UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
________________________
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
Date
of
Report (Date of earliest event reported):
June
30, 2006
GLIDER
ENTERPRISES, INC.
(Exact
name of registrant as specified in its charter)
Nevada
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000-51038
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98-0373793
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(State
or other jurisdiction
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(Commission
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(I.R.S.
Employer
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of
incorporation)
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File
Number)
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Identification
Number
)
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7
Deer
Park Drive, Suite K, Monmouth Junction, New Jersey 08852
(Address
of principal executive office) (Zip Code)
Registrant’s
telephone number, including area code:
(732)
329-8885
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2.below):
[_]
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Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
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[_]
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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[_]
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange
Act
(17 CFR 240.14d-2(b))
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[_]
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR
240.13c-4(c))
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Item
1.01.
Entry
into a Material Definitive Agreement.
Merger
On
June
30, 2006, Gilder Enterprises, Inc., a Nevada corporation (“Registrant”)
completed the acquisition of MedaSorb Corporation, a Delaware corporation
(“MedaSorb”), pursuant to an Agreement and Plan of Merger (the “Merger
Agreement”) by and among the Registrant, MedaSorb Acquisition Inc., a Delaware
corporation (“Acquisition Sub”) and MedaSorb. A copy of the Merger Agreement is
filed as Exhibit 2.1 to this Current Report on Form 8-K.
The
principal terms of the merger and a description of the business of MedaSorb
is
set forth below in Item 2.01.
Private
Placement
Immediately
following the merger, we sold 5,25
0,000
shares of our Series A 10% Cumulative Convertible Preferred Stock, par value
$.001 per share (“Series A Preferred Stock”), to three institutional investors
pursuant to a Subscription Agreement filed as Exhibit 4.3
to
this
Current Report on Form 8-K
and
incorporated herein by reference,
in a
private offering exempt from registration pursuant to Section 4(2) and
Regulation D (Rule 506) under the Securities Act of 1933, as amended (the
“Securities Act”). The 5,250,000 shares of
Series
A
Preferred
Stock are initially convertible into 4,200,000 shares
our
common stock, par value $.001 per share (“Common Stock”).
The
Series A Preferred Stock has a stated value of $1.00 per share and was sold
for
a purchase price equal to the stated value. The Series A Preferred Stock is
not
redeemable at the holder’s option but may be redeemed by us at our option
following the third anniversary of the issuance of the Series A Preferred Stock
for 120% of the stated value thereof plus any accrued but unpaid dividends
upon
30 days' prior written notice (during which time the Series A Preferred Stock
may be converted), provided a registration statement is effective under the
Securities Act with respect to the shares of our Common Stock into which such
Series A Preferred Stock is then convertible, and an event of default, as
defined in the Certificate of Designations relating to the Series A Preferred
Stock (the “Certificate of Designations”), is not then continuing. A copy of the
Certificate of Designations is filed as Exhibit 4.1
to
this
Current Report on Form 8-K
and
incorporated herein by reference.
The
Series A Preferred Stock has a dividend rate of 10% per annum, payable
quarterly. The dividend rate increases to 20% per annum upon the occurrence
of
the events of default specified in the Certificate of Designations. Such
dividends may be paid in cash or, provided no event of default is then
continuing, with additional shares of Series A Preferred Stock valued at the
stated value thereof. The Series A Preferred Stock is convertible into Common
Stock at the conversion rate of one share of Common Stock for each $1.25 of
stated value or accrued but unpaid dividends converted.
In
conjunction with the issuance of the Series A Preferred Stock to the investors,
we issued to them, for no additional consideration, five-year warrants (the
“Warrants”) to purchase an aggregate of 2,100,000 shares of Common Stock at an
exercise price of $2.00 per share. The form of the Warrants is filed as Exhibit
4.2 to this Current Report on Form 8-K and incorporated herein by reference.
The
aggregate number of shares of Common Stock covered by the Warrants equals,
at
the date of issuance thereof, one-half the number of shares of Common Stock
issuable upon the full conversion of the Series A Preferred Stock issued to
the
investors on such date. We have agreed to file a registration statement under
the Securities Act covering the Common Stock issuable upon conversion of the
Series A Preferred Stock and exercise of the Warrants within 120 days following
closing of the private placement and to cause it to become effective within
240
days of such closing. We also granted the investors demand and piggyback
registration rights with respect to such Common Stock.
Both
the
conversion price of the Series A Preferred Stock and the exercise price of
the
Warrants are subject to “full-ratchet” anti-dilution provisions, so that upon
future issuances of our Common Stock or equivalents thereof, subject to
specified customary exceptions, at a price below the conversion price of the
Series A Preferred Stock and/or exercise price of the Warrants, such conversion
price and/or exercise price will be reduced to such lower price.
In
connection with the sale of the Series A Preferred Stock and Warrants to the
investors, Margie Chassman, the beneficial holder of approximately 42% of our
outstanding shares of Common Stock, agreed to pledge certain securities held
by
her to the investors, which such investors may sell to ensure they do not suffer
a loss on their investment in the first year following the date of their
investment. In consideration of her pledge to these investors, we agreed to
pay
Ms. Chassman (i) $525,000 in cash, and (ii) five-year warrants to purchase
10%
of the shares of Series A Preferred Stock and 10% of the Warrants sold to these
investors for an exercise price equal to the price paid by the investors in
the
private placement for the Series A Preferred Stock and Warrants.
We
anticipate that our other fees and expenses in connection with the sale of
the
Series A Preferred Stock and Warrants will amount to approximately
$775,000.
Additionally,
in connection with the merger, certain stockholders of ours, including our
former principal stockholder, sold an aggregate of 3,617,500 shares of our
common stock to several purchasers, and forfeited 4,105,000 shares of Common
Stock, which we cancelled, so that prior to giving effect to the merger, we
had
outstanding 3,750,000 shares of Common Stock.
After
giving effect to the merger, the surrender of shares described above and the
sale of the Series A Preferred Stock and Warrants, we had issued and outstanding
24,090,929 shares of Common Stock and convertible securities, options and
warrants that may be converted into or exercised for 9,624,648 additional shares
of Common Stock. In addition, the holders of 240,929 shares of Common Stock
and
warrants to purchase an additional 240,929 shares of Common Stock have the
right
to exchange such shares of Common Stock and warrants for approximately 800,000
shares of Series A Preferred Stock and Warrants to purchase 400,000 shares
of
Common Stock at a price of $2.00 per share.
The
securities we sold in the private placement have not be registered under the
Securities Act, and may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements under
the
Securities Act.
In
connection with the closing of the private placement, we agreed to make a
short-term advance to Ms. Chassman in the amount of $500,000 bearing interest
at
the rate of 6% per annum, the repayment of which may be offset against amounts
owed by us to Ms. Chassman under the $1,000,000 advance previously made by
her
to MedaSorb. The short-term advance will be secured by a pledge of
publicly-traded securities with a market value equal to $500,000.
Termination
of Joint Venture
On
June
30, 2006, we also terminated our joint venture agreement with 5G Wireless
pursuant to a Termination and Release Agreement, and in connection therewith,
we
sold our 51% interest in Nex Connectivity Solutions, Inc. to Dennis Tan, a
Singapore national for $18,000 (Canadian). Accordingly, we are no longer engaged
in the business of providing Internet access to hotels or other
properties.
Item
2.01.
Completion
of Acquisition or Disposition of Assets.
Principal
Terms of the Reverse Merger
Pursuant
to the Merger Agreement, on June 30, 2006, we completed the acquisition of
MedaSorb through a reverse triangular merger in which Acquisition Sub, a wholly
owned subsidiary of ours formed solely for the purpose of facilitating the
merger, merged with MedaSorb. MedaSorb is now a wholly owned
subsidiary of ours, and its business (which is described below) is now our
only
business.
In
connection with the merger (i) the former stockholders of MedaSorb were issued
an aggregate of 20,340,929 shares of Common Stock in exchange for the same
number of shares of MedaSorb common stock previously held by such stockholders,
(ii)
outstanding
warrants and options to purchase a total of 1,697,648 shares of the common
stock
of MedaSorb were cancelled in exchange for warrants and stock options to
purchase the same number of shares of our Common Stock at the same exercise
prices and otherwise on the same general terms as the MedaSorb options and
warrants that were cancelled (the options issued to the employees, directors
and
consultants of MedaSorb being issued under our 2006 Long Term Incentive Plan),
and (iii) certain providers of legal services to MedaSorb who previously had
the
right to be issued approximately 997,000
shares
of
MedaSorb common stock as payment toward accrued legal fees, became entitled
to
instead be issued the same number of shares of our Common Stock as payment
toward such services. Immediately prior to the merger, after giving effect
to
the share cancellation transaction referred to above, we had outstanding
3,750,000 shares of Common Stock and no warrants or options to purchase Common
Stock.
Concurrently
with the closing of the merger, Joseph G. Bowes, our sole director and officer
prior to the merger, appointed Al Kraus, Joseph Rubin, Esq., and Kurt Katz
to
the Board of Directors, and then resigned from the Board and from his positions
as an officer. In addition, at such time, Al Kraus was appointed our President
and Chief Executive Officer, James Winchester, MD was appointed our Chief
Medical Officer, Vincent Capponi was appointed our Chief Operating Officer
and
David Lamadrid was appointed our Chief Financial Officer. Additional information
with respect to our new directors and officers is provided in Item 2.01 of
this
Current Report on Form 8-K.
For
accounting purposes, the merger is being accounted for as a reverse merger,
since
we
were a
shell company prior to the merger, the former stockholders of MedaSorb now
own a
majority of the issued and outstanding shares of our Common Stock, and the
directors and executive officers of MedaSorb became our directors and executive
officers. Accordingly, MedaSorb is treated as the acquiror in the merger, which
is treated as a recapitalization of MedaSorb, and the pre-merger financial
statements of MedaSorb will now be deemed to be our historical financial
statements.
In
connection with the merger, we also changed our principal executive offices
to
those of MedaSorb, which are located at 7 Deer Park Drive, Suite K, Monmouth
Junction, New Jersey 08852.
Form
10-SB Disclosure - Description of MedaSorb
Prior
to
closing of the merger, Registrant was a “shell company” (as such term is defined
in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, (the
“Exchange Act”). Accordingly, set forth below is the information that would be
required if Registrant were filing a general form for registration of securities
on Form 10-SB under the Exchange Act.
Unless
otherwise indicated or the context otherwise requires, all references below
to
“we,” “us,” “MedaSorb” and the “Company” are to Registrant together with
MedaSorb, its wholly-owned subsidiary.
General
We
are a
medical device company that is currently in the development stage, headquartered
in Monmouth Junction, New Jersey (near Princeton). We have developed and are
preparing to commercialize a breakthrough blood purification technology that
efficiently removes toxic compounds from circulating blood. Current
state-of-the-art blood purification technology (such as dialysis) is incapable
of effectively clearing these toxins.
Our
products, which have not yet been introduced to the market, are known medically
as hemoperfusion devices, and incorporate our proprietary adsorbent polymer
technology. We believe that there are many potential healthcare applications
for
our products, including:
·
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Adjunctive
treatment and/or prevention of sepsis (bacterial infection of the
blood);
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prevention
of damage to organs donated for transplant prior to organ
harvest;
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prevention
of post-operative complications of cardiac surgery;
and
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long-term
treatment of chronic kidney
failure.
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Product
Strategy
MedaSorb
is developing two product lines, CytoSorb™ and BetaSorb™, for use in acute and
chronic treatments, respectively. CytoSorb™ will initially be targeted for
use as an adjunctive therapy in the acute treatment of the systemic
inflammatory response syndrome (SIRS). BetaSorb™ is intended to be used as a
complement to dialysis in the treatment of chronic end stage renal
disease (ESRD). We will first focus our efforts on commercializing
CytoSorb™, which we believe will provide a relatively faster regulatory pathway
to market. BetaSorb™’s potential for usage in chronic conditions such as ESRD is
anticipated to have a longer and more complex regulatory pathway and will be
pursued after commercialization of the CytoSorb™ product.
The
first
indication for CytoSorb™ will be in the treatment of sepsis, as an
adjunctive therapy to the current standard of care.
Following the sepsis indication, we intend to continue our research in other
acute conditions where CytoSorb™ has indicated potential, such as for use in
cardiopulmonary bypass surgery addressing post operative complications
of inflammation, and organ donation from brain dead organ donors,
addressing the so-called cytokine storm associated with the decrease
of viable organs from donors. We are also exploring the potential benefits
the CytoSorb™ device may have in removing drugs from blood in situations such as
patient overdoses.
We
had
initially identified end stage renal disease as the target market for our
polymer-based adsorbent technology. End stage renal disease affects more than
1.3 million people worldwide and is the single most common application of blood
purification technology today, namely hemodialysis. Hemodialysis is a life
saving intervention, but is not nearly as effective as a healthy kidney in
removing toxins from the bloodstream.
During
the development of our end stage renal product (BetaSorb™), we identified
several applications for our adsorbent technology in the treatment of critical
care patients and recognized that our absorbent polymer represented
a
platform
of broad application in medicine, well beyond the treatment of patients
suffering from renal disease. As a result, we shifted our priorities to pursue
critical care applications (such as for the treatment of sepsis) for our
technology. We believe that, compared with the chronic renal application for
our
technology,
·
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we
will able to obtain the necessary regulatory approvals in a shorter
period
of time, allowing us to bring our CytoSorb™ product to market in a shorter
time frame;
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·
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the
production of CytoSorb™ will entail a lower capital requirement for
manufacturing and generate significantly higher gross margins; and
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·
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the
use of CytoSorb™ in critical care applications will result in quicker
reimbursement because the use of our products in these situations
(generally on an in-patient basis) will generally not be subject
to
pre-approval, or require a separate decision, by Medicare or the
relevant
HMO or other providers of medical
benefits.
|
However,
we continue to remain confident of the commercial potential of our BetaSorb™
device for chronic applications and will continue its development as a secondary
product.
Corporate
History
MedaSorb
was organized as a Delaware limited liability company in August 1997 as Advanced
Renal Technologies, LLC. MedaSorb changed its name to RenalTech International,
LLC in November 1998, and to MedaSorb Technologies, LLC in October, 2003.
In
December 2005, MedaSorb converted from a limited liability company to a
corporation, changing its name to MedaSorb Corporation.
MedaSorb
has engaged in research and development since its inception, and prior to the
merger, we had raised approximately $53 million
from
investors. These proceeds have been used to fund the development of multiple
product applications and to conduct clinical trials. These funds have also
been
used to establish in-house manufacturing capacity to meet clinical testing
needs, expand our intellectual property through additional patents and to
develop extensive proprietary know-how with regard to our products.
Gilder
Enterprises, Inc., a Nevada corporation, was incorporated on April 25, 2002.
Prior to the merger, through a 51% interest in Nex Connectivity Solutions under
a joint venture arrangement with 5G Wireless Communications Pte. Ltd, the
Registrant was engaged in the business of installing and operating computer
networks that enabled business travelers to have high-speed access to the
Internet. In connection with the merger, we terminated the joint venture
arrangement and disposed of our interest in Nex Connectivity Solutions, which
had generated minimal revenues and no profits. At the effective time of the
merger, the Registrant fell within the definition of a “shell company” under the
Exchange Act.
Technology,
Products and Applications
For
approximately the past half-century, the field of blood purification has been
focused on hemodialysis, a mature, well accepted medical technique primarily
used to sustain the lives of patients with permanent or temporary loss of kidney
function. It is widely understood by the medical community that dialysis has
inherent limitations in that its ability to remove toxic substances from blood
drops precipitously as the size of toxins increases.
Our
hemocompatible adsorbent technology addresses this shortcoming by efficiently
removing toxins largely untouched by dialysis.
Our
products are known in the medical field as hemoperfusion devices. During
hemoperfusion, blood is removed from the body via a catheter or other blood
access device, perfused through a filter medium where toxic compounds are
removed, and returned to the body.
We
believe that our polymer adsorbent technology represents an effective
therapeutic approach to severe health complications caused or complicated by
large toxins circulating in the blood. Our technology has many potential
applications in the treatment of common, chronic and acute healthcare
complications including the treatment and/or prevention of sepsis; drug
detoxification; the treatment of chronic kidney failure; the treatment of organ
dysfunction resulting from trauma and severe burns; the treatment of liver
failure; the prevention of post-operative complications of cardiopulmonary
bypass surgery; and the prevention of damage to organs donated by brain-dead
donors prior to organ harvest. These applications vary by cause and complexity
as well as by severity but share a common characteristic i.e. high
concentrations of toxins in the circulating blood.
Our
products will be easy to use and will be able to be incorporated into existing
extracorporeal blood handling equipment, including heart-lung bypass circuits
and hemodialysis machines. They will require no additional, expensive equipment
and require minimal training.
Markets,
Size and Economic Potential
Sepsis
In
the
United States alone, there are more than one million new cases of sepsis
annually; extrapolated to a global population, the worldwide incidence is
several million cases per year. Severe trauma and community acquired pneumonia
are often associated with sepsis.
Sepsis
patients are critically ill and suffer a very high mortality rate of between
28%
and 60%. Because they are so expensive to treat, we believe that efficacy rather
than cost will be the determining factor in the adoption of CytoSorb™ in the
treatment of sepsis. Our current pricing model represents a fraction of what
is
currently spent on the treatment of a sepsis patient. Critical care specialists
project that the average sepsis patient may require 10 CytoSorb™ (single-use,
disposable) devices during a treatment regimen, based on the median number
of
days for which patients typically require ventilator support. Assuming only
2%
of the sepsis patient population received CytoSorb™ therapy, based on a pricing
model of $500 per device and 10 devices per episode, the annual revenue
potential is $100 million in the U.S. alone and $200 million
worldwide.
Brain-Dead
Organ Donors
There
are
approximately 6,000 to 12,000 brain dead organ donors each year in the United
States; worldwide, the number of these organ donors is estimated to be at least
double the U.S. brain dead organ donor population. There is a severe shortage
of
donor organs. Currently, there are more than 85,000 individuals on transplant
waiting lists in the United States. We expect that the use of our CytoSorb™
device in brain dead organ donors will increase the number of viable organs
harvested from the donor pool and improve the survival of transplanted organs.
At $500 per device, the worldwide revenue potential for this application is
currently estimated at $12 million annually.
Cardiopulmonary
Bypass Procedures
There
are
approximately 400,000 cardiopulmonary bypass (CPB) and cardiac surgery
procedures performed annually in the U.S. and more than 800,000 worldwide.
Nearly a third of all patients suffer from post-operative complications of
cardiopulmonary bypass surgery, including complications from infection,
pneumonia, pulmonary, and neurological dysfunction. Extended surgery time leads
to longer ICU recovery time and hospital stays, both leading to higher costs
-
approximately $35,000 per coronary artery bypass graft procedure. We believe
that the use of CytoSorb™ during and after the surgical procedure will prevent
or mitigate post-operative complications for many CPB patients.
We
anticipate that the CytoSorb™ device, incorporated into the extracorporeal
circuit used with the by-pass equipment during surgery, and/or employed
post-operatively for a period of time, will mitigate inflammation and speed
recovery. At $500 per CytoSorb™ device and one device per procedure, and
assuming 50% of the patient population receives CytoSorb™ treatment, the annual
revenue potential for this application is $100 million in the U.S. and $200
million worldwide.
Chronic
Kidney Failure
The
National Kidney Foundation estimates that more than 20 million Americans have
chronic kidney disease. Left untreated, chronic kidney disease can ultimately
lead to chronic kidney failure, which requires a kidney transplant or chronic
dialysis (generally three times per week) to sustain life. There are
approximately 300,000 patients in the United States currently receiving chronic
dialysis and more than 1.3 million worldwide. Approximately 85% of patients
with
chronic kidney disease are treated with hemodialysis.
Our
BetaSorb™ device has been designed for use in conjunction with standard
dialysis. Standard dialysis care typically involves three sessions per week,
averaging approximately 150 sessions per year. Assuming BetaSorb™ use in each
session, every 100,000 patients would require approximately 15 million devices
annually.
Our
pricing model for the BetaSorb™ device is based on a variety of cost/benefit
assumptions. The current BetaSorb™ end-user pricing model is $35 per device, or
$5,250 per patient per year. Based on high-volume finished product cost
assumptions and the terms of our existing marketing and distribution agreement
with Fresenius Medical Care (which owns more than 1,600 dialysis clinics with
over 130,000 patients), we estimate annual revenue potential for the application
of our technology to chronic kidney failure at approximately $780 million in
the
U.S. and $2.5 billion worldwide.
Other
Applications
Additional
applications for the critical care market have been identified. These promising
areas include:
·
|
Regional
high-dose chemotherapy
|
·
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Acute
Respiratory Distress Syndrome
(ARDS)
|
·
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Severe
Acute Respiratory Syndrome (SARS)
|
Products
(Currently in Development)
The
CytoSorb™ Device (Critical Care)
APPLICATION:
Treatment and Prevention of Sepsis
Sepsis
is
defined by high levels of toxic compounds
(“cytokines”)
which are released into the blood stream as part of the body’s auto-immune
response to severe infection or injury. These toxins cause severe inflammation
and damage healthy tissues, which can lead to organ dysfunction and failure.
Sepsis is very expensive to treat and has a high mortality rate.
Potential
Benefits:
By
preventing or reducing the accumulation of cytokines in the circulating blood,
we believe our adsorbent blood purification technology will prevent or mitigate
severe inflammation, organ dysfunction and failure in sepsis patients.
Therapeutic goals as an adjunctive therapy include reduced ICU and total
hospitalization time.
Background
and Rationale for Efficacy:
We
believe that the effective treatment of sepsis is the most valuable potential
application for our technology. Sepsis carries mortality rate of between 28%
and
60%. Death can occur within hours or days, depending on many variables,
including cause, severity, patient age and co-morbidities. Researchers estimate
that there are approximately one million new cases of sepsis in the U.S. each
year; extrapolated to a global population, this equates to several million
new
cases annually. In the U.S. alone, treatment of sepsis costs nearly $20 billion
annually. According to the Centers for Disease Control, sepsis is the tenth
leading cause of death in the U.S., as reported by (CDC). More than 1,000 people
die each day from sepsis.
An
effective treatment for sepsis has been elusive. Pharmaceutical companies have
been trying to develop drug therapies to treat the condition. With the exception
of a single drug, Xigris® from Eli Lilly, which demonstrated a small improvement
in survival in a small segment of the patient population, to our knowledge,
all
other efforts to date have failed to significantly improve patient
survival.
Our
technology presents a new therapeutic approach in the treatment of sepsis,
and
its potential efficacy is supported by scientific research. The potential
benefits of blood purification in the treatment of sepsis patients are widely
acknowledged by medical professionals and have been studied using dialysis
and
hemofiltration technology. These studies, while encouraging, demonstrated that
dialysis alone produced only limited benefit to sepsis patients. The reason
for
this appears to be rooted in a primary limitation of dialysis technology itself:
the inability of standard dialysis to effectively and efficiently remove larger
toxins from circulating blood. Our CytoSorb™ device efficiently removes these
larger toxins. CytoSorb’s™ toxin clearing ability and the ability to interact
safely with blood (hemocompatibility) has been demonstrated clinically. Data
collected during the “emergency and compassionate use” treatment of a single
sepsis patient has been encouraging to us.
CytoSorb™
has been designed to achieve broad-spectrum removal of both pro- and
anti-inflammatory cytokines, preventing or reducing the accumulation of high
concentrations in the bloodstream. This approach is intended to modulate the
immune response without blocking or suppressing the function of any of its
mediators. For this reason, researchers have referred to the approach reflected
in our technology as ‘immunomodulatory’ therapy.
Projected
Timeline and Budget Requirements:
Previous
clinical studies in patients with chronic kidney failure have provided valuable
data which underpin the development of the critical care applications for our
technology. Our current device design has been extensively studied and shown
to
be efficacious in humans with kidney failure (in multiple treatment sessions
lasting up to 4 hours, three times per week for up to 24 weeks in some
patients). This same device design was tested on a single patient with bacterial
sepsis, producing results that we found very encouraging and confirming to
us
that our device design is appropriate for a more extensive sepsis study. Our
plans for the development of CytoSorb™ to treat sepsis patients are summarized
in the table below.
Task
|
Estimated
Time Required
|
Estimated
Budget
Requirements
|
1.
Design pilot study
|
4
to 6 months
|
(nominal)
|
2.
Conduct pilot study
|
6
to 9 months
|
$1.2
million
|
3.
Design pivotal study
|
Concurrent
with item 2
|
(nominal)
|
4.
Conduct pivotal study
|
9
to 12 months
|
$1.8
million
|
5.
Approval
time following submission
|
6
to 9 months
|
|
Total
|
Approximately
25 to 36 months
|
$3.0
million
|
Because
our technology pertains to a medical device, the regulatory pathway and approval
process are faster and more straightforward than the process related to the
approval of a drug.
APPLICATION
:
Prevention
and treatment of organ dysfunction in brain-dead organ donors to increase the
number and quality of viable organs harvested from donors
Potential
Benefits
:
By
preventing or reducing high-levels of cytokines from accumulating in the
bloodstream of a brain-dead organ donor, CytoSorb™ aims to mitigate organ
dysfunction and failure which results from severe inflammation following
brain-death. The primary goals for this application are
·
|
Improving
the viability of organs which can be harvested from brain-dead organ
donors, and
|
·
|
increasing
the likelihood of organ survival following
transplant.
|
Background
and Rationale for Efficacy:
When
brain death occurs, the body responds by generating large quantities of
inflammatory cytokines. This process is similar to sepsis. A high percentage
of
donated organs are never transplanted due to this response, which damages
healthy organs and prevents transplant. In addition, inflammation in the donor
may damage organs that are harvested and reduce the probability of graft
survival following transplant.
There
is
a shortage of donated organs worldwide, with approximately 85,000 people
currently on the waiting list for organ transplants in the United States alone.
Because there are an insufficient number of organs donated to satisfy demand,
it
is vital to maximize the number of viable organs donated, and optimize the
probability of organ survival following transplant.
Projected
Timeline and Budget Requirements:
Studies
are currently being conducted under a $1 million grant from the Health Resources
and Services Administration (HRSA),
an
agency
of the U.S. Department of Health and Human Services, and extensive development
work has already been completed. Researchers at the University of Pittsburgh
Medical Center and the University of Texas, Houston Medical Center have made
significant progress on the observational and dosing phases of the project.
The
observational portion of the study is ongoing, while the dosing study, involving
eight non-viable donors, has been completed. These initial phases of the study
are expected to be concluded in 2006. The next phase of this study, the
treatment phase, will involve viable donors. In this phase of the
project
,
viable
donors will be treated and the survival and function of organs in transplant
recipients will be tracked and measured. The treatment phase will be contingent
upon further discussion with the FDA and HRSA regarding trial design, as well
as
obtaining additional funding.
APPLICATION:
Prevention and treatment of post-operative complications of cardiopulmonary
bypass surgery
Potential
Benefits:
By
preventing or reducing high levels of cytokines from accumulating in the blood
system during and following cardiac surgery, we anticipate that post-operative
complications of cardiopulmonary bypass surgery can be prevented or mitigated.
The primary goals for this application are to
·
|
reduce
ventilator and oxygen therapy requirements;
|
·
|
reduce
length of stay in hospital intensive care units; and
|
·
|
reduce
the total cost of patient care.
|
Background
and Rationale for Efficacy:
Due to
the highly invasive nature of cardiopulmonary bypass surgery, high levels of
cytokines are produced by the body, triggering severe inflammation. By
preventing or reducing the accumulation of cytokines in a patient’s blood
stream, we expect to prevent or mitigate post-operative complications caused
by
an excessive or protracted inflammatory response to the surgery. While not
all
patients undergoing cardiac surgery suffer these complications, it is impossible
to predict before surgery which patients will be affected.
Projected
Timeline:
We have
completed an observational study of 32 patients to obtain information with
respect to the onset and duration of cytokine release. We expect that this
information will aid us in defining the appropriate time to apply the CytoSorb™
device to maximize therapeutic impact. We are not currently focusing our efforts
on the commercialization of our technology for application to cardiac surgery.
Upon successful commercialization of the sepsis application, we will pursue
the
use of our polymer absorbent technology for other critical care uses, such
as
cardiopulmonary bypass surgery.
The
BetaSorb™ Device (Chronic Care)
APPLICATION:
Prevention and treatment of health complications caused by the accumulation
of
metabolic toxins in patients with chronic renal failure
Potential
Benefits:
By
preventing or reducing high levels of metabolic waste products from accumulating
in the blood and tissues of long-term dialysis patients, we anticipate that
the
health complications characteristic to these patients can be prevented or
mitigated. The primary goals for this application are to
·
|
improve
and maintain the general health of dialysis patients;
|
·
|
improve
the quality of life of these
patients
|
·
|
reduce
the total cost of patient care; and
|
·
|
increase
life expectancy.
|
Background
and Rationale for Efficacy:
Our
BetaSorb™ device is intended for use on patients suffering from chronic kidney
failure, who rely on long-term dialysis therapy to sustain life. Due to the
widely recognized inability of dialysis to remove larger proteins from blood,
metabolic waste products, such as Beta-2 microglobulin, accumulate to toxic
levels and are deposited in the joints and tissues of patients. Specific toxins
known to accumulate in these patients have been linked to their severe health
complications, increased healthcare costs, and reduced quality of life.
Researchers
also believe that the accumulation of toxins may play an important role in
the
significantly reduced life expectancy experienced by dialysis patients. In
the
U.S., the average life expectancy of a dialysis patient is five years. Industry
research has identified links between many of these toxins and poor patient
outcomes. By routinely removing these toxins during dialysis and preventing
or
reducing their accumulation, we expect our BetaSorb™ device to maintain or
improve patient health in the long-term. We believe that by reducing the
incidence of health complications, the annual cost of patient care will be
reduced and life expectancy increased.
The
poor
health experienced by chronic dialysis patients is illustrated by the fact
that
in the U.S. alone, more than $20 billion is spent annually caring for this
patient population. While the cost of providing dialysis therapy alone is
approximately $23,000 per patient per year, the total cost of caring for a
patient ranges from $60,000 to more than $120,000 annually due to various health
complications associated with dialysis.
Projected
Timeline:
We have
collected a significant amount of empirical data for the development of this
application. As the developer of this technology, we had to undertake extensive
research, as no comparable technology was available for reference purposes.
We
have completed several pilot studies, and most recently a clinical pilot of
six
patients in California for up to 24 weeks in which our BetaSorb™ device removed
the targeted toxins as expected.
As
discussed above, due to practical and economic considerations, we are now
focusing our efforts and resources on commercializing our CytoSorb™ device for
critical care application. Following commercial introduction of the CytoSorb™
device, we expect to conduct additional clinical studies using the BetaSorb™
device in the treatment of end stage renal disease patients.
Commercial
and Research Partners
University
of Pittsburgh Medical Center
We
are
working
with researchers at the University of Pittsburgh - Critical Care Medicine
Department in the development of critical care applications for technology.
Consisting of more than twenty physicians, as well as numerous full-time
scientists, educators and administrative assistants, the Critical Care Medicine
Department at the University of Pittsburgh is one of the largest organizations
of its type in the world and has established an international reputation for
excellence in clinical care, education, and research.
Researchers
at UPMC have participated in nearly every major clinical trial of potential
sepsis intervention during the past twenty years. Drs. Derek Angus and John
Kellum were investigators for Ely Lilly
’s
sepsis
drug, Xigris®. Dr. Kellum, a member of the UPMC faculty since 1994, is our
principal investigator for CytoSorb™. Dr. Kellum, together with several other
researchers at UPMC, serve on our Critical Care Advisory Board. Dr. Kellum’s
research interests span various aspects of Critical Care Medicine, but center
on
critical care nephrology (including acid-base, and renal replacement therapy),
sepsis and multi-organ failure, and clinical epidemiology. He is Chairman of
the
Fellow Research Committee at the University of Pittsburgh Medical
Center
and
has
authored more than 70 publications and has received numerous research grants
from foundations and industry.
Fresenius
Medical Care
AG
We
have
entered into
an
exclusive, long-term agreement with Fresenius Medical Care for the global
marketing and distribution of our BetaSorb™ device and any similar product we
may develop for the treatment of renal disease. The agreement, which we entered
into in 1999 is a profit sharing plan under which both we and Fresenius are
incentivized to minimize costs and maximize the price to end-users. In
particular, under the agreement, to the extent that sales of our products by
Fresenius results in gross margins to Fresenius in excess of targeted levels,
we
would share with Fresenius a portion of the revenues attributable to such
excess.
With
Fresenius as our exclusive distributor of our renal products, we believe that
our agreement with Fresenius will maximize the potential for rapid product
introduction and penetration of the chronic kidney failure market.
Today,
Fresenius Medical Care is the world's largest, integrated provider of products
and services for individuals with chronic kidney failure. Through its network
of
more than 1,600 dialysis clinics in North America, Europe, Latin America and
Asia-Pacific, Fresenius Medical Care provides dialysis treatment to more than
130,000 patients around the globe. Fresenius Medical Care is also the world's
largest provider of dialysis products, such as hemodialysis machines, dialyzers
and related disposable products.
Royalty
Agreement
In
August
2003, in order to induce Guillermina Vega Montiel, a principal stockholder
of
ours, to make an additional investment in MedaSorb, we granted Ms. Montiel
a
perpetual royalty equal to three percent of all gross revenues received by
us
from sales of CytoSorb
TM
in
the
applications of sepsis, cardiopulmonary bypass surgery, organ donor,
chemotherapy and inflammation control application.
P
roduct
Payment & Reimbursement
Critical
Care Applications
Payment
for
our
CytoSorb™ device in the treatment and prevention of sepsis and other related
acute care applications is anticipated to fall under the “diagnosis-related
group” (DRG) in-patient reimbursement system, which is currently the predominant
basis of hospital medical billing in the United States. Under this system,
predetermined payment amounts are assigned to categories of medical patients
with respect to their treatments at medical facilities based on the DRG that
they fall within (which is a function of such characteristics as medical
condition, age, sex, etc.) and the length of time spent by the patient at the
facility. Reimbursement is not determined by the actual procedures used in
the
treatment of these patients, and a separate reimbursement decision would not
be
required to be made by Medicare, the HMO or other provider of medical benefits
in connection with the actual method used to treat the patient.
Critical
care applications such as those targeted by our CytoSorb™ device involve a high
mortality rate and extended hospitalization, coupled with extremely expensive
ICU time. In view of these high costs and high mortality rates, we believe
acceptance of our proprietary technology by critical care practitioners and
hospital administrators will primarily depend on safety and efficacy factors
rather than cost.
Chronic
Renal Failure
In
the
U
.S.,
over
80% of chronic dialysis patients are Medicare-eligible, regardless of age.
Therefore, it is expected that Medicare will be the primary payer for the
BetaSorb™ device, either through the current “fee for service” mechanism or
managed care programs. The large majority of costs not covered by federal
programs are covered by the private insurance sector.
While
the
fee-for-service composite rate system is currently the dominant payment
mechanism, many industry participants believe that a managed care system will
become the dominant payment mechanism. We believe that movement to a full or
shared-risk managed care system would speed market acceptance of BetaSorb™
because, under such a system, providers will have a strong incentive to adopt
technologies that lower overall treatment costs. Fresenius is a leading
participant in the move to managed care and will play a leading role in the
demonstration and introduction of our product to Medicare.
Competition
Sepsis
We
believe that our products represent a unique approach to disease states and
health complications associated with sepsis, which is sometimes also referred
to
as systemic inflammatory response syndrome (SIRS). Researchers have explored
the
potential of using existing membrane-based dialysis technology to treat patients
suffering from sepsis. These techniques are unable to effectively remove the
larger toxins which leading researchers have shown to cause and complicate
sepsis. The same experts believe that a blood purification technique that
efficiently removes, or significantly reduces, the circulating concentrations
of
such toxins might represent a successful therapeutic option.
The
CytoSorb™ device is highly efficient in the removal of large toxins from
circulating blood. Since the adsorbent device does not rely on fluid extraction
for blood purification, it does not necessitate the use of replacement fluid.
This represents a major advantage over any dialysis technique. A study conducted
on a single patient with bacterial sepsis produced results that we believe
demonstrate the ability of the CytoSorb™ device to remove the toxins acting in
sepsis.
Medical
research during the past two decades has focused on drug interventions aimed
at
chemically blocking or suppressing the function of one or two inflammatory
agents. In hindsight,
some
researchers now believe this approach has little chance of significantly
improving patient outcomes because of the complex pathways and multiple chemical
factors at play. Clinical studies of these drug therapies have been largely
unsuccessful. An Ely Lilly drug, Xigris®, cleared by the FDA in November 2001,
is the first and only drug to be approved for the treatment of severe sepsis.
Clinical studies demonstrated that use of Xigris® resulted in a 6% reduction in
the absolute risk of death, and a 13% risk reduction in the most severe sepsis
patients. The drug remains controversial and is considered extremely expensive
when compared to the percentage of patients who benefit.
While
studies of other potential sepsis drug therapies are in progress, we are not
aware of any other broad-spectrum blood detoxification therapy under development
for this application that could be considered directly competitive with our
approach.
C
ardiopulmonary
Bypass Surgery
We
are
not aware of any practical competitive approaches for removing cytokines in
CPB
patients. Alternative therapies such as “off-pump” surgeries are available but
“post-bypass” syndrome has not been shown to be reduced in this less invasive
procedure. If successful, the CytoSorb™ is expected to be useful in both on-pump
and off-pump procedures.
Chronic
Dialysis
We
know
of no other device, medication or therapy considered directly competitive with
our technology. Research and development in the field has focused primarily
on
improving existing dialysis technologies. The introduction of the high-flux
dialyzer in the mid-1980s and the approval of Amgen’s Epogen™, a recombinant
protein used to treat anemia, are the two most significant developments in
the
field over the last two decades.
Efforts
to improve removal of larger toxins with enhanced dialyzer designs have achieved
only marginal success. Many experts believe that dialyzer technology has reached
its limit in this respect. A variation of high-flux hemodialysis, known as
hemodiafiltration, has existed for many years. However, due to the complexity,
cost and increased risks, this dialysis
technique
has not gained significant acceptance worldwide. In addition, many larger toxins
are not effectively filtered by hemodiafiltration, despite its more open pore
structure. As a result, hemodiafiltration does not approach the quantity of
toxins removed by the BetaSorb™ device.
T
reatment
of Organ Dysfunction in Brain-Dead Organ Donors
We
are not
aware of any directly competitive products to address the application of our
technology for the mitigation of organ dysfunction and failure resulting from
severe inflammation following brain-death.
Clinical
Testing
Our
first
clinical studies were conducted in patients with chronic renal failure. The
health of these patients is challenged by high levels of toxins circulating
in
their blood but, unlike sepsis patients, they are not at imminent risk of death.
The toxins involved in chronic renal failure are completely different from
those
involved in sepsis, eroding health gradually over time. The treatment of
patients with chronic renal failure is a significant target market for us,
although not the current focus of our efforts and resources. Our clinical
testing and product development work in this application functioned as a low
risk method of evaluating the safety of the technology in a clinical setting,
with direct benefit to development of the critical care applications on which
we
are now focusing our efforts.
We
believe that our device design, which has been tested in approximately 350
sessions, combined with hemodialysis, has been identified as a suitable
candidate to pilot in clinical studies in the treatment of sepsis. We used
this
design in our first clinical experience treating a septic patient, which has
produced results that we have found encouraging and indicative of the efficacy
of our technology in the treatment of sepsis.
Government
Research Grants
Three
government research grants by the National Institutes of Health (NIH) and Health
and Human Services (HHS) have been awarded to investigators to explore the
use
of our technology in sepsis and transplant organ preservation.
A
grant
of $1
million
was awarded to the University of Pittsburgh Medical Center in 2003. The project
seeks to improve the quantity and viability of organs donated for transplant
by
using CytoSorb™ to detoxify the donor’s blood. This clinical study is in
progress.
The
second grant, a $100,000 Phase I Small Business Technology Transfer grant from
the National Institutes of Health, was directly awarded to us for the study
of
blood purification on survival time using a septic model.
Finally,
University of Pittsburgh Medical Center was awarded a $7,000,000 grant from
NIH
entitled “Systems Engineering of a Pheresis Intervention for Sepsis
(SEPsIS)
”
to study
the use of our adsorbent polymer technology in the treatment of severe sepsis.
These grants represent a substantial research cost savings to us and demonstrate
the strong interest of the medical and scientific communities in our
technology.
Regulation
The
medical devices that we manufacture are subject to regulation by numerous
regulatory bodies, including the FDA and comparable international regulatory
agencies. These agencies require manufacturers of medical devices to comply
with
applicable laws and regulations governing the development, testing,
manufacturing, labeling, marketing and distribution of medical devices. Devices
are generally subject to varying levels of regulatory control, the most
comprehensive of which requires that a clinical evaluation program be conducted
before a device receives approval for commercial distribution.
In
the
U.S., permission to distribute a new device generally can be met in one of
two
ways. The first process requires that a pre-market notification (510(k)
Submission) be made to the FDA to demonstrate that the device is as safe and
effective as, or substantially equivalent to, a legally marketed device that
is
not subject to pre-market approval (PMA). A legally marketed device is a device
that (i) was legally marketed prior to May 28, 1976, (ii) has
been reclassified from Class III to Class II or I, or (iii) has been
found to be substantially equivalent to another legally marketed device
following a 510(k) Submission. The legally marketed device to which equivalence
is drawn is known as the “predicate” device. Applicants must submit descriptive
data and, when necessary, performance data to establish that the device is
substantially equivalent to a predicate device. In some instances, data from
human clinical trials must also be submitted in support of a 510(k) Submission.
If so, these data must be collected in a manner that conforms with specific
requirements in accordance with federal regulations. The FDA must issue an
order
finding substantial equivalence before commercial distribution can occur.
Changes to existing devices covered by a 510(k) Submission which do not
significantly affect safety or effectiveness can generally be made by us without
additional 510(k) Submissions.
The
second process requires that an application for PMA be made to the FDA to
demonstrate that the device is safe and effective for its intended use as
manufactured. This approval process applies to certain Class III devices.
In this case, two steps of FDA approval are generally required before marketing
in the U.S. can begin. First, investigational device exemption (IDE) regulations
must be complied with in connection with any human clinical investigation of
the
device in the U.S. Second, the FDA must review the PMA application which
contains, among other things, clinical information acquired under the IDE.
The
FDA will approve the PMA application if it finds that there is a reasonable
assurance that the device is safe and effective for its intended purpose.
In
the
European Union, distributors of medical devices are required to comply with
the
Medical Devices Directive and obtain CE Mark certification in order to market
medical devices. The CE Mark certification, granted following approval from
an
independent Notified Body, is an international symbol of adherence to quality
assurance standards and compliance with applicable European Medical Devices
Directives. Distributors of medical devices may also be required to comply
with
other foreign regulations such as Ministry of Health Labor and Welfare approval
in Japan. The time required to obtain these foreign approvals to market our
products may be longer or shorter than that required in the U.S., and
requirements for those approvals may differ from those required by the FDA.
In
the
United States, our CytoSorb™ and BetaSorb™ devices are classified as Class III
(CFR 876.5870—Sorbent Hemoperfusion System) and will require 501(k) Submissions
to the FDA. However, because the BetaSorb™ device is intended for chronic use,
the FDA may require pre-market approval (PMA), which we will submit if required.
In the case of CytoSorb™, because the application is for acute care (short term,
less than 30 days), management believes that FDA approval for this product
may
be obtained based solely on the 510(k) Submission accompanied with clinical
data. In Europe, our devices are expected to be classified as class IIb, and
will conform to the ISO 13485 Quality Standard in support of our planned
applications to obtain CE Mark certification in Europe, and applicable approvals
in Canada and Japan.
The
process of obtaining clearance to market products is costly and time-consuming
in virtually all of the major markets in which we expect to sell products and
may delay the marketing and sale of our products. Countries around the world
have recently adopted more stringent regulatory requirements which are expected
to add to the delays and uncertainties associated with new product releases,
as
well as the clinical and regulatory costs of supporting those releases. No
assurance can be given that any of our medical devices will be approved on
a
timely basis, if at all. In addition, regulations regarding the development,
manufacture and sale of medical devices are subject to future change. We cannot
predict what impact, if any, those changes might have on our business. Failure
to comply with regulatory requirements could have a material adverse effect
on
our business, financial condition and results of operations.
Given
adequate funding, we expect that it will take approximately six months to begin
the treatment phase of a pilot clinical study on the efficacy of our products
in
the treatment of sepsis. The pilot phase is expected to span six to nine months,
and an additional one year pivotal study would then be undertaken for the
purpose of compiling sufficient data to support both the U.S. 510(k) Submission
and the application to obtain CE Mark certification in Europe. In the U.S.,
another six to nine months is anticipated for FDA review and approval of the
510(k) submission. Concurrent with these activities, we plan to pursue CE Mark
certification of our products. Upon successful completion of a “quality systems
audit” in combination with clinical data and the assembly of a technical file,
we anticipate that CytoSorb™ device will receive CE Mark certification,
all
owing
it
to be sold in Europe.
The
FDA
can ban certain medical devices, detain or seize adulterated or misbranded
medical devices, order repair, replacement or refund of these devices and
require notification of health professionals and others with regard to medical
devices that present unreasonable risks of substantial harm to the public
health. The FDA may also enjoin and restrain certain violations of the Food,
Drug and Cosmetic Act and the Safe Medical Devices Act pertaining to medical
devices, or initiate action for criminal prosecution of such violations.
International sales of medical devices manufactured in the U.S. that are not
approved by the FDA for use in the U.S., or are banned or deviate from lawful
performance standards, are subject to FDA export requirements. Exported devices
are subject to the regulatory requirements of each country to which the device
is exported. Some countries do not have medical device regulations, but in
most
foreign countries medical devices are regulated. Frequently, regulatory approval
may first be obtained in a foreign country prior to application in the U.S.
to
take advantage of differing regulatory requirements.
Sales
and Marketing
We
currently estimate, provided that we receive adequate funding to support our
planned activities and that our products perform as expected in clinical
studies, that we will obtain FDA approval of our CytoSorb™ device in the
treatment of sepsis in 25 to 36 months from funding. As we approach regulatory
approval, we plan to initially build a sales organization of approximately
15
representatives in the U.S. In addition, we plan on pursuing localized
distribution agreements in rural areas.
We
also
plan to initiate sales in several European countries which are known as early
adopters of new medical device technology. These countries primarily include
Italy, Germany and the United Kingdom. We plan to initially operate through
local distributors in each European country where we launch sales operations.
Only after establishment of a limited network of local distributors and actual
generation of sales, will we formulate a broader distribution strategy on a
global basis.
Intellectual
Property and Patent Litigation
The
medic
al
device
market in which we primarily participate is in large part technology driven.
As
a result, intellectual property rights, particularly patents and trade secrets,
play a significant role in product development and differentiation. However,
intellectual property litigation to defend or create market advantage is
inherently complex, unpredictable and is expensive to pursue. Litigation often
is not ultimately resolved until an appeal process is completed and appellate
courts frequently overturn lower court patent decisions.
Moreover,
competing parties frequently file multiple suits to leverage patent portfolios
across product lines, technologies and geographies and to balance risk and
exposure between the parties. In some cases, several competitors are parties
in
the same proceeding, or in a series of related proceedings, or litigate multiple
features of a single class of devices. These forces frequently drive settlement
not only of individual cases, but also of a series of pending and potentially
related and unrelated cases. In addition, although monetary and injunctive
relief is typically sought, remedies are generally not determined until the
conclusion of the proceedings, and are frequently modified on appeal.
Accordingly, the outcomes of individual cases are difficult to time, predict
or
quantify and are often dependent upon the outcomes of other cases in other
forums, both domestic and international.
We
rely
on a combination of patents, trademarks, trade secrets and non-disclosure
agreements to protect our intellectual property. We hold 21
U.S.
patents, some of which have foreign counterparts, and additional patent
applications pending worldwide that cover various aspects of our technology.
There can be no assurance that pending patent applications will result in issued
patents, that patents issued to us will not be challenged or circumvented by
competitors, or that such patents will be found to be valid or sufficiently
broad to protect our technology or to provide us with a competitive advantage.
We
rely
on non-disclosure and non-competition agreements with employees, consultants
and
other parties to protect, in part, trade secrets and other proprietary
technology. There can be no assurance that these agreements will not be
breached, that we will have adequate remedies for any breach, that others will
not independently develop equivalent proprietary information or that third
parties will not otherwise gain access to our trade secrets and proprietary
knowledge.
We
may
find it necessary to initiate litigation to enforce our patent rights, to
protect our trade secrets or know-how and to determine the scope and validity
of
the proprietary rights of others. Patent litigation can be costly and
time-consuming, and there can be no assurance that our litigation expenses
will
not be significant in the future or that the outcome of litigation will be
favorable to us. Accordingly, we may seek to settle some or all of our pending
litigation described below. Settlement may include cross-licensing of the
patents which are the subject of the litigation as well as our other
intellectual property and may involve monetary payments to or from third
parties.
Employees
and Properties
We
currently have six
employees
and operate a 6,575 sq. ft. facility near Princeton, New Jersey, housing
research laboratories, clinical manufacturing operations and administrative
offices, under a lease agreement which expires in February 2007. In the opinion
of management, the leased properties are adequately insured, are in good
condition and suitable for the conduct of our business. We also collaborate
with
numerous institutions, universities and commercial entities who conduct research
and testing of our products at their facilities.
L
egal
Proceedings
Purolite
For
a
period of time beginning in December 1998, Purolite engaged in efforts to
develop and optimize the manufacturing process needed to produce our polymer
products on a commercial scale. However, the parties eventually decided not
to
proceed. In January, 2003, Purolite commenced an action against us in United
States District Court for the Eastern District of Pennsylvania
asserting
that our adsorbent technology was developed in part using Purolite’s technology,
that two of its employees should be included as co-inventors on some of our
patents, and that Purolite was therefor a joint owner of the technology and
had
rights to the use of the technology. Purolite recently expanded its claims,
alleging they are the sole owner of these patents, and that we misappropriated
these patents from them. Purolite now seeks equitable relief declaring that
it
is the exclusive owner of our technology, as well as monetary
damages.
We
have
filed a motion for summary judgment, which is pending before the Court, and
have
also engaged in efforts to settle the case. In addition, the Court has
ordered the matter to be mediated before a magistrate judge. Although there
has
been some progress in seeking a resolution of the litigation, to date no
agreement has been reached, and there can be no assurance that the parties
will
be able to reach an accord. If the case is not settled, the Court will rule
on
our summary judgment motion. If the motion is denied, we expect that the
matter will go to trial within a few months following the Court’s ruling on our
summary judgment motion.
Former
Employee
In
May
2006, a former employee of ours initiated a legal action against us in the
United States District Court for the Southern District of New York, seeking
damages in an amount exceeding $245,500. The employee alleges that we are
required to pay or reimburse him for (as applicable) credit card charges to
his
account made by another former employee of ours and a related party. The matter
is currently under review by our legal counsel.
Dow
Chemical
Several
years ago we engaged in discussions with the Dow Chemical Company, which had
indicated a strong interest in being our polymer manufacturer. After a Dow
representative on our Advisory Board resigned, Dow filed and received several
patents naming our former Advisory Board member as an inventor. In management’s
view the Dow patents improperly incorporate our technology and should not have
been granted to Dow. The existence of these Dow patents could result in a
potential dispute with Dow in the future and additional expenses for us.
RISKS
FACTORS
MedaSorb
currently has no commercial operations and there can be no assurance that it
will be successful in developing commercial operations
.
We
are a
development stage company and have been engaged primarily in research and
development activities and have not generated any revenues to date. There can
be
no assurance that we will be able to successfully manage the transition to
a
commercial enterprise. Potential investors should be aware of the problems,
delays, expenses and difficulties frequently encountered by an enterprise in
the
early stage of development, which include unanticipated problems relating to
development of proposed products, testing, regulatory compliance, manufacturing,
competition, marketing problems and additional costs and expenses that may
exceed current estimates. Our proposed products will require significant
additional research, development, testing and financing and we will need to
overcome significant regulatory burdens prior to commercialization. There can
be
no assurance that after the expenditure of substantial funds and efforts, we
will successfully develop and commercialize any products, generate any revenues
or ever achieve and maintain a substantial level of sales of our products.
MedaSorb
has a History of Losses and Expects to Incur Substantial Future Losses, and
the
Report of its
Auditor
on its Consolidated Financial Statements Expresses Substantial Doubt About
its
Ability to Continue as a Going Concern
.
MedaSorb
has experienced substantial operating losses since inception. As of March 31,
2006, MedaSorb had an accumulated deficit of $59,994,884, which included losses
from operations of $3,665,596 for the year ended December 31, 2005 and
$1,015,377 for the three-month period ended March 31, 2006. Due to these losses,
MedaSorb’s
audited consolidated financial statements have been prepared assuming MedaSorb
will continue as a going concern, and the auditors’ report on those financial
statements
express
substantial doubt about its ability to continue as a going concern. MedaSorb’s
losses have resulted principally from costs incurred in the research and
development of our polymer technology and general and administrative expenses.
Because MedaSorb was a limited liability company until December 2005,
substantially all of these losses were allocated to its members and will not
be
available for tax purposes to us in future periods. We intend to conduct
significant additional research, development, and clinical testing activities
which, together with expenses incurred for the establishment of manufacturing
arrangements and a marketing and distribution presence and other general and
administrative expenses, are expected to result in continuing operating losses
for the foreseeable future. The amount of future losses and when, if ever,
we
will achieve profitability are uncertain. Our ability to achieve profitability
will depend, among other things, on successfully completing the development
of
our technology and commercial products, obtaining the requisite regulatory
approvals, establishing manufacturing and sales and marketing arrangements
with
third parties, and raising sufficient funds to finance our activities. No
assurance can be given that our product development efforts will be successful,
that required regulatory approvals will be obtained, that any of our products
will be manufactured at a competitive cost and will be of acceptable quality,
or
that the we will be able to achieve profitability or that profitability, if
achieved, can be sustained.
We
may have
difficulty raising needed capital in the future because of our limited operating
history and business risks associated with MedaSorb.
We
generate no revenues from our proposed products or otherwise, and have expended
and will continue to expend substantial funds in the research, development
and
clinical and pre-clinical testing of our polymer products. Following the merger,
we completed a private placement of securities raising gross proceeds of $5.5
million. We anticipate that the net proceeds of the private placement will
fund
our operations for the next 15 months, following which we will need additional
financing. However, there can be no assurance that financing will be available
on acceptable terms or at all. Our future capital requirements will depend
upon
many factors, including, but not limited to, continued progress in our research
and development activities, costs and timing of conducting clinical trials
and
seeking regulatory approvals and patent prosecutions, competing technological
and market developments, and our ability to establish collaborative
relationships with third parties. If adequate funds are unavailable, we may
have
to delay, reduce the scope of or eliminate one or more of our research or
development programs or product launches or marketing efforts or cease
operations.
Our
long-term capital requirements are expected to depend on many factors,
including:
·
|
continued
progress and cost of our research and development
programs;
|
·
|
progress
with pre-clinical studies and clinical
trials;
|
·
|
the
time and costs involved in obtaining regulatory
clearance;
|
·
|
costs
involved in preparing, filing, prosecuting, maintaining, defending
and
enforcing patent claims;
|
·
|
costs
of developing sales, marketing and distribution
channels;
|
·
|
market
acceptance of our products; and
|
·
|
costs
for training physicians and other health care
personnel.
|
In
addition, in the event that additional funds are obtained through arrangements
with collaborative partners or other sources, we may have to relinquish economic
and/or proprietary rights to some of our technologies or products under
development that we would otherwise seek to develop or commercialize by ourself.
We
depend upon key personnel who may terminate their employment with us at any
time.
We
currently have only six employees. Our success will depend to a significant
degree upon the continued services of key management and advisors of MedaSorb,
including Al Kraus, Dr. James Winchester, David Lamadrid and Vincent
Capponi
.
These
individuals, other than Mr. Kraus, whose employment agreement terminates in
July
2008, do not have long-term employment agreements, and there can be no assurance
that they will continue to provide services to us. In addition, our success
will
depend on our ability to attract and retain other highly skilled personnel.
We
may be unable to recruit such personnel on a timely basis, if at all. Management
and other employees may voluntarily terminate their employment with us at any
time. The loss of services of key personnel, or the inability to attract and
retain additional qualified personnel, could result in delays in development
or
approval of our products, loss of sales and diversion of management
resources.
Acceptance
of MedaSorb’s
medical
devices in the marketplace is uncertain, and failure to achieve market
acceptance will prevent or delay our ability to generate
revenues.
Our
future financial performance will depend, at least in part, upon the
introduction and customer acceptance of our polymer products. Even if approved
for marketing by the necessary regulatory authorities, our products may not
achieve market acceptance. The degree of market acceptance will depend upon
a
number of factors, including:
·
|
the
receipt of regulatory clearance of marketing claims for the uses
that we
are developing;
|
·
|
the
receipt of regulatory clearance of marketing claims for the uses
that we
are developing;
|
·
|
the
establishment and demonstration of the advantages, safety and efficacy
of
the our polymer technology;
|
·
|
pricing
and reimbursement policies of government and third-party payers such
as
insurance companies, health maintenance organizations and other health
plan administrators;
|
·
|
our
ability to attract corporate partners, including medical device companies,
to assist in commercializing our products;
and
|
·
|
our
ability to market our products.
|
Physicians,
patients, payers or the medical community in general may be unwilling to accept,
utilize or recommend any of our products. If we are unable to obtain regulatory
approval or commercialize and market our products when planned, we may not
achieve any market acceptance or generate revenue.
We
face
litigation from third parties which claim that our products infringe on their
intellectual property rights,
or
seek
to challenge the validity of our patents.
Our
future success is also dependent on the strength of our intellectual property,
trade secrets and know-how, which have been developed from years of research
and
development. In addition to the “Purolite” litigation discussed below, we may be
exposed to additional future litigation by third parties seeking to challenge
the validity of our
rights
based on claims that our technologies, products or activities infringe the
intellectual property rights of others or are invalid, or that we have
misappropriated the trade secrets of others.
Since
our
inception, we have sought to contract with large, established manufacturers
to
supply commercial quantities of our adsorbent polymers. As a result, we have
disclosed, under confidentiality agreements, various aspects of our technology
with potential manufacturers. We believe that these disclosures, while necessary
for our business, have resulted in the attempt by potential suppliers to assert
ownership claims to our technology in an attempt to gain an advantage in
negotiating manufacturing rights.
We
have
previously engaged in discussions with the Brotech Corporation and its
affiliate, Purolite International, Inc. (collectively “Purolite”), which had
demonstrated a strong interest in being our polymer manufacturer. For a period
of time beginning in December 1998, Purolite engaged in efforts to develop
and
optimize the manufacturing process needed to produce our polymer products on
a
commercial scale. However, the parties eventually decided not to proceed. In
2003, Purolite filed a lawsuit against us asserting, among other things,
co-ownership and co-inventorship of certain of our patents. Purolite recently
expanded its claims alleging they are the sole owner of these patents, and
that
we misappropriated these patents from them. We believe these claims are without
merit. In management’s view, the suit was initiated to pressure us to reach an
exclusive manufacturing agreement. Several negotiation efforts have been made
to
settle the case without success. The discovery phase has been completed and
we
have made an application to the court to dismiss the action, which is currently
pending before the court. If our application is not granted, we expect that
the
matter will be tried in early 2006.
Several
years ago we engaged in discussions with the Dow Chemical Company, which had
indicated a strong interest in being our polymer manufacturer. After a Dow
representative on our Advisory Board resigned, Dow filed and received several
patents naming our former Advisory Board member as an inventor. In management’s
view the Dow patents improperly incorporate our technology and should not have
been granted to Dow. The existence of these Dow patents could result in a
potential dispute with Dow in the future and additional expenses for
MedaSorb.
The
failure to obtain government approvals, including required FDA approvals, for
our polymer products, or to comply with ongoing governmental regulations could
prevent, delay or limit introduction or sale of our products and result in
the
failure to achieve revenues or maintain our
operations.
The
manufacturing and marketing of our products will be subject to extensive and
rigorous government regulation in the United States, in various states and
in
foreign countries. In the United States and other countries, the process of
obtaining and maintaining required regulatory approvals is lengthy, expensive,
and uncertain. There can be no assurance that we will ever obtain the necessary
approvals to sell our products. Even if we do ultimately receive FDA approval
for any of our products, we will be subject to extensive ongoing regulation.
Our
products will be subject to regulation as medical devices under the Federal
Food, Drug, and Cosmetic Act. In the United States, the FDA enforces, where
applicable, development, clinical testing, labeling, manufacturing,
registration, notification, clearance or approval, marketing, distribution,
record keeping, and reporting requirements for medical devices. Different
regulatory requirements may apply to our products depending on how they are
categorized by the FDA under these laws. Current FDA regulations classify our
CytoSorb™ device (the first product we intend to seek FDA approval for) as a
Class III device (CFR 876.5870—Sorbent Hemoperfusion System). We intend to
submit a 510(k) pre-market notification to the FDA for approval to market this
product. There can be no assurance, however, that the FDA will grant clearance
to market CytoSorb™ in a timely manner, if at all, or that the FDA will not
require the submission of additional clinical data or a pre-market approval
application ("PMA"), which is a lengthier process. There can be no assurance
that the clinical trials we conduct will demonstrate sufficient safety and
efficacy to obtain the required regulatory approvals for marketing, or that
we
will be able to comply with any additional FDA, state or foreign regulatory
requirements. In addition, there can be no assurance that government regulations
applicable to our products or the interpretation of those regulations will
not
change. We also are and will be subject to other Federal, state, and local
laws,
regulations and recommendations relating to laboratory and manufacturing
practices as well as Medicare, Medicaid and anti-kickback laws. Non-compliance
with applicable requirements can result in civil penalties, the recall,
injunction or seizure of products, an inability to import products into the
United States, the refusal by the government to approve or clear product
approval applications, the withdrawal of previously approved product
applications and criminal prosecution. The extent of potentially adverse
government regulation that might arise from future legislation or administrative
action cannot be predicted.
Data
obtained from clinical
and
pre-clinical trials is susceptible to varying interpretations, which could
delay, limit or prevent regulatory clearances.
There
can
be no assurance that we will successfully complete the clinical trials necessary
to receive regulatory approvals. While tests conducted by us and others have
produced results we believe to be
encouraging
and indicative of the efficacy of our products and technology, data already
obtained, or in the future obtained, from pre-clinical studies and clinical
trials do not necessarily predict the results that will be obtained from later
pre-clinical studies and clinical trials. Moreover, pre-clinical and clinical
data is susceptible to varying interpretations, which could delay, limit or
prevent regulatory approval. A number of companies in the medical device and
pharmaceutical industries have suffered significant setbacks in advanced
clinical trials, even after promising results in earlier trials. The failure
to
adequately demonstrate the safety and effectiveness of an intended product
under
development could delay or prevent regulatory clearance of the device, resulting
in delays to commercialization, and could materially harm our business.
We
rely
extensively on research and testing facilities at various universities and
institutions, which could be adversely affect us should we lose access to those
facilities.
Although
we have our own research laboratories and clinical facilities, we collaborate
with numerous institutions, universities and commercial entities to conduct
research and testing of our products. We currently maintain a good working
relationship with these parties. However, should the situation change, the
cost
and time to establish or locate alternative research and development could
be
substantial and delay gaining FDA approval and commercializing our
products.
