-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mc+9OmSZeHjtoVIgvTIv7kUkJsq/42+KT2LB3Pm7gyJtsq0w3SwMNOHtlqpCHlUt D8qmyZ2fRIK2FW91JrDUeQ== 0001005477-01-002891.txt : 20010425 0001005477-01-002891.hdr.sgml : 20010425 ACCESSION NUMBER: 0001005477-01-002891 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20010424 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NASTECH PHARMACEUTICAL CO INC CENTRAL INDEX KEY: 0000737207 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 112658569 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-59472 FILM NUMBER: 1609906 BUSINESS ADDRESS: STREET 1: 45 DAVIDS DR CITY: HAUPPAUGE STATE: NY ZIP: 11788 BUSINESS PHONE: 6312730101 MAIL ADDRESS: STREET 1: 45 DAVIDS DRIVE CITY: HAUPPAUGE STATE: NY ZIP: 11788 S-3 1 0001.txt FORM S-3 As filed with the Securities and Exchange Commission on April 24, 2001 Registration No. 333-______. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 NASTECH PHARMACEUTICAL COMPANY INC. (Exact name of Registrant as specified in its charter) DELAWARE 11-2658569 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 45 ADAMS AVENUE HAUPPAUGE, NEW YORK 11788 (631) 273-0101 ATTN: STEVEN C. QUAY, M.D., PH.D. (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) COPIES TO: L. Kevin Sheridan, Jr., Esq. Roberts Sheridan & Kotel The New York Practice of Dickstein Shapiro's Corporate & Finance Group 12 East 49th Street, 30th Floor New York, NY 10017 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. |_| If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. |X| If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_| CALCULATION OF REGISTRATION FEE
Title of Each Class of Amount to Proposed Maximum Proposed Maximum Amount of Securities to Be Registered Be Registered Offering Price Per Share Aggregate Offering Price Registration Fee - --------------------------- ------------- ------------------------ ------------------------ ---------------- Common Stock, $.006 par value ................. 860,124 (1) $4.52 (3) $3,887,760 $972 Common Stock, $.006 par value ................. 503,172 (2) $6.3375 (4) $3,188,853 $797 --------- ------- ---------- ------ Total ................. 1,363,296 $5.191 $7,076,613 $1,769 ========= ======= ========== ======
(1) Represents shares currently beneficially owned by the selling stockholders. (2) Represents shares issuable upon the exercise of warrants granted to the selling stockholders, including warrants granted to Jesup & Lamont Securities Corporation as a placement fee. Pursuant to Rule 416, this registration statement shall also cover any additional shares of common stock that become issuable by reason the antidilutive provisions of the warrants. (3) The proposed maximum offering price is estimated solely for the purposes of calculating the registration fee pursuant to Rule 457(c) and 457(g)(3) of the Securities Act of 1933. It is based upon a price of $4.52 per share, which was the average of the high and low reported prices of the registrant's common stock as reported on the Nasdaq National Market System on April 20, 2001. (4) The proposed maximum offering price is estimated solely for the purposes of calculating the registration fee pursuant to Rule 457(g) of the Securities Act of 1933. It is based upon the higher of the price at which the warrants may be exercised ($6.3375) and the price of the underlying shares of common stock as determined in accordance with Rule 457(c) ($4.52). The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED APRIL 24, 2001 PROSPECTUS [GRAPHIC OMITTED] NASTECH PHARMACEUTICAL COMPANY INC. 1,363,296 Shares Common Stock This prospectus relates to the public offering of 1,363,296 shares of our common stock which the selling stockholders named in this prospectus may resell from time to time. We sold 860,124 shares of common stock to the selling stockholders in a private offering and granted them warrants to purchase an additional 503,172 shares, which includes 73,110 shares we granted to Jesup & Lamont Securities Corporation as a placement fee. The shares of common stock that the selling stockholders may resell using this prospectus constitute 17.7% of our issued and outstanding common stock as of March 31, 2001. Our common stock is quoted on the Nasdaq National Market under the symbol "NSTK." The closing bid price of our common stock on the Nasdaq National Market on April 20, 2001, was $4.50 per share. Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page 6. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Prospectus dated _________________, 2001 TABLE OF CONTENTS Page ---- Prospectus Summary ................................................. 3 Risk Factors ....................................................... 6 Special Note Regarding Forward-Looking Statements .................. 11 Use of Proceeds .................................................... 12 Price Range of Common Stock ........................................ 12 Selling Stockholders ............................................... 13 Plan of Distribution ............................................... 15 Description of Capital Stock ....................................... 16 Where You Can Find More Information ................................ 20 Incorporation of Information by Reference .......................... 20 Legal Matters ...................................................... 21 Experts ............................................................ 21 PROSPECTUS SUMMARY This summary highlights information contained or incorporated by reference elsewhere in this prospectus. For a more complete understanding of this offering, you should read the entire prospectus carefully, especially the "Risk Factors" section, and our financial statements and notes to those statements incorporated by reference in this prospectus, before making your investment decision. Nastech Pharmaceutical Company Inc. Nastech Pharmaceutical Company Inc. is a Formulation Science company and is recognized as a leader in nasal drug delivery technology. Formulation Science is a systematic approach to drug development using biophysics, physical chemistry and pharmacology to maximize therapeutic efficacy and safety, which sometimes involves a change in route of administration. The technology is essential in designing an optimized, customizable dosage form and in delivering difficult protein and large molecule drugs that can currently only be delivered by injection. Historically, our core technical competency involves the research, development and manufacture of nasally administered prescription pharmaceuticals. We investigate the commercial weaknesses of pharmaceutical products currently available in oral, injectable or other dosage forms, and we determine the advantages an alternative drug delivery system would have for the same drug in the market place. For example, while the oral route of drug delivery is the most popular and least expensive method of delivery, gastrointestinal and liver metabolism can reduce an oral drug's effectiveness. Generally, a nasal delivery system will provide faster absorption into the blood stream than an oral product thereby resulting in faster onset of action. Other possible advantages of this therapy may include lower drug doses, fewer side effects, greater safety and efficacy, greater convenience to the patient, better patient compliance of prescribed drug therapy, and lower overall health care costs for the patient. We have a commercial interest in two nasal drug products, both of which are approved for sale in the U.S. Our licensee Bristol-Myers Squibb Company markets Stadol(R) NS(TM) (Butorphanol Tartrate), and our licensee Schwarz Pharma Inc. markets Nascobal(R) (Cyanocobalamin, USP). To our knowledge, Stadol(R) NS(TM) is the only nasally administered opioid pain relief medication marketed for the treatment of moderate to severe pain and acute migraine pain. It provides painless therapy and convenient, patient self-administration as compared to the competitive injectable product. Similarly, Nascobal(R), our nasal vitamin B-12 product, provides patient benefits over the injectable therapy for chronic B-12 deficiency anemia. In addition to these two drugs, we have several drugs in various stages of drug research and development. Our current business strategy seeks to broaden applications of our commitment to Formulation Science, allowing drugs to be more safe and effective in patient treatment, with particular emphasis on the applications for nasal or oral drug delivery in the prescription and over-the-counter markets. To accomplish this objective, we plan to do the following: o Focus initial efforts on significant injectable approved drugs o Leverage strategic alliances o Protect and expand intellectual property rights The Private Offering On March 22, 2001, we raised approximately $4.2 million in gross proceeds through a private sale of 860,124 newly issued shares of our common stock to the investors listed in the "Selling Stockholders" section below. Jesup & Lamont Securities Corporation, a registered broker-dealer, acted as placement agent for the private offering. In connection with the private offering, we granted the investors warrants to purchase 430,062 shares of our common stock. As consideration for Jesup & Lamont's services as placement agent in connection with the private offering, we granted Jesup & Lamont warrants to purchase 73,110 shares of common stock and we paid them an amount in cash equal to 6% of the gross proceeds of the private offering, plus expenses. The investors and Jesup & Lamont may exercise their warrants at any time prior to March 22, 2006, at a strike price of $6.3375 per share of common stock. Neither the investors, nor Jesup & Lamont will be obligated to exercise the warrants and to purchase any shares of common stock under these warrants. We are registering the 860,124 shares which we previously issued to the selling stockholders, plus the 503,172 shares underlying the warrants we granted to the selling stockholders. From time to time during the period the registration statement remains effective, the selling stockholders may offer for resale all 1,363,296 shares that this prospectus covers. 3 The number of shares subject to this prospectus represents 17.7% of our issued and outstanding common stock as of March 31, 2001. We will prepare and file amendments and supplements to the registration statement as may be necessary in order to keep the registration statement effective until the second anniversary of the date this registration statement is declared effective or, in the case of warrant shares, the first anniversary of the date of issuance of such warrant shares, but in any event not later than the fourth anniversary of the date such registration statement is declared effective, or until these shares can be sold under an appropriate exemption from registration. We have agreed to bear the expenses of registering the shares, but not the expenses associated with selling the shares, such as broker discounts and commissions. -------------------------- Nastech Pharmaceutical Company Inc. is incorporated under the laws of the state of Delaware. Our principal executive offices are located at 45 Adams Avenue, Hauppauge, New York 11788, and our telephone number is (631) 273-0101. Our principal research & development and administrative facility is located in the same Hauppauge, New York facility. We maintain a website at www.nastech.com. Information contained in our website does not constitute part of this prospectus. References in this prospectus, and the documents incorporated by reference in this prospectus, to "Nastech," "we," "our," and "us" refer to Nastech Pharmaceutical Company Inc., a Delaware corporation. Nastech and some of the names of our products are tradenames or trademarks of Nastech Pharmaceutical Company Inc. This prospectus and the information incorporated by reference also contain trademarks and tradenames of other companies. 4 THE OFFERING Shares of Common Stock That Selling Stockholders May Offer ........ 1,363,296 Offering Price ........................ To be determined at the time selling stockholders sell the shares Common Stock Outstanding Before the Offering............... 7,701,726 (1) (2) After the Offering ............... 8,204,899 (3) Use of Proceeds ....................... We will not receive any proceeds from selling stockholders' sales of common stock. However, we will receive the proceeds upon the selling stockholders' exercise of warrants when, and if, they pay the exercise price in cash. We expect to use substantially all the net proceeds for general corporate purposes, including working capital, research and development and expansion of sales and marketing activities. Nasdaq National Market symbol ......... NSTK - ------------------ (1) Includes the 860,124 shares of common stock issued to the selling stockholders in the private offering of our shares on March 22, 2001. (2) Excludes: o 2,012,245 shares of common stock subject to outstanding stock options we previously granted under our stock option plans as of December 31, 2000, including 600,000 options we granted on August 8, 2000 to Steven C. Quay, our new President, Chief Executive Officer and Chairman of the Board. o 338,757 shares of common stock available for future grants under our stock option plans as of December 31, 2001. o 34,500 shares of common stock issuable upon exercise of the warrants we granted to Wheat, First Securities, Inc., as underwriters in connection with an offering of our shares in 1997. o 34,500 shares of common stock issuable upon exercise of the warrants we granted to Volpe, Welty & Company, as underwriters in connection with an offering of our shares in 1997. o 1,200,000 shares of common stock issuable under our equity line of credit agreement with Castlebar Enterprises Limited. o 66,000 shares of common stock issuable upon exercise of the warrants that we granted or may grant in the future to Castlebar in connection with the equity line of credit. o 33,000 shares of common stock issuable upon exercise of the warrants that we granted or may grant in the future to Jesup & Lamont as a placement fee in connection with the equity line of credit. o 503,172 shares of common stock issuable upon exercise of warrants that we granted to the selling stockholders in connection with the private offering of our shares on March 22, 2001. (3) Assumes that the selling stockholders exercise all 503,172 warrants we granted to them in connection with the private offering of our shares on March 22, 2001. 5 RISK FACTORS A purchase of our common stock is speculative and involves a high degree of risk. You should carefully consider the risks described below together with all of the other information included or incorporated by reference in this prospectus before making an investment decision. The risks and uncertainties described below are not the only ones facing our company. If any of the following risks actually occur, our business, financial condition or operating results could be harmed. In this case, the trading price of our common stock could decline, and you could lose all or part of your investment. Because of Significant R&D and Other Costs, We Have Never Been Profitable, We Do Not Expect To Become Profitable in the Foreseeable Future, and We May Never Become Profitable We incurred losses in each of the last three years. We incurred a net loss of $876,000 for fiscal year 1998, a net loss of $8.4 million for fiscal year 1999, and a net loss of $9.7 million for fiscal year 2000. As of December 31, 2000, we had an accumulated deficit of $30.0 million. The process of developing our products requires significant research and development, including basic research, pre-clinical and clinical development, as well as Food and Drug Administration regulatory approval. These activities, together with our sales, marketing, general and administrative expenses, have resulted in operating losses in the past, and we expect these losses to continue for the foreseeable future. We may never achieve profitability. As a result, the market price of our common stock could decline. Because Our Operating Results Are Subject To Significant Fluctuations and Uncertainties, We May Not Be Able to Meet All of Our Future Expense Obligations, and Our Failure to Meet Public Market Analysts or Investors' Expectations Regarding Earnings May Cause Our Stock Price To Decline Our operating results are subject to significant fluctuations and uncertainties due to a number of factors including, among others: o the timing and achievement of licensing transactions, including milestones and other performance factors associated with these contracts o the time and costs involved in patent research and development of our proprietary position o continued scientific progress and level of expenditures in our research and development programs o the cost of manufacturing scale-up and production batches, including vendor provider activities and costs o the time and costs involved in obtaining regulatory approvals o changes in general economic conditions and drug delivery technologies o new products and product enhancements that we or our competitors introduce As a result of these factors and other uncertainties, our operating results have fluctuated significantly over the last three years, from a net loss of $876,000 in 1998, to a net loss of a net loss of $8.4 million in 1999 and a net loss of $9.7 million in 2000. Over the past four quarters, our operating results have increased by as much as 83% and have decreased by as much as 68% from one quarter to another. In order to illustrate these fluctuations, we had a larger than expected loss per share in the second quarter of 2000 due to an unexpected decline in royalty income from our licensee Bristol-Myers Squibb's decreased sales of Stadol(R) NS(TM) and from unexpected compensation expenses we paid to the estate of our recently deceased CEO. Although this larger than expected loss per share in the second quarter did not affect our business or operations because we had adequate cash reserves and in general do not rely solely on our operating results to meet our expense obligations, it is possible that larger than expected losses in the future during any single quarter could affect our ability to meet all of our expense obligations or may require us to prioritize, modify or cease some of our development programs. Our revenues and operating results, particularly those reported on a quarterly basis, may continue to fluctuate significantly. This makes it difficult to forecast our operating results. Therefore, we believe that quarterly comparisons of our operating results will not be meaningful, and you should not rely on them as an indication of our future performance. Also, our operating results in a future quarter or quarters may fall below the expectations of public market analysts or investors. If this were to occur, the price of our stock could decline. 