved in our favor.
OUR BUSINESS COULD BE HARMED IF WE FAIL TO RETAIN OUR CURRENT PERSONNEL OR IF THEY ARE UNABLE TO EFFECTIVELY RUN OUR BUSINESS.
We have only seven employees: Dr. Ralph Ellison, our Chief Executive Officer and President; William Milling, our Controller, Treasurer and Corporate Secretary; Robert Brey, our Vice President of Research and Development; Geoff Green our Vice President of Clinical Development; Robin Simuncek, our Clinical Project Manager, and two general administrative employees. Mr. Ellison was hired in March 2003, following the resignation of David M. Kent, our former Chief Executive Officer for personal reasons; Mr. Kanzer became our Vice Chairman in January 2003; Mr. Milling was hired in September 2002; Mr. Brey was hired in December 2002 and Mr. Green was hired in July 2003. In addition, Alexander Haig, our non-employee Chairman of the Board was appointed in January 2003. We depend upon the seven employees to manage the day-to-day activities of our business. Because we have such limited personnel, the loss of any of them, even though they have very limited experience in managing or operating our business, or our inability to attract and retain other qualified employees in a timely manner, would likely have a negative impact on our operations. Furthermore, because of their inexperience in operating our business, there is significant uncertainty as to how our management team will perform. Our management team may need to devote a significant amount of time to learning about our business and its markets, which could limit their effectiveness in managing our business for a period of time. We will not be successful if this new management team cannot effectively manage and operate our business.
WE HAVE RELATIONSHIPS THAT PRESENT CONFLICTS OF INTEREST.
Our Vice Chairman of the Board of Directors, Steve H. Kanzer, is Chairman and Chief Executive Officer of Accredited Ventures, Inc., which in the regular course of its business, identifies, evaluates and pursues investment opportunities in biomedical and pharmaceutical products, technologies and companies. However, Accredited is under no obligation to make any additional products or technologies available to us. Therefore, we may lose to Accredited opportunities of which Mr. Kanzer is aware that would be beneficial to our business. In addition, our officers and directors and officers or directors appointed in the future may from time to time serve as officers, directors or consultants of other biopharmaceutical or biotechnology companies and those companies may have interests that conflict with our interests. As a result of our recent management changes, which highlighted some of the actual and potential conflicts, we have not yet developed policies to address the conflicts of interest, but we plan to do so in the near future.
RISKS RELATED TO AN INVESTMENT IN OUR COMMON STOCK
OUR STOCK PRICE IS HIGHLY VOLATILE AND OUR STOCK IS THINLY TRADED
The market price of our common stock, like that of many other development stage public pharmaceutical and biotechnology companies, has been highly volatile and may continue to be so in the future due to a wide variety of factors, which include, actual or anticipated fluctuations in our results of operations, announcements of innovations by us or our competitors, additions or departures of key personnel or general market conditions. For example, on January 7, 2003, when ricin was discovered in an apartment in London and we announced that we had retained Mr. Haig as our Chairman of the Board, our stock price went from $0.58 per share to $1.05 per share in one day and has fluctuated between $0.70 per share and $1.57 per share from that date through August 9, 2003. From July 1, 2000 through August 9, 2003, the per share price of our common stock ranged from a high of $9.44 per share to a low of $0.11 per share. The fluctuation in the price of our common stock has sometimes been unrelated or disproportionate to our operating performance.
Since it commenced trading on the American Stock Exchange on August 6, 1998, our common stock has been thinly traded. The average trading volume for our common stock averaged approximately 35,825 shares per day from January 1, 2001 to July 31, 2003. The relatively illiquid market for our shares may have an adverse effect on the market price for our shares and on stockholders' ability to sell our common stock at the prevailing market price. A more active trading market for our common stock may not develop.
OUR STOCK MAY NOT REMAIN LISTED ON THE AMERICAN STOCK EXCHANGE.
Because we continue to incur losses from continuing operations in fiscal 2003, the stockholders' equity standard applicable to us of AMEX's continued listing requirements will increase from $4 million to $6 million for fiscal years ending 2003 and beyond. Moreover, our net equity of $2.3 million as of June 30, 2003 does not satisfy the $4 million minimum stockholders' equity requirement applicable to calendar quarters ending during 2003 and we have received notification form the AMEX that we are no longer in compliance with their minimum listing requirements. In this notification, we were given the opportunity to submit a plan to regain compliance over the next 18 months, we submitted such plan on August 4, 2003, which among other things discussed our private placement which we expect to complete in September 2003, and await acceptance from the AMEX. If, for this reason or for any other reason, our stock were to be delisted from the American Stock Exchange, we may not be able to list our common stock on another national exchange or market. If our common stock is not listed on a national exchange or market, the trading market for our common stock may be even more illiquid than it is already. Upon any such delisting, our common stock would become subject to the penny stock rules of the SEC, which generally are applicable to equity securities with a price of less than $5.00 per share, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with bid and ask quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. In
addition, the penny stock rules require that, before a transaction in a penny stock that is not otherwise exempt from such rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. As a result of these requirements, if our common stock were to become subject to the penny stock rules, it is likely that the price of our common stock would decline and that our stockholders would find it more difficult to sell their shares.
INVESTORS MAY SUFFER SUBSTANTIAL DILUTION.
We have a number of agreements or obligations that may result in dilution to investors. These include: warrants to purchase a total of approximate 5.2 million shares of our common stock at a current weighted average exercise price of approximately $2.50; conversion rights and dividend rights of preferred stock, consisting of 121,176 shares of Series B preferred stock ($8.0 million original liquidation value) bearing an 8% cumulative payment-in-kind dividend and convertible at the liquidation value into common stock at $7.38 per share; anti-dilution rights under the above warrants and preferred stock, which can permit purchase of additional shares and/or lower exercise or conversion prices under certain circumstances; and options to purchase approximately 6,078,000 shares of common stock at a current weighted average exercise price of approximately $0.95. To the extent that anti-dilution rights are triggered, or warrants, options or conversion rights are exercised, our stockholders will experience substantial dilution and our stock price may decrease.