We
are
and
will
be exposed to product liability risks, and clinical and preclinical liability
risks, which could place a substantial financial burden upon us should we be
sued.
Our
business exposes us to potential product liability and other liability risks
that are inherent in the testing, manufacturing and marketing of medical
devices. We cannot be sure that claims will not be asserted against us. A
successful liability claim or series of claims brought against us could have
a
material adverse effect on our business, financial condition and results of
operations.
We
do not
currently have any product liability insurance or other liability insurance
relating to clinical trials or any products. We cannot give assurances that
we
will be able to obtain or maintain adequate product liability insurance on
acceptable terms, if at all, or that such insurance will provide adequate
coverage against potential liabilities. Claims or losses in excess of any
product liability insurance coverage that we may obtain could have a material
adverse effect on our business, financial condition and results of
operations.
Certain
university and other relationships are important to
our
business and may potentially result in conflicts of
interests.
Dr.
John
Kellum and Dr. David
Powner,
among others, are critical care advisors and consultants of ours and are
associated with University of Pittsburgh Medical Center and University of Texas,
respectively. Their association with these institutions may currently or in
the
future involve conflicting interests in the event they or these institutions
enter into consulting or other arrangements with competitors of
ours.
We
have
limited
manufacturing experience, and once our products are approved, we may not be
able
to manufacture sufficient quantities at an acceptable cost, or without
shut-downs or delays.
We
remain
in the research and development and clinical and pre-clinical trial phase of
product commercialization. Accordingly, once our products are approved for
commercial sale, we will need to establish the capability to commercially
manufacture our products in accordance with FDA and other regulatory
requirements. We have limited experience in establishing, supervising and
conducting commercial manufacturing. If we or the third-party manufacturers
of
our products fail to adequately establish, supervise and conduct all aspects
of
the manufacturing processes, we may not be able to commercialize our products.
Due
to
our
limited marketing, sales and distribution experience, we may be unsuccessful
in
our efforts to sell our products.
We
expect
to enter into agreements with third parties for the commercial manufacture
and
distribution of our products. There can be no assurance that parties we may
engage to market and distribute our products will:
·
|
satisfy
their financial or contractual obligations to
us;
|
·
|
adequately
market our products; or
|
·
|
not
offer, design, manufacture or promote competing
products.
|
If
for
any reason any party engage is unable or chooses not to perform its obligations
under our marketing and distribution agreement, we would experience delays
in
product sales and incur increased costs, which would harm our business and
financial results.
If
we are unable to convince physicians and other health care providers as to
the
benefits of our products, we may incur delays or additional expense in our
attempt to establish market acceptance.
Broad
use
of our products may require physicians
and
other
health care providers to be informed about our products and their intended
benefits. The time and cost of such an educational process may be substantial.
Inability to successfully carry out this education process may adversely affect
market acceptance of our products. We may be unable to educate physicians
regarding our products in sufficient numbers or in a timely manner to achieve
our marketing plans or to achieve product acceptance. Any delay in physician
education may materially delay or reduce demand for our products. In addition,
we may expend significant funds towards physician education before any
acceptance or demand for our products is created, if at all.
The
market for
our
products is rapidly changing and competitive, and new devices and drugs which
may be developed by others could impair our ability to maintain and grow our
business and remain competitive.
The
medical device and pharmaceutical industries are subject to rapid and
substantial technological change. Developments by others may render our
technologies and products noncompetitive or obsolete. We also may be unable
to
keep pace with technological developments and other market factors.
Technological competition from medical device, pharmaceutical and biotechnology
companies, universities, governmental entities and others diversifying into
the
field is intense and is expected to increase. Many of these entities have
significantly greater research and development capabilities and budgets than
we
do, as well as substantially more marketing, manufacturing, financial and
managerial resources. These entities represent significant competition for
us.
If
users
of
our
products are unable to obtain adequate reimbursement from third-party payers,
or
if new restrictive legislation is adopted, market acceptance of our products
may
be limited and we may not achieve anticipated revenues.
The
continuing efforts of government and insurance companies, health maintenance
organizations and other payers of healthcare costs to contain or reduce costs
of
health care may affect our future revenues and profitability, and the future
revenues and profitability of our potential customers, suppliers and
collaborative partners and the availability of capital. For example, in certain
foreign markets, pricing or profitability of medical devices is subject to
government control. In the United States, given recent federal and state
government initiatives directed at lowering the total cost of health care,
the
U.S. Congress and state legislatures will likely continue to focus on health
care reform, the cost of medical devices and on the reform of the Medicare
and
Medicaid systems. While we cannot predict whether any such legislative or
regulatory proposals will be adopted, the announcement or adoption of these
proposals could materially harm our business, financial condition and results
of
operations.
Our
ability to commercialize our products will depend in part on the extent to
which
appropriate reimbursement levels for the cost of our products and related
treatment are obtained by governmental authorities, private health insurers
and
other organizations, such as health maintenance organizations (“HMOs”).
Third-party payers are increasingly challenging the prices charged for medical
care. Also, the trend toward managed health care in the United States and the
concurrent growth of organizations such as HMOs, which could control or
significantly influence the purchase of health care services and medical
devices, as well as legislative proposals to reform health care or reduce
government insurance programs, may all result in lower prices for our products.
The cost containment measures that health care payers and providers are
instituting and the effect of any health care reform could materially harm
our
ability to operate profitably.
Directors,
executive officers and principal stockholders are expected to own a significant
percentage of the shares of
Common
Stock, which will limit your ability to influence corporate
matters.
Our
d
irectors,
executive officers and principal stockholders together beneficially own
approximately 75% of our outstanding shares of Common Stock. Accordingly, these
stockholders could have a significant influence over the outcome of any
corporate transaction or other matter submitted to stockholders for approval,
including mergers, consolidations and the sale of all or substantially all
of
our assets and also could prevent or cause a change in control. The interests
of
these stockholders may differ from the interests of our other stockholders.
Third parties may be discouraged from making a tender offer or bid to acquire
us
because of this concentration of ownership.
Our
Series A Preferred Stock Provides for the Payment of Penalties;
Dilution.
Immediately
following the merger, we issued 5,250,000 shares of
Series
A
10% Cumulative Convertible Preferred Stock
with an
aggregate stated value of $5,250,000, and we may issue additional shares of
this
series of preferred stock. The Certificate of Designation designating the Series
A Preferred Stock provides that upon the following events, among others, the
dividend rate with respect to the Series A Preferred Stock increases to 20%
per
annum, which dividends would then be required to be paid in cash:
·
|
the
occurrence of “Non-Registration Events” including, the failure to cause a
registration statement registering the shares of Common Stock underlying
the Series A Preferred Stock and Warrants issued in connection therewith
to be effective within 240 days following the closing of the private
placement;
|
·
|
an
uncured breach by us of any material covenant, term or condition
in the
Certificate of Designation or any of the related transaction documents;
and
|
·
|
any
money judgment or similar final process being filed against us for
more
than $100,000.
|
The
registration rights provided for in the subscription agreement we entered into
with the purchasers in this offering:
·
|
require
that we file a registration statement with the SEC on or before 120
days
from the closing to register the shares of Common Stock issuable
upon
conversion of the Series A Preferred Stock and exercise of the Warrants,
and cause such registration statement to be effective within 240
days
following the closing; and
|
·
|
entitles
each of these investors to liquidated damages in an amount equal
to two
percent (2%) of the purchase price of the Series A Preferred Stock
if we
fail to timely file that registration statement with, or have it
declared
effective by, the SEC.
|
The
Certificate of Designation, Subscription Agreement and related transaction
documents also provide for various penalties and fees for breaches or failures
to comply with provisions of those documents, such as the timely payment of
dividends, delivery of stock certificates, and obtaining and maintaining an
effective registration statement with respect to the shares of Common Stock
underlying the Series A Preferred Stock and Warrants sold in the
offering.
In
addition, b
oth
the
conversion price of the Series A Preferred Stock and the exercise price of
the
Warrants are subject to “full-ratchet” anti-dilution provisions, so that upon
future issuances of our Common Stock or equivalents thereof, subject to
specified customary exceptions, at a price below the conversion price of the
Series A Preferred Stock and/or exercise price of the Warrants, such conversion
price and/or exercise price will be reduced to such lower price, further
diluting holders of our Common Stock.
There
is no public market for our Common Stock.
Although
our shares of Common Stock are eligible for quotation on the OTC Bulletin Board
under the symbol “GDRE,” there is currently no public market for the Common
Stock and there can be no expectation or assurance that a trading market will
develop or, if a market develops, that it will be active or sustained.
Future
Sales of Common Stock Could Result in a Decline in Market
Price.
Following
the completion of the merger, the holders
3,750,000
shares of Common Stock are able to sell such shares without registering them
under the Securities Act. In addition, we are required to file a registration
statement under the Securities Act covering the resale of the shares of Common
Stock underlying the Series A Preferred Stock and Warrants sold in the offering,
as well as the shares of Common Stock underlying the warrants we issued to
Margie Chassman in
consideration
of her pledge of securities to investors in the offering as described
above
.
Sales
of a significant number of shares of Common Stock in the public market could
result in a decline in the market price of our Common Stock (to the extent
a
market develops for our Common Stock).
Penny
Stock Regulations May Affect Your Ability To Sell Our Common
Stock.
To
the
extent our Common Stock trades at a price below $5.00 per share, our Common
Stock will be subject to Rule 15g-9 under the Exchange Act, which imposes
additional sales practice requirements on broker dealers which sell these
securities to persons other than established customers and accredited investors.
Under these rules, broker-dealers who recommend penny stocks to persons other
than established customers and "accredited investors" must make a special
written suitability determination for the purchaser and receive the purchaser's
written agreement to a transaction prior to sale. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the associated risks. The additional burdens imposed upon
broker-dealers by these requirements could discourage broker-dealers from
effecting transactions in our Common Stock and may make it more difficult for
holders of our Common Stock to sell shares to third parties or to otherwise
dispose of them.
Our
Charter Documents and Nevada Law May Inhibit A Takeover That Stockholders May
Consider Favorable.
Provisions
in our articles of incorporation and bylaws, and Nevada law, could delay or
prevent a change of control or change in management that would provide
stockholders with a premium to the market price of their Common Stock. The
authorization of undesignated preferred stock, for example, gives our board
the
ability to issue preferred stock with voting or other rights or preferences
that
could impede the success of any attempt to effect a change in control of us,
or
otherwise adversely affect holders of Common Stock in relation to holders of
preferred stock.
Once
our Common Stock begins to trade, it may experienced price
fluctuations.
A
decrease in the market price of our Common Stock could result in substantial
losses for investors. The market price of our Common Stock may be significantly
affected by, among other things, one or more of the following
factors:
·
|
nnouncements
or press releases relating to the medical device industry or to our
own
business or prospects;
|
·
|
regulatory,
legislative, or other developments affecting us or the medical device
industry generally;
|
·
|
the
dilutive effect of conversion of our Series A Preferred Stock and
exercise
of our warrants, or the issuance by us of additional shares of Common
Stock or convertible securities, at below current market prices;
and
|
·
|
general
market conditions.
|
Compliance
with changing corporate governance and public disclosure regulations may result
in additional expense.
Keeping
abreast of, and in compliance with, changing laws, regulations and standards
relating to corporate governance and public disclosure, including the
Sarbanes-Oxley Act of 2002, new SEC regulations will require an increased amount
of management attention and external resources. In addition, prior to the
merger, our current management team was not subject to these laws and
regulations, as MedaSorb was a private corporation. We intend to continue to
invest all reasonably necessary resources to comply with evolving standards,
which may result in increased general and administrative expense and a diversion
of management time and attention from revenue-generating activities to
compliance activities
.
PLAN
OF OPERATIONS
We
are a
development stage company and expect to remain so for at least the next twelve
months. We have not generated revenues to date and do not expect to do so until
we commercialize and receive the necessary approvals to sell our proposed
products. As discussed above, we are preparing to commercialize a blood
purification technology that efficiently removes toxic compounds from
circulating blood using our proprietary polymer-based adsorbent technology.
We
believe that our technology will support novel therapeutic approaches to
critical health conditions, including sepsis, organ transplant, and
post-operative complications of cardiopulmonary bypass surgery.
Our
near
term goal is focused on conducting clinical trials of our CytoSorb™ product in
the treatment of sepsis. Over the next twelve months, provided that we have
sufficient funds for our operations, we expect to design and conduct a pilot
study of the use of our product on at least 10 sepsis patients. We believe
that
submission of data from this pilot study to the FDA will allow us to then
conduct the pivotal study required for FDA approval of our CytoSorb™ product for
sepsis treatment.
Our
research and development costs for the years ended December 31, 2004 and 2005,
were approximately $2,367,407 and $1,526,743, respectively. MedaSorb has
experienced substantial operating losses since inception. As of March 31, 2006,
MedaSorb had an accumulated deficit of $59,994,884, which included losses from
operations of $3,665,596 for the year ended December 31, 2005 and $1,015,377
for
the three-month period ended March 31, 2006. These losses have resulted
principally from costs incurred in the research and development of our polymer
technology, and general and administrative expenses, which together were
approximately $2,162,703 and $426,756 respectively, for the year ended December
31, 2005 and the three months ended March 31, 2006.
Liquidity
and Capital Resources
Since
its
inception, the operations of MedaSorb have been financed through the private
placement of its debt and equity securities. At December 31, 2005, MedaSorb
had
cash of approximately $707,000, an amount sufficient to fund its operations
for
approximately four months. Due to its losses and available cash at that time,
MedaSorb’s
audited consolidated financial statements for its year ended December 31, 2005
have been prepared assuming MedaSorb will continue as a going concern, and
the
auditors’ report on those financial statements
expresses
substantial doubt about
MedaSorb’s
ability
to continue as a going concern.
Immediately
following the closing of the merger, we closed an offering of our securities
that resulted in net proceeds to us of approximately $4.5 million, which are
expected to be sufficient to fund our operations for the next 15 months,
following which we will be required to raise additional capital. There can
be no
assurance that we will be successful in our capital raising efforts.
In
October
2005, MedaSorb entered into an Investment Agreement with Margie Chassman
pursuant to which she advanced $1,000,000 to MedaSorb to provide it with
operating capital. The advance bears interest at the rate of 6% per annum,
and
at Ms. Chassman’s option, will be repaid in cash or converted into securities in
our next offering of securities no later than December 31, 2006. The advance
is
subject to earlier repayment in the event we complete an offering of our
securities that generates gross proceeds of $5.5 million or more (including
the
offering we completed following the merger, but excluding proceeds received
from
certain existing stockholders of ours), in the amount that those proceeds exceed
$5.5 million; provided, however, that in the event that less than $6.5 million
of gross proceeds are raised in such an offering within 120 days from the date
subscription materials are first circulated to potential investors, the balance
of the advance from Ms. Chassman then outstanding will, at our option, be
converted into the securities sold in that offering.
In
connection with the closing of the private placement, we agreed to make a
short-term advance to Ms. Chassman in the amount of $500,000 bearing interest
at
the rate of 6% per annum, the repayment of which may be offset against amounts
owed by us to Ms. Chassman under the $1,000,000 advance previously made by
her
to MedaSorb. The short-term advance will be secured by a pledge of
publicly-traded securities with a market value equal to $500,000.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information known to
us
with
respect to the beneficial ownership of Common Stock held of record as of June
30, 2006, by (1) all persons who are owners of 5% or more of our Common Stock,
(2) each of our named executive officers (see “Summary Compensation Table”), (3)
each director, and (4) all of our executive officers and directors as a
group
.
Each
of
the stockholders can be reached at our principal executive offices located
at 7
Deer Park Drive, Suite K, Monmouth Junction, New Jersey 08852.
|
SHARES
BENEFICIALLY OWNED
1
|
|
Number
|
Percent
(%)
|
Beneficial
Owners of more than 5% of
Common
Stock (other than directors and executive officers)
|
|
|
Margie
Chassman
(2)
|
7,995,000
|
33.1%
|
Guillermina
Montiel
(3)
|
5,052,456
|
20.3%
|
Margery
Germain
(4)
|
2,000,000
|
8.3%
|
Robert
Shipley
(5)
|
1,248,372
|
5.0%
|
Directors
and Executive Officers
|
|
|
Al
Kraus
|
1,393,631
|
5.6%
|
David
Lamadrid
|
501,704
|
2.0%
|
Vince
Capponi
|
418,086
|
1.7%
|
Joseph
Rubin
(6)
|
127,207
|
*
|
James
Winchester
|
52,519
|
*
|
Kurt
Katz
(7)
|
54,077
|
*
|
All
directors and executive officers as a group (
six
persons)
(8)
|
2,547,224
|
10.2%
|
|
|
1
|
Gives
effect to the shares of Common Stock issuable upon the exercise
of all
options exercisable within 60 days of June 30, 2006 and other
rights
beneficially owned by the indicated stockholders on that date.
Beneficial
ownership is determined in accordance with the rules of the Securities
and
Exchange Commission and includes voting and investment power
with respect
to shares. Unless otherwise indicated, the persons named in the
table have
sole voting and sole investment control with respect to all shares
beneficially owned. Percentage ownership is calculated based
on 24,090,929
shares of the Common Stock outstanding as of June 30, 2006
immediately following the closing of the reverse merger.
|
|
|
2
|
Margie
Chassman is married to David Blech. Mr. Blech disclaims beneficial
ownership of these shares. Since 1980 Mr. Blech has been a founder
of
companies and venture capital investor in the biotechnology sector.
His
initial venture investment, Genetic Systems Corporation, which he
helped
found and served as treasurer and a member of the board of directors,
was
sold to Bristol Myers in 1986 for $294 million of Bristol Myers stock.
Other companies he helped found include DNA Plant Technology, Celgene
Corporation, Neurogen Corporation, Icos Corporation, Incyte
Pharmaceuticals, Alexion Pharmaceuticals and Neurocrine Biosciences.
He
was also instrumental in the turnaround of Liposome Technology, Inc.
and
Biotech General Corporation. In 1990 Mr. Blech founded D. Blech &
Company, which, until it ceased doing business in September 1994,
was a
registered broker-dealer involved in underwriting biotechnology issues.
In
May 1998, David Blech pled guilty to two counts of criminal securities
fraud, and, in September 1999, he was sentenced by the U.S. District
Court
for the Southern District of New York to five years’ probation, which was
completed in September 2004. Mr. Blech also settled administrative
charges
by the Commission in December 2000 arising out of the collapse in
1994 of
D. Blech & Co., of which Mr. Blech was President and sole stockholder.
The settlement prohibits Mr. Blech from engaging in future violations
of
the federal securities laws and from association with any broker-dealer.
In addition, the District Business Conduct Committee for District
No.10 of
NASD Regulation, Inc. reached a decision, dated December 3, 1996,
in a
matter styled District Business Conduct Committee for District No.
10 v.
David Blech, regarding the alleged failure of Mr. Blech to respond
to
requests by the staff of the National Association of Securities Dealers,
Inc. (“NASD”) for documents and information in connection with seven
customer complaints against various registered representatives of
D. Blech
& Co. The decision found that Mr. Blech failed to respond to such
requests in violation of NASD rules and that Mr. Blech should, therefore,
be censured, fined $20,000 and barred from associating with any member
firm in any capacity. Furthermore, Mr. Blech was discharged in bankruptcy
in the United States Bankruptcy Court for the Southern District of
New
York in March 2000.
|
3
|
Includes
58,472 shares issuable upon exercise of stock options.
|
|
|
4
|
Includes
1,700,000 shares of Common Stock held directly by Ms. Germain and 300,000
shares of Common Stock held by her minor children.
|
|
|
5
|
Includes
621,727 shares issuable upon exercise of stock options and
warrants.
|
|
|
6
|
Includes
58,598 shares issuable upon exercise of stock options and
warrants.
|
|
|
7
|
Includes
51,817 shares issuable upon exercise of stock options.
|
|
|
8
|
Includes
110,415 shares issuable upon exercise of stock options and
warrants.
|
DIRECTORS
AND EXECUTIVE OFFICERS
The
following table sets forth the names of our directors and executive officers,
their ages and the positions they hold. Each such person became an officer
and/or director of the Registrant immediately after the closing of the merger
and held the same positions set forth below with MedaSorb prior to the merger.
Name
|
Age
|
Position
|
|
|
|
Al
Kraus
|
61
|
President
and Chief Executive Officer, Director
|
|
|
|
James
Winchester, MD
|
62
|
Chief
Medical Officer
|
|
|
|
Vincent
Capponi
|
48
|
Chief
Operating Officer
|
|
|
|
|
|
|
David
Lamadrid
|
35
|
Chief
Financial Officer
|
|
|
|
Joseph
Rubin, Esq.
|
67
|
Director
|
|
|
|
Kurt
Katz
|
73
|
Director
|
Al
Kraus.
Mr.
Kraus
has more than twenty-five years’ experience managing companies in the dialysis,
medical device products, personal computer and custom software industries.
He
was the President and Chief Executive Officer of MedaSorb since 2003. Prior
to
joining us, from 2001 to 2003, Mr. Kraus was President and CEO of NovoVascular
Inc., an early stage company developing coated stent technology. From 1996
to
1998, Mr. Kraus was President and CEO of Althin Healthcare and from 1998 to
2000, of Althin Medical Inc., a manufacturer of products for the treatment
of
end stage renal disease. While CEO of Althin, he provided strategic direction
and management for operations throughout the Americas. From 1979 to 1985, Mr.
Kraus was U.S. Subsidiary Manager and Chief Operating Officer of Gambro Inc.,
a
leading medical technology and healthcare company.
Mr.
Kraus
was the Chief Operating Officer of Gambro when it went public in the United
States in an offering led by Morgan Stanley.
James
Winchester, M.D.
Prior to
joining MedaSorb in 2000, Dr. Winchester was Professor of Medicine and Director
of Dialysis Programs at Georgetown University School of Medicine for more than
25 years. Dr. Winchester is also the Chief of the Nephrology Division at Beth
Israel Medical Center, a position he has held since July 2004. He has published
more than 200 articles in scientific and medical journals, and has co-authored
eight books in the fields of renal replacement therapy and clinical poisoning
management. Dr. Winchester is editor-in chief of
Replacement
of Renal Function
,
the
most widely used textbook for nephrology fellows. Dr. Winchester has published
more articles on hemoperfusion than any other nephrologist in the world. He
is
widely recognized as one of the world’s leading experts in hemoperfusion and
toxicology, and is a former member of the Scientific Advisory Board for Total
Renal Care (Davita). Dr. Winchester received his medical degree from the
University of Glasgow and is a Fellow of the Royal College of Physicians and
Surgeons of Glasgow
,
and a
Fellow of the American College of Physicians.
Vincent
Capponi
.
Mr.
Capponi joined MedaSorb as Vice President of Operations in 2002 and became
its
Chief Operating Officer in July 2005. He has more than 20 years of management
experience in medical device, pharmaceutical and imaging equipment at companies
including Upjohn, Sims Deltec and Sabratek. Prior to joining MedaSorb in 2002,
Mr. Capponi held several senior management positions at Sabratek and its
diagnostics division GDS. Mr. Capponi was interim president of GDS diagnostics
in 2001. From 1998 to 2000 Mr. Capponi was Senior Vice President and Chief
Operating Officer for Sabratek and Vice President Operations from 1996 to 1998.
He received his MS in Chemistry and his BS in Chemistry and Microbiology from
Bowling Green State University.
David
Lamadrid
.
Mr.
Lamadrid, has been with MedaSorb since 2000.
He
has
over 13 years of business experience in finance and operations. Prior to joining
MedaSorb
in
2000,
Mr. Lamadrid was a financial analyst at Chase Manhattan Bank working in the
Middle Market Banking Group. Mr. Lamadrid received his MBA from New York
University, a BS in Finance from St. John’s University, and an AAS in Accounting
from S.U.N.Y. Rockland.
Joseph
Rubin, Esq.
Mr.
Rubin
became a director of MedaSorb in 1997. Mr. Rubin is a founder and Senior Partner
of Rubin, Bailin, and Ortoli, LLP an international and domestic corporate and
commercial law firm in New York City, where he has practiced law since January
2000. Mr. Rubin also teaches at the Columbia University School of International
and Public Affairs, where he is also Executive Director of the International
Technical Assistance Program for Public Affairs (ITAP). Mr. Rubin was Adjunct
Professor at the Columbia University Graduate School of Business from 1973
to
1994, and taught at Columbia Law School in 1996. Mr. Rubin received his law
degree from Harvard Law School, and his B.A., MIA, and M.Phil degrees in
political science and international relations from Columbia
University.
Kurt
Katz, M.Ch.E.
Mr.
Katz
became a director of MedaSorb in 1997. Since retiring from Peabody International
Corporation in 1986, Mr. Katz has pursued various business interests. He is
currently the Chairman of Polymeric Resources Corporation, a polymer company
engaged in the manufacture of nylon and compounding. Mr. Katz served as
President and Chief Operating Officer of Peabody, which specializes in energy
and environmental products. Mr. Katz served as Executive Vice President and
Chief Operating Officer of Peabody from 1981 to 1983, and was a Director from
1977 to 1985. Prior to joining Peabody in 1973, Mr. Katz held a variety of
management positions with Westinghouse Electric Corporation, where he served
for
18 years and was directly involved in the launching of new products, divisions
and subsidiaries.
.
Mr.
Katz
has a B.S. and M.S. in chemical engineering, and an MBA.
Audit
Committee Financial Expert
The
Board
of Directors does not have an Audit Committee, and therefor does not have an
“audit committee financial expert,” as such term is defined in Item 401(e) of
Regulation S-B.
Executive
Compensation
The
following table sets forth for the periods indicated the compensation MedaSorb
paid Al Kraus, our Chief Executive Officer, and each of our other most highly
compensated executive officers during the years ended December 31, 2005, 2004
and 2003.
Summary
Compensation Table
|
|
|
|
Annual
Compensation
|
Long-Term
Compensation
|
Name
and Principal Positions
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
Stock
Awards*
|
|
Securities
Underlying Options
|
|
|
|
|
|
|
|
|
|
|
Al
Kraus
Chief
Executive Officer
|
|
200
5
2004
2003
|
|
173,899
152,301
73,710
|
|
150
|
1,090,680
164,665
138,286
|
|
__
__
__
|
|
|
|
|
|
|
|
|
Vincent
Capponi,
Chief
Operating Officer
|
|
200
5
2004
2003
|
|
152,504
133,987
195,501
|
|
150
|
374,383
15,070
7,535
|
|
__
__
__
|
David
Lamadrid,
Chief
Financial Officer
|
|
200
5
2004
2003
|
|
119,257
100,203
115,742
|
|
150
|
450,155
22,605
15,070
|
|
__
__
__
|
Dr.
James Winchester
Chief
Medical Officer
|
|
200
5
2004
2003
|
|
116,541
143,319
233,422
|
|
150
|
__
16,954
7,535
|
|
__
__
__
|
*
These
officers were originally issued “Management Units” of MedaSorb Technologies,
LLC, a limited liability company. The Management Units were ultimately converted
into the number of shares of our Common Stock indicated in the table above
following MedaSorb’s conversion to a corporation and reverse merger with
Registrant.
O
ption
Grants in Last Fiscal Year
No
options were granted to any of the individuals named in the Summary Compensation
Table during 2005.
Aggregated
Option Exercises in Fiscal 2005 and FY-End Option Values
None
of
the individuals named in the Summary Compensation Table held any options to
purchase our Common Stock or the common stock of MedaSorb as of December 31,
2005.
Director
Compensation
Our
directors do not receive any cash compensation for their service on the Board
of
Directors, but from time to time are granted options for their services. In
January 2006, each of our non-employee
directors
was granted an option to purchase 10,000 shares of MedaSorb common stock at
an
exercise price of $1.25, and in June 2006, our non-employee
directors
were granted options to purchase an aggregate of 62,536 shares of MedaSorb
common stock at an exercise price of $1.25. These options became options to
purchase the same number of shares of our Common Stock at the same exercise
price following the merger. Our directors are reimbursed for actual
out-of-pocket expenses incurred by them in connection with their attendance
at
meetings of the Board of Directors.
Employment
Agreements
Agreement
with Chief Executive Officer
MedaSorb
entered into an Employment Agreement, dated as of July 18, 2003, with Al Kraus,
our Chief Executive Officer. The Employment Agreement provides for an initial
five-year term of employment as our Chief Executive Officer. Under the terms
of
the Employment Agreement, Mr. Kraus receives an annual base salary of $200,000.
Under the Employment Agreement, Mr. Kraus was also granted an option to purchase
5% of the outstanding equity interests of MedaSorb (
which
was
then a limited liability company) on a fully-diluted basis, and will be issued
additional options so that Mr. Kraus continues to hold options to purchase
5% of
our outstanding equity on a fully diluted basis until such time as an aggregate
of $20 million of financing has been received by MedaSorb (including Registrant)
following the commencement of his employment. In 2005, MedaSorb’s board approved
the issuance to Mr. Kraus of “Management Units” of the limited liability company
in lieu of the options he was then entitled to under the Employment Agreement.
As a result of the conversion of MedaSorb to a corporation and the merger,
the
Management Units issued under the Employment Agreement were exchanged for
1,393,631 shares of Common Stock. Mr. Kraus will continue to be issued options
to purchase Common Stock pursuant to his Employment Agreement so that the
combined total of his common stock and common stock issuable upon exercise
of
his options equals 5% of the Company’s outstanding common stock on a fully
diluted basis, until such time as an aggregate of $20 million of financing
has
been received by us following the commencement of his employment.
In
the
event that Mr. Kraus’s employment is terminated as a result of his death, his
heirs will be entitled to 120-days of salary. In the event Mr. Kraus is
terminated for “justifiable cause” we will pay him his accrued and unpaid base
salary through the date of termination. If Mr. Kraus’s employment is terminated
without cause or in the event of a Change of Control, he will be entitled to
one-year’s base salary payable monthly over a period of one year.
Mr.
Kraus
is prohibited under the Employment Agreement from disclosing any of our
confidential information (as defined in the agreement) during the term of his
employment and any time thereafter and, following the termination of the
agreement with us, from competing with us and directly or indirectly soliciting
any of our customers or suppliers for a period of one year, and from soliciting
our employees for a period of three years.
Agreement
with Chief Operating Officer
MedaSorb
entered into an Employment Agreement, dated as of July 1, 2005, with Vincent
Capponi, our Chief Operating Officer. The Employment Agreement provides for
an
initial term of one-year, with automatic annual renewal unless either party
provides notice to the other within 120 days prior to the end of the year of
its
intention not to renew. Under the terms of the Employment Agreement, Mr. Capponi
receives an annual base salary of $181,886. Under the Employment Agreement,
Mr.
Capponi was also granted Management Units equal to 1.5% of the outstanding
equity interests of MedaSorb (which was then a limited liability company) on
a
fully-diluted basis, and was entitled to receive additional Management Units
so
that Mr. Capponi continued to hold Management Units equal to 1.5% of the
outstanding equity of MedaSorb on a fully diluted basis until December 31,
2005.
As a result of the conversion of MedaSorb to a corporation and the merger,
these
Management Units were exchanged for 418,086 shares of our Common
Stock
In
the
event that Mr. Capponi’s employment is terminated as a result of his death, his
heirs will be entitled to 120-days of salary. In the event Mr. Capponi is
terminated for “justifiable cause” we will pay him his accrued and unpaid base
salary through the date of termination. If Mr. Capponi’s employment is
terminated without cause or in the event of Change of Control, he will be
entitled to one-year’s base salary payable monthly for a period of one year.
Mr.
Capponi is prohibited under the Employment Agreement from disclosing any of
our
confidential information (as defined in the agreement) during the term of his
employment and any time thereafter, and following the termination of the
agreement with us, from competing with us and directly or indirectly soliciting
any of our customers or suppliers for a period of one year, and from soliciting
our employees for a period of three years.
Agreement
with Chief Financial Officer
MedaSorb
entered into an Employment Agreement, dated as of July 1, 2005, with David
Lamadrid, our Chief Financial Officer. The Employment Agreement provides for
an
initial term of one-year, with automatic annual renewal unless either party
provides notice to the other within 120 days prior to the end of the year of
its
intention not to renew. Under the terms of the Employment Agreement, Mr.
Lamadrid receives an annual base salary of $135,629. Under the Employment
Agreement, Mr. Lamadrid was also granted Management Units equal to 1.8% of
the
outstanding equity interests of MedaSorb (which was then a limited liability
company) on a fully-diluted basis, and was entitled to receive additional
Management Units so that Mr. Lamadrid continued to hold Management Units equal
to 1.8% of the outstanding equity of MedaSorb on a fully diluted basis until
December 31, 2005. As a result of the conversion of MedaSorb to a corporation
and the merger, these Management Units were exchanged for 501,704 shares of
our
Common Stock.
In
the
event that Mr. Lamadrid’s employment is terminated as a result of his death, his
heirs will be entitled to 120-days of salary. In the event Mr. Lamadrid is
terminated for “justifiable cause” we will pay him his accrued and unpaid base
salary through the date of termination. If Mr. Lamadrid’s employment is
terminated without cause or in the event of Change of Control, he will be
entitled to one-year’s base salary payable monthly for a period of one year.
Mr.
Lamadrid is prohibited under the Employment Agreement from disclosing any of
our
confidential information (as defined in the agreement) during the term of his
employment and any time thereafter, and following the termination of the
agreement with us, from competing with us and directly or indirectly soliciting
any of our customers or suppliers for a period of one year, and from soliciting
our employees for a period of three years.
Agreement
with Chief Medical Officer
MedaSorb
entered into an Employment Agreement, dated as of July 1, 2004, with Dr. James
Winchester, our Chief Medical Officer. The Employment Agreement provides for
an
initial term of one-year, with automatic annual renewal unless either party
provides notice to the other within 90 days prior to the end of the year of
its
intention not to renew. Under the terms of the Employment Agreement, Dr.
Winchester receives an annual base salary of $120,000.
Dr.
Winchester is prohibited under his Employment Agreement from disclosing any
of
our confidential information (as defined in the agreement) during the term
of
his employment and any time thereafter, and following the termination of this
agreement with us, from competing with us and directly or indirectly soliciting
any of our customers, suppliers or employees for a period of one year.
During
the period of March 2004 to February 2005, Al Kraus, Vincent Capponi, David
Lamadrid and Dr. James Winchester agreed to forego salary in the amounts of
$66,667, $60,000, $45,000, and $32,772 respectively. These amounts will be
paid
to these individuals at such time as we generate gross proceeds from the sale
of
our securities of $5,000,000, including sales we effected upon completion of
the
merger.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
In
October
2005, MedaSorb entered into an Investment Agreement with Margie Chassman
pursuant to which she advanced $1,000,000 to MedaSorb to provide it with
operating capital. The advance bears interest at the rate of 6% per annum,
and
at Ms. Chassman’s option, will be repaid in cash or converted into securities in
our next offering of securities no later than December 31, 2006. The advance
is
subject to earlier repayment in the event we complete an offering of our
securities that generates gross proceeds of $5.5 million or more (including
the
offering we completed following the merger, but excluding proceeds received
from
certain existing stockholders of ours), in the amount that those proceeds exceed
$5.5 million; provided, however, that in the event that less than $6.5 million
of gross proceeds are raised in such an offering within 120 days from the date
subscription materials are first circulated to potential investors, the balance
of the advance from Ms. Chassman then outstanding will, at our option, be
converted into the securities sold in that offering.
In
consideration for funding the $1 million advance, Ms. Chassman and her designees
were
issued
an
aggregate of 10 million shares of Common Stock. These shares of Common Stock
are
subject to a 12-month lock-up agreement and a voting agreement entitling
MedaSorb to voting rights with respect to such shares until the earlier to
occur
of a transfer of those shares to an unrelated third party or the expiration
of
two years.
In
connection with the closing of the private placement, we agreed to make a
short-term advance to Ms. Chassman in the amount of $500,000 bearing interest
at
the rate of 6% per annum, the repayment of which may be offset against amounts
owed by us to Ms. Chassman under the $1,000,000 advance previously made by
her
to MedaSorb. The short-term advance will be secured by a pledge of
publicly-traded securities with a market value equal to $500,000.
In
connection with the sale of the Series A Preferred Stock and Warrants to the
investors, Margie Chassman agreed to pledge certain securities held by her
to
the investors, which such investors may sell to ensure they do not suffer a
loss
on their investment in the first year following the date of their investment.
In
consideration of her pledge to these investors, we agreed to pay Ms. Chassman
(i) $525,000 in cash, and (ii) five-year warrants to purchase 10% of the shares
of Series A Preferred Stock and 10% of the Warrants sold to these investors
for
an exercise price equal to the price paid by the investors in the private
placement.
In
August
2003, in order to induce Guillermina Vega Montiel, a principal stockholder
of
ours, to make an additional investment in MedaSorb, we granted Ms. Montiel
a
perpetual royalty equal to three percent of all gross revenues received by
us
from sales of CytoSorb
TM
in
the
applications of sepsis, cardiopulmonary bypass surgery, organ donor,
chemotherapy and inflammation control application.
Joseph
Rubin
is a
director of ours and performs legal services from time to time. At December
31,
2005, we owed Mr. Rubin’s firm approximately $173,000 in respect of legal
services provided by his firm to MedaSorb
DESCRIPTION
OF SECURITIES
Our
total
authorized capital stock consists of 100,000,000 shares of Common Stock, par
value $.001 per share and 100,000,000 shares of preferred stock, par value
$.001
per share. After the closing of the reverse merger and the closing of the
private placement completed on the same date, 24,090,929 shares of Common Stock
were issued and outstanding, and 8,000,000 shares of preferred stock had been
designated as
Series
A
10% Cumulative Convertible Preferred Stock
,
of
which 5,250,000 shares were issued and outstanding.
The
following description of our capital stock does not purport to be complete
and
is subject to and qualified by our Articles of Incorporation and By-laws, and
by
the provisions of applicable Nevada law.
Common
Stock
Holders
of our Common Stock are entitled to receive dividends out of assets legally
available therefore at such times and in such amounts as the Board of Directors
from time to time may determine. Holders of our Common Stock are entitled to
one
vote for each share held on all matters submitted to a vote of the stockholders.
Cumulative voting with respect to the election of directors is not permitted
by
our Articles of Incorporation. Our Common Stock is not entitled to preemptive
rights and is not subject to conversion or redemption. Upon our liquidation,
dissolution or winding-up, the assets legally available for distribution to
stockholders are distributable ratably among the holders of the Common Stock
after payment of liquidation preferences, if any, on any outstanding stock
having prior rights on such distributions and payment of other claims of
creditors.
Preferred
Stock
Our
Articles of Incorporation authorizes the issuance of shares of preferred stock
in one or more series. Our Board of Directors has the authority, without any
vote or action by the stockholders, to create one or more series of preferred
stock up to the limit of our authorized but unissued shares of preferred stock
and to fix the number of shares constituting such series and the designation
of
such series, the voting powers (if any) of the shares of such series and the
relative participating, option or other special rights (if any), and any
qualifications, preferences, limitations or restrictions pertaining to such
series which may be fixed by the Board of Directors pursuant to a resolution
or
resolutions providing for the issuance of such series adopted by the Board
of
Directors.
The
provisions of a particular series of authorized preferred stock, as designated
by the Board of Directors, may include restrictions on the payment of dividends
on Common Stock. Such provisions may also include restrictions on our ability
to
purchase shares of Common Stock or to purchase or redeem shares of a particular
series of authorized preferred stock. Depending upon the voting rights granted
to any series of authorized preferred stock, issuance thereof could result
in a
reduction in the voting power of the holders of Common Stock. In the event
of
our dissolution, liquidation or winding up, the holders of the preferred stock
will receive, in priority over the holders of Common Stock, a liquidation
preference established by the Board of Directors, together with accumulated
and
unpaid dividends. Depending upon the consideration paid for authorized preferred
stock, the liquidation preference of authorized preferred stock and other
matters, the issuance of authorized preferred stock could result in a reduction
in the assets available for distribution to the holders of Common Stock in
the
event of our liquidation.
Series
A 10% Cumulative Convertible Preferred Stock
We
have
designated 8,000,000 shares of our preferred stock as
Series
A
10% Cumulative Convertible Preferred Stock
(“Series
A Preferred Stock”), of which 5,250,000 shares were issued in an offering that
we closed immediately following the consummation of the merger. Each share
of
Series A Preferred Stock has a stated value of $1.00, is convertible at the
holder’s option into that number of shares of our Common Stock equal to the
stated value of such share of Series A Preferred Stock divided by an initial
conversion price of $1.25. Upon the occurrence of a stock split, stock dividend,
combination of our Common Stock into a smaller number of shares, issuance of
any
of our shares or other securities by reclassification of our Common Stock,
merger or sale of substantially all of our assets, the conversion rate will
be
adjusted so that the conversion rights of the Series A Preferred Stock
stockholders will be equivalent to the conversion rights of the Series A
Preferred Stock stockholders prior to such event. In addition, in the event
we
sell shares of our Common Stock (or the equivalent thereof) following the
issuance of shares of Series A Preferred Stock at a price of less than $1.25
per
share, the conversion price of the shares of Series A Preferred Stock will
be
reduced to such lower price.
The
Series A Preferred Stock bears a dividend of 10% per annum payable quarterly,
commencing September 30, 2006, at our election in cash or additional shares
of
our Series A Preferred Stock valued at the stated value thereof; provided,
however, that we must pay the dividend in cash if an “Event of Default” as
defined in the Certificate of Designation designating the Series A Preferred
Stock has occurred and is then continuing. In addition, upon an Event of
Default, the dividend rate increases to 20% per annum. An Event of Default
includes, but is not limited to, the following:
·
|
the
occurrence of “Non-Registration Events” including, the failure to cause a
registration statement registering the shares of Common Stock underlying
the Series A Preferred Stock and Warrants issued in connection therewith
to be effective within 240 days following the closing of the private
placement;
|
·
|
an
uncured breach by us of any material covenant, term or condition
in the
Certificate of Designation or any of the related transaction documents;
and
|
·
|
any
money judgment or similar final process being filed against us for
more
than $100,000.
|
In
the
event of our dissolution, liquidation or winding up, the holders of the Series
A
Preferred Stock will receive, in priority over the holders of Common Stock,
a
liquidation preference equal to the stated value of such shares plus accrued
dividends thereon.
The
Series A Preferred Stock
is
not
redeemable at the option of the holder but may be redeemed by us at our option
following the third anniversary of the issuance of the Series A Preferred Stock
for 120% of the stated value thereof plus any accrued but unpaid dividends
upon
30 days' prior written notice, during which time the Series A Preferred Stock
may be converted, provided a registration statement is effective under the
Securities Act with respect to the Common Stock into which such Preferred is
convertible and an Event of Default is not then continuing.
Holders
of Series A Preferred Stock do not have the right to vote on matters submitted
to the holder of our Common Stock.
The
registration rights provided for in the subscription agreement we entered into
with the purchasers of the Series A Preferred Stock:
·
|
require
that we file a registration statement with the SEC on or before 120
days
from the closing to register the shares of Common Stock issuable
upon
conversion of the Series A Preferred Stock and exercise of the Warrants,
and cause such registration statement to be effective within 240
days
following the closing; and
|
·
|
entitles
each of these investors to liquidated damages in an amount equal
to two
percent (2%) of the purchase price of the Series A Preferred Stock
if we
fail to timely file that registration statement with, or have it
declared
effective by, the SEC.
|
The
transaction documents we entered into with the purchasers of the Series A
Preferred Stock also provide for various penalties and fees for breaches or
failures to comply with provisions of those documents, such as the timely
payment of dividends, delivery of stock certificates, and obtaining and
maintaining an effective registration statement with respect to the shares
of
Common Stock underlying the Series A Preferred Stock and warrants sold in the
offering.
In
addition, both the conversion price of the Series A Preferred Stock and the
exercise price of the Warrants are subject to “full-ratchet” anti-dilution
provisions, so that upon future issuances of our Common Stock or equivalents
thereof, subject to specified customary exceptions, at a price below the
conversion price of the Series A Preferred Stock and/or exercise price of the
Warrants, such conversion price and/or exercise price will be reduced to such
lower price, further diluting holders of our Common Stock.
Market
for Registrant’s Common Equity and Related Stockholder
Matters
Our
Common Stock is quoted on the OTC Bulletin Board under the symbol “GDRE”, but to
date, no trades in our Common Stock have been reported. Immediately following
the closing of the merger, but before giving effect to the private placement,
there were outstanding options and warrants to purchase an aggregate of
1,697,648
shares
of our Common Stock, and certain providers of legal services had the right
to
acquire approximately 997,000 shares of our Common Stock. Of the 24,090,929
shares of our Common Stock outstanding immediately following the merger
3,750,000 shares were eligible for resale under Rule 144 under the Securities
Act. In addition, we are obligated to file a registration statement under the
Securities Act registering the resale of the 7,260,000 shares of Common Stock
underlying the shares of Series A Preferred Stock and Warrants we issued in
the
offering that closed immediately following the merger.
The
number of holders of record for our
Common
Stock immediately after giving effect to the merger was approximately
415
.
We
have
not paid any dividends on our
Common
Stock since our inception and do not intend to pay any cash dividends to our
stockholders in the foreseeable future. In addition, the terms of our Series
A
Preferred Stock prohibit the payment of dividends on our Common
Stock.
Equity
Compensation Plan Information
The
following table summarizes outstanding options as of
June 30,
2006, after giving effect to the merger. The Registrant had no options
outstanding prior to the merger, and all of the options below were issued in
connection with the merger to former option holders of MedaSorb.
|
Number
of securities to be issued upon exercise of outstanding
options
|
Weighted-average
exercise price of outstanding options
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in first
column)
|
Equity
compensation plans approved by stockholders`
|
0
|
n/a
|
400,000(1)
|
|
|
|
|
Equity
compensation plans not approved by stockholders
|
594,003
|
$23.88
|
2,298,300(2)
|
|
|
|
|
Total
|
594,003
|
$23.88
|
2,698,300
|
1.
|
Represents
options that may be issued under our 2003 Stock Option
Plan.
|
|
|
2.
|
Represents
options that may be issued under our 2006 Long-Term Incentive Plan.
|
Changes
in and Disagreements with Accountants
.
Effective
on the closing of the merger, our Board of Directors dismissed BDO Dunwoody
LLP
as our independent accountants and engaged WithumSmith+Brown, MedaSorb’s
accountants prior to the merger. For further information on the change in
our accountants, see item 4.01 of this Current Report on Form 8-K.
Recent
Sales of Unregistered Securities
In
connection with the Merger, we issued
20,340,929
shares of our Common Stock to the former stockholders of MedaSorb in exchange
for all the issued and outstanding shares of MedaSorb Common Stock, and issued
stock options and warrants to purchase a total of 1,697,648 shares of our Common
Stock in exchange for the cancellation of all outstanding warrants and stock
options of MedaSorb, with the warrants and options issued by us having the
same
exercise prices and other terms as the cancelled warrants and stock options
to
purchase MedaSorb Common Stock. The shares of Common Stock issued in the merger
were issued in reliance on the exemption from registration afforded by
Regulation D (Rule 506) under the Securities Act and corresponding provisions
of
state securities laws, which exempts transactions by an issuer not involving
any
public offering. Accordingly, all of such shares are “restricted securities” and
may not be offered or sold in the United States absent registration or an
applicable exemption from registration requirements under the Securities Act.
In
addition, immediately following the merger, we sold 5
,250,000
shares of our Series A Preferred Stock to four institutional investors
in
a
private offering exempt from registration pursuant to Section 4(2) and
Regulation D (Rule 506) under the Securities Act. The shares of Series A
Preferred Stock we issued are initially convertible into 4,200,000 shares of
our
Common Stock.
In
conjunction with the issuance of the Series A Preferred Stock to the investors,
we issued to them, for no additional consideration, five-year Warrants to
purchase an aggregate of 2,100,000 shares of Common Stock at the exercise price
of $2.00 per share, subject to adjustment in certain cases as set forth in
the
Warrants.
We
also
granted these purchasers registration rights with respect to the Common Stock
issuable upon conversion of the Series A Preferred Stock and exercise of the
Warrants issued in the private placement. The rights, preferences and other
terms of the Series A Preferred Stock and the private placement of these
securities are described further above under “Series A Preferred Stock”.
Additional information with respect to this offering is provided above in Item
1.01 of this Current Report on Form 8-K.
Indemnification
of Officers and Directors
Our
Articles
of Incorporation eliminates the personal liability of directors to us and our
stockholders for monetary damages for breach of fiduciary duty as a director
to
the fullest extent permitted by Nevada law. Additionally, we have included
in
our By-laws provisions to indemnify our directors, officers, employees and
agents and to purchase insurance with respect to liability arising out of the
performance of their duties as directors, officers, employees and agents as
permitted by Nevada General Corporation Law. The effect of the foregoing is
to
require us, to the extent permitted by law, to indemnify our officers,
directors, employees and agents for any claims arising against such person
in
their official capacities, if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to our best interests,
and,
with respect to any criminal action or proceeding, had no reasonable cause
to
believe that his conduct was unlawful. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the company pursuant to the foregoing,
or
otherwise, the company has been advised that the opinion of the Securities
and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable.
Item
3.02. Unregistered Sales of Equity Securities.
Reference
is made to the disclosure made under Items 1.01 and 2.01 of this Current Report
on Form 8-K, which is incorporated herein by reference.
ITEM
4.01. Changes in Registrant’s Certifying Accountant
Immediately
following the closing of the merger, our Board of Directors dismissed BDO
Dunwoody LLP as our independent accountants and engaged WithumSmith+Brown,
the
accountants of MedaSorb prior to the merger, as our new independent accountants.
The
audit
reports of BDO Dunwoody on the financial statements of Gilder Enterprises,
Inc.
as of May 31, 2005 and 2004 and for the years then ended did not contain any
adverse opinion or disclaimer of opinion, nor were such reports qualified or
modified as to uncertainty, audit scope or accounting principles, except that
such reports were prepared assuming “the Company will continue as a going
concern” and stated that “as discussed in Note 1 to the consolidated financial
statements, the Company had accumulated operating losses of $169,199 since
its
inception and has a working capital deficit of $67,768. These condition raise
substantial doubt about the Company’s ability to continue as a going
concern. Management’s plan in regard to these matters are described in
Note 1. These consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty”.
During
the two most recent fiscal years of Gilder Enterprises, Inc. and the subsequent
interim period through February 28, 2006, there were no disagreements between
Gilder Enterprises, Inc. and BDO Dunwoody as to any matter of accounting
principles or practices, financial statement disclosure, or auditing scope
or
procedure, which disagreements, if not resolved to the satisfaction of BDO
Dunwoody, would have caused BDO Dunwoody to make reference in their reports
on
the financial statements for such years to the subject matter of the
disagreement.
Item
5.01. Changes in Control of Registrant
As
described in more detail under Item 2.01 of this Current Report on Form 8-K,
which is incorporated herein by reference, as a result of the merger, a change
in control of the Registrant has occurred.
Item
5.02 Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers.
Concurrently
with the closing of the merger, Joseph G. Bowes, who was our sole director
and
officer prior to the merger, appointed Al Kraus, Joseph Rubin, Esq., and Kurt
Katz to the Board of Directors, and then resigned from the Board and from his
positions as an officer. In addition, at such time, Al Kraus was appointed
Registrant’s President and Chief Executive Officer, James Winchester, MD was
appointed Registrant’s Chief Medical Officer, Vincent Capponi was appointed
Registrant’s Chief Operating Officer and David Lamadrid was appointed our Chief
Financial Officer.
For
certain biographical and other information regarding the newly appointed
officers and directors, see the disclosure under the heading “Directors and
Executive Officers” under Item 2.01 of this Current Report on Form 8-K, which is
incorporated herein by reference.
Item
5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal
Year
As
a
result of the merger, our fiscal year was changed to a calendar year. Because
reverse merger accounting dictates that the historical financial statements
of
MedaSorb are now our financial statements, we will not file a transition report.
Exhibit 99.1 to this Current Report on Form 8-K includes MedaSorb’s annual
financial statements for the years ended December 31, 2005 and 2004. Our next
Annual Report on Form 10-KSB will cover the complete 12-month period ended
December 31, 2006
.
Item 5.06.
Change in Shell Company Status
Reference
is made to the disclosure set forth under Item 2.01 of this Current Report
on Form 8-K, which disclosure is incorporated herein by
reference.
Item
9.01. Financial Statements and Exhibits.
(a)
Financial Statements of business acquired.
Audited
financial statements of MedaSorb (formerly MedaSorb Technologies, LLC) for
the
fiscal years ended December 31, 2004 and 2005 are filed as Exhibit 99.1 to
this
Current Report on Form 8-K and unaudited financial statements of MedaSorb for
the interim period ended March 31, 2006 are filed as Exhibit 99.2 to this
Current Report on Form 8-K.
(b)
Pro
Forma Financial Information.
Pro
forma
financial statements for the Registrant reflecting the merger are filed as
Exhibit 99.3 to this Current Report on Form 8-K.
(d)
Exhibits.
Exhibit
2.1
|
Agreement
and Plan of Merger, dated as of June 29, 2006, by and among Gilder
Enterprises, Inc., MedaSorb Corporation and MedaSorb Acquisition
Inc.
|
|
|
Exhibit
3.1
|
Articles
of Incorporation of Gilder Enterprises, Inc. (filed as Exhibit 3.1
to
Registrant’s Registration Statement on Form SB-2 filed on March 29, 2004,
and incorporated herein by reference).
|
|
|
Exhibit
3.2
|
By-Laws
of Gilder Enterprises, Inc. (filed as Exhibit 3.2 to Registrant’s
Registration Statement on Form SB-2 filed on March 29, 2004, and
incorporated herein by reference).
|
|
|
Exhibit
4.1
|
Certificate
To Set Forth Designations, Voting Powers, Preferences, Limitations,
Restrictions, And Relative Rights Of Series A 10% Cumulative Convertible
Preferred Stock, $.001 Par Value Per Share
|
|
|
Exhibit
4.2
|
Form
of Warrant issued to purchasers of Series A Preferred Stock, dated
June
__, 2006.
|
|
|
Exhibit
4.3
|
Subscription
Agreement, dated as of June 30, 2006, by and among Gilder
Enterprises, Inc. and the purchasers party thereto.
|
|
|
Exhibit
10.1
|
Employment
Agreement, dated as of July 18, 2003, between Al Kraus and MedaSorb
Technologies, LLC.
|
|
|
Exhibit
10.2
|
Employment
Agreement, dated as of July 1, 2005, between Vincent Capponi and
MedaSorb
Technologies, LLC.
|
|
|
Exhibit
10.3
|
Employment
Agreement, dated as of July 1, 2005, between David Lamadrid and MedaSorb
Technologies, LLC.
|
|
|
Exhibit
10.4
|
Employment
Agreement, dated as of July 1, 2004, between Dr. James Winchester
and
MedaSorb Technologies, LLC.
|
|
|
Exhibit
10.5
|
Gilder
Enterprises, Inc. 2006 Long Term Incentive Plan.
|
|
|
Exhibit
99.1
|
Audited
financial statements of MedaSorb for the fiscal years ended December
31,
2004 and 2005.
|
|
|
Exhibit
99.2
|
Unaudited
financial statements of MedaSorb for the three month interim period
ended
March 31, 2006.
|
|
|
Exhibit
99.3
|
Pro
forma financial statements of the Registrant reflecting the
merger.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
Date:
July 6,
2006
|
|
|
|
GILDER
ENTERPRISES, INC.
|
|
|
|
|
By:
|
/s/ Al
Kraus
|
|
Al Kraus,
President and Chief Executive Officer
|
|
|
EXHIBIT
INDEX
No.
|
Description
|
|
|
Exhibit
2.1
|
Agreement
and Plan of Merger, dated as of June 29, 2006, by and among Gilder
Enterprises, Inc., MedaSorb Corporation and MedaSorb Acquisition
Inc.
|
|
|
Exhibit
3.1
|
Articles
of Incorporation of Gilder Enterprises, Inc. (filed as Exhibit 3.1
to
Registrant’s Registration Statement on Form SB-2 filed on March 29, 2004,
and incorporated herein by reference).
|
|
|
Exhibit
3.2
|
By-Laws
of Gilder Enterprises, Inc. (filed as Exhibit 3.2 to Registrant’s
Registration Statement on Form SB-2 filed on March 29, 2004, and
incorporated herein by reference).
|
|
|
Exhibit
4.1
|
Certificate
To Set Forth Designations, Voting Powers, Preferences, Limitations,
Restrictions, And Relative Rights Of Series A 10% Cumulative Convertible
Preferred Stock, $.001 Par Value Per Share
|
|
|
Exhibit
4.2
|
Form
of Warrant issued to purchasers of Series A Preferred Stock, dated
June
__, 2006.
|
|
|
Exhibit
4.3
|
Subscription
Agreement, dated as of June 30, 2006, by and among Gilder Enterprises,
Inc. and the purchasers party thereto.
|
|
|
Exhibit
10.1
|
Employment
Agreement, dated as of July 18, 2003, between Al Kraus and MedaSorb
Technologies, LLC.
|
|
|
Exhibit
10.2
|
Employment
Agreement, dated as of July 1, 2005, between Vincent Capponi and
MedaSorb
Technologies, LLC.
|
|
|
Exhibit
10.3
|
Employment
Agreement, dated as of July 1, 2005, between David Lamadrid and MedaSorb
Technologies, LLC.
|
|
|
Exhibit
10.4
|
Employment
Agreement, dated as of July 1, 2004, between Dr. James Winchester
and
MedaSorb Technologies, LLC.
|
|
|
Exhibit
10.5
|
Gilder
Enterprises, Inc. 2006 Long Term Incentive Plan.
|
|
|
Exhibit
99.1
|
Audited
financial statements of MedaSorb for the fiscal years ended December
31,
2004 and 2005.
|
|
|
Exhibit
99.2
|
Unaudited
financial statements of MedaSorb for the three month interim period
ended
March 31, 2006.
|
|
|
Exhibit
99.3
|
Pro
forma financial statements of the Registrant reflecting the
merger.
|
AGREEMENT
AND PLAN OF MERGER
by
and
among
GILDER
ENTERPRISES, INC.,
MEDASORB
ACQUISITION, INC.
and
MEDASORB
CORPORATION
June
29,
2006
Page
|
|
ARTICLE
I DEFINITIONS
|
1
|
|
|
ARTICLE
II THE MERGER
|
5
|
|
|
SECTION
2.1
|
MERGER
|
5
|
|
|
|
SECTION
2.2
|
EFFECTIVE
TIME
|
5
|
|
|
|
SECTION
2.3
|
CERTIFICATE
OF INCORPORATION; BY-LAWS; DIRECTORS AND OFFICERS
|
5
|
|
|
|
SECTION
2.4
|
EFFECTS
OF THE MERGER
|
6
|
|
|
|
SECTION
2.5
|
CLOSING
|
6
|
|
|
|
ARTICLE
III MERGER CONSIDERATION; CONVERSION OF SECURITIES
|
6
|
|
|
SECTION
3.1
|
MANNER
AND BASIS OF CONVERTING CAPITAL STOCK
|
6
|
|
|
|
SECTION
3.2
|
ISSUANCE
OF CERTIFICATES
|
7
|
|
|
|
SECTION
3.3
|
OPTIONS,
WARRANTS
|
8
|
|
|
|
SECTION
3.4
|
PARENT
COMMON STOCK
|
8
|
|
|
|
ARTICLE
IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY
|
9
|
|
|
SECTION
4.1
|
ORGANIZATION
|
9
|
|
|
|
SECTION
4.2
|
AUTHORIZATION;
VALIDITY OF AGREEMENT
|
9
|
|
|
|
SECTION
4.3
|
CAPITALIZATION
|
9
|
|
|
|
SECTION
4.4
|
CONSENTS
AND APPROVALS; NO VIOLATIONS
|
9
|
|
|
|
SECTION
4.5
|
FINANCIAL
STATEMENTS
|
10
|
|
|
|
SECTION
4.6
|
NO
UNDISCLOSED LIABILITIES
|
10
|
|
|
|
SECTION
4.7
|
LITIGATION
|
10
|
|
|
|
SECTION
4.8
|
NO
DEFAULT; COMPLIANCE WITH APPLICABLE LAWS
|
10
|
|
|
|
SECTION
4.9
|
BROKER’S
AND FINDER’S FEES
|
10
|
|
|
|
SECTION
4.10
|
ASSETS
AND CONTRACTS
|
11
|
|
|
|
SECTION
4.11
|
TAX
RETURNS AND AUDITS
|
11
|
|
|
|
SECTION
4.12
|
PATENTS
AND OTHER INTANGIBLE ASSETS
|
12
|
|
|
|
SECTION
4.13
|
EMPLOYEE
BENEFIT PLANS; ERISA
|
12
|
|
|
|
SECTION
4.14
|
TITLE
TO PROPERTY AND ENCUMBRANCES
|
12
|
|
|
|
SECTION
4.15
|
CONDITION
OF PROPERTIES
|
13
|
|
|
|
SECTION
4.16
|
INSURANCE
COVERAGE
|
13
|
|
|
|
SECTION
4.17
|
INTERESTED
PARTY TRANSACTIONS
|
13
|
|
|
|
SECTION
4.18
|
ENVIRONMENTAL
MATTERS
|
13
|
|
|
|
SECTION
4.19
|
DISCLOSURE
|
14
|
|
|
|
ARTICLE
V REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION
|
|
CORP.
|
14
|
|
|
SECTION
5.1
|
ORGANIZATION
|
14
|
|
|
|
SECTION
5.2
|
AUTHORIZATION;
VALIDITY OF AGREEMENT
|
14
|
|
|
|
SECTION
5.3
|
CONSENTS
AND APPROVALS; NO VIOLATIONS
|
15
|
SECTION
5.4
|
LITIGATION
|
15
|
|
|
|
SECTION
5.5
|
NO
DEFAULT; COMPLIANCE WITH APPLICABLE LAWS
|
15
|
|
|
|
SECTION
5.6
|
BROKER’S
AND FINDER’S FEES; BROKER/DEALER OWNERSHIP
|
15
|
|
|
|
SECTION
5.7
|
CAPITALIZATION
OF PARENT
|
15
|
|
|
|
SECTION
5.8
|
ACQUISITION
CORP
|
16
|
|
|
|
SECTION
5.9
|
VALIDITY
OF SHARES
|
16
|
|
|
|
SECTION
5.10
|
SEC
REPORTING AND COMPLIANCE
|
16
|
|
|
|
SECTION
5.11
|
FINANCIAL
STATEMENTS
|
17
|
|
|
|
SECTION
5.12
|
NO
GENERAL SOLICITATION
|
17
|
|
|
|
SECTION
5.13
|
ABSENCE
OF UNDISCLOSED LIABILITIES
|
17
|
|
|
|
SECTION
5.14
|
CHANGES
|
17
|
|
|
|
SECTION
5.15
|
TAX
RETURNS AND AUDITS
|
18
|
|
|
|
SECTION
5.16
|
EMPLOYEE
BENEFIT PLANS; LABOR
|
18
|
|
|
|
SECTION
5.17
|
INTERESTED
PARTY TRANSACTIONS
|
19
|
|
|
|
SECTION
5.18
|
QUESTIONABLE
PAYMENTS
|
19
|
|
|
|
SECTION
5.19
|
OBLIGATIONS
TO OR BY STOCKHOLDERS
|
19
|
|
|
|
SECTION
5.20
|
ASSETS
AND CONTRACTS
|
19
|
|
|
|
SECTION
5.21
|
ENVIRONMENTAL
MATTERS
|
20
|
|
|
|
SECTION
5.22
|
DISCLOSURE
|
21
|
|
|
|
ARTICLE
VI CONDUCT OF BUSINESSES PENDING THE MERGER
|
21
|
|
|
SECTION
6.1
|
CONDUCT
OF BUSINESS BY THE COMPANY PENDING THE MERGER
|
21
|
|
|
|
SECTION
6.2
|
CONDUCT
OF BUSINESS BY PARENT AND ACQUISITION CORP. PENDING THE
MERGER
|
22
|
|
|
|
ARTICLE
VII ADDITIONAL AGREEMENTS
|
22
|
|
|
SECTION
7.1
|
ACCESS
AND INFORMATION
|
22
|
|
|
|
SECTION
7.2
|
ADDITIONAL
AGREEMENTS
|
23
|
|
|
|
SECTION
7.3
|
PUBLICITY
|
23
|
|
|
|
SECTION
7.4
|
APPOINTMENT
OF DIRECTORS
|
24
|
|
|
|
SECTION
7.5
|
STOCKHOLDER
CONSENT
|
24
|
|
|
|
ARTICLE
VIII CONDITIONS OF PARTIES’ OBLIGATIONS
|
24
|
|
|
SECTION
8.1
|
COMPANY
OBLIGATIONS
|
24
|
|
|
|
SECTION
8.2
|
PARENT
AND ACQUISITION CORP. OBLIGATIONS
|
25
|
|
|
|
ARTICLE
IX TERMINATION PRIOR TO CLOSING
|
27
|
|
|
SECTION
9.1
|
TERMINATION
OF AGREEMENT
|
27
|
|
|
|
SECTION
9.2
|
TERMINATION
OF OBLIGATIONS
|
28
|
|
|
|
ARTICLE
X MISCELLANEOUS
|
28
|
|
|
SECTION
10.1
|
AMENDMENTS.
|
28
|
|
|
|
SECTION
10.2
|
NOTICES
|
28
|
|
|
|
SECTION
10.3
|
ENTIRE
AGREEMENT
|
29
|
|
|
|
SECTION
10.4
|
EXPENSES
|
29
|
|
|
|
SECTION
10.5
|
SEVERABILITY
|
29
|
|
|
|
SECTION
10.6
|
SUCCESSORS
AND ASSIGNS; ASSIGNMENT
|
30
|
|
|
|
SECTION
10.7
|
NO
THIRD PARTY BENEFICIARIES
|
30
|
|
|
|
SECTION
10.8
|
COUNTERPARTS;
DELIVERY BY FACSIMILE
|
30
|
|
|
|
SECTION
10.9
|
WAIVER
|
30
|
|
|
|
SECTION
10.10
|
NO
CONSTRUCTIVE WAIVERS
|
30
|
|
|
|
SECTION
10.11
|
FURTHER
ASSURANCES
|
31
|
|
|
|
SECTION
10.12
|
HEADINGS
|
31
|
|
|
|
SECTION
10.13
|
GOVERNING
LAW
|
31
|
|
|
|
SECTION
10.14
|
DISPUTE
RESOLUTION
|
31
|
|
|
|
SECTION
10.15
|
INTERPRETATION
|
31
|
LIST
OF SCHEDULES AND EXHIBITS
Company
Disclosure Schedules
Schedule
3.3
-
Company Stock Options
Schedule
4.3
-
Stockholders
Schedule
4.7
-
Litigation
Schedule
4.10 - Contracts
Schedule
4.11
-
Taxes
Schedule
4.16 - Insurance
Parent
Disclosure Schedules
Schedule
5.7 - Capitalization
Exhibits
|
Exhibit
A
Post-Closing
Directors and Officers of
Parent
|
AGREEMENT
AND PLAN OF MERGER
THIS
AGREEMENT AND PLAN OF MERGER is entered into as of
June
29, 2006
by and among
GILDER
ENTERPRISES
,
INC. a
Nevada corporation (“
Parent
”),
MEDASORB ACQUISITION, INC., a Delaware corporation and a wholly-owned subsidiary
of Parent (“
Acquisition
Corp.