6 If We Are Unable to Adequately Protect Our Proprietary Technology from Legal Challenges, Infringement or Alternative Technologies, This May Hurt Our Competitive Position We specialize in the nasal delivery of pharmaceutical products and rely on the issuance of patents, both in the U.S. and internationally, for protection against nasal product competition. Although we believe that we exercise the necessary due diligence in our patent filings, our proprietary position is not established until the appropriate regulatory authorities actually issue a patent, which may take up to two or three years after initial filing. Moreover, even the established patent positions of pharmaceutical companies are generally uncertain and involve complex legal and factual issues. Although we believe our issued patents are valid, it is possible that others may nevertheless challenge our issued patents, that our issued patents will not withstand review in a court of competent jurisdiction, and that a court will hold our issued patents to be invalid. Furthermore, it is possible that others will infringe or otherwise circumvent our issued patents and that we will be unable to fund the cost of litigation against them. In addition, we may not be able to protect our established and pending patent positions from competitive drug delivery technologies, which may provide more effective therapeutic benefit to patients and which may therefore make our products, technology and/or proprietary position obsolete. If we are unable to adequately protect our proprietary technology from legal challenges, infringement or alternative technologies, we may not be able to compete in the pharmaceutical delivery business. If The Commercial Opportunity for Nasally Administered Products Is Limited, This Could Impact Our Anticipated Future Revenue Growth The physical and chemical properties of a drug affect our ability to develop a method of delivering it intranasally. Although we continue to explore the feasibility of nasally delivering drugs that are large, more complex molecules, we have more expertise in nasal delivery of smaller, less complex molecules. The universe of nasal products that qualify as small molecules and are available for commercialization may be limited. Accordingly, we may be subject to intense competition in these potential products, which can affect our anticipated future revenue growth. Although we need to accelerate our research of larger molecules, it is possible that we will not be successful in these areas. If we are not successful in these areas, our future revenue may not grow at all or as quickly as anticipated. We May Require Additional Financing in the Future, and If Additional Capital Is Not Available, We May Have To Curtail or Cease Operations Subject to the success of our development programs and potential licensing transactions, we may require an additional infusion of capital to complete the research and development activities we currently contemplate and to commercialize our proposed products. We may need to raise additional capital to fund more rapid expansion, to develop new products and to enhance existing services to respond to competitive pressures, and to acquire complementary businesses or technologies. Our future capital needs depend on many factors, including: o the scope, duration and expenditures associated with our current research and development programs o continued scientific progress in these programs o the outcome of potential licensing transactions, if any o competing technological developments o our proprietary patent position, if any, in our products o the regulatory approval process for our products o other factors which may not be within our control We may not be able to obtain additional financing at these times on terms favorable to us, if at all. For example, a decline in the trading volume or price of our common stock may reduce the maximum amount we may be able to draw down under our equity line of credit agreement with Castlebar Enterprises Limited. Our equity line of credit agreement limits our ability to raise money from other sources by prohibiting us from selling our securities to third parties at a discount to the market price during the term of the equity line of credit agreement. Therefore, if we need to raise capital from other 7 sources, then we will have to seek Castlebar's permission. If Castlebar does not allow us to obtain capital by selling our securities at a discount to market price, we will have to seek financing through other means, which may not be possible on terms favorable to us, if at all. Without additional funding, we may have to delay, reduce or eliminate one or more research or development programs and reduce overall overhead expenses. This action may reduce the market price of our common stock. If We Fail To Obtain Regulatory Approvals For Our Products, We Will Be Prevented From Marketing Our Products and We Will Incur Substantial Losses We embark on specific research or development projects that address unmet medical needs. Numerous governmental authorities in the United States and other countries subject these projects to significant regulation. For example, we must file New Drug Applications with the Food and Drug Administration for most of these projects. The process of completing clinical testing and obtaining FDA approval for a new drug product requires substantial resources over a number of years. If we do not receive the necessary regulatory approvals along the way, we will not be able to progress clinically in our projects and may be forced to abandon projects after incurring substantial costs. For example, in 2000 the FDA rejected the New Drug Application for our nasally administered scopolamine product primarily because we failed to present adequate safety data. This action resulted in an indefinite delay in our New Drug Application filing program and uncertain costs of additional development . The magnitude of the costs associated with these studies and the refiling of the New Drug Application have contributed to a deferral of our program until a collaborative partner is found to share the future development risk. Moreover, other factors, such as a periodic reassessment of the ranking of projects within our portfolio, may create further uncertainty of the continuing viability of any project in process, including nasally administered scopolamine. Finally, we may encounter significant delays or excessive costs in our efforts, even if we are eventually successful in achieving regulatory approval. If we cannot obtain regulatory approval of our products, we will not be able to generate revenues and become profitable. Because We Have No Experience in Marketing or Selling Our Proposed Products, These Products May Never Be Successful Even if we are able to develop our products and obtain necessary regulatory approvals, we have no experience in marketing or commercializing any of our proposed products. We are dependent on our ability to find collaborative marketing partners for commercial sale of our products. Even if we find a potential marketing partner, we may not be able to negotiate a licensing contract on favorable terms to justify our investment or achieve adequate revenues. In addition, a licensing transaction with a marketing partner does not assure a product's success, which is dependent upon patients, physicians or third-party payers accepting the product. Our products may prove to be unsuccessful if various parties, including government health administration authorities, private health care insurers and other health care payers, such as health maintenance organizations and self-insured employee plans that determine reimbursement to the consumer, do not accept our products. We cannot assure you that reimbursement will be available at all or at levels sufficient to allow our marketing partners to achieve profitable price levels for our products. If we fail to achieve adequate reimbursement levels, patients may not purchase our products and sales of these products will be reduced. Because We Will Face Intense Competition, This May Limit Our Ability To Achieve Profitability Our competitors are numerous and include, among others, major pharmaceutical companies, biotechnology firms, universities and other research institutions. Our competitors may succeed in developing technologies and products that are more effective than the nasal technology we are developing or that will cause our technology or products to become obsolete or noncompetitive. Many of our competitors have substantially greater financial and technical resources and production and marketing capabilities than we have. They also may have greater experience in conducting preclinical testing and clinical trials of pharmaceutical products and obtaining FDA and other regulatory approvals. Therefore, our competitors may succeed in obtaining FDA approval for products faster than we could. Even if we commence commercial sales of our products, we will also be competing against their manufacturing efficiency and marketing capabilities, areas in which we have limited or no experience. 8 Although we believe that our ownership of patents for our nasal delivery products will limit direct competition with these products, we must also compete with other promising technologies such as controlled release, target organ or site release, pumps, polymers, microemulsion, monoclonal antibodies, inhalation, ocular, liposomal, implants, transdermal passive and transdermal electrotransport. Our competitors may develop other products using these or other delivery alternatives that may be as or more effective than our products and proposed products. We may not be able to compete effectively with other commercially available products or drug delivery technologies. If We Have a Problem With Our Manufacturing Facility, or If We or Our Suppliers Fail to Comply with Applicable Regulations, We May Not Be Able To Market Our Products or Conduct Clinical Trials We manufacture all of our products for clinical and commercial use at our principal manufacturing facility located in Hauppauge, New York. We must produce all of these products in compliance with federal and state regulations. These authorities also subject our facilities to inspection. In addition, some of our key suppliers, such as Roussel Corporation, SGD Pharma, CP Packaging and Pfeiffer of America, are also subject to regulatory compliance. If we have a problem at our manufacturing facility, or if we or our suppliers fail to comply with federal and state regulations or otherwise fail to perform our respective obligations in a timely fashion, these problems or failures could cause a delay in clinical trials or the supply of product to market. Any significant delay could also jeopardize our performance contracts with collaborative partners and result in material penalties to us. Changes in the Health Care Industry That Are Beyond Our Control May Be Detrimental To Our Business The health care industry is changing rapidly as the public, government, medical professionals and the pharmaceutical industry examine ways to broaden medical coverage while controlling the increase in health care costs. Potential changes could put pressure on the prices of prescription pharmaceutical products and reduce our business or prospects. We cannot predict when, if any, proposed health care reforms will be implemented, and these changes are beyond our control. If There Are Unforeseen or Unknown Liabilities in Connection With the Operation of Our Newly Acquired Business, Atossa, These Liabilities Will Reduce Our Working Capital, Liquidity and Profitability On August 8, 2000, we acquired Atossa HealthCare Inc., a development stage company based in Washington state which is developing a proprietary platform of diagnostics and treatments related to breast cancer risk assessment and therapeutics and other women's health care products. We effected the acquisition via a merger of Atossa Acquisition Corporation Inc., a wholly owned subsidiary of Nastech, with and into Atossa, after which Atossa became a wholly owned subsidiary of Nastech. The total consideration we paid for Atossa -- 600,000 shares of our common stock with a market value of approximately $2.5 million -- was agreed upon between parties after extensive negotiations. The amount of consideration paid to Atossa was based exclusively on these negotiations. The consideration paid does not bear any relationship to the net book value of Atossa and may not necessarily bear any relationship to any other recognized measure of value. We anticipate that the continued development of the acquired technology from Atossa will cost approximately $16 million and will take approximately four and one-half years before the technology is developed into a commercially viable product, if ever. We intend to seek research collaborations to partially or fully fund these development costs. Successful commercialization of the acquired technology is subject to the same risks as are associated with our other research activities. Unforeseen and unknown liabilities may arise in connection with the ownership and operation of Atossa. Although we believe that the acquisition structure and due diligence we employed minimize the risk of pre-existing claims being successfully asserted against Nastech, it is possible that others will assert against us claims they originally had against Atossa and that these claims may result in material liabilities to us. The occurrence of any liability of this kind can reduce our working capital and liquidity and make us less profitable. If We Fail to Integrate Our New Chief Executive Officer and the Newly Acquired Business, or If We Lose Our Key Personnel, or If We Are Unable To Attract and Retain Additional Personnel, Then We May Be Unable To Successfully Develop Our Business On August 8, 2000, we entered into an employment agreement with Steven C. Quay, M.D., Ph.D. to replace Vincent D. Romeo, Ph.D., who died on May 1, 2000, as our President, Chief Executive Officer and Chairman of the Board. We cannot assure you that Dr. Quay and our management team will perform well together. Because we depend upon the knowledge, experience and skills of our management and research and development personnel, our inability to successfully integrate 9 Dr. Quay into the management team could impede our ability to execute our business plans on schedule. Our inability to successfully integrate and develop the operations and technologies of Atossa could also reduce our profitability and inhibit future growth. In addition, losing Dr. Quay, or any of our other key managers could also seriously harm our business. Although we generally execute employment agreements with key personnel, this is not a guarantee that we will be able to retain them or that we will be able to replace any of them if we lose their services for any reason. Competition for these managers is intense. In addition, the location of our facilities may limit the pool of technical talent available to us. We have employed many of our key managers for several years. If we have to replace any of these individuals, we will not be able to replace the significant amount of knowledge that they have about our operations. We do not maintain "key man" insurance policies on any of our managers. We Expect To Sell Shares of Our Common Stock in the Future, including Shares Issued Under the Equity Line of Credit, and These Sales May Dilute the Interests of Other Security Holders and Depress the Price of Our Common Stock As of December 31, 2000, there were 6,803,485 shares of common stock issued and outstanding, and there were outstanding options and warrants to purchase approximately 2,131,000 shares of our common stock. There are also 1,299,000 shares of common stock which are issuable under the equity line of credit and under the warrants previously granted and which may be granted in the future to Castlebar and Jesup & Lamont. We may also issue additional shares in acquisitions and may grant additional stock options to our employees, officers, directors and consultants under our stock option plans. Lastly, subject to some restrictions in the equity line of credit agreement, we may issue up to 300,000 shares of our common stock to investors at a discount to market price without the consent of Castlebar. The issuance or even the potential issuance of shares under the equity line of credit, in connection with any other additional financing, and upon exercise of warrants, options or rights will have a dilutive impact on other stockholders and could have a negative effect on the market price of our common stock. In addition, if we draw down under the equity line of credit, we will issue shares to Castlebar at a discount to the daily volume weighted average prices of our common stock during the 22 trading days after notification of a drawdown. This will further dilute the interests of other stockholders. If We Draw Down on the Equity Line of Credit When Share Prices Are Decreasing, We Will Need To Issue More Shares, which Will Lead To Dilution and Potentially Further Price Decrease As we sell shares of our common stock to Castlebar under the equity line of credit, and then Castlebar sells the common stock to third parties, our common stock price may decrease due to the additional shares in the market. If we decide to draw down on the equity line of credit as the price of our common stock decreases, we will need to issue more shares of our common stock for any given dollar amount that Castlebar invests, subject to the minimum selling price we specify. The more shares that we issue under the equity line of credit, the more diluted our shares will be and the more our stock price may decrease. This may encourage short sales, which could place further downward pressure on the price of our common stock. The Anti-Takeover Provisions of Our Stockholder Rights Plan May Entrench Management, May Delay or Prevent Beneficial Takeover Bids by Third Parties, and May Prevent or Frustrate any Shareholder Attempt to Replace or Remove the Current Management Even If the Shareholders Consider It Beneficial To Do So We have a stockholder rights plan designed to protect our stockholders from coercive or unfair takeover tactics. Under the plan, we declared a dividend of one preferred stock purchase right for each share of common stock outstanding on March 17, 2000. Each preferred stock purchase right entitles the holder to purchase from Nastech 1/1000 of a share of Series A Junior Participating Preferred Stock for $50. In the event any acquiring entity or group accumulates or initiates a tender offer to purchase 15% or more of our common stock, then each holder of a preferred stock purchase right, other than the acquiring entity, will have the right to receive, upon exercise of the preferred stock purchase right, shares of Nastech common stock or shares in the acquiring entity having a value equal to two times the exercise price of the preferred stock purchase right. The intent of the stockholder rights plan is to protect our stockholders' interests by encouraging anyone seeking control of our company to negotiate with our board of directors. However, our stockholder rights plan could make it more difficult for a third party to acquire us without the consent of our board of directors, even if doing so would be beneficial to our shareholders. These provisions apply even if the offer may be considered beneficial by some stockholders. Furthermore, 10 the anti-takeover provisions of our stockholder rights plan may entrench management and make it more difficult for shareholders to replace management even if the shareholders consider it beneficial to do so. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS We have made forward-looking statements in this prospectus and in the documents that are incorporated by reference in this prospectus, all of which are subject to risks and uncertainties. Forward-looking statements include information concerning our possible or assumed future results of operations. Also, when we use words such as "believe," "expect," "anticipate" or similar expressions, we are making forward-looking statements. You should not rely on the forward-looking statements in this prospectus. Although we believe that the expectations reflected in forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those described in "Risk Factors" and elsewhere in this prospectus. We believe that it is important to communicate our expectations to our investors. However, there may be events in the future that we are not able to predict accurately or over which we have no control. The risk factors described in the preceding pages, as well as any cautionary language in this prospectus, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you invest in our common stock, you should be aware that the occurrence of the events described in these risk factors and elsewhere in this prospectus could materially affect our business, lower our operating results and worsen our financial condition. ---------------------------- You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. The information contained in this prospectus is current only as of the date on the front of this prospectus. 11 USE OF PROCEEDS We will not receive any proceeds from the selling stockholders' sales of common stock. However, we will receive the proceeds upon the exercise of the selling stockholders' warrants when, and if, they exercise the warrants. If all 503,172 shares underlying the warrants granted to the selling stockholders' which are covered by this prospectus are issued through the exercise of those warrants, then based upon the exercise price of $6.3375 per share, we would realize net proceeds of approximately $3,188,850. We expect to use substantially all the net proceeds from the exercise of the warrants referred to above for general corporate purposes, including working capital, research and development and expansion of sales and marketing activities. The amounts we actually expend for working capital and other purposes may vary significantly and will depend on a number of factors including, but not limited to, the actual net proceeds received, the amount of our future revenues and other factors described under "Risk Factors." Accordingly, our management will retain broad discretion in the allocation of the net proceeds. A portion of the net proceeds may also be used to acquire or invest in complementary businesses, technologies, product lines or products. We have no current plans, agreements or commitments with respect to any of these transactions, and we are not currently engaged in any negotiations with respect to any of these transactions. Pending these uses, the net proceeds of this offering will be invested in short-term, interest-bearing, investment-grade securities or guaranteed obligations of the U.S. government. PRICE RANGE OF COMMON STOCK Our common stock is quoted on the Nasdaq National Market under the symbol "NSTK." The following table describes the range of high and low bid prices per share of our common stock as reported on the Nasdaq National Market for the last two and one-quarter years. These quotations represent prices between dealers and do not reflect retail markups, markdowns or commissions and may not necessarily represent actual transactions. Low High --- ---- 2001 First Quarter........................................... $3.88 $9.94 2000 First Quarter........................................... $2.53 $8.38 Second Quarter.......................................... $3.25 $5.88 Third Quarter........................................... $3.81 $7.50 Fourth Quarter.......................................... $5.44 $8.97 1999 First Quarter........................................... $3.00 $6.25 Second Quarter.......................................... 2.56 3.63 Third Quarter........................................... 2.75 4.44 Fourth Quarter.......................................... 1.56 3.63 We believe that there are currently approximately 5,000 record holders of our common stock, including several brokerage firms holding shares in street name for beneficial owners. On April 20, 2001, the closing bid price of our common stock as quoted on the Nasdaq National Market was $4.50. The selling stockholders will sell their shares on the Nasdaq National Market, on the over-the-counter market or otherwise at prices related to the then current market price, or in negotiated private transactions, or in a combination of these methods. The selling stockholders will act independently of us in making decisions with respect to the form, timing, manner and size of each sale. 12 SELLING STOCKHOLDERS On March 22, 2001, we issued an aggregate of 860,124 shares of our common stock in a private offering to the stockholders listed below. In connection with the private offering, we granted the investors warrants to purchase an additional 430,062 shares of our common stock. Jesup & Lamont Securities Corporation, a registered broker-dealer, acted as placement agent for the private offering. As consideration for Jesup & Lamont's services as placement agent in connection with the private offering, we granted Jesup & Lamont warrants to purchase 73,110 shares of common stock and we paid them an amount in cash equal to 6% of the gross proceeds of the private offering, plus expenses. The investors and Jesup & Lamont may exercise their warrants at any time prior to March 22, 2006, at a strike price of $6.3375 per share of common stock. However, neither the investors, nor Jesup & Lamont will be obligated to exercise the warrants and to purchase any shares of common stock under these warrants. The selling stockholders may use this prospectus to resell the 860,124 shares that we issued to them, plus the 503,172 shares underlying the warrants that we granted to them. The following table lists the selling stockholders and other information regarding their beneficial ownership of the shares of common stock as of March 22, 2001. The second column lists the number of shares of common stock beneficially owned by each selling stockholder on March 22, 2001, including the shares of common stock underlying the warrants held by them. Because the selling stockholders may sell all, a portion, or none of their shares, we cannot estimate the number of shares that will be held by the selling stockholders after the completion of this offering.
Maximum Number of Shares Number of Shares Owned that May Be Sold in this Name of Security Holder Prior to this Offering (1) Offering (2) - ---------------------------------------------------------------------------------------------------------------------- Ashton Harvey........................................ 30,768 30,768 Guarantee & Trust Company, Trustee, FBO Douglas Garrett .................................. 30,768 30,768 Mark & Elizabeth Wheeler............................. 15,384 15,384 Gary B. Davis........................................ 30,000 30,000 Univest Mgt. Inc., EPSP.............................. 15,000 15,000 James T. Betts, Trustee, Trust J u/a M.F. Britton.... 27,691.5 27,691.5 Shipman & Goodwin Profit Sharing Plan Trust, FBO James T. Betts, Ira H. Goldman & Richard Cohen, Trustees........................... 15,384 15,384 James T. Betts & Joan C. Betts, Trustees, u/a Theodore & Helen Betts............................ 12,307.5 12,307.5 Athena Family Partners............................... 30,000 30,000 Lawrence Remmel...................................... 7,692 7,692 Gerald T. Stanewick.................................. 30,768 30,768 Ralph F. Peters et AL Trust u/w Ella Frew............ 76,923 76,923 Coralbasin & Co., as nominee for SAFECO Common Stock Trust Growth Opportunities Fund (3)......... 652,500 652,500 Coralrock & Co., as nominee for SAFECO Resource Series Trust Growth Opportunities Portfolio (3)..................................... 315,000 315,000 Jesup & Lamont Securities Corporation (4)............ 89,610 (5) 73,110
13 (1) Includes shares of common stock issuable upon the exercise of all warrants beneficially owned by the selling stockholders. (2) Assumes that each selling stockholder will sell all of the shares of common stock offered under this prospectus, but not any other shares of common stock beneficially owned by the selling stockholder. (3) Safeco Asset Management Company is the investment manager for the selling stockholder and consequently has voting power and investment discretion over the securities held by these selling stockholders. (4) Howard F. Curd, the chief executive officer of Jesup & Lamont, has the sole authority to exercise any warrants granted to Jesup & Lamont and to sell and vote the shares of common stock issued under the warrants. (5) Includes 16,500 shares of common stock underlying warrants that we previously granted to Jesup & Lamont in connection with our equity line of credit. The 16,500 shares underlying these warrants are not being registered under this registration statement and may not be offered and sold using this prospectus. Except for their ownership of common stock, to the best of our knowledge, none of the selling stockholders, other than Jesup & Lamont, have held any position or office with us, or had any other material relationship with us, within the past three years. As noted above, Jesup & Lamont acted as placement agent in connection with the private placement in March 2001, and received a fee for such services. Jesup & Lamont also acted as placement agent in connection with our equity line of credit agreement with Castlebar Enterprises Limited in July 2000. In connection with the equity line of credit, we granted 16,500 warrants to Jesup & Lamont as a placement fee and agreed to register the shares underlying the warrants. At the closing of each drawdown under the equity line of credit, we will also grant Jesup & Lamont warrants to purchase an additional 1,000 shares of common stock for each $100,000 we draw down under the equity line of credit, up to a maximum of 16,500 additional warrants, and we will pay a brokerage fee to Jesup & Lamont equal to 4% of the net purchase price for each drawdown. Other than the 89,610 warrants we granted to Jesup & Lamont as placement fees in connection with the equity line of credit agreement and our March 2001 private offering, Jesup & Lamont does not currently own any of our securities. Neither Jesup & Lamont nor any of its affiliates or control persons has held any positions or offices, or had other material relationships, with us or any of our affiliates within the past three years other than as a result of the ownership of our common stock. If, in the future, Jesup & Lamont's relationship with us changes, we will amend or supplement this prospectus to update this disclosure. 14 PLAN OF DISTRIBUTION The selling stockholders may offer for sale up to 1,363,296 shares of our common stock using this prospectus. We do not know for certain how or when the selling stockholders will choose to sell their shares of common stock. We will not receive any proceeds from the selling stockholders' sale of shares of common stock. To permit the selling stockholders to resell the shares of common stock issued to them, we agreed to file a registration statement and all necessary amendments and supplements with the SEC for the purpose of registering and maintaining the registration of the shares. We will bear all costs relating to the registration of the common stock offered using this prospectus. We will keep the registration statement effective until the earliest of any of the following dates: o the second anniversary of the date this registration statement is declared effective or, in the case of warrant shares, the first anniversary of the date of issuance of such warrant shares, but in any event not later than the fourth anniversary of the date such registration statement is declared effective; o the date after which the shares of common stock can be sold under an appropriate exemption from registration; o the date after which the selling stockholders sell all of the shares of common stock covered by this registration statement. Selling stockholders will offer our common stock into the public market from time to time using this prospectus, although there can be no assurance that they will in fact sell any or all of the securities that this prospectus covers. The sales may be made on the Nasdaq National Market, on the over-the-counter market or otherwise at prices related to the then current market price, or in negotiated private transactions, or in a combination of these methods. The selling stockholders will act independently of us in making decisions with respect to the form, timing, manner and size of each sale. The selling stockholders have informed us that there are no existing arrangements between them and any other stockholder, broker, dealer, underwriter or agent relating to the sale or distribution of shares of common stock which they may sell through this prospectus. The shares of common stock may be sold in one or more of the following manners: o block trades in which the broker or dealer so engaged will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; o purchases that a broker or dealer makes for its account under this prospectus; or o ordinary brokerage transactions and transactions in which the broker solicits purchases. The selling stockholders will pay all commissions and their own expenses, if any, associated with the sale of the shares of common stock. The selling stockholders will sell shares without paying any underwriting discounts or commissions, except for usual and customary selling commissions paid to brokers or dealers. However, in effecting sales, brokers or dealers that the selling stockholders engage may arrange for other brokers or dealers to participate. Except as disclosed in a supplement to this prospectus, no broker-dealer will be paid more than a customary brokerage commission in connection with any of the selling stockholders' sales of shares of common stock. The selling stockholders may pay brokers or dealers commissions, discounts or other concessions in amounts to be negotiated immediately prior to the sale. The compensation to a particular broker-dealer may be in excess of customary commissions. Any profits that these broker-dealers make on any resale of the shares of common stock as a principal and any commissions that these broker-dealers receive may be deemed to be underwriting discounts and commissions under the Securities Act of 1933. The selling stockholders may pay commissions to any broker-dealer participating in these transactions as agent. The purchaser of the shares of common stock may also pay commissions to any broker-dealer participating in these transactions if the broker-dealer acts as agent for the purchaser. Broker-dealers may agree with the selling stockholders to sell a specified number of shares of common stock at a stipulated price per share and, to the extent a broker-dealer is unable to do so acting as agent for the selling stockholders, to purchase as principal any unsold shares of common stock at a price required to fulfill the broker-dealer commitment to the selling stockholders. Broker-dealers who acquire shares of common stock as principal may thereafter resell the shares of common stock from time to time in transactions, which may involve crosses and block transactions and which may involve sales to and through other broker-dealers, including transactions of the nature described above, in the over-the-counter market, in 15 negotiated transactions or otherwise at market prices prevailing at the time of sale or at negotiated prices, and in connection with the resales may pay to or receive from the purchasers of the shares of common stock commissions computed as described above. Brokers or dealers who acquire shares of common stock as principal and any other participating brokers or dealers may be deemed to be underwriters in connection with resales of the shares of common stock. The selling stockholders and any broker-dealers or agents that participate with the selling stockholders in the sale of shares may be "underwriters" within the meaning of the Securities Act of 1933. Any commissions received by broker-dealers or agents on the sales and any profit on the resale of shares purchased by broker-dealers or agents may be deemed to be underwriting commissions or discounts under the Securities Act of 1933. The selling stockholders are also subject to applicable state and federal securities laws, rules and regulations, including Rule 10b-5 and Regulation M under the Exchange Act of 1934, and the rules and regulations of the Nasdaq National Market. Under these rules, the selling stockholders may not: o engage in market making activities at the same time as they are engaged in a distribution of the shares of common stock for a period beginning when this person becomes a distribution participant and ending upon this person's completion of participation in a distribution; o engage in any stabilization activity in connection with our securities; o impose penalty bids or effect passive market making bids; and o bid for or purchase any of our common stock or attempt to induce any person to purchase any of our common stock other than as permitted under the Exchange Act. In addition, if any of the selling stockholders is an "affiliated purchaser" as defined in Regulation M, they must coordinate their sales under this prospectus with each other and with us for purposes of Regulation M as Securities Exchange Act Release 34-38067 (December 20, 1996) requires. None of the selling stockholders, nor any of their controlling persons, has been an officer, director or otherwise an affiliate of our company during the last three years. These restrictions, and the other rules and regulations applicable to selling stockholders, may affect the marketability of the shares of common stock. Under the terms of the private offering in March 2001, we agreed to indemnify the selling stockholders against any liabilities they may incur as a result of any untrue statement of a material fact or omission to state a material fact in the registration statement, of which this prospectus is a part, or arising out of any failure by us to fulfill any undertaking or covenant included in the registration statement or to perform our obligations under the private offering agreements or under law. This indemnification includes liabilities that the selling stockholders may incur under the Securities Act of 1933. DESCRIPTION OF CAPITAL STOCK The following summary describes the material provisions of our capital stock and is subject to, and qualified in its entirety by, our Certificate of Incorporation including any amendments, and our By-laws, all of which are incorporated by reference as exhibits to the registration statement of which this prospectus is a part and by provisions of applicable law. We are authorized to issue up to 25,000,000 shares of common stock, par value $0.006, and 100,000 shares of preferred stock, par value $0.01. As of March 31, 2001, 7,701,726 shares of common stock were issued and outstanding, and no shares of preferred stock were outstanding. We believe that there are approximately 5,000 record holders of our common stock, including several brokerage firms holding shares in street name for beneficial owners. Common Stock All of our issued and outstanding shares of common stock are validly issued, fully paid and non-assessable. All shares of our common stock to be outstanding after this offering, when paid for and issued, will be validly issued, fully paid and non-assessable. On March 2, 2000, in connection with the adoption of a shareholder rights plan, our board of directors created and designated 10,000 shares of Series A Junior Participating Preferred Stock. The rights of holders of our common stock are subject to the rights of the holders of our Series A Junior Participating Preferred Stock and will be subject to the rights of any preferred stock that we may create and issue in the future. The rights of preferred stockholders may adversely affect the rights of the common stockholders. 