Item
1.01
Entry
into a Material Definitive Agreement
On
January 31, 2008, Manhattan Pharmaceuticals, Inc. (the “Company”) and Nordic
Biotech Advisors ApS through its fund Nordic Biotech Venture Fund II K/S
(“Nordic”) entered into a joint venture agreement (the “JV Agreement”) to
develop and commercialize the Company's North American rights (under license)
to
its Hedrin product. On February 5, 2008, the Company issued a press release
announcing its entry into the JV Agreement and describing the transactions
contemplated thereby, the full text of which is attached hereto as Exhibit
99.1.
Pursuant
to the JV Agreement, Nordic will form a new Danish limited partnership (the
"Limited Partnership") and provide it with initial funding of $2.5 million.
The
Company will assign and transfer its North American rights in Hedrin to the
Limited Partnership in return for a $2.0 million cash payment and equity in
the
Limited Partnership representing 50% of the nominal equity interests in the
Limited Partnership (valued at $2.5 million).
Should
the Limited Partnership be successful in achieving a payment milestone, namely
that by September 30, 2008, the Food and Drug Administration determines to
treat
Hedrin as a medical device, Nordic will purchase an additional $2.5 million
of
equity in the Limited Partnership, whereupon the Limited Partnership will pay
the Company an additional $1.5 million in cash and issue to the Company an
additional $2.5 million in equity in the Limited Partnership, thereby
maintaining the Company’s 50% ownership interest in the Limited
Partnership.
The
Limited Partnership will be responsible for the development and
commercialization of Hedrin for the North American market and all associated
costs including clinical trials, if required, regulatory costs, patent costs,
and future milestone payments owed to Thornton & Ross Limited, the licensor
of Hedrin.
The
Limited Partnership will engage the Company to provide management services
to
the Limited Partnership in exchange for an annualized management fee, which
for
2008 on an annualized basis, is $527,000.
Nordic
will pay to the Company a non-refundable fee of $150,000 at the closing for
the
right to receive a warrant covering 7.1 million shares of the Company’s common
stock, exercisable for $0.14 per share. The warrant is issuable 90 days from
closing, provided Nordic has not exercised all or a part of its put, as
described below. The per share exercise price of the warrant is based on the
volume weighted average price of the Company’s common stock for the period prior
to the signing of the JV Agreement.
Nordic
has an option to put all or a portion of its equity interest in the Limited
Partnership to the Company in exchange for the Company’s common stock. The
shares of the Company’s common stock to be issued upon exercise of the put will
be calculated by multiplying the percentage of Nordic’s equity in the Limited
Partnership that Nordic decides to put to the Company multiplied by the dollar
amount of Nordic’s investment in Limited Partnership divided by $0.14, as
adjusted from time to time. The put option is exercisable immediately and
expires at the earlier of ten years or when Nordic’s distributions from the
Limited Partnership exceed five times the amount Nordic invested in the Limited
Partnership.
The
Company has an option to call all or a portion of Nordic’s equity interest in
the Limited Partnership in exchange for the Company’s common stock. The Company
cannot begin to exercise its call until the price of the Company’s common stock
has closed at or above $1.05 per share for 30 consecutive trading days. During
the first 30 consecutive trading day period in which the Company’s common stock
closes at or above $1.05 per share the Company can exercise up to 25% of its
call option. During the second 30 consecutive trading day period in which the
Company’s common stock closes at or above $1.05 per share the Company can
exercise up to 50% of its call option on a cumulative basis. During the third
30
consecutive trading day period in which the Company’s common stock closes at or
above $1.05 per share the Company can exercise up to 75% of its call option
on a
cumulative basis. During the fourth 30 consecutive trading day period in which
the Company’s common stock closes at or above $1.05 per share the Company can
exercise up to 100% of its call option on a cumulative basis. The shares of
the
Company’s common stock to be issued upon exercise of the call will be calculated
by multiplying the percentage of Nordic’s equity in the Limited Partnership that
the Company calls, as described above, multiplied by the dollar amount of
Nordic’s investment in the Limited Partnership divided by $0.14. Nordic can
refuse the Company’s call by either paying the Company up to $2 million or
forfeiting all or a portion of their put, calculated on a pro rata basis for
the
percentage of the Nordic equity interest called by the Company.
The
Limited Partnership's Board will consist of 4 members, 2 appointed by the
Company and 2 appointed by Nordic. Nordic has the right to appoint one of the
directors as chairman of the Board. The chairman has certain tie breaking
powers. In the event that the payment milestone described above is not achieved
by June 30, 2008, then the Limited Partnership's Board will increase to 5
members, 2 appointed by the Company and 3 appointed by Nordic.