”),
and
MEDASORB CORPORATION., a Delaware corporation (the “
Company
”).
WITNESSETH
:
WHEREAS,
the Company is primarily engaged in the business of commercializing
hemoperfusion devices, initially for the treatment of sepsis;
WHEREAS,
the Board of Directors of each of Parent, Acquisition Corp. and the Company
has
approved, and deems it advisable and in the best interests of their respective
stockholders to consummate, the acquisition of the Company by Parent, which
acquisition is to be effected by the merger of Acquisition Corp. with and into
the Company, with the Company being the surviving entity (the “
Merger
”),
upon
the terms and subject to the conditions set forth in this Agreement (as defined
herein); and
WHEREAS,
the parties hereto intend that the Merger shall qualify as a reorganization
within the meaning of Section 368(a)(1)(A) of the Internal Revenue Code of
1986,
as amended (the “
Code
”),
by
reason of Section 368(a)(2)(E) of the Code
.
NOW,
THEREFORE, in consideration of the mutual agreements and covenants hereinafter
set forth, the parties hereto agree as follows:
ARTICLE
I
DEFINITIONS
Capitalized
terms used in this Agreement shall have the following meanings:
“
Acquisition
Corp.
”
shall
have the meaning given to such term in the preamble to this
Agreement.
“
Acquisition
Proposal
”
shall
have the meaning given to such term in
Section
6.2
hereof.
“
Action
”
shall
mean any claim, action, suit, proceeding, investigation or order.
“
Affiliate
”
shall
mean, with respect to any Person, any Person directly or indirectly controlling,
controlled by or under common control with, such Person. For the purposes of
this definition, “
control
”
(including, with correlative meaning, the terms “
controlling
,”
“
controlled
by
”
and
“
under
common control with
”)
means
the possession, directly or indirectly, of the power to direct or cause the
direction of management and policies of such Person through the ownership of
voting securities, by contract or otherwise.
“
Agreement
”
shall
mean this Agreement and Plan of Merger, including the schedules and exhibits
attached hereto or referred to herein, as the same may be amended or modified
from time to time in accordance with the provisions hereof.
“
Balance
Sheet
”
shall
have the meaning given to such term in
Section
4.5
hereof.
“
Balance
Sheet Date
”
shall
have the meaning given to such term in
Section
4.5
hereof.
“
By-laws
”
shall
have the meaning given to such term in
Section
2.3(b)
hereof.
“
Certificate
of Incorporation
”
shall
have the meaning given to such term in
Section
2.3(a)
hereof.
“
Closing
”
shall
have the meaning given to such term in
Section
2.5
hereof.
“
Closing
Date
”
shall
have the meaning given to such term in
Section
2.5
hereof.
“
Code
”
shall
have the meaning given to such term in the third recital to this
Agreement.
“
Commission
”
shall
mean the United States Securities and Exchange Commission.
“
Common
Stock Options
”
shall
have the meaning given to such term in
Section
3.3(a)
hereof.
“
Company
”
shall
have the meaning given to such term in the preamble to this
Agreement.
“
Company
Common Stock
”
shall
mean the common stock, par value $.001 per share, of the Company.
“
Company
Material Adverse Effect
”
shall
mean any change, effect or circumstance that by itself, or together with other
changes, effects and circumstances is materially adverse or is reasonably likely
to be materially adverse to the business, assets, liabilities, condition
(financial or otherwise) or operations of the Company.
“
Contract
”
shall
have the meaning given to such term in
Section
4.4
hereof.
“
Consents
”
shall
mean any permits, filings, notices, licenses, consents, authorizations,
accreditation, waivers, approvals and the like of, to, with or by any
Person.
“
DGCL
”
shall
mean the General Corporation Law of the State of Delaware, as
amended.
“
Dissenting
Shares
”
shall
have the meaning given to such term in
Section
3.2(b)
hereof.
“
Effective
Time
”
shall
have the meaning given to such term in
Section
2.2
hereof.
“
Employee
Benefit Plans
”
shall
have the meaning assigned to it in
Section
4.13
hereof.
“
Environmental
Law
”
shall
mean the Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. §§ 9601 et seq.; the Emergency Planning and Community Right-to-Know
Act of 1986, 42 U.S.C. §§ 11001 et seq.; the Resource Conservation and Recovery
Act, 42 U.S.C. §§ 6901 et seq.; the Toxic Substances Control Act, 15 U.S.C. §§
2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C.
§§ 136 et seq. and comparable state statutes dealing with the registration,
labeling and use of pesticides and herbicides; the Clean Air Act, 42 U.S.C.
§§
7401 et seq.; the Clean Water Act (Federal Water Pollution Control Act), 33
U.S.C. §§ 1251 et seq.; the Safe Drinking Water Act, 42 U.S.C. §§ 300f et seq.;
and the Hazardous Materials Transportation Act, 49 U.S.C. §§ 1801 et seq., as
any of the above referenced statutes have been amended as of the date hereof,
all rules, regulations and policies promulgated pursuant to any of the above
referenced statutes, and any other foreign, federal, state or local law,
statute, ordinance, rule, regulation or policy governing environmental matters,
as the same have been amended as of the date hereof.
“
ERISA
”
shall
mean the Employee Retirement Income Securities Act of 1974, as amended, and
the
regulations issued thereunder.
“
Exchange
Act
”
shall
mean the Securities Exchange Act of 1934, as amended, and the rules and
regulations issued thereunder.
“
GAAP
”
shall
mean generally accepted accounting principles as in effect from time to time
in
the United States consistently applied.
“
Hazardous
Material
”
means
any substance or material meeting any one or more of the following criteria:
(a)
it is or contains a substance designated as or meeting the characteristics
of a
hazardous waste, hazardous substance, hazardous material, pollutant, chemical
substance or mixture, contaminant or toxic substance under any Environmental
Law; (b) its presence at some quantity requires investigation, notification
or
remediation under any Environmental Law; or (c) it contains, without limiting
the foregoing, asbestos, polychlorinated biphenyls, petroleum hydrocarbons,
petroleum derived substances or waste, pesticides, herbicides, crude oil or
any
fraction thereof, nuclear fuel, natural gas or synthetic gas.
“
Indebtedness
”
shall
mean any obligation of the Company that under GAAP is required to be shown
on
the Balance Sheet of the Company as a Liability. Any obligation secured by
a
Lien on, or payable out of the proceeds of production from, property of the
Company shall be deemed to be Indebtedness even though such obligation is not
assumed by the Company.
“
Indebtedness
for Borrowed Money
”
shall
mean (a) all Indebtedness in respect of money borrowed including, without
limitation, Indebtedness which represents the unpaid amount of the purchase
price of any property and is incurred in lieu of borrowing money or using
available funds to pay such amounts and not constituting an account payable
or
expense accrual incurred or assumed in the ordinary course of business of the
Company, (b) all Indebtedness evidenced by a promissory note, bond or similar
written obligation to pay money, or (c) all such Indebtedness guaranteed by
the
Company or for which the Company is otherwise contingently liable.
“
Investment
Company Act
”
shall
mean the Investment Company Act of 1940, as amended.
“
Liability
”
shall
mean any liability, debt, obligation, deficiency, Tax, penalty, fine, claim,
cause of action or other loss, cost or expense of any kind or nature whatsoever,
whether asserted or unasserted, absolute or contingent, accrued or unaccrued,
liquidated or unliquidated, and whether due or to become due and regardless
of
when asserted.
“
Lien
”
shall
mean any mortgage, pledge, security interest, encumbrance, lien or charge of
any
kind, including, without limitation, any conditional sale or other title
retention agreement, any lease in the nature thereof and the filing of or
agreement to give any financing statement under the Uniform Commercial Code
of
any jurisdiction and including any lien or charge arising by statute or other
law.
“
Merger
”
shall
have the meaning given to such term in the second recital to this
Agreement.
“
Parent
”
shall
have the meaning given to such term in the preamble to this
Agreement.
“
Parent
Balance Sheet
”
shall
have the meaning assigned to such term in
Section
5.13
hereof.
“
Parent
Balance Sheet Date
”
shall
have the meaning assigned to it in
Section
5.14
hereof.
“
Parent
Common Stock
”
shall
mean the common stock, par value $.001 per share, of the Parent.
“
Parent
Financial Statements
”
shall
have the meaning assigned to such term in
Section
5.11
hereof.
“
Parent
Material Adverse Effect
”
means
any change, effect or circumstance that by itself, or together with other
changes, effects and circumstances is materially adverse or is reasonably likely
to be materially adverse to the business, assets, liabilities, condition
(financial or otherwise) or operations of Parent and its subsidiaries, taken
as
a whole.
“
Parent
SEC Documents
”
shall
have the meaning assigned to such term in
Section
5.10(b)
hereof.
“
Permitted
Liens
”
shall
mean (a) Liens for taxes and assessments or governmental charges or levies
not
at the time due or in respect of which the validity thereof shall currently
be
contested in good faith by appropriate proceedings; (b) Liens in respect of
pledges or deposits under workmen’s compensation laws or similar legislation,
carriers’, warehousemen’s, mechanics’, laborers’ and materialmens’ and similar
Liens, if the obligations secured by such Liens are not then delinquent or
are
being contested in good faith by appropriate proceedings; and (c) Liens
incidental to the conduct of the business of the Company that were not incurred
in connection with the borrowing of money or the obtaining of advances or
credits and which do not in the aggregate materially detract from the value
of
its property or materially impair the use made thereof by the Company in its
business.
“
Person
”
shall
mean any individual, corporation, limited liability company, partnership, joint
venture, trust or other entity or organization, including any government or
political subdivision or an agency or instrumentality thereof.
“
Securities
Act
”
shall
mean the Securities Act of 1933, as amended, and the rules and regulations
issued thereunder.
“
Stock
Option Plan
”
shall
mean the 2006 Long-Term Incentive Option Plan of Parent, approved by the Board
of Directors of Parent on or before the Closing and providing for 2,500,000
shares of Parent Common Stock to be reserved for issuance upon exercise of
stock
options and other stock-based awards to be issued thereunder to directors,
officers, employees and consultants of Parent and the Surviving Corporation.
“
Stockholder
”
shall
mean any record holder of Company Common Stock.
“
Surviving
Corporation
”
shall
have the meaning given to such term in
Section
2.1
hereof.
“
Tax
”
or
“
Taxes
”
shall
mean (a) any and all taxes, assessments, customs, duties, levies, fees, tariffs,
imposts, deficiencies and other governmental charges of any kind whatsoever
(including, but not limited to, taxes on or with respect to net or gross income,
franchise, profits, gross receipts, capital, sales, use, ad valorem, value
added, transfer, real property transfer, transfer gains, transfer taxes,
inventory, capital stock, license, payroll, employment, social security,
unemployment, severance, occupation, real or personal property, estimated taxes,
rent, excise, occupancy, recordation, bulk transfer, intangibles, alternative
minimum, doing business, withholding and stamp), together with any interest
thereon, penalties, fines, damages costs, fees, additions to tax or additional
amounts with respect thereto, imposed by the United States (federal, state
or
local) or other applicable jurisdiction; (b) any liability for the payment
of
any amounts described in clause (a) as a result of being a member of an
affiliated, consolidated, combined, unitary or similar group or as a result
of
transferor or successor liability, including, without limitation, by reason
of
Code Section 1.1502-6; and (c) any liability for the payments of any amounts
as
a result of being a party to any tax sharing agreement or as a result of any
express or implied obligation to indemnify any other Person with respect to
the
payment of any amounts of the type described in either clauses (a) or
(b).
“
Tax
Return
”
shall
include all returns and reports (including elections, declarations, disclosures,
schedules, estimates and information returns (including Form 1099 and
partnership returns filed on Form 1065)) required to be supplied to a Tax
authority relating to Taxes.
ARTICLE
II
THE
MERGER
Section
2.1
Merger
.
Upon
the terms and subject to the conditions of this Agreement, at the Effective
Time, the Company shall be merged with and into Acquisition Corp. in accordance
with Section 251 of the DGCL. Following the Effective Time, the separate
corporate existence of the Company shall cease, and Acquisition Corp. shall
continue as the corporation surviving the Merger (sometimes hereinafter referred
to as the “
Surviving
Corporation
”).
Section
2.2
Effective
Time
.
The
Company and Acquisition Corp. shall cause a certificate of merger to be filed
on
the Closing Date (or on such other date as the Company and Parent may agree
in
writing) with the Secretary of State of Delaware as provided in Section 251
of
the DGCL, and shall make all other filings or recordings required by the DGCL
in
connection with the Merger. The Merger shall become effective at such time
as
the certificate of merger is duly filed in accordance with Section 251 of the
DGCL with the Secretary of State of the State of Delaware or such later time
as
specified in the certificate of merger, and such time is hereinafter referred
to
as the “
Effective
Time
.”
Section
2.3
Certificate
of Incorporation; By-laws; Directors and Officers
.
(a)
The
certificate of incorporation of Acquisition Corp. as in effect immediately
prior
to the Effective Time, shall be the certificate of incorporation of the
Surviving Corporation (the “
Certificate
of Incorporation
”)
from
and after the Effective Time until thereafter changed or amended as provided
therein or in accordance with applicable law, except that Article First of
the
Certificate of Incorporation shall be amended and restated to read as follows:
“
FIRST
:
The
name
of the corporation is MedaSorb Corporation (hereinafter referred to as the
“
Corporation
”).”
(b)
The
by-laws of Acquisition as in effect immediately prior to the Effective Time,
shall be the by-laws of the Surviving Corporation (the “
By-laws
”)
from
and after the Effective Time until thereafter changed or amended as provided
therein or in accordance with applicable law.
(c)
The
officers and directors of the Company immediately prior to the Effective Time
shall, from and after the Effective Time, be the directors of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Certificate of Incorporation and By-laws of the Surviving Corporation.
The individuals identified on
Exhibit
A
shall,
following the Effective Time, be the officers and directors of the Parent until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Certificate
of Incorporation and By-laws of Parent.
Section
2.4
Effects
of the Merger
.
The
Merger shall have the effects set forth in Section 259 of the DGCL. Without
limiting the generality of the foregoing, at the Effective Time, except as
otherwise provided herein, all of the property, rights, privileges, powers
and
franchises of the Company and Acquisition Corp. shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and
Acquisition Corp. shall become the debts, liabilities and duties of the
Surviving Corporation. The Company acknowledges that, upon the effectiveness
of
the Merger, Parent shall have the absolute and unqualified right to deal with
the assets and business of the Surviving Corporation as its own property without
limitation on the disposition or use of such assets or the conduct of such
business.
Section
2.5
Closing
.
The
consummation of the transactions contemplated by this Agreement, including
the
Merger (the “
Closing
”),
shall
take place: (a) at the offices of Kronish Lieb Weiner & Hellman LLP, 1114
Avenue of the Americas, New York, New York at 10:00 a.m. local time on the
date
on which all of the conditions to the Closing set forth in
Article
VIII
hereof
shall be fulfilled or waived in accordance with this Agreement (other than
conditions that can be satisfied only at the Closing, but subject to the
fulfillment or waiver of those conditions at the Closing); or (b) at such other
place, time and date as the Company and Parent may agree in writing (the
“
Closing
Date
”).
ARTICLE
III
MERGER
CONSIDERATION; CONVERSION OF SECURITIES
Section
3.1
Manner
and Basis of Converting
Capital
Stock
.
At the
Effective Time, by virtue of the Merger and without any action on the part
of
the Company, Parent or Acquisition Corp. or the holders of any outstanding
shares of capital stock or other securities of the Company, Parent or
Acquisition Corp.:
(a)
Acquisition
Corp. Stock
.
Each
share of common stock, par value $.001 per share, of Acquisition Corp. issued
and outstanding immediately prior to the Effective Time shall be converted
into
and become one fully paid and nonassessable share of capital stock, par value
$.001 per share, of the Surviving Corporation, such that Parent shall be the
holder of all of the issued and outstanding shares of capital stock of the
Surviving Corporation following the Merger.
(b)
Company
Common Stock
.
Except
as provided in
Section
3.1(c)
and
Section
3.2(d)
hereof,
each share of Company Common Stock issued and outstanding immediately prior
to
the Effective Time shall be converted into the right to receive one (1) share
of
Parent Common Stock.
(c)
Treasury
Stock
.
Notwithstanding any provision of this Agreement to the contrary, each share
of
Company Common Stock held in the treasury of the Company immediately prior
to
the Effective Time shall be canceled in the Merger and shall not be converted
into the right to receive any shares of capital stock or other securities of
Parent.
(d)
No
Fractional Shares
.
No
fractional shares of Parent Common Stock shall be issued in, or as a result
of,
the Merger. Any fractional share of Parent Common Stock that a holder of record
of Company Common Stock would otherwise be entitled to receive as a result
of
the Merger shall be aggregated. If a fractional share of Parent Common Stock
results from such aggregation, the number of shares required to be issued to
such record holder shall be rounded up to the nearest whole number of shares
of
Parent Common Stock.
Section
3.2
Issuance
of Certificates
.
(a)
Certificates
.
Within
a reasonable time after the Effective Time, Parent shall cause to be mailed
and
issued to each former holder of record of Company Common Stock (as set forth
on
Schedule
4.3
)
that
was converted into the right to receive Parent Common Stock pursuant to
Section
3.1
hereof,
a
certificate or certificates registered in the name of such former record holder
representing the number of shares of Parent Common Stock that such former record
holder is entitled to receive in accordance with
Section
3.1
hereof.
(b)
Dissenting
Shares
.
Notwithstanding any provision of this Agreement to the contrary, shares of
Company Common Stock issued and outstanding immediately prior to the Effective
Time and held by a Stockholder who has not voted in favor of the Merger or
consented thereto in writing and who has demanded appraisal for such shares
of
Company Common Stock in accordance with Section 262 of the DGCL (“
Dissenting
Shares
”)
shall
not be entitled to vote for any purpose or receive dividends, shall not be
converted into the right to receive Parent Common Stock in accordance with
Section
3.1
hereof,
and shall only be entitled to receive such consideration as shall be determined
pursuant to Section 262 of the DGCL;
provided
,
however
,
that
if, after the Effective Time, such Stockholder fails to perfect or withdraws
or
loses his or her right to appraisal or otherwise fails to establish the right
to
be paid the value of such Stockholder’s shares of Company Common Stock under the
DGCL, such shares of Company Common Stock shall be treated as if they had
converted as of the Effective Time into the right to receive Parent Common
Stock
in accordance with
Section
3.1
hereof,
and such shares of Company Common Stock shall no longer be Dissenting
Shares.
(c)
Stock
Transfer Books
.
At the
Effective Time, the stock transfer books of the Company will be closed and
there
will be no further registration of transfers of shares of Company Common Stock
thereafter on the records of the Company.
Section
3.3
Options,
Warrants
.
(a)
Common
Stock Options
.
The
Company has issued and outstanding warrants and options to purchase shares
of
Company Common Stock (collectively, the “
Common
Stock Options
”).
At
the Effective Time, by virtue of the Merger and without any action on the part
of the Company, Parent or Acquisition Corp. or the holders of any outstanding
Common Stock Options, the right to acquire a share of Company Common Stock
under
each Common Stock Option shall be converted into the right to acquire one (1)
share of Parent Common Stock at an exercise price equal to the exercise price
stated in the Common Stock Option, subject in all respects to all other terms
and conditions of the Common Stock Option,
provided
,
however
,
that
with respect to Common Stock Options issued to employees, directors and
consultants of the Company prior to the Merger, as set forth on
Schedule
3.3
,
the
right to acquire shares of Parent Common Stock under this Section 3.3 by virtue
of the Merger shall be subject to and issued under Parent’s Stock Option Plan.
Except for the change in security underlying the Common Stock Options from
Company Common Stock to Parent Common Stock, it is the intent of the parties
hereto that the Common Stock Options shall continue after the Effective Time,
and that the terms and conditions of the Common Stock Options shall otherwise
remain unchanged.
(b)
No
Fractional Shares
.
Notwithstanding anything to the contrary in this
Section
3.3
,
no
fractional shares of the Parent Common Stock shall be issued in, or as a result
of, the Merger. Any fractional share of the Parent Common Stock that a Person
would otherwise be entitled to receive as a result of the transactions
referenced in this
Section
3.3
shall be
rounded up to the nearest whole number of shares of Parent Common
Stock.
Section
3.4
Parent
Common Stock
.
Parent
shall reserve a sufficient number of shares of Parent Common Stock to complete
the conversion and exchange of Company Common Stock into Parent Common Stock
contemplated by
Sections
3.1
and
3.2
hereof
and the issuance of any Parent Common Stock in accordance with
Section
3.3
.
Parent
covenants and agrees that immediately prior to the Effective Time there will
be
no more than 7,855,000 shares of Parent Common Stock issued and outstanding,
of
which 4,105,000 shares will be cancelled immediately following the Effective
Time, and that no other common or preferred stock or equity securities of the
Parent, or any options, warrants, rights or other agreements or instruments
convertible, exchangeable or exercisable into common or preferred stock or
equity securities of the Parent, shall be issued or outstanding at the Effective
Time.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company hereby represents and warrants to Parent as follows:
Section
4.1
Organization
.
The
Company (i) is duly organized, validly existing and in good standing (or its
equivalent) under the laws of the State of Delaware, (ii) has all licenses,
permits, authorizations and other Consents necessary to own, lease and operate
its properties and assets and to carry on its business as it is now being
conducted, except where such failure would not have, or be reasonably likely
to
have, a Company Material Adverse Effect, and (iii) has all requisite corporate
or other applicable power and authority to own, lease and operate its properties
and assets and to carry on its business as it is now being conducted, except
where such failure would not have, or be reasonably likely to have, a Company
Material Adverse Effect. The Company is duly qualified or authorized to conduct
business and is in good standing (or its equivalent) as a foreign corporation
or
other entity in all jurisdictions in which the ownership or use of its assets
or
nature of the business conducted by it makes such qualification or authorization
necessary, except where the failure to be so duly qualified, authorized and
in
good standing would not have a Company Material Adverse Effect. The Company
has
no subsidiaries.
Section
4.2
Authorization;
Validity of Agreement
.
The
Company has all requisite corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance by the Company of this Agreement and the
consummation of the transactions contemplated hereby, have been duly authorized
by the Board of Directors of the Company and no other action (except the
approval of the Stockholders solely with respect to consummation of the Merger)
on the part of the Company or any of its Stockholders or subsidiaries is
necessary to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Company (and assuming due and valid
authorization, execution and delivery hereof by Parent and Acquisition Corp.)
is
a valid and binding obligation of the Company, enforceable against the Company
in accordance with its terms, except as such enforcement is limited by
bankruptcy, insolvency and other similar laws affecting the enforcement of
creditors’ rights generally and by general principles of equity.
Section
4.3
Capitalization
.
As
of the
date hereof, the authorized capital stock of the Company consists of 300,000,000
shares of Company Common Stock. As of the date hereof, there are 20,340,929
shares of Company Common Stock issued and outstanding.
Schedule
4.3
sets
forth (i) the name of each Person owning shares of Company Common Stock and
(ii)
the number of shares of Company Common Stock owned by each such Person. All
the
outstanding shares of Company Common Stock are duly authorized, validly issued,
fully paid and non-assessable. There are issued and outstanding Company Stock
Options to purchase 1,697,648 shares of Company Common Stock.
In
addition, certain providers of legal services to the Company had the right
to be
issued approximately 997,000
shares
of
Company Common Stock as payment for accrued legal fees.
Section
4.4
Consents
and Approvals; No Violations
.
Except
for (a) approval of the Merger by the Stockholders and (b) filing of the
certificate of merger with the Secretary of State of the State of Delaware,
neither the execution, delivery or performance of this Agreement by the Company
nor the consummation of the transactions contemplated hereby will (i) violate
any provision of its certificate of incorporation or by-laws; (ii) violate,
conflict with or result in a breach of any provision of, or constitute a default
(or an event which, with notice or lapse of time or both, would constitute
a
default) under, require the consent of or result in the creation of any
encumbrance upon any of the properties of the Company under, any material note,
bond, mortgage, indenture, deed of trust, license, franchise, permit, lease,
contract, agreement or other instrument (collectively, “
Contract
”)
to
which the Company or any of its properties may be bound; (iii) require any
Consent, approval or authorization of, or notice to, or declaration, filing
or
registration with, any governmental entity by or with respect to the Company;
or
(iv) violate any order, writ, judgment, injunction, decree, law, statute, rule
or regulation applicable to the Company or any of its properties or
assets.
Section
4.5
Financial
Statements
.
The
Company has delivered or made available as of the date hereof or shall, prior
to
the Closing Date, deliver or make available to Parent the balance sheet (the
“
Balance
Sheet
”)
of the
Company as at March 31, 2006 and the related statements of income, stockholders’
equity and cash flows of the Company for the three months ended March 31, 2006
(the “
Balance
Sheet Date
”).
The
foregoing financial statements (i) have been prepared based upon the books
and
records of the Company, (ii) have been prepared in accordance with GAAP (except
as otherwise noted therein), and (iii) present fairly, in all material respects,
the financial position, results of operations and cash flows of the Company
as
at their respective dates and for the periods then ended subject to normal
year-end adjustments.
Section
4.6
No
Undisclosed Liabilities
.
Except
(a) for Liabilities described on or reflected on the face of the Balance Sheet
and (b) Liabilities of the same type, magnitude and scope as those reflected
on
the Balance Sheet which have arisen since the date of the Balance Sheet in
the
ordinary course of business, and which would not, individually or in the
aggregate, result in a Company Material Adverse Effect, the Company does not
have any Liability.
Section
4.7
Litigation
.
Except
as set forth on
Schedule
4.7
,
there
is no Action pending or, to the knowledge of the Company, threatened, involving
the Company with respect to the Company’s business by or before any governmental
entity or by any third party and the Company has not received notice that any
such Action is threatened. The Company is not in default under any judgment,
order or decree of any governmental entity applicable to its
business.
Section
4.8
No
Default; Compliance with Applicable Laws
.
The
Company is not in default or violation of any material term, condition or
provision of (i) its certificate of incorporation or by-laws or (ii) any law
applicable to the Company or its property and assets, except where such default
or violation would not have, or be reasonably likely to have, a Company Material
Adverse Effect, and the Company has not received notice of any violation of
or
Liability under any of the foregoing (whether material or not).
Section
4.9
Broker’s
and Finder’s Fees
.
No
Person has, or as a result of the transactions contemplated or described herein
will have, any right or valid claim against the Company, Parent, Acquisition
Corp. or any Stockholder for any commission, fee or other compensation as a
finder or broker, or in any similar capacity, with respect to the consummation
of the Merger.
Section
4.10
Assets
and Contracts
.
Except
for this Agreement and except as described in
Schedule
4.10
,
the
Company is not a party to any Contract not made in the ordinary course of
business that is material to the Company, (a) with a labor union, (b) for the
purchase of fixed assets or for the purchase of materials, supplies or equipment
in excess of $100,000, (c) for the employment of any officer, individual
employee or other Person on a full-time basis, (d) with respect to bonus,
pension, profit sharing, retirement, stock purchase, deferred compensation,
medical, hospitalization or life insurance or similar plan, contract or
understanding for any or all of the employees of the Company or any other
Person, (e) relating to or evidencing Indebtedness for Borrowed Money or
subjecting any asset or property of the Company to any Lien or evidencing any
Indebtedness, (f) guaranteeing any Indebtedness, (g) under which the Company
is
lessee of or holds or operates any property, real or personal, owned by any
other Person under which payments to such Person exceed $100,000 per year and
with an unexpired term (including any period covered by an option to renew
exercisable by any other party) of more than 60 days, (h) under which the
Company is lessor or permits any Person to hold or operate any property, real
or
personal, owned or controlled by the Company, (i) granting any preemptive right,
right of first refusal or similar right to any Person, (j) obligating the
Company to pay any royalty or similar charge for the use or exploitation of
any
tangible or intangible property, (k) containing a covenant not to compete or
other restriction on the Company’s ability to conduct a business or engage in
any other activity, (l) with respect to any distributor, dealer, manufacturer’s
representative, sales agency, franchise or advertising contract or commitment
in
excess of $100,000 per year, (m) regarding registration of securities under
the
Securities Act, (n) characterized as a collective bargaining agreement, or
(o)
with any Person continuing for a period of more than three months from the
Closing Date which involves an expenditure or receipt by the Company in excess
of $100,000.
The
Company has made available to Parent and Acquisition Corp. true and complete
copies of all Contracts and other documents requested by Parent or Acquisition
Corp.
Section
4.11
Tax
Returns and Audits
.
Except
as set forth on
Schedule
4.11
or as
would not have a Material Adverse Effect, all required federal, state and local
Tax Returns of the Company have been accurately prepared and duly filed, and
all
federal, state and local Taxes required to be paid with respect to the periods
covered by such returns have been paid. The Company is not and has not been
delinquent in the payment of any Tax. The Company has not had a Tax deficiency
proposed or assessed against it and has not executed a waiver of any statute
of
limitations on the assessment or collection of any Tax. None of the Company’s
federal income Tax Returns nor any state or local income or franchise Tax
Returns has been audited by governmental authorities. The reserves for Taxes
reflected on the Balance Sheet (if any) are and will be sufficient for the
payment of all unpaid Taxes payable by the Company as of the Balance Sheet
Date.
Since the Balance Sheet Date, the Company has made adequate provisions on its
books of account for all Taxes with respect to its business, properties and
operations for such period. The Company has withheld or collected from each
payment made to each of its employees the amount of all Taxes (including, but
not limited to, federal, state and local income taxes, Federal Insurance
Contribution Act taxes and Federal Unemployment Tax Act taxes) required to
be
withheld or collected therefrom, and has paid the same to the proper Tax
receiving officers or authorized depositaries. Except as set forth on
Schedule
4.11
,
there
are no federal, state, local or foreign audits, actions, suits, proceedings,
investigations, claims or administrative proceedings relating to Taxes or any
Tax Returns of the Company now pending, and the Company has not received any
notice of any proposed audits, investigations, claims or administrative
proceedings relating to Taxes or any Tax Returns.
Section
4.12
Patents
and Other Intangible Assets
.
Except
as
set forth in
Schedule
4.7
,
the
Company (i) owns or has the right to use, free and clear of all Liens, all
patents, trademarks, service marks, trade names, copyrights, licenses and rights
with respect to the foregoing used in or necessary for the conduct of its
business without infringing upon or otherwise acting adversely to the right
or
claimed right of any Person under or with respect to any of the foregoing and
(ii) is not obligated or under any obligation to make any payments by way of
royalties, fees or otherwise to any owner or licensor of, or other claimant
to,
any patent, trademark, service mark, trade name, copyright or other intangible
asset, with respect to the use thereof or in connection with the conduct of
its
business or otherwise.
Section
4.13
Employee
Benefit Plans; ERISA
.
(a)
All
employee benefit plans, within the meaning of Section 3(3) of the ERISA, of
the
Company (“Employee Benefit Plans”) and other employee benefit or fringe benefit
arrangements, practices, contracts, policies or programs of every type, other
than programs merely involving the regular payment of wages, commissions, or
bonuses established, maintained or contributed to by the Company, whether
written or unwritten and whether or not funded, are
in
material compliance with the applicable requirements of ERISA, the Code and
any
other applicable state, federal or foreign law.
(b)
There
are
no pending claims or lawsuits that have been asserted or instituted against
any
Employee Benefit Plan, the assets of any of the trusts or funds under the
Employee Benefit Plans, the plan sponsor or the plan administrator of any of
the
Employee Benefit Plans or against any fiduciary of an Employee Benefit Plan
with
respect to the operation of such plan, nor does the Company have any knowledge
of any incident, transaction, occurrence or circumstance which might reasonably
be expected to form the basis of any such claim or lawsuit.
(c)
There
is
no pending or, to the knowledge of the Company, contemplated investigation,
or
pending or possible enforcement action by the Pension Benefit Guaranty
Corporation, the Department of Labor, the Internal Revenue Service or any other
government agency with respect to any Employee Benefit Plan and the Company
has
no knowledge of any incident, transaction, occurrence or circumstance which
might reasonably be expected to trigger such an investigation or enforcement
action.
(d)
No
actual
or, to the knowledge of the Company, contingent Liability exists with respect
to
the funding of any Employee Benefit Plan or for any other expense or obligation
of any Employee Benefit Plan, except as disclosed on the Balance Sheet, and
no
contingent Liability exists under ERISA with respect to any “multi-employer
plan,” as defined in Section 3(37) or Section 4001(a)(3) of ERISA.
(e)
No
events
have occurred or are reasonably expected to occur with respect to any Employee
Benefit Plan that would cause a material change in the costs of providing
benefits under such Employee Benefit Plan or would cause a material change
in
the cost of providing such Employee Benefit Plan.
Section
4.14
Title
to
Property and Encumbrances
.
The
Company has good and valid title to all properties and assets used in the
conduct of its business (except for property held under valid and subsisting
leases which are in full force and effect and which are not in default) free
of
all Liens except Permitted Liens and such ordinary and customary imperfections
of title, restrictions and encumbrances as do not, individually or in the
aggregate, constitute a Company Material Adverse Effect.
Section
4.15
Condition
of Properties
.
All
facilities, machinery, equipment, fixtures and other properties owned, leased
or
used by the Company are in operating condition, subject to ordinary wear and
tear, and are adequate and sufficient for the Company’s existing
business.
Section
4.16
Insurance
Coverage
.
Schedule
4.16
sets
forth a true, correct and complete list of all material insurance policies
maintained by or on behalf of
the
Company
and
relating to its business and/or assets, indicating the type of coverage, name
of
insurance carrier or underwriter, premium thereon, policy limits and expiration
date of each policy. All such insurance policies are in full force and effect,
and
the
Company
is
not in
default with respect to its obligations under any such insurance policy, except
with respect to any such default which would not have a Company Material Adverse
Effect, and no notice of cancellation or termination has been received with
respect to any such policy.
Section
4.17
Interested
Party Transactions
.
Except
as disclosed in
Schedule
4.10
,
the
Company
is
not a
party to any contract, lease, license, commitment or arrangement, written or
oral, which, were the Company a “Registrant” under the Exchange Act, would be
required to be disclosed pursuant to Item 404(a) or (d) of Regulation S-B
promulgated by the Commission, and there are no loans outstanding to or from
any
Person specified in Item 404(a) of Regulation S-B from or to the
Company.
Section
4.18
Environmental
Matters
.
(a)
To
the
knowledge of the Company, the Company has never generated, used, handled,
treated, released, stored or disposed of any Hazardous Materials on any real
property on which it now has or previously had any leasehold or ownership
interest, except in compliance with all applicable Environmental
Laws.
(b)
To
the
knowledge of the Company, the historical and present operations of the business
of the Company are in compliance with all applicable Environmental Laws, except
where any non-compliance has not had and would not reasonably be expected to
have a Company Material Adverse Effect.
(c)
There
are
no pending or, to the knowledge of the Company, threatened, material demands,
claims, information requests or notices of noncompliance or violation against
or
to the Company relating to any Environmental Law; and, to the knowledge of
the
Company, there are no conditions or occurrences on any of the real property
used
by the Company in connection with its business that would reasonably be expected
to lead to any such demands, claims or notices against or to the Company, except
such as have not had, and would not reasonably be expected to have, a Company
Material Adverse Effect.
(d)
To
the
knowledge of the Company, (i) the Company has not, sent or disposed of,
otherwise had taken or transported, arranged for the taking or disposal of
(on
behalf of itself, a customer or any other party) or in any other manner
participated or been involved in the taking of or disposal or release of a
Hazardous Material to or at a site that is contaminated by any Hazardous
Material or that, pursuant to any Environmental Law, (A) has been placed on
the
“National Priorities List”, the “CERCLIS” list, or any similar state or federal
list, or (B) is subject to or the source of a claim, an administrative order
or
other request to take “removal”, “remedial”, “corrective” or any other
“response” action, as defined in any Environmental Law, or to pay for the costs
of any such action at the site; (ii) the Company is not involved in (and has
no
basis to reasonably expect to be involved in) any suit or proceeding and has
not
received (and has no basis to reasonably expect to receive) any notice, request
for information or other communication from any governmental authority or other
third party with respect to a release or threatened release of any Hazardous
Material or a violation or alleged violation of any Environmental Law, and
has
not received (and has no basis to reasonably expect to receive) notice of any
claims from any Person relating to property damage, natural resource damage
or
to personal injuries from exposure to any Hazardous Material; and (iii) the
Company has timely filed every report required to be filed, acquired all
necessary certificates, approvals and permits, and generated and maintained
all
required data, documentation and records under all Environmental Laws, in all
such instances except where the failure to do so would not reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect.
Section
4.19
Disclosure
.
No
representation or warranty by the Company herein and no information disclosed
in
the schedules hereto by the Company contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
contained herein or therein not misleading.
ARTICLE
V
REPRESENTATIONS
AND WARRANTIES OF PARENT AND ACQUISITION CORP.
Parent
and Acquisition Corp. hereby represent and warrant to the Company as
follows:
Section
5.1
Organization
.
Each of
Parent and Acquisition Corp. is duly organized, validly existing and in good
standing under the laws of its State of incorporation or organization. Since
the
date of its formation, except as disclosed in the SEC Documents, Parent has
not
(i) engaged in any business activities or conducted any operations other than
in
connection with its organization and the transactions contemplated by this
Agreement, or (ii) owned any assets or property (other than cash and cash
equivalents).
Section
5.2
Authorization;
Validity of Agreement
.
Each of
Parent and Acquisition Corp. has all requisite corporate power and authority
to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by each of Parent
and Acquisition Corp. of this Agreement and all other agreements and instruments
to be executed pursuant to this Agreement, and the consummation of the
transactions contemplated hereby, have been duly authorized by the Board of
Directors of each of Parent and Acquisition Corp. and the stockholders of
Acquisition Corp., and no other action on the part of either of Parent and
Acquisition Corp. is necessary to authorize the execution and delivery of this
Agreement and the consummation by either of Parent or Acquisition Corp. of
the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Parent and Acquisition Corp. (and assuming due and valid
authorization, execution and delivery hereof by the Company) is a valid and
binding obligation of each of Parent and Acquisition Corp., enforceable against
each of them in accordance with its terms, except as such enforcement is limited
by bankruptcy, insolvency and other similar laws affecting the enforcement
of
creditors’ rights generally and by general principles of equity.
Section
5.3
Consents
and Approvals; No Violations
.
Except
for filing of the certificate of merger with the Secretary of State of the
State
of Delaware, neither the execution, delivery or performance of this Agreement
by
either of Parent and Acquisition Corp. nor the consummation of the transactions
contemplated hereby will (i) violate any provision of the certificate of
incorporation or by-laws of Parent or Acquisition Corp.; (ii) violate, conflict
with or result in a breach of any provision of, or constitute a default (or
an
event which, with notice or lapse of time or both, would constitute a default)
under, require the consent of or result in the creation of any Lien upon any
of
the properties of Parent or Acquisition Corp. under, any Contract to which
Parent or Acquisition Corp. or any of their properties may be bound; (iii)
require any Consent, approval or authorization of, or notice to, or declaration,
filing or registration with, any governmental entity by or with respect to
Parent or any subsidiary of Parent, or (iv) violate any law applicable to any
of
Parent or Acquisition Corp. or any of their respective properties or
assets.
Section
5.4
Litigation
.
There
is no Action pending or, to the knowledge of the Parent, threatened, involving
Parent and Acquisition Corp. or any subsidiary of Parent with respect to
Parent’s and Acquisition Corp.’s, or any of Parent’s subsidiaries, business by
or before any governmental entity or by any third party and neither Parent
or
Acquisition Corp. nor any subsidiary of Parent has received notice that any
such
Action is threatened. Neither Parent or Acquisition Corp. nor any subsidiary
of
Parent is in default under any judgment, order or decree of any governmental
entity applicable to its business.
Section
5.5
No
Default; Compliance with Applicable Laws
.
Neither
Parent nor any of Parent’s subsidiaries is in default or violation of any
material term, condition or provision of (i) their respective certificate of
incorporation, by-laws or similar organizational documents or (ii) any law
applicable to Parent or any of Parent’s subsidiaries or its property and assets
and neither Parent nor any of Parent’s subsidiaries has received notice of any
violation of or Liability under any of the foregoing (whether material or
not).
Section
5.6
Broker’s
and Finder’s Fees; Broker/Dealer Ownership
.
Except
as set forth on
Schedule
4.9
,
no
person, firm, corporation or other entity is entitled by reason of any act
or
omission of Parent or Acquisition Corp. to any broker’s or finder’s fees,
commission or other similar compensation with respect to the execution and
delivery of this Agreement or with respect to the consummation of the
transactions contemplated hereby.
Section
5.7
Capitalization
of Parent
.
The
authorized capital stock of Parent consists of (a) 100,000,000 shares of Parent
Common Stock, of which not more than 3,750,000 shares will be, immediately
following the Effective Time, issued and outstanding without taking into
consideration the issuance of Parent Common Stock in the Merger, (but taking
into consideration the cancellation of 4,105,000 shares of Parent Common Stock
as set forth in Section 3.4) and (b) 100,000,000 shares of preferred stock,
none of which shall have been designated or issued immediately following the
Effective Time.
Schedule
5.
7
sets
forth a true and complete list of the stockholders of Parent and the number
of
shares of Parent Common Stock owned by each such stockholder on the date shown.
Parent has no outstanding options, rights or commitments to issue shares of
Parent Common Stock or any capital stock or other securities of Parent or
Acquisition Corp., and there are no outstanding securities convertible or
exercisable into or exchangeable for shares of Parent Common Stock or any
capital stock or other securities of Parent or Acquisition Corp. There is no
voting trust, agreement or arrangement among any of the beneficial holders
of
Parent Common Stock affecting the nomination or election of directors or the
exercise of the voting rights of Parent Common Stock. All outstanding shares
of
the capital stock of Parent are validly issued and outstanding, fully paid
and
nonassessable, and none of such shares have been issued in violation of the
preemptive rights of any person.
Section
5.8
Acquisition
Corp
.
Acquisition Corp. is a Delaware corporation and a wholly-owned subsidiary of
Parent, was formed specifically for the purpose of the Merger and has not
conducted any business or acquired any property, and will not conduct any
business or acquire any property prior to the Closing Date, except in
preparation for and otherwise in connection with the transactions contemplated
by this Agreement. Parent owns all of the issued and outstanding capital stock
of Acquisition Corp. free and clear of all Liens, and Acquisition Corp. has
no
outstanding options, warrants or rights to purchase capital stock or other
securities of the Acquisition Corp., other than the capital stock of Acquisition
Corp. owned by Parent. Except for Acquisition Corp., the Parent has no
subsidiaries.
Section
5.9
Validity
of Shares
.
The
shares of Parent Common Stock to be issued in accordance with
Article
III
hereof,
when issued and delivered in accordance with the terms hereof, shall be duly
and
validly issued, fully paid and nonassessable.
Section
5.10
SEC
Reporting and Compliance
.
(a)
Parent
has filed with the Commission all registration statements, proxy statements,
information statements and reports required to be filed pursuant to the Exchange
Act. Parent has not filed with the Commission a certificate on Form 15 pursuant
to Rule 12h-3 of the Exchange Act.
(b)
Parent
has delivered to the Company true and complete copies of the registration
statements, information statements and other reports (collectively, the
“
Parent
SEC Documents
”)
filed
by the Parent with the Commission. None of the Parent SEC Documents, as of
their
respective dates, contained any untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements contained
therein not misleading.
(c)
Parent
has not filed, and nothing has occurred with respect to which Parent would
be
required to file, any report on Form 8-K since February 28, 2006. Prior to
and
until the Closing, Parent will provide to the Company copies of any and all
amendments or supplements to the Parent SEC Documents filed with the Commission
since February 28, 2006 and all subsequent registration statements and reports
filed by Parent subsequent to the filing of the Parent SEC Documents with the
Commission and any and all subsequent information statements, proxy statements,
reports or notices filed by the Parent with the Commission or delivered to
the
stockholders of Parent.
(d)
Parent
is
not an “investment company” within the meaning of Section 3 of the Investment
Company Act.
(e)
Between
the date hereof and the Closing Date, Parent shall continue to satisfy the
filing requirements of the Exchange Act and all other requirements of applicable
securities laws.
(f)
To
the
best knowledge of the Parent, the Parent has complied with the Securities Act,
Exchange Act and all other applicable federal and state securities
laws.
Section
5.11
Financial
Statements
.
The
balance sheets, and statements of income, stockholders’ equity and cash flows
contained in the Parent SEC Documents (the “
Parent
Financial Statements
”)
(i)
have been prepared in accordance with GAAP, (ii) are in accordance with the
books and records of the Parent, and (iii) present fairly in all material
respects the financial condition of the Parent at the dates therein specified
and the results of its operations and changes in financial position for the
periods therein specified.
During
the two most recent fiscal years of the Parent and the subsequent interim period
through February 28, 2006, there were no disagreements between Gilder the Parent
and its independent auditors as to any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which
disagreements, if not resolved to the satisfaction of those independent
auditors, would have caused those independent auditors to make reference in
their reports on the financial statements for such years to the subject matter
of the disagreement.
Section
5.12
No
General Solicitation
.
In
issuing Parent Common Stock in the Merger hereunder, neither Parent nor anyone
acting on its behalf has offered to sell Parent Common Stock by any form of
general solicitation or advertising.
Section
5.13
Absence
of Undisclosed Liabilities
.
Neither
Parent nor Acquisition Corp. has any Liability arising out of any transaction
entered into at or prior to the Closing, except (a) as disclosed in the Parent
SEC Documents, (b) to the extent set forth on or reserved against in the balance
sheet of Parent as at February 28, 2006 (the “
Parent
Balance Sheet
”)
or the
notes to the Parent Financial Statements, and (c) by the specific terms of
any
written agreement, document or arrangement attached as an exhibit to the Parent
SEC Documents.
Section
5.14
Changes
.
Since
February 28, 2006 (the “
Parent
Balance Sheet Date
”),
except as disclosed in the Parent SEC Documents, the Parent has not (a) incurred
any debts, obligations or Liabilities, absolute, accrued or, to the Parent’s
knowledge, contingent, whether due or to become due, except for current
Liabilities incurred in the usual and ordinary course of business, (b)
discharged or satisfied any Liens other than those securing, or paid any
obligation or Liability other than, current liabilities shown on the Parent
Balance Sheet and current Liabilities incurred since the Parent Balance Sheet
Date, in each case in the usual and ordinary course of business, (c) mortgaged,
pledged or subjected to Lien any of its assets, tangible or intangible, other
than in the usual and ordinary course of business, (d) sold, transferred or
leased any of its assets, except in the usual and ordinary course of business,
(e) cancelled or compromised any debt or claim, or waived or released any right
of material value, (f) suffered any physical damage, destruction or loss
(whether or not covered by insurance) that could reasonably be expected to
have
a Parent Material Adverse Effect, (g) entered into any transaction other than
in
the usual and ordinary course of business, (h) encountered any labor union
difficulties, (i) made or granted any wage or salary increase or made any
increase in the amounts payable under any profit sharing, bonus, deferred
compensation, severance pay, insurance, pension, retirement or other employee
benefit plan, agreement or arrangement, other than in the ordinary course of
business consistent with past practice, or entered into any employment
agreement, (j) except as set forth on
Schedule
5.7
,
issued
or sold any shares of capital stock, bonds, notes, debentures or other
securities or granted any options (including employee stock options), warrants
or other rights with respect thereto, (k) declared or paid any dividends on
or
made any other distributions with respect to, or purchased or redeemed, any
of
its outstanding capital stock, (l) suffered or experienced any change in, or
condition affecting, the financial condition of the Parent other than changes,
events or conditions in the usual and ordinary course of its business, none
of
which (either by itself or in conjunction with all such other changes, events
and conditions) could reasonably be expected to have a Parent Material Adverse
Effect, (m) made any change in the accounting principles, methods or practices
followed by it or depreciation or amortization policies or rates theretofore
adopted, (n) made or permitted any amendment or termination of any material
Contract, agreement or license to which it is a party, (o) suffered any material
loss not reflected in the Parent Balance Sheet or its statement of income for
the year ended on the Parent Balance Sheet Date, (p) paid, or made any accrual
or arrangement for payment of, bonuses or special compensation of any kind
or
any severance or termination pay to any present or former officer, director,
employee, stockholder or consultant, (q) made or agreed to make any charitable
contributions or incurred any non-business expenses in excess of $1,000 in
the
aggregate, or (r) entered into any Contract, agreement or license, or otherwise
obligated itself, to do any of the foregoing.
Section
5.15
Tax
Returns and Audits
.
All
required federal, state and local Tax Returns of the Parent have been accurately
prepared in all material respects and duly filed, and all federal, state and
local Taxes required to be paid with respect to the periods covered by such
returns have been paid to the extent that the same are material and have become
due, except where the failure so to file or pay could not reasonably be expected
to have a Parent Material Adverse Effect. The Parent is not and has not been
delinquent in the payment of any Tax. The Parent has not had a Tax deficiency
assessed against it. None of the Parent’s federal income Tax Returns nor any
state or local income or franchise Tax Returns has been audited by governmental
authorities. The reserves for Taxes reflected on the Parent Balance Sheet are
sufficient for the payment of all unpaid Taxes payable by the Parent with
respect to the period ended on the Parent Balance Sheet Date. There are no
federal, state, local or foreign audits, actions, suits, proceedings,
investigations, claims or administrative proceedings relating to Taxes or any
Tax Returns of the Parent now pending, and the Parent has not received any
notice of any proposed audits, investigations, claims or administrative
proceedings relating to Taxes or any Tax Returns.
Section
5.16
Employee
Benefit Plans; Labor
.
(a)
Parent
has no “employee benefit plans” (within the meaning of Section 3(3) of ERISA)
nor any other employee benefit or fringe benefit arrangements, practices,
contracts, policies or programs other than programs merely involving the regular
payment of wages, commissions, or bonuses established, maintained or contributed
to by the Parent.
(b)
Parent
has no employees, and except as disclosed in the SEC Documents, and is
not a party to any employment or consulting agreements, compensation plans,
bonus plans, or other similar agreement or arrangement. Parent is not under
any
obligation or liability to any current or former officer, director, employee
or
Affiliate of Parent.
(c)
Neither
the execution and delivery of this Agreement nor the consummation of the Merger
will entitle any current or former employee of Parent or any of its Affiliates
to severance pay or other similar payment, or accelerate the time of payment
or
increase the amount of compensation due to any such employee or former
employee.
Section
5.17
Interested
Party Transactions
.
Except
as disclosed in the Parent SEC Documents, Parent
is
not a
party to any contract, lease, license, commitment or arrangement, written or
oral, which would be required to be disclosed pursuant to Item 404(a) or (d)
of
Regulation S-B promulgated by the Commission, and there are no loans outstanding
to or from any Person specified in Item 404(a) of Regulation S-B from or to
the
Parent.
Section
5.18
Questionable
Payments
.
Neither
the Parent, Acquisition Corp. nor to the knowledge of the Parent, any director,
officer, agent, employee or other Person associated with or acting on behalf
of
the Parent or Acquisition Corp., has a used any corporate funds for (a) unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, (b) made any direct or indirect unlawful payments to
government officials or employees from corporate funds, (c) established or
maintained any unlawful or unrecorded fund of corporate monies or other assets,
(d) made any false or fictitious entries on the books of record of any such
corporations, or (e) made any bribe, rebate, payoff, influence payment, kickback
or other unlawful payment.
Section
5.19
Obligations
to or by Stockholders
.
Except
as disclosed in the Parent SEC Documents, the Parent has no Liability or
obligation or commitment to any stockholder of Parent or any Affiliate or
“associate” (as such term is defined in Rule 405 under the Securities Act) of
any stockholder of Parent, nor does any stockholder of Parent or any such
Affiliate or associate have any Liability, obligation or commitment to the
Parent.
Section
5.20
Assets
and Contracts
.
Except
as expressly set forth in this Agreement, the Parent Balance Sheet or the notes
thereto, the Parent is not a party to any Contract, including, without
limitation, (a) with any labor union, (b) for the purchase of fixed assets
or
for the purchase of materials, supplies or equipment in excess of normal
operating requirements, (c) for the employment of any officer, individual
employee or other Person on a full-time basis or any contract with any Person
for consulting services, (d) with respect to bonus, pension, profit sharing,
retirement, stock purchase, stock option, deferred compensation, medical,
hospitalization or life insurance or similar plan, contract or understanding
with any or all of the employees of Parent or any other Person, (e) relating
to
or evidencing Indebtedness for Borrowed Money or subjecting any asset or
property of Parent to any Lien or evidencing any Indebtedness, (f) guaranteeing
of any Indebtedness, (g) under which Parent is lessee of or holds or operates
any property, real or personal, owned by any other Person, (h) under which
Parent is lessor or permits any Person to hold or operate any property, real
or
personal, owned or controlled by Parent, (i) granting any preemptive right,
right of first refusal or similar right to any Person, (j) with any Affiliate
of
Parent or any present or former officer, director or stockholder of Parent,
(k)
obligating Parent to pay any royalty or similar charge for the use or
exploitation of any tangible or intangible property, (1) containing a covenant
not to compete or other restriction on the parent’s ability to conduct a
business or engage in any other activity, (m) with respect to any distributor,
dealer, manufacturer’s representative, sales agency, franchise or advertising
contract or commitment, (n) regarding the registration of securities under
the
Securities Act, (o) characterized as a collective bargaining agreement, or
(p)
with any Person continuing for a period of more than three months from the
Closing Date that involves an expenditure or receipt by Parent in excess of
$1,000. Parent does not own any real property. The Parent maintains no insurance
policies and insurance coverage of any kind with respect to Parent, its
business, premises, properties, assets, employees and agents. Parent has
furnished to the Company true and complete copies of all agreements and other
documents requested by the Company.
Section
5.21
Environmental
Matters
.
(a)
The
Parent has never generated, used, handled, treated, released, stored or disposed
of any Hazardous Materials on any real property on which it now has or
previously had any leasehold or ownership interest, except in compliance with
all applicable Environmental Laws.
(b)
The
historical and present operations of the business of the Parent comply with
all
applicable Environmental Laws, except where any non-compliance has not had
and
would not reasonably be expected to have a Parent Material Adverse
Effect.
(c)
There
are
no pending or, to the knowledge of Parent, threatened, demands, claims,
information requests or notices of noncompliance or violation against or to
the
Parent relating to any Environmental Law; and, to the knowledge of the Parent,
there are no conditions or occurrences on any of the real property used by
the
Parent that would reasonably be expected to lead to any such demands, claims
or
notices against or to the Parent, except such as have not had, and would not
reasonably be expected to have, a Parent Material Adverse Effect.
(d)
(i)
The
Parent has not, sent or disposed of, otherwise had taken or transported,
arranged for the taking or disposal of (on behalf of itself, a customer or
any
other party) or in any other manner participated or been involved in the taking
of or disposal or release of a Hazardous Material to or at a site that is
contaminated by any Hazardous Material or that, pursuant to any Environmental
Law, (A) has been placed on the “National Priorities List”, the “CERCLIS” list,
or any similar state or federal list, or (B) is subject to or the source of
a
claim, an administrative order or other request to take “removal”, “remedial”,
“corrective” or any other “response” action, as defined in any Environmental
Law, or to pay for the costs of any such action at the site; (ii) the Parent
is
not involved in (and has no basis to reasonably expect to be involved in) any
suit or proceeding and has not received (and has no basis to reasonably expect
to receive) any notice, request for information or other communication from
any
governmental authority or other third party with respect to a release or
threatened release of any Hazardous Material or a violation or alleged violation
of any Environmental Law, and has not received (and has no basis to reasonably
expect to receive) notice of any claims from any Person relating to property
damage, natural resource damage or to personal injuries from exposure to any
Hazardous Material; and (iii) the Parent has timely filed every report required
to be filed, acquired all necessary certificates, approvals and permits, and
generated and maintained all required data, documentation and records under
all
Environmental Laws, in all such instances except where the failure to do so
would not reasonably be expected to have, individually or in the aggregate,
a
Parent Material Adverse Effect.
Section
5.22
Disclosure
.
No
representation or warranty by Parent or Acquisition Corp. herein and no
information disclosed in the schedules hereto by Parent or Acquisition Corp.
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein or therein
misleading.
ARTICLE
VI
CONDUCT
OF BUSINESSES PENDING THE MERGER
Section
6.1
Conduct
of Business by the Company Pending the Merger
.
Prior
to the Effective Time, unless Parent or Acquisition Corp. shall otherwise agree
in writing or as otherwise contemplated by this Agreement:
(i)
the
business of the Company shall be conducted only in the ordinary course
consistent with the past practice;
(ii)
the
Company shall not (A) directly or indirectly redeem, purchase or otherwise
acquire or agree to redeem, purchase or otherwise acquire any shares
Company
Capital Stock; (B) amend its certificate of incorporation or by-laws except
to
effectuate the transactions contemplated in this Agreement; or (C) split,
combine or reclassify the outstanding Company Common Stock or declare, set
aside
or pay any dividend payable in cash, stock or property or make any distribution
with respect to any such stock;
(iii)
the
Company shall not (A) issue any additional shares of, or options, warrants
or
rights of any kind to acquire any shares of, Company Capital Stock, except
to
issue shares of Company Common Stock in connection with the exercise of Common
Stock Options; (B) acquire or dispose of any fixed assets or acquire or dispose
of any other substantial assets other than in the ordinary course of business;
(C) incur additional Indebtedness or any other Liabilities or enter into any
other transaction other than in the ordinary course of business; (D) enter
into
any Contract, agreement, commitment or arrangement with respect to any of the
foregoing except this Agreement; or (E) except as contemplated by this
Agreement, enter into any Contract, agreement, commitment or arrangement to
dissolve, merge, consolidate or enter into any other material business
combination;
(iv)
the
Company shall use its reasonable best efforts to preserve intact the business
of
the Company, to keep available the service of its present officers and key
employees, and to preserve the good will of those having business relationships
with it; and
(v)
the
Company will not enter into any new employment agreements with any of its
officers or employees or grant any increases in the compensation or benefits
of
its officers and employees or amend any employee benefit plan or arrangement
other than in the ordinary course of business and consistent with past
practice.
Section
6.2
Conduct
of Business by Parent and Acquisition Corp. Pending the Merger
.
Prior
to the Effective Time, unless the Company shall otherwise agree in writing
or as
otherwise contemplated expressly permitted by this Agreement:
(i)
neither
the Parent nor Acquisition Corp. shall conduct any business other than in
connection with effecting the transactions contemplated hereby;
(ii)
neither
Parent nor Acquisition Corp. shall (A) directly or indirectly redeem, purchase
or otherwise acquire or agree to redeem, purchase or otherwise acquire any
shares of its capital stock; (B) amend its certificate of incorporation or
by-laws; or (C) split, combine or reclassify its capital stock or declare,
set
aside or pay any dividend payable in cash, stock or property or make any
distribution with respect to such stock; and
(iii)
neither
Parent nor Acquisition Corp. shall (A) issue or agree to issue any additional
shares of, or options, warrants or rights of any kind to acquire shares of,
its
capital stock; (B) acquire or dispose of any assets other than in the ordinary
course of business; (C) incur additional Indebtedness or any other Liabilities
or enter into any other transaction except in the ordinary course of business;
(D) enter into any Contract, agreement, commitment or arrangement with respect
to any of the foregoing except this Agreement, or (E) except as contemplated
by
this Agreement, enter into any Contract, agreement, commitment or arrangement
to
dissolve, merge; consolidate or enter into any other material business contract
or enter into any negotiations in connection therewith.