16 Voting Rights. Holders of our common stock are entitled to one vote per share on all matters requiring a vote of the stockholders. Common stockholders have no right to cumulative voting in the election of directors. Accordingly, a simple majority of votes can elect each of our directors. Liquidation Rights. In the event of liquidation of our company, all holders of our common stock will participate on an equal basis in the net assets available for distribution after payment of our liabilities and payment of any liquidation preferences in favor of outstanding shares of preferred stock, if there are any. Dividend Rights. Holders of our common stock are entitled to receive dividends in cash or property on an equal basis, if and when the board of directors declares dividends on the common stock, subject to any preference in favor of outstanding shares of preferred stock, if there are any. It is our present intention to retain our earnings, if any, for use in our business. Dividends are, therefore, unlikely in the foreseeable future. Preemptive Rights and Redemption. The holders of our common stock have no preemptive rights to maintain their respective percentage ownership interest in our other securities. Our common stock is not redeemable or subject to further calls or assessments, although we have in the past effected a 1:100 reverse split of our common stock followed immediately by a 100:1 forward split to enable us to redeem odd-lot shares which were creating excessive administrative costs for us. As of December 31, 1999, we redeemed and then retired 110,736 odd-lot shares. We also acquired 77,000 shares of our common stock in 1999, and are holding these shares as treasury stock. Preferred Stock We are authorized to issue up to 100,000 shares of preferred stock, without stockholder approval. Under the authority granted to and vested in our board of directors, in March 2000, the board of directors created a series of preferred stock and fixed the relative rights, preferences and limitations of the stock. The series was designated as Series A Junior Participating Preferred Stock and consisted of 10,000 shares. The dividend and distribution rights of the holders of the Series A Junior Participating Preferred Stock are superior to the dividend and distribution rights of the holders of our common stock, but are junior to all series of any other class of our preferred stock with respect to the payment of dividends and the distribution of assets. The Series A Junior Participating Preferred Stock is not redeemable. Each share of Series A Junior Participating Preferred Stock entitles the holder to 1,000 votes on all matters submitted to a vote of our stockholders, and vote together as one class with the holders of our common stock. However, the holders of the Series A Junior Participating Preferred Stock are entitled to vote together as a single class on any amendment to our Certificate of Incorporation which would materially alter or change the powers, preferences or special rights of the Series A Junior Participating Preferred Stock. Upon our liquidation, dissolution or winding up, the holders of Series A Junior Participating Preferred Stock are entitled to receive $1,000, plus the amount of any accrued and unpaid dividends, for each share of Series A Junior Participating Preferred Stock held, subject to adjustment. Additionally, upon any consolidation or merger of our company in which the shares of our common stock are exchanged for other stock, securities, cash or any other property, then each share of Series A Junior Participating Preferred Stock shall be similarly exchanged, at the same time, into an amount per share equal to 1,000 times the aggregate amount of stock, securities, cash or any other property in which the common stock was exchanged. The relative rights, preferences and limitations of the Series A Junior Participating Preferred Stock are more fully described in the Designations of Rights, Terms and Preferences of Series A Junior Participating Preferred Stock. Our board of directors has the express authority, without any stockholder vote or action, to create additional series of preferred stock and to fix the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, redemption prices, and liquidation preferences, and to set the number of shares constituting any series of preferred stock. It is impossible for us to state the actual effect on common stockholders if the board of directors designates a new series of preferred stock. The effects of the designation will not be determinable until the rights accompanying the series have been designated. The issuance of preferred stock could adversely affect the voting power, liquidation rights or other rights that owners of common stock or other series' of preferred stock hold. We have no present plans to issue any additional shares of preferred stock. 17 Stockholder Rights Plan In February 2000, we implemented a stockholder rights plan designed to protect our stockholders from coercive or unfair takeover tactics by causing shares of our preferred stock with voting or conversion rights to be issued to holders who might side with our board of directors in opposing a takeover bid. In addition, our issuance of the shares of preferred stock with voting or conversion rights could dilute the stock ownership of those holders. Under the stockholder rights plan, we declared a dividend of one preferred stock purchase right for each share of common stock held of record on March 17, 2000. The preferred stock purchase rights are exercisable only when a person or group of affiliated persons accumulate or initiate a tender offer to purchase 15% or more of our common stock. Upon exercise, each preferred stock purchase right will entitle its holder, other than the acquirer and its affiliates, to purchase 1/1000 of a share of our Series A Junior Participating Preferred Stock at a price of $50 per one one-thousandth of a preferred share. The holder of each right will receive upon exercise, common shares having a value equal to two times the exercise price of the right. For example, at an exercise price of $50 per right, each right that the acquiror does not own would be entitled to purchase $100 worth of common stock for $50. Assuming a value of $25 per common share at the time, the holder of each right would be entitled to purchase four common shares for $50. Options and Warrants Under our stock option plans, we are authorized to grant options to purchase a maximum of 2,500,000 shares of common stock to our employees, officers, and directors, and to other persons who provide us with services. As of December 31, 2000, a total of 2,012,245 options were outstanding, and 338,757 options were available for future grants under our stock option plans. Our board of directors determine the terms of our options at the time of grant. In connection with our 1997 public offering, we issued to the representatives of the underwriters, warrants to purchase a total of 69,000 shares of common stock at an exercise price of $16.80 per share, exercisable at any time through January 23, 2002. Following our acquisition of Atossa HealthCare Inc. on August 8, 2000, we hired Dr. Steven C. Quay as our new President, Chief Executive Officer and Chairman of the Board and granted him options to purchase a total of 600,000 shares of common stock. The exercise price of the options varies from $4.09 per share to $15.00 per share, with a weighted average exercise price of $8.60. All of these options regardless of the exercise price will vest at the rate of 33.33% per full year of service, and will not vest pro-rata during the interim periods. In connection with a private offering of our shares in March 2001, we granted a total of 430,062 warrants to the investors and 73,110 warrants to Jesup & Lamont as placement agent, each with an exercise price of $6.3375 per share, exercisable at any time through March 22, 2006. These warrants contain antidilution protections which will adjust the applicable exercise price and/or the number of shares issuable upon exercise of the warrants upon the occurrence of specified events such as stock dividends, stock splits, mergers and sales of all or substantially all of our assets. The following table presents all the options and warrants that were outstanding as of March 31, 2001, including the warrants granted to the selling stockholders: Number of Shares Weighted Average Purchasable Exercise Price (1) --------------------------------- ----------------------------- 1,412,245 (2) $4.89 69,000 (3) $16.80 49,500 (4) $5.53 600,000 (5) $8.60 430,062 (6) $6.34 73,110 (7) $6.34 ---------- ----- 2,633,917 $6.34 ========= ===== - -------------- (1) Exercise prices are rounded to the nearest cent. 18 (2) Shares issuable upon exercise of options granted under the stock option plans. Does not include any options granted under the plans after December 31, 2000. (3) Total shares issuable upon exercise of warrants granted to Wheat, First Securities, Inc. and Volpe, Welty & Company, as underwriters in connection with an offering of our shares in 1997. (4) Shares issuable upon exercise of the warrants granted to Jesup & Lamont as a placement fee, and to Castlebar in connection with closing the equity line of credit agreement. Does not include the additional warrants that may be issued to Castlebar and Jesup & Lamont upon each drawdown under the equity line of credit. (5) Shares issuable upon exercise of options granted on August 8, 2000, to Dr. Steven C. Quay. (6) Total shares issuable upon exercise of warrants granted to investors in connection with the private offering of our shares in March 2001. (7) Shares issuable upon exercise of warrants granted to Jesup & Lamont as a placement fee in connection with the private offering of our shares in March 2001. Holders of options and warrants do not have any of the rights or privileges of our stockholders, including voting rights, prior to exercise of the options and warrants. We have reserved sufficient shares of authorized common stock to cover the issuance of common stock subject to the options and warrants. Section 203 of the Delaware General Corporation Law We are subject to Section 203 of the Delaware General Corporation Law, which prevents an "interested stockholder" from engaging in a "business combination" with a publicly held Delaware corporation for three years following the date the person became an interested stockholder, unless: (1) before the person became an interested stockholder, the board of directors of the corporation approved the transaction in which the interested stockholder became an interested stockholder or approved the business combination; (2) upon consummation of the transaction that resulted in the interested stockholder's becoming an interested stockholder, the interested stockholder owns at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or (3) following the transaction in which the person became an interested stockholder, the board of directors of the corporation approves the transaction and holders authorize the transaction at a meeting of stockholders by the affirmative vote of the holders of 66 2/3% of the outstanding voting stock of the corporation that the interested stockholder does not own. The Delaware General Corporation Law defines an "interested stockholder" as a person owning 15% or more of a corporation's outstanding voting stock. A "business combination" includes mergers, stock or asset sales and other transactions resulting in a financial benefit to the interested stockholder. The provisions of Section 203 of the Delaware General Corporation Law could have the effect of delaying, deferring or preventing a change in control. Indemnification and Limitation of Liability Our Certificate of Incorporation limits the liability of directors to the maximum extent that Delaware law as currently or hereafter in effect permits. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duty as a director, except for liability: (1) for breach of their duty of loyalty to the corporation or its stockholders; (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (3) for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or (4) for any transaction from which the director derives an improper personal benefit. Our Certificate of Incorporation provides for the mandatory indemnification of, and advancement of expenses to, our directors, officers, employees and agents to the maximum extent that Section 145 of the Delaware General Corporation Law, as amended from time to time, permits. 19 Transfer Agent The transfer agent and registrar for our common stock is the American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005. WHERE YOU CAN FIND MORE INFORMATION This prospectus is part of a registration statement on Form S-3 that we have filed with the SEC. Parts of the registration statement have been omitted from this prospectus as the rules and regulations of the SEC permit, and this prospectus does not contain all of the information contained or incorporated by reference in the registration statement. In particular, statements in this prospectus concerning the terms of certain agreements and other documents are necessarily summaries of those documents, and in each case we refer you to the copy of the applicable document to the extent we have filed it as an exhibit to the registration statement. For further information on us and the information in this prospectus, we refer you to the registration statement and its exhibits. You may obtain copies of the registration statement and its exhibits by paying a prescribed fee, or you may examine them without charge, at the Public Reference Room that the SEC maintains at its office at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the Regional Offices of the SEC at Seven World Trade Center, New York, New York 10048 and Citicorp Center, 300 West Madison Street, Chicago, Illinois 60661. You may obtain information on the operation of the public reference facilities by calling the SEC at 1-800-SEC-0330. In addition, you may obtain copies of the registration statement and its exhibits at the SEC's website located at http://www.sec.gov. We are a reporting company and file our annual, quarterly and current reports, proxy material and other information with the Securities and Exchange Commission. You may read and copy any materials that we file with the SEC at the SEC's public reference facilities listed above, as well as on the SEC's website. INCORPORATION OF INFORMATION BY REFERENCE The SEC allows us to "incorporate by reference" the information we file with them, which means that we can disclose important information to you by referring you to those documents that we filed separately with the SEC. Any document or information incorporated by reference is considered to be part of this prospectus from the date that we file that other document. Any document or information that we file later with the SEC will automatically update and, where applicable, supersede any information contained or incorporated by reference in this prospectus. We specifically incorporate by reference into this prospectus the following documents or information filed with the SEC: 1. Our Annual Report on Form 10-K for the fiscal year ended December 31, 2000; 2. Our Current Report on Form 8-K dated March 22, 2001; and 3. Any document or information that we file with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act of 1934 after the date of this prospectus and before the date that the offering of the shares of common stock offered through this prospectus is terminated. You may request a copy of these filings, at no cost, by writing or telephoning us at the following address (however, we will not include exhibits to those documents unless they are specifically incorporated by reference into this prospectus): Nastech Pharmaceutical Company Inc. Attn: Steven C. Quay, M.D., Ph.D. President & Chief Executive Officer 45 Adams Avenue Hauppauge, New York 11788 (631) 273-0101 In making a decision to buy our common stock, you should rely only on the information incorporated by reference or contained in the prospectus. We have not authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. 20 You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospectus may have changed since that date. LEGAL MATTERS The validity of the common stock offered hereby will be passed upon by Dickstein, Shapiro, Morin & Oshinsky LLP. EXPERTS The consolidated financial statements of Nastech Pharmaceutical Company Inc. and subsidiary as of December 31, 2000 and 1999, and for each of the years in the three-year period ended December 31, 2000, are incorporated by reference in this prospectus and in the registration statement in reliance upon the report of KPMG LLP, independent certified public accountants, incorporated by reference herein, upon the authority of said firm as experts in accounting and auditing. 21 1,363,296 Shares [GRAPHIC OMITTED] Common Stock PROSPECTUS _____________, 2001 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The fees and expenses we incurred in connection with the offering are payable by us and, other than registration, filing and listing fees, are estimated as follows: Securities and Exchange Commission Registration Fee.................. $1,769 Nasdaq Fee for Listing of Additional Shares.......................... $14,000 Legal Fees and Expenses.............................................. $20,000 Accounting Fees...................................................... $5,000 Miscellaneous Fees and Expenses...................................... $10,000 -------- Total................................................................ $50,769 ======== ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS. Our Certificate of Incorporation provides that the indemnification provisions of Sections 102(b)(7) and 145 of the Delaware General Corporation Law shall be utilized to the fullest extent possible. Further, the Certificate of Incorporation contains provisions to eliminate the liability of our directors to Nastech or its stockholders to the fullest extent permitted by Section 102(b)(7) of the Delaware General Corporation Law, as amended from time to time. Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending or completed actions, suits or proceedings in which such person is made a party by reason of such person being or having been a director, officer, employee or agent of the corporation. The Delaware General Corporation Law provides that Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions, or (iv) for any transaction from which the director derived an improper personal benefit. Our Certificate of Incorporation provides for such limitation of liability. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, is permitted for our directors, officers or controlling persons, pursuant to the above mentioned statutes or otherwise, we understand that the Securities and Exchange Commission is of the opinion that such indemnification may contravene federal public policy, as expressed in said Act, and therefore, may be unenforceable. Accordingly, in the event that a claim for such indemnification is asserted by any of our directors, officers or controlling persons, and the Commission is still of the same opinion, we (except insofar as such claim seeks reimbursement from us of expenses paid or incurred by a director, officer of controlling person in successful defense of any action, suit or proceeding) will, unless the matter has theretofore been adjudicated by precedent deemed by our counsel to be controlling, submit to a court of appropriate jurisdiction the question whether or not indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees as to which indemnification is sought, nor are we aware of any threatened litigation or proceeding that may result in claims for indemnification. I-1 ITEM 16. EXHIBITS. The following exhibits are filed with this Registration Statement: Exhibit Number Description - ------ ----------- 4.1 Form of Stock and Warrant Purchase Agreement dated March 22, 2001, between Registrant and each selling stockholder 4.2 Form of Warrant to Purchase Common Stock dated March 22, 2001, granted to each selling stockholder 4.3 Rights Agreement dated February 22, 2000 between Registrant and American Stock Transfer & Trust Registrant as Rights Agent. (Filed as Exhibit 1 to Registrant's Current Report on Form 8-K (Commission File No. 0-13789) dated August 8, 2000, and incorporated herein by reference). The Rights Agreement includes the Designation of Rights, Terms and Preferences of Series A Junior Preferred Stock as Exhibit A, the form of Rights Certificate as Exhibit B, and the Summary of Rights as Exhibit C thereto. 5.1 Opinion and consent of Dickstein, Shapiro, Morin & Oshinsky LLP 23.1 Consent of KPMG LLP 23.2 Consent of Dickstein, Shapiro, Morin & Oshinsky LLP (included in Exhibit 5.1) 24 Power of Attorney (included on the signature page hereof) ITEM 17. UNDERTAKINGS. (a) The undersigned registrant hereby undertakes: (1) to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) that, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof; and (3) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of this offering. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hauppauge, State of New York on this 23rd day of April, 2001. NASTECH PHARMACEUTICAL COMPANY INC. By: /s/ Steven C. Quay -------------------------------- Steven C. Quay, M.D., Ph.D. President, Chief Executive Officer and Chairman of the Board POWER OF ATTORNEY KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Steven C. Quay, M.D., Ph.D., as his true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or post-effective amendments to this Registration Statement, and to file the same, with all exhibits thereto, which amendments may make such changes in this Registration Statement as such agent deems appropriate, and to file any new registration statement (and any post-effective amendment thereto) which registers additional securities of the same class and for the same offering as this Registration Statement in accordance with Rule 462(b) under the Securities Act (each, a "462(b) Registration Statement"), and the Registrant and each such person hereby appoints each such Agent as attorney-in-fact to execute in the name and on behalf of the Registrant and each such person, individually and in each capacity stated below, any such amendments to this registration statement and any such 462(b) Registration Statements, and other documents in connection therewith, with the Commission. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities indicated on April 23, 2001.
Signature Title --------- ----- /s/ Steven C. Quay President, Chief Executive Officer and Chairman of the Board - --------------------------------- Officer (Principal Executive Officer) Steven C. Quay, M.D., Ph.D. /s/ Andrew Zinzi Chief Financial Officer - --------------------------------- (Principal Financial and Accounting Officer) Andrew Zinzi /s/ Devin N. Wenig Director - --------------------------------- Devin N. Wenig /s/ Bruce R. Thaw Director - --------------------------------- Bruce R. Thaw /s/ Grant W. Denison Director - --------------------------------- Grant W. Denison /s/ Ian R. Ferrier Director - --------------------------------- Dr. Ian R. Ferrier
II-3 /s/ Joel Girsky Director - --------------------------------- Joel Girsky /s/ Alvin Katz Director - --------------------------------- Alvin Katz /s/ John V. Pollock Director - --------------------------------- John V. Pollock II-4 EXHIBIT INDEX Exhibit Number Description - ------ ----------- 4.1 Form of Stock and Warrant Purchase Agreement dated March 22, 2001, between Registrant and each selling stockholder 4.2 Form of Warrant to Purchase Common Stock dated March 22, 2001, granted to each selling stockholder 4.3 Rights Agreement dated February 22, 2000 between Registrant and American Stock Transfer & Trust Registrant as Rights Agent. (Filed as Exhibit 1 to Registrant's Current Report on Form 8-K (Commission File No. 0-13789) dated August 8, 2000, and incorporated herein by reference). The Rights Agreement includes the Designation of Rights, Terms and Preferences of Series A Junior Preferred Stock as Exhibit A, the form of Rights Certificate as Exhibit B, and the Summary of Rights as Exhibit C thereto. 5.1 Opinion and consent of Dickstein, Shapiro, Morin & Oshinsky LLP 23.1 Consent of KPMG LLP 23.2 Consent of Dickstein, Shapiro, Morin & Oshinsky LLP (included in Exhibit 5.1) 24 Power of Attorney (included on the signature page hereof) II-5 EX-4.1 2 0002.txt FORM OF SUBSCRIPTION AGREEMENT EXHIBIT 4.1 STOCK AND WARRANT PURCHASE AGREEMENT This Stock and Warrant Purchase Agreement (the "Agreement") is made as of March 22, 2001 between NASTECH PHARMACEUTICAL COMPANY INC., a Delaware corporation (the "Company"), and the purchasers who are signatories hereto (the "Purchasers"). WHEREAS, the Company wishes to sell and the Purchasers desire to purchase shares (the "Shares") of the Company's Common Stock, $.006 par value per share ("Common Stock") and Warrants (as defined in Section 1.3), as such are being offered by the Company pursuant to an Offering Memorandum dated February 5, 2001 (which together with all exhibits thereto and any amendment or supplement thereto is referred to herein as the "Offering Memorandum"), this Agreement and the documents as set forth herein ; NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Purchase and Sale of Shares and Warrants. 1.1 Sale to the Purchasers. Subject to the terms and conditions hereof, the Company will issue and sell to each Purchaser the number of Shares set forth opposite such Purchaser's name on the signature page and the number of Warrants to purchase the number of Shares of Common Stock as set forth opposite such Purchaser's name on the signature page hereto for the purchase price indicated on the signature page hereto ("Purchase Price."). The obligations of each Purchaser hereunder are several and not joint and no Purchaser shall be obligated to purchase any number of Shares in excess of the number set forth opposite such Purchaser's name on the signature page hereto. 1.2 Aggregate Sale. Pursuant to this Agreement, the Company shall sell up to 90.988 Units, consisting of up to an aggregate of 1,364,820 Shares of Common Stock and up to an aggregate of 682,410 Warrants to purchase Common Stock of the Company. Each Unit consists of 15,000 shares of Common Stock and 7,500 Warrants. The Unit Purchase Price will be equal to the product of 15,000 multiplied by $4.875. Each Unit will be sold at a purchase price of $73,125 per Unit. Each Warrant issued shall be in the form of Exhibit H attached hereto and shall entitle the holder to purchase one Share of Common Stock of the Company at an exercise price equal to 130% of $4.875. The Warrants shall be exercisable for a term of five years from the date of issuance. 1.3 Payment of Purchase Price. On or prior to the Closing Date, each Purchaser will deliver to State Street Bank and Trust Company as Escrow Agent (the "Escrow Agent") the amount of the aggregate Purchase Price for the Units purchased by such Purchaser hereunder, by wire transfer of funds to the Escrow Agent. The Purchase Price shall be maintained in a segregated account until the Closing Date and shall be released either (a) to the Company upon the consummation of the transaction contemplated hereunder; or (b) to the Purchaser upon the termination of this Agreement in accordance with Section 7. 2. Closing Date and Delivery. 2.1 Closing Date. The closing of the purchase and sale of the Shares and Warrants hereunder (the "Closing") will be held at such time (the "Closing Date") as shall be agreed upon by the Company, the Placement Agent and the Purchasers (optionally at the offices of the Placement Agent, 650 Fifth Avenue, New York, NY 11019). The Closing Date shall occur upon receipt of subscriptions for all of the Units offered by the Company, (or such lesser amount as determined by the Company), but in no event shall the Closing Date be later than March 31, 2001. 2.2 Deliveries at Closing. At the Closing the Company shall deliver the following to each Purchaser: (a) a stock certificate registered in such Purchaser's name, or in such nominee name(s) as designated by the Purchaser in writing, representing the Shares purchased by such Purchaser; (b) Warrants in such Purchaser's name, or in such nominee name(s) as designated by the Purchaser in writing; (c) an opinion of Roberts, Sheridan and Kotel, The New York Practice of Dickstein Shapiro's Corporate & Finance Group dated the Closing Date and substantially in the form attached hereto as Schedule I ("Opinion of Counsel"); and (d) a certificate, signed by the President of the Company, to the effect that (i) the representations and warranties of the Company contained in this 1 Agreement are true and correct in all material respects on and as of the Closing Date as though newly made on and as of that date (except for representations and warranties which speak as of the date of the Agreement or as of another specific date or period, which shall continue to be true and correct in all material respects as of the respective dates and for the respective periods covered thereby) and (ii) the Company has performed and complied with, in all material respects, all of its covenants contained in this Agreement and required to be performed or complied with on or before the Closing. Each Purchaser's obligation to purchase the Shares shall be subject to the following conditions: (a) the accuracy of the representations and warranties made by the Company herein and the fulfillment of those undertakings of the Company to be fulfilled prior to Closing; and (b) delivery of the Opinion of Counsel. Upon satisfaction of all the conditions to Closing set forth in this Agreement and the delivery of the certificates representing the Shares and of the Warrants to the Purchaser, the Escrow Agent shall be directed to deliver to the Company the Purchase Price for the Shares, less the Placement Agent fee due to the Placement Agent and any expense that the Company has agreed to reimburse to the Placement Agent and its counsel, which the Escrow Agent shall pay directly to them in accordance with the Company's engagement letter with the Placement Agent. 3. Representations and Warranties by the Company. The Company represents and warrants to each Purchaser as of the date hereof and as of the Closing Date that: 3.1 Organization and Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the requisite corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. The Company is qualified to do business and is in good standing as a foreign corporation in every jurisdiction in which the failure to so qualify would have a material adverse effect on the financial condition or business of the Company. 3.2 Changes. Except as set forth herein and in the Offering Memorandum, since September 30, 2000, the Company has not, to the extent material to the Company, (i) incurred any debts, obligations or liabilities, absolute, accrued or contingent, whether due or to become due, other than in the ordinary course of business, (ii) mortgaged, pledged or subjected to lien, charge, security interest or other encumbrance any of its assets, tangible or intangible, (iii) waived any debt owed to the Company or its subsidiaries, (iv) satisfied or discharged any lien, claim or encumbrance or paid any obligation other than in the ordinary course of business, (v) declared or paid any dividends, or (vi) entered into any transaction other than in the usual and ordinary course of business. 3.3 Litigation. Except as set forth in the Offering Memorandum, there are no legal actions, suits, arbitrations or other legal, administrative or governmental proceedings pending or, to the best of the Company's knowledge, threatened against the Company or its properties, assets or business. 3.4 Compliance with Other Instruments. Except for such matters which, either individually or in the aggregate, would not have a material adverse effect on the financial condition or business of the Company, the execution and delivery of, and the performance and compliance with, this Agreement and the Warrants and the transactions contemplated hereby or thereby, with or without the giving of notice, will not (i) result in any breach of, or constitute a default under, or result in the imposition of any lien or encumbrance upon any asset or property of the Company pursuant to any agreement or other instrument to which the Company is a party or by which it or any of its properties, assets or rights is bound or affected, (ii) violate the Certificate of Incorporation or Bylaws of the Company, or , subject to the accuracy of the representations and warranties of the Purchasers contained in Article 4 of this Agreement, any law, rule, regulation, judgment, order or decree, or (iii) except for the registration of the Shares and the Warrant Shares under the Securities Act of 1933, as amended (the "Securities Act"), the listing of the Shares and the Warrant Shares on the NASDAQ Stock Market and such consents, approvals, authorizations, registrations or qualifications as may be required under the Exchange Act and applicable state securities laws in connection with the purchase of the Shares and the Warrants by the Purchasers, require any consent, approval, authorization or order of or filing with any court or governmental agency or body. The Company is not in violation of its Certificate or Bylaws nor in violation of, or in default under, any lien, mortgage, lease, agreement or instrument, except for such defaults which would not, individually or in the aggregate, have a material adverse effect on the financial condition or business of the Company. The Company is not subject to any restriction which would prohibit the Company from entering into or performing its obligations under this Agreement or the Warrants, except 2 for such restrictions which would not, individually or in the aggregate, have a material adverse effect on the ability of the Company to perform its obligations under this Agreement and the Warrants. 3.5 Reports and Financial Statements. The Purchasers have obtained copies of the Company's Form 10-K/A for the year ended December 31, 1999, the Company's Proxy Statement in connection with the 1999 Annual Meeting of Stockholders, the Company's Registration Statement on Form S-2/A, dated January 12, 2001, the quarterly report on Form 10-Q for the period ended September 30, 2000, and a current report on Form 8-K dated August 8, 2000 filed by the Company with the Securities and Exchange Commission (the "SEC"), in each case without exhibits thereto (collectively with all filings of the Company with the SEC, the "SEC Reports"). As of their respective filing dates, the SEC Reports were prepared in all material respects in accordance with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such SEC Reports. The SEC Reports, when read as a whole, as updated by the Offering Memorandum, and the Offering Memorandum when read together with the exhibits thereto, do not contain any untrue statements of a material fact and do not omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The audited consolidated financial statements and unaudited interim financial statements of the Company included in the SEC Reports have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis (except as may be indicated therein or in the notes thereto) and fairly present, in all material respects, the financial position of the Company as at the dates thereof and the results of its operations and cash flows for the periods then ended subject, in the case of the unaudited interim financial statements, to normal year-end adjustments and any other adjustments described in such financial statements. 3.6 Shares. The Shares, the Warrants and the Warrant Shares, when issued and paid for pursuant to the terms of this Agreement as the case may be, will be duly and validly authorized, issued and outstanding, fully paid, nonassessable and free and clear of all pledges, liens, encumbrances and restrictions (other than arising under federal or state securities laws). The authorized capital stock of the Company, including the Shares, conforms, and when issued, the Warrant Shares will conform, to all statements relating thereto included in the documents set forth herein. The issuance of the Shares, the Warrants and the Warrant Shares is not subject to any preemptive or other similar rights. The Company has duly reserved 798,420 shares of its authorized but unissued Common Stock for issuance upon exercise of the Warrants by the Purchasers and the Placement Agent, and such shares shall remain so reserved (subject to reduction from time to time for Common Stock issued upon the exercise of the Warrants), as long as the Warrants are exercisable. 3.7 Securities Laws. Subject to the accuracy of the representations and warranties of the Purchasers contained in Article 4 of this Agreement, the offer, sale and issuance of the Shares, the Warrants and the Warrant Shares as contemplated by this Agreement are exempt from the registration requirements of the Securities Act, and from the registration or qualifications requirements of the laws of any applicable state or other U.S. jurisdiction. 3.8 Capital Stock. As of December 31, 2000, (i) 6,803,485 shares of the Company's Common Stock were issued and outstanding, (ii) no shares of the Company's Preferred Stock were issued and outstanding, and (iii) options and or warrants to purchase 2,130,745 Shares of the Company's Common Stock were issued and outstanding. There are also 1,249,500 shares of common stock that are issuable under the equity line of credit and under the warrants which may be granted in the future under the equity line of credit. All of the outstanding Shares of the Company's capital stock are validly issued, fully paid and nonassessable. Except as set forth in this Section 3.8 or the Offering Memorandum, as of December 31, 2000, there are no outstanding subscriptions, options, warrants, calls, contracts, demands, commitments, conversion rights or other agreements or arrangements of any character or nature whatever under which the Company is or may be obligated to issue its Common Stock, Preferred Stock or warrants or options to purchase Common Stock or Preferred Stock. No holder of any security of the Company is entitled to any preemptive or similar rights to purchase any securities of the Company. 