After
the
closing, at Nordic's request, the Company will nominate a person identified
by
Nordic to serve on its Board of Directors.
The
Company will grant Nordic registration rights for the shares to be issued upon
exercise of the warrant, the put or the call. The Company is required to file
an
initial registration statement within 10 calendar days of filing its Form 10-K
for the year ended December 31, 2007. The Company is required to file additional
registration statements, if required, within 45 days of the date the Company
first knows that such additional registration statement was required. The
Company is required to use commercially reasonable efforts to cause the
registration statement to be declared effective by the Securities and Exchange
Commission (“SEC”) within 105 calendar days from the filing date. If the Company
fails to file a registration statement on time or if a registration statement
is
not declared effective by the SEC with 105 days of filing the Company will
be
required to pay to Nordic, or its assigns, an amount in cash, as partial
liquidated damages, equal to 0.5% per month of the amount invested in the
Limited Partnership by Nordic until the registration statement is declared
effective by the SEC. In no event shall the aggregate amount payable by the
Company exceed 9% of the amount invested in the Limited Partnership by
Nordic.
The
profits of the Limited Partnership will be shared by the Company and Nordic
in
accordance with their respective equity interests in the Limited Partnership,
which are currently 50% to each, except that Nordic will get a minimum
guaranteed return from the Limited Partnership equal to 5% on Hedrin sales,
as
adjusted for any change in Nordic’s equity interest in the Limited Partnership.
If the Limited Partnership realizes a profit equal to or greater than a 10%
royalty on Hedrin sales, then profits will be shared by the Company and Nordic
in accordance with their respective equity interests in the Limited Partnership.
However, in the event of a liquidation of the Limited Partnership, Nordic’s
distribution in liquidation will be at least equal to the amount Nordic invested
in the Limited Partnership ($5 million if the payment milestone described above
is met, $2.5 million if it is not met) plus 10% per year, less the cumulative
distributions received by Nordic from the Limited Partnership.
The
closing of the transactions contemplated by the JV Agreement is subject to
customary closing conditions, including, among others,
that the Company shall have satisfied all of the requirements of
the
financial viability exemption from stockholder approval set forth in Section
710(b) of the
A
merican
Stock Exchange Company Guide (the "AMEX Company Guide")
.
Following
the parties' entrance into the JV Agreement, the American Stock Exchange
("
AMEX
")
informed
the
Company
that the financial viability exemption is not available to
the
Company
.
Accordingly,
the
Company and Nordic are considering alternatives to this condition, including,
among other things, the possibility of Nordic's waiving such condition and
instead, requiring that the Company
obtain stockholder approval
of the
issuance of the securities of the Company under the JV Agreement
or limit
ing
the number of shares
of the
Company's common stock
into which the put/call and warrant are exercisable to below 20% of the
Company's outstanding shares
of
common stock
,
until such time as stockholder approval has been obtained.
There
can
be no assurance, however, that the Company and Nordic will agree to these or
any
other alternatives to the condition to closing that the Company
shall
have satisfied all of the requirements of
Section
710(b) of the
A
MEX
Company Guide,
that
stockholder approval will be obtained or
that
the
Company's common stock
will remain listed on AMEX.
Nordic
has represented to the Company that it is an "accredited investor," as that
term
is defined in Rule 501(a) of Regulation D under the Securities Act of 1933,
as
amended (the "Securities Act"), and the issuance of securities of the Company
under the JV Agreement will be made in reliance on exemptions provided by
Regulation D and Section 4(2) of the Securities Act.
The
description of the JV Agreement set forth herein does not purport to be complete
and is qualified in its entirety by reference to the full text of the JV
Agreement, a copy of which will be filed as an exhibit to the Company’s Annual
Report on Form 10-K for the year ended December 31, 2007.
Forward
Looking Statements
This
Current Report on Form 8-K contains forward-looking statements made pursuant
to
the safe harbor provisions of the Private Securities Litigation Reform Act
of
1995. Forward-looking statements typically are identified by use of terms such
as "may," "will," "should," "plan," "expect," "anticipate," "estimate" and
similar words, although some forward-looking statements are expressed
differently. Forward-looking statements represent our management's judgment
regarding future events. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, the Company can
give no assurance that such expectations will prove to be correct. All
statements other than statements of historical fact included in this Current
Report on Form 8-K are forward-looking statements. The Company cannot guarantee
the accuracy of the forward-looking statements, and you should be aware that
the
Company's actual results could differ materially from those contained in the
forward-looking statements due to a number of factors, including the statements
under "Risk Factors" contained in the Company's Annual Report on Form 10-KSB
for
the fiscal year ended December 31, 2006 filed with the Securities and Exchange
Commission.
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