(iv)
neither
Parent nor Acquisition Corp. will, nor will they authorize any director or
authorize or permit any officer or employee or any attorney, accountant or
other
representative retained by them to, make, solicit, encourage any inquiries
with
respect to, or engage in any negotiations concerning, any Acquisition Proposal
(as defined below). Parent will promptly advise the Company in writing of any
such inquiries or Acquisition Proposal (or requests for information) and the
substance thereof. As used in this paragraph, “
Acquisition
Proposal
”
shall
mean any proposal for a merger or other business combination involving the
Parent or Acquisition Corp. or for the acquisition of a substantial equity
interest in either of them or any material assets of either of them other than
as contemplated by this Agreement. Parent will immediately cease and cause
to be
terminated any existing activities, discussions or negotiations with any Person
conducted heretofore with respect to any of the foregoing; and
(v)
neither
Parent nor Acquisition Corp. will enter into any employment agreements with
any
Person or grant any increases in the compensation or benefits of their officers
and employees.
ARTICLE
VII
ADDITIONAL
AGREEMENTS
Section
7.1
Access
and Information
.
The
Company, Parent and Acquisition Corp. shall each afford to the other and to
the
other’s accountants, counsel and other representatives reasonable access during
normal business hours throughout the period prior to the Effective Time of
all
of its properties, books, contracts, commitments and records (including but
not
limited to Tax Returns) and during such period, each shall furnish promptly
to
the other all information concerning its business, properties and personnel
as
such other party may reasonably request, provided that no investigation pursuant
to this
Section
7.1
shall
affect any representations or warranties made herein. Each party shall hold,
and
shall cause its employees and agents to hold, in confidence all such information
(other than such information that (i) becomes generally available to the public
other than as a result of a disclosure by such party or its directors, officers,
managers, employees, agents or advisors, or (ii) becomes available to such
party
on a non-confidential basis from a source other than a party hereto or its
advisors, provided that such source is not known by such party to be bound
by a
confidentiality agreement with or other obligation of secrecy to a party hereto
or another party until such time as such information is otherwise publicly
available;
provided
,
however
,
that:
(A) any such information may be disclosed to such party’s directors, officers,
employees and representatives of such party’s advisors who need to know such
information for the purpose of evaluating the transactions contemplated hereby
(it being understood that such directors, officers, employees and
representatives shall be informed by such party of the confidential nature
of
such information); (B) any disclosure of such information may be made as to
which the party hereto furnishing such information has consented in writing;
and
(C) any such information may be disclosed pursuant to a judicial, administrative
or governmental order or request
provided
,
that
the requested party will promptly so notify the other party so that the other
party may seek a protective order or appropriate remedy and/or waive compliance
with this Agreement and if such protective order or other remedy is not obtained
or the other party waives compliance with this provision, the requested party
will furnish only that portion of such information which is legally required
and
will exercise its best efforts to obtain a protective order or other reliable
assurance that confidential treatment will be accorded the information
furnished. If this Agreement is terminated, each party will deliver to the
other
all documents and other materials (including copies) obtained by such party
or
on its behalf from the other party as a result of this Agreement or in
connection herewith, whether so obtained before or after the execution
hereof.
Section
7.2
Additional
Agreements
.
Subject
to the terms and conditions herein provided, each of the parties hereto agrees
to use its commercially reasonable best efforts to take, or cause to be taken,
all action and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement, including using its
commercially reasonable best efforts to satisfy the conditions precedent to
the
obligations of any of the parties hereto to obtain all necessary waivers, and
to
lift any injunction or other legal bar to the Merger (and, in such case, to
proceed with the Merger as expeditiously as possible). In order to obtain any
necessary governmental or regulatory action or non-action, waiver, Consent,
extension or approval, each of Parent, Acquisition Corp. and the Company agrees
to take all reasonable actions and to enter into all reasonable agreements
as
may be necessary to obtain timely governmental or regulatory approvals and
to
take such further action in connection therewith as may be necessary. In case
at
any time after the Effective Time any further action is necessary or desirable
to carry out the purposes of this Agreement, the proper officers and/or
directors of Parent, Acquisition Corp. and the Company shall take all such
necessary action.
Section
7.3
Publicity
.
No
party shall issue any press release or public announcement pertaining to the
Merger that has not been agreed upon in advance by Parent and the Company,
except as Parent reasonably determines to be necessary in order to comply with
the rules of the Commission;
provided
that in
such case Parent will use its best efforts to allow Company to review and
reasonably approve any same prior to its release.
Section
7.4
Appointment
of Directors
.
Immediately upon the Effective Time, Parent shall accept the resignations of
the
current officers and directors of Parent as provided by
Section
8.2(e)(5)
hereof,
and the persons listed as directors in
Exhibit
A
hereto
shall be elected to the Board of Directors of Parent.
Section
7.5
Stockholder
Consent
.
(a)
So
long
as the Board of Directors of the Company shall not have withdrawn, modified
or
changed its recommendation in accordance with the provisions of
Section
7.5(b)
hereof,
the Company, acting through its Board of Directors, shall, in accordance with
the DGCL and its certificate of incorporation and by-laws, take all actions
reasonably necessary to obtain the requisite approval and adoption of this
Agreement and the transactions contemplated hereby by the Stockholders as
required by the DGCL and otherwise.
(b)
The
Board
of Directors of the Company shall recommend such approval and shall use all
reasonable efforts to solicit and obtain such approval;
provided
,
however
,
that
the Board of Directors of the Company may at any time prior to approval of
the
Stockholders (i) decline to make, withdraw, modify or change any recommendation
or declaration regarding this Agreement or the Merger or (ii) recommend and
declare advisable any other offer or proposal, to the extent the Board of
Directors of the Company determines in good faith, based upon advice of legal
counsel, that withdrawing, modifying, changing or declining to make its
recommendation regarding this Agreement or the Merger or recommending and
declaring advisable any other offer or proposal is necessary to comply with
its
fiduciary duties under applicable law (which declinations, withdrawal,
modification or change shall not constitute a breach by the Company of this
Agreement). The Company shall provide written notice to Parent promptly upon
the
Company taking any action referred to in the foregoing proviso.
(c)
Pursuant
to Section 251(d) of the DGCL, at any time before the certificate of merger
is
filed with the Secretary of State of the State of Delaware, including any time
after the Merger is authorized by the Stockholders, the Merger may be abandoned
and this Agreement may be terminated in accordance with the terms hereof,
without further action by the Stockholders.
ARTICLE
VIII
CONDITIONS
OF PARTIES’ OBLIGATIONS
Section
8.1
Company
Obligations
.
The
obligations of Parent and Acquisition Corp. under this Agreement are subject
to
the fulfillment at or prior to the Closing of the following conditions, any
of
which may be waived in whole or in part by Parent.
(a)
Representations
And Warranties
.
The
representations and warranties of the Company under this Agreement shall be
deemed to have been made again on the Closing Date and shall then be true and
correct in all material respects.
(b)
Compliance
with Agreement
.
The
Company shall have performed and complied in all material respects with all
agreements and conditions required by this Agreement to be performed or complied
with by it on or before the Closing Date.
(c)
No
Company Material Adverse Effect
.
Since
the date hereof, there shall not have been any event or circumstance that has
resulted in, or would reasonably be expected to result in, a Company Material
Adverse Effect.
(d)
Certificate
of Officers
.
The
Company shall have delivered to Parent and Acquisition Corp. a certificate
dated
the Closing Date, executed on its behalf by the Chief Executive Officer of
the
Company, certifying the satisfaction of the conditions specified in paragraphs
(a), (b) and (c) of this Section 8.1.
(e)
No
Restraining Action
.
No
Action or proceeding before any court, governmental body or agency shall have
been threatened, asserted or instituted to restrain or prohibit, or to obtain
substantial damages in respect of, this Agreement or the carrying out of the
transactions contemplated by this Agreement.
(f)
Supporting
Documents
.
Parent
and Acquisition Corp. shall have received the following:
(1)
Copies
of
resolutions of the Board of Directors and the stockholders of the Company,
certified by the Secretary of the Company, authorizing and approving the Merger
and the execution, delivery and performance of this Agreement and all other
documents and instruments to be delivered pursuant hereto and
thereto.
(2)
A
certificate of incumbency executed by the Secretary of the Company certifying
the names, titles and signatures of the officers authorized to execute any
documents referred to in this Agreement and further certifying that the
certificate of incorporation and by-laws of the Company delivered to Parent
and
Acquisition Corp. at the time of the execution of this Agreement have been
validly adopted and have not been amended or modified since the date
hereof.
(3)
Evidence
as of a recent date of the good standing and corporate existence of the Company
issued by the Secretary of State of the State of Delaware.
Section
8.2
Parent
and Acquisition Corp. Obligations
.
The
obligations of the Company under this Agreement are subject to the fulfillment
at or prior to the Closing of the following conditions any of which may be
waived in whole or in part by the Company:
(a)
Representations
And Warranties
.
The
representations and warranties of Parent and Acquisition Corp. under this
Agreement shall be deemed to have been made again on the Closing Date and shall
then be true and correct in all material respects.
(b)
Compliance
with Agreement
.
Parent
and Acquisition Corp. shall have performed and complied in all material respects
with all agreements and conditions required by this Agreement to be performed
or
complied with by them on or before the Closing Date.
(c)
No
Parent Material Adverse Effect
.
Since
the date hereof, there shall not have been any event or circumstance that has
resulted in, or would reasonably be expected to result in, a Parent Material
Adverse Effect.
(d)
Certificate
of Officers
.
Parent
and Acquisition Corp. shall have delivered to the Company a certificate dated
the Closing Date, executed on their behalf by their respective Presidents,
certifying the satisfaction of the conditions specified in paragraphs (a),
(b),
and (c) of this
Section
8.2
.
(e)
Supporting
Documents
.
The
Company shall have received the following:
(1)
Copies
of
resolutions of Parent’s and Acquisition Corp.’s respective board of directors
and the sole stockholder of Acquisition Corp., certified by their respective
Secretaries, authorizing and approving the Merger and the execution, delivery
and performance of this Agreement and all other documents and instruments to
be
delivered by them pursuant hereto.
(2)
A
certificate of incumbency executed by the respective Secretaries of Parent
and
Acquisition Corp. certifying the names, titles and signatures of the officers
authorized to execute the documents referred to in paragraph (1) above and
further certifying that the certificates of incorporation and by-laws of Parent
and Acquisition Corp. appended thereto have not been amended or
modified.
(3)
A
certificate, dated the Closing Date, executed by the Secretary of each of the
Parent and Acquisition Corp., certifying that, except for the filing of the
certificate of merger with the Secretary of State of the State of Delaware:
(i)
all consents, authorizations, orders and approvals of, and filings and
registrations with, any court, governmental body or instrumentality that are
required to be obtained by Parent or Acquisition Corp. for the execution and
delivery of this Agreement and the consummation of the Merger shall have been
duly made or obtained; and (ii) no action or proceeding before any court,
governmental body or agency has been threatened, asserted or instituted against
Parent or Acquisition Corp. to restrain or prohibit, or to obtain substantial
damages in respect of, this Agreement or the carrying out of the transactions
contemplated by this Agreement.
(4)
(i)
The
executed resignations of all directors and officers of Parent, with the director
resignations to take effect at the Effective Time, together with certified
resolutions of Parent’s board of directors appointing the directors identified
on
Exhibit
A
to serve
as their successors following such resignation and (ii) executed releases from
each such director and officer in the form and substance acceptable to the
Company in its sole discretion.
(5)
Evidence
as of a recent date of the good standing and corporate existence of each of
the
Parent and Acquisition Corp. issued by the Secretary of State of their
respective states of incorporation.
(6)
Such
additional supporting documentation and other information with respect to the
transactions contemplated hereby as the Company may reasonably
request.
(f)
Due
Diligence
.
The
Company shall have been and shall continue to be satisfied in its sole
discretion (regardless of (1) the satisfaction of any or all of the other
closing conditions, (2) any knowledge of such matters on or prior to the Closing
Date or (3) any indication previously given by, or on behalf of, Company with
respect to the satisfaction of any such matter) with the results of its and
its
representatives’ due diligence investigation and evaluation of the Parent and
Acquisition Corp. and each of the transactions contemplated hereby.
(g)
Limitation
on Dissenting Shares
.
The
holders of not more than one percent (1.0%) of the outstanding shares of Company
Common Stock shall have exercised and not withdrawn such holder’s right to
appraisal and payment under Section 262 of the DGCL.
(h)
Stock
Option Plan
.
Parent’s Board of Directors
shall
have adopted and approved the Stock Option Plan.
ARTICLE
IX
TERMINATION
PRIOR TO CLOSING
Section
9.1
Termination
of Agreement
.
This
Agreement may be terminated at any time prior to the Closing:
(a)
by
the
mutual written consent of the Company, Acquisition Corp. and
Parent;
(b)
by
the
Company, if Parent or Acquisition Corp. (i) fails to perform in any material
respect any of its agreements contained herein required to be performed by
it on
or prior to the Closing Date, (ii) materially breaches any of its
representations, warranties or covenants contained herein, which failure or
breach is not cured within thirty (30) days after the Company has notified
Parent and Acquisition Corp. of its intent to terminate this Agreement pursuant
to this paragraph (b);
(c)
by
Parent
and Acquisition Corp., if the Company (i) fails to perform in any material
respect any of its agreements contained herein required to be performed by
it on
or prior to the Closing Date, (ii) materially breaches any of its
representations, warranties or covenants contained herein, which failure or
breach is not cured within thirty (30) days after Parent or Acquisition Corp.
has notified the Company of its intent to terminate this Agreement pursuant
to
this paragraph (c);
(d)
by
either
the Company, on the one hand, or Parent and Acquisition Corp., on the other
hand, if there shall be any order, writ, injunction or decree of any court
or
governmental or regulatory agency binding on Parent, Acquisition Corp. or the
Company, which prohibits or materially restrains any of them from consummating
the transactions contemplated hereby;
provided
that the
parties hereto shall have used their best efforts to have any such order, writ,
injunction or decree lifted and the same shall not have been lifted within
ninety (90) days after entry, by any such court or governmental or regulatory
agency;
(e)
by
either
the Company, on the one hand, or Parent and Acquisition Corp., on the other
hand, if the Closing has not occurred on or prior to July 15, 2006, for any
reason other than delay or nonperformance of the party seeking such termination;
or
(f)
by
the
Company if the Board of Directors of the Company determines in good faith,
based
upon advice of legal counsel, that termination pursuant to this
Section
9.1(f)
is
necessary to comply with its fiduciary duties under applicable law as provided
in
Section
7.5(b)
hereof.
Section
9.2
Termination
of Obligations
.
Termination of this Agreement pursuant to Section 9.1 hereof shall terminate
all
obligations of the parties hereunder, except for the obligations under
Article
IX
,
and
Sections
7.1
,
10.4
,
10.7
,
10.14
and
10.15
hereof.
ARTICLE
X
MISCELLANEOUS
Section
10.1
Amendments.
Subject
to applicable law, this Agreement may be amended or modified by the parties
hereto by written agreement executed by each party to be bound thereby and
delivered by duly authorized officers of the parties hereto at any time prior
to
the Effective Time;
provided
,
however
,
that
after the approval of the Merger by the Stockholders, no amendment or
modification of this Agreement shall be made that by law requires further
approval from the Stockholders without such further approval.
Section
10.2
Notices
.
Any
notice, request, instruction, other document or communications to be given
hereunder by any party hereto to any other party hereto shall be in writing
and
shall be deemed to have been duly given (a) when delivered personally, (b)
upon
receipt of a transmission confirmation (with a confirming copy delivered
personally or sent by overnight courier) if sent by facsimile or like
transmission, or (c) on the next business day when sent by Federal Express,
United Parcel Service, U.S. Express Mail or other reputable overnight courier
for guaranteed next day delivery, as follows:
If
to Parent or Acquisition Corp., to:
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Gilder
Enterprises
,
Inc.
Attention:
Joseph Bowes
3639
Garibaldi Dr.
North
Vancouver, BC CANADA V7H2W
Telephone:
(604) 924-8180
Facsimile:
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If
to the Company, to:
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MedaSorb
Corporation
Attention:
Al Kraus, President
7
Deer Park Drive, Suite K, Monmouth Junction, New Jersey 08852
Telephone:
(732)
329-8885
Facsimile:
(732)
329-8650
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with
a copy to:
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Kronish
Lieb Weiner & Hellman LLP
Attention:
Alison Newman, Esq.
1114
Avenue of the Americas
New
York, New York 10036
Telephone:
(212) 479-6190
Facsimile:
(212) 479-6275
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or
to
such other persons or addresses as may be designated in writing by the party
to
receive such notice. Nothing in this
Section
10.2
shall be
deemed to constitute consent to the manner and address for service of process
in
connection with any legal proceeding (including arbitration arising in
connection with this Agreement), which service shall be effected as required
by
applicable law.
Section
10.3
Entire
Agreement
.
This
Agreement, together with the schedules and the exhibits attached hereto or
referred to herein, constitute the entire agreement of the parties hereto,
and
supersede all prior agreements and undertakings, both written and oral, among
the parties hereto, with respect to the subject matter hereof and
thereof.
Section
10.4
Expenses
.
Except
as otherwise expressly provided herein, whether or not the Merger occurs, all
expenses and fees incurred by Parent on one hand, and the Company on the other,
shall be borne solely and entirely by the party that has incurred the same;
provided
,
that if
the Merger occurs, Parent agrees to pay, and shall cause the Surviving
Corporation to pay, any unpaid fees and expenses of the Company (including
fees
and expenses of its counsel and other advisors) in connection with the
consummation of the transactions contemplated by this Agreement.
Section
10.5
Severability
.
If any
term or other provision of this Agreement is invalid, illegal or incapable
of
being enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement will nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon
such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto will negotiate in good faith to amend
or
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the extent possible.
Section
10.6
Successors
and Assigns; Assignment
.
This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Neither this Agreement nor any
of
the rights, interests or obligations hereunder shall be assigned or delegated
by
any of the parties hereto without, in the case of Parent, the prior written
approval of the Company and, in the case of the Company, the prior written
approval of Parent.
Section
10.7
No
Third
Party Beneficiaries
.
Except
as set forth in
Section
10.6
,
nothing
herein expressed or implied shall be construed to give any person other than
the
parties hereto (and their successors and assigns as permitted herein) any legal
or equitable rights hereunder.
Section
10.8
Counterparts;
Delivery by Facsimile
.
This
Agreement may be executed in multiple counterparts, and by the different parties
hereto in separate counterparts, each of which when executed will be deemed
to
be an original but all of which taken together will constitute one and the
same
agreement. This Agreement and each other agreement or instrument entered into
in
connection herewith or therewith or contemplated hereby or thereby, and any
amendments hereto or thereto, to the extent signed and delivered by means of
a
facsimile machine, shall be treated in all manner and respects as an original
agreement or instrument and shall be considered to have the same binding legal
effect as if it were the original signed version thereof delivered in person.
At
the request of any party hereto or to any such agreement or instrument, each
other party hereto or thereto shall re-execute original forms thereof and
deliver them to all other parties. No party hereto or to any such agreement
or
instrument shall raise the use of a facsimile machine to deliver a signature
or
the fact that any signature or agreement or instrument was transmitted or
communicated through the use of a facsimile machine as a defense to the
formation or enforceability of a contract and each such party forever waives
any
such defense.
Section
10.9
Waiver
.
At any
time prior to the Effective Time, any party hereto may (a) extend the time
for
the performance of any of the obligations or other acts of the other party
hereto; (b) waive any inaccuracies in the representations and breaches of the
warranties of the other party contained herein or in any document delivered
pursuant hereto; and (c) waive compliance by the other party with any of the
agreements or conditions contained herein. Any such extension or waiver will
be
valid only if set forth in an instrument in writing signed by the party or
parties to be bound thereby.
Section
10.10
No
Constructive Waivers
.
No
failure or delay on the part of any party hereto in the exercise of any right
hereunder will impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty, agreement or
covenant herein, nor will any single or partial exercise of any such right
preclude other or further exercise thereof or of any other right. No waiver
by
any party of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior
or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
Section
10.11
Further
Assurances
.
The
parties hereto shall use their commercially reasonable efforts to do and perform
or cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments or
documents as any other party hereto may reasonably request in order to carry
out
fully the intent and purposes of this Agreement and the consummation of the
transactions contemplated hereby.
Section
10.12
Headings
.
The
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this
Agreement.
Section
10.13
Governing
Law
.
This
Agreement and the agreements, instruments and documents contemplated hereby
shall be governed by and construed and enforced in accordance with the laws
of
the State of Delaware without regard to its conflicts of law
principles.
Section
10.14
Dispute
Resolution
.
The
parties hereto shall initially attempt to resolve all claims, disputes or
controversies arising under, out of or in connection with this Agreement by
conducting good faith negotiations amongst themselves. If the parties hereto
are
unable to resolve the matter following good faith negotiations, the matter
shall
thereafter be resolved by binding arbitration and each party hereto hereby
waives any right it may otherwise have to the resolution of such matter by
any
means other than binding arbitration pursuant to this
Section
10.14
.
Whenever a party shall decide to institute arbitration proceedings, it shall
provide written notice to that effect to the other parties hereto. The party
giving such notice shall, however, refrain from instituting the arbitration
proceedings for a period of sixty (60) days following such notice. During this
period, the parties shall make good faith efforts to amicably resolve the claim,
dispute or controversy without arbitration. Any arbitration hereunder shall
be
conducted under the commercial arbitration rules of the American Arbitration
Association. Any such arbitration shall be conducted in New York, New York
by a
panel of three arbitrators: one arbitrator shall be appointed by each of Parent
and Company; and the third shall be appointed by the American Arbitration
Association. The panel of arbitrators shall have the authority to grant specific
performance. Judgment upon the award so rendered may be entered in any court
having jurisdiction or application may be made to such court for judicial
acceptance of any award and an order of enforcement, as the case may be. In
no
event shall a demand for arbitration be made after the date when institution
of
a legal or equitable proceeding based on the claim, dispute or controversy
in
question would be barred under this Agreement or by the applicable statute
of
limitations. The prevailing party in any arbitration in accordance with this
Section
10.15
shall be
entitled to recover from the other party, in addition to any other remedies
specified in the award, all reasonable costs, attorneys’ fees and other expenses
incurred by such prevailing party to arbitrate the claim, dispute or
controversy.
Section
10.15
Interpretation
.
(a)
When
a
reference is made in this Agreement to a section or article, such reference
shall be to a section or article of this Agreement unless otherwise clearly
indicated to the contrary.
(b)
Whenever
the words “
include
”,
“
includes
”
or
“
including
”
are
used in this Agreement, they shall be deemed to be followed by the words
“without limitation.”
(c)
The
words
“
hereof
”,
“
hereby
”,
“
herein
”
and
“
herewith
”
and
words of similar import shall, unless otherwise stated, be construed to refer
to
this Agreement as a whole and not to any particular provision of this Agreement,
and article, section, paragraph, exhibit and schedule references are to the
articles, sections, paragraphs, exhibits and schedules of this Agreement unless
otherwise specified.
(d)
The
words
“
knowledge
,”
or
“
known
to
,”
or
similar terms, when used in this Agreement to qualify any representation or
warranty, refers to the knowledge or awareness of certain specific facts or
circumstances related to such representation or warranty of the persons in
the
Applicable Knowledge Group (as defined herein) which a prudent business person
would have obtained after reasonable investigation or due diligence on the
part
of any such person. For the purposes hereof, the “
Applicable
Knowledge Group
”
with
respect to the Company shall be Al Kraus. For the purposes hereof, the
“
Applicable
Knowledge Group
”
with
respect to Parent and the Acquisition Corp. shall be Joseph G.
Bowes.
(e)
The
word
“
subsidiary
”
shall
mean any entity of which at least a majority of the outstanding shares or other
equity interests having ordinary voting power for the election of directors
or
comparable managers of such entity is owned, directly or indirectly by another
entity or person.
(f)
For
purposes of this Agreement, “
ordinary
course of business
”
means
the ordinary course of business consistent with past custom and practice
(including with respect to quantity and frequency).
(g)
The
plural of any defined term shall have a meaning correlative to such defined
term, and words denoting any gender shall include all genders. Where a word
or
phrase is defined herein, each of its other grammatical forms shall have a
corresponding meaning.
(h)
A
reference to any legislation or to any provision of any legislation shall
include any modification or re-enactment thereof, any legislative provision
substituted therefor and all regulations and statutory instruments issued
thereunder or pursuant thereto, unless the context requires
otherwise.
(i)
The
parties hereto have participated jointly in the negotiation and drafting of
this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties,
and no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any provisions of this
Agreement.
IN
WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed as of the date first above written by their respective officers
thereunto duly authorized.
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COMPANY:
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MEDASORB
CORPORATION
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By:
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_______________________________
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Name:
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Al
Kraus
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Title:
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Chief
Executive Officer and President
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PARENT:
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GILDER
ENTERPRISES,
INC.
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By:
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_______________________________
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Name:
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Joseph
G. Bowes
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Title:
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President
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ACQUISITION
CORP.:
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MEDASORB
ACQUISITION, INC.
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By:
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_______________________________
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Name:
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Joseph
G. Bowes
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Title:
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President
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EXHIBIT
A
Directors
and Officers of Surviving Corporation
Directors:
Al
Kraus
Joseph
Rubin, Esq.
Kurt
Katz
Officers:
Al
Kraus
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President and Chief Executive Officer
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Vincent
Capponi
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Chief Operating Officer
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David
Lamadrid
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Chief Financial Officer, Treasurer and Secretary
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James
Winchester, MD
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-
Chief Medical Officer
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CERTIFICATE
TO SET FORTH DESIGNATIONS, VOTING POWERS,
PREFERENCES,
LIMITATIONS, RESTRICTIONS, AND RELATIVE
RIGHTS
OF SERIES A 10% CUMULATIVE CONVERTIBLE
PREFERRED
STOCK, $.001 PAR VALUE PER SHARE
It
is
hereby certified that:
I.
The
name
of the corporation is Gilder Enterprises, Inc. (the "Corporation"), a Nevada
corporation.
II.
Set
forth
hereinafter is a statement of the voting powers, preferences, limitations,
restrictions, and relative rights of shares of Series A 10% Cumulative
Convertible Preferred Stock hereinafter designated as contained in a resolution
of the Board of Directors of the Corporation pursuant to a provision of the
Certificate of Incorporation of the Corporation permitting the issuance of
said
Series A 10% Cumulative Convertible Preferred Stock by resolution of the Board
of Directors:
Series
A
10% Cumulative Convertible Preferred Stock, $.001 par value.
1.
Designation:
Number of Shares
.
The
designation of said series of Preferred Stock shall be Series A 10% Cumulative
Convertible Preferred Stock (the "Series A Preferred Stock"). The number of
shares of Series A Preferred Stock shall be 12,000,000. Each share of Series
A
Preferred Stock shall have a stated value equal to $1.00 (as adjusted for any
stock dividends, combinations or splits with respect to such shares) (the
"Stated Value"), and $.001 par value. The Corporation will not issue more than
8,000,000 shares of Series A Preferred Stock (“Original Issue”) and such
additional shares of Series A Preferred Stock as may be issued in connection
with the Original Issue.
2.
Dividends
.
(a)
The
Holders of outstanding shares of Series A Preferred Stock shall be entitled
to
receive preferential dividends in cash out of any funds of the Corporation
before any dividend or other distribution will be paid or declared and set
apart
for payment on any shares of any Common Stock, or other class of stock presently
authorized or to be authorized (the Common Stock, and such other stock being
hereinafter collectively the "Junior Stock") at the rate of 10% per annum on
the
Stated Value, until the occurrence of an Event of Default (as defined in
Paragraph 7 below) and thereafter at the rate of 20% per annum on the Stated
Value, payable commencing with the period ending September 30, 2006 and on
the
last day of each calendar quarter thereafter. Dividends must be delivered to
the
Holders not later than five business days after the end of each period for
which
dividends are payable. At the Corporation’s option, provided an Event of Default
has not occurred and is not continuing on the day such dividends have accrued,
then such dividend payments may be made in additional shares of Series A
Preferred Stock valued at the Stated Value thereof. The issuance of such shares
of Series A Preferred Stock shall constitute full payment of such
dividends.
(b)
The
dividends on the Series A Preferred Stock at the rates provided above shall
be
cumulative whether or not declared so that, if at any time full cumulative
dividends at the rate aforesaid on all shares of the Series A Preferred Stock
then outstanding from the date from and after which dividends thereon are
cumulative to the end of the annual dividend period next preceding such time
shall not have been paid or declared and set apart for payment, or if the full
dividend on all such outstanding Series A Preferred Stock for the then current
dividend period shall not have been paid or declared and set apart for payment,
the amount of the deficiency shall be paid or declared and set apart for payment
before any sum shall be set apart for or applied by the Corporation or a
subsidiary of the Corporation to the purchase, redemption or other acquisition
of the Series A Preferred Stock or any shares of any other class of stock
ranking on a parity with the Series A Preferred Stock ("Parity Stock") and
before any dividend or other distribution shall be paid or declared and set
apart for payment on any Junior Stock and before any sum shall be set aside
for
or applied to the purchase, redemption or other acquisition of Junior
Stock.
(c)
Dividends
on all shares of the Series A Preferred Stock shall begin to accrue and be
cumulative from and after the date of issuance thereof. A dividend period shall
be deemed to commence on the day following a dividend payment date herein
specified and to end on the next succeeding dividend payment date herein
specified.
3.
Liquidation
and Optional Redemption Rights
.
(a)
Upon
the
dissolution, liquidation or winding-up of the Corporation, whether voluntary
or
involuntary, the Holders of the Series A Preferred Stock shall be entitled
to
receive, and before any payment or distribution shall be made on the Junior
Stock, out of the assets of the Corporation available for distribution to
stockholders, the Stated Value per share of Series A Preferred Stock and all
accrued and unpaid dividends to and including the date of payment thereof.
Upon
the payment in full of all amounts due to Holders of the Series A Preferred
Stock, the Holders of the Common Stock of the Corporation and any other class
of
Junior Stock shall receive all remaining assets of the Corporation legally
available for distribution. If the assets of the Corporation available for
distribution to the Holders of the Series A Preferred Stock shall be
insufficient to permit payment in full of the amounts payable as aforesaid
to
the Holders of Series A Preferred Stock upon such liquidation, dissolution
or
winding-up, whether voluntary or involuntary, then all such assets of the
Corporation shall be distributed to the exclusion of the Holders of shares
of
Junior Stock ratably among the Holders of the Series A Preferred
Stock.
(b)
The
purchase or the redemption by the Corporation of shares of any class of stock,
the merger or consolidation of the Corporation with or into any other
corporation or corporations or the sale or transfer by the Corporation of any
material part of its assets shall be deemed to be a liquidation, dissolution
or
winding-up of the Corporation for the purposes of this paragraph 3 except in
the
event that in such transaction, the holders of Series A Preferred Stock receive
securities of the surviving corporation having substantially similar rights
as
the Series A Preferred Stock and the stockholders of the Corporation immediately
prior to such transaction are holders of at least a majority of the voting
securities of the successor corporation immediately thereafter. This provision
may be waived in writing by holders of 80% of the then outstanding Series A
Preferred Stock.
(c)
Commencing
on the third anniversary of the initial issue date of Series A Preferred Stock
pursuant to the Subscription Agreement, provided an Event of Default has not
occurred and is not then continuing, the Corporation will have the option of
redeeming the Obligation Amount (defined below) ("Optional Redemption"), in
whole or in part, by paying to the Holder a sum of money equal to one hundred
twenty percent (120%) of the Obligation Amount to be redeemed (the "Redemption
Amount"). The Corporation’s election to exercise its right to redeem must be by
notice in writing (“Notice of Redemption”) and made proportionately to all
Holders of Series A Preferred Stock. The Notice of Redemption shall specify
the
date for such Optional Redemption (the "Redemption Payment Date"), which date
shall be not less than thirty (30) business days after receipt of the Notice
of
Redemption (the "Redemption Period"). A Notice of Redemption shall not be
effective with respect to any portion of the Obligation Amount for which the
Holder has a pending election to convert pursuant to Section 4 hereof, or for
conversions initiated or made by the Holder during the Redemption Period. On
the
Redemption Payment Date, the Redemption Amount less any portion of the
Redemption Amount against which the Holder has exercised its rights pursuant
to
Section 4, shall be paid in good funds to the Holder. In the event the
Corporation fails to pay the Redemption Amount on the Redemption Payment Date
as
set forth herein, then (i) such Notice of Redemption will be null and void,
(ii)
the Corporation will have no further right to deliver a Notice of Redemption,
and (iii) the Corporation’s failure may be deemed by the Holder to be a
non-curable Event of Default. The Corporation may not exercise its right to
call
for or execute an Optional Redemption unless: (A) the Registration Statement
(as
defined in Section 11.1(iv) of the Subscription Agreement) which includes the
registration of all of the Common Stock issuable upon conversion of the entire
Obligation Amount has been effective for the fifteen trading days preceding
the
date Notice of Redemption is given (“Lookback Period”) and through the
Redemption Payment Date, or (B) all the Common Stock issuable upon conversion
of
the entire Obligation Amount may be publicly resold without volume limitations
or restrictions on transfer pursuant to Rule 144(k) under the Securities Act
of
1933; and the trading volume of the Common Stock as reported by Bloomberg LP
for
the Principal Market (as defined in Section 9(b) of the Subscription Agreement)
for each day during the Lookback Period is not less than 200,000 shares.
4.
Conversion
into Common Stock.
Holders
of shares of Series A Preferred Stock shall have the following conversion rights
and obligations:
(a)
Subject
to the further provisions of this paragraph 4 each Holder of shares of Series
A
Preferred Stock shall have the right at any time commencing after the issuance
to the Holder of Series A Preferred Stock, to convert such shares, accrued
and
unpaid dividends on such shares, and any other sum owed by the Corporation
arising from the Series A Preferred Stock or pursuant to a Subscription
Agreement entered into by the Corporation and the Holder or Holder’s predecessor
in connection with the issuance of Series A Preferred Stock (“Subscription
Agreement”) (collectively “Obligation Amount”) into fully paid and
non-assessable shares of Common Stock of the Corporation determined in
accordance with the Conversion Price provided in paragraph 4(b) below (the
"Conversion Price"). All issued or accrued but unpaid dividends may be converted
at the election of the Holder simultaneously with the conversion of principal
amount of Stated Value of Series A Preferred Stock being converted.
(b)
The
number of shares of Common Stock issuable upon conversion of the Obligation
Amount shall equal (i) the sum of (A) the Stated Value per share being
converted, and (B) at the Holder's election, accrued and unpaid dividends on
such share, divided by (ii) the Conversion Price. The Conversion Price shall
be
$1.25, subject to adjustment as described herein and in the Subscription
Agreement.
(c)
Holder
will give notice of its decision to exercise its right to convert the Series
A
Preferred Stock or part thereof by telecopying an executed and completed Notice
of Conversion (a form of which is annexed as
Exhibit
A
to the
Certificate of Designation) to the Corporation via confirmed telecopier
transmission or otherwise pursuant to Section 13(a) of the Subscription
Agreement. The Holder will not be required to surrender the Series A Preferred
Stock certificate until the Series A Preferred Stock has been fully converted.
Each date on which a Notice of Conversion is telecopied to the Corporation
in
accordance with the provisions hereof shall be deemed a Conversion Date. The
Corporation will itself or cause the Corporation’s transfer agent to transmit
the Corporation's Common Stock certificates representing the Common Stock
issuable upon conversion of the Series A Preferred Stock to the Holder via
express courier for receipt by such Holder within three (3) business days after
receipt by the Corporation of the Notice of Conversion (the "Delivery Date").
In
the event the Common Stock is electronically transferable, then delivery of
the
Common Stock
must
be made
by electronic transfer provided request for such electronic transfer has been
made by the Holder. A Series A Preferred Stock certificate representing the
balance of the Series A Preferred Stock not so converted will be provided by
the
Corporation to the Holder if requested by Holder, provided the Holder has
delivered the original Series A Preferred Stock certificate to the Corporation.
To the extent that a Holder elects not to surrender Series A Preferred Stock
for
reissuance upon partial payment or conversion, the Holder hereby indemnifies
the
Corporation against any and all loss or damage attributable to a third-party
claim in an amount in excess of the actual amount of the Stated Value of the
Series A Preferred Stock then owned by the Holder.
In
the
case of the exercise of the conversion rights set forth in paragraph 4(a) the
conversion privilege shall be deemed to have been exercised and the shares
of
Common Stock issuable upon such conversion shall be deemed to have been issued
upon the date of receipt by the Corporation of the Notice of Conversion. The
person or entity entitled to receive Common Stock issuable upon such conversion
shall, on the date such conversion privilege is deemed to have been exercised
and thereafter, be treated for all purposes as the recordholder of such Common
Stock and shall on the same date cease to be treated for any purpose as the
record Holder of such shares of Series A Preferred Stock so
converted.
Upon
the
conversion of any shares of Series A Preferred Stock no adjustment or payment
shall be made with respect to such converted shares on account of any dividend
on the Common Stock, except that the Holder of such converted shares shall
be
entitled to be paid any dividends declared on shares of Common Stock after
conversion thereof.
The
Corporation shall not be required, in connection with any conversion of Series
A
Preferred Stock, and payment of dividends on Series A Preferred Stock to issue
a
fraction of a share of its Series A Preferred Stock or Common Stock and shall
instead deliver a stock certificate representing the next whole
number.
The
Corporation and Holder may not convert that amount of the Obligation Amount
on a
Conversion Date in amounts that would result in the Holder having a beneficial
ownership of Common Stock which would be in excess of the sum of (i) the number
of shares of Common Stock beneficially owned by the Holder and its affiliates
on
such Conversion Date, and (ii) the number of shares of Common Stock issuable
upon the conversion of the Obligation Amount with respect to which the
determination of this proviso is being made on such Conversion Date, which
would
result in beneficial ownership by the Holder and its affiliates of more than
4.99% of the outstanding shares of Common Stock of the Corporation. For the
purposes of the proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject
to
the foregoing, the Holder shall not be limited to successive exercises which
would result in the aggregate issuance of more than 4.99%. The Holder may revoke
the conversion limitation described in this Paragraph, in whole or in part,
upon
61 days prior notice to the Corporation. The Holder may allocate which of the
equity of the Corporation deemed beneficially owned by the Holder shall be
included in the 4.99% amount described above and which shall be allocated to
the
excess above 4.99%. The Holder may waive the conversion limitation described
in
this Section in whole or in part, upon and effective after 61 days prior written
notice to the Company to increase such percentage to up to 9.99%.
(d)
The
Conversion Price determined pursuant to Paragraph 4(b) shall be subject to
adjustment from time to time as follows:
(i)
In
case
the Corporation shall at any time (A) declare any dividend or distribution
on
its Common Stock or other securities of the Corporation other than the Series
A
Preferred Stock, (B) split or subdivide the outstanding Common Stock, (C)
combine the outstanding Common Stock into a smaller number of shares, or (D)
issue by reclassification of its Common Stock any shares or other securities
of
the Corporation, then in each such event the Conversion Price shall be adjusted
proportionately so that the Holders of Series A Preferred Stock shall be
entitled to receive the kind and number of shares or other securities of the
Corporation which such Holders would have owned or have been entitled to receive
after the happening of any of the events described above had such shares of
Series A Preferred Stock been converted immediately prior to the happening
of
such event (or any record date with respect thereto). Such adjustment shall
be
made whenever any of the events listed above shall occur. An adjustment made
to
the Conversion Price pursuant to this paragraph 4(d)(i) shall become effective
immediately after the effective date of the event.
(ii)
For
so
long as Series A Preferred Stock is outstanding, the Holder is granted the
anti-dilution and price protection rights set forth in the Subscription
Agreement and herein.
(e)
(i)
In
case of any merger of the Corporation with or into any other corporation (other
than a merger in which the Corporation is the surviving or continuing
corporation and which does not result in any reclassification, conversion,
or
change of the outstanding shares of Common Stock) then unless the right to
convert shares of Series A Preferred Stock shall have terminated as part of
such
merger, lawful provision shall be made so that Holders of Series A Preferred
Stock shall thereafter have the right to convert each share of Series A
Preferred Stock into the kind and amount of shares of stock and/or other
securities or property receivable upon such merger by a Holder of the number
of
shares of Common Stock into which such shares of Series A Preferred Stock might
have been converted immediately prior to such consolidation or merger. Such
provision shall also provide for adjustments which shall be as nearly equivalent
as may be practicable to the adjustments provided for in sub-paragraph (d)
of
this paragraph 4. The foregoing provisions of this paragraph 4(e) shall
similarly apply to successive mergers.
(ii)
In
case
of any sale or conveyance to another person or entity of the property of the
Corporation as an entirety, or substantially as an entirety, in connection
with
which shares or other securities or cash or other property shall be issuable,
distributable, payable, or deliverable for outstanding shares of Common Stock,
then, unless the right to convert such shares shall have terminated, lawful
provision shall be made so that the Holders of Series A Preferred Stock shall
thereafter have the right to convert each share of the Series A Preferred Stock
into the kind and amount of shares of stock or other securities or property
that
shall be issuable, distributable, payable, or deliverable upon such sale or
conveyance with respect to each share of Common Stock immediately prior to
such
conveyance.
(f)
Whenever
the number of shares to be issued upon conversion of the Series A Preferred
Stock is required to be adjusted as provided in this paragraph 4, the
Corporation shall forthwith compute the adjusted number of shares to be so
issued and prepare a certificate setting forth such adjusted conversion amount
and the facts upon which such adjustment is based, and such certificate shall
forthwith be filed with the Transfer Agent for the Series A Preferred Stock
and
the Common Stock; and the Corporation shall mail to each Holder of record of
Series A Preferred Stock notice of such adjusted conversion price not later
than
the first business day after the event, giving rise to the
adjustment.
(g)
In
case
at any time the Corporation shall propose:
(i)
to
pay
any dividend or distribution payable in shares upon its Common Stock or make
any
distribution (other than cash dividends) to the Holders of its Common Stock;
or
(ii)
to
offer
for subscription to the Holders of its Common Stock any additional shares of
any
class or any other rights; or
(iii)
any
capital reorganization or reclassification of its shares or the merger of the
Corporation with another corporation (other than a merger in which the
Corporation is the surviving or continuing corporation and which does not result
in any reclassification, conversion, or change of the outstanding shares of
Common Stock); or
(iv)
the
voluntary dissolution, liquidation or winding-up of the
Corporation;
then,
and
in any one or more of said cases, the Corporation shall cause at least fifteen
(15) days prior notice of the date on which (A) the books of the Corporation
shall close or a record be taken for such stock dividend, distribution, or
subscription rights, or (B) such capital reorganization, reclassification,
merger, dissolution, liquidation or winding-up shall take place, as the case
may
be, to be mailed to the Transfer Agent for the Series A Preferred Stock and
for
the Common Stock and to the Holders of record of the Series A Preferred
Stock.
(h)
So
long
as any shares of Series A Preferred Stock or any Obligation Amount shall remain
outstanding and the Holders thereof shall have the right to convert the same
in
accordance with provisions of this paragraph 4 the Corporation shall at all
times reserve from the authorized and unissued shares of its Common Stock 175%
of the number of shares of Common Stock that would be necessary to allow the
conversion of the entire Obligation Amount.
(i)
The
term
“Common Stock” as used in this Certificate of Designation shall mean the $.001
par value Common Stock of the Corporation as such stock is constituted at the
date of issuance thereof or as it may from time to time be changed, or shares
of
stock of any class or other securities and/or property into which the shares
of
Series A Preferred Stock shall at any time become convertible pursuant to the
provisions of this paragraph 4.
(j)
The
Corporation shall pay the amount of any and all issue taxes (but not income
taxes) which may be imposed in respect of any issue or delivery of stock upon
the conversion of any shares of Series A Preferred Stock, but all transfer
taxes
and income taxes that may be payable in respect of any change of ownership
of
Series A Preferred Stock or any rights represented thereby or of stock
receivable upon conversion thereof shall be paid by the person or persons
surrendering such stock for conversion.
(k)
In
the
event a Holder shall elect to convert any shares of Series A Preferred Stock
as
provided herein, the Corporation may not refuse conversion based on any claim
that such Holder or any one associated or affiliated with such Holder has been
engaged in any violation of law, or for any other reason unless, an injunction
from a court, on notice, restraining and or enjoining conversion of all or
part
of said shares of Series A Preferred Stock shall have been sought and obtained
by the Corporation or at the Corporation’s request or with the Corporation’s
assistance and the Corporation posts a surety bond for the benefit of such
Holder equal to 120% of the Obligation Amount sought to be converted, which
is
subject to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Holder in the event it obtains judgment.
(l)
In
addition to any other rights available to the Holder, if the Corporation fails
to deliver to the Holder such certificate or certificates pursuant to Section
4(c) by the Delivery Date and if within seven (7) business days after the
Delivery Date the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by such Holder
of
the Common Stock which the Holder anticipated receiving upon such conversion
(a
"Buy-In"), then the Corporation shall pay in cash to the Holder (in addition
to
any remedies available to or elected by the Holder) within five (5) business
days after written notice from the Holder, the amount by which (A) the Holder's
total purchase price (including brokerage commissions, if any) for the shares
of
Common Stock so purchased exceeds (B) the aggregate Stated Value of the shares
of Series A Preferred Stock for which such conversion was not timely honored,
together with interest thereon at a rate of 15% per annum, accruing until such
amount and any accrued interest thereon is paid in full (which amount shall
be
paid as liquidated damages and not as a penalty). For example, if the Holder
purchases shares of Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of $10,000 of Stated
Value of Series A Preferred Stock, the Corporation shall be required to pay
the
Holder $1,000, plus interest. The Holder shall provide the Corporation written
notice indicating the amounts payable to the Holder in respect of the
Buy-In.
(m)
The
Corporation understands that a delay in the delivery of Common Stock upon
conversion of Preferred Stock in the form required pursuant to this Certificate
and the Subscription Agreement after the Delivery Date could result in economic
loss to the Holder. As compensation to the Holder for such loss, the Corporation
agrees to pay (as liquidated damages and not as a penalty) to the Holder for
such late issuance of Common Stock upon Conversion of the Series A Preferred
Stock in the amount of $100 per business day after the Delivery Date for each
$10,000 of Obligation Amount being converted of the corresponding Common stock
which is not timely delivered. The Corporation shall pay any payments incurred
under this section in immediately available funds upon demand. Furthermore,
in
addition to any other remedies which may be available to the Holder, in the
event that the Corporation fails for any reason to effect delivery of the Common
Stock by the Delivery Date, the Holder will be entitled to revoke all or part
of
the relevant Notice of Conversion or rescind all by delivery of a notice to
such
effect to the Corporation whereupon the Corporation and the Holder shall each
be
restored to their respective positions immediately prior to the delivery of
such
notice, except that the liquidated damages described above shall be payable
through the date notice of revocation is given to the Corporation.
5.
Voting
Rights
.
The
Holder of shares of Series A Preferred Stock shall not have voting rights except
as described in Section 6 hereof.
6.
Restrictions
and Limitations
.
(a)
Amendments
to Charter
.
The
Corporation shall not amend its certificate of incorporation without the
approval by the holders of at least 80% of the then outstanding shares of Series
A Preferred Stock if such amendment would:
(i)
change
the relative seniority rights of the holders of Series A Preferred Stock as
to
the payment of dividends in relation to the holders of any other capital stock
of the Corporation, or create any other class or series of capital stock
entitled to seniority as to the payment of dividends in relation to the holders
of Series A Preferred Stock;
(ii)
reduce
the amount payable to the holders of Series A Preferred Stock upon the voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, or
change the relative seniority of the liquidation preferences of the holders
of
Series A Preferred Stock to the rights upon liquidation of the holders of other
capital stock of the Corporation, or change the dividend rights of the holders
of Series A Preferred Stock;
(iii)
cancel
or
modify the conversion rights of the holders of Series A Preferred Stock provided
for in Section 4 herein; or
(iv)
cancel
or
modify the rights of the holders of the Series A Preferred Stock provided for
in
this Section 6.
7.
Event
of Default
.
Unless
waived in writing by Holders of 80% of the then outstanding Series A Preferred
Stock, the occurrence of any of the following events of default ("Event of
Default") shall, after the applicable period to cure the Event of Default,
cause
the dividend rate of 10% described in paragraph 2 hereof to become 20% from
and
after the occurrence of such event:
(i)
The
Corporation fails to timely pay any dividend payment or the failure to timely
pay any other sum of money due to the Holder from the Corporation and such
failure continues for a period of seven (7) days after written notice to the
Corporation from the Holder.
(ii)
The
Corporation breaches any material covenant, term or condition of the
Subscription Agreement or in this Certificate of Designation, and if capable
of
being cured such breach continues for a period of ten (10) days after written
notice to the Corporation from the Holder.
(iii)
Any
material representation or warranty of the Corporation made in the Subscription
Agreement, or in any agreement, statement or certificate given in writing
pursuant thereto shall prove to have been false or misleading at the time when
made.
(iv)
The
Corporation or any of its subsidiaries shall make an assignment of a substantial
part of its property or business for the benefit of creditors, or apply for
or
consent to the appointment of a receiver or trustee for it or for a substantial
part of its property or business, or such a receiver or trustee shall otherwise
be appointed.
(v)
Any
money
judgment, confession of judgment, writ or similar process shall be entered
against the Corporation, a subsidiary of the Corporation, or their property
or
other assets for more than $100,000, and is not vacated, satisfied, bonded
or
stayed within 45 days.
(vi)
Bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings
for
relief under any bankruptcy law or any law for the relief of debtors shall
be
instituted by the Corporation or if instituted against the Corporation or any
of
its subsidiaries, is not dismissed within 45 days.
(vii)
An
order
entered by a court of competent jurisdiction, or by the Securities and Exchange
Commission, or by the National Association of Securities Dealers, preventing
purchase and sale transactions in the Corporation’s Common Stock for a period of
five or more consecutive trading days.
(viii)
The
Corporation's failure to timely deliver to the Holder Common Stock or a
replacement Preferred Stock certificate (if required) within fifteen (15)
business days of the required delivery date.
(ix)
The
occurrence of a Non-Registration Event as described in Section 11.4 of the
Subscription Agreement.
(x)
Delisting
of the Common Stock from the OTC Bulletin Board (“OTCBB”) or such other
principal market or exchange on which the Common Stock is listed for trading,
if
the Common Stock is not quoted or listed on such market or exchange, or quoted
on the automated quotation system of a national securities association or listed
on a national securities exchange, within ten (10) trading days after such
delisting.
(xi)
The
Corporation fails to reserve the amount of Common Stock required to be reserved
pursuant to Section 4(h) hereof.
(xii)
A
default
by the Corporation of a material term, covenant, warranty or undertaking of
any
other agreement to which the Corporation and Holder are parties, or the
occurrence of a material event of default under any such other agreement, in
each case, which is not cured after any required notice and/or cure period,
or
if no such period is provided, within 15 days after the sooner of written notice
from the Holder or the Corporation’s discovery of such default.
(xiii)
Upon
the
occurrence of a Change in Control. A “Change in Control” shall mean (i) the
Corporation becoming a Subsidiary of another entity, (ii) a majority of the
board of directors of the Corporation as of the Issue Date of Series A Preferred
Stock or successors appointed by the board of directors having a majority
consisting of such persons or their successors no longer serving as directors
of
the Corporation except due to natural causes, (iii) if any person or entity
other
than
officers or directors or persons or entities beneficially owning more than
ten
percent (10%) or more of the voting power of outstanding capital stock of the
Corporation as of the Issue date of Series A Preferred Stock, acquires fifty
percent (50%) or more of the voting power of outstanding capital stock of the
Corporation, (iv) the sale, lease or transfer of substantially all the assets
of
the Corporation or Subsidiaries.
8.
Status
of Converted or Redeemed Stock
.
In case
any shares of Series A Preferred Stock shall be redeemed or otherwise
repurchased or reacquired, the shares so redeemed, converted, or reacquired
shall resume the status of authorized but unissued shares of Preferred Stock
and
shall no longer be designated as Series A Preferred Stock.
IN
WITNESS WHEREOF, the Corporation has caused this Certificate be duly executed
by
its undersigned officer thereunto duly authorized, this 29
th
day of
June, 2006.
|
|
|
GILDER
ENTERPRISES, INC.
|
|
|
|
|
|
|
|
By:
|
|
|
EXHIBIT
A
NOTICE
OF
CONVERSION
(To
Be
Executed By the Registered Holder in Order to Convert the Series A Convertible
Preferred Stock of Gilder Enterprises, Inc.)
The
undersigned hereby irrevocably elects to convert $______________ of the Stated
Value of the above Series A Convertible Preferred Stock into shares of Common
Stock of Gilder Enterprises, Inc. (the "Corporation") according to the
conditions hereof, as of the date written below.
Date
of
Conversion:__________________________________________________________________________
Applicable
Conversion Price Per
Share:_____________________________________________________
Number
of
Common Shares Issuable Upon This
Conversion:____________________________________
Select
one:
o
A
Series A
Convertible Preferred Stock certificate is being delivered herewith. The
unconverted portion of such certificate should be reissued and delivered to
the
undersigned.
o
A
Series A
Convertible Preferred Stock certificate is not being delivered to Gilder
Enterprises, Inc.
Signature:____________________________________________________________________________
Print
Name:__________________________________________________________________________
Address:_____________________________________________________________________________
____________________________________________________________________________________
Deliveries
Pursuant to this Notice of Conversion Should Be Made to:
____________________________________________________________________________________
____________________________________________________________________________________
____________________________________________________________________________________
THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND
THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO GILDER ENTERPRISES, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED
.
|
Right
to Purchase ________ shares of Common Stock of Gilder Enterprises,
Inc.
(subject to adjustment as provided
herein)
|
FORM
OF CLASS A COMMON STOCK PURCHASE WARRANT
No. 2006-A-001
|
Issue
Date: _________, 2006
|
GILDER
ENTERPRISES, INC., a corporation organized under the laws of the State of Nevada
(the “Company”), hereby certifies that, for value received, _________________,
_____________________________________________________________________ Telecopier
Number _______________
or
its
assigns (the “Holder”), is entitled, subject to the terms set forth below, to
purchase from the Company at any time commencing on the Issue Date and until
5:00 p.m., E.S.T on the fifth (5
th
)
anniversary of the Issue Date (the “Expiration Date”), ________ fully paid and
nonassessable shares of Common Stock at a per share purchase price of $2.00.
The
aforedescribed purchase price per share, as adjusted from time to time as herein
provided, is referred to herein as the “Purchase Price.” The number and
character of such shares of Common Stock and the Purchase Price are subject
to
adjustment as provided herein. The Company may reduce the Purchase Price without
the consent of the Holder provided ten days prior notice of such reduction
is
given to the Holder. Capitalized terms used and not otherwise defined herein
shall have the meanings set forth in that certain Subscription Agreement (the
“
Subscription
Agreement
”),
dated
________, 2006, entered into by the Company and initial Holder of this
Warrant.
As
used
herein the following terms, unless the context otherwise requires, have the
following respective meanings:
(a)
The
term
“Company” shall mean Gilder Enterprises, Inc. and any corporation which shall
succeed or assume the obligations of Gilder Enterprises, Inc. hereunder.
(b)
The
term
“Common Stock” includes (a) the Company’s common stock, $.001 par value per
share, as authorized on the date of the Subscription Agreement, and (b) any
Other Securities into which or for which any of the securities described in
(a) may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
(c)
The
term
“Other Securities” refers to any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which
the
holder of the Warrant at any time shall be entitled to receive, or shall have
received, on the exercise of the Warrant, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant
to
Section 5 or otherwise.
(d)
The
term
“Warrant Shares” shall mean the Common Stock issuable upon exercise of this
Warrant.
1.
Exercise
of Warrant
.
1.1.
Number
of Shares Issuable upon Exercise
.
From
and after the Issue Date through and including the Expiration Date, the Holder
hereof shall be entitled to receive, upon exercise of this Warrant in whole
in
accordance with the terms of subsection 1.2 or upon exercise of this
Warrant in part in accordance with subsection 1.3, Common Stock of the
Company, subject to adjustment pursuant to Section 4.
1.2.
Full
Exercise
.
This
Warrant may be exercised in full by the Holder hereof by delivery of an original
or facsimile copy of the form of subscription attached as Exhibit A hereto
(the “Subscription Form”) duly executed by such Holder and surrender of the
original Warrant within four (4) days of exercise, to the Company at its
principal office or at the office of its Warrant Agent (as provided
hereinafter), accompanied by payment, in cash, wire transfer or by certified
or
official bank check payable to the order of the Company, in the amount obtained
by multiplying the number of shares of Common Stock for which this Warrant
is
then exercisable by the Purchase Price then in effect.
1.3.
Partial
Exercise
.
This
Warrant may be exercised in part (but not for a fractional share) by surrender
of this Warrant in the manner and at the place provided in subsection 1.2
except that the amount payable by the Holder on such partial exercise shall
be
the amount obtained by multiplying (a) the number of whole shares of Common
Stock designated by the Holder in the Subscription Form by (b) the Purchase
Price then in effect. On any such partial exercise, the Company, at its expense,
will forthwith issue and deliver to or upon the order of the Holder hereof
a new
Warrant of like tenor, in the name of the Holder hereof or as such Holder (upon
payment by such Holder of any applicable transfer taxes) may request, the whole
number of shares of Common Stock for which such Warrant may still be exercised
for the balance of.
1.4.
Fair
Market Value
.
Fair
Market Value of a share of Common Stock as of a particular date (the
“Determination Date”) shall mean:
(a)
If
the
Company’s Common Stock is traded on an exchange or is quoted on the National
Association of Securities Dealers, Inc. Automated Quotation (“NASDAQ”), National
Market System, the NASDAQ Capital Market or the American Stock Exchange, LLC,
then the closing or last sale price, respectively, reported for the last
business day immediately preceding the Determination Date;
(b)
If
the
Company’s Common Stock is not traded on an exchange or on the NASDAQ National
Market System, the NASDAQ Capital Market or the American Stock Exchange, Inc.,
but is traded in the over-the-counter market, then the average of the closing
bid and ask prices reported for the last business day immediately preceding
the
Determination Date;
(c)
Except
as
provided in clause (d) below, if the Company’s Common Stock is not publicly
traded, then as the Holder and the Company agree, or in the absence of such
an
agreement, by arbitration in accordance with the rules then standing of the
American Arbitration Association, before a single arbitrator to be chosen from
a
panel of persons qualified by education and training to pass on the matter
to be
decided; or
(d)
If
the
Determination Date is the date of a liquidation, dissolution or winding up,
or
any event deemed to be a liquidation, dissolution or winding up pursuant to
the
Company’s charter, then all amounts to be payable per share to holders of the
Common Stock pursuant to the charter in the event of such liquidation,
dissolution or winding up, plus all other amounts to be payable per share in
respect of the Common Stock in liquidation under the charter, assuming for
the
purposes of this clause (d) that all of the shares of Common Stock then
issuable upon exercise of all of the Warrants are outstanding at the
Determination Date.
1.5.
Company
Acknowledgment
.
The
Company will, at the time of the exercise of the Warrant, upon the request
of
the Holder hereof acknowledge in writing its continuing obligation to afford
to
such Holder any rights to which such Holder shall continue to be entitled after
such exercise in accordance with the provisions of this Warrant. If the Holder
shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to such Holder any such
rights.
1.6.
Trustee
for Warrant Holders
.
In the
event that a qualified bank or trust company shall have been appointed as
trustee for the Holder of the Warrants pursuant to Subsection 3.2, such
bank or trust company shall have all the powers and duties of a warrant agent
(as hereinafter described) and shall accept, in its own name for the account
of
the Company or such successor person as may be entitled thereto, all amounts
otherwise payable to the Company or such successor, as the case may be, on
exercise of this Warrant pursuant to this Section 1.
1.7.
Delivery
of Stock Certificates, etc. on Exercise
.
The
Company agrees that the shares of Common Stock purchased upon exercise of this
Warrant shall be deemed to be issued to the Holder hereof as the record owner
of
such shares as of the close of business on the date on which this Warrant shall
have been surrendered and payment made for such shares as aforesaid. As soon
as
practicable after the exercise of this Warrant in full or in part, and in any
event within three (3) business
days
thereafter (“Warrant Share Delivery Date”), the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the Holder hereof, or as such Holder
(upon payment by such Holder of any applicable transfer taxes) may direct in
compliance with applicable securities laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares
of
Common Stock (or Other Securities) to which such Holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which such Holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share of Common Stock, together with any other stock
or
other securities and property (including cash, where applicable) to which such
Holder is entitled upon such exercise pursuant to Section 1 or otherwise.
The Company understands that a delay in the delivery of the Warrant Shares
after
the Warrant Share Delivery Date could result in economic loss to the Holder.
As
compensation to the Holder for such loss, the Company agrees to pay (as
liquidated damages and not as a penalty) to the Holder for late issuance of
Warrant Shares upon exercise of this Warrant the amount of $100 per business
day
after the Warrant Share Delivery Date for each $10,000 of Purchase Price of
Warrant Shares for which this Warrant is exercised which are not timely
delivered. The Company shall pay any payments incurred under this Section in
immediately available funds upon demand. Furthermore, in addition to any other
remedies which may be available to the Holder, in the event that the Company
fails for any reason to effect delivery of the Warrant Shares by the Warrant
Share Delivery Date, the Holder may revoke all or part of the relevant Warrant
exercise by delivery of a notice to such effect to the Company whereupon the
Company and the Holder shall each be restored to their respective positions
immediately prior to the exercise of the relevant portion of this Warrant,
except that the liquidated damages described above shall be payable through
the
date notice of revocation or rescission is given to the Company.
2.
Cashless
Exercise
.
(a)
Except
as
described below, if a Registration Statement (as defined in the Subscription
Agreement) (“Registration Statement”) is effective and the Holder may sell its
shares of Common Stock upon exercise hereof pursuant to the Registration
Statement, this Warrant may be exercisable in whole or in part for cash only
as
set forth in Section 1 above. If no such Registration Statement is
available
during
the time that such Registration Statement is required to be effective pursuant
to the terms of the Subscription Agreement, payment upon exercise may be made
at
the option of the Holder either in cash, wire transfer or by certified or
official bank check payable to the order of the Company equal to the applicable
aggregate Purchase Price or commencing one year after the Issue Date, (i) by
cashless exercise in accordance with Section (b) below or (ii) by
a combination of any of the foregoing methods, for the number of shares of
Common Stock specified in such form (as such exercise number shall be adjusted
to reflect any adjustment in the total number of shares of Common Stock issuable
to the Holder per the terms of this Warrant) and the Holder shall thereupon
be
entitled to receive the number of duly authorized, validly issued, fully-paid
and non-assessable shares of Common Stock (or Other Securities) determined
as
provided herein.
(b)
If
the
Fair Market Value of one share of Common Stock is greater than the Purchase
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant for cash, the Holder may elect to receive shares equal to the
value
(as determined below) of this Warrant (or the portion thereof being cancelled)
by surrender of this Warrant at the principal office of the Company together
with the properly endorsed Subscription Form in which event the Company shall
issue to the Holder a number of shares of Common Stock computed using the
following formula:
X=
Y
(A-B)
A
|
Where
X=
|
the
number of shares of Common Stock to be issued to the
holder
|
|
Y=
|
the
number of shares of Common Stock purchasable under the Warrant or,
if only
a portion of the Warrant is being exercised, the portion of the Warrant
being exercised (at the date of such
calculation)
|
|
A=
|
the
average of the closing bid prices of the Common Stock for the five
(5)
Trading Days immediately prior to (but not including) the Exercise
Date
|
|
B=
|
Purchase
Price (as adjusted to the date of such
calculation)
|
(c)
The
Holder may employ the cashless exercise feature described in Section (b) above
only during the pendency of a Non-Registration Event as described in Section
11
of the Subscription Agreement.