3.9 Corporate Acts and Proceedings. This Agreement has been duly authorized by the requisite corporate action and has been duly executed and delivered by an authorized officer of the Company, and is a valid and binding obligation of the Company, enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting the enforcement of creditors' rights generally and as to limitations on the enforcement of the remedy of specific performance and other equitable remedies. The requisite corporate action necessary to the authorization, reservation, issuance and delivery 3 of the Shares, the Warrants and the Warrant Shares has been taken by the Company. Upon execution and delivery thereof by a duly authorized officer of the Company, the Warrants will be valid and binding obligations of the Company, enforceable in accordance with their terms except as such enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting the enforcement of creditors' rights generally and as to limitations on the enforcement of the remedy of specific performance and other equitable remedies. 3.10 No Implied Representations. All of the Company's representations and warranties are contained in this Agreement, and no other representations or warranties by the Company shall be implied. 3.11 Filing of Reports. Since the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, the Company has filed with the SEC all reports and other material required to be filed by it therewith pursuant to Section 13, 14 or 15(d) of the Exchange Act and the Company is eligible to register the offer and resale of the Shares and the Warrant Shares on a Registration Statement on Form S-3, or a successor form. 3.12 Compliance with Laws. The business and operations of the Company have been conducted in accordance with all applicable laws, rules and regulations of all governmental authorities, except for such violations which would not, individually or in the aggregate, have a material adverse effect on the financial condition or business of the Company. 1.13 Closing Date. Except as to representations and warranties that speak of a specific date or period, all the representations and warranties made by the Company in this Section 3 shall be true and complete from the date of this Agreement through the Closing Date and the Company shall provide each Purchaser, before the Closing, with any documents or information necessary for such representations and warranties to remain true and complete as of the Closing Date. 3.14 Proprietary Rights. The Company owns or is licensed to use all patents, patent applications, inventions, trademarks, trade names, applications for registration of trademarks, service marks, service mark applications, copyrights, know-how, manufacturing processes, formulae, trade secrets, licenses and rights in any thereof and any other intangible property and assets (herein called the "Proprietary Rights") which are material to the business of the Company, as now conducted or as proposed to be conducted. The Company does not have any knowledge of, and the Company has not given or received any notice of, any pending conflicts with or infringement of the rights of others with respect to any Proprietary Rights or with respect to any license of Proprietary Rights. No action, suit, arbitration, or legal, administrative or other proceeding, or investigation is pending or, to the knowledge of the Company, threatened, which involves any Proprietary Rights. The Company is not subject to any judgment, order, writ, injunction or decree of any court or any Federal, state, local, foreign or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or any arbitrator, and has not entered into or is a party to any contract which restricts or impairs the use of any such Proprietary Rights in a manner which would have a material adverse effect on the use of any of the Proprietary Rights. To the knowledge of the Company, no Proprietary Rights used by the Company, and no services or products sold by the Company, conflict with or infringe upon any proprietary rights owned or licensed by any third party. The Company has not received written notice of any pending conflict with or infringement upon such third-party proprietary rights. No claims have been asserted by any person with respect to the validity of the Company's ownership or right to use the Proprietary Rights and, to the knowledge of the Company, there is no reasonable basis to believe that such a claim will be asserted. To the knowledge of the Company, the Proprietary Rights are valid and enforceable. 3.15 Compliance with Environmental Laws. Except as would not, singly or in the aggregate, have a material adverse effect on the Company, the Company is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to the Company's knowledge, no expenditures material to the Company are or will be required to comply with any such existing statute, law or regulation. To the Company's knowledge, the Company does not have any liability to any governmental authority or other third party arising under or as a result of any such past or existing statute, law or regulation, which liability would be material to the Company. 3.16 Permits, Licenses, Etc. The Company owns, possesses or has obtained, and is operating in compliance with, all governmental, administrative and third party licenses, permits, certificates, registrations, approvals, consents and other authorizations (collectively, "Permits") necessary to own or lease (as the case may be) and operate its properties, whether tangible or intangible, and to conduct its businesses or operations as currently 4 conducted, except such licenses, permits, certificates, registrations, approvals, consents and authorizations the failure of which to obtain would not have a material adverse effect on the business, properties, operations, financial condition or results of operations of the Company, and the Company has not received any notice of proceedings relating to the revocation, modification or suspension of any Permits or any circumstance which would lead it to believe that such proceedings are reasonably likely. 3.17 Insurance. The Company maintains insurance of the type and in the amount reasonably adequate for its business, including, but not limited to, insurance covering all real and personal property owned or leased by the Company against theft, damage, destruction, acts of vandalism and all other risks customarily insured against by similarly situated companies, all of which insurance is in full force and effect. 3.18 Registration Rights. Except as set forth in the Offering Memorandum, there are no persons with registration or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the Securities Act. 4. Representations and Warranties by the Purchasers; Restrictions on Transfer. Each Purchaser severally represents and warrants to, and covenants and agrees with, the Company, as of the Closing Date, as follows: 4.1 Authorization. Purchaser is duly organized and in good standing in the jurisdiction of its organization and has all requisite legal and corporate or other power and capacity and has taken all requisite corporate or other action to execute and deliver the Agreement, to purchase the Shares and the Warrants to be purchased by it and to carry out and perform all of its obligations under the Agreement. This Agreement has been duly authorized, executed and delivered and constitutes the legal, valid and binding obligation of Purchaser, enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization or other similar laws affecting the enforcement of creditors' rights generally and as to limitations on the enforcement of the remedy of specific performance and other equitable remedies. 4.2 Investor Status. Purchaser is an "Accredited Investor" as defined in Rule 501 of Regulation D under the Securities Act or a "Qualified Institutional Buyer," as such term is defined in Rule 144A of the Securities Act. Purchaser acknowledges receiving and reviewing the documents comprising the Offering Memorandum, including the SEC Documents. Purchaser is aware of the Company's business affairs and financial condition and has had access to and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares and the Warrants. Purchaser has such business and financial experience as is required to give it the capacity to utilize the information received, to evaluate the risks involved in purchasing the Units and making an informed decision about purchasing the Units, and to protect its own interests in connection with the purchase of the Units and is able to bear the risks of an investment in the Units. Purchaser is not itself a "broker" or a "dealer" as defined in the Exchange Act of 1934 and is not an "affiliate" of the Company as defined in Rule 405 of the Securities Act. 4.3 Investment Intent. Purchaser is purchasing the Shares and the Warrants for its own account as principal, for investment purposes only, and not with a present view to or for resale, distribution or fractionalization thereof, in whole or in part, within the meaning of the Securities Act. Purchaser understands that its acquisition of the Shares and the Warrants has not been registered under the Securities Act or registered or qualified under any state securities law in reliance on specific exemptions therefrom, which exemptions may depend upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein. Purchaser has, in connection with its decision to purchase the number of Shares and the Warrants set forth in this Agreement, relied solely upon the Offering Memorandum and the representations and warranties of the Company contained herein. Purchaser will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Shares or Warrants, except in compliance with the Securities Act and the rules and regulations promulgated thereunder. 4.4 Registration or Exemption Requirements. Purchaser further acknowledges and understands that neither the Shares nor the Warrants may be resold or otherwise transferred except in a transaction registered under the Securities Act or unless an exemption from such registration is available. Purchaser is able to bear the economic risk of holding the Shares for an indefinite period of time and can afford a complete lost of its investment. 5 Purchaser understands that until the Shares and Warrant Shares have been registered for resale by the Purchasers in compliance with applicable securities laws, the certificates evidencing the Shares, the Warrants and Warrant Shares will be imprinted with a legend that prohibits the transfer of the Shares, Warrants and Warrant Shares unless (a) such transaction is registered or such registration is not required, and (b) if the transfer is pursuant to an exemption from registration an opinion of counsel reasonably satisfactory to the Company is obtained to the effect that the transaction is not required to be registered or is so exempt. 4.5 Restriction on Sales, Short Sales and Hedging Transactions. Purchaser represents and agrees that during the period from the date Purchaser was first contacted with respect to the potential purchase of Shares and Warrants through the date of the execution of the Agreement by Purchaser, Purchaser did not, and from such date through the effectiveness of the Registration Statement (as defined below), Purchaser will not, directly or indirectly, execute or effect or cause to be executed or effected any short sale, option or equity swap transactions in or with respect to the Company's Common Stock or any other derivative security transaction the purpose or effect of which is to hedge or transfer to a third party all or any part of the risk of loss associated with the ownership of the Shares and Warrants by the Purchaser. 4.6 No Legal, Tax Or Investment Advice. Purchaser understands that nothing in this Agreement or any other materials presented to Purchaser in connection with the purchase and sale of the Shares and the Warrants constitutes legal, tax or investment advice. Purchaser has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Shares and the Warrants. 4.7 Closing Date. All the representations and warranties made by the Purchaser in this Section 4 shall be true and complete from the date of this Agreement through the Closing Date and the Purchaser shall provide the Company, before the Closing, with any documents or information necessary for such representations and warranties to remain true and complete as of the Closing Date. 4.8 Compliance with Other Instruments. The execution and delivery of this Agreement, the purchase of the Shares and the Warrants, and the performance by the Purchaser of all other obligations of the Purchaser contemplated hereby will not (i) violate any law, rule, regulation, judgment, order or decree applicable to Purchaser, or (ii) require any consent, approval, authorization or order of or filing with any court or governmental agency or body. Purchaser is not subject to any restriction which would prohibit it from entering into or performing its obligations under this Agreement, except for such restrictions which would not, individually or in the aggregate, have a material adverse effect on the ability of Purchaser to perform its obligations under this Agreement. There is no action, suit, order, judgment or proceeding pending or, to the knowledge of Purchaser, threatened against or affecting Purchaser that, individually or when aggregated with one or more other actions, suits, orders, judgments or proceedings, has or might reasonably be expected to have a material adverse effect on Purchaser's ability to perform any of its obligations hereunder or under any of the other agreements and instruments to be executed and delivered by Purchaser in connection herewith. 4.9 Compliance with Insider Trading Rules. Purchaser agrees to comply with the laws and rules pertaining to inside information as they may relate to the purchase or sale of the Company's securities at all times after the effective date of the Registration Statement. 4.10. Reliance on Representations. Purchaser acknowledges that the Company and its counsel are entitled to rely on the representations made above. 5. Covenants 5.1 Registration Requirements. (a) Promptly after, but not later than 30 days after, the Closing Date, the Company shall prepare and file a registration statement (the "Registration Statement") with the SEC under the Securities Act to register the offer and resale of the Shares and the Warrant Shares by the Purchasers (together, the "Registrable Securities"), and shall use its best efforts to cause such Registration Statement to become effective within 120 days from the Closing Date or not more than five days from the date upon which the Securities and Exchange Commission shall allow the Company to accelerate effectiveness, whichever is shorter. In the event that the 6 Company shall fail to obtain effectiveness of the Registration Statement within the 120-day period following the Closing Date, the Company hereby agrees that it shall pay to each Purchaser cash in an amount equal to 2% of the total purchase price of the shares of common stock purchased by such Purchaser for each and every thirty (30) day period with respect to which such Registration Statement shall not be effective. Until such time as the Registration Statement is effective, the Company shall not grant any registration rights or other rights to register securities under the Securities Act unless such rights are subordinate to the rights of the Purchasers under this Section 5.1 or will not have the effect of delaying a sale or limiting the number of securities which may be sold by the Purchasers pursuant to the Registration Statement or otherwise adversely affect the rights of the Purchasers under this Section 5.1. (b) The Company shall pay all Registration Expenses (as defined below) in connection with any registration, qualification or compliance hereunder, and each Purchaser shall pay all Selling Expenses (as defined below) and other expenses that are not Registration Expenses relating to the Registrable Securities resold by such Purchaser. "Registration Expenses" shall mean all expenses, except for Selling Expenses, incurred by the Company in complying with the registration provisions herein described, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration. "Selling Expenses" shall mean all selling commissions, underwriting fees and stock transfer taxes applicable to the Registrable Securities and all fees and disbursements of counsel for any Purchaser. (c) If the Registration Statement becomes effective, the Company will use its best efforts to: (i) keep such registration effective until the second anniversary of the date such Registration Statement is declared effective (or, in the case of Warrant Shares, the first anniversary of the date of issuance of such Warrant Shares, but in any event not later than the fourth anniversary of the date such Registration Statement is declared effective); provided, however, if Rule 144 is amended so that the longest period that Rule 144 restricts the manner in which privately placed securities may be sold is a period shorter than two years, then the period required by this clause shall be reduced to (A) such shorter period, (B) such date as all of the Registrable Securities have been resold, or (C) such date as all Registrable Securities may be sold pursuant to Rule 144 (or any successor rule); (ii) except as provided in Section 5.1(f), prepare and file with the SEC such amendments and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by the Registration Statement; (iii) furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as Purchaser from time to time may reasonably request; (iv) cause the Shares and the Warrant Shares to be quoted on each quotation service on which the Common Stock of the Company is then quoted; (v) provide a transfer agent and registrar for all securities registered pursuant to the Registration Statement and a CUSIP number for all such securities; and (vi) file the documents required of the Company and otherwise use its best efforts to maintain requisite blue sky clearance in all U.S. jurisdictions in which any of the Shares are originally sold and all other states specified in writing by Purchaser, provided, however, that the Company shall not be required to qualify to do business in any state in which it is not now so qualified or has not so consented. (d) The Company shall furnish to each Purchaser upon request a reasonable number of copies of a supplement to or an amendment of the prospectus used in connection with the Registration Statement as may be necessary to facilitate the public sale or other disposition of all or any of the Registrable Securities held by Purchaser. (e) With a view to making available to Purchasers the benefits of Rule 144 and any other rule or regulation of the Commission that may at any time permit Purchaser to sell Registrable Securities to the public without registration or pursuant to a registration statement on Form S-3, the Company covenants and agrees to use its best efforts to: (i) make and keep public information available as those terms are understood and defined in Rule 144 until the earlier of (A) the date on which the Shares may be sold pursuant to Rule 144(k) (or any successor rule) or (B) such date as all of the Registrable Securities shall have been resold; (ii) file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and Exchange Act; and (iii) furnish to any Purchaser upon request, as long as the Purchaser owns any Registrable Securities, (A) a written statement by the Company that it has complied with the reporting requirements of the Securities Act and the Exchange Act, (B) a copy of the most recent annual or quarterly report of the Company, and (C) such other information as may be reasonably requested in order to avail any Purchaser of any rule or regulation of the 7 Commission that permits the selling of any such Registrable Securities without registration or pursuant to such registration statement on Form S-3. (f) Purchaser hereby acknowledges that there may occasionally be times when the Company must suspend the use of the prospectus forming a part of the Registration Statement until such time as an amendment to such Registration Statement has been filed by the Company and declared effective by the SEC or until the Company has amended or supplemented such prospectus. The Purchaser hereby covenants that it will not sell any securities pursuant to said prospectus during the period commencing at the time at which the Company gives the Purchaser notice of the suspension of the use of said prospectus and ending at the time the Company gives the Purchaser notice that Purchaser may thereafter effect sales pursuant to said prospectus. Notwithstanding anything herein to the contrary, the Company shall not suspend use of the Registration Statement by Purchaser unless such suspension is required by the federal securities laws and the rules and regulations promulgated thereunder. Notwithstanding the foregoing, the Company shall not be entitled to exercise its right to block such sales or suspend use of such prospectus more than three times during the effectiveness of the Registration Statement nor more than one time in any four month period. 