For
purposes of Rule 144 promulgated under the 1933 Act, it is intended, understood
and acknowledged that the Warrant Shares issued in a cashless exercise
transaction shall be deemed to have been acquired by the Holder, and the holding
period for the Warrant Shares shall be deemed to have commenced, on the date
this Warrant was originally issued.
3.
Adjustment
for Reorganization, Consolidation, Merger, etc.
3.1.
Reorganization,
Consolidation, Merger, etc
.
In case
at any time or from time to time, the Company shall (a) effect a
reorganization, (b) consolidate with or merge into any other person or
(c) transfer all or substantially all of its properties or assets to any
other person under any plan or arrangement contemplating the dissolution of
the
Company, then, in each such case, as a condition to the consummation of such
a
transaction, proper and adequate provision shall be made by the Company whereby
the Holder of this Warrant, on the exercise hereof as provided in
Section 1, at any time after the consummation of such reorganization,
consolidation or merger or the effective date of such dissolution, as the case
may be, shall receive, in lieu of the Common Stock (or Other Securities)
issuable on such exercise prior to such consummation or such effective date,
the
stock and other securities and property (including cash) to which such Holder
would have been entitled upon such consummation or in connection with such
dissolution, as the case may be, if such Holder had so exercised this Warrant,
immediately prior thereto, all subject to further adjustment thereafter as
provided in Section 4.
3.2.
Dissolution
.
In the
event of any dissolution of the Company following the transfer of all or
substantially all of its properties or assets, the Company, prior to such
dissolution, shall at its expense deliver or cause to be delivered the stock
and
other securities and property (including cash, where applicable) receivable
in
accordance with Section 3.1 by the Holder upon their exercise after the
effective date of such dissolution pursuant to this Section 3 to a bank or
trust company (a “Trustee”) having its principal office in New York, NY, as
trustee for the Holder.
3.3.
Continuation
of Terms
.
Upon
any reorganization, consolidation, merger or transfer (and any dissolution
following any transfer) referred to in this Section 3, this Warrant shall
continue in full force and effect and the terms hereof shall be applicable
to
the Other Securities and property receivable on the exercise of this Warrant
after the consummation of such reorganization, consolidation or merger or the
effective date of dissolution following any such transfer, as the case may
be,
and shall be binding upon the issuer of any Other Securities, including, in
the
case of any such transfer, the person acquiring all or substantially all of
the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In
the event this Warrant does not continue in full force and effect after the
consummation of the transaction described in this Section 3, then only in
such event will the Company’s securities and property (including cash, where
applicable) receivable by the Holder of the Warrants be delivered to the Trustee
as contemplated by Section 3.2.
3.4
Share
Issuance
.
Until
the Expiration Date, prior to the complete exercise of this Warrant, the Holder
is granted the anti-dilution and price protection rights set forth in the
Subscription Agreement and herein.
4.
Extraordinary
Events Regarding Common Stock
.
In the
event that the Company shall (a) issue additional shares of the Common
Stock as a dividend or other distribution on outstanding Common Stock,
(b) subdivide its outstanding shares of Common Stock, or (c) combine
its outstanding shares of the Common Stock into a smaller number of shares
of
the Common Stock, then, in each such event, the Purchase Price shall,
simultaneously with the happening of such event, be adjusted by multiplying
the
then Purchase Price by a fraction, the numerator of which shall be the number
of
shares of Common Stock outstanding immediately prior to such event and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such event, and the product so obtained shall thereafter
be
the Purchase Price then in effect. The Purchase Price, as so adjusted, shall
be
readjusted in the same manner upon the happening of any successive event or
events described herein in this Section 4. The number of shares of Common
Stock that the Holder of this Warrant shall thereafter, on the exercise hereof
as provided in Section 1, be entitled to receive shall be adjusted to a
number determined by multiplying the number of shares of Common Stock that
would
otherwise (but for the provisions of this Section 4) be issuable on such
exercise by a fraction of which (a) the numerator is the Purchase Price
that would otherwise (but for the provisions of this Section 4) be in
effect, and (b) the denominator is the Purchase Price in effect on the date
of such exercise.
5.
Certificate
as to Adjustments
.
In each
case of any adjustment or readjustment in the shares of Common Stock issuable
on
the exercise of the Warrants, the Company at its expense will promptly cause
its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company
for any additional shares of Common Stock issued or sold or deemed to have
been
issued or sold, (b) the number of shares of Common Stock outstanding or
deemed to be outstanding, and (c) the Purchase Price and the number of
shares of Common Stock to be received upon exercise of this Warrant, in effect
immediately prior to such adjustment or readjustment and as adjusted or
readjusted as provided in this Warrant. The Company will forthwith mail a copy
of each such certificate to the Holder of the Warrant and any Warrant Agent
of
the Company (appointed pursuant to Section 11 hereof).
6.
Reservation
of Stock, etc. Issuable on Exercise of Warrant; Financial
Statements
.
The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of the Warrants, all shares of Common Stock from time
to time issuable on the exercise of the Warrant. This Warrant entitles the
Holder hereof to receive copies of all financial and other information
distributed or required to be distributed to the holders of the Company’s Common
Stock.
7.
Assignment;
Exchange of Warrant
.
Subject
to compliance with applicable securities laws, this Warrant, and the rights
evidenced hereby, may be transferred by any registered holder hereof (a
“Transferor”). On the surrender for exchange of this Warrant, with the
Transferor’s endorsement in the form of Exhibit B attached hereto (the
“Transferor Endorsement Form”) and together with an opinion of counsel
reasonably satisfactory to the Company that the transfer of this Warrant will
be
in compliance with applicable securities laws, the Company at its expense,
twice, only, but with payment by the Transferor of any applicable transfer
taxes, will issue and deliver to or on the order of the Transferor thereof
a new
Warrant or Warrants of like tenor, in the name of the Transferor and/or the
transferee(s) specified in such Transferor Endorsement Form (each a
“Transferee”), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
so surrendered by the Transferor. No such transfers shall result in a public
distribution of the Warrant.
8.
Replacement
of Warrant
.
On
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant and, in the case of any such loss,
theft or destruction of this Warrant, on delivery of an indemnity agreement
or
security reasonably satisfactory in form and amount to the Company or, in the
case of any such mutilation, on surrender and cancellation of this Warrant,
the
Company at its expense, twice only, will execute and deliver, in lieu thereof,
a
new Warrant of like tenor.
9.
Registration
Rights
.
The
Holder of this Warrant has been granted certain registration rights by the
Company. These registration rights are set forth in the Subscription Agreement.
The terms of the Subscription Agreement are incorporated herein by this
reference.
10.
Maximum
Exercise
.
The
Holder shall not be entitled to exercise this Warrant on an exercise
date,
in
connection with that number of shares of Common Stock which would be in excess
of the sum of (i) the number of shares of Common Stock beneficially owned
by the Holder and its affiliates on an exercise date, and (ii) the number
of shares of Common Stock issuable upon the exercise of this Warrant with
respect to which the determination of this limitation is being made on an
exercise date, which would result in beneficial ownership by the Holder and
its
affiliates of more than 4.99% of the outstanding shares of Common Stock on
such
date. For the purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Holder shall not be limited to aggregate exercises
which would result in the issuance of more than 4.99%.
The
restriction described in this paragraph may be waived, in whole or in part,
upon sixty-one (61) days prior notice from the Holder to the Company to increase
such percentage to up to 9.99%.
11.
Warrant
Agent
.
The
Company may, by written notice to the Holder of the Warrant, appoint an agent
(a
“Warrant Agent”) for the purpose of issuing Common Stock on the exercise of this
Warrant pursuant to Section 1, exchanging this Warrant pursuant to
Section 7, and replacing this Warrant pursuant to Section 8, or any of
the foregoing, and thereafter any such issuance, exchange or replacement, as
the
case may be, shall be made at such office by such Warrant Agent.
12.
Transfer
on the Company’s Books
.
Until
this Warrant is transferred on the books of the Company, the Company may treat
the registered holder hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.
13.
Notices
.
All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted
to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery
by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur
or
(c)
three business days after deposited in the mail if delivered pursuant to
subsection (ii) above
.
The
addresses for such communications shall be: (i) if to the Company to:
Gilder
Enterprises, Inc., 7 Deer Park Drive, Suite K, Monmouth Junction, NJ 08852,
Attn: Al Kraus, CEO,
telecopier:
(732) 329-8650, with a copy by telecopier only to: Kronish Lieb Weiner &
Hellman, LLP, 1114 Avenue of the Americas, New York, NY 10036, Attn: Alison
Newman, Esq., telecopier: (212) 479-6275, and (ii) if to the Holder, to the
addresses and telecopier number set forth in the first paragraph of this
Warrant, with an additional copy by telecopier only to: Grushko & Mittman,
P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number:
(212) 697-3575.
14.
Miscellaneous
.
This
Warrant and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such change, waiver, discharge or termination is sought. This Warrant shall
be construed and enforced in accordance with and governed by the laws of New
York. Any dispute relating to this Warrant shall be adjudicated in New York
County in the State of New York. The headings in this Warrant are for purposes
of reference only, and shall not limit or otherwise affect any of the terms
hereof. The invalidity or unenforceability of any provision hereof shall in
no
way affect the validity or enforceability of any other provision.
IN
WITNESS WHEREOF, the Company has executed this Warrant as of the date first
written above.
|
GILDER
ENTERPRISES, INC.
By:________________________________________
Name:
Title:
|
Witness:
_____________________________
|
|
|
Exhibit A
FORM
OF
SUBSCRIPTION
(to
be
signed only on exercise of Warrant)
TO:
Gilder Enterprises, Inc.
The
undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable
box):
___
________
shares of the Common Stock covered by such Warrant; or
___
the
maximum
number of shares of Common Stock covered by such Warrant pursuant to the
cashless exercise procedure set forth in Section 2.
The
undersigned herewith makes payment of the full purchase price for such shares
at
the price per share provided for in such Warrant, which is $___________. Such
payment takes the form of (check applicable box or boxes):
___
$__________
in lawful money of the United States; and/or
___
the
cancellation of the Warrant to the extent necessary, in accordance with the
formula set forth in Section 2, to exercise this Warrant with respect to
the maximum number of shares of Common Stock purchasable pursuant to the
cashless exercise procedure set forth in Section 2.
The
undersigned requests that the certificates for such shares be issued in the
name
of, and delivered to _____________________________________________________
whose
address is
Number
of
Shares of Common Stock Beneficially Owned on the date of exercise:
Less
than
five percent (5%) of the outstanding Common Stock of Gilder Enterprises,
Inc.
The
undersigned represents and warrants that the representations and warranties
in
Section 4 of the Subscription Agreement (as defined in this Warrant) are true
and accurate with respect to the undersigned on the date hereof.
The
undersigned represents and warrants that all offers and sales by the undersigned
of the securities issuable upon exercise of the within Warrant shall be made
pursuant to registration of the Common Stock under the Securities Act of 1933,
as amended (the “Securities Act”), or pursuant to an exemption from registration
under the Securities Act.
|
|
Dated:___________________
|
(Signature
must conform to name of holder as specified on the face of the
Warrant)
(Address)
|
Exhibit B
FORM
OF
TRANSFEROR ENDORSEMENT
(To
be
signed only on transfer of Warrant)
For
value
received, the undersigned hereby sells, assigns, and transfers unto the
person(s) named below under the heading “Transferees” the right represented by
the within Warrant to purchase the percentage and number of shares of Common
Stock of Gilder Enterprises, Inc. to which the within Warrant relates specified
under the headings “Percentage Transferred” and “Number Transferred,”
respectively, opposite the name(s) of such person(s) and appoints each such
person Attorney to transfer its respective right on the books of Gilder
Enterprises, Inc. with full power of substitution in the premises.
Transferees
|
Percentage
Transferred
|
Number
Transferred
|
|
|
|
|
|
|
|
|
|
Dated:
______________, ___________
Signed
in the presence of:
(Name)
ACCEPTED
AND AGREED:
[TRANSFEREE]
(Name)
|
|
(Signature
must conform to name of holder as specified on the face of the
warrant)
(address)
(address)
|
SUBSCRIPTION
AGREEMENT
THIS
SUBSCRIPTION AGREEMENT
(this
“
Agreement
”),
dated
as of June 30, 2006, by and among Gilder Enterprises, Inc., a Nevada corporation
(the “
Company
”),
and
the subscribers identified on the signature page hereto (each a “
Subscriber
”
and
collectively “
Subscribers
”).
WHEREAS
,
the
Company and the Subscribers are executing and delivering this Agreement in
reliance upon an exemption from securities registration afforded by the
provisions of Section 4(2), Section 4(6) and/or Regulation D (“
Regulation
D
”)
as
promulgated by the United States Securities and Exchange Commission (the
“
Commission
”)
under
the Securities Act of 1933, as amended (the “
1933
Act
”).
WHEREAS
,
the
parties desire that, upon the terms and subject to the conditions contained
herein, the Company shall issue and sell to the Subscribers, as provided herein,
and the Subscribers, in the aggregate, shall purchase not less than $3,500,000
and up to $8,000,000 of stated value of 10% Series A Preferred Stock of the
Company (“
Preferred
Stock
”)
at a
purchase price (the "
Purchase
Price
")
equal
to the stated value thereof which Preferred Stock shall be convertible into
shares of the Company's common stock, $.001 par value (the "
Common
Stock
")
hereof
subject to the rights and preferences described in the form of Certificate
of
Designation annexed hereto as
Exhibit
A
(“
Certificate
of Designation
”),
and
common stock purchase warrants (the “
Warrants
”)
in the
form attached hereto as
Exhibit
B
,
to
purchase shares of Common Stock (the “
Warrant
Shares
”).
The
Preferred Stock, shares of Common Stock issuable upon conversion of the
Preferred Stock (the “
Shares
”),
the
Warrants and the Warrant Shares are collectively referred to herein as the
"
Securities
";
and
WHEREAS
,
the
aggregate proceeds of the sale of the Preferred Stock and the Warrants
contemplated hereby shall be held in escrow pursuant to the terms of a Funds
Escrow Agreement to be executed by the parties substantially in the form
attached hereto as
Exhibit
C
(the
"
Escrow
Agreement
").
NOW,
THEREFORE
,
in
consideration of the mutual covenants and other agreements contained in this
Agreement the Company and the Subscribers hereby agree as follows:
1.
Closing
.
Subject
to the satisfaction or waiver of the terms and conditions of this Agreement,
on
the “
Closing
Date
”
(as
defined in Section 2 hereof), each Subscriber shall purchase and the Company
shall sell to each Subscriber the Preferred Stock having the Stated Value set
forth on the signature page hereto and the amount of Warrants determined
pursuant to Section 3 below. The aggregate stated value of the Preferred Stock
to be purchased by the Subscribers on the Closing Date shall, in the aggregate,
be not less than $3,500,000 nor more than $8,000,000. The Closing Date shall
be
the date that subscriber funds representing the net amount due the Company
from
the Purchase Price of the Offering is transmitted by wire transfer or otherwise
to or for the benefit of the Company.
2.
Closing
Date
.
The
consummation of the transactions contemplated herein shall take place at the
offices of Grushko & Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York,
New York 10176, upon the satisfaction of all conditions to Closing set forth
in
this Agreement (“
Closing
Date
”).
3.
Warrants
.
On the
Closing Date, the Company will issue and deliver Warrants to the Subscribers.
One Class A Warrant will be issued for each two Shares which would be issued
on
the Closing Date assuming the complete conversion of the Preferred Stock issued
on the Closing Date at the Conversion Price in effect on the Closing Date.
The
per Warrant Share exercise price to acquire a Warrant Share upon exercise of
a
Class A Warrant shall be $2.00. The Class A Warrants shall be exercisable until
five (5) years after the Issue Date of the Warrants.
4.
Subscriber's
Representations and Warranties
.
Each
Subscriber hereby represents and warrants to and agrees with the Company only
as
to such Subscriber that:
(a)
Organization
and Standing of the Subscribers
.
If the
Subscriber is an entity, such Subscriber is a corporation, partnership or other
entity duly incorporated or organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or
organization.
(b)
Authorization
and Power
.
Each
Subscriber has the requisite power and authority to enter into and perform
this
Agreement and to purchase the Preferred Stock and Warrants being sold to it
hereunder. The execution, delivery and performance of this Agreement by such
Subscriber and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate or partnership
action, and no further consent or authorization of such Subscriber or its Board
of Directors, stockholders, partners, members, as the case may be, is required.
This Agreement has been duly authorized, executed and delivered by such
Subscriber and constitutes, or shall constitute when executed and delivered,
a
valid and binding obligation of the Subscriber enforceable against the
Subscriber in accordance with the terms thereof.
(c)
No
Conflicts
.
The
execution, delivery and performance of this Agreement and the consummation
by
such Subscriber of the transactions contemplated hereby or relating hereto
do
not and will not (i) result in a violation of such Subscriber’s charter
documents or bylaws or other organizational documents or (ii) conflict with,
or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of any agreement, indenture or
instrument or obligation to which such Subscriber is a party or by which its
properties or assets are bound, or result in a violation of any law, rule,
or
regulation, or any order, judgment or decree of any court or governmental agency
applicable to such Subscriber or its properties (except for such conflicts,
defaults and violations as would not, individually or in the aggregate, have
a
material adverse effect on such Subscriber). Such Subscriber is not required
to
obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or to purchase
the Preferred Stock or acquire the Warrants in accordance with the terms hereof,
provided that for purposes of the representation made in this sentence, such
Subscriber is assuming and relying upon the accuracy of the relevant
representations and agreements of the Company herein.
(
d)
Information
on Company
.
The
Subscriber has been furnished with or has had access at the EDGAR Website of
the
Commission to (i) the Company's Form 10-KSB for the year ended May 31, 2005
and
all periodic reports as filed with the Commission, and (ii) the draft 8-K in
the
form of
Exhibit
E
hereto,
to be filed by the Company with the Commission following the Closing
(hereinafter collectively referred to as the "
Reports
").
In
addition, the Subscriber has received in writing from the Company and its
subsidiary such other information concerning their operations, financial
condition and other matters as the Subscriber has requested in writing (such
other information is collectively, the "
Other
Written Information
"),
and
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities.
(e)
Information
on Subscriber
.
The
Subscriber is, and will be at the time of the conversion of the Preferred Stock
and exercise of the Warrants, an "accredited investor", as such term is defined
in Regulation D promulgated by the Commission under the 1933 Act, is experienced
in investments and business matters, has made investments of a speculative
nature and has purchased securities of United States publicly-owned companies
in
private placements in the past and, with its representatives, has such knowledge
and experience in financial, tax and other business matters as to enable the
Subscriber to utilize the information made available by the Company to evaluate
the merits and risks of and to make an informed investment decision with respect
to the proposed purchase, which represents a speculative investment. The
Subscriber has the authority and is duly and legally qualified to purchase
and
own the Securities. The Subscriber is able to bear the risk of such investment
for an indefinite period and to afford a complete loss thereof. The information
set forth on the signature page hereto regarding the Subscriber is
accurate.
(f)
Purchase
of Preferred Stock and Warrants
.
On the
Closing Date, the Subscriber will purchase the Preferred Stock and Warrants
as
principal for its own account for investment only and not with a view toward,
or
for resale in connection with, the public sale or any distribution
thereof.
(g)
Compliance
with Securities Act
.
The
Subscriber understands and agrees that the Securities have not been registered
under the 1933 Act or any applicable state securities laws, by reason of their
issuance in a transaction that does not require registration under the 1933
Act
(based in part on the accuracy of the representations and warranties of
Subscriber contained herein), and that such Securities must be held indefinitely
unless a subsequent disposition is registered under the 1933 Act or any
applicable state securities laws or is exempt from such registration.
Notwithstanding anything to the contrary contained in this Agreement, such
Subscriber may transfer (without restriction and without the need for an opinion
of counsel) the Securities to its Affiliates (as defined below) provided that
each such Affiliate is an “accredited investor” under Regulation D and such
Affiliate agrees to be bound by the terms and conditions of this Agreement.
For
the purposes of this Agreement, an “
Affiliate
”
of
any
person or entity means any other person or entity directly or indirectly
controlling, controlled by or under direct or indirect common control with
such
person or entity. Affiliate when employed in connection with the Company
includes each Subsidiary [as defined in Section 5(a)] of the Company. For
purposes of this definition, “
control
”
means
the power to direct the management and policies of such person or firm, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise.
(h)
Shares
Legend
.
The
Shares and the Warrant Shares shall bear the following or similar
legend:
"THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THESE SHARES MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAW
OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO GILDER ENTERPRISES, INC. THAT
SUCH
REGISTRATION IS NOT REQUIRED."
(i)
Warrants
Legend
.
The
Warrants shall bear the following
or
similar legend:
"THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND
THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR ANY APPLICABLE
STATE
SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO GILDER
ENTERPRISES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(j)
Preferred
Stock Legend
.
The
Preferred Stock shall bear the following legend:
"THIS
PREFERRED STOCK AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS PREFERRED
STOCK HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THIS PREFERRED STOCK AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THESE
PREFERRED STOCK MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THESE PREFERRED STOCK
UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO GILDER
ENTERPRISES, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(k)
Communication
of Offer
.
The
offer to sell the Securities was directly communicated to the Subscriber by
the
Company. At no time was the Subscriber presented with or solicited by any
leaflet, newspaper or magazine article, radio or television advertisement,
or
any other form of general advertising or solicited or invited to attend a
promotional meeting otherwise than in connection and concurrently with such
communicated offer.
(
l
)
Authority;
Enforceability
.
This
Agreement and other agreements delivered together with this Agreement or in
connection herewith have been duly authorized, executed and delivered by the
Subscriber and are valid and binding agreements enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating
to
or affecting creditors’ rights generally and to general principles of equity;
and Subscriber has full corporate power and authority necessary to enter into
this Agreement and such other agreements and to perform its obligations
hereunder and under all other agreements entered into by the Subscriber relating
hereto.
(
m
)
No
Governmental Review
.
Each
Subscriber understands that no United States federal or state agency or any
other governmental or state agency has passed on or made recommendations or
endorsement of the Securities or the suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the merits of
the
offering of the Securities.
(n)
Correctness
of Representations
.
Each
Subscriber represents as to such Subscriber that the foregoing representations
and warranties are true and correct as of the date hereof and, unless a
Subscriber otherwise notifies the Company prior to the Closing Date shall be
true and correct as of the Closing Date.
(o)
Survival
.
The
foregoing representations and warranties shall survive until three years after
the Closing Date.
5.
Company
Representations and Warranties
.
The
Company represents and warrants to and agrees with each Subscriber that except
as set forth in the Reports and as otherwise qualified in the Transaction
Documents:
(a)
Due
Incorporation
.
The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has the requisite
corporate power to own its properties and to carry on its business is disclosed
in the Reports
.
The
Company is duly qualified as a foreign corporation to do business and is in
good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a Material
Adverse Effect. For purpose of this Agreement, a “
Material
Adverse Effect
”
shall
mean a material adverse effect on the financial condition, results of
operations, properties or business of the Company taken as a whole. For purposes
of this Agreement, “
Subsidiary
”
means,
with respect to any entity at any date, any corporation, limited or general
partnership, limited liability company, trust, estate, association, joint
venture or other business entity) of which more than 50% of (i) the
outstanding capital stock having (in the absence of contingencies) ordinary
voting power to elect a majority of the board of directors or other managing
body of such entity, (ii) in the case of a partnership or limited liability
company, the interest in the capital or profits of such partnership or limited
liability company or (iii) in the case of a trust, estate, association,
joint venture or other entity, the beneficial interest in such trust, estate,
association or other entity business is, at the time of determination, owned
or
controlled directly or indirectly through one or more intermediaries, by such
entity. All the Company’s Subsidiaries as of the Closing Date are set forth on
Schedule
5(a)
hereto.
(b)
Outstanding
Stock
.
All
issued and outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable.
(c)
Authority;
Enforceability
.
This
Agreement, the Preferred Stock, Certificate of Designation, the Warrants, the
Escrow Agreement, and any other agreements delivered together with this
Agreement or in connection herewith (collectively “
Transaction
Documents
”)
have
been duly authorized, executed and delivered by the Company and are valid and
binding agreements enforceable in accordance with their terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity. The Company has full corporate
power and authority necessary to enter into and deliver the Transaction
Documents and to perform its obligations thereunder.
(d)
Additional
Issuances
.
There
are no outstanding agreements or preemptive or similar rights affecting the
Company's common stock or equity and no outstanding rights, warrants or options
to acquire, or instruments convertible into or exchangeable for, or agreements
or understandings with respect to the sale or issuance of any shares of common
stock or equity of the Company or other equity interest in any of the
Subsidiaries of the Company except as described on
Schedule
5(d)
.
The
Common stock of the Company on a fully diluted basis outstanding as of the
last
trading day preceding the Closing Date is set forth on
Schedule
5(d)
.
(e)
Consents
.
No
consent, approval, authorization or order of any court, governmental agency
or
body or arbitrator having jurisdiction over the Company, or any of its
Affiliates, any Principal Market (as defined in Section 9(b) of this Agreement),
nor the Company's shareholders is required for the execution by the Company
of
the Transaction Documents and compliance and performance by the Company of
its
obligations under the Transaction Documents, including, without limitation,
the
issuance and sale of the Securities. The Offering and Transaction Documents
have
been unanimously approved by the Company’s board of directors.
(f)
No
Violation or Conflict
.
Assuming the representations and warranties of the Subscribers in Section 4
are
true and correct, neither the issuance and sale of the Securities nor the
performance of the Company’s obligations under this Agreement and all other
agreements entered into by the Company relating thereto by the Company
will:
(i)
violate,
conflict with, result in a breach of, or constitute a default (or an event
which
with the giving of notice or the lapse of time or both would be reasonably
likely to constitute a default in any material respect) of a material nature
under (A) the articles or certificate of incorporation, charter or bylaws of
the
Company, (B) to the Company's knowledge, any decree, judgment, order, law,
treaty, rule, regulation or determination applicable to the Company of any
court, governmental agency or body, or arbitrator having jurisdiction over
the
Company or over the properties or assets of the Company or any of its
Affiliates, (C) the terms of any bond, debenture, note or any other evidence
of
indebtedness, or any agreement, stock option or other similar plan, indenture,
lease, mortgage, deed of trust or other instrument to which the Company or
any
of its Affiliates is a party, by which the Company or any of its Affiliates
is
bound, or to which any of the properties of the Company or any of its Affiliates
is subject, or (D) the terms of any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company, or any of its Affiliates
is a party except the violation, conflict, breach, or default of which would
not
have a Material Adverse Effect
;
or
(ii)
result
in
the creation or imposition of any lien, charge or encumbrance upon the
Securities or any of the assets of the Company or any of its Affiliates;
or
(iii)
except
as
disclosed in
Schedule
5(f)
,
result
in the activation of any anti-dilution rights or a reset or repricing of any
debt or security instrument of any other creditor or equity holder of the
Company, nor result in the acceleration of the due date of any obligation of
the
Company; or
(iv)
result
in
the activation of any piggy-back registration rights of any person or entity
holding securities or debt of the Company or having the right to receive
securities of the Company.
(g)
The
Securities
.
The
Securities upon issuance:
(i)
are,
or
will be, free and clear of any security interests, liens, claims or other
encumbrances, subject to restrictions upon transfer under the 1933 Act and
any
applicable state securities laws;
(ii)
have
been, or will be, duly and validly authorized and on the date of issuance of
the
Shares upon conversion of the Preferred Stock and issuance of the Warrant Shares
upon exercise of the Warrants will be duly and validly issued, fully paid and
nonassessable or if registered pursuant to the 1933 Act, and resold pursuant
to
an effective Registration Statement (as defined in Section 11.1(iv) hereof)
will
be free trading and unrestricted;
(iii)
will
not
have been issued or sold in violation of any preemptive or other similar rights
of the holders of any securities of the Company;
(iv)
will
not
subject the holders thereof to personal liability by reason of being such
holders provided Subscriber’s representations herein are true and accurate and
Subscribers take no actions or fail to take any actions required for their
purchase of the Securities to be in compliance with all applicable laws and
regulations; and
(v)
will
not
result in a violation of Section 5 under the 1933 Act.
(h)
Litigation
.
There
is no pending or, to the best knowledge of the Company, threatened action,
suit,
proceeding or investigation before any court, governmental agency or body,
or
arbitrator having jurisdiction over the Company, or any of its Affiliates that
would affect the execution by the Company or the performance by the Company
of
its obligations under the Transaction Documents. Except as disclosed in the
Reports [or as set forth in
Schedule
5(h)
],
there
is no pending or, to the best knowledge of the Company, basis for or threatened
action, suit, proceeding or investigation before any court, governmental agency
or body, or arbitrator having jurisdiction over the Company, or any of its
Affiliates which litigation if adversely determined would have a Material
Adverse Effect
.
(i)
Reporting
Company
.
The
Company is a publicly-held company subject to reporting obligations pursuant
to
Section 13(a) and 15(d) of the Securities Exchange Act of 1934 (the
“
1934
Act
”)
and
has a class of common shares registered pursuant to Section 12(g) of the 1934
Act. Pursuant to the provisions of the 1934 Act, the Company has timely filed
all reports and other materials required to be filed thereunder with the
Commission during the preceding twenty-four months.
(j)
No
Market Manipulation
.
The
Company and its Affiliates have not taken, and will not take, directly or
indirectly, any action designed to, or that might reasonably be expected to,
cause or result in stabilization or manipulation of the price of the Common
Stock
to
facilitate the sale or resale of the Securities or affect the price at which
the
Securities may be issued or resold, provided, however, that this provision
shall
not prevent the Company from engaging in investor relations/public relations
activities consistent with past practices.
(k)
Information
Concerning Company and Subsidiary
.
The
Reports contain all material information relating to the Company and its
operations and financial condition as of their respective dates and all the
information required to be disclosed therein. Since the last day of the fiscal
year of the most recent annual audited financial statements included in the
Reports (“
Latest
Financial Date
”),
and
except as modified in the Other Written Information or in the Schedules hereto,
there has been no Material Adverse Event relating to the Company's business,
financial condition or affairs not disclosed in the Reports. The Reports do
not
contain any untrue statement of a material fact or omit to state a material
fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances when made. The financial statements
included in the Reports have been prepared in accordance with United States
GAAP
and do not require any restatement to comply with United States GAAP as of
the
Closing Date.
The
audited financial statements of Medasorb Corporation, a Subsidiary of the
Company for the last two fiscal years ended December 31, 2004 and 2005 and
unaudited statements for the fiscal quarter ended March 31, 2006 are attached
hereto as
Exhibit
E
.
Such
financial statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis during
the periods involved (“
GAAP
”),
except as may be otherwise specified in such financial statements or the notes
thereto and except that unaudited financial statements may not contain all
footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
(l)
Stop
Transfer
.
The
Company will not issue any stop transfer order or other order impeding the
sale,
resale or delivery of any of the Securities, except as may be required by any
applicable federal or state securities laws and unless contemporaneous notice
of
such instruction is given to the Subscriber.
(m)
Defaults
.
The
Company is not in violation of its certificate or articles of incorporation
or
bylaws. The Company is (i) not in default under or in violation of any material
agreement or instrument to which it is a party or by which it or any of its
properties are bound or affected, which default or violation would have a
Material Adverse Effect
,
(ii)
not in default with respect to any order of any court, arbitrator or
governmental body or subject to or party to any order of any court or
governmental authority arising out of any action, suit or proceeding under
any
statute or other law respecting antitrust, monopoly, restraint of trade, unfair
competition or similar matters, or (iii) to the Company’s knowledge not in
violation of any statute, rule or regulation of any governmental authority
which
violation would have a Material Adverse Effect
.
(n)
Not
an
Integrated Offering.
Neither
the Company, nor any of its Affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security
or
solicited any offers to buy any security under circumstances that would cause
the offer of the Securities pursuant to this Agreement to be integrated with
prior offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of the OTC Bulletin Board
(“Bulletin
Board”)
any
Principal Market [as defined in Section 9(b)] which would impair the exemptions
relied upon in this Offering or the Company’s ability to timely comply with its
obligations hereunder. Nor will the Company or any of its Affiliates take any
action or steps that would cause the offer or issuance of the Securities to
be
integrated with other offerings which would impair the exemptions relied upon
in
this Offering or the Company’s ability to timely comply with its obligations
hereunder. The Company will not conduct any offering other than the transactions
contemplated hereby that will be integrated with the offer or issuance of the
Securities, which would impair the exemptions relied upon in this Offering
or
the Company’s ability to timely comply with its obligations
hereunder.
(o)
No
General Solicitation
.
Neither
the Company, nor any of its Affiliates, nor to its knowledge, any person acting
on its or their behalf, has engaged in any form of general solicitation or
general advertising (within the meaning of Regulation D under the 1933 Act)
in
connection with the offer or sale of the Securities.
(p)
Listing
.
The
Company's common stock is listed on the Bulletin Board under the symbol GDRE.
The Company has not received any oral or written notice that the Common Stock
is
not eligible nor will become ineligible for listing on the Bulletin Board nor
that the Common Stock does not meet all requirements for the continuation of
such listing. The Company satisfies all the requirements for the continued
quotation of the Common Stock on the Bulletin Board.
(q)
No
Undisclosed Liabilities
.
The
Company has no liabilities or obligations which are material, individually
or in
the aggregate, which are not disclosed in the Reports and Other Written
Information, other than those incurred in the ordinary course of the Company’s
businesses since the Latest Financial Date and which in the aggregate, would
reasonably be expected to have a Material Adverse Effect
,
except
as disclosed on
Schedule
5(q)
.
As of
the Closing Date, the net liabilities of the Company, not including the
Subsidiaries, will not exceed $100,000.
(r)
No
Undisclosed Events or Circumstances
.
Since
the Latest Financial Date, no event or circumstance has occurred or exists
with
respect to the Company or its businesses, properties, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which
has
not been so publicly announced or disclosed in the Reports.
(s)
Capitalization
.
The
authorized and outstanding capital stock of the Company as of the date of this
Agreement and the Closing Date (not including the Securities) are set forth
on
Schedule
5(d)
.
Except
as set forth on
Schedule
5(d)
,
there
are no options, warrants, or rights to subscribe to, securities, rights or
obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company or any of its
Subsidiaries. All of the outstanding shares of Common Stock of the Company
have
been duly and validly authorized and issued and are fully paid and
nonassessable.
(t)
Dilution
.
The
Company's executive officers and directors understand the nature of the
Securities being sold hereby and recognize that the issuance of the Securities
will have a potential dilutive effect on the equity holdings of other holders
of
the Company’s equity or rights to receive equity of the Company. The board of
directors of the Company has concluded, in its good faith business judgment
that
the issuance of the Securities is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Shares upon
conversion of the Preferred Stock, and the Warrant Shares upon exercise of
the
Warrants is binding upon the Company and enforceable regardless of the dilution
such issuance may have on the ownership interests of other shareholders of
the
Company or parties entitled to receive equity of the Company.
(u)
No
Disagreements with Accountants and Lawyers.
There
are no disagreements of any kind during the two fiscal years preceding the
date
of this Agreement, presently existing, or reasonably anticipated by the Company
to arise, between the Company and the accountants and lawyers formerly or
presently employed by the Company, including but not limited to disputes or
conflicts over payment owed to such accountants and lawyers.
(v)
Transfer
Agent
.
The
name, address, telephone number, fax number, contact person and email address
of
the Company transfer agent is set forth on
Schedule
5(v)
hereto.
(w)
Investment
Company
.
Neither
the Company nor any Affiliate is an “investment company” within the meaning of
the Investment Company Act of 1940, as amended.
(x)
Subsidiary
Representations
.
The
Company makes each of the representations contained in Sections 5(a), (b),
(d),
(e), (f), (h), (k), (m), (q), (r), (s), (u) and (w) of this Agreement, as same
relate to each Subsidiary of the Company, including but not limited to Medasorb
Corporation.
(y)
Company
Predecessor
.
All
representations made by or relating to the Company of a historical or
prospective nature and all undertakings described in Sections 9(g) through
9(l)
shall relate, apply and refer to the Company, its predecessors, and
Subsidiaries, including but not limited to Medasorb Corporation.
(z)
Correctness
of Representations
.
The
Company represents that the foregoing representations and warranties are true
and correct as of the date hereof in all material respects, and, unless the
Company otherwise notifies the Subscribers prior to the Closing Date, shall
be
true and correct in all material respects as of the Closing Date.
(AA)
Survival
.
The
foregoing representations and warranties shall survive until three years after
the Closing Date.
6.
Regulation
D Offering
.
The
offer and issuance of the Securities to the Subscribers is being made pursuant
to the exemption from the registration provisions of the 1933 Act afforded
by
Section 4(2) or Section 4(6) of the 1933 Act and/or Rule 506 of Regulation
D
promulgated thereunder. On the Closing Date, the Company will provide an opinion
reasonably acceptable to Subscriber from the Company's legal counsel opining
on
the availability of an exemption from registration under the 1933 Act as it
relates to the offer and issuance of the Securities and other matters reasonably
requested by Subscribers. A form of the legal opinion is annexed hereto as
Exhibit
D
.
The
Company will provide, at the Company's expense, such other legal opinions in
the
future as are reasonably necessary for the issuance and resale of the Common
Stock issuable upon conversion of the Preferred Stock and exercise of the
Warrants pursuant to an effective registration statement or Rule 144 under
the
1933 Act.
7.1.
Conversion
of Preferred Stock
.
(a)
Upon
the
conversion of any Preferred Stock, the Company shall, at its own cost and
expense, take all necessary action, including obtaining and delivering, an
opinion of counsel to assure that the Company's transfer agent shall issue
stock
certificates in the name of Subscriber (or its nominee) or such other persons
as
designated by Subscriber and in such denominations to be specified at conversion
representing the number of shares of Common Stock issuable upon such conversion.
The Company warrants that no instructions other than these instructions have
been or will be given to the transfer agent of the Company's Common Stock and
that, unless waived by the Subscriber, the Shares will be freely transferable,
and will not contain a legend
other
than the usual 1933 Act restriction from transfer legend. If and when the
Subscriber sells the Shares and Warrant Shares, assuming (i) the Registration
Statement (as defined below) is effective and the prospectus, as supplemented
or
amended, contained therein is current and (ii) the Subscriber confirms in
writing to the transfer agent that the Subscriber has or will comply with the
prospectus delivery requirements, upon delivery to the purchaser, the
restrictive legend will be immediately removed and the Shares and Warrant Shares
upon such sale will be free-trading, and freely transferable. In the event
that
the Shares and Warrant Shares are sold in a manner that complies with an
exemption from registration, the Company will promptly instruct its counsel
to
issue to the transfer agent an opinion permitting removal of the legend
(indefinitely, if pursuant to Rule 144(k) of the 1933 Act, or for 90 days if
pursuant to the other provisions of Rule 144 of the 1933 Act).
(b)
Nothing
contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of
a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required
to
be paid or other charges hereunder exceed the maximum permitted by such law,
any
payments in excess of such maximum shall be credited against amounts owed by
the
Company to the Subscriber and thus refunded to the Company.
7.2.
Adjustments.
The
Conversion Price, Warrant exercise price and amount of Shares issuable upon
conversion of the Preferred Stock and exercise of the Warrants shall be
equitably adjusted and as described in this Agreement, the Certificate of
Designation and Warrants.
7.3.
Redemption
.
The
Preferred Stock and Warrants shall not be redeemable or callable except as
described in the Certificate of Designation or Warrants.
8.
Broker/Legal
Fees.
(a)
Broker’s
Fee.
The
Company on the one hand, and each Subscriber (for itself only) on the other
hand, agree to indemnify the other against and hold the other harmless from
any
and all liabilities to any persons claiming brokerage commissions or finder’s
fees on account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby and arising out of such party’s actions. The Company
represents that to its knowledge there are no parties entitled to receive fees,
commissions, or similar payments from the Company in connection with the
transaction described in this Agreement (“
Offering
”),
except the party described on
Schedule
8
hereto
(“
Guarantor
”),
who
will receive a yield enhancement fee, described thereon.
(b)
Legal
Fees
.
The
Company shall pay to Grushko & Mittman, P.C., a cash fee of $25,000
(“
Legal
Fees
”)
as
reimbursement for services rendered to the Subscribers in connection with this
Agreement and the purchase and sale of the Preferred Stock and Warrants (the
“
Offering
”).
An
additional cash Legal Fee of $45,000 will be paid to Greenberg & Kahr on the
Closing Date out of funds held pursuant to the Escrow Agreement. The Legal
Fees
and reimbursement for UCC search fees, if any, to be paid by the Company will
be
payable on the Closing Date out of funds held pursuant to the Escrow Agreement.
In the event the aggregate Purchase price of the Offering is less than
$6,000,000, then the Company will pay one-half of the Legal Fees and the
Guarantor will pay the other half of the Legal Fees.
(c)
Due
Diligence Fee
.
On the
Closing Date, a cash due diligence fee of $50,000 (“
Due
Diligence Fee
”)
will
be paid to the party identified on
Schedule
8
hereto
(“
Due
Diligence Fee Recipient
”).
The
Company will pay $25,000 of the Due Diligence Fee out of funds held pursuant
to
the Escrow Agreement. The Guarantor will pay $25,000 of the Due Diligence
Fee.
9.
Covenants
of the Company
.
The
Company covenants and agrees with the Subscribers as follows:
(a)
Stop
Orders
.
The
Company will advise the Subscribers, within four hours after the Company
receives notice of issuance by the Commission, any state securities commission
or any other regulatory authority of any stop order or of any order preventing
or suspending any offering of any securities of the Company, or of the
suspension of the qualification of the Common Stock of the Company for offering
or sale in any jurisdiction, or the initiation of any proceeding for any such
purpose.
(b)
Listing
.
The
Company shall promptly secure the listing of the Shares and the Warrant Shares
upon each national securities exchange, or electronic or automated quotation
system upon which they are or become eligible for listing and shall maintain
such listing so long as any Preferred Stock or Warrants are outstanding. The
Company will maintain the listing of its Common Stock on the American Stock
Exchange, Nasdaq SmallCap Market, Nasdaq National Market System, Bulletin Board,
or New York Stock Exchange (whichever of the foregoing is at the time the
principal trading exchange or market for the Common Stock (the “
Principal
Market
”)),
and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market, as applicable.
The Company will provide the Subscribers copies of all notices it receives
notifying the Company of the threatened and actual delisting of the Common
Stock
from any Principal Market. As of the date of this Agreement, the Bulletin Board
is the Principal Market.
(c)
Market
Regulations
.
The
Company shall notify the Commission, the Principal Market and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the
Subscribers and promptly provide copies thereof to Subscriber.
(d)
Filing
Requirements
.
From
the date of this Agreement and until the sooner of (i) two (2) years after
the
Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, the Company will
(A)
comply in all respects with its reporting and filing obligations under the
1934
Act, (B) cause its Common Stock to continue to be registered under Section
12(b)
or 12(g) of the 1934 Act, and (C) comply with all requirements related to any
registration statement filed pursuant to this Agreement. The Company will use
its best efforts not to take any action or file any document (whether or not
permitted by the 1933 Act or the 1934 Act or the rules thereunder) to terminate
or suspend such registration under the 1934 Act or to terminate or suspend
its
reporting and filing obligations under said acts until two (2) years after
the
Closing Date. Until the earlier of the resale of the Common Stock and the
Warrant Shares by each Subscriber or two (2) years after the Warrants have
been
exercised, the Company will use its best efforts to continue the listing or
quotation of the Common Stock on a Principal Market and will comply in all
respects with the Company's reporting, filing and other obligations under the
bylaws or rules of the Principal Market. The Company agrees to timely file
a
Form D with respect to the Securities if required under Regulation D, if
required, and to provide a copy thereof to each Subscriber promptly after such
filing.
(e)
Use
of
Proceeds
.
The
proceeds of the Offering will be employed by the Company for the purposes set
forth on
Schedule
9(e)
hereto.
(f)
Reservation
.
Prior
to the Closing Date, the Company undertakes to reserve,
pro
rata
,
on
behalf of the Subscribers from its authorized but unissued common stock, a
number of common shares equal to
175%
of
the amount of Common Stock necessary to allow each Subscriber to be able to
convert all Preferred Stock issuable pursuant to this Agreement and dividends
thereon and reserve 100% of the amount of Warrant Shares issuable upon exercise
of the Warrants. Failure to have sufficient shares reserved pursuant to this
Section 9(f) for five (5) consecutive business days or fifteen (15) days in
the
aggregate shall be a material default of the Company’s obligations under this
Agreement and an Event of Default pursuant to the Certificate of
Designation.
(g)
Taxes
.
From
the date of this Agreement and until the sooner of (i) two (2) years after
the
Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, the Company will
promptly pay and discharge, or cause to be paid and discharged, when due and
payable, all lawful taxes, assessments and governmental charges or levies
imposed upon the income, profits, property or business of the Company; provided,
however, that any such tax, assessment, charge or levy need not be paid if
the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company shall have set aside on its books adequate
reserves with respect thereto, and provided, further, that the Company will
pay
all such taxes, assessments, charges or levies forthwith upon the commencement
of proceedings to foreclose any lien which may have attached as security
therefore.
(h)
Insurance
.
From
the date of this Agreement and until the sooner of (i) two (2) years after
the
Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, the Company will
keep its material assets which are of an insurable character insured by
financially sound and reputable insurers against loss or damage by fire,
explosion and other risks customarily insured against by companies in the
Company’s line of business, in amounts sufficient to prevent the Company from
becoming a co-insurer and not in any event less than one hundred percent (100%)
of the insurable value of the property insured; and the Company will maintain,
with financially sound and reputable insurers, insurance against other hazards
and risks and liability to persons and property to the extent and in the manner
customary for companies in similar businesses similarly situated and to the
extent available on commercially reasonable terms.
(i)
Books
and Records.
From the
date of this Agreement and until the sooner of (i) two (2) years after the
Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, the Company will
keep true records and books of account in which full, true and correct entries
will be made of all dealings or transactions in relation to its business and
affairs in accordance with generally accepted accounting principles applied
on a
consistent basis.
(j)
Governmental
Authorities.
From the
date of this Agreement and until the sooner of (i) two (2) years after the
Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, the Company shall
duly observe and conform in all material respects to all valid requirements
of
governmental authorities relating to the conduct of its business or to its
properties or assets.
(k)
Intellectual
Property
.
From
the date of this Agreement and until the sooner of (i) two (2) years after
the
Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, the Company shall
maintain in full force and effect its corporate existence, rights and franchises
and all licenses and other rights to use intellectual property owned or
possessed by it and reasonably deemed to be necessary to the conduct of its
business, unless it is sold for value.
(l)
Properties.
From the
date of this Agreement and until the sooner of (i) two (2) years after the
Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, the Company will
keep its material properties in good repair, working order and condition,
reasonable wear and tear excepted, and from time to time make all necessary
and
proper repairs, renewals, replacements, additions and improvements thereto;
and
the Company will at all times comply with each provision of all leases to which
it is a party or under which it occupies property if the breach of such
provision could reasonably be expected to have a Material Adverse
Effect.
(m)
Confidentiality/Public
Announcement.
From the
date of this Agreement and until the sooner of (i) two (2) years after the
Closing Date, or (ii) until all the Shares and Warrant Shares have been resold
or transferred by all the Subscribers pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, the Company agrees
that except in connection with a Form 8-K or the Registration Statement or
as
otherwise required in any other Commission filing, it will not disclose publicly
or privately the identity of the Subscribers unless expressly agreed to in
writing by a Subscriber, only to the extent required by law and then only upon
five days prior notice to Subscriber. In any event and subject to the foregoing,
the Company shall
file
a
Form 8-K or make a public announcement describing the Offering not later than
the third business day after the Closing Date. In the Form 8-K or public
announcement, the Company will specifically disclose the amount of common stock
outstanding immediately after the Closing. A form of the proposed Form 8-K
or
public announcement to be employed in connection with the Closing is annexed
hereto as
Exhibit
F
.
(n)
Further
Registration Statements.
Except
for a registration statement filed exclusively on behalf of the Subscribers
pursuant to Section 11 of this Agreement, the Company will not file any
registration statements nor amend any already filed registration statement,
including but not limited to Forms S-8, with the Commission or with state
regulatory authorities without the consent of the Subscriber nor allow any
other
registration statement to be declared effective by the Commission until the
sooner of (i) the Registration Statement shall have been current and available
for use in connection with the resale of the Registrable Securities (as defined
in Section 11.1(i)) for a period of 180 days, or (ii) until all the Shares
and
Warrant Shares have been resold or transferred by the Subscribers pursuant
to
the Registration Statement or Rule 144, without regard to volume limitations
(“
Exclusion
Period
”).
The
Exclusion Period will be tolled during the pendency of an Event of Default
as
defined in the Certificate of Designation.
(o)
Blackout.
The
Company undertakes and covenants that until the end of the Exclusion Period,
the
Company will not enter into any acquisition, merger, exchange or sale or other
transaction that could have the effect of delaying the effectiveness of any
pending registration statement or causing an already effective registration
statement to no longer be effective or current for a period ten (10) or more
consecutive
days
nor
more than twenty (20) days in the aggregate during any consecutive three hundred
and sixty-five (365) day period.
(p)
Non-Public
Information
.
The
Company covenants and agrees that neither it nor any other person acting on
its
behalf will provide any Subscriber or its agents or counsel with any information
that the Company believes constitutes material non-public information, unless
prior thereto such Subscriber shall have agreed in writing to receive such
information. The Company understands and confirms that each Subscriber shall
be
relying on the foregoing representations in effecting transactions in securities
of the Company.
(q)
Negative
Covenants
.
So long
as at least twenty-five percent (25%) of the principal amount of the Preferred
Stock issued on the Closing Date is outstanding and during the pendency of
an
Event of Default (as defined in the Certificate of Designation), without the
consent of the Subscribers, the Company will not directly or
indirectly:
(i)
create,
incur, assume or suffer to exist any pledge, hypothecation, assignment, deposit
arrangement, lien, charge, claim, security interest, security title, mortgage,
security deed or deed of trust, easement or encumbrance, or preference, priority
or other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing,
and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the Uniform Commercial Code or comparable law of any
jurisdiction) (each, a “
Lien
”)
upon
any of its property, whether now owned or hereafter acquired except for (A)
the
Excepted Issuances (as defined in Section 12(a) hereof), (B) (a) Liens imposed
by law for taxes that are not yet due or are being contested in good faith
and
for which adequate reserves have been established in accordance with generally
accepted accounting principles; (b) carriers’, warehousemen’s, mechanics’,
material men’s, repairmen’s and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not overdue by
more than 30 days or that are being contested in good faith and by appropriate
proceedings; (c) pledges and deposits made in the ordinary course of business
in
compliance with workers’ compensation, unemployment insurance and other social
security laws or regulations; (d) deposits to secure the performance of bids,
trade contracts, leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature, in each case in the
ordinary course of business; (e) Liens created with respect to the financing
of
the purchase of new property in the ordinary course of the Company’s business up
to the amount of the purchase price of such property, or (f) easements, zoning
restrictions, rights-of-way and similar encumbrances on real property imposed
by
law or arising in the ordinary course of business that do not secure any
monetary obligations and do not materially detract from the value of the
affected property (each of (a) through (f), a “
Permitted
Lien
”)
and
(C) indebtedness for borrowed money which is not senior or pari passu to the
rights of the Subscribers to receive assets of the Company upon bankruptcy
or
dissolution
;
(ii)
amend
its
certificate of incorporation, bylaws or its charter documents so as to adversely
affect any rights of the Subscriber;
(iii)
repay,
repurchase or offer to repay, repurchase or otherwise acquire or make any
dividend or distribution in respect of any of its Common Stock, preferred stock,
or other equity securities other than to the extent permitted or required under
the Transaction Documents;
(iv)
prepay
any financing related debt obligations; or
(v)
engage
in
any transactions with any officer, director, employee or any Affiliate of the
Company, including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any entity in
which any officer, director, or any such employee has a substantial interest
or
is an officer, director, trustee or partner, in each case in excess of $25,000
other than (i) for payment of salary or consulting fees for services rendered,
(ii) reimbursement for expenses incurred on behalf of the Company, and (iii)
for
other employee benefits, including stock option agreements under any stock
option plan of the Company, or interest previously owned by officers, directors,
or employees of the Company as described on
Schedule
9(q)
.
10.
Covenants
of the Company and Subscriber Regarding Indemnification.
(a)
The
Company agrees to indemnify, hold harmless, reimburse and defend the
Subscribers, the Subscribers' officers, directors, agents, Affiliates, control
persons, and principal shareholders, against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees) of
any
nature, incurred by or imposed upon the Subscriber or any such person which
results, arises out of or is based upon (i) any material misrepresentation
by
Company or breach of any warranty by Company in this Agreement or in any
Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any breach
or
default in performance by the Company of any covenant or undertaking to be
performed by the Company hereunder, or any other agreement entered into by
the
Company and Subscriber relating hereto.
(b)
Each
Subscriber agrees to indemnify, hold harmless, reimburse and defend the Company
and each of the Company’s officers, directors, agents, Affiliates, control
persons against any claim, cost, expense, liability, obligation, loss or damage
(including reasonable legal fees) of any nature, incurred by or imposed upon
the
Company or any such person which results, arises out of or is based upon (i)
any
material misrepresentation by such Subscriber in this Agreement or in any
Exhibits or Schedules attached hereto, or other agreement delivered pursuant
hereto; or (ii) after any applicable notice and/or cure periods, any breach
or
default in performance by such Subscriber of any covenant or undertaking to
be
performed by such Subscriber hereunder, or any other agreement entered into
by
the Company and Subscribers, relating hereto.
(c)
In
no
event shall the liability of any Subscriber or permitted successor hereunder
or
under any Transaction Document or other agreement delivered in connection
herewith be greater in amount than the dollar amount of the net proceeds
actually received by such Subscriber upon the sale of Registrable Securities
(as
defined herein).
(d)
The
procedures set forth in Section 11.6 shall apply to the indemnification set
forth in Sections 10(a) and 10(b) above.
11.1.
Registration
Rights
.
The
Company hereby grants the following registration rights to holders of the
Securities.
(i)
On
one
occasion, for a period commencing one hundred and twenty-one (121) days after
the Closing Date, but not later than two (2) years after the Closing Date,
upon
a written request therefor from any record holder or holders of more than 50%
of
the Shares issued and issuable upon conversion of the outstanding Preferred
Stock and outstanding Warrant Shares, the Company shall prepare and file with
the Commission a registration statement under the 1933 Act registering the
Registrable Securities, as defined in Section 11.1(iv) hereof, which are the
subject of such request for unrestricted public resale by the holder thereof.
For purposes of Sections 11.1(i) and 11.1(ii), Registrable Securities shall
not
include Securities which are (A) registered for resale in an effective
registration statement, (B) included for registration in a pending registration
statement, (C) which have been issued without further transfer restrictions
after a sale or transfer pursuant to Rule 144 under the 1933 Act, or (D) which
may be sold under Rule 144(k). Upon the receipt of such request, the Company
shall promptly give written notice to all other record holders of the
Registrable Securities that such registration statement is to be filed and
shall
include in such registration statement Registrable Securities for which it
has
received written requests within ten (10) days after the Company gives such
written notice. Such other requesting record holders shall be deemed to have
exercised their demand registration right under this Section
11.1(i).
(ii)
If
the
Company at any time proposes to register any of its securities under the 1933
Act for sale to the public, whether for its own account or for the account
of
other security holders or both, except with respect to registration statements
on Forms S-4, S-8 or another form not available for registering the Registrable
Securities for sale to the public, provided the Registrable Securities are
not
otherwise registered for resale by the Subscribers or Holder pursuant to an
effective registration statement, each such time it will give at least fifteen
(15) days' prior written notice to the record holder of the Registrable
Securities of its intention so to do. Upon the written request of the holder,
received by the Company within ten (10) days after the giving of any such notice
by the Company, to register any of the Registrable Securities not previously
registered, the Company will cause such Registrable Securities as to which
registration shall have been so requested to be included with the securities to
be covered by the registration statement proposed to be filed by the Company,
all to the extent required to permit the sale or other disposition of the
Registrable Securities so registered by the holder of such Registrable
Securities (the “
Seller
”
or
“
Sellers
”).
In
the event that any registration pursuant to this Section 11.1(ii) shall be,
in
whole or in part, an underwritten public offering of common stock of the
Company, the number of shares of Registrable Securities to be included in such
an underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall reasonably be of the opinion that
such inclusion would adversely affect the marketing of the securities to be
sold
by the Company therein; provided, however, that the Company shall notify the
Seller in writing of any such reduction. Notwithstanding the foregoing
provisions, or Section 11.4 hereof, the Company may withdraw or delay or suffer
a delay of any registration statement referred to in this Section 11.1(ii)
without thereby incurring any liability to the Seller.
(iii)
If,
at
the time any written request for registration is received by the Company
pursuant to Section 11.1(i), the Company has determined to proceed with the
actual preparation and filing of a registration statement under the 1933 Act
in
connection with the proposed offer and sale for cash of any of its securities
for the Company's own account and the Company actually does file such other
registration statement, such written request shall be deemed to have been given
pursuant to Section 11.1(ii) rather than Section 11.1(i), and the rights of
the
holders of Registrable Securities covered by such written request shall be
governed by Section 11.1(ii).
(iv)
The
Company shall file with the Commission a Form SB-2 registration statement (the
“
Registration
Statement
”)
(or
such other form that it is eligible to use) in order to register the Registrable
Securities for resale and distribution under the 1933 Act not later than one
hundred and twenty (120) days after the Closing Date
(the
“
Filing
Date
”),
and
cause to be declared effective
not
later
than two hundred and forty (240) calendar days after the Closing Date
(the
“
Effective
Date
”).
The
Company will register not less than a number of shares of common stock in the
aforedescribed registration statement that is equal to
175%
of
the Shares issuable upon conversion of all of the Preferred Stock issuable
to
the Subscribers and the dividends thereon, and 100% of the Warrant Shares
issuable pursuant to this Agreement upon exercise of the Warrants (collectively
the “
Registrable
Securities
”).
The
Registrable Securities shall be reserved and set aside exclusively for the
benefit of each Subscriber and Warrant holder,
pro
rata
,
and not
issued, employed or reserved for anyone other than each such Subscriber and
Warrant holder. The Registration Statement will immediately be amended or
additional registration statements will be immediately filed by the Company
as
necessary to register additional shares of Common Stock to allow the public
resale of all Common Stock included in and issuable by virtue of the Registrable
Securities. Except with the written consent of the Subscriber, or as described
on
Schedule
11.1
hereto,
no securities of the Company other than the Registrable Securities will be
included in the Registration Statement. It shall be deemed a Non-Registration
Event if at any time after the date the Registration Statement is declared
effective by the Commission (“
Actual
Effective Date
”)
the
Company has registered for unrestricted resale on behalf of the Sellers fewer
than
125%
of
the amount of Common Shares issuable upon full conversion of all sums due under
the Preferred Stock and 100% of the Warrant Shares issuable upon exercise of
the
Warrants.
11.2.
Registration
Procedures
.
If and
whenever the Company is required by the provisions of Section 11.1(i), 11.1(ii),
or (iv) to effect the registration of any Registrable Securities under the
1933
Act, the Company will, as expeditiously as possible:
(a)
subject
to the timelines provided in this Agreement, prepare and file with the
Commission a registration statement required by Section 11, with respect to
such
securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as herein provided), promptly provide to the holders of
the
Registrable Securities copies of all filings and Commission letters of comment
and notify Grushko & Mittman, P.C. (by telecopier or by email to
Counslers@aol.com
)
on or
before 6:00 PM EST not later than the first business Day after the Company
receives notice that (i) the Commission has no comments or no further comments
on the Registration Statement, and (ii) the registration statement has been
declared effective (failure to timely provide notice as required by this Section
11.2(a) shall be a material breach of the Company’s obligation and an Event of
Default as defined in the
Preferred
Stock and a Non-Registration Event as defined in Section 11.4 of this
Agreement);
(b)
prepare
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may
be
necessary to keep such registration statement effective until such registration
statement has been effective for a period of two (2) years or the sale or
transfer of all Registrable Securities pursuant to the Registration Statement
or
pursuant to Rule 144, without regard to volume limitations, and comply with
the
provisions of the 1933 Act with respect to the disposition of all of the
Registrable Securities covered by such registration statement in accordance
with
the Sellers’ intended method of disposition set forth in such registration
statement for such period;
(c)
furnish
to the Sellers, at the Company’s expense, such number of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or their disposition of the securities covered by
such registration statement or make them electronically available;
(d)
use
its
commercially
reasonable best efforts to register or q
ualify the Registrable Securities
covered by such registration statement under the securities or “blue sky” laws
of New York and such jurisdictions as the Sellers shall request in writing,
provided, however, that the Company shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service
of
process in any such jurisdiction;
(e)
if
applicable, list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the Company
is then listed;
(f)
notify
the Subscribers within four hours of the Company’s becoming aware that a
prospectus relating thereto is required to be delivered under the 1933 Act,
of
the happening of any event of which the Company has knowledge as a result of
which the prospectus contained in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing or which
becomes subject to a Commission, state or other governmental order suspending
the effectiveness of the registration statement covering any of the
Shares;
(g)
provided
same would not be in violation of the provision of Regulation FD under the
1934
Act, reasonably make available for inspection by the Sellers, and any attorney,
accountant or other agent retained by the Seller or underwriter, upon prior
written request, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
attorney, accountant or agent in connection with such registration statement;
and
(h)
provide
to the Sellers copies of the Registration Statement and amendments thereto
not
later than three business days prior to the filing thereof with the
Commission.
11.3.
Provision
of Documents
.
In
connection with each registration described in this Section 11, each Seller
will
furnish to the Company in writing such information and representation letters
with respect to itself and the proposed distribution by it as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws.
11.4.
Non-Registration
Events
.
The
Company and the Subscribers agree that the Sellers will suffer damages if the
Registration Statement is not filed by the Filing Date and not declared
effective by the Commission by the Effective Date, and any registration
statement required under Section 11.1(i) or 11.1(ii) is not filed within 60
days
after written request and declared effective by the Commission within 120 days
after such request or, if later, within 240 calendar days after the Closing
Date
with respect to any Registration Statement required under Section 11.1(ii),
and
maintained in the manner and within the time periods contemplated by Section
11
hereof, and it would not be feasible to ascertain the extent of such damages
with precision. Accordingly, if (A) the Registration Statement is not filed
on
or before the Filing Date, (B) is not declared effective on or before the
Effective Date, (C) due to the action or inaction of the Company the
Registration Statement is not declared effective within three (3) business
days
after receipt by the Company or its attorneys of a written or oral communication
from the Commission that the Registration Statement will not be reviewed or
that
the Commission has no further comments which time will be reasonably extended
if
the Company is required to amend the Registration Statement to include
additional financial statements, (D) if the registration statement described
in
Sections 11.1(i) or 11.1(ii) is not filed within 60 days after such written
request, or is not declared effective within 120 days after such written request
or, if later, within 240 calendar days after the Closing Date with respect
to
any Registration Statement required under Section 11.1(ii), or (E) any
registration statement described in Sections 11.1(i), 11.1(ii) or 11.1(iv)
is
filed and declared effective but shall thereafter cease to be effective without
being succeeded within twenty (20) business days by an effective replacement
or
amended registration statement or for a period of time which shall exceed 30
days in the aggregate per year (defined as a period of 365 days commencing
on
the Actual Effective Date (each such event referred to in clauses (A) through
(E) of this Section 11.4 is referred to herein as a "Non-Registration Event"),
then the Company shall deliver to the holder of Registrable Securities, as
Liquidated Damages, an amount equal to two percent (2%) for each thirty (30)
days or part thereof of the Purchase Price of the Preferred Stock remaining
unconverted and purchase price of Shares issued upon conversion of the
Obligation Amount (as defined in the Certificate of Designation) owned of record
by such holder which are subject to such Non-Registration Event until such
time
as the Non-Registration Event is cured. The Company must pay the Liquidated
Damages in cash. The Liquidated Damages must be paid within ten (10) days after
the end of each thirty (30) day period or shorter part thereof for which
Liquidated Damages are payable. In the event a Registration Statement is filed
by the Filing Date but is withdrawn prior to being declared effective by the
Commission, then such Registration Statement will be deemed to have not been
filed.
All
oral
or written comments received from the Commission relating to the Registration
Statement must be satisfactorily responded to
within
fifteen (15) business days after receipt of comments from the Commission.
Failure
to
timely respond to Commission comments is a Non-Registration Event for which
Liquidated Damages shall accrue and be payable by the Company to the holders
of
Registrable Securities at the same rate set forth above. Notwithstanding the
foregoing, the Company shall not be liable to the Subscriber under this Section
11.4 for any events or delays occurring as a consequence of the acts or
omissions of the Subscribers contrary to the material obligations undertaken
by
Subscribers in this Agreement. Liquidated Damages will not accrue nor be payable
pursuant to this Section 11.4 nor will a Non-Registration Event be deemed to
have occurred for times during which Registrable Securities are transferable
by
the holder of Registrable Securities pursuant to Rule 144(k) under the 1933
Act.
11.5.
Expenses
.
All
expenses incurred by the Company in complying with Section 11, including,
without limitation, all registration and filing fees, printing expenses (if
required), fees and disbursements of counsel and independent public accountants
for the Company, fees and expenses (including reasonable counsel fees) incurred
in connection with complying with state securities or “blue sky” laws, fees of
the National Association of Securities Dealers, Inc., transfer taxes, and fees
of transfer agents and registrars, are called “
Registration
Expenses
.”
All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities are called "
Selling
Expenses
."
The
Company will pay all Registration Expenses in connection with the registration
statement under Section 11. Selling Expenses in connection with each
registration statement under Section 11 shall be borne by the Seller and may
be
apportioned among the Sellers in proportion to the number of shares sold by
the
Seller relative to the number of shares sold under such registration statement
or as all Sellers thereunder may agree.
11.6.
Indemnification
and Contribution
.
(a)
In
the
event of a registration of any Registrable Securities under the 1933 Act
pursuant to Section 11, the Company will, to the extent permitted by law,
indemnify and hold harmless the Seller, each officer of the Seller, each
director of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the 1933 Act, against any losses, claims,
damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Securities was registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances when made, and will subject to the provisions
of
Section 11.6(c) reimburse the Seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable
to
the Seller to the extent that any such damages arise out of or are based upon
an
untrue statement or omission made in any preliminary prospectus if (i) the
Seller failed to send or deliver a copy of the final prospectus or supplement
to
the final prospectus delivered by the Company to the Seller with or prior to
the
delivery of written confirmation of the sale by the Seller to the person
asserting the claim from which such damages arise, (ii) the final prospectus
or
supplement to the final prospectus would have corrected such untrue statement
or
alleged untrue statement or such omission or alleged omission, or (iii) to
the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such Seller,
or
any such controlling person in writing specifically for use in such registration
statement or prospectus.
(b)
In
the
event of a registration of any of the Registrable Securities under the 1933
Act
pursuant to Section 11, each Seller severally but not jointly will, to the
extent permitted by law, indemnify and hold harmless the Company, and each
person, if any, who controls the Company within the meaning of the 1933 Act,
each officer of the Company who signs the registration statement, each director
of the Company, each underwriter and each person who controls any underwriter
within the meaning of the 1933 Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
underwriter or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
under which such Registrable Securities were registered under the 1933 Act
pursuant to Section 11, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter
and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Seller will be liable hereunder
in any such case if and only to the extent that any such loss, claim, damage
or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability
of
the Seller hereunder shall be limited to the net proceeds actually received
by
the Seller from the sale of Registrable Securities covered by such registration
statement.
(c)
Promptly
after receipt by an indemnified party hereunder of notice of the commencement
of
any action, such indemnified party shall, if a claim in respect thereof is
to be
made against the indemnifying party hereunder, notify the indemnifying party
in
writing thereof, but the omission so to notify the indemnifying party shall
not
relieve it from any liability which it may have to such indemnified party other
than under this Section 11.6(c) and shall only relieve it from any liability
which it may have to such indemnified party under this Section 11.6(c), except
and only if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake
the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 11.6(c) for any legal expenses subsequently incurred
by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both
the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to
it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed
to
conflict with the interests of the indemnifying party, the indemnified parties,
as a group, shall have the right to select one separate counsel and to assume
such legal defenses and otherwise to participate in the defense of such action,
with the reasonable expenses and fees of such separate counsel and other
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.
(d)
In
order
to provide for just and equitable contribution in the event of joint liability
under the 1933 Act in any case in which either (i) a Seller, or any controlling
person of a Seller, makes a claim for indemnification pursuant to this Section
11.6 but it is judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time to appeal or
the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 11.6 provides
for indemnification in such case, or (ii) contribution under the 1933 Act may
be
required on the part of the Seller or controlling person of the Seller in
circumstances for which indemnification is not provided under this Section
11.6;
then, and in each such case, the Company and the Seller will contribute to
the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Seller is
responsible only for the portion represented by the percentage that the public
offering price of its securities offered by the registration statement bears
to
the public offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (y) the Seller will not
be
required to contribute any amount in excess of the public offering price of
all
such securities sold by it pursuant to such registration statement; and (z)
no
person or entity guilty of fraudulent misrepresentation (within the meaning
of
Section 11(f) of the 1933 Act) will be entitled to contribution from any person
or entity who was not guilty of such fraudulent misrepresentation.
11.7.
Delivery
of Unlegended Shares
.
(a)
Within
three (3) business days (such third business day being the “
Unlegended
Shares Delivery Date
”)
after
the business day on which the Company has received (i) a notice that Shares
or
Warrant Shares or any other Common Stock held by a Subscriber have been sold
pursuant to the Registration Statement or Rule 144 under the 1933 Act, (ii)
a
representation that the prospectus delivery requirements, or the requirements
of
Rule 144, as applicable and if required, have been satisfied, and (iii) the
original share certificates representing the shares of Common Stock that have
been sold, and (iv) in the case of sales under Rule 144, customary
representation letters of the Subscriber and/or Subscriber’s broker regarding
compliance with the requirements of Rule 144, the Company at its expense, (y)
shall deliver, and shall cause legal counsel selected by the Company to deliver
to its transfer agent (with copies to Subscriber) an appropriate instruction
and
opinion of such counsel, directing the delivery of shares of Common Stock
without any legends including the legend set forth in Section 4(
h
)
above,
reissuable pursuant to any effective and current Registration Statement
described in Section 11 of this Agreement or pursuant to Rule 144 under the
1933
Act (the “
Unlegended
Shares
”);
and
(z) cause the transmission of the certificates representing the Unlegended
Shares together with a legended certificate representing the balance of the
submitted Shares certificate, if any, to the Subscriber at the address specified
in the notice of sale, via express courier, by electronic transfer or otherwise
on or before the Unlegended Shares Delivery Date.
(b)
In
lieu
of delivering physical certificates representing the Unlegended Shares, if
the
Company’s transfer agent is participating in the Depository Trust Company
(“
DTC
”)
Fast
Automated Securities Transfer program, upon request of a Subscriber, so long
as
the certificates therefor do not bear a legend and the Subscriber is not
obligated to return such certificate for the placement of a legend thereon,
the
Company agrees to cause its transfer agent to electronically transmit the
Unlegended Shares by crediting the account of Subscriber’s prime Broker with DTC
through its Deposit Withdrawal Agent Commission system. Such delivery must
be
made on or before the Unlegended Shares Delivery Date.
(c)
The
Company understands that a delay in the delivery of the Unlegended Shares
pursuant to Section 11 hereof later than two business days after the Unlegended
Shares Delivery Date could result in economic loss to a Subscriber. As
compensation to a Subscriber for such loss, the Company agrees to pay late
payment fees (as liquidated damages and not as a penalty) to the Subscriber
for
late delivery of Unlegended Shares in the amount of $100 per business day after
the Delivery Date for each $10,000 of purchase price of the Unlegended Shares
subject to the delivery default. If during any 360 day period, the Company
fails
to deliver Unlegended Shares as required by this Section 11.7 for an aggregate
of thirty (30) days, then each Subscriber or assignee holding Securities subject
to such default may, at its option, require the Company to redeem all or any
portion of the Shares and Warrant Shares subject to such default at a price
per
share equal to 120% of the purchase price of such Common Stock and Warrant
Shares (“
Unlegended
Redemption Amount
”).
The
amount of the aforedescribed liquidated damages that have accrued or been paid
for the twenty day period prior to the receipt by the Subscriber of the
Unlegended Redemption Amount shall be credited against the Unlegended Redemption
Amount. The Company shall pay any payments incurred under this Section in
immediately available funds upon demand.
(d)
In
addition to any other rights available to a Subscriber, if the Company fails
to
deliver to a Subscriber Unlegended Shares as required pursuant to this
Agreement, within seven (7) business days after the Unlegended Shares Delivery
Date and the Subscriber or a broker on the Subscriber’s behalf, purchases (in an
open market transaction or otherwise) shares of common stock to deliver in
satisfaction of a sale by such Subscriber of the shares of Common Stock which
the Subscriber was entitled to receive from the Company (a "
Buy-In
"),
then
the Company shall pay in cash to the Subscriber (in addition to any remedies
available to or elected by the Subscriber) the amount by which (A) the
Subscriber's total purchase price (including brokerage commissions, if any)
for
the shares of common stock so purchased exceeds (B) the aggregate purchase
price
of the shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares
together
with interest thereon at a rate of 15% per annum, accruing until such amount
and
any accrued interest thereon is paid in full (which amount shall be paid as
liquidated damages and not as a penalty).
For
example, if a Subscriber purchases shares of Common Stock having a total
purchase price of $11,000 to cover a Buy-In with respect to $10,000 of purchase
price of shares of Common Stock delivered to the Company for reissuance as
Unlegended Shares, the Company shall be required to pay the Subscriber
$
1,000,
plus interest.
The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.
(e)
In
the
event a Subscriber shall request delivery of Unlegended Shares as described
in
Section 11.7 and the Company is required to deliver such Unlegended Shares
pursuant to Section 11.7, the Company may not refuse to deliver Unlegended
Shares based on any claim that such Subscriber or any one associated or
affiliated with such Subscriber has been engaged in any violation of law, or
for
any other reason, unless, an injunction or temporary restraining order from
a
court, on notice, restraining and or enjoining delivery of such Unlegended
Shares or exercise of all or part of said Warrant shall have been sought and
obtained by the Company or at the Company’s request or with the Company’s
assistance,
and the
Company has posted a surety bond for the benefit of such Subscriber in the
amount of 120% of the amount of the aggregate purchase price of the Common
Stock
and Warrant Shares which are subject to the injunction or temporary restraining
order, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Subscriber to the extent Subscriber obtains judgment in Subscriber’s
favor.
12.
(a)
Right
of First Refusal
.
Until
one year after the Actual Effective Date, the Subscribers shall be given not
less than seven (7) business days prior written notice of any proposed sale
by
the Company of its common stock or other securities or debt obligations, except
in connection with (i) full or partial consideration in connection with a
strategic merger, acquisition, consolidation or purchase of substantially all
of
the securities or assets of corporation or other entity which holders of such
securities or debt are not at any time granted registration rights,
(ii)
the
Company’s issuance of securities in connection with strategic license agreements
and other partnering arrangements so long as such issuances are not for the
purpose of raising capital
which
holders of such securities or debt are not at any time granted registration
rights
,
(iii)
the Company’s issuance of Common Stock or the issuances or grants of options to
purchase Common Stock to employees, directors or consultants of the Company
pursuant to stock option plans and employee stock purchase plans described
on
Schedule
5(d)
hereto,
(iv) as a result of the exercise of Warrants or conversion of Preferred Stock
which are granted or issued pursuant to this Agreement, (v) the payment of
dividends on the Preferred Stock and liquidated and other damages hereunder,
and
(vi)
as
has
been described in the Reports or Other Written Information filed with the
Commission not later than three Business Days before the Closing Date and
available on the EDGAR system, (vii) the issuance of securities in connection
with a commercial bank lending arrangement, and (viii) as described on
Schedule
12(a)
hereto
(collectively the foregoing are “
Excepted
Issuances
”).
The
Subscribers who exercise their rights pursuant to this Section 12(a) shall
have
the right during the seven (7) business days following receipt of the notice
to
participate in such offering of common stock, debt or other securities in
accordance with the terms and conditions set forth in the notice of sale in
the
same proportion to each other as their purchase of Preferred Stock in the
Offering for up to the entire amount of such other offering. In the event such
terms and conditions are modified during the notice period, the Subscribers
shall be given prompt notice of such modification and shall have the right
during the seven (7) business days following the notice of modification to
exercise such right.
(b)
Favored
Nations Provision
.
Other
than in connection with the Excepted Issuances, for so long as Preferred Stock
or Warrants are outstanding, if the Company shall offer, issue or agree to
issue
any Common Stock or securities convertible into or exercisable for shares of
Common Stock (or modify any of the foregoing which may be outstanding) to any
person or entity at a price per share or conversion or exercise price per share
which shall be less than the Conversion Price in respect of the Preferred Stock,
or if less than the Warrant exercise price in respect of the Warrants, without
the consent of each Subscriber holding Preferred Stock or Warrants, the
Conversion Price of the Preferred Stock and the Warrant exercise price shall
automatically be reduced to such lower price. For purposes of the adjustment
described in this paragraph, the issuance of any security of the Company
carrying the right to convert such security into shares of Common Stock or
of
any warrant, right or option to purchase Common Stock shall result in the
reduction in the Conversion Price and Exercise Price, if applicable, upon the
sooner of the agreement to or actual issuance of such convertible security,
warrant, right or option and again at any time upon any subsequent issuances
of
shares of Common Stock upon exercise of such conversion or purchase rights
if
such issuance is at a price lower than the Conversion Price or Warrant exercise
price in effect upon such issuance. The rights of the Subscriber set forth
in
this Section 12 are in addition to any other rights the Subscriber has pursuant
to this Agreement, the Certificate of Designation, any Transaction Document,
any
other agreement referred to or entered into in connection herewith, and at
law,
equity or otherwise.
(c)
Maximum
Exercise of Rights
.
In the
event the exercise of the rights described in Section 12(a)
would
result in the issuance of an amount of Common Stock of the Company that would
exceed the maximum amount that may be issued to a Subscriber calculated in
the
manner described in Section 4(c) of the Certificate of Designation, then the
issuance to Subscriber of such additional shares of Common Stock of the Company
to such Subscriber will be deferred in whole or in part until such time as
such
Subscriber is able to beneficially own such Common Stock without exceeding
the
maximum amount set forth calculated in such manner. The determination of when
such Common Stock may be issued shall be made by each Subscriber as to only
such
Subscriber.
13.
Miscellaneous
.
(a)
Notices
.
All
notices, demands, requests, consents, approvals, and other communications
required or permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be (i) personally served, (ii) deposited in the mail,
registered or certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted
to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery
by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to the Company, to:
Gilder
Enterprises, Inc., 7 Deer Park Drive, Suite K, Monmouth Junction, NJ 08852,
Attn: Al Kraus, CEO,
telecopier:
(732) 329-8650, with a copy by telecopier only to: Kronish Lieb Weiner &
Hellman, LLP, 1114 Avenue of the Americas, New York, NY 10036, Attn: Alison
Newman, Esq., telecopier: (212) 479-6275, and (ii) if to the Subscriber, to:
the
one or more addresses and telecopier numbers indicated on the signature pages
hereto, with an additional copy by telecopier only to: Grushko & Mittman,
P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number:
(212) 697-3575.
(b)
Entire
Agreement; Assignment
.
This
Agreement and other documents delivered in connection herewith represent the
entire agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by both parties. Neither
the Company nor the Subscribers have relied on any representations not contained
or referred to in this Agreement and the documents delivered herewith. No right
or obligation of the Company shall be assigned without prior notice to and
the
written consent of the Subscribers.
(c)
Counterparts/Execution
.
This
Agreement may be executed in any number of counterparts and by the different
signatories hereto on separate counterparts, each of which, when so executed,
shall be deemed an original, but all such counterparts shall constitute but
one
and the same instrument. This Agreement may be executed by facsimile signature
and delivered by facsimile transmission.
(d)
Law
Governing this Agreement
.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of New York without regard to
conflicts
of laws
principles
that would result in the application of the substantive laws of another
jurisdiction. Any action brought by either party against the other concerning
the transactions contemplated by this Agreement shall be brought only in the
civil or state courts of New York or in the federal courts located in New York
County.
The
parties and the individuals executing this Agreement and other agreements
referred to herein or delivered in connection herewith on behalf of the Company
agree to submit to the jurisdiction of such courts and waive trial by
jury.
The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid
or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any
agreement.
(e)
Specific
Enforcement, Consent to Jurisdiction
.
The
Company and Subscriber acknowledge and agree that irreparable damage may occur
in the event that any of the provisions of this Agreement were not performed
in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to seek one or more
preliminary and final injunctions to prevent or cure breaches of the provisions
of this Agreement and to enforce specifically the terms and provisions hereof,
this being in addition to any other remedy to which any of them may be entitled
by law or equity. Subject to Section 13(d) hereof, each of the Company,
Subscriber and any signator hereto in his personal capacity hereby waives,
and
agrees not to assert in any such suit, action or proceeding, any claim that
it
is not personally subject to the jurisdiction in New York of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that
the
venue of the suit, action or proceeding is improper. Nothing in this Section
shall affect or limit any right to serve process in any other manner permitted
by law.
(f)
Damages
.
In the
event the Subscriber is entitled to receive any liquidated damages pursuant
to
the Transactions, the Subscriber may elect to receive the greater of actual
damages or such liquidated damages.
(g)
Independent
Nature of Subscribers
.
The
Company acknowledges that the obligations of each Subscriber under the
Transaction Documents are several and not joint with the obligations of any
other Subscriber, and no Subscriber shall be responsible in any way for the
performance of the obligations of any other Subscriber under the Transaction
Documents.
The
Company acknowledges that each Subscriber has represented that the decision
of
each Subscriber to purchase Securities has been made by such Subscriber
independently of any other Subscriber and independently of any information,
materials, statements or opinions as to the business, affairs, operations,
assets, properties, liabilities, results of operations, condition (financial
or
otherwise) or prospects of the Company which may have been made or given by
any
other Subscriber or by any agent or employee of any other Subscriber, and no
Subscriber or any of its agents or employees shall have any liability to any
Subscriber (or any other person) relating to or arising from any such
information, materials, statements or opinions.
The
Company acknowledges that nothing contained in any Transaction Document, and
no
action taken by any Subscriber pursuant hereto or thereto (including, but not
limited to, the (i) inclusion of a Subscriber in the Registration Statement
and
(ii) review by, and consent to, such Registration Statement by a Subscriber)
shall be deemed to constitute the Subscribers as a partnership, an association,
a joint venture or any other kind of entity, or create a presumption that the
Subscribers are in any way acting in concert or as a group with respect to
such
obligations or the transactions contemplated by the Transaction Documents.
The Company acknowledges that each Subscriber shall be entitled to independently
protect and enforce its rights, including without limitation, the rights arising
out of the Transaction Documents, and it shall not be necessary for
any other Subscriber to be joined as an additional party in any proceeding
for
such purpose. The Company acknowledges that it has elected to provide all
Subscribers with the same terms and Transaction Documents for the convenience
of
the Company and not because Company was required or requested to do so by the
Subscribers. The Company acknowledges that such procedure with respect to
the Transaction Documents in no way creates a presumption that the Subscribers
are in any way acting in concert or as a group with respect to the Transaction
Documents or the transactions contemplated thereby.
(h)
Consent
.
As used
in the Agreement, “consent of the Subscribers” or similar language means the
consent of holders of not less than 80% of the total of the Shares issuable
upon
conversion of outstanding Preferred Stock owned by Subscribers on the date
consent is requested.
(i)
Equal
Treatment
.
No
consideration shall be offered or paid to any person to amend or consent to
a
waiver or modification of any provision of the Transaction Documents unless
the
same consideration is also offered to all the parties to the Transaction
Documents.
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PAGE TO SUBSCRIPTION AGREEMENT (A)
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
|
GILDER
ENTERPRISES, INC.
|
|
a
Nevada corporation
|
|
|
|
|
|
|
|
By:_____________________________
|
|
Name:
Al Kraus
|
|
Title:
CEO
|
|
|
|
|
|
Dated:
_____________, 2006
|
SUBSCRIBER
|
PURCHASE
PRICE AND STATED VALUE OF PREFERRED STOCK
|
CLASS
A WARRANTS
|
ALPHA
CAPITAL AKTIENGESELLSCHAFT
Pradafant
7
9490
Furstentums
Vaduz,
Lichtenstein
Fax:
011-42-32323196
______________________________________
(Signature)
By:
|
$1,000,000.00
|
400,000
|
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (B)
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
GILDER
ENTERPRISES, INC.
a
Nevada
corporation
By:_________________________________
Name:
Al
Kraus
Title:
CEO
Dated:
_____________, 2006
SUBSCRIBER
|
PURCHASE
PRICE AND STATED VALUE OF PREFERRED STOCK
|
CLASS
A WARRANTS
|
LONGVIEW
FUND, LP
600
Montgomery Street, 44th Floor
San
Francisco, CA 94111
Fax:
(415) 981-5301
______________________________________
(Signature)
By:
|
$3,000,000.00
|
1,200,000
|
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (C)
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
GILDER
ENTERPRISES, INC.
a
Nevada
corporation
By:_________________________________
Name:
Al
Kraus
Title:
CEO
Dated:
_____________, 2006
SUBSCRIBER
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PURCHASE
PRICE AND STATED VALUE OF PREFERRED STOCK
|
CLASS
A WARRANTS
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PLATINUM
PARTNERS LONG TERM GROWTH III LLC
11
Dr. Roy’s Road
Grand
Cayman, Cayman Islands
Fax:
______________________________________
(Signature)
By:
|
$1,000,000.00
|
400,000
|
SIGNATURE
PAGE TO SUBSCRIPTION AGREEMENT (D)
Please
acknowledge your acceptance of the foregoing Subscription Agreement by signing
and returning a copy to the undersigned whereupon it shall become a binding
agreement between us.
GILDER
ENTERPRISES, INC.
a
Nevada
corporation
By:_________________________________
Name:
Al
Kraus
Title:
CEO
Dated:
_____________, 2006
SUBSCRIBER
|
PURCHASE
PRICE AND STATED VALUE OF PREFERRED STOCK
|
CLASS
A WARRANTS
|
ELLIS
INTERNATIONAL LTD.
53
rd
Street Urbanizacion Obarrio
Swiss
Tower, 16
th
Floor, Panama
Republic
of Panama
Fax:
(516) 887-8990
______________________________________
(Signature)
By:
|
$250,000.00
|
100,000
|
LIST
OF EXHIBITS AND SCHEDULES
Exhibit
A
|
Certificate
of Designation
|
Exhibit
B
|
Form
of Warrant
|
Exhibit
C
|
Escrow
Agreement
|
Exhibit
D
|
Form
of Legal Opinion
|
Exhibit
E
|
Medasorb
Corporation Financial Statements
|
Exhibit
F
|
Form
of Public Announcement or Form 8-K
|
Schedule
5(d)
|
Additional
Issuances / Capitalization
|
Schedule
5(f)
|
Outstanding
Reset Rights
|
Schedule
5(h)
|
Litigation
|
Schedule
5(q)
|
Undisclosed
Liabilities
|
Schedule
5(v)
|
Transfer
Agent
|
Schedule
8
|
Broker/Broker’s
Fee/Due Diligence Fee
|
Schedule
9(e)
|
Use
of Proceeds
|
Schedule
11.1
|
Other
Registrable Securities
|
Schedule
12(a)
|
Other
Excepted Issuances
|
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into this 18th
day of July, 2003, by and between Renal Tech International, LLC, (the
"Company"), and Al Kraus ("Employee").
The Company wishes to employ Employee as Chief Financial Officer upon
the terms and conditions set forth in this Agreement and Employee is willing
to accept employment subject to the terms and conditions set forth below.
Accordingly, the parties, intending to be legally bound, agree as follows:
1. Employment and Term
1.1 Employment. Subject to the terms and conditions hereof, the Company
hereby employs Employee during the term of employment set forth in Section 1.2
to serve as President and Chief Executive Officer of the Company and perform
such services and duties as are normally and customarily associated with such
position as well as such other associated duties as the Board of Managers shall
determine. Employee hereby accepts such employment and agrees to devote
sufficient time, attention and energies during regular business hours to
effectively perform his duties and obligations hereunder, devoting three full
business days each week to the Company's business either at the Company's
offices or traveling on Company business and being available by telephone,
e-mail or other communication for the remainder of the normal work week, until
the BetaSorb device, or other significant product shall achieve FDA market
approval, at which time Employee shall devote his full business time solely to
the business of the Company; provided that the Company and Employee mutually
agree upon an increase in compensation and associated benefits. In the event the
Company and Employee do not agree on an increase in compensation and benefits,
the terms of this Agreement shall remain in effect including employee's
obligation to devote no more than three full business days each week.
1.2 Term. The term of employment of Employee under this Agreement shall
begin on the date hereof and end on the fifth anniversary of such date, subject
to the provisions for early termination set forth herein.
2. Compensation. In consideration of the services to be rendered hereunder, the
Company hereby agrees to (a) pay Employee an annual base compensation of
$200,000 payable in equal semimonthly installments in accordance with the usual
practice of the Company which base compensation shall be subject to annual
review (but his compensation may not be reduced from then current level) by the
Compensation Committee, and (b) grant Options for that number of Membership
Units equal to 5% of the outstanding Membership Units of the equity of the
Company determined and granted on the date hereof at an exercise price of $1.00
per Unit (the "Options"), said number of units to vest as follows: 25% on the
first anniversary of this Agreement and 25% on each of the next three subsequent
anniversaries, subject to the terms hereof. Notwithstanding anything set forth
herein to the contrary, in the event of the issuance of additional Membership
Units, granting of options to third parties or the issuance of securities
convertible or exercisable into Membership Units of the Company, then the
Company agrees to immediately adjust in favor of the Employee the number of
Options granted hereunder to assure that Employee at all times retains a 5%
equity interest in the Company on a fully diluted basis until such time as the
Company obtains additional equity (including any form of financing that converts
to equity) capital of $20 million. It is also understood that the Employee's
Options will be adjusted on the same basis as all other Unit holders to account
for any stock split, stock dividend, combination or recapitalization.
3. Benefits.
3.1 Participation in Plans. During the term hereof, Employee shall be
entitled to participate on the same terms as afforded other executive officers
in any group insurance, hospitalization, medical, dental, health and accident,
disability or similar plan or program of the Company now existing or established
hereafter to the extent that he is eligible under the general provisions
thereof; provided that in no case shall the benefits be reduced or less than
that granted, awarded or provided to Employee on the date hereof.
3.2 Reasonable Business Expenses. Employee shall be allowed reimbursement
for reasonable business expenses in connection with the performance of his
duties hereunder upon presentation by Employee of the details of, vouchers for,
such expenses, including tourist class commercial air travel, and Employee shall
be furnished reasonable office space, assistance and facilities.
3.3 Vacation. Employee shall be entitled to a vacation (without deduction
of salary or other compensation) for the period as is in conformity with the
Company's policy regarding vacations for management employees (but in no event
less than four weeks per year).
3.4 Bonuses. (a) Employee may receive such discretionary bonuses as the
Board of Managers, in its sole discretion and from time to time, deem
appropriate; and (b) Employee shall be entitled to receive a bonus of up to
$100,000 upon achieving the milestones set forth in Appendix A.
3.5 Automobile Allowance. The Company agrees to pay Employee each month an
automobile allowance of $500.00 per month throughout the term of this Agreement.
4. Early Termination of Employment
4.1 Termination for Justifiable Cause. In addition to termination
pursuant to Section 1.2, the Company, by written notice to Employee
authorized by a majority of the Managers other than Employee, may terminate
Employee's employment for "justifiable cause", which shall mean any of the
following events: (a) adjudication by a court of competent jurisdiction that
Employee has committed an act of fraud or dishonesty resulting or intended to
result, directly or indirectly, in personal enrichment at the expense of the
Company; (b) an indictment of a felony (other than a motor vehicle related
matter) involving moral turpitude; (c) repeated failure or refusal by
Employee to follow written policies and directions reasonably established by
the Board of Managers that go uncorrected for a period of thirty (30)
consecutive days after written notice has been provided to Employee; or (d)
persistent willful failure by Employee to fulfill his duties hereunder that
goes uncorrected for a period of thirty (30) consecutive days after written
notice has been provided Employee.
4.2 In the event that the Board of Managers reasonably determines
that Employee has committed a felony (other than a motor vehicle related
matter), a material act of fraud or other willful tort against the Company,
it shall have the right to suspend Employee from his position and duties
hereunder without compensation until such time as either the action is
dropped or no longer pursued or a final adjudication of Employee's actions is
made by a court (whether civil or criminal as appropriate) of competent
jurisdiction. Should said adjudication find Employee innocent (or not at
fault) or the action is dropped or no longer pursued, the Company shall
promptly pay him all unpaid back salary together with interest on said amount
(at the average consumer loan rate published by Citibank, N.A., during the
suspension period) and, if said final adjudication is rendered or action
dropped or no longer pursued within 12 months of Employee's suspension, he
may, at his option, be reinstated to his position and this Agreement
continued as if never interrupted.
4.3 Permanent Disability of Employee. The Company shall have the right
to terminate Employee's employment hereunder if the Managers shall in good
faith and on the basis of reasonable medical evidence determine that
Employee, by reason of physical or mental disability, has been unable to
perform the services required of him hereunder for more than 120 consecutive
days or an aggregate of 180 calendar days, during any 12-month period. Such
termination shall be effective as of the last day of the month following the
month in which the Company shall have given notice to Employee of its
intention to terminate pursuant to this paragraph. Company paid Disability
Benefits will be activated 90 days after termination.
4.4 Compensation Upon Early Termination.
(a) In the event of termination of this Agreement for "justifiable cause"
as described in Section 4.1, or pursuant to Section 1.2 hereof, Employee shall
be entitled to the compensation earned by him before the effective date of
termination, as provided for in this Agreement, computed pro rata up to and
including that date, in lieu of salary and other benefits under this Agreement.
(b) If prior to the expiration of the term of this Agreement Employee
dies, the Company shall continue Employee's compensation and coverage of
Employee's direct dependents (if any and if they are eligible) under all plans
or programs of the types listed in Section 3.1 for a period of 120 days,
provided that no benefits will continue past the end of the term of this
Agreement.
(c) Upon a Change of Control or upon Employee's termination for "Good
Reason" as defined below, Employee shall then be entitled to receive, in lieu of
salary and other benefits under this Agreement, (i) an amount equal to his
then-current base salary, payable monthly in arrears without interest for a
period of one year, (ii) continued coverage under all plans or programs of the
types listed in Section 3.1 until the sooner of 1.5 years or one (1) month after
Employee becomes otherwise employed and eligible for other comparable coverage,
and (iii) all other benefits provided to Employee under this Agreement for a
period of thirty (30) days.
4.5 In the event Employee is terminated for any reason other
than for "justifiable cause" as defined in Section 4.1 hereof, death,
disability or voluntary termination (unless the Company and Employee mutually
agree to such voluntary termination), then all unexercised options granted to
Employee under the Company's option plan (including without limitation the
Options granted pursuant to Section 2(b) hereof) shall be deemed fully vested
and exercisable immediately upon Employee's termination. The foregoing
benefit shall be in addition to, and not in lieu of, any similar benefit that
may be contained in any other agreement between Company and Employee.
4.6 (a) Upon the occurrence of a Change of Control of the
Company or Employee terminates for Good Reason pursuant to Section 4.6(d)(i),
all options granted to Employee under the Company option plan and the Options
granted to Employee pursuant to Section 2(b) hereof shall be automatically
fully vested and exercisable immediately upon a Change of Control.
(b) For purposes of this Agreement, "Change of Control"
shall be deemed to have occurred if, during the term of this agreement:
(i) the beneficial ownership of at least 50% of the
Company's voting securities or all or substantially all of the assets of the
Company shall have been acquired, directly or indirectly by a single person
or a group of affiliated persons, other than the Employee or a group in which
the Employee is a member, in any transaction or series of transactions; or
(ii) as the result of or in connection with any cash
tender offer, exchange offer, sale of assets, merger, consolidation or other
business combination of the Company with another corporation or entity the
new Board of Managers is comprised of a majority of Managers chosen or
elected by the members of the new/combined entity who were not members of the
Company before such cash tender offer, exchange offer, sale of assets,
merger, consolidation or other business combination of the Company with
another corporation or entity.
(c) For purposes of this Agreement, the date of Change of
Control shall mean the earlier to occur of:
(i) the first date on which a single person or group of
affiliated persons acquires the beneficial ownership of 50% or more of the
Company's voting securities or all or substantially all of the Company's
assets in any transaction or series of transactions; or
(ii) the date on which a cash tender offer, exchange
offer, sale of assets, merger, consolidation other business combination
resulting in the change in the Board of Managers contemplated by Section 4.5
hereof is consummated.
(d) For purposes of this Agreement, the term "Good Reason"
shall mean the occurrence of any of the following events without the
Employee's express written consent.
(i) the assignment to Employee of any duties that are not
in the same corporate capacity or area of operations or are not of the same
general nature as Employee's duties with Company; or
(ii) the Company's assigning Employee to an office other
than the principal office of the Company. The current principal office is
located in Princeton, New Jersey and the Company represents to Employee that
there is at this time no intention on the part of the Company to move said
principal office beyond a radius of 50 miles from Princeton, New Jersey.
This clause (ii), however, shall in no way limit the complete discretion of
the Board of Managers to relocate the principal office of the Company at any
time in the future. In the event, however, that the Company does move its
principal office beyond a 50 mile radius of Princeton, N.J., Employee shall
have the right, for 120 days after the decision of the Board of Managers to
relocate, to elect (by written notice to the Board of Managers) to terminate
this Agreement and receive upon the date of termination, in lieu of all
compensation and privileges provided for herein (except as set forth in the
subsequent sentence), that number of options equal to one additional year's
vesting hereunder, provided Employee remains with the Company for a period
(up to 12 months) (the "Transition Period") sufficient to assist the Company
to make an expeditious and effective transition to the new location. The end
of such Transition Period shall be deemed the date o termination for the
purposes of this Section. Notwithstanding anything set forth herein to the
contrary, in the event the Company moves its principal office beyond a 50
mile radius from Princeton, New Jersey, the Company shall be obligated to pay
to Employee the amount of compensation and benefits set forth in Section
4.4(c) hereof commencing after the Transition Period set forth above.
5. Confidentiality and Non-Competition.
5.1 (i) Confidentiality. During the term of employment under this
Agreement, Employee will have access to and become acquainted with various
confidential information including without limitation, trade secrets,
customer relationships, formulas, devices, inventions, processes, know-how,
financial information and other compilations of information, records, and
specifications, which are owned by the Company. Employee shall not disclose
any of the Company's confidential information, directly or indirectly, or use
them in any way, either during the term of this Agreement or at any time
thereafter, except as required in the course of his employment for the
Company. All files, records, documents, drawings, specifications, equipment
and similar items relating to the business of the Company, whether prepared
by Employee or otherwise coming into his possession, shall remain the
exclusive property of the Company and shall not be removed from the premises
of the Company under any circumstances whatsoever without the prior written
consent of the Company, and if removed shall be immediately returned to the
Company upon any termination of his employment and no copies thereof shall be
kept by Employee, provided, however, that Employee shall be entitled to
retain documents reasonably related to his interest as a shareholder.
(ii) Inventions and Shop Right. Every invention, discovery or
improvement made or conceived by Employee related to the business of the
Company during his employment by the Company whenever and wherever made or
conceived, and whether or not during business hours, of any product, article,
appliance, tool, device, formula, process, machinery or pattern similar to,
or which constitutes an improvement, on those heretofore, now or at any time
during this employment, manufactured or used by the Company in connection
with the manufacture or process of any product heretofore or now or hereafter
manufactured by the Company, or of any product which shall or could
reasonably be manufactured in the reasonable expansion of the Company's
business, shall be and continue remain the Company's exclusive property,
without any added compensation or any reimbursement for expenses to Employee,
and upon the conception of any and every such invention, discovery or
improvement and without waiting to perfect or complete it, Employee promises
and agrees that he will immediately disclose it to the Company and to no one
else and thenceforth will treat it as the property and secret of the
Company. Employee will also execute any instruments requested from time to
time by the Company to vest in it complete title and ownership to such
invention, discovery or improvement and will, at the request of the Company,
do such acts and execute such instruments as the Company may require but at
the Company's expense to obtain Letters Patent in the United States and
foreign countries, for such invention, discovery or improvement and for the
purpose of vesting title thereto in the Company, all without any
reimbursement for expenses or otherwise and without any additional
compensation of any kind to Employee.
5.2 Non-Competition. In the event of a termination of this Agreement
for any reason, Employee shall be prohibited for a period of one (1) year
from the effective date of this separation from engaging in any business in
competition with that of the Company in those states within the United States
and those countries outside the United States in which the Company at the
time of Employee's separation has conducted business or where Company has
written a reasonable plan to conduct business in the next 12 months or
directly or indirectly advising or consulting to or otherwise performing
services for or providing assistance to any person, firm, corporation, or
other entity engaged in such competitive business, provided, however, nothing
herein contained shall be construed as (a) preventing Employee from investing
his personal assets in any businesses which do not compete directly or
indirectly with the Company, provided such investment or investments do not
require any services on his part in the operation of the affairs of the
entity in which such investment is made and in which his participation is
solely that of an investor, (b) preventing Employee from purchasing
securities in any corporation whose securities in any corporation whose
securities are regularly traded, if such purchases shall not result in his
owning beneficially at any time 3% or more of equity securities of any
corporation engaged in a business which is competitive, directly or
indirectly, to that of the Company, (c) preventing Employee from engaging in
any activities, if he receives the prior authorization of the Managers.
Notwithstanding anything herein to the contrary this Section 5.2 shall not be
effective in the event Employee has been discharged for any reason other than
"justifiable cause" or voluntarily leaves the employment of the Company with
the mutual agreement of the Company.
5.3 Subsequent to the termination of this Agreement, Employee will
not for a period of one (1) year materially interfere with or disrupt the
Company's business relationship with its customers or suppliers or employ any
person who was employed with the Company at any time during the 6 months
prior to Employee's termination, or for a period of three (3) years, directly
or indirectly solicit any of the employees to leave the employ of the Company.
6. Notices. All notices under this Agreement shall be in writing and
shall be deemed effective when delivered in person (in the Company's case, to
its President or Secretary) or forty eight (48) hours after deposit thereof
in the U.S. mail, postage prepaid, addressed to Employee, at last known
address as carried in the records of the Company, or to the Company, at the
corporate headquarters, to the attention of the Secretary, or to such other
address as the party to be notified may specify by notice to the other party.
7. Assigns and Successors. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding upon
the successors and assigns of the Company and the rights and obligations of
Employee shall move to the benefit of and shall be binding on Employee and
his legal representatives or heirs. This agreement constitutes a personal
service agreement and Employee's obligations hereunder may not be transferred
or assigned by Employee.
8. Amendment Waiver. This Agreement may be amended, and any right or claim
hereunder waived, only by a written instrument signed by both Employee and
the Company, following authorization by a majority of Managers. Nothing in
this Agreement, express or implied, is intended to confer upon any third
person any rights or remedies under or by reason of this Agreement. No
amendment or waiver of this Agreement requires the consent of any individual,
partnership, corporation or other entity not a party of this Agreement.
9. Injunction.
(a) Should Employee at any time violate or threaten to violate any of
the provisions of this Agreement, the Company shall be entitled to an
injunction restraining Employee from doing or continuing to do or performing
any such acts, and Employee hereby consents to the issuance of such an
injunction.
(b) In the event that a proceeding is bought in equity to enforce the
provisions of this paragraph, Employee shall not urge as a defense that there
is an adequate remedy at law, nor shall the Company be prevented from seeking
any other remedies which may be available.
(c) The existence of a claim or cause of action by the Company against
Employee, or by Employee against the Company, whether predicated upon this
Agreement or otherwise, shall not constitute a defense to the endorsement by
the Company of the foregoing restrictive covenants but shall be litigated
separately.
(d) The provisions of this Section 9 shall survive termination of this
Agreement.
10. Governing Law and Jurisdiction. This Agreement in its interpretation
and application and enforcement shall be governed by the law of the State of
New Jersey without application of its conflict of laws provisions, and any
legal action commenced by either party seeking interpretation, application
and/or enforcement of this Agreement shall be brought only in the State of
New Jersey of federal court sitting in Princeton, NJ.
11. Prior Agreements. This Agreement supersedes and replaces any and all
prior agreements between the parties as to its subject matter.
12. Construction. Paragraph headings are for convenience only and shall
not be considered a part of the terms and provisions of this Agreement.
13. Effective Date. The effective date of this Agreement shall be July 18,
2003.
IN WITNESS WHEREOF, the parties have executed this Agreement.
RENALTECH INTERNATIONAL, LLC EMPLOYEE
By: ___________________________________ ____________________
Bruce Davis, Acting President and Al Kraus
Chief Executive Officer
Approved and Accepted:
Board of Managers
By:_________________________
|
Appendix A - Management Targets
Completion Date Target
Q4 03 Commence Beta-Sorb Pivotal Human Clinical Trial-50 patients
Q4 03 DMC Meeting FDA, approval to continue trial
Q4 03 Conclude 20mm financing round
Q1 04 Initiate Cohort B of Pivotal Trial
Q3 04 Conclude Commercial Polymer Supply Agreement
3Q 04 Complete Beta-Sorb Pivotal Human Trial-50 patients
3Q 04 Consolidate Company Operations in Princeton NJ
4Q 04 Complete Data Analysis and Study Report
4Q 04 Submit Beta-Sorb Marketing Application
|
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into this first
day of July, 2005, by and between MedaSorb Technologies, LLC, (the "Company"),
and Vincent Capponi ("Employee").
The Company wishes to employ Employee as Chief Operating Officer upon the
terms and conditions set forth in this Agreement and Employee is willing to
accept employment subject to the terms and conditions set forth below.
Accordingly, the parties, intending to be legally bound, agree as follows:
1. Employment and Term
1.1 Employment. Subject to the terms and conditions hereof, the Company
hereby employs Employee during the term of employment set forth in Section 1.2
to serve as Chief Operating Officer of the Company and perform such services and
duties as are normally and customarily associated with such position as well as
such other associated duties as the Chief Executive Officer (CEO) shall
determine. Employee hereby accepts such employment and agrees to devote
sufficient time, attention and energies during regular business hours to
effectively perform his duties and obligations hereunder.
1.2 Term. The term of employment of Employee under this Agreement shall be
one (1) year commencing July 1, 2005 and expiring on July 1 , 2006 (the "Term")
and automatically renewed thereafter from year to year unless within 120 days
prior to end of initial term or the end of any renewal year, either party gives
the other written notice of its intention not to renew in which event this
Agreement shall terminate at the end of the initial Term or the end of that
renewal year term, subject to the provisions for early termination set forth
herein.
2. Compensation. In consideration of the services to be rendered hereunder, the
Company hereby agrees to (a) pay Employee an annual base compensation of
$181,886 payable in equal semimonthly installments in accordance with the usual
practice of the Company which base compensation shall be subject to annual
review (but his compensation may not be reduced from then current level) by the
Compensation Committee, and (b) grant Management Units for that number of
Membership Units which equal 1.5% of the outstanding Membership Units of the
equity of the Company determined and granted on July 1, 2005 at a Measurement
Value of $0.50 per Unit (the "Management Units") in lieu of all employee grants
made prior to the date hereof, said number of units to vest as follows: 74% on
the date hereof, 15% on 12/31/05 and 11% on 12/31/06, subject to the terms
hereof. Notwithstanding anything set forth herein to the contrary, in. In the
event of the issuance of additional Membership Units, granting of options to
third parties or the issuance of securities convertible or exercisable into
Membership Units of the Company, then the Company agrees to immediately adjust
in favor of the Employee the number of Management Units granted hereunder to
assure that Employee at all times retains a 1.5% equity interest in the Company
on a fully diluted basis until 12-31-05. It is also understood that the
Employee's Management Units will be adjusted on the same basis as all other Unit
holders to account for any stock split, stock dividend, combination or
recapitalization.
3. Benefits.
3.1 Participation in Plans. During the term hereof, Employee shall be
entitled to participate on the same terms as afforded other executive
officers in any group insurance, hospitalization, medical, dental, health
and accident, disability or similar plan or program of the Company now
existing or established hereafter to the extent that he is eligible under
the general provisions thereof; provided that in no case shall the
benefits be reduced or less than that granted, awarded or provided to
Employee on the date hereof.
3.2 Reasonable Business Expenses. Employee shall be allowed reimbursement
for reasonable business expenses in connection with the performance of his
duties hereunder upon presentation by Employee of the details of, vouchers
for, such expenses, including tourist class commercial air travel, and
Employee shall be furnished reasonable office space, assistance and
facilities.
3.3 Vacation. Employee shall be entitled to a vacation (without deduction
of salary or other compensation) for the period as is in conformity with
the Company's policy regarding vacations for management employees (but in
no event less than three weeks per year).
3.4 Bonuses. Employee may receive such discretionary bonuses as the CEO,
in its sole discretion and from time to time, deem appropriate.
4. Early Termination of Employment
4.1 Termination for Justifiable Cause. In addition to termination pursuant
to Section 1.2, the Company, by written notice to Employee authorized by the CEO
may terminate Employee's employment for "justifiable cause", which shall mean
any of the following events: (a) adjudication by a court of competent
jurisdiction that Employee has committed an act of fraud or dishonesty resulting
or intended to result, directly or indirectly, in personal enrichment at the
expense of the Company; (b) an indictment of a felony (other than a motor
vehicle related matter) involving moral turpitude; (c) repeated failure or
refusal by Employee to follow written policies and directions reasonably
established by the CEO that go uncorrected for a period of thirty (30)
consecutive days after written notice has been provided to Employee; or (d)
persistent willful failure by Employee to fulfill his duties hereunder that goes
uncorrected for a period of thirty (30) consecutive days after written notice
has been provided Employee.
2
4.2 In the event that the CEO reasonably determines that the Employee has
committed a felony (other than a motor vehicle related matter), a material act
of fraud or other willful tort against the Company, it shall have the right to
suspend Employee from his position and duties hereunder without compensation
until such time as either the action is dropped or no longer pursued or a final
adjudication of Employee's actions is made by a court (whether civil or criminal
as appropriate) of competent jurisdiction. Should said adjudication find
Employee innocent (or not at fault) or the action is dropped or no longer
pursued, the Company shall promptly pay him all unpaid back salary together with
interest on said amount (at the average consumer loan rate published by
Citibank, N.A., during the suspension period) and, if said final adjudication is
rendered or action dropped or no longer pursued within 12 months of Employee's
suspension, he may, at his option, be reinstated to his position and this
Agreement continued as if never interrupted.
4.3 Permanent Disability of Employee. The Company shall have the right to
terminate Employee's employment hereunder if the CEO shall in good faith and on
the basis of reasonable medical evidence determine that Employee, by reason of
physical or mental disability, has been unable to perform the services required
of him hereunder for more than 120 consecutive days or an aggregate of 180
calendar days, during any 12-month period. Such termination shall be effective
as of the last day of the month following the month in which the Company shall
have given notice to Employee of its intention to terminate pursuant to this
paragraph. Company paid Disability Benefits will be activated 90 days after
termination.
4.4 Compensation Upon Early Termination.
(a) In the event of termination of this Agreement for "justifiable
cause" as described in Section 4.1, or pursuant to Section 1.2
hereof, Employee shall be entitled to the compensation earned by him
before the effective date of termination, as provided for in this
Agreement, computed pro rata up to and including that date, in lieu
of salary and other benefits under this Agreement.
(b) If prior to the expiration of the term of this Agreement
Employee dies, the Company shall continue Employee's compensation
and coverage of Employee's direct dependents (if any and if they are
eligible) under all plans or programs of the types listed in Section
3.1 for a period of 120 days, provided that no benefits will
continue past the end of the term of this Agreement.
(c) Upon a Change of Control or upon Employee's termination for
"Good Reason" as defined below, Employee shall then be entitled to
receive, in lieu of salary and other benefits under this Agreement,
(i) an amount equal to his then-current base salary, payable monthly
in arrears without interest for a period of one year, (ii) continued
coverage under all plans or programs of the types listed in Section
3.1 until the sooner of 1 year or one (1) month after Employee
becomes otherwise employed and eligible for other comparable
coverage, and (iii) all other benefits provided to Employee under
this Agreement for a period of thirty (30) days.
3
4.5 In the event Employee is terminated for any reason other than for
"justifiable cause" as defined in Section 4.1 hereof, death, disability or
voluntary termination (unless the Company and Employee mutually agree to such
voluntary termination), then all unexercised options granted to Employee under
the Company's option plan (including without limitation the Management Units
granted pursuant to Section 2(b) hereof) shall be deemed fully vested and
exercisable immediately upon Employee's termination. The foregoing benefit shall
be in addition to, and not in lieu of, any similar benefit that may be contained
in any other agreement between the Company and Employee.
4.6 (a) Upon the occurrence of a Change of Control of the Company or
Employee terminates for Good Reason pursuant to Section 4.6(d), all options
granted to Employee under the Company option plan and the Management Units
granted to Employee pursuant to Section 2(b) hereof shall be automatically fully
vested and exercisable immediately upon a Change of Control.
(b) For purposes of this Agreement, "Change of Control" shall be
deemed to have occurred if, during the term of this agreement:
(i) the beneficial ownership of at least 50% of the Company's voting
securities or all or substantially all of the assets of the Company shall have
been acquired, directly or indirectly by a single person or a group of
affiliated persons, other that the Employee or a group in which the Employee is
a member, in any transaction or series of transactions; or
(ii) as the result of or in connection with any cash tender offer,
exchange offer, sale of assets, merger, consolidation or other business
combination of the Company with another corporation or entity the new Board of
Managers is comprised of a majority of Managers chosen or elected by the members
of the new/combined entity who were not members of the Company before such cash
tender offer, exchange offer, sale of assets, merger, consolidation or other
business combination of the Company with another corporation or entity
(c) For purposes of this Agreement, the date of Change of Control
shall mean the earlier to occur of:
(i) the first date on which a single person or group of affiliated
persons acquires the beneficial ownership of 50% or more of the Company's voting
securities or all or substantially all of the Company's assets in any
transaction or series of transactions; or
4
(ii) the date on which a cash tender offer, exchange offer, sale of
assets, merger, consolidation other business combination resulting in the change
in the Board of Managers contemplated by Section 4.5 hereof is consummated.
(d) For purposes of this Agreement, the term "Good Reason" shall mean
the assignment to Employee of any duties that are not in the same corporate
capacity or area of operations or are not of the same general nature as
Employee's duties with Company without the Employee's express written consent.
5. Confidentiality and Non-Competition.
5.1 (i) Confidentiality. During the term of employment under this
Agreement, Employee will have access to and become acquainted with various
confidential information including without limitation, trade secrets, customer
relationships, formulas, devices, inventions, processes, know-how, financial
information and other compilations of information, records, and specifications,
which are owned by the Company. Employee shall not disclose any of the Company's
confidential information, directly or indirectly, or use them in any way, either
during the term of this Agreement or at any time thereafter, except as required
in the course of his employment for the Company. All files, records, documents,
drawings, specifications, equipment and similar items relating to the business
of the Company, whether prepared by Employee or otherwise coming into his
possession, shall remain the exclusive property of the Company and shall not be
removed from the premises of the Company under any circumstances whatsoever
without the prior written consent of the Company, and if removed shall be
immediately returned to the Company upon any termination of his employment and
no copies thereof shall be kept by Employee, provided, however, that Employee
shall be entitled to retain documents reasonably related to his interest as a
shareholder.
(ii) Inventions and Shop Right. Every invention, discovery or
improvement made or conceived by Employee related to the business of the Company
during his employment by the Company whenever and wherever made or conceived,
and whether or not during business hours, of any product, article, appliance,
tool, device, formula, process, machinery or pattern similar to, or which
constitutes an improvement, on those heretofore, now or at any time during this
employment, manufactured or used by the Company in connection with the
manufacture or process of any product heretofore or now or hereafter
manufactured by the Company, or of any product which shall or could reasonably
be manufactured in the reasonable expansion of the Company's business, shall be
and continue remain the Company's exclusive property, without any added
compensation or any reimbursement for expenses to Employee, and upon the
conception of any and every such invention, discovery or improvement and without
waiting to perfect or complete it, Employee promises and agrees that he will
immediately disclose it to the Company and to no one else and thenceforth will
treat it as the property and secret of the Company. Employee will also execute
any instruments requested from time to time by the Company to vest in it
complete title and ownership to such invention, discovery or improvement and
will, at the request of the Company, do such acts and execute such instruments
as the Company may require but at the Company's expense to obtain Letters Patent
in the United States and foreign countries, for such invention, discovery or
improvement and for the purpose of vesting title thereto in the Company, all
without any reimbursement for expenses or otherwise and without any additional
compensation of any kind to Employee.
5
5.2 Non-Competition. In the event of a termination of this Agreement for
any reason, Employee shall be prohibited for a period of one (1) year from the
effective date of this separation from engaging in any business in competition
with that of the Company in those states within the United States and those
countries outside the United States in which the Company at the time of
Employee's separation has conducted business or where Company has written a
reasonable plan to conduct business in the next 12 months or directly or
indirectly advising or consulting to or otherwise performing services for or
providing assistance to any person, firm, corporation, or other entity engaged
in such competitive business, provided, however, nothing herein contained shall
be construed as (a) preventing Employee from investing his personal assets in
any businesses which do not compete directly or indirectly with the Company,
provided such investment or investments do not require any services on his part
in the operation of the affairs of the entity in which such investment is made
and in which his participation is solely that of an investor, (b) preventing
Employee from purchasing securities in any corporation whose securities in any
corporation whose securities are regularly traded, if such purchases shall not
result in his owning beneficially at any time 3% or more of equity securities of
any corporation engaged in a business which is competitive, directly or
indirectly, to that of the Company, (c) preventing Employee from engaging in any
activities, if he receives the prior authorization of the Managers.
Notwithstanding anything herein to the contrary this Section 5.2 shall not be
effective in the event Employee has been discharged for any reason other than
"justifiable cause" or voluntarily leaves the employment of the Company with the
mutual agreement of the Company.
5.3 Subsequent to the termination of this Agreement, Employee will not for
a period of one (1) year materially interfere with or disrupt the Company's
business relationship with its customers or suppliers or employ any person who
was employed with the Company at any time during the 6 months prior to
Employee's termination, or for a period of three (3) years, directly or
indirectly solicit any of the employees to leave the employ of the Company.
6. Notices. All notices under this Agreement shall be in writing and shall be
deemed effective when delivered in person (in the Company's case, to its
President or Secretary) or forty eight (48) hours after deposit thereof in the
U.S. mail, postage prepaid, addressed to Employee, at last known address as
carried in the records of the Company, or to the Company, at the corporate
headquarters, to the attention of the Secretary, or to such other address as the
party to be notified may specify by notice to the other party.
6
7. Assigns and Successors. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Company and the rights and obligations of Employee shall move
to the benefit of and shall be binding on Employee and his legal representatives
or heirs. This agreement constitutes a personal service agreement and Employee's
obligations hereunder may not be transferred or assigned by Employee.
8. Amendment Waiver. This Agreement may be amended, and any right or claim
hereunder waived, only by a written instrument signed by both Employee and the
Company, following authorization by the CEO. Nothing in this Agreement, express
or implied, is intended to confer upon any third person any rights or remedies
under or by reason of this Agreement. No amendment or waiver of this Agreement
requires the consent of any individual, partnership, corporation or other entity
not a party of this Agreement.
9. Injunction.
(a) Should Employee at any time violate or threaten to violate any of the
provisions of this Agreement, the Company shall be entitled to an injunction
restraining Employee from doing or continuing to do or performing any such acts,
and Employee hereby consents to the issuance of such an injunction.
(b) In the event that a proceeding is bought in equity to enforce the
provisions of this paragraph, Employee shall not urge as a defense that there is
an adequate remedy at law, nor shall the Company be prevented from seeking any
other remedies which may be available.
(c) The existence of a claim or cause of action by the Company against
Employee, or by Employee against the Company, whether predicated upon this
Agreement or otherwise, shall not constitute a defense to the endorsement by the
Company of the foregoing restrictive covenants but shall be litigated
separately.
(d) The provisions of this Section 9 shall survive termination of this
Agreement.
10. Governing Law and Jurisdiction. This Agreement in its interpretation and
application and enforcement shall be governed by the law of the State of New
Jersey without application of its conflict of laws provisions, and any legal
action commenced by either party seeking interpretation, application and/or
enforcement of this Agreement shall be brought only in the State of New Jersey
of federal court sitting in Princeton, NJ.
11. Prior Agreements. This Agreement supercedes and replaces any and all prior
agreements between the parties as to its subject matter.
12. Construction. Paragraph headings are for convenience only and shall not be
considered a part of the terms and provisions of this Agreement.
7
13. Effective Date. The effective date of this Agreement shall be July 1, 2005.
IN WITNESS WHEREOF, the parties have executed this Agreement.
MEDASORB TECHNOLOGIES, LLC EMPLOYEE
By: ___________________________________ ____________________
Al Kraus, President and Vincent Capponi
Chief Executive Officer
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8
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into this first
day of July, 2005, by and between MedaSorb Technologies, LLC, (the "Company"),
and David Lamadrid ("Employee").
The Company wishes to employ Employee as Chief Financial Officer upon the
terms and conditions set forth in this Agreement and Employee is willing to
accept employment subject to the terms and conditions set forth below.
Accordingly, the parties, intending to be legally bound, agree as follows:
1. Employment and Term
1.1 Employment. Subject to the terms and conditions hereof, the Company
hereby employs Employee during the term of employment set forth in Section 1.2
to serve as Chief Financial Officer of the Company and perform such services and
duties as are normally and customarily associated with such position as well as
such other associated duties as the Chief Executive Officer (CEO) shall
determine. Employee hereby accepts such employment and agrees to devote
sufficient time, attention and energies during regular business hours to
effectively perform his duties and obligations hereunder.
1.2 Term. The term of employment of Employee under this Agreement shall be
one (1) year commencing July 1, 2005 and expiring on July 1 , 2006 (the "Term")
and automatically renewed thereafter from year to year unless within 120 days
prior to end of initial term or the end of any renewal year, either party gives
the other written notice of its intention not to renew in which event this
Agreement shall terminate at the end of the initial Term or the end of that
renewal year term, subject to the provisions for early termination set forth
herein.
2. Compensation. In consideration of the services to be rendered hereunder, the
Company hereby agrees to (a) pay Employee an annual base compensation of
$135,629 payable in equal semimonthly installments in accordance with the usual
practice of the Company which base compensation shall be subject to annual
review (but his compensation may not be reduced from then current level) by the
CEO, and (b) grant Management Units for that number of Membership Units which
equal to 1.8% of the outstanding Membership Units of the equity of the Company
determined and granted on July 1, 2005 at a Measurement Value of $0.50 per Unit
(the "Management Units") in lieu of all employee grants made prior to the date
hereof, said number of units to vest as follows: 66% on the date hereof, 20% on
12/31/05 and 14% on 12/31/06, subject to the terms hereof. Notwithstanding
anything set forth herein to the contrary, in the event of the issuance of
additional Membership Units, granting of options to third parties or the
issuance of securities convertible or exercisable into Membership Units of the
Company, then the Company agrees to immediately adjust in favor of the Employee
the number of Management Units granted hereunder to assure that Employee at all
times retains a 1.8% equity interest in the Company on a fully diluted basis
until 12-31-05. It is also understood that the Employee's Management Units will
be adjusted on the same basis as all other Unit holders to account for any stock
split, stock dividend, combination or recapitalization.
3. Benefits.
3.1 Participation in Plans. During the term hereof, Employee shall be
entitled to participate on the same terms as afforded other executive
officers in any group insurance, hospitalization, medical, dental, health
and accident, disability or similar plan or program of the Company now
existing or established hereafter to the extent that he is eligible under
the general provisions thereof; provided that in no case shall the
benefits be reduced or less than that granted, awarded or provided to
Employee on the date hereof.
3.2 Reasonable Business Expenses. Employee shall be allowed reimbursement
for reasonable business expenses in connection with the performance of his
duties hereunder upon presentation by Employee of the details of, vouchers
for, such expenses, including tourist class commercial air travel, and
Employee shall be furnished reasonable office space, assistance and
facilities.
3.3 Vacation. Employee shall be entitled to a vacation (without deduction
of salary or other compensation) for the period as is in conformity with
the Company's policy regarding vacations for management employees (but in
no event less than three weeks per year).
3.4 Bonuses. Employee may receive such discretionary bonuses as the CEO,
in its sole discretion and from time to time, deem appropriate.
3.5 Travel Expenses. Employee shall be allowed reimbursement for expenses
incurred while traveling to and from New York and MedaSorb facilities in
New Jersey.
4. Early Termination of Employment
4.1 Termination for Justifiable Cause. In addition to termination pursuant
to Section 1.2, the Company, by written notice to Employee authorized by the CEO
may terminate Employee's employment for "justifiable cause", which shall mean
any of the following events: (a) adjudication by a court of competent
jurisdiction that Employee has committed an act of fraud or dishonesty resulting
or intended to result, directly or indirectly, in personal enrichment at the
expense of the Company; (b) an indictment of a felony (other than a motor
vehicle related matter) involving moral turpitude; (c) repeated failure or
refusal by Employee to follow written policies and directions reasonably
established by the CEO that go uncorrected for a period of thirty (30)
consecutive days after written notice has been provided to Employee; or (d)
persistent willful failure by Employee to fulfill his duties hereunder that goes
uncorrected for a period of thirty (30) consecutive days after written notice
has been provided Employee.
2
4.2 In the event that the CEO reasonably determines that the Employee has
committed a felony (other than a motor vehicle related matter), a material act
of fraud or other willful tort against the Company, it shall have the right to
suspend Employee from his position and duties hereunder without compensation
until such time as either the action is dropped or no longer pursued or a final
adjudication of Employee's actions is made by a court (whether civil or criminal
as appropriate) of competent jurisdiction. Should said adjudication find
Employee innocent (or not at fault) or the action is dropped or no longer
pursued, the Company shall promptly pay him all unpaid back salary together with
interest on said amount (at the average consumer loan rate published by
Citibank, N.A., during the suspension period) and, if said final adjudication is
rendered or action dropped or no longer pursued within 12 months of Employee's
suspension, he may, at his option, be reinstated to his position and this
Agreement continued as if never interrupted.