5.2. Indemnification and Contribution (a) The Company agrees to indemnify and hold harmless each Purchaser from and against any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) to which such Purchaser may become subject (under the Securities Act or otherwise) (including in settlement of litigation) insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon, any untrue statement of a material fact or omission to state a material fact in the Registration Statement , including all documents filed as a part thereof and information deemed to be a part thereof, on the effective date thereof, or any amendment or supplements thereto, or arise out of any failure by the Company to fulfill any undertaking or covenant included in the Registration Statement or to perform its obligations hereunder or under law; provided, however, that the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon (i) an untrue statement or omission in such Registration Statement in reliance upon and in conformity with information furnished to the Company by or on behalf of such Purchaser specifically for use in preparation of the Registration Statement and not corrected by the Purchaser in writing or (ii) an untrue statement or omission in any prospectus that is corrected in any subsequent prospectus, or supplement or amendment thereto, that was delivered to a Purchaser prior to the pertinent sale or sales by such Purchaser and not delivered by such Purchaser to the entity to which it made such sale(s) prior to such sale(s). (b) Each Purchaser, severally and not jointly, agrees to indemnify and hold harmless the Company from and against any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) to which the Company may become subject (under the Securities Act or otherwise) insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon (i) an untrue statement or alleged untrue statement of a material fact or omission to state a material fact in the Registration Statement in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Purchaser specifically for use in preparation of the Registration Statement (provided, however, that no Purchaser shall be liable in any such case for any untrue statement or omission in any prospectus or Registration Statement which statement has been corrected, in writing, by such Purchaser and delivered to the Company at least 14 days before the sale from which such loss occurred), or (ii) an untrue statement or omission in any prospectus that is corrected in any subsequent prospectus or supplement or amendment thereto, that was delivered to a Purchaser at least 1 day prior to the pertinent sale or sales by such Purchaser and not delivered by such Purchaser to the entity to which it made such sale(s) prior to such sale(s), and each Purchaser, severally and not jointly, will, as incurred, reimburse the Company for any legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim. Notwithstanding the foregoing, no Purchaser shall be liable, or required to indemnify the Company, in the aggregate, for any amount in excess of the net proceeds received by the Purchaser from the sale of the Shares or the Warrant Shares, as the case may be, to which such loss, claim, damage or liability relates. (c) Promptly after receipt by any indemnified person of a notice of a claim or the beginning of any action in respect of which indemnity is to be sought against an indemnifying person pursuant to this Section 5.2, such indemnified person shall notify the indemnifying person in writing of such claim or of the commencement of such action and, subject to the provisions hereinafter stated, in case any such action shall be brought against an 8 indemnified person, the indemnifying person shall be entitled to participate therein, and, to the extent that it shall wish, to assume the defense thereof, with counsel reasonably satisfactory to the indemnified person. After notice from the indemnifying person to such indemnified person of the indemnifying person's election to assume the defense thereof, the indemnifying person shall not be liable to such indemnified person for any legal expenses subsequently incurred by such indemnified person in connection with the defense thereof; provided, however, that if there exists or shall exist a conflict of interest that would make it inappropriate in the reasonable judgment of the indemnified person for the same counsel to represent both the indemnified person and such indemnifying person or any affiliate or associate thereof, the indemnified person shall be entitled to retain its own counsel at the expense of such indemnifying person; provided, further, that the indemnifying person shall not be obligated to assume the expenses of more than one counsel to represent all indemnified persons. (d) If the indemnification provided for in this Section 5.2 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and each Purchaser on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or a Purchaser on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Purchasers agree that it would not be just and equitable if contribution pursuant to this subsection (d) were determined by pro rata allocation (even if the Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), no Purchaser shall be required to contribute in the aggregate any amount in excess of the net proceeds received by the Purchaser from the sale of the Shares or Warrant Shares, as the case may be, to which such loss, claim, damage or liability relates. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Purchaser's obligations in this subsection (d) to contribute are several in proportion to their sales of Shares or Warrant Shares, as the case may be, to which such loss relates and not joint. 6. Restrictions on Transferability of Shares and Warrants; Compliance with Securities Act. 6.1 Restrictions on Transferability. Neither the Shares nor the Warrants shall be transferable in the absence of registration under the Securities Act or an exemption therefrom or in the absence of compliance with any term of the Agreement. 6.2 Restrictive Legend. Until and unless the Shares and Warrant Shares are registered under the Securities Act, each certificate representing the Shares and the Warrant Shares and each Warrant shall bear substantially the following legend (in addition to any legends required under applicable state securities laws): THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT ACQUIRING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) TO AN ACCREDITED INVESTOR (AS DEFINED IN RULE 501(A) OF REGULATION D UNDER THE SECURITIES ACT) IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 9 THEREUNDER (IF AVAILABLE) OR (4) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS. 6.3 Transfer of Shares and Warrants. Each Purchaser hereby covenants with the Company not to make any sale of the Shares or Warrants except either (a) a sale of Shares or Warrant Shares in accordance with the Registration Statement, in which case the Purchaser covenants to comply with the requirement of delivering a current prospectus, (b) a sale of Shares or Warrant Shares in accordance with Rule 144, in which case the Purchaser covenants to comply with Rule 144 and to deliver such additional certificates and documents as the Company may reasonably request, or (c) in accordance with another exemption from the registration requirements of the Securities Act. The legend set forth in Section 6.2 will be removed from a certificate representing Shares or the Warrant Shares, as the case may be, following and in connection with any sale of Shares or Warrant Shares pursuant to subsection (a) or (b) hereof but not in connection with any sale of Shares or Warrant Shares pursuant to subsection (c) hereof. The Company will substitute one or more replacement certificates without the legend at the request of the Purchaser promptly after such time as the Registration Statement becomes effective. 7. Termination. (a) By the Purchaser. The Purchaser may terminate this Agreement immediately, if at any time prior to the Closing, the Company shall cease conducting business in the normal course; become insolvent or become unable to meet its obligations as they become due; make a general assignment for the benefit of creditors; petition, apply for, suffer or permit with or without its consent the appointment of custodian, receiver, trustee in bankruptcy or similar officer for all or any substantial part of its business or assets; avail itself or become subject to any proceeding under the Federal Bankruptcy Code or any similar state, federal or foreign statute relating to bankruptcy, insolvency, reorganization, receivership, arrangement, adjustment of debts, dissolutions or liquidation. (b) By the Company. The Company may terminate this Agreement at any time prior to the Closing if the Purchasers have not agreed to purchase up to an aggregate of $7.5 million in common stock pursuant to this Agreement prior to March 31, 2001 or such later date as the Company and the Placement Agent shall have agreed to extend the offering of the Shares with notice to the Purchasers. 8. Miscellaneous. 8.1 Survival of Representations and Warranties. All representations and warranties contained herein shall survive the execution and delivery of this Agreement, any investigation at any time made by or on behalf of the Purchaser, and the sale and purchase of the Shares and the Warrants and payment therefor. 8.2 Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and do not constitute a part of this Agreement. 8.3 Choice of Law. It is the intention of the parties that the internal laws of the State of New York, without regard to the body of law controlling conflicts of law, shall govern the validity of this Agreement, the construction of its terms and the interpretation of the rights and duties of the parties set forth herein. 8.4 Counterparts. This Agreement may be executed concurrently in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 8.5 Assignment; Parties in Interest. This Agreement may not be pledged, assigned or otherwise transferred by the Purchasers except by operation of law but all the terms and provision of this Agreement shall be binding upon and inure to the benefit of and be enforced by the successors in interest of the parties hereto. Each successive transferee of the Purchasers shall be deemed to be a Purchaser for the purpose of Section 5 of this Agreement. 8.6 Amendments. No amendment, modification, waiver, discharge or termination of any provision of this Agreement nor consent to any departure by the Purchasers or the Company therefrom shall in any event be effective unless the same shall be in writing and signed by the party to be charged with enforcement, and 10 then shall be effective only in the specific instance and for the purpose for which given. No course of dealing between the parties hereto shall operate as an amendment of, or a waiver of any right under, this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized representatives as of the day and year first above written. Nastech Pharmaceutical Company Inc. By:________________________ Title:_______________________ [PURCHASER SIGNATURE PAGE CONTINUES ON THE FOLLOWING PAGE] 11 PURCHASER SIGNATURE PAGE AND QUESTIONNAIRE The undersigned Purchaser hereby executes the Stock and Warrant Purchase Agreement with Nastech Pharmaceutical Company Inc. (the "Company") and hereby authorizes this signature page to be attached to a counterpart of such document executed by a duly authorized officer of the Company. No. of Shares to be _______________________________________________ Purchased: ____________ Name of Purchaser (PLEASE PRINT OR TYPE) No. of Shares Underlying Warrants: _____________ Aggregate Purchase [SIGN HERE] Price: $____________ By:________________________________________ Title: ____________________________________ Purchaser is a _______ qualified institutional buyer OR _____ an accredited investor as defined in the Offering Memorandum Name in which Shares and Warrants are to be registered: __________________________________________ Address of registered holder: __________________________ Social Security or Tax ID No. of registered holder: __________________________ Contact name and telephone number regarding Settlement and registration: __________________________ Name __________________________ Telephone Number Number of shares of common stock of the Company beneficially owned (meaning shares owned or controlled or which the Purchaser has the right to acquire or vote) by the Purchaser, other than the Shares and Warrants being purchased pursuant hereto: ______________________________________ Have you or your organization had any position, office or other material relationship with the Company within the past three years? __________ Yes __________ No Do you or your organization have any direct or indirect affiliation or association with any NASD member? _________ Yes __________ No If yes to either of the last two questions, please indicate the nature of any such relationships below: 12 EX-4.2 3 0003.txt FORM OF STOCK PURCHASE WARRANT Form of Warrant EXHIBIT 4.2 THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IN ACCORDANCE WITH AN EXEMPTION THEREUNDER. _________________ Warrants Void after 5:00 p.m. Eastern Time on the Expiration Date WARRANT TO PURCHASE COMMON STOCK OF NASTECH PHARMACEUTICAL COMPANY INC. This Is To Certify That, FOR VALUE RECEIVED, ___________________________ ("Holder") having an address at __________________________________________, is entitled to purchase, subject to the provisions of this Warrant, ("Warrant") from Nastech Pharmaceutical Company Inc., a Delaware corporation (the "Company"), ____________________ (_______) non-callable, fully paid, validly issued and non-assessable shares of Common Stock, par value $.006 per share (the "Common Stock"), at an exercise price of $6.3375, which is equal to 130% of $4.875, the purchase price per share of the Common Stock pursuant to the offering by the Company (the "Offering") of a maximum of $10,000,000 of its securities consisting of Common Stock and warrants, as more fully described in the Offering Memorandum, dated February 5, 2001, and in an amendment thereto dated March 22, 2001, at any time or from time to time during the period (the "Exercise Period") from the date hereof until 5:00 p.m. Eastern Standard Time on March 22, 2006 (the "Expiration Date"). The number of shares of Common Stock to be received upon the exercise of this Warrant and the price to be paid for each share of Common Stock may be adjusted from time to time as hereinafter set forth. The Common Stock, as adjusted from time to time, are hereinafter sometimes referred to as "Warrant Shares" and the exercise price of the Common Stock hereunder in effect at any time and as adjusted from time to time is hereinafter sometimes referred to as the "Exercise Price." (1) EXERCISE OF WARRANT. This Warrant may be exercised in whole or in part at any time or from time to time during the Exercise Period; provided, however, that if such day is a day on which banking institutions in the State of New York are authorized by law to close, then on the next succeeding day which shall not be such a day. This Warrant may be exercised by presentation and surrender of this Warrant to the Company at its principal office or to the Company's warrant agent, if any has been so appointed, with the Purchase Form annexed hereto duly executed and accompanied by payment of the Exercise Price, in cash or by certified or bank cashier's check, for the number of Warrant Shares specified in such form. Notwithstanding the foregoing, in lieu of any cash payment required hereunder, the Holder of this Warrant shall have the right at any time during the Exercise Period to exercise the Warrant in full or in part by surrender of this Warrant (with the election at the end hereof duly executed) to the Company at its principal office or to the Company's warrant agent, if any has been so appointed, in exchange for the number of Warrant Shares equal to the product of (a) the number of Warrant Shares as to which the Warrant is being exercised multiplied by (b) a fraction, the numerator of which is the Current Market Price (as defined in Section 10 below) of the Common Stock less the Exercise Price and the denominator of which is the Current Market Price. As soon as practicable after each such exercise of the Warrants, the Company shall issue or cause to be issued and delivered to the Holder a certificate or certificates for the Warrant Shares issuable upon such exercise, registered in the name of the Holder. The Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of any such exercise, provided such exercise is in accordance with the provisions set forth herein. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the rights of the Holder thereof to purchase the balance of the Warrant Shares purchasable thereunder. Upon receipt by the Company of this Warrant at its office in proper form for exercise, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Common Stock shall not then be physically delivered to the Holder. (2) RESERVATION OF SHARES. The Company shall at all times reserve for issuance and/or delivery upon exercise of this Warrant such number of shares of its Common Stock as shall be required for issuance and delivery upon exercise of the Warrants. (3) FRACTIONAL SHARES. No fractional shares or script representing fractional shares shall be issued upon the exercise of this Warrant. If more than one Warrant shall be exercised at one time by the Holder, the number of full shares which shall be issuable upon exercise thereof shall be computed on the basis of the aggregate number of full shares issuable upon such exercise. No adjustment shall be made in respect of cash dividends on Warrant Shares delivered upon exercise of any Warrant. With respect to any fraction of a share called for upon exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the average bid and asked prices of the Common Stock on the last available date for which quotations are available immediately preceding the date of exercise of this Warrant, if the bid and asked prices are not so reported, then the current market value shall be an amount, not less than the book value thereof as at the end of the most recent fiscal year of the Company ending prior to the date of the exercise of the Warrant, determined in such reasonable manner as may be prescribed by the Board of Directors of the Company. (4) EXCHANGE OR LOSS OF WARRANT. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company for other Warrants of different denominations entitling the holder thereof to purchase in the aggregate the same number of Common Stock purchasable hereunder. This Warrant may be divided or combined with other Warrants which carry the same rights upon presentation hereof at the principal office of the Company with a written notice specifying the denominations in which new Warrants are to be issued and signed by the Holder hereof. The term "Warrant" as used herein includes any Warrants into which this Warrant may be divided or exchanged. Upon receipt by the Company or its warrant agent, if any, of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Warrant, if mutilated, the Company will execute and deliver a new Warrant of like tenor and date. 2 (5) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to any rights of a stockholder in the Company, either at law or equity, and the rights of the Holder are limited to those expressed in the Warrant and are not enforceable against the Company except to the extent set forth herein and in any warrant agreement entered into by and between the Company and a warrant agent with respect to the Warrants. In the event the Company enters into a warrant agreement with a warrant agent, the terms of the Warrant shall be embodied in the warrant agreement; and the acceptance of this Warrant by the Holder shall be deemed consent by the Holder for the Company to enter into any such warrant agreement, upon such terms and conditions mutually agreeable between the Company and any such warrant agent, provided such warrant agreement does not adversely affect any of the rights of the Holder, as set forth in this Warrant. (6) ANTI-DILUTION PROVISIONS. (a) Stock Dividends, Splits, Combinations, etc. In case the Company shall at any time after the date of this Warrant (i) declare a dividend, or make a distribution, on the outstanding Common Stock in shares of its capital stock, (ii) subdivide the outstanding Common Stock, (iii) combine the outstanding Common Stock into a smaller number of shares, or (iv) issue any shares of its capital stock by reclassification of the Common Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then in each case, the number and kind of shares of Common Stock receivable upon exercise of this Warrant, in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination, or reclassification, shall be proportionately increased or decreased, as the case may be, so that the Holder after such time shall be entitled to receive the aggregate number and kind of shares which if such Warrant had been exercised immediately prior to such time, it would have owned upon such exercise and been entitled to receive by virtue of such dividend, distribution, subdivision, combination or reclassification. Whenever the number of shares of Common Stock purchasable upon the exercise of this Warrant is adjusted as provided in this Section 6(a), then the Exercise Price shall also be adjusted by multiplying such Exercise Price immediately prior to such adjustment by a fraction (A) the numerator of which shall be the number of shares of common Stock purchasable upon the exercise immediately prior to such adjustment, and (B) the denominator of which shall be the number of shares of Common Stock so purchasable immediately thereafter. Such adjustment shall be made successively whenever any event listed above shall occur. (b) Reorganization, Consolidation, Merger, Etc. In the case of any reorganization of the Company (or any other corporation, the securities of which are at the time receivable on the exercise of this Warrant) or if the Company (or any other such corporation) shall consolidate with or merge into another corporation or covey all or substantially all of its assets to another corporation, then, and in each such case, the Holder of this Warrant upon the exercise as provided for in Section 1 at any time after the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled to receive in lieu of the securities and property receivable upon the exercise of this Warrant prior to such consummation, the securities or property to which such Holder would have been entitled upon such consummation if such Holder had exercised this Warrant immediately prior thereto, in each such case, the terms of this Warrant shall be applicable to the securities or property received upon the exercise of this Warrant after such combination. (c) Extraordinary Dividends. In case the Company shall distribute to all holders of Common Stock (including any such distribution made to the stockholders of the Company in connection with a consolidation or merger in which the Company is the continuing corporation) evidences of its indebtedness or assets (other than dividends payable in shares of Common Stock), or subscription rights, options, or warrants or convertible or exchangeable securities containing the right to subscribe for or purchase shares of Common Stock (excluding those referred to in paragraph 6(b) hereof), then, in each case, the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date for the determination of stockholders entitled to receive such distribution by a fraction, the numerator of which shall be the current Exercise Price per share of Common Stock on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive absent manifest error) of the portion of the evidences of indebtedness or assets so to be distributed, or of such subscription rights, options, or warrants or convertible or exchangeable securities containing the right to subscribe for or 3 purchase shares of Common Stock, applicable to one share, and the denominator of which shall be such current Exercise Price per share of Common Stock. Such adjustment shall be made whenever any such distribution is made, and shall become effective on the date of such distribution retroactive to the record date for the determination of stockholders entitled to receive such distribution. (d) De Minimis Exception. No adjustment in the Exercise Price shall be required if such adjustment is less than $.01; provided, however, that any adjustments which by reason of this paragraph 6 are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this paragraph 6 shall be made to the nearest one-thousandth of a share, as the case may be. (e) Date of Issuance. In any case in which this paragraph 6 shall require that an adjustment in the Exercise Price be made effective as of a record date for a specified event, the Company may elect to defer, until the occurrence of such event, issuing to any Holder who exercised any Warrants after such record date, the shares of Common Stock, if any, issuable upon such exercise over and above the shares of Common Stock, if any, issuable upon such exercise on the basis of the Exercise Price in effect prior to such adjustment. (f) Adjustment to Number of Shares. Upon each adjustment of the Exercise Price as a result of the calculations made in paragraph 6(c) hereof, each Warrant outstanding prior to the making of the adjustment in the Exercise Price shall thereafter evidence the right to purchase, at the adjusted Exercise Price, that number of shares (calculated to the nearest thousandth) obtained by dividing (i) the product obtained by multiplying the number of shares purchasable upon exercise of a Warrant prior to adjustment of the number of shares by the Exercise Price in effect prior to adjustment of the Exercise Price by (ii) the Exercise Price in effect after such adjustment of the Exercise Price. (g) Notice of Adjustments. Whenever there shall be an adjustment as provided in this paragraph 6, the Company shall promptly cause written notice thereof to be sent by overnight courier, to the Holder, at its principal office, which notice shall be accompanied by an officer's certificate setting forth the number of Warrant Shares purchasable upon the exercise of this Warrant and the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment and the computation thereof, which officer's certificate shall be conclusive evidence of the correctness of any such adjustment absent any error. (h) Outstanding Options/Warrants. No adjustment in the Exercise Price shall be required in the case of the issuance of any and all shares of Common Stock upon exercise of any options, warrants or convertible securities outstanding on or before the date hereof. (i) Adjustments at Below Par Value. Before taking any action which would cause an adjustment reducing the Exercise Price below the then par value of the Common Stock issuable upon exercise of the Warrants, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and non-assessable shares of such the Company at such adjusted Exercise Price. (7) INVESTMENT REPRESENTATION. By accepting this Warrant, the Holder acknowledges that it is being taken for its own account as principal, for investment purposes only, and not with a view to, or for, resale, distribution or fractionalization thereof, in whole or in part, and no other person has a direct or indirect beneficial interest in such Warrant and such Warrant may only be transferred, subject to compliance with the legend set forth on the first page of this Warrant Certificate. Unless the shares issuable upon the exercise of this Warrant are registered under the Securities Act of 1933, as amended (the "Act"), the Holder, upon exercise of this Warrant will be required to provide the Company with an investment letter and the certificates representing such shares will contain a legend to the effect that the Holder may not transfer, sell, pledge or hypothecate such shares unless the registration provisions of the Act have been complied with and unless the Company has received an opinion of counsel that such registration is not required. 4 (8) REGISTRATION RIGHTS. The Warrant Shares issuable upon the exercise of this Warrant are the subject of certain registration rights granted by the Company to the Holder as more specifically set forth in the Stock and Warrant Purchase Agreement which was executed by each of the Company and Holder in connection with the Offering. (9) NOTICES. All notices and other communications which are required or may be given under this Warrant shall be in writing and shall be deemed to have been duly given when delivered in person or transmitted by telex or three (3) days after being mailed, postage prepaid, in the case of the Company to Nastech Pharmaceutical Company Inc.,45 Adams Ave, Hauppauge, New York 11788 Attention: Chief Financial Officer, and in the case of the Holder to the address set forth herein, or to such other address as such party shall have specified by notice to the other party in accordance with this section (9). If notice is given by registered or certified first class mail, postage prepaid, return receipt requested, the return receipt shall be conclusive evidence of the notice having been mailed on the date set forth. (10) DEFINITION. The "Current Market Price" for the Common Stock of the Company on any date shall be deemed to be the average of the daily closing prices for the thirty (30) consecutive trading days immediately preceding the date in question. The closing price for each day shall be the last reported sales price regular way or, in case no such reported sale takes place on such day, the closing bid price regular way, in either case on the principal national securities exchange (including, for purposes hereof, the Nasdaq National Market ("Nasdaq")) on which the shares of Common Stock are listed or admitted to trading, or, if the Common Stock are not listed or admitted to trading on any national securities exchange, the highest reported bid price for the Common Stock as furnished by the Nasdaq or a similar organization if the Nasdaq is no longer reporting such information (including, for purposes hereof, Nasdaq). If on any such date the Common Stock are not listed or admitted to trading on any national securities exchange and are not quoted by Nasdaq or any similar organization, the fair value of a share on such date, as determined in good faith by the Board of Directors of the Company, whose determination shall be conclusive, shall be used. (11) MISCELLANEOUS. This Agreement contains the entire Agreement and supersedes all prior agreements and understandings, oral or written, between the parties hereto with respect to the subject matter hereof. This Warrant may not be changed orally, but only by an agreement in writing signed by the party against whom any waiver, change, amendment, modification or discharge is sought, provided however, that this Warrant may be amended or modified without the consent of the Holder if such amendment or modification does not adversely affect the rights of the Holder hereunder. This Agreement may be assigned by Holder in accordance with the provisions of section (7) of this Agreement. This Agreement will not be assigned by the Company and shall be interpreted under the laws of the State of New York without application to the principles of conflicts of laws. NASTECH PHARMACEUTICAL COMPANY INC. By: _______________________________________ [SEAL] Dated: Attest: 5 FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the attached Warrant.) FOR VALUE RECEIVED, _____________________ hereby sells, assigns, and transfers unto ________________________ a warrant (the "Warrant") to purchase __________ Common Stock, $.006 par value per share, of Nastech Pharmaceutical Company Inc. (the "Company"), together with all right, title, and interest therein, and does hereby irrevocably constitute and appoint __________________________________________________ as attorney to transfer such Warrant on the books of the Company, with full power of substitution. Dated:___________________ Signature: ___________________ NOTICE The signature on the foregoing Assignment must correspond to the name as written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatsoever. 6 EXERCISE FORM Dated ______________, ____ The undersigned hereby irrevocably elects to exercise the within Warrant to the extent of purchasing shares of Common Stock and hereby (i) tenders payment herewith in the amount of $_____________ or (ii) surrenders this Warrant in the amount of _________, in payment of the actual exercise price thereof, and requests that certificates for such securities be issued in the name of, and delivered to, and, if such number of Warrant Shares shall not be all the Warrant Shares covered by the within Warrant, that a new Warrant for the balance of the Warrant Shares be registered in the name of, and delivered to, the undersigned at the address stated below. As a condition to this election, the undersigned hereby represents and warrants to the Company that the representations made by the undersigned in Section 4 of the Stock and Warrant Purchase Agreement, including the information provided by the undersigned in its Purchaser Questionnaire, are true and correct as of the date of this election with respect to the Warrant Shares. ______ INSTRUCTIONS FOR REGISTRATION OF STOCK Name: _________________________________________________________________________ (Please type, write or print in block letters) Address: ______________________________________________________________________ Signature: ____________________________________________________________________ 7 EX-5.1 4 0004.txt OPINION EXHIBIT 5.1 [Letterhead of Dickstein Shapiro Morin & Oshinsky LLP] April 24, 2001 Nastech Pharmaceutical Company Inc. 45 Arthur Avenue Hauppauge, NY 11788 Nastech Pharmaceutical Company Inc. Registration Statement on Form S-3 Dear Sirs: We have acted as counsel for Nastech Pharmaceutical Company Inc., a Delaware corporation (the "Issuer"), in connection with the preparation of the Registration Statement on Form S-3 (the "Registration Statement") to be filed with the Securities and Exchange Commission on April 24, 2001 (Registration No. 333-________) for the registration under the Securities Act of 1933 (the "Act") of 1,363,296 shares (the "Shares") of common stock, par value $.006 per share, of the Issuer, 860,124 of which Shares are presently issued and outstanding and 503,172 of which Shares are issuable upon the exercise of certain common stock warrants of the Issuer (the "Warrants") with an exercise price of $6.3375 per share of common stock. The Shares are being registered for resale by certain security holders of the Issuer. In rendering this opinion, we have relied upon, among other things, our examination of certain records of the Issuer, including without limitation, the Issuer's Certificate of Incorporation, as amended, the Issuer's Bylaws, as amended, and resolutions of the Board of Directors. We have also examined certificates of the Issuer's officers and of public officials, and have reviewed such questions of law and made such other inquiries, as we have deemed necessary or appropriate for the purpose of rendering this opinion. As to various questions of fact material to this opinion, we have also relied upon representations and warranties of the Issuer and upon such certificates and other instruments of officers of the Issuer and public officials furnished to us by the Issuer, in each case without independent investigation or verification. In addition, without any independent investigation or verification, we have assumed (i) the genuineness of all signatures, (ii) the authenticity of all documents submitted to us as originals and the conformity with the original documents of all 2 documents submitted to us as certified, conformed or photostatic copies, (iii) the authority of all persons signing any document other than the officers of the Issuer, where applicable, signing in their capacity as such, (iv) the enforceability of all the documents we have reviewed in accordance with their respective terms against the parties thereto, and (v) the truth and accuracy of all matters of fact set forth in all certificates and other instruments furnished to us. Based upon the foregoing, and subject to the limitations, qualifications and assumptions and exceptions set forth herein, we are of the opinion that: 1. The 860,124 Shares that are presently issued and outstanding were validly issued and are fully paid and non-assessable; and 2. The 503,172 shares that are issuable upon the exercise of the Warrants, when issued and delivered by the Issuer in accordance with the terms of the Warrants against full payment of the consideration set forth therein, will be validly issued, fully paid, and non-assessable. We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and the reference to us under the heading "Legal Matters" in the prospectus included in Part I of the Registration Statement. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act. Very truly yours, /s/ Dickstein Shapiro Morin & Oshinsky LLP EX-23.1 5 0005.txt CONSENT OF KPMG LLP EXHIBIT 23.1 Independent Auditor's Consent The Board of Directors Nastech Pharmaceutical Company Inc.: We consent to the use of our report dated February 2, 2001, except for Note 16 which is as of March 22, 2001, incorporated herein by reference and to the reference to our firm under the heading "Experts" in the prospectus. KPMG LLP Melville, New York April 24, 2001 -----END PRIVACY-ENHANCED MESSAGE-----