4.3 Permanent Disability of Employee. The Company shall have the right to
terminate Employee's employment hereunder if the CEO shall in good faith and on
the basis of reasonable medical evidence determine that Employee, by reason of
physical or mental disability, has been unable to perform the services required
of him hereunder for more than 120 consecutive days or an aggregate of 180
calendar days, during any 12-month period. Such termination shall be effective
as of the last day of the month following the month in which the Company shall
have given notice to Employee of its intention to terminate pursuant to this
paragraph. Company paid Disability Benefits will be activated 90 days after
termination.
4.4 Compensation Upon Early Termination.
(a) In the event of termination of this Agreement for "justifiable
cause" as described in Section 4.1, or pursuant to Section 1.2
hereof, Employee shall be entitled to the compensation earned by him
before the effective date of termination, as provided for in this
Agreement, computed pro rata up to and including that date, in lieu
of salary and other benefits under this Agreement.
(b) If prior to the expiration of the term of this Agreement
Employee dies, the Company shall continue Employee's compensation
and coverage of Employee's direct dependents (if any and if they are
eligible) under all plans or programs of the types listed in Section
3.1 for a period of 120 days, provided that no benefits will
continue past the end of the term of this Agreement.
(c) Upon a Change of Control or upon Employee's termination for
"Good Reason" as defined below, Employee shall then be entitled to
receive, in lieu of salary and other benefits under this Agreement,
(i) an amount equal to his then-current base salary, payable monthly
in arrears without interest for a period of one year, (ii) continued
coverage under all plans or programs of the types listed in Section
3.1 until the sooner of 1 year or one (1) month after Employee
becomes otherwise employed and eligible for other comparable
coverage, and (iii) all other benefits provided to Employee under
this Agreement for a period of thirty (30) days.
3
4.5 In the event Employee is terminated for any reason other than for
"justifiable cause" as defined in Section 4.1 hereof, death, disability or
voluntary termination (unless the Company and Employee mutually agree to such
voluntary termination), then all unexercised options granted to Employee under
the Company's option plan (including without limitation the Management Units
granted pursuant to Section 2(b) hereof) shall be deemed fully vested and
exercisable immediately upon Employee's termination. The foregoing benefit shall
be in addition to, and not in lieu of, any similar benefit that may be contained
in any other agreement between the Company and Employee.
4.6 (a) Upon the occurrence of a Change of Control of the Company or
Employee terminates for Good Reason pursuant to Section 4.6(d), all options
granted to Employee under the Company option plan and the Management Units
granted to Employee pursuant to Section 2(b) hereof shall be automatically fully
vested and exercisable immediately upon a Change of Control.
(b) For purposes of this Agreement, "Change of Control" shall be
deemed to have occurred if, during the term of this agreement:
(i) the beneficial ownership of at least 50% of the Company's voting
securities or all or substantially all of the assets of the Company shall have
been acquired, directly or indirectly by a single person or a group of
affiliated persons, other that the Employee or a group in which the Employee is
a member, in any transaction or series of transactions; or
(ii) as the result of or in connection with any cash tender offer,
exchange offer, sale of assets, merger, consolidation or other business
combination of the Company with another corporation or entity the new Board of
Managers is comprised of a majority of Managers chosen or elected by the members
of the new/combined entity who were not members of the Company before such cash
tender offer, exchange offer, sale of assets, merger, consolidation or other
business combination of the Company with another corporation or entity
(c) For purposes of this Agreement, the date of Change of Control
shall mean the earlier to occur of:
(i) the first date on which a single person or group of affiliated
persons acquires the beneficial ownership of 50% or more of the Company's voting
securities or all or substantially all of the Company's assets in any
transaction or series of transactions; or
4
(ii) the date on which a cash tender offer, exchange offer, sale of
assets, merger, consolidation other business combination resulting in the change
in the Board of Managers contemplated by Section 4.5 hereof is consummated.
(d) For purposes of this Agreement, the term "Good Reason" shall mean
the assignment to Employee of any duties that are not in the same corporate
capacity or area of operations or are not of the same general nature as
Employee's duties with Company without the Employee's express written consent.
5. Confidentiality and Non-Competition.
5.1 (i) Confidentiality. During the term of employment under this
Agreement, Employee will have access to and become acquainted with various
confidential information including without limitation, trade secrets, customer
relationships, formulas, devices, inventions, processes, know-how, financial
information and other compilations of information, records, and specifications,
which are owned by the Company. Employee shall not disclose any of the Company's
confidential information, directly or indirectly, or use them in any way, either
during the term of this Agreement or at any time thereafter, except as required
in the course of his employment for the Company. All files, records, documents,
drawings, specifications, equipment and similar items relating to the business
of the Company, whether prepared by Employee or otherwise coming into his
possession, shall remain the exclusive property of the Company and shall not be
removed from the premises of the Company under any circumstances whatsoever
without the prior written consent of the Company, and if removed shall be
immediately returned to the Company upon any termination of his employment and
no copies thereof shall be kept by Employee, provided, however, that Employee
shall be entitled to retain documents reasonably related to his interest as a
shareholder.
(ii) Inventions and Shop Right. Every invention, discovery or
improvement made or conceived by Employee related to the business of the Company
during his employment by the Company whenever and wherever made or conceived,
and whether or not during business hours, of any product, article, appliance,
tool, device, formula, process, machinery or pattern similar to, or which
constitutes an improvement, on those heretofore, now or at any time during this
employment, manufactured or used by the Company in connection with the
manufacture or process of any product heretofore or now or hereafter
manufactured by the Company, or of any product which shall or could reasonably
be manufactured in the reasonable expansion of the Company's business, shall be
and continue remain the Company's exclusive property, without any added
compensation or any reimbursement for expenses to Employee, and upon the
conception of any and every such invention, discovery or improvement and without
waiting to perfect or complete it, Employee promises and agrees that he will
immediately disclose it to the Company and to no one else and thenceforth will
treat it as the property and secret of the Company. Employee will also execute
any instruments requested from time to time by the Company to vest in it
complete title and ownership to such invention, discovery or improvement and
will, at the request of the Company, do such acts and execute such instruments
as the Company may require but at the Company's expense to obtain Letters Patent
in the United States and foreign countries, for such invention, discovery or
improvement and for the purpose of vesting title thereto in the Company, all
without any reimbursement for expenses or otherwise and without any additional
compensation of any kind to Employee.
5
5.2 Non-Competition. In the event of a termination of this Agreement for
any reason, Employee shall be prohibited for a period of one (1) year from the
effective date of this separation from engaging in any business in competition
with that of the Company in those states within the United States and those
countries outside the United States in which the Company at the time of
Employee's separation has conducted business or where Company has written a
reasonable plan to conduct business in the next 12 months or directly or
indirectly advising or consulting to or otherwise performing services for or
providing assistance to any person, firm, corporation, or other entity engaged
in such competitive business, provided, however, nothing herein contained shall
be construed as (a) preventing Employee from investing his personal assets in
any businesses which do not compete directly or indirectly with the Company,
provided such investment or investments do not require any services on his part
in the operation of the affairs of the entity in which such investment is made
and in which his participation is solely that of an investor, (b) preventing
Employee from purchasing securities in any corporation whose securities in any
corporation whose securities are regularly traded, if such purchases shall not
result in his owning beneficially at any time 3% or more of equity securities of
any corporation engaged in a business which is competitive, directly or
indirectly, to that of the Company, (c) preventing Employee from engaging in any
activities, if he receives the prior authorization of the Managers.
Notwithstanding anything herein to the contrary this Section 5.2 shall not be
effective in the event Employee has been discharged for any reason other than
"justifiable cause" or voluntarily leaves the employment of the Company with the
mutual agreement of the Company.
5.3 Subsequent to the termination of this Agreement, Employee will not for
a period of one (1) year materially interfere with or disrupt the Company's
business relationship with its customers or suppliers or employ any person who
was employed with the Company at any time during the 6 months prior to
Employee's termination, or for a period of three (3) years, directly or
indirectly solicit any of the employees to leave the employ of the Company.
6. Notices. All notices under this Agreement shall be in writing and shall be
deemed effective when delivered in person (in the Company's case, to its
President or Secretary) or forty eight (48) hours after deposit thereof in the
U.S. mail, postage prepaid, addressed to Employee, at last known address as
carried in the records of the Company, or to the Company, at the corporate
headquarters, to the attention of the Secretary, or to such other address as the
party to be notified may specify by notice to the other party.
6
7. Assigns and Successors. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors
and assigns of the Company and the rights and obligations of Employee shall move
to the benefit of and shall be binding on Employee and his legal representatives
or heirs. This agreement constitutes a personal service agreement and Employee's
obligations hereunder may not be transferred or assigned by Employee.
8. Amendment Waiver. This Agreement may be amended, and any right or claim
hereunder waived, only by a written instrument signed by both Employee and the
Company, following authorization by the CEO. Nothing in this Agreement, express
or implied, is intended to confer upon any third person any rights or remedies
under or by reason of this Agreement. No amendment or waiver of this Agreement
requires the consent of any individual, partnership, corporation or other entity
not a party of this Agreement.
9. Injunction.
(a) Should Employee at any time violate or threaten to violate any of the
provisions of this Agreement, the Company shall be entitled to an injunction
restraining Employee from doing or continuing to do or performing any such acts,
and Employee hereby consents to the issuance of such an injunction.
(b) In the event that a proceeding is bought in equity to enforce the
provisions of this paragraph, Employee shall not urge as a defense that there is
an adequate remedy at law, nor shall the Company be prevented from seeking any
other remedies which may be available.
(c) The existence of a claim or cause of action by the Company against
Employee, or by Employee against the Company, whether predicated upon this
Agreement or otherwise, shall not constitute a defense to the endorsement by the
Company of the foregoing restrictive covenants but shall be litigated
separately.
(d) The provisions of this Section 9 shall survive termination of this
Agreement.
10. Governing Law and Jurisdiction. This Agreement in its interpretation and
application and enforcement shall be governed by the law of the State of New
Jersey without application of its conflict of laws provisions, and any legal
action commenced by either party seeking interpretation, application and/or
enforcement of this Agreement shall be brought only in the State of New Jersey
of federal court sitting in Princeton, NJ.
11. Prior Agreements. This Agreement supercedes and replaces any and all prior
agreements between the parties as to its subject matter.
12. Construction. Paragraph headings are for convenience only and shall not be
considered a part of the terms and provisions of this Agreement.
7
13. Effective Date. The effective date of this Agreement shall be July 1, 2005.
IN WITNESS WHEREOF, the parties have executed this Agreement.
MEDASORB TECHNOLOGIES, LLC EMPLOYEE
By: ___________________________________ ____________________
Al Kraus, President and David Lamadrid
Chief Executive Officer
|
8
Exhibit 10.4
EMPLOYMENT AGREEMENT
Agreement made as of July 1, 2004, between MEDASORB TECHNOLOGIES, LLC, a
Delaware Limited Liability Company with offices at 7 Deer Park Drive, Suite K,
Monmouth Junction, NJ 08852 ("MEDASORB") and DR. JAMES WINCHESTER, an individual
residing at 1323 Pine Tree Road, McLean, Virginia 22101-2416 ("WINCHESTER")
RECITALS
WHEREAS, MEDASORB is engaged in the development and sale of certain
medical technology including the development and production of a polymer resin
useful in the treatment of blood purification, and
WHEREAS, MEDASORB desires to employ WINCHESTER, and WINCHESTER desires to
serve MEDASORB as its Chief Medical Officer ("CMO") with administrative and
technical responsibilities.
TERMS OF AGREEMENT
In consideration of the foregoing and the mutual promises set forth below, the
parties agree as follows:
1. TERM:
1.1 The term of this Agreement shall be one (1) year commencing July 1,
2004 ("Effective Date") and expiring on June 30, 2005 (the "Term").
The Term of this Agreement shall be automatically renewed for
successive one year periods thereafter unless within 90 days prior
to the end of the initial term or the end of any renewal year,
either party gives the other written notice of its intention not to
renew in which event this Agreement shall terminate at the end of
the initial Term or the end of that renewal year term.
2. EMPLOYMENT DUTIES:
2.1 So long as this Agreement continues in effect, WINCHESTER will
devote his full business time and energies to the business and
affairs of MEDASORB as CMO and shall not engage in any other-part or
full-time outside employment or business activity (other than
passive investment) unless specifically agreed to in writing by
MEDASORB or as otherwise set forth on Exhibit A. WINCHESTER will use
his best efforts, skill and abilities to promote MEDASORB's
interests and perform the customary duties of a CMO including,
without limitation: overseeing all clinical trials conducted by
MEDASORB, which shall include interfacing with MEDASORB's product
development department and patients, clinicians and technicians;
organizing, implementing and managing pre-clinical studies and other
clinical research; assisting in the management of MEDASORB by
participating in decisions relating to product manufacture and/or
sourcing, product development and qualification, vendor selection,
development of technical specifications, and long-term research and
development; and any other duties which may be reasonably assigned
to him by the Board of Managers.
3. REMUNERATION:
3.1 Salary: MEDASORB will pay WINCHESTER, for his services hereunder a
base salary ("Base Salary") of One Hundred Twenty Thousand Dollars
($120,000) per annum, payable in accordance with the usual payroll
practices of MEDASORB, but not less frequently than bimonthly
installments.
3.2 Performance Bonus Plan: WINCHESTER shall at the discretion of the
Managers, be entitled to participate in any bonus plan provided to
senior executives including stock option plans, profit sharing plans
and/ or their equivalent.
4. BENEFITS:
4.1 Insurance
MEDASORB will not be responsible for WINCHESTER's life, medical, or
disability insurance. MEDASORB will continue WINCHESTER's insurance
coverage currently in place for a period of up to 120 days from the
date of this Agreement until such time as WINCHESTER notifies
MEDASORB that he has established his own private insurance plan.
4.2 Travel Expenses
During the Term of this Agreement MEDASORB will reimburse
WINCHESTER for approved business travel expenses incurred.
5. VACATION TIME:
WINCHESTER will be entitled to vacation time in accordance with the
customary practices of MEDASORB regarding senior executives which time,
however, shall not be less than three weeks per year. WINCHESTER shall
take vacation hereunder during each year of this Agreement at reasonable
times considering the business activities of MEDASORB.
6. EXPENSES:
MEDASORB will pay or reimburse WINCHESTER for all reasonable and necessary
expenses incurred or paid by Employee in connection with the performance
of his services under this Agreement, on presentation pf expense
statements or vouchers and such other supporting information as is
customarily required by MEDASORB.
7. DISABILITY:
7.1 If during the Term, WINCHESTER, by reason of physical or mental
disability or incapacity, shall be unable to perform his duties
hereunder for ninety (90) successive days or a period of one hundred
twenty (120) days in the aggregate in any year of the Term,
MEDASORB, at its option, may terminate this Agreement by written
notice to WINCHESTER given within fifteen (15) days after the end of
such ninety (90) or one hundred twenty (120) day period.
7.2 If this Agreement is terminated under Section 7.1, MEDASORB shall
pay WINCHESTER his salary through the date of termination.
8. DEATH
If WINCHESTER should die during the Term, MEDASORB shall pay to such payee
or payees as he has designated by written notice to MEDASORB, or in
default of such designation then to his estate, all Base Salary and
Benefits through the date of death.
9. TERMINATION OF EMPLOYMENT:
9.1 Notwithstanding any other provision of this Agreement, WINCHESTER's
employment may be terminated prior to the end of the Term hereof as
follows:
9.1.1 Automatically upon the death of WINCHESTER, in which event the
provisions of Article 8 hereof shall govern;
9.1.2 Upon a finding of disability of WINCHESTER pursuant to Article
7, in which event the provisions of that Article shall govern;
9.1.3 At MEDASORB's option, on dismissal of WINCHESTER for "Cause".
"Cause" shall mean one or more of the following:
(a) The willful commission by WINCHESTER of a dishonest , or
tortuous act, as such is reasonably and in good faith
determined by the Managers, with respect to MEDAORB or
any subsidiary or affiliate thereof; or
(b) WINCHESTER is convicted of a criminal act (MEDASORB may
suspend WINCHESTER without pay upon indictment for
commission of a crime); or
(c) WINCHESTER's failure to perform a substantial portion of
his duties and responsibilities hereunder, which failure
continues for more than ten (10) days after receipt by
WINCHESTER of written notice given by the Managers of
MEDASORB, setting forth in reasonable detail the nature
of such failure; or
(d) Alcoholism or drug abuse; or
(e) Breach by WINCHESTER of any material provisions of this
Agreement or the rules or policies established by the
Managers; or
(f) Willful misconduct or negligence by WINCHESTER in the
performance of his duties under this Agreement.
9.1.4 On dissolution of MEDASORB or on cessation by MEDASORB of
active operations, provided in either case, not in connection
with the conversion of MEDASORB from a Limited Liability
Company to a "C" corporation.
10. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION; INVENTIONS; SHOP RIGHTS:
10.1 WINCHESTER shall not use or disclose to any person or entity any
confidential information relating to MEDASORB including, but not
limited to, technical, scientific or medical information, or
information relating to its business operations including, but not
limited to, its customer list, financial information, sales and
marketing data, or its manufacturing methods and/or arrangements,
obtained during the course of his employment, without MEDASORB's
prior written consent.
10.2 Every invention, discovery or improvement made or conceived by
WINCHESTER during his employment by MEDASORB, whenever or wherever
made or conceived, and whether or not during business hours, of any
product, tool, device, formula, or process, software program similar
to, or which constitutes an improvement, on those heretofore, now or
at any time during his employment, developed or used by MEDASORB in
connection with the development, design, or process of any product
related to MEDASORB's business, or of any product which shall or
could reasonably be developed, designed, or marketed in the
reasonable expansion of the business of MEDASORB, shall be and
continue to remain MEDASORB's exclusive property without any added
compensation or any reimbursement for expenses to WINCHESTER, and
upon the conception of any and every such invention, discovery or
improvement and without waiting to perfect or complete it,
WINCHESTER promises and agrees that he will immediately disclose it
to MEDASORB and to no one else and thenceforth will treat it as the
property and secret of MEDASORB. WINCHESTER will also execute any
instruments reasonably requested from time to time by MEDASORB to
vest in MEDASORB complete title and ownership to such invention,
discovery or improvement and will, at the request of MEDASORB, do
such acts and execute such instruments as MEDASORB may require but
at MEDASORB's expense to obtain Letters Patent in the United States
and foreign countries, for such invention, discovery or improvement
and for the purpose of vesting title thereto in MEDASORB, without
any additional compensation of any kind to WINCHESTER.
11. COVENANTS NOT TO COMPETE AND OTHER PROVISIONS
11.1 "Competitive Activity" as used herein shall mean (i) engaging
directly or indirectly, on behalf of himself or in any way on behalf
of any other person, corporation or other entity, in any advising,
investing, consulting or other business activity including becoming
employed by, or acting as an agent or principal or any person, firm,
corporation or other entity that is engaged in any business activity
relating in any manner to any product, process, service or business
activity that competes or potentially could compete with any
product, process, service or business activity of MEDASORB or any
product, service or activity being developed by MEDASORB or whose
development, to the extent WINCHESTER knows or has reason to know,
is being contemplated by MEDASORB, including but not limited to
products or services relating to the detoxification of blood with
adsorbent polymers or the use of adsorbent polymers in any other
medical application; (ii) accepting employment with or being
directly or indirectly involved as an independent contractor,
consultant or otherwise with any company that is, or has been at any
time in the prior twelve months, a customer or client of MEDASORB;
(iii) soliciting for employment or consulting, employing or
retaining, or assisting another person to employ or retain, directly
or indirectly, any employees of MEDASORB or any person who was an
employee of MEDASORB in the prior twelve months; provided, however,
that employing or retaining, or assisting another person to employ
or retain, any person whose employment with MEDASORB has been
terminated without Cause shall not be considered Competitive
Activity; (iv) soliciting, contacting, or otherwise doing business
with any person that is, or at any time in the prior twelve months
has been, a customer, licensor, licensee, client, agent, broker or
dealer of or for MEDASORB.
11.2 In consideration of this Agreement WINCHESTER agrees during the Term
and for a period ending one year following the date of termination
of this Agreement, not to engage in any Competitive Activity, except
as consented to by MEDASORB in writing. Notwithstanding the
foregoing, in no event will WINCHESTER be prohibited from engaging
in the practice of medicine as a nephrologist.
11.3 WINCHESTER acknowledges that MEDASORB will suffer irreparable harm
in the event WINCHESTER reveals any confidential information
relating to MEDASORB, or during any restricted period engages or
threatens to engage in any Competitive Activity or any activity in
violation of this Agreement, and therefore, agrees that in addition
to its remedies by law, MEDASORB shall be entitled to injunctive
relief as a consequence of a violation or threatened violation of
the provisions of this Agreement.
11.4 On the expiration or earlier termination of the Term or WINCHESTER's
resignation, discharge or earlier departure from MEDASORB,
WINCHESTER shall promptly surrender to MEDASORB all of MEDASORB's
books, records, documents, and customer lists and/or other of
MEDASORB's materials or records he may have in his possession.
12. NOTICES:
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if hand delivered
or mailed, by certified mail, return receipt requested, as follows:
To Company:
MedaSorb Technologies, LLC
7 Deer Park Drive, Suite K
Monmouth Junction, NJ 08852
To Attorney:
Rubin Bailin Ortoli Mayer Baker & Fry LLP
405 Park Avenue, 15th Floor
New York, NY 10022
Attn. Joseph Rubin, Esq.
To Employee:
Dr. James Winchester
1323 Pine Tree Road
McLean, VA 22101-2416
With a copy to:
and/or to such persons and addresses as any party shall have specified in
writing to the other by notice as aforesaid.
13. ASSIGNABILITY:
This Agreement (a) may not be assigned by WINCHESTER and (b) shall be
binding on MEDASORB's successors and assigns.
14. WAIVER:
The failure of any party at any time or times to require the performance
of any provisions of this Agreement will in no manner affect the right at
a later time to enforce it. No waiver by any party of any condition or of
the breach of any term contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, will be deemed to be or construed
as a further or continuing waiver of the breach of any other term of this
Agreement.
15. SEVERABILITY:
The invalidity or unenforceability of any provision of this Agreement will
not affect any other provision, and the remainder of the Agreement will be
construed as if the invalid and unenforceable provision were omitted.
16. POWERS AND AUTHORITY:
Each party represents and warrants that it has the right, power and
authority to enter into this Agreement, and to fully perform its
respective obligations hereunder.
17. ENTIRE AGREEMENT:
This Agreement sets forth the entire agreement and understanding of the
parties in respect of the subject matter and supercedes any and all prior
agreements, arrangements, understandings and representations relating to
the subject matter.
18. GOVERNING LAW:
This Agreement will be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be
performed entirely within that State.
19. MISCELLANEOUS:
19.1 Binding Effect
This Agreement will be binding on and inure to the benefit of the
parties hereto and their respective heirs, legal representatives,
successors and assigns.
19.2 Headings
Paragraph headings are inserted for convenience or reference only
and do not form a party of this Agreement, and no construction or
inference will be derived therefrom.
19.3 Counterparts
This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
19.4 Amendment; Waiver, Etc.
This Agreement may be amended, modified, superceded or canceled, and
any of its terms may be waived, only by a written instrument
executed by each party or, in the case of a waiver, by the party or
parties waiving compliance.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
MEDASORB TECHNOLOGIES, LLC
By:_____________________________
Al Kraus, President and CEO
By:_____________________________
James Winchester, M.D.
Exhibit A
Chief Nephrologist at Beth Israel Medical Center
Professor at Beth Israel Medical Center, includes teaching, medical care
and other activities in conjunction with the Renal Research Institute
Editorial Work with respect to Advances in Renal Replacement Therapy
Adjunct Professor at Down State Medical Center
Invited Lecturer
Expect Witness Assignments
Medical Association Executive Positions
200
6
LONG-TERM INCENTIVE PLAN
OF
GILDER
ENTERPRISES, INC.
I.
Purpose
The
purpose of the Gilder Enterprises, Inc. 2006 Long-Term Incentive Plan (the
“Plan”) is to attract and retain and provide incentives to employees, officers,
directors and consultants of the Corporation and its Subsidiaries, and to
thereby increase overall stockholders’ value. The Plan generally provides for
the granting of stock, stock options, stock appreciation rights, restricted
shares or any combination of the foregoing to the eligible
participants.
II.
Definitions
(a)
“Award”
includes, without limitation, stock options (including incentive stock options
within the meaning of Section 422(b) of the Code), stock appreciation rights,
dividend equivalent rights, stock awards, restricted share awards, or other
awards that are valued in whole or in part by reference to, or are otherwise
based on, the Common Stock (“other Common Stock-based Awards”), all on a stand
alone, combination or tandem basis, as described in or granted under this
Plan.
(b)
“Award
Agreement” means a written agreement setting forth the terms and conditions of
each Award made under this Plan.
(c)
“Board”
means the Board of Directors of the Corporation.
(d)
“Code”
means the Internal Revenue Code of 1986, as amended from time to
time.
(e)
“Committee”
means the Compensation Committee of the Board or such other committee of the
Board as may be designated by the Board from time to time to administer this
Plan or if no such committee is designated, the Board.
(f)
“Common
Stock” means the common stock of the Corporation, par value $.001 per share, or
any other securities of the Corporation into which such common stock is
reclassified or reconstituted.
(g)
“Corporation”
means Gilder Enterprises, Inc., a Nevada corporation.
(h)
“Employee”
means an employee of the Corporation or a Subsidiary.
(i)
“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder.
(j)
“Fair
Market Value” means (i) if the Common Stock is listed on an established stock
exchange or exchanges or the NASDAQ National Market, the closing price per
share
on the last trading day immediately preceding such date on the principal
exchange on which it is traded or as reported by NASDAQ; or (b) if the Common
Stock is not then listed on an exchange or the NASDAQ National Market, but
is
quoted on the NASDAQ Capital Market, the NASD OTC bulletin board or the National
Quotation Bureau pink sheets, the average of the closing bid and asked prices
per share for the Common Stock as quoted by the NASD or the National Quotation
Bureau, as the case may be, on the last trading day immediately preceding such
date; or (c) if the Common Stock is not then listed on an exchange or the NASDAQ
National Market, or quoted by NASD or the National Quotation Bureau, an amount
determined in good faith by resolution of the Committee (whose determination
shall be conclusive), based on the best information available to
it.
(k)
“Participant”
means an Employee, officer, director or consultant who has been granted an
Award
under the Plan.
(l)
“Plan
Year” means a twelve-month period beginning with January 1 of each
year.
(l)
“Subsidiary”
means any corporation or other entity, whether domestic or foreign, in which
the
Corporation has or obtains, directly or indirectly, a proprietary interest
of
more than 50% by reason of stock ownership or otherwise.
III.
Eligibility
Any
Employee, officer, director or consultant of the Corporation or a Subsidiary
selected by the Committee is eligible to receive an Award.
IV.
Plan
Administration
(a)
Except
as
otherwise determined by the Board, the Plan shall be administered by the
Committee. The Board, or the Committee to the extent determined by the Board,
shall periodically make determinations with respect to the participation of
Employees, officers, directors and consultants in the Plan and, except as
otherwise required by law or this Plan, the grant terms of Awards, including
vesting schedules, price, restriction or option periods, dividend rights,
post-retirement and termination rights, payment alternatives such as cash,
stock, contingent awards or other means of payment consistent with the purposes
of this Plan, and such other terms and conditions as the Board or the Committee
deems appropriate which shall be contained in an Award Agreement with respect
to
a Participant.
(b)
The
Committee shall have authority to interpret and construe the provisions of
the
Plan and any Award Agreement and make determinations pursuant to any Plan
provision or Award Agreement which shall be final and binding on all persons.
No
member of the Committee shall be liable for any action or determination made
in
good faith, and the members shall be entitled to indemnification and
reimbursement in the manner provided in the Corporation’s Certificate of
Incorporation, as it may be amended from time to time.
(c)
The
Committee shall have the authority at any time to provide for the conditions
and
circumstances under which Awards shall be forfeited. The Committee shall have
the authority to accelerate the vesting of any Award and the times at which
any
Award becomes exercisable.
V.
Capital
Stock Subject to the Provisions of this Plan
(a)
The
capital stock subject to the provisions of this Plan shall be shares of
authorized but unissued Common Stock and shares of Common Stock held as treasury
stock. Subject to adjustment in accordance with the provisions of Section X,
and
Sections V(b) and (c) below, the total number of shares of Common Stock
available for grants of Awards shall not exceed 2,500,000.
(b)
The
grant
of a restricted share Award shall be deemed to be equal to the maximum number
of
shares which may be issued under the Award. Awards payable only in cash will
not
reduce the number of shares available for Awards granted under the
Plan.
(c)
There
shall be carried forward and be available for Awards under the Plan, in addition
to shares available for grant under paragraph (a) of this Section V, all of
the
following: (i) any unused portion of the limit set forth in paragraph (a) of
this Section V; (ii) shares represented by Awards which are cancelled,
forfeited, surrendered, terminated, paid in cash or expire unexercised; and
(iii) the excess amount of variable Awards which become fixed at less than
their
maximum limitations.
VI.
Awards
Under This Plan
As
the
Committee may determine, the following types of Awards and other Common
Stock-based Awards may be granted under this Plan on a stand alone, combination
or tandem basis:
(a)
Stock
Option
.
A right
to buy a specified number of shares of Common Stock at a fixed exercise price
during a specified time, all as the Committee may determine.
(b)
Incentive
Stock Option
.
An
Award in the form of a stock option which shall comply with the requirements
of
Section 422 of the Code or any successor section as it may be amended from
time
to time. Subject to adjustment in accordance with the provisions of Section
X,
the aggregate number of shares which may be subject to incentive stock option
Awards under this Plan shall not exceed 2,500,000, subject to Section V above.
To the extent that Section 422 of the Code requires certain provisions to be
set
forth in a written plan, said provisions are incorporated herein by this
reference.
(c)
Stock
Appreciation Right
.
A
right, which may or may not be contained in the grant of a stock option or
incentive stock option, to receive in cash (or its equivalent value in Common
Stock) the excess of the Fair Market Value of a share of Common Stock on the
date the right is surrendered over the option exercise price or other price
specified in the Award Agreement.
(d)
Restricted
Shares
.
The
issuance of Common Stock to a Participant subject to forfeiture until such
restrictions, terms and conditions as the Committee may determine are
fulfilled.
(e)
Dividend
or Equivalent
.
A right
to receive dividends or their equivalent in value in Common Stock, cash or
in a
combination of both with respect to any new or previously existing
Award.
(f)
Stock
Award
.
The
issuance of Common Stock, which may be on a contingent basis, to a
Participant.
(g)
Other
Stock-Based Awards
.
Other
Common Stock-based Awards which are related to or serve a similar function
to
those Awards set forth in this Section VI.
VII.
Award
Agreements
Each
Award under the Plan shall be evidenced by an Award Agreement that shall set
forth the terms and conditions of the Award and shall be executed by the
Corporation and the Participant.
VIII.
Other
Terms and Conditions
(a)
Assignability
.
Unless
provided to the contrary in any Award, no Award shall be assignable or
transferable except by will or by the laws of descent and distribution and
during the lifetime of a Participant, the Award shall be exercisable only by
such Participant.
(b)
Termination
of Employment or Other Relationship
.
The
Committee shall determine the disposition of the grant of each Award in the
event of the retirement, disability, death or other termination of a
Participant’s employment or other relationship with the Corporation or a
Subsidiary.
(c)
Rights
as a Stockholder
.
A
Participant shall have no rights as a stockholder with respect to shares covered
by an Award until the date the Participant is the holder of record. Except
as
provided in Section X, no adjustment will be made for dividends or other rights
for which the record date is prior to such date.
(d)
No
Obligation to Exercise
.
The
grant of an Award shall impose no obligation upon the Participant to exercise
the Award.
(e)
Payments
by Participants
.
The
Committee may determine that Awards for which a payment is due from a
Participant may be payable: (i) in U.S. dollars by personal check, bank draft
or
money order payable to the order of the Corporation, by money transfers or
direct account debits; (ii) through the delivery or deemed delivery based on
attestation to the ownership of shares of Common Stock with a Fair Market Value
equal to the total payment due from the Participant; (iii) pursuant to a
broker-assisted “cashless exercise” program if established by the Corporation;
(iv) by a combination of the methods described in (i) through (iii) above;
or
(v) by such other methods as the Committee may deem appropriate.
(f)
Withholding
.
Except
as otherwise provided by the Committee, (i) the deduction of withholding and
any
other taxes required by law will be made from all amounts paid in cash and
(ii)
in the case of payments of Awards in shares of Common Stock, the Participant
shall be required to pay the amount of any taxes required to be withheld prior
to receipt of such stock, or alternatively, a number of shares the Fair Market
Value of which equals the amount required to be withheld may be deducted from
the payment.
(g)
Maximum
Awards
.
The
maximum number of shares of Common Stock that may be issued to any single
Participant pursuant to Awards under this Plan in any single Plan Year is
2,500,000.
IX.
Termination,
Modification and Amendments
(a)
The
Plan
may from time to time be terminated, modified or amended by the affirmative
vote
of the holders of a majority of the outstanding shares of the capital stock
of
the Corporation present or represented and entitled to vote at a duly held
stockholders meeting.
(b)
Notwithstanding
the provisions of Section IX(a) above, the Board may at any time terminate
the
Plan or from time to time make such modifications or amendments of the Plan
as
it may deem advisable; provided, however, that the Board shall not make any
material amendments to the Plan without the approval of at least the affirmative
vote of the holders of a majority of the outstanding shares of the capital
stock
of the Corporation present or represented and entitled to vote at a duly held
stockholders meeting.
(c)
No
termination, modification or amendment of the Plan may adversely affect the
rights conferred by an Award without the consent of the recipient
thereof.
X.
Recapitalization
The
aggregate number of shares of Common Stock as to which Awards may be granted
to
Participants, the number of shares thereof covered by each outstanding Award
and
the price per share thereof in each such Award, shall all be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a subdivision or consolidation of shares or other capital
adjustment, or the payment of a stock dividend or other increase or decrease
in
such shares, effected without receipt of consideration by the Corporation,
or
other change in corporate or capital structure; provided, however, that any
fractional shares resulting from any such adjustment shall be eliminated. The
Committee may also make the foregoing changes and any other changes, including
changes in the classes of securities available, to the extent it is deemed
necessary or desirable to preserve the intended benefits of the Plan for the
Corporation and the Participants in the event of any other reorganization,
recapitalization, merger, consolidation, spin-off, extraordinary dividend or
other distribution or similar transaction.
XI.
No
Right to Employment
No
person
shall have any claim or right to be granted an Award, and the grant of an Award
shall not be construed as giving a Participant the right to be retained in
the
employ of, or in any other relationship with, the Corporation or a Subsidiary.
Further, the Corporation and each Subsidiary expressly reserve the right at
any
time to dismiss a Participant free from any liability, or any claim under the
Plan, except as provided herein or in any Award Agreement issued
hereunder.
XII.
Governing
Law
To
the
extent that federal laws do not otherwise control, the Plan shall be construed
in accordance with and governed by the laws of the State of Nevada.
XIII.
Savings
Clause
This
Plan
is intended to comply in all aspects with applicable laws and regulations.
In
case any one or more of the provisions of this Plan shall be held invalid,
illegal or unenforceable in any respect under applicable law and regulation,
the
validity, legality and enforceability of the remaining provisions shall not
in
any way be affected or impaired thereby and the invalid, illegal or
unenforceable provision shall be deemed null and void; however, to the extent
permissible by law, any provision which could be deemed null and void shall
first be construed, interpreted or revised retroactively to permit this Plan
to
be construed in compliance with all applicable laws so as to foster the intent
of this Plan.
XIV.
Effective
Date and Term
The
effective date of this Plan is June __, 2006. The Plan shall terminate on June
__, 2016. No awards shall be granted after the termination of the
Plan.
MEDASORB
CORPORATION
(fka
MEDASORB TECHNOLOGIES, LLC)
(a
development stage company)
FINANCIAL
STATEMENTS
DECEMBER
31, 2005
MEDASORB
CORPORATION
(a
development stage company)
CONTENTS
December
31, 2005
Reports
of Independent Registered Public Accounting Firms
|
1-2
|
|
|
|
|
Financial
Statements:
|
|
|
|
Balance
Sheets
|
3
|
Statements
of Operations
|
4
|
Statements
of Changes in Stockholders’ Equity (Deficiency)
|
5-9
|
Statements
of Cash Flows
|
10-11
|
Notes
to Financial Statements
|
12-24
|
WithumSmith+Brown
A
Professional Corporation
Certified
Public Accountants and Consultants
120
Albany Street
Suite
201
New
Brunswick, New Jersey 08901 USA
732
828
1614 . fax 732 828 5156
www.withurn.com
Additional
Offices in New Jersey
and
Pennsylvania
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and Stockholders,
Medasorb
Corporation:
We
have
audited the accompanying balance sheets of Medasorb Corporation (a development
stage company), as of December 31, 2005 and 2004, and the related statements
of
operations, stockholders’ equity and cash flows for the years then ended and the
cumulative period from January 1, 2001 to December 31, 2005. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based
on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Medasorb Corporation as of December
31, 2005 and 2004 and the results of its operations and cash flows for the
years
then ended and the cumulative period from January 1, 2001 to December 31,
2005
in conformity with accounting principles generally accepted in the United
States
of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring net losses and negative cash
flows from operations and has a working capital deficiency. These matters
raise
substantial doubt about its ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome
of
this uncertainty.
/s/
WithumSmith+Brown P.C.
New
Brunswick, New Jersey
March
30,
2006
Report
of Independent Public Accountants
To
the
Board of Directors and Stockholders,
Medasorb
Corporation:
We
have
audited the accompanying balance sheets of Medasorb Corporation (a development
stage company), as of December 31, 2000 and 1999, and the related statements
of
operations, changes in members’ equity and cash flows for the period from
inception (January 22, 1997) through December 31, 2000. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based
on
our audits.
We
conducted our audits in accordance with auditing standards generally accepted
in
the United States. Those standards require that we plan and perform the audit
to
obtain reasonable assurance about whether the financial statements are free
of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Medasorb Corporation as of December
31, 2000 and 1999, and the results of its operations and its cash flows for
the
period from inception (January 22, 1997) to December 31, 2000, in conformity
with accounting principles generally accepted in the United States.
Arthur
Andersen, LLP
New
York,
New York
December
27, 2001
MEDASORB
CORPORATION
|
(a
development stage company)
|
|
BALANCE
SHEETS
|
|
|
|
|
|
|
|
December
31,
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
$
|
707,256
|
|
$
|
16,749
|
|
Prepaid
expenses and other current assets
|
|
19,261
|
|
|
61,159
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
726,517
|
|
|
77,908
|
|
|
|
|
|
|
|
|
Property
and equipment - net
|
|
553,657
|
|
|
820,321
|
|
|
|
|
|
|
|
|
Other
assets
|
|
181,307
|
|
|
349,898
|
|
Total
long-term assets
|
|
734,964
|
|
|
1,170,219
|
|
|
|
|
|
|
|
|
Total
Assets
|
$
|
1,461,481
|
|
$
|
1,248,127
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS'/MEMBERS' DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
Accounts
payable
|
$
|
1,802,788
|
|
$
|
2,284,050
|
|
Accrued
expenses and other current liabilities
|
|
412,646
|
|
|
167,038
|
|
Accrued
interest
|
|
1,056,960
|
|
|
298,933
|
|
Stock
subscribed
|
|
399,395
|
|
|
--
|
|
Convertible
notes payable
|
|
3,429,899
|
|
|
1,346,050
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
7,101,688
|
|
|
4,096,071
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
Convertible
notes payable
|
|
4,120,000
|
|
|
4,120,000
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
11,221,688
|
|
|
8,216,071
|
|
|
|
|
|
|
|
|
Stockholders'
Deficiency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock, Par Value $0.001, 300,000,000 shares
|
|
|
|
|
|
|
authorized,
4,829,120 shares issued and outstanding
|
|
4,829
|
|
|
--
|
|
Additional
paid-in capital
|
|
49,214,431
|
|
|
--
|
|
Contributions
by members
|
|
--
|
|
|
48,345,927
|
|
Deficit
accumulated during the development stage
|
|
(58,979,467
|
)
|
|
(55,313,871
|
)
|
|
|
|
|
|
|
|
Total
stockholders' deficiency
|
|
(9,760,207
|
)
|
|
(6,967,944
|
)
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Deficiency
|
$
|
1,461,481
|
|
$
|
1,248,127
|
|
MEDASORB
CORPORATION
|
(a
development stage company)
|
|
STATEMENTS
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
|
|
|
January
22,
1997
|
|
|
|
|
|
|
|
|
|
|
(date
of inception) to
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
|
2005
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
39,779,967
|
|
|
1,526,743
|
|
|
2,367,407
|
|
Legal,
financial and other consulting
|
|
|
5,347,134
|
|
|
948,209
|
|
|
948,079
|
|
General
and administrative
|
|
|
19,198,981
|
|
|
635,960
|
|
|
705,372
|
|
Change
in fair value of management and incentive units
|
|
|
(6,055,483
|
)
|
|
(14,551
|
)
|
|
(3,488,993
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
58,270,599
|
|
|
3,096,361
|
|
|
531,865
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(income) expenses:
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposal of property and equipment
|
|
|
(21,663
|
)
|
|
(21,663
|
)
|
|
--
|
|
Gain
on extinguishment of debt
|
|
|
(175,000
|
)
|
|
(175,000
|
)
|
|
--
|
|
Interest
expense, net
|
|
|
905,531
|
|
|
765,898
|
|
|
564,818
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other (income) expense
|
|
|
708,868
|
|
|
569,235
|
|
|
564,818
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(58,979,467
|
)
|
$
|
(3,665,596
|
)
|
$
|
(1,096,683
|
)
|
MEDASORB
CORPORATION
|
(a
development stage company)
|
|
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY)
|
|
Period
from January 22, 1997 (date of inception) to December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Members'
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
During
the
|
|
Total
|
|
|
|
|
Equity
|
|
|
Deferred
|
|
Common
Stock
|
|
Paid-In
|
|
|
Development
|
|
Stockholders'
|
|
|
|
|
(Deficiency)
|
|
|
Compensation
|
|
|
Shares
|
Par
value
|
Capital
|
|
|
Stage
|
|
Equity
(Deficit)
|
Balance
at January 22, 1997 (date of inception)
|
|
$
|
--
|
|
$
|
--
|
|
|
--
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions
|
|
|
1,143,487
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
1,143,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriptions
receivable
|
|
|
440,000
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
440,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
contribution
|
|
|
4,550,000
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
4,550,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(5,256,012
|
)
|
|
(5,256,012
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 1997
|
|
|
6,133,487
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(5,256,012
|
)
|
|
877,475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions
|
|
|
2,518,236
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
2,518,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued to consultants
|
|
|
1,671
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
1,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriptions
receivable
|
|
|
50,000
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(1,867,348
|
)
|
|
(1,867,348
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 1998
|
|
|
8,703,394
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(7,123,360
|
)
|
|
1,580,034
|
|
MEDASORB
CORPORATION
|
(a
development stage company)
|
|
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY)
|
|
Period
from January 22, 1997 (date of inception) to December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Members'
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
During
the
|
|
|
Total
|
|
|
|
|
Equity
|
|
|
Deferred
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Development
|
|
|
Stockholders'
|
|
|
|
|
(Deficiency)
|
|
|
Compensation
|
|
|
Shares
|
|
Par
value
|
|
Capital
|
|
|
Stage
|
|
Equity
(Deficit)
|
Equity
contributions
|
|
|
1,382,872
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
1,382,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
issued to consultants
|
|
|
88,363
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
88,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition
of deferred compensation
|
|
|
47,001
|
|
|
(47,001
|
)
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
--
|
|
|
15,667
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
15,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscriptions
receivable
|
|
|
100,000
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(3,066,388
|
)
|
|
(3,066,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 1999
|
|
|
10,321,630
|
|
|
(31,334
|
)
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(10,189,748
|
)
|
|
100,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions
|
|
|
14,407,916
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
14,407,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
issued to consultants
|
|
|
1,070,740
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
1,070,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued to consultants
|
|
|
468,526
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
468,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition
of deferred compensation
|
|
|
27,937
|
|
|
(27,937
|
)
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
--
|
|
|
46,772
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
46,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(10,753,871
|
)
|
|
(10,753,871
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2000
|
|
|
26,296,749
|
|
|
(12,499
|
)
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(20,943,619
|
)
|
|
5,340,631
|
|
MEDASORB
CORPORATION
|
(a
development stage company)
|
|
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY)
|
|
Period
from January 22, 1997 (date of inception) to December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Members'
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
During
the
|
|
|
Total
|
|
|
|
|
Equity
|
|
|
Deferred
|
|
|
Common
Stock
|
|
Paid-In
|
|
|
Development
|
|
|
Stockholders'
|
|
|
|
|
(Deficiency)
|
|
|
Compensation
|
|
|
Shares
|
|
Par
value
|
|
Capital
|
|
|
Stage
|
|
Equity
(Deficit)
|
Equity
contributions
|
|
|
13,411,506
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
13,411,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
issued to consultants
|
|
|
161,073
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
161,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options issued to employee
|
|
|
2,847
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
2,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
incurred in raising capital
|
|
|
(1,206,730
|
)
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(1,206,730
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of deferred compensation
|
|
|
--
|
|
|
12,499
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
12,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(15,392,618
|
)
|
|
(15,392,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2001
|
|
|
38,665,445
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(36,336,237
|
)
|
|
2,329,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions
|
|
|
6,739,189
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
6,739,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
issued to consultants
|
|
|
156,073
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
156,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued to consultant
|
|
|
176,250
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
176,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued to employee
|
|
|
2,847
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
2,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
incurred in raising capital
|
|
|
(556,047
|
)
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(556,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forgiveness
of loan receivable in exchange for equity
|
|
|
(1,350,828
|
)
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(1,350,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(11,871,668
|
)
|
|
(11,871,668
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2002
|
|
|
43,832,929
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(48,207,905
|
)
|
|
(4,374,976
|
)
|
MEDASORB
CORPORATION
|
(a
development stage company)
|
|
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY)
|
|
Period
from January 22, 1997 (date of inception) to December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Members'
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
During
the
|
|
|
Total
|
|
|
|
|
Equity
|
|
|
Deferred
|
|
Common
Stock
|
|
Paid-In
|
|
|
Development
|
|
|
Stockholders'
|
|
|
|
|
(Deficiency)
|
|
|
Compensation
|
|
|
Shares
|
|
Par
value
|
|
Capital
|
|
|
Stage
|
|
Equity
(Deficit)
|
Equity
contributions
|
|
|
4,067,250
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
4,067,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
issued to consultants
|
|
|
16,624
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
16,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of management units
|
|
|
2,952,474
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
2,952,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued to consultant
|
|
|
65,681
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
65,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
incurred in raising capital
|
|
|
(343,737
|
)
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(343,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forgiveness
of loan receivable in exchange for equity
|
|
|
(281,340
|
)
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(281,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(6,009,283
|
)
|
|
(6,009,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2003
|
|
|
50,309,881
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(54,217,188
|
)
|
|
(3,907,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions
|
|
|
512,555
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
512,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of management units
|
|
|
(2,396,291
|
)
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(2,396,291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
incurred in raising capital
|
|
|
(80,218
|
)
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(80,218
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(1,096,683
|
)
|
|
(1,096,683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2004
|
|
|
48,345,927
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(55,313,871
|
)
|
|
(6,967,944
|
)
|
MEDASORB
CORPORATION
|
(a
development stage company)
|
|
STATEMENTS
OF CHANGES IN STOCKHOLDERS' EQUITY
(DEFICIENCY)
|
|
Period
from January 22, 1997 (date of inception) to December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Members'
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
During
the
|
|
|
Total
|
|
|
|
|
Equity
|
|
|
Deferred
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Development
|
|
|
Stockholders'
|
|
|
|
|
(Deficiency)
|
|
|
Compensation
|
|
|
Shares
|
|
|
Par
value
|
|
|
Capital
|
|
|
Stage
|
|
Equity
(Deficit)
|
|
Equity
contributions
|
|
|
92,287
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
92,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement
of accounts payable in exchange for equity
|
|
|
836,319
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
836,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of convertible notes payable and accrued interest for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
member
units
|
|
|
51,565
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
51,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of management units
|
|
|
(14,551
|
)
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(14,551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
incurred in raising capital
|
|
|
(92,287
|
)
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(92,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization
from LLC to "C" Corporation
|
|
|
(49,219,260
|
)
|
|
--
|
|
|
4,829,120
|
|
|
4,829
|
|
|
49,214,431
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(3,665,596
|
)
|
|
(3,665,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
$
|
--
|
|
$
|
--
|
|
$
|
4,829,120
|
|
$
|
4,829
|
|
$
|
49,214,431
|
|
$
|
(58,979,467
|
)
|
$
|
(9,760,207
|
)
|
MEDASORB
CORPORATION
|
(a
development stage company)
|
|
STATEMENTS
OF CASH FLOWS
|
|
|
For
the
|
|
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
January
22, 1997
|
|
|
|
|
|
(date
of inception) to
|
|
Year
ended
|
|
Year
ended
|
|
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
|
|
|
2005
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(58,979,467
|
)
|
$
|
(3,665,596
|
)
|
$
|
(1,096,683
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,791,099
|
|
|
265,264
|
|
|
312,221
|
|
Gain
on disposal of property and equipment
|
|
|
(21,663
|
)
|
|
(21,663
|
)
|
|
--
|
|
Gain
on extinguishment of debt
|
|
|
(175,000
|
)
|
|
(175,000
|
)
|
|
--
|
|
Abandoned
patents
|
|
|
183,556
|
|
|
183,556
|
|
|
--
|
|
Bad
debts - employee advances
|
|
|
255,882
|
|
|
--
|
|
|
--
|
|
Contributed
technology expense
|
|
|
4,550,000
|
|
|
--
|
|
|
--
|
|
Consulting
expense
|
|
|
237,836
|
|
|
--
|
|
|
--
|
|
Management
unit expense
|
|
|
1,334,285
|
|
|
(14,551
|
)
|
|
(2,438,754
|
)
|
Incentive
units expense
|
|
|
--
|
|
|
--
|
|
|
(1,050,239
|
)
|
Expense
for issuance of warrants
|
|
|
468,526
|
|
|
--
|
|
|
--
|
|
Expense
for issuance of options
|
|
|
247,625
|
|
|
--
|
|
|
--
|
|
Accrued
interest expense
|
|
|
1,399,793
|
|
|
760,860
|
|
|
418,933
|
|
Amortization
of deferred compensation
|
|
|
74,938
|
|
|
--
|
|
|
--
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
(290,809
|
)
|
|
41,898
|
|
|
86,487
|
|
Other
assets
|
|
|
(51,163
|
)
|
|
--
|
|
|
(26,276
|
)
|
Accounts
payable and accrued expenses
|
|
|
3,219,921
|
|
|
775,665
|
|
|
1,011,392
|
|
Net
cash used in operating activities
|
|
|
(45,754,641
|
)
|
|
(1,849,567
|
)
|
|
(2,782,919
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of property and equipment
|
|
|
32,491
|
|
|
32,491
|
|
|
--
|
|
Purchase
of property and equipment
|
|
|
(2,199,094
|
)
|
|
(4,000
|
)
|
|
--
|
|
Patent
costs
|
|
|
(328,556
|
)
|
|
(20,393
|
)
|
|
--
|
|
Loan
Receivable
|
|
|
(1,632,168
|
)
|
|
--
|
|
|
--
|
|
Net
cash provided by (used in) financing
|
|
|
|
|
|
|
|
|
|
|
activities
|
|
|
(4,127,327
|
)
|
|
8,098
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Equity
contributions - net of fees incurred
|
|
|
41,711,198
|
|
|
--
|
|
|
474,800
|
|
Proceeds
from borrowing
|
|
|
8,378,631
|
|
|
2,132,581
|
|
|
1,346,050
|
|
Proceeds
from subscription receivables
|
|
|
499,395
|
|
|
399,395
|
|
|
--
|
|
Net
cash provided by financing activities
|
|
|
50,589,224
|
|
|
2,531,976
|
|
|
1,820,850
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
707,256
|
|
|
690,507
|
|
|
(962,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
--
|
|
|
16,749
|
|
|
978,818
|
|
Cash
and cash equivalents at end of period
|
|
$
|
707,256
|
|
$
|
707,256
|
|
$
|
16,749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
511,780
|
|
$
|
7,871
|
|
$
|
149,080
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of noncash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable principal and interest conversion to equity
|
|
$
|
1,171,565
|
|
$
|
51,565
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of member units for leasehold improvements
|
|
$
|
141,635
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of management units in settlement of cost of
|
|
|
|
|
|
|
|
|
|
|
raising
capital
|
|
$
|
437,206
|
|
$
|
92,287
|
|
$
|
42,463
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of management units for cost of
|
|
|
|
|
|
|
|
|
|
|
raising
capital
|
|
$
|
278,087
|
|
$
|
--
|
|
$
|
42,463
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange
of loan receivable for member units
|
|
$
|
1,632,168
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of equity in settlement of accounts payable
|
|
$
|
836,319
|
|
$
|
836,319
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
1.
|
PRINCIPAL
BUSINESS
ACTIVITY
AND
SUMMARY
OF
SIGNIFICANT
ACCOUNTING
POLICIES:
|
Nature
of Business
MedaSorb
Corporation, fka MedaSorb Technologies, LLC, ("MedaSorb" or the
"Company"), a Delaware Corporation, was formed on January 22, 1997.
The Company is engaged in the research, development and commercialization
of medical devices with its platform blood purification technology
incorporating a proprietary absorbent polymer technology. The
Company is focused on developing this technology for multiple applications
in the medical field, specifically to provide improved blood purification
for the treatment of acute and chronic health complications associated
with blood toxicity. In December 2005, the Company reorganized its
capital structure and converted from an LLC to a Corporation. This
reorganization had no effect on the carrying value of the Company’s net
assets. As of December 31, 2005, the Company has not commenced
commercial
operations and, accordingly, is in the development stage. The
Company has yet to generate any revenue and has no assurance of
future
revenue.
|
|
|
|
|
|
The
Company is a development stage company and has not yet generated
any
revenues. Since inception, the Company's expenses relate primarily
to
research and development, organizational activities, clinical
manufacturing, regulatory compliance and operational strategic
planning. Although the Company has made advances on these matters,
there can be no assurance that the Company will continue to be
successful
regarding these issues, nor can there be any assurance that the
Company
will successfully implement its long-term strategic
plans.
|
|
|
|
|
|
The
accompanying financial statements have been prepared on a going
concern
basis, which contemplates the realization of assets and satisfaction
of
liabilities in the normal course of business. The Company has experienced
negative cash flows from operations and has a deficit accumulated
during
the development stage at December 31, 2005 of $58,979,467. The
Company is
not currently generating revenue and is dependent on the proceeds
of
present and future financings to fund its research, development
and
commercialization program. The Company is continuing its
fund-raising efforts. Although the Company has been successful in
raising additional equity and debt financing, there can be no assurance
that the Company will be successful in raising additional capital
in the
future or that it will be on favorable terms. Furthermore, if the
Company is successful in raising the additional capital, there
can be no
assurance that the amount will be sufficient to complete the Company's
plans.
|
|
|
|
|
|
The
Company has developed an intellectual property portfolio, including
21
issued and 5 pending patents, covering materials, methods of production,
systems incorporating the technology and multiple medical uses.
|
|
|
|
|
|
Development
Stage Corporation
The
accompanying financial statements have been prepared in accordance
with
the provisions of Statement of Financial Accounting Standard (SFAS)
No. 7,
"Accounting and Reporting by Development Stage
Enterprises."
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
|
|
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, the Company considers all
highly
liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
|
|
|
|
|
|
Property
and Equipment
Property
and equipment are recorded at cost less accumulated depreciation.
Depreciation of property and equipment is provided for by the
straight-line method over the estimated useful lives of the related
assets. Leasehold improvements are amortized over the lesser of their
economic useful lives or the term of the related leases. Gains and
losses
on depreciable assets retired or sold are recognized in the statements
operations in the year of disposal. Repairs and maintenance expenditures
are expenses as incurred.
|
|
|
|
|
|
Patents
Legal
costs incurred to establish patents are capitalized. When patents
are
issued, capitalized costs are amortized on the straight-line method
over
the related patent term. In the event a patent is abandoned, the
net book
value of the patent is written off.
|
|
|
|
|
|
Impairment
or Disposal of Long-Lived Assets
The
Company assesses the impairment of patents and other long-lived assets
under SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. For long-lived assets
to
be held and used, the Company recognizes an impairment loss only
if its
carrying amount is not recoverable through its undiscounted cash
flows and
measures the impairment loss based on the difference between the
carrying
amount and fair value.
|
|
|
|
|
|
Research
and Development
All
research and development costs, payments to laboratories and research
consultants are expensed when incurred.
|
|
|
|
|
|
Income
Taxes
Income
taxes are accounted for under the asset and liability method prescribed
by
SFAS No. 109, “Accounting for Income Taxes.” Deferred income taxes are
recorded for temporary differences between financial statement carrying
amounts and the tax basis of assets and liabilities. Deferred tax
assets
and liabilities reflect the tax rates expected to be in effect for
the
years in which the differences are expected to reverse. A valuation
allowance is provided if it is more likely than not that some or
all of
the deferred tax asset will not be realized. No provision for income
taxes
has been reflected in the accompanying financial statements since
the
Company was organized as a LLC through December 15, 2005 and the
income or
loss was included on the members individual income tax returns.
|
|
|
|
|
|
Use
of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and
liabilities. Actual results could differ from these
estimates.
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
|
|
|
|
|
Concentration
of Credit Risk
The
Company maintains cash balances, at times, with financial institutions
in
excess of amounts insured by the Federal Deposit Insurance Corporation.
Management monitors the soundness of these institutions and considers
the
Company’s risk negligible.
|
|
|
|
|
|
Financial
Instruments
The
carrying values of prepaid expenses and other current assets, accounts
payable and accrued expenses approximate their fair values due to
their
short-term nature. Convertible notes payable approximates its fair
value
based upon the borrowing rates available for the nature of the underlying
debt.
|
|
|
|
|
|
Stock-Based
Compensation
Through
December 31, 2005, the Company has accounted for its stock compensation
plans under the recognition and measurement principles of Accounting
Principles Opinion (APB) No. 25, “Accounting for Stock Issued to
Employees” and related interpretations. Under APB No. 25, no compensation
cost is generally recognized for fixed stock options in which the
exercise
price is greater than or equal to the market price on the grant date.
The
Company has not adopted the recognition requirements of Statement
of
Financial Accounting Standards (“SFAS”) No. 123, “
Accounting
for Stock-Based Compensation
”,
for employees and directors and, accordingly, has made all pro forma
disclosures required. The Company has adopted the requirements of
SFAS No.
123 and EITF Issue No. 96-18, “Accounting for Equity Instruments That are
Issued to Other Than Employees for Acquiring or in Conjunction with
Selling Goods and Services” with regard to non-employees. Each option
granted is valued at fair market value on the date of grant. Had
compensation cost for options granted to employees and directors
been
determined consistent with SFAS No. 123, the Company's pro forma
net loss
would have been as follows:
|
|
|
Period
from
|
|
|
|
|
|
|
|
|
|
January
22, 1997
|
|
|
Year
ended
|
|
|
Year
ended
|
|
|
(date
of inception) to
|
|
December
31,
|
|
|
December
31,
|
|
|
December
31, 2005
|
|
|
2005
|
|
|
2004
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
58,979,467
|
|
$
|
3,665,596
|
|
$
|
1,096,683
|
|
Pro
forma
|
|
$
|
59,053,461
|
|
$
|
3,692,026
|
|
$
|
1,096,683
|
|
|
|
|
|
|
Under
SFAS No. 123, the fair value of each option was estimated on the
date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions: (1) expected lives of five-ten years,
(2)
dividend yield of 0%, (3) risk-free interest rates ranging from 3.25%
-
5.63%, and (4) volatility percentage of 0.01%.
|
|
|
|
|
|
Reverse
Unit Split and Conversion to Corporation
In
December 2005, MedaSorb effected
an
approximate 1 for 6.64 reverse unit split to unit holders. Immediately
subsequent to the split, the Company converted to a corporation (see
Note
4). All share and per share information has been retroactively adjusted
to
reflect the split.
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
|
|
|
|
|
Effects
of Recent Accounting Pronouncements
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
SFAS No. 123R “Share Based Payment.” This statement is a revision to SFAS
123 and supersedes Accounting Principles Board (APB) Opinion No.
25,
“Accounting for Stock Issued to Employees.” This statement requires a
public entity to expense the cost of employee services received in
exchange for an award of equity instruments using the fair-value-based
method. This statement also provides guidance on valuing and expensing
these awards, as well as disclosure requirements of these equity
arrangements. This statement is effective for all reporting periods
beginning after December 15, 2005. Management is currently evaluating
the
effect of this pronouncement.
|
|
|
|
|
|
In
December 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets - an amendment of APB Opinion No. 29." The
statement addresses the measurement of exchanges of nonmonetary assets
and
eliminates the exception from fair value measurement for nonmonetary
exchanges of similar productive assets and replaces it with an exception
for exchanges that do not have commercial substance. SFAS No. 153 is
effective for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. The adoption of this statement is not
anticipated to have a significant impact on the results of operations
or
financial position of the Company.
|
|
|
|
|
|
In
May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
Corrections.” This statement replaces APB No. 20 and SFAS No. 3 and
changes the requirements for the accounting and reporting of a change
in
accounting principle. APB No. 20 previously required that most voluntary
changes in accounting principle be recognized by including in net
income
of the period of the change the cumulative effect of changing to
the
accounting principle. SFAS No. 154 requires retrospective application
to
prior periods’ financial statements of voluntary changes in accounting
principle. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December
15,
2005. The Company does not expect that the adoption of SFAS No. 154
will
have a significant impact on the results of operations or financial
position of the Company.
|
|
|
|
|
|
In
February 2006, the FASB issued SFAS No. 155,”Accounting for Certain Hybrid
Financial Instruments - an amendment of FASB Statements No. 133 and
140,”
to simplify and make more consistent the accounting for certain financial
instruments. Specifically, SFAS No. 155 amends SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, to permit fair
value
re-measurement for any hybrid financial instrument with an embedded
derivative that otherwise would require bifurcation, provided that
the
whole instrument is accounted for on a fair value basis. SFAS No.
155
amends SFAS No. 140, Accounting for the Impairment or Disposal of
Long-Lived Assets, to allow a qualifying special-purpose entity (SPE)
to
hold a derivative financial instrument that pertains to a beneficial
interest other than another derivative financial instrument. SFAS
No. 155
applies to all financial instruments acquired or issued after the
beginning of an entity’s first fiscal year that begins after September 15,
2006, with earlier application allowed. The Company does not expect
that
the adoption of SFAS No. 155 will have a significant impact on the
results
of operations or financial position of the Company.
|
|
|
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
2.
|
PROPERTY
AND
EQUIPMENT,
NET:
|
Property
and equipment - net, consists of the following:
|
|
|
|
|
|
|
|
|
|
Depreciation/
|
|
|
|
|
|
|
|
Amortization
|
|
December
31,
|
|
|
2005
|
|
|
2004
|
|
|
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture
and fixtures
|
|
$
|
130,015
|
|
$
|
131,509
|
|
|
7
years
|
|
Equipment
and computers
|
|
|
1,709,815
|
|
|
1,742,239
|
|
|
3
to 7 years
|
|
Leasehold
improvements
|
|
|
462,980
|
|
|
462,980
|
|
Term
of lease
|
|
|
|
|
2,302,810
|
|
|
2,336,728
|
|
|
|
|
Less
accumulated depreciation
|
|
|
|
|
|
|
|
|
|
|
and
amortization
|
|
|
1,749,153
|
|
|
1,516,407
|
|
|
|
|
Property
and Equipment, Net
|
|
$
|
553,657
|
|
$
|
820,321
|
|
|
|
|
|
|
Depreciation
expense for the years ended December 31, 2005 and 2004 amounted to
$259,836 and $307,126, respectively. Depreciation expense from inception
to December 31, 2005 amounted to $1,776,242.
|
|
|
|
3.
|
OTHER
ASSETS:
|
Other
assets consist of the
following:
|
December
31,
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
|
|
Intangible
assets, net
|
|
$
|
130,143
|
|
$
|
298,734
|
|
Security
deposits
|
|
|
51,164
|
|
|
51,164
|
|
Total
|
|
$
|
181,307
|
|
$
|
349,898
|
|
|
|
Intangible
assets consist of the following:
|
December
31,
|
|
|
2005
|
|
|
2004
|
|
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Gross
|
|
|
Accumulated
|
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
145,000
|
|
$
|
14,857
|
|
$
|
308,163
|
|
$
|
9,429
|
|
|
|
The
issued patents that are capitalized are being amortized over a period
of
17.5 years. All pending patents are not being
amortized.
|
|
|
|
|
|
Amortization
expense amounted to $5,428 and $5,095 for the years ended December
31,
2005 and 2004, respectively. Amortization expense from inception
to
December 31, 2005 amounted to $14,857.
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
|
|
Estimated
amortization expense for the next five years is as
follows:
|
|
|
|
|
|
Year
ending December 31,
|
2006
|
|
$
|
5,500
|
|
2007
|
|
|
5,500
|
|
2008
|
|
|
5,500
|
|
2009
|
|
|
5,500
|
|
2010
|
|
|
5,500
|
|
4.
|
COMMITMENTS
AND
CONTINGENCIES:
|
The
Company is obligated under non-cancelable operating leases for
office
space and equipment expiring at various dates through September
2009. The
aggregate minimum future payments under these leases are approximately
as
follows:
|
|
|
|
|
|
Year
ending December 31,
|
2006
|
|
$
|
173,000
|
|
2007
|
|
|
42,000
|
|
2008
|
|
|
5,000
|
|
2009
|
|
|
4,000
|
|
Total
|
|
$
|
224,000
|
|
|
|
The
preceding data reflects existing leases and does not include replacements
upon their expiration. In the normal course of business, operating
leases
are normally renewed or replaced by other leases.
|
|
|
|
|
|
Rent
expense for the years ended December 31, 2005 and 2004 amounted
to
approximately $259,000 and $462,000, respectively.
|
|
|
|
|
|
The
Company has employment agreements with certain key executives through
July
2008. The agreements provide for annual base salaries of varying
amounts.
Future minimum annual salaries are approximately as
follows:
|
Year
ending December 31,
|
|
|
|
|
2006
|
|
$
|
418,758
|
|
2007
|
|
|
200,000
|
|
2008
|
|
|
108,333
|
|
Total
|
|
$
|
727,091
|
|
|
|
In
addition, one of these agreements provides for an additional bonus
payment
based on achieving specific milestones as defined in the agreement,
however, as of the date of this report, these milestones have not
been
met. Furthermore, three of the agreements include anti-dilution
provisions
whereby certain employees are granted options and management units
for the
right to obtain 5%, 1.8% and 1.5%, respectively, of the outstanding
stock
of the Company (see Note 7).
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
|
|
The
Company is involved in various claims and legal actions. Management
is of
the opinion that these claims and legal actions have no merit,
but may
have a material adverse impact on the financial position of the
Company
and/or the results of its operations.
Aside from normal trade creditor claims, the Company is involved
with
various claims and a legal action relating to its technology.
Management is of the opinion that these claims and legal action
have no
merit, but may have a material adverse impact on the financial
position of
the Company and/or the results of its operations. In January 2003
the Company was sued by Brotech Corp. (Purolite International,
Ltd.)
claiming co-inventorship and/or joint ownership of some of the
Company’s
patents. Recently Purolite expanded its claims, to allege that they
are the sole owner of these patents and are seeking equitable
relief and
monetary damages. The Company has filed a motion for summary
judgment. At the same time the parties have engaged in ongoing
efforts to settle the case. If the case is not settled, the Court
will decide on the Company’s summary judgment motion. If the motion
is denied, the Company expects the matter will go to trial within
a few
months thereafter. As of the date of the financial statements,
the outcome
of the case could not be determined and the damages, if any,
could not be
reasonably estimated. Accordingly, a loss contingency has not
been
accrued.
|
|
|
|
|
|
Upon
the Company’s successful merger with a public company, an existing
Noteholder is entitled to be issued 10 million shares of common
stock of
the Company. These shares will not be issued until the Company
meets a
minimum capital raise amount and recapitalization of the Company
prior to
such a merger.
|
|
|
|
|
|
In
an agreement dated August 11, 2003 the Company entered into an
equity
agreement with one of its current investors whereby the investor
agreed to
purchase $4 million of membership units. These amounts were received
by
the Company in 2003. In connection with this agreement the Company
granted
the investor a future royalty of 3% on all gross revenues received
by the
Company from the sale of their CytoSorb Device. The Company has
not
generated any revenue from this product and has not incurred
any royalty
costs through December 31, 2005. The amount of future revenue
subject to
the royalty agreement could not be reasonably estimated nor,
has a
liability been incurred, therefore, an accrual for royalty payments
has
not been included in the financial statements.
|
|
|
|
5.
|
CONTRIBUTED
TECHONOLOGY:
|
On
February 1, 1997, the Company exchanged 88.5% of its ownership
rights for
proprietary technology in the form of patents. The value of the
technology
was determined to be $4,550,000 by an independent asset valuation
firm
using the income and market value method. This amount has been
expensed
and was included in "research and development expenses" in the
statements
of operations for the period from January 22, 1997 (date of inception)
to
December 31, 2005.
|
|
|
|
6.
|
CONVERTIBLE
NOTES PAYABLE:
|
In
2003, MedaSorb received $3,
900,000
and issued a 12% callable convertible note with a conversion
price of
$33.18 per share due in 2008 to an existing investor. During
2004 and
2003, respectively, $120,000 and $100,000 of interest was incurred
and
added to the principal balance, thereby increasing the note to
$4,120,000
at December 31, 2005 and 2004. During 2004 the terms of this
note were
revised to provide for conversion at $6.64 per share. During
2005 the
terms of this note were further revised to provide for conversion
at $3.32
per share. These revisions yielded no significant change in fair
value.
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
|
|
During
2004, MedaSorb raised approximately $904,000 and issued one
year 12%
Convertible Notes with a conversion price of $6.64 per share.
For each
dollar of principal and accrued interest that the Noteholder
converts into
shares, the Noteholder will then receive a warrant to purchase
two shares
at a price of $6.64 each. In 2004, the Company also raised
approximately
$442,000 and issued one year 12% Convertible Notes with a conversion
price
of $3.32 per share. For each dollar of principal and accrued
interest that
the Noteholder converts into shares, the Noteholder will receive
a warrant
to purchase two shares at a price of $4.98 each. The Company
has not
repaid any of these Convertible Notes as of December 31, 2005
and is
continuing to accrue interest on the principal
balances.
|
|
|
|
|
|
During
2005, MedaSorb received $
1,132,582
from an existing Noteholder and issued a one year 12% secured
convertible
note with a conversion price of $3.32 per share.
For each dollar of principal and accrued interest that the
Noteholder
converts into shares, the Noteholder will then receive a warrant
to
purchase two shares at a price of $4.98 each. The Company has
not repaid
any of these Convertible Notes as of December 31, 2005 and
is continuing
to accrue interest on the principal balances.
|
|
|
|
|
|
Separately
in 2005 the Company received a $1 million bridge loan as part
of a
proposed reverse merger transaction into a public shell company.
The loan
bears interest at 6% per annum, repayable in cash or, at the
option of the
Noteholder, converted into shares of the Company at a conversion
price
equal to the price per share offered in a future private placement
of the
Company. In consideration for funding the loan, the Noteholder
is entitled
to be issued 10 million shares of common stock of the Company,
subject to
certain adjustments, to be issued upon the occurrence of certain
events
(see Note 4).
|
|
|
|
|
|
The
terms of the outstanding notes provide that the $4,120,000
Note is Senior
Debt and is secured by all assets of the Company. Additional
notes
aggregating approximately $904,000 are subordinated to the
Senior Note.
They are secured by all assets of the Company. Notes amounting
to $442,000
are subordinated to all other notes but are secured by all
assets of the
Company. Notes amounting to $1,132,582 are subordinated to
all other notes
but are secured by all assets of the Company.
|
|
|
|
|
|
The
Company’s Senior Note in the amount of $4,120,000 is held by the largest
shareholder (see Note 8).
|
|
|
|
7.
|
STOCKHOLDERS'
EQUITY:
|
In
December 2005, the Company effected
an
approximate 1 for 6.64 reverse unit split to Unit holders of
MedaSorb
Technologies, LLC. Immediately subsequent to the split, the
Company
converted to a Corporation (“MedaSorb Corporation”). All share and per
share information has been retroactively adjusted to reflect
the split.
Member and Management Units of the LLC were converted into
shares of the
corporation. Incentive Units and Options of the LLC were converted
into
options of the corporation. Warrants of the LLC were converted
into
warrants of the corporation. The Company is authorized to issue
up to
300,000,000 Shares.
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
|
|
In
2005 legal fees and rent approximating $952,000 and $59,000, respectively,
were converted to equity. As a result of these conversions, the
Company
recognized a gain on extinguishment of debt of approximately $175,000.
In
addition, a Convertible Note in the principal amount of approximately
$49,000 and accrued interest in the amount of approximately $2,900
was
converted to equity.
|
|
|
|
|
|
Net
losses of the Company for the 2005 fiscal year up until the conversion
from an LLC to a corporation were allocated to the capital accounts
of the
members as described in the limited liability company agreement
in
proportion to their respective ownership interests.
|
|
|
|
|
|
In
2005 the Company sought to raise $6.5 million in an equity offering.
As of
December 31, 2005 approximately $399,000 was received from investors
and
booked as Stock Subscribed pending receipt of a dollar for dollar
matching
investment pledged by an existing investor (see Note
9).
|
|
|
|
|
|
Interest
Option Plan
|
|
|
|
|
|
During
1998, the Company formally adopted its Interest Option Plan (the
"Option
Plan"), authorizing the distribution of stock options. This Option
Plan
provides for the award to certain members of management, employees,
board
of managers and consultants. These awards are 10-year incentive
options/units to purchase Shares within the meaning of Section
422A of the
Internal Revenue Code, stock appreciation rights, restricted stock
subject
to forfeiture and restrictions on transfer, and performance awards
entitling the recipient to receive common stock in the future following
the attainment of performance goals determined by the board of
managers.
|
|
|
|
|
|
The
following is a summary of the interest options granted, canceled
or
exercised under the Plan:
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
|
Exercise
Price
|
|
|
|
|
Shares
|
|
|
|
Per
Share
|
|
|
|
|
|
|
|
|
|
|
Outstanding
- December 31, 2002
|
|
|
3,014
|
|
|
$
|
19.91
|
|
Granted
|
|
|
--
|
|
|
|
--
|
|
Cancelled
|
|
|
--
|
|
|
|
--
|
|
Exercised
|
|
|
--
|
|
|
|
--
|
|
Outstanding
- December 31, 2003
|
|
|
3,014
|
|
|
$
|
19.91
|
|
Granted
|
|
|
--
|
|
|
|
--
|
|
Cancelled
|
|
|
--
|
|
|
|
--
|
|
Exercised
|
|
|
--
|
|
|
|
--
|
|
Outstanding
- December 31, 2004
|
|
|
3,014
|
|
|
$
|
19.91
|
|
Granted
|
|
|
--
|
|
|
|
--
|
|
Cancelled
|
|
|
--
|
|
|
|
--
|
|
Exercised
|
|
|
--
|
|
|
|
--
|
|
Converted
to Stock Options
|
|
|
3,014
|
|
|
|
19.91
|
|
Outstanding
- December 31, 2005
|
|
|
--
|
|
|
$
|
--
|
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
|
|
Incentive Options
|
|
|
|
|
|
The
following is a summary of the incentive options granted, canceled
or
exercised under the Plan:
|
|
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
Exercise
Price
|
|
|
|
|
Shares
|
|
|
Per
Share
|
|
|
|
|
|
|
|
|
|
Outstanding
- December 31, 2002
|
|
|
94,863
|
|
$
|
|
|
Granted
|
|
|
--
|
|
|
--
|
|
Cancelled
|
|
|
--
|
|
|
--
|
|
Exercised
|
|
|
--
|
|
|
--
|
|
Outstanding
- December 31, 2003
|
|
|
94,863
|
|
$
|
|
|
Granted
|
|
|
--
|
|
|
--
|
|
Cancelled
|
|
|
--
|
|
|
--
|
|
Exercised
|
|
|
--
|
|
|
--
|
|
Outstanding
- December 31, 2004
|
|
|
94,863
|
|
$
|
|
|
Granted
|
|
|
--
|
|
|
--
|
|
Cancelled
|
|
|
2,780
|
|
|
28.72
|
|
Exercised
|
|
|
--
|
|
|
--
|
|
Converted
to Stock Options
|
|
|
92,083
|
|
|
30.64
|
|
Outstanding
- December 31, 2005
|
|
|
--
|
|
$
|
|
|
|
|
As
of December 31, 2005 all outstanding options of the LLC had been
exchanged
for options of the new corporation. There was no effect on the statements
of operations or proforma statements of operations as a result of this
exchange.
|
|
|
|
|
|
Incentive
Units
|
|
|
|
|
|
The
following is a summary of the incentive units granted, canceled or
exercised under the Plan:
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
Exercise
Price
|
|
|
|
|
Shares
|
|
|
Per
Share
|
|
|
|
|
|
|
|
|
|
Outstanding
- December 31, 2002
|
|
|
428,908
|
|
$
|
|
|
Granted
|
|
|
20,872
|
|
|
10.79
|
|
Cancelled
|
|
|
3,893
|
|
|
41.47
|
|
Exercised
|
|
|
--
|
|
|
--
|
|
Outstanding
- December 31, 2003
|
|
|
445,887
|
|
$
|
|
|
Granted
|
|
|
11,604
|
|
|
6.64
|
|
Cancelled
|
|
|
99,613
|
|
|
25.96
|
|
Exercised
|
|
|
--
|
|
|
--
|
|
Outstanding
- December 31, 2004
|
|
|
357,878
|
|
$
|
|
|
Granted
|
|
|
--
|
|
|
--
|
|
Cancelled
|
|
|
728
|
|
|
11.27
|
|
Exercised
|
|
|
--
|
|
|
--
|
|
Converted
to Stock Options
|
|
|
357,150
|
|
|
31.15
|
|
Outstanding
- December 31, 2005
|
|
|
--
|
|
$
|
|
|
|
|
As
of December 31, 2005 all outstanding Incentive Units had been exchanged
for options of the new corporation. There was no effect on the statements
of operations or proforma statements of operations as a result of
this
exchange.
|
|
|
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
|
|
Management
Units
|
|
|
|
|
|
The
following is a summary of the management units granted or canceled
under
the Plan:
|
|
|
|
Shares
|
|
|
|
|
|
|
Outstanding
- December 31, 2002
|
|
|
3,014
|
|
Granted
|
|
|
183,496
|
|
Cancelled
|
|
|
--
|
|
Outstanding
- December 31, 2003
|
|
|
186,510
|
|
Granted
|
|
|
361,769
|
|
Cancelled
|
|
|
--
|
|
Outstanding
- December 31, 2004
|
|
|
548,279
|
|
Granted
|
|
|
1,995,778
|
|
Cancelled
|
|
|
22,856
|
|
Converted
to Common Stock
|
|
|
2,521,201
|
|
Outstanding
- December 31, 2005
|
|
|
--
|
|
|
|
Upon
adoption of the Incentive Unit (“IU”) Plan, the Company is authorized to
issue Management Units ("MU"). MUs are granted with no participation
in
the past appreciation (past accumulated value) of the Company as
of the
date of the MU grant and can appreciate only from future performance
(future appreciation) of the Company.
|
|
|
|
|
|
MUs
possess a "catch-up" feature which allocates future appreciation
of the
Company's assets in the following manner: 90% to MUs and 10% to
regular
Units until the value of the MU equals the value of a regular Unit
on the
date of the MU grant. Any additional appreciation of the Company
is
allocated to both MUs and regular Units equally. These MUs are
required to
be accounted for under variable accounting and changes in the valuation
are included in the statements of operations.
|
|
|
|
|
|
Per
an employment agreement’s anti dilution provision, a member of management
holds 5% of the outstanding Units (on a fully diluted basis) in
the form
of Management Units. During 2005 the Board awarded two members
of
Management, Management Units sufficient to provide them with 1.8%
and 1.5%
respectively of the Company on a fully diluted basis to be determined
on
December 31, 2005.
|
|
|
|
|
|
As
of December 31, 2005 all outstanding Management Units had been
exchanged
for shares of the new corporation. There was no effect on the statements
of operations or proforma statements of operations as a result
of this
exchange.
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
|
|
Stock Options
|
|
|
|
|
|
The
following is a summary of the stock options granted, canceled or
exercised
under the Plan:
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
|
Exercise
Price
|
|
|
|
|
Shares
|
|
|
Per
Share
|
|
|
|
|
|
|
|
|
|
Outstanding
- December 31, 2004
|
|
|
--
|
|
$
|
|
|
Granted
|
|
|
60,000
|
|
|
1.25
|
|
Cancelled
|
|
|
--
|
|
|
--
|
|
Exercised
|
|
|
--
|
|
|
--
|
|
Conversions:
|
|
|
|
|
|
|
|
Interest
Options
|
|
|
3,014
|
|
|
19.91
|
|
Incentive
Options
|
|
|
92,083
|
|
|
30.64
|
|
Incentive
Units
|
|
|
357,150
|
|
|
31.15
|
|
Outstanding
- December 31, 2005
|
|
|
512,247
|
|
$
|
|
|
|
|
The
following table summarizes information on stock options outstanding
at
December 31, 2005:
|
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
Average
|
|
|
|
|
Average
|
|
Range
of
|
|
Number
|
|
|
Life
|
|
|
Exercise
|
|
Number
|
|
|
Exercise
|
|
Exercise
Price
|
|
Outstanding
|
|
|
(Years)
|
|
|
Price
|
|
Exercisable
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.25
- $41.47
|
|
512,247
|
|
|
6.2
|
|
$
|
27.49
|
|
511,142
|
|
$
|
27.47
|
|
|
|
Options
typically vest over a period of 3 years and have a contractual
life of 10
years.
|
|
|
|
|
|
The
fair value of each option granted is estimated on grant date
using the
Black-Scholes option pricing model which takes into account as
of the
grant date the exercise price and expected life of the option,
the current
price of the underlying stock and its expected volatility, expected
dividends on the stock and the risk-free interest rate for the
term of the
option. The following is the average of the data used to calculate
the
fair value at December 31:
|
|
|
|
Risk-Free
|
|
|
Expected
|
|
|
Expected
|
|
|
Expected
|
|
|
|
|
Interest
Rate
|
|
|
Life
(Years)
|
|
|
Volatility
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
4.39
|
%
|
|
10
|
|
|
0.01
|
%
|
|
0.00
|
%
|
2004
|
|
|
4.39
|
%
|
|
10
|
|
|
0.01
|
%
|
|
0.00
|
%
|
|
|
The
weighted average fair value of the Company’s stock options calculated
using the black-scholes option-pricing model for options granted
during
the years ended December 31, 2005 and 2004 was $0.44 and $-0-
per share,
respectively.
|
|
|
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
|
|
Warrants
|
|
|
|
|
|
As
of December 31, 2005, the Company has the following warrants
to purchase
common stock
outstanding:
|
Number
of Shares
|
|
Warrant
Exercise
|
|
Warrant
|
|
To
be Purchased
|
|
|
Price
per Share
|
|
|
Expiration
Date
|
|
|
|
|
|
|
|
|
|
25,995
|
|
$
|
19.91
|
|
|
February
8, 2007
|
|
15,569
|
|
$
|
6.64
|
|
|
March
31, 2010
|
|
2,652
|
|
$
|
41.47
|
|
|
May
30, 2007
|
|
603
|
|
$
|
41.47
|
|
|
February
24, 2007
|
|
1,206
|
|
$
|
41.47
|
|
|
January
9, 2007
|
|
8.
|
AFFILIATED
PARTIES:
|
The
Company’s largest shareholder is also the holder of the Company’s senior
note payable (see Note 6).
|
|
|
|
9.
|
SUBSEQUENT
EVENTS:
|
During
2005 the Company began a new $6.5 million capital raise
(see Note 7). By
March 2006, the Company had received approximately an additional
$400,000
under this raise from an existing investor to match funds
received during
2005. The Company is working on completing the capital
raise through an
anticipated private placement to close concurrently with
the planned
reverse merger.
|
|
|
|
|
|
Subsequent
to December 31, 2005 the Company issued 100,000 shares
of common stock to
settle a dispute regarding a price protection provision
with an existing
investor group.
|
MEDASORB
CORPORATION
(fka
MEDASORB TECHNOLOGIES, LLC)
(a
development stage company)
FINANCIAL
STATEMENTS
MARCH
31, 2006
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
(UNAUDITED)
March
31, 2006
Financial
Statements
:
Balance
Sheets
|
1
|
Statements
of Operations
|
2
|
Statements
of Changes in Stockholders’ Equity (Deficiency)
|
3
|
Statements
of Cash Flows
|
4
|
Notes
to Financial Statements
|
5-13
|
MEDASORB
CORPORATION
|
(a
development stage company)
|
|
BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
March
31,
|
|
December
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
631,189
|
|
$
|
707,256
|
|
Prepaid
expenses and other current assets
|
|
|
34,014
|
|
|
19,261
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
665,203
|
|
|
726,517
|
|
|
|
|
|
|
|
|
|
Property
and equipment - net
|
|
|
491,132
|
|
|
553,657
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
182,950
|
|
|
181,307
|
|
|
|
|
|
|
|
|
|
Total
long-term assets
|
|
|
674,082
|
|
|
734,964
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
1,339,285
|
|
$
|
1,461,481
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
2,007,193
|
|
$
|
1,802,788
|
|
Accrued
expenses and other current liabilities
|
|
|
489,277
|
|
|
412,646
|
|
Accrued
interest
|
|
|
1,268,615
|
|
|
1,056,960
|
|
Stock
subscribed
|
|
|
--
|
|
|
399,395
|
|
Convertible
notes payable
|
|
|
3,429,899
|
|
|
3,429,899
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
7,194,984
|
|
|
7,101,688
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
Convertible
notes payable
|
|
|
4,120,000
|
|
|
4,120,000
|
|
|
|
|
|
|
|
|
|
Total
long-term liabilities
|
|
|
4,120,000
|
|
|
4,120,000
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
11,314,984
|
|
|
11,221,688
|
|
|
|
|
|
|
|
|
|
Stockholders
Equity/(Deficit):
|
|
|
|
|
|
|
|
Common
Stock, Par Value $0.001, 300,000,000 shares
|
|
|
|
|
|
|
|
authorized,
5,169,939 and 4,829,120 shares issued
|
|
|
|
|
|
|
|
and
outstanding, respectively
|
|
|
5,170
|
|
|
4,829
|
|
Additional
paid-in capital
|
|
|
50,013,975
|
|
|
49,214,431
|
|
Deficit
accumulated during the development stage
|
|
|
(59,994,844
|
)
|
|
(58,979,467
|
)
|
|
|
|
|
|
|
|
|
Total
stockholders' deficiency
|
|
|
(9,975,699
|
)
|
|
(9,760,207
|
)
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Deficiency
|
|
$
|
1,339,285
|
|
$
|
1,461,481
|
|
MEDASORB
CORPORATION
|
(a
development stage company)
|
|
STATEMENTS
OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
from
|
|
|
|
|
|
|
|
|
January
22,1997
|
|
|
Three
months
|
|
|
Three
months
|
|
(date
of inception) to
|
|
|
ended
|
|
|
ended
|
|
|
March
31, 2006
|
|
|
March
31, 2006
|
|
|
March
31, 2005
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
--
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
40,070,280
|
|
|
288,981
|
|
|
436,678
|
|
Legal,
financial and other consulting
|
|
|
5,731,672
|
|
|
384,538
|
|
|
81,925
|
|
General
and administrative
|
|
|
19,347,506
|
|
|
137,775
|
|
|
202,138
|
|
Change
in fair value of management and incentive units
|
|
|
(6,055,483
|
)
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
59,093,975
|
|
|
811,294
|
|
|
720,741
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposal of property and equipment
|
|
|
(21,663
|
)
|
|
--
|
|
|
--
|
|
Gain
on extinguishment of debt
|
|
|
(175,000
|
)
|
|
--
|
|
|
--
|
|
Interest
expense, net
|
|
|
1,097,532
|
|
|
204,083
|
|
|
166,294
|
|
Net
loss
|
|
$
|
(59,994,844
|
)
|
$
|
(1,015,377
|
)
|
$
|
(887,035
|
)
|
MEDASORB
CORPORATION
|
(a
development stage company)
|
|
STATEMENTS
OF CHANGES IN STOCKHOLDERS'
DEFICIENCY
|
|
|
|
|
|
|
|
|
Period
from January 22, 1997 (date of inception) to March 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Members'
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
During
the
|
|
|
Total
|
|
|
|
|
Equity
|
|
|
Deferred
|
|
|
Common
Stock
|
|
|
Paid-In
|
|
|
Development
|
|
|
Stockholders'
|
|
|
|
|
(Deficiency)
|
|
|
Compensation
|
|
|
Shares
|
|
Par
value
|
|
Capital
|
|
|
Stage
|
|
Equity
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2005
|
|
|
--
|
|
|
--
|
|
|
4,829,120
|
|
|
4,829
|
|
|
49,214,431
|
|
|
(58,979,467
|
)
|
|
(9,760,207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for stock subscribed
|
|
|
--
|
|
|
--
|
|
|
240,929
|
|
|
241
|
|
|
799,644
|
|
|
--
|
|
|
799,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock as price protection
|
|
|
--
|
|
|
--
|
|
|
100,000
|
|
|
100
|
|
|
(100
|
)
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
(1,015,377
|
)
|
|
(1,015,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2006 (Unaudited)
|
|
$
|
--
|
|
$
|
--
|
|
|
5,170,049
|
|
$
|
5,170
|
|
$
|
50,013,975
|
|
$
|
(59,994,844
|
)
|
$
|
(9,975,699
|
)
|
MEDASORB
CORPORATION
|
(a
development stage company)
|
|
STATEMENTS
OF CASH FLOWS
|
Period
from
|
|
|
|
|
|
|
|
January
22,1997
|
|
|
Three
months
|
|
|
Three
months
|
|
(date
of inception) to
|
|
|
ended
|
|
|
ended
|
|
March
31, 2006
|
|
|
March
31, 2006
|
|
|
March
31, 2005
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(59,994,844
|
)
|
$
|
(1,015,377
|
)
|
$
|
(887,035
|
)
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
|
used
in operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,854,981
|
|
|
63,882
|
|
|
71,231
|
|
Gain
on disposal of property and equipment
|
|
|
(21,663
|
)
|
|
--
|
|
|
--
|
|
Gain
on extinguishment of debt
|
|
|
(175,000
|
)
|
|
--
|
|
|
--
|
|
Abandoned
patents
|
|
|
183,556
|
|
|
--
|
|
|
--
|
|
Bad
debts - employee advances
|
|
|
255,882
|
|
|
--
|
|
|
--
|
|
Contributed
technology expense
|
|
|
4,550,000
|
|
|
--
|
|
|
--
|
|
Consulting
expense
|
|
|
237,836
|
|
|
--
|
|
|
--
|
|
Management
unit expense
|
|
|
1,334,285
|
|
|
--
|
|
|
--
|
|
Expense
for issuance of warrants
|
|
|
468,526
|
|
|
--
|
|
|
--
|
|
Expense
for issuance of options
|
|
|
247,625
|
|
|
--
|
|
|
--
|
|
Accrued
interest expense
|
|
|
1,611,448
|
|
|
211,655
|
|
|
170,268
|
|
Amortization
of deferred compensation
|
|
|
74,938
|
|
|
--
|
|
|
--
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
|
(305,562
|
)
|
|
(14,753
|
)
|
|
16,641
|
|
Other
assets
|
|
|
(51,163
|
)
|
|
--
|
|
|
--
|
|
Accounts
payable and accrued expenses
|
|
|
3,500,957
|
|
|
281,036
|
|
|
(731,742
|
)
|
Net
cash used in operating activities
|
|
|
(46,228,198
|
)
|
|
(473,557
|
)
|
|
(1,360,637
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of property and equipment
|
|
|
32,491
|
|
|
--
|
|
|
--
|
|
Purchases
of property and equipment
|
|
|
(2,199,094
|
)
|
|
--
|
|
|
--
|
|
Patent
costs
|
|
|
(331,556
|
)
|
|
(3,000
|
)
|
|
(12,717
|
)
|
Loan
receivable
|
|
|
(1,632,168
|
)
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(4,130,327
|
)
|
|
(3,000
|
)
|
|
(12,717
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
400,490
|
|
|
400,490
|
|
|
--
|
|
Equity
contributions - net of fees incurred
|
|
|
41,711,198
|
|
|
--
|
|
|
1,062,885
|
|
Proceeds
from borrowings
|
|
|
8,378,631
|
|
|
--
|
|
|
394,955
|
|
Proceeds
from subscription receivables
|
|
|
499,395
|
|
|
--
|
|
|
--
|
|
Net
cash provided by financing activities
|
|
|
50,989,714
|
|
|
400,490
|
|
|
1,457,840
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
631,189
|
|
|
(76,067
|
)
|
|
84,486
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - beginning of period
|
|
|
--
|
|
|
707,256
|
|
|
16,749
|
|
Cash
and cash equivalents - end of period
|
|
$
|
631,189
|
|
$
|
631,189
|
|
$
|
101,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
511,780
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of noncash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable principal and interest conversion to equity
|
|
$
|
1,171,565
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of member units for leasehold improvements
|
|
$
|
141,635
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of management units in settlement of cost of
|
|
|
|
|
|
|
|
|
|
|
raising
capital
|
|
$
|
437,206
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of management units for cost of
|
|
|
|
|
|
|
|
|
|
|
raising
capital
|
|
$
|
278,087
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange
of loan receivable for member units
|
|
$
|
1,632,168
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of equity in settlement of accounts payable
|
|
$
|
836,319
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock in exchange for stock
|
|
|
|
|
|
|
|
|
|
|
subscribed
|
|
$
|
399,395
|
|
$
|
399,395
|
|
$
|
--
|
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
(UNAUDITED)
1.
BASIS
OF
PRESENTATION
|
The
accompanying unaudited condensed financial statements have been prepared
in accordance with accounting principles generally accepted in the
United
States of America for interim financial information and include the
results of MedaSorb Corporation. Accordingly, certain information
and
footnote disclosures required in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. Interim statements are subject to possible
adjustments in connection with the annual audit of the Company's
accounts
for the year ended 2006. In the opinion of the MedaSorb Corporation’s
management, the accompanying unaudited financial statements contain
all
adjustments (consisting only of normal recurring adjustments) which
the
Company considers necessary for the fair presentation of the MedaSorb
Corporation's financial position as of March 31, 2006 and the results
of
its operations and cash flows for the three months ended March 31,
2006.
Results for the three months ended are not necessarily indicative
of
results that may be expected for the entire year. The unaudited condensed
financial statements should be read in conjunction with the audited
financial statements of the Company and the notes thereto, included
elsewhere in the filing.
The
accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction
of
liabilities in the normal course of business. The Company has experienced
negative cash flows from operations and has a deficit accumulated
during
the development stage at March 31, 2006 of $59,994,844. The Company
is not
currently generating revenue and is dependent on the proceeds of
present
and future financings to fund its research, development and
commercialization program. The Company is continuing its
fund-raising efforts. Although the Company has been successful in
raising additional equity and debt financing, there can be no assurance
that the Company will be successful in raising additional capital
in the
future or that it will be on favorable terms. Furthermore, if the
Company is successful in raising the additional financing, there
can be no
assurance that the amount will be sufficient to complete the Company's
plans. These financial statements do not include any adjustments
related
to the outcome of this uncertainty.
The
Company is a development stage company and has not yet generated
any
revenues. Since inception, the Company's expenses relate primarily
to
research and development, organizational activities, clinical
manufacturing, regulatory compliance and operational strategic
planning. Although the Company has made advances on these matters,
there can be no assurance that the Company will continue to be successful
regarding these issues, nor can there be any assurance that the Company
will successfully implement its long-term strategic
plans.
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
(UNAUDITED)
|
The
Company has developed an intellectual property portfolio, including
21
issued and 5 pending patents, covering materials, methods of production,
systems incorporating the technology and multiple medical
uses.
|
|
|
2.
PRINCIPAL
BUSINESS
ACTIVITY AND
SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES:
|
Nature
of Business
MedaSorb
Corporation, fka MedaSorb Technologies, LLC, ("MedaSorb" or the
"Company"), a Delaware Corporation, was formed on January 22, 1997.
The Company is engaged in the research, development and commercialization
of medical devices with its platform blood purification technology
incorporating a proprietary absorbent polymer technology. The
Company is focused on developing this technology for multiple applications
in the medical field, specifically to provide improved blood purification
for the treatment of acute and chronic health complications associated
with blood toxicity. In December 2005, the Company reorganized its
capital structure and converted from an LLC to a Corporation. This
reorganization had no effect on the carrying value of the Company’s net
assets. As of March 31, 2006, the Company has not commenced commercial
operations and, accordingly, is in the development stage. The
Company has yet to generate any revenue and has no assurance of future
revenue.
Development
Stage Corporation
The
accompanying financial statements have been prepared in accordance
with
the provisions of Statement of Financial Accounting Standard (SFAS)
No. 7,
"Accounting and Reporting by Development Stage Enterprises."
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, the Company considers all
highly
liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Property
and Equipment
Property
and equipment are recorded at cost less accumulated depreciation.
Depreciation of property and equipment is provided for by the
straight-line method over the estimated useful lives of the related
assets. Leasehold improvements are amortized over the lesser of their
economic useful lives or the term of the related leases. Gains and
losses
on depreciable assets retired or sold are recognized in the statements
of
operations in the year of disposal. Repairs and maintenance expenditures
are expensed as incurred.
Patents
Legal
costs incurred to establish patents are capitalized. When patents
are
issued, capitalized costs are amortized on the straight-line method
over
the related patent term. In the event a patent is abandoned, the
net book
value of the patent is written off.
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
(UNAUDITED)
|
Impairment
or Disposal of Long-Lived Assets
The
Company assesses the impairment of patents and other long-lived assets
under SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. For long-lived assets
to
be held and used, the Company recognizes an impairment loss only
if its
carrying amount is not recoverable through its undiscounted cash
flows and
measures the impairment loss based on the difference between the
carrying
amount and fair value.
Research
and Development
All
research and development costs, payments to laboratories and research
consultants are expensed when incurred.
Income
Taxes
Income
taxes are accounted for under the asset and liability method prescribed
by
SFAS No. 109, “Accounting for Income Taxes.” Deferred income taxes are
recorded for temporary differences between financial statement carrying
amounts and the tax basis of assets and liabilities. Deferred tax
assets
and liabilities reflect the tax rates expected to be in effect for
the
years in which the differences are expected to reverse. A valuation
allowance is provided if it is more likely than not that some or
all of
the deferred tax asset will not be realized.
Use
of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and
liabilities. Actual results could differ from these
estimates.
Concentration
of Credit Risk
The
Company maintains cash balances, at times, with financial institutions
in
excess of amounts insured by the Federal Deposit Insurance Corporation.
Management monitors the soundness of these institutions and considers
the
Company’s risk negligible.
Financial
Instruments
The
carrying values of prepaid expenses and other current assets, accounts
payable and accrued expenses approximate their fair values due to
their
short-term nature. Convertible notes payable approximate their fair
value
based upon the borrowing rates available for the nature of the underlying
debt.
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
(UNAUDITED)
|
Stock-Based
Compensation
Through
December 31, 2005, the Company has accounted for its stock compensation
plans under the recognition and measurement principles of Accounting
Principles Opinion (APB) No. 25, “Accounting for Stock Issued to
Employees” and related interpretations. Under APB No. 25, no compensation
cost is generally recognized for fixed stock options in which the
exercise
price is greater than or equal to the market price on the grant date.
The
Company had not adopted the recognition requirements of Statement
of
Financial Accounting Standards (“SFAS”) No. 123, “
Accounting
for Stock-Based Compensation
”,
for employees and directors and, accordingly, has made all pro forma
disclosures required. The Company has adopted the requirements of
SFAS No.
123 and EITF Issue No. 96-18, “Accounting for Equity Instruments That are
Issued to Other Than Employees for Acquiring or in Conjunction with
Selling Goods and Services” with regard to non-employees. Each option
granted is valued at fair market value on the date of grant. Had
compensation cost for options granted to employees and directors
been
determined consistent with SFAS No. 123, the Company's pro forma
net loss
would have been as follows:
|
|
|
|
Period
from
|
|
|
|
|
|
|
January
22, 1997
|
|
|
|
|
|
|
(date
of inception)
|
|
|
Period
Ended
|
|
|
|
|
to
December 31,
|
|
|
March
31,
|
|
|
|
|
2005
|
|
|
2005
|
|
Net
Loss
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
58,979,467
|
|
$
|
887,035
|
|
Pro
forma
|
|
$
|
59,053,461
|
|
$
|
887,035
|
|
|
Under
SFAS No. 123, the fair value of each option was estimated on the
date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions: (1) expected lives of five-ten years,
(2)
dividend yield of 0%, (3) risk-free interest rates ranging from 3.25%
-
5.63%, and (4) volatility percentage of 0.01%.
Effective
January 1, 2006, the Company has adopted the recognition requirements
of
Statement of Financial Accounting Standards (“SFAS”) No. 123,
“
Accounting
for Stock-Based Compensation
”,
for employees and directors. The adoption of SFAS No. 123 did not
have an
effect on the previously issued financial
statements.
|
|
Reverse
Unit Split and Conversion to Corporation
In
December 2005, MedaSorb effected
an
approximate 1 for 6.64 reverse unit split to unit holders. Immediately
subsequent to the split, the Company converted to a corporation.
All share
and per share information has been retroactively adjusted to reflect
the
split.
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
(UNAUDITED)
|
Effects
of Recent Accounting Pronouncements
In
December 2004, the FASB issued SFAS No. 153, "Exchanges of
Non-monetary Assets - an amendment of APB Opinion No. 29." The
statement addresses the measurement of exchanges of non-monetary
assets
and eliminates the exception from fair value measurement for non-monetary
exchanges of similar productive assets and replaces it with an exception
for exchanges that do not have commercial substance. SFAS No. 153 is
effective for non-monetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. Effective January 1, 2006, the Company
has adopted SFAS No. 153. The adoption of SFAS No. 153 did not have
an
effect on the previously issued financial statements.
In
May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
Corrections.” This statement replaces APB No. 20 and SFAS No. 3 and
changes the requirements for the accounting and reporting of a change
in
accounting principle. APB No. 20 previously required that most voluntary
changes in accounting principle be recognized by including in net
income
of the period of the change the cumulative effect of changing to
the
accounting principle. SFAS No. 154 requires retrospective application
to
prior periods’ financial statements of voluntary changes in accounting
principle. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December
15,
2005.
The
adoption of SFAS No. 154 did not have an effect on the previously
issued
financial statements.
In
February 2006, the FASB issued SFAS No. 155,”Accounting for Certain Hybrid
Financial Instruments - an amendment of FASB Statements No. 133 and
140,”
to simplify and make more consistent the accounting for certain financial
instruments. Specifically, SFAS No. 155 amends SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, to permit fair
value
re-measurement for any hybrid financial instrument with an embedded
derivative that otherwise would require bifurcation, provided that
the
whole instrument is accounted for on a fair value basis. SFAS No.
155
amends SFAS No. 140, Accounting for the Impairment or Disposal of
Long-Lived Assets, to allow a qualifying special-purpose entity (SPE)
to
hold a derivative financial instrument that pertains to a beneficial
interest other than another derivative financial instrument. SFAS
No. 155
applies to all financial instruments acquired or issued after the
beginning of an entity’s first fiscal year that begins after September 15,
2006, with earlier application allowed. The Company is currently
evaluating this pronouncement for its potential impact on the results
of
operations or financial position of the
Company.
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
(UNAUDITED)
3.
CONVERTIBLE
NOTES
PAYABLE
|
In
2003, MedaSorb received $3,
900,000
and issued a 12% callable convertible note with a conversion price
of
$33.18 per share due in 2008 to an existing investor. During 2004
and
2003, respectively, $120,000 and $100,000 of interest was incurred
and
added to the principal balance, thereby increasing the note to $4,120,000
at March 31, 2006 and December 31, 2005. During 2004 the terms of
this
note were revised to provide for conversion at $6.64 per share. During
2005 the terms of this note were further revised to provide for conversion
at $3.32 per share. These revisions yielded no significant change
in fair
value.
During
2004, MedaSorb raised approximately $904,000 and issued one year
12%
Convertible Notes with a conversion price of $6.64 per share. For
each
dollar of principal and accrued interest that the Noteholder converts
into
shares, the Noteholder will then receive a warrant to purchase two
shares
at a price of $6.64 each. In 2004, the Company also raised approximately
$442,000 and issued one year 12% Convertible Notes with a conversion
price
of $3.32 per share. For each dollar of principal and accrued interest
that
the Noteholder converts into shares, the Noteholder will receive
a warrant
to purchase two shares at a price of $4.98 each. The Company has
not
repaid any of these Convertible Notes as of March 31, 2006 and is
continuing to accrue interest on the principal balances.
During
2005, MedaSorb received $
1,132,582
from an existing Noteholder and issued a one year 12% secured convertible
note with a conversion price of $3.32 per share.
For each dollar of principal and accrued interest that the Noteholder
converts into shares, the Noteholder will then receive a warrant
to
purchase two shares at a price of $4.98 each. The Company has not
repaid
any of these Convertible Notes as of March 31, 2006 and is continuing
to
accrue interest on the principal balances.
Separately
in 2005 the Company received a $1 million bridge loan as part of
a
proposed reverse merger transaction into a public shell company.
The loan
bears interest at 6% per annum, repayable in cash or, at the option
of the
Noteholder, converted into shares of the Company at a conversion
price
equal to the price per share offered in a future private placement
of the
Company. In consideration for funding the loan, the Noteholder is
entitled
to be issued 10 million shares of common stock of the Company, subject
to
certain adjustments, to be issued upon the occurrence of certain
events
(see Note 5).
The
terms of the outstanding notes provide that the $4,120,000 Note is
Senior
Debt and is secured by all assets of the Company. Additional notes
aggregating approximately $856,000 are subordinated to the Senior
Note.
They are secured by all assets of the Company. Notes amounting to
$442,000
are subordinated to all other notes but are secured by all assets
of the
Company. Notes amounting to $1,132,582 are subordinated to all other
notes
but are secured by all assets of the Company.
|
|
|
|
The
Company’s Senior Note in the amount of $4,120,000 is held by the largest
shareholder.
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
(UNAUDITED)
|
|
4.
STOCKHOLDERS'
EQUITY
|
During
the three months ended March 31, 2006 the Company received approximately
$400,000 from an existing investor. For this investment as well as
approximately $399,000 received in stock subscriptions during 2005,
the
Company issued 240,929 shares of common stock and five year warrants
to
purchase approximately 240,929 shares of common stock at an exercise
price
of $4.98. In the event the Company closes on a private placement
of equity
securities by September 2006 the investors who participated in this
offering may elect to exchange their shares and warrants for the
equivalent dollar amount of securities sold in the private
placement.
The
Company issued 100,000 shares of common stock to resolve a dispute
regarding a price protection provision with an existing investor
group.
For
the three months ended March 31, 2006, no stock options were granted,
canceled or exercised under the Plan.
As
of March 31, 2006, the Company has the following warrants to purchase
common stock outstanding:
|
Number
of Shares
|
|
|
Warrant
Exercise
|
|
|
Warrant
|
|
To
be Purchased
|
|
|
Price
per Share
|
|
|
Expiration
Date
|
|
1,206
|
|
$
|
41.47
|
|
|
January
9, 2007
|
|
25,995
|
|
$
|
19.91
|
|
|
February
8, 2007
|
|
603
|
|
$
|
41.47
|
|
|
February
24, 2007
|
|
2,652
|
|
$
|
41.47
|
|
|
May
30, 2007
|
|
15,569
|
|
|
6.64
|
|
|
March
31, 2010
|
|
240,929
|
|
|
4.98
|
|
|
March
31, 2011
|
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
(UNAUDITED)
5.
COMMITMENTS
AND
CONTINGENCIES
|
The
Company is involved in various claims and legal actions. Management
is of
the opinion that these claims and legal actions have no merit, but
may
have a material adverse impact on the financial position of the Company
and/or the results of its operations.
Aside from normal trade creditor claims, the Company is involved
with
various claims and a legal action relating to its technology.
Management is of the opinion that these claims and legal action have
no
merit, but may have a material adverse impact on the financial position
of
the Company and/or the results of its operations. In January 2003
the Company was sued by Brotech Corp. (Purolite International, Ltd.)
claiming co-inventorship and/or joint ownership of some of the Company’s
patents. Recently Purolite expanded its claims, to allege that they
are the sole owner of these patents and are seeking equitable relief
and
monetary damages. The Company has filed a motion for summary
judgment. At the same time the parties have engaged in ongoing
efforts to settle the case. In addition, the Court ordered mediation
with a magistrate judge and there has been some progress in seeking
a
resolution of the litigation, but there has still not been agreement
on
all issues and at this time there can be no assurance that the parties
will be able to reach an accord. If the case is not settled, the
Court
will decide on the Company’s summary judgment motion. If the motion
is denied, the Company expects the matter will go to trial within
a few
months thereafter. As of the date of the financial statements, the
outcome
of the case could not be determined and the damages, if any, could
not be
reasonably estimated. Accordingly, a loss contingency has not been
accrued.
A
former employee of the Company has initiated a legal action against
the
Company seeking reimbursement of certain claimed expenses. The matter
is
under legal review by Company counsel. As of the date of the financial
statements, the outcome of the case could not be determined and the
financial impact, if any, could not be reasonably estimated. Accordingly,
a loss contingency has not been accrued.
The
Company has employment agreements with certain key executives through
July
2008. One of these agreements provides for an additional bonus payment
based on achieving specific milestones as defined in the agreement,
however, as of the date of this report, these milestones have not
been
met. Furthermore, this agreement includes an anti-dilution provision
whereby the employee is granted options for the right to obtain 5%
of the
outstanding stock of the Company on a fully diluted basis.
Upon
the Company’s successful merger with a public shell company, an existing
Noteholder is entitled to be issued 10 million shares of common stock
of
the Company. These shares will not be issued until the Company meets
a
minimum capital raise amount and recapitalization of the Company
prior to
such a merger.
|
MEDASORB
CORPORATION
(a
development stage company)
NOTES
TO FINANCIAL STATEMENTS
(UNAUDITED)
|
|
|
In
an agreement dated August 11, 2003 an existing investor agreed to
make a
$4 million equity investment in the Company. These amounts were received
by the Company in 2003. In connection with this agreement the Company
granted the investor a future royalty of 3% on all gross revenues
received
by the Company from the sale of their CytoSorb Device. The Company
has not
generated any revenue from this product and has not incurred any
royalty
costs through March 31, 2006. The amount of future revenue subject
to the
royalty agreement could not be reasonably estimated nor, has a liability
been incurred, therefore, an accrual for royalty payments has not
been
included in the financial
statements.
|
6.
SUBSEQUENT
EVENTS
|
Effective
June 30, 2006 Gilder Enterprises, Inc. was acquired by MedaSorb
Corporation in a reverse merger transaction. Accordingly, the reverse
merger will be accounted for as a recapitalization in which the assets
and
liabilities of the Company will be recorded at their historical values,
the outstanding capital stock and additional paid in capital will
be
restated to give effect to the shares of common and preferred stock
issued
in connection with the transaction to the stockholders of MedaSorb,
the
stockholders of Gilder Enterprise and to a holder of a convertible
note.
|
UNAUDITED
CONDENSED FINANCIAL STATEMENTS
March
31, 2006
UNAUDITED
PRO FORMA FINANCIAL STATEMENTS
Effective
June 30, 2006 Gilder Enterprises, Inc. (the Company) acquired all of the
outstanding capital stock of MedaSorb Corporation (MedaSorb) in a reverser
merger transaction (the Merger). For accounting purposes, MedaSorb is treated
as
the acquiror in the merger, which is accounted for as a recapitalization
in
which the assets and liabilities of MedaSorb have been recorded at their
historical values, the outstanding capital stock and additional paid in capital
have been restated to give effect to the shares of common stock issued in
connection with the transaction to the stockholders of MedaSorb and to a
holder
of a convertible note. Immediately following the Merger, the Company also
issued
shares of preferred stock and warrants for cash.
The
following unaudited pro forma financial statements of the Company present
the
unaudited pro forma combined statements of operations for the year ending
December 31, 2005 and the three months ended March 31, 2006 as if the Merger
had
occurred on the first day of each of the periods presented and the unaudited
pro
forma combined balance sheets at March 31, 2006 and December 31, 2005, as
if the
Merger had occurred on March 31, 2006 and December 31, 2005, respectively.
The
pro
forma adjustments represent, in the opinion of management, all adjustments
necessary to present the Company's pro forma results of operations and financial
position in accordance with Article 11 of SEC Regulation S-X based upon
available information and certain assumptions considered reasonable under
the
circumstances.
The
unaudited pro forma financial statements presented herein do not purport
to
present what the Company's financial position or results of operations would
actually have been had the events leading to the pro forma adjustments in
fact
occurred on the date or at the beginning of the periods operations for any
future date or period.
The
statement of operations included in the accompanying pro forma statement
of
operations for the three months ended March 31, 2006 were derived from
MedaSorb’s unaudited quarterly financial data.
The
unaudited pro forma financial statements should be read in conjunction with
both
the audited financial statements of MedaSorb as of and for the year ended
December 31, 2005 and unaudited financial statements of MedaSorb as of and
for
the three months ended March 31, 2006 and the notes thereto, included elsewhere
in the filing.
NOTES
TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Notes
to unaudited pro forma balance sheets at March 31, 2006 and December 31,
2005.
|
(A)
|
This
adjustment represents the proceeds from issuance of preferred stock
of
$3,975,000, net of anticipated closing costs of $250,000, credit
enhancement fees of $525,000, and the short term advance of
$500,000.
|
|
(B)
|
Immediately
prior to the closing of the transaction, $7,818,514 as of March
31, 2006
($6,549,899 in principal and $1,268,615 in accrued interest) and
$7,606,859 as of December 31, 2005 ($6,549,899 in principal and
$1,056,960
in accrued interest) of convertible debt and related accrued interest
on
the debt of MedaSorb was converted into common stock. As part of
conversion agreements with converting Noteholders, principal and
accrued
interest through November 30, 2005 is converting into equity. Upon
closing
of the Merger and conversion of the Notes, interest will cease
to accrue
and not be payable beyond November 30, 2005. In connection with
this
conversion, 5 year warrants were granted to purchase approximately
816,700
shares of common stock at an exercise price of $4.98 per share.
As of
March 31, 2006, the valuation of these warrants using the Black
Scholes
Model resulted in no value being assigned.
|
|
(C)
|
In
connection with a $1,000,000 convertible note of MedaSorb which
was not
converted into equity and remains outstanding after the consummation
of
the transaction, the note holder and her designees were entitled
to receive an aggregate of 10,000,000 shares of common stock of
the
Company. The issuance of these shares has been accounted for as
a debt
discount after allocation of the relative fair values of the instruments
to each component and the related beneficial conversion feature
of the
debt in the amount of $1,000,000, which has been amortized in the
pro
forma statements of operations for the three months ended March
31, 2006
and the year ended December 31,
2005.
|
|
(D)
|
At
the closing of the transaction the Company issued 5,250,000 shares
of
Series A 10% Cumulative Convertible Preferred Stock (Series A Preferred
Stock) for $5,250,000. The Series A Preferred Stock has a stated
value of
$1.00 per share and is convertible into common stock at the conversion
rate of one share of common stock for each $1.25 of stated value
being
converted. The purchasers of the Series A Preferred Stock were
also
issued, for no additional consideration, warrants to purchase one-half
of
the shares of common stock underlying the shares of Series A Preferred
Stock purchased by them, at an exercise price of $2.00 per share
of common
stock. The 5,250,000 shares of Series A Preferred Stock are initially
convertible into 4,200,000 shares of common stock, and the warrants
are
exercisable for 2,100,000 shares of common stock. The shares of
common
stock underlying the Series A Preferred Stock and warrants are
required to
be registered under the terms of the purchase agreement. As of
March 31,
2006, the valuation of these warrants using the Black Scholes Model
resulted in no value being
assigned.
|
|
(E)
|
Represents
the issuance of 24,090,929 of common stock (10,340,929 shares to
the
former stockholders of MedaSorb, including converted debt (see
B above),
10,000,000 shares to the holder of the convertible note (see C
above) and
3,750,000 shares to the stockholders of
Gilder
Enterprises, Inc.).
|
|
(F)
|
Represents
the payment of $525,000 in credit enhancement fees associated with
the
preferred stock as a cost of raising
capital.
|
|
(G)
|
Represents
a short term advance to an existing investor in the amount of $500,000
bearing interest at 6% per annum, the repayment of which may be
offset
against amounts owed to Noteholder in C
above.
|
Notes
to unaudited pro forma statement of operations for the three months ended
March
31, 2006 and the year ended December 31, 2005.
(1)
This
adjustment represents $1,000,000 amortization expense (based upon a one year
life) of debt discount recorded as a result of shares of common stock issued
in
conjunction with $1,000,000 convertible note for the year ended December
31,
2005 for the three months ended March 31, 2006.
(2)
Represents the elimination of interest expense in the amount of $211,655
and
$760,950 for the three months ended March 31, 2006 and the year ended December
31, 2005, respectively, incurred by MedaSorb on the convertible debt, which
would not have been outstanding for the period presented as a result of the
conversion into equity. In addition, in order to induce conversion of the
debt
to equity, MedaSorb modified the terms of the conversion which resulted in
additional shares of stock being issued with a value of $3,822,676 and
$3,806,508 which has been recorded as interest expense for the three months
ended March 31, 2006 and the year ended December 31, 2005,
respectively.
(3)
Represents the $5,000 of interest income associated with the short term advance
(see G above)
MEDASORB
CORPORATION
|
(a
development stage company)
|
UNAUDITED
PROFORMA BALANCE SHEET
|
|
|
|
|
|
Proforma
|
|
|
|
|
|
March
31, 2006
|
|
|
Medasorb
|
|
|
Adjustments
|
|
|
|
|
|
Proforma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
631,189
|
|
$
|
3,975,000
|
|
|
A,F
|
|
$
|
4,606,189
|
|
Prepaid
expenses and other current assets
|
|
|
34,014
|
|
|
--
|
|
|
|
|
|
34,014
|
|
Short-term
advance
|
|
|
--
|
|
|
500,000
|
|
|
G
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
665,203
|
|
|
4,475,000
|
|
|
|
|
|
5,140,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment - net
|
|
|
491,132
|
|
|
--
|
|
|
|
|
|
491,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
182,950
|
|
|
--
|
|
|
|
|
|
182,950
|
|
Total
long-term assets
|
|
|
674,082
|
|
|
--
|
|
|
|
|
|
674,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
1,339,286
|
|
$
|
4,475,000
|
|
|
|
|
$
|
5,814,286
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
2,007,193
|
|
$
|
--
|
|
|
|
|
$
|
2,007,193
|
|
Accrued
expenses and other current liabilities
|
|
|
489,277
|
|
|
--
|
|
|
|
|
|
489,277
|
|
Accrued
interest
|
|
|
1,268,615
|
|
|
(1,268,615
|
)
|
|
B
|
|
|
--
|
|
Convertible
notes payable
|
|
|
3,429,899
|
|
|
(2,429,899
|
)
|
|
B,C
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
7,194,985
|
|
|
(3,698,514
|
)
|
|
|
|
|
3,496,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
notes payable
|
|
|
4,120,000
|
|
|
(4,120,000
|
)
|
|
B
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
long-term liabilities
|
|
|
4,120,000
|
|
|
(4,120,000
|
)
|
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
11,314,985
|
|
|
(7,818,514
|
)
|
|
|
|
|
3,496,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity/(Deficiency):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
--
|
|
|
5,250
|
|
|
A,D
|
|
|
5,250
|
|
Common
stock
|
|
|
5,170
|
|
|
18,921
|
|
|
E
|
|
|
24,091
|
|
|
|
|
|
|
|
A,B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C,D
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
50,013,975
|
|
|
17,092,019
|
|
|
E,
F
|
|
|
67,105,994
|
|
Deficit
accumulated during the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
stage
|
|
|
(59,994,844
|
)
|
|
(4,822,676
|
)
|
|
B,C
|
|
|
(64,817,520
|
)
|
Total
stockholders' deficiency
|
|
|
(9,975,699
|
)
|
|
12,293,514
|
|
|
|
|
|
2,317,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Deficiency
|
|
$
|
1,339,286
|
|
$
|
4,475,000
|
|
|
|
|
$
|
5,814,286
|
|
MEDASORB
CORPORATION
|
(a
development stage company)
|
PROFORMA
UNAUDITED STATEMENT OF OPERATIONS
|
FOR
THE PERIOD ENDED MARCH 31,
2006
|
|
|
|
|
|
|
Proforma
|
|
|
|
|
|
|
|
|
|
|
Medasorb
|
|
|
Adjustments
|
|
|
|
|
|
Proforma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
288,981
|
|
|
--
|
|
|
|
|
|
288,981
|
|
Legal,
financial and other consulting
|
|
|
384,538
|
|
|
--
|
|
|
|
|
|
384,538
|
|
General
and administrative
|
|
|
137,775
|
|
|
--
|
|
|
|
|
|
137,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
811,294
|
|
|
--
|
|
|
|
|
|
811,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common shareholders
|
|
$
|
(1,015,377
|
)
|
$
|
(4,606,021
|
)
|
|
1,2,3
|
|
$
|
(5,621,398
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share, basic and diluted
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
24,090,929
|
|
MEDASORB
CORPORATION
|
(a
development stage company)
|
UNAUDITED
PROFORMA BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proforma
|
|
|
|
|
|
|
|
December
31, 2005
|
|
|
Medasorb
|
|
|
Adjustments
|
|
|
|
|
|
Proforma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
707,256
|
|
$
|
3,975,000
|
|
|
A,F
|
|
$
|
4,682,256
|
|
Prepaid
expenses and other current assets
|
|
|
19,261
|
|
|
--
|
|
|
|
|
|
19,261
|
|
Short-term
advance
|
|
|
--
|
|
|
500,000
|
|
|
G
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
726,517
|
|
|
4,475,000
|
|
|
|
|
|
5,201,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment - net
|
|
|
553,657
|
|
|
--
|
|
|
|
|
|
553,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
181,307
|
|
|
--
|
|
|
|
|
|
181,307
|
|
Total
long-term assets
|
|
|
734,964
|
|
|
--
|
|
|
|
|
|
734,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
1,461,482
|
|
$
|
|
|
|
|
|
$
|
5,936,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,802,788
|
|
$
|
--
|
|
|
|
|
$
|
1,802,788
|
|
Accrued
expenses and other current liabilities
|
|
|
412,646
|
|
|
--
|
|
|
|
|
|
412,646
|
|
Accrued
interest
|
|
|
1,056,960
|
|
|
(1,056,960
|
)
|
|
B
|
|
|
--
|
|
Stock
subscribed
|
|
|
399,395
|
|
|
--
|
|
|
|
|
|
399,395
|
|
Convertible
notes payable
|
|
|
3,429,899
|
|
|
(2,429,899
|
)
|
|
B,C
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
7,101,689
|
|
|
(3,486,859
|
)
|
|
|
|
|
3,614,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
notes payable
|
|
|
4,120,000
|
|
|
(4,120,000
|
)
|
|
B
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
long-term liabilities
|
|
|
4,120,000
|
|
|
(4,120,000
|
)
|
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
11,221,689
|
|
|
(7,606,859
|
)
|
|
|
|
|
3,614,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity/(Deficiency):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
--
|
|
|
5,250
|
|
|
A,D
|
|
|
|
|
Common
stock
|
|
|
4,829
|
|
|
18,921
|
|
|
E
|
|
|
23,750
|
|
|
|
|
|
|
|
|
|
|
A,B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
C,D
|
|
|
|
|
Additional
paid-in capital
|
|
|
49,214,431
|
|
|
16,864,196
|
|
|
E,F
|
|
|
66,078,627
|
|
Deficit
accumulated during the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development
stage
|
|
|
(58,979,467
|
)
|
|
(4,806,508
|
)
|
|
B,C
|
|
|
(63,785,975
|
)
|
Total
stockholders' deficiency
|
|
|
(9,760,207
|
)
|
|
12,081,859
|
|
|
|
|
|
2,321,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Deficiency
|
|
$
|
1,461,482
|
|
$
|
4,475,000
|
|
|
|
|
$
|
5,936,482
|
|
MEDASORB
CORPORATION
|
(a
development stage company)
|
PROFORMA
UNAUDITED STATEMENT OF OPERATIONS
|
FOR
THE YEAR ENDED DECEMBER 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proforma
|
|
|
|
|
|
|
|
Medasorb
|
|
Adjustments
|
|
|
|
Proforma
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
1,526,743
|
|
|
--
|
|
|
|
|
|
1,526,743
|
|
Legal,
financial and other consulting
|
|
|
948,209
|
|
|
--
|
|
|
|
|
|
948,209
|
|
General
and administrative
|
|
|
635,960
|
|
|
--
|
|
|
|
|
|
635,960
|
|
Change
in fair value of management and
|
|
|
|
|
|
|
|
|
|
|
|
--
|
|
incentive
units
|
|
|
(14,551
|
)
|
|
--
|
|
|
|
|
|
(14,551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
expenses
|
|
|
3,096,361
|
|
|
--
|
|
|
|
|
|
3,096,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on disposal of property and equipment
|
|
|
(21,663
|
)
|
|
--
|
|
|
|
|
|
(21,663
|
)
|
Gain
on extinguishment of debt
|
|
|
(175,000
|
)
|
|
--
|
|
|
|
|
|
(175,000
|
)
|
Interest
expense, net
|
|
|
765,898
|
|
|
4,040,558
|
|
|
1,2,3
|
|
|
4,806,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common shareholders
|
|
$
|
(3,665,596
|
)
|
$
|
(4,040,558
|
)
|
|
|
|
|
(7,706,154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share, basic and diluted
|
|
|
|
|
|
|
|
|
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
23,750,000
|
|